Anda di halaman 1dari 122

[G.R. No. 126013.

February 12, 1997]

SPOUSES HEINZRICH THEIS AND BETTY THEIS, petitioners, vs. HONORABLE COURT OF
APPEALS, HONORABLE ELEUTERIO GUERRERO, ACTING PRESIDING JUDGE, BRANCH XVIII,
REGIONAL TRIAL COURT, TAGAYTAY CITY, CALSONS DEVELOPMENT
CORPORATION, respondents.

DECISION
HERMOSISIMA, JR., J.:

In the instant petition, we shall have the occasion to apply the concept of mistake in the annulment of
contracts.
Private respondent Calsons Development Corporation is the owner of three (3) adjacent parcels of
land covered by Transfer Certificate of Title (TCT) Nos. 15515 (parcel no. 1 in the location map), 15516
(parcel no. 2) and 15684 (parcel no. 3), with the area of 1,000 square meters, 226 square meters and
1,000 square meters, respectively. All three parcels of land are situated along Ligaya Drive, Barangay
Francisco, Tagaytay City. Adjacent to parcel no. 3, which is the lot covered by TCT No. 15684, is a vacant
lot denominated as parcel no. 4.
In 1985, private respondent constructed a two-storey house on parcel no. 3. The lots covered by
TCT No. 15515 and TCT No. 15516, which are parcel no. 1 and parcel no. 2, respectively, remained idle.
However, in a survey conducted in 1985, parcel no. 3, where the two-storey house stands, was
erroneously indicated to be covered not by TCT No. 15684 but by TCT No. 15515, while the two idle
lands (parcel nos. 1 and 2) were mistakenly surveyed to be located on parcel no. 4 instead (which was
not owned by private respondent) and covered by TCT Nos. 15516 and 15684.
On October 26, 1987, unaware of the mistake by which private respondent appeared to be the owner
of parcel no. 4 as indicated in the erroneous survey, and based on the erroneous information given by the
surveyor that parcel no. 4 is covered by TCT No. 15516 and 15684, private respondent, through its
authorized representative, one Atty. Tarcisio S. Calilung, sold said parcel no. 4 to petitioners.
Upon execution of the Deed of Sale, private respondent delivered TCT Nos. 15516 and 15684 to
petitioners who, on October 28, 1987, immediately registered the same with the Registry of Deeds of
Tagaytay City. Thus, TCT Nos. 17041 and 17042 in the names of the petitioners were issued.
Indicated on the Deed of Sale as purchase price was the amount of P130,000.00. The actual price
agreed upon and paid, however, was P486,000.00. This amount was not immediately paid to private
respondent; rather, it was deposited in escrow in an interest-bearing account in its favor with the United
Coconut Planters Bank in Makati City. The P486,000.00 in escrow was released to, and received by,
private respondent on December 4, 1987.
Thereafter, petitioners did not immediately occupy and take possession of the two (2) idle parcels of
land purchased from private respondent. Instead, petitioners went to Germany.
In the early part of 1990, petitioners returned to the Philippines. When they went to Tagaytay to look
over the vacant lots and to plan the construction of their house thereon, they discovered that parcel no. 4
was owned by another person. They also discovered that the lots actually sold to them were parcel nos. 2
and 3 covered by TCT Nos. 15516 and 15684, respectively. Parcel no. 3, however, could not have been
sold to the petitioners by the private respondents as a two-storey house, the construction cost of which far
exceeded the price paid by the petitioners, had already been built thereon even prior to the execution of
the contract between the disputing parties.
Petitioners insisted that they wanted parcel no. 4, which is the idle lot adjacent to parcel no. 3, and
persisted in claiming that it was parcel no. 4 that private respondent sold to them. However, private
respondent could not have possibly sold the same to them for it did not own parcel no. 4 in the first place.
The mistake in the identity of the lots is traceable to the erroneous survey conducted in 1985.
To remedy the mistake, private respondent offered parcel nos. 1 and 2 covered by TCT Nos. 15515
and 15516, respectively, as these two were precisely the two vacant lots which private respondent owned
and intended to sell when it entered into the transaction with petitioners. Petitioners adamantly rejected
the good faith offer. They refused to yield to reason and insisted on taking parcel no. 3, covered by TCT
No. 155864 and upon which a two-storey house stands, in addition to parcel no. 2, covered by TCT No.
15516, on the ground that these TCTs have already been cancelled and new ones issued in their name.
Such refusal of petitioners prompted private respondent to make another offer, this time, the return of
an amount double the price paid by petitioners. Petitioners still refused and stubbornly insisted in their
stand.
Private respondent was then compelled to file an action for annulment of deed of sale and
reconveyance of the properties subject thereof [1] in the Regional Trial Court.[2]
The trial court rendered judgment in favor of private respondent. Identifying the core issue in the
instant controversy to be the voidability of the contract of sale between petitioners and private respondent
on the ground of mistake, the trial court annulled said contract of sale after finding that there was indeed a
mistake in the identification of the parcels of land intended to be the subject matter of said sale. The trial
court ratiocinated:
"Meeting head-on the issue of alleged mistake in the object of the same, defendants in their answer
averred that they relied on the technical descriptions of TCT Nos. 15516 and 15684 appearing in the
deed of sale x x x

A resolution of the conflicting claims of the parties to the instant controversy calls for an inquiry on their
real intent relative to the identity of the parcels which plaintiff intended to sell to defendants and which the
latter in turn, intended to buy from the former. For, the Court cannot ignore the dictates of logic and
common sense which, ordinarily, could not push a person to sell to another, a property which the former
does not own in the first place, for fear of adverse consequences. The vendee, following the same
reasoning, would not buy a thing unless he is totally certain that the seller is the real owner of the thing
offered for sale. It is equally true that when one sells or buys a real property, he either sells or buys the
property as he sees it, in its actual setting and by its physical metes and bounds, and not be the mere lot
number assigned to the same property in the certificate of title or in any document. And, when a buyer of
real property decides to purchase from his seller, he is ordinarily bound by prudence to ascertain the true
nature, identity or character of the property that he intends to buy and ascertain the title of his vendor
before he parts with his money. It is quite obvious that the foregoing precepts and precautions were
observed by the parties in the case at bar as there is no question at all that the sale in question was
consummated through the initiative of Mrs. Gloria Contreras and then Vice-Mayor Benjamin Erni x x x
both brokers of the sale who, after a chance meeting with defendants at the Taal Vista Lodge Hotel prior
to the sale of plaintiff's parcels, brought defendants to the vicinity where plaintiff's three (3) adjacent
parcels of land are located and pointed to defendants the two (2) vacant parcels right beside plaintiff's
house. It is also undisputed that when defendants intimated to the brokers their desire to buy the vacant
lots pointed to them when they visited the same place, they were brought to plaintiff's representative,
Tarcisio S. Calilung, at the latter's office in Makati where the parties discussed the terms of the sale.

The Court notes further from the records that defendants' desire to buy vacant lots from plaintiff is not
only confirmed by the testimony of Gloria Contreras and the ocular inspection conducted by the court but
by defendant Betty Theis herself when the latter testified as follows:

'COURT:
Q. Why, what was the lot that you intended to buy?
A. The right side of the house, Your Honor.' (TSN of November 8, 1991, page 19)
Similarly, in answer to a question propounded to the same defendant by their counsel, she
stated that
'ATTY. ROSALES:
Q. In other words, the titles delivered to you were not the titles covering the right side of
the house?
A. No, sir.' (Ibid., page 20)
It is relevant to mention that when the defendants attempted to take possession of the parcels of land
they bought from the plaintiff on which they intended to construct their house after their return from a
foreign sojourn, they admittedly wanted to take that vacant area, which as herein shown, turns out to be a
property not owned by plaintiff. From this act of the defendants, a clear meaning is shown. Defendants
themselves, knew right from the beginning that what they intended to buy was that vacant lot, not the lot
where plaintiff's house stands, covered by TCT No. 15684 which was wrongly mentioned as one of the
objects of the sale. x x x

The fact that the Deed of Sale subsequently executed by plaintiff and the defendants on October 27,
1987 covers the parcel of land where plaintiff's two-storey house was constructed will clearly reflect a
situation that is totally different from what defendants had intended to buy from the plaintiff viz-a-viz [sic]
the latter's intention to sell its two (2) vacant lots to defendants. Notwithstanding defendants' claim that it
was not possible for plaintiff's representative not to be familiar with its properties, the acts and
circumstances established in this case would clearly show, and this Court is convinced, that the inclusion
of the parcel where plaintiff's house is constructed is solely attributable to a mistake in the object of the
sale between the parties. This mistake, obviously, was made, on the part of plaintiff's representative when
the latter mistook the vacant lot situated on the right side of plaintiff's house as its vacant parcels of land
when its vacant lots are actually situated on the left side of the same house. Indeed, such mistake on
plaintiff's part appears to be tragic as it turned out later that the vacant lot on the right side of plaintiff's
house did not belong to plaintiff. Worse, is the fact that what was conveyed to defendants under the deed
of sale was the parcel where plaintiff's house already stood at the time of the sale. This, definitely, is not
what the parties intended.

x x x Going by the facts established by defendants' evidence, it is clear that defendants did not intend to
buy the parcel of land where plaintiff's house stood as defendant Betty Theis declared in her testimony
that they wanted to buy the parcel at the right side of plaintiff's house where she and her husband would
construct their house (TSN of June 4, 1991, p. 56). Neither can this Court accept the hypothesis that
plaintiff intended to sell that parcel where its house was already constructed for if this was its true
intention, it would not sell its two (2) lots at the price of P486,000.00 which is way below the costs of its
construction of P1,500,000.00.

The law itself explicitly recognizes that consent of the parties is one of the essential elements to the
validity of the contract and where consent is given through mistake, the validity of the contractual relations
between the parties is legally impaired.

As earlier stated, the facts obtaining in the case at bar undoubtedly show that when defendants bought
the properties of plaintiff, they intended to buy the vacant lots owned by the latter. As the sale that was
finally consummated by the parties had covered the parcel where plaintiff's house was constructed even
before the sale took place, this Court can safely assume that the deed of sale executed by the parties did
not truly express their true intention. In other words, the mistake or error on the subject of the sale in
question appears to be substantial as the object of the same transaction is different from that intended by
the parties. This fiasco could have been cured and the pain and travails of this litigation avoided, had
parties agreed to reformation of the deed of sale. But, as shown by the sequence of events occurring
after the sale was consummated, and the mistake was discovered, the defendants refused, insisting that
they wanted the vacant lots on the right side of plaintiff's house, which was impossible for plaintiff to do,
as said vacant lots were not of its own dominion."[3] [Emphasis supplied]

Aggrieved by the decision of the trial court, petitioners sought its reversal [4] from respondent Court of
Appeals.[5] Respondent court, however, did not find the appeal meritorious and accordingly affirmed [6] the
trial court decision. Ruled the respondent appellate court:
"There is no doubt that when defendants-appellants attempted to take physical possession of Parcel No.
4 in May, 1990, they were prevented by the true owner thereof from taking possession of said land. To
clear the matter, plaintiff-appellee hired a new surveyor who revealed in his survey that Parcel No. 4 is
not included in plaintiff-appellee's Transfer Certificates of Title from which said plaintiff-appellee
mistakenly offered defendants-appellants said Parcel No. 4. Realizing its mistake, plaintiff-appellee
offered defendants-appellants Parcels Nos. 1 and 2 under the same Transfer Certificates of Title or the
reimbursement of the purchase price in double amount. But defendants-appellants insisted this time to
acquire Parcel No. 3 wherein plaintiff-appellee had already a house, and was not the object of the sale.

Said Parcel No. 3 cannot be the object of the sale between the parties as plaintiff-appellee's house
already stands in the said area even before defendants-appellants had chosen Parcel No. 4 which was
described to be on the right side of said plaintiff-appellee's house in Parcel No. 3. There is no dispute that
defendants-appellants wanted to buy Parcel No. 4 as testified to by defendant-appellant Betty Theis,
herself (p. 19, TSN, Nov. 8, 1991), which lot turned out to be outside of the Transfer Certificates of Title of
plaintiff-appellee. Defendants-appellants cannot now insist on Parcel No. 3 as the same was not the
object of the sale between the parties.

Clearly, therefore, there was honest mistake on the part of plaintiff-appellee in the sale of Parcel No. 4 to
defendants-appellants which plaintiff-appellee tried to remedy by offering defendants-appellants instead
his Parcels Nos. 1 or 2, or reimbursement of the purchase price in double amount."[7] [Emphasis ours]

We find that respondent court correctly affirmed the findings and conclusions of the trial court in
annulling the deed of sale as the former are supported by evidence and the latter are in accordance with
existing law and jurisprudence.
Art. 1390 of the New Civil Code provides:
"Art. 1390. The following contracts are voidable or annullable, even though there may have been no
damage to the contracting parties:

(1) x x x

(2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence, or fraud.

x x x"

In the case at bar, the private respondent obviously committed an honest mistake in selling parcel
no. 4. As correctly noted by the Court of Appeals, it is quite impossible for said private respondent to sell
the lot in question as the same is not owned by it. The good faith of the private respondent is evident in
the fact that when the mistake was discovered, it immediately offered two other vacant lots to the
petitioners or to reimburse them with twice the amount paid. That petitioners refused either option left the
private respondent with no other choice but to file an action for the annulment of the deed of sale on the
ground of mistake. As enunciated in the case of Mariano vs. Court of Appeals:[8]
"A contract may be annulled where the consent of one of the contracting parties was procured by
mistake, fraud, intimidation, violence, or undue influence."
Art. 1331 of the New Civil Code provides for the situations whereby mistake may invalidate consent.
It states:
"Art. 1331. In order that mistake may invalidate consent, it should refer to the substance of the thing
which is the object of the contract, or to those conditions which have principally moved one or both parties
to enter into the contract."

Tolentino[9] explains that the concept of error in this article must include both ignorance, which is the
absence of knowledge with respect to a thing, and mistake properly speaking, which is a wrong
conception about said thing, or a belief in the existence of some circumstance, fact, or event, which in
reality does not exist. In both cases, there is a lack of full and correct knowledge about the thing. The
mistake committed by the private respondent in selling parcel no. 4 to the petitioners falls within the
second type. Verily, such mistake invalidated its consent and as such, annulment of the deed of sale is
proper.
The petitioners cannot be justified in their insistence that parcel no. 3, upon which private respondent
constructed a two-storey house, be given to them in lieu of parcel no. 4. The cost of construction in 1985
for the said house (P1,500,000.00) far exceeds the amount paid by the petitioners to the private
respondent (P486,000.00). Moreover, the trial court, in questioning private respondent's witness, Atty.
Tarciso Calilung (who is also its authorized representative) clarified that parcel no. 4, the lot mistakenly
sold, was a vacant lot:[10]
"COURT: What property did you point to them?
A. I pointed to parcel No. 4, as appearing in the sketch.
COURT: Parcel No. 4 is a vacant lot?
A. Yes, your Honor.
COURT: So, there was no house on that lot?
A. There was no house. There were pineapple crops existing on the property.
COURT: So, you are telling the Court that the intended lot is vacant lot or Parcel 4?
A. Yes, your Honor.
Thus, to allow the petitioners to take parcel no. 3 would be to countenance unjust enrichment.
Considering that petitioners intended at the outset to purchase a vacant lot, their refusal to accept the
offer of the private respondent to give them two (2) other vacant lots in exchange, as well as their
insistence on parcel no. 3, which is a house and lot, is manifestly unreasonable. As held by this Court in
the case of Security Bank and Trust Company v. Court of Appeals[11]:
"Hence, to allow petitioner bank to acquire the constructed building at a price far below its actual
construction cost would undoubtedly constitute unjust enrichment for the bank to the prejudice of the
private respondent. Such unjust enrichment, as previously discussed, is not allowed by law."

WHEREFORE, the petition is hereby DISMISSED and the decision of the Court Appeals in CA-G.R.
47000 dated May 31, 1996 AFFIRMED. Costs against the petitioner.
SO ORDERED
Padilla (Chairman), Bellosillo, Vitug, and Kapunan, JJ., concur.
G.R. No. 132415 January 30, 2002

MIGUEL KATIPUNAN, INOCENCIO VALDEZ, EDGARDO BALGUMA and LEOPOLDO BALGUMA,


JR., petitioners,
vs.
BRAULIO KATIPUNAN, JR., respondent.

SANDOVAL-GUTIERREZ, J.:

Before us is a petition for review on certiorari1 assailing the Decision2 of the Court of Appeals dated July
31, 1997 in CA-GR CV No. 45928, "Braulio Katipunan, Jr. vs. Miguel Katipunan, Inocencio Valdez, Atty.
Leopoldo Balguma, Sr., Edgardo Balguma and Leopoldo Balguma, Jr." which set aside the Decision of
the Regional Trial Court (RTC) of Manila, Branch 28, in Civil Case No. 87-39891 for annulment of a Deed
of Absolute Sale.

The antecedents are:

Respondent Braulio Katipunan, Jr. is the owner of a 203 square meter lot and a five-door apartment
constructed thereon located at 385-F Matienza St., San Miguel, Manila. The lot is registered in his name
under TCT No. 1091933of the Registry of Deeds of Manila. The apartment units are occupied by lessees.

On December 29, 1985, respondent, assisted by his brother, petitioner Miguel Katipunan, entered into a
Deed of Absolute Sale4 with brothers Edgardo Balguma and Leopoldo Balguma, Jr. (co-petitioners),
represented by their father Atty. Leopoldo Balguma, Sr., involving the subject property for a consideration
of 187,000.00. Consequently, respondents title to the property was cancelled and in lieu thereof, TCT
No. 1683945 was registered and issued in the names of the Balguma brothers. In January, 1986, Atty.
Balguma, then still alive, started collecting rentals from the lessees of the apartments.

On March 10, 1987, respondent filed with the RTC of Manila, Branch 21,6 a complaint for annulment of
the Deed of Absolute Sale, docketed as Civil Case No. 87-39891.7 He averred that his brother Miguel,
Atty. Balguma and Inocencio Valdez (defendants therein, now petitioners) convinced him to work abroad.
They even brought him to the NBI and other government offices for the purpose of securing clearances
and other documents which later turned out to be falsified. Through insidious words and machinations,
they made him sign a document purportedly a contract of employment, which document turned out to be
a Deed of Absolute Sale. By virtue of the said sale, brothers Edgardo and Leopoldo, Jr. (co-defendants),
were able to register the title to the property in their names. Respondent further alleged that he did not
receive the consideration stated in the contract. He was shocked when his sister Agueda Katipunan-
Savellano told him that the Balguma brothers sent a letter to the lessees of the apartment informing them
that they are the new owners. Finally, he claimed that the defendants, now petitioners, with evident bad
faith, conspired with one another in taking advantage of his ignorance, he being only a third grader.

In their answer, petitioners denied the allegations in the complaint, alleging that respondent was aware of
the contents of the Deed of Absolute Sale and that he received the consideration involved; that he also
knew that the Balguma brothers have been collecting the rentals since December, 1985 but that he has
not objected or confronted them; and that he filed the complaint because his sister, Agueda Savellano,
urged him to do so.8

Twice respondent moved to dismiss his complaint (which were granted) on the grounds that he was
actually instigated by his sister to file the same; and that the parties have reached an amicable settlement
after Atty. Balguma, Sr. paid him P2,500.00 as full satisfaction of his claim. In granting his motions for
reconsideration, the trial court was convinced that respondent did not sign the motions to dismiss
voluntarily because of his poor comprehension, as shown by the medical report of Dr. Annette Revilla, a
Resident Psychiatrist at the Philippine General Hospital. Besides, the trial court noted that respondent
was not assisted by counsel in signing the said motions, thus it is possible that he did not understand the
consequences of his action.9

Eventually the trial court set the case for pre-trial. The court likewise granted respondents motion to
appoint Agueda Savellano as his guardian ad litem.10

After hearing, the trial court dismissed the complaint, holding that respondent failed to prove his causes of
action since he admitted that: (1) he obtained loans from the Balgumas; (2) he signed the Deed of
Absolute Sale; and (3) he acknowledged selling the property and that he stopped collecting the rentals.

Upon appeal by respondent, the Court of Appeals, on July 31, 1997, rendered the assailed Decision, the
dispositive portion of which reads:

"WHEREFORE, the judgment appealed from is hereby REVERSED and SET ASIDE, and a new
one entered annulling the Deed of Sale. Consequently, TCT No. 168394 is hereby declared null
and void and of no force and effect. The Register of Deeds of Manila is directed to cancel the
same and restore TCT No. 109193 in the name of Braulio Katipunan.

"SO ORDERED."

In reversing the RTC Decision, the Court of Appeals ruled:

"Upon close scrutiny of all the evidence on record, plaintiff-appellants contention finds support in
the certification dated August 4, 1987 issued by Dr. Ana Marie Revilla, a psychiatrist at the UP-
PGH, who was presented as an expert witness. Her findings explained the reason why plaintiff-
appellant showed a lot of inconsistencies when he was put on the stand. It supports the fact that
plaintiff-appellant is slow in comprehension and has a very low IQ. Based on such findings, the
trial court was faulted for its wrong assessment of appellants mental condition. It arbitrarily
disregarded the testimony of a skilled witness and made an unsupported finding contrary to her
expert opinion.

Admittedly, expert witnesses when presented to the court must be construed to have been
presented not to sway the court in favor of any of the parties, but to assist the court in the
determination of the issue before it (Espiritu vs. Court of Appeals, 242 SCRA 362). Expert
opinions are not ordinarily conclusive. They are generally regarded as purely advisory in
character; the court may place whatever weight they choose upon such testimony and may reject
it if they find it inconsistent with the facts in the case or otherwise unreasonable (Basic Evidence
by Ricardo J. Francisco, pp. 202).

The trial court whose decision is now under review refused to admit the experts testimony and
prefer to base its decision on its findings that contrary to the allegation of the appellant, he is
nonetheless capable of responding to the questions expounded to him while on the stand. In
short, the court was swayed by its own observation of appellants demeanor on the stand. Of
course, the rule is to accord much weight to the impressions of the trial judge, who had the
opportunity to observe the witnesses directly and to test their credibility by their demeanor on the
stand (People vs. Errojo, 229 SCRA 49). Such impression however, is not per se the basis of a
conclusion, for it needs conformity with the findings of facts relevant to the case.

We find it indispensable to give credit to the findings of Dr. Ana Marie Revilla, whose testimony
remains unshaken and unimpeached. The tests she made are revealing and unrebutted and has
a bearing on facts of the case.
It is a proven fact that Braulio reached only Grade III due to his very low IQ; that he is illiterate;
and that he can not read and is slow in comprehension. His mental age is only that of a six-year
old child. On the other hand, the documents presented by the appellees in their favor, i.e., the
deeds of mortgage and of sale, are all in English. There is no showing that the contracts were
read and/or explained to Braulio nor translated in a language he understood.

Article 1332 of the Civil Code provides:

Art. 1332. When one of the parties is unable to read, or if the contract is in a language
not understood by him, and mistake or fraud is alleged, the person enforcing the contract
must show that the terms thereof have been fully explained to the former.

Furthermore, if Braulio has a mental state of a six year old child, he can not be considered as fully
capacitated. He falls under the category of incompetent as defined in Section 2, Rule 92 of the
Rules of Court, which reads:

Sec. 2. Meaning of Word Incompetent - Under this rule, the word incompetent includes
persons suffering the penalty of civil interdiction or who are hospitalized lepers, prodigals,
deaf and dumb who are unable to read and write, those who are of unsound mind, even
though they have lucid intervals, and persons not being of unsound mind, but by reason
of age, disease, weak mind, and other similar causes, can not, without outside aid, take
care of themselves and manage their property, becoming thereby an easy prey for deceit
and exploitation.

We also note the admission of defendant-appellee Miguel Katipunan, that he and Braulio
received the considerations of the sale, although he did not explain what portion went to each
other of them. Anyway, there is no reason why Miguel should receive part of the consideration,
since he is not a co-owner of the property. Everything should have gone to Braulio. Yet, Miguel
did not refute that he was giving him only small amounts (coins).

As to the allegation of the scheme utilized in defrauding Braulio, neither Miguel nor Atty. Balguma
refuted the statement of Braulio that he was being enticed to go abroad - which was the alleged
reason for the purported sale. Nothing was explained about the alleged trip to NBI, the fake
passport, etc., nor of Miguels own plans to go abroad. It is then most probable that it was Miguel
who wanted to go abroad and needed the money for it.

In view of the foregoing, it is apparent that the contract entered into by Braulio and Atty. Balguma
is voidable, pursuant to the provisions of Article 1390 of the Civil Code, to wit:

Art. 1390. The following contracts are voidable or annullable, even though there may
have been no damage to the contracting parties:

(1) Those where one of the parties is incapable of giving consent to a contract;

(2) Those where the consent is vitiated by mistake, violence, intimidation, undue
influence or fraud.

These contracts are binding, unless they are annulled by a proper action in court, they
are susceptible of ratification."11

Petitioners filed a motion for reconsideration but was denied. Hence, this petition.
Petitioners, in seeking the reversal of the Court of Appeals Decision, rely heavily on the rule that findings
of fact by the trial courts are entitled to full faith and credence by the Appellate Court. Petitioners contend
that the Court of Appeals erred when it overturned the factual findings of the trial court which are amply
supported by the evidence on record.

The petition is devoid of merit.

While it may be true that findings of a trial court, given its peculiar vantage point to assess the credibility
of witnesses, are entitled to full faith and credit and may not be disturbed on appeal, this rule is not
infallible, for it admits of certain exceptions. One of these exceptions is when there is a showing that the
trial court had overlooked, misunderstood or misapplied some fact or circumstance of weight and
substance, which, if considered, could materially affect the result of the case. 12 Also, when the factual
findings of the trial court contradict those of the appellate court, this Court is constrained to make a factual
review of the records and make its own assessment of the case.13 The instant case falls within the said
exception.

A contract of sale 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.14 This meeting of the minds speaks of the intent of the parties in
entering into the contract respecting the subject matter and the consideration thereof. 15 Thus, the
elements of a contract of sale are consent, object, and price in money or its equivalent. 16 Under Article
1330 of the Civil Code, consent may be vitiated by any of the following: (a) mistake, (2) violence, (3)
intimidation, (4) undue influence, and (5) fraud.17 The presence of any of these vices renders the contract
voidable.

Here, as borne by the facts on hand, respondent signed the deed without the remotest idea of what it
was, thus:

"ATTY. SARMIENTO:

Q After Miguel received that money which amount you do not remember how much, do you
remember having signed a document purported to be sale of property that which you owned?

A Yes, I signed something because they forced me to sign.

COURT (To the witness)

Q Do you know how to affix your signature?

A Yes, Your Honor.

Q You sign your name here. (witness is given a piece of paper by the court wherein he was
made to sign his name)

ATTY. SARMIENTO:

Q You said that you remember you have signed a document. Did you come to know
what kind of document was that which you signed at that time?

A I do not know.

Q Where did you sign that document?


A I signed that document in the house of Sencio.

Q Where is this house of Sencio?

A It is just behind our house at San Miguel.

Q Nobody informed you what document you were signing?

A Nobody informed me what document I was signing.

Q Who asked you to sign that document?

A My brother Miguel and Sencio asked me to sign that document.

Q You never bothered to ask your brother Miguel why you were signing that document?

A According to them, if I will not sign, something will happen.

Q Who particularly told you that if you will not sign that document something will happen?

A Atty. Balguma. (witness pointing to Atty. Balguma)

Q You want to tell the court that Atty. Balguma at that time you signed that document was
present?

A Yes, sir, he was there.

Q What if any did Atty. Balguma do when you were asked to sign that document?

A He was asking me also to sign.

COURT (To the witness)

Q Were you threatened with a gun or any instrument?

A No, Your Honor.

Q How were you threatened?

A I was shoved aside by Sencio and Miguel and I was surprised why they made me sign.

Q Did you fall down when you were shoved?

A I was made to move to the side.

Q And because of that you signed that document that you were being forced to sign?

A Yes, sir.

Q What kind of paper did you sign?


A A coupon bond paper.

Q Was there something written?

A There was something written on it, but I do not know.

Q Was it typewritten?

A There was something typewritten when it was shown to me but I do not know what it
was."18(Underscoring supplied)

The circumstances surrounding the execution of the contract manifest a vitiated consent on the part of
respondent. Undue influence was exerted upon him by his brother Miguel and Inocencio Valdez
(petitioners) and Atty. Balguma. It was his brother Miguel who negotiated with Atty. Balguma. However,
they did not explain to him the nature and contents of the document. Worse, they deprived him of a
reasonable freedom of choice. It bears stressing that he reached only grade three. Thus, it was
impossible for him to understand the contents of the contract written in English and embellished in legal
jargon. Even the trial court, in reinstating the case which it earlier dismissed, took cognizance of the
medical finding of Dr. Revilla (presented by respondents counsel as expert witness) who testified during
the hearing of respondents motion for reconsideration of the first order dismissing the complaint.
According to her, based on the tests she conducted, she found that respondent has a very low IQ and a
mind of a six-year old child.19 In fact, the trial court had to clarify certain matters because Braulio was
either confused, forgetful or could not comprehend.20 Thus, his lack of education, coupled with his mental
affliction, placed him not only at a hopelessly disadvantageous position vis--vis petitioners to enter into a
contract, but virtually rendered him incapable of giving rational consent. To be sure, his ignorance and
weakness made him most vulnerable to the deceitful cajoling and intimidation of petitioners. The trial
court obviously erred when it disregarded Dr. Revillas testimony without any reason at all. It must be
emphasized that petitioners did not rebut her testimony.

Even the consideration, if any, was not shown to be actually paid to respondent. Extant from the records
is the fact that Miguel profited from the entire transaction and gave only small amounts of money to
respondent, thus:

"Q Do you know how much money was given to Miguel and from whom did that money come
from?

A I do not know how much, but the money came from Atty. Balguma.

Q You do not know how much amount was given by Atty. Balguma and for what
consideration was the money given you are not aware of that?

A I am not aware because I was not there, I do not know anything.

Q You want to tell the court that despite that it is you being the owner of this property it
was Miguel who negotiated the asking of money from Atty. Balguma?

A Yes, it is like that.

Q Were you consulted by your brother Miguel when he asked money from Atty. Balguma?

A No, sir, in the beginning he kept it a secret then later on he told us.
Q You want to tell this court that it was only when your brother Miguel gave (you) money
that he told you that "we have now the money from Atty. Balguma"?

A No, sir, I did not even know where that money came from. He was about to leave for
abroad when he told me that he received money from Atty. Balguma.

Q Did you receive any amount from Miguel every time he was given by Atty. Balguma?
You received also money from Miguel every time he was given by Atty. Balguma?

A Yes, he would give me small denominations, "barya".

Q When you said "barya", would you be able to tell the court how much this barya you are
referring to is?

A May be twenty pesos, may be ten pesos, but they are all loose change.

Q Tell us how many times did Miguel receive money from Atty. Balguma as much as you can
recall?

A I do not know because every time my brother Miguel and Atty. Balguma would
transact business, I was not present.

x x x

Q Before or after the signing of this piece of paper were you given any big amount of
money by your brother Miguel or Atty. Balguma or Sencio?

A After signing that document, Atty. Balguma gave me several loose change "barya", no
paper bills. A just handful of coins."21 (Underscoring supplied)

We are convinced that respondent was telling the truth that he did not receive the purchase price. His
testimony on this point was not controverted by Miguel. Moreover, Atty. Balguma admitted that it was
Miguel who received the money from him.22 What Miguel gave respondent was merely loose change
or "barya-barya," grossly disproportionate to the value of his property. We agree with the conclusion of
the Court of Appeals that "it is then most probable that it was Miguel who wanted to go abroad and
needed the money for it."

In the case of Archipelago Management and Marketing Corp. vs. Court of Appeals,23 penned by Justice
Artemio V. Panganiban, this Court sustained the decision of the Court of Appeals annulling the deed of
sale subject thereof. In that case, Rosalina (the owner) was convinced by her second husband to sign
several documents, purportedly an application for the reconstitution of her burned certificate of title.
However, said documents turned out to be a Deed of Absolute Sale where it was stipulated that she sold
her property for P 1,200,000.00, a consideration which she did not receive. The Court ruled that Rosalina,
who was quite old at that time she signed the deed, was tricked by her own husband, who employed
fraud and deceit, into believing that what she was signing was her application for reconstitution of title.

A contract where one of the parties is incapable of giving consent or where consent is vitiated by
mistake, fraud, or intimidation is not void ab initio but only voidable and is binding upon the parties unless
annulled by proper Court action. The effect of annulment is to restore the parties to the status quo
ante insofar as legally and equitably possible-- this much is dictated by Article 1398 of the Civil Code. As
an exception however to the principle of mutual restitution, Article 1399 provides that when the defect of
the contract consists in the incapacity of one of the parties, the incapacitated person is not obliged to
make any restitution, except when he has been benefited by the things or price received by him. Thus,
since the Deed of Absolute Sale between respondent and the Balguma brothers is voidable and hereby
annulled, then the restitution of the property and its fruits to respondent is just and proper. Petitioners
should turn over to respondent all the amounts they received starting January, 1986 up to the time the
property shall have been returned to the latter. During the pre-trial and as shown by the Pre-Trial Order,
the contending parties stipulated that the Balguma brothers received from the lessees monthly rentals in
the following amounts:

PERIOD AMOUNT OF RENTALS


January, 1986 to
December, 1987 481.00 per month
January, 1988 to
December, 1988 2,100.00 per month
January, 1989 to
present 3,025.00 per month
Article 24 of the Civil Code enjoins courts to be vigilant for the protection of a party to a contract who is
placed at a disadvantage on account of his ignorance, mental weakness or other handicap, like
respondent herein. We give substance to this mandate.

WHEREFORE, the petition is DENIED. The assailed Decision of the Court of Appeals dated July 3, 1997
in CA-GR CV No. 45928 is AFFIRMED with MODIFICATION in the sense that petitioners Edgardo
Balguma and Leopoldo Balguma, Jr., are ordered to turn over to respondent Braulio Katipunan, Jr. the
rentals they received for the five-door apartment co rresponding to the period from January, 1986 up to
the time the property shall have been returned to him, with interest at the legal rate. Costs against
petitioners.

SO ORDERED.

Melo, (Chairman), Vitug, Panganiban, and Carpio, JJ., concur.


G.R. No. L-5496 February 19, 1910

MERCEDES MARTINEZ Y FERNANDEZ, ET AL., plaintiffs-appellants,


vs.
THE HONGKONG & SHANGHAI BANKING CORPORATION, ET AL., defendants-appellants.

Bruce & Lawrence, for appellants.


Haussermann & Cohn and Rosado, Sanz & Opisso, for appellees.

MORELAND, J.:

This is an action to set aside a contract on the ground that plaintiff's consent thereto was given under
duress and undue influence. Alejandro S. Macleod is joined as plaintiff only for the reason that he is the
husband of Mercedes Martinez and he takes no part in the action personally.

In the statement of facts and some of the legal propositions involved, we have made free use of the forms
contained in the briefs of both parties.

Alejandro S. Macleod was for many years the managing partner of the house of Aldecoa & Co. in the city
of Manila. He withdrew from the management on the 31st day of December, 1906, when Aldecoa & Co.
went into liquidation. At the time that Aldecoa & Co. ceased active business the Hongkong & Shanghai
banking Corporation was a creditor of that firm to the extent of several hundred thousand pesos and
claimed to have a creditor's lien in the nature of a pledge over certain properties of the debtor. In April,
1907, the bank began a civil action against Alejandro S. Macleod, his wife, Mercedes Martinez, Aldecoa &
Co., and the firm known as Viuda e Hijos de Escao. In the bank's complaint it was alleged that a certain
undertaking in favor of Aldecoa & Co. had been hypothecated to the bank to secure the indebtedness of
Aldecoa & Co., but that this obligation had been wrongfully transferred by Alejandro S. Macleod into an
obligation in favor in his wife, Mercedes Martinez, to the prejudice of the bank. In May, 1907, Aldecoa &
Co. began a civil action against Alejandro S. Macleod and others for the recovery of certain shares of
stock of the par value of P161.000 and for damages in the sum of P150,000, basing its right to recover
upon alleged criminal misconduct of Mr. Macleod in his management of the firm's affairs.

When the two causes of action above referred to were discovered and the suits there mentioned
commenced, Alejandro S. Macleod and Mercedes Martinez, his wife, engaged the services of Messrs.
Del-Pan, Ortigas and Fisher, attorneys at law, to represent and defend them in the matter. Soon
thereafter these attorneys made overtures to the liquidation of Aldecoa & Co, for the settlement of the
latter's claims. While these negotiations were pending Aldecoa & Co. claimed that they had made
discoveries of many frauds which Macleod had perpetrated against the company during the period of his
management, whereby the company had been defrauded of many thousands of pesos.

On the 13th day of July, 1907, it becoming apparent that criminal proceedings would be instituted against
him, Macleod went from Manila to the Portuguese colony of Macao, a territory not covered, it appears, by
extradition treaty between the United States and the Portuguese Government. Four days thereafter, on
the 17th day of July, Aldecoa & Co. filed a complaint against Mr. Macleod, charging him with the
falsification of a commercial document, and a warrant for his arrest was issued by the Court of First
Instance of Manila, and the executive department of the Philippine Government issued a formal request
to the Portuguese authorities for the extradition of the accused. This request was denied. In the meantime
the attorneys for the respective parties were engaged in negotiations for the settlement and compromise
of the difference then pending and a clearance of Mr. Macleod from all claims and demands of his
creditors. Aldecoa & Co. and the bank, as a consideration for such settlement, insisted upon the
conveyance not only of all the property of Alejandro S. Macleod but also of at least a portion of the
property claimed by his wife, the plaintiff herein. The settlement offered at that time was the same which
was subsequently accepted and consummated on the 14th of August as shown by Exhibit A. There
appears to have been little resistance to this demand on the part of the representatives of Mr. Macleod,
but his wife, the plaintiff herein, stoutly objected to the conveyance required of her, maintaining that the
property which she was asked to transfer was her separate and exlusive property and not liable for the
debts of her husband. Her position was fully stated by her to her attorney, Mr. Fisher, and to her attorney-
in-fact, Mr. William Macleod. An interview between her attorney and the attorney for Aldecoa & Co.
followed this declaration on her part. Thereafter and on the night of August 4 another interview was had
between the plaintiff and her counsel, Mr. Fisher, and others, at which a long list of claims against Mr.
Macleod, prepared by Aldecoa & Co., was exhibited to the plaintiff and its contends explained to her by
Mr. Fisher and her attorney-in-fact. Some of these claims involved criminal as well as civil liability. Mr.
Fisher at that time favored a settlement in accordance with the terms proposed by Aldecoa & Co. The
plaintiff, however, refused to accept such settlement.

This being the state of affairs, one of the attorneys for the bank, on the 7th of August, 1907, was called
upon by counsel for both Aldecoa & Co. and the plaintiff in this action, who requested him to act as
intermediary between the parties and to suggest means by which a settlement could be obtained. At that
interview it was agreed that a full explanation of the condition of affairs should be made to Mr. Kingcome,
a son-in-law of the plaintiff and a businessman. This explanation was made by Mr. Stephen, manager of
the Hongkong & Shanghai Banking Corporation, one of the friends of Mr. Kingcome, at an interview
arranged between them pursuant to the arrangements made by the attorneys for the parties. Whether or
not Mr. Kingcome communicated the substance of that interview with Mr. Stephen to his mother-in-law,
the plaintiff, before she signed the document in question is in dispute in this case. There is some doubt
from the record as to the exact language used in this conversation between Kingcome and Stephen, but it
appears that some reference was made tothe interest which the British colony in Manila, of which Messrs.
Stephen, Kingcome, and Macleod were prominent members, would have in avoiding the scandal and
disgrace to the latter which might be expected to ensue unless the differences between the parties to this
action were amicably arranged. It seems at that interview that Mr. Stephen suggested to Mr. Kingcome
that he advise his mother-in-law to act reasonably in negotiating the proposed settlement. It appears that
Mr. Kingcome got the impression from that interview that Mr. Stephen thought unless the settlement were
consummated additional and mortifying misfortunes wound fall upon Mr. Macleod's family.

About the time that the inmterview between Kingcome and Stephen was celebrated Mr. Fisher was
enlisting the services of Mr. William Macleod, a nephew and close friend of plaintiff and her husband, and
plaintiff's attorney-in-fact, for a mission to plaintiff of a similar character to that of Mr. Kingcome. Mr.
William Macleod, as well as Mr. Kingcome, seems to have been persuaded by what he was told that the
consequences of plaintiff's continued refusal to make the settlement would be disastrous to Alejandro S.
Macleod and his family and would be an exhibition of very bad judgment in every way.

On August 9, 1907, the prosecuting attorney filed a second complaint against Alejandro S. Macleod and
his associate, Osorio, charging them with embezzlement and causing warrants of extradition to issue.
The complaint was made at the instance of the prosecuting attorney because he had heard that Macleod
and Osorio were about to leave for Europe and he wanted to intercept them in territory from which they
could be extradited.

On the 11th of August a long conference was held between plaintiff, her attorney, Mr. Kingcome, her son-
in-law, and William Macleod, her attorney-in-fact, at which she was informed in substance that if she
assented to the requirements of Aldecoa & Co. and the bank the civil suits against herself and her
husband would be dismissed and the criminal charges against him withdrawn, while if she refused her
husband must either spend the rest of his life in Macao or be criminally prosecuted on the charged
already filed and tobe filed. At that interview plaintiff refused to accede to the terms of settlement and that
interview was terminated by a statement on the part of Mr. Fisher, which was "Gentlemen, it is evident
that there can be no compromise or settlement, and the only thing left us to do is to defend Mr. Macleod
in the best possible manner."

On the 12th of August, at an interview had between theplaintiff and her attorney-in-fact, Mr. William
Macleod, the plaintiff acceded to the terms proposed by the defendants and authorized Mr. William
Macleod to execute the contractof settlement on her behalf. The document of settlement was prepared
and after certain corrections upon the part of the plaintiff's attorneys, making the same entirely
satisfactory to them, it was signed by the plaintiff's attorney-in-fact on her behalf on the 14th of August. It
was thereafter and on the same day ratified by the plaintiff, who executed the same in person.

After Adecoa & Co. and the bank had taken possession of the property of plaintiff and her husband,
conveyed to them by Exhibit A, the civil suits were dismissed, the criminal charges withdrawn, and Mr.
Macleod returned from macao to Manila. The plaintiff had a surveyor divide the property in Malate, of
which she had conveyed a half interest, into two equal parts. She negotiated for apartition of the land on
the basis of this survey. She joined in the motion for the dismissal of the civil action to which she had
been a party and in the motion in the Court of Land Registration for the recording in the name of
thegrantees of a half interest in the Malate land. All of these acts were in pursuance of Exhibit A.

On December 3, 1907, the plaintiff filed her complaint in the present action, and, after the joining of issue
and thehearing of evidence, judgment was rendered in favor of defendants on the 29th day of May, 1909.
From this judgment, after the usual motion for a new trial, its denial and exception to such denial, plaintiff
appealed to this court.

The Civil Code in relation to the subject-matter in hand contains the following provisions:

ART. 1265. Consent given under error, violence, intimidation, or deceit shall be null.

ART. 1267. There is violence when, inorder to obtain the consent, irresistible force is used.

There is intimidation when one of the contracting parties gives his consent on account of a
reasonable and well-grounded fear of suffering an imminent and serious injury to his person or
property, or to the person or property of his spouse, descendants, or ascendants.

In determining whether or not there is intimidation the age, sex, and status of the person
intimidated must be considered.

Fear of displeasing the persons to whom obedience and respect are due shall not annul the
contract.

ART. 1268. Violence or intimidation shall annul the obligation, even though such violence or
intimidation shall have been used by a third person who did not take part in the contract.

In order that this contract be annuled it must be shown that the plaintiff never gave her consent to the
execution thereof. If a competent person has once assented to a contract freely and fairly, he is bound.
Contracts which are declared void and of no force upon the ground that they were obtained by fraud,
duress, or undue influence are so declared for the reason that the complaining party never really gave his
consent thereto. The consent in such case is not in the eye of the law a consent at all. The person has
not acted. He has done nothing he was in vinculis.

It is necessary to distinguish between real duress and the motive which is present when one gives his
consent reluctantly. A contract is valid even though one of the parties entered into it against his wishes
and desires or even against his better judgment. Contracts are also valid even though they are entered
into by one of the parties without hope of advantage or profit. A contract whereby reparation is made by
one party for injuries which he has willfully inflicted upon another is one which from its inherent nature is
entered into reluctantly and against the strong desires of the party making the reparation. He is
confronted with a situation in which he finds the necessityeither of making reparation or of taking the
consequences, civil or criminal, of his unlawfull acts. Hemakes the contract of reparation with extreme
reluctance and only by thecompelling force of the punishment threatened. Nevertheless such contract is
binding and enforceable. Such a contract differs entirely in its incidents from a contractentered into by a
party for the purpose of gain. The latter contract is made with pleasure and its terms complied with gladly.
The former is a contract the execution of which the party is very apt to repent and the terms of which he is
very likely to evade if he can. It is not conclusive against them that Aldecoa & Co. demanded that the
plaintiff do something upon pain of punishing her husband for his crimes. It is not conclusive that the
plaintiff disliked exceedingly to do what they demanded. Neither is it conclusive that the plaintiff now
regrets having performed at their demand instead of compelling a resort to judicial proceedings. It is not
for these reasons that this contract may be declared null and void. If such a contract were illegal whereby
pending litigation is settled by agreement of the parties rather than by decision of the court. If such a
contract were null and void, then would be null and void every contract whereby a wrongdoer and he who
assisted him made reparation for that which he had mis appropriated or misapplied. In legal effect there is
no difference between a contract wherein one of the contracting parties exchanges one condition for
another because he looks for greater gain or profit by reason of such change and an agreement wherein
one of the contracting parties agrees to accept the lesser of two disadvantages. In either case he makes
a choice free and untrammeled and must accordingly abide by it. These are evidence of duress, facts
from which duress may be inferred, but they are not duress of themselves. In the absence of other proof
and circumstances, they might very well be held to establish duress. But there is other proof and we do
not believe that under all the facts of this case as disclosed by the record we can say that the court below
erred when he refused to findthat the plaintiff entered into the contract in question by reason of duress
and undue influence. We find lacking in this case amny of the essential elements usually found in cases
of duress. The most that the facts disclose is that the plaintiff was loath to relinquish certain rights which
she claimed to have in certain property to the end that she might be relieved from litigation then pending
against her and that her husband might escape prosecution for crimes alleged to have been committed;
and that she persisted for a considerable time in her refusal to relinquish such claimed rights. The fact
that she did relinquish them upon such consideration and under such condition does not of itself
constitute duress or intimidation, nor does it destroy the obligatory effect and force of her consent. In
order to do so something more is needed. Such influence must havebeen exercised over her that she
was deprived of her free will and choice. She must have acted from fear and not from judgment.

Not every contract made by a wife to relieve her husband from the consequences of his crimes is
viodable. Subject to certain restrictions a wife may legally dispose of herproperty as she pleases; she
may squander it; she may give it away; she may pledge or transfer it to keep her husband out of state
prison. The question in each case is exactly the same as in all such relations, was she acting according to
the dictates of her own judgment, whether good or bad, or from fear, force, or undue influence? If there
are time and opportunity for judgment to take the place of fear, and if apart from the threat there are
reasons disclosed which might lead one in the exercise of good judgment to perform the acts complained
of, then the evidence as to duress and undue influence must be very clear in order that such acts may be
recalled.

The appellant cites many cases in support of her contention that the contract of the 14th of August should
be abrogated.

We have carefully examined not only all of the cases cited by the appellant but also substancially all of
the cases within our reach relating to the questions before vs. Among them are the following:
Adams vs. Irving National Bank (116 N.Y., 606); Allen vs Laflore County (76 Miss., 671);
Bently vs. Ronson (11 Mich., 691; Burton vs McMillan (8 L. R. A., N.S., 991); Bell vs. Campbell (123 Mo.,
1); Galusha vs Sherman (47 L. R. A., 417); MaMahon vs. Smith (47 Conn., 221, 36 Am Rep., 67);
Gorringe vs Reed (23 Utah, 120, 90 Am St. Rep., 692); Bank vs Bryan (62 Ia., 42); Rau vs. Zedlitz (132
Mass., 164); Lomerson vs. Johnston (47 N. J. Eq., 312); McGrory vs. Reilly (14 Phila., 111);
Foley vs. Greene (14 R.I., 618); Coffman vs. Lookout Bank (5 Lea., 232); Haynes vs. Rudd (102 N. Y.,
372); Cribbs vs. Sowle (87 Mich., 340); Osborne vs. Robins (36 N.Y., 365); Rall vs. Raguet (4 Ohio, 400);
Bank vs. Kirk (90 Pa. St., 49); Eadie vs. Slimmon (26 N.Y., 9); Harris vs. Carmody (131 Mass., 51;
Taylor vs. Jacques (106 Mass., 291); Bryant vs. Peck & W. Co. (154 Mass., 460); Hesinger vs. Dyer (147
Mo., 219); Mack vs. Praug (104 Wis., 1); Benedict vs. Broome (106 Mich., 378); Williams vs Bayley (1
Eng. & Ir. App. Cas., 200); Central Bank vs. Copeland (18 Md., 305 , 81 Am. Dec., 597); Bradley vs. Irish
(42 Ill. app., 85); Snyder vs. Willey (33 Mich., 483).
All of the above cases, except Harris vs. Carmody, Hesinger vs. Dyer, and Williams vs. Bayley, are
distinguishable from the case at bar in the following particulars:

1. In those cases there was no time within which to deliberate the matter as it should have been
deliberated.

2. There was no time or opportunity to take the advice of friends or of disinterested persons.

3. There was no time or opportunity to take advice of counsel.

4. The treats made to secure the performance of the acts complained of were made directly to the
complaining party by the person directly interested or by somene in his behalf who was working in
his interest and who had no interest whatever in the welfare of the complaining party.

5. There was no consideration for the performance of the act complained of except immunity from
the prosecution threatened.

6. The property transferred or incumbered by the act complained of was the separate property of
the person performing the act in which the person for whome the act was performed claimed no
interest whatever.

7. There was no dispute as to the title of the property transferred or incumbered, no claim made
to it by anybody, no suits pending to recover it or any portion of it, and no pretension that it could
be taken for the debts of the husband or of any other person.

In the cases of Harris vs. Carmody, Hesinger vs. Dyer, and Williams vs. Bayley, above excepted, the
complainant had the benefit of legal advice and the advice of some friend but in none of those were there
present any of the other circumstances just enumerated.

In the case of Hesinger and another vs. Dyer (147 Mo., 219), it appeared that the plaintiffs were the
tenants of the defendant on defendant's farm. During the last year that they had occupied this farm they
raised some 500 bushels of corn upon which the defendant claimed to have a lien under the statue. The
plaintiff Hesinger sold the corn and applied the proceeds to his own use. Dyer threatened to institute
criminal proceedings against Hesinger for embezzling the corn if he and his wife did not execute to him
their note for its value, secured by a deed of trust upon the land of Mrs. Hesinger. They testified that
because of this threat and in fear of said prosecution they executed the note and deed of trust as
required. Shortly before the papers were executed the defendant's home, taking with him a notary public
to take the acknowledgement of the deed of trust in the event that he succeeded in getting the plaintiffs to
execute it. This was one of the occasions upon which the defendant threatened to prosecute Hesinger if
he and his wife did not execute the deed of trust as required. Mrs. Hesinger had all the time refused and
still refused to execute the deed; but upon the afternoon of that day plaintiffs went to Sedalia to consult
with their son and with their attorney and thereafter went to J.M. Bailer's office and there executed the
papers in question. The court held that the note and deed of trust were voidable as having been executed
under duress.

It is at once apparent, however, that the facts differ materially from those in the case at bar. In that case
the plaintiffs contended against the personal presence of the defendant and all of the influence which that
presence implies. In that case there was absolutely no consideration moving to Mrs. Hesinger inducing
the execution of the papers in question except the release of her husband from prosecution. There was
lacking in that case everything, every consideration which would appeal to the judgment or reason of the
complaining party.

The same may be said of the other two cases, Harris vs. Carmody and Williams vs. Bayley.
The plaintiff cites also the case of Jalbuena vs. Ledesma et al. (8 Phil. Rep., 601). In that case it
appeared, as stated by the court, that

Ildefonso Doronila, having been the tutor of the Ledesma minor children, was cited in August,
1900, before the provost court of Iloilo on the petition of the defendant Lopez, to show cause why
he should not surrender the papers, securities, and money in his charge, and he was in the
course of the proceeding ordered to render his accounts as tutor, and it is to be inferred from the
testimony of the defendant Ledesma that the accounts were in fact rendered. On December 3 he
came to an agreement with the defendant Lopez, as representative of the children, whereby his
accounts were allowed and accepted and the value of the missing papers, claimed to have been
lost in the bombardment of Iloilo, was fixed at P12,000, and a certain obligation of the estate to
Juan Casells to the amount of P4,000 was assumed by him. Subsequently this agreement was
ratified by the family council, which imposed, however, an additional condition that security should
be given by Doronila for the payment of P16,000 in case the missing papers should not be
produced within six months and the novation of the debt of Juan Casells accepted by the debtor.
Thereafter he was brought before the provost judge in the pending proceeding and was ordered
to give additional security, and failing to do so was committed to jail, where he had already been
once confined on the institution of the proceeding. As all of his property was already bound to the
estate for the performance of his duty as guardian, it became expedient to find a surety for him,
and the plaintiff (wife of Doronila), who had accompanied him to the court, was thereupon
induced to join with him in this undertaking. As to the preceedings in court, the testimony of the
plaintiff, reduced to narrative form, is as follows:

"I remeber having been in the office of the provost judge of Iloilo in December, 1900. I
went there to visit my husband, who was in jail. While there I was summoned before the
provost judge by a soldier, and I went up before the provost and requested him to set my
husband free, he not being guilty of anything. I asked him, crying, to put my husmand at
liberty, but the provost did not listen to me; on the contrary, he asked me to file security
for what was lost in my house during the bombardment, and he told me that he was going
to put my husband in jail if I did not obligate my property as security. Fearing that he was
going to be put in jail again, I was compelled to sign, it being a time when we and others
were under fear and I was afraid that he would be punished and that they would deport
him. In the fear that I was then under I did not know any other remedy but to sign. He told
me that my husband would be sent again to jail if I did not sign."

This communication was carried on through the medium of an interpreter, one Pedro Regalado,
who testified:

"The provost judge told Sra. Vicenta . . . in these terms: "You sign a document
guaranteeing with your property the obligation contracted by Sr. Doronila, your husband."
She answered to these words that her husband was not guilty of the loss of the
documents, as when the bombardment came the documents were in a trunk and were
lost during the bombardment. When she said that she could not respond, then the
provost said: "You sign this document; you either sign this document or I will send you
husband back to jail." More or less I remember that he said: "Interpreter, tell her to either
sign this document or I will have her husband sent again to jail."

In this case the wife sued to set aside the obligation upon the ground that it was obtained from her by
duress and undue influence. She justly succeded.

A mere reading of the facts in that case discloses that it can not be used as an authority in the case at
bar. It is widely different in its facts.

A careful analysis of this case discloses the following pecularities:


In the first place, the undisputed evidence demostrates that the first offers of compromise were made by
the plaintiff herself through her representatives. It appears that from first to last the effort and anxiety to
compromise the claims of the defendants were on the part of the plaintiff through her representatives. The
position of Aldecoa & Co. throughout the negotiations, as it appears from the testimony in the case, was
that a settlement of their claims against the plaintiffs would not result in any peculiar or especial benefit to
them inasmuch as by the actions already commenced against the plaintiff and her husband the
defendants would be able, so they contended, to secure exactly the same property that they would obtain
by the settlement proposed. The soundness of this contention was admitted by the attorneys for the
plaintiff. It was the desire on the part of at least one of the persons especially interested in Aldecoa & Co.
that Alejandro S. Macleod should suffer criminally for the acts which he had committed against that
company and such person did not hesitate to say so repeatedly. There seems to have been throughout
the negotations a fear of the part of the attornets for the plaintiff that, partly, at least, by reason of this
especial desire of said person, the negotiations would be broken off by Aldecoa & Co. before a settlement
could be consummated. The defendants never urged the ultimatum laid down by the defendants. They
simply stated to the attorneys for the plaintiffs that they must claims, and it appeared from the position
assumed that it was immaterial to them whether they obtained those properties through the courts or by
means of a settlement. They left Macleod and his wife to choose foir themselves, upon their own
judgment and upon the advice of their attorneys and relatives, the course to be by them pursued. That the
defendants were not especially urging the settlement in question is demonstrated by the fact that Mr.
Fisher, the attorney for the plaintiffs, was doubtful about securing the participation of Aldecoa & Co. in the
agreement up to the very moment of its execution, and it appears from the evidence of Mr. Cohn that Mr.
Fisher, laboring under such apprehension, actually withheld important information from Aldecoa & Co. for
fear such information would deter them at the last moment from giving their assent to the arrangement.

In the secon place, there were at no time during the course of these negotiations for settlement any direct
personal relations or communications between the parties to this action. During the whole course of the
negotiations no person communicated with the plaintiffs on behalf of the defendants alone. The offers,
proposition, or treats, if any, made by the defendants were filtered to her through the personality, mind,
and judgment of her own attorneys or relatives, all of them being persons who had her welfare and the
welfare of her family deeply at heart and who were acting for her and her husband and not for the
defendants. That personal presence of threatening party and the influence springing therefrom, factors so
potent in duress and undue influence, were wholly lacking.

On the trial an attempt was made to show that the defendants had attempted to influence the plaintiff,
Mercedes Martinez, by acting upon her through her son-in-law, Mr. Kingcome. As stated above, Mr.
Stephen was asked by the attorneys for the plaintiff, as well as the attorneys for the defendants, to see
Mr. Kingcome and ask him to explain to his mother-in-law the facts and circumstances which were the
cause of the attempts at settlement for the purpose of inducing her to act reasonably in the premises.
There was some dispute as to whether or not Mr. Kingcome actually communicated the substance of the
interview to his mother-in-law prior to her signing the contract in question. Mr. Kingcome in his testimony
states that according to his best recollection he communicated the substance of that interview to his
mother-in-law on the 11th day of August. In considering this matter it must be remembered that the
interview between Mr. Stephen and Mr. Kingcome was not brought about by Aldecoa & Co. or its
representative. It was brought about by Mr. Cohn acting as mediary between Mr. Fisher and Mr. Rosado,
the one the attorney for the plaintiffs and the other the attorney for the defendant company, upon the
request and with the express approval of both of them. The interview which followed between Mr.
Stephen and Mr. Kingcome was the direct act of plaintiff in exactly the same manner and in exactly the
same degree as it was the act of Aldecoa & Co.

In the third place, the plaintiff by means of the negotiations and settlement in question was engaged partly
at least in the settlement of her own suits and controversies. The plaintiff, Mercedes Martinez, together
with Aldecoa & Co. and Viuda e Hijos de F. Escao were sued in April, 1907, by the Hongkong &
Shanghai Banking Corporation in relation to P45,000 worth of notes claimed to have been fraudulently
taken from the assets of Aldecoa & Co. and transferred into the name and possessio of the plaintiff,
Mercedes Martinez. This was one of the actions settled and terminated by the contract in question. In this
property the plaintiff released her rights under the settlement. The only other property to which she
released her rights was a half interest in property in Malate. As to the legality of her claim that this
property was her own individual property there was a serious question, so serious in fact that she was
formally and reapetedly advised by her attorneys that such claim was in their judgment unfounded. These
are the only interest which the plaintiff, Mercedes Martinez, released or gave over in the settlement
complainted of. Both of the claims were substantially in litigation and the legality of both was seriously
questioned and strongly doubted by her own attorneys. While it is not necessary to decide and we do not
decide whether her claim to either of those properties was valid or invalid, still the fact that the validity of
her claims thereto was denied by her own attorneys strongly tends to impeach the claim that she released
those properties by reason of duress and undue influence, rather that as a result of her own deliberate
judgment.

In the fourt place, it must be remembered that the plaintiff, Mercedes Martinez, never at any time stood
alone in the negotiations. There was never a moment when she did not have interposed between her and
the defendants the counsel of skilled attorneys and of interested relatives. Whatever came to her from the
defendants, their demands or their threats, if any, reached her through the medium of her friends and
advisers. She had the assistance of legal learning and business intelligence and experience. She had the
careful and thoughtful advice of her family. She was as far as possible relieved from all fear, stress, or
influence except such as were inherent in the circumstances themselves. It appears undisputed that she
and her relatives and lawyers considered throughout the negotiations and down to and including the time
of the execution of the agreement of settlement that her best interest would be subserved by acceding to
the terms laid down by the defendants. From the evidence in the case it is difficult to arrive at a
conclusion other that that the acts which she performed in making the settlement in question were acts
which contributed to her welfare and the welfare of her whole family. While this fact may not be
conclusive in the present case, it nevertheless is of very importance and significance in determining the
question whether duress and undue influence were exercised or weighing the reasons pro and con.

In the fifth place, we must bot overlook the fact that the plaintiff took advantage of said contract after its
execution and required the complete fulfilling of every one of its provisions favorable to herself. She
negotiated with Aldecoa & Co. for a partition of the Malate property and to that end caused a survey and
a division thereof to be made. She demanded of Aldecoa & Co. payment of the P2,000 provided for by
the contract, which said sum she received. She caused one-half of said Malate property to be assessed
against said company. She caused a change to be made in the proceedings to register the title to said
Malate lands, previously begun by her, so as to register her title to only one-half thereof. She caused to
be dismissed the action pending against her on account of the Escao notes, which dismissal occured
after this present action was commenced.

These acts are mentioned not to show a ratification of the contract in the sence that those acts estopped
her from thereafter questioning the same, but rather as confirmatory of the theory that in the execution of
the contract complained of she acted accroding to the dictates of good business judgment rather that
from duress and undue influence.

As we have already stated, not every contract executed by a wife, even though made solely to save her
husband from the consequences of his crimes, is voidable. Solicitation, importunity, argument, and
persuasion are not undue influence and a contract is not to be set aside merely because one party used
these means to obtain the consent of the other. Influence obtained by persuation or argument or by
appeals to the affection is not prohibited either in law or morals and is not obnoxious even in courts of
equity. Such may be termed "due influence." The line between due and undue influence, when drawn,
must be with full recognition of the liberty due every true owner to obey the voice of justice, the dictates of
friendship, of gratitude and of benevolence, as well as the claims of kindred, and, when not hindered by
personal incapacity or particular regulation, to dispose of his own property according to his own free
choice. (9 Cyc. 455, and cases there cited.)

On the other hand contracts entered into by a wife whereby she conveys property unquestionably hers,
the sole and only consideration for which contract is the obtaining for her husband immunity from criminal
prosecution, are always justly the objects of suspicion, and it is a wise jurisprudence which holds that,
where she defends upon the ground that she was duressed, the party enforcing such contract must
expect the very closest scrunity of the transaction with the presumptions all against him. Where, however,
as in this case, there is a real question as to the validity of claims laid by the wife to the property
transferred, some of which claimed rights are involved in actual litigation in which she is a party, while the
remainder are alleged by opposing claimants to be subject to seizure and sale under judgements against
the husband; and competent and honorable counsel, after careful and extended consideration of the facts
and the law, advise her that the rights so claimed by her in the property transferred are fictitious, unreal,
and defeasible, having no foundation in law, and she, after abundant opportunity for deliberate
consideration, release such claimed rights and thereby not only secures immunity for her husband, but
also quiets litigation against herself, a very different question is presented. It is undisputed that the
attorneys for the plaintiff in this case advised her that, from the facts which they had before them, facts of
which she was fully informed, her husband had been guilty of embezzlement and misappropriation in the
management of the business of Aldecoa & Co. and that, in their judgment, if prosecuted therefor, he
would be convicted. They further advised her that the P45,000 worth of notes claimed by her and to
recover which was part of the purpose of the action against her and her husband by the Hongkong &
Shanghai Banking Corporation were a part of the property of which her husband had criminally deprived
the said company. They advised her that she would not be able to hold such notes as her own. They
further advised her that from the facts before them Aldecoa & Co. would have no difficulty in getting a
judgment for a very large amount against her husband, and, in that event, the interest which she claimed
in the Malate property would be liable in their judgment ganancial. They informed her that all that Aldecoa
& Co. required of here was the transfer of her claims rights in said property. They further advised her that
if she did not so transfer such property, Aldecoa & Co. would nevertheless obtain it by means of the
actions already commenced and to be commenced; that if she did transfer it she would lose no more than
she would lose by means of said action and she would gain in addition the immunity of her husband from
criminal prosecution. In other words, under the advice of her counsel, the situation was so presented to
her that it was evidenct that in signing the agreement of the 14th of August she had all to gain and
nothing to lose, whereas, in refusing to sign said agreement, she had all to lose and nothing to gain. In
the one case she would lose her property and save her husband. In the other, she would lose her
property and her husband too. The argument thus presented to her by her attorneys addressed itself to
judgment and not to fear. It appealed to reason and not to passion. It asked her to be moved by common
sense and not by love of family. It spoke to her own interest as much as to those of her husband. The
argument went to her financial interest as well as to those of the defendants. It spoke to her business
judgment as well as to her wifely affections. From the opinions of her attorneys, as they were presented
to her upon facts assumed by all to be true, we do not well see how she could reasonably have reached a
conclusion other than that which she did reach. It is of no consequence here whether or not her lawyers,
as matter of law, she would have been deprived of her alleged interests in the properties mentioned in the
manner described and advised by her attorneys. The important thing is that she believed and accepted
their judicial and acted upon it. The question is not did he make a mistake, but did she consent; not was
she wrongly advised, but was she coerced; not was she wise, but was she duressed.

From the whole case we are of the opinion that the finding of the court below that the plaintiff executed
the contract in suit of her own free will and choice and not from duress is fully sustained by the evidence.

The judgment of the court below, is therefore, affirmed with costs against the appellant. So ordered.

Arellano, C.J., Torres, Mapa and Johnson, JJ., concur.


G.R. No. L-65922 December 3, 1991

LAURETA TRINIDAD, petitioner,


vs.
INTERMEDIATE APPELLATE COURT and VICENTE J. FRANCISCO, respondent.

Ramon A. Gonzales for petitioner.

Raymundo T. Francisco for R.J. Francisco.

Siquia Law Offices for respondents Trinidad J. Francisco & Rosario F. Kelemen.

CRUZ, J.:
The house looked beautiful in summer but not when the waters came. Then it was flooded five feet deep
and leas than prepossessing, let alone livable. Disenchanted, the buyer sued the seller for the annulment
of the sale and damages, alleging fraud.

The house was Bungalow No. 17, situated at Commonwealth Village in Quezon City, and belonged to the
late Vicente J. Francisco. Sometime in early 1969, Laureta Trinidad, the petitioner herein, approached
him and offered to buy the property. Francisco was willing to sell. Trinidad inspected the house and lot
and examined a vicinity map which indicated drainage canals along the property. The purchase price was
P70,000.00 with a down payment of P17,500.00. The balance was to be paid in five equal annual
installments not later than July 1 of each year at 12% interest per annum.

On March 29, 1969, Trinidad paid Francisco P5,000.00 as earnest money and entered into the
possession of the house. However, as she relates it, she subsequently heard from her new neighbors that
two buyers had previously vacated the property because it was subject to flooding. She says she talked
to Francisco about this matter and that he told her everything had been fixed and the house would never
be flooded again. Thus assured, she gave him P12,500.00 to complete the down payment. They signed
the Contract of Conditional Sale on August 8, 1969. 1

Trinidad paid the installment for 1970 and 1971 on time but asked Francisco for an extension of 60 days
to pay the installment due on July 1, 1972. However, she says she eventually decided not to continue
paying the amortizations because the house was flooded again on July 18, 21, and 30, 1972, the waters
rising to as high as five feet on July 21. Upon her return from the United States on October 11, 1972, she
wrote the City Engineer's office of Quezon City and requested an inspection of the subject premises to
determine the cause of the flooding. The finding of City Engineer Pantaleon P. Tabora was that "the lot is
low and is a narrowed portion of the creek."
On January 10, 1973, the petitioner filed her complaint against Francisco alleging that she was induced to
enter into the contract of sale because of his misrepresentations. She asked that the agreement be
annulled and her payments refunded to her, together with the actual expenses she had incurred for the
"annexes and decorations" she had made on the house. She also demanded the actual cost of the losses
she had suffered as a result of the floods, moral and exemplary damages in the sum of P200,000.00, and
P10,000.00 attomey's
fees. 2
In his answer and amended answer, the defendant denied the charge of misrepresentation and stressed
that the plaintiff had thoroughly inspected the property before she decided to buy it. The claimed creek
was a drainage lot, and the floods complained of were not uncommon in the village and indeed even in
the Greater Manila area if not the entire Luzon. In any event, the floods were fortuitous events not
imputable to him. He asked for the rescission of the contract and the forfeiture of payments made by the
plaintiff plus monthly rentals with interest of P700.00 for the property from July 2, 1972, until the actual
vacation of the property by the plaintiff. He also claimed litigation expenses, including attorney's fees. 3
In his decision dated June 17, 1975, Judge Sergio F. Apostol of the then Court of First Instance of Rizal
held in favor of the plaintiff and disposed as follows:
WHEREFORE, premises considered, judgment is hereby rendered:

a) ordering the annulment of the contract of conditional sale entered into by the parties;

b) ordering defendant's representatives to pay to the plaintiff the amount of P49,840.00 with
interest from the time of the filing of the complaint;

c) ordering the defendant's representatives to pay the amount of P39,800.00 representing the
value of the improvements and the losses she incurred by virtue of the flood;

d) ordering plaintiff to return to the defendant's representatives the house and lot in question;

e) ordering defendant's representatives to pay the amount of P5,000.00 as and by way of


attomey's fees.

WITH COSTS AGAINST THE DEFENDANT.

Upon separate motions for reconsideration filed by both parties, Judge Apostol ordered and held a new
trial, resulting in a new decision dated April 13, 1976, reiterating his original dispositions.

Both parties appealed to the respondent court, which reversed the trial court in a decision promulgated on
May 31, 1983. 4 The dispositive portion read as follows:
WHEREFORE, the appeal of plaintiff is hereby dismissed. With respect to the appeal of
defendant, the decision of the lower court is hereby reversed and set aside and another one is
rendered dimissing the complaint and, upon the counterclaim, sustaining the cancellation of the
contract of conditional sale (Exh. B) and the forfeiture of any and all sums of money paid by
plaintiff to the defendant on account of the contract to be treated as rentals for the use and
occupation of the property and ordering the plaintiff to vacate the property. No special
pronouncement as to costs.

This Court gave due course to the herein petition for review on certiorari of the said decision and required
the parties to submit their respective memoranda. Pendente lite, Vicente J. Francisco died and was
eventually substituted by his heirs, 5 two of whom, Trinidad J. Francisco and Rosario F. Kelemen, filed
their own joint memorandum. 6 The Court has deliberated on the issues and the arguments of the parties
and is now ready to act on the motions filed by the petitioner and the private respondents for the
resolution of this case.

The petitioner faults the respondent court on the following grounds:

1. The Intermediate Appellate Court palpably erred in not finding that the lot on which the house
in question stands is a portion of a creek, hence outside the commerce of man.

2. The Intermediate Appellate Court palpably erred in finding that there was no fraud prior to the
sale that induced petitioner to enter into the said sale.

3. The Intermediate Appellate Court palpably erred in cancelling the complaint for non-payment of
the installments and declaring previous installments forfeited.

4. The Intermediate Appellate Court erred in not granting moral damages and attorney's fees to
petitioner.
The basic issue in this controversy is whether or not, under the established facts, there was
misrepresentation on the part of Francisco to justify the rescission of the sale and the award damages to
the petitioner.

The pertinent provisions of the Civil Code on fraud are the following:

Art. 1338. There is fraud when, through insidious words or machinations of one of the contracting
parties, the other is induced to enter into a contract which, without them, he would not have
agreed to.

Art. 1339. Failure to disclose facts, when there is a duty to reveal them, as when the parties are
bound by confidential relations, constitutes fraud.

Art. 1340. The usual exaggerations in trade, when the other party had an opportunity to know the
facts, are not in themselves fraudulent.

Fraud is never lightly inferred; it is good faith that is. Under the Rules of Court, it is presumed that "a
person is innocent of crime or wrong" 7 and that "private transactions have been fair and regular." 8 While
disputable, these presumptions can be overcome only by clear and preponderant evidence.

Our finding is that the fraud alleged by the petitioner has not been satisfactorily established to call for the
annulment of the contract. This finding is based on the following considerations.

First, it was the petitioner who admittedly approached the private respondent, who never advertised the
property nor offered it for sale to her.

Second, the petitioner had full opportunity to inspect the premises, including the drainage canals
indicated in the vicinity map that was furnished her, before she entered into the contract of conditional
sale.

Third, it is assumed that she made her appraisal of the property not with the untrained eye of the ordinary
prospective buyer but with the experience and even expertise of the licensed real estate broker that she
was. 9 If she minimized the presence of the drainage canals, she has only her own negligence to blame.

Fourth, seeing that the lot was depressed and there was a drainage lot abutting it, she cannot say she
was not forewarned of the possibility that the place might be flooded. Notwithstanding the obvious
condition of the property, she still decided to buy it.

Fifth, there is no evidence except her own testimony that two previous owners of the property had
vacated it because of the floods and that Francisco assured her that the house would not be flooded
again. The supposed previous owners were not presented as witnesses and neither were the neighbors.
Francisco himself denied having made the alleged assurance.

Sixth, the petitioner paid the 1970 and 1971 amortizations even if, according to her Complaint, "since
1969 said lot had been under floods of about one (1) foot deep," 10 and despite the floods of September
and November 1970.

Seventh, it is also curious that notwithstanding the said floods, the petitioner still "made annexes and
decorations on the house," 11 all of a permanent nature, for which she now claims reimbursement from
the private respondent.

To repeat, it has not been satisfactorily established that the private respondent inveigled the petitioner
through false representation to buy the subject property. Assuming that he did make such
representations, as the petitioner contends, she is deemed to have accepted them at her own risk and
must therefore be responsible for the consequences of her careless credulousness. In the case
of Songco v. Sellner, 12 the Court said:

The law allows considerable latitude to seller's statements, or dealer's talk, and experience
teaches that it is exceedingly risky to accept it at it at face value. . . .

Assertions concerning the property which is the subject of a contract of sale, or in regard to its
qualities and characteristics, are the usual and ordinary means used by sellers to obtain a high
price and are always understood as affording to buyers no ground for omitting to make inquiries.
A man who relies upon such an affirmation made by a person whose interest might so readily
prompt him to exaggerate the value of his property does so at his peril, and must take the
consequences of his own imprudence.

We have also held that "one who contracts for the purchase of real estate in reliance on the
representations and statements of the vendor as to its character and value, but after he has visited and
examined it for himself and has had the means and opportunity of verifying such statements, cannot
avoid the contract on the ground that they were false and exaggerated." 13

''The Court must also reject the petitioner's contention that the lot on which the house stands is a portion
of a creek and therefore outside the commerce of man as part of the public domain.
The said property is covered by TCT No. 102167 of the Registry of Deeds of Quezon City. Under the
Land Registration Act, title to the property covered by a Torrens certificate becomes indefeasible after the
expiration of one year from the entry of the decree of registration. Such decree of registration is
incontrovertible and is binding on all persons whether or not they were notified of or participated in the
registration proceedings.

If such title is to be challenged, it may not be done collaterally as in the present case, because the judicial
action required is a direct attack. Section 48 of the Property Registration Decree expressly provides that a
certificate of title cannot be subject collateral attack and can be altered, modified or cancelled only in a
direct proceeding in accordance with law. This was the same rule under Act 496. 14 Moreover, the right
of reversion belongs to the State and may be invoked on its behalf only by the Solicitor General. 15
It is true, as the private respondents have insisted and the respondent court has found, that the Contract
of Conditional Sale contains the following condition:

(d) That should the SECOND PARTY fail to make any of the payments referred to in the
aforesaid paragraphs 2(a) and (b), of this contract of conditional sale, shall be considered
automatically rescinded and cancelled without the necessity of notice to the SECOND PARTY, or
of any judicial declaration to that effect, and any and all sums paid by the SECOND PARTY shall
be considered rents and liquidated damages for the breach of this contract, and the SECOND
PARTY shall forthwith vacate the foresaid property peacefully.

Nevertheless, we cannot say that the petitioner was, strictly speaking, in default in the payment of the
remaining amortizations in the sense contemplated in that stipulation. She was not simply unable to make
the required payments. The fact is she refused to make such payments. If she suspended her payments,
it was because she felt she was justified in doing so in view of the defects she found in the property. It is
noteworthy that it was she who sued the private respondent, not the other way round, and that it was she
who argued that the seller was not entitled to the additional installments because of his violation of the
contract. If she asked for the annulment of the contract and the refund to her of the payments she had
already made, plus damages, it was because she felt she had the right to do so.

Given such circumstances, the Court feels and so holds that the above-quoted stipulation should not be
strictly enforced, to justify the rescission of the contract. To make her forfeit the payments already made
by her and at the same time return the property to the private respondents for standing up to what she
considered her right would, in our view, be unfair and unconsionable. Justice demands that we moderate
the harsh effects of the stipulation. Accordingly, in the exercise of our equity jurisdiction, we hereby rule
that the Contract of Conditional Sale shall be maintained between the parties except that the petitioner
shall not return the house to the private respondents. However, she will have to pay them the balance of
the purchase price in the sum of P52,500.00, ** with 12% annual interest from July 1, 1972, until full
payment.

Obviously, rejection of the petitioner's claim for moral and exemplary damages must also be sustained.

What we see here is a bad bargain, not an illegal transaction vitiated by fraud. While we may
commiserate with the petitioner for a purchase that has proved unwise, we can only echo what Mr.
Justice Moreland observed in Vales v. Villa, 16 thus:
. . . Courts cannot follow one every step of his life and extricate him from bad bargains, protect him from
unwise investments, relieve him from one-sided contracts, or annul the effects of foolish acts. Courts
cannot constitute themselves guardians of persons who are not legally incompetent. Courts operate not
because one person has been defeated or overcome by another, but because he has been defeated or
overcome illegally. Men may do foolish things, make ridiculous contracts, use miserable judgment, and
lose money by them indeed, all they have in the world; but not for that alone can the law intervene and
restore. There must be, in addition, a violation of law, the commission of what the law knows as
an actionable wrong, before the courts are authorized to lay hold of the situation and remedy it.

WHEREFORE, the appealed decision is AFFIRMED as above modified, with no pronouncement as to


costs. It is so ordered.

Narvasa, C.J., Feliciano, Grio-Aquino and Medialdea, JJ., concur.


G.R. No. L-11513 December 4, 1917

LAMBERTO SONGCO, plaintiff-appellee,


vs.
GEORGE C. SELLNER, defendant-appellant.

Thos. D. Aitken for appellant.


Perfecto Gabriel for appellee.

STREET, J.:
In December, 1915, the defendant, George C. Sellner, was the owner of a farm at Floridablanca,
Pampanga, which was contiguous to a farm owned by the plaintiff Lamberto Songco. Both properties had
a considerable quantity of the sugar cane ready to be cut. At Dinalupijan, a short distance away, was
located a sugar central, and Sellner desired to mill his cane at this central. One obstacle was that the
owners of the central were not sure they could mill his cane and would not promise to take it. Sellner,
however, learning that the central was going to mill Songco's cane, conceived the idea of buying the cane
of the latter, expecting to run his own cane in that same time the other should be milled. Another motive
which evidently operated upon the mind of Sellner was the desire to get a right of way over Songco's land
for converting his own sugar to the central. Accordingly he bought Songco's cane as it stood in the fields
for the agreed sum of P12,000 and executed therefor three promissory notes of P4,000 each. Two of
these notes were paid; and the present action was instituted to recover upon the third. From a judgement
rendered in favor of the plaintiff, the defendant has appealed.

The note, upon which the action was brought, was exhibited with the complaint. The answer of the
defendant was made under oath, and contained a general denial of all the allegations of the complaint.
The answer also contained the allegation, asserted by way of special defense, that the promissory note in
question was obtained from the defendant by means of certain false and fraudulent representations
therein specified. The note was admitted in evidence by the court; and error is here assigned upon this
action, on the ground that the genuineness and due execution of the note was not proved. There is
nothing in this contention for several reasons. In the first place a general denial of a complaint does not
raise a question as to the genuineness or due execution of a written instrument. Under section 103 of the
Code of Civil Procedure it is necessary that the genuineness and due execution of the instrument shall be
specifically denied before an issue is raised up on this point. This means that the defendant must declare
under oath that he did not sign the document or that it is otherwise false or fabricated. Neither does the
statement of the answer to the effect that the instrument was procured by fraudulent representation raise
any issue as to its genuineness or due execution. On the contrary such a plea is an admission both of the
genuineness and due execution thereof, since it seeks to avoid the instrument upon a ground not
affecting either. Furthermore, in this particular case the fourth paragraph of the answer expressly admits
the execution of the instrument by the defendant.

The principal defense here urged relates to a false representation which, it is claimed, was made by the
plaintiff Songco with respect to the quantity of uncut cane standing in the fields at the time the defendant
Sellner became the purchaser thereof. Upon this point it is proved that Songco estimated that this cane
would produce 3,000 piculs of the sugar and that Sellner bought the crop believing this estimate to be
substantially correct. As the crop turned out it produced 2,017 piculs, gross, and after the toll for milling
was deducted the net left to Sellner was very much less. It appears that in the course of negotiations
Sellner requested Songco to guarantee the quantity which the latter claimed to be in fields but he would
not do so. He, however, repeated that he was sure the fields contained the quantity estimated by him.
Some evidence was introduced tending to show that the disparity between Songco's estimate and the
quantity actually obtained would have been more expeditiously conducted. We do not think there is much
in this; and even making allowance for weight unnecessary lost, the harvest fell far short of the amount
estimated by Songco. We think it is fairly shown by the evidence that Songco knew at the time he made
the representation in question that he was greatly exaggerating the probable produce of his fields, and it
is impossible to believe that his estimate honestly reflected his true opinion. He knew what these same
fields had been producing over a long period of years; and he knew that, judging from the customary
yield, the harvest of this year should fall far below the amount stated.

Notwithstanding the fact that Songco's statement as to the probable output of his crop was disingenuous
and uncandid, we nevertheless think that Sellner was bound and that he must pay the price stipulated.
The representation in question can only be considered matter of opinion as the cane was still standing in
the field, and the quantity of the sugar it would produce could not be known with certainty until it should
be harvested and milled. Undoubtedly Songco had better experience and better information on which to
form an opinion on this question than Sellner. Nevertheless the latter could judge with his own eyes as to
the character of the cane, and it is shown that he measured the fields and ascertained that they contained
96 1/2 hectares.

It is of course elementary that a misinterpretation upon a mere matter of opinion is not an actionable
deceit, nor is it a sufficient ground for avoiding a contract as fraudulent. We are aware that statements
may be found in the books to the effect that there is a difference between giving an honest opinion and
making a false representation as to what one's real opinion is. We do not think, however, that this is a
case where any such distinction should be drawn.

The law allows considerable latitude to seller's statements, or dealer's talk; and experience teaches that it
is exceedingly risky to accept it at its face value. The refusal of the seller to warrant his estimate should
have admonished the purchaser that that estimate was put forth as a mere opinion; and we will not now
hold the seller to a liability equal to that which would have been created by a warranty, if one had been
given.

Assertions concerning the property which is the subject of a contract of sale, or in regard to its qualities
and characteristics, are the usual and ordinary means used by sellers to obtain a high price and are
always understood as affording to buyers no ground for omitting to make inquiries. A man who relies
upon such an affirmation made by a person whose interest might so readily prompt him to exaggerate the
value of his property does so at his peril, and must take the consequences of his own imprudence. The
principles enunciated above are fully supported by the weight of the judicial authority. In a case where the
owners of a certain logs represented to their vendee that the logs would produce a greater per cent of
superior lumber than was actually realized, but refused to warrant their quality and required the vendee to
examine for himself before making the contract, it was held that the vendee could not avoid the contract.
(Fauntleroy vs. Wilcox, 80 Ill., 477.) In Williamson vs. Holt (147 N. C., 515; 17 L. R. A. [N. S.], 240), it
appeared that the defendant had bought an ice plant with the knowledge that its operation had been
abandoned because the output did not equal its capacity. He had full opportunity to investigate its
condition. It was held that he could not avoid paying the purchase price because the vendor stated that,
with some repairs, it would turn out about a certain amount per day. In Poland vs. Brownell (131 Mass.,
138), where a man who bought a stock of goods had ample opportunity to examine and investigate, it
was held that he could not rely on the seller's misrepresentations as to the value of the goods or the
extent of the business. It would have been different if the seller had fraudulently induced him to forbear
inquiries or examination which he would otherwise have made.

It is not every false representation relating to the subject matter of a contract which will render it void. It
must be as to matters of fact substantially affecting the buyer's interest, not as to matters of opinion,
judgment, probability, or expectation. (Long vs. Woodman, 58 Me., 52; Hazard vs. Irwin, 18 Pick. [Mass.],
95; Gordon vs. Parmelee, 2 Allen [Mass.],212; Williamson vs. McFadden, 23 Fla., 143, 11 Am. St. Rep.,
345.) When the purchaser undertakes to make an investigation of his own, and the seller does nothing to
prevent this investigation from being as full as he chooses to make it, the purchaser cannot afterwards
allege that the seller made misrepresentations. (National Cash Register Co. vs. Townsend, 137 N. C.,
652, 70 L. R. A., 349; Williamson vs. Holt, 147 N. C., 515.) 1awphi1.net

We are aware that where one party to a contract, having special or expert knowledge, takes advantage of
the ignorance of another to impose upon him, the false representation may afford ground for relief, though
otherwise the injured party would be bound. But we do not think that the fact that Songco was an
experienced farmer, while Sellner was, as he claims, a mere novice in the business, brings this case
within that exception.

An incident of this action was that the plaintiffs sued out an attachment against the defendant, at the time
of the institution of the suit, upon the ground that he was disposing of his property in fraud of his creditors.
This charge was completely refuted by proof showing that the defendant is a man of large resources and
had not attempted to convey away his property as alleged. The court below therefore found that this
attachment had been wrongfully sued out, and awarded damages to the defendant equivalent to the
amount actually paid out by him in procuring the dissolution of the attachment. No appeal was taken from
this action of the court by the plaintiff; but the defendant assigns error to the action of the court in refusing
to award to him further damages for the injury done to his credit. In this connection he shows that one of
his creditors, being appraised of the fact that the defendant had been made the subject of an attachment,
withheld further credit and forced him to sell a large quantity of sugar at a price much lower than he would
have received if he could have carried it a few weeks longer. We think the court below committed no error
in refusing to award damages upon this grounds, as such damages were remote and speculative. It could
hardly be foreseen as a probable consequence of the suing out of this attachment that the hands of the
creditors would come down upon their unfortunate client with such disastrous results; and the plaintiff
certainly cannot be held accountable for the complications of the defendant's affairs which made possible
the damage which in fact resulted. The court below also refused to award punitive damages claimed by
the plaintiff on the ground that the attachment was maliciously sued out. The action of the court in this
respect will not be here disturbed.

From what has been said it follows that the judgment of the court below must be affirmed, with costs
against the appellant. So ordered.

Arellano, C. J., Torres, Carson, Araullo, and Malcolm, JJ., concur.


G.R. No. L-11872 December 1, 1917

DOMINGO MERCADO and JOSEFA MERCADO, plaintiffs-appellants,


vs.
JOSE ESPIRITU, administrator of the estate of the deceased Luis Espiritu, defendant-appellee.

Perfecto Salas Rodriguez for appellants.


Vicente Foz for appellee.

TORRES, J.:
This is an appeal by bill of exceptions, filed by the counsel for the plaintiffs from the judgment of
September 22, 1914, in which the judge of the Seventh Judicial District dismissed the complaint filed by
the plaintiffs and ordered them to keep perpetual silence in regard to the litigated land, and to pay the
costs of the suit.

By a complaint dated April 9, 1913, counsel for Domingo and Josefa Mercado brought suit in the Court of
First Instance of Bulacan, against Luis Espiritu, but, as the latter died soon thereafter, the complaint was
amended by being directed against Jose Espiritu in his capacity of his administrator of the estate of the
deceased Luis Espiritu. The plaintiffs alleged that they and their sisters Concepcion and Paz, all
surnamed Mercado, were the children and sole heirs of Margarita Espiritu, a sister of the deceased Luis
Espiritu; that Margarita Espiritu died in 1897, leaving as her paraphernal property a tract of land of 48
hectares in area situated in the barrio of Panducot, municipality of Calumpit, Bulacan, and bounded as
described in paragraph 4 of the amended complaint, which hereditary portion had since then been held
by the plaintiffs and their sisters, through their father Wenceslao Mercado, husband of Margarita Espiritu;
that, about the year 1910, said Luis Espiritu, by means of cajolery, induced, and fraudulently succeeded
in getting the plaintiffs Domingo and Josefa Mercado to sign a deed of sale of the land left by their
mother, for the sum of P400, which amount was divided among the two plaintiffs and their sisters
Concepcion and Paz, notwithstanding the fact that said land, according to its assessment, was valued at
P3,795; that one-half of the land in question belonged to Margarita Espiritu, and one-half of this share,
that is, one-fourth of said land , to the plaintiffs, and the other one-fourth, to their two sisters Concepcion
and Paz; that the part of the land belonging to the two plaintiffs could produce 180 cavanes of rice per
annum, at P2.50 per cavan, was equivalent to P450 per annum; and that Luis Espiritu had received said
products from 1901 until the time of his death. Said counsel therefore asked that judgment be rendered in
plaintiffs' favor by holding to be null and void the sale they made of their respective shares of their land, to
Luis Espiritu, and that the defendant be ordered to deliver and restore to the plaintiffs the shares of the
land that fell to the latter in the partition of the estate of their deceased mother Margarita Espiritu, together
with the products thereof, uncollected since 1901, or their equivalent, to wit, P450 per annum, and to pay
the costs of the suit.

In due season the defendant administrator answered the aforementioned complaint, denying each and all
of the allegations therein contained, and in special defense alleged that the land, the subject-matter of the
complaint, had an area of only 21 cavanes of seed rice; that, on May 25, 1894, its owner, the deceased
Margarita Espiritu y Yutoc, the plaintiffs' mother, with the due authorization of her husband Wenceslao
Mercado y Arnedo Cruz sold to Luis Espiritu for the sum of P2,000 a portion of said land, to wit, an area
such as is usually required for fifteen cavanes of seed; that subsequently, on May 14, 1901, Wenceslao
Mercado y Arnedo Cruz, the plaintiffs' father, in his capacity as administrator of the property of his
children sold under pacto de retro to the same Luis Espiritu at the price of P375 the remainder of the said
land, to wit, an area covered by six cavanes of seed to meet the expenses of the maintenance of his
(Wenceslao's) children, and this amount being still insufficient the successively borrowed from said Luis
Espiritu other sums of money aggregating a total of P600; but that later, on May 17,1910, the plaintiffs,
alleging themselves to be of legal age, executed, with their sisters Maria del Consejo and Maria dela Paz,
the notarial instrument inserted integrally in the 5th paragraph of the answer, by which instrument,
ratifying said sale under pacto de retro of the land that had belonged to their mother Margarita Espiritu,
effected by their father Wenceslao Mercado in favor of Luis Espiritu for the sum of P2,600, they sold
absolutely and perpetually to said Luis Espiritu, in consideration of P400, the property that had belonged
to their deceased mother and which they acknowledged having received from the aforementioned
purchaser. In this cross-complaint the defendant alleged that the complaint filed by the plaintiffs was
unfounded and malicious, and that thereby losses and damages in the sum of P1,000 had been caused
to the intestate estate of the said Luis Espiritu. He therefore asked that judgment be rendered by ordering
the plaintiffs to keep perpetual silence with respect to the land in litigation and, besides, to pay said
intestate estate P1,000 for losses and damages, and that the costs of the trial be charged against them.

In reply to the cross-complaint, the plaintiffs denied each and all of the facts therein set forth, and in
special defense alleged that at the time of the execution of the deed of sale inserted in the cross-
complaint the plaintiffs were still minors, and that since they reached their majority the four years fixed by
law for the annulment of said contract had not yet elapsed. They therefore asked that they be absolved
from the defendant's cross-complaint.

After trial and the introduction of evidence by both parties, the court rendered the judgment
aforementioned, to which the plaintiffs excepted and in writing moved for a reopening of the case and a
new trial. This motion was overruled, exception was taken by the petitioners, and the proper bill of
exceptions having been presented, the same was approved and transmitted to the clerk of this court.

As the plaintiffs assailed the validity of the deed of sale, Exhibit 3, executed by them on May 17, 1910, on
the ground that they were minors when they executed it, the questions submitted to the decision of this
court consist in determining whether it is true that the plaintiffs were then minors and therefore incapable
of selling their property on the date borne by the instrument Exhibit 3; and in case they then were such,
whether a person who is really and truly a minor and, notwithstanding, attests that he is of legal age, can,
after the execution of the deed and within legal period, ask for the annulment of the instrument executed
by him, because of some defect that invalidates the contract, in accordance with the law (Civ. Code, arts.
1263 and 1300), so that he may obtain the restitution of the land sold.

The records shows it to have been fully proven that in 1891 Lucas Espiritu obtained title by composition
with the State, to three parcels of land, adjoining each other, in the sitio of Panducot of the pueblo of
Calumpit, Bulacan, containing altogether an area of 75 hectares, 25 ares, and 59 centares, which facts
appear in the title Exhibit D; that, upon Luis Espiritu's death, his said lands passed by inheritance to his
four children named Victoria, Ines, Margarita, and Luis; and that, in the partition of said decedent's estate,
the parcel of land described in the complaint as containing forty-seven and odd hectares was allotted to
the brother and sister Luis and Margarita, in equal shares. Margarita Espiritu, married to Wenceslao
Mercado y Ardeno Cruz, had by this husband five children, Maria Consejo, Maria de la Paz, Domingo,
Josefa, and Amalia, all surnamed Mercado y Espiritu, who, at the death of their mother in 1896 inherited,
by operation of law, one-half of the land described in the complaint.

The plaintiffs' petition for annulment of the sale and the consequent restitution to them of two-fourths of
the land left by their mother, that is, of one-fourth of all the land described in the complaint, and which,
they stated, amounts to 11 hectares, 86 ares and 37 centares. To this claim the defendant excepted,
alleging that the land in question comprised only an area such as is customarily covered by 21 cavanes of
seed.

It was also duly proven that, by a notarial instrument of May 25, 1894, the plaintiffs' mother conveyed by
actual and absolute sale for the sum of P2,000, to her brother Luis Espiritu a portion of the land now on
litigation, or an area such as is usually covered by about 15 cavanes of seed; and that, on account of the
loss of the original of said instrument, which was on the possession of the purchaser Luis Espiritu, and
furthermore because, during the revolution, the protocols or registers of public documents of the Province
of Bulacan were burned, Wenceslao Mercado y Arnedo Cruz, the widower of the vendor and father of the
plaintiffs, executed, at the instance of the interested party Luis Espiritu, the notarial instrument Exhibit 1,
of the date of May 20, 1901, in his own name and those of his minor children Maria Consejo, Maria de la
Paz, Domingo, Josefa, and Amalia, and therein set forth that it was true that the sale of said portion of
land had been made by his aforementioned wife, then deceased, to Luis Espiritu in 1894.
However, even prior to said date, to wit, on May 14th of the same year, 1901, the widower Wenceslao
Mercado, according to the private document Exhibit 2, pledged or mortgaged to the same man, Luis
Espiritu, for P375, a part, or an area covered by six cavanes of seed, of the land that had belonged to this
vendor's deceased wife, to the said Luis Espiritu and which now forms a part of the land in question a
transaction which Mercado was obliged to make in order to obtain funds with which "to cover his
children's needs." Wenceslao Mercado, the plaintiffs' father, having died, about the year 1904, the
plaintiffs Domingo and Josefa Mercado, together with their sisters Consejo and Paz, declaring
themselves to be of legal age and in possession of the required legal status to contract, executed and
subscribed before a notary the document Exhibit 3, on May 17, 1910, in which referring to the previous
sale of the land, effected by their deceased mother for the sum of P2,600 and with her husband's
permission and authorization, they sold absolutely and in perpetuity to Luis Espiritu, for the sum of P400
"as an increase" of the previous purchase price, the land described in said instrument and situated in
Panducot, pueblo of Calumpit, Bulacan, of an area equal to that usually sown with 21 cavanes of seed
bounded on the north by the lands of Flaviano Abreu and the heirs of Pedro Espiritu, on the east by those
of Victoria Espiritu and Ines Espiritu, on the south by those of Luis Espiritu, and on the west by those of
Hermogenes Tan-Toco and by the Sapang-Maitu stream.

In this status of the case the plaintiffs seek the annulment of the deed Exhibit 3, on the ground that on the
date of its execution they were minors without legal capacity to contract, and for the further reason that
the deceased purchaser Luis Espiritu availed himself of deceit and fraud in obtaining their consent for the
execution of said deed.

As it was proven by the testimony of the clerk of the parochial church of Apalit (plaintiffs were born in
Apalit) that the baptismal register books of that parish pertaining to the years 1890-1891, were lost or
burned, the witness Maria Consejo Mercado recognized and identified the book Exhibit A, which she
testified had been kept and taken care of by her deceased father Wenceslao Mercado, pages 396 and
397 of which bear the attestation that the plaintiff Domingo Mercado was born on August 4, 1890, and
Josefa Mercado, on July 14, 1891. Furthermore, this witness corroborated the averment of the plaintiffs'
minority, by the personal registration certificate of said Domingo Mercado, of the year 1914, Exhibit C, by
which it appears that in 1910 he was only 23 years old, whereby it would also be appear that Josefa
Mercado was 22 years of age in 1910, and therefore, on May 17,1910, when the instrument of purchase
and sale, Exhibit 3, was executed, the plaintiffs must have been, respectively, 19 and 18 years of age.

The witness Maria Consejo Mercado also testified that after her father's death her brother and sisters
removed to Manila to live there, although her brother Domingo used to reside with his uncle Luis Espiritu,
who took charge of the administration of the property left by his predecessors in interest; that it was her
uncle Luis who got for her brother Domingo the other cedula, Exhibit B, pertaining to the year 1910,
where in it appears that the latter was then already 23 years of age; that she did not know why her uncle
did so; that she and her brother and sisters merely signed the deed of May 17, 1910; and that her father
Wenceslao Mercado, prior to his death had pledged the land to her uncle Luis Espiritu.

The witness Ines Espiritu testified that after the death of the plaintiffs' father, it was Luis Espiritu who
directed the cultivation of the land in litigation. This testimony was corroborated by her sister Victoria
Espiritu, who added that her nephew, the plaintiff Domingo, had lived for some time, she did not know just
how long, under the control of Luis Espiritu.

Roque Galang, married to a sister of Luis Espiritu, stated that the land that fell to his wife and to his sister-
in-law Victoria, and which had an area of about 8 hectares less than that of the land allotted to the
aforementioned Luis and Margarita produced for his wife and his sister-in-law Victoria a net and minimum
yield of 507 cavanes in 1907, in spite of its being high land and of inferior quality, as compared with the
land in dispute, and that its yield was still larger in 1914, when the said two sisters' share was 764
cavanes.

Patricio Tanjucto, the notary before whom the deed Exhibit 3 was ratified, was a witness for the
defendant. He testified that this deed was drawn up by him at the request of the plaintiff Josefa Mercado;
that the grantors of the instrument assured him that they were all of legal age; that said document was
signed by the plaintiffs and the other contracting parties, after it had been read to them and had been
translated into the Pampangan dialect for those of them who did not understand Spanish. On cross-
examination, witness added that ever since he was 18 years of age and began to court, he had known
the plaintiff Josefa Mercado, who was then a young maiden, although she had not yet commenced to
attend social gatherings, and that all this took place about the year 1898, for witness said that he was
then [at the time of his testimony, 1914,] 34 years of age.

Antonio Espiritu, 60 years of age, who knew Lucas Espiritu and the properties owned by the latter,
testified that Espiritu's land contained an area of 84 cavanes, and after its owner's death, was under
witness' administration during to harvest two harvest seasons; that the products yielded by a portion of
this land, to wit, an area such as is sown by about 15 cavanes of seed, had been, since 1894, utilized by
Luis Espiritu, by reason of his having acquired the land; and that, after Margarita Espiritu's death, her
husband Wenceslao Mercado took possession of another portion of the land, containing an area of six
cavanes of seed and which had been left by this deceased, and that he held same until 1901, when he
conveyed it to Luis Espiritu. lawphi1.net

The defendant-administrator, Jose Espiritu, son of the deceased Luis Espiritu, testified that the plaintiff
Domingo Mercado used to live off and on in the house of his deceased father, about the year 1909 or
1910, and used to go back and forth between his father's house and those of his other relatives. He
denied that his father had at any time administered the property belonging to the Mercado brother and
sisters.

In rebuttal, Antonio Mercado, a cousin of Wenceslao, father of the plaintiffs, testified that he mediate in
several transactions in connection with a piece of land belonging to Margarita Espiritu. When shown the
deed of purchase and sale Exhibit 1, he stated that he was not acquainted with its contents. This same
witness also testified that he mediated in a transaction had between Wenceslao Mercado and Luis
Espiritu (he did not remember the year), in which the former sold to the latter a parcel of land situated in
Panducot. He stated that as he was a witness of the deed of sale he could identify this instrument were it
exhibited to him; but he did not do so, for no instrument whatever was presented to him for identification.
The transaction mentioned must have concerned either the ratification of the sale of the land of 15
cavanes, in 1901, attested in Exhibit 1, or the mortgage or pledge of the other parcel of 6 cavanes, given
on May 14, 1901, by Wenceslao Mercado to Luis Espiritu, as may be seen by the private document
Exhibit 2. In rebuttal, the plaintiff Josefa Mercado denied having gone to the house of the notary Tanjutco
for the purpose of requesting him to draw up any document whatever. She stated that she saw the
document Exhibit 3 for the first time in the house of her uncle Luis Espiritu on the day she signed it, on
which occasion and while said document was being signed said notary was not present, nor were the
witnesses thereto whose names appear therein; and that she went to her said uncle's house, because he
had sent for her, as well as her brother and sisters, sending a carromata to fetch them. Victoria Espiritu
denied ever having been in the house of her brother. Luis Espiritu in company with the plaintiffs, for the
purpose of giving her consent to the execution of any deed in behalf of her brother.

The evidence adduced at the trial does not show, even circumstantially, that the purchaser Luis Espiritu
employed fraud, deceit, violence, or intimidation, in order to effect the sale mentioned in the document
Exhibit 3, executed on May 17, 1910. In this document the vendors, the brother and the sisters Domingo,
Maria del Consejo, Paz and, Josefa surnamed Mercado y Espiritu, attested the certainty of the previous
sale which their mother, during her lifetime, had made in behalf of said purchaser Luis Espiritu, her
brother with the consent of her husband Wenceslao Mercado, father of the vendors of the portion of land
situated in the barrio of Panducot, pueblo of Calumpit, Bulacan; and in consideration of the fact that the
said vendor Luis Espiritu paid them, as an increase, the sum of P400, by virtue of the contract made with
him, they declare having sold to him absolutely and in perpetuity said parcel of the land, waive and
thenceforth any and all rights they may have, inasmuch as said sum constitutes the just price of the
property.
So that said document Exhibit 3 is virtually an acknowledgment of the contract of sale of the parcel or
portion of land that would contain 15 cavanes of seed rice made by the vendors' mother in favor of the
purchaser Luis Espiritu, their uncle, and likewise an acknowledgment of the contract of pledge or
mortgage of the remainder of said land, an area of six cavanes, made with the same purchaser, at an
increase of P400 over the price of P2,600, making an aggregate sum of P3,000, decomposed as follows:
P2,000, collected during her lifetime, by the vendors' father; and the said increase of P400, collected by
the plaintiffs.

In the aforementioned sale, according to the deed of May 25, 1894, Margarita Espiritu conveyed to her
brother Luis the parcel of 15 cavanes of seed, Exhibit 1, and after her death the plaintiffs' widowed father
mortgaged or pledged the remaining parcel or portion of 6 cavanes of seed to her brother-in-law, Luis
Espiritu, in May, 1901 (Exhibit 2). So it is that the notarial instrument Exhibit 3, which was assailed by the
plaintiffs, recognized the validity of the previous contracts, and the totality of the land, consisting of an
area containing 21 cavanes of seed rice, was sold absolutely and in perpetuity, the vendors receiving in
exchange P400 more; and there is no conclusive proof in the record that this last document was false and
simulated on account of the employment of any violence, intimidation, fraud, or deceit, in the procuring of
the consent of the vendors who executed it.

Considering the relation that exists between the document Exhibit 3 and those of previous dates, Exhibits
1 and 2, and taking into the account the relationship between the contracting parties, and also the general
custom that prevails in many provinces of these Islands for the vendor or debtor to obtain an increase in
the price of the sale or of the pledge, or an increase in the amount loaned, without proof to the contrary, it
would be improper and illegal to hold, in view of the facts hereinabove set forth, that the purchaser Luis
Espiritu, now deceased, had any need to forge or simulate the document Exhibit 3 inasmuch as, since
May, 1894, he has held in the capacity of owner by virtue of a prior acquisition, the parcel of land of 15
cavanes of seed, and likewise, since May, 1901, according to the contract of mortgage or pledge, the
parcel of 6 cavanes, or the remainder of the total area of 21 cavanes.

So that Luis Espiritu was, during his lifetime, and now, after his death, his testate or intestate estate is in
lawful possession of the parcel of land situated in Panducot that contains 21 cavanes of seed, by virtue of
the title of conveyance of ownership of the land measuring 15 cavanes, and, in consequence of the
contract of pledge or mortgage in security for the sum of P600, is likewise in lawful possession of the
remainder of the land, or an area containing 6 cavanes of seed.

The plaintiffs have absolutely no right whatever to recover said first parcel of land, as its ownership was
conveyed to the purchaser by means of a singular title of purchase and sale; and as to the other portion
of 6 cavanes of seed, they could have redeemed it before May 17, 1910, upon the payment or the return
of the sum which their deceased father Wenceslao Mercado had, during his lifetime, received as a loan
under security of the pledged property; but, after the execution of the document Exhibit 3, the creditor
Luis Espiritu definitely acquired the ownership of said parcel of 6 cavanes. It is therefore a rash venture to
attempt to recover this latter parcel by means of the contract of final and absolute sale, set forth in the
deed Exhibit 3.

Moreover, the notarial document Exhibit 1, are regards the statements made therein, is of the nature of a
public document and is evidence of the fact which gave rise to its execution and of the date of the latter,
even against a third person and his predecessors in interest such as are the plaintiffs. (Civ. Code, art.
1218.)

The plaintiffs' father, Wenceslao Mercado, recognizing it to be perfectly true that his wife Margarita
Espiritu sold said parcel of land which she inherited from her father, of an area of about "15 cavanes of
seed," to her brother Luis Espiritu, by means of an instrument executed by her on May 25,1894 an
instrument that disappeared or was burned and likewise recognizing that the protocols and register
books belonging to the Province of Bulacan were destroyed as a result of the past revolution, at the
request of his brother-in-law Luis Espiritu he had no objection to give the testimony recorded in said
notarial instrument, as it was the truth regarding what had occurred, and in so doing he acted as the
plaintiffs' legitimate father in the exercise of his parental authority, inasmuch as he had personal
knowledge of said sale, he himself being the husband who authorized said conveyance, notwithstanding
that his testimony affected his children's interest and prejudiced his own, as the owner of any fruits that
might be produced by said real property.

The signature and handwriting of the document Exhibit 2 were identified as authentic by one of the
plaintiffs, Consejo Mercado, and as the record shows no evidence whatever that this document is false,
and it does not appear to have been assailed as such, and as it was signed by the plaintiffs' father, there
is no legal ground or well-founded reason why it should be rejected. It was therefore properly admitted as
evidence of the certainty of the facts therein set forth.

The principal defect attributed by the plaintiffs to the document Exhibit 3 consists in that, on the date of
May 17, 1910, when it was executed that they signed it, they were minors, that is, they had not yet
attained the age of 21 years fixed by Act No. 1891, though no evidence appears in the record that the
plaintiffs Josefa and Domingo Mercado were in fact minors, for no certified copies were presented of their
baptismal certificates, nor did the plaintiffs adduce any supplemental evidence whatever to prove that
Domingo was actually 19 and Josefa 18 years of age when they signed the document Exhibit 3, on May
17, 1910, inasmuch as the copybook, Exhibit A, notwithstanding the testimony of the plaintiff Consejo
Mercado, does not constitute sufficient proof of the dates of births of the said Domingo and Josefa.

However, even in the doubt whether they certainly were of legal age on the date referred to, it cannot be
gainsaid that in the document Exhibit 3 they stated that they were of legal age at the time they executed
and signed it, and on that account the sale mentioned in said notarial deed Exhibit 3 is perfectly valid a
sale that is considered as limited solely to the parcel of land of 6 cavanes of seed, pledged by the
deceased father of the plaintiffs in security for P600 received by him as a loan from his brother-in-law Luis
Espiritu, for the reason that the parcel of 15 cavanes had been lawfully sold by its original owner, the
plaintiffs' mother.

The courts, in their interpretation of the law, have laid down the rule that the sale of real estate, made by
minors who pretend to be of legal age, when in fact they are not, is valid, and they will not be permitted to
excuse themselves from the fulfillment of the obligations contracted by them, or to have them annulled in
pursuance of the provisions of Law 6, title 19, of the 6th Partida; and the judgment that holds such a sale
to be valid and absolves the purchaser from the complaint filed against him does not violate the laws
relative to the sale of minors' property, nor the juridical rules established in consonance therewith.
(Decisions of the supreme court of Spain, of April 27, 1860, July 11, 1868, and March 1, 1875.) itc@alf

With respect to the true age of the plaintiffs, no proof was adduced of the fact that it was Luis Espiritu who
took out Domingo Mercado's personal registration certificate on April 13, 1910, causing the age of 23
years to be entered therein in order to corroborate the date of the notarial instrument of May 17th of the
same year; and the supposition that he did, would also allow it to be supposed, in order to show the
propriety of the claim, that the cedula Exhibit C was taken out on February 14, 1914, where in it is
recorded that Domingo Mercado was on that date 23 years of age, for both these facts are not proved;
neither was any proof adduced against the statement made by the plaintiffs Domingo and Josefa in the
notarial instrument Exhibit 3, that, on the date when they executed it, they were already of legal age, and,
besides the annotation contained in the copybook Exhibit A, no supplemental proof of their true ages was
introduced.

Aside from the foregoing, from a careful examination of the record in this case, it cannot be concluded
that the plaintiffs, who claim to have minors when they executed the notarial instrument Exhibit 3, have
suffered positive and actual losses and damages in their rights and interests as a result of the execution
of said document, inasmuch as the sale effected by the plaintiffs' mother, Margarita Espiritu, in May,
1894, of the greater part of the land of 21 cavanes of seed, did not occasion any damage or prejudice to
the plaintiffs, inasmuch as their father stated in the document Exhibit 2 that he was obliged to mortgage or
pledge said remaining portion of the land in order to secure the loan of the P375 furnished by Luis
Espiritu and which was subsequently increased to P600 so as to provide for certain engagements or
perhaps to meet the needs of his children, the plaintiff; and therefore, to judge from the statements made
by their father himself, they received through him, in exchange for the land of 6 cavanes of seed, which
passed into the possession of the creditor Luis Espiritu, the benefit which must have accrued to them
from the sums of money received as loans; and, finally, on the execution of the impugned document
Exhibit 3, the plaintiffs received and divided between themselves the sum of P400, which sum, added to
that P2,000 received by Margarita Espiritu, and to that of the P600 collected by Wenceslao Mercado,
widower of the latter and father of the plaintiffs, makes all together the sum of P3,000, the amount paid by
the purchaser as the price of all the land containing 21 cavanes of seed, and is the just price of the
property, was not impugned, and, consequently, should be considered as equivalent to, and
compensatory for, the true value of said land.

For the foregoing reasons, whereby the errors assigned to the judgment appealed from have been
refuted, and deeming said judgment to be in accordance with law and the evidence of record, we should,
and do hereby, affirm the same, with costs against the appellants. So ordered.

Arellano, C. J., Johnson, Street, and Malcolm, JJ., concur.

Separate Opinions

CARSON, J., concurring:

I concur.

But in order to avoid misunderstanding, I think it well to indicate that the general statement, in the
prevailing opinion to the effect that the making of false representations as to his age by an infant
executing a contract will preclude him from disaffirming the contract or setting up the defense of infancy,
must be understood as limited to cases wherein, on account of the minor's representations as to his
majority, and because of his near approach thereto, the other party had good reason to believe, and did
in fact believe the minor capable of contracting.

The doctrine set forth in the Partidas, relied upon by the supreme court of Spain in the cases cited in the
prevailing opinion, is substantially similar to the doctrine of estoppel as applied in like instances by many
of the courts in the United States.

For the purposes of convenient comparison, I here insert some citations of authority, Spanish and
American, recognizing the limitations upon the general doctrine to which I am inviting attention at this
time; and in this connection it is worthy of note that the courts of the United States look with rather less
favor than the supreme court of Spain upon the application of the doctrine, doubtless because the cases
wherein it may properly be applied, are much less likely to occur in a jurisdiction where majority is
reached at the age of 21 than a jurisdiction wherein majority is not ordinarily attained until the infant
reaches the age of 25.

Ley 6, tit. 19, Partida 6. is, in part, as follows:

If he who is minor (1) deceitfully says or sets forth in an instrument that he is over twenty-five
years of age, and this assertion is believed by another person who takes him to be of about that
age, (2) in an action at law he should be deemed to be of the age he asserted, and should no (3)
afterwards be released from liability on the plea that he was not of said age when he assumed
the obligation. The reason for this is that the law helps the deceived and not the deceivers.

In the glossary to these provisions of the Partidas by Gregorio Lopez, I find the following:
(1) De tal tiempo. Nota bene hoc verbum, nam si appareret ex aspectu eum esse minorem, tunc
adversarius non potest dicere se deceptum; imo tam ipse, quam minor videntur esse in dolo, quo
casu competit minori restitutio, quia facta doli compensatione, perinde ast ac si nullus fuiset in
dolo, et ideo datur restitutio; et quia scienti dolus non infertur, l. 1. D. de act. empt. secundum
Cyn. Alberic et Salic. in l. 3. C. si minor se major. dixer. adde Albericum tenentem, quabndo per
aspectum a liter constaret, in authent. sacramenta puberum, col. 3. C. si advers vendit.

(2) Engoosamente. Adde 1. 2. et 3. C. si minor se major. dixer. Et adverte nam per istam legem
Partitarum, que non distinguit, an adultus, vel pupillus talem assertionem faciat, videtur
comprobari dictum Guillielm. de Cun. de quo per Paul. de Castr. in 1. qui jurasse. in princ. D. de
jurejur. quod si pupillus proximus pubertari juret, cum contrahit, se esse puberem, et postea etiam
juret, quod non veniet contra contractum quod habebit locum dispositio authenticae sacramenta
puberum, sicut si esset pubes: et cum isto dicto transit ibi Paul. de Cast. multum commendans,
dicens, se alibi non legisse; si tamen teneamus illam opinionem, quod etiam pupillus doli capax
obligatur ex juramento, non esset ita miranda dicat, decissio; vide per Alexand. in dict. 1. qui
jurasse, in princ. Item lex ista Partitarum expresse sentit de adulto, non de pupillo, cum superius
dixit, que paresciere de tal tiempo: Doctores etiam intelligunt de adulto 11. dict. tit. C. si minor. se
major. dixer. et patet ex 11. illius tituli. Quid autem dicemus in dubio, cum non constat de dolo
minoris? Azon. in summa illius tit. in fin. Cynus tamen, et alli, tenent oppositum, quia dolus non
praesumitur, nisi probetur, 1. quotiens, s., qui dolo, D. de probat. Et hoc etiam vult ista lex
Partitarum, cum dicit, si lo faze engoosamente: et ita tenent Alberic. et Salicet. in dict. 1. 3. ubi
etiam Bart. in fin. Si autem minor sui facilitate asserat se mojorem, et ita juret, tunc distingue, ut
habetur dict. 1. 3 quia aut juravit verbo tenus, et tunc non restituitur, nisi per instrumentum seu
scripturam probet se minorem; et si juravit corporaliter, nullo modo restituitur, ut ibi; et per quae
instrumenta probentur, cum verbo tenus juravit, vide per Specul. tit. de restit, in integr. s. quis
autem, col. 4. vers. sed cujusmodi erit scriptura, ubi etiam vide per Speculatorem aliquas
notabiles quaestiones in ista materia, in col. 5. videlicet, an praejudicet sibi minor ex tali
juramento in aliis contractibus, et tenet, quod non; et tenet glossa finalis in 1. de aetate, D. de
minor. in fin. gloss. vide ibi per Speculat. ubi etiam de aliis in ista materia.

In the decision of the supreme court of Spain dated the 27th of April, 1860, I find an excellent illustration
of the conditions under which that court applied the doctrine, as appears from the following resolution
therein set forth.

Sales of real estate made by minors are valid when the latter pretend to be twenty-five years of
age and, due to the circumstances that they are nearly of that age, are married, or have
administration of their property, or on account of other special circumstances affecting them, the
other parties to the contract believe them to be of legal age.

With these citations compare the general doctrine in the United States as set forth in 22 Cyc. (p. 610),
supported by numerous citations of authority.

Estoppel to disaffirm (I) In General. The doctrine of estoppel not being as a general rule
applicable to infants, the court will not readily hold that his acts during infancy have created an
estoppel against him to disaffirm his contracts. Certainly the infant cannot be estopped by the
acts or admissions of other persons.

(II) False representations as to age. According to some authorities the fact that an infant at the
time of entering into a contract falsely represented to the person with whom he dealt that he had
attained the age of majority does not give any validity to the contract or estop the infant from
disaffirming the same or setting up the defense of infancy against the enforcement of any rights
thereunder; but there is also authority for the view that such false representations will create an
estoppel against the infant, and under the statutes of some states no contract can be disaffirmed
where, on account of the minor's representations as to his majority, the other party had good
reason to believe the minor capable of contracting. Where the infant has made no
representations whatever as to his age, the mere fact that the person with whom he dealt
believed him to be of age, even though his belief was warranted by the infant's appearance and
the surrounding circumstances, and the infant knew of such belief, will not render the contract
valid or estop the infant to disaffirm.
G.R. No. 114950 December 19, 1995

RAFAEL G. SUNTAY, substituted by his heirs, namely: ROSARIO, RAFAEL, JR., APOLINARIO,
RAYMUND, MARIA VICTORIA, MARIA ROSARIO and MARIA LOURDES, all surnamed
SUNTAY, petitioners,
vs.
THE HON. COURT OF APPEALS and FEDERICO C. SUNTAY, respondents.

HERMOSISIMA, JR., J.:

Grave danger of destitution and ruin or irretrievable loss of property awaits those who practise or condone
accommodation in order to circumvent the law or to hide from it. This case involving Federico Suntay, a
wealthy landowner from Bulacan, is in point. He is here pitted against his own lawyer, unfortunately his
own nephew, Rafael Suntay, in whose favor he signed and executed a deed of sale of a parcel of
valuable and productive real property for a measly P20,000.00. Federico claims that the sale was merely
simulated and has been executed only for purposes of accommodation. Rafael Suntay, to the
consternation or Federico, insists that the transaction was a veritable sale. Under what showing may the
sale be deemed susceptible of nullification for being simulated? Do we thereby abandon every reverence
we have hitherto reposed on instruments notarized before notaries public?

Before us is a Petition for Review on Certiorari of the Amended Decision1 of respondent Court of
Appeals2 and of its Resolution3 denying petitioner's motion for reconsideration.

These are the pertinent facts:

Respondent Federico Suntay was the registered4 owner of a parcel of land with an area of 5,118 square
meters, more or less, situated in Sto. Nio, Hagonoy, Bulacan. On the land may be found: a rice mill, a
warehouse, and other improvements. A rice miller, Federico, in a letter, dated September 30, 1960,
applied as a miller-contractor of the then National Rice and Corn Corporation (NARIC). He informed the
NARIC that he had a daily rice mill output of 400 cavans of palay and warehouse storage capacity of
150,000 cavans of palay.5 His application, although prepared by his nephew-lawyer, petitioner Rafael
Suntay,6 was disapproved,7 obviously because at that time he was tied up with several unpaid loans. For
purposes of circumvention, he had thought of allowing Rafael to make the application for him. Rafael
prepared8 an absolute deed of sale9 whereby Federico, for and in consideration of P20,000.00 conveyed
to Rafael said parcel of land with all its existing structures. Said deed was notarized as Document No. 57
and recorded on Page 13 of Book 1, Series of 1962, of the Notarial Register of Atty. Herminio V.
Flores. 10 Less than three months after this conveyance, a counter sale 11 was prepared 12 and
signed 13 by Rafael who also caused its delivery 14 to Federico. Through this counter conveyance, the
same parcel of land with all its existing structures was sold by Rafael back to Federico for the same
consideration of P20,000.00. 15 Although on its face, this second deed appears to have been notarized as
Document No. 56 and recorded on Page 15 of Book 1, Series of 1962, 16 of the notarial register of Atty.
Herminio V. Flores, an examination thereof will show that, recorded as Document No. 56 on Page 13, is
not the said deed of sale but a certain "real estate mortgage on a parcel of land with TCT No. 16157 to
secure a loan of P3,500.00 in favor of the Hagonoy Rural Bank." Nowhere on page 13 of the same
notarial register could be found any entry pertaining to Rafael's deed of sale. 17 Testifying on this
irregularity, Atty. Flores admitted that he failed to submit to the Clerk of Court a copy of the second deed.
Neither was he able to enter the same in his notarial register. 18 Even Federico himself alleged in his
Complaint that, when Rafael delivered the second deed to him, it was neither dated nor notarized. 19

Upon the execution and registration of the first deed, Certificate of Title No. 0-2015 in the name of
Federico was cancelled and in lieu thereof, TCT No. T-36714 was issued in the name of Rafael. Even
after the execution of the deed, Federico remained in possession of the property sold in concept of
owner. Significantly, notwithstanding the fact that Rafael became the titled owner of said land and rice
mill, he never made any attempt to take possession thereof at any time, 20 while Federico continued to
exercise rights of absolute ownership over the property. 21

In a letter, 22 dated August 14, 1969, Federico, through his new counsel, Agrava & Agrava, requested that
Rafael deliver his copy of TCT No. T-36714 so that Federico could have the counter deed of sale in his
favor registered in his name. The request having been obviously turned down, Agrava & Agrava filed a
petition 23 with the Court of First Instance of Bulacan 24 asking Rafael to surrender his owner's duplicate
certificate of TCT No. T-36714. In opposition thereto, Rafael chronicled the discrepancy in the
notarization of the second deed of sale upon which said petition was premised and ultimately concluded
that said deed was a counterfeit or "at least not a public document which is sufficient to transfer real rights
according to law." 25 On September 8, 1969, Agrava & Agrava filed a motion26 to withdraw said petition,
and, on September 13, 1969, the Court granted the same. 27

On July 8, 1970, Federico filed a complaint 28 for reconveyance and damages against Rafael. He alleged,
among others, that:

xxx xxx xxx

2.2 Sometime around May, 1962, defendant approached plaintiff and asked plaintiff,
purely as an accommodation and in order only to help defendant in an application that
defendant had then filed or intended to file with the Rice and Corn Administration to be
licensed as a rice dealer, to clause the title over the land and improvement described
above to be placed in defendant's name, but with the clear and express understanding
that ownership, possession, use, enjoyment and all other incidents of title would remain
vested in plaintiff; and that, at any time that plaintiff needed or desired that the title be
restored to plaintiff's name, defendant would execute whatever deed and take whatever
steps would be necessary to do so; to which request, in view of their relationship as uncle
and nephew, plaintiff acceded.

2.3 Accordingly, defendant prepared a deed entitled "Deed of Absolute Sale" over the
land and improvements . . . which purported to be a sale thereof by plaintiff to defendant
in consideration of P20,000.00; which document plaintiff signed on or about May 19,
1962. . . .

2.4 Defendant never paid or delivered, and plaintiff never demanded or received, the sum
of P20,000.00 or any other valuable consideration for executing the aforesaid "Deed of
Absolute Sale", since the same was and is an absolutely simulated or fictitious
transaction, intended solely to accommodate and assist defendant . . .

2.5 Defendant registered the "Deed of Absolute Sale" . . . with the Register of Deeds of
Bulacan, and as a result, O.C.T. No. 0-2015 in plaintiff's name was cancelled and T.C.T.
No. 36714 was issued in defendant's name.

2.6 After the Deed of Absolute Sale . . . had been registered, defendant prepared and
delivered to plaintiff a counter-deed likewise entitled "Deed of Absolute Sale", duly signed
by him, in which he purported to sell back to plaintiff the same land and improvements . .
. for the same consideration of P20,000.00. . . .

2.7 At the time defendant delivered the counter-deed . . . to plaintiff it was signed by
defendant, but not dated or notarized, as defendant told plaintiff that he was delivering
the signed counter-deed as a recognition of the fictitious character of the Deed . . . and
authorized plaintiff to date the deed and cause it to be notarized at any time that plaintiff
deemed it necessary or convenient to do so . . .
2.8 From the time plaintiff acquired the land and improvements
. . . from his parents, continuously until the present, plaintiff has been in open, public
possession, use and enjoyment of the land, rice mill, warehouse and other improvements
. . . for his sole and exclusive benefit, and has paid all taxes thereon; and, in fact, from
May 19, 1962, the date of the simulated "Deed of Absolute Sale" . . . until the present,
defendant has not exercise a single act of ownership, possession, use or enjoyment of
the said land and improvements.

2.9 During the months of June to August, 1969, desiring to expand his rice mill and
warehouse business located on the land in question, because of government efforts to
stimulate rice production, plaintiff requested defendant to deliver to him the owner's
duplicate of the transfer certificate of title over the properties in question, in order that
plaintiff might register the counter-deed . . . and use the property as collateral in securing
a bank loan to finance the expansion of the rice mill and warehouse facilities; but
defendant failed and refused, and continues to fail and refuse to do so, without just cause
or legal reason. 29

In his answer, Rafael scoffed at the attack against the validity and genuineness of the sale to him of
Federico's land and rice mill. Rafael insisted that said property was "absolutely sold and conveyed . . . for
a consideration of P20,000.00, Philippine currency, and for other valuable consideration". 30 Accordingly,
he raised the following affirmative and/or special defenses:

xxx xxx xxx

2.2 Plaintiff is now estopped from questioning the validity, genuineness, valuable
consideration and due execution of the Deed of Absolute Sale, Annex "A" of the
Complaint, since he admitted the same in his Petition in L.R. Case No. 1356 . . . .
pertinent portions of which are quoted hereunder:

. . . On August 12, 1962, Rafael G. Suntay sold the property above-


described to petitioner through a Deed of Absolute Sale . . . .

and likewise, plaintiff admitted the validity, genuineness, valuable consideration and due
execution of aforesaid Deed of Absolute Sale . . . as evidenced by the letter of plaintiff's
counsel, Attorneys Agrava and
Agrava . . .

3. . . . Sometime in 1962, plaintiff informed defendant that he would repurchase aforesaid


property and requested the defendant to prepare the necessary document. Considering
the trust and confidence that defendant had in plaintiff and pursuant to said request,
defendant prepared the proposed Deed of Sale . . . signed the same and delivered it to
the plaintiff with the clear and express understanding that the owner's duplicate Transfer
Certificate of Title would be delivered to the plaintiff only upon full payment of the agreed
repurchase price of P20,000.00 after which said proposed Deed of Sale would be duly
notarized. The amount of P20,000.00 was stated in said proposed Deed of Sale upon
request of plaintiff in view of the fact that was the same amount appearing in the Deed of
Absolute Sale, Annex "A" of the Complaint. The plaintiff; not only failed to pay to
defendant the agreed repurchase price of (sic) any portion thereof but even caused the
falsification of the proposed Deed of Sale by making it appear, in connivance with
Attorney Herminio Flores, that defendant acknowledged said document before said
Attorney Flores, when in truth and in fact as plaintiff and Attorney Flores very well knew
at the time that defendant never appeared, much less acknowledged, before Attorney
Flores said document . . . 31
At the initial hearing on April 7, 1971, Federico took the stand and, when asked why title to the property
was no longer in his name, Rafael's counsel objected thereto upon the ground that Federico, in the
petition wherein he asked Rafael to surrender his owner's duplicate of TCT No. T-36714, had alleged that
he sold the land to Rafael, which allegation, Rafael contends, constitutes as a judicial admission which
may not be subject to contradiction, unless previously shown to have been made through palpable
mistake. 32 Rafael's counsel, in effect, was assailing the admissibility of Federico's anticipated answer
which would most likely tend to establish the simulated nature of the sale executed by Federico in favor of
Rafael. Judge Emmanuel Muoz overruled the objection and reset the case for hearing on June 9, 1971.

On June 7, 1971, Rafael, obviously for the purpose of delay on account of its pettiness,
instituted certiorari proceedings in the Court of Appeals in order to have the aforecited ruling nullified and
set aside. Rafael was naturally rebuffed by the Appellate Court. Considering that the petition for Rafael to
surrender his owner's duplicate of TCT No. T-36714 had been withdrawn upon motion of Federico, the
alleged admission of Federico as to the questioned deed's validity in effect disappeared from the record
and had ceased to have any standing as a judicial admission. 33 Dissatisfied with the ruling, Rafael
elevated the matter to the Supreme Court via a petition for review on certiorari. This was summarily
denied by us for lack of merit. 34

Whereupon, Rafael's counsel moved, as he often did previously, for continuation of trial of the main
case. 35 After a thirteen-year trial with no less than six different Presiding Judges; 36 numerous
changes of lawyers; countless incidents; and a mountain-pile or pleadings a decision in the case was
finally rendered on April 30, 1984. Resolving the sole issue of whether or not the deed of sale executed
by Federico in favor of Rafael was simulated and without consideration, the trial court ruled:

The following documents undisputedly show the admission of the plaintiff that the deed of
absolute sale (Exh. A) is not a simulated or fictitious document but is a genuine deed of
absolute sale he executed in favor of the defendant, to wit:

(a) . . . a demand letter of Attys. Agrava & Agrava, counsel of the plaintiff, the pertinent
portion of which is quoted as follows:

"On May 19, 1972, our client, Federico C. Suntay sold to your goodself
for P20,000.00 a parcel of land situated at Hagonoy, Bulacan . . ."

(b) . . . a Petition for the Surrender of Owner's Duplicate Certificate of Title an/or
Cancellation and Issuance of Substitute Owner's Copy of Transfer Certificate of Title filed
in Court on August 19, 1969 by the plaintiff against the defendant docketed as LRC Case
No. 1356 . . . hereby quoted as follows:

"2. Petitioner is the vendee of a parcel of land, together with the


improvements existing thereon situated in the Barrio of Sto. Nio,
Hagonoy, Bulacan . . . title to which is still . . . issued in the name of the
vendor Rafael G. Suntay . . . .

3. On August 12, 1962, Rafael G. Suntay sold the property . . . to


petitioner . . . ."

(c) . . . a notice of adverse claim filed by the plaintiff in the Registry of Decision of
Bulacan on the land in question . . . admitting the ownership of the defendant of said
land, which is quoted as follows:

"That the property has been sold to me by Rafael G. Suntay through an


Absolute Deed of Sale . . . ."
These documents alone are more than sufficient evidence to conclude that Exhibit A is
not a simulated Deed of Absolute Sale but a genuine Deed of Absolute Sale which
transferred the ownership of the property in question from the plaintiff to the defendant.
The mere allegation of the plaintiff that the Deed of Sale (Exh. A) is simulated and without
consideration cannot prevail over his aforesaid admissions.

. . . In addition thereto is the fact that this Deed of Absolute Sale (Exh. A) was duly
recorded in the Notarial Registry of Notary Public Herminio V. Flores . . . thus showing
the regularity and due execution of the aforesaid document . . . .

The mere fact that plaintiff is in continuous possession of the property in question, pays
realty taxes thereon and have introduced several improvements despite the execution of
Deed of Absolute Sale (Exh. A) is not sufficient basis to conclude that Exh. A is just a
simulated sale in the light of the admissions of fire plaintiff in the aforementioned
documentary evidences and furthermore it was explained by the defendant that plaintiff
has been in possession of the property in question and paid taxes thereon because it
was their express understanding that plaintiff would subsequently repurchase the
property in question and all the fruits thus enjoyed by plaintiff and taxes thus paid by him
would be accounted for . . . This is borne out by the receipts of payment of realty taxes
which expressly show that plaintiff paid the taxes for and in the name of defendant Rafael
Suntay. 37

While the trial court upheld the validity and genuineness of the deed of sale executed by Federico
in favor of Rafael, which deed is referred to above as Exhibit A, it ruled that the counter-deed,
referred to as Exhibit B, executed by Rafael in favor of Federico, was simulated and without
consideration, hence, null and void ab initio.

The trial court ratiocinated that:

The Deed of Absolute Sale (Exh. B) which is a resale of the property in question
executed by the defendant in favor of the plaintiff was signed by the defendant but at the
time it was handed to the plaintiff it was not dated, not notarized and above all it has no
consideration because plaintiff did not pay defendant the consideration of the sale in the
sum of P20,000.00. . . .

Although Exh. B was subsequently notarized, the fact remained that defendant did not
appear and acknowledge the same before the Notary Public . . . and did not receive the
consideration of the aforesaid Exh. B . . . Consequently (sic), this Exh B for want of
consideration and not having been acknowledged by defendant before the Notary Public
is therefore null and void and hence did not transfer ownership of the property in question
to the defendant.

A contract of purchase and sale is 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 (Mapalo vs. Mapalo . . . 17 SCRA
114). 38

While the trial court adjudged Rafael as the owner of the property in dispute, it did not go to the
extent of ordering Federico to pay back rentals for the use of the property as the court made the
evidential finding that Rafael simply allowed his uncle to have continuous possession of the
property because or their understanding that Federico would subsequently repurchase the same.
The decretal portion of the decision of the trial court reads:
WHEREFORE, a decision is hereby rendered:

1. Dismissing this complaint filed by plaintiff against herein defendant;

2. Declaring the Deed absolute Sale (Exh. A) executed by the plaintiff in favor of the
defendant of a parcel of land covered by OCT No. 0-2015-Bulacan Registry as a genuine
and valid document;

3. Ordering the defendant to pay the Government of the Republic of the Philippines thru
the Office of the Register of Deeds of Bulacan the true and correct registration fees for
the Deed of Absolute Sale (Exh. A) on the basis of the true consideration of the sale as
admitted by the defendant which is P20,000.00 as staled in the document plus his unpaid
attorney's fees in the sum of P114,000.00 within fifteen (15) days from the finality of this
decision;

4. Declaring the Deed of Sale (Exh. B) executed by the defendant in favor of the plaintiff
of a parcel of land covered by TCT No. T-36714-Bulacan Registry as null and void ab
initio;

5. The prayer for P500.00/month rental from May, 1962 is hereby denied for lack of merit;

6. With costs against the plaintiff. 39

From the aforecited decision of the trial court, both Federico and Rafael appealed. Before the Court of
Appeals both pleaded invariably the same arguments which they had raised before the trial court. On
January 27, 1993, the Court of Appeals rendered judgment in affirmance of the trial court's decision, with
a modification. Federico was ordered to surrender the possession of the disputed property to Rafael. 40

The Court of Appeals ruled:

After a careful examination of the evidence on record, we are inclined to agree with the
lower court that Exhibit "A" is indeed a genuine deed of absolute sale which transferred to
Rafael the full ownership of the litigated property, including the improvements found
thereon.

For one, it immediately strikes us as rather unusual for Federico to wait until 1969, or
after a period of more than seven (7) years from May 19, 1962 when he executed Exhibit
"A", to seek the restoration of his title over the same property. Were Federico to be
believed, he executed Exhibit "A" simply to accommodate his nephew in connection with
the latter's alleged application as rice dealer of RCA. There is nothing in the record,
however, that Rafael ever became a licensed rice dealer of RCA from 1962 to 1969. . . .

. . . Prudence if not common sense should have cautioned Federico of the dangers
attendant to his inaction to assert immediately his alleged unaffected ownership over the
same property. It is simply unthinkable that Federico could not have considered the
possibility that an innocent purchaser for value may acquire the property from Rafael.
Such a thought alone is enough reason for Federico to be wary of the situation which he
allowed to continue for seven (7) years.

Nor can Federico draw comfort from his continued physical possession of the property
even after the same was sold to Rafael. As plausibly explained by Rafael, he allowed
Federico to remain in the premises and enjoy the fruits thereof because of their express
understanding that Federico may subsequently repurchase the property and all the fruits
thus enjoyed by the plaintiff and the taxes paid by him would be accounted for at the time
of the repurchase . . . Indeed, the receipts of payment of realty taxes clearly show on
their face that Federico paid the taxes for and in behalf of Rafael . . . .

Independent of the foregoing, documents are on record which are replete with Federico's
admissions showing that Exhibit "A" could not have been a simulated or fictitious deed of
sale. . . .

Finally, it is not disputed that Exhibit "A" was duly recorded in the Notarial Register of
Notary Public Herminio V. Flores . . . who testified on the due execution of the same . . .;
Against this overwhelming evidence, Federico's self-serving declaration that Exhibit "A" is
a fictitious and simulated contract must certainly fall.

This brings us to the Deed of Absolute Sale (Exh. "B") executed by Rafael in favor of
Federico over the same property.

We cannot add more to what the court a quo has said in declaring that Exhibit "B" is null
and void, for which reason it could not have transferred the ownership of the same
property to Federico. . . . 41

Counsel of Federico filed a motion for reconsideration of the aforecited decision. While the motion was
pending resolution, Atty. Ricardo M. Fojas entered his appearance in behalf of the heirs of Rafael who
had passed away on November 23, 1988. Atty. Fojas prayed that said heirs be substituted as defendants-
appellants in the case. The prayer for substitution was duly noted by the court in a resolution dated April
6, 1993. Thereafter, Atty. Fojas filed in behalf of the heirs an opposition to the motion for reconsideration.
The parties to the case were heard on oral argument on October 12, 1993.

On December 15, 1993, the Court of Appeals reversed itself and rendered an amended judgment,
pertinent portions of which read:

. . . this Court is convinced that the desired reconsideration is impressed with compelling
merit. For truly, certain premises stand out in the chain of evidence, the interplay of which
supports the conclusion that the parties meant Exhibit "A" to be a mere accommodation
arrangement executed without any consideration and therefore simulated contract of
sale. Consider the following:

1. Two (2) instruments were executed closely one after the other involving transfer and
re-transfer of the same property at exactly the same price;

2. The existing close relationship between the parties; and

3. The value and location of the property purportedly sold, which project in bold relief the
gross inadequacy of the stated contractual consideration therefor.

xxx xxx xxx

There is more. Similarly looming large to attest to the simulated character of Exhibit "A"
which, in hindsight, was unjudiciously brushed aside is the undisputed fact that the
physical possession, enjoyment and use of the property in question remained through the
years and up to the present in the hands of Federico. Rafael, as records show, never
assumed the benefits, let alone the burden, of ownership. He did not even include the
property in his statement of assets and liabilities . . . nor paid the taxes therefor. This
factor, juxtaposed with Rafael's execution of the counter deed of sale (Exh. "B"), cannot
but unmistakably indicate that the parties never meant to regard Exhibit "A" as producing
actual transfer of ownership and/or rights attached to ownership. Doubtless, Exhibit "B"
manifested, and is an affirmation of, such intention.

We are thus inclined to agree with Federico's main submission that Exhibit "A" is merely
a fragment of the intended transaction, that is, an accommodation loan of title to Rafael
and its subsequent return to Federico. The counter deed of sale executed by Rafael
(Exh. "B"), completed it. Stated differently, the first instrument merely recited a portion of
the entire accommodation transaction; the second, as a complementary part, and, in
addition to the first, integrated and made clear the simulated character of the entire
agreement.

It is true that in the Decision under consideration, this Court took stock, as Rafael urges,
of Federico's admission in the letter dated August 14, 1969 of the Agrava and Agrava
Law office . . . in Federico's petition for registration . . . and in his affidavit/notice of
adverse claim. Viewed in its proper perspective, however, we are now inclined to
consider such admission as no more than a recognition on the part of Federico of the
factual existence of Exhibit "A", by virtue of which his OCT No. 0-2015 was cancelled and
a new title (TCT No. T-36714) issued in the name of Rafael. . . .

In fine, this Court rules and so holds that the Deed of Absolute Sale executed on May 19,
1962 by plaintiff-appellant Federico Suntay in favor of his nephew Rafael G. Suntay (Exh.
"A"), is absolutely simulated and fictitious. As such, it is void and is not susceptible of
ratification (Art. 1409, Civil Code), produces no legal effects (Cario vs. Court of Appeals,
152 SCRA 529), and does not convey property rights nor in any way alter the juridical
situation of the parties (Tongay vs. Court of Appeals, 100 SCRA 99). Along the same
vein, the counter deed of sale (Exh. "B"), executed by Rafael in favor of his uncle
Federico, purportedly re-selling to the latter the very same property earlier fictitiously
conveyed by Federico is likewise infected with the same infirmity that vitiates Exhibit "A".
Like the latter document Exhibit "B" is also simulated and therefore it, too, is incapable of
producing legal effects. In short, if was as if no contract of sale was ever executed by
Federico in favor of Rafael, on the one hand, and by Rafael in favor of Federico, on the
other hand, although the sad reality must be acknowledged that on account of Exhibit
"A", Federico's title to the property was cancelled and replaced by a new one in the name
of Rafael whose change of heart brought about Federico's travails. 42

We cannot but uphold the foregoing findings and conclusions of the Court of Appeals. While the rule is
that factual findings of the Court of Appeals are binding on us, we endeavored, however, to scrutinize the
case records and read and examined the pleadings and transcripts submitted before the trial
court 43 because the factual findings of the Court of Appeals and that of the trial court are contrary to each
other. 44

The sole issue in this case concerns the validity and integrity of the aforedescribed deed of sale in favor
of Rafael Suntay. We necessarily begin with two veritable legal presumptions: first, that there was
sufficient consideration for the contract 45 and, second, that it was the result of a fair and regular private
transaction. 46 These presumptions if shown to hold, infer prima facie the transaction's validity, except that
it must yield to the evidence adduced. 47

In the aggregate, the evidence on record demonstrate a combination of circumstances from which may
be reasonably inferred certain badges of simulation that attach themselves to the deed of sale in
question.

I
The late Rafael Suntay and private respondent Federico Suntay were relatives, undisputedly, whose
blood relation was the foundation of their professional and business relationship. The late Rafael testified
that he had completely trusted Federico and so he signed and delivered the counter-deed of sale even
without prior payment of the alleged repurchase price of P20,000.00. Federico had such faith and
confidence in the late Rafael, as nephew and counsel, that he blindly signed and executed the sale in
question. He had recommended Rafael as legal counsel and corporate secretary of the Hagonoy Rural
Bank of which he was founder and once President. He had entrusted to Rafael many of his business
documents and personal papers, the return of which he did not demand even upon termination of their
professional relationship. It was precisely because of this relationship that Federico consented to what he
alleged as a loan of title over his land and rice mill in favor of the late Rafael. We are all too familiar with
the practice in the typical Filipino family where the patriarch with the capital and business standing takes
into his fold the young, upcoming, inexperienced but brilliant and brashly ambitious son, nephew or
godchild who, in turn, becomes to his father, uncle, or godparent, the jack of all trades, trouble shooter
and most trusted liaison officer cum adviser. He wittingly serves his patron without the security of a formal
contract and without clarifying the matter of compensation.

The record is replete with circumstances that establish the closeness, mutual trust and business and
professional interdependence between the late Rafael and private respondent. When their relationship
turned sour, the late Rafael, in all probability knew where to hit Federico where it really hurt because he
had been privy to most of Federico's business and personal dealings and transactions. The documentary
evidence alone proffered by the late Rafael showed the extent of Rafael's knowledge and involvement in
both the business and private affairs of Federico, his wife, his son, and even his wife's relatives. Rafael
admitted in open court that he had come into the possession thereof in the course of rendering legal
services to his uncle. These documents on record and the testimonies of the late Rafael and private
respondent establish the existence of, not only the facts therein stated, but also the circumstance
pertaining to the nature of the relationship between private respondent and the late Rafael. The Court of
Appeals simply took a second look at the evidence on record as was its bounden duty upon the filing of a
motion for reconsideration and could no longer ignore that the close relationship between the late Rafael
and private respondent was indeed a badge of simulation.

There are at least three distinguishable classes of so-called circumstances in evidence


which, however, cannot safely be interpreted in the same way. One class of
circumstances, often referred to in trials at law, includes all outside and related incidents,
conditions and happenings which are described by witnesses and necessarily are subject
to all of the dangers and defects of oral and memory testimony. There are also
circumstances which are admitted, or which arise from the nature of the case itself, which
cannot be denied, and lastly there are tangible and visible facts before
court . . . . which are the basis for a judgment . . . .

. . . The law, as well as logic, makes a distinction between surroundings, conditions, and
"circumstances" as compared with real and tangible facts. . . . A bungling, overwritten,
traced signature, as well as a coat with a bullet-hole in the breast are both . . . "silent
circumstances" that do not commit perjury. Though silent they often are eloquent. . . .

All these quite distinct classes of evidence form the basis of legal verdicts and judgments.
The great mass of legal evidence consists of testimony of oral witnesses which has force
in proportion as it is believed, but in many important cases a verdict must be based
mainly upon the second or the third class of evidence . . . Circumstances and facts must
be interpreted and illustrated in order to show whether a definite conclusion can be based
on them. In many cases a particular conclusion is
irresistible. 48

The history and relationship of trust, interdependence and intimacy between the late Rafael and
Federico is an unmistakable token of simulation. It has been observed that fraud is generally
accompanied by trust. 49Hardly is it inconsistent with practical experience, especially in the
context of the Filipino family's way of life, that Federico, the uncle, would almost naively lend his
land title to his nephew and agree to its cancellation in his nephew's favor because Federico, in
the first place, trusted his nephew; was well aware of his power over him as uncle, client, and
patron; and was actually in possession of the land and rice mill. No one could even conceive of
the possibility of ejecting Federico therefrom on the basis of the sham transaction. The late
Rafael never attempted to physically dispossess his uncle or actually take over the rice mill during
his lifetime.

II

The late Rafael insisted that the sale to him of his uncle's property was in fact a "dacion en pago" in
satisfaction of Federico's unpaid attorney's fees, 50 What prominently stands out from the mass of
records, however, is the fact that this claim of the late Rafael was only raised in 1976 when he testified on
direct examination. The answer that he filed in 1970 in response to Federico's complaint never mentioned
nor even alluded to any standing liability on the part of Federico as regards unpaid attorney's fees.
Neither did the late Rafael deny or refute Federico's testimony that they did not have a clear-cut
compensation scheme and that Federico gave him money at times, which compensation enabled the late
Rafael to purchase his first car. The late Rafael even affirmed Federico's testimony respecting his
appointment as the legal counsel and corporate secretary of the Hagonoy Rural Bank for which he
received compensation as well.

Equally significant is the admission of the late Rafael that he did not inform Federico that he considered
the transfer to be in consideration of his alleged unpaid attorney's fees. 51 Apparently, it is true, as
Federico claimed, that no accounting was undertaken between uncle-client and nephew-lawyer in order
to arrive at the definite amount of the alleged unpaid attorney's fees. Strange and irregular as this matter
seems to be, the same may only become comprehensible when considered as or grave symptom of
simulation.

III

Indeed the most protuberant index of simulation is the complete absence of an attempt in any manner on
the part of the late Rafael to assert his rights of ownership over the land and rice mill in question. After the
sale, he should have entered the land and occupied the premises thereof. He did not even attempt to. If
he stood as owner, he would have collected rentals from Federico for the use and occupation of the land
and its improvements. All that the late Rafael had was a title in his name.

If is to be emphasized that the private respondents never parted with the ownership and
possession of that portion of Lot No 785 . . . nor did the petitioners ever enter into
possession thereof. As earlier stated, the issuance of TCT No. T-1346 did not operate to
vest upon the latter ownership over the private respondents' property. That act has never
been recognized as a mode of acquiring ownership. As a matter of fact, even the original
registration of immovable property does not vest title thereto; it is merely evidence of
such title over a particular property. The Torrens system of land registration should not be
used as a means to perpetrate fraud against the rightful owner of real property. 52

The failure of the late Rafael to take exclusive possession of the property allegedly sold to him is
a clear badge of fraud. 53 The fact that, notwithstanding the title transfer, Federico remained in
actual possession, cultivation and occupation of the disputed lot from the time the deed of sale
was executed until the present, is a circumstance which is unmistakably added proof of the
fictitiousness of the said transfer, 54 the same being contrary to the principle of ownership. 55

Of course, according to the late Rafael, he allowed Federico to remain in the premises and enjoy
the fruits thereof because of their understanding that Federico may subsequently repurchase the
property. Contrary to what Rafael thought, this in fact is added reason for simulation. The idea of
allowing a repurchase goes along the same lines posed by the theory of Federico.

If it were true that the first sale transaction was actually a "dacion en pago" in satisfaction of
Federico's alleged unpaid attorney's fees, it does strain the logical mind that Rafael had agreed to
allow the repurchase of the property three months thereafter. Federico was obviously financially
liquid. Had he intended to pay attorney's fees, he would have paid Rafael in cash and not part
with valuable income-producing real property.

IV

The late Rafael, at the very outset, made much of an uproar over the alleged admissions made by
Federico in several documents executed by him or in his behalf.

On the whole, it was the late Rafael's inflexible stand that Federico admitted in various
documents that he bad absolutely sold his land and rice mill to him and could not, thus,
subsequently deny or attack that sale. Upon our examination of such documents, however, we
find that neither the letter of Agrava & Agrava, nor the petition to compel delivery of the owner's
duplicate of title and the notice of adverse claim, supports the late Rafael's posture. Nowhere is it
stated in the aforesaid petition and notice of adverse claim that Federico sold the subject properly
to the late Rafael. What was alleged was that Rafael resold to Federico the said property, and not
the other way around, precisely because both documents were assertions of remedies resorted to
by Federico upon the refusal by the late Rafael to tender his owner's duplicate title.

Neither does the undisputed fact that the deed of sale executed by Federico in favor of the late Rafael, is
a notarized document, justify the conclusion that said sale is undoubtedly a true conveyance to which the
parties thereto are irrevocably and undeniably bound.

Conduct, to be given jural effects, must be jural in its subject . . . i.e. must concern jural
relations, not relations of friendship or other non-jural relations. The father who promises
to bring home a box of tools for his boy is not bound in contract, though the same
promise to his neighbor may be binding. The friend who invites one with an offer of a
dinner is not legally liable, though he who agrees with a restaurant-keeper for a banquet
to be spread there is under a contract of liability. . . . In all such cases, therefore, the
conduct is jurally ineffective, or void. In the traditional phraseology of the parole evidence
rule, then, it may always be shown that the transaction was understood by the parties not
to have jural effect.

(1) Ordinarily, the bearing of this principle is plain enough on the circumstances. It has
been judicially applied to household services rendered by a member of the family, and to
a writing representing merely a family understanding. . . .

When the document is to serve the purpose of a mere sham, this principle in strictness
exonerates the makers. . . . 56

The cumulative effect of the evidence on record as chronicled aforesaid identified badges of simulation
proving that the sale by Federico to his deceased nephew of his land and rice mill, was not intended to
have any legal effect between them. Though the notarization of the deed of sale in question vests in its
favor the presumption of regularity, it is not the intention nor the function of the notary public to validate
and make binding an instrument never, in the first place, intended to have any binding legal effect upon
the parties thereto. The intention of the parties still and always is the primary consideration in determining
the true nature of a contract.
VI

While the late Rafael vehemently upholds the validity and effectiveness of the deed of sale in question,
this posture is eroded by his admission, on cross-examination during trial that he never declared his
ownership of the subject property in his annual Statement Of Assets And Liabilities. The fact that the late
Rafael denied both intention and knowledge involving the sham sale and firmly maintained the validity
and genuineness thereof has become incongruous because it is irreconcilable with the circumstance that
he apparently never considered the disputed property as one of his assets over which he had rights of
absolute ownership.

The allegation of Rafael that the lapse of seven (7) years before Federico sought the issuance of a new
title in his name necessarily makes Federico's claim stale and unenforceable does not hold water.
Federico's title was not in the hands of a stranger or mere acquaintance; it was in the possession of his
nephew who, being his lawyer, had served him faithfully for many years. Federico had been all the while
in possession of the land covered by his title and so there was no pressing reason for Federico to have a
title in his name issued. Even when the relationship between the late Rafael and Federico deteriorated,
and eventually ended, it is not at all strange for Federico to have been complacent and unconcerned
about the status of his title over the disputed property since he has been possessing the same actually,
openly, and adversely, to the exclusion of Rafael. It was only when Federico needed the title in order to
obtain a collaterized loan 57 that Federico began to attend to the task of obtaining a title in his name over
the subject land and rice mill.

We, therefore, hold that the deed of sale executed by Federico in favor of his now deceased nephew,
Rafael, is absolutely simulated and fictitious and, hence, null and void, said parties having entered into a
sale transaction to which they did not intend to be legally bound. As no property was validly conveyed
under the deed, the second deed of sale executed by the late Rafael in favor of his uncle, should be
considered ineffective and unavailing.

WHEREFORE, the Amended Decision promulgated by the Court of Appeals on December 15, 1993 in
CA-G.R CV No. 08179 is hereby AFFIRMED IN TOTO. Petitioners, the heirs of Rafael G. Suntay, are
hereby ordered to reconvey to private respondent Federico G. Suntay the property described in
paragraph 2.1 of the complaint, within ten (10) days from the finality of this Decision, and to surrender to
him within the same period the owner's duplicate copy of Transfer Certificate of Title No. T-36714 of the
Registry of Deeds of the Province of Bulacan. In the event that the petitioners fail or refuse to execute the
necessary deed of reconveyance as herein directed, the Clerk of Court of the Regional Trial Court of
Bulacan is hereby ordered to execute the same at the expense of the aforesaid heirs.

Costs against petitioners.

SO ORDERED.

Padilla, Davide, Jr., Bellosillo and Kapunan, JJ., concur.


G.R. No. 104482 January 22, 1996

BELINDA TAEDO, for herself and in representation of her brothers and sisters, and TEOFILA
CORPUZ TAEDO, representing her minor daughter VERNA TAEDO, petitioners,
vs.
THE COURT OF APPEALS, SPOUSES RICARDO M. TAEDO AND TERESITA BARERA
TAEDO,respondents.

DECISION

PANGANIBAN, J.:

Is a sale of future inheritance valid? In multiple sales of the same real property, who has preference in
ownership? What is the probative value of the lower court's finding of good faith in registration of such
sales in the registry of property? These are the main questions raised in this Petition for review
on certiorari under Rule 45 of the Rules of Court to set aside and reverse the Decision 1 of the Court of
Appeals2 in CA-G.R. CV NO. 24987 promulgated on September 26, 1991 affirming the decision of the
Regional Trial Court, Branch 63, Third Judicial Region, Tarlac, Tarlac in Civil Case No. 6328, and its
Resolution denying reconsideration thereof, promulgated on May 27, 1992.

By the Court's Resolution on October 25, 1995, this case (along with several others) was transferred from
the First to the Third Division and after due deliberation, the Court assigned it to the
undersigned ponente for the writing of this Decision.

The Facts

On October 20, 1962, Lazardo Taedo executed a notarized deed of absolute sale in favor of his eldest
brother, Ricardo Taedo, and the latter's wife, Teresita Barera, private respondents herein, whereby he
conveyed to the latter in consideration of P1,500.00, "one hectare of whatever share I shall have over Lot
No. 191 of the cadastral survey of Gerona, Province of Tarlac and covered by Title T-13829 of the
Register of Deeds of Tarlac", the said property being his "future inheritance" from his parents (Exh. 1).
Upon the death of his father Matias, Lazaro executed an "Affidavit of Conformity" dated February 28,
1980 (Exh. 3) to "re-affirm, respect, acknowledge and validate the sale I made in 1962." On January 13,
1981, Lazaro executed another notarized deed of sale in favor of private respondents covering his
"undivided ONE TWELVE (1/12) of a parcel of land known as Lot 191 . . . " (Exh. 4). He acknowledged
therein his receipt of P10,000.00 as consideration therefor. In February 1981, Ricardo learned that Lazaro
sold the same property to his children, petitioners herein, through a deed of sale dated December 29,
1980 (Exh. E). On June 7, 1982, private respondents recorded the Deed of Sale (Exh. 4) in their favor in
the Registry of Deeds and the corresponding entry was made in Transfer Certificate of Title No. 166451
(Exh. 5).

Petitioners on July 16, 1982 filed a complaint for rescission (plus damages) of the deeds of sale executed
by Lazaro in favor of private respondents covering the property inherited by Lazaro from his father.

Petitioners claimed that their father, Lazaro, executed an "Absolute Deed of Sale" dated December 29,
1980 (Exit. E). Conveying to his ten children his allotted portion tinder the extrajudicial partition executed
by the heirs of Matias, which deed included the land in litigation (Lot 191).

Petitioners also presented in evidence: (1) a private writing purportedly prepared and signed by Matias
dated December 28, 1978, stating that it was his desire that whatever inheritance Lazaro would receive
from him should be given to his (Lazaro's) children (Exh. A); (2) a typewritten document dated March 10,
1979 signed by Lazaro in the presence of two witnesses, wherein he confirmed that he would voluntarily
abide by the wishes of his father, Matias, to give to his (Lazaro's) children all the property he would inherit
from the latter (Exh. B); and (3) a letter dated January 1, 1980 of Lazaro to his daughter, Carmela, stating
that his share in the extrajudicial settlement of the estate of his father was intended for his children,
petitioners herein (Exh. C).

Private respondents, however presented in evidence a "Deed of Revocation of a Deed of Sale" dated
March 12, 1981 (Exh. 6), wherein Lazaro revoked the sale in favor of petitioners for the reason that it was
"simulated or fictitious without any consideration whatsoever".

Shortly after the case a quo was filed, Lazaro executed a sworn statement (Exh. G) which virtually
repudiated the contents of the Deed of Revocation of a Deed of Sale (Exh. 6) and the Deed of Sale (Exh.
4) in favor of private respondents. However, Lazaro testified that he sold the property to Ricardo, and that
it was a lawyer who induced him to execute a deed of sale in favor of his children after giving him five
pesos (P5.00) to buy a "drink" (TSN September 18, 1985, pp. 204-205).

The trial court decided in favor of private respondents, holding that petitioners failed "to adduce a
proponderance of evidence to support (their) claim." On appeal, the Court of Appeals affirmed the
decision of the trial court, ruling that the Deed of Sale dated January 13, 1981 (Exh. 9) was valid and that
its registration in good faith vested title in said respondents.

The Issues

Petitioners raised the following "errors" in the respondent Court, which they also now allege in the instant
Petition:

I. The trial court erred in concluding that the Contract of Sale of October 20, 1962 (Exhibit 7,
Answer) is merely voidable or annulable and not void ab initio pursuant to paragraph 2 of Article
1347 of the New Civil Code involving as it does a "future inheritance".

II. The trial court erred in holding that defendants-appellees acted in good faith in registering the
deed of sale of January 13, 1981 (Exhibit 9) with the Register of Deeds of Tarlac and therefore
ownership of the land in question passed on to defendants-appellees.

III. The trial court erred in ignoring and failing to consider the testimonial and documentary
evidence of plaintiffs-appellants which clearly established by preponderance of evidence that they
are indeed the legitimate and lawful owners of the property in question.

IV. The decision is contrary to law and the facts of the case and the conclusions drawn from the
established facts are illogical and off-tangent.

From the foregoing, the issues may be restated as follows:

1. Is the sale of a future inheritance valid?

2. Was the subsequent execution on January 13, 1981 (and registration with the Registry of
Property) of a deed of sale covering the same property to the same buyers valid?

3. May this Court review the findings of the respondent Court (a) holding that the buyers acted in
good faith in registering the said subsequent deed of sale and (b) in "failing to consider
petitioners' evidence"? Are the conclusions of the respondent Court "illogical and off-tangent"?

The Court's Ruling

At the outset, let it be clear that the "errors" which are reviewable by this Court in this petition for review
on certiorariare only those allegedly committed by the respondent Court of Appeals and not directly those
of the trial court, which is not a party here. The "assignment of errors" in the petition quoted above are
therefore totally misplaced, and for that reason, the petition should be dismissed. But in order to give the
parties substantial justice we have decided to delve into the issues as above re-stated. The errors
attributed by petitioners to the latter (trial) court will be discussed only insofar as they are relevant to the
appellate court's assailed Decision and Resolution.

The sale made in 1962 involving future inheritance is not really at issue here. In context, the assailed
Decision conceded "it may be legally correct that a contract of sale of anticipated future inheritance is null
and void."3

But to remove all doubts, we hereby categorically rule that, pursuant to Article 1347 of the Civil Code,
"(n)o contract may be entered into upon a future inheritance except in cases expressly authorized by law."

Consequently, said contract made in 1962 is not valid and cannot be the source of any right nor the
creator of any obligation between the parties.

Hence, the "affidavit of conformity" dated February 28, 1980, insofar as it sought to validate or ratify the
1962 sale, is also useless and, in the words of the respondent Court, "suffers from the same infirmity."
Even private respondents in their memorandum 4 concede this.

However, the documents that are critical to the resolution of this case are: (a) the deed of sale of January
13, 1981 in favor of private respondents covering Lazaro's undivided inheritance of one-twelfth (1/12)
share in Lot No. 191, which was subsequently registered on June 7, 1982; and (b) the deed of sale dated
December 29, 1980 in favor of petitioners covering the same property. These two documents were
executed after the death of Matias (and his spouse) and after a deed of extra-judicial settlement of his
(Matias') estate was executed, thus vesting in Lazaro actual title over said property. In other words, these
dispositions, though conflicting, were no longer infected with the infirmities of the 1962 sale.

Petitioners contend that what was sold on January 13, 1981 was only one-half hectare out of Lot No. 191,
citing as authority the trial court's decision. As earlier pointed out, what is on review in these proceedings
by this Court is the Court of Appeals' decision which correctly identified the subject matter of the
January 13, 1981 sale to be the entire undivided 1/12 share of Lazaro in Lot No. 191 and which is the
same property disposed of on December 29, 1980 in favor of petitioners.

Critical in determining which of these two deeds should be given effect is the registration of the sale in
favor of private respondents with the register of deeds on June 7, 1982.

Article 1544 of the Civil Code governs the preferential rights of vendees in cases of multiple sales, as
follows:

Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be
transferred to the person who may have first taken possession thereof in good faith, if it should be
movable property.

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

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

The property in question is land, an immovable, and following the above-quoted law, ownership shall
belong to the buyer who in good faith registers it first in the registry of property. Thus, although the deed
of sale in favor of private respondents was later than the one in favor of petitioners, ownership would vest
in the former because of the undisputed fact of registration. On the other hand, petitioners have not
registered the sale to them at all.

Petitioners contend that they were in possession of the property and that private respondents never took
possession thereof. As between two purchasers, the one who registered the sale in his favor has a
preferred right over the other who has not registered his title, even if the latter is in actual possession of
the immovable property.5

As to third issue, while petitioners conceded the fact of registration, they nevertheless contended that it
was done in bad faith. On this issue, the respondent Court ruled;

Under the second assignment of error, plaintiffs-appellants contend that defendants-appellees


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

The respondent Court, reviewing the trial court's findings, refused to overturn the latter's assessment of
the testimonial evidence, as follows;

We are not prepared to set aside the finding of the lower court upholding Ricardo Taedo's
testimony, as it involves a matter of credibility of witnesses which the trial judge, who presided at
the hearing, was in a better position to resolve. (Court of Appeals' Decision, p. 6.)

In this connection, we note the tenacious allegations made by petitioners, both in their basic petition and
in their memorandum, as follows:

1. The respondent Court allegedly ignored the claimed fact that respondent Ricardo "by fraud and
deceit and with foreknowledge" that the property in question had already been sold to petitioners,
made Lazaro execute the deed of January 13, 1981;

2. There is allegedly adequate evidence to show that only 1/2 of the purchase price of
P10,000.00 was paid at the time of the execution of the deed of sale, contrary to the written
acknowledgment, thus showing bad faith;

3. There is allegedly sufficient evidence showing that the deed of revocation of the sale in favor of
petitioners "was tainted with fraud or deceit."

4. There is allegedly enough evidence to show that private respondents "took undue advantage
over the weakness and unschooled and pitiful situation of Lazaro Taedo . . ." and that
respondent Ricardo Taedo "exercised moral ascendancy over his younger brother he being the
eldest brother and who reached fourth year college of law and at one time a former Vice-
Governor of Tarlac, while his younger brother only attained first year high school . . . ;
5. The respondent Court erred in not giving credence to petitioners' evidence, especially Lazaro
Taedo's Sinumpaang Salaysay dated July 27, 1982 stating that Ricardo Taedo deceived the
former in executing the deed of sale in favor of private respondents.

To be sure, there are indeed many conflicting documents and testimonies as well as arguments over their
probative value and significance. Suffice it to say, however, that all the above contentions involve
questions of fact, appreciation of evidence and credibility of witnesses, which are not proper in this
review. It is well-settled that the Supreme Court is not a trier of facts. In petitions for review under Rule 45
of the Revised Rules of Court, only questions of law may be raised and passed upon. Absent any
whimsical or capricious exercise of judgment, and unless the lack of any basis for the conclusions made
by the lower courts be amply demonstrated, the Supreme Court will not disturb their findings. At most, it
appears that petitioners have shown that their evidence was not believed by both the trial and the
appellate courts, and that the said courts tended to give more credence to the evidence presented by
private respondents. But this in itself is not a reason for setting aside such findings. We are far from
convinced that both courts gravely abused their respective authorities and judicial prerogatives.

As held in the recent case of Chua Tiong Tay vs. Court of Appeals and Goldrock Construction and
Development Corp.7

The Court has consistently held that the factual findings of the trial court, as well as the Court of Appeals,
are final and conclusive and may not be reviewed on appeal. Among the exceptional circumstances
where a reassessment of facts found by the lower courts is allowed are when the conclusion is a finding
grounded entirely on speculation, surmises or conjectures; when the inference made is manifestly absurd,
mistaken or impossible; when there is grave abuse of discretion in the appreciation of facts; when the
judgment is premised on a misapprehension of facts; when the findings went beyond the issues of the
case and the same are contrary to the admissions of both appellant and appellee. After a careful study of
the case at bench, we find none of the above grounds present to justify the re-evaluation of the findings of
fact made by the courts below.

In the same vein, the ruling in the recent case of South Sea Surety and Insurance Company,
Inc. vs. Hon. Court of Appeals, et al.8 is equally applicable to the present case:

We see no valid reason to discard the factual conclusions of the appellate court. . . . (I)t is not the
function of this Court to assess and evaluate all over again the evidence, testimonial and
documentary, adduced by the parties, particularly where, such as here, the findings of both the
trial court and the appellate court on the matter coincide. (emphasis supplied)

WHEREFORE, the petition is DENIED and the assailed Decision of the Court of Appeals is AFFIRMED.
No Costs.

SO ORDERED.

Narvasa, C.J., Davide, Jr., Melo and Francisco, JJ., concur.


Liguez vs. CA, 102 Phil 577, G.R. No. L-11240, December 18, 1957

CONCHITA LIGUEZ, petitioner,


vs.
THE HONORABLE COURT OF APPEALS, MARIA NGO VDA. DE LOPEZ, ET AL., respondents.

Ruiz, Ruiz and Ruiz for appellant.


Laurel Law Offices for appellees.

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

From a decision of the Court of Appeals, affirming that of the Court of First Instance of Davao dismissing
her complaint for recovery of land, Conchita Liguez has resorted to this Court, praying that the aforesaid
decision be reversed on points of law. We granted certiorari on October 9, 1956.

The case began upon complaint filed by petitioner-appellant against the widow and heirs of the late
Salvador P. Lopez to recover a parcel of 51.84 hectares of land, situated in barrio Bogac-Linot, of the
municipality of Mati, Province of Davao. Plaintiff averred to be its legal owner, pursuant to a deed of
donation of said land, executed in her favor by the late owner, Salvador P. Lopez, on 18 May 1943. The
defense interposed was that the donation was null and void for having an illicit causa or consideration,
which was the plaintiff's entering into marital relations with Salvador P. Lopez, a married man; and that
the property had been adjudicated to the appellees as heirs of Lopez by the court of First Instance, since
1949.

The Court of Appeals found that the deed of donation was prepared by the Justice of the Peace of Mati,
Davao, before whom it was signed and ratified on the date aforesaid. At the time, the appellant Liguez
was a minor, only 16 years of age. While the deed recites

That the DONOR, Salvador P. Lopez, for and in the consideration of his love and affection for the said
DONEE, Conchita Liguez, and also for the good and valuable services rendered to the DONOR by the
DONEE, does by these presents, voluntarily give grant and donate to the said donee, etc. (Paragraph 2,
Exhibit "A")

the Court of Appeals found that when the donation was made, Lopez had been living with the parents of
appellant for barely a month; that the donation was made in view of the desire of Salvador P. Lopez, a
man of mature years, to have sexual relations with appellant Conchita Liguez; that Lopez had confessed
to his love for appellant to the instrumental witnesses, with the remark that her parents would not allow
Lopez to live with her unless he first donated the land in question; that after the donation, Conchita Liguez
and Salvador P. Lopez lived together in the house that was built upon the latter's orders, until Lopez was
killed on July 1st, 1943, by some guerrillas who believed him to be pro-Japanese.

It was also ascertained by the Court of Appeals that the donated land originally belonged to the conjugal
partnership of Salvador P. Lopez and his wife, Maria Ngo; that the latter had met and berated Conchita
for living maritally with her husband, sometime during June of 1943; that the widow and children of Lopez
were in possession of the land and made improvements thereon; that the land was assessed in the tax
rolls first in the name of Lopez and later in that of his widow.; and that the deed of donation was never
recorded.

Upon these facts, the Court of Appeals held that the deed of donation was inoperative, and null and void
(1) because the husband, Lopez, had no right to donate conjugal property to the plaintiff appellant; and
(2) because the donation was tainted with illegal cause or consideration, of which donor and donee were
participants.

Appellant vigorously contends that the Court of First Instance as well as the Court of Appeals erred in
holding the donation void for having an illicit cause or consideration. It is argued that under Article 1274 of
the Civil Code of 1889 (which was the governing law in 1948, when the donation was executed), "in
contracts of pure beneficence the consideration is the liberality of the donor", and that liberality per se can
never be illegal, since it is neither against law or morals or public policy.

The flaw in this argument lies in ignoring that under Article 1274, liberality of the do or is deemed causa in
those contracts that are of "pure" beneficence; that is to say, contracts designed solely and exclusively to
procure the welfare of the beneficiary, without any intent of producing any satisfaction for the donor;
contracts, in other words, in which the idea of self-interest is totally absent on the part of the transferor.
For this very reason, the same Article 1274 provides that in remuneratory contracts, the consideration is
the service or benefit for which the remuneration is given; causa is not liberality in these cases because
the contract or conveyance is not made out of pure beneficence, but "solvendi animo." In consonance
with this view, this Supreme Court in Philippine Long Distance Co. vs. Jeturian * G.R. L-7756, July 30,
1955, like the Supreme Court of Spain in its decision of 16 Feb. 1899, has ruled that bonuses granted to
employees to excite their zeal and efficiency, with consequent benefit for the employer, do not constitute
donation having liberality for a consideration.

Here the facts as found by the Court of Appeals (and which we can not vary) demonstrate that in making
the donation in question, the late Salvador P. Lopez was not moved exclusively by the desire to benefit
appellant Conchita Liguez, but also to secure her cohabiting with him, so that he could gratify his sexual
impulses. This is clear from the confession of Lopez to the witnesses Rodriguez and Ragay, that he was
in love with appellant, but her parents would not agree unless he donated the land in question to her.
Actually, therefore, the donation was but one part of an onerous transaction (at least with appellant's
parents) that must be viewed in its totality. Thus considered, the conveyance was clearly predicated upon
an illicit causa.

Appellant seeks to differentiate between the alleged liberality of Lopez, as causa for the donation in her
favor, and his desire for cohabiting with appellant, as motives that impelled him to make the donation, and
quotes from Manresa and the jurisprudence of this Court on the distinction that must be maintained
between causa and motives (De Jesus vs. Urrutia and Co., 33 Phil. 171). It is well to note, however that
Manresa himself (Vol. 8, pp. 641-642), while maintaining the distinction and upholding the
inoperativeness of the motives of the parties to determine the validity of the contract, expressly excepts
from the rule those contracts that are conditioned upon the attainment of the motives of either party.

. . . distincion importantisima, que impide anular el contrato por la sola influencia de los motivos a no ser
que se hubiera subordinando al cumplimiento de estos como condiciones la eficacia de aquel.

The same view is held by the Supreme Court of Spain, in its decisions of February 4, 1941, and
December 4, 1946, holding that the motive may be regarded as causa when it predetermines the purpose
of the contract.

In the present case, it is scarcely disputable that Lopez would not have conveyed the property in question
had he known that appellant would refuse to cohabit with him; so that the cohabitation was an implied
condition to the donation, and being unlawful, necessarily tainted the donation itself.

The Court of Appeals rejected the appellant's claim on the basis of the well- known rule "in pari delicto
non oritur actio" as embodied in Article 1306 of 1889 (reproduced in Article 1412 of the new Civil Code):

ART. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal
offense, the following rules shall be observed:

(1) When the fault is on the part of both contracting parties, neither may recover what he has given by
virtue of the contract, or demand the performance of the other's undertaking;

(2) When only one of the contracting parties is at fault, he cannot recover, what he has given by reason of
the contract, or ask for fulfillment of what has been promised him. The other, who is not at fault, may
demand the return of what he has given without any obligation to comply with his promise.
In our opinion, the Court of Appeals erred in applying to the present case the pari delicto rule. First,
because it can not be said that both parties here had equal guilt when we consider that as against the
deceased Salvador P. Lopez, who was a man advanced in years and mature experience, the appellant
was a mere minor, 16 years of age, when the donation was made; that there is no finding made by the
Court of Appeals that she was fully aware of the terms of the bargain entered into by and Lopez and her
parents; that, her acceptance in the deed of donation (which was authorized by Article 626 of the Old Civil
Code) did not necessarily imply knowledge of conditions and terms not set forth therein; and that the
substance of the testimony of the instrumental witnesses is that it was the appellant's parents who
insisted on the donation before allowing her to live with Lopez. These facts are more suggestive of
seduction than of immoral bargaining on the part of appellant. It must not be forgotten that illegality is not
presumed, but must be duly and adequately proved.

In the second place, the rule that parties to an illegal contract, if equally guilty, will not be aided by the law
but will both be left where it finds them, has been interpreted by this Court as barring the party from
pleading the illegality of the bargain either as a cause of action or as a defense. Memo auditor propriam
turpitudinem allegans. Said this Court in Perez vs. Herranz, 7 Phil. 695-696:

It is unnecessary to determine whether a vessel for which a certificate and license have been fraudulently
obtained incurs forfeiture under these or any other provisions of this act. It is enough for this case that the
statute prohibits such an arrangement as that between the plaintiff and defendant so as to render illegal
both the arrangement itself and all contracts between the parties growing out of it.

It does not, however, follow that the plaintiff can succeed in this action. There are two answers to his
claim as urged in his brief. It is a familiar principle that the courts will not aid either party to enforce an
illegal contract, but will leave them both where it finds them; but where the plaintiff can establish a cause
of action without exposing its illegality, the vice does not affect his right to recover. The American
authorities cited by the plaintiff fully sustain this doctrine. The principle applies equally to a defense. The
law in those islands applicable to the case is found in article 1305 of the Civil Code, shutting out from
relief either of the two guilty parties to an illegal or vicious contract.

In the case at bar the plaintiff could establish prima facie his sole ownership by the bill of sale from Smith,
Bell and Co. and the official registration. The defendant, on his part, might overthrow this title by proof
through a certain subsequent agreement between him and the plaintiff, dated March 16, 1902, that they
had become owners in common of the vessel, 'the agreement not disclosing the illegal motive for placing
the formal title in the plaintiff. Such an ownership is not in itself prohibited, for the United States courts
recognize the equitable ownership of a vessel as against the holder of a legal title, where the
arrangement is not one in fraud of the law. (Weston vs. Penniman, Federal Case 17455; Scudder vs.
Calais Steamboat Company, Federal Case 12566.).

On this proof, the defendant being a part owner of the vessel, would have defeated the action for its
exclusive possession by the plaintiff. The burden would then be cast upon the plaintiff to show the
illegality of the arrangement, which the cases cited he would not be allowed to do.

The rule was reaffirmed in Lima vs. Lini Chu Kao, 51 Phil. 477.

The situation confronting us is exactly analogous. The appellant seeks recovery of the disputed land on
the strength of a donation regular on its face. To defeat its effect, the appellees must plead and prove that
the same is illegal. But such plea on the part of the Lopez heirs is not receivable, since Lopez, himself, if
living, would be barred from setting up that plea; and his heirs, as his privies and successors in interest,
can have no better rights than Lopez himself.

Appellees, as successors of the late donor, being thus precluded from pleading the defense of immorality
or illegal causa of the donation, the total or partial ineffectiveness of the same must be decided by
different legal principles. In this regard, the Court of Appeals correctly held that Lopez could not donate
the entirety of the property in litigation, to the prejudice of his wife Maria Ngo, because said property was
conjugal in character and the right of the husband to donate community property is strictly limited by law
(Civil Code of 1889, Arts. 1409, 1415, 1413; Baello vs. Villanueva, 54 Phil. 213).

ART. 1409. The conjugal partnership shall also be chargeable with anything which may have been given
or promised by the husband alone to the children born of the marriage in order to obtain employment for
them or give then, a profession or by both spouses by common consent, should they not have stipulated
that such expenditures should be borne in whole or in part by the separate property of one of them.".

ART. 1415. The husband may dispose of the property of the conjugal partnership for the purposes
mentioned in Article 1409.)

ART. 1413. In addition to his powers as manager the husband may for a valuable consideration alienate
and encumber the property of the conjugal partnership without the consent of the wife.

The text of the articles makes it plain that the donation made by the husband in contravention of law is not
void in its entirety, but only in so far as it prejudices the interest of the wife. In this regard, as Manresa
points out (Commentaries, 5th Ed., pp. 650-651, 652-653), the law asks no distinction between gratuitous
transfers and conveyances for a consideration.

Puede la mujer como proprietaria hacer anular las donaciones aun durante el matrimonio? Esta es, en
suma, la cuestion, reducida a determinar si la distinta naturaleza entre los actos a titulo oneroso y los
actos a titulo lucrativo, y sus especiales y diversas circunstancias, pueden motivar una solucion diferente
en cuanto a la epoca en que la mujer he de reclamar y obtener la nulidad del acto; cuestion que no deja
de ser interesantisima.lawphi1.net

El Codigo, a pesar de la variacion que ha introducido en el proyecto de 1851, poniendo como segundo
parrafo del articulo 1.413, o como limitacion de las enajenaciones u obligaciones a titulo oneroso, lo que
era una limitacion general de todos los actos del marido, muestra, sin embargo, que no ha variado de
criterio y que para el las donaciones deben en todo equipararse a cualquier otro acto ilegal o frraudulento
de caracter oneroso, al decir en el art. 1.419: "Tambien se traera a colacion en el inventario de la
sociedad el importe de las donaciones y enajenaciones que deban considerarse ilegales o
fraudulentas, con sujecion al art. 1.413.' (Debio tambien citarse el articulo 1.415, que es el que habla de
donaciones.)lawphi1.net

"En resumen: el marido solo puede donar los bienes gananciales dentro de los limites marcados en el
art. 1.415. Sin embargo, solo la mujer o sus herederos pueden reclamar contra la valides de la donacion,
pues solo en su interes establece la prohibicion. La mujer o sus herederos, para poder dejar sin efecto el
acto, han de sufrir verdadero perjuicio, entendiendose que no le hay hasta, tanto que, terminada por
cualquier causa la sociedad de gananciales, y hecha su liquidacion, no pueda imputarse lo donado al
haber por cualquier concepto del marido, ni obtener en su consecuencia la mujer la dibida
indemnizacion. La donacioni reviste por tanto legalmente, una eficacia condicional, y en armonia con
este caracter, deben fijarse los efectos de la misma con relacion a los adquirentes y a los terceros
poseedores, teniendo, en su caso, en cuenta lo dispuesto en la ley Hipotecaria. Para prevenir todo
perjuicio, puede la mujer, durante el matrimonio inmediatamente al acto, hacer constar ante los
Tribunales su existencia y solicitor medidas de precaucion, como ya se ha dicho. Para evitarlo en lo
sucesivo, y cuando las circunstancias lo requieran, puede instar la declaracion de prodigalidad.

To determine the prejudice to the widow, it must be shown that the value of her share in the property
donated can not be paid out of the husband's share of the community profits. The requisite data,
however, are not available to us and necessitate a remand of the records to the court of origin that settled
the estate of the late Salvador P. Lopez.

The situation of the children and forced heirs of Lopez approximates that of the widow. As privies of their
parent, they are barred from invoking the illegality of the donation. But their right to a legitime out of his
estate is not thereby affected, since the legitime is granted them by the law itself, over and above the
wishes of the deceased. Hence, the forced heirs are entitled to have the donation set aside in so far as in
officious: i.e., in excess of the portion of free disposal (Civil Code of 1889, Articles 636, 654) computed as
provided in Articles 818 and 819, and bearing in mind that "collationable gifts" under Article 818 should
include gifts made not only in favor of the forced heirs, but even those made in favor of strangers, as
decided by the Supreme Court of Spain in its decisions of 4 May 1899 and 16 June 1902. So that in
computing the legitimes, the value of the property to herein appellant, Conchita Liguez, should be
considered part of the donor's estate. Once again, only the court of origin has the requisite date to
determine whether the donation is inofficious or not.

With regard to the improvements in the land in question, the same should be governed by the rules of
accession and possession in good faith, it being undisputed that the widow and heirs of Lopez were
unaware of the donation in favor of the appellant when the improvements were made.

The appellees, relying on Galion vs. Garayes, 53 Phil. 43, contend that by her failure to appear at the
liquidation proceedings of the estate of Salvador P. Lopez in July 1943, the appellant has forfeited her
right to uphold the donation if the prejudice to the widow Maria Ngo resulting from the donation could be
made good out of the husband's share in the conjugal profits. It is also argued that appellant was guilty of
laches in failing to enforce her rights as donee until 1951. This line of argument overlooks the capital fact
that in 1943, appellant was still a minor of sixteen; and she did not reach the age of majority until 1948.
Hence, her action in 1951 was only delayed three years. Nor could she be properly expected to intervene
in the settlement of the estate of Lopez: first, because she was a minor during the great part of the
proceedings; second, because she was not given notice thereof ; and third, because the donation did not
make her a creditor of the estate. As we have ruled in Lopez vs. Olbes, 15 Phil. 547-548:

The prima facie donation inter vivos and its acceptance by the donees having been proved by means of a
public instrument, and the donor having been duly notified of said acceptance, the contract is perfect and
obligatory and it is perfectly in order to demand its fulfillment, unless an exception is proved which is
based on some legal reason opportunely alleged by the donor or her heirs.

So long as the donation in question has not been judicially proved and declared to be null, inefficacious,
or irregular, the land donated is of the absolute ownership of the donees and consequently, does not form
a part of the property of the estate of the deceased Martina Lopez; wherefore the action instituted
demanding compliance with the contract, the delivery by the deforciant of the land donated, or that it be,
prohibited to disturb the right of the donees, should not be considered as incidental to the probate
proceedings aforementioned.

The case of Galion vs. Gayares, supra, is not in point. First, because that case involved a stimulated
transfer that case have no effect, while a donation with illegal causa may produce effects under certain
circumstances where the parties are not of equal guilt; and again, because the transferee in the Galion
case took the property subject to lis pendens notice, that in this case does not exist.

In view of the foregoing, the decisions appealed from are reversed and set aside, and the appellant
Conchita Liguez declared entitled to so much of the donated property as may be found, upon proper
liquidation, not to prejudice the share of the widow Maria Ngo in the conjugal partnership with Salvador P.
Lopez or the legitimes of the forced heirs of the latter. The records are ordered remanded to the court of
origin for further proceedings in accordance with this opinion. Costs against appellees. So ordered.

Paras, C.J., Bengzon, Padilla, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, and
Endencia, JJ., concur.
G.R. No. L-27010 April 30, 1969

MARLENE DAUDEN-HERNAEZ, petitioner,


vs.
HON. WALFRIDO DE LOS ANGELES, Judge of the Court of First Instance of Quezon City,
HOLLYWOOD FAR EAST PRODUCTIONS, INC., and RAMON VALENZUELA, respondents.

R. M. Coronado and Associates for petitioner.


Francisco Lavides for respondent.

REYES, J.B.L., Acting C.J.:

Petition for a writ of certiorari to set aside certain orders of the Court of First Instance of Quezon City
(Branch IV), in its Civil Case No. Q-10288, dismissing a complaint for breach of contract and damages,
denying reconsideration, refusing to admit an amended complaint, and declaring the dismissal final and
unappealable.

The essential facts are the following:

Petitioner Marlene Dauden-Hernaez, a motion picture actress, had filed a complaint against herein private
respondents, Hollywood Far East Productions, Inc., and its President and General Manager, Ramon
Valenzuela, to recover P14,700.00 representing a balance allegedly due said petitioner for her services
as leading actress in two motion pictures produced by the company, and to recover damages. Upon
motion of defendants, the respondent court (Judge Walfrido de los Angeles presiding) ordered the
complaint dismissed, mainly because the "claim of plaintiff was not evidenced by any written document,
either public or private", and the complaint "was defective on its face" for violating Articles 1356 and 1358
of the Civil, Code of the Philippines, as well as for containing defective allege, petitions. Plaintiff sought
reconsideration of the dismissal and for admission of an amended complaint, attached to the motion. The
court denied reconsideration and the leave to amend; whereupon, a second motion for reconsideration
was filed. Nevertheless, the court also denied it for being pro forma, as its allegations "are, more or less,
the same as the first motion", and for not being accompanied by an affidavit of merits, and further
declared the dismissal final and unappealable. In view of the attitude of the Court of First Instance,
plaintiff resorted to this Court.

The answer sets up the defense that "the proposed amended complaint did not vary in any material
respect from the original complaint except in minor details, and suffers from the same vital defect of the
original complaint", which is the violation of Article 1356 of the Civil Code, in that the contract sued upon
was not alleged to be in writing; that by Article 1358 the writing was absolute and indispensable, because
the amount involved exceeds five hundred pesos; and that the second motion for reconsideration did not
interrupt the period for appeal, because it was not served on three days' notice.

We shall take up first the procedural question. It is a well established rule in our jurisprudence that when a
court sustains a demurrer or motion to dismiss it is error for the court to dismiss the complaint without
giving the party plaintiff an opportunity to amend his complaint if he so chooses. 1 Insofar as the first order
of dismissal (Annex D, Petition) did not provide that the same was without prejudice to amendment of the
complaint, or reserve to the plaintiff the right to amend his complaint, the said order was erroneous; and
this error was compounded when the motion to accept the amended complaint was denied in the
subsequent order of 3 October 1966 (Annex F, Petition). Hence, the petitioner-plaintiff was within her
rights in filing her so-called second motion for reconsideration, which was actually a first motion against
the refusal to admit the amended complaint.

It is contended that the second motion for reconsideration was merely pro forma and did not suspend the
period to appeal from the first order of dismissal (Annex D) because (1) it merely reiterated the first
motion for reconsideration and (2) it was filed without giving the counsel for defendant-appellee the 3
days' notice provided by the rules. This argument is not tenable, for the reason that the second motion for
reconsideration was addressed to the court' refusal to allow an amendment to the original complaint, and
this was a ground not invoked in the first motion for reconsideration. Thus, the second motion to
reconsider was really not pro forma, as it was based on a different ground, even if in its first part it set
forth in greater detail the arguments against the correctness of the first order to dismiss. And as to the
lack of 3 days' notice, the record shows that appellees had filed their opposition (in detail) to the second
motion to reconsider (Answer, Annex 4); so that even if it were true that respondents were not given the
full 3 days' notice they were not deprived of any substantial right. Therefore, the claim that the first order
of dismissal had become final and unappealable must be overruled.

It is well to observe in this regard that since a motion to dismiss is not a responsive pleading, the plaintiff-
petitioner was entitled as of right to amend the original dismissed complaint. In Paeste vs. Jaurigue 94
Phil. 179, 181, this Court ruled as follows:

Appellants contend that the lower court erred in not admitting their amended complaint and in
holding that their action had already prescribed. Appellants are right on both counts.

Amendments to pleadings are favored and should be liberally allowed in the furtherance of
justice. (Torres vs. Tomacruz, 49 Phil. 913). Moreover, under section 1 of Rule 17, Rules of
Court, a party may amend his pleading once as a matter of course, that is, without leave of court,
at any time before a responsive pleading is served. A motion to dismiss is not a "responsive
pleading". (Moran on the Rules of Court, vol. 1, 1952, ed., p. 376). As plaintiffs amended their
complaint before it was answered, the motion to admit the amendment should not have been
denied. It is true that the amendment was presented after the original complaint had been
ordered dismissed. But that order was not yet final for it was still under reconsideration.

The foregoing observations leave this Court free to discuss the main issue in this petition. Did the court
below abuse its discretion in ruling that a contract for personal services involving more than P500.00 was
either invalid of unenforceable under the last paragraph of Article 1358 of the Civil Code of the
Philippines?

We hold that there was abuse, since the ruling herein contested betrays a basic and lamentable
misunderstanding of the role of the written form in contracts, as ordained in the present Civil Code.

In the matter of formalities, the contractual system of our Civil Code still follows that of the Spanish Civil
Code of 1889 and of the "Ordenamiento de Alcala" 2 of upholding the spirit and intent of the parties over
formalities: hence, in general, contracts are valid and binding from their perfection regardless of form
whether they be oral or written. This is plain from Articles 1315 and 1356 of the present Civil Code. Thus,
the first cited provision prescribes:

ART. 1315. Contracts are perfected by mere consent, and from that moment the parties are
bound not only to the fulfillment of what has been expressly stipulated but also to all the
consequences which, according to their nature, may be in keeping with good faith, usage and
law. (Emphasis supplied)

Concordantly, the first part of Article 1356 of the Code Provides:

ART. 1356. Contracts shall be obligatory in whatever form they may have been entered into,
provided all the essential requisites for their validity are present.... (Emphasis supplied)

These essential requisites last mentioned are normally (1) consent (2) proper subject matter, and (3)
consideration or causa for the obligation assumed (Article 1318). 3 So that once the three elements exist,
the contract is generally valid and obligatory, regardless of the form, oral or written, in which they are
couched.lawphi1.nt
To this general rule, the Code admits exceptions, set forth in the second portion of Article 1356:

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....

It is thus seen that to the general rule that the form (oral or written) is irrelevant to the binding effect inter
partes of a contract that possesses the three validating elements of consent, subject matter, and causa,
Article 1356 of the Code establishes only two exceptions, to wit:

(a) Contracts for which the law itself requires that they be in some particular form (writing) in order to
make them valid and enforceable (the so-called solemn contracts). Of these the typical example is the
donation of immovable property that the law (Article 749) requires to be embodied in a public instrument
in order "that the donation may be valid", i.e., existing or binding. Other instances are the donation of
movables worth more than P5,000.00 which must be in writing, "otherwise the donation shall be void"
(Article 748); contracts to pay interest on loans (mutuum) that must be "expressly stipulated in writing"
(Article 1956); and the agreements contemplated by Article 1744, 1773, 1874 and 2134 of the present
Civil Code.

(b) Contracts that the law requires to be proved by some writing (memorandum) of its terms, as in those
covered by the old Statute of Frauds, now Article 1403(2) of the Civil Code. Their existence not being
provable by mere oral testimony (unless wholly or partly executed), these contracts are exceptional in
requiring a writing embodying the terms thereof for their enforceability by action in court.

The contract sued upon by petitioner herein (compensation for services) does not come under either
exception. It is true that it appears included in Article 1358, last clause, providing that "all other contracts
where the amount involved exceeds five hundred pesos must appear in writing, even a private one." But
Article 1358 nowhere provides that the absence of written form in this case will make the agreement
invalid or unenforceable. On the contrary, Article 1357 clearly indicates that contracts covered by Article
1358 are binding and enforceable by action or suit despite the absence of writing.

ART. 1357. If the law requires a document or other special form, as in the acts and contracts
enumerated in the following article, the contracting parties may compel each other to observe that
form, once the contract has been perfected. This right may be exercised simultaneously with the
action the contract. (Emphasis supplied) .

It thus becomes inevitable to conclude that both the court a quo as well as the private respondents herein
were grossly mistaken in holding that because petitioner Dauden's contract for services was not in writing
the same could not be sued upon, or that her complaint should be dismissed for failure to state a cause of
action because it did not plead any written agreement.

The basic error in the court's decision lies in overlooking that in our contractual system it is not enough
that the law should require that the contract be in writing, as it does in Article 1358. The law must further
prescribe that without the writing the contract is not valid or not enforceable by action.

WHEREFORE, the order dismissing the complaint is set aside, and the case is ordered remanded to the
court of origin for further proceedings not at variance with this decision.

Costs to be solidarity paid by private respondents Hollywood Far East Productions, Inc., and Ramon
Valenzuela.Dizon, Makalintal, Zaldivar, Sanchez, Fernando, Teehankee and Barredo, JJ., concur.
Concepcion, C.J. and Castro, J., are on leave.
Capistrano, J., took no part.
. [G.R. No. 128991. April 12, 2000]

YOLANDA ROSELLO-BENTIR, SAMUEL PORMIDA and CHARITO


PORMIDA, petitioners, vs. HONORABLE MATEO M. LEANDA, in his capacity as Presiding Judge
of RTC, Tacloban City, Branch 8, and LEYTE GULF TRADERS, INC., respondents.

DECISION

KAPUNAN, J.:

Reformation of an instrument is that remedy in equity by means of which a written instrument is made or
construed so as to express or conform to the real intention of the parties when some error or mistake has
been committed.[1] It is predicated on the equitable maxim that equity treats as done that which ought to
be done.[2] The rationale of the doctrine is that it would be unjust and unequitable to allow the
enforcement of a written instrument which does not reflect or disclose the real meeting of the minds of the
parties.[3] However, an action for reformation must be brought within the period prescribed by law,
otherwise, it will be barred by the mere lapse of time. The issue in this case is whether or not the
complaint for reformation filed by respondent Leyte Gulf Traders, Inc. has prescribed and in the negative,
whether or not it is entitled to the remedy of reformation sought. Oldmiso

On May 15, 1992, respondent Leyte Gulf Traders, Inc. (herein referred to as respondent corporation) filed
a complaint for reformation of instrument, specific performance, annulment of conditional sale and
damages with prayer for writ of injunction against petitioners Yolanda Rosello-Bentir and the spouses
Samuel and Charito Pormida. The case was docketed as Civil Case No. 92-05-88 and raffled to Judge
Pedro S. Espina, RTC, Tacloban City, Branch 7. Respondent corporation alleged that it entered into a
contract of lease of a parcel of land with petitioner Bentir for a period of twenty (20) years starting May 5,
1968. According to respondent corporation, the lease was extended for another four (4) years or until May
31, 1992. On May 5, 1989, petitioner Bentir sold the leased premises to petitioner spouses Samuel
Pormada and Charito Pormada. Respondent corporation questioned the sale alleging that it had a right of
first refusal. Rebuffed, it filed Civil Case No. 92-05-88 seeking the reformation of the expired contract of
lease on the ground that its lawyer inadvertently omitted to incorporate in the contract of lease executed
in 1968, the verbal agreement or understanding between the parties that in the event petitioner Bentir
leases or sells the lot after the expiration of the lease, respondent corporation has the right to equal the
highest offer. Ncm

In due time, petitioners filed their answer alleging that the inadvertence of the lawyer who prepared the
lease contract is not a ground for reformation. They further contended that respondent corporation is
guilty of laches for not bringing the case for reformation of the lease contract within the prescriptive period
of ten (10) years from its execution.

Respondent corporation then filed its reply and on November 18, 1992, filed a motion to admit amended
complaint. Said motion was granted by the lower court. [4]

Thereafter, petitioners filed a motion to dismiss reiterating that the complaint should be dismissed on the
ground of prescription.

On December 15, 1995, the trial court through Judge Pedro S. Espina issued an order dismissing the
complaint premised on its finding that the action for reformation had already prescribed. The order
reads: Scjuris

ORDER
Resolved here is the defendants MOTION TO DISMISS PLAINTIFFS complaint on
ground of prescription of action.

It is claimed by plaintiff that he and defendant Bentir entered into a contract of lease of a
parcel of land on May 5, 1968 for a period of 20 years (and renewed for an additional 4
years thereafter) with the verbal agreement that in case the lessor decides to sell the
property after the lease, she shall give the plaintiff the right to equal the offers of other
prospective buyers. It was claimed that the lessor violated this right of first refusal of the
plaintiff when she sureptitiously (sic) sold the land to co-defendant Pormida on May 5,
1989 under a Deed of Conditional Sale. Plaintiffs right was further violated when after
discovery of the final sale, plaintiff ordered to equal the price of co-defendant Pormida
was refused and again defendant Bentir surreptitiously executed a final deed of sale in
favor of co-defendant Pormida in December 11, 1991.

The defendant Bentir denies that she bound herself to give the plaintiff the right of first
refusal in case she sells the property. But assuming for the sake of argument that such
right of first refusal was made, it is now contended that plaintiffs cause of action to reform
the contract to reflect such right of first refusal, has already prescribed after 10 years,
counted from May 5, 1988 when the contract of lease incepted. Counsel for defendant
cited Conde vs. Malaga, L-9405 July 31, 1956 and Ramos vs. Court of Appeals, 180
SCRA 635, where the Supreme Court held that the prescriptive period for reformation of
a written contract is ten (10) years under Article 1144 of the Civil Code.

This Court sustains the position of the defendants that this action for reformation of
contract has prescribed and hereby orders the dismissal of the case.

SO ORDERED.[5]

On December 29, 1995, respondent corporation filed a motion for reconsideration of the order dismissing
the complaint. Juris

On January 11, 1996, respondent corporation filed an urgent ex-parte motion for issuance of an order
directing the petitioners, or their representatives or agents to refrain from taking possession of the land in
question.

Considering that Judge Pedro S. Espina, to whom the case was raffled for resolution, was assigned to the
RTC, Malolos, Bulacan, Branch 19, Judge Roberto A. Navidad was designated in his place. Manikan

On March 28, 1996, upon motion of herein petitioners, Judge Navidad inhibited himself from hearing the
case. Consequently, the case was re-raffled and assigned to RTC, Tacloban City, Branch 8, presided by
herein respondent judge Mateo M. Leanda.

On May 10, 1996, respondent judge issued an order reversing the order of dismissal on the grounds that
the action for reformation had not yet prescribed and the dismissal was "premature and precipitate",
denying respondent corporation of its right to procedural due process. The order reads: Suprema

ORDER

Stated briefly, the principal objectives of the twin motions submitted by the plaintiffs, for
resolution are:
(1) for the reconsideration of the Order of 15 December 1995 of the Court (RTC, Br. 7),
dismissing this case, on the sole ground of prescription of one (1) of the five (5) causes of
action of plaintiff in its complaint for "reformation" of a contract of lease; and,

(2) for issuance by this Court of an Order prohibiting the defendants and their privies-in-
interest, from taking possession of the leased premises, until a final court order issues for
their exercise of dominical or possessory right thereto.

The records of this case reveal that co-defendant BENTER (Yolanda) and plaintiff Leyte
Gulf Traders Incorporation, represented by Chairman Benito Ang, entered into a contract
of lease of a parcel of land, denominated as Lot No. 878-D, located at Sagkahan District,
Tacloban City, on 05 May 1968, for a period of twenty (20) years, (later renewed for an
additional two (2) years). Included in said covenant of lease is the verbal understanding
and agreement between the contracting parties, that when the defendant (as lessor) will
sell the subject property, the plaintiff as (lessee) has the "right of first refusal", that is, the
right to equal the offer of any other prospective third-party buyer. This agreement (sic) is
made apparent by paragraph 4 of the lease agreement stating:

"4. IMPROVEMENT. The lessee shall have the right to erect on the leased
premises any building or structure that it may desire without the consent or
approval of the Lessor x x x provided that any improvements existing at the
termination of the lease shall remain as the property of the Lessor without right to
reimbursement to the Lessee of the cost or value thereof."

That the foregoing provision has been included in the lease agreement if only to convince
the defendant-lessor that plaintiff desired a priority right to acquire the property (ibid) by
purchase, upon expiration of the effectivity of the deed of lease.

In the course of the interplay of several procedural moves of the parties herein, the
defendants filed their motion to admit their amended answer to plaintiffs amended
complaint. Correspondingly, the plaintiff filed its opposition to said motion. The former
court branch admitted the amended answer, to which order of admission, the plaintiff
seasonably filed its motion for reconsideration. But, before the said motion for
reconsideration was acted upon by the court, the latter issued an Order on 15 December
1995, DISMISSING this case on the lone ground of prescription of the cause of action of
plaintiffs complaint on "reformation" of the lease contract, without anymore considering
the remaining cause of action, viz.: (a) on Specific Performance; (b) an Annulment of
Sale and Title; (c) on Issuance of a Writ of Injunction, and (d) on Damages.

With due respect to the judicial opinion of the Honorable Presiding Judge of Branch 7 of
this Court, the undersigned, to whom this case was raffled to after the inhibition of Judge
Roberto Navidad, as acting magistrate of Branch 7, feels not necessary any more to
discuss at length that even the cause of action for "reformation" has not, as yet,
prescribed.

To the mind of this Court, the dismissal order adverted to above, was obviously
premature and precipitate, thus resulting denial upon the right of plaintiff that procedural
due process. The other remaining four (4) causes of action of the complaint must have
been deliberated upon before that court acted hastily in dismissing this case.

WHEREFORE, in the interest of substantial justice, the Order of the court, (Branch 7,
RTC) dismissing this case, is hereby ordered RECONSIDERED and SET ASIDE.
Let, therefore, the motion of plaintiff to reconsider the Order admitting the amended
answer and the Motion to Dismiss this case (ibid), be set for hearing on May 24, 1996, at
8:30 oclock in the morning. Service of notices must be effected upon parties and counsel
as early as possible before said scheduled date.

Concomitantly, the defendants and their privies-in-interest or agents, are hereby


STERNLY WARNED not to enter, in the meantime, the litigated premises, before a final
court order issues granting them dominical as well as possessory right thereto.

To the motion or petition for contempt, filed by plaintiff, thru Atty. Bartolome C. Lawsin,
the defendants may, if they so desire, file their answer or rejoinder thereto, before the
said petition will be set for hearing. The latter are given ten (10) days to do so, from the
date of their receipt of a copy of this Order.

SO ORDERED.[6]

On June 10, 1996, respondent judge issued an order for status quo ante, enjoining petitioners to desist
from occupying the property.[7]

Aggrieved, petitioners herein filed a petition for certiorari to the Court of Appeals seeking the annulment of
the order of respondent court with prayer for issuance of a writ of preliminary injunction and temporary
restraining order to restrain respondent judge from further hearing the case and to direct respondent
corporation to desist from further possessing the litigated premises and to turn over possession to
petitioners.

On January 17, 1997, the Court of Appeals, after finding no error in the questioned order nor grave abuse
of discretion on the part of the trial court that would amount to lack, or in excess of jurisdiction, denied the
petition and affirmed the questioned order.[8] A reconsideration of said decision was, likewise, denied on
April 16, 1997.[9]

Thus, the instant petition for review based on the following assigned errors, viz:

6.01 THE COURT OF APPEALS ERRED IN HOLDING THAT AN ACTION FOR


REFORMATION IS PROPER AND JUSTIFIED UNDER THE CIRCUMSTANCES OF
THE PRESENT CASE;

6.02 THE COURT OF APPEALS ERRED IN HOLDING THAT THE ACTION FOR
REFORMATION HAS NOT YET PRESCRIBED;

6.03 THE COURT OF APPEALS ERRED IN HOLDING THAT AN OPTION TO BUY IN A


CONTRACT OF LEASE IS REVIVED FROM THE IMPLIED RENEWAL OF SUCH
LEASE; AND,

6.04 THE COURT OF APPEALS ERRED IN HOLDING THAT A STATUS QUO ANTE
ORDER IS NOT AN INJUNCTIVE RELIEF THAT SHOULD COMPLY WITH THE
PROVISIONS OF RULE 58 OF THE RULES OF COURT.[10]

The petition has merit. Scsdaad

The core issue that merits our consideration is whether the complaint for reformation of instrument has
prescribed. Sdaad
The remedy of reformation of an instrument is grounded on the principle of equity where, in order to
express the true intention of the contracting parties, an instrument already executed is allowed by law to
be reformed. The right of reformation is necessarily an invasion or limitation of the parol evidence rule
since, when a writing is reformed, the result is that an oral agreement is by court decree made legally
effective.[11] Consequently, the courts, as the agencies authorized by law to exercise the power to reform
an instrument, must necessarily exercise that power sparingly and with great caution and zealous care.
Moreover, the remedy, being an extraordinary one, must be subject to limitations as may be provided by
law. Our law and jurisprudence set such limitations, among which is laches. A suit for reformation of an
instrument may be barred by lapse of time. The prescriptive period for actions based upon a written
contract and for reformation of an instrument is ten (10) years under Article 1144 of the Civil
Code.[12] Prescription is intended to suppress stale and fraudulent claims arising from transactions like the
one at bar which facts had become so obscure from the lapse of time or defective memory. [13] In the case
at bar, respondent corporation had ten (10) years from 1968, the time when the contract of lease was
executed, to file an action for reformation. Sadly, it did so only on May 15, 1992 or twenty-four (24) years
after the cause of action accrued, hence, its cause of action has become stale, hence, time-
barred. Sdaamiso

In holding that the action for reformation has not prescribed, the Court of Appeals upheld the ruling of the
Regional Trial Court that the 10-year prescriptive period should be reckoned not from the execution of the
contract of lease in 1968, but from the date of the alleged 4-year extension of the lease contract after it
expired in 1988. Consequently, when the action for reformation of instrument was filed in 1992 it was
within ten (10) years from the extended period of the lease. Private respondent theorized, and the Court
of Appeals agreed, that the extended period of lease was an "implied new lease" within the contemplation
of Article 1670 of the Civil Code,[14] under which provision, the other terms of the original contract were
deemed revived in the implied new lease.

We do not agree. First, if, according to respondent corporation, there was an agreement between the
parties to extend the lease contract for four (4) years after the original contract expired in 1988, then Art.
1670 would not apply as this provision speaks of an implied new lease (tacita reconduccion) where at the
end of the contract, the lessee continues to enjoy the thing leased "with the acquiescence of the lessor",
so that the duration of the lease is "not for the period of the original contract, but for the time established
in Article 1682 and 1687." In other words, if the extended period of lease was expressly agreed upon by
the parties, then the term should be exactly what the parties stipulated, not more, not less. Second, even
if the supposed 4-year extended lease be considered as an implied new lease under Art. 1670, "the other
terms of the original contract" contemplated in said provision are only those terms which are germane to
the lessees right of continued enjoyment of the property leased.[15] The prescriptive period of ten (10)
years provided for in Art. 1144[16] applies by operation of law, not by the will of the parties. Therefore, the
right of action for reformation accrued from the date of execution of the contract of lease in 1968.

Even if we were to assume for the sake of argument that the instant action for reformation is not time-
barred, respondent corporations action will still not prosper. Under Section 1, Rule 64 of the New Rules of
Court,[17] an action for the reformation of an instrument is instituted as a special civil action for declaratory
relief. Since the purpose of an action for declaratory relief is to secure an authoritative statement of the
rights and obligations of the parties for their guidance in the enforcement thereof, or compliance
therewith, and not to settle issues arising from an alleged breach thereof, it may be entertained only
before the breach or violation of the law or contract to which it refers.[18] Here, respondent corporation
brought the present action for reformation after an alleged breach or violation of the contract was already
committed by petitioner Bentir. Consequently, the remedy of reformation no longer lies. Ncmmis

We no longer find it necessary to discuss the other issues raised considering that the same are
predicated upon our affirmative resolution on the issue of the prescription of the action for reformation.

WHEREFORE, the petition is hereby GRANTED. The Decision of the Court of Appeals dated January 17,
1997 is REVERSED and SET ASIDE. The Order of the Regional Trial Court of Tacloban City, Branch 7,
dated December 15, 1995 dismissing the action for reformation is REINSTATED. Scncm.SO ORDERED.
G.R. No. 133643. June 6, 2002]

RITA SARMING, RUFINO SARMING, MANUEL SARMING, LEONORA VDA. DE LOY, ERLINDA
DARMING, NICANDRA SARMING, MANSUETA SARMING, ARTURO CORSAME, FELY
CORSAME, FEDERICO CORSAME, ISABELITA CORSAME, NORMA CORSAME, CESAR
CORSAME, RUDY CORSAME, ROBERTA CORSAME, ARTEMIO CORSAME, ELPIDIO
CORSAME, ENRIQUITA CORSAME, and GUADALUPE CORSAME
TAN, petitioners, vs. CRESENCIO DY, LUDIVINA DY-CHAN, TRINIDAD FLORES, LUISA
FLORES, SATURNINA ORGANISTA, REMEDIOS ORGANISTA, OFELIA ORGANISTA, LYDIA
ORGANISTA, ZOSIMO ORGANISTA, DOMISIANO FLORES, FLORITA FLORES, EDUARDO
FLORES, BENIGNA FLORES, ANGELINA FLORES, MARCIAL FLORES, and MARIO
FLORES, respondents.
DECISION
QUISUMBING, J.:

This petition for review assails the decision[1] dated September 23, 1997 of the Court of Appeals in
CA-G.R. CV No. 39401, which affirmed the decision[2] of the Regional Trial Court, Branch 41 in Negros
Oriental, Dumaguete City and the resolution[3] dated April 21, 1998 denying petitioners motion for
reconsideration.
The facts as culled from records are as follows:
Petitioners are the successors-in-interest of original defendant Silveria Flores, while respondents
Cresencio Dy and Ludivina Dy-Chan are the successors-in-interest of the original plaintiff Alejandra
Delfino, the buyer of one of the lots subject of this case. They were joined in this petition by the
successors-in-interest of Isabel, Juan, Hilario, Ruperto, Tomasa, and Luisa and Trinidad themselves, all
surnamed Flores, who were also the original plaintiffs in the lower court. They are the descendants of
Venancio[4] and Jose[5], the brothers of the original defendant Silveria Flores.
In their complaint for reformation of instrument against Silveria Flores, the original plaintiffs alleged
that they, with the exception of Alejandra Delfino, are the heirs of Valentina Unto Flores, who owned,
among others, Lot 5734, covered by OCT 4918-A; and Lot 4163, covered by OCT 3129-A, both located at
Dumaguete City.
After the death of Valentina Unto Flores, her three children, namely: Jose, Venancio, and Silveria,
took possession of Lot 5734 with each occupying a one-third portion. Upon their death, their children and
grandchildren took possession of their respective shares. The other parcel, Lot 4163 which is solely
registered under the name of Silveria, was sub-divided between Silveria and Jose. Two rows of coconut
trees planted in the middle of this lot serves as boundary line.
In January 1956, Luisa, Trinidad, Ruperto and Tomasa, grandchildren of Jose and now owners of
one-half of Lot 4163, entered into a contract with plaintiff Alejandra Delfino, for the sale of one-half share
of Lot 4163 after offering the same to their co-owner, Silveria, who declined for lack of money. Silveria did
not object to the sale of said portion to Alejandra Delfino.
Before preparing the document of sale, the late Atty. Deogracias Pinili, Alejandras lawyer, called
Silveria and the heirs of Venancio to a conference where Silveria declared that she owned half of the lot
while the other half belonged to the vendors; and that she was selling her three coconut trees found in the
half portion offered to Alejandra Delfino for P15. When Pinili asked for the title of the land, Silveria Flores,
through her daughter, Cristita Corsame, delivered Original Certificate of Title No. 4918-A, covering Lot
No. 5734, and not the correct title covering Lot 4163. At that time, the parties knew the location of Lot
4163 but not the OCT Number corresponding to said lot.
Believing that OCT No. 4918-A was the correct title corresponding to Lot 4163, Pinili prepared a
notarized Settlement of Estate and Sale (hereinafter deed) duly signed by the parties on January 19,
1956.As a result, OCT No. 4918-A was cancelled and in lieu thereof, TCT No. 5078 was issued in the
names of Silveria Flores and Alejandra Delfino, with one-half share each. Silveria Flores was present
during the preparation and signing of the deed and she stated that the title presented covered Lot No.
4163.
Alejandra Delfino immediately took possession and introduced improvements on the purchased lot,
which was actually one-half of Lot 4163 instead of Lot 5734 as designated in the deed.
Two years later, when Alejandra Delfino purchased the adjoining portion of the lot she had been
occupying, she discovered that what was designated in the deed, Lot 5734, was the wrong lot. She
sought the assistance of Pinili who approached Silveria and together they inquired from the Registry of
Deeds about the status of Lot 4163. They found out that OCT No. 3129-A covering Lot 4163 was still on
file.Alejandra Delfino paid the necessary fees so that the title to Lot 4163 could be released to Silveria
Flores, who promised to turn it over to Pinili for the reformation of the deed of sale. However, despite
repeated demands, Silveria did not do so, prompting Alejandra and the vendors to file a complaint against
Silveria for reformation of the deed of sale with damages before the Regional Trial Court of Negros
Oriental, Branch 41, docketed as Civil Case No. 3457.
In her answer, Silveria Flores claimed that she was the sole owner of Lot 4163 as shown by OCT
No. 3129-A and consequently, respondents had no right to sell the lot. According to her, the contract of
sale clearly stated that the property being sold was Lot 5734, not Lot 4163. She also claimed that
respondents illegally took possession of one-half of Lot 4163. She thus prayed that she be declared the
sole owner of Lot 4163 and be immediately placed in possession thereof. She also asked for
compensatory, moral, and exemplary damages and attorneys fees.
The case lasted for several years in the trial court due to several substitutions of parties. The
complaint was amended several times. Moreover, the records had to be reconstituted when the building
where they were kept was razed by fire. But, earnest efforts for the parties to amicably settle the matters
among themselves were made by the trial court to no avail.
On September 29, 1992, the trial court found in favor of herein respondents, who were the plaintiffs
below, decreeing as follows:
WHEREFORE, this Court finds the preponderance of evidence in favor of the plaintiffs and veritably
against the defendants and, as such, renders judgment accordingly, thereby ORDERING the defendants,
the heirs of the deceased-defendant SILVERIA FLORES and her successors-in-interest the following:

1) To enter into the reformation of the subject contract or execute a mutual conveyance of sale, by
making the one-half (1/2) eastern portion of Lot 4163, the subject of the document of sale, in favor of
plaintiff, the late Alejandra Delfino or her heirs and/or successors-in-interest;

2) To sign a document ceding to the heirs of the heirs of Maxima Flores and Venancio Flores the excess
of her one-third (1/3) share; and further ordering the heirs of the late Alejandra Delfino to correspondingly
sign a document for the return of the one-half (1/2) portion of Lot 5734 to the original registered owners,
in exchange thereby;

3) To pay to the heirs of the late plaintiff Alejandra Delfino, the sum of P5,000.00 as actual damages and
the sum of P10,000.00 as moral damages;

4) To pay P2,000.00 as attorneys fees plus the costs of this suit.

SO ORDERED.[6]

According to the trial court, the claims of herein respondents were anchored on valid grounds. It
noted that Alejandra had been occupying one-half portion of Lot 4163 since 1956 and it was the one
pointed to her by the vendors. Citing the case of Atilano vs. Atilano[7], it ruled that when one sells or buys
real property, he sells or buys the said property as is shown to her and as he sees it, at its actual setting
and by its physical metes and bounds, not by the mere lot number assigned to it in the certificate of
title. Thus, it concluded that from the facts and circumstances of the case, it is clear that the object of the
sale, as understood by the parties, was that portion Y of Lot 4163 and that its designation as Lot 5734 in
the document of sale was a simple mistake in the drafting of the document, which mistake, however, did
not vitiate the consent of the parties or affect the validity and the binding effect of the contract between
them. Hence, the remedy of reformation of instrument is proper.[8]
Petitioners appealed the decision to the Court of Appeals, which affirmed the ruling of the trial court
as follows:
WHEREFORE, the appealed decision is hereby AFFIRMED. Costs against defendants-appellants.

SO ORDERED.[9]

In affirming the decision of the trial court, the Court of Appeals agreed that the real intention of the
parties was for the sale of Lot 4163 which Alejandra Delfino had been occupying, and the designation of
Lot 5734 in the deed was a mistake in the preparation of the document. It noted that Silveria Flores did
not object when Alejandra Delfino took possession of one-half portion of Lot 4163 immediately after the
sale, considering that it was Silverias son, Michael Corsame, who developed the area purchased by
Alejandra.[10]
Aggrieved but undeterred, the successors-in-interest of defendant Silveria Flores seasonably filed
their petition for review under Rule 45 of the Rules of Court. They assail the decision of the Court of
Appeals on the following grounds:
1. THE COURT OF APPEALS COMMITTED AN ERROR IN LAW WHEN IT FAILED TO
ORDER THE DISMISSAL OF CIVIL CASE NO. 3457 FOR LACK OF CAUSE OF ACTION.
2. THE COURT OF APPEALS AND THE TRIAL COURT COMMITTED A REVERSIBLE
ERROR IN LAW AND JURISPRUDENCE WHEN IT FAILED TO RULE THAT, BASED ON
THE UNDISPUTED EVIDENCE ON RECORD AND THE SETTLEMENT OF ESTATE AND
SALE ITSELF, THE PLAINTIFFS HAVE NO CAUSE OF ACTION AGAINST SILVERIA
FLORES BECAUSE SHE DID NOT SELL HER LAND TO ALEJANDRA DELFINO. HENCE
SILVERIA FLORES CANNOT BE BOUND NOR PREJUDICED BY THE CONTRACT OF
SALE ENTERED BY ALEJANDRA DELFINO AND HER CO-PLAINTIFFS (CAPITOL
INSURANCE & SURETY CO INC. V. CENTRAL AZUCARERA DEL DAVAO, 221 SCRA
98; OZAETA V. CA, 228 SCRA 350).
3. THE COURT OF APPEALS AND THE TRIAL COURT COMMITTED A REVERSIBLE
ERROR WHEN IT FAILED TO PRONOUNCE THAT SILVERIA FLORES WHO IS NOT A
PARTY TO THE CONTRACT OF SALE INVOLVING LOT NO. 5734 COVERED BY OCT
NO. 4918-A CANNOT BE LEGALLY COMPELLED BY ALEJANDRA DELFINO THRU AN
ACTION FOR REFORMATION OF CONTRACT TO EXECUTE A CONVEYANCE OF SALE
INVOLVING LOT NO. 4163 COVERED BY OCT NO. 3129-A OWNED AND REGISTERED
SOLELY IN THE NAME OF SILVERIA FLORES.
4. THE COURT OF APPEALS AND THE TRIAL COURT GROSSLY MISAPPREHENDED THE
FACTS WHEN IT RULED THAT THE OBJECT OF THE CONTRACT OF SALE WAS LOT
NO. 4163 COVERED BY OCT NO. 3129-A, DESPITE THE UNASSAILABLE FACT THAT
THE OBJECT OF THE SETTLEMENT AND SUBJECT OF THE CONTRACT OF SALE
WAS LOT NO. 5734 COVERED BY OCT NO. 4918-A.
5. THE COURT OF APPEALS AND THE TRIAL COURT GROSSLY MISAPPREHENDED THE
FACTS IN NOT UPHOLDING THAT THERE WAS NO MISTAKE IN THE DRAFTING OF
THE DOCUMENT AS WELL AS IN THE OBJECT OF THE SETTLEMENT OF ESTATE
AND SALE BECAUSE THE DOCUMENT WAS PREPARED BY ATTY. DEOGRACIAS
PINILI, THE LAWYER OF ALEJANDRA DELFINO.
6. THE COURT OF APPEALS AND THE TRIAL COURT GROSSLY MISAPPREHENDED THE
FACTS WHEN IT RULED THAT THE GRANDCHILDREN OF JOSE FLORES ARE
OWNERS AND COULD SELL THE ONE-HALF (1/2) PORTION OF LOT NO. 4163 TO
ALEJANDRA DELFINO DESPITE THE INCONTROVERTIBLE EVIDENCE THAT LOT NO.
4163 COVERED BY OCT NO. 3129-A IS REGISTERED AND SOLELY OWNED BY
SILVERIA FLORES WHO IS PAYING THE REAL PROPERTY TAXES.
7. THE COURT OF APPEALS AND THE TRIAL COURT COMMITTED A REVERSIBLE
ERROR IN LAW WHEN IT DISREGARDED ARTICLE 1370 OF THE CIVIL CODE OF THE
PHILIPPINES AND PERTINENT JURISPRUDENCE RELEVANT TO THIS CASE EVEN IF
THE TERMS OF THE SETTLEMENT OF ESTATE AND SALE ARE CLEAR AND LEAVE
NO DOUBT ON THE INTENTION OF THE CONTRACTING PARTIES.
8. THE COURT OF APPEALS AND THE TRIAL COURT GRAVELY ERRED IN
DISREGARDING SETTLED JURISPRUDENCE THAT A PUBLIC DOCUMENT EXECUTED
AND ATTESTED THROUGH THE INTERVENTION OF A NOTARY PUBLIC IS EVIDENCE
OF THE FACTS IN CLEAR, UNEQUIVOCAL MANNER AND TO CONTRADICT IT THERE
MUST BE CLEAR AND CONVINCING EVIDENCE NOT MERELY PREPONDERANT
EVIDENCE (GEVERO VS. INTERMEDIATE APPELLATE COURT, G.R. NO. 77029,
AUGUST 30, 1990; ZAMBO V. COURT OF APPEALS, 224 SCRA 855; REBULDEDA V.
IAC, 155 SCRA 520; CHILIANCHIN V. COQUINCO, 84 PHIL. 714; CENTENERA V.
GARCIA PALICIO, 29 PHIL. 470).
9. THE COURT OF APPEALS AND THE TRIAL COURT COMMITTED A REVERSIBLE
ERROR WHEN IT SUBSTITUTED, REVISED AND MODIFIED THE AGREEMENT OF THE
PARTIES DESPITE THE ABSENCE OF FRAUD, MISTAKE, INEQUITABLE CONDUCT OR
ACCIDENT.
10. THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN LAW WHEN IT
FAILED TO RULE ON THE ISSUE OF WHETHER THE TRIAL COURT GRAVELY ERRED
IN ORDERING THE HEIRS OF SILVERIA FLORES TO PAY ACTUAL AND MORAL
DAMAGES AS WELL AS ATTORNEYS FEES TO THE HEIRS OF ALEJANDRA
DELFINO.[11]
After careful consideration, we find the following relevant issues for our resolution: (1) whether or not
there is a cause of action for reformation of instrument against Silveria Flores, and consequently the
petitioners; (2) whether or not reformation of the subject deed is proper by reason of mistake in
designating the correct lot number; and (3) whether or not the heirs of Alejandra Delfino are entitled to
actual and moral damages including attorneys fees.
In seeking the reversal of the appellate courts decision, the heirs of Silveria Flores, herein
petitioners, ascribe to the appellate court several errors: first, the Court of Appeals committed error in
failing to appreciate that there is no cause of action against Silveria as she was never a party to the
contract of sale; second, the appellate court erred in giving probative value to the biased testimony of
Trinidad Flores to the effect that Lot No. 4163 was subdivided into two, one-half of which is occupied by
her and her siblings; and third, the appellate court erred in not considering the fact that Silveria is the only
registered owner of Lot 4163. Petitioners submit that the evidence adduced is insufficient to sustain a
decision in respondents favor.
Respondents, for their part, maintain that the present petition is pro forma as it does not raise any
new matter worth considering. They also assert that the arguments and issues raised by petitioners have
been more than adequately and exhaustively discussed by the trial court as well as the Court of
Appeals.[12]
On the first issue, petitioners contend that there is no cause of action against them and their
predecessor-in-interest, Silveria Flores, because she and they were not parties to the contract sought to
be reformed.
However, a close perusal of the deed would show that Silveria Flores was a party to the
contract. She is not only the seller of the coconut trees worth P15 but she was also one of the heirs
entitled to the estate of Venancio and Maxima, one of the heirs of Jose Flores. Her name did not appear
as one of the sellers of one-half lot to Alejandra Delfino because she never sold her share. What was sold
was the one-half share of Jose Flores, as represented by his heirs. It is also established that it was
Silveria Flores herself who delivered the subject lot to the vendee Alejandra Delfino. Said the lower court:
The truth of the matter, is that what the plaintiffs-vendors really intended to sell and what Alejandra
Delfino intended to buy, of which both of the parties agreed to be the subject of the transaction, was
actually that parcel of land, with two rows of coconut trees as the dividing line, and which lot is known
as Lot 4163. This lot, on the western portion, was the very portion which was pointed to and delivered to
Alejandra Delfino by the original defendant Silveria Flores and her two children, together with the vendors
on January 19, 1956. When the title to the said property was delivered to the notary public, for the
preparation of the document of sale, the title that was delivered was for Lot 5734. So, the document, that
was executed, was done by reason of mistake, inequitable conduct and accident, because the said
document did not express the true and real agreement and intention of the contracting parties. What was
made to appear in the said document was the sale of the one-half portion of another lot. Lot 5734, when
in truth and in fact, the subject property sold was Lot 4163.[13] (Underscoring and italics supplied.)

Through her actions, Silveria Flores had made the parties to the deed believe that the lot intended to
be the object of the contract was the same lot described in the deed. Thus, by mistake or accident, as
well as inequitable conduct, neither she nor her successors-in-interest could deny involvement in the
transaction that resulted in a deed that now ought to be reformed.
Worth stressing, the existence of a cause of action is not determined by ones involvement in a
contract. Participation in a contract is not an element to determine the existence of a cause of action. The
rule is that only the allegations in the complaint may properly be considered in ascertaining the existence
of a cause of action. Lack of cause of action must appear on the face of the complaint and its existence
may be determined only by the allegations of the complaint. Consideration of other facts is proscribed and
any attempt to prove extraneous circumstances is not allowed.[14]
The test of sufficiency of the facts found in a complaint as constituting a cause of action is whether or
not, admitting the facts alleged, the court can render a valid judgment upon the same in accordance with
the prayer in the complaint.[15] An examination of the complaint[16] shows herein respondents, as plaintiffs
in the trial court, are entitled to the relief of reformation of instrument if the following factual allegations of
respondents are deemed admitted, to wit: (1) that Silveria is a co-owner of Lots No. 5734 and 4163, in
different shares; (2) that the heirs of Jose, her co-owner in Lot No. 4163, offered to sell to her their one-
half share but she declined for lack of money; (3) that said share was later sold to Alejandra; (4) that
Silveria was asked to deliver the title of Lot No. 4163 but instead she delivered the title of Lot No. 5734;
(5) that after the sale, Alejandra occupied one-half portion of Lot No. 4163 while Lot No. 5734 was still in
the possession of Venancio and the heirs of Maxima and Silveria; (6) that it was only when Alejandra was
about to buy the adjacent lot that she realized that what was indicated in the Settlement of Estate and
Sale was Lot No. 5734 and not 4163. In sum, we find that the original plaintiffs in the trial court alleged
sufficient facts in the complaint that properly constituted a cause of action against the defendants.
On the second issue, petitioners contend respondents failed to show, specifically, a cause of action
for the reformation of the instrument in question. Reformation is that remedy in equity by means of which
a written instrument is made or construed so as to express or conform to the real intention of the
parties.[17] As provided in Article 1359 of the Civil Code:
Art. 1359. When, there having been a meeting of the minds of the parties to a contract, their true intention
is not expressed in the instrument purporting to embody the agreement by reason of mistake, fraud,
inequitable conduct or accident, one of the parties may ask for the reformation of the instrument to the
end that such true intention may be expressed.

If mistake, fraud, inequitable conduct, or accident has prevented a meeting of the minds of the parties, the
proper remedy is not reformation of the instrument but annulment of the contract.
An action for reformation of instrument under this provision of law may prosper only upon the
concurrence of the following requisites: (1) there must have been a meeting of the minds of the parties to
the contact; (2) the instrument does not express the true intention of the parties; and (3) the failure of the
instrument to express the true intention of the parties is due to mistake, fraud, inequitable conduct or
accident.[18]
All of these requisites, in our view, are present in this case. There was a meeting of the minds
between the parties to the contract but the deed did not express the true intention of the parties due to
mistake in the designation of the lot subject of the deed. There is no dispute as to the intention of the
parties to sell the land to Alejandra Delfino but there was a mistake as to the designation of the lot
intended to be sold as stated in the Settlement of Estate and Sale.
While intentions involve a state of mind which may sometimes be difficult to decipher, subsequent
and contemporaneous acts of the parties as well as the evidentiary facts as proved and admitted can be
reflective of ones intention. The totality of the evidence clearly indicates that what was intended to be sold
to Alejandra Delfino was Lot 4163 and not Lot 5734. As found by both courts below, there are enough
bases to support such conclusion. We particularly note that one of the stipulated facts during the pre-trial
is that one-half of Lot 4163 is in the possession of plaintiff Alejandra Delfino since 1956 up to the
present.[19] Now, why would Alejandra occupy and possess one-half of said lot if it was not the parcel of
land which was the object of the sale to her? Besides, as found by the Court of Appeals, if it were true
that Silveria Flores was the sole owner of Lot 4163, then she should have objected when Alejandra
Delfino took possession of one-half thereof immediately after the sale. Additionally, we find no cogent
reason to depart from the conclusion of both the Court of Appeals and the trial court, based on the
evidence on record, that Silveria Flores owns only one-half of Lot 4163. The other half belongs to her
brother Jose, represented now by his grandchildren successors-in-interest. As such, the latter could
rightfully sell the land to Alejandra Delfino.
Furthermore, on record, it has been shown that a spot investigation conducted by a duly licensed
surveyor revealed that Lot 4163 is subdivided into two portions, one belonging to Silveria Flores and the
other to the heirs of Jose Flores.[20] As found by the trial court, if indeed it was Lot 5734 that was sold,
then Silveria Flores was occupying more than her share of the inherited lot. Thus:
x x x That, with respect to Lot No. 5734 and Lot No. 4292, in an on-the-spot investigation, made by a
licensed surveyor, Mr. Rilthe Dorado, his findings thereon show that Silveria Flores is in possession on
the western portion of Lot 5734, with an area of more than one-half and, to be exact, with an area of
2,462, in spite of the fact that she is the registered owner only of a one-third (1/3) share; and admitting,
for the sake of argument, that it was the one-half portion, of Lot 5734, that was sold, why should Silveria
Flores possess more than 2,190 square meters, which is the 1/2 of Lot 5734, Isabel Flores, the daughter
of Venancio Flores is possessing the middle portion, with an area of only 884 square meters; and
Trinidad Flores Nodado, in representation of her aunt, Maxima Flores, is possessing an area of 1,034 sq.
m.[21]

As a matter of fact, the trial court also found that in spite of her title over Lot 4163, Silveria
recognized the right of Joses grandchildren over one-half portion of the property.[22] The trial court gave
credence to the testimony of Trinidad Flores, one of the grandchildren, who testified as follows:
Q: During the lifetime of Jose and Silveria when they were possessing Lot 4163, did they subdivide it
because they were possessing it in common?
A: They subdivided it into two halves.
xxx
Q: And after Jose and Silveria subdivided Lot 4163, they possessed their respective shares of Lot
4163?
A: Yes.
xxx
Q: Now you said that you are the heirs of Jose and Roman Flores (father and son) and so when they
died this portion of Lot 4163 devolved on you, did you ever take possession of Lot 4163?
A: Yes, we, the brothers and sisters immediately took possession of it.[23]
On cross-examination, Trinidad sufficiently explained why the title to Lot No. 4163 is in the name of
Silveria Flores alone. Thus:
Q: Now, this Lot No. 4163, do you know if this lot is also titled?
A: Yes, it was titled, only in the name of Silveria Flores because my aunt was not able to go with her;
only my aunt was alone at that time.[24]
xxx
Q: And as you have stated earlier, that what you are intending to sell was Lot 4163 to plaintiff
Alejandra Delfino, and during this time that you sold this intended lot 4163, you were not aware
this particular lot 4163 was titled exclusively in the name of Silveria Flores, is that correct?
A: I knew already that the said lot was already titled, but it was titled only in the name of Silveria Flores
because she was the only one who went there to have it titled in her name. And at the time of the
sale of the lot, we demanded for the title from Silveria Flores, and what she delivered was the
5734 (sic).[25]
Petitioners now claim that the foregoing testimony of Trinidad Flores was biased. But we note that
the appellate court sustained the trial courts reliance on her testimony, which both found to be credible.As
consistently held, factual findings of the trial court, especially when affirmed by the appellate court, are
binding upon this Court[26] and entitled to utmost respect.[27] Considering these findings, we see no reason
to disturb the trial courts finding, affirmed by the Court of Appeals, that the object of the contract of sale,
as intended and understood by the parties, was Lot 4163 covered by OCT 3129-A which Alejandra, and
now her heirs, have been occupying. The designation of the lot in the deed of sale as Lot 5734, covered
by OCT 4918-A, was a mistake in the preparation of the document. Thus, we concur in the conclusion
reached by the courts a quo that reformation of the instrument is proper.
However, on the matter of damages, the award of actual damages in the amount of P5,000 lacks
evidentiary support. Actual damages if not supported by the evidence on record cannot be
granted.[28]Moral damages for P10,000 was also improperly awarded, absent a specific finding and
pronouncement from the trial court that petitioners acted in bad faith or with malice. However, the award
of attorneys fees for P2,000 is justified under Article 2208(2) of the Civil Code,[29] in view of the trial courts
finding that the unjustified refusal of petitioners to reform or to correct the document of sale compelled
respondents to litigate to protect their interest.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 39401 is AFFIRMED with
MODIFICATION. It is hereby ordered that the document entitled Settlement of Estate and Sale be
reformed by changing the phrase Lot 5734 to Lot 4163 found in the sixth paragraph of the deed, thereby
ceding in favor of respondents one-half portion of Lot 4163 instead of Lot 5734. The award to
respondents of attorneys fees in the amount of P2,000 is affirmed. However, the award of actual
damages in the amount of P5,000 and of moral damages in the amount of P10,000 are both SET
ASIDE. No pronouncement as to costs.
SO ORDERED.
Bellosillo, (Acting C.J.,), (Chairman), Mendoza, De Leon, Jr., and Corona, JJ., concur.
Borromeo vs Court of Appeals (47 SCRA 65)

NATURE

PETITION for review by certiorari of a decision of the Court of Appeals

FACTS
Before 1933, defendant [Jose A. Villamor] was a distributor of lumber belonging to Mr. Miller who was the
agent of the Insular Lumber Company in Cebu City. Defendant being a friend and former classmate of
plaintiff [Canuto O. Borromeo] used to borrow from the latter certain amounts from time to time. On one
occasion, defendant borrowed from plaintiff a large sum of money for which he mortgaged his land and
house in Cebu City to pay some pressing obligation with Mr. Miller. Mr. Miller filed a civil action against
the defendant and attached his properties including those mortgaged to plaintiff, inasmuch as the deed
of mortgage in favor of plaintiff could not be registered because not properly drawn up. Plaintiff then
pressed the defendant for settlement of his obligation, but defendant instead offered to execute a
document promising to pay his indebtedness even after the lapse of ten years. Liquidation was made and
defendant was found to be indebted to plaintiff in the sum of P7,220.00, for which defendant signed a
promissory note therefor on November 29, 1933 with interest at the rate of 12% per annum, agreeing to
pay as soon as I have money'. The note further stipulate that defendant 'hereby relinquish, renounce, or
otherwise waive my rights to the prescriptions established by our Code of Civil Procedure for the
collection or recovery of the above sum of P7,220.00. * * * at any time even after the lapse of ten years
from the date of this instrument'.

After the execution of the document, plaintiff limited himself to verbally requesting defendant to settle his
indebtedness from time to time. Plaintiff did not file any complaint against the defendant within ten years
from the execution of the document as there was no property registered in defendant's name, who
furthermore assured him that he could collect even after the lapse of ten years. After the last war, plaintiff
made various oral demands, but defendants failed to settle his account. CFI: Villamor ordered to
pay Borromeo (represented by his heirs) the sum of P7,220.00 within ninety days from the date of the
receipt of such decision with interest at the rate of 12% per annum from the xpiration of such ninety-day
period. CA: reversed CFI ruling

ISSUE

Whether or not the CA erred in reversing the ruling of the CFI in finding the lack of validity of the
stipulation amounting to a waiver in line with the principle "that a person cannot renounce future
prescription"

HELD

YES! Between two possible interpretations, that which saves rather than destroys is to be preferred.

It is a fundamental principle in the interpretation of contracts that while ordinarily the literal sense of the
words employed is to be followed, such is not the case where they "appear to be contrary to the evident
intention of the contracting parties," which intention shall prevail (Art. 1370). The terms, clauses
and conditions contrary to law, morals and public order (in this case the contested stipulation) should be
separated from the valid and legal contract when such separation can be made because they are
independent of the valid contract which expresses the will of the contracting parties

Reasoning

There is nothing implausible in the view that such language renouncing the debtor's right to the
prescription established by the Code of Civil Procedure should be given the meaning, as noted in the
preceding sentence of the decision of respondent Court, that the debtor could be trusted to pay even after
the termination of the ten-year prescriptive period. (so CA should have interpreted the stipulation based
on the context of the friendship between the two parties)-'Where an agreement founded on a legal
consideration contains several promises, or a promise to do several things, and a part only of the things
to be done are illegal, the promises which, can be separated, or the promise, so far as it can be
separated, from the illegality, may be valid. The rule is that a lawful promise made for a lawful
consideration is not invalid merely because an unlawful promise was made at the same time and for the
same consideration, and this rule applies, although the invalidity is due to violation of a statutory
provision, unless the statute expressly or by necessary implication declares the entire contract void. The
first ten years after November 29, 1933 should not be counted in determining when the action of creditor,
now represented by petitioners, could be filed. From the joint record on appeal, it is undoubted that the
complaint was filed on January 7, 1953. If the first ten-year period was to be excluded, the creditor had
until November 29, 1953 to start judicial proceedings. After deducting the first ten year period which
expired on November 29, 1943, there was the additional period of still another ten years.29 Nor could
there be any legal objection to the complaint by the creditor Borromeo of January 7, 1953 embodying not
merely the fixing of the period within which the debtor Villamor was to pay but likewise the collection of
the amount that until then was not paid.

Disposition

Wherefore, the decision of respondent Court of Appeals of March 7, 1964 is reversed, thus giving full
force and effect to the decision of the lower court of November 15, 1956. With costs against private
respondents.
G.R. No. L-29155 May 13, 1970

UNIVERSAL FOOD CORPORATION, petitioner,


vs.
THE COURT OF APPEALS, MAGDALO V. FRANCISCO, SR., and VICTORIANO N.
FRANCISCO, respondents.

Wigberto E. Taada for petitioner.

Teofilo Mendoza for respondents.

CASTRO, J.:

Petition for certiorari by the Universal Food Corporation against the decision of the Court of Appeals of
February 13, 1968 in CA-G.R. 31430-R (Magdalo V. Francisco, Sr. and Victoriano V. Francisco, plaintiffs-
appellants vs. Universal Food Corporation, defendant-appellee), the dispositive portion of which reads as
follows: "WHEREFORE the appealed decision is hereby reversed; the BILL OF ASSIGNMENT marked
Exhibit A is hereby rescinded, and defendant is hereby ordered to return to plaintiff Magdalo V. Francisco,
Sr., his Mafran sauce trademark and formula subject-matter of Exhibit A, and to pay him his monthly
salary of P300.00 from December 1, 1960, until the return to him of said trademark and formula, plus
attorney's fees in the amount of P500.00, with costs against defendant."1

On February 14, 1961 Magdalo V. Francisco, Sr. and Victoriano V. Francisco filed with the Court of First
Instance of Manila, against, the Universal Food Corporation, an action for rescission of a contract entitled
"Bill of Assignment." The plaintiffs prayed the court to adjudge the defendant as without any right to the
use of the Mafran trademark and formula, and order the latter to restore to them the said right of user; to
order the defendant to pay Magdalo V. Francisco, Sr. his unpaid salary from December 1, 1960, as well
as damages in the sum of P40,000, and to pay the costs of suit.1

On February 28, the defendant filed its answer containing admissions and denials. Paragraph 3 thereof
"admits the allegations contained in paragraph 3 of plaintiffs' complaint." The answer further alleged that
the defendant had complied with all the terms and conditions of the Bill of Assignment and, consequently,
the plaintiffs are not entitled to rescission thereof; that the plaintiff Magdalo V. Francisco, Sr. was not
dismissed from the service as permanent chief chemist of the corporation as he is still its chief chemist;
and, by way of special defenses, that the aforesaid plaintiff is estopped from questioning 1) the contents
and due execution of the Bill of Assignment, 2) the corporate acts of the petitioner, particularly the
resolution adopted by its board of directors at the special meeting held on October 14, 1960, to suspend
operations to avoid further losses due to increase in the prices of raw materials, since the same plaintiff
was present when that resolution was adopted and even took part in the consideration thereof, 3) the
actuations of its president and general manager in enforcing and implementing the said resolution, 4) the
fact that the same plaintiff was negligent in the performance of his duties as chief chemist of the
corporation, and 5) the further fact that the said plaintiff was delinquent in the payment of his subscribed
shares of stock with the corporation. The defendant corporation prayed for the dismissal of the complaint,
and asked for P750 as attorney's fees and P5,000 in exemplary or corrective damages.

On June 25, 1962 the lower court dismissed the plaintiffs' complaint as well as the defendant's claim for
damages and attorney's fees, with costs against the former, who promptly appealed to the Court of
Appeals. On February 13, 1969 the appellate court rendered the judgment now the subject of the present
recourse.

The Court of Appeals arrived at the following "uncontroverted" findings of fact:

That as far back as 1938, plaintiff Magdalo V. Francisco, Sr. discovered or invented a
formula for the manufacture of a food seasoning (sauce) derived from banana fruits
popularly known as MAFRAN sauce; that the manufacture of this product was used in
commercial scale in 1942, and in the same year plaintiff registered his trademark in his
name as owner and inventor with the Bureau of Patents; that due to lack of sufficient
capital to finance the expansion of the business, in 1960, said plaintiff secured the
financial assistance of Tirso T. Reyes who, after a series of negotiations, formed with
others defendant Universal Food Corporation eventually leading to the execution on May
11, 1960 of the aforequoted "Bill of Assignment" (Exhibit A or 1).

Conformably with the terms and conditions of Exh. A, plaintiff Magdalo V. Francisco, Sr.
was appointed Chief Chemist with a salary of P300.00 a month, and plaintiff Victoriano V.
Francisco was appointed auditor and superintendent with a salary of P250.00 a month.
Since the start of the operation of defendant corporation, plaintiff Magdalo V. Francisco,
Sr., when preparing the secret materials inside the laboratory, never allowed anyone, not
even his own son, or the President and General Manager Tirso T. Reyes, of defendant,
to enter the laboratory in order to keep the formula secret to himself. However, said
plaintiff expressed a willingness to give the formula to defendant provided that the same
should be placed or kept inside a safe to be opened only when he is already
incapacitated to perform his duties as Chief Chemist, but defendant never acquired a
safe for that purpose. On July 26, 1960, President and General Manager Tirso T. Reyes
wrote plaintiff requesting him to permit one or two members of his family to observe the
preparation of the 'Mafran Sauce' (Exhibit C), but said request was denied by plaintiff. In
spite of such denial, Tirso T. Reyes did not compel or force plaintiff to accede to said
request. Thereafter, however, due to the alleged scarcity and high prices of raw
materials, on November 28, 1960, Secretary-Treasurer Ciriaco L. de Guzman of
defendant issued a Memorandum (Exhibit B), duly approved by the President and
General Manager Tirso T. Reyes that only Supervisor Ricardo Francisco should be
retained in the factory and that the salary of plaintiff Magdalo V. Francisco, Sr., should be
stopped for the time being until the corporation should resume its operation. Some five
(5) days later, that is, on December 3, 1960, President and General Manager Tirso T.
Reyes, issued a memorandom to Victoriano Francisco ordering him to report to the
factory and produce "Mafran Sauce" at the rate of not less than 100 cases a day so as to
cope with the orders of the corporation's various distributors and dealers, and with
instructions to take only the necessary daily employees without employing permanent
employees (Exhibit B). Again, on December 6, 1961, another memorandum was issued
by the same President and General Manager instructing the Assistant Chief Chemist
Ricardo Francisco, to recall all daily employees who are connected in the production of
Mafran Sauce and also some additional daily employees for the production of Porky Pops
(Exhibit B-1). On December 29, 1960, another memorandum was issued by the President
and General Manager instructing Ricardo Francisco, as Chief Chemist, and Porfirio
Zarraga, as Acting Superintendent, to produce Mafran Sauce and Porky Pops in full
swing starting January 2, 1961 with further instructions to hire daily laborers in order to
cope with the full blast protection (Exhibit S-2). Plaintiff Magdalo V. Francisco, Sr.
received his salary as Chief Chemist in the amount of P300.00 a month only until his
services were terminated on November 30, 1960. On January 9 and 16, 1961, defendant,
acting thru its President and General Manager, authorized Porfirio Zarraga and Paula de
Bacula to look for a buyer of the corporation including its trademarks, formula and assets
at a price of not less than P300,000.00 (Exhibits D and D-1). Due to these successive
memoranda, without plaintiff Magdalo V. Francisco, Sr. being recalled back to work, the
latter filed the present action on February 14, 1961. About a month afterwards, in a letter
dated March 20, 1961, defendant, thru its President and General Manager, requested
said plaintiff to report for duty (Exhibit 3), but the latter declined the request because the
present action was already filed in court (Exhibit J).

1. The petitioner's first contention is that the respondents are not entitled to rescission. It is argued that
under article 1191 of the new Civil Code, the right to rescind a reciprocal obligation is not absolute and
can be demanded only if one is ready, willing and able to comply with his own obligation and the other is
not; that under article 1169 of the same Code, in reciprocal obligations, neither party incurs in delay if the
other does not comply or is not ready to comply in a proper manner with what is incumbent upon him; that
in this case the trial court found that the respondents not only have failed to show that the petitioner has
been guilty of default in performing its contractual obligations, "but the record sufficiently reveals the fact
that it was the plaintiff Magdalo V. Francisco who had been remiss in the compliance of his contractual
obligation to cede and transfer to the defendant the formula for Mafran sauce;" that even the respondent
Court of Appeals found that as "observed by the lower court, 'the record is replete with the various
attempt made by the defendant (herein petitioner) to secure the said formula from Magdalo V. Francisco
to no avail; and that upon the foregoing findings, the respondent Court of Appeals unjustly concluded that
the private respondents are entitled to rescind the Bill of Assignment.

The threshold question is whether by virtue of the terms of the Bill of Assignment the respondent Magdalo
V. Francisco, Sr. ceded and transferred to the petitioner corporation the formula for Mafran sauce. 2

The Bill of Assignment sets forth the following terms and conditions:

THAT the Party of the First Part [Magdalo V. Francisco, Sr.] is the sole and exclusive
owner of the MAFRAN trade-mark and the formula for MAFRAN SAUCE;

THAT for and in consideration of the royalty of TWO (2%) PER CENTUM of the net
annual profit which the PARTY OF THE Second Part [Universal Food Corporation] may
realize by and/or out of its production of MAFRAN SAUCE and other food products and
from other business which the Party of the Second Part may engage in as defined in its
Articles of Incorporation, and which its Board of Directors shall determine and declare,
said Party of the First Part hereby assign, transfer, and convey all its property rights and
interest over said Mafran trademark and formula for MAFRAN SAUCE unto the Party of
the Second Part;

THAT the payment for the royalty of TWO (2%) PER CENTUM of the annual net profit
which the Party of the Second Part obligates itself to pay unto the Party of the First Part
as founder and as owner of the MAFRAN trademark and formula for MAFRAN SAUCE,
shall be paid at every end of the Fiscal Year after the proper accounting and inventories
has been undertaken by the Party of the Second Part and after a competent auditor
designated by the Board of Directors shall have duly examined and audited its books of
accounts and shall have certified as to the correctness of its Financial Statement;

THAT it is hereby understood that the Party of the First Part, to improve the quality of the
products of the Party of the First Part and to increase its production, shall endeavor or
undertake such research, study, experiments and testing, to invent or cause to invent
additional formula or formulas, the property rights and interest thereon shall likewise be
assigned, transferred, and conveyed unto the Party of the Second Part in consideration
of the foregoing premises, covenants and stipulations:

THAT in the operation and management of the Party of the First Part, the Party of the
First Part shall be entitled to the following Participation:

(a) THAT Dr. MAGDALO V. FRANCISCO shall be appointed Second Vice-President and
Chief Chemist of the Party of the Second Part, which appointments are permanent in
character and Mr. VICTORIANO V. FRANCISCO shall be appointed Auditor thereof and
in the event that the Treasurer or any officer who may have the custody of the funds,
assets and other properties of the Party of the Second Part comes from the Party of the
First Part, then the Auditor shall not be appointed from the latter; furthermore should the
Auditor be appointed from the Party representing the majority shares of the Party of the
Second Part, then the Treasurer shall be appointed from the Party of the First Part;

(b) THAT in case of death or other disabilities they should become incapacitated to
discharge the duties of their respective position, then, their shares or assigns and who
may have necessary qualifications shall be preferred to succeed them;

(c) That the Party of the First Part shall always be entitled to at least two (2) membership
in the Board of Directors of the Party of the Second Part;

(d) THAT in the manufacture of MAFRAN SAUCE and other food products by the Party of
the Second Part, the Chief Chemist shall have and shall exercise absolute control and
supervision over the laboratory assistants and personnel and in the purchase and
safekeeping of the Chemicals and other mixtures used in the preparation of said
products;

THAT this assignment, transfer and conveyance is absolute and irrevocable in no case
shall the PARTY OF THE First Part ask, demand or sue for the surrender of its rights and
interest over said MAFRAN trademark and mafran formula, except when a dissolution of
the Party of the Second Part, voluntary or otherwise, eventually arises, in which case
then the property rights and interests over said trademark and formula shall automatically
revert the Party of the First Part.

Certain provisions of the Bill of Assignment would seem to support the petitioner's position that the
respondent patentee, Magdalo V. Francisco, Sr. ceded and transferred to the petitioner corporation the
formula for Mafran sauce. Thus, the last part of the second paragraph recites that the respondent
patentee "assign, transfer and convey all its property rights and interest over said Mafran trademark and
formula for MAFRAN SAUCE unto the Party of the Second Part," and the last paragraph states that such
"assignment, transfer and conveyance is absolute and irrevocable (and) in no case shall the PARTY OF
THE First Part ask, demand or sue for the surrender of its rights and interest over said MAFRAN
trademark and mafran formula."

However, a perceptive analysis of the entire instrument and the language employed therein3 would lead
one to the conclusion that what was actually ceded and transferred was only the use of the Mafran sauce
formula. This was the precise intention of the parties,4 as we shall presently show.

Firstly, one of the principal considerations of the Bill of Assignment is the payment of "royalty of TWO
(2%) PER CENTUM of the net annual profit" which the petitioner corporation may realize by and/or out of
its production of Mafran sauce and other food products, etc. The word "royalty," when employed in
connection with a license under a patent, means the compensation paid for the use of a patented
invention.

'Royalty,' when used in connection with a license under a patent, means the
compensation paid by the licensee to the licensor for the use of the licensor's patented
invention." (Hazeltine Corporation vs. Zenith Radio Corporation, 100 F. 2d 10, 16.)5

Secondly, in order to preserve the secrecy of the Mafran formula and to prevent its unauthorized
proliferation, it is provided in paragraph 5-(a) of the Bill that the respondent patentee was to be appointed
"chief chemist ... permanent in character," and that in case of his "death or other disabilities," then his
"heirs or assigns who may have necessary qualifications shall be preferred to succeed" him as such chief
chemist. It is further provided in paragraph 5-(d) that the same respondent shall have and shall exercise
absolute control and supervision over the laboratory assistants and personnel and over the purchase and
safekeeping of the chemicals and other mixtures used in the preparation of the said product. All these
provisions of the Bill of Assignment clearly show that the intention of the respondent patentee at the time
of its execution was to part, not with the formula for Mafran sauce, but only its use, to preserve the
monopoly and to effectively prohibit anyone from availing of the invention. 6

Thirdly, pursuant to the last paragraph of the Bill, should dissolution of the Petitioner corporation
eventually take place, "the property rights and interests over said trademark and formula shall
automatically revert to the respondent patentee. This must be so, because there could be no reversion of
the trademark and formula in this case, if, as contended by the petitioner, the respondent patentee
assigned, ceded and transferred the trademark and formula and not merely the right to use it for
then such assignment passes the property in such patent right to the petitioner corporation to which it is
ceded, which, on the corporation becoming insolvent, will become part of the property in the hands of the
receiver thereof.7

Fourthly, it is alleged in paragraph 3 of the respondents' complaint that what was ceded and transferred
by virtue of the Bill of Assignment is the "use of the formula" (and not the formula itself). This
incontrovertible fact is admitted without equivocation in paragraph 3 of the petitioner's answer. Hence, it
does "not require proof and cannot be contradicted."8 The last part of paragraph 3 of the complaint and
paragraph 3 of the answer are reproduced below for ready reference:

3. ... and due to these privileges, the plaintiff in return assigned to said corporation his
interest and rights over the said trademark and formula so that the defendant corporation
could use the formula in the preparation and manufacture of the mafran sauce, and the
trade name for the marketing of said project, as appearing in said contract ....

3. Defendant admits the allegations contained in paragraph 3 of plaintiff's complaint.

Fifthly, the facts of the case compellingly demonstrate continued possession of the Mafran sauce formula
by the respondent patentee.

Finally, our conclusion is fortified by the admonition of the Civil Code that a conveyance should be
interpreted to effect "the least transmission of right,"9 and is there a better example of least transmission
of rights than allowing or permitting only the use, without transfer of ownership, of the formula for Mafran
sauce.

The foregoing reasons support the conclusion of the Court of Appeals 10 that what was actually ceded
and transferred by the respondent patentee Magdalo V. Francisco, Sr. in favor of the petitioner
corporation was only the use of the formula. Properly speaking, the Bill of Assignment vested in the
petitioner corporation no title to the formula. Without basis, therefore, is the observation of the lower court
that the respondent patentee "had been remiss in the compliance of his contractual obligation to cede and
transfer to the defendant the formula for Mafran sauce."

2. The next fundamental question for resolution is whether the respondent Magdalo V. Francisco, Sr. was
dismissed from his position as chief chemist of the corporation without justifiable cause, and in violation of
paragraph 5-(a) of the Bill of Assignment which in part provides that his appointment is "permanent in
character."

The petitioner submits that there is nothing in the successive memoranda issued by the corporate officers
of the petitioner, marked exhibits B, B-1 and B-2, from which can be implied that the respondent patentee
was being dismissed from his position as chief chemist of the corporation. The fact, continues the
petitioner, is that at a special meeting of the board of directors of the corporation held on October 14,
1960, when the board decided to suspend operations of the factory for two to four months and to retain
only a skeletal force to avoid further losses, the two private respondents were present, and the
respondent patentee was even designated as the acting superintendent, and assigned the mission of
explaining to the personnel of the factory why the corporation was stopping operations temporarily and
laying off personnel. The petitioner further submits that exhibit B indicates that the salary of the
respondent patentee would not be paid only during the time that the petitioner corporation was idle, and
that he could draw his salary as soon as the corporation resumed operations. The clear import of this
exhibit was allegedly entirely disregarded by the respondent Court of Appeals, which concluded that since
the petitioner resumed partial production of Mafran sauce without notifying the said respondent formally,
the latter had been dismissed as chief chemist, without considering that the petitioner had to resume
partial operations only to fill its pending orders, and that the respondents were duly notified of that
decision, that is, that exhibit B-1 was addressed to Ricardo Francisco, and this was made known to the
respondent Victoriano V. Francisco. Besides, the records will show that the respondent patentee had
knowledge of the resumption of production by the corporation, but in spite of such knowledge he did not
report for work.

The petitioner further submits that if the respondent patentee really had unqualified interest in propagating
the product he claimed he so dearly loved, certainly he would not have waited for a formal notification but
would have immediately reported for work, considering that he was then and still is a member of the
corporation's board of directors, and insofar as the petitioner is concerned, he is still its chief chemist; and
because Ricardo Francisco is a son of the respondent patentee to whom had been entrusted the
performance of the duties of chief chemist, while the respondent Victoriano V. Francisco is his brother,
the respondent patentee could not feign ignorance of the resumption of operations.

The petitioner finally submits that although exhibit B-2 is addressed to Ricardo Francisco, and is dated
December 29, 1960, the records will show that the petitioner was set to resume full capacity production
only sometime in March or April, 1961, and the respondent patentee cannot deny that in the very same
month when the petitioner was set to resume full production, he received a copy of the resolution of its
board of directors, directing him to report immediately for duty; that exhibit H, of a later vintage as it is
dated February 1, 1961, clearly shows that Ricardo Francisco was merely the acting chemist, and this
was the situation on February 1, 1961, thirteen days before the filing of the present action for rescission.
The designation of Ricardo Francisco as the chief chemist carried no weight because the president and
general manager of the corporation had no power to make the designation without the consent of the
corporation's board of directors. The fact of the matter is that although the respondent Magdalo V.
Francisco, Sr. was not mentioned in exhibit H as chief chemist, this same exhibit clearly indicates that
Ricardo Francisco was merely the acting chemist as he was the one assisting his father.

In our view, the foregoing submissions cannot outweigh the uncontroverted facts. On November 28, 1960
the secretary-treasurer of the corporation issued a memorandum (exh. B), duly approved by its president
and general manager, directing that only Ricardo Francisco be retained in the factory and that the salary
of respondent patentee, as chief chemist, be stopped for the time being until the corporation resumed
operations. This measure was taken allegedly because of the scarcity and high prices of raw materials.
Five days later, however, or on December 3, the president and general manager issued a memorandum
(exh. B-1) ordering the respondent Victoria V. Francisco to report to the factory and to produce Mafran
sauce at the rate of no less than 100 cases a day to cope with the orders of the various distributors and
dealers of the corporation, and instructing him to take only the necessary daily employees without
employing permanent ones. Then on December 6, the same president and general manager issued yet
another memorandum (exh. B-2), instructing Ricardo Francisco, as assistant chief chemist, to recall all
daily employees connected with the production of Mafran sauce and to hire additional daily employees for
the production of Porky Pops. Twenty-three days afterwards, or on December 29, the same president and
general manager issued still another memorandum (exh. S-2), directing "Ricardo Francisco, as Chief
Chemist" and Porfirio Zarraga, as acting superintendent, to produce Mafran sauce and, Porky Pops in full
swing, starting January 2, 1961, with the further instruction to hire daily laborers in order to cope with the
full blast production. And finally, at the hearing held on October 24, 1961, the same president and general
manager admitted that "I consider that the two months we paid him (referring to respondent Magdalo V.
Francisco, Sr.) is the separation pay."

The facts narrated in the preceding paragraph were the prevailing milieu on February 14, 1961 when the
complaint for rescission of the Bill of Assignment was filed. They clearly prove that the petitioner, acting
through its corporate officers, 11 schemed and maneuvered to ease out, separate and dismiss the said
respondent from the service as permanent chief chemist, in flagrant violation of paragraph 5-(a) and (b) of
the Bill of Assignment. The fact that a month after the institution of the action for rescission, the petitioner
corporation, thru its president and general manager, requested the respondent patentee to report for duty
(exh. 3), is of no consequence. As the Court of Appeals correctly observed, such request was a "recall to
placate said plaintiff."

3. We now come to the question of rescission of the Bill of Assignment. In this connection, we quote for
ready reference the following articles of the new Civil Code governing rescission of contracts:

ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of
the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation,
with the payment of damages in either case. He may also seek rescission even after he
has chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the
fixing of a period.

This is understood to be without prejudice to the rights of third persons who have
acquired the thing, in accordance with articles 1385 and 1388 of the Mortgage Law.

ART. 1383. The action for rescission is subsidiary; it cannot be instituted except when the
party suffering damage has no other legal means to obtain reparation for the same.

ART. 1384. Rescission shall be only to the extent necessary to cover the damages
caused.

At the moment, we shall concern ourselves with the first two paragraphs of article 1191. The power to
rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what
is incumbent upon him. The injured party may choose between fulfillment and rescission of the obligation,
with payment of damages in either case.

In this case before us, there is no controversy that the provisions of the Bill of Assignment are reciprocal
in nature. The petitioner corporation violated the Bill of Assignment, specifically paragraph 5-(a) and (b),
by terminating the services of the respondent patentee Magdalo V. Francisco, Sr., without lawful and
justifiable cause.

Upon the factual milieu, is rescission of the Bill of Assignment proper?

The general rule is that rescission of a contract will not be permitted for a slight or casual breach, but only
for such substantial and fundamental breach as would defeat the very object of the parties in making the
agreement. 12 The question of whether a breach of a contract is substantial depends upon the attendant
circumstances. 13 The petitioner contends that rescission of the Bill of Assignment should be denied,
because under article 1383, rescission is a subsidiary remedy which cannot be instituted except when the
party suffering damage has no other legal means to obtain reparation for the same. However, in this case
the dismissal of the respondent patentee Magdalo V. Francisco, Sr. as the permanent chief chemist of the
corporation is a fundamental and substantial breach of the Bill of Assignment. He was dismissed without
any fault or negligence on his part. Thus, apart from the legal principle that the option to demand
performance or ask for rescission of a contract belongs to the injured party, 14 the fact remains that the
respondents-appellees had no alternative but to file the present action for rescission and damages. It is to
be emphasized that the respondent patentee would not have agreed to the other terms of the Bill of
Assignment were it not for the basic commitment of the petitioner corporation to appoint him as its
Second Vice-President and Chief Chemist on a permanent basis; that in the manufacture of Mafran
sauce and other food products he would have "absolute control and supervision over the laboratory
assistants and personnel and in the purchase and safeguarding of said products;" and that only by all
these measures could the respondent patentee preserve effectively the secrecy of the formula, prevent its
proliferation, enjoy its monopoly, and, in the process afford and secure for himself a lifetime job and
steady income. The salient provisions of the Bill of Assignment, namely, the transfer to the corporation of
only the use of the formula; the appointment of the respondent patentee as Second Vice-President and
chief chemist on a permanent status; the obligation of the said respondent patentee to continue research
on the patent to improve the quality of the products of the corporation; the need of absolute control and
supervision over the laboratory assistants and personnel and in the purchase and safekeeping of the
chemicals and other mixtures used in the preparation of said product all these provisions of the Bill of
Assignment are so interdependent that violation of one would result in virtual nullification of the rest.

4. The petitioner further contends that it was error for the Court of Appeals to hold that the respondent
patentee is entitled to payment of his monthly salary of P300 from December 1, 1960, until the return to
him of the Mafran trademark and formula, arguing that under articles 1191, the right to specific
performance is not conjunctive with the right to rescind a reciprocal contract; that a plaintiff cannot ask for
both remedies; that the appellate court awarded the respondents both remedies as it held that the
respondents are entitled to rescind the Bill of Assignment and also that the respondent patentee is
entitled to his salary aforesaid; that this is a gross error of law, when it is considered that such holding
would make the petitioner liable to pay respondent patentee's salary from December 1, 1960 to "kingdom
come," as the said holding requires the petitioner to make payment until it returns the formula which, the
appellate court itself found, the corporation never had; that, moreover, the fact is that the said respondent
patentee refused to go back to work, notwithstanding the call for him to return which negates his right
to be paid his back salaries for services which he had not rendered; and that if the said respondent is
entitled to be paid any back salary, the same should be computed only from December 1, 1960 to March
31, 1961, for on March 20, 1961 the petitioner had already formally called him back to work.

The above contention is without merit. Reading once more the Bill of Assignment in its entirety and the
particular provisions in their proper setting, we hold that the contract placed the use of the formula for
Mafran sauce with the petitioner, subject to defined limitations. One of the considerations for the transfer
of the use thereof was the undertaking on the part of the petitioner corporation to employ the respondent
patentee as the Second Vice-President and Chief Chemist on a permanent status, at a monthly salary of
P300, unless "death or other disabilities supervened. Under these circumstances, the petitioner
corporation could not escape liability to pay the private respondent patentee his agreed monthly salary,
as long as the use, as well as the right to use, the formula for Mafran sauce remained with the
corporation.

5. The petitioner finally contends that the Court of Appeals erred in ordering the corporation to return to
the respondents the trademark and formula for Mafran sauce, when both the decision of the appellate
court and that of the lower court state that the corporation is not aware nor is in possession of the formula
for Mafran sauce, and the respondent patentee admittedly never gave the same to the corporation.
According to the petitioner these findings would render it impossible to carry out the order to return the
formula to the respondent patentee. The petitioner's predicament is understandable. Article 1385 of the
new Civil Code provides that rescission creates the obligation to return the things which were the object
of the contract. But that as it may, it is a logical inference from the appellate court's decision that what
was meant to be returned to the respondent patentee is not the formula itself, but only its use and the
right to such use. Thus, the respondents in their complaint for rescission specifically and particularly pray,
among others, that the petitioner corporation be adjudged as "without any right to use said trademark and
formula."

ACCORDINGLY, conformably with the observations we have above made, the judgment of the Court of
Appeals is modified to read as follows: "Wherefore the appealed decision is reversed. The Bill of
Assignment (Exhibit A) is hereby rescinded, and the defendant corporation is ordered to return and
restore to the plaintiff Magdalo V. Francisco, Sr. the right to the use of his Mafran sauce trademark and
formula, subject-matter of the Bill of Assignment, and to this end the defendant corporation and all its
assigns and successors are hereby permanently enjoined, effective immediately, from using in any
manner the said Mafran sauce trademark and formula. The defendant corporation shall also pay to
Magdalo V. Francisco, Sr. his monthly salary of P300 from December 1, 1960, until the date of finality of
this judgment, inclusive, the total amount due to him to earn legal interest from the date of the finality of
this judgment until it shall have been fully paid, plus attorney's fees in the amount of P500, with costs
against the defendant corporation." As thus modified, the said judgment is affirmed, with costs against the
petitioner corporation.

Concepcion, C.J., Dizon, Makalintal, Zaldivar, Fernando, Barredo and Villamor, JJ., concur.

Teehankee J., took no part.

Separate Opinions

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

I concur with the opinion penned by Mr. Justice Fred Ruiz Castro, but I would like to add that the
argument of petitioner, that the rescission demanded by the respondent-appellee, Magdalo Francisco,
should be denied because under Article 1383 of the Civil Code of the Philippines rescission can not be
demanded except when the party suffering damage has no other legal means to obtain reparation, is
predicated on a failure to distinguish between a rescission for breach of contract under Article 1191 of the
Civil Code and a rescission by reason of lesion or economic prejudice, under Article 1381, et seq. The
rescission on account of breach of stipulations is not predicated on injury to economic interests of the
party plaintiff but on the breach of faith by the defendant, that violates the reciprocity between the parties.
It is not a subsidiary action, and Article 1191 may be scanned without disclosing anywhere that the action
for rescission thereunder is subordinated to anything other than the culpable breach of his obligations by
the defendant. This rescission is in principal action retaliatory in character, it being unjust that a party be
held bound to fulfill his promises when the other violates his. As expressed in the old Latin
aphorism: "Non servanti fidem, non est fides servanda." Hence, the reparation of damages for the breach
is purely secondary.

On the contrary, in the rescission by reason of lesion or economic prejudice, the cause of action is
subordinated to the existence of that prejudice, because it is the raison d'etre as well as the measure of
the right to rescind. Hence, where the defendant makes good the damages caused, the action cannot be
maintained or continued, as expressly provided in Articles 1383 and 1384. But the operation of these two
articles is limited to the cases of rescission for lesion enumerated in Article 1381 of the Civil Code of the
Philippines, and does not, apply to cases under Article 1191.

It is probable that the petitioner's confusion arose from the defective technique of the new Code that
terms both instances as rescission without distinctions between them; unlike the previous Spanish Civil
Code of 1889, that differentiated "resolution" for breach of stipulations from "rescission" by reason
of lesion or damage.1 But the terminological vagueness does not justify confusing one case with the
other, considering the patent difference in causes and results of either action.

Separate Opinions

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

I concur with the opinion penned by Mr. Justice Fred Ruiz Castro, but I would like to add that the
argument of petitioner, that the rescission demanded by the respondent-appellee, Magdalo Francisco,
should be denied because under Article 1383 of the Civil Code of the Philippines rescission can not be
demanded except when the party suffering damage has no other legal means to obtain reparation, is
predicated on a failure to distinguish between a rescission for breach of contract under Article 1191 of the
Civil Code and a rescission by reason of lesion or economic prejudice, under Article 1381, et seq. The
rescission on account of breach of stipulations is not predicated on injury to economic interests of the
party plaintiff but on the breach of faith by the defendant, that violates the reciprocity between the parties.
It is not a subsidiary action, and Article 1191 may be scanned without disclosing anywhere that the action
for rescission thereunder is subordinated to anything other than the culpable breach of his obligations by
the defendant. This rescission is in principal action retaliatory in character, it being unjust that a party be
held bound to fulfill his promises when the other violates his. As expressed in the old Latin
aphorism: "Non servanti fidem, non est fides servanda." Hence, the reparation of damages for the breach
is purely secondary.

On the contrary, in the rescission by reason of lesion or economic prejudice, the cause of action is
subordinated to the existence of that prejudice, because it is the raison d'etre as well as the measure of
the right to rescind. Hence, where the defendant makes good the damages caused, the action cannot be
maintained or continued, as expressly provided in Articles 1383 and 1384. But the operation of these two
articles is limited to the cases of rescission for lesion enumerated in Article 1381 of the Civil Code of the
Philippines, and does not, apply to cases under Article 1191.

It is probable that the petitioner's confusion arose from the defective technique of the new Code that
terms both instances as rescission without distinctions between them; unlike the previous Spanish Civil
Code of 1889, that differentiated "resolution" for breach of stipulations from "rescission" by reason
of lesion or damage.1 But the terminological vagueness does not justify confusing one case with the
other, considering the patent difference in causes and results of either action.

Footnotes

1 The complaint alleges:

"3. That on the 31st day of May, 1960 plaintiffs and defendant corporation entered into contract, in
which it was stipulated among other things, that inasmuch as plaintiff Magdalo V. Francisco, Sr. is the
owner and author of the formula of mafran sauce as above stated, he will be appointed as Second Vice-
President and Chief Chemist of the defendant corporation, which appointments are permanent in
character; and as such Chief shall have and shall exercise absolute control and supervision over the
laboratory assistants and personnel, and
[G.R. No. 7003. January 18, 1912. ]

MANUEL ORIA Y GONZALEZ, Plaintiff-Appellant, v. JOSE MCMICKING, as sheriff of the city of


Manila, GUTIERREZ HERMANOS, MIGUEL GUTIERREZ DE CELIS, DANIEL PEREZ, and
LEOPOLDO CRIADO, Defendants-Appellees.

Chicote & Miranda, for Appellant.

Eduardo Gutierrez Repide for Appellees.

SYLLABUS

1. ACTION TO SET ASIDE SALE IN FRAUD OF CREDITORS; PROOF THAT THE VENDOR HAS No
PROPERTY TO PAY SUING CREDITOR. While, in an action to set aside a conveyance, on the
ground that it is made in fraud of creditors, it is not necessary to prove the issuance and return of an
execution nulla bona, nevertheless, it is necessary to show clearly that the alleged fraudulent vendor has
no property with which to pay the suing creditor.

2. ID.; SALE DECLARED FRAUDULENT ONLY SO FAR AS NECESSARY. Where a sale is declared
fraudulent, at the suit of a particular creditor, courts will declare such sale fraudulent only so far as
necessary to pay the suing creditor; it will not be disturbed any further than that.

3. ID.; TEST TO DETERMINE WHETHER SALE IS FRAUDULENT. In an action to determine whether


or not a given sale is fraudulent, the test to determine its real character is: Did it materially prejudice the
rights of the suing creditor?

4. ID.; CIRCUMSTANCES INDICATING FRAUD. In determining whether or not a sale is fraudulent,


the following circumstances, attending such sale, are indications of fraud:chanrob1es virtual 1aw library

1. The fact that the consideration of the conveyance is fictitious or is inadequate.

2. A transfer made by a debtor after suit has been begun and while it is pending against him.

3. A sale upon credit by an insolvent debtor.

4. Evidence of large indebtedness or complete insolvency.

5. The transfer of all or nearly all of his property by a debtor, especially when he is insolvent or greatly
embarrassed financially.

6. The fact that the transfer is made between father and son, when there are present other of the above
circumstances.

7. The failure of the vendee to take exclusive possession of all of the property.

5. ID.; PROCEDURE BY CREDITOR; ACTION BY ALLEGED OWNER. Whether or not a sale is


fraudulent as to a suing creditor, can be tested and determined without first resorting to a direct action to
annul the sale. A creditor may attack the sale by ignoring it and seizing under his execution. the property
or any necessary part thereof which is the subject matter of the sale. The character of the sale will then
be determined in the action brought by the alleged owner against the execution creditor.

6. ID.; SALE DECLARED FRAUDULENT AS TO SUING CREDITOR. The facts in the case at bar
examined and held sufficient to sustain a judgment declaring the sale fraudulent as to the suing creditor.

DECISION
MORELAND, J. :

These are the facts:chanrob1es virtual 1aw library

In the month of August, 1909, Gutierrez Hermanos brought an action against Oria Hermanos & Co. for
the recovery of P147,204.28; that action is known as No. 7289 in the Court of First Instance of Manila. In
March, 1910, the same plaintiff began another action against the same defendant for the recovery of
P12,318.57; this case was known as No. 7719 in said court. Subsequent to the beginning of the above
actions, and on or about the 30th day of April, 1910, the members of the company of Oria Hermanos &
Co., on account of the expiration of the time stated in their agreement of copartnership, dissolved their
relations and entered into liquidation. On the 1st day of June, 1910, Tomas Oria y Balbas, as managing
partner in liquidation, acting for himself and on behalf of his other coowners Casimiro Oria y Balbas and
Adolfo Fuster Robles, entered into a contract with the plaintiff in this case, Manuel Oria Gonzalez, which
said contract was for the purpose of selling and transferring to the plaintiff in this action all of the property
of which the said Oria Hermanos & Co. was owner. Said instrument contained the following
clauses:jgc:chanrobles.com.ph

"5. I, Tomas Oria y Balbas, do further state and declare that I have agreed with the other party hereto,
Don Manuel Oria y Gonzalez, to sell all the property I have mentioned, which is specified more in detail in
the general inventory of Oria Hermanos & Co., for the price and under the conditions hereinafter
expressed; and in order to carry into effect such agreement made by me with the said Don Manuel Oria y
Gonzalez, in my own right and also in representation of my partners, Don Casimiro Oria and Don Adolfo
Fuster, I do hereby stipulate and agree:jgc:chanrobles.com.ph

"6. As managing partner and liquidator of Oria Hermanos & Co., and further in my own right and in the
name and representation of Don Casimiro Oria y Balbas and Don Adolfo Fuster y Robles, personally and
as partners in Oria Hermanos & Co., in consideration of the sum of two hundred seventy-four thousand
pesos (P274,000), which the said Don Manuel Oria y Gonzalez undertakes and engages to pay to the
firm of Oria Hermanos & Co. in liquidation, or to us the parties hereto, myself and the persons I represent,
as partners in Oria Hermanos & Co., which sum shall be paid in installments, in the manner and under
the conditions hereinafter set forth. I hereby sell, cede and transfer absolutely and forever to the said Don
Manuel Oria y Gonzalez, his heirs and assigns, all and every part of the property mentioned in the fourth
section hereof and more specifically described in the general inventory of Oria Hermanos & Co.; under
the following mutual conditions:jgc:chanrobles.com.ph

"(a) Don Manuel Oria y Gonzalez engages and undertakes to pay and to settle the sum agreed upon for
this sale, cession and transfer within a period of twelve (12) years, further engaging and undertaking to
pay each year a sum of not less than ten thousand (10,000) pesos and at the end of said period to settle
the balance of said price.

"(b) After the first six (6) years of the period for the payment of the stipulated price, that is, during the last
six years of said period, Don Manuel Oria y Gonzalez engages and undertakes to pay interest at 3 per
cent a year on the price stipulated or the part thereof unpaid at such time; provided, that this is a mutual
obligation and the interest payable annually.

"(c) Don Manuel Oria y Gonzalez further engages and undertakes to pay to Don Tomas Oria, Don
Casimiro Oria and Don Adolfo Fuster during the time that they remain in the Philippines and do not reside
abroad, the sum of one hundred and fifty (150) pesos monthly; which obligation shall be understood to be
contracted individually with each of the said parties; and the amounts so paid to each and all of them shall
be charged to the account of Oria Hermanos & Co., in liquidation, in discharge of the stipulated
consideration and the installments thereof and interest thereon when due.

"(d) Don Manuel Oria y Gonzalez engages and undertakes not to sell, alienate, transfer or mortgage,
either wholly or in part, the property hereby sold to him, without the written authorization of Don Tomas
Oria as liquidator of the firm of Oria Hermanos & Co., so long as the consideration of this sale is not fully
satisfied, to guarantee which this restriction is imposed: provided, that this restriction applies only to the
vessels, real estate and branch stores in the towns mentioned in the fourth section of this instrument, not
to the rest of the property.

"(e) Don Manuel Oria y Gonzalez engages and undertakes to cede gratuitously in the dwelling-house in
the town of Laoang, hereby sold, the use of the same or the portion thereof that may be necessary for
Don Tomas Oria to establish therein the liquidation office of Oria Hermanos & Co.; provided, that this
cession is made for a period of only two (2) years.

"(f) Don Tomas Oria y Balbas and Don Adolfo Fuster engage and undertake to place their personal
services at the disposal of Don Manuel Oria y Gonzalez in everything relating to his instruction in the
management and conduct of the property and business hereby sold; provided, that this obligation and
promise shall be binding upon Don Adolfo Fuster only for the time he may reside in the Philippines and
upon both parties only for a maximum period of 12 months.

"7. I, Manuel Oria y Gonzalez, being informed of the foregoing action and contract executed by Don
Tomas Oria y Balbas, do on my part stipulate and agree: that I accept the sale, cession and transfer
hereby made by him in my favor and engage and undertake to pay to Oria Hermanos & Co., either in
liquidation, or if necessary to the partners of Oria Hermanos & Co., the price of said sale, cession and
transfer, that is, the sum of P274,000, within a period of 12 years, in the manner and under the conditions
set forth by him in the preceding section, and especially engage not to sell, alienate, transfer or mortgage
the property involved in this sale which is specified in paragraph (d) of the preceding section, without the
previous written authorization of the vendor, Oria Hermanos & Co., such property being so exempted as a
guaranty for the payment of the purchase price of this sale."cralaw virtua1aw library

Among the goods transferred by this instrument was the steamship Serantes, which is the subject of this
litigation.

On the 17th day of September, 1910, case No. 7719, above referred to, was resolved by the Court of
First Instance in favor of Gutierrez Hermanos and against Oria Hermanos & Co. for the sum demanded in
the complaint. The cause was appealed to the Supreme Court and, the judgment therein having been
affirmed, 1 execution was issued thereon and placed in the hands of the sheriff of Manila. The sheriff
immediately demanded that Tomas Oria y Balbas, as liquidator of the firm of Oria Hermanos & Co. make
payment of the said judgment, to which he replied that there were no funds with which to pay the same.
Thereupon the sheriff levied upon the said steamer Serantes, took possession of the same, and
announced it for sale at public auction on the 21st day of October, 1910. On the 18th day of October,
1910, three days before the sale, the plaintiff in this action presented to the sheriff a written statement
claiming to be the owner of the said steamship, and to have the right of possession of the same by
reason of the sale to him by Oria Hermanos & Co. of all of the property belonging to said company,
including the said steamer Serantes, as shown by the instrument above referred to and quoted. The
sheriff thereupon required Gutierrez Hermanos to present a bond for his protection, which having been
done, the sheriff proceeded to the sale of the said steamship. At the sale Gutierrez Hermanos became
the purchaser, said company being the highest bidder, and the sum which it paid being the highest sum
bidden for the same.

On the 19th day of October, 1911, the plaintiff began the present action, which has for its object, as
shown by the prayer of the complaint: First, the issuance of a preliminary injunction to prevent the sale of
said steamship; and, second, the declaration that the plaintiff is the owner of said steamship and is
entitled to the possession of the same, and that the defendant be required to restore the same to the
plaintiff and to pay P10,000 damages for its detention.

Upon the trial judgment was found in favor of the defendant and against the plaintiff, and the complaint
was dismissed upon the merits with costs. From that judgment this appeal is taken.
The substantial question presented for our consideration is the validity of the sale from Oria Hermanos &
Co. to Manuel Oria y Gonzalez as against the creditors of said company. It is the contention of Gutierrez
Hermanos that said sale is fraudulent as against the creditors of Oria Hermanos & Co., and that the
transfer thereby consummated of the steamship in question was void as to said creditors and as to
Gutierrez Hermanos in particular.

There is some contention on the part of the plaintiffs that aside from the property included in the sale
referred to, Oria Hermanos & Co. had sufficient other property to pay the judgment of Gutierrez
Hermanos. The trial court found, however, against the plaintiff in this regard. A careful examination of the
record fails to disclose any sufficient reason for the reversal of this finding. While the evidence is
somewhat conflicting, we are of the opinion that there is sufficient to sustain the findings made.

In determining whether or not the sale in question was fraudulent as against creditors, these facts must
be kept in mind:chanrob1es virtual 1aw library

1. At the time of said sale the value of the assets of Oria Hermanos & Co., as stated by the partners
themselves, was P274,000.

2. That at the time of said sale actions were pending against said company by one single creditor for
sums aggregating in amount nearly P160,000.

3. The vendee of said sale was a son of Tomas Oria y Balbas and a nephew of the other two persons
heretofore mentioned which said three brothers together constituted all of the members of said company.

4. Nothing of value seems to have been delivered by the plaintiff in consideration of said sale and no
security whatever was given for the payments therein provided for.

5. The plaintiff is a young man twenty-five years of age. There is no pretense whatever that he owned any
property or had any business at the time of the sale. On the contrary it appears without contradiction that,
when the sale took place, he was merely a student without assets and without gainful occupation.

6. Plaintiff, at the time of the sale, was fully aware of the two suits that had already been begun against
the company whose assets he was purchasing and well knew that if said suits should terminate in favor of
the plaintiffs therein the judgments in which they terminated would have to be paid out of the property
which he was then taking over or they would not be paid at all.

7. Under all the circumstances the sale in question was, so far as the creditors were concerned, without
consideration. To turn over a business worth P274,000 to an "impecunious and vocationless youth" who
knew absolutely nothing about the business he received, and whose adaptability to the management of
that business was entirely unknown, without a penny being paid down, without any security whatever, is a
proceeding so unusual, so devoid of care and caution, and so wholly outside of the well-defined lines of
ordinary business transactions, as to startle any person interested in the concern.

8. It is certain that the members of the company of Oria Hermanos & Co. would never have made a
similar contract or executed a similar instrument with a stranger.

9. The prohibition in the contract against the sale of certain portions of the property by the plaintiff offers
no protection whatever to the creditors. Such prohibition is not security. The parties who made the original
transfer can waive and release it at pleasure. Such restriction is of no value to the creditors of the
company. They can not utilize it for the reduction of their claims or in any other beneficial way.

In determining whether or not a certain conveyance is fraudulent the question in every case is whether
the conveyance was a bona fide transaction or a trick and contrivance to defeat creditors, or whether it
conserves to the debtor a special right. It is not sufficient that it is founded on good consideration or is
made with bona fide intent: it must have both elements. If defective in either of these particulars, although
good between the parties, it is voidable as to creditors. The rule is universal both at law and in equity that
whatever fraud creates justice will destroy. The test as to whether or not a conveyance is fraudulent s,
does it prejudice the rights of creditors?

In the consideration of whether or not certain transfers were fraudulent, courts have laid down certain
rules by which the fraudulent character of the transaction may be determined. The following are some of
the circumstances attending sales which have been denominated by the courts badges of
fraud:chanrob1es virtual 1aw library

1. The fact that the consideration of the conveyance is fictitious or is inadequate.

2. A transfer made by a debtor after suit has been begun and while it is pending against him.

3. A sale upon credit by an insolvent debtor.

4. Evidence of large indebtedness or complete insolvency.

5. The transfer of all or nearly all of his property by a debtor, especially when he is insolvent or greatly
embarrassed financially.

6. The fact that the transfer is made between father and son; when there are present other of the above
circumstances.

7. The failure of the vendee to take exclusive possession of all the property.

The case at bar presents every one of the badges of fraud above enumerated. Tested by the inquiry,
does the sale prejudice the rights of creditors, the result is clear. The sale in the form in which it was
made leaves the creditors substantially without recourse. The property of the company is gone, its income
is gone, the business itself is likely to fail, the property is being dissipated, and is depreciating in value. As
a result, even if the claims of the creditors should live twelve years and the creditors themselves wait that
long, it is more than likely that nothing would be found to satisfy their claims at the end of the long wait.
(Regalado v. Luchsinger & Co., 5 Phil. Rep., 625; art. 1297, Civil Code, par. 1; Manresas Commentaries,
vol. 8, pp. 713-719.)

Since the record shows that there was no property with which the judgment in question could be paid, the
defendants were obliged to resort to and levy upon the steamer in suit. The court below was correct in
finding the sale fraudulent and void as to Gutierrez Hermanos in so far as was necessary to permit the
collection of its judgment. As a corollary, the court below found that the evidence failed to show that the
plaintiff was the owner or entitled to the possession of the steamer in question at the time of the levy and
sale complained of, or that he was damaged thereby. Defendant had the right to make the levy and test
the validity of the sale in that way, without first resorting to a direct action to annul the sale. The creditor
may attack the sale by ignoring it and seizing under his execution the property, or any necessary portion
thereof, which is the subject of the sale.

For these reasons the judgment is affirmed, without special finding as to costs. So ordered.

Arellano, C.J., Torres, Mapa, Johnson, Carson, and Trent, JJ., concur.
G.R. No. 128120 October 20, 2004

SWEDISH MATCH, AB, JUAN ENRIQUEZ, RENE DIZON, FRANCISCO RAPACON, FIEL SANTOS,
BETH FLORES, LAMBRTO DE LA EVA, GLORIA REYES, RODRIGO ORTIZ, NICANOR
ESCALANTE, PETER HODGSON, SAMUEL PARTOSA, HERMINDA ASUNCION, JUANITO
HERRERA, JACOBUS NICOLAAS, JOSEPH PEKELHARING (now Representing himself without
court sanction as "JOOST PEKELHARING)," MASSIMO ROSSI and ED ENRIQUEZ, petitioners,
vs.
COURT OF APPEALS, ALS MANAGEMENT & DEVELOPMENT CORPORATION and ANTONIO K.
LITONJUA,respondents.

DECISION

TINGA, J.:

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 750,000,000.00.5
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 division for US$30.6 million, which per another letter of the same date was
increased to US$36 million.7Litonjua 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 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.

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 Code 22 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 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.33Contracts 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.38Public 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. 39The 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
1990.43With 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 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.

Puno, Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.

Footnotes

1Penned by Justice Pedro A. Ramirez, concurred in by Justices Pacita Caizares-Nye and


Romeo J. Callejo, Sr.(now Associate Justice of this Court)

2 Rollo, pp.74-99.
3 Id. at 103.

4 Issued by Judge Armie E. Elma of the Regional Trial Court of Pasig.

5 Annex "A," Rollo, p. 101.

6 Annex "B," Id. at 104.

7 Annex "D," Id. at 110.

8 Id. at 114-115.

9 Id. at 116-117.

10 Id. at 121.

11 Id. at 123.

12 Annex "K," Rollo, p. 125.

13 Annex "L," Id. at 126.

14 Annex "M," Id. at 128.

15 Rollo, p. 130.

16 RTC Rollo. p. 17

17 Id. at 19.

18 Id. at 23.

19 The dispositive portion of the trial courts decision reads:

"WHEREFORE, in view of all the foregoing considerations, this Court gives due course to
defendants (except Rene Dizon) affirmative defense of bar by the statute of frauds. This
case is ordered DISMISSED for lack of a valid cause of action with costs against
plaintiffs. The writ of preliminary injunction issued on January 14, 1991 is herby
dissolved."

20 Rollo, pp. 81-82.

21 Id. at 164.

22 Art. 1403. The following contracts are unenforceable, unless they are ratified:

xxx

(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the
following cases an agreement hereafter made shall be unenforceable by action, unless
the same, or some note or memorandum thereof, be in writing, and subscribed by the
party charged, or by his agent; evidence, therefore, of the agreement cannot be received
without the writing, or a secondary evidence of its contents:

(a) An agreement that by its terms is not to be performed within a year from the
making thereof;

(b) A special promise to answer for the debt, default, or miscarriage of another;

(c) An agreement made in consideration of marriage, other than a mutual


promise to marry;

(d) An agreement for the sale of goods, chattels or things in action, at a price not
less than five hundred pesos, unless the buyer accept and receive part of such
goods and chattels, or the evidences, or some of them, of such things in action,
or pay at the time some part of the purchase money; but when a sale is made by
auction and entry is made by the auctioneer in his sales book, at the time of the
sale, of the amount and kind of property sold, terms of sale, price, names of the
purchasers and person on whose account the sale is made, it is a sufficient
memorandum;

(e) An agreement for the leasing for a longer period than one year, or for the sale
of real property or of an interest therein;

(f) A representation as to the credit of a third person.

23
Rosencor Development Corporation v. Court of Appeals, G.R. No. 140479, March 8, 2001, 354
SCRA 119.

24 Article 1356, Civil Code.

25 Gallemit v. Tabilaran, 20 Phil. 241 (1911).

26 Domalagan v. Bolifer, 33 Phil. 471 (1915-1916).

27 Asia Productions Co., Inc. v. Pano, et. al., G.R. No. 51058, January 27, 1992, 205 SCRA 458.

28Litonjua v. Fernandez, et.al., G.R. No. 148116, April 14, 2004, citing Holsz v. Stephen, 200
N.E. 601(1936).

29
Ibid., citing Franklin Sugar Refining Co. v. Egerton, 288 Fed. Rep. 698(1923); Williams v.
Morris, 95 U.S. 360 (1877).

30 Annex "E," Rollo, p. 114.

31 Rule 16, par. (i), Rules of Civil Procedure.

32 4 Sanchez Roman 146.

33 Article 1318, Civil Code.

34 Gomez v. Court of Appeals, G. R. No. 120747, September 21, 2000, 340 SCRA 720.
35 Roble v. Arbasa, 414 Phil. 434 (2001).

36Laforteza v. Machuca, 389 Phil. 167 (2000); Katipunan v. Katipunan, Jr., 425 Phil. 818 (2002);
Londres v. Court of Appeals, G.R. No. 136427, December 17, 2002, 394 SCRA 133.

37 Bugatti v. Court of Appeals, G.R. No. 138113, October 17, 2000, 343 SCRA 335.

38
8 Manresa, 5th Ed., Bk. 2, pp. 268-270 cited in Jurado, Comments and Jurisprudence on
Obligations and Contracts, 1993 Ed., p. 354.

39 Ang Yu v. Asuncion, G.R. No. 109125, December 2, 1994, 238 SCRA 1994.

40 Laudico v. Arias, 43 Phil. 270.

41 Article 1319, Civil Code.

42 Annex "D," Rollo, p. 111.

43 span style='font-siz
[A.M. No. MTJ-91-622. March 22, 1993.]

ATTY. MANUEL T. URADA, Complainant, v. JUDGE LUZVIMINDA M. MAPALAD, Respondent.

SYLLABUS

1. JUDICIAL ETHICS; DISQUALIFICATION OF JUDGES; THE DISQUALIFICATION IMPOSED BY


RULE 137 AND CANON 3 OF THE CODE OF THE JUDICIAL CONDUCT IS ABSOLUTE REGARDLESS
OF THE STAGE IN THE RESOLUTION OF THE CASE; IN HEARING CRIMINAL CASE NO. 89-3905
RESPONDENT JUDGE DISPLAYED BEHAVIOR AMOUNTING TO GRAVE MISCONDUCT AND
CONDUCT PREJUDICIAL TO THE BEST INTEREST OF THE SERVICE. deliberately disregarded
Section 1, Rule 137 of the Revised Rules of Court which pertinently provides in part: "SEC. 1.
Disqualification of judges. No judge or judicial officer shall sit in any case in which . . . he is related to
either party within the sixth degree of consanguinity or affinity, . . . without the written consent of all
parties in interest, signed by them and entered upon the record." and Rule 3.12 (d) Canon 3 of the Code
of Judicial Conduct which reads: "Rule 3.12. A judge should take no part in a proceeding where the
judges impartially might reasonably be questioned. These cases include, among others, proceedings
where: . . . (d) the judge is related by consanguinity or affinity to a party litigant within the sixth degree . .
." considering that (a) Roberto Cruda, the accused in Criminal Case No. 89-3905, is her brother-in-law,
being the husband of her youngest sister and, therefore, her (respondents) relative by affinity within the
second degree, and (b) she did not obtain the written consent of all the parties in interest. That it was only
on 9 August 1991 or long after the case had been submitted for decision that she became Robertos
sister-in-law provides no reason for a departure from the enunciated rule as the abovequoted provisions
impose an absolute prohibition regardless of the stage in the resolution of the case that the relationship is
established. As a matter of fact, given her special bias for the accused whom she even wanted to reform
and rehabilitate a task which became an obsession and whose behalf she interceded to obtain
settlement of the criminal cases against him, thereby necessarily blinding her impartiality and irreparably
affecting the cold nuetrality she is supposed to posses as a judge, the voluntary disqualification from a
case provided under the second paragraph of Section 1 of Rule 137, reading as follows: "A judge may, in
the exercise of his sound discretion, disqualify himself from sitting in a case, for just or valid reasons other
than those mentioned above." should have been availed of by the Respondent. In staying on the hear
Criminal Case No. 89-3905 despite her being absolutely disqualified to do so and without the written
consent of the parties, respondent displayed behavior amounting to grave misconduct and conduct
prejudicial to the best interest of the service.

2. ID.; JUDGES; RESPONDENT JUDGE GUILTY OF GROSS INEFFICIENCY AND NEGLECT OF


DUTY FOR FAILURE TO DECIDE THE CASE WITHIN 90 DAYS FROM SUBMISSION. There can be
no doubt that Criminal Case No. 89-3905 was deemed submitted for decision on 27 March 1990.
Pursuant to Section 15(1), Article VIII of the 1987 Constitution and subdivision 11 of Administrative
Circular No. 1 dated 28 January 1988, the respondent had ninety (90) days therefrom to decide the case.
She rendered and promulgated the decision thereon only on 17 October 1991. Of course, by 9 August
1991, respondent was already absolutely disqualified from sitting in the case. But then, even before the
said date, more than one (1) year and four (4) months had already elapsed since the commencement of
the period to render the decision 27 March 1990. The reasons adduced for her failure to comply with
the mandate of the Constitution and Administrative Circular No. 1 are wholly unacceptable and do not
inspire understanding, leniency and compassion. For this transgression, We find the respondent guilty of
gross inefficiency and neglect of duty.

3. ID.; UNJUST JUDGMENT; A DECISION IS NOT NECESSARILY UNJUST SIMPLY BECAUSE A


JUDGE IS DISQUALIFIED TO RENDER IT; FOR CONVICTION FOR UNJUST JUDGMENT TO LIE, IT
MUST BE PROVEN THAT THE JUDGMENT IS UNJUST AND THAT THE JUDGE KNOWS THAT IT IS
UNJUST. We have also carefully scrutinized the respondents decision of acquittal in Criminal Case
No. 89-3905 to determine if she had knowingly rendered an adjust judgment. It appears from both the
letter-complaint and the recommendation of the investigating Judge that the conclusion that the
respondent did render such a judgment is based on her alleged violation of Section 1, Rule 137 of the
Revised Rule of Court and Rule 3.12(d), Canon 3 of the Code of Judicial Conduct. Such a violation is not
sufficient to sustain a charge of this nature; a decision rendered by a judge who is disqualified under the
above law and Canon may not at all be adjust. Besides, it must be shown that the judge himself knows
that such a decision is unjust. Elsewise stated, a decision would not necessarily be unjust simply because
a judge is disqualified to render it. Knowingly rendering an unjust judgment is a criminal offense defined
and penalized under Article 204 of the Revised Penal Code; for conviction to lie, it must be proven that
the judgment is unjust and that the judge that it is unjust.

4. ID.; CODE OF JUDICIAL CONDUCT; RESPONDENT GUILTY OF IMPROPER CONDUCT IN


VIOLATION OF RULE 2.01, CANON 2 OF THE CODE WHEN SHE INTERCEDED IN THE
SETTLEMENT OF THE CASES PENDING AGAINST A RELATIVE. Finally, We note with grave
concern the respondents revelation in her Answer that "she interceeded (sic) in the settlement of the
cases pending against" Roberto Cruda and that "eventually, except for the case filed by Juanito Calderon,
all the other cases were withdrawn by the private complainants therein as they were compassionate
enough to forgive him of his misdeeds." By such admission, it is clear that the respondent acted as
counsel for the accused. Hence, it may not altogether be discounted that the private complainants
involved in these criminal cases gave in not because of their willingness to forgive which would not
have even extinguished the accuseds criminal liability considering the nature of the cases involved but
because of the respondents office and influence. In all probability, they just simply could not have refused
her pertinacious solicitations. It is therefore evident that she is guilty of improper conduct which could only
serve to diminish public confidence in the integrity and impartiality of the judiciary. Her behavior amounted
to a violation of Rule 2.01, Canon 2 of the Code of Judicial Conduct.

5. ID.; JUDGES; AS A VISIBLE REPRESENTATION OF THE LAW AND JUSTICE, A JUDGE SHOULD
PROPERLY CONDUCT HIMSELF AS TO MERIT THE RESPECT, REVERENCE AND CONFIDENCE
OF THE PEOPLE. The judicial office demands that the incumbent should conduct himself in such a
manner as to merit the respect, reverence and confidence of the people (Castillo v. Barsana, 63 SCRA
388 [1975]) because a Judge is the visible representation of the law and, more importantly, of justice.
From him, the people draw their will and awareness to obey the law. They see in him an intermediary of
justice between two conflicting interests. (De la Paz v. Inutan, 64 SCRA 540 [1975]). In a larger sense,
the Judge must be at the forefront of all efforts to preserve and enhance the public trust character of a
public office (Section 1, Article XI of the 1987 Constitution). Anyone who cannot do so should not be
allowed to stay a minute longer in any judicial seat.

DECISION

PER CURIAM:

In a sworn letter-complaint dated 21 November 1991 and addressed to then Court Administrator, now a
distinguished Member of this Court, Josue N. Bellosillo, complaint Atty. Manuel T. Ubarra, on behalf of his
client Juanito A. Calderon, charges respondent, the Presiding Judge of the Municipal Trial Court (MTC) of
Pulilan, Bulacan, with grave misconduct, knowingly rendering an unjust judgment, the violation of the
Canons of Judicial Ethics and the failure to decide within the mandated ninety-day period Criminal Case
No. 89-3905. This criminal case, entitled People of the Philippines v. Roberto Cruda, involves the charge
of Grave Threats.

Attached to the latter complaint is the affidavit of Juanito A. Calderon, the offended party in said Criminal
Case No. 89-3905 and Criminal Case No. 90-4056, another action for Grave Threats likewise entitled
People of the Philippines v. Roberto Cruda, Et. Al. Calderon alleges in his affidavit that in the course of
the trial of Criminal Case No. 89-3905 before the MTC, he noted that accused Roberto Cruda worked as
a houseboy of the herein respondent; by that time, he (Calderon) had already observed the latters
partiality in favor of the said accused; Criminal Case No. 89-3905 was submitted for decision on 27 March
1990; on 9 August 1991, Roberto Cruda married Annabelle V. Manlangit respondents youngest sister; it
was the respondent herself who solemnized that marriage other office, as evidenced by the marriage
contract (Annex "C"); despite such marriage, respondent did not inhibit herself from hearing Criminal
Case No. 89-3905 and instead proceeded to render and promulgate, on 17 October 1991, a judgment
(Annex "D") acquitting Cruda, her brother-in-law. The dispositive portion of the said decision
reads:jgc:chanrobles.com.ph

"WHEREFORE, in view of all the foregoing, judgment is hereby rendered dismissing the instant criminal
complaint and acquitting the accused Roberto Cruda of the crime charged.

Accordingly, the cast bond posted by the accused for his provisional liberty ordered released."cralaw
virtua1aw library

Earlier, however, in an Order dated 7 September 1991, respondent voluntarily inhibited herself in the
other case, Criminal Case No. 90-4056, to avoid suspicion, partiality or bias because accused Cruda had
already become her relative by affinity (Annex "E"). Calderon thus asserts that the respondent acted with
bias or partiality in rendering the decision in Criminal Case No. 89-3905.

The answer to the letter-complaint, dated 6 May 1992 and filed by the respondent by way of compliance
with Our Resolution of 27 February 1992, is devoted mostly to a narration of her sincere and honest
efforts to reform and rehabilitate Roberto Cruda. She alleges that upon her assumption into office as the
Presiding Judge of the MTC of Pulilan, she discovered, after conducting an inventory of all the cases
pending therein, that Roberto Cruda had previously been charged in six (6) criminal cases, to wit:
Criminal Case No. 88-3871 (Acts of Lasciviousness),Criminal Case No. 88-3873 (Trespass to Dwelling),
Criminal Case No. 88-3870 (Threats), Criminal Case No. 84-3424 (Robbery) and Criminal Case No. 85-
3576 (Theft). She also learned that Roberto is one of the six (6) children who were abondoned by their
father and left to the charge of a feeble-minded and uncaring mother; in their helplessness, these siblings
learned to fend for themselves. The eldest was employed as a domestic helper of a relative residing in
Quezon City, the second and the third (Roberto Cruda) work as garbage scavengers and the rest,
together with their mother, were street beggars. The grim situation confronting Roberto who, at the time,
was twenty-one (21) years old so "moved and touched the heart and the mother instinct" of respondent
who "then resolved to rehabilitate and reform him, the best way she can." Before the respondent could
start her special task, however, Criminal Case No. 89-3905 was filed against Roberto. Upon her
instruction, the latter was first brought to her after his arrest. His appearance impressed her as she
observed that he is "quite good-looking, tall and of good physique." She thus took the opportunity to have
a heart talk with him; after some motivations, the latter opened up and recounted his tale of bitterness and
hatred against his parents, relatives, neighbors and life itself. Upon her counseling, he promised to mend
his ways; she then assured him of her help in the settlement of all his cases.

Respondent further avers that upon Robertos release which followed the filing of a cash bond, the
Station Commander of Pulilan, Bulacan proposed that the latter remain in his custody, stay at the police
headquarters and work as his orderly; Roberto agreed to the proposition. Respondent then volunteered to
provide Roberto with his daily lunch, for which reason she instructed her sister, Annabelle, to prepare the
said means for Roberto who would just get them from her. Because of their meetings, love blossomed
between Annabelle and Roberto; the relationship, remained undetected by the Respondent.

Respondent reveals that she interceded in the settlement of the cases pending against Roberto. Hence, it
is alleged that except for Criminal Case No. 89-3905 the case upon which the instant complaint was
filed all the other cases were eventually withdrawn by the complainants who were compassionate
enough to forgive Roberto for his misdeeds. With respects to a Criminal Case No. 89-3905, she
attempted to resolve the differences existing between Juanito Calderon, the offended party, whom
respondent describes as a "scheming mother," a "trouble some woman, a high hat and virago . . . at
odds practically with all her neighbors," prevailed upon him to pursue the case. As a matter of fact, at a
preliminary conference conducted before Robertos arraignment in the said case for the purpose of
settling amicably the dispute between the parties, it was Potencia who did all the talking. It was in the
course of this conference that the respondent discovered that bad blood had been existing for some time
between the Cruda and Calderon families. This arose out of a civil case involving ownership of a piece
of land between the Calderons and Emiliana Esguerra wherein Robertos father, Romeo Cruda,
testified as the latters witness. The Calderons resented this not only because they lost the case this not
only because they lost the case before the Regional Trial Court (RTC), but also because Romeo Cruda
was designated by Esguerra as overseer of the property. As a consequence thereof, several cases
involving petty or trivial things, among which is Criminal Case No. 89-3905, he had been filed by the
Calderons against the Crudas.

Anent the specific charges leveled against her, respondent claims that the trial on the merits of Criminal
Case No. 89-3905 was commenced on 20 June 1989 and was terminated on 27 March 1990. Sometime
in October 1989, Juanito Calderon filed against Romeo and Roberto Cruda a complaint for attempted
homicide. However, after the preliminary investigation,, the investigating Prosecutor ruled that only a
probable cause for grave threats was established; hence; Criminal Case No. 90-4056 for Grave Threats
was filed in her court. At the arraignment on 18 May 1990, only Romeo Cruda appeared; Roberto failed to
arrive despite notice. After the court adjourned, Romeo saw the respondent in her chambers to inform her
that Roberto and Annabelle had eloped. Both were, however, married on 19 August 1991 in her office
with her as the solemnizing officer. Thereupon, she inhibited herself in Criminal Case No. 90-4056. She
maintains that the ground for her inhibition in Criminal Case No. 89-3905 had not yet existed when she
tried the same as she became related to Roberto Cruda within the prohibited degree only on 9 August
1991, long after the termination of the trial therein.

She denies having knowingly rendered an unjust judgment in favor of her brother-in-law because she
"was persuaded to dismiss the same not on account that the guilt of Cruda was not proven beyond
reasonable doubt but by the very reason that both the private complainant and the accused therein were
in pari delicto."cralaw virtua1aw library

She admits, however, that she decided Criminal Case No. 89-3905 beyond ninety (90) days from the date
it was submitted for decision, and pleads for this Courts understanding, leniency and compassion
considering that a Municipal Trial Court Judge is saddled not with judicial functions, but quasi-judicial
tasks as well which are enough to drain most of his/her energy.

On 10 September 1992, We referred the case to the Executive Judge of the RTC of Malolos, Bulacan for
investigation, report and recommendation.

Executive Judge Natividad G. Dizon conducted the investigation by receiving the evidence of the parties.
In her Report and Recommendation dated 1 February 1993 and received by the Office of the Court
Administrator on 3 February 1993, she made the following findings and conclusion:jgc:chanrobles.com.ph

"Having concluded the hearings of the administrative case against respondent Judge where she was
given her ways (sic) in Court and to present her evidence, the Investigating Judge respectfully submits
her findings, based on the records at hand:chanrob1es virtual 1aw library

a) Respondent Judge committed grave misconduct when she rendered an unjust decision in Criminal
Case No. 89-3905, wherein she acquitted accused Roberto Cruda for Grave Threats. The Judge must
maintain and preserve the trust and faith of the parties litigants. He must hold himself above reproach and
suspicion. At the very first sign of lack of faith and trust to this actions, whether well grounded or not, the
Judge has no other alternative but inhibit (sic) himself from the case. (Borromeo-Herrera v. Borromeo,
152 SCRA 172 (1987) (sic).

The records show that when she rendered her decision on said case on October 17,, 1991, she already
knew about the relationship existing between the accused and her sister, Annabelle V. Manlangit, as
early as September 7, 1990 (Exhs. "E", "E-1" & "E-2").

The respondent Judge herself solemnized the marriage between the accused and her sister (p., TSN,
Nov. 5, 1992) on August 9, 1991 (Exhs. "A-1" & "A-2"). Instead of inhibiting herself in view of the
foregoing, respondent Judge proceeded with the hearing of the case wherein she acquitted the accused
in gross violations (sic) of Sec. 1, Rule 37, Rules of Court and Sec. 12 Canons of Judicial Ethics;

b) Respondent Judge decided the case (Crim. Case No. 89-3905 beyond the ninety (90) day
reglementary period.

The records show that said case was submitted for decision on March 27, 1990 (Exhs. "D" & "D-1") (Exh.
"D-3") (p. 12, TSN, Nov. 4, 1992) and respondent rendered judgment thereon only on October 17, 1991,
or more than (1) year and about seven (7) months from the time that the case was deemed submitted for
decision.

In line with the jurisprudence laid down by the Honorable Supreme Court in Inciong v. De Guia, 154
SCRA 93 (1987), that:chanrob1es virtual 1aw library

. . . The Judge is the visible representation of the law and, more importantly, of justice. From him, the
people draw their will and awareness to obey the law. They see in him an intermediary of justice between
two conflicting interest, specially in the station of municipal judges, like respondent Judge, who have that
close and direct contact with the people before anybody else in the judiciary. Thus for the Judge to return
that regard, he must be the first to abide by the law and weave an example for the others to follow. He
should be studiously careful to avoid even the slightest infraction of the law.

and in Masadao and Elizaga Re: Criminal Case No. 4954-M, 155 SCRA 73 (1987) (sic):chanrob1es
virtual 1aw library

A Judge should strive to be at all the time wholly free, disinterested, impartial, and independent.
Elementary due process requires a hearing before an impartial and disinterested tribunal. A judge has
both the duty of rendering a just decision and the duty of doing it in a manner completely free from
suspicion as to its fairness and as to his integrity.

It is clear that the respondent judge is guilty as charged."cralaw virtua1aw library

and submitted this recommendation:jgc:chanrobles.com.ph

"RECOMMENDATION

With the above findings, it is respectfully recommended that proper (sic) penalty be imposed upon the
respondent Judge."cralaw virtua1aw library

In the light of the respondents admissions in her answer and the above findings of fact by the
investigating Judge which We observe to be fully supported by the evidence adduced by the parties, it is
not difficult to rule against the Respondent. For one, she deliberately disregarded Section 1, Rule 137 of
the Revised Rules of Court which pertinently provides in part:jgc:chanrobles.com.ph

"SEC. 1. Disqualification of judges. No judge or judicial officer shall sit in any case in which . . . he is
related to either party within the sixth degree of consanguinity or affinity, . . . without the written consent of
all parties in interest, signed by them and entered upon the record."cralaw virtua1aw library

and Rule 3.12 (d) Canon 3 of the Code of Judicial Conduct which reads:jgc:chanrobles.com.ph

"Rule 3.12. A judge should take no part in a proceeding where the judges impartially might reasonably be
questioned. These cases include, among others, proceedings where:chanrob1es virtual 1aw library

x x x

(d) the judge is related by consanguinity or affinity to a party litigant within the sixth degree . . ."cralaw
virtua1aw library
considering that (a) Roberto Cruda, the accused in Criminal Case No. 89-3905, is her brother-in-law,
being the husband of her youngest sister and, therefore, her (respondents) relative by affinity within the
second degree, and (b) she did not obtain the written consent of all the parties in interest. That it was only
on 9 August 1991 or long after the case had been submitted for decision that she became Robertos
sister-in-law provides no reason for a departure from the enunciated rule as the abovequoted provisions
impose an absolute prohibition regardless of the stage in the resolution of the case that the relationship is
established. As a matter of fact, given her special bias for the accused whom she even wanted to reform
and rehabilitate a task which became an obsession and whose behalf she interceded to obtain
settlement of the criminal cases against him, thereby necessarily blinding her impartiality and irreparably
affecting the cold nuetrality she is supposed to posses as a judge, the voluntary disqualification from a
case provided under the second paragraph of Section 1 of Rule 137, reading as
follows:jgc:chanrobles.com.ph

"A judge may, in the exercise of his sound discretion, disqualify himself from sitting in a case, for just or
valid reasons other than those mentioned above."cralaw virtua1aw library

should have been availed of by the Respondent.

Due process is the soul of Section 1 Rule 137. It requires, inter alia, a hearing before an impartial and
disinterested tribunal. (Palang v. Zosa, 56 SCRA 776 [1974]). It is therefore illusory without an impartial
judge whose cold nuetrality reassures litigants of fairness, justice and his integrity. All suitors are entitled
to nothing short of the cold nuetrality of an independent, wholly free, disinterested and impartial tribunal.
(Luque v. Kayanan, 29 SCRA 165 [1969]; Geotina v. Gonzalez, 41 SCRA 66 [1971]).

That the respondent was fully aware of this rule is borne out by the fact that in the other case, Criminal
Case No. 90-4056, she voluntarily disqualified herself from sitting therein. In staying on the hear Criminal
Case No. 89-3905 despite her being absolutely disqualified to do so and without the written consent of
the parties, respondent displayed behavior amounting to grave misconduct and conduct prejudicial to the
best interest of the service.

There can be no doubt that Criminal Case No. 89-3905 was deemed submitted for decision on 27 March
1990. Pursuant to Section 15(1), Article VIII of the 1987 Constitution and subdivision 11 of Administrative
Circular No. 1 dated 28 January 1988, the respondent had ninety (90) days therefrom to decide the case.
She rendered and promulgated the decision thereon only on 17 October 1991. Of course, by 9 August
1991, respondent was already absolutely disqualified from sitting in the case. But then, even before the
said date, more than one (1) year and four (4) months had already elapsed since the commencement of
the period to render the decision 27 March 1990. The reasons adduced for her failure to comply with
the mandate of the Constitution and Administrative Circular No. 1 are wholly unacceptable and do not
inspire understanding, leniency and compassion. For this transgression, We find the respondent guilty of
gross inefficiency and neglect of duty.

We have also carefully scrutinized the respondents decision of acquittal in Criminal Case No. 89-3905 to
determine if she had knowingly rendered an adjust judgment. It appears from both the letter-complaint
and the recommendation of the investigating Judge that the conclusion that the respondent did render
such a judgment is based on her alleged violation of Section 1, Rule 137 of the Revised Rule of Court
and Rule 3.12(d), Canon 3 of the Code of Judicial Conduct. Such a violation is not sufficient to sustain a
charge of this nature; a decision rendered by a judge who is disqualified under the above law and Canon
may not at all be adjust. Besides, it must be shown that the judge himself knows that such a decision is
unjust. Elsewise stated, a decision would not necessarily be unjust simply because a judge is disqualified
to render it. Knowingly rendering an unjust judgment is a criminal offense defined and penalized under
Article 204 of the Revised Penal Code; for conviction to lie, it must be proven that the judgment is unjust
and that the judge that it is unjust. Knowingly means consciously, intelligently, wilfully, or intentionally.
(Blacks Law Dictionary, Fifth ed., 784). It is firmly established in this jurisdiction that for a judge to be held
liable for knowingly rendering an unjust judgment, it must be shown beyond doubt that the judgment is
unjust as it is contrary to law or is not supported by the evidence, and that the same was made with
conscious and deliberate intent to do an injustice. In re: Rafael C. Climaco, 55 SCRA 107, 119 [1974];
Evangelista v. Baes, 61 SCRA 475 [1974]; Pabalan v. Guevarra, 74 SCRA 53 [1976]; Rodrigo v. Quijano,
79 SCRA 10 [1977]; Sta Maria v. Ubay, 87 SCRA 179 [1978]).

In her decision Criminal Case No. 89-3905, respondent Judge held that accused Roberto Cruda
committed the criminal act imputed to him; the latter was acquitted solely on the ground that he acted in
retaliation to the unwarranted provocation by the complaint. Hence, the accused and complainant were
adjudged to be in pari delicto. The respondent concluded that they shall have no action against each
other and that the court shall leave them where it finds them. She further declares:jgc:chanrobles.com.ph

"As earlier stated, bad blood exists between the families of the parties herein for a quite time.
Complainant even admitted on cross-examination that all this time, he and the accused have (sic) a long
standing grudge against each other. As a natural consequence thereof, it can be expected that the parties
herein are prone to find faults from each other. At the time of the incident, since the complainant and the
accused were overpowered with hatred and resentment they long harbor (sic) for each other, the Court
that both of them were guilty of the facts they respectively attribute or impute to each other in their
respective testimony (sic).

Hence, when the complainant saw the accused picking up the star apple fruits which he claims to be
theirs, he found it an opportune time to get even with the said accused, thus, he harangued the accused
and hurled invectives against him. On the other hand, if ever the accused pelted the complainant with
stones, chased him with a kiya and threatened to kill him, the said acts of the accused, although
unlawful, were in retaliation to the unwarranted and likewise unlawful provocations done by the
complainant against him. In this light, the Court deems the complainant and the accused in pari delicto.

Under the pari delicto doctrine, where the parties to a controversy are equally culpable or guilty, they shall
have no action against each other, and it shall leave the parties where it finds them. this doctrine finds
expression in the maxims ex dolo malo non oritur actio and in pari delicto potior est condition
defendentis."

We find the application of the pari delicto theory in a criminal case to be strange, to the least. In the first
place, the rule on pari delicto is a rule in civil law. It is principally governed by Articles 1411 and 1412 of
the Civil Code under the Chapter on Void or Inexistent Contracts, and presupposes a situation where the
parties are in culpability similarity situated, i.e., in eodem loco. (Jandusay v. Court of Appeals, 172 SCRA
376 [1989]). That this rule can by no means apply in a criminal case is evidenced by the aforesaid Article
1411 which provides in part that" [W]hen the nullity proceeds from the illegality of the cause or object of
the contract, and the act constitutes a criminal offense, both parties being in pari delicto, they shall have
no action against each other, and both shall be prosecuted." Secondly, in view of the broader grounds of
public policy, the rule may not be invoked against the State. Thirdly, in the prosecution of public crimes,
the complainant is the State i.e., the People of the Philippines while the private offended party is but
a complaining witness. Any criminal act perpetrated by the latter on the occasion of the commission of the
crime, or which may have given rise to the criminal act imputed to the accused is not the act or conduct of
the State and can by no means find it under the doctrine of pari delicto. To rule otherwise would be to
establish a dangerous doctrine which would irreparably weaken the very foundations of the criminal
justice systems and frustrate the administration of justice. Whatever wrongful act may have been
committed by the offended party may only be invoked to justify the accuseds own act mitigate his liability.

In spite of all this, however, the respondent may not necessarily be liable for rendering an unjust
judgment as there is no convincing evidence on record to show that she knew such judgment to be unjust
and that she rendered the same with the conscious and deliberate intent to commit an injustice. She
could only be as she is hereby found, guilty of gross ignorance of the law.

Finally, We note with grave concern the respondents revelation in her Answer that "she interceeded (sic)
in the settlement of the cases pending against" Roberto Cruda and that "eventually, except for the case
filed by Juanito Calderon, all the other cases were withdrawn by the private complainants therein as they
were compassionate enough to forgive him of his misdeeds." By such admission, it is clear that the
respondent acted as counsel for the accused. Hence, it may not altogether be discounted that the private
complainants involved in these criminal cases gave in not because of their willingness to forgive which
would not have even extinguished the accuseds criminal liability considering the nature of the cases
involved but because of the respondents office and influence. In all probability, they just simply could
not have refused her pertinacious solicitations. It is therefore evident that she is guilty of improper conduct
which could only serve to diminish public confidence in the integrity and impartiality of the judiciary. Her
behavior amounted to a violation of Rule 2.01, Canon 2 of the Code of Judicial Conduct.

The Judiciary performs a very delicate function and a very sacred duty that of administering justice.
The judicial office demands that the incumbent should conduct himself in such a manner as to merit the
respect, reverence and confidence of the people (Castillo v. Barsana, 63 SCRA 388 [1975]) because a
Judge is the visible representation of the law and, more importantly, of justice. From him, the people draw
their will and awareness to obey the law. They see in him an intermediary of justice between two
conflicting interests. (De la Paz v. Inutan, 64 SCRA 540 [1975]). In a larger sense, the Judge must be at
the forefront of all efforts to preserve and enhance the public trust character of a public office (Section 1,
Article XI of the 1987 Constitution). Anyone who cannot do so should not be allowed to stay a minute
longer in any judicial seat.

WHEREFORE, for grave misconduct, gross inefficiency and neglect of duty, gross ignorance of the law
and conduct prejudicial to the best interest of the service, respondent JUDGE LUZVIMINDA M.
MAPALAD of the Municipal Trial Court of Pulilan, Bulacan is hereby ordered DISMISSED from the service
with forfeiture of all benefits, except for the monetary value of the her accrued leaves, and with prejudice
to re-employment in any branch or service of the government, including government-owned or controlled
corporations.

This Decision shall take effect immediately upon receipt by the respondent of a copy thereof which should
be served personally upon her by the Office of the Court Administrator.

SO ORDERED.

Narvasa, C.J., Feliciano, Padilla, Bidin, Grio-Aquino, Regalado, Davide, Jr., Romero, Nocon, Melo,
Campos, Jr. and Quiason, JJ., concur.

Gutierrez, Jr., J., On terminal leave.

Bellosillo, J., No part. I was Court Administrator when complaint was filed.
[G.R. No. 143958. July 11, 2003]

ALFRED FRITZ FRENZEL, petitioner, vs. EDERLINA P. CATITO, respondent.


DECISION
CALLEJO, SR., J.:

Before us is a petition for review of the Decision[1] of the Court of Appeals in CA-G.R. CV No. 53485
which affirmed the Decision[2] of the Regional Trial Court of Davao City, Branch 14, in Civil Case No.
17,817 dismissing the petitioners complaint, and the resolution of the Court of Appeals denying his motion
for reconsideration of the said decision.
The Antecedents[3]

As gleaned from the evidence of the petitioner, the case at bar stemmed from the following factual
backdrop:
Petitioner Alfred Fritz Frenzel is an Australian citizen of German descent. He is an electrical engineer
by profession, but worked as a pilot with the New Guinea Airlines. He arrived in the Philippines in 1974,
started engaging in business in the country two years thereafter, and married Teresita Santos, a Filipino
citizen. In 1981, Alfred and Teresita separated from bed and board without obtaining a divorce.
Sometime in February 1983, Alfred arrived in Sydney, Australia for a vacation. He went to Kings
Cross, a night spot in Sydney, for a massage where he met Ederlina Catito, a Filipina and a native of
Bajada, Davao City. Unknown to Alfred, she resided for a time in Germany and was married to Klaus
Muller, a German national. She left Germany and tried her luck in Sydney, Australia, where she found
employment as a masseuse in the Kings Cross nightclub. She was fluent in German, and Alfred enjoyed
talking with her. The two saw each other again; this time Ederlina ended up staying in Alfreds hotel for
three days. Alfred gave Ederlina sums of money for her services.[4]
Alfred was so enamored with Ederlina that he persuaded her to stop working at Kings Cross, return
to the Philippines, and engage in a wholesome business of her own. He also proposed that they meet in
Manila, to which she assented. Alfred gave her money for her plane fare to the Philippines. Within two
weeks of Ederlinas arrival in Manila, Alfred joined her. Alfred reiterated his proposal for Ederlina to stay in
the Philippines and engage in business, even offering to finance her business venture. Ederlina was
delighted at the idea and proposed to put up a beauty parlor. Alfred happily agreed.
Alfred told Ederlina that he was married but that he was eager to divorce his wife in Australia. Alfred
proposed marriage to Ederlina, but she replied that they should wait a little bit longer.
Ederlina found a building at No. 444 M.H. del Pilar corner Arquiza Street, Ermita, Manila, owned by
one Atty. Jose Hidalgo who offered to convey his rights over the property for P18,000.00. Alfred and
Ederlina accepted the offer. Ederlina put up a beauty parlor on the property under the business name
Edorial Beauty Salon, and had it registered with the Department of Trade and Industry under her name.
Alfred paid Atty. Hidalgo P20,000.00 for his right over the property and gave P300,000.00 to Ederlina for
the purchase of equipment and furnitures for the parlor. As Ederlina was going to Germany, she executed
a special power of attorney on December 13, 1983[5] appointing her brother, Aser Catito, as her attorney-
in-fact in managing the beauty parlor business. She stated in the said deed that she was married to Klaus
Muller. Alfred went back to Papua New Guinea to resume his work as a pilot.
When Alfred returned to the Philippines, he visited Ederlina in her Manila residence and found it
unsuitable for her. He decided to purchase a house and lot owned by Victoria Binuya Steckel in San
Francisco del Monte, Quezon City, covered by Transfer Certificate of Title No. 218429 for US$20,000.00.
Since Alfred knew that as an alien he was disqualified from owning lands in the Philippines, he agreed
that only Ederlinas name would appear in the deed of sale as the buyer of the property, as well as in the
title covering the same. After all, he was planning to marry Ederlina and he believed that after their
marriage, the two of them would jointly own the property. On January 23, 1984, a Contract to Sell was
entered into between Victoria Binuya Steckel as the vendor and Ederlina as the sole vendee. Alfred
signed therein as a witness.[6] Victoria received from Alfred, for and in behalf of Ederlina, the amount of
US$10,000.00 as partial payment, for which Victoria issued a receipt. [7] When Victoria executed the deed
of absolute sale over the property on March 6, 1984,[8] she received from Alfred, for and in behalf of
Ederlina, the amount of US$10,000.00 as final and full payment. Victoria likewise issued a receipt for the
said amount.[9] After Victoria had vacated the property, Ederlina moved into her new house. When she left
for Germany to visit Klaus, she had her father Narciso Catito and her two sisters occupy the property.
Alfred decided to stay in the Philippines for good and live with Ederlina. He returned to Australia and
sold his fiber glass pleasure boat to John Reid for $7,500.00 on May 4, 1984. [10] He also sold his
television and video business in Papua New Guinea for K135,000.00 to Tekeraoi Pty. Ltd. [11] He had his
personal properties shipped to the Philippines and stored at No. 14 Fernandez Street, San Francisco del
Monte, Quezon City. The proceeds of the sale were deposited in Alfreds account with the Hong Kong
Shanghai Banking Corporation (HSBC), Kowloon Branch under Bank Account No. 018-2-
807016.[12] When Alfred was in Papua New Guinea selling his other properties, the bank sent telegraphic
letters updating him of his account.[13]Several checks were credited to his HSBC bank account from
Papua New Guinea Banking Corporation, Westpac Bank of Australia and New Zealand Banking Group
Limited and Westpac BankPNG-Limited. Alfred also had a peso savings account with HSBC, Manila,
under Savings Account No. 01-725-183-01.[14]
Once, when Alfred and Ederlina were in Hong Kong, they opened another account with HSBC,
Kowloon, this time in the name of Ederlina, under Savings Account No. 018-0-807950.[15]Alfred
transferred his deposits in Savings Account No. 018-2-807016 with the said bank to this new account.
Ederlina also opened a savings account with the Bank of America Kowloon Main Office under Account
No. 30069016.[16]
On July 28, 1984, while Alfred was in Papua New Guinea, he received a Letter dated December 7,
1983 from Klaus Muller who was then residing in Berlin, Germany. Klaus informed Alfred that he and
Ederlina had been married on October 16, 1978 and had a blissful married life until Alfred intruded
therein. Klaus stated that he knew of Alfred and Ederlinas amorous relationship, and discovered the same
sometime in November 1983 when he arrived in Manila. He also begged Alfred to leave Ederlina alone
and to return her to him, saying that Alfred could not possibly build his future on his (Klaus) misfortune. [17]
Alfred had occasion to talk to Sally MacCarron, a close friend of Ederlina. He inquired if there was
any truth to Klaus statements and Sally confirmed that Klaus was married to Ederlina.When Alfred
confronted Ederlina, she admitted that she and Klaus were, indeed, married. But she assured Alfred that
she would divorce Klaus. Alfred was appeased. He agreed to continue the amorous relationship and wait
for the outcome of Ederlinas petition for divorce. After all, he intended to marry her. He retained the
services of Rechtsanwltin Banzhaf with offices in Berlin, as her counsel who informed her of the progress
of the proceedings.[18] Alfred paid for the services of the lawyer.
In the meantime, Alfred decided to purchase another house and lot, owned by Rodolfo Morelos
covered by TCT No. 92456 located in Pea Street, Bajada, Davao City. [19] Alfred again agreed to have the
deed of sale made out in the name of Ederlina. On September 7, 1984, Rodolfo Morelos executed a deed
of absolute sale over the said property in favor of Ederlina as the sole vendee for the amount
of P80,000.00.[20] Alfred paid US$12,500.00 for the property.
Alfred purchased another parcel of land from one Atty. Mardoecheo Camporedondo, located in
Moncado, Babak, Davao, covered by TCT No. 35251. Alfred once more agreed for the name of Ederlina
to appear as the sole vendee in the deed of sale. On December 31, 1984, Atty. Camporedondo executed
a deed of sale over the property for P65,000.00 in favor of Ederlina as the sole vendee.[21] Alfred, through
Ederlina, paid the lot at the cost of P33,682.00 and US$7,000.00, respectively, for which the vendor
signed receipts.[22] On August 14, 1985, TCT No. 47246 was issued to Ederlina as the sole owner of the
said property.[23]
Meanwhile, Ederlina deposited on December 27, 1985, the total amount of US$250,000 with the
HSBC Kowloon under Joint Deposit Account No. 018-462341-145.[24]
The couple decided to put up a beach resort on a four-hectare land in Camudmud, Babak, Davao,
owned by spouses Enrique and Rosela Serrano. Alfred purchased the property from the spouses
for P90,000.00, and the latter issued a receipt therefor.[25] A draftsman commissioned by the couple
submitted a sketch of the beach resort.[26] Beach houses were forthwith constructed on a portion of the
property and were eventually rented out by Ederlinas father, Narciso Catito. The rentals were collected by
Narciso, while Ederlina kept the proceeds of the sale of copra from the coconut trees in the property. By
this time, Alfred had already spent P200,000.00 for the purchase, construction and upkeep of the
property.
Ederlina often wrote letters to her family informing them of her life with Alfred. In a Letter dated
January 21, 1985, she wrote about how Alfred had financed the purchases of some real properties, the
establishment of her beauty parlor business, and her petition to divorce Klaus. [27]
Because Ederlina was preoccupied with her business in Manila, she executed on July 8, 1985, two
special powers of attorney[28] appointing Alfred as attorney-in-fact to receive in her behalf the title and the
deed of sale over the property sold by the spouses Enrique Serrano.
In the meantime, Ederlinas petition for divorce was denied because Klaus opposed the same. A
second petition filed by her met the same fate. Klaus wanted half of all the properties owned by Ederlina
in the Philippines before he would agree to a divorce. Worse, Klaus threatened to file a bigamy case
against Ederlina.[29]
Alfred proposed the creation of a partnership to Ederlina, or as an alternative, the establishment of a
corporation, with Ederlina owning 30% of the equity thereof. She initially agreed to put up a corporation
and contacted Atty. Armando Dominguez to prepare the necessary documents. Ederlina changed her
mind at the last minute when she was advised to insist on claiming ownership over the properties
acquired by them during their coverture.
Alfred and Ederlinas relationship started deteriorating. Ederlina had not been able to secure a
divorce from Klaus. The latter could charge her for bigamy and could even involve Alfred, who himself
was still married. To avoid complications, Alfred decided to live separately from Ederlina and cut off all
contacts with her. In one of her letters to Alfred, Ederlina complained that he had ruined her life. She
admitted that the money used for the purchase of the properties in Davao were his. She offered to convey
the properties deeded to her by Atty. Mardoecheo Camporedondo and Rodolfo Morelos, asking Alfred to
prepare her affidavit for the said purpose and send it to her for her signature.[30] The last straw for Alfred
came on September 2, 1985, when someone smashed the front and rear windshields of Alfreds car and
damaged the windows. Alfred thereafter executed an affidavit-complaint charging Ederlina and Sally
MacCarron with malicious mischief.[31]
On October 15, 1985, Alfred wrote to Ederlinas father, complaining that Ederlina had taken all his life
savings and because of this, he was virtually penniless. He further accused the Catito family of acquiring
for themselves the properties he had purchased with his own money. He demanded the return of all the
amounts that Ederlina and her family had stolen and turn over all the properties acquired by him and
Ederlina during their coverture.[32]
Shortly thereafter, Alfred filed a Complaint [33] dated October 28, 1985, against Ederlina, with the
Regional Trial Court of Quezon City, for recovery of real and personal properties located in Quezon City
and Manila. In his complaint, Alfred alleged, inter alia, that Ederlina, without his knowledge and consent,
managed to transfer funds from their joint account in HSBC Hong Kong, to her own account with the
same bank. Using the said funds, Ederlina was able to purchase the properties subject of the complaints.
He also alleged that the beauty parlor in Ermita was established with his own funds, and that the Quezon
City property was likewise acquired by him with his personal funds.[34]
Ederlina failed to file her answer and was declared in default. Alfred adduced his evidence ex-parte.
In the meantime, on November 7, 1985, Alfred also filed a complaint[35] against Ederlina with the
Regional Trial Court, Davao City, for specific performance, declaration of ownership of real and personal
properties, sum of money, and damages. He alleged, inter alia, in his complaint:
4. That during the period of their common-law relationship, plaintiff solely through his own efforts and
resources acquired in the Philippines real and personal properties valued more or less at P724,000.00;
The defendants common-law wife or live-in partner did not contribute anything financially to the
acquisition of the said real and personal properties. These properties are as follows:

I. Real Properties

a. TCT No. T-92456 located at Bajada, Davao City, consisting of 286 square meters, (with
residential house) registered in the name of the original title owner Rodolfo M. Morelos but
already fully paid by plaintiff. Valued at P342,000.00;
b. TCT No. T-47246 (with residential house) located at Babak, Samal, Davao, consisting of 600
square meters, registered in the name of Ederlina Catito, with the Register of Deeds of
Tagum, Davao del Norte valued at P144,000.00;
c. A parcel of agricultural land located at Camudmud, Babak, Samal, Davao del Norte,
consisting of 4.2936 hectares purchased from Enrique Serrano and Rosela B. Serrano.
Already paid in full by plaintiff. Valued at P228,608.32;
II. Personal Properties:

a. Furniture valued at P10,000.00.


...

5. That defendant made no contribution at all to the acquisition of the above-mentioned properties as all
the monies (sic) used in acquiring said properties belonged solely to plaintiff; [36]

Alfred prayed that after hearing, judgment be rendered in his favor:


WHEREFORE, in view of the foregoing premises, it is respectfully prayed that judgment be rendered in
favor of plaintiff and against defendant:

a) Ordering the defendant to execute the corresponding deeds of transfer and/or conveyances
in favor of plaintiff over those real and personal properties enumerated in Paragraph 4 of this
complaint;
b) Ordering the defendant to deliver to the plaintiff all the above real and personal properties or
their money value, which are in defendants name and custody because these were acquired
solely with plaintiffs money and resources during the duration of the common-law
relationship between plaintiff and defendant, the description of which are as follows:
(1) TCT No. T-92456 (with residential house) located at Bajada, Davao City, consisting of 286
square meters, registered in the name of the original title owner Rodolfo Morelos but already
fully paid by plaintiff. Valued at P342,000.00;
(2) TCT No. T-47246 (with residential house) located at Babak, Samal, Davao, consisting of 600
square meters, registered in the name of Ederlina Catito, with the Register of Deeds of
Tagum, Davao del Norte, valued at P144,000.00;
(3) A parcel of agricultural land located at Camudmud, Babak, Samal, Davao del Norte,
consisting of 4.2936 hectares purchased from Enrique Serrano and Rosela B. Serrano.
Already fully paid by plaintiff. Valued at P228,608.32;
c) Declaring the plaintiff to be the sole and absolute owner of the above-mentioned real and
personal properties;
d) Awarding moral damages to plaintiff in an amount deemed reasonable by the trial court;
e) To reimburse plaintiff the sum of P12,000.00 as attorneys fees for having compelled the
plaintiff to litigate;
f) To reimburse plaintiff the sum of P5,000.00 incurred as litigation expenses also for having
compelled the plaintiff to litigate; and
g) To pay the costs of this suit;
Plaintiff prays for other reliefs just and equitable in the premises. [37]

In her answer, Ederlina denied all the material allegations in the complaint, insisting that she
acquired the said properties with her personal funds, and as such, Alfred had no right to the same. She
alleged that the deeds of sale, the receipts, and certificates of titles of the subject properties were all
made out in her name.[38] By way of special and affirmative defense, she alleged that Alfred had no cause
of action against her. She interposed counterclaims against the petitioner. [39]
In the meantime, the petitioner filed a Complaint dated August 25, 1987, against the HSBC in the
Regional Trial Court of Davao City[40] for recovery of bank deposits and damages.[41]He prayed that after
due proceedings, judgment be rendered in his favor, thus:
WHEREFORE, plaintiff respectfully prays that the Honorable Court adjudge defendant bank, upon
hearing the evidence that the parties might present, to pay plaintiff:

1. ONE HUNDRED TWENTY SIX THOUSAND TWO HUNDRED AND THIRTY U.S. DOLLARS AND
NINETY EIGHT CENTS (US$126,230.98) plus legal interests, either of Hong Kong or of the Philippines,
from 20 December 1984 up to the date of execution or satisfaction of judgment, as actual damages or in
restoration of plaintiffs lost dollar savings;

2.The same amount in (1) above as moral damages;

3. Attorneys fees in the amount equivalent to TWENTY FIVE PER CENT (25%) of (1) and (2) above;

4. Litigation expenses in the amount equivalent to TEN PER CENT (10%) of the amount in (1) above; and

5. For such other reliefs as are just and equitable under the circumstances. [42]

On April 28, 1986, the RTC of Quezon City rendered its decision in Civil Case No. Q-46350, in favor
of Alfred, the decretal portion of which reads as follows:
WHEREFORE, premises considered, judgment is hereby rendered ordering the defendant to perform the
following:

(1) To execute a document waiving her claim to the house and lot in No. 14 Fernandez St., San Francisco
Del Monte, Quezon City in favor of plaintiff or to return to the plaintiff the acquisition cost of the same in
the amount of $20,000.00, or to sell the said property and turn over the proceeds thereof to the plaintiff;

(2) To deliver to the plaintiff the rights of ownership and management of the beauty parlor located at 444
Arquiza St., Ermita, Manila, including the equipment and fixtures therein;

(3) To account for the earnings of rental of the house and lot in No. 14 Fernandez St., San Francisco Del
Monte, Quezon City, as well as the earnings in the beauty parlor at 444 Arquiza St., Ermita, Manila and
turn over one-half of the net earnings of both properties to the plaintiff;
(4) To surrender or return to the plaintiff the personal properties of the latter left in the house at San
Francisco Del Monte, to wit:

(1) Mamya automatic camera


(1) 12 inch Sonny T.V. set, colored with remote control.
(1) Micro oven
(1) Electric fan (tall, adjustable stand)
(1) Office safe with (2) drawers and safe
(1) Electric Washing Machine
(1) Office desk and chair
(1) Double bed suits
(1) Mirror/dresser
(1) Heavy duty voice/working mechanic
(1) Sony Beta-Movie camera
(1) Suitcase with personal belongings
(1) Cardboard box with belongings
(1) Guitar Amplifier
(1) Hanger with mens suit (white).
To return to the plaintiff, (1) Hi-Fi Stereo equipment left at 444 Arquiza Street, Ermita, Manila, as well as
the Fronte Suzuki car.

(4) To account for the monies (sic) deposited with the joint account of the plaintiff and defendant (Account
No. 018-0-807950); and to restore to the plaintiff all the monies (sic) spent by the defendant without
proper authority;

(5) To pay the amount of P5,000.00 by way of attorneys fees, and the costs of suit.

SO ORDERED.[43]

However, after due proceedings in the RTC of Davao City, in Civil Case No. 17,817, the trial court
rendered judgment on September 28, 1995 in favor of Ederlina, the dispositive portion of which reads:
WHEREFORE, the Court cannot give due course to the complaint and hereby orders its dismissal. The
counterclaims of the defendant are likewise dismissed.

SO ORDERED.[44]

The trial court ruled that based on documentary evidence, the purchaser of the three parcels of land
subject of the complaint was Ederlina. The court further stated that even if Alfred was the buyer of the
properties, he had no cause of action against Ederlina for the recovery of the same because as an alien,
he was disqualified from acquiring and owning lands in the Philippines. The sale of the three parcels of
land to the petitioner was null and void ab initio. Applying the pari delicto doctrine, the petitioner was
precluded from recovering the properties from the respondent.
Alfred appealed the decision to the Court of Appeals [45] in which the petitioner posited the view that
although he prayed in his complaint in the court a quo that he be declared the owner of the three parcels
of land, he had no intention of owning the same permanently. His principal intention therein was to be
declared the transient owner for the purpose of selling the properties at public auction, ultimately enabling
him to recover the money he had spent for the purchase thereof.
On March 8, 2000, the CA rendered a decision affirming in toto the decision of the RTC. The
appellate court ruled that the petitioner knowingly violated the Constitution; hence, was barred from
recovering the money used in the purchase of the three parcels of land. It held that to allow the petitioner
to recover the money used for the purchase of the properties would embolden aliens to violate the
Constitution, and defeat, rather than enhance, the public policy. [46]
Hence, the petition at bar.
The petitioner assails the decision of the court contending that:
THE HONORABLE COURT OF APPEALS ERRED IN APPLYING THE RULE OF IN PARI DELICTO IN
THE INSTANT CASE BECAUSE BY THE FACTS AS NARRATED IN THE DECISION IT IS APPARENT
THAT THE PARTIES ARE NOT EQUALLY GUILTY BUT RATHER IT WAS THE RESPONDENT WHO
EMPLOYED FRAUD AS WHEN SHE DID NOT INFORM PETITIONER THAT SHE WAS ALREADY
MARRIED TO ANOTHER GERMAN NATIONAL AND WITHOUT SUCH FRAUDULENT DESIGN
PETITIONER COULD NOT HAVE PARTED WITH HIS MONEY FOR THE PURCHASE OF THE
PROPERTIES.[47]

and

THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE INTENTION OF THE
PETITIONER IS NOT TO OWN REAL PROPERTIES IN THE PHILIPPINES BUT TO SELL THEM AT
PUBLIC AUCTION TO BE ABLE TO RECOVER HIS MONEY USED IN PURCHASING THEM.[48]

Since the assignment of errors are intertwined with each other, the Court shall resolve the same
simultaneously.
The petitioner contends that he purchased the three parcels of land subject of his complaint because
of his desire to marry the respondent, and not to violate the Philippine Constitution. He was, however,
deceived by the respondent when the latter failed to disclose her previous marriage to Klaus Muller. It
cannot, thus, be said that he and the respondent are equally guilty; as such, the pari delicto doctrine is
not applicable to him. He acted in good faith, on the advice of the respondents uncle, Atty. Mardoecheo
Camporedondo. There is no evidence on record that he was aware of the constitutional prohibition
against aliens acquiring real property in the Philippines when he purchased the real properties subject of
his complaint with his own funds. The transactions were not illegal per se but merely prohibited, and
under Article 1416 of the New Civil Code, he is entitled to recover the money used for the purchase of the
properties. At any rate, the petitioner avers, he filed his complaint in the court a quo merely for the
purpose of having him declared as the owner of the properties, to enable him to sell the same at public
auction. Applying by analogy Republic Act No. 133[49] as amended by Rep. Act No. 4381 and Rep. Act
No. 4882, the proceeds of the sale would be remitted to him, by way of refund for the money he used to
purchase the said properties. To bar the petitioner from recovering the subject properties, or at the very
least, the money used for the purchase thereof, is to allow the respondent to enrich herself at the
expense of the petitioner in violation of Article 22 of the New Civil Code.
The petition is bereft of merit.
Section 14, Article XIV of the 1973 Constitution provides, as follows:
Save in cases of hereditary succession, no private land shall be transferred or conveyed except to
individuals, corporations, or associations qualified to acquire or hold lands in the public domain. [50]

Lands of the public domain, which include private lands, may be transferred or conveyed only to
individuals or entities qualified to acquire or hold private lands or lands of the public domain. Aliens,
whether individuals or corporations, have been disqualified from acquiring lands of the public
domain. Hence, they have also been disqualified from acquiring private lands. [51]
Even if, as claimed by the petitioner, the sales in question were entered into by him as the real
vendee, the said transactions are in violation of the Constitution; hence, are null and void ab initio.[52] A
contract that violates the Constitution and the law, is null and void and vests no rights and creates no
obligations. It produces no legal effect at all.[53] The petitioner, being a party to an illegal contract, cannot
come into a court of law and ask to have his illegal objective carried out. One who loses his money or
property by knowingly engaging in a contract or transaction which involves his own moral turpitude may
not maintain an action for his losses. To him who moves in deliberation and premeditation, the law is
unyielding.[54] The law will not aid either party to an illegal contract or agreement; it leaves the parties
where it finds them.[55] Under Article 1412 of the New Civil Code, the petitioner cannot have the subject
properties deeded to him or allow him to recover the money he had spent for the purchase
thereof.[56] Equity as a rule will follow the law and will not permit that to be done indirectly which, because
of public policy, cannot be done directly.[57] Where the wrong of one party equals that of the other, the
defendant is in the stronger position ... it signifies that in such a situation, neither a court of equity nor a
court of law will administer a remedy.[58] The rule is expressed in the maxims: EX DOLO MALO NON
ORITUR ACTIO and IN PARI DELICTO POTIOR EST CONDITIO DEFENDENTIS.[59]
The petitioner cannot feign ignorance of the constitutional proscription, nor claim that he acted in
good faith, let alone assert that he is less guilty than the respondent. The petitioner is charged with
knowledge of the constitutional prohibition.[60] As can be gleaned from the decision of the trial court, the
petitioner was fully aware that he was disqualified from acquiring and owning lands under Philippine law
even before he purchased the properties in question; and, to skirt the constitutional prohibition, the
petitioner had the deed of sale placed under the respondents name as the sole vendee thereof:
Such being the case, the plaintiff is subject to the constitutional restrictions governing the acquisition of
real properties in the Philippines by aliens.

From the plaintiffs complaint before the Regional Trial Court, National Capital Judicial Region, Branch 84,
Quezon City in Civil Case No. Q-46350 he alleged:

xxx That on account that foreigners are not allowed by the Philippine laws to acquire real properties in
their name as in the case of my vendor Miss Victoria Vinuya (sic) although married to a foreigner, we
agreed and I consented in having the title to subject property placed in defendants name alone although I
paid for the whole price out of my own exclusive funds. (paragraph IV, Exhibit W.)

and his testimony before this Court which is hereby quoted:

ATTY. ABARQUEZ:
Q. In whose name the said house and lot placed, by the way, where is his house and lot
located?
A. In 14 Fernandez St., San Francisco, del Monte, Manila.
Q. In whose name was the house placed?
A. Ederlina Catito because I was informed being not a Filipino, I cannot own the property. (tsn,
p. 11, August 27, 1986).
xxx xxx xxx
COURT:
Q. So you understand that you are a foreigner that you cannot buy land in the Philippines?
A. That is correct but as she would eventually be my wife that would be owned by us later on.
(tsn, p. 5, September 3, 1986)
xxx xxx xxx
Q. What happened after that?
A. She said you foreigner you are using Filipinos to buy property.
Q. And what did you answer?
A. I said thank you very much for the property I bought because I gave you a lot of money
(tsn., p. 14, ibid).
It is evident that the plaintiff was fully aware that as a non-citizen of the Philippines, he was
disqualified from validly purchasing any land within the country.[61]
The petitioners claim that he acquired the subject properties because of his desire to marry the
respondent, believing that both of them would thereafter jointly own the said properties, is belied by his
own evidence. It is merely an afterthought to salvage a lost cause. The petitioner admitted on cross-
examination that he was all along legally married to Teresita Santos Frenzel, while he was having an
amorous relationship with the respondent:
ATTY. YAP:
Q When you were asked to identify yourself on direct examination you claimed before this
Honorable Court that your status is that of being married, do you confirm that?
A Yes, sir.
Q To whom are you married?
A To a Filipina, since 1976.
Q Would you tell us who is that particular person you are married since 1976?
A Teresita Santos Frenzel.
Q Where is she now?
A In Australia.
Q Is this not the person of Teresita Frenzel who became an Australian citizen?
A I am not sure, since 1981 we were separated.
Q You were only separated, in fact, but not legally separated?
A Thru my counsel in Australia I filed a separation case.
Q As of the present you are not legally divorce[d]?
A I am still legally married.[62]
The respondent was herself married to Klaus Muller, a German citizen. Thus, the petitioner and the
respondent could not lawfully join in wedlock. The evidence on record shows that the petitioner in fact
knew of the respondents marriage to another man, but nonetheless purchased the subject properties
under the name of the respondent and paid the purchase prices therefor. Even if it is assumed gratia
arguendi that the respondent and the petitioner were capacitated to marry, the petitioner is still
disqualified to own the properties in tandem with the respondent.[63]
The petitioner cannot find solace in Article 1416 of the New Civil Code which reads:
Art. 1416. When the agreement is not illegal per se but is merely prohibited, and the prohibition by the law
is designed for the protection of the plaintiff, he may, if public policy is thereby enhanced, recover what he
has paid or delivered.[64]

The provision applies only to those contracts which are merely prohibited, in order to benefit private
interests. It does not apply to contracts void ab initio. The sales of three parcels of land in favor of the
petitioner who is a foreigner is illegal per se. The transactions are void ab initio because they were
entered into in violation of the Constitution. Thus, to allow the petitioner to recover the properties or the
money used in the purchase of the parcels of land would be subversive of public policy.
Neither may the petitioner find solace in Rep. Act No. 133, as amended by Rep. Act No. 4882, which
reads:
SEC. 1. Any provision of law to the contrary notwithstanding, private real property may be mortgaged in
favor of any individual, corporation, or association, but the mortgagee or his successor-in- interest, if
disqualified to acquire or hold lands of the public domain in the Philippines, shall not take possession of
the mortgaged property during the existence of the mortgage and shall not take possession of mortgaged
property except after default and for the sole purpose of foreclosure, receivership, enforcement or other
proceedings and in no case for a period of more than five years from actual possession and shall not bid
or take part in any sale of such real property in case of foreclosure: Provided, That said mortgagee or
successor-in-interest may take possession of said property after default in accordance with the prescribed
judicial procedures for foreclosure and receivership and in no case exceeding five years from actual
possession.[65]

From the evidence on record, the three parcels of land subject of the complaint were not mortgaged
to the petitioner by the owners thereof but were sold to the respondent as the vendee, albeit with the use
of the petitioners personal funds.
Futile, too, is petitioners reliance on Article 22 of the New Civil Code which reads:
Art. 22. Every person who through an act of performance by another, or any other means, acquires or
comes into possession of something at the expense of the latter without just or legal ground, shall return
the same to him.[66]

The provision is expressed in the maxim: MEMO CUM ALTERIUS DETER DETREMENTO
PROTEST (No person should unjustly enrich himself at the expense of another). An action for recovery of
what has been paid without just cause has been designated as an accion in rem verso.[67] This provision
does not apply if, as in this case, the action is proscribed by the Constitution or by the application of
the pari delicto doctrine.[68] It may be unfair and unjust to bar the petitioner from filing an accion in rem
verso over the subject properties, or from recovering the money he paid for the said properties, but, as
Lord Mansfield stated in the early case of Holman vs. Johnson:[69] The objection that a contract is immoral
or illegal as between the plaintiff and the defendant, sounds at all times very ill in the mouth of the
defendant. It is not for his sake, however, that the objection is ever allowed; but it is founded in general
principles of policy, which the defendant has the advantage of, contrary to the real justice, as between
him and the plaintiff.
IN LIGHT OF ALL THE FOREGOING, the petition is DISMISSED. The decision of the Court of
Appeals is AFFIRMED in toto.
Costs against the petitioner.
SO ORDERED.
Bellosillo, J., (Chairman), Austria-Martinez, and Tinga, JJ., concur.
Quisumbing, on leave.