Norton Resources and Development Corp. vs All Asia Bank Corp.

Facts: Norton is a domestic corporation engaged in the business of construction and development of housing subdivisions
based in Davao City. All Asia Bank Corp. is a domestic bank Corporation operating in Davao City.

One day, Norton entered in a Loan Agreement with All Asia Bank for the amount of P3.8M for the construction of 160
housing units, the Home Financing Corp, as guarantor. To speed up the processing of all documents necessary for the
release of the funds, petitioner allegedly offered respondent a service/commitment fee of 320k for the construction of the
housing units or at 2k per unit. The offer having been accepted, both parties executed a MOA on the same date.

Petitioner was not able to complete the construction and failed to pay its loan obligation. HFC paid only 2.9M but withhold
the 250k.

Petitioner filed a Complaint for Sum of Money, Damages and Attorneys Fees against respondent with the RTC. Petitioner
alleged that the P320,000.00 commitment/service fee mentioned in the MOA was to be paid on a per-unit basis
at P2,000.00 per unit. Inasmuch as only 35 housing units were constructed, petitioner posited that it was only liable to
pay P70,000.00 and not the whole amount of P320,000.00, which was deducted in advance from the proceeds of the
loan.

As such, petitioner demanded the return of P250,000.00, representing the commitment fee for the 125 housing units left
unconstructed and unduly collected by respondent. Respondent denied that the P320,000.00 commitment/service fee
provided in the MOA was broken down into P2,000.00 per housing unit for 160 units. RTC rendered a Decision in favor of
petitioner. The CA reversed the ruling of the RTC. Hence , this instant petition.

Issue: WHETHER OR NOT THE MEMORANDUM OF AGREEMENT (MOA) REFLECTS THE TRUE INTENTION OF
THE PARTIES.

Ruling: Yes. Section 9, Rule 130 of the Revised Rules of Court clearly provides:

SEC. 9. Evidence of written agreements. When the terms of an agreement have been reduced to writing, it is
considered as containing all the terms agreed upon and there can be, between the parties and their successors in
interest, no evidence of such terms other than the contents of the written agreement.

However, a party may present evidence to modify, explain or add to the terms of the written agreement if he puts in issue
in his pleading:

(a) An intrinsic ambiguity, mistake, or imperfection in the written agreement;

(b) The failure of the written agreement to express the true intent and agreement of the parties thereto;

(c) The validity of the written agreement; or

(d) The existence of other terms agreed to by the parties or their successors in interest after the execution of the
written agreement.

The "parol evidence rule" forbids any addition to or contradiction of the terms of a written instrument by testimony or other
evidence purporting to show that, at or before the execution of the parties' written agreement, other or different terms were
agreed upon by the parties, varying the purport of the written contract. When an agreement has been reduced to writing,
the parties cannot be permitted to adduce evidence to prove alleged practices which, to all purposes, would alter the
terms of the written agreement. Whatever is not found in the writing is understood to have been waived and abandoned.
None of the above-cited exceptions finds application in this case, more particularly the alleged failure of the MOA to
express the true intent and agreement of the parties concerning the commitment/service fee of P320,000.00.

1
 RODOLFO MORLA, G.R. No. 171146
Petitioner,
Present:
- versus -
CORONA, C.J.,
CORAZON NISPEROS BELMONTE, Chairperson,
ABRAHAM U. NISPEROS, PERLITA LEONARDO-DE CASTRO,
NISPEROS OCAMPO, ARMANDO U. BERSAMIN,
NISPEROS, ALBERTO U. NISPEROS, DEL CASTILLO, and
HILARIO U. NISPEROS, ARCHIMEDES U. VILLARAMA, JR., JJ.
NISPEROS, BUENAFE NISPEROS PEREZ,
ARTHUR U. NISPEROS, andESPERANZA
URBANO NISPEROS,
Respondents. Promulgated:

December 7, 2011

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

DECISION

LEONARDO-DE CASTRO, J.:

This petition for review on certiorari[1] seeks to annul and set aside the March 9, 2005 Decision[2] and December
29, 2005 Resolution[3] of the Court of Appeals in CA-G.R. CV No. 53527, which affirmed with modification the February
19, 1996 Judgment[4] of the Regional Trial Court (RTC) of Ilagan, Isabela, Branch 17 in Civil Case No. 810.

Spouses Alfredo Nisperos and Esperanza Urbano (the Nisperos spouses) were the original homesteaders of an
80,873-square meter tract of public land known and identified as Lot No. 4353 of Pls. 62, situated in Caliguian, Burgos,
Isabela,[5] by virtue of Original Certificate of Title (OCT) No. P-1542, issued on May 4, 1951.[6]

On June 8, 1988, the Nisperos spouses executed a Partial Deed of Absolute Sale, [7] wherein they sold a portion
of Lot No. 4353 with an area of 50,000 square meters (subject land) to the brothers Ramon and Rodolfo Morla (the Morla
brothers) for the sum of Two Hundred Fifty Thousand Pesos (250,000.00).

On August 2, 1988, the Morla brothers acknowledged and confirmed in writing (the 1988 contract) that they had
bought from the Nisperos spouses the subject land, and that they had agreed to give the Nisperos spouses a period of ten
(10) years within which to repurchase the subject land for the price of Two Hundred Seventy-Five Thousand Pesos
(275,000.00). The 1988 contract was written in Ilocano and executed at the Office of the Barangay Captain in the
Municipality of Burgos, Province of Isabela.[8]

On June 27, 1994, the Nisperos spouses filed a Complaint[9]for Repurchase and/or Recovery of Ownership
Plus Damages against the Morla brothers. They alleged that the deed of sale was registered by the Morla brothers only
when they had signified their intention to repurchase their property. [10] Thus, Transfer Certificate of Title (TCT) No. 225544
for the subject land was issued in favor of the Morla brothers, and TCT No. 225545,[11] for the remaining 30,870 square
meters of Lot No. 4353, to the Nisperos spouses.

In response,[12] the Morla brothers claimed that the Nisperos spouses had no cause of action, as the repurchase
of the subject land was improper for being outside the five-year period provided under Section 119 of Commonwealth Act
No. 141.[13]

2
 At the pre-trial conference held on June 19, 1995, the parties settled that the only issue to be resolved by the RTC
was whether the 1988 contract executed by the parties, wherein it was stipulated that the Nisperos spouses may
repurchase the land sold to the Morla brothers within a period of ten (10) years, was valid or not. [14]
On July 28, 1995, the RTC issued an Order [15] requiring the parties to submit their position papers or memoranda in light
of their agreement to submit the case for Summary Judgment on the issue of the validity of the 1988 contract.

The Nisperos spouses then filed a Motion for Summary Judgment [16] on the ground that there was no genuine
issue of material facts in the case except for damages and attorneys fees, which may be heard separately and
independently.

On September 15, 1995, the Nisperos spouses deposited the amount of 275,000.00, with the clerk of court of
the RTC for the repurchase of the subject land.[17]

The RTC rendered its Judgment dated February 19, 1996, the dispositive portion of which reads:
WHEREFORE, for and in consideration of the foregoing, judgment is hereby rendered in favor of the
plaintiffs and against the defendants ordering the defendants to reconvey the portion of five (5) hectares
of plaintiffs land covered by their original title, Original Certificate of Title No. P-1542 unto the plaintiffs
and to receive and accept the 275,000.00 from the plaintiffs as repurchase; to pay attorneys fees in the
amount of 5,000.00 and to pay the costs of this suit.[18]

The RTC said that the only issue to be resolved was the validity of the 1988 contract, which the Morla brothers neither
attacked nor denied. The RTC held that it was clear from the 1988 contract, which the Morla brothers executed, that they
had bound themselves to its terms and conditions. The RTC further proclaimed that what was prohibited was the
shortening of the five-year redemption period under Section 119 of Commonwealth Act No. 141, and not its
prolongation.[19]

On March 14, 1996, the Morla brothers moved for the reconsideration [20] of the RTCs judgment on the ground that it could
not affect them since they were no longer the real parties-in-interest as they had already sold the subject land to Rosie
Ocampo, married to Delfin Gragasin, and Hilario Bernardino, married to Manolita Morla, on May 2, 1994. [21]
The Nisperos spouses, in their Opposition to the Motion for Reconsideration, [22] attacked the validity of the
purported sale and alleged that such sale in favor of the Morla brothers close relatives was a last ditch attempt to win the
case. The Nisperos spouses pointed out that the Morla brothers never mentioned such sale considering that it supposedly
happened in May 1994, before the case was instituted in June 1994. [23]
The RTC denied the Morla brothers motion for reconsideration in an Order[24] dated July 19, 1996. The RTC noted how
such purported sale was not mentioned by the Morla brothers in their confrontations with the Nisperos spouses prior to
the filing of the case, or in any of their pleadings filed before the RTC. The RTC agreed with the Nisperos spouses
contention that if the sale really did happen, then the Morla brothers should have brought it up at the earliest opportune
time. Finally, the RTC said that the belated issue would not in any way affect the standing of the parties.

The Morla brothers timely[25] appealed this decision to the Court of Appeals and assigned the following errors in
support thereof:

The TRIAL COURT GRAVELY ERRED IN HOLDING THAT APPELLANTS AUGUST 2, 1988 private
writing, Exh. A WAS AN AGREEMENT BY PARTIES FOR APPELLEES TO REPURCHASE WITHIN
TEN (10) YEARS THEREFROM THE FIVE (5) HECTARES PORTION OF THEIR HOMESTEAD THEY
SOLD TO THE FORMER AS PER JUNE 28, 1988 PARTIAL DEED OF ABSOLUTE SALE, EXH. 1
NOTWITHSTANDING THE MANDATORY FIVE (5) YEARS REPURCHASE PERIOD FROM THE DATE
OF SALE PROVIDED BY SECTION 119 OF THE PUBLIC LAND LAW (COMMONWEALTH ACT NO.
141).

3
 II

THE TRIAL COURT GRAVELY ERRED IN RELYING ON THE PRECEDENT LAID IN THE CASES OF
MENJE, ET AL., VS. ANGELES, 101 PHIL. 563 AND MANUEL VS. PHILIPPINE NATIONAL BANK, 101
PHIL. 568, WHICH TREAT OF REDEMPTION OF FORECLOSED HOMESTEAD AFTER
FORECLOSURE SALES NOTWITHSTANDING THE CLEAR ISSUE IN THE CASE AT BAR WHICH IS
FOR REPURCHASE OF A PORTION OF A HOMESTEAD. [26]

On March 9, 2005, the Court of Appeals affirmed the RTCs decision, with the deletion of the award of attorneys
fees for lack of basis in the decision, as the only modification. While the Court of Appeals agreed with the Morla brothers
assertion that the cases cited by the RTC were not applicable to their case, it declared that the RTC did not err in allowing
the Nisperos spouses to repurchase the subject land. The Court of Appeals immediately noted that there clearly was no
genuine issue as to any material fact, except for the claim of attorneys fees. It upheld the validity of the 1988 contract and
concurred with the RTCs rationale that the arrangement to prolong the period for redemption of the subject land was not
prohibited by law as it was in line with the intent of Section 119 to give the homesteader or patentee every chance to
preserve for himself and his family the land that the State had gratuitously given to him as a reward for his labor in
cleaning and cultivating it. The Court of Appeals further held that the 1988 contract, contrary to the Morla brothers
contention, was not unenforceable as the necessity to embody certain contracts in a public instrument was only for
convenience and not for its validity or enforceability.[27]

The Morla brothers sought to have this decision reconsidered on the strength of a newly discovered Contract of
Sale of farm land dated June 28, 1978 (1978 contract). The Morla brothers alleged that this contract, which covered the
subject land, was found only upon the prodding of their new lawyer; thus, even the ten-year period to repurchase the
subject land under Article 1606 of the Civil Code had already expired. [28]

The Court of Appeals issued a Resolution[29] on December 29, 2005, denying the Morla brothers motion for
reconsideration in this wise:

[The Morla brothers] assert a new theory on the basis of a handwritten contract dated June 28,
1978 a private document allegedly executed by [the Nisperos spouses]. Said document is being
introduced for the first time on appeal. And it is settled that issues not raised in the court a quo cannot be
raised for the first time on appeal in the case at bench, in a motion for reconsideration for being offensive
to the basic rules of fair play, justice and due process x x x. [30]

As Ramon Morla died on March 5, 2001, single and without any descendants or ascendants, Rodolfo Morla
(petitioner), by himself, elevated the instant case before this Court with the Nisperos spouses as respondents. Alfredo
Nisperos, however, also died on September 19, 2010. [31] Consequently, Alfredo Nisperos legal heirs filed a motion [32] to be
substituted as respondents, in lieu of their deceased father. This motion was granted on October 3, 2011[33] thus, Corazon
Nisperos Belmonte, Abraham U. Nisperos, Perlita Nisperos Ocampo, Armando U. Nisperos, Alberto U. Nisperos, Hilario
U. Nisperos, Archimedes U. Nisperos, Buenafe Nisperos Perez, and Arthur U. Nisperos, now join their mother Esperanza
Urbano Nisperos as respondents in this case.

Issue

Petitioner, claiming that his petition is of transcendental importance as it poses a novel question of law, is asking
us to resolve the following question:

[M]ay parties to a deed of sale of a land covered by a homestead patent extend or prolong the 5-
year period of repurchase under Section 119 of Act 141, under a private writing subsequently
executed by them?[34]

4
 The Courts Ruling
This Court would like to address the admissibility of the 1978 contract at the outset as petitioner posits that by
virtue of this contract, the respondents claim had already prescribed, even if the redemption period under Section 119 of
Commonwealth Act No. 141 were extended to ten years. Petitioner claims that the June 8, 1988 Partial Deed of Sale was
actually the formal culmination of an earlier transaction between the Morla brothers and the Nisperos spouses, as shown
by the 1978 contract. Hence, more than ten years have already lapsed from the time such contract was executed to the
time the right to repurchase was sought to be exercised.[35]

Contrary to petitioners allegation in its Motion for Reconsideration before the Court of Appeals, the 1978 contract did not
surface only after the appeal; it was actually attached to the Morla brothers Answer [36] filed with the RTC on July 12,
1994. Referencing this 1978 contract, the Morla brothers stated the following in their Answer:

8. Since June 28, 1978 and continuously up to the present, the defendants are in the open,
continuous, exclusive, and notorious actual physical possession, occupation, and cultivation of the
(50,000 SQUARE METERS) portion of Lot No. 4353, Pls-62, as evidenced by a private document, a
xerox copy of which document is hereto attached as Annex 2 to this answer. [37]

During the pre-trial, the Morla brothers and the Nisperos spouses also agreed on only the following stipulation of facts, as
stated in the RTCs June 19, 1995 Order:

1. That the land is a Homestead originally applied for by the plaintiffs and a Homestead Patent and
Original Certificate of Title were issued to the plaintiffs;

2. That on August 2, 1988, at Caliguian, Burgos, Isabela, in the presence of the Barangay Captain, an
Ilocano writing or contract was acknowledged and confirmed by the defendants and the defendants
admitted as to its authenticity;

3. That the Transfer Certificate of Title No. T-225545 is the remaining portion of Three (3) hectares or
30, 873 square meters, which was only issued by the Register of Deeds of Isabela on March 11,
1994, and this remaining portion was derived from the Original Certificate of Title of Alfredo Nisperos,
which is OCT No. P-1542 issued in 1951;

4. That on June 8, 1988, a Partial Deed of Absolute Sale was prepared, as per Doc. No. 419; Page 84;
Book 17; Series of 1988, entered into the Notarial Book of Notary Public Severo Ladera;

5. That Transfer Certificate of Title No. T-225544 was registered in the name of the defendants,
Rodolfo Morla and Ramon Morla at the Office of the Registry of Deeds of Isabela on March 11,
1994. [38]

The Morla brothers Position Paper/Memorandum [39] likewise reiterated that the sale of the subject land happened
on June 8, 1988, and referred to the 1978 contract only to prove their long possession of the subject land, just as they did
in their Answer.

If it were true that the subject lands ownership was ceded to the Morla brothers as early as 1978, then it is
inconceivable that they would forget to bring up this important fact and use it as their key defense when they filed their
Answer to the Complaint on July 12, 1994. Even then, the Morla brothers had every opportunity to correct this lapse as
they had always been aware and in possession of the 1978 contract. They could have stipulated it during the pre-trial
conference, or at least stated it in their Position Paper. The theory advanced by the Morla brothers from the very
beginning is that they are entitled to the possession of the subject land as the owner thereof because the property was
sold to them by virtue of the Partial Deed of Sale executed on June 8, 1988. They presented the 1978 contract only to
prove that they had been in continuous and open possession since 1978. The first time the Morla brothers claimed
ownership, and not mere possession, of the subject land by virtue of the 1978 contract, was in their motion for
reconsideration, after they had lost their appeal before the Court of Appeals. The Court of Appeals was correct in not
considering this argument for not having been raised at the earliest opportunity. It is a well-settled rule that a party who

5
deliberately adopts a certain theory upon which the case was decided by the lower court will not be permitted to change
[it] on appeal.[40] Petitioner is bound by the statements and stipulations he made while the case was being heard in the
lower courts.[41] In Manila Electric Company v. Benamira,[42] we said:

[I]t is a fundamental rule of procedure that higher courts are precluded from entertaining matters neither
alleged in the pleadings nor raised during the proceedings below, but ventilated for the first time only in a
motion for reconsideration or on appeal. The individual respondents are bound by their submissions that
AFSISI is their employer and they should not be permitted to change their theory. Such a change of
theory cannot be tolerated on appeal, not due to the strict application of procedural rules but as a matter
of fairness. A change of theory on appeal is objectionable because it is contrary to the rules of fair play,
justice and due process.[43]

Having settled the inadmissibility of the 1978 contract, we now go to the legality of the 1988 contract.

Since the subject land was acquired by the Nisperos spouses pursuant to a homestead patent, the applicable law
is Commonwealth Act No. 141, or the Public Land Act. [44] Section 119 thereof specifically speaks about repurchases of a
homestead or free patent land:

Sec. 119. Every conveyance of land acquired under the free patent or homestead provisions,
when proper, shall be subject to repurchase by the applicant, his widow, or legal heirs, within a period of
five years from the date of the conveyance.

The petitioner does not dispute the existence or validity of the 1988 contract. He simply argues that the 10-year
repurchase period he and his brother Ramon Morla had agreed to grant the Nisperos spouses, as evidenced by the 1988
contract, was contrary to law and jurisprudence, viz:

In no uncertain terms can the statutory period of five (5) years, which is fixed and non-extendible,
be prolonged or extended by agreement of the parties since it runs athwart with the express limitation of
the right to repurchase provided for in Section 119, Act 141. Spouses Nisperos cannot, therefore, use the
August 2, 1988 private writing to extend the already expired period granted under the law. To do so is to
violate the law. The law must control over the revised intention of the parties. [45] (Emphasis
supplied.)

Elucidating on the purpose of the homestead laws, this Court held in Republic of the Philippines v. Court of
Appeals[46]:

It is well-known that the homestead laws were designed to distribute disposable agricultural lots
of the State to land-destitute citizens for their home and cultivation.Pursuant to such benevolent intention
the State prohibits the sale or encumbrance of the homestead (Section 116) within five years after the
grant of the patent. After that five-year period the law impliedly permits alienation of the homestead; but in
line with the primordial purpose to favor the homesteader and his family the statute provides that such
alienation or conveyance (Section 117) shall be subject to the right of repurchase by the homesteader,
his widow or heirs within five years. This section 117 is undoubtedly a complement of section 116. It aims
to preserve and keep in the family of the homesteader that portion of public land which the State had
gratuitously given to him. It would, therefore, be in keeping with this fundamental idea to hold, as we hold,
that the right to repurchase exists not only when the original homesteader makes the conveyance, but
also when it is made by his widow or heirs. This construction is clearly deducible from the terms of the
statute.[47]

In Fontanilla, Sr. v. Court of Appeals,[48] we said:

The applicant for a homestead is to be given all the inducement that the law offers and is entitled to its full
protection. Its blessings, however, do not stop with him. This is particularly so in this case as the appellee
is the son of the deceased. There is no question then as to his status of being a legal heir. The policy of
the law is not difficult to understand. The incentive for a pioneer to venture into developing virgin land
becomes more attractive if he is assured that his effort will not go for naught should perchance his life be
cut short. This is merely a recognition of how closely bound parents and children are in Filipino
family. Logic, the sense of fitness and of right, as well as pragmatic considerations thus call for continued

6
 adherence to the policy that not the individual applicant alone but those so closely related to him as are
entitled to legal succession may take full advantage of the benefits the law confers. [49]

We are in full accord with the clear findings and apt ruling of the lower courts. Nowhere in Commonwealth Act No.
141 does it say that the right to repurchase under Section 119 thereof could not be extended by mutual agreement of the
parties involved. Neither would extending the period in Section 119 be against public policy as the evident purpose of the
Public Land Act, especially the provisions thereof in relation to homesteads, is to conserve ownership of lands acquired as
homesteads in the homesteader or his heirs.[50] What cannot be bartered away is the homesteaders right to repurchase
the homestead within five years from its conveyance, as this is what public policy by law seeks to preserve. [51] This, in our
opinion, is the only logical meaning to be given to the law, which must be liberally construed in order to carry out its
purpose.[52]

Petitioner does not dispute that the 1988 contract was executed freely and willingly between him and his late
brother, and the Nisperos spouses. The freedom of contract is both a constitutional and statutory right, [53] and the
contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided
they are not contrary to law, morals, good customs, public order, or public policy. [54] The 1988 contract neither shortens
the period provided under Section 119 nor does away with it. Instead, it gives the Nisperos spouses more time to
reacquire the land that the State gratuitously gave them. The 1988 contract therefore is not contrary to law; instead it is
merely in keeping with the purpose of the homestead law. Since the 1988 contract is valid, it should be given full force and
effect. In Roxas v. De Zuzuarregui, Jr.,[55] we held:

It is basic that a contract is the law between the parties. Obligations arising from contracts have
the force of law between the contracting parties and should be complied with in good faith. Unless the
stipulations in a contract are contrary to law, morals, good customs, public order or public policy, the
same are binding as between the parties.[56]

Petitioner, who freely signed the 1988 contract, cannot now be allowed to renege on his obligation under it, simply
because he changed his mind. Article 1308 of the Civil Code provides:

The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one
of them.

Petitioner is thus bound by the terms of the 1988 Contract, and must comply with it in good faith. Since the right to
repurchase was exercised by the Nisperos spouses before the expiration of the time given to them by the Morla brothers,
the lower courts correctly ruled in their favor.

WHEREFORE, the Petition is hereby DENIED and the March 9, 2005 Decision and December 29, 2005
Resolution of the Court of Appeals in CA-G.R. CV No. 53527, are AFFIRMED.

SO ORDERED.

[G.R. No. 183789 : August 24, 2011]

POWER SECTOR ASSETS AND LIABILITIES MANAGEMENT CORPORATION, PETITIONER, VS. POZZOLANIC
PHILIPPINES INCORPORATED, RESPONDENT.

FACTS

7
In 1986, Pozzolanic Australia won the public bidding for the purchase of the fly ash generated by NPC's power plant in
Batangas. Pozzolanic Australia then negotiated with NPC for a long-term contract for the purchase of all fly ash to be
produced by NPC's future power plants. NPC accepted Pozzolanic Australia's offer and they entered into a long-term
contract, dated 20 October 1987, denominated as "Contract for the Purchase of Fly Ash of Batangas Coal-Fired Thermal
Power Plant Luzon" (the Batangas Contract).

Under Article I of the contract, NPC, referred to therein as the "CORPORATION," granted Pozzolanic Australia, the
"PURCHASER," a right of first refusal to purchase the fly ash generated by the coal-fired plants that may be put up by
NPC in the future. The specific provision of the contract states:

PURCHASER has first option to purchase Fly Ash under similar terms and conditions as herein contained from the
second unit of Batangas Coal-Fired Thermal Plant that the CORPORATION may construct. PURCHASER may also
exercise the right of first refusal to purchase fly ash from any new coal-fired plants which will be put up by
CORPORATION.

In 1988, while the necessary clearances and approvals were being obtained by Pozzolanic Australia in connection with
the operation of its fly ash business in the Philippines, its major stockholders decided that it would be more advantageous
for the company to organize a Philippine corporation and to assign to such corporation Pozzolanic Australia's rights to the
commercial use of fly ash in the Philippines. Accordingly, in April 1989, respondent Pozzolanic was formally incorporated
to take over Pozzolanic Australia's business in the Philippines. Respondent then commenced to exercise its rights under
the Batangas contract in June, 1989.

In 1998, the Masinloc Coal-Fired Thermal Power Plant (Masinloc Plant) started operations to provide power for NPC. Late
that year, respondent began the installation of its fly ash processing equipment in the Masinloc Plant and began off taking
the fly ash produced therein.

Subsequently, on 15 February 1999, NPC and respondent, on an interim basis and prior to the conduct of a public bidding
for the contract to purchase the Masinloc Plant's fly ash, executed a contract whereby respondent was given the right to
purchase the said fly ash for a period of one year. The fourth and fifth "WHEREAS" clauses of the contract provide:

WHEREAS, under the `Contract for the Purchase of the Fly Ash of Batangas Coal-Fired Thermal Power Plant' dated 20
October 1987, PURCHASER was granted the right of first refusal over any and all fly ash that may be produced by any of
NPC's coal-fired power plants in the Philippines;

WHEREAS, NPC intends to bid out the long term contract for the Fly Ash that may be produced by the (Masinloc Coal
Fired Thermal Power) Plant subject to the second paragraph of Article I of the original contract between the parties which
was signed on 20 October 1987 giving PURCHASER the right of first refusal.

In October 1999, the Sual Coal-Fired Power Plant started providing electricity in the Luzon region. NPC thereafter caused
to be published in the Philippine Star and the Manila Bulletin an "Invitation to Pre-Qualify and to Bid," inviting all interested
buyers to pre-qualify for the purchase of fly ash from the Masinloc and/or Sual Power Plants.

As a result, respondent sent letters to NPC calling its attention to respondent's right of first refusal under the Batangas
Contract. It also demanded that any tender documents to be issued in connection with the bidding on the right to purchase
the Masinloc and Sual Plants' fly ash include notices informing prospective bidders of respondent's right of first refusal.

In a letter dated 7 March 2000, NPC informed respondent that it had decided to defer indefinitely the bidding on the right
to purchase the Masinloc Plant's fly ash and to proceed first with the bidding on the right to purchase the Sual Plant's fly
ash. Thus, on 7 April 2000, NPC released the tender documents for the bidding on the Sual Plant's fly ash, which tender
documents made no reference to respondent's right of first refusal.

This prompted respondent to file a complaint (later amended) with the trial court praying that NPC be ordered to allow
Pozzolanic to exercise its right of first refusal by permitting it to match the price and terms offered by the winning bidder
and by awarding the contract for the purchase of the Sual Plant's fly ash to Pozzolanic if it matches the price and terms
offered by said winning bidder.

While the case was pending before the lower court, NPC decided to also dispose of the fly ash from the Masinloc Plant
through public bidding, without allowing respondent to exercise its right of first refusal. Thus, respondent filed a
Supplementary Complaint, dated 8 August 2002, praying for the same reliefs as those prayed for in the amended
complaint earlier filed, but as regards the Masinloc Plant.

8
Meanwhile, on 4 June 2001, Congress enacted the EPIRA (RA 9136) which created PSALM. This resulted in the filing of
a Second Supplementary Complaint, dated 5 March 2003, impleading petitioner PSALM as a necessary and
indispensable party.

The litigation became more complicated when petitioner, NPC, and the Department of Energy entered into a
Memorandum of Agreement with the Provincial Government of Zambales and several local government units of
Zambales, pursuant to which the Provincial Government of Zambales was awarded the exclusive right to withdraw the fly
ash from the Masinloc Plant. With this development, respondent filed a Third Supplementary Complaint seeking the
annulment of the aforesaid Memorandum of Agreement and other documents related thereto. This complaint was
dismissed by the trial court on the ground of forum shopping, it appearing that the Province of Zambales, et al. had
previously filed a case against respondent and NPC, claiming exclusive right to withdraw the fly ash of the Masinloc Plant.

Respondent appealed the order of dismissal to the Court of Appeals.

On 18 July 2007, while the appeal was pending, respondent and the Provincial Government of Zambales executed an
"Agreement" (the Masinloc Contract) by virtue of which the Province of Zambales awarded to respondent the exclusive
right to withdraw the fly ash from the Masinloc Power Plant. Respondent then moved for the dismissal of its appeal in the
Court of Appeals. As a result, the assailed Order of the trial court dismissing respondent's Third Supplementary Complaint
became final.

Also, previously, on 30 March 2005, respondent and NPC entered into a "Purchase Agreement for the Purchase of Fly
Ash of Sual Coal-Fired Thermal Power Plant" (the Sual Contract) whereby NPC awarded to respondent the exclusive right
to withdraw the fly ash from the Sual Plant.

As a result, NPC filed, on 4 February 2008, a Motion to Dismiss the Complaint against it on the ground that the issues
between it and respondent had become moot and academic. This is in view of the Purchase Agreement executed by NPC
and respondent for the fly ash of the Sual Plant and the Agreement between respondent and the Provincial Government
of Zambales with respect to the fly ash of the Masinloc Plant.

During the hearing on NPC's Motion to Dismiss held on 7 February 2008, the trial court ordered herein petitioner PSALM
and respondent Pozzolanic to comment on the Motion. Petitioner, through counsel, manifested that in addition to
commenting on the Motion to Dismiss, it would also like to challenge, through a position paper, the validity of respondent's
right of first refusal.

Respondent herein interposed no objection to the Motion to Dismiss. On the other hand, in its Comment dated 14
February 2008, petitioner asserted that the following issues should first be resolved before a resolution on the Motion to
Dismiss may be had:

1. whether or not fly ash, which is not yet existing, can be considered assets of the government, the disposition of
which is subject to government rules particularly public bidding;

2. whether or not the alleged right of first refusal of plaintiff is not contrary to law; and

3. whether or not PSALM is bound by the said alleged right.

Petitioner thus prayed that resolution on the Motion to Dismiss be held in abeyance pending determination of the issues
concerning respondent's alleged right of first refusal.

Pursuant to its manifestation in open court during the 7 February 2008 hearing on NPC's Motion to Dismiss, petitioner
submitted its Position Paper on 29 February 2008 raising the same issues as those in its Comment to NPC's Motion to
Dismiss. Petitioner prayed that the complaint against it be dismissed and that respondent's right of first refusal contained
in the second paragraph, Article 1 of the Batangas Contract be declared void ab initio for being contrary to law and public
policy.

In an Order dated 17 March 2008, the trial court dismissed in toto the Amended Complaint and the First Supplementary
Complaint. The Second Supplementary Complaint was PARTIALLY DISMISSED insofar as it refers to herein
respondent's complaint against NPC only. Thus, on 30 April 2008, the trial court rendered the herein assailed Decision
declaring respondent's right of first refusal valid and binding on petitioner. The Motion for Reconsideration and
Supplemental Motion for Reconsideration filed by petitioner seeking a reversal of the decision of the trial court were both
denied for lack of merit.

ISSUES
9
Petitioner PSALM prays for the reversal of the challenged decision on the following grounds:

1. THE TRIAL COURT WAS DIVESTED OF JURISDICTION AFTER IT ISSUED THE ORDER DATED 17 MARCH
2008 DISMISSING WITH PREJUDICE THE AMENDED COMPLAINT AND THE FIRST SUPPLEMENTARY
COMPLAINT. THUS, THE "DECISION" DATED 30 APRIL 2008 RENDERED SUBSEQUENT TO SUCH
DISMISSAL IS NULL AND VOID; AND

2. EVEN ASSUMING THAT THE TRIAL COURT WAS NOT DIVESTED OF JURISDICTION, THE RIGHT OF FIRST
REFUSAL IS NOT VALID, AND THEREFORE, WITHOUT BINDING EFFECT, FOR BEING CONTRARY TO
PUBLIC POLICY.

DECISION

Petitioner contends that by virtue of the Order of the trial court dated 17 March 2008, respondent's Amended Complaint
was dismissed with prejudice; and, since no motion for reconsideration or appeal was filed by any of the parties in the
lower court, the Order attained finality. Thus, petitioner argues, the trial court can no longer take any further action since it
had lost all power or authority over the case. The Order of dismissal effectively deprived it of jurisdiction.

RATIONALE

1. The grant to respondent of the right of first refusal constitutes an unauthorized provision in the contract that was
entered into pursuant to the bidding.
2. The right to buy fly ash precedes and is the basis of the right of first refusal, and the consequent right cannot be
acquired together with and at the same time as the precedent right.
3. The right of first refusal is against the public policy that contracts must be awarded through public bidding.

LEONEN, J.:
There is no mutuality of contract when the interest rate in a loan agreement is set at the sole discretion of one party. Nor
is there any mutuality when there is no reasonable means by which the other party can determine the applicable interest
rate. These types of interest rates stipulated in the loan agreement are null and void. However, the nullity of the stipulated
interest rate does not automatically nullify the provision requiring payment of interest. Certainly, it does not nullify the
obligation to pay the principal loan obligation.

These consolidated cases arose from three related actions filed before the trial courts of Davao City.

In 1993, Spouses Robert Alan L. Limso and Nancy Lee Limso (Spouses Limso) [1] and Davao Sunrise Investment and
Development Corporation (Davao Sunrise) took out a loan secured by real estate mortgages from Philippine National
Bank.[2]

The loan was in the total amount of P700 million, divided into two (2) kinds of loan accommodations: a revolving credit line
of P300 million, and a seven-year long-term loan of P400 million.[3]

To secure the loan, real estate mortgages were constituted on four (4) parcels of land registered with the Registry of
Deeds of Davao City.[4] The parcels of land covered by TCT Nos. T-147820, T-151138, and T-147821 were registered in
the name of Davao Sunrise, while the parcel of land covered by TCT No. T-140122 was registered in the name of
Spouses Limso.[5]

In 1995, Spouses Limso sold the parcel of land covered by TCT No. T-140122 to Davao Sunrise.[6]

Spouses Limso and Davao Sunrise had difficulty in paying their loan. In 1999, they requested that their loan be
restructured. After negotiations, Spouses Limso, Davao Sunrise, and Philippine National Bank executed a Conversion,
Restructuring and Extension Agreement.[7]

The principal obligation in the restructured agreement totalled P1.067 billion. This included P217.15 million unpaid
interest.[8]

The restructured loan was divided into two (2) parts. Loan I was for the principal amount of P5 83.18 million, while Loan II
was for the principal amount of P483.78 million.[9] The restructured loan was secured by the same real estate mortgage
over four (4) parcels of land in the original loan agreement. All the properties were registered in the name of Davao
Sunrise

G.R. No. 124290 January 16, 1998

ALLIED BANKING CORPORATION vs. CA
10
Issues:
There are two (2) main issues in this petition for review:
(a) Whether a stipulation in a contract of lease to the effect that the contract "may be renewed for a like term at
the option of the lessee" is void for being potestative or violative of the principle of mutuality of contracts under Art. 1308
of the Civil Code and, corollarily, what is the meaning of the clause "may be renewed for a like term at the option of the
lessee;" and
(b) Whether a lessee has the legal personality to assail the validity of a deed of donation executed by the lessor
over the leased premises.

Facts:
Spouses Tanqueco owned a 512-square meter lot. They leased the property to Allied Banking Corporation
(ALLIED). The lease contract specifically states in its Provision No. 1 that "the term of this lease shall be fourteen (14)
years commencing from April 1, 1978 and may be renewed for a like term at the option of the lessee."
Sometime in February 1988 the Tanqueco spouses executed a deed of donation over the subject property in
favor of their four (4) children who accepted the donation in the same public instrument.
A year before the expiration of the contract of lease, the Tanquecos notified ALLIED that they were no longer
interested in renewing the lease. ALLIED replied that it was exercising its option to renew their lease under the same
terms with additional proposals.
When the lease contract expired, an action for ejectment was commenced before the MTC of Quezon City. The
MTC, RTC and CA ruled in favor of the Tanquecos. Hence, this present petition.

Ruling:
We agree with ALLIED. Article 1308 of the Civil Code expresses what is known in law as the principle of mutuality
of contracts. It provides that "the contract must bind both the contracting parties; its validity or compliance cannot be left to
the will of one of them." The ultimate purpose is to render void a contract containing a condition which makes its fulfillment
dependent solely upon the uncontrolled will of one of the contracting parties.
An express agreement which gives the lessee the sole option to renew the lease is frequent and subject
to statutory restrictions, valid and binding on the parties. This option, which is provided in the same lease agreement,
is fundamentally part of the consideration in the contract and is no different from any other provision of the lease carrying
an undertaking on the part of the lessor to act conditioned on the performance by the lessee. It is a purely executory
contract and at most confers a right to obtain a renewal if there is compliance with the conditions on which the rights is
made to depend. The right of renewal constitutes a part of the lessee's interest in the land and forms a substantial and
integral part of the agreement.
The fact that such option is binding only on the lessor and can be exercised only by the lessee does not render it
void for lack of mutuality. After all, the lessor is free to give or not to give the option to the lessee.
With respect to the meaning of the clause "may be renewed for a like term at the option of the lessee," we sustain
petitioner's contention that its exercise of the option resulted in the automatic extension of the contract of lease under the
same terms and conditions.
Finally, ALLIED cannot assail the validity of the deed of donation, not being a party thereto. A person who is not
principally or subsidiarily bound has no legal capacity to challenge the validity of the contract.

WHEREFORE, the Decision of the Court of Appeals is REVERSED and SET ASIDE. Considering that ALLIED
already vacated the leased premises, the renewed lease contract is deemed terminated as of that date. However, ALLIED
is required to pay rentals to lessors at the rate provided in their existing contract.

jmpareja_2011

RADIO COMMUNICATIONS OF THE PHILIPPINES, INC.

v. ALFONSO VERCHEZ, et al.

481 SCRA 384 (2006)

Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof, are liable for damages.

Respondent Grace Verchez-Infante (Grace) hired the services of Radio Communications of the Philippines, Inc. (RCPI) to
send a telegram to her sister respondent Zenaida Verchez-Catibog (Zenaida), asking her to send money for their mother
Editha Verchez (Editha) who at that time was confined in a hospital in Sorsogon. But it took 25 days before such message
was conveyed to Zenaida.

When Editha died, her husband, respondent Alfonso Verchez (Alfonso), along with his daughters Grace and Zenaida and
their respective spouses, filed an action for damages against RCPI before the Regional Trial Court (RTC) of Sorsogon.
They alleged that the delay in the delivery of the message contributed to the early death of Editha. RCPI argues that there
is no privity of contract between other respondents except with Grace, also the delay in the delivery is caused by force
majeure, maintaining further that they exercised due diligence in choosing their employees; hence they must be released
from any liability. The RTC rendered judgement against RCPI. RCPI appealed to the Court of Appeals (CA). The CA
affirmed the decision of the RTC.

11
ISSUE:

Whether or not the award of moral damages is proper despite the fact that there was no direct connection between the
injury and the alleged negligent acts

HELD:

RCPIs stand fails. It bears noting that its liability is anchored on culpa contractual or breach of contract with regard to
Grace, and on tort with regard to her co-plaintiffs-herein-co-respondents. Article 1170 of the Civil Code provides that those
who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof, are liable for damages.

In the case at bar, RCPI bound itself to deliver the telegram within the shortest possible time. It took 25 days, however, for
RCPI to deliver it. RCPI invokes force majeure, specifically, the alleged radio noise and interferences which adversely
affected the transmission and/or reception of the telegraphic message. Additionally, its messenger claimed he could not
locate the address of Zenaida and it was only on the third attempt that he was able to deliver the telegram.

For the defense of force majeure to prosper, it is necessary that one has committed no negligence or misconduct that may
have occasioned the loss. An act of Godcannot be invoked to protect a person who has failed to take steps to forestall the
possible adverse consequences of such a loss. Ones negligence may have concurred with an act of God in producing
damage and injury to another; nonetheless, showing that the immediate or proximate cause of the damage or injury was a
fortuitous event would not exempt one from liability. When the effect is found to be partly the result of a persons
participation whether by active intervention, neglect or failure to act the whole occurrence is humanized and removed
from the rules applicable to acts of God.

Assuming arguendo that fortuitous circumstances prevented RCPI from delivering the telegram at the soonest possible
time, it should have at least informed Grace of the non-transmission and the non-delivery s that she could have taken
steps to remedy the situation. But it did not. There lies the fault or negligence.

And for quasi-delict, RCPI is liable to Graces co-respondents following Article 2176 of the Civil Code which provides that
whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage
done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict
and is governed by the provisions of this Chapter.

RCPIs liability as an employer could of course be avoided if it could prove that it observed the diligence of a good father
of a family to prevent damage provided in Article 2180 of the Civil Code. RCPI failed, however, to prove that it observed
all the diligence of a good father of a family to prevent damage.

PILIPINO TELEPHONE CORPORATION, petitioner, vs. DELFINO TECSON, respondent.

TOPIC: Stipulation as to venue of adhesion contract, valid

Nature of the Case: The SC, through this petition, clarifies the query on whether a stipulation as to venue of suits in a
contract of adhesion is immediately deemed invalid.

Facts: Delfin Tecson applied for 6 cellular phone subscriptions with PILTEL on various dates in 1996, which were all
approved and later on covered by 6 mobiline service agreements. However, in 2001, Tecson filed with the RTC of Iligan
City a complaint against PILTEL for Sum of Money and Damages.

PILTEL: Moved to dismiss the case on the ground of improper venue, citing a common provision in the mobiline service
agreements to the effect that -

"Venue of all suits arising from this Agreement or any other suit directly or indirectly arising from the relationship between
PILTEL and subscriber shall be in the proper courts of Makati, Metro Manila. Subscriber hereby expressly waives any
other venues.

RTC of Iligan: Denied the motion to dismiss and required PILTEL to file an answer on the complaint within 15 days from
receipt thereof. It also denied PILTELs subsequent MFR.

12
PILTEL: Appealed to the CA

CA: Affirmed the Decision of the RTC and denied the subsequent MFR filed by PILTEL.

ISSUE: WON the provision in the mobiline service agreements fixing the venue of all suits arising from the contract is
clear and binding and that the venue of the complaint was improperly laid.

HELD: Yes, the provision is clear and binding, and the venue was improperly laid. Section 4, Rule 4, of the Revised Rules
of Civil Procedure allows the parties to agree and stipulate in writing, before the filing of an action, on the exclusive venue
of any litigation between them. Such an agreement would be valid and binding provided that the stipulation on the chosen
venue is exclusive in nature or in intent, that it is expressed in writing by the parties thereto, and that it is entered into
before the filing of the suit.

So, the added stipulation that the subscriber "expressly waives any other venue" should indicate, clearly enough, the
intent of the parties to consider the venue stipulation as being preclusive in character.

Although such is a clearly a contract of adhesion, it doesnt invalidate the subject stipulation. The rule is that,
should there be ambiguities in a contract of adhesion, such ambiguities are to be construed against the party that
prepared it. If, however, the stipulations are not obscure, but are clear and leave no doubt on the intention of the parties,
the literal meaning of its stipulations must be held controlling.

A contract of adhesion is just as binding as ordinary contracts. It is true that the SC struck down such contracts as
being assailable when the weaker party is left with no choice by the dominant bargaining party and is thus completely
deprived of an opportunity to bargain effectively. Nevertheless, contracts of adhesion are not prohibited even as the courts
remain careful in scrutinizing the factual circumstances underlying each case to determine the respective claims of
contending parties on their efficacy.

In the case at bar, respondent secured six (6) subscription contracts for cellular phones on various dates. It would
be difficult to assume that, during each of those times, respondent had no sufficient opportunity to read and go over the
terms and conditions embodied in the agreements. Respondent continued, in fact, to acquire in the pursuit of his business
subsequent subscriptions and remained a subscriber of petitioner for quite sometime.

A contract duly executed is the law between the parties, and they are obliged to comply fully and not selectively with its
terms. A contract of adhesion is no exception.

Hence, PETITION IS GRANTED.

PNB vs. Spouses Manalo

G.R. No. 174433 February 24, 2014

DOCTRINE: Although banks are free to determine the rate of interest they could impose on their borrowers, they can do
so only reasonably, not arbitrarily. They may not take advantage of the ordinary borrowers' lack of familiarity with banking
procedures and jargon. Hence, any stipulation on interest unilaterally imposed and increased by them shall be struck
down as violative of the principle of mutuality of contracts.

FACTS:
1. The Spouses Manalo applied for an All-Purpose Credit Facility in the amount of P1,000,000.00 with the PNB to
finance the construction of their house.
2. After PNB granted their application, they executed a Real Estate Mortgage on November 3, 1993 in favor of PNB
over their property covered by TCT No. S-23191 as security for the loan. The credit facility was renewed and
increased several times over the years.
13
 3. September 20, 1996: the credit facility was renewed for P7,000,000.00. As a consequence, the parties executed a
Supplement to and Amendment of Existing Real Estate Mortgage whereby the property covered by TCT No.
171859 was added as security for the loan. It was agreed upon that the Spouses Manalo would make monthly
payments on the interest. However, PNB claimed that their last recorded payment was made on December, 1997.
4. PNB sent them a demand letter for their overdue account and required them to settle it. PNB sent another
demand letter because they failed to heed the first demand.
5. After the Spouses Manalo failed to settle their unpaid account despite the two demand letters, PNB foreclosed the
mortgage. PNB was the highest bidder for P15,127,000.00 during the foreclosure sale.
6. After more than a year after the Certificate of Sale had been issued to PNB, the Spouses Manalo instituted an
action for the nullification of the foreclosure proceedings and damages. The Spouses Manalo alleged: that they
had obtained a loan for P1,000,000.00 from a certain Benito Tan upon arrangements made by Antoninus
Yuvienco, then the General Manager of PNBs Bangkal Branch where they had transacted; that they had been
made to understand and had been assured that the P1,000,000.00 would be used to update their account, and
that their loan would be restructured and converted into a long-term loan; that they had been surprised to learn,
therefore, that had been declared in default of their obligations, and that the mortgage on their property had been
foreclosed and their property had been sold; and that PNB did not comply with Section 3 of Act No. 3135, as
amended.
7. PNB and Antoninus Yuvienco countered that the P1,000,000.00 loan obtained by the Spouses Manalo from
Benito Tan had been credited to their account; that they did not make any assurances on the restructuring and
conversion of the Spouses Manalos loan into a long-term one; that PNBs right to foreclose the mortgage had
been clear especially because the Spouses Manalo had not assailed the validity of the loans and of the mortgage;
and that the Spouses Manalo did not allege having fully paid their indebtedness.

8. The RTC decided in favor of PNB that the foreclosure proceedings were valid. It was noted that during the
pre-trial, the Spouses Manalo had agreed to stipulate that PNB had the right to foreclose upon the subject
properties and that the spouses main thrust was to prove that the foreclosure proceedings were invalid. In the
course of the presentation of their evidence, the Spouses Manalo modified their position and claimed that the loan
document executed were contracts of adhesion which were null and void because they were prepared entirely
under the defendant PNBs supervision. They also questioned the interest rates and penalty charges imposed
arguing that these were iniquitous, unconscionable and therefore likewise void.
Not having raised the foregoing matters as issues during the pre-trial, the Spouses Manalo are
presumably estopped from allowing these matters to serve as part of their evidence, more so
because at the pre-trial they expressly recognized the defendant PNBs right to foreclose upon
the subject property. The RTC held, however, that the Spouses Manalos "contract of adhesion"
argument was unfounded because they had still accepted the terms and conditions of their credit
agreement with PNB and had exerted efforts to pay their obligation; that the Spouses Manalo
were now estopped from questioning the interest rates unilaterally imposed by PNB because they
had paid at those rates for three years without protest; and that their allegation about PNB
violating the notice and publication requirements during the foreclosure proceedings was
untenable because personal notice to the mortgagee was not required under Act No. 3135.
9. The Spouses Manalo appealed to the CA, insisting that:
(1) the credit agreements they entered into with PNB were contracts of adhesion; (2) no interest was due
from them because their credit agreements with PNB did not specify the interest rate, and PNB could not
unilaterally increase the interest rate without first informing them; and
(3) PNB did not comply with the notice and publication requirements under Section 3 of Act 3135.
10. CA upheld the validity of the foreclosure proceedings initiated by PNB, but modified the Spouses
Manalos liability for interest. The CA found it necessary to pass upon the issues of PNBs failure to specify the
applicable interest and the lack of mutuality in the execution of the credit agreements considering the earlier cited
observation made by the trial court in its decision.
Applying Article 1956 of the Civil Code, the CA held that PNBs failure to indicate the rate of
interest in the credit agreements would not excuse the Spouses Manalo from their contractual
obligation to pay interest to PNB because of the express agreement to pay interest in the credit
agreements. Nevertheless, the CA ruled that PNBs inadvertence to specify the interest rate
should be construed against it because the credit agreements were clearly contracts of adhesion
due to their having been prepared solely by PNB.
The CA further held that PNB could not unilaterally increase the rate of interest
considering that the credit agreements specifically provided that prior notice was required
before an increase in interest rate could be effected. It found that PNB did not adduce proof
showing that the Spouses Manalo had been notified before the increased interest rates were
imposed; and that PNBs unilateral imposition of the increased interest rate was null and
void for being violative of the principle of mutuality of contracts enshrined in Article 1308
of the Civil Code. Reinforcing its "contract of adhesion" conclusion, it added that the Spouses
Manalos being in dire need of money rendered them to be not on an equal footing with PNB.
Consequently, the CA, relying on Eastern Shipping Lines, v. CA, fixed the interest rate to be paid
by the Spouses Manalo at 12% per annum, computed from their default.

ISSUE: Whether or not there was no mutuality of consent in the imposition of interest rates on the Spouses loan despite
the existence of facts and circumstances showing their assent to the interest rates imposed by PNB on the loan.

HELD: No. There was no mutuality of consent. The credit agreement executed stipulated that the loan would be
subjected to interest at a rate "determined by the Bank to be its prime rate plus applicable spread, prevailing at the current
14
month." This stipulation was carried over to or adopted by the subsequent renewals of the credit agreement. PNB thereby
arrogated unto itself the sole prerogative to determine and increase the interest rates imposed on the Spouses Manalo.
Such a unilateral determination of the interest rates contravened the principle of mutuality of contracts embodied
in Article 1308 of the Civil Code.

The Court has declared that a contract where there is no mutuality between the parties partakes of the nature of a
contract of adhesion, and any obscurity will be construed against the party who prepared the contract, the latter being
presumed the stronger party to the agreement, and who caused the obscurity. PNB should then suffer the consequences
of its failure to specifically indicate the rates of interest in the credit agreement.

We spoke clearly on this in Philippine Savings Bank v. Castillo: the unilateral determination and imposition of the
increased rates is violative of the principle of mutuality of contracts under Article 1308 of the Civil Code, which provides
that the contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them. A
perusal of the Promissory Note will readily show that the increase or decrease of interest rates hinges solely on the
discretion of petitioner. It does not require the conformity of the maker before a new interest rate could be enforced. Any
contract which appears to be heavily weighed in favor of one of the parties so as to lead to an unconscionable result, thus
partaking of the nature of a contract of adhesion, is void. Any stipulation regarding the validity or compliance of the
contract left solely to the will of one of the parties is likewise invalid.

PNB could not also justify the increases it had effected on the interest rates by citing the fact that the Spouses Manalo
had paid the interests without protest, and had renewed the loan several times. A borrower is not estopped from assailing
the unilateral increase in the interest made by the lender since no one who receives a proposal to change a contract, to
which he is a party, is obliged to answer the same and said partys silence cannot be construed as an acceptance thereof.

Lastly, the CA observed, and properly so, that the credit agreements had explicitly provided that prior notice would be
necessary before PNB could increase the interest rates. In failing to notify the Spouses Manalo before imposing the
increased rates of interest, therefore, PNB violated the stipulations of the very contract that it had prepared. Hence, the
varying interest rates imposed by PNB have to be vacated and declared null and void, and in their place an interest rate of
12% per annum computed from their default is fixed pursuant to the ruling in Eastern Shipping Lines, Inc. v. CA. The CAs
directive to PNB (a) to recompute the Spouses Manalos indebtedness under the oversight of the RTC; and (b) to refund
to them any excess of the winning bid submitted during the foreclosure sale over their recomputed indebtedness was
warranted and equitable. Equally warranted and equitable was to make the amount to be refunded, if any, bear legal
interest, to be reckoned from the promulgation of the CAs decision on March 28, 2006.

Indeed, the Court said in Eastern Shipping Lines, Inc. v. CA that interest should be computed from the time of the judicial
or extrajudicial demand. However, the Spouses Manalo did not demand interest either judicially or extrajudicially. The
Spouses Manalo made no judicial or extrajudicial demand from which to reckon the interest on any amount to be refunded
to them. Such demand could only be reckoned from the promulgation of the CAs decision because it was there that the
right to the refund was first judicially recognized. Nevertheless, pursuant to Eastern Shipping Lines, Inc. v. CA, the amount
to be refunded and the interest thereon should earn interest to be computed from the finality of the judgment until the full
refund has been made.

Anent the correct rates of interest to be applied on the amount to be refunded by PNB, the Court, in Nacar v. Gallery
Frames already applied Monetary Board Circular No. 799 by reducing the interest rates allowed in judgments from 12%
per annum to 6% per annum. MB Circular No. 799 is applied prospectively, and judgments that became final and
executory prior to its effectivity on July 1, 2013 are not to be disturbed but continue to be implemented applying the old
legal rate of 12% per annum. Hence, the old legal rate of 12% per annum applied to judgments becoming final and
executory prior to July 1, 2013, but the new rate of 6% per annum applies to judgments becoming final and executory
after said dater.
Conformably, the proper interest rates to be imposed in the present case are as follows:
o Any amount to be refunded to the Spouses Manalo shall bear interest of 12% per annum
computed from March 28, 2006, the date of the promulgation of the CA decision, until June 30,
2013; and 6% per annum computed from July 1, 2013 until finality of this decision; and
o The amount to be refunded and its accrued interest shall earn interest of 6% per annum until full
refund.

WHEREFORE, the Court AFFIRMS the decision promulgated by the CA subject to the MODIFICATION that any amount
to be refunded to the Spouses Manalo shall bear interest of 12% per annum computed from March 28, 2006 until June 30,
2013, and 6% per annum computed from July 1, 2013 until finality hereof; that the amount to be refunded and its accrued
interest shall earn interest at 6o/o per annum until full refund; and DIRECTS PNB to pay the costs of suit.

This past Monday, I attended a public consultation hearing conducted by the Energy Regulatory Commission (ERC) for
the purpose of gathering comments and suggestions from concerned parties about a proposed new set of rules governing

15
the development and approval of Power Supply Agreements (PSAs) between electricity generators and distribution
utilities.

The timing of the hearing takes on added significance because of the ongoing Manila Electric Co. (Meralco) rate hike
scandal, but only coincidentally; the proposed new rules has been in the works for about a year, and Mondays hearing
was the second of what will be at least three rounds of consultations before the final version of the rules is produced.

Although these kinds of hearings are, as they should be, public hearings, they tend to be dominated by the stakeholders
who will be most affected by the subject matter, in this case the electricity generating companies and the distribution
utilities. The average individual member of the public would likely find the affair tedious (Mondays hearing lasted about
three hours) and highly technical, but it is somewhat discouraging that the consumer point of view does not seem to be
represented at all. Political and civil society actors who have otherwise been quick to jump into more stylish exercises
like street protests and court cases are apparently not inclined to trouble themselves with the gritty everyday details of
how business arrangements eventually become the rates we pay for electricity.

In the course of the hearing, which was the third of this round of consultations conducted by the ERC (similar hearings
were held in Davao and Cebu last week), it quickly emerged that the countrys power generation sectorwith one
admirable exceptionis desperately trying to maintain its position as a monolithic, unregulated industry that can conduct
business as it sees fit. In the proposed new rules, there are four hotly contested issues putting the generation sector at
odds with most distributors, and to some extent, with the ERC itself, even though to its credit the agency is trying to
maintain a fair balance of interests:

*Competitive Bidding vs. ERC Assessment and Approval of proposed power supply ratesThe new rules stipulate a
process for distribution utilities to source power suppliers through a competitive bidding process, in keeping with the
general mandate to provide power to consumers at the least costwhich may not necessarily mean the lowest cost,
but the one that properly balances the price with reliability of the supply. Once the bidding process is completed, the
resulting power supply agreement between the winning supplier and the distribution utility must be analyzed and approved
by the ERC, which may result in the contracted rates and other terms of the PSA being modified or disallowed.

From the point of view of the generation companieswho were strongly supported by both Meralco and the Philippine
Chamber of Commerce and Industrya negotiated contract developed from a competitive bidding process should be
considered sacrosanct and should not be at risk of alteration by the ERC. The rationale is that a competitive bidding
should naturally result in the least or most efficient cost, and therefore further ERC examination is unnecessary. And of
course, to further support their point of view, the parties disagreeing with the proposed rule resorted to the cheap tactic
favored by Meralco and its supply partners: Making a thinly veiled threat that rules they consider unfavorable would
discourage investment and electric market activity, and could lead to deficiencies in electric supply for consumers.

*Use of benchmarks in determining reasonable power ratesAlthough the ERC clarified that this part of the proposed
new rules is still subject to a considerable amount of study and revision, generation companies are balking at the
suggestion that benchmark rates might be used as guidelines for the ERC to determine the validity of rates presented in
PSAs. While the ERC seems to be leaning toward a framework wherein benchmarks are not necessarily flat rates, but
rather a standardized set of rate components, the generation sector naturally believes that any guidelines will restrict their
freedom to determine power prices.

*Applications for ERC approval of PSAs must be made jointly by the generators and distributorsThis provision was
stridently protested by the generators, who are attempting to hide behind a provision of the Electric Power Industry
Reform Act (Epira) to pass the responsibility (and though unstated, the attendant costs) of managing approval
requirements on to the distribution utilities alone. The reasoning is that under Epira, the generation sector is treated as an
unregulated sector, that is, one that is not imbued with the same public interest as the distribution sector that delivers
electricity directly to end-users, and is therefore not really under the oversight of the ERC. The position of the ERC,
however, is a bit less generous toward the generators than the latter supposes. While the generators may be unregulated
by the ERC as business entities, their transactions with other, regulated distributors certainly are subject to ERC
examination; the implication is that, despite protests from the generating sector, the joint-application rule will be kept.

*The proposed new rules seem to override walk-away provisions that are common features of supply contractsThis is
one issue where the generators and distributors seem to agree, and one in which their dissent against the proposed rules
might actually be valid.

The way in which the new rules are written, a walk-away provision in a PSA, a perfectly ordinary and prudent condition
to cover the parties in case of unforeseen, uncontrollable circumstances or the failure to perform by one of the parties,
could be invalidated by ERC, in effect tying the parties to the PSA whether it is working or not. The ERC, however, made
a good point in response to this; some flexibility in interpreting walk-away clauses must be maintained, because they can
be abused. For example, a walk-away clause that cancels the contract in the event of the ERC altering any of the
contract terms could render the entire approval process invalid, and would obviously have to be disallowed.

The stark takeaway from the discussion on the proposed new rate-setting rules is that the Philippines generating sector
has a severe attitude problem: It believes itself to be above any sort of oversight, and assumes the authority to dictate the
overall cost of electricity for the country, public interest and economic benefits be damned. The one exception to this
infuriating point of view is that expressed, ironically, by a company that is largely foreign-controlled: Kepco Philippines,
which is the local component of Korean utility giant Kepco and which operates the Ilijan combined-cycle gas plant as well
as plants in Naga and Cebu.
16
Except for some minor concerns over parts of the new rules that are admittedly a little vague, Kepco seemed to disagree
with most of the positions of the other generators, particularly with respect to the issue of joint applications. Once again, it
seems that the natives could learn a few things from the guests about how to behave properly and still turn a nice profit.

INTEGRATED PACKAGING CORP., petitioner, vs. COURT OF APPEALS and FIL-ANCHOR PAPER CO.,
INC. respondents.

DECISION

QUISUMBING, J.:

This is a petition to review the decision of the Court of Appeals rendered on April 20, 1994 reversing the judgment of the
Regional Trial Court of Caloocan City in an action for recovery of sum of money filed by private respondent against
petitioner. In said decision, the appellate court decreed:

"WHEREFORE, in view of all the foregoing, the appealed judgment is hereby REVERSED and SET
ASIDE. Appellee [petitioner herein] is hereby ordered to pay appellant [private respondent herein] the
sum of P763,101.70, with legal interest thereon, from the date of the filing of the Complaint, until fully
paid.

SO ORDERED."[1]

The RTC judgment reversed by the Court of Appeals had disposed of the complaint as follows:

"WHEREFORE, judgment is hereby rendered:

Ordering plaintiff [herein private respondent] to pay defendant [herein petitioner] the sum of P27,222.60
as compensatory and actual damages after deducting P763,101.70 (value of materials received by
defendant) from P790,324.30 representing compensatory damages as defendants unrealized profits;

Ordering plaintiff to pay defendant the sum of P100,000.00 as moral damages;

Ordering plaintiff to pay the sum of P30,000.00 for attorneys fees; and to pay the costs of suit.

SO ORDERED."[2]

The facts, as culled from the records, are as follows:

Petitioner and private respondent executed on May 5, 1978, an order agreement whereby private respondent bound itself
to deliver to petitioner 3,450 reams of printing paper, coated, 2 sides basis, 80 lbs., 38" x 23", short grain, worth
P1,040,060.00 under the following schedule: May and June 1978450 reams at P290.00/ream; August and September
1978700 reams at P290/ream; January 1979575 reams at P307.20/ream; March 1979575 reams at P307.20/ream; July
1979575 reams at P307.20/ream; and October 1979575 reams at P307.20/ream. In accordance with the standard
operating practice of the parties, the materials were to be paid within a minimum of thirty days and maximum of ninety
days from delivery.

Later, on June 7, 1978, petitioner entered into a contract with Philippine Appliance Corporation (Philacor) to print three
volumes of "Philacor Cultural Books" for delivery on the following dates: Book VI, on or before November 1978; Book VII,
on or before November 1979 and; Book VIII, on or before November 1980, with a minimum of 300,000 copies at a price of
P10.00 per copy or a total cost of P3,000,000.00.

As of July 30, 1979, private respondent had delivered to petitioner 1,097 reams of printing paper out of the total 3,450
reams stated in the agreement. Petitioner alleged it wrote private respondent to immediately deliver the balance because
further delay would greatly prejudice petitioner. From June 5, 1980 and until July 23, 1981, private respondent delivered
again to petitioner various quantities of printing paper amounting to P766,101.70. However, petitioner encountered
difficulties paying private respondent said amount. Accordingly, private respondent made a formal demand upon petitioner
to settle the outstanding account. On July 23 and 31, 1981 and August 27, 1981, petitioner made partial payments
totalling P97,200.00 which was applied to its back accounts covered by delivery invoices dated September 29-30, 1980
and October 1-2, 1980.[3]

Meanwhile, petitioner entered into an additional printing contract with Philacor. Unfortunately, petitioner failed to fully
comply with its contract with Philacor for the printing of books VIII, IX, X and XI. Thus, Philacor demanded compensation
from petitioner for the delay and damage it suffered on account of petitioners failure.

On August 14, 1981, private respondent filed with the Regional Trial Court of Caloocan City a collection suit against
petitioner for the sum of P766,101.70, representing the unpaid purchase price of printing paper bought by petitioner on
credit.

17
In its answer, petitioner denied the material allegations of the complaint. By way of counterclaim, petitioner alleged that
private respondent was able to deliver only 1,097 reams of printing paper which was short of 2,875 reams, in total
disregard of their agreement; that private respondent failed to deliver the balance of the printing paper despite demand
therefor, hence, petitioner suffered actual damages and failed to realize expected profits; and that petitioners complaint
was prematurely filed.

After filing its reply and answer to the counterclaim, private respondent moved for admission of its supplemental
complaint, which was granted. In said supplemental complaint, private respondent alleged that subsequent to the
enumerated purchase invoices in the original complaint, petitioner made additional purchases of printing paper on credit
amounting to P94,200.00. Private respondent also averred that petitioner failed and refused to pay its outstanding
obligation although it made partial payments in the amount of P97,200.00 which was applied to back accounts, thus,
reducing petitioners indebtedness to P763,101.70.

On July 5, 1990, the trial court rendered judgment declaring that petitioner should pay private respondent the sum of
P763,101.70 representing the value of printing paper delivered by private respondent from June 5, 1980 to July 23, 1981.
However, the lower court also found petitioners counterclaim meritorious. It ruled that were it not for the failure or delay of
private respondent to deliver printing paper, petitioner could have sold books to Philacor and realized profit of
P790,324.30 from the sale. It further ruled that petitioner suffered a dislocation of business on account of loss of contracts
and goodwill as a result of private respondents violation of its obligation, for which the award of moral damages was
justified.

On appeal, the respondent Court of Appeals reversed and set aside the judgment of the trial court. The appellate court
ordered petitioner to pay private respondent the sum of P763,101.70 representing the amount of unpaid printing paper
delivered by private respondent to petitioner, with legal interest thereon from the date of the filing of the complaint until
fully paid.[4] However, the appellate court deleted the award of P790,324.30 as compensatory damages as well as the
award of moral damages and attorneys fees, for lack of factual and legal basis.

Expectedly, petitioner filed this instant petition contending that the appellate courts judgment is based on erroneous
conclusions of facts and law. In this recourse, petitioner assigns the following errors:

[I]

"THE COURT OF APPEALS ERRED IN CONCLUDING THAT PRIVATE RESPONDENT DID NOT
VIOLATE THE ORDER AGREEMENT.

[II]

THE COURT OF APPEALS ERRED IN CONCLUDING THAT RESPONDENT IS NOT LIABLE FOR
PETITIONERS BREACH OF CONTRACT WITH PHILACOR.

[III]

THE COURT OF APPEALS ERRED IN CONCLUDING THAT PETITIONER IS NOT ENTITLED TO

DAMAGES AGAINST PRIVATE RESPONDENT."[5]

In our view, the crucial issues for resolution in this case are as follows:

(1)....Whether or not private respondent violated the order agreement, and;

(2)....Whether or not private respondent is liable for petitioners breach of contract with Philacor.

Petitioners contention lacks factual and legal basis, hence, bereft of merit.

Petitioner contends, firstly, that private respondent violated the order agreement when the latter failed to deliver the
balance of the printing paper on the dates agreed upon.

The transaction between the parties is a contract of sale whereby private respondent (seller) obligates itself to deliver
printing paper to petitioner (buyer) which, in turn, binds itself to pay therefor a sum of money or its equivalent
(price).[6] Both parties concede that the order agreement gives rise to a reciprocal obligations [7] such that the obligation of
one is dependent upon the obligation of the other. Reciprocal obligations are to be performed simultaneously, so that the
performance of one is conditioned upon the simultaneous fulfillment of the other. [8] Thus, private respondent undertakes to
deliver printing paper of various quantities subject to petitioners corresponding obligation to pay, on a maximum 90-day
credit, for these materials. Note that in the contract, petitioner is not even required to make any deposit, down payment or
advance payment, hence, the undertaking of private respondent to deliver the materials is conditional upon payment by
petitioner within the prescribed period. Clearly, petitioner did not fulfill its side of the contract as its last payment in August
1981 could cover only materials covered by delivery invoices dated September and October 1980.

There is no dispute that the agreement provides for the delivery of printing paper on different dates and a separate price
has been agreed upon for each delivery. It is also admitted that it is the standard practice of the parties that the materials
18
be paid within a minimum period of thirty (30) days and a maximum of ninety (90) days from each delivery.[9] Accordingly,
the private respondents suspension of its deliveries to petitioner whenever the latter failed to pay on time, as in this case,
is legally justified under the second paragraph of Article 1583 of the Civil Code which provides that:

"When there is a contract of sale of goods to be delivered by stated installments, which are to be
separately paid for, and the seller makes defective deliveries in respect of one or more installments,
or the buyer neglects or refuses without just cause to take delivery of or pay for one or more installments,
it depends in each case on the terms of the contract and the circumstances of the case, whether the
breach of contract is so material as to justify the injured party in refusing to proceed further and suing for
damages for breach of the entire contract, or whether the breach is severable, giving rise to a claim for
compensation but not to a right to treat the whole contract as broken." (Emphasis supplied)

In this case, as found a quo petitioners evidence failed to establish that it had paid for the printing paper covered by the
delivery invoices on time. Consequently, private respondent has the right to cease making further delivery, hence the
private respondent did not violate the order agreement. On the contrary, it was petitioner which breached the agreement
as it failed to pay on time the materials delivered by private respondent. Respondent appellate court correctly ruled that
private respondent did not violate the order agreement.

On the second assigned error, petitioner contends that private respondent should be held liable for petitioners breach of
contract with Philacor. This claim is manifestly devoid of merit.

As correctly held by the appellate court, private respondent cannot be held liable under the contracts entered into by
petitioner with Philacor. Private respondent is not a party to said agreements. It is also not a contract pour autrui.
Aforesaid contracts could not affect third persons like private respondent because of the basic civil law principle of
relativity of contracts which provides that contracts can only bind the parties who entered into it, and it cannot favor or
prejudice a third person,[10] even if he is aware of such contract and has acted with knowledge thereof. [11]

Indeed, the order agreement entered into by petitioner and private respondent has not been shown as having a direct
bearing on the contracts of petitioner with Philacor. As pointed out by private respondent and not refuted by petitioner, the
paper specified in the order agreement between petitioner and private respondent are markedly different from the paper
involved in the contracts of petitioner with Philacor.[12] Furthermore, the demand made by Philacor upon petitioner for the
latter to comply with its printing contract is dated February 15, 1984, which is clearly made long after private respondent
had filed its complaint on August 14, 1981. This demand relates to contracts with Philacor dated April 12, 1983 and May
13, 1983, which were entered into by petitioner after private respondent filed the instant case.

To recapitulate, private respondent did not violate the order agreement it had with petitioner. Likewise, private respondent
could not be held liable for petitioners breach of contract with Philacor. It follows that there is no basis to hold private
respondent liable for damages. Accordingly, the appellate court did not err in deleting the damages awarded by the trial
court to petitioner.

The rule on compensatory damages is well established. True, indemnification for damages comprehends not only the loss
suffered, that is to say actual damages (damnum emergens), but also profits which the obligee failed to obtain, referred to
as compensatory damages (lucrum cessans). However, to justify a grant of actual or compensatory damages, it is
necessary to prove with a reasonable degree of certainty, premised upon competent proof and on the best evidence
obtainable by the injured party, the actual amount of loss.[13] In the case at bar, the trial court erroneously concluded that
petitioner could have sold books to Philacor at the quoted selling price of P1,850,750.55 and by deducting the production
cost of P1,060,426.20, petitioner could have earned profit of P790,324.30. Admittedly, the evidence relied upon by the
trial court in arriving at the amount are mere estimates prepared by petitioner.[14] Said evidence is highly speculative and
manifestly hypothetical. It could not provide sufficient legal and factual basis for the award of P790,324.30 as
compensatory damages representing petitioners self-serving claim of unrealized profit.

Further, the deletion of the award of moral damages is proper, since private respondent could not be held liable for breach
of contract. Moral damages may be awarded when in a breach of contract the defendant acted in bad faith, or was guilty
of gross negligence amounting to bad faith, or in wanton disregard of his contractual obligation. [15] Finally, since the award
of moral damages is eliminated, so must the award for attorneys fees be also deleted. [16]

WHEREFORE, the instant petition is DENIED. The decision of the Court of Appeals is AFFIRMED. Costs against
petitioner.

SO ORDERED.

Sps. Mamaril vs. Boy Scout of the Philippines | G.R. No. 179382 | January 14, 2013

Facts: PUJ operators Sps. Mamaril would park their 6 passenger jeepneys every night at BSPs compound in Malate,
Manila for a fee of P300.00 per month for each unit. One day, one of the vehicles was missing and was never recovered.
According to the security guards Pea and Gaddi of AIB Security Agency with whom BSP had contracted for its security
and protection, a male person who looked familiar to them took the subject vehicle out of the compound. Sps. Mamaril
prayed that Pea and Gaddi, together with AIB and BSP, be held liable for: (a) the value of the subject vehicle; (b) amount
19
representing daily loss of income/boundary reckoned from the day the vehicle was lost; (c) exemplary damages; (d) moral
damages; (e) attorney's fees; and (f) cost of suit.

BSP denied any liability contending that not only did Sps. Mamaril directly deal with AIB with respect to the manner by
which the parked vehicles would be handled, but the parking ticket itself expressly stated that the "Management shall not
be responsible for loss of vehicle or any of its accessories or article left therein." It also claimed that Sps. Mamaril
erroneously relied on the Guard Service Contract. Apart from not being parties thereto, its provisions cover only the
protection of BSP's properties, its officers, and employees.

Issue: Whether or not BSP may be held liable for the loss of the vehicle caused by the negligence of its security guards.

Held: The proximate cause of the loss of Sps. Mamaril's vehicle was the negligent act of security guards Pea and Gaddi
in allowing an unidentified person to drive out the subject vehicle. The records are bereft of any finding of negligence on
the part of BSP. Neither will the vicarious liability of an employer under Article 2180 of the Civil Code apply in this case.
Pea and Gaddi were assigned as security guards by AIB to BSP pursuant to the Guard Service Contract. No employer-
employee relationship existed between BSP and the security guards assigned in its premises. Sps. Mamaril are not
parties to the Guard Service Contract. Guard Service Contract between defendant-appellant BSP and defendant AIB
Security Agency is purely between the parties therein.

Contracts take effect only between the parties, their assigns and heirs, except in case where the rights and obligations
arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. The heir is not liable
beyond the value of the property he received from the decedent. If a contract should contain some stipulation in favor of a
third person, he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation.
A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly and
deliberately conferred a favor upon a third person.

Thus, in order that a third person benefited by the second paragraph of Article 1311, referred to as a stipulation pour
autrui, may demand its fulfillment, the following requisites must concur: (1) There is a stipulation in favor of a third person;
(2) The stipulation is a part, not the whole, of the contract; (3) The contracting parties clearly and deliberately conferred a
favor to the third person - the favor is not merely incidental; (4) The favor is unconditional and uncompensated; (5) The
third person communicated his or her acceptance of the favor before its revocation; and (6) The contracting parties do not
represent, or are not authorized, by the third party. However, none of the foregoing elements obtains in this case.There is
absolutely nothing in the said contract that would indicate any obligation and/or liability on the part of the parties therein in
favor of third persons such as herein plaintiffs-appellees.

Moreover, the Court concurs with the finding of the CA that the contract between the parties herein was one of lease as
defined under Article 1643 of the Civil Code. It has been held that the act of parking a vehicle in a garage, upon payment
of a fixed amount, is a lease. The agreement with respect to the ingress and egress of Sps. Mamaril's vehicles were
coordinated only with AIB and its security guards, without the knowledge and consent of BSP. Accordingly, the
mishandling of the parked vehicles that resulted in herein complained loss should be recovered only from the tort feasors
(Pea and Gaddi) and their employer, AIB; and not against the lessor, BSP.

C.F. SHARP & CO. INC. and JOHN J. G.R. No. 179469
ROCHA,
Petitioners,
Present:

CARPIO, J.,
Chairperson,
-versus- VILLARAMA, JR.,*
PEREZ,
SERENO, and
REYES, JJ.

PIONEER INSURANCE & SURETY

CORPORATION, WILFREDO C. AGUSTIN
and HERNANDO G. MINIMO, Promulgated:

20
Respondents.
February 15, 2012

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

DECISION

PEREZ, J.:

Whether a local private employment agency may be held liable for breach of contract for failure to deploy a seafarer, is
the bone of contention in this case.

Assailed in this petition for review are the Decision[1] dated 30 October 2003 and the 29 August 2007 Resolution of the
Court of Appeals in CA-G.R. CV No. 53336 finding petitioners C.F. Sharp Co. Inc. (C.F. Sharp) and John J. Rocha
(Rocha) liable for damages.

Responding to a newspaper advertisement of a job opening for sandblasters and painters in Libya, respondents Wilfredo
C. Agustin and Hernando G. Minimo applied with C.F. Sharp sometime in August 1990. After passing the interview, they
were required to submit their passports, seamans book, National Bureau of Investigation clearance, employment
certificates, certificates of seminars attended, and results of medical examination. Upon submission of the requirements, a
Contract of Employment was executed between respondents and C.F. Sharp. Thereafter, respondents were required to
attend various seminars, open a bank account with the corresponding allotment slips, and attend a pre-departure
orientation. They were then advised to prepare for immediate deployment and to report to C.F. Sharp to ascertain the
schedule of their deployment.

After a month, respondents were yet to be deployed prompting them to request for the release of the documents they had
submitted to C.F. Sharp. C.F. Sharp allegedly refused to surrender the documents which led to the filing of a complaint by
respondents before the Philippine Overseas Employment Administration (POEA) on 21 January 1991.

On 30 October 1991, POEA issued an Order finding C.F. Sharp guilty of violation of Article 34(k) of the Labor Code, which
makes it unlawful for any entity to withhold or deny travel documents from applicant workers before departure for
monetary or financial considerations other than those authorized under this Code and its implementing rules and
regulations. Consequently, C.F. Sharps license was suspended until the return of the disputed documents to
respondents. POEA likewise declared that it has no jurisdiction to adjudicate the monetary claims of respondents.
On 10 March 1995, respondents filed a Complaint for breach of contract and damages against C.F. Sharp and its surety,
Pioneer Insurance and Surety Corporation (Pioneer Insurance), before the Regional Trial Court (RTC) of Pasay
City. Respondents claimed that C.F. Sharp falsely assured them of deployment and that its refusal to release the disputed
documents on the ground that they were already bound by reason of the Contract of Employment, denied respondents of
employment opportunities abroad and a guaranteed income. Respondents also prayed for damages. Pioneer Insurance
filed a cross claim against C.F. Sharp and John J. Rocha, the executive vice-president of C.F. Sharp, based on an
Indemnity Agreement which substantially provides that the duo shall jointly and severally indemnify Pioneer Insurance for
damages, losses, and costs which the latter may incur as surety. The RTC rendered judgment on 27 June 1996 favoring
respondents, to wit:

WHEREFORE, plaintiffs causes of action having been proved with a preponderance of

evidence, judgment is hereby ordered as follows:

a. Declaring the non-deployment of plaintiffs and the refusal to release documents as breach
of contract;
b. By way of compensatory damages, awarding $450 per month and $439 overtime per
month, which should have been received by plaintiffs from other employers, making a joint

21
 and solidary obligation on the part of the two defendants C.F. Sharp and Pioneer for the
period covered by the employment contracts;
c. Ordering each defendant to pay each plaintiff P50,000.00 as moral damages and
another P50,000.00 each as exemplary damages;
d. Ordering defendants to share in the payment to plaintiffs of P50,000.00 attorneys fees;
e. Defendants to pay litigation expenses and costs of suit.[2]

The trial court ruled that there was a violation of the contract when C.F. Sharp failed to deploy and release the
papers and documents of respondents, hence, they are entitled to damages. The trial court likewise upheld the cause of
action of respondents against Pioneer Insurance, the former being the actual beneficiaries of the surety bond.

On appeal, C.F. Sharp and Rocha raise a jurisdictional issue that the RTC has no jurisdiction over the instant
case pursuant to Section 4(a) of Executive Order No. 797 which vests upon the POEA the jurisdiction over all cases,
including money claims, arising out of or by virtue of any contract involving workers for overseas employment. C.F. Sharp
and Rocha refuted the findings of the trial court and maintained that the perfection and effectivity of the Contract of
Employment depend upon the actual deployment of respondents.

The Court of Appeals upheld the jurisdiction of the trial court by ruling that petitioners are now estopped from
raising such question because they have actively participated in the proceedings before the trial court. The Court of
Appeals further held that since there is no perfected employment contract between the parties, it is the RTC and not the
POEA, whose jurisdiction pertains only to claims arising from contracts involving Filipino seamen, which has jurisdiction
over the instant case.

Despite the finding that no contract was perfected between the parties, the Court of Appeals adjudged C.F. Sharp
and Rocha liable for damages, to wit:

WHEREFORE, the Appeal of C.F. Sharp Co Inc. and John J. Rocha is PARTIALLY GRANTED
only insofar as We declare that there is no breach of contract because no contract of employment was
perfected. However, We find appellants C.F. Sharp Co. Inc. and John J. Rocha liable to plaintiff-appellees
for damages pursuant to Article 21 of the Civil Code and award each plaintiff-appellees temperate
damages amounting to P100,000.00, and moral damages in the increased amount of P100,000.00. The
award of exemplary damages and attorneys fees amounting to P50,000.00, respectively, is hereby
affirmed.[3]

The Court of Appeals limited the liability of Pioneer Insurance to the amount of P150,000.00 pursuant to the
Contract of Suretyship between C.F. Sharp and Pioneer Insurance.

Rocha filed the instant petition on the submission that there is no basis to hold him liable for damages under
Article 21 of the Civil Code because C.F. Sharp has signified its intention to return the documents and had in fact informed
respondents that they may, at any time of the business day, withdraw their documents. Further, respondents failed to
establish the basis for which they are entitled to moral damages. Rocha refuted the award of exemplary damages
because the act of requiring respondents to sign a quitclaim prior to the release of their documents could not be
considered bad faith. Rocha also questions the award of temperate damages on the ground that the act of withholding
respondents documents could not be considered chronic and continuing. [4]

Right off, insofar as Pioneer Insurance is concerned, the petition should be dismissed against it because the ruling of the
Court of Appeals limited its liability to P150,000.00 was not assailed by Rocha, hence the same has now attained finality.
Before us, respondents maintain that they are entitled to damages under Article 21 of the Civil Code for C.F.
Sharps unjustified refusal to release the documents to them and for requiring them to sign a quitclaim which would
effectively bar them from seeking redress against petitioners. Respondents justify the award of other damages as they
suffered pecuniary losses attributable to petitioners malice and bad faith.

In his Reply, Rocha introduced a new argument, i.e., that he should not be held jointly liable with C.F. Sharp considering
that the company has a separate personality.Rocha argues that there is no showing in the Complaint that he had

22
participated in the malicious act complained. He adds that his liability only stems from the Indemnity Agreement with
Pioneer Insurance and does not extend to respondents.

Records disclose that Rocha was first impleaded in the case by Pioneer Insurance. Pioneer Insurance, as surety, was
sued by respondents together with C.F. Sharp.Pioneer Insurance in turn filed a third party complaint against Rocha on the
basis of an Indemnity Agreement whereby he bound himself to indemnify and hold harmless Pioneer Insurance from and
against any and all damages which the latter may incur in consequence of having become a surety. [5] The third party
complaint partakes the nature of a cross-claim.

C.F. Sharp, as defendant-appellant and Rocha, as third-party defendant-appellant, filed only one brief before the
Court of Appeals essentially questioning the declaration of the trial court that non-deployment is tantamount to breach of
contract and the award of damages. The Court of Appeals found them both liable for damages. Both C.F. Sharp and
Rocha sought recourse before this Court via a Motion for Extension of Time (To File a Petition for Review) on 19
September 2007.[6]In the Petition for Review, however, C.F. Sharp was noticeably dropped as petitioner. Rocha maintains
essentially the same argument that he and C.F. Sharp were wrongfully adjudged liable for damages.

It was only in its Reply dated 25 March 2008 that Rocha, through a new representation, suddenly forwarded the
argument that he should not be held liable as an officer of C.F. Sharp. It is too late in the day for Rocha to change his
theory. It is doctrinal that defenses not pleaded in the answer may not be raised for the first time on appeal. A party
cannot, on appeal, change fundamentally the nature of the issue in the case. When a party deliberately adopts a certain
theory and the case is decided upon that theory in the court below, he will not be permitted to change the same on
appeal, because to permit him to do so would be unfair to the adverse party. [7] More so in this case, where Rocha
introduced a new theory at the Reply stage. Disingenuousness may even be indicated by the sudden exclusion of the
name of C.F. Sharp from the main petition even as Rocha posited arguments not just for himself and also in behalf of C.F.
Sharp.

The core issue pertains to damages.

The bases of the lower courts award of damages differ. In upholding the perfection of contract between
respondents and C.F. Sharp, the trial court stated that the unjustified failure to deploy and subsequently release the
documents of respondents entitled them to compensatory damages, among others. Differently, the appellate court found
that no contract was perfected between the parties that will give rise to a breach of contract. Thus, the appellate court
deleted the award of actual damages.However, it adjudged other damages against C.F. Sharp for its unlawful withholding
of documents from respondents.

We sustain the trial courts ruling.

On the issue of whether respondents are entitled to relief for failure to deploy them, the RTC ruled in this wise:

The contract of employment entered into by the plaintiffs and the defendant C.F. Sharp is an actionable
document, the same contract having the essential requisites for its validity.It is worthy to note that there
are three stages of a contract: (1) preparation, conception, or generation which is the period of
negotiation and bargaining ending at the moment of agreement of the parties. (2) Perfection or birth of the
contract, which is the moment when the parties come to agree on the terms of the contract. (3)
Consummation or death, which is the fulfillment or performance of the terms agreed upon in the contract.
Hence, it is imperative to know the stage reached by the contract entered into by the plaintiffs and
C.F. sharp. Based on the testimonies of the witnesses presented in this Court, there was already a
perfected contract between plaintiffs and defendant C.F. Sharp. Under Article 1315 of the New Civil Code
of the Philippines, it states that:

xxxx

Thus, when plaintiffs signed the contract of employment with C.F. Sharp (as agent of the principal WB
Slough) consequently, the latter is under obligation to deploy the plaintiffs, which is the natural effect and
consequence of the contract agreed by them.[8]

23
 We agree.

As correctly ruled at the trial, contracts undergo three distinct stages, to wit: negotiation; perfection or birth; and
consummation. Negotiation begins from the time the prospective contracting parties manifest their interest in the contract
and ends at the moment of agreement of the parties. Perfection or birth of the contract takes place when the parties agree
upon the essential elements of the contract. Consummation occurs when the parties fulfill or perform the terms agreed
upon in the contract, culminating in the extinguishment thereof. [9]

Under Article 1315 of the Civil Code, a contract is 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.[10]

An employment contract, like any other contract, is perfected at the moment (1) the parties come to agree upon
its terms; and (2) concur in the essential elements thereof: (a) consent of the contracting parties, (b) object certain which
is the subject matter of the contract and (c) cause of the obligation. [11]

We have scoured through the Contract of Employment and we hold that it is a perfected contract of
employment. We reproduce below the terms of the Contract of Employment for easy reference:

WITNESSETH

That the Seafarer shall be employed on board under the following terms and conditions:

1.1 Duration of Contract: 3 month/s

1.2 Position: SANDBLASTER/PAINTER
1.3 Basic Monthly Salary: $450.00 per month
1.4 Living Allowances: $0.00 per month
1.5 Hours of Work: 48 per week
1.6 Overtime Rate: $439.00 per month
1.7 Vacation Leave with Pay: 30.00 day/s per month on board

The terms and conditions of the Revised Employment Contract for seafarers governing the
employment of all Filipino seafarers approved by the POEA/DOLE on July 14, 1989 under Memorandum
Circular No. 41 series of 1989 and amending circulars relative thereto shall be strictly and faithfully
observed.

Any alterations or changes, in any part of this Contract shall be evaluated, verified, processed
and approved by the Philippine Overseas Employment Administration (POEA). Upon approval, the same
shall be deemed an integral part of the Standard Employment Contract (SEC) for seafarers.

All claims, complaints or controversies relative to the implementation and interpretation of this
overseas employment contract shall be exclusively resolved through the established Grievance
Machinery in the Revised Employment Contract for seafarers, the adjudication procedures of the
Philippine Overseas Employment Administration and the Philippine Courts of Justice, in that order.
Violations of the terms and conditions of this Contract with its approved addendum shall warrant
the imposition of appropriate disciplinary or administrative sanctions against the erring party.

The Employee hereby certifies that he had received, read or has had explained to him and fully
understood this contract as well as the POEA revised Employment Contract of 1989 and the Collective
Bargaining Agreement (CBA) and/or company terms and conditions of employment covering this vessel
and that he is fully aware of and has head or has had explained to him the terms and conditions including
those in the POEA Employment Contract, the CBA and this contract which constitute his entire
agreement with the employer.

The Employee also confirms that no verbal or other written promises other than the terms and
conditions of this Contract as well as the POEA Revised Employment Contract, the CBA and/or company
terms and conditions had been given to the Employee. Therefore, the Employee cannot claim any
additional benefits or wages of any kind except those which have been provided in this Contract
Agreement.[12]

By the contract, C.F. Sharp, on behalf of its principal, International Shipping Management, Inc., hired respondents
as Sandblaster/Painter for a 3-month contract, with a basic monthly salary of US$450.00. Thus, the object of the contract
is the service to be rendered by respondents on board the vessel while the cause of the contract is the monthly
24
compensation they expect to receive. These terms were embodied in the Contract of Employment which was executed by
the parties. The agreement upon the terms of the contract was manifested by the consent freely given by both parties
through their signatures in the contract. Neither parties disavow the consent they both voluntarily gave. Thus, there is a
perfected contract of employment.

The Court of Appeals agreed with the submission of C.F. Sharp that the perfection and effectivity of the Contract
of Employment depend upon the actual deployment of respondents. It based its conclusion that there was no perfected
contract based on the following rationale:

The commencement of the employer-employee relationship between plaintiffs-appellees and the

foreign employer, as correctly represented by C.F. Sharp requires that conditions under Sec. D be
met. The Contract of Employment was duly Verified and approved by the POEA. Regrettably, We have
painfully scrutinized the Records and find no evidence that plaintiffs-appellees were cleared for travel and
departure to their port of embarkation overseas by government authorities. Consequently, non-fulfillment
of this condition negates the commencement and existence of employer-employee relationship between
the plaintiffs-appellees and C.F. Sharp. Accordingly, no contract between them was perfected that will
give rise to plaintiffs-appellees right of action. There can be no breach of contract when in the first place,
there is no effective contract to speak of. For the same reason, and finding that the award of actual
damages has no basis, the same is hereby deleted.[13]

The Court of Appeals erred.

The commencement of an employer-employee relationship must be treated separately from the perfection of an
employment contract. Santiago v. CF Sharp Crew Management, Inc.,[14] which was promulgated on 10 July 2007, is an
instructive precedent on this point. In said case, petitioner was hired by respondent on board MSV Seaspread for
US$515.00 per month for nine (9) months, plus overtime pay. Respondent failed to deploy petitioner from the port of
Manila to Canada. We made a distinction between the perfection of the employment contract and the commencement of
the employer-employee relationship, thus:

The perfection of the contract, which in this case coincided with the date of execution thereof,
occurred when petitioner and respondent agreed on the object and the cause, as well as the rest of the
terms and conditions therein. The commencement of the employer-employee relationship, as earlier
discussed, would have taken place had petitioner been actually deployed from the point of hire. Thus,
even before the start of any employer-employee relationship, contemporaneous with the perfection of the
employment contract was the birth of certain rights and obligations, the breach of which may give rise to a
cause of action against the erring party.[15]
Despite the fact that the employer-employee relationship has not commenced due to the failure to deploy
respondents in this case, respondents are entitled to rights arising from the perfected Contract of Employment, such as
the right to demand performance by C.F. Sharp of its obligation under the contract.

The right to demand performance was a categorical pronouncement in Santiago which ruled that failure to deploy
constitutes breach of contract, thereby entitling the seafarer to damages:

Respondents act of preventing petitioner from departing the port of Manila and boarding MSV
Seaspread constitutes a breach of contract, giving rise to petitioners cause of action. Respondent
unilaterally and unreasonably reneged on its obligation to deploy petitioner and must therefore answer for
the actual damages he suffered.
We take exception to the Court of Appeals conclusion that damages are not recoverable by a
worker who was not deployed by his agency. The fact that the POEA Rules are silent as to the payment
of damages to the affected seafarer does not mean that the seafarer is precluded from claiming the
same. The sanctions provided for non-deployment do not end with the suspension or cancellation of
license or fine and the return of all documents at no cost to the worker. They do not forfend a seafarer
from instituting an action for damages against the employer or agency which has failed to deploy him. [16]

The appellate court could not be faulted for its failure to adhere to Santiago considering that the Court of Appeals
Decision was promulgated way back in 2003 while Santiago was decided in 2007. We now reiterate Santiago and,
accordingly, decide the case at hand.

25
 We respect the lower courts findings that C.F. Sharp unjustifiably refused to return the documents submitted by
respondent. The finding was that C.F. Sharp would only release the documents if respondent would sign a quitclaim. On
this point, the trial court was affirmed by the Court of Appeals. As a consequence, the award by the trial court of moral
damages must likewise be affirmed.

Moral damages may be recovered under Article 2219 of the Civil Code in relation to Article 21. The pertinent
provisions read:

Art. 2219. Moral damages may be recovered in the following and analogous cases:

xxxx

(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.

xxxx

Art. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to morals,
good customs or public policy shall compensate the latter for the damage.

We agree with the appellate court that C.F. Sharp committed an actionable wrong when it unreasonably withheld
documents, thus preventing respondents from seeking lucrative employment elsewhere. That C.F. Sharp arbitrarily
imposed a condition that the documents would only be released upon signing of a quitclaim is tantamount to bad faith
because it effectively deprived respondents of resort to legal remedies.
Furthermore, we affirm the award of exemplary damages and attorneys fees. Exemplary damages may be
awarded when a wrongful act is accompanied by bad faith or when the defendant acted in a wanton, fraudulent, reckless,
oppressive, or malevolent manner which would justify an award of exemplary damages under Article 2232 of the Civil
Code. Since the award of exemplary damages is proper in this case, attorneys fees and cost of the suit may also be
recovered as provided under Article 2208 of the Civil Code.[17]

WHEREFORE, the petition is DENIED. The Decision dated 27 June 1996 of the Regional Trial Court of Pasay
City is REINSTATED. Accordingly, the Decision dated 30 October 2003 of the Court of Appeals is MODIFIED.

Heirs of Ignacio vs. Home Bankers Savings and Trust Co. (2013) (Civil Law)

Heirs of Ignacio vs. Home Bankers Savings and Trust Co. | G.R. No. 177783 | January 23, 2013

Facts: The case sprang from a real estate mortgage of two parcels of land in August 1981. Fausto C. Ignacio mortgaged
the properties to Home Bankers Savings and Trust Company (Bank) as security for a loan extended by the Bank. After
Ignacio defaulted in the payment of the loan, the property was foreclosed and subsequently sold to the Bank in a public
auction.Ignacio offered to repurchase the property. Universal Properties Inc. (UPI), the banks collecting agent sent
Ignacio a letter on March 22, 1984 which contained the terms of the repurchase. However, Ignacio annotated in the letter
new terms and conditions. He claimed that these were verbal agreements between himself and the Banks collection
agent, UPI.No repurchase agreement was finalized between Ignacio and the Bank. Thereafter the Bank sold the property
to third parties. Ignacio then filed an action for specific performance against the Bank for the reconveyance of the
properties after payment of the balance of the purchase price. He argued that there was implied acceptance of the
counter-offer of the sale through the receipt of the terms by representatives of UPI. The Bank denied that it gave its
consent to the counter-offer of Ignacio. It countered that it did not approve the unilateral amendments placed by Ignacio.

Issue: Whether or not the negotiations between Ignacio and UPI is binding on the Bank.

Held: A contract of sale is perfected only when there is consent validly given. There is no consent when a party merely
negotiates a qualified acceptance or a counter-offer. An acceptance must reflect all aspects of the offer to amount to a
meeting of the minds between the parties.In this case, while it is apparent that Ignacio proposed new terms and conditions
to the repurchase agreement, there was no showing that the Bank approved the modified offer.

The negotiations between Ignacio and UPI, the collection agent, were merely preparatory to the repurchase agreement
and, therefore, was not binding on the Bank. Ignacio could not compel the Bank to accede to the repurchase of the
property.

26
A corporation may only give valid acceptance of an offer of sale through its authorized officers or agents. Specifically, a
counter-offer to repurchase a property will not bind a corporation by mere acceptance of an agent in the absence of
evidence of authority from the corporations board of directors.

Spouses Intac vs CA

Facts:
Ireneo Mendoza, married to Salvacion Fermin, was the owner of the subject property located in Quezon city which
he purchased in 1954. (TCT No. 242655)
Ireneo had two children: respondents Josefina and Martina (respondents), Salvacion being their stepmother.
When he was still alive, Ireneo, also took care of his niece, Angelina, since she was three years old until she got
married.
On October 25, 1977, Ireneo, with the consent of Salvacion, executed a deed of absolute sale of the property in
favor of Angelina and her husband, Mario (Spouses Intac).
Despite the sale, Ireneo and his family, including the respondents, continued staying in the premises and paying the
realty taxes. After Ireneo died intestate in 1982, his widow and the respondents remained in the premises. After
Salvacion died, respondents still maintained their residence there. Up to the present, they are in the premises,
paying the real estate taxes thereon, leasing out portions of the property, and collecting the rentals.
The controversy arose when respondents sought the cancellation of TCT No. 242655, claiming that the sale was
only simulated and, therefore, void.
The heirs of Ireneo, the respondents in this case, alleged that: 1. When Ireneo was still alive, Spouses Intac
borrowed the title of the property (TCT No. 106530) from him to be used as collateral for a loan from a financing
institution; 2. they objected because the title would be placed in the names of said spouses and it would then appear
that the couple owned the property; that Ireneo, however, tried to appease them, telling them not to worry because
Angelina would not take advantage of the situation considering that he took care of her for a very long time; that
during his lifetime, he informed them that the subject property would be equally divided among them after his death;
and 3. that respondents were the ones paying the real estate taxes over said property.
Spouses Intac countered, among others, that the subject property had been transferred to them based on a valid
deed of absolute sale and for a valuable consideration; that the action to annul the deed of absolute sale had
already prescribed; that the stay of respondents in the subject premises was only by tolerance during Ireneos
lifetime because they were not yet in need of it at that time; and that despite respondents knowledge about the sale
that took place on October 25, 1977, respondents still filed an action against them.
RTC ruled in favor of the respondents saying that the sale to the spouses Intac was null and void. The CA also ruled
that there was no consideration in the sale to the spouses Intac and that the contract was one for equitable
mortgage.

Issues:
WON the Deed of Absolute Sale was a simulated contract or a valid agreement.
WON the Deed of Absolute Sale, dated October 25, 1977, involving the subject real property in Pagasa, Quezon City, was
a simulated contract or a valid agreement.

Held:

The deed of sale executed by Ireneo and Salvacion was absolutely simulated for lack of consideration and cause and,
therefore, void.

Articles 1345 and 1346 of the Civil Code provide:

Art. 1345. Simulation of a contract may be absolute or relative. The former takes place when the parties do not intend to
be bound at all; the latter, when the parties conceal their true agreement.

Art. 1346. An absolutely simulated or fictitious contract is void. A relative simulation, when it does not prejudice a third
person and is not intended for any purpose contrary to law, morals, good customs, public order or public policy binds the
parties to their real agreement.

Relatively simulated agreement vs. Absolute simulation

If the parties state a false cause in the contract to conceal their real agreement, the contract is only relatively simulated
and the parties are still bound by their real agreement. Hence, where the essential requisites of a contract are present and
the simulation refers only to the content or terms of the contract, the agreement is absolutely binding and enforceable
between the parties and their successors in interest

In absolute simulation, there is a colorable contract but it has no substance as the parties have no intention to be bound
by it. "The main characteristic of an absolute simulation is that the apparent contract is not really desired or intended to
produce legal effect or in any way alter the juridical situation of the parties." "As a result, an absolutely simulated or
fictitious contract is void, and the parties may recover from each other what they may have given under the contract."

No valid sale took place between Ireneo and Spouses Intac

In the case at bench, the Court is one with the courts below that no valid sale of the subject property actually took place
between the alleged vendors, Ireneo and Salvacion; and the alleged vendees, Spouses Intac. There was simply no
consideration and no intent to sell it.

Evidences to prove that there was no absolute deed of sale between the parties
27
Critical is the testimony of Marietto, a witness to the execution of the subject absolute deed of sale. He testified that Ireneo
personally told him that he was going to execute a document of sale because Spouses Intac needed to borrow the title to
the property and use it as collateral for their loan application. Ireneo and Salvacion never intended to sell or permanently
transfer the full ownership of the subject property to Spouses Intac. Marietto was characterized by the RTC as a credible
witness.

Aside from their plain denial, the heirs of Intac failed to present any concrete evidence to disprove Mariettos testimony.
They claimed that they actually paid P150,000.00 for the subject property. They, however, failed to adduce proof, even by
circumstantial evidence, that they did, in fact, pay it. Even for the consideration of P60,000.00 as stated in the contract,
petitioners could not show any tangible evidence of any payment therefor. Their failure to prove their payment only
strengthened Mariettos story that there was no payment made because Ireneo had no intention to sell the subject
property.

Angelinas story, except on the consideration, was consistent with that of Marietto. Angelina testified that she and her
husband mortgaged the subject property sometime in July 1978 to finance the construction of a small hospital in Sta.
Cruz, Laguna. Angelina claimed that Ireneo offered the property as he was in deep financial need.

The contract of sale was only for the purpose of lending the title of the property to Spouses Intac to enable them
to secure a loan.
Their arrangement was only temporary and could not give rise to a valid sale. Where there is no consideration, the sale is
null and void ab initio. The case of Lequin vs. VIzconde was cited in this case.

The fact that Ireneo was still in physical possession of the subject property after the sale is a strong evidence to
prove that there was no valid sale between the parties.
More importantly, Ireneo and his family continued to be in physical possession of the subject property after the sale in
1977 and up to the present. They even went as far as leasing the same and collecting rentals. If Spouses Intac really
purchased the subject property and claimed to be its true owners, why did they not assert their ownership immediately
after the alleged sale took place? Why did they have to assert their ownership of it only after the death of Ireneo and
Salvacion? One of the most striking badges of absolute simulation is the complete absence of any attempt on the part of a
vendee to assert his right of dominion over the property.

As heretofore shown, the contemporaneous and subsequent acts of both parties in this case, point to the fact that the
intention of Ireneo was just to lend the title to the Spouses Intac to enable them to borrow money and put up a hospital in
Sta. Cruz, Laguna. Clearly, the subject contract was absolutely simulated and, therefore, void.

The Spouses Intac never became the owners of the property despite its registration in their names.
It is also of no moment that TCT No. 106530 covering the subject property was cancelled and a new TCT (TCT No.
242655)21 was issued in their names. After all, registration does not vest title. As a logical consequence, petitioners did
not become the owners of the subject property even after a TCT had been issued in their names.

VICENTE MANZANO, JR., G.R. No. 179323

Petitioner, Present:

CORONA, C.J.,

Chairperson,

LEONARDO-DE CASTRO,

BERSAMIN,

DEL CASTILLO, and

- versus -
VILLARAMA, JR., JJ.

Promulgated:

November 28, 2011

MARCELINO GARCIA,

Respondent.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

28
 DECISION

LEONARDO-DE CASTRO, J.:

This is a Petition for Review on Certiorari seeking the reversal of the Decision[1] of the Court of Appeals in CA-G.R.
CV No. 55408 dated September 26, 2006 and its Resolution [2] dated August 9, 2007, denying the Motion for
Reconsideration.

This case involves a parcel of land covered by Transfer Certificate of Title (TCT) No. T-25464, issued in the name
of respondent Marcelino D. Garcia (Garcia).The subject parcel of land has an area of six thousand nine hundred fifty-one
(6,951) square meters and is located in Balonguis, Balulang, Cagayan de Oro City.[3]

The above property was the subject of a deed of pacto de retro sale dated May 26, 1992 allegedly executed by
Garcia in favor of Constancio Manzano, the predecessor-in-interest and brother of petitioner Vicente Manzano, Jr.
(Vicente) for the amount of eighty thousand five hundred pesos (P80,500.00). Under said contract, Garcia purportedly
reserved the right to repurchase the subject property for the same price within three months from the date of the
instrument.[4]

On July 12, 1992, Constancio Manzano passed away. His properties, including the subject of this case, were
adjudicated to his heirs by virtue of a deed of extrajudicial partition with special power of attorney executed by
them. Vicente was named the administrator of the intestate estate of Constancio Manzano. [5]

Garcia did not redeem the subject property within the three-month period. Consequently, Vicente instituted
a petition for consolidation of ownership over the property,[6] docketed as Civil Case No. 93-610. Garcia filed an
opposition and answer, alleging that the document evidencing the pacto de retro sale was a forgery.He claimed that he
and his wife were in the United States of America (USA) from June 1, 1988 to November 14, 1992, and therefore could
not have possibly executed the said pacto de retro sale on May 26, 1992.[7]

On February 15, 1994, Garcia filed a complaint for annulment of pacto de retro sale and recovery of the
owners title with preliminary injunction against Vicente. The case was docketed as Civil Case No. 94-097. In his
complaint, Garcia reiterated that he and his wife never participated in the execution of the alleged deed of pacto de
retro sale dated May 26, 1992 and that in fact, they were still in possession of the said property. He further alleged that he
came to know the existence of said document only when the counsel of Vicente sent him a letter on January 18, 1993
demanding that he should repurchase the property pursuant to the purported terms of the pacto de retro sale within fifteen
days from receipt of said letter. Upon further inquiry, he discovered that a certain Mr. P. Pacot had executed the
questioned document by misrepresenting himself as Marcelino G. Garcia (bearing the wrong middle initial) who resided in

29
Casinglot, Misamis Oriental, as evidenced by the Residence Certificate used in the acknowledgement page of the pacto
de retro sale.[8]

Vicentes petition for consolidation of ownership over the property (Civil Case No. 93-610) and Garcias action for
annulment of pacto de retro sale and recovery of the owners title with preliminary injunction (Civil Case No. 94-097) were
consolidated before the trial court.[9]

During the trial, Vicente presented TCT No. T-25464 and Tax Declaration No. 41672 to prove the due execution
of the pacto de retro sale, which was recorded in the office of the Register of Deeds of Cagayan de Oro City.

On the other hand, Garcia testified that he went to the USA on November 7, 1987. A few months later, he
returned to the Philippines. He went back to the USA on June 1, 1988. His three children were left in the Philippines, while
the titles to his properties were left in the office of his business establishment in Tablon, Cagayan de Oro City with two of
their children. Garcia testified that the signatures appearing in the pacto de retro sale were not his and his wifes. He
presented his passport and drivers license, both of which bear an entirely different signature than what appeared in
the pacto de retro sale document.[10]

Atty. Demosthenes Mediante, Jr. (Atty. Mediante), the person who notarized the deed of conveyance in question,
testified that the Marcelino Garcia who appeared in his office and who executed the pacto de retro sale is not the same
Marcelino Garcia who was in court during the trial of the case.[11]

Perla Babano, one of the witnesses to the execution of the pacto de retro sale, likewise testified that the person
who introduced himself as Marcelino G. Garcia and signed the document on May 26, 1992 is not the same Marcelino
Garcia who was in court during the trial of the case.[12]

On August 30, 1996, the trial court rendered its Decision on the consolidated cases in favor of Vicente, disposing
of the same as follows:

WHEREFORE, in view of the foregoing, Civil Case No. 94-097, is hereby dismissed and
declaring the Deed of Pacto de Retro Sale legal and valid, and granting the prayer of petitioner in Civil
Case No. 93-610 to consolidate ownership of the land in favor of Vicente Manzano, Jr. representing the
heirs of Constancio Manzano, namely: Felix, Andrea, Maxima, Ramon and Marciana, all surnamed
Manzano, for all legal purposes. No costs.[13]

The trial court held that Garcia failed to prove that his signature in the pacto de retro sale was forged. According
to the court, Garcia should have presented an expert witness to determine whether the signatures were made by the
same person. The trial court doubted the testimonies of Atty. Mediante (the notary public) and Babano (one of the
witnesses to the pacto de retro sale). The court noted the admission of Atty. Mediante that he notarizes around 25 to 30
documents per month and could not describe or remember all the persons appearing before him for notarization. The

30
court was likewise intrigued by the testimony of Atty. Mediante that he had seen the alleged impostor Marcelino Garcia
sitting at the Cagayan de Oro Divisoria for two weeks. As regards Babano, the trial court found it unnatural for an
impersonator to show her, a stranger, documents such as the title to the subject property. Also, the trial court found the
low price paid for the property insignificant considering that the vendor had the right to repurchase the property within
three months from the sale.

Garcia sought recourse with the Court of Appeals. The appeal was docketed as CA-G.R. CV No. 55408 and was
raffled to the Court of Appeals twenty-third division in Cagayan de Oro City. On September 26, 2006, the appellate court
rendered the assailed decision reversing that of the trial court. The dispositive portion of the decision read:

FOR THE REASONS STATED, We REVERSE and SET ASIDE the assailed decision of the
Regional Trial Court. In its place, judgment is hereby rendered declaring the pacto de retro sale executed
on May 26, 1992, VOID AB INITIO and dismissing Civil Case No. 93-610.

Furthermore, Appellee Vicente Manzano, Jr., is ordered to RETURN the owners duplicate copy of
TCT No. T-25464 to Appellant Marcelino D. Garcia. Entry No. 164181 annotated at the back of the said
title is hereby ordered cancelled.[14]

According to the Court of Appeals, there is no rule requiring expert testimony to determine the genuineness of a
signature appearing on a document. Since it was plainly obvious from the evidence on record that the signature appearing
on the pacto de retro sale is far different from the customary signature of Garcia that appeared in his passport and drivers
license, the testimony of Garcia that the signature was not his is sufficient evidence of the forgery pursuant to Section 50,
Rule 130[15] of the Rules of Court. The Court of Appeals added that on the basis of Atty. Mediantes testimony, the
presumption of regularity in the execution of the public document has been sufficiently destroyed and overcome. The
Court of Appeals concluded that the pacto de retro sale is void ab initio pursuant to Article 1409 in relation to Article 1505
of the Civil Code.

Hence, Vicente is now before this Court with the following assignment of errors:

I. THAT THE COURT OF APPEALS ERRED WHEN IT DECLARED THAT RESPONDENT

AND HIS WIFE BEING IN THE UNITED STATES, COULD HAVE NOT EXECUTED THE DEED
OF PACTO DE RETRO SALE.

II. THAT THE COURT OF APPEALS ERRED WHEN IT DECLARED, THAT WHEN THE
QUESTIONED SIGNATURES APPEAR OBVIOUSLY FAR DIFFERENT FROM THE
CUSTOMARY OR STANDARD SIGNATURES OF THE PERSON CLAIMING FORGERY,
THERE IS NO NEED OF A HANDWRITING EXPERT TO DETERMINE WHICH DOCUMENT IS
FORGED.

III. THAT THE COURT OF APPEALS ERRED IN HASTILY CONSIDERING THAT

RESPONDENT PROVED BY CLEAR, POSITIVE AND CONVINCING EVIDENCE THE
FORGERY OF HIS SIGNATURE AND OF HIS WIFE, ON THE GROUND OF THEIR NON-
PARTICIPATION IN THE EXECUTION OF THE DEED OF PACTO DE RETRO SALE AND OF
31
 THE VARIANCE OF THE STROKES OF THE SIGNATURES THEREON WHEN COMPARED
TO THE STROKES APPEARING IN THEIR GENUINE, CUSTOMARY AND STANDARD
SIGNATURES FOUND IN OTHER DOCUMENTS.[16]

From an assiduous examination of the records of the case, it is plainly apparent to this Court that the alleged
signature of Garcia in the pacto de retro sale is utterly dissimilar from his customary signature appearing in the evidence
on record, as well as in the verifications of the pleadings before this Court and the courts a quo. From this circumstance
alone, we are constrained to affirm the ruling of the Court of Appeals finding that the pacto de retro sale was forged and,
therefore, void ab initio.

In assailing the finding of the Court of Appeals that the signature of Garcia in the pacto de retro sale was forged,
Vicente echoes the opinion of the trial court that Garcia should have presented an expert witness to prove the
same. Jurisprudence, however, is replete with instances wherein this Court dispensed with the testimony of expert
witnesses to prove forgeries. Thus, in Estacio v. Jaranilla, [17] we held:

It bears stressing that the trial court may validly determine forgery from its own independent
examination of the documentary evidence at hand. This the trial court judge can do without necessarily
resorting to experts, especially when the question involved is mere handwriting similarity or dissimilarity,
which can be determined by a visual comparison of specimen of the questioned signatures with those of
the currently existing ones. Section 22 of Rule 132 of the Rules of Court explicitly authorizes the court, by
itself, to make a comparison of the disputed handwriting with writings admitted or treated as genuine by
the party against whom the evidence is offered, or proved to be genuine to the satisfaction of the judge. [18]

Similarly, in the fairly recent case of Pontaoe v. Pontaoe, [19] this Court held:

As to the argument that handwriting experts should have been employed, 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 handwritings. A finding of forgery does not depend entirely on the testimonies of
handwriting experts, because the judge must conduct an examination of the questioned signature in order
to arrive at a reasonable conclusion as to its authenticity. The opinions of handwriting experts are not
binding upon courts, especially when the question involved is mere handwriting similarity or dissimilarity,
which can be determined by a visual comparison of specimens of the questioned signatures with those of
the currently existing ones. Moreover, Section 22 of Rule 132 of the Rules of Court likewise explicitly
authorizes the court, by itself, to make a comparison of the disputed handwriting with writings admitted or
treated as genuine by the party against whom the evidence is offered, or proved to be genuine to the
satisfaction of the judge.[20]

Insisting on the need to present an expert witness, Vicente points out our ruling in Rivera v. Turiano,[21] wherein
we declared:

32
 While it is true that the testimonies of handwriting experts are not necessary, however, pursuant
to the criteria enunciated in Ladignon, the private respondent must not only show material differences
between or among the signatures. In addition, (1) he must demonstrate the extent, kind, and significance
of the variation; (2) he must prove that the variation is due to the operation of a different personality and
not merely an expected and inevitable variation found in the genuine writing of the same writer; and (3) he
must show that the resemblance is a result of a more or less skillful imitation and not merely a habitual
and characteristic resemblance which naturally appears in a genuine writing. [22]

In the case at bar, however, the variance in the alleged signature of Garcia in the pacto de retro sale, on one
hand, and in the evidence on record and in the verifications of the pleadings before this Court and the courts a quo, on the
other hand, was enormous and obvious, such that this Court can readily conclude that the pacto de retro sale was in all
likelihood made by someone who has not even seen the customary signature of Garcia.

Furthermore, the falsity of the signature on the pacto de retro sale was affirmed by two persons present when the
instrument was signed, one of which is the very person who notarized the same. An examination of their testimonies
reveals that the trial court had disregarded their statements for very flimsy reasons.

The trial court was unconvinced by the testimony of the notary public Atty. Mediante on account of his admission
that he could not describe or remember all the persons appearing before him for notarization and his statement that he
had seen the alleged impostor Marcelino Garcia sitting at the Cagayan de Oro Divisoria for two weeks. The trial court
found it incredulous that Atty. Mediante could have been observing the whereabouts of the alleged impostor for two
weeks.[23] These circumstances, however, were clearly explained by Atty. Mediante, who testified that two weeks prior to
the signing of the document, he had been approached by the impostor Marcelino Garcia who was asking for help to
secure a loan of P200,000.00 using his title as collateral. Atty. Mediante informed the impostor Garcia that his client, Tony
Uy, had already stopped lending. It was after this event, and before the signing of the pacto de retro sale that Atty.
Mediante observed the impostor Garcia in Divisoria. Certainly, while Atty. Mediante could not remember all of the parties
in the 25 to 30 documents he notarized every month, he would remember the person who asked him to broker a loan
for P200,000.00 and would probably recognize said person when he encountered him every now and then in a public
place.

As regards Babano, the trial court found it unbelievable that an impersonator would show a stranger important
documents such as the title to a property. We disagree with this observation. On the contrary, this Court is of the opinion
that it would be highly suspicious for such an impersonator to withhold the title of the property being sold from a person
signing as a witness to the sale. It was precisely the presentation of the title that would convince others that the impostor
was the owner of the real property involved in the sale.

Neither did it escape this Courts attention that the person who signed the pacto de retro sale used a residence
certificate with the wrong middle initial of respondent Garcia. As the respondents full name is Marcelino de Claro Garcia,
his middle initial should be either D or C. It surely causes doubt when a person does not know his own middle initial.

33
 All things considered, Garcias statement that he and his wife could have easily paid the P80,500.00 but refused in
principle to pay an account that is not theirs [24] is certainly believable. It is difficult to conceive that Garcia would sell their
6,951-square meter land at the heart of the city of Cagayan de Oro for only P80,500.00 (or P11.58 per square
meter). Garcia estimates the value of the property at P4.5 million. While Garcia failed to present evidence on such market
value in 1992, it can be ascertained that it is worth at least more than the P170,000.00 mortgage to China Banking
Corporation which had been previously annotated and subsequently cancelled at the back of the title of the property. [25] If
the property could be mortgaged to a bank for P170,000.00, it is unlikely that a person needing money would instead opt
to sell the same for a much smaller amount.

Petitioner likewise argues that the Court of Appeals erred in failing to appreciate that the notarized deed of pacto
de retro sale was entitled to the presumption of regularity and should be given great weight. It is settled that while a
notarized document enjoys this presumption, the fact that a deed is notarized is not a guarantee of the validity of its
contents.[26] The presumption of regularity of notarized documents is not absolute and may be rebutted by clear and
convincing evidence to the contrary.[27]

Irregularities in the notarization of the document may be established by oral evidence of persons present in said
proceeding. Thus, in Eulogio v. Apeles,[28]where the party insisting on the presumption of regularity of a notarized deed of
sale admitted that the same was notarized without his presence, this Court held that such fact alone overcomes the
presumption of regularity, since a notary public is enjoined not to notarize a document unless the persons who signed the
same are the very same persons who executed and personally appeared before the said notary public to attest to the
contents and truth of what are stated therein.[29] In the case at bar, even more convincing evidence of the irregularity was
presented as it was the notary public himself who testified that the person who appeared before him was not respondent
Garcia. Since the very official who attested to the crucial facts in the notarization i.e., that the persons who personally
appeared before him are the same persons who executed the deed of conveyance admitted in open court the falsity of
said manifestation, the reliability of the Acknowledgment that clothes the document with a presumption of regularity is
completely shattered. We, therefore, agree with the Court of Appeals that the presumption of regularity of the notarized
deed of pacto de retro sale was sufficiently overcome by the testimony of Atty. Mediante.

At this point, however, we should clarify that the proper basis for the nullity of the forged pacto de retro sale is not
Article 1409[30] (which enumerates examples of void contracts) in relation to Article 1505 [31] (which refers to an
unenforceable contract and is applicable only to goods) of the Civil Code as stated by the Court of Appeals, but Article
1318 of the Civil Code, which enumerates the essential requisites of a valid contract:

Article 1318. There is no contract unless the following requisites concur:

(1) Consent of the contracting parties;

(2) Object certain which is the subject matter of the contract;

(3) Cause of the obligation which is established.

34
 There are two types of void contracts: (1) those where one of the essential requisites of a valid contract as
provided for by Article 1318 of the Civil Code is totally wanting; and (2) those declared to be so under Article 1409 of the
Civil Code.[32] [C]onveyances by virtue of a forged signature x x x are void ab initio. The absence of the essential
[requisites] of consent and cause or consideration in these cases rendered the contract inexistent. x x x. [33]

WHEREFORE, the Petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 55408 dated
September 26, 2006 and its Resolution dated August 9, 2007 are hereby AFFIRMED.

RESTITUTA LEONARDO, assisted by JOSE T. RAMOS, petitioners, vs. COURT OF APPEALS, and TEODORO
SEBASTIAN, VICENTE SEBASTIAN, CORAZON SEBASTIAN, assisted by ANDRES MARCELO; PEDAD
SEBASTIAN, HEIRS OF EDUVIGIS SEBASTIAN, namely: EDUARDO S. TENORLAS, ABELARDO J.
TENORLAS, ADELA S. and SOLEDAD S. TENORLAS, represented by EDUARDO S. TENORLAS, and
HEIRS OF DOMINADOR, namely: NAPOLEON SEBASTIAN, RUPERTO SEBASTIAN, ADORACION
SEBASTIAN, PRISCILLA SEBASTIAN, LITA SEBASTIAN, TITA SEBASTIAN and GLORIA SEBASTIAN,
represented by NAPOLEON SEBASTIAN; EVELYN SEBASTIAN; AURORA SEBASTIAN; and JULIETA
SEBASTIAN, respondents.

DECISION
CORONA, J.:

This is a petition for review under Rule 45 of the Rules of Court seeking to reverse and set aside the decision[1] of the
Court of Appeals which in turn affirmed the judgment[2]of Branch 57, Regional Trial Court (RTC) of San Carlos City,
dismissing for lack of cause of action the complaint filed by petitioner against private respondents for declaration of nullity
of the extrajudicial settlement of the estate of Jose Sebastian and Tomasina Paul.
Petitioner Restituta Leonardo is the only legitimate child of the late spouses Tomasina Paul and Balbino Leonardo.
Private respondents Teodoro, Victor, Corazon, Piedad, as well as the late Eduvigis and Dominador, all surnamed
Sebastian, are the illegitimate children of Tomasina with Jose Sebastian after she separated from Balbino Leonardo.
In an action to declare the nullity of the extrajudicial settlement of the estate of Tomasina Paul and Jose Sebastian
before Branch 57, RTC of San Carlos City, Pangasinan, petitioner alleged that, on June 24, 1988, at around 5:00 p.m.,
private respondent Corazon Sebastian and her niece Julieta Sebastian, and a certain Bitang, came to petitioners house to
persuade her to sign a deed of extrajudicial partition of the estate of Tomasina Paul and Jose Sebastian. Before signing
the document, petitioner allegedly insisted that they wait for her husband Jose Ramos so he could translate the document
which was written in English. Petitioner, however, proceeded to sign the document even without her husband and without
reading the document, on the assurance of private respondent Corazon Sebastian that petitioners share as a legitimate
daughter of Tomasina Paul was provided for in the extrajudicial partition. Petitioner then asked private respondent
Corazon and her companions to wait for her husband so he could read the document. When petitioners husband arrived,
however, private respondent Corazon and her companions had left without leaving a copy of the document. It was only
when petitioner hired a lawyer that they were able to secure a copy and read the contents thereof.
Petitioner refuted[3] private respondents claim that they were the legitimate children and sole heirs of Jose Sebastian
and Tomasina Paul. Despite the (de facto) separation of petitioners father Balbino Leonardo and Tomasina Paul, the latter
remained the lawful wife of Balbino. Petitioner maintained that no joint settlement of the estate of Jose Sebastian and
Tomasina Paul could be effected since what existed between them was co-ownership, not conjugal partnership. They
were never married to each other. The extrajudicial partition was therefore unlawful and illegal.
Petitioner also claimed that her consent was vitiated because she was deceived into signing the extrajudicial
settlement. She further denied having appeared before Judge Juan Austria of the Municipal Trial Court (MTC) of
Urbiztondo, Pangasinan on July 27, 1988 to acknowledge the execution of the extrajudicial partition.
Private respondents, in their answer with counterclaim, [4] raised the defense of lack of cause of action. They insisted
that the document in question was valid and binding between the parties. According to them, on July 27, 1988, they
personally appeared before Judge Austria of the MTC of Urbiztondo, who read and explained the contents of the
document which all of them, including petitioner, voluntarily signed.
Private respondents contended that their declaration that they were legitimate children of Jose Sebastian and
Tomasina Paul did not affect the validity of the extrajudicial partition. Petitioners act of signing the document estopped her
to deny or question its validity. They moreover averred that the action filed by petitioner was incompatible with her
complaint. Considering that petitioner claimed vitiation of consent, the proper action was annulment and not declaration of
nullity of the instrument.
On July 27, 1989, petitioner filed an amended complaint [5] to include parties to the extrajudicial partition who were not
named as defendants in the original complaint.
During the August 23, 1990 pre-trial conference,[6] no amicable settlement was reached and the parties agreed that
the only issue to be resolved was whether petitioners consent to the extrajudicial partition was voluntarily given.
35
 In a decision dated February 22, 1993, the RTC of San Carlos City, Pangasinan rendered a decision [7] dismissing the
complaint as well as the counterclaim. The court a quoruled that the element of duress or fraud that vitiates consent was
not established and that the proper action was the reformation of the instrument, not the declaration of nullity of the
extrajudicial settlement of estate. By way of obiter dictum, the trial court stated that, being a legitimate child, petitioner was
entitled to one-half (or 19,282.5 sq.m.) of Tomasina Pauls estate as her legitime. The 7,671.75 square meters allotted to
her in the assailed extrajudicial partition was therefore less than her correct share as provided by law.
On appeal, the Court of Appeals affirmed the judgment of the trial court in its May 23, 1996 decision.[8] Hence, this
petition for review on certiorari under Rule 45.
The sole issue in this case is whether the consent given by petitioner to the extrajudicial settlement of estate was
given voluntarily.
We hold that it was not.
The essence of consent is the agreement of the parties on the terms of the contract, the acceptance by one of the
offer made by the other. It is the concurrence of the minds of the parties on the object and the cause which constitutes the
contract.[9] The area of agreement must extend to all points that the parties deem material or there is no consent at all.[10]
To be valid, consent must meet the following requisites: (a) it should be intelligent, or with an exact notion of the
matter to which it refers; (b) it should be free and (c) it should be spontaneous. Intelligence in consent is vitiated by error;
freedom by violence, intimidation or undue influence; and spontaneity by fraud. [11]
In determining the effect of an alleged error, the courts must consider both the objective and subjective aspects of
the case which is the intellectual capacity of the person who committed the mistake. [12]
Mistake, on the other hand, in order to invalidate consent should refer to the substance of the thing which is the
object of the contract, or to those conditions which have principally moved one or both parties to enter into the contract.[13]
According to the late civil law authority, Arturo M. Tolentino, the (old) rule that a party is presumed to know the import
of a document to which he affixes his signature and is bound thereby, has been altered by Art. 1332 of the Civil Code. The
provision states that [w]hen one of the parties is unable to read, or if the contract is in a language not understood by him,
and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully
explained to the former.
Article 1332 was a provision taken from american law, necessitated by the fact that there continues to be a fair
number of people in this country without the benefit of a good education or documents have been written in English or
Spanish.[14] The provision was intended to protect a party to a contract disadvantaged by illiteracy, ignorance, mental
weakness or some other handicap. It contemplates a situation wherein a contract is entered into but the consent of one of
the contracting parties is vitiated by mistake or fraud committed by the other.[15]
Thus, in case one of the parties to a contract is unable to read and fraud is alleged, the person enforcing the contract
must show that the terms thereof have been fully explained to the former. [16] Where a party is unable to read, and he
expressly pleads in his reply that he signed the voucher in question without knowing (its) contents which have not been
explained to him, this plea is tantamount to one of mistake or fraud in the execution of the voucher or receipt in question
and the burden is shifted to the other party to show that the former fully understood the contents of the document; and if
he fails to prove this, the presumption of mistake (if not fraud) stands unrebutted and controlling. [17]
Contracts where consent is given by mistake or because of violence, intimidation, undue influence or fraud are
voidable.[18] These circumstances are defects of the will, the existence of which impairs the freedom, intelligence,
spontaneity and voluntariness of the party in giving consent to the agreement. In determining whether consent is vitiated
by any of the circumstances mentioned in Art. 1330 of the Civil Code, courts are given a wide latitude in weighing the
facts or circumstances in a given case and in deciding in favor of what they believe actually occurred, considering the age,
physical infirmity, intelligence, relationship and the conduct of the parties at the time of making the contract and
subsequent thereto, irrespective of whether the contract is in a public or private writing. [19]
Although under Art. 1332 there exists a presumption of mistake or error accorded by the law to those who have not
had the benefit of a good education, one who alleges any defect or the lack of a valid consent to a contract must establish
the same by full, clear and convincing evidence, not merely by preponderance of evidence.[20] Hence, even as the burden
of proof shifts to the defendants to rebut the presumption of mistake, the plaintiff who alleges such mistake (or fraud) must
show that his personal circumstances warrant the application of Art. 1332.
In this case, the presumption of mistake or error on the part of petitioner was not sufficiently rebutted by private
respondents. Private respondents failed to offer any evidence to prove that the extrajudicial settlement of estate was
explained in a language known to the petitioner, i.e. the Pangasinan dialect. Clearly, petitioner, who only finished Grade 3,
was not in a position to give her free, voluntary and spontaneous consent without having the document, which was in
English, explained to her in the Pangasinan dialect. She stated in open court that she did not understand English. Her
testimony, translated into English, was as follows:
Q: While you were there is your house at barangay Angatel, Urbiztondo, Pangasinan, what happened?
A: On June 24, 1988, I was in our house because I got sick, sir.
Q: What happened?
A: When the time was about 5:00 oclock, I was awaken by my daughter-in-law, Rita Ramos, and told me that
my half sister Corazon would like to tell us something, sir.
Q: What did you do?

36
 A: I let them come in, sir.
Q: Did they come in?
A: Yes, sir.
Q: Who was the companion of your half sister Corazon Sebastian when she arrived in your house?
A: Julita Sebastian and her daughter Bitang, sir.
Q: And who is this Julita Sebastian to you?
A: She is my niece, sir.
Q: And then when they got inside the house, what happened?
A: I asked them their purpose, sir.
Q: Did they tell you their purpose?
A: I asked their purpose in coming to our house and they told me, I came here because I have a partition
executed so that the share of each one of us will be given, she said sir.
Q: Did you see that document?
A: Yes, sir.
ATTY. L. TULAGAN
Q: Did you read the document?
A: No, sir because I was waiting for my husband to have that document read or translated to me because I
could not understand, sir.
Q: What could you not understand?
A: I can not understand English, sir.
Q: But anyway, can you read?
A: Yes, sir in Pangasinan.
Q: Now, that document which according to you was brought by your half sister Corazon Sebastian, what
happened to that document?
A: Corazon Sebastian request(ed) me to sign, sir.
Q: Did you sign immediately?
A: Yes, sir, because according to her, all my shares were embodied in that document as a legal daughter. [21]
Petitioners wish to wait for her husband, Jose T. Ramos, to explain to her the contents of the document in the
Pangasinan dialect was a reasonable and prudent act that showed her uncertainty over what was written. Due to her
limited educational attainment, she could not understand the document in English. She wanted to seek assistance from
her husband who was then out of the house. However, due to the misrepresentation, deception and undue pressure of
her half-sister Corazon Sebastian, petitioner signed the document. Corazon assured petitioner that she would receive her
legitimate share in the estate of their late mother.
Later on, when petitioners husband examined the extrajudicial partition agreement, he found out that petitioner was
deprived of her full legitime. Under the law, petitioners share should have been one-half of her mothers estate, comprising
a total area of 19,282.50 square meters. Under the defective extrajudicial settlement of estate, however, petitioner was to
receive only 7,671.75 square meters. This was a substantial mistake clearly prejudicial to the substantive interests of
petitioner in her mothers estate. There is no doubt that, given her lack of education, petitioner is protected by Art. 1332 of
the Civil Code. There is reason to believe that, had the provisions of the extrajudicial agreement been explained to her in
the Pangasinan dialect, she would not have consented to the significant and unreasonable diminution of her rights.
MTC Judge Austria, the officer who notarized the extrajudicial settlement, stated that he explained the contents to all
the parties concerned. Granting arguendo, however, that Judge Austria did indeed explain the provisions of the
agreement to them, the records do not reflect that he explained it to petitioner in a language or dialect known to her.
Judge Austria never stated in his testimony before the court a quo what language or dialect he used in explaining the
contents of the document to the parties.[22] Significantly, he was not even certain if the parties to the agreement were
present during the notarization of the document:
ATTY. TULAGAN
Q: Reflected upon all the pages of this Exhibit 1 are numerous signatures, two of whom belongs (sic) to Piedad
Paul Sebastian and Eduardo Sebastian Tenorlas.
ATTY. D. TULAGAN
(continuing)
The Philippines on July, 1989, will you please educate us now Judge Austria on this document?
ATTY. O. DE GUZMAN
37
 That will be improper, your Honor.
COURT
What is the question, you repeat the question.
INTERPRETER:
Reflected upon all the pages of this Exhibit 1 are numerous signatures, two of whom belongs (sic) to Piedad
Paul Sebastian and Eduardo Sebastian Tenorlas, in your just concluded testimony, you said that everyone
of them appeared with you, we have here a documented evidence coming from the Department of Justice,
Bureau of Immigration and Deportation, Manila, certifying that Piedad Paul Sebastian and Eduardo
Sebastian Tenorlas did not arrive in the Philippines or departed from the Philippines on July, 1998, will you
please educate us now Judge Austria on this document?
ATTY. O. DE GUZMAN:
Your Honor please, before the witness answer, may we examine the certification first and may we state for the
record that the month of July, 1998 does not specify any date.
ATTY. L. TULAGAN:
July.
ATTY. O. DE GUZMAN:
But not a particular date, for the record.
ATTY. L. TULAGAN:
For the whole month of July, no departure and no arrival. This is a certificate from the Bureau of
Immigration, Manila. I do not know about this, as a matter of fact, I do not even know this person personally
WITNESS:
Somebody that kind of name appeared before me.
ATTY. L. TULAGAN:
Q: Since you do not know everybody from Urbiztondo, Pangasinan it is possible that another person appeared
and signed for that name?
A: Yes, possible.[23]
Therefore, the presumption of mistake under Article 1332 is controlling, having remained unrebutted by private
respondents. The evidence proving that the document was not fully explained to petitioner in a language known to her,
given her low educational attainment, remained uncontradicted by private respondents. We find that, in the light of the
circumstances presented by the testimonies of the witnesses for both parties, the consent of petitioner was invalidated by
a substantial mistake or error, rendering the agreement voidable. The extrajudicial partition between private respondents
and petitioner should therefore be annulled and set aside on the ground of mistake.
In Rural Bank of Caloocan, Inc. v. Court of Appeals,[24] we ruled that a contract may be annulled on the ground of
vitiated consent, even if the act complained of is committed by a third party without the connivance or complicity of one of
the contracting parties. We found that a substantial mistake arose from the employment of fraud or misrepresentation.
The plaintiff in that case was a 70-year-old unschooled and unlettered woman who signed an unauthorized loan obtained
by a third party on her behalf. The Court annulled the contract due to a substantial mistake which invalidated her consent.
By the same reasoning, if it is one of the contracting parties who commits the fraud or misrepresentation, such
contract may all the more be annulled due to substantial mistake.
In Remalante v. Tibe,[25] this Court ruled that misrepresentation to an illiterate woman who did not know how to read
and write, nor understand English, is fraudulent. Thus, the deed of sale was considered vitiated with substantial error and
fraud. This Court further held:[26]

Since it has been established by uncontradicted evidence that the plaintiff is practically unschooled and illiterate, not
knowing how to read, write and understand the English language in which Exhibit 22 was drafted, it would have been
incumbent upon the defendant to show that the terms there of have been fully explained to the plaintiff. The evidence is
entirely lacking at this point, and the lack of it is fatal to the cause of the defendant for his failure to discharge the burden
of proof.

Generally, the remedy of appeal by certiorari under Rule 45 of the Rules of Court contemplates only questions of law
and not issues of fact.[27] This rule, however, is inapplicable in cases such as the one at bar where the factual findings
complained of are absolutely devoid of support in the records or the assailed judgment of the appellate court is based on
a misapprehension of facts.[28] Thus, this case is an exception to the general rule on the conclusiveness of facts, the
evidence pointing to no other conclusion but the existence of vitiated consent, given the diminished intellectual capacity of
the petitioner and the misrepresentation of private respondent Corazon Sebastian on the contents of the extrajudicial
partition.
Private respondents also maintain that petitioner has no cause of action since the remedy that should be pursued is
an action for annulment and not for declaration of nullity. Private respondents therefore pray for the dismissal of this
petition on the ground of lack of cause of action.
38
 Before ruling on this procedural matter, a distinction between an action for annulment and one for declaration of
nullity of an agreement is called for.
An action for annulment of contract is one filed where consent is vitiated by lack of legal capacity of one of the
contracting parties, or by mistake, violence, intimidation, undue influence or fraud. [29] By its very nature, annulment
contemplates a contract which is voidable, that is, valid until annulled. Such contract is binding on all the contracting
parties until annulled and set aside by a court of law. It may be ratified. An action for annulment of contract has a four-year
prescriptive period.[30]
On the other hand, an action for declaration of nullity of contract presupposes a void contract or one where all of the
requisites prescribed by law for contracts are present but the cause, object or purpose is contrary to law, morals, good
customs, public order or public policy, prohibited by law or declared by law to be void. [31] Such contract as a rule produces
no legal and binding effect even if it is not set aside by direct legal action. Neither may it be ratified. An action for the
declaration of nullity of contract is imprescriptible.[32]
The petitioners pleading was for the declaration of nullity of the extrajudicial settlement of estate. However, this did
not necessarily mean the automatic dismissal of the case on the ground of lack of cause of action.
Granting that the action filed by petitioner was incompatible with her allegations, it is not the caption of the pleading
but the allegations that determine the nature of the action. [33] The court should grant the relief warranted by the allegations
and the proof even if no such relief is prayed for. [34] In this case, the allegations in the pleading and the evidence adduced
point to no other remedy but to annul the extrajudicial settlement of estate because of vitiated consent.
WHEREFORE, the decision of the Court of Appeals dated 23 May 1996 is hereby REVERSED. The extrajudicial
settlement of the estate of Tomasina Paul and Jose Sebastian is hereby ANNULLED and SET ASIDE. No cost.
SO ORDERED.
SWEDISH MATCH vs COURT OF APPEALS

Petitioners seek a reversal of the twin Orders1 of the Court of Appeals dated 15 November 19962 and 31 January 1997,3
in CA-G.R. CV No. 35886, entitled "ALS Management et al., v. Swedish Match, AB et al." The appellate court overturned
the trial courts Order4 dismissing the respondents complaint for specific performance and remanded the case to the trial
court for further proceedings.

Swedish Match AB (hereinafter SMAB) is a corporation organized under the laws of Sweden not doing business in the
Philippines. SMAB, however, had three subsidiary corporations in the Philippines, all organized under Philippine laws, to
wit: Phimco Industries, Inc. (Phimco), Provident Tree Farms, Inc., and OTT/Louie (Phils.), Inc.

Sometime in 1988, STORA, the then parent company of SMAB, decided to sell SMAB of Sweden and the latters
worldwide match, lighter and shaving products operation to Eemland Management Services, now known as Swedish
Match NV of Netherlands, (SMNV), a corporation organized and existing under the laws of Netherlands. STORA,
however, retained for itself the packaging business.

SMNV initiated steps to sell the worldwide match and lighter businesses while retaining for itself the shaving business.
SMNV adopted a two-pronged strategy, the first being to sell its shares in Phimco Industries, Inc. and a match company in
Brazil, which proposed sale would stave-off defaults in the loan covenants of SMNV with its syndicate of lenders. The
other move was to sell at once or in one package all the SMNV companies worldwide which were engaged in match and
lighter operations thru a global deal (hereinafter, global deal).

Ed Enriquez (Enriquez), Vice-President of Swedish Match Sociedad Anonimas (SMSA)the management company of
the Swedish Match groupwas commissioned and granted full powers to negotiate by SMNV, with the resulting
transaction, however, made subject to final approval by the board. Enriquez was held under strict instructions that the sale
of Phimco shares should be executed on or before 30 June 1990, in view of the tight loan covenants of SMNV. Enriquez
came to the Philippines in November 1989 and informed the Philippine financial and business circles that the Phimco
shares were for sale.

Several interested parties tendered offers to acquire the Phimco shares, among whom were the AFP Retirement and
Separation Benefits System, herein respondent ALS Management & Development Corporation and respondent Antonio
Litonjua (Litonjua), the president and general manager of ALS.

In his letter dated 3 November 1989, Litonjua submitted to SMAB a firm offer to buy all of the latters shares in Phimco
and all of Phimcos shares in Provident Tree Farm, Inc. and OTT/Louie (Phils.), Inc. for the sum of P750,000,000.00.5

Through its Chief Executive Officer, Massimo Rossi (Rossi), SMAB, in its letter dated 1 December 1989, thanked
respondents for their interest in the Phimco shares. Rossi informed respondents that their price offer was below their
expectations but urged them to undertake a comprehensive review and analysis of the value and profit potentials of the
Phimco shares, with the assurance that respondents would enjoy a certain priority although several parties had indicated
their interest to buy the shares.6

Thereafter, an exchange of correspondence ensued between petitioners and respondents regarding the projected sale of
the Phimco shares. In his letter dated 21 May 1990, Litonjua offered to buy the disputed shares, excluding the lighter
39
division for US$30.6 million, which per another letter of the same date was increased to US$36 million.7 Litonjua stressed
that the bid amount could be adjusted subject to availability of additional information and audit verification of the company
finances.

Responding to Litonjuas offer, Rossi sent his letter dated 11 June 1990, informing the former that ALS should undertake
a due diligence process or pre-acquisition audit and review of the draft contract for the Match and Forestry activities of
Phimco at ALS convenience. However, Rossi made it clear that at the completion of the due diligence process, ALS
should submit its final offer in US dollar terms not later than 30 June 1990, for the shares of SMAB corresponding to
ninety-six percent (96%) of the Match and Forestry activities of Phimco. Rossi added that in case the "global deal"
presently under negotiation for the Swedish Match Lights Group would materialize, SMAB would reimburse up to
US$20,000.00 of ALS costs related to the due diligence process.8

Litonjua in a letter dated 18 June 1990, expressed disappointment at the apparent change in SMABs approach to the
bidding process. He pointed out that in their 4 June 1990 meeting, he was advised that one final bidder would be selected
from among the four contending groups as of that date and that the decision would be made by 6 June 1990. He criticized
SMABs decision to accept a new bidder who was not among those who participated in the 25 May 1990 bidding. He
informed Rossi that it may not be possible for them to submit their final bid on 30 June 1990, citing the advice to him of
the auditing firm that the financial statements would not be completed until the end of July. Litonjua added that he would
indicate in their final offer more specific details of the payment mechanics and consider the possibility of signing a
conditional sale at that time.9

Two days prior to the deadline for submission of the final bid, Litonjua again advised Rossi that they would be unable to
submit the final offer by 30 June 1990, considering that the acquisition audit of Phimco and the review of the draft
agreements had not yet been completed. He said, however, that they would be able to finalize their bid on 17 July 1990
and that in case their bid would turn out better than any other proponent, they would remit payment within ten (10) days
from the execution of the contracts.10

Enriquez sent notice to Litonjua that they would be constrained to entertain bids from other parties in view of Litonjuas
failure to make a firm commitment for the shares of Swedish Match in Phimco by 30 June 1990.11

In a letter dated 3 July 1990, Rossi informed Litonjua that on 2 July 1990, they signed a conditional contract with a local
group for the disposal of Phimco. He told Litonjua that his bid would no longer be considered unless the local group would
fail to consummate the transaction on or before 15 September1990.12

Apparently irked by SMABs decision to junk his bid, Litonjua promptly responded by letter dated 4 July 1990. Contrary to
his prior manifestations, he asserted that, for all intents and purposes, the US$36 million bid which he submitted on 21
May 1990 was their final bid based on the financial statements for the year 1989. He pointed out that they submitted the
best bid and they were already finalizing the terms of the sale. He stressed that they were firmly committed to their bid of
US$36 million and if ever there would be adjustments in the bid amount, the adjustments were brought about by SMABs
subsequent disclosures and validated accounts, such as the aspect that only ninety-six percent (96%) of Phimco shares
was actually being sold and not one-hundred percent (100%).13

More than two months from receipt of Litonjuas last letter, Enriquez sent a fax communication to the former, advising him
that the proposed sale of SMABs shares in Phimco with local buyers did not materialize. Enriquez then invited Litonjua to
resume negotiations with SMAB for the sale of Phimco shares. He indicated that SMAB would be prepared to negotiate
with ALS on an exclusive basis for a period of fifteen (15) days from 26 September 1990 subject to the terms contained in
the letter. Additionally, Enriquez clarified that if the sale would not be completed at the end of the fifteen (15)-day period,
SMAB would enter into negotiations with other buyers.14

Shortly thereafter, Litonjua sent a letter expressing his objections to the totally new set of terms and conditions for the sale
of the Phimco shares. He emphasized that the new offer constituted an attempt to reopen the already perfected contract
of sale of the shares in his favor. He intimated that he could not accept the new terms and conditions contained therein.15

On 14 December 1990, respondents, as plaintiffs, filed before the Regional Trial Court (RTC) of Pasig a complaint for
specific performance with damages, with a prayer for the issuance of a writ of preliminary injunction, against defendants,
now petitioners. The individual defendants were sued in their respective capacities as officers of the corporations or
entities involved in the aborted transaction.

Aside from the averments related to their principal cause of action for specific performance, respondents alleged that the
Phimco management, in utter bad faith, induced SMAB to violate its contract with respondents. They contended that the
Phimco management took an interest in acquiring for itself the Phimco shares and that petitioners conspired to thwart the
closing of such sale by interposing various obstacles to the completion of the acquisition audit.16 Respondents claimed
that the Phimco management maliciously and deliberately delayed the delivery of documents to Laya Manabat Salgado &
Co. which prevented them from completing the acquisition audit in time for the deadline on 30 June 1990 set by
petitioners.17 Respondents added that SMABs refusal to consummate the perfected sale of the Phimco shares

40
amounted to an abuse of right and constituted conduct which is contrary to law, morals, good customs and public
policy.18

Respondents prayed that petitioners be enjoined from selling or transferring the Phimco shares, or otherwise
implementing the sale or transfer thereof, in favor of any person or entity other than respondents, and that any such sale
to third parties be annulled and set aside. Respondents also asked that petitioners be ordered to execute all documents or
instruments and perform all acts necessary to consummate the sales agreement in their favor.

Traversing the complaint, petitioners alleged that respondents have no cause of action, contending that no perfected
contract, whether verbal or written, existed between them. Petitioners added that respondents cause of action, if any, was
barred by the Statute of Frauds since there was no written instrument or document evidencing the alleged sale of the
Phimco shares to respondents.

Petitioners filed a motion for a preliminary hearing of their defense of bar by the Statute of Frauds, which the trial court
granted. Both parties agreed to adopt as their evidence in support of or against the motion to dismiss, as the case may
be, the evidence which they adduced in support of their respective positions on the writ of preliminary injunction incident.

In its Order dated 17 April 1991, the RTC dismissed respondents complaint.19 It ruled that there was no perfected
contract of sale between petitioners and respondents. The court a quo said that the letter dated 11 June 1990, relied upon
by respondents, showed that petitioners did not accept the bid offer of respondents as the letter was a mere invitation for
respondents to conduct a due diligence process or pre-acquisition audit of Phimcos match and forestry operations to
enable them to submit their final offer on 30 June 1990. Assuming that respondents bid was favored by an oral
acceptance made in private by officers of SMAB, the trial court noted, such acceptance was merely preparatory to a
formal acceptance by the SMABthe acceptance that would eventually lead to the execution and signing of the contract
of sale. Moreover, the court noted that respondents failed to submit their final bid on the deadline set by petitioners.

Respondents appealed to the Court of Appeals, assigning the following errors:

A. THE TRIAL COURT EXCEEDED ITS AUTHORITY AND JURISDICTION WHEN IT ERRED PROCEDURALLY IN
MOTU PROPIO (sic) DISMISSING THE COMPLAINT IN ITS ENTIRETY FOR "LACK OF A VALID CAUSE OF ACTION"
WITHOUT THE BENEFIT OF A FULL-BLOWN TRIAL AND ON THE MERE MOTION TO DISMISS.

B. THE TRIAL COURT ERRED IN IGNORING PLAINTIFF-APPELLANTS CAUSE OF ACTION BASED ON TORT
WHICH, HAVING BEEN SUFFICIENTLY PLEADED, INDEPENDENTLY WARRANTED A FULL-BLOWN TRIAL.

C. THE TRIAL COURT ERRED IN IGNORING PLAINTIFFS-APPELLANTS CAUSE OF ACTION BASED ON

PROMISSORY ESTOPPEL WHICH, HAVING BEEN SUFFICIENTLY PLEADED, WARRANTED A FULL-BLOWN TRIAL,
INDEPENDENTLY FOR THE OTHER CAUSES OF ACTION.

D. THE TRIAL COURT JUDGE ERRED IN FORSWEARING JUDICIAL OBJECTIVITY TO FAVOR DEFENDANTS-
APPELLEES BY MAKING UNFOUNDED FINDINGS, ALL IN VIOLATION OF PLAINTIFFS-APPELLANTS RIGHT TO
DUE PROCESS.20

After assessing the respective arguments of the parties, the Court of Appeals reversed the trial courts decision. It ruled
that the series of written communications between petitioners and respondents collectively constitute a sufficient
memorandum of their agreement under Article 1403 of the Civil Code; thus, respondents complaint should not have been
dismissed on the ground that it was unenforceable under the Statute of Frauds. The appellate court opined that any
document or writing, whether formal or informal, written either for the purpose of furnishing evidence of the contract or for
another purpose which satisfies all the Statutes requirements as to contents and signature would be

sufficient; and, that two or more writings properly connected could be considered together. The appellate court concluded
that the letters exchanged by and between the parties, taken together, were sufficient to establish that an agreement to
sell the disputed shares to respondents was reached.

The Court of Appeals clarified, however, that by reversing the appealed decision it was not thereby declaring that
respondents are entitled to the reliefs prayed for in their complaint, but only that the case should not have been dismissed
on the ground of unenforceability under the Statute of Frauds. It ordered the remand of the case to the trial court for
further proceedings.

Hence, this petition.

Petitioners argue that the Court of Appeals erred in failing to consider that the Statute of Frauds requires not just the
existence of any note or memorandum but that such note or memorandum should evidence an agreement to sell; and,
that in this case, there was no word, phrase, or statement in the letters exchanged between the two parties to show or
even imply that an agreement had been reached for the sale of the shares to respondent.
41
Petitioners stress that respondent Litonjua made it clear in his letters that the quoted prices were merely tentative and still
subject to further negotiations between him and the seller. They point out that there was no meeting of the minds on the
essential terms and conditions of the sale because SMAB did not accept respondents offer that consideration would be
paid in Philippine pesos. Moreover, Litonjua signified their inability to submit their final bid on 30 June 1990, at the same
time stating that the broad terms and conditions described in their meeting were inadequate for them to make a response
at that time so much so that he would have to await the corresponding specifics. Petitioners argue that the foregoing
circumstances prove that they failed to reach an agreement on the sale of the Phimco shares.

In their Comment, respondents maintain that the Court of Appeals correctly ruled that the Statute of Frauds does not
apply to the instant case. Respondents assert that the sale of the subject shares to them was perfected as shown by the
following circumstances, namely: petitioners assured them that should they increase their bid, the sale would be awarded
to them and that they did in fact increase their previous bid of US$30.6 million to US$36 million; petitioners orally
accepted their revised offer and the acceptance was relayed to them by Rene Dizon; petitioners directed them to proceed
with the acquisition audit and to submit a comfort letter from the United Coconut Planters Bank (UCPB); petitioner
corporation confirmed its previous verbal acceptance of their offer in a letter dated 11 June 1990; with the prior approval
of petitioners, respondents engaged the services of Laya, Manabat, Salgado & Co., an independent auditing firm, to
immediately proceed with the acquisition audit; and, petitioner corporation reiterated its commitment to be bound by the
result of the acquisition audit and promised to reimburse respondents cost to the extent of US$20,000.00. All these
incidents, according to respondents, overwhelmingly prove that the contract of sale of the Phimco shares was perfected.

Further, respondents argued that there was partial performance of the perfected contract on their part. They alleged that
with the prior approval of petitioners, they engaged the services of Laya, Manabat, Salgado & Co. to conduct the
acquisition audit. They averred that petitioners agreed to be bound by the results of the audit and offered to reimburse the
costs thereof to the extent of US$20,000.00. Respondents added that in compliance with their obligations under the
contract, they have submitted a comfort letter from UCPB to show petitioners that the bank was willing to finance the
acquisition of the Phimco shares.21

The basic issues to be resolved are: (1) whether the appellate court erred in reversing the trial courts decision dismissing
the complaint for being unenforceable under the Statute of Frauds; and (2) whether there was a perfected contract of sale
between petitioners and respondents with respect to the Phimco shares.

The Statute of Frauds embodied in Article 1403, paragraph (2), of the Civil Code22 requires certain contracts enumerated
therein to be evidenced by some note or memorandum in order to be enforceable. The term "Statute of Frauds" is
descriptive of statutes which require certain classes of contracts to be in writing. The Statute does not deprive the parties
of the right to contract with respect to the matters therein involved, but merely regulates the formalities

of the contract necessary to render it enforceable.23 Evidence of the agreement cannot be received without the writing or
a secondary evidence of its contents.

The Statute, however, simply provides the method by which the contracts enumerated therein may be proved but does
not declare them invalid because they are not reduced to writing. By law, contracts are obligatory in whatever form they
may have been entered into, provided all the essential requisites for their validity are present. However, when the law
requires that a contract be in some form in order that it may be valid or enforceable, or that a contract be proved in a
certain way, that requirement is absolute and indispensable.24 Consequently, the effect of non-compliance with the
requirement of the Statute is simply that no action can be enforced unless the requirement is complied with.25 Clearly, the
form required is for evidentiary purposes only. Hence, if the parties permit a contract to be proved, without any objection, it
is then just as binding as if the Statute has been complied with.26

The purpose of the Statute is to prevent fraud and perjury in the enforcement of obligations depending for their evidence
on the unassisted memory of witnesses, by requiring certain enumerated contracts and transactions to be evidenced by a
writing signed by the party to be charged.27

However, for a note or memorandum to satisfy the Statute, it must be complete in itself and cannot rest partly in writing
and partly in parol. The note or memorandum must contain the names of the parties, the terms and conditions of the
contract, and a description of the property sufficient to render it capable of identification.28 Such note or memorandum
must contain the essential elements of the contract expressed with certainty that may be ascertained from the note or
memorandum itself, or some other writing to which it refers or within which it is connected, without resorting to parol
evidence.29

Contrary to the Court of Appeals conclusion, the exchange of correspondence between the parties hardly constitutes the
note or memorandum within the context of Article 1403 of the Civil Code. Rossis letter dated 11 June 1990, heavily relied
upon by respondents, is not complete in itself. First, it does not indicate at what price the shares were being sold. In
paragraph (5) of the letter, respondents were supposed to submit their final offer in U.S. dollar terms, at that after the
completion of the due diligence process. The paragraph undoubtedly proves that there was as yet no definite agreement
42
as to the price. Second, the letter does not state the mode of payment of the price. In fact, Litonjua was supposed to
indicate in his final offer how and where payment for the shares was planned to be made.30

Evidently, the trial courts dismissal of the complaint on the ground of unenforceability under the Statute of Frauds is
warranted.31

Even if we were to consider the letters between the parties as a sufficient memorandum for purposes of taking the case
out of the operation of the Statute the action for specific performance would still fail.

A contract is defined as a juridical convention manifested in legal form, by virtue of which one or more persons bind
themselves in favor of another, or others, or reciprocally, to the fulfillment of a prestation to give, to do, or not to do.32
There can be no contract unless the following requisites concur: (a) consent of the contracting parties; (b) object certain
which is the subject matter of the contract; (c) cause of the obligation which is established.33 Contracts are perfected by
mere consent, which is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are
to constitute the contract.34

Specifically, in the case of a contract of sale, required is the concurrence of three elements, to wit: (a) consent or meeting
of the minds, that is, consent to transfer ownership in exchange for the price; (b) determinate subject matter, and (c) price
certain in money or its equivalent.35 Such contract is born from the moment there is a meeting of minds upon the thing
which is the object of the contract and upon the price.36

In general, contracts undergo three distinct stages, to wit: negotiation; perfection or birth; and consummation. Negotiation
begins from the time the prospective contracting parties manifest their interest in the contract and ends at the moment of
agreement of the parties. Perfection or birth of the contract takes place when the parties agree upon the essential
elements of the contract. Consummation occurs when the parties fulfill or perform the terms agreed upon in the contract,
culminating in the extinguishment thereof.37

A negotiation is formally initiated by an offer. A perfected promise merely tends to insure and pave the way for the
celebration of a future contract. An imperfect promise (policitacion), on the other hand, is a mere unaccepted offer.38
Public advertisements or solicitations and the like are ordinarily construed as mere invitations to make offers or only as
proposals. At any time prior to the perfection of the contract, either negotiating party may stop the negotiation.39 The
offer, at this stage, may be withdrawn; the withdrawal is effective immediately after its manifestation, such as by its mailing
and not necessarily when the offeree learns of the withdrawal.40

An offer would require, among other things, a clear certainty on both the object and the cause or consideration of the
envisioned contract. Consent in a contract of sale should be manifested by the meeting of the offer and the acceptance
upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute.
A qualified acceptance constitutes a counter-offer.41

Quite obviously, Litonjuas letter dated 21 May 1990, proposing the acquisition of the Phimco shares for US$36 million
was merely an offer. This offer, however, in Litonjuas own words, "is understood to be subject to adjustment on the basis
of an audit of the assets, liabilities and net worth of Phimco and its subsidiaries and on the final negotiation between
ourselves."42

Was the offer certain enough to satisfy the requirements of the Statute of Frauds? Definitely not.

Litonjua repeatedly stressed in his letters that they would not be able to submit their final bid by 30 June 1990.43 With
indubitable inconsistency, respondents later claimed that for all intents and purposes, the US$36 million was their final
bid. If this were so, it would be inane for Litonjua to state, as he did, in his letter dated 28 June 1990 that they would be in
a position to submit their final bid only on 17 July 1990. The lack of a definite offer on the part of respondents could not
possibly serve as the basis of their claim that the sale of the Phimco shares in their favor was perfected, for one essential
element of a contract of sale was obviously wantingthe price certain in money or its equivalent. The price must be
certain, otherwise there is no true consent between the parties.44 There can be no sale without a price.45 Quite recently,
this Court reiterated the long-standing doctrine that the manner of payment of the purchase price is an essential element
before a valid and binding contract of sale can exist since the agreement on the manner of payment goes into the price
such that a disagreement on the manner of payment is tantamount to a failure to agree on the price.46

Granting arguendo, that the amount of US$36 million was a definite offer, it would remain as a mere offer in the absence
of evidence of its acceptance. To produce a contract, there must be acceptance, which may be express or implied, but it
must not qualify the terms of the offer.47 The acceptance of an offer must be unqualified and absolute to perfect the
contract.48 In other words, it must be identical in all respects with that of the offer so as to produce consent or meeting of
the minds.49

Respondents attempt to prove the alleged verbal acceptance of their US$36 million bid becomes futile in the face of the
overwhelming evidence on record that there was in the first place no meeting of the minds with respect to the price. It is
dramatically clear that the US$36 million was not the actual price agreed upon but merely a preliminary offer which was
subject to adjustment after the conclusion of the audit of the company finances. Respondents failure to submit their final
43
bid on the deadline set by petitioners prevented the perfection of the contract of sale. It was not perfected due to the
absence of one essential element which was the price certain in money or its equivalent.

At any rate, from the procedural stand point, the continuing objections raised by petitioners to the admission of parol
evidence50 on the alleged verbal acceptance of the offer rendered any evidence of acceptance inadmissible.

Respondents plea of partial performance should likewise fail. The acquisition audit and submission of a comfort letter,
even if considered together, failed to prove the perfection of the contract. Quite the contrary, they indicated that the sale
was far from concluded. Respondents conducted the audit as part of the due diligence process to help them arrive at and
make their final offer. On the other hand, the submission of the comfort letter was merely a guarantee that respondents
had the financial capacity to pay the price in the event that their bid was accepted by petitioners.

The Statute of Frauds is applicable only to contracts which are executory and not to those which have been consummated
either totally or partially.51 If a contract has been totally or partially performed, the exclusion of parol evidence would
promote fraud or bad faith, for it would enable the defendant to keep the benefits already derived by him from the
transaction in litigation, and at the same time, evade the obligations, responsibilities or liabilities assumed or contracted by
him thereby.52 This rule, however, is predicated on the fact of ratification of the contract within the meaning of Article
1405 of the Civil Code either (1) by failure to object to the presentation of oral evidence to prove the same, or (2) by the
acceptance of benefits under them. In the instant case, respondents failed to prove that there was partial performance of
the contract within the purview of the Statute.

Respondents insist that even on the assumption that the Statute of Frauds is applicable in this case, the trial court erred in
dismissing the complaint altogether. They point out that the complaint presents several causes of action.

A close examination of the complaint reveals that it alleges two distinct causes of action, the first is for specific
performance53 premised on the existence of the contract of sale, while the other is solely for damages, predicated on the
purported dilatory maneuvers executed by the Phimco management.54

With respect to the first cause of action for specific performance, apart from petitioners alleged refusal to honor the
contract of salewhich has never been perfected in the first placerespondents made a number of averments in their
complaint all in support of said cause of action. Respondents claimed that petitioners were guilty of promissory
estoppel,55 warranty breaches56 and tortious conduct57 in refusing to honor the alleged contract of sale. These
averments are predicated on or at least interwoven with the existence or perfection of the contract of sale. As there was
no such perfected contract, the trial court properly rejected the averments in conjunction with the dismissal of the
complaint for specific performance.

However, respondents second cause of action due to the alleged malicious and deliberate delay of the Phimco
management in the delivery of documents necessary for the completion of the audit on time, not being based on the
existence of the contract of sale, could stand independently of the action for specific performance and should not be
deemed barred by the dismissal of the cause of action predicated on the failed contract. If substantiated, this cause of
action would entitle respondents to the recovery of damages against the officers of the corporation responsible for the
acts complained of.

Thus, the Court cannot forthwith order dismissal of the complaint without affording respondents an opportunity to
substantiate their allegations with respect to its cause of action for damages against the officers of Phimco based on the
latters alleged self-serving dilatory maneuvers.

WHEREFORE, the petition is in part GRANTED. The appealed Decision is hereby MODIFIED insofar as it declared the
agreement between the parties enforceable under the Statute of Frauds. The complaint before the trial court is ordered
DISMISSED insofar as the cause of action for specific performance is concerned. The case is ordered REMANDED to the
trial court for further proceedings with respect to the cause of action for damages as above specified.

SO ORDERED.

INSURANCE LIFE ASSURANCE COMPANY, LTD. VS. ASSET BUILDERS CORPORATION

G.R. No. 147410, February 5, 2004

Facts:
Insular Life Insurance Company, Limited invited companies to participate in the bidding of the proposed Insular
Life building. The Instruction to Bidders prepared by Insular Life expressly required a formal acceptance and a period
within which such acceptance was to be made known to the winner. Asset Builders Corporation submitted a bid proposal
secured by bid bonds valid for 60 days. Under its proposal form, Asset Builders bound and obliged itself to enter into a
contract with Insular Life within 10 days from the notice of the award, with good and sufficient securities. The project was
awarded to the Asset Builders and a notice to proceed with the construction was sent by Insular Life to the former.
However, Asset Builders project. Neither did it execute any construction agreement. It informed Insular Life that it will not
proceed with the project.

Issue:
44
 Whether or not there is a perfected contract between Insular Life and Asset Builders.

Held:
There was indeed no acceptance of the offer by Asset Builders. Such failure to comply with the condition imposed
for the perfection of the contract resulted in the failure of the contract. It is elementary that, being consensual, a contract is
perfected by mere consent. From the moment of a meeting of the offer and the acceptance upon the object and the cause
that would constitute the contract, consent arises. However, "the offer must be certain" and "the acceptance seasonable
and absolute; if qualified, the acceptance would merely constitute a counter-offer."
There are three distinct stages of a contract- preparation or negotiation, perfection or consummation. Negotiation
begins when the prospective contracting parties manifest their interest in the contract and ends at the moment of their
agreement. Perfection occurs when they agree upon the essential elements thereof. The last stage is the consummation
where they fulfill the terms agreed upon culminating in the extinguishment of the contract.
In the case at bar, the parties did not get past the negotiation stage.
In fact, there was only an offer and a counteroffer that did not sum up to any final arrangement containing the
elements of a contract. Clearly, no meeting of minds was established.

SPS. REYNALDO K. LITONJUA and ERLINDA P. LITONJUA and PHIL. WHITE HOUSE AUTO SUPPLY,
INC., petitioners, vs. L & R CORPORATION, VICENTE COLOYAN in his capacity as Acting Registrar of the
Register of Deeds of Quezon City thru Deputy Sheriff ROBERTO R. GARCIA, respondents.

DECISION
YNARES-SANTIAGO, J.:

May a mortgage contract provide: (a) that the mortgagor cannot sell the mortgaged property without first obtaining
the consent of the mortgagee and that, otherwise, the sale made without the mortgagees consent shall be invalid; and (b)
for a right of first refusal in favor of the mortgagee?
The controversy stems from loans obtained by the spouses Litonjua from L & R Corporation in the aggregate sum of
P400,000.00; P200,000.00 of which was obtained on August 6, 1974 and the remaining P200,000.00 obtained on March
27, 1978. The loans were secured by a mortgage[1] constituted by the spouses upon their two parcels of land and the
improvements thereon located in Cubao, Quezon City covered by Transfer Certificates of Title No. 197232 and 197233,
with an area of 599 and 1,436 square meters, respectively. The mortgage was duly registered with the Register of Deeds
of Quezon City.
On July 14, 1979, the spouses Litonjua sold to Philippine White House Auto Supply, Inc. (PWHAS) the parcels of
land they had previously mortgaged to L & R Corporation for the sum of P430,000.00.[2] The sale was annotated at the
back of the respective certificates of title of the properties.[3]
Meanwhile, with the spouses Litonjua having defaulted in the payment of their loans, L & R Corporation initiated
extrajudicial foreclosure proceedings with the Ex-Oficio Sheriff of Quezon City. On July 23, 1980, the mortgaged
properties were sold at public auction to L & R Corporation as the only bidder for the amount of P221,624.58. [4] When L &
R Corporation presented its corresponding Certificate of Sale issued by Deputy Sheriff Roberto B. Garcia, to the Quezon
City Register of Deeds for registration on August 15, 1980, it learned for the first time of the prior sale of the properties
made by the spouses Litonjua to PWHAS upon seeing the inscription at the back of the certificates of title. Thus, on
August 20, 1980, it wrote a letter[5] to the Register of Deeds of Quezon City requesting for the cancellation of the
annotation regarding the sale to PWHAS. L & R Corporation invoked a provision in its mortgage contract with the spouses
Litonjua stating that the mortgagees prior written consent was necessary in case of subsequent encumbrance or
alienation of the subject properties. Thus, it argued that since the sale to PWHAS was made without its prior written
consent, the same should not have been registered and/or annotated.
On March 10, 1981, or seven months after the foreclosure sale, PWHAS, for the account of the spouses Litonjua,
tendered payment of the full redemption price to L & R Corporation in the form of China Bank Managers Check No. HOF-
M O12623 in the amount of P238,468.04.[6] See Exhibits G & 2, Letter of PWHAS to L & R Corporation, id.6 L & R
Corporation, however, refused to accept the payment, hence, PWHAS was compelled to redeem the mortgaged
properties through the Ex-Oficio Sheriff of Quezon City. On March 31, 1981, it tendered payment of the redemption price
to the Deputy Sheriff through China Bank Managers Check No. HOF-O14750 in the amount of P240,798.94.[7] The check
was deposited with the Branch Clerk of Court who issued Receipt No. 7522484 [8] for the full redemption price of the
mortgaged properties. Accordingly, the Deputy Sheriff issued a Certificate of Redemption in favor of the spouses Litonjua
dated March 31, 1981.[9]
In a letter of the same date, the Deputy Sheriff informed L & R Corporation of the payment by PWHAS of the full
redemption price and advised it that it can claim the payment upon surrender of its owners duplicate certificates of title.[10]
On April 2, 1981, the spouses Litonjua presented for registration the Certificate of Redemption issued in their favor to
the Register of Deeds of Quezon City. The Certificate also informed L & R Corporation of the fact of redemption and
directed the latter to surrender the owners duplicate certificates of title within five days. [11]
On April 22, 1981, L & R Corporation wrote a letter to the Sheriff, copy furnished to the Register of Deeds, stating: (1)
that the sale of the mortgaged properties to PWHAS was without its consent, in contravention of paragraphs 8 and 9 of
their Deed of Real Estate Mortgage; and (2) that it was not the spouses Litonjua, but PWHAS, who was seeking to
redeem the foreclosed properties, when under Articles 1236 and 1237 of the New Civil Code, the latter had no legal
personality or capacity to redeem the same.[12]

45
 On the other hand, on May 8 and June 8, 1981, the spouses Litonjua asked the Register of Deeds to annotate their
Certificate of Redemption as an adverse claim on the titles of the subject properties on account of the refusal of L & R
Corporation to surrender the owners duplicate copies of the titles to the subject properties. With the refusal of the Register
of Deeds to annotate their Certificate of Redemption, the Litonjua spouses filed a Petition [13] on July 17, 1981 against L &
R Corporation for the surrender of the owners duplicate of Transfer Certificates of Title No. 197232 and 197233 before the
then Court of First Instance of Quezon City, Branch IV, docketed as Civil Case No. 32905.
On August 15, 1981, while the said case was pending, L & R Corporation executed an Affidavit of Consolidation of
Ownership.[14] Thereafter, on August 20, 1981, the Register of Deeds cancelled Transfer Certificates of Title No. 197232
and 197233 and in lieu thereof, issued Transfer Certificates of Title No. 280054 [15] and 28055[16] in favor of L & R
Corporation, free of any lien or encumbrance.
With titles issued in its name, L & R Corporation advised the tenants of the apartments situated in the subject parcels
of land that being the new owner, the rental payments should be made to them, and that new lease contracts will be
executed with interested tenants before the end of August, 1981. [17] Upon learning of this incident from their tenants, the
spouses Litonjua filed an adverse claim [18] and a notice of lis pendens[19] with the Register of Deeds. In the process, they
learned that the prior sale of the properties in favor of PWHAS was not annotated on the titles issued to L & R.
A complaint for Quieting of Title, Annulment of Title and Damages with preliminary injunction was filed by the
spouses Litonjua and PWHAS against herein respondents before the then Court of First Instance of Quezon City, Branch
9, docketed as Civil Case No. Q-33362.[20] On February 10, 1987, the lower court rendered its Decision [21] dismissing the
Complaint upon its finding that the sale between the spouses Litonjua and PWHAS was null and void and unenforceable
against L & R Corporation and that the redemption made was also null and void.
On appeal, the decision of the trial court was set aside by the Court of Appeals in its Decision dated June 22,
1994,[22] on the ground that the sale made to PWHAS as well as the redemption effected by the spouses Litonjua were
valid. However, the same was subsequently reconsidered and set aside in an Amended Decision dated September 11,
1997.[23]
Hence, the instant Petition on the following issues:
(1) whether or not paragraphs 8 and 9 of the Real Estate Mortgage are valid and enforceable;
(2) whether or not the sale of the mortgaged properties by the spouses Litonjua to PWHAS, without the
knowledge and consent of L & R Corporation, is valid and enforceable;
(3) whether or not PWHAS had the right to redeem the foreclosed properties on the account of the spouses
Litonjua; and
(4) whether or not there was a valid redemption.
Paragraphs 8 and 9 of the subject Deed of Real Estate Mortgage read as follows

"8. That the MORTGAGORS shall not sell, dispose of, mortgage, nor in any other manner encumber the real
property/properties subject of this mortgage without the prior written consent of the MORTGAGEE;

9. That should the MORTGAGORS decide to sell the real property/properties subject of this mortgage, the MORTGAGEE
shall be duly notified thereof by the MORTGAGORS, and should the MORTGAGEE be interested to purchase the same,
the latter shall be given priority over all the other prospective buyers; [24]

There is no question that the spouses Litonjua violated both the aforesaid provisions, selling the mortgaged
properties to PWHAS without the prior written consent of L & R Corporation and without giving the latter notice of such
sale nor priority over PWHAS.

Re: Validity of prohibition against subsequent sale of mortgaged property without prior written consent of mortgagee and validity of subsequent sale to PWHAS

Petitioners defend the validity of the sale between them by arguing that paragraph 8 violates Article 2130 of the New
Civil Code which provides that (A) stipulation forbidding the owner from alienating the immovable mortgaged shall be void.
In the case of Philippine Industrial Co. v. El Hogar Filipino and Vallejo, [25] a stipulation prohibiting the mortgagor from
entering into second or subsequent mortgages was held valid. This is clearly not the same as that contained in paragraph
8 of the subject Deed of Real Estate Mortgage which also forbids any subsequent sale without the written consent of the
mortgagee. Yet, in Arancillo v. Rehabilitation Finance Corporation,[26] the case of Philippine Industrial Co., supra, was
erroneously cited to have held that the prohibition in a mortgage contract against the encumbrance, sale or disposal of the
property mortgaged without the consent of the mortgagee is valid. No similar prohibition forbidding the owner of
mortgaged property from (subsequently) mortgaging the immovable mortgaged is found in our laws, making the ruling
in Philippine Industrial Co., supra, perfectly valid. On the other hand, to extend such a ruling to include subsequent sales
or alienation runs counter not only to Philippine Industrial Co., itself, but also to Article 2130 of the New Civil Code.
Meanwhile in De la Paz v. Macondray & Co., Inc.,[27] it was held that while an agreement of such nature does not
nullify the subsequent sale made by the mortgagor, the mortgagee is authorized to bring the foreclosure suit against the
mortgagor without the necessity of either notifying the purchaser or including him as a defendant. At the same time, the
purchaser of the mortgaged property was deemed not to have lost his equitable right of redemption.

46
 In Bonnevie v. Court of Appeals,[28] where a similar provision appeared in the subject contract of mortgage, the
petitioners therein, to whom the mortgaged property were sold without the written consent of the mortgagee, were held as
without the right to redeem the said property. No consent having been secured from the mortgagee to the sale with
assumption of mortgage by petitioners therein, the latter were not validly substituted as debtors. It was further held that
since their rights were never recorded, the mortgagee was charged with the obligation to recognize the right of redemption
only of the original mortgagors-vendors. Without discussing the validity of the stipulation in question, the same was, in
effect, upheld.
Again, in Cruz v. Court of Appeals,[29] while a similar provision was recognized and applied, no discussion as to its
validity was made since the same was not raised as an issue.
On the other hand, in Tambunting v. Rehabilitation Finance Corporation,[30] the validity of a similar provision was
specifically raised and discussed and found as invalid. It was there ratiocinated that --

To be sure, the deed of second mortgage executed by the Escuetas in favor of Aurora Tambunting, married to Antonio L.
Tambunting, does contain a provision that the property mortgaged shall not be x x x the subject of any new or subsequent
contracts of agreements, saving and excepting those having connection with the first mortgage with the RFC, without first
securing the written permission and consent of the MORTGAGEE. But the provision can only be construed as directed
against subsequent mortgages or encumbrances, not to an alienation of the immovable itself.For while covenants
prohibiting the owner from constituting a later mortgage over property registered under the Torrens Act have been held to
be legally permissible (Phil. Industrial Co. v. El Hogar Filipino, et al., 45 Phil. 336, 341-342; Bank of the Philippines v. Ty
Camco Sobrino, 57 Phil. 801), stipulations forbidding the owner from alienating the immovable mortgaged are expressly
declared void by law (Art. 2130, Civil Code). It is clear that the stipulation against subsequent agreements above
mentioned had not been breached by the assignment by the Escuetas (to the Hernandezes) of their right of redemption in
connection with the mortgage constituted in favor of the R.F.C. The assignment was not a subsequent mortgage or
encumbrance, licitly comprehended by the prohibitory stipulation, but was actually a sale or conveyance of all their rights
in the encumbered real property in truth, an alienation of the immovable which could not lawfully be forbidden. Moreover,
since the subject of the assignment to the Hernandezes had connection with the first assignment with the R.F.C., it did not
fall within, but was explicitly excepted from, the prohibitory stipulation in question. Finally, it should not be forgotten that
since the Tambuntings, in their own deed of conditional sale with the R.F.C., had accepted without demur the provision
that said contract could be revoked within one (1) year from September 16, 1955 at the option of the RFC, as vendor,
should the former owner (Escueta) exercise his right to redeem the property; and that the redemption of the property
within said period by the former owner or his successor-in-interest would render their instrument of conditional sale
automatically null and void and without effect, they cannot now assume a position inconsistent with said provision.
(underscoring, Ours)

Earlier, in PNB v. Mallorca,[31] it was reiterated that a real mortgage is merely an encumbrance; it does not extinguish
the title of the debtor, whose right to dispose a principal attribute of ownership is not thereby lost. Thus, a mortgagor had
every right to sell his mortgaged property, which right the mortgagee cannot oppose.
In upholding the validity of the stipulation in question, the amended Decision relied on the cases of Cruz v. Court of
Appeals, supra, and Medida v. Court of Appeals.[32] According to the Court of Appeals, said cases, are not only more
recent that that of Tambunting, supra, but are also more applicable to the issue at bar.
We are not convinced.
As we have mentioned, although a similar provision was recognized and applied in Cruz v. Court of Appeals, supra,
no discussion as to its validity was made since the same was not raised as an issue. Thus, it cannot be said that the
specific pronouncement in the Tambunting case that such a stipulation can only be construed as against subsequent
mortgages or encumbrances but not to an alienation of the immovable itself, which is prohibited under Article 2130, was
abandoned thereby. On the other hand, the facts in the case of Medida v. Court of Appeals, are different from those in the
present case for what was in issue in the said case was a second mortgage over a foreclosed property during the period
of redemption. Thus, the ruling in Medida quoted in the Amended Decision that what is delimited is not the mortgagors jus
dispodendi, as an attribute of ownership, but merely the rights conferred by such act of disposal which may
correspondingly be restricted, actually refers to the fact that the only rights which a mortgagor can legally transfer, cede
and convey after the foreclosure of his properties are the right to redeem the land, and the possession use and enjoyment
of the same during the period of redemption. It has no connection or reference to the right of a mortgagor to sell his
mortgaged property without the required consent of the mortgagee. To be sure, there is absolutely nothing in Medida that
upholds the validity of the stipulation in controversy.
Insofar as the validity of the questioned stipulation prohibiting the mortgagor from selling his mortgaged property
without the consent of the mortgagee is concerned, therefore, the ruling in the Tambunting case is still the controlling
law. Indeed, we are fully in accord with the pronouncement therein that such a stipulation violates Article 2130 of the New
Civil Code. Both the lower court and the Court of Appeals in its Amended Decision rationalize that since paragraph 8 of
the subject Deed of Real Estate Mortgage contains no absolute prohibition against the sale of the property mortgaged but
only requires the mortgagor to obtain the prior written consent of the mortgagee before any such sale, Article 2130 is not
violated thereby. This observation takes a narrow and technical view of the stipulation in question without taking into
consideration the end result of requiring such prior written consent. True, the provision does not absolutely prohibit the
mortgagor from selling his mortgaged property; but what it does not outrightly prohibit, it nevertheless achieves. For all
intents and purposes, the stipulation practically gives the mortgagee the sole prerogative to prevent any sale of the
mortgaged property to a third party. The mortgagee can simply withhold its consent and thereby, prevent the mortgagor
from selling the property. This creates an unconscionable advantage for the mortgagee and amounts to a virtual
prohibition on the owner to sell his mortgaged property. In other words, stipulations like those covered by paragraph 8 of
the subject Deed of Real Estate Mortgage circumvent the law, specifically, Article 2130 of the New Civil Code.

47
 Being contrary to law, paragraph 8 of the subject Deed of Real Estate Mortgage is not binding upon the
parties. Accordingly, the sale made by the spouses Litonjua to PWHAS, notwithstanding the lack of prior written consent
of L & R Corporation, is valid.

Re: Validity of redemption effected by PWHAS on the account of the spouses Litonjua

Coming now to the issue of whether the redemption offered by PWHAS on account of the spouses Litonjua is valid,
we rule in the affirmative. The sale by the spouses Litonjua of the mortgaged properties to PWHAS is valid. Therefore,
PWHAS stepped into the shoes of the spouses Litonjua on account of such sale and was in effect, their successor-in-
interest. As such, it had the right to redeem the property foreclosed by L & R Corporation. Again, Tambunting, supra,
clarifies that

x x x. The acquisition by the Hernandezes of the Escuetas rights over the property carried with it the assumption of the
obligations burdening the property, as recorded in the Registry of Property, i.e., the mortgage debts in favor of the RFC
(DBP) and the Tambuntings. The Hernandezes, by stepping into the Escuetas shoes as assignees, had the obligation to
pay the mortgage debts, otherwise, these debts would and could be enforced against the property subject of the
assignment. Stated otherwise, the Hernandezes, by the assignment, obtained the right to remove the burdens on the
property subject thereof by paying the obligations thereby secured; that is to say, they had the right of redemption as
regards the first mortgage, to be exercised within the time and in the manner prescribed by law and the mortgage deed;
and as regards the second mortgage, sought to be judicially foreclosed but yet unforeclosed, they had the so-called equity
of redemption.

The redemption of PWHAS to redeem the subject properties finds support in Section 6 of Act 3135 itself which gives
not only the mortgagor-debtor the right to redeem, but also his successors-in-interest. As vendee of the subject properties,
PWHAS qualifies as such a successor-in-interest of the spouses Litonjua.

Re: Validity of redemption made

It is clear from the records that PWHAS offered to redeem the subject properties seven (7) months after the date of
registration of the foreclosure sale, well within the one year period of redemption.

Re: Validity and enforceability of stipulation granting the mortgagee the right of first refusal

While petitioners question the validity of paragraph 8 of their mortgage contract, they appear to be silent insofar as
paragraph 9 thereof is concerned. Said paragraph 9 grants upon L & R Corporation the right of first refusal over the
mortgaged property in the event the mortgagor decides to sell the same. We see nothing wrong in this provision. The right
of first refusal has long been recognized as valid in our jurisdiction. The consideration for the loan-mortgage includes the
consideration for the right of first refusal. L & R Corporation is in effect stating that it consents to lend out money to the
spouses Litonjua provided that in case they decide to sell the property mortgaged to it, then L & R Corporation shall be
given the right to match the offered purchase price and to buy the property at that price. Thus, while the spouses Litonjua
had every right to sell their mortgaged property to PWHAS without securing the prior written consent of L & R Corporation,
it had the obligation under paragraph 9, which is a perfectly valid provision, to notify the latter of their intention to sell the
property and give it priority over other buyers. It is only upon failure of L & R Corporation to exercise its right of first refusal
could the spouses Litonjua validly sell the subject properties to others, under the same terms and conditions offered to L &
R Corporation.
What then is the status of the sale made to PWHAS in violation of L & R Corporations contractual right of first
refusal? On this score, we agree with the Amended Decision of the Court of Appeals that the sale made to PWHAS is
rescissible. The case of Guzman, Bocaling & Co v. Bonnevie[33] is instructive on this point

The respondent court correctly held that the Contract of Sale was not voidable but rescissible. Under Article 1380 to
1381(3) of the Civil Code, a contract otherwise valid may nonetheless be subsequently rescinded by reason of injury to
third persons, like creditors. The status of creditors could be validly accorded the Bonnevies for they had substantial
interests that were prejudiced by the sale of the subject property to the petitioner without recognizing their right of first
priority under the Contract of Lease.

According to Tolentino, rescission is a remedy granted by law to the contracting parties and even to third persons, to
secure reparation for damages caused to them by a contract, even if this should be valid, by means of the restoration of
things to their condition at the moment prior to the celebration of said contract. It is a relief allowed for one of the
contracting parties and even third persons from all injury and damage the contract may cause, or to protect some
incompatible and preferential right created by the contract. Rescission implies a contract which, even if initially valid,
produces a lesion or pecuniary damage to someone that justifies its invalidation for reasons of equity. (underscoring,
Ours)

It was then held that the Contract of Sale there, which violated the right of first refusal, was rescissible.
48
 In the case at bar, PWHAS cannot claim ignorance of the right of first refusal granted to L & R Corporation over the
subject properties since the Deed of Real Estate Mortgage containing such a provision was duly registered with the
Register of Deeds. As such, PWHAS is presumed to have been notified thereof by registration, which equates to notice to
the whole world.
We note that L & R Corporation had always expressed its willingness to buy the mortgaged properties on equal
terms as PWHAS. Indeed, in its Answer to the Complaint filed, L & R Corporation expressed that it was ready, willing and
able to purchase the subject properties at the same purchase price of P430,000.00, and was agreeable to pay the
difference between such purchase price and the redemption price of P249,918.77, computed as of August 13, 1981, the
expiration of the one-year period to redeem. That it did not duly exercised its right of first refusal at the opportune time
cannot be taken against it, precisely because it was not notified by the spouses Litonjua of their intention to sell the
subject property and thereby, to give it priority over other buyers.
All things considered, what then are the relative rights and obligations of the parties? To recapitulate:, the sale
between the spouses Litonjua and PWHAS is valid, notwithstanding the absence of L & R Corporations prior written
consent thereto. Inasmuch as the sale to PWHAS was valid, its offer to redeem and its tender of the redemption price, as
successor-in-interest of the spouses Litonjua, within the one-year period should have been accepted as valid by L & R
Corporation. However, while the sale is, indeed, valid, the same is rescissible because it ignored L & R Corporations right
of first refusal.
Foreseeing a possible rescission of the sale, the spouses Litonjua contend that with the restoration of the
original status quo, with no sale having been made, they should now be allowed to redeem the subject properties, the
period of redemption having been suspended during the period of litigation. In effect, the spouses Litonjua want to retain
ownership of the same. We cannot, however, sanction this belated reversal of the spouses Litonjuas decision to sell. To
do so would afford them undue advantage on account of the appreciation of the value of the subject properties in the
intervening years when they precisely were the ones who violated and ignored the right of first refusal of L & R
Corporation over the same. Moreover, it must be stressed that in rescinding the sale made to PWHAS, the purpose is to
uphold and enforce the right of first refusal of L & R Corporation.
WHEREFORE, the Decision appealed from is hereby AFFIRMED with the following MODIFICATIONS:
(a) Ordering the rescission of the sale of the mortgaged properties between petitioners spouses Reynaldo and
Erlinda Litonjua and Philippine White House Auto Supply, Inc. and ordering said spouses to return to
Philippine White House Auto Supply, Inc. the purchase price of P430,000.00;
(c) Disallowing, due to the rescission of the sale made in its favor, the redemption made by Philippine White
House Auto Supply, Inc. and ordering Quezon City Sheriff Roberto Garcia to return to it the redemption
check of P240,798.94;
(d) Allowing respondent L & R Corporation to retain its consolidated titles to the foreclosed properties but
ordering it to pay to the Litonjua spouses the additional sum of P189,201.96 representing the difference from
the purchase price of P430,000.00 in the rescinded sale;
(e) Deleting the awards for moral and exemplary damages and attorneys fees to the respondents.
No pronouncement as to costs.
SO ORDERED.
Ang yu Asuncion vs CA

Facts:
July 29, 1987: An amended Complaint for Specific Performance was filed by petitioners Ang Yu Asuncion and
others against Bobby Cu Unjieng, Rose Cu Unjieng and Jose Tan before RTC.
Petitioners (Ang Yu) alleged that:
- they are the tenants or lessees of residential and commercial spaces owned by Bobby Unijeng and others located in
Binondo, Manila (since 1935)
that on several occasions before October 9, 1986, the lessors informed the lessees (petitioners) that they are offering to
sell the premises and are giving them priority to acquire the same;
- that during the negotiations, Bobby Cu Unjieng offered a price of P6-million while they made a counter offer of P5-
million;
- that they wrote them on October 24, 1986 asking that they specify the terms and conditions of the offer to sell; that when
plaintiffs did not receive any reply, they sent another letter dated January 28, 1987 with the same request;
The RTC found that Cu Unjiengs offer to sell was never accepted by the petitioners (Ang Yu) for the reason that
they did not agree upon the terms and conditions of the proposed sale, hence, there was no contract of sale at all.
The Court of Appeals affirmed the decision of the lower court. This decision was brought to the Supreme Court by
petition for review on certiorari which subsequently denied the appeal on May 6, 1991 for insufficiency in form and
substance. (Referring to the first case filed by Ang Yu)
November 15, 1990: While the case was pending consideration by this Court, the Cu Unjieng spouses executed a
Deed of Sale transferring the subject petitioner to petitioner Buen Realty and Development Corporation.
Petitioner Buen Realty and Development Corporation, as the new owner of the subject property, wrote a letter to the
lessees demanding that the latter vacate the premises.
August 30, 1991: the RTC ordered the Cu Unjiengs to execute the necessary Deed of Sale of the property in
litigation in favor of plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for the consideration of P15 Million pesos
in recognition of petitioners right of first refusal and that a new Transfer Certificate of Title be issued in favor of the
buyer. The court also set aside the title issued to Buen Realty Corporation for having been executed in bad faith. On
September 22, 1991, the Judge issued a writ of execution.
49
 The CA reversed the RTC ruling.

Issue: WON Buen Realty can be bound by the writ of execution by virtue of the notice of lis pendens, carried over on TCT
No. 195816 issued in the name of Buen Realty, at the time of the latters purchase of the property on 15 November 1991
from the Cu Unjiengs. NO

Held:

Right of first refusal is not a perfected contract of sale under Article 1458 of the Civil Code
In the law on sales, the so-called right of first refusal is an innovative juridical relation. Needless to point out, it cannot be
deemed a perfected contract of sale under Article 1458 of the Civil Code.

In a right of first refusal, while the object might be made determinate, the exercise of the right, however, would be
dependent not only on the grantors eventual intention to enter into a binding juridical relation with another but also on
terms, including the price, that obviously are yet to be later firmed up. Prior thereto, it can at best be so described as
merely belonging to a class of preparatory juridical relations governed not by contracts (since the essential elements to
establish the vinculum juris would still be indefinite and inconclusive) but by, among other laws of general application, the
pertinent scattered provisions of the Civil Code on human conduct.

The proper action for violation of the right of first refysal is to file an action for damages and NOT writ of
execution
The final judgment in Civil Case No. 87-41058, it must be stressed, has merely accorded a right of first refusal in favor of
petitioners (Ang Yu et. al). The consequence of such a declaration entails no more than what has heretofore been said. In
fine, if, as it is here so conveyed to us, petitioners are aggrieved by the failure of private respondents to honor the right of
first refusal, the remedy is not a writ of execution on the judgment, since there is none to execute, but an action for
damages in a proper forum for the purpose.

Unconditional mutual promise to buy vs. Accepted unilateral promise

An unconditional mutual promise to buy and sell, as long as the object is made determinate and the price is fixed, can be
obligatory on the parties, and compliance therewith may accordingly be exacted.

An accepted unilateral promise which specifies the thing to be sold and the price to be paid, when coupled with a valuable
consideration distinct and separate from the price, is what may properly be termed a perfected contract of option. This
contract is legally binding, and in sales, it conforms with the second paragraph of Article 1479 of the Civil Code, viz:

Art. 1479. . . .
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the
promise is supported by a consideration distinct from the price. (1451a)

Observe, however, that the option is not the contract of sale itself. The optionee has the right, but not the obligation, to
buy. Once the option is exercised timely, i.e., the offer is accepted before a breach of the option, a bilateral promise to sell
and to buy ensues and both parties are then reciprocally bound to comply with their respective undertakings.

Buen Realty cannot be ousted from the ownership and possession of the property
Furthermore, whether private respondent Buen Realty Development Corporation, the alleged purchaser of the property,
has acted in good faith or bad faith and whether or not it should, in any case, be considered bound to respect the
registration of the lis pendens in Civil Case No. 87-41058 are matters that must be independently addressed in
appropriate proceedings. Buen Realty, not having been impleaded in Civil Case No. 87-41058, cannot be held subject to
the writ of execution issued by respondent Judge, let alone ousted from the ownership and possession of the property,
without first being duly afforded its day in court.

Blas

1 SCRA 899 Succession Promise

Sometime before 1898, Simeon Blas married Marta Cruz with whom he had three children. He also had grandchildren
from his children with Marta Cruz. In 1898, Marta Cruz died. In 1899, Blas married Maxima Santos (they had no children)
but the properties he and his former wife acquired during the first marriage were not liquidated.
In 1936, Simeon Blas executed a will disposing half of his properties in favor of Maxima the other half for payment of
debts, Blas also named a few devisees and legatees therein. In lieu of this, Maxima executed a document whereby she
intimated that she understands the will of her husband; that she promises that shell be giving, upon her death, one-half of
the properties shell be acquiring to the heirs and legatees named in the will of his husband; that she can select or choose
any of them depending upon the respect, service, and treatment accorded to her by said legatees/heirs/devisees.
In 1937, Simeon Blas died. In 1956, Maxima died and Rosalina Santos became administratrix of her estate. In the same
year, Maria Gervacio Blas, child of Simeon Blas in his first marriage, together with three other grandchildren of Simeon
Blas (heirs of Simeon Blas), learned that Maxima did not fulfill her promise as it was learned that Maxima only disposed
not even one-tenth of the properties she acquired from Simeon Blas.
The heirs are now contending that they did not partition Simeon Blas property precisely because Maxima promised that
theyll be receiving properties upon her death.
50
ISSUE: Whether or not the heirs should receive properties based on the promise of Maxima.
HELD: Yes. The promise is valid and enforceable upon her death. Though it is not a will (it lacks the formality) nor a
donation, it is still enforceable because said promise was actually executed to avoid litigation (partition of Simeon Blas
estate) hence it is a compromise.
It is not disputed that this document was prepared at the instance of Simeon Blas for the reason that the conjugal
properties of his first marriage had not been liquidated. It is an obligation or promise made by the maker to transmit one-
half of her share in the conjugal properties acquired with her husband, which properties are stated or declared to be
conjugal properties in the will of the husband.
Justice Bautista Angelo, dissenting:
It should be noted that Maxima Santos promise to transmit is predicated on the condition that she can freely choose and
select from among the heirs and legatees of her husband those to whom she would like to give and bequeath depending
on the respect, service and companionship that they may render to her. Her commitment is not an absolute promise to
give to all but only to whom she may choose and select. And here this promise has been substantially complied with when
she disposed one-tenth of the property to some legatees named in Simeons will.
RIDO MONTECILLO, petitioner, vs. IGNACIA REYNES and SPOUSES REDEMPTOR and ELISA
ABUCAY, respondents.

DECISION
CARPIO, J.:

The Case

On March 24, 1993, the Regional Trial Court of Cebu City, Branch 18, rendered a Decision [1] declaring the deed of
sale of a parcel of land in favor of petitioner null and void ab initio. The Court of Appeals,[2] in its July 16, 1998
Decision[3] as well as its February 11, 1999 Order[4] denying petitioners Motion for Reconsideration, affirmed the trial
courts decision in toto. Before this Court now is a Petition for Review on Certiorari[5] assailing the Court of Appeals
decision and order.

The Facts

Respondents Ignacia Reynes (Reynes for brevity) and Spouses Abucay (Abucay Spouses for brevity) filed on June
20, 1984 a complaint for Declaration of Nullity and Quieting of Title against petitioner Rido Montecillo (Montecillo for
brevity). Reynes asserted that she is the owner of a lot situated in Mabolo, Cebu City, covered by Transfer Certificate of
Title No. 74196 and containing an area of 448 square meters (Mabolo Lot for brevity). In 1981, Reynes sold 185 square
meters of the Mabolo Lot to the Abucay Spouses who built a residential house on the lot they bought.
Reynes alleged further that on March 1, 1984 she signed a Deed of Sale of the Mabolo Lot in favor of Montecillo
(Montecillos Deed of Sale for brevity). Reynes, being illiterate,[6] signed by affixing her thumb-mark[7] on the
document. Montecillo promised to pay the agreed P47,000.00 purchase price within one month from the signing of the
Deed of Sale. Montecillos Deed of Sale states as follows:

That I, IGNACIA T. REYNES, of legal age, Filipino, widow, with residence and postal address at Mabolo, Cebu City,
Philippines, for and in consideration of FORTY SEVEN THOUSAND (P47,000.00) PESOS, Philippine Currency, to
me in hand paid by RIDO MONTECILLO, of legal age, Filipino, married, with residence and postal address at Mabolo,
Cebu City, Philippines, the receipt hereof is hereby acknowledged, have sold, transferred, and conveyed, unto RIDO
MONTECILLO, his heirs, executors, administrators, and assigns, forever, a parcel of land together with the improvements
thereon, situated at Mabolo, Cebu City, Philippines, free from all liens and encumbrances, and more particularly described
as follows:

A parcel of land (Lot 203-B-2-B of the subdivision plan Psd-07-01-00 2370, being a portion of Lot 203-B-2, described on
plan (LRC) Psd-76821, L.R.C. (GLRO) Record No. 5988), situated in the Barrio of Mabolo, City of Cebu. Bounded on the
SE., along line 1-2 by Lot 206; on the SW., along line 2-3, by Lot 202, both of Banilad Estate; on the NW., along line 4-5,
by Lot 203-B-2-A of the subdivision of Four Hundred Forty Eight (448) square meters, more or less.

of which I am the absolute owner in accordance with the provisions of the Land Registration Act, my title being evidenced
by Transfer Certificate of Title No. 74196 of the Registry of Deeds of the City of Cebu, Philippines. That This Land Is Not
Tenanted and Does Not Fall Under the Purview of P.D. 27.[8] (Emphasis supplied)

Reynes further alleged that Montecillo failed to pay the purchase price after the lapse of the one-month period,
prompting Reynes to demand from Montecillo the return of the Deed of Sale. Since Montecillo refused to return the Deed
of Sale,[9] Reynes executed a document unilaterally revoking the sale and gave a copy of the document to Montecillo.
Subsequently, on May 23, 1984 Reynes signed a Deed of Sale transferring to the Abucay Spouses the entire Mabolo
Lot, at the same time confirming the previous sale in 1981 of a 185-square meter portion of the lot. This Deed of Sale
states:
51
I, IGNACIA T. REYNES, of legal age, Filipino, widow and resident of Mabolo, Cebu City, do hereby confirm the sale of a
portion of Lot No. 74196 to an extent of 185 square meters to Spouses Redemptor Abucay and Elisa Abucay covered by
Deed per Doc. No. 47, Page No. 9, Book No. V, Series of 1981 of notarial register of Benedicto Alo, of which spouses is
now in occupation;

That for and in consideration of the total sum of FIFTY THOUSAND (P50,000) PESOS, Philippine Currency, received in
full and receipt whereof is herein acknowledged from SPOUSES REDEMPTOR ABUCAY and ELISA ABUCAY, do hereby
in these presents, SELL, TRANSFER and CONVEY absolutely unto said Spouses Redemptor Abucay and Elisa Abucay,
their heirs, assigns and successors-in-interest the whole parcel of land together with improvements thereon and more
particularly described as follows:

TCT No. 74196

A parcel of land (Lot 203-B-2-B of the subdivision plan psd-07-01-002370, being a portion of Lot 203-B-2, described on
plan (LRC) Psd 76821, LRC (GLRO) Record No. 5988) situated in Mabolo, Cebu City, along Arcilla Street, containing an
area of total FOUR HUNDRED FORTY EIGHT (448) Square meters.

of which I am the absolute owner thereof free from all liens and encumbrances and warrant the same against claim of
third persons and other deeds affecting said parcel of land other than that to the said spouses and inconsistent hereto is
declared without any effect.

In witness whereof, I hereunto signed this 23rd day of May, 1984 in Cebu City, Philippines. [10]

Reynes and the Abucay Spouses alleged that on June 18, 1984 they received information that the Register of Deeds
of Cebu City issued Certificate of Title No. 90805 in the name of Montecillo for the Mabolo Lot.
Reynes and the Abucay Spouses argued that for lack of consideration there (was) no meeting of the
minds[11] between Reynes and Montecillo. Thus, the trial court should declare null and void ab initio Montecillos Deed of
Sale, and order the cancellation of Certificate of Title No. 90805 in the name of Montecillo.
In his Answer, Montecillo, a bank executive with a B.S. Commerce degree, [12] claimed he was a buyer in good faith
and had actually paid the P47,000.00 consideration stated in his Deed of Sale. Montecillo, however, admitted he still owed
Reynes a balance of P10,000.00. He also alleged that he paid P50,000.00 for the release of the chattel mortgage which
he argued constituted a lien on the Mabolo Lot. He further alleged that he paid for the real property tax as well as the
capital gains tax on the sale of the Mabolo Lot.
In their Reply, Reynes and the Abucay Spouses contended that Montecillo did not have authority to discharge the
chattel mortgage, especially after Reynes revoked Montecillos Deed of Sale and gave the mortgagee a copy of the
document of revocation. Reynes and the Abucay Spouses claimed that Montecillo secured the release of the chattel
mortgage through machination. They further asserted that Montecillo took advantage of the real property taxes paid by the
Abucay Spouses and surreptitiously caused the transfer of the title to the Mabolo Lot in his name.
During pre-trial, Montecillo claimed that the consideration for the sale of the Mabolo Lot was the amount he paid to
Cebu Ice and Cold Storage Corporation (Cebu Ice Storage for brevity) for the mortgage debt of Bienvenido Jayag (Jayag
for brevity). Montecillo argued that the release of the mortgage was necessary since the mortgage constituted a lien on
the Mabolo Lot.
Reynes, however, stated that she had nothing to do with Jayags mortgage debt except that the house mortgaged by
Jayag stood on a portion of the Mabolo Lot. Reynes further stated that the payment by Montecillo to release the mortgage
on Jayags house is a matter between Montecillo and Jayag. The mortgage on the house, being a chattel mortgage, could
not be interpreted in any way as an encumbrance on the Mabolo Lot. Reynes further claimed that the mortgage debt had
long prescribed since the P47,000.00 mortgage debt was due for payment on January 30, 1967.
The trial court rendered a decision on March 24, 1993 declaring the Deed of Sale to Montecillo null and void. The trial
court ordered the cancellation of Montecillos Transfer Certificate of Title No. 90805 and the issuance of a new certificate
of title in favor of the Abucay Spouses. The trial court found that Montecillos Deed of Sale had no cause or consideration
because Montecillo never paid Reynes the P47,000.00 purchase price, contrary to what is stated in the Deed of Sale that
Reynes received the purchase price. The trial court ruled that Montecillos Deed of Sale produced no effect whatsoever for
want of consideration. The dispositive portion of the trial courts decision reads as follows:

WHEREFORE, in view of the foregoing consideration, judgment is hereby rendered declaring the deed of sale in favor of
defendant null and void and of no force and effect thereby ordering the cancellation of Transfer Certificate of Title No.
90805 of the Register of Deeds of Cebu City and to declare plaintiff Spouses Redemptor and Elisa Abucay as rightful
vendees and Transfer Certificate of Title to the property subject matter of the suit issued in their names. The defendants
are further directed to pay moral damages in the sum of P20,000.00 and attorneys fees in the sum of P2,000.00 plus cost
of the suit.

xxx

Not satisfied with the trial courts Decision, Montecillo appealed the same to the Court of Appeals.

Ruling of the Court of Appeals

52
 The appellate court affirmed the Decision of the trial court in toto and dismissed the appeal[13] on the ground that
Montecillos Deed of Sale is void for lack of consideration.The appellate court also denied Montecillos Motion for
Reconsideration[14] on the ground that it raised no new arguments.
Still dissatisfied, Montecillo filed the present petition for review on certiorari.

The Issues

Montecillo raises the following issues:

1. Was there an agreement between Reynes and Montecillo that the stated consideration of P47,000.00 in the
Deed of Sale be paid to Cebu Ice and Cold Storage to secure the release of the Transfer Certificate of Title?
2. If there was none, is the Deed of Sale void from the beginning or simply rescissible? [15]

The Ruling of the Court

The petition is devoid of merit.

First issue: manner of payment of the P47,000.00 purchase price.

Montecillos Deed of Sale does not state that the P47,000.00 purchase price should be paid by Montecillo to Cebu Ice
Storage. Montecillo failed to adduce any evidence before the trial court showing that Reynes had agreed, verbally or in
writing, that the P47,000.00 purchase price should be paid to Cebu Ice Storage. Absent any evidence showing that
Reynes had agreed to the payment of the purchase price to any other party, the payment to be effective must be made to
Reynes, the vendor in the sale. Article 1240 of the Civil Code provides as follows:

Payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or
any person authorized to receive it.

Thus, Montecillos payment to Cebu Ice Storage is not the payment that would extinguish [16] Montecillos obligation to
Reynes under the Deed of Sale.
It militates against common sense for Reynes to sell her Mabolo Lot for P47,000.00 if this entire amount would only
go to Cebu Ice Storage, leaving not a single centavo to her for giving up ownership of a valuable property. This incredible
allegation of Montecillo becomes even more absurd when one considers that Reynes did not benefit, directly or indirectly,
from the payment of the P47,000.00 to Cebu Ice Storage.
The trial court found that Reynes had nothing to do with Jayags mortgage debt with Cebu Ice Storage. The trial court
made the following findings of fact:

x x x. Plaintiff Ignacia Reynes was not a party to nor privy of the obligation in favor of the Cebu Ice and Cold Storage
Corporation, the obligation being exclusively of Bienvenido Jayag and wife who mortgaged their residential house
constructed on the land subject matter of the complaint. The payment by the defendant to release the residential house
from the mortgage is a matter between him and Jayag and cannot by implication or deception be made to appear as an
encumbrance upon the land.[17]

Thus, Montecillos payment to Jayags creditor could not possibly redound to the benefit [18] of Reynes. We find no
reason to disturb the factual findings of the trial court. In petitions for review on certiorari as a mode of appeal under Rule
45, as in the instant case, a petitioner can raise only questions of law. [19] This Court is not the proper venue to consider a
factual issue as it is not a trier of facts.

Second issue: whether the Deed of Sale is void ab initio or only rescissible.

Under Article 1318 of the Civil Code, [T]here is no contract unless the following requisites concur: (1) Consent of the
contracting parties; (2) Object certain which is the subject matter of the contract; (3) Cause of the obligation which is
established. Article 1352 of the Civil Code also provides that [C]ontracts without cause x x x produce no effect
whatsoever.
Montecillo argues that his Deed of Sale has all the requisites of a valid contract. Montecillo points out that he agreed
to purchase, and Reynes agreed to sell, the Mabolo Lot at the price of P47,000.00. Thus, the three requisites for a valid
contract concur: consent, object certain and consideration. Montecillo asserts there is no lack of consideration that would
prevent the existence of a valid contract. Rather, there is only non-payment of the consideration within the period agreed
upon for payment.

53
 Montecillo argues there is only a breach of his obligation to pay the full purchase price on time. Such breach merely
gives Reynes a right to ask for specific performance, or for annulment of the obligation to sell the Mabolo Lot. Montecillo
maintains that in reciprocal obligations, the injured party can choose between fulfillment and rescission, [20] or more
properly cancellation, of the obligation under Article 1191 [21] of the Civil Code. This Article also provides that the court
shall decree the rescission claimed, unless there be just cause authorizing the fixing of the period. Montecillo claims that
because Reynes failed to make a demand for payment, and instead unilaterally revoked Montecillos Deed of Sale, the
court has a just cause to fix the period for payment of the balance of the purchase price.
These arguments are not persuasive.
Montecillos Deed of Sale states that Montecillo paid, and Reynes received, the P47,000.00 purchase price on March
1, 1984, the date of signing of the Deed of Sale. This is clear from the following provision of the Deed of Sale:

That I, IGNACIA T. REYNES, x x x for and in consideration of FORTY SEVEN THOUSAND (P47,000.00) PESOS,
Philippine Currency, to me in hand paid by RIDO MONTECILLO xxx, receipt of which is hereby
acknowledged, have sold, transferred, and conveyed, unto RIDO MONTECILLO, x x x a parcel of land x x x.

On its face, Montecillos Deed of Absolute Sale[22] appears supported by a valuable consideration. However, based on
the evidence presented by both Reynes and Montecillo, the trial court found that Montecillo never paid to Reynes, and
Reynes never received from Montecillo, the P47,000.00 purchase price. There was indisputably a total absence of
consideration contrary to what is stated in Montecillos Deed of Sale. As pointed out by the trial court

From the allegations in the pleadings of both parties and the oral and documentary evidence adduced during the trial, the
court is convinced that the Deed of Sale (Exhibits 1 and 1-A) executed by plaintiff Ignacia Reynes acknowledged before
Notary Public Ponciano Alvinio is devoid of any consideration. Plaintiff Ignacia Reynes through the representation of
Baudillo Baladjay had executed a Deed of Sale in favor of defendant on the promise that the consideration should be paid
within one (1) month from the execution of the Deed of Sale. However, after the lapse of said period, defendant failed to
pay even a single centavo of the consideration. The answer of the defendant did not allege clearly why no consideration
was paid by him except for the allegation that he had a balance of only P10,000.00. It turned out during the pre-trial that
what the defendant considered as the consideration was the amount which he paid for the obligation of Bienvenido Jayag
with the Cebu Ice and Cold Storage Corporation over which plaintiff Ignacia Reynes did not have a part except that the
subject of the mortgage was constructed on the parcel of land in question. Plaintiff Ignacia Reynes was not a party to nor
privy of the obligation in favor of the Cebu Ice and Cold Storage Corporation, the obligation being exclusively of
Bienvenido Jayag and wife who mortgaged their residential house constructed on the land subject matter of the complaint.
The payment by the defendant to release the residential house from the mortgage is a matter between him and Jayag and
cannot by implication or deception be made to appear as an encumbrance upon the land. [23]

Factual findings of the trial court are binding on us, especially if the Court of Appeals affirms such findings. [24] We do
not disturb such findings unless the evidence on record clearly does not support such findings or such findings are based
on a patent misunderstanding of facts,[25] which is not the case here. Thus, we find no reason to deviate from the findings
of both the trial and appellate courts that no valid consideration supported Montecillos Deed of Sale.
This is not merely a case of failure to pay the purchase price, as Montecillo claims, which can only amount to a
breach of obligation with rescission as the proper remedy. What we have here is a purported contract that lacks a cause -
one of the three essential requisites of a valid contract. Failure to pay the consideration is different from lack of
consideration. The former results in a right to demand the fulfillment or cancellation of the obligation under an existing
valid contract[26] while the latter prevents the existence of a valid contract
Where the deed of sale states that the purchase price has been paid but in fact has never been paid, the deed of
sale is null and void ab initio for lack of consideration. This has been the well-settled rule as early as Ocejo Perez & Co. v.
Flores,[27] a 1920 case. As subsequently explained in Mapalo v. Mapalo[28]

In our view, therefore, the ruling of this Court in Ocejo Perez & Co. vs. Flores, 40 Phil. 921, is squarely applicable herein.
In that case we ruled that a contract of purchase and sale is null and void and produces no effect whatsoever where the
same is without cause or consideration in that the purchase price which appears thereon as paid has in fact never been
paid by the purchaser to the vendor.

The Court reiterated this rule in Vda. De Catindig v. Heirs of Catalina Roque,[29] to wit

The Appellate Courts 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).

Applying this well-entrenched doctrine to the instant case, we rule that Montecillos Deed of Sale is null and void ab
initio for lack of consideration.

54
 Montecillo asserts that the only issue in controversy is the mode and/or manner of payment and/or whether or not
payment has been made.[30] Montecillo implies that the mode or manner of payment is separate from the consideration
and does not affect the validity of the contract. In the recent case of San Miguel Properties Philippines, Inc. v.
Huang,[31] we ruled that

In Navarro v. Sugar Producers Cooperative Marketing Association, Inc. (1 SCRA 1181 [1961]), we laid down the rule
that the manner of payment of the purchase price is an essential element before a valid and binding contract of
sale can exist. Although the Civil Code does not expressly state that the minds of the parties must also meet on the
terms or manner of payment of the price, the same is needed, otherwise there is no sale. As held in Toyota Shaw, Inc. v.
Court of Appeals (244 SCRA 320 [1995]), agreement on the manner of payment goes into the price such that a
disagreement on the manner of payment is tantamount to a failure to agree on the price. (Emphasis supplied)

One of the three essential requisites of a valid contract is consent of the parties on the object and cause of the
contract. In a contract of sale, the parties must agree not only on the price, but also on the manner of payment of the
price. An agreement on the price but a disagreement on the manner of its payment will not result in consent, thus
preventing the existence of a valid contract for lack of consent. This lack of consent is separate and distinct from lack of
consideration where the contract states that the price has been paid when in fact it has never been paid.
Reynes expected Montecillo to pay him directly the P47,000.00 purchase price within one month after the signing of
the Deed of Sale. On the other hand, Montecillo thought that his agreement with Reynes required him to pay
the P47,000.00 purchase price to Cebu Ice Storage to settle Jayags mortgage debt. Montecillo also acknowledged a
balance of P10,000.00 in favor of Reynes although this amount is not stated in Montecillos Deed of Sale. Thus, there was
no consent, or meeting of the minds, between Reynes and Montecillo on the manner of payment. This prevented the
existence of a valid contract because of lack of consent.
In summary, Montecillos Deed of Sale is null and void ab initio not only for lack of consideration, but also for lack of
consent. The cancellation of TCT No. 90805 in the name of Montecillo is in order as there was no valid contract
transferring ownership of the Mabolo Lot from Reynes to Montecillo.
WHEREFORE, the petition is DENIED and the assailed Decision dated July 16, 1998 of the Court of Appeals in CA-
G.R. CV No. 41349 is AFFIRMED. Costs against petitioner.
SO ORDERED.
ADELAIDA MENESES G.R. No. 172196
(deceased), substituted by her heir
MARILYN M. CARBONEL-GARCIA, Present:
Petitioner,
VELASCO, JR., J., Chairperson,
PERALTA,
- versus - ABAD,
MENDOZA, and
PERLAS-BERNABE, JJ.

ROSARIO G. VENTUROZO, Promulgated:

Respondent.
October 19, 2011

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

DECISION

PERALTA, J.:

This is a petition for review on certiorari[1] of the Court of Appeals Decision dated October 27, 2005 in CA-G.R. CV
No. 78217 and its Resolution dated April 5, 2006, denying petitioners motion for reconsideration.

The Court of Appeals Decision reversed and set aside the Decision of the Regional Trial Court (RTC)
of Dagupan City, Branch 40 in Civil Case No. D-9040, as the appellate court declared respondent Rosario G. Venturozo
the owner of the land in dispute, and ordered petitioner Adelaida Meneses to vacate and surrender her possession thereof
to respondent.

The facts are as follows:

55
On June 8, 1988, plaintiff Rosario G. Venturozo, respondent herein, filed a Complaint [2] for ownership, possession x x x
and damages in the Regional Trial Court (RTC) of Dagupan City against defendant Adelaida Meneses, petitioner herein,
alleging that she (plaintiff) is the absolute owner of an untitled coconut land, containing an area of 2,109 square meters,
situated at Embarcadero, Mangaldan, Pangasinan, and declared under Tax Declaration No. 239. Plaintiff alleged that she
purchased the property from the spouses Basilio de Guzman and Crescencia Abad on January 31, 1973 as evidenced by
a Deed of Absolute Sale,[3] and that the vendors, in turn, purchased the property from defendant as evidenced by a Deed
of Absolute Sale[4] dated June 20, 1966. Plaintiff alleged that she has been in possession of the land until May 1983 when
defendant with some armed men grabbed possession of the land and refused to vacate despite repeated demands
prompting her to engage the services of counsel. Plaintiff prayed that after preliminary hearing, a writ of preliminary
mandatory injunction be issued; and that after hearing, a decision be rendered declaring her as the owner of the property
in dispute, ordering defendant to vacate the property in question and to pay her P5,000.00 as attorneys fees; P1,000.00
as litigation expenses; P10,000.00 as damages and to pay the costs of suit.

In her Answer,[5] defendant Adelaida Meneses stated that plaintiff is the daughter of Basilio de Guzman, the
vendee in the Deed of Absolute Sale dated June 20, 1966 that was purportedly executed by her (defendant) covering the
subject property. Defendant alleged that she never signed any Deed of Absolute Sale dated June 20, 1966, and that the
said deed is a forgery. Defendant also alleged that she never appeared before any notary public, and she did not obtain a
residence certificate; hence, her alleged sale of the subject property to Basilio de Guzman is null and void ab
initio. Consequently, the Deed of Absolute Sale dated January 31, 1973, executed by Basilio de Guzman in favor of
plaintiff, covering the subject property, is likewise null and void. Defendant stated that she acquired the subject property
from her deceased father and she has been in possession of the land for more than 30 years in the concept of
owner. Plaintiffs allegation that she (defendant) forcibly took possession of the land is a falsehood. Defendant stated that
this is the fourth case the plaintiff filed against her concerning the land in question.

In her Counterclaim, defendant stated that in view of the nullity of the falsified Deed of Absolute Sale of the
subject property, and the fact that plaintiff and her father Basilio de Guzman had never been in actual possession of the
property, plaintiff is under legal obligation to execute a deed of reconveyance over the said property in her favor.

The issue before the trial court was whether the sale made by defendant Adelaida Meneses in favor of plaintiffs
father, Basilio de Guzman, was valid.[6]

On July 18, 1991, the RTC of Dagupan City, Branch 40 (trial court) rendered a Decision in favor of defendant
Adelaida Meneses. The dispositive portion of the Decision reads:

WHEREFORE, judgment is hereby rendered:

1) Declaring the Deed of Absolute and Definite Sale dated June 20, 1966 (Exhibit B) and the Deed
of Absolute and Definite Sale dated January 31, 1973 (Exhibit A) null and void ab initio;

2) Declaring the defendant Adelaida Meneses as the owner of the property in question;

3) Ordering the plaintiff Rosario G. Venturozo to execute a Deed of Reconveyance in favor of the
defendant Adelaida Meneses over the property in question described in paragraph 2 of the
complaint;

4) Ordering the plaintiff to pay to the defendant P10,000.00 as damages; and P1,000.00, as
litigation expenses.

SO ORDERED.[7]

The trial court found that defendant Adelaida Meneses inherited the land in dispute from her father, Domingo
Meneses; that she did not sell her property to Basilio de Guzman in 1966; and that the signature of Adelaida Meneses on
the Deed of Absolute Sale dated June 20, 1966 is a forgery. The trial court stated that the signature of Adelaida
Meneses, as appearing on the Deed of Absolute Sale dated June 20, 1966, is very much different from her specimen
signatures and those appearing in the records of Civil Case No. 1096 in the Municipal Trial Court of Mangaldan. It held
56
 that since there was no valid transfer of the property by Adelaida Meneses to Basilio de Guzman, the conveyance of the
same property in 1973 by Basilio de Guzman to his daughter, plaintiff Rosario G. Venturozo, was also invalid.The trial
court stated that the claim of plaintiff Rosario G. Venturozo, that her parents, Spouses Basilio and Crescencia de
Guzman, purchased from defendant Adelaida Meneses the subject property in 1966, is negated by defendants continued
possession of the land and she gathered the products therefrom.

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

On October 27, 2005, the Court of Appeals rendered a Decision reversing the decision of the trial court. The
dispositive portion of the appellate courts decision reads:
WHEREFORE, the appealed decision of the Regional Trial Court of Dagupan City (Branch 40) is
REVERSED and SET ASIDE and a new one rendered declaring plaintiff-appellant the owner of the
subject land and ordering defendant-appellee to vacate and surrender possession thereof to the former. [8]

The Court of Appeals stated that appellee Adelaida Meneses failed to prove by clear and convincing evidence
that her signature on the Deed of Absolute Sale dated June 20, 1966 was a forgery. Instead, she admitted on direct
examination that her signature on the Deed of Absolute Sale was genuine, thus:

Q. I am showing to you Exhibit 6 and Exhibit A for the plaintiff a Deed of Absolute Sale o[f] Real Property
of one (1) Adelaida Meneses in favor of Basilio de Guzman. Will you examine this if you know this
Deed of Absolute Sale?
A. I do not know this document, sir.

Q. There is a signature over the name of the vendor Adelaida Meneses which was previously marked as
Exhibit 6-a and Exhibit A-1 for the plaintiff, will you examine this signature, if do you (sic) know this
signature?
A. This is my signature, sir.[9]

According to the Court of Appeals, such admission is binding on her, there being no showing that it was made
through palpable mistake or that no such admission was made.[10]

The Court of Appeals also stated that mere variance of signatures cannot be considered as conclusive proof that
the same were forged, as forgery cannot be presumed.[11] Appellee Adelaida Meneses should have produced specimen
signatures appearing on documents executed in or about the year 1966 for a better comparison and analysis.[12]
The Court of Appeals held that a notarized document, like the questioned Deed of Absolute Sale dated June 20,
1966, has in its favor the presumption of regularity, and to overcome the same, there must be evidence that is clear,
convincing and more than merely preponderant; otherwise, the document should be upheld. [13] Moreover, Atty. Abelardo
G. Biala the notary public before whom the questioned Deed of Sale was acknowledged testified and confirmed its
genuineness and due execution, particularly the signature in question. The appellate court stated that as against appellee
Adelaida Meneses version, Atty. Bialas testimony, that appellee appeared before him and acknowledged that the
questioned deed was her free and voluntary act, is more credible. The testimony of a notary public enjoys greater
credence than that of an ordinary witness.[14]

The Court of Appeals held that appellee Adelaida Meneses failed to present clear and convincing evidence to
overcome the evidentiary force of the questioned Deed of Absolute Sale dated June 1966, which appears on its face to
have been executed with all the formalities required by law.

Adelaida Meneses motion for reconsideration was denied for lack of merit by the Court of Appeals in a
Resolution[15] dated April 5, 2006.

Hence, Adelaida Meneses, substituted by her heir, filed this petition raising this lone issue:

57
 WHETHER THE DECISION OF THE COURT OF APPEALS, WHICH REVERSED THE
DECISION OF THE REGIONAL TRIAL COURT, IS IN KEEPING WITH BOTH LAW AND
JURISPRUDENCE.[16]

Petitioner contends that her statement, made during the course of her testimony in the trial court, was taken out of
context by respondent to be used merely as an argumentative point. The examining lawyer used the words, Do you know
this signature? viz.:

Q. I am showing to you Exhibit 6 and Exhibit A for the plaintiff a Deed of Absolute Sale o[f] Real Property
of one (1) Adelaida Meneses in favor of Basilio de Guzman. Will you examine this if you know this
Deed of Absolute Sale?
A. I do not know this document, sir.

Q. There is a signature over the name of the vendor Adelaida Meneses which was previously marked as
Exhibit 6-a and Exhibit A-1 for the plaintiff, will you examine this signature, if do you (sic) know
this signature?
A. This is my signature, sir.[17]

Petitioner contends that in the above-quoted transcript of stenographic notes, she was merely asked if she was
cognizant of such a signature as hers or whether the signature appearing on the questioned document was similar to that
of her signature, and not if she was the one who indeed affixed such signature on the said deed of sale.

She avers that the general rule that a judicial admission is conclusive upon the party invoking it and does not
require proof admits of two exceptions: (1) when it is shown that the admission was made through palpable mistake; and
(2) when it is shown that no such admission was in fact made. The latter exception allows one to contradict an admission
by denying that he made such an admission. For instance, if a party invokes an admission by an adverse party, but cites
the admission out of context, then the one making the admission may show that he made no such admission, or that his
admission was taken out of context.[18] This may be interpreted as to mean not in the sense in which the admission is
made to appear.[19]
Petitioner also contends that a comparison of the signature on the Deed of Absolute Sale dated June 20,
1966 and her specimen signatures, as well as her genuine signature on pleadings, were made by the trial court, and it
ruled that her signature on the Deed of Absolute Sale dated June 20, 1966 was a forgery. She submits that the trial courts
evaluation of the credibility of witnesses and their testimonies is entitled to great respect,[20] and the appellate court should
have given weight to the trial courts findings that her signature on the said Deed of Absolute Sale was a forgery.

The petition is meritorious.

The rule is that the jurisdiction of the Court over appealed cases from the Court of Appeals is limited to the review
and revision of errors of law allegedly committed by the appellate court, as its findings of fact are deemed
conclusive.[21] Thus, this Court is not duty-bound to analyze and weigh all over again the evidence already considered in
the proceedings below.[22] However, this rule admits exceptions,[23] such as when the findings of fact of the Court of
Appeals are contrary to the findings and conclusions of the trial court [24] like in this case.

The necessity of a public document for contracts which transmit or extinguish real rights over immovable property,
as mandated by Article 1358 of the Civil Code,[25] is only for convenience; it is not essential for validity or
enforceability.[26] As notarized documents, Deeds of Absolute Sale carry
evidentiary weight conferred upon them with respect to their due execution [27] and enjoy the presumption of regularity
which may only be rebutted by evidence so clear, strong and convincing as to exclude all controversy as to falsity. [28] The
presumptions that attach to notarized documents can be affirmed only so long as it is beyond dispute that the notarization
was regular.[29] A defective notarization will strip the document of its public character and reduce it to a private
instrument.[30]Consequently, when there is a defect in the notarization of a document, the clear and convincing evidentiary
standard normally attached to a duly-notarized document is dispensed with, and the measure to test the validity of such
document is preponderance of evidence.[31]
58
 In this case, it should be pointed out that contrary to the finding of the Court of Appeals, the Deed of Sale dated
June 20, 1966 did not comply with the formalities required by law, specifically Act No. 496, [32] otherwise known as The
Land Registration Act, which took effect on January 1, 1903, as Section 127 of the Act provides:

FORMS
Section 127. Deeds, conveyances, mortgages, leases, releases, and discharges affecting
lands, whether registered under this Act or unregistered, shall be sufficient in law when made
substantially in accordance with the following forms, and shall be as effective to convey,
encumber, lease, release, discharge, or bind the lands as though made in accordance with the more
prolix form heretofore in use: Provided, That every such instrument shall be signed by the person or
persons executing the same, in the presence of two witnesses, who shall sign the instrument as
witnesses to the execution thereof, and shall be acknowledged to be his or their free act and deed by
the person or persons executing the same, before the judge of a court of record or clerk of a court of
record, or a notary public, or a justice of the peace, who shall certify to such acknowledgment x x
x.[33]

In the Deed of Absolute Sale dated June 20, 1966, the Notary Public signed his name as one of the two
witnesses to the execution of the said deed; hence, there was actually only one witness thereto. Moreover, the residence
certificate of petitioner was issued to petitioner and then it was given to the Notary Public the day afterthe execution of the
deed of sale and notarization; hence, the number of petitioners residence certificate and the date of issuance (June 21,
1966) thereof was written on the Deed of Absolute Sale by the Notary Public on June 21, 1966, after the execution and
notarization of the said deed on June 20, 1966.[34] Considering the defect in the notarization, the Deed of Absolute Sale
dated June 20, 1966 cannot be considered a public document, but only a private document, [35] and the evidentiary
standard of its validity shall be based on preponderance of evidence.
Section 20, Rule 132 of the Rules of Court provides that before any private document offered as authentic is
received in evidence, its due execution and authenticity must be proved either: (a) by anyone who saw the document
executed or written; or (b) by evidence of the genuineness of the signature or handwriting of the maker.

In regard to the genuineness of petitioners signature appearing on the Deed of Absolute Sale dated June 20,
1966,[36] the Court agrees with the trial court that her signature therein is very much different from her specimen
signatures[37] and those appearing in the pleadings[38] of other cases filed against her, even considering the difference of
17 years when the specimen signatures were made. Hence, the Court rules that petitioners signature on the Deed of
Absolute Sale dated June 20, 1966 is a forgery.

The Court agrees with petitioner that her admission was taken out of context, considering that in her Answer [39] to
the Complaint, she stated that the alleged Deed of Sale purportedly executed by her in favor of Basilio de Guzman is a
forgery; that she never signed the said Deed of Sale; that she did not appear personally before the Notary Public; and that
she did not secure the residence certificate mentioned in the said Deed of Sale. She also testified that she never sold her
land to Basilio de Guzman;[40] that she never met the Notary Public, Attorney Abelardo Biala,[41] and that she did not meet
Basilio de Guzman on June 20, 1966.[42] The trial court found petitioner and her testimony to be credible, and declared the
Deed of Sale dated June 20, 1966 null and void ab initio. These circumstances negate the said admission.

The Court finds the Notary Publics testimony self-serving and unreliable, because although he testified that
petitioner was the one who submitted her residence certificate to him on June 21, 1966, [43] the next day after the Deed of
Absolute Sale was executed on June 20, 1966, Crescencia de Guzman, respondents mother, testified that she and her
husband got the residence certificate from petitioner and gave it to the Notary Public on June 21, 1966.[44] Thus, it is
doubtful whether the Notary Public really knew the identity of the vendor who signed the Deed of Absolute Sale [45] dated
June 20, 1966.

The Court notes that the trial court found petitioner and her testimony to be credible. It is a well-settled doctrine
that findings of trial courts on the credibility of witnesses deserve a high degree of respect. [46] Having observed the
deportment of witnesses during the trial, the trial judge is in a better position to determine the issue of credibility.[47]
59
 In fine, the preponderance of evidence is with petitioner.

WHEREFORE, the petition is GRANTED. The Court of Appeals Decision dated October 27, 2005 and its
Resolution dated April 5, 2006 in CA-G.R. CV No. 78217 are REVERSED and SET ASIDE, and the Decision of the
Regional Trial Court of Dagupan City, Branch 40 in Civil Case No. D-9040 is hereby REINSTATED.

No costs.

SO ORDERED.

MARINA C. GONZALES, complainant, vs. ATTY. CALIXTO B. RAMOS, respondent.

DECISION
YNARES-SANTIAGO, J.:

Notarization is not an empty, meaningless routinary act. It is invested with substantive public interest. The
notarization by a notary public converts a private document into a public document, making it admissible in evidence
without further proof of its authenticity. A notarial document is, by law, entitled to full faith and credit upon its face. A notary
public must observe with utmost care the basic requirements in the performance of their duties; otherwise, the publics
confidence in the integrity of the document would be undermined. [1]
This is a complaint for disbarment filed by Marina C. Gonzales against Atty. Calixto B. Ramos because of the latters
alleged misconduct in notarizing a Deed of Absolute Sale involving the complainant. In her Affidavit-Complaint[2] filed
before the Commission on Bar Discipline of the Integrated Bar of the Philippines, the complainant alleged that the
respondent lawyer notarized a Deed of Sale on March 27, 1996,[3] where the complainant and her husband, Francisco T.
Gonzales, allegedly sold in favor of the spouses Henry and Mila Gatus a piece of land with a building thereon located at
Paranaque City and covered by Transfer Certificate of Title (T.C.T.) No. (30643) 17223. [4] Due to the execution of the
Deed of Sale, T.C.T. No. (30643) 17223 was cancelled and T.C.T. No. 108589 was issued in the name of spouses Henry
and Mila Gatus.
The complainant, however, maintained that she and her husband never appeared before the respondent to
acknowledge the Deed of Sale on March 27, 1996.
When ordered[5] to file his Answer,[6] the respondent lawyer countered that the complainants act was motivated by
malice. He alleged that sometime in January 1995, Francisco T. Gonzales went to his office at the Adamson University
Legal Aid Office, accompanied by a couple who were introduced to him as Henry and Mila Gatus. Francisco showed the
respondent a Deed of Sale consisting of two (2) pages and requested him to notarize it. The respondent, however,
noticed that the Deed of Sale did not contain a technical description of the property being sold, so he prepared another set
of Deed of Absolute Sale. Thereafter, Francisco and the spouses Gatus, together with a witness, Ms. Eva Dulay, signed
the second Deed of Absolute Sale in his presence. He then instructed Francisco to bring his wife, herein complainant, to
his office so she can sign the Deed of Absolute Sale in his presence.
When Francisco returned to his office, he brought with him the Deed of Absolute Sale signed by Marina C. Gonzales.
At first, he was hesitant to notarize the document because he did not see the complainant sign the same, but due to
Franciscos insistence and knowing them personally, he eventually notarized the deed.
Respondent compared the signatures of Marina C. Gonzales on the Deed of Absolute Sale with her other signatures
in his files, the spouses Gonzales being his clients from way back. Convinced that the signature on the Deed of Absolute
Sale was indeed the signature of complainant Marina C. Gonzales, respondent notarized the Deed of Absolute Sale on
March 27, 1996.[7]
During the mandatory conference before the Commission on Bar Discipline of the IBP, the respondent admitted that
the complainant never appeared before him to affirm the genuineness and authenticity of her signature in the Deed of
Absolute Sale dated March 27, 1996.[8]
On July 30, 2004, the Commission on Bar Discipline submitted its Report [9] recommending thus:

In view of the foregoing, it is recommended that Respondent be suspended for a period of three (3) to six (6) months for
failing to act more diligently and prudently when he notarized the subject documents. It is further recommended that
Respondents commission as notary public be suspended for a period of six (6) months, with a warning that a repetition of
the same or similar negligent act in the future will be dealt with more severely by this Commission.[10]

The Board of Governors of the IBP adopted the findings of the Commission on Bar Discipline but modified its
recommendation, to wit:

RESOLVED to ADOPT and APPROVE, as it is hereby ADOPTED and APPROVED, with modification, the Report and
Recommendation of the Investigating Commissioner of the above-entitled case, herein made part of this Resolution as
Annex A; and, finding the recommendation fully supported by the evidence on record and the applicable laws and rules,
60
and for Respondents failure to act more diligently and prudently when he notarized the documents, Atty. Calixto B. Ramos
commission as notary public is hereby SUSPENDED for six (6) months with a Warningthat a repetition of the same or
similar negligent act in the future will be dealt with more severely. [11]

On February 7, 2005, the parties were required to manifest whether they are willing to submit the case for resolution
based on the pleadings filed.[12] To date, only complainant submitted her manifestation[13] hence, the filing thereof was
deemed waived by the respondent.
A notary public should not notarize a document unless the persons who signed the same are the very same persons
who executed and personally appeared before the said notary public to attest to the contents and truth of what are stated
therein. The presence of the parties to the deed making the acknowledgment will enable the notary public to verify the
genuineness of the signature of the affiant. A notary public is enjoined from notarizing a fictitious or spurious document.
The function of a notary public, is among others, to guard against any illegal deed.[14]
By affixing his notarial seal on the instrument, the respondent converted the Deed of Absolute Sale, from a private
document into a public document. Such act is no empty gesture. The principal function of a notary public is to authenticate
documents. When a notary public certifies to the due execution and delivery of a document under his hand and seal, he
gives the document the force of evidence. Indeed, one of the purposes of requiring documents to be acknowledged before
a notary public, in addition to the solemnity which should surround the execution and delivery of documents, is to
authorize such documents to be given without further proof of their execution and delivery. A notarial document is by law
entitled to full faith and credit upon its face. Courts, administrative agencies and the public at large must be able to rely
upon the acknowledgement executed before a notary public and appended to a private instrument. Hence, a notary public
must discharge his powers and duties, which are impressed with public interest, with accuracy and fidelity. [15]
The respondents act of notarizing the acknowledgment of a deed of sale even if one of the signatories therein did not
personally appear before him clearly falls short of the yardstick of accuracy and fidelity referred to above. The respondent
himself admitted his professional shortcomings when he said that all he did to ascertain the authenticity of the signature of
the complainant was to compare her signature on the Deed of Absolute Sale with her other signatures on pleadings on file
with him. Such conduct of the respondent runs contrary to the express wordings of the acknowledgment in the deed of
sale which provides:

BEFORE ME, a Notary Public, for and in the City of Manila, personally appeared the Vendors and Vendees with their
Community Tax Certificate Numbers above-written, known to me and to the (sic) known to be the same persons who
executed the foregoing Deed of Absolute Sale consisting of two (2) pages, duly signed by the parties and their two (2)
instrumental witnesses and they acknowledged to me that the same are their own free and voluntary acts and
deeds.[16] (Underscoring supplied)

The respondents act of notarizing the document despite the non-appearance of one of the signatories should not be
countenanced. His conduct, if left unchecked, is fraught with dangerous possibilities considering the conclusiveness on
the due execution of a document that our courts and the public accord to notarized documents. Respondent has clearly
failed to exercise utmost diligence in the performance of his functions as a notary public and to comply with the mandates
of law.
As a lawyer, respondent breached the Code of Professional Responsibility. By notarizing the questioned deed, he
engaged in unlawful, dishonest, immoral or deceitful conduct.[17] He also committed falsehood and misled or allowed the
Court to be misled by any artifice.[18]
We find the penalty recommended by the Commission on Bar Discipline of the IBP to be in full accord with recent
jurisprudence. The Court, in Bon v. Ziga,[19] Serzo v. Flores,[20] Zaballero v. Montalvan,[21] Tabas v. Mangibin,[22] and
similar cases, found the revocation of the respondents notarial commission and their disqualification from securing their
reappointment, insufficient to punish them for their offense. Hence, the Court did not only revoke their notarial commission
but likewise suspended them from the practice of law.
WHEREFORE, for breach of the Notarial Law and Code of Professional Responsibility, the notarial commission of
respondent Atty. Calixto B. Ramos, if still existing, is REVOKED effective immediately and he is DISQUALIFIED from
reappointment as Notary Public for a period of two (2) years. He is also SUSPENDED from the practice of law for a period
of one (1) year, effective immediately. He is further WARNED that a repetition of same or of similar acts shall be dealt with
more severely. He is DIRECTED to report the date of receipt of this Decision in order to determine when his suspension
shall take effect.
Let copies of this Decision be furnished the Office of the Bar Confidant, the Integrated Bar of the Philippines, and all
courts all over the country. Let a copy of this Decision likewise be attached to the personal records of the respondent.
SO ORDERED.

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