G.R. No.

L-32811 March 31, 1980

FELIPE C. ROQUE, petitioner, vs. NICANOR LAPUZ and THE COURT OF APPEALS, respondents.
Taada, Sanchez, Taada, Taada for petitioner.
N.M. Lapuz for respondent.

GUERRERO, J.:
Appeal by certiorari from the Resolution of the respondent court 1 dated October 12, 1970 in CA-G.R. No. L33998-R entitled "Felipe C. Roque, plaintiff-appellee, versus Nicanor Lapuz, defendant-appellant" amending its
original decision of April 23, 1970 which affirmed the decision of the Court of First Instance of Rizal (Quezon
City Branch) in Civil Case No. Q-4922 in favor of petitioner, and the Resolution of the respondent court
denying petitioner's motion for reconsideration.
The facts of this case are as recited in the decision of the Trial Court which was adopted and affirmed by the
Court of Appeals:
Sometime in 1964, prior to the approval by the National Planning Commission of the consolidation and
subdivision plan of plaintiff's property known as the Rockville Subdivision, situated in Balintawak, Quezon
City, plaintiff and defendant entered into an agreement of sale covering Lots 1, 2 and 9, Block 1, of said
property, with an aggregate area of 1,200 square meters, payable in 120 equal monthly installments at the rate
of P16.00, P15.00 per square meter, respectively. In accordance with said agreement, defendant paid to plaintiff
the sum of P150.00 as deposit and the further sum of P740.56 to complete the payment of four monthly
installments covering the months of July, August, September, and October, 1954. (Exhs. A and B). When the
document Exhibit "A" was executed on June 25, 1954, the plan covering plaintiff's property was merely
tentative, and the plaintiff referred to the proposed lots appearing in the tentative plan.
After the approval of the subdivision plan by the Bureau of Lands on January 24, 1955, defendant requested
plaintiff that he be allowed to abandon and substitute Lots 1, 2 and 9, the subject matter of their previous
agreement, with Lots 4 and 12, Block 2 of the approved subdivision plan, of the Rockville Subdivision, with a
total area of 725 square meters, which are corner lots, to which request plaintiff graciously acceded.
The evidence discloses that defendant proposed to plaintiff modification of their previous contract to sell
because he found it quite difficult to pay the monthly installments on the three lots, and besides the two lots he
had chosen were better lots, being corner lots. In addition, it was agreed that the purchase price of these two lots
would be at the uniform rate of P17.00 per square (meter) payable in 120 equal monthly installments, with
interest at 8% annually on the balance unpaid. Pursuant to this new agreement, defendant occupied and
possessed Lots 4 and 12, Block 2 of the approved subdivision plan, and enclosed them, including the portion
where his house now stands, with barbed wires and adobe walls.
However, aside from the deposit of P150.00 and the amount of P740.56 which were paid under their previous
agreement, defendant failed to make any further payment on account of the agreed monthly installments for the
two lots in dispute, under the new contract to sell. Plaintiff demanded upon defendant not only to pay the
stipulated monthly installments in arrears, but also to make up-to-date his payments, but defendant, instead of
complying with the demands, kept on asking for extensions, promising at first that he would pay not only the
installments in arrears but also make up-to-date his payment, but later on refused altogether to comply with
plaintiff's demands.

Defendant was likewise requested by the plaintiff to sign the corresponding contract to sell in accordance with
his previous commitment. Again, defendant promised that he would sign the required contract to sell when he
shall have made up-to-date the stipulated monthly installments on the lots in question, but subsequently backed
out of his promise and refused to sign any contract in noncompliance with what he had represented on several
occasions. And plaintiff relied on the good faith of defendant to make good his promise because defendant is a
professional and had been rather good to him (plaintiff).
On or about November 3, 1957, in a formal letter, plaintiff demanded upon defendant to vacate the lots in
question and to pay the reasonable rentals thereon at the rate of P60.00 per month from August, 1955. (Exh.
"B"). Notwithstanding the receipt of said letter, defendant did not deem it wise nor proper to answer the same.
In reference to the mode of payment, the Honorable Court of Appeals found
Both parties are agreed that the period within which to pay the lots in question is ten years. They however,
disagree on the mode of payment. While the appellant claims that he could pay the purchase price at any time
within a period of ten years with a gradual proportionate discount on the price, the appellee maintains that the
appellant was bound to pay monthly installments.
On this point, the trial court correctly held that
It is further argued by defendant that under the agreement to sell in question, he has the right or option to pay
the purchase price at anytime within a period of ten years from 1954, he being entitled, at the same time, to a
graduated reduction of the price. The Court is constrained to reject this version not only because it is
contradicted by the weight of evidence but also because it is not consistent with what is reasonable, plausible
and credible. It is highly improbable to expect plaintiff, or any real estate subdivision owner for that matter, to
agree to a sale of his land which would be payable anytime in ten years at the exclusive option of the purchaser.
There is no showing that defendant is a friend, a relative, or someone to whom plaintiff had to be grateful, as
would justify an assumption that he would have agreed to extend to defendant such an extra- ordinary
concession. Furthermore, the context of the document, Exhibit "B", not to mention the other evidences on
records is indicative that the real intention of the parties is for the payment of the purchase price of the lot in
question on an equal monthly installment basis for a period of ten years (Exhibits "A", "II", "J" and "K").
On January 22, 1960, petitioner Felipe C, Roque (plaintiff below) filed the complaint against defendant Nicanor
Lapuz (private respondent herein) with the Court of First Instance of Rizal, Quezon City Branch, for rescission
and cancellation of the agreement of sale between them involving the two lots in question and prayed that
judgment be rendered ordering the rescission and cancellation of the agreement of sale, the defendant to vacate
the two parcels of land and remove his house therefrom and to pay to the plaintiff the reasonable rental thereof
at the rate of P60.00 a month from August 1955 until such time as he shall have vacated the premises, and to
pay the sum of P2,000.00 as attorney's fees, costs of the suit and award such other relief or remedy as may be
deemed just and equitable in the premises.
Defendant filed a Motion to Dismiss on the ground that the complaint states no cause of action, which motion
was denied by the court. Thereafter, defendant filed his Answer alleging that he bought three lots from the
plaintiff containing an aggregate area of 1,200 sq. meters and previously known as Lots 1, 2 and 9 of Block 1 of
Rockville Subdivision at P16.00, P15.00 and P15.00, respectively, payable at any time within ten years.
Defendant admits having occupied the lots in question.
As affirmative and special defenses, defendant alleges that the complaint states no cause of action; that the
present action for rescission has prescribed; that no demand for payment of the balance was ever made; and that
the action being based on reciprocal obligations, before one party may compel performance, he must first
comply what is incumbent upon him.

As counterclaim, defendant alleges that because of the acts of the plaintiff, he lost two lots containing an area of
800 sq. meters and as a consequence, he suffered moral damages in the amount of P200.000.00; that due to the
filing of the present action, he suffered moral damages amounting to P100,000.00 and incurred expenses for
attorney's fees in the sum of P5,000.00.
Plaintiff filed his Answer to the Counterclaim and denied the material averments thereof.
After due hearing, the trial court rendered judgment, the dispositive portion of which reads:
WHEREFORE, the Court renders judgment in favor of plain. plaintiff and against the defendant, as follows:
(a) Declaring the agreement of sale between plaintiff and defendant involving the lots in question (Lots 4 and
12, Block 2 of the approved subdivision plan of the Rockville Subdivision) rescinded, resolved and cancelled;
(b) Ordering defendant to vacate the said lots and to remove his house therefrom and also to pay plaintiff the
reasonable rental thereof at the rate of P60.00 per month from August, 1955 until he shall have actually vacated
the premises; and
(c) Condemning defendant to pay plaintiff the sum of P2,000.00 as attorney's fees, as well as the costs of the
suit. (Record on Appeal, p. 118)
(a) Declaring the agreement of sale between plaintiff and defendant involving the lots in question (Lots 4 and
12, Block 2 of the approved subdivision plan of the Rockville Subdivision) rescinded, resolved and cancelled;
(b) Ordering defendant to vacate the said lots and to remove his house therefrom and also to pay plaintiff the
reasonable rental thereof at the rate of P60.00 per month from August, 1955 until he shall have actually vacated
premises; and
(c) Condemning defendant to pay plaintiff the sum of P2,000.00 as attorney's fees, as well as the costs of the
suit. (Record on Appeal. p. 118)
Not satisfied with the decision of the trial court, defendant appealed to the Court of Appeals. The latter court,
finding the judgment appealed from being in accordance with law and evidence, affirmed the same.
In its decision, the appellate court, after holding that the findings of fact of the trial court are fully supported by
the evidence, found and held that the real intention of the parties is for the payment of the purchase price of the
lots in question on an equal monthly installment basis for the period of ten years; that there was modification of
the original agreement when defendant actually occupied Lots Nos. 4 and 12 of Block 2 which were corner lots
that commanded a better price instead of the original Lots Nos. 1, 2 and 9, Block I of the Rockville Subdivision;
that appellant's bare assertion that the agreement is not rescindable because the appellee did not comply with his
obligation to put up the requisite facilities in the subdivision was insufficient to overcome the presumption that
the law has been obeyed by the appellee; that the present action has not prescribed since Article 1191 of the
New Civil Code authorizing rescission in reciprocal obligations upon noncompliance by one of the obligors is
the applicable provision in relation to Article 1149 of the New Civil Code; and that the present action was filed
within five years from the time the right of action accrued.
Defendant filed a Motion for Reconsideration of the appellate court's decision on the following grounds:
First Neither the pleadings nor the evidence, testimonial, documentary or circumstantial, justify the
conclusion as to the existence of an alleged subsequent agreement novatory of the original contract admittedly
entered into between the parties:

Second There is nothing so unusual or extraordinary, as would render improbable the fixing of ten ears as the
period within which payment of the stipulated price was to be payable by appellant;
Third Appellee has no right, under the circumstances on the case at bar, to demand and be entitled to the
rescission of the contract had with appellant;
Fourth Assuming that any action for rescission is availability to appellee, the same, contrary to the findings
of the decision herein, has prescribed;
Fifth Assumming further that appellee's action for rescission, if any, has not yet prescribed, the same is at
least barred by laches;
Sixth Assuming furthermore that a cause of action for rescission exists, appellant should nevertheless be
entitled to tile fixing of a period within which to comply with his obligation; and
Seventh At all events, the affirmance of the judgment for the payment of rentals on the premises from
August, 1955 and he taxing of attorney's fees against appellant are not warranted b the circumstances at bar.
(Rollo, pp. 87-88)
Acting on the Motion for Reconsideration, the Court of Appeals sustained the sixth ground raised by the
appellant, that assuming that a cause of action for rescission exists, he should nevertheless be entitled to the
fixing of a period within which to comply with his obligation. The Court of Appeals, therefore, amended its
original decision in the following wise and manner:
WHEREFORE, our decision dated April 23, 1970 is hereby amended in the sense that the defendant Nicanor
Lapuz is hereby granted a period of ninety (90) days from entry hereof within which to pay the balance of the
purchase price in the amount of P11,434,44 with interest thereon at the rate of 8% per annum from August 17,
1955 until fully paid. In the event that the defendant fails to comply with his obligation as above stated within
the period fixed herein, our original judgment stands.
Petitioner Roque, as plaintiff-appellee below, filed a Motion for Reconsideration; the Court of Appeals denied
it. He now comes and appeals to this Court on a writ of certiorari.
The respondent Court of Appeals rationalizes its amending decision by considering that the house presently
erected on the land subject of the contract is worth P45,000.00, which improvements introduced by defendant
on the lots subject of the contract are very substantial, and thus being the case, "as a matter of justice and equity,
considering that the removal of defendant's house would amount to a virtual forfeiture of the value of the house,
the defendant should be granted a period within which to fulfill his obligations under the agreement." Cited as
authorities are the cases of Kapisanan Banahaw vs. Dejarme and Alvero, 55 Phil. 338, 344, where it is held that
the discretionary power of the court to allow a period within which a person in default may be permitted to
perform the stipulation upon which the claim for resolution of the contract is based should be exercised without
hesitation in a case where a virtual forfeiture of valuable rights is sought to be enforced as an act of mere
reprisal for a refusal of the debtor to submit to a usurious charge, and the case of Puerto vs. Go Ye Pin, 47 O.G.
264, holding that to oust the defendant from the lots without giving him a chance to recover what his father and
he himself had spent may amount to a virtual forfeiture of valuable rights.
As further reasons for allowing a period within which defendant could fulfill his obligation, the respondent
court held that there exists good reasons therefor, having in mind that which affords greater reciprocity of rights
(Ramos vs. Blas, 51 O.G. 1920); that after appellant had testified that plaintiff failed to comply with his part of
the contract to put up the requisite facilities in the subdivision, plaintiff did not introduce any evidence to rebut
defendant's testimony but simply relied. upon the presumption that the law has been obeyed, thus said
presumption had been successfully rebutted as Exhibit "5-D" shows that the road therein shown is not paved

The Court, however, concedes that plaintiff's failure to comply with his obligation to put up the necessary
facilities in the subdivision will not deter him from asking f r the rescission of the agreement since this
obligation is not correlative with defendant's obligation to buy the property.
Petitioner assails the decision of the Court of Appeals for the following alleged errors:
I. The Honorable Court of Appeals erred in applying paragraph 3, Article 1191 of the Civil Code which refers
to reciprocal obligations in general and, pursuant thereto, in granting respondent Lapuz a period of ninety (90)
days from entry of judgment within which to pay the balance of the purchase price.
II. The Honorable Court of Appeals erred in not holding that Article 1592 of the same Code, which specifically
covers sales of immovable property and which constitutes an exception to the third paragraph of Article 1191 of
said Code, is applicable to the present case.
III. The Honorable Court of Appeals erred in not holding that respondent Lapuz cannot avail of the provisions
of Article 1191, paragraph 3 of the Civil Code aforesaid because he did not raise in his answer or in any of the
pleadings he filed in the trial court the question of whether or not he is entitled, by reason of a just cause, to a
fixing of a new period.
IV. Assuming arguendo that the agreement entered into by and between petitioner and respondent Lapuz was a
mere promise to sell or contract to sell, under which title to the lots in question did not pass from petitioner to
respondent, still the Honorable Court of Appeals erred in not holding that aforesaid respondent is not entitled to
a new period within which to pay petitioner the balance of P11,434.44 interest due on the purchase price of
P12.325.00 of the lots.
V. Assuming arguendo that paragraph 3, Article 1191 of the Civil Code is applicable and may be availed of by
respondent, the Honorable Court of Appeals nonetheless erred in not declaring that aid respondent has not
shown the existence of a just cause which would authorize said Court to fix a new period within which to pay
the balance aforesaid.
VI. The Honorable Court of Appeals erred in reconsidering its original decision promulgated on April 23, 1970
which affirmed the decision of the trial court.
The above errors may, however, be synthesized into one issue and that is, whether private respondent is entitled
to the Benefits of the third paragraph of Article 1191, New Civil Code, for the fixing of period within which he
should comply with what is incumbent upon him, and that is to pay the balance of P11,434,44 with interest
thereon at the rate of 8% 1et annum from August 17, 1955 until fully paid since private respondent had paid
only P150.00 as deposit and 4 months intallments amounting to P740.46, or a total of P890.46, the total price of
the two lots agreed upon being P12,325.00.
For his part, petitioner maintains that respondent is not entitled to the Benefits of paragraph 3, Article 1191,
NCC and that instead, Article 1592 of the New Civil Code which specifically covers sales of immovable
property and which constitute an exception to the third paragraph of Art. 1191 of aid Code, is the applicable law
to the case at bar.
In resolving petitioner's assignment of errors, it is well that We lay clown the oda provisions and pertinent
rulings of the Supreme Court bearing on the crucial issue of whether Art. 1191, paragraph 3 of the New Civil
Code applies to the case at Bar as held by the appellate court and supported by the private respondent, or Art.
1592 of the same Code which petitioner strongly argues in view of the peculiar facts and circumstances
attending this case. Article 1191, New Civil Code, provides:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one at the obligors should not

comply with hat is incumbent upon him

The injured partner may choose between the fulfillment and the rescission of the obligation, with the payment
of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should
become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have acquired the thing, in
accordance with articles 1385 and 1388 and the Mortgage Law.
Article 1592 also provides:
Art. 1592. In the sale of immovable property, even though it may have been stipulated that upon failure to pay
the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay,
even after the expiration of the period, as long as no demand for rescission of the contract has been made upon
him either judicially or by a notarial act. After the demand, the court may not grant him a new term.
The controlling and latest jurisprudence is established and settled in the celebrated case of Luzon Brokerage
Co., Inc. vs. Maritime Building Co., Inc. and Myers Building Co., G.R. No. L-25885, January 31, 1972, 43
SCRA 93, originally decided in 1972, reiterated in the Resolution on Motion to Reconsider dated August 18,
1972, 46 SCRA 381 and emphatically repeated in the Resolution on Second Motion for Reconsideration
promulgated November 16, 1978, 86 SCRA 309, which once more denied Maritimes Second Motion for
Reconsideration of October 7, 1972. In the original decision, the Supreme Court speaking thru Justice J.B.L.
Reyes said:
Under the circumstances, the action of Maritime in suspending payments to Myers Corporation was a breach of
contract tainted with fraud or malice (dolo), as distinguished from mere negligence (culpa), "dolo" being
succinctly defined as a "conscious and intention design to evade the normal fulfillment of existing obligations"
(Capistrano, Civil Code of the Philippines, Vol. 3, page 38), and therefore incompatible with good faith (Castan,
Derecho Civil, 7th Ed., Vol. 3, page 129; Diaz Pairo, Teoria de Obligaciones, Vol. 1, page 116).
Maritime having acted in bad faith, it was not entitled to ask the court to give it further time to make payment
and thereby erase the default or breach that it had deliberately incurred. Thus the lower court committed no
error in refusing to extend the periods for payment. To do otherwise would be to sanction a deliberate and
reiterated infringement of the contractual obligations incurred by Maritime, an attitude repugnant to the stability
and obligatory force of contracts.
The decision reiterated the rule pointed out by the Supreme Court in Manuel vs. Rodriguez, 109 Phil. 1, p. 10,
that:
In contracts to sell, where ownership is retained by the seller and is not to pass until the fun payment of the
price, such payment, as we said is a positive suspensive condition, the 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 i
force in accordance with Article 1117 of the Old Civil Code. To argue that there was only a casual breach is to
proceed from the assumption that the contract is one of absolute sale, where non-payment is a resolutory
condition, which is not the case." Continuing, the Supreme Court declared:
... appellant overlooks that its contract with appellee Myers s not the ordinary sale envisaged by Article 1592,
transferring ownership simultaneously with the delivery of the real property sold, but one in which the vendor
retained ownership of the immovable object of the sale, merely undertaking to convey it provided the buyer
strictly complied with the terms of the contract (see paragraph [d], ante page 5). In suing to recover possession

of the building from Maritime appellee Myers is not after the resolution or setting aside of the contract and the
restoration of the parties to the status quo ante as contemplated by Article 1592, but precisely enforcing the
Provisions of the agreement that it is no longer obligated to part with the ownership or possession of the
property because Maritime failed to comply with the specific condition precedent, which is to pay the
installments as they fell due.
The distinction between contracts of sale and contracts to sell with reserved title has been recognized by this
Court in repeated decisions upholding the power of promisors under contracts to sell in case of failure of the
other party to complete payment, to extrajudicially terminate the operation of the contract, refuse conveyance
and retain the sums or installments already received, where such rights are expressly provided for, as in the case
at bar.
In the Resolution denying the first Motion for Reconsideration, 46 SCRA 381, the Court again speaking thru
Justice J.B.L. Reyes, reiterated the rule that in a contract to sell, the full payment of the price through the
punctual performance of the monthly payments is a condition precedent to the execution of the final sale 4nd to
the transfer of the property from the owner to the proposed buyer; so that there will be no actual sale until and
unless full payment is made.
The Court further ruled that in seeking to oust Maritime for failure to pay the price as agreed upon, Myers was
not rescinding (or more properly, resolving) the contract but precisely enforcing it according to its expressed
terms. In its suit, Myers was not seeking restitution to it of the ownership of the thing sold (since it was never
disposed of), such restoration being the logical consequence of the fulfillment of a resolutory condition,
expressed or implied (Art. 1190); neither was it seeking a declaration that its obligation to sell was
extinguished. What is sought was a judicial declaration that because the suspensive condition (full and punctual
payment) had not been fulfilled, its obligation to sell to Maritime never arose or never became effective and,
therefore, it (Myers) was entitled to repossess the property object of the contract, possession being a mere
incident to its right of ownership.
The decision also stressed that "there can be no rescission or resolution of an obligation as yet non-existent,
because the suspensive condition did not happen. Article 1592 of the New Civil Code (Art. 1504 of Old Civil
Code) requiring demand by suit or notarial act in case the vendor of realty wants to rescind does not apply to a
contract to sell or promise to sell, where title remains with the vendor until fulfillment to a positive condition,
such as full payment of the price." (Manuel vs, Rodriguez, 109 Phil. 9)
Maritime's Second Motion for Reconsideration was denied in the Resolution of the Court dated November 16,
1978, 86 SCRA 305, where the governing law and precedents were briefly summarized in the strong and
emphatic language of Justice Teehankee, thus:
(a) The contract between the parties was a contract to sell or conditional sale with title expressly reserved in the
vendor Myers Building Co., Inc. Myers until the suspensive condition of full and punctual payment of the full
price shall have been met on pain of automatic cancellation of the contract upon failure to pay any of the
monthly installments when due and retention of the sums theretofore paid as rentals. When the vendee,
appellant Maritime, willfully and in bad faith failed since March, 1961 to pay the P5,000. monthly
installments notwithstanding that it was punctually collecting P10,000. monthly rentals from the lessee
Luzon Brokerage Co., Myers was entitled, as it did in law and fact, to enforce the terms of the contract to sell
and to declare the same terminated and cancelled.
(b) Article 1592 (formerly Article 1504) of the new Civil Code is not applicable to such contracts to self or
conditional sales and no error was committed by the trial court in refusing to extend the periods for payment.
(c) As stressed in the Court's decision, "it is irrelevant whether appellant Maritime's infringement of its contract
was casual or serious" for as pointed out in Manuel vs. Rodriguez, '(I)n contracts to self. whether ownership is

retained by the seller and is not to pass until the full payment of the price, such payment, as we said, is a
positive suspensive condition, the 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 ...
(d) It should be noted, however, that Maritimes breach was far from casual but a most serious breach of contract
...
(e) Even if the contract were considered an unconditional sale so that Article 1592 of the Civil Code could be
deemed applicable, Myers' answer to the complaint for interpleaded in the court below constituted a judicial
demand for rescission of the contract and by the very provision of the cited codal article, 'after the demand, the
court may not grant him a new term for payment; and
(f) Assumming further that Article 1191 of the new Civil Code governing rescission of reciprocal obligations
could be applied (although Article 1592 of the same Code is controlling since it deals specifically with sales of
real property), said article provides that '(T)he court shall decree the rescission claimed, unless there be just
cause authorizing the fixing of a period' and there exists to "just cause" as shown above for the fixing of a
further period. ...
Under the first and second assignments of error which petitioner jointly discusses, he argues that the agreement
entered into between him and the respondent is a perfected contract of purchase and sale within the meaning of
Article 1475 of the New Civil Code which provides that "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
contract."
Petitioner contends that "(n)othing in the decision of the courts below would show that ownership of the
property remained with plaintiff for so long as the installments have not been fully paid. Which yields the
conclusion that, by the delivery of the lots to defendant, ownership likewise was transferred to the latter." (Brief
for the Petitioner, p. 15) And he concludes that the sale was consummated by the delivery of the two lots, the
subject thereof, by him to the respondent.
Under the findings of facts by the appellate court, it appears that the two lots subject of the agreement between
the parties herein were delivered by the petitioner to the private respondent who took possession thereof and
occupied the same and thereafter built his house thereon, enclosing the lots with adobe stone walls and barbed
wires. But the property being registered under the Land Registration Act, it is the act of registration of the Deed
of Sale which could legally effect the transfer of title of ownership to the transferee, pursuant to Section 50 of
Act 496. (Manuel vs. Rodriguez, et al., 109 Phil. 1; Buzon vs. Lichauco, 13 Phil. 354; Tuazon vs. Raymundo,
28 Phil. 635: Worcestor vs. Ocampo, 34 Phil. 646). 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.
In the case at bar, there is no writing or document evidencing the agreement originally entered into between
petitioner and private respondent except the receipt showing the initial deposit of P150.00 as shown in Exh. "A"
and the payment of the 4- months installment made by respondent corresponding to July, 1954 to October, 1954
in the sum of P740.56 as shown in Exh. "B". Neither is there any writing or document evidencing the modified
agreement when the 3 lots were changed to Lots 4 and 12 with a reduced area of 725 sq. meters, which are
corner lots. This absence of a formal deed of conveyance is a very strong indication that the parties did not
intend immediate transfer of ownership and title, but only a transfer after full payment of the price.
Parenthetically, We must say that the standard printed contracts for the sale of the lots in the Rockville
Subdivision on a monthly installment basis showing the terms and conditions thereof are immaterial to the case

at bar since they have not been signed by either of the parties to this case.
Upon the law and jurisprudence hereinabove cited and considering the nature of the transaction or agreement
between petitioner and respondent which We affirm and sustain to be a contract to sell, the following
resolutions of petitioner's assignment of errors necessarily arise, and so We hold that:
1. The first and second assignments of errors are without merit.
The overwhelming weight of authority culminating in the Luzon Brokerage vs. Maritime cases has laid down
the rule that Article 1592 of the New Civil Code does not apply to a contract to sell where title remains with the
vendor until full payment of the price as in the case at bar. This is the ruling in Caridad Estates vs. Santero, 71
Phil. 120; Aldea vs. Inquimboy 86 Phil. 1601; Jocon vs. Capitol Subdivision, Inc., L-6573, Feb. 28, 1955;
Miranda vs. Caridad Estates, L-2077 and Aspuria vs. Caridad Estates, L-2121 Oct. 3, 1950, all reiterated in
Manuel vs. Rodriguez, et al. 109 Phil. 1, L-13435, July 27, 1960. We agree with the respondent Court of
Appeals that Art, 1191 of the New Civil Code is the applicable provision where the obligee, like petitioner
herein, elects to rescind or cancel his obligation to deliver the ownership of the two lots in question for failure
of the respondent to pay in fun the purchase price on the basis of 120 monthly equal installments, promptly and
punctually for a period of 10 years.
2. We hold that respondent as obligor is not entitled to the benefits of paragraph 3 of Art. 1191, NCC Having
been in default, he is not entitled to the new period of 90 days from entry of judgment within which to pay
petitioner the balance of P11,434.44 with interest due on the purchase price of P12,325.00 for the two lots.
Respondent a paid P150.00 as deposit under Exh. "A" and P740.56 for the 4-months installments corresponding
to the months of July to October, 1954. The judgment of the lower court and the Court of Appeals held that
respondent was under the obligation to pay the purchase price of the lots m question on an equal monthly
installment basis for a period of ten years, or 120 equal monthly installments. Beginning November, 1954,
respondent began to default in complying with his obligation and continued to do so for the remaining 116
monthly interest. His refusal to pay further installments on the purchase price, his insistence that he had the
option to pay the purchase price any time in ten years inspire of the clearness and certainty of his agreement
with the petitioner as evidenced further by the receipt, Exh. "B", his dilatory tactic of refusing to sign the
necessary contract of sale on the pretext that he will sign later when he shall have updated his monthly
payments in arrears but which he never attempted to update, and his failure to deposit or make available any
amount since the execution of Exh "B" on June 28, 1954 up to the present or a period of 26 years, are all
unreasonable and unjustified which altogether manifest clear bad faith and malice on the part of respondent
puzzle making inapplicable and unwarranted the benefits of paragraph 3, Art. 1191, N.C.C. To allow and grant
respondent an additional period for him to pay the balance of the purchase price, which balance is about 92% of
the agreed price, would be tantamount to excusing his bad faith and sanctioning the deliberate infringement of a
contractual obligation that is repugnant and contrary to the stability, security and obligatory force of contracts.
Moreover, respondent's failure to pay the succeeding 116 monthly installments after paying only 4 monthly
installments is a substantial and material breach on his part, not merely casual, which takes the case out of the
application of the benefits of pa paragraph 3, Art. 1191, N.C.C.
At any rate, the fact that respondent failed to comply with the suspensive condition which is the full payment of
the price through the punctual performance of the monthly payments rendered petitioner's obligation to sell
ineffective and, therefore, petitioner was entitled to repossess the property object of the contract, possession
being a mere incident to his right of ownership (Luzon Brokerage Co., Inc. vs. Maritime Building Co., Inc., et
al. 46 SCRA 381).
3. We further rule that there exists no just cause authorizing the fixing of a new period within which private
respondent may pay the balance of the purchase price. The equitable grounds or considerations which are the
basis of the respondent court in the fixing of an additional period because respondent had constructed valuable

improvements on the land, that he has built his house on the property worth P45,000.00 and placed adobe stone
walls with barbed wires around, do not warrant the fixing of an additional period. We cannot sanction this claim
for equity of the respondent for to grant the same would place the vendor at the mercy of the vendee who can
easily construct substantial improvements on the land but beyond the capacity of the vendor to reimburse in
case he elects to rescind the contract by reason of the vendee's default or deliberate refusal to pay or continue
paying the purchase price of the land. Under this design, strategem or scheme, the vendee can cleverly and
easily "improve out" the vendor of his land.
More than that, respondent has not been honest, fair and reciprocal with the petitioner, hence it would not be
fair and reasonable to the petitioner to apply a solution that affords greater reciprocity of rights which the
appealed decision tried to effect between the parties. As matters stand, respondent has been enjoying the
possession and occupancy of the land without paying the other 116 monthly installments as they fall due. The
scales of justice are already tipped in respondent,s favor under the amended decision of the respondent court. It
is only right that We strive and search for the application of the law whereby 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 (Art. 19, New Civil Code)
In the case at bar, respondent has not acted in good faith. With malice and deliberate intent, he has twisted the
clear import of his agreement with the petitioner in order to suit his ends and delay the fulfillment of his
obligation to pay the land he had enjoyed for the last 26 years, more than twice the period of ten years that he
obliged himself to complete payment of the price.
4. Respondent's contention that petitioner has not complied with his obligation to put up the necessary facilities
in the Rockville Subdivision is not sufficient nor does it constitute good reason to justify the grant of an
additional period of 90 days from entry of judgment within which respondent may pay the balance of the
purchase price agreed upon. The Judgment of the appellate court concedes that petitioner's failure to comply
with his obligation to put up the necessary facilities in the subdivision will not deter him from asking for the
rescission of the agreement since his obligation is not correlative with respondent's obligation to buy the
property. Since this is so conceded, then the right of the petitioner to rescind the agreement upon the happening
or in the event that respondent fails or defaults in any of the monthly installments would be rendered nugatory
and ineffective. The right of rescission would then depend upon an extraneous consideration which the law does
not contemplate.
Besides, at the rate the two lots were sold to respondent with a combined area of 725 sq. meters at the uniform
price of P17.00 per sq. meter making a total price of P12,325.00, it is highly doubtful if not improbable that
aside from his obligation to deliver title and transfer ownership to the respondent as a reciprocal obligation to
that of the respondent in paying the price in full and promptly as the installments fall due, petitioner would have
assumed the additional obligation "to provide the subdivision with streets ... provide said streets with street
pavements concrete curbs and gutters, fillings as required by regulations, adequate drainage facilities, tree
plantings, adequate water facilities" as required under Ordinance No. 2969 of Quezon City approved on May
11, 1956 (Answer of Defendant, Record on Appeal, pp. 35-36) which was two years after the agreement in
question was entered into June, 1y54.
The fact remains, however, that respondent has not protested to the petitioner nor to the authorities concerned
the alleged failure of petitioner to put up and provide such facilities in the subdivision because he knew too well
that he has paid only the aggregate sum of P890.56 which represents more or less 7% of the agreed price of
P12,325.00 and that he has not paid the real estate taxes assessed by the government on his house erected on the
property under litigation. Neither has respondent made any allegation in his Answer and in all his pleadings
before the court up to the promulgation of the Resolution dated October 12, 1970 by the Court of Appeals, to
the effect that he was entitled to a new period within which to comply with his obligation, hence the Court
could not proceed to do so unless the Answer is first amended. (Gregorio Araneta, Inc. vs. Philippine Sugar
Estates Development Co., Ltd., G.R. No. L-22558, May 31, 1967, 20 SCRA 330, 335). It is quite clear that it is

already too late in the day for respondent to claim an additional period within which to comply with his
obligation.
Precedents there are in Philippine jurisprudence where the Supreme Court granted the buyer of real property
additional period within which to complete payment of the purchase price on grounds of equity and justice as in
(1) J.M. Tuazon Co., Inc. vs. Javier, 31 SCRA 829 where the vendee religiously satisfied the monthly
installments for eight years and paid a total of P4,134.08 including interests on the principal obligation of only
P3,691.20, the price of the land; after default, the vendee was willing to pay all arrears, in fact offered the same
to the vendor; the court granted an additional period of 60 days -from receipt of judgment for the vendee to
make all installment in arrears plus interest; (2) in Legarda Hermanos vs. Saldaa, 55 SCRA 324, the Court
ruled that where one purchase, from a subdivision owner two lots and has paid more than the value of one lot,
the former is entitled to a certificate of title to one lot in case of default.
On the other hand there are also cases where rescission was not granted and no new or additional period was
authorized. Thus, in Caridad Estates vs. Santero, 71 Phil. 114, the vendee paid, totalling P7,590.00 or about
25% of the purchase price of P30,000.00 for the three lots involved and when the vendor demanded revocation
upon the vendee's default two years after, the vendee offered to pay the arears in check which the vendor
refused; and the Court sustained the revocation and ordered the vendee ousted from the possession of the land.
In Ayala y Cia vs. Arcache, 98 Phil. 273, the total price of the land was P457,404.00 payable in installments; the
buyer initially paid P100,000.00 or about 25% of the agreed price; the Court ordered rescission in view of the
substantial breach and granted no extension to the vendee to comply with his obligation.
The doctrinal rulings that "a slight or casual breach of contract is not a ground for rescission. It must be so
substantial and fundamental to defeat the object of the parties" (Gregorio Araneta Inc. vs. Tuazon de Paterno, L2886, August 22, 1962; Villanueva vs. Yulo, L-12985, Dec. 29,1959); that "where time is not of the essence of t
agreement, a slight delay on the part of one party in the performance of his obligation is not a sufficient ground
for the rescission of the agreement"( Biando vs. Embestro L-11919, July 27, 1959; cases cited in Notes
appended to Universal Foods Corporation vs. Court of Appeals, 33 SCRA 1), convince and persuade Us that in
the case at bar where the breach, delay or default was committed as early as in the payment of the fifth monthly
installment for November, 1954, that such failure continued and persisted the next month and every month
thereafter in 1955, 1956, 1957 and year after year to the end of the ten-year period in 1964 (10 years is
respondent's contention) and even to this time, now more than twice as long a time as the original period
without respondent adding, or even offering to add a single centavo to the sum he had originally paid in 1954
which represents a mere 7% of the total price agreed upon, equity and justice may not be invoked and applied.
One who seeks equity and justice must come to court with clean hands, which can hardly be said of the private
respondent.
One final point, on the supposed substantial improvements erected on the land, respondent's house. To grant the
period to the respondent because of the substantial value of his house is to make the land an accessory to the
house. This is unjust and unconscionable since it is a rule in Our Law that buildings and constructions are
regarded as mere accessories to the land which is the principal, following the Roman maxim "omne quod solo
inadeficatur solo cedit" (Everything that is built on the soil yields to the soil).
Pursuant to Art. 1191, New Civil Code, petitioner is entitled to rescission with payment of damages which the
trial court and the appellate court, in the latter's original decision, granted in the form of rental at the rate of
P60.00 per month from August, 1955 until respondent shall have actually vacated the premises, plus P2,000.00
as attorney's fees. We affirm the same to be fair and reasonable. We also sustain the right of the petitioner to the
possession of the land, ordering thereby respondent to vacate the same and remove his house therefrom.
WHEREFORE, IN VIEW OF THE FOREGOING, the Resolution appealed from dated October 12, 1970 is
hereby REVERSED. The decision of the respondent court dated April 23, 1970 is hereby REINSTATED and
AFFIRMED, with costs against private respondent.

SO ORDERED.
G.R. No. 84751 June 6, 1990
SPOUSES EDUARDO and ANN AGUSTIN, petitioners, vs. HON. COURT OF APPEALS and
LABRADOR DEVELOPMENT CORPORATION, respondents.
Victor D. Cruz for petitioners.
Singson, Mamaril& Associates for private respondent.

REGALADO, J.:
This petition for review on certiorari impugns the decision of the Court of Appeals, dated March 28, 1988, with
the following decretal portion:
WHEREFORE, the present appeal is accordingly resolved deleting the adjudicated award of P20,000.00 as
exemplary damages, and otherwise by AFFIRMING the Decision dated October 10, 1985 in Civil Case No. Q42390 entitled "Labrador Development Corporation vs. Sps. Eduardo Agustin, et al." in all other respects.
Without pronouncement as to costs.1
Said judgment of respondent court is based on the findings of fact set out in its decision thus:
Plaintiff-appellee, being a subdivision developer, owned Lot 14, Block 1 of the San Pedro Compound IV at
TandangSora, Quezon City, under Transfer Certificate of Title No. 277209. On November 7, 1981, plaintiffappellee agreed to sell said parcel of land to defendants-appellants on a package deal together with a residential
house per House Plan Model B-203 to be constructed thereon for the sum of P202,980.00 (Exh. 'B'). As therein
stipulated, the defendants-appellants were to pay P42,980.00 as equity-P30,133.00 as down payment and the
balance of P12,847.00 upon completion and de very of the property, the other P160,000.00 to have been funded
through a Pag-Ibig Fund loan to be applied for by defendants-appellants. Central to the above was a stipulation
that in the event the housing loan be insufficient to pay the full contract price owing, they shall pay the same in
cash on or before occupancy and acceptance of the housing unit (ref. Exh. 'B', para. [e]). The agreement further
provided
(f) Failure of the Vendee to comply with any or all of the above stipulations shall ipso facto cancel this contract
to sell; and thereupon, this contract to sell or any other contract executed in connection thereof, shall be of no
further force and effect; and the title to the property, if already transferred in the name of the Vendee, shall
automatically revert to the Vendor.
The foregoing stipulation encompassed the necessity of transferring title to the lot to defendants-appellants as
an accommodation to enable their application for a housing loan in their names.
Hence, plaintiff-appellee executed a deed of sale over the lot (Exh. 'C') in favor of defendants-appellants,
without additional consideration beyond the P30,133.00 down payment adverted to, and the issuance to said
defendants-appellants of Transfer Certificate of title No. 29435 * (Exh. 'D'). Thusly accommodated, defendantsappellants applied for a P160,000.00 housing loan with the First Summa Savings and Mortgage Bank as an
accredited financing institution.

After initial approval in the amount applied for, the Pag-ibig housing loan was downgraded to P128,000.00 after
reassessment. Under date of December 18, 1982, plaintiff-appellee apprised defendants-appellants of said
development (Exh. 'F') enclosing the formal bank December 16, 1982 letter (Exh. 'E') requiring a co-borrower
related within the fourth degree of consanguinity should the defendants-appellants desire approval of an
increased loan amount.
Defendants-appellants appear to have disdained a reply to plaintiff-appellee's said letter. Thus, under date of
December 28, 1982, plaintiff-appellee again wrote a follow- up letter to defendants-appellants (Exh. 'G')
affording the latter time to decide on their options, on pain of enforcement of the terms of the contract to sell.
Failing reaction from defendants-appellants thereto, plaintiff-appellee resorted to enforcement of the contractual
stipulations under date of March 1, 1983 (Exh. 'H') and remitted an enclosed check for P30,133.00 (Exh. 'I')
representing the equity paid in by defendants-appellants. The latter accepted said check and deposited same into
their account.
Instead of reconveyance of title to the lot, defendants-appellants however sought time to buy the property;
plaintiff-appellee agreed provided that payment be effected in cash. Defendants-appellants failed to make such
payment in cash, despite the lapse of a second 30-day period afforded therefor. Thereupon, plaintiff-appellee
demanded anew for reconveyance in a July 27, 1984 letter (Exh. 'J').
On August 8, 1984, plaintiff-appellee filed Civil Case No. Q42390 for reconveyance and damage. In answer,
defendants-appellants maintained inter alia that approval of a P160,000.00 housing loan had been assured upon
completion of the house with proof of its delivery and acceptance, but that acceptance could not be reasonably
given by them in that certain specifications for the housing unit had not been complied with. 2
After trial on the merits, the lower court rendered judgment in favor of private respondent, the dispositive part
whereof reads:
WHEREFORE, judgment is hereby rendered ordering defendants, jointly and severally:
a) toreconvey to plaintiff the parcel of land covered by Transfer Certificate of Title No. 284735 ** of the
Register of Deeds, Quezon City;
b) to pay plaintiff the sum of P20,000.00 as exemplary damages;
c) to pay plaintiff the sum of P5,000.00 as attorney's fees, plus costs of the suit. 3
which judgment, as earlier stated, was affirmed by respondent court but with the deletion of the award of
exemplary damages.
On August 22, 1988, respondent court denied petitioners' motion for reconsideration, hence this present petition
raising the following issues:
I
The 'Contract to Sell' dated November 7, 1981 creates a reciprocal obligation between Labrador Development
Corporation, as seller, and spouses Eduardo and Ann Agustin, as buyer, of the questioned house and lot.
II
The failure of Labrador Development Corporation (LADECO) to complete construction of the housing unit

pursuant to the 'Contract to Sell' constitutes a substantial and serious breach thereof as would bar LADECO
from executing the option of cancellation (rescission) of the 'Contract to Sell' under Article 1191 of the Civil
Code.
III
The justifiable refusal of Spouses Agustin to sign the 'House Acceptance Form' certifying that they accept the
house as 100% complete constitutes merely a slight or casual breach of the 'Contract to Sell' which does not
warrant the unilateral cancellation (rescission,) of the contract under par. 4 (f) thereof and Article 1191 of the
Civil Code.
IV
The remedy of reconveyance of title of the property in question cannot be availed of by LADECO as there was
no valid, binding and effective cancellation (rescission) of the 'Contract to Sell'.
V
Private respondent LADECO is not entitled to attorney's fees of P5,000.00 under the facts and circumstances of
the case. 4
We agree with the Court of Appeals that reconveyance is proper in this case. Herein petitioners are already
barred from questioning the validity of the cancellation of the contract to sell by their acquiescence thereto.
Their acceptance and encashment of the checks representing the total amount paid by them to private
respondent as equity, coupled by their failure to object or file an action, despite due notice, to question the
validity of the extrajudicial cancellation of said contract and to ask for specific performance for more than one
year, clearly show that they assented to the same.
Furthermore, after receiving the check refunding their equity payment incident to the reconveyance desired by
private respondents, petitioners, disregarding the original agreement of the parties, offered to purchase anew the
property in question to which private respondent agreed. This novatory agreement, however, was not
consummated as petitioners again failed to raise and pay the purchase price despite two 30-day extensions.
They never at that juncture questioned the propriety of the rescission and reconveyance desired by private
respondent. Obviously, extrajudicial rescission produces legal effects where the other party does not oppose it. 5
Moreover, even assuming that there was no implied assent to the cancellation of the contract to sell,
reconveyance is still proper. The non-fulfillment by petitioners of their obligation to pay, which is a suspensive
condition to the obligation of private respondent to sell and deliver the house and lot, rendered the contract to
sell and the subsequent contract executed pursuant thereto ineffective and without force and effect.
The contract between petitioners and private respondent is not an absolute sale but a conditional sale or contract
to sell, whereby ownership is retained by the vender until full payment of the purchase price. Without such full
payment, there is no obligation to sell and deliver. The subsequent execution of the deed of absolute sale and
the transfer and registration of the title of the lot in the name of petitioners is of no moment, considering that the
same, by mutual agreement of the parties, was made without consideration and solely for the purpose of
facilitating the approval and release of the PAG-IBIG loan and not for the purpose of actually transferring
ownership.
Under the contract to sell, the obligation of petitioners to completely pay the purchase price is a condition
precedent to the obligation of private respondent to sell and deliver the house as provided in the contract to sell,
which specifically states:

5. Upon complete payment of the VENDEE/S of the purchase price herein above stated, and faithful
compliance with all his obligations stipulated therein, the VENDOR, agrees to execute a valid deed of sale in
favor of the VENDEE/S and cause the issuance of the Certificate of Title in the name of the latter, free from all
liens and encumbrances except those provided for in the Land Registration Act and other laws, Presidential
Decrees, General Orders, Letters of Instruction, Zoning Ordinances, and the attached Deed of Restrictions,
which form part of this Contract; ... 6
The repeated failure and refusal of petitioners, despite due notice, to look for a co- borrower related to them
within the fourth degree of consanguinity as required by the bank in order to prevent the downgrading of the
loan, nor to communicate to private respondent the arrangement they intended to make regarding the difference
between the approved loan of P128,000.00 and the unpaid amount of P160,000.00, clearly indicate their
intention not to perform their obligations under the contract. This constituted not only a substantial or serious
breach, but prevented the happening of the condition precedent which would give rise to the obligation of
private respondent to sell and transfer ownership of the house and lot to petitioners.
We have repeatedly ruled that:
In contracts to sell, where ownership is retained by the seller and is not to pass until the full payment of the
price, such payment, as we said is a positive suspensive condition, the 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, in accordance with Article 1117 of the Old Civil Code. To argue that there was only a casual breach is to
proceed from the assumption that the contract is one of absolute sale, where non-payment is a resolutory
condition, which is not the case.
... appellant overlooks that its contract with appellee Myers is not the ordinary sale envisaged by Article 1592,
transferring ownership simultaneously with the delivery of the real property sold, but one in which the vendor
retained ownership of the immovable object of the sale, merely undertaking to convey it provided the buyer
strictly complied with the terms of the contract (see paragraph [d], ante, page 5). In suing to recover possession
of the building from Maritime, appellee Myers is not after the resolution or setting aside of the contract and the
restoration of the parties to the status quo ante, as contemplated by Article 1592, but precisely enforcing the
provisions of the agreement that it is no longer obligated to part with the ownership or possession of the
property because Maritime failed to comply with the specific condition precedent, which is to pay the
installment as they fell due.
The distinction between contracts of sale and contracts to sell with reserved title has been recognized by this
Court in repeated decisions upholding the power of promissors under contracts to sell in case of failure of the
other party to complete payment, to extrajudicially terminate the operation of the contract, refuse conveyance
and retain the sums or installments already received, where such rights are expressly provided for, as in the case
at bar. 7
We repeat, the obligation of petitioners to fully comply with their undertakings was necessarily determinative of
the obligation of private respondent to complete the construction of the house. Where one of the parties to a
contract did not perform the undertaking which he was bound by the terms of the agreement to perform, he is
not entitled to insist upon the performance of the other party. 8 For failure of one party to assume and perform
the obligation imposed on him, the other patty does not incur in delay. 9
Correspondingly, we reject the argument of petitioners that the failure of private respondent to complete the
construction of the house constitutes a substantial breach as would bar the latter from cancelling the contract.
Instead, the facts of this case persuade us to hold that petitioners were merely posturing when, after being
required to reconvey the premises, they came up with belated complaints about the imperfections or
incompleteness of the house involved, in the same manner that they also pretended to be interested in
purchasing the property but failed to do so after importuning private respondents to grant them extensions of

time for that purpose.

With the foregoing circumstances, reconveyance is proper and exigible pursuant to Paragraph 4 (f) of the
contract to sell quoted in the decision of respondent court, supra, and on the basic principle that when an
obligation has been extinguished or resolved, it is the duty of the court to require the parties to surrender
whatever they may have received from the other, and the parties must be restored, as far as practicable, to their
original situation. 10
The award to private respondent of attorney's fees, however, must be disallowed considering that the award of
exemplary damages was eliminated by respondent court and the text of the decision of the trial court, which was
aimed by the Court of Appeals, is bereft of any findings of fact and law to justify such award. The accepted rule
is that the reason for the award of attorney's fees must be stated in the text of the court's decision; otherwise, if it
is stated only in the dispositive portion of the decision, the same must be disallowed on appeal. The award of
attorney's fees being an exception rather than the general rule, it is necessary for the court to make findings of
facts and law that would bring the case within the exception and justify the grant of such award. 11
WHEREFORE, except for the award of attorney's fees which is hereby deleted, the decision of respondent
Court of Appeals is hereby AFFIRMED.
SO ORDERED.

FIRST DIVISION

G.R. No. 92171 March 13, 1991

SPOUSES
ALFREDO
E.
GIMENEZ
and
PACITA
GIMENEZ, petitioners,
vs.
THE HONORABLE COURT OF APPEALS and JOSE T. MERCADO, JR., respondents.
Ricardo J.M. Rivera Law Office for petitioners.
E.G. Ferry Law Offices for private respondent.

GRIO-AQUINO, J.:p
This is a petition for review of the decision dated November 16, 1989 of the Court of Appeals in CA-G.R. CV
No. 18664 ordering:
1. the appellee to pay the appellants the sum of P156,800.00 with interest thereon at 1% a month
from October 16, 1983, the date of the first demand until full payment;
2. the appellee to pay the appellants the sum of P10,000.00 as attorney's fees;
3. the appellants to execute to the appellee a deed of sale of the property and improvements
described in Transfer Certificate of Title No. 68259 of the Registry of Deeds of Quezon City

immediately after payment of the sums mentioned in No. 1 above, with the assumption by the
appellee of the balance due the GSIS on appellants' Accounts Nos. 25869 and 25869-A. (pp.
102-103, Rollo.)
On July 5, 1975, the petitioners as sellers, and the private respondent, Jose T. Mercado, as buyer, entered into a
conditional contract of sale of a house and lot with an area of 1,200 square meters at No. 34 Hillside Drive, Blue
Ridge, Quezon City, for the price of FIVE HUNDRED THOUSAND (P500,000.00) PESOS, subject to the
following conditions:
1. A downpayment of the ONE HUNDRED THOUSAND (P100,000.00) PESOS in cash will be
paid by Mr. Jose Mercado to Mr. Alfredo Gimenez upon signing of this agreement.
2. The premises shall be ready for occupancy on July 6, 1975, furnished.
3. The balance less the GSIS loan on said property shall be paid by the buyer in two or more
equal installments but not later than one year.
4. A deed of absolute sale shall be executed in favor of Mr. Jose Mercado, Jr. upon payment of
the 40% of the total selling price. The cost of the preparation of the deed of sale and the cost of
the necessary documentary stamps shall be borne by the seller while the cost of the registration
fees to be borne by the buyer.
5. However, if the balance is not fully paid within one year period, the total payments received
by the seller shall be considered as advance payments to the rental of the house in the amount of
FIVE THOUSAND (P5,000.00) PESOS, per month. (p. 4, Rollo.)
Petitioners contend that from July 5, 1975 up to July 5, 1976, the private respondent, instead of completing
payment of the entire balance of P400,000 on the purchase price of the house and lot, was able to pay Twenty
Thousand Pesos (P20,000.00) only. On November 7, 1976, private respondent paid petitioners an additional
Ten Thousand (P10,000.00) Pesos.
On September 7, 1977, more than two (2) years after the execution of the conditional contract of sale, the
parties executed another agreement wherein the buyer, Mercado, Jr., promised to pay the balance of Three
Hundred Seventy Thousand ( P370,000.00) Pesos on or before October 6, 1977 plus 1% interest on the balance
from July 6, 1976 to September 6, 1977, and also the unpaid interest on the GSIS mortgage for July 6, 1975 to
September 4, 1977. In case of default, he promised to voluntarily vacate the premises and leave the furnishings
belonging to the sellers. Upon execution of the supplemental agreement, private respondent also paid P5,000 to
petitioners deductible from his account.
The new period expired on October 6, 1977 with the private respondent paying only P25,000 on his balance of
P370,000.00. The sum of P5,000 was considered as rental of the house subject of the sale, for one month or
until November 6, 1977 and another P5,000 would be applied as rental until December 6, 1977 (p. 138, Rollo).
The amount of P15,000 would be forfeited in favor of petitioners (p. 9, Rollo).
Foreseeing his inability to pay, private respondent wrote the petitioners on December 5, 1977 requesting for an
extension up to December 19, 1977 which the latter granted. On December 7, 1977, private respondent sent to
petitioners P15,000 and another amount of P35,000 on December 19, 1977 and requested for an extension of
two (2) months or up to February 19, 1978. In their acknowledgment, petitioners advised private respondent
that he should pay P50,000 on or before January 3, 1978, otherwise he should vacate the premises.
On January 3, 1978, private respondent was able to pay only the sum of P25,000, but promised to pay the other
P 25,000 on or before January 17, 1978. On January 30, 1978, he paid P15,000. He made other partial payments

so that as of May 28, 1990 or five (5) years after the parties executed the contract to sell, Mercado had paid only
P343,000 on the price of the Gimenez property. The unpaid balance on the contract was P156,800.
On September 12, 1984, petitioners, through counsel, demanded that Mercado pay his rents in arrears and
vacate the premises. When he did not comply, they filed an ejectment complaint against him. On August 1,
1986, the Metropolitan Trial Court rendered a decision in petitioners' favor, but on appeal by the private
respondent, the Regional Trial Court (Q-48670) dismissed the complaint on November 10, 1986 on the ground
of prematurity, because "the conflict arising from the conditional Contract of Sale . . . and subsequent
agreements relative thereto entered into between the parties" should first be resolved "to determine whether or
not
a
cause
of
action
for
ejectment
exists"
(p. 20, Rollo).
On
March
20,
1987,
the
petitioners
filed
this
action
(Civil
Case
No.
Q-50391) for annulment/cancellation of contract, recovery of possession, and damages based on Article 1191 of
the New Civil Code on account of private respondent's failure to pay the balance of the purchase price of
petitioners' house and lot. By then the private respondent had been occupying the property for some twelve (12)
years.
The private respondent, on the other hand, contended that he had fully paid the purchase price and that his only
remaining obligation was to redeem the property from the GSIS. He demanded that the petitioners be ordered to
execute a deed of absolute sale in his favor.
On June 20, 1988, the trial court dismissed the complaint for lack of merit and ordered the plaintiffs (now
petitioners) to execute within thirty (30) days from the finality of the judgment, a Deed of Sale with Assumption
of Mortgage over the property in question in favor of Mercado.
Upon appeal to the Court of Appeals, the appellate court on November 16, 1989 affirmed with modification the
trial court's decision. The Court of Appeals ruled that petitioners could no longer rescind the contract to sell
because they had granted several extensions of time to the respondent buyer, and accepted late partial payments
from him. It cited the following ruling in Angeles vs. Calasanz (135 SCRA 323):
. . . when the defendants-appellants, instead of availing of their alleged right to rescind, have
accepted and received delayed payments of installments, though the plaintiffs-appellees have
been in arrears beyond the grace period mentioned in paragraph 6 of the contract, the defendantsappellants have waived and are now estopped from exercising their alleged right of rescission.
In this petition for review, the petitioners argue that the Court of Appeals erred in applying Angeles
vs. Calasanz(135 SCRA 323) and in failing to consider the basic rule on rescission of contracts and the guiding
principles laid down by this Court in Siy vs. Court of Appeals (138 SCRA 536).
The petition for review is meritorious. Indeed, Angeles vs. Calasanz bears no factual similarity to this case,
hence, was erroneously applied by the Court of Appeals. In Angeles vs. Calasanz, supra, a small subdivision lot
was sold for the price of P 3,920.00 payable in monthly installments. The buyer made a 10% downpayment of P
392 upon the execution of the contract to sell on December 19, 1957 with 7% interest per annum on the balance
until fully paid. The plaintiffs paid the monthly installments until July, 1966 when their aggregate payments
already amounted to P 4,533.38. In other words, the buyer appeared to have already "overpaid" the seller. If
anything more was due the seller, it could not be substantial. For that reason, this Court held that: "the breach of
contract adverted to by the defendants is so slight and casual" that "to sanction the rescission made by the
defendants-appellants will work injustice to the plaintiffs-appellees (See J.M. Tuazon & Co., Inc. vs. Javier, 31
SCRA 829). It would unjustly enrich the defendants-appellants." It allowed the plaintiffs to pay whatever
installments remained unpaid.

In the present case, the subject of the 1975 contract to sell was a house and lot, of 1,200 square meters, in the
Blue Ridge Subdivision in Quezon City which the buyer occupied upon the execution of the contract. The price
was P500,000. After making a downpayment of P 100,000, the buyer was supposed to pay the balance of P
400,000 "not later than one year." The contract provided that "if the balance is not fully paid within [the] one
year period, the total payments received by the seller shall be considered as advance payments to (sic) the rental
of the house in the amount of P5,000.00 a month." The one-year period and the extensions sought by the buyer
and granted by the seller, expired without full payment of the price. As of May 24, 1980, the unpaid balance of
the price was still P156,800. In September, 1984, the sellers (Gimenez) demanded that the buyer (Mercado) pay
his rental arrears as provided in the contract and vacate the premises. Since he did not heed their demand, they
filed an ejectment suit against him. As of the date of the sellers' demand to vacate, Mercado had been occupying
their house and lot for 9 years and 2 months (110 months). At P5,000 per month, his rentals should have
amounted to P550,000.00. Having paid P343,200 only, his rental arrears amounted to P206,800 as of
September, 1984.
Under the circumstances, and considering how much real estate prices have jumped since 1975, it would be a
travesty of justice to deny the sellers' right to cancel the sale under Art. 1191 of the Civil Code.
There is no gainsaying Mercado's breach of the contract to sell. He failed to pay the stipulated purchase price of
P500,000, within the one-year period originally fixed in the agreement which expired on July 5, 1976, nor
within the extended period fixed in their supplemental agreement which expired on October 6, 1977, nor within
the other extensions he sought thereafter. His breaches of the contract justly entitled the sellers to ask for the
cancellation of the contract to sell with damages (Art. 1191, Civil Code; Siy vs. Court of Appeals, 138 SCRA
536; Nagarmull vs. Binalbagan-Isabela Sugar Co., Inc., 33 SCRA 52). Requiring the sellers to execute a deed of
absolute sale in favor of Mercado would penalize the former for their magnanimity in granting the latter
extensions of time to complete payment of the price of the sale (which he never did), and reward his defaults
and contractual breaches, while continuing to enjoy the petitioners' property.
WHEREFORE, the petition for review is granted. The decision of the Court of Appeals in CA-G.R. CV No.
18664 is hereby annulled and set aside. The contract to sell of July 7, 1975 and the supplemental agreement of
September 7, 1977 are cancelled and annulled and the private respondent, Jose T. Mercado, Jr., is ordered to
vacate the petitioners' property and restore its possession to the petitioners. He is further ordered to pay
reasonable compensation for his use and occupancy of the petitioners' property, which the Court determines to
be in the sum of P5,000 per month from September 1984 (date of demand) until he vacates the same, plus
reasonable attorney's fees of P20,000 and the costs.
SO ORDERED.
G.R. No. L-59266 February 29, 1988
SILVESTRE
DIGNOS
and
ISABEL
vs.
HON. COURT OF APPEALS and ATILANO G. JABIL, respondents.

LUMUNGSOD, petitioners,

BIDIN, J.:
This is a petition for review on certiorari seeking the reversal of the: (1) Decision * of the 9th Division, Court of
Appeals dated July 31,1981, affirming with modification the Decision, dated August 25, 1972 of the Court of
First Instance ** of Cebu in civil Case No. 23-L entitled Atilano G. Jabil vs. Silvestre T. Dignos and Isabela
Lumungsod de Dignos and Panfilo Jabalde, as Attorney-in-Fact of Luciano Cabigas and Jovita L. de Cabigas;

and (2) its Resolution dated December 16, 1981, denying defendant-appellant's (Petitioner's) motion for
reconsideration, for lack of merit.
The undisputed facts as found by the Court of Appeals are as follows:
The Dignos spouses were owners of a parcel of land, known as Lot No. 3453, of the cadastral
survey of Opon, Lapu-Lapu City. On June 7, 1965, appellants (petitioners) Dignos spouses sold
the said parcel of land to plaintiff-appellant (respondent Atilano J. Jabil) for the sum of
P28,000.00, payable in two installments, with an assumption of indebtedness with the First
Insular Bank of Cebu in the sum of P12,000.00, which was paid and acknowledged by the
vendors in the deed of sale (Exh. C) executed in favor of plaintiff-appellant, and the next
installment in the sum of P4,000.00 to be paid on or before September 15, 1965.
On November 25, 1965, the Dignos spouses sold the same land in favor of defendants spouses,
Luciano Cabigas and Jovita L. De Cabigas, who were then U.S. citizens, for the price of
P35,000.00. A deed of absolute sale (Exh. J, also marked Exh. 3) was executed by the Dignos
spouses in favor of the Cabigas spouses, and which was registered in the Office of the Register
of Deeds pursuant to the provisions of Act No. 3344.
As the Dignos spouses refused to accept from plaintiff-appellant the balance of the purchase
price of the land, and as plaintiff- appellant discovered the second sale made by defendantsappellants to the Cabigas spouses, plaintiff-appellant brought the present suit. (Rollo, pp. 27-28)
After due trial, the Court of first Instance of Cebu rendered its Decision on August 25,1972, the decretal portion
of which reads:
WHEREFORE, the Court hereby declares the deed of sale executed on November 25, 1965 by
defendant Isabela L. de Dignos in favor of defendant Luciano Cabigas, a citizen of the United
States of America, null and void ab initio, and the deed of sale executed by defendants Silvestre
T. Dignos and Isabela Lumungsod de Dignos not rescinded. Consequently, the plaintiff Atilano
G. Jabil is hereby ordered to pay the sum, of Sixteen Thousand Pesos (P16,000.00) to the
defendants-spouses upon the execution of the Deed of absolute Sale of Lot No. 3453, Opon
Cadastre and when the decision of this case becomes final and executory.
The plaintiff Atilano G. Jabil is ordered to reimburse the defendants Luciano Cabigas and Jovita
L. de Cabigas, through their attorney-in-fact, Panfilo Jabalde, reasonable amount corresponding
to the expenses or costs of the hollow block fence, so far constructed.
It is further ordered that defendants-spouses Silvestre T. Dignos and Isabela Lumungsod de
Dignos should return to defendants-spouses Luciano Cabigas and Jovita L. de Cabigas the sum
of P35,000.00, as equity demands that nobody shall enrich himself at the expense of another.
The writ of preliminary injunction issued on September 23, 1966, automatically becomes
permanent in virtue of this decision.
With costs against the defendants.
From the foregoing, the plaintiff (respondent herein) and defendants-spouss (petitioners herein) appealed to the
Court of Appeals, which appeal was docketed therein as CA-G.R. No. 54393-R, "Atilano G. Jabil v. Silvestre T.
Dignos, et al."

On July 31, 1981, the Court of Appeals affirmed the decision of the lower court except as to the portion
ordering Jabil to pay for the expenses incurred by the Cabigas spouses for the building of a fence upon the land
in question. The disposive portion of said decision of the Court of Appeals reads:
IN VIEW OF THE FOREGOING CONSIDERATIONS, except as to the modification of the
judgment as pertains to plaintiff-appellant above indicated, the judgment appealed from is hereby
AFFIRMED in all other respects.
With costs against defendants-appellants.
SO ORDERED.
Judgment MODIFIED.
A motion for reconsideration of said decision was filed by the defendants- appellants (petitioners) Dignos
spouses, but on December 16, 1981, a resolution was issued by the Court of Appeals denying the motion for
lack of merit.
Hence, this petition.
In the resolution of February 10, 1982, the Second Division of this Court denied the petition for lack of merit. A
motion for reconsideration of said resolution was filed on March 16, 1982. In the resolution dated April
26,1982, respondents were required to comment thereon, which comment was filed on May 11, 1982 and a
reply thereto was filed on July 26, 1982 in compliance with the resolution of June 16,1 982. On August 9,1982,
acting on the motion for reconsideration and on all subsequent pleadings filed, this Court resolved to reconsider
its resolution of February 10, 1982 and to give due course to the instant petition. On September 6, 1982,
respondents filed a rejoinder to reply of petitioners which was noted on the resolution of September 20, 1982.
Petitioners raised the following assignment of errors:
I
THE COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN GROSSLY, INCORRECTLY
INTERPRETING THE TERMS OF THE CONTRACT, EXHIBIT C, HOLDING IT AS AN ABSOLUTE
SALE, EFFECTIVE TO TRANSFER OWNERSHIP OVER THE PROPERTY IN QUESTION TO THE
RESPONDENT AND NOT MERELY A CONTRACT TO SELL OR PROMISE TO SELL; THE COURT
ALSO ERRED IN MISAPPLYING ARTICLE 1371 AS WARRANTING READING OF THE AGREEMENT,
EXHIBIT C, AS ONE OF ABSOLUTE SALE, DESPITE THE CLARITY OF THE TERMS THEREOF
SHOWING IT IS A CONTRACT OF PROMISE TO SELL.
II
THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN INCORRECTLY APPLYING AND
OR IN MISAPPLYING ARTICLE 1592 OF THE NEW CIVIL CODE AS WARRANTING THE
ERRONEOUS CONCLUSION THAT THE NOTICE OF RESCISSION, EXHIBIT G, IS INEFFECTIVE
SINCE IT HAS NOT BEEN JUDICIALLY DEMANDED NOR IS IT A NOTARIAL ACT.
III

THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN REJECTING THE APPLICABILITY

OF ARTICLES 2208,2217 and 2219 OF THE NEW CIVIL CODE AND ESTABLISHED JURISPRUDENCE
AS TO WARRANT THE AWARD OF DAMAGES AND ATTORNEY'S FEES TO PETITIONERS.
IV
PLAINTIFF'S COMPLAINT FOR SPECIFIC PERFORMANCE SHOULD HAVE BEEN DISMISSED, HE
HAVING COME TO COURT WITH UNCLEAN HANDS.
V
BY AND LARGE, THE COURT OF APPEALS COMMITTED AN ERROR IN AFFIRMING WITH
MODIFICATION THE DECISION OF THE TRIAL COURT DUE TO GRAVE MISINTERPRETATION,
MISAPPLICATION AND MISAPPREHENSION OF THE TERMS OF THE QUESTIONED CONTRACT
AND THE LAW APPLICABLE THERETO.
The foregoing assignment of errors may be synthesized into two main issues, to wit:
I. Whether or not subject contract is a deed of absolute sale or a contract Lot sell.
II. Whether or not there was a valid rescission thereof.
There is no merit in this petition.
It is significant to note that this petition was denied by the Second Division of this Court in its Resolution dated
February 1 0, 1 982 for lack of merit, but on motion for reconsideration and on the basis of all subsequent
pleadings filed, the petition was given due course.
I.
The contract in question (Exhibit C) is a Deed of Sale, with the following conditions:
1. That Atilano G..Jabilis to pay the amount of Twelve Thousand Pesos P12,000.00) Phil.
Philippine Currency as advance payment;
2. That Atilano G. Jabil is to assume the balance of Twelve Thousand Pesos (P12,000.00) Loan
from the First Insular Bank of Cebu;
3. That Atilano G. Jabil is to pay the said spouses the balance of Four. Thousand Pesos
(P4,000.00) on or before September 15,1965;
4. That the said spouses agrees to defend the said Atilano G. Jabil from other claims on the said
property;
5. That the spouses agrees to sign a final deed of absolute sale in favor of Atilano G. Jabil over
the above-mentioned property upon the payment of the balance of Four Thousand Pesos.
(Original Record, pp. 10-11)
In their motion for reconsideration, petitioners reiterated their contention that the Deed of Sale (Exhibit "C") is a
mere contract to sell and not an absolute sale; that the same is subject to two (2) positive suspensive conditions,
namely: the payment of the balance of P4,000.00 on or before September 15,1965 and the immediate

assumption of the mortgage of P12,000.00 with the First Insular Bank of Cebu. It is further contended that in
said contract, title or ownership over the property was expressly reserved in the vendor, the Dignos spouses
until the suspensive condition of full and punctual payment of the balance of the purchase price shall have been
met. So that there is no actual sale until full payment is made (Rollo, pp. 51-52).
In bolstering their contention that Exhibit "C" is merely a contract to sell, petitioners aver that there is
absolutely nothing in Exhibit "C" that indicates that the vendors thereby sell, convey or transfer their ownership
to the alleged vendee. Petitioners insist that Exhibit "C" (or 6) is a private instrument and the absence of a
formal deed of conveyance is a very strong indication that the parties did not intend "transfer of ownership and
title but only a transfer after full payment" (Rollo, p. 52). Moreover, petitioners anchored their contention on the
very terms and conditions of the contract, more particularly paragraph four which reads, "that said spouses has
agreed to sell the herein mentioned property to Atilano G. Jabil ..." and condition number five which reads, "that
the spouses agrees to sign a final deed of absolute sale over the mentioned property upon the payment of the
balance of four thousand pesos."
Such contention is untenable.
By and large, the issues in this case have already been settled by this Court in analogous cases.
Thus, it has been held that a deed of sale is absolute in nature although denominated as a "Deed of Conditional
Sale" where nowhere in the contract in question is a proviso or stipulation to the effect that title to the property
sold is reserved in the vendor until full payment of the purchase price, nor is there a stipulation giving the
vendor the right to unilaterally rescind the contract the moment the vendee fails to pay within a fixed period
Taguba v. Vda. de Leon, 132 SCRA 722; Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., 86 SCRA
305).
A careful examination of the contract shows that there is no such stipulation reserving the title of the property
on the vendors nor does it give them the right to unilaterally rescind the contract upon non-payment of the
balance thereof within a fixed period.
On the contrary, all the elements of a valid contract of sale under Article 1458 of the Civil Code, are present,
such as: (1) consent or meeting of the minds; (2) determinate subject matter; and (3) price certain in money or
its equivalent. In addition, Article 1477 of the same Code provides that "The ownership of the thing sold shall
be transferred to the vendee upon actual or constructive delivery thereof." As applied in the case of Froilan v.
Pan Oriental Shipping Co., et al. (12 SCRA 276), this Court held that in the absence of stipulation to the
contrary, the ownership of the thing sold passes to the vendee upon actual or constructive delivery thereof.
While it may be conceded that there was no constructive delivery of the land sold in the case at bar, as subject
Deed of Sale is a private instrument, it is beyond question that there was actual delivery thereof. As found by
the trial court, the Dignos spouses delivered the possession of the land in question to Jabil as early as March
27,1965 so that the latter constructed thereon Sally's Beach Resort also known as Jabil's Beach Resort in March,
1965; Mactan White Beach Resort on January 15,1966 and Bevirlyn's Beach Resort on September 1, 1965.
Such facts were admitted by petitioner spouses (Decision, Civil Case No. 23-L; Record on Appeal, p. 108).
Moreover, the Court of Appeals in its resolution dated December 16,1981 found that the acts of petitioners,
contemporaneous with the contract, clearly show that an absolute deed of sale was intended by the parties and
not a contract to sell.
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.
II.

Petitioners claim that when they sold the land to the Cabigas spouses, the contract of sale was already rescinded.
Applying the rationale of the case of Taguba v. Vda. de Leon (supra) which is on all fours with the case at bar,
the contract of sale being absolute in nature is governed by Article 1592 of the Civil Code. It is undisputed that
petitioners never notified private respondents Jabil by notarial act that they were rescinding the contract, and
neither did they file a suit in court to rescind the sale. The most that they were able to show is a letter of
Cipriano Amistad who, claiming to be an emissary of Jabil, informed the Dignos spouses not to go to the house
of Jabil because the latter had no money and further advised petitioners to sell the land in litigation to another
party (Record on Appeal, p. 23). As correctly found by the Court of Appeals, there is no showing that Amistad
was properly authorized by Jabil to make such extra-judicial rescission for the latter who, on the contrary,
vigorously denied having sent Amistad to tell petitioners that he was already waiving his rights to the land in
question. Under Article 1358 of the Civil Code, it is required that acts and contracts which have for their object
the extinguishment of real rights over immovable property must appear in a public document.
Petitioners laid considerable emphasis on the fact that private respondent Jabil had no money on the stipulated
date of payment on September 15,1965 and was able to raise the necessary amount only by mid-October 1965.
It has been ruled, however, that "where time is not of the essence of the agreement, a slight delay on the part of
one party in the performance of his obligation is not a sufficient ground for the rescission of the agreement"
(Taguba v. Vda. de Leon, supra). Considering that private respondent has only a balance of P4,000.00 and was
delayed in payment only for one month, equity and justice mandate as in the aforecited case that Jabil be given
an additional period within which to complete payment of the purchase price.
WHEREFORE, the petition filed is hereby Dismissed for lack of merit and the assailed decision of the Court of
Appeals is Affirmed in toto.
SO ORDERED.
G.R. No. L-69259 January 26, 1988
DELPHER
TRADES
CORPORATION,
and
DELPHIN
PACHECO, petitioners,
vs.
INTERMEDIATE APPELLATE COURT and HYDRO PIPES PHILIPPINES, INC., respondents.

GUTIERREZ, JR., J.:

The petitioners question the decision of the Intermediate Appellate Court which sustained the private
respondent's contention that the deed of exchange whereby Delfin Pacheco and Pelagia Pacheco conveyed a
parcel of land to Delpher Trades Corporation in exchange for 2,500 shares of stock was actually a deed of sale
which violated a right of first refusal under a lease contract.
Briefly, the facts of the case are summarized as follows:
In 1974, Delfin Pacheco and his sister, Pelagia Pacheco, were the owners of 27,169 square
meters of real estate Identified as Lot. No. 1095, Malinta Estate, in the Municipality of Polo
(now Valenzuela), Province of Bulacan (now Metro Manila) which is covered by Transfer
Certificate of Title No. T-4240 of the Bulacan land registry.

On April 3, 1974, the said co-owners leased to Construction Components International Inc. the
same property and providing that during the existence or after the term of this lease the lessor
should he decide to sell the property leased shall first offer the same to the lessee and the letter
has the priority to buy under similar conditions (Exhibits A to A-5)
On August 3, 1974, lessee Construction Components International, Inc. assigned its rights and
obligations under the contract of lease in favor of Hydro Pipes Philippines, Inc. with the signed
conformity and consent of lessors Delfin Pacheco and Pelagia Pacheco (Exhs. B to B-6
inclusive)
The contract of lease, as well as the assignment of lease were annotated at he back of the title, as
per stipulation of the parties (Exhs. A to D-3 inclusive)
On January 3, 1976, a deed of exchange was executed between lessors Delfin and Pelagia
Pacheco and defendant Delpher Trades Corporation whereby the former conveyed to the latter
the leased property (TCT No.T-4240) together with another parcel of land also located in
Malinta Estate, Valenzuela, Metro Manila (TCT No. 4273) for 2,500 shares of stock of defendant
corporation with a total value of P1,500,000.00 (Exhs. C to C-5, inclusive) (pp. 44-45, Rollo)
On the ground that it was not given the first option to buy the leased property pursuant to the proviso in the
lease agreement, respondent Hydro Pipes Philippines, Inc., filed an amended complaint for reconveyance of
Lot. No. 1095 in its favor under conditions similar to those whereby Delpher Trades Corporation acquired the
property from Pelagia Pacheco and Delphin Pacheco.
After trial, the Court of First Instance of Bulacan ruled in favor of the plaintiff. The dispositive portion of the
decision reads:
ACCORDINGLY, the judgment is hereby rendered declaring the valid existence of the plaintiffs
preferential right to acquire the subject property (right of first refusal) and ordering the
defendants and all persons deriving rights therefrom to convey the said property to plaintiff who
may offer to acquire the same at the rate of P14.00 per square meter, more or less, for Lot 1095
whose area is 27,169 square meters only. Without pronouncement as to attorney's fees and costs.
(Appendix I; Rec., pp. 246- 247). (Appellant's Brief, pp. 1-2; p. 134, Rollo)
The lower court's decision was affirmed on appeal by the Intermediate Appellate Court.
The defendants-appellants, now the petitioners, filed a petition for certiorari to review the appellate court's
decision.
We initially denied the petition but upon motion for reconsideration, we set aside the resolution denying the
petition and gave it due course.
The petitioners allege that:
The denial of the petition will work great injustice to the petitioners, in that:
1. Respondent Hydro Pipes Philippines, Inc, ("private respondent") will acquire from petitioners
a parcel of industrial land consisting of 27,169 square meters or 2.7 hectares (located right after
the Valenzuela, Bulacan exit of the toll expressway) for only P14/sq. meter, or a total
of P380,366, although the prevailing value thereof is approximately P300/sq. meter or P8.1
Million;

2. Private respondent is allowed to exercise its right of first refusal even if there is no "sale" or
transfer of actual ownership interests by petitioners to third parties; and
3. Assuming arguendo that there has been a transfer of actual ownership interests, private
respondent will acquire the land not under "similar conditions" by which it was transferred to
petitioner Delpher Trades Corporation, as provided in the same contractual provision invoked by
private respondent. (pp. 251-252, Rollo)
The resolution of the case hinges on whether or not the "Deed of Exchange" of the properties executed by the
Pachecos on the one hand and the Delpher Trades Corporation on the other was meant to be a contract of sale
which, in effect, prejudiced the private respondent's right of first refusal over the leased property included in the
"deed of exchange."
Eduardo Neria, a certified public accountant and son-in-law of the late Pelagia Pacheco testified that Delpher
Trades Corporation is a family corporation; that the corporation was organized by the children of the two
spouses (spouses Pelagia Pacheco and Benjamin Hernandez and spouses Delfin Pacheco and Pilar Angeles)
who owned in common the parcel of land leased to Hydro Pipes Philippines in order to perpetuate their control
over the property through the corporation and to avoid taxes; that in order to accomplish this end, two pieces of
real estate, including Lot No. 1095 which had been leased to Hydro Pipes Philippines, were transferred to the
corporation; that the leased property was transferred to the corporation by virtue of a deed of exchange of
property; that in exchange for these properties, Pelagia and Delfin acquired 2,500 unissued no par value shares
of stock which are equivalent to a 55% majority in the corporation because the other owners only owned 2,000
shares; and that at the time of incorporation, he knew all about the contract of lease of Lot. No. 1095 to Hydro
Pipes Philippines. In the petitioners' motion for reconsideration, they refer to this scheme as "estate planning."
(p. 252, Rollo)
Under this factual backdrop, the petitioners contend that there was actually no transfer of ownership of the
subject parcel of land since the Pachecos remained in control of the property. Thus, the petitioners allege:
"Considering that the beneficial ownership and control of petitioner corporation remained in the hands of the
original co-owners, there was no transfer of actual ownership interests over the land when the same was
transferred to petitioner corporation in exchange for the latter's shares of stock. The transfer of ownership, if
anything, was merely in form but not in substance. In reality, petitioner corporation is a mere alter ego or
conduit of the Pacheco co-owners; hence the corporation and the co-owners should be deemed to be the same,
there being in substance and in effect an Identity of interest." (p. 254, Rollo)
The petitioners maintain that the Pachecos did not sell the property. They argue that there was no sale and that
they exchanged the land for shares of stocks in their own corporation. "Hence, such transfer is not within the
letter, or even spirit of the contract. There is a sale when ownership is transferred for a price certain in money or
its equivalent (Art. 1468, Civil Code) while there is a barter or exchange when one thing is given in
consideration of another thing (Art. 1638, Civil Code)." (pp. 254-255, Rollo)
On the other hand, the private respondent argues that Delpher Trades Corporation is a corporate entity separate
and distinct from the Pachecos. Thus, it contends that it cannot be said that Delpher Trades Corporation is the
Pacheco's same alter ego or conduit; that petitioner Delfin Pacheco, having treated Delpher Trades Corporation
as such a separate and distinct corporate entity, is not a party who may allege that this separate corporate
existence should be disregarded. It maintains that there was actual transfer of ownership interests over the
leased property when the same was transferred to Delpher Trades Corporation in exchange for the latter's shares
of stock.
We rule for the petitioners.

After incorporation, one becomes a stockholder of a corporation by subscription or by purchasing stock directly
from the corporation or from individual owners thereof (Salmon, Dexter & Co. v. Unson, 47 Phil, 649, citing
Bole v. Fulton [1912], 233 Pa., 609). In the case at bar, in exchange for their properties, the Pachecos acquired
2,500 original unissued no par value shares of stocks of the Delpher Trades Corporation. Consequently, the
Pachecos became stockholders of the corporation by subscription "The essence of the stock subscription is an
agreement to take and pay for original unissued shares of a corporation, formed or to be formed." (Rohrlich 243,
cited in Agbayani, Commentaries and Jurisprudence on the Commercial Laws of the Philippines, Vol. III, 1980
Edition, p. 430) It is significant that the Pachecos took no par value shares in exchange for their properties.
A no-par value share does not purport to represent any stated proportionate interest in the capital
stock measured by value, but only an aliquot part of the whole number of such shares of the
issuing corporation. The holder of no-par shares may see from the certificate itself that he is only
an aliquot sharer in the assets of the corporation. But this character of proportionate interest is
not hidden beneath a false appearance of a given sum in money, as in the case of par value
shares. The capital stock of a corporation issuing only no-par value shares is not set forth by a
stated amount of money, but instead is expressed to be divided into a stated number of shares,
such as, 1,000 shares. This indicates that a shareholder of 100 such shares is an aliquot sharer in
the assets of the corporation, no matter what value they may have, to the extent of 100/1,000 or
1/10. Thus, by removing the par value of shares, the attention of persons interested in the
financial condition of a corporation is focused upon the value of assets and the amount of its
debts. (Agbayani, Commentaries and Jurisprudence on the Commercial Laws of the Philippines,
Vol. III, 1980 Edition, p. 107).
Moreover, there was no attempt to state the true or current market value of the real estate. Land valued at
P300.00 a square meter was turned over to the family's corporation for only P14.00 a square meter.
It is to be stressed that by their ownership of the 2,500 no par shares of stock, the Pachecos have control of the
corporation. Their equity capital is 55% as against 45% of the other stockholders, who also belong to the same
family group.
In effect, the Delpher Trades Corporation is a business conduit of the Pachecos. What they really did was to
invest their properties and change the nature of their ownership from unincorporated to incorporated form by
organizing Delpher Trades Corporation to take control of their properties and at the same time save on
inheritance taxes.
As explained by Eduardo Neria:
xxx xxx xxx
ATTY. LINSANGAN:
Q Mr. Neria, from the point of view of taxation, is there any benefit to the spouses
Hernandez and Pacheco in connection with their execution of a deed of exchange
on the properties for no par value shares of the defendant corporation?
A Yes, sir.
COURT:
Q What do you mean by "point of view"?

A To take advantage for both spouses and corporation in entering in the deed of
exchange.
ATTY. LINSANGAN:
Q (What do you mean by "point of view"?) What are these benefits to the spouses
of this deed of exchange?
A Continuous control of the property, tax exemption benefits, and other inherent
benefits in a corporation.
Q What are these advantages to the said spouses from the point of view of
taxation in entering in the deed of exchange?
A Having fulfilled the conditions in the income tax law, providing for tax free
exchange of property, they were able to execute the deed of exchange free from
income tax and acquire a corporation.
Q What provision in the income tax law are you referring to?
A I refer to Section 35 of the National Internal Revenue Code under par. C-subpar. (2) Exceptions regarding the provision which I quote: "No gain or loss shall
also be recognized if a person exchanges his property for stock in a corporation of
which as a result of such exchange said person alone or together with others not
exceeding four persons gains control of said corporation."
Q Did you explain to the spouses this benefit at the time you executed the deed of
exchange?
A Yes, sir
Q You also, testified during the last hearing that the decision to have no par value
share in the defendant corporation was for the purpose of flexibility. Can you
explain flexibility in connection with the ownership of the property in question?
A There is flexibility in using no par value shares as the value is determined by
the board of directors in increasing capitalization. The board can fix the value of
the shares equivalent to the capital requirements of the corporation.
Q Now also from the point of taxation, is there any flexibility in the holding by
the corporation of the property in question?
A Yes, since a corporation does not die it can continue to hold on to the property
indefinitely for a period of at least 50 years. On the other hand, if the property is
held by the spouse the property will be tied up in succession proceedings and the
consequential payments of estate and inheritance taxes when an owner dies.
Q Now what advantage is this continuity in relation to ownership by a particular
person of certain properties in respect to taxation?

A The property is not subjected to taxes on succession as the corporation does not
die.
Q So the benefit you are talking about are inheritance taxes?
A Yes, sir. (pp. 3-5, tsn., December 15, 1981)
The records do not point to anything wrong or objectionable about this "estate planning" scheme resorted to by
the Pachecos. "The legal right of a taxpayer to decrease the amount of what otherwise could be his taxes or
altogether avoid them, by means which the law permits, cannot be doubted." (Liddell & Co., Inc. v. The
collector of Internal Revenue, 2 SCRA 632 citing Gregory v. Helvering, 293 U.S. 465, 7 L. ed. 596).
The "Deed of Exchange" of property between the Pachecos and Delpher Trades Corporation cannot be
considered a contract of sale. There was no transfer of actual ownership interests by the Pachecos to a third
party. The Pacheco family merely changed their ownership from one form to another. The ownership remained
in the same hands. Hence, the private respondent has no basis for its claim of a light of first refusal under the
lease contract.
WHEREFORE, the instant petition is hereby GRANTED, The questioned decision and resolution of the then
Intermediate Appellate Court are REVERSED and SET ASIDE. The amended complaint in Civil Case No. 885V-79 of the then Court of First Instance of Bulacan is DISMISSED. No costs.
SO ORDERED.
G.R. No. L-27044 June 30, 1975
THE
COMMISSIONER
vs.
ENGINEERING EQUIPMENT AND
APPEALS, respondents.

OF
SUPPLY

INTERNAL
COMPANY

AND

REVENUE, petitioner,
THE

COURT

OF

TAX

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%;
2. That the Court of Tax Appeals erred in holding Engineering 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;
3. That the Court of Tax Appeals erred in holding Engineering 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;
5. That the Court of Tax Appeals erred in holding Engineering 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 5of 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.

(No available soft copy of the case of Clarin v. Rulona)

G.R. No. 73573 May 23, 1991
SPOUSES
TRINIDAD
AND
EPIFANIO
NATINO, petitioners,
vs.
THE INTERMEDIATE APPELLATE COURT, THE RURAL BANK OF AGUILAR, INC. AND THE
PROVINCIAL SHERIFF EX-OFFICIO OF PANGASINAN, respondents.
Jose P. Villamor for petitioners.
Oscar A. Benzon for private respondents.
Bitty G. Viliran for Rural Bank of Aguilar, Inc.

DAVIDE, JR., J.:p

Unsatisfied with the decision of 4 June 1985 and the resolution of 23 December 1985 of the then Intermediate
Appellate Court (IAC) in A.C.-G.R. CV No. 69539 1 which, respectively, reversed the decision of the then
Court of First Instance of Pangasinan, Branch II, of 1 December 1981 in Civil Case No. 15573, and denied the
motion for the reconsideration of the 4 June 1985 decision, petitioners filed with this Court the instant petition
to seek reversal thereof. They submit one principal issue: whether or not the conclusion drawn by the
Intermediate Appellate Court from proven facts is correct. 2
The following facts are not disputed:

On 12 October 1970 petitioners executed a real estate mortgage in favor of respondent bank as security for a
loan of P2,000.00. Petitioners failed to pay the loan on due date. The bank applied for the extrajudicial
foreclosure of the mortgage. At the foreclosure sale on 11 December 1974 the respondent bank was the highest
and winning bidder with a bid of P2,945.11. A certificate of sale was executed in its favor by the sheriff and the
same was registered with the Office of the Register of Deeds on 29 January 1975. The certificate of sale, a copy
of which was furnished the petitioners by registered mail, expressly provided that the redemption period shall
be two years from the registration thereof.
Since no redemption was made by petitioners within the two-year period, which expired on 29 January 1977,
the sheriff issued a Final Deed of Sale on 15 February 1977.
Petitioners, however, claimed that they were granted by respondent bank an extension of the redemption period;
but the latter denied it.
On 22 November 1979 respondent bank file a petition for a writ of possession, which petitioners later opposed
on the ground that they had consigned the redemption money of P4,000.00 on 12 December 1979. The court
rejected the opposition and issued the writ of possession. However, to prevent its execution, petitioners
instituted with the then Court of First Instance of Pangasinan a complaint against respondent bank and the ExOfficio Provincial Sheriff for the annulment of the aforementioned final deed of sale and for the issuance of a
writ of preliminary injunction. The case was docketed as Civil Case No. 15573 which was raffled to Branch II
thereof. In their complaint petitioners alleged that the final deed of sale was prematurely issued since they were
granted an extension of time to redeem the property.
In resolving the issue of extension of the redemption period, the trial court, in its Decision of 1 December 1981,
made the following findings and conclusion:
xxx xxx xxx
From the bank's evidence, it is difficult to believe that the plaintiffs who are personally known to
the president and manager herself, and from whom she had to hire trucks, would not have made
any move or offer to redeem the property within the redemption period. The presumption is that
they exercised ordinary care of their concerns (Sc. 5 (d), Rule 131, Rules of Court, Cabigao vs.
Lim 50 Phil. 844). If indeed, the plaintiffs made no such offer during the redemption period, the
defendant bank should have presented evidence rebutting the plaintiffs' evidence. But it did not.
While the plaintiff testified that the tender was made to Mr. Salgado, loan clerk, and Mr. Madrid,
Acting Manager of the Bank and also board members Dr. Jing Zarate and Mr. Rosario, none of
them were presented to rebut plaintiffs' evidence. Hence, the presumption that if their testimony
were produced, it would be adverse to the defendant bank under Sec. 5(e) Rule 131 of the Rules
of Court, would apply.
Furthermore, the very evidence of the defendant bank shows that there was indeed an extension
of the period to redeem the property. The statutory period of redemption granted the mortgagor
in the certificate of sale registered on January 29, 1975 was 2 years. The period should have
terminated on January 29, 1977. However, the Sheriff's Certificate of Final sale was only
executed on February 15, 1977 and registered only on November 14, 1979 which registration
date is the effective date of the confirmation of the sale which cuts off redemption. Such
extension of nearly 3 years strengthens the plaintiffs' claim that indeed, there was an agreement
to extend the redemption date.
The plaintiffs' evidence has shown that there was an agreement between them and the defendant
bank through its personnel and its president and manager, acting as its agents to extend the
period for redemption for the plaintiffs. However, the plaintiffs were not given a specific time to

pay and redeem but were given by the President and Manager of the bank such time when their
means permit them to do so. This created an obligation with a period under Art. 1180 of the Civil
Code of the Philippines, which provides:
Art. 1180. When the debtor binds himself to pay when his means permit him to do
so, the obligation shall be deemed to be one with a period, subject to the
provisions of Article 1197.
This does not mean that the condition was exclusively dependent of the will of the plaintiffs, for
they had already promised payment. If therefore became necessary, under Article 1197 for the
Court to fix the term in order that the condition may be fulfilled. Any action to recover before
this is done is considered premature (Patents vs. Omega, 93 Phil. 218).
That agreement or contract entered into between the President and Manager of the bank was not
in writing is of no moment since under Article 1315 of the Civil Code, "contracts are perfected
by mere consent, and from that moment the parties are bound not only to the fulfillment of what
has been expressly stipulated but also to all the consequences which according to their nature,
may be in keeping with good faith, usage and law." The defendant's claim that the agreement
must be in writingciting the ruling in the case of Pornellosa vs. Land Tenure Administration, 1
SCRA 375, only applies to executory contracts, not to those either totally or partially performed,
(Inigo vs. Estate of Maloto, 21 SCRA 246). In this case, the bank had already partially performed
its obligation thereunder by extending the period redemption from January 29, 1977 to
November 14, 1979.
The agreement does not novate the original contract of mortgage but only changes one of its
conditions, that which concerns the period of redemption. The period of redemption may be
extended by the parties under special circumstances (Lichauco vs. Olegario, 43 Phil. 540, 542).
This the parties may do, since the right of the mortgagee to demand compliance within the 2 year
period of redemption maybe waived, unless the waiver is contrary to the public order, public
policy, morals or good customs or prejudicial to a third person with a right recognized by law."
None of the inhibitions enumerated are present in this case.
Hence, the action of the defendant bank in securing the Sheriffs Final Sale prior to the fixing of
the period within which the plaintiffs had to pay was not in order by reason of the extension of
the period of redemption without a term. Not being in order, the period for redemption by the
plaintiffs still exists but has to be set. 3
and on the basis thereof, decreed to (a) annul the Sheriffs Final Deed of Sale, dated 15 February 1977
and its registration of 17 March 1979, (b) fix the period of redemption to ninety (90) days from receipt
of the decision by petitioners, (c) order petitioners to pay the respondent bank, within ninety (90) days
from receipt of the decision the amount of P2,945.11, the purchase price, with 1% interest per month
from 11 December 1974 to 14 December 1979, together with any amount representing assessment or
taxes which the bank may have paid after 11 December 1974, with interest thereon at 1% per month up
to 14 December 1979, (d) order the Bank to receive and credit the petitioners with such amounts, restore
petitioners to the property and to deliver to them a certificate of redemption, and to pay petitioners the
sum of P2,000.00 as attorney's fees and the costs. 4
Respondent bank appealed from said Decision to the then Intermediate Appellate Court which docketed the
appeal as C.A.-G.R. CV No. 69539.
In support of its appeal, respondent bank assigned the following errors:

-ITHE LOWER COURT ERRED IN NOT HOLDING THAT THE OFFERS BY THE
APPELLEES TO THE APPELLANTS WERE MADE AFTER THE PERIOD OF
REDEMPTION HAD ALREADY EXPIRED AND AS A MATTER OF FACT, WERE MADE
ONLY AFTER THE EXECUTION OF THE DEED OF FINAL SALE BY THE SHERIFF.
-IITHE LOWER COURT ERRED IN HOLDING THAT THE APPELLANTS GRANTED THE
APPELLEES AN EXTENSION OF THE PERIOD FOR THE REDEMPTION OF THE
PROPERTY WHICH WAS SOLD DURING THE FORECLOSURE SALE.
-IIITHE LOWER COURT ERRED IN HOLDING THAT THE PREPONDERANCE OF
EVIDENCE FAVORS THE APPELLEES DESPITE THE FACT THAT THE ONLY
EVIDENCE PRESENTED BY THEM IS THE SOLE TESTIMONY OF EPIFANIO NATINO,
WHICH IS NOT ONLY UNCORROBORATED, BUT IS EVEN CONTRARY TO THE
IMPORT OF HIS DECLARATIONS AND ADMISSIONS MADE IN OPEN COURT; AS
AGAINST THE TESTIMONY OF THE APPELLANTS' WITNESS WHICH IS
CORROBORATED, NOT ONLY BY DOCUMENTARY EVIDENCE, BUT EVEN BY THE
IMPORT OF PLAINTIFF-APPELLEES' TESTIMONY.
-IVTHE LOWER COURT ERRED IN NOT REJECTING THE TESTIMONY OF PLAINTIFFAPPELLEE WHICH DID NOT PROVE AN OFFER TO REDEEM WITHIN THE
REGLEMENTARY PERIOD IN AN AUTHENTIC MANNER AS REQUIRED BY THE
LAW, RULES AND JURISPRUDENCE.
-VTHE LOWER COURT ERRED IN NOT REJECTING THE TESTIMONY OF PLAINTIFFAPPELLEE ON THE ALLEGED EXTENSION OF THE REDEMPTION PERIOD
INASMUCH AS IT IS NOT IN A PUBLIC DOCUMENT OR AT LEAST IN AN
AUTHENTIC WRITING.
-VITHE LOWER COURT ERRED IN APPLYING ARTICLES 1180 AND 1197 OF THE CIVIL
CODE, BOTH OF WHICH HAS NO RELEVANCE OR MATERIALITY TO THE CASE AT
BAR.
-VIIASSUMING ARGUENDO THAT SOME OFFICERS OR EMPLOYEES OF THE
APPELLANT BANK MANIFESTED TO THE PLAINTIFF-APPELLEE THAT THEY CAN
RECOVER THE LAND IN QUESTION, AS TESTIFIED BY THE PLAINTIFF-APPELLEE,
THE LOWER COURT ERRED IN HOLDING THAT SUCH OFFICERS ACTED AS
AGENTS OF THE APPELLANT-BANK.

CONSEQUENTLY, THE LOWER COURT ERRED IN NOT HOLDING THAT ONLY THE
ACTION BY THE BOARD OF DIRECTORS OF THE BANK CAN BIND THE LATTER.
-VIIITHE LOWER COURT ERRED IN HOLDING THAT THE EXECUTION OF THE DEED OF
FINAL SALE WAS NOT IN ORDER AND IN HOLDING THAT THE APPELLEES MAY
STILL REDEEM THE PROPERTY BY PAYING THE PURCHASE PRICE PLUS 1%
INTEREST PER MONTH, DESPITE THE LAPSE OF THE PERIOD OF REDEMPTION.
-IXTHE LOWER COURT ERRED IN NOT DECIDING THE CASE IN FAVOR OF THE
APPELLANTS AND CONSEQUENTLY ERRED IN NOT AWARDING DAMAGES TO THE
APPELLANTS HEREIN. 5
Herein petitioners, as appellees, did not file their Brief.
In its Decision of 4 June 1985, the Intermediate Appellate Court disposed of the assigned errors as follows:
xxx xxx xxx
The bank has assigned eight (8) errors in the decision but the determinants are the first and the
second. But before going into their merits We must take note of the failure of the appellees to file
their brief. Appellees did not file any motion for reconsideration. It has to be stated there that,
generally, appellee's failure to file brief is considered as equivalent to a confession of error,
warranting, although not necessarily requiring a reversal, but any doubt entertained by the
appellate court as to what disposition should be made of the case will be resolved against the
appellee (4 CJS 1832, cited in Francisco, the Revised Rules of Court Civil Procedure, Vol. III, p.
638)
Re the first error
THE LOWER COURT ERRED IN NOT HOLDING THAT THE OFFERS BY
THE APPELLEES TO THE APPELLANTS WERE MADE AFTER THE
PERIOD OF REDEMPTION HAD ALREADY EXPIRED AND AS A
MATTER OF FACT, WERE MADE ONLY AFTER THE EXECUTION OF
THE DEED OF FINAL SALE BY THE SHERIFF.
It will take better proofs than appellees' mere declaration for the Court to believe that they had
tendered the redemption money within the redemption period which was refused by the bank.
There would have been no valid reason for a refusal; it is an obligation imposed by law on every
purchaser at public auction that admits of redemption, to accept tender of redemption money.
And should there be refusal, the correlative duty of the mortgagor is clear: he must deposit the
money with the sheriff. The evidence does not show that appellees complied with this duty.
All that was shown by way of compliance was the deposit made with the Clerk of Court of the
sum of P4,000.00. This deposit is a belated and last ditch attempt to exercise a right that had long
expired. It was made only on December 12, 1979, or after the redemption period of two (2) years
from January 29, 1977 when the sheriffs certificate of sale was registered and after sheriff's final
sale which was registered on November 14, 1979. And, it is clear that the late deposit was

utilized to defeat the bank's vested right which it sought to enforce by its petition for a writ of
possession. The lower court correctly ruled against any validity to it.
The right to redeem becomes functus officio on the date of its expiry, and its exercise after the
period is not really one of redemption but a repurchase. Distinction must be made because
redemption is by force of law; the purchaser at public auction is bound to accept redemption.
Repurchase however of foreclosed property, after redemption period, imposes no such
obligation. After expiry, the purchaser may or may not re-sell the property but no law will
compel him to do so, And, he is not bound by the bid price; it is entirely within his discretion to
set a higher price, for after all, the property already belongs to him as owner.
This brings Us to the second error
THE LOWER COURT ERRED IN HOLDING THAT THE APPELLANTS
GRANTED THE APPELLEES AN EXTENSION OF THE PERIOD FOR THE
REDEMPTION OF THE PROPERTY WHICH WAS SOLD DURING THE
FORECLOSURE SALE.
Appellees' main premise is the alleged assurances of the bank's officers that they could redeem
the property. From the testimony of Epifanio Natino, however, it is clear that these assurances
were given before expiry of redemption (tsn, pp. 15 & 16). Such assurances were not at all
necessary since the right to redeem was still in existence. Those assurances however could not
and did not extend beyond the redemption period.
It seems clear from testimony elicited on cross-examination of the president and manager of the
bank that the latter offered to re-sell the property for P30,000.00 but after the petition for a writ
of possession had already been filed, and well after expiry of the period to redeem. Appellants
failed to accept the offer; they deposited only P4,000.00. There was therefore no meeting of the
minds, and accordingly, appellants may no longer be heard. 6
and in the light thereof, REVERSED and SET ASIDE the appealed decision. Their motion to reconsider
the same having been denied in the resolution of 23 December 1985, 7 petitioners have come to Us on
appeal by certiorari raising the sole issue stated in the beginning of this decision.
We find the petition to be devoid of merit. Petitioners have failed to demonstrate that the conclusion made by
the respondent Intermediate Appellate Court from the proven facts is wrong. We agree with said Court, and,
therefore, set aside the contrary conclusion of the trial court, that the attempts to redeem the property were done
after the expiration of the redemption period and that no extension of that period was granted to petitioners.
The contrary conclusion made by the trial court is drawn from inferences which are not supported by adequate
or sufficient facts or is based on erroneous assumptions. We note that its decision is remarkably silent as to the
dates when petitioner Epifanio Natino went to the respondent bank to talk with a bank personnel to offer to pay
the loan. If indeed the offer was made within the redemption period, but the Bank refused to accept the
redemption money, petitioners should have made the tender to the sheriff who made the sale and who then had
the duty to accept the tender and execute the certificate of redemption. (Enage vs. Vda. de Hijos de Escano, 38
Phil. 657, cited in II MORAN, Comments on the Rules of Court, 1979 Ed., pp. 326-327).
There was no such tender to the Sheriff.
Again, if indeed this occurred during the redemption period, then, as correctly pointed out by respondent IAC, it
was not necessary to ask for extension of the period to redeem.

In respect to the alleged assurance given by Mrs. Brodeth, the President and Manager of the Bank, sometime in
May of 1978 to the effect that petitioners can redeem the property as soon as they have the money, it is obvious
that this took place after the expiration of the redemption period. As correctly pointed out by the respondent
IAC, this could only relate to the matter of resale of the property, not redemption.
Furthermore, even assuming for the sake of argument that Mrs. Brodeth gave the assurance, the same could
bind the bank only if its Board of Directors approved or ratified it. No evidence was offered to prove such
action by the Board. Moreover, Mrs. Brodeth denied that during that meeting in May 1978 she made the
assurance; according to her petitioner Epifanio neither mentioned the loan nor offered to redeem, although
earlier he was told that to 'redeem" the property he should pay P30,000.00. The latter statement supports the
conclusion of respondent IAC that this was the Bank's offer for the re-sell (not redemption of the property),
which, logically took place after the expiration of the redemption period.
Even if Mrs. Brodeth is to be understood to have promised to allow the petitioners to buy the property at any
time they have the money, the Bank was not bound by the promise not only because it was not approved or
ratified by the Board of Directors but also because, and more decisively, it was a promise unsupported by a
consideration distinct from the re-purchase price.
The second paragraph of Article 1479 of the Civil Code expressly provides:
xxx xxx xxx
An accepted unilateral. promise to buy or to sell a determinate thing for a price certain is binding
upon the promissory if the promise is supported by a consideration distinct from the price.
Thus in Rural Bank of Paraaque Inc. vs. Remolado, et al., 8 a commitment by the bank to resell a property,
within a specified period, although accepted by the party in whose favor it was made, was considered an option
not supported by a consideration distinct from the price and, therefore, not binding upon the promissor.
Pursuant toSouthwestern Sugar and Molasses Co. vs. Atlantic Gulf and Pacific Company, 9 it was void.
WHEREFORE, the instant petition is DISMISSED, with costs against the Petitioners.
SO ORDERED.
Republic
SUPREME
Manila

of

the

Philippines
COURT

EN BANC

G.R. No. L-35702 May 29, 1973

DOMINGO
vs.
ISAIAS BATILLER, defendant-appellee.
Gregorio M. Rubias for plaintiff-appellant.
Vicente R. Acsay for defendant-appellee.

D.

RUBIAS, plaintiff-appellant,

TEEHANKEE, J.:
In this appeal certified by the Court of Appeals to this Court as involving purely legal questions, we affirm the
dismissal order rendered by the Iloilo court of first instance after pre-trial and submittal of the pertinent
documentary exhibits.
Such dismissal was proper, plaintiff having no cause of action, since it was duly established in the record that
the application for registration of the land in question filed by Francisco Militante, plaintiff's vendor and
predecessor interest, had been dismissed by decision of 1952 of the land registration court as affirmed by final
judgment in 1958 of the Court of Appeals and hence, there was no title or right to the land that could be
transmitted by the purported sale to plaintiff.
As late as 1964, the Iloilo court of first instance had in another case of ejectment likewise upheld by final
judgment defendant's "better right to possess the land in question .having been in the actual possession thereof
under a claim of title many years before Francisco Militante sold the land to the plaintiff."
Furthermore, even assuming that Militante had anything to sell, the deed of sale executed in 1956 by him in
favor of plaintiff at a time when plaintiff was concededly his counsel of record in the land registration case
involving the very land in dispute (ultimately decided adversely against Militante by the Court of Appeals' 1958
judgment affirming the lower court's dismissal of Militante's application for registration) was properly declared
inexistent and void by the lower court, as decreed by Article 1409 in relation to Article 1491 of the Civil Code.
The appellate court, in its resolution of certification of 25 July 1972, gave the following backgrounder of the
appeal at bar:
On August 31, 1964, plaintiff Domingo D. Rubias, a lawyer, filed a suit to recover the ownership
and possession of certain portions of lot under Psu-99791 located in Barrio General Luna,
Barotac Viejo, Iloilo which he bought from his father-in-law, Francisco Militante in 1956 against
its present occupant defendant, IsaiasBatiller, who illegally entered said portions of the lot on
two occasions in 1945 and in 1959. Plaintiff prayed also for damages and attorneys fees. (pp.
1-7, Record on Appeal). In his answer with counter-claim defendant claims the complaint of the
plaintiff does not state a cause of action, the truth of the matter being that he and his
predecessors-in-interest have always been in actual, open and continuous possession since time
immemorial under claim of ownership of the portions of the lot in question and for the alleged
malicious institution of the complaint he claims he has suffered moral damages in the amount of
P 2,000.00, as well as the sum of P500.00 for attorney's fees. ...
On December 9, 1964, the trial court issued a pre-trial order, after a pre-trial conference between
the parties and their counsel which order reads as follows..
'When this case was called for a pre-trial conference today, the plaintiff appeared
assisted by himself and Atty. Gregorio M. Rubias. The defendant also appeared,
assisted by his counsel Atty. Vicente R. Acsay.
A. During the pre-trial conference, the parties have agreed that the following facts
are attendant in this case and that they will no longer introduced any evidence,
testimonial or documentary to prove them:
1. That Francisco Militante claimed ownership of a parcel of land located in the Barrio of
General Luna, municipality of Barotac Viejo province of Iloilo, which he caused to be surveyed

on July 18-31, 1934, whereby he was issued a plan Psu-99791 (Exhibit "B"). (The land claimed
contained an area of 171:3561 hectares.)
2. Before the war with Japan, Francisco Militante filed with the Court of First Instance of Iloilo
an application for the registration of the title of the land technically described in psu-99791 (Exh.
"B")opposed by the Director of Lands, the Director of Forestry and other oppositors. However,
during the war with Japan, the record of the case was lost before it was heard, so after the war
Francisco Militante petitioned this court to reconstitute the record of the case. The record was
reconstituted on the Court of the First Instance of Iloilo and docketed as Land Case No. R-695,
GLRO Rec. No. 54852. The Court of First Instance heard the land registration case on November
14, 1952, and after the trial this court dismissed the application for registration. The appellant,
Francisco Militante, appealed from the decision of this Court to the Court of Appeals where the
case was docketed as CA-GR No. 13497-R..
3. Pending the disposal of the appeal in CA-GR No. 13497-R and more particularly on June 18,
1956, Francisco Militante sold to the plaintiff, Domingo Rubias the land technically described in
psu-99791 (Exh. "A"). The sale was duly recorded in the Office of the Register of Deeds for the
province of Iloilo as Entry No. 13609 on July 11, 1960 (Exh. "A-1").
(NOTE: As per deed of sale, Exh. A, what Militante purportedly sold to plaintiff-appellant, his
son-in-law, for the sum of P2,000.00 was "a parcel of untitled land having an area Of 144.9072
hectares ... surveyed under Psu 99791 ... (and) subject to the exclusions made by me, under
(case) CA-i3497, Land Registration Case No. R-695, G.L.R.O. No. 54852, Court of First Instance
of the province of Iloilo. These exclusions referred to portions of the original area of over 171
hectares originally claimed by Militante as applicant, but which he expressly recognized during
the trial to pertain to some oppositors, such as the Bureau of Public Works and Bureau of
Forestry and several other individual occupants and accordingly withdrew his application over
the same. This is expressly made of record in Exh. A, which is the Court of Appeals' decision of
22 September 1958 confirming the land registration court's dismissal of Militante's application
for registration.)
4. On September 22,1958 the Court of appeals in CA-G.R. No. 13497-R promulgated its
judgment confirming the decision of this Court in Land Case No. R-695, GLRO Rec. No. 54852
which dismissed the application for Registration filed by Francisco Militante (Exh. "I").
5. Domingo Rubias declared the land described in Exh. 'B' for taxation purposes under Tax Dec.
No. 8585 (Exh. "C") for 1957; Tax Dec. Nos. 9533 (Exh. "C-1") and 10019 (Exh. "C-3")for the
year 1961; Tax Dec. No. 9868 (Exh. "C-2") for the year 1964, paying the land taxes under Tax
Dec. No. 8585 and 9533 (Exh. "D", "D-1", "G-6").
6. Francisco Militante immediate predecessor-in-interest of the plaintiff, has also declared the
land for taxation purposes under Tax Dec. No. 5172 in 1940 (Exh. "E") for 1945; under Tax Dec.
No. T-86 (Exh. "E-1") for 1948; under Tax Dec. No. 7122 (Exh. "2"), and paid the land taxes for
1940 (Exhs. "G" and "G-7"), for 1945 46 (Exh."G-1") for 1947 (Exh. "G-2"), for 1947 & 1948
(Exh. "G-3"), for 1948 (Exh."G-4"), and for 1948 and 1949 (Exh."G-5").
7. Tax Declaration No. 2434 in the name of LiberatoDemontao for the land described therein
(Exh. "F") was cancelled by Tax. Dec. No. 5172 of Francisco Militante (Exh. "E").
LiberatoDemontao paid the land tax under Tax Dec. No. 2434 on Dec. 20, 1939 for the years
1938 (50%) and 1959 (Exh. "H").

8. The defendant had declared for taxation purposes Lot No. 2 of the Psu-155241 under Tax Dec.
Not. 8583 for 1957 and a portion of Lot No. 2, Psu-155241, for 1945 under Tax Dec. No. 8584
(Exh."2-A" Tax No. 8583 (Exh. "2") was revised by Tax Dec. No. 9498 in the name of the
defendant (Exh. "2-B") and Tax Dec. No. 8584 (Exh. "2-A") was cancelled by Tax Dec. No.
9584 also in the name of the defendant (Exh. "2-C"). The defendant paid the land taxes for Lot 2,
Psu-155241, on Nov. 9, 1960 for the years 1945 and 1946, for the year 1950, and for the year
1960 as shown by the certificate of the treasurer (Exh. "3"). The defendant may present to the
Court other land taxes receipts for the payment of taxes for this lot.
9. The land claimed by the defendant as his own was surveyed on June 6 and 7,1956, and a
planapproved by Director of Land on November 15, 1956 was issued, identified as Psu 155241
(Exh. "5").
10. On April 22, 1960, the plaintiff filed forcible Entry and Detainer case against IsaiasBatiller
in the Justice of the Peace Court of Barotac Viejo Province of Iloilo (Exh. "4") to which the
defendant IsaiasBatiller riled his answer on August 29, 1960 (Exh."4-A"). The Municipal
Court of Barotac Viejo after trial, decided the case on May 10, 1961 in favor of the defendant
and against the plaintiff (Exh. "4-B"). The plaintiff appealed from the decision of the Municipal
Court of Barotac Viejo which was docketed in this Court as Civil Case No. 5750 on June 3,
1961, to which the defendant, IsaiasBatiller, on June 13, 1961 filed his answer (Exh. "4C").And this Court after the trial.decided the case on November 26, 1964, in favor of the
defendant, IsaiasBatiller and against the plaintiff (Exh. "4-D").
(NOTE: As per Exh. 4-B, which is the Iloilo court of first instance decision of 26 November
1964dismissing plaintiff's therein complaint for ejectment against defendant, the iloilo court
expressly found "that plaintiff's complaint is unjustified, intended to harass the defendant" and
"that the defendant, IsaiasBatiller, has a better right to possess the land in question described in
Psu 155241 (Exh. "3"), IsaiasBatiller having been in the actual physical possession thereof under
a claim of title many years before Francisco Militante sold the land to the plaintiff-hereby
dismissing plaintiff'scomplaint and ordering the plaintiff to pay the defendant attorney's fees ....")
B. During the trial of this case on the merit, the plaintiff will prove by competent evidence the following:
1. That the land he purchased from Francisco Militante under Exh. "A" was formerly owned and
possessed by LiberatoDemontao but that on September 6, 1919 the land was sold at public
auction by virtue of a judgment in a Civil Case entitled "Edw J. Pflieder plaintiff vs.
LiberatoDemontao Francisco Balladeros and Gregorio Yulo, defendants", of which Yap
Pongco was the purchaser (Exh. "1-3"). The sale was registered in the Office of the Register of
Deeds of Iloilo on August 4, 1920, under Primary Entry No. 69 (Exh. "1"), and a definite Deed
of Sale was executed by Constantino A. Canto, provincial Sheriff of Iloilo, on Jan. 19, 1934 in
favor of Yap Pongco (Exh. "I"), the sale having been registered in the Office of the Register of
Deeds of Iloilo on February 10, 1934 (Exh."1-1").
2. On September 22, 1934, Yap Pongco sold this land to Francisco Militante as evidenced by a
notarial deed (Exh. "J") which was registered in the Registry of Deeds on May 13, 1940 (Exh."J1").
3. That plaintiff suffered damages alleged in his complaint.
C. Defendants, on the other hand will prove by competent evidence during the trial of this case the following
facts:

1. That lot No. 2 of the Psu-1552 it (Exh. '5') was originally owned and possessed by Felipe
Batiller, grandfather of the defendant BasilioBatiller, on the death of the former in 1920, as his
sole heir. IsaiasBatiller succeeded his father ,BasilioBatiller, in the ownership and possession of
the land in the year 1930, and since then up to the present, the land remains in the possession of
the defendant, his possession being actual, open, public, peaceful and continuous in the concept
of an owner, exclusive of any other rights and adverse to all other claimants.
2. That the alleged predecessors in interest of the plaintiff have never been in the actual
possession of the land and that they never had any title thereto.
3. That Lot No. 2, Psu 155241, the subject of Free Patent application of the defendant has
beenapproved.
4. The damages suffered by the defendant, as alleged in his counterclaim."' 1
The appellate court further related the developments of the case, as follows:
On August 17, 1965, defendant's counsel manifested in open court that before any trial on the
merit of the case could proceed he would file a motion to dismiss plaintiff's complaint which he
did, alleging that plaintiff does not have cause of action against him because the property in
dispute which he (plaintiff) allegedly bought from his father-in-law, Francisco Militante was the
subject matter of LRC No. 695 filed in the CFI of Iloilo, which case was brought on appeal to
this Court and docketed as CA-G.R. No. 13497-R in which aforesaid case plaintiff was the
counsel on record of his father-in-law, Francisco Militante. Invoking Arts. 1409 and 1491 of the
Civil Code which reads:
'Art. 1409. The following contracts are inexistent and void from the beginning:
xxxxxxxxx
(7) Those expressly prohibited by law.
'ART. 1491. The following persons cannot acquire any purchase, even at a public
auction, either in person of through the mediation of another: .
xxxxxxxxx
(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other
officers and employees connected with the administration of justice, the property and rights of in
litigation or levied upon an execution before the court within whose jurisdiction or territory they
exercise their respective functions; this prohibition includes the act of acquiring an assignment
and shall apply tolawyers, with respect to the property and rights which may be the object of any
litigation in which they may take part by virtue of their profession.'
defendant claims that plaintiff could not have acquired any interest in the property in dispute as
the contract he (plaintiff) had with Francisco Militante was inexistent and void. (See pp. 22-31,
Record on Appeal). Plaintiff strongly opposed defendant's motion to dismiss claiming that
defendant can not invoke Articles 1409 and 1491 of the Civil Code as Article 1422 of the same
Code provides that 'The defense of illegality of contracts is not available to third persons whose
interests are not directly affected' (See pp. 32-35 Record on Appeal).

On October 18, 1965, the lower court issued an order disclaiming plaintiffs complaint (pp. 4249, Record on Appeal.) In the aforesaid order of dismissal the lower court practically agreed with
defendant's contention that the contract (Exh. A) between plaintiff and FrancismMilitante was
null and void. In due season plaintiff filed a motion for reconsideration (pp. 50-56 Record on
Appeal) which was denied by the lower court on January 14, 1966 (p. 57, Record on Appeal).
Hence, this appeal by plaintiff from the orders of October 18, 1965 and January 14, 1966.
Plaintiff-appellant imputes to the lower court the following errors:
'1. The lower court erred in holding that the contract of sale between the plaintiffappellant and his father-in-law, Francisco Militante, Sr., now deceased, of the
property covered by Plan Psu-99791, (Exh. "A") was void, not voidable because it
was made when plaintiff-appellant was the counsel of the latter in the Land
Registration case.
'2. The lower court erred in holding that the defendant-appellee is an interested
person to question the validity of the contract of sale between plaintiff-appellant
and the deceased, Francisco Militante, Sr.
'3. The lower court erred in entertaining the motion to dismiss of the defendantappellee after he had already filed his answer, and after the termination of the pretrial, when the said motion to dismiss raised a collateral question.
'4. The lower court erred in dismissing the complaint of the plaintiff-appellant.'
The appellate court concluded that plaintiffs "assignment of errors gives rise to two (2) legal posers (1)
whether or not the contract of sale between appellant and his father-in-law, the late Francisco Militante over the
property subject of Plan Psu-99791 was void because it was made when plaintiff was counsel of his father-inlaw in a land registration case involving the property in dispute; and (2) whether or not the lower court was
correct in entertaining defendant-appellee's motion to dismiss after the latter had already filed his answer and
after he (defendant) and plaintiff-appellant had agreed on some matters in a pre-trial conference. Hence, its
elevation of the appeal to this Court as involving pure questions of law.
It is at once evident from the foregoing narration that the pre-trial conference held by the trial court at which the
parties with their counsel agreed and stipulated on the material and relevant facts and submitted their respective
documentary exhibits as referred to in the pre-trial order, supra, 2 practically amounted to a fulldress trial which
placed on record all the facts and exhibits necessary for adjudication of the case.
The three points on which plaintiff reserved the presentation of evidence at the-trial dealing with the source of
the alleged right and title of Francisco Militante's predecessors, supra, 3 actually are already made of record in
thestipulated facts and admitted exhibits. The chain of Militante's alleged title and right to the land as
supposedly traced back to LiberatoDemontao was actually asserted by Militante (and his vendee, lawyer and
son-in-law, herein plaintiff) in the land registration case and rejected by the Iloilo land registration court
which dismissedMilitante's application for registration of the land. Such dismissal, as already stated, was
affirmed by the final judgment in 1958 of the Court of Appeals. 4
The four points on which defendant on his part reserved the presentation of evidence at the trial dealing with his
and his ancestors' continuous, open, public and peaceful possession in the concept of owner of the land and the
Director of Lands' approval of his survey plan thereof, supra, 5 are likewise already duly established facts of
record, in the land registration case as well as in the ejectment case wherein the Iloilo court of first instance
recognized the superiority of defendant's right to the land as against plaintiff.

No error was therefore committed by the lower court in dismissing plaintiff's complaint upon defendant's
motion after the pre-trial.
1. The stipulated facts and exhibits of record indisputably established plaintiff's lack of cause of action and
justified the outright dismissal of the complaint. Plaintiff's claim of ownership to the land in question was
predicated on the sale thereof for P2,000.00 made in 1956 by his father-in- law, Francisco Militante, in his
favor, at a time when Militante's application for registration thereof had already been dismissed by the Iloilo
land registration court and was pending appeal in the Court of Appeals.
With the Court of Appeals' 1958 final judgment affirming the dismissal of Militante's application for
registration, the lack of any rightful claim or title of Militante to the land was conclusively and decisively
judicially determined. Hence, there was no right or title to the land that could be transferred or sold by
Militante's purported sale in 1956 in favor of plaintiff.
Manifestly, then plaintiff's complaint against defendant, to be declared absolute owner of the land and to be
restored to possession thereof with damages was bereft of any factual or legal basis.
2. No error could be attributed either to the lower court's holding that the purchase by a lawyer of the property
in litigation from his client is categorically prohibited by Article 1491, paragraph (5) of the Philippine Civil
Code, reproduced supra; 6 and that consequently, plaintiff's purchase of the property in litigation from his client
(assuming that his client could sell the same since as already shown above, his client's claim to the property was
defeated and rejected) was void and could produce no legal effect, by virtue of Article 1409, paragraph (7) of
our Civil Code which provides that contracts "expressly prohibited or declared void by law' are "inexistent and
that "(T)hese contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived."
The 1911 case of Wolfson vs. Estate of Martinez 7 relied upon by plaintiff as holding that a sale of property in
litigation to the party litigant's lawyer "is not void but voidable at the election of the vendor" was correctly held
by the lower court to have been superseded by the later 1929 case of Director of Lands vs. Abagat. 8 In this later
case of Abagat, the Court expressly cited two antecedent cases involving the same transaction of purchase of
property in litigation by the lawyer which was expressly declared invalid under Article 1459 of the Civil Code
of Spain (of which Article 1491 of our Civil Code of the Philippines is the counterpart) upon challenge thereof
not by the vendor-client but by the adverse parties against whom the lawyer was to enforce his rights as vendee
thus acquired.
These two antecedent cases thus cited in Abagat clearly superseded (without so expressly stating the previous
ruling in Wolfson:
The spouses, Juan Soriano and Vicente Macaraeg, were the owners of twelve parcels of land.
VicentaMacaraeg died in November, 1909, leaving a large number of collateral heirs but no
descendants. Litigation between the surviving husband, Juan Soriano, and the heirs of Vicenta
immediately arose, and the herein appellant SisenandoPalarca acted as Soriano's lawyer. On May
2, 1918, Soriano executed a deed for the aforesaid twelve parcels of land in favor of
SisenandoPalarca and on the following day, May 3, 1918, Palarca filed an application for the
registration of the land in the deed.After hearing, the Court of First Instance declared that the
deed was invalid by virtue of the provisions of article 1459 of the Civil Code, which prohibits
lawyers and solicitors from purchasing property rights involved in any litigation in which they
take part by virtue of their profession. The application for registration was consequently denied,
and upon appeal by Palarca to the Supreme Court, the judgement of the lower court was
affirmed by a decision promulgated November 16,1925. (G.R. No. 24329, Palarca vs. Director of
Lands, not reported.)

In the meantime cadastral case No. 30 of the Province of Tarlac was instituted, and on August
21, 1923, EleuteriaMacaraeg, as administratrix of the estate of Vicente Macaraeg, filed claims
for the parcels in question. Buenaventura Lavitoria administrator of the estate of Juan Soriano,
did likewise and so did SisenandoPalarca. In a decision dated June 21, 1927, the Court of First
Instance, Judge Carballo presiding, rendered judgment in favor of Palarea and ordered the
registration of the land in his name. Upon appeal to this court by the administration of the estates
of Juan Soriano and Vicente Macaraeg, the judgment of the court below was reversed and the
land adjudicated to the two estates as conjugal property of the deceased spouses. (G.R. No.
28226, Director of Lands vs. Abagat, promulgated May 21, 1928, not reported.) 9
In the very case of Abagat itself, the Court, again affirming the invalidity and nullity of the lawyer's purchase of
the land in litigation from his client, ordered the issuance of a writ of possession for the return of the land by the
lawyer to the adverse parties without reimbursement of the price paid by him and other expenses, and ruled that
"the appellant Palarca is a lawyer and is presumed to know the law. He must, therefore, from the beginning,
have been well aware of the defect in his title and is, consequently, a possessor in bad faith."
As already stated, Wolfson and Abagat were decided with relation to Article 1459 of the Civil Code of Spain
then adopted here, until it was superseded on August 30, 1950 by the Civil Code of the Philippines whose
counterpart provision is Article 1491.
Article 1491 of our Civil Code (like Article 1459 of the Spanish Civil Code) prohibits in its six paragraphs
certain persons, by reason of the relation of trust or their peculiar control over the property, from acquiring such
property in their trust or control either directly or indirectly and "even at a public or judicial auction," as
follows: (1) guardians; (2) agents; (3) administrators; (4) public officers and employees; judicial officers and
employees, prosecuting attorneys, and lawyers; and (6) others especially disqualified by law.
In Wolfson which involved the sale and assignment of a money judgment by the client to the lawyer, Wolfson,
whose right to so purchase the judgment was being challenged by the judgment debtor, the Court, through
Justice Moreland, then expressly reserved decision on "whether or not the judgment in question actually falls
within the prohibition of the article" and held only that the sale's "voidabilitycan not be asserted by one not a
party to the transaction or his representative," citing from Manresa 10 that "(C)onsidering the question from the
point of view of the civil law, the view taken by the code, we must limit ourselves to classifying as void all acts
done contrary to the express prohibition of the statute. Now then: As the code does not recognize such nullity by
the mere operation of law, the nullity of the acts hereinbefore referred to must be asserted by the person having
the
necessary
legal
capacity
to
do
so
and
decreed
by
a
competent
court." 11
The reason thus given by Manresa in considering such prohibited acquisitions under Article 1459 of the Spanish
Civil Code as merely voidable at the instance and option of the vendor and not void "that the Code does not
recognize such nullity de plenoderecho" is no longer true and applicable to our own Philippine Civil Code
whichdoes recognize the absolute nullity of contracts "whose cause, object, or purpose is contrary to law,
morals, good customs, public order or public policy" or which are "expressly prohibited or declared void by
law" and declares such contracts "inexistent and void from the beginning." 12
The Supreme Court of Spain and modern authors have likewise veered from Manresa's view of the Spanish
codal provision itself. In its sentencia of 11 June 1966, the Supreme Court of Spain ruled that the prohibition of
Article 1459 of the Spanish Civil Code is based on public policy, that violation of the prohibition contract
cannot be validated by confirmation or ratification, holding that:
... la prohibicionque el articulo 1459 del C.C. establecerespecto a los administradores y
apoderados, la cualtieneconforme a la doctrina de estaSala, contendia entre otras, en S. de 27-51959, un fundamento de orden moral lugar la violacion de esta a la nulidad de plenoderecho del

acto o negociocelebrado, ... y prohibicion legal, afectante ordenpublico, no cabe con

efectoalguno la aludidaretification ... 13
The criterion of nullity of such prohibited contracts under Article 1459 of the Spanish Civil Code (Article 1491
of our Civil Code) as a matter of public order and policy as applied by the Supreme Court of Spain to
administrators and agents in its above cited decision should certainly apply with greater reason to judges,
judicial officers, fiscals and lawyers under paragraph 5 of the codal article.
Citing the same decisions of the Supreme Court of Spain, Gullon Ballesteros, his "Curso de Derecho Civil,
(ContratosEspeciales)" (Madrid, 1968) p. 18, affirms that, with respect to Article 1459, Spanish Civil Code:.
Quecaractertendra la compraque se realiceporestas personas?Porsupuesto no cabeduda de que el
caso (art.) 1459, 40 y 50, la nulidadesabsolutaporque el motivo de la prohibiciones de
ordenpublico. 14
Perez Gonzales in such view, stating that "Dado el caracterprohibitivodelprecepto, la consequencia de la
infracciones la nulidad radical y ex lege." 15
Castan, quoting Manresa's own observation that.
"El fundamento do estaprohibicionesclarisimo. No satrata con esteprecepto tan solo de guitar la ocasion al
fraude; persiguese, ademaselproposito de rodear a las personas queintervienen en la administrciondejusticia de
todos los retigiosquenecesitanporaejercersuministeriolibrandolos de todasuspecha, queaunquefuere in
fundada, redunduraendescredito de la institucion." 16 arrives at the contrary and now accepted view that
"Puedeconsiderace en nuestroderecho inexistente 'o radicalmentenulo el contrato en los siguentes cases: a) ...;
b) cuando el contrato se ha celebrado en violacion de una prescripcion 'o prohibicion legal,
fundadasobremotivos de ordenpublico (hipotesis del art. 4 delcodigo) ..." 17
It is noteworthy that Caltan's rationale for his conclusion that fundamental consideration of public policy render
void and inexistent such expressly prohibited purchase (e.g. by public officers and employees of government
property intrusted to them and by justices, judges, fiscals and lawyers of property and rights in litigation and
submitted to or handled by them, under Article 1491, paragraphs (4) and (5) of our Civil Code) has been
adopted in a new article of our Civil Code, viz, Article 1409 declaring such prohibited contracts as "inexistent
and void from the beginning." 18
Indeed, the nullity of such prohibited contracts is definite and permanent and cannot be cured by ratification.
The public interest and public policy remain paramount and do not permit of compromise or ratification. In his
aspect, the permanent disqualification of public and judicial officers and lawyers grounded on public
policy differs from the first three cases of guardians, agents and administrators (Article 1491, Civil Code), as to
whose transactions it had been opined that they may be "ratified" by means of and in "the form of a
new contact, in which cases its validity shall be determined only by the circumstances at the time the execution
of such new contract. The causes of nullity which have ceased to exist cannot impair the validity of the new
contract. Thus, the object which was illegal at the time of the first contract, may have already become lawful at
the time of the ratification or second contract; or the service which was impossible may have become possible;
or the intention which could not be ascertained may have been clarified by the parties. The ratification or
second contract would then be valid from its execution; however, it does not retroact to the date of the first
contract." 19
As applied to the case at bar, the lower court therefore properly acted upon defendant-appellant's motion to
dismiss on the ground of nullity of plaintiff's alleged purchase of the land, since its juridical effects and
plaintiff's alleged cause of action founded thereon were being asserted against defendant-appellant. The

principles governing the nullity of such prohibited contracts and judicial declaration of their nullity have been
well restated by Tolentino in his treatise on our Civil Code, as follows:
Parties Affected. Any person may invoke the in existence of the contract whenever juridical
effects founded thereon are asserted against him. Thus, if there has been a void transfer of
property, the transferor can recover it by the accionreinvindicatoria; and any prossessor may
refuse to deliver it to the transferee, who cannot enforce the contract. Creditors may attach
property of the debtor which has been alienated by the latter under a void contract; a mortgagee
can allege the inexistence of a prior encumbrance; a debtor can assert the nullity of an
assignment of credit as a defense to an action by the assignee.
Action On Contract. Even when the contract is void or inexistent, an action is necessary to
declare its inexistence, when it has already been fulfilled. Nobody can take the law into his own
hands; hence, the intervention of the competent court is necessary to declare the absolute nullity
of the contract and to decree the restitution of what has been given under it. The judgment,
however, will retroact to the very day when the contract was entered into.
If the void contract is still fully executory, no party need bring an action to declare its nullity; but
if any party should bring an action to enforce it, the other party can simply set up the nullity as a
defense. 20
ACCORDINGLY, the order of dismissal appealed from is hereby affirmed, with costs in all instances against
plaintiff-appellant. So ordered.
Makalintal, Zaldivar, Castro,. Fernando, Barredo, Makasiar, Antonio and Esguerra, JJ., concur.

Republic
SUPREME
Manila

of

the

Philippines
COURT

EN BANC
G.R. No. L-24732

April 30, 1968

PIO
SIAN
MELLIZA, petitioner,
vs.
CITY OF ILOILO, UNIVERSITY OF THE PHILIPPINES and THE COURT APPEALS, respondents.
Cornelio
P.
Office of the Solicitor General for respondents.

Ravena

for

petitioner.

BENGZON, J.P., J.:

Juliana Melliza during her lifetime owned, among other properties, three parcels of residential land in Iloilo
City registered in her name under Original Certificate of Title No. 3462. Said parcels of land were known as
Lots Nos. 2, 5 and 1214. The total area of Lot No. 1214 was 29,073 square meters.
On November 27, 1931 she donated to the then Municipality of Iloilo, 9,000 square meters of Lot 1214, to serve
as site for the municipal hall. 1 The donation was however revoked by the parties for the reason that the area

donated was found inadequate to meet the requirements of the development plan of the municipality, the socalled "Arellano Plan". 2
Subsequently, Lot No. 1214 was divided by Certeza Surveying Co., Inc. into Lots 1214-A and 1214-B. And still
later, Lot 1214-B was further divided into Lots 1214-B-1, Lot 1214-B-2 and Lot 1214-B-3. As approved by the
Bureau of Lands, Lot 1214-B-1 with 4,562 square meters, became known as Lot 1214-B; Lot 1214-B-2, with
6,653 square meters, was designated as Lot 1214-C; and Lot 1214-B-13, with 4,135 square meters, became Lot
1214-D.
On November 15, 1932 Juliana Melliza executed an instrument without any caption containing the following:
Que en consideracion a la suma total de SEIS MIL CUATRO CIENTOS VEINTIDOS PESOS
(P6,422.00), monedafilipinaquepor la presentedeclarohaberrecibido a mi enterasatisfaccion del Gobierno
Municipal de Iloilo, cedo y traspaso en venta real y difinitiva a dichoGobierno Municipal de Iloilo los
lotes y porciones de los mismosque a continuacion se especifican a saber: el lote No. 5 en todasu
extension; unaporcion de 7669 metros cuadrados del lote No. 2, cuyaporcionestadesignadacomo sublotes Nos. 2-B y 2-C del piano de subdivision de dichoslotespreparadopor la Certeza Surveying Co.,
Inc., y unaporcion de 10,788 metros cuadrados del lote No. 1214 cuyaporcionestadesignadacomo
sub-lotes Nos. 1214-B-2 y 1214-B-3 del mismoplano de subdivision.
Asimismonagoconstarque la cesion y traspasoqueariba se mencionanes de ventadifinitiva, y quepara la
mejoridentificacion de los lotes y porciones de los mismosque son objeto de la presente,
hagoconstarquedichoslotes y porciones son los quenecesita el Gobierno Municipal de Iloilo para la
construccion de avenidas, parques y City Hall site del Municipal Government Center de iloilo, segun el
plano Arellano.
On January 14, 1938 Juliana Melliza sold her remaining interest in Lot 1214 to Remedios Sian Villanueva who
thereafter obtained her own registered title thereto, under Transfer Certificate of Title No. 18178. Remedios in
turn on November 4, 1946 transferred her rights to said portion of land to Pio Sian Melliza, who obtained
Transfer Certificate of Title No. 2492 thereover in his name. Annotated at the back of Pio Sian Melliza's title
certificate was the following:
... (a) that a portion of 10,788 square meters of Lot 1214 now designated as Lots Nos. 1214-B-2 and
1214-B-3 of the subdivision plan belongs to the Municipality of Iloilo as per instrument dated
November 15, 1932....
On August 24, 1949 the City of Iloilo, which succeeded to the Municipality of Iloilo, donated the city hall site
together with the building thereon, to the University of the Philippines (Iloilo branch). The site donated
consisted of Lots Nos. 1214-B, 1214-C and 1214-D, with a total area of 15,350 square meters, more or less.
Sometime in 1952, the University of the Philippines enclosed the site donated with a wire fence. Pio Sian
Melliza thereupon made representations, thru his lawyer, with the city authorities for payment of the value of
the lot (Lot 1214-B). No recovery was obtained, because as alleged by plaintiff, the City did not have funds (p.
9, Appellant's Brief.)
The University of the Philippines, meanwhile, obtained Transfer Certificate of Title No. 7152 covering the three
lots, Nos. 1214-B, 1214-C and 1214-D.
On December 10, 1955 Pio Sian Melliza filed an action in the Court of First Instance of Iloilo against Iloilo City
and the University of the Philippines for recovery of Lot 1214-B or of its value.

The defendants answered, contending that Lot 1214-B was included in the public instrument executed by
Juliana Melliza in favor of Iloilo municipality in 1932. After stipulation of facts and trial, the Court of First
Instance rendered its decision on August 15, 1957, dismissing the complaint. Said court ruled that the
instrument executed by Juliana Melliza in favor of Iloilo municipality included in the conveyance Lot 1214-B.
In support of this conclusion, it referred to the portion of the instrument stating:
Asimismohagoconstarque la cesion y traspasoquearriba se mencionanes de ventadifinitiva, y quepara la
major identificacion de los lotes y porciones de los mismosque son objeto de la presente,
hagoconstarquedichoslotes y porciones son los quenecesita el Gobierno municipal de Iloilo para la
construccion de avenidas, parques y City Hall site del Municipal Government Center de Iloilo, segun el
plano Arellano.
and ruled that this meant that Juliana Melliza not only sold Lots 1214-C and 1214-D but also such other
portions of lots as were necessary for the municipal hall site, such as Lot 1214-B. And thus it held that Iloilo
City had the right to donate Lot 1214-B to the U.P.
Pio Sian Melliza appealed to the Court of Appeals. In its decision on May 19, 1965, the Court of Appeals
affirmed the interpretation of the Court of First Instance, that the portion of Lot 1214 sold by Juliana Melliza
was not limited to the 10,788 square meters specifically mentioned but included whatever was needed for the
construction of avenues, parks and the city hall site. Nonetheless, it ordered the remand of the case for reception
of evidence to determine the area actually taken by Iloilo City for the construction of avenues, parks and for city
hall site.
The present appeal therefrom was then taken to Us by Pio Sian Melliza. Appellant maintains that the public
instrument is clear that only Lots Nos. 1214-C and 1214-D with a total area of 10,788 square meters were the
portions of Lot 1214 included in the sale; that the purpose of the second paragraph, relied upon for a contrary
interpretation, was only to better identify the lots sold and none other; and that to follow the interpretation
accorded the deed of sale by the Court of Appeals and the Court of First Instance would render the contract
invalid because the law requires as an essential element of sale, a "determinate" object (Art. 1445, now 1448,
Civil Code).
Appellees, on the other hand, contend that the present appeal improperly raises only questions of fact. And,
further, they argue that the parties to the document in question really intended to include Lot 1214-B therein, as
shown by the silence of the vendor after Iloilo City exercised ownership thereover; that not to include it would
have been absurd, because said lot is contiguous to the others admittedly included in the conveyance, lying
directly in front of the city hall, separating that building from Lots 1214-C and 1214-D, which were included
therein. And, finally, appellees argue that the sale's object was determinate, because it could be ascertained, at
the time of the execution of the contract, what lots were needed by Iloilo municipality for avenues, parks and
city hall site "according to the Arellano Plan", since the Arellano plan was then already in existence.
The appeal before Us calls for the interpretation of the public instrument dated November 15, 1932. And
interpretation of such contract involves a question of law, since the contract is in the nature of law as between
the parties and their successors-in-interest.
At the outset, it is well to mark that the issue is whether or not the conveyance by Juliana Melliza to Iloilo
municipality included that portion of Lot 1214 known as Lot 1214-B. If not, then the same was included, in the
instrument subsequently executed by Juliana Melliza of her remaining interest in Lot 1214 to Remedios Sian
Villanueva, who in turn sold what she thereunder had acquired, to Pio Sian Melliza. It should be stressed, also,
that the sale to Remedios Sian Villanueva from which Pio Sian Melliza derived title did not specifically
designate Lot 1214-B, but only such portions of Lot 1214 as were not included in the previous sale to Iloilo
municipality(Stipulation of Facts, par. 5, Record on Appeal, p. 23). And thus, if said Lot 1214-B had been

included in the prior conveyance to Iloilo municipality, then it was excluded from the sale to Remedios Sian
Villanueva and, later, to Pio Sian Melliza.
The point at issue here is then the true intention of the parties as to the object of the public instrument Exhibit
"D". Said issue revolves on the paragraph of the public instrument aforequoted and its purpose, i.e., whether it
was intended merely to further describe the lots already specifically mentioned, or whether it was intended to
cover other lots not yet specifically mentioned.
First of all, there is no question that the paramount intention of the parties was to provide Iloilo municipality
with lots sufficient or adequate in area for the construction of the Iloilo City hall site, with its avenues and
parks. For this matter, a previous donation for this purpose between the same parties was revoked by them,
because of inadequacy of the area of the lot donated.
Secondly, reading the public instrument in toto, with special reference to the paragraphs describing the lots
included in the sale, shows that said instrument describes four parcels of land by their lot numbers and area; and
then it goes on to further describe, not only those lots already mentioned, but the lots object of the sale, by
stating that said lots are the ones needed for the construction of the city hall site, avenues and parks according
to the Arellano plan. If the parties intended merely to cover the specified lots Lots 2, 5, 1214-C and 1214-D,
there would scarcely have been any need for the next paragraph, since these lots are already plainly and very
clearly described by their respective lot number and area. Said next paragraph does not really add to the clear
description that was already given to them in the previous one.
It is therefore the more reasonable interpretation, to view it as describing those other portions of land
contiguous to the lots aforementioned that, by reference to the Arellano plan, will be found needed for the
purpose at hand, the construction of the city hall site.
Appellant however challenges this view on the ground that the description of said other lots in the aforequoted
second paragraph of the public instrument would thereby be legally insufficient, because the object would
allegedly not be determinate as required by law.
Such contention fails on several counts. The requirement of the law that a sale must have for its object a
determinate thing, is fulfilled as long as, at the time the contract is entered into, the object of the sale is capable
of being made determinate without the necessity of a new or further agreement between the parties (Art. 1273,
old Civil Code; Art. 1460, New Civil Code). The specific mention of some of the lots plus the statement that the
lots object of the sale are the ones needed for city hall site, avenues and parks, according to the Arellano plan,
sufficiently provides a basis, as of the time of the execution of the contract, for rendering determinate said lots
without the need of a new and further agreement of the parties.
The Arellano plan was in existence as early as 1928. As stated, the previous donation of land for city hall site on
November 27, 1931 was revoked on March 6, 1932 for being inadequate in area under said Arellano plan.
Appellant claims that although said plan existed, its metes and bounds were not fixed until 1935, and thus it
could not be a basis for determining the lots sold on November 15, 1932. Appellant however fails to consider
that thearea needed under that plan for city hall site was then already known; that the specific mention of some
of the lots covered by the sale in effect fixed the corresponding location of the city hall site under the plan; that,
therefore, considering the said lots specifically mentioned in the public instrument Exhibit "D", and the
projected city hall site, with its area, as then shown in the Arellano plan (Exhibit 2), it could be determined
which, and how much of the portions of land contiguous to those specifically named, were needed for the
construction of the city hall site.
And, moreover, there is no question either that Lot 1214-B is contiguous to Lots 1214-C and 1214-D,
admittedly covered by the public instrument. It is stipulated that, after execution of the contract Exhibit "D", the
Municipality of Iloilo possessed it together with the other lots sold. It sits practically in the heart of the city hall

site. Furthermore, Pio Sian Melliza, from the stipulation of facts, was the notary public of the public instrument.
As such, he was aware of its terms. Said instrument was also registered with the Register of Deeds and such
registration was annotated at the back of the corresponding title certificate of Juliana Melliza. From these
stipulated facts, it can be inferred that Pio Sian Melliza knew of the aforesaid terms of the instrument or is
chargeable with knowledge of them; that knowing so, he should have examined the Arellano plan in relation to
the public instrument Exhibit "D"; that, furthermore, he should have taken notice of the possession first by the
Municipality of Iloilo, then by the City of Iloilo and later by the University of the Philippines of Lot 1214-B as
part of the city hall site conveyed under that public instrument, and raised proper objections thereto if it was his
position that the same was not included in the same. The fact remains that, instead, for twenty long years, Pio
Sian Melliza and his predecessors-in-interest, did not object to said possession, nor exercise any act of
possession over Lot 1214-B. Applying, therefore, principles of civil law, as well as laches, estoppel, and equity,
said lot must necessarily be deemed included in the conveyance in favor of Iloilo municipality, now Iloilo City.
WHEREFORE, the decision appealed from is affirmed insofar as it affirms that of the Court of First Instance,
and the complaint in this case is dismissed. No costs. So ordered.
Reyes, J.B.L., Actg. C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur.
Concepcion , C.J., is on leave.

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EN BANC
G.R. No. L-15605

October 31, 1962

U R S U L A
F R A N C I S C O ,
p l a i n t i f f - a p p e l l e e ,
v
s
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JULIAN RODRIGUEZ, ET AL., defendants-appellants.
Suazo, Viola and Buagas and Claro M. Recto for defendants -appellants.
Tesorero, Quitain and Vega and Jose A. Cusi for plaintiff-appellee.
REGALA, J.:
This is the second time that this case is brought before us on appeal.
The antecedent facts are not disputed and are stated in Our decision dated May 21, 1956, in G.R. No. L-8263, as
follows:
Plaintiff was born a Mora with the name of "Silipot" who was baptized as a Christian at the age of thirty-five. S
he was an illiterate. She applied in Sales Application No. 157 for the purchase of Lot No. 595, Cadastral No. 10
2, situated in barrio Bunawan, Davao City, and thereafter cultivated it, planting thereon abaca, coconuts, cacao,
lanzones, nanca and durian, and declared it for purposes of taxation in 1932, assessed value at the time was P4,2
80.
On August 10, 1935, her sales application was rejected because she had permitted herself to be a dummy, thoug
h she continued in the possession of the property. On September 2, 1935, she filed a motion for reconsideration
by means of an affidavit signed and subscribed before her lawyer, defendant Julian A. Rodriguez. A year afterw
ards, or on April 27, 1936, this lawyer sent a letter to the Bureau of Lands at Davao, enclosing an affidavit of Ur
sula Francisco, stating that the aliens had already left the place, and on August 12, 1939, or two years later again
sent a letter to the Bureau of Lands, this time at Manila, urging that 'in view of the fact that this case is now pen
ding for nearly three years, may I ask now that action be expedited?' There was no reply to this letter, but in Jun

e, 1940, Ursula Francisco, being in need of a money because of the impending foreclosure of another parcel of l
and and of the recent death of her son-in-law, husband of Casiana, and because of the expenses needed by her gr
andson Jose who was in Manila, approached her lawyer Rodriguez asking him for a loan of P1,000, and while J
ulian did not consent at first, he finally agreed, though insisting on an absolute conveyance of the property, less
four hectares which should be segregated for the vendor. To this end the land was surveyed for subdivision in M
ay, 1940, and the following month a document was executed on June 10, 1940 conveying 29 hectares of the lan
d to Rodriguez for the sum of P2,000, which was thumbmarked by Ursula who received the first payment of P5
00.00.
It appears, however, that Ursula was of the belief that the document she signed was one of antichresis, and when
she discovered that the document she thumb-marked was a deed of absolute sale, she filed an action in the Cour
t of First Instance of Davao against the now defendant Rodriguez and her daughter Monina seeking the annulme
nt of said document (Civil Case No. 9-R), and although the document, marked Exhibit D-1, was declared null a
nd void, she lost the case because the land in question was then not considered her property but of the Governm
ent. On October 30, 1947, or two months after the decision in said case was rendered, the Bureau of Lands reins
tated Ursula's application, but Rodriguez asked for reconsideration on the ground that he was the owner of 29 he
ctares. His motion was denied by order of the Bureau of Lands on June 17, 1948. A supplemental motion filed b
y Rodriguez was also denied on November 18, 1948 though upon the latter's application, the Bureau of Lands st
ayed on December 4, 1948, the execution of the reinstatement. Finally, on February 17, 1949, the Secretary of
Agriculture remanded the case to the Bureau of Lands for a formal investigation, which had not yet been compl
eted at the time the present case was decided in the lower court. In view of this state of affairs, on August 27, 19
48, Ursula Francisco instituted this action which was decided by the trial court as stated in the early part of this
decision.
On the basis of the above facts, the trial court, on April 28, 1949, rendered a decision declaring both plaintiff Ur
sula Francisco and defendants, herein appellants, not entitled to the possession of the land in litigation and leavi
ng the disposition of said land to the officials of the Department of Agriculture.
On appeal, this Court affirmed the said decision, making the following pronouncements:
. . ., there is no doubt that the deed of conveyance executed by plaintiff in favor of defendant on June 10, 1940 i
s null and void not only because the rights of plaintiff under her sales application had been cancelled by the Bur
eau of Lands in the belief that she permitted herself to be a dummy of the Japanese but especially because the c
onveyance was made without previous approval of the Secretary of Agriculture as required by law (Section 29,
Commonwealth Act No. 141). . . . It is therefore clear that the conveyance is null and void and produced as a co
nsequence the reversion of the property with all rights thereto to the State.
xxx

xxx

xxx

There is however a redeeming feature that may throw light on the present controversy. We know that the sales a
pplication of plaintiff has been reinstated by the Bureau of Lands but the effect of which were stayed upon petiti
on of defendant. And because of his conflict, the Secretary of Agriculture has ordered a formal investigation ap
parently in an effort to determine once and for all the rights and equities of the parties. Unfortunately, the invest
igation has not yet been completed when this case was initiated and from a recent correspondence received by t
his Court from the Bureau of Lands the same is still pending, awaiting the outcome of the present case. Conside
ring that under the provisions of Sections 3, 4 and 5 of Commonwealth Act No. 141 of the Director of Lands, su
bject to the control of Secretary of Agriculture, is given direct executive control of any disposition of lands of th
e public domain and his decision as to questions of fact, if approved, are deemed conclusive upon this Court, we
believe that this matter may well be left to whatever action may be taken by said officials with regard to the lan
d in litigation. This is especially so because the root cause which emanates the nullity of the transaction hinges
merely the lack of approval of the Secretary of Agriculture and Natural Resources. Viewing the controversy in t
his light, we are of the opinion that the trial court did not err when it concluded that "Plaintiff must wait until th
e Department of Agriculture finally brings down the hammer. If she wants auxiliary relief, that department shall

grant it."
Believing that the aforequoted decision of this Court restored them to their status ante litem motam, both parties
filed with Us separate motions for reconsideration with a view of obtaining possession of the property in litigati
on and the fruits thereofpendente lite. The motions were denied, and after the record of the case had been return
ed to the lower court, the parties there again attempted to get possession of the property by filing the correspond
ing motions. The trial court, however, denied their motions on the ground that it is either the Secretary of Agric
ulture or the Director of Lands who should ask for possession of the property.
In the meantime, or on October 22, 1956, the investigation mentioned in the decision of this Court being conduc
ted by the Bureau of Lands in connection with the property in litigation having been finally accomplished, decis
ion was rendered by the Secretary of Agriculture, the dispositive part of which reads:
In view hereof, the instant appeal by Julian Rodriguez and Monina Rodriguez is hereby dismissed; their claims t
o the portion of 29.3298 hectares involved herein and its improvements, denied; and whatever rights or interests
appellee Ursula Francisco may have in said lands and improvements, declared vacant; and steps leading to its s
ale including the improvements, in a public bidding shall forthwith be taken.
The Office of the President has affirmed this decision in toto.
Pursuant thereto, the Director of Lands, on December 8, 1958, filed in the trial court a motion to intervene in Ci
vil Case No. 268, praying that the receiver (who was appointed at the outset of the case before it was brought to
Us on appeal for the first time) be required to give an accounting and that thereafter the receivership be dissolve
d. The motion was granted and the receiver was ordered to deposit any cash in his possession with the Philippin
e National Bank and submit his report for its approval. In compliance with this last mentioned order, the said re
ceiver submitted his statement of accounts and on September 12, 1958, his final accounts were approved.
On October 12, 1958, defendants filed a motion asking for possession of property and discharge or receiver, and
on October 28, 1958, said defendants, together with plaintiff, filed a joint motion praying that the proceeds of t
he property be delivered to and divided between them equally. In denying these two motions, the trial court, on
November 14, 1958 ordered
. . . the receiver to turn over the property and deliver to the Bureau of Lands all accountability of said receiver a
nd thereafter the receivership is considered dissolved. Upon submission and approval of this Court of the accou
nts of the receiver from the last date of the approved accounting up to the present time, this case shall be consid
ered closed.
The defendants moved to have this order reconsidered but having been denied, they interposed the present appe
al with the following assignment of errors:
THE TRIAL COURT ERRED IN DECLARING THAT THE LAND IN LITIGATION IS ALREADY REVER
TED TO THE STATE, AND AS SUCH, THE PROPERTY MUST BE TURNED OVER TO THE GOVERNM
ENT.
THE LOWER COURT ERRED IN DECLARING THAT THE OWNERSHIP OF THE LAND IN QUESTION
BY STATE CARRIES WITH IT THE RIGHT TO POSSESS.
THE LOWER COURT ERRED IN NOT DECLARING DEFENDANTS ENTITLED TO THE MATERIALS
AND PHYSICAL POSSESSION OF THE LAND IN QUESTION AND IN NOT TERMINATING THE RECE
IVERSHIP IN THIS CASE.
The appeal is without merit.
This Court in G.R. No. L-8263 has expressed in no certain terms that the conveyance of the land in quest from
Ursula Francisco to the Rodriguezes is "null and void and produced as a consequence the reversion of the prope
rty with all rights thereto to the State." This pronoucement is well in accordance with the following wording of

Section 29 of Commonwealth Act 141:

. . . Any sale and encumbrance made without the previous approval of the Secretary of Agriculture and Commer
ce shall be null and void and shall produce the effect of annulling the acquisition and reverting the property and
all rights thereto to the State, and all payments on the purchase price therefore made to the Government shall be
forfeited. . . .
The reversion referred to is self-operative and no separate action need be instituted by the Government for that p
urpose.
The parties, however, insist on a formal action for reversion, citing Section 101 of the Public Land Law (Comm
onwealth Act 141), which provides that "all actions for the reversion to the Government of lands of the public d
omain or improvements thereof shall be instituted by the Solicitor General or the officer acting in his stead, in th
e proper courts, in the name of the Commonwealth of the Philippines." But the aforequoted section does not app
ly here. The same may be invoked only when title has already vested in the individual, e.g., when a patent or a c
ertificate of title has already been issued. As already stated, no new separate action is necessary for the reversio
n of the property in question and futile for the parties to ask for possession of the same.
Neither may the parties claim for the proceeds of the property during the pendency of this case because "all righ
ts in and interest to, and the improvements and crops upon, land for which an application has been denied or can
celled or a patent or grant refused, or a contract or concession rescinded or annulled, shall be forfeited to the Go
vernment" (Section 98, Public Land Law).
It is, however, contended that the property as well as the fruit thereof pendente lite cannot be delivered to the Di
rector of Lands, because he is not a party to the case. We do not think the contention is tenable. One of the purp
oses for which a receivership is established is to preserve the property during the pendency of the litigation or to
dispose of it according to the judgment when the judgment is finally rendered or otherwise to carry the judgme
nt into effect. This Court has already made the pronouncement in G.R. No. L-8263 that the land in question reve
rted to the State, and directed the officials of the Department of Agriculture to take whatever action is necessary
with regard to said land. In accordance therewith, the Director of Lands filed a motion to intervene in the proce
edings and the same was granted by the lower court. It cannot be argued, therefore, that the Director of Lands is
not a party to this case.
Of course, We have taken note that the intervention by the Director of Lands was not strictly in accordance with
Rule 13 of the Rules of Court. But the motion was not so filed as to have unduly delayed the disposition of the
case and substantially impaired the rights of the original parties. On the other hand, the circumstances obtaining
in the proceedings pointed to the advisability, even necessity, of having the intervenor take part therein. An exa
mination of the record shows that this case has pending since 1948 and that the parties have patently no right wh
atsoever to the land in question. To require a strict compliance with the Rules would only further delay the proc
eedings and subject both parties as well as government to additional unnecessary expense. Technicality, when it
deserts its proper office as an aid to justice and becomes its great hindrance and chief enemy, deserves scant co
nsideration. (Alonso v. Villamor, 16 Phil. 315).
IN VIEW OF THE FOREGOING, the order appealed from is hereby affirmed, without special pronouncement
as to costs.
Bengzon, C.J., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon and Makalintal
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Padilla, J., took no part.
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G.R. No. 73564 March 25, 1988

CORNELIA CLANOR VDA. DE PORTUGAL, FRANCISCO C. PORTUGAL, PETRONA C. PORTUG
AL, CLARITA PORTUGAL, LETICIA PORTUGAL, and BENEDICTO PORTUGAL, JR., petitioners,
v
s
.
INTERMEDIATE APPELLATE COURT and HUGO C. PORTUGAL, respondents.

SARMIENTO, J.:
Seeking the reversal of the decision 1 dated October 21, 1985 of the former Intermediate Appellate Court in CAG.R. CV No. 70247, entitled "Cornelia Clanor Vda. de Portugal, et al. vs. Hugo Portugal, and the reinstatement
of the decision 2 in their favor, dated June 30, 1980, of the Court of First Instance of Cavite in Civil Case No. N
C-699 entitled "Cornelia Vda. de Portugal, et al. vs. Hugo Portugal," the petitioners now come to us by way of
this petition for review by certiorari.
The factual background that gave rise to the present controversy is summarized as follows:
Petitioner Cornelia Clanor and her late husband Pascual Portugal, during the lifetime of the latter, were able to a
ccumulate several parcels of real property. Among these were a parcel of residential land situated in Poblacion,
Gen. Trias, Cavite, designated as Lot No. 3201, consisting of 2,069 square meters, more or less, and covered by
T.C.T. No. RT-9355, in their names, and an agricultural land located at Pasong Kawayan, Gen. Trias, Cavite, wi
th an area of 43,587 square meters, more or less, known as Lot No. 2337, and also registered in their names und
er T.C.T. No. RT-9356 of the Registry of Deeds for the Province of Cavite.
Sometime in January, 1967, the private respondent Hugo Portugal, a son of the spouses, borrowed from his mot
her, Cornelia, the certificates of title to the above-mentioned parcels of land on the pretext that he had to use the
m in securing a loan that he was negotiating. Cornelia, the loving and helpful mother that she was, assented and
delivered the titles to her son. The matter was never again brought up until after Pascual Portugal died on Nove
mber 17, 1974. (Cornelia herself died on November 12, 1987.) When the other heirs of the deceased Pascual Po
rtugal, the petitioners herein, for the purposes of executing an extra-judicial partition of Pascual's estate, wished
to have all the properties of the spouses collated, Cornelia asked the private respondent for the return of the two
titles she previously loaned, Hugo manifested that the said titles no longer exist. When further questioned, Hugo
showed the petitioners Transfer Certificate of Title T.C.T. No. 23539 registered in his and his brother Emiliano
Portugal's names, and which new T.C.T. cancelled the two previous ones. This falsification was triggered by a d
eed of sale by which the spouses Pascual Portugal and Cornelia Clanor purportedly sold for P8,000.00 the two p
arcels of land adverted to earlier to their two sons, Hugo and Emiliano. Confronted by his mother of this fraud,
Emiliano denied any participation. And to show his good faith, Emiliano caused the reconveyance of Lot No. 23
37 previously covered by TCT No. RT-9356 and which was conveyed to him in the void deed of sale. Hugo, on
the other hand, refused to make the necessary restitution thus compelling the petitioners, his mother and his othe
r brothers and sisters, to institute an action for the annulment of the controversial deed of sale and the reconveya
nce of the title over Lot No. 3201 (the residential land). After hearing, the trial court rendered its decision, the di
spositive portion of which reads:
xxx xxx xxx
WHEREFORE, under our present perspectives, judgment is hereby rendered; and the Court hereby declares ino
perative the Deed of Sale (Exhibit A and Exhibit 1) and all its appertaining and subsequent documents correspo
nding with Transfer Certificate of Title No. T-23539 of the Register of Deeds for the Province of Cavite, as well
as all subsequent Transfer Certificates of Title which may have been produced corresponding to the parcels of l
and, subject matter hereof.
SO ORDERED. 3
From this decision, Hugo Portugal, the private respondent herein and the defendant in the trial court, appealed t

o the respondent appellate court which reversed, hence the present petition.
The issues raised by the petitioners are:
1. Whether or not the present action has prescribed;
2. Whether or not the respondent court was justified in disturbing the trial court's findings on the credibility of t
he witnesses presented during the trial; and
3. Whether or not the appellate court could entertain the defense of prescription which was not raised by the pri
vate respondents in their answer to the complaint nor in a motion to dismiss.
We find the petition meritorious.
There is really nothing novel in this case as an the issues raised had been, on several occasions, ruled upon by th
e Court. Apropos the first issue, which is the timeliness of the action, the trial court correctly ruled that the actio
n instituted by the petitioners has not yet prescribed. Be that as it may, the conclusion was reached through an er
roneous rationalization, i.e., the case is purely for reconveyance based on an implied or constructive trust. Obvi
ously, the trial court failed to consider the lack of consideration or cause in the purported deed of sale by which
the residential lot was allegedly transferred to the private respondent by his parents. On the other hand, the resp
ondent Intermediate Appellate Court held that since the action for reconveyance was fathered by a fraudulent de
ed of sale, Article 1391 of the Civil Code which lays down the rule that an action to annul a contract based on fr
aud prescribes in four years, applies. Hence, according to the respondent court, as more than four years had elap
sed from January 23, 1967 when the assailed deed was registered and the petitioners' cause of action supposedly
accrued, the suit has already become stale when it was commenced on October 26, 1976, in the Court of First I
nstance of Cavite. For reasons shortly to be shown, we can not give our imprimatur to either view.
The case at bar is not purely an action for reconveyance based on an implied or constructive trust. Neither is it o
ne for the annullment of a fraudulent contract. A closer scrutiny of the records of the case readily supports a fin
ding that fraud and mistake are not the only vices present in the assailed contract of sale as held by the trial cour
t. More than these, the alleged contract of sale is vitiated by the total absence of a valid cause or consideration.
The petitioners in their complaint, assert that they, particularly Cornelia, never knew of the existence of the ques
tioned deed of sale. They claim that they came to know of the supposed sale only after the private respondent, u
pon their repeated entreaties to produce and return the owner's duplicate copy of the transfer certificate of title c
overing the two parcels of land, showed to them the controversial deed. And their claim was immeasurably bols
tered when the private respondent's co-defendant below, his brother Emiliano Portugal, who was allegedly his c
o-vendee in the transaction, disclaimed any knowledge or participation therein. If this is so, and this is not contr
adicted by the decisions of the courts below, the inevitable implication of the allegations is that contrary to the r
ecitals found in the assailed deed, no consideration was ever paid at all by the private respondent. Applying the
provisions of Articles 1350, 1352, and 1409 of the new Civil Code in relation to the indispensable requisite of a
valid cause or consideration in any contract, and what constitutes a void or inexistent contract, we rule that the d
isputed deed of sale is void ab initio or inexistent, not merely voidable. And it is provided in Article 1410 of the
Civil Code, that '(T)he action or defense for the declaration of the inexistence of a contract does not prescribe.
But even if the action of the petitioners is for reconveyance of the parcel of land based on an implied or constru
ctive trust, still it has been seasonably filed. For as heretofore stated, it is now settled that actions of this nature
prescribe in ten years, the point of reference being the date of registration of the deed or the date of the issuance
of the certificate of titIe over the property. 4 In this case, the petitioner commenced the instant action for reconv
eyance in the trial court on October 26, 1976, or less than ten years from January 23, 1967 when the deed of sal
e was registered with the Register of Deeds. 5 Clearly, even on this basis alone, the present action has not yet pr
escribed.
On the credibility of witnesses presented in court, there is no doubt that the trial court's findings on this score de
serves full respect and we do not have any reason to disturb it here now. 6 After all, the trial court judge is in a b
etter position to make that appreciation for having heard personally the witnesses and observed their deportment
and manner of testifying during the trial. 7 The exceptions to this time honored policy are: when the trial court p

lainly overlooked certain facts of substantial import and value which if only correctly considered by the court m
ight change the outcome of the case; 8 and, if the judge who rendered the decision was not the one who heard th
e evidence. 9 Neither of these exceptions is present here. Therefore, the respondent appellate court's ruling quest
ioning the credibility of petitioner Cornelia Clanor Vda. de Portugal must be reversed.
Anent the last issue raised by the petitioner, we have already ruled that the defense of prescription although not
raised by the defendant may nevertheless be passed upon by the court when its presence is plainly apparent on t
he face of the complaint itself. 10 At any rate, in view of our earlier finding that the deed of sale in controversy i
s not simply fraudulent but void ab initio or inexistent our ruling on this third issue would not have any material
bearing on the overall outcome of this petition. The petitioner's action remains to be seasonably instituted.
WHEREFORE, the petition is hereby GRANTED; the Decision dated October 21, 1985 and the Resolution date
d January 24, 1986 of the Intermediate Appellate Court are hereby REVERSED and SET ASIDE; the deed of sa
le dated January 23, 1967 evidencing the sale of Lot No. 3201 to private respondent Hugo Portugal is declared
VOID AB INITIO; and the private respondent is ORDERED to reconvey to petitioners the title over the said Lo
t No. 3201 which is now under TCT No. T-23539. Costs against the private respondent.
SO ORDERED.
Yap (Chairman), Melencio-Herrera, Paras and Padilla, JJ., concur.

G.R. No. L-25777

November 26, 1976

ASUNCION MENESES VDA. DE CATINDIG, petitioner-appellant,

vs.
The Heirs of CATALINA ROQUE, namely, ESCOLASTICO CERVANTES, LEONCIA CERVANTES and
EMERENCIANA CERVANTES, represented by her guardian ad litem, DAMASO SANTOS; CARLOS
KATIPUNAN; Heirs of JORGE KATIPUNAN; Heirs of ROBERTO ROQUE, namely, MAGDALENA,
GORGONIA and ELISA, all surnamed ROQUE; INES ROQUE; Heirs of BARBARA ROQUE
VILLANUEVA, namely, MERCEDES VILLANUEVA FAJARDO, VENANCIA VILLANUEVA, LIGAYA
VILLANUEVA, PEDRO VILLANUEVA, PABLO VILLANUEVA, LEONILA VILLANUEVA, MARCIAL
VILLANUEVA; Heirs of APOLONIO ROQUE, namely, DOLORES, AURELIA, CONSTANCIO,
GUILLERMO, JOSEFINA, all surnamed ROQUE, DEMETRIA RAMIREZ; ENCARNACION CAMINGAL,
as guardian ad litem of RENATO and ERNESTO, both surnamed ROQUE; Heirs of IRENE BOLORAN,
namely, HERMOGENA, CIRIACO, VICENTE and DOMINADOR, all surnamed TOLENTINO; Heirs of
LEONILA DE GUZMAN, namely, PETRONILA, MARCELINA and PEAFRANCIA, (all surnamed
SANTIAGO, CIPRIANA) and PASTORA, both surnamed SANTIAGO, both minors, represented by
PETRONILA SANTIAGO, as guardian ad litem; GERMAN RAMIREZ; Heirs of CONCORDIA ROQUE,
namely, BELEN and GUILLERMO, both surnamed PAGSANJAN, respondents-appellees.
Tansinsin & Tansinsin for petitioner-appellant.
Pablo, Diaz, Agosto & Palacio for respondent-appellees.
AQUINO, J.:
Asuncion Meneses Vda. de Catindig seeks the review of the decision of the Court of Appeals dated December
31, 1965 which affirmed the judgment of the Court of First Instance Bulacan. The lower court declared void
certain documents of sale regarding portions of the fishpond in litigation, ordered Mrs. Catindig to deliver to the
respondents (except German Ramirez) the possession of the said fishpond, to pay to them, as the reasonable
compensation for the use and enjoyment of the fishpond, the sum of P6,000 per annum from October 1, 1951
until the possession of the fishpond is restored to the respondents, plus P1,000 as attorney's fees, and allowed

the respondents to redeem from Mrs. Catindig the 2/16 portion of the fishpond which German Ramirez had sold
to her.
The facts are as follows:
The said fishpond, known as Lot No. 4626 of the Malolos Cadastre, has an area of more than thirteen hectares.
As shown in Original Certificate of Title No. 7937, it is registered in the names of the following persons:
1.

Catalina Roque, married to Anastacio Katipunan

6/16

2.

Roberto Roque, married to Gregoria Borlongan

2/16

3.

Ines Roque, married to Lucio Adriano

4.

Barbara Roque, married to Eusebio Villanueva

1/16

5.

Apolonio Roque, married to Isabel Borlongan

1/16

6.

Concordia Roque, single

7.

German Ramirez

8.

Irene Boloran, married to Faustino Panganiban

9.

Leonila de Guzman, 12 years old, single

1/16

2/16

1/16
1/16

1/16

The co-owners of the fishpond leased it to Mrs. Catindig for a term of ten years counted from October 1, 1941
for a total rental of six thousand pesos (Exh. C-1; Amendment to Decision, per Resolution of February 22,
1966).
After the termination of the lease on September 30, 1951, Mrs. Catindig remained in possession of the fishpond
because she was negotiating with the co-owners for the purchase thereof. She wanted to buy it for P52,000.
On October 18, 1960 German Ramirez, one of the co-owners, executed a deed wherein he sold his 2/16 share to
Mrs. Catindig for P6,500 (Exh. E). The sale was annotated on the title on October 19, 1960. Two weeks later,
Pedro Villanueva, one of the co-owners, learned of the sale executed by German Ramirez. That sale retroacted
to April 13, 1950.
On November 18, 1960 the respondents filed this action against Mrs. Catindig to compel her to allow them to
redeem the portion sold by German Ramirez. In April, 1962 the respondents amended their complaint by
including, inter alia, a prayer for the recovery of the possession of the fishpond.
The Court of Appeals found that:
1.
The consideration of P52,000 was not paid by Mrs. Catindig to the co-owners because she was not able
to obtain a loan, the proceeds of which would have been used to pay the co-owners who had executed simulated
sales of their shares, as shown in the private documents, Exhibits 6 to 26. (The originals of those documents
were allegedly lost. Only photostatic copies thereof were presented in evidence).
2.
Because Mrs. Catindig did not pay the price of P52,000, the projected sale, "which was in truth a
simulated one so as to enable her just to mortgage the property in order to secure the necessary amount with

which to pay the consideration" was void ab initio. There was no notarized deed of sale because Mrs. Catindig
did not pay the price to the co-owners except German Ramirez.
3.
Ines Roque and the heirs of Roberto Roque did not barter their shares for the two parcels of land owned
by Mrs. Catindig. What the said co-owners did was to possess the lands of Mrs. Catindig in exchange for the
latter's possession of their shares in the fishpond.
4.
Considering the area of the fishpond and the upward trend in values, the amount of P6,000 a year is the
reasonable compensation for its use and enjoyment (Resolution amending the decision).
The fourteen assignments of error of Mrs. Catindig in this appeal are overlapping and repetitious She argues
that the Court of Appeals erred in holding (1) that the sale of the fishpond to her is void for nonpayment of the
price; (2) that the price was not paid because she did not obtain any loan; (3) that the annual rental value is
P6,000; (4) that the transaction between Mrs. Catindig, on one hand, and Ines Roque and the heirs of Roberto
Roque, on the other, was an exchange of possession and not "land for land", and (5) that German Ramirez sold
his share on October 18, 1960 and not on April 13, 1950
Those assignments of error involve factual issues which cannot be ventilated in a review of the decision of the
Court of Appeals. Only legal questions may be raised (Sec. 29, Judiciary Law; Sec. 2, Rule 45, Rules of Court).
As a rule, the factual findings of the Court of Appeals are conclusive on this Court.
The conclusive factual finding of the Appellate Court that the alleged sales on April 13 or 14, 1950 of
respondents' shares are simulated and void ab initio (See Onglengco vs. Ozaeta, 70 Phil. 43) renders untenable
appellant Catindig's contentions that the remedies available to the respondents, such as an action for annulment,
rescission or reformation, are barred by prescription or laches.
The alleged sales were absolutely simulated, fictitious or inexistent contracts (Arts. 1346 and 1409[2], Civil
Code). "The action or defense for the declaration of the inexistence of a contract does not prescribe" (Art. 1410,
Ibid; Eugenio vs. Perdido, 97 Phil. 41). Mere lapse of time cannot give efficacy to a void contract (Tipton vs.
Velasco, 6 Phil. 67).
The Appellate Court's finding that the price was not paid or that the statement in the supposed contracts of sale
(Exh. 6 to 26) as to the payment of the price was simulated fortifies the view that the alleged sales were void.
"If the price is simulated, the sale is void ..." (Art. 1471, Civil Code).
A contract of sale is void and produces no effect whatsoever where the price, which appears thereon as paid, has
in fact never been paid by the purchaser to the vendor (Ocejo, Perez & Co. vs. Flores and Bas, 40 Phil. 921;
Mapalo vs. Mapalo, L-21489, May 19, 1966, 64 O. G. 331, 17 SCRA 114, 122). Such a sale is non-existent
(Borromeo vs. Borromeo, 98 Phil. 432) or cannot be considered consummated (Cruzado vs. Bustos and Escaler,
34 Phil. 17; Garanciang vs. Garanciang, L-22351, May 21, 1969, 28 SCRA 229).
The foregoing discussion disposes of whatever legal issues were raised by appellant Catindig which are
interwoven with her factual contentions, including the issue as to whether she is entitled to demand the
execution of a notarized deed of sale for the 14/16 pro indiviso portion of the fishpond. She is not entitled
because, as already held, the alleged sales in her favor are void.
And in view of the result arrived at in this case, the trial court and the Court of Appeals did not err in awarding
to the respondents the sum of one thousand pesos as attorney's fees (See art. 2208, Civil Code).
Mrs. Catindig, in her thirteenth assignment of error, which is partly a reproduction of her ninth assignment of
error in the Appellate Court, injected new matters not raised in that Court.

She contends that inasmuch as the fishpond was placed under receivership by virtue of the trial court's order of
January 15, 1964 (Annex D of her brief not included in the Record on Appeal), she should not answer for the
reasonable value of the use and compensation of the fishpond from the time it was placed in the receiver's
possession.
She also contends that she is entitled to the rental value of the 2/16 portion sold to her by German Ramirez and
the 3/16 share of Ines Roque and the heirs of Roberto Roque and that the latter should restore to her the
possession of the two parcels of riceland located at Barrio Pitpitan, Bulacan, Bulacan, the possession of which
was provisionally exchanged for Mrs. Catindig's possession of their 3/16 share.
She further contends that the land taxes paid by her should be deducted from the annual rental of P6,000 (not
P600 as erroneously stated on page 88 of her brief).
The respondents, in their reply brief and rejoinder, did not answer those contentions. That silence or omission
may be construed as an admission of their merit.
To do justice in this case, we have to resolve those alternative points raised by the appellant. "It is a cherished
rule of procedure that a court should always strive to settle the entire controversy in a single proceeding leaving
no root or branch to bear the seeds of future litigation" (Marquez vs. Marquez, 73 Phil. 74, 78).
We hold that, as a matter of fairness and equity or to avoid unjust enrichment, the liability of Mrs. Catindig for
the reasonable value of the use and occupation of the fishpond should be limited to the period from October 1,
1951 up to the time in January, 1964 when she turned over the fishpond to the receiver, namely, the deputy
clerk of court of the Court of First Instance of Bulacan, Malolos Branch I.
It is the receiver who should deliver to the respondents the possession of the fishpond which apparently has
been in custodia legis.
From the compensation of P6,000 per annum which Mrs. Catindig is obligated to pay to the respondents, should
be deducted the 2/16 portion of said compensation, corresponding to the share of German Ramirez, from
October 1, 1951 to January, 1964. Thereafter, Mrs. Catindig is entitled to demand the 2/16 share in the net fruits
or earnings of the fishpond from the receiver until the said share is redeemed by the respondents.
Ines Roque and the heirs of Roberto Roque should deliver to Mrs. Catindig the possession of the two parcels of
riceland already mentioned and account for the fruits thereof beginning January, 1964 when Mrs. Catindig
ceased to have possession of their 3/16 share. The trial court should hold a hearing to determine the amount of
the net fruits which Mrs. Catindig is entitled to receive from the said co-owners. She has the right to retain the
3/16 portion of the annual rental of P6,000 corresponding to the shares of Ines Roque and the heirs of Roberto
Roque.
Moreover, the respondents (except German Ramirez), as owners of the fishpond, should reimburse Mrs.
Catindig for the amount of the land taxes advanced by her (See Exh. 27; Par. II [iii], Lease Contract, Exh. C-1).
"Any person who is constrained to pay the taxes of another shall be entitled to reimbursement from the latter"
(Art. 2175, Civil Code; See art. 597). One situation envisaged in that provision is when the possessor of land
under lease or otherwise has to pay the taxes to prevent a seizure of the property by the government, the owner
having become delinquent in the payment of the land tax (p. 72, Report of the Code Commission).
One last point should be resolved. The Court of Appeals and the trial court, in sanctioning the respondents' right
to redeem from Mrs. Catindig the 2/16 share sold to her by German Ramirez, relied on article 1088 of the Civil
Code which refers to the sale by any of the heirs of his hereditary rights to a stranger. That article has no
relevant application to this case.

Inasmuch as the fishpond is under co-ownership, not co-heirship, and what are involved herein are the shares of
co-owners, not the hereditary rights of co-heirs, it is article 1620 of the Civil Code that is applicable. Article
1620 provides that "a co-owner of a thing may exercise the right of redemption in case the shares of all the other
co-owners or of any of them, are sold to a third person." The period for exercising the right of legal redemption
is that fixed in article 1623 of the Civil Code, not the period fixed in article 1524 of the Spanish Civil Code.
WHEREFORE, the judgment of the trial court and the Court of Appeals is affirmed with the following
modifications:
1.
The receiver (not Asuncion Meneses Vda. de Catindig) should deliver the possession of the fishpond to
the respondents or their duly authorized representative, together with 14/16 of the net earnings of the fishpond
from January 15, 1964 up to the time the possession is delivered to the respondents.
2.
The receiver should deliver to Mrs. Catindig a 2/16 share of the net earnings of the fishpond,
corresponding to the share of German Ramirez, from January 15, 1964 up to the time the said share is redeemed
from her.
3.
From the annual compensation of P6,000 a year due from Mrs. Catindig for the use and enjoyment of
the fishpond from October 1, 1951 up to January 15, 1964 (when the fishpond was placed under receivership)
should be deducted (a) 2/16 which correspond to the share of German Ramirez, (b) 3/16 which correspond to
the shares of Ines Roque and the heirs of Roberto Roque, and (c) 14/16 of the realty taxes on the fishpond paid
by Mrs. Catindig (See Exh. 27).
4.
Ines Roque and the heirs of Roberto Roque should deliver to Mrs. Catindig the possession of her two
parcels of riceland located at Barrio Pitpitan, Bulacan, Bulacan, render an accounting of the fruits thereof from
January 15, 1964 up to the time the possession is delivered and pay to her the value of the net fruits thereof. For
that purpose, the trial court should hold the appropriate hearing. No costs.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION

G.R. No. L-59952

August 31, 1984

RUBY H. GARDNER and FRANK GARDNER, JR., petitioners,

vs.
COURT OF APPEALS, DEOGRACIAS R. NATIVIDAD and JUANITA A. SANCHEZ, respondents.
Mayor, Manalang, Reyes & Associates for petitioners.
Joanes Caacbay for private respondents.

MELENCIO-HERRERA, J.:
This is a Petition for the review of the Resolutions, dated April 24, 1980 and December 24, 1980, respectively,
of the then Court of Appeals in CA-G.R. No. 52729-R entitled "Ruby H. Gardner, et al. versus Deogracias R.
Natividad, et al," whereby the original Decision of said Court, promulgated on January 11, 1979, affirming in
toto the judgment of the Court of First Instance of Laguna, Branch I, Bian in Civil Case No. B-774, was
reconsidered and the appealed judgment reversed in so far as private respondents herein are concerned.
A chain of successive transfers of real property, five in all, is involved.
Petitioner Ruby H. GARDNER, married to Frank Gardner, Jr. an American (the GARDNERS, for short), was
the registered owner of two adjoining parcels of agricultural land situated at Calamba, Laguna, designated as
Lot No. 1426-new and Lot No. 4748- new, with an aggregate area of 93,688 square meters more or less, and
covered by TCT Nos. T-20571 and T-20573, respectively, of the Registry of Property of Laguna (Exhibits "A"
& "B", Folio of Exhibits).
On November 27, 1961, the GARDNERS and the spouses Ariosto C. SANTOS and Cirila Serrano (the
SANTOSES) entered into an agreement for the subdivision of the two parcels, with the SANTOSES binding
themselves to advance to the GARDNERS the amount of P93,000.00 in installments. For the protection of both
parties they executed the following documents all on the same date and referring to the same parcels of land: (1)
Absolute Deed of Sale in favor of the SANTOSES (the First Transfer, considering the nature of the document);
(2) Subdivision Joint Venture Agreement; and (3) Supplemental Agreement (Exhibits "C", "D" and "E", Ibid.).
Despite the "sale,", the GARDNERS were still denominated in the Subdivision Joint Venture Agreement and in
the Supplemental Agreement as "owners" and Ariosto SANTOS merely as "broker". It appears from the
evidence that the sale to the SANTOSES was one "in trust" for the protection of the SANTOSES who had
obligated themselves to give cash advances to the GARDNERS from time to time (Exhibits "E-2" to "E-88"
incl.) On December 5, 1961, new titles were issued in favor of the SANTOSES ( Exhibits " F " & " G ", Ibid.).
Unknown to the GARDNERS, on June 10, 1964, the SANTOSES transferred Lot No. 1426-New to Jose
Cuenca, married to Amanda Relova (the JOSE CUENCAS) (Exhibit "H", Ibid.), and on June 15, 1964, Lot No.
4748-New to Juan Cuenca, married to Soledad Advincula (the JUAN CUENCAS) (Exhibit "I", Ibid.) (jointly,
the Second Transfer). Titles were thereafter issued in their respective names (Exhibits "L" & "M", Ibid.).

Upon learning of the Transfer of the properties to the CUENCAS, petitioner 'Ruby GARDNER, caused the
inscription of an Adverse Claim on the titles of the CUENCAS with the Register of Deeds of Laguna on
December 2, 1965, Her Affidavit stated in part:
2.
My adverse claim arose from the facts that sometime in the middle part of 1961, I and Mr. Ariosto
Santos of 2162 Apolinario, Bangkal St., Makati, Rizal had an understanding and have agreed that we would
subdivide my aforedescribed properties then covered by TCT Nos. T-20571 and T-20573 for Lot No. 1426New and 4748-New, respectively, under the condition that he would advance to me a total amount of
P93,000.00, which I could withdraw little by little and from time to time; that he would improve the aforesaid
land by constructing paved roads sewers, water, other facilities that may be required by the authorities
concerned and other requirements of the subdivision laws until he shall have invested for these purposes the
sum of P234,220.00; that he assured me that the construction of these paved roads, etc. would commence
immediately;
3.
We (I and Mr. Ariosto Santos) have agreed that in order to protect his (Mr. Santos) interest to the sum of
P93,000.00, to be withdrawn by me little by little and from time to time, I would transfer to his name my
aforementioned titles in trust;
xxx

xxx

xxx

5.
In the absolute Deed of Sale it was stated that I received from Mr. Santos the sum of P70,266.00 and in
consideration of said amount, I have sold, transferred and conveyed my aforedescribed parcels of land to Mr.
Santos; but these statements were and are not true, that is why we have the other two more documents the
Subdivision Joint Venture Agreement and the Supplemental Agreement. It is stated in the Subdivision Joint
Venture Agreement, which contains our true agreement that Mr. Ariosto Santos is only my Broker, so far as the
aforedescribed parcels of land are concerned, as can be gleaned from Page 2, paragraphs 2 and 3 of the said
Subdivision Joint Venture Agreement, ...
On October 19, 1966 and November 4, 1966, the JUAN CUENCAS and the JOSE CUENCAS, respectively,
transferred the lots to Michael C. VERROYA (Exhibits "P" & Ibid.) an office assistant of Ariosto SANTOS
(the Third transfer). Titles were issued in VERROYA's name with the adverse Claim carried over.
On March 29, 1967, VERROYA constituted a mortgage on both lots in favor of Anita Nolasco and Rosario
Dalina, which encumbrance was registered on the existing titles.
On June 29, 1967, VERROYA ARROYA executed a deed of transfer of the properties to respondent
Deogracias Natividad, married to Juanita Sanchez (the NATIVIDADS) (Exhibits "V", "V-4", Ibid.) (the Fourth
Transfer).
On September 30, 1967, the NATIVIDADS transferred the lots to Ignacio Bautista and Encarnacion de los
Santos (the BAUTISTAS) (Exhibits "14", "15" [Natividad], "JJ-2", Ibid.) (the Fifth Transfer). No titles were
issued to the BAUTISTAS.
It should be noted that from the titles of the CUENCAS (the Second Transferees) to the titles of the
NATIVIDADS (the Fourth Transferee), the Adverse Claim of the GARDNERS continued to be carried, and
that throughout the successive transfers, or over a span of approximately six years, the GARDNERS continued
to remain in possession, cultivation and occupation of the disputed properties.
Aggrieved by the series of transfers, the GARDNERS filed suit on July 8, 1969 for "Declaration of Nullity,
Rescission and Damages" against the Five Transferees, including the mortgagees, Anita Nolasco and Rosario
Dalina, before the Court of First Instance of Laguna, Branch I (Civil Case No. B-774), praying for the

declaration of nullity of all the Five Transfers and the cancellation of all titles issued pursuant thereto on the
ground that they were all simulated, fictitious, and without consideration.
In their Answer, the SANTOSES claimed, in brief, that the sale to them was conditional in the sense that the
properties were to be considered as the investment of the GARDNERS in the subdivision venture and that in the
event that this did not materialize they were to reconvey the lots to the GARDNERS upon reimbursement by the
latter of all sums advanced to them; and that the deed of sale was to be registered for the protection of the
SANTOSES considering the moneys that the latter would be advancing.
For their part, respondents NATIVIDADS contended that they were purchasers in good faith notwithstanding
the adverse claim as the titles were not shown to them by VERROYA at the time of the sale, and that they had
paid good and valuable consideration.
The mortgagees, Anita Nolasco and Rosario Dalima, denied the allegations in the Complaint and
counterclaimed for damages, which the GARDNERS answered.
After the lifting of the Order of default against them, the CUENCAS filed their Answer contending that their
transfer to VERROYA of the properties in question was not simulated and was supported by valuable
consideration.
VERROYA, Juanita Sanchez (wife of Deogracias Natividad), and the BAUTISTAS were declared in default for
their failure to seasonably file their responsive pleadings. 1
The GARDNERS, aside from their documentary evidence, adduced in their favor the testimonies of Ruby
GARDNER herself, Jose Infante, an employee of the Register of Deeds of Laguna, and defendant Ariosto
SANTOS who was presented as an adverse witness.
Of the eight answering defendants, only respondent Deogracias NATIVIDAD testified on his behalf. Defendant
Ariosto SANTOS merely adopted as his own evidence the declaration he had given as an adverse witness. The
JOSE CUENCAS and the JUAN CUENCAS neither presented any testimonial evidence but just adopted the
testimony of Ariosto SANTOS. Defendants Anita Nolasco and Rosario Dalima, the mortgagees, submitted their
case after the genuineness of the deed of mortgage executed in their favor by VERROYA was admitted by the
parties. 2
On January 15, 1972, the Trial Court rendered judgment in favor of the GARDNERS declaring as null and void
the five Transfers; rescinding the Subdivision Joint Venture Agreement (Exhibit "D") as well as the
Supplemental Agreement (Exhibits "E"; ordering the GARDNERS to reimburse the SANTOSES the total cash
advances of P36,712.80 which theGARDNERS had received; authorizing the cancellation of the corresponding
titles issued pursuant to the deeds of sale and the issuance of new ones in favor of the GARDNERS; ordering
the deletion from the titles of the mortgage executed by VERROYA; and requiring the Five Transferees but not
mortgagees, Anita Nolasco and Rosario Dalima, to pay the GARDNERS P90,000.00 actual damages, P5,000.00
exemplary damages, and to pay the costs.
The respondents NATIVIDADS appealed (notwithstanding that the wife was declared in default) to the then
Court of Appeals, which, on January 11, 1979 affirmed in toto the judgment of the Trial Court. 3 The
NATIVIDADS received the Decision of affirmance on January 16, 1979. On January 29, 1979, the
NATIVIDADS asked for a 30-day extension from January 31, 1979 or up to March 2, 1979, within which to
file a Motion for Reconsideration, which was granted by respondent Court. 4 On March 2, 1979, the
NATIVIDADS filed their Motion for Reconsideration but the same was denied on November 7, 1979. 5
On December 4, 1979, a "Very Urgent Manifestation and Motion for Leave to File a Second Motion for
Reconsideration" was filed by the NATIVIDADS. The pleading was signed by Deogracias NATIVIDAD

himself. Respondent Court denied leave on December 28, 1979. 6 However, on the same date of December 28,
1979, the NATIVIDADS filed their Second Motion for Reconsideration.
On April 24, 1980, respondent Court reconsidered its Resolution of "January 7, 1980" denying respondents'
"Motion for Leave to File Second Motion for Reconsideration', and admitted said second Motion 7 (The
resolution of January 7,1980 refers to the resolution of December 28, 1979 which was released on January 7,
1980). On December 24, 1980, respondent Court 8 issued the questioned Resolution reversing its Decision of
January 11, 1979 insofar as the NATIVIDADS are concerned, declaring as valid the sale of the land to them as
well as the titles issued pursuant thereto. On January 20, 1981, the GARDNERS sought to set aside the
questioned Resolution and moved for entry of judgment averring that said Resolution was null and void for
having been issued without jurisdiction as the Decision of January 11, 1979 had already become final and
executory. The Motion was denied for lack of merit on March 4, 1982. 9
Petitioners now seek to set aside the Appellate Court's Resolutions of April 24, 1980 (granting leave to file a
2nd Motion for Reconsideration) and December 24, 1980 (reversing the original judgment), and assigning to
respondent Court the following errors:
I
The Court of Appeals erred in promulgating its resolution of April 24, 1980, because it has already lost
jurisdiction to act on the case since the decision of January 11, 1979 had already become then final and
executory.
II
The Court of Appeals erred in promulgating its resolution of December 24, 1980, because it had already then
lost jurisdiction to act on the case, much more so, to reverse through its resolution of December 24, 1980 its
decision of January 11, 1979 that has already become final and executory.
III
Assuming arguendo that it has still jurisdiction to promulgate its resolution of December 24, 1980, the Court of
Appeals erred in not holding that the defendant-appellant Deogracias Natividad's second motion for
reconsideration, just like the first motion for reconsideration, is unquestionably pro-forma, hence did not
suspend the running of the reglementary period of time.
IV
Assuming arguendo that it has still jurisdiction to promulgate its resolution of December 24, 1980, the Court of
Appeals erred in holding that the testimonies of Ariosto Santos under oath on the witness stand cannot prevail
over the allegations in Santos' answer (not verified and only signed by Ariosto Santos' counsel) and, regarding
which there is no substantial conflict or variance.
V
Assuming arguendo, it has still jurisdiction to promulgate its resolution of December 24, 1980, the Court of
Appeals erred in reversing absolutely without valid justification, its findings in its decision of January 11, 1979
and resolution of November 7, 1979, both holding that defendant-appellant Deogracias Natividad was not a
buyer in good faith and for value.
VI

Assuming arguendo that it has still jurisdiction to promulgate its resolution of December 24, 1980, the Court of
Appeals erred in reversing, absolutely without valid justification, its findings in its decision of January 11, 1979
and resolution of November 7, 1979 both holding that the sales of the questioned properties from Ruby Gardner
and spouse Frank Gardner, Jr., to Ariosto Santos and spouse Cirila Serrano, to Jose Cuenca and Juan Cuenca
and their spouses Amanda Relova and Soledad Advincula, respectively, to Michael Verroya, to Deogracias
Natividad and spouse Juanita Sanchez, to Ignacio Bautista and spouse Encarnacion delos Santos are null and
void ab initio.
VII
The Court of Appeals erred in holding that it will not hesitate to consider and hear defendant-appellant
Deogracias Natividad's second motion for reconsideration (even if it was received when the decision of January
11, 1979 was already final and executory) upon the groundless claim that Deogracias Natividad was abandoned
by his counsel, who received the resolution denying Natividad's first motion for reconsideration.
Upon the facts and the evidence, we rule that respondent Court had lost jurisdiction to entertain the second
Motion for Reconsideration because its Decision of January 11, 1979 had already become final and executory
as the following chronological data before respondent Court will show:
Jan 16, 1979 Receipt by respondents of CA Decision dated Jan. 11, 1979.
Jan. 29, 1979 Private respondents filed motion for extension of 30 days from Jan, 31, 1979 to file motion for
reconsideration.
This was granted.
Due Mar. 2, 1979.
Mar. 2, 1979 Motion for Reconsideration filed (on the last day).
Nov. 7, 1979 Reconsideration was denied.
Nov. 19, 1979 Receipt by private respondents of above resolution.
Dec. 28, 1979 Motion for Leave to file Second Motion for Reconsideration denied.
Dec. 28, 1979 Second Motion for Reconsideration filed by private respondent.
Jan. 8, 1980

Motion for Reconsideration of Resolution of Dec. 28, 1979 filed by private respondents.

April 24, 1980 Resolution reconsidering denial of Motion for Leave, and Second Motion for Reconsideration
admitted. This is one of the admitted. This is one of the disputed Resolutions.
Dec. 24, 1980 Resolution reversing Decision of January 11, 1979. This is other Resolution assailed.
Section 1, Rule 52 of the Rules of Court, provides:
Section 1.
Motion for re-hearing. A motion for re- hearing or reconsideration shall be made ex-parte and
filed within fifteen (15) days from notice of final order or judgment. No more than one motion for re-hearing or
reconsideration shall be filed without express leave of court. A second motion for reconsideration may be
presented within fifteen (15) days from notice of the order or judgment deducting the time in which the first
motion has been pending.

Evidently, the Second Motion for Reconsideration was filed beyond the reglementary, period. The
NATIVIDADS erroneously thought that they had another 15-day period from the date of receipt of denial of the
first Motion for Reconsideration on November 7, 1979 within which to file a second Motion for
Reconsideration. That would be the rule for appeals by certiorari to the Supreme Court from an Appellate Court
judgment pursuant to Section 1 of Rule 45.10 However, under the aforequoted provision, which is the
applicable rule, the time in which the first Motion has been pending has to be deducted. As it was, all of the
fifteen days had been used up when the first Motion for Reconsideration was filed on March 2, 1979. The
Decision of January 11, 1979, therefore, had already attained finality on March 3, 1979 so that respondent Court
no longer had jurisdiction to act on the "Very Urgent Motion for Leave to File Second Motion for
Reconsideration" submitted by the NATIVIDADS on November 28, 1979, much less to grant the same.
It is well settled that once a Decision has become final and executory, it is removed from the power and
jurisdiction of the Court which rendered it to further alter or amend it, much less to revoke it. The subsequent
filing of a motion for reconsideration cannot disturb the finality of the judgment, nor restore jurisdiction to the
court. 11
Although the granting or denial of a motion for reconsideration involves the exercise of discretion, 12 the same
should not be exercise whimsically, capriciously or arbitrarily, but prudently in conformity with law, justice,
reason and equity.
We likewise find reversible error in the reversal of respondent Court's original Decision of January 11, 1979. In
its Resolution of reversal, dated December 24, 1980, respondent Court had stated in part:
The presence of the adverse claim in appellant's (Deogracias Natividad) title does not make him a buyer in bad
faith The validity of the adverse claim has to be determined by the Court. Until the validity of such claim is
determined judicially, the same cannot be considered as a flaw in his vendor's title. The adverse claim first
appearance in the titles of the Cuencas, the second buyers. It was carried on to the titles of subsequent
transferees. The title of Santos appeared clean This makes the title of Santos' vendee clean. The subsequent
annotation of the adverse claim therein would not make the Cuencas buyers in bad faith. If the Cuencas were
buyers in good faith, we do not see any reason why subsequent buyers could not enjoy the same status. Good
faith is presumed while bad faith must be proved. ... 13
However, as set forth in the original Decision of the Appellate Court, upholding the findings of the Trial Court,
the evidence preponderantly shows that all Five Transfer were null and void for having been simulated and
fictitious.
The First Transfer in favor of the SANTOSES was "indubitably established" to have been without consideration
and is, therefore, void and inexistent. 14 That sale was executed merely as a means of protection to the
SANTOSES for their promised cash advances to the GARDNERS in one year in the sum of P93,000.00. Added
to this is the admission against his own interest by Ariosto SANTOS that the GARDNERS did not receive from
him any consideration, 15 thereby corroborating the declarations of the GARDNERS. The Subdivision Joint
Venture Agreement (Exhibit "D") and the Supplemental Agreement (Exhibit "E") eloquently express that the
true and real nature of the agreement between the GARDNERS and the SANTOSES was for a subdivision and
not a sale transaction.
The evidence also establishes that the Second Transfer to the CUENCAS was fictitious and simulated for not
having been supported with any consideration. By his own admission, Ariosto SANTOS transferred to the
CUENCAS, who are his "compadres", the disputed properties, together with others that he owned, merely to
conceal his ownership and "to protect them from persons who had filed suits against him and were running after
the properties registered in his name." It was SANTOS who had caused the execution of those deeds of sale
(Exhibits "H" & "I") and had them notarized by his own counsel. 16 No wonder then that the CUENCAS did

not even dispute the validity of the adverse claim pursuant to Section 110 of the Land Registration Act, and
during the trial they merely adopted SANTOS' testimony. Under the circumstances surrounding their
transaction they knew that their title was flawed and they were not, and cannot be considered, buyers in good
faith, having paid no consideration for the sale. The subsequent registration of the adverse claim on their titles,
therefore, could not but serve as notice and warning to all subsequent buyers that someone was claiming an
interest in the properties or a better right than the registered owners.
The Third Transfer in favor of VERROYA was similarly without consideration and, therefore, void ab initio.
The evidence on record shows that Ariosto SANTOS himself caused the execution of the deeds of sale
(Exhibits "P" & "Q") in favor of VERROYA, who is SANTOS' office manager in his brokerage business. The
only purpose of the transfer was to enable VERROYA to secure for SANTOS a loan with the Veterans Bank so
much so that when the documents of sale were signed by the CUENCAS in their respective houses in favor of
VERROYA, the latter was not even present. 17 Also significant is the ' fact that Verroya was declared in default
and had not even bothered to resist the suit, which he would have done if the sale transaction were genuine.
On equal footing is the Fourth Transfer from VERROYA VERROYA to private respondents NATIVIDADS. It
was SANTOS who had caused the preparation of the deed of sale in favor of the NATIVIDADS after sensing
that VERROYA was not inclined to return the title to the properties. Deogracias NATIVIDAD was SANTOS'
close and trusted I 6 compadre who agreed to put the titles in his (NATIVIDAD's) name because of the pending
cases against SANTOS. The amount of P 80,000.00 stated in the document of sale was not actually paid by the
NATIVIDADS to VERROYA, according to SANTOS' own testimony. The latter further declared that
VERROYA was only coerced to sign the deeds (Exhibits "V" & ("V-4") after he was boxed by NATIVIDAD in
SANTOS' office at the Escolta. That coercion did exist is shown by VERROYA's telegram to the Register of
Deeds of Laguna to dishonor any transaction involving the subject properties. 18
The Fifth Transfer to the BAUTISTAS partook of the same nature a simulated and fictitious transaction, for
being without consideration, as shown by the evidence. They too, were declared in default and made no attempt
to answer or dispute the allegations in the Complaint against them.
The mortgage of the properties by VERROYA in favor of Anita Nolasco and Rosario Dalima was executed
after the inscription of the adverse claim on the titles so that they can neither be considered as innocent
mortgagees for value.
Added proof of the fictitiousness of the chain of transfers is that fact that, notwithstanding the same, the
GARDNERS remained in actual possession, cultivation and occupation of the disputed lots throughout the
entire series of transactions.
As concluded in the original Decision of respondent Court, all Five Transfers starting from that of the
SANTOSES down to the NATIVIDADS, were absolutely simulated and fictitious and were, therefore, void ab
initio and inexistent. 19 Contracts of sale are void and produce no effect whatsoever where the price, which
appears therein as paid, has, in fact, never been paid by the purchaser to the vendor. 20 Such sales are inexistent
and cannot be considered consummated. 21
In its Resolution reversing the original Decision, respondent Court discredited the testimony of Ariosto
SANTOS for being at variance with the allegations in his Answer. The fact, however, that the allegations made
by Ariosto SANTOS in his pleadings and in his declarations in open Court differed win not militate against the
findings herein made nor support the reversal by respondent Court. As a general rule, facts alleged in a party's
pleading are deemed admissions of that party and binding upon it, but this is not an absolute and inflexible rule.
22 An Answer is a mere statement of fact which the party filing it expects to prove, but it is not evidence. 23 As
Ariosto SANTOS himself, in open Court, had repudiated the defenses he had raised in his Answer and against
his own interest, his testimony is deserving of weight and credence. Both the Trial Court and the Appellate
Court believed in his credibility and we find no reason to overturn their findings thereon.

Lastly, the statement of respondent Court in its Resolution of reversal that "until the validity of an adverse claim
is determined judicially it cannot be considered a flaw in the vendor's title, contradicts the very essence of
adverse claims. The annotation of an adverse claim is a measure designed to protect the interest of a person over
a piece of real property, and serves as a notice and warning to third parties dealing with said property that
someone is claiming an interest on the same or has a better right than the registered owner thereof.24 A
subsequent sale of the property cannot prevail over the adverse claim which was previously annotated in the
certificate of title of the property. 25
While one who buys from the registered owner need not have to look behind the certificate of title, 26 he is
nevertheless bound by the liens and encumbrances annotated thereon. 27 One who buys without checking the
vendor's title takes all the risks and losses consequent to such failure. 28
WHEREFORE, the assailed Resolutions of respondent Court of Appeals (now the Intermediate Appellate
Court), dated April 24, 1980 and December 24, 1980, respectively, are hereby REVERSED and SET ASIDE,
and its Decision of January 11, 1979 affirming in toto the judgment of the then Court of First Instance of
Laguna, Branch 1, in Civil Case No. B-774, is hereby reinstated. Costs against private respondents.
SO ORDERED.
KER & CO., LTD., petitioner, vs. JOSE B. LINGAD, as Acting Commissioner of Internal Revenue,
respondent.
38 SCRA 524 / G.R. No. L-20871, April 30, 1971 En Banc
FERNANDO, J:
Petitioner Ker & Co., Ltd. would have us reverse a decision of the Court of Tax Appeals, holding it liable as a
commercial broker under Section 194(t) of the National Internal Revenue Code. Its plea, notwithstanding the
vigorous effort of its counsel, is not sufficiently persuasive. An obstacle, well-nigh insuperable, stands in the
way. The decision under review conforms to and is in accordance with the controlling doctrine announced in the
recent case of Commissioner of Internal Revenue v. Constantino. The decisive test, as therein set forth, is the
retention of the ownership of the goods delivered to the possession of the dealer, like herein petitioner, for
resale to customers, the price and terms remaining subject to the control of the firm consigning such goods. The
facts, as found by respondent Court, to which we defer, unmistakably indicate that such a situation does exist.
The juridical consequences must inevitably follow. We affirm.
It was shown that petitioner was assessed by the then Commissioner of Internal Revenue Melecio R. Domingo
the sum of P20,272.33 as the commercial broker's percentage tax, surcharge, and compromise penalty for the
period from July 1, 1949 to December 31, 1953. There was a request on the part of petitioner for the
cancellation of such assessment, which request was turned down. As a result, it filed a petition for review with
the Court of Tax Appeals. In its answer, the then Commissioner Domingo maintained his stand that petitioner
should be taxed in such amount as a commercial broker. In the decision now under review, promulgated on
October 19, 1962, the Court of Tax Appeals held petitioner taxable except as to the compromise penalty of
P500.00, the amount due from it being fixed at P19,772.33.
Such liability arose from a contract of petitioner with the United States Rubber International, the former being
referred to as the Distributor and the latter specifically designated as the Company. The contract was to apply to
transactions between the former and petitioner, as Distributor, from July 1, 1948 to continue in force until
terminated by their party giving to the other sixty days' notice. 2 The shipments would cover products "for
consumption in Cebu, Bohol, Leyte, Samar, Jolo, Negros Oriental, and Mindanao except [the] province of
Davao", petitioner, as Distributor, being precluded from disposing such products elsewhere than in the above

places unless written consent would first be obtained from the Company. 3 Petitioner, as Distributor, is required
to exert every effort to have the shipment of the products in the maximum quantity and to promote in every way
the sale thereof. 4 The prices, discounts, terms of payment, terms of delivery and other conditions of sale were
subject to change in the discretion of the Company. 5
Then came this crucial stipulation: "The Company shall from time to time consign to the Distributor and the
Distributor will receive, accept and/or hold upon consignment the products specified under the terms of this
agreement in such quantities as in the judgment of the Company may be necessary for the successful solicitation
and maintenance of business in the territory, and the Distributor agrees that responsibility for the final sale of all
goods delivered shall rest with him. All goods on consignment shall remain the property of the Company until
sold by the Distributor to the purchaser or purchasers, but all sales made by the Distributor shall be in his name,
in which case the sale price of all goods sold less the discount given to the Distributor by the Company in
accordance with the provision of paragraph 13 of this agreement, whether or not such sale price shall have been
collected by the Distributor from the purchaser or purchasers, shall immediately be paid and remitted by the
Distributor to the Company. It is further agreed that this agreement does not constitute Distributor the agent or
legal representative of the Company for any purpose whatsoever. Distributor is not granted any right or
authority to assume or to create any obligation or responsibility, express or implied, in behalf of or in the name
of the Company, or to bind the Company in any manner or thing whatsoever." 6
All specifications for the goods ordered were subject to acceptance by the Company with petitioner, as
Distributor, required to accept such goods shipped as well as to clear the same through customs and to arrange
for delivery in its warehouse in Cebu City. Moreover, orders are to be filled in whole or in part from the stocks
carried by the Company's neighboring branches, subsidiaries or other sources of Company's brands. 7
Shipments were to be invoiced at prices to be agreed upon, with the customs duties being paid by petitioner, as
Distributor, for account of the Company. 8 Moreover, all resale prices, lists, discounts and general terms and
conditions of local resale were to be subject to the approval of the Company and to change from time to time in
its discretion. 9 The dealer, as Distributor, is allowed a discount of ten percent on the net amount of sales of
merchandise made under such agreement. 10 On a date to be determined by the Company, the petitioner, as
Distributor, was required to report to it data showing in detail all sales during the month immediately preceding,
specifying therein the quantities, sizes and types together with such information as may be required for
accounting purposes, with the Company rendering an invoice on sales as described to be dated as of the date of
inventory and sales report. As Distributor, petitioner had to make payment on such invoice or invoices on due
date with the Company being privileged at its option to terminate and cancel the agreement forthwith upon the
failure to comply with this obligation. 11 The Company, at its own expense, was to keep the consigned stock
fully insured against loss or damage by fire or as a result of fire, the policy of such insurance to be payable to it
in the event of loss. Petitioner, as Distributor, assumed full responsibility with reference to the stock and its
safety at all times; and upon request of the Company at any time, it was to render inventory of the existing stock
which could be subject to change. 12 There was furthermore this equally tell-tale covenant: "Upon the
termination or any cancellation of this agreement all goods held on consignment shall be held by the Distributor
for the account of the Company, without expense to the Company, until such time as provision can be made by
the Company for disposition." 13
The issue with the Court of Tax Appeals, as with us now, is whether the relationship thus created is one of
vendor and vendee or of broker and principal. Not that there would have been the slightest doubt were it not for
the categorical denial in the contract that petitioner was not constituted as "the agent or legal representative of
the Company for any purpose whatsoever." It would be, however, to impart to such an express disclaimer a
meaning it should not possess to ignore what is manifestly the role assigned to petitioner considering the
instrument as a whole. That would be to lose sight altogether of what has been agreed upon. The Court of Tax
Appeals was not misled. In the language of the decision now on appeal: "That the petitioner Ker & Co., Ltd. is,
by contractual stipulation, an agent of U.S. Rubber International is borne out by the facts that petitioner can
dispose of the products of the Company only to certain persons or entities and within stipulated limits, unless
excepted by the contract or by the Rubber Company (Par. 2); that it merely receives, accepts and/or holds upon

consignment the products, which remain properties of the latter company (Par. 8); that every effort shall be
made by petitioner to promote in every way the sale of the products (Par. 3); that sales made by petitioner are
subject to approval by the company (Par. 12); that on dates determined by the rubber company, petitioner shall
render a detailed report showing sales during the month (Par. 14); that the rubber company shall invoice the
sales as of the dates of inventory and sales report (Par. 14); that the rubber company agrees to keep the
consigned goods fully insured under insurance policies payable to it in case of loss (Par. 15); that upon request
of the rubber company at any time, petitioner shall render an inventory of the existing stock which may be
checked by an authorized representative of the former (Par. 15); and that upon termination or cancellation of the
Agreement, all goods held on consignment shall be held by petitioner for the account of the rubber company
until their disposition is provided for by the latter (Par. 19). All these circumstances are irreconcilably
antagonistic to the idea of an independent merchant." 14 Hence its conclusion: "However, upon analysis of the
contract, as a whole, together with the actual conduct of the parties in respect thereto, we have arrived at the
conclusion that the relationship between them is one of brokerage or agency." 15 We find ourselves in
agreement, notwithstanding the able brief filed on behalf of petitioner by its counsel. As noted at the outset, we
cannot heed petitioner's plea for reversal.
1. According to the National Internal Revenue Code, a commercial broker "includes all persons, other than
importers, manufacturers, producers, or bona fide employees, who, for compensation or profit, sell or bring
about sales or purchases of merchandise for other persons or bring proposed buyers and sellers together, or
negotiate freights or other business for owners of vessels or other means of transportation, or for the shippers, or
consignors or consignees of freight carried by vessels or other means of transportation. The term includes
commission merchants." 16 The controlling decision as to the test to be followed as to who falls within the
above definition of a commercial broker is that of Commissioner of Internal Revenue v. Constantino. 17 In the
language of Justice J.B.L. Reyes, who penned the opinion: "Since the company retained ownership of the
goods, even as it delivered possession unto the dealer for resale to customers, the price and terms of which were
subject to the company's control, the relationship between the company and the dealer is one of agency, . . .."
18 An excerpt from Salisbury v. Brooks 19 cited in support of such a view follows:" 'The difficulty in
distinguishing between contracts of sale and the creation of an agency to sell has led to the establishment of
rules by the application of which this difficulty may be solved. The decisions say the transfer of title or
agreement to transfer it for a price paid or promised is the essence of sale. If such transfer puts the transferee in
the attitude or position of an owner and makes him liable to the transferor as a debtor for the agreed price and
not merely as an agent who must account for the proceeds of a resale, the transaction is a sale; while the essence
of an agency to sell is the delivery to an agent, not as his property, but as the property of the principal, who
remains the owner and has the right to control sales, fix the price, and terms, demand and receive the proceeds
less the agent's commission upon sales made.'" 20 The opinion relied on the work of Mechem on Sales as well
as Mechem on Agency. Williston and Tiedman, both of whom wrote treatises on Sales, were likewise referred
to.
Equally relevant is this portion of the Salisbury opinion: "It is difficult to understand or appreciate the necessity
or presence of these mutual requirements and obligations on any theory other than that of a contract of agency.
Salisbury was to furnish the mill and put the timber owned by him into a marketable condition in the form of
lumber; Brooks was to furnish the funds necessary for that purpose, sell the manufactured product, and account
therefor to Salisbury upon the specific terms of the agreement, less the compensation fixed by the parties in lieu
of interest on the money advanced and for services as agent. These requirements and stipulations are
inconsistent with any other conception of the contract. If it constitutes an agreement to sell, they are
meaningless. But they cannot be ignored. They were placed there for some purpose, doubtless as the result of
definite antecedent negotiations therefore, consummated by the final written expression of the agreement." 21
Hence the Constantino opinion could categorically affirm that the mere disclaimer in a contract that an entity
like petitioner is not "the agent or legal representative . . . for any purpose whatsoever" does not suffice to yield
the conclusion that it is an independent merchant if the control over the goods for resale of the goods consigned
is pervasive in character. The Court of Tax Appeals decision now under review pays fealty to such an
applicable doctrine.

2. No merit therefore attaches to the first error imputed by petitioner to the Court of Tax Appeals. Neither did
such Court fail to appreciate in its true significance the act and conduct pursued in the implementation of the
contract by both the United States Rubber International and petitioner, as was contended in the second
assignment of error. Petitioner ought to have been aware that there was no need for such an inquiry. The terms
of the contract, as noted, speak quite clearly. There is lacking that degree of ambiguity sufficient to give rise to
serious doubt as to what was contemplated by the parties. A reading thereof discloses that the relationship
arising therefrom was not one of seller and purchaser. If it were thus intended, then it would not have included
covenants which in their totality would negate the concept of a firm acquiring as vendee goods from another.
Instead, the stipulations were so worded as to lead to no other conclusion than that the control by the United
States Rubber International over the goods in question is, in the language of the Constantino opinion,
"pervasive". The insistence on a relationship opposed to that apparent from the language employed might even
yield the impression that such: mode of construction was resorted to in order that the applicability of a taxing
statute might be rendered nugatory. Certainly, such a result is to be avoided.
Nor is it to be lost sight of that on a matter left to the discretion of the Court of Tax Appeals which has
developed an expertise in view of its function being limited solely to the interpretation of revenue laws, this
Court is prepared to substitute its own judgment unless a grave abuse of discretion is manifest. It would be to
frustrate the objective for which administrative tribunals are created if the judiciary, absent such a showing, is to
ignore their appraisal on a matter that forms the staple of their specialized competence. While it is to be
admitted that counsel for petitioner did scrutinize with care the decision under review with a view to exposing
what was considered its flaws, it cannot be said that there was such a failure to apply what the law commands as
to call for its reversal. Instead, what cannot be denied is that the Court of Tax Appeals reached a result to which
the Court in the recent Constantino decision gave the imprimatur of its approval.
WHEREFORE, the Court of Tax Appeals decision of October 19, 1962 is affirmed. With costs against
petitioner.
EDCA PUBLISHING & DISTRIBUTING CORP., petitioner, vs. THE SPOUSES LEONOR and
GERARDO SANTOS, doing business under the name and style of "SANTOS BOOKSTORE," and THE
COURT OF APPEALS, respondents.
184 SCRA 614 / G.R. No. 80298, April 26, 1990
CRUZ, J.:

1st Division

The case before us calls for the interpretation of Article 559 of the Civil Code and raises the particular question
of when a person may be deemed to have been "unlawfully deprived" of movable property in the hands of
another. The article runs in full as follows:
ART. 559.
The possession of movable property acquired in good faith is equivalent to a title. Nevertheless,
one who has lost any movable or has been unlawfully deprived thereof, may recover it from the person in
possession of the same.
If the possessor of a movable lost or of which the owner has been unlawfully deprived has acquired it in good
faith at a public sale, the owner cannot obtain its return without reimbursing the price paid therefor.
The movable property in this case consists of books, which were bought from the petitioner by an impostor who
sold it to the private respondents.
Ownership of the books was recognized in the private respondents by the Municipal Trial Court, which was
sustained by the Regional Trial Court, which was in turn sustained by the Court of Appeals. The petitioner
asks us to declare that all these courts have erred and should be reversed.

This case arose when on October 5, 1981, a person identifying himself as Professor Jose Cruz placed an order
by telephone with the petitioner company for 406 books, payable on delivery. EDCA prepared the
corresponding invoice and delivered the books as ordered, for which Cruz issued a personal check covering the
purchase price of P8,995.65. On October 7, 1981, Cruz sold 120 of the books to private respondent Leonor
Santos who, after verifying the seller's ownership from the invoice he showed her, paid him P1,700.00.
Meanwhile, EDCA having become suspicious over a second order placed by Cruz even before clearing of his
first check, made inquiries with the De la Salle College where he had claimed to be a dean and was informed
that there was no such person in its employ. Further verification revealed that Cruz had no more account or
deposit with the Philippine Amanah Bank, against which he had drawn the payment check. EDCA then went to
the police, which set a trap and arrested Cruz on October 7, 1981. Investigation disclosed his real name as
Tomas de la Pea and his sale of 120 of the books he had ordered from EDCA to the private respondents.
On the night of the same date, EDCA sought the assistance of the police in Precinct 5 at the UN Avenue, which
forced their way into the store of the private respondents and threatened Leonor Santos with prosecution for
buying stolen property. They seized the 120 books without warrant, loading them in a van belonging to EDCA,
and thereafter turned them over to the petitioner.
Protesting this high-handed action, the private respondents sued for recovery of the books after demand for
their return was rejected by EDCA. A writ of preliminary attachment was issued and the petitioner, after initial
refusal, finally surrendered the books to the private respondents. As previously stated, the petitioner was
successively rebuffed in the three courts below and now hopes to secure relief from us.
To begin with, the Court expresses its disapproval of the arbitrary action of the petitioner in taking the law into
its own hands and forcibly recovering the disputed books from the private respondents. The circumstance that it
did so with the assistance of the police, which should have been the first to uphold legal and peaceful processes,
has compounded the wrong even more deplorably. Questions like the one at bar are decided not by policemen
but by judges and with the use not of brute force but of lawful writs.
Now to the merits.
It is the contention of the petitioner that the private respondents have not established their ownership of the
disputed books because they have not even produced a receipt to prove they had bought the stock. This is
unacceptable. Precisely, the first sentence of Article 559 provides that "the possession of movable property
acquired in good faith is equivalent to a title," thus dispensing with further proof.
The argument that the private respondents did not acquire the books in good faith has been dismissed by the
lower courts, and we agree. Leonor Santos first ascertained the ownership of the books from the EDCA invoice
showing that they had been sold to Cruz, who said he was selling them for a discount because he was in
financial need. Private respondents are in the business of buying and selling books and often deal with hard-up
sellers who urgently have to part with their books at reduced prices. To Leonor Santos, Cruz must have been
only one of the many such sellers she was accustomed to dealing with. It is hardly bad faith for anyone in the
business of buying and selling books to buy them at a discount and resell them for a profit.
But the real issue here is whether the petitioner has been unlawfully deprived of the books because the check
issued by the impostor in payment therefor was dishonored.
In its extended memorandum, EDCA cites numerous cases holding that the owner who has been unlawfully
deprived of personal property is entitled to its recovery except only where the property was purchased at a
public sale, in which event its return is subject to reimbursement of the purchase price. The petitioner is begging
the question. It is putting the cart before the horse.

Unlike in the cases invoked, it has yet to be established in the case at bar that EDCA has been unlawfully
deprived of the books.
The petitioner argues that it was, because the impostor acquired no title to the books that he could have validly
transferred to the private respondents. Its reason is that as the payment check bounced for lack of funds, there
was a failure of consideration that nullified the contract of sale between it and Cruz.
The contract of sale is consensual and is perfected once agreement is reached between the parties on the subject
matter and the consideration.
According to the Civil Code:
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.
xxx

xxx

xxx

ART. 1477. The ownership of the thing sold shall be transferred to the vendee upon the actual or constructive
delivery thereof.
ART. 1478. The parties may stipulate that ownership in the thing shall not pass to the purchaser until he has
fully paid the price.
It is clear from the above provisions, particularly the last one quoted, that ownership in the thing sold shall not
pass to the buyer until full payment of the purchase price only if there is a stipulation to that effect. Otherwise,
the rule is that such ownership shall pass from the vendor to the vendee upon the actual or constructive delivery
of the thing sold even if the purchase price has not yet been paid.
Non-payment only creates a right to demand payment or to rescind the contract, or to criminal prosecution in
the case of bouncing checks. But absent the stipulation above noted, delivery of the thing sold will effectively
transfer ownership to the buyer who can in turn transfer it to another.
In Asiatic Commercial Corporation v. Ang, 11 the plaintiff sold some cosmetics to Francisco Ang, who in turn
sold them to Tan Sit Bin. Asiatic not having been paid by Ang, it sued for the recovery of the articles from Tan,
who claimed he had validly bought them from Ang, paying for the same in cash.
Finding that there was no conspiracy between Tan and Ang to deceive Asiatic, the Court of Appeals declared:
Yet the defendant invoked Article 464 12 of the Civil Code providing, among other things that "one who has
been unlawfully deprived of personal property may recover it from any person possessing it." We do not believe
that the plaintiff has been unlawfully deprived of the cartons of Gloco Tonic within the scope of this legal
provision. It has voluntarily parted with them pursuant to a contract of purchase and sale. The circumstance that
the price was not subsequently paid did not render illegal a transaction which was valid and legal at the
beginning.
In Tagatac v. Jimenez, 13 the plaintiff sold her car to Feist, who sold it to Sanchez, who sold it to Jimenez.
When the payment check issued to Tagatac by Feist was dishonored, the plaintiff sued to recover the vehicle

from Jimenez on the ground that she had been unlawfully deprived of it by reason of Feist's deception. In ruling
for Jimenez, the Court of Appeals held:
The point of inquiry is whether plaintiff-appellant Trinidad C. Tagatac has been unlawfully deprived of her car.
At first blush, it would seem that she was unlawfully deprived thereof, considering that she was induced to part
with it by reason of the chicanery practiced on her by Warner L. Feist. Certainly, swindling, like robbery, is an
illegal method of deprivation of property. In a manner of speaking, plaintiff-appellant was "illegally deprived"
of her car, for the way by which Warner L. Feist induced her to part with it is illegal and is punished by law.
But does this "unlawful deprivation" come within the scope of Article 559 of the New Civil Code?
xxx

xxx

xxx

. . . The fraud and deceit practiced by Warner L. Feist earmarks this sale as a voidable contract (Article 1390
N.C.C.). Being a voidable contract, it is susceptible of either ratification or annulment. If the contract is ratified,
the action to annul it is extinguished (Article 1392, N.C.C.) and the contract is cleansed from all its defects
(Article 1396, N.C.C.); if the contract is annulled, the contracting parties are restored to their respective
situations before the contract and mutual restitution follows as a consequence (Article 1398, N.C.C.).
However, as long as no action is taken by the party entitled, either that of annulment or of ratification, the
contract of sale remains valid and binding.
When plaintiff-appellant Trinidad C. Tagatac delivered the car to Feist by virtue of said voidable contract of
sale, the title to the car passed to Feist. Of course, the title that Feist acquired was defective and voidable.
Nevertheless, at the time he sold the car to Felix Sanchez, his title thereto had not been avoided and he therefore
conferred a good title on the latter, provided he bought the car in good faith, for value and without notice of the
defect in Feist's title (Article 1506, N.C.C.). There being no proof on record that Felix Sanchez acted in bad
faith, it is safe to assume that he acted in good faith.
The above rulings are sound doctrine and reflect our own interpretation of Article 559 as applied to the case
before us.
Actual delivery of the books having been made, Cruz acquired ownership over the books which he could then
validly transfer to the private respondents. The fact that he had not yet paid for them to EDCA was a matter
between him and EDCA and did not impair the title acquired by the private respondents to the books.
One may well imagine the adverse consequences if the phrase "unlawfully deprived" were to be interpreted in
the manner suggested by the petitioner. A person relying on the seller's title who buys a movable property from
him would have to surrender it to another person claiming to be the original owner who had not yet been paid
the purchase price therefor. The buyer in the second sale would be left holding the bag, so to speak, and would
be compelled to return the thing bought by him in good faith without even the right to reimbursement of the
amount he had paid for it.
It bears repeating that in the case before us, Leonor Santos took care to ascertain first that the books belonged to
Cruz before she agreed to purchase them. The EDCA invoice Cruz showed her assured her that the books had
been paid for on delivery. By contrast, EDCA was less than cautious in fact, too trusting in dealing with the
impostor. Although it had never transacted with him before, it readily delivered the books he had ordered (by
telephone) and as readily accepted his personal check in payment. It did not verify his identity although it was
easy enough to do this. It did not wait to clear the check of this unknown drawer. Worse, it indicated in the sales
invoice issued to him, by the printed terms thereon, that the books had been paid for on delivery, thereby
vesting ownership in the buyer.

Surely, the private respondent did not have to go beyond that invoice to satisfy herself that the books being
offered for sale by Cruz belonged to him; yet she did. Although the title of Cruz was presumed under Article
559 by his mere possession of the books, these being movable property, Leonor Santos nevertheless demanded
more proof before deciding to buy them.
It would certainly be unfair now to make the private respondents bear the prejudice sustained by EDCA as a
result of its own negligence. We cannot see the justice in transferring EDCA's loss to the Santoses who had
acted in good faith, and with proper care, when they bought the books from Cruz.
While we sympathize with the petitioner for its plight, it is clear that its remedy is not against the private
respondents but against Tomas de la Pea, who has apparently caused all this trouble. The private respondents
have themselves been unduly inconvenienced, and for merely transacting a customary deal not really unusual in
their kind of business. It is they and not EDCA who have a right to complain.
WHEREFORE, the challenged decision is AFFIRMED and the petition is DENIED, with costs against the
petitioner.

G.R. No. L-24069

June 28, 1968

LA
FUERZA,
INC., petitioner,
vs.
THE HON. COURT OF APPEALS and ASSOCIATED ENGINEERING CO., INC., respondents.
Sycip, Salazar, Luna and Associates
De Santos and Delfino for petitioner.

for

respondent

Associated

Engineering

Co.,

Inc.

CONCEPCION, C.J.:
Ordinary action for the recovery of a sum of money. In due course, the Court of First Instance of Manila
rendered judgment for defendant, La Fuerza, Inc. hereinafter referred to as La Fuerza which was at first
affirmed by the Court of Appeals. On motion for reconsideration, the latter, however, set aside its original
decision and sentenced La Fuerza to pay to the plaintiff, Associated Engineering Co., hereinafter referred to
as the Plaintiff the sum of P8,250.00, with interest at the rate of 1% per month, from July, 1960 until fully
paid, plus P500 as attorney's fees and the costs. Hence, this Petition for review on certiorari.
The facts, as found by the Court of First Instance and adopted by the Court of Appeals, are:
The plaintiff (Associated Engineering, Co., Inc.) is a corporation engaged in the manufacture and
installation of flat belt conveyors. The defendant (La Fuerza, Inc.) is also a corporation engaged in the
manufacture of wines. Sometime in the month of January, 1960, Antonio Co, the manager of the
plaintiff corporation, who is an engineer, called the office of the defendant located at 399 Muelle de
Binondo, Manila and told Mariano Lim, the President and general manager of the defendant that he had
just visited the defendant's plant at Pasong Tamo, Makati, Rizal and was impressed by its size and
beauty but he believed it needed a conveyor system to convey empty bottles from the storage room in
the plant to the bottle washers in the production room thereof. He therefore offered his services to
manufacture and install a conveyor system which, according to him, would increase production and
efficiency of his business. The president of the defendant corporation did not make up his mind then but
suggested to Antonio Co to put down his offer in writing. Effectively, on February 4, 1960, marked as
Exhibit A in this case. Mariano Lim did not act on the said offer until February 11, 1960, when Antonio
Co returned to inquire about the action of the defendant on his said offer. The defendants president and
general manager then expressed his conformity to the offer made in Exhibit A by writing at the foot

thereof under the word "confirmation" his signature. He caused, however, to be added to this offer at the
foot a note which reads: "All specifications shall be in strict accordance with the approved plan made
part of this agreement hereof." A few days later, Antonio Co made the demand for the down payment of
P5,000.00 which was readily delivered by the defendant in the form of a check for the said amount.
After that agreement, the plaintiff started to prepare the premises for the installations of the conveyor
system by digging holes in the cement floor of the plant and on April 18, 1960, they delivered one unit
of 110' 26" wide flat belt conveyor, valued at P3,750.00, and another unit measuring 190' and 4" wide
flat conveyor, valued at P4,500.00, or a total of P13,250.00. Deducting the down payment of P5,000.00
from this value, there is a balance, of P8,250.00 to be paid by the defendant upon the completion of the
installation, Exhibit B.
The work went under way during the months of March and April, during which time the president and
general manager of the defendant corporation was duly apprised of the progress of the same because his
plant mechanic, one Mr. Santos, had kept him informed of the installation for which he gave the go
signal. It seems that the work was completed during the month of May, 1960. Trial runs were made in
the presence of the president and general manager of the defendant corporation, Antonio Co, the
technical manager of the plaintiff, and some other people. Several trial runs were made then totalling
about five. These runs were continued during the month of June where about three trial runs were made
and, lastly, during the month of July, 1960.
As a result of this trial or experimental runs, it was discovered, according to the defendant's general
manager, that the conveyor system did not function to their satisfaction as represented by the technical
manager of the plaintiff Antonio Co for the reason that, when operated several bottles collided with each
other, some jumping off the conveyor belt and were broken, causing considerable damage. It was further
observed that the flow of the system was so sluggish that in the opinion of the said general manager of
the defendant their old system of carrying the bottles from the storage room to the washers by hand
carrying them was even more efficient and faster.
After the last trial run made in the month of July and after the plaintiff's technical manager had been
advised several times to make the necessary and proper adjustments or corrections in order to improve
the efficiency of the conveyor system, it seems that the defects indicated by the said president and
general manager of the defendant had not been remedied so that they came to the parting of the ways
with the result that when the plaintiff billed the defendant for the balance of the contract price, the latter
refused to pay for the reason that according to the defendant the conveyor system installed by the
plaintiff did not serve the purpose for which the same was manufactured and installed at such a heavy
expense. The flat belt conveyors installed in the factory of the defendant are still there....
xxx

xxx

xxx

On March 22, 1961, the contractor commenced the present action to recover the sums of P8,250, balance of the
stipulated price of the aforementioned conveyors, and P2,000, as attorney's fees, in addition to the costs.
In its answer to the complaint, La Fuerza alleged that the "conveyors furnished and installed by the plaintiff do
not meet the conditions and warrantings" (warranties?) of the latter, and set up a counterclaim for the P5,000
advanced by La Fuerza, which prayed that the complaint be dismissed; that its contract with the plaintiff be
rescinded; and that plaintiff be sentenced to refund said sum of P5,000 to La Fuerza, as well as to pay thereto
P1,000 as attorney's fees, apart from the costs.
After appropriate proceedings, the Court of First Instance of Manila rendered a decision the dispositive part of
which reads:

WHEREFORE, judgment is hereby rendered rescinding the contract entered into by the parties in this
case, marked as Exhibit A, and ordering the plaintiff to refund or return to the defendant the amount of
P5,000.00 which they had received as down payment, and the costs of this action. On the other hand,
defendant is ordered to permit the plaintiff to remove the flat belt conveyors installed in their premises.
As above indicated, this decision was affirmed by the Court of Appeals, which, on motion for reconsideration of
the plaintiff, later set aside its original decision and rendered another in plaintiff's favor, as stated in the opening
paragraph hereof.
The appealed resolution of the Court of Appeals was, in effect, based upon the theory of prescription of La
Fuerza's right of action for rescission of its contract with the plaintiff, for in the language of said resolution
"Article 1571 of the Civil Code provides that an action to rescind 'shall be barred after six months from
delivery of the thing sold'", and, in the case at bar, La Fuerza did not avail of the right to demand rescission until
the filing of its answer in the Court of First Instance, on April 17, 1961, or over ten (10) months after the
installation of the conveyors in question had been completed on May 30, 1960.
La Fuerza assails the view taken by the Court of Appeals, upon the ground: 1) that there has been, in
contemplation of law, no delivery of the conveyors by the plaintiff; and 2) that, assuming that there has been
such delivery, the period of six (6) months prescribed in said Art. 1571 refers to the "period within which" La
Fuerza may "bring an action to demand compliance of the warranty against hidden defects", not the action for
rescission of the contract. Both grounds are untenable.
With respect to the first point, La Fuerza maintains that plaintiff is deemed not to have delivered the conveyors,
within the purview of Art. 1571, until it shall have complied with the conditions or requirements of the contract
between them that is to say, until the conveyors shall meet La Fuerza's "need of a conveyor system that
would mechanically transport empty bottles from the storage room to the bottle workers in the production room
thus increasing the production and efficiency" of its business-and La Fuerza had accepted said conveyors.
On this point, the Court of Appeals had the following to say:
Article 1571 of the Civil Code provides that an action to rescind 'shall be barred after six months, from
delivery of the thing sold". This article is made applicable to the case at bar by Article 1714 which
provides that "the pertinent provisions on warranty of title against hidden defect in a contract of sale"
shall be applicable to a contract for a piece of work. Considering that Article 1571 is a provision on
sales, the delivery mentioned therein should be construed in the light of the provisions on sales. Article
1497 provides that the thing sold shall be understood as delivered when it is placed in the control and
possession of the vendee. Therefore, when the thing subject of the sale is placed in the control and
possession of the vendee, delivery is complete. Delivery is an act of the vendor. Thus, one of the
obligations of the vendor is the delivery of the thing sold (Art. 1495). The vendee has nothing to do with
the act of delivery by the vendor. On the other hand, acceptance is an obligation on the part of the
vendee (Art. 1582). Delivery and acceptance are two distinct and separate acts of different parties.
Consequently, acceptance cannot be regarded as a condition to complete delivery.
xxx

xxx

xxx

We find no plausible reason to disagree with this view. Upon the completion of the installation of the
conveyors, in May, 1960, particularly after the last trial run, in July 1960, La Fuerza was in a position to decide
whether or not it was satisfied with said conveyors, and, hence, to state whether the same were a accepted or
rejected. The failure of La Fuerza to express categorically whether they accepted or rejected the conveyors does
not detract from the fact that the same were actually in its possession and control; that, accordingly, the
conveyors had already been delivered by the plaintiff; and that, the period prescribed in said Art. 1571 had
begun to run.

With respect to the second point raised by La Fuerza, Art. 1571 of the Civil Code provides:
Actions arising from the provisions of the preceding ten articles shall be barred after six months, from the
delivery of the thing sold.
xxx

xxx

xxx

Among the "ten articles" referred to in this provision, are Articles 1566 and 1567, reading:
Art. 1566. The vendor is responsible to the vendee for any hidden faults or defects in the thing sold,
even though he was not aware thereof. ."This provision shall not apply if the contrary has been
stipulated, and the vendor was not aware of the hidden faults or defects in the thing sold.
Art. 1567. In the cases of articles 1561, 1562, 1564, 1565 and 1566, the vendee may elect between
withdrawing from the contract and demanding a proportionate reduction of the price, with damages in
either case.
xxx

xxx

xxx

Pursuant to these two (2) articles, if the thing sold has hidden faults or defects as the conveyors are claimed
to have the vendor in the case at bar, the plaintiff shall be responsible therefor and the vendee or La
Fuerza, in the present case "may elect between withdrawing from the contract and demanding a proportional
reduction of the price, with damages in either case." In the exercise of this right of election, La Fuerza had
chosen to withdraw from the contract, by praying for its rescission; but the action therefor in the language of
Art. 1571 "shall be barred after six months, from the delivery of the thing sold." The period of four (4) years,
provided in Art. 1389 of said Code, for "the action to claim rescission," applies to contracts, in general, and
must yields, in the instant case, to said Art. 1571, which refers to sales in particular.
Indeed, in contracts of the latter type, especially when goods, merchandise, machinery or parts or equipment
thereof are involved, it is obviously wise to require the parties to define their position, in relation thereto, within
the shortest possible time. Public interest demands that the status of the relations between the vendor and the
vendee be not left in a condition of uncertainty for an unreasonable length of time, which would be the case, if
the lifetime of the vendee's right of rescission were four (4) years.
WHEREFORE, the appealed resolution of the Court of Appeals is hereby affirmed, with costs against appellant,
La Fuerza, Inc. It is so ordered.
Reyes, J.B.L., Dizon,
Castro, J., took no part.

Makalintal,

Zaldivar,

Sanchez,

Angeles

and

Fernando,

JJ.,

concur.

G.R. No. L-29831 March 29, 1972

GUILLERMO VIACRUCIS, LUISA DE VIACRUCIS, CLAROS MARQUEZ, and RUSTICA
AREVALO
MARQUEZ,
petitioners,
vs.
THE COURT OF APPEALS, ANASTACIO ORAIS and CELESTINA MALAZARTE, respondents.
Carlos Monzon Ortega for petitioners.

Leonardo C. Dejao for respondents.

CONCEPCION, C.J.:
Private respondents, Anastacio Orais and his wife Celestina Malazarte brought this action, in the Court of First
Instance of Leyte, to establish their title to a land of about four (4) hectares, located in the sitio of Candilomot,
barrio of Santo Rosario, formerly Palompon, now Matag-ob Leyte, and more particularly described in the
complaint alleging that it is part of a bigger lot sold to them, on June 8, 1936, by its registered owner, Pedro
Sanchez, by virtue of a deed of sale, copy of which was attached to said pleading, as Annex A and later marked
as Exhibit B as well as to recover, from petitioners herein defendants in the aforesaid court Guillermo
Viacrucis and Luisa de Viacrucis the possession of said land and damages.
In their answer to said complaint, Mr. and Mrs. Viacrucis averred that they are the owners of said 4-hectare
land; that the deed of sale, Exhibit B, in favor of Anastacio Orais, on which private respondents plaintiffs in
the court of first instance rely, attests merely to a simulated transaction; and that this action is barred by the
statute of limitations. Alleging that the rights of Mr. and Mrs. Viacrucis had been assigned to them, Claros
Marquez and his wife Rustica Arevalo subsequently intervened in the case, reiterating, in a way, the stand taken
by Mr. and Mrs. Viacrucis although with a variation to be pointed out later on.
After appropriate proceedings, the trial court rendered a decision, in favor of the plaintiffs therein respondent
herein and against the defendants and the intervenors petitioners herein rejecting their defenses of
prescription of action and simulation of contract (Exhibit B), and declaring that the whole land conveyed
thereby belongs to Mr. and Mrs. Orais, as well as ordering Mr. and Mrs. Viacrucis to vacate said land and
awarding damages to Mr. and Mrs. Orais. The dispositive part of said decision reads:
WHEREFORE, decision is hereby rendered in favor of the plaintiffs and against the defendants
and intervenors: (1) declaring the following parcel of land to wit:
"A tract of agricultural land situated in the Sitio of Barrio of Balagtas (now Santo
Rosario), Municipality of Palompon (now Matag-ob), Province of Leyte.
Bounded on the North, by property claimed by Serapio Dicio; on the East, by
property claimed by Bartolome Asayas; on the South, by property claimed by
Pablo Sanchez; on the West by properties claimed by Borgas Merin and Canuto
Loreo, containing an area of 14 hectares, 63 ares and 03 centares, embraced and
covered by Original Certificate of Title No. 243, Patent No. 7335, Bu. of Lands
No. H-11803."
as the property of the plaintiffs and hereby ordering the defendants to immediately vacate the
premises; (2) to jointly and severally pay the plaintiffs the sum of Five Thousand Pesos
(P5,000.00) for and as moral damages, plus Three Thousand Five Hundred Ten Pesos
(P3,510.00) for and as actual damages from 1947 up to 1960; plus the further sum of Two
Hundred Seventy Pesos (P270.00) annually from November 15, 1960 until the land in question
shall have been delivered to the plaintiffs and the further sum of One Thousand Pesos
(P1,000.00) for and as attorney's fees, with costs against the defendants and intervenors.
On appeal taken by Mr. and Mrs. Viacrucis and Mr. and Mrs. Marquez, said decision, against them and in favor
of Mr. and Mrs. Orais, was affirmed by the Court of Appeals, with the following "modifications":
...; the portion of four (4) hectares claimed in the complaint and described in paragraph 3 thereof
is declared to belong to plaintiffs-appellees; defendants and intervenors are condemned to

surrender the same unto plaintiffs; and to account for their possession, defendants from 26
January, 1959 and intervenors from 3 September, 1962 until the property should have been
finally delivered to the plaintiffs; costs against defendants and intervenors.
Hence the present petition, for review on certiorari, of Mr. and Mrs. Viacrucis and Mr. and Mrs. Marquez,
against the Court of Appeals and Mr. and Mrs. Orais, to which petition We gave due course. Thereafter, Mr.
and Mrs. Orais moved to dismiss said petition upon the ground that the questions raised therein "are of facts and
not of law and/or too unsubstantial to require consideration" and that "the petition is prosecuted manifestly for
delay." Upon consideration of the motion and the opposition thereto of petitioners herein, the Court resolved to
defer action thereon until the case is taken up on the merits.
It appears that the land of about four (4) hectares involved in this case is part of a bigger lot of about 14.6303
hectares, covered by Original Certificate of Title No. 243 (Exhibit A) 1 in the name of Pedro Sanchez; that, on
June 8, 1936, Sanchez executed the deed, Exhibit B, selling said lot of 14.6303 hectares to Anastacio Orais; that
said Exhibit B was, on September 10, 1936, filed with the Office of the Register of Deeds of Leyte, and
recorded in the memorandum of incumbrances of Homestead OCT No. 243; that, on July 7, 1941, Sanchez
executed another deed, Exhibit 10, conveying the disputed portion, of four (4) hectares to Balentin Ruizo who,
in turn, sold it, on October 10, 1945, to Guillermo Viacrucis (Exhibit II); that, on January 12, 1959, Anastacio
Orais who claimed to have made oral demands formally demanded from Viacrucis that he vacate said
portion and surrender its possession to him (Orais) that this demand was not heeded by Viacrucis who, instead,
executed, on March 19, 1959, the deed, Exhibit 9, confirming the sale of said portion, allegedly made by him,
on January 12, 1954, in favor of his brother-in-law Claros Marquez; and that the deeds of sale, Exhibits 10, 11
and 9, in favor of Ruizo, Viacrucis and Marquez, respectively, have not been registered in the Office of the
Register of Deeds of Leyte.
Petitioners herein maintained in the court of first instance and the Court of Appeals that, although the deed of
sale, Exhibit B, in favor of Orais is earlier, by over five (5) years, than that executed, in favor of their
predecessor in interest, Balentin, Ruizo, by the original owner, Pedro Sanchez, they (petitioners) have a better
right to the land in question, said Exhibit B having been executed merely to simulate a sale, in order that Orais
could "secure a loan from a bank"; but this pretense was overruled by said courts, which, likewise, rejected
petitioners' plea; of prescription of action.
In their brief before Us, petitioners do not assail the findings of fact and the conclusions reached by the Court of
Appeals in connection with the aforementioned defenses of simulation of Exhibit B and prescription of action.
They merely contend that the Court of Appeals has erred: (1) "in confusing the doctrine of laches with estoppel"
and in considering "misrepresentation as of the essence thereof"; (2) in "confusing laches with estoppel" and
"rejecting the defense of laches in this case where all essential requisites thereof are fully met and (3) in
deciding this case in violation of sections 22, 23 and 25, Rule 130 of the New Rules of Court.
In support of the first assignment of error, petitioners maintain that the Court of Appeals had disposed of their
plea of laches "without the least reference to the legal requisites of laches in relation to the uncontroverted facts
of this case," whereas, under their second assignment of error, it is urged that the essential elements of the
equitable defense of laches are present in the case at bar.
Regardless of the merits of these two (2) assignments of error, well settled is the rule that laches is a defense
that must be pleaded especially, and that, otherwise, it is deemed waived, so that it can not be set up for
the first time on appeal.
The record discloses that the defenses of laches and prescription are being raised for the first
time in this appeal. They were not invoked in the proceedings before the Hearing Officer nor
later on before Associate Commissioner Sanchez and the Workmen's Compensation
Commission. As said defenses do not affect the jurisdiction of the latter, they cannot now be

entertained and must be deemed to have been waived (Regalado vs. Visayan Shipping Company,
Inc., G.R. No. L-42855, May 21, 1939; Victorias Milling Company, Inc. vs. Compensation
Commissioner,
et
al.,
G.R.
No.
L-10533, May 31, 1957; Manila Yatch Club, Inc. vs. Workmen's Compensation Commission, et
al., G.R. No. L-19258, May 31, 1963). 2
Laches not having been invoked as a defense in the court below, the same can not be gone into at
this stage of the proceedings, ... 3
... Neither prescription of appellee's claim or bar of the action for recovery due to laches was
averred in appellant's defenses. Appellant cannot raise them now for the first time on appeal.
Verily the failure to raise the issue of prescription and laches, amounts to a waiver of such
defenses (Sec. 10, Rule 9; Maxilim v. Tabotabo, 9 Phil. 390; Domingo v. Osorio, 7 Phil. 405).
Moreover, the right of the appellee to file an action to recover possession based on its Torrens
Title is imprescriptible and not barred under doctrine of laches (Art. 348, Civil Code; Francisco,
et al. v. Cruz, et al., 43 O.G. 5105). ... 4
Petitioners Mr. and Mrs. Viacrucis, as defendants in the court of first instance, and petitioners Mr. and Mrs.
Marquez as intervenors therein, filed their respective answer and answer in intervention alleging no other
defenses than that of prescription of action and that the deed of conveyance Exhibit B merely simulated a sale.
Laches was invoked by herein petitioners for the first time in the Court of Appeals, which could not properly
entertain it, said, defense having been deemed waived in consequence of petitioner's failure to allege it in the
trial court. The first and second assignments of error are, therefore, clearly untenable.
With respect to the third assignment of error, petitioners maintain that the Court of Appeals had erred in
considering that the failure of Orais to bring the present action earlier was mere "laziness," instead of an
omission that "may be given in evidence against him," as provided in section 22 of Rule 130 of the Rules of
Court and as "strongly persuasive of lack of merit" of the claim of said respondent, and that when he tried to
obtain a loan from the Philippine National Bank in 1936 and offered OCT No. 243 as collateral security, the
bank did not accept said offer upon the ground that the land in question is not his property, in reply to which
Orais said nothing, which is an admission by silence, pursuant to section 23 of the same Rule 130. Moreover,
petitioners bewail that the Court of Appeals, like the trial court, considered in favor of Orais allegedly in
violation of section 25 of said Rule 130 the admission of Mrs. Beatriz Costelo, to the effect that, although the
land in dispute was physically in the possession of her now deceased husband, Pelagio Costelo, he and she
recognized Orais as the owner of said land.
It should be noted, however, that said testimony of Mrs. Costelo and this recognition by the now deceased
Pelagio Castelo which were confirmed by the public document Exh. G constitute a declaration of Mr. and
Mrs. Castelo adverse to their interest, which is admissible in evidence, pursuant to section 32 of said Rule 130.
Petitioners have no reason whatsoever to object to the consideration in favor of Orais of said admission, the
same having been made in 1936, more than five (5) years before their (petitioners) predecessor in interest,
Balentin Ruizo, had entered into the picture, when Orais and Castelo were the only parties who had any interest
in the object of said admission. Pursuant to said legal provision, such admission "may be received in evidence,"
not only against the party who made it "or his successors in interest," but, also, "against third persons." 5
As regards the alleged failure of Orais to say anything when the bank refused to accept OCT No. 243 as
collateral for the loan applied for by Orais, upon the ground that the land covered by said certificate of title was
not his property, there is no competent evidence on whether or not Orais had said anything in response to said
statement. Moreover, OCT No. 243 was in the name of Pedro Sanchez, and no matter how real the sale by the
latter to Orais may be, the bank would not accept the land in question as security for said loan, unless and until
OCT No. 243 shall have been cancelled and a transfer certificate of title issued to Orais. This, however, could
not take place before the filing of his loan application, because the owner's duplicate of said certificate of title

 admittedly delivered by Sanchez to Orais had been lost in the possession of the latter's counsel, to whom
he (Orais) had turned it over in connection with a given criminal case.
As regards the effect or import of the failure of Orais to file the present action until November 15, 1960, this is a
matter relevant to the issue whether the sale attested to by Exh. B is simulated, as contended by petitioners
herein, or a true and authentic sale, as Orais maintains. The decision of the Court of Appeals, affirming that of
the trial court and sustaining the claim of Orais, constitutes a finding of fact, which is final in this proceeding
for review on certiorari. 6 In any event, said finding is fully borne out by the record.
Indeed, petitioners' main argument, apart from the aforementioned inaction of Orais, is that he had never been in
possession of the land in question, and that the same had remained in the name of Pedro Sanchez for tax
purposes. It should be noted, however, that, although the disputed land was actually held by Pelagio
Costelo, from 1936 to 1941, Costelo executed, on July 30, 1936, Exh. G, whereby he, in effect,
acknowledged Orais as owner of the land an Orais granted him (Costelo) the right to possess it until the
year 1941. And this was confirmed by Mrs. Costelo on the witness stand. As a consequence, Orais came to be
in constructive possession of said land, from July 30, 1936. As a matter of fact, petitioners eventually admitted
that Orais had been in actual possession, although they claim of another portion of the land covered by OCT
No. 243.
Then, again, the following circumstances militate agains the simulation alleged by petitioners herein, namely:
1. Exhibit B was not only notarized on the very date of its execution. It was, also, filed, soon thereafter or on
September 10, 1936 with the Office of the Register of Deeds of Leyte and recorded in the memorandum of
incumbrances of Homestead OCT No. 243. It is noteworthy that according to Viacrucis' deposition, 7 and the
testimony of Calixta Suganub, widow of Balentin Ruizo, as witness for petitioners herein, Pedro Sanchez
delivered his owner's duplicate of said OCT No. 243 to Anastacio Orais, which is clearly indicative of the intent
of Sanchez to give full force and effect to said deed of sale.
Upon the other hand, Exhibits 9, 10 and 11, on which herein petitioners rely, have not been registered either
under the provisions of the Land Registration Act or under those of Act No. 3344 despite the provision in
said deeds to the effect that the same should be or would be registered, by agreement of the parties. Likewise
significant is a provision, in the deed Exhibit 10, in favor of Ruizo, that the land thus conveyed is part of a lot
covered by a (certificate of) title, the space intended for the number of which was left blank, and that, this
notwithstanding, it was stipulated in said instrument that it would be registered pursuant to Act No. 3344, which
refers to lands not registered under the provisions of Act No. 496. Worse still, apart from including the latter
stipulation, 8 Mr. and Mrs. Viacrucis declared in the deed, Exhibit 9, in favor of Claros Marquez, that said land
is not registered under the Land Registration Act, which is not true.
Apparently, petitioners knew they could not register Exhibits 9, 10 and 11, under the provisions of the Land
Registration Act, without their rights under said instruments becoming officially subordinated to those of
Anastacio Orais. In fact, Viacrucis stated, in his aforementioned deposition, that he had "lost no time in going to
Tacloban, Leyte, to have the Deed of Sale" presumably Exhibit 11, in his favor "registered with the office
of the Register of Deeds." We have every reason to believe, therefore, that petitioners had actual knowledge of
the existence of Exhibit B and of the fact that it had been filed with the office of the register of deeds, and
entered in the memorandum of incumbrances of Homestead OCT No. 243.
2. In their "Amended Answer in Intervention," dated December 10, 1962, Mr. and Mrs. Marquez admitted that
Sanchez had really made a sale in favor of Orais, although said intervenors alleged that the land thus acquired
by him was only 6.6303 hectares; but, petitioners have not even tried to explain why Exhibit B the only deed
executed by Pedro Sanchez in favor of Anastacio Orais conveys the entire lot of 14.6303 covered by OCT
No. 243.

Petitioners make much of a deed marked as Exhibit 4, 9 executed by Anastacio Orais, on May 25, 1939,
whereby he sold one-half (1/2) of a lot of 6.6303 hectares, covered by OCT No. 243, to Alfredo Parrilla, Pastor
Zaragoza, Pedro Gorumba and Eugenio A. Evangelista. Said Exhibit 4 does not say, however, that the land sold
by Pedro Sanchez to Anastacio Orais was limited to said area of 6.6303 hectares. What is more, it contains an
indication to the contrary, for, in describing the object of the sale, Exhibit 4 states that it is one-half (1/2) of a lot
bounded on the South by a land of Anastacio Orais. In other words, said lot of 6.6303 was not all that he
owned. This might explain why petitioners after producing, marking and identifying Exhibit 4 did not
introduce the same in evidence, although copy thereof is attached to the Amended Answer in Intervention of
Mr. and Mrs. Claros Marquez as Annex 5.
It should be noted, also, that, at the time of the execution of said Exhibit 4, on May 25, 1939, a portion of about
four (4) hectares of the land of 14.6303 hectares sold by Sanchez to Orais, was still held by Pelagio Costelo, to
guarantee the payment of a debt of Sanchez, in view of which Orais conceded in Exhibit G Costelo's right
to possess the land from 1936 to 1941 evidently, so that he could apply the fruits or products thereof to the
satisfaction of his credit and Costelo acknowledged the dominical rights of Orais.
Furthermore, it appears that on July 10, 1936, or over a month after the sale by Sanchez to Orais, a deed,
Exhibit 1, dated April 19, 1934, and bearing the signature of Sanchez, was notarized. Exhibit 1 purports to
convey to one Crecente Marquez a portion, of about four (4) hectares, of the lot covered by OCT No. 243,
which portion is not involved in the case at bar. There is evidence to the effect that Exhibit 1 was filed with the
Office of the Register of Deeds of Leyte, on August 3, 1936, and recorded in the Memorandum of the
Incumbrances of OCT No. 243. This must have been made without producing the owner's duplicate of said
OCT No. 243, inasmuch as the same was in the possession of Orais, according to the above-mentioned
deposition of Viacrucis, since, apparently the execution of Exhibit B, on June 8, 1936. Under the circumstances,
Orais may have felt that it was neither necessary nor advisable to make any reference, in Exhibit 4, either to said
portion of four (4) hectares, ostensibly conveyed to Crecente Marquez by virtue of Exhibit 1, or to the similar
area held by Pelagio Costelo an aggregate of eight (8) hectares, which, deducted from the land of 14.6303
hectares covered by OCT No. 243, left approximately the 6.6303 hectares mentioned in said deed Exhibit 1.
3. Although the entire lot of 14.6303 hectares purchased by Orais from Sanchez, pursuant to Exhibit B,
remained for tax purposes in the latter's name, Orais paid the taxes due thereon." 10
At this juncture, it may not be amiss to advert to the fact that, since Exhibit B had filed with the office of the
register of deeds and recorded therein as above stated, Ruizo Viacrucis and Marquez are deemed to have
constructive notice of the sale in favor of Orais, apart from the circumstances heretofore adverted to that,
since Viacrucis had gone to said office soon after the execution in his favor, on October 10, 1945, of the deed of
sale Exhibit 11 for the purpose of registering the same, said petitioner must have had actual knowledge of the
previous sale to Orais. And this explains why, despite the fact that Viacrucis had gone to the office of the
register of deeds for the aforementioned purpose, he did not carry out the same. Viacrucis did not even try to
explain why he failed to do so.
Petitioners herein, likewise, failed to explain why neither Ruizo nor Claros Marquez had filed with said office
the deeds of sale Exhibits 10 and 9 in their favor, respectively, despite the provision in both documents for the
registration thereof.
Indeed, the parties in Exh. 10 Sanchez and Ruizo had stipulated therein:
Que el terreno objeto de esta venta es parte del titulo No. , del vendedor y que es nuestro
deseo
sin
embargo
que
la
presente
se
register
bajo
la
Ley
No.
11
3344.

What is more, as witness for petitioners herein, Jose R. Pastor the notary public who prepared Exh. 10 and
before whom it was acknowledged testified positively that Sanchez had explicitly told him, on that occasion,
and in the presence of Ruizo, that the 4-hectare land thereby conveyed to Ruizo is covered by a certificate of
title, which was not produced then.
Likewise, the deed of sale Exh. 11, executed by Ruizo in favor of Viacrucis, provides:
That ... it is our will that this document be registered under the provisions of Act 3344.
Similarly, the deed Exh. 9, executed by Mr. and Mrs. Viacrucis in favor of Claros Marquez, states:
The the above-mentioned parcel is not registered under Act No. 496, otherwise known as the
Land Registration Act nor under the Spanish Mortgage Law; and the parties hereto agree to
register this instrument in the office of the Registry of Deeds of the Province of Leyte in
accordance with the provisions of the Revised Administrative Code, as amended by Act No.
3344. 12
Considering that Exhibit 10 had been delivered by Ruizo to Viacrucis, who, later, turned over Exhibits 10 and
11 to Claros Marquez, We are fully persuaded that, aware of the registered status of the land in question,
petitioners herein had advisedly chosen to treat the same as an unregistered land. None of them claims to have
relied upon OCT No. 243 in the name of Pedro Sanchez. They cannot invoke, therefore, the rights of a
purchaser for value in good faith under the provisions of the Land Registration Act.
Upon the other hand, Orais had purchased said land, and taken possession thereof at first, constructively, in
consequence of the deed of sale in his favor, incorporated in the public document, Exhibit B, and, also, of the
agreement Exh. G, between Orais and Costelo, and, then, actually, upon the expiration of Castelo's right of
possession, under said Exh. G apart from filing said Exh. B with the office of the Register of Deeds and
having it recorded therein.
As between Pedro Sanchez, Orais and petitioners herein, the title to said land if treated as an unregistered
one passed, therefore, to Orais either on June 8, 1936, the date of Exhibit B, or, on July 30, 1936, the date of
Exhibit G, or, at the latest, on September 10, 1936, when Exhibit B was recorded in the office of the register of
deeds. 13 Accordingly, Sanchez was no longer its owner when he sold it, on July 7, 1941, to Balentin Ruizo
who, as a consequence, acquired no title to said land, and conveyed none, on October 10, 1945, to Viacrucis,
who, in turn, could not have transmitted any to Claros Marquez. 14
Furthermore, petitioners could not possibly have acquired title to said land, as one registered under Act No. 496,
inasmuch as the deeds of conveyance Exhibits 9, 10 and 11 in their favor and in that of their predecessor in
interest, Balentin Ruizo have not been registered, and, pursuant to the provisions of said Act, "the act of
registration shall be the operative act to convey and affect the land ...." 15 Neither could the petitioners have
acquired title by prescription, for "no title to registered land in derogation to that of the registered owner shall
be acquired by prescription or adverse possession." 16 Hence, petitioners have given up the plea of prescription,
on which they relied heavily in the court of first instance and the Court of Appeals, and now merely press the
defense of laches, belatedly invoked, for the first time, in the Court of Appeals and properly rejected by the
same.
In short, whether the property in question is treated as a registered land or as one not registered under the
provisions of Act No. 496, Orais has, therefore, a better right than petitioners herein, and the third assignment of
error cannot be sustained.
WHEREFORE, the appealed decision of the Court of Appeals should be, as it is hereby affirmed, with costs
against herein petitioners Mr. and Mrs. Viacrucis and Mr. and Mrs. Marquez. It is so ordered.

G.R. No. L-16570

March 9, 1922
SMITH,
BELL
&
CO.,
LTD., plaintiff-appellant, vs.
VICENTE SOTELO MATTI, defendant-appellant.
Ross
and
Lawrence
and
Ewald
E.
Selph
for
plaintiff-appellant.
Ramon Sotelo for defendant-appellant.
ROMUALDEZ, J.:
In August, 1918, the plaintiff corporation and the defendant, Mr. Vicente Sotelo, entered into contracts whereby
the former obligated itself to sell, and the latter to purchase from it, two steel tanks, for the total price of twentyone thousand pesos (P21,000), the same to be shipped from New York and delivered at Manila "within three or
four months;" two expellers at the price of twenty five thousand pesos (P25,000) each, which were to be
shipped from San Francisco in the month of September, 1918, or as soon as possible; and two electric motors at
the price of two thousand pesos (P2,000) each, as to the delivery of which stipulation was made, couched in
these words: "Approximate delivery within ninety days. This is not guaranteed."
The tanks arrived at Manila on the 27th of April, 1919: the expellers on the 26th of October, 1918; and the
motors on the 27th of February, 1919.
The plaintiff corporation notified the defendant, Mr.Sotelo, of the arrival of these goods, but Mr.Sotelo refused
to receive them and to pay the prices stipulated.
The plaintiff brought suit against the defendant, based on four separate causes of action, alleging, among other
facts, that it immediately notified the defendant of the arrival of the goods, and asked instructions from him as
to the delivery thereof, and that the defendant refused to receive any of them and to pay their price. The
plaintiff, further, alleged that the expellers and the motors were in good condition. (Amended complaint, pages
16-30, Bill of Exceptions.)
In their answer, the defendant, Mr.Sotelo, and the intervenor, the Manila Oil Refining and By-Products Co.,
Inc., denied the plaintiff's allegations as to the shipment of these goods and their arrival at Manila, the
notification to the defendant, Mr.Sotelo, the latter's refusal to receive them and pay their price, and the good
condition of the expellers and the motors, alleging as special defense that Mr.Sotelo had made the contracts in
question as manager of the intervenor, the Manila Oil Refining and By-Products Co., Inc which fact was known
to the plaintiff, and that "it was only in May, 1919, that it notified the intervenor that said tanks had arrived, the
motors and the expellers having arrived incomplete and long after the date stipulated." As a counterclaim or setoff, they also allege that, as a consequence of the plaintiff's delay in making delivery of the goods, which the
intervenor intended to use in the manufacture of cocoanut oil, the intervenor suffered damages in the sums of
one hundred sixteen thousand seven hundred eighty-three pesos and ninety-one centavos (P116,783.91) for the
nondelivery of the tanks, and twenty-one thousand two hundred and fifty pesos (P21,250) on account of the
expellers and the motors not having arrived in due time.
The case having been tried, the court below absolved the defendants from the complaint insofar as the tanks and
the electric motors were concerned, but rendered judgment against them, ordering them to "receive the aforesaid
expellers and pay the plaintiff the sum of fifty thousand pesos (P50,00), the price of the said goods, with legal
interest thereon from July 26, 1919, and costs."
Both parties appeal from this judgment, each assigning several errors in the findings of the lower court.
The principal point at issue in this case is whether or not, under the contracts entered into and the circumstances
established in the record, the plaintiff has fulfilled, in due time, its obligation to bring the goods in question to
Manila. If it has, then it is entitled to the relief prayed for; otherwise, it must be held guilty of delay and liable
for the consequences thereof.
To solve this question, it is necessary to determine what period was fixed for the delivery of the goods.
As regards the tanks, the contracts A and B (pages 61 and 62 of the record) are similar, and in both of them we
find this clause:
To be delivered within 3 or 4 months The promise or indication of shipment carries with it absolutely no
obligation on our part Government regulations, railroad embargoes, lack of vessel space, the exigencies of
the requirement of the United States Government, or a number of causes may act to entirely vitiate the
indication of shipment as stated. In other words, the order is accepted on the basis of shipment at Mill's
convenience, time of shipment being merely an indication of what we hope to accomplish.

In the contract Exhibit C (page 63 of the record), with reference to the expellers, the following stipulation
appears:
The following articles, hereinbelow more particularly described, to be shipped at San Francisco within the
month of September /18, or as soon as possible. Two Anderson oil expellers . . . .
And in the contract relative to the motors (Exhibit D, page 64, rec.) the following appears:
Approximate delivery within ninety days. This is not guaranteed. This sale is subject to our being able to
obtain Priority Certificate, subject to the United States Government requirements and also subject to
confirmation of manufactures.
In all these contracts, there is a final clause as follows:
The sellers are not responsible for delays caused by fires, riots on land or on the sea, strikes or other causes
known as "Force Majeure" entirely beyond the control of the sellers or their representatives.
Under these stipulations, it cannot be said that any definite date was fixed for the delivery of the goods. As to
the tanks, the agreement was that the delivery was to be made "within 3 or 4 months," but that period was
subject to the contingencies referred to in a subsequent clause. With regard to the expellers, the contract says
"within the month of September, 1918," but to this is added "or as soon as possible." And with reference to the
motors, the contract contains this expression, "Approximate delivery within ninety days," but right after this, it
is noted that "this is not guaranteed."
The oral evidence falls short of fixing such period.
From the record it appears that these contracts were executed at the time of the world war when there existed
rigid restrictions on the export from the United States of articles like the machinery in question, and maritime,
as well as railroad, transportation was difficult, which fact was known to the parties; hence clauses were
inserted in the contracts, regarding "Government regulations, railroad embargoes, lack of vessel space, the
exigencies of the requirements of the United States Government," in connection with the tanks and "Priority
Certificate, subject to the United State Government requirements," with respect to the motors. At the time of the
execution of the contracts, the parties were not unmindful of the contingency of the United States Government
not allowing the export of the goods, nor of the fact that the other foreseen circumstances therein stated might
prevent it.
Considering these contracts in the light of the civil law, we cannot but conclude that the term which the parties
attempted to fix is so uncertain that one cannot tell just whether, as a matter of fact, those articles could be
brought to Manila or not. If that is the case, as we think it is, the obligations must be regarded as conditional.
Obligations for the performance of which a day certain has been fixed shall be demandable only when the day
arrives.
A day certain is understood to be one which must necessarily arrive, even though its date be unknown.
If the uncertainty should consist in the arrival or non-arrival of the day, the obligation is conditional and shall
be governed by the rules of the next preceding section. (referring to pure and conditional obligations). (Art.
1125, Civ. Code.)
And as the export of the machinery in question was, as stated in the contract, contingent upon the sellers
obtaining certificate of priority and permission of the United States Government, subject to the rules and
regulations, as well as to railroad embargoes, then the delivery was subject to a condition the fulfillment of
which depended not only upon the effort of the herein plaintiff, but upon the will of third persons who could in
no way be compelled to fulfill the condition. In cases like this, which are not expressly provided for, but
impliedly covered, by the Civil Code, the obligor will be deemed to have sufficiently performed his part of the
obligation, if he has done all that was in his power, even if the condition has not been fulfilled in reality.
In such cases, the decisions prior to the Civil Code have held that the obligee having done all that was in his
power, was entitled to enforce performance of the obligation. This performance, which is fictitious not real
is not expressly authorized by the Code, which limits itself only to declare valid those conditions and the
obligation thereby affected; but it is neither disallowed, and the Code being thus silent, the old view can be
maintained as a doctrine. (Manresa's commentaries on the Civil Code [1907], vol. 8, page 132.)
The decisions referred to by Mr. Manresa are those rendered by the supreme court of Spain on November 19,
1896, and February 23, 1871.
In the former it is held:

First. That when the fulfillment of the conditions does not depend on the will of the obligor, but on that of a
third person who can in no way be compelled to carry it out, and it is found by the lower court that the obligor
has done all in his power to comply with the obligation, the judgment of the said court, ordering the other party
to comply with his part of the contract, is not contrary to the law of contracts, or to Law 1, Tit. I, Book 10, of
the "NovsimaRecopilacin," or Law 12, Tit. 11, of Partida 5, when in the said finding of the lower court, no
law or precedent is alleged to have been violated. (Jurisprudencia Civil published by the directors of the Revista
General de Legislacion y Jurisprudencia [1866], vol. 14, page 656.)
In the second decision, the following doctrine is laid down:
Second. That when the fulfillment of the condition does not depend on the will of the obligor, but on that of a
third person, who can in no way be compelled to carry it out, the obligor's part of the contract is
compliedwithalfBelisario not having exercised his right of repurchase reserved in the sale of BasilioBorja
mentioned in paragraph (13) hereof, the affidavit of BasilioBorja for the consolidacion de dominio was
presented for record in the registry of deeds and recorded in the registry on the same date.
(32) The MaximoBelisario left a widow, the opponent AdelinaFerrer and three minor children, Vitaliana,
Eugenio, and AurenoBelisario as his only heirs.
(33) That in the execution and sales thereunder, in which C. H. McClure appears as the judgment creditor, he
was represented by the opponent Peter W. Addison, who prepared and had charge of publication of the notices
of the various sales and that in none of the sales was the notice published more than twice in a newspaper.
The claims of the opponent-appellant Addison have been very fully and ably argued by his counsel but may, we
think, be disposed of in comparatively few words. As will be seen from the foregoing statement of facts, he rest
his title (1) on the sales under the executions issued in cases Nos. 435, 450, 454, and 499 of the court of the
justice of the peace of Dagupan with the priority of inscription of the last two sales in the registry of deeds, and
(2) on a purchase from the Director of Lands after the land in question had been forfeited to the Government for
non-payment of taxes under Act No. 1791.
The sheriff's sales under the execution mentioned are fatally defective for what of sufficient publication of the
notice of sale. Section 454 of the Code of civil Procedure reads in part as follows:
SEC. 454. Before the sale of property on execution, notice thereof must be given, as follows:
1. In case of perishable property, by posing written notice of the time and place of the sale in three public places
of the municipality or city where the sale is to take place, for such time as may be reasonable, considering the
character and condition of the property;
2. * * * * * * *
3. In cases of real property, by posting a similar notice particularly describing the property, for twenty days in
three public places of the municipality or city where the property is situated, and also where the property is to
be sold, and publishing a copy thereof once a week, for the same period, in some newspaper published or
having general circulation in the province, if there be one. If there are newspaper published in the province in
both the Spanish and English languages, then a like publication for a like period shall be made in one newspaper
published in the Spanish language, and in one published in the English language:Provided, however, That such
publication in a newspaper will not be required when the assessed valuation of the property does not exceed
four hundred pesos;
4. * * * * * * *
Examining the record, we find that in cases Nos. 435 and 450 the sales took place on October 14, 1916; the
notice first published gave the date of the sale as October 15th, but upon discovering that October 15th was a
Sunday, the date was changed to October 14th. The correct notice was published twice in a local newspaper, the
first publication was made on October 7th and the second and last on October 14th, the date of the sale itself.
The newspaper is a weekly periodical published every Saturday afternoon.
In case No. 454 there were only two publications of the notice in a newspaper, the first publication being made
only fourteen days before the date of the sale. In case No. 499, there were also only two publications, the first of
which was made thirteen days before the sale. In the last case the sale was advertised for the hours of from 8:30
in the morning until 4:30 in the afternoon, in violation of section 457 of the Code of Civil Procedure. In cases
Nos. 435 and 450 the hours advertised were from 9:00 in the morning until 4.30 in the afternoon. In all of the
cases the notices of the sale were prepared by the judgment creditor or his agent, who also took charged of the
publication of such notices.

In the case of Campomanes vs. Bartolome and Germann& Co. (38 Phil., 808), this court held that if a sheriff
sells without the notice prescribe by the Code of Civil Procedure induced thereto by the judgment creditor and
the purchaser at the sale is the judgment creditor, the sale is absolutely void and not title passes. This must now
be regarded as the settled doctrine in this jurisdiction whatever the rule may be elsewhere.
It appears affirmatively from the evidence in the present case that there is a newspaper published in the province
where the sale in question took place and that the assessed valuation of the property disposed of at each sale
exceeded P400. Comparing the requirements of section 454, supra, with what was actually done, it is selfevident that notices of the sales mentioned were not given as prescribed by the statute and taking into
consideration that in connection with these sales the appellant Addison was either the judgment creditor or else
occupied a position analogous to that of a judgment creditor, the sales must be held invalid.
The conveyance or reconveyance of the land from the Director of Lands is equally invalid. The provisions of
Act No. 1791 pertinent to the purchase or repurchase of land confiscated for non-payment of taxes are found in
section 19 of the Act and read:
. . . In case such redemption be not made within the time above specified the Government of the Philippine
Islands shall have an absolute, indefeasible title to said real property. Upon the expiration of the said ninety
days, if redemption be not made, the provincial treasurer shall immediately notify the Director of Lands of the
forfeiture and furnish him with a description of the property, and said Director of Lands shall have full control
and custody thereof to lease or sell the same or any portion thereof in the same manner as other public lands are
leased or sold: Provided, That the original owner, or his legal representative, shall have the right to repurchase
the entire amount of his said real property, at any time before a sale or contract of sale has been made by the
director of Lands to a third party, by paying therefore the whole sum due thereon at the time of ejectment
together with a penalty of ten per centum . . . .
The appellant Addison repurchased under the final proviso of the section quoted and was allowed to do so as
the successor in interest of the original owner under the execution sale above discussed. As we have seen, he
acquired no rights under these sales, was therefore not the successor of the original owner and could only have
obtained a valid conveyance of such titles as the Government might have by following the procedure prescribed
by the Public Land Act for the sale of public lands. he is entitled to reimbursement for the money paid for the
redemption of the land, with interest, but has acquired no title through the redemption.
The question of the priority of the record of the sheriff's sales over that of the sale from Belisario to Borja is
extensively argued in the briefs, but from our point of view is of no importance; void sheriff's or execution sales
cannot be validated through inscription in the Mortgage Law registry.
The opposition of AdelinaFerrer must also be overruled. She maintained that the land in question was
community property of the marriage of EulalioBelisario and Paula Ira: that upon the death of Paula Ira inealed
from is modified, and the defendant Mr. Vicente SoteloMatti, sentenced to accept and receive from the plaintiff
the tanks, the expellers and the motors in question, and to pay the plaintiff the sum of ninety-six thousand pesos
(P96,000), with legal interest thereon from July 17, 1919, the date of the filing of the complaint, until fully paid,
and the costs of both instances. So ordered.
Araullo, C.J., Johnson, Street, Malcolm, Avancea, Villamor, Ostrand, and Johns, JJ., concur.

Republic
SUPREME
Manila
SECOND DIVISION

of

the

G.R. No. 91029 February 7, 1991

NORKIS
DISTRIBUTORS,
THE COURT OF APPEALS & ALBERTO NEPALES, respondents.
Jose D. Palma for petitioner.
Public Attorney's Office for private respondent.

Philippines
COURT

INC., petitioner, vs.

GRIO-AQUINO, J.:
Subject of this petition for review is the decision of the Court of Appeals (Seventeenth Division) in CA-G.R.
No. 09149, affirming with modification the judgment of the Regional Trial Court, Sixth (6th) Judicial Region,
Branch LVI. Himamaylan, Negros Occidental, in Civil Case No. 1272, which was private respondent Alberto
Nepales' action for specific performance of a contract of sale with damages against petitioner Norkis
Distributors, Inc.
The facts borne out by the record are as follows:
Petitioner Norkis Distributors, Inc. (Norkis for brevity), is the distributor of Yamaha motorcycles in Negros
Occidental with office in Bacolod City with AvelinoLabajo as its Branch Manager. On September 20, 1979,
private respondent Alberto Nepales bought from the Norkis-Bacolod branch a brand new Yamaha Wonderbike
motorcycle
Model
YL2DX
with
Engine
No.
L2-329401K Frame No.NL2-0329401, Color Maroon, then displayed in the Norkis showroom. The price of
P7,500.00 was payable by means of a Letter of Guaranty from the Development Bank of the Philippines (DBP),
Kabankalan Branch, which Norkis' Branch Manager Labajo agreed to accept. Hence, credit was extended to
Nepales for the price of the motorcycle payable by DBP upon release of his motorcycle loan. As security for the
loan, Nepales would execute a chattel mortgage on the motorcycle in favor of DBP. Branch Manager Labajo
issued Norkis Sales Invoice No. 0120 (Exh.1) showing that the contract of sale of the motorcycle had been
perfected. Nepales signed the sales invoice to signify his conformity with the terms of the sale. In the meantime,
however, the motorcycle remained in Norkis' possession.
On November 6, 1979, the motorcycle was registered in the Land Transportation Commission in the name of
Alberto Nepales. A registration certificate (Exh. 2) in his name was issued by the Land Transportation
Commission on November 6, 1979 (Exh. 2-b). The registration fees were paid by him, evidenced by an official
receipt, Exhibit 3.
On January 22, 1980, the motorcycle was delivered to a certain Julian Nepales who was allegedly the agent of
Alberto Nepales but the latter denies it (p. 15, t.s.n., August 2, 1984). The record shows that Alberto and Julian
Nepales presented the unit to DBP's Appraiser-Investigator Ernesto Arriesta at the DBP offices in Kabankalan,
Negros Occidental Branch (p. 12, Rollo). The motorcycle met an accident on February 3, 1980 at Binalbagan,
Negros Occidental. An investigation conducted by the DBP revealed that the unit was being driven by a certain
ZacariasPayba at the time of the accident (p. 33, Rollo). The unit was a total wreck (p. 36, t.s.n., August 2,1984;
p. 13, Rollo), was returned, and stored inside Norkis' warehouse.
On March 20, 1980, DBP released the proceeds of private respondent's motorcycle loan to Norkis in the total
sum of P7,500. As the price of the motorcycle later increased to P7,828 in March, 1980, Nepales paid the
difference of P328 (p. 13, Rollo) and demanded the delivery of the motorcycle. When Norkis could not deliver,
he filed an action for specific performance with damages against Norkis in the Regional Trial Court of
Himamaylan, Negros Occidental, Sixth (6th) Judicial Region, Branch LVI, where it was docketed as Civil Case
No. 1272. He alleged that Norkis failed to deliver the motorcycle which he purchased, thereby causing him
damages.
Norkis answered that the motorcycle had already been delivered to private respondent before the accident,
hence, the risk of loss or damage had to be borne by him as owner of the unit.
After trial on the merits, the lower court rendered a decision dated August 27, 1985 ruling in favor of private
respondent (p. 28, Rollo.) thus:
WHEREFORE, judgment is rendered in favor of the plaintiff and against the defendants. The defendants are
ordered to pay solidarity to the plaintiff the present value of the motorcycle which was totally destroyed, plus
interest equivalent to what the Kabankalan Sub-Branch of the Development Bank of the Philippines will have to
charge the plaintiff on fits account, plus P50.00 per day from February 3, 1980 until full payment of the said
present value of the motorcycle, plus P1,000.00 as exemplary damages, and costs of the litigation. In lieu of
paying the present value of the motorcycle, the defendants can deliver to the plaintiff a brand-new motorcycle
of the same brand, kind, and quality as the one which was totally destroyed in their possession last February 3,
1980. (pp. 28-29,Rollo.)
On appeal, the Court of appeals affirmed the appealed judgment on August 21, 1989, but deleted the award of
damages "in the amount of Fifty (P50.00) Pesos a day from February 3, 1980 until payment of the present value

of the damaged vehicle" (p35, Rollo). The Court of Appeals denied Norkis' motion for reconsideration. Hence,
this Petition for Review.
The principal issue in this case is who should bear the loss of the motorcycle. The answer to this question would
depend on whether there had already been a transfer of ownership of the motorcycle to private respondent at the
time it was destroyed.
Norkis' theory is that:
. . . After the contract of sale has been perfected (Art. 1475) and even before delivery, that is, even before the
ownership is transferred to the vendee, the risk of loss is shifted from the vendor to the vendee. Under Art.
1262, the obligation of the vendor to deliver a determinate thing becomes extinguished if the thing is lost by
fortuitous event (Art. 1174), that is, without the fault or fraud of the vendor and before he has incurred in delay
(Art. 11 65, par. 3). If the thing sold is generic, the loss or destruction does not extinguish the obligation (Art.
1263). A thing is determinate when it is particularly designated or physically segregated from all others of the
same class (Art. 1460). Thus, the vendor becomes released from his obligation to deliver the determinate thing
sold while the vendee's obligation to pay the price subsists. If the vendee had paid the price in advance the
vendor may retain the same. The legal effect, therefore, is that the vendee assumes the risk of loss by fortuitous
event (Art. 1262) after the perfection of the contract to the time of delivery. (Civil Code of the Philippines,
Ambrosio Padilla, Vol. 5,1987 Ed., p. 87.)
Norkis concedes that there was no "actual" delivery of the vehicle. However, it insists that there was
constructive delivery of the unit upon: (1) the issuance of the Sales Invoice No. 0120 (Exh. 1) in the name of the
private respondent and the affixing of his signature thereon; (2) the registration of the vehicle on November 6,
1979 with the Land Transportation Commission in private respondent's name (Exh. 2); and (3) the issuance of
official receipt (Exh. 3) for payment of registration fees (p. 33, Rollo).
That argument is not well taken. As pointed out by the private respondent, the issuance of a sales invoice does
not prove transfer of ownership of the thing sold to the buyer. An invoice is nothing more than a detailed
statement of the nature, quantity and cost of the thing sold and has been considered not a bill of sale (Am. Jur.
2nd Ed., Vol. 67, p. 378).
In all forms of delivery, it is necessary that the act of delivery whether constructive or actual, be coupled with
the intention of delivering the thing. The act, without the intention, is insufficient (De Leon, Comments and
Cases on Sales, 1978 Ed., citing Manresa, p. 94).
When the motorcycle was registered by Norkis in the name of private respondent, Norkis did not intend yet to
transfer the title or ownership to Nepales, but only to facilitate the execution of a chattel mortgage in favor of
the DBP for the release of the buyer's motorcycle loan. The Letter of Guarantee (Exh. 5) issued by the DBP,
reveals that the execution in its favor of a chattel mortgage over the purchased vehicle is a pre-requisite for the
approval of the buyer's loan. If Norkis would not accede to that arrangement, DBP would not approve private
respondent's loan application and, consequently, there would be no sale.
In other words, the critical factor in the different modes of effecting delivery, which gives legal effect to the act,
is the actual intention of the vendor to deliver, and its acceptance by the vendee. Without that intention, there is
no tradition (Abuan vs. Garcia, 14 SCRA 759).
In the case of Addison vs. Felix and Tioco (38 Phil. 404, 408), this Court held:
The Code imposes upon the vendor the obligation to deliver the thing sold. The thing is considered to be
delivered when it is "placed in the hands and possession of the vendee." (Civil Code, Art. 1462). It is true that
the same article declares that the execution of a public instrument is equivalent to the delivery of the thing
which is the object of the contract, but, in order that this symbolic delivery may produce the effect of tradition,
it is necessary that the vendor shall have had such control over the thing sold that, at the moment of the sale, its
material delivery could have been made. It is not enough to confer upon the purchaser the ownership and
the right of possession. The thing sold must be placed in his control. When there is no impediment whatever to
prevent the thing sold passing into the tenancy of the purchaser by the sole will of the vendor, symbolic delivery
through the execution of a public instrument is sufficient. But if notwithstanding the execution of the
instrument, the purchaser cannot have the enjoyment and material tenancy of the thing and make use of it
himself or through another in his name, because such tenancy and enjoyment are opposed by the interposition of
another will, then fiction yields to reality-the delivery has riot been effects .(Emphasis supplied.)

The Court of Appeals correctly ruled that the purpose of the execution of the sales invoice dated September 20,
1979 (Exh. B) and the registration of the vehicle in the name of plaintiff-appellee (private respondent) with the
Land Registration Commission (Exhibit C) was not to transfer to Nepales the ownership and dominion over the
motorcycle, but only to comply with the requirements of the Development Bank of the Philippines for
processing private respondent's motorcycle loan. On March 20, 1980, before private respondent's loan was
released and before he even paid Norkis, the motorcycle had already figured in an accident while driven by one
ZacariasPayba. Payba was not shown by Norkis to be a representative or relative of private respondent. The
latter's supposed relative, who allegedly took possession of the vehicle from Norkis did not explain how Payba
got hold of the vehicle on February 3, 1980. Norkis' claim that Julian Nepales was acting as Alberto's agent
when he allegedly took delivery of the motorcycle (p. 20, Appellants' Brief), is controverted by the latter.
Alberto denied having authorized Julian Nepales to get the motorcycle from Norkis Distributors or to enter into
any transaction with Norkis relative to said motorcycle. (p. 5, t.s.n., February 6, 1985).This circumstances more
than amply rebut the disputable presumption of delivery upon which Norkis anchors its defense to Nepales'
action (pp. 33-34, Rollo).
Article 1496 of the Civil Code which provides that "in the absence of an express assumption of risk by the
buyer, the things sold remain at seller's risk until the ownership thereof is transferred to the buyer," is applicable
to this case, for there was neither an actual nor constructive delivery of the thing sold, hence, the risk of loss
should be borne by the seller, Norkis, which was still the owner and possessor of the motorcycle when it was
wrecked. This is in accordance with the well-known doctrine of res perit domino.
WHEREFORE, finding no reversible error in the decision of the Court of Appeals in CA-G.R. No. 09149, we
deny the petition for review and hereby affirm the appealed decision, with costs against the petitioner.
SO ORDERED.
Narvasa, Cruz, Gancayco and Medialdea, JJ., concur.

G.R. No. L-18536

March 31, 1965

JOSE
B.
vs.
RAFAEL
TEODORO SANTOS, intervenor-appellee.

AZNAR, plaintiff-appellant,
YAPDIANGCO, defendant-appellee;

Florentino
M.
Guanlao
for
Rafael
Yapdiangco
in
his
own
behalf
Lorenzo Sumulong, R. B. Hilao and B. S. Felipe for intervenor-appellee.

as

plaintiff-appellant.
defendant-appellee.

REGALA, J.:
This is an appeal, on purely legal questions, from a decision of the Court of First Instance of Quezon City,
Branch IV, declaring the intervenor-appellee, Teodoro Santos, entitled to the possession of the car in dispute.
The records before this Court disclose that sometime in May, 1959, Teodoro Santos advertised in two
metropolitan papers the sale of his FORD FAIRLANE 500. In the afternoon of May 28, 1959, a certain L. De
Dios, claiming to be a nephew of Vicente Marella, went to the Santos residence to answer the ad. However,
Teodoro Santos was out during this call and only the latter's son, Irineo Santos, received and talked with De
Dios. The latter told the young Santos that he had come in behalf of his uncle, Vicente Marella, who was
interested to buy the advertised car.
On being informed of the above, Teodoro Santos instructed his son to see the said Vicente Marella the
following day at his given address: 1642 Crisostomo Street, Sampaloc, Manila. And so, in the morning of May

29, 1959, Irineo Santos went to the above address. At this meeting, Marella agreed to buy the car for
P14,700.00 on the understanding that the price would be paid only after the car had been registered in his name.
Irineo Santos then fetched his father who, together with L. De Dios, went to the office of a certain Atty. Jose
Padolina where the deed of the sale for the car was executed in Marella's favor. The parties to the contract
thereafter proceeded to the Motor Vehicles Office in Quezon City where the registration of the car in Marella's
name was effected. Up to this stage of the transaction, the purchased price had not been paid.
From the Motor Vehicles Office, Teodoro Santos returned to his house. He gave the registration papers and a
copy of the deed of sale to his son, Irineo, and instructed him not to part with them until Marella shall have
given the full payment for the car. Irineo Santos and L. De Dios then proceeded to 1642 Crisostomo Street,
Sampaloc, Manila where the former demanded the payment from Vicente Marella. Marella said that the amount
he had on hand then was short by some P2,000.00 and begged off to be allowed to secure the shortage from a
sister supposedly living somewhere on Azcarraga Street, also in Manila. Thereafter, he ordered L. De Dios to
go to the said sister and suggested that Irineo Santos go with him. At the same time, he requested the
registration papers and the deed of sale from Irineo Santos on the pretext that he would like to show them to his
lawyer. Trusting the good faith of Marella, Irineo handed over the same to the latter and thereupon, in the
company of L. De Dios and another unidentified person, proceeded to the alleged house of Marella's sister.
At a place on Azcarraga, Irineo Santos and L. De Dios alighted from the car and entered a house while their
unidentified companion remained in the car. Once inside, L. De Dios asked Irineo Santos to wait at the sala
while he went inside a room. That was the last that Irineo saw of him. For, after a considerable length of time
waiting in vain for De Dios to return, Irineo went down to discover that neither the car nor their unidentified
companion was there anymore. Going back to the house, he inquired from a woman he saw for L. De Dios and
he was told that no such name lived or was even known therein. Whereupon, Irineo Santos rushed to 1642
Crisostomo to see Marella. He found the house closed and Marella gone. Finally, he reported the matter to his
father who promptly advised the police authorities.
That very same day, or on the afternoon of May 29, 1959 Vicente Marella was able to sell the car in question to
the plaintiff-appellant herein, Jose B. Aznar, for P15,000.00. Insofar as the above incidents are concerned, we
are bound by the factual finding of the trial court that Jose B. Aznar acquired the said car from Vicente Marella
in good faith, for a valuable consideration and without notice of the defect appertaining to the vendor's title.
While the car in question was thus in the possession of Jose B. Aznar and while he was attending to its
registration in his name, agents of the Philippine Constabulary seized and confiscated the same in consequence
of the report to them by Teodoro Santos that the said car was unlawfully taken from him.
In due time, Jose B. Aznar filed a complaint for replevin against Captain Rafael Yapdiangco, the head of the
Philippine Constabulary unit which seized the car in question Claiming ownership of the vehicle, he prayed for
its delivery to him. In the course of the litigation, however, Teodoro Santos moved and was allowed to
intervene by the lower court.
At the end of the trial, the lower court rendered a decision awarding the disputed motor vehicle to the
intervenor-appellee, Teodoro Santos. In brief, it ruled that Teodoro Santos had been unlawfully deprived of his
personal property by Vicente Marella, from whom the plaintiff-appellant traced his right. Consequently,
although the plaintiff-appellant acquired the car in good faith and for a valuable consideration from Vicente
Marella, the said decision concluded, still the intervenor-appellee was entitled to its recovery on the mandate of
Article 559 of the New Civil Code which provides:
ART. 559. The possession of movable property acquired in good faith is equivalent to title.
Nevertheless, one who lost any movable or has been unlawfully deprived thereof, may recover it from
the person in possession of the same.

If the possessor of a movable lost or of which the owner has been unlawfully deprived, has acquired it in
good faith at a public sale, the owner cannot obtain its return without reimbursing the price paid
therefor.
From this decision, Jose B. Aznar appeals.
The issue at bar is one and simple, to wit: Between Teodoro Santos and the plaintiff-appellant, Jose B. Aznar,
who has a better right to the possession of the disputed automobile?
We find for the intervenor-appellee, Teodoro Santos.
The plaintiff-appellant accepts that the car in question originally belonged to and was owned by the intervenorappellee, Teodoro Santos, and that the latter was unlawfully deprived of the same by Vicente Marella. However,
the appellant contends that upon the facts of this case, the applicable provision of the Civil Code is Article 1506
and not Article 559 as was held by the decision under review. Article 1506 provides:
ART. 1506. Where the seller of goods has a voidable title thereto, but his, title has not been voided at the
time of the sale, the buyer acquires a good title to the goods, provided he buys them in good faith, for
value, and without notice of the seller's defect of title.
The contention is clearly unmeritorious. Under the aforequoted provision, it is essential that the seller should
have a voidable title at least. It is very clearly inapplicable where, as in this case, the seller had no title at all.
Vicente Marella did not have any title to the property under litigation because the same was never delivered to
him. He sought ownership or acquisition of it by virtue of the contract. Vicente Marella could have acquired
ownership or title to the subject matter thereof only by the delivery or tradition of the car to him.
Under Article 712 of the Civil Code, "ownership and other real rights over property are acquired and
transmitted by law, by donation, by testate and intestate succession, and in consequence of certain contracts, by
tradition." As interpreted by this Court in a host of cases, by this provision, ownership is not transferred by
contract merely but by tradition or delivery. Contracts only constitute titles or rights to the transfer or
acquisition of ownership, while delivery or tradition is the mode of accomplishing the same (Gonzales v. Rojas,
16 Phil. 51; Ocejo, Perez and Co. v. International Bank, 37 Phil. 631, Fidelity and Deposit Co. v. Wilson, 8
Phil. 51; Kuenzle & Streiff v. Wacke & Chandler, 14 Phil. 610; Easton v. Diaz Co., 32 Phil. 180).
For the legal acquisition and transfer of ownership and other property rights, the thing transferred must
be delivered, inasmuch as, according to settled jurisprudence, the tradition of the thing is a necessary
and indispensable requisite in the acquisition of said ownership by virtue of contract. (Walter Laston v.
E. Diaz & Co. & the Provincial Sheriff of Albay, supra.)
So long as property is not delivered, the ownership over it is not transferred by contract merely but by
delivery. Contracts only constitute titles or rights to the transfer or acquisition of ownership, while
delivery or tradition is the method of accomplishing the same, the title and the method of acquiring it
being different in our law. (Gonzales v. Roxas, 16 Phil. 51)
In the case on hand, the car in question was never delivered to the vendee by the vendor as to complete or
consummate the transfer of ownership by virtue of the contract. It should be recalled that while there was
indeed a contract of sale between Vicente Marella and Teodoro Santos, the former, as vendee, took possession
of the subject matter thereof by stealing the same while it was in the custody of the latter's son.
There is no adequate evidence on record as to whether Irineo Santos voluntarily delivered the key to the car to
the unidentified person who went with him and L. De Dios to the place on Azcarraga where a sister of Marella

allegedly lived. But even if Irineo Santos did, it was not the delivery contemplated by Article 712 of the Civil
Code. For then, it would be indisputable that he turned it over to the unidentified companion only so that he
may drive Irineo Santos and De Dios to the said place on Azcarraga and not to vest the title to the said vehicle
to him as agent of Vicente Marella. Article 712 above contemplates that the act be coupled with the intent of
delivering the thing. (10 Manresa 132)
The lower court was correct in applying Article 559 of the Civil Code to the case at bar, for under it, the rule is
to the effect that if the owner has lost a thing, or if he has been unlawfully deprived of it, he has a right to
recover it, not only from the finder, thief or robber, but also from third persons who may have acquired it in
good faith from such finder, thief or robber. The said article establishes two exceptions to the general rule of
irrevindicability, to wit, when the owner (1) has lost the thing, or (2) has been unlawfully deprived thereof. In
these cases, the possessor cannot retain the thing as against the owner, who may recover it without paying any
indemnity, except when the possessor acquired it in a public sale. (Del Rosario v. Lucena, 8 Phil. 535; Varela v.
Finnick, 9 Phil. 482; Varela v. Matute, 9 Phil. 479; Arenas v. Raymundo, 19 Phil. 46. Tolentino, id., Vol. II, p.
261.)
In the
that

case

of Cruz

v.

Pahati,

et

al., 52

O.G.

3053

this

Court

has

already

ruled

Under Article 559 of the new Civil Code, a person illegally deprived of any movable may recover it
from the person in possession of the same and the only defense the latter may have is if he has acquired
it in good faith at a public sale, in which case, the owner cannot obtain its return without reimbursing the
price paid therefor. In the present case, plaintiff has been illegally deprived of his car through the
ingenious scheme of defendant B to enable the latter to dispose of it as if he were the owner thereof.
Plaintiff, therefore, can still recover possession of the car even if it is in the possession of a third party
who had acquired it in good faith from defendant B. The maxim that "no man can transfer to another a
better title than he had himself" obtains in the civil as well as in the common law. (U.S. v. Sotelo, 28
Phil. 147)
Finally, the plaintiff-appellant here contends that inasmuch as it was the intervenor-appellee who had caused the
fraud to be perpetrated by his misplaced confidence on Vicente Marella, he, the intervenor-appellee, should be
made to suffer the consequences arising therefrom, following the equitable principle to that effect. Suffice it to
say in this regard that the right of the owner to recover personal property acquired in good faith by another, is
based on his being dispossessed without his consent. The common law principle that where one of two innocent
persons must suffer by a fraud perpetrated by another, the law imposes the loss upon the party who, by his
misplaced confidence, has enabled the fraud to be committed, cannot be applied in a case which is covered by
an express provision of the new Civil Code, specifically Article 559. Between a common law principle and a
statutory provision, the latter must prevail in this jurisdiction. (Cruz v. Pahati, supra)
UPON ALL THE FOREGOING, the instant appeal is hereby dismissed and the decision of the lower court
affirmed in full. Costs against the appellant.
G.R. No. L-34500 March 18, 1988
MOISES
OLIVARES
and
JUANITA
T.
OLIVARES, petitioners-appellants,
vs.
THE HONORABLE CARLOS V. GONZALES as Judge of the Court of First Instance of Iloilo (Branch
VI), respondent and JACINTO TUVILLA, CEFERINO TUVILLA, and JUAN TUMABINI, respondentsappellees.
Mario Guarina III for petitioners-appellants.

Enrique Arguelles for respondents-appellees.

MELENCIO-HERRERA, J.:
The Disputed Property is a piece of unregistered land located at Tigbauan, Iloilo Identified as Assessor's Lot
No. 343. It was previously owned by respondents-appellees Jacinto Tuvilla and Ceferino Tuvilla (the Tuvillas,
for short) both of Tigbauan, Iloilo.
Sometime in 1955, the Tuvillas executed a "Deed of Sale with Right to Repurchase" in favor of respondentappellee Juan Tumabini over the Disputed Property in consideration of the sum of P1,350.00. The document
was duly acknowledged before a Notary Public but was not recorded in the Registry of Property.
Sometime in 1959, the Tuvillas executed a "Deed of Sale with Pacto de Retro" over the Disputed Property in
favor of petitioners- appellants, Moises Olivares and Juanita T. Olivares (the Olivareses, for short). This
document was acknowledged before a Notary Public and registered with the Registry of Deeds. In 1966, the
Tuvillas also executed in favor of the Olivareses a "Deed of Absolute Sale" covering the Disputed Property.
Petitioners-appellants have been in possession of the Disputed Property since 1959.
On October 11, 1967, respondent-appellee, Juan Tumabini filed Civil Case No. 7410 before Branch I of the
then Court of First Instance of Iloilo against the Tuvillas for the consolidation of ownership over the Disputed
Property by reason of the alleged failure of the Tuvillas to redeem the property from Tumabini (hereinafter
referred to as the Consolidation Case). The Olivareses, however, were not included as parties to the said case.
During the pre-trial of the Consolidation Case, counsel for the parties agreed to consider the pacto de retro sale
as one of equitable mortgage. Thus, the Trial Court rendered judgment in favor of Tumabini in the amount of P
1,350.00, pursuant to which, the Court subsequently issued a Writ of Execution on October 23, 1968.
On November 23, 1968, the Olivareses instituted Civil Case No. 7777 before Branch VI of the former Court of
First Instance of Iloilo, for Quieting of Title, against the Tuvillas, Juan Tumabini the Provincial Sheriff and
Pyramid Surety (hereinafter, the Quieting of Title Case). The said Court issued a Restraining Order to stop the
sale in the Consolidation Case (No. 7410) pending in Branch 1, but the said order was lifted on February 6,
1969.
Subsequently, the Consolidation Case (No. 7410), the Disputed Property was sold at public auction and a Writ
of Possession was issued in Tumabinis favor. However, the tenant of the Olivareses refused to surrender
possession, prompting a citation for contempt. Action thereon was deferred, however, pending termination of
Civil Case No. 7777.
On July 7, 1970, in the Quieting of Title Case (No. 7777), the Trial Court issued an Order dismissing said case,
as follows:
Acting upon the motion for dismissal of this case filed by Atty. Enrique Arguelles, counsel for
the defendants, it appearing that the instant action has been filed since November 23, 1968 and
up to this time plaintiffs failed to exert effort to have the defendants summoned, for failure to
prosecute and lack of interest on the part of the plaintiffs for such unreasonable length of time, as
prayed, let this case be dismissed
No reconsideration was sought nor any appeal taken by the Olivareses.

On July 14, 1971, the same case was refiled, also in Branch VI, docketed as Civil Case No. 8698 (the Refiled
Case) which, however, was dismissed by the Court on September 6, 1971 "it appearing that Civil Case No.
7777 previously filed and dismissed by the Court embraces the same subject matter and the same party litigants
as the case at bar."
On September 20, 1971, the Court denied the Motion for Reconsideration filed by the Olivareses. Hence, this
appeal by certiorari.
The question posed is whether the dismissal of the Quieting of Title Case (No. 7777) "for failure to prosecute"
barred the institution of a subsequent suit, Civil Case No. 8698, by the same plaintiff against the same
defendants on the same cause of action. Section 3, Rule 17 of the Rules of Court specifically provides:
Sec. 3. Failure to prosecute. If plaintiff fails to appear at the time of the trial, or to prosecute
his action for an unreasonable length of time, or to comply with these rules or any order of the
court, the action may be dismissed upon motion of the defendant or upon the court's own motion.
This dismissal shall have the effect of an adjudication upon the merits, unless otherwise provided
by the court.
Procedurally speaking, therefore, since the dismissal by the Trial Court was unqualified, it had the effect of an
adjudication upon the merits.
However, the equities of the case are with the Olivareses. The first sale with pacto de retro by the Tuvillas to
Tumabini was unregistered; in contrast, the sale in favor of the Olivareses was duly recorded. The
Consolidation Case (Case No. 7410) instituted by Tumabini against the Tuvillas for consolidation of his
ownership did not include the Olivareses as parties defendants even though they were then in possession of the
Disputed Property. Justice and equity demand, therefore, that their side be heard in the Refiled Case (No. 8698).
Then, too, the contempt incident and the matter of the Writ of Possession in the Consolidation Case (No. 7410)
were left unresolved pending the outcome of the Quieting of Title Case (No. 7777).
In other words, it would be more in keeping with substantial justice if the controversy between the parties to be
resolved on the merits rather than on a procedural technicality in the light of the express mandate of the Rules
that they be "liberally construed in order to promote their object and to assist the parties in obtaining just,
speedy and inexpensive determination of every action and proceeding." The dismissal of actions is based on
sound judicial discretion and such discretion "must be exercised wisely and prudently never capriciously, with a
view to substantial justice." For having failed to meet that standard it will have to be held that respondent Judge
acted with grave abuse of discretion (see Tandoc vs. Tensuan, I, 50835, October 30, 1979, 93 SCRA 880).
WHEREFORE, the questioned Order of dismissal, dated September 6, 1971, in Civil Case No. 8698, is hereby
SET ASIDE and the said case REMANDED for prompt hearing and determination on the merits. This Decision
shag be immediately executory upon promulgation. No costs.
SO ORDERED.
(Cruz v. Cabana and Carbonell v. CA not yet submitted)

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

AMADO
CARUMBA,
petitioner,
vs.
THE COURT OF APPEALS, SANTIAGO BALBUENA and ANGELES BOAQUIA as Deputy
Provincial Sheriff, respondents.

Luis N. de Leon for petitioner.

Reno R. Gonzales for respondents.

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

Amado Carumba petitions this Supreme Court for a certiorari to review a decision of the Court of Appeals,
rendered in its Case No. 36094-R, that reversed the judgment in his favor rendered by the Court of First
Instance of Camarines Sur (Civil Case 4646).
The factual background and history of these proceedings is thus stated by the Court of Appeals (pages 1-2):
On April 12, 1955, the spouses Amado Canuto and NemesiaIbasco, by virtue of a "Deed of Sale
of Unregistered Land with Covenants of Warranty" (Exh. A), sold a parcel of land, partly
residential and partly coconut land with a periphery (area) of 359.09 square meters, more or less,
located in the barrio of Santo Domingo, Iriga, Camarines Sur, to the spouses Amado Carumba
and Benita Canuto, for the sum of P350.00. The referred deed of sale was never registered in the
Office of the Register of Deeds of Camarines Sur, and the Notary, Mr. Vicente Malaya, was not
then an authorized notary public in the place, as shown by Exh. 5. Besides, it has been expressly
admitted by appellee that he is the brother-in-law of Amado Canuto, the alleged vendor of the
property sold to him. Amado Canuto is the older brother of the wife of the herein appellee,
Amado Carumba.
On January 21, 1957, a complaint (Exh. B) for a sum or money was filed by Santiago Balbuena
against Amado Canuto and NemesiaIbasco before the Justice of the Peace Court of Iriga,
Camarines Sur, known as Civil Case No. 139 and on April 15, 1967, a decision (Exh. C) was
rendered in favor of the plaintiff and against the defendants. On October 1, 1968, the ex-officio
Sheriff, Justo V. Imperial, of Camarines Sur, issued a "Definite Deed of Sale (Exh. D) of the
property now in question in favor of Santiago Balbuena, which instrument of sale was registered
before the Office of the Register of Deeds of Camarines Sur, on October 3, 1958. The aforesaid
property was declared for taxation purposes (Exh. 1) in the name of Santiago Balbuena in 1958.
The Court of First instance, finding that after execution of the document Carumba had taken possession of the
land, planting bananas, coffee and other vegetables thereon, declared him to be the owner of the property under
a consummated sale; held void the execution levy made by the sheriff, pursuant to a judgment against
Carumba's vendor, Amado Canuto; and nullified the sale in favor of the judgment creditor, Santiago Balbuena.
The Court, therefore, declared Carumba the owner of the litigated property and ordered Balbuena to pay P30.00,
as damages, plus the costs.
The Court of Appeals, without altering the findings of fact made by the court of origin, declared that there
having been a double sale of the land subject of the suit Balbuena's title was superior to that of his adversary
under Article 1544 of the Civil Code of the Philippines, since the execution sale had been properly registered in
good faith and the sale to Carumba was not recorded.
We disagree. While under the invoked Article 1544 registration in good faith prevails over possession in the
event of a double sale by the vendor of the same piece of land to different vendees, said article is of no
application to the case at bar, even if Balbuena, the later vendee, was ignorant of the prior sale made by his
judgment debtor in favor of petitioner Carumba. The reason is that the purchaser of unregistered land at a
sheriff's execution sale only steps into the shoes of the judgment debtor, and merely acquires the latter's interest

in the property sold as of the time the property was levied upon. This is specifically provided by section 35 of
Rule 39 of the Revised Rules of Court, the second paragraph of said section specifically providing that:
Upon the execution and delivery of said (final) deed the purchaser, redemptioner, or his assignee
shall be substituted to and acquire all the right, title, interest, and claim of the judgment debtor to
the property as of the time of the levy, except as against the judgment debtor in possession, in
which case the substitution shall be effective as of the time of the deed ... (Emphasis supplied)
While the time of the levy does not clearly appear, it could not have been made prior to 15 April 1957, when the
decision against the former owners of the land was rendered in favor of Balbuena. But the deed of sale in favor
of Canuto had been executed two years before, on 12 April 1955, and while only embodied in a private
document, the same, coupled with the fact that the buyer (petitioner Carumba) had taken possession of the
unregistered land sold, sufficed to vest ownership on the said buyer. When the levy was made by the Sheriff,
therefore, the judgment debtor no longer had dominical interest nor any real right over the land that could pass
to the purchaser at the execution sale.1 Hence, the latter must yield the land to petitioner Carumba. The rule is
different in case of lands covered by Torrens titles, where the prior sale is neither recorded nor known to the
execution purchaser prior to the levy;2 but the land here in question is admittedly not registered under Act No.
496.
WHEREFORE, the decision of the Court of Appeals is reversed and that of the Court of First Instance affirmed.
Costs against respondent Santiago Balbuena.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Fernando, Teehankee, Barredo and Villamor,
JJ., concur.

G.R. No. 180665

August 11, 2010

HEIRS OF PAULINO ATIENZA, namely, RUFINA L. ATIENZA, ANICIA A. IGNACIO, ROBERTO

ATIENZA, MAURA A. DOMINGO, AMBROCIO ATIENZA, MAXIMA ATIENZA, LUISITO
ATIENZA, CELESTINA A. GONZALES, REGALADO ATIENZA and MELITA A. DELA CRUZ
Petitioners,
vs.
DOMINGO P. ESPIDOL, Respondent.
DECISION
ABAD, J.:
This case is about the legal consequences when a buyer in a contract to sell on installment fails to make the next
payments that he promised.
The Facts and the Case
Petitioner Heirs of PaulinoAtienza, namely, Rufina L. Atienza, Anicia A. Ignacio, Roberto Atienza, Maura A.
Domingo, AmbrocioAtienza, Maxima Atienza, LuisitoAtienza, Celestina A. Gonzales, RegaladoAtienza and
Melita A. Dela Cruz (collectively, the Atienzas)1 own a 21,959 square meters of registered agricultural land at
Valle Cruz, Cabanatuan City.2 They acquired the land under an emancipation patent3 through the governments
land reform program.4

On August 12, 2002 the Atienzas and respondent Domingo P. Espidol entered into a contract called
KasunduansaPagbibilingLupana may Paunang-Bayad (contract to sell land with a down payment) covering the
property.5 They agreed on a price of P130.00 per square meter or a total of P2,854,670.00, payable in three
installments: P100,000.00 upon the signing of the contract; P1,750,000.00 in December 2002, and the
remaining P974,670.00 in June 2003. Respondent Espidol paid the AtienzasP100,000.00 upon the execution of
the contract and paid P30,000.00 in commission to the brokers.
When the Atienzas demanded payment of the second installment of P1,750,000.00 in December 2002, however,
respondent Espidol could not pay it. He offered to pay the AtienzasP500.000.00 in the meantime,6 which they
did not accept. Claiming that Espidol breached his obligation, on February 21, 2003 the Atienzas filed a
complaint7 for the annulment of their agreement with damages before the Regional Trial Court (RTC) of
Cabanatuan City in Civil Case 4451.
In his answer,8 respondent Espidol admitted that he was unable to pay the December 2002 second installment,
explaining that he lost access to the money which he shared with his wife because of an injunction order issued
by an American court in connection with a domestic violence case that she filed against him. 9 In his desire to
abide by his obligation, however, Espidol took time to travel to the Philippines to offer P800,000.00 to the
Atienzas.
Respondent Espidol also argued that, since their contract was one of sale on installment, his failure to pay the
installment due in December 2002 did not amount to a breach. It was merely an event that justified the
Atienzas not to convey the title to the property to him. The non-payment of an installment is not a legal ground
for annulling a perfected contract of sale. Their remedy was to bring an action for specific performance.
Moreover, Espidol contended that the action was premature since the last payment was not due until June 2003.
In a decision10 dated January 24, 2005, the RTC ruled that, inasmuch as the non-payment of the purchase price
was not considered a breach in a contract to sell on installment but only an event that authorized the vendor not
to convey title, the proper issue was whether the Atienzas were justified in refusing to accept respondent
Espidols offer of an amount lesser than that agreed upon on the second installment.
The trial court held that, although respondents legal problems abroad cannot justify his failure to comply with
his contractual obligation to pay an installment, it could not be denied that he made an honest effort to pay at
least a portion of it. His traveling to the Philippines from America showed his willingness and desire to make
good on his obligation. His good faith negated any notion that he intended to renege on what he owed. The
Atienzas brought the case to court prematurely considering that the last installment was not then due.
Furthermore, said the RTC, any attempt by the Atienzas to cancel the contract would have to comply with the
provisions of Republic Act (R.A.) 6552 or the Realty Installment Buyer Protection Act (R.A. 6552), particularly
the giving of the required notice of cancellation, that they omitted in this case. The RTC thus declared the
contract between the parties valid and subsisting and ordered the parties to comply with its terms and
conditions.
On appeal,11 the Court of Appeals (CA) affirmed the decision of the trial court.12 Not satisfied, the Atienzas
moved for reconsideration.13 They argued that R.A. 6552 did not apply to the case because the land was
agricultural and respondent Espidol had not paid two years worth of installment that the law required for
coverage. And, in an apparent shift of theory, the Atienzas now also impugn the validity of their contract to sell,
claiming that, since the property was covered by an emancipation patent, its sale was prohibited and void. But
the CA denied the motion for reconsideration, hence, the present petition.14
Questions Presented
The questions presented for resolution are:

1. Whether or not the Atienzas could validly sell to respondent Espidol the subject land which they
acquired through land reform under Presidential Decree 2715 (P.D. 27);
2. Whether or not the Atienzas were entitled to the cancellation of the contract to sell they entered into
with respondent Espidol on the ground of the latters failure to pay the second installment when it fell
due; and
3. Whether or not the Atienzas action for cancellation of title was premature absent the notarial notice
of cancellation required by R.A. 6552.
The Courts Rulings
One. That the Atienzas brought up the illegality of their sale of subject land only when they filed their motion
for reconsideration of the CA decision is not lost on this Court. As a rule, no question will be entertained on
appeal unless it was raised before the court below. This is but a rule of fairness.16
Nonetheless, in order to settle a matter that would apparently undermine a significant policy adopted under the
land reform program, the Court cannot simply shirk from the issue. The Atienzas title shows on its face that the
government granted title to them on January 9, 1990 by virtue of P.D. 27. This law explicitly prohibits any form
of transfer of the land granted under it except to the government or by hereditary succession to the successors of
the farmer beneficiary.
Upon the enactment of Executive Order 22817 in 1987, however, the restriction ceased to be absolute. Land
reform beneficiaries were allowed to transfer ownership of their lands provided that their amortizations with the
Land Bank of the Philippines (Land Bank) have been paid in full.18 In this case, the Atienzas title categorically
states that they have fully complied with the requirements for the final grant of title under P.D. 27. This means
that they have completed payment of their amortization with Land Bank. Consequently, they could already
legally transfer their title to another.
Two. Regarding the right to cancel the contract for non-payment of an installment, there is need to initially
determine if what the parties had was a contract of sale or a contract to sell. In a contract of sale, the title to the
property passes to the buyer upon the delivery of the thing sold. In a contract to sell, on the other hand, the
ownership is, by agreement, retained by the seller and is not to pass to the vendee until full payment of the
purchase price. In the contract of sale, the buyers non-payment of the price is a negative resolutory condition;
in the contract to sell, the buyers full payment of the price is a positive suspensive condition to the coming into
effect of the agreement. In the first case, the seller has lost and cannot recover the ownership of the property
unless he takes action to set aside the contract of sale. In the second case, the title simply remains in the seller if
the buyer does not comply with the condition precedent of making payment at the time specified in the
contract.19Here, it is quite evident that the contract involved was one of a contract to sell since the Atienzas, as
sellers, were to retain title of ownership to the land until respondent Espidol, the buyer, has paid the agreed
price. Indeed, there seems no question that the parties understood this to be the case.20
Admittedly, Espidol was unable to pay the second installment of P1,750,000.00 that fell due in December
2002.1awph!1 That payment, said both the RTC and the CA, was a positive suspensive condition failure of
which was not regarded a breach in the sense that there can be no rescission of an obligation (to turn over title)
that did not yet exist since the suspensive condition had not taken place. And this is correct so far.
Unfortunately, the RTC and the CA concluded that should Espidol eventually pay the price of the land, though
not on time, the Atienzas were bound to comply with their obligation to sell the same to him.
But this is error. In the first place, since Espidol failed to pay the installment on a day certain fixed in their
agreement, the Atienzas can afterwards validly cancel and ignore the contract to sell because their obligation to

sell under it did not arise. Since the suspensive condition did not arise, the parties stood as if the conditional
obligation had never existed.21
Secondly, it was not a pure suspensive condition in the sense that the Atienzas made no undertaking while the
installments were not yet due. Mr. Justice Edgardo L. Paras gave a fitting example of suspensive condition: "Ill
buy your land for P1,000.00 if you pass the last bar examinations." This he said was suspensive for the bar
examinations results will be awaited. Meantime the buyer is placed under no immediate obligation to the person
who took the examinations.22
Here, however, although the Atienzas had no obligation as yet to turn over title pending the occurrence of the
suspensive condition, it was implicit that they were under immediate obligation not to sell the land to another in
the meantime. When Espidol failed to pay within the period provided in their agreement, the Atienzas were
relieved of any obligation to hold the property in reserve for him.
The ruling of the RTC and the CA that, despite the default in payment, the Atienzas remained bound to this day
to sell the property to Espidol once he is able to raise the money and pay is quite unjustified. The total price was
P2,854,670.00. The Atienzas decided to sell the land because petitioner PaulinoAtienza urgently needed money
for the treatment of his daughter who was suffering from leukemia.23Espidol paid a measly P100,000.00 in
down payment or about 3.5% of the total price, just about the minimum size of a brokers commission. Espidol
failed to pay the bulk of the price, P1,750,000.00, when it fell due four months later in December 2002. Thus, it
was not such a small default as to justify the RTC and the CAs decision to continue to tie up the Atienzas to the
contract to sell upon the excuse that Espidol tried his honest best to pay.
Although the Atienzas filed their action with the RTC on February 21, 2003, four months before the last
installment of P974,670.00 fell due in June 2003, it cannot be said that the action was premature. Given
Espidols failure to pay the second installment of P1,750,000.00 in December 2002 when it was due, the
Atienzas obligation to turn over ownership of the property to him may be regarded as no longer existing. 24 The
Atienzas had the right to seek judicial declaration of such non-existent status of that contract to relieve
themselves of any liability should they decide to sell the property to someone else. Parenthetically, Espidol
never offered to settle the full amount of the price in June 2003, when the last installment fell due, or during the
whole time the case was pending before the RTC.
Three. Notice of cancellation by notarial act need not be given before the contract between the Atienzas and
respondent Espidol may be validly declare non-existent. R.A. 6552 which mandated the giving of such notice
does not apply to this case. The cancellation envisioned in that law pertains to extrajudicial cancellation or one
done outside of court,25 which is not the mode availed of here. The Atienzas came to court to seek the
declaration of its obligation under the contract to sell cancelled. Thus, the absence of that notice does not bar the
filing of their action.
Since the contract has ceased to exist, equity would, of course, demand that, in the absence of stipulation, the
amount paid by respondent Espidol be returned, the purpose for which it was given not having been attained; 26
and considering that the Atienzas have consistently expressed their desire to refund the P130,000.00 that
Espidol paid.27
WHEREFORE, the Court GRANTS the petition and REVERSES and SETS ASIDE the August 31, 2007
decision and November 5, 2007 resolution of the Court of Appeals in CA-G.R. CV 84953. The Court declares
the KasunduansaPagbibilingLupana may Paunang-Bayad between petitioner Heirs of PaulinoAtienza and
respondent Domingo P. Espidol dated August 12, 2002 cancelled and the Heirs obligation under it nonexistent. The Court directs petitioner Heirs of Atienza to reimburse the P130,000.00 down payment to
respondent Espidol.
SO ORDERED.

SPOUSES BRAULIO
NAVARRO AND CESARIA
SINDAO,
Petitioners,

- versus -

PERLA RICO GO,

Respondent.

G.R. No. 143573

G.R. No. 187288
Present:

Present:

CARPIO MORALES, J.,Chairperson,

BRION,
BERSAMIN,
ABAD,* and
VILLARAMA, JR., JJ.

PUNO, C.J.,*
CARPIO,** Acting
Chairperson,
AUSTRIAMARTINEZ,***
CORONA,
CARPIO
MORALES,*** an
d
LEONARDO-DE
CASTRO, JJ.

Promulgated:
August 9, 2010

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

Promulgated:
DECISION
January 30, 2009
CARPIO MORALES, J.

Challenged via petition for review on certiorari is the Court of Appeals Decision
of December 12, 2008[1] which disposed as follows:
. . . [T]he decision appealed from is MODIFIED, in that in lieu of
decreeing the nullity of the patent and titles, the defendants Navarro are
ordered to reconvey the title to the plaintiff. The case against Aurelia
Caballero is dismissed. All other aspects of the decision are affirmed.
SO ORDERED.[2] (emphasis and underscoring supplied)
By Deed of Sale of Real Property dated May 23, 1937, Emilia Samson (Emilia)
conveyed to Josefa Parras (Josefa), mother of Perla Rico Go (respondent), a 405 square
meter parcel of land situated in Domalandan West, Lingayen, Pangasinan.
On December 1971, Free Patent No. 51563 (OCT No. P-14822) was issued to the
Heirs of Emilias brother, Lorenzo Samson (the Samson heirs), covering the land.
After Josefa purchased the land in 1937, she allowed one Rufino Palma (Palma),
nephew of petitioner Cesaria, to stay there. In 1984, Josefa donated the land to respondent
who allowed Palma to remain on the land until 1989. Via two documents entitled

Paknaan, Palma recognized respondents ownership of the land.[3] Photographs of the

execution of the documents were in fact taken.[4]
When Palma vacated the land, respondent constructed fences made of galvanized
roofing sheets and wooden posts on which was posted a Private Property, No Trespass
sign.
On April 27, 1990, the Samson heirs transferred their rights to the land by a Deed of
Extra-Judicial Partition with Sale to Spouses Braulio Navarro and Cesaria Sindao
(petitioners). After 11 years or on May 2001, Transfer Certificate of Title No. 254853
was issued in petitioners name.
Petitioner Braulio thereupon destroyed the fences of, and cut all the trees in the land,
drawing respondent to file a complaint for annulment of documents Deed of ExtraJudicial Partition with Sale, Free Patent, Original Certificate of Title, Tax Declarations,
Declaration of Ownership of Real Property and Damages against petitioners before the
Regional Trial Court (RTC) of Lingayen, Pangasinan. Petitioner Braulio passed away
on March 22, 2002 and was substituted in the action by his heirs.[5]
Before the RTC, petitioners invoked good faith in purchasing the land from the
Samson heirs in 1990, no encumbrances on the title to the land on file at the Register of
Deeds having been annotated.
By Decision of April 1, 2003, Branch 38 of the Lingayen RTC upheld respondents
possession and that of her predecessors-in-interest in the concept of an owner, and
declared that the issuance of a free patent title in favor of the Samson heirs is a nullity for
the land is beyond the jurisdiction of the Bureau of Lands to bestow . . .[6] Held the trial
court:
The land in suit was already sold in 1937 by Emilia Samson to
Josefa Paras Rico, mother of the plaintiff. (respondent) Since 1937 up to
May 2001, the possession of Perla Rico Go in the concept of owner was
never disturbed although the Heirs of Lorenzo Samson were able to secure
OCT No. P-14822 in 1971. They never asserted their rights to the property,
instead, they surreptitiously sold it to the defendant-Navarros. Thus, the
Heirs of Lorenzo Samson have no more property to be titled and sold
because Emilia Samson already sold what they are claiming as their own
way back in 1937. It is also surprising why, Lorenzo Samson did not file
any case to recover the property knowing fully well that it was already sold
by his sister.[7] (underscoring supplied)

Brushing aside petitioners claim of good faith, the trial court noted the fact that
petitioners live not more than 200 meters away from the land on which Josefa constructed
noticeable improvements.
On appeal, the Court of Appeals, by Decision of December 12, 2008, affirmed with
modification the trial courts decision. Instead of nullifying the OCT of petitioners
predecessor-in-interest and the title of petitioners, it ordered petitioners to reconvey the
title to respondent.
We cannot deny the plaintiff the legal remedy that is proper to a
proven cause of action even if it was not expressly prayed for in the
complaint. Chacon Enterprises vs. Court of Appeals, supra, at 793. We can
rightly say in this respect that an action for reconveyance falls within the
ambit of general prayer against the defendants to relinquish all claims to the
property to the plaintiff. x x x
IN VIEW OF THE FOREGOING, the decision appealed from is
MODIFIED, in that in lieu of decreeing the nullity of the patent and titles,
the defendants Navarro are ordered to reconvey the title to the plaintiff. The
case against Aurelia Caballero is dismissed. All other aspects of the
decision are affirmed.[8] (underscoring supplied

Petitioners motion for reconsideration was denied by Resolution of March 4, 2009,

hence, the present petition.
Maintaining that they purchased the land in good faith, petitioners cite Barstowe
Philippines Corporation v. Republic[9] and Republic v. Mendoza, Sr.[10] which held that
one who deals with property registered under the Torrens System need not go beyond the
same but only has to rely on the certificate of title.[11]
The petition fails.
A person dealing with registered land may safely rely on the correctness of its
certificate of title and the law will not oblige him to go beyond what appears on the face
thereof to determine the condition of the property.[12]
The indefeasibility of the Torrens title should not, however, be used as a means to
perpetuate fraud against the rightful owner of real property.[13]
A person is considered an innocent purchaser in good faith when he buys the

property of another, without notice that some other person has a right or an interest in such
property, and pays a full price for the same at the time of such purchase, or before he has
notice of the claims or interest of some other person in the property. [14]
Whether petitioners were in good faith when they bought the property from the
Samson heirs is a question of fact that will not be disturbed in a petition for review under
Rule 45 of the Rules of Court, save for meritorious exceptions.[15] None of these
exceptions is present, however, in the case at bar. There is thus no compelling reason to
overturn the factual findings of the trial court, which was affirmed by the Court of
Appeals, respecting petitioners notice of respondents possession.
As reflected earlier, Palma, a relative of petitioner Cesaria, acknowledged via two
documents having been allowed by Josefa, respondents mother, to occupy the land. His
testimony, therefore, that he sought the permission of the Samson heirs, and not from
Josefa, must give way to documentary evidence.
In another vein, as noted above, petitioners live in the vicinity of the land which
was fenced and planted to fruit bearing trees. As such, they were put on notice that the land
was possessed by someone. Where the land subject of sale is in possession of a person
other than the vendor, prudence dictates that the vendee should go beyond the certificate of
title. Absent such investigation, good faith cannot be presumed.[16]

WHEREFORE, the petition is DENIED. The Court of Appeals Decision

of December 12, 2008 is hereby AFFIRMED.
SO ORDERED.

ADORACION ROSALES RUFLOE, ALFREDO RUFLOE and RODRIGO

RUFLOE,
Petitioners,

- versus -

LEONARDA BURGOS, ANITA BURGOS, ANGELITO BURGOS, AMY BURGOS,

ELVIRA DELOS REYES and JULIAN C. TUBIG,
Respondents.
x------------------------------------------------------------------------------------------x

DECISION
LEONARDO-DE CASTRO, J.:

Under consideration is this petition for review under Rule 45 of the Rules of Court seeking the reversal and
setting aside of the Decision[1] dated January 17, 2000 of the Court of Appeals (CA) in CA-G.R. CV. No.
49939, and its Resolution[2] dated June 9, 2000, denying petitioners motion for reconsideration.
The assailed decision reversed and set aside the February 10, 1995 decision[3] of the Regional Trial
Court (RTC) at Muntinlupa, Metro Manila, Branch 276,[4] in its Civil Case No. 90-359, an action
for Declaration of Nullity of Contract and Cancellation of Transfer Certificate of Titles and
Damages, commenced by the petitioners against herein respondents.
The factual antecedents are as follows:
Petitioner Adoracion Rufloe is the wife of Angel Rufloe, now deceased, while co-petitioners Alfredo and
Rodrigo are their children. During the marriage of Adoracion and Angel, they acquired a 371-square meter

parcel of land located at Barangay Bagbagan, Muntinlupa, and covered by Transfer Certificate of Title (TCT)
No. 406851 which is the subject of the present controversy.
Sometime in 1978, respondent Elvira Delos Reyes forged the signatures of Adoracion and Angel in a
Deed of Sale dated September 8, 1978 to make it appear that the disputed property was sold to her by the
spouses Rufloe. On the basis of the said deed of sale, Delos Reyes succeeded in obtaining a title in her name,
TCT No. S-74933.
Thus, in November 1979, the Rufloes filed a complaint for damages against Delos Reyes with the RTC
of Pasay City alleging that the Deed of Sale was falsified as the signatures appearing thereon were forged
because Angel Rufloe died in 1974, which was four (4) years before the alleged sale in favor of Delos
Reyes. The complaint was docketed as Civil Case No. M-7690.[5] They also filed a notice of adverse claim on
November 5, 1979.
On December 4, 1984, during the pendency of Civil Case No. M-7690, Delos Reyes sold the subject
property to respondent siblings Anita, Angelina, Angelito and Amy (Burgossiblings). A new title, TCT No.
135860, was then issued in their names.
On December 12, 1985, the Burgos siblings, in turn, sold the same property to their aunt, Leonarda
Burgos. However, the sale in favor of Leonarda was not registered. Thus, no title was issued in her name. The
subject property remained in the name of the Burgos siblings who also continued paying the real estate taxes
thereon.
On February 6, 1989, the RTC of Pasay City, Branch 108,[6] rendered its decision in Civil Case No. M7690 declaring that the Deed of Sale in favor of Delos Reyes was falsified as the signatures of the spouses
Rufloe had been forged. The trial court ruled that Delos Reyes did not acquire ownership over the subject
property. Said decision had become final and executory.
Such was the state of things when, on February 8, 1990, in the RTC of Muntinlupa, the Rufloes filed
their complaint for Declaration of Nullity of Contract and Cancellation of Transfer Certificate of Titles against
respondents Leonarda and the Burgos siblings, and Delos Reyes. In their complaint, docketed as Civil Case No.
90-359, the Rufloes basically alleged that inasmuch as the Deed of Sale in favor of Delos Reyes was falsified,
no valid title was ever conveyed to the Burgos siblings.[7] The Burgos siblings executed a simulated deed of
sale in favor of Leonarda knowing fully well that their title was a nullity.

In their common Answer, respondents maintained that they bought the property in good faith after they
were shown a genuine copy of the title of the disputed property by Delos Reyes. They also insisted that they
were innocent purchasers in good faith and for value.[8]
On February 10, 1995, the trial court rendered a decision declaring that Leonarda and the Burgos
siblings were not innocent purchasers for value and did not have a better right to the property in question than
the true and legal owners, the Rufloes. The trial court also held that the subsequent conveyance of the disputed
property to Leonarda by the Burgos siblings was simulated to make it appear that Leonarda was a buyer in good
faith. The trial court then directed the Register of Deeds of Makati, Rizal to reinstate the title of the spouses
Rufloe, and to cancel all other titles subsequent to the said title particularly TCT No. S-74933 issued to Delos
Reyes and TCT No. 135860 issued to the Burgos siblings.[9]
Respondents interposed an appeal to the CA, whereat the appellate recourse was docketed as CA-G.R. CV.
No. 49939.
As stated at the threshold hereof, the CA, in its decision dated January 17, 2000, reversed and set aside
that of the trial court, declaring in the process that respondents were purchasers in good faith and for value. In
so ruling, the CA explained:
Measured by this yardstick, defendants-appellants [herein respondents] are purchasers in
good faith and for value. Amado Burgos bought the subject property (for his children Anita,
Angelina, Angelito and Amy) free from any lien or encumbrance or any notice of adverse claim
annotated thereto. He was presented with a clean title already in the name of the seller. If a
person purchases a piece of land on the assurance that the sellers title thereto is valid, he should
not run the risk of being told later that his acquisition was ineffectual after all. If we were to
void a sale of property covered by a clean and unencumbered torrens title, public confidence in
the Torrens System would be eroded and transactions would have to be attended by complicated
and inconclusive investigations and uncertain proof of ownership. The consequences would be
that land conflicts could proliferate and become more abrasive, if not violent. (Words in bracket
ours).[10]
Their motion for reconsideration having been denied by the CA in its equally challenged resolution of
June 9, 2000, petitioners are now with us via the present recourse, faulting the CA as follows:
A.

THE HONORABLE COURT OF APPEALS DECIDED THIS CASE IN A WAY NOT IN

ACCORD WITH THE APPLICABLE DECISIONS OF THE HONORABLE SUPREME
COURT.

B.

THERE ARE SPECIAL AND IMPORTANT REASONS THAT REQUIRE A REVIEW

OF THE CA DECISION.

C.

THE HONORABLE CA ACTED WITH GRAVE ABUSE OF DISCRETION

AMOUNTING TO LACK OF JURISDICTION WHEN IT COUNTERMANDED THE

FINDINGS OF THE REGIONAL TRIAL COURT EVEN ON POINTS AND QUESTIONS

OF CREDIBILITY.
D.

THE CA JUDGMENT THAT REVERSED THE RTC DECISION IS NOT SUPPORTED

BY THE EVIDENCE ON RECORD AND IS CONTRARY TO ESTABLISHED
PRECEDENTS LAID DOWN BY THE HONORABLE SUPREME COURT.

E.

THE CA ERRED IN LAW

ANGEL RUFLOE (ANGEL
PROPERTY (A HOUSE AND
DEED OF SALE) AFTER HIS
OF THE DEED.

F.

THE CA ERRED IN LAW IN HOLDING ANITA, ANGELINA, AMY AND

ANGELITO BURGOS AND THEIR SUCCESOR-IN-INTEREST (THEIR AUNT)
LEONARDA BURGOS ARE BUYERS IN GOOD FAITH.

G.

THE CA IGNORED THE PLAIN PROVISIONS OF THE CIVIL CODE THAT IN ALL
CONTRACTUAL, PROPERTY OR OTHER RELATIONS, WHEN ONE OF THE
PARTIES IS AT A DISADVANTAGE ON ACCOUNT OF HIS MORAL DEPENDENCE,
IGNORANCE, INDIGENCE, MENTAL WEAKNESS, TENDER AGE OR OTHER
HANDICAP, THE COURT MUST BE VIGILANT FOR HIS PROTECTION.[11]

IN PRACTICALLY HOLDING THAT A DEAD MAN

NEVER SIGNED) VALIDLY DISPOSED OF HIS
LOT COVERED BY A TCT THROUGH A FALSIFIED
DEATH FOUR (4) YEARS BEFORE THE EXECUTION

In a gist, the issues to be resolved are (1) whether the sale of the subject property by Delos Reyes to the
Burgos siblings and the subsequent sale by the siblings to Leonarda were valid and binding; and (2) whether
respondents were innocent purchasers in good faith and for value despite the forged deed of sale of their
transferor Delos Reyes.
The issues necessitate an inquiry into the facts. While, as a rule, factual issues are not within the
province of this Court, nonetheless, in light of the conflicting factual findings of the two (2) courts below, an
examination of the facts obtaining in this case is in order.
The Rufloes aver that inasmuch as the Deed of Sale purportedly executed by them in favor of Delos
Reyes was a forgery, she could not pass any valid right or title to the Burgossiblings and Leonarda. The
Rufloes also contend that since the Burgos siblings and Leonarda acquired the subject property with notice that
another person has a right to or interest in such property, they cannot be considered innocent purchasers in good
faith and for value.
For their part, the Burgos siblings and Leonarda insist that their title is valid and binding. They maintain
that under the Torrens System, a person dealing with registered land may safely rely on the correctness on the
certificate of title without the need of further inquiry. For this reason, the Court cannot disregard the right of an
innocent third person who relies on the correctness of the certificate of title even if the sale is void.

We find merit in the petition.

The issue concerning the validity of the deed of sale between the Rufloes and Delos Reyes had already
been resolved with finality in Civil Case No. M-7690 by the RTC of Pasay City which declared that the
signatures of the alleged vendors, Angel and Adoracion Rufloe, had been forged. [12] It is undisputed that the
forged deed of sale was null and void and conveyed no title. It is a well-settled principle that no one can give
what one does not have, nemo dat quod non habet. One can sell only what one owns or is authorized to sell,
and the buyer can acquire no more right than what the seller can transfer legally.[13] Due to the forged deed of
sale, Delos Reyes acquired no right over the subject property which she could convey to the Burgos
siblings. All the transactions subsequent to the falsified sale between the spouses Rufloe and Delos Reyes are
likewise void, including the sale made by the Burgos siblings to their aunt, Leonarda.
We now determine whether respondents Burgos siblings and Leonarda Burgos were purchasers in good
faith. It has been consistently ruled that a forged deed can legally be the root of a valid title when an innocent
purchaser for value intervenes.[14]
An innocent purchaser for value is one who buys the property of another without notice that some other
person has a right to or interest in it, and who pays a full and fair price at the time of the purchase or before
receiving any notice of another persons claim.[15] The burden of proving the status of a purchaser in good faith
and for value lies upon one who asserts that status. This onus probandi cannot be discharged by mere
invocation of the ordinary presumption of good faith.[16]
As a general rule, every person dealing with registered land, as in this case, may safely rely on the
correctness of the certificate of title issued therefor and will in no way oblige him to go beyond the certificate to
determine the condition of the property. However, this rule admits of an unchallenged exception:
a person dealing with registered land has a right to rely on the Torrens certificate of
title and to dispense with the need of inquiring further except when the party has actual
knowledge of facts and circumstances that would impel a reasonably cautious man to make such
inquiry or when the purchaser has knowledge of a defect or the lack of title in his vendor or of
sufficient facts to induce a reasonably prudent man to inquire into the status of the title of the
property in litigation. The presence of anything which excites or arouses suspicion should then
prompt the vendee to look beyond the certificate and investigate the title of the vendor appearing
on the face of said certificate. One who falls within the exception can neither be denominated an
innocent purchaser for value nor a purchaser in good faith and, hence, does not merit the
protection of the law.[17]
The circumstances surrounding this case point to the absolute lack of good faith on the part of
respondents. The evidence shows that the Rufloes caused a notice of adverse claim to be annotated on the title

of Delos Reyes as early as November 5, 1979.[18] The annotation of an adverse claim is a measure designed to
protect the interest of a person over a piece of real property, and serves as a notice and warning to third parties
dealing with said property that someone is claiming an interest on the same or may have a better right than the
registered owner thereof. Despite the notice of adverse claim, the Burgos siblings still purchased the property
in question.
Too, at the time the Burgos siblings bought the subject property on December 4, 1984, Civil Case No. M7690,[19] an action for damages, and Criminal Case No. 10914-P,[20]for estafa, filed by the Rufloes against Delos
Reyes, were both pending before the RTC of Pasay City. This circumstance should have alerted the Burgos
siblings as to the validity of Delos Reyes title and her authority and legal right to sell the property.

Equally significant is the fact that Delos Reyes was not in possession of the subject property when she
sold the same to the Burgos siblings. It was Amado Burgos who bought the property for his children, the
Burgos siblings. Amado was not personally acquainted with Delos Reyes prior to the sale because he bought
the property through a real estate broker, a certain Jose Anias, and not from Delos Reyes herself. There was no
showing that Amado or any of the Burgos siblings exerted any effort to personally verify with the Register of
Deeds if Delos Reyes certificate of title was clean and authentic. They merely relied on the title as shown to
them by the real estate broker. An ordinarily prudent man would have inquired into the authenticity of the
certificate of title, the propertys location and its owners. Although it is a recognized principle that a person
dealing with registered land need not go beyond its certificate of title, it is also a firmly established rule that
where circumstances exist which would put a purchaser on guard and prompt him to investigate further, such as
the presence of occupants/tenants on the property offered for sale, it is expected that the purchaser would
inquire first into the nature of possession of the occupants, i.e., whether or not the occupants possess the land in
the concept of an owner. Settled is the rule that a buyer of real property that is in the possession of a person
other than the seller must be wary and should investigate the rights of those in possession. Otherwise, without
such inquiry, the buyer can hardly be regarded as a buyer in good faith.[21]

In the same vein, Leonarda cannot be categorized as a purchaser in good faith. Since it was the Rufloes
who continued to have actual possession of the property, Leonarda should have investigated the nature of their
possession.
We cannot ascribe good faith to those who have not shown any diligence in protecting their
rights. Respondents had knowledge of facts that should have led them to inquire and investigate in order to
acquaint themselves with possible defects in the title of the seller of the property. However, they failed to do
so. Thus, Leonarda, as well as the Burgos siblings, cannot take cover under the protection the law accords to
purchasers in good faith and for value. They cannot claim valid title to the property.

Moreover, the defense of indefeasibility of a Torrens title does not extend to a transferee who takes it
with notice of a flaw in the title of his transferor. To be effective, the inscription in the registry must have been
made in good faith. A holder in bad faith of a certificate of title is not entitled to the protection of the law, for
the law cannot be used as a shield for fraud.[22]
We quote with approval the following findings of the trial court showing that the sale between the Burgos
siblings and Leonarda is simulated:
1.

The sale was not registered, a circumstance which is inconceivable in a legitimate

transfer. A true vendee would not brook any delay in registering the sale in his favor. Not
only because registration is the operative act that effects property covered by the Torrens
System, but also because registration and issuance of new title to the transferee, enable this
transferee to assume domiciliary and possessory rights over the property. These benefits of
ownership shall be denied him if the titles of the property shall remain in the name of
vendor. Therefore, it is inconceivable as contrary to behavioral pattern of a true buyer and the
empirical knowledge of man to assume that a buyer who invested on the property he bought
would be uninvolved and not endeavor to register the property he bought. The nonchalance of
Leonarda amply demonstrates the pretended sale to her, and the evident scheme of her brother
Amado who invested on the property he bought.

2.

Despite the sale of property to Leonarda, the sellers continued paying taxes on the property
from the time they acquired it from Elvira in 1984 up to the present or a period of ten
years. The tax payment receipts remained in the name of Anita and her siblings, (Exhibits
16 to 16-H). On the other hand, Leonarda does not even pretend to have paid any tax on
the land she allegedly bought in 1985. Even the Tax Declaration issued in 1988, three years
after the sale to her (Leonarda) is still in the name of her nieces and nephew. These
circumstances can only account for the fact that her nieces and nephew remained the owners
of the land and continued paying taxes thereon.

3.

Leonarda never exercised the attributes of ownership. Far from it, she vested the exercise of
domiciliary and possessory rights in her brother Amado the father of Anita, Angelina,
Angelito and Amy, by constituting him with full power including the ejectment of plaintiffs,
to defend and to enter a compromise of any case he may file. She allowed the children of
Amado to remain as the registered owners of the property without pressing for its transfer to
her.

4. And, this simulated sale is the handiwork of Amado who apparently acted advisedly to make
it appear that his sister Leonarda as the second transferee of the property is an innocent
purchaser for value. Since he or his children could not plausibly assume the stance of a buyer
in good faith from the forger Elvira Delos Reyes, knowing of Elviras defective title, Amado
hoped that the entry of his sister Leonarda, might conjure the image and who might pass off as
an innocent purchaser, specially considering that the notice of adverse claim of the Plaintiffs
which was annotated in Elviras title was not, strangely enough, NOT carried over in the title
of his children, who were made to appear as the sellers to their Aunt Leonarda. It was a neat
chicanery of Amado to bring the property out of the reach of Plaintiffs thru a series of
transfers involving a third party, to make her appear as an innocent purchaser for value. His
sister could be manipulated to evict or oust the real owners from their own property thru a
documentary manipulation. Unfortunately, his scheme has not passed unnoticed by a
discerning and impartial evaluator, like this court. The Municipal Court of Muntinlupa in
Civil Case No. 17446 has even established that Amados children Anita and others are buyers

in bad faith who knew of the defective title of their transferor Elvira Delos Reyes, the forger,
as aforestated.
These circumstances taken altogether would show that the sale, which occurred between Leonarda and
the Burgos siblings, was simply a scheme designed to cleanse the title passed on to them by the forger Delos
Reyes. Respondents had to resort to this strategy because they were fully aware that their title, having originated
from the forged deed of sale of Delos Reyes, was not a clean and valid title. The trial court explained, thus:
And, this simulated sale is the handiwork of Amado who apparently acted advisedly to
make it appear that his sister Leonarda as the second transferee of the property is an innocent
purchaser for value. Since he or his children could not plausibly assume the stamp of a buyer in
good faith from the forger Elvira Delos Reyes, knowing Elviras defective title, Amado had
hoped that the entry of his sister Leonarda, might conjure the image and might pass off as an
innocent purchaser. xxx. It was a neat chicanery of Amado to bring the property out of the reach
of plaintiffs [herein petitioners] thru a series of transfers involving a third party, to make her
appear as an innocent purchaser for value. Unfortunately, his scheme has not passed unnoticed
by a discerning and impartial evaluator, like this Court.[23] (Words in bracket ours)

Patently, the Burgos siblings were not innocent purchasers for value and the simulated sale to Leonarda
did not remove the defect in their title.

Accordingly, we sustain the trial courts award of P20,000.00 as moral damages, P50,000.00 as
exemplary damages, and P50,000.00 as attorneys fees.[24]
However, the actual damages in the amount of P134,200.00 should be deleted. In view of this Courts
ruling that the property rightfully belongs to petitioners and must be restored to them, there is no more basis for
the award of said actual damages to the Rufloes.

WHEREFORE, the petition for review is hereby GRANTED. The assailed decision and resolution of
the Court of Appeals in CA-G.R. CV. No. 49939 are REVERSED and SET ASIDE. Accordingly, the decision
of the trial court is hereby REVIVED, except the award of actual damages which must be deleted.
SO ORDERED.

Bacungan v. CA

This is a petition for review on certiorari[1] under Rule 45 of the 1997 Rules of Civil Procedure, assailing the
decision[2] and resolution[3] of the Court of Appeals (CA) in CA-G.R. CV No. 64370. The Decision dated 21
March 2005 reversed and set aside the judgment[4] of dismissal by the Regional Trial Court (RTC), Branch 53,

Pangasinan in the action for reconveyance filed by respondents against petitioners, while the resolution denied
petitioners motion for reconsideration of the CA decision.

The following factual antecedents are matters of record.

Respondents Napoleon and Victoria Velo instituted an action for reconveyance with damages against
petitioners Alexander and Jean JimenoBacungan before the RTC of Rosales, Pangasinan. In the complaint,[5]
docketed as Civil Case No. 1085-R, respondents alleged that they were the registered owners of 18 parcels of
land situated in Rosales, Pangasinan and embraced in Transfer Certificate of Title (TCT) Nos. 34998, 36022,
35158, 36017, 18128, 26761, 36020, 28387, 35585, 25739, 36023, 40059, 40055, 40060, 40057, 40056, 36967
and 35268.[6]

Respondents claimed that sometime in February of 1993, they had experienced business reversals and
financial difficulties and had sought assistance from petitioners in securing a loan. Petitioners allegedly
proposed that they would obtain the loan from the bank provided that respondents secure the transfer of the
titles to petitioners that would be used as security for the loan. Respondents agreed, executed the corresponding
deeds of sale and caused the cancellation and issuance of new TCTs over the properties in favor of petitioners.
However, respondents claimed that after petitioners had obtained the new titles, they never applied for a loan
with the bank but had secretly negotiated for the sale of the properties to third parties.[7]

In their answer,[8] petitioners asserted that respondents offered to sell to them 23 parcels of land, 18 of which
were used as collateral for the loan respondents had obtained from Traders Royal Bank. Petitioners claimed to
have bought 22 parcels of land and executed the corresponding deeds of sale on 26 February 1993 and 10
March 1993. They also allegedly paid in full respondents obligation with said bank but only 18 certificates of
title released by the bank were delivered to petitioners. Petitioners further maintained that out of their
gratuitousness, they returned one of the deeds of sale to respondents and considered the sale as cancelled.
Petitioners averred that the amounts they paid to respondents, as well as their payments to the bank, were more
than enough as consideration of the 23 contracts.[9]

After trial on the merits, the RTC rendered a decision on 20 April 1999, dismissing the complaint for lack of
merit. The RTC gave evidentiary weight on the notarized deeds of sale, the presumed validity and due
execution of which, according to the RTC, were not overcome by the uncorroborated testimony of respondent
Victoria Velo. The RTC held that in any case, respondents admitted to have voluntarily consented to the
simulation of the contracts, thus, the principle of in pari delicto must prevail and both parties were at fault and
should be left at where the law finds them.

Respondents elevated the matter to the CA via a petition for review, arguing that the contracts between
respondents and petitioners were simulated.

On 21 March 2005, the CA rendered the assailed decision, reversing the RTCs judgment. The dispositive
portion of the CAs decision reads:

WHEREFORE, the assailed decision dated 20 April 1999 of the Regional Trial Court of Rosales,
Pangasinan is SET ASIDE. Judgment is hereby rendered:

1.
Declaring the Deeds of Sale covering parcels of land under TCT Nos. 34998, 36022, 35158, 36017,
18128, 26761, 36020, 28381, 35585, 25739, 36023, 40059, 40055, 40060, 40057, 40056, 36967and 35268 as
simulated; and
2.

Ordering the defendants-appellees to reconvey the aforesaid properties to the plaintiffs-appellants.

SO ORDERED.[10]

In reversing the RTC decision, the CA held that by their contemporaneous and subsequent acts, the deeds of
sale were simulated as the parties did not intend to be bound by them at all. Among the indicators pointed out
by the appellate court in support of its conclusion were the gross inadequacy of prices, respondents failure to
receive any part of the purchase price stated in the deeds of sale, the offer by petitioners to return some of the
certificates of title and petitioner Alexander Bacungans admission that the sale was simulated.[11]

Petitioners filed a motion for reconsideration,[12] raising the CAs failure to consider the amounts tendered by
petitioners for the redemption of the properties as well as the amounts advanced by petitioners as payments of
the properties. On 7 November 2005, the CA issued the assailed resolution, denying petitioners motion for
reconsideration.

Hence, the instant petition, raising the following arguments: (1) the deeds of sale embody the real agreement of
the parties and are not nullified by the gross inadequacy of the prices; (2) the contracts of sale cannot be
simulated because prior to their execution, petitioner extended a loan to respondents which was used to redeem
the mortgaged properties; and (3) respondents admitted that the only agreement was the contracts of sale; thus,
the appellate court erred in interpreting the acts of the parties before and after their execution.[13]

The petition is partly meritorious.

Respondents and petitioners advance contrasting claims. Petitioners would have this Court uphold the validity
of the deeds of sale while respondents seek their nullification. Neither is claiming that they had agreed other

terms and conditions not embodied in the deeds of sale or that the deeds of sale do not embody their real
agreement. However, after a perusal of the records of the case, the Court finds that the resolution of the
controversy cannot be limited only to determining whether the deeds of sale were void. Such issue may still be
considered and resolved by the Court in the interest of substantial justice, if it finds that to do so is necessary to
arrive at a just decision, or when an issue is closely related to an issue raised in the trial court and the Court of
Appeals and is necessary for a just and complete resolution of the case.[14]

After a careful examination of the records of the case, the Court finds that the deeds of absolute sale do not
embody the real intention of the parties. The records reveal that respondents had earlier executed several real
estate mortgages over the properties to secure the payment of the total amount of P350,000.00.[15] Respondents
defaulted on the payments, prompting the bank to foreclose the properties. However, as illustrated in the
testimony of respondent Victoria Velo, respondents and petitioners devised a plan in which they agreed that in
exchange for the apparent transfer of ownership of the parcels of land to petitioners, the latter would provide for
the funds for the redemption of the properties from the bank in addition to the loan that petitioners would obtain
from the bank. Thus, respondents were able to redeem the properties for the amount of P369,000.00 that was
advanced by way of mortgage to them by petitioners.[16] The amount approximates the total loans in the
amount of P350,000.00 secured by the properties subject of the real estate mortgages executed by
respondents.[17]

Thereafter, respondents executed several deeds of sale purporting to transfer the 18 parcels of lands for a total
consideration of P232,000.00. The parties further agreed that upon the transfer of the properties in the name of
petitioners, the latter would obtain another loan from the bank using the properties as collateral. Petitioners were
supposed to remit the loan proceeds to respondents after deducting the amount of P369,000.00 lent by
petitioners to respondents and, thereafter, allow respondents to buy back the properties. However, because
petitioners had failed to secure a loan from the bank after the transfer of the titles in their names, respondents
instituted the present action to nullify the deeds of sale on the ground that the sale was simulated.

This kind of arrangement, where the ownership of the land is supposedly transferred to the buyer who provides
for the funds to redeem the property from the bank but nonetheless allows the seller to later on buy back the
properties, is in the nature of an equitable mortgage governed by Articles 1602 and 1604 of the Civil Code,
which provide:

Article 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases:
(1) When the price of a sale with right to repurchase is unusually inadequate;

(2) When the vendor remains in possession as lessee or otherwise;

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

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

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

(6) In any case where it may be fairly inferred that the real intention of the parties is that the transaction shall
secure the payment of a debt or the performance of any other obligation.
In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or
otherwise shall be considered as interest which shall be subject to the usury laws.
Art. 1604. The provisions of Article 1602 shall also apply to a contract purporting to be an absolute sale.

From a reading of the above-quoted provisions, for a presumption of an equitable mortgage to arise, two
requisites must be satisfied, namely: that the parties entered into a contract denominated as a contract of sale
and that their intention was to secure an existing debt by way of mortgage. Under Art. 1604 of the Civil Code, a
contract purporting to be an absolute sale shall be presumed to be an equitable mortgage should any of the
conditions in Art. 1602 be present. The existence of any of the circumstances therein, not a concurrence or an
overwhelming number of such circumstances, suffices to give rise to the presumption that the contract is an
equitable mortgage.[18]

In the instant case, three telling circumstances indicating that an equitable mortgage exists are present. First, as
established by the CA, the price of each of the properties was grossly inadequate. Second, petitioners retained
part of the purchase price when they failed to turn over to the respondents the loan that they were supposed to
secure from the bank. Third, petitioners insisted that part of the consideration of the sale consisted of amounts
previously borrowed by respondents from them, indicating that petitioners were using the properties as
security for the payment of respondents other loans from them.

The CA concluded that the sale was simulated because of the gross inadequacy of the prices and the
failure by respondents to receive the purchase price.

Gross inadequacy of price by itself will not result in a void contract. Gross inadequacy of price does not even
affect the validity of a contract of sale, unless it signifies a defect in the consent or that the parties actually
intended a donation or some other contract. Inadequacy of cause will not invalidate a contract unless there has
been fraud, mistake or undue influence.[19]

That respondents did not receive the purchase price is not entirely correct. As already discussed above, the
consideration for the transaction was to secure the payment of respondents loan to petitioners.

Also, the CAs conclusion that petitioner Alexander Bacungan admitted that the sale was simulated is not
supported by the records of the case. Petitioners merely admitted that previous to the execution of the deeds of
sale, respondents had borrowed other sums of money from them.

All told, while the deeds of sale do not reflect the true intention of the parties, their real agreement must
nonetheless be recognized and enforced. While neither party claimed that the real agreement was an equitable
mortgage, the factual circumstances of the case nudge the Court to declare the real agreement as such and
enforce the rights and liabilities of the parties accordingly. This being the case, the proper remedy availed by
either party was to institute an action for the reformation of the deeds of sale in order to reflect the true intention
of the parties. However, instead of dismissing the complaint altogether, the just and expeditious manner is to
settle once and for all the rights and obligations of the parties under the equitable mortgage.

It has been established that petitioners advanced the sum of P369,000.00 to respondents that prompted the latter
to transfer the properties to petitioners. Thus, before the respondents can recover the said amount, respondents
must first return the amount of P369,000.00 to petitioners. In Lustan v. Court Appeals,[20] where the Court
established the reciprocal obligations of the parties under an equitable mortgage, the Court ordered the
reconveyance of the property to the rightful owner therein upon the payment of the loan within 90 days from the
finality of this decision.

WHEREFORE, the petition for review on certiorari is PARTLY GRANTED and the decision and resolution of
the Court of Appeals in CA-G.R. CV No. 64370 are AFFIRMED with the following MODIFICATIONS:

1) DECLARING the Deeds of Absolute Sale as equitable mortgages; and

2) ORDERING petitioners to RECONVEY to respondents the properties covered by Transfer Certificate of

Title Nos. 34998, 36022, 35158, 36017, 18128, 26761, 36020, 28381, 35585, 25739, 36023, 40059, 40055,
40060, 40057, 40056, 36967 AND 35268 of the Register of Deeds of Pangasinan UPON THE PAYMENT OF
P369,000.00 by respondents within NINETY DAYS FROM THE FINALITY OF THIS DECISION.

SO ORDERED.

Deheza-Inamarga v. Alano
This petition for review on certiorari assails the Decision[1] dated September 8, 2004 and Resolution[2] dated
January 4, 2006 of the Court of Appeals in CA-G.R. CV No. 64164. The appellate court had affirmed the
Decision[3] dated November 26, 1998 of the Regional Trial Court (RTC) Branch 1, Kalibo, Aklan in Civil Case
No. 4278.
The facts of the case are as follows:
Tomas Alano, husband of respondent CeleniaAlano, owned two parcels of land covered by Original Certificates
of Title (OCT) Nos. P-761 and P-762. He mortgaged the properties in favor of Renato Geptyon September 20,
1972. In 1976, Gepty demanded that Tomas pay the loan. Tomas, however, did not have money at that time to
redeem his properties so he sought help from his niece, petitioner Mary Ann Deheza-Inamarga. Petitioner
agreed to pay the loan while the spouses, in turn, mortgaged said properties to her. Petitioner kept in her
possession OCT Nos. P-761 and P-762 and asked the spouses to sign blank pieces of paper which petitioner
said will be converted into receipts evidencing their indebtedness to her.
In November 1990, after Tomas had passed away, respondents Celenia and her children went to petitioner to
redeem the property. Petitioner, however, told them that she had mortgaged the property to the Rural Bank of
Libacao. Respondents verified the matter with the bank and discovered that OCT Nos. P-761 and P-762 have
been cancelled and in lieu thereof, Transfer Certificates of Title (TCT) Nos. T-9080 and T-9081 were issued in
petitioners name. Respondents learned that the TCTs in petitioners favor were issued by virtue of a Deed of
Sale purportedly executed by the Spouses Alano in her favor.
On January 24, 1991, respondents filed a complaint for the declaration of nullity of document, reconveyance
and damages against petitioner and the Rural Bank of Libacao. Respondents contended that the deed of sale is
null and void because the signatures of the Spouses Alano were forged and even if they were the signatures of
the spouses, they were affixed on blank sheets of paper which were not intended to be a deed of sale.
Petitioner, on the other hand, denied the allegation of forgery and maintained that the deed of sale was valid.
She claimed that the spouses offered to sell her the property so they can use the purchase price of P7,000 to
redeem the property from Gepty. Petitioner added that the action is barred by prescription, laches and estoppel.
On November 26, 1998, the RTC rendered its decision, the dispositive portion of which reads as follows:
WHEREFORE, judgment is hereby rendered:
1. Declaring the transaction between the plaintiffs and defendant Mary Ann Deheza (Inamarga) as an
EQUITABLE MORTGAGE and declaring the plaintiffs entitled to redeem the mortgaged properties which
shall be effected upon payment of the mortgage debt to said defendant in the amount of P2,400.00 with legal
rate of interest from 1983, the year plaintiffs ceased paying said defendant interests;

2. Declaring the nullity of the Deed of Absolute Sale (Exh. B) dated March 4, 1978 allegedly executed by
Tomas Alano in favor of Mary Ann Deheza;
3. Declaring the nullity of Transfer Certificate of Title No. T-9080 and Transfer Certificate of Title No. T9081 in the name of Mary Ann Deheza;
4. Ordering the reconveyance of Lot 7 and Lot 2, all of Psu-235010, by defendant Mary Ann DehezaInamarga
in favor of the plaintiffs. In the event that said defendant fails to reconvey to plaintiffs said lots, the Clerk of
Court is hereby directed to execute it pursuant to the provisions of Section 10 of Rule 39 of the 1997 Rules of
Civil Procedure. As Amended;
5. Ordering defendant Mary Ann Deheza-Inamarga to pay plaintiffs exemplary damages in the amount of
P50,000.00 and attorneys fees in the amount of P10,000.00.
Costs against said defendant.
SO ORDERED.[4]
Petitioner elevated the case to the Court of Appeals but her appeal was denied.[5] The appellate court held that
the signatures in the Deed of Sale were forged and even if they were genuine, the agreement entered into by the
parties was one of equitable mortgage. It likewise upheld the trial courts award of damages, ruling that the
transactions involved in the case were repeatedly tainted with fraud.
Petitioners motion for reconsideration having been denied, petitioner filed the instant appeal, assigning errors
as follows:
I.
THE LOWER COURT ERRED IN DECLARING THE TRANSACTION BETWEEN [THE] SPOUSES
TOMAS AND CELENIA ALANO AND THE [PETITIONER] MARY ANN DEHEZA-INAMARGA AS
ONE OF EQUITABLE MORTGAGE AND NOT ONE OF SALE.
II.
THE LOWER COURT ERRED IN ORDERING THE RECONVEYANCE OF THE LANDS IN QUESTION
IN FAVOR OF THE [RESPONDENTS] AND ORDERING THE NULLITY OF TCT NO. T-9080 AND TCT
NO.T-9081 IN THE NAME OF MARY ANN DEHEZA.
III.
THE LOWER COURT ERRED IN FINDING THAT THE QUESTIONED DEED OF SALE WAS A
FORGERY OR THAT IT WAS SIGNED IN BLANK BY [THE] SPOUSES TOMAS AND CELENIA
ALANO AND I[N] GIVING CREDENCE TO THE EVIDENCE OF THE [RESPONDENTS].
IV.
THE LOWER COURT ERRED IN NOT DECLARING THAT [RESPONDENTS] ACTION IS ALREADY
BARRED BY PRESCRIPTION, LACHES OR ESTOPPEL.
V.

THE LOWER COURT ERRED IN AWARDING EXEMPLARY DAMAGES AND ATTORNEYS FEE[S]
TO THE [RESPONDENTS].[6]
Essentially, the issues for resolution are: (1) whether the Deed of Sale is a forgery; (2) whether the
transaction between petitioner and the Spouses Alano is one of sale or equitable mortgage; (3) whether
respondents action is already barred by prescription, laches or estoppel; and (4) whether the award of
exemplary damages and attorneys fees in favor of respondents is legal and justifiable.
As to the first issue, petitioner contends that respondents never presented a handwriting expert to prove that the
signatures of Tomas and CeleniaAlano were forged and such allegation of forgery cannot overcome the
presumption of regularity in the performance of duty of the notary public as well as the due execution of the
public document.[7] Respondents, in turn, contend that the findings of handwriting experts are not conclusive
upon the trial court.
The question of forgery is one of fact.[8] It is well-settled that when supported by substantial evidence or borne
out by the records, the findings of fact of the Court of Appeals are conclusive and binding on the parties and are
not reviewable by this Court.[9]
It is a hornbook doctrine that the findings of fact of trial courts are entitled to great weight on appeal and should
not be disturbed except for strong and valid reasons. It is not a function of this Court to analyze and weigh
evidence by the parties all over again. Our jurisdiction is limited to reviewing errors of law that might have
been committed by the Court of Appeals. Where the factual findings of the trial court are affirmed in toto by
the Court of Appeals as in this case, there is great reason for not disturbing such findings and for regarding them
as not reviewable by this Court.[10]
Moreover, after a careful perusal of the records and a thorough consideration of this case, this Court finds
sufficient basis for the finding of the Court of Appeals that the said signatures were indeed forged. The Court
of Appeals cited apparent differences in the signatures on the face of the documentary evidence submitted
before the RTC. Also, it found that the signatures on the deed of sale appeared to be different in characteristics,
spacing and strokes from the signatures of the Spouses Alano appearing in other documents forming part of the
records of this case which are admittedly genuine.
Moreover, contrary to petitioners contention, the presentation of a handwriting expert is not necessary.
Handwriting experts are usually helpful in the examination of forged documents because of the technical
procedure involved in analyzing them. But resort to these experts is not mandatory or indispensable to the
examination or the comparison of handwriting.[11] The findings of handwriting experts are not conclusive
upon the courts. As this Court has once observed, the authenticity of signatures is not a highly technical issue
in the same sense that questions concerning, e.g., quantum physics or topology or molecular biology, would
constitute matters of a highly technical nature. The opinion of a handwriting expert on the genuineness of a
questioned signature is certainly much less compelling upon a judge than an opinion rendered by a specialist on
a highly technical issue. The signatures on a questioned document can be examined visually by a judge who
can and should exercise independent judgment on the issue of authenticity of such signatures.[12]
With regard to the second issue, petitioner contends that it was the Spouses Alano who caused the execution of
the deed of sale in question and that the document was signed by them in the presence of the notary public. She
likewise argues that after the sale, she took possession of the land; and she adds that the consideration for the
property was adequate because the property was not productive.[13] On the other hand, respondents aver that
the transaction between the Spouses Alano and petitioner is not one of sale but one of equitable mortgage.
Respondents stress that they continued to be in possession of the property even after the alleged execution of the
Deed of Sale and they claim that the P7,000 consideration is grossly inadequate for the market value of the
property. Respondents further stated that they paid P500 interest annually for the loan.[14]

In our considered view, the appellate court did not err in sustaining the decision of the trial court holding that
the transaction between the parties is an equitable mortgage.
An equitable mortgage is one which, although lacking in some formality, or form, or words, or other requisites
demanded by a statute, nevertheless reveals the intention of the parties to charge real property as security for a
debt, and contains nothing impossible or contrary to law.[15]
Articles 1602 and 1604 of the Civil Code of the Philippines state:
ART. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases:
(1)

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

(2)

When the vendor remains in possession as lessee or otherwise;

(3)
When upon or after the expiration of the right to repurchase another instrument extending the period of
redemption or granting a new period is executed;
(4)

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

(5)

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

(6)
In any case where it may be fairly inferred that the real intention of the parties is that the transaction
shall secure the payment of a debt or the performance of any other obligation.
In any of the foregoing case, any money, fruits, or other benefit to be received by the vendee as rent or
otherwise shall be considered as interest which shall be subject to the usury laws.
ART. 1604. The provisions of Article 1602 shall also apply to a contract purporting to be an absolute sale.
In the instant case, the RTC, as affirmed by the Court of Appeals, correctly found that more than one of the
circumstances enumerated in Article 1602 are present, to wit: the inadequacy of the selling price of the
properties in relation to its true value; the vendors (Spouses Alano) remained in possession as lessee or
otherwise; respondents paid the real property taxes; and the spouses secured the payment of the principal debt
owed to petitioner with said properties.[16] On this score, we are in agreement that the parties intended an
equitable mortgage and not a contract of sale.
On the third issue, petitioner claims that the complaint was barred by extinctive prescription as it was filed only
on January 24, 1991, or almost 13 years from March 7, 1978 when the TCTs were issued in favor of petitioner.
Petitioner argues that the prescriptive period for reconveyance of land based on implied or constructive trust is
10 years.[17] Respondents counter that since the deed of sale and the certificates of title in the name of
petitioner are all null and void, prescription, laches or estoppel has not set in.[18]
Again, we find for the respondents. Where there is no consent given by one party in a purported contract, such
contract was not perfected; therefore, there is no contract to speak of. The deed of sale relied upon by petitioner
is deemed a void contract. This being so, the action based on said deed of sale shall not prescribe in accordance
with Article 1410[19] of the Civil Code.
On the issue of damages, petitioner contends that the award of exemplary damages and attorneys fees were not
justified under the law and the facts obtaining in this case.[20] Respondents, on their part, state that petitioner
having acted in bad faith to the damage and prejudice of respondents, it is but proper that she should pay for
such deception and unlawful acts.[21]

We do not find any cogent reason to disturb the findings of the RTC on this point as affirmed by the Court of
Appeals with respect to the award of damages and attorneys fees. As correctly held by the RTC, the act of
petitioner of inducing her two trusting old relatives to sign blank pieces of paper purporting to be a deed of sale
so that the certificates of title of their properties could be transferred in her name is a fraudulent act. Exemplary
damages were rightfully imposed in order to deter persons similarly disposed from committing such acts of
fraud. Consequently, with the grant of exemplary damages, attorneys fees should likewise be awarded.[22]
WHEREFORE, the Decision dated September 8, 2004 and the Resolution dated January 4, 2006 of the Court of
Appeals in CA-G.R. CV No. 64164 are AFFIRMED.
Costs against petitioner.
SO ORDERED.

HEIRS OF ARTURO REYES,

represented by Evelyn R. San
Buenaventura,
Petitioners,

G.R. No. 176474

Present:
YNARESSANTIAGO,J.,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.

- versus -

Chairperson,

Promulgated:
ELENA SOCCO-BELTRAN,
Respondent.
November 27, 2008
x---------------------------- ---------------------x

DECISION

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 and Constancia Socco (Spouses Laquian), who paid for the same with Japanese money. When
Marcelo died, the property was left to his wife Constancia. Upon Constancias subsequent death, she left the
original parcel of land, along with her other property, with her heirs her siblings,

namely: Filomena ElizaSocco,

Isabel Socco de Hipolito,
Miguel
R. Socco,
and
Elena Socco[3]
Beltran. Pursuant to an unnotarized 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 ofConstancia 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
inherit as such a portion of her lot consisting of Four Hundred Square Meters (400) more or less
located on the (sic) Zamora St., Municipality of Dinalupihan, Province of Bataan, bounded as
follows:
xxxx
That for or in consideration of the sum of FIVE PESOS (P5.00) per square meter, hereby
sell, convey and transfer by way of this 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 Hipolito is hereto attached as Annex F); that Elena Socco cannot physically and
personally occupy the subject property because of the skeletal building made by the Reyes
family who have been requesting that they be paid for the cost of the construction and the same
be demolished at the expense of Elena Socco; that according to Elena Socco, [she] is willing to
waive her right on the portion where [the] kitchen and bathroom is (sic) constructed but not the
whole of Lot [No.] 6-B adjudicated to her; that the Reyes family included the subject property to
the sworn statement of value of real properties filed before the municipality
of Dinalupihan, Bataan, copies of the documents are hereto attached as Annexes G and H;

that likewise Elena Socco has been continuously and religiously paying the realty tax due on the
said property.
In the end, Legal Officer Pinlac recommended the approval of 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 2001 Decision of the
DAR Secretary. Their appeal was docketed as O.P. Case No. 02-A-007. On 30 June 2003 , the Office of the
President rendered its Decision denying 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
appeal DISMISSED.[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
wasderived 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 intoto.[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, citing Sandoval 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 Pinlac reported that
petitioners admitted that it was only in the 1970s that they built the skeletal structure found on the subject
property. She also referred to the averments made by PatriciaHipolito 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-ininterest, 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 ConstanciaSoccos interest in the subject land to the respondent is valid, there is clearly no need for
the respondent to purchase the subject property, despite the application for the purchase of the property
erroneously filed by respondent. The only act which remains to be performed is the issuance of a title in the
name of her legal heirs, now that she is deceased.
Moreover, the Court notes that the records have not clearly established the right of respondents representative,
MyrnaSocco-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-Arizo can 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 AFFIRMED with 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.

G.R. No. 149322

November 28, 2008
JAIME
L.
YANEZA, petitioner,
vs.
THE HONORABLE COURT OF APPEALS, MANUEL A. DE JESUS and WILHELMINA M.
MANZANO, respondents.

DECISION
NACHURA, J.:
In this petition for certiorari and prohibition under Rule 65, Jaime L. Yaneza, petitioner, assails the Court of
Appeals' denial of his Motion for Extension of Time to File Petition for Review on the ground that it was filed
after the lapse of the reglementary period for filing the appeal.
Petitioner is the owner of a 603-square-meter parcel of land, denominated as Lot 2730-A and situated along
Calle Kay Rumagit, SitioHaligionan, Brgy. San Juan, Baras, Rizal. He purchased the property from a certain
Rudy Llagas on June 19, 1990.
Respondents, Manuel A. de Jesus and Wilhelmina M. Manzano, are the owners of Lot 2732 which is adjacent to
Lot 2730-A. The respondents' lot has no access to the nearest road except through a road which they constructed
over a portion of Lot 2730-A.
On September 26, 1995, petitioner sent a letter to respondents informing them that he is the owner of Lot 2730A and that he does not agree with the use of the portion of his lot as an access road because it will affect the
configuration of his property. As an option, petitioner offered to sell to the respondents the entire property.1
Apparently, respondents did not agree to the proposition because two days later, petitioner wrote another letter
to them, offering instead a perpetual easement of right of way (4 meters wide) and stating that he will prepare
the necessary document to facilitate the transaction.2
Instead of a deed of perpetual easement, it appears that petitioner and respondents executed a Deed of Absolute
Sale3 on October 20, 1995 over a 175-sq m portion of Lot 2730-A, to be used as an access road 5-meters wide,
for a consideration of P20,000.00. The Deed of Absolute Sale contained the following terms and conditions:
1] The portion subject of this sale agreement is as per the sketch plan attached herein as Annex "A" and
made as an integral part of this instrument;
2] The total purchase for the aforesaid portion of lot shall be in the sum of TWENTY THOUSAND
(P20,000.00) PESOS, Philippine Currency, payable on cash basis upon the signing and execution of this
deed, the signature of the VENDOR being his acknowledgment that he already received the said amount
satisfactorily;
3] The realty taxes and assessments on the lot subject of this sale agreement, costs of preparation of the
document of sale, all other taxes, cost of subdivision survey to segregate the portion of lot, and all the
incidental expenses to facilitate issuance of the individual transfer certificate of titles for the resulting
lots shall be for the sole account and expense of the VENDEE;
4] The use of the aforesaid portion of lot sold shall be for the purpose of the right of way of and
for the abovesaid property of the VENDEE, whereby the VENDOR, by virtue whereof, shall have the
perpetual right and/or privilege to use the same as right of way for his own purposes.
Almost a year later, or on September 12, 1996, petitioner informed respondents that he is canceling the deed of
sale by way of a Deed of Cancellation4 which he executed on his own.5
When respondents refused to honor the cancellation, petitioner filed a Complaint 6 for Cancellation of Contract
with the Municipal Circuit Trial Court (MCTC) of Teresa-Baras on April 22, 1997. The complaint alleged that,
contrary to what was stated in the Deed of Absolute Sale, respondents constructed an access road 8-m wide
(with an area of 280 sq m); that the respondents have not complied with the conditions stated in the Deed of
Absolute Sale and the Deed of Undertaking attached thereto; and that respondents have been dumping high
piles of gravel, sand and soil along the access road in violation of the condition in the deed of sale that the
access road will be used only for the purpose of a right of way. The complaint prayed for the court to declare as
canceled the grant of right of way to respondents and to order them to pay moral and exemplary damages and
attorney's fees.
In their Answer with Counterclaims, respondents averred that they purchased the disputed 280-sq m portion of
Lot 2730-A from its previous owner, Rudy Llagas, as early as March 2, 1994. After the sale, they immediately
constructed a 7 by 35-m road with a total area of 245 sq m, leaving a 1 by 35-m strip along the western portion
as an easement along the irrigation canal. However, to buy peace and avoid any conflict with the petitioner, who
was claiming to be the new owner, respondents agreed to pay P20,000.00 in consideration of the petitioner's
desistance from further pursuing his claim over the 280 sq m area. Petitioner prepared the Deed of Absolute
Sale and respondents agreed to sign it without prejudice to the resolution of the civil case (Civil Case No. 777M), filed by Llagas against the petitioner, on the issue of the ownership of the property.7

Respondents narrated that, after they signed the Deed of Absolute Sale but before they could deliver
the P20,000.00, they discovered that it covered only 175 sq m, not 280 sq m. There was an immediate
renegotiation between the parties and, for an additional consideration of P40,000.00, petitioner agreed to sell the
entire 280 sq m. Relying on the petitioner's assurance that he will prepare a new deed of sale to reflect the new
agreement, respondents paid him the additional P40,000.00 as evidenced by an Acknowledgment Receipt.
Despite several demands, petitioner failed to present the new deed of sale.8
According to the respondents, petitioner initially allowed them peaceful possession and use of the area even
when he started constructing his house adjacent to the access road. However, while petitioner was constructing
his house, a serious misunderstanding took place between petitioner and respondents' caretaker, Benjamin
Manzano, brought about by the latter's refusal to allow petitioner to tap water and electricity from the
respondents' property. Petitioner allegedly retaliated and took possession of the eastern half portion of the 280sq-m area by constructing a fence along the length of the access road, which reduced it to a narrow passage that
could not allow trucks to pass through. On account of this dispute, Manzano, upon respondents' authority, filed
a complaint before theBarangayLupon to compel the petitioner to remove the fence but the petitioner did not
attend the conciliation proceedings. Respondents obtained from the barangay a certification to file an action in
court, but petitioner preempted them by filing the instant case. Respondents pointed out that the petitioner did
not seek the intervention of the Barangay Lupon before he filed the instant case; hence, the petitioner's
complaint should be dismissed for failure to state a cause of action.9
In claiming damages, respondents alleged that the construction of the fence caused them difficulties when they
started developing their property because the trucks that carried the necessary materials could not pass through
the access road. They purportedly incurred additional costs since they had to hire laborers to manually carry the
construction materials from the barangay road to the construction site.10
Respondents further asserted that what was agreed upon was a sale and not only an easement of right of way.
They denied the existence of the Deed of Undertaking which does not even bear their signatures. And
respondents argued that the deed of sale may not be canceled unilaterally by the petitioner since they already
acquired full ownership over the property by virtue thereof.11
Finally, respondents stressed that it is the petitioner who is actually enjoying a right of way along the access
road in compliance with the condition stated in the Deed of Absolute Sale. It is the petitioner who violated the
terms of the contract when he obstructed the access road with the concrete fence he built thereon. For this
violation, petitioner should be denied his right of way over the access road. Moreover, petitioner's property
abuts the barangay road; hence, there is actually no need for him to be granted a right of way.
During trial, petitioner testified for himself and presented his brother, Cesar Yaneza, as witness. Petitioner
narrated that Cesar handed to him the P20,000.00 and that he constructed the iron fence during the latter part of
1996 because respondents did not comply with the conditions set out in the Deed of Undertaking. Cesar Yaneza
testified that he was the one who delivered the Deed of Absolute Sale to the office of respondent Manuel de
Jesus in Manila and that the latter requested that he leave the Deed of Undertaking so that his wife can also sign
the same, but he never returned the document despite several demands.
For the respondents, respondent Manuel de Jesus, Rudy Llagas and Benjamin Manzano testified. Rudy Llagas
admitted that he indeed sold to the respondents the subject property which is on the western side; what he sold
to the petitioner was on the eastern side of his property.12 Respondent Manuel de Jesus swore that he and
petitioner agreed on a price of P20,000.00 for the 5-m by 35-m area and an additional P40,000.00 to increase
the area to 8-m by 35-m, so that the total consideration was P60,000.00. He claimed he had to agree to the
additional amount because by then he had already constructed the gate to, and trucks could not enter, their
property.13 And finally, Benjamin Manzano attested that when petitioner started constructing his house,
petitioner asked him if he could tap water and electricity from respondents' property, but he did not agree. He
said that, after a few days from said incident, petitioner constructed the low level iron fence in the middle of the
road right of way.14
On September 6, 1999, the MCTC promulgated its decision dismissing the complaint and granting the
respondents' counterclaims, thus:
In view of the foregoing considerations, this Court hereby resolves to order the following:
1. To dismiss the complaint as well as the plaintiff's claim for damages and attorney's fees;

2. For plaintiff to execute a new deed of absolute sale covering the access road or road right of
way of 8 meters wide by 35 meter long, including the meter easement beside the irrigation canal;
with a total area of 280 sq. m. from the northwest portion of Lot 2730, now covered by TCT No.
50181 of the Register of Deeds of Rizal, Morong Branch, without prejudice to the outcome of
Civil Case No. 777-M filed by Rudy Llagas against plaintiff Jaime Yaneza;
3. To cancel and declare as null and void the plaintiff's right of way over the access road of
defendants;
4. For plaintiff to remove at his expense, the steel fence or structure he caused to be constructed
at about the middle of defendants' access road or found within the 280 sq.m. area that obstruct,
impede or alter the full and peaceful use by defendants of subject realty;
5. To restore defendants to the full, adequate and peaceful possession and use of subject realty;
6. For plaintiff to pay to the defendants the following:
a. P1,000,000.00 as actual damages;
b. P1,300,000.00 as moral damages;
c. P300,000.00 as exemplary damages;
d. P300,000.00 as attorney's fees;
e. P30,000.00 as reimbursement for incidental litigation expenses;
f. 6% interest on the actual damages from the time they were incurred up to the time of
finality of the decision;
g. 6% interest on the award for moral, exemplary, attorney's fees and litigation expenses
from the promulgation of the decision until its finality;
h. Costs.
SO ORDERED.15
On January 5, 2001, the Regional Trial Court (RTC), Morong, Rizal Branch 78, rendered a Decision 16on
petitioner's appeal affirming the MCTC Decision with the modification that the monetary award (item no. 6 of
the dispositive portion) in favor of the respondents was deleted.
Respondents filed a motion for reconsideration with respect to the deletion of the award of damages, but the
same was denied for failure to include a Notice of Hearing. Respondents filed a Petition for Relief from
Judgment, the status of which was not disclosed by the parties in this petition.
Meanwhile, petitioner's counsel received a copy of the RTC Decision on February 6, 2001. On February 9,
2001, he withdrew his appearance for the petitioner. On February 22, 2001, petitioner, through his new counsel,
filed an Urgent Motion for Extension of Time to File Petition for Review praying that they be given a period of
15 days from February 24, 2001, or until March 12, 2001, within which to file the petition.
On February 28, 2001, the CA issued a Resolution17 denying the Urgent Motion for having been filed one day
late and, consequently, dismissed the appeal. On March 27, 2001, petitioner filed a Motion for Reconsideration
and a Motion for Leave of Court to Admit Petition for Review, but the CA denied the motions in its
Resolution18 dated July 25, 2001.
Disgruntled with the CA Resolutions, petitioner filed this Petition for Certiorari and Prohibition, raising the
following issues:
WHETHER THE PETITION SHOULD BE GIVEN DUE COURSE IN THE LIGHT OF THE
CIRCUMSTANCES AFFECTING THE TIMELINESS OF THE FILING THEREOF.
WHETHER THE APPEALED DECISION OF THE REGIONAL TRIAL COURT WAS RENDERED
AND WRITTEN AS REQUIRED BY THE 1987 PHILIPPINE CONSTITUTION AND THE RULES
OF COURT.
WHETHER THE PLAINTIFF HAS NO CAUSE OF ACTION.
WHETHER THE PETITIONER MAY BE COMPELLED TO EXECUTE A DEED OF
CONVEYANCE AGAINST HIS WILL AND IN VIOLATION OF HIS CONSTITUTIONAL RIGHT
AGAINST
DEPRIVATION OF PROPERTY WITHOUT DUE PROCESS OF LAW, AND THE CIVIL LAW
AGAINST UNJUST ENRICHMENT.19
The petition has no merit.

In the interest of substantial justice, petitioner begs this Court's indulgence for the late filing of his motion for
extension of time, which he claims is due to an honest mistake.
Certainly, we cannot ascribe grave abuse of discretion upon a court that denies a motion for extension of time
filed after the expiration of the reglementary period to file a petition. A motion for extension of time to file a
petition should be filed prior to the expiration or lapse of the period set by law, otherwise, there is no longer any
period to extend and the judgment or order to be appealed from will have become final and executory. 20 Once
the judgment becomes final and executory, the appellate court is without jurisdiction to modify or reverse it.
We have repeatedly pronounced that perfection of an appeal in the manner and within the period prescribed by
law is mandatory and jurisdictional.21 The failure to perfect an appeal is not a mere technicality as it deprives
the appellate court of jurisdiction over the appeal.22 Hence, anyone seeking an exemption from the application
of the reglementary period for filing an appeal has the burden of proving the existence of an exceptionally
meritorious instance warranting such deviation.23 But none obtains in this case.
Even on the merits, we find the petition noticeably infirm. The petitioner's complaint for cancellation of the
contract was correctly dismissed by the MCTC.
Petitioner's cause of action for cancellation of the contract is based on a breach of contract as provided in
Article 119124 of the Civil Code and is properly denominated "rescission," or "resolution" under the Old Civil
Code. It is grounded on the respondents' alleged noncompliance with the conditions embodied in the Deed of
Absolute Sale and the Deed of Undertaking. In particular, petitioner claims that respondents constructed a road
three meters wider than what was agreed upon in the deed of sale and failed to comply with their undertaking to
facilitate the transfer of the title over the subject area.
To state the obvious, the construction of the road beyond the stipulated area does not constitute a breach of
contract. Breach of contract implies a failure, without legal excuse, to perform any promise or undertaking that
forms part of the contract.25 Although the contract specifically stated the area covered by the sale, it did not
contain a promise by the respondents that they will only occupy such area. Albeit apparently wrong, petitioner's
cause of action should not have been based on the contract of sale.
Neither could the respondent be faulted for not facilitating the transfer of the title over the subject area.
Respondents did not sign the Deed of Undertaking, and thus, could not have assumed the obligations contained
therein. Moreover, considering that the respondents specifically denied the existence of the document and
petitioner failed to authenticate it, the RTC was correct in declaring that it has no probative weight.
Besides, rescission of a contract will not be permitted for a slight or casual breach but only for a substantial and
fundamental breach as would defeat the very object of the parties in making the agreement.26 It must be a
breach of faith that destroys or violates the reciprocity between the parties.27 The alleged breach by the
respondents was definitely not of such level and magnitude.
Most importantly, rescission of a contract presupposes the existence of a valid and subsisting obligation. The
breach contemplated in Article 1191 is the obligor's failure to comply with an existing obligation. 28 It would be
useless to rescind a contract that is no longer in existence. Here, we find that the contract of sale sought to be
canceled by the petitioner does not exist anymore; hence, the filing of the petition for cancellation was an
exercise in futility.
The records show that the parties' original agreement, embodied in the Deed of Absolute Sale, had already been
superseded or novated by a new contract, albeit an oral one, covering an increased area of 280 sq m. In his
testimony, petitioner admitted that he received from his brother, Cesar Yaneza, the P20,000.00 that respondents
paid. This, taken with the respondents' narration of the circumstances surrounding the signing of the deed of
sale and the subsequent renegotiation for an increased area, together with the Acknowledgment Receipt
showing that an additional P40,000.00 was paid to the petitioner, reasonably leads us to believe that the parties
had actually entered into a new agreement which covered the entire 280-sq m area where the access road was
laid.
The new contract of sale between the parties is valid despite it not being evidenced by any writing. 29The
requirement under the Statute of Frauds does not affect the validity of the contract of sale but is needed merely
for its enforceability. In any case, it applies only to contracts which are executory, and not to those which have
been consummated either totally or partially,30 as in the new contract of sale herein.
The existence of the new contract of sale over the 280-sq m area therefore having been established, it follows
that the petitioner may be compelled to execute the corresponding deed of sale reflecting this new agreement.

After the existence of the contract has been admitted, the party bound thereby may be compelled to execute the
proper document.31 This is clear from Article 1357, viz.:
Art. 1357. If the law requires a document or other special form, as in the acts and contracts enumerated
in the following article [Article 1358], the contracting parties may compel each other to observe that
form, once the contract has been perfected. This right may be exercised simultaneously with the action
upon the contract.
WHEREFORE, the petition is DISMISSED. The assailed CA Resolutions dated February 28, 2001 and July
25, 2001 are AFFIRMED.
SO ORDERED.

Republic
SUPREME
Manila

of

the

Philippines
COURT

SECOND DIVISION
JAIME D. ANG, Petitioner,

G.R. No. 177874

- versus -

Present:

COURT
OF
APPEALS
SOLEDAD,Respondents.

AND

BRUNO QUISUMBING, J., Chairperson,

CARPIO
TINGA,
VELASCO,
BRION, JJ.

MORALES,
JR.,

and

Promulgated:
September 29, 2008
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
CARPIO MORALES, J.:
Under a "car-swapping" scheme, respondent Bruno Soledad (Soledad) sold his Mitsubishi GSR sedan 1982
model to petitioner Jaime Ang (Ang) by Deed of Absolute Sale1 dated July 28, 1992. For his part, Ang
conveyed to Soledad his Mitsubishi Lancer model 1988, also by Deed of Absolute Sale 2 of even date. As Angs
car was of a later model, Soledad paid him an additional P55,000.00.
Ang, a buyer and seller of used vehicles, later offered the Mitsubishi GSR for sale through Far Eastern Motors,
a second-hand auto display center. The vehicle was eventually sold to a certain Paul Bugash (Bugash)
for P225,000.00, by Deed of Absolute Sale3 dated August 14, 1992. Before the deed could be registered in
Bugashs name, however, the vehicle was seized by virtue of a writ of replevin4 dated January 26, 1993 issued
by the Cebu City Regional Trial Court (RTC), Branch 21 in Civil Case No. CEB-13503, "BA Finance
Corporation vs. Ronaldo and Patricia Panes," on account of the alleged failure of Ronaldo Panes, the owner of
the vehicle prior to Soledad, to pay the mortgage debt5 constituted thereon.

To secure the release of the vehicle, Ang paid BA Finance the amount of P62,038.476 on March 23, 1993.
Soledad refused to reimburse the said amount, despite repeated demands, drawing Ang to charge him for Estafa
with abuse of confidence before the Office of the City Prosecutor, Cebu City. By Resolution 7 of July 15, 1993,
the City Prosecutors Office dismissed the complaint for insufficiency of evidence, drawing Ang to file on
November 9, 1993 the first8 of three successive complaints for damages against Soledad before the RTC of
Cebu City where it was docketed as Civil Case No. Ceb-14883.
Branch 19 of the Cebu City RTC, by Order9 dated May 4, 1995, dismissed Civil Case No. Ceb-14883 for failure
to submit the controversy to barangay conciliation.
Ang thereafter secured a certification to file action and again filed a complaint for damages, 10 docketed as Ceb17871, with the RTC of Cebu City, Branch 14 which dismissed it, by Order11 dated March 27, 1996, on the
ground that the amount involved is not within its jurisdiction.
Ang thereupon filed on July 15, 1996 with the Municipal Trial Court in Cities (MTCC) a complaint, 12docketed
as R-36630, the subject of the instant petition.
After trial, the MTCC dismissed the complaint on the ground of prescription, vz:
It appearing that the Deed of Sale to plaintiff o[f] subject vehicle was dated and executed on 28 July 1992, the
complaint before the Barangay terminated 21 September 1995 per Certification to File Action attached to the
Complaint, and this case eventually was filed with this Court on 15 July 1996, this action has already
been barred since more than six (6) months elapsed from the delivery of the subject vehicle to the plaintiff
buyer to the filing of this action, pursuant to the aforequoted Article 1571."13 (Emphasis and underscoring
supplied)
His motion for reconsideration having been denied, Ang appealed to the RTC, Branch 7 of which affirmed the
dismissal of the complaint, albeit it rendered judgment in favor of Ang "for the sake of justice and equity, and in
consonance with the salutary principle of non-enrichment at anothers expense." The RTC ratiocinated:
xxxx
[I]t was error for the Court to rely on Art. 1571 of the Civil Code to declare the action as having prescribed,
since the action is not one for the enforcement of the warranty against hidden defects. Moreover, Villostas vs.
Court of Appeals declared that the six-month prescriptive period for a redhibitory action applies only to implied
warranties. There is here an express warranty. If at all, what applies is Art. 1144 of the Civil Code, the
general law on prescription, which states, inter alia, that actions upon a written contract prescribes in
ten (10) years [Engineering & Machinery Corporation vs. Court of Appeals, G.R. No. 52267, January 24,
1996].
More appropriate to the discussion would be defendants warranty against eviction, which he explicitly made in
the Deed of Absolute Sale: I hereby covenant my absolute ownership to (sic) the above-described property and
the same is free from all liens and encumbrances and I will defend the same from all claims or any claim
whatsoever"
Still the Court finds that plaintiff cannot recover under this warranty. There is no showing of compliance
with the requisites.
xxxx
Nonetheless, for the sake of justice and equity, and in consonance with the salutary principle of nonenrichment at anothers expense, defendant should reimburse plaintiff the P62,038.47which on March 23,

1993 he paid BA Finance Corporation to release the mortgage on the car. (Emphasis and underscoring
supplied)14
The RTC thus disposed as follows:
Wherefore, judgment is rendered directing defendant to pay plaintiff P62,038.47, the amount the latter paid BA
Finance Corporation to release the mortgage on the vehicle, with interest at the legal rate computed from March
23, 1993. Except for this, the judgment in the decision of the trial court, dated October 8, 2001 dismissing the
claims of plaintiff is affirmed." (Underscoring supplied)15
Soledads Motion for Reconsideration was denied by Order16 of December 12, 2002, hence, he elevated the
case to the Court of Appeals, Cebu City.
The appellate court, by the challenged Decision17 of August 30, 2006, noting the sole issue to be resolved
whether the RTC erred in directing Soledad to pay Ang the amount the latter paid to BA Finance plus legal
interest, held that, following Goodyear Phil., Inc. v. Anthony Sy,18 Ang "cannot anymore seek refuge under the
Civil Code provisions granting award of damages for breach of warranty against eviction for the simple fact that
three years and ten months have lapsed from the execution of the deed of sale in his favor prior to the filing of
the instant complaint." It further held:
It bears to stress that the deed of absolute sale was executed on July 28, 1992, and the instant complaint dated
May 15, 1996 was received by the MTCC on July 15, 1996.
While it is true that someone unjustly enriched himself at the expense of herein respondent, we agree with
petitioner (Soledad) that it is not he.
The appellate court accordingly reversed the RTC decision and denied the petition.
By Resolution19 of April 25, 2007, the appellate court denied Angs motion for reconsideration, it further noting
that when Ang settled the mortgage debt to BA Finance, he did so voluntarily in order to resell the vehicle,
hence, Soledad did not benefit from it as he was unaware of the mortgage constituted on the vehicle by the
previous owner.
The appellate court went on to hold that Soledad "has nothing to do with the transaction anymore; his obligation
ended when he delivered the subject vehicle to the respondent upon the perfection of the contract of sale." And
it reiterated its ruling that the action, being one arising from breach of warranty, had prescribed, it having been
filed beyond the 6-month prescriptive period.
The appellate court brushed aside Angs contention that Soledad was the proximate cause of the loss due to the
latters failure to thoroughly examine and verify the registration and ownership of the previous owner of the
vehicle, given that Ang is engaged in the business of buying and selling second-hand vehicles and is therefore
expected to be cautious in protecting his rights under the circumstances.
Hence, the present recourse petition for review on certiorari, Ang maintaining that his cause of action had not
yet prescribed when he filed the complaint and he should not be blamed for paying the mortgage debt.
To Ang, the ruling in Goodyear v. Sy is not applicable to this case, there being an express warranty in the herein
subject Deed of Absolute Sale and, therefore, the action based thereon prescribes in ten (10) years following
Engineering & Machinery Corp. v. CA20 which held that where there is an express warranty in the contract, the
prescriptive period is the one specified in the contract or, in the absence thereof, the general rule on rescission
of contract.

Ang likewise maintains that he should not be blamed for paying BA Finance and should thus be entitled to
reimbursement and damages for, following Carrascoso, Jr. v. Court of Appeals,21 in case of breach of an express
warranty, the seller is liable for damages provided that certain requisites are met which he insists are present in
the case at bar.
The resolution of the sole issue of whether the complaint had prescribed hinges on a determination of what kind
of warranty is provided in the Deed of Absolute Sale subject of the present case.
A warranty is a statement or representation made by the seller of goods, contemporaneously and as part of the
contract of sale, having reference to the character, quality or title of the goods, and by which he promises or
undertakes to insure that certain facts are or shall be as he then represents them.22
Warranties by the seller may be express or implied. Art. 1546 of the Civil Code defines express warranty as
follows:
"Art. 1546. Any affirmation of fact or any promise by the seller relating to the thing is an express
warranty if the natural tendency of such affirmation or promise is to induce the buyer to purchase the
same, and if the buyer purchases the thing relying thereon. No affirmation of the value of the thing, nor any
statement purporting to be a statement of the sellers opinion only, shall be construed as a warranty, unless the
seller made such affirmation or statement as an expert and it was relied upon by the buyer."(Emphasis and
underscoring supplied)
On the other hand, an implied warranty is that which the law derives by application or inference from the nature
of the transaction or the relative situation or circumstances of the parties, irrespective of any intention of the
seller to create it.23 Among the implied warranty provisions of the Civil Code are: as to the sellers title (Art.
1548), against hidden defects and encumbrances (Art. 1561), as to fitness or merchantability (Art. 1562), and
against eviction (Art. 1548).
The earlier cited ruling in Engineering & Machinery Corp. states that "the prescriptive period for instituting
actions based on a breach of express warranty is that specified in the contract, and in the absence of such period,
the general rule on rescission of contract, which is four years (Article 1389, Civil Code)."
As for actions based on breach of implied warranty, the prescriptive period is, under Art. 1571 (warrantyagainst
hidden defects of or encumbrances upon the thing sold) and Art. 1548 (warranty against eviction), six months
from the date of delivery of the thing sold.
The following provision of the Deed of Absolute Sale reflecting the kind of warranty made by Soledad reads:
xxxx
I hereby covenant my absolute ownership to (sic) the above-described property and the same is free from
all liens and encumbrances and I will defend the same from all claims or any claim whatsoever; will save
the vendee from any suit by the government of the Republic of the Philippines.
x x x x (Emphasis supplied)
In declaring that he owned and had clean title to the vehicle at the time the Deed of Absolute Sale was forged,
Soledad gave an implied warranty of title. In pledging that he "will defend the same from all claims or any
claim whatsoever [and] will save the vendee from any suit by the government of the Republic of the
Philippines," Soledad gave a warranty against eviction.

Given Angs business of buying and selling used vehicles, he could not have merely relied on Soledads
affirmation that the car was free from liens and encumbrances. He was expected to have thoroughly verified the
cars registration and related documents.
Since what Soledad, as seller, gave was an implied warranty, the prescriptive period to file a breach thereof is
six months after the delivery of the vehicle, following Art. 1571. But even if the date of filing of the action is
reckoned from the date petitioner instituted his first complaint for damages on November 9, 1993, and not on
July 15, 1996 when he filed the complaint subject of the present petition, the action just the same had
prescribed, it having been filed 16 months after July 28, 1992, the date of delivery of the vehicle.
On the merits of his complaint for damages, even if Ang invokes breach of warranty against eviction as inferred
from the second part of the earlier-quoted provision of the Deed of Absolute Sale, the following essential
requisites for such breach, vz:
"A breach of this warranty requires the concurrence of the following circumstances:
(1) The purchaser has been deprived of the whole or part of the thing sold;
(2) This eviction is by a final judgment;
(3) The basis thereof is by virtue of a right prior to the sale made by the vendor; and
(4) The vendor has been summoned and made co-defendant in the suit for eviction at the instance of the
vendee.
In the absence of these requisites, a breach of the warranty against eviction under Article 1547 cannot be
declared." 24 (Emphasis supplied),
have not been met. For one, there is no judgment which deprived Ang of the vehicle. For another, there was no
suit for eviction in which Soledad as seller was impleaded as co-defendant at the instance of the vendee.
Finally, even under the principle of solutio indebiti which the RTC applied, Ang cannot recover from Soledad
the amount he paid BA Finance. For, as the appellate court observed, Ang settled the mortgage debt on his own
volition under the supposition that he would resell the car. It turned out
that he did pay BA Finance in order to avoid returning the payment made by the ultimate buyer Bugash. It need
not be stressed that Soledad did not benefit from Angs paying BA Finance, he not being the one who
mortgaged the vehicle, hence, did not benefit from the proceeds thereof.
WHEREFORE, the petition is, in light of the foregoing disquisition, DENIED.
SO ORDERED.

FIRST DIVISION

FORT
BONIFACIO
CORPORATION,
Petitioner,

DEVELOPMENT

- versus -

G.R. No. 158997

Present:
PUNO, C.J., Chairperson,
CARPIO,
AZCUNA,
REYES,* and
LEONARDO-DE CASTRO, JJ.

YLLAS LENDING CORPORATION and

Promulgated:
JOSE S. LAURAYA, in his
official capacity as President,
Respondents.
October 6, 2008
x-------------------------------------------------- x

DECISION
CARPIO, J.:
The Case
This is a petition for review on certiorari[1] of the Orders issued on 7 March 2003[2] and 3 July 2003[3] by
Branch 59 of theRegional Trial Court of Makati City (trial court) in Civil Case No. 01-1452. The trial courts
orders dismissed Fort BonifacioDevelopment Corporations (FBDC) third party claim and
denied FBDCs Motion to Intervene and Admit Complaint in Intervention.
The Facts
On 24 April 1998, FBDC executed a lease contract in favor of Tirreno, Inc. (Tirreno) over a unit at
the Entertainment Center Phase 1 of the Bonifacio Global City in Taguig, Metro Manila. The parties had the
lease contract notarized on the day of its execution. Tirreno used the leased premises for Savoia Ristorante and
La Strega Bar.
Two provisions in the lease contract are pertinent to the present case: Section 20, which is about the
consequences in case of default of the lessee, and Section 22, which is about the lien on the properties of the
lease. The pertinent portion of Section 20 reads:

Section 20. Default of the Lessee

20.1 The LESSEE shall be deemed to be in default within the meaning of this Contract
in case:
(i)
The LESSEE fails to fully pay on time any rental, utility and service charge
or other financial obligation of the LESSEE under this Contract;
xxx
20.2 Without prejudice to any of the rights of the LESSOR under this Contract, in case
of default of the LESSEE, the lessor shall have the right to:
(i)
Terminate this Contract immediately upon written notice to the LESSEE,
without need of any judicial action or declaration;
xxx

Section 22, on the other hand, reads:

Section 22. Lien on the Properties of the Lessee
Upon the termination of this Contract or the expiration of the Lease Period without the
rentals, charges and/or damages, if any, being fully paid or settled, the LESSOR shall have the
right to retain possession of the properties of the LESSEE used or situated in the Leased
Premises and the LESSEE hereby authorizes the LESSOR to offset the prevailing value thereof
as appraised by the LESSOR against any unpaid rentals, charges and/or damages. If the
LESSOR does not want to use said properties, it may instead sell the same to third parties and
apply the proceeds thereof against any unpaid rentals, charges and/or damages.

Tirreno began to default in its lease payments in 1999. By July 2000, Tirreno was already in arrears
by P5,027,337.91. FBDC and Tirreno entered into a settlement agreement on 8 August 2000. Despite the
execution of the settlement agreement, FBDC found need to send Tirreno a written notice of termination dated
19 September 2000 due to Tirrenos alleged failure to settle its outstanding obligations. On 29 September 2000,
FBDC entered and occupied the leased premises. FBDC also appropriated the equipment and properties left
by Tirreno pursuant to Section 22 of their Contract of Lease as partial payment for Tirrenos outstanding
obligations. Tirreno filed an action for forcible entry against FBDC before the Municipal Trial Court
of Taguig. Tirreno also filed a complaint for specific performance with a prayer for the issuance of a temporary
restraining order and/or a writ of preliminary injunction against FBDC before the Regional Trial Court (RTC)
of Pasig City. The RTC of Pasig City dismissed Tirrenos complaint for forum-shopping.
On 4 March 2002, Yllas Lending Corporation and Jose S. Lauraya, in his official capacity as President,
(respondents) caused the sheriff of Branch 59 of the trial court to serve an alias writ of seizure against
FBDC. On the same day, FBDC served on the sheriff an affidavit of title and third party claim. FBDC found
out that on 27 September 2001, respondents filed a complaint for Foreclosure of Chattel Mortgage
with Replevin, docketed as Civil Case No. 01-1452, against Tirreno, Eloisa Poblete Todaro(Eloisa), and

Antonio D. Todaro (Antonio), in their personal and individual capacities, and in Eloisas official capacity as
President. In their complaint, respondents alleged that they lent a total of P1.5 million to Tirreno, Eloisa, and
Antonio. On 9 November 2000,Tirreno, Eloisa and Antonio executed a Deed of Chattel Mortgage in favor
of respondents as security for the loan. The following properties are covered by the Chattel Mortgage:

a. Furniture, Fixtures and Equipment of Savoia Ristorante and La Strega Bar, a restaurant owned
and managed by [Tirreno], inclusive of the leasehold right of [Tirreno] over its rented building
where [the] same is presently located.
b. Goodwill over the aforesaid restaurant, including its business name, business sign, logo, and
any and all interest therein.
c. Eighteen (18) items of paintings made by Florentine Master, Gino Tili, which are fixtures in
the above-named restaurant.
The details and descriptions of the above items are specified in Annex A which is
hereto attached and forms as an integral part of this Chattel Mortgage instrument.[4]

In the Deed of Chattel Mortgage, Tirreno, Eloisa, and Antonio made the following warranties to
respondents:
1.

WARRANTIES: The MORTGAGOR hereby declares and warrants that:

a.
The MORTGAGOR is the absolute owner of the above named properties subject of this
mortgage, free from all liens and encumbrances.
b.
There exist no transaction or documents affecting the same previously presented for,
and/or pending transaction.[5]
Despite FBDCs service upon him of an affidavit of title and third party claim, the sheriff proceeded with
the seizure of certain items from FBDCs premises. The sheriffs partial return indicated the seizure of the
following items from FBDC:
A. FIXTURES
(2) Smaller Murano Chandeliers
(1) Main Murano Chandelier
B. EQUIPMENT
(13) Uni-Air Split Type 2HP Air Cond.
(2) Uni-Air Split Type 1HP Air Cond.
(3) Uni-Air Window Type 2HP Air Cond.
(56) Chairs
(1) Table
(2) boxes Kitchen equipments [sic][6]

The sheriff delivered the seized properties to respondents. FBDC questioned the propriety of the seizure and
delivery of the properties to respondents without an indemnity bond before the trial court. FBDC argued that
when respondents and Tirrenoentered into the chattel mortgage agreement on 9 November 2000, Tirreno no
longer owned the mortgaged properties as FBDC already enforced its lien on 29 September 2000.
In ruling on FBDCs motion for leave to intervene and to admit complaint in intervention, the trial court
stated the facts as follows:
Before this Court are two pending incidents, to wit: 1) [FBDCs] Third-Party Claim over
the properties of [Tirreno] which were seized and delivered by the sheriff of this Court to
[respondents]; and 2) FBDCs Motion to Intervene and to Admit Complaint in Intervention.
Third party claimant, FBDC, anchors its claim over the subject properties on Sections
20.2(i) and 22 of the Contract of Lease executed by [FBDC] with Tirreno. Pursuant to said
Contract of Lease, FBDC took possession of the leased premises and proceeded to sell to third
parties the properties found therein and appropriated the proceeds thereof to pay the unpaid lease
rentals of [Tirreno].

FBDC, likewise filed a Motion to Admit its Complaint-in-Intervention.

In Opposition to the third-party claim and the motion to intervene, [respondents] posit
that the basis of [FBDCs] third party claim being anchored on the aforesaid Contract [of] Lease
is baseless. [Respondents] contend that the stipulation of the contract of lease partakes of a
pledge which is void under Article 2088 of the Civil Code for being pactum commissorium.
xxx
By reason of the failure of [Tirreno] to pay its lease rental and fees due in the amount
of P5,027,337.91, after having notified [Tirreno] of the termination of the lease, x x x FBDC
took possession of [Tirreno.s] properties found in the premises and sold those which were not of
use to it. Meanwhile, [respondents], as mortgagee of said properties, filed an action for
foreclosure of the chattel mortgage with replevin and caused the seizure of the same properties
which [FBDC] took and appropriated in payment of [Tirrenos] unpaid lease rentals.[7]

The Ruling of the Trial Court

In its order dated 7 March 2003, the trial court stated that the present case raises the questions of who has
a better right over the properties of Tirreno and whether FBDC has a right to intervene in
respondents complaint for foreclosure of chattel mortgage.
In deciding against FBDC, the trial court declared that Section
22 of the lease contract between
FBDC and Tirreno is void under Article 2088 of the Civil Code.[8] The trial court stated that Section 22 of the
lease contract pledges the properties found in the leased premises as security for the payment of the unpaid

rentals. Moreover, Section 22 provides for the automatic appropriation of the properties owned by Tirreno in
the event of its default in the payment of monthly rentals to FBDC. Since Section 22 is void, it cannot vest title
of ownership over the seized properties. Therefore, FBDC cannot assert that its right is superior to respondents,
who are the mortgagees of the disputed properties.
The trial court quoted from Bayer Phils. v. Agana[9] to justify its ruling that FBDC should have filed a
separate complaint against respondents instead of filing a motion to intervene. The trial court quoted
from Bayer as follows:
In other words, construing Section 17 of Rule 39 of the Revised Rules of Court (now Section 16
of the 1997 Rules on Civil Procedure), the rights of third-party claimants over certain properties
levied upon by the sheriff to satisfy the judgment may not be taken up in the case where such
claims are presented but in a separate and independent action instituted by the claimants.[10]

The dispositive portion of the trial courts decision reads:

WHEREFORE, premises considered, [FBDCs] Third Party Claim is hereby
DISMISSED. Likewise, the Motion to Intervene and Admit Complaint in Intervention is
DENIED.[11]

FBDC filed a motion for reconsideration on 9 May 2003. The trial court denied FBDCs motion for
reconsideration in an order dated 3 July 2003. FBDC filed the present petition before this Court to review pure
questions of law.
The Issues
FBDC alleges that the trial court erred in the following:
1.

Dismissing FBDCs third party claim upon the trial courts erroneous interpretation that
FBDC has no right of ownership over the subject properties because Section 22 of the
contract of lease is void for being a pledge and a pactum commissorium;

2.

Denying FBDC intervention on the ground that its proper remedy as third party
claimant over the subject properties is to file a separate action; and

3.

Depriving FBDC of its properties without due process of law when the trial court
erroneously dismissed FBDCs third party claim, deniedFBDCs intervention, and did not
require the posting of an indemnity bond for FBDCs protection.[12]

The Ruling of the Court

The petition has merit.

Taking of Lessees Properties
without Judicial Intervention
We reproduce Section 22 of the Lease Contract below for easy reference:
Section 22. Lien on the Properties of the Lessee
Upon the termination of this Contract or the expiration of the Lease Period without the
rentals, charges and/or damages, if any, being fully paid or settled, the LESSOR shall have the
right to retain possession of the properties of the LESSEE used or situated in the Leased
Premises and the LESSEE hereby authorizes the LESSOR to offset the prevailing value thereof
as appraised by the LESSOR against any unpaid rentals, charges and/or damages. If the
LESSOR does not want to use said properties, it may instead sell the same to third parties and
apply the proceeds thereof against any unpaid rentals, charges and/or damages.

Respondents, as well as the trial court, contend that Section 22 constitutes a pactum commissorium, a
void stipulation in a pledge contract. FBDC, on the other hand, states that Section 22 is merely
a dacion en pago.
Articles 2085 and 2093 of the Civil Code enumerate the requisites essential to a contract of pledge: (1)
the pledge is constituted to secure the fulfillment of a principal obligation; (2) the pledgor is the absolute owner
of the thing pledged; (3) the persons constituting the pledge have the free disposal of their property or have
legal authorization for the purpose; and (4) the thing pledged is placed in the possession of the creditor, or of a
third person by common agreement. Article 2088 of the Civil Code prohibits the creditor from appropriating or
disposing the things pledged, and any contrary stipulation is void.
On the other hand, Article 1245 of the Civil Code defines dacion en pago, or dation in payment, as the
alienation of property to the creditor in satisfaction of a debt in money. Dacion en pago is governed by the law
on sales. Philippine National Bank v. Pineda[13] held that dation in payment requires delivery and transmission
of ownership of a thing owned by the debtor to the creditor as an accepted equivalent of the performance of the
obligation. There is no dation in payment when there is no transfer of ownership in the creditors favor, as
when the possession of the thing is merely given to the creditor by way of security.
Section 22, as worded, gives FBDC a means to collect payment from Tirreno in case of termination of the
lease contract or the expiration of the lease period and there are unpaid rentals, charges, or damages. The
existence of a contract of pledge, however, does not arise just because FBDC has means of collecting past due
rent from Tirreno other than direct payment. The trial court concluded that Section 22 constitutes a pledge
because of the presence of the first three requisites of a pledge: Tirrenos properties in the leased premises
secure Tirrenos lease payments; Tirreno is the absolute owner of the said properties; and the persons
representing Tirreno have legal authority to constitute the pledge. However, the fourth requisite, that the

thing pledged is placed in the possession of the creditor, is absent. There is non-compliance with the fourth
requisite even if Tirrenos personal properties are found in FBDCs real property. Tirrenos personal properties
are in FBDCs real property because of the Contract of Lease, which gives Tirreno possession of the personal
properties. Since Section 22 is not a contract of pledge, there is no pactumcommissorium.
FBDC admits that it took Tirrenos properties from the leased premises without judicial intervention after
terminating the Contract of Lease in accordance with Section 20.2. FBDC further justifies its action by stating
that Section 22 is a forfeiture clause in the Contract of Lease and that Section 22 gives FBDC a remedy
against Tirrenos failure to comply with its obligations. FBDC claims that Section 22 authorizes FBDC to take
whatever properties that Tirreno left to pay off Tirrenos obligations.
We agree with FBDC.
A lease contract may be terminated without judicial intervention. Consing v. Jamandre upheld the
validity of a contractually-stipulated termination clause:
This stipulation is in the nature of a resolutory condition, for upon the exercise by the
[lessor] of his right to take possession of the leased property, the contract is deemed terminated.
This kind of contractual stipulation is not illegal, there being nothing in the law proscribing such
kind of agreement.
xxx

Judicial permission to cancel the agreement was not, therefore necessary because of the
express stipulation in the contract of [lease] that the [lessor], in case of failure of the [lessee] to
comply with the terms and conditions thereof, can take-over the possession of the leased
premises, thereby cancelling the contract of sub-lease. Resort to judicial action is necessary only
in the absence of a special provision granting the power of cancellation.[14]

A lease contract may contain a forfeiture clause. Country Bankers Insurance Corp. v. Court of
Appeals upheld the validity of a forfeiture clause as follows:
A provision which calls for the forfeiture of the remaining deposit still in the possession of
the lessor, without prejudice to any other obligation still owing, in the event of the termination or
cancellation of the agreement by reason of the lessees violation of any of the terms and
conditions of the agreement is a penal clause that may be validly entered into. A penal clause is
an accessory obligation which the parties attach to a principal obligation for the purpose of
insuring the performance thereof by imposing on the debtor a special prestation (generally
consisting in the payment of a sum of money) in case the obligation is not fulfilled or is
irregularly or inadequately fulfilled.[15]

In Country Bankers, we allowed the forfeiture of the lessees advance deposit of lease payment. Such a deposit
may also be construed as a guarantee of payment, and thus answerable for any unpaid rent or charges still
outstanding at any termination of the lease.
In the same manner, we allow FBDCs forfeiture of Tirrenos properties in the leased premises. By
agreement between FBDC and Tirreno, the properties are answerable for any unpaid rent or charges at any
termination of the lease. Such agreement is not contrary to law, morals, good customs, or public
policy. Forfeiture of the properties is the only security that FBDC may apply in case of Tirrenos default in its
obligations.
Intervention versus Separate Action
Respondents posit that the right to intervene, although permissible, is not an absolute right. Respondents
agree with the trial courts ruling that FBDCs proper remedy is not intervention but the filing of a separate
action. Moreover, respondents allege that FBDC was accorded by the trial court of the opportunity to defend
its claim of ownership in court through pleadings and hearings set for the purpose. FBDC, on the other hand,
insists that a third party claimant may vindicate his rights over properties taken in an action for replevin by
intervening in the replevin action itself.
We agree with FBDC.
Both the trial court and respondents relied on our ruling in Bayer Phils. v. Agana[16] to justify their
opposition to FBDCsintervention and to insist on FBDCs filing of a separate action. In Bayer, we declared
that the rights of third party claimants over certain properties levied upon by the sheriff to satisfy the judgment
may not be taken up in the case where such claims are presented, but in a separate and independent action
instituted by the claimants. However, both respondents and the trial court overlooked the circumstances behind
the ruling in Bayer, which makes the Bayer ruling inapplicable to the present case. The third party
in Bayerfiled his claim during execution; in the present case, FBDC filed for intervention during the trial.
The timing of the filing of the third party claim is important because the timing determines the remedies
that a third party is allowed to file. A third party claimant under Section 16 of Rule 39 (Execution, Satisfaction
and Effect of Judgments)[17] of the 1997 Rules of Civil Procedure may vindicate his claim to the property in a
separate action, because intervention is no longer allowed as judgment has already been rendered. A third
party claimant under Section 14 of Rule 57 (Preliminary Attachment)[18] of the 1997 Rules of Civil Procedure,
on the other hand, may vindicate his claim to the property by intervention because he has a legal interest in the
matter in litigation.[19]
We allow FBDCs intervention in the present case because FBDC satisfied the requirements of Section 1,
Rule 19 (Intervention) of the 1997 Rules of Civil Procedure, which reads as follows:

Section 1. Who may intervene. A person who has a legal interest in the matter in
litigation, or in the success of either of the parties, or an interest against both, or is so situated as
to be adversely affected by a distribution or other disposition of property in the custody of the
court or of an officer thereof may, with leave of court, be allowed to intervene in the action. The
court shall consider whether or not the intervention will unduly delay or prejudice the
adjudication of the rights of the original parties, and whether or not the intervenors rights may
be fully protected in a separate proceeding.

Although intervention is not mandatory, nothing in the Rules proscribes intervention. The trial courts
objection against FBDCsintervention has been set aside by our ruling that Section 22 of the lease contract is
not pactum commissorium.
Indeed, contrary to respondents contentions, we ruled in BA Finance Corporation v. Court of
Appeals that where the mortgagees right to the possession of the specific property is evident, the action need
only be maintained against the possessor of the property. However, where the mortgagees right to possession
is put to great doubt, as when a contending party might contest the legal bases for mortgagees cause of action
or an adverse and independent claim of ownership or right of possession is raised by the contending party, it
could become essential to have other persons involved and accordingly impleaded for a complete determination
and resolution of the controversy. Thus:
A chattel mortgagee, unlike a pledgee, need not be in, nor entitled to, the possession of
the property, unless and until the mortgagor defaults and the mortgagee thereupon seeks to
foreclose thereon. Since the mortgagees right of possession is conditioned upon the actual
default which itself may be controverted, the inclusion of other parties, like the debtor or the
mortgagor himself, may be required in order to allow a full and conclusive determination of the
case. When the mortgagee seeks a replevin in order to effect the eventual foreclosure of the
mortgage, it is not only the existence of, but also the mortgagors default on, the chattel
mortgage that, among other things, can properly uphold the right to replevy the property. The
burden to establish a valid justification for that action lies with the plaintiff [-mortgagee]. An
adverse possessor, who is not the mortgagor, cannot just be deprived of his possession, let
alone be bound by the terms of the chattel mortgage contract, simply because the
mortgagee brings up an action for replevin.[20] (Emphasis added)

FBDC exercised its lien to Tirrenos properties even before respondents and Tirreno executed their Deed
of Chattel Mortgage. FBDC is adversely affected by the disposition of the properties seized by the
sheriff. Moreover, FBDCs intervention in the present case will result in a complete adjudication of the issues
brought about by Tirrenos creation of multiple liens on the same properties and subsequent default in its
obligations.
Sheriffs Indemnity Bond

FBDC laments the failure of the trial court to require respondents to file an
indemnity bond for FBDCs protection. The trial court, on the other hand, did not mention the indemnity bond
in its Orders dated 7 March 2003 and 3 July 2003.
Pursuant to Section 14 of Rule 57, the sheriff is not obligated to turn over to respondents the properties
subject of this case in view of respondents failure to file a bond. The bond in Section 14 of Rule 57
(proceedings where property is claimed by third person) is different from the bond in Section 3 of the same rule
(affidavit and bond). Under Section 14 of Rule 57, the purpose of the bond is to indemnify the sheriff against
any claim by the intervenor to the property seized or for damages arising from such seizure, which the sheriff
was making and for which the sheriff was directly responsible to the third party. Section 3, Rule 57, on the
other hand, refers to the attachment bond to assure the return of defendants personal property or the payment of
damages to the defendant if the plaintiffs action to recover possession of the same property fails, in order to
protect the plaintiffs right of possession of said property, or prevent the defendant from destroying the same
during the pendency of the suit.
Because of the absence of the indemnity bond in the present case, FBDC may also hold the sheriff for
damages for the taking or keeping of the properties seized from FBDC.
WHEREFORE, we GRANT the petition. We SET ASIDE the Orders dated 7 March 2003 and 3 July
2003 of Branch 59 of the Regional Trial Court of Makati City in Civil Case No. 01-1452 dismissing
Fort Bonifacio Development Corporations Third Party Claim and denying Fort Bonifacio Development
Corporations
Motion
to
Intervene
and
Admit
Complaint
in
Intervention. WeREINSTATE Fort Bonifacio Development Corporations Third Party Claim and GRANT its
Motion to Intervene and Admit Complaint in Intervention. Fort Bonifacio Development Corporation may hold
the Sheriff liable for the seizure and delivery of the properties subject of this case because of the lack of an
indemnity bond.
SO ORDERED.

G.R. No. 173454

October 6, 2008

PHILIPPINE
NATIONAL
BANK,
vs.
MEGA PRIME REALTY AND HOLDINGS CORPORATION, respondent.

petitioner,

x-------------------------x
G.R. No. 173456

October 6, 2008

MEGA
PRIME
REALTY
AND
vs.
PHILIPPINE NATIONAL BANK, respondent.

HOLDINGS

CORPORATION,

petitioner,

x-------------------------x
DECISION
REYES, R.T., J.:
IN sales of realty, a breach in the warranties of the seller entitles the buyer to a proportionate reduction of the
purchase price.
The principle is illustrated in these consolidated petitions for review on certiorari of the Decision1 and
Resolution2 of the Court of Appeals (CA) in CA-G.R. CV No. 66759, which reversed and set aside that of the
Regional Trial Court (RTC) in Malabon City. Earlier, the RTC invalidated the sale of shares of stock in PNB
Management and Development Corporation (PNB-Madecor) by and between Mega Prime Realty Corporation
(Mega Prime), as vendee, and the Philippine National Bank (PNB), as vendor.
The Facts
The facts, as summarized by the appellate court, are as follows:
Mega Prime filed a complaint for annulment of contract before the RTC of Malabon on November 28, 1997. An
amended complaint was subsequently filed on February 17, 1998.
In its amended complaint, Mega Prime alleged, among others, that PNB operates a subsidiary by the name of
PNB Management and Development Corporation. In line with PNB's privatization plan, it opted to sell or
dispose of all its stockholdings over PNB-Madecor to Mega Prime. Thereafter, a deed of sale dated September
27, 1996 was executed between PNB (as vendor) and Mega Prime (as vendee) whereby PNB sold, transferred
and conveyed to Mega Prime, on "As is where is" basis, all of its stockholdings in PNB-Madecor for the sum of
Five Hundred Five Million Six Hundred Twenty Thousand Pesos (P505,620,000.00). The pertinent portions of
the deed of sale are hereunder quoted as follows:
WHEREAS, PNB Management and Development Corporation (PNB-MADECOR), a corporation
organized and existing under the laws of the Republic of the Philippines, with principal office at PNB
Financial Center, Roxas Boulevard, Pasay City, Metro Manila, is a wholly-owned subsidiary of the
vendor;
WHEREAS, the Vendee has offered to buy all of the stockholdings of the Vendor in PNB-MADECOR
with an authorized capital stock of P250,000,000.00 and the Vendor has accepted the said offer;
WHEREAS, the parties have previously agreed for the Vendee to pay the Vendor the purchase price of
all the said stockholdings of the Vendor, as follows:
(i) P50,562,000.00 on or before July 18, 1996 which has been paid;
(ii) P50,562,000.00 on or before September 27, 1996; and
(iii) Balance of the purchase price through loan with the Vendor;
subject to the condition that if the Vendee fails to pay the second installment, the agreement to sell the
said stockholdings will be cancelled and the initial 10% down payment will be forfeited in favor of the
Vendor;

NOW, THEREFORE, for and in consideration of the foregoing premises and the sum of PHILIPPINE
PESOS: FIVE HUNDRED FIVE MILLION SIX HUNDRED TWENTY (P505,620,000.00), receipt of
which in full is hereby acknowledged, the Vendor hereby sells, transfers and conveys, on "As is where
is" basis, unto and in favor of the Vendee, its assigns and successors-in-interest, all of the Vendor's
stockholdings in PNB-MADECOR, free from any liens and encumbrances, as evidenced by the
following Certificates of Stock (the "Certificates of Stock"):
Number

No. of Shares

0010

313,871

0002

0003

0004

0005

0006

0008

0009

0012

0013

hereto attached as Annex "A," and any subscription rights thereto, subject to the following terms and
conditions:
1. The sale of the above stockholdings of the Vendor is on a clean balance sheet, i.e. all assets and
liabilities are squared, and no deposits, furniture, fixtures and equipment, including receivables shall be
transferred to the Vendee, except real properties and improvements thereon of PNB-MADECOR in
Quezon City containing an area of 19,080 sq. m., situated at the corner of Quezon Boulevard (presently
Quezon Avenue) and Roosevelt Avenue covered by five (5) titles, namely: TCT Nos. 87881, 87882,
87883, 87884, and 160470, per Annexes "B," "C," "D," "E," and "F" hereof.
Leasehold rights of the Vendor on the Numancia property are excluded from this sale, however, lease of
the Mandy Enterprises and sub-leases thereon shall be honored by the Vendor which shall become the
sub-lessor of the said property. x x x
Pursuant, therefore, to the terms of the above-quoted deed of sale, the parties also entered into a loan agreement
on the same date (September 27, 1996) for P404,496,000.00 and Mega Prime executed in favor of PNB a
promissory note for the P404,496,000.00.
Mega Prime further alleged that one of the principal inducements for it to purchase the stockholdings of
defendant PNB in PNB-Madecor was to acquire assets of PNB-Madecor, specifically the 19,080 square-meter
property located at the corner of Quezon Avenue and Roosevelt Avenue referred to as the Pantranco property.
Mega Prime then entered into a joint venture to develop the Pantranco property. However, Mega Prime's joint
venture partner pulled out of the agreement when it learned that the property covered by Transfer Certificate of

Title (TCT) No. 160470 was likewise the subject matter of another title registered in the name of the City
Government of Quezon City (TCT No. RT-9987 [266573]). Moreover, the lot plan of the Pantranco property
shows that TCT No. 160470 covers real property located right in the middle of the Pantranco property rendering
nugatory the plans set up by Mega Prime for the said property.
Mega Prime sought the annulment of the deed of sale on ground that PNB misrepresented that among the assets
to be acquired by Mega Prime from the sale of shares of stock was the property covered by TCT No. 160470.
However, the subject property was outside the commerce of man, the same being a road owned by the Quezon
City Government.
Mega Prime also sought reimbursement of the P150,000,000.00 plus legal interest incurred by Mega Prime as
expenses for the development of the Pantranco property as actual damages and further sought moral and
exemplary damages and attorney's fees.
In its answer to the amended complaint, PNB maintains that the subject matter of the deed of sale was PNB's
shares of stock in PNB-Madecor which is a separate juridical entity, and not the properties owned by the latter
as evidenced by the deed itself. The sale of PNB's shares of stock in PNB-Madecor to Mega Prime did not
dissolve PNB-Madecor. PNB only transferred its control over PNB-Madecor to Mega Prime. The real
properties of PNB-Madecor did not change ownership, but remained owned by PNB-Madecor. Moreover, PNB
denied that it is liable for P150,000,000.00 allegedly incurred by Mega Prime for the development of the
Pantranco property since Mega Prime itself alleged in its amended complaint that no such development could be
undertaken.
According to PNB, Mega Prime's accusation that there was fraudulent misrepresentation on the former's part is
without basis. The best evidence of their transaction is the subject deed of sale which clearly shows that what
PNB sold to Mega Prime was PNB's stockholdings in PNB-Madecor.
As stockholder of PNB-Madecor, PNB did not know nor was it in a position to know, that the Quezon City
Government was able to secure another title over the lot covered by TCT No. 160470. Mega Prime, as buyer,
bought the shares of stock at its own risk under the caveat emptor rule, more so considering that the sale was
made on an "as is where is" basis. Moreover, the fact that the Quezon City Government was able to secure a
title over the same lot does not necessarily mean that PNB-Madecor's title to it is void or outside the commerce
of man. Only a proper proceeding may determine which of the two (2) titles should prevail over the other. Mega
Prime, now as the controlling stockholder of PNB-Madecor, should have instead filed action to quiet PNBMadecor's title over the said lot.3
RTC and CA Dispositions
On December 21, 1999, the RTC gave judgment in favor of Mega Prime and against PNB. The fallo of the RTC
decision states:
WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff and against the
defendant, as follows:
(1) Declaring the Deed of Sale of 27 September 1996 as void and rescinded;
(2) Ordering the defendant PNB to reimburse plaintiff the legal interest on the amount of ONE
HUNDRED FIFTY MILLION PESOS (P150,000,000.00) loan intended by plaintiff in
developing the Pantranco properties, as actual damages;
(3) Ordering defendant PNB to pay plaintiff the sum of FIVE MILLION PESOS (P5,000,000.00)
as exemplary damages;

(4) Ordering defendant PNB to pay plaintiff the sum of ONE HUNDRED THOUSAND PESOS
(P100,000.00) as attorney's fees;
(5) Ordering defendant to restore to plaintiff the sum of ONE HUNDRED ONE MILLION ONE
HUNDRED TWENTY-FOUR THOUSAND PESOS (P101,124,000.00) representing the sum
actually paid by plaintiff under the subject contract of sale with legal interest thereon reckoned
from the date of extra judicial demand made by plaintiff;
(6) Ordering plaintiff to return the five properties covered by T.C.T. Nos. 87881, 87882, 87883,
87884 and 160470 in favor of the defendant under the principle of mutual restitution;
(7) Ordering plaintiff to return the stockholdings subject matter of the 27 September 1996
contract of sale in favor of defendant;
(8) Ordering defendant to pay the costs of suit.
SO ORDERED.4
PNB elevated the matter to the CA via Rule 41 of the 1997 Rules of Civil Procedure. In its appeal, PNB
contended, inter alia, that what was sold to Mega Prime were the bank's shares of stock in PNB-Madecor, a
corporation separate and distinct from PNB; that the Pantranco property was never a consideration in the
contract of sale; that Mega Prime is presumed to have undertaken due diligence in ascertaining the ownership of
the disputed property, it being a reputable real estate company.
Further, PNB claimed that Mega Prime bought its shares of stock at its own risk under the caveat emptor rule,
as the sale was on an "as is where is" basis. That the Quezon City Government was able to secure title over the
same lot does not necessarily mean that PNB-Madecor's title to it was void or outside the commerce of man.
According to PNB, Mega Prime's remedy, as the new controlling owner of PNB-Madecor, is to file an action
for quieting of its title to the questioned lot.
On January 27, 2006, the CA reversed and nullified the RTC ruling, disposing as follows:
WHEREFORE, based on the above premises, the assailed Decision dated 21 December 1999 of the
Regional Trial Court of Malabon, Metro Manila, Branch 72, is hereby REVERSED and SET ASIDE
and a new one entered DISMISSING the complaint in Civil Case No. 2793-MN. The counterclaim of
PNB is likewise DISMISSED.
SO ORDERED.5
Both parties moved for reconsideration of the CA decision. Both motions were, however, denied with finality
on July 5, 2006.6
Hence, the present recourse by both PNB and Mega Prime.
PNB first filed its petition for review, docketed as G.R. No. 173454, assailing only the CA's dismissal of its
counterclaim. In its separate petition for review, docketed as G.R. No. 173456, Mega Prime challenged the
reversal by the CA of the RTC decision.
Issues

PNB assigns solely that the CA committed a grave error, giving rise to a question of law, in concluding that
Mega Prime's complaint was not a mere ploy to prevent the foreclosure of the pledge and in dismissing PNB's
counterclaim, ignoring the documentary evidence proving that Mega Prime's complaint was intended to
preempt the foreclosure of the pledge and evade payment of its P404,496,000.00 overdue debt.
For its part, Mega Prime submits that the CA erred in ruling that Mega Prime did not have sufficient grounds to
have the deed of sale dated September 27, 1996 annulled.
Stripped to its bare essentials, the Court is tasked to resolve the following questions:
A. Are there grounds for the annulment of the deed of sale between PNB and Mega Prime? and
B. Are PNB and Mega Prime entitled to the damages they respectively claim against each other?
Our Ruling
A. There is no sufficient ground to annul the deed of sale.
There is no basis for a finding of fraud against PNB to invalidate the sale. A perusal of the deed of sale reveals
that the sale principally involves the entire shareholdings of PNB in PNB-Madecor, not the properties covered
by TCT Nos. 87881, 87882, 87883, 87884 and 160740. Any defect in any of the said titles should not, therefore,
affect the entire sale. Further, there is no evidence that PNB was aware of the existence of another title on one
of the properties covered by TCT No. 160740 in the name of the Quezon City government before and during the
execution of the deed of sale.
Although it is expressly stated in the deed of sale that the transfer of the entire stockholdings of PNB in PNBMadecor will effectively result in the transfer of the said properties, the discovery of the title under the name of
the Quezon City government does not substantially affect the integrity of the object of the sale. This is so
because TCT No. 160740 covers only 733.70 square meters of the entire Pantranco property which has a total
area of 19,080 square meters.
We quote with approval the CA observations along this line:
Well-settled is the rule that the party alleging fraud or mistake in a transaction bears the burden of proof.
The circumstances evidencing fraud are as varied as the people who perpetrate it in each case. It may
assume different shapes and forms; it may be committed in as many different ways. Thus, the law
requires that it be established by clear and convincing evidence.
Fraud is never lightly inferred; it is good faith that is. Under the Rules of Court, it is presumed that "a
person is innocent of crime or wrong" and that "private transactions have been fair and regular." While
disputable, these presumptions can be overcome only by clear and preponderant evidence. Applied to
contracts, the presumption is in favor of validity and regularity.
In this case, it cannot be said that Mega Prime was able to adduce a preponderance of evidence before
the trial court to show that PNB fraudulently misrepresented that it had title or authority to sell the
property covered by TCT No. 160470. Nor was Mega Prime able to satisfactorily show that PNB should
be held liable for damages allegedly sustained by it.
First, PNB correctly argued that with Mega Prime as a corporation principally engaged in real estate
business it is presumed to be experienced in its business and it is assumed that it made the proper
appraisal and examination of the properties it would acquire from the sale of shares of stock. In fact,

Mega Prime was given copies of the titles to the properties which were attached to the subject deed of
sale. In other words, there was full disclosure on the part of PNB of the status of the properties of PNBMadecor to be transferred to Mega Prime by reason of its purchase of all of PNB's shareholdings in
PNB-Madecor.
The general rule is that a person dealing with registered land has a right to rely on the Torrens certificate
of title and to dispense with the need of making further inquiries. This rule, however, admits of
exceptions: when the party has actual knowledge of facts and circumstances that would impel a
reasonably cautious man to make such inquiry or when the purchaser has knowledge of a defect or the
lack of title in his vendor or of sufficient facts to induce a reasonably prudent man to inquire into the
status of the title of the property in litigation.
A perusal of TCT No. 160470 would show that the property is registered under the name Marcris Realty
Corporation and not under PNB or PNB-Madecor, the alleged owner of the said property. Moreover,
TCT No. 160470 explicitly shows on its face that it covers a road lot.
This fact notwithstanding, Mega Prime still opted to buy PNB's shares of stock, investing millions of
pesos on the said purchase. Mega Prime cannot therefore claim that it can rely on the face of the title
when the same is neither registered under the name of PNB, the vendor of the shares of stock in PNBMadecor, nor of PNB-Madecor, the alleged owner of the property. This should have forewarned Mega
Prime to inquire further into the ownership of PNB-Madecor with respect to TCT No. 160470. And it
should not be heard to complain that the property covered by TCT No. 160470 is outside the commerce
of man, it being a road, since this fact is evident on the face of TCT No. 160470 itself which describes
the property it covers as a road lot.
If, indeed, the principal inducement for Mega Prime to buy PNB's shares of stock in PNB-Madecor was
the acquisition of the said properties, Mega Prime should have insisted on putting in writing, whether in
the same deed of sale or in a separate agreement, any condition or understanding of the parties regarding
the transfer of titles from PNB-Madecor to Mega Prime. In buying the shares of stock with notice of the
flaw in the certificate of title of PNB-Madecor, Mega Prime assumed the risks that may attach to the
said purchase or said investment. Clearly, under the deed of sale, Mega Prime purchased the shares of
stock of PNB in PNB-Madecor on an "as is where is" basis, which should give Mega Prime more reason
to investigate and look deeper into the titles of PNB-Madecor.
Second, Mega Prime's remedy is not with PNB. It must be stressed that PNB only sold its shares of
stock in PNB-Madecor which remains to be the owner of the lot in question. Although, admittedly,
PNB-Madecor is a subsidiary of PNB, this does not necessarily mean that PNB and PNB-Madecor are
one and the same corporation.
The mere fact that a corporation owns all of the stocks of another corporation, taken alone is not
sufficient to justify their being treated as one entity. If used to perform legitimate functions, a
subsidiary's separate existence shall be respected, and the liability of the parent corporation as well as
the subsidiary will be confined to those arising in their respective business.
The general rule is that as a legal entity, a corporation has a personality distinct and separate from its
individual stockholders or members, and is not affected by the personal rights, obligations and
transactions of the latter. Courts may, however, in the exercise of judicial discretion step in to prevent
the abuses of separate entity privilege and pierce the veil of corporate fiction.
The following circumstances are useful in the determination of whether a subsidiary is but a mere
instrumentality of the parent-corporation and whether piercing of the corporate veil is proper:

(a) The parent corporation owns all or most of the capital stock of the subsidiary.
(b) The parent and subsidiary corporations have common directors or officers.
(c) The parent corporation finances the subsidiary.
(d) The parent corporation subscribes to all the capital stock of the subsidiary or otherwise
causes its incorporation.
(e) The subsidiary has grossly inadequate capital.
(f) The parent corporation pays the salaries and other expenses or losses of the subsidiary.
(g) The subsidiary has substantially no business except with the parent corporation or no assets
except those conveyed to or by the parent corporation.
(h) In the papers of the parent corporation or in the statements of its officers, the subsidiary is
described as a department or division of the parent corporation, or its business or financial
responsibility is referred to as the parent corporation's own.
(i) The parent corporation uses the property of the subsidiary as its own.
(j) The directors or executives of the subsidiary do not act independently in the interest of the
subsidiary, but take their orders from the parent corporation.
(k) The formal legal requirements of the subsidiary are not observed.
Aside from the fact that PNB-Madecor is a wholly-owned subsidiary of PNB, there are no other factors
shown to indicate that PNB-Madecor is a mere instrumentality of PNB. Therefore, PNB's separate
personality cannot be merged with PNB-Madecor in the absence of sufficient ground to pierce the veil
of corporate fiction. It must be noted that at the outset, PNB presented to Mega Prime the titles to the
properties. With the exception of one (1) title, TCT No. 160470, the four (4) titles are registered under
PNB-Madecor's name and not PNB. PNB correctly observed that Mega Prime's remedy is not to go after
PNB who merely sold its shares of stock in PNB-Madecor but to file the appropriate action to remove
any cloud in PNB-Madecor's title over TCT No. 160470.
Third, it is significant to note that the deed of sale is a public document duly notarized and
acknowledged before a notary public. As such, it has in its favor the presumption of regularity, and it
carries the evidentiary weight conferred upon it with respect to its due execution. It is admissible in
evidence without further proof of its authenticity and is entitled to full faith and credit upon its face.
Thus,
It has long been settled that a public document executed and attested through the intervention of
the notary public is evidence of the facts in clear, unequivocal manner therein expressed. It has in
its favor the presumption of regularity. To contradict all these, there must be evidence that is
clear, convincing and more than merely preponderant. The evidentiary value of a notarial
document guaranteed by public attestation in accordance with law must be sustained in full force
and effect unless impugned by strong, complete and conclusive proof.
Based on the above arguments, there is no reason to annul the said deed considering that both parties
freely and fairly entered into the said contract presumptively knowing the consequences of their acts.

Lastly, Mega Prime, using its business judgment, entered into a sale transaction with PNB respecting
shares of stock in PNB-Madecor, in anticipation of owning properties owned by PNB-Madecor.
However, it was found out later that a title in the name of the Quezon City Government casts a cloud
over PNB-Madecor's title to the so-called Pantranco Properties. This fact alone cannot justify annulment
of a valid and consummated contract of sale. Mega Prime cannot be relieved from its obligation,
voluntarily assumed, under the said contract simply because the contract turned out to be a poor business
judgment or unwise investment. It should have been more prudent or careful in making such a huge
investment worth millions of pesos. It should have conducted its own due diligence, so to speak. By
signing the deed of sale, Mega Prime accepted the risk of an "as is where is" arrangement with respect to
the sale of shares of stock therein.
The contract has the force of law between the parties and they are expected to abide in good faith by
their respective contractual commitments, not weasel out of them. Just as nobody can be forced to enter
into a contract, in the same manner, once a contract is entered into, no party can renounce it unilaterally
or without the consent of the other. It is a general principle of law that no one may be permitted to
change his mind or disavow and go back upon his own acts, or to proceed contrary thereto, to the
prejudice of the other party.
Contrary to the trial court's finding, We find that there is no sufficient basis to annul the Deed of Sale
dated 27 September 1996. Mega Prime failed to sufficiently prove that PNB was guilty of
misrepresentation or fraud with respect to the said transaction.7
Nevertheless, the Court holds that there was a breach in the warranties of the seller PNB. Resultantly, a
reduction in the sale price should be decreed.
One of the express conditions in the deed of sale is the transfer of the properties under TCT Nos. 87881, 87882,
87883, 87884 and 160740 in the name of Mega Prime:
1. The Sale of the above stockholdings of the vendor is on a clean balance sheet, i.e., all assets and
liabilities are squared, and no deposits, furniture, fixtures and equipment, including receivables shall be
transferred to the vendee, except real properties and improvements thereon of PNB-Madecor in Quezon
City containing an area of 19,080 sq. m., situated at the corner of Quezon Boulevard (presently Quezon
Avenue) and Roosevelt Avenue covered by five (5) titles namely: TCT Nos. 87881, 87882, 87883,
87884, and 160470 x x x.8
Verily, an important sense of the deed of sale is the transfer of ownership over the subject properties to Mega
Prime. Clearly, the failure of the seller PNB to effect a change in ownership of the subject properties amounts to
a hidden defect within the contemplation of Articles 1547 and 1561 of the New Civil Code.
The said provisions of law read:
Art. 1547. In a contract of sale, unless a contrary intention appears, there is:
(1) An implied warranty on the part of the seller that he has a right to sell the thing at the time when the
ownership is to pass, and that the buyer shall from that time have and enjoy the legal and peaceful
possession of the thing;
(2) An implied warranty that the thing shall be free from any hidden faults or defects, or any charge or
encumbrance not declared or known to the buyer.

This article shall not, however, be held to render liable a sheriff, auctioneer, mortgagee, pledgee, or
other person professing to sell by virtue of authority in fact or law, for the sale of a thing in which a third
person has a legal or equitable interest.9
xxxx
Art. 1561. The vendor shall be responsible for warranty against the hidden defects which the thing sold
may have, should they render it unfit for the use for which it is intended, or should they diminish its
fitness for such use to such an extent that, had the vendee been aware thereof, he would not have
acquired it or would have given a lower price for it; but said vendor shall not be answerable for patent
defects or those which may be visible, or for those which are not visible if the vendee is an expert who,
by reason of his trade or profession, should have known them.10
Up to now, the title of the said property is still under the name of the former registered owner Marcris Realty
Corporation. Mega Prime's subsequent discovery that the property covered by TCT No. 160740 is covered by a
title pertaining to the City Government of Quezon City coupled with PNB's inability up to the present to submit
a title in the name of PNB-Madecor constitutes a breach of warranty. Hence, a proportionate reduction in the
consideration of the sale is justified, applying the Civil Code principle that "no person shall be enriched at the
expense of another."11
The sale of shares of stock was undertaken to effect the transfer of the subject properties with a total area of
19,080 square meters. When PNB failed to deliver the title to the property covered by TCT No. 160740, with an
area of 733.70 square meters, PNB violated an express warranty under the deed of sale. Thus, the total
consideration in the Deed of Sale should be proportionately reduced equivalent to the value of the property
covered by TCT No. 160740.
Records bear out that the total consideration for the sale contract is P505,620,000.00. The object is the 19,080square-meter Pantranco property. Simple division or mathematical computation yields that the property has a
value of P26,500.00 per square meter. Considering that the area covered by TCT No. 160740 is 733.70 square
meters, the purchase price should be proportionately reduced by P19,443,050.00, an amount arrived at after
multiplying P26,500.00 by 733.70 or vice versa.
Necessarily, Mega Prime cannot be considered in default with respect to its obligation to petitioner bank in view
of the modification of the stipulated consideration.
B. As to the parties' claims of damages against each other, the Court fully agrees with the CA that both
should be dismissed for lack of factual and legal bases.
The CA refused to award actual and exemplary damages to Mega Prime. Said the appellate court:
Necessarily, therefore, PNB cannot be made liable for actual damages allegedly sustained by Mega
Prime. The latter's allegation that it incurred expenses for the development of the Pantranco Property in
the amount of P150,000,000.00 deserves scant consideration.
Basic is the jurisprudential principle that in determining actual damages, the courts cannot rely on mere
assertions, speculations, conjectures, or guesswork but must depend on competent proof or the best
obtainable evidence of the actual amount of loss.
Aside from the site development plan adduced by Mega Prime, no other proof was presented by Mega
Prime to show that it had incurred expenses for the development of the Pantranco property. In fact,
Mega Prime itself alleged that its partner pulled out from the project and the development of the
Pantranco Property could not be undertaken after knowledge of the alleged defective title of PNB-

Madecor. Without sufficient proof that Mega Prime incurred said expenses and that it was due to PNB's
fault, then the latter cannot be held liable for such unsupported allegation.
Regarding the award of exemplary damages, the Court likewise finds that PNB cannot be made liable
for exemplary damages and attorney's fees, there being no adequate proof to show that PNB was in bad
faith when it entered into the contract of sale with Mega Prime.
It is a requisite in the grant of exemplary damages that the act of the offender must be accompanied by
bad faith or done in wanton, fraudulent or malevolent manner. On the other hand, attorney's fees may be
awarded only when a party is compelled to litigate or to incur expenses to protect his interest by reason
of an unjustified act of the other party, as when the defendant acted in gross and evident bad faith in
refusing the plaintiff's plainly valid, just and demandable claim. Such circumstances were not proved in
this case.12
Along the same vein, in dismissing PNB's counterclaims, the CA explained:
In the same vein, We find no reason to hold Mega Prime liable on the counterclaim of PNB for moral
and exemplary damages and attorney's fees. PNB's counterclaim is anchored on the alleged bad faith and
ill motive of Mega Prime in filing the complaint which allegedly was done by Mega Prime to preempt
PNB's foreclosure of the pledge of its shares of stock in PNB-Madecor. According to PNB, Mega Prime
filed its complaint against PNB after Mega Prime received PNB's letter dated December 11, 1997
reminding it of the maturity date on November 26, 1997 of its P404,496,000.00 loan with PNB,
evidently to prevent PNB from foreclosing the pledge.
We are not persuaded.
The records show that Mega Prime filed its complaint on November 28, 1997, and it was preceded by
Mega Prime's demand letter dated November 3, 1997 addressed to PNB, informing PNB of Mega
Prime's discovery that the property covered by TCT No. 160470 is actually owned by the Quezon City
Government. In said letter, Mega Prime made a demand upon PNB to pay to Mega Prime the amounts of
P101,124,000.00 as actual damages and P48,876,000.00 as other expenses, otherwise legal action shall
be instituted against PNB.
Clearly, Mega Prime's complaint was filed prior to PNB's letter dated December 11, 1997. Thus, PNB's
allegation that Mega Prime filed its complaint as a mere ploy to prevent foreclosure of the pledge and
thus evade payment of its overdue obligation is not quite true. Accordingly, in the absence of ample
proof that Mega Prime acted in gross and evident bad faith in instituting the complaint against PNB,
there is no justification to grant the counterclaim of PNB.13
WHEREFORE, premises considered, the appealed decision is AFFIRMED with MODIFICATION in that
the consideration in the Deed of Sale dated September 27, 1996 shall be proportionately reduced by
P19,443,050.00, the value corresponding to the property covered by TCT No. 160740.
=====================================================
SECOND DIVISION

DOLORES SALINAS, assisted by

her husband, JUAN CASTILLO,

G.R. No.

153077

Petitioner,
Present:

QUISUMBING, J., Chairperson,

- versus CARPIO MORALES,
TINGA,
VELASCO, JR., and
SPS. BIENVENIDO S. FAUSTINO
and ILUMINADA G. FAUSTINO,

BRION, JJ.

Respondents.

Promulgated:

September 19, 2008

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

DECISION

CARPIO MORALES, J.:

It appears that respondent Bienvenido S. Faustino (Faustino), by a Deed of Absolute Sale (Deed of
Sale)1[1] dated June 27, 1962, purchased from his several co-heirs, including his first cousins Benjamin Salinas
and herein petitioner Dolores Salinas, their respective shares to a parcel of land covered by Tax Declaration No.

14687, in the name of their grandmother Carmen Labitan, located in Subic, Zambales, with a superficial area of
300.375 square meters [sq. m.] more or less, and with boundaries in the North: Carmen Labitan; in the
South: Calle, in the East: Callejon and in the West: Roque Demetrio.

On March 15, 1982, respondent Faustino, joined by his wife, filed before the then Court of First Instance
of Zambales a complaint for recovery of possession with damages against petitioner, assisted by her husband,
docketed as Civil Case No. 3382-0, alleging that the parcel of land he bought via the June 27, 1962 Deed of Sale
from his co-heirs consisted of 1,381 sq. m. and is more particularly described as follows:

A residential land located at Barrio Matain, Subic, Zambales now know as Lot 3,
Block 5-K, Psd-8268 bounded on the NORTH by Road Lot 1, Block 5-1, PSD-8268; on the
SOUTH by Road Lot 2, Block 5-1, Psd-8268; on the EAST by Road Lot 2, Block 5-1, Psd8286; and, on the WEST by the property of Roque Demetrio Lot 2, Block 5-k, Psd 8268;
containing an area of ONE THOSUAND THREE HUNDRED EIGHTY-ONE (1,381)
SQUARE METERS, more or less. Declared for taxation purposes under Tax Declaration No.
1896 in the name of Spouses Bienvenido S. Faustino and Iluminada G. Faustino. 2 [2]
(Emphasis and underscoring supplied)

Respondent spouses further alleged that they allowed petitioner and co-heirs to occupy and build a house
on a 627 sq. m. portion of the land, particularly described as follows:

The northeastern portion of the land of the plaintiffs described in Paragraph 2 of this
complaint; bounded on the NORTH by Road Lot 1, Block 5-1, Psd-8268; on the East by Road
Lot 2, Block 5-1, Psd-8268; and on the SOUTH and WEST by the remaining portion of Lot 5,
Block 5-1, PSD-8268 of herein plaintiffs which is the land described in Paragraph 2 of this
complaint owned by the plaintiffs and that this portion in question has an area of SIX
HUNDRED TWENTY-SEVEN (627) SQUARE METERS, more or less;3[3] (Emphasis and
underscoring supplied),

on the condition that they would voluntarily and immediately remove the house and vacate that portion of the
land should they (respondents) need the land; and that when they asked petitioner and her co-heir-occupants to
remove the house and restore the possession of the immediately-described portion of the land, they refused,
hence, the filing of the complaint.

In her Answer, 4[4] petitioner claimed that she is the owner of a 628 sq. m. lot covered by Tax
Declaration No. 1017 in her name, particularly described as follows:

A residential lot, together with the two (2) storey house thereon constructed, and all
existing improvements thereon, situated at Matain, Subic, Zambales, containing an area of
628 square meters, more or less. Bounded on the North, by Lot 12313 [sic]; on the East, by
Lot 12413 (Road Lot); on the South, by Lot 12005-Cecilia Salinas; and on the West, by Lot
12006, Loreto Febre. Declared under Tax No. 1017, in the name of Dolores Salinas
Castillo. (Emphasis and underscoring supplied);

that if respondents refer to the immediately described lot, then they have no right or interest thereon;5[5] and that
her signature in the June 27, 1962 Deed of Sale is forged.

After trial, Branch 73 of the Regional Trial Court (RTC) of Olongapo City, by Decision of August 31,
1993, found petitioners claim of forgery unsupported. It nevertheless dismissed the complaint,6[6] it holding
that, inter alia, the Deed of Sale indicated that only 300.375 sq. m. was sold to petitioner.

. . . [I]n the . . . Deed of Sale [dated June 27, 1962] (Exhibit B), the area of the land
sold was only 300.375 square meters while the plaintiffs[-herein respondents] in their
complaint claim 1,381 square meters or the whole of the lot shown by exhibit A (Lot 3,
Block 5-A, Psd-8268). Since the document is the best evidence, and the deed of sale indicates
only 300.375 square meters, so then, only the area as stated in the Deed of Sale should be
owned by the plaintiffs. The allegations [sic] that there might be a typographical error is
again mere conjecture and not really supported by evidence.
The boundaries of the land indicated in the Deed of Sale (Exhibit B) [are] different
from that of Exhibit A claimed by the plaintiff[s-herein respondents] to be the plan of the
lot which they allegedly bought. The Deed of Sale states [that the boundary of the lot in the]

North is the lot of Carmen Labitan while Exhibit A indicated that North of the land is Lot 3,
Block 5-A, Psd-8268 (Exhibit A) is a Road Lot (Lot 1, Block 5-1, Psd-8268). This Court
believes that after examining the documents presented, that the land bought by the plaintiff is
only a portion of the land appearing in Exhibit A and not the whole lot. The land bought
being situated at the southern portion of Lot 3, Block 5-K, Psd-8268. This explains why the
northern portion of the lot sold indicated in the Deed of Sale is owned by Carmen Labitan, the
original owner of the whole Lot 3, Block 5-K, Psd-8268 (Exhibit C-1).
Even the tax declaration submitted by the plaintiff indicates different boundaries
with that of the land indicated in the Deed of Sale. The law states in Art. 434 of the Civil
Code:
Art. 434. In an action to recover, the property must be identified, and
the plaintiff must rely on the weakness of the defendants claim.
xxxx

Herein plaintiffs[-respondents] only own the area of 300.375 square meters of the
said lot and not the whole area of 1,381 square meters as claimed by them. There is no
evidence to substantiate the plaintiffs claim for the area of 1,381 square meters.
x x x x7[7] (Emphasis and underscoring supplied)

On respondents appeal,8[8] the Court of Appeals, by Decision of December 20, 2001,9[9] modified the
RTC decision. It held that since respondents are claiming the whole lot containing 1,381 sq. m. but that
petitioner is claiming 628 sq. m. thereof, then respondents are entitled to the remaining portion . . . of 753
square meters. The appellate court explained:

x x x [T]he Court agrees with the court a quo that only a portion of the whole lot
was indeed sold to the plaintiffs-appellants by the heirs of deceased Isidro Salinas and
Carmen Labitan. What remains to be determined is the particular portion of the area that was
sold to the plaintiffs-appellants.
x x x [W]hat really defines a piece of land is not the area calculated with more or less
certainty mentioned in the description but the boundaries therein laid down as enclosing the
land and indicating its limits. Where the land is sold for a lump sum and not so much per unit

of measure or number, the boundaries of the land stated in the contract determine the effects
and scope of the sale not the area thereof.
Based on these rules, plaintiffs-appellants are not strictly bound by the area stated in
the Deed of Sale which is merely 300.375 square meters, but by the metes and bounds stated
therein. As found by the court a quo, the land bought by the plaintiffs-appellants is a portion
of the land appearing in Exhibit A, situated at the southern portion of Lot 3, Block 5-K, Psd
8268 where the northern portion of the land sold as indicated in the Deed of Sale is owned by
Carmen Labitan, the original owner of the whole Lot 3, Block 5-K, Psd-8268 (Exhibit C-1.)
None of the other heirs questioned the sale of the property as described in the Deed of Sale.
Considering the foregoing, this Court believes that plaintiffs-appellants[-herein
respondents] own more than 300.375 square meters of the land in question. However, said
ownership does not extend to the northern portion of the land being claimed by the
defendants-appellees, consisting of 628 (erroneously stated in the decision of the court a
quo as 268) square meters and covered by Tax Declaration No. 1017 in the name of
defendant-appellee[-herein petitioner] Dolores Salinas. Plaintiffs-appellants are[,] however,
entitled to the remaining portion of the property consisting of seven hundred fifty-three
(753) square meters, more or less. (Emphasis and underscoring supplied)

The appellate court thus disposed:

WHEREFORE, based on the foregoing premises, the judgment appealed from is

hereby MODIFIED, as follows:
1.

Plaintiffs-appellants Bienvenido S. Faustino and Iluminada G. Faustin[o] are

declared owners of seven hundred fifty-three (753) square meters, more or less,
of the parcel of land subject of this case.

2.

Plaintiffs-appellants and defendants-appellees are directed to cause the

segregation of their respective shares in the property as determined by this Court,
with costs equally shared between them.

x x x x10[10] (Underscoring supplied)

Petitioners motion for reconsideration having been denied,11[11] she filed the present petition12[12]
faulting the Court of Appeals

a.

x x x IN MODIFYING THE DECISION OF THE COURT A QUO

DISMISSING THE COMPLAINT FOR INSUFFICIENCY OF EVIDENCE;

b.

x x x IN DECLARING THE PRIVATE RESPONDENTS OWNERS OF 753

SQUARE METERS, MORE OR LESS, OF THE PARCEL OF LAND SUBJECT OF
THE CASE[;]

c.

x x x IN NOT AFFIRMING THE DECISION OF THE COURT A QUO AND

XXX IN NOT DECLARING THE PETITIONER AS OWNER OF HER PROPERTY
WHICH, SINCE THEN UP TO THE PRESENT, SHE HAD BEEN OCCUPYING
AND DESPITE PREPONDERANCE OF EVIDENCE OF HER OWNERSHIP
THERETO.13[13] (Underscoring in the original)

The petition is meritorious.

Indeed, in a contract of sale of land in a mass, the specific boundaries stated in the contract must control
over any statement with respect to the area contained within its boundaries.14[14] Thus, it is the boundaries
indicated in a deed of absolute sale, and not the area in sq. m. mentioned therein 300.375 sq. m. in the Deed of
Sale in respondents favor that control in the determination of which portion of the land a vendee acquires.

In concluding that respondents acquired via the June 27, 1962 Deed of Sale the total land area of 753 sq.
m., the Court of Appeals subtracted from the total land area of 1,381 sq. m. reflected in Exh. A, which is
Plan of Lot 3, Block 5-k, Psd-8268, as prepared for Benjamin R. Salinas containing an area of 1,381 sq. m.

and which was prepared on February 10, 1960 by a private land surveyor, the 628 sq. m. area of the lot claimed
by petitioner as reflected in Tax Declaration No. 1017 in her name. As will be shown shortly, however, the basis
of the appellate courts conclusion is erroneous.

As the immediately preceding paragraph reflects, the Plan of Lot 3, Bk 5-K, Psd-82 was prepared for
respondent Faustinos and petitioners first cousin co-heir Benjamin Salinas on February 10, 1960.

Why the appellate court, after excluding the 628 sq. m. lot covered by a Tax Declaration in the name of
petitioner from the 1,381 sq. m. lot surveyed for Benjamin P. Salinas in 1960, concluded that what was sold via
the 1962 Deed of Sale to respondent Faustino was the remaining 753 sq. m., despite the clear provision of said
Deed of Sale that what was conveyed was 300.375 sq. m., escapes comprehension. It defies logic, given that
respondents base their claim of ownership of the questioned 628 sq. m. occupied by petitioner on that June 27,
1962 Deed of Sale covering a 300.375 sq. m. lot.

The trial court in fact noted in its Pre-trial Order that the parties cannot agree as to the identity of the
property sought

to be recovered by the plaintiff.15[15] (Emphasis and underscoring supplied.) Indeed,

in her Answer to the Complaint, petitioner alleged [t]hat if the plaintiffs refer to [the lot covered by Tax
Declaration No. 1017], then they have no right or interest or participation whatsoever over the same x x
x.16[16] (Emphasis and italics supplied.)

Even the boundaries of the 628 sq. m. area covered by Tax Declaration No. 1017 in petitioners name
and those alleged by respondents to be occupied by petitioner are different. Thus, the boundaries of the lot
covered by Tax Declaration No. 1017 are: Lot No. 12302 on the North; Lot No. 12005 (Cecilia Salinas) on the

South; Lot No. 12413 (road lot) on the East; and Lot No. 12006 (Loreto Febre) on the West.17[17] Whereas,
following respondents claim, the 627 sq. m. area occupied by petitioner has the following boundaries, viz:

The northeastern portion of the land of the plaintiffs described in Paragraph 2 of this
complaint; bounded on the NORTH by Road Lot 1, Block 5-1, Psd-8268; on the EAST by
Road Lot 2, Block 5-1, Psd-8268; and on the SOUTH and WEST by the remaining portion of
Lot 5, Block 5-1, PSD-8268 of herein plaintiffs which is the land described in Paragraph 2 of
this complaint owned by the plaintiffs and that this portion in question has an area of SIX
HUNDRED TWENTY-SEVEN (627) SQUARE METERS, more or less.18[18] (Emphasis
and underscoring supplied)

The Court of Appeals thus doubly erred in concluding that 1) what was sold to respondents via the June
27, 1962 Deed of Sale was the 1,381 sq. m. parcel of land reflected in the Plan-Exh. A prepared in 1960 for
Benjamin Salinas, and 2) petitioner occupied 628 sq. m. portion thereof, hence, respondents own the remaining
753 sq. m.

WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals dated December 20,
2001 is REVERSED and SET ASIDE, and the Decision of Branch 73 of the Regional Trial Court of Olongapo
City dated August 31, 1993 DISMISSING Civil Case No. 3382-0 is REINSTATED.

SO ORDERED.

SPOUSES EMMA H. VER REYES and RAMON REYES vs. DOMINADOR SALVADOR
G.R. No. 139047 - G.R. No. 139365 September 11, 2008
At the core of the controversy in the Petitions at bar is a parcel of unregistered land located in Tungtong,
Las Pias, formerly of the Province of Rizal, now a part of Metro Manila, designated as Lot 1 of Plan Psu205035, with an area of 19,545 square meters (subject property). It previously formed part of a bigger parcel of
agricultural land[4] first declared in the name of Domingo Lozada (Domingo) in the year 1916 under Tax
Declaration No. 2932.[5]
During the lifetime of Domingo, he was married twice. From his first marriage to Hisberta Guevarra in
the year 1873,[6] he fathered two children, namely Bernardo and Anatalia. After the death of Hisberta, Domingo

married Graciana San Jose in the year 1887[7] and their marriage produced two children, namely Nicomedes
and Pablo.
Domingo and Graciana died on 27 February 1930 and 12 August 1941, respectively. On 18 March
1965, Nicomedes and the heirs of his brother Pablo entered into anExtrajudicial Settlement of the Estate[8] of
their parents Domingo and Graciana. According to the settlement, the entire parcel of agricultural land declared
in the name of Domingo[9] was divided into two, Lot 1 and Lot 2, in accordance with the approved subdivision
plan Psu-205035. The subject property, i.e., Lot 1, was adjudicated to Nicomedes; while Lot 2 was given to the
heirs of Pablo. Nicomedes then declared the subject property in his name in 1965 under Tax Declaration No.
2050.[10]
On 23 June 1965, Nicomedes executed a Deed of Conditional Sale[11] over the subject property in favor
of Emma Ver Reyes (Emma), which provided:
That the Vendor [Nicomedes] is the true and lawful owner of a parcel of land situated at
Tungtong, Las Pinas, Rizal, more particularly described as follows:
A parcel of land (Lot 1 of plan Psu-205035), x x x; containing an area of
NINETEEN THOUSAND FIVE HUNDRED FOURTY FIVE (19,545) SQUARE
METERS, more or less, and still a portion of the land covered by Tax Declaration
No. 2304 of Las Pinas, Rizal, in the name of Domingo Lozada, and with a total
assessed value of P1,860.00.
That the [subject property] is a paraphernal property of the Vendor [Nicomedes], the
same having been inherited by him from his deceased mother, Graciana San Jose, but was
declared for taxation in the name of his deceased father, Domingo Lozada;
That for and in consideration of the sum of FOUR PESOS AND FIFTY CENTAVOS
(P4.50), Philippine Currency, per square meter to be paid by the Vendee to the Vendor, the said
Vendor by these presents hereby SELLS, CEDES, TRANSFERS and CONVEYS by way of
CONDITIONAL SALE the above-described parcel of land together with all the improvements
thereon to the said Vendee [Emma], her heirs, assigns and successors, free from all liens and
encumbrances, under the following terms and conditions, to wit:
1.

That the Vendee [Emma] will pay the Vendor [Nicomedes] as follows:

(a). TWENTY FIVE PERCENT (25%) of the total price on the

date of the signing of this contract;
(b). The next TWENTY FIVE PERCENT (25%) of the total price
upon the issuance of the title for the land described above; and
(c). The balance of FIFTY PERCENT (50%) of the total price within one
(1) year from the issuance of the said title;
2.
That if the Vendee [Emma] fails to pay the Vendor [Nicomedes] the
sums stated in paragraphs 1(b) and 1(c) above within the period stipulated and
after the grace period of one (1) month for each payment, this contract shall
automatically be null and void and of no effect without the necessity of any demand,
notice or filing the necessary action in court, andthe Vendor [Nicomedes] shall have

the full and exclusive right to sell, transfer and convey absolutely the abovedescribed property to any person, but the said Vendor [Nicomedes] shall return to
the Vendee [Emma] all the amount paid to him by reason of this contract without
any interest upon the sale of the said property to another person;
3.
That the total price shall be subject to adjustment in accordance with the
total area of the above-described property that will be finally decreed by the court in
favor of the herein Vendor [Nicomedes]; and
4.
That the Vendor [Nicomedes] will execute a final deed of absolute sale
covering the said property in favor of the Vendee [Emma] upon the full payment of
the total consideration in accordance with the stipulations above. (Emphases ours.)

The Deed of Conditional Sale was registered in the Registry of Property for Unregistered Lands in
August 1965.[12]
It would appear from the records of the case that Emma was only able to pay the first installment of the
total purchase price agreed upon by the parties. Furthermore, as will be discussed later on, Nicomedes did not
succeed in his attempt to have any title to the subject property issued in his name.
On 14 June 1968, Nicomedes entered into another contract involving the subject property with Rosario
D. Bondoc (Rosario). Designated as an Agreement of Purchase and Sale,[13] the significant portions thereof
states:
NOW, THEREFORE, for and in consideration of the foregoing premises and of the sum
of ONE HUNDRED SEVENTY FIVE THOUSAND NINE HUNDRED FIVE PESOS
(P175,905.00) Philippine Currency, which the BUYER [Rosario] shall pay to the SELLER
[Nicomedes] in the manner and form hereinafter specified, the SELLER [Nicomedes] by these
presents hereby agreed and contracted to sell all his rights, interests, title and ownership
over the parcel of land x x x unto the BUYER [Rosario], who hereby agrees and binds
herself to purchase from the former, the aforesaid parcel of land, subject to the following
terms and conditions:
1. Upon the execution of this Agreement, the BUYER [Rosario] shall pay the SELLER
[Nicomedes], the sum of FIFTEEN THOUSAND PESOS (P15,000.00), Philippine Currency.
2. [That] upon the delivery by the SELLER [Nicomedes] to the BUYER [Rosario] of a
valid title of the aforesaid parcel of land, free from any and all liens and encumbrances, and the
execution of the final Deed of Sale, the BUYER [Rosario] shall pay to the SELLER
[Nicomedes], the sum of THIRTY SEVEN THOUSAND SEVEN HUNDRED FIVE PESOS
(P37,705.00) Philippine Currency, and the final balance of ONE HUNDRED TWENTY THREE
THOUSAND AND TWO HUNDRED PESOS (P123,200.00) Philippine Currency, one year
from the date of execution of the final deed of sale, all without interest.
3. That in the event the BUYER [Rosario] fails to pay any amount as specified in
Section 2, Paragraph II, then this contract, shall, by the mere fact of non-payment expire
itself and shall be considered automatically cancelled, of no value and effect, and
immediately thereafter the SELLER [Nicomedes] shall return to the BUYER [Rosario] the sums
of money he had received from the BUYER [Rosario] without any interests and whatever

improvement or improvements made or introduced by the BUYER [Rosario] on the lot

being sold shall accrue to the ownership and possession of the SELLER [Nicomedes].
xxxx
6. The SELLER [Nicomedes] hereby warrants the useful and peaceful possession
and occupation of the lot subject matter of this agreement by the BUYER [Rosario].
(Emphasis ours.)

On 7 March 1969, Nicomedes and Rosario executed a Joint Affidavit,[14] whereby they confirmed the
sale of the subject property by Nicomedes to Rosario through the Agreement of Purchase and Sale dated 14
June 1968. They likewise agreed to have the said Agreement registered with the Registry of Deeds in
accordance with the provisions of Section 194 of the Revised Administrative Code, as amended by Act No.
3344. The Agreement of Purchase and Sale was thus registered on 10 March 1969.[15]

The records of this case show that, of the entire consideration stipulated upon in the Agreement, only the
first installment was paid by Rosario. No title to the subject property was ever delivered to her since, at the
time of the execution of the above contract, Nicomedess application for the registration of the subject property
was still pending.
Five months thereafter, Nicomedes executed on 10 August 1969 a third contract, a Deed of Absolute
Sale of Unregistered Land,[16] involving a portion of the subject property measuring 2,000 square meters, in
favor of Maria Q. Cristobal (Maria).[17] The relevant terms of the Deed recite:
THAT I, NICOMEDES J. LOZADA, of legal age, Filipino citizen, married and a
resident of Las Pias, Rizal, Philippines, for and in consideration of the sum of TWENTY FIVE
THOUSAND (P25,000.00) PESOS, Philippine currency, receipt of which is hereby
acknowledged to my full and entire satisfaction, do hereby sell, transfer and convey to MARIA
Q. CRISTOBAL, likewise of legal age, Filipino citizen, married to Juan [Dulos], and a resident
of 114 Real Street, Las Pias, Rizal, Philippines, her heirs, executors, administrators and
assigns, TWO THOUSAND SQUARE METERS (2,000) for an easement of way of a parcel
of unregistered land situated in the Barrio of Tungtong, Municipality of Las Pias, Province of
Rizal, Philippines, exclusively belonging to and possessed by me, and more particularly
described as follows:
A parcel of land described under Tax Declaration No. 9575 (Lot
No. 1, Psu 205035), situated in the Barrio of Tuntong, Municipality of Las Pias,
Province of Rizal, Philippines. xxx [C]ontaining an area of 1.9545 hectares, more
or less. (Emphasis ours.)

Nicomedes passed away on 29 June 1972. The Deed of Absolute Sale of Unregistered Land between
Nicomedes and Maria was registered only on 8 February 1973,[18] or more than seven months after the formers
death.
On 10 August 1979, Nicomedess heirs, namely, the four children from his first marriage,[19] the six
children from his second marriage,[20] and his surviving second spouse Genoveva Pallera Vda. De Lozada,
executed a Deed of Extrajudicial Settlement of the Estate of the Late Nicomedes J. Lozada with
Ratification of a Certain Deed of Absolute Sale of Unregistered Land.[21] The heirs declared in said Deed of
Extrajudicial Settlement that the only property left by Nicomedes upon his death was the subject
property. They also ratified therein the prior sale of a portion of the subject property made by Nicomedes in
favor of Maria, but they clarified that the actual area of the portion sold as presented in the plan was 2,287
square meters, not 2,000 square meters. After excluding the portion sold to Maria, the heirs claimed equal pro
indiviso shares in the remaining 17,258 square meters of the subject property.
On 30 July 1980, Nicomedess heirs[22] collectively sold, for the sum of P414,192.00, their shares in the
subject property in favor of Dulos Realty and Development Corporation (Dulos Realty), as represented by its
President Juan B. Dulos, via a Deed of Absolute Sale of an Unregistered Land.[23]

The said Deed of

Absolute Sale dated 30 July 1980, however, was not registered.

The Cases
On 11 April 1966, after executing the Deed of Conditional Sale in favor of Emma on 23 June 1965,
Nicomedes filed an application for the registration of the subject property with the then Court of First Instance
(CFI) of Pasig, docketed as LRC Case No. N-6577. The grandchildren of Domingo by his former
marriage[24] opposed the application for registration and Emma and her husband Ramon filed their intervention.
Sometime in 1973, following the execution in her favor of the Agreement of Purchase and Sale dated 14
June 1968 and Joint Affidavit dated 7 March 1969, Rosario filed a motion to intervene in LRC Case No. N6577 then pending before the CFI of Pasig; however, her motion was denied by the CFI of Pasig, in an Order
dated 2 June 1973.[25] Rosario no longer appealed from the order denying her motion to intervene in said case.
In view of the conflicting claims over the subject property, the CFI of Pasig dismissed without prejudice
LRC Case No. N-6577 on 21 November 1975 and ordered the parties therein, namely, the applicant Nicomedes
and the oppositors/intervenors, to litigate first the issues of ownership and possession.[26]
Five years later, on 27 June 1980, Domingos grandchildren from his first marriage, Dominador, et
al.,[27] filed an Application for Registration[28] of title to the subject property with the CFI of Rizal, docketed
as LRC Case No. LP-553-P. In their Application, Dominador, et al., alleged, inter alia, that they were the
owners of the subject property by virtue of inheritance; they were the actual occupants of the said property; and,
other than Emma, they had no knowledge of any encumbrance or claim of title affecting the same.

On 6 November 1980, Rosario, assisted by her husband Mariano Bondoc, invoking the Agreement of
Purchase and Sale executed in her favor by Nicomedes on 14 June 1968, filed a Complaint [29] before the CFI of
Rizal for the declaration in her favor of ownership over the subject property, with an application for a temporary
restraining order or preliminary injunction, against Trinidad Lozada (one of Domingos heirs from his first
marriage who applied for registration of the subject property in LRC Case No. LP-553-P)and two other persons,
who allegedly trespassed into the subject property. Rosarios complaint was docketed as Civil Case No. Pq8557-P.
On 4 August 1981, the parties agreed to have LRC Case No. LP-553-P (the application for land
registration of Dominador, et al.) consolidated with Civil Case No. Pq-8557-P (the action for declaration of
ownership of Rosario).[30]
By subsequent events,[31] and in consideration of the location of the subject property in Las Pias, LRC
Case No. LP-553-P and Civil Case No. Pq-8557-P, reinstated asCivil Case No. 6914-P, were finally transferred
to and decided by the RTC of Pasay City.
In its Decision dated 25 November 1991, the RTC of Pasay City, Branch 119, disposed of the cases thus:
WHEREFORE, considering all the foregoing, the court denies the application of
Dominador Salvador, Sr. et al, having no more right over the land applied for, dismisses Civil
Case No. Pq-8557-P now 6914 for lack of merit, and hereby declares Maria Cristobal Dulos
and Dulos Realty and Development Corporation to have a registrable title, confirming title
and decreeing the registration of Lot 1 PSU-205035 containing a total area of 19,545 square
meters, 2,287 square meters of which appertains to Maria Cristobal Dulos married to Juan Dulos
and the remaining portion, in favor of Dulos Realty and Development Corporation, without
pronouncement as to costs.[32] (Emphasis ours.)
In so ruling, the RTC rationalized that the subject property constituted Domingos share in the conjugal
properties of his second marriage to Graciana San Jose and, therefore, properly pertained to Nicomedes as one
of his sons in said marriage. Being Domingos heirs from his first marriage, Dominador, et al., were not
entitled to the subject property.
The lower court also found that neither Emma nor Rosario acquired a better title to the subject property
as against Maria and Dulos Realty. No final deed of sale over the subject property was executed in favor of
Emma or Rosario, while the sales of portions of the same property in favor of Maria and of the rest to Dulos
Realty were fully consummated as evidenced by the absolute deeds of sale dated 10 August 1969 and 30 July
1980, respectively.
Dominador, et al., Emma and her spouse Ramon Reyes (Ramon), and Rosario separately appealed to the
Court of Appeals the foregoing Decision dated 25 November 1991 of the RTC of Pasay City.[33] Their
consolidated appeals were docketed as CA-G.R. CV No. 35688.
Dominador, et al., however, moved to withdraw their appeal in light of the amicable settlement they
entered into with Maria and Dulos Realty.[34] In a Resolution dated 24 September 1992,[35] the Court of Appeals
granted their Motion to Withdraw Appeal. Dominador, et al., later filed a motion to withdraw their earlier

Motion to Withdraw Appeal, but this was denied by the Court of Appeals in a Resolution dated 15 January
1993.[36]
In their respective Briefs before the appellate court,[37] Emma and Rosario both faulted the RTC of Pasay
City for awarding the subject property to Maria and Dulos Realty. They each claimed entitlement to the subject
property and asserted the superiority of their respective contracts as against those of the others.
On 17 June 1999, the Court of Appeals rendered its assailed Decision, ruling as follows:
As gathered above, both contracts [entered into with Emma and Rosario] gave
Nicomedes, as vendor, the right to unilaterally rescind the contract the moment the buyer failed
to pay within a fixed period (Pingol v. CA, 226 SCRA 118), after which he, as vendor, was
obliged to return without interest the sums of money he had received from the buyer (under the
Deed of Conditional Sale [to Emma], upon the sale of the property to another). Additionally,
under the Agreement of Purchase and Sale [with Rosario], the vendor, in case of rescission,
would become the owner and entitled to the possession of whatever improvements introduced
by the buyer.
Under the Deed of Conditional Sale [to Emma], there was no provision that possession
would be, in case of rescission, returned to the vendor, thereby implying that possession
remained with him (vendor). Such being the case, it appears to be a contract to sell. Whereas
under the Agreement of Purchase and Sale [with Rosario], the provision that in case of
rescission, any improvements introduced by the vendee would become the vendors implies that
possession was transferred to the vendee and, therefore, it appears to be a contract of sale.
That the Agreement of Purchase and Sale [with Rosario] was a contract of sale gains
light from the Joint Affidavit subsequently executed by Rosario and Nicomedes stating that an
Agreement of Purchase and Sale wherein the former (Nicomedes J. Lozada) sold to the
latter (Rosario D. Bondoc) a parcel of land had been executed but that the lot not having been
registered under Act No. 496 nor under the Spanish Mortgage Law, the parties hereto have
agreed to register the Agreement of Purchase and Sale ... under the provision of Section 194 of
the Revised Administrative Code, as amended by Act No. 3344.
Rosario registered the Agreement of Purchase and Sale alright on March 10, 1969. She
paid taxes on the lot from 1980 1985. She fenced the lot with concrete and hollow
blocks. And apart from opposing the land registration case, she filed a complaint
against Trinidad, et al., for declaration ownership.
Article 1371 of the Civil Code provides:
Art. 1371. In order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered.

From the provisions of the Agreement of Purchase and Sale [to Rosario] and the
subsequent acts of the parties then including the execution of the Joint Affidavit by Rosario and
Nicomedes stating that an Agreement of Purchase and Sale wherein the former
(Nicomedes...) sold to the latter (Rosario...) a parcel of land, had been executed, there is no
mistaking that the lot was sold to Rosario xxx.

Anent the effect of Rosarios registration of the Agreement of Purchase and Sale on
Emmas contract involving the same lot, Act No. 3344 (Amending Sec. 194 of the
Administrative Code [Recording of instruments or deeds relating to real estate not registered
under Act No. 496 or under the Spanish Mortgage Law]) provides that any registration made
under Sec. 194 of the Administrative Code shall be understood to be without prejudice to a
third party who has a better right.
Better right, however, was not defined by law.
But author Narciso Pea is inclined to concur that better right should refer to a right
which must have been acquired by a third party independently of the unregistered deed, such as,
for instance, title by prescription, and that it has no reference to rights acquired under that
unregistered deed itself, he citing Nisce v. Milo, G.R. No. 425016, January 17, 1936 Unrep. 62
Phil. 976 x x x.
Given the fact that the contract in Emmas favor is a mere contract to sell, as against
Rosarios contract which, as demonstrated above is one of sale and, in any event, independently
of Emmas contract to sell, she has no claim of a better right unlike Rosario who has, not to
mention the fact that she (Rosario) registered her contract earlier than Emmas, Rosario must
prevail.
The lot having been previously sold to Rosario, there was no lot or portion thereof to be
later sold to Maria and to Dulos Realty in 1979 and 1980, respectively.
WHEREFORE, the appealed Joint Decision is hereby REVERSED and SET ASIDE and
another is rendered confirming the title of Rosario D. Bondoc over subject lot, Lot 1, PSU205035 containing an area of 19,545 sq.m., ordering its registration in her name, and dismissing
the claims of ownership of all other claimants. Appellees Maria Cristobal and Dulos Realty and
Development Corporation and all other claimants to subject land including all persons claiming
under them are hereby ordered to vacate and restore possession to appellant Rosario D. Bondoc.
Upon issuance of title to subject lot, appellant Rosario D. Bondoc is ordered to pay the
balance of the purchase price to the heirs of Nicomedes Lozada in accordance with the
Agreement of Purchase and Sale executed by the latter in her favor. This judgment is without
prejudice to the rights which Emma Ver Reyes and Maria Cristobal and Dulos Realty and
Development Corporation might have against the estate or surviving heirs of Nicomedes Lozada
to the extent that the latter was/were benefited.[38] (Emphasis ours.)
Aggrieved, Emma and her husband Ramon,[39] as well as Maria and Dulos Realty,[40] without seeking
reconsideration of the appellate courts decision, filed directly before this Court separate Petitions for Review
on Certiorari under Rule 45 of the Rules of Court, docketed as G.R. No. 139047 and G.R. No. 139365,
respectively, assailing the17 June 1999 Decision of the appellate court. Upon the manifestation and motion of
Maria and Dulos Realty,[41] the two Petitions were ordered consolidated by this Court in a Resolution[42] dated
13 December 1999.
In their Petition, Emma and her husband Ramon raise the following issues:
I.

WHETHER OR NOT OWNERSHIP OF THE DISPUTED LOT WAS VALIDLY AND

LEGALLY TRANSFERRED TO EMMA VER REYES.
II.
WHETHER OR NOT MARIA CRISTOBAL DULOS AND DULOS REALTY AND
DEVELOPMENT CORPORATION ARE PURCHASERS IN BAD FAITH.
III.
WHETHER OR NOT EMMA VER REYES AND RAMON REYES ARE BARRED BY
PRESCRIPTION OR LACHES.
IV.
WHETHER OR NOT THE COURT OF APPEALS PATENTLY AND GRAVELY ERRED IN
CONFIRMING THE TITLE OF ROSARIO BONDOC OVER THE DISPUTED LOT,
ORDERING ITS REGISTRATION IN HER NAME AND DISMISSING THE CLAIM OF
EMMA VER REYES AND RAMON REYES.[43]

Maria and Dulos Realty, on the other hand, submitted in their Petition the following issues for
consideration of this Court:

I.
WHETHER OR NOT BONDOCS AGREEMENT OF PURCHASE AND SALE AND
SPOUSES REYES DEED OF CONDITIONAL SALE ARE REGISTRABLE ABSOLUTE
CONVEYANCES IN FEE SIMPLE TO SERVE AS BASIS FOR AN AWARD AND
REGISTRATION OF THE SUBJECT LOT IN THEIR FAVOR.
II.
WHETHER OR NOT RESPONDENTS BONDOC AND THE REYESES ARE BARRED BY
LACHES AND/OR PRESCRIPTION.
III.
WHETHER OR NOT RESPONDENT BONDOC IS BARRED BY RES JUDICATA.[44]

The fundamental issue that the Court is called upon to resolve is, in consideration of all the contracts
executed by Nicomedes and/or his heirs involving the subject property, which party acquired valid and
registrable title to the same.
Emma and Ramon contend that although the subject property was conditionally sold to them by
Nicomedes, the conditionality of the sale did not suspend the transfer of ownership over the subject property
from Nicomedes to Emma. Even though Nicomedes may automatically rescind the contract in case of nonpayment by Emma of the balance of the purchase price, it did not bar the transfer of title to the subject property

to Emma in the meantime. Emma and Reyes likewise claim that there was constructive delivery of the subject
property to Emma, inasmuch as the Deed of Conditional Sale in her favor was a public
instrument. Furthermore, Emma was in possession of the subject property in the concept of owner since she
had been paying realty taxes for the same, albeit in the name of Nicomedes (in whose name it was declared),
from the time of the sale in 1965 until 1972. Emma and Ramon also assert that Maria and Dulos Realty were in
bad faith as the sales of the subject property in their favor, on 10 August 1969 and 30 July 1980, respectively,
occurred only after the filing of the cases involving the property[45] and the registration of the sale to
Emma. Finally, Emma and Ramon maintain that the Court of Appeals erred in ruling that the contract in favor
of Rosario was a contract of sale for the sole reason that actual possession of the property was already
transferred to the latter.
For their part, Maria and Dulos Realty point out that Emma and Rosario are not holders of absolute deeds
of conveyances over the subject property, which would have entitled them to register the same in their
respective names. They further buttress their alleged superior right to the subject property based on the
execution of two notarized documents of sale in their favor, which constituted symbolic and constructive
delivery of the subject property to them. Maria and Dulos Realty likewise assert that the claims of Emma and
Rosario are already barred by laches and prescription because they only decided to enforce their respective
rights over the subject property after Domingos heirs filed with the CFI of Rizal on 27 June 1980 an
application for registration of the subject property, docketed as LRC Case No. LP-553-P, notwithstanding their
knowledge of Nicomedess death on 29 June 1972. Lastly, Maria and Dulos Realty aver that Rosario is already
barred by res judicata since her motion to intervene in LRC Case No. 6577, the case instituted by Nicomedes to
register the subject property, was denied by the CFI of Pasig. The dismissal of Rosarios motion to intervene in
the case for registration of the subject property already became final and executory, thus, barring Rosario from
pursuing her claim over the same.

This Courts Ruling

After a conscientious review of the arguments and evidence presented by the parties, the Court finds that
the Deed of Conditional Sale between Nicomedes and Emma and the Agreement of Purchase and Sale between
Nicomedes and Rosario were both mere contracts to sell and did not transfer ownership or title to either of the
buyers in light of their failure to fully pay for the purchase price of the subject property.
In Coronel v. Court of Appeals,[46] this Court effectively provided the guidelines for differentiating
between a contract to sell and a contract of sale, to wit:
The Civil Code defines a 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;
b) Determinate subject matter; and
c) Price certain in money or its equivalent.

Under this definition, a Contract to Sell may not be considered as a Contract of Sale
because the first essential element is lacking. In a 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 nonfulfillment 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 tosell 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 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 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. (Emphases ours.)

Also in Coronel v. Court of Appeals, the Court highlighted the importance of making the distinction
between a contract to sell and a contract of sale:
It is essential to distinguish between a contract to sell and a conditional contract of sale
specially in cases where the subject property is sold by the owner not to the party the seller
contracted with, but to a third person, as in the case at bench. In a 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.[47]
Even in the absence of an express stipulation to such effect, the intention of the parties to execute a
contract to sell may be implied from the provisions of the contract. While Article 1478[48] of the Civil Code
recognizes the right of the parties to agree that the ownership of the thing shall not pass to the purchaser until he
has fully paid the price therefore, the same statutory provision does not require that such be expressly stipulated
in the contract.
In Adelfa Properties, Inc. v. Court of Appeals,[49] the Court ruled that since the contract between the
parties therein did not contain a stipulation on reversion or reconveyance of the property to the seller in the
event that the buyer did not comply with its obligation, it may legally be inferred that the parties never intended
to transfer ownership to the buyer prior to the completion of the payment of the purchase price. Consequently,
the contract involved in the aforementioned case was a mere contract to sell.
An agreement is also considered a contract to sell if there is a stipulation therein giving the vendor the
rights to unilaterally rescind the contract the moment the vendee fails to pay within a fixed period and to
consequently open the subject property anew to purchase offers.[50] In the same vein, where the seller promises
to execute a deed of absolute sale upon the completion by the buyer of the payment of the price, the contract is
only a contract to sell.[51]
Viewed in light of the foregoing pronouncements, the Deed of Conditional Sale executed by Nicomedes
in favor of Emma on 23 June 1965 is unmistakably a mere contract to sell. The Court looks beyond the title of
said document, since the denomination or title given by the parties in their contract is not conclusive of the
nature of its contents.[52] In the construction or interpretation of an instrument, the intention of the parties is
primordial and is to be pursued.[53] If the terms of the contract are clear and leave no doubt upon the intention

of the contracting parties, the literal meaning of its stipulations shall control. If the words appear to be contrary
to the evident intention of the parties, the latter shall prevail over the former.[54]
A simple reading of the terms of the 23 June 1965 Deed of Conditional Sale readily discloses that it
contains stipulations characteristic of a contract to sell. It provides for the automatic cancellation of the
contract should Emma fail to pay the purchase price as required therein; and, in such an event, it grants
Nicomedes the exclusive right to thereafter sell the subject property to a third person. As in Adelfa Properties,
the contract between Nicomedes and Emma does not provide for reversion or reconveyance of the subject
property to Nicomedes in the event of nonpayment by Emma of the purchase price. More importantly, the Deed
in question clearly states that Nicomedes will issue a final deed of absolute sale only upon the full payment of
the purchase price for the subject property. Taken together, the terms of the Deeds reveal the evident intention
of the parties to reserve ownership over the subject property to Nicomedes pending payment by Emma of the
full purchase price for the same.
While the Deed of Conditional Sale dated 23 June 1965 was indeed contained in a public instrument, it
did not constitute constructive deliveryof the subject property to Emma in view of the contrary inference in the
Deed itself that the ownership over the subject property was reserved by Nicomedes. [55] Moreover, other than
her claim that she paid the realty taxes on the subject property, Emma did not present any evidence that she took
actual and physical possession of the subject property at any given time.
This Court also finds that, contrary to the ruling of the Court of Appeals, the Agreement of Purchase and
Sale executed by Nicomedes in favor of Rosario on 14 June 1968 is likewise a mere contract to sell.
The Agreement itself categorically states that Nicomedes only undertakes to sell the subject property to
Rosario upon the payment of the stipulated purchase price and that an absolute deed of sale is yet to be executed
between the parties. Thus:
NOW, THEREFORE, for and in consideration of the foregoing premises and of the sum
of ONE HUNDRED SEVENTY FIVE THOUSAND NINE HUNDRED FIVE PESOS
(P175,905.00) Philippine Currency, which the BUYER shall pay to the SELLER in the manner
and form hereinafter specified, the SELLER by these presents hereby agreed and
contracted to sell all his rights, interests, title and ownership over the parcel of land xxx
unto the BUYER, who hereby agrees and binds herself to purchase from the former, the
aforesaid parcel of land, subject to the following terms and conditions:
1.
Upon the execution of this Agreement, the BUYER shall pay the SELLER, the
sum of FIFTEEN THOUSAND PESOS (P15,000.00), Philippine Currency.
2.
That upon the delivery by the SELLER to the BUYER of a valid title of the
aforesaid parcel of land, free from any and all liens and encumbrances, and the execution of the
final Deed of Sale, the BUYER shall pay to the SELLER, the sum of THIRTY SEVEN
THOUSAND SEVEN HUNDRED FIVE PESOS (P37,705.00) Philippine Currency, and the
final balance of ONE HUNDRED TWENTY THREE THOUSAND AND TWO HUNDRED
PESOS (P123,200.00) Philippine Currency, one year from the date of the execution of the final
deed of sale, all without interest.[56] (Emphases ours.)

The Agreement additionally grants Nicomedes the right to automatically cancel the same in the event of
nonpayment by Rosario of any of the specified sums therein and any improvement introduced in the subject
property shall thereby accrue to Nicomedes, viz:

3. That in the event the BUYER fails to pay any amount as specified in Section 2,
Paragraph II, then this contract, shall, by the mere fact of non-payment expire itself and
shall be considered automatically cancelled, of no value and effect, and immediately
thereafter the SELLER shall return to the buyer the sums of money he had received from the
BUYER without any interests and whatever improvement or improvements made or
introduced by the BUYER on the lot being sold shall accrue to the ownership and
possession of the SELLER.[57]

As can be clearly read above, only the rights to possess the property and construct improvements thereon
have been evidently given to Rosario. The provisions of the Agreement do not in any way indicate that the
ownership of the subject property has likewise been transferred to Rosario. That Nicomedes shall appropriate
the improvements as his own should Rosario default in her payment of the purchase price only further supports
the conclusion that title to the subject property itself still remained with Nicomedes.
The Court concludes that the Deed of Conditional Sale in favor of Emma and the Agreement of
Purchase and Sale in favor of Rosario were mere contracts to sell. As both contracts remained unperfected
by reason of the non-compliance with conditions thereof by all of the parties thereto, Nicomedes can still
validly convey the subject property to another buyer. This fact, however, is without prejudice to the rights of
Emma and Rosario to seek relief by way of damages against the estate and heirs of Nicomedes to the extent that
the latter were benefited by the sale to succeeding buyers.[58]
Thus, the Deeds of Absolute Sale in favor of Maria and Dulos Realty were the only conveyances of the
subject property in this case that can be the source of a valid and registrable title. Both contracts were
designated as absolute sales and the provisions thereof leave no doubt that the same were true contracts of
sale. The total considerations for the respective portions of the subject property were fully paid by the buyers
and no conditions whatsoever were stipulated upon by the parties as regards the transmission of the ownership
of the said property to the said buyers.
The fact that Rosario was the first among the parties to register her contract in the Registry of Property
for Unregistered Lands on 10 March 1969 is of no moment.
Act No. 3344,[59] which amended Section 194 of the Administrative Code, enunciates that any registration
made under Section 194 of the Administrative Code shall be understood to be without prejudice to a third
party who has a better right.
In this case, Maria and Dulos Realty acquired their title to the property in separate deeds of absolute sale
executed in their favor by Nicomedes and his heirs. Upon the execution of these deeds, the ownership of the
subject property was vested unto the said buyers instantly, unlike the contracts to sell executed in favor of
Emma and Rosario. Consequently, the rights to the subject property of Maria and Dulos Realty, acquired
through the contracts of sale in their favor, are undeniably better or superior to those of Emma or Rosario, and
can thus be confirmed by registration.
In sum, this Court recognizes the valid and registrable rights of Maria and Dulos Realtyto the subject
property, but without prejudice to the rights of Emma and Rosario to seek damages against the estate and heirs
of Nicomedes.
WHEREFORE, premises considered, the Petition in G.R. No. 139047 is DENIED, while the Petition in
G.R. No. 139365 is GRANTED. The assailed Decision of the Court of Appeals in CA-G.R. CV No. 35688

dated 17
June
1999 is SET
ASIDE and
the
Decision
dated 25
the Regional Trial Court of Pasay City, Branch 119, is REINSTATED. No costs.

November

1991 of

SO ORDERED.

ESTATE OF LINO OLAGUER vs. EMILIANO M. ONGJOCO

G.R. No. 173312 August 26, 2008
Assailed in this Petition for Review on Certiorari[1] is the Decision[2] of the Court of Appeals dated 27
February 2006 in CA-G.R. CV No. 71710. Said decision modified the Decision[3] and the subsequent
Order[4] of the Regional Trial Court (RTC) of Legazpi City, Branch 6, in Civil Case No. 6223, and upheld the
validity of the sales of properties to respondent Emiliano M. Ongjoco.
The relevant factual antecedents of the case, as found by the trial court and adapted by the Court of
Appeals, are as follows:
The plaintiffs Sor Mary Edith Olaguer, Aurora O. de Guzman, Clarissa O. Trinidad,
Lina Olaguer and Ma. Linda O. Montayre are the legitimate children of the spouses Lino
Olaguer and defendant Olivia P. Olaguer.
Lino Olaguer died on October 3, 1957 so Special Proceedings No. 528 for probate of
will was filed in the then Court of First Instance of Albay. Defendant Olivia P. Olaguer was
appointed as administrator pursuant to the will. Later, defendant Eduardo Olaguer was
appointed as co-administrator. x x x
On October 15, 1959 defendant Olivia P. Olaguer got married to defendant Jose A.
Olaguer before the then Justice of the Peace of Sto. Domingo (Libog) Albay. (Exhibit
NNNN) On January 24, 1965 they were married in church. (Exhibit XX)
In the order of the probate court dated April 4, 1961, some properties of the estate were
authorized to be sold to pay obligations of the estate. Pursuant to this authority, administrators

Olivia P. Olaguer and Eduardo Olaguer on December 12, 1962 sold to Pastor Bacani for
[P]25,000 Pesos, twelve (12) parcels of land, particularly, Lots 4518, 4526, 4359, 8750, 7514,
6608, 8582, 8157, 7999, 6167, 8266, and 76 with a total area of 99 hectares. (Exhibit A
Deed of Sale notarized by defendant Jose A. Olaguer)
This sale of twelve (12) parcels of land to Pastor Bacani was approved by the Probate
Court on December 12, 1962. (Exhibit 15)
The following day, December 13, 1962, Pastor Bacani sold back to Eduardo
Olaguer and Olivia Olaguer for [P]12,000.00 Pesos, one of the twelve (12) lots he bought
the day before, particularly, Lot No. 76 in the proportion of 7/13 and 6/13 pro-indiviso
respectively. (Exhibit B Deed of Sale notarized by Felipe A. Cevallos, Sr.)
Simultaneously, on the same day December 13, 1962, Pastor Bacani sold back to Olivia
Olaguer and Eduardo Olaguer the other eleven (11) parcels he bought from them as follows:
To Olivia Olaguer Four (4) parcels for 10,700 Pesos, particularly Lots
4518, 4526, 4359, 8750 with a total area of 84 hectares. (Exhibit E Deed of
Sale notarized by Felipe A. Cevallos, Sr.)
To Eduardo Olaguer Seven (7) parcels of land for 2,500 Pesos,
particularly Lots 7514, 6608, 8582, 8157, 7999, 6167, and 8266 with a total area
of 15 hectares. (Exhibit C Deed of Sale notarized by defendant Jose A.
Olaguer)
Relying upon the same order of April 4, 1961 but without prior notice or permission
from the Probate Court, defendants Olivia P. Olaguer and Eduardo Olaguer on November 1,
1965 sold to Estanislao Olaguer for 7,000 Pesos, ten (10) parcels of land, particularly, (a) TCT
No. T-4011 Lot No. 578, (b) TCT No. T-1417 Lot No. 1557, (c) TCT No. T-4031 Lot No.
1676, (d) TCT No. T-4034 Lot No. 4521, (e) TCT No. T-4035 Lot No. 4522, (f) TCT No.
4013 Lot No. 8635, (g) TCT No. T-4014 Lot 8638, (h) TCT No. T-4603 Lot No. 7589, (i)
TCT No. 4604 LotNo. 7593, and (j) TCT No. T-4605 Lot No. 7396. (Exhibit D Deed of
Sale notarized by Rodrigo R. Reantaso)
This sale to Estanislao Olaguer was approved by the Probate Court on November 12,
1965.
After the foregoing sale to Estanislao Olaguer, the following transactions took place:
1) On July 7, 1966, defendant Olivia P. Olaguer executed a Special Power of
Attorney notarized by Rodrigo R. Reantaso (Exhibit T) in favor of defendant Jose A.
Olaguer, authorizing the latter to sell, mortgage, assign, transfer, endorse and deliver
the properties covered by TCT No. 14654 for Lot 76 6/13 share only, T-13983, T-14658, T14655, T-14656, and T-14657.
2) On July 7, 1966, Estanislao Olaguer executed a Special Power of Attorney in favor of
Jose A. Olaguer (Exhibit X) notarized by Rodrigo R. Reantaso authorizing the latter to sell,
mortgage, assign, transfer, endorse and deliver the properties covered by TCT No. T-20221, T20222, T-20225 for Lot No. 8635, T-20226 for Lot No. 8638, T-20227, T-20228, and T-20229.
By virtue of this Special Power of Attorney, on March 1, 1967, Jose A. Olaguer as
Attorney-in-Fact of Estanislao Olaguer mortgaged Lots 7589, 7593 and 7396 to defendant

Philippine National Bank (PNB) as security for a loan of 10,000 Pesos. The mortgage was
foreclosed by the PNB on June 13, 1973 and the properties mortgage were sold at public auction
to PNB. On December 10, 1990, the PNB transferred the properties to the Republic of
the Philippines pursuant to Exec. Order No. 407 dated June 14, 1990 for agrarian reform
purposes. (records, vol. 1, page 66)
3) On October 29, 1966, Estanislao Olaguer executed a General Power of Attorney
notarized by Rodrigo R. Reantaso (Exhibit Y) in favor of Jose A. Olaguer, authorizing the
latter to exercise general control and supervision over all of his business and properties, and
among others, to sell or mortgage any of his properties.
4) On December 29, 1966, Estanislao Olaguer sold to Jose A. Olaguer for 15,000 Pesos,
(Exhibit UU) the ten (10) parcels of land (Lots 578, 4521, 4522, 1557, 1676, 8635, 8638,
7589, 7593 and 7396) he bought from Olivia P. Olaguer and Eduardo Olaguer under Exhibit
D.
5) On March 16, 1968, Estanislao Olaguer sold to Jose A. Olaguer for 1 Peso and other
valuable consideration Lot No. 4521 TCT No. T-20223 and Lot 4522 TCT No. 20224 with a
total area of 2.5 hectares. (records, vol. 1, page 33)
6) On June 5, 1968, Estanislao Olaguer sold Lot No. 8635 under TCT No. T-20225,
and Lot No. 8638 under TCT No. 20226 to Jose A. Olaguer for 1 Peso and other valuable
consideration. (Exhibit F) Deed of Sale was notarized by Rodrigo R. Reantaso.
7) On May 13, 1971, Jose A. Olaguer in his capacity as Attorney in-Fact of Estanislao
Olaguer sold to his son Virgilio Olaguer for 1 Peso and other valuable consideration Lot No.
1557 TCT No. 20221 and Lot No. 1676 TCT No. 20222. The deed of sale was notarized by
Otilio Sy Bongon.
8) On July 15, 1974, Jose A. Olaguer sold to his son Virgilio Olaguer Lot No. 4521 and
Lot No. 4522 for 1,000 Pesos. Deed of Sale was notarized by Otilio Sy Bongon. (records, vol.
1, page 34)
9) On September 16, 1978 Virgilio Olaguer executed a General Power of Attorney in
favor of Jose A. Olaguer notarized by Otilio Sy Bongon (Exhibit V) authorizing the latter to
exercise general control and supervision over all of his business and properties and among
others, to sell or mortgage the same.
Olivia P. Olaguer and Eduardo Olaguer were removed as administrators of the estate and
on February 12, 1980, plaintiff Ma. Linda Olaguer Montayre was appointed administrator by the
Probate Court.
Defendant Jose A. Olaguer died on January 24, 1985. (Exhibit NN) He was survived
by his children, namely the defendants Nimfa Olaguer Taguay, Corazon Olaguer Uy, Jose
Olaguer, Jr., Virgilio Olaguer, Jacinto Olaguer, and Ramon Olaguer.
Defendant Olivia P. Olaguer died on August 21, 1997 (Exhibit OO) and was survived
by all the plaintiffs as the only heirs.
The decedent Lino Olaguer have had three marriages. He was first married to Margarita
Ofemaria who died April 6, 1925. His second wife was Gloria Buenaventura who died on July
2, 1937. The third wife was the defendant Olivia P. Olaguer.

Lot No. 76 with an area of 2,363 square meters is in the heart of the Poblacion of
Guinobatan, Albay. The deceased Lino Olaguer inherited this property from his
parents. On it was erected their ancestral home.
As already said above, Lot No. 76 was among the twelve (12) lots sold for 25,000
Pesos, by administrators Olivia P. Olaguer and Eduardo Olaguer to Pastor Bacani on
December 12, 1962. The sale was approved by the probate court on December 12, 1962.
But, the following day, December 13, 1962 Pastor Bacani sold back the same 12 lots to
Olivia P. Olaguer and Eduardo Olaguer for 25,200 Pesos, as follows:
a) Lot No. 76 was sold back to Olivia P. Olaguer and Eduardo
Olaguer for 12,000 Pesos, in the proportion of [6/13] and [7/13]
respectively. (Exhibit B)
b) 4 of the 12 lots namely, Lots 4518, 4526, 4359, and 8750 were sold
back to Olivia Olaguer for 10,700 Pesos. (Exhibit E)
c) 7 of the 12 lots namely, Lots 7514, 6608, 8582, 8157, 7999, 6167, and
8266 were sold back to Eduardo Olaguer for 2,500 Pesos. (Exhibit C)
d) Lot No. 76 was thus issued TCT No. T-14654 on December 13,
1962 in the names of Eduardo B. Olaguer married to Daisy Pantig and Olivia
P. Olaguer married to Jose A. Olaguer to the extent of 7/13 and 6/13 proindiviso, respectively. (Exhibit FF also 14-a)
e) It appears from Plan (LRC) Psd-180629 (Exhibit 3) that
defendant Jose A. Olaguer caused the subdivision survey of Lot 76 into
eleven (11) lots, namely, 76-A, 76-B, 76-C, 76-D, 76-E, 76-F, 76-G, 76-H, 76-I,
76-J, and 76-K, sometime on April 3, 1972. The subdivision survey was
approved on October 5, 1973. After the approval of the subdivision survey of
Lot 76, a subdivision agreement was entered into on November 17, 1973,
among Domingo Candelaria, Olivia P. Olaguer, Domingo O. de la Torre and
Emiliano M. [Ongjoco]. (records, vol. 2, page 109).
This subdivision agreement is annotated in TCT No. 14654 (Exhibit 14 14-d)
as follows:
Owner

Lot No.

Domingo Candelaria
Olivia P. Olaguer
- do - do - do - do - do Domingo O. de la Torre
- do - do -

76-A
76-B
76-C
76-D
76-E
76-F
76-G
76-H
76-I
76-J

Area in
sq. m.
300
200
171
171
171
171
202
168
168
168

TCT No.

Vol.

Page

T-36277
T-36278
T-36279
T-36280
T-36281
T-36282
T-36283
T-36284
T-36285
T-36286

206

97
98
99
100
101
102
103
104
105
106

Emiliano M. [Ongjoco]

76-K

473

T-36287

107

After Lot 76 was subdivided as aforesaid, Jose A. Olaguer as attorney-in-fact of

Olivia P. Olaguer, sold to his son Virgilio Olaguer Lots 76-B, 76-C, 76-D, 76-E, 76-F, and
76-G on January 9, 1974 for 3,000 Pesos. (Exhibit G) The deed of absolute sale was
notarized by Otilio Sy Bongon.
Lots 76-B and 76-C were consolidated and then subdivided anew and designated
as Lot No. 1 with an area of 186 square meters and Lot No. 2 with an area of 185 square
meters of the Consolidation Subdivision Plan (LRC) Pcs-20015. (Please sketch plan marked
as Exhibit 4, records, vol. 2, page 68)
On January 15, 1976, Jose A. Olaguer claiming to be the attorney-in-fact of his son
Virgilio Olaguer under a general power of attorney Doc. No. 141, Page No. 100, Book No.
7, Series of 1972 of Notary Public Otilio Sy Bongon, sold Lot No. 1 to defendant Emiliano
M. [Ongjoco] for 10,000 Pesos per the deed of absolute sale notarized by Otilio Sy
Bongon. (Exhibit H) The alleged general power of attorney however was not presented
or marked nor formally offered in evidence.
On September 7, 1976, Jose A. Olaguer again claiming to be the attorney-in-fact of
Virgilio Olaguer under the same general power of attorney referred to in the deed of
absolute sale of Lot 1, sold Lot No. 2 to Emiliano M. [Ongjoco] for 10,000 Pesos. (Exhibit
I) The deed of absolute sale was notarized by Otilio Sy Bongon.
On July 16, 1979, Jose A. Olaguer as attorney-in-fact of Virgilio Olaguer under a
general power of attorney Doc. No. 378, Page No. 76, Book No. 14, Series of 1978 sold Lot
No. 76-D to Emiliano M. [Ongjoco] for 5,000 Pesos. The deed of absolute sale is Doc. No.
571, Page No. 20, Book No. 16, Series of 1979 of Notary Public Otilio Sy Bongon. (Exhibit
K)
The same Lot No. 76-D was sold on October 22, 1979 by Jose A. Olaguer as
attorney-in-fact of Virgilio Olaguer under a general power of attorney Doc. No. 378, Page
No. 76, Book No. 14, Series of 1978 of Notary Public Otilio Sy Bongon sold Lot No. 76-D to
Emiliano M. [Ongjoco] for 10,000 Pesos. The deed of absolute sale is Doc. No. 478, Page
No. 97, Book NO. XXII, Series of 1979 of Notary Public Antonio A. Arcangel. (Exhibit J)
On July 3, 1979, Jose A. Olaguer as attorney-in-fact of Virgilio Olaguer sold Lots
76-E and 76-F to Emiliano M. [Ongjoco] for 15,000 Pesos. The deed of absolute sale is
Doc. No. 526, Page No. 11, Book No. 16, Series of 1979 of Notary Public Otilio Sy
Bongon. (Exhibit M)
The same Lots 76-E and 76-F were sold on October 25, 1979, by Jose A. Olaguer as
attorney-in-fact of Virgilio Olaguer under the same general power of attorney of 1978
referred to above to Emiliano M. [Ongjoco] for 30,000 Pesos. The deed of absolute sale is
Doc. No. 47, Page No. 11, Book No. XXIII, Series of 1972 of Notary Public Antonio A.
Arcangel. (Exhibit L)
On July 2, 1979 Jose A. Olaguer as attorney-in-fact of Virgilio Olaguer sold Lot No.
76-G to Emiliano M. [Ongjoco] for 10,000 Pesos. The deed of sale is Doc. No. 516, Page
No. 9, Book No. 16, Series of 1979 of Notary Public Otilio Sy Bongon. (Exhibit N)

The same Lot 76-G was sold on February 29, 1980 by Jose A. Olaguer as attorneyin-fact of Virgilio Olaguer under the same general power of attorney of 1978 referred to
above to Emiliano M. [Ongjoco] for 10,000 Pesos. The deed of absolute sale is Doc. No.
l02, Page No. 30, Book No. 17, Series of 1980 of Notary Public Otilio Sy Bongon. (Exhibit
O)[5](Emphases ours.)

Thus, on 28 January 1980, the Estate of Lino Olaguer represented by the legitimate children of the
spouses Lino Olaguer and defendant Olivia P. Olaguer, namely, Sor Mary Edith Olaguer, Aurora O. de
Guzman, Clarissa O. Trinidad, Lina Olaguer and Ma. Linda O. Montayre, as attorney-in-fact and in her own
behalf, filed an action for the Annulment of Sales of Real Property and/or Cancellation of Titles [6] in the then
Court of First Instance of Albay.[7]
Docketed as Civil Case No. 6223, the action named as defendants the spouses Olivia P. Olaguer and
Jose A. Olaguer; Eduardo Olaguer; Virgilio Olaguer; Cipriano Duran; the Heirs of Estanislao O. Olaguer,
represented by Maria Juan Vda.de Olaguer; and the Philippine National Bank (PNB).
In the original complaint, the plaintiffs therein alleged that the sales of the following properties
belonging to the Estate of Lino Olaguer to Estanislao Olaguer were absolutely simulated or fictitious,
particularly: Lots Nos. 578, 1557, 1676, 4521, 4522, 8635, 8638, 7589, 7593, and 7396. In praying that the sale
be declared as null and void, the plaintiffs likewise prayed that the resulting Transfer Certificates of Title issued
to Jose Olaguer, Virgilio Olaguer, Cipriano Duran and the PNB be annulled.
Defendant PNB claimed in its Answer,[8] inter alia, that it was a mortgagee in good faith and for value
of Lots Nos. 7589, 7593 and 7396, which were mortgaged as security for a loan of P10,000.00; the mortgage
contract and other loan documents were signed by the spouses Estanislao and Maria Olaguer as registered
owners; the proceeds of the loan were received by the mortgagors themselves; Linda Olaguer Montayre had no
legal capacity to sue as attorney-in-fact; plaintiffs as well as Maria Olaguer were in estoppel; and the action was
already barred by prescription. PNB set up a compulsory counterclaim for damages, costs of litigation and
attorneys fees. It also filed a cross-claim against Maria Olaguer for the payment of the value of the loan plus
the agreed interests in the event that judgment would be rendered against it.
Defendants Olivia P. Olaguer, Jose A. Olaguer and Virgilio Olaguer, in their Answer,[9] denied the
material allegations in the complaint. They maintained that the sales of the properties to Pastor Bacani and
Estanislao Olaguer were judicially approved; the complaint did not state a sufficient cause of action; it was
barred by laches and/or prescription; lis pendens existed; that the long possession of the vendees have ripened
into acquisitive prescription in their favor, and the properties no longer formed part of the Estate of Lino
Olaguer; until the liquidation of the conjugal properties of Lino Olaguer and his former wives, the plaintiffs
were not the proper parties in interest to sue in the action; and in order to afford complete relief, the other
conjugal properties of Lino Olaguer with his former wives, and his capital property that had been conveyed
without the approval of the testate court should also be included for recovery in the instant case.
Defendant Maria Juan Vda. de Olaguer, representing the heirs of Estanislao Olaguer, in her
Answer,[10] likewise denied the material allegations of the complaint and insisted that the plaintiffs had no valid
cause of action against the heirs of the late Estanislao Olaguer, as the latter did not participate in the alleged
transfer of properties by Olivia P. Olaguer and Eduardo Olaguer in favor of the late Estanislao Olaguer.
Defendant Cipriano Duran claimed, in his Answer,[11] that the complaint stated no cause of action; he
was merely instituted by his late sister-in-law Josefina Duran to take over the management of Lots Nos. 8635
and 8638 in 1971; and the real party-in-interest in the case was the administrator of the estate of Josefina Duran.

On 11 January 1995, an Amended Complaint[12] was filed in order to implead respondent Emiliano M.
Ongjoco as the transferee of Virgilio Olaguer with respect to portions of Lot No. 76, namely Lots Nos. 1, 2, 76D, 76-E, 76-F, and 76-G.
In his Answer with Counterclaim and Motion to Dismiss,[13] respondent Ongjoco denied the material
allegations of the amended complaint and interposed, as affirmative defenses the statute of limitations, that he
was a buyer in good faith, that plaintiffs had no cause of action against him, and that the sale of property to
Pastor Bacani, from whom Ongjoco derived his title, was judicially approved.
On 23 January 1996, plaintiffs filed a Re-Amended Complaint,[14] in which the heirs of Estanislao
Olaguer were identified, namely, Maria Juan Vda. de Olaguer, Peter Olaguer, Yolanda Olaguer and Antonio
Bong Olaguer.
In their Answer,[15] the heirs of Estanislao Olaguer reiterated their claim that Estanislao Olaguer never
had any transactions or dealings with the Estate of Lino Olaguer; nor did they mortgage any property to the
PNB.
On 5 August 1998, the heirs of Estanislao Olaguer and petitioner Ma. Linda Olaguer Montayre
submitted a compromise agreement,[16] which was approved by the trial court.
On 6 October 1999, Cipriano Duran filed a Manifestation[17] in which he waived any claim on Lots Nos.
8635 and 8638. Upon motion, Duran was ordered dropped from the complaint by the trial court in an
order[18] dated 20 October 1999.
In a Decision[19] dated 13 July 2001, the RTC ruled in favor of the plaintiffs. The pertinent portions of
the decision provide:
The entirety of the evidence adduced clearly show that the sale of the 12 lots to Pastor
Bacani pursuant to Exhibit A and the sale of the 10 lots to Estanislao Olaguer pursuant to
Exhibit D were absolutely simulated sales and thus void ab initio. The two deeds of sales
Exhibits A and D are even worse than fictitious, they are completely null and void for lack
of consideration and the parties therein never intended to be bound by the terms thereof and the
action or defense for the declaration of their inexistence does not prescribe. (Art. 1410, Civil
Code) Aside from being simulated they were clearly and unequivocally intended to deprive the
compulsory heirs of their legitime x x x.
The deeds of sale, Exhibits A and D being void ab initio, they are deemed as nonexistent and the approval thereof by the probate court becomes immaterial and of no
consequence, because the approval by the probate court did not change the character of the sale
from void to valid x x x.
xxxx
Defendant Jose A. Olaguer simulated the sales and had them approved by the probate
court so that these properties would appear then to cease being a part of the estate and the
vendee may then be at liberty to dispose of the same in any manner he may want. They
probably believed that by making it appear that the properties were bought back from Pastor
Bacani under a simulated sale, they (Olivia Olaguer and Eduardo Olaguer) would appear then as
the owners of the properties already in their personal capacities that disposals thereof will no
longer require court intervention. x x x.

xxxx
[Jose A. Olaguer] had Olivia P. Olaguer execute a Special Power of Attorney
(Exhibit T) authorizing him (Jose A. Olaguer) to sell or encumber the properties
allegedly bought back from Pastor Bacani which Jose A. Olaguer did with respect to the
6/13 share of Olivia P. Olaguer on Lot No. 76 by selling it to his son Virgilio for only 3,000
Pesos, then caused Virgilio to execute a power of attorney authorizing him to sell or
encumber the 6/13 share which he did by selling the same to defendant Emiliano M.
[Ongjoco].
Virgilio Olaguer however executed an affidavit (Exhibit CC) wherein he denied
having bought any property from the estate of Lino Olaguer and that if there are documents
showing that fact he does not know how it came about. x x x.
The 1972 power of attorney referred to by Jose A. Olaguer as his authority for the
sale of Lots 1 and 2 (formerly lots 76-B and 76-C) was not presented nor offered in
evidence.
There are two deeds of sale over Lot 76-D, (Exhibits K and J) in favor of
defendant Emiliano M. [Ongjoco] with different dates of execution, different amount of
consideration, different Notary Public.
There are two deeds of sale over Lots 76-E and 76-F (Exhibits M and L) in
favor of defendant Emiliano M. [Ongjoco] with different dates of execution, different
amount of consideration and different Notary Public.
There are two deeds of sale over Lot 76-G (Exhibits N and O) in favor of
Emiliano M. [Ongjoco] with different dates of execution with the same amount of
consideration and the same Notary Public.
While Lot 76-D was allegedly sold already to Emiliano M. [Ongjoco] in 1979, yet it
was still Jose A. Olaguer who filed a petition for the issuance of a second owners copy as
attorney in fact of Virgilio Olaguer on August 8, 1980 (Exhibit SS) and no mention was
made about the sale.
Under these circumstances, the documents of defendant Emiliano M. [Ongjoco] on
lots 76 therefore, in so far as the portions he allegedly bought from Jose A. Olaguer as
attorney in fact of Virgilio Olaguer suffers seriously from infirmities and appear dubious.
Defendant Emiliano M. [Ongjoco] cannot claim good faith because according to
him, when these lots 76-[B] to 76-G were offered to him his condition was to transfer the
title in his name and then he pays. He did not bother to verify the title of his vendor. x x x.
So with respect to the sale of Lots 76-B to 76-G, Emiliano M. [Ongjoco] has no
protection as innocent purchaser for good faith affords protection only to purchasers for
value from the registered owners. x x x. Knowing that he was dealing only with an agent x
x x, it behooves upon defendant Emiliano M. [Ongjoco] to find out the extent of the
authority of Jose A. Olaguer as well as the title of the owner of the property, because as
early as 1973 pursuant to the subdivision agreement, (records, vol. 2, page 109 and Exhibit
14 and 14-d) he already knew fully well that Lots 76-B to 76-G he was buying was
owned by Olivia P. Olaguer and not by Virgilio Olaguer.

xxxx
With respect to the 10 lots sold to [Eduardo] Olaguer (Exhibit D) Jose A. Olaguer had
Estanislao Olaguer execute a power of attorney (Exhibit X) authorizing him (Jose A. Olaguer)
to sell or encumber the 10 lots allegedly bought by Estanislao from the estate. With this power
of attorney, he mortgaged lots 7589, 7593 and 7398 to the PNB. He sold lots 1557 and 1676 to
his son Virgilio Olaguer. While under Exhibit UU dated December 29, 1966, he bought the
10 parcels of land, among which is lots 4521 and 4522 from Estanislao Olaguer, yet, on March
16, 1968, he again bought lots 4521 and 4522 (records, vol. 1, page 38) from Estanislao
Olaguer. While lots 8635 and 8638 were among those sold to him under Exhibit UU, it
appears that he again bought the same on June 5, 1968 under Exhibit F.
The heirs of Estanislao Olaguer however denied having bought any parcel of land from
the estate of Lino Olaguer. Estanislao Olaguers widow, Maria Juan vda. de Olaguer, executed
an affidavit (Exhibit BB) that they did not buy any property from the estate of Lino Olaguer,
they did not sell any property of the estate and that they did not mortgage any property with the
PNB. She repeated this in her deposition. (records, vol. 2, page 51) This was corroborated by
no less than former co-administrator Eduardo Olaguer in his deposition too (Exhibit RRRR)
that the sale of the 10 parcels of land to Estanislao Olaguer was but a simulated sale without any
consideration. x x x.
xxxx
A partial decision was already rendered by this court in its order of August 5,
1998 (records, vol. 2, page 64) approving the compromise agreement with defendants Heirs of
Estanislao Olaguer. (records, vol. 2 page 57).
Defendant Cipriano Duran was dropped from the complaint per the order of the court
dated October 20, 1999 (records, vol. 2, page 155) because he waived any right or claim over
lots 8635 and 8638. (records, vol. 2, page 150). (Emphasis ours.)

The dispositive portion of the above decision was, however, amended by the trial court in an
Order dated 23 July 2001 to read as follows:
[20]

WHEREFORE, premises considered, decision is hereby rendered in favor of the

plaintiffs as follows:
1) The deed of sale to Pastor Bacani (Exhibit A) and the deed of sale to Estanislao
Olaguer (Exhibit D) are hereby declared as null and void and without force and effect and all
the subsequent transfers and certificates arising therefrom likewise declared null and void and
cancelled as without force and effect, except as herein provided for.
2) Lot Nos. 4518, 4526, 4359 and 8750 are hereby ordered reverted back to the
estate of Lino Olaguer and for this purpose, within ten (10) days from the finality of this
decision, the heirs of Olivia P. Olaguer (the plaintiffs herein) [sic] are hereby ordered to
execute the necessary document of reconveyance, failure for which, the Clerk of Court is
hereby ordered to execute the said deed of reconveyance.
3) Lot Nos. 7514, 6608, 8582, 8157, 7999, 6167 and 8266 are hereby ordered
reverted back to the estate of Lino Olaguer and for this purpose, within ten (10) days from

the finality of this decision, defendant Eduardo Olaguer is hereby ordered to execute the
necessary document of reconveyance, failure for which, the Clerk of Court is hereby
ordered to execute the said deed of reconveyance.
4) Lots 1 and 2, Pcs-20015, and Lots 76-D, 76-E, 76-F and 76-G, Psd-180629 sold to
Emiliano M. [Ongjoco] are hereby ordered reverted back to the estate of Lino Olaguer. For this
purpose, within ten (10) days from the finality of this decision, defendant Emiliano M. [Ongjoco]
is hereby ordered to execute the necessary deed of reconveyance, otherwise, the Clerk of Court
shall be ordered to execute the said reconveyance and have the same registered with the Register
of Deeds so that new titles shall be issued in the name of the estate of Lino Olaguer and the titles
of Emiliano [Ongjoco] cancelled.
5) The parties have acquiesced to the sale of the 7/13 portion of Lot 76 to Eduardo
Olaguer as well as to the latters disposition thereof and are now in estoppel to question the
same. The court will leave the parties where they are with respect to the 7/13 share of Lot 76.
6) Lots 578, 1557, 1676, 4521, 4522, 8635, 8638, are hereby reverted back to the estate
of Lino Olaguer and for this purpose, the Clerk of [Court] is hereby ordered to execute the
necessary deed of reconveyance within ten days from the finality of this decision and cause its
registration for the issuance of new titles in the name of the Estate of Lino Olaguer and the
cancellation of existing ones over the same.
7) While the mortgage with the defendant PNB is null and void, Lots 7589, 7593 and
7396 shall remain with the Republic of the Philippines as a transferee in good faith.
Both the petitioners and respondent filed their respective Notices of Appeal[21] from the above
decision. The case was docketed in the Court of Appeals as CA-G.R. CV No. 71710.
In their Plaintiff-Appellants Brief[22] filed before the Court of Appeals, petitioner Estate argued that the
trial court erred in not ordering the restitution and/or compensation to them of the value of the parcels of land
that were mortgaged to PNB, notwithstanding the fact that the mortgage was declared null and void. Petitioners
maintain that the PNB benefited from a void transaction and should thus be made liable for the value of the
land, minus the cost of the mortgage and the reasonable expenses for the foreclosure, consolidation and transfer
of the lots.
Ongjoco, on the other hand, argued in his Defendant-Appellants Brief[23] that the trial court erred in:
declaring as null and void the Deeds of Sale in favor of Pastor Bacani and Eduardo Olaguer and the subsequent
transfers and certificates arising therefrom; ordering the reconveyance of the lots sold to him (Ongjoco); and
failing to resolve the affirmative defenses of prescription, the authority of Olivia and Eduardo to dispose of
properties formerly belonging to the estate of Lino Olaguer, recourse in a court of co-equal jurisdiction, and
forum shopping.
Petitioner Linda O. Montayre was likewise allowed to file a Brief[24] on her own behalf, as PlaintiffAppellee and Plaintiff-Appellant.[25] She refuted therein the assignment of errors made by Defendant-Appellant
Ongjoco and assigned as error the ruling of the trial court that the lots mortgaged to the PNB should remain
with the Republic of thePhilippines as a transferee in good faith.
On 27 February 2006, the Court of Appeals rendered the assailed Decision, the dispositive portion of
which reads:

WHEREFORE, premises considered, the appealed Decision is hereby MODIFIED, in

that Paragraph 4 of the amended decision is hereby Ordered Deleted, and the questioned sales to
defendant-appellant Emiliano M. Ongjoco are UPHELD.[26]

In denying the appeal interposed by petitioners, the appellate court reasoned that the claim for the value
of the lots mortgaged with the PNB were not prayed for in the original Complaint, the Amended Complaint or
even in the Re-Amended Complaint. What was sought therein was merely the declaration of the nullity of the
mortgage contract with PNB. As the relief prayed for in the appeal was not contained in the complaint, the
same was thus barred.
The Court of Appeals also ruled that the evidence of petitioners failed to rebut the presumption that PNB
was a mortgagee in good faith. Contrarily, what was proven was the fact that Olivia Olaguer and Jose A.
Olaguer were the persons responsible for the fraudulent transactions involving the questioned properties. Thus,
the claim for restitution of the value of the mortgaged properties should be made against them.
As regards the appeal of respondent Ongjoco, the appellate court found the same to be meritorious. The
said court ruled that when the sale of real property is made through an agent, the buyer need not investigate the
principals title. What the law merely requires for the validity of the sale is that the agents authority be in
writing.
Furthermore, the evidence adduced by petitioners was ruled to be inadequate to support the conclusion
that Ongjoco knew of facts indicative of the defect in the title of Olivia Olaguer or Virgilio Olaguer.
Petitioners moved for a partial reconsideration[27] of the Court of Appeals decision in order to question
the ruling that respondent Ongjoco was a buyer in good faith. The motion was, however, denied in a
Resolution[28] dated 29 June 2006.
Aggrieved, petitioners filed the instant Petition for Review on Certiorari under Rule 45 of the Revised
Rules of Court, raising the following assignment of errors:
I.
THE COURT OF APPEALS COMMITTED AN ERROR IN LAW WHEN IT RULED, ON
SPECULATION, THAT RESPONDENT EMILIANO M. ONGJOCO WAS A BUYER IN
GOOD FAITH OF THE PROPERTIES OF THE ESTATE OF LINO OLAGUER, DESPITE
THE EXISTENCE OF FACTS AND CIRCUMSTANCES FOUND BY THE TRIAL COURT
THAT OUGHT TO PUT EMILIANO M. ONGJOCO ON NOTICE THAT THE
PETITIONERS-APPELLANTS HAVE A RIGHT OR INTEREST OVER THE SAID
PROPERTIES, AND CONTRARY TO PREVAILING JURISPRUDENCE.
II.
THE COURT OF APPEALS COMMITTED AN ERROR IN LAW WHEN IT
DISREGARDED THE CLEAR FINDINGS OF FACTS AND CONCLUSIONS MADE BY
THE TRIAL COURT, IN THE ABSENCE OF ANY STRONG AND COGENT REASONS TO
REVERSE THE SAID FINDINGS, CONTRARY TO PREVAILING JURISPRUDENCE.[29]

Essentially, the question that has been brought before us for consideration is whether or not, under the
facts and circumstances of this case, respondent Ongjoco can be considered an innocent purchaser for value.

Petitioners agree with the pronouncement of the trial court that respondent Ongjoco could not have been a
buyer in good faith since he did not bother to verify the title and the capacity of his vendor to convey the
properties involved to him. Knowing that Olivia P. Olaguer owned the properties in 1973 and that he merely
dealt with Jose A. Olaguer as an agent in January 1976, Ongjoco should have ascertained the extent of Joses
authority, as well as the title of Virgilio as the principal and owner of the properties.
Petitioners likewise cite the following incidents that were considered by the trial court in declaring that
respondent was a buyer in bad faith, namely: (1) that Virgilio Olaguer executed an affidavit,[30] wherein he
denied having bought any property from the estate of Lino Olaguer, and that if there are documents showing
that fact, he does not know how they came about; (2) that the power of attorney referred to by Jose A. Olaguer
as his authority for the sale of Lots 1 and 2 (formerly Lots 76-B and 76-C) was not presented or offered in
evidence; (3) that there are two deeds of sale[31] over Lot 76-D in favor of Ongjoco; (4) that there are two deeds
of sale[32] over Lots 76-E and 76-F in favor of Ongjoco; (5) that there are two deeds of sale[33] over Lot 76-G in
favor of Ongjoco; and (6) that while Lot 76-D was already sold to Ongjoco in 1979, it was still Jose A. Olaguer
as attorney in fact of Virgilio Olaguer who filed on 8 August 1980 a petition for the issuance of a second
owners copy[34] of the title to the property, and no mention was made about the sale to Ongjoco.
Respondent Ongjoco, on the other hand, invokes the ruling of the Court of Appeals that he was an
innocent purchaser for value. His adamant stance is that, when he acquired the subject properties, the same
were already owned by Virgilio Olaguer. Respondent insists that Jose A. Olaguer was duly authorized by a
written power of attorney when the properties were sold to him (Ongjoco). He posits that this fact alone
validated the sales of the properties and foreclosed the need for any inquiry beyond the title to the principal. All
the law requires, respondent concludes, is that the agents authority be in writing in order for the agents
transactions to be considered valid.
Respondent Ongjocos posture is only partly correct.
According to the provisions of Article 1874[35] of the Civil Code on Agency, when the sale of a piece of
land or any interest therein is made through an agent, the authority of the latter shall be in writing. Absent this
requirement, the sale shall be void. Also, under Article 1878,[36] a special power of attorney is necessary in
order for an agent to enter into a contract by which the ownership of an immovable property is transmitted or
acquired, either gratuitously or for a valuable consideration.
We note that the resolution of this case, therefore, hinges on the existence of the written power of attorney
upon which respondent Ongjoco bases his good faith.
When Lots Nos. 1 and 2 were sold to respondent Ongjoco through Jose A. Olaguer, the Transfer
Certificates of Title of said properties were in Virgilios name.[37] Unfortunately for respondent, the power of
attorney that was purportedly issued by Virgilio in favor of Jose Olaguer with respect to the sale of Lots Nos. 1
and 2 was never presented to the trial court. Neither was respondent able to explain the omission. Other than
the self-serving statement of respondent, no evidence was offered at all to prove the alleged written power of
attorney. This of course was fatal to his case.
As it stands, there is no written power of attorney to speak of. The trial court was thus correct in
disregarding the claim of its existence. Accordingly, respondent Ongjocos claim of good faith in the sale of
Lots Nos. 1 and 2 has no leg to stand on.
As regards Lots Nos. 76-D, 76-E, 76-F and 76-G, Ongjoco was able to present a general power of
attorney that was executed by Virgilio Olaguer. While the law requires a special power of attorney, the general

power of attorney was sufficient in this case, as Jose A. Olaguer was expressly empowered to sell any of
Virgilios properties; and to sign, execute, acknowledge and deliver any agreement therefor.[38] Even if a
document is designated as a general power of attorney, the requirement of a special power of attorney is met if
there is a clear mandate from the principal specifically authorizing the performance of the act. [39] The special
power of attorney can be included in the general power when the act or transaction for which the special power
is required is specified therein.[40]
On its face, the written power of attorney contained the signature of Virgilio Olaguer and was duly
notarized. As such, the same is considered a public document and it has in its favor the presumption of
authenticity and due execution, which can only be contradicted by clear and convincing evidence.[41]
No evidence was presented to overcome the presumption in favor of the duly notarized power of
attorney. Neither was there a showing of any circumstance involving the said document that would arouse the
suspicion of respondent and spur him to inquire beyond its four corners, in the exercise of that reasonable
degree of prudence required of a man in a similar situation. We therefore rule that respondent Ongjoco had
every right to rely on the power of attorney in entering into the contracts of sale of Lots Nos. 76-D to 76-G with
Jose A. Olaguer.
With respect to the affidavit of Virgilio Olaguer in which he allegedly disavowed any claim or
participation in the purchase of any of the properties of the deceased Lino Olaguer, we hold that the same is
rather irrelevant. The affidavit was executed only on 1 August 1986 or six years after the last sale of the
properties was entered into in 1980. In the determination of whether or not a buyer is in good faith, the point in
time to be considered is the moment when the parties actually entered into the contract of sale.
Furthermore, the fact that Lots Nos. 76-D to 76-G were sold to respondent Ongjoco twice does not
warrant the conclusion that he was a buyer in bad faith. While the said incidents might point to other obscured
motives and arrangements of the parties, the same do not indicate that respondent knew of any defect in the title
of the owner of the property.
As to the petition filed by Jose A. Olaguer for the issuance of a second owners copy of the title to Lot
No. 76-D, after the property was already sold to respondent Ongjoco, the same does not inevitably indicate that
respondent was in bad faith. It is more likely that Jose A. Olaguer was merely compiling the documents
necessary for the transfer of the subject property. Indeed, it is to be expected that if the title to the property is
lost before the same is transferred to the name of the purchaser, it would be the responsibility of the vendor to
cause its reconstitution.
In sum, we hold that respondent Emiliano M. Ongjoco was in bad faith when he bought Lots Nos. 1 and
2 from Jose A. Olaguer, as the latter was not proven to be duly authorized to sell the said properties.
However, respondent Ongjoco was an innocent purchaser for value with regard to Lots Nos. 76-D, 76-E,
76-F and 76-G since it was entirely proper for him to rely on the duly notarized written power of attorney
executed in favor of Jose A. Olaguer.
WHEREFORE, premises considered, the instant petition is hereby PARTIALLY GRANTED. The
assailed Decision of the Court of Appeals dated 27 February 2006in CA-G.R. CV NO. 71710 is MODIFIED in
that Paragraph 4 of the Decision dated 13 July 2001 of the Regional Trial Court of Legazpi City, Branch 6, and
the Order dated 23 July 2001 shall read as follows:
4) Lots 1 and 2, Pcs-20015 sold to Emiliano M. Ongjoco are hereby ordered reverted
back to the estate of Lino Olaguer. For this purpose, within ten (10) days from the finality of this

decision, defendant Emiliano M. Ongjoco is hereby ordered to execute the necessary deed of
reconveyance, otherwise, the Clerk of Court shall be ordered to execute the said reconveyance
and have the same registered with the Register of Deeds so that new titles shall be issued in the
name of the estate of Lino Olaguer and the titles of Emiliano Ongjoco cancelled.

No costs.
SO ORDERED.

G.R. No. 176217

August 13, 2008

STA.
LUCIA
REALTY
&
DEVELOPMENT
INC.,
petitioner,
vs.
ROMEO UYECIO, AMARIS UYECIO, REYNALDO UYECIO AND MANUEL UYECIO, respondents.
DECISION
CARPIO MORALES, J.:
Sta. Lucia Realty Development, Inc. (petitioner), developer of "The Royale Tagaytay Estates" which is a
subdivision project located in Alfonso, Cavite, offered lots for sale payable on installments, proffering that the
development of the project would be completed by September 1999. The sales brochures of the project detailed
the following improvements and amenities:
1. Church
2. Grand Clubhouse
3. Landscaped gardens and promenade
4. Basketball court
5. Adult pool
6. Kiddie swimming pool
7. Multipurpose hall
8. Function room system
9. Billiards
10. Grand Entrance (Ph. I)
11. Perimeter fence for security and privacy
12. Cemented roads, curbs and gutters
13. Cemented sidewalk

14. Storm drainage system

15. Electrical facilities
16. Mercury street lamps
17. Centralized interrelated water system with deepwell and overhead water tank
18. Concrete electrical posts
19. Tennis court1
Respondents Romeo, Amaris, Reynaldo and Manuel, all surnamed Uyecio, entered into contracts to sell with
petitioner covering seven lots in petitioners Phase II project. Under the contracts to sell which were all dated
May 21, 1999, each of the respondents would and did in fact pay a downpayment of P240,000, and the balance
of P960,000 would be paid in 10 years at 21% interest per annum. Respondents paid their monthly
amortizations until April 2001 when they suspended further payments, the promised delivery date of the project
not having been met, and the improvements and amenities reflected in the sales brochures were yet to be
introduced or completed.2
Respondents thus sent petitioner a letter demanding the completion of the entire project and informing it that
they were suspending the payment of monthly amortizations on account of "contractual breach."3
Petitioner for its part also sent letters to respondents advising them of their default in the payment of their
monthly amortizations covering the period March 2001 up to the third quarter of 2002.4
On August 22, 2002, respondents lodged a complaint5 against petitioner at the Housing and Land Use
Regulatory Board (HLURB) Regional Field Office No. IV, praying for the completion of the project within six
months or, in the alternative, for the refund of their total payments to bear interest at 21% per annum reckoned
from February 1999 until said payments are finally paid, and for the award of moral and exemplary damages
and attorneys fees.
In an ocular inspection of the subdivision conducted on December 3, 2002, the HLURB Regional Office found
that, indeed, the project remained unfinished. In his Report,6 Engineer Rey E. Musa of the said office reflected
the following findings:
xxxx
1. The following features and amenities for the whole Phase II indicated in the brochure are yet to be
provided/constructed, to wit:
a. Church
b. Electrical facilities including concrete posts & mercury street lamps
b. Clubhouse
1. Basketball court
2. Tennis court

3. Swimming pool
4. Multi-purpose Hall
d. Property perimeter wall for security and privacy
e. Landscaped garden & promenade
2. There is an existing water tanks [sic] in Phase II, however, not yet operational.
3. There is no sewerage water treatment plant within the whole project. (Emphasis supplied)
By petitioners claim, "the basic components of [the] subdivision development are almost 100% complete,"7 in
support of which it submitted the report of its project engineer Gregorio Evangelio8 stating that all constructions
relating to earthworks, concrete works and drainage system had been done with, while the water distribution
system was 98% finished. The report went on to state, however, that works on the electrical distribution system
and perimeter fence remained at 5% and 50%, respectively, as of September 2002.9
Petitioner disclaimed having had any participation in the preparation of the advertising materials distributed by
the marketing firm Asian Pacific Realty & Brokerage, Inc., a separate and distinct entity.10
To further shore up its case, petitioner reiterated that it is not precluded from asking from the HLURB for
extension of time to complete the project, citing License to Sell No. R4-98-12-020311 which provides, among
other things, that it could
xxxx
2. Apply for an extension of time to complete the development in case the project cannot be completed
within the prescribed period before its expiration;
x x x x (Underscoring supplied)
HLURB, by letter dated November 5, 2003,12 in fact granted petitioner an extension until September 2004 to
complete Phase II-B of the project.
By Decision13 of June 23, 2003, the HLURB ruled in favor of respondents, disposing as follows:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the complainants and
against the respondent to read as follows:
1. Ordering the rescission of the Contracts to Sell between the complainants and respondent;
2. Ordering the respondent to refund complainant Romeo Uyecio the amount of P1,224,000.00 with
interest at 12% per annum from the filing of the complaint until full payment;
3. Ordering the respondent to refund the complainant Reynaldo Uyecio the amount of P816,000.00 with
interest at 12 % per annum from the filing of the complaint until full payment;
4. Ordering the respondent to refund complainants Amaris Uyecio and Manuel Uyecio the amount of
P408,000.00 each with interest at 12 % per annum from the filing of the complaint until full payment;

5. Ordering the respondent to pay complainant(s) the amount of P100,000.00 as moral damages,
P100,000.00 as exemplary damages, P50,000.00 as attorneys fees to be divided among the
complainants in proportion to their respective claims;
6. Ordering the respondent to pay this Board P20,000.00 as administrative fine for violation of Sections
19 and 20 in relation to Section 38 of P.D. 957.
SO ORDERED. (Emphasis and underscoring supplied)
The HLURB Board of Commissioners (First Division) to which petitioner appealed the decision via petition for
review denied its petition by Decision14 of December 5, 2003 and Resolution15 of March 31, 2004.
The Office of the President (OP) affirmed the HLURB decision. The Court of Appeals in turn affirmed16 that of
the HLURB.
Hence, the present petition for review, petitioner faulting the Court of Appeals in upholding the rescission of the
contracts to sell, in granting respondents prayer for refund with exorbitant interest, and in upholding the award
of moral and exemplary damages and attorneys fees.17
The Court finds the issues raised by petitioner bearing on findings of facts to be mere rehash of those already
passed upon by the HLURB, the OP and the appellate court.
In the absence of substantial showing that the findings of facts of administrative bodies charged with their
specific field of expertise were arrived at from an erroneous estimation of the evidence presented, they are
considered conclusive, and in the interest of stability of the governmental structure, are not to be disturbed.18
In the present case, petitioner has not shown any ground to merit a disturbance of the findings of the HLURB
which have been sustained by the OP and the appellate court.
It bears noting that petitioners project accomplishment report and the HLURB letter dated November 5, 2003
granting petitioners request for the completion of the subdivision until September 2004, which request does not
even appear to have been made "within the prescribed period before its expiration," corroborate the findings in
the HLURB ocular inspection report and respondents claim that petitioner did not finish the project within the
announced time frame. Petitioners counterclaim that it was respondents who were in default is immaterial to
the issue of its failure to finish its project on time.
En passant, even assuming arguendo that respondents defaulted, albeit the evidence shows otherwise, that did
not prevent petitioner from exercising its option to cancel the contracts to sell. It did not, however. It merely
demanded in May 2002 the payment of overdue amortizations from respondents, after the lapse of 14 months of
alleged default.
The, fact is that respondents suspended their payment of monthly amortizations pending compliance by
petitioner with its contractual obligation, which is justified under Section 23 of Presidential Decree No. 957. 19
Petitioners attempt at reversal of the Court of Appeals decision thus fails.
A word on the application by the HLURB, the OP, and the appellate court of Article 1191 20 of the Civil Code
on rescission.
The case involves contracts to sell, not a contract which absolutely conveys real property. Distinguishing the
two contracts, the Court, in Rillo v. Court of Appeals,21 held:

x x x In a contract to sell real property on installments, the full payment of the purchase price is a
positive suspensive condition, the failure of which is not considered a breach, casual or serious, but
simply an event which prevented the obligation of the vendor to convey title from acquiring any
obligatory force. The transfer of ownership and title would occur after full payment of the purchase
price. We held in Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc. that there can be no
rescission of an obligation that is still non-existent, the suspensive condition not having happened.
(Citations omitted; emphasis and underscoring supplied)
Articles 1191 of the Civil Code does not thus apply to a contract to sell since there can be no rescission of an
obligation that is still non-existent, the suspensive condition not having occurred. In other words, the breach
contemplated in Article 1191 is the obligors failure to comply with an obligation already extant, like a contract
of sale, not a failure of a condition to render binding that obligation.22
Cancellation, not rescission, of the contract to sell is thus the correct remedy in the premises.
On the issue of damages, the Court sustains the award of moral and exemplary damages given the testimonial
evidence of respondents thereon.
As for the award of P50,000 attorneys fees, the Court sustains it too, respondents having been compelled to
litigate with petitioner and incur expenses to enforce and protect their interests.23
On the issue of interest, the imposition of 12% per annum interest on the amount of refund must be reduced to
6%, conformably with this Courts ruling in Eastern Shipping Lines, Inc. v. Court of Appeals24 and in Fil-Estate
Properties, Inc. v. Go,25 the amount to be refunded being neither a loan nor a forbearance of money, goods or
credit.
WHEREFORE, the October 16, 2006 Decision and January 10, 2007 Resolution of the Court of Appeals in
CA-G.R. SP No. 87027 are AFFIRMED with MODIFICATION in light of the foregoing disquisitions.
As modified, the dispositive portion of the decision reads:
WHEREFORE, judgment is rendered in favor of the plaintiffs and against the defendant to read as
follows:
1. Ordering the cancellation of the Contracts to Sell between the plaintiffs and defendant;
2. Ordering the defendant to refund the plaintiff Romeo Uyecio the amount of P1,224,000 with interest
at 6% per annum from the filing of the complaint until full payment;
3. Ordering the defendant to refund the plaintiff Reynaldo Uyecio the amount of P816,000 with interest
at 6% per annum from the filing of the complaint until full payment;
4. Ordering the defendant to refund plaintiffs Amaris Uyecio and Manuel Uyecio the amount of
P408,000 each with interest at 6% per annum from the filing of the complaint until full payment;
5. Ordering the defendant to pay plaintiffs the amount of P100,000 as moral damages, P100,000 as
exemplary damages, P50,000 as attorneys fees to be divided among the plaintiffs in proportion to their
respective claims;
6. Ordering the defendant to pay [the Housing and Land Use Regulatory] Board P20,000 as
administrative fine for violation of Sections 19 and 20 in relation to Section 38 of P.D. 957.

Costs against petitioner.

SO ORDERED.
G.R. No. 172733

August 20, 2008

SPS. CORNELIO JOEL I. ORDEN and MARIA NYMPHA V. ORDEN, and REGISTER OF DEEDS
OF
NEGROS
ORIENTAL,
petitioners,
vs.
SPS. ARTURO AUREA and MELODIA C. AUREA, SPS. ERNESTO P. COBILE and SUSANA M.
COBILE, and FRANKLIN M. QUIJANO, respondents.
DECISION
CHICO-NAZARIO, J.:
Before Us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure which
seeks to set aside the Decision1 of the Court of Appeals dated 20 April 2006 in CA-G.R. CV No. 75788
affirming in toto the Decision2 of Branch 33 of the Regional Trial Court (RTC) of Dumaguete City in Civil
Case No. 12056. The RTC decision ordered petitioners Sps. Cornelio Joel I. Orden and Maria Nympha V.
Orden to return to respondents-spouses Ernesto Cobile and Susana M. Cobile the amount of P738,596.28 plus
twenty percent interest per annum from the filing of the complaint until fully paid.
The antecedents are as follows:
Petitioners spouses Cornelio Joel I. Orden and Maria Nympha V. Orden are the owners of two parcels of land
located at the Municipality of Sibulan, Negros Oriental covered by Transfer Certificate of Title Nos. T-27159
and T-27160, and the residential house standing thereon.
On 29 September 1994, petitioners Orden executed a Deed of Absolute Sale selling, transferring and conveying
the aforementioned properties to respondents-spouses Arturo Aurea and Melodia C. Aurea, their heirs,
successors and assigns. The Deed of Absolute Sale contained, among others, the following:
That for and in consideration of the sum of ONE MILLION NINE HUNDRED THOUSAND PESOS
(P1.9M), receipt of which is hereby acknowledged to the satisfaction of the VENDORS, WE, the
spouses CORNELIO JOEL I. ORDEN and MARIA NYMPHA VELARDO ORDEN, by these present,
do hereby SELL, TRANSFER and CONVEY, in a manner, absolute, and irrevocable, unto and in favor
of herein VENDEES, the spouses ARTURO AUREA and MELODIA C. AUREA, their heirs,
successors and assigns, the above-described two (2) parcels of land, together with the residential house
standing thereon, and declared under Tax Declaration ______, and assessed at ___________.3
Simultaneous with the execution of the Deed of Absolute Sale, respondents-spouses Aurea executed a Joint
Affidavit whereby they declared that the true and real purchasers of the abovementioned properties described in
the Deed of Absolute Sale are respondents-spouses Ernesto P. Cobile and Susana M. Cobile. The pertinent
portions of the affidavit read:
That we are the Vendees in a document denominated "DEED OF ABSOLUTE SALE" from the
Vendors, the spouses CORNELIO JOEL I. ORDEN and MARIA NYMPHA VELARDO ORDEN,
involving two (2) parcels of land under TCT-27159 (Tax Dec. No. 93-2-04-094) and TCT-27160 (Tax
Dec. No. 93-2-04-095) and a residential house under Tax Dec. No. _____ for the sum of ONE
MILLION NINE HUNDRED THOUSAND PESOS (P1.9M), per Doc. No. 384; Page No. 78, Book No.
_____; Series of 1994, dated September _____, 1994 of Notary Public Atty. Jose G. Hernando, Jr.

That the true and real vendees in said "DEED OF ABSOLUTE SALE" adverted to above are one
ERNESTO P. COBILE and SUSANA M. COBILE who are both American Citizens and residents of
Honolulu, Hawaii, U.S.A.
We are executing this Joint Affidavit to prove and show that the real and true purchasers of the aforementioned two (2) parcels of land and the residential house sold by the spouses CORNELIO JOEL I.
ORDEN are one ERNESTO P. COBILE and SUSANA M. COBILE.4
Immediately after the signing of the Deed of Absolute Sale and Joint Affidavit, respondents Cobile paid
petitioners Orden the amount of P384,000.00 as partial payment of the purchase price of P1,900,000.00 as
evidenced by a receipt signed by petitioners Orden. The receipt reads:
RECEIPT
RECEIVED from ERNESTO P. COBILE and SUSANA M. COBILE, the sum of THREE HUNDRED
EIGHTY FOUR THOUSAND PESOS (P384,000.00) representing partial payment of the purchase price
re "Deed of Absolute Sale" of two parcels of land and a residential house located at Sibulan, Negros
Oriental, Philippines.5
Respondents Cobile then executed a document entitled "PROMISSORY" whereby they promised to pay
petitioners Orden the amount of P566,000.00 on or before 31 October 1994, and the remaining P950,000.00 to
be paid as soon as the titles of the properties shall have been transferred to them. Said document reads:
PROMISSORY
WE, ERNESTO P. COBILE and SUSANA M. COBILE, residents of Hawaii, U.S.A., by these presents,
do hereby promise to pay to the spouses CORNELIO JOEL I. ORDEN and MARIA NYMPHA
VELARDO ORDEN, the sum of FIVE HUNDRED SIXTY SIX THOUSAND PESOS (P566,000.00)
on or before October 31, 1994, said amount representing the one-half balance of the purchase price of
the sale of two (2) parcels of land and a residential house located at the Municipality of Sibulan, Negros
Oriental, per Doc. No. 384; Page No. 78; Book No. IV; Series of 1994 of Notary Public JOSE G.
HERNANDO, JR., the remaining balance of NINE HUNDRED FIFTY THOUSAND PESOS
(P950,000.00) to be paid as soon as the titles of the properties subject-matter of the sale shall have been
transferred to us.6
The Deed of Absolute Sale, Joint Affidavit, receipt for P384,000.00 and the promissory note were all prepared
by Atty. Jose G. Hernando, Jr., counsel of petitioners Orden. It was the suggestion and advice of Atty.
Hernando that respondents Aurea be indicated as the vendees in the Deed of Absolute Sale in lieu of
respondents Cobile. Atty. Hernando explained that respondents Cobile, being American citizens, could not own
land in the Philippines.7 To show true ownership of the properties to be purchased, respondents executed the
Joint Affidavit declaring that the real vendees were respondents Cobile.
Respondents Cobile failed to pay the P566,000.00 which was due on or before 31 October 1994.
On 13 December 1994, respondents Cobile, through Arturo Aurea, paid petitioners Orden P354,596.28
representing partial payment of the purchase price. The same was evidenced by a receipt executed by the
petitioners Orden which reads:
RECEIPT
RECEIVED from SPS. ERNESTO P. COBILE and SUSANA M. COBILE, the sum of PESOS: THREE
HUNDRED FIFTY FOUR THOUSAND FIVE HUNDRED NINETY SIX & 28/100 (P354,596.28)

representing partial payment of the purchase price re "Deed of Absolute Sale" of two (2) parcels of land
and a residential house located at Sibulan, Negros Oriental, per Doc. No. 384; Page No. 78; Book No.
IV; Series of 1994 of the notary public JOSE G. HERMANDO, Jr.
Balance after this payment = P1,161,403.728
Failing to pay the balance of the purchase price, petitioners Orden wrote respondents Cobile a letter dated 11
March 1995 informing the latter of their intention to dispose of the properties to other interested parties if
respondents Cobile did not comply with their promise to pay the remaining balance of the purchase price.
Petitioners Orden, however, gave respondents Cobile ten days from receipt of the letter to pay; otherwise, their
non-payment shall be construed as refusal on their part and the properties shall be sold to others. The letter
reads:
Please be informed that we have decided to dispose of the property (Lot 1 and 4, Block B of the
Consolidation Subdivision Plan, (LRC) Pcs-7321, all located at Barrio Maslog, Sibulan, Negros
Oriental, Philippines, entered by Transfer Certificate of Title No. T-27160 and T-272159, respectively)
to other [interested] parties, in view of your failure to make good the conditions imposed on the "Deed
of Sale" we have executed as vendors, in your favor as vendees, sometime last September 29, 1994.
However, if only to give you a chance to fully consummate our transaction, notice is hereby given upon
your goodness to pay us the remaining balance of the aforesaid "Deed of Sale" ten (10) days upon
receipt of this letter. Your failure to do so within said period shall be constrained (sic) as your refusal
and we then shall proceed to dispose of the property.
Rest assured that you will be reimbursed of the advance payments you made, after the properties shall
have been sold and after deductions be made concerning damages, attorney's fees, etc.9
Respondents Cobile did not make any further payment. All in all, they paid petitioners Orden P738,596.28
(P384,000.00 + P354,596.28). Petitioners Orden did not transfer the titles to the properties to respondents
Cobile.
On 21 May 1996, petitioners sold the properties to Fortunata Adalim Houthuijzen and the titles thereto
transferred to her name.10
On 30 September 1997, respondents-spouses Aurea and spouses Cobile, and respondent Franklin M. Quijano
filed a Complaint before the Regional Trial Court of Dumaguete City for Enforcement of Contract and
Damages with a Prayer for a Writ of Preliminary Attachment, Prohibitory Injuction and Restraining Order
against petitioners Orden and the Register of Deeds of Negros Oriental. Franklin Quijano was the attorney-infact of respondents spouses Aurea and Cobile. The complaint was docketed as Civil Case No. 12056 and was
raffled to Branch 44 of said court.
The complaint, among other things, asked the trial court to order petitioners Orden and the Register of Deeds of
Negros Oriental for the delivery of the titles to the properties involved in the names of respondents Cobile; in
the alternative, if the titles to the properties could not be delivered in respondents Cobile's name, to order
petitioners Orden to pay the whole consideration of the sale plus interest of 20% per annum. The restraining
order and writ of preliminary injunction were sought to restrain petitioners Orden from selling, transferring,
conveying or encumbering the properties involved to other person during the pendency of the case and to
prohibit the Register of Deeds of Negros Oriental from recording, registering and transferring the titles to the
properties to other persons except to respondents Cobile.

On 29 October 1997, petitioners Orden filed their Answer with Counterclaim.11 They asked that the complaint
be dismissed for lack of cause of action and that the Deed of Absolute Sale be declared rescinded. They
likewise ask for damages.
On 9 September 1998, following the trial court's order to amend the complaint, impleaded therein were spouses
Henricus C. Houthuijzen and Fortunata Adalim Houthuijzen, the subsequent purchasers of the subject
properties and holders of the titles thereto.12
On 23 February 1999, the trial court dismissed the case for lack of interest to prosecute. 13 On 12 March 1999,
respondents filed a motion for reconsideration which the trial court granted.14 Thus, the case was reinstated.15
On 13 April 1999, spouses Henricus C. Houthuijzen and Fortunata Adalim Houthuijzen filed their Answer with
Motion to Dismiss.16
In an Order dated 1 June 1999, the trial court granted the spouses Houthuijzen's motion to dismiss, ruling that
said spouses were buyers in good faith who were able to register the sale with the Register of Deeds, and that
respondents Cobile's complaint could be enforced only against petitioners Orden.17
On 8 July 1999, respondents moved for the reconsideration18 of the 1 June 1999 Order which the trial court
denied for lack of merit.19
During the pre-trial conference, the parties agreed only on the identities of the parties and of the subject
properties.20
On 25 April 2000, respondents filed a Motion for Inhibition21 which was granted by the Presiding Judge of
Branch 44. The case was re-raffled to Branch 33. Trial ensued.
In a decision dated 26 April 2002, the trial court disposed of the case as follows:
ACCORDINGLY, from the foregoing disquisition, judgment is hereby rendered ordering the
defendants:
(1) to return to plaintiffs, spouses Ernesto Cobile and Susana M. Cobile the amount of SEVEN
HUNDRED THIRTY EIGHT THOUSAND FIVE HUNDRED NINETY-SIX PESOS and TWENTYEIGHT CENTAVOS (P738,596.28) representing the total amount advanced by the plaintiffs to
defendants; and
(2) to pay plaintiffs interest of the aforecited amount at the rate of Twenty (20%) percent per annum
from the filing of the complaint until fully paid.22
The trial court found that petitioners Orden and respondents Cobile entered into a contract of sale. The contract,
it explained, was subject to the conditions laid down in the promissory note - that respondents Cobile would pay
the amount of P566,000.00 on or before 31 October 1994, and the petitioners Ordens would undertake the
transfer of the titles to the properties in the names of respondents Cobile, after which the latter would pay the
remaining balance of P950,000.00. It said that this was an example of reciprocal obligations. Since respondents
Cobile already violated the terms of the promissory note when they failed to pay the total amount of
P566,000.00 on the agreed date, petitioners Orden should have filed for rescission. This, the trial court said,
petitioner Orden failed to do. The letter that petitioners Orden sent to respondents Cobile -- informing them that
should they fail to comply with the terms and conditions of the promissory note, petitioners Orden would be
constrained to sell the properties to other interested persons -- was not the rescission envisaged by law. The
rescission made by petitioners Orden was thus open to contest.

The trial court likewise ruled that the properties subject matter of the case could not be given to respondents
Cobile because the ownership thereof had passed to Fortunata Adalim-Houthuijzen whom it regarded as an
innocent purchaser for value.
Furthermore, the trial court declared that respondents Cobile could not demand specific performance or
rescission of contract, for they themselves failed to comply with the terms and conditions set forth in the
promissory note when they failed to pay the entire balance of one-half (P950,000.00) of the total price agreed
upon.
The trial court ruled that it could not in conscience grant respondents Cobile's prayer that should petitioners
Orden fail to deliver the titles in respondents Cobile's names, the Ordens be ordered to pay the Cobiles the
entire purchase price plus 20% interest per annum. It likewise said that neither could petitioners Orden forfeit
the P738,596.28 paid by respondents because they had not rescinded the contract of sale between them either
judicially or by notarial act.
On 23 May 2002, petitioners Orden filed a Notice of Appeal.23
On 20 April 2006, the Court of Appeals rendered its Decision24 affirming in toto the decision of the trial court.
The dispositive portion of the decision reads:
WHEREFORE, in view of the foregoing premises, judgment is hereby rendered by us AFFIRMING
(sic) EN TOTO the decision dated April 26, 2002 of the Regional Trial Court in Civil Case No.
12056.25
The Court of Appeals justified the return of what had been paid by respondents Cobile (P738,596.28) on the
ground that the deed of sale or promissory note did not contain any provision regarding forfeiture in case the
full purchase price was not paid. Moreover, it ruled that petitioners Orden had no just or legal ground to keep
the payments made by respondents Cobile because they failed to transfer the titles of the properties in the names
of respondents Cobile. To allow petitioners Orden to retain said payments would unjustly enrich them at the
expense of respondents Cobile.
On 16 June 2006, petitioners Orden filed before us a Petition for Review on Certiorari under Rule 45 of the
Revised Rules of Court.26 Per our resolution dated 10 July 2006, we required respondents to comment on the
petition within ten days from notice of the resolution.27
On 3 October 2006, respondents filed their Comment28 to which petitioners were directed to file a Reply.29 The
Reply was filed on 7 July 2007.30
On 17 September 2007, the Court gave due course to the petition and required the parties to submit their
respective memoranda within thirty days from notice.31 The parties submitted their respective memoranda.32
Petitioners argue that the Court of Appeals erred in holding that the case at bar involves a perfected contract of
sale and that an action for rescission should have been pursued by them (petitioners).33 They claimed that what
they entered into with respondents Cobile was a Conditional Contract of Sale. They added that although
captioned "Deed of Absolute Sale," the contract is truly one of a conditional sale, if not a contract to sell real
property on installments. The full payment of the purchase price as laid down in the promissory note is a
positive suspensive condition, the failure of which is not considered a breach, casual or serious, but simply an
event which prevented the obligation of the vendor to convey title from acquiring any obligatory force.
In the resolution of this case, what is to be determined is the kind of contract petitioners Orden and respondents
Cobile entered into. Did they enter into a Contract of Sale or a Contract to Sell?

Both lower courts ruled that the contract entered into by the parties was a Contract of Sale. On the other hand,
petitioners Orden insist that they entered into a Contract to Sell.
In the case at bar, on 29 September 1994, a Deed of Absolute Sale was entered into by respondents Aurea, as
vendees, and petitioners Orden, as vendors. Respondents Aurea then executed a Joint Affidavit declaring
respondents Cobile as the true and real buyers of the subject properties. Respondent Cobile then executed a
promissory note in which they promised to pay petitioners Orden the amount of P566,000.00 on or before
October 31, 1994, and the remaining P950,000.00 to be paid as soon as the titles to the properties shall have
been transferred to them.
In order to determine the real nature of the contract entered into by the parties, all three documents, not merely
the Deed of Absolute Sale, should be considered. The Joint Affidavit of respondents Aurea and the promissory
note signed by respondents Cobile veritably show that the latter are indeed the true purchasers of the subject
properties. The contents of the promissory note must be taken into account inasmuch as the true buyer signed
said document.
In the promissory note, respondents Cobile obligated themselves to do two things: (1) to pay petitioners Orden
the amount of P566,000.00 on or before October 31, 1994; and (2) to pay the remaining P950,000.00 as soon as
the titles to the properties shall have been transferred to them. From the records of the case, it is without
question that respondents Cobile failed to fulfill what they promised. Having failed to fulfill their first
obligation, petitioners Orden no longer transferred the titles to the properties to their names. The non-payment,
therefore, by respondents Cobile of the balance of one-half of the purchase price triggered all subsequent
actions of the parties that eventually led to respondents Cobile filing the complaint for Enforcement of Contract
and Damages with a Prayer for a Writ of Preliminary Attachment, Prohibitory Injunction and Restraining Order.
It is clear from the promissory note that the parties agreed to a conditional sale, the consummation of which is
subject to the conditions contained therein - full payment of the purchase price.
A contract to sell is akin to a conditional sale, in which the efficacy or obligatory force of the vendor's
obligation to transfer title is subordinated to the happening of a future and uncertain event, so that if the
suspensive condition does not take place, the parties would stand as if the conditional obligation had never
existed. The suspensive condition is commonly full payment of the purchase price.34 One form of conditional
sale is what is now popularly termed as a "Contract to Sell," in which ownership or title is retained until the
fulfillment of a positive suspensive condition, normally the payment of the purchase price in the manner agreed
upon.35
The distinction between a contract of sale and a contract to sell is well-settled. In a contract of sale, the title to
the property passes to the vendee upon the delivery of the thing sold; in a contract to sell, ownership is, by
agreement, reserved to 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.36
It is thus clear that in a contract to sell, ownership is retained by the seller and is not passed to the buyer until
full payment of the price.
In the case at bar, we find that petitioners Orden and respondents Cobile entered into a contract to sell. The real
character of the contract is not the title given, but the intention of the parties.37 Although there is a document
denominated as "Deed of Absolute Sale," and there is no provision therein of reservation of ownership to the
seller, we are persuaded that the true intent of the parties was to transfer the ownership of the properties only

upon the buyer's full payment of the purchase price. This is evident from the promissory note executed by
respondents Cobile. It is only upon payment of the full purchase price that title to the properties shall be
transferred to their names. Furthermore, circumstances show ownership over the properties was never
transferred to respondents Cobile. Respondents neither had possession of nor title to the properties. In fact,
petitioners Orden, per their letter to respondents Cobile, even gave the latter the chance to pay the balance of the
purchase price before they would sell the properties to other interested persons. From the foregoing, it is evident
that the true agreement of the parties is for the petitioners Orden to retain ownership over the properties until
respondents shall have fully paid the purchase price.
Respondents Cobile failed to pay the balance of the purchase price. Such payment is a positive suspensive
condition, failure of which is not a breach, serious or otherwise, but an event that prevents the obligation of the
seller to convey title from arising.38 The non-fulfillment by respondents Cobile of their obligation to pay, which
is a suspensive condition for the obligation of petitioners Orden to sell and deliver the title to the properties,
rendered the contract to sell ineffective and without force and effect.39 The parties stand as if the conditional
obligation had never existed.40 Inasmuch as the suspensive condition did not take place, petitioners Orden
cannot be compelled to transfer ownership of the properties to respondents Cobile.
The trial court further ruled that petitioners Orden should have filed a case for rescission or sent a notarial act of
rescission to respondents Cobile when they incurred a delay by failing to pay the balance of the purchase price.
Having extra-judicially rescinded their contract with respondents Cobile, such act, according to the trial court,
was subject to contest.
The trial court is mistaken. Rescission, whether judicially or by notarial act, is not required to be done by
petitioners Orden. There can be no rescission of an obligation that is still non-existing, the suspensive condition
not having happened.41 In the case before us, there was no contract to rescind, judicially or by notarial act,
because from the moment respondent Cobile failed to pay on time the correct amount of the balance of the
purchase price, the contract between the parties was deemed ipso facto rescinded.42 The reason for this is not
that petitioners Orden have the power to rescind such contract, but because their obligation thereunder did not
arise. The remedy of rescission under Article 119143 of the Civil Code is predicated on a breach of faith by the
other party that violates the reciprocity between them. Such a remedy does not apply to contracts to sell.44
Neither does the provision of Article 159245 apply to this case because what said article contemplates is a
contract of sale.46
In the exercise of the seller's right to automatically cancel the contract to sell, at least a written notice must be
sent to the defaulter informing him of the same.47 The act of petitioners Orden in notifying respondents Cobile
of their intention to sell the properties to other interested persons if respondents failed to pay the balance of the
purchase price was sufficient notice for the cancellation or resolution of the their contract to sell. Since
respondents Cobile failed to fulfill their obligation even after said notice, petitioners were justified in canceling
their contract (to sell) and selling to a buyer who was willing to pay the full purchase price. Hence, we sustain
petitioners Orden's action.
We now go to the partial payments (P738,596.28) made by respondents Cobile. We decree that said amount be
returned to respondents Cobile, there being no provision regarding forfeiture of payments made in any of the
documents executed by the parties. We find such action to be just and equitable under the premises. If we rule
otherwise, there will be unjust enrichment on the part of petitioners Orden at the expense of respondents Cobile.
Interest thereon at the rate of 12% per annum shall also be paid from 30 September 1997 until fully paid.
Lest we forget, the source of all the troubles was respondents Cobile failure to pay the balance of the purchase
price. Consequently they are liable for damages. Under the circumstances obtaining in this case, we find it
equitable and just to award petitioners Orden moral damages and attorney's fees in the amounts of P50,000.00
and P20,000.00, respectively. Their claim for litigation expenses is denied for failure to present proof in support

thereof. Exemplary damages cannot also be awarded because it was not shown that respondents Cobile acted in
a wanton, fraudulent, reckless, oppressive or malevolent manner.48
WHEREFORE, the decision of the Court of Appeals dated 20 April 2006 in CA-G.R. CV No. 75788 is hereby
MODIFIED as follows:
(1) Petitioners-spouses Cornelio Joel I. Orden and Maria Nympha V. Orden are ordered to return to
respondents-spouses Ernesto P. Cobile and Susana M. Cobile the amount of P738,596.28, representing the total
amount advanced by the latter to the former, with interest at the rate of 12% per annum from 30 September
1997 until fully paid; and
(2) Respondents-spouses Ernesto P. Cobile and Susana M. Cobile are ordered to pay moral damages and
attorney's fees in the amounts of P50,000.00 and P20,000.00, respectively, to petitioners-spouses Cornelio Joel
I. Orden and Maria Nympha V. Orden.
SO ORDERED.
G.R. No. 154450
July 28, 2008
JOSEPH
L.
SY,
NELSON
GOLPEO
and
JOHN
TAN,
Petitioners,
vs.
NICOLAS CAPISTRANO, JR., substituted by JOSEFA B. CAPISTRANO, REMEDIOS TERESITA B.
CAPISTRANO and MARIO GREGORIO B. CAPISTRANO; NENITA F. SCOTT; SPS. JUANITO
JAMILAR and JOSEFINA JAMILAR; SPS.MARIANO GILTURA and ADELA GILTURA,
Respondents.
RESOLUTION
NACHURA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court of the Decision of the Court of
Appeals (CA) dated July 23, 2002 in CA-G.R. CV No. 53314.
The case originated from an action for reconveyance of a large tract of land in Caloocan City before the
Regional Trial Court (RTC), Branch 129, Caloocan City, entitled Nicolas Capistrano, Jr. v. Nenita F. Scott,
Spouses Juanito and Josefina Jamilar, Joseph L. Sy, Nelson Golpeo and John Tan, and the Register of Deeds,
Caloocan City. Said case was docketed as Civil Case No. C-15791.
The antecedents are as follows:
Sometime in 1980, Nenita Scott (Scott) approached respondent Nicolas Capistrano, Jr. (Capistrano) and offered
her services to help him sell his 13,785 square meters of land covered by Transfer Certificate of Title (TCT) No.
76496 of the Register of Deeds of Caloocan City. Capistrano gave her a temporary authority to sell which
expired without any sale transaction being made. To his shock, he discovered later that TCT No. 76496, which
was in his name, had already been cancelled on June 24, 1992 and a new one, TCT No. 249959, issued over the
same property on the same date to Josefina A. Jamilar. TCT No. 249959 likewise had already been cancelled
and replaced by three (3) TCTs (Nos. 251524, 251525, and 251526), all in the names of the Jamilar spouses.
TCT Nos. 251524 and 251526 had also been cancelled and replaced by TCT Nos. 262286 and 262287 issued to
Nelson Golpeo and John B. Tan, respectively.
Upon further inquiries, Capistrano also discovered the following:
1. The cancellation of his TCT No. 76496 and the issuance of TCT No. 249959 to Jamilar were based upon two
(2) deeds of sale, i.e., a "Deed of Absolute Sale" purportedly executed by him in favor of Scott on March 9,
1980 and a "Deed of Absolute Sale" allegedly executed by Scott in favor of Jamilar on May 17, 1990.
2. The supposed 1980 sale from him to Scott was for P150,000.00; but despite the lapse of more than 10 years
thereafter, the alleged 1990 sale from Scott to Jamilar was also for P150,000.00.
3. Both deeds were presented for registration simultaneously on June 24, 1992.
4. Although the deed in favor of Scott states that it was executed on March 9, 1980, the annotation thereof at the
back of TCT No. 76496 states that the date of the instrument is March 9, 1990.

5. Even if there was no direct sale from Capistrano to Jamilar, the transfer of title was made directly to the
latter. No TCT was issued in favor of Scott.
6. The issuance of TCT No. 249959 in favor of Jamilar was with the help of Joseph Sy, who provided for (sic)
money for the payment of the capital gains tax, documentary stamps, transfer fees and other expenses of
registration of the deeds of sale.
7. On July 8, 1992, an Affidavit of Adverse Claim was annotated at the back of Jamilars TCT No. 249959 at
the instance of Sy, Golpeo, and Tan under a Contract to Sell in their favor by the Jamilar spouses. Said contract
was executed sometime in May, 1992 when the title to the property was still in the name of Capistrano.
8. Around July 28, 1992, upon request of the Jamilar spouses, TCT No. 249959 was cancelled and three (3) new
certificates of title (TCT Nos. 251524, 251525, and 251526) all in the name of Jamilar on the basis of an alleged
subdivision plan (No. Psd-13-011917) without Capistranos knowledge and consent as registered owner. The
notice of adverse claim of Sy, Golpeo, and Tan was carried over to the three new titles.
9. Around August 18, 1992, Sy, Golpeo, and Tan filed Civil Case No. C-15551 against the Jamilars and another
couple, the Giltura spouses, for alleged violations of the Contract to Sell. They caused a notice of lispendens to
be annotated on the three (3) TCTs in Jamilars name. Said civil case, however, was not prosecuted.
10. On January 26, 1993, a Deed of Absolute Sale was executed by the Jamilars and the Gilturas, in favor of
Golpeo and Tan. Thus, TCT Nos. 251524 and 251526 were cancelled and TCT Nos. 262286 and 262287 were
issued to Golpeo and Tan, respectively. TCT No. 251525 remained in the name of Jamilar.1
Thus, the action for reconveyance filed by Capistrano, alleging that his and his wifes signatures on the
purported deed of absolute sale in favor of Scott were forgeries; that the owners duplicate copy of TCT No.
76496 in his name had always been in his possession; and that Scott, the Jamilar spouses, Golpeo, and Tan were
not innocent purchasers for value because they all participated in defrauding him of his property. Capistrano
claimed P1,000,000.00 from all defendants as moral damages, P100,000.00 as exemplary damages; and
P100,000.00 as attorneys fees.
In their Answer with Counterclaim, the Jamilar spouses denied the allegations in the complaint and claimed that
Capistrano had no cause of action against them, as there was no privity of transaction between them; the
issuance of TCT No. 249959 in their names was proper, valid, and legal; and that Capistrano was in estoppel.
By way of counterclaim, they sought P50,000.00 as actual damages, P50,000.00 as moral damages, P50,000.00
as exemplary damages, and P50,000.00 as attorneys fees.
In their Answer, Sy, Golpeo, and Tan denied the allegations in the complaint and alleged that Capistrano had no
cause of action against them; that at the time they bought the property from the Jamilars and the Gilturas as
unregistered owners, there was nothing in the certificates of title that would indicate any vice in its ownership;
that a buyer in good faith of a registered realty need not look beyond the Torrens title to search for any defect;
and that they were innocent purchasers of the land for value. As counterclaim, they sought P500,000.00 as
moral damages and P50,000.00 as attorneys fees.
In her Answer with Cross-claim, Scott denied the allegations in the complaint and alleged that she had no
knowledge or any actual participation in the execution of the deeds of sale in her favor and the Jamilars; that
she only knew of the purported conveyances when she received a copy of the complaint; that her signatures
appearing in both deeds of sale were forgeries; that when her authority to sell the land expired, she had no other
dealings with it; that she never received any amount of money as alleged consideration for the property; and
that, even if she were the owner, she would never have sold it at so low a price.
By way of Cross-claim against Sy, Golpeo, Tan, and the Jamilars, Scott alleged that when she was looking for a
buyer of the property, the Jamilars helped her locate the property, and they became conversant with the details
of the ownership and other particulars thereof; that only the other defendants were responsible for the seeming
criminal conspiracy in defrauding Capistrano; that in the event she would be held liable to him, her other codefendants should be ordered to reimburse her of whatever amount she may be made to pay Capistrano; that she
was entitled to P50,000.00 as moral damages and P50,000.00 as attorneys fees from her co-defendants due to
their fraudulent conduct.
Later, Sy, Golpeo, and Tan filed a third-party complaint against the Giltura spouses who were the Jamilars
alleged co-vendors of the subject property.
Thereafter, trial on the merits ensued.

Subsequently, the trial court decided in favor of Capistrano. In its Decision dated May 7, 1996, adopting the
theory of Capistrano as presented in his memorandum, the trial court rendered judgment as follows:
1. Declaring plaintiff herein as the absolute owner of the parcel of land located at the Tala Estate, Bagumbong,
Caloocan City and covered by TCT No. 76496;
2. Ordering defendant Register of Deeds to cause the cancellation of TCT No. 251525 registered in the name of
defendant Josefina Jamilar;
3. Ordering defendant Register of Deeds to cause the cancellation of TCT Nos. 262286 and 262287 registered
in the names of defendants Nelson Golpeo and John B. Tan;
4. Ordering defendant Register of Deeds to cause the issuance to plaintiff of three (3) new TCTs, in replacement
of the aforesaid TCTs Nos. 251525, 262286 and 262287;
5. Ordering all the private defendants in the above-captioned case to pay plaintiff, jointly and severally, the
reduced amount of P400,000.00 as moral damages;
6. Ordering all the private defendants in the above-captioned case to pay to plaintiff, jointly and severally, the
reduced sum of P50,000.00 as exemplary damages;
7. Ordering all the private defendants in the above-captioned case to pay plaintiffs counsel, jointly and
severally, the reduced amount of P70,000.00 as attorneys fees, plus costs of suit;
8. Ordering the dismissal of defendants Sy, Golpeo and Tans Cross-Claim against defendant spouses Jamilar;
9. Ordering the dismissal of defendants Sy, Golpeo and Tans Third-Party Complaint against defendant spouses
Giltura; and
10. Ordering the dismissal of the Counterclaims against plaintiff.
SO ORDERED.2
On appeal, the CA, in its Decision dated July 23, 2002, affirmed the Decision of the trial court with the
modification that the Jamilar spouses were ordered to return to Sy, Golpeo, and Tan the amount of
P1,679,260.00 representing their full payment for the property, with legal interest thereon from the date of the
filing of the complaint until full payment.
Hence, this petition, with petitioners insisting that they were innocent purchasers for value of the parcels of land
covered by TCT Nos. 262286 and 262287. They claim that when they negotiated with the Jamilars for the
purchase of the property, although the title thereto was still in the name of Capistrano, the documents shown to
them the court order directing the issuance of a new owners duplicate copy of TCT No. 76496, the new
owners duplicate copy thereof, the tax declaration, the deed of absolute sale between Capistrano and Scott, the
deed of absolute sale between Scott and Jamilar, and the real estate tax receipts there was nothing that aroused
their suspicion so as to compel them to look beyond the Torrens title. They asseverated that there was nothing
wrong in financing the cancellation of Capistranos title and the issuance of titles to the Jamilars because the
money they spent therefor was considered part of the purchase price they paid for their property.
In their Comment, the heirs of Capistrano, who were substituted after the latters death, reiterated the factual
circumstances which should have alerted the petitioners to conduct further investigation, thus
(a) Why the "Deed of Absolute Sale" supposedly executed by Capistrano had remained unregistered for so long,
i.e., from March 9, 1980 up to June 1992, when they were negotiating with the Jamilars and the Gilturas for
their purchase of the subject property;
(b) Whether or not the owners copy of Capistranos certificate of title had really been lost;
(c) Whether Capistrano really sold his property to Scott and whether Scott actually sold it to the Jamilars, which
matters were easily ascertainable as both Capistrano and Scott were still alive and their names appear on so
many documents;
(d) Why the consideration for both the March 9, 1980 sale and the May 17, 1990 sale was the same
(P150,000.00), despite the lapse of more than 10 years;
(e) Why the price was so low (P10.88 per square meter, both in 1980 and in 1990) when the petitioners were
willing to pay and actually paid P150.00 per square meter in May 1992; and
(f) Whether or not both deeds of sale were authentic.3
In addition, the heirs of Capistrano pointed out that petitioners entered into negotiations over the property, not
with the registered owner thereof, but only with those claiming ownership thereof based on questionable deeds
of sale.

The petition should be denied. The arguments proffered by petitioners all pertain to factual issues which have
already been passed upon by both the trial court and the CA.
Findings of facts of the CA are final and conclusive and cannot be reviewed on appeal, as long as they are based
on substantial evidence. While, admittedly, there are exceptions to this rule such as: (a) when the conclusion is a
finding grounded entirely on speculations, surmises or conjectures; (b) when the inference made is manifestly
mistaken, absurd or impossible; (c) when there is grave abuse of discretion; (d) when the judgment is based on a
misapprehension of facts; (e) when the findings of facts are conflicting; (f) when the CA, in making its findings,
went beyond the issues of the case and the same were contrary to the admissions of both the appellant and
appellee.4 Not one of these exceptional circumstances is present in this case.
First. The CA was correct in upholding the finding of the trial court that the purported sale of the property from
Capistrano to Scott was a forgery, and resort to a handwriting expert was not even necessary as the specimen
signature submitted by Capistrano during trial showed marked variance from that found in the deed of absolute
sale. The technical procedure utilized by handwriting experts, while usually helpful in the examination of
forged documents, is not mandatory or indispensable to the examination or comparison of handwritings.5
By the same token, we agree with the CA when it held that the deed of sale between Scott and the Jamilars was
also forged, as it noted the stark differences between the signatures of Scott in the deed of sale and those in her
handwritten letters to Capistrano.
Second. In finding that the Jamilar spouses were not innocent purchasers for value of the subject property, the
CA properly held that they should have known that the signatures of Scott and Capistrano were forgeries due to
the patent variance of the signatures in the two deeds of sale shown to them by Scott, when Scott presented to
them the deeds of sale, one allegedly executed by Capistrano in her favor covering his property; and the other
allegedly executed by Scott in favor of Capistrano over her property, the P40,000.00 consideration for which
ostensibly constituted her initial and partial payment for the sale of Capistranos property to her.
The CA also correctly found the Gilturas not innocent purchasers for value, because they failed to check the
veracity of the allegation of Jamilar that he acquired the property from Capistrano.
In ruling that Sy was not an innocent purchaser for value, we share the observation of the appellate court that Sy
knew that the title to the property was still in the name of Capistrano, but failed to verify the claim of the
Jamilar spouses regarding the transfer of ownership of the property by asking for the copies of the deeds of
absolute sale between Capistrano and Scott, and between Scott and Jamilar. Sy should have likewise inquired
why the Gilturas had to affix their conformity to the contract to sell by asking for a copy of the deed of sale
between the Jamilars and the Gilturas. Had Sy done so, he would have learned that the Jamilars claimed that
they purchased the property from Capistrano and not from Scott.
We also note, as found by both the trial court and the CA, Tans testimony that he, Golpeo and Sy are brothers,
he and Golpeo having been adopted by Sys father. Tan also testified that he and Golpeo were privy to the
transaction between Sy and the Jamilars and the Gilturas, as shown by their collective act of filing a complaint
for specific performance to enforce the contract to sell.1avvphi1
Also noteworthy and something that would have ordinarily aroused suspicion is the fact that even before the
supposed execution of the deed of sale by Scott in favor of the Jamilars, the latter had already caused the
subdivision of the property into nine (9) lots, with the title to the property still in the name of Capistrano.
Notable likewise is that the owners duplicate copy of TCT No. 76496 in the name of Capistrano had always
been in his possession since he gave Scott only a photocopy thereof pursuant to the latters authority to look for
a buyer of the property. On the other hand, the Jamilars were able to acquire a new owners duplicate copy
thereof by filing an affidavit of loss and a petition for the issuance of another owners duplicate copy of TCT
No. 76496. The minimum requirement of a good faith buyer is that the vendee of the real property should at
least see the owners duplicate copy of the title.6 A person who deals with registered land through someone who
is not the registered owner is expected to look beyond the certificate of title and examine all the factual
circumstances thereof in order to determine if the vendor has the capacity to transfer any interest in the land. He
has the duty to ascertain the identity of the person with whom he is dealing and the latters legal authority to
convey.7
Finally, there is the questionable cancellation of the certificate of title of Capistrano which resulted in the
immediate issuance of a certificate of title in favor of the Jamilar spouses despite the claim that Capistrano sold
his property to Scott and it was Scott who sold the same to the Jamilars.

In light of the foregoing disquisitions, based on the evidence on record, we find no error in the findings of the
CA as to warrant a discretionary judicial review by this Court.
WHEREFORE, the petition is DENIED DUE COURSE for failure to establish reversible error on the part of
the Court of Appeals. Costs against petitioners.
SO ORDERED.
G.R. No. 159578
February 18, 2009
ROGELIA DACLAG and ADELINO DACLAG (deceased), substituted by RODEL M. DACLAG, and
ADRIAN
M.
DACLAG,
Petitioners,
vs.
ELINO MACAHILIG, ADELA MACAHILIG, CONRADO MACAHILIG, LORENZA HABER and
BENITA DEL ROSARIO, Respondents.
RESOLUTION
AUSTRIA-MARTINEZ, J.:
Before us is petitioners' Motion for Reconsideration of our Decision dated July 28, 2008 where we affirmed the
Decision dated October 17, 2001 and the Resolution dated August 7, 2003 of the Court of Appeals (CA) in CAG.R. CV No. 48498.
Records show that while the land was registered in the name of petitioner Rogelia in 1984, respondents
complaint for reconveyance was filed in 1991, which was within the 10-year prescriptive period.
We ruled that since petitioners bought the property when it was still an unregistered land, the defense of having
purchased the property in good faith is unavailing. We affirmed the Regional Trial Court (RTC) in finding that
petitioners should pay respondents their corresponding share in the produce of the subject land from the time
they were deprived thereof until the possession is restored to them.
In their Motion for Reconsideration, petitioners contend that the 10-year period for reconveyance is applicable
if the action is based on an implied or a constructive trust; that since respondents' action for reconveyance was
based on fraud, the action must be filed within four years from the discovery of the fraud, citing Gerona v. De
Guzman,1 which was reiterated in Balbin v. Medalla.2
We do not agree.
In Caro v. Court of Appeals,3 we have explicitly held that "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 x x x."4
However, notwithstanding petitioners' unmeritorious argument, the Court deems it necessary to make certain
clarifications. We have earlier ruled that respondents' action for reconveyance had not prescribed, since it was
filed within the 10-year prescriptive period.
However, a review of the factual antecedents of the case shows that respondents' action for reconveyance was
not even subject to prescription.
The deed of sale executed by Maxima in favor of petitioners was null and void, since Maxima was not the
owner of the land she sold to petitioners, and the one-half northern portion of such land was owned by
respondents. Being an absolute nullity, the deed is subject to attack anytime, in accordance with Article 1410 of
the Civil Code that an action to declare the inexistence of a void contract does not prescribe. Likewise, we have
consistently ruled that when there is a showing of such illegality, the property registered is deemed to be simply
held in trust for the real owner by the person in whose name it is registered, and the former then has the right to
sue for the reconveyance of the property.5 An action for reconveyance based on a void contract is
imprescriptible.6 As long as the land wrongfully registered under the Torrens system is still in the name of the
person who caused such registration, an action in personam will lie to compel him to reconvey the property to
the real owner.7 In this case, title to the property is in the name of petitioner Rogelia; thus, the trial court
correctly ordered the reconveyance of the subject land to respondents.
Petitioners next contend that they are possessors in good faith, thus, the award of damages should not have been
imposed. They further contend that under Article 544, a possessor in good faith is entitled to the fruits received
before the possession is legally interrupted; thus, if indeed petitioners are jointly and severally liable to
respondents for the produce of the subject land, the liability should be reckoned only for 1991 and not 1984.
We find partial merit in this argument.

Article 528 of the Civil Code provides that possession acquired in good faith does not lose this character, except
in a case and from the moment facts exist which show that the possessor is not unaware that he possesses the
thing improperly or wrongfully. Possession in good faith ceases from the moment defects in the title are made
known to the possessors, by extraneous evidence or by suit for recovery of the
property by the true owner. Whatever may be the cause or the fact from which it can be deduced that the
possessor has knowledge of the defects of his title or mode of acquisition, it must be considered sufficient to
show bad faith.8 Such interruption takes place upon service of summons.9lawphil.net
Article 544 of the same Code provides that a possessor in good faith is entitled to the fruits only so long as his
possession is not legally interrupted. Records show that petitioners received a summons together with
respondents' complaint on August 5, 1991;10 thus, petitioners' good faith ceased on the day they received the
summons. Consequently, petitioners should pay respondents 10 cavans of palay per annum beginning August 5,
1991 instead of 1984.
Finally, petitioner would like this Court to look into the finding of the RTC that "since Maxima died in October
1993, whatever charges and claims petitioners may recover from her expired with her"; and that the proper
person to be held liable for damages to be awarded to respondents should be Maxima Divison or her estate,
since she misrepresented herself to be the true owner of the subject land.
We are not persuaded.
Notably, petitioners never raised this issue in their appellants' brief or in their motion for reconsideration filed
before the CA. In fact, they never raised this matter before us when they filed their petition for review. Thus,
petitioners cannot raise the same in this motion for reconsideration without offending the basic rules of fair
play, justice and due process, specially since Maxima was not substituted at all by her heirs after the
promulgation of the RTC Decision.
WHEREFORE, petitioners Motion for Reconsideration is PARTLYGRANTED. The Decision of the Court
of Appeals dated July 28, 2008 is MODIFIED only with respect to prescription as discussed in the text of
herein Resolution, and the dispositive portion of the Decision is MODIFIED to the effect that petitioners are
ordered to pay respondents 10 cavans of palay per annum beginning August 5, 1991 instead of 1984.
SO ORDERED.
St Mary's Farm v. Prima Real
This is a petition for review of the decision1 of the Court of Appeals (CA) affirming in toto the decision2 of the
Regional Trial Court (RTC), Branch 254, Las Pias City, which dismissed for lack of merit the complaint for
annulment of sale.
The factual antecedents of the case, as narrated by the RTC, are as follows:
[I]t appears that herein plaintiff was the registered owner of an originally twenty-five thousand five hundred
ninety-eight (25,598) square meters of land situated at Bo. Pugad Lawin, Las Pias City under Transfer
Certificate of Title No. S-1648 (11521-A) of the Registry of Deeds of Las Pias City.
In compliance with a final court decision in Civil Case No. 87-42915 of the Regional Trial Court, Branch XL of
Manila, plaintiff passed and approved on 27 June 1988 a board resolution authorizing defendant Rodolfo A.
Agana to cede to T.S. Cruz Subdivision four thousand (4,000) square meters of the land covered by the
aforecited Transfer Certificate of Title No. S-1648 (11521-A). Allegedly, after the consummation of this
transaction, defendant Rodolfo A. Agana did not return to plaintiff the borrowed aforementioned title and[,]
instead, allegedly forged a board resolution of the plaintiff corporation supposedly to the effect that plaintiff had
authorized him to sell the remaining twenty-one thousand five hundred ninety-eight (21,598) square meters of
the subject property. A series of transactions thereafter took place between defendant Rodolfo A. Agana and
defendant Prima Real Properties, Inc. (Prima) which transactions culminated to the signing on 5 September
1988 of an absolute deed of sale transferring the ownership of the subject land from herein plaintiff to herein
defendant Prima. After the consummation of the sale, defendant Prima effected the cancellation of Transfer

Certificate of Title No. S-1648 (11521-A) in the name of plaintiff and in lieu thereof another Transfer
Certificate of Title No. T-6175 in the name of defendant Prima was issued by defendant Alejandro R.
Villanueva in his capacity as Register of Deeds of Las Pias City.
Subsequent developments had it that on 6 October 1988, defendant Prima duly purchased from T.S. Cruz
Subdivision the aforementioned four thousand (4,000) square meters portion of the subject property which
development thereafter led to the cancellation of the aforementioned Transfer Certificate of Title No. T-6175
and the issuance by the Registry of Deeds of Las Pias City of two separate titles both in the name of defendant
Prima, Transfer Certificate of Title No. 7863 covering the aforementioned four thousand square meters and
Transfer Certificate of Title No. T-7864 covering the herein twenty-one thousand five hundred ninety-eighty
(21,598) square meter subject property.
In its complaint which was amended twice, the second amendment even needed the intervention of the Court of
Appeals in a petition for certiorari and mandamus after the same was denied admission by Hon. N.C. Perello,
Presiding Judge of the then Assisting Court of Makati, [Muntinlupa], Metro Manila, herein plaintiff alleged
inter alia that the authorization certified to by Antonio V. Agcaoili, Corporate Secretary of the plaintiff and used
by defendant Rodolfo A. Agana in selling the subject property to defendant Prima was a forgery as the board of
directors of the plaintiff never enacted a resolution authorizing herein defendant Rodolfo A. Agana to sell
herein subject property to defendant Prima or to anyone else for that matter. Plaintiff further claimed that
defendant Prima in collusion with defendant Rodolfo A. Agana acted maliciously and in bad faith in relying on
the forged authority without taking any step to verify the same with the plaintiff as owner of the subject
property. According to plaintiff, the deed of absolute sale entered into between defendants Prima and Rodolfo
A. Agana being the result of fraudulent transaction was void thereby, among others, causing damage to the
plaintiff. For canceling Transfer Certificate of Title No. S-1648 (11521-A) knowing fully well that the
authorization to sell [to] defendant Rodolfo A. Agana was a forgery, defendant Alejandro R. Villanueva was
likewise made liable for damages.
On the other hand, defendant Prima separately with defendant Rodolfo A. Agana in their respective answers,
sought and insisted constantly on the dismissal of the complaint based solidly on the ground that Venice B.
Agana and Ma. Natividad A. Villacorta who filed in behalf of the plaintiff the original complaint and the
amended and the second amended complaints as well, respectively, lacked legal capacity to sue because they
were not authorized therefor by the board of directors of the plaintiff. Furthermore, defendant Prima argued that
it acted in good faith when it relied solely on the face of the purported authorization of defendant Rodolfo A.
Agana and entered into the deed of absolute sale and paid in full the purchase price of PhP2,567,760.00 of the
subject property. This fact, according to defendant Prima, made it a buyer in good faith and for value. To cap its
argument, defendant Prima in adopting the defense of defendant Rodolfo A. Agana asserted that even assuming
that the authorization of defendant Rodolfo A. Agana was forged when plaintiff, through its President,
Marcelino A. Agana, Jr. (brother of Rodolfo) accepted/received part of the aforestated purchase price knowing
fully well the same to be the proceeds of the sale of the subject property, plaintiff has been precluded as it is
now estopped from asking for rescission of the deed of absolute sale and reconveyance of the subject property.3
After due hearing, the trial court rendered judgment on April 7, 2000, dismissing the complaint for annulment
of sale with damages filed by the petitioner.4
The trial court found that the respondent was a buyer in good faith and for value, relying on the authority of
Rodolfo A. Agana to sell the property in behalf of the petitioner company, as evidenced by a notarized board
resolution. As such, the trial court ruled that the petitioner was bound by the acts of its agent and must
necessarily bear whatever damage may have been caused by this alleged breach of trust.
On appeal, the CA affirmed in toto.
Thus, petitioner filed the instant petition raising the following errors:

I
The Court of Appeals gravely erred in ruling that Respondent Agana was duly authorized by Petitioner under
the Certification dated June 30, 1988 (Exhibits "D" and "3") to enter into the sale of the subject property with
Respondent Prima Real.
(A) There is no proof of the Certifications authenticity and due execution;
(B) There is clear and convincing evidence that the Certification was forged.
(C) Even assuming that the Certification was authentic and duly executed, it was not sufficient in form
and by its terms to authorize Respondent Agana to sell the subject property or receive payment on behalf
of Petitioner.
II
The Court of Appeals gravely erred in not holding that Respondent Prima Real was the author of its own
damage by not making reasonable and prudent inquiries into the fact, nature and extent of Respondent Aganas
authority, and by causing the issuance of checks in the name of Respondent Agana.
The petition must fail.
A cursory reading of the issues reveals that these are factual matters which are not within the province of the
Court to look into, save only in exceptional circumstances which are not present in the case at bar. Well settled
is the rule that in petitions for review on certiorari under Rule 45, only questions of law must be raised.5 As a
matter of procedure, the Court defers and accords finality to the factual findings of trial courts, especially when,
as in the case at bar, such findings are affirmed by the appellate court. This factual determination, as a matter of
long and sound appellate practice, deserves great weight and shall not be disturbed on appeal. It is not the
function of the Court to analyze and weigh all over again the evidence or premises supportive of the factual
holding of the lower courts.6
Petitioner insists that "the sale of the realty entered into between respondent Agana, purportedly on behalf of the
petitioner, and respondent Prima is null and void for lack of authority on the part of respondent Agana to sell
the property."7 The board resolution allegedly granting Rodolfo Agana the authority to sell in behalf of the
company, as certified by Corporate Secretary Atty. Antonio V. Agcaoili, is alleged to be a forgery. Ma.
Natividad A. Villacorta, who served as assistant to Marcelino A. Agana, Jr., the President of St. Marys Farm,
Inc., in 1988 testified that the board of directors did not hold any meeting on June 27, 1988; that, in fact, the
signature of Atty. Antonio Agcaoili was not genuine; and that said document was merely presented to the notary
public for notarization without Atty. Agcaoili appearing before him.
Despite this insistence, we find no cogent reason to deviate from the findings and conclusions of the respondent
court affirming those of the trial court on this matter. Anent the forged signature of Atty. Agcaoili, the CA did
not err in not giving evidentiary weight to the findings of the Document Examiner of the National Bureau of
Investigation (NBI) on the ground that the findings were not really conclusive. In the first place, the procedure
for the investigation of questionable handwriting was not properly followed. There is nothing on record that will
conclusively show that the alleged standard sample signatures of Atty. Antonio Agcaoili, which were submitted
to the NBI and made the basis of comparison, were the genuine signatures of the same Atty. Antonio Agcaoili.
Moreover, the examiner testified that it was possible to have variations in the standard signatures of Atty.
Agcaoili, caused by certain factors such as passage of time, pressure and physical condition of the writer which
may have decisive influences on his handwritings characteristics.8 Thus, in the instant case, it cannot readily be
concluded that a particular signature appearing in those documents is not genuine for lack of proper
identification and a more accurate comparison of signatures. Mere allegation of forgery is not evidence and the

burden of proof lies in the party making the allegation.9 Unfortunately, in the case at bar, the petitioner failed to
discharge this burden.
Further challenging the due execution of the board resolution bearing the Secretarys Certification, petitioner
wants us to consider the same as inadmissible on the ground that Atty. Agcaoili did not appear before a notary
public for notarization. We do not agree, because in the past, we have already held that the non-appearance of
the party before the notary public who notarized the deed does not necessarily nullify or render the parties
transaction void ab initio.10 However, the non-appearance of the party exposes the notary public to
administrative liability which warrants sanction by the Court. This fact notwithstanding, we agree with the
respondent court that it is not enough to overcome the presumption of the truthfulness of the statements
contained in the board resolution. To overcome the presumption, there must be sufficient, clear and convincing
evidence as to exclude all reasonable controversy as to the falsity of the certificate. 11 In the absence of such
proof, the document must be upheld. Notarization converts a private document into a public document, making
it admissible in court without further proof of its authenticity.12
On the basis of this notarized board resolution, respondent had every reason to rely on Rodolfo Aganas
authority to sell the subject property. Undeniably then, the respondent is an innocent purchaser for value in
good faith. Our pronouncement in Bautista v. Silva13 is instructive:
A buyer for value in good faith is one who buys property of another, without notice that some other person has a
right to, or interest in such property and pays full and fair price for the same, at the time of such purchase, or
before he has notice of the claim or interest of some other persons in the property. He buys the property with the
well-founded belief that the person from whom he receives the thing had title to the property and capacity to
convey it.
To prove good faith, a buyer of registered and titled land need only show that he relied on the face of the title to
the property. He need not prove that he made further inquiry for he is not obliged to explore beyond the four
corners of the title. Such degree of proof of good faith, however, is sufficient only when the following
conditions concur: first, the seller is the registered owner of the land; second, the latter is in possession thereof;
and third, at the time of the sale, the buyer was not aware of any claim or interest of some other person in the
property, or of any defect or restriction in the title of the seller or in his capacity to convey title to the property.14
All the conditions enumerated in the aforementioned case are present in the case at bar, enough for us to
consider Prima as a buyer in good faith. Prima Real Properties, Inc. is a company engaged in the buying and
selling of real properties. As borne out by the records, respondent exerted efforts to verify the true background
of the subject property. Rodolfo Agana presented to respondent the (1) notarized board resolution which stated
that at a special meeting held on June 27, 1988, the board of directors authorized Mr. Rodolfo A. Agana,
Treasurer, to sell the subject property covered by Transfer Certificate of Title (TCT) No. S-1648;15 (2) a
separate Certification by the petitioners president, Marcelino A. Agana, Jr., authorizing its Treasurer, Rodolfo
Agana, to sell said property;16 and, (3) TCT No. T-1648 of the subject property. Convinced that Rodolfo Agana
had the authority to sell on behalf of the company after being presented all these documents, the sale between
the parties was thereby consummated. A deed of sale was executed on September 5, 198817 and the full
consideration of P2,567,760.00 for the subject property was paid.18
It is of no moment that the checks were made payable to Rodolfo Agana and not to the company which,
according to the petitioner, should have alerted the respondent to inquire further into the extent of Aganas
authority to transfer the subject property. This was no longer necessary considering that respondent had every
reason to rely on Rodolfo Aganas authority to sell, evidenced by the notarized Certification. As explained in
the Bautista case:
When the document under scrutiny is a special power of attorney that is duly notarized, we know it to be a
public document where the notarial acknowledgment is prima facie evidence of the fact of its due execution. A

buyer presented with such a document would have no choice between knowing and finding out whether a forger
lurks beneath the signature on it. The notarial acknowledgment has removed that choice from him and replaced
it with a presumption sanctioned by law that the affiant appeared before the notary public and acknowledged
that he executed the document, understood its import and signed it. In reality, he is deprived of such choice not
because he is incapable of knowing and finding out but because, under our notarial system, he has been given
the luxury of merely relying on the presumption of regularity of a duly notarized SPA. And he cannot be faulted
for that because it is precisely that fiction of regularity which holds together commercial transactions across
borders and time.
In sum, all things being equal, a person dealing with a seller who has [in his] possession title to the property but
whose capacity to sell is restricted, qualifies as a buyer in good faith if he proves that he inquired into the title of
the seller as well as into the latters capacity to sell; and that in his inquiry, he relied on the notarial
acknowledgment found in the sellers duly notarized special power of attorney. He need not prove anything
more for it is already the function of the notarial acknowledgment to establish the appearance of the parties to
the document, its due execution and authenticity.19
Aside from the pertinent documents presented, respondent also relied on the confirmation and certification of
the Register of Deeds of Las Pias City and Mr. Timoteo S. Cruz, owner of the land likewise sold by Rodolfo
Agana for the petitioner, with similar authorization by the petitioner and signed by the corporate secretary Atty.
Agcaoili. Agana acted as petitioners authorized agent and had full authority to bind the company in that
transaction with Cruz.
Contrary to the allegations of the petitioner that respondent Aganas authority was only limited to negotiate and
not to sell the subject property, suffice it to state that the board resolution further averred that he was
"authorized and empowered to sign any and all documents, instruments, papers or writings which may be
required and necessary for this purpose to bind the Corporation in this undertaking."20 The certification of the
President, Marcelino Agana, Jr. also attests to this fact. With this notarized board resolution, respondent Agana,
undeniably, had the authority to cede the subject property, carrying with it all the concomitant powers necessary
to implement said transaction. On the strength of the deed of absolute sale executed pursuant to such authority,
title over the land in petitioners name was cancelled and a new certificate of title TCT No. T-617521 was
already issued in the name of Prima Real Properties, Inc.
Thus, it is too late in the day to have the sale voided, notwithstanding the retraction made by Rodolfo Agana in
his Comment22 on the Petition filed with this Court. Therein, he admits that he acted solely and without proper
authority of the corporation. Agana states that he wishes to end once and for all the rift that had occurred in the
corporation; and in order to buy peace for all the parties and for himself, he is willing to return the money paid
by Prima so that ownership of the property can be returned to the petitioner. In light of this admission that
Agana had no authority, petitioner posits that there is justifiable reason for the Court to re-visit or evaluate the
facts of the case anew.
Unfortunately, the Court cannot give weight to this magnanimous gesture of Agana; neither will the Court lend
credence to Aganas assertion that he acted solely and without proper authority from the corporation, inasmuch
as it was raised for the very first time in this Court and only after 8 years from the inception of the case. In all
the pleadings filed by respondent Agana in court, he was steadfast in his position that he had authority to sell
the subject property. A judicial admission conclusively binds the party making it. He cannot thereafter take a
position contradictory to, or inconsistent with his pleadings. Acts or facts admitted do not require proof and
cannot be contradicted unless it is shown that the admission was made through palpable mistake or that no such
admission was made.23 In the instant case, there is no proof of these exceptional circumstances. Clearly, the
retraction was merely an afterthought on the part of respondent Agana with the intention to end the rift in the
family corporation.

Considering all the foregoing, it cannot be gainsaid that respondent Prima is an innocent purchaser in good faith
and for value.
WHEREFORE, the petition is DENIED. The decision of the Court of Appeals is AFFIRMED.
SO ORDERED.

Fidel v. CA

This Petition for Review seeks to reverse the Decision1 dated November 22, 2004 and the Resolution2 dated
May 27, 2005 of the Court of Appeals in CA-G.R. CV No. 71996. The appellate court had affirmed with
modification the Decision3 dated February 20, 2001 of the Regional Trial Court (RTC), Branch 15, Naic, Cavite
in Civil Case No. NC-652-95, annulling the sale in favor of the petitioners Edgardo and Natividad Fidel of a
150-square meter parcel of unregistered land located at San Miguel Street, Indang, Cavite and owned by the late
Vicente Espineli.
The facts, culled from the records, are as follows:

On February 21, 1995, respondents filed a Complaint4 for Annulment of Sale, Tax Declaration, Reconveyance
with Damages against the petitioners Edgardo and Natividad Fidel and Guadalupe Espineli-Cruz before the
RTC, Branch 15, Naic, Cavite. In their complaint, respondents alleged that they are compulsory heirs of
Primitivo Espineli, the only child of Vicente and his first wife, Juliana Asas. Respondents further alleged that
they discovered that the abovementioned parcel of land owned by the late Vicente was sold on October 7, 1994
to the petitioners despite the fact that Vicente died intestate on June 4, 1941. They argue that the sale is void and
simulated because Vicente's signature appearing on the deed of sale is a forgery.
In her Answer,5 Guadalupe, the only surviving child of Vicente and his second wife, Pacencia Romea, denied
any knowledge of the deed of sale allegedly signed by Vicente. She, however, admitted selling the property but
by virtue of another deed of sale signed by her as heir of Vicente and in representation of her nephews and
nieces who are children of her deceased siblings, all children of Vicente and Pacencia. She further denied
knowledge of Vicente's alleged first marriage with Juliana Asas. She argues that the heirs of Primitivo must first
establish their filiation from Vicente, prior to instituting the complaint for annulment of sale. Guadalupe further
stresses that the petitioners Fidel have been able to register the sale of the property and to obtain Tax
Declaration No. 163046 in their name.
On February 20, 2001, the RTC ruled in respondents' favor. The dispositive portion of the decision reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants as follows:
1. Ordering the annulment of the sale in favor of the defendants spouses Edgardo and Natividad Fidel of the
property in litigation;
2. Ordering the Regis[ter] of Deeds and/or the Provincial Assessor of Cavite to cancel the registration and/or
Tax Declaration No. 16304, Series of 1995;
3. Ordering the defendants spouses Edgardo and Natividad Fidel to cause the reconveyance of the property to
Vicente Espineli and/or his heirs for disposition subject to the laws of intestacy;
4. Ordering the defendants jointly and severally, to pay the plaintiffs the amount of P50,000.00 as moral
damages and P30,000.00 as exemplary damages;
5. Ordering the defendants jointly and severally, to reimburse the plaintiffs their expenses for litigation in the
amount of P50,000.00 as attorney's fees;
6. And to pay costs of suit.
SO ORDERED.7
On November 22, 2004, the Court of Appeals affirmed with modification the RTC Decision as follows:
Accordingly, the subject property should be reconveyed to the Estate of the late Vicente Espineli but the proper
proceedings should be instituted to determine the latter's heirs, and if appropriate, to partition the subject
property.
WHEREFORE, premises considered, the assailed DECISION is hereby AFFIRMED subject to the foregoing
MODIFICATION. No costs.
SO ORDERED.8

Thus, the instant petition by the spouses Edgardo and Natividad Fidel, alleging that the appellate court:
I.
'ERRED IN UPHOLDING THE DECISION OF THE TRIAL COURT, CONSIDERING THAT PRIVATE
RESPONDENTS HAVE NO LEGAL PERSONALITY TO INSTITUTE THE ACTION. PRIVATE
RESPONDENTS MUST FIRST ESTABLISH THE SAME IN PROPER ACTION TO PROVE THEIR
FILIATION. LACK OF SUCH DETERMINATION ON THE ISSUE OF FILIATION ON SEPARATE AND
INDEPENDENT ACTION, PRIVATE RESPONDENTS HAVE NO LEGAL PERSONALITY TO
INSTITUTE THE ACTION FOR ANNULMENT OF SALE, CONVEYANCE AND DAMAGES.
II.
'LIKEWISE COMMITTED ERROR IN RECOGNIZING AND/OR ADMITTING THE BAPTISMAL
CERTIFICATE OF PRIMITIVO ESPINELI AS PROOF OF FILIATION THAT [VICENTE ESPINELI IS HIS
FATHER].
III.
'ERRED IN AWARDING DAMAGES AND ATTORNEY'S FEES, CONSIDERING THAT PRIVATE
RESPONDENTS MUST FIRST INSTITUTE A SEPARATE ACTION TO PROVE THEIR FILIATION.9
Respondents for their part raise the following issues:
I.
WHETHER OR NOT PRIVATE RESPONDENTS ARE SUFFICIENTLY CLOTHED WITH LEGAL
PERSONALITY TO FILE THE PRESENT ACTION FOR ANNULMENT OF SALE, RECONVEYANCE
WITH DAMAGES WITHOUT PREJUDICE TO INSTITUTING A SEPARATE ACTION TO ESTABLISH
FILIATION AND HEIRSHIP IN A SEPARATE [PROCEEDING].
II.
ASSUMING PETITIONERS HAVE PERSONALITY TO RAISE THE ISSUE OF FILIATION, WHETHER
OR NOT THE BAPTISMAL CERTIFICATE OF PRIMITIVO ESPINELI IS VALID AND COMPETENT
EVIDENCE OF HIS FILIATION AS CHILD OF VICENTE ESPINELI.
III.
WHETHER OR NOT THE SALE OF SUBJECT PROPERTY BY GUADALUPE TO PETITIONERS FIDEL
IS VALID UNDER THE PRINCIPLE OF BUYER IN GOOD FAITH.
IV.
WHETHER OR NOT THE AWARD OF DAMAGES AND ATTORNEY'S FEES TO PRIVATE
RESPONDENTS HAS NO BASIS SINCE A [SEPARATE] ACTION TO PROVE THEIR FILIATION
SHOULD FIRST BE FILED.10
Briefly stated, the issues for our resolution are: (1) Do respondents have the legal personality to file the
complaint for annulment of title? (2) Is the baptismal certificate of Primitivo valid and competent evidence to

prove his filiation by Vicente? (3) Are petitioners buyers in good faith? and (4) Is the award of attorney's fees
and damages to respondents proper?cralawred
At the outset, we entertain no doubt that the first deed of sale, allegedly signed by Vicente, is void because his
signature therein is a patent forgery. Records show he died in 1941, but the deed of sale was allegedly signed on
October 7, 1994. Article 1409 of the Civil Code of the Philippines states:
Art. 1409. The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order, or public
policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time of the transaction;
(4) Those whose object is outside the commerce of men;
(5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative to the principal object of the contract cannot be ascertained;
(7) Those expressly prohibited or declared void by law.
These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived. (Emphasis
supplied.)
As for the deed of sale signed by Guadalupe as heir of Vicente and in representation of her nephews and nieces,
petitioners insist that the sale is valid because respondents have no legal personality to file the complaint, the
latter not having established their filiation by Vicente. They argue that respondents first need to establish their
filiation by Vicente prior to instituting a complaint in a separate action, and not in the present action. On the
other hand, respondents contend that their filiation was established by the baptismal certificate of their father,
Primitivo, showing that Primitivo is the son of Vicente.
On this point we rule in favor of respondents.
While respondents' principal action was for the annulment of the sale and not an action to impugn one's
legitimacy and that one's legitimacy can be questioned only in a direct action seasonably filed by the proper
party, it is necessary to pass upon the relationship of respondents to the deceased Vicente for the purpose of
determining what legal rights respondents have in the property. In fact, the issue of whether or not respondents
are heirs of Vicente was squarely raised by petitioners in their Pre-Trial Brief11 filed on April 26, 1995, before
the trial court, hence they are now estopped from assailing the trial court's ruling on respondents' status. In the
similar case of Fernandez v. Fernandez,12 the Supreme Court held:
It must be noted that the respondents' principal action was for the declaration of absolute nullity of two
documents, namely: deed of extra-judicial partition and deed of absolute sale, and not an action to impugn one's
legitimacy. The respondent court ruled on the filiation of petitioner Rodolfo Fernandez in order to determine
Rodolfo's right to the deed of extra-judicial partition as the alleged legitimate heir of the spouses Fernandez.
While we are aware that one's legitimacy can be questioned only in a direct action seasonably filed by the
proper party, this doctrine has no application in the instant case considering that respondents' claim was

that petitioner Rodolfo was not born to the deceased spouses Jose and Generosa Fernandez; we do not
have a situation wherein they (respondents) deny that Rodolfo was a child of their uncle's wife. . . .
x x x
Thus, it is necessary to pass upon the relationship of petitioner Rodolfo Fernandez to the deceased
spouses Fernandez for the purpose of determining what legal right Rodolfo has in the property subject of
the extra-judicial partition. In fact, the issue of whether or not Rodolfo Fernandez was the son of the deceased
spouses Jose Fernandez and Generosa de Venecia was squarely raised by petitioners in their pre-trial brief filed
before the trial court, hence they are now estopped from assailing the trial court's ruling on Rodolfo's status. 13
(Emphasis supplied.)
Petitioners nonetheless contend that Primitivo's baptismal certificate is neither a public document nor a
conclusive proof of the legitimate filiation by Vicente of Primitivo, the respondents' father. We find petitioners'
contention lacking in merit, hence we reject it.
Records show that Primitivo was born in 1895. At that time, the only records of birth are those which appear in
parochial records. This Court has held that as to the nature and character of the entries contained in the
parochial books and the certificates thereof issued by a parish priest, the same have not lost their character of
being public documents for the purpose of proving acts referred to therein, inasmuch as from the time of the
change of sovereignty in the Philippines to the present day, no law has been enacted abolishing the official and
public character of parochial books and entries made therein. Parish priests continue to be the legal custodians
of the parochial books kept during the former sovereignty, and as such they may issue certified copies of the
entries contained therein in the same manner as do keepers of archives.14 rbl rl l lbrr
The baptismal certificate of Primitivo is, therefore, a valid and competent evidence to prove his filiation by
Vicente.
Accordingly, we uphold the Court of Appeals ruling that the subject property should be reconveyed to the
Estate of the late Vicente Espineli and proper proceedings be instituted to determine the latter's heirs, and, if
appropriate, to partition the subject property.
Anent the third issue, can petitioners be considered buyers in good faith? Our ruling on this point is: no, they
cannot be considered buyers in good faith. For we find that petitioners were only able to register the sale of the
property and Tax Declaration No. 16304 in their name; they did not have a Torrens title. Unlike a title
registered under the Torrens System, a tax declaration does not constitute constructive notice to the whole
world. The issue of good faith or bad faith of a buyer is relevant only where the subject of the sale is a
registered land but not where the property is an unregistered land.15
However, on the issue of actual and moral damages and attorney's fees awarded by the trial court to
respondents, we find the award bereft of factual basis. A party is entitled to an adequate compensation for such
pecuniary loss or losses actually suffered by him which he has duly proven. Such damages, to be recoverable,
must not only be capable of proof, but must actually be proved with a reasonable degree of certainty. Courts
cannot simply rely on speculation, conjecture or guesswork in determining the fact and amount of damages.
Attorney's fees should therefore be deleted for lack of factual basis and legal justification. 16 Moral damages
should likewise not be awarded since respondents did not show proof of moral suffering, mental anguish,
serious anxiety, besmirched reputation, nor wounded feelings and social humiliation.17
WHEREFORE, the petition is DENIED. The assailed Decision dated November 22, 2004 and the Resolution
dated May 27, 2005 of the Court of Appeals in CA-G.R. CV No. 71996 are AFFIRMED with the
MODIFICATION that the award of moral and exemplary damages as well as attorney's fees be DELETED.
No pronouncement as to costs.

SO ORDERED.

SOLIDSTATE MULTI-PRODUCTS
CORPORATION,
Petitioner,

- versus -

SPS. ERLINDA CATIENZAVILLAVERDE and VICTOR

VILLAVERDE,
Respondents.

G.R. No. 175118

Present:

QUISUMBING, J.,
Chairperson,
CARPIO MORALES,
TINGA,
VELASCO, and
BRION, JJ.

Promulgated:
July 21, 2008
x---------------------------------------------------------------------------x

DECISION
TINGA, J.:

Petitioner Solidstate Multi-Products Corporation seeks the reversal of the Decision[1] of the Court of
Appeals dated 31 July 2006, in CA-G.R. CV No. 73733, which annulled the sale to petitioner of the parcel of
land subject of this case, and of its Resolution[2] dated 18 October 2006 which denied reconsideration.

The facts are as follows:

In February 1976, Julian Pearanda (Pearanda), respondent Erlinda Villaverdes uncle, sold to petitioner
a 48,182-square meter parcel of land located in Molino, Bacoor, Cavite, covered by Transfer Certificate of Title
(TCT) No. T-80889 of the Registry of Deeds of the Province of Cavite. Because the property was then being
adversely claimed by a third party, the Intestate Estate of Antenor S. Virata (Estate of Virata), Pearanda
undertook to institute at his own expense whatever legal action that might become necessary and to answer for
damages to petitioner should the ownership of the property be proven to be that of any other person or
claimant thru fault of the First Party.[3]
The undertaking was reduced to writing in the form of an Agreement with Mortgage[4] dated 8 July 1976,
executed by Pearanda, petitioner and respondents. In the same document, respondents agreed to mortgage a
30,302-sq m property owned by them and covered by TCT No. T-82596 in order to secure Pearandas faithful

compliance with the undertaking. Respondents also signed an Agreement[5] to shoulder 50% of the expenses
that would be incurred in the suit between petitioner and the Estate of Virata.

Petitioner instituted a civil action against the Estate of Virata to remove the cloud on its title. The
complaint, docketed as Civil Case No. RTC-BCV 82-85 of the Regional Trial Court of Bacoor, Cavite, Branch
19, was dismissed on 15 June 1985on the ground of failure to state a cause of action.[6] The dismissal was
affirmed by the Court of Appeals on 13 July 1987, but was ultimately reversed by this Court on 6 May 1991
with the declaration that the parcel of land covered by TCT No. T-80889 was truly owned by petitioner.[7]
On 13 February 1989, while the case was pending with this Court, the parties executed a Deed of
Absolute Sale[8] whereby respondents sold their property covered by TCT No. T-82596 to petitioner in
consideration of the amount of P96,000.00receipt of which respondents acknowledged to their full
satisfactionand of the cancellation of the original mortgage obligation under the Agreement with Mortgage. It
appears that respondents also received the amount of P105,000.00 from petitioner on account of the sale.
Respondents, seven years thence, filed a Complaint[9] seeking the annulment of the Deed of Absolute Sale
on the ground that their consent to the transaction was vitiated by mistake, undue influence and fraud. They
alleged that petitioner had induced them to sell their land on the misinformation that the case filed against the
Estate of Virata, which motivated them to sign the Agreement with Mortgage and later the Deed of Absolute
Sale, had already been dismissed.
The trial court rendered judgment in favor of respondents, ruling that the latters property covered by
TCT No. T-82596 was made the subject of the Agreement with Mortgage and of the Deed of Absolute Sale
only to guarantee the success of the quieting of title case against the Estate of Virata. Since the case was
eventually won by petitioner the trial court concluded that the sale was absolutely simulated or fictitious,
without consideration and, therefore, void under Article 1409 of the Civil Code. It then directed the nullification
of the Deed of Absolute Sale, the return of TCT No. T-82596 to respondents, and the cancellation of the
annotation on the dorsal portion of the title pertaining to the Agreement with Mortgage. It also
awarded P100,000.00 to respondents as nominal damages.[10]

The Court of Appeals affirmed the decision of the trial court with the modification that respondents
return to petitioner the amount of P105,000.00 with interest at 6% from the finality of judgment until fully paid.
In this Petition for Review on Certiorari[11] dated 6 November 2006, petitioner argues that the Deed of
Absolute Sale is separate and distinct from the Agreement with Mortgage. According to petitioner,

there is no basis for the appellate courts ruling that the stated consideration of P96,000.00 for the Agreement
with Mortgage, which respondents did not actually receive, is the same consideration for the Deed of Absolute
Sale. The appellate court allegedly merely speculated that there was no consideration for the sale just because
the Deed of Absolute Sale alluded to the mortgage. Petitioner maintains that there is nothing in the deed which
indicates that respondents agreed to sell the property because they failed to comply with their obligation under
the Agreement with Mortgage or that the sale was due to the dismissal of the case for quieting of title.
Petitioner insists that respondents consent to the sale was not vitiated in any manner because the status of
the quieting of title case could be easily verified with the exercise of reasonable diligence on their part. It also
avers that the sale was supported by valuable consideration because respondents received P96,000.00 which they
themselves acknowledged in the Deed of Absolute Sale, as well as an additional P105,000.00. Finally,
petitioner argues that the complaint was filed more than four (4) years from the discovery of the alleged fraud or
mistake and was thus filed out of time.
In their Comments[12] dated 23 May 2006, respondents argue that the Agreement with Mortgage and the
Deed of Absolute Sale were devised to indemnify petitioner should it lose its case against the Estate of Virata;
hence, when petitioners title was upheld by the court, both agreements lost the purpose for their existence.
Respondents thus aver that the appellate courts conclusion that the sale was without a valid consideration was
correct. They likewise point out that since the case is one for the declaration of nullity of a contract, prescription
should not apply.
Petitioner filed a Reply[13] dated 14 August 2007, reiterating its arguments and adding that respondents
assumed two (2) undertakings in the Agreement with Mortgage: first, to assume the litigation costs in the suit
against the Estate of Virata andsecond, to indemnify petitioner in case it loses the case. Only the second
undertaking was allegedly resolved by the Court of Appeals.
Petitioner points out that respondents also signed a separate agreement to shoulder 50% of the expenses
incurred in the quieting of title case. It avers that it incurred litigation expenses in the amount of P3,000,000.00
for which respondents should answer. The considerations for the Deed of Absolute Sale are allegedly the
amount of P96,000.00 stated therein, the cancellation of the original mortgage obligation under the Agreement
with Mortgage, the amount of P105,000.00 received by respondents, and the payment of respondents
obligations under the said agreement.
A contract, as defined by the Civil Code, has the following requisites: (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.[14] Cause or consideration is the contested requisite in this case.

The Agreement with Mortgage, one of the key contracts in the present controversy, specifically mentions
that the mortgage is without any consideration. Paragraph 8 thereof states:
8. The Mortgage herein agreed upon is without any consideration and the amount of NINETY
SIX THOUSAND (P96,000.00) PESOS, Philippine Currency, mentioned in the next preceding
paragraph was not paid to and received by the First Party and the Third Party;[15]
That the parties specifically treated this contract, on the one hand, to be without consideration despite
presumably knowing the legal consequence of such a characterization, i.e., that a contract without consideration
is void under Article 1352 of the Civil Code, is odd in light of petitioners argument that the consideration for
the mortgage was Pearandas undertakings (1) to institute at his own expense whatever legal action may be
necessary to protect petitioners title to the lot he had sold to the latter and (2) to answer for any damage which
may be suffered by petitioner if ownership of the property is adjudged to another claimant.
On the other hand, the Deed of Absolute Sale makes specific reference to the mortgage obligation and
states that the consideration for the sale, like the mortgage, is also P96,000.00 and the cancellation
of the original mortgage obligation of NINETY SIX THOUSAND

PESOS (P96,000.00).[16] As previously stipulated by the parties, however, the amount of P96,000.00, which
was supposedly the consideration for the mortgage, was never received by respondents.
The foregoing circumstances justify the appellate courts conclusion, to which we agree, that the parties
executed the Agreement with Mortgage and the Deed of Absolute Sale solely to confront the possibility that the
property sold by Pearanda to petitioner would be adjudged to another claimant. The final disposition of the
quieting of title case in favor of petitioner rendered the contracts without a cause, therefore void.[17]
The evidence clearly shows that while respondents acknowledged receipt of the amount of P96,000.00 in
the Deed of Absolute Sale, such amount was not actually paid to them by petitioner. A contract of sale is void
and produces no effect whatsoever where the price, which appears thereon as paid, has in fact never been paid
by the purchaser to the vendor.[18]
As the appellate court found, respondents were given the amount of P55,000.00 in October 1988a few
months before the Deed of Absolute Sale was executedafter they were told that the amount was a
paconsuelo for the use of their property.[19] Later, when they obliged to sign the Deed of Absolute Sale,
respondents were given P50,000.00. The amount of P50,000.00, which is less than the stated consideration for
the sale of P96,000.00, was received by respondents only because they were then under the impression that
petitioner had lost the quieting of title case. The amounts received by respondents are not the consideration for
the sale but rather, as they understood it, amounts merely by petitioner out of the latters munificence and good
will. In their own words, respondents allege that they signed the Deed of Absolute Sale due to the fraudulent
misrepresentation and false notice or information coupled by plaintiffs financial handicap at that time, in
consideration of the meager amount of P50,000.00,[20]
We do not agree, however, with the appellate courts ruling that the sale should be considered a pactum
commissorium prohibited under Article 2088 of the Civil Code.[21] There is no stipulation in any of the contracts
between the parties which states that ownership of the property in question shall automatically vest in petitioner
upon respondents failure to perform their obligations under the mortgage contract, which is the essence
of pactum commissorium.[22] There does not even appear to have been any demand or default yet. That the
parties entered into a separate Deed of Absolute Sale is proof that there was no automatic transfer of ownership.

Based on the foregoing, we find that prescription had not, nay cannot, set in. Article 1410 of the Civil
Code provides that the action or defense for the declaration of the inexistence of a contract does not prescribe.
As a final note, effect should be given to the agreement signed by respondents in which they committed
to shoulder 50% of the expense that will be incurred in the case filed by petitioner against the Estate of
Virata.[23] The appellate court correctly ruled, however, that this issue must be resolved in another case.

WHEREFORE, the Decision of the Court of Appeals in CA-G.R. CV No. 73733 dated 31 July 2006 and
its Resolution dated 18 October 2006 are AFFIRMED in accordance with the foregoing discussion. No
pronouncement as to costs.
SO ORDERED.
AMADO Z. AYSON, JR.,
Petitioner,

G.R. No. 146730

Present:

- versus -

SPOUSES FELIX and MAXIMA PARAGAS,

Respondents.

YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.
Promulgated:
July 4, 2008

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

DECISION
NACHURA, J.:

For review on certiorari under Rule 45 of the Rules of Court are the Decision[1] dated May 31, 2000 and
the Resolution[2] dated December 12, 2000 of the Court of Appeals in CA-G.R. CV No. 59645.
The subject of this controversy is the one-fourth (1/4) portion of, corresponding to the share of respondent
Maxima Paragas in, the real property located at Caranglaan District, Dagupan City, originally covered by
Transfer Certificate of Title No. 7316 of the Register of Deeds of Dagupan City.
The controversy commenced with the filing of an ejectment complaint[3] on April 12, 1993 before Branch
1 of the Municipal Trial Court in Cities (MTCC) of Dagupan City by herein petitioner Amado Z. Ayson, as
represented by his natural father Zosimo S. Zareno[4] (Zareno), against respondent-spouses Felix and Maxima
Paragas. The complaint, docketed as Civil Case No. 9161, alleged, among others, that: (1) petitioner is the
registered owner of the property being occupied by the respondent-spouses as shown by Transfer Certificate of

Title No. 59036 of the Registry of Deeds of Dagupan City in his name; (2) respondent-spouses are occupying
the said land through his tolerance without rent; (3) on April 8, 1992, respondent-spouses executed an
Affidavit[5] which declared:
1.

That we are occupants of a parcel of land (Lot 6595-A-2) covered by Transfer

Certificate of Title No. 57684 located at Caranglaan District, Dagupan City owned by
Amado Ll. Ayson;

2.

That we occupy the said land by tolerance without paying any rental whatsoever;

3.

That we further agree to vacate the aforesaid land within three (3) months from the
date hereof and to remove and transfer our house therefrom to another place;

4.

That in consideration of vacating the said parcel of land the amount of Twenty
Thousand Pesos (P20,000.00) shall be paid to us; and, that the amount of Ten Thousand
Pesos (P10,000.00) shall be paid upon signing of this affidavit and the balance of Ten
Thousand Pesos (P10,000.00) shall be paid upon removal of our house on the third month
from date hereof.

(4) despite the receipt of the P10,000.00 upon the execution of the Affidavit, respondent-spouses refused to
vacate the land as agreed upon; and (5) despite demands, respondent-spouses still refused to vacate, thus
constraining him to file the complaint. Aside from respondents vacating the land, petitioner prayed for the
return of the P10,000.00 he paid them; and the payment of P10,000.00 actual damages, P10,000.00 exemplary
damages, P20,000.00 attorneys fees, and the costs.
In their Answer,[6] respondent-spouses alleged that Zareno had no personality and authority to file the
case and the filing of the complaint was made in bad faith.
During the preliminary conference, the following admissions were made
By petitioner:
(1)

That the defendants (respondent spouses) had been in possession of the land in
question since 1930; and

(2)

That the semi-concrete house of the defendants (respondent spouses) stands on the
land in question.

By respondent spouses:
(1) That the defendant (respondent) Felix Paragas had executed an affidavit on April 8,
1992 wherein he admitted that he is occupying the land by tolerance of the plaintiff
(petitioner) without paying any rental whatsoever and had agreed to vacate the
premises within three (3) months but refused to vacate later;
(2) That the plaintiff (petitioner) is the registered owner of the land in question;

(3) That there was a demand to vacate the premises; and

(4) That there is a Certification to File Action in Court.[7]

On August 31, 1993, the MTCC, Branch 1, Dagupan City decided in favor of petitioner, based mainly on
the above admissions, rendering judgment as follows:
WHEREFORE, the preponderance of evidence being in favor of the plaintiff (petitioner),
judgment is hereby rendered:
1) Ordering the defendants (respondent spouses) to vacate the land in question located at
Caranglaan District, Dagupan City and covered by Transfer Certificate of Title No. 59036 of the
Registry of Deeds for the City of Dagupan, and to deliver the physical and peaceful possession to
the plaintiff (petitioner);
2) Ordering the defendants (respondent spouses) jointly and severally to pay the plaintiff
(petitioner) the sum of P300.00 as monthly rental of the land from the date of the filing of the
complaint until the defendants (respondent spouses) vacate the premises;
3) Ordering defendant (respondent) Felix Paragas to return or indemnify the plaintiff
(petitioner) the amount of P10,000.00 representing the sum received by him from the plaintiff
(petitioner) on April 8, 1992;
4) Other claims are denied for lack of merit.
With costs against the defendants.
SO ORDERED.[8]

Respondent-spouses appealed the said Decision to the Regional Trial Court (RTC) of Dagupan City. In
the Decision[9] dated August 16, 1996, the RTC affirmed the MTCC Decision, the dispositive portion of which
reads
WHEREFORE, the appeal
interposed
by the appellants
is
hereby
DISMISSED. Judgment is rendered in favor of the plaintiff (petitioner) and against the
defendants (respondent spouses), to wit:
1. ORDERING defendants (respondent spouses), their agents, representatives and assigns
to vacate the land subject matter of this case;
2. ORDERING defendants (respondent spouses) to return to the plaintiff (petitioner) the
amount of P10,000.00 received by them in consideration of their promise to vacate the land
subject matter of this case;
3. ORDERING defendants (respondent spouses) to pay to the plaintiff
(petitioner) P10,000.00 in actual damages; P10,000.00 in exemplary damages; and P20,000.00 in
attorneys fees; and

4. ORDERING defendants to pay the costs.

SO ORDERED.[10]

Respondent-spouses went to the Court of Appeals via a petition for review. In its
Decision[11] dated October 13, 1997, the appellate court dismissed the petition. The Decision was appealed to
this Court. We denied the appeal in a Resolution dated December 3, 1997, on the basis of the failure of
respondent-spouses to show any reversible error in the decisions of the three courts below. Our Resolution
became final and executory on January 29, 1998 and was entered in the Book of Entries of Judgments.[12]
Meanwhile, on October 11, 1993, during the pendency of the appeal with the RTC, respondent-spouses
filed against petitioner, as represented by his attorney-in-fact Zosimo S. Zareno, the heirs of Blas F. Rayos, the
spouses Delfin and Gloria Alog, and Hon. Judge George M. Mejia, as Presiding Judge of the Metropolitan Trial
Court, Branch 1 of Dagupan City, also before the RTC of Dagupan City, a complaint[13] for declaration of
nullity of deed of sale, transactions, documents and titles with a prayer for preliminary injunction and damages.
The complaint was docketed as Civil Case No. D-10772 and was raffled to Branch 42.
The complaint alleged, inter alia, that respondent Maxima is a co-owner of a parcel of land originally
covered by TCT No. 7316 of the Registry of Deeds of Dagupan City, her share having an area of 435.75
square meters. Sometime prior toApril 13, 1955, respondent Felix, then an employee of the defunct Dagupan
Colleges (now University of Pangasinan) failed to account for the amount of P3,000.00. It was agreed that
respondent Felix would pay the said amount by installment to the Dagupan Colleges. Pursuant to that
agreement, Blas F. Rayos and Amado Ll. Ayson, then both occupying high positions in the said institution,
required respondent-spouses to sign, without explaining to them, a Deed of Absolute Sale on April 13,
1955over respondent Maximas real property under threat that respondent Felix would be incarcerated for
misappropriation if they refused to do so.
The complaint further alleged that later, respondent-spouses, true to their promise to reimburse the
defalcated amount, took pains to pay their obligation in installments regularly deducted from the salaries
received by respondent Felix from Dagupan Colleges; that the payments totaled P5,791.69; that notwithstanding
the full payment of the obligation, Amado Ll. Ayson and Blas F. Rayos did nothing to cancel the purported
Deed of Absolute Sale; and that they were shocked when they received a copy of the complaint for ejectment
filed by petitioner.
During the pre-trial, the following was established
[T] he land in question was a portion of a larger lot covered by TCT No. 41021 with an area of
1,743 square meters in the name of Buenaventura Marias, father of the plaintiff (respondent)
Maxima Marias-Paragas. Transfer Certificate of Title No. 41021 was later on cancelled and
replaced by TCT No. 7316 in the names of Maxima Marias, Rufino Marias, Rizalina Marias

and Buenaventura Marias, specifying that each would receive one-fourth (1/4) thereof. The
portion pertaining to Maxima Marias-Paragas was later on allegedly conveyed to Blas F. Rayos
and Amado Ll. Ayson by virtue of a Deed of Sale allegedly executed on April 13, 1955 by
Maxima Marias-Paragas with the conformity of her husband Felix Paragas, after which TCT
7354 was issued canceling TCT No. 7316. Under TCT No. 7354, the new owners were Blas F.
Rayos and Amado Ll. Ayson, Rufino Marias, Rizalina Marias and Angela Marias. The land
was subdivided later on into four (4) lots, distributed as follows: Lot A went to Blas F. Rayos
and Amado Ll. Ayson, Lot B to Rufino Marias, Lot C to Rizalina Marias, and Lot D to Angela
Marias. Each lot has an area of 435.75 square meters. For Lot A, TCT No. 22697 was issued
in the name of both Blas F. Rayos and Amado Ll. Ayson.
On November 15, 1991, Lot A was the subject of a subdivision between Amado Ll.
Ayson and Blas F. Rayos. Said subdivision was approved on December 10, 1991, dividing the
property into equal halves, each half with an area of 217.88 square meters. Thereafter, the onehalf (1/2) pertaining to Blas F. Rayos was sold by his successors-in-interest to spouses Delfin
and Gloria Alog by virtue of an Extra-Judicial Settlement With Sale dated January 10, 1992, to
which the said spouses were issued TCT 57683 on January 14, 1992. On the same day, Amado
Ll. Ayson for his portion of the property was also issued TCT 57684. Amado Ll. Ayson later
passed on ownership of his share to Amado Z. Ayson and issued to the latter was TCT 59036
after the latter executed an Affidavit of Self Adjudication dated August 3, 1992 upon the death of
Amado Ll. Ayson.[14]

After trial on the merits, the RTC, Branch 42, Dagupan City rendered its Decision[15] dated March 6, 1998
in favor of respondent-spouses declaring the Deed of Absolute Sale as an equitable mortgage, the decretal
portion of which reads
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the
defendants, except the spouses Delfin and Gloria Alog:
1.

Annulling the Deed of Sale executed by Felix Paragas and Maxima Paragas on April 13,
1955 (Exh. 3) in favor of defendants Blas F. Rayos and Amado Ll. Ayson except as it affects
the interest of Spouses Delfin and Gloria Alog over the property in question;

2.

Annulling likewise TCT No. 57684 issued to Amado Ll. Ayson and TCT No. 59036 issued
to Amado Z. Ayson, including the respective tax declarations thereof;

3.

Ordering Amado Z. Ayson to reconvey ownership of the property covered by TCT No.
59036 to the herein plaintiffs, the true owners thereof;

4.

Ordering defendant Amado Z. Ayson and the estate of Blas F. Rayos to pay jointly and
severally to the herein plaintiffs the amount paid by Spouses Delfin and Gloria Alog to the
late Blas F. Rayos, there being no proof adduced by the plaintiffs as to the actual current
market value of the said property;

5.

Ordering the said defendants Amado Z. Ayson and the estate of Blas F. Rayos to pay
jointly and severally to the plaintiffs other amounts of P50,000.00 as moral damages
and P10,000.00 as attorneys fees, including appearance fee;

6.

Further ordering the aforementioned defendants, except defendant-spouses Delfin and

Gloria Alog, to pay costs.
SO ORDERED.[16]

Petitioner appealed the said Decision to the Court of Appeals, which affirmed the same in its Decision
dated May 31, 2000. The motion for reconsideration filed by petitioner was likewise denied by the Court of
Appeals in its Resolution datedDecember 12, 2000. Hence, this petition raising the sole issue that
The Honorable Court of Appeals has acted in excess of or with grave abuse of discretion
amounting to lack of jurisdiction in dismissing the appeal of the herein petitioner Amado Z.
Ayson, Jr. and in affirming the decision of the Regional Trial Court, Branch 42, Dagupan City in
Civil Case No. D-10772, in violation of the laws on sale, equitable mortgage, prescription, laches
and estoppel as well as the laws on property registration.[17]

Petitioner contends that respondent-spouses are bound by the judicial admissions they made both in the
ejectment case and in the case for declaration of nullity of the Deed of Absolute Sale.
With respect to the ejectment case, he posits that respondent-spouses cannot renege on the effects of
their admissions that petitioner is the registered owner of the disputed property; that they were occupying the
same by mere tolerance of the latter without rent; and that they undertook to vacate the premises in accordance
with the Affidavit dated April 8, 1992, especially when the findings of the MTCC had already become final
upon the Entry of Judgment of our Resolution affirming the MTCC, the RTC, and the Court of Appeals.
As regards the action for declaration of nullity of the deed of absolute sale, petitioner claims that
respondent-spouses are likewise bound by their admission during the pre-trial that the series of certificates of
title from the time the Deed of Absolute Sale was registered with the Register of Deeds of Dagupan City
eventually led to the issuance of TCT No. 59036 in his name.
Petitioner further argues that the action instituted before the RTC, Branch 42, Dagupan City has already
prescribed. According to him, the complaint alleged that the Deed of Absolute Sale was executed through
fraud, making the said contract merely voidable, and the action to annul voidable contracts based on fraud
prescribed in four (4) years from the discovery of fraud. He insists that the registration of the Deed of Absolute
Sale occurred on May 4, 1955, which operated as constructive notice of the fraud to the whole world, including
respondent-spouses. Thus, petitioner concludes that the action had long prescribed when they filed the same
on October 11, 1993, since its cause had accrued 38 years ago.
Petitioner adds that respondent-spouses are bound by estoppel and guilty of laches in light of the judicial
admissions they have already made and the unreasonable length of time that had lapsed before they questioned
the validity of the Deed of Absolute Sale and the Affidavit they executed on April 8, 1992.

He also asseverates that the Deed of Absolute Sale is a true sale and not an equitable mortgage, arguing
that the alleged payments made by respondent Felix were made from December 29, 1965 to December 17,
1980, long after the execution of the contract on April 13, 1955; that respondent-spouses only paid realty taxes
over their house and not on the disputed land; that their possession of the property was by his mere tolerance;
that there was no evidence proffered that the amount of P3,000.00 as consideration for the sale was unusually
inadequate in 1955; and that the other co-owners of the land did not question or protest the subdivision thereof
leading to the issuance of TCT No. 59036 in his name.
Lastly, petitioner claims that he is a transferee in good faith, having had no notice of the infirmity
affecting the title of his predecessor Amado Ll. Ayson over the property. He says that he was only exercising
his right as an heir when he adjudicated unto himself the parcel of land pertaining to his adoptive
father,[18] resulting in the issuance of TCT No. 59036 in his name, and, thus, should not be penalized for his
exercise of a legal right.
The arguments do not persuade.
First. With respect to the admissions made by respondent-spouses, through their counsel during the
preliminary conference of the ejectment case, it is worthy to note that, as early as the submission of position
papers before the MTCC, they already questioned the sale of the subject property to Amado Ll. Ayson and Blas
F. Rayos for being fictitious and asserted their ownership over the land, pointing to the fact that respondent
Maxima had been living on the land since her birth in 1913 and that they had been in continuous possession
thereof since her marriage to respondent Felix in 1944. However, unfortunately for them, the MTCC held them
bound by the admissions made by their counsel and decided that petitioner had a better right to possess the
property.
Nevertheless, it must be remembered that in ejectment suits the issue to be resolved is merely the physical
possession over the property, i.e., possession de facto and not possession de jure, independent of any claim of
ownership set forth by the party-litigants.[19] Should the defendant in an ejectment case raise the defense of
ownership in his pleadings and the question of possession cannot be resolved without deciding the issue of
ownership, the issue of ownership shall be resolved only to determine the issue of possession. [20] The judgment
rendered in such an action shall be conclusive only with respect to physical possession and shall in no wise bind
the title to the realty or constitute a binding and conclusive adjudication of the merits on the issue of
ownership. Therefore, such judgment shall not bar an action between the same parties respecting the title or
ownership over the property,[21] which action was precisely resorted to by respondent-spouses in this case.
Anent the claim that respondent-spouses admitted the series of TCTs issued by reason of the registration
of the questioned Deed of Absolute Sale, suffice it to state that records show that they admitted only the
existence thereof, not necessarily the validity of their issuance.

Second. The Deed of Absolute Sale is, in reality, an equitable mortgage or a contract of loan secured by a
mortgage. The Civil Code enumerates the cases in which a contract, purporting to be a sale, is considered only
as a contract of loan secured by a mortgage, viz.:
Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the
following cases:
(1)

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

(2)

When the vendor remains in possession as lessee or otherwise;

(3)

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

(4)

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

(5)

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

(6)

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

In any of the foregoing cases, any money, fruits, or other benefit to be received by the
vendee as rent or otherwise shall be considered as interest which shall be subject to the usury
laws.[22]
Art. 1604. The provisions of article 1602 shall also apply to a contract purporting to be
an absolute sale.

In such cases, parol evidence then becomes competent and admissible to prove that the instrument was in
truth and in fact given merely as a security for the repayment of a loan; and upon adequate proof of the truth of
such allegations, the courts will enforce the agreement or understanding in this regard, in accord with the true
intent of the parties at the time the contract was executed, even if the conveyance was accompanied by
registration in the name of the transferee and the issuance of a new certificate of title in his name.[23]
In this case, the evidence before the RTC, Branch 42, Dagupan City had established that the possession
of the subject property remained with respondent-spouses despite the execution of the Deed of Absolute Sale
on April 13, 1955. In fact, testimonies during the trial showed that petitioner and his predecessors never
disturbed the possession of respondent-spouses until the filing of the ejectment case on April 12, 1992.[24]
Moreover, the evidence presented by respondent-spouses indubitably reveals that they signed the
contract under threat of prosecution, with the view to secure the payment of the P3,000.00 defalcated by
respondent Felix. Amado Ll. Ayson and Blas F. Rayos obviously exerted undue influence on Felix taking
advantage of the latters lack of education and understanding of the legal effects of his signing the deed.

Respondent-spouses have clearly proven that they have already paid the aforesaid amount. That the
obligation was paid in installments through salary deduction over a period of 10 years from the signing of the
Deed of Absolute Sale is of no moment. It is safe to assume that this repayment scheme was in the nature of an
easy payment plan based on the respondent-spouses capacity to pay. Also noteworthy is that the deductions
from respondent Felixs salary amounted to a total ofP5,791.69,[25] or almost double the obligation
of P3,000.00. Furthermore, it cannot be denied that petitioner failed to adduce countervailing proof that the
payments, as evidenced by the volume of receipts, were for some other obligation.
That the realty taxes paid by respondent-spouses was only for their house can be explained by the fact
that, until the filing of the ejectment case, respondent Maxima was not aware that the land she co-owned was
already partitioned, such that the payments of real estate taxes in her name were limited to the improvement on
the land.
An equitable mortgage is a voidable contract. As such, it may be annulled within four (4) years from the
time the cause of action accrues. This case, however, not only involves a contract resulting from fraud, but
covers a transaction ridden with threat, intimidation, and continuing undue influence which started when
petitioners adoptive father Amado Ll. Ayson and Blas F. Rayos, Felixs superiors at Dagupan Colleges,
practically bullied respondent-spouses into signing the Deed of Absolute Sale under threat of
incarceration. Thus, the four-year period should start from the time the defect in the consent ceases.[26] While
at first glance, it would seem that the defect in the consent of respondent-spouses ceased either from the
payment of the obligation through salary deduction or from the death of Amado Ll. Ayson and Blas F. Rayos, it
is apparent that such defect of consent never ceased up to the time of the signing of the Affidavit on April 8,
1992 when Zareno, acting on behalf of petitioner, caused respondent Felix to be brought to him, and taking
advantage of the latter being unlettered, unduly influenced Felix into executing the said Affidavit for a fee
of P10,000.00.[27] The complaint praying for the nullity of the Deed of Absolute Sale was filed on October 11,
1993, well within the four-year prescriptive period.
Regarding the finality of the adjudication of physical possession in favor of petitioner, it may be
reiterated that the right of possession is a necessary incident of ownership. This adjudication of ownership of
the property to respondent-spouses must include the delivery of possession to them since petitioner has not
shown a superior right to retain possession of the land independently of his claim of ownership which is herein
rejected. Verily, to grant execution of the judgment in the ejectment case would work an injustice on
respondent-spouses who had been conclusively declared the owners and thus, rightful possessors of the disputed
land.[28]

WHEREFORE, the petition is DENIED and the Decision of the Court of Appeals in CA-G.R. CV No.
59645 dated May 31, 2000 is AFFIRMED.
SO ORDERED.

(Bautista v. Unangst and PNB v. Cabatingan not yet available)