G.R. No.

124242 January 21, 2005

SAN LORENZO DEVELOPMENT CORPORATION, petitioner,
vs.
COURT OF APPEALS, PABLO S. BABASANTA, SPS. MIGUEL LU and PACITA ZAVALLA LU, respondents.
DECISION
TINGA, J.:
From a coaptation of the records of this case, it appears that respondents Miguel Lu and Pacita Zavalla,
(hereinafter, the Spouses Lu) owned two (2) parcels of land situated in Sta. Rosa, Laguna covered by TCT No. T-
39022 and TCT No. T-39023 both measuring 15,808 square meters or a total of 3.1616 hectares.
On 20 August 1986, the Spouses Lu purportedly sold the two parcels of land to respondent Pablo Babasanta,
(hereinafter, Babasanta) for the price of fifteen pesos (₱15.00) per square meter. Babasanta made a
downpayment of fifty thousand pesos (₱ 50,000.00) as evidenced by a memorandum receipt issued by Pacita
Lu of the same date. Several other payments totaling two hundred thousand pesos (₱200,000.00) were made
by Babasanta.
Sometime in May 1989, Babasanta wrote a letter to Pacita Lu to demand the execution of a final deed of sale in
his favor so that he could effect full payment of the purchase price. In the same letter, Babasanta notified the
spouses about having received information that the spouses sold the same property to another without his
knowledge and consent. He demanded that the second sale be cancelled and that a final deed of sale be
issued in his favor.
In response, Pacita Lu wrote a letter to Babasanta wherein she acknowledged having agreed to sell the
property to him at fifteen pesos (₱ 15.00) per square meter. She, however, reminded Babasanta that when the
balance of the purchase price became due, he requested for a reduction of the price and when she refused,
Babasanta backed out of the sale. Pacita added that she returned the sum of fifty thousand pesos (₱50,000.00)
to Babasanta through Eugenio Oya.
On 2 June 1989, respondent Babasanta, as plaintiff, filed before the Regional Trial Court (RTC), Branch 31, of
San Pedro, Laguna, a Complaint for Specific Performance and Damages1 against his co-respondents herein, the
Spouses Lu. Babasanta alleged that the lands covered by TCT No. T- 39022 and T-39023 had been sold to him
by the spouses at fifteen pesos (₱ 15.00) per square meter. Despite his repeated demands for the execution of
a final deed of sale in his favor, respondents allegedly refused.
In their Answer,2 the Spouses Lu alleged that Pacita Lu obtained loans from Babasanta and when the total
advances of Pacita reached fifty thousand pesos (₱ 50,000.00), the latter and Babasanta, without the knowledge
and consent of Miguel Lu, had verbally agreed to transform the transaction into a contract to sell the two
parcels of land to Babasanta with the fifty thousand pesos (₱50,000.00) to be considered as the downpayment
for the property and the balance to be paid on or before 31 December 1987. Respondents Lu added that as of
November 1987, total payments made by Babasanta amounted to only two hundred thousand pesos
(₱ 200,000.00) and the latter allegedly failed to pay the balance of two hundred sixty thousand pesos
(₱ 260,000.00) despite repeated demands. Babasanta had purportedly asked Pacita for a reduction of the price
from fifteen pesos (₱ 15.00) to twelve pesos (₱ 12.00) per square meter and when the Spouses Lu refused to
grant Babasanta’s request, the latter rescinded the contract to sell and declared that the original loan
transaction just be carried out in that the spouses would be indebted to him in the amount of two hundred
thousand pesos (₱ 200,000.00). Accordingly, on 6 July 1989, they purchased Interbank Manager’s Check No.
05020269 in the amount of two hundred thousand pesos (₱200,000.00) in the name of Babasanta to show that
she was able and willing to pay the balance of her loan obligation.
Babasanta later filed an Amended Complaint dated 17 January 1990 3 wherein he prayed for the issuance of a
writ of preliminary injunction with temporary restraining order and the inclusion of the Register of Deeds of
Calamba, Laguna as party defendant. He contended that the issuance of a preliminary injunction was
necessary to restrain the transfer or conveyance by the Spouses Lu of the subject property to other persons.
The Spouses Lu filed their Opposition4 to the amended complaint contending that it raised new matters which
seriously affect their substantive rights under the original complaint. However, the trial court in its Order dated
17 January 19905 admitted the amended complaint.
On 19 January 1990, herein petitioner San Lorenzo Development Corporation (SLDC) filed a Motion for
Intervention6 before the trial court. SLDC alleged that it had legal interest in the subject matter under litigation
because on 3 May 1989, the two parcels of land involved, namely Lot 1764-A and 1764-B, had been sold to it in
a Deed of Absolute Sale with Mortgage. 7 It alleged that it was a buyer in good faith and for value and therefore
it had a better right over the property in litigation.
In his Opposition to SLDC’s motion for intervention, 8 respondent Babasanta demurred and argued that the
latter had no legal interest in the case because the two parcels of land involved herein had already been
conveyed to him by the Spouses Lu and hence, the vendors were without legal capacity to transfer or dispose
of the two parcels of land to the intervenor.
Meanwhile, the trial court in its Order dated 21 March 1990 allowed SLDC to intervene. SLDC filed its
Complaint-in-Intervention on 19 April 1990.9 Respondent Babasanta’s motion for the issuance of a preliminary
injunction was likewise granted by the trial court in its Order dated 11 January 199110 conditioned upon his
filing of a bond in the amount of fifty thousand pesos (₱50,000.00).
SLDC in its Complaint-in-Intervention alleged that on 11 February 1989, the Spouses Lu executed in its favor an
Option to Buy the lots subject of the complaint. Accordingly, it paid an option money in the amount of three
hundred sixteen thousand one hundred sixty pesos (₱ 316,160.00) out of the total consideration for the
purchase of the two lots of one million two hundred sixty-four thousand six hundred forty pesos
(₱ 1,264,640.00). After the Spouses Lu received a total amount of six hundred thirty-two thousand three
hundred twenty pesos (₱632,320.00) they executed on 3 May 1989 a Deed of Absolute Sale with Mortgage in its
favor. SLDC added that the certificates of title over the property were delivered to it by the spouses clean and
free from any adverse claims and/or notice of lis pendens. SLDC further alleged that it only learned of the filing
of the complaint sometime in the early part of January 1990 which prompted it to file the motion to intervene
without delay. Claiming that it was a buyer in good faith, SLDC argued that it had no obligation to look beyond
the titles submitted to it by the Spouses Lu particularly because Babasanta’s claims were not annotated on the
certificates of title at the time the lands were sold to it.
After a protracted trial, the RTC rendered its Decision on 30 July 1993 upholding the sale of the property to
SLDC. It ordered the Spouses Lu to pay Babasanta the sum of two hundred thousand pesos (₱200,000.00) with
legal interest plus the further sum of fifty thousand pesos (₱50,000.00) as and for attorney’s fees. On the
complaint-in-intervention, the trial court ordered the Register of Deeds of Laguna, Calamba Branch to cancel
the notice of lis pendens annotated on the original of the TCT No. T-39022 (T-7218) and No. T-39023 (T-7219).
Applying Article 1544 of the Civil Code, the trial court ruled that since both Babasanta and SLDC did not
register the respective sales in their favor, ownership of the property should pertain to the buyer who first
acquired possession of the property. The trial court equated the execution of a public instrument in favor of
SLDC as sufficient delivery of the property to the latter. It concluded that symbolic possession could be
considered to have been first transferred to SLDC and consequently ownership of the property pertained to
SLDC who purchased the property in good faith.
Respondent Babasanta appealed the trial court’s decision to the Court of Appeals alleging in the main that the
trial court erred in concluding that SLDC is a purchaser in good faith and in upholding the validity of the sale
made by the Spouses Lu in favor of SLDC.
Respondent spouses likewise filed an appeal to the Court of Appeals. They contended that the trial court erred
in failing to consider that the contract to sell between them and Babasanta had been novated when the latter
abandoned the verbal contract of sale and declared that the original loan transaction just be carried out. The
Spouses Lu argued that since the properties involved were conjugal, the trial court should have declared the
verbal contract to sell between Pacita Lu and Pablo Babasanta null and void ab initio for lack of knowledge and
consent of Miguel Lu. They further averred that the trial court erred in not dismissing the complaint filed by
Babasanta; in awarding damages in his favor and in refusing to grant the reliefs prayed for in their answer.
On 4 October 1995, the Court of Appeals rendered its Decision11 which set aside the judgment of the trial
court. It declared that the sale between Babasanta and the Spouses Lu was valid and subsisting and ordered
the spouses to execute the necessary deed of conveyance in favor of Babasanta, and the latter to pay the
balance of the purchase price in the amount of two hundred sixty thousand pesos (₱260,000.00). The appellate
court ruled that the Absolute Deed of Sale with Mortgage in favor of SLDC was null and void on the ground that
SLDC was a purchaser in bad faith. The Spouses Lu were further ordered to return all payments made by SLDC
with legal interest and to pay attorney’s fees to Babasanta.
SLDC and the Spouses Lu filed separate motions for reconsideration with the appellate court. 12 However, in a
Manifestation dated 20 December 1995,13 the Spouses Lu informed the appellate court that they are no longer
contesting the decision dated 4 October 1995.
In its Resolution dated 11 March 1996,14 the appellate court considered as withdrawn the motion for
reconsideration filed by the Spouses Lu in view of their manifestation of 20 December 1995. The appellate
court denied SLDC’s motion for reconsideration on the ground that no new or substantial arguments were
raised therein which would warrant modification or reversal of the court’s decision dated 4 October 1995.
Hence, this petition.
SLDC assigns the following errors allegedly committed by the appellate court:
THE COURT OF APPEALS ERRED IN HOLDING THAT SAN LORENZO WAS NOT A BUYER IN GOOD FAITH BECAUSE
WHEN THE SELLER PACITA ZAVALLA LU OBTAINED FROM IT THE CASH ADVANCE OF ₱200,000.00, SAN
LORENZO WAS PUT ON INQUIRY OF A PRIOR TRANSACTION ON THE PROPERTY.
THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE ESTABLISHED FACT THAT THE ALLEGED FIRST
BUYER, RESPONDENT BABASANTA, WAS NOT IN POSSESSION OF THE DISPUTED PROPERTY WHEN SAN
LORENZO BOUGHT AND TOOK POSSESSION OF THE PROPERTY AND NO ADVERSE CLAIM, LIEN, ENCUMBRANCE
OR LIS PENDENS WAS ANNOTATED ON THE TITLES.
THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE FACT THAT RESPONDENT BABASANTA HAS
SUBMITTED NO EVIDENCE SHOWING THAT SAN LORENZO WAS AWARE OF HIS RIGHTS OR INTERESTS IN THE
DISPUTED PROPERTY.
THE COURT OF APPEALS ERRED IN HOLDING THAT NOTWITHSTANDING ITS FULL CONCURRENCE ON THE
FINDINGS OF FACT OF THE TRIAL COURT, IT REVERSED AND SET ASIDE THE DECISION OF THE TRIAL COURT
UPHOLDING THE TITLE OF SAN LORENZO AS A BUYER AND FIRST POSSESSOR IN GOOD FAITH. 15
SLDC contended that the appellate court erred in concluding that it had prior notice of Babasanta’s claim over
the property merely on the basis of its having advanced the amount of two hundred thousand pesos
(₱ 200,000.00) to Pacita Lu upon the latter’s representation that she needed the money to pay her obligation to
Babasanta. It argued that it had no reason to suspect that Pacita was not telling the truth that the money
would be used to pay her indebtedness to Babasanta. At any rate, SLDC averred that the amount of two
hundred thousand pesos (₱ 200,000.00) which it advanced to Pacita Lu would be deducted from the balance of
the purchase price still due from it and should not be construed as notice of the prior sale of the land to
Babasanta. It added that at no instance did Pacita Lu inform it that the lands had been previously sold to
Babasanta.
Moreover, SLDC stressed that after the execution of the sale in its favor it immediately took possession of the
property and asserted its rights as new owner as opposed to Babasanta who has never exercised acts of
ownership. Since the titles bore no adverse claim, encumbrance, or lien at the time it was sold to it, SLDC
argued that it had every reason to rely on the correctness of the certificate of title and it was not obliged to go
beyond the certificate to determine the condition of the property. Invoking the presumption of good faith, it
added that the burden rests on Babasanta to prove that it was aware of the prior sale to him but the latter
failed to do so. SLDC pointed out that the notice of lis pendens was annotated only on 2 June 1989 long after
the sale of the property to it was consummated on 3 May 1989. 1awphi1.nét
Meanwhile, in an Urgent Ex-Parte Manifestation dated 27 August 1999, the Spouses Lu informed the Court that
due to financial constraints they have no more interest to pursue their rights in the instant case and submit
themselves to the decision of the Court of Appeals. 16
On the other hand, respondent Babasanta argued that SLDC could not have acquired ownership of the
property because it failed to comply with the requirement of registration of the sale in good faith. He
emphasized that at the time SLDC registered the sale in its favor on 30 June 1990, there was already a notice of
lis pendens annotated on the titles of the property made as early as 2 June 1989. Hence, petitioner’s
registration of the sale did not confer upon it any right. Babasanta further asserted that petitioner’s bad faith
in the acquisition of the property is evident from the fact that it failed to make necessary inquiry regarding the
purpose of the issuance of the two hundred thousand pesos (₱200,000.00) manager’s check in his favor.
The core issue presented for resolution in the instant petition is who between SLDC and Babasanta has a
better right over the two parcels of land subject of the instant case in view of the successive transactions
executed by the Spouses Lu.
To prove the perfection of the contract of sale in his favor, Babasanta presented a document signed by Pacita
Lu acknowledging receipt of the sum of fifty thousand pesos (₱50,000.00) as partial payment for 3.6 hectares
of farm lot situated at Barangay Pulong, Sta. Cruz, Sta. Rosa, Laguna. 17 While the receipt signed by Pacita did
not mention the price for which the property was being sold, this deficiency was supplied by Pacita Lu’s letter
dated 29 May 198918 wherein she admitted that she agreed to sell the 3.6 hectares of land to Babasanta for
fifteen pesos (₱15.00) per square meter.
An analysis of the facts obtaining in this case, as well as the evidence presented by the parties, irresistibly leads
to the conclusion that the agreement between Babasanta and the Spouses Lu is a contract to sell and not a
contract of sale.
Contracts, in general, are perfected by mere consent, 19 which is manifested by the meeting of the offer and
the acceptance upon the thing which are to constitute the contract. The offer must be certain and the
acceptance absolute.20 Moreover, contracts shall be obligatory in whatever form they may have been entered
into, provided all the essential requisites for their validity are present. 21
The receipt signed by Pacita Lu merely states that she accepted the sum of fifty thousand pesos (₱50,000.00)
from Babasanta as partial payment of 3.6 hectares of farm lot situated in Sta. Rosa, Laguna. While there is no
stipulation that the seller reserves the ownership of the property until full payment of the price which is a
distinguishing feature of a contract to sell, the subsequent acts of the parties convince us that the Spouses Lu
never intended to transfer ownership to Babasanta except upon full payment of the purchase price.
Babasanta’s letter dated 22 May 1989 was quite telling. He stated therein that despite his repeated requests
for the execution of the final deed of sale in his favor so that he could effect full payment of the price, Pacita Lu
allegedly refused to do so. In effect, Babasanta himself recognized that ownership of the property would not
be transferred to him until such time as he shall have effected full payment of the price. Moreover, had the
sellers intended to transfer title, they could have easily executed the document of sale in its required form
simultaneously with their acceptance of the partial payment, but they did not. Doubtlessly, the receipt signed
by Pacita Lu should legally be considered as a perfected contract to sell.
The distinction between a contract to sell and a contract of sale is quite germane. In a contract of sale, title
passes to the vendee upon the delivery of the thing sold; whereas in a contract to sell, by agreement the
ownership is reserved in the vendor and is not to pass until the full payment of the price. 22 In a contract of
sale, the vendor has lost and cannot recover ownership until and unless the contract is resolved or rescinded;
whereas in a contract to sell, title is retained by the vendor until the full payment of the price, such payment
being a positive suspensive condition and failure of which is not a breach but an event that prevents the
obligation of the vendor to convey title from becoming effective. 23
The perfected contract to sell imposed upon Babasanta the obligation to pay the balance of the purchase
price. There being an obligation to pay the price, Babasanta should have made the proper tender of payment
and consignation of the price in court as required by law. Mere sending of a letter by the vendee expressing
the intention to pay without the accompanying payment is not considered a valid tender of payment. 24
Consignation of the amounts due in court is essential in order to extinguish Babasanta’s obligation to pay the
balance of the purchase price. Glaringly absent from the records is any indication that Babasanta even
attempted to make the proper consignation of the amounts due, thus, the obligation on the part of the sellers
to convey title never acquired obligatory force.
On the assumption that the transaction between the parties is a contract of sale and not a contract to sell,
Babasanta’s claim of ownership should nevertheless fail.
Sale, being a consensual contract, is perfected by mere consent 25 and from that moment, the parties may
reciprocally demand performance.26 The essential elements of a contract of sale, to wit: (1) consent or meeting
of the minds, that is, to transfer ownership in exchange for the price; (2) object certain which is the subject
matter of the contract; (3) cause of the obligation which is established. 27
The perfection of a contract of sale should not, however, be confused with its consummation. In relation to the
acquisition and transfer of ownership, it should be noted that sale is not a mode, but merely a title. A mode is
the legal means by which dominion or ownership is created, transferred or destroyed, but title is only the legal
basis by which to affect dominion or ownership. 28 Under Article 712 of the Civil Code, "ownership and other
real rights over property are acquired and transmitted by law, by donation, by testate and intestate succession,
and in consequence of certain contracts, by tradition." Contracts only constitute titles or rights to the transfer
or acquisition of ownership, while delivery or tradition is the mode of accomplishing the same. 29 Therefore,
sale by itself does not transfer or affect ownership; the most that sale does is to create the obligation to
transfer ownership. It is tradition or delivery, as a consequence of sale, that actually transfers ownership.
Explicitly, the law provides that the ownership of the thing sold is acquired by the vendee from the moment it
is delivered to him in any of the ways specified in Article 1497 to 1501. 30 The word "delivered" should not be
taken restrictively to mean transfer of actual physical possession of the property. The law recognizes two
principal modes of delivery, to wit: (1) actual delivery; and (2) legal or constructive delivery.
Actual delivery consists in placing the thing sold in the control and possession of the vendee. 31 Legal or
constructive delivery, on the other hand, may be had through any of the following ways: the execution of a
public instrument evidencing the sale;32 symbolical tradition such as the delivery of the keys of the place
where the movable sold is being kept; 33 traditio longa manu or by mere consent or agreement if the movable
sold cannot yet be transferred to the possession of the buyer at the time of the sale; 34 traditio brevi manu if
the buyer already had possession of the object even before the sale; 35 and traditio constitutum possessorium,
where the seller remains in possession of the property in a different capacity. 36
Following the above disquisition, respondent Babasanta did not acquire ownership by the mere execution of
the receipt by Pacita Lu acknowledging receipt of partial payment for the property. For one, the agreement
between Babasanta and the Spouses Lu, though valid, was not embodied in a public instrument. Hence, no
constructive delivery of the lands could have been effected. For another, Babasanta had not taken possession
of the property at any time after the perfection of the sale in his favor or exercised acts of dominion over it
despite his assertions that he was the rightful owner of the lands. Simply stated, there was no delivery to
Babasanta, whether actual or constructive, which is essential to transfer ownership of the property. Thus, even
on the assumption that the perfected contract between the parties was a sale, ownership could not have
passed to Babasanta in the absence of delivery, since in a contract of sale ownership is transferred to the
vendee only upon the delivery of the thing sold. 37
However, it must be stressed that the juridical relationship between the parties in a double sale is primarily
governed by Article 1544 which lays down the rules of preference between the two purchasers of the same
property. It provides:
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 principle of primus tempore, potior jure (first in time, stronger in right) gains greater significance in case of
double sale of immovable property. When the thing sold twice is an immovable, the one who acquires it and
first records it in the Registry of Property, both made in good faith, shall be deemed the owner. 38 Verily, the
act of registration must be coupled with good faith— that is, the registrant must have no knowledge of the
defect or lack of title of his vendor or must not have been aware of facts which should have put him upon such
inquiry and investigation as might be necessary to acquaint him with the defects in the title of his vendor. 39
Admittedly, SLDC registered the sale with the Registry of Deeds after it had acquired knowledge of Babasanta’s
claim. Babasanta, however, strongly argues that the registration of the sale by SLDC was not sufficient to
confer upon the latter any title to the property since the registration was attended by bad faith. Specifically, he
points out that at the time SLDC registered the sale on 30 June 1990, there was already a notice of lis pendens
on the file with the Register of Deeds, the same having been filed one year before on 2 June 1989.
Did the registration of the sale after the annotation of the notice of lis pendens obliterate the effects of
delivery and possession in good faith which admittedly had occurred prior to SLDC’s knowledge of the
transaction in favor of Babasanta?
We do not hold so.
It must be stressed that as early as 11 February 1989, the Spouses Lu executed the Option to Buy in favor of
SLDC upon receiving ₱ 316,160.00 as option money from SLDC. After SLDC had paid more than one half of the
agreed purchase price of ₱ 1,264,640.00, the Spouses Lu subsequently executed on 3 May 1989 a Deed of
Absolute Sale in favor or SLDC. At the time both deeds were executed, SLDC had no knowledge of the prior
transaction of the Spouses Lu with Babasanta. Simply stated, from the time of execution of the first deed up to
the moment of transfer and delivery of possession of the lands to SLDC, it had acted in good faith and the
subsequent annotation of lis pendens has no effect at all on the consummated sale between SLDC and the
Spouses Lu.
A purchaser in good faith is one who buys property of another without notice that some other person has a
right to, or interest in, such property and pays a full and fair price for the same at the time of such purchase,
or before he has notice of the claim or interest of some other person in the property. 40 Following the
foregoing definition, we rule that SLDC qualifies as a buyer in good faith since there is no evidence extant in
the records that it had knowledge of the prior transaction in favor of Babasanta. At the time of the sale of the
property to SLDC, the vendors were still the registered owners of the property and were in fact in possession
of the lands.l^vvphi1.net Time and again, this Court has ruled that a person dealing with the owner of
registered land is not bound to go beyond the certificate of title as he is charged with notice of burdens on the
property which are noted on the face of the register or on the certificate of title. 41 In assailing knowledge of
the transaction between him and the Spouses Lu, Babasanta apparently relies on the principle of constructive
notice incorporated in Section 52 of the Property Registration Decree (P.D. No. 1529) which reads, thus:
Sec. 52. Constructive notice upon registration. – Every conveyance, mortgage, lease, lien, attachment, order,
judgment, instrument or entry affecting registered land shall, if registered, filed, or entered in the office of the
Register of Deeds for the province or city where the land to which it relates lies, be constructive notice to all
persons from the time of such registering, filing, or entering.
However, the constructive notice operates as such¾by the express wording of Section 52¾from the time of the
registration of the notice of lis pendens which in this case was effected only on 2 June 1989, at which time the
sale in favor of SLDC had long been consummated insofar as the obligation of the Spouses Lu to transfer
ownership over the property to SLDC is concerned.
More fundamentally, given the superiority of the right of SLDC to the claim of Babasanta the annotation of the
notice of lis pendens cannot help Babasanta’s position a bit and it is irrelevant to the good or bad faith
characterization of SLDC as a purchaser. A notice of lis pendens, as the Court held in Nataño v. Esteban,42
serves as a warning to a prospective purchaser or incumbrancer that the particular property is in litigation;
and that he should keep his hands off the same, unless he intends to gamble on the results of the litigation."
Precisely, in this case SLDC has intervened in the pending litigation to protect its rights. Obviously, SLDC’s faith
in the merit of its cause has been vindicated with the Court’s present decision which is the ultimate
denouement on the controversy.
The Court of Appeals has made capital 43 of SLDC’s averment in its Complaint-in-Intervention44 that at the
instance of Pacita Lu it issued a check for ₱ 200,000.00 payable to Babasanta and the confirmatory testimony of
Pacita Lu herself on cross-examination. 45 However, there is nothing in the said pleading and the testimony
which explicitly relates the amount to the transaction between the Spouses Lu and Babasanta for what they
attest to is that the amount was supposed to pay off the advances made by Babasanta to Pacita Lu. In any
event, the incident took place after the Spouses Lu had already executed the Deed of Absolute Sale with
Mortgage in favor of SLDC and therefore, as previously explained, it has no effect on the legal position of SLDC.
Assuming ex gratia argumenti that SLDC’s registration of the sale had been tainted by the prior notice of lis
pendens and assuming further for the same nonce that this is a case of double sale, still Babasanta’s claim
could not prevail over that of SLDC’s. In Abarquez v. Court of Appeals,46 this Court had the occasion to rule
that if a vendee in a double sale registers the sale after he has acquired knowledge of a previous sale, the
registration constitutes a registration in bad faith and does not confer upon him any right. If the registration is
done in bad faith, it is as if there is no registration at all, and the buyer who has taken possession first of the
property in good faith shall be preferred.
In Abarquez, the first sale to the spouses Israel was notarized and registered only after the second vendee,
Abarquez, registered their deed of sale with the Registry of Deeds, but the Israels were first in possession. This
Court awarded the property to the Israels because registration of the property by Abarquez lacked the element
of good faith. While the facts in the instant case substantially differ from that in Abarquez, we would not
hesitate to rule in favor of SLDC on the basis of its prior possession of the property in good faith. Be it noted
that delivery of the property to SLDC was immediately effected after the execution of the deed in its favor, at
which time SLDC had no knowledge at all of the prior transaction by the Spouses Lu in favor of
Babasanta.1a\^/phi1.net
The law speaks not only of one criterion. The first criterion is priority of entry in the registry of property; there
being no priority of such entry, the second is priority of possession; and, in the absence of the two priorities,
the third priority is of the date of title, with good faith as the common critical element. Since SLDC acquired
possession of the property in good faith in contrast to Babasanta, who neither registered nor possessed the
property at any time, SLDC’s right is definitely superior to that of Babasanta’s.
At any rate, the above discussion on the rules on double sale would be purely academic for as earlier stated in
this decision, the contract between Babasanta and the Spouses Lu is not a contract of sale but merely a
contract to sell. In Dichoso v. Roxas,47 we had the occasion to rule that Article 1544 does not apply to a case
where there was a sale to one party of the land itself while the other contract was a mere promise to sell the
land or at most an actual assignment of the right to repurchase the same land. Accordingly, there was no
double sale of the same land in that case.
WHEREFORE, the instant petition is hereby GRANTED. The decision of the Court of Appeals appealed from is
REVERSED and SET ASIDE and the decision of the Regional Trial Court, Branch 31, of San Pedro, Laguna is
REINSTATED. No costs.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.

G.R. No. L-25494 June 14, 1972

NICOLAS SANCHEZ, plaintiff-appellee,
vs.
SEVERINA RIGOS, defendant-appellant.
Santiago F. Bautista for plaintiff-appellee.
Jesus G. Villamar for defendant-appellant.
CONCEPCION, C.J.:p
Appeal from a decision of the Court of First Instance of Nueva Ecija to the Court of Appeals, which certified the
case to Us, upon the ground that it involves a question purely of law.
The record shows that, on April 3, 1961, plaintiff Nicolas Sanchez and defendant Severina Rigos executed an
instrument entitled "Option to Purchase," whereby Mrs. Rigos "agreed, promised and committed ... to sell" to
Sanchez the sum of P1,510.00, a parcel of land situated in the barrios of Abar and Sibot, municipality of San
Jose, province of Nueva Ecija, and more particularly described in Transfer Certificate of Title No. NT-12528 of
said province, within two (2) years from said date with the understanding that said option shall be deemed
"terminated and elapsed," if "Sanchez shall fail to exercise his right to buy the property" within the stipulated
period. Inasmuch as several tenders of payment of the sum of Pl,510.00, made by Sanchez within said period,
were rejected by Mrs. Rigos, on March 12, 1963, the former deposited said amount with the Court of First
Instance of Nueva Ecija and commenced against the latter the present action, for specific performance and
damages.
After the filing of defendant's answer — admitting some allegations of the complaint, denying other allegations
thereof, and alleging, as special defense, that the contract between the parties "is a unilateral promise to sell,
and the same being unsupported by any valuable consideration, by force of the New Civil Code, is null and
void" — on February 11, 1964, both parties, assisted by their respective counsel, jointly moved for a judgment
on the pleadings. Accordingly, on February 28, 1964, the lower court rendered judgment for Sanchez, ordering
Mrs. Rigos to accept the sum judicially consigned by him and to execute, in his favor, the requisite deed of
conveyance. Mrs. Rigos was, likewise, sentenced to pay P200.00, as attorney's fees, and other costs. Hence, this
appeal by Mrs. Rigos.
This case admittedly hinges on the proper application of Article 1479 of our Civil Code, which provides:
ART. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the
promissor if the promise is supported by a consideration distinct from the price.
In his complaint, plaintiff alleges that, by virtue of the option under consideration, "defendant agreed and
committed to sell" and "the plaintiff agreed and committed to buy" the land described in the option, copy of
which was annexed to said pleading as Annex A thereof and is quoted on the margin. 1 Hence, plaintiff
maintains that the promise contained in the contract is "reciprocally demandable," pursuant to the first
paragraph of said Article 1479. Although defendant had really "agreed, promised and committed" herself to
sell the land to the plaintiff, it is not true that the latter had, in turn, "agreed and committed himself " to buy
said property. Said Annex A does not bear out plaintiff's allegation to this effect. What is more, since Annex A
has been made "an integral part" of his complaint, the provisions of said instrument form part "and parcel" 2 of
said pleading.
The option did not impose upon plaintiff the obligation to purchase defendant's property. Annex A is not a
"contract to buy and sell." It merely granted plaintiff an "option" to buy. And both parties so understood it, as
indicated by the caption, "Option to Purchase," given by them to said instrument. Under the provisions
thereof, the defendant "agreed, promised and committed" herself to sell the land therein described to the
plaintiff for P1,510.00, but there is nothing in the contract to indicate that her aforementioned agreement,
promise and undertaking is supported by a consideration "distinct from the price" stipulated for the sale of
the land.
Relying upon Article 1354 of our Civil Code, the lower court presumed the existence of said consideration, and
this would seem to be the main factor that influenced its decision in plaintiff's favor. It should be noted,
however, that:
(1) Article 1354 applies to contracts in general, whereas the second paragraph of Article 1479 refers to "sales"
in particular, and, more specifically, to "an accepted unilateral promise to buy or to sell." In other words,
Article 1479 is controlling in the case at bar.
(2) In order that said unilateral promise may be "binding upon the promisor, Article 1479 requires the
concurrence of a condition, namely, that the promise be "supported by a consideration distinct from the
price." Accordingly, the promisee can not compel the promisor to comply with the promise, unless the former
establishes the existence of said distinct consideration. In other words, the promisee has the burden of
proving such consideration. Plaintiff herein has not even alleged the existence thereof in his complaint.
(3) Upon the other hand, defendant explicitly averred in her answer, and pleaded as a special defense, the
absence of said consideration for her promise to sell and, by joining in the petition for a judgment on the
pleadings, plaintiff has impliedly admitted the truth of said averment in defendant's answer. Indeed as early as
March 14, 1908, it had been held, in Bauermann v. Casas,3 that:
One who prays for judgment on the pleadings without offering proof as to the truth of his own allegations, and
without giving the opposing party an opportunity to introduce evidence, must be understood to admit the
truth of all the material and relevant allegations of the opposing party, and to rest his motion for judgment on
those allegations taken together with such of his own as are admitted in the pleadings . (La Yebana Company
vs. Sevilla, 9 Phil. 210). (Emphasis supplied.)
This view was reiterated in Evangelista v. De la Rosa4 and Mercy's Incorporated v. Herminia Verde.5
Squarely in point is Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co. ,6 from which We quote:
The main contention of appellant is that the option granted to appellee to sell to it barge No. 10 for the sum of
P30,000 under the terms stated above has no legal effect because it is not supported by any consideration and
in support thereof it invokes article 1479 of the new Civil Code. The article provides:
"ART. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.
An accepted unilateral promise to buy or sell a determinate thing for a price certain is binding upon the
promisor if the promise is supported by a consideration distinct from the price."
On the other hand, Appellee contends that, even granting that the "offer of option" is not supported by any
consideration, that option became binding on appellant when the appellee gave notice to it of its acceptance,
and that having accepted it within the period of option, the offer can no longer be withdrawn and in any event
such withdrawal is ineffective. In support this contention, appellee invokes article 1324 of the Civil Code which
provides:
"ART. 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn
any time before acceptance by communicating such withdrawal, except when the option is founded upon
consideration as something paid or promised."
There is no question that under article 1479 of the new Civil Code "an option to sell," or "a promise to buy or to
sell," as used in said article, to be valid must be "supported by a consideration distinct from the price." This is
clearly inferred from the context of said article that a unilateral promise to buy or to sell, even if accepted, is
only binding if supported by consideration. In other words, "an accepted unilateral promise can only have a
binding effect if supported by a consideration which means that the option can still be withdrawn, even if
accepted, if the same is not supported by any consideration. It is not disputed that the option is without
consideration. It can therefore be withdrawn notwithstanding the acceptance of it by appellee .
It is true that under article 1324 of the new Civil Code, the general rule regarding offer and acceptance is that,
when the offerer gives to the offeree a certain period to accept, "the offer may be withdrawn at any time
before acceptance" except when the option is founded upon consideration, but this general rule must be
interpreted as modified by the provision of article 1479 above referred to, which applies to "a promise to buy
and sell" specifically. As already stated, this rule requires that a promise to sell to be valid must be supported
by a consideration distinct from the price.
We are not oblivious of the existence of American authorities which hold that an offer, once accepted, cannot
be withdrawn, regardless of whether it is supported or not by a consideration (12 Am. Jur. 528). These
authorities, we note, uphold the general rule applicable to offer and acceptance as contained in our new Civil
Code. But we are prevented from applying them in view of the specific provision embodied in article 1479.
While under the "offer of option" in question appellant has assumed a clear obligation to sell its barge to
appellee and the option has been exercised in accordance with its terms, and there appears to be no valid or
justifiable reason for appellant to withdraw its offer, this Court cannot adopt a different attitude because the
law on the matter is clear. Our imperative duty is to apply it unless modified by Congress .
However, this Court itself, in the case of Atkins, Kroll and Co., Inc. v. Cua Hian Tek ,8 decided later that
Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co. ,9 saw no distinction between Articles 1324
and 1479 of the Civil Code and applied the former where a unilateral promise to sell similar to the one sued
upon here was involved, treating such promise as an option which, although not binding as a contract in itself
for lack of a separate consideration, nevertheless generated a bilateral contract of purchase and sale upon
acceptance. Speaking through Associate Justice, later Chief Justice, Cesar Bengzon, this Court said:
Furthermore, an option is unilateral: a promise to sell at the price fixed whenever the offeree should decide to
exercise his option within the specified time. After accepting the promise and before he exercises his option,
the holder of the option is not bound to buy. He is free either to buy or not to buy later. In this case, however,
upon accepting herein petitioner's offer a bilateral promise to sell and to buy ensued, and the respondent ipso
facto assumed the obligation of a purchaser. He did not just get the right subsequently to buy or not to buy. It
was not a mere option then; it was a bilateral contract of sale.
Lastly, even supposing that Exh. A granted an option which is not binding for lack of consideration, the
authorities hold that:
"If the option is given without a consideration, it is a mere offer of a contract of sale, which is not binding until
accepted. If, however, acceptance is made before a withdrawal, it constitutes a binding contract of sale, even
though the option was not supported by a sufficient consideration. ... . (77 Corpus Juris Secundum, p. 652. See
also 27 Ruling Case Law 339 and cases cited.)
"It can be taken for granted, as contended by the defendant, that the option contract was not valid for lack of
consideration. But it was, at least, an offer to sell, which was accepted by letter, and of the acceptance the
offerer had knowledge before said offer was withdrawn. The concurrence of both acts — the offer and the
acceptance — could at all events have generated a contract, if none there was before (arts. 1254 and 1262 of
the Civil Code)." (Zayco vs. Serra, 44 Phil. 331.)
In other words, since there may be no valid contract without a cause or consideration, the promisor is not
bound by his promise and may, accordingly, withdraw it. Pending notice of its withdrawal, his accepted
promise partakes, however, of the nature of an offer to sell which, if accepted, results in a perfected contract
of sale.
This view has the advantage of avoiding a conflict between Articles 1324 — on the general principles on
contracts — and 1479 — on sales — of the Civil Code, in line with the cardinal rule of statutory construction
that, in construing different provisions of one and the same law or code, such interpretation should be favored
as will reconcile or harmonize said provisions and avoid a conflict between the same. Indeed, the presumption
is that, in the process of drafting the Code, its author has maintained a consistent philosophy or position.
Moreover, the decision in Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co. , 10 holding that Art.
1324 is modified by Art. 1479 of the Civil Code, in effect, considers the latter as an exception to the former, and
exceptions are not favored, unless the intention to the contrary is clear, and it is not so, insofar as said two (2)
articles are concerned. What is more, the reference, in both the second paragraph of Art. 1479 and Art. 1324,
to an option or promise supported by or founded upon a consideration, strongly suggests that the two (2)
provisions intended to enforce or implement the same principle.
Upon mature deliberation, the Court is of the considered opinion that it should, as it hereby reiterates the
doctrine laid down in the Atkins, Kroll & Co. case, and that, insofar as inconsistent therewith, the view adhered
to in the Southwestern Sugar & Molasses Co. case should be deemed abandoned or modified.
WHEREFORE, the decision appealed from is hereby affirmed, with costs against defendant-appellant Severina
Rigos. It is so ordered.
Reyes, J.B.L., Makalintal, Zaldivar, Teehankee, Barredo and Makasiar, JJ., concur.

Castro, J., took no part.

Separate Opinions

ANTONIO, J., concurring:

I concur in the opinion of the Chief Justice.
I fully agree with the abandonment of the view previously adhered to in Southwestern Sugar & Molasses Co.
vs. Atlantic Gulf and Pacific Co. ,1 which holds that an option to sell can still be withdrawn, even if accepted, if
the same is not supported by any consideration, and the reaffirmance of the doctrine in Atkins, Kroll & Co.,
Inc. vs. Cua Hian Tek,2 holding that "an option implies ... the legal obligation to keep the offer (to sell) open for
the time specified;" that it could be withdrawn before acceptance, if there was no consideration for the option,
but once the "offer to sell" is accepted, a bilateral promise to sell and to buy ensues, and the offeree ipso facto
assumes the obligations of a purchaser. In other words, if the option is given without a consideration, it is a
mere offer to sell, which is not binding until accepted. If, however, acceptance is made before a withdrawal, it
constitutes a binding contract of sale. The concurrence of both acts — the offer and the acceptance — could in
such event generate a contract.
While the law permits the offeror to withdraw the offer at any time before acceptance even before the period
has expired, some writers hold the view, that the offeror can not exercise this right in an arbitrary or
capricious manner. This is upon the principle that an offer implies an obligation on the part of the offeror to
maintain in such length of time as to permit the offeree to decide whether to accept or not, and therefore
cannot arbitrarily revoke the offer without being liable for damages which the offeree may suffer. A contrary
view would remove the stability and security of business transactions.3
In the present case the trial court found that the "Plaintiff (Nicolas Sanchez) had offered the sum of Pl,510.00
before any withdrawal from the contract has been made by the Defendant (Severina Rigos)." Since Rigos' offer
sell was accepted by Sanchez, before she could withdraw her offer, a bilateral reciprocal contract — to sell and
to buy — was generated.
G.R. No. 82670 September 15, 1989
DOMETILA M. ANDRES, doing business under the name and style "IRENE'S WEARING APPAREL,"
petitioner,
vs.
MANUFACTURERS HANOVER & TRUST CORPORATION and COURT OF APPEALS, respondents.
Roque A. Tamayo for petitioner.
Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for private respondent.

CORTES, J.:
Assailed in this petition for review on certiorari is the judgment of the Court of Appeals, which, applying the
doctrine of solutio indebiti, reversed the decision of the Regional Trial Court, Branch CV, Quezon City by
deciding in favor of private respondent.
Petitioner, using the business name "Irene's Wearing Apparel," was engaged in the manufacture of ladies
garments, children's wear, men's apparel and linens for local and foreign buyers. Among its foreign buyers was
Facets Funwear, Inc. (hereinafter referred to as FACETS) of the United States.
In the course of the business transaction between the two, FACETS from time to time remitted certain amounts
of money to petitioner in payment for the items it had purchased. Sometime in August 1980, FACETS
instructed the First National State Bank of New Jersey, Newark, New Jersey, U.S.A. (hereinafter referred to as
FNSB) to transfer $10,000.00 to petitioner via Philippine National Bank, Sta. Cruz Branch, Manila (hereinafter
referred to as PNB).
Acting on said instruction, FNSB instructed private respondent Manufacturers Hanover and Trust Corporation
to effect the above- mentioned transfer through its facilities and to charge the amount to the account of FNSB
with private respondent. Although private respondent was able to send a telex to PNB to pay petitioner
$10,000.00 through the Pilipinas Bank, where petitioner had an account, the payment was not effected
immediately because the payee designated in the telex was only "Wearing Apparel." Upon query by PNB,
private respondent sent PNB another telex dated August 27, 1980 stating that the payment was to be made to
"Irene's Wearing Apparel." On August 28, 1980, petitioner received the remittance of $10,000.00 through
Demand Draft No. 225654 of the PNB.
Meanwhile, on August 25, 1980, after learning about the delay in the remittance of the money to petitioner,
FACETS informed FNSB about the situation. On September 8, 1980, unaware that petitioner had already
received the remittance, FACETS informed private respondent about the delay and at the same time amended
its instruction by asking it to effect the payment through the Philippine Commercial and Industrial Bank
(hereinafter referred to as PCIB) instead of PNB.
Accordingly, private respondent, which was also unaware that petitioner had already received the remittance
of $10,000.00 from PNB instructed the PCIB to pay $10,000.00 to petitioner. Hence, on September 11, 1980,
petitioner received a second $10,000.00 remittance.
Private respondent debited the account of FNSB for the second $10,000.00 remittance effected through PCIB.
However, when FNSB discovered that private respondent had made a duplication of the remittance, it asked
for a recredit of its account in the amount of $10,000.00. Private respondent complied with the request.
Private respondent asked petitioner for the return of the second remittance of $10,000.00 but the latter
refused to pay. On May 12, 1982 a complaint was filed with the Regional Trial Court, Branch CV, Quezon City
which was decided in favor of petitioner as defendant. The trial court ruled that Art. 2154 of the New Civil Code
is not applicable to the case because the second remittance was made not by mistake but by negligence and
petitioner was not unjustly enriched by virtue thereof [Record, p. 234]. On appeal, the Court of Appeals held
that Art. 2154 is applicable and reversed the RTC decision. The dispositive portion of the Court of Appeals'
decision reads as follows:
WHEREFORE, the appealed decision is hereby REVERSED and SET ASIDE and another one entered in favor of
plaintiff-appellant and against defendant-appellee Domelita (sic) M. Andres, doing business under the name
and style "Irene's Wearing Apparel" to reimburse and/or return to plaintiff-appellant the amount of
$10,000.00, its equivalent in Philippine currency, with interests at the legal rate from the filing of the complaint
on May 12, 1982 until the whole amount is fully paid, plus twenty percent (20%) of the amount due as
attomey's fees; and to pay the costs.
With costs against defendant-appellee.
SO ORDERED. [Rollo, pp. 29-30.]
Thereafter, this petition was filed. The sole issue in this case is whether or not the private respondent has the
right to recover the second $10,000.00 remittance it had delivered to petitioner. The resolution of this issue
would hinge on the applicability of Art. 2154 of the New Civil Code which provides that:
Art. 2154. If something received when there is no right to demand it, and it was unduly delivered through
mistake, the obligation to return it arises.
This provision is taken from Art. 1895 of the Spanish Civil Code which provided that:
Art. 1895. If a thing is received when there was no right to claim it and which, through an error, has been
unduly delivered, an obligation to restore it arises.
In Velez v. Balzarza, 73 Phil. 630 (1942), the Court, speaking through Mr. Justice Bocobo explained the nature of
this article thus:
Article 1895 [now Article 2154] of the Civil Code abovequoted, is therefore applicable. This legal provision,
which determines the quasi-contract of solution indebiti, is one of the concrete manifestations of the ancient
principle that no one shall enrich himself unjustly at the expense of another. In the Roman Law Digest the
maxim was formulated thus: "Jure naturae acquum est, neminem cum alterius detrimento et injuria fieri
locupletiorem." And the Partidas declared: "Ninguno non deue enriquecerse tortizeramente con dano de
otro." Such axiom has grown through the centuries in legislation, in the science of law and in court decisions.
The lawmaker has found it one of the helpful guides in framing statutes and codes. Thus, it is unfolded in
many articles scattered in the Spanish Civil Code. (See for example, articles, 360, 361, 464, 647, 648, 797, 1158,
1163, 1295, 1303, 1304, 1893 and 1895, Civil Code.) This time-honored aphorism has also been adopted by
jurists in their study of the conflict of rights. It has been accepted by the courts, which have not hesitated to
apply it when the exigencies of right and equity demanded its assertion. It is a part of that affluent reservoir of
justice upon which judicial discretion draws whenever the statutory laws are inadequate because they do not
speak or do so with a confused voice. [at p. 632.]
For this article to apply the following requisites must concur: "(1) that he who paid was not under obligation to
do so; and, (2) that payment was made by reason of an essential mistake of fact" [City of Cebu v. Piccio, 110
Phil. 558, 563 (1960)].
It is undisputed that private respondent delivered the second $10,000.00 remittance. However, petitioner
contends that the doctrine of solutio indebiti, does not apply because its requisites are absent.
First, it is argued that petitioner had the right to demand and therefore to retain the second $10,000.00
remittance. It is alleged that even after the two $10,000.00 remittances are credited to petitioner's receivables
from FACETS, the latter allegedly still had a balance of $49,324.00. Hence, it is argued that the last $10,000.00
remittance being in payment of a pre-existing debt, petitioner was not thereby unjustly enriched.
The contention is without merit.
The contract of petitioner, as regards the sale of garments and other textile products, was with FACETS. It was
the latter and not private respondent which was indebted to petitioner. On the other hand, the contract for the
transmittal of dollars from the United States to petitioner was entered into by private respondent with FNSB.
Petitioner, although named as the payee was not privy to the contract of remittance of dollars. Neither was
private respondent a party to the contract of sale between petitioner and FACETS. There being no contractual
relation between them, petitioner has no right to apply the second $10,000.00 remittance delivered by mistake
by private respondent to the outstanding account of FACETS.
Petitioner next contends that the payment by respondent bank of the second $10,000.00 remittance was not
made by mistake but was the result of negligence of its employees. In connection with this the Court of
Appeals made the following finding of facts:
The fact that Facets sent only one remittance of $10,000.00 is not disputed. In the written interrogatories sent
to the First National State Bank of New Jersey through the Consulate General of the Philippines in New York,
Adelaide C. Schachel, the investigation and reconciliation clerk in the said bank testified that a request to remit
a payment for Facet Funwear Inc. was made in August, 1980. The total amount which the First National State
Bank of New Jersey actually requested the plaintiff-appellant Manufacturers Hanover & Trust Corporation to
remit to Irene's Wearing Apparel was US $10,000.00. Only one remittance was requested by First National
State Bank of New Jersey as per instruction of Facets Funwear (Exhibit "J", pp. 4-5).
That there was a mistake in the second remittance of US $10,000.00 is borne out by the fact that both
remittances have the same reference invoice number which is 263 80. (Exhibits "A-1- Deposition of Mr. Stanley
Panasow" and "A-2-Deposition of Mr. Stanley Panasow").
Plaintiff-appellant made the second remittance on the wrong assumption that defendant-appellee did not
receive the first remittance of US $10,000.00. [Rollo, pp. 26-27.]
It is evident that the claim of petitioner is anchored on the appreciation of the attendant facts which petitioner
would have this Court review. The Court holds that the finding by the Court of Appeals that the second
$10,000.00 remittance was made by mistake, being based on substantial evidence, is final and conclusive. The
rule regarding questions of fact being raised with this Court in a petition for certiorari under Rule 45 of the
Revised Rules of Court has been stated in Remalante v. Tibe, G.R. No. 59514, February 25, 1988, 158 SCRA 138,
thus:
The rule in this jurisdiction is that only questions of law may be raised in a petition for certiorari under Rule 45
of the Revised Rules of Court. "The jurisdiction of the Supreme Court in cases brought to it from the Court of
Appeals is limited to reviewing and revising the errors of law imputed to it, its findings of fact being conclusive"
[Chan v. Court of Appeals, G.R. No. L-27488, June 30, 1970, 33 SCRA 737, reiterating a long line of decisions].
This Court has emphatically declared that "it is not the function of the Supreme Court to analyze or weigh such
evidence all over again, its jurisdiction being limited to reviewing errors of law that might have been
committed by the lower court" [Tiongco v. De la Merced, G.R. No. L-24426, July 25, 1974, 58 SCRA 89; Corona v.
Court of Appeals, G.R. No. L-62482, April 28, 1983, 121 SCRA 865; Baniqued v. Court of Appeals, G. R. No. L-
47531, February 20, 1984, 127 SCRA 596]. "Barring, therefore, a showing that the findings complained of are
totally devoid of support in the record, or that they are so glaringly erroneous as to constitute serious abuse of
discretion, such findings must stand, for this Court is not expected or required to examine or contrast the oral
and documentary evidence submitted by the parties" [Santa Ana, Jr. v. Hernandez, G.R. No. L-16394, December
17, 1966, 18 SCRA 9731. [at pp. 144-145.]
Petitioner invokes the equitable principle that when one of two innocent persons must suffer by the wrongful
act of a third person, the loss must be borne by the one whose negligence was the proximate cause of the loss.
The rule is that principles of equity cannot be applied if there is a provision of law specifically applicable to a
case [Phil. Rabbit Bus Lines, Inc. v. Arciaga, G.R. No. L-29701, March 16, 1987,148 SCRA 433; Zabat, Jr. v. Court
of Appeals, G.R. No. L36958, July 10, 1986, 142 SCRA 587; Rural Bank of Paranaque, Inc. v. Remolado, G.R. No.
62051, March 18, 1985, 135 SCRA 409; Cruz v. Pahati, 98 Phil. 788 (1956)]. Hence, the Court in the case of De
Garcia v. Court of Appeals, G.R. No. L-20264, January 30, 1971, 37 SCRA 129, citing Aznar v. Yapdiangco, G.R.
No. L-18536, March 31, 1965, 13 SCRA 486, held:
... The common law principle that where one of two innocent persons must suffer by a fraud perpetrated by
another, the law imposes the loss upon the party who, by his misplaced confidence, has enabled the fraud to
be committed, cannot be applied in a case which is covered by an express provision of the new Civil Code,
specifically Article 559. Between a common law principle and a statutory provision, the latter must prevail in
this jurisdiction. [at p. 135.]
Having shown that Art. 2154 of the Civil Code, which embodies the doctrine of solutio indebiti, applies in the
case at bar, the Court must reject the common law principle invoked by petitioner.
Finally, in her attempt to defeat private respondent's claim, petitioner makes much of the fact that from the
time the second $10,000.00 remittance was made, five hundred and ten days had elapsed before private
respondent demanded the return thereof. Needless to say, private respondent instituted the complaint for
recovery of the second $10,000.00 remittance well within the six years prescriptive period for actions based
upon a quasi-contract [Art. 1145 of the New Civil Code].
WHEREFORE, the petition is DENIED and the decision of the Court of Appeals is hereby AFFIRMED.
SO ORDERED.
Fernan, C.J., Gutierrez, Jr. and Bidin, JJ., concur.
Feliciano, J., is on leave.
[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. L-10462 March 16, 1916
ANDREA DUMASUG, plaintiff -appellee,
vs.
FELIX MODELO, defendant-appellant.
Fortunato Borromeo Veloso for appellant.
Tomas Alonso for appellee.
TORRES, J.:
An appeal raised, by bill of exceptions, by counsel for defendant from the judgment of September 21, 1914, in
which the Court of First Instance of Cebu held to be null and void the document, marked as Exhibit 1, executed
by the plaintiff Andrea Dumasug, by virtue whereof defendant claims that the lands and carabao, the subject
matter of the complaint, were conveyed to him. The said judgment further declared the plaintiff to be the
exclusive owner of said lands; ordered defendant to deliver and restore the same to the plaintiff and,
moreover, to pay her the sum of P120, the value of her carabao unlawfully sold by him, and likewise P75 as
rent for the use and occupation of the lands in question during the time they were in defendant's possession,
and to pay the costs.
On June 17, 1912, counsel for Andrea Dumasug filed a written complaint in the Court of First Instance of Cebu,
in which he alleged that about the month of November, 1911, defendant persuaded plaintiff to sign a
document by falsely and maliciously making her believe that it contained an engagement on plaintiff's part to
pay defendant a certain sum of money as expresses occasioned the latter by reason of a lawsuit in which
plaintiff Dumasug was one of the parties and was protected and aided by defendant; that this document,
plaintiff, who does not know how to write, signed by affixing her mark thereto, believing in good faith that
defendant had told her the truth and that said document referred to the expenses incurred by defendant; but
that three months after the execution of said document, defendant took possession of a carabao belonging to
plaintiff and also of two parcels of land, likewise belonging to her, situated in the barrio of Katang, pueblo of
Argao, Cebu, the area and boundaries of which are specified in the complaint, and notified plaintiff that she
had conveyed to him by absolute sale said parcels of land and the plow carabao; that in spite of plaintiff's
opposition and protests, defendant took possession of said property and, up to the date of the complaint,
continued to hold possession thereof and to enjoy the products of the lands and of the labor of the carabao;
and that, by reason of such acts, defendant had caused loss and damage to plaintiff in the sum of P1,000. Said
counsel therefore prayed the court to render judgment by declaring null and void and of no value whatever
the alleged contract of purchase and sale of the carabao and the two parcels of land described in the
complaint, to order defendant to restore to plaintiff said work animal and lands, and, besides, to pay her the
sum of P1,000 for the loss and damage caused her, in addition to the costs of the suit.
The demurrer to the aforementioned complaint having been overruled, counsel for defendant in his answer
denied each and all of the facts alleged in the complaint, and in special defense set forth that if defendant had
in his possession the property described in the complaint, it was due to the fact that plaintiff sold it to him,
which sale was recorded in a public instrument duly executed and signed by plaintiff in the presence of
witnesses. Defendant's counsel therefore prayed the court to absolve his client from the complaint and to hold
defendant to be the absolute owner of the disputed property, and to sentence plaintiff to hold her peace for
ever and to pay the costs.
After trial and the hearing of evidence by both parties, the court rendered the aforementioned judgment, to
which defendant excepted and by written motion asked for a reopening of the case and a new trial. This
motion was denied, exception to this ruling was taken by defendant and, upon presentation of the proper bill
of exceptions, the same was approved and transmitted to the clerk of this court.
The sole question to be resolved in this litigation is whether or not the instrument of purchase and sale of two
parcels of land and a plow carabao, Exhibit 1, is null and void. The defendant alleges that by means thereof he
acquired the possession and ownership of the said property, while the plaintiff, in turn, sets forth in her
complaint that the said instrument is of no value whatever, as her consent thereto was obtained by means of
fraud and deceit on the part of defendant.
The instrument, the annulment whereof is requested by the plaintiff, is Exhibit 1 (p. 27 of the record). If sets
forth that on November 3, 1911, plaintiff Andrea Dumasug, in consideration of the sum of P333.49 which she
received from defendant, Felix Modelo, sold and conveyed to the latter outright two parcels of land and the
plow carabao which are the subject matter of the complaint, and furthermore bound herself to warrant and
defend the title thereto. This contract of sale appears to be authorized by the vendor, Andrea Dumasug, by
means of a cross placed between her Christian name and surname in the presence of the witnesses Mariano
Abear and Apolina Minosa, and certified before a notary on the very date of its execution.
In regard to the events leaving up to the said contract, it ought to be stated that on October 12, 1910, Andrea
Dumasug filed suit in the justice of the peace court of Argao against Rosales Albarracin and Gaudencio Saniel,
for the recovery of a parcel of land belonging to plaintiff, measuring two gantas, on which were growing seven
clumps of bamboo. Judgment was rendered for the plaintiff and the usurped land was ordered restored to her.
(See case No. 1211, p. 1, record.) But subsequently, on March 2, 1911, these former defendants, Rosales
Albarracin and Gaudencio Saniel, commenced proceedings in the Court of First Instance of Cebu against the
said Andrea Dumasug in which they prayed for the annulment of the judgment rendered in the court of the
justice of the peace of Argao. In that case Andrea Dumasug, through her attorney, Andres Jayme, appeared in
the said Court of First Instance and demurrer to the complaint.
Before this demurrer had even been ruled on, counsel for plaintiff moved the court to dismiss their complaint,
and this was done by an order of October 2, 1911, in which ruling attorney Jayme acquiesced. (Pages 1 to 13,
record, case No. 1211.) The defendant in the case at bar, Felix Modelo, is neither an attorney nor a procurador
judicial, and the record does not show that he acted as an attorney, procurador judicial, or friend of Andrea
Dumasug in the case brought by the latter in the justice of the peace court of Argao, or in the said case No.
1211, prosecuted in the Court of First Instance of Cebu.
Probably all that Andrea Dumasug did was to ask the advice of Felix Modelo about what she ought to do in
view of the infringement of her rights on the part of Saniel, and defendant probably advised plaintiff to bring
the matter before the authorities; and so far as defendant's direct intervention in those cases was concerned it
was limited to engaging the services of the attorney Andres Jayme to represent plaintiff in the Court of First
Instance.
The defendant Felix Modelo stated in his sworn testimony that the sale of the parcels of land and the carabao
was in payment of a debt of P333.49 which the plaintiff was owing him for money he had advanced her to
maintain two actions against Albarracin and Saniel, which sum plaintiff had borrowed of him in small amounts,
first P101.87, afterwards P184.85 and finally P46.77, making a total of P333.49; and that these sums of money
were expended by plaintiff in the payment of attorney's fees, traveling expenses for herself and her witnesses
and for their expenses while in Cebu. The witness Mariano Abear corroborated defendant's testimony to the
effect that the document Exhibit 1 was signed by mark of plaintiff before the notary public Anselmo S. Legaspi,
after the latter had explained to her that it was a conveyance by absolute sale of the lands and carabao now in
question. It would be improper to give credence to the testimony of the justice of the peace Antonio Minosa, of
the pueblo of Argao, with respect to the expenses which plaintiff had to pay on account of her trips to Cebu,
because, as he was a party defendant in case No. 1211, brought to secure the annulment of the judgment
rendered by him, it is incredible that the other defendant, Andrea Dumasug, should have defrayed Minosa's
expenses in Cebu, allowing him to board in restaurants, to amuse himself in the cinematographs and to
remain four days in that city each time that he went there — all at the expense of his codefendant, Andrea
Dumasug — when the proceedings in the case had not gone beyond the filing of a demurrer and the principal
defendant went to Cebu only twice, staying there one day each time.
Plaintiff testified that one day in the month of November, 1911, defendant sent for her and after she was
inside defendant's house he told her to sign a document acknowledging that she owed him the sum of P101
for the work he had performed in her behalf in the two actions she had brought to recover here land; that she
did not object to so doing and signed said document by mark in the presence of the defendant while they were
alone and without any attesting witness and that when she was afterwards taken by defendant to the house of
the notary Anselmo Saniel y Legaspi the latter said nothing to her about the pretended sale of her property.
She added that she had never sold her lands or her carabao to defendant; that she neither offered to sell them
to defendant, nor did the latter offer to buy them for her; that if defendant was now in possession of her two
parcels of land and her carabao, it was due to the fact that three months after she had signed the
acknowledgment of indebtedness defendant took possession of said property by intimidation and force; and
that since then defendant had been harvesting the products of her lands and benefiting himself by the labor of
her plow carabao. She also stated that she signed only one document in favor of the defendant Felix Modelo,
which was that in which she acknowledged she owed him the sum of P101.
It is inconceivable that, in order to recover possession of a parcel of land measuring two gantas, containing
seven clumps of bamboo, by commencing proceedings therefor in the justice of the peace court in Argao
(where Andrea Dumasug lived); and that, in order to defendant herself by filing a demurrer in a suit instituted
in the Court of First Instance of Cebu (which suit was not continued because plaintiffs themselves moved its
dismissal), the defendant in that suit scarcely commenced, now plaintiff in the case at bar, had already
incurred expenses amounting to more than P333. It would have been preferable to have left the small portion
of usurped land in the possession of the deforciant, than to have maintained, in order to defend herself from
such usurper, an unterminated suit which might have resulted in the entire loss of all the aggrieved party's
properties by their being kept, not by the usurper, but by her adviser, a sort of hombre bueno.
The evidence discloses that the only great expense which Andrea Dumasug could have incurred was the sum
that as fees she had to pay the attorney Andres Jayme for filing a demurrer in the Court of First Instance. Said
attorney testified that he received from Andrea Dumasug only P80 or P90, the only large sum which the latter
had to expend. Therefore if plaintiff finally had to admit that she was owing Felix Modelo the sum of P101, and
if for this reason she had to execute the receipt to which she referred in her testimony, it is not unreasonable
to suppose that said sum was the principal expense she incurred, in addition to P20 or P30 for her traveling
expenses from Argao to Cebu, the two times that she made that trip, and for her stay in the latter city.
Defendant's allegation that the traveling expenses of the witnesses taken to Cebu amounted to the large sum
of P333.49 cannot be credited, inasmuch as the proceedings in the Court of First Instance were dismissed
before the complaint was answered and the trial was held, so no witnesses were examined.
The lower court held that the statements of Andrea Dumasug were well worthy of credence, and, taking into
consideration the merits of the case, reached the conclusion that the sole document which plaintiff signed
about the month of November, 1911, related to the sum of P101 which she acknowledged she was owing to
Felix Modelo, and not to the sale of all her properties. The record shows plaintiff to have stated that she
received an offer of P120 for her carabao, but that she did not wish to sell the animal as she rented if for fifty
centavos per day, her only means of livelihood.
It is, then, perfectly evident that the document Exhibit 1, by means of which defendant made himself the
owner of the properties in question is not the instrument of debt which Andrea Dumasug had signed, and if it
is the same one its contents were not duly and faithfully explained to plaintiff in the act of its execution. In
either case, the consent said to have been given by Andrea Dumasug in said document Exhibit 1 is null and
void, as it was given by mistake (arts. 1265 and 1266, Civil Code). This error invalidates the contract, because it
goes to the very substance of the thing which was the subject matter of said contract, for, had the maker
thereof truly understood the contents of said document, she would neither have accepted nor authenticated it
by her mark.
If Exhibit 1 is the document signed by her, it is undeniable that she was deceived in order to obtain her
consent thereto, and if the document which she signed is different from the one now presented as Exhibit 1,
then this latter has no value whatever, for the reason that it is not the one which, of her own free will, she
authenticated with her mark.
The consent given by plaintiff being null and void, the document Exhibit 1 is consequently also null, void, and
of no value or effect. Article 1303 of the Civil Code is therefore, applicable, which prescribes that: "When the
nullity of an obligation has been declared, the contracting parties shall restore to each other the things which
have been the object of the contract with their fruits, and the value with its interest." In accordance with this
legal provision defendant must return and deliver to plaintiff the two parcels of land in question with their
fruits, the subject of the complaint, or the value thereof collected by him, which value was justly estimated by
the trial judge at P75.
With respect to the plow carabao that died while in defendant's possession, the value of which is P120, (record,
p. 31) defendant is obliged pursuant to the provision of article 1307 of the same code (to pay and deliver to
plaintiff the value of said animal, with interest as an indemnity for the detriment caused to its owner.)
Defendant has made no claim whatever for reimbursement of the sum of money which he paid to the attorney
Andres Jayme for defending plaintiff in the Court of First Instance of Cebu. It would therefore be improper to
decide in the present case whether he is or is not entitled to such reimbursement. (Secs. 95-97, Code of Civ.
Proc.)
For the foregoing reasons, whereby the errors assigned to the judgment appealed from are deemed to have
been refuted, said judgment should be as it is hereby, affirmed, with the costs of this instance against the
appellant. So ordered.
Arellano, C. J., Johnson, Moreland, Trent, and Araullo, JJ., concur.
RESTITUTA LEONARDO, assisted by JOSE T. RAMOS, petitioners, vs. COURT OF APPEALS, and TEODORO
SEBASTIAN, VICENTE SEBASTIAN, CORAZON SEBASTIAN, assisted by ANDRES MARCELO; PEDAD SEBASTIAN,
HEIRS OF EDUVIGIS SEBASTIAN, namely: EDUARDO S. TENORLAS, ABELARDO J. TENORLAS, ADELA S. and
SOLEDAD S. TENORLAS, represented by EDUARDO S. TENORLAS, and HEIRS OF DOMINADOR, namely:
NAPOLEON SEBASTIAN, RUPERTO SEBASTIAN, ADORACION SEBASTIAN, PRISCILLA SEBASTIAN, LITA
SEBASTIAN, TITA SEBASTIAN and GLORIA SEBASTIAN, represented by NAPOLEON SEBASTIAN; EVELYN
SEBASTIAN; AURORA SEBASTIAN; and JULIETA SEBASTIAN, respondents.
DECISION
CORONA, J.:
This is a petition for review under Rule 45 of the Rules of Court seeking to reverse and set aside the decision [1]
of the Court of Appeals which in turn affirmed the judgment[2] of Branch 57, Regional Trial Court (RTC) of San
Carlos City, dismissing for lack of cause of action the complaint filed by petitioner against private respondents
for declaration of nullity of the extrajudicial settlement of the estate of Jose Sebastian and Tomasina Paul.
Petitioner Restituta Leonardo is the only legitimate child of the late spouses Tomasina Paul and Balbino
Leonardo. Private respondents Teodoro, Victor, Corazon, Piedad, as well as the late Eduvigis and Dominador,
all surnamed Sebastian, are the illegitimate children of Tomasina with Jose Sebastian after she separated from
Balbino Leonardo.
In an action to declare the nullity of the extrajudicial settlement of the estate of Tomasina Paul and Jose
Sebastian before Branch 57, RTC of San Carlos City, Pangasinan, petitioner alleged that, on June 24, 1988, at
around 5:00 p.m., private respondent Corazon Sebastian and her niece Julieta Sebastian, and a certain Bitang,
came to petitioners house to persuade her to sign a deed of extrajudicial partition of the estate of Tomasina
Paul and Jose Sebastian. Before signing the document, petitioner allegedly insisted that they wait for her
husband Jose Ramos so he could translate the document which was written in English. Petitioner, however,
proceeded to sign the document even without her husband and without reading the document, on the
assurance of private respondent Corazon Sebastian that petitioners share as a legitimate daughter of
Tomasina Paul was provided for in the extrajudicial partition. Petitioner then asked private respondent
Corazon and her companions to wait for her husband so he could read the document. When petitioners
husband arrived, however, private respondent Corazon and her companions had left without leaving a copy of
the document. It was only when petitioner hired a lawyer that they were able to secure a copy and read the
contents thereof.
Petitioner refuted[3] private respondents claim that they were the legitimate children and sole heirs of Jose
Sebastian and Tomasina Paul. Despite the (de facto) separation of petitioners father Balbino Leonardo and
Tomasina Paul, the latter remained the lawful wife of Balbino. Petitioner maintained that no joint settlement of
the estate of Jose Sebastian and Tomasina Paul could be effected since what existed between them was co-
ownership, not conjugal partnership. They were never married to each other. The extrajudicial partition was
therefore unlawful and illegal.
Petitioner also claimed that her consent was vitiated because she was deceived into signing the extrajudicial
settlement. She further denied having appeared before Judge Juan Austria of the Municipal Trial Court (MTC) of
Urbiztondo, Pangasinan on July 27, 1988 to acknowledge the execution of the extrajudicial partition.
Private respondents, in their answer with counterclaim,[4] raised the defense of lack of cause of action. They
insisted that the document in question was valid and binding between the parties. According to them, on July
27, 1988, they personally appeared before Judge Austria of the MTC of Urbiztondo, who read and explained
the contents of the document which all of them, including petitioner, voluntarily signed.
Private respondents contended that their declaration that they were legitimate children of Jose Sebastian and
Tomasina Paul did not affect the validity of the extrajudicial partition. Petitioners act of signing the document
estopped her to deny or question its validity. They moreover averred that the action filed by petitioner was
incompatible with her complaint. Considering that petitioner claimed vitiation of consent, the proper action
was annulment and not declaration of nullity of the instrument.
On July 27, 1989, petitioner filed an amended complaint[5] to include parties to the extrajudicial partition who
were not named as defendants in the original complaint.
During the August 23, 1990 pre-trial conference,[6] no amicable settlement was reached and the parties
agreed that the only issue to be resolved was whether petitioners consent to the extrajudicial partition was
voluntarily given.
In a decision dated February 22, 1993, the RTC of San Carlos City, Pangasinan rendered a decision[7]
dismissing the complaint as well as the counterclaim. The court a quo ruled that the element of duress or
fraud that vitiates consent was not established and that the proper action was the reformation of the
instrument, not the declaration of nullity of the extrajudicial settlement of estate. By way of obiter dictum, the
trial court stated that, being a legitimate child, petitioner was entitled to one-half (or 19,282.5 sq.m.) of
Tomasina Pauls estate as her legitime. The 7,671.75 square meters allotted to her in the assailed extrajudicial
partition was therefore less than her correct share as provided by law.
On appeal, the Court of Appeals affirmed the judgment of the trial court in its May 23, 1996 decision. [8] Hence,
this petition for review on certiorari under Rule 45.
The sole issue in this case is whether the consent given by petitioner to the extrajudicial settlement of estate
was given voluntarily.
We hold that it was not.
The essence of consent is the agreement of the parties on the terms of the contract, the acceptance by one of
the offer made by the other. It is the concurrence of the minds of the parties on the object and the cause
which constitutes the contract.[9] The area of agreement must extend to all points that the parties deem
material or there is no consent at all.[10]
To be valid, consent must meet the following requisites: (a) it should be intelligent, or with an exact notion of
the matter to which it refers; (b) it should be free and (c) it should be spontaneous. Intelligence in consent is
vitiated by error; freedom by violence, intimidation or undue influence; and spontaneity by fraud.[11]
In determining the effect of an alleged error, the courts must consider both the objective and subjective
aspects of the case which is the intellectual capacity of the person who committed the mistake.[12]
Mistake, on the other hand, in order to invalidate consent should refer to the substance of the thing which is
the object of the contract, or to those conditions which have principally moved one or both parties to enter
into the contract.[13]
According to the late civil law authority, Arturo M. Tolentino, the (old) rule that a party is presumed to know
the import of a document to which he affixes his signature and is bound thereby, has been altered by Art. 1332
of the Civil Code. The provision states that [w]hen one of the parties is unable to read, or if the contract is in a
language not understood by him, and mistake or fraud is alleged, the person enforcing the contract must show
that the terms thereof have been fully explained to the former.
Article 1332 was a provision taken from american law, necessitated by the fact that there continues to be a fair
number of people in this country without the benefit of a good education or documents have been written in
English or Spanish.[14] The provision was intended to protect a party to a contract disadvantaged by illiteracy,
ignorance, mental weakness or some other handicap. It contemplates a situation wherein a contract is entered
into but the consent of one of the contracting parties is vitiated by mistake or fraud committed by the other.
[15]
Thus, in case one of the parties to a contract is unable to read and fraud is alleged, the person enforcing the
contract must show that the terms thereof have been fully explained to the former. [16] Where a party is
unable to read, and he expressly pleads in his reply that he signed the voucher in question without knowing
(its) contents which have not been explained to him, this plea is tantamount to one of mistake or fraud in the
execution of the voucher or receipt in question and the burden is shifted to the other party to show that the
former fully understood the contents of the document; and if he fails to prove this, the presumption of mistake
(if not fraud) stands unrebutted and controlling.[17]
Contracts where consent is given by mistake or because of violence, intimidation, undue influence or fraud are
voidable.[18] These circumstances are defects of the will, the existence of which impairs the freedom,
intelligence, spontaneity and voluntariness of the party in giving consent to the agreement. In determining
whether consent is vitiated by any of the circumstances mentioned in Art. 1330 of the Civil Code, courts are
given a wide latitude in weighing the facts or circumstances in a given case and in deciding in favor of what
they believe actually occurred, considering the age, physical infirmity, intelligence, relationship and the
conduct of the parties at the time of making the contract and subsequent thereto, irrespective of whether the
contract is in a public or private writing.[19]
Although under Art. 1332 there exists a presumption of mistake or error accorded by the law to those who
have not had the benefit of a good education, one who alleges any defect or the lack of a valid consent to a
contract must establish the same by full, clear and convincing evidence, not merely by preponderance of
evidence.[20] Hence, even as the burden of proof shifts to the defendants to rebut the presumption of
mistake, the plaintiff who alleges such mistake (or fraud) must show that his personal circumstances warrant
the application of Art. 1332.
In this case, the presumption of mistake or error on the part of petitioner was not sufficiently rebutted by
private respondents. Private respondents failed to offer any evidence to prove that the extrajudicial settlement
of estate was explained in a language known to the petitioner, i.e. the Pangasinan dialect. Clearly, petitioner,
who only finished Grade 3, was not in a position to give her free, voluntary and spontaneous consent without
having the document, which was in English, explained to her in the Pangasinan dialect. She stated in open
court that she did not understand English. Her testimony, translated into English, was as follows:
Q: While you were there is your house at barangay Angatel, Urbiztondo, Pangasinan, what happened?
A: On June 24, 1988, I was in our house because I got sick, sir.
Q: What happened?
A: When the time was about 5:00 oclock, I was awaken by my daughter-in-law, Rita Ramos, and told me that
my half sister Corazon would like to tell us something, sir.
Q: What did you do?
A: I let them come in, sir.
Q: Did they come in?
A: Yes, sir.
Q: Who was the companion of your half sister Corazon Sebastian when she arrived in your house?
A: Julita Sebastian and her daughter Bitang, sir.
Q: And who is this Julita Sebastian to you?
A: She is my niece, sir.
Q: And then when they got inside the house, what happened?
A: I asked them their purpose, sir.
Q: Did they tell you their purpose?
A: I asked their purpose in coming to our house and they told me, I came here because I have a partition
executed so that the share of each one of us will be given, she said sir.
Q: Did you see that document?
A: Yes, sir.
ATTY. L. TULAGAN
Q: Did you read the document?
A: No, sir because I was waiting for my husband to have that document read or translated to me because I
could not understand, sir.
Q: What could you not understand?
A: I can not understand English, sir.
Q: But anyway, can you read?
A: Yes, sir in Pangasinan.
Q: Now, that document which according to you was brought by your half sister Corazon Sebastian, what
happened to that document?
A: Corazon Sebastian request(ed) me to sign, sir.
Q: Did you sign immediately?
A: Yes, sir, because according to her, all my shares were embodied in that document as a legal daughter.[21]
Petitioners wish to wait for her husband, Jose T. Ramos, to explain to her the contents of the document in the
Pangasinan dialect was a reasonable and prudent act that showed her uncertainty over what was written. Due
to her limited educational attainment, she could not understand the document in English. She wanted to seek
assistance from her husband who was then out of the house. However, due to the misrepresentation,
deception and undue pressure of her half-sister Corazon Sebastian, petitioner signed the document. Corazon
assured petitioner that she would receive her legitimate share in the estate of their late mother.
Later on, when petitioners husband examined the extrajudicial partition agreement, he found out that
petitioner was deprived of her full legitime. Under the law, petitioners share should have been one-half of her
mothers estate, comprising a total area of 19,282.50 square meters. Under the defective extrajudicial
settlement of estate, however, petitioner was to receive only 7,671.75 square meters. This was a substantial
mistake clearly prejudicial to the substantive interests of petitioner in her mothers estate. There is no doubt
that, given her lack of education, petitioner is protected by Art. 1332 of the Civil Code. There is reason to
believe that, had the provisions of the extrajudicial agreement been explained to her in the Pangasinan dialect,
she would not have consented to the significant and unreasonable diminution of her rights.
MTC Judge Austria, the officer who notarized the extrajudicial settlement, stated that he explained the contents
to all the parties concerned. Granting arguendo, however, that Judge Austria did indeed explain the provisions
of the agreement to them, the records do not reflect that he explained it to petitioner in a language or dialect
known to her. Judge Austria never stated in his testimony before the court a quo what language or dialect he
used in explaining the contents of the document to the parties.[22] Significantly, he was not even certain if the
parties to the agreement were present during the notarization of the document:
ATTY. TULAGAN
Q: Reflected upon all the pages of this Exhibit 1 are numerous signatures, two of whom belongs (sic) to Piedad
Paul Sebastian and Eduardo Sebastian Tenorlas.
ATTY. D. TULAGAN
(continuing)
The Philippines on July, 1989, will you please educate us now Judge Austria on this document?
ATTY. O. DE GUZMAN
That will be improper, your Honor.
COURT
What is the question, you repeat the question.
INTERPRETER:
Reflected upon all the pages of this Exhibit 1 are numerous signatures, two of whom belongs (sic) to Piedad
Paul Sebastian and Eduardo Sebastian Tenorlas, in your just concluded testimony, you said that everyone of
them appeared with you, we have here a documented evidence coming from the Department of Justice,
Bureau of Immigration and Deportation, Manila, certifying that Piedad Paul Sebastian and Eduardo Sebastian
Tenorlas did not arrive in the Philippines or departed from the Philippines on July, 1998, will you please
educate us now Judge Austria on this document?
ATTY. O. DE GUZMAN:
Your Honor please, before the witness answer, may we examine the certification first and may we state for the
record that the month of July, 1998 does not specify any date.
ATTY. L. TULAGAN:
July.
ATTY. O. DE GUZMAN:
But not a particular date, for the record.
ATTY. L. TULAGAN:
For the whole month of July, no departure and no arrival. This is a certificate from the Bureau of Immigration,
Manila. I do not know about this, as a matter of fact, I do not even know this person personally
WITNESS:
Somebody that kind of name appeared before me.
ATTY. L. TULAGAN:
Q: Since you do not know everybody from Urbiztondo, Pangasinan it is possible that another person appeared
and signed for that name?
A: Yes, possible.[23]
Therefore, the presumption of mistake under Article 1332 is controlling, having remained unrebutted by
private respondents. The evidence proving that the document was not fully explained to petitioner in a
language known to her, given her low educational attainment, remained uncontradicted by private
respondents. We find that, in the light of the circumstances presented by the testimonies of the witnesses for
both parties, the consent of petitioner was invalidated by a substantial mistake or error, rendering the
agreement voidable. The extrajudicial partition between private respondents and petitioner should therefore
be annulled and set aside on the ground of mistake.
In Rural Bank of Caloocan, Inc. v. Court of Appeals ,[24] we ruled that a contract may be annulled on the
ground of vitiated consent, even if the act complained of is committed by a third party without the connivance
or complicity of one of the contracting parties. We found that a substantial mistake arose from the
employment of fraud or misrepresentation. The plaintiff in that case was a 70-year-old unschooled and
unlettered woman who signed an unauthorized loan obtained by a third party on her behalf. The Court
annulled the contract due to a substantial mistake which invalidated her consent.
By the same reasoning, if it is one of the contracting parties who commits the fraud or misrepresentation, such
contract may all the more be annulled due to substantial mistake.
In Remalante v. Tibe,[25] this Court ruled that misrepresentation to an illiterate woman who did not know how
to read and write, nor understand English, is fraudulent. Thus, the deed of sale was considered vitiated with
substantial error and fraud. This Court further held:[26]
Since it has been established by uncontradicted evidence that the plaintiff is practically unschooled and
illiterate, not knowing how to read, write and understand the English language in which Exhibit 22 was drafted,
it would have been incumbent upon the defendant to show that the terms there of have been fully explained
to the plaintiff. The evidence is entirely lacking at this point, and the lack of it is fatal to the cause of the
defendant for his failure to discharge the burden of proof.
Generally, the remedy of appeal by certiorari under Rule 45 of the Rules of Court contemplates only questions
of law and not issues of fact.[27] This rule, however, is inapplicable in cases such as the one at bar where the
factual findings complained of are absolutely devoid of support in the records or the assailed judgment of the
appellate court is based on a misapprehension of facts.[28] Thus, this case is an exception to the general rule
on the conclusiveness of facts, the evidence pointing to no other conclusion but the existence of vitiated
consent, given the diminished intellectual capacity of the petitioner and the misrepresentation of private
respondent Corazon Sebastian on the contents of the extrajudicial partition.
Private respondents also maintain that petitioner has no cause of action since the remedy that should be
pursued is an action for annulment and not for declaration of nullity. Private respondents therefore pray for
the dismissal of this petition on the ground of lack of cause of action.
Before ruling on this procedural matter, a distinction between an action for annulment and one for declaration
of nullity of an agreement is called for.
An action for annulment of contract is one filed where consent is vitiated by lack of legal capacity of one of the
contracting parties, or by mistake, violence, intimidation, undue influence or fraud.[29] By its very nature,
annulment contemplates a contract which is voidable, that is, valid until annulled. Such contract is binding on
all the contracting parties until annulled and set aside by a court of law. It may be ratified. An action for
annulment of contract has a four-year prescriptive period.[30]
On the other hand, an action for declaration of nullity of contract presupposes a void contract or one where all
of the requisites prescribed by law for contracts are present but the cause, object or purpose is contrary to
law, morals, good customs, public order or public policy, prohibited by law or declared by law to be void. [31]
Such contract as a rule produces no legal and binding effect even if it is not set aside by direct legal action.
Neither may it be ratified. An action for the declaration of nullity of contract is imprescriptible.[32]
The petitioners pleading was for the declaration of nullity of the extrajudicial settlement of estate. However,
this did not necessarily mean the automatic dismissal of the case on the ground of lack of cause of action.
Granting that the action filed by petitioner was incompatible with her allegations, it is not the caption of the
pleading but the allegations that determine the nature of the action.[33] The court should grant the relief
warranted by the allegations and the proof even if no such relief is prayed for.[34] In this case, the allegations
in the pleading and the evidence adduced point to no other remedy but to annul the extrajudicial settlement
of estate because of vitiated consent.
WHEREFORE, the decision of the Court of Appeals dated 23 May 1996 is hereby REVERSED. The extrajudicial
settlement of the estate of Tomasina Paul and Jose Sebastian is hereby ANNULLED and SET ASIDE. No cost.
SO ORDERED.
ADORACION LUSTAN, petitioner, vs. COURT OF APPEALS, NICOLAS PARANGAN and SOLEDAD PARANGAN,
PHILIPPINE NATIONAL BANK, respondents.
DECISION
FRANCISCO, J.:
Petitioner Adoracion Lustan is the registered owner of a parcel of land otherwise known as Lot 8069 of the
Cadastral Survey of Calinog, lloilo containing an area of 10.0057 hectares and covered by TCT No. T-561. On
February 25, 1969, petitioner leased the above described property to private respondent Nicolas Parangan for
a term of ten (10) years and an annual rent of One Thousand (P1,000.00) Pesos. During the period of lease,
Parangan was regularly extending loans in small amounts to petitioner to defray her daily expenses and to
finance her daughter's education. On July 29, 1970, petitioner executed a Special Power of Attorney in favor of
Parangan to secure an agricultural loan from private respondent Philippine National Bank (PNB) with the
aforesaid lot as collateral. On February 18, 1972, a second Special Power of Attorney was executed by
petitioner, by virtue of which, Parangan was able to secure four (4) additional loans, to wit: the sums of
P24,000.00, P38,000.00, P38,600.00 and P25,000.00 on December 15, 1975, September 6, 1976, July 2, 1979
and June 2, 1980, respectively. The last three loans were without the knowledge of herein petitioner and all the
proceeds therefrom were used by Parangan for his own benefit.[1] These encumbrances were duly annotated
on the certificate of title. On April 16, 1973, petitioner signed a Deed of Pacto de Retro Sale[2] in favor of
Parangan which was superseded by the Deed of Definite Sale[3] dated May 4, 1979 which petitioner signed
upon Parangan's representation that the same merely evidences the loans extended by him unto the former.
For fear that her property might be prejudiced by the continued borrowing of Parangan, petitioner demanded
the return of her certificate of title. Instead of complying with the request, Parangan asserted his rights over
the property which allegedly had become his by virtue of the aforementioned Deed of Definite Sale. Under said
document, petitioner conveyed the subject property and all the improvements thereon unto Parangan
absolutely for and in consideration of the sum of Seventy Five Thousand (P75,000.00) Pesos.
Aggrieved, petitioner filed an action for cancellation of liens, quieting of title, recovery of possession and
damages against Parangan and PNB in the Regional Trial Court of Iloilo City. After trial, the lower court
rendered judgment, disposing as follows:
"WHEREFORE and in view of the foregoing, a decision is rendered as follows:
1. Ordering cancellation by the Register of Deeds of the Province of lloilo, of the unauthorized loans, the liens
and encumbrances appearing in the Transfer Certificate of Title No. T-561, especially entries nos. 286231;
338638; and 352794;
2. Declaring the Deed of Pacto de Retro Sale dated April 25, 1978 and the Deed of Definite Sale dated May 6,
1979, both documents executed by Adoracion Lustan in favor of Nicolas Parangan over Lot 8069 in TCT No. T-
561 of the Register of Deeds of lloilo, as null and void, declaring the same to be Deeds of Equitable Mortgage;
3. Ordering defendant Nicolas Parangan to pay all the loans he secured from defendant PNB using thereto as
security TCT No. T-561 of plaintiff and defendant PNB to return TCT No. T-561 to plaintiff;
4. Ordering defendant Nicolas Parangan to return possession of the land in question, Lot 8069 of the Calinog
Cadastre described in TCT No. T-561 of the Register of Deeds of lloilo, to plaintiff upon payment of the sum of
P75,000.00 by plaintiff to defendant Parangan which payment by plaintiff must be made within ninety (90)
days from receipt of this decision; otherwise, sale of the land will be ordered by the court to satisfy payment of
the amount;
5. Ordering defendant Nicolas Parangan to pay plaintiff attorney's fees in the sum of P15,000.00 and to pay the
costs of the suit.
SO ORDERED."[4]
Upon appeal to the Court of Appeals (CA), respondent court reversed the trial court's decision. Hence this
petition contending that the CA committed the following errors:
"IN ARRIVING AT THE CONCLUSION THAT NONE OF THE CONDITIONS STATED IN ART. 1602 OF THE NEW CIVIL
CODE HAS BEEN PROVEN TO EXIST BY PREPONDERANCE OF EVIDENCE:
IN CONCLUDING THAT PETITIONER SIGNED THE DEED OF SALE WITH KNOWLEDGE AS TO THE CONTENTS
THEREOF;
IN ARRIVING AT THE CONCLUSION THAT THE TESTIMONY OF WITNESS DELIA CABIAL DESERVES FULL FAITH
AND CREDIT;
IN FINDING THAT THE SPECIAL POWER OF ATTORNEY AUTHORIZING MORTGAGE FOR "UNLIMITED" LOANS AS
RELEVANT."
Two main issues confront us in this case, to wit: whether or not the Deed of Definite Sale is in reality an
equitable mortgage and whether or not petitioner's property is liable to PNB for the loans contracted by
Parangan by virtue of the special power of attorney. The lower court and the CA arrived at different factual
findings thus necessitating a review of the evidence on record.[5] After a thorough examination, we note some
errors, both in fact and in law, committed by public respondent CA.
The court a quo ruled that the Deed of Definite Sale is in reality an equitable mortgage as it was shown beyond
doubt that the intention of the parties was one of a loan secured by petitioner's land.[6] We agree.
A contract is perfected by mere consent.[7] More particularly, a contract of sale is perfected at the moment
there is a meeting of minds upon the thing which is the object of the contract and upon the price.[8] 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. If the words of the contract appear to be contrary to the evident
intention of the parties, the latter shall prevail over the former.[9] In the case at bench, the evidence is
sufficient to warrant a finding that petitioner and Parangan merely intended to consolidate the former's
indebtedness to the latter in a single instrument and to secure the same with the subject property. Even when
a document appears on its face to be a sale, the owner of the property may prove that the contract is really a
loan with mortgage by raising as an issue the fact that the document does not express the true intent of the
parties. In this case, parol evidence then becomes competent and admissible to prove that the instrument was
in truth and in fact given merely as a security for the repayment of a loan. And upon proof of the truth of such
allegations, the court will enforce the agreement or understanding in consonance with the true intent of the
parties at the time of the execution of the contract.[10]
Articles 1602 and 1604 of the Civil Code respectively provide:
"The contract shall be presumed to be an equitable mortgage in any of the following cases:
1) When the price of a sale with right to repurchase is unusually inadequate;
2) When the vendor remains in possession as lessor or otherwise;
3) When upon or after the expiration of the right to repurchase, another instrument extending the period of
redemption or granting a new period is executed;
4) When the vendor binds himself to pay the taxes on the thing sold;
5) When the purchaser retains for himself a part of the purchase price;
6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction
shall secure the payment of a debt or the performance of any other obligation."
"Art. 1604. The provisions of Article 1602 shall also apply to a contract purporting to be an absolute sale."
From a reading of the above-quoted provisions, for a presumption of an equitable mortgage to arise, we must
first satisfy two requisites namely: that the parties entered into a contract denominated as a contract of sale
and that their intention was to secure an existing debt by way of mortgage. Under Art. 1604 of the Civil Code, a
contract purporting to be an absolute sale shall be presumed to be an equitable mortgage should any of the
conditions in Art. 1602 be present. The existence of any of the circumstances therein, not a concurrence nor an
overwhelming number of such circumstances, suffices to give rise to the presumption that the contract is an
equitable mortgage.[11]
Art. 1602, (6), in relation to Art 1604 provides that a contract of sale is presumed to be an equitable mortgage
in any other case where it may be fairly inferred that the real intention of the parties is that the transaction
shall secure the payment of a debt or the performance of any other obligation. That the case clearly falls under
this category can be inferred from the circumstances surrounding the transaction as herein set forth:
Petitioner had no knowledge that the contract[12] she signed is a deed of sale. The contents of the same were
not read nor explained to her so that she may intelligibly formulate in her mind the consequences of her
conduct and the nature of the rights she was ceding in favor of Parangan. Petitioner is illiterate and her
condition constrained her to merely rely on Parangan's assurance that the contract only evidences her
indebtedness to the latter. When one of the contracting 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.[13] Settled is the rule that where a party to a
contract is illiterate or cannot read or cannot understand the language in which the contract is written, the
burden is on the party interested in enforcing the contract to prove that the terms thereof are fully explained
to the former in a language understood by him.[14] To our mind, this burden has not been satisfactorily
discharged.
We do not find the testimony of Parangan and Delia Cabial that the contract was duly read and explained to
petitioner worthy of credit. The assessment by the trial court of the credibility of witnesses is entitled to great
respect and weight for having had the opportunity of observing the conduct and demeanor of the witnesses
while testifying.[15] The lower court may not have categorically declared Cabial's testimony as doubtful but
this fact is readily apparent when it ruled on the basis of petitioner's evidence in total disregard of the positive
testimony on Parangan's side. We have subjected the records to a thorough examination, and a reading of the
transcript of stenographic notes would bear out that the court a quo is correct in its assessment. The CA
committed a reversible error when it relied on the testimony of Cabial in upholding the validity of the Deed of
Definite Sale. For one, there are noted major contradictions between the testimonies of Cabial and Judge
Lebaquin, who notarized the purported Deed of Definite Sale. While the former testified that receipts were
presented before Judge Lebaquin, who in turn made an accounting to determine the price of the land[16], the
latter categorically denied the allegation.[17] This contradiction casts doubt on the credibility of Cabial as it is
ostensible that her version of the story is concocted.
On the other hand, petitioner's witness Celso Pamplona, testified that the contract was not read nor explained
to petitioner. We believe that this witness gave a more accurate account of the circumstances surrounding the
transaction. He has no motive to prevaricate or concoct a story as he witnessed the execution of the document
at the behest of Parangan himself who, at the outset, informed him that he will witness a document
consolidating petitioner's debts. He thus testified:
"Q: In (sic) May 4, 1979, you remember having went (sic) to the Municipality of Calinog?
A: Yes, sir.
Q: Who invited you to go there?
A: Parangan.
Q: You mean Nicolas Parangan?
A: Yes, sir.
Q: What did Nicolas tell you why he invited you to go there?
A: He told me that I will witness on the indebtedness of Adoracion to Parangan.
xxx xxx xxx
Q: Before Adoracion Lustan signed her name in this Exh. "4", was this document read to her?
A: No, sir.
Q: Did Nicolas Parangan right in that very room tell Adoracion what she was signing?
A: No, sir.
xxx xxx xxx
Q: What did you have in mind when you were signing this document, Exh. "4"?
A: To show that Adoracion Lustan has debts with Nicolas Parangan."[18]
Furthermore, we note the absence of any question propounded to Judge Lebaquin to establish that the deed of
sale was read and explained by him to petitioner. When asked if witness has any knowledge whether petitioner
knows how to read or write, he answered in the negative.[19] This latter admission impresses upon us that the
contract was not at all read or explained to petitioner for had he known that petitioner is illiterate, his
assistance would not have been necessary.
The foregoing squares with the sixth instance when a presumption of equitable mortgage prevails. The
contract of definite sale, where petitioner purportedly ceded all her rights to the subject lot in favor of
Parangan, did not embody the true intention of the parties. The evidence speaks clearly of the nature of the
agreement it was one executed to secure some loans.
Anent the issue of whether the outstanding mortgages on the subject property can be enforced against
petitioner, we rule in the affirmative.
Third persons who are not parties to a loan may secure the latter by pledging or mortgaging their own
property.[20] So long as valid consent was given, the fact that the loans were solely for the benefit of Parangan
would not invalidate the mortgage with respect to petitioner's property. In consenting thereto, even granting
that petitioner may not be assuming personal liability for the debt, her property shall nevertheless secure and
respond for the performance of the principal obligation.[21] It is admitted that petitioner is the owner of the
parcel of land mortgaged to PNB on five (5) occasions by virtue of the Special Powers of Attorney executed by
petitioner in favor of Parangan. Petitioner argues that the last three mortgages were void for lack of authority.
She totally failed to consider that said Special Powers of Attorney are a continuing one and absent a valid
revocation duly furnished to the mortgagee, the same continues to have force and effect as against third
persons who had no knowledge of such lack of authority. Article 1921 of the Civil Code provides:
"Art. 1921. If the agency has been entrusted for the purpose of contracting with specified persons, its
revocation shall not prejudice the latter if they were not given notice thereof."
The Special Power of Attorney executed by petitioner in favor of Parangan duly authorized the latter to
represent and act on behalf of the former. Having done so, petitioner clothed Parangan with authority to deal
with PNB on her behalf and in the absence of any proof that the bank had knowledge that the last three loans
were without the express authority of petitioner, it cannot be prejudiced thereby. As far as third persons are
concerned, an act is deemed to have been performed within the scope of the agent's authority if such is within
the terms of the power of attorney as written even if the agent has in fact exceeded the limits of his authority
according to the understanding between the principal and the agent.[22] The Special Power of Attorney
particularly provides that the same is good not only for the principal loan but also for subsequent commercial,
industrial, agricultural loan or credit accommodation that the attorney-in-fact may obtain and until the power
of attorney is revoked in a public instrument and a copy of which is furnished to PNB.[23] Even when the agent
has exceeded his authority, the principal is solidarily liable with the agent if the former allowed the latter to act
as though he had full powers (Article 1911, Civil Code).[24] The mortgage directly and immediately subjects the
property upon which it is imposed.[25] The property of third persons which has been expressly mortgaged to
guarantee an obligation to which the said persons are foreign, is directly and jointly liable for the fulfillment
thereof; it is therefore subject to execution and sale for the purpose of paying the amount of the debt for
which it is liable.[26] However, petitioner has an unquestionable right to demand proportional indemnification
from Parangan with respect to the sum paid to PNB from the proceeds of the sale of her property[27] in case
the same is sold to satisfy the unpaid debts.
WHEREFORE, premises considered, the judgment of the lower court is hereby REINSTATED with the following
MODIFICATIONS:
1. DECLARING THE DEED OF DEFINITE SALE AS AN EQUITABLE MORTGAGE;
2. ORDERING PRIVATE RESPONDENT NICOLAS PARANGAN TO RETURN THE POSSESSION OF THE SUBJECT LAND
UNTO PETITIONER UPON THE LATTER'S PAYMENT OF THE SUM OF P75,000.00 WITHIN NINETY (90) DAYS FROM
RECEIPT OF THIS DECISION;
3. DECLARING THE MORTGAGES IN FAVOR OF PNB AS VALID AND SUBSISTING AND MAY THEREFORE BE
SUBJECTED TO EXECUTION SALE.
4. ORDERING PRIVATE RESPONDENT PARANGAN TO PAY PETITIONER THE AMOUNT OF P15,000.00 BY WAY OF
ATTORNEY'S FEES AND TO PAY THE COSTS OF THE SUIT.
SO ORDERED.
G.R. No. L-14070 March 29, 1961
MARIA GERVACIO BLAS, MANUEL GERVACIO BLAS, LEONCIO GERVACIO BLAS and LODA GERVACIO BLAS,
plaintiffs-appellants,
vs.
ROSALINA SANTOS, in her capacity as Special Administratrix of the Estate of the deceased MAXIMA
SANTOS VDA. DE BLAS, in Sp. Proc. No. 2524, Court of First Instance of Rizal, defendants-appellants.
MARTA GERVACIO BLAS and DR. JOSE CHIVI, defendants-appellants.
Teofilo Sison and Nicanor Sison for plaintiffs-appellants.
De los Santos, Caluag, Pascal and Felizardo for defendants-appellees.
LABRADOR, J.:
This action was instituted by plaintiffs against the administration of the estate of Maxima Santos, to secure a
judicial declaration that one-half of the properties left by Maxima Santos Vda. de Blas, the greater bulk of
which are set forth and described in the project of partition presented in the proceedings for the
administration of the estate of the deceased Simeon Blas, had been promised by the deceased Maxima Santos
to be delivered upon her death and in her will to the plaintiffs, and requesting that the said properties so
promised be adjudicated to the plaintiffs. The complaint also prays for actual damages in the amount of
P50,000. (Record on Appeal, pp. 1-65.) The alleged promise of the deceased Maxima Santos is contained in a
document executed by Maxima Santos on December 26, 1936 attached to the complaint as Annex "H" and
introduced at the trial as Exhibit "A". ( Ibid., pp. 258-259.) The complaint also alleges that the plaintiffs are
entitled to inherit certain properties enumerated in paragraph 3 thereof, situated in Malabon, Rizal and
Obando, Bulacan, but which properties have already been in included in the inventory of the estate of the
deceased Simeon Blas and evidently partitioned and conveyed to his heirs in the proceedings for the
administration of his (Simeon Blas) estate.
Defendant, who is the administratrix of the estate of the deceased Maxima Santos Vda. de Blas, filed an
answer with a counterclaim, and later, an amended answer and a counterclaim. The said amended answer
admits the allegations of the complaint as to her capacity as administratrix the death of Simeon Blas on
January 3, 1937; the fact that Simeon Blas and Marta Cruz begot three children only one of whom, namely,
Eulalio Blas, left legitimate descendants; that Simeon Blas contracted a second marriage with Maxima Santos
on June 28, 1898. She denies for lack of sufficient information and belief, knowledge edge of the first marriage
of Simeon Blas to Marta Cruz, the averment that Simeon Blas and Marta Cruz acquired properties situated in
Obando, Bulacan, that said properties were utilized as capital, etc. As special defenses, she alleges that the
properties of the spouses Blas and Santos had been settled and liquidated in the project of partition of the
estate of said Simeon Blas; that pursuant to the project of partition, plaintiffs and some defendants had
already received the respective properties adjudicated to them; that the plaintiffs and the defendants Marta
Geracio and Jose Chivi are estopped from impugning the validity of the project of partition of the estate of the
deceased Simeon Blas and from questioning the ownership in the properties conveyed in the project of
partition to Maxima Santos as her own exclusive property; that the testament executed by Maxima Santos is
valid, the plain plaintiffs having no right to recover any portion of Maxima Santos' estate now under
administration by the court. A counterclaim for the amount of P50,000 as damages is also included in the
complaint, as also a cross-claim against Marta Gervacio Blas and Jose Chivi.
Trial of the case was Conducted and, thereafter, the court, Hon. Gustave Victoriano, presiding, rendered
judgment dismissing the complaint, with costs against plaintiff, and dismissing also the counterclaim and
cross-claim decision ,the plaintiffs filed by the defendants. From this district have appealed to this Court.
The facts essential to an understanding of the issues involved in the case may be briefly summarized as
follows: Simeon Blas contracted a first marriage with Marta Cruz sometime before 1898. They had three
children, only one of whom, Eulalio, left children, namely, Maria Gervacio Blas, one of the plaintiffs, Marta
Gervacio Blas, one of the defendants, and Lazaro Gervacio Blas. Lazaro died in 1950, and is survived by three
legitimate children who are plaintiffs herein, namely, Manuel Gervacio Blas, Leoncio Gervacio Blas and Loida
Gervacio Blas. Marta Cruz died in 1898, and the following year, Simeon Blas contracted a second marriage with
Maxima Santos. At the time of this second marriage, no liquidation of the properties required by Simeon Blas
and Marta Cruz was made. Three of the properties left are fishponds located in Obando, Bulacan. Maxima
Santos does not appear to have apported properties to her marriage with Simeon Blas.
On December 26, 1936, only over a week before over a week before his death on January 9, 1937, Simeon Blas
executed a last will and testament. In the said testament Simeon Blas makes the following declarations:
I
2. Sa panahon ng aking pangalawang asawa, MAXIMA SANTOS DE BLAS, ay nagkaroon ako at nakatipon ng mga
kayamanan (bienes) at pag-aari (propriedades) na ang lahat ng lupa, palaisdaan at iba pang pag-aari ay
umaabot sa halagang ANIM NA RAAN PITONG PU'T WALONG DAAN LIBO WALONG DAAN WALONG PUNG PISO
(678,880-00) sang-ayon sa mga halaga sa amillarimento (valor Amillarado.)
II
1. Ang kalahati ng lahat ng aming pag-aari, matapos mabayaran ang lahat ng aking o aming pag-kakautang na
mag-asawa, kung mayroon man, yayamang ang lahat ng ito ay kita sa loob ng matrimonio (bienes ganaciales)
ay bahagi ng para sa aking asawa, MAXIMA SANTOS DE BLAS, sang-ayon sa batas. (Record on Appeal, pp. 250-
251.)
The above testamentary provisions may be translated as follows:
I
2. During my second marriage with Maxima Santos de Blas, I possessed and acquired wealth and properties,
consisting of lands, fishponds and other kinds of properties, the total assessed value of which reached the
amount P678,880.00.
II
1. One-half of our properties, after the payment of my and our indebtedness, all these properties having been
acquired during marriage (conjugal properties), constitutes the share of my wife Maxima Santos de Blas,
according to the law.
At the time of the execution of said will, Andres Pascual a son-in-law of the testator, and Avelina Pascual and
others, were present. Andres Pascual had married a descendant by the first marriage. The will was prepared
by Andres Pascual, with the help of his nephew Avelino Pascual. The testator asked Andres Pascual to prepare
a document which was presented in court as Exhibit "A", thus:
Q — Was there anybody who asked you to prepare this document?
A — Don Simeon Blas asked me to prepare this document (referring to Exhibit "A"), (t.s.n., Sarmiento to, P. 24).
The reason why the testator ordered the preparation of Exhibit "A" was because the properties that the
testator had acquired during his first marriage with Marta Cruz had not been liquidated and were not
separated from those acquired during the second marriage. Pascual's testimony is as follows:
Q — To whom do you refer with the word "they"?
A — Simeon Blas and his first wife, Marta Cruz. When Marta Cruz died they had not made a liquidation of their
conjugal properties and so all those properties were included all in the assets of the second marriage, and that
is the reason why this document was prepared. (t.s.n., Sarmiento, p. 36.)
The above testimony is fully corroborated by that of Leoncio Gervacio, son-in-law of Simeon Blas.
Q — Please state to the Court?
A — My children were claiming from their grandfather Simeon Blas the properties left by their grandmother
Marta Cruz in the year 1936.
Q — And what happened with that claim of your children against Simeon Blas regarding the assets or
properties of the first marriage that were left after the death of Marta Cruz in 1936?
A — The claim was not pushed through because they reached into an agreement whereby the parties Simeon
Blas Maxima Santos, Maria Gervacio Bias, Marta Gervacio Blas and Lazaro Gervacio Blas agreed that Simeon
Blas and Maxima Blas will give one-half of the estate of Simeon Blas. (t.s.n., Sarmiento, pp. 143-144).
The document which was thus prepared and which is marked as Exhibit "A" reads in Tagalog, thus:
MAUNAWA NG SINO MANG MAKABABASA:
Na akong si MAXIMA SANTOS DE BLAS, nasa hustong gulang, kasal kay SIMEON BLAS, taga bayan ng Malabon,
Rizal, Philippines, sa pamamagitan ng kasulatang ito ay malaya kong ipinahahayag:
Na aking nabasa at naunawa ang testamento at huling kalooban na nilagdaan ng aking asawa, SIMEON BLAS,
at ipinahahayag ko sa ilalim ng aking karangalan at sa harap ng aking asawa na igagalang at pagpipitaganan
ang lahat at bawa't isang bahagi ng nabanggit na testamento at ipinangangako ko pa sa pamamagitan ng
kasulatang ito na ang lahat ng maiiwang pag-aari at kayamanan naming mag-asawa, na nauukol at bahaging
para sa akin sa paggawa ko naman ng aking testamento ay ipagkakaloob ko ang kalahati (½) sa mga herederos
at legatarios o pinamamanahan ng aking nabanggit na asawa, SIMEON BLAS, sa kaniyang testamento, na ako'y
makapipili o makahihirang na kahit kangino sa kanila ng aking pagbibigyan at pamamanahan sang-ayon sa
paggalang, paglilingkod, at pakikisama ng gagawin sa akin.
SA KATUNAYAN NG LAHAT NG ITO ay nilagdaan ko ang kasulatang ito ngayon ika 26 ng Diciembre ng taong
1936, dito sa San Francisco del Monte, San Juan, Rizal, Philippines. (Exh. "A", pp. 29-30 — Appellant's brief).
(Fdo.) MAXIMA SANTOS DE BLAS

and which, translated into English, reads as follows:

KNOW ALL MEN BY THESE PRESENTS:
That I MAXIMA SANTOS DE BLAS, of legal age, married to SIMEON BLAS, resident of Malabon, Rizal, Philippines,
voluntarily state:
That I have read and knew the contents of the will signed by my husband, SIMEON BLAS, (2) and I promise on
my word of honor in the presence of my husband that I will respect and obey all and every disposition of said
will (3) and furthermore, I promise in this document that all the properties my husband and I will leave, the
portion and share corresponding to me when I make my will, I will give one-half (½) to the heirs and legatees
or the beneficiaries named in the will of my husband, (4) and that I can select or choose any of them, to whom
I will give depending upon the respect, service and treatment accorded to me.
IN WITNESS WHEREOF, I signed this document this 26th day of December, 1936 at San Francisco del Monte,
San Juan, Rizal, Philippines. (Exh. "A", pp. 30-31, Appellant's brief).
(Sgd.) MAXIMA SANTOS DE BLAS

The court below held that said Exhibit "A" has not created any right in favor of plaintiffs which can serve as
basis for the complaint; that neither can it be considered as a valid and enforceable contract for lack of
consideration and because it deals with future inheritance. The court also declared that Exhibit "A" is not a will
because it does not comply with the requisites for the execution of a will; nor could it be considered as a
donation, etc.
Both the court below in its decision and the appellees in their brief before us, argue vehemently that the heirs
of Simeon Blas and his wife Marta Cruz can no longer make any claim for the unliquidated conjugal properties
acquired during said first marriage, because the same were already included in the mass of properties
constituting the estate of the deceased Simeon Blas and in the adjudications made by virtue of his will, and
that the action to recover the same has prescribed. This contention is correct. The descendants of Marta Cruz
can no longer claim the conjugal properties that she and her husband may have required during their
marriage although no liquidation of such properties and delivery thereof to the heirs of Marta Cruz have been
made, no action to recover said propertied having been presented in the proceedings for the settlement of the
estate of Simeon Blas.
But the principal basis for the plaintiffs' action in the case at bar is the document Exhibit "A". It is not disputed
that this document was prepared at the instance of Simeon Blas for the reason that the conjugal properties of
me on Blas for the reason his first marriage had not been liquidated; that it was prepared at the same time as
the will of Simeon Blas on December 26, 1936, at the instance of the latter himself. It is also not disputed that
the document was signed by Maxima Santos and one copy thereof, which was presented in court as Exhibit
"A", was kept by plaintiffs' witness Andres Pascual.
Plaintiffs-appellants argue before us that Exhibit "A" is both a trust agreement and a contract in the nature of a
compromise to avoid litigation. Defendants-appellees, in answer, claim that it is neither a trust agreement nor
a compromise a agreement. Considering that the properties of the first marriage of Simeon Blas had not been
liquidated when Simeon Blas executed his will on December 26, 1936', and the further fact such properties
where actually , and the further fact that included as conjugal properties acquired during the second marriage,
we find, as contended by plaintiffs-appellants that the preparation and execution of Exhibit "A" was ordered by
Simeon Blas evidently to prevent his heirs by his first marriage from contesting his will and demanding
liquidation of the conjugal properties acquired during the first marriage, and an accounting of the fruits and
proceeds thereof from the time of the death of his first wife.
Exhibit "A", therefore, appears to be the compromise defined in Article 1809 of the Civil Code of Spain, in force
at the time of the execution of Exhibit "A", which provides as follows:
Compromise is a contract by which each of the parties in interest, by giving, promising, or retaining something
avoids the provocation of a suitor terminates one which has already the provocation been instituted.
(Emphasis supplied.)
Exhibit "A" states that the maker (Maxima Santos) had read and knew the contents of the will of her husband
read and knew the contents of the will Simeon Blas — she was evidently referring to the declaration in the
will(of Simeon Blas) that his properties are conjugal properties and one-half thereof belongs to her (Maxima
Santos) as her share of the conjugal assets under the law. The agreement or promise that Maxima Santos
makes in Exhibit "A" is to hold one-half of her said share in the conjugal assets in trust for the heirs and
legatees of her husband in his will, with the obligation of conveying the same to such of his heirs or legatees as
she may choose in her last will and testament. It is to be noted that the conjugal properties referred to are
those that were actually existing at that time, December 26, 1936. Simeon Blas died on January 9, 1937. On
June 2, 1937, an inventory of the properties left by him, all considered conjugal, was submitted by Maxima
Santos herself as administratrix of his estate. A list of said properties is found in Annex "E", the complete
inventory submitted by Maxima Santos Vda. de Blas, is administratrix of the estate of her husband, dated
March 10, 1939. The properties which were given to Maxima Santos as her share in the conjugal properties are
also specified in the project of partition submitted by said Maxima Santos herself on March 14, 1939. (Record
on Appeal, pp. 195-241.) Under Exhibit "A", therefore, Maxima Santos contracted the obligation and promised
to give one-half of the above indicated properties to the heirs and legatees of Simeon Blas.
Counsel for the defendant-appellee claims Exhibit "A" is a worthless piece of paper because it is not a will nor a
donation mortis causa nor a contract. As we have in indicated above, it is a compromise and at the same time
a contract with a sufficient cause or consideration. It is also contended that it deals with future inheritance. We
do not think that Exhibit "A" is a contract on future inheritance. it is an obligation or promise made by the
maker to transmit one-half of her share in the conjugal properties acquired with her husband, which
properties are stated or declared to be conjugal properties in the will of the husband. The conjugal properties
were in existence at the time of the execution of Exhibit "A" on December 26, 1936. As a matter of fact,
Maxima Santos included these properties in her inventory of her husband's estate of June 2, 1937. The
promise does not refer to any properties that the maker would inherit upon the death of her husband,
because it is her share in the conjugal assets. That the kind of agreement or promise contained in Exhibit "A" is
not void under Article 1271 of the old Civil Code, has been decided by the Supreme Court of Spain in its
decision of October 8, 19154, thus:
Que si bien el art. 1271 del Codigo civil dispone que sobre la herenciafutura no se podra celebrar otros
contratos que aquellos cuyo objecto seapracticar entre vivos la division de un caudal, conforme al articulo
1056, esta prohibicion noes aplicable al caso, porque la obligacion que contrajoel recurr en contrato privado
de otorgar testamento e instituir heredera a su subrina de los bienes que adquirio en virtud de herencia ,
procedentes desu finada consorte que le quedasen sobrantes despues de pagar las deudas, y del ganacial que
se expresa, asi como de reconocer, ademas, con alguna cosaa otros sobrinos, se refiere a bienes conocidos y
determinados existentes cuando tal compromisi se otorgo , y no a la universalidad de una herencia que, sequn
el art. 659 del citado Codigo civil, as determina a muerte, constituyendola todos los bienes, derechos y
obligaciones que por ella no sehayan extinguido: ..." (Emphasis supplied.)
It will be noted that what is prohibited to be the subject matter of a contract under Article 1271 of the Civil
Code is " future inheritance." To us future inheritance is any property or right not in existence or capable of
determination at the time of the contract, that a person may in the future acquire by succession. The
properties subject of the contract Exhibit "A" are well defined properties, existing at the time of the agreement,
which Simeon Blas declares in his statement as belonging to his wife as her share in the conjugal partnership.
Certainly his wife's actual share in the conjugal properties may not be considered as future inheritance
because they were actually in existence at the time Exhibit "A" was executed.
The trial court held that the plaintiffs-appellants in the case at bar are concluded by the judgement rendered in
the proceedings for the settlement of the estate of Simeon Blas for the reason that the properties left by him
belonged to himself and his wife Maxima Santos; that the project of partition in the said case, adjudicating to
Maxima Santos one-half as her share in the conjugal properties, is a bar to another action on the same subject
matter, Maxima Santos having become absolute owner of the said properties adjudicated in her favor. As
already adverted to above, these contentions would be correct if applied to the claim of the plaintiffs-
appellants that said properties were acquired with the first wife of Simeon Blas, Marta Cruz. But the main
ground upon which plaintiffs base their present action is the document Exhibit "A", already fully considered
above. As this private document contains the express promise made by Maxima Santos to convey in her
testament, upon her death, one-half of the conjugal properties she would receive as her share in the conjugal
properties, the action to enforce the said promise did not arise until and after her death when it was found
that she did not comply with her above-mentioned promise. (Art. 1969, old Civil Code.) The argument that the
failure of the plaintiffs-appellants herein to oppose the project of partition in the settlement of the estate of
Simeon Blas, especially that portion of the project which assigned to Maxima Santos one-half of all the
conjugal properties bars their present action, is, therefore, devoid of merit. It may be added that plaintiffs-
appellants did not question the validity of the project of partition precisely because of the promise made by
Maxima Santos in the compromise Exhibit "A"; they acquised in the approval of said project of partition
because they were relying on the promise made by Maxima Santos in Exhibit "A", that she would transmit one-
half of the conjugal properties that she was going to receive as her share in the conjugal partnership upon her
death and in her will, to the heirs and legatees of her husband Simeon Blas.
Neither can the claim of prescription be considered in favor of the defendants. The right of action arose at the
time of the death of Maxima Santos on October 5,1956, when she failed to comply with the promise made by
her in Exhibit "A". The plaintiffs-appellants immediately presented this action on December 27, 1956, upon
learning of such failure on the part of Maxima Santos to comply with said promise. This defense is, therefore,
also without merit.
It is next contended by the defendant-appellee that Maxima Santos complied with her above-mentioned
promise, — that Andres Pascual, Tomasa Avelino, Justo Garcia, Ludovico Pimpin and Marta Gervacio Blas were
given substancial legacies in the will and testament of Maxima Santos. To determine whether she had actually
complied with the promise made in Exhibit "A", there is herein set forth a list only of the fishponds and their
respective areas as contained in the list of properties she acquired as her share in the conjugal partnership,
which list includes, besides many ricelands as well as residential lots, thus:
31. Paco, Obando, Bulacan 5.8396 has.
32. Pangjolo, Obando 3.5857 "
34. Batang Pirasuan, Lubao, Pampanga 11.9515 "
35. Calangian, Lubao, Pampanga 30.2059 "
38. Bakuling, Lubao, Pampanga 215.4325 "
39. Bakuling, Lubao, Pampanga 8.3763 "
40. Bangkal, Sinubli 23.0730 "
41. Tagulod, 6.8692 "
44. Bangkal Pugad (a) 34.2779 "
(b
) 51.7919 "
(c) 2.5202 "
45. Magtapat Bangkal, Lubao, Pampanga (a) 18.0024 "
(b
) 7.3265 "
(c) 53.5180 "
46. Pinanganakan, Lubao, Pampanga 159.0078 "
 47. Emigdio Lingid, Lubao, Pampanga 34.5229 "
48. Propios, Lubao, Pampanga 80.5382 "
49. Batang Mabuanbuan, Sexmoan,
Pampanga 43.3350 "
50. Binatang Mabuanbuan, Sexmoan,
Pampanga 3.5069 "
51. Sapang Magtua, Sexmoan, Pampanga 56,8242 "
52. Kay Limpin, Sexmoan, Pampanga 5.0130 "
53. Calise Mabalumbum, Sexmoan,
Pampanga 23.8935 "
54. Messapinit Kineke, Sexmoan, Pampanga (a) 5.2972 "
(b
) 5.9230 "
(c) 1.4638 "
(d
) 1.4638 "
(e) 2.8316 "
(f) 10.4412 "
(g) 3.9033 "
(h
) 11.9263 "
(i) 6.0574 "
55. Dalang, Banga, Sexmoan, Pampanga 23.3989 "
62. Alaminos, Pangasinan 147.1242 "
80. Mangasu Sexmoan, Pampanga 10.000 "
81. Don Tomas, Sexmoan, Pampanga 21.6435 "
16.0000 "
82. Matikling, Lubao, Pampanga
Total area ............................... 1045.7863 "
(See Record on Record, pp. 195-
241.)
In her will, Maxima Santos devised to Marta Gervacio Blas the 80-hectare fishpond situated in Lubao,
Pampanga. The fishpond devised is evidently that designated as "Propios" in Lubao, Pampanga, item No. 8 in
the list of properties adjudicated to her in the project of partition. (Record on Appeal, p. 215.) Considering that
the total area of the fishponds amount to 1045.7863 hectares, the 80 hectares devised to Marta Gervacio Blas
is not even one-tenth of the total area of the fishponds. Add to this the fact that in the will she imposed upon
Marta Gervacio Blas de Chivi an existing obligation on said fishponds, namely, its lease in 1957 and the duty to
pay out of the rentals thereof an obligation to the Rehabilitation Finance Corporation RFC ( Ibid., pp. 262-263.)
Angelina Blas was given only a lot of 150 square meters in Hulong Duhat, Malabon, Rizal, and Leony Blas, the
sum of P300.00 (Ibid., p. 264.)
It is evident from a consideration of the above figures and facts that Maxima Santos did not comply with her
obligation to devise one-half of her conjugal properties to the heirs and legatees of her husband. She does not
state that she had complied with such obligation in her will. If she intended to comply therewith by giving
some of the heirs of Simeon Blas the properties mentioned above, the most that can be considered in her
favor is to deduct the value of said properties from the total amount of properties which she had undertaken
to convey upon her death.
All the issues in the pleadings of the parties and in their respective briefs, have now been fully discussed and
considered. Reiterating what we have stated above, we declare that by Exhibit "A", a compromise to avoid
litigation, Maxima Santos promised to devise to the heirs and legatees of her husband Simeon Blas, one-half of
the properties she received as her share in the conjugal partnership of herself and her husband, which share is
specified in the project of partition submitted by herself on March 14, 1939 in the settlement of the estate of
her husband, and which is found on pages 195 to 240 of the record on appeal and on pages 27 to 46 of the
project of partition, submitted by Maxima Santos herself before the Court of First Instance of Rizal in Civil Case
No. 6707, entitled "Testamentaria del Finado Don Simeon Blas, Maxima Santos Vda. de Bias, Administradora";
and that she failed to comply with her aforementioned obligation. (Exhibit "A")
WHEREFORE, the judgment appealed from is hereby reversed and the defendant-appellee, administratrix of
the estate of Maxima Santos, is ordered to convey and deliver one-half of the properties adjudicated o Maxima
Santos as her share in the conjugal properties in said Civil Case No. 6707, entitled "Testamentaria del Finado
Don Simeon Blas, Maxima Santos Vda. de Blas, Administradora", to the heirs and the legatees of her husband
Simeon Blas. Considering that all said heirs and legatees, designated in the will of Simeon Blas as the persons
for whose benefit Exhibit "A" had been executed, have not appeared in these proceedings, the record is hereby
remanded to the court below, with instructions that, after the conveyance of the properties hereinabove
ordered had been effected, the said heirs and legatees (of Simeon Blas) file adversary pleadings to determine
the participation of each and every one of them in said properties. Costs against the defendant- appellee
Rosalina Santos.
Padilla, Parades and Dizon, JJ., concur.
Reyes, J.B.L. and Barrera, JJ., concur in a separate opinion.
Bengzon, C.J., reserves his vote.
Concepcion, J., took no part.
G.R. No. 141882 March 11, 2005
J.L.T. AGRO, INC., represented by its Manager, JULIAN L. TEVES, Petitioner,
vs.
ANTONIO BALANSAG and HILARIA CADAYDAY, respondents.
DECISION
TINGA, J.:
Once again, the Court is faced with the perennial conflict of property claims between two sets of heirs, a
conflict ironically made grievous by the fact that the decedent in this case had resorted to great lengths to
allocate which properties should go to which set of heirs.
This is a Rule 45 petition assailing the Decision1 dated 30 September 1999 of the Court of Appeals which
reversed the Decision2 dated 7 May 1993 of the Regional Trial Court (RTC), Branch 45, of Bais City, Negros
Oriental.
The factual antecedents follow.
Don Julian L. Teves (Don Julian) contracted two marriages, first with Antonia Baena (Antonia), and after her
death, with Milagros Donio Teves (Milagros Donio). Don Julian had two children with Antonia, namely: Josefa
Teves Escaño (Josefa) and Emilio Teves (Emilio). He had also four (4) children with Milagros Donio, namely:
Maria Evelyn Donio Teves (Maria Evelyn), Jose Catalino Donio Teves (Jose Catalino), Milagros Reyes Teves
(Milagros Reyes) and Pedro Reyes Teves (Pedro). 3
The present controversy involves a parcel of land covering nine hundred and fifty-four (954) square meters,
known as Lot No. 63 of the Bais Cadastre, which was originally registered in the name of the conjugal
partnership of Don Julian and Antonia under Original Certificate of Title (OCT) No. 5203 of the Registry of
Deeds of Bais City. When Antonia died, the land was among the properties involved in an action for partition
and damages docketed as Civil Case No. 3443 entitled "Josefa Teves Escaño v. Julian Teves, Emilio B. Teves, et
al."4 Milagros Donio, the second wife of Don Julian, participated as an intervenor. Thereafter, the parties to the
case entered into a Compromise Agreement5 which embodied the partition of all the properties of Don Julian.
On the basis of the compromise agreement and approving the same, the Court of First Instance (CFI) of Negros
Oriental, 12th Judicial District, rendered a Decision6 dated 31 January 1964. The CFI decision declared a tract of
land known as Hacienda Medalla Milagrosa as property owned in common by Don Julian and his two (2)
children of the first marriage. The property was to remain undivided during the lifetime of Don Julian. 7 Josefa
and Emilio likewise were given other properties at Bais, including the electric plant, the "movie property," the
commercial areas, and the house where Don Julian was living. The remainder of the properties was retained by
Don Julian, including Lot No. 63.
Paragraph 13 of the Compromise Agreement, at the heart of the present dispute, lays down the effect of the
eventual death of Don Julian vis-à-vis his heirs:
13. That in the event of death of Julian L. Teves, the properties hereinafter adjudicated to Josefa Teves Escaňo
and Emilio B. Teves, (excluding the properties comprised as Hacienda Medalla Milagrosa together with all its
accessories and accessions) shall be understood as including not only their one-half share which they inherited
from their mother but also the legitimes and other successional rights which would correspond to them of the
other half belonging to their father, Julian L. Teves. In other words, the properties now selected and
adjudicated to Julian L. Teves (not including his share in the Hacienda Medalla Milagrosa) shall
exclusively be adjudicated to the wife in second marriage of Julian L. Teves and his four minor children,
namely, Milagros Donio Teves, his two acknowledged natural children Milagros Reyes Teves and Pedro Reyes
Teves and his two legitimated children Maria Evelyn Donio Teves and Jose Catalino Donio Teves. (Emphasis
supplied)
On 16 November 1972, Don Julian, Emilio and Josefa executed a Deed of Assignment of Assets with
Assumption of Liabilities8 in favor of J.L.T. Agro, Inc. (petitioner). Less than a year later, Don Julian, Josefa and
Emilio also executed an instrument entitled Supplemental to the Deed of Assignment of Assets with the
Assumption of Liabilities (Supplemental Deed)9 dated 31 July 1973. This instrument which constitutes a
supplement to the earlier deed of assignment transferred ownership over Lot No. 63, among other properties,
in favor of petitioner.10 On 14 April 1974, Don Julian died intestate.
On the strength of the Supplemental Deed in its favor, petitioner sought the registration of the subject lot in its
name. A court, so it appeared, issued an order 11 cancelling OCT No. 5203 in the name of spouses Don Julian
and Antonia on 12 November 1979, and on the same date TCT No. T-375 was issued in the name of
petitioner.12 Since then, petitioner has been paying taxes assessed on the subject lot. 13
Meanwhile, Milagros Donio and her children had immediately taken possession over the subject lot after the
execution of the Compromise Agreement. In 1974, they entered into a yearly lease agreement with spouses
Antonio Balansag and Hilaria Cadayday, respondents herein. 14 On Lot No. 63, respondents temporarily
established their home and constructed a lumber yard. Subsequently, Milagros Donio and her children
executed a Deed of Extrajudicial Partition of Real Estate 15 dated 18 March 1980. In the deed of partition, Lot
No. 63 was allotted to Milagros Donio and her two (2) children, Maria Evelyn and Jose Catalino. Unaware that
the subject lot was already registered in the name of petitioner in 1979, respondents bought Lot No. 63 from
Milagros Donio as evidenced by the Deed of Absolute Sale of Real Estate16 dated 9 November 1983.
At the Register of Deeds while trying to register the deed of absolute sale, respondents discovered that the lot
was already titled in the name of petitioner. Thus, they failed to register the deed. 17
Respondents, as vendees of Lot No. 63, filed a complaint before the RTC Branch 45 of Bais City, seeking the
declaration of nullity and cancellation of TCT No. T-375 in the name of petitioner and the transfer of the title to
Lot No. 63 in their names, plus damages.18
After hearing, the trial court dismissed the complaint filed by respondents. The dispositive portion of the
decision reads:
WHEREFORE, premises considered, by preponderance of evidence, this Court finds judgment in favor of the
defendant and against the plaintiff, and thus hereby orders:
(1) That complaint be dismissed;
(2) That plaintiffs vacate the subject land, particularly identified as Lot No. 63 registered under Transfer
Certificate of Title No. T-375;
(3) That plaintiffs pay costs.
Finding no basis on the counterclaim by defendant, the same is hereby ordered dismissed. 19
The trial court ruled that the resolution of the case specifically hinged on the interpretation of paragraph 13 of
the Compromise Agreement.20 It added that the direct adjudication of the properties listed in the Compromise
Agreement was only in favor of Don Julian and his two children by the first marriage, Josefa and Emilio. 21
Paragraph 13 served only as an amplification of the terms of the adjudication in favor of Don Julian and his two
children by the first marriage.
According to the trial court, the properties adjudicated in favor of Josefa and Emilio comprised their shares in
the estate of their deceased mother Antonia, as well as their potential share in the estate of Don Julian upon
the latter’s death. Thus, upon Don Julian’s death, Josefa and Emilio could not claim any share in his estate,
except their proper share in the Hacienda Medalla Milagrosa which was adjudicated in favor of Don Julian in
the Compromise Agreement. As such, the properties adjudicated in favor of Don Julian, except Hacienda
Medalla Milagrosa, were free from the forced legitimary rights of Josefa and Emilio, and Don Julian was under
no impediment to allocate the subject lot, among his other properties, to Milagros Donio and her four (4)
children.22
The trial court further stressed that with the use of the words "shall be," the adjudication in favor of Milagros
Donio and her four (4) children was not final and operative, as the lot was still subject to future disposition by
Don Julian during his lifetime.23 It cited paragraph 1424 of the Compromise Agreement in support of his
conclusion.25 With Lot No. 63 being the conjugal property of Don Julian and Antonia, the trial court also
declared that Milagros Donio and her children had no hereditary rights thereto except as to the conjugal share
of Don Julian, which they could claim only upon the death of the latter. 26
The trial court ruled that at the time of Don Julian’s death on 14 April 1974, Lot No. 63 was no longer a part of
his estate since he had earlier assigned it to petitioner on 31 July 1973. Consequently, the lot could not be a
proper subject of extrajudicial partition by Milagros Donio and her children, and not being the owners they
could not have sold it. Had respondents exercised prudence before buying the subject lot by investigating the
registration of the same with the Registry of Deeds, they would have discovered that five (5) years earlier, OCT
No. 5203 had already been cancelled and replaced by TCT No. T-375 in the name of petitioner, the trial court
added.27
The Court of Appeals, however, reversed the trial court’s decision. The decretal part of the appellate decision
reads:
WHEREFORE, premises considered, the decision appealed from is hereby REVERSED and SET ASIDE and a new
one is entered declaring the Transfer Certificate of Title No. T-375 registered in the name of J.L.T. Agro, Inc. as
null and void.
With costs against defendant J.L.T. Agro, Inc. represented by its Manager, Julian L. Teves.
SO ORDERED.28
Per the appellate court, the Compromise Agreement incorporated in CFI decision dated 31 January 1964,
particularly paragraph 13 thereof, determined, adjudicated and reserved to Don Julian’s two sets of heirs their
future legitimes in his estate except as regards his (Don Julian’s) share in Hacienda Medalla Milagrosa. 29 The
two sets of heirs acquired full ownership and possession of the properties respectively adjudicated to them in
the CFI decision and Don Julian himself could no longer dispose of the same, including Lot No. 63. The
disposition in the CFI decision constitutes res judicata.30 Don Julian could have disposed of only his conjugal
share in the Hacienda Medalla Milagrosa.31
The appellate court likewise emphasized that nobody in his right judgment would preterit his legal heirs by
simply executing a document like the Supplemental Deed which practically covers all properties which Don
Julian had reserved in favor of his heirs from the second marriage. It also found out that the blanks reserved
for the Book No. and Page No. at the upper right corner of TCT No. T-375, "to identify the exact location where
the said title was registered or transferred," were not filled up, thereby indicating that the TCT is "spurious and
of dubious origin."32
Aggrieved by the appellate court’s decision, petitioner elevated it to this Court via a petition for review on
certiorari, raising pure questions of law.
Before this Court, petitioner assigns as errors the following rulings of the appellate court, to wit: (a) that future
legitime can be determined, adjudicated and reserved prior to the death of Don Julian; (b) that Don Julian had
no right to dispose of or assign Lot No. 63 to petitioner because he reserved the same for his heirs from the
second marriage pursuant to the Compromise Agreement; (c) that the Supplemental Deed was tantamount to
a preterition of his heirs from the second marriage; and (d) that TCT No. T-375 in the name of petitioner is
spurious for not containing entries on the Book No. and Page No. 33
While most of petitioner’s legal arguments have merit, the application of the appropriate provisions of law to
the facts borne out by the evidence on record nonetheless warrants the affirmance of the result reached by
the Court of Appeals in favor of respondents.
Being the key adjudicative provision, paragraph 13 of the Compromise Agreement has to be quoted again:
13. That in the event of death of Julian L. Teves, the properties herein adjudicated to Josefa Teves Escaño and
Emilio B. Teves, (excluding the properties comprised as Hacienda Medalla Milagrosa together with all its
accessories and accessions) shall be understood as including not only their one-half share which they inherited
from their mother but also the legitimes and other successional rights which would correspond to them of the
other half belonging to their father, Julian L.Teves. In other words, the properties now selected and
adjudicated to Julian L. Teves (not including his share in the Hacienda Medalla Milagrosa) shall
exclusively be adjudicated to the wife in second marriage of Julian L. Teves and his four minor children,
namely, Milagros Donio Teves, his two acknowledged natural children Milagros Reyes Teves and Pedro
Reyes Teves and his two legitimated children Maria Evelyn Donio Teves and Jose Catalino Donio Teves."
(Emphasis supplied)
With the quoted paragraph as basis, the Court of Appeals ruled that the adjudication in favor of the heirs of
Don Julian from the second marriage became automatically operative upon the approval of the Compromise
Agreement, thereby vesting on them the right to validly dispose of Lot No. 63 in favor of respondents.
Petitioner argues that the appellate court erred in holding that future legitime can be determined, adjudicated
and reserved prior to the death of Don Julian. The Court agrees. Our declaration in Blas v. Santos34 is relevant,
where we defined future inheritance as any property or right not in existence or capable of determination
at the time of the contract, that a person may in the future acquire by succession. Article 1347 of the New
Civil Code explicitly provides:
ART. 1347. All things which are not outside the commerce of men, including future things, may be the object of
a contract. All rights which are not intransmissible may also be the object of contracts.
No contract may be entered into upon future inheritance except in cases expressly authorized by law.
All services which are not contrary to law, morals, good customs, public order or public policy may likewise be
the object of a contract.
Well-entrenched is the rule that all things, even future ones, which are not outside the commerce of man may
be the object of a contract. The exception is that no contract may be entered into with respect to future
inheritance, and the exception to the exception is the partition inter vivos referred to in Article 1080.35
For the inheritance to be considered "future," the succession must not have been opened at the time of the
contract.36 A contract may be classified as a contract upon future inheritance, prohibited under the second
paragraph of Article 1347, where the following requisites concur:
(1) That the succession has not yet been opened;
(2) That the object of the contract forms part of the inheritance; and
(3) That the promissor has, with respect to the object, an expectancy of a right which is purely hereditary in
nature.37
The first paragraph of Article 1080, which provides the exception to the exception and therefore aligns with the
general rule on future things, reads:
ART. 1080. Should a person make a partition of his estate by an act inter vivos, or by will, such partition shall
be respected, insofar as it does not prejudice the legitime of the compulsory heirs.
....
In interpreting this provision, Justice Edgardo Paras advanced the opinion that if the partition is made by an act
inter vivos, no formalities are prescribed by the Article. 38 The partition will of course be effective only after
death. It does not necessarily require the formalities of a will for after all it is not the partition that is the
mode of acquiring ownership. Neither will the formalities of a donation be required since donation will not be
the mode of acquiring the ownership here after death; since no will has been made it follows that the mode
will be succession (intestate succession). Besides, the partition here is merely the physical determination of the
part to be given to each heir.39
The historical antecedent of Article 1080 of the New Civil Code is Article 1056 40 of the old Civil Code. The only
change in the provision is that Article 1080 now permits any person (not a testator, as under the old law) to
partition his estate by act inter vivos. This was intended to abrogate the then prevailing doctrine that for a
testator to partition his estate by an act inter vivos, he must first make a will with all the formalities provided
by law.41
Article 1056 of the old Civil Code (now Article 1080) authorizes a testator to partition inter vivos his property,
and distribute them among his heirs, and this partition is neither a donation nor a testament, but an
instrument of a special character, sui generis, which is revocable at any time by the causante during his
lifetime, and does not operate as a conveyance of title until his death . It derives its binding force on the
heirs from the respect due to the will of the owner of the property, limited only by his creditors and the
intangibility of the legitime of the forced heirs. 42
The partition inter vivos of the properties of Don Julian is undoubtedly valid pursuant to Article 1347. However,
considering that it would become legally operative only upon the death of Don Julian, the right of his heirs
from the second marriage to the properties adjudicated to him under the compromise agreement was but a
mere expectancy. It was a bare hope of succession to the property of their father. Being the prospect of a
future acquisition, the interest by its nature was inchoate. It had no attribute of property, and the interest to
which it related was at the time nonexistent and might never exist. 43
Evidently, at the time of the execution of the deed of assignment covering Lot No. 63 in favor of petitioner, Don
Julian remained the owner of the property since ownership over the subject lot would only pass to his heirs
from the second marriage at the time of his death. Thus, as the owner of the subject lot, Don Julian retained
the absolute right to dispose of it during his lifetime. His right cannot be challenged by Milagros Donio and her
children on the ground that it had already been adjudicated to them by virtue of the compromise agreement.
Emerging as the crucial question in this case is whether Don Julian had validly transferred ownership of the
subject lot during his lifetime. The lower court ruled that he had done so through the Supplemental Deed. The
appellate court disagreed, holding that the Supplemental Deed is not valid, containing as it does a prohibited
preterition of Don Julian’s heirs from the second marriage. Petitioner contends that the ruling of the Court of
Appeals is erroneous. The contention is well-founded.
Article 854 provides that the preterition or omission of one, some, or all of the compulsory heirs in the direct
line, whether living at the time of the execution of the will or born after the death of the testator, shall annul
the institution of heir; but the devises and legacies shall be valid insofar as they are not inofficious. Manresa
defines preterition as the omission of the heir in the will, either by not naming him at all or, while mentioning
him as father, son, etc., by not instituting him as heir without disinheriting him expressly, nor assigning to him
some part of the properties.44 It is the total omission of a compulsory heir in the direct line from
inheritance.45 It consists in the silence of the testator with regard to a compulsory heir, omitting him in the
testament, either by not mentioning him at all, or by not giving him anything in the hereditary property but
without expressly disinheriting him, even if he is mentioned in the will in the latter case. 46 But there is no
preterition where the testator allotted to a descendant a share less than the legitime, since there was no total
omission of a forced heir.47
In the case at bar, Don Julian did not execute a will since what he resorted to was a partition inter vivos of his
properties, as evidenced by the court approved Compromise Agreement. Thus, it is premature if not irrelevant
to speak of preterition prior to the death of Don Julian in the absence of a will depriving a legal heir of his
legitime. Besides, there are other properties which the heirs from the second marriage could inherit from Don
Julian upon his death. A couple of provisions in the Compromise Agreement are indicative of Don Julian’s
desire along this line.48 Hence, the total omission from inheritance of Don Julian’s heirs from the second
marriage, a requirement for preterition to exist, is hardly imaginable as it is unfounded.
Despite the debunking of respondents’ argument on preterition, still the petition would ultimately rise or fall
on whether there was a valid transfer effected by Don Julian to petitioner. Notably, Don Julian was also the
president and director of petitioner, and his daughter from the first marriage, Josefa, was the treasurer
thereof. There is of course no legal prohibition against such a transfer to a family corporation. Yet close
scrutiny is in order, especially considering that such transfer would remove Lot No. 63 from the estate from
which Milagros and her children could inherit. Both the alleged transfer deed and the title which necessarily
must have emanated from it have to be subjected to incisive and detailed examination.
Well-settled, of course, is the rule that a certificate of title serves as evidence of an indefeasible title to the
property in favor of the person whose name appears therein. 49 A certificate of title accumulates in one
document a precise and correct statement of the exact status of the fee held by its owner. The certificate, in
the absence of fraud, is the evidence of title and shows exactly the real interest of its owner. 50
To successfully assail the juristic value of what a Torrens title establishes, a sufficient and convincing quantum
of evidence on the defect of the title must be adduced to overcome the predisposition in law in favor of a
holder of a Torrens title. Thus, contrary to the appellate court’s ruling, the appearance of a mere thumbmark
of Don Julian instead of his signature in the Supplemental Deed would not affect the validity of petitioner’s title
for this Court has ruled that a thumbmark is a recognized mode of signature. 51
The truth, however, is that the replacement of OCT No. 5203 in the name of Julian by T.C.T. No. T-375 is marred
by a grave irregularity which is also an illegality, as it contravenes the orthodox, conventional and normal
process established by law. And, worse still, the illegality is reflected on the face of both titles. Where, as in this
case, the transferee relies on a voluntary instrument to secure the issuance of a new title in his name such
instrument has to be presented to the Registry of Deeds. This is evident from Sections 53 and 57 of
Presidential Decree (P.D.) No. 1529 or the Property Registration Decree. The sections read, thus:
SEC. 53. Presentation of owner’s duplicate upon entry of new certificate. – No voluntary instrument shall be
registered by the Register of Deeds unless the owner’s duplicate certificate is presented with such
instrument, except in cases expressly provided for in this Decree or upon order of the court, for cause shown.
(Emphasis supplied)
....
SEC. 57. Procedure in registration of conveyances. – An owner desiring to convey his registered land in fee
simple shall execute and register a deed of conveyance in a form sufficient in law. The Register of Deeds
shall thereafter make out in the registration book a new certificate of title to the grantee and shall prepare and
deliver to him an owner’s duplicate certificate. The Register of Deeds shall note upon the original and duplicate
certificate the date of transfer, the volume and page of the registration book in which the new certificate is
registered and a reference by number to the last preceding certificate. The original and the owner’s duplicate
of the grantor’s certificate shall be stamped "cancelled." The deed of conveyance shall be filed and
endorsed with the number and the place of registration of the certificate of title of the land conveyed.
(Emphasis supplied)
As petitioner bases its right to the subject lot on the Supplemental Deed, it should have presented it to the
Register of Deeds to secure the transfer of the title in its name. Apparently, it had not done so. There is nothing
on OCT No. 5203 or on the succeeding TCT No. T-375 either which shows that it had presented the
Supplemental Deed. In fact, there is absolutely no mention of a reference to said document in the original and
transfer certificates of title. It is in this regard that the finding of the Court of Appeals concerning the absence
of entries on the blanks intended for the Book No. and Page No. gains significant relevance. Indeed, this aspect
fortifies the conclusion that the cancellation of OCT No. 5203 and the consequent issuance of TCT No. T-375 in
its place are not predicated on a valid transaction.
What appears instead on OCT No. 5203 is the following pertinent entry:
Entry No. 1374: Kind: Order: Executed in favor of J.L.T. AGRO, INC.
CONDITIONS: Lost owner’s duplicate is hereby cancelled, and null and void and a new Certificate of Title
No. 375 is issued per Order of the Court of First Instance on file in this office.
Date of Instrument: November 12, 1979
Date of Inscription: Nov. 12, 1979 4:00 P.M.
(SGD) MANUEL C. MONTESA
Acting Deputy Register of Deeds II
(Emphasis supplied)52
What the entry indicates is that the owner’s duplicate of OCT No. 5203 was lost, a petition for the
reconstitution of the said owner’s duplicate was filed in court, and the court issued an order for the
reconstitution of the owner’s duplicate and its replacement with a new one. But if the entry is to be believed,
the court concerned (CFI, according to the entry) issued an order for the issuance of a new title which is TCT
No. T-375 although the original of OCT No. 5203 on file with the Registry of Deeds had not been lost.
Going by the legal, accepted and normal process, the reconstitution court may order the reconstitution and
replacement of the lost title only, nothing else. Since what was lost is the owner’s copy of OCT No. 5203, only
that owner’s copy could be ordered replaced. Thus, the Register of Deeds exceeded his authority in issuing not
just a reconstituted owner’s copy of the original certificate of title but a new transfer certificate of title in place
of the original certificate of title. But if the court order, as the entry intimates, directed the issuance of a new
transfer certificate of title—even designating the very number of the new transfer certificate of title itself—the
order would be patently unlawful. A court cannot legally order the cancellation and replacement of the original
of the O.C.T. which has not been lost, 53 as the petition for reconstitution is premised on the loss merely of the
owner’s duplicate of the OCT
Apparently, petitioner had resorted to the court order as a convenient contrivance to effect the transfer of title
to the subject lot in its name, instead of the Supplemental Deed which should be its proper course of action. It
was so constrained to do because the Supplemental Deed does not constitute a deed of conveyance of the
"registered land in fee simple" "in a form sufficient in law," as required by Section 57 of P.D. No. 1529.
A plain reading of the pertinent provisions of the Supplemental Deed discloses that the assignment is not
supported by any consideration. The provision reads:
....
WHEREAS, in the Deed of Assignment of Assets with the Assumption of Liabilities executed by Julian L. Teves,
Emilio B. Teves and Josefa T. Escaño at Dumaguete City on 16 th day of November 1972 and ratified in the City
of Dumaguete before Notary Public Lenin Victoriano, and entered in the latter’s notarial register as Doc. No.
367; Page No. 17; Book No. V; series of 1972, Julian L. Teves, Emilio B. Teves and Josefa T. Escaño, transferred,
conveyed and assigned unto J.L.T. AGRO, INC., all its assets and liabilities as reflected in the Balance Sheet of
the former as of December 31, 1971.
WHEREAS, on the compromise agreement, as mentioned in the Decision made in the Court of First Instance of
Negros Oriental, 12th Judicial District Branch II, on Dec. 31, 1964 pertaining to Civil Case No. 3443 the following
properties were adjudicated to Don Julian L. Teves. We quote.
From the properties at Bais
Adjudicated to Don Julian L.Teves
....
Lot No. 63, Tax Dec. No. 33, Certificate of Title No. 5203, together with all improvements. Assessed value -
P2,720.00
....
WHEREAS, this Deed of Assignment is executed by the parties herein in order to effect the registration of the
transfer of the above corporation.
NOW, THEREFORE, for and in consideration of the above premises the ASSIGNOR hereby transfers, conveys,
and assigns unto J.L.T. AGRO, INC., the above described parcel of land[s] with a fair market value of EIGHTY-
FOUR THOUSAND PESOS (P84,000.00), Philippine Currency, and which transfer, conveyance and assignment
shall become absolute upon signing.54 (Emphasis supplied)
The amount of P84,000.00 adverted to in the dispositive portion of the instrument does not represent the
consideration for the assignment made by Don Julian. Rather, it is a mere statement of the fair market value of
all the nineteen (19) properties enumerated in the instrument, of which Lot No. 63 is just one, that were
transferred by Don Julian in favor of petitioner. Consequently, the testimony 55 of petitioner’s accountant that
the assignment is supported by consideration cannot prevail over the clear provision to the contrary in the
Supplemental Deed.
The Court of Appeals, on the other hand, apparently considered the 1948 mortgage which is annotated on the
back of the TCT No. T-375 as the consideration for the assignment. 56 However, the said annotation 57 shows
that the mortgage was actually executed in favor of Rehabilitation Finance Corporation, not of petitioner. 58
Clearly, said mortgage, executed as it was in favor of the Rehabilitation Finance Corporation and there being
no showing that petitioner itself paid off the mortgate obligation, could not have been the consideration for
the assignment to petitioner.
Article 1318 of the New Civil Code enumerates the requisites of a valid contract, namely: (1) consent of the
contracting parties; (2) object certain which is the subject matter of the contract; and (3) Cause of the
obligation which is established.
Thus, Article 1352 declares that contracts without cause, or with unlawful cause produce no effect whatsoever.
Those contracts lack an essential element and they are not only voidable but void or inexistent pursuant to
Article 1409, paragraph (2).59 The absence of the usual recital of consideration in a transaction which normally
should be supported by a consideration such as the assignment made by Don Julian of all nineteen (19) lots he
still had at the time, coupled with the fact that the assignee is a corporation of which Don Julian himself was
also the President and Director, forecloses the application of the presumption of existence of consideration
established by law.60
Neither could the Supplemental Deed validly operate as a donation. Article 749 of the New Civil Code is clear
on the point, thus:
Art. 749. In order that the donation of the immovable may be valid, it must be made in a public document,
specifying therein the property donated and the value of the charges which the donee must satisfy.
The acceptance may be made in the same deed of donation or in a separate public document, but it shall not
take effect unless it is done during the lifetime of the donor.
If the acceptance is made in a separate instrument, the donor shall be notified thereof in an authentic form,
and this step shall be noted in both instruments.
In Sumipat, et al v. Banga, et al.,61 this Court declared that title to immovable property does not pass from the
donor to the donee by virtue of a deed of donation until and unless it has been accepted in a public
instrument and the donor duly notified thereof. The acceptance may be made in the very same instrument of
donation. If the acceptance does not appear in the same document, it must be made in another. Where the
deed of donation fails to show the acceptance, or where the formal notice of the acceptance, made in a
separate instrument, is either not given to the donor or else not noted in the deed of donation and in the
separate acceptance, the donation is null and void.
In the case at bar, although the Supplemental Deed appears in a public document, 62 the absence of
acceptance by the donee in the same deed or even in a separate document is a glaring violation of the
requirement.
One final note. From the substantive and procedural standpoints, the cardinal objectives to write finis to a
protracted litigation and avoid multiplicity of suits are worth pursuing at all times. 63 Thus, this Court has ruled
that appellate courts have ample authority to rule on specific matters not assigned as errors or otherwise not
raised in an appeal, if these are indispensable or necessary to the just resolution of the pleaded issues. 64
Specifically, matters not assigned as errors on appeal but consideration of which are necessary in arriving at a
just decision and complete resolution of the case, or to serve the interest of justice or to avoid dispensing
piecemeal justice.65
In the instant case, the correct characterization of the Supplemental Deed, i.e., whether it is valid or void, is
unmistakably determinative of the underlying controversy. In other words, the issue of validity or nullity of the
instrument which is at the core of the controversy is interwoven with the issues adopted by the parties and the
rulings of the trial court and the appellate court. 66 Thus, this Court is also resolute in striking down the alleged
deed in this case, especially as it appears on its face to be a blatant nullity.
WHEREFORE, foregoing premises considered, the Decision dated 30 September 1999 of the Court of Appeals is
hereby AFFIRMED. Costs against petitioner J.L.T. Agro, Inc.
SO ORDERED.
[G.R. No. 126376. ]
SPOUSES BERNARDO BUENAVENTURA and CONSOLACION JOAQUIN, SPOUSES JUANITO EDRA and NORA
JOAQUIN, SPOUSES RUFINO VALDOZ and EMMA JOAQUIN, and NATIVIDAD JOAQUIN, petitioners, vs. COURT
OF APPEALS, SPOUSES LEONARDO JOAQUIN and FELICIANA LANDRITO, SPOUSES FIDEL JOAQUIN and
CONCHITA BERNARDO, SPOUSES TOMAS JOAQUIN and SOLEDAD ALCORAN, SPOUSES ARTEMIO JOAQUIN and
SOCORRO ANGELES, SPOUSES ALEXANDER MENDOZA and CLARITA JOAQUIN, SPOUSES TELESFORO CARREON
and FELICITAS JOAQUIN, SPOUSES DANILO VALDOZ and FE JOAQUIN, and SPOUSES GAVINO JOAQUIN and LEA
ASIS, respondents.
DECISION
CARPIO, J.:
The Case
This is a petition for review on certiorari[1] to annul the Decision[2] dated of the Court of Appeals in CA-G.R. CV
No. 41996. The Court of Appeals affirmed the Decision[3] dated rendered by Branch 65 of the Regional Trial
Court of Makati (trial court) in Civil Case No. 89-5174. The trial court dismissed the case after it found that the
parties executed the Deeds of Sale for valid consideration and that the plaintiffs did not have a cause of action
against the defendants.
The Facts
The Court of Appeals summarized the facts of the case as follows:
Defendant spouses Leonardo Joaquin and Feliciana Landrito are the parents of plaintiffs Consolacion, Nora,
Emma and Natividad as well as of defendants Fidel, Tomas, Artemio, Clarita, Felicitas, Fe, and Gavino, all
surnamed JOAQUIN. The married Joaquin children are joined in this action by their respective spouses.
Sought to be declared null and void ab initio are certain deeds of sale of real property executed by defendant
parents Leonardo Joaquin and Feliciana Landrito in favor of their co-defendant children and the corresponding
certificates of title issued in their names, to wit:
1. Deed of Absolute Sale covering Lot 168-C-7 of subdivision plan (LRC) Psd-256395 executed on 11 July 1978,
in favor of defendant Felicitas Joaquin, for a consideration of P6,000.00 (Exh. C), pursuant to which TCT No.
[36113/T-172] was issued in her name (Exh. C-1);
2. Deed of Absolute Sale covering Lot 168-I-3 of subdivision plan (LRC) Psd-256394 executed on 7 June 1979, in
favor of defendant Clarita Joaquin, for a consideration of P1[2],000.00 (Exh. D), pursuant to which TCT No. S-
109772 was issued in her name (Exh. D-1);
3 Deed of Absolute Sale covering Lot 168-I-1 of subdivision plan (LRC) Psd-256394 executed on 12 May 1988, in
favor of defendant spouses Fidel Joaquin and Conchita Bernardo, for a consideration of P54,[3]00.00 (Exh. E),
pursuant to which TCT No. 155329 was issued to them (Exh. E-1);
4. Deed of Absolute Sale covering Lot 168-I-2 of subdivision plan (LRC) Psd-256394 executed on 12 May 1988,
in favor of defendant spouses Artemio Joaquin and Socorro Angeles, for a consideration of P[54,3]00.00 (Exh.
F), pursuant to which TCT No. 155330 was issued to them (Exh. F-1); and
5. Absolute Sale of Real Property covering Lot 168-C-4 of subdivision plan (LRC) Psd-256395 executed on 9
September 1988, in favor of Tomas Joaquin, for a consideration of P20,000.00 (Exh. G), pursuant to which TCT
No. 157203 was issued in her name (Exh. G-1).
[6. Deed of Absolute Sale covering Lot 168-C-1 of subdivision plan (LRC) Psd-256395 executed on 7 October
1988, in favor of Gavino Joaquin, for a consideration of P25,000.00 (Exh. K), pursuant to which TCT No. 157779
was issued in his name (Exh. K-1).]
In seeking the declaration of nullity of the aforesaid deeds of sale and certificates of title, plaintiffs, in their
complaint, aver:
- XX-
The deeds of sale, Annexes C, D, E, F, and G, [and K] are simulated as they are, are NULL AND VOID AB INITIO
because
a) Firstly, there was no actual valid consideration for the deeds of sale xxx over the properties in litis;
b) Secondly, assuming that there was consideration in the sums reflected in the questioned deeds, the
properties are more than three-fold times more valuable than the measly sums appearing therein;
c) Thirdly, the deeds of sale do not reflect and express the true intent of the parties (vendors and vendees);
and
d) Fourthly, the purported sale of the properties in litis was the result of a deliberate conspiracy designed to
unjustly deprive the rest of the compulsory heirs (plaintiffs herein) of their legitime.
- XXI -
Necessarily, and as an inevitable consequence, Transfer Certificates of Title Nos. 36113/T-172, S-109772,
155329, 155330, 157203 [and 157779] issued by the Registrar of Deeds over the properties in litis xxx are NULL
AND VOID AB INITIO.
Defendants, on the other hand aver (1) that plaintiffs do not have a cause of action against them as well as the
requisite standing and interest to assail their titles over the properties in litis; (2) that the sales were with
sufficient considerations and made by defendants parents voluntarily, in good faith, and with full knowledge of
the consequences of their deeds of sale; and (3) that the certificates of title were issued with sufficient factual
and legal basis.[4] (Emphasis in the original)
The Ruling of the Trial Court
Before the trial, the trial court ordered the dismissal of the case against defendant spouses Gavino Joaquin and
Lea Asis.[5] Instead of filing an Answer with their co-defendants, Gavino Joaquin and Lea Asis filed a Motion to
Dismiss.[6] In granting the dismissal to Gavino Joaquin and Lea Asis, the trial court noted that compulsory
heirs have the right to a legitime but such right is contingent since said right commences only from the
moment of death of the decedent pursuant to Article 777 of the Civil Code of the Philippines.[7]
After trial, the trial court ruled in favor of the defendants and dismissed the complaint. The trial court stated:
In the first place, the testimony of the defendants, particularly that of the xxx father will show that the Deeds
of Sale were all executed for valuable consideration. This assertion must prevail over the negative allegation of
plaintiffs.
And then there is the argument that plaintiffs do not have a valid cause of action against defendants since
there can be no legitime to speak of prior to the death of their parents. The court finds this contention tenable.
In determining the legitime, the value of the property left at the death of the testator shall be considered (Art.
908 of the New Civil Code). Hence, the legitime of a compulsory heir is computed as of the time of the death of
the decedent. Plaintiffs therefore cannot claim an impairment of their legitime while their parents live.
All the foregoing considered, this case is DISMISSED.
In order to preserve whatever is left of the ties that should bind families together, the counterclaim is likewise
DISMISSED.
No costs.
SO ORDERED.[8]
The Ruling of the Court of Appeals
The Court of Appeals affirmed the decision of the trial court. The appellate court ruled:
To the mind of the Court, appellants are skirting the real and decisive issue in this case, which is, whether xxx
they have a cause of action against appellees.
Upon this point, there is no question that plaintiffs-appellants, like their defendant brothers and sisters, are
compulsory heirs of defendant spouses, Leonardo Joaquin and Feliciana Landrito, who are their parents.
However, their right to the properties of their defendant parents, as compulsory heirs, is merely inchoate and
vests only upon the latters death. While still alive, defendant parents are free to dispose of their properties,
provided that such dispositions are not made in fraud of creditors.
Plaintiffs-appellants are definitely not parties to the deeds of sale in question. Neither do they claim to be
creditors of their defendant parents. Consequently, they cannot be considered as real parties in interest to
assail the validity of said deeds either for gross inadequacy or lack of consideration or for failure to express the
true intent of the parties. In point is the ruling of the Supreme Court in Velarde, et al. vs. Paez, et al., 101 SCRA
376, thus:
The plaintiffs are not parties to the alleged deed of sale and are not principally or subsidiarily bound thereby;
hence, they have no legal capacity to challenge their validity.
Plaintiffs-appellants anchor their action on the supposed impairment of their legitime by the dispositions
made by their defendant parents in favor of their defendant brothers and sisters. But, as correctly held by the
court a quo, the legitime of a compulsory heir is computed as of the time of the death of the decedent.
Plaintiffs therefore cannot claim an impairment of their legitime while their parents live.
With this posture taken by the Court, consideration of the errors assigned by plaintiffs-appellants is
inconsequential.
WHEREFORE, the decision appealed from is hereby AFFIRMED, with costs against plaintiffs-appellants.
SO ORDERED.[9]
Hence, the instant petition.
Issues
Petitioners assign the following as errors of the Court of Appeals:
1. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE CONVEYANCE IN QUESTION HAD NO VALID
CONSIDERATION.
2. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT EVEN ASSUMING THAT THERE WAS A
CONSIDERATION, THE SAME IS GROSSLY INADEQUATE.
3. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE DEEDS OF DO NOT EXPRESS THE TRUE INTENT
OF THE PARTIES.
4. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE CONVEYANCE WAS PART AND PARCEL OF A
CONSPIRACY AIMED AT UNJUSTLY DEPRIVING THE REST OF THE CHILDREN OF THE SPOUSES LEONARDO
JOAQUIN AND FELICIANA LANDRITO OF THEIR INTEREST OVER THE SUBJECT PROPERTIES.
5. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT PETITIONERS HAVE A GOOD, SUFFICIENT AND VALID
CAUSE OF ACTION AGAINST THE PRIVATE RESPONDENTS.[10]
The Ruling of the Court
We find the petition without merit.
We will discuss petitioners legal interest over the properties subject of the Deeds of Sale before discussing the
issues on the purported lack of consideration and gross inadequacy of the prices of the Deeds of Sale.
Whether Petitioners have a legal interest
over the properties subject of the Deeds of Sale
Petitioners Complaint betrays their motive for filing this case. In their Complaint, petitioners asserted that the
purported sale of the properties in litis was the result of a deliberate conspiracy designed to unjustly deprive
the rest of the compulsory heirs (plaintiffs herein) of their legitime. Petitioners strategy was to have the Deeds
of Sale declared void so that ownership of the lots would eventually revert to their respondent parents. If their
parents die still owning the lots, petitioners and their respondent siblings will then co-own their parents estate
by hereditary succession.[11]
It is evident from the records that petitioners are interested in the properties subject of the Deeds of Sale, but
they have failed to show any legal right to the properties. The trial and appellate courts should have dismissed
the action for this reason alone. An action must be prosecuted in the name of the real party-in-interest.[12]
[T]he question as to real party-in-interest is whether he is the party who would be benefitted or injured by the
judgment, or the party entitled to the avails of the suit.
xxx
In actions for the annulment of contracts, such as this action, the real parties are those who are parties to the
agreement or are bound either principally or subsidiarily or are prejudiced in their rights with respect to one
of the contracting parties and can show the detriment which would positively result to them from the contract
even though they did not intervene in it (Ibaez v. Hongkong & Shanghai Bank, 22 Phil. 572 [1912]) xxx.
These are parties with a present substantial interest, as distinguished from a mere expectancy or future,
contingent, subordinate, or consequential interest. The phrase present substantial interest more concretely is
meant such interest of a party in the subject matter of the action as will entitle him, under the substantive law,
to recover if the evidence is sufficient, or that he has the legal title to demand and the defendant will be
protected in a payment to or recovery by him.[13]
Petitioners do not have any legal interest over the properties subject of the Deeds of Sale. As the appellate
court stated, petitioners right to their parents properties is merely inchoate and vests only upon their parents
death. While still living, the parents of petitioners are free to dispose of their properties. In their
overzealousness to safeguard their future legitime, petitioners forget that theoretically, the sale of the lots to
their siblings does not affect the value of their parents estate. While the sale of the lots reduced the estate,
cash of equivalent value replaced the lots taken from the estate.
Whether the Deeds of Sale are void
for lack of consideration
Petitioners assert that their respondent siblings did not actually pay the prices stated in the Deeds of Sale to
their respondent father. Thus, petitioners ask the court to declare the Deeds of Sale void.
A contract of sale is not a real contract, but a consensual contract. As a consensual contract, a contract of sale
becomes a binding and valid contract upon the meeting of the minds as to price. If there is a meeting of the
minds of the parties as to the price, the contract of sale is valid, despite the manner of payment, or even the
breach of that manner of payment. If the real price is not stated in the contract, then the contract of sale is
valid but subject to reformation. If there is no meeting of the minds of the parties as to the price, because the
price stipulated in the contract is simulated, then the contract is void.[14] Article 1471 of the Civil Code states
that if the price in a contract of sale is simulated, the sale is void.
It is not the act of payment of price that determines the validity of a contract of sale. Payment of the price has
nothing to do with the perfection of the contract. Payment of the price goes into the performance of the
contract. Failure to pay the consideration is different from lack of consideration. The former results in a right
to demand the fulfillment or cancellation of the obligation under an existing valid contract while the latter
prevents the existence of a valid contract.[15]
Petitioners failed to show that the prices in the Deeds of Sale were absolutely simulated. To prove simulation,
petitioners presented Emma Joaquin Valdozs testimony stating that their father, respondent Leonardo Joaquin,
told her that he would transfer a lot to her through a deed of sale without need for her payment of the
purchase price.[16] The trial court did not find the allegation of absolute simulation of price credible.
Petitioners failure to prove absolute simulation of price is magnified by their lack of knowledge of their
respondent siblings financial capacity to buy the questioned lots.[17] On the other hand, the Deeds of Sale
which petitioners presented as evidence plainly showed the cost of each lot sold. Not only did respondents
minds meet as to the purchase price, but the real price was also stated in the Deeds of Sale. As of the filing of
the complaint, respondent siblings have also fully paid the price to their respondent father.[18]
Whether the Deeds of Sale are void
for gross inadequacy of price
Petitioners ask that assuming that there is consideration, the same is grossly inadequate as to invalidate the
Deeds of Sale.
Articles 1355 of the Civil Code states:
Art. 1355. Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract ,
unless there has been fraud, mistake or undue influence. (Emphasis supplied)
Article 1470 of the Civil Code further provides:
Art. 1470. Gross inadequacy of price does not affect a contract of sale , except as may indicate a defect in
the consent, or that the parties really intended a donation or some other act or contract. (Emphasis supplied)
Petitioners failed to prove any of the instances mentioned in Articles 1355 and 1470 of the Civil Code which
would invalidate, or even affect, the Deeds of Sale. Indeed, there is no requirement that the price be equal to
the exact value of the subject matter of sale. All the respondents believed that they received the commutative
value of what they gave. As we stated in Vales v. Villa:[19]
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 the 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. (Emphasis in the original)
Moreover, the factual findings of the appellate court are conclusive on the parties and carry greater weight
when they coincide with the factual findings of the trial court. This Court will not weigh the evidence all over
again unless there has been a showing that the findings of the lower court are totally devoid of support or are
clearly erroneous so as to constitute serious abuse of discretion.[20] In the instant case, the trial court found
that the lots were sold for a valid consideration, and that the defendant children actually paid the purchase
price stipulated in their respective Deeds of Sale. Actual payment of the purchase price by the buyer to the
seller is a factual finding that is now conclusive upon us.
WHEREFORE, we AFFIRM the decision of the Court of Appeals in toto.
SO ORDERED.
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.nêt
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. 158901 March 9, 2004
PROCESO QUIROS and LEONARDA VILLEGAS, petitioners,
vs.
MARCELO ARJONA, TERESITA BALARBAR, JOSEPHINE ARJONA, and CONCHITA ARJONA, respondents.
DECISION
YNARES-SANTIAGO, J.:
Assailed in this petition for review is the decision of the Court of Appeals in an action for the
execution/enforcement of amicable settlement between petitioners Proceso Quiros and Leonarda Villegas and
respondent Marcelo Arjona. Appellate court reversed the decision of the Regional Trial Court of Dagupan City-
Branch 44 and reinstated the decision of the Municipal Trial Court of San Fabian-San Jacinto, Pangasinan.
On December 19, 1996, petitioners Proceso Quiros and Leonarda Villegas filed with the office of the barangay
captain of Labney, San Jacinto, Pangasinan, a complaint for recovery of ownership and possession of a parcel
of land located at Labney, San Jacinto, Pangasinan. Petitioners sought to recover from their uncle Marcelo
Arjona, one of the respondents herein, their lawful share of the inheritance from their late grandmother Rosa
Arjona Quiros alias Doza, the same to be segregated from the following parcels of land:
a) A parcel of land (Lot 1, plan Psu-189983, L.R. Case No. D-614, LRC Record No. N- 22630), situated in the
Barrio of Labney, Torud, Municipality of San Jacinto, Province of Pangasinan x x x Containing an area of Forty
Four Thousand Five Hundred and Twenty (44,520) square meters, more or less, covered by Tax Decl. No. 607;
b) A parcel of Unirrig. riceland situated at Brgy. Labney, San Jacinto, San Jacinto, Pangasinan with an area of
6450 sq. meters, more or less declared under Tax Decl. No. 2066 of the land records of San Jacinto, Pangasinan
assessed at P2390.00 x x x;
c) A parcel of Unirrig. riceland situated at Brgy. Labney, San Jacinto, Pangasinan with an area of 6450 sq.
meters, more or less, declared under Tax Declaration No. 2047 of the land records of San Jacinto, Pangasinan
assessed at P1700.00 x x x
d) A parcel of Unirrig. riceland situated at Brgy. Labney, San Jacinto, Pangasinan assessed at P5610.00 x x x;
e) A parcel of Cogon land situated at Brgy. Labney, San Jacinto, Pangasinan, with an area of 14133 sq. meters,
more or less declared under Tax Declaration No. 14 of the land records of San Jacinto, Pangasinan assessed at
P2830.00 x x x.1
On January 5, 1997, an amicable settlement was reached between the parties. By reason thereof, respondent
Arjona executed a document denominated as "PAKNAAN" ("Agreement", in Pangasinan dialect), which reads:
AGREEMENT
I, MARCELO ARJONA, of legal age, resident of Barangay Sapang, Buho, Palayan City, Nueva Ecija, have a land
consisting of more or less one (1) hectare which I gave to Proceso Quiros and Leonarda Villegas, this land was
inherited by Doza that is why I am giving the said land to them for it is in my name, I am affixing my signature
on this document for this is our agreement besides there are witnesses on the 5 th day (Sunday) of January
1997.
Signed in the presence of:
(Sgd) Avelino N. De la Masa, Jr.
(Sgd) Marcelo Arjona
Witnesses:
1) (Sgd.) Teresita Balarbar
2) (Sgd.) Josephine Arjona
3) (Sgd.) Conchita Arjona
On the same date, another "PAKNAAN" was executed by Jose Banda, as follows:
AGREEMENT
I, JOSE BANDA, married to Cecilia L. Banda, of legal age, and resident of Sitio Torrod, Barangay Labney, San
Jacinto, Pangasinan. There is a land in which they entrusted to me and the same land is situated in Sitio Torrod,
Brgy. Labney, San Jacinto, Pangasinan, land of Arjona family.
I am cultivating/tilling this land but if ever Leonarda Villegas and Proceso Quiros would like to get this land, I
will voluntarily surrender it to them.
In order to attest to the veracity and truthfulness of this agreement, I affixed (sic) my signature voluntarily
below this document this 5th day (Sunday) of January 1997.
(Sgd.) Jose Banda
Signed in the presence of:
(Sgd) Avelino N. de la Masa, Sr.
Barangay Captain
Brgy. Labney, San Jacinto
Pangasinan
Witnesses:
1) Irene Banda
(sgd.)
2) Jose (illegible) x x x
Petitioners filed a complaint with the Municipal Circuit Trial Court with prayer for the issuance of a writ of
execution of the compromise agreement which was denied because the subject property cannot be
determined with certainty.
The Regional Trial Court reversed the decision of the municipal court on appeal and ordered the issuance of
the writ of execution.
Respondents appealed to the Court of Appeals, which reversed the decision of the Regional Trial Court and
reinstated the decision of the Municipal Circuit Trial Court. 2
Hence, this petition on the following errors:
I
THE PAKNAAN BEING A FINAL AND EXECUTORY JUDGMENT UNDER THE LAW IS AN IMMUTABLE JUDGMENT
CAN NOT BE ALTERED, MODIFIED OR CHANGED BY THE COURT INCLUDING THE HIGHEST COURT; and
II
THE SECOND PAKNAAN ALLEGEDLY EXECUTED IN CONJUNCTION WITH THE FIRST PAKNAAN WAS NEVER
ADDUCED AS EVIDENCE BY EITHER OF THE PARTIES, SO IT IS ERROR OF JURISDICTION TO CONSIDER THE SAME
IN THE DECISION MAKING.
The pivotal issue is the validity and enforceability of the amicable settlement between the parties and corollary
to this, whether a writ of execution may issue on the basis thereof.
In support of their stance, petitioners rely on Section 416 of the Local Government Code which provides that
an amicable settlement shall have the force and effect of a final judgment upon the expiration of 10 days from
the date thereof, unless repudiated or nullified by the proper court. They argue that since no such repudiation
or action to nullify has been initiated, the municipal court has no discretion but to execute the agreement
which has become final and executory.
Petitioners likewise contend that despite the failure of the Paknaan to describe with certainty the object of the
contract, the evidence will show that after the execution of the agreement, respondent Marcelo Arjona
accompanied them to the actual site of the properties at Sitio Torod, Labney, San Jacinto, Pangasinan and
pointed to them the 1 hectare property referred to in the said agreement.
In their Comment, respondents insist that respondent Arjona could not have accompanied petitioners to the
subject land at Torrod, Labney because he was physically incapacitated and there was no motorized vehicle to
transport him to the said place.
The Civil Code contains salutary provisions that encourage and favor compromises and do not even require
judicial approval. Thus, under Article 2029 of the Civil Code, the courts must endeavor to persuade the litigants
in a civil case to agree upon some fair compromise. Pursuant to Article 2037 of the Civil Code, a compromise
has upon the parties the effect and authority of res judicata, and this is true even if the compromise is not
judicially approved. Articles 2039 and 2031 thereof also provide for the suspension of pending actions and
mitigation of damages to the losing party who has shown a sincere desire for a compromise, in keeping with
the Code’s policy of encouraging amicable settlements. 3
Cognizant of the beneficial effects of amicable settlements, the Katarungang Pambarangay Law (P.D. 1508) and
later the Local Government Code provide for a mechanism for conciliation where party-litigants can enter into
an agreement in the barangay level to reduce the deterioration of the quality of justice due to indiscriminate
filing of court cases. Thus, under Section 416 of the said Code, an amicable settlement shall have the force and
effect of a final judgment of the court upon the expiration of 10 days from the date thereof, unless repudiation
of the settlement has been made or a petition to nullify the award has been filed before the proper court
Petitioners submit that since the amicable settlement had not been repudiated or impugned before the court
within the 10-day prescriptive period in accordance with Section 416 of the Local Government Code, the
enforcement of the same must be done as a matter of course and a writ of execution must accordingly be
issued by the court.
Generally, the rule is that where no repudiation was made during the 10-day period, the amicable settlement
attains the status of finality and it becomes the ministerial duty of the court to implement and enforce it.
However, such rule is not inflexible for it admits of certain exceptions. In Santos v. Judge Isidro, 4 the Court
observed that special and exceptional circumstances, the imperatives of substantial justice, or facts that may
have transpired after the finality of judgment which would render its execution unjust, may warrant the
suspension of execution of a decision that has become final and executory. In the case at bar, the ends of
justice would be frustrated if a writ of execution is issued considering the uncertainty of the object of the
agreement. To do so would open the possibility of error and future litigations.
The Paknaan executed by respondent Marcelo Arjona purports to convey a parcel of land consisting of more or
less 1 hectare to petitioners Quiros and Villegas. Another Paknaan, prepared on the same date, and executed
by one Jose Banda who signified his intention to vacate the parcel of land he was tilling located at Torrod, Brgy.
Labney, San Jacinto, Pangasinan, for and in behalf of the Arjona family. On ocular inspection however, the
municipal trial court found that the land referred to in the second Paknaan was different from the land being
occupied by petitioners. Hence, no writ of execution could be issued for failure to determine with certainty
what parcel of land respondent intended to convey.
In denying the issuance of the writ of execution, the appellate court ruled that the contract is null and void for
its failure to describe with certainty the object thereof. While we agree that no writ of execution may issue, we
take exception to the appellate court’s reason for its denial.
Since an amicable settlement, which partakes of the nature of a contract, is subject to the same legal
provisions providing for the validity, enforcement, rescission or annulment of ordinary contracts, there is a
need to ascertain whether the Paknaan in question has sufficiently complied with the requisites of validity in
accordance with Article 1318 of the Civil Code. 5
There is no question that there was meeting of the minds between the contracting parties. In executing the
Paknaan, the respondent undertook to convey 1 hectare of land to petitioners who accepted. It appears that
while the Paknaan was prepared and signed by respondent Arjona, petitioners acceded to the terms thereof by
not disputing its contents and are in fact now seeking its enforcement. The object is a 1-hectare parcel of land
representing petitioners’ inheritance from their deceased grandmother. The cause of the contract is the
delivery of petitioners’ share in the inheritance. The inability of the municipal court to identify the exact
location of the inherited property did not negate the principal object of the contract. This is an error
occasioned by the failure of the parties to describe the subject property, which is correctible by reformation
and does not indicate the absence of the principal object as to render the contract void. It cannot be disputed
that the object is determinable as to its kind, i.e.1 hectare of land as inheritance, and can be determined
without need of a new contract or agreement. 6 Clearly, the Paknaan has all the earmarks of a valid contract.
Although both parties agreed to transfer one-hectare real property, they failed to include in the written
document a sufficient description of the property to convey. This error is not one for nullification of the
instrument but only for reformation.
Article 1359 of the Civil Code provides:
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.
Reformation is a remedy in equity whereby a written instrument is made or construed so as to express or
conform to the real intention of the parties where some error or mistake has been committed. 7 In granting
reformation, the remedy in equity is not making a new contract for the parties, but establishing and
perpetuating the real contract between the parties which, under the technical rules of law, could not be
enforced but for such reformation.
In order that an action for reformation of instrument as provided in Article 1359 of the Civil Code may prosper,
the following requisites must concur: (1) there must have been a meeting of the minds of the parties to the
contract; (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.8
When the terms of an agreement have been reduced to writing, it is considered as containing all the terms
agreed upon and there can be, between the parties and their successors in interest, no evidence of such terms
other than the contents of the written agreement, except when it fails to express the true intent and
agreement of the parties thereto, in which case, one of the parties may bring an action for the reformation of
the instrument to the end that such true intention may be expressed. 9
Both parties acknowledge that petitioners are entitled to their inheritance, hence, the remedy of nullification,
which invalidates the Paknaan, would prejudice petitioners and deprive them of their just share of the
inheritance. Respondent can not, as an afterthought, be allowed to renege on his legal obligation to transfer
the property to its rightful heirs. A refusal to reform the Paknaan under such circumstances would have the
effect of penalizing one party for negligent conduct, and at the same time permitting the other party to escape
the consequences of his negligence and profit thereby. No person shall be unjustly enriched at the expense of
another.
WHEREFORE, in view of the foregoing, the petition is DENIED. The Decision dated March 21, 2003 of the Court
of Appeals, which reversed the decision of the Regional Trial Court and reinstated the decision of the Municipal
Trial Court, is AFFIRMED. This is without prejudice to the filing by either party of an action for reformation of
the Paknaan executed on January 5, 1997.
SO ORDERED.
G.R. No. L-22962 September 28, 1972
PILAR N. BORROMEO, MARIA B. PUTONG, FEDERICO V. BORROMEO, JOSE BORROMEO, CONSUELO B.
MORALES and CANUTO V. BORROMEO, JR., petitioners,
vs.
COURT OF APPEALS and JOSE A. VILLAMOR, (Deceased) Substituted by FELISA VILLAMOR, ROSARIO V.
LIAO LAMCO, MANUEL VILLAMOR, AMPARO V. COTTON, MIGUEL VILLAMOR and CARMENCITA
VILLAMOR, respondents.
Filiberto Leonardo for petitioners.
Ramon Duterte for private respondents.

FERNANDO, J.:p
The point pressed on us by private respondents,1 in this petition for review of a decision of the Court of
Appeals in the interpretation of a stipulation which admittedly is not free from ambiguity, there being a
mention of a waiver of the defense of prescription, is not calculated to elicit undue judicial sympathy. For if
accorded acceptance, a creditor, now represented by his heirs,2 who, following the warm and generous
impulse of friendship, came to the rescue of a debtor from a serious predicament of his own making would be
barred from recovering the money loaned. Thus the promptings of charity, unfortunately not often persuasive
enough, would be discredited. It is unfortunate then that respondent Court of Appeals did not see it that way.
For its decision to be upheld would be to subject the law to such a scathing indictment. A careful study of the
relevant facts in the light of applicable doctrines calls for the reversal of its decision.
The facts as found by the Court of Appeals follow: "Before the year 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 with some pressing obligation to settle with Mr.
Miller, defendant borrowed from plaintiff a large sum of money for which he mortgaged his land and house in
Cebu City. Mr. Miller filed 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 stipulates 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, —
hence the present complaint for collection."3 It was then noted in the decision under review that the Court of
First Instance of Cebu did sentence the original defendant, the deceased Jose A. Villamor, to pay Canuto O.
Borromeo, now represented by petitioners, 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 expiration of such ninety-day
period. That was the judgment reversed by the Court of Appeals in its decision of March 7, 1964, now the
subject of this petition for review. The legal basis was the lack of validity of the stipulation amounting to a
waiver in line with the principle "that a person cannot renounce future prescription."4
The rather summary and curt disposition of the crucial legal question of respondent Court in its five-page
decision, regrettably rising not too-far-above the superficial level of analysis hardly commends itself for
approval. In the first place, there appeared to be undue reliance on certain words employed in the written
instrument executed by the parties to the total disregard of their intention. That was to pay undue homage to
verbalism. That was to ignore the warning of Frankfurter against succumbing to the vice of literalism in the
interpretation of language whether found in a constitution, a statute, or a contract. Then, too, in effect it would
nullify what ought to have been evident by a perusal that is not-too-cursory, namely, that the creditor moved
by ties of friendship was more than willing to give the debtor the utmost latitude as to when his admittedly
scanty resources will allow him to pay. He was not renouncing any right; he was just being considerate,
perhaps excessively so. Under the view of respondent Court, however, what had been agreed upon was in
effect voided. That was to run counter to the well-settled maxim that between two possible interpretations,
that which saves rather than destroys is to be preferred. What vitiates most the appealed decision, however, is
that it would amount not to just negating an agreement duly entered into but would put a premium on
conduct that is hardly fair and could be characterized as duplicitous. Certainly, it would reflect on a debtor
apparently bent all the while on repudiating his obligation. Thus he would be permitted to repay an act of
kindness with base ingratitude. Since as will hereafter be shown, there is, on the contrary, the appropriate
construction of the wording that found its way in the document, one which has all the earmarks of validity and
at the same time is in consonance with the demands of justice and morality, the decision on appeal, as was
noted at the outset, must be reversed.
1. The facts rightly understood argue for the reversal of the decision arrived at by respondent Court of
Appeals. Even before the event that gave rise to the loan in question, the debtor, the late Jose A. Villamor,
being a friend and a former classmate, used to borrow from time to time various sums of money from the
creditor, the late Canuto O. Borromeo. Then faced with the need to settle a pressing obligation with a certain
Miller, he did borrow from the latter sometime in 1933 what respondent Court called "a large sum of money
for which he mortgaged his land and house in Cebu City."5 It was noted that this Miller did file a suit against
him, attaching his properties including those he did mortgage to the late Borromeo, there being no valid
objection to such a step as the aforesaid mortgage, not being properly drawn up, could not be registered.
Mention was then made of the late Borromeo in his lifetime seeking the satisfaction of the sum due with
Villamor unable to pay, but executing a document promising "to pay his indebtedness even after the lapse of
ten years."6 It is with such a background that the words employed in the instrument of November 29, 1933
should be viewed. 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. For as was also made clear therein, there had been since then
verbal requests on the part of the creditor made to the debtor for the settlement of such a loan. Nor was the
Court of Appeals unaware that such indeed was within the contemplation of the parties as shown by this
sentence in its decision: "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."7
2. There is much to be said then for the contention of petitioners that the reference to the prescriptive period
is susceptible to the construction that only after the lapse thereof could the demand be made for the payment
of the obligation. Whatever be the obscurity occasioned by the words is illumined when the light arising from
the relationship of close friendship between the parties as well as the unsuccessful effort to execute a
mortgage, taken in connection with the various oral demands made, is thrown on them. Obviously, it did not
suffice for the respondent Court of Appeals. It preferred to reach a conclusion which for it was necessitated by
the strict letter of the law untinged by any spirit of good morals and justice, which should not be alien to legal
norms. Even from the standpoint of what for some is strict legalism, the decision arrived at by the Court of
Appeals calls for disapproval. 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." 8 Such a codal
provision has been given full force and effect since the leading case of Reyes v. Limjap,9 a 1910 decision.
Justice Torres, who penned the above decision, had occasion to reiterate such a principle when he spoke for
the Court in De la Vega v. Ballilos 10 thus: "The contract entered into by the contracting parties which has
produced between them rights and obligations is in fact one of antichresis, for article 1281 of the Civil Code
prescribes among other things that if the words should appear to conflict with the evident intent of the
contracting parties, the intent shall prevail." 11 In Abella v. Gonzaga, 12 this Court through the then Justice
Villamor, gave force to such a codal provision when he made clear that the inevitable conclusion arrived at was
"that although in the contract Exhibit A the usual words 'lease,' 'lessee,' and 'lessor' were employed, that is no
obstacle to holding, as we do hereby hold, that said contract was a sale on installments, for such was the
evident intention of the parties in entering into said contract. 13 Only lately in Nielson and Company v.
Lepanto Consolidated Mining Company, 14 this Court, with Justice Zaldivar, as ponente, after stressing the
primordial rule that in the construction and interpretation of a document, the intention of the parties must be
sought, went on to state: "This is the basic rule in the interpretation of contracts because all other rules are but
ancillary to the ascertainment of the meaning intended by the parties. And once this intention has been
ascertained it becomes an integral part of the contract as though it had been originally expressed therein in
unequivocal terms ... ." 15 While not directly in point, what was said by Justice Labrador in Tumaneng v. Abad
16 is relevant: "There is no question that the terms of the contract are not clear on the period of redemption.
But the intent of the parties thereto is the law between them, and it must be ascertained and enforced." 17
Nor is it to be forgotten, following what was first announced in Velasquez v. Teodoro 18 that "previous,
simultaneous and subsequent acts of the parties are properly cognizable indicia of their true intention." 19
There is another fundamental rule in the interpretation of contracts specifically referred to in Kasilag v.
Rodriguez, 20 as "not less important" 21 than other principles which "is to the effect that the terms, clauses
and conditions contrary to law, morals and public order 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. Manresa, commenting on article 1255 of the Civil Code and stating the rule of
separation just mentioned, gives his views as follows: 'On the supposition that the various pacts, clauses, or
conditions are valid, no difficulty is presented; but should they be void, the question is as to what extent they
may produce the nullity of the principal obligation. Under the view that such features of the obligation are
added to it and do not go to its essence, a criterion based upon the stability of juridical relations should tend
to consider the nullity as confined to the clause or pact suffering therefrom, except in cases where the latter,
by an established connection or by manifest intention of the parties, is inseparable from the principal
obligation, and is a condition, juridically speaking, of that the nullity of which it would also occasion.' ... The
same view prevails in the Anglo-American law as condensed in the following words: '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. ..." 22
Nor is it to be forgotten that as early as Compania Agricola Ultramar v. Reyes , 23 decided in 1904, the then
Chief Justice Arellano in a concurring opinion explicitly declared: "It is true that contracts are not what the
parties may see fit to call them, but what they really are as determined by the principles of law." 24 Such a
doctrine has been subsequently adhered to since then. As was rephrased by Justice Recto in Aquino v.
Deala: 25 "The validity of these agreements, however, is one thing, while the juridical qualification of the
contract resulting therefrom is very distinctively another." 26 In a recent decision, Shell Company of the Phils.,
Ltd. vs. Firemen's Insurance Co. of Newark , 27 this court, through Justice Padilla, reaffirmed the doctrine thus:
"To determine the nature of a contract courts do not have or are not bound to rely upon the name or title
given it by the contracting parties, should there be a controversy as to what they really had intended to enter
into, but the way the contracting parties do or perform their respective obligations, stipulated or agreed upon
may be shown and inquired into, and should such performance conflict with the name or title given the
contract by the parties, the former must prevail over the latter." 28 Is it not rather evident that since even the
denomination of the entire contract itself is not conclusively determined by what the parties call it but by the
law, a stipulation found therein should likewise be impressed with the characterization the law places upon it?
What emerges in the light of all the principles set forth above is that 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. An action combining
both features did receive the imprimatur of the approval of this Court. As was clearly set forth in Tiglao v. The
Manila Railroad Company: 30 "There is something to defendant's contention that in previous cases this Court
has held that the duration of the term should be fixed in a separate action for that express purpose. But we
think the lower court has given good reasons for not adhering to technicalities in its desire to do substantial
justice." 31 The justification became even more apparent in the latter portion of the opinion of Justice Alex
Reyes for this Court: "We may add that defendant does not claim that if a separate action were instituted to fix
the duration of the term of its obligation, it could present better proofs than those already adduced in the
present case. Such separate action would, therefore, be a mere formality and would serve no purpose other
than to delay." 32 There is no legal obstacle then to the action for collection filed by the creditor. Moreover,
the judgment of the lower court, reversed by the respondent Court of Appeals, ordering the payment of the
amount due is in accordance with law.
3. There is something more to be said about the stress in the Tiglao decision on the sound reasons for not
adhering to technicalities in this Court's desire to do substantial justice. The then Justice, now Chief Justice,
Concepcion expressed a similar thought in emphasizing that in the determination of the rights of the
contracting parties "the interest of justice and equity be not ignored." 33 This is a principle that dates back to
the earliest years of this Court. The then Chief Justice Bengzon in Arrieta v. Bellos, 34 invoked equity. Mention
has been made of "practical and substantial justice," 35 "[no] sacrifice of the substantial rights of a litigant in
the altar of sophisticated technicalities with impairment of the sacred principles of justice," 36 "to afford
substantial justice" 37 and "what equity demands." 38 There has been disapproval when the result reached is
"neither fair, nor equitable." 39 What is to be avoided is an interpretation that "may work injustice rather than
promote justice." 40 What appears to be most obvious is that the decision of respondent Court of Appeals
under review offended most grievously against the above fundamental postulate that underlies all systems of
law.
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.
Concepcion, C.J., Zaldivar, Castro, Teehankee, Barredo, Makasiar, Antonio and Esguerra, JJ., concur.
Makalintal, J., is on leave.
G.R. No. 93625 November 8, 1993
VICENTE J. SANTI, petitioner,
vs.
HON. COURT OF APPEALS, HEIRS OF AUGUSTO A. REYES, JR., represented by ALEXANDER REYES,
respondents.
Manolo L. Lazaro for petitioner.
Mario R. Gomez for private respondents.

NOCON, J.:
The sole issue of the instant case is the interpretation specifically of paragraph 3 of the Contract of Lease 1
executed between Esperanza Jose, predecessor-in-interest of herein petitioner and Augusto Reyes, Jr.
The undisputed facts of the case as summarized by the trial court are as follows:
Esperanza Jose was in her lifetime the registered owner and in absolute possession of a parcel of land known
as Lot 3, Block 89, situated in Cavite City, more particularly described in TCT. No. 5508 (RT-3159) with an area
of 1,472 square meters; that sometime on July 12, 1957 she leased a portion of the property unto spouses
Eugenio Vitan and Beatriz Francisco for a period of 20 years "automatically extended" for another 20 years but
with a rental of P220.00 per month as per Lease Contract ratified before Notary Public Abraham F. Aguilar
(Exhibit "8") and on which the lessees constructed a cinema house; that sometime in 1962, the lessees sold all
their rights, interest and participation over the cinema house together with the leasehold rights on the lessor's
property unto Augusto A. Reyes, Jr. and a new contract of lease was entered between the new owner and
Esperanza Jose (Exhibit "A") for a period of 20 years from and after April 1, 1962 with a monthly rental of
P180.00 payable in advance, said period of lease being "extendable" for another period of 20 years with a
monthly rental increased to P220.00 also payable in advance on or about the first day of each month (Exhibit
"2-B"). In the interim, Esperanza Jose sold all her rights and participation over the parcel of land to Vicente J.
Santi and TCT No. T-3968 of the Land Records of Cavite City was issued in his favor, on February 23, 1982 the
lease having expired, plaintiff wrote Alexander Reyes as representative of Augusto Reyes, Jr., who had died,
informing him of the termination of the lease on March 31, 1982 and demanding peaceful turn-over of
possession, defendant refused on the ground that after consulting his lawyer, Atty. Gregorio R. Familiar the
latter informed him that the lease was automatically extended for another 20 years at the rate of P220.00 a
month and which amount he tendered unto plaintiff who refused and by virtue thereof, religiously deposited
said amounts with the Clerk of Court of the Municipal Trial Court of Cavite City (Exhibits "5" and "6"). In view of
defendant's refusal to vacate plaintiff filed a routine complaint against Alexander Reyes with the office of
Barangay Captain of Barangay 34, "Lapu-lapu" of the City of Cavite; and no settlement having been reached the
Barangay Captain issued a certification to file action (Exh. "B").
During the pre-trial, the parties agreed that the only question to be resolved in this case is the interpretation of
Par. 3 of the Contract of Lease, Exhibit "A", of the plaintiff and Exhibit "2" for defendant which reads as follows:
That this lease shall be for a period of twenty (20) years from and after the date of the execution of this
document with a monthly rental of ONE HUNDRED EIGHTY PESOS (P180.00) payable in advance, said period of
lease being extendable for another period of twenty (20) years with a monthly rental of TWO HUNDRED
TWENTY PESOS (P220.00) also payable in advance on or before the 1st day of each month; (pp. 73-75, orig.
rec.), Emphasis supplied.
The trial court rendered judgment for the petitioner, the dispositive portion of which reads:
WHEREFORE, in view of the foregoing, the Court finds for plaintiff and orders defendant Alexander Reyes as
representative of the heirs of Augusto Reyes, Jr., to turn over the possession of the property, Lot 3, Block 89 on
which the cine house is erected unto plaintiff, to pay monthly rental of P1,000.00 commencing April 1, 1982 up
to and until they have vacated and turned over the possession of the premises unto plaintiff, to pay the sum of
P5,000.00 as attorney's fees, and to pay the costs.
SO ORDERED.2
It is the contention of herein petitioner that to extend the lease contract for another 20 years requires a
subsequent agreement between the parties as the phrase "being extendable" meant "capable of being
extended."3
On the other hand, private respondents argue that the terms of the lease contract are clear and that the same
should be automatically extended upon the expiration of the first 20 years.
The court a quo, however, gave merit to the contention of herein private respondents and said:
To enter into new negotiations to extend the contract would, therefore, be superfluous and unnecessary, an
idle ceremony, for the lease contract already contains all that is necessary for the extension thereof.
xxx xxx xxx
The suggestion to enter into new negotiations run counter to the lease contract for, as already said, everything
necessary for its renewal or extension has been agreed upon. All that was left to abide by the lease contract. . .
.4
We disagree.
Inasmuch as both parties to the lease contract have already died, a resort to the terms and conditions of the
lease contract is inevitable in order to ascertain the true intent of the parties.
In a wealth of cases and as provided for in Articles 1370 and 1372 of the Civil Code,5 we have ruled that when
terms and stipulations embodied in the contract are clear and leave no room for doubt, such should be read in
its literal sense and that there is absolutely no reason to construe the same in another meaning.6
Thus, the lease contract executed between Esperanza Jose and spouses Eugenio Vitan and Beatriz Francisco on
July 12, 1957, 7 being clear and unambiguous, providing fro an automatic extension of twenty (20) years from
the expiration of the first twenty (20) years, there is no reason why said contract should not be interpreted in
the way the contracting parties meant it to be, that is the automatic extension of the lease for another twenty
(20) years. Thus, paragraph 3 of the contract reads:
3. That the period of TWENTY YEARS (20) herein above provided shall be automatically extended for another
TWENTY YEARS (20) but with the rental of TWO HUNDRED & TWENTY PESOS (220.00) per month also payable in
advance on or before the 1st day of each corresponding month, at the residence of the Party of the First part. 8
(Emphasis supplied).
The same could not be said in the case at bar. The phase "automatically extended" did not appear and was not
used in the lease contract subsequently entered into by Esperanza Jose and Augusto Reyes, Jr. for the simple
reason that the lessor does not want to be bound by the stipulation of automatic extension as provided in the
previous lease contract.
To our mind, the stipulation "said period of lease being extendable for another period of twenty (20) years . . ."
is clear that the lessor's intention is not to automatically extend the lease contract but to give her time to
ponder and think whether to extend the lease. If she decides to do so, then a new contract shall be entered
into between the lessor and lessee for a term of another twenty years and at a monthly rental of P220.00. This
must be so, for twenty (20) years is rather a long period of time and the lessor may have other plans for the
property.
If the intention of the parties were to provide for an automatic extension of the lease contract, then they could
have easily provided for a straight forty years contract instead of twenty.
We find the trial court's decision more in accord with the true intention of the parties except that portion
wherein private respondents were ordered to pay a monthly rental of P1,000.00 starting from April 1, 982 up
to and until they shall have vacated and turned over the possession of the premises unto herein petitioner. 9
This is in error.
The law in point is Article 1670 of the Civil Code, which reads:
If at the end of the contract the lessee should continue enjoying the thing leased for fifteen days with the
acquiescence of the lessor, and unless a notice to the contrary by either party has previously been given, it is
understood that there is an implied new lease, not for the period of the original contract, but for the time
established in Articles 1682 and 1687. The other terms of the original contract shall be revived.
Article 1687 provides as follows:
If the period for the lease has not been fixed, it is understood to be from year to year, if the rent agreed upon
is annual; from month to month, if it is monthly; from week to week, if the rent is weekly; and from day to day,
if the rent is to be paid daily. However, even though a monthly rent is paid, and no period for the lease has
been set, the courts may fix a longer term for the lease after the lessee has occupied the premises for over one
year. If the rent is weekly, the courts may likewise determine a longer period after the lessee has been in
possession for over six months. In case of daily rent, the courts may also fix a longer period after the lessee
has stayed in the place for over one month.
The law provides that if after the end of the lease contract, the parties continue to enjoy the thing leased, an
implied lease is created for the period mentioned in Article 1687, hence herein private respondents may
continue to occupy the leased premises provided such is with the permission and consent of herein petitioner-
lessor. Since the lease contract provided for a monthly rental of P220 to be paid by the lessee upon the
expiration of the first twenty years, the latter shall be bound by such amount which shall be paid by herein
private respondents to petitioner-lessor.
ACCORDINGLY, herein private respondent is hereby ordered to turn over the possession of the disputed
property and to pay a monthly rental of P220 starting from April 1, 1982 up to and until they shall have
vacated and turned over the possession of the premises to herein petitioner, and to pay the sum of P5,000 as
attorney's fees.
WHEREFORE, the petition is hereby GRANTED, and the appealed decision REVERSED and SET ASIDE. The
decision of the trial court is hereby REINSTATED and MODIFIED as provided for in the preceding paragraph.
With costs.
SO ORDERED.