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FAMILY RELATIONS

Article 173

HEIRS OF CHRISTINA AYUSTE vs. COURT OF APPEALS

G.R. No. 118784, September 2, 1999

Facts: Christina and Rafael Ayuste bought a house and lot, the title to which was in the
name of Rafael Ayuste married to Christina Ayuste.
Rafael sold the property to Viena Malabonga in 1987 without the consent of his wife.
The deed of sale was registered and a TCT was issued in the name of the buyer during the
same year.
After her husband’s death in 1989, Christina discovered the unauthorized sale. In
1990, she filed a complaint seeking the annulment of the sale against the buyer. The TC
annulled the sale. The CA however, reversed the decision invoking Art. 172 CC, holding
that the right of Christina to bring an action for the annulment of the sale is barred for failure
to file the same during the existence of the marriage.

Issue: Is the action of Christina barred for having been filed out of time?

Held: Yes. Art. 173 is clear. The wife may during the marriage and within 10 years from
the transaction ask the courts for the annulment of any contract entered into by the husband
without her consent.
Although the action was filed within 10 years from the questioned transaction, it was
not brought during the existence of the marriage which was dissolved upon the death of
Rafael in 1989.

PROPERTY, OWNERSHIP & ITS MODIFICATIONS

Ownership vs. Possession

GARCIA vs. COURT OF APPEALS

G.R. No. 133140, August 10, 1999

Facts: In 1981, a lot was registered and sold by Pedro Garcia to the Magpayo spouses.
The Magpayos mortgaged the land to the Philippine Bank of Commerce (PBCom). The
spouses failed to pay, hence, the mortgage was extra-judicially closed. The petition filed by
PBCom for the issuance of the writ of possession was granted, however, upon service of the
writ of possession, Mrs. Magpayo’s brother, Jose Garcia, who was in possession of the
land, refused to honor it and filed a motion for intervention. He alleged that he inherited the
land as one of the heirs of his mother.
The lower court held that the mortgage was void but, upon appeal, CA reversed its
decision. Petitioner appealed to the SC and raised, as one of the errors, that CA decided the
case based on issues not raised in the trial court nor in the appellant’s brief.

Issue: Did the Court of Appeals err in resolving the issues of “ownership” and
“possession”?

Held: No. PBCom’s appellate brief alleged that the trial court could not distinguish
ownership from possession; that plaintiff- appellee’s possession could not ripen into
ownership; that he was an intruder in bad faith and his possession is certainly not in the
concept of an owner.
We stress again that the possession and ownership are distinct legal concepts.
Ownership exists when a thing pertaining to one person is completely subjected to his will in
a manner not prohibited by law and consistent with the rights of others. Ownership confers

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certain rights to the owner, one of which is the right to dispose of the thing by way of sale.
Pedro Garcia and his wife exercised their right to dispose of what they owned when they
sold the subject property to the Magpayo spouses.
On the other hand, possession is defined as the holding of a thing or the enjoyment
of a right. Literally, to possess means to actually and physically occupy a thing with or
without right. Possession may be had in one of two ways: possession in the concept of an
owner and possession of a holder. “A possessor in the concept of an owner may be the
owner himself or one who claims to be so.” On the other hand, “one who possesses as a
mere holder acknowledges in another a superior right which he believes to be ownership,
whether his belief is right or wrong.” The records show that petitioner occupied the property
not in the concept of an owner for his stay was merely tolerated by his parents.

Co-ownership: Articles 493 and 494

TOMAS CLAUDIO MEMORIAL COLLEGE vs. COURT OF APPEALS

G.R. No. 124262, October 12, 1999

Facts: Private Respondents De Castro filed an action for partition over a parcel of land
which was sold, without their knowledge, by their brother Mariano in favor of Petitioner
Tomas Claudio Memorial College. It is the contention of the private respondent De Castros
that Mariano was only able to sell his undivided share on the lot in question but not the other
co-owners’ equivalent to four-fifths (4/5) of the property. Mariano, on the other hand, raises
the defense of prescription/laches.

Issue: 1) Did the sale by Mariano effectively include the entire land?
2) Was the action for partition filed by the siblings of Mariano barred by
prescription?

Held: 1) No. Even if a co-owner sells the whole property as his, the sale will affect only
his own share but not those of the other co-owners who did not consent to the sale. Under
Article 493 of the Civil Code, the sale or other disposition affects only the seller’s share pro
indiviso, and the transferee gets only that which corresponds to his grantor’s share in the
property owned in common.

2) No. In the light of the foregoing, petitioner’s defense of prescription against an action
for partition is a vain proposition. Pursuant to Article 494 of the Civil Code, ‘no co-owner
shall be obliged to remain in the co-ownership. Such co-owner may demand at anytime the
partition of the thing owned in common, insofar as his share is concerned.’ In Budlong vs.
Bondoc, this Court has interpreted said provision of law to mean that the action for partition
is imprescriptible. It cannot be barred by prescription.

Article 539; Rights of a Possessor

PHILIPPINE TRUST COMPANY vs. COURT OF APPEALS

G.R. No. 124658, December 15, 1999

Facts: Private respondent Simeon Policarpio Shipyard and Shipping Corporation filed a
complaint for damages and injunction against petitioner Philtrust company for the fraudulent
possession of the land occupied by the former on the basis of an alias writ of execution.
The writ of execution was based on a judgment previously decided that upheld the validity of
foreclosure of Philtrust of the properties mortgaged by private respondents and Philtrust’s
right to possess the property.
Private respondent contends that the property fraudulently possessed by Philtrust
was not included in the foreclosed mortgaged property. Thus, SPSSC is anchoring its
complaint for damages on the improper implementation of the alias writ of execution which

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as a result it was deprived of possession of the property (OCT-R-165). Petitioner, on the
other hand, contends that SPSSC no longer owns the subject property because it was
already foreclosed by Landbank; thus, not being the owner, Philtrust alleges that SPSSC
cannot be entitled to possession.

Issue: Does private respondent SPSSC have a right to institute the complaint for
damages?

Held: Since private respondent was in possession of the aforesaid land when the writ of
possession was improperly implemented, it is not correct therefore to say that private
respondent does not have a cause of action. It is elementary that a lawful possessor of a
thing has the right to institute an action should he be disturbed in its enjoyment.
Verily, Article 539 of the Civil Code states that – “Every possessor has a right to be
respected in his possession; and should he be disturbed therein, he shall be restored to said
possession by the means established by the laws and rules of court.” The phrase “every
possessor” in the article indicates that all kinds of possession, from that of the owner to that
of a mere holder, except that which constitutes a crime, should be respected and protected
by the means established and the laws of procedure. Consequently, private respondent
having been in lawful possession of the property covered by OCT-R-165 at the time of
possession was implemented, may institute an action for having been disturbed in its
enjoyment.

Partition

NOCEDA vs. COURT OF APPEALS

G.R. No. 119730, September 2, 1999

Facts: On June 1, 1981, Directo, Noceda, and Arbizo, heirs of the late Celestino Arbizo,
extrajudicially settled a parcel of land known as Lot 1121. However, on August 17, 1981,
another extrajudicial settlement – partition of Lot 1121 was executed: 3/5 of the said land
went to Maria Arbizo while Direto and Noceda got only 1/5 each. Later, it was found out that
Lot 1121 contained an area in excess of that stated in its tax declaration, which was the
basis of partition.
After Directo demanded from Noceda to vacate her land on the ground that the latter
fenced the entire land of the former without her consent, a complaint for the recovery of
possession and ownership and rescission/annulment of donation was filed against Noceda.
Noceda claimed that the discrepancies between the two deeds of partition with
respect to the area of Lot 1121 and the respective share of the parties therein indicated that
they never intended any of the deeds to be the final determination of the portions of Lot
1121 allotted to them.

Issue: Should Lot 1121 be partitioned in accordance with the extra-judicial settlement
dated August 17, 1981?

Held: Yes. The discrepancies between the extra-judicial settlements executed by

Directo, Noceda and Maria Arbizo on June 1, 1981 and August 17, 1981 only meant that the
latter was intended to supersede the former. Although in the extra-judicial settlement dated
August 17, the heirs of Celestino partitioned only less than the actual land area to conform
with the area declared under tax declaration, the heirs were actually occupying a bigger
portion the total land area of which exceeded that of what is stated in the tax declaration.
The purpose of partition is to put an end to co-ownership. It seeks a severance of
the individual interest of each co-owner, vesting in each a sole estate in specific property
and giving to each one a right to enjoy his estate without supervision or interference from
the other. There is no co-ownership where portion owned is concretely determined and
identifiable, though not technically described, or that said portions are still embraced in one
and the same certificate of title does not make said portions less determinable or
identifiable, or distinguishable, one from the other, or that dominion over each portion less
exclusive, in their respective owners. A partition legally made confers upon each heir the
exclusive ownership of the property adjudicated to him.

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Partition; Compromise Agreement

ABARINTOS vs. COURT OF APPEALS

September 30, 1999

Facts: Petitioners and private respondents are co-owners of a hacienda. The co-owners
appointed petitioner Jose Garcia as administrator of the property. When private
respondents, found out that the hacienda was mismanaged, they decided to manage
directly the hacienda. Subsequently, the co-owners agreed to terminate the co-ownership
and divide the property among themselves. The co-owners entered into a compromise
agreement to resolve the several cases for partition filed by the co-owners and such
agreement was approved by the lower court.
Private respondents, however, brought an action seeking to annul the compromise
agreement on the ground that it decides the action for the partition and appointment of a
receiver without the benefit of trial on the merits.

Issue: Is the compromise agreement conclusive as to the civil cases filed by the co-
owners.

Held: Under Article 2028 of the Civil Code, a compromise is a contract whereby the
parties, by making reciprocal concessions, avoid a litigation or put an end to one already
commenced. A judicial compromise has the force of law and is conclusive between the
parties. Once an agreement is stamped with approval, it becomes more than a mere
contract binding the parties, and having the sanction of the court and entered as its
determination of the controversy, it has the force and effect of any other judgment.
It is settled that every act which is intended to put an end to indivision among co-
heirs and legatees or devisees is deemed to be a partition, although it should purport to be a
sale, an exchange, a compromise, or any other transaction.

SUCCESSION

Art. 811; Probate of a Holographic Will

CODOY vs. CALUGAY

G.R. No. 123486, August 12, 1999

Facts: Matilde Seno Vda. de Ramonal died on January 16, 1990. On April 6, 1990,
Evangeline Calugay, Josephine Salcedo and Eufemia Patigas, devisees and legatees of the
holographic will of Matilde, filed a petition for probate of the will. On June 28, 1990, Eugenia
Codoy and Manuel Ramonal filed an opposition to the petition for probate, alleging that the
will was a forgery and that it is illegible. The legatees and devisees presented 6 witnesses
and various documentary evidence. The oppositors instead of presenting their evidence,
filed a demurrer to evidence, claiming that the legatees and devisees failed to establish
sufficient factual and legal basis for the probate of the will.

Issues: 1) Are the provisions of Art. 811 NCC permissive or mandatory?

2) Should the probate of the will be allowed?

Held: 1) Art. 811 is mandatory. The word “shall” connotes a mandatory order. We have
ruled that “shall” in a statute denotes an imperative obligation and is inconsistent with the
idea of discretion and that the presumption is that the word “shall”, when used in a statute, is
mandatory. The object of the solemnities surrounding the execution of wills is to close the
door against bad faith and fraud, to avoid substitution of wills and testaments and to
guaranty their truth and authenticity. Therefore the laws on this subject should be
interpreted in such a way as to attain these primordial ends. But, on the other hand, also
one must not lose sight of the fact that it is not the object of the law to restrain and curtail the

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exercise of the right to make a will. However, we cannot eliminate the possibility of a false
document being adjudged as the will of the testator, which is why if the holographic will is
contested, that law requires 3 witnesses to declare that the will was in the handwriting of the
deceased.

2) Not all the witnesses presented by the legatees and devisees testified explicitly
that they were familiar with the handwriting of the testator. There was no opportunity for an
expert to compare the signature and the handwriting of the deceased with other documents
signed and executed by her during her lifetime. The records are ordered remanded to the
court of origin with instructions to allow the oppositors to the probate to adduce evidence in
support of their opposition to the probate of the will.

Legitime

IMPERIAL vs. COURT OF APPEALS

G.R. No. 112483, October 8, 1999

Facts: Petitioner Eloy Imperial purchased a parcel of land from his father Leoncio
Imperial. Although the transaction was denominated as a sale, both admit that it was a
donation.
Subsequently, Leoncio filed an action for the annulment of the supposed deed of
sale but a compromise agreement was then made by both parties. When Leoncio died, his
adopted son, Victor, substituted him in the Compromise agreement. When Victor also died,
his heirs (herein private respondents) filed an action for annulment of the donation on the
ground that the conveyance of said property in favor of petitioner Eloy impaired the legitime
of Victor, their natural brother and predecessors-in-interest.
Petitioner Imperial raises the defense that the donation did not impair Victor’s
legitime and that the action of respondents has already prescribed.

Issue: Was the donation made by Leoncio Imperial in favor of petitioner Eloy Imperial
inofficious and should be reduced?

Held: No. Unfortunately for private respondents, a claim for legitime does not amount to
a claim of title. In the recent case of Vizconde vs. CA, we declared that what is brought to
collation is not the donated property itself, but the value of the property at the time it was
donated. The rationale for this is that the donation is a real alienation which conveys
ownership upon its acceptance, hence, any increase in value or any deterioration or loss
thereof is for the account of the heir of the donee.

OBLIGATIONS & CONTRACTS

Article 1249

CEBU INTERNATIONAL CORPORATION vs. COURT OF APPEALS

Facts: Private respondent, Vicente Alegre, invested with CIFC, a banking institution
engaged in money market operations, P500,000.00 in cash. Petitioner issued a promissory
note for which it issued a BPI check on the due date. However, when the check was
deposited, the same was dishonored by BPI. Alegre filed a complaint for recovery of money.
In response, CIFC filed a motion for leave of court to file a third party complaint against BPI.
Petitioner contends that the provisions of the Negotiable Instruments Law (not par. 2
of Art. 1249 of the Civil Code) are the pertinent laws to govern its money market
transactions.
RTC decided in favor of Alegre, CA affirms the decision.

Issue: Is Art. 1249 of the New Civil Code applicable in the present case?

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Held: Yes. Art. 1249 of NCC provides that:
“The payment of debts in money shall be made in the currency stipulated,
and if it is not possible to deliver such currency, then in the currency, which is
legal tender in the Philippines.
The delivery of the promissory notes payable to order or bills of exchange or
other mercantile documents shall produce the effect of payment only when
they have been cashed, or when through the fault of the creditor they have
been impaired.”
Considering the nature of money market transaction, the above-quoted provision
should be applied in the present controversy. As held in Perez Vs CA, “a money market is a
market dealing in standardized short-term credit instruments (involving large amounts)
where lenders and borrowers do not deal directly with each other but through a middle man
or dealer in open market. In money market transaction, the investor is a lender who loans
his money to a borrower through a middle man or dealer.”
In the case at bar, the money market transaction between the petitioner and private
respondent is in the nature of a loan.

Article 1278; Compensation

E.G.V. REALTY DEVELOPMENT CORPORATION vs. COURT OF APPEALS

G.R. No. 120236, July 20, 1999

Facts: E.G.V. Realty is the owner/developer of a seven-storey condominium building

known as Cristina Condominium Corporation (CCC). CCC holds title to all common areas of
the condominium and is in charge of managing, maintaining and administering the
Condominium’s common areas and providing for the building’s security. Unisphere
International, Inc. is the owner/occupant of unit 301 of said condominium. Unisphere was
robbed twice of various items. The incidents were reported to CCC. When Unisphere
demanded compensation and reimbursement from petitioner CCC for losses incurred as a
result of the robbery, CCC denied any liability. As a consequence, Unisphere withheld
payment of its monthly due.
Unit 301 was sold to Unisphere but the condominium certificate of title bore an
annotation of a lien in favor of petitioners. Petitioners thereafter filed with SEC for the
collection of unpaid monthly dues.
The second order of the Hearing Officer declared that the petitioners were not liable
for the articles burglarized. Their appeal was likewise dismissed for having been filed out of
time after several extensions to file its memorandum of appeal.
The CA reversed SEC en banc’s order and declared that the monthly dues of
Unisphere to the corporation should be offset by the losses suffered by Unisphere, and for
the latter to pay the balance.

Issue: Is set-off or compensation proper in the instant case?

Held: No. In Art. 1278 of the Civil Code, compensation is said to take place when two
persons, in their own right, are creditors and debtors of each other. Compensation is “a
mode of extinguishing to the concurrent amount, the obligations of those persons who in
their own right are reciprocally debtors and creditors of each other and the offsetting of two
obligations which are reciprocally extinguished if they are of equal value, or extinguished to
the concurrent amount if of different value.”
For compensation to take place, a distinction must be made between a debt and a
mere claim. A debt is a claim which has been formally passed upon by the highest authority
to which it can in law be submitted and has been declared to be a debt. A claim, on the
other hand, is a debt in embryo. It is mere evidence of a debt and must pass thru the
process prescribed by law before it develops into what is properly called a debt.
While respondent Unisphere does not deny its liability for its unpaid dues to
petitioners, the latter do not admit any responsibility for the loss suffered by the former
occasioned by the burglary. At best, what respondent Unisphere has against petitioner is
just a claim, not a debt.

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Tested by the foregoing yardstick, it has not been sufficiently established that
compensation/set-off is proper here as there is lack of evidence to show that petitioner EGV
Realty and CCC and respondent Unisphere are mutually debtors and creditors of each
other.

Novation; Interests

BAUTISTA vs. PILAR DEVELOPMENT CORPORATION

G.R. No. 135046, August 17, 1999

Facts: To secure a loan obtained from Apex Mortgage & Loan Corp., petitioners
executed a promissory note (PN) obligating themselves to pay a sum equivalent to the loan
with interest rate of 12% for a period of 240 months to be paid in monthly installments.
However, petitioners failed to pay several installments. They executed another PN in favor
of Apex for a bigger amount at the increased rate of 21% per annum to be paid in monthly
installments within a period of 196 months. Petitioners again failed to pay the installments.
Subsequently, Apex assigned the second PN to respondent Pilar Dev’t Corp.

Issues:
1. Was the 1st PN novated by the 2nd PN?
2. Was the interest rate of 21%, as provided in the 2nd PN, valid?

Held: 1. YES. The 1st PN was cancelled by the express terms of the 2nd PN. The 2 nd
PN bears a note that it cancels the 1 st PN. To cancel is to strike out, to revoke, rescind or
abandon, to terminate. In fine, the 1st note was revoked and terminated. Simply put, it was
novated. The extinguishment of an obligation by the substitution or change of the obligation
by a subsequent one which extinguishes or modifies the first is a novation.
Novation has 4 essential requisites: (1) the existence of a previous valid obligation;
(2) the agreement of all parties to the new contract; (3) the extinguishment of the old
contract; and (4) the validity of the new one. In the instant case, all 4 requisites have been
complied with.

2. YES. When the 2nd PN was executed on Sept. 20, 1982, Central Bank Circular
No. 705 and 712 were already in effect. These Circulars fixed the effective interest rate for
secured loan transactions with maturiites of more than 730 days at 21% per annum. The
interest rate of 21% provided in the 2nd PN was therefore authorized under these Circulars.

Reformation of Instrument; Fortuitous event; Novation; Interests

HUIBONHOA vs. COURT OF APPEALS

G.R. No. 102604, December 14, 1999

Facts: On June 30, 1983, Huibonhoa entered into a contract of lease with siblings Rufina
Gojocco Lim, Severino Gojocco and Loreta Gojocco Chua stipulating that Hiponhoa would
lease from them 3 commercial lots for a period of 15 year commencing on July 1, 1983 and
renewable upon agreement of the parties. Based on the said contract, the lessors
authorized Huibonhua to construct a building that must be completed within 8 months from
the date of the execution of the contract. During the aforesaid period, no monthly rental
would be collected from Huibonhua. The parties further agreed that upon termination of the
lease, ownership and title to the building thus constructed would automatically transfer to the
lessor.
During the construction of the building, former Senator Benigno Aquino, Jr was
assasinated. This incident affected adversely the construction of the building such that
Huibonhua failed to complete the same with the stipulated eight-month period. It was
completed only in September 1984 or 7 seven months after the target date. Under the
contract, Huibonhua was supposed to start paying rental in March 1984 but she failed to do.
On December 19, 1984, the lessors sent a final letter of demand to pay the rental
arrearages and to vacate the leased premises.

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On January 14, 1985, Huibonhua brought an action for reformation of contract
alleging that their true intention as to when the monthly rental would accrue was not therein
expressed due to mistake or accident. She claimed that their true intention was that no
rents would accrue during the entire period of actual construction. Moreover, she averred
that by reason of mistake or accident, the lease contract failed to provide that should an
unforeseen event dramatically increase the cost of construction, such as the assassination
of Sen. Aquino, the monthly rental would be reduced and the term of the lease would be
extended for such duration as may fair and equitable to both the lessors and the lessee.
Eleven days later, the lessors filed a complaint for ejectment against Huabonhua. On
January 31, 1995, Rufina Gojocco Lim agreed with Huibonhua on the accrual of monthly
rental, the reduction of its amount and the extension of the lease by 3 years. After trial on
the merits, the RTC dismissed the complaint. It considered as misplaced Huibonhua’s
contention that the Aquino assassination was an accident within the purview of Art. 1359 of
the Civil Code. It also held that the act of Rufina in entering an agreement was not binding
upon the 2 other lessees since they were separate and independent owner of the lots
subject of the lease. Subsequently, the Court of Appeals affirmed the decision of the RTC.

Issues:
1. Will the action for reformation of instrument prosper?
2. Was the tragic assassination of Former Senator Benigno Aquino a fortuitous
event or force majeure which justified the adjustment of the terms of the contract of lease?
3. Did the act of Rufina in entering an agreement with Huibonhua novated the
original lease contract?
4. Are Severino Gojocco and Loreto Gojocco Chua entitled to interest? If yes, at
what rate?

Held: 1. NO. An action for reformation of instrument under Article 1359 may prosper
only upon the concurrence of the following requisites: (1) there must have been a meeting of
the minds of the parties to the 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. In case at bar,
Huibonhua failed to discharge the burden of proving that the intention of the parties has not
been accurately expressed the lease contract sought to be reformed; thus, the trial court
correctly held that no clear and convincing proof warrants the reformation thereof. In actions
for reformation of contract, the onus probandi is upon the party who insists that the contract
should be reformed.
A contract duly executed is the law between the parties who are obliged to comply
with its terms. Events occurring subsequent to the signing of the agreement may suffice to
alter its terms only if, upon failure of the parties to arrive at a valid compromise, the court
deems the same to be sufficient reasons in law for altering the terms of the contract.

2. NO. A fortuitous event is that which could not be foreseen, or which even if
foreseen, was inevitable. To exempt the obligor from liability for a breach of an obligation
due to an “act of God,” the following requisites must concur: (a) the cause of the breach of
the obligation must be independent of the will of the debtor; (b) the event must be either
unforeseeable or unavoidable; (c) the event must be such as to render it impossible for the
debtor to fulfill his obligation in a normal manner; and (d) the debtor must be free from any
participation in, or aggravation of the injury to the creditor.
In the case under scrutiny, the assassination of Sen. Aquino may indeed be
considered a fortuitous event. However, the said incident per se could not have caused the
delay in the construction of the building. What might have caused the delay was the
resulting escalation of prices of commodities including construction materials. Be that as it
may, there is no merit in Huibonhoa’s argument that the inflation justified the accrual of
monthly rental, the reduction of its amount and the extension of the lease by 3 years. It is
only when an extraordinary inflation supervenes that the law affords the parties a relief in
contractual obligation. For Huibonhua to claim exemption from liability by reason of
fortuitous event under Art. 1174 of the Civil Code, she must prove that inflation was the sole
and proximate cause of the loss or destruction of the contract. Having failed to do so ,
Huibonhua’s contention is untenable.

3. NO. Under the law, novation is never presumed. The parties to a contract must
expressly agree that they are abrogating their old contract in favor of a new one. No

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novation of a contract had occurred when the new agreement entered into between the
parties was intended “to give life” to the old one. “Giving life” to the contract was the very
purpose for which Rufina signed the agreement. It was intended to graft into the lease
contract provisions that would facilitate fulfillment of Huibonhua’s obligation therein. That
the new agreement was meant to strengthen the enforceability of the lease is further
evidenced by the fact that the agreement does not even hint that the lease itself would be
abrogated. Where the parties to the new obligation expressly recognize the continuing
existence and validity of the old one, where, in other words, the parties expressly negated
the lapsing of the obligation, there can be no novation.

4. YES. Loreto is also entitled to interest at the rate of 6% per annum from the
accrual of the rent in accordance with Art. 2209 of the Civil Code until it is fully paid because
monetary award does not partake of a loan or forbearance in money. However, the interim
period from the finality of the judgment until the monetary award is fully satisfied, is
equivalent to a forbearance of credit and therefore, during that interim period, the applicable
rate of legal interest shall be 12%. As regards Severino, he shall be entitled to such
interests only from the time that Huibonhua defaulted paying her monthly rentals to him
considering that he had already received from her the amount of P270,825 as rentals.

CAUSE in Contracts; Rescission

UY vs. COURT OF APPEALS

GR No. 120465, September 9, 1999

Facts: Petitioners Uy and Roxas offered to sell eight parcels of land, as agents of the
owners thereof, to private respondent National Housing Authority (NHA) for the latter to
utilize and develop as a housing project. The NHA thereafter approved the acquisition but
for only 5 parcels of land since it was determined that the other 3 were located at an active
landslide area and thus, not suitable for development into a housing project. Subsequently,
the NHA cancelled the purchase of the 3 lots.
Petitioners then filed an action for damages against the NHA for the cancellation of
purchase contending that there was no basis for its rescission by the NHA. The lower court
and respondent Court of Appeals ruled that the cancellation was justified and that petitioners
are not entitled to damages.

Issue: Does the cancellation of the sale by the NHA for the 3 lots amount to a rescission
of that part of the contract?

Held: No. In this case, the NHA did not rescind the contract. Indeed, it did not have the
right to do so for the other parties to the contract, the vendors, did not commit any breach,
much less a substantial breach. Their obligation was merely to deliver the parcels of land to
the NHA, an obligation that they fulfilled. The NHA did not suffer any injury by the
performance thereof.
The cancellation, therefore, was not a rescission under Article 1191. Rather, the
cancellation was based on the negation of the cause arising from the realization that the
lands, which were the object of the sale, were not suitable for housing. Cause is the
essential reason which moves the contracting parties to enter into it.
Ordinarily, a party’s motives for entering into a contract do not affect the contract.
However, when the motive predetermines the cause, the motive may be regarded as the
cause.
In this case, it is clear that the NHA would not have entered into the contract were
the lands not suitable for housing. In other words, the quality of the land was an implied
condition for the NHA to enter into the contract. On the part of the NHA, therefore, the
motive was the cause for its being a party to the sale.
Accordingly, we hold that the NHA was justified in cancelling the contract. The
realization of the mistake as regards the quality of the land resulted in the negation of the
motive/cause thus rendering the contract inexistent.

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Article 1177; Requisites for Rescission of a Fraudulent Sale

ADORABLE vs. COURT OF APPEALS

G.R. No. 119466, November 25, 1999

Facts: Private respondent Saturnino Bareng was the registered owner of 2 parcels of
land. Petitioners were lessees of a 200 sq.m. portion of one of the said 2 lands.
On April 29, 1985, Saturnino Bareng and his son, Francisco Bareng, obtained a
loan from petitioner amounting to P26,000 in consideration of which they promised to
transfer the possession and enjoyment of the fruits of Lot No. 661-E.
On Aug 3, 1986, Saturnino sold to his son Francisco 18,500 sq.m. of lot No. 661-D-
5-A. In turn, Francisco sold on Aug. 27, 1986 to private respondent Jose Ramos 3,000 sq.
m. of the lot.
Petitioner filed a complaint for the annulment of the sale on the ground that the sale
was fraudulently prepared.

Issue: Does petitioner have a cause of action?

Held: No. Petitioners do not have such material interest as to allow them to sue for
rescission of the contract of sale. At the outset, petitioner’s right against private
respondents is only a personal right to receive payment of the loan; it is not a real right over
the lot subject of the deed of sale.
Nor can we sustain petitioner’s claim that the sale was made in fraud of creditors
under Art. 1177 of the Civil Code. The following successive measures must be taken by a
creditor before he may bring an action for rescission of an allegedly fraudulent sale: 1)
exhaust the property of the debtor through levying by attachment and execution upon all the
property of the debtor, except such as are exempt by law from execution; 2) exercise all the
rights and actions of the debtor, save those personal to him; 3) seek rescission of the
contracts executed by the debtor in fraud of their rights. Without availing of the first and
second remedies, i.e., exhausting the properties of the debtor or subrogating themselves in
Francisco Bareng’s transmissible rights and action, petitioners simply undertook the third
measure and filed an action for annulment of sale.

Conditional Obligation

GONZALES vs. HEIRS OF THOMAS AND PAULA CRUZ

G.R. No. 131784, September 16, 1999

Facts: Petitioner Gonzales entered into a Contract of Lease/Purchase with the heirs of
Thomas and Paula Cruz. Based on the said contract, the petitioner was given an option to
purchase the leased property after the expiration of the one-year lease. The option was
subject to a condition contained in par. 9 of the Contract which provided that: “The
LESSORS (heirs) x x x shall undertake to obtain a separate and distinct TCT over the
leased portion to the LESSEE within a reasonable period of time which shall not in any case
exceed 4 years, x x x”. After the expiration of the lease, petitioner Gonzales did not exercise
his option to purchase the property. He remained in possession without paying the
purchase price. Alleging breach of the provisions of the Contract, the heirs filed a complaint
for the recovery of possession of the property. For his part, the petitioner defended that
there was no breach since the heirs had not yet registered the leased property in their
names in accordance with par. 9 of the Contract.

Issues: (1) Is par. 9 of the Lease/Purchase Contract a condition precedent before

petitioner could exercise his option to buy the property?

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(2) Can respondents rescind the Contract after the one-year period?

Held: (1) YES. The clear intent of the 9th par. was for respondents to obtain a separate
and distinct TCT in their names. This was necessary to enable them to show their
ownership of the stipulated portion of the land and their concomitant right to dispose of it. It
is a well-settled principle in law that no one can give what one does not have – nemo dat
quod non habet. Accordingly, one can sell only what one owns or is authorized to sell, and
the buyer can acquire no more that what the seller can transfer legally. Because the 9th
clause required respondents to obtain a separate and distinct TCT in their names and not in
the name of petitioner, it logically follows that such under taking was a condition precedent
to the latter’s obligation to purchase and pay for the land. Put differently, petitioner’s
obligation to purchase the land is a conditional one and is governed by Article 1181 of the
Civil Code. Condition has been defined as “every future and uncertain event upon which an
obligation or provision is made to depend”. Without it, the sale of the property under the
Contract cannot be perfected, and the petitioner cannot be obliged to purchase the property.
The obligatory force of a conditional obligation is subordinated to the happening of a future
and uncertain event, so that if that event does not take place, the parties would stand as if
the conditional obligation had never existed.

(2) NO. Respondents cannot rescind the contract because they have not caused the
transfer of the TCT in their names, which is a condition precedent to petitioner’s obligation.
There can be no rescission (or more properly, resolution) of an obligation as yet non-existent,
because the suspensive condition has not happened.

Fraud in Art. 1338

RURAL BANK OF STA. MARIA, PANGASINAN vs. COURT OF APPEALS

G.R. No. 110672, September 14, 1999

Facts: A Deed of Absolute Sale with Assumption of Mortgage was executed between
Behis as vendor/assignor and private respondents Rayandayan and Arceno as
vendees/assignees for the sum of P250,000. On the same day, private respondents,
together with Behis, executed another Agreement embodying the real consideration of the
sale of the land in the sum of P2,400,000. Thereafter, private respondents negotiated with
the principal stockholder of the bank, Engr. Natividad, for the assumption of the
indebtedness of Behis and the subsequent release of the mortgage on the property by the
bank. Private respondents did not show to the bank the Agreement with Behis providing for
the real consideration of P2,400,000. Subsequently, the bank consented to the substitution
of private respondents as mortgage debtors in place of Behis in a Memorandum of
Agreement. Instead of the bank foreclosing immediately for non-payment of the delinquent
account of Behis, petitioner bank agreed to receive only a partial payment of P143,000 by
installment on specific dates. After payment thereof, the bank agreed to release the
mortgage of Behis; to give its consent to the transfer of title to the private respondents; and
to the payment of the balance of P200,000 under new terms with a new mortgage to be
executed by the private respondent over the same land. Despite repeated demands by the
private respondents, the bank refused to perform its obligations under the Memorandum of
Agreement on the ground of fraud for withholding from the said bank the real consideration
of the sale.

Issue: Is the Memorandum of Agreement voidable on the ground of bad faith or fraud on
the part of the private respondents in concealing the real consideration of the sale during
negotiations with the petitioner bank on the assumption of the mortgage debt?

Held: NO. The kind of fraud that will vitiate a contract refers to those insidious word or
machinations resorted to by one of the contracting parties to induce the other to enter into a
contract which without them he would not have agreed to. Simply stated, the fraud must be
the determining cause of the contract, or must have caused the consent to be given. It is
believed that the non-disclosure to the bank of the purchase price of the sale of the land

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between private respondents and Behis cannot be fraud contemplated by Article 1338 of the
Civil Code. First of all, the consideration could not have been the determining cause for the
petitioner bank to enter into the memorandum of agreement. To all intents and purposes,
the bank entered into said agreement in order to effect payment on the indebtedness of
Behis. Secondly, pursuant to Article 1339, silence or concealment, does not constitute fraud
unless there is a special duty to disclose certain facts, or unless according to good faith and
the usages of commerce the communication should be made. Verily, private respondents
had no duty and therefore did not act in bad faith in failing to disclose the real consideration.
Thirdly, the bank had other means and opportunity of verifying the financial capacity of
private respondents. Furthermore, the bank security remained unimpaired regardless of the
consideration of the sale.
Consequently, not all elements of fraud vitiating consent for purposes of annulling a
contract concur to wit: (a) It was employed by a contracting party upon the other; (b) It
induced the other party to enter into contract; (c) It was serious; and (d) It resulted in
damages and injury to the party seeking annulment. Petitioner bank has not sufficiently
shown that it was induced to enter into the agreement by the non-disclosure of the purchase
price, and that the same resulted in damages to the bank.

Application of In Pari Delicto Rule

MODINA vs. COURT OF APPEALS

G.R. No. 109355, October 29, 1999

Facts: The parcels of land in question were sold to Ramon Chiang by his wife, Merlinda.
Ramon subsequently sold the subject properties to Serfin Modina as evidenced by a Deed
of Absolute Sale.
Modina brought a complaint for recovery of possession with damages against the
respondents.
Merlinda sought the declaration of nullity of the Deed of Sale on the ground that the
titles of the parcels of land in dispute were never legally transferred to her husband, the sale
being violative of Article 1490 of the NCC.
Modina stressed that what is applicable is Article 1412 on the principle of in pari
delicto.

Issue: Is Merlinda barred by the principle of in pari delicto from questioning subject deed
of sale?

Held: No. The principle of in pari delicto is inapplicable as the sale was void for want of
consideration. In effect, Merlinda can recover the lots sold by her husband to Modina.
The principle of in pari delicto non oritur action denies all recovery to the guilty
parties inter se. It applies to cases where the nullity arises from the illegality of the
consideration or the purpose of the contract. When two persons are equally at fault, the law
does not relieve them. The exception to this general rule is when the principle is invoked
with respect to inexistent contracts, like in the case at bar.
As the contracts under controversy are inexistent contracts within legal
contemplation, Articles 1411 and 1412 of the NCC are inapplicable. In pari delicto doctrine
applies only to contracts with illegal consideration or subject matter, whether the attendant
facts constitute an offense or misdemeanor or whether the consideration involved is merely
rendered illegal.

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Rescission; Damages

ASUNCION vs. EVANGELISTA

G.R. No. 133491, October 13, 1999

Facts: Asuncion and Evangelista entered into a Memorandum of Agreement (MOA)

whereby the former agreed to pay latter certain amounts of money and to assume all the
liabilities of Embassy Farms which is controlled by respondent. In return, Evangelista will
transfer control of Embassy Farms and transfer to Asuncion all the real properties held
under real estate mortgage with several savings banks and finance corporations.
While Asuncion fulfilled his payment commitments under the MOA, Evangelista failed
to transfer the title of the real properties and the shares of stock of Embassy Farms in the
name of Asuncion. However, it was respondent who filed a complaint for the rescission of
the MOA arguing that petitioner failed to comply with his obligations under the agreement.
During the trial, Evangelista explained that the reason he did not transfer the real
properties is because Asuncion did not agree to make a formal assumption of the mortgage
under the MOA. Both the TC and CA ruled in favor of Evangelista and ordered the
rescission of the MOA with damages based on the alleged proceeds of the sale of hogs
during the period control of the Embassy Farms was with Asuncion.

Issue: Is Evangelista entitled to damages?

Held: No. In case of rescission, while damages may be assessed in favor of the
prejudiced party, only those kinds of damages consistent with the remedy of rescission may
be granted, keeping in mind that had the parties opted for specific performance, other kinds
of damages would have been called for which are absolutely distinct from those kinds of
damages accruing in the case of rescission. Compensatory damages consisting of the
value of the private landholdings would have been proper in case he resorted to the remedy
of specific performance, not rescission.

Art. 1434

PISUENA vs. HEIRS OF PETRA UNATING

G.R. No. 132803, August 31, 1999

Facts: Petra Unating inherited Lot No. 1201 from her mother. During her marriage to
Aquilino Villar, she registered the lot in her name. They had two children Felix and Catalina.
In 1948, Petra died. In 1949, Felix and Catalina sold the entire lot to Agustin Navarra but
repossessed the same upon the latter’s death in 1958. Meanwhile Aquilino died in 1953.
In 1982, defendant Jessie Pisuena, son-in-law of Agustin wrested possession of the
property from the heirs of Felix and Catalina. The latter filed a complaint for its recovery,
assailing the validity of the deed of sale in favor of Agustin.

Issue: Did the Deed of Sale in 1949 transfer the whole lot in favor of Agustin despite the
fact that Aquilino did not consent to the sale of his share?

Held: No. In 1949, Felix and Catalina’s interest in the share of their father is still
inchoate. They cannot dispose such share without the consent of their father. At most they
conveyed only their 2/3 share over the lost. However, when Aquilino died in 1953 without
disposing of his1/3 share, Felix and Catalina’s interest on it was actualized because
succession vested in them the title to their father’s share and consequently, the entire lot.
Thus, the title passed to Agustin pursuant to Art. 1434 of the present Civil Code, which
provides: “When a person who is not the owner of the thing sells or alienates or delivers it,
and later, the seller of grantor acquires title thereto, such title passes by operation of law to
the buyer or grantee.”

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Laches

IMPERIAL vs. COURT OF APPEALS

G.R. No. 112483, October 8, 1999

Facts: Petitioner Eloy Imperial purchased a parcel of land from his father Leoncio
Imperial. Although the transaction was denominated as a sale, both admit that it was a
donation.
Subsequently, Leoncio filed an action for the annulment of the supposed deed of
sale but a compromise agreement was then made by both parties. When Leoncio died, his
adopted son, Victor, substituted him in the Compromise agreement. When Victor also died,
his heirs (herein private respondents) filed an action for annulment of the donation on the
ground that the conveyance of said property in favor of petitioner Eloy impaired the legitime
of Victor, their natural brother and predecessors-in-interest.
Petitioner Imperial raises the defense that the donation did not impair Victor’s
legitime and that the action of respondents has already prescribed.

Issue: Is the action to question the donation barred by prescription?

Held: Yes. The case of Mateo vs. Lagua, which involved the reduction for inofficiousness
of a donation propter nuptias, recognized that the cause of action to enforce a legitime
accrues upon the death of the donor-decedent. Clearly so, since it is only then that the net
estate may be ascertained and on which basis, the legitimes may be determined.
It took private respondents 24 years since the death of Leoncio to initiate this case,
long beyond the 10 year prescriptive period. The action, therefore, has long prescribed.

TRUST

SALTIGA DE ROMERO vs. COURT OF APPEALS

G.R. No. 109307, November 25, 1999

Facts: On Dec. 12, 1939 Eugenio Romero bought from spouses Macan the latter’s
rights, interest, participation in a 12-hectare land. The land in question was then public
land. When Eugenio Romero applied for a homestead patent for said land, the same was
disapproved by the Bureau of Lands because said Romero already had applied for a
homestead patent for 24 hectares and was disqualified from owning additional 12 hectares.
Eugenio Romero placed the application in the name of his eldest son, Eutiquio
Romero, allegedly in trust for all the children of Eugenio. When Eutiquio got married and
had children, the application was transferred in the name of Lutero Romero. When Lutero
in turn got married, he relinquished the application in favor of his younger brother Ricardo.
Eugenio Romero died in 1948. In 1961, his widow Teodora caused the land in
question to be subdivided among 6 of her children. The appellants claimed that after the
partition, they had been in occupancy of their respective shares through their tenants.
However, Lutero claimed that in 1969, he was picked up by a policeman and
brought to the office of the mayor. He was then made to sign 3 affidavits conveying his
share to his sister Gloriosa, brother-in-law Sabdullah and to Meliton Pacas. He said that he
could not sell his land because the 5-year period had not yet elapsed. He was made to sign
anyway.
Subsequently, he repudiated the affidavits. He then filed an action for the
annulment of the affidavits.

Issue: Was there a trust constituted?

Held: No trust is constituted. Petitioners contend that Lutero merely holds Lot 23Pls-35 in
trust for the benefit of the heirs of his father Eugenio since it was actually Eugenio who first
applied for the homestead but considering that Eugenio was already granted a homestead,

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the application had to be placed in the name of his eldest son, which was later transferred
to Lutero.
xxx
However, it has been held that a trust will not be created when, for the purpose of
evading the law prohibiting one from taking or holding real property, he takes conveyance
thereof in the name of a third person.

SALES AND LEASE

Consent as Essential Element of Contract of Sale

DELOS REYES vs. COURT OF APPEALS

G.R. No. 129103, September 3, 1999

Facts: Daluyong Gabriel owns a parcel of land in Tagum, Davao. Because he lives in
Manila, Gabriel appointed his sister as administratrix for the collection of the rentals for
those portions which have been leased to certain tenants. In 1985, Gabriel sent his son
Renato to collect the rentals.
One of the tenants, Lydia Delos Reyes, verbally agreed to buy a portion of the land
of Gabriel. Receipt of payment of the purchase price was acknowledged by Renato.
However, no deed of sale was executed covering the transactions. The purchaser
proceeded with the construction therein of a 2-storey building. Gabriel demanded the
purchaser to cease and desist from the construction. Delos Reyes filed a complaint for
specific performance.

Issue: Was there a valid contract of sale covering a portion of the land of Daluyong
Gabriel?

Held: No. Renato Gabriel was neither the owner of the subject property nor a duly
designated agent of the registered owner (Daluyong Gabriel) authorized to sell subject
property in his behalf, and there was also no sufficient evidence adduced to show that
Daluyong subsequently ratified Renato’s act. In this connection, it must be pointed out that
pursuant to Article 1874 of the Civil Code, when the sale of a piece of land or any interest
therein is through an agent, the authority of the latter shall be in writing, otherwise the sale
shall be void. In other words, for want of capacity to give consent on the part of Renato, the
oral contract of sale lacks one of the essential requisites for its validity prescribed under
Article 1318 and is therefore null and void ab initio.

Price; Element of a Contract of Sale

DAVID vs. TIONGSON

G.R. No. 108169, August 25, 1999

Facts: Spouses David purchased a parcel of land from respondents spouses Tiongson for
a total consideration of P15,000. The parties expressly agreed that as soon as the
petitioners fully paid the purchase price, respondents would execute a deed of absolute sale
and cause the issuance of the certificate of title in petitioners’ favor. After paying a total of
P15,050, the Davids demanded the execution of the deed of sale and the issuance of the
corresponding title, but the respondents refused. Hence, the Davids filed a complaint for
specific performance with damages. The lower court ruled in favor of the Davids. However,
the Court of Appeals modified the trial court’s decision. According to the Appellate Court,
there was no agreement as to the price since the receipts issued by the Mr. Tiongson failed
to state the total purchase price or prove that full payment was made. Hence, there was no
meeting of minds regarding the price, and consequently, there was no perfected contract of
sale.

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Issue: Is there an agreement as to the price of the lot?

Held: YES. The Court of Appeals relied heavily on the receipts issued by Mr. Tiongson.
However, Mrs. David testified that there was an agreement to purchase the lot for P15,000
which respondents failed to rebut. However, in the brief, the Tiongsons alleged that the
agreed price was P120 per sq. m. Hence, they are now estopped to deny the existence of
an agreed price. The question to be determined should not be whether there was an agreed
price, but what that agreed price was, whether for a total of P15,000 or P120 per sq. m. The
sellers could not render invalid a perfected contract of sale by merely contradicting the
buyers’ allegation regarding the price, and subsequently raising the lack of agreement as to
the price. Also, an overpayment of P50 does not negate the existence of an agreed
purchase price – instead, this entitles the buyer to claim reimbursement of any overpayment
made.

Contract of sale

CO v. COURT OF APPEALS
312 SCRA 528

Facts:
Plaintiff Adoracion Custodio entered into a verbal contract with defendants’ spouses
Co for the purchase of the latter’s house and lot located at Alabang, Metro Manila at the
agreed purchase price of $100,000.00 payable in two payments $40,000.00 in Dec. 4, 1984
and the balance of $60,000.00 on January 5, 1985. A week thereafter, plaintiff paid
defendants the amount of $1,000.00 and Php40,000.00 as earnest money. On January 25,
1985, although the period of payment had already expired, plaintiff paid to defendants the
sum of $30,000.00 as partial payment. On March 15, 1985, defendants demanded from
plaintiff payment of the balance of purchase price but to no avail. On Aug. 8, 1986,
defendants informed plaintiff that she lost her option to purchase the property and that her
other rights to the property including payments already made are forfeited. On Sept. 5,
1986, plaintiff informed defendants that she is now ready to pay the remaining balance but
was ignored by the latter. Plaintiff then filed an action for rescission.
The lower court ruled that the earnest money is forfeited. It also ordered defendants
to remit to plaintiff the peso equivalent of $30,000.00 representing the partial payment of
purchase price. Defendants appealed arguing that plaintiff had already lost her right on
option to purchase and that her failure to exercise said option resulted in forfeiture of any
amounts paid.

Issue:
Whether or not there is a perfected contract of sale and whether defendants can
unilaterally and extra-judicially rescind said contract of sale.

Held:
A contract of sale is a consensual contract and is perfected at the moment there is a
meeting of the minds upon the thing which is the object of the contract and upon the price.
Earnest money given in sale transaction is considered part of the purchase price and proof
of the perfection of the sale.
In the absence of an express stipulation authorizing the sellers to extra-judicially
rescind the contract of sale, the defendants cannot unilaterally and extra-judicially rescind
the contract of sale. Despite the fact that plaintiff’s failure to pay the amounts of $40,000.00
and $60,000.00 on or before Dec. 4, 1984 and January 5, 1985, respectively, was a breach
of her obligation under Article 1191 of the Civil Code, the defendants did not sue for either
specific performance or rescission of the contract. The defendants were of the mistaken
belief that plaintiff had lost her “option” over the property when she failed to pay the
remaining balance.

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Sufficiency of Consideration in Contract of Sale

J.R. BLANCO vs. QUASHA

G.R. No. 133148, November 17, 1999

Facts: Mary Ruth Elizalde, an American citizen, owned a house and lot situated in Forbes
Park, Makati. On May 22, 1975, she, through her attorney-in-fact, sold the lot to Parex
Realty Corp., excluding the house thereon, payable in 25 equal annual installments of
P25,000 each. Simultaneously with the execution of the contract of sale, Parex and Elizalde
entered into a lease contract whereby Parex leased back to Elizalde the same land for a
period of 25 years at a monthly rental of P2,083.34 which totals P25,000 in a year. By virtue
of the sale, a new title was issued in the name of Parex on May 27, 1975. Elizalde died on
March 1, 1990. The special administrator of her estate, J.R. Blanco, brought an action
against Parex and its incorporators for the reconveyance of the parcel of land. Blanco
alleged that the sale was absolutely simulated and fictitious, and was made in order to
circumvent the effects of the Courts ruling in Republic vs. Quasha which declared that under
the “Parity Amendment” to the Constitution, US citizens and corporations owned and
controlled by them cannot acquire and own, save in cases of hereditary succession, private
agricultural lands in the Philippines. Blanco also argued that Elizalde did not receive a
single centavo from the transactions.

Issue: Is the sale-lease-back agreement between Elizalde and Parex null and void for
being absolutely simulated or fictitious?

Held: No. The fact that the amount of the annual installments of the purchase price
dovetails with the rate of rentals stipulated in the lease contract is not enough reason to
claim that there was no consideration for the contracts of sale and lease. Petitioner argues
that Elizalde did not receive money in the sale of her property. While that may be true, her
continued occupancy of the premises even after she sold it to Parex constitutes valuable
consideration which she received as compensation for the sale.
To resolve the issue of whether or not a sale-lease-back is simulated, it is imperative
that the true intention of the parties, rather than the correct interpretation of the written
stipulations in the contracts, be looked into. However, to do so is to pass upon an issue of
fact, a function not within the province of the SC.

Perfection of Contract of Sale; Rescission

CO vs. COURT OF APPEALS

312 SCRA 528

Facts: Plaintiff Adoracion Custodio entered into a verbal contract with defendants’
spouses Co for the purchase of the latter’s house and lot located at Alabang, Metro Manila
at the agreed purchase price of $100,000.00 payable in two payments $40,000.00 in Dec. 4,
1984 and the balance of $60,000.00 on January 5, 1985. A week thereafter, plaintiff paid
defendants the amount of $1,000.00 and Php40,000.00 as earnest money. On January 25,
1985, although the period of payment had already expired, plaintiff paid to defendants the
sum of $30,000.00 as partial payment. On March 15, 1985, defendants demanded from
plaintiff payment of the balance of purchase price but to no avail. On Aug. 8, 1986,
defendants informed plaintiff that she lost her option to purchase the property and that her
other rights to the property including payments already made are forfeited. On Sept. 5,
1986, plaintiff informed defendants that she is now ready to pay the remaining balance but
was ignored by the latter. Plaintiff then filed an action for rescission.
The lower court ruled that the earnest money is forfeited. It also ordered defendants
to remit to plaintiff the peso equivalent of $30,000.00 representing the partial payment of
purchase price. Defendants appealed arguing that plaintiff had already lost her right on

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option to purchase and that her failure to exercise said option resulted in forfeiture of any
amounts paid.

Issue: Is there a perfected contract of sale and can defendants unilaterally and extra-
judicially rescind said contract of sale?

Held: Yes, there is a perfected contract of sale. A contract of sale is a consensual

contract and is perfected at the moment there is a meeting of the minds upon the thing
which is the object of the contract and upon the price. Earnest money given in sale
transaction is considered part of the purchase price and proof of the perfection of the sale.
No. In the absence of an express stipulation authorizing the sellers to extra-judicially
rescind the contract of sale, the defendants cannot unilaterally and extra-judicially rescind
the contract of sale. Despite the fact that plaintiff’s failure to pay the amounts of $40,000.00
and $60,000.00 on or before Dec. 4, 1984 and January 5, 1985, respectively, was a breach
of her obligation under Article 1191 of the Civil Code, the defendants did not sue for either
specific performance or rescission of the contract. The defendants were of the mistaken
belief that plaintiff had lost her “option” over the property when she failed to pay the
remaining balance.

Right of First Priority to Purchase; Perfection of Contract of Sale

GABELO vs. COURT OF APPEALS

G.R. No. 111743, October 8, 1999

Facts: Philippine Realty Corporation (PRC) entered into a contract of lease with private
respondent Maglente over a parcel of land for a period of three years. The agreement
provided for the Lessee to have a first priority to buy in case the Lessor chooses to sell the
land. Maglente subleased portions of the land to the petitioners.
Subsequently, PRC made a written offer to sell the subject property to Maglente.
Thereafter, PRC and Maglente agreed on the price and terms of the purchase and the latter
completed the required downpayment.
Later on, petitioners also expressed their intention to purchase the property. They
also asked PRC to prevent Maglente from demolishing their houses. The parties then filed
an action in court which ruled that Maglente as the rightful party to purchase the land in
controversy. Petitioners appealed contending that as the actual occupants of the property,
they have preferential right to purchase the land and that a contract of sale was yet to be
perfected between PRC and Maglente as they have yet to sign on any written agreement.

Issue: 1) Do petitioners have preferential right to purchase the leased land?

2) Was there a perfected contract of sale between Maglente and PRC?

Held: 1) No. There is no legal basis for the assertion by the petitioners that as actual
occupants of the said property, they have the right of first priority to purchase the same.
As regards the freedom of contract, it signifies or implies the right to choose with
whom to contact. PRC is thus free to offer its subject property for sale to any interested
person. It is not duty bound to sell the same to the petitioners simply because the latter
were in actual occupation of the property absent any prior agreement vesting in them as
occupants the right of first priority to buy.

2) Yes. In the case under consideration, the contract of sale was already perfected.
As a matter of fact, respondents have already completed payment of their downpayment.
Anent petitioner’s submission that the sale has not been perfected because the parties have
not affixed their signature thereto, suffice to state that under the law, the meeting of the
minds between the parties gives rise to a binding contract although they have not affixed
their signatures to its written form.

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Equitable Mortgage

LAPAT vs. ROSARIO

G.R. No. 127348, August 17, 1999

Facts: In 1991, petitioner sold to respondents an Isuzu Elf truck, which the latter could
use for hauling their agricultural products, for P300,000 payable as follows: P120,000 as
downpayment upon delivery and the balance on or before 30 May 1992. Respondents paid
the downpayment upon delivery of the truck. Later however it was discovered that the
vehicle had a defective motor; consequently, respondents offered to return the vehicle to the
petitioner. Instead of accepting the vehicle, petitioner lent the respondents P60,000 at 40%
interest in order for the latter to replace the defective motor. To secure payment of the
balance of the purchase price and the P60,000 loan, respondents executed 2 documents
purporting to be deeds of sale of 2 parcels of land with right to repurchase the same on or
before 30 May 1992. The total consideration was P500,000 which the petitioner claimed
she paid in cash. Due to poor harvests, respondents returned the truck. Petitioner
accepted it and released respondents from paying the balance of the purchase price and the
P60,000 loan. As regards the 2 Deeds of Sale with Right to Repurchase, petitioner
promised to cancel them. However, petitioner reneged on her promise when she filed a
complaint for consolidation of ownership due to the failure of the respondents to redeem the
properties on or before 30 May 1992. Both the Regional Trial Court and Court of Appeals
dismissed the complaint declaring the 2 deeds of sale with right to repurchase as equitable
mortgages.

Issue: Were the 2 Deeds of Sale of Realty with Right to Repurchase equitable mortgages
under Art. 1602 of the Civil Code?

Held: YES. The instant case falls squarely under par. (6) of Art. 1602 of the Civil Code,
to wit: The Contract shall be presumed to be an equitable mortgage x x x in any other case
where it may be 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. Circumstances
abound pointing to this conclusion.
First. Petitioner claims she bought 2 parcels of land from respondents paying the
latter P500,000 in cash. If this were true then why could not respondents afford the P60,000
needed for the repair of the truck?
Second. Petitioner supposedly paid P500,000 cash to the respondents. If petitioner
indeed paid, why did she have to shell out the full amount of P500,000 considering that
respondents were allegedly indebted to her in the amount of P60,000.
Third. The last day to redeem the 2 parcels of land purportedly fell on 30 May 1992
which interestingly coincided with the date respondents were supposed to pay the remaining
balance of the purchase price of the tuck.
Fourth. The cash receipts signed by the respondents failed to state that they were
intended as payment for the 2 parcels of land supposedly sold by respondents. On the
contrary, they were purportedly advances by respondents who in turn obliged themselves to
deliver their rice produce to petitioner at harvest time.
Fifth. The amounts stated in the 2 deeds of sale with right to repurchase were
written using a different typewriter. In one deed, the TCT was not typewritten along with
other details pertaining to the land. Furthermore, the residence certificate number of one
respondent was not the same.
These circumstances attending the execution of the 2 Deeds of Sale with Right to
repurchase cast serious doubt on petitioner’s claim that the real intention of the parties was
sale over the properties and not equitable mortgage. The form of the instrument cannot
prevail over the true intent of the parties as established by the evidence. On determining
the nature of a contract, courts are not bound by the title or name given by the parties. The
decisive factor in evaluating such agreement is the intention of the parties, as shown not
necessarily by the terminology used in the contract but by their conduct, word, actions and
deeds, prior to, during and immediately after execution of the agreement. And, in case of
doubt, a contract purporting to be a sale with right of repurchase shall be construed as an
equitable mortgage.

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AMIL vs. COURT OF APPEALS

G.R. No. 125272, October 7, 1999

Facts: Candido Amil, as seller, and the spouses Gador, as buyers executed a document
entitled “Deed of Pacto de Retro Sale.” After the redemption period had expired, the
spouses Gador filed a petition for the consolidation of their ownership over the property.
Amil was declared in default as his counsel failed to file an answer to the petition. The case
was heard and a judgment rendered declaring the spouses Gador as the absolute owners of
the lot and ordering the Register of Deeds to make the annotation of the Consolidation of
Ownership in the vendees-a-retro upon payment of prescribed fees. Amil, through new
counsel, filed a motion for a new trial which was denied. The CA affirmed the denial of a
new trial.

Issue: Is the contract between Amil and Spouses Gador a Pacto de Retro Sale?

Held: It would appear that the contract between Amil and the Spouses Gador is an
equitable mortgage rather than a pacto de retro sale. The price was unusually inadequate.
The words ‘mortgage,’ ‘motgagor,’ and ‘mortgagee,’ appear in the Addendum to the Deed of
Pacto de Retro Sale. There is a stipulation which is considered a pactum commissorium
and is therefore void. Considering all these, the case is remanded to the TC to enable Amil
to present evidence on the true nature of the contract in question.

CHING SEN BEN vs. COURT OF APPEALS

G.R. No. 124355, September 21, 1999

Facts: Petitioner sold to private respondent a parcel of land in Marikina. Partial payment
was made through a housing loan granted to private respondent by the SSS. A promissory
note was also executed by private respondent. To secure the loan, he also made a Deed
of Real Estate Mortgage both in favor of SSS. Meanwhile, after petitioner constructed a
house on the lot (as per agreement), said petitioner reminded private respondent about the
latter’s unpaid balance of P45,000. Thereafter, the two parties executed a Deed of Sale
with Assumption of Mortgage and with Right to Repurchase, whereby petitioner paid private
respondent the amount of P60,242.86. Private respondent remained in possession of the
subject lot. After the latter failed to heed petitioner’s demand to execute a Deed of Sale in
his favor, he filed a petition with the court a quo for the consolidation of his title to the
property. The court however denied his petition. The CA affirmed.

Issue: Is the Deed of Sale with Assumption of Mortgage and with Right to Repurchase
actually an equitable mortgage?

Held: Yes. For one, the purported consideration for the sale with the right to repurchase
in the amount of P62,242.86 is unusually inadequate compared to the purchase price
(P150,000) of the property when private respondent bought it from petitioner only 6 mos.
before the execution of the said deed of sale. For another, private respondent, the
supposed vendor, remained in possession of the property even after the execution of the
deed.

Art. 1544

CAVILES, JR. vs. BAUTISTA

G.R. No. 102648, November 24, 1999

Facts: A writ of preliminary attachment was issued by the CFI on September 24, 1982
over a land owned by Renato Plata. The Notice of Attachment was entered in the Primary
Entry Book (Day Book) on Oct. 6, but was not annotated on the original TCT nor on Plata’s

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duplicate TCT by the Register of Deeds. On Oct. 18, Plata sold the same property to the
spouses Bautista. When the spouses Bautista verified the original title with the Office of the
Register of Deeds, they found the same unblemished by any liens or encumbrances.
Plata’s TCT was cancelled and a new TCT was issued in the name of the spouses Bautista.
Notice of levy was entered in the Day Book on Feb. 22, 1984 and on March 30, the property
was sold on execution to the spouses Caviles. The certificate of sale was entered in the
Day Book on April 2, 1987, but when its inscription was sought to be made, it was found out
that Plata’s certificate had been cancelled and a new one issued to the spouses Bautista.

Issue: Whose interest will prevail, that of the spouses Bautista or that of the spouses
Caviles?

Held: There was good faith and absence of negligence on both parties. The spouses
Bautista clearly had no notice of any defect, irregularity or encumbrance in the title of the
property they purchased. The spouses Caviles, on the other hand, paid the corresponding
fees for the annotation of the notice of attachment and they had every right to presume that
the Register of Deeds would perform his duty properly, i.e., inscribe said notice on the
original title covering the subject property. Entry alone produces the effect of registration,
whether the transaction entered is a voluntary or involuntary one, as long as the registrant
has complied with all that is required of him for purposes of entry and annotation, and
nothing remains to be done but a duty incumbent solely on the Register of Deeds. In
involuntary registration, such as an attachment, levy on execution, lis pendens and the like,
entry thereof in the Day Book is a sufficient notice to all persons of such adverse claim.
Art. 1544 of the NCC provides: “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. “ The spouses Caviles’ lien of attachment was properly recorded when it was
entered in the Day Book of the Register of Deeds on October 6, 1982. The execution sale
retroacts to the date of levy of the lien of attachment. The earlier registration of the spouses
Caviles’ levy on preliminary attachment gave them superiority and preference in rights over
the attached property as against spouses Bautista.

Right of First Refusal

LITONJUA vs. L & R CORPORATION

G.R. No. 130722, December 9, 1999

Facts: Petitioner-spouses Litonjua obtained a loan from L & R Corporation. It was

stipulated in the contract of mortgage which secured the loan that (1) the mortgagor shall
not sell the mortgaged property without the prior written consent of mortgagee; and (2) that
the mortgagee shall be given priority should the mortgagor decide to sell the mortgaged
property.
Spouses Litonjuas failed to pay the loan. L & R then foreclosed the mortgaged
property. But when respondent tried to register the certificate of sale for the auction sale, it
learned that Petitioners Litonjua had already sold the mortgaged property to Philippine
White House Auto Supply (PWHAS) without its the prior written consent and without
allowing it to exercise the first option to buy the property. L & R consolidated title to the
property when it refused to accept the redemption price offered by PWHAS. Thereafter, a
complaint for Quieting of Title and Annulment of Title was filed by the spouses Litonjua and
PWHAS against respondents.
The lower court dismissed the case. The Court of Appeals, however, reversed the
decision and held that (1) the stipulation in the mortgage contract requiring prior written
consent of the mortgagee before the mortgagor can sell is valid; and (2) the sale between
the Litonjuas and PWHAS must be rescinded because it violated L & R’s right of first refusal.

Issue: Is rescission available in case of violation of the Right of First Refusal?

Held: The right of first refusal has long been recognized as valid in our jurisdiction. The
consideration for the loan-mortgage includes the consideration for the right of first refusal.

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The case of Guzman, Bocaling & Co v. Bonnevie is instructive on this point – “Under Article
1380 to 1381(3) of the Civil Code, a contract otherwise valid may nonetheless be
subsequently rescinded by reason of injury to third persons, like creditors. The status of
creditors could be validly accorded the Bonnevies for they had substantial interests that
were prejudiced by the sale of the subject property to the petitioner without recognizing their
right of first priority under the contract of lease.”

Sublease

PEREZ vs. COURT OF APPEALS

G.R. No. 107737, October 1, 1999
Facts: Juan Perez, along with four others, is a usufructuary of a parcel of land called
‘Papaya Fishpond.’ On June 5, 1975, the usufructuaries enterd into a contract leasing the
fishpond to Luis Keh for 5 years renewable for another 5 years. Paragraph 5 of the lease
contract states that the lessee cannot sublease the fishpond nor assign his rights to anyone.
Despite the prohibition, the lessee, Keh offered the operation of the fishpond to Luis
Crisostomo. A written agreement dated January 9, 1978 ceded, conveyed and transferred
all the rights and interests of Keh over the fishpond to Lee until June 1985. Lee acceded to
take over Keh’s rights as a lessee of the fishpond. In June 1979, Juan Perez and his
counsel, in the company of armed men, went to the fishpond and presented Crisostomo with
a letter dated June 7, 1979 showing that Keh had surrendered possession of the fishpond to
the usufructuaries. According to petitioners Juan Perez and Luis Keh, Luis Crisostomo is
not a sublessee of the fishpond under the law because no contract authorized him to be so.

Issue: Is private respondent Luis Crisostomo a sublessee of the fishpond and entitled to
continuous possession until June 1985?

Held: Although the contract between the usufructuaries and the lessee Keh has a
provision barring the sublease of the fishpond, it was Keh himself who violated that provision
in offering the operation of the fishpond to Crisostomo. The established facts also show that
Juan Perez and his counsel knew of and acquiesced to the arrangement of Keh and
Crisostomo by the act of Perez of receiving from Crisostomo the rent for 1978-79. Perez is
estopped to question Crisostomo’s right to possess the fishpond as a lessee.
However, the Court hesitate to grant Crisostomo’s prayer that he should be restored
to the possession of the fishpond as a consequence of his unjustified ejectment therefrom.
To restore possession of the fishpond to him would entail violation of contractual obligations
that the usufructuaries have entered into over quite a long period of time now. Supervening
events, such as the devaluation of the peso as against the dollar as well as the addition of
improvements in the fishpond that the succeeding lessees could have introduced, have
contributed to the increase in rental value of the property. To place Crisostomo in the same
position he was in 1980 when he was deprived the right to operate the fishpond under the
contract that already expired in 1985 shall be to sanction injustice and inequity.
Nonetheless, it is but proper that Crisostomo should be properly compensated for the
improvements he introduced in the fishpond as well as awarded moral and exemplary
damages and attorney’s fees.

PARTNERSHIP

Formation of a Partnership; Liability of a Partner

LIM TONG LIM vs. PHILIPPINE FISHING GEAR INDUSTRIES, INC.

G.R. No. 136448, November 3, 1999

Facts: Antonio Chua, Peter Yao and Lim Tong Lim decided to engage in a fishing
business which they started by buying boats worth P 3.35 million financed by a loan secured
from Jesus Lim who was petitioner’s brother. They subsequently revealed their intention to

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pay the loan with the proceeds of the sale of the boats and to divide equally among them the
excess or loss. In pursuance to their business agreement, Yao and Chua, purchased nets
from private respondent, in behalf of Ocean Quest Fishing Corporation, their purported
business name. Yao and Chua failed to pay. Private respondent filed a collection suit.
Chua admitted his liability while Yao waived his right to cross examine and to present
evidence. Lim Tong Lim, on the other hand, refused contending that he was not one of the
signatory in the purchase of the nets and that Ocean Quest is a nonexistent corporation as
shown by the SEC. The TC ruled that petitioner is liable as a partner. The CA affirmed the
decision.

Issue: May Lim Tong Lim be held liable as a partner?

Held: Yes. A partnership may be deemed to exist among parties who agree to borrow
money to pursue a business and to divide the profits or losses that may arise therefrom,
even if it is shown that they have not contributed any capital of their own to a “common
fund.” Their contribution may be in the form of credit or industry, not necessarily cash or
fixed assets. Being partners, they are all liable for debts incurred by or on behalf of the
partnership. The liability for a contract entered into on behalf of an unincorporated
association or ostensible corporation may lie in a person who may not have directly
transacted on its behalf, but reaped benefits from that contract.

Art. 1768

AGUILA, JR. vs. COURT OF APPEALS

G.R. No. 127347, November 25, 1999

Facts: Petitioner Aguila Jr and private respondent Abrogar entered into an agreement
whereby the former shall buy from the latter her house and lot with option to repurchase
within 90 days. At the same time, a Deed of Sale concerning the subject property was
executed by the parties. Abrogar failed to repurchase and as per agreement, a new TCT
was issued in the name of the partnership. However, Abrogar remained in possession of
the premises prompting Aguila to file an ejectment case with the MTC. The MTC ruled in
favor of Aguila. Abrogar appealed to the RTC, then to the CA, and finally to the SC, but
lost in all cases.
Abrogar thereafter filed with the RTC a petition for declaration of nullity of deed of
sale with the RTC, alleging that the signature of her husband on the deed of sale was a
forgery because he was already dead when the deed was executed. However, the RTc
denied her petition. The CA however reversed the RTC’s ruling, holding that the
transaction between the parties herein is an equitable mortgage because the price paid is
unusually inadequate. Abrogar remained in the possession of the subject property and paid
taxes thereon. (Art. 1602, Civil Code)

Issue: Did Abrogar correctly file the case against Aguila Jr.?

Held: No. Aguila Jr. is not the real party in interest but A.C. Aguila & Co., against which
this case should have been brought. Under the Rules of Court, a complaint filed against a
party who is not a real party in interest should be dismissed for failure to state a cause of
action. A partnership has a juridical personality separate and distinct from that of each of
the partners. It is the partnership, not its officers or agents, which should be impleaded in
any litigation involving property registered in its name.

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Article 1773

TORRES vs. COURT OF APPEALS

G.R. No. 134559, December 9, 1999

Facts: Petitioners Torres and Baring entered into a joint venture agreement with private
respondent Manuel Torres for the development of a parcel of land into a subdivision. The
project, however, did not push through and the land was subsequently foreclosed by the
creditor-bank.
Later on, petitioners filed a civil case against private respondent for damages for the
latter’s mismanagement and lack of skills. Respondent court, in affirming the lower court
ruled that petitioners and respondent had formed a partnership for the development of the
land and thus, must bear the loss proportionately. On appeal to the Supreme Court,
petitioners deny the existence of a partnership contending that their joint venture agreement
is void since they did not comply with Article 1773 of the Civil Code which required an
inventory of the real property to be contributed in the partnership.

Issue: Is the inventory of real property contributed in the partnership necessary for the
validity of the partnership agreement?

Held: We clarify. Article 1773 of the Civil Code was intended primarily to protect third
persons. Thus, the eminent Arturo Tolentino states that under the aforecited provision
which is a complement of Article 1771, “the execution of a public instrument would be
useless if there is no inventory of the property contributed, because without its designation
and description, they cannot be subject to inscription in the Registry of Property, and their
contribution cannot prejudice third persons. This will result in fraud to those who contract
with the partnership with the belief in the efficacy of the guaranty in which the immovables
may consist. Thus, the contract is declared void by law when no such inventory is made.”
The case at bar does not involve third parties who may be prejudiced.
In short, the alleged nullity of the partnership will not prevent courts from considering
the Joint Venture Agreement an ordinary contract from which the parties’ rights and
obligations to each other may be inferred and enforced.

Dissolution of Partnership; Receivership

SY vs. COURT OF APPEALS

G.R. No. 94285, August 31, 1999

Facts: Sy Yong Hu & Sons is a partnership. In September, 1977, Keng Sian, Sy Yong
Hu’s common-law wife sued the partnership for the reconveyance of ½ of its properties and
the fruits thereof.
During the pendency of the suit, one of the partners. Marciano Sy, filed a petition
against his partners with the SEC asking that he be appointed managing partner to replace
Jose Sy who earlier died. SC hearing officer Sison dismissed the petition and declared the
partnership dissolved and named one of the remaining partners as the managing partner.
The SEC en banc affirmed Sison’s decision, ordering the distribution and partition of
partnership assets.
However, before the same can be implemented, Keng Sian’s children with Sy Yong
Hu were allowed by the SEC to intervene. The intervenors contend that their civil suit
against the partnership is still pending and that no petition for distribution should be
commenced.
SEC Hearing Officer Tongco who replaced Sison placed the partnership under
receivership thereby preventing the partition and distribution of partnership assets. This was
affirmed by the SEC en banc.
The remaining partners of the firm appealed.
The CA ultimately affirmed the Tongco ruling.

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Issue: Is the preservation of the partnership assets through receivership inconsistent with
the earlier decision declaring the partnership’s dissolution?

Held: The Sison decision declaring the partnership’s dissolution did not pose any
obstacle to the hearing officer to issue orders not inconsistent therewith. From the time the
dissolution is ordered until the actual termination of the partnership the SEC retained
jurisdiction to adjudicate all incidents relative thereto. Thus, the Tongco order cannot be
said to have varied the final order of dissolution. Neither did it suspend the dissolution of the
partnership. It only suspended the partition and distribution of the partnership assets.
Further, the dissolution of a partnership is the change in relation of the parties caused by
any partner ceasing to be associated in the carrying on, as might be distinguished from the
winding up, of its business. Upon its dissolution, the partnership continues and its legal
personality is retained until the complete winding up of its business culminating in its
termination.
The dissolution of the partnership did not mean that the juridical entity was
immediately terminated and that the distribution of the assets to its partners should
perfunctorily follow. On the contrary, the dissolution simply effected a change in the
relationship among the partners. The partnership, although dissolved, continues to exist
until its termination, at which time the winding up of its affairs should have been completed
and the net partnership assets are partitioned and distributed to the partners.

CREDIT TRANSACTIONS

Article 1731

LIMA vs. TRANSWAY SALES CORPORATION

G.R. No. 106770, October 22, 1999

Facts: Plaintiff contracted the respondent to install an airconditioner in her car. Four
months after the installation, the respondent impounded the car due to the plaintiff’s failure
to pay. The respondent based its right on the existence of mechanic lien over the car.
The TC and the CA ruled for the respondent in the replevin case filed by the plaintiff.
Hence, this appeal.

Issue: Does respondent have mechanic’s lien over the car?

Held: Yes. On the matter of the existence of mechanic’s lien in favor of the respondent
corporation, explicit is the applicable provision of Art. 1731 of the NCC that the latter can
retain by way of pledge, the movable upon which it executed work.

Art. 2126

ASUNCION vs. EVANGELISTA

G.R. No. 133491, October 13, 1999

Facts: Asuncion and Evangelista entered into a Memorandum of Agreement (MOA)

whereby the former agreed to pay latter certain amounts of money and to assume all the
liabilities of Embassy Farms which is controlled by respondent. In return, Evangelista will
transfer control of Embassy Farms and transfer to Asuncion all the real properties held
under real estate mortgage with several savings banks and finance corporations.
While Asuncion fulfilled his payment commitments under the MOA, Evangelista failed
to transfer the title of the real properties and the shares of stock of Embassy Farms in the
name of Asuncion. However, it was respondent who filed a complaint for the rescission of
the MOA arguing that petitioner failed to comply with his obligations under the agreement.
During the trial, Evangelista explained that the reason he did not transfer the real
properties is because Asuncion did not agree to make a formal assumption of the mortgage
under the MOA. Both the TC and CA ruled in favor of Evangelista and ordered the

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rescission of the MOA with damages based on the alleged proceeds of the sale of hogs
during the period control of the Embassy Farms was with Asuncion.

Issue: Is there a need to formally assume the mortgage on the real properties to be
transferred under the MOA?

Held: No. Even without the formal assumption of mortgage, the mortgage follows the
property whoever the possessor may be. It is an elementary principle in civil law that real
mortgage subsists notwithstanding changes of ownership and all subsequent purchases of
the property must respect the mortgage, whether the transfer to them be with or without the
consent of the mortgagee.

Assignment of Credit; Assignment of Mortgaged Property

SERVICEWIDE SPECIALISTS, INCORPORATED vs. COURT OF APPEALS

G.R. No. 116363, December 10, 1999

Facts: Sometime in 1975, spouses Atty. Jesus and Elizabeth Ponce bought a vehicle on
installment from C.R. Tecson Enterprises. A chattel mortgage was constituted on the
vehicle as security for payment. On Dec. 24, 1975, C.R. Tecson assigned the credit and
mortgage to Filinvest Credit Corp. with the implied consent of the spouses. In 1976,
respondent spouses assigned the vehicle to Conrado Tecson by way of sale with
assumption of mortgage. In 1978, Filinvest assigned the credit to petitioner Servicewide
Specialists, Inc. (SSI) without notice to the spouses. Due to failure of respondent spouses
to pay 6 installments, despite demands, SSI filed a complaint for replevin with damages
against them. Respondent spouses denied liability claiming their assignment of the car to
Conrado. TC found respondent spouses liable with a right to claim reimbursement from
Conrado. On appeal, the CA reversed the decision holding that respondent spouses were
not notified of the assignment of the credit to SSI.

Issue: Is the debtor-mortgagor who sold the property to another entitled to notice of the
assignment of credit made by the creditor to another party? Conversely, is the consent of
the creditor-mortgagee necessary when the debtor-mortgagor alienates the property to a
third person?

Held: Only notice to the debtor of the assignment of credit is required. His consent
is not required. In contrast, consent of the creditor-mortgagee to the alienation of the
mortgaged property is necessary in order to bind said creditor.
The sale with assumption of mortgage made by respondent spouses is tantamount
to a substitution of debtors. In such case, mere notice to the creditor is not enough, his
consent is always necessary as provided in Art. 1293. Without such consent by the creditor,
the alienation made by respondent spouses is not binding on the former. On the other
hand, Arts. 1625, 1626 and 1627 of the CC on assignment of credits do not require the
debtor’s consent for the validity thereof and so as to render him liable to the assignee. The
law speaks not of consent but of notice to the debtor, the purpose of which is to inform the
latter that from the date of assignment he should make payment to the assignee and not to
the original creditor. Notice is thus for the protection of the assignee because before said
date, payment to the original creditor is valid.
Respondent spouses should have obtained the consent of Filinvest before selling the
property. In the absence of such consent, respondent spouses stands as the
debtor insofar as Filinvest is concerned and the sale of the vehicle to Conrado
Tecson was not binding on Filinvest. Having subsequently stepped into the shoes
of Filinvest, petitioner acquired the same right as the former had against
respondent spouses. When the credit was assigned by Filinvest to petitioner,
respondent spouses stood on record as the debtor-mortgagor.

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Article 2130

LITONJUA vs. L & R CORPORATION

G.R. No. 130722, December 9, 1999

Facts: Petitioner-spouses Litonjua obtained a loan from L & R Corporation. It was stipulated
in the contract of mortgage which secured the loan that (1) the mortgagor shall not sell the
mortgaged property without the prior written consent of mortgagee; and (2) that the
mortgagee shall be given priority should the mortgagor decide to sell the mortgaged
property.
Spouses Litonjuas failed to pay the loan. L & R then foreclosed the mortgaged
property. But when respondent tried to register the certificate of sale for the auction sale, it
learned that Petitioners Litonjua had already sold the mortgaged property to Philippine
White House Auto Supply (PWHAS) without its the prior written consent and without
allowing it to exercise the first option to buy the property. L & R consolidated title to the
property when it refused to accept the redemption price offered by PWHAS. Thereafter, a
complaint for Quieting of Title and Annulment of Title was filed by the spouses Litonjua and
PWHAS against respondents.
The lower court dismissed the case. The Court of Appeals, however, reversed the
decision and held that (1) the stipulation in the mortgage contract requiring prior written
consent of the mortgagee before the mortgagor can sell is valid; and (2) the sale between
the Litonjuas and PWHAS must be rescinded because it violated L & R’s right of first refusal.

Issue: Is a stipulation requiring prior written consent of mortgagor before mortgagee can
sell, valid?

Held: No. True, the provision does not absolutely prohibit the mortgagor from selling his
mortgaged property; but what it does not outrightly prohibit, it nevertheless achieves. For all
intents and purposes, the stipulation practically gives the mortgagee the sole prerogative to
prevent any sale of mortgaged property to a third party. The mortgagee can simply withhold
its consent and thereby, prevent the mortgagor from selling the property. This creates an
unconscionable advantage for the mortgagee and amounts to a virtual prohibition on the
owner to sell his mortgaged property. In other words, the stipulation circumvent the law,
specifically, Article 2130 of the Civil Code.

Requisite for a Valid Foreclosure of Mortgage

LUCENA vs. COURT OF APPEALS

G.R. No. 77468, August 25, 1999

Facts: Petitioners obtained a loan from private respondent Rural Bank of Najuan, Inc. in
the amount of P3,000 secured by a real estate mortgage constituted on their parcel of land.
After the loan had matured, they were able to pay the Bank the sum of P2,000, thereby
leaving a balance of P1,000.
After previous demand by the rural bank for the petitioners to settle the balance of
their matured loan went unheeded, the subject property was extrajudicially foreclosed and
sold at public auction where the rural bank as the highest bidder acquired the property.
Prior to the auction sale, notice of foreclosure were post in at least 3 conspicuous public
places in the municipality where the subject property was located. No notices were posted
in the barrio where the property was located, nor were any published in a newspaper of
general circulation. The Certificate of Sale was subsequently issued and registered.

Issue: Was there a valid foreclosure sale of the subject property?

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Held: No. Failure to comply with statutory requirements as to publication of notice of
auction sale constitutes a jurisdictional error which invalidates the sale. Even the slight
deviations therefrom are not allowed. RA 5939, Sec. 5 provides:
“The foreclosure of mortgages covering loans granted by rural banks shall be exempt
from the publication in newspapers were the total amount of the loan, including interests due
and unpaid, does not exceed three thousand pesos. It shall be sufficient publication in such
cases if the notices of foreclosure are posted in at least three of the most conspicuous
places in the municipality and barrio where the land mortgaged is situated during the period
of sixty days immediately preceding the public auction.”
In the case at bar, the affidavit of posting executed by the sheriff states that notices
of public auction sale were posted in three conspicuous public places in the municipality
such as 1) the bulletin board of the Municipal Building; 2)the Public Market; 3) the Bus
Station. There is no indication that notices were posted in the barrio where the subject
property lies. Clearly, there was a failure to publish the notice of auction sale as required
by law.
Further, there was a failure on the part of the private respondents to publish notices
of foreclosure sale in a newspaper of general circulation. Sec. 5 provides that such
foreclosure are exempt from the publication requirement when the total amount of the loan
including interests due and unpaid does not exceed three thousand pesos. The law clearly
refers to the total amount of the loan along with interests and not merely the balance
thereof, as stressed by the word “total.”

Right to Consolidate in Mortgage Foreclosure

DEVELOPMENT BANK OF THE PHILIPPINES vs. COURT OF APPEALS

G.R. No. 111737, October 13, 1999

Facts: Spouses Pineda obtained a loan from Petitioner Development Bank of the
Philippines (DBP) using as collateral a parcel of land covered by a homestead patent. The
Pinedas failed to comply with the conditions of the loan and subsequently, DBP foreclosed
the property. In the certificate of sale, it was indicated that the property is subject to
redemption within 5 years from date of registration. After the expiration of the one year
redemption period provided under section 6 of Act 3135, however, DBP consolidated its title
to the foreclosed property.
When Pinedas offered to redeem the property, DBP refused the redemption and
explained that the property cannot be redeemed as it is within the provisions of PD 27 which
prohibited the redemption of tenanted land.
The Pinedas subsequently filed an action for the cancellation of title and specific
performance against DBP contending that the latter acted in bad faith for consolidating its
title on the foreclosed property although the 5 year redemption period stated in the
certificate of sale has not yet expired.
The trial court and respondent court ruled that DBP violated the stipulation in the
sheriff’s certificate of title and ordered DBP to assume liability for the fruits that the property
produced from said land. On appeal, respondent court ruled that DBP was in bad faith
when it unlawfully took possession of the land and that Pinedas were entitled to recover the
fruits produced by the property.

Issue: Was DBP in bad faith when it consolidated title and took possession of the
foreclosed property?

Held: No. A possessor in good faith is one who is not aware that there exists in his title or
mode of acquisition any flaw, which invalidates it. Good faith is always presumed, and upon
him who alleges bad faith on the part of a possessor rests the burden of proof. It was
therefore incumbent upon the Pinedas to prove that DBP was aware of the flaw in its title.
This, they failed to do.
If no redemption is made within one year, the purchaser is entitled as a matter of
right to consolidate and to possess the property. Accordingly, DBP’s act of consolidating its
title and taking possession of the subject property after the expiration of the period of
redemption was in accordance with law.

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The right of DBP to consolidate its title and take possession of the subject property is
not affected by the Pinedas’ right to repurchase said property within 5 years from date of
conveyance granted by Section 119 of CA 141. In fact, without the act of DBP consolidating
its title in its name, the Pinedas would not be able to assert their right to repurchase granted
under the aforementioned section.

Mortgage; Effect

LAGROSA vs. COURT OF APPEALS

G.R. No. 115981- 82, August 12, 1999

Facts: The City of Manila awarded a parcel of land in favor of Julio Arizapa, private
respondent Banua’s predecessor-in-interest. Arizapa used the land as collateral for a loan
he obtained from a certain Presentacion Quimbo. When Arizapa died, his wife convinced
Quimbo not to foreclose the property and instead execute an Assignment of Rights to the
Real Estate Mortgage in favor of Petitoner Ruben Lagrosa, in whom she had outstanding
debts. In the meantime, Lagrosa’s relatives were allowed to occupy some areas of the
property. Lagrosa subsequently filed an action for ejectment against the caretaker of
private respondent Banua. Respondent court ruled that the assignment of rights in the real
estate mortgage made by Quimbo to Lagrosa is void because at the time of mortgage, title
to the property still belonged to the City of Manila; and therefore, Lagrosa has no basis in
demanding possession of the property.

Issue: Is Lagrosa entitled to the possession of the property?

Held: For a person to constitute a valid mortgage on real estate, he must be the absolute
owner thereof as required by Article 2085 of the Civil Code. Since the mortgage to
Presentacion Quimbo of the lot is null and void, the assignment by Quimbo of her rights to
Lagrosa is likewise void. Even if the mortgage is valid as insisted by petitioner, it is well-
settled that a mere mortgagee has no right to reject the occupants of the property
mortgaged. This is so, because a mortgage passes no title to the mortgagee. Indeed, by
mortgaging a piece of property, a debtor merely subjects it to a lien but ownership is not
parted with.
As to Lagrosa’s prior possession of the subject property, their stay in the property
was by mere tolerance or permission. It is well-settled that “a person who occupies the land
of another at the latter’s tolerance or permission, without any contract between them, is
necessarily bound by an implied promise that he will vacate upon demand, failing which a
summary action for ejectment is the proper remedy against him.”

Article 2212

DAVID vs. COURT OF APPEALS

G.R. No. 115821, October 13, 1999

Facts: Petitioner David questions the bid price in the public auction of the attached
properties of respondent Afable. David contends that judgment award in his favor should be
P 3,207,238.50 to include compounded interest as provided under Art. 2209 and 2219 of the
Civil Code. The sheriff, on the other hand, refuses to make a certificate of sale on the
properties auctioned as David’s bid price exceeds the total judgment as computed by the
lower court (P 271,039.84) since the decision only provided for computation of simple legal
interest as the promissory note made by David and Afable under their compromise
agreement stipulated no interest.

Issue: What should be the interest in the judgment award?

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Held: This Court has already interpreted Article 2212 and defined the standards for its
application in Philippine American Accident Insurance vs. Flores. As therein held, Article
2212 contemplates the presence of stipulated or conventional interest which has accrued
when demand was judicially made. In cases where no interest had been stipulated by the
parties, no accrued conventional interest could further earn interest upon judicial demand.

TORTS & DAMAGES

Tortuous Interference of Contract

SO PING BUN vs. COURT OF APPEALS

G.R. No. 120554, September 21, 1999

Facts: Tek Hua Trading Co., thru its managing parrtner So Pek Giok, entered into lease
agreements with lessor DCCSI. The leased areas were used by Tek Hua Trading to store
its textiles. The contracts each had a one-year term. The contracts provided that should the
lessee continue to occupy the premises after the term, the lease should be on a month-to-
month basis. When the contracts expired, the parties did not renew the contracts, but Tek
Hua Trading continued to occupy the premises.
So Pek Giok, managing partner of Tek Hua, subsequently died. So Pek Giok’s
grandson, petitioner So Ping Bun, occupied the warehouse for his own textiles business,
Trendsetter Marketing.
After a few years, the president of Tek Hua Corp., Manuel Tiong, wrote a letter to
petitioner, informing him of the corporation’s intent to occupy the warehouse again.
Petitioner refused to vacate. Subsequently, a lease contract was executed between DCCSI
and Trendsetter Marketing. Private respondent then filed this action for tortuous
interference of contracts.

Issue: Was there a tortuous interference of contracts?

Held: None. The elements of tortuous interference are: 1)existence of a valid contract; 2)
knowledge on the part of the third person of the existence of contract; and 3) interference of
the third persons is without legal justification or excuse.
As early as Gilchrist v. Cuddy, we held that where there was no malice in the
interference of a contract, and the impulse behind one’s conduct lies in a proper business
interest rather than in wrongful motives, a party cannot be a malicious interferer. Where the
alleged interferer is financially interested, and such interest motivates his conduct, it cannot
be said that he is an officious or malicious intermeddler.
In the instant case, it is clear that So Ping Bun prevailed upon DCCSI to lease the
warehouse to his enterprise at the expense of respondent corporation. Though petition took
interest in the property of respondent corporation and benefited from it, nothing on record
imputes deliberate wrongful motives or malice on him.

Malicious Prosecution

TIONGCO vs. DEGUMA

G.R. No. 133619, October 26, 1999

Facts: Petitioner Tiongco filed a complaint for damages seeking redress and remedy
from the aggrieved wrong he allegedly suffered from respondents Atty. Deguma and Major
Carmelo’s act of (1) inducing his aunt Estrella Yared, through ruse and artifice, in the
execution and signing of documents that transferred in their favor the latter’s rights,
interests, claims, etc. over certain parcels of property to his (Tiongco’s) prejudice and
exclusion, and of (2) engaging in an illicit liaison perpetrated in his house which created
public scandal and caused him shame and embarrassment. On the other hand, private

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respondents set up separate counterclaims for damages against the petitioner on the theory
of malicious prosecution. After trial, the lower court dismissed the complaint for lack of
evidence but awarded moral and exemplary damages to the private respondents.
Subsequently, the Court of Appeals affirmed the said decision. Hence, this petition.

Issue: Are private respondents in a civil case entitled to moral damages based on the
theory of malicious prosecution?

Held: YES. Generally, denuncia falsa or malicious prosecution refers to unfounded

criminal actions. The term had already been expanded to include unfounded civil suits
instituted to vex and humiliate defendants despite the absence of a cause of action or
probable cause. Thus, malicious prosecution has been defined as an action for damages
brought by one against whom a criminal prosecution, civil suit, or other legal proceeding has
been instituted maliciously and without probable cause, after the termination of such
prosecution, suit or other proceeding in favor of the defendant therein. It has been
enumerated as one of the instances in Article 2219 of the Civil Code whereby moral
damages can be recovered. To merit an award for moral damages predicated on malicious
prosecution, claimant must prove that they had been denounced or charged falsely, that
complainant knew that the charge was false, that the latter acted with malice and of course,
the damages they suffered.

Damages

FRANCISCO vs. COURT OF APPEALS

G.R. No. 116320, November 29, 1999

Facts: A Land Development and Construction Contract was entered into by A. Francisco
Realty and Development Corporation (AFRDC), of which petitioner Francisco is the
president and private respondent Herby Commercial and Construction Corporation (HCCC)
represented by its president Ong, pursuant to a housing project financed by GSIS. HCCC
agreed to undertake the construction and it was to be paid on the basis of completed
houses. GSIS and AFRDC put up an Executive Committee account with the Insular Bank of
Asia and America (ABAA) in the amount of P4,000,000.00 from which checks would be
issued and co-signed by GSIS vice-president Diaz.
Later Ong discovered that Diaz and Francisco executed and signed seven checks
drawn against IBAA and payable to HCCC which Ong claims were never delivered to
HCCC. It appeared that Francisco forged Ong’s signature making it appear that HCCC
indorsed the check; Francisco then signed her name at the back of the checks and
deposited it in her IBAA savings account. Ong filed a complaint charging Francisco with
estafa thru falsification of commercial documents. The trial court ordered IBAA and
Francisco to pay jointly and severally the amount of the checks plus interest, moral and
exemplary damages, litigation expenses and attorney’s fees.
IBAA and HCCC entered into a Compromise Agreement wherein HCCC
acknowledged receipt of the amount in full satisfaction of its claims against IBAA, without
prejudice to the right of the latter to pursue its claims against Francisco.
CA affirmed the ruling, hence, this petition for review on certiorari; filed by petitioner.

Issue: Is petitioner liable to pay damages?

Held: Yes. Every person who contrary to law, willfully or negligently causes damage to
another, shall indemnify the latter for the same. Due to her forgery of Ong’s signature which
enabled her to deposit the checks in her own account, Francisco deprived HCCC of the
money due it from GSIS pursuant to the contract. Thus, award for compensatory damages
is affirmed with an interest rate of 6% per annum computed from the date of filing the
complaint; however the rate shall be 20% per annum from the time the judgment in this case
becomes final and executory.
The award of exemplary damages is also sustained. Under Art. 2229 of the Civil
Code, exemplary damages are imposed by way of example or correction for the public
good, in addition to the moral, temperate, liquidated or compensation damages. Considering
petitioner’s fraudulent act, the award of P50,000 is adequate, fair and reasonable. The grant

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of exemplary damages justifies the award of attorney’s fees in the amount of P50,000 and
the award of P5,000 for litigation expenses.
The award of P50,000 in moral damages is warranted. Under Art. 2217 of the Civil
Code, moral damages maybe granted upon proof of physical suffering, mental anguish,
fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social
humiliation and similar injury, Ong justified that he suffered sleepless nights,
embarrassment, humiliation and anxiety upon discovering that the checks due his company
were forged by the petitioner and that petitioner had filed baseless criminal charges against
him which disrupted HCCC’s business operations.

Moral Damages

PHILIPPINE VETERAN’S BANK vs. NLRC

G.R. No. 130439, October 26, 1999

Facts: Philippine Veteran’s Bank was placed under receivership by Central Bank. To
assist in the liquidation, Molina was reemployed in 1985.
In 1991, Molina filed a complaint against the liquidating team demanding the
implementation of Wage Orders NCR-01 and NCR-02 as well as moral damages and
attorney’s fees in the amount of P300,000.00
The Labor Arbiter, as affirmed by the NLRC awarded P100,000.00 in moral damages
and attorney’s fees. Hence, this certiorari. Petitioner avers that the award for attorney’s
fees and moral damages was inappropriate because the complaint did not specify the same
and that Molina failed to prove these claims.

Issue: Is the moral damages and attorney’s fees proper?

Held: No. The NLRC did not distinguish between moral damages and attorney’s fees.
Awards for moral damages and attorney’s fees cannot be consolidated for they are different
in nature and each must be separately determined.
The records show that Molina’s basis of his claim is the alleged failure of the
liquidation team to implement the wage orders without submitting any proof in support
thereof. It is basic that for moral damages to be awarded the claimant must satisfactorily
prove its factual basis and causal connection with the respondent’s act.

Damages in Rape Cases

PEOPLE vs. BATOON

G.R. No. 134194, October 26, 1999

Facts: A criminal action for rape was filed by Regina against her stepfather Batoon. After
trial on the merits, the lower court found Batoon guilty beyond reasonable doubt of the crime
of rape and sentenced him to suffer the penalty of reclusion perpetua and to pay the victim
P50,000 in moral damages and P20,000 in exemplary damages. Batoon assailed the said
decision questioning, among other things, the grant of moral and exemplary damages to the
victim.

Issue: Is the offended party in a rape case entitled to moral and exemplary damages?

Held: YES. In as much as Batoon was found guilty beyond reasonable doubt of the crime
of rape, Regina is entitled to indemnity which current jurisprudence fixes at P50,000, and
moral and exemplary damages. Moral damages are imposed in rape cases involving young
girls between 13 and 19 years of age, taking into account the immeasurable havoc wrought
on their youthful feminine psyche. It may be awarded without need of showing that the
victim suffered mental anguish, fright, serious anxiety, and the like. The award of P50,000

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for moral damages is in order. Exemplary damages may be awarded in criminal cases as
part of the civil liability if the crime was committed with one or more aggravating
circumstances. Batoon being the stepfather of Regina, relationship should be appreciated
as an aggravating circumstance in Article 15 of the Revised Penal Code.

Civil liability arising from criminal offense

SAPIERA vs. COURT OF APPEALS

G.R. No. 128927, September 14, 1999

Facts: Petitioner was an indorser of a check issued by a certain Arturo de Guzman.

Such check was presented for payment to Monrico Mart for certain grocery items for
petitioner’s sari-sari store. The check was dishonored, hence both were charged with the
crime of estafa. However, petitioner was acquitted by the TC but did not rule on her civil
liability. On appeal to CA, it was given due course and damages were awarded. Hence,
this appeal.

Issue: Can petitioner be held liable for damages?

Held: Based on the findings of the TC, the exoneration of petitioner from the charges of
estafa was based on the failure of the prosecution to present sufficient evidence showing
conspiracy between her and the other accused in defrauding private respondent, and not
from a declaration that the fact from which the civil action might arise did not exist. An
accused acquitted of estafa may nevertheless be held civilly liable where the facts
established by the evidence so warrant. The accused should be adjudged liable for the
unpaid value of the checks signed by her in favor of the complainant.

LAND TITLES AND DEEDS

Lands of Public Domain

REPUBLIC vs. COURT OF APPEALS

G.R. No. 122269, September 30, 1999

Facts: On Dec. 17, 1991, RTC of Pangasinan adjudicated a certain parcel of land,
belonging to the public domain, classified land available for fishpond development, to a
certain Zenaida Bustria. Petitioner seeks to annul such decision alleging that the disposition
of the land in question is within the jurisdiction of the Bureau of Fisheries and Aquatic
Resources. The CA dismissed the petition.

Issue: Does the RTC have jurisdiction to declare the land in question to belong to private
respondents?

Held: It is settled under the Public Land Law that alienable public land held by a
possessor, personally or through his predecessor-in-interest, openly, continuously and
exclusively for 30 years is ipso jure converted to private property by the mere lapse of time.
However, only public lands classified as agricultural are alienable. Lands declared for
fishery purposes are not alienable and their possession, no matter how long, cannot ripen
into ownership.
Since the disposition of lands declared suitable for fishpond purposes falls within the
jurisdiction of the BFR, in accordance with PD 704, the TC’s decision is null and void. The
TC has no jurisdiction to make a disposition of inalienable public land.

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Proof of Title; Tax Declarations

ALBA VDA. DE RAZ vs. COURT OF APPEALS

G.R. No. 120066, September 9, 1999

Facts: Private respondent Jose Lachica filed an application for title to land in April, 1958
with the claim that the land applied for was purchased by him and his wife. Petitioners
opposed contending that the applicant did not show proof of the alleged sale because the
deed of conveyance was allegedly lost and therefore was not presented in the proceedings.
However, the TC rendered judgment in favor of the applicant noting that said oppositors
never offered any explanation as to the nonpayment of realty taxes for the disputed portions
of the land from 1941-1958 while respondent continuously paid taxes thereon. It stressed
that while it is true that tax receipts and tax declaration of ownership for tax purposes are not
incontrovertible evidence of ownership, they become strong evidence of ownership acquired
by prescription when accompanied by proof of actual possession. The CA affirmed stating
that it is of no moment that the applicant failed to produce the original of the
deed/conveyances for he was able to present sufficient substantial secondary evidence in
accordance with the Rules of Court. Hence this appeal.

Issue: Is private respondent entitled to the confirmation of his ownership of the subject
land?

Held: Both the TC and CA placed undue reliance on the Tax declarations which by itself
is not a conclusive evidence of ownership. Tax declaration for a certain number of years
although constituting proof of claim of title to land is not incontrovertible evidence of
ownership unless they are supported by other effective proof. A belated declaration is,
furthermore, indicative that the applicant had no real claim of ownership over the subject
land prior to the declaration and where there are serious discrepancies in the tax
declarations, as in this case, registration should be denied.

Land Registration; Sec. 78 of PD 1529

ESTRELLA REAL ESTATE CORPORATION vs. COURT OF APPEALS

GR No. 128862, September 30, 1999

Facts: Gonzalo Tan, predecessors-in-interest of private respondents, owned a parcel of

land where a two-storey house (known as House No. 285) were constructed and which was
owned by Cenon Tan, brother of Gonzalo. Gonzalo later sold the parcel of land in favor of
Gaw Bros & Co. specifying that the property subject thereof was “a parcel of land together
with the improvements thereon (except those belonging to other persons).” Said land was
later on sold by Gaw Bros & Co to petitoner Estrella Real Estate Corporation (ESTRELLA).
The two-storey house, was also sold by Cenon to Gonzalo.
ESTRELLA later on leased another house located in the land to a certain Josephine
Catalan. When Catalan failed to pay the rents, ESTRELLA filed an ejectment suit against
the former. When the lower court ruled in favor of ESTRELLA, the writ of execution was
enforced also against the private respondents, who were residents of House No. 285.
Private respondents subsequently filed a complaint for Quieting of Title.
The lower court ruled that House No 285 was owned by the heirs of Gonzalo Tan.
The respondent Court of Appeals affirmed the decision of the lower court and ordered the
annotation of the ownership of the house in the certificate of title of the parcel of land (TCT
No 22003).

Issue: Do private respondents have the right to annotate on the certificate of title the
ownership of a house, allegedly owned by them, but built on the land owned by petitioner?

Held: Yes. The evidence on record indubitably supports the finding of the Court of
Appeals that when the parcel of land covered by TCT No 22003 in the name of Gonzalo Tan

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was sold by the latter to Gaw Bros, House No. 285 belonging to Cenon Tan was among the
improvements excluded from the sale as expressly provided in the deed of sale.
As correctly found by the Court of Appeals, private respondents have the right to
have their ownership of the House No. 285 annotated in the certificate of title of petitioner
over the land after the same is judicially settled. Section 78 of PD 1529 provides that
whenever in any action to recover possession or ownership of real estate or any interest
therein affecting registered land judgment is entered for the plaintiff such judgment shall be
entitled to registration on presentation of certificate of entry thereof from the Clerk of Court
where the action is pending to the Register of Deeds for the province or city where the land
lies, who shall enter a memorandum upon the certificate of title of the land to which such
judgment relates. If the judgment does not apply to all the land described in the certificate of
title, the certificate of the clerk of court where the action is pending and the memorandum
entered by the Register of Deeds shall contain a description of the land affected by the
judgment.

Purchaser in Good Faith

VOLUNTAD vs. DIZON

G.R. No. 132294, August 26, 1999

Facts: Petitioners obtained a loan from the Rural Bank of Pandi secured by a mortgage
over one-half of a parcel of land. For failure to pay the loan, the Rural Bank of Pandi
foreclosed the mortgage and sold the property at the public auction with itself as the highest
bidder. Without the knowledge of petitioners, the Bank assigned its rights over the property
to respondent-spouses Magtanggol and Corazon Dizon. So petitioners filed a petition with
the trial court to allow them to exercise their right of redemption.
On February 16, 1993, petitioners caused the annotation of a notice of lis pendens
on the subject property. On May 20, 1993, the trial court issued an order dismissing the
case on the ground of res judicata. Pursuant to this, the Registry of Deeds cancelled the
notice of lis pendens. Upon denial of the motion for reconsideration, petitioners went to the
CA questioning said order of the TC. Meanwhile, on August 30, 1993, respondent-spouses
Dizon sold the property to respondent-spouses Reyes. It was only on August 31, 1994 that
the appellate court rendered a decision setting aside the order of the TC and remanded the
case to it for further proceedings. The TC rendered decision in favor of petitioners, granting
them the right of redemption. However, the writ of execution was not satisfied as the land is
in the possession of spouses Reyes.

Issue: Are respondent-spouses Reyes purchasers in good faith?

Held: No. From the attendant circumstances, an examination of the certificate of title and
the annotations therein would disclose that a civil action was filed with the TC involving the
property described in the title. The annotation in the title that the property was involved in a
suit should have prompted the prudent purchaser to inquire and verify if the suit was finally
terminated and the property freed from any legal infirmity or judicial inquiry. Although the
notice of lis pendens was cancelled pursuant to the order of the TC dismissing the civil
action, the cancellation effected after barely 4 days was premature because the court order
was not yet final, as petitioners still had the remaining period of 11 days to appeal the order.
In fact, a mere inquiry with the TC which issued the order would reveal that petitioners timely
appealed the dismissal to the CA.
The general rule that a person dealing with registered land has a right to rely on the
Torrens Certificate of Title without the need of inquiring further cannot apply when the party
has actual knowledge of facts and circumstances that would impel a reasonably cautious
man to make such inquiry or when the purchaser has knowledge of a defect or lack of title in
his vendor or of sufficient fats to induce a reasonably prudent man to inquire into the status
of the title of the property in litigation. If he does not do so, he is deemed to have acted in
mala fide.

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Indefeasibility of a Valid Title

HEMEDES vs. COURT OF APPEALS

G.R. No. 107132, October 8, 1999

Facts: In 1947, Jose Hemedes conveyed ownership over an unregistered parcel of land
in favor of his third wife, Justa Kausapin subject to the resolutory condition of her death or
remarriage. In 1960, Justa conveyed to Maxima Hemedes, heir of Jose, the property and
constituted herself as usufructuary during her lifetime or widowhood. Later, Maxima and her
husband constituted a real estate mortgage over the property in favor of R&B Insurance to
serve as security for a loan. Extrajudicial foreclosure of the mortgage followed after failure
of Maxima to pay, with R&B as the higest bidder. After Maxima failed to redeem the property
within the redemption period, a new TCT in the name of R&B Insurance was issued.
However, Justa also executed a ‘Kasunduan’ in 1971 whereby she transferred the same
land to her stepson Enrique Hemedes. In 1979, Enrique sold the property to Dominium
Realty & Construction Corp.. In 1981, Justa executed an affidavit affirming the conveyance
of the subject property in favor of Enrique and denying the conveyance made to Maxima.

Issue: Which of the two conveyances by Justa Kausapin, the first in favor of Maxima
Hemedes and the second in favor of Enrique Hemedes, effectively transferred ownership
over the subject land?

Held: The conveyance in favor of Maxima effectively transferred ownership over the
property and R&B Insurance, being an innocent purchaser of the land, has the right to
assert ownership over the property.
A party to a contract, like Justa, cannot just evade compliance with her contractual
obligations by the simple expedience of denying the execution of such contract. If, after a
perfect and binding contract has been executed between the parties, it occurs to one of
them to allege some defect therein as a reason for annulling it, the alleged defect must be
conclusively proven, since the validity and fulfillment of contracts cannot be left to the will of
one of the contracting parties.
The declarations of real property by Enrique, his payment of realty taxes and his
being designated as owner of the subject property in the cadastral survey and in the records
of the Ministry of Agrarian Reform office in Laguna cannot defeat a certificate of title, which
is an absolute and indefeasible evidence of ownership of the property in favor of the person
whose name appears therein. It is also a well-established principle that every person
dealing with registered land may safely rely on the correctness of the certificate of title
issued and the law will in no way oblige him to go behind the certificate to determine the
condition of the property. The annotation of usufructuary rights in favor of Justa upon
Maxima’s title does not impose upon R&B the obligation to investigate the validity of it’s
mortgagor’s title. The owner retains the jus disponendi or the power to alienate.

Prescription of Annulment Action based on Fraud

STILIANOPULOS vs. CITY OF LEGASPI

G.R. No. 133913, October 12, 1999

Facts: The City of Legaspi filed an action for the judicial reconstitution of several titles of
parcels of land, the certificates of which had allegedly been lost or destroyed during WWII.
The lower court ordered the reconstitution of the OCTs. Thereafter, the City of Legaspi filed
an action for quieting of title against the petitioner’s predecessor-in-interest. The TC upheld,
however, the validity of the title of Stilianopulos. On appeal, the CA reversed the lower
court’s decision.
Later on, Stilianopulos filed an action for cancellation of the OCT under the name of
respondent City. When this action was dismissed by the lower court and CA, he filed a new
action for the annulment of the order for the reconstitution of the OCTs in favor of Legaspi

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City based on fraud. The CA ruled that the action for annulment based on extrinsic fraud
has already prescribed and that Stilianopulos is guilty of laches in the filing of the case for
annulment.

Issue: Is the action for the annulment of the order for the reconstitution of the OCTs in
favor of the City of Legaspi barred by prescription?

Held: Under Art. 1391 CC, an action for annulment shall be brought within 4 years from
the discovery of the fraud; that is, within 4 years from the discovery of the fraudulent
statements made in the application. Clearly, the period for raising this issue lapsed a long
time ago. Petitioner should have raised the issue of fraud in the action for quieting of title. It
was then that he became aware of the reconstituted title in the name of the respondent.

Prescription of an Action for Reconveyance

REYES vs. COURT OF APPEALS

G.R. No. 127608, September 30, 1999

Facts: Petitioner Guadalupe Reyes sold to respondent Juanita Raymundo on June 21,
1967 one-half (1/2) of a 300 sq. m. lot. Consequently, a new title was issued for the whole
lot in the name of the original owner Reyes and vendee Raymundo in equal shares.
Thereafter, respondent was granted a P17,000.00 loan by GSIS with her ½ share of
the property as collateral. On September 24, 1969, petitioner sold her remaining interest in
the property to respondent for P15,000.00 as evidenced by a deed of absolute sale.
Since 1967, the house standing on the property subject of the second sale was
being leased by the Spouses Mario and Zenaida Palacios from petitioner. The Palacios
were ejected form the premises but managed to return. When a contempt case was filed by
petitioner against her lessees, respondent intervened and claimed ownership of the entire
property as well as the existence of a lease contract between her and the Palacios
supposedly dated March 17, 1987 but retroactive to January 1, 1987. On August 12, the TC
dismissed the case and from then on, the Palacios paid rentals to respondent.
Petitioner filed a complaint against respondent before the RTC for cancellation of
TCT and reconveyance with damages.
CA found that petitioner’s cause of action had prescribed since the complaint should
have been filed wither within 10 years from 1969 as an action to recover title to real
property, or within 10 years from 1970 as an action based on a written contract.

Issue: Is petitioner’s action barred by prescription?

Held: NO.
In Heirs of Jose Olviga vs. CA the Court restated the rule that an action for
reconveyance of a parcel of land based on implied or constructive trust prescribes in 10
years, the point of reference being the date of registration of the deed or the date of the
issuance of the certificate of title over the property. However, the Court emphasized that
this rule applies only when the plaintiff or the person enforcing the trust is not in possession
of the property since if a person claiming to be the owner thereof is in actual possession of
the property the right to seek reconveyance, which in effect seeks to quiet title to the
property, does not prescribe. The reason is that the one who is in actual possession of a
piece of land claiming to be the owner thereof may wait until his possession is disturbed or
his title is attacked before taking steps to vindicate his right. His undisturbed possession
gives him a continuing right to seek the aid of a court of equity to ascertain and determine
the nature of the adverse claim of a third party and its effect on his own title, which right can
be claimed only by one who is in possession.
An example of actual possession of real property by an owner through another is a
lease agreement whereby the lessor transfers merely the temporary use and enjoyment of
the thing leased. In the case at bar, it was only in 1987-when respondent asserted
ownership over the property and showed a lease contract between her and the Palacioses-

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that petitioner’s possession was disturbed. Consequently, the action for reconveyance filed
on August 23, 1987 has not prescribed.

Remedy to assail validity of title over registered land; Recovery of

possession; Laches

EDUARTE vs. COURT OF APPEALS

G.R. No. 121038, July 22, 1999

Facts: Respondents Domingo Belda and Estelita Ana are the registered owners of a
parcel of land denominated as Lot No. 118 and covered by OCT issued on October 5, 1962.
On Aug. 9, 1963, petitioner Teotimo Eduarte wrote a letter to the Director of Lands
requesting him not to give due course to respondent’s application for a free patent over Lot
118 since what respondent is occupying is Lot 138 which was also titled in the name of
Bulan who refused to accept said title.
The investigation conducted by the District Land Officer revealed that petitioner is in
actual possession of Lot 118 while respondents occupy Lot 138.
Based on the report, the Director of Lands on March 26, 1968, issued an Order, the
dispositive portion of which reads that the Homestead Application of petitioner is amended
to cover Lot 118.
However, in spite of the said findings, neither the Director of Lands nor petitioner
initiated a suit to cancel the free patent issued to respondents.
Petitioner remained and continuously occupied Lot 118 until on Dec. 10, 1986,
respondents filed with the RTC a complaint for recovery of possession and damages against
herein petitioner.
Affirming the decision of the lower court, the CA held that petitioner’s long inaction to
take the necessary steps to ask for judicial relief is fatal to his cause of action and that
petitioner can attack the validity of respondents’ title only through a direct and not collateral
proceeding.

Issue: 1) Can petitioner assail the validity of the respondents’ title in an ordinary action for
recovery of possession, which was filed by the latter?
2) Is private respondents’ right to recover possession barred by laches?

Held: 1) No. It must be stressed that a certificate of title serves as evidence of an

indefeasible title to the property in favor of the person whose name appears therein. After
the expiration of the one year period from the issuance of the decree of registration upon
which it is based, it becomes incontrovertible. The decree of registration and the certificate
of title issued pursuant thereto may be attacked on the ground of fraud within one year from
the date of its entry and such an attack must be direct and not by a collateral proceeding.

2) Yes. While jurisprudence is settled as to the imprescriptibility of indefeasibility of

a Torrens title, the Court, in plethora of cases categorically ruled that a registered landowner
may lose his right to recover the possession of his registered property by reason of laches.
Similarly, it cannot be denied that no title to registered land in derogation to that of the
registered owner shall be acquired by prescription or adverse possession, however, the
legal guarantee may in appropriate cases yield to the right of a third person on equitable
principle of laches.
In the case at bar, there is no dispute that petitioner has been in possession of the
land in question since 1942. Such possession was known to respondents but in spite of it,
they did not do anything to assert their right over the subject property. They have waited for
almost 45 years before instituting the action for recovery of possession in 1986.

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Laches

BALUYOT vs. COURT OF APPEALS

G.R. No. 122947, July 22, 1999

Facts: Petitioners filed an action for specific performance and damages against private
respondent University of the Philippines (UP) and Quezon City government for the execution
of the legal instrument for the donation of the land that they are occupying in the Diliman,
Quezon City.
Petitioners contend that they have been occupying the land since time immemorial
and that respondent UP has failed to formally execute the deed of donation on the land that
they have been occupying which has already been previously approved by the UP Board of
Regents. Petitioners also contend that they have acquired ownership of the land by
acquisitive prescription. Respondents, on the other hand, contend that the approved
donation has already been revoked. In addition, respondents contend that petitioners have
no cause of action inasmuch as prescription does not run against registered lands..

Issue: Does prescription or laches run against registered lands.

Held: While prescription does not run against registered lands, nonetheless a registered
owner’s action to recover possession may be barred by laches.
Laches is a defense against a registered owner suing to recover possession of the
land registered in its name. But UP is not suing in this case. It is petitioners who are, and
their suit is mainly to seek enforcement of the deed of donation made by UP in favor of the
Quezon City government. Indeed, the petitioners do not invoke laches. What they allege in
their complaint is that they have been occupying the land in question from time immemorial,
adversely, and continuously in the concept of an owner, but they are not invoking laches.
Nor can petitioners question the validity of UP’s title to the land. This constitutes a collateral
attack on registered title which is not permitted.

STILIANOPULOS vs. CITY OF LEGASPI

G.R. No. 133913, October 12, 1999

Facts: The City of Legaspi filed an action for the judicial reconstitution of several titles of
parcels of land, the certificates of which had allegedly been lost or destroyed during WWII.
The lower court ordered the reconstitution of the OCTs. Thereafter, the City of Legaspi filed
an action for quieting of title against the petitioner’s predecessor-in-interest. The TC upheld,
however, the validity of the title of Stilianopulos. On appeal, the CA reversed the lower
court’s decision.
Later on, Stilianopulos filed an action for cancellation of the OCT under the name of
respondent City. When this action was dismissed by the lower court and CA, he filed a new
action for the annulment of the order for the reconstitution of the OCTs in favor of Legaspi
City based on fraud. The CA ruled that the action for annulment based on extrinsic fraud
has already prescribed and that Stilianopulos is guilty of laches in the filing of the case for
annulment.

Issue: Is petitioner Stilianopulos guilty of laches?

Held: Yes. Laches is the failure or neglect, for an unreasonable or unexplained length of
time, to do that which by exercising due diligence could or should have been done earlier,
warranting the presumption that the right holder has abandoned the right or declined to
assert it. This inaction or neglect to assert a right converts a valid claim into a stale
demand. Further, laches prevents a litigant from raising the issue of lack of jurisdiction.
True, the petitioner filed the annulment complaint right after the dismissal of the
cancellation-of-title case and arguing therein his defenses against the legality of the title of
the respondent in order to establish his rights over the disputed property. Petitioner,
however, is deemed to have chosen the action for cancellation over the annulment of the
reconstitution proceedings.

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Reconstitution of Title

HEIRS OF MARIANO SANGLE vs. CA

G.R. No. 109024, November 25, 1999

Facts: Mariano Sangle filed an application for registration of two parcels of land, Lots 2 &
3 of Psu-46856 of the Aliaga Cadastre before the then CFI. Sangle claimed ownership by
purchase from the previous owners-possessors, Sps. Marciano Castro and Maria Macalla.
Dionisio Puno, a lessee on said parcels of land, opposed the application insofar as
Lot 3, was concerned, claiming that the same was sold to him by the same spouses.
After trial or on Aug. 17, 1981, the lower court rendered judgment confirming the
title of applicant Marciano Sangle. Appellants filed notice of appeal to the CA, together with
their cash appeal bond and record on appeal.
Meanwhile, the applicant died. Record on appeal was held in abeyance pending
substitution of the deceased Marciano Sangle.
On June 14, 1987, fire gutted the building housing the lower court, destroying all
court records.
After the lapse of almost 4 years, the heirs of applicant Marciano Sangle, filed a
motion for the issuance of decrees of registration, substituting them as registered owners,
contending that the lower court’s decision has become final and executory.
Respondents-spouses opposed contending that they have appealed the decision
and the CA has not acted on their appeal.
After hearing, the lower court denied the petitioner’s motion without prejudice to the
filing of a new application for local registration.
Instead of filing new application, the petitioners presented a motion for
reconsideration of the burned records. The lower court denied on the ground that the right
of petitions to seek reconstitution had lapsed by prescription, as it was filed beyond 6 mos
as required in Sec.29 of Act 3110

Issue: Did the lower court err in denying the reconstitution?

Held: Yes. As modified in the case of Nacua v. de Beltran: Sec. 29 of Act 3110 should be
applied only where the records in CFI as well as in the appellate court were destroyed or
lost and were not reconstituted, but not where the records of the CFI are intact and
complete and only the records in the appellate court were lost or destroyed and were not
reconstituted. The whole theory of reconstitution is to reproduce or replace records lost or
destroyed so that said records may be complete and court proceedings may continue from
the point or stage where said proceeding stopped due to the loss of the records. The law
contemplates different stages for purposes of reconstitution.

Right of Repurchase under Sec. 119 Public Land Act

FONTANILLA, SR. vs. COURT OF APPEALS

G.R. No. 119341, November 29, 1999

Facts: Private respondent Luis Duanan transferred the ownership of his homestead
patent to his two sons, Ernesto and Elpidion, in order for them to expedite their loan
application with DBP. Thereafter, due to the imminent foreclosure of the subject lot, the
Duanan brothers sold a portion thereof to Eduardo Fontanilla, Sr., although the vendee
named in the Deed of Sale was Ellen M.T. Fontanilla. Later, Luis Duanan informed
Fontanilla, Sr. of his desire to repurchase the subject lot. An action in pursuance thereof
was filed by Luis Duanan but was dismissed by the lower court for failure to state a cause of
action. The CA revered the ruling of the lower court on the ground that Luis Duanan can still
exercise the right to repurchase pursuant to Sec. 119 of the Public Land Act. As a result,
Fontanilla Sr., went to this court contending that Luis Duanan, not being the vendor in the
sale of the subject lot to petitioner, could no longer exercise his right to repurchase.

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Issue: Can Luis Duana still repurchase the subject lot?

Held: Yes. There is nothing in Sec. 119 which provides that the “applicant, his widow or
legal heirs” must be the conveyor of the homestead before any of them can exercise the
right to repurchase. Since the transfer of the subject lot by private respondent to his sons
does not fall within the purview of Sec. 119, it necessarily follows that the five-year period to
repurchase cannot be reckoned from the date of said conveyance. The date of conveyance
for the purpose of counting the five-year period to repurchase under Sec. 119 is that
“alienation made to a third party outside of the family circle”.

MATA vs. COURT OF APPEALS

G.R. No. 103476, November 18, 1999

Facts: On June 10, 1945, Marcos Mata executed a Deed of Absolute sale conveying the
ownership of a lot in favor of Claro Laureta. On May 10, 1947, Mata executed another
document selling the same property to Fermin Caram, Jr., who caused the cancellation of
OCT No. 3019. In lieu thereof, TCT No. 140 was issued in Caram’s name. On June 25,
1956, Laureta filed before the CFI an action to declare the first sale of the subject lot in his
favor valid and the second sale thereof to Caram void. The lower court declared that the
deed of sale in favor of Laureta prevails over the deed of sale in favor of Caram. The CA
affirmed the decision of the CFI. The petitioners seek to reverse the decision of the CA to
permanently enjoin the RTC from proceeding with the petitioner’s right to repurchase the
subject lot under Sec. 119 of the Public Land Act (CA 141, as amended).

Issue: Can petitioners validly exercise their right to repurchase the subject property
pursuant to Sec. 119 of the Public Land Act?

Held: No. Sec. 119 provides: “Every conveyance of land acquired under the free patent
or homestead provisions, where proper, shall be subject to repurchase by the applicant, his
widow, or legal heirs within a period of 5 years from date of conveyance.” For the purpose
of reckoning the five-year period to exercise the right to repurchase, the date of conveyance
is construed to refer to the date of the execution of the deed transferring the ownership of
the land to the buyer. Mata conveyed the ownership of the subject property to Laureta by
virtue of a Deed of Absolute Sale dated June 10, 1945. Petitioners, as heirs of Mata, filed
the action for reconveyance on November 24, 1990, or more than 45 years later.
Petitioners’ right to redeem the property had already prescribed by the time they went to the
court.

GABELO vs. COURT OF APPEALS

G.R. No. 111743 October 8, 1999

FACTS: Philippine Realty Corporation (PRC) entered into a contract of lease with private
respondent Maglente over a parcel of land for a period of three years. The agreement
provided for the Lessee to have a first priority to buy in case the Lessor chooses to sell the
land. MAglente subleased portions of the land to the petitioners.
Subsequently, PRC made a written offer to sell the subject property to Maglente.
Thereafter, PRC and Maglente agreed on the price and terms of the purchase and the latter
completed the required downpayment.
Later on, petitioners also expressed their intention to purchase the property. They
also asked PRC to prevent Maglente from demolishing their houses. The parties then filed
an action in court which ruled that Maglante as the rightful party to purchase the land in
controversy. Petitioners appealed contending that as the actual occupants of the property,
they have preferential right to purchase the land and that a contract of sale was yet to be
perfected between PRC and Maglente as they have yet to sign on any written agreement.

ISSUE: Whether or not Petitioners have preferential right to purchase the leased land.

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HELD: There is no legal basis for the assertion by the petitioners that as actual occupants
of the said property, they have the right of first priority to purchase the same.
As regards the freedom of contract, it signifies or implies the right to choose with
whom to contract. PRC is thus free to offer its subject property for sale to any interested
person. It is not duty bound to sell the same to the petitioners simply because the latter were
in actual occupation of the property absent any prior agreement vesting in them as
occupants the right of first priority to buy.
So also, the contract of sale having been perfected, the parties thereto are already
bound thereby and petitioners can no longer assert their right to buy. In the case under
consideration, the contract of sale was already perfected. As a matter of fact, respondents
have already completed payment of their downpayment.
Anent petitioner’s submission that the sale has not been perfected because the
parties have not affixed their signature thereto, suffice to state that under the law, the
meeting of the minds between the parties give rise to a binding contract although they have
not affixed their signatures to its written form.

TOMAS CLAUDIO MEMORIAL COLLEGE vs. COURT OF APPEALS

G.R. No. 124262 October 12, 1999

FACTS: Private Respondents De Castro filed an action for partition over a parcel of land
which was sold, without their knowledge, by their brother Mariano in favor of Petitioner
Tomas Claudio Memorial College. It is the contention of the private repondent De Castros
that Mariano was only able to sell his undivided share on the lot in question but not the
other co-owners equivalent to four-fifths (4/5) of the property. Mariano, on the other hand,
raises the defense of prescription/laches.

ISSUE: Whether or not the sale by Mariano effectively sold the entire land and whether the
rights of his siblings for partitioning of the land have prescribed.

HELD: On the issue of prescription, we have ruled that even if a co-owner sells the whole
property as his, the sale will affect only his own share but not those of the other co-owners
who did not consent to the sale. Under Article 493 of the Civil Code, the sale or other
disposition affects only the seller’s share pro indivisio, and the transferee gets only the what
corresponds to his grantor’s share in the partition of the property owned in common.
In the light of the foregoing, petitioner’s defense of prescription against an action for
partition is a vain proposition. Pursuant to Article 494 of the Civil Code, “no co-owner shall
be obliged to remain in the co-ownership. Such co-owner may demand at anytime the
partition of the thing owned in common, insofar as his share is concerned.” In Budlong v.
Bondoc, this Court has interpreted said provision of law to mean that the action for partition
is imprescriptible. It cannot be barred by prescription.

DAVID vs. COURT OF APPEALS

G.R. No. 115821 October 13, 1999

FACTS: Petitioner David questions the bid price in the public auction of the attached
properties of respondent Afable. David contends that judgment award in his favor should be
P 3,207,238.50 to include compounded interest as provided under 2209 and 2219. The
sheriff, on the other hand refuses to make a certificate of sale on the properties auctioned as
David’s bid price exceeds the total judgment as computed by the lower court (P 271,039.84)
since the decision only provided for computation of simple legal interest as the promissory
note made by David and Afable under their compromise agreement stipulated no interest.

ISSUE: Whether or not the interest to be computed should be simple legal interest or
compund interest in the judgment award.

HELD: This Court has already interpreted Article 2212 and defined the standards for its
application in Philippine American Accident Insurance v. Flores. As therein held, Article 2212

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contemplates the presence of stipulated or conventional interest which has accrued when
demand was judicially made. In cases where no interest had been stipulated by the parties,
no accrued conventional interest could further earn interest upon judicial demand.

DEVELOPMENT BANK OF THE PHILIPPINES vs. COURT OF APPEALS

G.R. No. 111737 October 13, 1999

FACTS: Spouses Pineda obtained an agricultural loan from Petitioner Development Bank of
the Philippines using as collateral a parcel of land covered by a homestead patent. The
Pinedas failed to comply with the conditions of the loan and subsequently, DBP foreclosed
the property. In the certificate of sale, it was indicated that the property is subject to
redemption within 5 years from date of registration.
Subsequently, The Pinedas offered to redeem the property but DBP explained that
the property cannot be redeemed as it is tenanted and thus, within the prohibition provided
under PD 27. The Pinedas then filed an action for the cancellation of title and specific
performance against DBP contending that DBP acted in bad faith for consolidating of its title
on the foreclosed property although the 5 year redemption period has not yet expired.
The trial court and respondent court ruled in favor of the Pinedas. DBP further
appealed contending that it consolidated the title and took possession of the property in
good faith.

ISSUE: Whether or not the DBP was in bad faith when it consolidated title and took
possession of the foreclosed property.

HELD: Possessor in good faith is one who is not aware that there exists in his title or mode
of acquisition any flaw, which invalidates it. Good faith is always presumed, and upon him
who alleges bad faith on the part of a possessor rests the burden of proof. It was therefore
incumbent upon the Pinedas to prove that DBP was aware of the flaw in its title. This, they
failed to do.
If no redemption is made within one year, the purchaser is entitled as a matter of
right to consolidate and to possess the property. Accordingly, DBP’s act of consolidating its
title and taking possession of the subject property after the expiration of the period of
redemption was in accordance with law.
The right of DBP to consolidate its title and take possession of the subject property is
not affected by the Pinedas’ right to repurchase said property within 5 years from date of
conveyance granted by Section 119 of CA 141. In fact, without the act of DBP consolidating
its title in its name, the Pinedas would not be able to assert their right to repurchase granted
under the aforementioned section.

IMPERIAL vs. COURT OF APPEALS

G.R. No. 112483 October 8, 1999

FACTS: Petitioner Eloy Imperial purchased a parcel of land from his father Leoncio Imperial.
Although the transaction was denominated as a sale, both admit that it was a donation.
Subsequently, Leoncio filed an action for the annulment of the supposed deed of
sale but a compromise agreement was then made by both parties. When Leoncio died, his
adopted son Victor, substituted him in the compromise agreement. When Victor also died,
his heirs (herein private responsents), filed an action for annulment of the donation on the
ground that the conveyance of said property in favor of petitioner Eloy Imperial impaired the
legitime of Victor Imperial, their natural brother and predecessors-in-interest.
Petitioner Imperial raises the defense that the donation did not impair Victor’s
legitime and that the action of respondents has already prescribed.

ISSUE: Whether or not the donation made by Leoncio Imperial in favor of Petitioner is
inofficious and should be reduced; and that the action of private respondents in questioning
the donation is barred by presciption.

HELD: Unfortunately for private respondents, a claim for legitime does not amount to a
claim of title. In the recent case of Vizconde v. Court of Appeals, we declared that what is

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brought to collation is not the donated property itself, but the value of the property at the
time it was donated. The rationale for this is that the donation is a real alienation which
conveys ownership upon its acceptance, hence, any increase in value or any deterioration
or loss thereof is for the account of the heir of the donee.
From when shall the ten year period be reckoned? The case of Mateo v. Lagua,
which involved the reduction for inofficiousness of a donation propter nuptias, recognized
that the cause of action to enforce a legitime accrues upon the death of the donor-decedent.
Clearly so, since it is only then that the net estate may be ascertained and on which basis,
the legitimes may be determined.
It took private respondents 24 years since the death of Leoncio to initiate this case.
The action, therefore, has long prescribed.

STILIANOPULOS vs. CITY OF LEGASPI

G.R. No. 133913 October 12, 1999

FACTS: The City of Legaspi filed an action for the judicial reconstitution of several titles of
parcels of land, the certificates of which had allegedly been lost or destroyed during World
War II. The Lower court ordered the reconstitution of the OCTs. Thereafter, the City of
Legaspi filed an action for quieting of title against the Petitioner’s predecessors-in-interest.
The trial court upheld, however, the validity of the title of Stilianopulos. On appeal, the Court
of Appeals, reversed the lower court’s decision.
Later on, Stilianopulos filed an action for cancellation of the OCT under the name of
respondent city. When this action was dismissed by the lower court and Court of Appeals,
he filed a new action for the annulment of the order for the reconstitution of the OCTs in
favor of Legaspi City based on fraud. The Court of Appeals ruled that the action for
annulment based on extrinsic fraud has already prescribed and that petitioner is guilty of
laches in the filing of the case for annulment.

ISSUE: Whether or not the action for the annulment of the order for the reconstitution of the
OCTs in favor of the City of Legaspi has already prescribed.

HELD: Under Article 1391 of the Civil Code, an action for annulment shall be brought within
four years from the discovery of the fraud; that is, within four years from the discovery of the
fraudulent statements made in the application. Clearly, the period for raising this issue
lapsed a long time ago. Petitioner should have raised the issue of fraud in the action of
quieting of title. It was then that he became aware of the reconstituted title in the name of
the respondent.
Laches is the failure or neglect, for an unreasonable or unexplained length of time, to
do that which by exercising due diligence could or should have done earlier, warranting the
presumption that the right holder has abandoned the right or declined to assert it. This
inaction or neglect to assert a right converts a valid claim into a stale demand.
Laches prevents a litigant from raising the issue of lack of jurisdiction. True, the
petitioner filed the annulment Complaint right after the dismissal of the cancellation-of-title
case and arguing therein his defenses against the legality of the title of the respondent in
order to establish his rights over the disputed property, petitioner is deemed to have chosen
this action over the annulment of the reconstitution proceedings.

ASUNCION vs. EVANGELISTA

G.R. No. 133491 October 13, 1999

FACTS: Asuncion and Evangelista entered into a Memorandum of Agreement (MOA)

whereby the former agreed to pay latter certain amounts of money and to assume all the
liabilities of Embassy Farms which is controlled by respondent. In return, Evangelista will
transfer control of Embassy Farms and transfer to Asuncion all the real properties held
under real estate mortgage with several savings banks and finance corporations.
While Asuncion fulfilled his payment commitments under the MOA, Evangelista,
failed to transfer the title of the real properties and the shares of stock of Embassy Farms in
the name of Asuncion. However, it was respondent who filed a complaint for the rescission
of the MOA arguing that petitioner failed to comply with his obligations under the agreement.

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During the trial, Evangelista explained that the reason he did not transfer the real
properties because Asuncion did not agree to make a formal assumption of the mortgage
under the MOA. Both the trial court and Court of Appeals ruled in favor of Evangelista and
ordered the rescissison of the MOA with damages based on the alleged proceeds of the
sale of hogs during the period control of the Embassy Farms was with Asuncion.

ISSUE: Whether or not there is a need to formally assume the mortgage on the real
properties to be transferred under the MOA ; and whether Evangelista is entitled to
damages.

HELD: Even without the formal assumption of mortgage, the mortgage follows the property
whoever the possessor may be. It is an elementary principle in civil law that real mortgage
subsists notwithstanding changes of ownership and all subsequent purchases of the
property must respect the mortgage, whether the transfer to them be with or without the
consent of the mortgagee.
In case of rescission, while damages may be assessed in favor of the prejudiced
party, only those kinds of damages consistent with the remedy of rescission may be
granted, keeping in mind that had the parties opted for specific performance, other kinds of
damages would have been called for which are absolutely distinct from those kinds of
damages accruing in the case of rescission. Compensatory damages consisting of the value
of the private landholdings would have been proper in case he resorted to the remedy of
specific performance, not rescission.

LITONJUA vs. L & R CORPORATION

G.R. No. 130722 December 9, 1999

FACTS: Petitioner-spouses Litonjua obtained a loan from L & R Corporation. It was

stipulated in the contract of mortgage which secured the loan that (1) the mortgagor shall
not sell the mortgaged property without the prior written consent of mortgagee; and (2) that
the mortgagee shall be given priority in should the mortgagor decide to sell the mortgaged
property.
Spouses Litonjuas failed to pay the loan. L & R then foreclosed the mortgaged
property. But when respondent tried to register the certificate of sale for the auction sale, it
learned that Petitioners Litonjua had already sold the mortgaged property to Philippine
White House Auto Supply (PWHAS) without its the prior written consent and without
allowing it to exercise the first option to buy the property. L & R consolidated title to the
property when it refused to accept the redemption price offered by PWHAS. Thereafter, a
complaint for Quieting of Title and Annulment of Title was filed by the spouses Litonjua and
PWHAS against respondents.
The lower court dismissed the case. The Court of Appeals, however, reversed the
decision and held that (1) the stipulation in the mortgage contract requiring prior written
consent of the mortgagee before the mortgagor can sell is valid; and (2) the sale between
the Litonjuas and PWHAS must be rescinded because it violated L & R’s right of first refusal.

ISSUES: Whether or not (a) a stipulation requiring prior written consent of mortgagor before
mortgagee can sell is valid, and (b) rescission is available in case a right of first refusal is
violated.

HELD: True, the provision does not absolutely prohibit the mortgagor from selling his
mortgaged property; but what it does not outrightly prohibit, it nevertheless achieves. For all
intents and purposes, the stipulation practically gives the mortgagee the sole prerogative to
prevent any sale of mortgaged property to a third party. The mortgagee can simply withhold
its consent and thereby, prevent the mortgagor from selling the property. This creates an
unconscionable advantage for the mortgagee and amounts to a virtual prohibition on the
owner to sell his mortgaged property. In other words, the stipulation circumvent the law,
apecifically, Article 2130 of the Civil Code.
The right of first refusal has long been recognized as valid in our jurisdiction. The
consideration for the loan-mortgage includes the consideration for the right of first refusal.
The case of Guzman, Bocaling & Co v. Bonnevie is instructive on this point – “Under Article
1380 to 1381(3) of the Civil Code, a contract otherwise valid may nonetheless be

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subsequently rescinded by reason of injury to third persons, like creditors. The status of
creditors could be validly accorded the Bonnevies for they had substantial interests that
were prejudiced by the sale of the subject property to the petitioner without recognizing their
right of first priority under the contract of lease.”

Dissenting Opinion: (Justice Vitug)

I must stress that a right of first refusal is not a perfected contract. Neither does it
qualify as an option under the second paragraph of Article 1479, which itself must be
supported by a consideration separate and distinct from the price itself, nor an offer which
Article 1319 of the Code requires to be definitive and certain both as to object and cause.
Even while the object in right of first refusal might be determinate, the exercise of the right,
nevertheless, would still be dependent not only on the grantor’s eventual intention to enter
into a binding juridical relation but also on terms, including the price, that are obviously yet to
be fixed.

TORRES vs. COURT OF APPEALS

G.R. No. 134559 December 9, 1999

FACTS: Petitioners Torres and Baring entered into a joint venture agreement with private
respondent Manuel Torres for the development of a parcel of land into a subdivision. The
project, however, did not push through and the land was subsequently foreclosed by the
creditor-bank.
Later on, petitioners filed a civil case against private respondent for damages for the
latter’s mismanagement and lack of skills. Respondent court, in affirming the lower court
ruled that petitioners and respondent had formed a partnership for the development of the
land and thus, must bear the loss proportionately. On appeal to the Supreme Court,
petitioners deny the existence of a partnership contending that their joint venture agreement
is void since they did not comply with Article 1773 of the Civil Code which required an
inventory of the real property to be contributed in the partnership.

ISSUE: Whether or not a contract of partnership was perfected.

HELD: We clarify. Article 1773 of the Civil Code was intended primarily to protect third
persons. Thus, the eminent Arturo Tolentino states that under the aforecited provision
which is a complement of Article 1771, “the execution of a public instrument would be
useless if there is no inventory of the property contributed, because without its designation
and description, they cannot be subject to inscription in the Registry of Property, and their
contribution cannot prejudice third persons. This will result in fraud to those who contract
with the partnership with the belief in the efficacy if the guaranty in which the immovables
may consist. Thus, the contract is declared void by law when no such inventory is made.”
The case at bar does not involve third parties who may be prejudiced.
In short, the alleged nullity of the partnership will not prevent courts from considering
the Joint Venture Agreement an ordinary contract from which the parties’ rights and
obligations to each other may be inferred and enforced.

ABARINTOS vs. COURT OF APPEALS

315 SCRA 551

FACTS: Petitioners and private respondents are co-owners of a hacienda. The co-owners
appointed petitioner Jose Garcia as administrator of the property. When private
respondents, found out that the hacienda was mismanaged, they decided to manage
directly the hacienda. Subsequently, the co-owners agreed to terminate the co-ownership
and divide the property among themselves. The co-owners entered into a compromise
agreement to resolve the several cases for partition filed by the co-owners and such
agreement was approved by the lower court.
Private respondents, however, brought an action seeking to annul the compromise
agreement on the ground that it decides the action for the partition and appointment of a
receiver without the benefit of trial on the merits.

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ISSUE: Whether or not the compromise agreement is conclusive as to the civil cases filed
by the co-owners.

HELD: Under Article 2028 of the Civil Code, a compromise is a contract whereby the
parties, by making reciprocal concessions, avoid a litigation or put an end to one already
commenced. A judicial compromise has the force of law and is conclusive between the
parties. Once an agreement is stamped with approval, it becomes more than a mere
contract binding the parties, and having the sanction of the court and entered as its
determination of the controversy, it has the force and effect of any other judgment.
It is settled that every act which is intended to put an end to indivision among co-
heirs and legatees or devisees is deemed to be a partition, although it should purport to be a
sale, an exchange, a compromise, or any other transaction.

LAGROSA vs. COURT OF APPEALS

G.R. No. 115981- 82 August 12, 1999

FACTS: The City of Manila awarded a parcel of land was in favor of Julio Arizapa, private
respondent Banua’s predecessor-in-interest. Arizapa used the land as collateral for a loan
he obtained from a certain Presentacion Quimbo. When Arizapa died, his wife convinced
Quimbo not to foreclose the property and instead execute an Assignment of Rights to the
Real Estate Mortgage in favor of Petitoner Ruben Lagrosa, in whom she had outstanding
debts. In the meantime, Lagrosa’s relatives were allowed to occupy some areas of the
property. Lagrosa subsequently filed an action for ejectment against the caretaker of
private respondent Banua. Respondent court ruled that the assignment of rights in the real
estate mortgage made by Quimbo to Lagrosa is void because at the time of mortgage, title
to the property still belonged to the City of Manila; and therefore, Lagrosa has no basis is
demanding possession of the property.

ISSUE: Whether or not Lagrosa is entitled to possession of the property.

HELD : For a person to validly constitute a valid mortgage on real estate, he must be the
absolute owner thereof as required by Article 2085 of the Civil Code. Since the mortgage to
Presentacion Quimbo of the lot is null and void, the assignment by Quimbo of her rights to
Lagrosa is likewise void. Even if the mortgage is valid as insisted by petitioner, it is well-
settled that a mere mortgagee has no right to reject the occupants of the property
mortgaged. This is so, because a mortgage passes no title to the mortgagee. Indeed, by
mortgaging a piece of property, a debtor merely subjects it to a lien but ownership is not
parted with.
As to Lagrosa’s prior possession of the subject property, their stay in the property
was by mere tolerance or permission. It is well-settled that “a person who occupies the land
of another at the latter’s tolerance or permission, without any contract between them, is
necessarily bound by an implied promise that he will vacate upon demand, failing which a
summary action for ejectment is the proper remedy against him.”

PHILIPPINE TRUST COMPANY vs. COURT OF APPEALS

G.R. No. 124658 December 15, 1999

FACTS: Private respondent Simeon Policarpio Shipyard and Shipping Corporation filed a
complaint for damages and injunction against petitioner Philtrust company for the fraudulent
possession of the land occupied by the former on the basis of an alias writ of execution.
The writ of execution was based on a judgment previously decided that held the validity of
foreclosure of
Philtrust of the properties mortgaged by private respondents and Philtrust’s right to possess
the property.
Private respondent contends that the property fraudulently possessed by Philtrust
was not included in the foreclosed mortgaged property. Thus, SPSSC is anchoring its
complaint for damages on the improper implementation of the alias writ of execution which

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as a result it was deprived of possession of the property (OCT-R-165). Petitioner, on the
other hand, contends that SPSSC no longer owns the subject property because it was
already foreclosed by Landbank; thus, not being the owner, Philtrust alleges that SPSSC
cannot be entitled to possession.

ISSUE: Whether or not private respondent SPSSC is entitled to possession of subject

property.

HELD: Since private respondent was in possession of the aforesaid land when the writ of
possession was improperly implemented, it is not correct therefore to say that private
respondent does not have a cause of action. It is elementary that a lawful possessor of a
thing has the right to institute an action should he be disturbed in its enjoyment.
Verily, Article 539 of the Civil Code states that – “Every possessor has a right to be
respected in his possession; and should he be disturbed therein, he shall be restored to said
possession by the means established by the laws and rules of court.” The phrase “every
possessor” in the article indicates that all kinds of possession, from that of the owner to that
of a mere holder, except that which constitutes a crime, should be respected and protected
by the means established and the laws of procedure. Consequently, private respondent
having been in lawful possession of the property covered by OCT-R-165 at the time of
possession was implemented, may institute an action for having been disturbed in its
enjoyment.

BALUYOT vs. COURT OF APPEALS

G.R. No. 122947 July 22, 1999

FACTS: Petitioners filed an action for specific performance and damages against private
respondent University of the Philippines (UP) and Quezon City government for the execution
of the legal instrument for the donation of the land that they are occupying in the Diliman,
Quezon City.
Petitoners contend that they have been occupying the land since time immemorial
and that respondent UP has failed to formally execute the deed of donation on the land that
they have been occupying which has already been previously approved by the UP Board of
Regents. Petitoners also contend that they have acquired ownership of the land by
acquisitive prescription. Respondents, on the other hand, contend that the approved
donation has already been revoked. In addition, respondents contend that petitioners have
no cause of action inasmuch as prescription does not run against registered lands..

ISSUES: Whether or not prescription or laches run against registered lands.

HELD: While prescription does not run against registered lands, nonetheless a registered
owner’s action to recover possession may be barred by laches.
Laches is a defense against a registered owner suing to recover possession of the
land registered in its name. But UP is not suing in this case. It is petitioners who are, and
their suit is mainly to seek enforcement of the deed of donation made by UP in favor of the
Quezon City government. Indeed, the petitioners do not invoke laches. What they allege in
their complaint is that they have been occupying the land in question from time immemorial,
adversely, and continuously in the concept of an owner, but they are not invoking laches.
Nor can petitioners question the validity of UP’s title to the land. This constitutes a collateral
attack on registered title which is not permitted.

DEVELOPMENT BANK OF THE PHILIPPINES vs. COURT OF APPEALS

G.R. No. 111737 October 13, 1999

FACTS: Spouses Pineda obtained a loan from Petitioner Development Bank of the
Philippines (DBP) using as collateral a parcel of land covered by a homestead patent. The
Pinedas failed to comply with the conditions of the loan and subsequently, DBP foreclosed
the property. In the certificate of sale, it was indicated that the property is subject to

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redemption within 5 years from date of registration. After the expiration of the one year
redemption period provided under section 6 of Act 3135, however, DBP consolidated its title
to the foreclosed property.
When Pinedas offered to redeem the property, DBP refused the redemption and
explained that the property cannot be redeemed as it is within the provisions of PD 27 which
prohibited the redemption of tenanted land.
The Pinedas subsequently filed an action for the cancellation of title and specific
performance against DBP contending that the latter acted in bad faith for consolidating its
title on the foreclosed property although the 5 year redemption period stated in the
certificate of sale has not yet expired.
The trial court and respondent court ruled that DBP violated the stipulation in the
sheriff’s certificate of title and ordered DBP to assume liability for the fruits that the property
produced from said land. On appeal, respondent court ruled that DBP was in bad faith
when it unlawfully took possession of the land and that Pinedas were entitled to recover the
fruits produced by the property.

ISSUE: Whether or not the DBP was in bad faith when it consolidated title and took
possession of the foreclosed property.

HELD: A possessor in good faith is one who is not aware that there exists in his title or
mode of acquisition any flaw, which invalidates it. Good faith is always presumed, and upon
him who alleges bad faith on the part of a possessor rests the burden of proof. It was
therefore incumbent upon the Pinedas to prove that DBP was aware of the flaw in its title.
This, they failed to do.
If no redemption is made within one year, the purchaser is entitled as a matter of
right to consolidate and to possess the property. Accordingly, DBP’s act of consolidating its
title and taking possession of the subject property after the expiration of the period of
redemption was in accordance with law.
The right of DBP to consolidate its title and take possession of the subject property is
not affected by the Pinedas’ right to repurchase said property within 5 years from date of
conveyance granted by Section 119 of CA 141. In fact, without the act of DBP consolidating
its title in its name, the Pinedas would not be able to assert their right to repurchase granted
under the aforementioned section.

UY vs. COURT OF APPEALS

GR No. 120465 September 9, 1999

FACTS: Petitioners Uy and Roxas offered to sell eight parcels of land, as agents of the
owners thereof, to private respondent National Housing Authority (NHA) for the latter to
utilize and develop as a housing project. The NHA thereafter approved the acquisition but
for only 5 parcels of land since it was determined that the other 3 were located at an active
landslide area and thus, not suitable for development into a housing project. Subsequently,
the NHA cancelled the purchase of the 3 lots.
Petitioners then filed an action for damages against the NHA for the cancellation of
purchase contending that there was no basis for its rescission by the NHA. The lower court
and respondent Court of Appeals ruled that the cancellation was justified and that petitioners
are not entitled to damages.

ISSUE: Whether or not the cancellation of the sale by the NHA for the 3 lots is a rescission
of that part of the contract.

HELD:In this case, the NHA did not rescind the contract. Indeed, it did not have the right to
do so for the other parties to the contract, the vendors, did not commit any breach, much
less a substantial breach. Their obligation was merely to deliver the parcels of land to the
NHA, an obligation that they fulfilled. The NHA did not suffer any injury by the performance
thereof.
The cancellation, therefore, was not a rescission under Article 1191. Rather, the
cancellation was based on the negation of the cause arising from the realization that the
lands, which were the object of the sale, were not suitable for housing. Cause is the
essential reason which moves the contracting parties to enter into it.

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Ordinarily, a party’s motives for entering into a contract do not affect the contract.
However, when the motive predetermines the cause, the motive may be regarded as the
cause.
In this case, it is clear that the NHA would not have entered into the contract were
the lands not suitable for housing. In other words, the quality of the land was an implied
condition for the NHA to enter into the contract. On the part of the NHA, therefore, the
motive was the cause for its being a party to the sale.
Accordingly, we hold that the NHA was justified in cancelling the contract. The
realization of the mistake as regards the quality of the land resulted in the negation of the
motive/cause thus rendering the contract inexistent.

ESTRELLA REAL ESTATE CORPORATION vs. COURT OF APPEALS

GR No. 128862 September 30, 1999

FACTS: Gonzalo Tan, predecessors-in-interest of private respondents, owned a parcel of

land where a two-storey house (known as House No. 285) were constructed and which was
owned by Cenon Tan, brother of Gonzalo. Gonzalo later sold the parcel of land in favor of
Gaw Bros & Co. specifying that the property subject thereof was “a parcel of land together
with the improvements thereon (except those belonging to other persons).” Said land was
later on sold by Gaw Bros & Co to petitoner Estrella Real Estate Corporation (ESTRELLA).
The two-storey house, was also sold by Cenon to Gonzalo.
ESTRELLA later on leased another house located in the land to a certain Josephine
Catalan. When Catalan failed to pay the rents, ESTRELLA filed an ejectment suit against
the former. When the lower court ruled in favor of ESTRELLA, the writ of execution was
enforced also against the private respondents, who were residents of House No. 285.
Private respondents subsequently filed a complaint for Quieting of Title.
The lower court ruled that House No 285 was owned by the heirs of Gonzalo Tan.
The respondent Court of Appeals affirmed the decision of the lower court and ordered the
annotation of the ownership of the house in the certificate of title of the parcel of land (TCT
No 22003).

ISSUE: Whether or not private respondents have the right to annotate on the certificate of
title the ownership of a house, allegedly owned by them, but built on the land owned by
petitioner.

HELD: The evidence on record indubitably supports the finding of the Court of Appeals that
when the parcel of land covered by TCT No 22003 in the name of Gonzalo Tan was sold by
the latter to Gaw Bros, House No. 285 belonging to Cenon Tan was among the
improvements excluded from the sale as expressly provided in the deed of sale.
As correctly found by the Court of Appeals, private respondents have the right to
have their ownership of the House No. 285 annotated in the certificate of title of petitioner
over the land after the same is judicially settled. Section 78 of PD 1529 provides that
whenever in any action to recover possession or ownership of real estate or any interest
therein affecting registered land judgment is entered for the plaintiff such judgment shall be
entitled to registration on presentation of certificate of entry thereof from the Clerk of Court
where the action is pending to the Register of Deeds for the province or city where the land
lies, who shall enter a memorandum upon the certificate of title of the land to which such
judgment relates. If the judgment does not apply to all the land described in the certificate of
title, the certificate of the clerk of court where the action is pending and the memorandum
entered by the Register of Deeds shall contain a description of the land affected by the
judgment.

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