[G.R. No. 128066.

June 19, 2000]

Thereafter, in a letter dated 12 December 1992 addressed to FEMSCO

President Alfonso Po, PUREFOODS confirmed the award of the contract to

JARDINE DAVIES INC., petitioner, vs. COURT OF APPEALS and FAR

EAST MILLS SUPPLY CORPORATION,respondents.
[G.R. No. 128069 June 19, 2000]
PURE FOODS CORPORATION, petitioner, vs. COURT OF APPEALS and
FAR EAST MILLS SUPPLY CORPORATION, respondents.
DECISION
BELLOSILLO, J.:
This is rather a simple case for specific performance with damages which
could have been resolved through mediation and conciliation during its
infancy stage had the parties been earnest in expediting the disposal of this
case. They opted however to resort to full court proceedings and denied
themselves the benefits of alternative dispute resolution, thus making the
process more arduous and long-drawn.
The controversy started in 1992 at the height of the power crisis which the
country was then experiencing. To remedy and curtail further losses due to
the series of power failures, petitioner PURE FOODS CORPORATION
(hereafter PUREFOODS) decided to install two (2) 1500 KW generators in its
food processing plant in San Roque, Marikina City.
Sometime in November 1992 a bidding for the supply and installation of the
generators was held. Several suppliers and dealers were invited to attend a
pre-bidding conference to discuss the conditions, propose scheme and
specifications that would best suit the needs of PUREFOODS. Out of the
eight (8) prospective bidders who attended the pre-bidding conference, only
three (3) bidders, namely, respondent FAR EAST MILLS SUPPLY
CORPORATION (hereafter FEMSCO), MONARK and ADVANCE POWER
submitted bid proposals and gave bid bonds equivalent to 5% of their
respective bids, as required.

FEMSCO Gentlemen:
This will confirm that Pure Foods Corporation has awarded
to your firm the project: Supply and Installation of two (2)
units of 1500 KW/unit Generator Sets at the Processed
Meats Plant, Bo. San Roque, Marikina, based on your
proposal number PC 28-92 dated November 20, 1992,
subject to the following basic terms and conditions:
1. Lump sum contract of P6,137,293.00 (VAT included), for
the supply of materials and labor for the local portion and
the labor for the imported materials, payable by progress
billing twice a month, with ten percent (10%) retention. The
retained amount shall be released thirty (30) days after
acceptance of the completed project and upon posting of
Guarantee Bond in an amount equivalent to twenty percent
(20%) of the contract price. The Guarantee Bond shall be
valid for one (1) year from completion and acceptance of
project. The contract price includes future increase/s in
costs of materials and labor;
2. The project shall be undertaken pursuant to the attached
specifications. It is understood that any item required to
complete the project, and those not included in the list of
items shall be deemed included and covered and shall be
performed;
3. All materials shall be brand new;
4. The project shall commence immediately and must be
completed within twenty (20) working days after the delivery
of Generator Set to Marikina Plant, penalty equivalent to
1/10 of 1% of the purchase price for every day of delay;

5. The Contractor shall put up Performance Bond equivalent

On 27 June 1994 the Regional Trial Court of Pasig, Br. 68, [1] granted

to thirty (30%) of the contract price, and shall procure All

JARDINEs Demurrer to Evidence. The trial court concluded that "[w]hile it

Risk Insurance equivalent to the contract price upon

may seem to the plaintiff that by the actions of the two defendants there is

commencement of the project. The All Risk Insurance Policy

something underhanded going on, this is all a matter of perception, and

shall be endorsed in favor of and shall be delivered to Pure

unsupported by hard evidence, mere suspicions and suppositions would not

Foods Corporation;

stand up very well in a court of law." [2] Meanwhile trial proceeded as regards
the case against PUREFOODS.

6. Warranty of one (1) year against defective material and/or

workmanship.

On 28 July 1994 the trial court rendered a decision ordering PUREFOODS:

(a) to indemnify FEMSCO the sum of P2,300,000.00 representing the value of

Once finalized, we shall ask you to sign the formal contract

engineering services it rendered; (b) to pay FEMSCO the sum of

embodying the foregoing terms and conditions.

US$14,000.00 or its peso equivalent, andP900,000.00 representing

contractor's mark-up on installation work, considering that it would be

Immediately, FEMSCO submitted the required performance bond in the

impossible to compel PUREFOODS to honor, perform and fulfill its

amount of P1,841,187.90 and contractors all-risk insurance policy in the

contractual obligations in view of PUREFOOD's contract with JARDINE and

amount of P6,137,293.00 which PUREFOODS through its Vice President

noting that construction had already started thereon; (c) to pay attorneys

Benedicto G. Tope acknowledged in a letter dated 18 December 1992.

fees in an amount equivalent to 20% of the total amount due; and, (d) to pay

FEMSCO also made arrangements with its principal and started the

the costs. The trial court dismissed the counterclaim filed by PUREFOODS

PUREFOODS project by purchasing the necessary materials. PUREFOODS

for lack of factual and legal basis.

on the other hand returned FEMSCOs Bidders Bond in the amount

of P1,000,000.00, as requested.

Both FEMSCO and PUREFOODS appealed to the Court of Appeals. FEMSCO

appealed the 27 June 1994 Resolution of the trial court which granted

Later, however, in a letter dated 22 December 1992, PUREFOODS through its

the Demurrer to Evidence filed by JARDINE resulting in the dismissal of the

Senior Vice President Teodoro L. Dimayuga unilaterally canceled the award

complaint against it, while PUREFOODS appealed the 28 July 1994 Decision

as "significant factors were uncovered and brought to (their) attention which

of the same court which ordered it to pay FEMSCO.

dictate (the) cancellation and warrant a total review and re-bid of (the)
project." Consequently, FEMSCO protested the cancellation of the award and

On 14 August 1996 the Court of Appeals affirmed in toto the 28 July 1994

sought a meeting with PUREFOODS. However, on 26 March 1993, before the

Decision of the trial court.[3] It also reversed the 27 June 1994 Resolution of

matter could be resolved, PUREFOODS already awarded the project and

the lower court and ordered JARDINE to pay FEMSCO damages for inducing

entered into a contract with JARDINE NELL, a division of Jardine Davies,

PUREFOODS to violate the latters contract with FEMSCO. As such,

Inc. (hereafter JARDINE), which incidentally was not one of the bidders.

JARDINE was ordered to pay FEMSCO P2,000,000.00 for moral damages. In

addition, PUREFOODS was also directed to pay FEMSCO P2,000,000.00 as

FEMSCO thus wrote PUREFOODS to honor its contract with the former, and

moral damages and P1,000,000.00 as exemplary damages as well as 20% of

to JARDINE to cease and desist from delivering and installing the two (2)

the total amount due as attorney's fees.

generators at PUREFOODS. Its demand letters unheeded, FEMSCO sued

both PUREFOODS and JARDINE: PUREFOODS for reneging on its contract,

On 31 January 1997 the Court of Appeals denied for lack of merit the

and JARDINE for its unwarranted interference and inducement. Trial ensued.

separate motions for reconsideration filed by PUREFOODS and JARDINE.

After FEMSCO presented its evidence, JARDINE filed a Demurrer to Evidence.

Hence, these two (2) petitions for review filed by PUREFOODS and JARDINE
which were subsequently consolidated.

PUREFOODS maintains that the conclusions of both the trial court and the

with good faith, usage and law.[6] To produce a contract, the acceptance must

appellate court are premised on a misapprehension of facts. It argues that its

not qualify the terms of the offer. However, the acceptance may be express or

12 December 1992 letter to FEMSCO was not an acceptance of the latter's

implied.[7] For a contract to arise, the acceptance must be made known to the

bid proposal and award of the project but more of a qualified acceptance

offeror. Accordingly, the acceptance can be withdrawn or revoked before it is

constituting a counter-offer which required FEMSCO's

made known to the offeror.

express conforme. Since PUREFOODS never received

FEMSCOs conforme, PUREFOODS was very well within reason to revoke its

In the instant case, there is no issue as regards the subject matter of the

qualified acceptance or counter-offer. Hence, no contract was perfected

contract and the cause of the obligation. The controversy lies in the consent -

between PUREFOODS and FEMSCO. PUREFOODS also contends that it was

whether there was an acceptance of the offer, and if so, if it was

never in bad faith when it dealt with FEMSCO. Hence moral and exemplary

communicated, thereby perfecting the contract.

damages should not have been awarded.

To resolve the dispute, there is a need to determine what constituted the offer
Corollarily, JARDINE asserts that the records are bereft of any showing that

and the acceptance. Since petitioner PUREFOODS started the process of

it had prior knowledge of the supposed contract between PUREFOODS and

entering into the contract by conducting a bidding, Art. 1326 of the Civil

FEMSCO, and that it induced PUREFOODS to violate the latters alleged

Code, which provides that "[a]dvertisements for bidders are simply invitations

contract with FEMSCO. Moreover, JARDINE reasons that FEMSCO, an

to make proposals," applies. Accordingly, the Terms and Conditions of the

artificial person, is not entitled to moral damages. But

Biddingdisseminated by petitioner PUREFOODS constitutes the

granting arguendo that the award of moral damages is proper, P2,000,000.00

"advertisement" to bid on the project. The bid proposals or quotations

is extremely excessive.

submitted by the prospective suppliers including respondent FEMSCO, are

the offers. And, the reply of petitioner PUREFOODS, the acceptance or

In the main, these consolidated cases present two (2) issues: first, whether

rejection of the respective offers.

there existed a perfected contract between PUREFOODS and FEMSCO; and

second, granting there existed a perfected contract, whether there is any

Quite obviously, the 12 December 1992 letter of petitioner PUREFOODS to

showing that JARDINE induced or connived with PUREFOODS to violate the

FEMSCO constituted acceptance of respondent FEMSCOs offer as

latter's contract with FEMSCO.

contemplated by law. The tenor of the letter, i.e., "This will confirm that Pure
Foods has awarded to your firm (FEMSCO) the project," could not be more

A contract is defined as "a juridical convention manifested in legal form, by

categorical. While the same letter enumerated certain "basic terms and

virtue of which one or more persons bind themselves in favor of another or

conditions," these conditions were imposed on the performance of the

others, or reciprocally, to the fulfillment of a prestation to give, to do, or not

obligation rather than on the perfection of the contract. Thus, the first

to do."[4] There can be no contract unless the following requisites concur: (a)

"condition" was merely a reiteration of the contract price and billing scheme

consent of the contracting parties; (b) object certain which is the subject

based on the Terms and Conditions of Bidding and the bid or previous offer of

matter of the contract; and, (c) cause of the obligation which is established.

respondent FEMSCO. The second and third "conditions" were nothing more

[5]

than general statements that all items and materials including those

A contract binds both contracting parties and has the force of law between

them.

excluded in the list but necessary to complete the project shall be deemed
included and should be brand new. The fourth "condition" concerned the

Contracts are perfected by mere consent, upon the acceptance by the offeree

completion of the work to be done, i.e., within twenty (20) days from the

of the offer made by the offeror. From that moment, the parties are bound

delivery of the generator set, the purchase of which was part of the contract.

not only to the fulfillment of what has been expressly stipulated but also to

The fifth "condition" had to do with the putting up of a performance bond

all the consequences which, according to their nature, may be in keeping

and an all-risk insurance, both of which should be given upon

commencement of the project. The sixth "condition" related to the standard

this can be inferred from the contemporaneous and subsequent acts of the

warranty of one (1) year. In fine, the enumerated "basic terms and

contracting parties.

conditions" were prescriptions on how the obligation was to be performed and

implemented. They were far from being conditions imposed on the perfection

Accordingly, for all intents and purposes, the contract at that point has been

of the contract.

perfected, and respondent FEMSCO's conforme would only be a mere

surplusage. The discussion of the price of the project two (2) months after

In Babasa v. Court of Appeals

[8]

we distinguished between a condition

the 12 December 1992 letter can be deemed as nothing more than a pressure

imposed on the perfection of a contract and a condition imposed merely on

being exerted by petitioner PUREFOODS on respondent FEMSCO to lower the

the performance of an obligation. While failure to comply with the first

price even after the contract had been perfected. Indeed from the facts, it can

condition results in the failure of a contract, failure to comply with the

easily be surmised that petitioner PUREFOODS was haggling for a lower

second merely gives the other party options and/or remedies to protect his

price even after agreeing to the earlier quotation, and was threatening to

interests.

unilaterally cancel the contract, which it eventually did. Petitioner

PUREFOODS also makes an issue out of the absence of a purchase order

We thus agree with the conclusion of respondent appellate court which

(PO). Suffice it to say that purchase orders or POs do not make or break a

affirmed the trial court -

contract. Thus, even the tenor of the subsequent letter of petitioner

PUREFOODS, i.e., "Pure Foods Corporation is hereby canceling the award to

As can be inferred from the actual phrase used in the first

your company of the project," presupposes that the contract has been

portion of the letter, the decision to award the contract has

perfected. For, there can be no cancellation if the contract was not perfected

already been made. The letter only serves as a confirmation

in the first place.

of such decision. Hence, to the Courts mind, there is already

an acceptance made of the offer received by Purefoods.

Petitioner PUREFOODS also argues that it was never in bad faith. On the

Notwithstanding the terms and conditions enumerated

contrary, it believed in good faith that no such contract was perfected. We are

therein, the offer has been accepted and/or amplified the

not convinced. We subscribe to the factual findings and conclusions of the

details of the terms and conditions contained in the Terms

trial court which were affirmed by the appellate court -

and Conditions of Bidding given out by Purefoods to

prospective bidders.[9]

Hence, by the unilateral cancellation of the contract, the

defendant (petitioner PURE FOODS) has acted with bad faith

But even granting arguendo that the 12 December 1992 letter of petitioner

and this was further aggravated by the subsequent inking of

PUREFOODS constituted a "conditional counter-offer," respondent FEMCO's

a contract between defendant Purefoods and erstwhile co-

submission of the performance bond and contractor's all-risk insurance was

defendant Jardine. It is very evident that Purefoods thought

an implied acceptance, if not a clear indication of its acquiescence to, the

that by the expedient means of merely writing a letter would

"conditional counter-offer," which expressly stated that the performance bond

automatically cancel or nullify the existing contract entered

and the contractor's all-risk insurance should be given upon the

into by both parties after a process of bidding. This, to the

commencement of the contract. Corollarily, the acknowledgment thereof by

Courts mind, is a flagrant violation of the express provisions

petitioner PUREFOODS, not to mention its return of FEMSCO's bidder's

of the law and is contrary to fair and just dealings to which

bond, was a concrete manifestation of its knowledge that respondent

every man is due.[11]

FEMSCO indeed consented to the "conditional counter-offer." After all, as

earlier adverted to, an acceptance may either be express or implied, [10] and

This Court has awarded in the past moral damages to a corporation whose
reputation has been besmirched.[12] In the instant case, respondent FEMSCO

has sufficiently shown that its reputation was tarnished after it immediately

amount of P1,000,000.00 and exemplary damages in the amount

ordered equipment from its suppliers on account of the urgency of the

of P1,000,000.00. Costs against petitioner.

project, only to be canceled later. We thus sustain respondent appellate

court's award of moral damages. We however reduce the award

SO ORDERED.

from P2,000,000.00 to P1,000,000.00, as moral damages are never intended

to enrich the recipient. Likewise, the award of exemplary damages by way of
example for the public good is excessive and should be reduced
Republic of the Philippines

toP100,000.00.

SUPREME COURT
Petitioner JARDINE maintains on the other hand that respondent appellate

Manila

court erred in ordering it to pay moral damages to respondent FEMSCO as it

supposedly induced PUREFOODS to violate the contract with FEMSCO. We

THIRD DIVISION

agree. While it may seem that petitioners PUREFOODS and JARDINE

connived to deceive respondent FEMSCO, we find no specific evidence on
record to support such perception. Likewise, there is no showing whatsoever
that petitioner JARDINE induced petitioner PUREFOODS. The similarity in
the design submitted to petitioner PUREFOODS by both petitioner JARDINE
and respondent FEMSCO, and the tender of a lower quotation by petitioner
JARDINE are insufficient to show that petitioner JARDINE indeed induced
petitioner PUREFOODS to violate its contract with respondent FEMSCO.

G.R. No. 170115

PROVINCE OF CEBU, petitioner,

vs.
HEIRS OF RUFINA MORALES, NAMELY: FELOMINA V. PANOPIO, NENITA
VILLANUEVA, ERLINDA V. ADRIANO and CATALINA V.
QUESADA, respondents.

WHEREFORE, judgment is hereby rendered as follows:

(a) The petition in G.R. No. 128066 is GRANTED. The assailed Decision of the
Court of Appeals reversing the 27 June 1994 resolution of the trial court and
ordering petitioner JARDINE DAVIES, INC., to pay private respondent FAR
EAST MILLS SUPPLY CORPORATION P2,000,000.00 as moral damages is

February 19, 2008

DECISION
YNARES-SANTIAGO, J.:
This is a petition for review on certiorari of the Decision1 of the Court of

REVERSED and SET ASIDE for insufficiency of evidence; and

Appeals dated March 29, 2005 in CA-G.R. CV No. 53632, which affirmed in

(b) The petition in G.R. No. 128069 is DENIED. The assailed Decision of the

Case No. CEB-11140 for specific performance and reconveyance of property.

Court of Appeals ordering petitioner PURE FOODS CORPORATION to pay

private respondent FAR EAST MILLS SUPPLY CORPORATION the sum
of P2,300,000.00 representing the value of engineering services it rendered,
US$14,000.00 or its peso equivalent, and P900,000.00 representing the
contractor's mark-up on installation work, as well as attorney's fees
equivalent to twenty percent (20%) of the total amount due, is AFFIRMED. In
addtion, petitioner PURE FOODS CORPORATION is ordered to pay private
respondent FAR EAST MILLS SUPPLY CORPORATION moral damages in the

toto the Decision2 of the Regional Trial Court of Cebu City, Branch 6, in Civil
Also assailed is the Resolution3dated August 31, 2005 denying the motion for
reconsideration.
On September 27, 1961, petitioner Province of Cebu leased 4 in favor of Rufina
Morales a 210-square meter lot which formed part of Lot No. 646-A of the
Banilad Estate. Subsequently or sometime in 1964, petitioner donated
several parcels of land to the City of Cebu. Among those donated was Lot No.
646-A which the City of Cebu divided into sub-lots. The area occupied by

Morales was thereafter denominated as Lot No. 646-A-3, for which Transfer

Panopio died shortly after the complaint was filed.15

Certificate of Title (TCT) No. 30883 was issued in favor of the City of Cebu.
Respondents averred that the award at public auction of the lot to Morales
On July 19, 1965, the city sold Lot No. 646-A-3 as well as the other donated

was a valid and binding contract entered into by the City of Cebu and that

lots at public auction in order to raise money for infrastructure projects. The

the lot was inadvertently returned to petitioner under the compromise

highest bidder for Lot No. 646-A-3 was Hever Bascon but Morales was

judgment in Civil Case No. 238-BC. They alleged that they could not pay the

allowed to match the highest bid since she had a preferential right to the lot

balance of the purchase price during the pendency of said case due to

as actual occupant thereof.6 Morales thus paid the required deposit and

confusion as to whom and where payment should be made. They thus prayed

partial payment for the lot.

that judgment be rendered ordering petitioner to execute a final deed of

absolute sale in their favor, and that TCT No. 104310 in the name of

In the meantime, petitioner filed an action for reversion of donation against

petitioner be cancelled.16

the City of Cebu docketed as Civil Case No. 238-BC before Branch 7 of the
then Court of First Instance of Cebu. On May 7, 1974, petitioner and the City

Petitioner filed its answer but failed to present evidence despite several

of Cebu entered into a compromise agreement which the court approved on

opportunities given thus, it was deemed to have waived its right to present

July 17, 1974.8 The agreement provided for the return of the donated lots to

evidence.17

petitioner except those that have already been utilized by the City of Cebu.
Pursuant thereto, Lot No. 646-A-3 was returned to petitioner and registered
in its name under TCT No. 104310.

On March 6, 1996, the trial court rendered judgment, the dispositive part of
which reads:

Morales died on February 20, 1969 during the pendency of Civil Case No.

WHEREFORE, judgment is rendered in favor of the plaintiffs and

238-BC.10 Apart from the deposit and down payment, she was not able to

against the defendant Province of Cebu, hereby directing the latter to

make any other payments on the balance of the purchase price for the lot.

convey Lot 646-A-3 to the plaintiffs as heirs of Rufina Morales, and

in this connection, to execute the necessary deed in favor of said

On March 11, 1983, one of the nieces of Morales, respondent Catalina V.

plaintiffs.

Quesada, wrote to then Cebu Governor Eduardo R. Gullas asking for the
formal conveyance of Lot No. 646-A-3 to Morales surviving heirs, in

No pronouncement as to costs.

accordance with the award earlier made by the City of Cebu. 11 This was
followed by another letter of the same tenor dated October 10, 1986

SO ORDERED.18

addressed to Governor Osmundo G. Rama.12

In ruling for the respondents, the trial court held thus:
The requests remained unheeded thus, Quesada, together with the other
nieces of Morales namely, respondents Nenita Villanueva and Erlinda V.

[T]he Court is convinced that there was already a consummated sale

Adriano, as well as Morales sister, Felomina V. Panopio, filed an action for

between the City of Cebu and Rufina Morales. There was the offer to

specific performance and reconveyance of property against petitioner, which

sell in that public auction sale. It was accepted by Rufina Morales

was docketed as Civil Case No. CEB-11140 before Branch 6 of the Regional

with her bid and was granted the award for which she paid the

Trial Court of Cebu City.13 They also consigned with the court the amount of

agreed downpayment. It cannot be gainsaid that at that time the

P13,450.00 representing the balance of the purchase price which petitioner

owner of the property was the City of Cebu. It has the absolute right

allegedly refused to accept. 14

to dispose of it thru that public auction sale. The donation by the

defendant Province of Cebu to Cebu City was not voided in that Civil

Case No. 238-BC. The compromise agreement between the parties

AFFIRMING THE DECISION OF THE TRIAL COURT IN FAVOR OF

therein on the basis of which judgment was rendered did not provide

THE RESPONDENTS AND AGAINST THE PETITIONERS. 20

nullification of the sales or disposition made by the City of Cebu.

Being virtually successor-in-interest of City of Cebu, the defendant is

The petition lacks merit.

bound by the contract lawfully entered into by the former. Defendant

did not initiate any move to invalidate the sale for one reason or

The appellate court correctly ruled that petitioner, as successor-in-interest of

another. Hence, it stands as a perfectly valid contract which

the City of Cebu, is bound to respect the contract of sale entered into by the

defendant must respect. Rufina Morales had a vested right over the

latter pertaining to Lot No. 646-A-3. The City of Cebu was the owner of the

property. The plaintiffs being the heirs or successors-in-interest of

lot when it awarded the same to respondents predecessor-in-interest,

Rufina Morales, have the right to ask for the conveyance of the

Morales, who later became its owner before the same was erroneously

property to them. While it may be true that the title of the property

returned to petitioner under the compromise judgment. The award is

still remained in the name of the City of Cebu until full payment is

tantamount to a perfected contract of sale between Morales and the City of

made, and this could be the reason why the lot in question was

Cebu, while partial payment of the purchase price and actual occupation of

among those reverted to the Province, the sellers obligation under

the property by Morales and respondents effectively transferred ownership of

the contract was, for all legal purposes, transferred to, and assumed

the lot to the latter. This is true notwithstanding the failure of Morales and

by, the defendant Province of Cebu. It is then bound by such

respondents to pay the balance of the purchase price.

contract.19
Petitioner can no longer assail the award of the lot to Morales on the ground
Petitioner appealed to the Court of Appeals which affirmed the decision of the

that she had no right to match the highest bid during the public auction.

trial court in toto. Upon denial of its motion for reconsideration, petitioner

Whether Morales, as actual occupant and/or lessee of the lot, was qualified

filed the instant petition under Rule 45 of the Rules of Court, alleging that

and had the right to match the highest bid is a foregone matter that could

the appellate court erred in:

have been questioned when the award was made. When the City of Cebu
awarded the lot to Morales, it is assumed that she met all qualifications to

FINDING THAT RUFINA MORALES AND RESPONDENTS, AS HER

match the highest bid. The subject lot was auctioned in 1965 or more than

HEIRS, HAVE THE RIGHT TO EQUAL THE BID OF THE HIGHEST

four decades ago and was never questioned. Thus, it is safe to assume, as the

BIDDER OF THE SUBJECT PROPERTY AS LESSEES THEREOF;

appellate court did, that all requirements for a valid public auction sale were
complied with.

FINDING THAT WITH THE DEPOSIT AND PARTIAL PAYMENT MADE

BY RUFINA MORALES, THE SALE WAS IN EFFECT CLOSED FOR

A sale by public auction is perfected "when the auctioneer announces its

ALL LEGAL PURPOSES, AND THAT THE TRANSACTION WAS

perfection by the fall of the hammer or in other customary manner". 21 It does

PERFECTED AND CONSUMMATED;

not matter that Morales merely matched the bid of the highest bidder at the
said auction sale. The contract of sale was nevertheless perfected as to

FINDING THAT LACHES AND/OR PRESCRIPTION ARE NOT

Morales, since she merely stepped into the shoes of the highest bidder.

APPLICABLE AGAINST RESPONDENTS;

Consequently, there was a meeting of minds between the City of Cebu and
FINDING THAT DUE TO THE PENDENCY OF CIVIL CASE NO. 238-

Morales as to the lot sold and its price, such that each party could

BC, PLAINTIFFS WERE NOT ABLE TO PAY THE AGREED

reciprocally demand performance of the contract from the other. 22 A contract

INSTALLMENTS;

of sale is a consensual contract and is perfected at the moment there is a

meeting of minds upon the thing which is the object of the contract and upon

the price. From that moment, the parties may reciprocally demand

place upon the concurrence of the essential elements of the sale which are

performance subject to the provisions of the law governing the form of

the meeting of the minds of the parties as to the object of the contract and

contracts. The elements of a valid contract of sale under Article 1458 of the

upon the price; and (3) consummation, which begins when the parties

Civil Code are: (1) consent or meeting of the minds; (2) determinate subject

perform their respective undertakings under the contract of sale, culminating

matter; and (3) price certain in money or its equivalent.

23

All these elements

were present in the transaction between the City of Cebu and Morales.

in the extinguishment thereof.27 In this case, respondents predecessor had

undoubtedly commenced performing her obligation by making a down
payment on the purchase price. Unfortunately, however, she was not able to

There is no merit in petitioners assertion that there was no perfected

complete the payments due to legal complications between petitioner and the

contract of sale because no "Contract of Purchase and Sale" was ever

city.

executed by the parties. As previously stated, a contract of sale is a

consensual contract that is perfected upon a meeting of minds as to the

Thus, the City of Cebu could no longer dispose of the lot in question when it

object of the contract and its price. Subject to the provisions of the Statute of

was included as among those returned to petitioner pursuant to the

Frauds, a formal document is not necessary for the sale transaction to

compromise agreement in Civil Case No. 238-BC. The City of Cebu had sold

acquire binding effect.

24

For as long as the essential elements of a contract of

the property to Morales even though there remained a balance on the

sale are proved to exist in a given transaction, the contract is deemed

purchase price and a formal contract of sale had yet to be executed.

perfected regardless of the absence of a formal deed evidencing the same.

Incidentally, the failure of respondents to pay the balance on the purchase

price and the non-execution of a formal agreement was sufficiently explained

Similarly, petitioner erroneously contends that the failure of Morales to pay

by the fact that the trial court, in Civil Case No. 238-BC, issued a writ of

the balance of the purchase price is evidence that there was really no

preliminary injunction enjoining the city from further disposing the donated

contract of sale over the lot between Morales and the City of Cebu. On the

lots. According to respondents, there was confusion as to the circumstances

contrary, the fact that there was an agreed price for the lot proves that a

of payment considering that both the city and petitioner had refused to

contract of sale was indeed perfected between the parties. Failure to pay the

accept payment by virtue of the injunction. 28 It appears that the parties

balance of the purchase price did not render the sale inexistent or invalid,

simply mistook Lot 646-A-3 as among those not yet sold by the city.

but merely gave rise to a right in favor of the vendor to either demand specific
performance or rescission of the contract of sale. 25 It did not abolish the

The City of Cebu was no longer the owner of Lot 646-A-3 when it ceded the

contract of sale or result in its automatic invalidation.

same to petitioner under the compromise agreement in Civil Case No. 238BC. At that time, the city merely retained rights as an unpaid seller but had

As correctly found by the appellate court, the contract of sale between the

effectively transferred ownership of the lot to Morales. As successor-in-

City of Cebu and Morales was also partially consummated. The latter had

interest of the city, petitioner could only acquire rights that its predecessor

paid the deposit and downpayment for the lot in accordance with the terms

had over the lot. These rights include the right to seek rescission or

of the bid award. She first occupied the property as a lessee in 1961, built a

fulfillment of the terms of the contract and the right to damages in either

house thereon and was continuously in possession of the lot as its owner

case.29

until her death in 1969. Respondents, on the other hand, who are all
surviving heirs of Morales, likewise occupied the property during the latters
lifetime and continue to reside on the property to this day.

26

In this regard, the records show that respondent Quesada wrote to then
Cebu Governor Eduardo R. Gullas on March 11, 1983, asking for the formal
conveyance of Lot 646-A-3 pursuant to the award and sale earlier made by

The stages of a contract of sale are as follows: (1) negotiation, covering the

the City of Cebu. On October 10, 1986, she again wrote to Governor

period from the time the prospective contracting parties indicate interest in

Osmundo G. Rama reiterating her previous request. This means that

the contract to the time the contract is perfected; (2) perfection, which takes

petitioner had known, at least as far back as 1983, that the city sold the lot

to respondents predecessor and that the latter had paid the deposit and the
required down payment. Despite this knowledge, however, petitioner did not
avail of any rightful recourse to resolve the matter.
Article 1592 of the Civil Code pertinently provides:

G.R. No. 128690. January 21, 1999]

ABS-CBN BROADCASTING CORPORATION, petitioners, vs. HONORABLE
COURT OF APPEALS, REPUBLIC BROADCASTING CORP., VIVA
PRODUCTIONS, INC., and VICENTE DEL ROSARIO, respondents.
DECISION

Article 1592. In the sale of immovable property, even though it may

have been stipulated that upon failure to pay the price at the time
agreed upon the rescission of the contract shall of right take
place, the vendee may pay, even after the expiration of the period, as
long as no demand for rescission of the contract has been made
upon him either judicially or by notarial act. After the demand, the
court may not grant him a new term. (Underscoring supplied)
Thus, respondents could still tender payment of the full purchase price as no
demand for rescission had been made upon them, either judicially or
through notarial act. While it is true that it took a long time for respondents
to bring suit for specific performance and consign the balance of the
purchase price, it is equally true that petitioner or its predecessor did not
take any action to have the contract of sale rescinded. Article 1592 allows the
vendee to pay as long as no demand for rescission has been made. 30 The
consignation of the balance of the purchase price before the trial court thus
operated as full payment, which resulted in the extinguishment of
respondents obligation under the contract of sale.
Finally, petitioner cannot raise the issue of prescription and laches at this
stage of the proceedings. Contrary to petitioners assignment of errors, the
appellate court made no findings on the issue because petitioner never raised
the matter of prescription and laches either before the trial court or Court of
Appeals. It is basic that defenses and issues not raised below cannot be
considered on appeal.31 Thus, petitioner cannot plead the matter for the first
time before this Court.
WHEREFORE, in view of the foregoing, the petition is hereby DENIED and
the decision and resolution of the Court of Appeals in CA-G.R. CV No. 53632
are AFFIRMED.

DAVIDE, JR., C.J.:

In this petition for review on certiorari, petitioners ABS-CBN
Broadcasting Corp. (hereinafter ABS-CBN) seeks to reverse and set aside the
decision[1] of 31 October 1996 and the resolution[2] of 10 March 1997 of the
Court of Appeals in CA-G.R. CV No. 44125. The former affirmed with
modification the decision[3] of 28 April 1993 of the Regional Trial Court (RTC)
of Quezon City, Branch 80, in Civil Case No. Q-12309. The latter denied the
motion to reconsider the decision of 31 October 1996.
The antecedents, as found by the RTC and adopted by the Court of
Appeals, are as follows:
In 1990, ABS-CBN and VIVA executed a Film Exhibition Agreement (Exh. A)
whereby Viva gave ABS-CBN an exclusive right to exhibit some Viva
films. Sometime in December 1991, in accordance with paragraph 2.4 [sic]
of said agreement stating that1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24)
Viva films for TV telecast under such terms as may be agreed upon by the
parties hereto, provided, however, that such right shall be exercised by ABSCBN from the actual offer in writing.
Viva, through defendant Del Rosario, offered ABS-CBN, through its vicepresident Charo Santos-Concio, a list of three (3) film packages (36 title) from
which ABS-CBN may exercise its right of first refusal under the afore-said
agreement (Exhs. 1 par. 2, 2, 2-A and 2-B Viva). ABS-CBN, however
through Mrs. Concio, can tick off only ten (10) titles (from the list) we can
purchase (Exh. 3 Viva) and therefore did not accept said list (TSN, June
8, 1992, pp. 9-10). The titles ticked off by Mrs. Concio are not the subject of
the case at bar except the film Maging Sino Ka Man.
For further enlightenment, this rejection letter dated January 06, 1992 (Exh
3 Viva) is hereby quoted:
6 January 1992
Dear Vic,

SO ORDERED.

This is not a very formal business letter I am writing to you as I would like to
express my difficulty in recommending the purchase of the three film
packages you are offering ABS-CBN.
From among the three packages I can only tick off 10 titles we can
purchase. Please see attached. I hope you will understand my
position. Most of the action pictures in the list do not have big action stars
in the cast. They are not for primetime. In line with this I wish to mention
that I have not scheduled for telecast several action pictures in our very first
contract because of the cheap production value of these movies as well as the
lack of big action stars. As a film producer, I am sure you understand what I
am trying to say as Viva produces only big action pictures.
In fact, I would like to request two (2) additional runs for these movies as I
can only schedule them in out non-primetime slots. We have to cover the
amount that was paid for these movies because as you very well know that
non-primetime advertising rates are very low. These are the unaired titles in
the first contract.
1. Kontra Persa [sic]
2. Raider Platoon
3. Underground guerillas
4. Tiger Command

television) including the 14 titles subject of the present case, as well as 104
re-runs (previously aired on television) from which ABS-CBN may choose
another 52 titles, as a total of 156 titles, proposing to sell to ABS-CBN airing
rights over this package of 52 originals and 52 re-runs for P60,000,000.00 of
which P30,000,000.00 will be in cash and P30,000,000.00 worth of television
spots (Exh. 4 to 4-C Viva; 9 Viva).
On April 2, 1992, defendant Del Rosario and ABS-CBNs general manager,
Eugenio Lopez III, met at the Tamarind Grill Restaurant in Quezon City to
discuss the package proposal of VIVA. What transpired in that lunch
meeting is the subject of conflicting versions. Mr. Lopez testified that he and
Mr. Del Rosario allegedly agreed that ABS-CBN was granted exclusive film
rights to fourteen (14) films for a total consideration of P36 million; that he
allegedly put this agreement as to the price and number of films in a
napkin and signed it and gave it to Mr. Del Rosario (Exh. D; TSN, pp. 2426, 77-78, June 8, 1992). On the other hand. Del Rosario denied having
made any agreement with Lopez regarding the 14 Viva films; denied the
existence of a napkin in which Lopez wrote something; and insisted that what
he and Lopez discussed at the lunch meeting was Vivas film package offer of
104 films (52 originals and 52 re-runs) for a total price of P60 million. Mr.
Lopez promising [sic]to make a counter proposal which came in the form of a
proposal contract Annex C of the complaint (Exh. 1 Viva; Exh C ABSCBN).
On April 06, 1992, Del Rosario and Mr. Graciano Gozon of RBS Senior vicepresident for Finance discussed the terms and conditions of Vivas offer to
sell the 104 films, after the rejection of the same package by ABS-CBN.

5. Boy de Sabog
6. lady Commando
7. Batang Matadero
8. Rebelyon
I hope you will consider this request of mine.
The other dramatic films have been offered to us before and have been
rejected because of the ruling of MTRCB to have them aired at 9:00 p.m. due
to their very adult themes.
As for the 10 titles I have choosen [sic] from the 3 packages please consider
including all the other Viva movies produced last year, I have quite an
attractive offer to make.
Thanking you and with my warmest regards.
(Signed)
Charo Santos-Concio
On February 27, 1992, defendant Del Rosario approached ABS-CBNs Ms.
Concio, with a list consisting of 52 original movie titles (i.e., not yet aired on

On April 07, 1992, defendant Del Rosario received through his secretary , a
handwritten note from Ms. Concio, (Exh. 5 Viva), which reads: Heres the
draft of the contract. I hope you find everything in order, to which was
attached a draft exhibition agreement (Exh. C ABS-CBN; Exh. 9 Viva
p. 3) a counter-proposal covering 53 films, 52 of which came from the list
sent by defendant Del Rosario and one film was added by Ms. Concio, for a
consideration of P35 million. Exhibit C provides that ABS-CBN is granted
film rights to 53 films and contains a right of first refusal to 1992 Viva
Films. The said counter proposal was however rejected by Vivas Board of
Directors [in the] evening of the same day, April 7, 1992, as Viva would not
sell anything less than the package of 104 films for P60 million pesos (Exh.
9 Viva), and such rejection was relayed to Ms. Concio.
On April 29, 1992, after the rejection of ABS-CBN and following several
negotiations and meetings defendant Del Rosario and Vivas President
Teresita Cruz, in consideration of P60 million, signed a letter of agreement
dated April 24, 1992, granting RBS the exclusive right to air 104 Vivaproduced and/or acquired films (Exh. 7-A - RBS; Exh. 4 RBS) including
the fourteen (14) films subject of the present case. [4]

10

On 27 May 1992, ABS-CBN filed before the RTC a complaint for specific
performance with a prayer for a writ of preliminary injunction and/or
temporary restraining order against private respondents Republic
Broadcasting Corporation[5] (hereafter RBS), Viva Production (hereafter VIVA),
and Vicente del Rosario. The complaint was docketed as Civil Case No. Q-9212309.
On 28 May 1992, the RTC issued a temporary restraining
order[6] enjoining private respondents from proceeding with the airing,
broadcasting, and televising of the fourteen VIVA films subject of the
controversy, starting with the film Maging Sino Ka Man, which was scheduled
to be shown on private respondent RBS channel 7 at seven oclock in the
evening of said date.
On 17 June 1992, after appropriate proceedings, the RTC issued an
order[7] directing the issuance of a writ of preliminary injunction upon ABSCBNs posting of a P35 million bond. ABS-CBN moved for the reduction of
the bond,[8] while private respondents moved for reconsideration of the order
and offered to put up a counterbond.[9]
In the meantime, private respondents filed separate answer with
counterclaim.[10] RBS also set up a cross-claim against VIVA.
On 3 August 1992, the RTC issued an order [11] dissolving the writ of
preliminary injunction upon the posting by RBS of a P30 million
counterbond to answer for whatever damages ABS-CBN might suffer by
virtue of such dissolution. However, it reduced petitioners injunction bond
to P15 million as a condition precedent for the reinstatement of the writ of
preliminary injunction should private respondents be unable to post a
counterbond.
At the pre-trial[12] on 6 August 1992, the parties upon suggestion of the
court, agreed to explore the possibility of an amicable settlement. In the
meantime, RBS prayed for and was granted reasonable time within which to
put up a P30 million counterbond in the event that no settlement would be
reached.
As the parties failed to enter into an amicable settlement, RBS posted on
1 October 1992 a counterbond, which the RTC approved in its Order of 15
October 1992.[13]
On 19 October 1992, ABS-CBN filed a motion for reconsideration [14] of
the 3 August and 15 October 1992 Orders, which RBS opposed. [15]
On 29 October, the RTC conducted a pre-trial.

[16]

Pending resolution of its motion for reconsideration, ABS-CBN filed with

the Court of Appeals a petition[17] challenging the RTCs Order of 3 August
and 15 October 1992 and praying for the issuance of a writ of preliminary

injunction to enjoin the RTC from enforcing said orders. The case was
docketed as CA-G.R. SP No. 29300.
On 3 November 1992, the Court of Appeals issued a temporary
restraining order[18] to enjoin the airing, broadcasting, and televising of any or
all of the films involved in the controversy.
On 18 December 1992, the Court of Appeals promulgated a
decision[19] dismissing the petition in CA-G.R. SP No. 29300 for being
premature. ABS-CBN challenged the dismissal in a petition for review filed
with this Court on 19 January 1993, which was docketed s G.R. No. 108363.
In the meantime the RTC received the evidence for the parties in Civil
Case No. Q-92-12309. Thereafter, on 28 April 1993, it rendered a
decision[20] in favor of RBS and VIVA and against ABS-CBN disposing as
follows:
WHEREFORE, under cool reflection and prescinding from the foregoing,
judgment is rendered in favor of defendants and against the plaintiff.
(1) The complaint is hereby dismissed;
(2) Plaintiff ABS-CBN is ordered to pay defendant RBS the
following:
a) P107,727.00 the amount of premium paid by RBS to
the surety which issued defendants RBSs bond to lift
the injunction;
b) P191,843.00 for the amount of print advertisement for
Maging Sino Ka Man in various newspapers;
c) Attorneys fees in the amount of P1 million;
d) P5 million as and by way of moral damages;
e) P5 million as and by way of exemplary damages;
(3) For the defendant VIVA, plaintiff ABS-CBN is ordered to
pay P212,000.00 by way of reasonable attorneys fees.
(4) The cross-claim of defendant RBS against defendant VIVA is
dismissed.
(5) Plaintiff to pay the costs.
According to the RTC, there was no meeting of minds on the price and
terms of the offer. The alleged agreement between Lopez III and Del Rosario
was subject to the approval of the VIVA Board of Directors, and said
agreement was disapproved during the meeting of the Board on 7 April
1992. Hence, there was no basis for ABS-CBNs demand that VIVA signed
the 1992 Film Exhibition Agreement. Furthermore, the right of first refusal

11

under the 1990 Film Exhibition Agreement had previously been exercised per
Ms. Concios letter to Del Rosario ticking off ten titles acceptable to them,
which would have made the 1992 agreement an entirely new contract.
On 21 June 1993, this Court denied[21] ABS-CBNs petition for review in
G.R. No. 108363, as no reversible error was committed by the Court of
Appeals in its challenged decision and the case had become moot and
academic in view of the dismissal of the main action by the court a quo in its
decision of 28 April 1993.
Aggrieved by the RTCs decision, ABS-CBN appealed to the Court of
Appeals claiming that there was a perfected contract between ABS-CBN and
VIVA granting ABS-CBN the exclusive right to exhibit the subject
films. Private respondents VIVA and Del Rosario also appealed seeking moral
and exemplary damages and additional attorneys fees.
In its decision of 31 October 1996, the Court of Appeals agreed with the
RTC that the contract between ABS-CBN and VIVA had not been perfected,
absent the approval by the VIVA Board of Directors of whatever Del Rosario,
its agent, might have agreed with Lopez III. The appellate court did not even
believe ABS-CBNs evidence that Lopez III actually wrote down such an
agreement on a napkin, as the same was never produced in court. It
likewise rejected ABS-CBNs insistence on its right of first refusal and
ratiocinated as follows:
As regards the matter of right of first refusal, it may be true that a Film
Exhibition Agreement was entered into between Appellant ABS-CBN and
appellant VIVA under Exhibit A in 1990 and that parag. 1.4 thereof
provides:
1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24)
VIVA films for TV telecast under such terms as may be agreed upon by the
parties hereto, provided, however, that such right shall be exercised by ABSCBN within a period of fifteen (15) days from the actual offer in writing
(Records, p. 14).
[H]owever, it is very clear that said right of first refusal in favor of ABS-CBN
shall still be subjected to such terms as may be agreed upon by the parties
thereto, and that the said right shall be exercised by ABS-CBN within fifteen
(15) days from the actual offer in writing.
Said parag. 1.4 of the agreement Exhibit A on the right of first refusal did
not fix the price of the film right to the twenty-four (24) films, nor did it
specify the terms thereof. The same are still left to be agreed upon by the
parties.
In the instant case, ABS-CBNs letter of rejection Exhibit 3 (Records, p. 89)
stated that it can only tick off ten (10) films, and the draft contract Exhibit

C accepted only fourteen (14) films, while parag. 1.4 of Exhibit A speaks of
the next twenty-four (24) films.
The offer of VIVA was sometime in December 1991, (Exhibits 2, 2-A, 2-B;
Records, pp. 86-88; Decision, p. 11, Records, p. 1150), when the first list of
VIVA films was sent by Mr. Del Rosario to ABS-CBN. The Vice President of
ABS-CBN, Mrs. Charo Santos-Concio, sent a letter dated January 6, 1992
(Exhibit 3, Records, p. 89) where ABS-CBN exercised its right of refusal by
rejecting the offer of VIVA. As aptly observed by the trial court, with the said
letter of Mrs. Concio of January 6, 1992, ABS-CBN had lost its right of first
refusal. And even if We reckon the fifteen (15) day period from February 27,
1992 (Exhibit 4 to 4-C) when another list was sent to ABS-CBN after the
letter of Mrs. Concio, still the fifteen (15) day period within which ABS-CBN
shall exercise its right of first refusal has already expired. [22]
Accordingly, respondent court sustained the award factual damages
consisting in the cost of print advertisements and the premium payments for
the counterbond, there being adequate proof of the pecuniary loss which
RBS has suffered as a result of the filing of the complaint by ABS-CBN. As to
the award of moral damages, the Court of Appeals found reasonable basis
therefor, holding that RBSs reputation was debased by the filing of the
complaint in Civil Case No. Q-92-12309 and by the non-showing of the
film Maging Sino Ka Man. Respondent court also held that exemplary
damages were correctly imposed by way of example or correction for the
public good in view of the filing of the complaint despite petitioners
knowledge that the contract with VIVA had not been perfected. It also upheld
the award of attorneys fees, reasoning that with ABS-CBNs act of instituting
Civil Case No. Q-92-12309, RBS was unnecessarily forced to litigate. The
appellate court, however, reduced the awards of moral damages to P 2
million, exemplary damages to P2 million, and attorneys fees
to P500,000.00.
On the other hand, respondent Court of Appeals denied VIVA and Del
Rosarios appeal because it was RBS and not VIVA which was actually
prejudiced when the complaint was filed by ABS-CBN.
Its motion for reconsideration having been denied, ABS-CBN filed the
petition in this case, contending that the Court of Appeals gravely erred in
I
RULING THAT THERE WAS NO PERFECTED CONTRACT
BETWEEN PETITIONER AND PRIVATE RESPONDENT VIVA
NOTWITHSTANDING PREPONFERANCE
OF
EVIDENCE
ADDUCED BY PETITIONER TO THE CONTRARY.
II

12

 IN AWARDING ACTUAL AND COMPENSATORY DAMAGES IN

FAVOR OF PRIVATE RESPONDENT RBS.
III
IN AWARDING MORAL AND EXEMPLARY DAMAGES IN
FAVOR OF PRIVATE RESPONDENT RBS.
IV
IN AWARDING ATORNEYS FEES OF RBS.
ABS-CBN claims that it had yet to fully exercise its right of first refusal
over twenty-four titles under the 1990 Film Exhibition Agreement, as it had
chosen only ten titles from the first list. It insists that we give credence to
Lopezs testimony that he and Del Rosario met at the Tamarind Grill
Restaurant, discussed the terms and conditions of the second list (the 1992
Film Exhibition Agreement) and upon agreement thereon, wrote the same on
a paper napkin. It also asserts that the contract has already been effective,
as the elements thereof, namely, consent, object, and consideration were
established. It then concludes that the Court of Appeals pronouncements
were not supported by law and jurisprudence, as per our decision of 1
December 1995 in Limketkai Sons Milling, Inc. v. Court of Appeals, [23] which
cited Toyota Shaw, Inc. v. Court of Appeals;[24] Ang Yu Asuncion v. Court of
Appeals,[25] and Villonco Realty Company v. Bormaheco, Inc.[26]
Anent the actual damages awarded to RBS, ABS-CBN disavows liability
therefor. RBS spent for the premium on the counterbond of its own volition
in order to negate the injunction issued by the trial court after the parties
had ventilated their respective positions during the hearings for the
purpose. The filing of the counterbond was an option available to RBS, but it
can hardly be argued that ABS-CBN compelled RBS to incur such
expense. Besides, RBS had another available option, i.e., move for the
dissolution of the injunction; or if it was determined to put up a
counterbond, it could have presented a cash bond. Furthermore under
Article 2203 of the Civil Code, the party suffering loss injury is also required
to exercise the diligence of a good father of a family to minimize the damages
resulting from the act or omission. As regards the cost of print
advertisements, RBS had not convincingly established that this was a loss
attributable to the non-showing of Maging Sino Ka Man; on the contrary, it
was brought out during trial that with or without the case or injunction, RBS
would have spent such an amount to generate interest in the film.
ABS-CBN further contends that there was no other clear basis for the
awards of moral and exemplary damages. The controversy involving ABSCBN and RBS did not in any way originate from business transaction
between them. The claims for such damages did not arise from any
contractual dealings or from specific acts committed by ABS-CBN against

RBS that may be characterized as wanton, fraudulent, or reckless; they arose

by virtue only of the filing of the complaint. An award of moral and
exemplary damages is not warranted where the record is bereft of any proof
that a party acted maliciously or in bad faith in filing an action. [27] In any
case, free resort to courts for redress of wrongs is a matter of public
policy. The law recognizes the right of every one to sue for that which he
honestly believes to be his right without fear of standing trial for damages
where by lack of sufficient evidence, legal technicalities, or a different
interpretation of the laws on the matter, the case would lose ground. [28] One
who, makes use of his own legal right does no injury. [29] If damage results
from filing of the complaint, it is damnum absque injuria.[30] Besides, moral
damages are generally not awarded in favor of a juridical person, unless it
enjoys a good reputation that was debased by the offending party resulting in
social humiliation.[31]
As regards the award of attorneys fees, ABS-CBN maintains that the
same had no factual, legal, or equitable justification. In sustaining the trial
courts award, the Court of Appeals acted in clear disregard of the doctrine
laid down in Buan v. Camaganacan[32] that the text of the decision should
state the reason why attorneys fees are being awarded; otherwise, the award
should be disallowed. Besides, no bad faith has been imputed on, much less
proved as having been committed by, ABS-CBN. It has been held that where
no sufficient showing of bad faith would be reflected in a partys persistence
in a case other than an erroneous conviction of the righteousness of his
cause, attorneys fees shall not be recovered as cost. [33]
On the other hand, RBS asserts that there was no perfected contract
between ABS-CBN and VIVA absent meeting of minds between them
regarding the object and consideration of the alleged contract. It affirms that
ABS-CBNs claim of a right of first refusal was correctly rejected by the trial
court. RBS insists the premium it had paid for the counterbond constituted
a pecuniary loss upon which it may recover. It was obliged to put up the
counterbond due to the injunction procured by ABS-CBN. Since the trial
court found that ABS-CBN had no cause of action or valid claim against RBS
and, therefore not entitled to the writ of injunction, RBS could recover from
ABS-CBN the premium paid on the counterbond. Contrary to the claim of
ABS-CBN, the cash bond would prove to be more expensive, as the loss
would be equivalent to the cost of money RBS would forego in case the P30
million came from its funds or was borrowed from banks.
RBS likewise asserts that it was entitled to the cost of advertisements
for the cancelled showing of the film Maging Sino Ka Man because the print
advertisements were out to announce the showing on a particular day and
hour on Channel 7, i.e., in its entirety at one time, not as series to be shown
on a periodic basis. Hence, the print advertisements were good and relevant
for the particular date of showing, and since the film could not be shown on

13

that particular date and hour because of the injunction, the expenses for the
advertisements had gone to waste.
As regards moral and exemplary damages, RBS asserts that ABS-CBN
filed the case and secured injunctions purely for the purpose of harassing
and prejudicing RBS. Pursuant then to Articles 19 and 21 of the Civil Code,
ABS-CBN must be held liable for such damages. Citing Tolentino,[34] damages
may be awarded in cases of abuse of rights even if the done is not illicit, and
there is abuse of rights where a plaintiff institutes an action purely for the
purpose of harassing or prejudicing the defendant.
In support of its stand that a juridical entity can recover moral and
exemplary damages, private respondent RBS cited People v. Manero, [35] where
it was stated that such entity may recover moral and exemplary damages if it
has a good reputation that is debased resulting in social humiliation. It then
ratiocinates; thus:
There can be no doubt that RBS reputation has been debased by ABS-CBNs
acts in this case. When RBS was not able to fulfill its commitment to the
viewing public to show the film Maging Sino Ka Man on the scheduled
dates and times (and on two occasions that RBS advertised), it
suffered serious embarrassment and social humiliation. When the showing
was cancelled, irate viewers called up RBS offices and subjected RBS to
verbal abuse (Announce kayo ng announce, hindi ninyo naman ilalabas,
nanloloko yata kayo) (Exh. 3-RBS, par.3). This alone was not something
RBS brought upon itself. It was exactly what ABS-CBN had planted to
happen.
The amount of moral and exemplary damages cannot be said to be
excessive. Two reasons justify the amount of the award.
The first is that the humiliation suffered by RBS, is national in extent. RBS
operations as a broadcasting company is [sic] nationwide. Its clientele, like
that of ABS-CBN, consists of those who own and watch television. It is not
an exaggeration to state, and it is a matter of judicial notice that almost every
other person in the country watches television. The humiliation suffered by
RBS is multiplied by the number of televiewers who had anticipated the
showing of the film, Maging Sino Ka Man on May 28 and November 3, 1992
but did not see it owing to the cancellation. Added to this are the advertisers
who had placed commercial spots for the telecast and to whom RBS had a
commitment in consideration of the placement to show the film in the dates
and times specified.
The second is that it is a competitor that caused RBS suffer the
humiliation. The humiliation and injury are far greater in degree when
caused by an entity whose ultimate business objective is to lure customers
(viewers in this case) away from the competition.[36]

For their part, VIVA and Vicente del Rosario contend that the findings of
fact of the trial court and the Court of Appeals do not support ABS-CBNs
claim that there was a perfected contract. Such factual findings can no
longer be disturbed in this petition for review under Rule 45, as only
questions of law can be raised, not questions of fact. On the issue of
damages and attorneys fees, they adopted the arguments of RBS.
The key issues for our consideration are (1) whether there was a
perfected contract between VIVA and ABS-CBN, and (2) whether RBS is
entitled to damages and attorneys fees. It may be noted that that award of
attorneys fees of P212,000 in favor of VIVA is not assigned as another error.
I
The first issue should be resolved against ABS-CBN. A contract is a
meeting of minds between two persons whereby one binds himself to give
something or render some service to another [37] for a consideration. There is
no contract unless the following requisites concur: (1) consent of the
contracting parties; (2) object certain which is the subject of the contract;
and (3) cause of the obligation, which is established. [38] A contract undergoes
three stages:
(a) preparation, conception, or generation, which is the period of
negotiation and bargaining, ending at the moment of
agreement of the parties;
(b)

perfection or birth of the contract, which is the moment when

the parties come to agree on the terms of the contract; and

(c) consummation or death, which is the fulfillment

performance of the terms agreed upon in the contract. [39]

or

Contracts that are consensual in nature are perfected upon mere

meeting of the minds. Once there is concurrence between the offer and the
acceptance upon the subject matter, consideration, and terms of payment a
contract is produced. The offer must be certain. To convert the offer into a
contract, the acceptance must be absolute and must not qualify the terms of
the offer; it must be plain, unequivocal, unconditional, and without variance
of any sort from the proposal. A qualified acceptance, or one that involves a
new proposal, constitutes a counter-offer and is a rejection of the original
offer. Consequently, when something is desired which is not exactly what is
proposed in the offer, such acceptance is not sufficient to generate consent
because any modification or variation from the terms of the offer annuls the
offer.[40]
When Mr. Del Rosario of Viva met Mr. Lopez of ABS-CBN at the
Tamarind Grill on 2 April 1992 to discuss the package of films, said package
of 104 VIVA films was VIVAs offer to ABS-CBN to enter into a new Film
Exhibition Agreement. But ABS-CBN, sent through Ms. Concio, counter-

14

proposal in the form a draft contract proposing exhibition of 53 films for a

consideration of P35 million. This counter-proposal could be nothing less
than the counter-offer of Mr. Lopez during his conference with Del Rosario at
Tamarind Grill Restaurant. Clearly, there was no acceptance of VIVAs offer,
for it was met by a counter-offer which substantially varied the terms of the
offer.
ABS-CBNs reliance in Limketkai Sons Milling, Inc. v. Court of
Appeals[41] and Villonco
Realty
Company
v.
Bormaheco,
Inc.,[42] is
misplaced. In these cases, it was held that an acceptance may contain a
request for certain changes in the terms of the offer and yet be a binding
acceptance as long as it is clear that the meaning of the acceptance is
positively and unequivocally to accept the offer, whether such request is
granted or not. This ruling was, however, reversed in the resolution of 29
March 1996,[43] which ruled that the acceptance of an offer must be
unqualified and absolute, i.e., it must be identical in all respects with that of
the offer so as to produce consent or meetings of the minds.
On the other hand, in Villonco, cited in Limketkai, the alleged changes in
the revised counter-offer were not material but merely clarificatory of what
had previously been agreed upon. It cited the statement in Stuart v. Franklin
Life Insurance Co.[44] that a vendors change in a phrase of the offer to
purchase, which change does not essentially change the terms of the offer,
does not amount to a rejection of the offer and the tender of a counteroffer.[45] However, when any of the elements of the contract is modified upon
acceptance, such alteration amounts to a counter-offer.
In the case at bar, ABS-CBN made no unqualified acceptance of VIVAs
offer hence, they underwent period of bargaining. ABS-CBN then formalized
its counter-proposals or counter-offer in a draft contract. VIVA through its
Board of Directors, rejected such counter-offer. Even if it be
conceded arguendo that Del Rosario had accepted the counter-offer, the
acceptance did not bind VIVA, as there was no proof whatsoever that Del
Rosario had the specific authority to do so.
Under the Corporation Code,[46] unless otherwise provided by said Code,
corporate powers, such as the power to enter into contracts, are exercised by
the Board of Directors. However, the Board may delegate such powers to
either an executive committee or officials or contracted managers. The
delegation, except for the executive committee, must be for specific purposes.
[47]
Delegation to officers makes the latter agents of the corporation;
accordingly, the general rules of agency as to the binding effects of their acts
would apply.[48] For such officers to be deemed fully clothed by the
corporation to exercise a power of the Board, the latter must specially
authorize them to do so. that Del Rosario did not have the authority to
accept ABS-CBNs counter-offer was best evidenced by his submission of the
draft contract to VIVAs Board of Directors for the latters approval. In any

event, there was between Del Rosario and Lopez III no meeting of minds. The
following findings of the trial court are instructive:
A number of considerations militate against ABS-CBNs claim that a contract
was perfected at that lunch meeting on April 02, 1992 at the Tamarind Grill.
FIRST, Mr. Lopez claimed that what was agreed upon at the Tamarind Grill
referred to the price and the number of films, which he wrote on a
napkin. However, Exhibit C contains numerous provisions which were not
discussed at the Tamarind Grill, if Lopez testimony was to be believed nor
could they have been physically written on a napkin. There was even doubt
as to whether it was a paper napkin or cloth napkin. In short what were
written in Exhibit C were not discussed, and therefore could not have been
agreed upon, by the parties. How then could this court compel the parties to
sign Exhibit C when the provisions thereof were not previously agreed
upon?
SECOND, Mr. Lopez claimed that what was agreed upon as the subject
matter of the contract was 14 films. The complaint in fact prays for delivery
of 14 films. But Exhibit C mentions 53 films as its subject matter. Which
is which? If Exhibit C reflected the true intent of the parties, then ABSCBNs claim for 14 films in its complaint is false or if what it alleged in the
complaint is true, then Exhibit C did not reflect what was agreed upon by
the parties. This underscores the fact that there was no meeting of the
minds as to the subject matter of the contract, so as to preclude perfection
thereof. For settled is the rule that there can be no contract where there is
no object certain which is its subject matter (Art. 1318, NCC).
THIRD, Mr. Lopez [sic] answer to question 29 of his affidavit testimony (Exh.
D) States:
We were able to reach an agreement. VIVA gave us the exclusive license to
show these fourteen (14) films, and we agreed to pay Viva the amount
of P16,050,000.00 as well as grant Viva commercial slots
worth P19,950,000.00. We had already earmarked this P16,050,000.00.
which gives a total consideration of P36 million (P19,951,000.00
plus P16,050,000.00 equals P36,000,000.00).
On cross-examination Mr. Lopez testified:
Q

What was written in this napkin?

The total price, the breakdown the known Viva movies, the 7
blockbuster movies and the other 7 Viva movies because the price
was broken down accordingly. The none [sic] Viva and the seven
other Viva movies and the sharing between the cash portion and the
concerned spot portion in the total amount of P35 million pesos.

15

Now, which is which? P36 million or P35 million? This weakens ABS-CBNs
claim.
FOURTH. Mrs. Concio, testifying for ABS-CBN stated that she transmitted
Exhibit C to Mr. Del Rosario with a handwritten note, describing said
Exhibit C as a draft. (Exh. 5 Viva; tsn pp. 23-24, June 08, 1992). The
said draft has a well defined meaning.

Since Exhibit C is only a draft, or a tentative, provisional or preparatory

writing prepared for discussion, the terms and conditions thereof could not
have been previously agreed upon by ABS-CBN and Viva. Exhibit C could
not therefore legally bind Viva, not having agreed thereto. In fact, Ms. Concio
admitted that the terms and conditions embodied in Exhibit C were
prepared by ABS-CBNs lawyers and there was no discussion on said terms
and conditions.
As the parties had not yet discussed the proposed terms and conditions in
Exhibit C, and there was no evidence whatsoever that Viva agreed to the
terms and conditions thereof, said document cannot be a binding
contract. The fact that Viva refused to sign Exhibit C reveals only two [sic]
well that it did not agree on its terms and conditions, and this court has no
authority to compel Viva to agree thereto.
FIFTH. Mr. Lopez understand [sic] that what he and Mr. Del Rosario agreed
upon at the Tamarind Grill was only provisional, in the sense that it was
subject to approval by the Board of Directors of Viva. He testified:
Q

Now, Mr. Witness, and after that Tamarinf meeting the second
meeting wherein you claimed that you have the meeting of the minds
between you and Mr. Vic del Rosario, what happened?

Vic Del Rosario was supposed to call us up and tell us specifically the
result of the discussion with the Board of Directors.

And you are referring to the so-called agreement which you wrote in
[sic] a piece of paper?

Yes, sir.

So, he was going to forward that to the board of Directors for

approval?

Yes, sir (Tsn, pp. 42-43, June 8, 1992)

Did Mr. Del Rosario tell you that he will submit it to his Board for
approval?

Yes, sir. (Tsn, p. 69, June 8, 1992).

The above testimony of Mr. Lopez shows beyond doubt that he knew Mr. Del
Rosario had no authority to bind Viva to a contract with ABS-CBN until and
unless its Board of Directors approved it. The complaint, in fact, alleges that
Mr. Del Rosario is the Executive Producer of defendant Viva which is a
corporation. (par. 2, complaint). As a mere agent of Viva, Del Rosario could
not bind Viva unless what he did is ratified by its Directors. (Vicente
vs.Geraldez, 52 SCRA 210; Arnold vs. Willets and Paterson, 44 Phil. 634). As
a mere agent, recognized as such by plaintiff, Del Rosario could not be held
liable jointly and severally with Viva and his inclusion as party defendant has
no legal basis. (Salonga vs. Warner Barnes [sic],COLTA, 88 Phil. 125; Salmon
vs. Tan, 36 Phil. 556).
The testimony of Mr. Lopez and the allegations in the complaint are clear
admissions that what was supposed to have been agreed upon at the
Tamarind Grill between Mr. Lopez and Del Rosario was not a binding
agreement. It is as it should be because corporate power to enter into a
contract is lodged in the Board of Directors. (Sec. 23, Corporation
Code). Without such board approval by the Viva board, whatever agreement
Lopez and Del Rosario arrived at could not ripen into a valid binding upon
Viva (Yao Ka Sin Trading vs. Court of Appeals, 209 SCRA 763). The evidence
adduced shows that the Board of Directors of Viva rejected Exhibit C and
insisted that the film package for 104 films be maintained (Exh. 7-1 Cica).
[49]

The contention that ABS-CBN had yet to fully exercise its right of first
refusal over twenty-four films under the 1990 Film Exhibition Agreement and
that the meeting between Lopez and Del Rosario was a continuation of said
previous contract is untenable. As observed by the trial court, ABS-CBNs
right of first refusal had already been exercised when Ms. Concio wrote to
Viva ticking off ten films. Thus:
[T]he subsequent negotiation with ABS-CBN two (2) months after this
letter was sent, was for an entirely different package. Ms. Concio herself
admitted on cross-examination to having used or exercised the right of
first refusal. She stated that the list was not acceptable and was indeed
not accepted by ABS-CBN, (Tsn, June 8, 1992, pp. 8-10). Even Mr.
Lopez himself admitted that the right of first refusal may have been
already exercised by Ms. Concio (as she had). (TSN, June 8, 1992, pp.
71-75). Del Rosario himself knew and understand [sic] that ABS-CBN
has lost its right of first refusal when his list of 36 titles were rejected
(Tsn, June 9, 1992, pp. 10-11).[50]
II
However, we find for ABS-CBN on the issue of damages. We shall first
take up actual damages. Chapter 2, Title XVIII, Book IV of the Civil Code is
the specific law on actual or compensatory damages. Except as provided by

16

law or by stipulation, one is entitled to compensation for actual damages only

for such pecuniary loss suffered by him as he has duly proved. [51] The
indemnification shall comprehend not only the value of the loss suffered, but
also that of the profits that the obligee failed to obtain. [52] In contracts and
quasi-contracts the damages which may be awarded are dependent on
whether the obligor acted with good faith or otherwise. In case of good faith,
the damages recoverable are those which are the natural and probable
consequences of the breach of the obligation and which the parties have
foreseen or could have reasonably foreseen at the time of the constitution of
the obligation. If the obligor acted with fraud, bad faith, malice, or wanton
attitude, he shall be responsible for all damages which may be reasonably
attributed to the non-performance of the obligation.[53] In crimes and quasidelicts, the defendants shall be liable for all damages which are the natural
and probable consequences of the act or omission complained of, whether or
not such damages have been foreseen or could have reasonably been foreseen
by the defendant.[54]
Actual damages may likewise be recovered for loss or impairment of
earning capacity in cases of temporary or permanent personal injury, or for
injury to the plaintiffs business standing or commercial credit. [55]
The claim of RBS for actual damages did not arise from contract, quasicontract, delict, or quasi-delict. It arose from the fact of filing of the
complaint despite ABS-CBNs alleged knowledge of lack of cause of
action. Thus paragraph 12 of RBSs Answer with Counterclaim and Crossclaim under the heading COUNTERCLAIM specifically alleges:
12. ABS-CBN filed the complaint knowing fully well that it has no
cause of action against RBS. As a result thereof, RBS suffered
actual damages in the amount of P6,621,195.32.[56]
Needless to state the award of actual damages cannot be comprehended
under the above law on actual damages. RBS could only probably take
refuge under Articles 19, 20, and 21 of the Civil Code, which read as follows:
ART. 19. Every person must, in the exercise of hid rights and in the
performance of his duties, act with justice, give everyone his due, and
observe honesty and good faith.
ART. 20. Every person who, contrary to law, wilfully or negligently causes
damage to another shall indemnify the latter for the same.
ART. 21. Any person who wilfully causes loss or injury to another in a
manner that is contrary to morals, good customs or public policy shall
compensate the latter for the damage.
It may further be observed that in cases where a writ of preliminary
injunction is issued, the damages which the defendant may suffer by reason
of the writ are recoverable from the injunctive bond. [57] In this case, ABS-CBN

had not yet filed the required bond; as a matter of fact, it asked for reduction
of the bond and even went to the Court of Appeals to challenge the order on
the matter. Clearly then, it was not necessary for RBS to file a
counterbond. Hence, ABS-CBN cannot be held responsible for the premium
RBS paid for the counterbond.
Neither could ABS-CBN be liable for the print advertisements for
Maging Sino Ka Man for lack of sufficient legal basis. The RTC issued a
temporary restraining order and later, a writ of preliminary injunction on the
basis of its determination that there existed sufficient ground for the
issuance thereof. Notably, the RTC did not dissolve the injunction on the
ground of lack of legal and factual basis, but because of the plea of RBS that
it be allowed to put up a counterbond.
As regards attorneys fees, the law is clear that in the absence of
stipulation, attorneys fees may be recovered as actual or compensatory
damages under any of the circumstances provided for in Article 2208 of the
Civil Code.[58]
The general rule is that attorneys fees cannot be recovered as part of
damages because of the policy that no premium should be placed on the
right to litigate.[59] They are not to be awarded every time a party wins a
suit. The power of the court t award attorneys fees under Article 2208
demands factual, legal, and equitable justification. [60] Even when a claimant
is compelled to litigate with third persons or to incur expenses to protect his
rights, still attorneys fees may not be awarded where no sufficient showing of
bad faith could be reflected in a partys persistence in a case other than an
erroneous conviction of the righteousness of his cause. [61]
As to moral damages the law is Section 1, Chapter 3, Title XVIII, Book IV
of the Civil Code. Article 2217 thereof defines what are included in moral
damages, while Article 2219 enumerates the cases where they may be
recovered. Article 2220 provides that moral damages may be recovered in
breaches of contract where the defendant acted fraudulently or in bad
faith. RBSs claim for moral damages could possibly fall only under item (10)
of Article 2219, thereof which reads:
(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34
and 35.
Moral damages are in the category of an award designed to compensate
the claimant for actual injury suffered and not to impose a penalty on the
wrongdoer.[62] The award is not meant to enrich the complainant at the
expense of the defendant, but to enable the injured party to obtain means,
diversion, or amusements that will serve to obviate the moral suffering he
has undergone. It is aimed at the restoration, within the limits of the
possible, of the spiritual status quo ante, and should be proportionate to the
suffering inflicted.[63] Trial courts must then guard against the award of

17

exorbitant damages; they should exercise balanced restrained and measured

objectivity to avoid suspicion that it was due to passion, prejudice, or
corruption or the part of the trial court.[64]
The award of moral damages cannot be granted in favor of a corporation
because, being an artificial person and having existence only in legal
contemplation, it has no feelings, no emotions, no senses. It cannot,
therefore, experience physical suffering and mental anguish, which can be
experienced only by one having a nervous system. [65] The statement in People
v. Manero[66] and Mambulao Lumber Co. v. PNB[67] that a corporation may
recover moral damages if it has a good reputation that is debased, resulting
in social humiliation is an obiter dictum. On this score alone the award for
damages must be set aside, since RBS is a corporation.
The basic law on exemplary damages is Section 5 Chapter 3, Title XVIII,
Book IV of the Civil Code. These are imposed by way of example or correction
for the public good, in addition to moral, temperate, liquidated, or
compensatory damages.[68] They are recoverable in criminal cases as part of
the civil liability when the crime was committed with one or more aggravating
circumstances;[69] in quasi-delicts, if the defendant acted with gross
negligence;[70] and in contracts and quasi-contracts, if the defendant acted in
a wanton, fraudulent, reckless, oppressive, or malevolent manner. [71]
It may be reiterated that the claim of RBS against ABS-CBN is not based
on contract, quasi-contract, delict, or quasi-delict. Hence, the claims for
moral and exemplary damages can only be based on Articles 19, 20, and 21
of the Civil Code.
The elements of abuse of right under Article 19 are the following: (1) the
existence of a legal right or duty, (2) which is exercised in bad faith, and (3)
for the sole intent of prejudicing or injuring another. Article 20 speaks of the
general sanction for all provisions of law which do not especially provide for
their own sanction; while Article 21 deals with acts contra bonus mores, and
has the following elements: (1) there is an act which is legal, (2) but which is
contrary to morals, good custom, public order, or public policy, and (3) and it
is done with intent to injure.[72]
Verily then, malice or bad faith is at the core of Articles 19, 20, and
21. Malice or bad faith implies a conscious and intentional design to do a
wrongful act for a dishonest purpose or moral obliquity. [73] Such must be
substantiated by evidence.[74]
There is no adequate proof that ABS-CBN was inspired by malice or bad
faith. It was honestly convinced of the merits of its cause after it had
undergone serious negotiations culminating in its formal submission of a
draft contract. Settled is the rule that the adverse result of an action does
not per se make the action wrongful and subject the actor to damages, for
the law could not have meant impose a penalty on the right to litigate. If

damages result from a persons exercise of a right, it is damnum absque

injuria.[75]
WHEREFORE, the instant petition is GRANTED. The challenged
decision of the Court of Appeals in CA-G.R. CV No. 44125 is hereby
REVERSED except as to unappealed award of attorneys fees in favor of VIVA
Productions, Inc.
No pronouncement as to costs.
SO ORDERED.

[G.R. No. 126699. August 7, 1998]

AYALA

CORPORATION, petitioner,

vs. RAY BURTON

DEVELOPMENT

CORPORATION, respondent.
DECISION
MARTINEZ, J.:
Petitioner Ayala Corporation (AYALA) is the owner of the Ayala estate
located in Makati City. The said estate was originally a raw land which was
subdivided for sale into different lots devoted for residential, commercial and
industrial purposes. The development of the estate consisted of road and
building construction and installation of a central sewerage treatment plant
and drainage system which services the whole Ayala Commercial Area.
On March 20, 1984, Karamfil Import-Export Company Ltd. (KARAMFIL)
bought from AYALA a piece of land identified as Lot 26, Block 2 consisting of
1,188 square meters, located at what is now known as H.V. de la Costa
Street, Salcedo Village, Makati City. The said land, which is now the subject
of this case, is more particularly described as follows:
A parcel of land (Lot 26, Block 2, of the subdivision plan [LRC] Psd-6086,
being a portion of Block D, described as plan [LRC] Psd-5812 LRC [GLRO]
Rec. No. 2029) situated in the Municipality of Makati, Province of Rizal, Is. of
Luzon. Bounded on the NE., points 2 to 3 by Lot 31, Block 2 (Creek 6.00 m.
wide) of the subdivision plan, on the SE., points 3 to 4 by Lot 27, Block 2 of
the Subdivision plan; on the SW, points 4 to 5, by proposed Road, 17.00 m.

18

wide (Block C[LRC] Psd-5812); points 5 to 1 by Street Lot 2 (17.00 m. wide) of

to obtain the latters waiver of the special condition prohibiting the resale of

the subdivision plan. On the NW, points 1 to 2 by Lot 25, Block 2 of the

the

subdivision plan. x x x beginning, containing an area of ONE THOUSAND

thereon. AYALA gave its written conformity to the sale but reflecting in its

ONE HUNDRED EIGHTY EIGHT (1,188) SQUARE METERS.

approval the same special conditions/restrictions as in the previous

lot

until

after

KARAMFIL

shall

have

constructed

building

sale. AYALAs conformity was annotated on the deed of sale.[6] PALMCREST

The transaction was documented in a Deed of Sale

[1]

of even date, which

did not object to the stipulated conditions and restrictions. [7]

provides, among others, that the vendee would comply with certain special
conditions and restrictions on the use or occupancy of the land, among
which are -

PALMCREST in turn sold the lot to Ray Burton Development

Corporation (RBDC), now respondent, on April 11, 1988, with the agreement
that AYALA retains possession of the Owners Duplicate copy of the title until

Deed Restrictions:

a building is erected on said parcel of land in accordance with the

[2]

requirements
[9]

and/or

restrictions

of

AYALA. [8] The

Deed

of

Absolute

a) The total height of the building to be constructed on the lot shall not be

Sale

executed on the said date was also presented to AYALA for approval

more than forty-two (42) meters, nor shall it have a total gross floor area of

since no building had yet been constructed on the lot at the time of the

more than five (5) times the lot area; and

sale. As in the KARAMFIL-PALMCREST transaction, AYALA gave its

conformity to the sale, subject to RBDCs compliance with the special

b) The sewage disposal must be by means of connection into the sewerage

conditions/restrictions which were annotated in the deed of sale, thus:

system servicing the area.

With our conformity, subject to the compliance by the Vendees of the Special
Special Conditions:

Conditions of Sale on the reverse side of the Deed of Sale dated March 20,

[3]

1984 per Doc. No. 140, Page No. 29, Book No. 1, Series of 1984 of the Notary
a) The vendee must obtain final approval from AYALA of the building plans

Public Silverio Aquino.[10]

and specifications of the proposed structures that shall be constructed on

The conditions and restrictions of the sale were likewise entered as

the land;

encumbrances at the reverse side of the Transfer Certificate of Title No.

b) The lot shall not be sold without the building having been completed; and

155384 which was later issued in the name of RBDC. [11] Like PALMCREST,
RBDC was not also averse to the aforesaid conditions and restrictions. [12]

c) Any breach of the stipulations and restrictions entitles AYALA to

Sometime in June of 1989, RBDC submitted to AYALA for approval a set

rescission of the contract.

of architectural plans for the construction of a 5-storey office building on the

As a result of the sale, a Transfer Certificate of Title No. 132086 [4] was

subject lot, with a height of 25.85 meters and a total gross floor area of

issued in the name of KARAMFIL. The said special conditions and

4,989.402 square meters.[13] The building was to be known as Trafalgar

restrictions were attached as an annex to the deed of sale and incorporated

Tower but later renamed Trafalgar Plaza. Since the building was well within

in the Memorandum of Encumbrances at the reverse side of the title of the

the 42-meter height restriction, AYALA approved the architectural plans.

lot as Entry No. 2432/T-131086.

Upon written request[14] made by RBDC, AYALA likewise agreed to
Palmcrest

release the owners copy of the title covering the subject lot to the China

Development and Realty Corporation (PALMCREST) under a Deed of Absolute

On

February

18,

1988,

KARAMFIL

sold

the

lot

to

Banking Corporation as guarantee of the loan granted to RBDC for the

Sale[5] of even date. This deed was submitted to AYALA for approval in order

construction of the 5-storey building.

19

Meanwhile, on November 28, 1989, RBDC, together with the Makati

could have a maximum gross floor area of only eight (8) times the lot

Developers Association, Inc. (MADAI), of which RBDC is a member, and other

area. Thus, under the Revised Deed Restrictions, Trafalgar Plaza could be

lot owners, filed a complaint against AYALA before the Housing and Land Use

built with a maximum gross floor area of only 9,504 square meters (1,188 sq.

Regulatory Board (HLRB), docketed as HLRB Case No. REM-A-0818 (OAALA-

m. the size of the subject lot multiplied by 8). Even under the Revised

REM-111489-4240). The complaint sought the nullification of the very same

Deed Restrictions, Trafalgar would still exceed 19,065 square meters of floor

Deed Restrictions incorporated in the deeds of sale of the lots purchased by

area on the basis of a FARs of 8:1. RBDC did not vote for the approval of the

the complainants from AYALA and annotated on their certificates of title, on

Revised Deed Restrictions and, therefore, it continued to be bound by the

the

grounds, inter alia,

that

said

restrictions

purportedly:

(a)

place

original Deed Restrictions.

unreasonable control over the lots sold by AYALA, thereby depriving the
vendees of the full enjoyment of the lots they bought, in violation of Article

In the meantime, on August 22, 1990, the HLRB En Banc rendered a

428 of the Civil Code; (b) have been superseded by Presidential Decree No.

decision[18] (a) upholding the Deed Restrictions; (b) absolving AYALA from the

1096 (the National Building Code) and Metro Manila Commission Zoning

charge of unsound business practice; and (c) dismissing HLRB Case No.

Ordinance No. 81-01; (c) violate the constitutional provision on equal

REM-A-0818. MADAI and RBDC separately appealed the decision to the

protection of the laws, since the restrictions are imposed without regard to

Office of the President, which appeal was docketed as O.P. Case No. 4476.

reasonable

standards

or

classifications;

and

(d)

are

contracts

of

adhesion[15] since AYALA would not sell the lots unless the buyers agree to
the

deed

restrictions. The

complaint

also

alleged

that

AYALA

is

in estoppel from enforcing the restrictions in question when it allowed the

construction of other high-rise buildings in Makati City beyond the height
and floor area limits. AYALA was further charged with unsound business
practice.

Trafalgar Plaza and submitted the same for approval, this time to the
Building Official of the Makati City Engineers Office,[16] not to AYALA. In
plans,

September 21, 1990 issue of the Business World magazine[19] featured the
Trafalgar Plaza as a modern 27-storeystructure which will soon rise in
Salcedo Village, Makati City. Stunned by this information, AYALA, through
counsel, then sent a letter [20] to RBDC demanding the latter to cease the
construction of the building which dimensions do not conform to the

Early in June of 1990, RBDC made another set of building plans for

these

While the appeal was pending before the Office of the President, the

the

building

was

to

be 26-storey high,

or

previous plans it earlier approved. RBDC, through counsel, replied with a

series of letters[21] requesting for time to assess the merits of AYALAs
demand.

height

For failing to heed AYALAs bidding, RBDC was sued on January 25,

of 98.60 meters, with a total gross floor area of 28,600 square meters. After

1991 before the Regional Trial Court of Makati City (Branch 148). AYALAs

having obtained the necessary building permits from the City Engineers

complaint for Specific Performance or Rescission, docketed as Civil Case No.

Office, RBDC began to construct Trafalgar Plaza in accordance with these

91-220, prayed inter alia that judgment be rendered

new plans.
x x x
On July 11, 1990, the majority of the lot owners in the Makati City area,

xx
x

xxx

including the Salcedo and Legaspi Village areas, in a general assembly of the
Makati Commercial Estate Association, Inc. (MACEA), approved the revision

b. Ordering the defendant to comply with its contractual obligations and to

of the Deed Restrictions, which revision was embodied in the Consolidated

remove or demolish the portions or areas of the Trafalgar Tower/Plaza

and Revised Deed Restrictions[17] (Revised Deed Restrictions) wherein direct

Building constructed beyond or in excess of the approved height as shown by

height restrictions were abolished in favor of floor area limits computed on

building plans approved by the plaintiff, including any other portion of the

the basis of floor area ratios (FARs). In the case of buildings devoted solely

building constructed not in accordance with the building plans and

to office use in Salcedo Village such as the Trafalgar Plaza the same

specifications submitted to and approved by plaintiff.

20

c. Alternatively, in the event specific performance becomes impossible:

Restrictions. Clarifying this matter, the Office of the President issued a

Resolution dated April 21, 1992, [25] modifying the February 13, 1992 order,

i) Ordering the cancellation and rescission of the Deed of Sale dated March

ruling: (1) that RBDC is bound by the original Deed Restrictions, but it has

20, 1984 (Annex A hereof) and ordering defendant to return to plaintiff Lot

the option to accept and be bound by the Revised Deed Restrictions in lieu of

26, Block 2 of Salcedo Village;

the former; and (2) that the HLRB decision dated 22 August 1990, to the
extent that it absolved Ayala from the charge of unsound business practice,

ii) Ordering the cancellation of Transfer Certificate of Title No. 155384 (in the

subject of the basic complaint, is affirmed. This time RBDC moved for a

name of defendant) and directing the Makati Register of Deeds to issue a new

reconsideration of the April 21, 1992 Order, but the motion was denied in a

title over the Lot in the name of plaintiff; and

Resolution dated October 15, 1993.[26] Another Resolution of March 21,

1994[27] was issued denying with finality

RBDCs

second motion for

reconsideration.

d. Ordering defendant to pay plaintiff attorneys fees in the amount

of P500,000.00, exemplary damages in the amount of P5,000.00 and the

AYALA then filed a Manifestation[28] in Civil Case No. 91-220, informing

costs of the instant suit..[22]

the trial court of the pertinent rulings/resolutions in the proceedings before

In its answer (with counterclaim) to the complaint, RBDC denied having

the HLRB and the Office of the President, which rulings, AYALA suggested,

actual or constructive notice of the Deed Restrictions imposed by AYALA on

amount to res judicata on the issue of the validity and enforceability of the

the subject lot. RBDC alleged in essence that even if said deed restrictions

Deed Restrictions involved in the said civil case.

exist, the same are not economically viable and should not be enforced
because they constitute unreasonable restrictions on its property rights and
are, therefore, contrary to law, morals, good customs, public order or public

After trial on the merits, the trial court rendered a Decision on April 28,
1994 in favor of RBDC, the dispositive portion of which reads:

policy. Moreover, RBDC claimed that the enforcement of the deed restrictions
has also been arbitrary or discriminatory since AYALA has not made any

WHEREFORE, premises considered, judgment is hereby rendered in favor of

action against a number of violators of the deed restrictions.

the defendant and against the plaintiff, and as a consequence:

Meantime, the appeal of MADAI in O.P. Case No. 44761 was considered

1. The instant case is hereby dismissed;

resolved when it entered into a compromise agreement with AYALA wherein

the latter adopted and acknowledged as binding the Revised Deed

2. The motion/application for the annotation of the lis pendens is

Restrictions of July 11, 1990.[23] On the other hand, RBDCs appeal was

hereby DENIED;

dismissed in an Order dated February 13, 1992, for the reason that, insofar
as the disposition of the appealed (HLRB) decision is concerned, there is

3. The motion/application to hold defendant in continuing

virtually no more actual controversy on the subject of the Deed Restrictions

contempt is hereby also DENIED;

because the same has been overriden by the Revised (Deed) Restrictions
which the appellee Ayala Corporation has in fact acknowledged as binding

4. No damages is awarded to any of the parties;

and in full force and effect x x x. [24] Accordingly, aside from dismissing
RBDCs appeal, the Order of February 13, 1992 also set aside the appealed

5. Plaintiff is hereby ordered to pay the defendant P30,000.00 for

HLRB decision. From this order, AYALA sought a reconsideration or

and as attorneys fees and litigation expenses;

clarification, noting, inter alia, that while the said order has ruled that
AYALA can no longer enforce the Deed Restrictions against RBDC, it does not
expressly

state

that

RBDC

is

bound

by

the

Revised

With costs against plaintiff.

Deed

21

SO ORDERED.[29]

The principal error raised here by petitioner AYALA pertains to the

Court of Appeals finding that RBDC did not have actual or constructive

The trial courts decision is based on its findings that: (1) RBDC had

notice of the 42-meter height restriction, since what was annotated on its

neither actual nor constructive notice of the 42-meter height limitation of the

(RBDCs) title is the erroneous 23-meter height limit which, according to

building to be constructed on the subject lot; (2) even if the Deed Restrictions

AYALAs own witness, Jose Cuaresma, was not applicable to RBDC. [35] Thus,

did exist, AYALA is estopped from enforcing the same against RBDC by

the Court of Appeals concluded, RBDC has the right to enjoy the subject

reason of the formers failure to enforce said restrictions against other

property as if no restrictions and conditions were imposed thereon.[36]

violators in the same area; (3) the Deed Restrictions partake of the nature of
a contract of adhesion; (4) since the Trafalgar Plaza building is in accord with

The above finding and conclusion of the Court of Appeals, AYALA

the minimum requirements of P.D. No. 1096 (The National Building Code),

submits, are based on surmises and conjectures which are contrary to the

the Deed Restrictions may not be followed by RBDC; and (5) the rulings of

evidence on record and (RBDCs) own admissions. [37]

the HLRB and the Office of the President do not have binding effect in the
instant case.

There is merit in AYALAs submission.

Dissatisfied, AYALA appealed to the Court of Appeals which affirmed the

The erroneous annotation of the 23-meter height restriction in RBDCs

judgment of the trial court in a Decision [30] dated February 27, 1996 in CA-

title was explained by Jose Cuaresma, AYALAs Assistant Manager for

G.R. CV No. 46488. AYALAs motion for reconsideration was likewise denied

Marketing and Sales. Cuaresma testified that when the deed of sale between

in the Resolution[31] of October 7, 1996.

PALMCREST and RBDC was submitted to the Register of Deeds of Makati

and the corresponding title was issued in the name of RBDC, the Register of

AYALA now interposes the present petition for review on certiorari, citing
several errors in the decision of the Court of Appeals, some of which involve

Deeds annotated the wrong height limit in Entry No. 2432 on the said title,
but he emphasized that the incorrect annotation does not apply to RBDC. [38]

questions of fact.
Jose
The resolution of factual issues raised in the petition would certainly

Cuaresma

further

clarified

that

the

correct

restriction imposed by AYALA on RBDC was 42 meters.

[39]

height

This height

call for a review of the Court of Appeals findings of fact. As a rule, the re-

ceiling, he said, is based on the deed of restrictions attached as annex to

examination of the evidence proffered by the contending parties during the

the deed of sale,[40] and the same has been uniformly imposed on the

trial of the case is not a function that this Court normally undertakes
inasmuch as the findings of fact of the Court of Appeals are generally binding
and conclusive on the Supreme Court.

[32]

The jurisdiction of this Court in a

petition for review on certiorari under Rule 45 of the Revised Rules of Court
is limited to reviewing only errors of law. [33] A reevaluation of factual issues by
this Court is justified when the findings of fact complained of are devoid of
support by the evidence on record, or when the assailed judgment is based
on misapprehension of facts.[34]
The present petition has shown that certain relevant facts were
overlooked by the Court of Appeals, which facts, if properly appreciated,
would justify a different conclusion from the one reached in the assailed

transferees beginning from the original deed of sale between AYALA and
KARAMFIL.[41]
This clarificatory statement of Jose Cuaresma should have cautioned
the Court of Appeals from making the unfounded and sweeping conclusion
that RBDC can do anything it wants on the subject property as if no
restrictions and conditions were imposed thereon, on the mistaken
premise that RBDC was unaware of the correct 42-meter height limit. It
must be stressed that Cuaresmas testimony is bolstered by documentary
evidence and circumstances of the case which would show that RBDC was
put on notice about the 42-meter height restriction.

decision.

22

The record reveals that the subject Lot 26 was first sold by AYALA to

manner that RBDC did not seek AYALAs approval when it later made

KARAMFIL under a deed of sale (Exhibit "A") dated March 20, 1984 and duly

another set of building plans for the 26-storey Trafalgar Plaza, knowing

notarized by Notary Public Silverio Aquino. Attached to the deed of sale is an

that the same would be disapproved for exceeding the 42-meter height

appendix

which

restriction. The fact that RBDC was later issued a building permit from the

provides, inter alia, that the building to be constructed on the lot must have a

Makati City Engineer's Office for the construction of the Trafalgar Plaza is

total height of not more than 42 meters, and that any building plans and

not a valid justification to disregard the stipulated contractual restriction of

specifications of the proposed structures must have the approval of

42 meters.

of

special

conditions/restrictions

(deed

restrictions),

AYALA. The deed restrictions were incorporated in the memorandum of

encumbrances at the reverse side of the title of the lot as Entry No.

Another error which AYALA claims to have been committed by the Court

2432. When the lot was sold by KARAMFIL to PALMCREST, the deed of sale

of Appeals is the latters finding that AYALA, under the principle of estoppel,

(Exhibit "B") on this transaction bears an annotation of AYALA's conformity

is now barred from enforcing the deed restrictions because it had supposedly

to the transfer, with the condition that the approval was "subject to the

failed to act against other violators of the said restrictions. AYALA argues

compliance by the vendee of the special conditions of sale on the reverse

that such finding is baseless and is contrary to the Civil Code provisions on

side of the deed of sale dated March 20, 1984, per Doc. No. 140, Page No.

estoppel and applicable jurisprudence.

29, Book No. 1, Series of 1984 of Notary Public Silverio F. Aquino" (Exhibit
We agree with the petitioner.

"B-1"). PALMCREST later resold the lot to RBDC by virtue of a deed of sale
(Exhibit "C"), to which AYALA's approval was also annotated therein (Exhibit
"C-1"), but with the same explicit inscription that RBDC, as vendee,must

In support of its finding that estoppel operates against AYALA, the Court

comply with the special deed restrictions appended to the AYALA-

of Appeals merely cited its decision dated November 17, 1993, in CA-G.R. SP

KARAMFIL deed of sale of March 20, 1984. All these three (3) deeds of sale
and the accompanying special deed restrictions imposing a 42-meter height
limit, were duly registered with the Register of Deeds. Thus, RBDC cannot
profess ignorance of the 42-meter height restriction and other special
conditions of the sale.

deed of sale, considering that AYALA's required conformity to the transfer,

as annotated therein, was conditioned upon RBDC's compliance of the
deed restrictions. Consequently, as a matter of contractual obligation,
RBDC is bound to observe the deed restrictions which impose a building
height of not more than 42 meters.

height limit. This is shown by the fact that, pursuant to the special
conditions/restrictions of the sale, it submitted to AYALA, for approval,
for

Petitioner vs.

entitled Rosa-Diana
Land

Registration

Realty

and

Authority

Development

Corporation,

and

Corporation,

Ayala

Respondents, and reiterated its findings therein, to wit:

Also, Ayala is barred from enforcing the deed of restrictions in question,

a 5-storey structure

deed of sale, the vendee Sy Ka Kieng assumed faithful compliance with the
special conditions of sale and with the Salcedo Village deed of
restrictions. One of the conditions was that a building would be constructed
within one year. Ayala did nothing to enforce the terms of the contract. In
fact, it even agreed to the sale of the lot by Sy Ka Kieng in favor of the
petitioner realty in 1989, or thirteen (13) years later. We, therefore, see no
justifiable reason for Ayala to attempt to enforce the terms of the conditions

Moreover, RBDC was fully aware that it was bound by the 42-meter

plans

29157,

pursuant to the doctrines of waiver and estoppel. Under the terms of the

Verily, the deed restrictions are integral parts of the PALMCREST-RBDC

building

No.

with

height

of 25.85

meters. Certainly, RBDC would not have submitted such plans had it truly

of the sale against the petitioner. It should now be estopped from enforcing
the said conditions through any means.
xxx

xx
x

xxx

believed that it was restricted by a lower 23-meter height ceiling, in the same

23

Even assuming that petitioner RDR violated the floor area and height

(a) x x x;

restrictions, it is markedly significant that Ayala disregarded the fact that it

had previously allowed and tolerated similar and repeated violations of the

(b) In other cases the judgment or order is, with respect to the matter directly

same restrictive covenants by property owners which it now seeks to enforce

adjudged or as to any other matter that could have been raised in relation

against the herein petitioner. Some examples of existing buildings in Salcedo

thereto, conclusive between the parties and their successors in interest by

Village that greatly exceeded the gross floor area (5 times lot area) and height

title subsequent to the commencement of action or special

(42 meters) limitations are (Rollo, p. 32):

proceeding, litigating for the same thing and under the same title and in

(1) Pacific Star (Nauru Center Building 29 stories and 112.5 meters high)
(2) Sagittarius Building 16 stories
(3) Shell House Building 14 stories
(4) Eurovilla Building 15 stories
(5) LPL Plaza Building 18 stories
(6) LPL Tower Building 24 stories.[42]
An examination of the decision in the said Rosa Diana case reveals that
the sole issue raised before the appellate court was the propriety of the lis
pendens annotation. However, the appellate court went beyond the sole
issue and made factual findings bereft of any basis in the record to
inappropriately rule that AYALA is in estoppel and has waived its right to
enforce the subject restrictions. Such ruling was immaterial to the
resolution of the issue of the propriety of the annotation of the lis
pendens. The finding of estoppel was thus improper and made in excess of
jurisdiction.
Moreover, the decision in CA-G.R. SP No. 29157 is not binding on the
parties herein, simply because, except for Ayala, RBDC is not a party in that
case. Section 49, Rule 39 of the Revised Rules of Court (now Sec. 47, Rule
39 of the 1997 Rules of Civil Procedure) provides in part:
Sec. 49. Effect of judgments. The effect of a judgment or final order
rendered by a court or judge of the Philippines, having jurisdiction to
pronounce the judgment or order, may be as follows:

the same capacity; (emphasis supplied)

(c) x

x x.

The clear mandate of the above-quoted rule is that a final judgment or

order of a court is conclusive and binding only upon the parties to a
case and their successors in interest. Both the present case and the RosaDiana case, however, involve different parties who are not litigating for the
same thing nor under the same title and in the same capacity. Hence,
the Rosa-Diana decision cannot have binding effect against either party to
the instant case.
In any case, AYALA asserts that a few gross violators of the deed
restrictions have been, or are being, proceeded against. [43] AYALA admits,
though, that there are other violations of the restrictions but these are of a
minor nature which do not detract from substantial compliance by the lot
owners of the deed restrictions. AYALA submits that minor violations are
insufficient to warrant judicial action, thus:
As a rule, non-objection to trivial breaches of a restrictive covenant does not
result in loss of the right to enforce the covenant by injunction,
and acquiescence in violations of a restrictive covenant which are immaterial
and do not affect or injure one will not preclude him from restraining
violations thereof which would so operate as to cause him to be damaged.
(20 Am Jur. 2d Sec. 271, p. 835; underscoring provided).
Occasional and temporary violations by lot owners of a covenant
forbidding the use of property for mercantile purposes are not sufficient as a
matter of law to warrant a finding of a waiver or abandonment of the right to
enforce the restriction. A waiver in favor of one person and for a limited

24

purpose is not a waiver as to all persons generally. (id., at 836; underscoring

provided).[44]

The respondent court erred in ruling that the Deed Restrictions is a

contract of adhesion.

It is the sole prerogative and discretion of AYALA to initiate any action

A contract of adhesion in itself is not an invalid agreement. This type of

against violators of the deed restrictions. This Court cannot interfere with

contract is as binding as a mutually executed transaction. We have

the exercise of such prerogative/discretion.

emphatically ruled in the case of Ong Yiu vs. Court of Appeals, et. al.
[50]

that contracts of adhesion wherein one party imposes a ready-made form

How AYALA could be considered in estoppel as found by both the trial

of contract on the other x x x are contracts not entirely prohibited. The one

court and the Court of Appeals, was not duly established. Under the

who adheres to the contract is in reality free to reject it entirely; if he adheres

doctrine of estoppel, an admission orrepresentation is rendered conclusive

he gives his consent. This ruling was reiterated in Philippine American

upon the person making it, and cannot be denied or disproved as against

General Insurance Co., Inc. vs. Sweet Lines, Inc., et. al.,[51]wherein we

the person relying thereon. A party may not go back on his own acts and

further declared through Justice Florenz Regalado that not even an

representations to the prejudice of the other party who relied upon

allegation of ignorance of a party excuses non-compliance with the

them.

[45]

Here, we find no admission, false representation or concealment

that can be attributed to AYALA relied upon by RBDC.

contractual

stipulations

since

the

responsibility

for

ensuring

full

comprehension of the provisions of a contract of carriage (a contract of

adhesion) devolves not on the carrier but on the owner, shipper, or consignee

What is clear from the record, however, is that RBDC was the party

as the case may be.

guilty of misrepresentation and/or concealment when it resorted to the

fraudulent scheme of submitting two (2) sets of building plans, one (1) set

Contracts of adhesion, however, stand out from other contracts (which

conformed to the Deed Restrictions, which was submitted to and approved by

are bilaterally drafted by the parties) in that the former is accorded

AYALA,[46] while another set violated the said restrictions, and which it

inordinate vigilance and scrutiny by the courts in order to shield the unwary

presented to the Makati City Building Official in order to secure from the

from deceptive schemes contained in ready-made covenants. As stated by

latter the necessary building permit.[47] It is noteworthy that after the

this Court, speaking through Justice J.B.L. Reyes, in Qua Chee Gan vs.

submission of the second set of building plans to the Building Official, RBDC
continued to make representations to AYALA that it would build the fivestorey building in accordance with the first set of plans approved by AYALA,
obviously for the purpose of securing the release of the title of the subject lot
to obtain bank funding. AYALA relied on RBDC's false representations and
released the said title. Hence, RBDC was in bad faith.
AYALA further assigns as error the finding of the respondent court that,
while the Deed of Sale to Ray Burton (RBDC) did not appear to be a contract
of adhesion, however, the subject Deed Restrictions annotated therein
appeared to be one.[48] The only basis for such finding is that the Deed
Restrictions and Special Conditions were pre-printed and prepared by
AYALA, and that RBDCs participation thereof was only to sign the Deed of
Sale with the said restrictions and conditions.[49]

Law Union and Rock Insurance Co., Ltd.:[52]

The courts cannot ignore that nowadays, monopolies, cartels and
concentration of capital, endowed with overwhelming economic power,
manage to impose upon parties dealing with themcunningly prepared
agreements that the weaker party may not change one whit, his
participation in the agreement being reduced to the alternative to take it or
leave it labeled since Raymond Saleilles contracts by adherence (contracts d
adhesion) in contrast to those entered into by parties bargaining on an equal
footing. Such contracts (of which policies of insurance and international bill
of lading are prime examples) obviously call for greater strictness and
vigilance on the part of the courts of justice with a view to protecting the
weaker party from abuses and imposition, and prevent their becoming
traps for the unwary.[53] (Emphasis supplied)

25

The stringent treatment towards contracts of adhesion which the courts are

b. Alternatively, in the event specific performance becomes impossible:

enjoined to observe is in pursuance of the mandate in Article 24 of the New

Civil Code that "(i)n all contractual, property or other relations, when one of

(1) ordering the cancellation and rescission of the March 20, 1984 Deed of

the parties is at a disadvantage on account of his moral dependence,

Sale and all subsequent Deeds of Sale executed in favor of the original

ignorance,

indigence,

mental

weakness,

tender

age

or

other

handicap, the courts must be vigilant for his protection."

Thus, the validity and/or enforceability of a contract of adhesion will
have to be determined by the peculiar circumstances obtaining in each case
and the situation of the parties concerned.
In the instant case, the stipulations in the Deed Restrictions and Special
Conditions

are

plain

and

unambiguous

which

leave

no

room

prove that, in the execution of the Deed of Sale on the subject lot, it was a
weaker or a disadvantaged party on account of its moral dependence,
ignorance, mental weakness or other handicap. On the contrary, as testified
to by Edwin Ngo, President of RBDC, the latter is a realty firm and has been
engaged in realty business,[54] and that he, a businessman for 30 years,
represented RBDC in the negotiations and in the eventual purchase of the

subject lot from PALMCREST. [56] Edwin Ngo's testimony proves that RBDC
was not an unwary party in the subject transaction. Instead, Edwin Ngo has
portrayed RBDC as a knowledgeable realty firm experienced in real
estate business.
In sum, there is more than ample evidence on record pinpointing
RBDCs violation of the applicable FAR restrictions in the Consolidated and
Revised Deed Restrictions (CRDRs) when it constructed the 27-storey
Trafalgar Plaza. The prayer of petitioner is that judgment be rendered as
follows:
a. Ordering Ray Burton to comply with its contractual obligations in the
construction of Trafalgar Plaza by removing or demolishing the portions of
areas thereof constructed beyond or in excess of the approved height, as
shown by the building plans submitted to, and approved by, Ayala, including
any other portion of the building constructed not in accordance with the said
building plans;

Lot 26, Lot 2 of Salcedo Village;

(2) ordering the cancellation of Transfer Certificate of Title No. 155384 (in
the name of defendant) and directing the Office of the Register of Deeds of
Makati to issue a new title over the lot in the name of Ayala; and
xxx

xxx

xx

x.[57]

for

interpretation. Moreover, there was even no attempt on the part of RBDC to

[55]

vendees successors-in-interest and ordering Ray Burton to return to Ayala

However, the record reveals that construction of Trafalgar Plaza began in

1990, and a certificate of completion thereof was issued by the Makati City
Engineers Office per ocular inspection on November 7, 1996. [58] Apparently
Trafalgar Plaza has been fully built, and we assume, is now fully tenanted.
The alternative prayers of petitioner under the CRDRs, i.e., the demolition of
excessively built space or to permanently restrict the use thereof, are no
longer feasible.
Thus, we perforce instead rule that RBDC may only be held alternatively
liable for substitute performance of its obligations the payment of
damages. In this regard, we note that the CRDRs impose development
charges on constructions which exceed the estimated Gross Limits permitted
under the original Deed Restrictions but which are within the limits of the
CRDRs.
In this regard, we quote hereunder pertinent portions of The Revised
Deed Restrictions, to wit:
"3. DEVELOPMENT CHARGE
For any building construction within the Gross Floor Area limits defined
under Paragraphs C-2.1 to C-2.4 above, but which will result in a Gross
Floor Area exceeding certain standards defined in Paragraphs C-3.1-C below,
the OWNER shall pay MACEA, prior to the start of construction of any new
building or any expansion of an existing building, a DEVELOPMENT

26

CHARGE as a contribution to a trust fund to be administered

correction, should be held liable to pay AYALA exemplary damages in the

by MACEA. This trust fund shall be used to improve facilities and utilities in

sum ofP2,500,000.00.

the Makati Central Business District.

Finally, we find the complaint to be well-grounded, thus it is AYALA
3.1 The amount of the development charge that shall be due from

which is entitled to an award of attorney's fees, and while it prays for the

the OWNER shall be computed as follows:

amount of P500,000.00, we award the amount ofP250,000.00 which we find

to be reasonable under the circumstances.

DEVELOPMENT CHARGE = A x (B - C - D)
WHEREFORE, premises considered, the assailed Decision of the Court
of Appeals dated February 27, 1996, in CA-G.R. CV No. 46488, and its

where:

Resolution dated October 7, 1996 are hereby REVERSED and SET ASIDE,
A - is equal to the Area Assessment which shall be set at Five Hundred Pesos

and in lieu thereof, judgment is hereby rendered finding that:

st

(P500.00) until December 31, 1990. Each January 1 thereafter, such

amount shall increase by ten percent (10%) over the Area

(1) The Deed Restrictions are valid and petitioner AYALA is not estopped

Assessment charged in the immediately preceding year; provided that,

from enforcing them against lot owners who have not yet adopted the

beginning 1995 and at the end of every successive five-year period thereafter,

Consolidated and Revised Deed Restrictions;

the increase in the Area Assessment shall be reviewed and adjusted by

the VENDOR to correspond to the accumulated increase in the construction

(2) Having admitted that the Consolidated and Revised Deed Restrictions

cost index during the immediately preceding five years as based on the

are the applicable Deed Restrictions to Ray Burton Development

weighted average of wholesale price and wage indices of the National Census

Corporations Trafalgar Plaza, RBDC should be, and is, bound by the same;

and Statistics Office and the Bureau of Labor Statistics.

(3)

Considering that Ray Burton Development Corporations Trafalgar

B - is equal to the total Gross Floor Area of the completed or expanded

Plaza exceeds the floor area limits of the Deed Restrictions, RBDC is hereby

building in square meters.

ordered to pay development charges as computed under the provisions of the

Consolidated and Revised Deed Restrictions currently in force.

C - is equal to the estimated Gross Floor Area permitted under the original
deed restrictions, derived by multiplying the lot area by the effective original
FAR shown below for each location:"

[59]

(4)

Ray Burton Development Corporation is further ordered to pay AYALA

exemplary damages in the amount of P2,500,000.00, attorneys fees in the

amount of P250,000.00, and the costs of suit.

Accordingly, in accordance with the unique, peculiar circumstance of

the case at hand, we hold that the said development charges are a fair

SO ORDERED.

measure of compensatory damages which RBDC has caused in terms of

creating a disproportionate additional burden on the facilities of the Makati
Central Business District.
As discussed above, Ray Burton Development Corporation acted in bad
faith in constructing Trafalgar Plaza in excess of the applicable restrictions
upon a double submission of plans and exercising deceit upon both AYALA
and the Makati Engineer's Office, and thus by way of example and

G.R. No. 171076

August 1, 2012

GOLDLOOP PROPERTIES INC., Petitioner,

vs.
GOVERNMENT SERVICE INSURANCE SYSTEM, Respondent.
DECISION

27

DEL CASTILLO, J.:

This protracted legal battle revolves around the unilateral of the parties
contracts.
In this Petition for Review on Certiorari, petitioner Goldloop Properties Inc.
(Goldloop) assails the September 26, 2005 Decision1 of the Court of Appeals
(CA) in CA-G.R. CV No. 80135 which reversed and set aside the June 23,
2003 Decision2 of the Regional Trial Court (RTC) of Pasay City, Branch 111 in
Civil Case No. 00-0149 for Specific Performance and Damages. Likewise
assailed is the January 11, 2006 Resolution3 of the CA which denied
Goldloops Motion for Reconsideration thereto.
Factual Antecedents
The Government Service Insurance System (GSIS) owns a 2,411-square
meter (sq. m.) parcel of land located in ADB Avenue cor. Sapphire St., Ortigas
Center, Pasig City as well as the Philcomcen Building standing on a portion
thereof. On June 16, 1995, GSIS and Goldloop executed a Memorandum of
Agreement (MOA)4 whereby Goldloop, at its own expense and account, would
renovate the faade of the Philcomcen Building as well as construct a
condominium building on the 1,195 sq. m. portion of said land. Goldloop
also undertook to pay GSIS the amount of P 140,890,000.00 for the portion
of the land on which the condominium building shall stand to be remitted in
eight installments within the four-year period following the execution of the
MOA. Said amount is apart from the guaranteed revenue of P 1,428.28
million5 that the parties would share when the project is already completed
and the condominium units sold. It was further agreed that should the gross
sales of the condominium project exceed the said guaranteed revenue, GSIS
would be entitled to 9.86% of the amount in excess of P1,428.28 million and
Goldloop, to the balance of 90.14%.6
On June 18, 1996, the parties executed an Addendum to the Memorandum
of Agreemen7 (Addendum) to include in the project the relocation of an
existing powerhouse and cistern tank within the site of the proposed
condominium building. And since by then Goldloop had yet to remit to GSIS
the first and second installment payments of the guaranteed amount, the
Addendum also contained stipulations relative thereto, to wit:
2. The parties agree that the expense items identified in Annex "C" 8 as A.1,
A.2.1, A.2.2., A.2.3., A.3.1., B.1 and B.2 are for the account of GSIS; while
expense items A.3.2. and B.3 are for the account of GOLDLOOP.
3. As a gesture of goodwill and in consideration for the waiver by GSIS of the
interest due from GOLDLOOP by reason of late payment of the first
guaranteed amount under Section 1.1. of the MOA, GOLDLOOP hereby
agrees to absorb expense Item C of Annex "C" hereof;

4. GOLDLOOP shall advance the payments of all the expense items due from
GSIS which shall, however be credited as full payment of its first guaranteed
installment and partial payment of the second guaranteed installment under
Section 1.1. of the MOA;
5. As further gesture of goodwill and as additional consideration for the
waiver by GSIS of the interest due from GOLDLOOP by reason of late
payment of the first guaranteed amount under Section 1.1 of the MOA,
GOLDLOOP hereby agrees not to charge the GSIS any interest for the
amounts to be advanced by GOLDLOOP in excess of the amount due as its
first guaranteed installment;
6. In consideration of the undertakings of GOLDLOOP under Sections 3 and
5 hereof, the GSIS hereby waives in favor of GOLDLOOP the interest due
from the latter by reason of its late payment of the first guaranteed amount
under Section 1.1 of the MOA.9
Goldloop then performed the necessary preparatory works. 10 It also formally
launched the project11 and conducted the pre-selling of the condominium
units.12 Unfortunately, construction could not proceed because Mayor Vicente
P. Eusebio (Mayor Eusebio) of Pasig City refused to act on the applications for
building permits filed in November 199613 and July 1997,14 claiming that
GSIS owed Pasig City P54 million in unpaid real estate taxes. The GSIS, for
its part, through its then President and General Manager, Mr. Cesar Sarino
(Sarino), claimed that GSIS is exempt from payment thereof by virtue of
Republic Act (R.A.) No. 8291.15 Because of this impasse, Mayor Eusebio opted
to hold in abeyance any action on the applications for building permit until
the issue on the tax exemption provisions of R.A. No. 8291 shall have been
settled by the court through a petition for declaratory relief that Pasig City
intended to file.16
When Mr. Federico C. Pascual (Pascual) was subsequently appointed as the
new President and General Manager of GSIS, Goldloops President, Mr.
Emmanuel R. Zapanta (Zapanta), apprised him of the situation. Later,
however, Goldloop received from GSIS a letter dated November 23, 1998
informing it of a recommendation17 to rescind the MOA.18 Zapanta thus wrote
GSIS on December 2, 1998 and reiterated that the work stoppage due to nonissuance of permit was not Goldloops fault. Assuring GSIS that it would
commence the project as soon as the issue on building permits is resolved,
Zapanta urged GSIS to reconsider its position.19Despite this, GSIS still sent
Goldloop a notice of rescission20 dated February 23, 2000 stating that 30
days from the latters receipt thereof, the MOA shall be deemed rescinded for
Goldloops breach of its obligations and commitments thereunder, specifically
for failure to pay the guaranteed amount of P 140,890,000.00 under Section
1.1 and pursuant to Sections 1.3 and 2.4 of the MOA, viz:

28

In view of your failure to abide by the provisions of the Memorandum of

Agreement, please be informed that effective upon the expiration of thirty
(30) days from receipt of this notice, the aforesaid Agreement is deemed
rescinded and terminated for breach of obligations and commitments
pursuant to the following provisions of the Contract:
Section 1.1 That GOLDLOOP PROPERTIES, INC. will pay the
GSIS a guaranteed amount of ONE HUNDRED FORTY
MILLION EIGHT HUNDRED NINETY THOUSAND PESOS
(P140,890,000.00) as payment for the 1,195 sq. m. portion of
the lot on which the second tower will stand in accordance
with the following schedule:
Period from signing of the
Agreement

Percentage of Total
Amount

Amount to be
Remitted

Six Months

10%

P 14,089,000.00

Twelve Months

15%

21,133,500.00

Eighteen Months

15%

21,133,500.00

Twenty-four Months

15%

21,133,500.00

Thirty Months

15%

21,133,500.00

Thirty-Six Months

10%

14,089,000.00

Forty-Two Months

10%

14,089,000.00

Forty-Eight Months

10%

14,089,000.00

100%

P 140,890,000.00

Section 1.3 Payment to GSIS of the amounts provided for in

the preceding paragraphs shall be remitted by GOLDLOOP
within the periods stated therein without need of prior
demand; and failure to so pay within said periods shall
entitle the GSIS to an interest of 18% per annum,
compounded monthly, without prejudice to the other rights
and remedies of the GSIS under this Agreement and under
applicable laws.
xxxx
Section 2.4. Should GOLDLOOP fail to start the construction
works within thirty (30) working days from the date all the
relevant permits and licenses from the concerned agencies
are obtained, or within six (6) months from the date of the
execution of this Agreement, whichever is earlier, or at any
given time abandon the same or otherwise commit any breach
of their obligations and commitments under this Agreement,

this agreement shall be deemed terminated and cancelled

without need of judicial action by giving thirty (30) days
written notice to that effect to GOLDLOOP [which] hereby
agrees to abide by the decision of the GSIS. 21(Underscoring
and Emphasis in the original.)
Subsequently, GSIS sent Goldloop a letter22 dated April 27, 2000 informing it
that the MOA was already officially rescinded. It thus ordered Goldloop to
vacate the premises and clear the same of all debris, machineries and
equipment within five days from receipt thereof. Failing which, GSIS warned
that it would undertake the same on Goldloops account without
responsibility on its part for any resulting loss or damage. Because of this,
Goldloop filed on May 17, 2000 a Complaint 23 for Specific Performance with
Damages before the RTC of Pasay City against GSIS. The case was docketed
as Civil Case No. 00-0149 and raffled to Branch 111 of said court.
Proceedings in the Regional Trial Court
In its complaint, Goldloop belied GSISs claim that it has not paid the
guaranteed amount. It asserted that aside from the amount it expended for
the preparatory works undertaken, it already paid GSIS the sum
of P24,824,683.00 in terms of charges on change order items. This amount
was advanced by Goldloop in favor of GSIS, with the understanding, per the
Addendum, that the same shall be credited as full payment of the first
installment and as partial payment of the second installment of the
guaranteed amount. Goldloop also claimed to have spent a total
of P 44,075,910.70 for design, marketing fees, project launching, title
annotation, waiver, advances of contractors and other expenses. All in all,
Goldloop already shelled out the amount of P68,890,593.70.24
Goldloop also averred that it was ready, willing and able to perform all of its
obligations under the MOA as shown by the preparatory works it had
undertaken. However, because of the non-issuance of building permits by
Mayor Eusebio, the project could not push thru. Goldloop further alleged
that GSIS made assurances that it would secure the necessary permits but
GSIS still failed to obtain the same. Goldloop also alleged that GSIS delayed
the issuance of notice to proceed despite repeated reminders from Goldloop.
Goldloop also claimed that during Zapantas courtesy call to Pascual, the
latter allegedly advised the former to just wait for the resolution of the
problem and even remarked that "at any rate the real estate market is still
depressed in view of the Asian financial crisis." On the same day, Zapanta
even handed to Pascual a letter25dated July 20, 1998 which also spoke of the
same problem.
Hence, Goldloop asserted that the rescission was without basis and clearly
made in bad faith. It therefore asked the RTC to declare the same as null and
void, to direct GSIS to comply with the provisions of the MOA and the

29

Addendum, and to secure all the necessary permits from Pasig City. It also
prayed for actual damages of still undetermined amount due to its alleged
continuing character, exemplary damages of P 10 million, attorneys fees
of P 500,000.00 and costs of suit.
On June 15, 2000, Goldloop applied for the issuance of a temporary
restraining order (TRO) and/or writ of preliminary injunction.26 This was on
account of its receipt of a letter27 dated May 29, 2000 from GSIS wherein it
was given a final notice to vacate the premises and to clear it from all debris,
machineries and equipment within five days from receipt thereof, otherwise,
GSIS would undertake the same on Goldloops account. Goldloop also alleged
that GSIS had already leased the premises to the Department of Interior and
Local Government without its knowledge and consent. 28 Claiming lawful
possession and occupancy of the premises on the strength of the MOA as
well as grave and irreparable damage to it should GSIS take over the
property, Goldloop prayed that GSIS be restrained from disturbing or
interfering with its possession and occupancy of the premises.
Notwithstanding GSISs opposition,29 the RTC granted Goldloops application
for TRO and accordingly ordered GSIS to cease and desist from doing acts
which would in any manner tend to disturb Goldloops peaceful possession
and occupation of the subject premises.30 Upon the expiration of the said
TRO, Goldloop applied for the issuance of a writ of preliminary
injunction31 which was likewise granted by the trial court. 32 GSIS moved for
reconsideration33 but was denied by the RTC.34
In its Answer with Affirmative Defenses and Compulsory
Counterclaims,35 GSIS contested Goldloops claim that it had already
advanced P24,824,683.00 in expense items supposed to be for GSISs
account. It averred that if at all, the amount should only be P 21,225,521.08
per the agreed valuation of said expense items as listed in Annex "C" of the
Addendum and provided further that the works for which said items were
intended were indeed completed. GSIS likewise denied for lack of knowledge
and information Goldloops allegation that it incurred P44,075,910.70 for
other expenses; that it delayed the issuance of the notice to proceed with the
construction; and that Goldloop apprised Pascual of the situation, both
personally and in writing.
Regarding the issue on tax liability, GSIS denied that it acted in bad faith in
not informing Goldloop of the same as it was within its right to invoke tax
exemption pursuant to its charter.
In gist, GSIS insisted that the rescission of the MOA and the Addendum was
a valid and legitimate exercise of its right under the provisions thereof;
hence, the complaint against it must be dismissed.
By way of compulsory counterclaims, GSIS prayed for Goldloop to pay it
actual damages for lost income/unrealized revenues in the amount

of P 68,922,360.73, P 10 million exemplary damages, and P 1 million

attorneys fees.
Ruling of the Regional Trial Court
In a Decision36 dated June 23, 2003, the RTC found GSISs rescission
without valid basis. It ruled that the failure to proceed with the construction
was not due to Goldloops fault and that GSIS was well aware of this. In fact,
Sarinos January 16, 1998 letter37 to Goldloop would show that GSIS
recognized that the continuing stand-off between it and the City of Pasig on
the issue of permits was the only stumbling block for Goldloop to proceed
with the construction.
As to Goldloops failure to fully pay the guaranteed amount, the RTC ruled
that the same is likewise attributable to the non-issuance of permits. The
RTC noted that when the construction failed to proceed due to said nonissuance, would-be buyers who made initial deposits and/or reservation fees
for the condominium units backed out. Goldloop was thus constrained to
return their deposits, some with interest, in the amount of P 80 million. Said
amount was apart from the P 11 million that it already paid to agents and
brokers as commissions. These hindered Goldloop from complying with its
obligation to pay the guaranteed amount.
Consequently, the RTC adjudged GSIS liable to Goldloop for damages.
The dispositive portion of the trial courts Decision reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of
plaintiff Goldloop and against defendant GSIS.
Accordingly, the unilateral cancellation or rescission of the Memorandum of
Agreement and the Addendum to the MOA is hereby declaredINVALID for
lack of valid basis. Hence, defendant GSIS is hereby directed to comply with
the Memorandum of Agreement dated June 16, 1995 and Addendum dated
June 20, 1995.
Congruently, and pending compliance by defendant GSIS, the injunction
issued on July 10, 2000 is hereby made permanent.
Consistent with the courts finding, defendant GSIS is hereby directed to pay
to plaintiff the following:
1.
2.
3.
4.

Actual damages in the amount of P83,082,749.00;

Exemplary Damages in the amount of P 5,000,000.00;
Attorneys Fees - P 500,000.00;
Reimbursement of Filing Fees or Cost of litigation - P 104,953.50.

SO ORDERED.38
GSIS filed a Notice of Appeal39 which was approved by the RTC in its
Order40 of August 8, 2003.

30

Ruling of the Court of Appeals

In resolving GSISs appeal, the CA noted that under Section 2.4, Article II of
the MOA, GSIS may exercise its right to rescind, to wit: (1) upon Goldloops
failure to start the construction works within 30 working days from the date
all relevant permits and licenses from concerned agencies are obtained; (2) or
within six months from the date of execution of the agreement, whichever is
earlier; or (3) at any given time, should Goldloop abandon the project or
otherwise commit any breach of its obligations and commitments.
The CA concluded that GSIS cannot rescind the agreement based on the first
two circumstances considering that Goldloops failure to proceed with the
construction works within the said periods was the necessary consequence
of the non-issuance of permits which, however, cannot be attributed to
Goldloops fault. Nevertheless, since nine years had already passed since the
execution of the MOA and the Addendum, Goldloop is deemed to have
abandoned the project under the third circumstance, even if the same be due
to a justifiable cause, that is, the non issuance of permits. The CA declared
that the delay in the implementation of the project has been detrimental to
the interest of GSIS and its members but not on the part of Goldloop, which,
on the contrary, had been benefiting from the same because it had been
using the property free of charge. To the appellate court, this amounts to
unjust enrichment and, hence, the MOA must be equitably rescinded under
this ground. The CA also extinguished the obligations of the parties relative
thereto and ordered each of them to bear its own damage. The dispositive
portion of the CAs September 26, 2005 Decision41 reads:
WHEREFORE, premises considered, the appeal is hereby GRANTED. The
June 23, 2003 Decision of the trial court is REVERSED and SET ASIDE. A
new judgment is entered RESCINDING the MOA and its Addendum, the
obligations of the parties relative thereto are deemed extinguished, and each
to bear its own damages.
SO ORDERED.42
Goldloop filed a Motion for Reconsideration, 43 but the same was denied in the
Resolution44 dated January 11, 2006.
Hence, the present Petition for Review on Certiorari.
Issues
Goldloop faults the CA in rescinding the MOA and the Addendum, in
extinguishing the obligations of the parties relative thereto, in declaring that
each party should bear its own damage and, in discarding the findings of
facts and conclusions of the RTC.45
Our Ruling

The Court upholds the rescission but for a reason different from that upon
which the CA based its conclusion.
Reciprocal obligations of the parties
under the MOA.
"Reciprocal obligations are those which arise from the same cause, and
which each party is a debtor and a creditor of the other, such that the
obligation of one is dependent upon the obligation of the other." 46 Here, the
parties reciprocal obligations are embodied in Article I of the MOA, viz:
ARTICLE I
ABSOLUTE SALE
Section 1.1 That GOLDLOOP PROPERTIES INC. will pay the GSIS a
guaranteed amount of ONE HUNDRED FORTY MILLION EIGHT HUNDRED
NINETY THOUSAND PESOS (P 140,890,000.00) as payment for the 1,195 sq.
m. portion of the lot on which the second tower will stand in accordance with
the following schedule:
Period from signing of the
Agreement

Percentage of Total
Amount

Amount to be
Remitted

Six Months

10%

P 14,089,000.00

Twelve Months

15%

21,133,500.00

Eighteen Months

15%

21,133,500.00

Twenty-four Months

15%

21,133,500.00

Thirty Months

15%

21,133,500.00

Thirty-Six Months

10%

14,089,000.00

Forty-Two Months

10%

14,089,000.00

Forty-Eight Months

10%

14,089,000.00

100%

P 140,890,000.00

Without prejudice to the right of GSIS to collect the interest provided for in
Section 1.3 hereof, the aforesaid periods may be extended in the event that
GOLDLOOP PROPERTIES INC. fails to obtain all the necessary permits and
licenses for causes beyond the control of GOLDLOOP or by reason of force
majeure.
It is expressly agreed that extension of time[/]period provided for herein may
not be claimed unless GOLDLOOP has, prior to the expiration of the contract
time and within fifteen (15) calendar days after the circumstances leading to
such claim have arisen, delivered an appropriate written notice to the GSIS to
enable the latter to have [the] reason for extension investigated. The GSIS
shall, on the basis of the facts and circumstances and of the merits or lack of

31

merit of the request, grant or deny the request for extension, as it may deem
proper. The decision of the GSIS on this matter shall be final and binding.
Failure to provide such notice constitutes a waiver by x x x GOLDLOOP of
any claim for extension.
Section 1.2 That after the project has been completed and sold but not later
than six (6) months after the 48-month period, in reference to the schedule
of payment in Item 1 above, a calculation of the gross sales net of the 8%
marketing fee will be made. The GSIS will be entitled (in addition to the
guaranteed amount in excess of P140.89 Million) to 9.86% of the amount in
excess of the P1,428.28 Million (the guaranteed revenue for sharing) while
GOLDLOOP will be entitled to the balance of 90.14% in case the gross sales
net of the 8% marketing fee does not exceed P1,428.28 Million, the GSIS will
not be entitled to any additional amount.
GSIS has the right to full information as to all matters requisite in the
determination of the gross sales relative to this project that may be in its
possession and a full disclosure of any information that it may deem material
and relevant for the purpose.
Section 1.3 Payment to GSIS of the amounts provided for in the preceding
paragraphs shall be remitted by GOLDLOOP within the periods stated
therein without need of prior notice or demand; and failure to so pay within
said periods shall entitle the GSIS to an interest of 18% per annum,
compounded monthly, without prejudice to the other rights and remedies of
the GSIS under the Agreement and under applicable laws.
Section 1.4 GSIS warrants that it has title over the subject property and
subject to the obligation of GOLDLOOP to undertake the conversion of the
same to a condominium property and the identification of the 1,195 sq. m. of
vacant lot as a unit thereof capable of being legally sold by GSIS to
GOLDLOOP, that same is transferable, free from all liens and encumbrances
whatsoever.
Section 1.5 After full compliance by GOLDLOOP of its obligations under the
preceding Section, GSIS shall execute [in] its favor, or in favor of its nominee
a Deed of Absolute Sale for the 1,195 sq. m. portion of the subject
property.47 (Emphasis supplied.)
Clearly, Goldloops obligation is to pay for the portion of the property on
which the second tower shall stand and to construct and develop thereon a
condominium building. On the other hand, GSIS is obliged to deliver to
Goldloop the property free from all liens and encumbrances and to execute a
deed of absolute sale in Goldloops favor.
Goldloop failed to complete its payment
of the guaranteed amount in the manner
prescribed in the contract.

Under Sec. 1.1 of the MOA, Goldloop undertook to pay GSIS the guaranteed
amount of P140,890,000.00, in eight installments, the first installment of
which would fall due on December 16, 1995 and the subsequent payments
every six months thereafter until June 16, 1999. The dates of payment may
be extended if Goldloop fails to obtain all the necessary permits and licenses
for causes beyond its control or by reason of force majeure. However, such
request for extension must be in writing and made prior to the expiration of
the contract and within 15 calendar days after the circumstances leading to
such claim for extension have arisen.
Sec. 1.3, on the other hand, provides for the remittance to GSIS of such
payments without need of demand as well as for the consequence of
nonpayment.
Admittedly, Goldloop failed to pay the first installment on time; hence, the
parties stipulated in the Addendum that Goldloop shall advance the payment
for expense items which were for GSISs account. The money advanced shall
then be credited as full payment of the first installment and the excess
therefrom, as partial payment of the second. By way of said expense items,
Goldloop claimed to have already advanced in favor of GSIS the sum
of P24,824,683.00.48
Assuming said figure is correct for purposes of this discussion, the same
only covers the full payment of the first installment which is P14,089,000.00
and the excess therefrom, the partial payment for the P21,133,500.00 second
installment. However, we note that the Addendum was executed on June 18,
1996 or two days after the second installment payment was supposed to be
remitted (June 16, 1996). Hence, by that time, Goldloops duty to complete
the payment for the second installment had already arisen. However, the
records fail to show that Goldloop, from that time on, endeavored to at least
complete such second installment. Worse, it totally failed to remit the other
subsequent installments. This was confirmed by Zapanta during the hearing
on the application for writ of preliminary injunction, viz:
ATTY. SILVERA
q
So [is it] not true that under Art. 1, Sec. 1.1 of the MOA, that is, there is
in effect a transaction of sale?
WITNESS Zapanta
a

I dont know what is the meaning of sale.

ATTY. SILVERA
q
Okay, lets put it [this] way, did you review or did you have an
opportunity to review this MOA prior to signing?
a

Well, frankly, GSIS we were all in good faith.

32

q
You [mean] you were obligated to pay a guaranteed amount of 140
million and merelyis that your position?
a
That was the agreement, when we say in good faith we agreed to the 140
million without even foreseeing the problem.
COURT
q
Of the 140 million provided for, Im speaking only not [of] your advances
but of the 140 million you are supposed to pay the GSIS, how many times did
you pay, and how much?

Per six (6) months Your Honor. COURT

Under the scheduled payment?

a
The first payment is 14 million Your Honor. And then after 6 months its
21 million.
q

So far according to you, you have advanced.

24 million Your Honor.

ATTY. SILVERA

a
I cannot say Your Honor, because the addendum to the contract it says
there in the advances

That covers the whole payment for the first installment. And there had been
no subsequent payment pursuant to Sec. 1.1 of the MOA?.

a.
No sir, we were already up to our neck in our expenses. 49 (Emphasis
supplied.)

Okay, according to you the advances are there, it is clear, 24 million.

xxxx
Im asking you whether or not pursuant to the schedule of payment you are
obligated to pay 140 million, right?
Okay, how much have you paid the GSIS in connection with the schedule of
payments?
a

Nothing on this project. (Emphasis supplied.)

q
In other words, you are trying to tell this Court [that] there were
advances which are covered by the MOA?

The RTC ratiocinated that Goldloops failure to comply with the said
obligation was due to the non-issuance of permits. According to it, Goldloop
experienced financial difficulty when the construction did not push thru
since it had to return the deposits, some with interest, of would-be buyers
and had already paid the commission of brokers and agents of the
condominium units, and these amounted to millions of pesos. Hence, its
failure to pay was justified.

q
And there were advances when you were supposed to start paying this
amount?

While the Court is inclined to agree with the RTC that the non-issuance of
permits indeed affected Goldloops ability to pay, it cannot, however, ignore
the fact that Goldloop itself failed to avail of the protection granted to it by
the MOA in case of failure to obtain the necessary permits and licenses.
Under the circumstances, Goldloop could have applied for an extension
within which to pay the installments of the guaranteed amount as clearly
provided for under the second and third paragraphs of said Sec. 1.1. Yet
again, the records are bereft of any showing that it ever availed of such
extension. When asked regarding this, Zapanta evaded the question and
instead answered that the contract has not yet expired, viz:

ATTY. SILVERA

Yes.

And this is for the account of GSIS?

Yes, Your Honor.

ATTY. SILVERA

Its already in the agreement.

ATTY. SILVERA
q
If based in this Addendum which is the guiding provision here, it says
here the advances of Goldloop shall be credited as full payment of the first
guaranteed installment and partial payment of the second installment under
Sec. 1.1 of the MOA?
COURT
For the information of the Court, how much is supposed to be the payment,
per month?

q
Would you agree with me in case that those permits could not be
secured Goldloop could ask for an extension of time subject only to the
conditions cited in the second paragraph and 3rd paragraph of Sec. 1.1, Art.
1 of the MOA on page 3?
a

Yes, it says here.

q
And would you please tell us if Goldloop ever availed of this option
afforded by the MOA?
a
Well, insofar as advising the GSIS of the refusal of the Pasig City we have
voluminous paperof that, now with regard to the filing of an extension of

33

time prior to the expiration of the contracts, we are contending that the
contract is not expired.50
Apparently, Zapanta would want to impress that Goldloop could still avail of
the said extension had not GSIS untimely rescinded the agreements on
February 23, 2000. This was because of Goldloops belief that on said date,
the four-year period within which to pay the guaranteed amount had not yet
lapsed considering that the same should have been reckoned from the date of
the execution of the Addendum on June 18, 1996 and not from the date of
the execution of the MOA on June 16, 1995.51 The Court, however, thinks
otherwise. Sec. 9 of the Addendum reads:
9. GOLDLOOP shall start the renovation of the faade of the existing tower
and construction of the condominium building on the vacant lot within thirty
(30) working days from date all relevant permits and licenses from concerned
agencies are obtained, or within six (6) months from date of execution of this
Addendum to Memorandum of Agreement, whichever is earlier. Failure of
GOLDLOOP in this respect shall entitle GSIS to exercise its right provided for
under Section 2.4, Article II of the Memorandum of Agreement. 52
From the above, it is clear that said section did not extend the four-year
period within which to pay the guaranteed amount. In fact, no mention was
made regarding this. What was extended was the period within which
Goldloop should have started the construction, which was changed from six
months from the date of the execution of the MOA to six months from the
date of execution of the Addendum. This is very plain from the said provision.
Be that as it may, it would be too late in the day for Goldloop to request for
an extension. As may be recalled, such request must be made not only prior
to the expiration of the contract but also within 15 calendar days after the
event leading to such claim for extension has arisen. And since the problem
with the non-issuance of permits had long arisen during that time, Goldloop
cannot anymore avail of the extension even if by then the contract has not yet
expired.
At this point, it bears to stress that:
It is basic that a contract is the law between the parties, and the stipulations
therein provided that they are not contrary to law, morals, good customs,
public order or public policy shall be binding as between the parties. In
contractual relations, the law allows the parties much leeway and considers
their agreement to be the law between them. This is because courts cannot
follow one every step of his life and extricate him from bad bargains x x x
relieve him from one-sided contracts, or annul the effects of foolish acts. The
courts are obliged to give effect to the agreement and enforce the contract to
the letter.53

Here, as the parties voluntarily and freely executed the MOA and the
Addendum, the terms contained therein are the law between them. 54 Hence,
Goldloop should have completed its payment of the guaranteed amount in
the manner prescribed by the contract. When it could not do so as a
consequence of the non-issuance of permits, it should have asked for an
extension within which to pay the same. However, since Goldloop neither
completed the payment nor sought for an extension, it is considered to have
breached its commitment and obligation under Sec. 1.1 of the MOA.
GSIS rescinded the contract pursuant to
its right to rescind under the relevant
provisions of the MOA.
Concededly, parties may validly stipulate the unilateral rescission of a
contract."55 Such is the case here since the parties conferred upon GSIS the
right to unilaterally rescind the MOA in the earlier quoted Sec. 2.4 and
hereinafter reproduced:
Section 2.4. Should GOLDLOOP fail to start the construction works within
the thirty (30) working days from date all relevant permits and licenses from
concerned agencies are obtained, or within six (6) months from the date of
the execution of this Agreement, whichever is earlier, or at any given time
abandon the same or otherwise commit any breach of their obligations and
commitments under this Agreement, this agreement shall be deemed
terminated and cancelled without need of judicial action by giving thirty (30)
days written notice to that effect to GOLDLOOP who hereby agrees to abide
by the decision of the GSIS. x x x 56 (Emphasis supplied.)
Under the above-quoted provision, one of the grounds under which GSIS may
validly rescind the MOA is if at any given time, Goldloop abandons the
construction or otherwise commit any breach of its obligations and
commitments thereunder.
The February 23, 2000 notice clearly specified that GSIS is rescinding the
contract for failure of Goldloop to pay the guaranteed amount of
P140,890,000.00 under Sec. 1.1 of the MOA. This falls under the said
ground, it being a breach of an obligation and commitment under the said
agreement. Because of said breach, Sec. 1.3 of the MOA which provides for
the consequence of the nonpayment thereof should be read in relation to Sec.
2.4.
Under Sec. 1.3, Goldloops failure to pay the guaranteed amount within the
periods provided for in Sec. 1.1 of the MOA shall entitle GSIS to
interest, without prejudice to its other rights and remedies under the
agreement and applicable laws. This right referred to is the right of rescission
under Sec. 2.4 authorizing GSIS to exercise the same upon Goldloops breach
of any of its obligations and commitments. Clearly therefore, when GSIS

34

rescinded the MOA and the Addendum, it merely exercised its right to
rescind under Sec. 2.4 in relation to Sec. 1.3 of the MOA.
However, GSIS is not entirely faultless
since it likewise failed in its obligation to
deliver the property free from burden.
GSIS is, however, not entirely faultless. It also failed to comply with its
obligation, although it cannot be conclusively determined when it actually
begun as the same only became apparent to Goldloop after the execution of
the MOA and the Addendum. This was when the City of Pasig formally
notified GSIS that it was holding in abeyance any action on the latters
application for building permits due to its outstanding real estate taxes in the
amount of P54 million. The fact that GSIS disputes such tax liability because
of its firm stand that it was tax exempt is beside the point. What is plain is
that the property was by then not free from burden since real estate taxes
were imposed upon it and these taxes remained unpaid. There was, therefore,
on the part of GSIS, a failure to comply with its obligation to deliver the
property free from burden.
This is not to say, however, that Goldloops obligation to pay the guaranteed
amount, as discussed above, did not arise considering that GSIS could not
comply with its concurrent obligation to deliver the property free from
burden. It is well to note that even before Goldloop became aware of GSISs
supposed tax liability with the City of Pasig through the latters October 8,
1997 letter, Goldloop was already in default in its payment of the guaranteed
amount. As can be recalled and again under the assumption that Goldloop
advanced P24,824,683.00 on behalf of GSIS which amount was credited as
full and partial payment of the first and second installments, the remaining
balance for the second installment should have been paid as early as June
16, 1996. No such payment was, however, made. The same thing is true with
respect to the third and fourth installments which respectively became due
on December 16, 1996 and June 16, 1997. Clearly, Goldloop had already
defaulted in its payments even before it became aware of GSISs tax issues. In
short, even before such failure of GSIS became apparent to Goldloop, the
latter had already committed a breach of its own obligation.
As to when GSIS actually committed its breach of failing to deliver the
property free from any burden, the same is a different matter which will be
discussed later.
In view of the rescission, mutual
restitution is required.
As correctly observed by the RTC, the rescissory action taken by GSIS is
pursuant to Article 119157 of the Civil Code. In cases involving rescission
under the said provision, mutual restitution is required. 58 The parties should
be brought back to their original position prior to the inception of the

contract.59 "Accordingly, when a decree of rescission is handed down, it is the

duty of the court to require both parties to surrender that which they have
respectively received and to place each other as far as practicable in [their]
original situation."60 Pursuant to this, Goldloop should return to GSIS the
possession and control of the property subject of their agreements while
GSIS should reimburse Goldloop whatever amount it had received from the
latter by reason of the MOA and the Addendum.
Here, out of the total amount of expenses which Goldloop claims to have
incurred for the project, it appears that the only sum it paid to GSIS was that
amount it expended by way of change order of expense items supposed to be
for GSISs account and, which under the Addendum was to be credited as
full payment and partial payment of the first and second installments of the
guaranteed amount, respectively. The figure, however, remains disputed.
Goldloop alleges that the same amounts to P24,824,683.00. Yet, there is
nothing in the records to support the same. Said amount was not clearly
specified in Goldloops Consolidated Financial Statements for years 1995 to
2000 and Auditors Report.61 What is in the records is a mere self-serving list
of expenses that it submitted and which indicates the said figure as
"Expenses/Charges on Change Orders".62 GSIS, on the other hand, asserts
that the expense items for its account, per Annex "C" of the Addendum, is
only P 21,225,521.08 and provided that the works for which the items were
supposed to be used, that is, the relocation of the powerhouse and cistern
tank, were indeed completed. Unfortunately, said Annex "C" is likewise not
part of the records of this case and GSIS merely quoted the relevant portion
of the same in its Answer. Be that as it may, Zapanta testified that the
installation of the cistern tank was already 100% complete,63 although there
was no mention regarding the status of the powerhouse. In view of this, the
Court can only consider the sum spent with respect to the completed
installation of the cistern tank which the GSIS admitted in its Answer as
amounting to P 4,122,133.19.64 Aside from the said amount, GSIS must also
return to Goldloop all equipment, machineries and other properties of the
latter which may be found in the premises of the subject property.
Damages
As discussed, both parties failed to comply with their respective obligations
under their agreements. Hence, relevant is the provision of Article 1192 of
the Civil Code which reads:
Art. 1192. In case both parties have committed a breach of the obligation, the
liability of the first infractor shall be equitably tempered by the courts. If it
cannot be determined which of the parties first violated the contract, the
same shall be deemed extinguished, and each shall bear his own damages.
(Emphasis suppied.)

35

In this case, it cannot be determined with certainty which between the

parties is the first infractor. It could be GSIS because of the high probability
that even before the execution of the agreements, real property taxes were
already imposed and unpaid such that when GSIS applied for building
permits, the tax liability was already in the substantial amount of P54
million. It was just that GSIS could not have been mindful of the same
because of its stand that it is tax exempt. But as this cannot be conclusively
presumed, there exists an uncertainty as to which between the failure to
comply on the part of each party came first; hence, the last portion of Article
1192 finds application. Pursuant thereto, the parties respective claims for
damages are thus deemed extinguished and each of them shall bear its own
damage.

On March 10, 1993, petitioner Raymundo S. de Leon sold three parcels of

WHEREFORE, finding the rescission of the Memorandum of Agreement and

the Addendum to the Memorandum of Agreement by the Government Service
Insurance System to be proper, the Petition for Review on Certiorari
isDENIED. The Decision dated September 26, 2005 and Resolution dated
January 11, 2006 of the Court of Appeals in CA-G.R. CV No. 80135 are
hereby AFFIRMED with MODIFICATIONS.

[PETITIONER], said [PETITIONER] does hereby sell, transfer and convey

Goldloop Properties Inc. is DIRECTED to immediately surrender to the

Government Service Insurance System the control and possession of the
2,411-square meter property located in ADBAvenue cor. Sapphire St., Ortigas
Center, Pasig City including the Philcomcen Building standing thereon. The
Government Service Insurance System is ORDERED to reimburse Goldloop
Properties Inc. the amount of P 4,122,133.19 and return to the latter all its
equipment, machineries and other materials which may be found in the
premises of the subject property. The parties respective claims for damages
are deemed EXTINGUISHED and each of them shall bear its own damage.

land2 with improvements situated in Antipolo, Rizal to respondent Benita T.

Ong. As these properties were mortgaged to Real Savings and Loan
Association, Incorporated (RSLAI), petitioner and respondent executed a
notarized deed of absolute sale with assumption of mortgage 3 stating:
xxx

That for and in consideration of the sum of ONE MILLION ONE HUNDRED
THOUSAND PESOS (P1.1 million), Philippine currency, the receipt whereof is
hereby acknowledged from [RESPONDENT] to the entire satisfaction of
in a manner absolute and irrevocable, unto said [RESPONDENT], his heirs
and assigns that certain real estate together with the buildings and other
improvements existing thereon, situated in [Barrio] Mayamot, Antipolo, Rizal
under the following terms and conditions:
1. That upon full payment of [respondent] of the amount of FOUR
HUNDRED FIFTEEN THOUSAND FIVE HUNDRED (P415,000),
[petitioner] shall execute and sign a deed of assumption of mortgage
in favor of [respondent] without any further cost whatsoever;
2. That [respondent] shall assume payment of the outstanding loan
of SIX HUNDRED EIGHTY FOUR THOUSAND FIVE HUNDRED
PESOS (P684,500) with REAL SAVINGS AND LOAN,4 Cainta, Rizal

xxx
February 2, 2010

RAYMUNDO S. DE LEON, Petitioner,

vs.

xxx

xxx

Pursuant to this deed, respondent gave petitioner P415,500 as partial

payment. Petitioner, on the other hand, handed the keys to the properties
and wrote a letter informing RSLAI of the sale and authorizing it to accept
payment from respondent and release the certificates of title.

BENITA T. ONG.1 Respondent.

DECISION
CORONA, J.:

xxx

(emphasis supplied)

SO ORDERED.

G.R. No. 170405

xxx

Thereafter, respondent undertook repairs and made improvements on the

properties.5 Respondent likewise informed RSLAI of her agreement with
petitioner for her to assume petitioners outstanding loan. RSLAI required her
to undergo credit investigation.

36

Subsequently, respondent learned that petitioner again sold the same

The CA found that the March 10, 2003 contract executed by the parties did

properties to one Leona Viloria after March 10, 1993 and changed the locks,

not impose any condition on the sale and held that the parties entered into a

rendering the keys he gave her useless. Respondent thus proceeded to RSLAI

contract of sale. Consequently, because petitioner no longer owned the

to inquire about the credit investigation. However, she was informed that

properties when he sold them to Viloria, it declared the second sale void.

petitioner had already paid the amount due and had taken back the

Moreover, it found petitioner liable for moral and exemplary damages for

certificates of title.

fraudulently depriving respondent of the properties.

Respondent persistently contacted petitioner but her efforts proved futile.

In a decision dated July 22, 2005,9 the CA upheld the sale to respondent and
nullified the sale to Viloria. It likewise ordered respondent to reimburse

On June 18, 1993, respondent filed a complaint for specific performance,

petitioner P715,250 (or the amount he paid to RSLAI). Petitioner, on the other

declaration of nullity of the second sale and damages against petitioner and

hand, was ordered to deliver the certificates of titles to respondent and pay

Viloria in the Regional Trial Court (RTC) of Antipolo, Rizal, Branch 74. She

her P50,000 moral damages and P15,000 exemplary damages.

claimed that since petitioner had previously sold the properties to her on
March 10, 1993, he no longer had the right to sell the same to Viloria. Thus,

Petitioner moved for reconsideration but it was denied in a resolution dated

petitioner fraudulently deprived her of the properties.

November 11, 2005.10 Hence, this petition,11 with the sole issue being
whether the parties entered into a contract of sale or a contract to sell.

Petitioner, on the other hand, insisted that respondent did not have a cause
of action against him and consequently prayed for the dismissal of the

Petitioner insists that he entered into a contract to sell since the validity of

complaint. He claimed that since the transaction was subject to a condition

the transaction was subject to a suspensive condition, that is, the approval

(i.e., that RSLAI approve the assumption of mortgage), they only entered into

by RSLAI of respondents assumption of mortgage. Because RSLAI did not

a contract to sell. Inasmuch as respondent did apply for a loan from RSLAI,

allow respondent to assume his (petitioners) obligation, the condition never

the condition did not arise. Consequently, the sale was not perfected and he

materialized. Consequently, there was no sale.

could freely dispose of the properties. Furthermore, he made a counter-claim

for damages as respondent filed the complaint allegedly with gross and

Respondent, on the other hand, asserts that they entered into a contract of

evident bad faith.

sale as petitioner already conveyed full ownership of the subject properties

upon the execution of the deed.

Because respondent was a licensed real estate broker, the RTC concluded
that she knew that the validity of the sale was subject to a condition. The

We modify the decision of the CA.

perfection of a contract of sale depended on RSLAIs approval of the

assumption of mortgage. Since RSLAI did not allow respondent to assume

Contract of Sale or Contract to Sell?

petitioners obligation, the RTC held that the sale was never perfected.
The RTC and the CA had conflicting interpretations of the March 10, 1993
In a decision dated August 27, 1999,7 the RTC dismissed the complaint for

deed. The RTC ruled that it was a contract to sell while the CA held that it

lack of cause of action and ordered respondent to pay petitioner P100,000

was a contract of sale.

moral damages, P20,000 attorneys fees and the cost of suit.

In a contract of sale, the seller conveys ownership of the property to the
Aggrieved, respondent appealed to the Court of Appeals (CA), 8 asserting that

buyer upon the perfection of the contract. Should the buyer default in the

the court a quo erred in dismissing the complaint.

payment of the purchase price, the seller may either sue for the collection

37

thereof or have the contract judicially resolved and set aside. The non-

certificates of title without even notifying respondent. In this connection,

payment of the price is therefore a negative resolutory condition. 12

Article 1186 of the Civil Code provides:

On the other hand, a contract to sell is subject to a positive suspensive

Article 1186. The condition shall be deemed fulfilled when the obligor

condition. The buyer does not acquire ownership of the property until he fully

voluntarily prevents its fulfillment.

pays the purchase price. For this reason, if the buyer defaults in the payment
thereof, the seller can only sue for damages. 13

Void Sale Or Double Sale?

The deed executed by the parties (as previously quoted) stated that petitioner

Petitioner sold the same properties to two buyers, first to respondent and

sold the properties to respondent "in a manner absolute and irrevocable" for a

then to Viloria on two separate occasions.20 However, the second sale was not

sum of P1.1 million.14 With regard to the manner of payment, it required

void for the sole reason that petitioner had previously sold the same

respondent to pay P415,500 in cash to petitioner upon the execution of the

properties to respondent. On this account, the CA erred.

15

deed, with the balance payable directly to RSLAI (on behalf of petitioner)
within a reasonable time.16 Nothing in said instrument implied that petitioner

This case involves a double sale as the disputed properties were sold validly

reserved ownership of the properties until the full payment of the purchase

on two separate occasions by the same seller to the two different buyers in

price.17 On the contrary, the terms and conditions of the deed only affected

good faith.

the manner of payment, not the immediate transfer of ownership (upon the
execution of the notarized contract) from petitioner as seller to respondent as

Article 1544 of the Civil Code provides:

buyer. Otherwise stated, the said terms and conditions pertained to the
performance of the contract, not the perfection thereof nor the transfer of

Article 1544. If the same thing should have been sold to different vendees,

ownership.

the ownership shall be transferred to the person who may have first taken
possession thereof in good faith, if it should be movable property.

Settled is the rule that the seller is obliged to transfer title over the properties
and deliver the same to the buyer.18In this regard, Article 1498 of the Civil
Code19 provides that, as a rule, the execution of a notarized deed of sale is
equivalent to the delivery of a thing sold.
In this instance, petitioner executed a notarized deed of absolute sale in favor
of respondent. Moreover, not only did petitioner turn over the keys to the
properties to respondent, he also authorized RSLAI to receive payment from
respondent and release his certificates of title to her. The totality of
petitioners acts clearly indicates that he had unqualifiedly delivered and
transferred ownership of the properties to respondent. Clearly, it was a

Should it be immovable property, the ownership shall belong to the

person acquiring it who in good faith first recorded it in the Registry of
Property.
Should there be no inscription, the ownership shall pertain to the
person who in good faith was first in the possession; and, in the absence
thereof, to the person who presents the oldest title, provided there is
good faith. (emphasis supplied)

contract of sale the parties entered into.

This provision clearly states that the rules on double or multiple sales apply

Furthermore, even assuming arguendo that the agreement of the parties was

purchaser in bad faith.

subject to the condition that RSLAI had to approve the assumption of

mortgage, the said condition was considered fulfilled as petitioner prevented
its fulfillment by paying his outstanding obligation and taking back the

only to purchasers in good faith. Needless to say, it disqualifies any

A purchaser in good faith is one who buys the property of another without
notice that some other person has a right to, or an interest in, such property

38

and pays a full and fair price for the same at the time of such purchase, or

Article 1544 of the Civil Code provides that when neither buyer registered the

before he has notice of some other persons claim or interest in the

sale of the properties with the registrar of deeds, the one who took prior

property.

21

The law requires, on the part of the buyer, lack of notice of a

possession of the properties shall be the lawful owner thereof.

defect in the title of the seller and payment in full of the fair price at the time
of the sale or prior to having notice of any defect in the sellers title.

In this instance, petitioner delivered the properties to respondent when he

executed the notarized deed22 and handed over to respondent the keys to the

Was respondent a purchaser in good faith? Yes.

properties. For this reason, respondent took actual possession and exercised
control thereof by making repairs and improvements thereon. Clearly, the

Respondent purchased the properties, knowing they were encumbered only

sale was perfected and consummated on March 10, 1993. Thus, respondent

by the mortgage to RSLAI. According to her agreement with petitioner,

became the lawful owner of the properties.

respondent had the obligation to assume the balance of petitioners

outstanding obligation to RSLAI. Consequently, respondent informed RSLAI

Nonetheless, while the condition as to the payment of the balance of the

of the sale and of her assumption of petitioners obligation. However, because

purchase price was deemed fulfilled, respondents obligation to pay it

petitioner surreptitiously paid his outstanding obligation and took back her

subsisted. Otherwise, she would be unjustly enriched at the expense of

certificates of title, petitioner himself rendered respondents obligation to

petitioner.

assume petitioners indebtedness to RSLAI impossible to perform.

Therefore, respondent must pay petitioner P684,500, the amount stated in
Article 1266 of the Civil Code provides:

the deed. This is because the provisions, terms and conditions of the
contract constitute the law between the parties. Moreover, the deed itself

Article 1266. The debtor in obligations to do shall be released when the

provided that the assumption of mortgage "was without any further cost

prestation become legally or physically impossible without the fault of the

whatsoever." Petitioner, on the other hand, must deliver the certificates of

obligor.

title to respondent. We likewise affirm the award of damages.

Since respondents obligation to assume petitioners outstanding balance

WHEREFORE, the July 22, 2005 decision and November 11, 2005 resolution

with RSLAI became impossible without her fault, she was released from the

of the Court of Appeals in CA-G.R. CV No. 59748 are

said obligation. Moreover, because petitioner himself willfully prevented the

hereby AFFIRMED with MODIFICATION insofar as respondent Benita T.

condition vis--vis the payment of the remainder of the purchase price, the
said condition is considered fulfilled pursuant to Article 1186 of the Civil
Code. For purposes, therefore, of determining whether respondent was a
purchaser in good faith, she is deemed to have fully complied with the

Ong is ordered to pay petitioner Raymundo de Leon P684,500 representing

the balance of the purchase price as provided in their March 10, 1993
agreement.

condition of the payment of the remainder of the purchase price.

Costs against petitioner.

Respondent was not aware of any interest in or a claim on the properties

SO ORDERED.

other than the mortgage to RSLAI which she undertook to assume. Moreover,
Viloria bought the properties from petitioner after the latter sold them to
respondent. Respondent was therefore a purchaser in good faith. Hence, the
rules on double sale are applicable.

[G.R. No. 116665. March 20, 1996]

MELQUIADES D. AZCUNA, JR., petitioner, vs. COURT OF APPEALS, ET
AL., respondents.

39

DECISION
FRANCISCO, J.:
Under a one (1) year lease contract commencing on July 1, 1992 and
ending on June 30, 1993 but renewable upon agreement, herein petitioner
Azcuna, Jr., as lessee, occupied three (3) units (C, E and F) of the building
owned by private respondent Barcelonas family. Came expiration date of the
lease without an agreed renewal thereof and coupled by petitioners failure to
surrender the leased units despite private respondents demands, private

SO ORDERED.
Petitioner now comes to the Court via the instant petition not to contest
his ouster from the leased premises nor the amount of monthly rental he was
adjudged to pay until he vacates the same, but only to take particular
exception to respondent CAs decision insofar as it affirmed the municipal
trial courts award of P3,000.00 per day as damages (sub-paragraph 2 of the
dispositive portion just quoted). It is petitioners claim that such award, in
addition to the fair rental value or reasonable compensation for the use and
occupation of the premises (sub-paragraph 1), is improper in the light of the

respondent filed before the Municipal Trial Court an ejectment case against

doctrine enunciated in the cases of Felesilda v. Villanueva,[1] Shoemart,

petitioner. Judgment of that inferior court, affirmed in its entirety by the

Inc. v. CA[2] and Hualam Construction and Development Corp. v.

Regional Trial Court and herein public respondent Court of Appeals on

CA[3] cited by petitioner, that the only damages that can be recovered in an

subsequent appeals taken by petitioner, favored private respondent, the

ejectment suit are the fair rental value or the reasonable compensation for

decretal portion of which reads:

the use and occupation of the real property. Other damages must be claimed
in an ordinary action.

PREMISES CONSIDERED, judgment is hereby rendered in favor of the

plaintiff, Ernesto E. Barcelona, ordering the defendant Melquiades D.

Petitioners reliance on such doctrine is misplaced, inasmuch as

Azcuna, Jr., and all persons claiming rights under him to vacate the

the Felesilda, Shoemart and Hualam cases dealt with additional

premises known as Units C, E and F, in the building owned by plaintiffs

damages and charges other than liquidated damages, defined as x x x those

family located along Congressional Avenue, Quezon City. Defendant is

agreed upon by the parties to a contract, to be paid in case of breach

likewise ordered to pay the following:

thereof.[4] Here, the municipal trial court, in making the P3,000.00 per day
award, was merely enforcing what was stipulated upon in black and white by

1. The sum of P25,000.00 monthly as rental for continued use by defendant

private respondent-lessor and petitioner-lessee appearing in paragraph 10 of

of the three (3) units of leased premises in question starting July 1, 1993 less

the lease contract which reads:

the amount that have been deposited or given by the defendant to the
plaintiff up to such time the defendant and all persons claiming rights under

That after the termination of the lease, the LESSEE shall peaceably deliver

him finally vacate the aforesaid premises;

to the LESSOR the leased premises vacant and unencumbered and in good
tenantable conditions minus the ordinary wear and tear. In case the

2. The further sum of P3,000.00 per day, by way of damages for his failure to

LESSEEs failure or inability to do so, LESSOR has the right to charge the

turn over peacefully the three (3) commercial spaces to the plaintiff from July

LESSEE P1,000.00 per day as damages without prejudice to other remedies

1, 1993 until such time the defendant and all persons claiming rights under

which LESSOR is entitled in the premise. (Italics supplied)

him vacate the premises;

This is clearly an agreement for liquidated damages - entitling private
3. The further sum of P5,000.00 by way of attorneys fees; and,

respondent to claim a stipulated amount by way of damages (correctly

totalling P3,000.00 per day as there were three [3] units being leased by

4. The cost of this suit.

petitioner) over and above other damages still legally due him, i.e., the fair
rental value for the use and occupation of the property as provided for in

The counter-claim of the defendant is hereby Dismissed, for lack of merit.

Section 8, Rule 70 of the Rules of Court. The freedom of the contracting

40

parties to make stipulations in their contract provided they are not contrary
to law, morals, good customs, public order or public policy is so settled, and
the Court finds nothing immoral or illegal with the indemnity/ penalty clause

SECOND DIVISION

of the lease contract (paragraph 10) which does not appear to have been
forced upon or fraudulently foisted on petitioner. Petitioner cannot now evade
further liability for liquidated damages, for after entering into such an
agreement, petitioner cannot thereafter turn his back on his word with a plea
that on him was inflicted a penalty shocking to the conscience and impressed

MANUEL C. ACOL, substituted

G.R. No. 135149

by MANUEL RAYMOND ACOL,

with iniquity as to call for the relief sought on the part of a judicial tribunal. [5]

Petitioner,

The controlling case here is, as correctly invoked by private respondent,

Present:

Gozon v. Vda. de Barrameda[6] which involved similar facts and the same

PUNO, J., Chairperson,

issue raised by herein petitioner. There, the then Court of First Instance of

SANDOVAL-GUTIERREZ,

Rizal affirmed the judgment of the then justice of the peace court of
Caloocan in a detainer case ordering defendant-appellant Barrameda to pay

- versus -

CORONA,
AZCUNA and

complainant Gozon the sum of P 1,622.43 as rentals due up to July 3, 1958

plus P5,000.00 as liquidated damages, and costs. Appellant Barrameda

GARCIA, JJ.

likewise assailed the propriety of the P5,000.00 award in addition to the

rentals. The Court upheld the then CFIs affirmatory decision by disposing
of appellant Barramedas protestation in this wise:
This Court has often stated that inferior courts have exclusive jurisdiction

PHILIPPINE COMMERCIAL
CREDIT CARD INCORPORATED,
Respondent.

over cases of forcible entry and detainer regardless of the value of damages

Promulgated:

demanded. It has also ruled that the damages that may be recovered in
actions for ejectment are those equivalent to a reasonable compensation for

July 25, 2006

the use and occupation of the premises by defendant. Nonetheless, this latter
legal proposition is not pertinent to the issue raised in the instant case because
here, the damage sought to be recovered had previously been agreed to by

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

lessee (in the contract of lease) and imposed by lessor by way of

damages. Besides, nobody can affirm that the liquidated amount of damages

DECISION

stipulated in the lease contract was not due to occupation or loss of

possession of the premises and non-compliance with the contract. (Italics
supplied)

CORONA, J.:

WHEREFORE, the instant petition for review by way of certiorari is

hereby DENIED.
SO ORDERED.

In this petition for review on certiorari from a decision[1] and a

resolution[2] of the Court of Appeals, petitioner assails as contrary to public

41

policy a particular stipulation contained in the terms and conditions

governing the use of his Bankard credit card.
The facts of the case follow.[3]

On August 20, 1982, petitioner Manuel Acol applied with respondent for
a Bankard credit card and extension.[4] Both were issued to him shortly
thereafter. For several years, he regularly used this card, purchasing from
respondents accredited establishments and paying the corresponding
charges for such purchases.

Late in the evening of April 18, 1987, petitioner discovered the loss of
his credit card. After exhausting all efforts to find it, the first hour of the
following day, April 19, 1987, a Sunday, he called up respondents office and
reported the loss. The representative he spoke to told him that his card
would be immediately included in the circular of lost cards.

Again, on April 20, 1987, petitioner called up respondent to reiterate his

report on the loss of his card. He inquired if there were other requirements
he needed to comply with in connection with the loss. Respondents
representative advised him to put into writing the notice of loss and to
submit it, together with the extension cards of his wife and daughter.
Petitioner promptly wrote a letter dated April 20, 1987 confirming the loss
and sent it to respondent which received it on April 22, 1987.

On April 21, 1987, a day before receiving the written notice, respondent
issued a special cancellation bulletin informing its accredited establishments
of the loss of the cards of the enumerated holders, including petitioners.

Unfortunately, it turned out that somebody used petitioners card on

April 19 and 20, 1987 to buy commodities worth P76,067.28. The accredited
establishments reported the invoices for such purchases to respondent which
then billed petitioner for that amount.

Petitioner informed respondent he would not pay for the purchases

made after April 19, 1987, the day he notified respondent of the loss.
Immediately after receiving his statement of account for the period ending
April 30, 1987, petitioner confirmed his exceptions to the billing in writing.

At first, respondent agreed to reverse the disputed billings, pending the

result of an investigation of petitioners account. After the investigation and
review, the respondent, through its Executive Vice-President and General
Manager, Atty. Serapio S. Gabriel, confirmed that it was not the petitioner
who used his Bankard on April 19 and 20, 1987.

Nonetheless, respondent reversed its earlier position to delete the

disputed billings and insisted on collecting within 15 days from notice. It
alleged that it was the most practicable procedure and policy of the
company. It cited provision no. 1 of the Terms and Conditions Governing
The Issuance and Use of the Bankard found at the back of the application
form:

xxx Holders responsibility for all charges made

through the use of the card shall continue until the
expiration or its return to the Card Issuer or until a
reasonable time after receipt by the Card Issuer of written
notice of loss of the Card and its actual inclusion in the
Cancellation Bulletin. xxx

Petitioner, through his lawyer, wrote respondent to deny liability for the
disputed charges. In short order, however, respondent filed suit in the
Regional Trial Court (RTC) of Manila[5] against petitioner for the collection
of P76,067.28, plus interest and penalty charges.[6]

After considering the evidence, the trial court dismissed the case and
ordered the respondent-plaintiff to pay petitioner attorneys fees of P10,000
and the costs of the suit.[7] The RTC denied respondents motion for
reconsideration.[8]

Respondent appealed to the Court of Appeals, which, while not

disputing factual findings, reversed the RTC ruling and held petitioner liable
for the P76,067.28. The Court of Appeals denied petitioners motion for
reconsideration. Thus, this petition.

42

The basic issue in this case is whether or not the contested provision in
the contract (provision no. 1 of the Terms and Conditions) was valid and
binding on the petitioner, given that the contract was one of adhesion.

The petition has merit.

The facts of this case are virtually identical with those of Ermitao v.
Court
of
Appeals.[9] In
that
case,
petitioner-extension
cardholder ManuelitaErmitao lost her card on the night of August 29, 1989
when her bag was snatched in Makati. That very same evening, she reported
the loss and immediately thereafter sent written notice to the respondent
credit card company, BPI Express Card Corp. (BECC).

The verbal and written notices notwithstanding, respondent insisted

on billing petitioner Luis Ermitao, Manuelitas husband and the principal
cardholder, for purchases made after the date of the loss
totalling P3,197.70. To justify the billing, respondent BECC cited the
following stipulation in their contract:

In the event the card is lost or stolen, the cardholder

agrees to immediately report its loss or theft in writing to
BECCpurchases made/incurred arising from the use of
the lost/stolen card shall be for the exclusive account of the
cardholder and the cardholder continues to be liable for
the purchases made through the use of the lost/stolen
BPI Express Card until after such notice has been given
to BECC and the latter has communicated such
loss/theft to its member establishments. (emphasis ours)

It is worth noting that, just like the assailed provision in this case,
the stipulation devised by respondent BECC required two conditions before
the cardholder could be relieved of responsibility from unauthorized charges:
(1) the receipt by the card issuer of a written notice from the cardholder
regarding the loss and (2) the notification to the issuers accredited
establishments regarding such loss.

We struck down this stipulation as contrary to public policy and

granted the Ermitaos petition:

Prompt notice by the cardholder to the credit card

company of the loss or theft of his card should be
enough to relieve the former of any liability occasioned
by the unauthorized use of his lost or stolen card. The
questioned stipulation in this case, which still requires the
cardholder to wait until the credit card company has notified
all its member-establishments, puts the cardholder at the
mercy of the credit card company which may delay
indefinitely the notification of its members to minimize if not
to eliminate the possibility of incurring any loss from
unauthorized purchases. Or, as in this case, the credit card
company may for some reason fail to promptly notify its
members through absolutely no fault of the cardholder. To
require the cardholder to still pay for the unauthorized
purchases after he has given prompt notice of the loss or
theft of his card to the credit card company would
simply be unfair and unjust. The Court cannot give its
assent to such a stipulation which could clearly run
against public policy. (emphasis ours)

In this case, the stipulation in question is just as repugnant to public

policy as that in Ermitao. As petitioner points out, the effectivity of the
cancellation of the lost card rests on an act entirely beyond the control of the
cardholder. Worse, the phrase after a reasonable time gives the issuer the
opportunity to actually profit from unauthorized charges despite receipt of
immediate written notice from the cardholder.

Under such a stipulation, petitioner could have theoretically done

everything in his power to give respondent the required written notice. But if
respondent took a reasonable time (which could be indefinite) to include the
card in its cancellation bulletin, it could still hold the cardholder liable for
whatever unauthorized charges were incurred within that span of time. This
would have been truly iniquitous, considering the amount respondent
wanted to hold petitioner liable for.

Article 1306 of the Civil Code [10] prohibits contracting parties from
establishing stipulations contrary to public policy. The assailed provision was

43

just such a stipulation. It is without any hesitation therefore that we strike it

down.

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

WHEREFORE,
the
petition
is
hereby GRANTED.
The
assailed decision of the Court of Appeals in CA-G.R. CV No. 39590 is
reversed. The decision of the Regional Trial Court of Manila on September 30,
1991 in Civil Case No. 88-44115 is REINSTATED and the complaint filed by
Philippine Commercial Credit Card Incorporated against petitioner is
dismissed.

waives any other venues.[1]

In an order, dated 15 August 2001, the Regional Trial Court of Iligan
City, Lanao del Norte, denied petitioners motion to dismiss and required it to
file an answer within 15 days from receipt thereof.
Petitioner PILTEL filed a motion for the reconsideration, through
registered mail, of the order of the trial court. In its subsequent order, dated
08 October 2001, the trial court denied the motion for reconsideration.
Petitioner filed a petition for certiorari under Rule 65 of the Revised
Rules of Civil Procedure before the Court of Appeals.

SO ORDERED.

The Court of Appeals, in its decision of 30 April 2002, saw no merit in

[G.R. No. 156966. May 7, 2004]

PILIPINO

TELEPHONE

CORPORATION, petitioner,

the petition and affirmed the assailed orders of the trial court. Petitioner
vs. DELFINO

TECSON, respondent.
DECISION
VITUG, J.:

moved for a reconsideration, but the appellate court, in its order of 21

January 2003, denied the motion.
There is merit in the instant petition.
Section 4, Rule 4, of the Revised Rules of Civil Procedure [2] allows the
parties to agree and stipulate in writing, before the filing of an action, on the
exclusive venue of any litigation between them. Such an agreement would be

The facts, by and large, are undisputed.

valid and binding provided that the stipulation on the chosen venue is
exclusive in nature or in intent, that it is expressed in writing by the parties

On various dates in 1996, Delfino C. Tecson applied for six (6) cellular

thereto, and that it is entered into before the filing of the suit. The provision

phone subscriptions with petitioner Pilipino Telephone Corporation (PILTEL),

contained in paragraph 22 of the Mobile Service Agreement, a standard

a company engaged in the telecommunications business, which applications

contract made out by petitioner PILTEL to its subscribers, apparently

were each approved and covered, respectively, by six mobiline service

accepted and signed by respondent, states that the venue of all suits arising

agreements.

from the agreement, or any other suit directly or indirectly arising from the
relationship between PILTEL and subscriber, shall be in the proper courts of

On 05 April 2001, respondent filed with the Regional Trial Court of

Makati, Metro Manila. The added stipulation that the subscriber expressly

Iligan City, Lanao Del Norte, a complaint against petitioner for a Sum of

waives any other venue[3] should indicate, clearly enough, the intent of the

Money and Damages. Petitioner moved for the dismissal of the complaint on

parties to consider the venue stipulation as being preclusive in character.

the ground of improper venue, citing a common provision in the mobiline

service agreements to the effect that -

44

The appellate court, however, would appear to anchor its decision on the
thesis that the subscription agreement, being a mere contract of adhesion,

therefore, were the passengers accorded a real opportunity to examine the

fine prints contained in the tickets, let alone reject them.

does not bind respondent on the venue stipulation.

A contract duly executed is the law between the parties, and they are
Indeed, the contract herein involved is a contract of adhesion. But such
an agreement is not per se inefficacious. The rule instead is that, should

obliged to comply fully and not selectively with its terms. A contract of
adhesion is no exception.[7]

there be ambiguities in a contract of adhesion, such ambiguities are to be

construed against the party that prepared it. If, however, the stipulations are

WHEREFORE, the instant petition is GRANTED, and the questioned

not obscure, but are clear and leave no doubt on the intention of the parties,

decision and resolution of the Court of Appeals in CA-G.R. SP No. 68104 are

the literal meaning of its stipulations must be held controlling. [4]

REVERSED and SET ASIDE. Civil Case No. 5572 pending before the
Regional Trial Court of Iligan City, Branch 4, is DISMISSED without

A contract of adhesion is just as binding as ordinary contracts. It is

true that this Court has, on occasion, struck down such contracts as being

prejudice to the filing of an appropriate complaint by respondent against

petitioner with the court of proper venue. No costs.

assailable when the weaker party is left with no choice by the dominant
bargaining party and is thus completely deprived of an opportunity to

SO ORDERED.

bargain effectively. Nevertheless, contracts of adhesion are not prohibited

even as the courts remain careful in scrutinizing the factual circumstances
underlying each case to determine the respective claims of contending parties
on their efficacy.

FIRST DIVISION

In the case at bar, respondent secured six (6) subscription contracts for
cellular phones on various dates. It would be difficult to assume that,
during each of those times, respondent had no sufficient opportunity to read
and

go

over

the

terms

and

conditions

embodied

in

the

agreements. Respondent continued, in fact, to acquire in the pursuit of his

business subsequent subscriptions and remained a subscriber of petitioner
for quite sometime.
In Development Bank of the Philippines vs. National Merchandising
Corporation,

[5]

the contracting parties, being of age and businessmen of

G.R. No. 90634-35 June 6, 1990

CARMELCRAFT CORPORATION &/OR CARMEN V. YULO, President and
General Manager, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, CARMELCRAFT
EMPLOYEES UNION, PROGRESSIVE FEDERATION OF LABOR,
represented by its Local President GEORGE OBANA, respondents.

experience, were presumed to have acted with due care and to have signed
the assailed documents with full knowledge of their import. The situation

Tee, Tomas & Associates for petitioners.

would be no less true than that which obtains in the instant suit. The
circumstances in Sweet Lines, Inc. vs. Teves,[6] wherein this Court invalidated

Raul E. Espinosa for private respondents.

the venue stipulation contained in the passage ticket, would appear to be

rather peculiar to that case. There, the Court took note of an acute shortage
in inter-island vessels that left passengers literally scrambling to secure
accommodations and tickets from crowded and congested counters. Hardly,

CRUZ, J.:

45

The Court is appalled by the degree of bad faith that has characterized the

losses in the amount of P 1,603.88 as of December 31, 1986 . 3 There is no

petitioners' treatment of their employees. It borders on puredisdain. And on

report, however, of its operations during the period after that date, that is,

top of this, they now have the temerity to seek from us a relief to which they

during the succeeding seven and a half months before it decided to close its

are clearly not entitled. The petition must be dismissed.

business. Significantly, the company is capitalized at P 3

The record shows that after its registration as a labor union, the Camelcraft
Employees Union sought but did not get recognition from the petitioners.
Consequently, it filed a petition for certification election in June 1987. On
July 13, 1987, Camelcraft Corporation, through its president and general
manager, Carmen Yulo, announced in a meeting with the employees that it
would cease operations on August 13, 1987, due to serious financial losses.
Operations did cease as announced. On August 17, 1987, the union filed a
complaint with the Department of Labor against the petitioners for illegal
lockout, unfair labor practice and damages, followed the next day with
another complaint for payment of unpaid wages, emergency cost of living
allowances, holiday pay, and other benefits. On November 29, 1988, the
Labor Arbiter declared the shutdown illegal and violative of the employees'
right to self-organization. The claim for unpaid benefits was also
granted.

After reviewing the decision on appeal, the respondent NLRC

declared:
WHEREFORE, premises considered, the appealed decision is
modified. In addition to the underpayment in their wages,
emergency living allowance, 13th month pay, legal holiday
pay and premium pay for holidays for a period of three years,
the respondents are ordered to pay complainants their
separation pay equivalent to one-month pay for every year of
service, a fraction of six months or more shall be considered
as one (1) whole year.
The rest of the disposition stand.

million . 4 Considering such a substantial investment, we hardly think that a

loss of the paltry sum of less than P 2,000.00 could be considered serious
enough to call for the closure of the company.
We agree with the public respondent that the real reason for the decision of
the petitioners to cease operations was the establishment of respondent
Carmelcraft Employees Union. It was apparently unwelcome to the
corporation, which would rather shut down than deal with the union. There
is the allegation from the private respondent that the company had suggested
that it might decide not to close the business if the employees were to affiliate
with another union which the management preferred.

This allegation has

not been satisfactorily disproved. At any rate, the finding of the NLRC is more
believable than the ground invoked by the petitioners. Notably, this
justification was made only eight months after the alleged year-end loss and
shortly after the respondent union filed a petition for certification election.
The act of the petitioners was an unfair labor practice prohibited by Article
248 of the Labor Code, to wit:
ART. 248. Unfair labor practices of employers.-It shall be
unlawful for an employer to commit any of the following
unfair labor practice:
(a) To interfere with, restrain or coerce employees in the
exercise of their right to self-organization;

More importantly, it was a defiance of the constitutional provision

guaranteeing to workers the right to self-organization and to enter into

We do not find that the above decision is tainted with grave abuse of

collective bargaining with management through the labor union of their own

discretion. On the contrary, it is comformable to the pertinent laws and the

choice and confidence.

facts clearly established at the hearing.

The reason invoked by the petitioner company to justify the cessation of its
operations is hardly credible; in fact, it is preposterous when viewed in the
light of the other relevent circumstances. Its justification is that it sustained

The determination to cease operations is a prerogative of management that is

usually not interfered with by the State as no business can be required to
continue operating at a loss simply to maintain the workers in

46

employment.

That would be a taking of property without due process of law

signing over benefits to which he is clearly entitled. Recognizing this danger,

which the employer has a right to resist. But where it is manifest that the

we have consistently held that quitclaims of the workers' benefits win not

closure is motivated not by a desire to avoid further losses but to discourage

estop them from asserting them just the same on the ground that public

the workers from organizing themselves into a union for more effective

policy prohibits such waivers.

negotiations with the management, the State is bound to intervene.

That the employee has signed a satisfaction receipt does not
And, indeed, even without such motivation, the closure cannot be justified

result in a waiver; the law does not consider as valid any

because the claimed losses are obviously not serious. In this situation, the

agreement to receive less compensation than what a worker

employees are entitled to separation pay at the rate of one-half month for

is entitled to recover. A deed of release or quitclaim cannot

every year of service under Art. 283 of the Labor Code.

bar an employee from demanding benefits to which he is

legally entitled.

The contention of the petitioners that the employees are estopped from
claiming the alleged unpaid wages and other compensation must also be

Release and quitclaim is inequitable and incongruous to the

rejected. This claim is based on the waivers supposedly made by the

declared public policy of the State to afford protection to

complainants on the understanding that "the management will implement

labor and to assure the rights of workers to security of

prospectively all benefits under existing labor standard laws." The petitioners

tenure.

argue that this assurance provided the consideration that made the
quitclaims executed by the employees valid. They add that the waivers were
made voluntarily and contend that the contract should be respected as the
law between the parties.

We find also untenable the contention of Carmen Yulo that she is not liable
for the acts of the petitioner company, assuming it had acted illegally,
because the Carmelcraft Corporation is a distinct and separate entity with a
legal personality of its own. Yulo claims she is only an agent of the company

Even if voluntarily executed, agreements are invalid if they are contrary to

carrying out the decisions of its board of directors. We do not agree. Our

public policy. This is elementary. The protection of labor is one of the policies

finding is that she is in fact and legal effect the corporation, being not only

laid down by the Constitution not only by specific provision but also as part

its president and general manager but also its owner.

of social justice. The Civil Code itself provides:

ART. 6. Rights may be waived, unless the waiver is contrary
to law, public order, public policy, morals, or good customs,
or prejudicial to a third person with a right recognized by
law.
ART. 1306. The contracting parties may establish such
stipulations, clauses, terms and conditions as they may
deem convenient, provided they are not contrary to law,
morals, good customs, public order, or public policy.
The subordinate position of the individual employee vis-a-vis management
renders him especially vulnerable to its blandishments and importunings,
and even intimidations, that may result in his improvidently if reluctantly

10

Moreover, and this is a no less important consideration, she is raising this

issue only at this tardy hour, when she should have invoked this argument
earlier, when the case was being heard before the labor arbiter and later m
the NLRC. It is too late now to shunt these responsibilities to the company
after she herself had been found liable.
All told, the conduct of the petitioners toward the employees has been less
than commendable. Indeed, it is reprehensible. First, the company inveigled
them to waive their claims to compensation due them on the promise that
future benefits would be paid (and to make matters worse, there is no
showing that they were indeed paid). Second, it refused to recognize the
respondent union, suggesting to the employees that they join another union
acceptable to management. Third, it threatened the employees with the
closure of the company and then actually did so when the employees insisted

47

on their demands. All these acts reflect on the bona fides of the petitioners

Pasay City was executed by and between the private respondents Sabenianos

and unmistakably indicate their ill will toward the employees.

as owners-lessors, and petitioner Manila Bay Club Corporation as lessee. 1

The petitioners obviously regard the private respondents as mere servants

The lease agreement, however, was short-lived because private respondents,

simply because they are paid employees. That is a mistake. Laborers are not

in a letter dated May 28, 1990, unilaterally terminated the lease with the

just hired help to be exploited, without the right to defend and improve their

request that petitioner vacate the leased premises and peacefully surrender

interest . The working class is an equal partner of management and should

its possession, on the following grounds:

always be treated as such.

xxx xxx xxx
The more labor is prevented from pursuing its legitimate demands for its
protection and enhancement, the more it is likely to lose faith in our free

1. Failure on the part of the LESSEE until this very late date, to

institutions and to incline toward Ideologies offering a more if deceptive

insure the leased building which is a violation of the requirement of

regime. One way of disabusing our working men and women of this delusion

paragraph 22 of the CONTRACT OF LEASE and highly prejudicial to

is to assure them that under our form of government, the interests of labor

the interest of the LESSOR;

deserve and will get proper recognition from an enlightened and

compassionate management, no less than the total sympathy of a solicitous

2. For unpaid accumulated rentals in arrears, amounting to the

State.

appreciable sum of P151,575.57 and failure on your part as LESSEE

to issue all the postdated checks agreed upon in the original and

WHEREFORE, the petition is DISMISSED and the challenged decision is

amended contract, dated March 15, 1988;

AFFIRMED, with costs against the petitioner. It is so ordered.

3. For failure on the part of the LESSEE to pay the fees, taxes and
other assessments on the improvements as required by paragraph 16
G.R. No. 110015 July 11, 1995
MANILA BAY CLUB CORPORATION, petitioner,
vs.
THE COURT OF APPEALS, MODESTA SABENIANO and MIRIAM

of the Contract of Lease, which is also prejudicial to the ownerlessor.

Private respondents invoked the "Special Clause" of the lease contract as

found in paragraph 19 thereof to justify their action. It reads:

SABENIANO, JUDITH SABENIANO, JOY DENNIS SABENIANO, et.

19. If the rental herein stipulated or any part thereof at any time,

al., respondents.

shall be in arrears or unpaid, or if the tenant shall at any time fail or

neglect to perform or comply with any of the covenants, conditions,
agreements or restrictions stipulated or if the tenants shall become
bankrupt or insolvent or shall compound with his creditors, then

FRANCISCO, J.:

and in any of such above cases, this lease contract shall become

A ten-year lease contract, commencing on March 4, 1988 and set to expire on

be peacefully vacated by the LESSEE for the LESSOR to hold and

March 4, 1998, over the subject building situated at 1408 Roxas Boulevard,

automatically terminated and cancelled and the said premises shall

enjoy henceforth as if these presents have not been made and it shall
be lawful for the LESSOR or any person duly authorized in his
behalf, without any formal notice or demand to enter into and upon

48

said leased premises or any part thereof without prejudice on the

8. The LESSEE hereby expressly agrees and warrants that he shall

part of the LESSOR to exercise all rights on the contract of lease and

use the premises exclusively for the following purposes: restaurant,

those given by law. And upon such cancellation of the contract, the

catering, gym, recreation, and other services which are not contrary

LESSEE hereby grants to the LESSOR the legal right to enter and

to public laws, morals and that which is legal, and lawful. Such

take possession of the leased premises as though the term of the

purposes as gambling and prostitution or any other practices of

lease contract has expired.

similar nature is strictly prohibited., and

Feeling aggrieved by the premature termination of the lease, petitioner on

3) failed to secure an insurance policy on the leased premises for the benefit

June 8, 1990 filed a complaint with the Makati Regional Trial Court for

of private respondents as lessors, as provided for in paragraph 22;

"Specific Performance with Prayer for Preliminary Injunction and Damages"

against private respondents, alleging in substance that private respondents'

Effectivity of this Lease.

unilateral cancellation of the lease contract was arbitrary and capricious, for
petitioner did not violate any of its provisions. Petitioner thus prayed that

xxx xxx xxx

private respondents be ordered to desist from further harassing petitioner,

honor the lease contract, and to pay exemplary damages, professional fee and
costs.

22. The building must be insured and the insurance premium must

be for the account of the LESSEE. The appraised value of the present
status of the building by the insurance company shall be the amount

On the other hand, private respondents in their answer claimed that

of insurance of which the beneficiary shall be for the benefit of the

petitioner: 1) failed to pay monthly rentals as they fell due, in violation of

LESSOR. The appraised value of the improvements or renovation

paragraph 2;

made by the insurance company shall accrue to the benefit of the

LESSEE.

Monthly Rental
By reason of these violations, specifically that pertaining to paragraph 22,
2. The rate of the monthly rental shall be Thirty Five Thousand Pesos

private respondents argued that the lease contract was deemed terminated

(P35,000.00), with an annual acceleration rate of Five (5) percent for

and cancelled pursuant to the "Special Clause" in paragraph 19 providing for

the succeeding three (3) years, and Seven (7) percent for the

automatic termination and cancellation, thereby entitling private

remaining four (4) years which shall be paid in advance by the

respondents to take the possession of the leased premises.

LESSEE to the LESSOR every fourth (4th) day of every month

effective immediately upon the signing of this Contract of Lease

The trial court held that petitioner was not in default nor in arrears in

without the necessity of demand. Overdue monthly rentals shall earn

payment of rentals to private respondents, and that evidence is wanting to

interest at the rate of five (5) percent per month. Continuous non-

prove that the leased premises were being used by petitioner for gambling

payment of rent for a period of three (3) months shall be understood

and prostitution activities. However, the trial court found that petitioner

as an automatic cancellation of the lease agreement without

violated the "insurance clause" (paragraph 22) of the contract. It declared

prejudice to the LESSEE to redeem such non-payment subject to a

that:

corresponding penalty charges and surcharge as provided for in this

agreement.

. . . , the evidence shows and the plaintiff (petitioner) even admitted

in its memorandum, that it failed to secure an appraisal of the leased

2) used the leased premises for gambling and prostitution, prohibited under

building in its original condition or at the time of the execution of the

paragraph 8;

49

contract for the purpose of insuring the same for the benefit of the

(a) deleting the ten (10%) per cent interest per annum on the monthly

defendants (private respondents).

rental or P250,000.00; and

While it is true as pointed out by the plaintiff, that it has insured the

(b) deleting the award of P20,000.00 attorney's fees,

leased building in question from the very inception of the lease

contract, the Court notes that the beneficiary of said insurance

the decision is hereby AFFIRMED in all other respects. No

policies was the Manila Bay Club Corporation and not the

pronouncement as to costs.

defendants-lessor as agreed upon in the contract. (See paragraph 22,

Contract of Lease, Exhibits "A", "K" and "L") Although nothing had

SO ORDERED.

happened on the insured building, the fact of the matter is that the
defendants who owned the building were unnecessarily exposed to

Petitioner's motion for reconsideration was likewise denied in a Resolution

the insurable risk during the period of the insurance policies

dated May 7, 1993. 6 Hence, this petition for review on certiorari with

referred to, and that in case of loss the defendants would not have

petitioner assigning the following errors, to wit:

collected the proceeds of the insurance.

Plaintiff, also argued that it had insured the subject building with
the Fortune Assurance and Indemnity Corporation for the period of
June 15, 1990 to June 15, 1991 with the defendant as the
beneficiary (Exhibit "J-1"). Examination of said insurance policy
(Exhibit "J") however, shows that it was dated June 1, 1990 or after
the defendant Modesta R. Sabeniano had written the plaintiff on May
28, 1990 (Exhibit "C") informing the latter that their contract was
considered terminated (under paragraph 19 of their lease contract)
by reason of violation of the terms thereof.
Consequently, the trial court in its decision dated October 17,
1991 4 dismissed the complaint, declared the lease contract terminated as of

I
IN HOLDING THAT THE PETITIONER HAD VIOLATED PARAGRAPH
22 OF THE CONTRACT OF LEASE DATED MARCH 4, 1988, ANNEX
"D" HEREOF, AND THAT AS A CONSEQUENCE, THE PRIVATE
RESPONDENTS WERE JUSTIFIED IN RESCINDING THE SAID
CONTRACT OF LEASE, THE RESPONDENT COURT OF APPEALS
COMMITTED A REVERSIBLE ERROR IN THAT IT DECIDED A
QUESTION OF SUBSTANCE IN A WAY PROBABLY NOT IN ACCORD
WITH LAW, THE PETITIONER NOT HAVING COMMITTED ANY
VIOLATION WHATSOEVER OF THE CONTRACT OF LEASE.
II

May 28, 1990, and ordered petitioner to immediately return possession of the
leased premises to private respondents and pay monthly rentals of

IN SUSTAINING RESCISSION ON ACCOUNT OF THE PETITIONER'S

P250,000.00 commencing on May 28, 1990 with 10% interest per annum,

ALLEGED VIOLATION OF PARAGRAPH 22 OF THE CONTRACT OF

P20,000.00 attorney's fees and litigation expenses.

LEASE DATED MARCH 4, 1988, ANNEX "D" HEREOF, ASSUMING,

WITHOUT ADMITTING THAT THE PETITIONER HAD VIOLATED

Petitioner appealed to respondent Court of Appeals which, in its now-assailed

5

PARAGRAPH 22 OF THE SAID CONTRACT, THE RESPONDENT

decision dated March 25, 1993 affirmed with modification the lower court's

COURT COMMITTED A REVERSIBLE ERROR IN THAT IT DECIDED

decision. The decretal portion provides:

A QUESTION IN A WAY PROBABLY NOT IN ACCORD WITH LAW,

THE PETITIONER'S VIOLATION, IF ANY, HAVING BEEN SLIGHT OR

WHEREFORE, with the following modifications:

CASUAL TO PRECLUDE RESCISSION.

III

50

IN GRANTING DAMAGES, THE RESPONDENT COURT OF APPEALS

We reject plaintiff-appellant's proposition. Under the factual features

COMMITTED A REVERSIBLE ERROR IN THAT THERE IS NO BASIS

of this case, for the fire insurance policy for the period of June 15,

FOR THE AWARD OF DAMAGES.

1988 to June 15, 1989, in the amount of P5,000,000.00, the assured

was only the Manila Bay Club Corporation, plaintiff-appellant herein
(Exhibit "K"). In the same vein, in the fire insurance policy for June

IV

15, 1989 to June 15, 1990 in the sum of P5,000,000.00, the assured
IN DISMISSING THE PETITIONER'S APPEAL, WHICH WAS

was plaintiff-appellant Manila Bay Club Corporation and no other

MERITORIOUS, THE RESPONDENT COURT OF APPEALS

else (Exhibit "L").

COMMITTED A REVERSIBLE ERROR.

Clearly, from the inception of the contract of lease on March 4, 1990,

The first assigned error touches on the issue of whether or not petitioner

or for two years, plaintiff-appellant already violated paragraph 22 of

violated the "insurance clause" (paragraph 22) of the lease contract. With an

the contract that the building must be insured and the insurance

outright dismissal of the petition in mind, private respondents argue that the

premium must be for the account of the lessors. In fact, in its letter

question is purely factual no longer reviewable by, and thus binding on the

of May 21, 1990, plaintiff-appellant admitted that:

Court. Respondent Court of Appeals' findings, as quoted hereunder,

essentially affirming those made by the trial court that petitioner committed

We are still working out with an Insurance Company

a breach of the "insurance clause", should therefore be upheld and left

for segregating the coverage for issuance of policy

undisturbed.

purposes, . . . . (par. III, Exhibit "F"; also Exhibit "3").

Assailing the trial court's rationalization, appellant contends that

It will be noted that plaintiff-appellant filed the instant case on June

while the lease contract did call for the building to be insured, it was

8, 1990 against defendants-appellants for specific performance. At

incumbent upon the lessors, the defendants herein, to provide the

the time this action was instituted, plaintiff-appellant had not yet

plaintiff with the appraised value of the building to be insured. But

segregated the coverage of the insurance for the benefit of

no such appraised value was furnished plaintiff appellee from the

defendants-lessors. The fire insurance policy for P1,250,000.00

execution of the contract in March 1988 up to the time the case

payable to defendants-lessors (Exhibit "J") became effective only on

reached the court. Nonetheless, according to plaintiff-appellant, the

June 15, 1990 when the case was already being litigated in the court

building was insured for P2,500,000.00 from the period June 15,

below.

1988 to June 15, 1989; and for the period from June 15, 1989 to
June 15, 1990 plaintiff-appellant obtained insurance for the building

Consequently, We find no fault or error by the trial court when it

in the amount of P2,500,000.00 (the sum of P1,250,000.00 for

ruled that plaintiff-appellant violated the lease contract for failure to

defendants-lessors, and P1,250,000.00 for plaintiff-lessee). And for

secure insurance policy on the leased premises for the benefit of the

the period from June 15, 1990 to June 15, 1991, plaintiff-appellant

defendants-lessors. Moreover, Mr. Danilo Aquino, a witness for

continued the insurance on the building for P2,500,000.00, with

plaintiff-appellant admitted that there was a violation of paragraph

one-half thereof payable to defendants-lessors. Thus, according to

22 of the lease contract, to wit:

plaintiff-appellant it had substantially complied with par. 22 of the

lease contract and if there was any delay in the allocation of the

COURT: Can you show to the Court,

amount of the insurance policy, such delay was attributable to

which particular insurance policy

defendants who did not provide plaintiff-appellant with the appraised

that complies with that particular

value of the building.

paragraph?

51

WITNESS: The Fortune Insurance

WITNESS: Yes, sir.

Policy, June 15, 1988, 1989, that

was the insurance policy we get . . .

ATTY. VILLANUEVA: Now, were the

lessors conveying that that is a

ATTY. VILLANUEVA: So you are

ground for termination that was the

referring to Exhibit "K"?

time you secured an insurance

policy with the corresponding

WITNESS: However, we were not

endorsement in favor of the lessor,

able to make the necessary

am I correct?

endorsement and we were able to

make it of the latest insurance

WITNESS: Yes, sir.

policy upon receiving the notice

from the lessor that they are

ATTY. VILLANUEVA: But, was there

demanding the Corporation to

any appraisal that you make to

secure the necessary fire insurance

determine the value of the building

policy.

then existing without the

renovation?

COURT: Repeat, it should be

exclusively for the benefit of the

WITNESS: There was an appraiser,

lessor, did you or did you not comply

sir.

with that?
COURT: Prior to the renovation?
WITNESS: We were not able to
comply with that, Your Honor.

WITNESS: Yes, Your Honor.

ATTY. VILLANUEVA: Now, under

ATTY. VILLANUEVA: What was the

Exhibit "K", which pertains to

appraised value of the lessor's

insurance policy which you took for

property according to your appraisal

the year 1988 to 1989, there was no

now?

mention about the compliance of

this provision, am I correct?

WITNESS: One Million Sixty Four

Thousand Four Hundred Pesos Only

WITNESS: Yes, sir.

(P1,064,400.00), sir. (TSN, pp. 3438, March 5, 1991).

ATTY. VILLANUEVA: Same thing

with the insurance policy for 1989

Plaintiff-appellant further argues that it was the obligation of

to 1990, there was no compliance of

defendants-lessors to provide plaintiff-appellant with the appraised

that specific provision, am I correct?

value of the building for insurance purpose.

52

We are not persuaded by this argument, paragraph 22 of the

Court in the early case of "Cunanan vs. Lazatin" (74 Phil. 719) has ruled

contract of lease is clear and explicit. This provision calls for the

that:

appraised value of the present status of the building by the

insurance company which shall be the amount of the insurance.

There is no question of fact here because the facts are admittedly

Nowhere in paragraph 22 of the lease contract is there stipulated

proven. Whether or not the conclusion drawn by the Court of

that defendants-lessors should furnish the plaintiff-appellant with

Appeals from those facts is correct, is a question of law which this

the appraised value of the building to be insured. The appraisal of

Court is authorized to pass upon.

the building is a task devolving upon the insurance company. It is

basic and fundamental that if the terms of the contract are plain and

"Dauan vs. Sec. of Agriculture and Natural Resources" (19 SCRA 223)

readily understandable, there can be no room for interpretation.

likewise held that:

(Republic vs. Sandigan, 203 SCRA 310). When the terms of a

contract leaves no doubt as to the intention of the parties, the literal

. . . it is a rule now settled that the conclusion drawn from the facts

meaning of the stipulations shall control. (Honrado, Jr. vs. Court of

is a conclusion of law which the courts may review.

Appeals, 198 SCRA 326; Papa vs. Alonzo, 198 SCRA 564). . . . .
And in the relatively recent case of "Binalay vs. Manalo" (195 SCRA 374
Petitioner on the other hand strongly maintains that it is a question of law

[1991]), the Court, speaking thru Justice Feliciano, reiterated the rule:

reviewable and reversible by the Court.

Jurisprudence is likewise settled that the Court of Appeals is the
On this particular point, we agree with petitioner. What a question of law or a

final arbiter of questions of fact. But whether a conclusion drawn

question of fact is has been consistently defined by the Court in this wise:

from such findings of fact is correct, is a question of law cognizable

by this Court.

For a question to be one of law it must involve no examination of the

probative value of the evidence presented by the litigants or any of

However, while a review of the case is in order, we are not inclined to reverse.

them. And the distinction is well-known: There is a question of law in

a given case when the doubt or difference arises as to what the law is

By insisting that it is not disputing facts, petitioner in effect bound itself to

on a certain state of facts; there is a question of fact when the doubt

ALL factual findings made by respondent Court of Appeals. This necessarily

arises as to the truth or the falsehood of alleged facts.

includes the testimony of petitioner's own witness, Mr. Danilo Aquino,

declaring that petitioner indeed failed to comply with paragraph 22 of the

Here, petitioner has made it very clear that it is not disputing respondent

contract requiring that private respondents be made beneficiaries of the

Court of Appeals' and the trial court's findings vis-a-vis its failure to

insurance policies to be procured over the leased building, and that

designate private respondents as beneficiaries in the insurance policies it

petitioner is well-aware that non-compliance is a ground for termination. We

procured on the leased building at the inception of the lease contract. And

quote again that particular testimony:

from the arguments raised herein by petitioner, this Court is indeed not
called upon to reexamine and appreciate anew any evidence presented below,

COURT: Can you show to the Court, which

(e.g., the insurance policies, other documents and oral testimony, etc.), and

particular insurance policy that complies with that

thereafter arrive at a contrary finding. What petitioner is challenging is solely

particular paragraph?

the respondent Court of Appeals' conclusion drawn from these undisputed

facts,i.e., that petitioner's omission to designate private respondents as

WITNESS: The Fortune Insurance Policy, June 15,

beneficiaries constituted a breach of paragraph 22 of the lease contract. This

1988, 1989, that was the insurance policy we get . . .

53

ATTY. VILLANUEVA: So you are referring to Exhibit

Mr. Aquino's testimony is clearly a judicial admission against petitioner's own

"K"?

interest which estops petitioner from contending that its incipient failure to
procure insurance for the benefit of private respondents does not constitute a

WITNESS: However, we were not able to make the

violation of the lease contract, specifically the "insurance clause" (paragraph

necessary endorsement and we were able to make it

22). This is so because under Section 4, Rule 129 of the Rules of Court;

of the latest insurance policy upon receiving the

notice from the lessor that they are demanding the

An admission, verbal or written, made by a party in the course of the

Corporation to secure the necessary fire insurance

proceedings in the same case, does not require proof. The admission

policy.

may be contradicted only by showing that it was made through

palpable mistake or that no such admission was made.

COURT: Repeat, it should be exclusively for the

benefit of the lessor, did you or did you not comply

And that factual finding is as binding on this Court as it is on petitioner, for

with that?

well-settled is the general rule that the jurisdiction of this Court in cases
brought before it from the Court of Appeals is limited to reviewing or revising

WITNESS: We were not able to comply with that, Your

errors of law; findings of fact of the latter are conclusive. 9

Honor.
In assailing its imputed violation of the lease contract, petitioner now argues
ATTY. VILLANUEVA: Now, under Exhibit "K", which

that from a reading of paragraph 22 which provides that:

pertains to insurance policy which you took for the

year 1988 to 1989, there was no mention about the

22. The building must be insured and the insurance premium must

compliance of this provision, am I correct?

be for the account of the LESSEE. The appraised value of the present
status of the building by the insurance company shall be the amount

WITNESS: Yes, sir.

of insurance of which the beneficiary shall be for the benefit of the

LESSOR. The appraised value of the improvement or renovation

ATTY. VILLANUEVA: Same thing with the insurance

made by the insurance company shall accrue to the benefit of the

policy for 1989 to 1990, there was no compliance of

LESSEE.,

that specific provision, am I correct?

nowhere is it expressly stated that the duty to procure the insurance on the
WITNESS: Yes, sir.

leased building for private respondents' benefit devolves exclusively upon

petitioner, thus intimating that private respondents should likewise be

ATTY. VILLANUEVA: Now, were the lessors conveying

faulted for not having obtained the insurance themselves. Petitioner claims

that that is a ground for termination that was the time

an ambiguity in the contract exists.

you secured an insurance policy with the

corresponding endorsement in favor of the lessor, am

Petitioner's argument fails to impress. First, the express admission made by

I correct?

petitioner's witness Mr. Danilo Aquino as to its non-compliance with the

"insurance clause" (paragraph 22) of the lease contract conclusively

WITNESS: Yes, sir. (Emphasis supplied)

presupposes petitioner's full-awareness that such contractual duty rests on

its shoulders. Second, to the May 17, 1990 letter of one of private
respondents, Modesta Sabeniano, reminding petitioner of its repeated failure

54

to deliver to private respondents the Original Policy of the leased building as

per the lease contract,
1990,

11

10

A: Lease contract. He made the preparation, my son

is Romwell . . .

petitioner replied, in its letter dated May 21,

that it is "still working out with our Insurance Company for

Q: Are you talking about the last proposal, lease

segregating the coverage for issuance of policy purposes." The tenor of

contract, Exhibit

petitioner's reply equally indicates, though not as categorical as the

"H-1"?

admission, acknowledgment of a responsibility on its part to insure the

leased building. For if it were otherwise, in the face of private respondents'

A: The old contract. This was his proposal. He

repeated demands on petitioner to secure the insurance, petitioner should

suggested I have to draft a contract for them to

have explained to private respondents that it is not solely duty-bound to

counter.

insure the leased building and that private respondents might as well secure
the insurance themselves. But petitioner did not, and instead immediately

xxx xxx xxx

secured insurance policies for 1988-89 and 1989-90 with petitioner as

beneficiary and not private respondents. And third, petitioner cannot
successfully argue that the lease contract is a contract of adhesion solely

(T.S.N., April 25,1991, pp. 56-57)

12

prepared by private respondents and for which reason the ambiguity should
be resolved against the latter. Private respondent Modesta Sabeniano testified

It becomes clear that the lease contract was, as claimed by private

that petitioner's lawyer, one Atty. Rivera, participated in the preparation of

respondents, indeed the "product of mutual agreement between the parties",

the lease contract.

and not a "take it or leave it" proposition adhered to helplessly by petitioner.

Private respondent Modesta Sabeniano's testimony being a factual matter

REDIRECT EXAMINATION BY ATTY. VILLANUEVA

should be taken on its face value, for, to emphasize once again, petitioner is
precluded from disputing facts. For these reasons, the purported ambiguity

Q: Mrs. Sabeniano, who is this Efren Lim you

is resolved, unfortunately against petitioner.

mentioned in your cross examination?

Petitioner likewise argues that despite its failure to endorse the first two (2)
A: Chairman of the Manila Bay and the person

fire insurance policies to private respondents, the latter are nonetheless

whom I get in contact with Sir.

amply protected since the insurance proceeds are deemed to be held "in
trust" for private respondents. This issue of "trust" was, as aptly pointed out

Q: And he is a signatory to the contract?

by private respondents, never raised before the trial court. Consequently, it

cannot be raised before this Court, for no question will be entertained on

A: Yes, sir.

appeal unless it has been raised in the court below.

13

If this issue was ever

raised, petitioner did so only in its Motion for Reconsideration

14

of

Q: And this Atty. Rivera that you mentioned in the

respondent Court of Appeals' decision, the effect of which is as if it was never

course of your cross examination before the contract

duly raised in that court at all. In "Delos Santos vs. Reyes (205 SCRA. 487),

was made.

the issue of estoppel was not raised by petitioner Delos Santos in the Brief he
submitted before the Court of Appeals. It was thus held that petitioner Delos

A: He was introduced by Mr. Efren Lim as the lawyer

Santos cannot raise it for the first time in a petition for review before the

of Manila Bay Sir, before the contract was made.

Supreme Court.

Q: What contract are you referring to?

55

Coming now to the second assignment of error, petitioner essentially

the insurance coverage will work injustice to defendants-lessors, it

contends that private respondents cannot unilaterally rescind the lease

would unjustly enrich the plaintiff-appellant. Certainly under such

contract because its purported violation of the "insurance clause" (paragraph

milieu, the defendants-lessors would be left in the open, holding an

22) was merely slight or casual.

empty bag. To Our mind, therefore, non-fulfillment of the stipulations

in paragraph 22 of the lease contract is not a mere casual or slight

We do not agree with petitioner. Under paragraph 19 of the lease contract,

breach but a substantial one that goes into the very core of the

the lessee's (petitioner) failure or neglect to perform or comply with any of the

contract of lease, next in priority to the payment of the agreed

covenants, conditions, agreements or restrictions stipulated shall result in

rentals. 16

the automatic termination and cancellation of the lease. It can be fairly

judged from the tenor of paragraph 19 that the parties intended mandatory

Petitioner in its third assignment of error assails the P250,000.00 monthly

compliance with all the provisions of the contract. Among such provisions

rental adjudged against it by the trial court and as affirmed by respondent

requiring strict observance is the "insurance clause" (paragraph 22) which

Court of Appeals, claiming that there was no basis for such finding.

expressly provides that "the building must be insured and the insurance
premium must be for the account of the LESSEE. . . . . (emphasis supplied).

Again, we disagree. In reaching that amount, the trial court took into

Thus, upon petitioner's failure to comply with the mandatory requirement of

consideration the following factors: 1) prevailing rates in the vicinity; 2)

paragraph 22, private respondents were well-within their right to rescind the

location of the property; 3) use of the property; 4) inflation rate; and 5) the

lease contract by express grant of paragraph 19. Certainly, there is nothing

testimony of private respondent Modesta Sabeniano that she was offered by a

wrong if the parties to the lease contract agreed on certain mandatory

Japanese-Filipino investor a monthly rental of P400,000.00 for the leased

provisions concerning their respective rights and obligations, such as the

premises then occupied by petitioner. 17 Petitioner for its part should have

procurement of the insurance and the rescission clause. For it is well to

recall that contracts are respected as the law between the contracting
parties, and they may establish such stipulations, clauses, terms and
conditions as they may want to include. As long as such agreements are not
contrary to law, morals, good customs, public policy or public order they
shall have the force of law between them.15
In this connection, none can be added to the respondent Court of Appeals'
correct observation why petitioner's omission to designate private
respondents as beneficiaries in the insurance policies it secured over the
leased building is not merely a slight or casual breach, but a substantial one
allowing private respondents to rescind the lease contract.
Paragraph 22 of the lease contract demands that plaintiff-appellant
must insure the building subject of the lease with defendants-lessors
as beneficiaries thereof. For two years, the insurance policies taken
on the properties were in the name of plaintiff-appellant, as the
beneficiary. Had the building suffered damages either by fire or other
calamities during the existence of the insurance coverage from 1988
to 1989, the favored party would indeed be plaintiff-appellant. While

presented its controverting evidence below to support what it believes to be

the fair rental value of the leased building since the burden of proof to show
that the rental demanded is unconscionable or exorbitant rests upon the
lessee.

18

But petitioner failed to do so. Hence, the valuation made by the trial

court, as affirmed by respondent Court of Appeals, stands.

It is worth stressing at this juncture that the trial court had the authority to
fix the reasonable value for the continued use and occupancy of the leased
premises after the termination of the lease contract, and that it was not
bound by the stipulated rental in the contract of lease since it is equally
settled that upon termination or expiration of the contract of lease, the rental
stipulated therein may no longer be the reasonable value for the use and
occupation of the premises as a result or by reason of the change or rise in
values.

19

Moreover, the trial court can take judicial notice of the general

increase in rentals of real estate specially of business establishments

20

like

the leased building owned by private respondents.

The crux of the petition having been disposed of, petitioner's last assignment
of error requires no further discussion.

56

WHEREFORE, for lack of merit, the petition is hereby DENIED, and the

Pursuant to their lease agreement, ALLIED introduced an improvement

challenged decision of respondent Court of Appeals is AFFIRMED in toto.

on the property consisting of a concrete building with a floor area of 340square meters which it used as a branch office. As stipulated, the ownership
of the building would be transferred to the lessors upon the expiration of the

SO ORDERED

original term of the lease.

Sometime in February 1988 the Tanqueco spouses executed a deed of
donation over the subject property in favor of their four (4) children, namely,
private respondents herein Oscar D. Tanqueco, Lucia Tanqueco-Matias,

[G.R. No. 124290. January 16, 1998]

ALLIED

BANKING

CORPORATION, petitioner,

APPEALS, HON.

JOSE

TANQUECO, LUCIA D.

C.

DE

vs.

Ruben D. Tanqueco and Nestor D. Tanqueco, who accepted the donation in

COURT

GUZMAN,

TANQUECO-MATIAS,

OF

the same public instrument.

OSCAR D.
RUBEN

D.

TANQUECO and NESTOR D. TANQUECO, respondents

DECISION
BELLOSILLO, J .:

On 13 February 1991, a year before the expiration of the contract of

lease, the Tanquecos notified petitioner ALLIED that they were no longer
interested in renewing the lease.[2] ALLIED replied that it was exercising its
option to renew their lease under the same terms with additional proposals.
[3]

Respondent Ruben D. Tanqueco, acting in behalf of all the donee-lessors,

made a counter-proposal.[4] ALLIED however rejected the counter-proposal

and insisted on Provision No. 1 of their lease contract.

There are two (2) main issues in this petition for review: namely, (a)

When the lease contract expired in 1992 private respondents demanded

whether a stipulation in a contract of lease to the effect that the

that ALLIED vacate the premises. But the latter asserted its sole option to

contract "may be renewed for a like term at the option of the lessee" is void

renew the lease and enclosed in its reply letter a cashiers check in the

for being potestative or violative of the principle of mutuality of contracts

amount of P68,400.00 representing the advance rental payments for six (6)

under Art. 1308 of the Civil Code and, corollarily, what is the meaning of the

months taking into account the escalation clause. Private respondents

clause "may be renewed for a like term at the option of the lessee;" and, (b)

however returned the check to ALLIED, prompting the latter to consign the

whether a lessee has the legal personality to assail the validity of a deed of

amount in court.

donation executed by the lessor over the leased premises.

An action for ejectment was commenced before the Metropolitan Trial
Spouses Filemon Tanqueco and Lucia Domingo-Tanqueco owned a 512-

Court of Quezon City. After trial, the MeTC-Br. 33 declared Provision No. 1

square meter lot located at No. 2 Sarmiento Street corner Quirino Highway,

of the lease contract void for being violative of Art. 1308 of the Civil Code

Novaliches, Quezon City, covered by TCT No. 136779 in their name. On 30

thus -

June 1978 they leased the property to petitioner Allied Banking Corporation
(ALLIED) for a monthly rental of P1,000.00 for the first three (3) years,

x x x but such provision [in the lease contract], to the mind of the Court,

adjustable by 25% every three (3) years thereafter. [1] The lease contract

does not add luster to defendants cause nor constitutes as an unbridled or

specifically states in its Provision No. 1 that "the term of this lease shall be

unlimited license or sanctuary of the defendant to perpetuate its occupancy

fourteen (14) years commencing from April 1, 1978 and may be renewed for a

on the subject property. The basic intention of the law in any contract is

like term at the option of the lessee."

mutuality and equality. In other words, the validity of a contract cannot be

left at (sic) the will of one of the contracting parties. Otherwise, it infringes

57

(upon) Article 1308 of the New Civil Code, which provides: The contract

on the parties. This option, which is provided in the same lease agreement,

must bind both contracting parties; its validity or compliance cannot be left to

is fundamentally part of the consideration in the contract and is no different

the will of one of them x x x x

Using the principle laid down in the case

from any other provision of the lease carrying an undertaking on the part of

of Garcia v. Legarda as cornerstone, it is evident that the renewal of the

the lessor to act conditioned on the performance by the lessee. It is a purely

lease in this case cannot be left at the sole option or will of the defendant

executory contract and at most confers a right to obtain a renewal if there is

notwithstanding provision no. 1 of their expired contract. For that would

compliance with the conditions on which the right is made to depend. The

amount to a situation where the continuance and effectivity of a

right of renewal constitutes a part of the lessees interest in the land and

contract will depend only upon the sole will or power of the lessee, w

forms a substantial and integral part of the agreement.

hich is repugnant to the very spirit envisioned under Article 1308 of the New
Civil Code x x x x the theory adopted by this Court in the case at bar finds

The fact that such option is binding only on the lessor and can be

ample affirmation from the principle echoed by the Supreme Court in the

exercised

case of Lao Lim v. CA, 191 SCRA 150, 154, 155.

mutuality. After all, the lessor is free to give or not to give the option to the

only

by

the

lessee

does

not render

it void

for

lack

of

lessee. And while the lessee has a right to elect whether to continue with the
On appeal to the Regional Trial Court, and later to the Court of Appeals,
the assailed decision was affirmed.

[5]

lease or not, once he exercises his option to continue and the lessor accepts,
both parties are thereafter bound by the new lease agreement. Their rights
and obligations become mutually fixed, and the lessee is entitled to retain

On 20 February 1993, while the case was pending in the Court of

Appeals, ALLIED vacated the leased premises by reason of the controversy. [6]

possession of the property for the duration of the new lease, and the lessor
may hold him liable for the rent therefor. The lessee cannot thereafter
escape liability even if he should subsequently decide to abandon the

ALLIED insists before us that Provision No. 1 of the lease contract was

premises. Mutuality obtains in such a contract and equality exists between

mutually agreed upon hence valid and binding on both parties, and the

the lessor and the lessee since they remain with the same faculties in respect

exercise by petitioner of its option to renew the contract was part of their

to fulfillment.[7]

agreement and in pursuance thereof.

The case of Lao Lim v. Court of Appeals [8] relied upon by the trial court is
We agree with petitioner. Article 1308 of the Civil Code expresses what

not applicable here. In that case, the stipulation in the disputed compromise

is known in law as the principle of mutuality of contracts. It provides

agreement was to the effect that the lessee would be allowed to stay in the

that "the contract must bind both the contracting parties; its validity or

premises "as long as he needs it and can pay the rents." In the present

compliance cannot be left to the will of one of them." This binding effect of a

case, the questioned provision states that the lease "may be renewed for a

contract on both parties is based on the principle that the obligations

like term at the option of the lessee."

arising from contracts have the force of law between the contracting parties,

has conceded to the lessee. The lessee likewise becomes bound only when he

and there must be mutuality between them based essentially on their

exercises his option and the lessor cannot thereafter be excused from

equality

performing his part of the agreement.

under

which

it

is

repugnant

by the contract while leaving the

other

to
free

have

one

party

therefrom. The

bound

The lessor is bound by the option he

ultimate

purpose is to render void a contract containing a condition which makes its

Likewise, reliance by the trial court on the 1967 case of Garcia v. Rita

fulfillment dependent solely upon the uncontrolled will of one of the

Legarda, Inc.,[9] is misplaced. In that case, what was involved was a contract

contracting parties.

to

sell

involving

residential

lots,

which

gave

the

vendor

the

right to declare the contract cancelled and of no effect upon the failure of
An express agreement which gives the lessee the sole option to renew

the vendee to fulfill any of the conditions therein set forth. In the instant

the lease is frequent and subject to statutory restrictions, valid and binding

58

case, we are dealing with a contract of lease which gives the lessee the

citations: 'The rule is well-established that a general covenant to renew or

right to renew the same.

extend a lease which makes no provision as to the terms of a

renewal or extension implies a renewal or extension upon the same terms

With respect to the meaning of the clause "may be renewed for a like

as provided in the original lease.'

term at the option of the lessee," we sustain petitioner's contention that its
exercise of the option resulted in the automatic extension of the contract of

In the lease contract under consideration, there is no

lease under the same terms and conditions. The subject contract simply

provision to indicate that the renewal will be subject to new terms and

provides that "the term of this lease shall be fourteen (14) years and may be

conditions that the parties may yet agree upon. It is to renewal provisions

renewed for a like term at the option of the lessee." As we see it, the only

of lease contracts of the kind presently considered that the principles

term on which there has been a clear agreement is the period of the new

stated above squarely apply. We do not agree with the contention of the

contract, i.e., fourteen (14) years, which is evident from the clause "may be

appellants that if it was intended by the parties to renew the contract under

renewed for a like term at the option of the lessee," the phrase "for a like

the same terms and conditions stipulated in the contract of lease, such

term" referring to the period. It is silent as to what the specific terms and

should have expressly so stated in the contract itself. The same argument

conditions of the renewed lease shall be. Shall it be the same terms and

could easily be interposed by the appellee who could likewise contend

conditions as in the original contract, or shall it be under the terms and

that if the intention was to renew the contract of lease under such new

conditions as may be mutually agreed upon by the parties after the

terms and conditions that the parties may agree upon, the contract should

expiration of the existing lease?

have so specified. Between the two assertions, there is more logic in

the latter.

In Ledesma v. Javellana[10] this Court was confronted with a similar

problem. In that case the lessee was given the sole option to renew the

The settled rule is that in case of uncertainty as to the meaning of

lease, but the contract failed to specify the terms and conditions that would

a provision granting extension to a contract of lease, the tenant is the

govern the new contract. When the lease expired, the lessee demanded an

one favored and not the landlord. 'As a general rule, in

extension under the same terms and conditions. The lessor expressed

construing provisions relating to renewals or extensions, where there is any

conformity to the renewal of the contract but refused to accede to the claim

uncertainty, the tenant is favored, and not the landlord, because the latter,

of the lessee that the renewal should be under the same terms and

having the power of stipulating in his own favor, has neglected to do so; and

conditions as the original contract. In sustaining the lessee, this Court made

also upon the principle that every man's grant is to be taken

the following pronouncement:

most strongly against himself (50 Am Jur. 2d, Sec. 1162, p. 48; see also 51
C.J.S. 599).'

x x x in the case of Hicks v. Manila Hotel Company, a similar issue

was resolved by this Court. It was held that 'such a clause relates to the

Besides, if we were to adopt the contrary theory that the terms and

very contract in which it is placed, and does not permit the defendant upon

conditions to be embodied in the renewed contract were still subject to

the renewal of the contract in which the clause is found, to insist upon

mutual agreement by and between the parties, then the option - which is an

different terms than those embraced in the contract to be renewed;' and that

integral part of the consideration for the contract - would be rendered

'a stipulation to renew always relates to the contract in which it is found and

worthless. For then, the lessor could easily defeat the lessee's right of

the rights granted thereunder, unless it expressly provides for variations in

renewal by simply imposing unreasonable and onerous conditions to prevent

the terms of the contract to be renewed.'

the parties from reaching an agreement, as in the case at bar. As in a

statute no word, clause, sentence, provision or part of a contract shall be

The same principle is upheld in American Law regarding the renewal of lease

considered surplusage or superfluous, meaningless, void, insignificant or

contracts. In 50 Am. Jur. 2d, Sec. 1159, at p. 45, we find the following

nugatory, if that can be reasonably avoided. To this end, a construction

59

which will render every word operative is to be preferred over that which
would make some words idle and nugatory.[11]
Fortunately for respondent lessors, ALLIED vacated the premises on 20

[G.R. No. 126102. December 4, 2000]

February 1993 indicating its abandonment of whatever rights it had under

the renewal clause. Consequently, what remains to be done is for ALLIED to
pay rentals for the continued use of the premises until it vacated the same,
computed from the expiration of the original term of the contract on 31

ORTIGAS & CO. LTD., petitioner, vs. THE COURT OF APPEALS and
ISMAEL G. MATHAY III, respondents.

March 1992 to the time it actually left the premises on 20 February 1993,

DECISION

deducting therefrom the amount of P68,400.00 consigned in court by

ALLIED and any other amount which it may have deposited or advanced in
conection with the lease. Since the old lease contract was deemed renewed
under the same terms and conditions upon the exercise by ALLIED of its
option, the basis of the computation of rentals should be the rental rate
provided for in the existing contract.

being a party thereto. A person who is not principally or subsidiarily bound

[12]

He must first

have an interest in it. "Interest" within the meaning of the term means
material interest, an interest to be affected by the deed, as distinguished
from a mere incidental interest. Hence, a person who is not a party to a
contract and for whose benefit it was not expressly made cannot maintain
an action on it, even if the contract, if performed by the parties thereto would
incidentally affect him,

[13]

except when he is prejudiced in his rights with

respect to one of the contracting parties and can show the detriment which
could positively result to him from the contract in which he had no
intervention.

[14]

This petition seeks to reverse the decision of the Court of Appeals, dated
March 25, 1996, in CA-G.R. SP No. 39193, which nullified the writ of
preliminary injunction issued by the Regional Trial Court of Pasig City,

Finally, ALLIED cannot assail the validity of the deed of donation, not
has no legal capacity to challenge the validity of the contract.

QUISUMBING, J.:

We find none in the instant case.

WHEREFORE, the Decision of the Court of Appeals is REVERSED and

SET ASIDE. Considering that petitioner ALLIED BANKING CORPORATION

Branch 261, in Civil Case No. 64931. It also assails the resolution of the
appellate court, dated August 13, 1996, denying petitioners motion for
reconsideration.
The facts of this case, as culled from the records, are as follows:
On August 25, 1976, petitioner Ortigas & Company sold to Emilia
Hermoso, a parcel of land known as Lot 1, Block 21, Psd-66759, with an area
of 1,508 square meters, located in Greenhills Subdivision IV, San Juan,
Metro Manila, and covered by Transfer Certificate of Title No. 0737. The
contract of sale provided that the lot:
1. (1) be used exclusivelyfor residential purposes only, and not
more than one single-family residential building will be
constructed thereon,

already vacated the leased premises as of 20 February 1993, the renewed

xxx

lease contract is deemed terminated as of that date. However, petitioner is

required to pay rentals to respondent lessors at the rate provided in their
existing contract, subject to computation in view of the consignment in court
of P68,400.00 by petitioner, and of such other amounts it may have deposited
or advanced in connection with the lease.

6. The BUYER shall not erectany sign or billboard on the roof

for advertising purposes
xxx

SO ORDERED.

60

11.

No single-family residential building shall be erected

On June 16, 1995, the trial court issued the writ of preliminary

until the building plans, specificationhave been approved by

injunction. On June 29, 1995, Mathay III moved to set aside the injunctive

the SELLER

order, but the trial court denied the motion.

xxx

Mathay III then filed with the Court of Appeals a special civil action for
certiorari, docketed as CA-G.R. SP No. 39193, ascribing to the trial court

14....restrictions shall run with the land and shall be construed as

grave abuse of discretion in issuing the writ of preliminary injunction. He

real covenants until December 31, 2025 when they shall cease

claimed that MMC Ordinance No. 81-01 classified the area where the lot was

and terminate

[1]

located as commercial area and said ordinance must be read into the August
25, 1976 Deed of Sale as a concrete exercise of police power.

These and the other conditions were duly annotated on the certificate of
Ortigas and Company averred that inasmuch as the restrictions on the

title issued to Emilia.

use of the lot were duly annotated on the title it issued to Emilia Hermoso,
In 1981, the Metropolitan Manila Commission (now Metropolitan Manila

said restrictions must prevail over the ordinance, specially since these

Development Authority) enacted MMC Ordinance No. 81-01, also known as

restrictions were agreed upon before the passage of MMC Ordinance No. 81-

the Comprehensive Zoning Area for the National Capital Region. The

01.

ordinance reclassified as a commercial area a portion of Ortigas Avenue from

Madison to Roosevelt Streets of Greenhills Subdivision where the lot is

On March 25, 1996, the appellate court disposed of the case as follows:

located.
WHEREFORE, in light of the foregoing, the petition is hereby GRANTED. The
On June 8, 1984, private respondent Ismael Mathay III leased the lot

assailed orders are hereby nullified and set aside.

from Emilia Hermoso and J.P. Hermoso Realty Corp.. The lease contract did
not specify the purposes of the lease. Thereupon, private respondent

SO ORDERED.[2]

constructed a single story commercial building for Greenhills Autohaus, Inc.,

a car sales company.

In finding for Mathay III, the Court of Appeals held that the MMC
Ordinance No. 81-01 effectively nullified the restrictions allowing only

On January 18, 1995, petitioner filed a complaint against Emilia

residential use of the property in question.

Hermoso with the Regional Trial Court of Pasig, Branch 261. Docketed as
Civil Case No. 64931, the complaint sought the demolition of the said
commercial structure for having violated the terms and conditions of the

Ortigas seasonably moved for reconsideration, but the appellate court

denied it on August 13, 1996.

Deed of Sale. Complainant prayed for the issuance of a temporary

restraining order and a writ of preliminary injunction to prohibit petitioner

Hence, the instant petition.

from constructing the commercial building and/or engaging in commercial

activity on the lot. The complaint was later amended to implead Ismael G.

In its Memorandum, petitioner now submits that the principal issue in

Mathay III and J.P. Hermoso Realty Corp., which has a ten percent (10%)

this case is whether respondent Court of Appeals correctly set aside the

interest in the lot.

Order dated June 16, 1995 of the trial court which issued the writ of
preliminary injunction on the sole ground that MMC Ordinance No. 81-01

In his answer, Mathay III denied any knowledge of the restrictions on the
use of the lot and filed a cross-claim against the Hermosos.

nullified the building restriction imposing exclusive residential use on the

property in question.[3] It also asserts that Mathay III lacks legal capacity to

61

question the validity of conditions of the deed of sale; and he is barred by

We note that in issuing the disputed writ of preliminary injunction, the

estoppel or waiver to raise the same question like his principals, the

trial court observed that the contract of sale was entered into in August

owners.[4] Lastly, it avers that the appellate court unaccountably failed to

1976, while the zoning ordinance was enacted only in March 1981. The trial

address several questions of fact.

court reasoned that since private respondent had failed to show that MMC
Ordinance No. 81-01 had retroactive effect, said ordinance should be given

Principally, we must resolve the issue of whether the Court of Appeals

erred in holding that the trial court committed grave abuse of discretion

prospective application only,[6] citing Co vs. Intermediate Appellate Court, 162

SCRA 390 (1988).

when it refused to apply MMC Ordinance No.81-01 to Civil Case No. 64931.
In general, we agree that laws are to be construed as having only
But first, we must address petitioners allegation that the Court of

prospective operation. Lex prospicit, non respicit. Equally settled, only laws

Appeals unaccountably failed to address questions of fact. For basic is the

existing at the time of the execution of a contract are applicable thereto and

rule that factual issues may not be raised before this Court in a petition for

not later statutes, unless the latter are specifically intended to have

review and this Court is not duty-bound to consider said questions. [5] CA-

retroactive effect.[7] A later law which enlarges, abridges, or in any manner

G.R. SP No. 39193 was a special civil action for certiorari, and the appellate

changes the intent of the parties to the contract necessarily impairs the

court only had to determine if the trial court committed grave abuse of

contract itself[8] and cannot be given retroactive effect without violating the

discretion amounting to want or excess of jurisdiction in issuing the writ of

constitutional prohibition against impairment of contracts.[9]

preliminary injunction. Thus, unless vital to our determination of the issue

at hand, we shall refrain from further consideration of factual questions.

But, the foregoing principles do admit of certain exceptions. One

involves police power. A law enacted in the exercise of police power to

Petitioner contends that the appellate court erred in limiting its decision

regulate or govern certain activities or transactions could be given retroactive

to the cited zoning ordinance. It avers that a contractual right is not

effect and may reasonably impair vested rights or contracts. Police power

automatically discarded once a claim is made that it conflicts with police

legislation is applicable not only to future contracts, but equally to those

power. Petitioner submits that the restrictive clauses in the questioned

already in existence.[10]Nonimpairment of contracts or vested rights clauses

contract is not in conflict with the zoning ordinance. For one, according to

will have to yield to the superior and legitimate exercise by the State of police

petitioner, the MMC Ordinance No. 81-01 did not prohibit the construction of

power to promote the health, morals, peace, education, good order, safety,

residential buildings. Petitioner argues that even with the zoning ordinance,

and general welfare of the people. [11] Moreover, statutes in exercise of valid

the seller and buyer of the re-classified lot can voluntarily agree to an

police power must be read into every contract. [12] Noteworthy, in Sangalang

exclusive residential use thereof. Hence, petitioner concludes that the Court

vs. Intermediate Appellate Court, [13] we already upheld MMC Ordinance No.

of Appeals erred in holding that the condition imposing exclusive residential

81-01 as a legitimate police power measure.

use was effectively nullified by the zoning ordinance.

The trial courts reliance on the Co vs. IAC,[14] is misplaced. In Co, the
In its turn, private respondent argues that the appellate court correctly

disputed area was agricultural and Ordinance No. 81-01 did not specifically

ruled that the trial court had acted with grave abuse of discretion in refusing

provide that it shall have retroactive effect so as to discontinue all rights

to subject the contract to the MMC Ordinance No. 81-01. He avers that the

previously acquired over lands located within the zone which are neither

appellate court properly held the police power superior to the non-

residential nor light industrial in nature,[15] and stated with respect to

impairment of contract clause in the Constitution. He concludes that the

agricultural areas covered that the zoning ordinance should be given

appellate court did not err in dissolving the writ of preliminary injunction

prospective operation only.[16] The area in this case involves not agricultural

issued by the trial court in excess of its jurisdiction.

but urban residential land. Ordinance No. 81-01 retroactively affected the

62

operation of the zoning ordinance in Greenhills by reclassifying certain

would be his business, not the Hermosos, which would suffer had not the

locations therein as commercial.

respondent court dissolved the writ of preliminary injunction.

Following our ruling in Ortigas & Co., Ltd. vs. Feati Bank & Trust Co., 94

A real party in interest is defined as the party who stands to be

SCRA 533 (1979), the contractual stipulations annotated on the Torrens

benefited or injured by the judgment or the party entitled to the avails of the

Title, on which Ortigas relies, must yield to the ordinance. When that stretch

suit. Interest within the meaning of the rule means material interest, an

of Ortigas Avenue from Roosevelt Street to Madison Street was reclassified as

interest in issue and to be affected by the decree, as distinguished from mere

a commercial zone by the Metropolitan Manila Commission in March 1981,

interest in the question involved, or a mere incidental interest. [21] By real

the restrictions in the contract of sale between Ortigas and Hermoso, limiting

interest is meant a present substantial interest, as distinguished from a mere

all construction on the disputed lot to single-family residential buildings,

expectancy or a future, contingent, subordinate, or consequential interest. [22]

were deemed extinguished by the retroactive operation of the zoning

ordinance and could no longer be enforced. While our legal system upholds

Tested by the foregoing definition, private respondent in this case is

the sanctity of contract so that a contract is deemed law between the

clearly a real party in interest. It is not disputed that he is in possession of

contracting

parties,[17]nonetheless,

stipulations

contravene

law,

customs,

policy.[18] Otherwise

morals,
such

good

stipulations

in

public

would

contract
order,

deemed

cannot

the lot pursuant to a valid lease. He is a possessor in the concept of a

public

holder of the thing under Article 525 of the Civil Code. [23] He was impleaded

or

and

as a defendant in the amended complaint in Civil Case No. 64931. Further,

void. Respondent court correctly found that the trial court committed in this

what petitioner seeks to enjoin is the building by respondent of a commercial

case a grave abuse of discretion amounting to want of or excess of

structure on the lot. Clearly, it is private respondents acts which are in

jurisdiction in refusing to treat Ordinance No. 81-01 as applicable to Civil

issue, and his interest in said issue cannot be a mere incidental interest. In

Case No. 64931. In resolving matters in litigation, judges are not only duty-

its amended complaint, petitioner prayed for, among others, judgment

bound to ascertain the facts and the applicable laws, [19] they are also bound

ordering the demolition of all improvements illegally built on the lot in

by their oath of office to apply the applicable law.

be

null

[20]

question.[24] These show that it is petitioner Mathay III, doing business as

Greenhills Autohaus, Inc., and not only the Hermosos, who will be

As a secondary issue, petitioner contends that respondent Mathay III, as

adversely affected by the courts decree.

a mere lessee of the lot in question, is a total stranger to the deed of sale and
is thus barred from questioning the conditions of said deed. Petitioner points

Petitioner also cites the rule that a stranger to a contract has no rights

out that the owners of the lot voluntarily agreed to the restrictions on the use

or obligations under it,[25] and thus has no standing to challenge its validity.

of the lot and do not question the validity of these restrictions. Petitioner

[26]

argues that Mathay III as a lessee is merely an agent of the owners, and

impleaded private respondent as a defendant. Thus petitioner must recognize

could not override and rise above the status of his principals. Petitioner

that where a plaintiff has impleaded a party as a defendant, he cannot

submits that he could not have a higher interest than those of the owners,

subsequently question the latters standing in court. [27]

But in seeking to enforce the stipulations in the deed of sale, petitioner

the Hermosos, and thus had no locus standi to file CA-G.R. SP No. 39193 to
dissolve the injunctive writ issued by the RTC of Pasig City.

WHEREFORE, the instant petition is DENIED. The challenged decision

of the Court of Appeals dated March 25, 1996, as well as the assailed

For his part, private respondent argues that as the lessee who built the
commercial structure, it is he and he alone who stands to be either benefited

resolution

of

August

13,

1996,

in

CA-G.R.

SP

No.

39193

is

AFFIRMED. Costs against petitioner.

or injured by the results of the judgment in Civil Case No. 64931. He avers
he is the party with real interest in the subject matter of the action, as it

SO ORDERED.

63

After the expiration of the contract, AFIC continued to use and occupy the
leased premises giving rise to an implied lease contract on a monthly basis.
AFIC kept on paying the original rental fee without protest on the part of
G.R. No. 180168

February 27, 2012

MANILA INTERNATIONAL AIRPORT AUTHORITY, Petitioner,

vs.
AVIA FILIPINAS INTERNATIONAL, INC., Respondent.
DECISION
PERALTA, J.
Before the Court is a petition for review on certiorari under Rule 45 of the
Rules of Court, seeking the reversal and setting aside of the June 19, 2007
Decision1 and the October 11, 2007 Resolution2 of the Court of Appeals (CA)
in CA-G.R. CV No. 79325. The assailed CA Decision affirmed with
modification the Decision3 dated March 21, 2003 of the Regional Trial Court
(RTC) of Quezon City, Branch 224, in Civil Case No. Q-98-34395, while the
CA Resolution denied petitioner's Motion for Reconsideration.
The factual and procedural antecedents are as follows:
In September 1990, herein petitioner Manila International Airport Authority
(MIAA) entered into a contract of lease with herein respondent Avia Filipinas
International Corporation (AFIC), wherein MIAA allowed AFIC to use specific
portions of land as well as facilities within the Ninoy Aquino International
Airport exclusively for the latter's aircraft repair station and chartering
operations. The contract was for one (1) year, beginning September 1, 1990
until August 31, 1991, with a monthly rental of P6,580.00.
In December 1990, MIAA issued Administrative Order No. 1, Series of 1990,
which revised the rates of dues, charges, fees or assessments for the use of
its properties, facilities and services within the airport complex. The
Administrative Order was made effective on December 1, 1990. As a
consequence, the monthly rentals due from AFIC was increased
to P15,996.50. Nonetheless, MIAA did not require AFIC to pay the new rental
fee. Thus, it continued to pay the original fee of P6,580.00.

MIAA.
Three years after the expiration of the original contract of lease, MIAA
informed AFIC, through a billing statement dated October 6, 1994, that the
monthly rental over the subject premises was increased to P15,966.50
beginning September 1, 1991, which is the date immediately following the
expiration of the original contract of lease. MIAA sought recovery of the
difference between the increased rental rate and the original rental fee
amounting to a total of P347,300.50 covering thirty-seven (37) months
between September 1, 1991 and September 31, 1994. Beginning October
1994, AFIC paid the increased rental fee. However, it refused to pay the lump
sum ofP347,300.50 sought to be recovered by MIAA. For the continued
refusal of AFIC to pay the said lump sum, its employees were denied access
to the leased premises from July 1, 1997 until March 11, 1998. This,
notwithstanding, AFIC continued paying its rentals. Subsequently, AFIC was
granted temporary access to the leased premises.
AFIC then filed with the RTC of Quezon City a Complaint for damages with
injunction against MIAA and its General Manager seeking uninterrupted
access to the leased premises, recovery of actual and exemplary damages,
refund of its monthly rentals with interest at the time that it was denied
access to the area being rented as well as attorney's fees.
In its Answer with Counterclaim, MIAA contended that under its lease
contract with AFIC, MIAA is allowed to either increase or decrease the
monthly rental; AFIC has rental arrears in the amount of P347,300.50; AFIC
was wrong in claiming that MIAA took the law into its own hands in denying
AFIC and its employees access to the leased premises, because under the
lease contract, in case of failure on the part of AFIC to pay rentals for at least
two (2) months, the contract shall become automatically terminated and
canceled without need of judicial action or process and it shall be lawful for
MIAA or any person or persons duly authorized on its behalf to take
possession of the property either by padlocking the premises or posting its
guards to prevent the entry of any person. MIAA prayed for the award of
exemplary damages as well as attorney's fees and litigation expenses.

64

On March 21, 2003, the RTC rendered its Decision, the dispositive portion of

The award of attorney's fees stands.

which reads as follows:

SO ORDERED.5
WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor
of the plaintiff [AFIC] and as against the defendants [MIAA] ordering the

MIAA filed a Motion for Reconsideration, but the CA denied it via its

latter to pay plaintiff the following:

Resolution dated October 11, 2007.

a) the amount of P2,000,000.00 as actual damages;

Hence, the present petition for review on certiorari raising the following
issues:

b) the amount of P200,000.00 as exemplary damages;

WHETHER THE HONORABLE COURT OF APPEALS CORRECTLY
c) to refund the monthly rental payments beginning July 1, 1997 up

INTERPRETED THE PROVISIONS OF THE LEASE CONTRACT IN

[to] March 11, 1998 with interest at twelve (12%) percent;

LINE WITH THE PROVISIONS OF THE CIVIL CODE AND EXISTING

JURISPRUDENCE ON CONTRACTS.

d) the amount of P100,000.00 as attorney's fees;

WHETHER THE PRINCIPLE OF UNJUST ENRICHMENT IS
e) cost of suit.
IT IS SO ORDERED.4

APPLICABLE TO THE INSTANT CASE.

WHETHER RESPONDENT IS ENTITLED TO ATTORNEY'S FEES. 6

MIAA filed an appeal with the CA contending that the RTC erred in: (1)

Petitioner MIAA contends that, as an administrative agency possessed of

finding that MIAA is not entitled to apply the increase in rentals as against

quasi-legislative and quasi-judicial powers as provided for in its charter, it is

AFIC; (2) finding that MIAA is not entitled to padlock the leased premises or

empowered to make rules and regulations and to levy fees and charges; that

post guards to prevent entry of AFIC therein; and (3) awarding actual and

its issuance of Administrative Order No. 1, Series of 1990 is pursuant to the

exemplary damages and attorney's fees.

exercise of the abovementioned powers; that by signing the lease contract,

respondent AFIC already agreed and gave its consent to any further increase

On June 19, 2007, the CA rendered its assailed Decision, the dispositive

in rental rates; as such, the provisions of the lease contract being cited by

portion of which reads, thus:

the CA which provides that "any amendment, alteration or modification [of

the lease contract] shall not be valid and binding, unless and until made in

WHEREFORE, premises considered, the decision of the Regional Trial Court

writing and signed by the parties thereto" is deemed complied with because

of Quezon City in Civil Case No. Q-98-34395 is hereby AFFIRMED with

respondent already consented to having any subsequent amendments to

MODIFICATION. The awards of actual/compensatory damages and

Administrative Order No. 1 automatically incorporated in the lease contract;

exemplary damages are deleted. The refund of monthly rental payments from

that the above-quoted provisions should not also be interpreted as having the

July 1, 1997 to March 11, 1998 shall earn interest of six percent (6%) per

effect of limiting the authority of MIAA to impose new rental rates in

annum from the date of the filing of the complaint until the finality of this

accordance with its authority under its charter.

decision. An interest of twelve percent (12%) per annum shall be imposed

upon any unpaid balance from such finality until the judgment amount is

Petitioner also argues that it is not guilty of unjust enrichment when it

fully satisfied.

denied respondent access to the leased premises, because there is nothing

65

unlawful in its act of imposing sanctions against respondent for the latter's

amendment, alteration or modification of th[e] Contract shall not be valid and

failure to pay the increased rental.

binding, unless and until made in writing and signed by the parties
thereto."10 It is clear from the foregoing that the intention of the parties is to

Lastly, petitioner avers that respondent is not entitled to attorney's fees,

subject such amendment to the conformity of both petitioner and

considering that it was not compelled to litigate and incur expenses to protect

respondent. In the instant case, there is no showing that respondent gave his

its interest by reason of any unjustified act on the part of petitioner.

acquiescence to the said amendment or modification of the contract.

Petitioner reiterates that it was merely exercising its right as the owner and
administrator of the leased property and, as such, its acts may not be

The situation is different with respect to the payments of the increased rental

deemed unwarranted.

fee made by respondent beginning October 1994 because by then the

amendment to the contract was made in writing through a bill sent by

The petition lacks merit.

petitioner to respondent.11 The fact that respondent subsequently settled the

said bill proves that he acceded to the increase in rental fee. The same may

Article 1306 of the Civil Code provides that "[t]he contracting parties may

not be said with respect to the questioned rental fees sought to be recovered

establish such stipulations, clauses, terms and conditions as they may deem

by petitioner between September 1991 and September 1994 because no bill

convenient, provided they are not contrary to law, morals, good customs,

was made and forwarded to respondent on the basis of which it could have

public order, or public policy."

given or withheld its conformity thereto.

Moreover, Article 1374 of the Civil Code clearly provides that "[t]he various

It may not be amiss to point out that during the abovementioned period,

stipulations of a contract shall be interpreted together, attributing to the

respondent continued to pay and petitioner kept on receiving the original

doubtful ones that sense which may result from all of them taken jointly."

rental fee of P6,580.00 without any reservations or protests from the

Indeed, in construing a contract, the provisions thereof should not be read in

latter.12 Neither did petitioner indicate in the official receipts it issued that

isolation, but in relation to each other and in their entirety so as to render

the payments made by respondent constitute only partial fulfillment of the

them effective, having in mind the intention of the parties and the purpose to

latter's obligations. Article 1235 of the Civil Code clearly states that "[w]hen

be achieved. In other words, the stipulations in a contract and other

the obligee accepts the performance knowing its incompleteness or

contract documents should be interpreted together with the end in view of

irregularity, and without expressing any protest or objection, the obligation is

giving effect to all.

deemed fully complied with." For failing to make any protest or objection,
petitioner is already estopped from seeking recovery of the amount claimed.

In the present case, the Court finds nothing repugnant to law with respect to
the questioned provisions of the contract of lease between petitioner and

Anent the second issue, since it has been established that petitioner has no

respondent. It is true that Article II, Paragraph 2.04 of the Contract of Lease

legal basis in requiring respondent to pay additional rental fees from

states that "[a]ny subsequent amendment to Administrative Order No. 4,

September 1, 1991 to September 30, 1994, it, thus, follows that petitioner's

Series of 1982, which will effect a decrease or escalation of the monthly

act of denying respondent and its employees access to the leased premises

rental or impose new and additional fees and charges, including but not

from July 1, 1997 until March 11, 1998, by reason of respondent's non-

limited to government/MIAA circulars, rules and regulation to this effect,

payment of the said additional fees, is likewise unjustified.

shall be deemed incorporated herein and shall automatically amend this

Contract insofar as the monthly rental is concerned."9 However, the Court

Under Paragraph 3, Article 1654 of the Civil Code, the lessor is obliged "[t]o

agrees with the CA that the abovequoted provision of the lease contract

maintain the lessee in the peaceful and adequate enjoyment of the lease for

should not be read in isolation. Rather, it should be read together with the

the entire duration of the contract."

provisions of Article VIII, Paragraph 8.13, which provide that "[a]ny

66

Moreover, Article 1658 of the same Code provides that "[t]he lessee may

Finally, the Court deems it proper to reiterate the provisions of Supreme

suspend the payment of the rent in case the lessor fails to make the

Court Administrative Circular No. 10-2000 which enjoins all judges of lower

necessary repairs or to maintain the lessee in peaceful and adequate

courts to observe utmost caution, prudence and judiciousness in the

enjoyment of the property leased."

issuance of writs of execution to satisfy money judgments against

government agencies and local government units.

Furthermore, as correctly cited by the RTC, Article 19 of the Civil Code

provides that "[e]very person must, in the exercise of his rights and in the

WHEREFORE, the petition is DENIED. The June 19, 2007 Decision and

performance of his duties, act with justice, give everyone his due, and

October 11, 2007 Resolution of the Court of Appeals in CA-G.R. CV No.

observe honesty and good faith."

79325 are AFFIRMED. The Regional Trial Court of Quezon City, Branch 224

Article 22 of the same Code also states that "[e]very person who through an
act of performance by another, or any other means, acquires or comes into
possession of something at the expense of the latter without just or legal
ground, shall return the same to him." In accordance with jurisprudence,

isORDERED to comply with the directives of Supreme Court Administrative

Circular No. 10-2000.
SO ORDERED.

there is unjust enrichment when a person unjustly retains a benefit to the

loss of another, or when a person retains money or property of another
against the fundamental principles of justice, equity and good

[G.R. No. 113626. September 27, 2002]

conscience.13 The principle of unjust enrichment essentially contemplates

payment when there is no duty to pay, and the person who receives the
payment has no right to receive it.14

JESPAJO

REALTY

CORPORATION, petitioner,

Despite that, respondent still continued to pay the rental fees agreed upon in
the original contract. Thus, it would be the height of inequity and injustice as
well as unjust enrichment on the part of petitioner if the rental fees paid by
respondent during the time that it was denied access to and prevented from
using the leased premises be not returned to it.1wphi1
With respect to attorney's fees, the Court finds no error on the part of the CA
in sustaining such award on the ground that petitioner's act of denying
respondent and its employees access to the leased premises has compelled
respondent to litigate and incur expenses to protect its interest. 15 The Court
likewise agrees with the CA that, under the circumstances prevailing in the
present case, attorney's fees may be granted on grounds of justice and
equity.16

OF

DECISION

the peaceful and adequate enjoyment of the leased premises by unjustifiably

1658 of the Civil Code, respondent had no duty to make rent payments.

COURT

APPEALS, TAN TE GUTIERREZ and CO TONG, respondents.

In the instant case, it is clear that petitioner failed to maintain respondent in

preventing the latter access thereto. Consequently, in accordance with Article

vs. HON.

AUSTRIA-MARTINEZ, J.:
Before us is a petition for review on certiorari under Rule 45 of the Rules
of Court seeking to review and set aside the decision of the Court of Appeals
promulgated on January 26, 1994 in CA-G.R. SP No. 27312 [1] which reversed
the decision of the Regional Trial Court in Civil Case No. 91-57757 [2] and
reinstated the Metropolitan Trial Court rulings in Civil Case No. 134022-CV,
entitled, Jespajo Realty Corp., Plaintiff, vs. Tan Te Gutierrez and Co
Tong, Defendants.[3]
The uncontroverted facts of the case as found by the Court of Appeals
are as follows:
The subject of this controversy is an apartment building located at 619
Asuncion Street, Binondo, Manila and owned by Jespajo Realty

67

Corporation. On February 1, 1985, said corporation, represented by its

In the said complaint, plaintiffs alleged that the amount of P2,107.60 and

President, Jesus L. Uy, entered into separate contracts of lease with Tan Te

P2,264.40 are the monthly rental obligations of Tan Te and Co Tong

Gutierrez and Co Tong.xxx Pursuant to the contract, Tan Te occupied room

respectively. They sought to consign with the court their monthly rental

No. 217 of the subject building at a monthly rent of P847.00 while Co Teng

obligations at the rate above mentioned for the months of February up to

occupied the Penthouse at a monthly rent of P910.00xxx The terms of the

April 1990. Additionally, they prayed that the court issue an order directing

contract among others are the following:

the defendant to honor the terms and conditions of the lease.

PERIOD OF LEASE- The lease period shall be effective as of February 1,

It is to be noted that on February 6, 1991, the trial judge in the

1985 and shall continue for an indefinite period provided the lessee is up-to-

consignation case issued an order allowing the plaintiffs therein to deposit

date in the payment of his monthly rentals. The LESSEE may, at his option,

with the City Treasurer of Manila the amount of P33,480.28 for Co Tong and

terminate this contract any time by giving sixty (60) days prior written notice

the amount of P32,710.32 for Tan Te Gutierrez representing their respective

of termination to the LESSOR.

rentals for thirteen (13) months from February, 1990 to January, 1991. This
order however is without prejudice to the final outcome of the case. Plaintiffs

However, violation of any of the terms and conditions of this contract shall

duly complied with the order as evidenced by an official receipts (sic) xxx in

be a sufficient ground for termination thereof by the LESSOR.

the name of Tan Te Gutierrez and Co Tong, respectively, issued by the City
Treasurer on February 11, 1991.

xxx

xxx

xxx
On November 15, 1990, or more than six (6) months from the filing of the

RENT INCREASE - For the duration of this contract, the LESSEE agrees to

case for consignation, the lessor instituted an ejectment suit against the

an automatic 20% yearly increase in the monthly rentals.

lessees before the Metropolitan Trial Court of Manila Branch 20 xxx. The
court in its decision dated May 10, 1991 rendered a decision dismissing the

Since the effectivity of the lease agreement on February 1985, the lessees

ejectment suit for lack of merit. xxx[4]

religiously paid their respective monthly rentals together with the 20% yearly
increased (sic) in the monthly rentals as stipulated in the contract. On

Portions of the MTC decision read:

January 2, 1990, the lessor corporation sent a written notice to the lessees
informing them of the formers intention to increase the monthly rentals on

Furthermore, it appears that the plaintiff realizing that it had virtually

the occupied premises to P3,500.00 monthly effective February 1, 1990. The

surrendered certain aspects of its rights of ownership over the subject

lessees through its counsel in a letter dated March 10, 1990 xxx manifested

premises in stipulating that the lease shall continue for an indefinite period

their opposition alleging that the same is in contravention of the terms of the

provided the LESSEE is up-to-date in the payment of his monthly rentals,

contract of lease as agreed upon. Due to the opposition and the failure of the

has raised the monthly rental to P3,500.00 which is much higher than the

lessees to pay the increased monthly rentals in the amount of P3,500.00, the

correct rental in accordance with their stipulated 20% automatic increase

lessor through its counsel in a letter dated April 10,1990 xxx demanded that

annually. This was done by the plaintiff apparently in order to create an

the lessees vacate the premises and pay the amount of P7,000.00

artificial cause of action, as when the LESSEES would refuse, as in fact they

corresponding to the months of February and March, 1990.

refused, to pay the monthly rentals at the increase rate. This pretext of the
plaintiff cannot be countenanced by law.

The lessees exerted effort to pay the rentals due for the months of February
and March 1990 at the monthly rate stipulated in the contract but was

Anent the final issue as to whether or not the defendants are already in

refused by the lessor so that on May 2, 1990, they instituted before the

arrears in the payment of rentals on the premises, it is noteworthy that

Metropolitan Trial Court of Manila, Branch 16 a case for consignation xxx

the instant case for Unlawful Detainer was filed by the plaintiff-LESSOR

68

herein only on November 15, 1990, while the LESSEES consignation case

2.

against the LESSOR-plaintiff herein based on the latters refusal to accept

Annexes A and A-1, Complaint executed between appellant and appellees;

Declaring the termination or revocation [of the] lease contracts

the rentals have been pending with Branch XVI of this Court since May 2,
1990. And, in accordance with the consignation case, the LESSEES, upon

3.

proper motion approved by the Court, deposited the amounts of P33,480.28

their behalf to vacate and surrender immediately the lease premises to

covered by O.R. No. B-578503 (for CO TONG) and P32,710.32 covered by

appellant;

Ordering appellees, their heirs and all other persons acting for and in

O.R. B-578502 (for TAN TE GUTIERREZ) both receipts dated February 11,
1991.

4.

Adjudging appellees to pay unto appellant their rental arrearages of

P57,426.45 for appellee (Tan Te Gutierrez) and P56,153.75 for appellee (Co
IN VIEW OF THE FOREGOING, and after careful scrutiny of the entire

Tong) as of April 30, 1991 and thereafter each appellee is ordered to pay also

record including all documentary evidence adduced by both parties, this

appellant the sum of P3,500.00 every month starting May 1, 1991 until they

Court is of the opinion and so holds that the plaintiff (Jespajo Realty

shall have fully vacated and surrendered the leased premises;

Corporation) has failed to establish its claims by preponderance of evidence.

5.
WHEREFORE, this case is hereby dismissed for utter lack of merit. The

Appellees are likewise adjudged to pay the sum of P10,000.00 as and

for attorneys fees, and

counterclaim is likewise dismissed for lack of evidence to support the

same. No pronouncement as to costs.

6.

SO ORDERED.[5]

SO ORDERED.[6]

Jespajo Realty Corporation then appealed to the Regional Trial Court

The costs of suit.

However, said RTC decision was reversed by the Court of Appeals in the

which ruled in its favor, thus:

herein assailed decision, portions of which read:

The Court is fully convinced that the sum demanded by appellant as

Be that as it may, We find that it was the private respondent who, in fact,

increase in appellees monthly rentals to the premises which they are renting

violated the lease agreement by charging petitioners a monthly rental of

from appellant is very reasonable considering that the leased premises are

P3,500.00, well in excess of the rental stipulated in the lease contract. We

located in the commercial and business section of Manila in Binondo. It is

see in the refusal of private respondent to accept the rental being offered by

also undisputed that appellant has a 24-hour security unit over the property

petitioners, a scheme to place petitioners in default of their rental

as well as parking spaces and provisions for electricity, water and telephone

payments. However, said scheme was waylaid by petitioners consignation of

services.

the rentals due from them.

In the light of the foregoing, the Court is constrained to reverse the appealed

In view of the foregoing discussion, We find no more necessity in discussing

decision and hereby orders another judgment to be entered in favor of

the last two (2) errors raised in the petition. We likewise find that the

appellant.

respondent court committed an error of fact and law in reversing the decision
of the Metropolitan Trial Court of Manila and in arriving at the decision

WHEREFORE, PREMISES CONSIDERED, judgment is rendered as follows:

under review.

1.

WHEREFORE, the decision under review is hereby REVERSED and SET

Reversing the decision of the court a quo insofar as it dismissed

appellants complaint;

ASIDE. The decision dated May 10, 1991 of the Metropolitan Trial Court of

69

Manila, Branch XX which dismissed Civil Case No. 134022 CV for lack of

understood under Article 1687 of the Civil Code to be terminable from month

merit is hereby REINSTATED. No pronouncement as to costs.

to month.[10]

SO ORDERED.[7]

On the premise that the lease contract was effective on a monthly basis,
petitioner claims that the contract of lease with respondent has been

Petitioner comes before this Court with the following questions:

terminated, without being renewed, after respondents refused to comply with

the increased monthly rate of P3,500.00 and that this refusal even after
receiving a notice of termination and a final demand letter is a valid cause of

action for unlawful detainer.[11]

WHEN THE PARTIES TO A CONTRACT OF LEASE STIPULATED FOR
AN INDEFINITE PERIOD AND SHALL CONTINUE FOR AS LONG AS THE

As to the second issue, petitioner argues that the Court of Appeals erred

LESSEE IS PAYING THE RENT, IS THE SAID CONTRACT INTERMINABLE

in ruling that their allegation of respondents non-payment of rentals in the

EVEN BY THE LESSOR?

complaint for ejectment was false. Petitioner insists that when it filed the
case of ejectment, private respondents had failed and refused to pay the
demanded P3,500.00 monthly rentals. Thus, petitioner correctly alleged

II

non-payment of this rental as another ground for ejectment aside from the

WHEN THERE IS A DISAGREEMENT ON THE RENTALS TO BE PAID,

SHOULD IT BE RESOLVED IN A CONSIGNATION CASE OR IN AN
EJECTMENT CASE?

[8]

that the issue of whether or not the P3,500.00 monthly rental should be the
correct rental to be paid by the private respondents cannot properly be
determined in the consignation case earlier filed by private respondents since

Petitioner claims that the contracts of lease entered into between the
petitioner and private respondents did not provide for a definite period,
hence, Art. 1687 of the New Civil Code applies. Said Article reads:
Art. 1687. If the period for the lease has not been fixed, it is understood to
be from year to year, if the rent agreed upon is annual; from month to month,
if it is monthly; from week to week, if the rent is weekly; and from day to day,
if the rent is to be paid daily. However, even though a monthly rent is paid,
and no period for the lease has been set, the courts may fix a longer term for
the lease after the lessee has occupied the premises for over one year. If the
rent is weekly, the courts may likewise determine a longer period after the
lessee has been in possession for over six months. In case of daily rent, the
courts may also fix a longer period after the lessee has stayed in the place for
over one month.
Petitioner cited Yek Seng Co. vs. Court of Appeals,

basic allegation of termination of the lease contract. Petitioner also contends

the issue can be resolved only in the ejectment case. [12]

Crucial in the resolution of this case is the construction of the lease
agreement, particularly the portion on the period of lease, which reads:
PERIOD OF LEASE- The lease period shall be effective as of February 1,
1985 and shall continue for an indefinite period provided the lessee is up-todate in the payment of his monthly rentals. xxx
Petitioner insists that the subject contract of lease did not provide for a
definite period hence it falls under the ambit of Art. 1687 of the NCC, making
the agreement effective on a month-to-month basis since rental payments
are made monthly.
The Court of Appeals opined otherwise. It reasoned that the application

[9]

where this Court

held that: [c]onformably, we hold that as the rental in the case at bar was
paid monthly and the term was not expressly agreed upon, the lease was

of Art. 1687 in this case is misplaced because when there is a fixed period
for the lease, whether the period be definite or indefinite or when the period
of the lease is expressly left to the will of the lessee, Art. 1687 will not
apply[13], citing Eleizagui vs. Manila Lawn Tennis Club, 2 Phil 309.

70

We agree with the ruling of the Court of Appeals. Art. 1687 finds no

We have had occasion to delineate the scope and application of article 1308
in the early case of Taylor v. Uy Tieng Piao.[19] We said in that case:

application in the case at bar.

The lease contract between petitioner and respondents is with a period

Article 1256 [now art. 1308] of the Civil Code in our opinion creates no

subject to a resolutory condition. The wording of the agreement is

impediment to the insertion in a contract for personal service of a resolutory

unequivocal: The lease period xxx shall continue for an indefinite period

condition permitting the cancellation of the contract by one of the

provided the lessee is up-to-date in the payment of his monthly rentals. The

parties. Such a stipulation, as can be readily seen, does not make either the

condition imposed in order that the contract shall remain effective is that the

validity or the fulfillment of the contract dependent upon the will of the party

lessee is up-to-date in his monthly payments. It is undisputed that the

to whom is conceded the privilege of cancellation; for where the contracting

lessees Gutierrez and Co Tong religiously paid their rent at the increasing

parties have agreed that such option shall exist, the exercise of the option is

rate of 20% annually. The agreement between the lessor and the lessees are

as much in the fulfillment of the contract as any other act which may have

therefore still subsisting, with the original terms and conditions agreed upon,

been the subject of agreement. xxx.[20]

when the petitioner unilaterally increased the rental payment to more than
Also held in the recent case of Allied Banking Corp. vs. CA [21] where this

20% or P3,500.00 a month.

Court upheld the validity of a contract provision in favor of the lessee:

Petitioner cites Puahay Lao vs. Suarez

[14]

where it said that the Court in

the earlier case of Singson v. Baldomar,[15] rejected the theory that a lease

xxx Article 1308 of the Civil Code expresses what is known in law as

could continue for an indefinite term so long as the lessee paid the rent,

the principle of mutuality of contracts. xxx This binding effect of a contract on

because then its continuance and fulfillment would depend solely on the free

both parties is based on the principle that the obligations arising from

and uncontrolled choice of the tenant between continuing to pay rentals or

contracts have the force of law between the contracting parties, and there

not, thereby depriving the lessors of all say in the matter as it would be

must be mutuality between them based essentially on their equality under

contrary to the spirit of Article 1256 of the Old Civil Code, now Article 1308

which it is repugnant to have one party bound by the contract while leaving

of the New Civil Code of the Philippines which provides that validity or

the other free therefrom. The ultimate purpose is to render void a contract

compliance of contracts can not be left to the will of one of the parties.

[16]

containing a condition which makes its fulfillment dependent solely upon the
uncontrolled will of one of the contracting parties.

A review of the Puahay and Singson cases shows that the factual
backgrounds therein are not the same as in the case at bar. In those cases,

An express agreement which gives the lessee the sole option to renew the

the lessees were actually in arrears with their rental payments. The Court,

lease is frequent and subject to statutory restrictions, valid and binding on

in the Puahay case, ruled that the lessor had the right to terminate the lease

the parties. This option, which is provided in the same lease agreement, is

under par. 3, Art. 1673 of the Civil Code, declaring that the lessor may

fundamentally part of the consideration in the contract and is no different

judicially eject the lessee for violation of any of the conditions agreed upon in

from any other provision of the lease carrying an undertaking on the part of

the contract.

[17]

In the case of Singson, the lease contract was expressly on a

the lessor to act conditioned on the performance by the lessee. xxx

month-to-month basis.
The fact that such option is binding only on the lessor and can be
The contention of the petitioner that a provision in a contract that the
lease period shall subsist for an indefinite period provided the lessee is up-todate in the payment of his monthly rentals is contrary to Art. 1308 of the Civil
Code is not plausible. As expounded by the Court in the case of Philippine
Banking Corporation vs. Lui She:[18]

exercised only by the lessee does not render it void for lack of
mutuality. After all, the lessor is free to give or not to give the option
to the lessee. And while the lessee has a right to elect whether to
continue with the lease or not, once he exercises his option to continue

71

and the lessor accepts, both parties are thereafter bound by the new

on the part of the court. Furthermore, the statement of petitioner that the

lease agreement. Their rights and obligations become mutually fixed,

correct amount of rents cannot be considered in a consignation case but only

and the lessee is entitled to retain possession of the property for the
duration of the new lease, and the lessor may hold him liable for the
rent therefor. The lessee cannot thereafter escape liability even if he
should subsequently decide to abandon the premises. Mutuality obtains
in such a contract and equality exists between the lessor and the lessee
since they remain with the same faculties in respect to fulfillment.
[22]

(Emphasis supplied)
As correctly ruled by the MTC in its decision, the grant of benefit of the

period in favor of the lessee was given in exchange for no less than an
automatic 20% yearly increase in monthly rentals. This additional condition
was not present in the Puahay and Singson cases.
Moreover, the express provision in the lease agreement of the parties
that violation of any of the terms and conditions of the contract shall be
sufficient ground for termination thereof by the lessor, removes the contract
from the application of Article 1308.
Lastly, after having the lessees believe that their lease contract is one
with an indefinite period subject only to prompt payment of the monthly
rentals by the lessees, we agree with private respondents that the lessor is
estopped from claiming otherwise.[23]
In the case of Opulencia vs. Court of Appeals,[24] this Court held that
petitioner is estopped from backing out of her representations in the contract
with respondent, that is, she may not renege on her own acts and
representations, to the prejudice of the respondents who relied on them. We
have held in a long line of cases that neither the law nor the courts will
extricate a party from an unwise or undesirable contract he or she entered

in the ejectment case is misleading because nowhere in the decision of the

appellate court did it state otherwise. This second issue is clearly just a
futile attempt to overthrow the appellate courts ruling.
Nevertheless, suffice it to be stated that under Article 1258 of the Civil
Code which provides:
Art. 1258. Consignation shall be made by depositing the things due at the
disposal of judicial authority, before whom to tender of payment shall be
proved, in a proper case, and the announcement of the consignation in other
cases.
The consignation having been made, the interested parties shall also be
notified thereof.
the rationale for consignation is to avoid the performance of an obligation
becoming more onerous to the debtor by reason of causes not imputable to
him.[26] Whether or not petitioner has a cause of action to eject private
respondents from the leased premises due to refusal of the lessees to pay the
increased monthly rentals had been duly determined in the ejectment case
by the Municipal Trial Court which was correctly upheld by the Court of
Appeals.
WHEREFORE, finding no error in the assailed decision, we DENY the
petition for lack of merit and AFFIRM the decision of the Court of Appeals.
Costs against petitioner.
SO ORDERED.

into with all the required formalities and will full awareness of its
consequences.[25]
Anent the second issue, we likewise hold that the contention of
petitioner is without merit. The Court of Appeals found that the petitioners
allegation of respondents non-payment is false. This is a finding of fact which
we respect and uphold, absent any showing of arbitrariness or grave abuse

UNITED COCONUT PLANTERS BANK,

G.R. No. 159912

Petitioner,
Present:

72

YNARES-SANTIAGO,
Chairperson,
- versus -

AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.

The spouses Beluso availed themselves of the credit line under the
following Promissory Notes:

SPOUSES SAMUEL and ODETTE BELUSO,

Respondents.

Promulgated:

August 17, 2007

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

On 16 April 1996, UCPB granted the spouses Beluso a Promissory

Notes Line under a Credit Agreement whereby the latter could avail from the
former credit of up to a maximum amount of P1.2 Million pesos for a term
ending on 30 April 1997. The spouses Beluso constituted, other than their
promissory notes, a real estate mortgage over parcels of land in RoxasCity,
covered by Transfer Certificates of Title No. T-31539 and T-27828, as
additional security for the obligation. The Credit Agreement was
subsequently amended to increase the amount of the Promissory Notes Line
to a maximum of P2.35 Million pesos and to extend the term thereof to 28
February 1998.

PN #

Date of PN

Maturity Date

Amount Secured

8314-96-00083-3

29 April 1996

27 August 1996

P 700,000

8314-96-00085-0

2 May 1996

30 August 1996

P 500,000

8314-96-000292-2

20 November 1996

20 March 1997

P 800,000

DECISION

CHICO-NAZARIO, J.:

The three promissory notes were renewed several times. On 30 April

1997, the payment of the principal and interest of the latter two promissory
notes were debited from the spouses Belusos account with UCPB; yet, a
consolidated loan for P1.3 Million was again released to the spouses Beluso
under one promissory note with a due date of 28 February 1998.

This is a Petition for Review on Certiorari under Rule 45 of the Rules

To completely avail themselves of the P2.35 Million credit line
of Court, which seeks to annul the Court of Appeals Decision [1] dated 21
[2]
extended
to them by UCPB, the spouses Beluso executed two more
January 2003 and its Resolution dated 9 September 2003 in CA-G.R. CV
promissory
notes for a total of P350,000.00:
No. 67318. The assailed Court of Appeals Decision and Resolution affirmed
[3]
[4]
in turn the Decision dated 23 March 2000 and Order dated 8 May 2000 of
the Regional Trial Court (RTC), Branch 65 of Makati City, in Civil Case No.
Date of PN
Maturity Date
Amount Secured
99-314, declaring void the interest rate provided in the promissory notes PN #
executed by the respondents Spouses Samuel and Odette Beluso (spouses
97-00363-1
11 December 1997
28 February 1998
P 200,000
Beluso) in favor of petitioner United Coconut Planters Bank (UCPB).
98-00002-4
2 January 1998
28 February 1998
P 150,000
The procedural and factual antecedents of this case are as follows:

73

However, the spouses Beluso alleged that the amounts covered by these last
two promissory notes were never released or credited to their account and,
thus, claimed that the principal indebtedness was only P2 Million.

On 23 March 2000, the RTC ruled in favor of the spouses Beluso,

disposing of the case as follows:

PREMISES CONSIDERED, judgment is hereby

rendered declaring the interest rate used by [UCPB] void and
the foreclosure and Sheriffs Certificate of Sale void. [UCPB]
is hereby ordered to return to [the spouses Beluso] the
properties subject of the foreclosure; to pay [the spouses
Beluso] the amount of P50,000.00 by way of attorneys fees;
and to pay the costs of suit. [The spouses Beluso] are hereby
ordered to pay [UCPB] the sum of P1,560,308.00.[5]

In any case, UCPB applied interest rates on the different promissory

notes ranging from 18% to 34%. From 1996 to February 1998 the spouses
Beluso were able to pay the total sum of P763,692.03.

From 28 February 1998 to 10 June 1998, UCPB continued to charge

interest and penalty on the obligations of the spouses Beluso, as follows:

PN #

Amount Secured

Interest

Penalty

Total

97-00363-1

200,000

31%

36%

97-00366-6

700,000

30.17%

32.786%
(102 days)

(7 days)
97-00368-2

P 1,300,000

28%
(2 days)

98-00002-4

150,000

33%

30.41% (102
days)
36%

On 8 May 2000, the RTC denied UCPBs Motion for Reconsideration,

prompting UCPB to appeal the RTC Decision with the Court of
795,294.72 Appeals. The Court of Appeals affirmed the RTC Decision, to wit:
225,313.24

P 1,462,124.54

170,034.71

(102 days)

The spouses Beluso, however, failed to make any payment of the

foregoing amounts.

On 2 September 1998, UCPB demanded that the spouses Beluso pay

their total obligation of P2,932,543.00 plus 25% attorneys fees, but the
spouses Beluso failed to comply therewith. On 28 December 1998, UCPB
foreclosed the properties mortgaged by the spouses Beluso to secure their
credit line, which, by that time, already ballooned to P3,784,603.00.

On 9 February 1999, the spouses Beluso filed a Petition for

Annulment, Accounting and Damages against UCPB with the RTC of Makati
City.

[6]

WHEREFORE, premises considered, the decision

dated March 23, 2000 of the Regional Trial Court, Branch
65, Makati City in Civil Case No. 99-314 is hereby
AFFIRMED subject to the modification that defendantappellant UCPB is not liable for attorneys fees or the costs of
suit.[7]

On 9 September 2003, the Court of Appeals denied UCPBs Motion

for Reconsideration for lack of merit. UCPB thus filed the present petition,
submitting the following issues for our resolution:

WHETHER OR NOT THE HONORABLE COURT OF APPEALS

COMMITTED SERIOUS AND REVERSIBLE ERROR WHEN IT
AFFIRMED THE DECISION OF THE TRIAL COURT WHICH
DECLARED VOID THE PROVISION ON INTEREST RATE
AGREED
UPON
BETWEEN
PETITIONER
AND
RESPONDENTS

74

II

WHETHER OR NOT THE HONORABLE COURT OF APPEALS

COMMITTED SERIOUS AND REVERSIBLE ERROR WHEN IT
AFFIRMED THE COMPUTATION BY THE TRIAL COURT OF
RESPONDENTS
INDEBTEDNESS
AND
ORDERED
RESPONDENTS TO PAY PETITIONER THE AMOUNT OF
ONLY ONE MILLION FIVE HUNDRED SIXTY THOUSAND
THREE HUNDRED EIGHT PESOS (P1,560,308.00)

III

WHETHER OR NOT THE HONORABLE COURT OF APPEALS

COMMITTED SERIOUS AND REVERSIBLE ERROR WHEN IT
AFFIRMED THE DECISION OF THE TRIAL COURT WHICH
ANNULLED THE FORECLOSURE BY PETITIONER OF THE
SUBJECT PROPERTIES DUE TO AN ALLEGED INCORRECT
COMPUTATION OF RESPONDENTS INDEBTEDNESS

IV

WHETHER OR NOT THE HONORABLE COURT OF APPEALS

COMMITTED SERIOUS AND REVERSIBLE ERROR WHEN IT
AFFIRMED THE DECISION OF THE TRIAL COURT WHICH
FOUND PETITIONER LIABLE FOR VIOLATION OF THE
TRUTH IN LENDING ACT

WHETHER OR NOT THE HONORABLE COURT OF APPEALS

COMMITTED SERIOUS AND REVERSIBLE ERROR WHEN IT
FAILED TO ORDER THE DISMISSAL OF THE CASE
BECAUSE THE RESPONDENTS ARE GUILTY OF FORUM
SHOPPING[8]

Validity of the Interest Rates

The Court of Appeals held that the imposition of interest in the

following provision found in the promissory notes of the spouses Beluso is
void, as the interest rates and the bases therefor were determined solely by
petitioner UCPB:

FOR VALUE RECEIVED, I, and/or We, on or before

due date, SPS. SAMUEL AND ODETTE BELUSO
(BORROWER), jointly and severally promise to pay to
UNITED COCONUT PLANTERS BANK (LENDER) or order at
UCPB Bldg., Makati Avenue, Makati City, Philippines, the
sum of ______________ PESOS, (P_____), Philippine Currency,
with interest thereon at the rate indicative of DBD retail rate
or as determined by the Branch Head.[9]

UCPB asserts that this is a reversible error, and claims that while
the interest rate was not numerically quantified in the face of the promissory
notes, it was nonetheless categorically fixed, at the time of execution thereof,
at the rate indicative of the DBD retail rate. UCPB contends that said
provision must be read with another stipulation in the promissory notes
subjecting to review the interest rate as fixed:

The interest rate shall be subject to review and may

be increased or decreased by the LENDER considering
among others the prevailing financial and monetary
conditions; or the rate of interest and charges which other
banks or financial institutions charge or offer to charge for
similar accommodations; and/or the resulting profitability to
the LENDER after due consideration of all dealings with the
BORROWER.[10]

In this regard, UCPB avers that these are valid reference rates akin to
a prevailing rate or prime rate allowed by this Court in Polotan v. Court of
Appeals.[11] Furthermore, UCPB argues that even if the proviso as
determined by the branch head is considered void, such a declaration would

75

not ipso facto render the connecting clause indicative of DBD retail rate void
in view of the separability clause of the Credit Agreement, which reads:

Section 9.08 Separability Clause. If any one or

more of the provisions contained in this AGREEMENT, or
documents executed in connection herewith shall be
declared invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining
provisions hereof shall not in any way be affected or
impaired.[12]

According to UCPB, the imposition of the questioned interest rates

did not infringe on the principle of mutuality of contracts, because the
spouses Beluso had the liberty to choose whether or not to renew their credit
line at the new interest rates pegged by petitioner. [13] UCPB also claims that
assuming there was any defect in the mutuality of the contract at the time of
its inception, such defect was cured by the subsequent conduct of the
spouses Beluso in availing themselves of the credit line from April 1996 to
February 1998 without airing any protest with respect to the interest rates
imposed by UCPB. According to UCPB, therefore, the spouses Beluso are in
estoppel.[14]

We agree with the Court of Appeals, and find no merit in the

contentions of UCPB.

fulfillment dependent exclusively upon the uncontrolled will

of one of the contracting parties, is void (Garcia vs. Rita
Legarda, Inc., 21 SCRA 555). Hence, even assuming that the
P1.8 million loan agreement between the PNB and the private
respondent gave the PNB a license (although in fact there was
none) to increase the interest rate at will during the term of
the loan, that license would have been null and void for being
violative of the principle of mutuality essential in contracts. It
would have invested the loan agreement with the character of
a contract of adhesion, where the parties do not bargain on
equal footing, the weaker party's (the debtor) participation
being reduced to the alternative "to take it or leave it" (Qua vs.
Law Union & Rock Insurance Co., 95 Phil. 85). Such a
contract is a veritable trap for the weaker party whom the
courts of justice must protect against abuse and imposition.

The provision stating that the interest shall be at the rate indicative
of DBD retail rate or as determined by the Branch Head is indeed dependent
solely on the will of petitioner UCPB. Under such provision, petitioner UCPB
has two choices on what the interest rate shall be: (1) a rate indicative of the
DBD retail rate; or (2) a rate as determined by the Branch Head. As UCPB is
given this choice, the rate should be categorically determinable
in both choices. If either of these two choices presents an opportunity for
UCPB to fix the rate at will, the bank can easily choose such an option, thus
making the entire interest rate provision violative of the principle of
mutuality of contracts.

Article 1308 of the Civil Code provides:

Art. 1308. The contract must bind both contracting

parties; its validity or compliance cannot be left to the will of
one of them.

We applied this provision in Philippine National Bank v. Court of

Appeals,[15] where we held:

In order that obligations arising from contracts may

have the force of law between the parties, there must be
mutuality between the parties based on their essential
equality. A contract containing a condition which makes its

Not just one, but rather both, of these choices are dependent solely
on the will of UCPB. Clearly, a rate as determined by the Branch Head
gives the latter unfettered discretion on what the rate may be. The Branch
Head may choose any rate he or she desires. As regards the rate indicative
of the DBD retail rate, the same cannot be considered as valid for being akin
to a prevailing rate or prime rate allowed by this Court in Polotan. The
interest rate in Polotan reads:

The Cardholder agrees to pay interest per annum at 3% plus

the prime rate of Security Bank and Trust Company. x x x.
[16]

76

In this provision in Polotan, there is a fixed margin over the reference rate:
3%. Thus, the parties can easily determine the interest rate by applying
simple arithmetic. On the other hand, the provision in the case at bar does
not specify any margin above or below the DBD retail rate. UCPB can peg
the interest at any percentage above or below the DBD retail rate, again
giving it unfettered discretion in determining the interest rate.

The stipulation in the promissory notes subjecting the interest rate to

review does not render the imposition by UCPB of interest rates on the
obligations of the spouses Beluso valid. According to said stipulation:

The interest rate shall be subject to review and may

be increased or decreased by the LENDER considering
among others the prevailing financial and monetary
conditions; or the rate of interest and charges which other
banks or financial institutions charge or offer to charge for
similar accommodations; and/or the resulting profitability to
the LENDER after due consideration of all dealings with the
BORROWER.[17]

It should be pointed out that the authority to review the interest rate was
given UCPB alone as the lender. Moreover, UCPB may apply the
considerations enumerated in this provision as it wishes. As worded in the
above provision, UCPB may give as much weight as it desires to each of the
following considerations: (1) the prevailing financial and monetary condition;
(2) the rate of interest and charges which other banks or financial
institutions charge or offer to charge for similar accommodations; and/or (3)
the resulting profitability to the LENDER (UCPB) after due consideration of
all dealings with the BORROWER (the spouses Beluso). Again, as in the case
of the interest rate provision, there is no fixed margin above or below these
considerations.

In view of the foregoing, the Separability Clause cannot save either of

the two options of UCPB as to the interest to be imposed, as both options
violate the principle of mutuality of contracts.

UCPB likewise failed to convince us that the spouses Beluso were in

estoppel.

Estoppel cannot be predicated on an illegal act. As between the

parties to a contract, validity cannot be given to it by estoppel if it is
prohibited by law or is against public policy.[18]

The interest rate provisions in the case at bar are illegal not only
because of the provisions of the Civil Code on mutuality of contracts, but
also, as shall be discussed later, because they violate the Truth in Lending
Act. Not disclosing the true finance charges in connection with the
extensions of credit is, furthermore, a form of deception which we cannot
countenance. It is against the policy of the State as stated in the Truth in
Lending Act:

Sec. 2. Declaration of Policy. It is hereby declared to

be the policy of the State to protect its citizens from a lack of
awareness of the true cost of credit to the user by assuring a
full disclosure of such cost with a view of preventing the
uninformed use of credit to the detriment of the national
economy.[19]

Moreover, while the spouses Beluso indeed agreed to renew the credit
line, the offending provisions are found in the promissory notes themselves,
not in the credit line. In fixing the interest rates in the promissory notes to
cover the renewed credit line, UCPB still reserved to itself the same two
options (1) a rate indicative of the DBD retail rate; or (2) a rate as
determined by the Branch Head.

Error in Computation

UCPB asserts that while both the RTC and the Court of Appeals
voided the interest rates imposed by UCPB, both failed to include in their
computation of the outstanding obligation of the spouses Beluso the legal
rate of interest of 12% per annum. Furthermore, the penalty charges were
also deleted in the decisions of the RTC and the Court of Appeals. Section
2.04, Article II on Interest and other Bank Charges of the subject Credit
Agreement, provides:

77

Section 2.04 Penalty Charges. In addition to the

interest provided for in Section 2.01 of this ARTICLE, any
principal obligation of the CLIENT hereunder which is not
paid when due shall be subject to a penalty charge of one
percent (1%) of the amount of such obligation per month
computed from due date until the obligation is paid in full. If
the bank accelerates teh (sic) payment of availments
hereunder pursuant to ARTICLE VIII hereof, the penalty
charge shall be used on the total principal amount
outstanding and unpaid computed from the date of
acceleration until the obligation is paid in full.[20]

Section 2.02 Compounding Interest. Interest not paid when

due shall form part of the principal and shall be subject to
the same interest rate as herein stipulated.[23]

and paragraph 3 of the subject promissory notes:

Interest not paid when due shall be added to, and become
part of the principal and shall likewise bear interest at the
same rate.[24]

Paragraph 4 of the promissory notes also states:

In case of non-payment of this Promissory Note

(Note) at maturity, I/We, jointly and severally, agree to pay an
additional sum equivalent to twenty-five percent (25%) of the
total due on the Note as attorneys fee, aside from the
expenses and costs of collection whether actually incurred or
not, and a penalty charge of one percent (1%) per month on
the total amount due and unpaid from date of default until
fully paid.[21]

Petitioner further claims that it is likewise entitled to attorneys fees,

pursuant to Section 9.06 of the Credit Agreement, thus:

If the BANK shall require the services of counsel for

the enforcement of its rights under this AGREEMENT, the
Note(s), the collaterals and other related documents, the
BANK shall be entitled to recover attorneys fees equivalent to
not less than twenty-five percent (25%) of the total amounts
due and outstanding exclusive of costs and other expenses.
[22]

Another alleged computational error pointed out by UCPB is the

negation of the Compounding Interest agreed upon by the parties under
Section 2.02 of the Credit Agreement:

UCPB lastly avers that the application of the spouses Belusos

payments in the disputed computation does not reflect the parties
agreement. The RTC deducted the payment made by the spouses Beluso
amounting to P763,693.00 from the principal of P2,350,000.00. This was
allegedly inconsistent with the Credit Agreement, as well as with the
agreement of the parties as to the facts of the case. In paragraph 7 of the
spouses Belusos Manifestation and Motion on Proposed Stipulation of Facts
and Issues vis--vis UCPBs Manifestation, the parties agreed that the
amount of P763,693.00 was applied to the interest and not to the principal,
in accord with Section 3.03, Article II of the Credit Agreement on Order of
the Application of Payments, which provides:

Section 3.03 Application of Payment. Payments

made by the CLIENT shall be applied in accordance with the
following order of preference:

1.

Accounts receivable and other out-of-pocket

expenses

2.

Front-end Fee, Origination Fee, Attorneys Fee

and other expenses of collection;

3.

Penalty charges;

4.

Past due interest;

5.

Principal amortization/Payment in arrears;

78

6.

Advance interest;

7.

Outstanding balance; and

8.

All other obligations of CLIENT to the BANK, if

any.[25]

Thus, according to UCPB, the interest charges, penalty charges, and

attorneys fees had been erroneously excluded by the RTC and the Court of
Appeals from the computation of the total amount due and demandable from
spouses Beluso.

The spouses Beluso had even originally asked for the RTC to impose
this legal rate of interest in both the body and the prayer of its petition with
the RTC:

12. Since the provision on the fixing of the rate of

interest by the sole will of the respondent Bank is null and
void, only the legal rate of interest which is 12% per annum
can be legally charged and imposed by the bank, which
would amount to only about P599,000.00 since 1996 up
to August 31, 1998.

xxxx
The spouses Belusos defense as to all these issues is that the
demand made by UCPB is for a considerably bigger amount and, therefore,
the demand should be considered void. There being no valid demand,
according to the spouses Beluso, there would be no default, and therefore the
interests and penalties would not commence to run. As it was likewise
improper to foreclose the mortgaged properties or file a case against the
spouses Beluso, attorneys fees were not warranted.

We agree with UCPB on this score. Default commences upon

judicial or extrajudicial demand.[26] The excess amount in such a demand
does not nullify the demand itself, which is valid with respect to the proper
amount. A contrary ruling would put commercial transactions in disarray,
as validity of demands would be dependent on the exactness of the
computations thereof, which are too often contested.

There being a valid demand on the part of UCPB, albeit excessive,

the spouses Beluso are considered in default with respect to the proper
amount and, therefore, the interests and the penalties began to run at that
point.

As regards the award of 12% legal interest in favor of petitioner, the

RTC actually recognized that said legal interest should be imposed, thus:
There being no valid stipulation as to interest, the legal rate of interest shall
be charged.[27] It seems that the RTC inadvertently overlooked its noninclusion in its computation.

WHEREFORE, in view of the foregoing, petiitoners

pray for judgment or order:

xxxx

2. By way of example for the public good against the

Banks taking unfair advantage of the weaker party to their
contract, declaring the legal rate of 12% per annum, as the
imposable rate of interest up to February 28, 1999 on the
loan of 2.350 million.[28]

All these show that the spouses Beluso had acknowledged before the RTC
their obligation to pay a 12% legal interest on their loans. When the RTC
failed to include the 12% legal interest in its computation, however, the
spouses Beluso merely defended in the appellate courts this non-inclusion,
as the same was beneficial to them. We see, however, sufficient basis to
impose a 12% legal interest in favor of petitioner in the case at bar, as what
we have voided is merely the stipulated rate of interest and not the
stipulation that the loan shall earn interest.

We must likewise uphold the contract stipulation providing the

compounding of interest. The provisions in the Credit Agreement and in the
promissory notes providing for the compounding of interest were neither

79

nullified by the RTC or the Court of Appeals, nor assailed by the spouses
Beluso in their petition with the RTC. The compounding of interests has
furthermore been declared by this Court to be legal. We have held in Tan v.
Court of Appeals,[29] that:

Without prejudice to the provisions of Article 2212,

interest due and unpaid shall not earn interest. However,
the contracting parties may by stipulation capitalize the
interest due and unpaid, which as added principal, shall
earn new interest.

attorneys fees. Therefore, instead of awarding attorneys fees in favor of

petitioner, we shall merely affirm the deletion of the award of attorneys fees
to the spouses Beluso.

In sum, we hold that spouses Beluso should still be held liable for a
compounded legal interest of 12% per annum and a penalty charge of 12%
per annum. We also hold that, instead of awarding attorneys fees in favor of
petitioner, we shall merely affirm the deletion of the award of attorneys fees
to the spouses Beluso.

Annulment of the Foreclosure Sale

As regards the imposition of penalties, however, although we are

likewise upholding the imposition thereof in the contract, we find the rate
iniquitous. Like in the case of grossly excessive interests, the penalty
stipulated in the contract may also be reduced by the courts if it is iniquitous
or unconscionable.[30]

We find the penalty imposed by UCPB, ranging from 30.41% to 36%,

to be iniquitous considering the fact that this penalty is already over and
above the compounded interest likewise imposed in the contract. If a 36%
interest in itself has been declared unconscionable by this Court, [31] what
more a 30.41% to 36% penalty, over and above the payment of compounded
interest? UCPB itself must have realized this, as it gave us a sample
computation of the spouses Belusos obligation if both the interest and the
penalty charge are reduced to 12%.

As regards the attorneys fees, the spouses Beluso can actually be

liable therefor even if there had been no demand. Filing a case in court
is the judicial demand referred to in Article 1169[32] of the Civil Code, which
would put the obligor in delay.

The RTC, however, also held UCPB liable for attorneys fees in this
case, as the spouses Beluso were forced to litigate the issue on the illegality
of the interest rate provision of the promissory notes. The award of attorneys
fees, it must be recalled, falls under the sound discretion of the court.
[33]
Since both parties were forced to litigate to protect their respective rights,
and both are entitled to the award of attorneys fees from the other, practical
reasons dictate that we set off or compensate both parties liabilities for

Properties of spouses Beluso had been foreclosed, titles to which had

already been consolidated on 19 February 2001 and 20 March 2001 in the
name of UCPB, as the spouses Beluso failed to exercise their right of
redemption which expired on 25 March 2000. The RTC, however, annulled
the foreclosure of mortgage based on an alleged incorrect computation of the
spouses Belusos indebtedness.

UCPB alleges that none of the grounds for the annulment of a

foreclosure sale are present in the case at bar. Furthermore, the annulment
of the foreclosure proceedings and the certificates of sale were mooted by the
subsequent issuance of new certificates of title in the name of said
bank. UCPB claims that the spouses Belusos action for annulment of
foreclosure constitutes a collateral attack on its certificates of title, an act
proscribed by Section 48 of Presidential Decree No. 1529, otherwise known as
the Property Registration Decree, which provides:

Section 48. Certificate not subject to collateral

attack. A certificate of title shall not be subject to collateral
attack. It cannot be altered, modified or cancelled except in
a direct proceeding in accordance with law.

The spouses Beluso retort that since they had the right to refuse
payment of an excessive demand on their account, they cannot be said to be
in default for refusing to pay the same. Consequently, according to the

80

spouses Beluso, the enforcement of such illegal and overcharged demand

through foreclosure of mortgage should be voided.

We agree with UCPB and affirm the validity of the foreclosure

proceedings. Since we already found that a valid demand was made by
UCPB upon the spouses Beluso, despite being excessive, the spouses Beluso
are considered in default with respect to the proper amount of their
obligation to UCPB and, thus, the property they mortgaged to secure such
amounts may be foreclosed. Consequently, proceeds of the foreclosure sale
should be applied to the extent of the amounts to which UCPB is rightfully
entitled.

As argued by UCPB, none of the grounds for the annulment of a

foreclosure sale are present in this case. The grounds for the proper
annulment of the foreclosure sale are the following: (1) that there was fraud,
collusion, accident, mutual mistake, breach of trust or misconduct by the
purchaser; (2) that the sale had not been fairly and regularly conducted; or
(3) that the price was inadequate and the inadequacy was so great as to shock
the conscience of the court.[34]

Liability for Violation of Truth in Lending Act

The RTC, affirmed by the Court of Appeals, imposed a fine

of P26,000.00 for UCPBs alleged violation of Republic Act No. 3765,
otherwise known as the Truth in Lending Act.

UCPB challenges this imposition, on the argument that Section 6(a)

of the Truth in Lending Act which mandates the filing of an action to recover
such penalty must be made under the following circumstances:

Section 6. (a) Any creditor who in connection with

any credit transaction fails to disclose to any person any
information in violation of this Act or any regulation issued
thereunder shall be liable to such person in the amount
of P100 or in an amount equal to twice the finance charge
required by such creditor in connection with such

transaction, whichever is greater, except that such liability

shall not exceed P2,000 on any credit transaction. Action to
recover such penalty may be brought by such person
within one year from the date of the occurrence of the
violation, in any court of competent jurisdiction. x x
x (Emphasis ours.)

According to UCPB, the Court of Appeals even stated that

[a]dmittedly the original complaint did not explicitly allege a violation of the
Truth in Lending Act and no action to formally admit the amended petition
[which expressly alleges violation of the Truth in Lending Act] was made
either by [respondents] spouses Beluso and the lower court. x x x.[35]

UCPB further claims that the action to recover the penalty for the
violation of the Truth in Lending Act had been barred by the one-year
prescriptive period provided for in the Act. UCPB asserts that per the records
of the case, the latest of the subject promissory notes had been executed
on 2 January 1998, but the original petition of the spouses Beluso was filed
before the RTC on 9 February 1999, which was after the expiration of the
period to file the same on 2 January 1999.

On the matter of allegation of the violation of the Truth in Lending

Act, the Court of Appeals ruled:

Admittedly the original complaint did not explicitly

allege a violation of the Truth in Lending Act and no action
to formally admit the amended petition was made either by
[respondents] spouses Beluso and the lower court. In such
transactions, the debtor and the lending institutions do not
deal on an equal footing and this law was intended to protect
the public from hidden or undisclosed charges on their loan
obligations, requiring a full disclosure thereof by the
lender. We find that its infringement may be inferred or
implied from allegations that when [respondents] spouses
Beluso executed the promissory notes, the interest rate
chargeable thereon were left blank. Thus, [petitioner] UCPB
failed to discharge its duty to disclose in full to [respondents]
Spouses Beluso the charges applicable on their loans. [36]

81

We agree with the Court of Appeals. The allegations in the

complaint, much more than the title thereof, are controlling. Other than that
stated by the Court of Appeals, we find that the allegation of violation of the
Truth in Lending Act can also be inferred from the same allegation in the
complaint we discussed earlier:

b.) In unilaterally imposing an increased interest

rates (sic) respondent bank has relied on the provision of
their promissory note granting respondent bank the power to
unilaterally fix the interest rates, which rate was not
determined in the promissory note but was left solely to the
will of the Branch Head of the respondent Bank, x x x.[37]

The allegation that the promissory notes grant UCPB the power to
unilaterally fix the interest rates certainly also means that the promissory
notes do not contain a clear statement in writing of (6) the finance charge
expressed in terms of pesos and centavos; and (7) the percentage that the
finance charge bears to the amount to be financed expressed as a simple
annual
rate
on
the
outstanding
unpaid
balance
of
the
obligation.[38] Furthermore, the spouses Belusos prayer for such other
reliefs just and equitable in the premises should be deemed to include the
civil penalty provided for in Section 6(a) of the Truth in Lending Act.

UCPBs contention that this action to recover the penalty for the
violation of the Truth in Lending Act has already prescribed is likewise
without merit. The penalty for the violation of the act is P100 or an amount
equal to twice the finance charge required by such creditor in connection with
such transaction, whichever is greater, except that such liability shall not
exceed P2,000.00 on any credit transaction. [39] As this penalty depends on
the finance charge required of the borrower, the borrowers cause of action
would only accrue when such finance charge is required. In the case at bar,
the date of the demand for payment of the finance charge is 2 September
1998, while the foreclosure was made on 28 December 1998. The filing of the
case on 9 February 1999 is therefore within the one-year prescriptive
period.

UCPB argues that a violation of the Truth in Lending Act, being a

criminal offense, cannot be inferred nor implied from the allegations made in
the complaint.[40] Pertinent provisions of the Act read:

Sec. 6. (a) Any creditor who in connection with any

credit transaction fails to disclose to any person any
information in violation of this Act or any regulation issued
thereunder shall be liable to such person in the amount
of P100 or in an amount equal to twice the finance charge
required by such creditor in connection with such
transaction, whichever is the greater, except that such
liability
shall
not
exceed P2,000
on
any
credit
transaction. Action to recover such penalty may be brought
by such person within one year from the date of the
occurrence of the violation, in any court of competent
jurisdiction. In any action under this subsection in which
any person is entitled to a recovery, the creditor shall be
liable for reasonable attorneys fees and court costs as
determined by the court.

xxxx

(c)
Any person who willfully violates any
provision of this Act or any regulation issued thereunder shall
be fined by not less than P1,000 or more than P5,000 or
imprisonment for not less than 6 months, nor more than one
year or both.

As can be gleaned from Section 6(a) and (c) of the Truth in Lending Act, the
violation of the said Act gives rise to both criminal and civil
liabilities. Section 6(c) considers a criminal offense the willful violation of the
Act, imposing the penalty therefor of fine, imprisonment or both. Section
6(a), on the other hand, clearly provides for a civil cause of action for failure
to disclose any information of the required information to any person in
violation of the Act. The penalty therefor is an amount of P100 or in an
amount equal to twice the finance charge required by the creditor in
connection with such transaction, whichever is greater, except that the
liability shall not exceed P2,000.00 on any credit transaction. The action to

82

recover such penalty may be instituted by the aggrieved private person

separately and independently from the criminal case for the same offense.

In the case at bar, therefore, the civil action to recover the penalty
under Section 6(a) of the Truth in Lending Act had been jointly instituted
with (1) the action to declare the interests in the promissory notes void, and
(2) the action to declare the foreclosure void. This joinder is allowed under
Rule 2, Section 5 of the Rules of Court, which provides:

SEC. 5. Joinder of causes of action.A party may in

one pleading assert, in the alternative or otherwise, as many
causes of action as he may have against an opposing party,
subject to the following conditions:
(a)
The party joining the causes of action shall
comply with the rules on joinder of parties;
(b)
The joinder shall not include special civil
actions or actions governed by special rules;
(c)
Where the causes of action are between the
same parties but pertain to different venues or jurisdictions,
the joinder may be allowed in the Regional Trial Court
provided one of the causes of action falls within the
jurisdiction of said court and the venue lies therein; and
(d)
Where the claims in all the causes of action
are principally for recovery of money, the aggregate amount
claimed shall be the test of jurisdiction.

In attacking the RTCs disposition on the violation of the Truth in

Lending Act since the same was not alleged in the complaint, UCPB is
actually asserting a violation of due process. Indeed, due process mandates
that a defendant should be sufficiently apprised of the matters he or she
would be defending himself or herself against. However, in the 1 July
1999 pre-trial brief filed by the spouses Beluso before the RTC, the claim for
civil sanctions for violation of the Truth in Lending Act was expressly alleged,
thus:

Moreover, since from the start, respondent bank violated the

Truth in Lending Act in not informing the borrower in writing

before the execution of the Promissory Notes of the interest

rate expressed as a percentage of the total loan, the
respondent bank instead is liable to pay petitioners double
the amount the bank is charging petitioners by way of
sanction for its violation.[41]

In the same pre-trial brief, the spouses Beluso also expressly raised
the following issue:

b.) Does the expression indicative rate of DBD retail

(sic) comply with the Truth in Lending Act provision to
express the interest rate as a simple annual percentage of
the loan?[42]

These assertions are so clear and unequivocal that any attempt of

UCPB to feign ignorance of the assertion of this issue in this case as to
prevent it from putting up a defense thereto is plainly hogwash.

Petitioner further posits that it is the Metropolitan Trial Court which

has jurisdiction to try and adjudicate the alleged violation of the Truth in
Lending Act, considering that the present action allegedly involved a single
credit transaction as there was only one Promissory Note Line.

We disagree. We have already ruled that the action to recover the

penalty under Section 6(a) of the Truth in Lending Act had been jointly
instituted with (1) the action to declare the interests in the promissory notes
void, and (2) the action to declare the foreclosure void. There had been no
question that the above actions belong to the jurisdiction of the
RTC. Subsection (c) of the above-quoted Section 5 of the Rules of Court on
Joinder of Causes of Action provides:

(c) Where the causes of action are between the same

parties but pertain to different venues or jurisdictions, the
joinder may be allowed in the Regional Trial Court provided
one of the causes of action falls within the jurisdiction of
said court and the venue lies therein.

83

(4)
Furthermore, opening a credit line does not create a credit
transaction of loan or mutuum, since the former is merely a preparatory
contract to the contract of loan or mutuum. Under such credit line, the bank
is merely obliged, for the considerations specified therefor, to lend to the
other party amounts not exceeding the limit provided. The credit transaction
thus occurred not when the credit line was opened, but rather when the
credit line was availed of. In the case at bar, the violation of the Truth in
Lending Act allegedly occurred not when the parties executed the Credit
Agreement, where no interest rate was mentioned, but when the parties
executed the promissory notes, where the allegedly offending interest rate
was stipulated.

(5)

SEC. 4. Any creditor shall furnish to each person to

whom credit is extended, prior to the consummation of
the transaction, a clear statement in writing setting forth,
to the extent applicable and in accordance with rules and
regulations prescribed by the Board, the following
information:

(1)

the cash price or delivered price of the property

or service to be acquired;

(2)

the amounts, if any, to be credited as down

payment and/or trade-in;

the total amount to be financed;

(6)

the finance charge expressed in terms of pesos

and centavos; and

(7)

the percentage that the finance bears to the

total amount to be financed expressed as a
simple annual rate on the outstanding unpaid
balance of the obligation.

UCPB further argues that since the spouses Beluso were duly given
copies of the subject promissory notes after their execution, then they were
duly notified of the terms thereof, in substantial compliance with the Truth
in Lending Act.

Once more, we disagree. Section 4 of the Truth in Lending Act

clearly provides that the disclosure statement must be furnished prior to the
consummation of the transaction:

the charges, individually itemized, which are

paid or to be paid by such person in connection
with the transaction but which are not incident
to the extension of credit;

The rationale of this provision is to protect users of credit from a lack

of awareness of the true cost thereof, proceeding from the experience that
banks are able to conceal such true cost by hidden charges, uncertainty of
interest rates, deduction of interests from the loaned amount, and the
like. The law thereby seeks to protect debtors by permitting them to fully
appreciate the true cost of their loan, to enable them to give full consent to
the contract, and to properly evaluate their options in arriving at business
decisions. Upholding UCPBs claim of substantial compliance would defeat
these purposes of the Truth in Lending Act. The belated discovery of the
true cost of credit will too often not be able to reverse the ill effects of an
already consummated business decision.

In addition, the promissory notes, the copies of which were

presented to the spouses Beluso after execution, are not sufficient
notification from UCPB. As earlier discussed, the interest rate provision
therein does not sufficiently indicate with particularity the interest rate to be
applied to the loan covered by said promissory notes.

Forum Shopping
(3)

the difference between the amounts set forth

under clauses (1) and (2)

84

UCPB had earlier moved to dismiss the petition (originally Case No.
99-314 in RTC, Makati City) on the ground that the spouses Beluso
instituted another case (Civil Case No. V-7227) before the RTC of Roxas City,
involving the same parties and issues. UCPB claims that while Civil Case No.
V-7227 initially appears to be a different action, as it prayed for the issuance
of a temporary restraining order and/or injunction to stop foreclosure of
spouses Belusos properties, it poses issues which are similar to those of the
present case.[43] To prove its point, UCPB cited the spouses Belusos
Amended Petition in Civil Case No. V-7227, which contains similar
allegations as those in the present case. The RTC of Makati denied UCPBs
Motion to Dismiss Case No. 99-314 for lack of merit. Petitioner UCPB raised
the same issue with the Court of Appeals, and is raising the same issue with
us now.

The spouses Beluso claim that the issue in Civil Case No. V-7227
before the RTC of Roxas City, a Petition for Injunction Against Foreclosure, is
the propriety of the foreclosure before the true account of spouses Beluso is
determined. On the other hand, the issue in Case No. 99-314 before the RTC
of Makati City is the validity of the interest rate provision. The spouses
Beluso claim that Civil Case No. V-7227 has become moot because, before
the RTC of Roxas City could act on the restraining order, UCPB proceeded
with the foreclosure and auction sale. As the act sought to be restrained by
Civil Case No. V-7227 has already been accomplished, the spouses Beluso
had to file a different action, that of Annulment of the Foreclosure Sale, Case
No. 99-314 with the RTC, Makati City.

Even if we assume for the sake of argument, however, that only one
cause of action is involved in the two civil actions, namely, the violation of the
right of the spouses Beluso not to have their property foreclosed for an
amount they do not owe, the Rules of Court nevertheless allows the filing of
the second action. Civil Case No. V-7227 was dismissed by the RTC of Roxas
City before the filing of Case No. 99-314 with the RTC of Makati City, since
the venue of litigation as provided for in the Credit Agreement is
in Makati City.

Rule 16, Section 5 bars the refiling of an action previously dismissed

only in the following instances:

SEC. 5. Effect of dismissal.Subject to the right of

appeal, an order granting a motion to dismiss based on

paragraphs (f), (h) and (i) of section 1 hereof shall bar the
refiling of the same action or claim. (n)

Improper venue as a ground for the dismissal of an action is found

in paragraph (c) of Section 1, not in paragraphs (f), (h) and (i):

SECTION 1. Grounds.Within the time for but

before filing the answer to the complaint or pleading
asserting a claim, a motion to dismiss may be made on any
of the following grounds:

(a) That the court has no jurisdiction over the

person of the defending party;

(b) That the court has no jurisdiction over the

subject matter of the claim;

(c) That venue is improperly laid;

(d) That the plaintiff has no legal capacity to sue;

(e) That there is another action pending between the

same parties for the same cause;

(f) That the cause of action is barred by a prior

judgment or by the statute of limitations;

(g) That the pleading asserting the claim states no

cause of action;

(h) That the claim or demand set forth in the

plaintiffs pleading has been paid, waived, abandoned,
or otherwise extinguished;

85

(i) That the claim on which the action is

founded is unenforceable under the provisions of the
statute of frauds; and

(j) That a condition precedent for filing the claim has

not been complied with.[44] (Emphases supplied.)

When an action is dismissed on the motion of the other party, it is

only when the ground for the dismissal of an action is found in paragraphs
(f), (h) and (i) that the action cannot be refiled. As regards all the other
grounds, the complainant is allowed to file same action, but should take care
that, this time, it is filed with the proper court or after the accomplishment of
the erstwhile absent condition precedent, as the case may be.

UCPB, however, brings to the attention of this Court a Motion for

Reconsideration filed by the spouses Beluso on 15 January 1999 with the
RTC of Roxas City, which Motion had not yet been ruled upon when the
spouses Beluso filed Civil Case No. 99-314 with the RTC of Makati. Hence,
there were allegedly two pending actions between the same parties on the
same issue at the time of the filing of Civil Case No. 99-314 on 9 February
1999 with the RTC of Makati. This will still not change our findings. It is
indeed the general rule that in cases where there are two pending actions
between the same parties on the same issue, it should be the later case that
should be dismissed. However, this rule is not absolute. According to this
Court in Allied Banking Corporation v. Court of Appeals[45]:

In these cases, it is evident that the first action was

filed in anticipation of the filing of the later action and the
purpose is to preempt the later suit or provide a basis for
seeking the dismissal of the second action.

Even if this is not the purpose for the filing of the

first action, it may nevertheless be dismissed if the later
action is the more appropriate vehicle for the ventilation
of the issues between the parties. Thus, in Ramos v.
Peralta, it was held:

[T]he rule on litis pendentia does not

require that the later case should yield to
the earlier case. What is required merely is
that there be another pending action, not a
prior pending action. Considering the
broader scope of inquiry involved in Civil
Case No. 4102 and the location of the
property involved, no error was committed
by the lower court in deferring to
the Bataan court's jurisdiction.

Given, therefore, the pendency of two actions, the

following are the relevant considerations in determining
which action should be dismissed: (1) the date of filing, with
preference generally given to the first action filed to be
retained; (2) whether the action sought to be dismissed was
filed merely to preempt the later action or to anticipate its
filing and lay the basis for its dismissal; and (3) whether the
action is the appropriate vehicle for litigating the issues
between the parties.

In the case at bar, Civil Case No. V-7227 before the RTC of Roxas
City was an action for injunction against a foreclosure sale that has already
been held, while Civil Case No. 99-314 before the RTC of Makati City
includes an action for the annulment of said foreclosure, an action certainly
more proper in view of the execution of the foreclosure sale. The former case
was improperly filed in Roxas City, while the latter was filed in Makati City,
the proper venue of the action as mandated by the Credit Agreement. It is
evident, therefore, that Civil Case No. 99-314 is the more appropriate vehicle
for litigating the issues between the parties, as compared to Civil Case No. V7227. Thus, we rule that the RTC of Makati City was not in error in not
dismissing Civil Case No. 99-314.

WHEREFORE, the Decision of the Court

hereby AFFIRMED with the following MODIFICATIONS:

of

Appeals

is

86

1.

In addition to the sum of P2,350,000.00 as determined

by the courts a quo, respondent spouses Samuel and Odette
Beluso are also liable for the following amounts:
a. Penalty of 12% per annum on the amount due [46] from the
date of demand; and
b. Compounded legal interest of 12% per annum on the
amount due[47] from date of demand;

2.

The following amounts shall be deducted from the

liability of the spouses Samuel and Odette Beluso:
a.

Payments made by the spouses in the amount

of P763,692.00. These payments shall be applied to the
date of actual payment of the following in the order
that they are listed, to wit:
i.
penalty charges due
and demandable as of the time of payment;
ii.
interest
due
demandable as of the time of payment;

and

iii.
principal
amortization/payment in arrears as of the time
of payment;
iv.
b.

outstanding balance.

Penalty under Republic Act No. 3765 in the amount

of P26,000.00. This amount shall be deducted from the
liability of the spouses Samuel and Odette Beluso on 9
February 1999 to the following in the order that they
are listed, to wit:
i.
penalty charges
and demandable as of time of payment;

due

ii.
interest
due
demandable as of the time of payment;

and

iii.
principal
amortization/payment in arrears as of the time
of payment;
iv.
3.

outstanding balance.

The foreclosure of mortgage is hereby declared

VALID. Consequently, the amounts which the Regional Trial
Court and the Court of Appeals ordered respondents to pay,

as modified in this Decision, shall be deducted from the

proceeds of the foreclosure sale.

SO ORDERED.
[G.R. No. 88880. April 30, 1991.]
PHILIPPINE NATIONAL BANK, Petitioner, v. THE HON. COURT OF
APPEALS and AMBROSIO PADILLA, Respondents.
The Chief Legal Counsel for Petitioner.
Ambrosio Padilla, Mempin & Reyes Law Offices for Private Respondent.

SYLLABUS

1. COMMERCIAL LAW; BANKING LAWS; RATE OF INTEREST; INCREASE OF

INTEREST RATE; NOT TO BE MADE OFTENER THAN ONCE A YEAR.
PNB, over the objection of the private respondent, and without authority
from the Monetary Board, within a period of only four (4) months, increased
the 18% interest rate on the private respondents loan obligation three (3)
times: (a) to 32% in July 1984; (b) to 41% in October 1984; and (c) to 48% in
November 1984. Those increases were null and void. Although Section 2, P.D.
No. 116 of January 29, 1973, authorizes the Monetary Board to prescribe
the maximum rate or rates of interest for loans or renewal thereof and to
change such rate or rates whenever warranted by prevailing economic and
social conditions, it expressly provides that "such changes shall not be made
oftener than once every twelve months. "If the Monetary Board itself was not
authorized to make such changes oftener than once a year, even less so may
a bank which is subordinate to the Board.
2. ID.; ID.; ID.; ID.; MAY BE INCREASED WITHIN LIMITS OF LAW; PNB
CIRCULARS AND RESOLUTION ARE NEITHER LAWS NOR RESOLUTIONS
OF MONETARY BOARD. While the private respondent-debtor did agree in
the Deed of Real Estate Mortgage (Exh. 5) that the interest rate may be
increased during the life of the contract "to such increase within the rate
allowed by law, as the Board of Directors of the MORTGAGEE may prescribe"
(Exh. 5-e-1) or "within the limits allowed by law" (Promissory Notes, Exhs. 2,

87

3, and 4), no laws was ever passed in July to November 1984 increasing the
interest rates on loans or renewals thereof to 32%, 41% and 48% (per
annum), and no documents were executed and delivered by the debtor to
effectuate the increases. The PNB relied on its own Board Resolution No. 681
(Exh. 10), PNB Circular No. 40-79-84 (Exh. 13), and PNB Circular No. 40129-84 (Exh. 15), but those resolution and circulars are neither laws nor
resolutions of the Monetary Board.

The Philippine National Bank (PNB) has appealed by certiorari from the
decision promulgated on June 27, 1989 by the Court of Appeals in CA-G.R.
CV No. 09791 entitled, "AMBROSIO PADILLA, plaintiff-appellant versus
PHILIPPINE NATIONAL BANK, defendant-appellee," reversing the decision of
the trial court which had dismissed the private respondents complaint "to
annul interest increases." (p. 32, Rollo.) The Court of Appeals rendered
judgment:jgc:chanrobles.com.ph

3. ID.; ID.; ID.; REMOVAL OF USURY LAW CEILING ON INTEREST RATES

DOES NOT AUTHORIZE BANKS TO UNILATERALLY AND SUCCESSIVELY
INCREASE INTEREST RATES. CB Circular No. 905, Series of 1982 (Exh.
11) removed the Usury law ceiling on interest rates but it did not authorize
the PNB, or any bank for that matter, to unilaterally and successively
increase the agreed interest rates from 18% to 48% within a span of four (4)
months, in violation of P.D. 116 which limits such changes to "once every
twelve months."cralaw virtua1aw library

". . . declaring the questioned increases of interest as unreasonable, excessive

and arbitrary and ordering the defendant-appellee [PNB] to refund to the
plaintiff-appellant the amount of interest collected from July, 1984 in excess
of twenty-four percent (24%) per annum. Costs against the defendantappellee." (pp 14-15, Rollo.)

4. ID.; ID.; ID.; UNILATERAL ACTION TO INCREASE INTEREST RATES, A

VIOLATION OF ARTICLE 1308 OF CIVIL CODE. Besides violating P.D.
116, the unilateral action of the PNB in increasing the interest rate on the
private respondents loan, violated the mutuality of contracts ordained in
Article 1308 of the civil Code: "ART. 1308. The contract must bind both
contracting parties; its validity or compliance cannot be left to the will of one
of them."cralaw virtua1aw library
5. ID.; ID.; ID.; SUCCESSIVE INCREASE OF INTEREST RATES, A
VIOLATION OF ARTICLE 1956 OF CIVIL CODE. PNBs successive
increases of the interest rate on the private respondents loan, over the
latters protest, were arbitrary as they violated an express provision of the
Credit Agreement (Exh. 1) Section 9.01 that its terms "may be amended only
by an instrument in writing signed by the party to be bound as burdened by
such amendment." The increases imposed by PNB also contravene Art. 1956
of the Civil Code which provides that "no interest shall be due unless it has
been expressly stipulated in writing."

DECISION

GRIO-AQUINO, J.:

In July 1982, the private respondent applied for, and was granted by
petitioner PNB, a credit line of 321.8 million, secured by a real estate
mortgage, for a term of two (2) years, with 18% interest per annum. Private
respondent executed in favor of the PNB a Credit Agreement, two (2)
promissory notes in the amount of P900,000.00 each, and a Real Estate
Mortgage Contract.
The Credit Agreement provided that
"9.06 Other Conditions. The Borrowers hereby agree to be bound by the rules
and regulations of the Central Bank and the current and general policies of
the Bank and those which the Bank may adopt in the future, which may
have relation to or in any way affect the Line, which rules, regulations and
policies are incorporated herein by reference as if set forth herein in full.
Promptly upon receipt of a written request from the Bank, the Borrowers
shall execute and deliver such documents and instruments, in form and
substance satisfactory to the Bank, in order to effectuate or otherwise
comply with such rules, regulations and policies." (p. 85, Rollo.)
The Promissory Notes, in turn, uniformly authorized the PNB to increase the
stipulated 18% interest per annum "within the limits allowed by law at any
time depending on whatever policy it [PNB] may adopt in the future; Provided,
that, the interest rate on this note shall be correspondingly decreased in the
event that the applicable maximum interest rate is reduced by law or by the
Monetary Board." (pp. 85-86, Rollo; Emphasis ours.)
The Real Estate Mortgage Contract likewise provided
that:jgc:chanrobles.com.ph
"(k) INCREASE OF INTEREST RATE

88

"The rate of interest charged on the obligation secured by this mortgage as

well as the interest on the amount which may have been advanced by the
MORTGAGEE, in accordance with the provisions hereof, shall be subject
during the life of this contract to such an increase within the rate allowed by
law, as the Board of Directors of the MORTGAGEE may prescribe for its
debtors." (p. 86, Rollo;Emphasis supplied.)
Four (4) months advance interest and incidental expenses/charges were
deducted from the loan, the net proceeds of which were released to the
private respondent by crediting or transferring the amount to his current
account with the bank.chanrobles.com : virtual law library
On June 20, 1984, PNB informed the private respondent that (1) his credit
line of P1.8 million "will expire on July 4, 1984," (2)" [i]f renewal of the line for
another year is intended, please submit soonest possible your request," and
(3) the "present policy of the Bank requires at least 30% reduction of
principal before your line can be renewed." (pp. 86-87, Rollo.) Complying,
private respondent on June 25, 1984, paid PNB P540,000 00 (30% of P1.8
million) and requested that "the balance of P1,260,000.00 be renewed for
another period of two (2) years under the same arrangement" and that "the
increase of the interest rate of my mortgage loan be from 18% to 21%" (p. 87,
Rollo.).
On July 4, 1984, private respondent paid PNB P360,000.00.
On July 18, 1984, private respondent reiterated in writing his request that
"the increase in the rate of interest from 18% be fixed at 21% of 24%. (p. 87,
Rollo.)
On July 26, 1984, private respondent made an additional payment of
P100,000.
On August 10, 1984, PNB informed private respondent that "we can not give
due course to your request for preferential interest rate in view of the
following reasons: Existing Loan Policies of the bank requires 32% for loan of
more than one year; our present cost of funds has substantially increased."
(pp. 8788, Rollo.)
On August 17, 1984, private respondent further paid PNB P150,000.00.
In a letter dated August 24, 1984 to PNB, private respondent announced that
he would "continue making further payments, and instead of a loan of more
than one year, I shall pay the said loan before the lapse of one year or before
July 4, 1985. . . . I reiterate my request that the increase of my rate of
interest from 18% be fixed at 21% or 24%." (p. 88, Rollo.)

On September 12, 1984, private respondent paid PNB P160,000.00.

In letters dated September 12, 1984 and September 13, 1984, PNB informed
private respondent that "the interest rate on your outstanding line/loan is
hereby adjusted from 32% p.a. to 41% p.a. (35% prime rate + 6%) effective
September 6, 1984;" and further explained "why we can not grant your
request for a lower rate of 21% or 24%." (pp. 88-89, Rollo.)
In a letter dated September 24, 1984 to PNB, private respondent registered
his protest against the increase of interest rate from 18% to 32% on July 4,
1984 and from 32% to 41% on September 6, 1984.
On October 15, 1984, private respondent reiterated his request that the
interest rate should not be increased from 18% to 32% and from 32% to 41%.
He also attached (as payment) a check for P140,000.00.chanrobles.com.ph :
virtual law library
Like rubbing salt on the private respondents wound, the petitioner informed
private respondent on October 29, 1984, that "the interest rate on your
outstanding line/loan is hereby adjusted from 41% p.a. to 48% p.a. (42%
prime rate plus 6% spread) effective 25 October 1984." (p. 89, Rollo.)
In November 1984, private respondent paid PNB P50,000.00 thus reducing
his principal loan obligation to P300,000.00.
On December 18, 1984, private respondent filed in the Regional Trial Court
of Manila a complaint against PNB entitled, "AMBROSIO PADILLA v.
PHILIPPINE NATIONAL BANK" (Civil Case No. 84-28391), praying that
judgment be rendered:jgc:chanrobles.com.ph
"a. Declaring that the unilateral increase of interest rates from 18% to 32%,
then to 41% and again to 48% are illegal, not valid nor binding on plaintiff,
and that an adjustment of his interest rate from 18% to 24% is reasonable,
fair and just;
"b. The interest rate on the P900,000.00 released on September 27, 1982 be
counted from said date and not from July 4, 1984;
"c. The excess of interest payment collected by defendant bank by debiting
plaintiffs current account be refunded to plaintiff or credited to his current
account;
"d. Pending the determination of the merits of this case, a restraining order
and or a writ of preliminary injunction be issued (1) to restrain and or enjoin

89

defendant bank for [sic] collecting from plaintiff and/or debiting his current
account with illegal and excessive increases of interest rates; and (2) to
prevent defendant bank from declaring plaintiff in default for non-payment
and from instituting any foreclosure proceeding, extrajudicial or judicial, of
the valuable commercial property of plaintiff." (pp. 89-90, Rollo.)
In its answer to the complaint, PNB denied that the increases in interest
rates were illegal, unilateral excessive and arbitrary and recited the reasons
justifying said increases.
On March 31, 1985, the private respondent paid the P300,000 balance of his
obligation to PNBN (Exh. 5).
The trial court rendered judgment on April 14, 1986, dismissing the
complaint because the increases of interest were properly made.
The private respondent appealed to the Court of Appeals. On June 27, 1989,
the Court of Appeals reversed the trial court, hence, NBs recourse to this
Court by a petition for review under Rule 45 of the Rules of Court.
The assignments of error raised in PNBs petition for review can be resolved
into a single legal issue of whether the bank, within the term of the loan
which it granted to the private respondent, may unilaterally change or
increase the interest rate stipulated therein at will and as often as it pleased.
The answer to that question is no.
In the first place, although Section 2, PD. No. 116 of January 29, 1973,
authorizes the Monetary Board to prescribe the maximum rate or rates of
interest for loans or renewal thereof and to change such rate or rates
whenever warranted by prevailing economic and social conditions, it
expressly provides that "such changes shall not be made oftener than once
every twelve months."cralaw virtua1aw library
In this case, PNB, over the objection of the private respondent, and without
authority from the Monetary Board, within a period of only four (4) months,
increased the 18% interest rate on the private respondents loan obligation
three (3) times: (a) to 32% in July 1984; (b) to 41% in October 1984; and (c)
to 48% in November 1984. Those increases were null and void, for if the
Monetary Board itself was not authorized to make such changes oftener than
once a year, even less so may a bank which is subordinate to the
Board.chanrobles law library : red
Secondly, as pointed out by the Court of Appeals, while the private
respondent-debtor did agree in the Deed of Real Estate Mortgage (Exh. 5)

that the interest rate may be increased during the life of the contract "to such
increase within the rate allowed by law, as the Board of Directors of the
MORTGAGEE may prescribe" (Exh. 5-e-1) or "within the limits allowed by
law" (Promissory Notes, Exs. 2, 3, and 4), no law was ever passed in July to
November 1984 increasing the interest rates on loans or renewals thereof to
32%, 41% and 48% (per annum), and no documents were executed and
delivered by the debtor to effectuate the increases. The Court of Appeals
observed.
". . . We focus Our attention first of all on the agreement between the parties
as embodied in the following instruments, to wit: (1) Exhibit 1 Credit
Agreement dated July 1, 1982; (2) Exhibit 2 Promissory Note dated July
5, 1982; (3) Exhibit (3) Promissory Note dated January 3, 1983; (4)
Exhibit 4 Promissory Note, dated December 13, 1983; and (5) Exhibit 5
Real Estate Mortgage contract dated July 1, 1982.
"Exhibit 1 states in its portion marked Exhibit 1-g-1:chanrob1es virtual
1aw library
9 .06 Other Conditions. The Borrowers hereby agree to be bound by the
rules and regulations of the Central Bank and the current and general
policies of the Bank and those which the Bank may adopt in the future,
which may have relation to or in any way affect the Line, which rules,
regulations and policies are incorporated herein by reference as if set forth
herein in full. Promptly upon receipt of a written request from the Bank, the
Borrowers shall execute and deliver such documents and instruments, in
form and substance satisfactory to the Bank, in order to effectuate or
otherwise comply with such rules, regulations and policies.
"Exhibits 2, 3, and 4 in their portions respectively marked Exhibits 2-B,
3-B, and 4-B uniformly authorize the defendant bank to increase the
stipulated interest rate of 18% per annum within the limits allowed by law at
any time depending on whatever policy it may adopt in the future: Provided,
that, the interest rate on this note shall be correspondingly decreased in the
event that the applicable maximum interest rate is reduced by law or by the
Monetary Board.
"Exhibit 5 in its portion marked Exhibit 5-e-1 stipulates:chanrob1es virtual
1aw library
(k) INCREASE OF INTEREST RATE
The rate of interest charged on the obligation secured by this mortgage as
well as the interest on the amount which may have been advanced by the
MORTGAGEE, in accordance with the provisions hereof, shall be subject

90

during the life of this contract to such an increase within the rate allowed by
law, as the Board of Directors of the MORTGAGEE may prescribe for its
debtors.
"Clearly, then, the agreement between the parties authorized the defendant
bank to increase the interest rate beyond the original rate of 18% per annum
but within the limits allowed by law or within the rate allowed by law, it
being declared the obligation of the plaintiff as borrower to execute and
deliver the corresponding documents and instruments to effectuate the
increase." (pp. 11-12, Rollo.)
In Banco Filipino Savings and Mortgage Bank v. Navarro, 15 SCRA 346
(1987), this Court disauthorized the bank from raising the interest rate on
the borrowers loan from 12% to 17% despite an escalation clause in the loan
agreement signed by the debtors authorizing Banco Filipino "to
correspondingly increase the interest rate stipulated in this contract without
advance notice to me/us in the event a law should be enacted increasing the
lawful rates of interest that may be charged on this particular kind of loan."
(Emphasis supplied.)chanrobles virtual lawlibrary
In the Banco Filipino case, the bank relied on Section 3 of CB Circular No.
494 dated July 1, 1976 (72 O.G. No. 3, p. 676-J) which provided that "the
maximum rate of interest, including commissions premiums, fees and other
charges on loans with a maturity of more than 730 days by banking
institution . . . shall be 19%."cralaw virtua1aw library
This Court disallowed the increase for the simple reason that said "Circular
No. 494, although it has the effect of law is not a law." Speaking through
Mme. Justice Ameurfina M. Herrera, this Court held:jgc:chanrobles.com.ph
"It is now clear that from March 17, 1980, escalation clauses to be valid
should specifically provide: (1) that there can be an increase in interest if
increased by law or by the Monetary Board; and (2) in order for such
stipulation to be valid, it must include a provision for reduction of the
stipulated interest in the event that the applicable maximum rate of interest
is reduced by law or by the Monetary Board." p. 111, Rollo.).
In the present case, the PNB relied on its own Board Resolution No. 681
(Exh. 10), PNB Circular No. 40-79-84 (Exh. 13), and PNB Circular No. 40129-84 (Exh. 15), but those resolution and circulars are neither laws nor
resolutions of the Monetary Board.
CB Circular No. 905, Series of 1982 (Exh. 11) removed the Usury Law ceiling
on interest rates

". . . increases in interest rates are not subject to any ceiling prescribed by
the Usury Law."cralaw virtua1aw library
but it did not authorize the PNB, or any bank for that matter, to unilaterally
and successively increase the agreed interest rates from 18% to 48% within a
span of four (4) months, in violation of PD. 116 which limits such changes to
"once every twelve months."cralaw virtua1aw library
Besides violating PD. 116, the unilateral action of the PNB in increasing the
interest rate on the private respondents loan, violated the mutuality of
contracts ordained in Article 1308 of the Civil Code:jgc:chanrobles.com.ph
"ART. 1308. The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them."cralaw virtua1aw library
In order that obligations arising from contracts may have the force of law
between the parties, there must be mutuality between the parties based on
their essential equality. A contract containing a condition which makes its
fulfillment dependent exclusively upon the uncontrolled will of one of the
contracting parties, is void (Garcia v. Rita Legarda, Inc., 21 SCRA 555).
Hence, even assuming that the P1.8 million loan agreement between the PNB
and the private respondent gave the PNB a license (although in fact there was
none) to increase the interest rate at will during the term of the loan, that
license would have been null and void for being violative of the principle of
mutuality essential in contracts. It would have invested the loan agreement
with the character of a contract of adhesion, where the parties do not bargain
on equal footing, the weaker partys (the debtor) participation being reduced
to the alternative "to take it or leave it" (Qua v. Law Union & Rock Insurance
Co., 95 Phil. 85). Such a contract is a veritable trap for the weaker party
whom the courts of justice must protect against abuse and imposition.
PNBS successive increases of the interest rate on the private respondents
loan, over the latters protest, were arbitrary as they violated an express
provision of the Credit Agreement (Exh. 1) Section 9.01 that its terms "may
be amended only by an instrument in writing signed by the party to be
bound as burdened by such amendment." The increases imposed by PNB
also contravene Art. 1956 of the Civil Code which provides that "no interest
shall be due unless it has been expressly stipulated in writing."cralaw
virtua1aw library
The debtor herein never agreed in writing to pay the interest increases fixed
by the PNB beyond 24% per annum, hence, he is not bound to pay a higher
rate than that.
That an increase in the interest rate from 18% to 48% within a period of four

91

(4) months is excessive, as found by the Court of Appeals, is indisputable.

WHEREFORE, finding no reversible error in the decision of the Court of
Appeals in CA-G.R. CV No. 09791, the Court resolved to deny the petition for
review for lack of merit, with costs against the petitioner.
SO ORDERED.

Petitioner is the owner of a 374 square meter parcel of land located at

Quezon St., Masbate, Masbate. Sometime in 1975, respondent bank, in its
desire to put up a branch in Masbate, Masbate, negotiated with petitioner for
the purchase of the then unregistered property. On May 20, 1975, a contract
of LEASE WITH OPTION TO BUY was instead forged by the parties, the
pertinent portion of which reads:
1. The LESSOR leases unto the LESSEE, an the LESSEE
hereby accepts in lease, the parcel of land described in the

G.R. No. 103338 January 4, 1994

FEDERICO SERRA, petitioner,

first WHEREAS clause, to have and to hold the same for a

period of twenty-five (25) years commencing from June 1,
1975 to June 1, 2000. The LESSEE, however, shall have the
option to purchase said parcel of land within a period of ten

vs.

(10) years from the date of the signing of this Contract at a

THE HON. COURT OF APPEALS AND RIZAL COMMERCIAL BANKING

price not greater than TWO HUNDRED TEN PESOS

CORPORATION, respondents.

(P210.00) per square meter. For this purpose, the LESSOR

undertakes, within such ten-year period, to register said

Andres R. Amante, Jr. for petitioner.

parcel of land under the TORRENS SYSTEM and all

expenses appurtenant thereto shall be for his sole account.

R.C. Domingo, Jr. & Associates for private respondent.

If, for any reason, said parcel of land is not registered under
the TORRENS SYSTEM within the aforementioned ten-year
period, the LESSEE shall have the right, upon termination of
NOCON, J.:

the lease to be paid by the LESSOR the market value of the

A promise to buy and sell a determinate thing for a price certain is

land.

reciprocally demandable. An accepted unilateral promise to buy and sell a

determinate thing for a price certain is binding upon the promisor if the
promise is supported by a consideration distinct from the price. (Article
1479, New Civil Code) The first is the mutual promise and each has the right
to demand from the other the fulfillment of the obligation. While the second
is merely an offer of one to another, which if accepted, would create an
obligation to the offeror to make good his promise, provided the acceptance is

building and improvements constructed on said parcel of

The LESSEE is hereby appointed attorney-in-fact for the

LESSOR to register said parcel of land under the TORRENS
SYSTEM in case the LESSOR, for any reason, fails to comply
with his obligation to effect said registration within
reasonable time after the signing of this Agreement, and all
expenses appurtenant to such registration shall be charged

supported by a consideration distinct from the price.

by the LESSEE against the rentals due to the LESSOR.

Disputed in the present case is the efficacy of a "Contract of Lease with

2. During the period of the lease, the LESSEE covenants to

Option to Buy", entered into between petitioner Federico Serra and private
respondent Rizal Commercial Banking Corporation. (RCBC).

pay the LESSOR, at the latter's residence, a monthly rental

of SEVEN HUNDRED PESOS (P700.00), Philippine Currency,
payable in advance on or before the fifth (5th) day of every

92

calendar month, provided that the rentals for the first four

much to the surprise of the respondent, petitioner replied that he is no

(4) months shall be paid by the LESSEE in advance upon the

longer selling the property. 3

signing of this Contract.

Hence, on March 14, 1985, a complaint for specific performance and
3. The LESSEE is hereby authorized to construct as its sole

damages were filed by respondent against petitioner. In the complaint,

expense a building and such other improvements on said

respondent alleged that during the negotiations it made clear to petitioner

parcel of land, which it may need in pursuance of its

that it intends to stay permanently on property once its branch office is

business and/or operations; provided, that if for any reason

opened unless the exigencies of the business requires otherwise. Aside from

the LESSEE shall fail to exercise its option mentioned in

its prayer for specific performance, it likewise asked for an award of

paragraph (1) above in case the parcel of land is registered

P50,000.00 for attorney's fees P100,000.00 as exemplary damages and the

under the TORRENS SYSTEM within the ten-year period

cost of the suit. 4

mentioned therein, said building and/or improvements, shall

become the property of the LESSOR after the expiration of
the 25-year lease period without the right of reimbursement
on the part of the LESSEE. The authority herein granted
does not, however, extend to the making or allowing any
unlawful, improper or offensive used of the leased premises,
or any use thereof, other than banking and office purposes.
The maintenance and upkeep of such building, structure
and improvements shall likewise be for the sole account of
the LESSEE.

The foregoing agreement was subscribed before Notary Public Romeo F.

Natividad.

A special and affirmative defenses, petitioner contended:

1. That the contract having been prepared and drawn by
RCBC, it took undue advantage on him when it set in
lopsided terms.
2. That the option was not supported by any consideration
distinct from the price and hence not binding upon him.
3. That as a condition for the validity and/or efficacy of the
option, it should have been exercised within the reasonable
time after the registration of the land under the Torrens
System; that its delayed action on the option have forfeited

Pursuant to said contract, a building and other improvements were

whatever its claim to the same.

constructed on the land which housed the branch office of RCBC in Masbate,
Masbate. Within three years from the signing of the contract, petitioner
complied with his part of the agreement by having the property registered
and
placed under the TORRENS SYSTEM, for which Original Certificate of Title
No. 0-232 was issued by the Register of Deeds of the Province of Masbate.

4. That extraordinary inflation supervened resulting in the

unusual decrease in the purchasing power of the currency
that could not reasonably be forseen or was manifestly
beyond the contemplation of the parties at the time of the
establishment of the obligation, thus, rendering the terms of
the contract unenforceable, inequitable and to the undue

Petitioner alleges that as soon as he had the property registered, he kept on

pursuing the manager of the branch to effect the sale of the lot as per their
agreement. It was not until September 4, 1984, however, when the
respondent bank decided to exercise its option and informed petitioner,
through a letter,

enrichment of RCBC.

and as counterclaim petitioner alleged that:

of its intention to buy the property at the agreed price of

not greater than P210.00 per square meter or a total of P78,430.00. But

93

1. The rental of P700.00 has become unrealistic and

In a decision promulgated on September 19, 1991, 9 the Court of Appeals

unreasonable, that justice and equity will require its

affirmed the findings of the trial court that:

adjustment.
1. The contract is valid and that the parties perfectly
2. By the institution of the complaint he suffered moral

understood the contents thereof;

damages which may be assessed at P100,000.00 and award

of attorney's fee of P25,000.00 and exemplary damages at

2. The option is supported by a distinct and separate

P100,000.00. 6

consideration as embodied in the agreement;

Initially, after trial on the merits, the court dismissed the complaint.

3. There is no basis in granting an adjustment in rental.

Although it found the contract to be valid, the court nonetheless ruled that
the option to buy in unenforceable because it lacked a consideration distinct

Assailing the judgment of the appellate court, petitioner would like us to

from the price and RCBC did not exercise its option within reasonable time.

consider mainly the following:

The prayer for readjustment of rental was denied, as well as that for moral
and exemplary damages. 7

1. The disputed contract is a contract of adhesion.

Nevertheless, upon motion for reconsideration of respondent, the court in the

2. There was no consideration to support the option, distinct

order of January 9, 1989, reversed itself, the dispositive portion reads:

from the price, hence the option cannot be exercised.

WHEREFORE, the Court reconsiders its decision dated June

3. Respondent court gravely abused its discretion in not

6, 1988, and hereby renders judgment as follows:

granting currency adjustment on the already eroded value of

the stipulated rentals for twenty-five years.

1. The defendant is hereby ordered to execute and deliver the

proper deed of sale in favor of plaintiff selling, transferring

The petition is devoid of merit.

and
conveying the property covered by and described in the

There is no dispute that the contract is valid and existing between the

Original Certificate of Title 0-232 of the Registry of Deeds of

parties, as found by both the trial court and the appellate court. Neither do

Masbate for the sum of Seventy Eight Thousand Five

we find the terms of the contract unfairly lopsided to have it ignored.

Hundred Forty Pesos (P78,540,00), Philippine Currency;

A contract of adhesion is one wherein a party, usually a corporation,
2. Defendant is ordered to pay plaintiff the sum of Five

prepares the stipulations in the contract, while the other party merely affixes

Thousand (P5,000.00) Pesos as attorney's fees;

his signature or his "adhesion" thereto. These types of contracts are as

binding as ordinary contracts. Because in reality, the party who adheres to

3. The counter claim of defendant is hereby dismissed; and

the contract is free to reject it entirely. Although, this Court will not hesitate
to rule out blind adherence to terms where facts and circumstances will show

4. Defendants shall pay the costs of suit.

that it is basically one-sided.

10

We do not find the situation in the present case to be inequitable. Petitioner

is a highly educated man, who, at the time of the trial was already a CPA-

94

Lawyer, and when he entered into the contract, was already a CPA, holding a

On the other hand, what may be regarded as a consideration separate from

respectable position with the Metropolitan Manila Commission. It is evident

the price is discussed in the case ofVda. de Quirino v. Palarca

that a man of his stature should have been more cautious in transactions he

facts are almost on all fours with the case at bar. The said case also involved

enters into, particularly where it concerns valuable properties. He is amply

a lease contract with option to buy where we had occasion to say that "the

equipped to drive a hard bargain if he would be so minded to.

consideration for the lessor's obligation to sell the leased premises to the

16

wherein the

lessee, should he choose to exercise his option to purchase the same, is the
Petitioner contends that the doctrines laid down in the cases of
Atkins Kroll v. Cua Hian Tek,
v. Palarca

13

11

Sanchez v. Rigos,

12

and Vda. de Quirino

were misapplied in the present case, because 1) the option given

obligation of the lessee to sell to the lessor the building and/or improvements
constructed and/or made by the former, if he fails to exercise his option to
buy leased premises."

17

to the respondent bank was not supported by a consideration distinct from

the price; and 2) that the stipulated price of "not greater than P210.00 per

In the present case, the consideration is even more onerous on the part of

square meter" is not certain or definite.

the lessee since it entails transferring of the building and/or improvements

on the property to petitioner, should respondent bank fail to exercise its

Article 1324 of the Civil Code provides that when an offeror has allowed the

option within the period stipulated.

18

offeree a certain period to accept, the offer maybe withdrawn at anytime

before acceptance by communicating such withdrawal, except when the

The bugging question then is whether the price "not greater than TWO

option is founded upon consideration, as something paid or promised. On the

HUNDRED PESOS" is certain or definite. A price is considered certain if it is

other hand, Article 1479 of the Code provides that an accepted unilateral

so with reference to another thing certain or when the determination thereof

promise to buy and sell a determinate thing for a price certain is binding

is left to the judgment of a specified person or persons.

upon the promisor if the promise is supported by a consideration distinct from

the price.
In a unilateral promise to sell, where the debtor fails to withdraw the promise
before the acceptance by the creditor, the transaction becomes a bilateral
contract to sell and to buy, because upon acceptance by the creditor of the
offer to sell by the debtor, there is already a meeting of the minds of the
parties as to the thing which is determinate and the price which is
certain.

14

In which case, the parties may then reciprocally demand

performance.
Jurisprudence has taught us that an optional contract is a privilege existing
only in one party the buyer. For a separate consideration paid, he is given
the right to decide to purchase or not, a certain merchandise or property, at
any time within the agreed period, at a fixed price. This being his prerogative,
he may not be compelled to exercise the option to buy before the time
expires.

15

19

And generally,

gross inadequacy of price does not affect a contract of sale.

20

Contracts are to be construed according to the sense and meaning of the

terms which the parties themselves have used. In the present dispute, there
is evidence to show that the intention of the parties is to peg the price at
P210 per square meter. This was confirmed by petitioner himself in his
testimony, as follows:
Q. Will you please tell this Court what was
the offer?
A. It was an offer to buy the property that I
have in Quezon City (sic).
Q. And did they give you a specific amount?
xxx xxx xxx

95

A. Well, there was an offer to buy the

property at P210 per square meters (sic).
SECOND DIVISION
Q. And that was in what year?
G.R. No. L-67881 June 30, 1987
A . 1975, sir.
Q. And did you accept the offer?
A. Yes, sir.

PILIPINAS BANK as Successor-In-Interest Of And/Or In substitution to,

The MANUFACTURERS BANK AND TRUST COMPANY, petitioner-appellant
vs.

21

INTERMEDIATE APPELLATE COURT (Fourth Civil Cases Division), and

Moreover, by his subsequent acts of having the land titled under the Torrens

JOSE W. DIOKNO and CARMEN I. DIOKNO, respondents-appellees.

System, and in pursuing the bank manager to effect the sale immediately,
means that he understood perfectly the terms of the contract. He even had
the same property mortgaged to the respondent bank sometime in 1979,
without the slightest hint of wanting to abandon his offer to sell the property
at the agreed price of P210 per square meter.

22

Finally, we agree with the courts a quo that there is no basis, legal or factual,
in adjusting the amount of the rent. The contract is the law between the
parties and if there is indeed reason to adjust the rent, the parties could by
themselves negotiate for the amendment of the contract. Neither could we
consider the decline of the purchasing power of the Philippine peso from
1983 to the time of the commencement of the present case in 1985, to be so
great as to result in an extraordinary inflation. Extraordinary inflation exists
when there in an unimaginable increase or decrease of the purchasing power
of the Philippine currency, or fluctuation in the value of pesos manifestly
beyond the contemplation of the parties at the time of the establishment of
the obligation.

23

Premises considered, we find that the contract of "LEASE WITH OPTION TO

BUY" between petitioner and respondent bank is valid, effective and
enforceable, the price being certain and that there was consideration distinct
from the price to support the option given to the lessee.
WHEREFORE, this petition is hereby DISMISSED, and the decision of the
appellate court is hereby AFFIRMED.
SO ORDERED.

PARAS, J.:
This is an appeal by certiorari from the Decision 1 of the respondent court
dated May 31, 1984 in CA-G.R. CV No. 67205 entitled "Jose W. Diokno and
Carmen I. Diokno, plaintiffs-appellees, vs. The Manufacturers Bank and
Trust Company, defendant-appellant" which affirmed the decision 2of the
Court of First Instance of Rizal (Pasig Branch XXI) in Civil Case No. 19660,
the dispositive portion of which reads:
WHEREFORE, judgment is rendered in favor of the plaintiffs
and against the defendant, ordering the defendant
Manufacturers Bank & Trust Company:
1. To deliver to the plaintiffs the parcel of land described in
Contract to Sell No. VV-18-(a) in the total area of 5,936
square meters and to execute in their favor the necessary
deed of absolute sale therefor;
2. To pay the sum of P556,160.00 less the amount due on
the contract (i.e., the unpaid installments from December,
1966 until the contract would have been fully paid together
with interest thereon up to March 25, 1974) with legal
interest on said balance from April 22, 1974 until the same
is fully paid;

96

3. P50,000.00 by way of moral damages;

of the vendee to pay when due, three or more consecutive

installments as stipulated therein or to comply with any of
the terms and conditions thereof, in which case the vendor

4. P50,000.00 by way of exemplary damages;

shall have right to resell the said parcel of land to any person
5. Ten per cent (10%) of the judgment by way of attorney's

interested, forfeiting payments made by the vendee as

fees; and

liquidated damages.

6. Costs of suit.

2. On July 27, 1965, petitioner sent to private respondents a Statement of

Account (Exh. F-1) requesting remittance of installment arrears showing

SO ORDERED. (Rollo, pp. 14-15)

partial payments for the month of April 1965 and May 1965 and complete
default for June, July and August, 1965;

The following are the undisputed facts of the case:

3. Likewise, on August 31, 1965, petitioner sent to private respondents
1. On April 18, 1961, Hacienda Benito, Inc. (petitioner's predecessor-in-

another Statement of Account with the additional entries of interests and the

interest) as vendor, and private respondents, as vendees executed Contract to

incoming installment for September, 1965;

Sell No. VV-18 (a) (Exh. A) over a parcel of land with an area of 5,936 square
meters of the Victoria Valley Subdivision in Antipolo, Rizal, subject to the

4. In partial compliance with the aforesaid Statements of Account, private

following terms and conditions, among others, relevant to this petition:

respondents paid on September 3, 1965 the sum of Pl,397.00 which answers

for the installments for the months of June 1965 to August 1965;

(a) The total contract price for the entire 5,936 square-meterlot was P47,488.00;

5. On March 17, 1967, petitioner sent private respondents a simple demand

letter showing a delinquency in their monthly amortizations for 19 months

(b) Of the total sum, an amount of Pl2,182.00 was applied

(Exh. 9);

thereto so as to reduce the balance on the principal to

P35,306.00;

6. On April 17, 1967, petitioner again sent private respondents a demand

letter showing total arrearages of 20 months as of April 1965, but this time

(c) The aforesaid balance, together with the stipulated

advising that unless they up-date their installment payments, petitioner shall

interest of 6% per annum, was to be paid over a period of 8-

be constrained to avail of the automatic rescission clause (Exh. 10);

1/2 years starting on May 1, 1961 at a monthly installment

of P446.10 until fully paid-although this monthly installment

7. On May 17, 1967, private respondents made a partial payment of

was later adjusted to the higher amount of P797.86, starting

P2,000.00 with the request for an extension of 60 days from May 17, 1967

on April 1, 1965;

within which to up-date their account (Exh. 10-a);

(d) Upon complete payment by the vendee of the total price of

8. On July 17, 1967, private respondents wrote a letter to petitioner asking

the lot the vendor shall execute a deed of sale in favor of the

another extension of sixty (60) days to pay all their arrearages and update

vendee;

their payments under Contract No. VV-18 (a);

(e) The contract shall be considered automatically rescinded

and cancelled and of no further force and effect upon failure

97

9. On September 18, 1967, private respondents paid P5,000.00 as partial

18. Petitioner filed an Answer with counterclaim for damages in the form of

payment and requested an extension of another 30 days from September 18,

attorney's fees, claiming that Contract to Sell No. VV-18(a) has been

1967 within which to update their account (Exh. 10-c);

automatically rescinded or cancelled by virtue of private respondents' failure

to pay the installments due in the contract under the automatic rescission

10. On October 19, 1967, however, private respondents failed to update their

clause.

arrearages and did not request for any further extension of time within which
to update their account;

19. After trial, the lower court rendered a decision in private respondents'
favor, holding that petitioner could not rescind the contract to sell, because:

11. After almost three (3) years, or on July 16, 1970, private respondents

(a) petitioner waived the automatic rescission clause by accepting payment on

wrote a letter to petitioner requesting for a Statement of Account as of date in

September 1967, and by sending letters advising private respondents of the

arrears and interests(Exh. 10-d), to which petitioner made a reply on July 22,

balances due, thus, looking forward to receiving payments thereon; (b) in any

1970 (Exh. 11);

event, until May 18, 1977 (when petitioner made arrangements for the
acquisition of additional 870 square meters) petitioner could not have

12. On May 19, 1971, petitioner wrote a letter to private respondents,

delivered the entire area contracted for, so, neither could private respondents

reminding them of their balance which will be due on the 31st instant (Exh.

be liable in default, citing Art. 1 189 of the New Civil Code. (Decision, pp.

J);

141-148, Amended Record on Appeal).

13. More than two (2) years from May 19, 1971 or on July 5, 1973, private

Said decision was affirmed on appeal.

respondents wrote a letter to petitioner expressing their desire to fully settle

their obligation, requesting for a complete statement of all the balance due

Hence, this Petition For Review on Certiorari, raising the main issue of

including interests;

whether or not the Contract to Sell No. VV-18(a) was rescinded or cancelled,
under the automatic rescission clause contained therein.

14. On March 14, 1974, private respondents wrote a letter reiterating their
request in their letter dated July 5, 1973, which has not been complied with

We find the petition meritless. While it is true that in the leading case of

despite several follow-ups (Exh. O);

Luzon Brokerage Co., Inc. vs. Maritime Building Co., Inc. and Myers Building
Co., 43 SCRA 93 the Supreme Court reiterated among other things that a

15. On March 25, 1974, private respondent Carmen I. Diokno went to see the

contractual provision allowing "automatic rescission" (without prior need of

Chairman of petitioner's Board of Directors on the matter informing him that

judicial rescission, resolution or cancellation) is VALID, the remedy of one

she had a buyer who was ready to purchase the property,

who feels aggrieved being to go to Court for the cancellation of the rescission
itself, in case the rescission is found unjustified under the circumstances,

16. On March 27, 1974, petitioner wrote a letter to private respondents,

still in the instant case there is a clear WAIVER of the stipulated right of

informing them that the contract to sell had been rescinded/cancelled by a

"automatic rescission," as evidenced by the many extensions granted private

notarial act, to which letter was annexed a "Demand for Rescission of

respondents by the petitioner. In all these extensions, the petitioner never

Contract", notarized on March 25, 1974 (Exh. 12);

called attention to the proviso on "automatic rescission."

17. In view of the foregoing, private respondents filed Complaint for Specific

WHEREFORE the assailed decision is hereby AFFIRMED but the actual

Performance with Damages to compel petitioner to execute a deed of sale in

damages are hereby reduced to P250,000.00 (the profit private respondents

their favor, and to deliver to them the title of the lot in question.

could have earned had the land been delivered to them at the time they were
ready to pay all their arrearages) minus whatever private respondents still

98

owe the petitioner (with the stipulated 6% annual interest up to March 25,
1974) as a result of the contract.
This is a petition for review on certiorari[1] under Rule 45 of the Rules of
Court, seeking to partially reconsider and modify the Decision [2] dated August
27, 2009 and the Resolution[3] dated August 4, 2010 of the Court of Appeals
(CA) in CA-G.R. CV No. 86445.

SO ORDERED.

HILIPPINE SAVINGS BANK,

G.R. No. 193178

Petitioner,
Present:

Respondent spouses Alfredo M. Castillo and Elizabeth Capati-Castillo

were the registered owners of a lot located in Tondo, Manila, covered by
Transfer Certificate of Title (TCT) No. 233242. Respondent spouses Romeo B.
Capati and Aquilina M. Lobo were the registered owners of another lot,
covered by TCT No. 227858, also located in Tondo, Manila.

CARPIO, J.,
- versus -

Chairperson,
NACHURA,
PERALTA,

On May 7, 1997, respondents obtained a loan, with real estate

mortgage over the said properties, from petitioner Philippine Savings Bank,
as evidenced by a Promissory Note with a face value of P2,500,000.00. The
Promissory Note, in part, reads:

ABAD, and
SPOUSES ALFREDO M. CASTILLO AND ELIZABETH C.
CASTILLO, and SPOUSES ROMEO B. CAPATI and
AQUILINA M. LOBO,
Respondents.

MENDOZA, JJ.

Promulgated:

May 30, 2011

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

DECISION

FOR VALUE RECEIVED, I/We, solidarily, jointly and

severally, promise to pay to the order of PHILIPPINE
SAVINGS BANK, at its head office or at the above stated
Branch the sum of TWO MILLION FIVE HUNDRED
THOUSAND PESOS ONLY (P2,500,000.00), Philippine
currency, with interest at the rate of seventeen per centum
(17%) per annum, from date until paid, as follows:

P43,449.41 (principal and interest) monthly for fifty

nine (59) months starting June 07, 1997 and every 7 th day of
the month thereafter with balloon payment on May 07, 2002.

Also, the rate of interest herein provided shall be

subject to review and/or adjustment every ninety (90) days.

NACHURA, J.:
All amortizations which are not paid on due date
shall bear a penalty equivalent to three percent (3%) of the
amount due for every month or fraction of a months delay.

99

The rate of interest and/or bank charges herein

stipulated, during the terms of this promissory note, its
extensions, renewals or other modifications, may be
increased, decreased or otherwise changed from time to time
within the rate of interest and charges allowed under present
or future law(s) and/or government regulation(s) as the
PHILIPPINE SAVINGS BANK may prescribe for its debtors.

Upon default of payment of any installment and/or

interest when due, all other installments and interest
remaining unpaid shall immediately become due and
payable. Also, said interest not paid when due shall be
added to, and become part of the principal and shall likewise
bear interest at the same rate herein provided. [4]

From the release of the loan in May 1997 until December 1999,
petitioner had increased and decreased the rate of interest, the highest of
which was 29% and the lowest was 15.5% per annum, per the Promissory
Note.

Respondents were notified in writing of these changes in the interest

rate. They neither gave their confirmation thereto nor did they formally
question the changes. However, respondent Alfredo Castillo sent several
letters to petitioner requesting for the reduction of the interest rates.
[5]
Petitioner denied these requests.

Respondents regularly paid their amortizations until December 1999,

when they defaulted due to financial constraints. Per petitioners table of
application
of
payment,
respondents
outstanding
balance
was P2,231,798.11.[6] Petitioner claimed that as of February 11, 2000,
respondents had a total outstanding obligation of P2,525,910.29.[7] Petitioner
sent them demand letters. Respondents failed to pay.

Thus, petitioner initiated an extrajudicial foreclosure sale of the

mortgaged properties. The auction sale was conducted on June 16, 2000,
with the properties sold for P2,778,611.27 and awarded to petitioner as the
only bidder. Being the mortgagee, petitioner no longer paid the said amount
but rather credited it to the loan amortizations and arrears, past due

interest, penalty charges, attorneys fees, all legal fees and expenses
incidental to the foreclosure and sale, and partial payment of the mortgaged
debt. On even date, a certificate of sale was issued and submitted to the
Clerk of Court and to the Ex-Officio Sheriff of Manila.

On July 3, 2000, the certificate of sale, sans the approval of the

Executive Judge of the Regional Trial Court (RTC), was registered with the
Registry of Deeds of Manila.

Respondents failed to redeem the property within the one-year

redemption period. However, on July 18, 2001, Alfredo Castillo sent a letter
to petitioner requesting for an extension of 60 days before consolidation of its
title so that they could redeem the properties, offering P3,000,000.00 as
redemption price. Petitioner conceded to Alfredo Castillos request, but
respondents still failed to redeem the properties.

On October 1, 2001, respondents filed a case for Reformation of

Instruments, Declaration of Nullity of Notarial Foreclosure Proceedings and
Certificate of Sale, Cancellation of Annotations on TCT Nos. 233242 and
227858, and Damages, with a plea for the issuance of a temporary
restraining order (TRO) and/or writ of preliminary prohibitory injunction,
with the RTC, Branch 14, Manila.

On October 5, 2001, the RTC issued a TRO. Eventually, on October

25, 2001, it issued a writ of preliminary injunction.

After trial, the RTC rendered its decision dated July 30, 2005, the
dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor

of the plaintiffs, and against the defendants in the following
manner:

1.

Declaring the questioned increases of interest as

unreasonable, excessive and arbitrary and ordering the
defendant Philippine Savings Bank to refund to the
plaintiffs, the amount of interest collected in excess of
seventeen percent (17%) per annum;

100

101

2.

Declaring the Extrajudicial Foreclosure conducted

by the defendants on June 16, 2000 and the
subsequent proceedings taken thereafter to be void ab
initio. In this connection, defendant Register of Deeds
is hereby ordered to cause the cancellation of the
corresponding annotations at the back of Transfer
Certificates of Title No. 227858 and 233242 in the
name of Spouses Alfredo and Elizabeth Castillo and
Spouses Romeo Capati and Aquilina M. Lobo;

3.

Defendant Philippine Savings Bank is adjudged to

pay plaintiffs the amount of Php50,000.00 as moral
damages; Php50,000.00 as exemplary damages; and
attorneys fees in the amount of Php30,000.00 and
Php3,000.00 per appearance.

4.

Defendants
counterclaims
hereby DISMISSED for lack of merit.

WHEREFORE, judgment is hereby

rendered in favor of the plaintiffs and
against the defendants in the following
manner:

1.

Declaring
the
questioned
increases
of
interest
as
unreasonable, excessive and
arbitrary and ordering the
defendant Philippine Savings
Bank to refund to the plaintiffs,
the amount of interest collected
in excess of seventeen percent
(17%) per annum;

are

With costs against the defendant Philippine Savings

Bank, Inc.

SO ORDERED.[8]

Petitioner filed a motion for reconsideration. The RTC partially

granted the motion in its November 30, 2005 Order, modifying the interest
rate from 17% to 24% per annum.[9]

Petitioner appealed to the CA. The CA modified the decision of the

RTC, thus

WHEREFORE, in view of the foregoing, the Decision

of the Regional Trial Court is hereby AFFIRMED WITH
MODIFICATIONS. The fallo shall now read:

102

2.

Declaring the Extrajudicial

Foreclosure conducted by the
defendants on June 16, 2000
and the subsequent proceedings
taken thereafter to be valid[;]

3.

Defendant Philippine Savings

Bank is adjudged to pay
plaintiffs the amount of Php
25,000.00 as moral damages;
Php 50,000.00 as exemplary
damages; and attorneys fees in
the amount of Php 30,000.00
and
Php
3,000.00
per
appearance;

4.

Defendants counterclaims are

hereby DISMISSED for lack of
merit.

With costs against the defendant

Philippine Savings Bank, Inc.

SO ORDERED.[10]

Hence, this petition anchored on the contention that the CA erred in:
(1) declaring that the modifications in the interest rates are unreasonable;
and (2) sustaining the award of damages and attorneys fees.

The petition should be partially granted.

increase or decrease of interest rates hinges solely on the discretion of

petitioner. It does not require the conformity of the maker before a new
interest rate could be enforced. Any contract which appears to be heavily
weighed in favor of one of the parties so as to lead to an unconscionable
result, thus partaking of the nature of a contract of adhesion, is void. Any
stipulation regarding the validity or compliance of the contract left solely to
the will of one of the parties is likewise invalid.

Petitioner contends that respondents acquiesced to the imposition of

the modified interest rates; thus, there was no violation of the principle of
mutuality of contracts. To buttress its position, petitioner points out that the
exhibits presented by respondents during trial contained a uniform
provision, which states:

The interest rate adjustment is in accordance with

the Conformity Letter you have signed amending your
accounts interest rate review period from ninety (90) to
thirty days.[12]

It further claims that respondents requested several times for the reduction
of the interest rates, thus, manifesting their recognition of the legality of the
said rates. It also asserts that the contractual provision on the interest rates
cannot be said to be lopsided in its favor, considering that it had, on several
occasions, lowered the interest rates.

We disagree. The above-quoted provision of respondents exhibits

readily shows that the conformity letter signed by them does not pertain to
the modification of the interest rates, but rather only to the amendment of
the interest rate review period from 90 days to 30 days. Verily, the
conformity of respondents with respect to the shortening of the interest rate
review period from 90 days to 30 days is separate and distinct from and
cannot substitute for the required conformity of respondents with respect to
the modification of the interest rate itself.

The unilateral determination and imposition of the increased rates is

violative of the principle of mutuality of contracts under Article 1308 of the
Civil Code, which provides that [t]he contract must bind both contracting
parties; its validity or compliance cannot be left to the will of one of
them.[11] A perusal of the Promissory Note will readily show that the

103

Moreover, respondents assent to the modifications in the interest

rates cannot be implied from their lack of response to the memos sent by
petitioner, informing them of the amendments. The said memos were in the
nature of a proposal to change the contract with respect to one of its
significant components, i.e., the interest rates. As we have held, no one
receiving a proposal to change a contract is obliged to answer the proposal.
[13]
Therefore, respondents could neither be faulted, nor could they be
deemed to have assented to the modified interest rates, for not replying to the
said memos from petitioner.

We likewise disagree with petitioners assertion that respondents

recognized the legality of the imposed interest rates through the letters
requesting for the reduction of the rates. The request for reduction of the
interest does not translate to consent thereto. To be sure, a cursory reading
of the said letters would clearly show that Alfredo Castillo was, in fact,
questioning the propriety of the interest rates imposed on their loan, viz.:

The undersigned is a mortgagor of Philippine

Savings Bank with an outstanding balance of TWO MILLION
FOUR HUNDRED THIRTY EIGHT THOUSAND SIX
HUNDRED SIX and 63/100 (P2,438,606.63) at an interest
rate of 26% per annum (as per April 6, 1997 inquiry to Leo of
the Accounting Dept.) and with a monthly amortization of
FIFTY EIGHT THOUSAND THREE HUNDRED FIFTY EIGHT
AND 38/100 (P58,358.38).

I understand that the present interest rate is lower

than the last months 27%. However, it does not give our
company any break from coping with our receivables. Our
clients, Mercure Philippine Village Hotel, Puerto Azul Beach
Hotel, Grand Air Caterer, to name a few, did not settle their
obligation to us inspite of what was agreed upon during our
meeting held last February 1998. Their pledge of paying us
at least ONE MILLION PESOS PER AFFILIATION, which we
allocate to pay our balance to your bank, was not a reliable
deal to foresee because, as of this very day, not even half of
the amount assured to us was settled. This situation puts
the company in critical condition since we will again
shoulder all the interests imposed on our loans, while, we
ourselves, did not impose any surcharge with our
receivables.

In connection with this, may I request for a

reduction of interest rate, in my favor, i.e., from 26% to 21%
per annum. If such appeal is granted to us, we are assuring
you of our prompt payment and keen observance to your
rules and regulations.[14]

The undersigned is a mortgagor of Philippine

Savings Bank with an outstanding balance of TWO MILLION
FOUR HUNDRED THIRTY THREE THOUSAND EIGHTY
FOUR and 73/100 (P2,433,084.73) at an interest rate of
22.5% per annum (as per April 24, 1998 memo faxed to us)
and with a monthly amortization of FIFTY TWO THOUSAND
FIVE HUNDRED FIFTY EIGHT AND 01/100 (P52,55[8].01).

Such reduction of interest rate is an effect of our

currencys development. But based on our inquiries and
research to different financial institutions, the rate your
bank is imposing to us is still higher compared to the
eighteen and a half percent (18.5%) others are asking. With
this situation, we are again requesting for a decrease on the
interest rate, that is, from 22.5% to 18.5%. This figure
stated is not fictitious since other banks advertising are
published to leading newspapers. The difference between
your rate is visibly greater and has an immense effect on our
financial obligations.[15]

The undersigned is a mortgagor at Philippine

Savings Bank with an outstanding balance of TWO MILLION
FOUR HUNDRED THOUSAND EIGHT HUNDRED ELEVEN
and 03/100 (Php 2,40[0],811.03) at an interest rate of 21%
per annum.

104

Letters of reconsideration were constantly sent to

you to grant us lower interest rate. However, no assistance
with regard to that request has been extended to us. In view
of this, I am requesting for a transfer of our loan
from PSBank Head Office to PSBank Mabini Branch. This
transfer is purposely intended for an appeal [for] a lower
interest rate.[16]

Being a mortgagor of PSBank, I have [been]

repeatedly asking for a reduction of your interest
rate. However, my request has been denied since the term I
started. Many banks offer a much lower interest rate and
fair business transactions (e.g. Development Bank
of Singapore [which] offers 13% p.a. interest rate).

In this connection, once more, I am requesting for a

reduction of the interest rate applied to my loan to maintain
our business relationship.[17]

Basic is the rule that there can be no contract in its true sense
without the mutual assent of the parties. If this consent is absent on the
part of one who contracts, the act has no more efficacy than if it had been
done under duress or by a person of unsound mind. Similarly, contract
changes must be made with the consent of the contracting parties. The
minds of all the parties must meet as to the proposed modification, especially
when it affects an important aspect of the agreement. In the case of loan
contracts, the interest rate is undeniably always a vital component, for it can
make or break a capital venture. Thus, any change must be mutually agreed
upon, otherwise, it produces no binding effect.[18]

Escalation clauses are generally valid and do not contravene public

policy. They are common in credit agreements as means of maintaining fiscal
stability and retaining the value of money on long-term contracts. To prevent
any one-sidedness that these clauses may cause, we have held in Banco
Filipino Savings and Mortgage Bank v. Judge Navarro [19] that there should be
a corresponding de-escalation clause that would authorize a reduction in the

interest rates corresponding to downward changes made by law or by the

Monetary Board. As can be gleaned from the parties loan agreement, a deescalation clause is provided, by virtue of which, petitioner had lowered its
interest rates.

Nevertheless, the validity of the escalation clause did not give

petitioner the unbridled right to unilaterally adjust interest rates. The
adjustment should have still been subjected to the mutual agreement of the
contracting parties. In light of the absence of consent on the part of
respondents to the modifications in the interest rates, the adjusted rates
cannot bind them notwithstanding the inclusion of a de-escalation clause in
the loan agreement.

The order of refund was based on the fact that the increases in the
interest rate were null and void for being violative of the principle of
mutuality of contracts. The amount to be refunded refers to that paid by
respondents when they had no obligation to do so. Simply put, petitioner
should refund the amount of interest that it has illegally imposed upon
respondents. Any deficiency in the payment of the obligation can be collected
by petitioner in a foreclosure proceeding, which it already did.

On the matter of damages, we agree with petitioner. Moral damages

are not recoverable simply because a contract has been breached. They are
recoverable only if the party from whom it is claimed acted fraudulently or in
bad faith or in wanton disregard of his contractual obligations. The breach
must be wanton, reckless, malicious or in bad faith, and oppressive or
abusive. Likewise, a breach of contract may give rise to exemplary damages
only if the guilty party acted in a fraudulent or malevolent manner. [20]

In this case, we are not sufficiently convinced that fraud, bad faith, or
wanton disregard of contractual obligations can be imputed to petitioner
simply because it unilaterally imposed the changes in interest rates, which
can be attributed merely to bad business judgment or attendant
negligence. Bad faith pertains to a dishonest purpose, to some moral
obliquity, or to the conscious doing of a wrong, a breach of a known duty
attributable to a motive, interest or ill will that partakes of the nature of
fraud. Respondents failed to sufficiently establish this requirement. Thus,
the award of moral and exemplary damages is unwarranted. In the same
vein, respondents cannot recover attorneys fees and litigation
expenses. Accordingly, these awards should be deleted.[21]

105

respondent herein] the sum of P763,101.70, with legal

However, as regards the above mentioned award for refund to
respondents of their interest payments in excess of 17% per annum, the
same should include legal interest. InEastern Shipping Lines, Inc. v. Court of
Appeals,[22] we have held that when an obligation is breached, and it consists
in the payment of a sum of money, the interest on the amount of damages
shall be at the rate of 12% per annum, reckoned from the time of the filing of
the complaint.[23]

WHEREFORE, the petition is PARTIALLY GRANTED. The assailed

Decision dated August 27, 2009 and the Resolution dated August 4, 2010 of
the Court of Appeals in CA-G.R. CV No. 86445 are AFFIRMED WITH
MODIFICATIONS, such that the award for moral damages, exemplary
damages, attorneys fees, and litigation expenses is DELETED, and the order
of refund in favor of respondents of interest payments made in excess of
17% per annum shall bear interest of 12% per annum from the time of the
filing of the complaint until its full satisfaction.

interest thereon, from the date of the filing of the Complaint,

until fully paid.
SO ORDERED."[1]
The RTC judgment reversed by the Court of Appeals had disposed of the
complaint as follows:
"WHEREFORE, judgment is hereby rendered:
Ordering plaintiff [herein private respondent] to pay
defendant [herein petitioner] the sum of P27,222.60 as
compensatory and actual damages after deducting
P763,101.70 (value of materials received by defendant) from
P790,324.30 representing compensatory damages as
defendants unrealized profits;
Ordering plaintiff to pay defendant the sum of P100,000.00

SO ORDERED.

as moral damages;

[G.R. No. 115117. June 8, 2000]

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

Ordering plaintiff to pay the sum of P30,000.00 for attorneys

fees; and to pay the costs of suit.
SO ORDERED."[2]
The facts, as culled from the records, are as follows:
Petitioner and private respondent executed on May 5, 1978, an order
agreement whereby private respondent bound itself to deliver to petitioner
3,450 reams of printing paper, coated, 2 sides basis, 80 lbs., 38" x 23", short

This is a petition to review the decision of the Court of Appeals rendered on

grain, worth P1,040,060.00 under the following schedule: May and June

April 20, 1994 reversing the judgment of the Regional Trial Court of Caloocan

1978450 reams at P290.00/ream; August and September 1978700

City in an action for recovery of sum of money filed by private respondent

reams at P290/ream; January 1979575 reams at P307.20/ream; March

against petitioner. In said decision, the appellate court decreed:

1979575 reams at P307.20/ream; July 1979575 reams at

P307.20/ream; and October 1979575 reams at P307.20/ream. In

"WHEREFORE, in view of all the foregoing, the appealed

accordance with the standard operating practice of the parties, the materials

judgment is hereby REVERSED and SET ASIDE. Appellee

were to be paid within a minimum of thirty days and maximum of ninety

[petitioner herein] is hereby ordered to pay appellant [private

days from delivery.

106

Later, on June 7, 1978, petitioner entered into a contract with Philippine

After filing its reply and answer to the counterclaim, private respondent

Appliance Corporation (Philacor) to print three volumes of "Philacor Cultural

moved for admission of its supplemental complaint, which was granted. In

Books" for delivery on the following dates: Book VI, on or before November

said supplemental complaint, private respondent alleged that subsequent to

1978; Book VII, on or before November 1979 and; Book VIII, on or before

the enumerated purchase invoices in the original complaint, petitioner made

November 1980, with a minimum of 300,000 copies at a price of P10.00 per

additional purchases of printing paper on credit amounting to P94,200.00.

copy or a total cost of P3,000,000.00.

Private respondent also averred that petitioner failed and refused to pay its
outstanding obligation although it made partial payments in the amount of

As of July 30, 1979, private respondent had delivered to petitioner 1,097

P97,200.00 which was applied to back accounts, thus, reducing petitioners

reams of printing paper out of the total 3,450 reams stated in the agreement.

indebtedness to P763,101.70.

Petitioner alleged it wrote private respondent to immediately deliver the

balance because further delay would greatly prejudice petitioner. From June

On July 5, 1990, the trial court rendered judgment declaring that petitioner

5, 1980 and until July 23, 1981, private respondent delivered again to

should pay private respondent the sum of P763,101.70 representing the

petitioner various quantities of printing paper amounting to P766,101.70.

value of printing paper delivered by private respondent from June 5, 1980 to

However, petitioner encountered difficulties paying private respondent said

July 23, 1981. However, the lower court also found petitioners counterclaim

amount. Accordingly, private respondent made a formal demand upon

meritorious. It ruled that were it not for the failure or delay of private

petitioner to settle the outstanding account. On July 23 and 31, 1981 and

respondent to deliver printing paper, petitioner could have sold books to

August 27, 1981, petitioner made partial payments totalling P97,200.00

Philacor and realized profit of P790,324.30 from the sale. It further ruled

which was applied to its back accounts covered by delivery invoices dated

that petitioner suffered a dislocation of business on account of loss of

September 29-30, 1980 and October 1-2, 1980. [3]

contracts and goodwill as a result of private respondents violation of its

obligation, for which the award of moral damages was justified.

Meanwhile, petitioner entered into an additional printing contract with

Philacor. Unfortunately, petitioner failed to fully comply with its contract with

On appeal, the respondent Court of Appeals reversed and set aside the

Philacor for the printing of books VIII, IX, X and XI. Thus, Philacor demanded

judgment of the trial court. The appellate court ordered petitioner to pay

compensation from petitioner for the delay and damage it suffered on

private respondent the sum of P763,101.70 representing the amount of

account of petitioners failure.

unpaid printing paper delivered by private respondent to petitioner, with legal

interest thereon from the date of the filing of the complaint until fully paid.

On August 14, 1981, private respondent filed with the Regional Trial Court of

[4]

Caloocan City a collection suit against petitioner for the sum of P766,101.70,

compensatory damages as well as the award of moral damages and attorneys

representing the unpaid purchase price of printing paper bought by

fees, for lack of factual and legal basis.

However, the appellate court deleted the award of P790,324.30 as

petitioner on credit.
Expectedly, petitioner filed this instant petition contending that the appellate
In its answer, petitioner denied the material allegations of the complaint. By

courts judgment is based on erroneous conclusions of facts and law. In this

way of counterclaim, petitioner alleged that private respondent was able to

recourse, petitioner assigns the following errors:

deliver only 1,097 reams of printing paper which was short of 2,875 reams,
[I]

in total disregard of their agreement; that private respondent failed to deliver

the balance of the printing paper despite demand therefor, hence, petitioner
suffered actual damages and failed to realize expected profits; and that

"THE COURT OF APPEALS ERRED IN CONCLUDING THAT

petitioners complaint was prematurely filed.

PRIVATE RESPONDENT DID NOT VIOLATE THE ORDER

AGREEMENT.

107

[II]

petitioner within the prescribed period. Clearly, petitioner did not fulfill its
side of the contract as its last payment in August 1981 could cover only

THE COURT OF APPEALS ERRED IN CONCLUDING THAT

materials covered by delivery invoices dated September and October 1980.

RESPONDENT IS NOT LIABLE FOR PETITIONERS BREACH

OF CONTRACT WITH PHILACOR.

There is no dispute that the agreement provides for the delivery of printing
paper on different dates and a separate price has been agreed upon for each
delivery. It is also admitted that it is the standard practice of the parties that

[III]

the materials be paid within a minimum period of thirty (30) days and a

THE COURT OF APPEALS ERRED IN CONCLUDING THAT

PETITIONER IS NOT ENTITLED TO DAMAGES AGAINST
PRIVATE RESPONDENT."

[5]

In our view, the crucial issues for resolution in this case are as follows:
(1)....Whether or not private respondent violated the order

maximum of ninety (90) days from each delivery.[9] Accordingly, the private
respondents suspension of its deliveries to petitioner whenever the latter
failed to pay on time, as in this case, is legally justified under the second
paragraph of Article 1583 of the Civil Code which provides that:
"When there is a contract of sale of goods to be delivered by
stated installments, which are to be separately paid for, and

agreement, and;

the seller makes defective deliveries in respect of one or more

(2)....Whether or not private respondent is liable for

cause to take delivery of or pay for one or more installments,

installments, or the buyer neglects or refuses without just

petitioners breach of contract with Philacor.

it depends in each case on the terms of the contract and the

circumstances of the case, whether the breach of contract is

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

so material as to justify the injured party in refusing to

Petitioner contends, firstly, that private respondent violated the order

entire contract, or whether the breach is severable, giving

agreement when the latter failed to deliver the balance of the printing paper
on the dates agreed upon.
The transaction between the parties is a contract of sale whereby private
respondent (seller) obligates itself to deliver printing paper to petitioner
(buyer) which, in turn, binds itself to pay therefor a sum of money or its
equivalent (price).

[6]

Both parties concede that the order agreement gives rise

to a reciprocal obligations[7] such that the obligation of one is dependent upon

the obligation of the other. Reciprocal obligations are to be performed
simultaneously, so that the performance of one is conditioned upon the
simultaneous fulfillment of the other.

[8]

Thus, private respondent undertakes

to deliver printing paper of various quantities subject to petitioners

corresponding obligation to pay, on a maximum 90-day credit, for these
materials. Note that in the contract, petitioner is not even required to make
any deposit, down payment or advance payment, hence, the undertaking of

proceed further and suing for damages for breach of the

rise to a claim for compensation but not to a right to treat
the whole contract as broken." (Emphasis supplied)
In this case, as found a quo petitioners evidence failed to establish that it
had paid for the printing paper covered by the delivery invoices on time.
Consequently, private respondent has the right to cease making further
delivery, hence the private respondent did not violate the order agreement.
On the contrary, it was petitioner which breached the agreement as it failed
to pay on time the materials delivered by private respondent. Respondent
appellate court correctly ruled that private respondent did not violate the
order agreement.
On the second assigned error, petitioner contends that private respondent
should be held liable for petitioners breach of contract with Philacor. This
claim is manifestly devoid of merit.

private respondent to deliver the materials is conditional upon payment by

108

As correctly held by the appellate court, private respondent cannot be held

petitioner could have earned profit of P790,324.30. Admittedly, the evidence

liable under the contracts entered into by petitioner with Philacor. Private

relied upon by the trial court in arriving at the amount are mere estimates

respondent is not a party to said agreements. It is also not a contract pour

prepared by petitioner.[14] Said evidence is highly speculative and manifestly

autrui. Aforesaid contracts could not affect third persons like private

hypothetical. It could not provide sufficient legal and factual basis for the

respondent because of the basic civil law principle of relativity of contracts

award of P790,324.30 as compensatory damages representing petitioners

which provides that contracts can only bind the parties who entered into it,

self-serving claim of unrealized profit.

and it cannot favor or prejudice a third person,

[10]

even if he is aware of such

Further, the deletion of the award of moral damages is proper, since private

contract and has acted with knowledge thereof.[11]

respondent could not be held liable for breach of contract. Moral damages
Indeed, the order agreement entered into by petitioner and private

may be awarded when in a breach of contract the defendant acted in bad

respondent has not been shown as having a direct bearing on the contracts

faith, or was guilty of gross negligence amounting to bad faith, or in wanton

of petitioner with Philacor. As pointed out by private respondent and not

disregard of his contractual obligation.[15] Finally, since the award of moral

refuted by petitioner, the paper specified in the order agreement between

damages is eliminated, so must the award for attorneys fees be also deleted.

petitioner and private respondent are markedly different from the paper

[16]

involved in the contracts of petitioner with Philacor.

[12]

Furthermore, the

demand made by Philacor upon petitioner for the latter to comply with its

WHEREFORE, the instant petition is DENIED. The decision of the Court of

printing contract is dated February 15, 1984, which is clearly made long

Appeals is AFFIRMED. Costs against petitioner.

after private respondent had filed its complaint on August 14, 1981. This
demand relates to contracts with Philacor dated April 12, 1983 and May 13,
1983, which were entered into by petitioner after private respondent filed the

SO ORDERED.

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

[G.R. No. 118248. April 5, 2000]

DKC HOLDINGS CORPORATION, petitioner, vs. COURT OF APPEALS,
VICTOR U. BARTOLOME and REGISTER OF DEEDS FOR METRO
MANILA, DISTRICT III,respondents. francis
DECISION

The rule on compensatory damages is well established. True, indemnification

for damages comprehends not only the loss suffered, that is to say actual
damages (damnum emergens), but also profits which the obligee failed to
obtain, referred to as compensatory damages (lucrum cessans). However, to
justify a grant of actual or compensatory damages, it is necessary to prove
with a reasonable degree of certainty, premised upon competent proof and on
the best evidence obtainable by the injured party, the actual amount of loss.
[13]

In the case at bar, the trial court erroneously concluded that petitioner

could have sold books to Philacor at the quoted selling price of

P1,850,750.55 and by deducting the production cost of P1,060,426.20,

YNARES_SANTIAGO, J.:
This is a petition for review on certiorari seeking the reversal of the December
5, 1994 Decision of the Court of Appeals in CA-G.R. CV No. 40849 entitled
"DKC Holdings Corporation vs. Victor U. Bartolome, et al.",[1] affirming in
toto the January 4, 1993 Decision of the Regional Trial Court of Valenzuela,
Branch 172,[2] which dismissed Civil Case No. 3337-V-90 and ordered
petitioner to pay P30,000.00 as attorneys fees.

109

The subject of the controversy is a 14,021 square meter parcel of land located

Petitioner thus opened Savings Account No. 1-04-02558-I-1 with the China

in Malinta, Valenzuela, Metro Manila which was originally owned by private

Banking Corporation, Cubao Branch, in the name of Victor Bartolome and

respondent Victor U. Bartolomes deceased mother, Encarnacion Bartolome,

deposited therein the P15,000.00 rental fee for March as well as P6,000.00

under Transfer Certificate of Title No. B-37615 of the Register of Deeds of

reservation fees for the months of February and March.

Metro Manila, District III. This lot was in front of one of the textile plants of
petitioner and, as such, was seen by the latter as a potential warehouse site.

Petitioner also tried to register and annotate the Contract on the title of
Victor to the property. Although respondent Register of Deeds accepted the

On March 16, 1988, petitioner entered into a Contract of Lease with Option

required fees, he nevertheless refused to register or annotate the same or

to Buy with Encarnacion Bartolome, whereby petitioner was given the option

even enter it in the day book or primary register.

to lease or lease with purchase the subject land, which option must be
exercised within a period of two years counted from the signing of the

Thus, on April 23, 1990, petitioner filed a complaint for specific performance

Contract. In turn, petitioner undertook to pay P3,000.00 a month as

and damages against Victor and the Register of Deeds,[3] docketed as Civil

consideration for the reservation of its option. Within the two-year period,

Case No. 3337-V-90 which was raffled off to Branch 171 of the Regional Trial

petitioner shall serve formal written notice upon the lessor Encarnacion

Court of Valenzuela. Petitioner prayed for the surrender and delivery of

Bartolome of its desire to exercise its option. The contract also provided that

possession of the subject land in accordance with the Contract terms; the

in case petitioner chose to lease the property, it may take actual possession

surrender of title for registration and annotation thereon of the Contract; and

of the premises. In such an event, the lease shall be for a period of six years,

the payment of P500,000.00 as actual damages, P500,000.00 as moral

renewable for another six years, and the monthly rental fee shall be

damages, P500,000.00 as exemplary damages and P300,000.00 as attorneys

P15,000.00 for the first six years and P18,000.00 for the next six years, in

fees.

case of renewal.
Meanwhile, on May 8, 1990, a Motion for Intervention with Motion to
Petitioner regularly paid the monthly P3,000.00 provided for by the Contract

Dismiss[4] was filed by one Andres Lanozo, who claimed that he was and has

to Encarnacion until her death in January 1990. Thereafter, petitioner

been a tenant-tiller of the subject property, which was agricultural riceland,

coursed its payment to private respondent Victor Bartolome, being the sole

for forty-five years. He questioned the jurisdiction of the lower court over the

heir of Encarnacion. Victor, however, refused to accept these payments. iska

property and invoked the Comprehensive Agrarian Reform Law to protect his
rights that would be affected by the dispute between the original parties to

Meanwhile, on January 10, 1990, Victor executed an Affidavit of Self-

the case. ella

Adjudication over all the properties of Encarnacion, including the subject lot.
Accordingly, respondent Register of Deeds cancelled Transfer Certificate of

On May 18, 1990, the lower court issued an Order [5] referring the case to the

Title No. B-37615 and issued Transfer Certificate of Title No. V-14249 in the

Department of Agrarian Reform for preliminary determination and

name of Victor Bartolome.

certification as to whether it was proper for trial by said court.

On March 14, 1990, petitioner served upon Victor, via registered mail, notice

On July 4, 1990, the lower court issued another Order [6] referring the case to

that it was exercising its option to lease the property, tendering the amount

Branch 172 of the RTC of Valenzuela which was designated to hear cases

of P15,000.00 as rent for the month of March. Again, Victor refused to accept

involving agrarian land, after the Department of Agrarian Reform issued a

the tendered rental fee and to surrender possession of the property to

letter-certification stating that referral to it for preliminary determination is

petitioner.

no longer required.

110

On July 16, 1990, the lower court issued an Order denying the Motion to

THE HONORABLE COURT OF APPEALS ERRED IN RULING

Intervene,[7] holding that Lanozos rights may well be ventilated in another

THAT THE EXISTENCE OF A REGISTERED TENANCY WAS

proceeding in due time.

FATAL TO THE VALIDITY OF THE CONTRACT.

After trial on the merits, the RTC of Valenzuela, branch 172 rendered its

(E)

Decision on January 4, 1993, dismissing the Complaint and ordering

petitioner to pay Victor P30,000.00 as attorneys fees. On appeal to the CA,

FIFTH ASSIGNMENT OF ERROR

the Decision was affirmed in toto.

THE HONORABLE COURT OF APPEALS ERRED IN RULING
Hence, the instant Petition assigning the following errors:

THAT PLAINTIFF-APPELLANT WAS LIABLE TO DEFENDANTAPPELLEE FOR ATTORNEYS FEES.[8]

(A)
The issue to be resolved in this case is whether or not the Contract of Lease
FIRST ASSIGNMENT OF ERROR

with Option to Buy entered into by the late Encarnacion Bartolome with
petitioner was terminated upon her death or whether it binds her sole heir,

THE HONORABLE COURT OF APPEALS ERRED IN RULING

Victor, even after her demise.

THAT THE PROVISION ON THE NOTICE TO EXERCISE

OPTION WAS NOT TRANSMISSIBLE.

Both the lower court and the Court of Appeals held that the said contract
was terminated upon the death of Encarnacion Bartolome and did not bind

(B)
SECOND ASSIGNMENT OF ERROR

Victor because he was not a party thereto.

Article 1311 of the Civil Code provides, as follows-

THE HONORABLE COURT OF APPEALS ERRED IN RULING

"ART. 1311. Contracts take effect only between the parties,

THAT THE NOTICE OF OPTION MUST BE SERVED BY DKC

their assigns and heirs, except in case where the rights and

UPON ENCARNACION BARTOLOME PERSONALLY.

obligations arising from the contract are not transmissible by

their nature, or by stipulation or by provision of law. The heir

(C) nigel

is not liable beyond the value of the property he received

from the decedent. brnado

THIRD ASSIGNMENT OF ERROR

xxx

xxx

x x x."

THE HONORABLE COURT OF APPEALS ERRED IN RULING

THAT THE CONTRACT WAS ONE-SIDED AND ONEROUS IN

The general rule, therefore, is that heirs are bound by contracts entered into

FAVOR OF DKC.

by their predecessors-in-interest except when the rights and obligations

arising therefrom are not transmissible by (1) their nature, (2) stipulation or
(D)

FOURTH ASSIGNMENT OF ERROR

(3) provision of law.

In the case at bar, there is neither contractual stipulation nor legal provision
making the rights and obligations under the contract intransmissible. More

111

importantly, the nature of the rights and obligations therein are, by their

In the case at bar, there is no personal act required from the late

nature, transmissible.

Encarnacion Bartolome. Rather, the obligation of Encarnacion in the

contract to deliver possession of the subject property to petitioner upon the

The nature of intransmissible rights as explained by Arturo Tolentino, an

exercise by the latter of its option to lease the same may very well be

eminent civilist, is as follows:

performed by her heir Victor.

"Among contracts which are intransmissible are those which

As early as 1903, it was held that "(H)e who contracts does so for himself and

are purely personal, either by provision of law, such as in

his heirs."[12] In 1952, it was ruled that if the predecessor was duty-bound to

cases of partnerships and agency, or by the very nature of

reconvey land to another, and at his death the reconveyance had not been

the obligations arising therefrom, such as those requiring

made, the heirs can be compelled to execute the proper deed for

special personal qualifications of the obligor. It may also be

reconveyance. This was grounded upon the principle that heirs cannot

stated that contracts for the payment of money debts are not

escape the legal consequence of a transaction entered into by their

transmitted to the heirs of a party, but constitute a charge

predecessor-in-interest because they have inherited the property subject to

against his estate. Thus, where the client in a contract for

the liability affecting their common ancestor.[13]

professional services of a lawyer died, leaving minor heirs,

and the lawyer, instead of presenting his claim for

It is futile for Victor to insist that he is not a party to the contract because of

professional services under the contract to the probate

the clear provision of Article 1311 of the Civil Code. Indeed, being an heir of

court, substituted the minors as parties for his client, it was

Encarnacion, there is privity of interest between him and his deceased

held that the contract could not be enforced against the

mother. He only succeeds to what rights his mother had and what is valid

minors; the lawyer was limited to a recovery on the basis

and binding against her is also valid and binding as against him.[14] This is

[9]

of quantum meruit."

clear fromParaaque Kings Enterprises vs. Court of Appeals, [15] where this
Court rejected a similar defense-alonzo

In American jurisprudence, "(W)here acts stipulated in a contract require the

exercise of special knowledge, genius, skill, taste, ability, experience,

With respect to the contention of respondent Raymundo that

judgment, discretion, integrity, or other personal qualification of one or both

he is not privy to the lease contract, not being the lessor nor

parties, the agreement is of a personal nature, and terminates on the death

the lessee referred to therein, he could thus not have violated

of the party who is required to render such service." [10] marinella

its provisions, but he is nevertheless a proper party. Clearly,

he stepped into the shoes of the owner-lessor of the land as,

It has also been held that a good measure for determining whether a contract

by virtue of his purchase, he assumed all the obligations of

terminates upon the death of one of the parties is whether it is of such a

the lessor under the lease contract. Moreover, he received

character that it may be performed by the promissors personal

benefits in the form of rental payments. Furthermore, the

representative. Contracts to perform personal acts which cannot be as well

complaint, as well as the petition, prayed for the annulment

performed by others are discharged by the death of the promissor.

of the sale of the properties to him. Both pleadings also

Conversely, where the service or act is of such a character that it may as well

alleged collusion between him and respondent Santos which

be performed by another, or where the contract, by its terms, shows that

defeated the exercise by petitioner of its right of first refusal.

performance by others was contemplated, death does not terminate the

contract or excuse nonperformance.[11]

In order then to accord complete relief to petitioner,

respondent Raymundo was a necessary, if not indispensable,
party to the case. A favorable judgment for the petitioner will

112

necessarily affect the rights of respondent Raymundo as the

All as part of the lease?

buyer of the property over which petitioner would like to

assert its right of first option to buy.

ATTY. MOJADO:

In the case at bar, the subject matter of the contract is likewise a lease,

Reservation fee, Your Honor. There was no payment

which is a property right. The death of a party does not excuse

with respect to payment of rentals." [18]

nonperformance of a contract which involves a property right, and the rights

and obligations thereunder pass to the personal representatives of the

Petitioner also paid the P15,000.00 monthly rental fee on the subject

deceased. Similarly, nonperformance is not excused by the death of the party

property by depositing the same in China Bank Savings Account No. 1-04-

when the other party has a property interest in the subject matter of the

02558-I-1, in the name of Victor as the sole heir of Encarnacion Bartolome,

contract.[16]

[19]

for the months of March to July 30, 1990, or a total of five (5) months,

despite the refusal of Victor to turn over the subject property. [20]
Under both Article 1311 of the Civil Code and jurisprudence, therefore,
Victor is bound by the subject Contract of Lease with Option to Buy.

Likewise, petitioner complied with its duty to inform the other party of its
intention to exercise its option to lease through its letter dated Match 12,

That being resolved, we now rule on the issue of whether petitioner had

1990,[21] well within the two-year period for it to exercise its option.

complied with its obligations under the contract and with the requisites to

Considering that at that time Encarnacion Bartolome had already passed

exercise its option. The payment by petitioner of the reservation fees during

away, it was legitimate for petitioner to have addressed its letter to her heir.

the two-year period within which it had the option to lease or purchase the
property is not disputed. In fact, the payment of such reservation fees, except

It appears, therefore, that the exercise by petitioner of its option to lease the

those for February and March, 1990 were admitted by Victor. [17] This is clear

subject property was made in accordance with the contractual provisions.

from the transcripts, to wit-

Concomitantly, private respondent Victor Bartolome has the obligation to

surrender possession of and lease the premises to petitioner for a period of

"ATTY. MOJADO:
One request, Your Honor. The last payment which was

six (6) years, pursuant to the Contract of Lease with Option to Buy. micks
Coming now to the issue of tenancy, we find that this is not for this Court to

allegedly made in January 1990 just indicate in that

pass upon in the present petition. We note that the Motion to Intervene and

stipulation that it was issued November of 1989 and

to Dismiss of the alleged tenant, Andres Lanozo, was denied by the lower

postdated Janaury 1990 and then we will admit all. rodp;fo

court and that such denial was never made the subject of an appeal. As the
lower court stated in its Order, the alleged right of the tenant may well be

COURT:
All reservation fee?

ventilated in another proceeding in due time.

WHEREFORE, in view of the foregoing, the instant Petition for Review is
GRANTED. The Decision of the Court of Appeals in CA-G.R. CV No. 40849

ATTY. MOJADO:

and that of the Regional Trial Court of Valenzuela in Civil Case No. 3337-V90 are both SET ASIDE and a new one rendered ordering private respondent

Yes, Your Honor.

Victor Bartolome to:

COURT:

113

(a) surrender and deliver possession of that parcel of land

Aparri, Cagayan, Branch VIII,[2] disposing of Civil Case No. VIII-7, an action

covered by Transfer Certificate of Title No. V-14249 by way of

for reconveyance with damages, as follows:

lease to petitioner and to perform all obligations of his

predecessor-in-interest, Encarnacion Bartolome, under the

WHEREFORE, in view of all the foregoing, judgment is hereby rendered as

subject Contract of Lease with Option to Buy;

follows:

(b) surrender and deliver his copy of Transfer Certificate of

1. Ordering the dismissal of the instant case;

Title No. V-14249 to respondent Register of Deeds for

registration and annotation thereon of the subject Contract

2. The defendants are hereby declared absolute owners of the land described

of Lease with Option to Buy;

in paragraph 2 of the complaint, Lot No. 572 and Lot No. 579 Gattaran
Cadastre, Gattaran, Cagayan;

(c) pay costs of suit. Sc

3. The affidavit of Self-Adjudication (Exhibit `6') and Transfer Certificate of
Respondent Register of Deeds is, accordingly, ordered to register and

Titles Nos. T-31699 and T-31698 (Exhibit `7 & `8) are hereby declared valid;

annotate the subject Contract of Lease with Option to Buy at the back of

and

Transfer Certificate of Title No. V-14249 upon submission by petitioner of a

copy thereof to his office.

4. Ordering the heirs of the late Bernardino Ramos and other persons acting
in their behalf, to refrain from molesting or disturbing the possession and

SO ORDERED.

ownership of the defendants of the land described in paragraph 2 of the

complaint, designated as Lot 572 and Lot 579 Gattaran Cadastre, Gattaran,
Cagayan, covered by Original Certificate of Titles Nos. 17811 and 17812
which was (sic) cancelled by Transfer Certificate of Titles Nos. T-31699 and T31698.

[G.R. No. 111027. February 3, 1999]

BERNARDINO RAMOS and ROSALIA OLI, petitioners, vs. COURT OF
APPEALS,

RODOLFO

BAUTISTA

and

FELISA

LOPEZ, respondents.
DECISION
ROMERO, J.:
May the heir of the original registrant of parcels of land under the
Torrens System, be deprived of ownership by alleged claimants thereof
through acquisitive prescription?
Impugned in this petition for review on certiorari is the Decision [1] of the
Court of Appeals which affirmed in toto that of the Regional Trial Court of

No pronouncement as to costs and damages.

SO ORDERED.
as well as the resolution of July I, 1993, denying reconsideration thereof.
The records disclose the following antecedent facts:
On March 14, 1939, Pedro Tolentino, claiming absolute ownership over
Lot Nos. 572 and 579 of the Gattaran cadastre in Lapogan, Gattaran,
Cagayan, separately sold said lots to petitioners, the spouses Bernardino
Ramos and Rosalia Oli, in consideration of the amount of eighty pesos
(P80.00) for each sale. The aforesaid conveyances were allegedly evidenced by
two documents both entitled Escritura de Compra Venta[3] and acknowledged
before a notary public.

114

Subsequently, however, petitioners instituted on January 8, 1976 an

After due proceedings, the trial court dismissed petitioners complaint

action for reconveyance with damages [4] alleging that while they were in open,

underscoring the fact that during the cadastral proceedings in 1940,

public, adverse, peaceful and continuous possession of the subject lots in

Bernardino Ramos did not file an answer for the two lots although he was

good faith and with just title, for not less than fifty (50) years, personally and

allegedly the claimant and possessor thereof under the deeds of sale

through their predecessors-in-interest, they were surprised to discover in

executed by Pedro Tolentino in his favor on March 14, 1939. Since it was

November 1975, that decrees of registration [5] covering Lot Nos. 572 and 579

only Lucia Bautista who filed an answer and who appeared to be the lawful

were already issued on January 7, 1940. They complained further the

claimant in the proceedings, she was therefore issued original certificates of

subsequent issuance by the Register of Deeds of Cagayan on March 11, 1941,

title for the subject lots. The trial court presumed that everyone was notified

Original Certificates of Title Nos. 17811 and 17812 covering Lot Nos. 572 and

about the proceedings inasmuch as cadastral proceedings are in rem. More

579, respectively, in favor of Lucia Bautista since the latter allegedly neither

notably, within one year from the issuance of the decree of registration on

laid claim of ownership nor took possession of them, either personally or

January 9, 1940, Bernardino Ramos likewise failed to avail of a petition to

through another. Petitioners claimed instead that they were the ones who

reopen the proceedings on the ground of fraud as he subsequently alleged in

acquired prior ownership and possession over the lots to the exclusion of the

his belated action for reconveyance. Consequently, when the action for

whole world. Thus, they concluded that the original certificates of title as

reconveyance was finally filed, more than thirty-six (36) years had already

well as Transfer Certificates of Title Nos. T-31698 and T-31699 obtained by

elapsed and laches had set in. The trial court ruled in this wise:

private respondent Rodolfo Bautista who adjudicated unto himself said lots
on September 20, 1975, as sole heir of Lucia Bautista [6] were null and

The settled rule on the indefeasibility and incontrovertibility of the title after

void. On the theory that they already acquired the subject lots by acquisitive

the expiration of one year from the entry of the final decree of registration,

prescription, petitioners demanded their return but private respondents

now bars the plaintiffs from availing this action for reconveyance; the

refused to do so, hence, compelling them to file a complaint for reconveyance

property in question not having been satisfactorily shown that same was

with damages.

wrongfully titled to in the name of Lucia Bautista. Accordingly, her titles

thereto, Exhibit `4 and Exhibit `5, are therefore valid. By operation of law

On the other hand, herein private respondents, the spouses Rodolfo

Transfer Certificate of Title Nos. 31699 and 31698 in the name of Rodolfo

Bautista and Felisa Lopez, likewise claimed absolute ownership of the lots

Bautista (Exhibit `7 & `8) are also valid. The defendant Rodolfo Bautista is a

covered by TCT Nos. T-31698 and T-31699. They alleged that while the

possessor with a Torrens title who is not aware of any flaw of his title which

records of the Bureau of Lands showed that during the cadastral survey in

invalidates it, is considered possessor in good faith and his possession does

Gattaran

not lose this character except in the case and from the moment by final

in

1932,

Pedro

Tolentino

was

claimant

over

lands

in

the cadastre, the same was only with respect to Lot No. 1399 which was

judgment of the Court (sic). Diaz vs. Rodriguez, L-20300-01 and Republic

eventually titled under his name as OCT No. 16110. It just happened that

vs. Court of Appeals, L-20355-56, April 30, 1965, 13 SCRA 704.

Lot No. 1399 was adjacent to Lot No. 572, a portion of which was occupied by
petitioners upon the tolerance of the original registrant Lucia Bautista.

In the same vein, it is a settled rule that a party seeking the reconveyance to
him of his land that he claims had been wrongfully registered in the name of

By way of affirmative defense, private respondents maintained that the

another person, must recognize the validity of the certificate of title of the

action for reconveyance filed by petitioners was tantamount to a reopening of

latter. It is also a settled rule that a reconveyance may only take place if the

the cadastral proceedings or a collateral attack on the decrees of registration

land that is claimed to be wrongfully registered is still registered in the name

which cannot be done without violating the rule on conclusiveness of the

of the person who procured the wrongful registration. No action for

decree of registration. Moreover, they argued that since the lots were already

reconveyance can take place as against a third party who acquired title over

under the operation of the Torrens System, acquisitive prescription would no

the registered property in good faith and for value. Defendant Rodolfo

longer be possible.

115

Bautista fittingly steps into the shoes of an innocent third person.

their favor, we believe that the issue of the authenticity and binding effect of

[Underscoring supplied].

those documents should be addressed at the outset.

Dissatisfied with the trial courts disposition of the case, petitioners

The

two

documents

denominated

as Escritura

de

Compra

seasonably appealed the same to the Court of Appeals. The appellate court,

Venta which were executed in 1939 would have well qualified as ancient

however, found the conclusions reached by the trial court in accord with law

documents[7] since they were already in existence for more than thirty years

and the evidence presented, hence, it affirmed the same in toto on October

in 1976 when the case for reconveyance was initially filed. The original

23, 1992. Having been denied reconsideration, petitioners interposed the

documents, however, were not presented in evidence as these had been

instant petition for review on certiorari alleging the following as grounds

apparently lost in the fire that gutted the office of petitioners counsel. Under

therefor:

the circumstances, it should have been the duty of petitioners therefore to

prove the existence of the documents in accordance with Rule 130 of the

1. RESPONDENT COURT OF APPEALS ERRED AND ACTED WITH

Revised Rules of Court which states:

GRAVE ABUSE OF DISCRETION IN AFFIRMING IN TOTO THE

DECISION OF THE TRIAL COURT WHICH FOUND BY MERE

SEC. 5. When original document is unavailable. When the original

PRESUMPTION

document has been lost or destroyed, or can not be produced in court, the

THAT

PRIVATE

RESPONDENTS

ARE

IN

POSSESSION OF THE LAND IN SUIT WHEN THE FACTS

offerror, upon proof of its execution or existence and the cause of its

ADDUCED

unavailability without bad faith on his part, may prove its contents by a copy,

DURING

THE

TRIAL

CLEARLY

PROVED

THAT

PETITIONERS HAVE BEEN IN POSSESSION THEREOF FOR MORE

or by a recital of its contents in some authentic document, or by the

THAN 30 YEARS.

testimony of witnesses in the order stated.

2. RESPONDENT COURT OF APPEALS ERRED AND ACTED WITH

It appears that the loss of the two documents of sale was shown by

GRAVE ABUSE OF DISCRETION IN FINDING THAT THE INSTANT

testimonial evidence of petitioners counsel, Atty. MacPaul B. Soriano, whose

ACTION FOR RECONVEYANCE INSTITUTED BY PETITIONERS

law office was burned. Upon realizing that the documents involved here had

HAD ALREADY PRESCRIBED.

been irretrievably lost because of the fire, Atty. Soriano suggested to

petitioners that they should see their other lawyer, Atty. Laggui, who could

3. RESPONDENT COURT OF APPEALS ERRED IN CONFORMING

provide them with certified true copies thereof. [8] Thus, the copies of the

WITH THE TRIAL COURTS DECISION THAT RECONVEYANCE

documents that petitioners presented in court each contained the following

WILL NO LONGER PROSPER IF THE LANDS IN SUIT HAD

certification:

ALREADY BEEN TRANSFERRED TO A THIRD PERSON IN GOOD

FAITH AND FOR VALUE WHEN THE FACTS SHOW THAT PRIVATE

C E R T I F I C A T I O N

RESPONDENTS HAD ADMITTED THEY ALLEGEDLY INHERITED

THE LANDS IN SUIT AND THEREFORE THEY ARE NOT THIRD

I, ANTONIO N. LAGGUI, Notary Public for and in the Province of Cagayan,

PARTIES.

hereby certify that the foregoing is a true, correct and literal copy of the
original copy of Doc. No. 1, Page No. 44, Book No. 1, Series of 1939 of the

We sustain the appellate courts decision.

Notarial Register Luis Rosacia, shown to me by, and in possession of

Bernardino Ramos.

Inasmuch as petitioners anchor their claim of ownership over the

parcels of land on the alleged deeds of sale executed by Pedro Tolentino in

This certification, however, does not imply that the documents certified
to were authentic writings although it proves the existence of the documents

116

purportedly evidencing the sale. Rule 132 provides the manner by which the

have affected Lucia Bautista and her successor-in-interest because the

due execution and authenticity of private writings like the deeds involved

pertinent law in point, Act No. 496, as amended by P. D. No. 1529

here, should be established. Thus:

unequivocably provides:

SEC. 20. Proof of private document. Before any private document offered as

SEC. 50. x x x. But no deed, mortgage, lease, or other voluntary instrument

authentic is received in evidence, its due execution and authenticity must be

except a will, purporting to convey or affect registered land, shall take effect

proved either:

as a conveyance or bind the land, but shall operate only as a contract

between the parties and as evidence of authority to the clerk or register of
deeds to make registration. The act of registration shall be the operative act

1. By anyone who saw the document executed or written; or;

to convey and affect the land, and in all cases under this Act the registration
2. By evidence of the genuineness of the signature or handwritng of the

shall be made in the office of the register of deeds for the province or

maker;

provinces or city, where the land lies. [Underscoring supplied].

Any other private document need only be identified as that which it is

SEC. 51. Every conveyance, mortgage, lease, lien, attachment, order, decree,

claimed to be.

instrument, or entry affecting registered land which would under existing

laws, if recorded, filed, or entered in the office of the register of deeds, affect

Unfortunately for petitioners, the documents upon which they relied in

the real estate to which it relates shall, if registered, filed, or entered in the

establishing their claim of ownership, had not been duly presented in

office of the register of deeds in the province or city where the real estate to

evidence in accordance with the aforecited Rule. They failed to present any

which such instrument relates lies, be notice to all person from the time of

person who could have witnessed the execution of the documents, like the

such registering, filing, or entering.

instrumental witnesses thereof. Understandably, they could not even

demonstrate the genuineness of the signatures of the parties to the sale

Hence, petitioners failure to register the Escritura de Compra Venta resulted

because

those

in the sale being binding only between them and the vendor, Pedro

signatures. Consequently, under the Rules of Court, the documents

Tolentino. Lucia Bautista and her successors-in-interest, being third parties

authenticity and due execution are suspect and may not be given that much

to the sale, could not have been bound thereby.

the

copies

they

offered

in

evidence

did

not

bear

weight.
To give a semblance of ownership over the properties, petitioners
Furthermore, assuming arguendo that the existence of the documents

introduced in evidence documents showing that their successors-in-interest

was properly established, still, the supposed agreement embodied in the two

mortgaged the properties. While only owners of properties have the right to

documents bound only the parties thereto, namely Pedro Tolentino and the

mortgage the same, the papers evidencing the alleged mortgages do not,

petitioners, because the latter failed to prove that these were later registered

however, conform to the formal and substantive requirements therefor. One

as to operate against the whole world. They could not have bound third

such document[10] dated May 24, 1987 and handwritten in the English

persons like Lucia Bautista because of the basic civil law principle of

language described the property allegedly mortgaged to a certain Santos

relativity of contracts which provides that contracts can only bind the parties

Tolentino as a certain parcel of land estimated at one hectare. The other

who had entered into it, and it cannot favor or prejudice a third person.

alleged mortgage instrument dated August 12, 1985,[11] likewise handwritten

[9]

This basic principle applies even if the sales were supposedly concluded at

but in the Ilocano dialect, did not sufficiently describe the subject property of

a time prior to the operation of the Torrens system of land registration over

the mortgage. There is indeed no way that we can ever determine if the lands

the properties involved. When the properties were eventually titled in favor of

referred to in the mortgage were the lots now in controversy. At any rate,

Lucia Bautista, the sale between Pedro Tolentino and petitioners could not

while petitioners daughter, Erlinda Ramos, testified that the properties in

117

controversy were the ones she and her sisters mortgaged, that claim is now

however, petitioners claim of fraud was never substantiated and, hence, it

self-serving

has remained a groundless charge. Consequently, petitioners claim of

[12]

since

they

are

presently

the

claimants

of

the

lands.

Interestingly, Erlinda herself admitted that her father never declared the

imprescriptibility of the action for reconveyance is baseless.

lots for taxation purposes and neither did they ever pay real property taxes
thereon. In short, the alleged mortgage papers could very well refer to

Section 38 of the Land Registration Act provides that a decree of

properties other than Lot Nos. 572 and 579 and that the trial court correctly

registration duly issued is subject to the right of any person deprived of land

ruled that what petitioners proved can not ripen into ownership in

or of any estate or interest therein by decree of registration obtained by fraud

derogation to that of the registered owner.[13]

to file in the competent Court of First Instance (now the Regional Trial Court)
a petition for review within one year after entry of the decree, provided no

Petitioners supposed possession of the lots for more than forty (40)

innocent purchaser for value has acquired an interest. The same law

years, therefore, stands as a bare claim with nothing whatsoever to prop it

provides that upon the expiration of the term of one year, every decree or

up. Under the circumstances of the case, they would only succeed upon

certificate of title x x x shall be imprescriptible.

sufficient evidence to support their allegation that fraud attended the

registration of the property in Lucia Bautistas name. As it is, however,

Under the law, an action for reconveyance of real property resulting from

petitioners failed to present evidence on the matter thereby leaving their

fraud prescribes in four (4) years from the discovery of the fraud. [16] Discovery

claim barren.

of the fraud must be deemed to have taken place when Lucia Bautista was
issued OCT Nos. 178111 and 17812 because registration of real property is

In contrast, private respondent Rodolfo Bautistas claim to the

considered a constructive notice to all persons and it shall be counted from

properties registered under the Torrens system which he traces to his aunt,

the time of such registering, filing or entering. [17] An action based on implied

Lucia Bautista, appears incontrovertible. Under the Cadastral Act, the

or constructive trust prescribes in ten (10) years. This means that

original certificates of title issued to the original registrant, shall have the

petitioners should have enforced the trust within ten (10) years from the time

same effect as certificates of title granted on application for registration of

of

land under the Land Registration Act, because no title to registered land in

property. But as it is, petitioners failed to avail of any of the aforementioned

derogation to that of the registered owner shall be acquired by prescription or

remedies within the prescribed periods. With no remedy in view, their claims

adverse possession.[14] Pedro Tolentino and petitioners, as the formers

should forever be foreclosed.

its

creation[18]or

upon

the

alleged

fraudulent

registration

of

the

alleged successors-in-interest, have therefore no valid claim of ownership

over the property, particularly since petitioners simply failed to substantiate

The Court, however, subscribes to petitioners argument that the

the nature and extent of Tolentinos rights and interests over the lots. Such

courts a quo incorrectly held that private respondents are third persons to

being the case, the conveyances in their favor were void as the subject

whom ownership of the properties had been transmitted. But this error

properties were lawfully owned by another person. [15]

alone may not save the day for petitioners. They have, in a sense, slept on
whatever rights they claimed to have over the properties and by the time they

Neither may petitioners argument that private respondent Rodolfo

were roused, the law had stepped in to bar their claims. On the other hand,

Bautista, being the son-in-law of Pedro Tolentino, was bound by the sale and

private respondents inattention to the property from the time of Lucia

therefore he and his present wife hold the properties in trust for petitioners

Bautistas death until private respondent Rodolfo Bautistas retirement from

successors-in-interest hold. On that basis, they aver that their right to claim

the military should not be construed as an abandonment thereof. Private

the property in trust is imprescriptible.

respondents have in their favor the law that protects holders of title under
the Torrens System of land registration. As this Court so eloquently

But petitioners argument would only be tenable upon proof that the

pronounced in 1915:

property was acquired through mistake or fraud. As earlier observed,

118

Once a title is registered, the owner may rest secure, without the necessity
of waiting in the portals of the court, or sitting in the `mirador de su casa, to
avoid the possibility of losing his land.[19]
WHEREFORE, the instant petition for review on certiorari is hereby
DENIED for lack of merit. The decision and the resolution appealed from in
CA-G.R. CV No. 30033 dated October 23, 1992 and July 1, 1993,

(one of the defendants-respondents) before the Regional Trial Court

(RTC), Branch IV, Tuguegarao, Cagayan.[2] The action was for the recovery
of real property (disputed property) situated at Malabac, Iguig, Cagayan. The
disputed property was a new land formation on the banks of
the Cagayan River an accretion to Lot 3192 of the Iguig Cadastre that
the
plaintiffs-respondents
claimed
as
the
owners
of
the
adjoining Lot 3192. The defendants-respondents, on the other hand, were
the occupants of the disputed property.

respectively, are AFFIRMED.

Costs against petitioners.
SO ORDERED.

.
PNB VS BANATAO
x ---------------------------------------------------------------------------------------- x

DECISION

BRION, J.:

This petition for review on certiorari[1] brings into focus: (1) the effect
of a compromise agreement entered into by some, but not all, of the parties to
a litigation, and its effect on the non-participating litigants; and (2) the
prohibition against the encumbrance, within the same periods prescribed by
law, of lands granted under homestead patent.

The facts as culled from the records are outlined below.

On November 16, 1962, Banatao, et al. (plaintiffs-respondents)

initiated an action docketed as Civil Case No. 1600 against Marciano Carag

The records show that while the case was pending, the defendantsrespondents (particularly the spouses Pedro Soriano and Paz Tagacay, the
spouses Eugenio Soriano and Maria Cauilan, the spouses Benjamin Tagacay
and Fausta Agustin, and Milagros B. Carag wife of Marciano Carag) were
able to secure homestead patents evidenced by Original Certificates of Title
(OCTs) issued in their names, denominated as OCT Nos. 24800, 24801,
25217, and 25802, respectively.[3] The OCTs were issued in 1965 and
1966, and all bear the proviso that, in accordance with the Public Land Act,
the patented homestead shall neither be alienated nor encumbered for five (5)
years from the date of the issuance of the patent. [4]

Armed with their OCTs, the defendants-respondents separately

applied for loans with the Philippine National Bank (PNB or the bank) secured
by real estate mortgages on their respective titled portions of the disputed
property. The bank approved the mortgages, relying solely on the OCTs
which, at the time, did not contain any notice of lis pendens or annotation of
liens and encumbrances. The PNB mortgages were annotated on the
defendants-respondents' respective OCTs also in the years 1965 and
1966.[5]

On February 22, 1968, the trial court decided the case in favor of the
plaintiffs-respondents and against defendant-respondent Carag, and ordered
the return of the disputed property to the plaintiffs-respondents. [6] Carag
appealed the trial court decision to the Court of Appeals (CA).

While the appeal was pending, the appellate court discovered that the
disputed property had been subject of homestead patents issued in the
names of defendants-respondents Carag, et al. Hence, in its Resolution
dated April 16, 1969, the Special Fourth Division of the CA set aside
the February 22, 1968 decision of the RTC and ordered the remand of the
records to the trial court for further proceedings. [7] The appellate court

119

likewise ordered the necessary amendment of the complaint to implead the

defendants-respondents who were deemed indispensable parties to the case.

The
plaintiffs-respondents
filed
on October
14,
1970 the
required amended complaint, impleading as party defendants Eugenio
Soriano, Maria Cauilan, Pedro Soriano, Paz Tagacay, Benjamin Tagacay,
Fausta Agustin, and Milagros B. Carag, as well as the bank. [8] The plaintiffsrespondents also added two (2) additional causes of action, or a total of three
(3) causes of action, namely: (1) recovery of real property; (2) cancellation of
the OCTs; and (3) annulment of real estate mortgage. The bank was made a
party to the case in view of the suit for annulment of mortgage.

The records disclose that on March 29, 1973, while the case was
pending before the trial court, the bank extrajudicially foreclosed the
property covered by OCT No. 24800 issued to the spouses Pedro Soriano and
Paz Tagacay. The bank was declared the highest bidder in the ensuing public
auction. The spouses Soriano failed to redeem the foreclosed property,
resulting in the consolidation of title in the banks name; hence, the issuance
on October 3, 1985 of TCT No. T-65664 in the name of the bank. [9]

On February 28, 1991, the plaintiffs-respondents and the

defendants-respondents entered into a compromise agreement whereby
ownership of virtually the northern half of the disputed property was ceded
to the plaintiffs-respondents, while the remaining southern half was given to
the defendants-respondents.[10] In the same compromise agreement, the
defendants-respondents acknowledged their indebtedness to petitioner PNB
and bound themselves to pay their respective obligations to the bank,
including the interests accruing thereon. Petitioner PNB, however, was not a
party to the compromise agreement which reads:

COMPROMISE AGREEMENT[11]
Plaintiffs and defendants, by counsels, enter into
and submit the following compromise agreement:
xxx
(b) That
the
defendant,
PEDRO
SORIANO,
acknowledges the plaintiffs as the lawful owners
of the NORTHERN PORTION of the land covered
by Original Certificate of Title No. P-24800, with
an area of 85,348 square meters more or less

and is more particularly described in the

technical description hereto attached as Annex
A and forming part hereof;

(c)

That the defendant, BENJAMIN TAGACAY,

acknowledges the plaintiffs to be the owners of
the NORTHERN PORTION of the land covered by
Original Certificate of Title No. P-25217, with an
area of 98,790 square meters more or less and is
more particularly described in the technical
description hereto attached as Annex B and
forming part hereof;

(d) That the defendant, MILAGROS B. CARAG,

acknowledges the plaintiffs to be the owners of
the NORTHERN PORTION of the land covered by
Original Certificate of Title No. P-24802, with an
area of 58,378 square meters more or less and is
more particularly described in the technical
description attached hereto as Annex C and
forming part hereof;

(e)

That the defendant Pedro Soriano acknowledges

indebtedness to the Philippine National Bank
and binds himself to pay his loan together with
the interest and other charges;

(f)

That
the
defendant
Benjamin
Tagacay
acknowledges indebtedness to the Philippine
National Bank and binds himself to pay his loan
together with the interest and other charges;

(g) That the defendant Milagros B. Carag

acknowledges indebtedness to the Philippine
National Bank and binds himself to pay his loan
together with the interest and other charges;

(h) That the private defendants acknowledge the

plaintiffs to be the owners and possessors of the

120

motherland otherwise known as Lot 3192 and

the area ceded to the plaintiffs by the private
defendants;

(i)

That the parties hereto submit the foregoing

compromise agreement as basis for the decision
in the above-entitled case by the Honorable
Court.

Tuguegarao, Cagayan, December 26, 1990.

On March 15, 1991, the trial court rendered its decision, approving
and adopting in toto the compromise agreement, and ordering the
participating parties to strictly comply with its terms. [12] The bank moved for
reconsideration of the trial courts decision and for the setting aside of the
compromise agreement. The trial court denied the motion in its Resolution
of February 7, 1992, thus, compelled the bank to elevate the case to the CA.
[13]

The appellate court dismissed the appeal in its decision of March 30,
2001, ruling that the bank is not an indispensable party to the compromise
agreement that only settles the actions for: (1) recovery of property; and
(2)
cancellation of OCTs.[14] On the third cause of action for annulment of
mortgage, the court held the bank is only a necessary party and the issue
could be dealt with in a separate and distinct action. The appellate court in
the same decision proceeded to strike down the mortgages as void because
the mortgagors (defendants-respondents), not being the absolute owners of
the disputed parcels of land as agreed upon in the compromise agreement,
did not have the right to constitute a mortgage on these properties.

PLAINTIFFS-RESPONDENTS
AND
DEFENDANTSRESPONDENTS AND APPROVED BY THE TRIAL COURT
LEGALLY BINDS PETITIONER PNB WHICH IS NOT A PARTY
THERETO AND CONSTITUTES SUFFICIENT LEGAL BASIS
TO NULLIFY PNB'S MORTGAGE LIEN ON THE REALTY IN
QUESTION.

In attacking the compromise agreement between the plaintiffsrespondents and the defendants-respondents, the PNB argues that it is an
indispensable, not merely a necessary, party to all three causes of action,
namely, for (1) recovery of real property; (2) cancellation of the OCTs; and (3)
annulment of mortgages. Arguing that the causes of action are closely
intertwined and intimately related, and that the compromise was entered into
precisely to put an end to the case, the PNB submits that its consent to the
compromise agreement is necessary to secure a final and complete
determination of the claims and defenses of all the parties to the case.

The PNB further argues that when the appellate court approved in
toto the trial court's judgment on the compromise agreement, it failed to
consider that the bank was a mortgagee in good faith. The bank claims
good faith on the position that the OCTs presented to it were all clean on
their faces at the time the mortgages were applied for; that there were no
notices of lis pendens or any annotation of liens or encumbrances on all of
them; and that it had no knowledge, actual or constructive, of facts or
circumstances to warrant further inquiry into the titles of the defendantsrespondents.

THE COURTS RULING

We resolve to dismiss the petition for the reasons discussed below.

The PNB sought reconsideration of the dismissal of its appeal, but the
appellate court denied its motion in a Resolution dated July 27, 2001;
[15]
hence, this petition for review oncertiorari.

The PNB raises the following legal issue:

WHETHER
ENTERED INTO

THE
COMPROMISE
BY AND BETWEEN

AGREEMENT
THE HEREIN

The compromise agreement disposed of the first two causes of action

filed by plaintiffs-respondents Banatao, et al. against defendantsrespondents Carag, et al., namely, the actions for (1) recovery of real
property; and
(2) cancellation of the OCTs, thereby settling the question
of ownership between them. The trial court approved the compromise
agreement in toto. The appellate court, in turn, upheld the trial court, but it
proceeded to discuss on the third cause of action (for annulment of
mortgage), concluding that the mortgages were void because the mortgagors

121

were not the absolute owners of the mortgaged properties. In the words of
the appellate court:

The main cause of action here is the Recovery of

Realty and Reconveyance, the Annulment of Mortgage is
only an ancillary cause of action. In the decision approving
the compromise agreement it disposes and finally
determined the Recovery of Realty and Reconveyance.

The moment ownership of the disputed real

property was clearly proven to be that of the [plaintiffsrespondents], the question of the validity of the
mortgage made by the [defendants-respondents] with
[petitioner PNB] could easily be determined.

xxx

The
[defendants-respondents], not
being
the
absolute owners and not having been authorized to
mortgage the subject real property, could not validly
mortgage the said real property with [petitioner
PNB]. However, we are not unmindful of the [defendantsrespondents'] liability to [the bank]. But such issue could
be dealt with in a separate and distinct action. [Emphasis
supplied.]

With the above ruling, the bank who was not a party to the
agreement was therefore affected; it was a mortgagee of a part of the
disputed property, and had in fact foreclosed the portion covered by OCT No.
24800.

It is basic in law that a compromise agreement, as a contract, is

binding only upon the parties to the compromise, and not upon nonparties. This is the doctrine of relativity of contracts. Consistent with this
principle, a judgment based entirely on a compromise agreement is binding
only on the parties to the compromise the court approved, and not upon the

parties who did not take part in the compromise agreement and in the
proceedings leading to its submission and approval by the court. Otherwise
stated, a court judgment made solely on the basis of a compromise
agreement binds only the parties to the compromise, and cannot bind a party
litigant who did not take part in the compromise agreement. In the case
ofCastaeda v. Heirs of Maramba,[16] we held that:

Judgment based on a compromise affects only

participating litigantsA partial decision, stemming from an
amicable settlement among two of several parties to an
action, binds only the parties so participating in the
settlement. This decision never becomes final with
respect to the parties who did not take part in the
settlement confirmed by the partial decision aforesaid.
[Emphasis supplied.]

Following Castaeda, the judgment on compromise rendered by the

trial court in this case, and later affirmed by the appellate court, is final with
respect only to the plaintiffs-respondents and defendants-respondents, but
not with respect to the PNB. Hence, the trial court's judgment on
compromise which settles the issue of ownership over the properties in
question is but a partial decision that does not completely decide the case
and cannot bind the PNB.

In its assailed decision, the CA, while recognizing the liability of the
defendants-respondents to the PNB, declared that the mortgagors, not being
the absolute owners of the mortgaged properties as agreed upon in the
compromise agreement, do not have the right to constitute the
mortgage. This conclusion is legally incorrect as the CA capitalized on
theownership issue settled between the plaintiffs-respondents and the
defendants-respondents in invalidating the PNB mortgages, without hearing
the side of the PNB as mortgagee, and later, co-owner of the disputed
property. As discussed above, the compromise agreement cannot bind the
bank, a non-party to the agreement; necessarily, the ownership issue which
was settled by the compromise agreement cannot be made applicable to the
bank without hearing it.

Our own review of the records of the case shows that the appellate
court was not without basis to properly dispose of all the causes of action,
including the annulment of mortgage issue, had it fully scrutinized the

122

records of the case. A glaring fact that escaped the scrutiny of both the trial
and appellate courts, and which would have led them to the quick and
correct disposition of the annulment issue (and of the entire case, given the
compromise agreement), is the proviso against alienation or encumbrance of
lands granted by homestead patent a fact plainly evident upon a facial
examination of the OCTs involved.

patents. The pertinent facts as seen on the faces of the OCTs are illustrated
below:

OCT No.
We conclude from our own examination of these OCTs that the
mortgages cannot but be void ab initio. On the faces of all the OCTs
secured through homestead patentsare inscribed the following words that
echo the mandatory provisions of law:

TO HAVE AND TO HOLD the said tract of land with

the appurtenances thereunto x x x subject to the provisions
of Sections 118, 121, 122 and 124 of Commonwealth Act No.
141, as amended, which provide that except in favor of the
Government
or
any
of
its
branches,
units
or
institutions, THE LAND HEREBY ACQUIRED SHALL BE
INALIENABLE AND SHALL NOT BE SUBJECT TO
[E]NCUMBRANCE FOR A PERIOD OF FIVE (5) YEARS
NEXT FOLLOWING THE DATE OF THIS PATENT, and shall
not be liable for the satisfaction of any debt contracted prior
to the expiration of that period; x x x.[17] [Emphasis
supplied.]

This inscription reproduces Section 118 [18] of the Public Land Act,[19] as
amended, which contains a proscription against the alienation or
encumbrance of homestead patents within five years from issue. The
rationale for the prohibition, reiterated in a line of cases, first laid down
in Pascua v. Talens[20] states that x x x homestead laws were designed to
distribute disposable agricultural lots of the State to land-destitute citizens
for their home and cultivation. Pursuant to such benevolent intention the
State prohibits the sale or encumbrance of the homestead (Section 116, now
Section 118) within five years after the grant of the patent. x x x. It aims to
preserve and keep in the family of the homesteader that portion of public
land which the State had gratuitously given to him.

In the present case, the annotation of the mortgage liens occurred

only months after the date of the issuance of the homestead

P-24800

Mortgagors

Pedro
Soriano/
Tagacay

Date of HomesteadPatent

Date of
Annotation /
Inscription of
Mortgage

28 Apr 1965

17 Sep 1965

Paz

P-24801

Eugenio Soriano/
Maria Cauilan

28 Apr 1965

27 Oct 1965

P-24802

Milagros B. Carag/
Marciano Carag

28 Apr 1965

13 Oct 1965

P-25217

Benjamin Tagacay/
Fausta Agustin

15 Feb 1966

25 Mar 1966

This situation is similar to that of Republic v. Heirs of Alejaga, Sr.

where the respondent obtained a loan of P100,000.00 in 1981 from the
PNB, secured by a real estate mortgage on the patented land. The 1981
encumbrance was contracted two years from date of issuance of the patent
in 1979, for which reason the Court cited a violation of Section 118 of the
Public Land Act which proscribes the alienation or encumbrance of the
patented land within five years from the date of the patent, and which
proscription clearly appears as a proviso in the OCT issued in the name of
the respondent in the case. Consequently, the PNB mortgage was declared
void.
[22]

The present case deserves exactly the same treatment, and the PNB
cannot claim that it is a mortgagee in good faith. The proscription against
alienation or encumbrance is unmistakable even on a cursory reading of the
the OCTs. Thus, one who contracts with a homestead patentee is charged
with knowledge of the law's proscriptive provision that must necessarily be
read into the terms of any agreement involving the homestead. Under the
circumstances, the PNB simply failed to observe the diligence required in the

123

handling of its transactions and thus made the fatal error of approving the
loans secured by mortgages of properties that cannot, in the first place, be
mortgaged.

Both the defendants-respondents and the bank are to be faulted for

the invalidity of the mortgages. We cannot, however, apply the doctrine
of pari delicto in accordance with the ruling that the doctrine does not apply
when the contract is prohibited by law. [23] A saving factor for the bank under
the situation is that a mortgage is merely an accessory agreement and does
not affect the principal contract of loan. The mortgages, while void, can still
be considered as instruments evidencing the indebtedness of defendantsrespondents to the PNB in a proper case for the collection of the defendantsrespondents loans.

[G.R. No. 122494. October 8, 1998]

EVERETT

STEAMSHIP

CORPORATION, petitioner,

vs. COURT

OF

APPEALS and HERNANDEZ TRADING CO. INC., respondents.

DECISION
MARTINEZ, J.:
Petitioner Everett Steamship Corporation, through this petition for
review, seeks the reversal of the decision [1] of the Court of Appeals, dated

Our conclusion on the nullity of mortgage issue renders it

unnecessary to decide the question of whether the compromise agreement
between the plaintiffs-respondents and the defendants-respondents should
be set aside for its effect on the bank. With the mortgages invalidated, the
PNB no longer has any interest that the compromise agreement can affect. In
the absence of any other reason to impugn the lower court decisions
approving the compromise agreement, we affirm the approval of the
compromise agreement and the disposition of the case on the basis of
compromise. Given our ruling on the invalidity of the mortgages, a remand
of this issue is no longer necessary. The parties liabilities to PNB on the
loans they obtained are not issues before us for disposition, and are for the
parties to act upon as matters outside the coverage of this case.

June 14, 1995, in CA-G.R. No. 428093, which affirmed the decision of the
Regional Trial Court of Kalookan City, Branch 126, in Civil Case No. C15532, finding petitioner liable to private respondent Hernandez Trading Co.,
Inc. for the value of the lost cargo.
Private respondent imported three crates of bus spare parts marked as
MARCO C/No. 12, MARCO C/No. 13 and MARCO C/No. 14, from its
supplier, Maruman Trading Company, Ltd. (Maruman Trading), a foreign
corporation based in Inazawa, Aichi, Japan. The crates were shipped from
Nagoya, Japan to Manila on board ADELFAEVERETTE, a vessel owned by
petitioners principal, Everett Orient Lines. The said crates were covered
by Bill of Lading No. NGO53MN.

WHEREFORE, we hereby DECLARE the mortgages constituted on

OCT Nos. 24800, 24801, 25217 and 25802 VOID and, for this reason,
we DISMISS the petition. WeAFFIRM the approval of the compromise
agreement by the Court of Appeals and the disposition of the case on the
basis of compromise. The order to remand the case to the Regional Trial
Court, Branch IV, Tuguegarao, Cagayan, for further proceedings is
therefore REVERSED.

Upon arrival at the port of Manila, it was discovered that the crate
marked MARCO C/No. 14 was missing. This was confirmed and admitted by
petitioner in its letter of January 13, 1992 addressed to private respondent,
which thereafter made a formal claim upon petitioner for the value of the lost
cargo amounting to One Million Five Hundred Fifty Two Thousand Five
Hundred (Y1,552,500.00) Yen, the amount shown in an Invoice No. MTM941, dated November 14, 1991. However, petitioner offered to pay only One

Costs against petitioner PNB.

Hundred Thousand (Y100,000.00) Yen, the maximum amount stipulated

under Clause 18 of the covering bill of lading which limits the liability of
petitioner.

SO ORDERED.

124

Private respondent rejected the offer and thereafter instituted a suit for

It is required, however, that the contract must be reasonable and

collection docketed as Civil Case No. C-15532, against petitioner before the

just under the circumstances and has been fairly and freely agreed

Regional Trial Court of Caloocan City, Branch 126.

upon. The requirements provided in Art. 1750 of the New Civil

Code must be complied with before a common carrier can claim a

At the pre-trial conference, both parties manifested that they have no

testimonial evidence to offer and agreed instead to file their respective

limitation of its pecuniary liability in case of loss, destruction or

deterioration of the goods it has undertaken to transport.

memoranda.
In the case at bar, the Court is of the view that the requirements of
On July 16, 1993, the trial court rendered judgment

[2]

in favor of private

said article have not been met. The fact that those conditions are

respondent, ordering petitioner to pay: (a) Y1,552,500.00; (b) Y20,000.00 or

printed at the back of the bill of lading in letters so small that they

its peso equivalent representing the actual value of the lost cargo and the

are hard to read would not warrant the presumption that the

material and packaging cost; (c) 10% of the total amount as an award for and

plaintiff or its supplier was aware of these conditions such that he

as contingent attorneys fees; and (d) to pay the cost of the suit. The trial

had fairly and freely agreed to these conditions. It can not be said

court ruled:

that the plaintiff had actually entered into a contract with the
defendant, embodying the conditions as printed at the back of the

Considering defendants categorical admission of loss and its

bill of lading that was issued by the defendant to plaintiff.

failure to overcome the presumption of negligence and fault, the

Court conclusively finds defendant liable to the plaintiff. The next

On appeal, the Court of Appeals deleted the award of attorneys fees but

point of inquiry the Court wants to resolve is the extent of the

affirmed the trial courts findings with the additional observation that private

liability of the defendant. As stated earlier, plaintiff contends that

respondent can not be bound by the terms and conditions of the bill of lading

defendant should be held liable for the whole value for the loss of

because it was not privy to the contract of carriage. It said:

the goods in the amount of Y1,552,500.00 because the terms

appearing at the back of the bill of lading was so written in fine

As to the amount of liability, no evidence appears on record to

prints and that the same was not signed by plaintiff or shipper

show that the appellee (Hernandez Trading Co.) consented to the

thus, they are not bound by the clause stated in paragraph 18 of

terms of the Bill of Lading. The shipper named in the Bill of Lading

the bill of lading. On the other hand, defendant merely admitted

is Maruman Trading Co., Ltd. whom the appellant (Everett

that it lost the shipment but shall be liable only up to the amount

Steamship Corp.) contracted with for the transportation of the lost

of Y100,000.00.

goods.

The Court subscribes to the provisions of Article 1750 of the New

Even assuming arguendo that the shipper Maruman Trading Co.,

Civil Code -

Ltd. accepted the terms of the bill of lading when it delivered the
cargo to the appellant, still it does not necessarily follow that

Art. 1750. A contract fixing the sum that may be recovered

appellee Hernandez Trading Company as consignee is bound

by the owner or shipper for the loss, destruction or

thereby considering that the latter was never privy to the shipping

deterioration of the goods is valid, if it is reasonable and

contract.

just under the circumstances, and has been fairly and

freely agreed upon.

xxx

xxx

xxx

125

Never having entered into a contract with the appellant, appellee

It seems clear that even if said section 4 (5) of the Carriage of Goods by Sea

should therefore not be bound by any of the terms and conditions

Act did not exist, the validity and binding effect of the liability limitation

in the bill of lading.

clause in the bill of lading here are nevertheless fully sustainable on the
basis alone of the cited Civil Code Provisions. That said stipulation is just

Hence, it follows that the appellee may recover the full value of the

and reasonable is arguable from the fact that it echoes Art. 1750 itself in

shipment lost, the basis of which is not the breach of contract as

providing a limit to liability only if a greater value is not declared for the

appellee was never a privy to the any contract with the appellant,

shipment in the bill of lading. To hold otherwise would amount to

but is based on Article 1735 of the New Civil Code, there being no

questioning the justness and fairness of the law itself, and this the private

evidence to prove satisfactorily that the appellant has overcome the

respondent does not pretend to do. But over and above that consideration,

presumption of negligence provided for in the law.

the just and reasonable character of such stipulation is implicit in it giving

the shipper or owner the option of avoiding accrual of liability limitation by

Petitioner now comes to us arguing that the Court of Appeals erred

(1) in ruling that the consent of the consignee to the terms and conditions of

the simple and surely far from onerous expedient of declaring the nature and
value of the shipment in the bill of lading..

the bill of lading is necessary to make such stipulations binding upon it; (2)
in holding that the carriers limited package liability as stipulated in the bill

Pursuant to the afore-quoted provisions of law, it is required that the

of lading does not apply in the instant case; and (3) in allowing private

stipulation limiting the common carriers liability for loss must be

respondent to fully recover the full alleged value of its lost cargo.

reasonable and just under the circumstances, and has been freely and fairly
agreed upon.

We shall first resolve the validity of the limited liability clause in the bill
The bill of lading subject of the present controversy specifically provides,

of lading.

among others:
A stipulation in the bill of lading limiting the common carriers liability
for loss or destruction of a cargo to a certain sum, unless the shipper or

18. All claims for which the carrier may be liable shall be adjusted

owner declares a greater value, is sanctioned by law, particularly Articles

and settled on the basis of the shippers net invoice cost plus freight

1749 and 1750 of the Civil Code which provide:

and insurance premiums, if paid, and in no event shall the carrier

be liable for any loss of possible profits or any consequential loss.

ART. 1749. A stipulation that the common carriers liability is

limited to the value of the goods appearing in the bill of lading,

The carrier shall not be liable for any loss of or any damage to or in

unless the shipper or owner declares a greater value, is binding.

any connection with, goods in an amount exceeding One Hundred

Thousand Yen in Japanese Currency (Y100,000.00) or its equivalent

ART. 1750. A contract fixing the sum that may be recovered by the

in any other currency per package or customary freight unit

owner or shipper for the loss, destruction, or deterioration of the

(whichever is least) unless the value of the goods higher than this

goods is valid, if it is reasonable and just under the circumstances,

amount is declared in writing by the shipper before receipt of the

and has been freely and fairly agreed upon.

goods by the carrier and inserted in the Bill of Lading and extra
freight is paid as required. (Emphasis supplied)

Such limited-liability clause has also been consistently upheld by this

Court in a number of cases.[3] Thus, in Sea Land Service, Inc. vs
Intermediate Appellate Court , we ruled:
[4]

The above stipulations are, to our mind, reasonable and just. In the bill
of lading, the carrier made it clear that its liability would only be up to One
Hundred Thousand (Y100,000.00) Yen. However, the shipper, Maruman

126

Trading, had the option to declare a higher valuation if the value of its

form of contract on the other, as the plane ticket in the case at bar,

cargo was higher than the limited liability of the carrier. Considering

are contracts not entirely prohibited. The one who adheres to the
contract is in reality free to reject it entirely; if he adheres, he gives

that the shipper did not declare a higher valuation, it had itself to

his consent. x x x , a contract limiting liability upon an agreed

blame for not complying with the stipulations.

valuation does not offend against the policy of the law forbidding
one from contracting against his own negligence. (Emphasis

The trial courts ratiocination that private respondent could not have

supplied)

fairly and freely agreed to the limited liability clause in the bill of lading
because the said conditions were printed in small letters does not make the
bill of lading invalid.
We ruled in PAL, Inc. vs. Court of Appeals [5] that the jurisprudence on
the matter reveals the consistent holding of the court that contracts of
adhesion are not invalid per se and that it has on numerous occasions
upheld the binding effect thereof. Also, in Philippine American General
Insurance Co., Inc. vs. Sweet Lines , Inc.[6] this Court , speaking through
the learned Justice Florenz D. Regalado, held:
x x x Ong Yiu vs. Court of Appeals, et.al., instructs us that
contracts of adhesion wherein one party imposes a ready-made
form of contract on the other x x x are contracts not entirely
prohibited. The one who adheres to the contract is in reality free to
reject it entirely; if he adheres he gives his consent. In the present
case, not even an allegation of ignorance of a party excuses noncompliance with the contractual stipulations since the
responsibility for ensuring full comprehension of the provisions of a
contract of carriage devolves not on the carrier but on the owner,
shipper, or consignee as the case may be. (Emphasis supplied)
It was further explained in Ong Yiu vs Court of Appeals [7] that
stipulations in contracts of adhesion are valid and binding.
While it may be true that petitioner had not signed the plane ticket
x x, he is nevertheless bound by the provisions thereof. Such
provisions have been held to be a part of the contract of carriage,
and valid and binding upon the passenger regardless of the latters
lack of knowledge or assent to the regulation. It is what is known
as a contract of adhesion, in regards which it has been said that
contracts of adhesion wherein one party imposes a ready-made

Greater vigilance, however, is required of the courts when dealing with

contracts of adhesion in that the said contracts must be carefully scrutinized
in order to shield the unwary (or weaker party) from deceptive schemes
contained in ready-made covenants,[8] such as the bill of lading in
question. The stringent requirement which the courts are enjoined to
observe is in recognition of Article 24 of the Civil Code which mandates that
(i)n all contractual, property or other relations, when one of the parties is
at a disadvantage on account of his moral dependence, ignorance,
indigence, mental weakness, tender age or other handicap, the courts
must be vigilant for his protection.
The shipper, Maruman Trading, we assume, has been extensively
engaged in the trading business. It can not be said to be ignorant of the
business transactions it entered into involving the shipment of its goods to
its customers. The shipper could not have known, or should know the
stipulations in the bill of lading and there it should have declared a higher
valuation of the goods shipped. Moreover, Maruman Trading has not been
heard to complain that it has been deceived or rushed into agreeing to ship
the cargo in petitioners vessel. In fact, it was not even impleaded in this
case.
The next issue to be resolved is whether or not private respondent, as
consignee, who is not a signatory to the bill of lading is bound by the
stipulations thereof.
Again,

in Sea-Land

Service,

Inc.

vs.

Intermediate

Appellate

Court (supra), we held that even if the consignee was not a signatory to the
contract of carriage between the shipper and the carrier, the consignee can
still be bound by the contract. Speaking through Mr. Chief Justice Narvasa,
we ruled:

127

To begin with, there is no question of the right, in principle, of

When private respondent formally claimed reimbursement for the

a consignee in a bill of lading to recover from the carrier or shipper

missing goods from petitioner and subsequently filed a case against the latter

for loss of, or damage to goods being transported under said

based on the very same bill of lading, it (private respondent) accepted the

bill,although that document may have been- as in practice it

provisions of the contract and thereby made itself a party thereto, or at least

oftentimes is-drawn up only by the consignor and the

has come to court to enforce it. [9] Thus, private respondent cannot now reject

carrier without the intervention of the consignee. x x x.

x x x the right of a party in the same situation as respondent
here, to recover for loss of a shipment consigned to him under
a bill of lading drawn up only by and between the shipper and
the carrier, springs from either a relation of agency that may
exist between him and the shipper or consignor, or his status
as stranger in whose favor some stipulation is made in said
contract, and who becomes a party thereto when he demands
fulfillment of that stipulation, in this case the delivery of the

or disregard the carriers limited liability stipulation in the bill of lading. In

other words, private respondent is bound by the whole stipulations in the
bill of lading and must respect the same.
Private respondent, however, insists that the carrier should be liable for
the full value of the lost cargo in the amount of Y1,552,500.00, considering
that the shipper, Maruman Trading, had "fully declared the shipment x x x,
the contents of each crate, the dimensions, weight and value of the
contents,"[10] as shown in the commercial Invoice No. MTM-941.
This claim was denied by petitioner, contending that it did not know of

goods or cargo shipped. In neither capacity can he assert

the contents, quantity and value of "the shipment which consisted of three

personally, in bar to any provision of the bill of lading, the

pre-packed crates described in Bill of Lading No. NGO-53MN merely as 3

alleged circumstance that fair and free agreement to such

CASES SPARE PARTS.[11]

provision was vitiated by its being in such fine print as to be

hardly readable. Parenthetically, it may be observed that in one
comparatively recent case (Phoenix Assurance Company vs.
Macondray & Co., Inc., 64 SCRA 15) where this Court found that a
similar package limitation clause was printed in the smallest
type on the back of the bill of lading, it nonetheless ruled that
the consignee was bound thereby on the strength of authority
holding that such provisions on liability limitation are as much
a part of a bill of lading as though physically in it and as
though placed therein by agreement of the parties.
There can, therefore, be no doubt or equivocation about the validity
and enforceability of freely-agreed-upon stipulations in a contract of
carriage or bill of lading limiting the liability of the carrier to an
agreed valuation unless the shipper declares a higher value and
inserts it into said contract or bill. This proposition, moreover,
rests upon an almost uniform weight of authority. (Underscoring

The bill of lading in question confirms petitioners contention. To defeat

the carriers limited liability, the aforecited Clause 18 of the bill of lading
requires that the shipper should have declared in writing a higher
valuation of its goods before receipt thereof by the carrier and insert the
said declaration in the bill of lading, with the extra freight paid. These
requirements in the bill of lading were never complied with by the shipper,
hence, the liability of the carrier under the limited liability clause
stands. The commercial Invoice No. MTM-941 does not in itself sufficiently
and convincingly show that petitioner has knowledge of the value of the cargo
as contended by private respondent. No other evidence was proffered by
private respondent to support is contention. Thus, we are convinced that
petitioner should be liable for the full value of the lost cargo.
In fine, the liability of petitioner for the loss of the cargo is limited to
One Hundred Thousand (Y100,000.00) Yen, pursuant to Clause 18 of the bill
of lading.

supplied)

128

WHEREFORE, the decision of the Court of Appeals dated June 14,

2.

The amount of P200,000.00 as and for attorneys fees; and

3.

The costs of suit.

1995 in C.A.-G.R. CV No. 42803 is hereby REVERSED and SET ASIDE.

SO ORDERED.

On the other hand, the Court of Appeals resolved the case in this wise: [5]
WHEREFORE, premises considered, the decision appealed from,
dated October 17, 1986 is REVERSED and SET ASIDE and another
G.R. No. 123793. June 29, 1998]

ASSOCIATED BANK, petitioner, vs. COURT OF APPEALS and LORENZO

judgment rendered DISMISSING plaintiff-appellees complaint,

docketed as Civil Case No. 85-32243. There is no pronouncement
as to costs.

SARMIENTO JR., respondents.

DECISION

The Facts
The undisputed factual antecedents, as narrated by the trial court and
adopted by public respondent, are as follows: [6]

PANGANIBAN, J.:
In a merger, does the surviving corporation have a right to enforce a
contract entered into by the absorbed company subsequent to the date of the
merger agreement, but prior to the issuance of a certificate of merger by the
Securities and Exchange Commission?
The Case

x x x [O]n or about September 16, 1975 Associated Banking

Corporation and Citizens Bank and Trust Company merged to form
just one banking corporation known as Associated Citizens Bank,
the surviving bank. On or about March 10, 1981, the Associated
Citizens Bank changed its corporate name to Associated Bank by
virtue of the Amended Articles of Incorporation. On September 7,
1977, the defendant executed in favor of Associated Bank a
promissory note whereby the former undertook to pay the latter the

This is a petition for review under Rule 45 of the Rules of Court seeking

sum of P2,500,000.00 payable on or before March 6, 1978.

As per

to set aside the Decision[1] of the Court of Appeals[2] in CA-GR CV No. 26465

said promissory note, the defendant agreed to pay interest at 14%

promulgated on January 30, 1996, which answered the above question in the

per annum, 3% per annum in the form of liquidated damages,

negative. The challenged Decision reversed and set aside the October 17,

compounded interests, and attorneys fees, in case of litigation

1986 Decision[3] in Civil Case No. 85-32243, promulgated by the Regional

equivalent to 10% of the amount due. The defendant, to date, still

Trial Court of Manila, Branch 48, which disposed of the controversy in favor

owes plaintiff bank the amount of P2,250,000.00 exclusive of

of herein petitioner as follows:[4]

interest and other charges. Despite repeated demands the

defendant failed to pay the amount due.

WHEREFORE, judgment is hereby rendered in favor of the plaintiff

Associated Bank. The defendant Lorenzo Sarmiento, Jr. is ordered

xxx xxx

xxx

to pay plaintiff:
x x x [T]he defendant denied all the pertinent allegations in the
1.

The amount of P4,689,413.63 with interest thereon at 14% per

annum until fully paid;

complaint and alleged as affirmative and[/]or special defenses that

the complaint states no valid cause of action; that the plaintiff is not

129

the proper party in interest because the promissory note was

thru its counsel (Exh. C) which was received by the defendant on

executed in favor of Citizens Bank and Trust Company; that the

November 12, 1985 (Exh. C, C-1, C-2, C-3); that the defendant paid

promissory note does not accurately reflect the true intention and

only P1,000,000.00 which is reflected in the Exhibit C.

agreement of the parties; that terms and conditions of the

promissory note are onerous and must be construed against the

Based on the evidence presented by petitioner, the trial court ordered

creditor-payee bank; that several partial payments made in the

Respondent Sarmiento to pay the bank his remaining balance plus interests

promissory note are not properly applied; that the present action is

and attorneys fees. In his appeal, Sarmiento assigned to the trial court

premature; that as compulsory counterclaim the defendant prays for

several errors, namely:[7]

attorneys fees, moral damages and expenses of litigation.

I

The [trial court] erred in denying appellants motion to

On May 22, 1986, the defendant was declared as if in default for

dismiss appellee banks complaint on the ground of lack of

failure to appear at the Pre-Trial Conference despite due notice.

cause of action and for being barred by prescription and

laches.

A Motion to Lift Order of Default and/or Reconsideration of Order

dated May 22, 1986 was filed by defendants counsel which was

II

denied by the Court in [an] order dated September 16, 1986 and the

appellee banks amended complaint while defendant-

plaintiff was allowed to present its evidence before the Court ex-

appellants motion to dismiss appellee banks original

parte on October 16, 1986.

complaint and using/availing [itself of] the new additional

The same lower court erred in admitting plaintiff-

allegations as bases in denial of said appellants motion and in

At the hearing before the Court ex-parte, Esteban C. Ocampo

the interpretation and application of the agreement of merger

testified that x x x he is an accountant of the Loans and Discount

and Section 80 of BP Blg. 68, Corporation Code of the

Department of the plaintiff bank; that as such, he supervises the

Philippines.

accounting section of the bank, he counterchecks all the

transactions that transpired during the day and is responsible for

III

all the accounts and records and other things that may[ ]be

discretion in rendering the two as if in default orders dated

assigned to the Loans and Discount Department; that he knows the

May 22, 1986 and September 16, 1986 and in not

[D]efendant Lorenzo Sarmiento, Jr. because he has an outstanding

reconsidering the same upon technical grounds which in effect

loan with them as per their records; that Lorenzo Sarmiento, Jr.

subvert the best primordial interest of substantial justice and

executed a promissory note No. TL-2649-77 dated September 7,

equity.

The [trial court] erred and gravely abuse[d] its

1977 in the amount of P2,500,000.00 (Exhibit A); that Associated

Banking Corporation and the Citizens Bank and Trust Company

IV

merged to form one banking corporation known as the Associated

22, 1986 and September 16, 1986 declaring appellant as if in

Citizens Bank and is now known as Associated Bank by virtue of its

default due to non-appearance of appellants attending counsel

Amended Articles of Incorporation; that there were partial payments

who had resigned from the law firm and while the parties

made but not full; that the defendant has not paid his obligation as

[were] negotiating for settlement of the case and after a one

evidenced by the latest statement of account (Exh. B); that as per

million peso payment had in fact been paid to appellee bank for

statement of account the outstanding obligation of the defendant

appellants account at the start of such negotiation on

is P5,689,413.63 less P1,000,000.00 or P4,689,413.63 (Exh. B, B-

February 18, 1986 as act of earnest desire to settle the

1); that a demand letter dated June 6, 1985 was sent by the bank

obligation in good faith by the interested parties.

The court a quo erred in issuing the orders dated May

130

The lower court erred in according credence to appellee

The appellate court, however, found no need to tackle all the assigned

banks Exhibit B statement of account which had been merely

errors and limited itself to the question of whether [herein petitioner had]

requested by its counsel during the trial and bearing date of

established

September 30, 1986.

respondent]. Accordingly, Respondent Court held that the Associated Bank

or

proven

cause

of

action

against

[herein

private

had no cause of action against Lorenzo Sarmiento Jr., since said bank was
The lower court erred in accepting and giving credence

not privy to the promissory note executed by Sarmiento in favor of Citizens

to appellee banks 27-year-old witness Esteban C. Ocampo as

Bank and Trust Company (CBTC). The court ruled that the earlier merger

of the date he testified on October 16, 1986, and therefore, he

between the two banks could not have vested Associated Bank with any

was merely an eighteen-year-old minor when appellant

interest

supposedly incurred the foisted obligation under the subject

CBTC after such merger.

VI

arising

from

the

promissory

note

executed

in

favor

of

PN No. TL-2649-77 dated September 7, 1977, Exhibit A of

appellee bank.

Thus, as earlier stated, Respondent Court set aside the decision of the
trial court and dismissed the complaint. Petitioner now comes to us for a

VII

The [trial court] erred in adopting appellee banks

reversal of this ruling.[8]

Exhibit B dated September 30, 1986 in its decision given in

open court on October 17, 1986 which exacted eighteen

Issues

percent (18%) per annum on the foisted principal amount

of P2.5 million when the subject PN, Exhibit A, stipulated only

In its petition, petitioner cites the following reasons: [9]

fourteen percent (14%) per annum and which was actually

prayed for in appellee banks original and amended complaints.

I The Court of Appeals erred in reversing the decision of the trial

court and in declaring that petitioner has no cause of action against

VIII

The appealed decision of the lower court erred in not

respondent over the promissory note.

considering at all appellants affirmative defenses that (1) the

subject PN No. TL-2649-77 for P2.5 million dated September 7,

II

1977, is merely an accommodation pour autrui bereft of any

promissory note was executed in favor of Citizens Bank and Trust

actual consideration to appellant himself and (2) the subject

Company two years after the merger between Associated Banking

PN is a contract of adhesion, hence, [it] needs [to] be strictly

Corporation and Citizens Bank and Trust Company, respondent is

construed against appellee bank -- assuming for granted that it

not liable to petitioner because there is no privity of contract

has the right to enforce and seek collection thereof.

between respondent and Associated Bank.

IX

III The Court of Appeals erred when it ruled that petitioner, despite

The lower court should have at least allowed appellant

The Court of Appeals also erred in declaring that, since the

the opportunity to present countervailing evidence considering

the merger between petitioner and Citizens Bank and Trust

the huge amounts claimed by appellee bank (principal sum

Company, is not a real party in interest insofar as the promissory

of P2.5 million which including accrued interests, penalties

note executed in favor of the merger.

and cost of litigation totaled P4,689,413.63) and appellants

affirmative defenses -- pursuant to substantial justice and
equity.

In a nutshell, the main issue is whether Associated Bank, the surviving

corporation, may enforce the promissory note made by private respondent in
favor of CBTC, the absorbed company, after the merger agreement had been
signed.

131

The Courts Ruling

10. Upon effective date of the Merger, all rights, privileges,

powers, immunities, franchises, assets and property of

The petition is impressed with merit.

[CBTC], whether real, personal or mixed, and including

[CBTCs] goodwill and tradename, and all debts due to

The Main Issue:

Associated Bank Assumed
All Rights of CBTC
Ordinarily, in the merger of two or more existing corporations, one of the
combining corporations survives and continues the combined business,
while the rest are dissolved and all their rights, properties and liabilities are
acquired by the surviving corporation. [10] Although there is a dissolution of
the absorbed corporations, there is no winding up of their affairs or
liquidation of their assets, because the surviving corporation automatically
acquires all their rights, privileges and powers, as well as their liabilities. [11]
The merger, however, does not become effective upon the mere
agreement of the constituent corporations. The procedure to be followed is
prescribed under the Corporation Code.[12]Section 79 of said Code requires
the approval by the Securities and Exchange Commission (SEC) of the
articles of merger which, in turn, must have been duly approved by a
majority of the respective stockholders of the constituent corporations. The
same provision further states that the merger shall be effective only upon the
issuance by the SEC of a certificate of merger. The effectivity date of the
merger is crucial for determining when the merged or absorbed corporation
ceases to exist; and when its rights, privileges, properties as well as liabilities
pass on to the surviving corporation.
Consistent with the aforementioned Section 79, the September 16, 1975
Agreement of Merger,[13] which Associated Banking Corporation (ABC) and
Citizens Bank and Trust Company (CBTC) entered into, provided that its
effectivity shall, for all intents and purposes, be the date when the
necessary papers to carry out this [m]erger shall have been approved by the
Securities and Exchange Commission.[14] As to the transfer of the properties
of CBTC to ABC, the agreement provides:

[CBTC] on whatever act, and all other things in action

belonging to [CBTC] as of the effective date of the
[m]erger shall be vested in [ABC], the SURVIVING BANK,
without need of further act or deed, unless by express
requirements of law or of a government agency, any
separate or specific deed of conveyance to legally effect
the transfer or assignment of any kind of property [or]
asset is required, in which case such document or deed
shall be executed accordingly; and all property, rights,
privileges, powers, immunities, franchises and all
appointments, designations and nominations, and all
other rights and interests of [CBTC] as trustee, executor,
administrator, registrar of stocks and bonds, guardian of
estates, assignee, receiver, trustee of estates of persons
mentally ill and in every other fiduciary capacity, and all
and every other interest of [CBTC] shall thereafter be
effectually the property of [ABC] as they were of [CBTC],
and title to any real estate, whether by deed or
otherwise, vested in [CBTC] shall not revert or be in any
way impaired by reason thereof; provided, however, that
all rights of creditors and all liens upon any property of
[CBTC] shall be preserved and unimpaired and all debts,
liabilities, obligations, duties and undertakings of
[CBTC], whether contractual or otherwise, expressed or
implied, actual or contingent, shall henceforth attach to
[ABC] which shall be responsible therefor and may be
enforced against [ABC] to the same extent as if the same
debts, liabilities, obligations, duties and undertakings
have been originally incurred or contracted by [ABC],
subject, however, to all rights, privileges, defenses, setoffs and counterclaims which [CBTC] has or might have
and which shall pertain to [ABC].[15]
The records do not show when the SEC approved the merger. Private
respondents theory is that it took effect on the date of the execution of the

132

its

literal

meaning[17] and

agreement itself, which was September 16, 1975. Private respondent

given

contends that, since he issued the promissory note to CBTC on September 7,

interpretation. Verba legis non est recedendum.[18]

applied

without

convoluted

1977 -- two years after the merger agreement had been executed -- CBTC
could not have conveyed or transferred to petitioner its interest in the said

In light of the foregoing, the Court holds that petitioner has a valid

note, which was not yet in existence at the time of the merger. Therefore,

cause of action against private respondent. Clearly, the failure of private

petitioner, the surviving bank, has no right to enforce the promissory note on

respondent to honor his obligation under the promissory note constitutes a

private respondent; such right properly pertains only to CBTC.

violation of petitioners right to collect the proceeds of the loan it extended to

the former.

Assuming that the effectivity date of the merger was the date of its
execution, we still cannot agree that petitioner no longer has any interest in

Secondary Issues:

the promissory note. A closer perusal of the merger agreement leads to a

different conclusion. The provision quoted earlier has this other clause:

Prescription, Laches, Contract

Upon the effective date of the [m]erger, all references to [CBTC] in

Pour Autrui, Lack of Consideration

any deed, documents, or other papers of whatever kind or nature

and wherever found shall be deemed for all intents and purposes,

No Prescription

references to [ABC], the SURVIVING BANK, as if such references

were direct references to [ABC]. x x x[16] (Underscoring supplied)

or Laches

Thus, the fact that the promissory note was executed after the effectivity
date of the merger does not militate against petitioner. The agreement itself
clearly provides that all contracts -- irrespective of the date of execution -entered into in the name of CBTC shall be understood as pertaining to the
surviving

bank,

herein

petitioner. Since,

in

contrast

to

the

earlier

aforequoted provision, the latter clause no longer specifically refers only to

contracts existing at the time of the merger, no distinction should be
made. The clause must have been deliberately included in the agreement in
order to protect the interests of the combining banks; specifically, to avoid
giving the merger agreement a farcical interpretation aimed at evading
fulfillment of a due obligation.

the reference to CBTC in the note shall be construed, under the very
provisions of the merger agreement, as a reference to petitioner bank, as if
such reference [was a] direct reference to the latter for all intents and
purposes.
other

collection of a sum of money was based on a written contract and prescribes

after ten years from the time its right of action arose.[19] Sarmientos
obligation under the promissory note became due and demandable on March
6, 1978. Petitioners complaint was instituted on August 22, 1985, before the
lapse of the ten-year prescriptive period. Definitely, petitioner still had every
right to commence suit against the payor/obligor, the private respondent
herein.
Neither is petitioners action barred by laches. The principle of laches is

Thus, although the subject promissory note names CBTC as the payee,

No

Private respondents claim that the action has prescribed, pursuant to

Article 1149 of the Civil Code, is legally untenable. Petitioners suit for

a creation of equity, which is applied not to penalize neglect or failure to

assert a right within a reasonable time, but rather to avoid recognizing a
right when to do so would result in a clearly inequitable situation [20] or in an
injustice.[21] To require private respondent to pay the remaining balance of his
loan is certainly not inequitable or unjust. What would be manifestly unjust
and inequitable is his contention that CBTC is the proper party to proceed

construction

can

be

given

to

the

unequivocal

stipulation. Being clear, plain and free of ambiguity, the provision must be

against him despite the fact, which he himself asserts, that CBTCs corporate
personality has been dissolved by virtue of its merger with petitioner. To hold

133

that no payee/obligee exists and to let private respondent enjoy the fruits of

argument. Accordingly, his contention cannot be sustained. At any rate, if

his loan without liability is surely most unfair and unconscionable,

indeed the loan actually benefited a third person who undertook to repay the

amounting to unjust enrichment at the expense of petitioner. Besides, this

bank, private respondent could have availed himself of the legal remedy of a

Court has held that the doctrine of laches is inapplicable where the claim

third-party complaint.[26] That he made no effort to implead such third person

was filed within the prescriptive period set forth under the law. [22]

proves the hollowness of his arguments.

No Contract

Consideration
Private respondent also claims that he received no consideration for the

Pour Autrui

promissory note and, in support thereof, cites petitioners failure to submit

Private respondent, while not denying that he executed the promissory

any proof of his loan application and of his actual receipt of the amount
arguments

deserve

no

merit. Res

ipsa

loquitur. The

note in the amount of P2,500,000 in favor of CBTC, offers the alternative

loaned. These

defense that said note was a contract pour autrui.

instrument, bearing the signature of private respondent, speaks for

itself. Respondent Sarmiento has not questioned the genuineness and due

A stipulation pour autrui is one in favor of a third person who may

execution thereof. No further proof is necessary to show that he undertook

demand its fulfillment, provided he communicated his acceptance to the

to pay P2,500,000, plus interest, to petitioner bank on or before March 6,

obligor before its revocation. An incidental benefit or interest, which another

1978. This he failed to do, as testified to by petitioners accountant. The

person gains, is not sufficient. The contracting parties must have clearly and

latter presented before the trial court private respondents statement of

deliberately conferred a favor upon a third person.

account[27] as of September 30, 1986, showing an outstanding balance

[23]

of P4,689,413.63
Florentino vs. Encarnacion Sr.

[24]

enumerates the requisites for such

contract: (1) the stipulation in favor of a third person must be a part of the
contract, and not the contract itself; (2) the favorable stipulation should not
be conditioned or compensated by any kind of obligation; and (3) neither of
the contracting parties bears the legal representation or authorization of the

after

deducting P1,000,000.00

paid

seven

months

earlier. Furthermore, such partial payment is equivalent to an express

acknowledgment of his obligation. Private respondent can no longer
backtrack and deny his liability to petitioner bank. A person cannot accept
and reject the same instrument.[28]

third party. The fairest test in determining whether the third persons

WHEREFORE, the petition is GRANTED. The assailed Decision is SET

interest in a contract is a stipulation pour autrui or merely an incidental

ASIDE and the Decision of RTC-Manila, Branch 48, in Civil Case No. 26465

interest is to examine the intention of the parties as disclosed by their

is hereby REINSTATED.

contract.

[25]

SO ORDERED.
We carefully and thoroughly perused the promissory note, but found no
stipulation at all that would even resemble a provision in consideration of a
third person. The instrument itself does not disclose the purpose of the loan
contract. It merely lays down the terms of payment and the penalties
incurred for failure to pay upon maturity. It is patently devoid of any
indication that a benefit or interest was thereby created in favor of a person
other than the contracting parties. In fact, in no part of the instrument is
there any mention of a third party at all. Except for his barefaced statement,
no

evidence

was

proffered

by

private

respondent

to

support

his

134

SPOUSES SEGUNDO RAMOS

and FELISA VALDEZ,
P e t i t i o n e r s,

- versus -

HON. COURT OF APPEALS, LEILA VALDEZ-PASCUAL, ARACELI

VALDEZ, GLICERIA VALDEZ, JUANA VALDEZ, SIMEON VALDEZ,
CONRADA VALDEZ, SEVERINO VALDEZ, MARIO VALDEZ,
ADORACION VALDEZ, JOSE VALDEZ, DIONISIA VALDEZ, DANILO
VALDEZ, SERAPIO VALDEZ, HELEN VALDEZ, PERLA VALDEZ, and
DELIA VALDEZ,
R

s.

G.R. No.
Through the instant Petition for Review on certiorari, spouses
Segundo Ramos and Felisa Valdez seek the reversal of the Decision [1] of the
Court of Appeals dated 31 July 1997 which reversed the Decision [2] of the
Regional Trial Court (RTC), Branch 48, Urdaneta, Pangasinan. The RTC
decision dismissed the case filed by private respondents for Quieting of Title,
Present:
Ownership, Possession plus Damages with prayer for Writ of Preliminary
Injunction and adjudged petitioners as the lawful owners of a piece of land,
with an area of 3,036 square meters, and which forms part of a bigger tract
of land covered by Original Certificate of Title (OCT) No. 48824 of the Registry
PUNO,
of Deeds of the Province of Pangasinan in the name of Gregorio Valdez.
Under review as well is the Court of Appeals Resolution [3] dated 08 December
1997 denying petitioners motion for reconsideration.
AUSTRIAMARTINEZ,
Private respondents are the children [4] of Gregorio Valdez. In 1948,
CALLEJO, SR.,
Gregorio Valdez sold the subject land to petitioners. The absolute deed of
TINGA,
saleand
was subsequently annotated at the back of OCT No. 48824 as Entry No.
377847. It is the contention of private respondents that as early as 1977,
CHICOpetitioners no longer owned subject land as they had renounced their rights
NAZARIO,
thereto as evidenced by a compromise agreement dated 02 June 1977.

Sometime in 1991, Gregorio Valdez died. Private respondents allege

that immediately after the death of their father, petitioners disturbed their
possession of subject land by cultivating the same and by enclosing it with a
Promulgated:
fence. As petitioners did not heed their demands to vacate, they were
constrained to file a case for Quieting of Title, Ownership, Possession plus
Damages with prayer for Writ of Preliminary Injunction.
December 9,
2005
Petitioners, in their Answer with Counterclaim, maintain that they
remain owners of the subject land as the compromise agreement being relied
x--------------------------------------------------x
upon by private respondents refers to another piece of land. Thus, they
argue that the compromise agreement constitutes a cloud on their title. They
prayed, among other things, for the quieting of their title and that they be
DECISION
adjudged lawful owners of the subject land.
CHICO-NAZARIO, J.:
This case presents a tangled tale involving the conflicting accounts of
petitioners and private respondents over a piece of land sold by Gregorio
Valdez (private respondents father) to petitioners in 1948 and which
ostensibly became the subject of a compromise agreement in 1977.

The trial court believed petitioners. It sided with petitioners by

declaring them owners of the subject land by virtue of the absolute deed of
sale dated 06 January 1948. The dispositive portion of its decision reads:

135

WHEREFORE, premises considered, judgment is

hereby rendered in favor of the defendants and against the
plaintiffs and declaring the defendants to be the lawful
owners of the land in question.[5]

The Court of Appeals reversed the trial courts ruling. It held that
the land renounced by petitioners was the subject land and that it was made
in favor of Gregorio Valdez, thus:

BEHIND THE EXECUTION OF THE COMPROMISE

AGREEMENT IN QUESTION, IT SERIOUSLY ERRED IN
UPHOLDING THE VALIDITY OF THE COMPROMISE
AGREEMENT WITH RESPECT TO A THIRD PERSON WHO
WAS A STRANGER THERETO AND INVOLVING A PARCEL
OF LAND WHICH IS FOREIGN TO THE DISPUTE IN THE
LAND REGISTRATION CASE THAT GAVE LIFE TO THE
COMPROMISE AGREEMENT.

III.
WHEREFORE, premises considered the decision
appealed from is hereby REVERSED and SET ASIDE and
another one entered declaring plaintiffs as owner of the land
in question, and ordering defendants-appellees to vacate the
same. With costs against defendants-appellees.

THE HONORABLE COURT OF APPEALS ERRED IN

REVERSING THE TRIAL COURTS DECISION FINDING NO
LEGAL AND FACTUAL BASES TO UPHOLD THE VALIDITY
OF THE ALLEGED RENUNCIATION OF PETITIONERS
RIGHTS OVER THE NORTHERN PORTION OF THE TITLED
LAND IN QUESTION INSTEAD OF THE INTENDED
SOUTHERN PORTION OF AN UNTITILED LAND SUBJECT
OF THE LRC.[6]

Aggrieved by the aforecited ruling, and their motion for

reconsideration having been denied by the Court of Appeals, petitioners
assert before us that

I.

THE HONORABLE COURT OF APPEALS ERRED IN

REVERSING THE TRIAL COURTS FINDINGS WHICH TOOK
INTO ACCOUNT THE INTENTIONS OF THE PARTIES IN THE
COMPROMISE
AGREEMENT
IN
QUESTION
BY
CONSIDERING
CIRCUMSTANCES
PREVIOUS
AND
SIMULTANEOUS
TO
THE
EXECUTION
OF
THE
AGREEMENT.

II.

WHILE
THE
HONORABLE
CORRECTLY STATED THE

COURT
OF
UNDERLYING

APPEALS
REASONS

In order to get to the bottom of this land dispute, the primary and
most basic question that has to be asked is this: Is the absolute deed of sale
dated 06 January 1948 between petitioners and private respondents
predecessor-in-interest, Gregorio Valdez, annotated at the back of OCT No.
48824, a cloud on such title that has to be removed under the grounds
stated in the Civil Code?

Articles 476 and 478 of the Civil Code provide:

Art. 476.
Whenever there is a cloud on title to
real property or any interest therein, by reason of any
instrument, record, claim, encumbrance or proceeding which
is apparently valid or effective but is in truth and in fact
invalid, ineffective, voidable, or unenforceable, and may be

136

prejudicial to said title, an action may be brought to remove

such cloud or to quiet the title.

LRC Rec. No. N-

48993
-

An action may also be brought to prevent a cloud

from being cast upon title to real property or any interest
therein.

versus -

THE DIRECTOR OF LANDS,

ET AL.,

Art. 478.
There may also be an action to quiet
title or remove a cloud therefrom when the contract,
instrument or other obligation has been extinguished or has
terminated, or has been barred by extinctive prescription.

Oppositors.

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

COMPROMISE AGREEMENT

In herein case, private respondents, as plaintiffs in the case for

quieting of title, allege that their fathers obligation under the deed of
absolute sale has been extinguished or has been terminated by virtue of the
compromise agreement dated 02 June 1977 whereby petitioners ostensibly
renounced their rights over the subject property. Petitioners, on the other
hand, claim that the same compromise agreement constitutes a cloud on
their title.

The Compromise Agreement[7] states:

REPUBLIC OF THE PHILIPPINES

COURT OF FIRST INSTANCE OF PANGASINAN

COME NOW, the parties in the above-entitled case

duly assisted by their respective counsels and to this
Honorable Court submit this compromise agreement, to wit:

1.
That the oppositor Felipe Cabero
hereby withdraw (sic) his opposition in the above-entitled
case;

2.
That the applicants Segundo Ramos
and Felisa Valdez hereby also quitclaim and renounce
whatever rights in the document registered under entry No.
377847 annotated at the back of O.C.T. No. 48824 of
Gregorio Valdez;

THIRD JUDICIAL DISTRICT

3.
That the parties hereby waive any
claim for and against the other.

9th Branch, Urdaneta

SEGUNDO RAMOS, ET AL.,

No. U-843

Applicants.

LAND REG. CASE

WHEREFORE, the parties should abide the foregoing

compromise agreement and that each of them shall respect
the right of the other.

137

IN WITNESS WHEREOF, the parties duly assisted by

their respective counsels set their hands this 2 nd day of
June, 1977, at Urdaneta, Pangasinan.

SEGUNDO RAMOS

FELISA VALDEZ

Applicant

Applicant

FELIPE CABERO
Oppositor

Petitioners version
To save himself from the quagmire he created, Gregorio Valdez
entreated upon petitioners to give up the southern portion of their untitled
land in exchange for Caberos withdrawal of his opposition to petitioners
application for registration. Petitioners agreed. Thus, during the pendency
of the land registration proceedings, petitioners and Cabero entered into a
compromise agreement. The agreement was written in English. Its contents
were not translated into Ilocano for petitioners but they did not mind as they
were represented by their counsel. The signatories to the said agreement
were petitioners, Cabero and their respective counsels. Petitioners, being
unlettered, were not aware that the property they were renouncing under the
compromise agreement was the subject property as, definitely, this was not
their intention. Thus, they argued that the compromise agreement contained
a false cause and that they gave their consent thereto by mistake.

ASSISTED BY:
Private Respondents version
ATTY. ELISEO E. VERSOZA
Counsel for the Applicants
Oppositor
Soconi, Bugallon, Pang.

ATTY. NICANOR CALDITO

Counsel for

The compromise agreement categorically states that the property being

renounced is the subject property and that the same is made in favor of
private respondents late father, Gregorio Valdez. Gregorio Valdez was a
party to said compromise agreement as his signature is also affixed thereto.

Pozorrubio,

Pang.

The decision of the trial court

As articulated earlier, the trial court ruled in favor of herein
petitioners. It held:

To get a proper grip of the controversial compromise agreement, a

narration of the circumstances surrounding its execution is in order.

The compromise agreement was entered into between petitioners and a

certain Felipe Cabero in connection with petitioners application for
registration of a piece of untitled land adjacent to the subject land filed with
the Court of First Instance of Pangasinan in LRC Case No. U-843. This
untitled land was purchased by petitioners from a certain Alejandro
Alcantara.[8] Apparently, Cabero was the actual occupant of the southern
portion of this land, thus, he opposed petitioners application for
registration. Petitioners explained that the southern portion occupied by
Cabero was purchased by Cabero from Gregorio Valdez who sold it by
mistake as he (Valdez) thought that the land he was selling was part of his
titled land.

After carefully perusing the records and the evidence

adduced, this Court is left to resolve the issues agreed upon
by the parties as indicated in the pre-trial order.

However, before this Court could arrive at a proper

solution of the issues, it is imperative to determine the true
intentions of the parties in the controversial compromise
agreement (Exh. B) by considering all the surrounding
circumstances previous and simultaneous to the execution
of the same.

138

It is not disputed that the property in question with

an area of 3,036 square metes on the northern portion of a
parcel of land was owned by the plaintiffs late father
Gregorio Valdez covered by TCT No. 48824 (Exh. A).
Sometime in the year 1948, the late Gregorio Valdez sold the
said property to defendant-spouses Segundo Ramos and
Felisa Valdez. That sale was annotated at the back of said
title as Entry No. 377847 (Exh. A-1).

Defendant Segundo Ramos also bought an untitled

land from Alejandro Alcantara in 1945 evidenced by a deed
of absolute sale marked as Exhibit 6. When Segundo Ramos
applied for registration of title of the said land, Felipe Cabero
opposed the same. During the pendency of the land
registration case, a compromise agreement (Exh. B) was
concluded by the herein defendants as applicants and
oppositor Felipe Cabero.

The Court noted that the portion of land referred to

in the said compromise agreement and to have been
renounced allegedly is the northern portion. This is clear in
the Entry No. 377847 (Exh. A-1). In contrast, what has been
relinquished and renounced by Segundo Ramos was the
southern portion of the same land being occupied, at that
time, by Felipe Cabero. It appears therefore, that there is a
different portion of land that was the real subject of
renunciation other than that indicated in the compromise
agreement. Hence, such agreement expresses wrong
intentions of the parties. The mistake in the compromise
agreement was recognized and admitted by plaintiff Lilia
Valdez when she testified as rebuttal witness, to wit:

Q.

A.

According to Segundo Ramos there

was no consideration whatsoever in
favor of your father Gregorio Valdez
that the compromise agreement was
executed, what can you say about
that?

That is not true sir.

Q.

A.

What is the truth?

That is not true sir actually the

compromise agreement was made to
correct a mistake which was committed
because the deed of sale was executed
covering the portion which was titled
property when it should pertain to the
untitled property of Gregorio Valdez.
(TSN-Felix, 3-11-92, pp. 8-9)

The renunciation of the southern portion by

Segundo Ramos, as he claimed, is inter-related to the
conflict of encroachment of ownership of the land between
him and Felipe Cabero. It is unthinkable and unusual for
defendant-spouses to renounce the very portion of land they
bought from late Gregorio Valdez to the latter without any
consideration at all.

Morever, a scrutiny of the compromise agreement

reveals that the alleged renunciation was not expressly made
in favor of Gregorio Valdez and worst of all, the latter was
never a party in the registration case although his signature
was affixed therein (Exh. B-1 and 1-a) without any
designation, nor reference to the land registration case. If
ever there was a renunciation, it should be in favor of Felipe
Cabero because he was the oppositor, but he did not
anymore pursue his opposition.

In view of the foregoing findings, it could not be said

that defendant-spouses did renounce the property in
question which is the northern portion to late Gregorio
Valdez from whom they bought it.[9]

The Ruling of the Court of Appeals

139

of the northern portion of the land covered by OCT No.

48824 (Exhibit A).
The reversal by the Court of Appeals of the afore-quoted decision was
based on the following ratiocination, to wit:

We agree with appellants contention that the

identity of the land subject of the compromise agreement vis-vis that covered by the Deed of Sale executed between
Gregorio Valdez and defendants-appellees is no longer open
to question having been made the subject of pre-trial
stipulation (Pre-Trial Order dated November 19, 1991,
supra). Moreover, the evidence presented supports this
contention.

As can be seen from the decision dated 19 March

1979 of the Court of First Instance of Pangasinan in Land
Registration Case No. U-843 Record No. N-48998 entitled
Segundo Ramos, et al. vs. The Director of Lands, et al. (Exh.
3, Folder of Exhibits, pp. 15-17) only Felipe Cabero and the
Director of Lands opposed defendants-appellees application
for original registration. The subject of this land registration
case was that parcel of land previously owned by Alejandro
Alcantara, situated at Barrio Maambal, Municipality of
Pozorrubio, Province of Pangasinan containing an area of
7,073 square meters, more or less, and more particularly
described in Plan Psu-1-002310. As indicated in the
aforesaid decision Felipe Cabero withdrew his opposition.
The Decision however does not make any reference to the
Compromise Agreement executed in the same case two (2)
years before, on June 2, 1977 marked as Exhibit B (Folder
of Exhibits, p. 2).

In the Compromise Agreement (supra), the

applicants in the land registration case, Segundo Ramos and
Felisa Valdez had expressed their renunciation of their rights
in the document registered under Entry No. 377847
annotated at the back of O.C.T. No. 48824 of Gregorio
Valdez. This entry is a Deed of Absolute Sale (Exhibit 7)
executed by Gregorio Valdez married to Maria Soriano in
favor of Segundo Ramos married to Felisa Valdez, the subject
of which is a parcel of land consisting of 3,036 square meters

It is manifest from the foregoing that while the land

registration case covered that parcel of land purchased by
appellees from Alejandro Alcantara, which was ultimately
decreed in favor of appellees in the Decision of the LRC
marked Exhibit 3; the Compromise Agreement wherein
appellees declared their renunciation/quitclaim of their
rights referred to another parcel of land consisting of 3,036
sq. m. that was the subject of a Deed of Absolute Sale
executed by Gregorio Valdez that was a part of, hence
annotated on OCT No. 48824 registered in Valdez name,
which property had been earlier sold to the Spouses Ramos
by Gregorio Valdez. The Spouses Ramos renounced their
rights over the latter property in the Compromise Agreement
marked as Exhibit B/1 to effect the withdrawal of the
opposition of Felipe Cabero to their application for
registration in the aforesaid LRC No. U-843 (TSN, February
17, 1992, pp. 9-11). Caberos opposition was predicated on
his perceived ownership of the southern portion of the land
which was formerly owned by Alejandro Alcantara that was
the subject of the land registration proceedings. This
southern portion adjoins another (untitled) property of
Gregorio Valdez (Exhibit E, Folder of Exhibits p. 13). This
had been mistakenly sold by Valdez to Cabero in the belief
that it belonged to him (Valdez). When Valdez recognized his
error, and by way of disentangling a conflict that he had
caused, Valdez persuaded Ramos to renounce his rights over
the 3,036 sq. m. portion of his titled property, and at the
same time for Cabero to withdraw his opposition to the
application by Spouses Ramos for the registration in their
name of the entire lot formerly belonging to Alejandro
Alcantara. Conceivably, Caberos withdrawal of his
opposition along with his occupied southern portion of
Alejandro Alcantaras property, was to be exchanged with the
3,036 sq. m. portion renounced by Spouses Ramos. In his
testimony Segundo Ramos spoke of accommodating the
entreaties of Gregorio Valdez whom he called his father in
law (TSN, February 17, 1992, p. 11).

As a consequence, applicants Spouses Segundo and

Felisa Ramos in the LRC case, executed a Compromise

140

Agreement with Felipe Cabero witnessed by Gregorio Valdez

that was meant to renounce their (Ramos) claim or rights
over that portion of the land which they had purchased from
Gregorio Valdez in exchange for the southern portion of the
land that was being occupied by Felipe Cabero. To repeat,
Felipe Cabero had occupied the southern portion by virtue of
a deed of sale from Gregorio Valdez but Valdez actually had
no right to sell this portion, it being owned by the adjoining
owner Alejandro Alcantara. This is shown by the fact that
although the Absolute Deed of Sale executed by Alejandro
Alcantara in favor of Spouses Segundo Valdez conveyed only
an area of 3,000 sq. m. (Exhibit 6, Folder of Exhibits, p. 37)
the total area applied for and decreed by the Land
Registration Court in LRC No. U-843 in favor of applicant
Spouses Segundo Ramos (Exhibit 3, Folder of Exhibits, p.
15) had a total area of 7,073 sq. m. which fact was admitted
by appellee Segundo Ramos on re-cross (TSN, March 11,
1992, p. 3). On this point, Natalia Alcantara dela Cruz,
daughter of Alejandro Alcantara testified on rebuttal.

...

As already stated, the LRC Decision dated 19 March

1979 (Exhibit 3) did not take cognizance of the
Compromise Agreement dated 2 June 1977 although it noted
that oppositor Felipe Cabero had withdrawn his opposition to
the application of Spouses Ramos in the LRC case (Exhibits
3-a-1, Folder of Exhibits, p. 16). The simple explanation is
that the Compromise Agreement referred to another parcel of
land that was not the subject of the land registration case. In
withdrawing his opposition, Felipe Cabero paved the way for
Spouses Segundo Ramos to have the entire property of
Alejandro Alcantara registered in their names, and not just
the 3,000 sq. m. that was the subject of the deed of sale
signed by Alcantara in their favor, marked Exhibit 6. Thus,
Gregorio Valdez was able to effect the solution to the
imbroglio he had caused by selling to Felipe Cabero land that
did not belong to him but to the adjoining owner Alejandro
Alcantara. This is shown by the testimony of Lilia Valdez.

...

On the part of appellees, the loss of the 3,036 sq. m.

portion was amply compensated by approximately 4,000 sq.
m. of the southern portion that had been occupied by Felipe
Cabero but which had been included in their land
registration application. The evidence of the defendantsappellees shows that (b)ecause of his mistake, vendor
Gregorio Valdez intervened and pleaded to appellees to just
relinquish the area he mistakenly sold to Cabero who in
exchange was to withdraw his opposition, hence the
compromise agreement in question was drawn (TSN,
February 17, 1999, p. 11; January 29 1992, pp. 8-10;
Appellees Brief, p. 7). It is to be noted that Gregorio Valdez
and Felipe Cabero were closely associated and even shared
the same counsel Atty. Nicanor Caldito who notarized the
Deed of Sale executed by Gregorio Valdez in favor of Segundo
Ramos (Exhibits B/1 and 2; Folder of Exhibits, pp. 2
and 14) and who later appeared as counsel for oppositor
Felipe Cabero in the land registration case. Although the
withdrawal of opposition of Felipe Cabero along with his
occupation of the southern portion was successfully effected
by the Compromise Agreement, later events showed that
Cabero was eventually removed from the picture of both
parcels of land. Evidence shows that Gregorio Valdez
continued to occupy the renounced portion until his death in
1991 (TSN, January 6, 1991, pp. 3-4; Pre-Trial Order,
Record, p. 58). His occupation evidences his continued
dominion and exercise of ownership over the entire land
covered by OCT No. 48824.[10]

To state the obvious, much ado has been made over the compromise
agreement. After having reviewed the records of the case, however, it has
become even more obvious that private respondents cannot assert any rights
under said compromise agreement, thus, it cannot be used by them to defeat
petitioners claim over the subject land.

The compromise agreement, like any other contract, takes effect only
between the parties, their assigns and heirs. [11] In herein case, the parties to
the compromise agreement were petitioners and Felipe Cabero only as the
same was executed by them in connection with LRC Case No. U-843 wherein
petitioners were the applicants and Cabero the oppositor. [12] Gregorio Valdez,

141

although he was very much interested in the compromise agreement as the

same would solve the problem he created of selling to Cabero a piece of land
not belonging to him, was not a party thereto. As correctly pointed out by
petitioners, his signature might have appeared in the compromise agreement
but it does not appear in what capacity he was signing. In juxtaposition, the
compromise agreement expressly states in what capacity the other
signatories were signing. Thus, typewritten in the agreement are the
following entries:

SEGUNDO RAMOS

FELISA RAMOS

Applicant

Applicant

FELIPE CABERO
Oppositor

ASSISTED BY:

ATTY. ELISEO E. VERSOZA

Counsel for the Applicants
Oppositor
Soconi, Bugallon, Pang.

ATTY. NICANOR CALDITO

It is axiomatic that a contract cannot be binding upon and cannot be

enforced against one who is not a party to it, even if he is aware of such
contract and has acted with knowledge thereof. [15] A person who is not a
party to a compromise agreement cannot be affected by it. [16] This is already
well-settled. Thus, in Young v. Court of Appeals[17]we stressed:

The main issue in this case is whether or not

petitioner can enforce a compromise agreement to which she
was not a party.

This issue has already been squarely settled by this

Court in the negative in J.M. Tuason & Co., Inc. v.
Cadampog (7 SCRA 808 [1963]) where it was ruled that
appellant is not entitled to enforce a compromise agreement
to which he was not a party and that as to its effect and
scope, it has been determined in the sense that its effectivity
if at all, is limited to the parties thereto and those mentioned
in the exhibits (J.M. Tuason & Co., Inc. v. Aguirre, 7 SCRA
112 [1963]). It was reiterated later that a compromise
agreement cannot bind persons who are not parties thereto
(Guerrero v. C.A., 29 SCRA 791 [1969]).

Counsel for
Pozorrubio,

Pang.

The persons whose names were typewritten on the compromise

agreement signed above their names. Gregorio Valdezs name, on the other
hand, as well as the role he played in the execution of the document, was not
typewritten on the document. His signature, however, appears on the same
line as the phrase assisted by just above the signature of Atty. Caldito.
Petitioner Segundo Ramos swears that he did not see Gregorio Valdez sign
the document at the time of the execution of the same. [13] Witness for
petitioners, Leonardo Quesora, who was present at the time of the execution
of the compromise agreement, likewise testified that he did not see Gregorio
Valdez sign.[14] Moreover, none of the private respondents or their witnesses
testified as to having witnessed Gregorio Valdez sign the compromise
agreement.

Consequently, Gregorio Valdez not being a party to the compromise

agreement, his heirs (private respondents) cannot sue for its performance.

Be that as it may, private respondents additionally harp on the

reference to their father made in the body of the compromise agreement itself
which they claim is proof of renunciation of subject land by petitioners in
favor of their father, to wit:

2.
That the applicants Segundo Ramos and
Felisa Valdez hereby also quitclaim and renounce whatever
rights in the document registered under entry No. 377847
annotated at the back of O.C.T. No. 48824 of Gregorio
Valdez;

142

Contrary to the position taken by private respondents, the reference

to their father, Gregorio Valdez, seems to us to be a mere description of the
land being renounced. Nothing in the compromise agreement would suggest
that the renunciation of the subject land was to be made in Gregorio Valdezs
favor. Verily, for this Court to interpret the stipulation as conferring some
right to a third person (i.e., stipulation pour autrui), the following requisites
must concur:

1.
stipulation in favor of a third person;
2.

There

must

be

The stipulation in favor of a third person should be a

part, not the whole, of the contract;

3.

The contracting parties must have clearly and

deliberately conferred a favor upon a third person, not a
mere incidental benefit or interest;

4.

The third person must have communicated

acceptance to the obligor before its revocation; and

5.

Neither of the contracting parties bears the legal

representation or authorization of the third party. [18]

his

To constitute a valid stipulation pour autrie, it must be the purpose

and intent of the stipulating parties to benefit the third person, and it is not
sufficient that the third person may be incidentally benefited by the
stipulation.[19] In herein case, from the testimony of petitioner Segundo
Ramos who is undoubtedly a party to the compromise agreement, and from
the rest of the evidence on hand, any benefit which accrued to private
respondents father was merely incidental.

WHEREFORE, premises considered, the Decision of the Court of

Appeals dated 31 July 1997 is REVERSED and SET ASIDE. The Decision of
the Regional Trial Court of Urdaneta, Pangasinan, Branch 48, insofar as it
dismissed the complaint filed by herein private respondents, is hereby
AFFIRMED. No costs.

SO ORDERED.

G.R. No. L-22331

June 6, 1967

IN RE: PETITION FOR CONSOLIDATION OF TITLE IN THE VENDEES OF

A HOUSE AND THE RIGHTS TO A LOT.
MARIA BAUTISTA VDA. DE REYES, ET AL., vendees-petitioners-appellees.
RODOLFO LANUZA, vendor,
vs.
MARTIN DE LEON, intervenor-appellant.
Erasmo R. Cruz and C. R. Pascual for intervenor-appellant.
Augusto J. Salas for vendees-petitioners-appellees.
REGALA, J.:
Rodolfo Lanuza and his wife Belen were the owners of a two-story house built
on a lot of the Maria Guizon Subdivision in Tondo, Manila, which the
spouses leased from the Consolidated Asiatic Co. On January 12, 1961,
Lanuza executed a document entitled "Deed of Sale with Right to
Repurchase" whereby he conveyed to Maria Bautista Vda. de Reyes and
Aurelia R. Navarro the house, together with the leasehold rights to the lot, a
television set and a refrigerator in consideration of the sum of P3,000. The
deed reads:
DEED OF SALE WITH RIGHT TO REPURCHASE KNOW ALL
MEN BY THESE PRESENTS:
That I, RODOLFO LANUZA, Filipino, of legal age, married to
Belen Geronimo, and residing at 783-D Interior 14 Maria
Guizon, Gagalangin, Tondo, Manila, hereby declare that I am
the true and absolute owner of a new two storey house of
strong materials, constructed on a rented lot Lot No. 12 of
the Maria Guizon Subdivision, owned by the Consolidated
Asiatic Co. as evidenced by the attached Receipt No. 292,
and the plan of the subdivision, owned by said company.
That for and in consideration of the sum of THREE
THOUSAND PESOS (P3,000.00) which I have received this
day from Mrs. Maria Bautista Vda. de Reyes, Filipino, of legal
age, widow; and Aurelia Reyes, married to Jose S. Navarro,
Filipinos, of legal ages, and residing at 1112 Antipolo St.,
Tondo, Manila, I hereby SELL, CEDE, TRANSFER, AND
CONVEY unto said Maria Bautista Vda. de Reyes, her heirs,
succesors, administrators and assigns said house, including
my right to the lot on which it was constructed, and also my
television, and frigidaire "Kelvinator" of nine cubic feet in
size, under the following conditions:

143

I hereby reserve for myself, my heirs, successors,

administrators, and assigns the right to repurchase the
above mentioned properties for the same amount of
P3,000.00, without interest, within the stipulated period of
three (3) months from the date hereof. If I fail to pay said
amount of P3,000.00, within the stipulated period of three
months, my right to repurchase the said properties shall be
forfeited and the ownership thereto shall automatically pass
to Mrs. Maria Bautista Vda. de Reyes, her heirs, successors,
administrators, and assigns, without any Court intervention,
and they can take possession of the same.1wph1.t
IN WITNESS WHEREOF, we have signed this contract in the
City of Manila, this 12th day of January, 1961.
s/t RODOLFO LANUZA
Vendor

s/t MARIA BAUTISTA VDA. DE REYES

Vendee

s/t AURELIA REYES

Vendee

WITH MY MARITAL CONSENT:

s/t JOSE S. NAVARRO

When the original period of redemption expired, the parties extended it to

July 12, 1961 by an annotation to this effect on the left margin of the
instrument. Lanuza's wife, who did not sign the deed, this time signed her
name below the annotation.
It appears that after the execution of this instrument, Lanuza and his wife
mortgaged the same house in favor of Martin de Leon to secure the payment
of P2,720 within one year. This mortgage was executed on October 4, 1961
and recorded in the Office of the Register of Deeds of Manila on November 8,
1961 under the provisions of Act No. 3344.
As the Lanuzas failed to pay their obligation, De Leon filed in the sheriff's
office on October 5, 1962 a petition for the extra-judicial foreclosure of the
mortgage. On the other hand, Reyes and Navarro followed suit by filing in the
Court of First Instance of Manila a petition for the consolidation of ownership
of the house on the ground that the period of redemption expired on July 12,
1961 without the vendees exercising their right of repurchase. The petition
for consolidation of ownership was filed on October 19. On October 23, the
house was sold to De Leon as the only bidder at the sheriffs sale. De Leon
immediately took possession of the house, secured a discharge of the
mortgage on the house in favor of a rural bank by paying P2,000 and, on
October 29, intervened in court and asked for the dismissal of the petition

filed by Reyes and Navarro on the ground that the unrecorded pacto de
retro sale could not affect his rights as a third party.
The parties1 thereafter entered into a stipulation of facts on which this
opinion is mainly based and submitted the case for decision. In confirming
the ownership of Reyes and Navarro in the house and the leasehold right to
the lot, the court said:
It is true that the original deed of sale with pacto de retro, dated
January 12, 1961, was not signed by Belen Geronimo-Lanuza, wife
of the vendor a retro, Rodolfo Lanuza, at the time of its execution. It
appears, however, that on the occasion of the extension of the period
for repurchase to July 12, 1961, Belen Geronimo-Lanuza signed
giving her approval and conformity. This act, in effect, constitutes
ratification or confirmation of the contract (Annex "A" Stipulation) by
Belen Geronimo-Lanuza, which ratification validated the act of
Rodolfo Lanuza from the moment of the execution of the said
contract. In short, such ratification had the effect of purging the
contract (Annex "A" Stipulation) of any defect which it might have
had from the moment of its execution. (Article 1396, New Civil Code
of the Philippines; Tang Ah Chan and Kwong Koon vs. Gonzales, 52
Phil. 180)
Again, it is to be noted that while it is true that the original contract
of sale with right to repurchase in favor of the petitioners (Annex "A"
Stipulation) was not signed by Belen Geronimo-Lanuza, such failure
to sign, to the mind of the Court, made the contract merely voidable,
if at all, and, therefore, susceptible of ratification. Hence, the
subsequent ratification of the said contract by Belen GeronimoLanuza validated the said contract even before the property in
question was mortgaged in favor of the intervenor.
It is also contended by the intervenor that the contract of sale with
right to repurchase should be interpreted as a mere equitable
mortgage. Consequently, it is argued that the same cannot form the
basis for a judicial petition for consolidation of title over the property
in litigation. This argument is based on the fact that the vendors a
retro continued in possession of the property after the execution of
the deed of sale with pacto de retro. The mere fact, however, that the
vendors a retro continued in the possession of the property in
question cannot justify an outright declaration that the sale should
be construed as an equitable mortgage and not a sale with right to
repurchase. The terms of the deed of sale with right to repurchase
(Annex "A" Stipulation) relied upon by the petitioners must be
considered as merely an equitable mortgage for the reason that after
the expiration of the period of repurchase of three months from
January 12, 1961.

144

Article 1602 of the New Civil Code provides:

"ART. 1602. The contract shall be presumed to be in
equitable mortgage, in any of the following cases;
xxx

xxx

xxx

"(3) When upon or after the expiration of the right to repurchase

another instrument extending the period of redemption or granting a
new period is executed.
xxx

xxx

xxx

In the present case, it appears, however, that no other instrument

was executed between the parties extending the period of
redemption. What was done was simply to annotate on the deed of
sale with right to repurchase (Annex "A" Stipulation) that "the period
to repurchase, extended as requested until July 12, 1961." Needless
to say, the purchasers a retro, in the exercise of their freedom to
make contracts, have the power to extend the period of repurchase.
Such extension is valid and effective as it is not contrary to any
provision of law. (Umale vs. Fernandez, 28 Phil. 89, 93)
The deed of sale with right to repurchase (Annex "A" Stipulation) is
embodied in a public document. Consequently, the same is sufficient
for the purpose of transferring the rights of the vendors a retro over
the property in question in favor of the petitioners. It is to be noted
that the deed of sale with right to repurchase (Annex "A" Stipulation)
was executed on January 12, 1961, which was very much ahead in
point of time to the execution of the real estate mortgage on October
4, 1961, in favor of intervenor (Annex "B" Stipulation). It is obvious,
therefore, that when the mortgagors, Rodolfo Lanuza and Belen
Geronimo Lanuza, executed the real estate mortgage in favor of the
intervenor, they were no longer the absolute owners of the property
since the same had already been sold a retro to the petitioners. The
spouses Lanuza, therefore, could no longer constitute a valid
mortgage over the property inasmuch as they did not have any free
disposition of the property mortgaged. (Article 2085, New Civil Code.)
For a valid mortgage to exist, ownership of the property mortgaged is
an essential requisite. A mortgage executed by one who is not the
owner of the property mortgaged is without legal existence and the
registration cannot validate. (Philippine National Bank vs. Rocha, 55
Phil. 497).
The intervenor invokes the provisions of article 1544 of the New Civil
Code for the reason that while the real estate mortgage in his favor
(Annex "B" Stipulation) has been registered with the Register of
Deeds of Manila under the provisions of Act No. 3344 on November

3, 1961, the deed of sale with right to repurchase (Annex "A"

Stipulation) however, has not been duly registered. Article 1544 of
the New Civil Code, however, refers to the sale of the same property
to two or more vendees. This provision of law, therefore, is not
applicable to the present case which does not involve sale of the
same property to two or more vendees. Furthermore, the mere
registration of the property mortgaged in favor of the intervenor
under Act No. 3344 does not prejudice the interests of the petitioners
who have a better right over the property in question under the old
principle of first in time, better in right. (Gallardo vs. Gallardo, C.B.,
46 O.G. 5568)
De Leon appealed directly to this Court, contending (1) that the sale in
question is not only voidable but void ab initio for having been made by
Lanuza without the consent of his wife; (2) that the pacto de retro sale is in
reality an equitable mortgage and therefore can not be the basis of a petition
for consolidation of ownership; and (3) that at any rate the sale, being
unrecorded, cannot affect third parties.
We are in accord with the trial court's ruling that a conveyance of real
property of the conjugal partnership made by the husband without the
consent of his wife is merely voidable. This is clear from article 173 of the
Civil Code which gives the wife ten years within which to bring an action for
annulment. As such it can be ratified as Lanuza's wife in effect did in this
case when she gave her conformity to the extension of the period of
redemption by signing the annotation on the margin of the deed. We may add
that actions for the annulment of voidable contracts can be brought only by
those who are bound under it, either principally or subsidiarily (art. 1397),
so that if there was anyone who could have questioned the sale on this
ground it was Lanuza's wife alone.
We also agree with the lower court that between an unrecorded sale of a prior
date and a recorded mortgage of a later date the former is preferred to the
latter for the reason that if the original owner had parted with his ownership
of the thing sold then he no longer had the ownership and free disposal of
that thing so as to be able to mortgage it again. Registration of the mortgage
under Act No. 3344 would, in such case, be of no moment since it is
understood to be without prejudice to the better right of third parties. 2 Nor
would it avail the mortgagee any to assert that he is in actual possession of
the property for the execution of the conveyance in a public instrument
earlier was equivalent to the delivery of the thing sold to the vendee. 3
But there is one aspect of this case which leads us to a different conclusion.
It is a point which neither the parties nor the trial court appear to have
sufficiently considered. We refer to the nature of the so-called "Deed of Sale
with Right to Repurchase" and the claim that it is in reality an equitable
mortgage. While De Leon raised the question below and again in this Court in

145

his second assignment of error, he has not demonstrated his point; neither
has he pursued the logical implication of his argument beyond stating that a
petition for consolidation of ownership is an inappropriate remedy to enforce
a mortgage.
De Leon based his claim that the pacto de retro sale is actually an equitable
mortgage on the fact that, first, the supposed vendors (the Lanuzas)
remained in possession of the thing sold and, second, when the three-month
period of redemption expired the parties extended it. These are
circumstances which indeed indicate an equitable mortgage. 4 But their
relevance emerges only when they are seen in the perspective of other
circumstances which indubitably show that what was intended was a
mortgage and not a sale.These circumstances are:
1. The gross inadequacy of the price. In the discussion in the briefs of the
parties as well as in the decision of the trial court, the fact has not been
mentioned that for the price of P3,000, the supposed vendors "sold" not only
their house, which they described as new and as being made of strong
materials and which alone had an assessed value of P4,000, but also their
leasehold right television set and refrigerator, "Kelvinator of nine cubic feet in
size." indeed, the petition for consolidation of ownership is limited to the
house and the leasehold right, while the stipulation of facts of the parties
merely referred to the object of the sale as "the property in question." The
failure to highlight this point, that is, the gross inadequacy of the price paid,
accounts for the error in determining the true agreement of the parties to the
deed.
2. The non-transmission of ownership to the vendees. The Lanuzas, the
supposed vendors did not really transfer their ownership of the properties in
question to Reyes and Navarro. What was agreed was that ownership of the
things supposedly sold would vest in the vendees only if the vendors failed to
pay P3,000. In fact the emphasis is on the vendors payment of the amount
rather than on the redemption of the things supposedly sold. Thus, the deed
recites that
If I (Lanuza) fail to pay said amount of P3,000.00 within the
stipulated period of three months, my right to repurchase the said
properties shall be forfeited and the ownership thereto automatically
pass to Mrs. Maria Bautista Vda. de Reyes . . . without any Court
intervention and they can take possession of the same.
This stipulation is contrary to the nature of a true pacto de retro sale under
which a vendee acquires ownership of the thing sold immediately upon
execution of the sale, subject only to the vendor's right of
redemption.5 Indeed, what the parties established by this stipulation is
an odious pactum commissorium which enables the mortgages to acquire
ownership of the mortgaged properties without need of foreclosure

proceedings. Needless to say, such a stipulation is a nullity, being contrary to

the provisions of article 2088 of the Civil Code. 6 Its insertion in the contract
of the parties is an avowal of an intention to mortgage rather than to sell. 7
3. The delay in the filing of the petition for consolidation. Still another point
obviously overlooked in the consideration of this case is the fact that the
period of redemption expired on July 12, 1961 and yet this action was not
brought until October 19, 1962 and only after De Leon had asked on October
5, 1962 for the extra-judicial for closure of his mortgage. All the while, the
Lanuzas remained in possession of the properties they were supposed to
have sold and they remained in possession even long after they had lost their
right of redemption.
Under these circumstances we cannot but conclude that the deed in question
is in reality a mortgage. This conclusion is of far-reaching consequence
because it means not only that this action for consolidation of ownership is
improper, as De Leon claims, but, what is more that between the unrecorded
deed of Reyes and Navarro which we hold to be an equitable mortgage, and
the registered mortgage of De Leon, the latter must be preferred. Preference
of mortgage credits is determined by the priority of registration of the
mortgages,8 following the maxim "Prior tempore potior jure" (He who is first in
time is preferred in right.)9 Under article 2125 of the Civil Code, the equitable
mortgage, while valid between Reyes and Navarro, on the one hand, and the
Lanuzas, on the other, as the immediate parties thereto, cannot prevail over
the registered mortgage of De Leon.
Wherefore, the decision appealed from is reversed, hence, the petition for
consolidation is dismissed. Costs against Reyes and Navarro.

G.R. No. L-22538

October 31, 1967

PHILIPPINE NATIONAL BANK, petitioner-appellee,

vs.
PRIMITIVA MALLORCA, oppositor-appellant.
Ramon B. de los Reyes for petitioner-appellee.
Eugenio G. Gemarino for oppositor-appellant.
SANCHEZ, J.:
Disputed by appellant Primitiva Mallorca is the correctness of the order of
the Court of First Instance of Iloilo, sitting as a Cadastral Court, 1 directing

146

her to surrender to the Register of Deeds her co-owner's copy of Transfer

On February 9, 1960, judgment was rendered in the case just stated,

Certificate of Title No. T-24256. This is necessary to enable Philippine

dismissing the claim for damages but declaring Mallorca "entitled to exercise

National Bank to secure in its name Torrens title to the property involved

her right of redemption with respect to the 20,000 square meters sold to her

which it acquired in a foreclosure sale upon mortgage executed in its favor.

by Ruperta Lavilles within the period specified by law."

The background facts may be recited as follows:

Mallorca's appeal from this judgment was, on June 18, 1960, denied by the
lower court it was filed out of time. Her move to reconsider was rejected.

Way back in 1950, Ruperta Lavilles mortgaged a 48.965 square meter-parcel

She then went to the Court of Appeals on mandamus. On January 14, 1961,

of land situated in Passi, Iloilo (Lot 1504, Passi Cadastral Survey) to the PNB

the appellate court denied the same for lack of merit. 5

as security for a loan of P1,800.00. The lot was covered by Transfer

Certificate of Title 27070 in the name of Ruperta Lavilles. The mortgage was

Primitiva Mallorca failed to exercise her right of redemption as decreed by the

duly recorded.

court.

On January 12, 1958, while the mortgage above-described was in full force

Thus, the final deed of sale in favor of PNB, dated February 19, 1962, was

and effect, and without PNB's knowledge and consent, Ruperta Lavilles sold

presented to the Register of Deeds on April 10, for registration. The latter

the appellant Primitiva Mallorca 20,000 square meters of the mortgaged land.

refused to register without Mallorca's co-owner's copy of TCT 24256. By letter

of May 18, 1962, the Register of Deeds required Mallorca to surrender said

On January 17, 1958, Mallorca moved the Iloilo cadastral court to have the

copy. She did not comply.

sale to her duly annotated on the title,3 and, for the purpose, to require PNB
to surrender the owner's copy of TCT 27070 to the Register of Deeds.

And so, PNB lodged the present petition for consolidation of title in the
cadastral court. The bank prayed that Mallorca's co-owner's copy of TCT

The court order of February 3, 1958 directed PNB to deliver said TCT 27070

24256 be declared null and void, and that the Register of Deeds be directed

to the Register of Deeds, and warned that "[t]he mortgage in favor of the

to cancel the same and to issue a new title in the name of PNB, upon

Philippine National Bank is duly registered in the Office of the Register of

payment of the legal fees.

Deeds and to whomsoever the land is sold the vendee will assume the
responsibility of complying with the provisions of the mortgage."

By order of August 18, 1962, the court a quo required Mallorca "to deliver the
co-owner's duplicate copy of TCT 24256 to the Register of Deeds within a

The Register of Deeds then cancelled TCT 27070, issued a new one, TCT

period of five (5) days."

24256, making two co-owner's copies of the title one each for Ruperta
Lavilles and for Primitiva Mallorca. PNB's mortgage lien was annotated on

Mallorca appealed this order to the Court of Appeals. 6 The latter, however, in

both copies.

its resolution of February 18, 1964, certified the case to this Court, as the
issues present questions of law.

Ruperta Lavilles failed to pay her mortgage debt. PNB, on April 16, 1958
foreclosed the mortgage extrajudicially. On May 12, 1958, a certificate of sale

1. Appellant's stand is that her undivided interest consisting of 20,000

was issued to PNB as the highest bidder in the foreclosure sale. This

square meters of the mortgaged lot, remained unaffected by the foreclosure

certificate of sale was registered with the Register of Deeds of Iloilo.

and subsequent sale to PNB. Because, so she argues, she was not a party to
the real estate mortgage in favor of PNB, and she "neither secured nor

In March, 1959 Mallorca sued PNB to enforce her right of redemption with
damages.

contracted a loan" with said bank. What PNB foreclosed, she maintains, "was

147

that portion belonging to Ruperta Lavilles only," not the part belonging to

On Primitiva Mallorca's part, she cannot rightfully deny the mortgage lien on

her.

the portion of the land she purchased. First. Registration of the mortgage in
the Register of Deeds is notice to all persons of the existence

Appellant's position clashes with precepts well-entrenched in law. By Article

thereof.16 Second. By express provision of Section 39 of the Land Registration

2126 of the Civil Code,7 a "mortgage directly and immediately subjects the

Act, "every subsequent purchaser of registered land who takes a certificate of

property upon which it is imposed, whoever the possessor may be, to the

title for value in good faith shall hold the same free of all encumbranceexcept

fulfillment of the obligation for whose security it was constituted." Sale or

those noted on said certificate."17 Clear implication exists that if an

transfer cannot affect or release the mortgage. A purchaser is necessarily

encumbrance is so noted, that purchaser is bound thereby. Third. Mallorca

bound to acknowledge and respect the encumbrance to which is subjected

herself petitioned the court to order PNB to deliver the owner's copy of TCT

the purchased thing and which is at the disposal of the creditor "in order

27070 to the Register of Deeds for annotation of Mallorca's interest, as

that he, under the terms of the contract, may recover the amount of his

heretofore adverted to. And the court, in giving its stamp of approval to the

credit therefrom."8 For, a recorded real estate is a right in rem, a lien on the

petition, expressly directed that "to whomsoever the land is sold the vendee

property whoever its owner may be.9 Because the personality of the owner is

will assume the responsibility of complying with the provisions of the

disregarded; the mortgage subsists notwithstanding changes of ownership;

mortgage." Fourth. Mallorca's own co-owner's copy of the title issued to her

the last transferee is just as much of a debtor as the first one; and this,

carried PNB's mortgage lien. Fifth. The fact that Mallorca failed to exercise

independent of whether the transferee knows or not the person of the

her right of redemption, which she sought to enforce in a judicial court, ends

mortgagee.10 So it is, that a mortgage lien is inseparable from the property

her interest to the land she claims, and, doubtless, estops her from denying

mortgaged. All subsequent purchasers thereof, must respect the mortgage,

PNB's mortgage lien thereon.

whether the transfer to them be with or without the consent of the mortgagee.
For, the mortgage, until discharge,follows the property.11

We, accordingly, rule that PNB has the right to consolidate its title on the
entire lot mortgaged by Ruperta Lavilles in its favor, including the 20,000

And then, militating against appellant's cause is one other special feature of

square meter-undivided interest of Primitiva Mallorca. And this, by virtue of

a real mortgage its indivisibility.12This Court has understood mortgage

the foreclosure sale and the expiry of Mallorca's right of redemption.

indivisibility in the sense that each and every parcel under mortgage answers
for the totality of the debt.13

2. In a final effort to overturn the order under review, appellant espouses the
thesis that the lower court, acting as a cadastral court, is without

It does not really matter that the mortgagee, as in this case, did not oppose

jurisdiction in the premises. Her syllogism is this: she is questioning the

the subsequent sale. Naturally, because the sale was without PNB's

right of PNB to declare TCT 24256 as null and void insofar as the 20,000

knowledge. Even if such knowledge is chargeable to PNB, its failure to object

square meter-undivided portion is concerned; the issue is thus raised to the

to the sale could not have any impairing effect upon its rights as mortgagee.

level of "contentious litigation"; and, going by jurisprudence,18 a cadastral

After all, a real mortgage is merely an encumbrance; it does not extinguish

court is devoid of power to act thereon.

the title of the debtor, whose right to dispose a principal attribute of

ownership is not thereby lost.14 And, on the assumption that PNB

The precedents appellant depends on cannot serve as authority in her case.

recognized the efficaciousness of the sale by Ruperta Lavilles of a portion of

For, those cases involvedunresolved issues. Here, the question she presents

the mortgaged land to Primitiva Mallorca, which Lavilles "had the right to

whether her undivided share in the lot is encumbered or unencumbered

make" and which anyway PNB "cannot oppose", PNB cannot be prejudiced

has been definitely passed upon in the redemption case she brought against

thereby, for, at all events, "such sale could not affect the mortgage, as the

PNB (Civil Case 5149, Court of First Instance of Iloilo). Mallorca herself

latter follows the property whoever the possessor may be." 15

acknowledge the validity of that encumbrance when she commenced said

civil case. Given the facts, PNB's petition to consolidate title falls under the

148

rule that a cadastral court has jurisdiction to entertain a petition for the

certified to this Court by the Court of Appeals upon the ground that only

cancellation of an outstanding certificate of title where registered owner has

questions of law are involved in the appeal.

been lawfully divested of his title thereof.

19

For, the truth is that this case

presents no substantial controversy. As held in the case of Castillo vs.

The facts are not disputed. It appears that Rufina Camino and Pastor Eco

Ramos, supra, pp. 814-815

were the registered owners of a parcel of land, with an area of 10.7791

hectares, covered by Transfer Certificate of Title No. T-398. The said parcel of

where a petition concerning the cancellation of any encumbrance

land was cultivated by the spouses Fermin Bobis and Emilia Guadalupe. On

noted on a Torrens certificate of title is filed within the record of the

July 25, 1950, one Alfonso Ortega filed a complaint against Rufina Camino,

land registration case in which the basic decree was entered and

Pastor Eco, Emilia Guadalupe, and Fermin Bobis with the Court of First

there is no substantial controversy in regard thereto between the

Instance of Camarines Norte, docketed therein as Civil Case No. 273, for the

petitioner and any other interested party, such petition may be

recovery of possession of one-half (1/2) of the cleared and planted portion of

considered as a mere incidental matter in such land registration case

the land, or the payment of the amount of P1,650.00, the value of the

and may therein be acted upon the proper court.

20

improvements introduced by him on the parcel of land in question. On

August 16, 1950, the parties executed a compromise agreement whereby they

Upon the record as it stands, the lower court order of August 18, 1962 is, as

agreed:

it is hereby, affirmed.
1. The defendants Rufina Camino and Pastor Eco shall pay
the plaintiff the sum of One Hundred Forty Pesos (P 140.00)

Costs against oppositor-appellant. So ordered.

Philippine Currency, as full payment for all the

improvements (coconuts and bananas) introduced by the
plaintiff in the land in question, payable on February 28,
G.R. No. L-29838 March 18, 1983

1951;

FERMIN BOBIS and EMILIA GUADALUPE, plaintiffs-appellants

2. That plaintiff has no other claim against the defendants

vs.

except for the improvements;

THE PROVINCIAL SHERIFF OF CAMARINES NORTE and ZOSIMO

RIVERA, defendants-appellees.

3. That hereafter, the plaintiff shall recognize and respect the

Tomas Trinidad for plaintiffs-appellants.

and

James Pajares for defendants-appellees.

4. That plaintiff in consideration of this amicable settlement

absolute and exclusive ownership of the land in question;

renounces his claim for damages.

On August 26, 1950, Rufina Camino and Pastor Eco sold the parcel of land

CONCEPCION, JR., J.:

Appeal from the judgment of the Court of First Instance of Camarines Norte,
dismissing the complaint for the annulment of an execution sale, which was

to their co-defendants, spouses Fermin Bobis and Emilia Guadalupe, and

TCT No. T-838 was issued in their names. On January 19, 1951, the parties
submitted the compromise agreement to the court; and on January 22,
1951, the court promulgated a decision, approving the said compromise
agreement.

149

The defendants Rufina Camino and Pastor Eco, however, only paid the

On March 4,1960, Fermin Bobis and Emilia Guadalupe filed the instant

amount of P50.00 to Alfonso Ortega when the obligation became due on

action against the Provincial Sheriff of Camarines Norte and Zosimo Rivera

February 28, 1951. As a result, a writ of execution was issued on July 18,

with the Court of First Instance of Camarines Norte, docketed therein as Civil

1951, commanding the Provincial Sheriff of Camarines Norte that the goods

Case No. 1169, for the annulment of the sheriff's deed of sale and for

and chattels of the defendants Rufina Camino, Pastor Eco, Emilia

damages, upon the ground that the writ of execution issued in Civil Case No.

Guadalupe, and Fermin Bobis be caused to be made the sum of P140.00.

273 was not in conformity with the judgment rendered therein and therefore,

Consequently, the Sheriff levied upon the land which Rufina Camino and

void and of no legal effect. Upon the filing of the complaint, the court ordered

Pastor Eco had sold to Fermin Bobis and Emilia Guadalupe. Upon learning of

the release of Emilia Guadalupe who had been confined in jail for about 8

the levy on execution, Emilia Guadalupe and Fermin Bobis filed a motion

months.

seeking the modification of the writ of execution to exclude them therefrom

because under the judgment sought to be executed only the defendants

On June 3, 1964, the trial court rendered a decision, the dispositive portion

Rufina Camino and Pastor Eco were obligated to pay the plaintiff Alfonso

of which reads, as follows:

Ortega. But, the trial court denied the motion. Subsequently, on September
3, 1951, the Provincial Sheriff sold the parcel of land in question at an

IN VIEW OF THE FOREGOING judgment is hereby rendered

execution sale to Zosimo Rivera, the highest bidder.

(a) dismissing the complaint with costs against the plaintiffs;

(b) declaring the sale executed by Camino and Eco in favor of

After the expiration of one year, or on September 17, 1952, with neither

Emilia Guadalupe rescinded; (c) declaring the sale executed

Rufina Camino, Pastor Eco, Emilia Guadalupe, nor Fermin Bobis exercising

by defendant Provincial Sheriff in favor of Zosimo Rivera

the right of redemption, the Provincial Sheriff executed an Officer's Deed of

valid and legal; (d) declaring said defendant Zosimo Rivera

Sale of the land in favor of the said Zosimo Rivera. The Officer's Deed of Sale

the owner of the land described in the complaint; and (e)

was submitted to, and approved by, the trial court on March 23, 1953.

ordering Emilia Guadalupe to execute a deed of conveyance

in favor of defendant Zosimo Rivera. 1

Thereupon, Zosimo Rivera asked for a writ of possession. The Provincial

Fiscal of Camarines Norte, in his capacity as ex oficio Register of Deeds of the

The plaintiffs appealed to the Court of Appeals, but the latter court elevated

province, also filed a motion praying that Emilia Guadalupe be directed to

the case to this Court for final determination for the reason that only

surrender the owner's duplicate of TCT No. T-838 so that the Sheriff's sale

questions of law are involved in the appeal.

could be annotated therein. The court granted both motions and directed the
issuance of a writ of possession, and ordered Emilia Guadalupe to surrender

The appellants contend that the trial court erred:

the owner's duplicate copy of TCT No. T-838 within five (5) days from notice.
Emilia Guadalupe, however, did not surrender her duplicate copy of the

1. In declaring that the sale executed by the provincial

certificate of title and, instead, filed a motion for the reconsideration of the

Sheriff in favor of Zosimo Rivera valid and legal and that

order. The motion for reconsideration was denied by the court, but still,

Zosimo Rivera is now the owner of the land in question;

Emilia Guadalupe refused to surrender the owner's duplicate copy of the

certificate of title. Nor did she vacate the land despite the writ of possession.
As a result, a petition to declare her in contempt of court was filed. After due
hearing, Emilia Guadalupe was declared guilty of contempt for disobeying a
lawful order and for obstructing the administration of justice and sentenced

2. In dismissing the complaint for annulment of the sale

made by the Provincial Sheriff which is void from the
beginning;

to undergo imprisonment until such time as she complies with the orders of
the court.

150

3. In declaring the sale executed by Camino and Eco in favor

were included as party defendants, the spouses Fermin Bobis and Emilia

of Emilia Guadalupe rescinded when there is no action for

Guadalupe were not ordered to pay Alfonso Ortega. Obviously, they were

the same;

absolved from liability. Accordingly, as to them, there was nothing to execute

since they have been absolved from liability. When, therefore, the lower court,

4. In ordering Emilia Guadalupe to execute a deed of

in issuing the writ of execution of the judgment, commanded the Provincial

conveyance in favor of defendant Zosimo Rivera when the

Sheriff that the goods and chattels of the defendants Rufina Camino and

property is of the conjugal partnership of Fermin Bobis and

Pastor Eco, Emilia Guadalupe and Fermin Bobis be caused to be made the

Emilia Guadalupe; and

sum of P140.00 whereby making the spouses Fermin Bobis and Emilia
Guadalupe equally liable for the judgment debt of the spouses Rufina

5. In not granting damages against Zosimo Rivera and the

Camino and Pastor Eco, adding to the judgment sought to be executed a new

Provincial Sheriff when the machination to deprive plaintiffs

relief, it acted in excess of jurisdiction, if not abuse of authority. As the late

of their land is very evident in their actuations not only

Chief Justice Moran says in his Comments on the Rules of Court, "The writ

because of the ridiculously niggardly price but also because

of execution must conform to the judgment which is to be executed, as it may

the true plaintiff (Ortega) was not benefited by the sale.

not vary the terms of the judgment it seeks to enforce. Nor may it go beyond
the terms of the judgment sought to be executed. Where the execution is not

We find the appeal impressed with merit. The writ of execution issued in Civil

in harmony with the judgment which gives it life and exceeds it, it has pro

Case No. 273 is null and void with respect to the spouses Fermin Bobis and

tanto no validity. To maintain otherwise would be to ignore the constitutional

Emilia Guadalupe; hence, the sale of their property at a subsequent sale at

provision against depriving a person of his property without due process of

public auction to the defendant Zosimo Rivera is, likewise, void and of no

law."

legal effect. The judgment rendered in Civil Case No. 273 decreed:
Besides, the judgment rendered in Civil Case No. 273 was based upon a
l. That defendants Rufina Camino and Pastor Eco shall pay
the plaintiff the sum of One Hundred Forty Pesos (P 140.00)
Philippine Currency, as full payment for all the
improvements (coconut bananas) introduced by the plaintiff
in the land in question, payable on February 28, 1951;
2. That plaintiff has no other claim against the defendants
except for the improvements;
3. That hereafter, the plaintiff shall recognize and respect the
absolute and exclusive ownership of the land in question;
and
4. That plaintiff in consideration of this amicable settlement
renounces his claim for damages.
As will be seen, only Rufina Camino and Pastor Eco were adjudged to pay

compromise agreement of the parties. In the case of Yboleon vs. Sison, 3 this
Court ruled that "a judge or court, which sets aside a judgment rendered
upon consent of the parties and based on a compromise entered into by
them, which is converted into such judgment, cannot amend or set it aside
without the consent of said parties, or without first having declared in an
incidental preliminary hearing that such compromise is vitiated by any of the
grounds for nullity enumerated in Article 1817 (now Art. 2038) of the Civil
Code." Since the modification and amendment of the judgment was made
unilaterally in the writ of execution, without any preliminary hearing, it was
unjustified.
It results that the writ of execution is null and void and of no legal effect with
respect to the spouses Fermin Bobis and Emilia Guadalupe. The annulment
of the writ of execution carries with it the annulment of the sale made by the
sheriff pursuant to the said writ, as well as the order of the court approving
the sale. The limbs cannot survive after the trunk has perished. 4

Alfonso Ortega the amount of P140.00 on February 28, 1951. Although they

151

Since the right of Zosimo Rivera over the land in question is derived from a

Rufina Camino and Pastor Eco had no other property except that parcel of

void execution sale, he acquired no title therein.

land they sold to the spouses Fermin Bobis and Emilia Guadalupe. Besides,
Alfonso Ortega knew of such sale and did nothing to have it annulled as in

Besides, Section 35, Rule 39 of the Rules of Court provides that a purchaser

fraud of creditors. Now did he cause a cautionary notice to be inscribed in

of real property at an execution sale "shall be substituted to and acquire all

the certificate of title to protect his interests. Moreover, the sale was not

the right, title, interest, and claim of the judgment debtor to the property as

fictitious, designed to escape payment of the obligation to Alfonso Ortega. The

of the time of the levy." It follows that if at that time the judgment debtor had

tenacity by which Emilia Guadalupe had clung to her property to the extent

no more right to, or interest in, the property because he had already sold it to

of undergoing imprisonment is indicative of their good faith.

another, then the purchaser acquires nothing. Such appears to be the case
here for it is not disputed that before the execution sale, and even before the

In his answer, the defendant Zosimo Rivera claimed that the appellant's

levy on execution, or the rendition of the judgment in Civil Case No. 273, the

cause of action is barred by a prior judgment. Apparently, the said defendant

judgment debtors Rufina Camino and Pastor Eco had already deeded the

was referring to the denial of the appellant's motion to modify the writ of

property to Fermin Bobis and Emilia Guadalupe and a new certificate of title

execution filed in Civil Case No. 273. However, the denial of the appellant's

was issued in the names of the vendees.

motion to modify the writ of execution, which for all purposes was a third
party claim, does not constitute a bar to another action even if no appeal was

In dismissing the complaint filed in the instant case, the trial court found

taken from the disapproval of the third party claim.

that the sale of the land to Fermin Bobis and Emilia Guadalupe was tainted

may file a separate reinvindicatory action against the execution creditor or

with fraud since the said sale was made during the pendency of Civil Case

the purchaser of the property at the sale at public auction. He may also file a

No. 273, and that the price was inadequate.

complaint for damages to be charged against the bond filed by the judgment

A third-party claimant

creditor in favor of the sheriff. Such reinvindicatory action is reserved to the

The rule, however, is that fraud is not presumed. As fraud is criminal in
5

nature, it must be proved by clear preponderance of evidence. In order that

a contract may be rescinded as in fraud of creditors, it is essential that it be
shown that both contracting parties have acted maliciously and with fraud
and for the purpose of prejudicing said creditors, and that the latter are
deprived by the transaction of all means by which they may effect collection
of their claims. All these circumstances must concur in a given case. The
presence of only one of them is not enough.

In this particular case, there is

third-party claimant by Section 17, Rule 39 of the Rules of Court despite the
disapproval of its claim by the court itself.
case,

10

Appeal is not proper in the

nor a writ of certiorari or prohibition.

11

With respect to the claim of the appellants for damages, it is the rule that
when the property of one person is taken by the sheriff upon an execution
against another person, the sheriff is liable as any private person would be
for wrongly taking property of another. But, such does not obtain in the

no evidence that the spouses Rufina Camino and Pastor Eco connived with

present case. The sheriff did not wrongfully take the property of the appellant

the spouses Fermin Bobis and Emilia Guadalupe to defraud Alfonso Ortega.

spouses Fermin Bobis and Emilia Guadalupe to satisfy the judgment debt of

Nor is there evidence to show that the sale of the land to Fermin Bobis and

another. The writ of execution specifically ordered him to cause the goods

Emilia Guadalupe tended to deprive Alfonso Ortega of means to collect his

and chattels of Emilia Guadalupe, Fermin Bobis, Rufina Camino, and Pastor

claim from the spouses Rufina Camino and Pastor Eco As a matter of fact, no

Eco to be made the sum of P140.00, and the sheriff merely followed the

oral or documentary evidence was presented by the parties, and the trial

order. The defect was in the writ of execution issued by the lower court and

court merely assumed that the sale to Fermin Bobis and Emilia Guadalupe

not in the levy or in the sale at public auction. Hence, no fault can be

was fraudulent because of the inadequacy of the price, and that the sale was

attributed to the sheriff. Therefore, he cannot be made liable for the damages

executed during the pendency of Civil Case No. 273. While these

incurred by the appellant spouses. Corollarily, no damages can also be

circumstances may be considered badges of fraud, 7the sale cannot be

recovered from the buyer of the property at the sale at public auction.

considered in fraud of creditors in the absence of proof that the vendors

152

WHEREFORE, the judgment appealed from should be, as it is hereby, SET

When Bai Tonina Sepi died, private respondent started remitting his

ASIDE and another one entered, declaring the writ of execution, dated July

rent to the court-appointed administrator of her estate. But when the

18, 1951, issued in Civil Case No. 273 of the Court of First Instance of

administrator advised him to stop collecting rentals from the tenants of the

Camarines Norte, entitled, "Alfonso Ortega, plaintiff, versus Rufina Camino,

buildings he constructed, he discovered that petitioner, representing himself

et al., defendants," the sale made by the sheriff pursuant to said writ, as well

as the new owner of the property, had been collecting rentals from the

as the order of the court approving said sale, null and void and of no legal

tenants. He thus filed a complaint against the latter, accusing petitioner of

effect with respect to the spouses Fermin Bobis and Emilia Guadalupe.

inducing the heirs of Bai Tonina Sepi to sell the property to him, thereby

Without pronouncement as to costs.

violating his leasehold rights over it.

In his answer to the complaint, petitioner denied that he induced the

SO ORDERED.

heirs of Bai Tonina to sell the property to him, contending that the heirs were
in dire need of money to pay off the obligations of the deceased. He also
denied interfering with private respondents leasehold rights as there was no
[G.R. No. 119107. March 18, 2005]

lease contract covering the property when he purchased it; that his personal
investigation and inquiry revealed no claims or encumbrances on the subject

JOSE V. LAGON, petitioner, vs. HONORABLE COURT OF APPEALS and

MENANDRO V. LAPUZ, respondents.
DECISION
CORONA, J.:
On June 23, 1982, petitioner Jose Lagon purchased from the estate of
Bai Tonina Sepi, through an intestate court, [1] two parcels of land located at
Tacurong, Sultan Kudarat. A few months after the sale, private respondent
Menandro Lapuz filed a complaint for torts and damages against petitioner
before the Regional Trial Court (RTC) of Sultan Kudarat.
In the complaint, private respondent, as then plaintiff, claimed that he
entered into a contract of lease with the late Bai Tonina Sepi Mengelen
Guiabar over three parcels of land (the property) in Sultan Kudarat,
Maguindanao beginning 1964. One of the provisions agreed upon was for
private respondent to put up commercial buildings which would, in turn, be
leased to new tenants. The rentals to be paid by those tenants would answer
for the rent private respondent was obligated to pay Bai Tonina Sepi for the
lease of the land. In 1974, the lease contract ended but since the
construction of the commercial buildings had yet to be completed, the lease

lots.
Petitioner claimed that before he bought the property, he went to Atty.
Benjamin Fajardo, the lawyer who allegedly notarized the lease contract
between private respondent and Bai Tonina Sepi, to verify if the parties
indeed renewed the lease contract after it expired in 1974. Petitioner averred
that Atty. Fajardo showed him four copies of the lease renewal but these were
all unsigned. To refute the existence of a lease contract, petitioner presented
in court a certification from the Office of the Clerk of Court confirming that
no record of any lease contract notarized by Atty. Fajardo had been entered
into their files. Petitioner added that he only learned of the alleged lease
contract when he was informed that private respondent was collecting rent
from the tenants of the building.
Finding the complaint for tortuous interference to be unwarranted,
petitioner filed his counterclaim and prayed for the payment of actual and
moral damages.
On July 29, 1986, the court a quo found for private respondent (plaintiff
below):
ACCORDINGLY, judgment is hereby rendered in favor of the plaintiff:

contract was allegedly renewed.

153

1.

Declaring the Contract of Lease executed by Bai Tonina

d)

Exemplary or corrective damages in the amount of

Sepi Mangelen Guiabar in favor of the plaintiff on

One Hundred Eighty Thousand Five Hundred Pesos

November 6, 1974 (Exh. A and A-1) over Lot No. 6395,

(P187,500.00)

Pls-73. Lot No 6396. Pls.-73. Lot No. 6399.

3ls-73, and

Lot no.9777-A. CSD-11-000076-D (Lot No. 3-A. 40124), all

e)

situated along Ledesma St., Tacurong, Sultan Kudarat,

Temperate or moderate damages in the amount of

Sixty Two Thousand Five Hundred Pesos (P62,500.00);

which document was notarized by Atty. Benjamin S.

Fajardo, Sr. and entered into his notarial register as Doc.

f)

No. 619. Page No. 24. Book No. II. Series of 1974, to be

Nominal damages in the amount of Sixty Two

Thousand Five Hundred Pesos (P62,500.00);

authentic and genuine and as such valid and binding for a

period of ten (10) years specified thereon from November 1,

g)

1974 up to October 31, 1984;

2.

Attorneys fees in the amount of One Hundred Twenty

Five Thousand Pesos (P125,000.00);

Declaring the plaintiff as the lawful owner of the

h)

commercial buildings found on the aforesaid lots and he is

Expenses of litigation in the amount of Sixty Two

Thousand Five Hundred Pesos (P62,500.00);

entitled to their possession and the collection (of rentals) of

the said commercial buildings within the period covered by

i)

this Contract of Lease in his favor;

Interest on the moral damages, actual or

compensatory damages temperate or moderate
damages, nominal damages, attorneys fees and

3.

Ordering the defendant to pay to the plaintiff the

expenses of litigation in the amounts as specified

following:

hereinabove from May 24, 1982 up to June 27, 1986, in

the total amount of Nine Hundred Thousand Pesos

a)

Rentals of the commercial buildings on the lots

(P900,000.00); all of which will continue to bear

covered by the Contract of Lease in favor of the

interests at a legal rate of 12% per annum until the

plaintiff for the period from October 1, 1978 up to

whole amounts are fully paid by the defendants to the

October 31, 1984, including accrued interests in the

plaintiffs;

total amount of Five Hundred Six Thousand Eight

Hundred Five Pesos and Fifty Six Centavos (P506,

4.

For failure of the defendant to deposit with this Court all

850.56), the same to continue to bear interest at the

the rentals he had collected from the thirteen (13) tenants

legal rate of 12% per annum until the whole amount is

or occupants of the commercial buildings in question, the

fully paid by the defendant to the plaintiff;

plaintiff is hereby restored to the possession of his

commercial buildings for a period of seventy-three (73)

b)

Moral damages in the amount of One Million Sixty

months which is the equivalent of the total period for which

Two Thousand Five Hundred Pesos (P1,062,500.00);

he was prevented from collecting the rentals from the

tenants or occupants of his commercial buildings from

c)

Actual or compensatory damages in the amount of

October 1, 1978 up to October 31, 1984, and for this

Three Hundred Twelve Thousand Five Hundred Pesos

purpose a Writ of Preliminary Injunction is hereby issued,

(P312, 500.00);

but the plaintiff is likewise ordered to pay to the defendant

the monthly rental of Seven Hundred Pesos (P700.00) every

154

end of the month for the entire period of seventy three (73)

other hand, private respondent insisted that it was impossible for petitioner

months. This portion of the judgment should be considered

not to know about the contract since the latter was aware that he was

as a mere alternative should the defendant fail to pay the

collecting rentals from the tenants of the building. While the appellate court

amount of Five Hundred Five Pesos and Fifty Six Centavos

disbelieved the contentions of both parties, it nevertheless held that, for

(P506,805.56) hereinabove specified;

petitioner to become liable for damages, he must have known of the lease
contract and must have also acted with malice or bad faith when he bought

5.

Dismissing the counterclaim interposed by the defendant

the subject parcels of land.

for lack of merit;

Via this petition for review, petitioner cites the following reasons why the
6.

With costs against the defendant.[2]

Court should rule in his favor:

Petitioner appealed the judgment to the Court of Appeals. [3] In a decision

1. The Honorable Court of Appeals seriously erred in holding that

dated January 31, 1995,[4] the appellate court modified the assailed

petitioner is liable for interference of contractual relation under

judgment of the trial court as follows:

Article 1314 of the New Civil Code;

a)

damages,

2. The Honorable Court of Appeals erred in not holding that private

compensatory damages, exemplary damages, temperate or

The

award

for

moral

respondent is precluded from recovering, if at all, because of

moderate damages, and nominal damages as well as expenses

laches;

of litigation in the amount ofP62,500.00 and interests under

paragraph 3-a(a), (b), (c), (d), (e), (f), (g), (h), and (i) are deleted;

3. The Honorable Court of Appeals erred in holding petitioner liable

for actual damages and attorneys fees, and;

b)

The award for attorneys fees is reduced

to P30,000.00;

4. The Honorable Court of Appeals erred in dismissing petitioners

counterclaims.[6]

c)

Paragraphs 1,2,5 and 6 are AFFIRMED;

d)

Additionally,

Article 1314 of the Civil Code provides that any third person who
the

defendant

is

hereby

induces another to violate his contract shall be liable for damages to the

ordered to pay to the plaintiff by way of actual damages the

other contracting party. The tort recognized in that provision is known as

sum of P178,425.00 representing the amount of rentals he

interference with contractual relations. [7] The interference is penalized

collected from the period of October 1978 to August 1983, and

because it violates the property rights of a party in a contract to reap the

minus the amount of P42,700.00 representing rentals due the

benefits that should result therefrom.[8]

defendant computed at P700.00 per month for the period from

August 1978 to August 1983, with interest thereon at the rate
until the same is fully paid;

The core issue here is whether the purchase by petitioner of the subject
property, during the supposed existence of private respondents lease
contract with the late Bai Tonina Sepi, constituted tortuous interference for

e)

Paragraph 4 is deleted.[5]

which petitioner should be held liable for damages.

Before the appellate court, petitioner disclaimed knowledge of any lease

The Court, in the case of So Ping Bun v. Court of Appeals,[9] laid down the

contract between the late Bai Tonina Sepi and private respondent. On the

elements of tortuous interference with contractual relations: (a) existence of a

155

valid contract; (b) knowledge on the part of the third person of the existence

property. An examination of the entire propertys title bore no indication of

of the contract and (c) interference of the third person without legal

the leasehold interest of private respondent. Even the registry of property

justification or excuse. In that case, petitioner So Ping Bun occupied the

had no record of the same.[15]

premises which the corporation of his grandfather was leasing from private
respondent, without the knowledge and permission of the corporation. The

Assuming ex gratia argumenti that petitioner knew of the contract, such

corporation, prevented from using the premises for its business, sued So

knowledge alone was not sufficient to make him liable for tortuous

Ping Bun for tortuous interference.

interference. Which brings us to the third element. According to our ruling

in So Ping Bun, petitioner may be held liable only when there was no legal

As regards the first element, the existence of a valid contract must be

justification or excuse for his action[16] or when his conduct was stirred by a

duly established. To prove this, private respondent presented in court a

wrongful motive. To sustain a case for tortuous interference, the defendant

notarized copy of the purported lease renewal. [10] While the contract appeared

must have acted with malice [17] or must have been driven by purely impious

as duly notarized, the notarization thereof, however, only proved its due

reasons to injure the plaintiff. In other words, his act of interference cannot

execution and delivery but not the veracity of its contents. Nonetheless, after

be justified.[18]

undergoing the rigid scrutiny of petitioners counsel and after the trial court
declared it to be valid and subsisting, the notarized copy of the lease contract

Furthermore, the records do not support the allegation of private

presented in court appeared to be incontestable proof that private

respondent that petitioner induced the heirs of Bai Tonina Sepi to sell the

respondent and the late Bai Tonina Sepi actually renewed their lease

property to him. The word induce refers to situations where a person

contract. Settled is the rule that until overcome by clear, strong and

causes another to choose one course of conduct by persuasion or

convincing evidence, a notarized document continues to be prima facie

intimidation.[19] The records show that the decision of the heirs of the late Bai

evidence of the facts that gave rise to its execution and delivery. [11]

Tonina Sepi to sell the property was completely of their own volition and that
petitioner did absolutely nothing to influence their judgment.

Private

The second element, on the other hand, requires that there be

respondent himself did not proffer any evidence to support his claim. In

knowledge on the part of the interferer that the contract exists. Knowledge of

short, even assuming that private respondent was able to prove the renewal of

the subsistence of the contract is an essential element to state a cause of

his lease contract with Bai Tonina Sepi, the fact was that he was unable to

action for tortuous interference.[12] A defendant in such a case cannot be

prove malice or bad faith on the part of petitioner in purchasing the property.

made liable for interfering with a contract he is unaware of. [13] While it is not

Therefore, the claim of tortuous interference was never established.

necessary to prove actual knowledge, he must nonetheless be aware of the

facts which, if followed by a reasonable inquiry, will lead to a complete

In So Ping Bun, the Court discussed whether interference can be

disclosure of the contractual relations and rights of the parties in the

justified at all if the interferer acts for the sole purpose of furthering a

contract.[14]

personal financial interest, but without malice or bad faith. As the Court
explained it:

In this case, petitioner claims that he had no knowledge of the lease

contract. His sellers (the heirs of Bai Tonina Sepi) likewise allegedly did not

x x x, as a general rule, justification for interfering with the business

inform him of any existing lease contract.

relations of another exists where the actors motive is to benefit himself. Such
justification does not exist where the actors motive is to cause harm to the

After a careful perusal of the records, we find the contention of

other. Added to this, some authorities believe that it is not necessary that the

petitioner meritorious. He conducted his own personal investigation and

interferers interest outweigh that of the party whose rights are invaded, and

inquiry, and unearthed no suspicious circumstance that would have made a

that an individual acts under an economic interest that is substantial, not

cautious man probe deeper and watch out for any conflicting claim over the

merely de minimis, such that wrongful and malicious motives are negatived,

156

for he acts in self-protection. Moreover, justification for protecting ones

Regarding the dismissal of petitioners counterclaim for actual and

financial position should not be made to depend on a comparison of his

moral damages, the appellate court affirmed the assailed order of the trial

economic interest in the subject matter with that of the others. It is sufficient

court because it found no basis to grant the amount of damages prayed for

if the impetus of his conduct lies in a proper business interest rather than in

by petitioner. We find no reason to reverse the trial court and the Court of

wrongful motives.

[20]

Appeals. Actual damages are those awarded in satisfaction of, or in

recompense for, loss or injury sustained. To be recoverable, they must not

The foregoing disquisition applies squarely to the case at bar. In our

only be capable of proof but must actually be proved with a reasonable

an

degree of certainty.[28] Petitioner was unable to prove that he suffered loss or

advancement of his financial or economic interests, absent any proof that he

injury, hence, his claim for actual damages must fail. Moreover, petitioners

was enthused by improper motives. In the very early case of Gilchrist v.

prayer for moral damages was not warranted as moral damages should result

Cuddy,[21] the Court declared that a person is not a malicious interferer if his

from the wrongful act of a person. The worries and anxieties suffered by a

conduct is impelled by a proper business interest. In other words, a financial

party hailed to court litigation are not compensable.[29]

view,

petitioners

purchase

of

the

subject

property

was

merely

or profit motivation will not necessarily make a person an officious interferer

liable for damages as long as there is no malice or bad faith involved.

With the foregoing discussion, we no longer deem it necessary to delve

into the issue of laches.

In sum, we rule that, inasmuch as not all three elements to hold

WHEREFORE, premises considered, the petition is hereby GRANTED.

petitioner liable for tortuous interference are present, petitioner cannot be

made to answer for private respondents losses.

The assailed decision of the Court of Appeals is hereby REVERSED and SET
ASIDE.

This case is one of damnun absque injuria or damage without injury.

Injury is the legal invasion of a legal right while damage is the hurt, loss
or harm which results from the injury.

[22]

No costs.

In BPI Express Card Corporation v.

Court of Appeals,,[23] the Court turned down the claim for damages of a

SO ORDERED.

cardholder whose credit card had been cancelled by petitioner corporation

after several defaults in payment. We held there that there can be damage
without injury where the loss or harm is not the result of a violation of a
legal duty. In that instance, the consequences must be borne by the injured
person alone since the law affords no remedy for damages resulting from an

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

act which does not amount to legal injury or wrong.[24] Indeed, lack of malice
in the conduct complained of precludes recovery of damages. [25]
With respect to the attorneys fees awarded by the appellate court to

SO

PING

BUN, petitioner,

APPEALS,

TEK

HUA

DECISION

circumstances. According to Article 2208 of the Civil Code, attorneys fees

instances provided therein.[26] Likewise, being in the concept of actual

OF

ENTERPRISING CORP. and MANUEL C. TIONG, respondents.

private respondent, we rule that it cannot be recovered under the

may be awarded only when it has been stipulated upon or under the

vs. COURT

QUISUMBING, J.:

damages, the award for attorneys fees must have clear, factual and legal
bases[27] which, in this case, do not exist.

This petition for certiorari challenges the Decision[1] of the Court of

Appeals dated October 10, 1994, and the Resolution [2] dated June 5, 1995, in

157

CA-G.R. CV No. 38784. The appellate court affirmed the decision of the
Regional Trial Court of Manila, Branch 35, except for the award of attorneys

On March 1, 1991, private respondent Tiong sent a letter to petitioner,

which reads as follows:

fees, as follows:
March 1, 1991
"WHEREFORE, foregoing considered, the appeal of respondent-appellant So
Ping Bun for lack of merit is DISMISSED. The appealed decision dated April

Mr. So Ping Bun

20, 1992 of the court a quo is modified by reducing the attorney's fees
awarded to plaintiff Tek Hua Enterprising Corporation from P500,000.00 to
P200,000.00."

930 Soler Street

[3]

Binondo, Manila
The facts are as follows:
Dear Mr. So,
In 1963, Tek Hua Trading Co, through its managing partner, So Pek
Giok, entered into lease agreements with lessor Dee C. Chuan & Sons Inc.

Due to my closed (sic) business associate (sic) for three decades with your

(DCCSI). Subjects of four (4) lease contracts were premises located at Nos.

late grandfather Mr. So Pek Giok and late father, Mr. So Chong Bon, I allowed

930, 930-Int., 924-B and 924-C, Soler Street, Binondo, Manila. Tek Hua

you temporarily to use the warehouse of Tek Hua Enterprising Corp. for

used the areas to store its textiles. The contracts each had a one-year

several years to generate your personal business.

term. They provided that should the lessee continue to occupy the premises
after the term, the lease shall be on a month-to-month basis.

Since I decided to go back into textile business, I need a warehouse

immediately for my stocks. Therefore, please be advised to vacate all your

When the contracts expired, the parties did not renew the contracts, but

stocks in Tek Hua Enterprising Corp. Warehouse. You are hereby given 14

Tek Hua continued to occupy the premises. In 1976, Tek Hua Trading Co.

days to vacate the premises unless you have good reasons that you have the

was dissolved. Later, the original members of Tek Hua Trading Co. including

right to stay. Otherwise, I will be constrained to take measure to protect my

Manuel C. Tiong, formed Tek Hua Enterprising Corp., herein respondent

interest.

corporation.
Please give this urgent matter your preferential attention to avoid
So Pek Giok, managing partner of Tek Hua Trading, died in 1986. So

inconvenience on your part.

Pek Gioks grandson, petitioner So Ping Bun, occupied the warehouse for his
own textile business, Trendsetter Marketing.
On August 1, 1989, lessor DCCSI sent letters addressed to Tek Hua

Very truly yours,

(Sgd) Manuel C. Tiong

Enterprises, informing the latter of the 25% increase in rent effective

September 1, 1989. The rent increase was later on reduced to 20% effective

MANUEL C. TIONG

January 1, 1990, upon other lessees demand. Again on December 1, 1990,

the lessor implemented a 30% rent increase. Enclosed in these letters were

President[4]

new lease contracts for signing. DCCSI warned that failure of the lessee to
accomplish the contracts shall be deemed as lack of interest on the lessees

Petitioner refused to vacate. On March 4, 1992, petitioner requested

part, and agreement to the termination of the lease. Private respondents did

formal contracts of lease with DCCSI in favor Trendsetter Marketing. So Ping

not answer any of these letters. Still, the lease contracts were not rescinded.

Bun claimed that after the death of his grandfather, So Pek Giok, he had

158

been occupying the premises for his textile business and religiously paid

Petitioners motion for reconsideration of the above decision was denied.

rent. DCCSI acceded to petitioners request. The lease contracts in favor of

Trendsetter were executed.

On appeal by So Ping Bun, the Court of Appeals upheld the trial

court. On motion for reconsideration, the appellate court modified the

In the suit for injunction, private respondents pressed for the

nullification of the lease contracts between DCCSI and petitioner. They also

decision by reducing the award of attorneys fees from five hundred thousand
(P500,000.00) pesos to two hundred thousand (P200,000.00) pesos.

claimed damages.
Petitioner is now before the Court raising the following issues:
After trial, the trial court ruled:
I. WHETHER THE APPELLATE COURT ERRED IN AFFIRMING
WHEREFORE, judgment is rendered:

THE TRIAL COURTS DECISION FINDING SO PING BUN

GUILTY OF TORTUOUS INTERFERENCE OF CONTRACT?

1. Annulling the four Contracts of Lease (Exhibits A, A-1 to A-3,

inclusive) all dated March 11, 1991, between defendant So Ping

II. WHETHER THE APPELLATE COURT ERRED IN AWARDING

Bun, doing business under the name and style of Trendsetter

ATTORNEYS FEES OF P200,000.00 IN FAVOR OF PRIVATE

Marketing, and defendant Dee C. Chuan & Sons, Inc. over the

RESPONDENTS.

premises located at Nos. 924-B, 924-C, 930 and 930, Int.,

respectively, Soler Street, Binondo Manila;

The foregoing issues involve, essentially, the correct interpretation of the

applicable law on tortuous conduct, particularly unlawful interference with

2. Making permanent the writ of preliminary injunction issued by

this Court on June 21, 1991;

on torts and damages.

3. Ordering defendant So Ping Bun to pay the aggrieved party,

plaintiff

Tek

Hua

Enterprising

contract. We have to begin, obviously, with certain fundamental principles

Corporation,

the

sum

of

P500,000.00, for attorneys fees;

Damage is the loss, hurt, or harm which results from injury, and
damages are the recompense or compensation awarded for the damage
suffered.[6] One becomes liable in an action for damages for a nontrespassory
invasion of anothers interest in the private use and enjoyment of asset if (a)

4. Dismissing the complaint, insofar as plaintiff Manuel C. Tiong is

the other has property rights and privileges with respect to the use or

concerned, and the respective counterclaims of the defendant;

enjoyment interfered with, (b) the invasion is substantial, (c) the defendants
conduct is a legal cause of the invasion, and (d) the invasion is either

5. Ordering defendant So Ping Bun to pay the costs of this lawsuit;

intentional and unreasonable or unintentional and actionable under general

negligence rules.[7]

This judgment is without prejudice to the rights of plaintiff Tek Hua

Enterprising Corporation and defendant Dee C. Chuan & Sons, Inc. to

The elements of tort interference are: (1) existence of a valid contract; (2)

negotiate for the renewal of their lease contracts over the premises located at

knowledge on the part of the third person of the existence of contract; and (3)

Nos. 930, 930-Int., 924-B and 924-C Soler Street, Binondo, Manila, under

interference of the third person is without legal justification or excuse. [8]

such terms and conditions as they agree upon, provided they are not
contrary to law, public policy, public order, and morals.

A duty which the law of torts is concerned with is respect for the
property of others, and a cause of action ex delicto may be predicated upon

SO ORDERED.[5]

an unlawful interference by one person of the enjoyment by the other of his

159

private property.[9] This may pertain to a situation where a third person

essential element of tort interference, and since the trial court and the

induces a party to renege on or violate his undertaking under a contract. In

appellate court ruled that private respondents were not entitled to actual,

the case before us, petitioners Trendsetter Marketing asked DCCSI to execute

moral or exemplary damages, it follows that he ought to be absolved of any

lease contracts in its favor, and as a result petitioner deprived respondent

liability, including attorneys fees.

corporation of the latters property right. Clearly, and as correctly viewed by

the appellate court, the three elements of tort interference above-mentioned
are present in the instant case.

It is true that the lower courts did not award damages, but this was only
because the extent of damages was not quantifiable. We had a similar
situation in Gilchrist, where it was difficult or impossible to determine the

Authorities debate on whether interference may be justified where the

extent of damage and there was nothing on record to serve as basis

defendant acts for the sole purpose of furthering his own financial or

thereof. In that case we refrained from awarding damages. We believe the

economic interest.[10] One view is that, as a general rule, justification for

same conclusion applies in this case.

interfering with the business relations of another exists where the actors
motive is to benefit himself. Such justification does not exist where his sole

While we do not encourage tort interferers seeking their economic

motive is to cause harm to the other. Added to this, some authorities believe

interest to intrude into existing contracts at the expense of others, however,

that it is not necessary that the interferers interest outweigh that of the

we find that the conduct herein complained of did not transcend the limits

party whose rights are invaded, and that an individual acts under an

forbidding an obligatory award for damages in the absence of any

economic interest that is substantial, not merely de minimis, such that

malice. The business desire is there to make some gain to the detriment of

wrongful and malicious motives are negatived, for he acts in self-protection.

the contracting parties. Lack of malice, however, precludes damages. But it

[11]

Moreover, justification for protecting ones financial position should not be

does not relieve petitioner of the legal liability for entering into contracts and

made to depend on a comparison of his economic interest in the subject

causing breach of existing ones. The respondent appellate court correctly

matter with that of others. [12] It is sufficient if the impetus of his conduct lies

confirmed the permanent injunction and nullification of the lease contracts

in a proper business interest rather than in wrongful motives.

[13]

between DCCSI and Trendsetter Marketing, without awarding damages. The

injunction saved the respondents from further damage or injury caused by

As early as Gilchrist vs. Cuddy,

[14]

we held that where there was no

petitioners interference.

malice in the interference of a contract, and the impulse behind ones

conduct lies in a proper business interest rather than in wrongful motives, a

Lastly, the recovery of attorneys fees in the concept of actual or

party cannot be a malicious interferer. Where the alleged interferer is

compensatory damages, is allowed under the circumstances provided for in

financially interested, and such interest motivates his conduct, it cannot be

Article 2208 of the Civil Code. [16] One such occasion is when the defendants

said that he is an officious or malicious intermeddler. [15]

act or omission has compelled the plaintiff to litigate with third persons or to
incur expenses to protect his interest. [17] But we have consistently held that

In the instant case, it is clear that petitioner So Ping Bun prevailed upon

the award of considerable damages should have clear factual and legal bases.

DCCSI to lease the warehouse to his enterprise at the expense of respondent

[18]

corporation. Though petitioner took interest in the property of respondent

the benefits that would have been derived from a favorable judgment. Settled

corporation and benefited from it, nothing on record imputes deliberate

is the rule that fairness of the award of damages by the trial court calls for

wrongful motives or malice on him.

appellate review such that the award if far too excessive can be reduced.
[19]

In connection with attorneys fees, the award should be commensurate to

This ruling applies with equal force on the award of attorneys fees. In a

Section 1314 of the Civil Code categorically provides also that, Any

long line of cases we said, It is not sound policy to place a penalty on the

third person who induces another to violate his contract shall be liable for

right to litigate. To compel the defeated party to pay the fees of counsel for

damages to the other contracting party. Petitioner argues that damage is an

160

his successful opponent would throw wide open the door of temptation to the

plaintiff for the alleged wrongful issuance of a mandatory and a preliminary

opposing party and his counsel to swell the fees to undue proportions. [20]

injunction.

Considering that the respondent corporations lease contract, at the

Upon the application of the appellee an ex parte mandatory injunction was

time when the cause of action accrued, ran only on a month-to-month basis

issued on the 22d of May, 1913, directing the defendant, E. A. Cuddy, to send

whence before it was on a yearly basis, we find even the reduced amount of

to the appellee a certain cinematograph film called "Zigomar" in compliance

attorneys fees ordered by the Court of Appeals still exorbitant in the light of

with an alleged contract which had been entered into between these two

prevailing jurisprudence.[21] Consequently, the amount of two hundred

parties, and at the time anex parte preliminary injunction was issued

thousand (P200,000.00) awarded by respondent appellate court should be

restraining the appellants from receiving and exhibiting in their theater the

reduced to one hundred thousand (P100,000.00) pesos as the reasonable

Zigomar until further orders of the court. On the 26th of that month the

award for attorneys fees in favor of private respondent corporation.

appellants appeared and moved the court to dissolve the preliminary

injunction. When the case was called for trial on August 6, the appellee

WHEREFORE, the petition is hereby DENIED. The assailed Decision

moved for the dismissal of the complaint "for the reason that there is no

and Resolution of the Court of Appeals in CA-G.R. CV No. 38784 are hereby

further necessity for the maintenance of the injunction." The motion was

AFFIRMED, with MODIFICATION that the award of attorneys fees is reduced

granted without objection as to Cuddy and denied as to the appellants in

from two hundred thousand (P200,000.00) to one hundred thousand

order to give them an opportunity to prove that the injunction were

(P100,000.00) pesos. No pronouncement as to costs.

wrongfully issued and the amount of damages suffered by reason thereof.

The pertinent part of the trial court's findings of fact in this case is as

SO ORDERED.

follows:
It appears in this case that Cuddy was the owner of the film Zigomar
and that on the 24th of April he rented it to C. S. Gilchrist for a week

G.R. No. L-9356

February 18, 1915

C. S. GILCHRIST, plaintiff-appellee,
vs.
E. A. CUDDY, ET AL., defendants.
JOSE FERNANDEZ ESPEJO and MARIANO ZALDARRIAGA, appellants.
C. Lozano for appellants.
Bruce, Lawrence, Ross and Block for appellee.
TRENT, J.:
An appeal by the defendants, Jose Fernandez Espejo and Mariano
Zaldarriaga, from a judgment of the Court of First Instance of Iloilo,
dismissing their cross-complaint upon the merits for damages against the

for P125, and it was to be delivered on the 26th of May, the week
beginning that day. A few days prior to this Cuddy sent the money
back to Gilchrist, which he had forwarded to him in Manila, saying
that he had made other arrangements with his film. The other
arrangements was the rental to these defendants Espejo and his
partner for P350 for the week and the injunction was asked by
Gilchrist against these parties from showing it for the week beginning
the 26th of May.
It appears from the testimony in this case, conclusively, that Cuddy
willfully violated his contract, he being the owner of the picture, with
Gilchrist because the defendants had offered him more for the same
period. Mr. Espejo at the trial on the permanent injunction on the
26th of May admitted that he knew that Cuddy was the owner of the
film. He was trying to get it through his agents Pathe Brothers in
Manila. He is the agent of the same concern in Iloilo. There is in

161

evidence in this case on the trial today as well as on the 26th of May,

from. We, therefore, gave the appellant an opportunity to explain the

letters showing that the Pathe Brothers in Manila advised this man

omission. But we required that such explanation must show a satisfactory

on two different occasions not to contend for this film Zigomar

reason for the omission, and that the missing portion of the evidence must

because the rental price was prohibitive and assured him also that

be submitted within sixty days or cause shown for failing to do so. The other

he could not get the film for about six weeks. The last of these letters

cases making exceptions to the rule are based upon peculiar circumstances

was written on the 26th of April, which showed conclusively that he

which will seldom arise in practice and need not here be set forth, for the

knew they had to get this film from Cuddy and from this letter that

reason that they are wholly inapplicable to the present case. The appellants

the agent in Manila could not get it, but he made Cuddy an offer

would be entitled to indulgence only under the doctrine of the Olsen case.

himself and Cuddy accepted it because he was paying about three

But from that portion of the record before us, we are not inclined to believe

times as much as he had contracted with Gilchrist for. Therefore, in

that the missing deposition would be sufficient to justify us in reversing the

the opinion of this court, the defendants failed signally to show the

findings of fact of the trial court that the contract in question had been

injunction against the defendant was wrongfully procured.

made. There is in the record not only the positive and detailed testimony of
Gilchrist to this effect, but there is also a letter of apology from Cuddy to

The appellants duly excepted to the order of the court denying their motion

Gilchrist in which the former enters into a lengthy explanation of his reasons

for new trial on the ground that the evidence was insufficient to justify the

for leasing the film to another party. The latter could only have been called

decision rendered. There is lacking from the record before us the deposition

forth by a broken contract with Gilchrist to lease the film to him. We,

of the defendant Cuddy, which apparently throws light upon a contract

therefore, fail to find any reason for overlooking the omission of the

entered into between him and the plaintiff Gilchrist. The contents of this

defendants to bring up the missing portion of the evidence and, adhering to

deposition are discussed at length in the brief of the appellants and an

the general rule above referred to, proceed to examine the questions of law

endeavor is made to show that no such contract was entered into. The trial

raised by the appellants.

court, which had this deposition before it, found that there was a contract
between Cuddy and Gilchrist. Not having the deposition in question before

From the above-quoted findings of fact it is clear that Cuddy, a resident of

us, it is impossible to say how strongly it militates against this findings of

Manila, was the owner of the "Zigomar;" that Gilchrist was the owner of a

fact. By a series of decisions we have construed section 143 and 497 (2) of

cinematograph theater in Iloilo; that in accordance with the terms of the

the Code of Civil Procedure to require the production of all the evidence in

contract entered into between Cuddy and Gilchrist the former leased to the

this court. This is the duty of the appellant and, upon his failure to perform

latter the "Zigomar" for exhibition in his (Gilchrist's) theater for the week

it, we decline to proceed with a review of the evidence. In such cases we rely

beginning May 26, 1913; and that Cuddy willfully violate his contract in

entirely upon the pleadings and the findings of fact of the trial court and

order that he might accept the appellant's offer of P350 for the film for the

examine only such assigned errors as raise questions of law. (Ferrer vs. Neri

same period. Did the appellants know that they were inducing Cuddy to

Abejuela, 9 Phil. Rep., 324; Valle vs. Galera, 10 Phil. Rep., 619;

violate his contract with a third party when they induced him to accept the

Salvacion vs. Salvacion, 13 Phil. Rep., 366; Breta vs. Smith, Bell & Co., 15

P350? Espejo admitted that he knew that Cuddy was the owner of the film.

Phil. Rep., 446; Arroyo vs. Yulo, 18 Phil. Rep., 236; Olsen & Co. vs. Matson,

He received a letter from his agents in Manila dated April 26, assuring him

Lord & Belser Co., 19 Phil. Rep., 102; Blum vs. Barretto, 19 Phil. Rep., 161;

that he could not get the film for about six weeks. The arrangement between

Cuyugan vs. Aguas, 19 Phil. Rep., 379; Mapa vs. Chaves, 20 Phil. Rep., 147;

Cuddy and the appellants for the exhibition of the film by the latter on the

Mans vs. Garry, 20 Phil. Rep., 134.) It is true that some of the more recent of

26th of May were perfected after April 26, so that the six weeks would

these cases make exceptions to the general rule. Thus, in Olsen &

include and extend beyond May 26. The appellants must necessarily have

Co. vs. Matson, Lord & Belser Co., (19 Phil. Rep., 102), that portion of the

known at the time they made their offer to Cuddy that the latter had booked

evidence before us tended to show that grave injustice might result from a

or contracted the film for six weeks from April 26. Therefore, the inevitable

strict reliance upon the findings of fact contained in the judgment appealed

conclusion is that the appellants knowingly induced Cuddy to violate his

162

contract with another person. But there is no specific finding that the

contractual rights of plaintiff, the defendants had a sufficient justification for

appellants knew the identity of the other party. So we must assume that they

their interference; . . . for it is not a justification that `they acted bona fide in

did not know that Gilchrist was the person who had contracted for the film.

the best interests of the society of masons,' i. e., in their own interests. Nor is
it enough that `they were not actuated by improper motives.' I think their

The appellants take the position that if the preliminary injunction had not

sufficient justification for interference with plaintiff's right must be an equal

been issued against them they could have exhibited the film in their theater

or superior right in themselves, and that no one can legally excuse himself to

for a number of days beginning May 26, and could have also subleased it to

a man, of whose contract he has procured the breach, on the ground that he

other theater owners in the nearby towns and, by so doing, could have

acted on a wrong understanding of his own rights, or without malice, or bona

cleared, during the life of their contract with Cuddy, the amount claimed as

fide, or in the best interests of himself, or even that he acted as an altruist,

damages. Taking this view of the case, it will be unnecessary for us to inquire

seeking only good of another and careless of his own advantage." (Quoted

whether the mandatory injunction against Cuddy was properly issued or not.

with approval in Beekman vs. Marsters, 195 Mass., 205.)

No question is raised with reference to the issuance of that injunction.

It is said that the ground on which the liability of a third party for interfering
The right on the part of Gilchrist to enter into a contract with Cuddy for the

with a contract between others rests, is that the interference was malicious.

lease of the film must be fully recognized and admitted by all. That Cuddy

The contrary view, however, is taken by the Supreme Court of the United

was liable in an action for damages for the breach of that contract, there can

States in the case of Angle vs. Railway Co. (151 U. S., 1). The only motive for

be no doubt. Were the appellants likewise liable for interfering with the

interference by the third party in that case was the desire to make a profit to

contract between Gilchrist and Cuddy, they not knowing at the time the

the injury of one of the parties of the contract. There was no malice in the

identity of one of the contracting parties? The appellants claim that they had

case beyond the desire to make an unlawful gain to the detriment of one of

a right to do what they did. The ground upon which the appellants base this

the contracting parties.

contention is, that there was no valid and binding contract between Cuddy
and Gilchrist and that, therefore, they had a right to compete with Gilchrist

In the case at bar the only motive for the interference with the Gilchrist

for the lease of the film, the right to compete being a justification for their

Cuddy contract on the part of the appellants was a desire to make a profit by

acts. If there had been no contract between Cuddy and Gilchrist this defense

exhibiting the film in their theater. There was no malice beyond this desire;

would be tenable, but the mere right to compete could not justify the

but this fact does not relieve them of the legal liability for interfering with

appellants in intentionally inducing Cuddy to take away the appellee's

that contract and causing its breach. It is, therefore, clear, under the above

contractual rights.

authorities, that they were liable to Gilchrist for the damages caused by their
acts, unless they are relieved from such liability by reason of the fact that

Chief Justice Wells in Walker vs. Cronin (107 Mass., 555), said: "Everyone

they did not know at the time the identity of the original lessee (Gilchrist) of

has a right to enjoy the fruits and advantages of his own enterprise, industry,

the film.

skill and credit. He has no right to be free from malicious and wanton
interference, disturbance or annoyance. If disturbance or loss come as a

The liability of the appellants arises from unlawful acts and not from

result of competition, or the exercise of like rights by others, it is damnum

contractual obligations, as they were under no such obligations to induce

absque injuria, unless some superior right by contract or otherwise is

Cuddy to violate his contract with Gilchrist. So that if the action of Gilchrist

interfered with."

had been one for damages, it would be governed by chapter 2, title 16, book 4
of the Civil Code. Article 1902 of that code provides that a person who, by act

In Read vs. Friendly Society of Operative Stonemasons ([1902] 2 K. B., 88),

or omission, causes damages to another when there is fault or negligence,

Darling, J., said: "I think the plaintiff has a cause of action against the

shall be obliged to repair the damage do done. There is nothing in this article

defendants, unless the court is satisfied that, when they interfered with the

which requires as a condition precedent to the liability of a tort-feasor that he

163

must know the identity of a person to whom he causes damages. In fact, the

of Civil Procedure which indicates, even remotely, that before an injunction

chapter wherein this article is found clearly shows that no such knowledge is

may issue restraining the wrongful interference with contrast by strangers,

required in order that the injured party may recover for the damage suffered.

the strangers must know the identity of both parties. It would seem that this
is not essential, as injunctions frequently issue against municipal

But the fact that the appellants' interference with the Gilchrist contract was

corporations, public service corporations, public officers, and others to

actionable did not of itself entitle Gilchrist to sue out an injunction against

restrain the commission of acts which would tend to injuriously affect the

them. The allowance of this remedy must be justified under section 164 of

rights of person whose identity the respondents could not possibly have

the Code of Civil Procedure, which specifies the circumstance under which

known beforehand. This court has held that in a proper case injunction will

an injunction may issue. Upon the general doctrine of injunction we said in

issue at the instance of a private citizen to restrain ultra vires acts of public

Devesa vs. Arbes (13 Phil. Rep., 273):

officials. (Severino vs. Governor-General, 16 Phil. Rep., 366.) So we proceed

to the determination of the main question of whether or not the preliminary

An injunction is a "special remedy" adopted in that code (Act No.

injunction ought to have been issued in this case.

190) from American practice, and originally borrowed from English

legal procedure, which was there issued by the authority and under

As a rule, injunctions are denied to those who have an adequate remedy at

the seal of a court of equity, and limited, as in order cases where

law. Where the choice is between the ordinary and the extraordinary

equitable relief is sought, to cases where there is no "plain, adequate,

processes of law, and the former are sufficient, the rule will not permit the

and complete remedy at law," which "will not be granted while the

use of the latter. (In re Debs, 158 U. S., 564.) If the injury is irreparable, the

rights between the parties are undetermined, except in extraordinary

ordinary process is inadequate. In Wahle vs.Reinbach (76 Ill., 322), the

cases where material and irreparable injury will be done," which

supreme court of Illinois approved a definition of the term "irreparable

cannot be compensated in damages, and where there will be no

injury" in the following language: "By `irreparable injury' is not meant such

adequate remedy,and which will not, as a rule, be granted, to take

injury as is beyond the possibility of repair, or beyond possible compensation

property out of the possession of one party and put it into that of

in damages, nor necessarily great injury or great damage, but that species of

another whose title has not been established by law.

injury, whether great or small, that ought not to be submitted to on the one
hand or inflicted on the other; and, because it is so large on the one hand, or

We subsequently affirmed the doctrine of the Devesa case in

so small on the other, is of such constant and frequent recurrence that no

Palafox vs. Madamba (19 Phil., Rep., 444), and we take this occasion of again

fair or reasonable redress can be had therefor in a court of law." (Quoted with

affirming it, believing, as we do, that the indiscriminate use of injunctions

approval in Nashville R. R. Co.vs. McConnell, 82 Fed., 65.)

should be discouraged.
The case at bar is somewhat novel, as the only contract which was broken
Does the fact that the appellants did not know at the time the identity of the

was that between Cuddy and Gilchrist, and the profits of the appellee

original lessee of the film militate against Gilchrist's right to a preliminary

depended upon the patronage of the public, for which it is conceded the

injunction, although the appellant's incurred civil liability for damages for

appellants were at liberty to complete by all fair does not deter the application

such interference? In the examination of the adjudicated cases, where in

of remarked in the case of the "ticket scalpers" (82 Fed., 65), the novelty of

injunctions have been issued to restrain wrongful interference with contracts

the facts does not deter the application of equitable principles. This court

by strangers to such contracts, we have been unable to find any case where

takes judicial notice of the general character of a cinematograph or motion-

this precise question was involved, as in all of those cases which we have

picture theater. It is a quite modern form of the play house, wherein, by

examined, the identity of both of the contracting parties was known to the

means of an apparatus known as a cinematograph or cinematograph, a

tort-feasors. We might say, however, that this fact does not seem to have a

series of views representing closely successive phases of a moving object, are

controlling feature in those cases. There is nothing in section 164 of the Code

exhibited in rapid sequence, giving a picture which, owing to the persistence

164

of vision, appears to the observer to be in continuous motion. (The

interference with contracts by strangers to such contracts, it may be said

Encyclopedia Britanica, vol. 6, p. 374.) The subjects which have lent

that courts in the United States have usually granted such relief where the

themselves to the art of the photographer in this manner have increased

profits of the injured person are derived from his contractual relations with a

enormously in recent years, as well as have the places where such exhibition

large and indefinite number of individuals, thus reducing him to the

are given. The attendance, and, consequently, the receipts, at one of these

necessity of proving in an action against the tort-feasor that the latter was

cinematograph or motion-picture theaters depends in no small degree upon

responsible in each case for the broken contract, or else obliging him to

the excellence of the photographs, and it is quite common for the proprietor

institute individual suits against each contracting party and so exposing him

of the theater to secure an especially attractive exhibit as his "feature film"

to a multiplicity of suits. Sperry & Hutchinson Co. vs. Mechanics' Clothing

and advertise it as such in order to attract the public. This feature film is

Co. (128 Fed., 800); Sperry & Hutchinson Co. vs. Louis Weber & Co. (161

depended upon to secure a larger attendance that if its place on the program

Fed., 219); Sperry & Hutchinson Co. vs. Pommer (199 Fed., 309); were all

were filled by other films of mediocre quality. It is evident that the failure to

cases wherein the respondents were inducing retail merchants to break their

exhibit the feature film will reduce the receipts of the theater.

contracts with the company for the sale of the latters' trading stamps.
Injunction issued in each case restraining the respondents from interfering

Hence, Gilchrist was facing the immediate prospect of diminished profits by

with such contracts.

reason of the fact that the appellants had induced Cuddy to rent to them the
film Gilchrist had counted upon as his feature film. It is quite apparent that

In the case of the Nashville R. R. Co. vs. McConnell (82 Fed., 65), the court,

to estimate with any decree of accuracy the damages which Gilchrist would

among other things, said: "One who wrongfully interferes in a contract

likely suffer from such an event would be quite difficult if not impossible. If

between others, and, for the purpose of gain to himself induces one of the

he allowed the appellants to exhibit the film in Iloilo, it would be useless for

parties to break it, is liable to the party injured thereby; and his continued

him to exhibit it again, as the desire of the public to witness the production

interference may be ground for an injunction where the injuries resulting will

would have been already satisfied. In this extremity, the appellee applied for

be irreparable."

and was granted, as we have indicated, a mandatory injunction against

Cuddy requiring him to deliver the Zigomar to Gilchrist, and a preliminary

In Hamby & Toomer vs. Georgia Iron & Coal Co. (127 Ga., 792), it appears

injunction against the appellants restraining them from exhibiting that film

that the respondents were interfering in a contract for prison labor, and the

in their theater during the weeks he (Gilchrist) had a right to exhibit it. These

result would be, if they were successful, the shutting down of the petitioner's

injunction saved the plaintiff harmless from damages due to the

plant for an indefinite time. The court held that although there was no

unwarranted interference of the defendants, as well as the difficult task

contention that the respondents were insolvent, the trial court did not abuse

which would have been set for the court of estimating them in case the

its discretion in granting a preliminary injunction against the respondents.

appellants had been allowed to carry out their illegal plans. As to whether or
not the mandatory injunction should have been issued, we are not, as we

In Beekman vs. Marsters (195 Mass., 205), the plaintiff had obtained from

have said, called upon to determine. So far as the preliminary injunction

the Jamestown Hotel Corporation, conducting a hotel within the grounds of

issued against the appellants is concerned, which prohibited them from

the Jamestown Exposition, a contract whereby he was made their exclusive

exhibiting the Zigomar during the week which Gilchrist desired to exhibit it,

agent for the New England States to solicit patronage for the hotel. The

we are of the opinion that the circumstances justified the issuance of that

defendant induced the hotel corporation to break their contract with the

injunction in the discretion of the court.

plaintiff in order to allow him to act also as their agent in the New England
States. The court held that an action for damages would not have afforded

We are not lacking in authority to support our conclusion that the court was

the plaintiff adequate relief, and that an injunction was proper compelling

justified in issuing the preliminary injunction against the appellants. Upon

the defendant to desist from further interference with the plaintiff's exclusive

the precise question as to whether injunction will issue to restrain wrongful

contract with the hotel company.

165

In Citizens' Light, Heat & Power Co. vs. Montgomery Light & Water Power Co.

that there was only one contract, the interference of which was stopped by

(171 Fed., 553), the court, while admitting that there are some authorities to

injunction.

the contrary, held that the current authority in the United States and
England is that:

For the foregoing reasons the judgment is affirmed, with costs, against the
appellants.

The violation of a legal right committed knowingly is a cause of

action, and that it is a violation of a legal right to interfere with
contractual relations recognized by law, if there be no sufficient
justification for the interference. (Quinn vs. Leatham, supra, 510;

[G.R. No. 125986. January 28, 1999]

Angle vs. Chicago, etc., Ry. Co., 151 U. S., 1; 14 Sup. Ct., 240; 38 L.
Ed., 55; Martens vs. Reilly, 109 Wis., 464, 84 N. W., 840;
Rice vs. Manley, 66 N. Y., 82; 23 Am. Rep., 30; Bitterman vs. L. & N.
R. R. Co., 207 U. S., 205; 28 Sup. Ct., 91; 52 L. Ed., 171;
Beekman vs.Marsters, 195 Mass., 205; 80 N. E., 817; 11 L. R. A. [N.

LUXURIA

HOMES,

vs. HONORABLE

remedy to prevent a wrongful interference with contract by strangers to such

contracts where the legal remedy is insufficient and the resulting injury is
irreparable. And where there is a malicious interference with lawful and valid
contracts a permanent injunction will ordinarily issue without proof of
express malice. So, an injunction may be issued where the complainant to
break their contracts with him by agreeing to indemnify who breaks his
contracts of employment may be adjoined from including other employees to
break their contracts and enter into new contracts with a new employer of
the servant who first broke his contract. But the remedy by injunction
cannot be used to restrain a legitimate competition, though such competition
would involve the violation of a contract. Nor will equity ordinarily enjoin
employees who have quit the service of their employer from attempting by
proper argument to persuade others from taking their places so long as they
do not resort to force or intimidations on obstruct the public thoroughfares."
Beekman vs. Marster, supra, is practically on all fours with the case at bar in
that there was only one contract in question and the profits of the injured
person depended upon the patronage of the public. Hamby &
Toomer vs.Georgia Iron & Coal Co., supra, is also similar to the case at bar in

COURT

AIDA
OF

M.

POSADAS, petitioners,

APPEALS,

JAMES

BUILDER

DECISION

Fed. vs. Glamorgan Coal Co., Appeal Cases, 1905, p. 239.)

In 3 Elliot on Contracts, section 2511, it is said: "Injunction is the proper

and/or

CONSTRUCTION and/or JAIME T. BRAVO, respondents.

S.] 201; 122 Am. St. Rep., 232; South Wales Miners'

See also Nims on Unfair Business Competition, pp. 351- 371.

INC.,

MARTINEZ, J.:
This petition for review assails the decision of the respondent Court of
Appeals dated March 15, 1996,[1] which affirmed with modification the
judgment of default rendered by the Regional Trial Court of Muntinlupa,
Branch 276, in Civil Case No. 92-2592 granting all the reliefs prayed for in
the complaint of private respondent James Builder Construction and/or
Jaime T. Bravo.
As culled from the record, the facts are as follows:
Petitioner Aida M. Posadas and her two (2) minor children co-owned a
1.6 hectare property in Sucat, Muntinlupa, which was occupied by
squatters. Petitioner

Posadas

entered

into

negotiations

with

private

respondent Jaime T. Bravo regarding the development of the said property

into a residential subdivision. On May 3, 1989, she authorized private
respondent to negotiate with the squatters to leave the said property. With a
written authorization, respondent Bravo buckled down to work and started
negotiations with the squatters.
Meanwhile, some seven (7) months later, on December 11, 1989,
petitioner Posadas and her two (2) children, through a Deed of Assignment,

166

assigned the said property to petitioner Luxuria Homes, Inc., purportedly for

WHEREFORE, premises considered, it is respectfully prayed of this

organizational and tax avoidance purposes. Respondent Bravo signed as one

Honorable Court that after hearing/trial judgment be rendered ordering

of the witnesses to the execution of the Deed of Assignment and the Articles

defendant to:

of Incorporation of petitioner Luxuria Homes, Inc.

a) Comply with its obligation to deliver/finalize Management Contract of its
Then sometime in 1992, the harmonious and congenial relationship of
petitioner Posadas and respondent Bravo turned sour when the former

land in Sucat, Muntinlupa, Metro Manila and to pay plaintiff its balance in
the amount of P1,708,489.00;

supposedly could not accept the management contracts to develop the 1.6
hectare property into a residential subdivision, the latter was proposing. In

b) Pay plaintiff moral and exemplary damages in the amount

retaliation, respondent Bravo demanded payment for services rendered in

of P500,000.00;

connection with the development of the land. In his statement of account

dated 21 August 1991[2] respondent demanded the payment of P1,708,489.00

c) Pay plaintiff actual damages in the amount of P500,000.00

for various services rendered, i.e., relocation of squatters, preparation of the

(Bunkhouse/warehouse P300,000.00, Hollow-block factory P60,000.00,

architectural design and site development plan, survey and fencing.

lumber, cement, etc., P120,000.00, guard P20,000.00);

Petitioner Posadas refused to pay the amount demanded. Thus, in

d) Pay plaintiff attorneys fee of P50,000 plus P700 per appearance in court

September 1992, private respondents James Builder Construction and Jaime

and 5% of that which may be awarded by the court to plaintiff re its

T. Bravo instituted a complaint for specific performance before the trial court

monetary claims;

against petitioners Posadas and Luxuria Homes, Inc. Private respondents

alleged therein that petitioner Posadas asked them to clear the subject parcel

e) Pay cost of this suit.[3]

of land of squatters for a fee ofP1,100,000.00 for which they were partially
paid the amount of P461,511.50, leaving a balance of P638,488.50. They

On September 27, 1993, the trial court declared petitioner Posadas in

were also supposedly asked to prepare a site development plan and an

default and allowed the private respondents to present their evidence ex-

architectural design for a contract price of P450,000.00 for which they were

parte. On March 8, 1994, it ordered petitioner Posadas, jointly and in

partially

solidum with petitioner Luxuria Homes, Inc., to pay private respondents as

paid

the

amount

of P25,000.00,

leaving

balance

of P425,000.00. And in anticipation of the signing of the land development

follows:

contract, they had to construct a bunkhouse and warehouse on the property

which

amounted

to P300,000.00,

and

hollow

blocks

factory

1. x x x the balance of the payment for the various services performed by

for P60,000.00. Private respondents also claimed that petitioner Posadas

Plaintiff with respect to the land covered by TCT NO. 167895 previously No.

agreed that private respondents will develop the land into a first class

158290 in the total amount of P1,708,489.00.

subdivision thru a management contract and that petitioner Posadas is

unjustly refusing to comply with her obligation to finalize the said

2. x x x actual damages incurred for the construction of the

management contract.

warehouses/bunks, and for the materials used in the total sum

of P1,500,000.00.

The prayer in the complaint of the private respondents before the trial
court reads as follows:

3. Moral and exemplary damages of P500,000.00.

4. Attorneys fee of P50,000.00.

167

1. Were private respondents able to present ex-parte sufficient

5. And cost of this proceedings.

evidence to substantiate the allegations in their complaint and entitle

Defendant Aida Posadas as the Representative of the Corporation Luxuria

them to their prayers?

Homes, Incorporated, is further directed to execute the management contract

she committed to do, also in consideration of the various undertakings that
Plaintiff rendered for her.[4]

2. Can petitioner Luxuria Homes, Inc., be held liable to private

respondents for the transactions supposedly entered into between
petitioner Posadas and private respondents?

Aggrieved by the aforecited decision, petitioners appealed to respondent

Court of Appeals, which, as aforestated, affirmed with modification the
decision of the trial court. The appellate court deleted the award of moral

3. Can petitioners be compelled to enter into a management

contract with private respondents?

damages on the ground that respondent James Builder Construction is a

corporation and hence could not experience physical suffering and mental

Petitioners who were declared in default assert that the private

anguish. It also reduced the award of exemplary damages. The dispositive

respondents who presented their evidence ex-parte nonetheless utterly failed

portion of the decision reads:

to substantiate the allegations in their complaint and as such cannot be

entitled to the reliefs prayed for.

WHEREFORE, the decision appealed from is hereby AFFIRMED with the

modification that the award of moral damages is ordered deleted and the

A perusal of the record shows that petitioner Posadas contracted

award of exemplary damages to the plaintiffs-appellee should only be in the

respondents Bravo to render various services for the initial development of

amount of FIFTY THOUSAND (P50,000.00) PESOS.[5]

the property as shown by vouchers evidencing payments made by petitioner

Posadas to respondents Bravo for squatter relocation, architectural design,

Petitioners motion for reconsideration was denied, prompting the filing

survey and fencing.

of this petition for review before this Court.

Respondents prepared the architectural design, site development plan
On January 15, 1997, the Third Division of this Court denied due

and survey in connection with petitioner Posadas application with the

course to this petition for failing to show convincingly any reversible error on

Housing and Land Regulatory Board (HLRUB) for the issuance of the

the part of the Court of Appeals. This Court however deleted the grant of

Development

exemplary damages and attorneys fees. The Court also reduced the trial

[6]

courts

to P500,000.00

Locational Clearance were eventually issued by the HLURB in her

reasoning that the grant should not exceed the amount prayed for in the

favor. Petitioner Posadas is therefore liable to pay for these services rendered

complaint. In the prayer in the complaint respondents asked for actual

by

damages in the amount of P500,000.00 only.

is P140,000.00. Petitioner

award

of

actual

damages

from P1,500,000.00

Permit,

Preliminary

Approval

and

Locational

Clearance.

Petitioner benefited from said services as the Development Permit and the

respondents. The

contract
made

price
partial

for

the

survey

payments

of

the

land

totaling P130,000.00

leaving a payable balance of P10,000.00.

Still feeling aggrieved with the resolution of this Court, petitioners filed a
motion for reconsideration. On March 17, 1997, this Court found merit in

In his testimony,[7] he alleged that the agreed price for the preparation of

the petitioners motion for reconsideration and reinstated this petition for

the site development plan is P500,000.00 and that the preparation of the

review.

architectural designs is for P450,000, or a total ofP950,000.00 for the two

contracts. In his complaint however, respondent Bravo alleged that he was

From their petition for review and motion for reconsideration before this

asked to prepare the site development plan and the architectural designs x x

Court, we now synthesize the issues as follows:

168

x for a contract price ofP450,000.00 x x x. [8] The

discrepancy or

inconsistency was never reconciled and clarified.

And the rules do not change even if the defendant is declared in

default. In the leading case of Lopez v. Mendezona,[11] this Court ruled that
after entry of judgment in default against a defendant who has neither

We reiterate that we cannot award an amount higher than what was

appeared nor answered, and before final judgment in favor of the plaintiff,

claimed in the complaint. Consequently for the preparation of both the

the latter must establish by competent evidence all the material allegations of

architectural design and site development plan, respondent is entitled to the

his complaint upon which he bases his prayer for relief. In De los Santos v.

amount of P450,000.00 less partial payments

made

of P25,000.00. In Policarpio v. RTC of Quezon City,

[9]

in the

amount

it was held that a

court is bereft of jurisdiction to award, in a judgment by default, a relief other

than that specifically prayed for in the complaint.
As regards the contracts for the ejectment of squatters and fencing, we
believe however that respondents failed to show proof that they actually
fulfilled their commitments therein. Aside from the bare testimony of
respondent Bravo, no other evidence was presented to show that all the
squatter were ejected from the property. Respondent Bravo failed to show

De la Cruz[12] this Court declared that a judgment by default against a

defendant does not imply a waiver of rights except that of being heard and of
presenting evidence in his favor. It does not imply admission by the
defendant of the facts and causes of action of the plaintiff, because the codal
section requires the latter to adduce his evidence in support of his allegations
as an indispensable condition before final judgment could be given in his
favor. Nor could it be interpreted as an admission by the defendant that the
plaintiffs causes of action finds support in the law or that the latter is
entitled to the relief prayed for.

how many shanties or structures were actually occupying the property before
he entered the same, to serve as basis for concluding whether the task was
finished or not. His testimony alone that he successfully negotiated for the
ejectment of all the squatters from the property will not suffice.
Likewise, in the case of fencing, there is no proof that it was
accomplished as alleged. Respondent Bravo claims that he finished sixty
percent (60%) of the fencing project but he failed to present evidence showing
the area sought to be fenced and the actual area fenced by him. We therefore
have no basis to determining the veracity respondents allegations. We
cannot assume that the said services rendered for it will be unfair to require
petitioner to pay the full amount claimed in case the respondents obligations
were not completely fulfilled.
For respondents failure to show proof of accomplishment of the
aforesaid services, their claims cannot be granted. In P.T. Cerna Corp. v.
Court of Appeals,[10] we ruled that in civil cases, the burden of proof rests
upon the party who, as determined by the pleadings or the nature of the
case, asserts the affirmative of an issue. In this case the burden lies on the
complainant, who is duty bound to prove the allegations in the complaint. As
this Court has held, he who alleges a fact has the burden of proving it and A

We explained the rule in judgments by default in Pascua v. Florendo,

[13]

where we said that nowhere is it stated that the complainants are

automatically entitled to the relief prayed for, once the defendants are
declared in default. Favorable relief can be granted only after the court has
ascertained that the evidence offered and the facts proven by the presenting
party warrant the grant of the same. Otherwise it would be meaningless to
require presentation of evidence if everytime the other party is declared in
default, a decision would automatically be rendered in favor of the nondefaulting party and exactly according to the tenor of his prayer. In Lim
Tanhu v. Ramolete[14] we elaborated and said that a defaulted defendant is
not actually thrown out of court. The rules see to it that any judgment
against him must be in accordance with law. The evidence to support the
plaintiffs cause is, of course, presented in his absence, but the court is not
supposed to admit that which is basically incompetent. Although the
defendant would not be in a position to object, elementary justice requires
that only legal evidence should be considered against him. If the evidence
presented should not be sufficient to justify a judgment for the plaintiff, the
complaint must be dismissed. And if an unfavorable judgment should be
justifiable, it cannot exceed the amount or be different in kind from what is
prayed for in the complaint.

MERE ALLEGATION IS NOT EVIDENCE.

169

amount of P500,000.00,

supposedly very pleasant. In fact the Deed of Assignment dated 11

supposedly for the bunkhouse/warehouse, hollow-block factory, lumber,

The

prayer

for

December 1989 and the Articles of Incorporation of Luxuria Homes, Inc.,

cement, guard, etc., which the trial court granted and even increased

issued 26 January 1990 were both signed by respondent Bravo himself as

to P1,500,000.00, and which this Court would have rightly reduced to the

witness. It cannot be said then that the incorporation of petitioner Luxuria

amount prayed for in the complaint, was not established, as shown upon

Homes and the eventual transfer of the subject property to it were in fraud of

further review of the record. No receipts or vouchers were presented by

private respondent as such were done with the full knowledge of respondent

private respondents to show that they actually spent the amount. In Salas

Bravo himself.

v. Court of Appeals,

actual damages

[15]

in the

we said that the burden of proof of the damages

suffered is on the party claiming the same. It his duty to present evidence to
support his claim for actual damages. If he failed to do so, he has only
himself to blame if no award for actual damages is handed down.

Besides petitioner Posadas is not the majority stockholder of petitioner

Luxuria Homes, Inc., as erroneously stated by the lower court. The Articles
of Incorporation of petitioner Luxuria Homes, Inc., clearly show that
petitioner Posadas owns approximately 33% only of the capital stock. Hence

In fine, as we declared in PNOC Shipping & Transport Corp. v. Court

of Appeals,[16] basic is the rule that to recover actual damages, the amount

petitioner Posadas cannot be considered as an alter ego of petitioner Luxuria

Homes, Inc.

of loss must not only be capable of proof but must actually be proven with
reasonable degree of certainty, premised upon competent proof or best
evidence obtainable of the actual amount thereof.

presumed. This is elementary. Thus in Bayer-Roxas v. Court of Appeals,

We go to the second issue of whether Luxuria Homes, Inc., was a party

to the transactions entered into by petitioner Posadas and private
respondents and thus could be held jointly and severally with petitioner
Posadas. Private

respondents

contend

that

To disregard the separate juridical personality of a corporation, the

wrongdoing must be clearly and convincingly established. It cannot be

petitioner

Posadas

surreptitiously formed Luxuria Homes, Inc., and transferred the subject

parcel of land to it to evade payment and defraud creditors, including private
respondents. This allegation does not find support in the evidence on record.
On the contrary we hold that respondents Court of Appeals committed a
reversible error when it upheld the factual finding of the trial court that
petitioners liability was aggravated by the fact that Luxuria Homes, Inc., was
formed by petitioner Posadas after demand for payment had been made,
evidently for her to evade payment of her obligation, thereby showing that the
transfer of her property to Luxuria Homes, Inc., was in fraud of creditors.
We easily glean from the record that private respondents sent demand
letters on 21 August 1991 and 14 September 1991, or more than a year and
a half after the execution of the Deed of Assignment on 11 December 1989,
and the issuance of the Articles of Incorporation of petitioner Luxuria Homes
on 26 January 1990. And, the transfer was made at the time the
relationship between petitioner Posadas and private respondents was

[17]

we said that the separate personality of the corporation may be

disregarded only when the corporation is used as a cloak or cover for fraud or
illegality, or to work injustice, or where necessary for the protection of the
creditors. Accordingly

in Del

Rosario

v.

NLRC,[18] where

the

Philsa

International Placement and Services Corp. was organized and registered

with the POEA in 1981, several years before the complainant was filed a case
in 1985, we held that this cannot imply fraud.
Obviously in the instant case, private respondents failed to show proof
that petitioner Posadas acted in bad faith. Consequently since private
respondents failed to show that petitioner Luxuria Homes, Inc., was a party
to any of the supposed transactions, not even to the agreement to negotiate
with and relocate the squatters, it cannot be held liable, nay jointly and in
solidum, to pay private respondents. In this case since it was petitioner Aida
M. Posadas who contracted respondent Bravo to render the subject services,
only she is liable to pay the amounts adjudged herein.
We now resolved the third and final issue. Private respondents urge the
court to compel petitioners to execute a management contract with them on
the basis of the authorization letter dated May 3, 1989. The full text of Exh
D reads:

170

I hereby certify that we have duly authorized the bearer, Engineer Bravo to

WHEREFORE, the petition is PARTIALLY GRANTED. The assailed

negotiate, in our behalf, the ejectment of squatters from our property of 1.6

decision dated March 15, 1996, of respondent Honorable Court of Appeals

hectares, more or less, in Sucat, Muntinlupa. This authority is extended to

and its Resolution dated August 12, 1996, are MODIFIED ordering

him as the representatives of the Managers, under our agreement for them to

PETITIONER AIDA M. POSADAS to pay PRIVATE RESPONDENTS the amount

undertake the development of said area and the construction of housing

of P435,000.00 as balance for the preparation of the architectural design,

units intended to convert the land into a first class subdivision.

site development plan and survey. All other claims of respondents are hereby
DENIED for lack of merit.

The aforecited document is nothing more than a to-whom-it-mayconcern authorization letter to negotiate with the squatters. Although it
appears that there was an agreement for the development of the area, there

SO ORDERED

is no showing that same was never perfected and finalized. Private

respondents presented in evidence only drafts of a proposed management
contract with petitioners handwritten marginal notes but the management
contract was not put in its final form. The reason why there was no final
uncorrected draft was because the parties could not agree on the

[G.R. No. 121069. February 7, 2003]

stipulations of said contract, which even the private respondents admitted as

found by the trial court. [19] As a consequence the management drafts
submitted by the private respondents should at best be considered as mere
unaccepted offers. We find no cogent reason, considering that the parties no
longer are in a harmonious relationship, for the execution of a contract to
develop a subdivision.

BENJAMIN

CORONEL

parties. To compel

petitioner

Posadas,

whether

as

representatives

of

EMILIA

MEKING

VDA.

DE

CORONEL, petitioners, vs. FLORENTINO CONSTANTINO, AUREA

BUENSUCESO,

AND

THE

HONORABLE

COURT

OF

APPEALS, respondents.
DECISION

It is fundamental that there can be no contract in the true sense in the

absence of the element of agreement, or of mutual assent of the

AND

AUSTRIA-MARTINEZ, J.:

petitioners Luxuria Homes or in her personal capacity, to execute a

management contract under the terms and conditions of private respondents

This refers to the petition for review on certiorari of the decision of the

of

Court of Appeals, dated March 27, 1995, in CA-G.R. CV No. 44023 [1] which

contracts. In Philippine National bank v. Court of Appeals,[20] we held

affirmed the decision of the Regional Trial Court of Bulacan, Branch 8, dated

would

be

to

violate

the

principle

of consensuality

that if the assent is wanting on the part of one who contracts, his act has no
more efficacy than if it had been done under duress or by a person of
unsound mind. In ordering petitioner Posadas to execute a management
contract with private respondents, the trial court in effect is putting her
under duress.
The parties are bound to fulfill the stipulations in a contract only upon
its perfection. At anytime prior to the perfection of a contract, unaccepted
offers and proposals remain as such and cannot be considered as binding
commitments; hence not demandable.

April 12, 1993 in Civil Case No. 105-M-91 [2]; and the resolution of said
appellate court, dated July 4, 1995, denying the motion for reconsideration of
its decision.
The factual background of the case is as follows:
The subject property consists of two parcels of land situated in Sta.
Monica, Hagonoy, Bulacan, designated as Cadastral Lots Nos. 5737 and
5738. The property is originally owned by Honoria Aguinaldo. One-half
(1/2) of it was inherited by Emilia Meking Vda. de Coronel together with her

171

sons Benjamin, Catalino and Ceferino, all surnamed Coronel. The other half

SO ORDERED.[4]

was inherited by Florentino Constantino and Aurea Buensuceso.

On appeal brought by defendants, the Court of Appeals affirmed the
On February 20, 1991, Constantino and Buensuceso filed a complaint
for declaration of ownership, quieting of title and damages with prayer for

decision

of

the

lower

court

and

denied

defendants

motion

for

reconsideration.

writ of mandatory and/or prohibitory injunction with the Regional Trial

Court of Bulacan (Branch 8) against Benjamin, Emilia and John Does,
docketed as Civil Case No. 105-M-91. Plaintiffs allege that: on April 23,

Hence, herein petition brought by defendants, raising the following

issues:

1981, Jess C. Santos and Priscilla Bernardo purchased the property

belonging to Emilia and her sons by virtue of a deed of sale signed by

I.

Emilia; on June 21, 1990, Santos and Bernardo in turn sold the same to
Constantino and Buensuceso by virtue of a compromise agreement in Civil

WHETHER OR NOT THE CONTRACT [OF] SALE EXECUTED BY A

Case No. 8289-M; they are the owners of the subject property and defendants

PARENT-CO-OWNER,

have illegally started to introduce construction on the premises in question;

UNENFORCEABLE WITH RESPECT TO THE SHARES OF HER

and pray that defendants respect, acknowledge and confirm the right of

CO-HEIRS-CHILDREN;

IN

HER

OWN

BEHALF,

IS

ownership of the plaintiffs to the share, interest and participation of the onethird (1/3) portion of the above described property.
After defendants filed their Answer, pre-trial ensued wherein the parties
stipulated that: (1) the property in question was previously owned by Honoria
Aguinaldo, one-half (1/2) of which was inherited by the defendants while the

II.
WHETHER

OR

NOT

THE

other half was inherited by the plaintiffs from the same predecessor; (2) it

there was no evidence presented in Civil Case No. 8289-M by either of the
parties and that the decision therein was based on a compromise agreement.
[3]

After trial on the merits, the trial court rendered a decision in favor of
the plaintiffs, the decretal portion of which reads as follows:
WHEREFORE, judgment is hereby made in favor of plaintiffs, the Court
hereby declares plaintiffs as the sole and absolute owners of the properties
covered by Tax Declarations Nos. 28960 and 28961 of Hagonoy, Bulacan, and
orders the defendants to respect, acknowledge and confirm the right of
ownership of plaintiffs over the whole property described above, to remove
whatever improvements introduced by them thereon, and to pay the
plaintiffs, solidarily and severally P10,000.00 as attorneys fees and costs of

CHILDREN

CAN

RATIFY

III.

was admitted by counsel for the defendants that there was a sale between
Jess Santos and the plaintiffs covering the subject property; and (3) that

MINOR

UNAUTHORIZED ACTIONS OF THEIR PARENTS;

WHETHER

OR

DEFENDANTS

NOT
IN

THE
AN

CO-HEIRS
ACTION

ARE

FOR

INDISPENSABLE

DECLARATION

OF

OWNERSHIP AND QUIETING OF TITLE;

IV.
WHETHER OR NOT THE DEED OF SALE WHICH IS A PRIVATE
DOCUMENT WAS SUFFICIENTLY ESTABLISHED WHEN THE
COUNSEL FOR THE DEFENDANTS-PETITIONERS ADMITTED
ONLY ITS EXISTENCE BUT NOT ITS CONTENTS. [5]
The third issue was raised by the petitioners for the first time with the
Court of Appeals. They claim that the complaint should have been dismissed
because private respondents failed to implead the heirs of Ceferino and

suit.

172

Catalino who died in 1983 and 1990, [6] respectively, in their complaint as

Na, ako namang Jess C. Santos, bilang nakabili, ay kusang loob ding

indispensable parties. We do not agree.

nagsasaysay sa kasulatang ito na ako ay kasangayon sa lahat ng ditoy

nakatala, bagaman ang lupang naturan ay hindi pa nahahati sa dapat

A careful reading of the Kasulatan ng Bilihang Patuluyan which is a

magmana sa yumaong Honoria Aguinaldo.

private document, not having been duly notarized, shows that only the share
of Emilia in the subject property was sold because Benjamin did not sign the

Na, sa aming kagipitan inari naming ipagbili ang aming karapatan o kaparte

document and the shares of Ceferino and Catalino were not subject of the

na minana sa yumaong Guillermo Coronel ay napagkasunduan namin mag-

sale. Pertinent portions of the document read as follows:

iina na ipagbili ang bakurang ito na siyang makalulunas sa aming

pangangailangan x x x.

KASULATAN NG BILIHANG PATULUYAN

Na, kaming nagbili ang magtatanggol ng katibayan sa pagmamayari sa
PANIWALAAN NG LAHAT:

lupang naturan, sakaling may manghihimasok.

Kaming mag-iinang Emilia Micking Vda. Coronel at Benjamin M. Coronel

SA KATUNAYAN NITO, kami ay lumagda sa kasulatang ito sa bayan ng

kapwa may sapat na gulang, Pilipino, naninirahan sa nayon ng Sta. Monica,

Malabon, Rizal ngayong ika-23 ng Abril, 1981.

Hagonoy, Bulacan, sa kasulatang ito ay malaya naming:

(Signed)

(Signed)

P I N A T U T U N A Y A N
EMILIA MICKING Vda. CORONEL

JESS C. SANTOS

Na, kami ay tunay na nagmamay-ari ng isang lagay na lupang Bakuran na

minana namin sa aming Lolong yumaong Mauricio Coronel, na ang ayos,

Nagbili

Nakabili

takal at kalagayan ay ang sumusunod:

(Unsigned)

(Signed)

ORIGINAL CERTIFICATE OF TITLE NO. 5737

BENJAMIN M. CORONEL

PRISCILLA BERNARDO

Bakuran sa nayon ng Sta. Monica, Hagonoy, Bulacan na may sukat na 416

Square Meters ang kabuuan 208 Square Meters Lot A-1 ang kalahati nito na

Nagbili

Nakabili[7]

kanilang ipinagbibili.
Thus, it is clear, as already stated, that petitioner Benjamin did not sign
x x x

xxx

xxx

the document and that the shares of Catalino and Ceferino in the subject
property were not sold by them.

Na, dahil at alang-alang sa halagang DALAWAMPUT LIMANG LIBONG PISO

(P25,000) salaping Pilipino, na aming tinanggap sa kasiyahang loob namin,

Since the shares of Catalino and Ceferino were not sold, plaintiffs

buhat sa mag-asawang Jess C. Santos at Prescy Bernardo, kapwa may sapat

Constantino and Buensuceso have no cause of action against them or

na gulang, Pilipino at naninirahan sa nayon ng Sta. Monica, Hagonoy,

against any of their heirs. Under Rule 3, Section 7 of the 1997 Rules of Civil

Bulacan, sa bisa ng kasulatang ito, ay aming isinasalin, inililipat at

Procedure, indispensable parties are parties in interest without whom no

ipinagbibili ng bilihang patuluyan ang lahat ng aming dapat na makaparte

final determination can be had of an action. In the present case, the heirs of

sa lupang Bakuran Nakasaad sa dakong unahan nito, sa nabanggit na Jess

Catalino and Ceferino are not indispensable parties because a complete

C. Santos at Prescy Bernardo o sa kanilang tagapagmana at kahalili.

173

determination of the rights of herein petitioners and respondents can be had

23, 1981[9], the subject property was co-owned, pro-indiviso, by petitioner

even if the said heirs are not impleaded.

Emilia together with her petitioner son Benjamin, and her two other sons,
Catalino and Ceferino. No proof was presented to show that the co-ownership

Besides, it is undisputed that petitioners never raised before the trial

court the issue of the private respondents failure to implead said heirs in

that existed among the heirs of Ceferino and Catalino and herein petitioners
has ever been terminated.

their complaint. Instead, petitioners actively participated in the proceedings

in the lower court and raised only the said issue on appeal with the Court of

Applying Articles 1317 and 1403 of the Civil Code, the Court of Appeals

Appeals. It is a settled rule that jurisdictional questions may be raised at

ruled that through their inaction and silence, the three sons of Emilia are

any time unless an exception arises where estoppel has supervened. [8] In the

considered to have ratified the aforesaid sale of the subject property by their

present case, petitioners participation in all stages of the case during trial,

mother.

without raising the issue of the trial courts lack of jurisdiction over
indispensable parties, estops them from challenging the validity of the

Articles 1317 and 1403 (1) of the Civil Code provide:

proceedings therein.
Art. 1317. No one may contract in the name of another without being
Further, the deed of sale is not a competent proof that petitioner

authorized by the latter, or unless he has by law a right to represent him.

Benjamin had sold his own share of the subject property. It cannot be
disputed that Benjamin did not sign the document and therefore, it is

A contract entered into in the name of another by one who has no authority

unenforceable against him.

or legal representation or who has acted beyond his powers shall be

unenforceable, unless it is ratified, expressly or impliedly, by the person on

Emilia executed the instrument in her own behalf and not in

representation of her three children.
Article 493 of the Civil Code states:

whose behalf it has been executed, before it is revoked by the other

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

Each co-owner shall have the full ownership of his part and of the fruits and
benefits pertaining thereto, and he may therefore alienate, assign or

(1) Those entered into in the name of another person by one who has been

mortgage it, and even substitute another person in its enjoyment, except

given no authority or legal representation, or who has acted beyond his

when personal rights are involved. But the effect of the alienation or the

powers.

mortgage, with respect to the co-owners, shall be limited to the portion which
may be allotted to him in the division upon the termination of the co-

xxx

xxx

x x x

ownership.
We do not agree with the appellate court. The three sons of Emilia did
Consequently, the sale of the subject property made by Emilia in favor of

not ratify the sale. In Maglucot-Aw vs. Maglucot[10] we held that:

Santos and Bernardo is limited to the portion which may be allotted to her
upon the termination of her co-ownership over the subject property with her

Ratification means that one under no disability voluntarily adopts and gives

children.

sanction to some unauthorized act or defective proceeding, which without his

sanction would not be binding on him. It is this voluntary choice, knowingly

As to the first, second and fourth issues it has been established that
at the time of execution of the Kasulatan ng Bilihang Patuluyan on April

made, which amounts to a ratification of what was theretofore unauthorized,

and becomes the authorized act of the party so making the ratification.

174

No evidence was presented to show that the three brothers were aware of the
sale made by their mother. Unaware of such sale, Catalino, Ceferino and

WHEREFORE, the assailed Decision and Resolution of the Court of

Appeals are AFFIRMED with the following MODIFICATIONS:

Benjamin could not be considered as having voluntarily remained silent and

knowingly chose not to file an action for the annulment of the sale. Their

1. Plaintiffs-private respondents Florentino Constantino and Aurea

alleged silence and inaction may not be interpreted as an act of ratification

Buensuceso are declared owners of one-half (1/2) undivided portion of the

on their part.

subject property plus the one-fourth () undivided share of defendantpetitioner

Emilia

Meking

Vda.

de

Coronel;

and,

defendant-petitioner

We also find no concrete evidence to show that Ceferino, Catalino and

Benjamin Coronel together with the heirs of Catalino Coronel and the heirs of

Benjamin benefited from the sale. It is true that private respondent

Ceferino Coronel are declared owners of one-fourth () share each of the

Constantino testified that Benjamin took money from Jess Santos but this is

other one-half (1/2) portion of the subject property, without prejudice to the

mere allegation on the part of Constantino. No other evidence was presented

parties entering into partition of the subject property, judicial or otherwise.

to support such allegation. Bare allegations, unsubstantiated by evidence,

are not equivalent to proof under our Rules of Court. [11] Neither do the

2. The order of removal of the improvements and the award of the

records show that Benjamin admitted having received money from Jess

amount of Ten Thousand Pesos (P10,000.00) as attorneys fees and costs of

Santos. Even granting that Benjamin indeed received money from Santos,

suit are DELETED.

Constantinos testimony does not show that the amount received was part of
the consideration for the sale of the subject property.
To repeat, the sale is valid insofar as the share of petitioner Emilia
Meking Vda. de Coronel is concerned. The due execution of the Kasulatan

No costs.
SO ORDERED.

ng Bilihang Patuluyan was duly established when petitioners, through their

counsel, admitted during the pre-trial conference that the said document
was signed by Emilia.[12] While petitioners claim that Emilia erroneously
signed it under the impression that it was a contract of mortgage and not of
sale, no competent evidence was presented to prove such allegation.
Hence, Jess C. Santos and Priscilla Bernardo, who purchased the share
of Emilia, became co-owners of the subject property together with Benjamin
and the heirs of Ceferino and Catalino. As such, Santos and Bernardo could
validly dispose of that portion of the subject property pertaining to Emilia in

[G.R. No. 133632. February 15, 2002]

BPI INVESTMENT CORPORATION, petitioner, vs. HON. COURT OF
APPEALS

However, the particular portions properly pertaining to each of the coforum or extrajudicial settlement among the parties has been effected among
the parties. Consequently, the prayer of respondents for a mandatory or
prohibitory injunction lacks merit.

ALS

MANAGEMENT

&

DEVELOPMENT

CORPORATION, respondents.

favor of herein private respondents Constantino and Buensuceso.

owners are not yet defined and determined as no partition in the proper

and

DECISION
QUISUMBING, J.:
This petition for certiorari assails the decision dated February 28, 1997,
of the Court of Appeals and its resolution dated April 21, 1998, in CA-G.R.
CV No. 38887. The appellate court affirmed the judgment of the Regional
Trial Court of Pasig City, Branch 151, in (a) Civil Case No. 11831, for

175

foreclosure of mortgage by petitioner BPI Investment Corporation (BPIIC for

On September

13,

1982,

BPIIC

released

to

private

brevity) against private respondents ALS Management and Development

respondents P7,146.87, purporting to be what was left of their loan after full

Corporation and Antonio K. Litonjua,[1] consolidated with (b) Civil Case No.

payment of Roas loan.

52093, for damages with prayer for the issuance of a writ of preliminary
injunction by the private respondents against said petitioner.

In June 1984, BPIIC instituted foreclosure proceedings against private

respondents on the ground that they failed to pay the mortgage indebtedness

The trial court had held that private respondents were not in default in

which from May 1, 1981 to June 30, 1984, amounted to Four Hundred

the payment of their monthly amortization, hence, the extrajudicial

Seventy Five Thousand Five Hundred Eighty Five and 31/100 Pesos

foreclosure conducted by BPIIC was premature and made in bad faith. It

(P475,585.31). A notice of sheriffs sale was published on August 13, 1984.

awarded

private

respondents

the

amount

of P300,000

for

moral

damages, P50,000 for exemplary damages, and P50,000 for attorneys fees

On February 28, 1985, ALS and Litonjua filed Civil Case No. 52093

and expenses for litigation. It likewise dismissed the foreclosure suit for being

against BPIIC. They alleged, among others, that they were not in arrears in

premature.

their payment, but in fact made an overpayment as of June 30, 1984. They
maintained that they should not be made to pay amortization before the

The facts are as follows:

actual release of the P500,000 loan in August and September 1982. Further,
out of the P500,000 loan, only the total amount of P464,351.77 was released

Frank Roa obtained a loan at an interest rate of 16 1/4% per annum

to private respondents. Hence, applying the effects of legal compensation, the

from Ayala Investment and Development Corporation (AIDC), the predecessor

balance of P35,648.23 should be applied to the initial monthly amortization

of

for the loan.

petitioner

BPIIC,

for

the

construction

of

house

on

his

lot

in New Alabang Village, Muntinlupa. Said house and lot were mortgaged to
AIDC to secure the loan. Sometime in 1980, Roa sold the house and lot to
private

respondents

ALS

and

Antonio

Litonjua

for P850,000.

They

On August 31, 1988, the trial court rendered its judgment in Civil Case
Nos. 11831 and 52093, thus:

paid P350,000 in cash and assumed the P500,000 balance of Roas

indebtedness with AIDC. The latter, however, was not willing to extend the old

WHEREFORE, judgment is hereby rendered in favor of ALS Management and

interest rate to private respondents and proposed to grant them a new loan

Development Corporation and Antonio K. Litonjua and against BPI

of P500,000 to be applied to Roas debt and secured by the same property, at

Investment Corporation, holding that the amount of loan granted by BPI to

an interest rate of 20% per annum and service fee of 1% per annum on the

ALS and Litonjua was only in the principal sum of P464,351.77, with interest

outstanding principal balance payable within ten years in equal monthly

at 20% plus service charge of 1% per annum, payable on equal monthly and

amortization of P9,996.58 and penalty interest at the rate of 21% per annum

successive amortizations at P9,283.83 for ten (10) years or one hundred

per day from the date the amortization became due and payable.

twenty (120) months. The amortization schedule attached as Annex A to the

Deed of Mortgage is correspondingly reformed as aforestated.

Consequently, in March 1981, private respondents executed a mortgage

deed containing the above stipulations with the provision that payment of the

The Court further finds that ALS and Litonjua suffered compensable

monthly amortization shall commence on May 1, 1981.

damages when BPI caused their publication in a newspaper of general

circulation as defaulting debtors, and therefore orders BPI to pay ALS and

On August 13, 1982, ALS and Litonjua updated Roas arrearages by

Litonjua the following sums:

paying BPIIC the sum of P190,601.35. This reduced Roas principal balance
to P457,204.90 which, in turn, was liquidated when BPIIC applied thereto

a) P300,000.00 for and as moral damages;

the proceeds of private respondents loan of P500,000.

176

b) P50,000.00 as and for exemplary damages;

The motion for reconsideration filed by petitioner BPIIC was likewise

denied, hence this petition, where BPIIC submits for resolution the following

c) P50,000.00 as and for attorneys fees and expenses of litigation.

The foreclosure suit (Civil Case No. 11831) is hereby DISMISSED for being

issues:
I. WHETHER OR NOT A CONTRACT OF LOAN IS A CONSENSUAL
CONTRACT IN THE LIGHT OF THE RULE LAID DOWN

premature.

IN BONNEVIE VS. COURT OF APPEALS, 125 SCRA 122.

Costs against BPI.
II. WHETHER OR NOT BPI SHOULD BE HELD LIABLE FOR
MORAL AND EXEMPLARY DAMAGES AND ATTORNEYS FEES

SO ORDERED.[2]

IN THE FACE OF IRREGULAR PAYMENTS MADE BY ALS AND

OPPOSED TO THE RULE LAID DOWN IN SOCIAL SECURITY

Both parties appealed to the Court of Appeals. However, private

SYSTEM VS. COURT OF APPEALS, 120 SCRA 707.

respondents appeal was dismissed for non-payment of docket fees.

On February 28, 1997, the Court of Appeals promulgated its decision,
the dispositive portion reads:

On the first issue, petitioner contends that the Court of Appeals erred in
ruling that because a simple loan is perfected upon the delivery of the object
of the contract, the loan contract in this case was perfected only

WHEREFORE, finding no error in the appealed decision the same is hereby

on September 13, 1982. Petitioner claims that a contract of loan is a

AFFIRMED in toto.

consensual contract, and a loan contract is perfected at the time the contract
of mortgage is executed conformably with our ruling in Bonnevie v. Court of

SO ORDERED.

[3]

Appeals, 125 SCRA 122. In the present case, the loan contract was perfected
on March 31, 1981, the date when the mortgage deed was executed, hence,

In its decision, the Court of Appeals reasoned that a simple loan is

perfected only upon the delivery of the object of the contract. The contract of

the amortization and interests on the loan should be computed from said
date.

loan between BPIIC and ALS & Litonjua was perfected only on September 13,
1982, the date when BPIIC released the purported balance of the P500,000

Petitioner also argues that while the documents showed that the loan

loan after deducting therefrom the value of Roas indebtedness. Thus,

was released only on August 1982, the loan was actually released on March

payment of the monthly amortization should commence only a month after

31, 1981, when BPIIC issued a cancellation of mortgage of Frank Roas

the said date, as can be inferred from the stipulations in the contract. This,

loan. This finds support in the registration on March 31, 1981 of the Deed of

despite the express agreement of the parties that payment shall commence

Absolute Sale executed by Roa in favor of ALS, transferring the title of the

on May 1, 1981. From October 1982 to June 1984, the total amortization

property to ALS, and ALS executing the Mortgage Deed in favor of

due was only P194,960.43. Evidence showed that private respondents had

BPIIC. Moreover, petitioner claims, the delay in the release of the loan

an overpayment, because as of June 1984, they already paid a total amount

should be attributed to private respondents. As BPIIC only agreed to extend

of P201,791.96. Therefore, there was no basis for BPIIC to extrajudicially

a P500,000 loan, private respondents were required to reduce Frank Roas

foreclose the mortgage and cause the publication in newspapers concerning

loan below said amount. According to petitioner, private respondents were

private respondents delinquency in the payment of their loan. This fact

only able to do so in August 1982.

constituted sufficient ground for moral damages in favor of private

respondents.

In their comment, private respondents assert that based on Article 1934

of the Civil Code,[4] a simple loan is perfected upon the delivery of the object

177

of the contract, hence a real contract. In this case, even though the loan

loan. However, since the fault was attributable to petitioner therein, the

contract was signed on March 31, 1981, it was perfected only on September

court did not award it damages.

13, 1982, when the full loan was released to private respondents. They
submit that petitioner misread Bonnevie. To give meaning to Article 1934,

A perfected consensual contract, as shown above, can give rise to an

according to private respondents, Bonnevie must be construed to mean that

action for damages. However, said contract does not constitute the real

the contract to extend the loan was perfected on March 31, 1981 but the

contract of loan which requires the delivery of the object of the contract for

contract of loan itself was only perfected upon the delivery of the full loan to

its perfection and which gives rise to obligations only on the part of the

private respondents on September 13, 1982.

borrower.[6]

Private respondents further maintain that even granting, arguendo, that

In the present case, the loan contract between BPI, on the one hand,

the loan contract was perfected on March 31, 1981, and their payment did

and ALS and Litonjua, on the other, was perfected only on September 13,

not start a month thereafter, still no default took place. According to private

1982, the date of the second release of the loan. Following the intentions of

respondents, a perfected loan agreement imposes reciprocal obligations,

the parties on the commencement of the monthly amortization, as found by

where the obligation or promise of each party is the consideration of the

the Court of Appeals, private respondents obligation to pay commenced only

other party. In this case, the consideration for BPIIC in entering into the

on October 13, 1982, a month after the perfection of the contract. [7]

loan contract is the promise of private respondents to pay the monthly

amortization. For the latter, it is the promise of BPIIC to deliver the

We also agree with private respondents that a contract of loan involves a

money. In reciprocal obligations, neither party incurs in delay if the other

reciprocal obligation, wherein the obligation or promise of each party is the

does not comply or is not ready to comply in a proper manner with what is

consideration for that of the other.[8]As averred by private respondents, the

incumbent upon him. Therefore, private respondents conclude, they did not

promise of BPIIC to extend and deliver the loan is upon the consideration

incur in delay when they did not commence paying the monthly amortization

that ALS and Litonjua shall pay the monthly amortization commencing

on May 1, 1981, as it was only on September 13, 1982 when petitioner fully

onMay 1, 1981, one month after the supposed release of the loan. It is a

complied with its obligation under the loan contract.

basic principle in reciprocal obligations that neither party incurs in delay, if

the other does not comply or is not ready to comply in a proper manner with

We agree with private respondents. A loan contract is not a consensual

what is incumbent upon him.[9] Only when a party has performed his part of

contract but a real contract. It is perfected only upon the delivery of the

the contract can he demand that the other party also fulfills his own

object

of

the

contract.

[5]

Petitioner

misapplied Bonnevie. The

contract

obligation and if the latter fails, default sets in. Consequently, petitioner

in Bonnevie declared by this Court as a perfected consensual contract falls

could

only

demand

for

the

payment

of

the

monthly

amortization

under the first clause of Article 1934, Civil Code. It is an accepted promise to

after September 13, 1982 for it was only then when it complied with its

deliver something by way of simple loan.

obligation under the loan contract. Therefore, in computing the amount due
as of the date when BPIIC extrajudicially caused the foreclosure of the

In Saura Import and Export Co. Inc. vs. Development Bank of the

mortgage, the starting date isOctober 13, 1982 and not May 1, 1981.

Philippines, 44 SCRA 445, petitioner applied for a loan of P500,000 with

respondent bank. The latter approved the application through a board

Other points raised by petitioner in connection with the first issue, such

resolution. Thereafter, the corresponding mortgage was executed and

as the date of actual release of the loan and whether private respondents

registered. However, because of acts attributable to petitioner, the loan was

were the cause of the delay in the release of the loan, are factual. Since

not released. Later, petitioner instituted an action for damages. We recognized

petitioner has not shown that the instant case is one of the exceptions to the

in this case, a perfected consensual contract which under normal

basic rule that only questions of law can be raised in a petition for review

circumstances could have made the bank liable for not releasing the

under Rule 45 of the Rules of Court, [10] factual matters need not tarry us

178

now. On these points we are bound by the findings of the appellate and trial

private respondents, for which an award of nominal damages should be given

courts.

in recognition of their rights which were violated by BPIIC. [12] For this
purpose, the amount of P25,000 is sufficient.

On the second issue, petitioner claims that it should not be held liable
for moral and exemplary damages for it did not act maliciously when it

Lastly, as in SSS where we awarded attorneys fees because private

initiated the foreclosure proceedings. It merely exercised its right under the

respondents were compelled to litigate, we sustain the award of P50,000 in

mortgage contract because private respondents were irregular in their

favor of private respondents as attorneys fees.

monthly amortization. It invoked our ruling in Social Security System vs.

Court of Appeals, 120 SCRA 707, where we said:

WHEREFORE, the decision dated February 28, 1997, of the Court of

Appeals and its resolution dated April 21, 1998, are AFFIRMED WITH

Nor can the SSS be held liable for moral and temperate damages. As

MODIFICATION as to the award of damages. The award of moral and

concluded by the Court of Appeals the negligence of the appellant is not so

exemplary damages in favor of private respondents is DELETED, but the

gross as to warrant moral and temperate damages, except that, said Court

award to them of attorneys fees in the amount of P50,000 is UPHELD.

reduced those damages by only P5,000.00 instead of eliminating them.

Additionally, petitioner is ORDERED to pay private respondents P25,000 as

Neither can we agree with the findings of both the Trial Court and

nominal damages. Costs against petitioner.

respondent Court that the SSS had acted maliciously or in bad faith. The
SSS was of the belief that it was acting in the legitimate exercise of its right

SO ORDERED.

under the mortgage contract in the face of irregular payments made by

private respondents and placed reliance on the automatic acceleration clause
in the contract. The filing alone of the foreclosure application should not be a
ground for an award of moral damages in the same way that a clearly
unfounded civil action is not among the grounds for moral damages.
Private respondents counter that BPIIC was guilty of bad faith and
should be liable for said damages because it insisted on the payment of
amortization on the loan even before it was released. Further, it did not
make the corresponding deduction in the monthly amortization to conform to
the actual amount of loan released, and it immediately initiated foreclosure
proceedings when private respondents failed to make timely payment.

G.R. No. L-53820 June 15, 1992

YAO KA SIN TRADING, owned and operated by YAO KA SIN, petitioner,
vs.
HONORABLE COURT OF APPEALS and PRIME WHITE CEMENT
CORPORATION, represented by its President-Chairman, CONSTANCIO B.
MALAGNA,respondents.

But as admitted by private respondents themselves, they were irregular

in their payment of monthly amortization. Conformably with our ruling
in SSS, we can not properly declare BPIIC in bad faith. Consequently, we
should rule out the award of moral and exemplary damages. [11]
However, in our view, BPIIC was negligent in relying merely on the

DAVIDE, JR., J.:

Assailed in this petition for review is the decision of the respondent Court of

entries found in the deed of mortgage, without checking and correspondingly

Appeals in C.A.-G.R. No. 61072-R,

adjusting its records on the amount actually released to private respondents

reversing the decision

promulgated on 21 December 1979,

of the then Court of First Instance (now Regional

and the date when it was released. Such negligence resulted in damage to

179

Trial Court) of Leyte dated 20 November 1975 in Civil Case No. 5064 entitled

5). Delivery Schedule Shipment be made

"Yao Ka Sin Trading versus Prime White Cement Corporation."

within four (4) days upon receipt of your

shipping instruction.

The root of this controversy is the undated letter-offer of Constancio B.

Maglana, President and Chairman of the Board of private respondent Prime

6). Bag/Container a) All be made of

White Cement Corporation, hereinafter referred to as PWCC, to Yao Ka Sin

Standard Kraft (water resistant paper, 4 ply,

Trading, hereinafter referred to as YKS, which describes itself as "a business

with bursting strength of 220 pounds, and

concern of single proprietorship,"

b) Breakage allowance additional four

and is represented by its manager, Mr.

percent (4%) over the quantity of each

Henry Yao; the letter reads as follows:

shipment.
PRIME WHITE CEMENT CORPORATION
602 Cardinal Life Building

7). Terms of Payment Down payment of

Herran Street, Manila

PESOS: TWO HUNDRED FORTY THREE

THOUSAND (P243,000.00) payable on the

Yao Ka Sin

signing of this contract and the balance to

Tacloban City

be paid upon presentation of corresponding

shipping documents.

Gentlemen:
It is understood that in the event of a delay in our shipment,
We have the pleasure to submit hereby our firm offer to you

you hold the option to discount any price differential

under the following quotations, terms, and conditions, to wit:

resulting from a lower market pricevis-a-vis the contract

price. In addition, grant (sic) you the option to extend this

1). Commodity Prime White Cement

contract until the complete delivery of Forty Five Thousand

(45,000) bags of 94 lbs. each is made by us. You are also

2). Price At your option: a) P24.30 per 94

hereby granted the option to renew this contract under the

lbs. bag net, FOB Cebu City; and b) P23.30

same price, terms and conditions.

per 94 lbs. bag net, FOB Asturias Cebu.

Please countersign on the space provided for below as your
3). Quality As fully specified in certificate

acknowledgement and confirmation of the above transaction.

No. 224-73 by Bureau of Public Works,

Thank You.

Republic of the Philippines.

Very
4). Quantity Forty-five Thousand (45,000)

trul

bags at 94 lbs. net per bag withdrawable in

guaranteed monthly quantity of Fifteen

your
s,

Thousand (15,000) bags minimum effective

from June, 1973 to August 1973.

PRI
ME

180

WHI

HUNDRED FORTY THREE THOUSAND ONLY (P243,000.00)

TE

in the form of Producers' Bank of the Philippines Check No.

CE

C-153576 dated June 7, 1973.

ME
NT

PRI

COR

ME

POR

WHI

ATI

TE

ON

CE

BY:

ME

(SG

NT

D)

COR

CO

POR

NST

ATI

ANC

ON

IO

BY:

B.
MA

(SG

GLA

D)

NA

CO
NST

Pres

ANC

iden

IO

t&

B.

Cha

MA

irm

GLA

an

NA
Pres

CONFORME:

iden
t&
YAO KA SIN TRADING

Cha

BY: (SGD) HENRY YAO

irm
an

WITNESSES:
This letter-offer, hereinafter referred to as Exhibit "A", was prepared, typed
(SGD) T. CATINDIG (SGD) ERNESTO LIM
RECEIVED from Mr. Henry Yao of Yao Ka Sin Trading, in

and signed on 7 June 1973 in the office of Mr. Teodoro Catindig, Senior VicePresident of the Consolidated Bank and Trust Corporation (Solid Bank).

pursuance of the above offer, the sum of Pesos: TWO

181

The principal issue raised in this case is whether or not the aforesaid letter-

1973.

offer, as accepted by YKS, is a contract that binds the PWCC. The trial court

presented in evidence.

Unfortunately, no copy of the said 4 August 1973 letter of YKS was

rule in favor of the petitioner, but the respondent Court held otherwise.
The records disclose the following material operative facts:
In its meeting in Cebu City on 30 June 1973, or twenty-three (23) days after
the signing of Exhibit "A", the Board of Directors of PWCC disapproved the
same; the rejection is evidenced by the following Minutes (Exhibit "10"):
the 10,000 bags of white cement sold to Yao Ka Sin Trading
is sold not because of the alledged letter-contract adhered to
by them, but must be understood as a new and separate
contract, and has in no way to do with the letter-offer which
they (sic) as consummated is by this resolution totally
disapproved and is unacceptable to the corporation.
On 5 July 1973, PWCC wrote a letter (Exhibit "1") to YKS informing it of the
disapproval of Exhibit "A". Pursuant, however, to its decision with respect to
the 10,000 bags of cement, it is issued the corresponding Delivery Order
(Exhibit "4") and Official Receipt No. 0394 (Exhibit "5") for the payment of the
same in the amount of P243,000.00 This is the same amount received and
acknowledged by Maglana in Exhibit "A".
YKS accepted without protest both the Delivery and Official Receipts.
While YKS denied having received a copy of Exhibit "1", it was established
that the original thereof was shown to Mr. Henry Yao; since no one would
sign a receipt for it, the original was left at the latter's office and this fact was
duly noted in Exhibit "1" (Exhibit "l-A").
On 4 August 1973, PWCC wrote a letter (Exhibit "2") to YKS in answer to the
latter's 4 August 1973 letter stating that it is "withdrawing or taking delivery
of not less than 10,000 bags of white cement on August 6-7, 1973 at
Asturias, Cebu, thru M/V Taurus." In said reply, PWCC reminded YKS of its

On 21 August 1973, PWCC wrote another letter (Exhibit "3")

to YKS in reply

to the latter's letter of 15 August 1973. Enclosed in the reply was a copy of
Exhibit "2". While the records reveal that YKS received this reply also on 21
August 1973 (Exhibit "3" "A"), 8 it still denied having received it. Likewise, no
copy of the so-called 15 August 1973 letter was presented in evidence.
On 10 September 1973, YKS, through Henry Yao, wrote a letter

to PWCC as

a follow-up to the letter of 15 August 1973; YKS insisted on the delivery of

45,030 bags of white cement.

10

On 12 September 1973, Henry Yao sent a letter (Exhibit "G") to PWCC calling
the latter's attention to the statement of delivery dated 24 August 1973,
particularly the price change from P23.30 to P24.30 per 94 lbs. bag net FOB
Asturias, Cebu.

11

On 2 November 1973, YKS sent a telegram (Exhibit "C")

12

to PWCC insisting

on the full compliance with the terms of Exhibit "A" and informing the latter
that it is exercising the option therein stipulated.
On 3 November 1973, YKS sent to PWCC a letter (Exhibit "D") as a follow-up
to the 2 November 1973 telegram, but this was returned to sender
as unclaimed.

13

As of 7 December 1973, PWCC had delivered only 9,775 bags of white

cement.
On 9 February 1974, YKS wrote PWCC a letter (Exhibit "H") requesting, for
the last time, compliance by the latter with its obligation under
Exhibit "A".

14

On 27 February 1974, PWCC sent an answer (Exhibit "7") to the

(PWCC's) 5 July 1973 letter (Exhibit "1") and told the latter that PWCC "only

aforementioned letter of 9 February 1974; PWCC reiterated the

committed to you and which you correspondingly paid 10,000 bags of white

unenforceability of Exhibit "A".

15

cement of which 4,150 bags were already delivered to you as of August 11,

182

On 4 March 1974, YKS filed with the then Court of First Instance of Leyte a

participation in the same, and that all contracts of the corporation should

complaint for Specific Performance with Damages against PWCC. The

meet the approval of the NIDC and/or the PNB Board because of an exposure

complaint

16

was based on Exhibit "A" and was docketed as Civil Case No.

and financial involvement of around P10 million therein.

23

5064.
During the trial, PWCC presented evidence to prove that Exhibit "A" is not
In its Answer with Counterclaim

17

filed on 1 July 1974, PWCC denied under

binding upon it because Mr. Maglana was not authorized to make the offer

oath the material averments in the complaint and alleged that: (a) YKS "has

and sign the contract in behalf of the corporation. Per its By-Laws (Exhibit

no legal personality to sue having no legal personality even by fiction to

"8"), only the Board of Directors has the power . . . (7) To enter into (sic)

represent itself;" (b) Mr. Maglana, its President and Chairman, was lured into

agreement or contract of any kind with any person in the name and for and

signing Exhibit "A"; (c) such signing was subject to the condition that Exhibit

in behalf of the corporation through its President, subject only to the

"A" be approved by the Board of Directors of PWCC, as corporate

declared objects and purpose of the corporation and the existing provisions

commitments are made through it; (d) the latter disapproved it, hence Exhibit

of law.

"A" was never consummated and is not enforceable against PWCC; (e) it

business of the corporation according to his own judgment and discretion,

agreed to sell 10,000 bags of white cement, not under Exhibit "A", but under

whenever the same is not expressly limited by such orders, directives or

a separate contract prepared by the Board; (f) the rejection by the Board of

resolutions."

Exhibit "A" was made known to YKS through various letters sent to it, copies

first pass through the marketing and intelligence unit before they are

of which were attached to the Answer as Annexes 1, 2 and 3;

per Delivery Order

19

and Official Receipt

20

18

(g) YKS knew,

issued by PWCC, that only

24

Among the powers of the President is "to operate and conduct the

25

Per standard practice of the corporation, contracts should

finalized. Because of its interest in the PWCC, the NIDC, through its
comptroller, goes over contracts involving funds of and white cement

10;000 bags were sold to it without any terms or conditions, at P24.30 per

produced by the PWCC. Finally, among the duties of its legal counsel is to

bag FOB Asturias, Cebu; (h) YKS is solely to blame for the failure to take

review proposed contracts before they are submitted to the Board. While the

complete delivery of 10,000 bags for it did not send its boat or truck to

president. may be tasked with the preparation of a contract, it must first

PWCC's plant; and (i) YKS has, therefore, no cause of action.

pass through the legal counsel and the comptroller of the corporation.

In its Counterclaim, PWCC asks for moral damages in the amount of not less

On 20 November 1975, after trial on the merits, the court handed down its

than P10,000.00, exemplary damages in the sum of P500,000.00 and

decision in favor of herein petitioner, the dispositive portion of which reads:

26

attorney's fees in the sum of P10,000.00.

WHEREFORE, in view of the foregoing, judgment is hereby
On 24 July 1974, YKS filed its Answer to the Counterclaim.

21

Issues having been joined, the trial court conducted a pre-trial.

rendered:
22

On that

occasion, the parties admitted that according to the By-Laws of PWCC, the
Chairman of the Board, who is also the President of the corporation, "has the
power to execute and sign, for and in behalf of the corporation, all contracts
or agreements which the corporation enters into," subject to the qualification

(1) Ordering defendant: to complete the

delivery of 45,000 bags of prime white
cement at 94 lbs. net per bag at the price
agreed, with a breakage allowance of empty
bags at 4% over the quantity agreed;

that "all the president's actuations, prior to and after he had signed and
executed said contracts, shall be given to the board of directors of defendant

(2) Ordering defendant to pay P50,000.00,

Corporation." Furthermore, it was likewise stated for the record "that the

as moral damages; P5,000.00 as exemplary

corporation is a semi-subsidiary of the government because of the NIDC

damages; P3,000.00 as attorney's fees; and

the costs of these proceedings.

183

SO ORDERED.

27

the original contract by PWCC was deemed a withdrawal of the option before
acceptance by the petitioner.

In disregarding PWCC's theory, the trial court interpreted the provision of the
By-Laws granting its Board of Directors the power to enter into an

Both parties appealed from the said decision to the respondent Court of

agreement or contract of any kind with any person through the President,

Appeals before which petitioner presented the following Assignment of Errors:

to mean that the latter may enter into such contract or agreement at any
I

time and that the same is not subject to the ratification of the board of
directors but "subject only to the declared objects and purpose of the

THE TRIAL COURT ERRED IN HOLDING THAT THE OPTION

corporation and existing laws." It then concluded:

TO RENEW THE CONTRACT OF SALE IS NOT

It is obvious therefore, that it is not the whole membership of

ENFORCEABLE BECAUSE THE OPTION WAS MADE EVEN

the board of directors who actually enters into any contract

BEFORE THE COMPLIANCE OF (sic) THE ORIGINAL

with any person in the name and for and in behalf of the

CONTRACT BY DEFENDANT AND THAT DEFENDANT'S

corporation, but only its president. It is likewise crystal clear

PROMISE TO SELL IS NOT SUPPORTED BY ANY

that this automatic representation of the board by the

CONSIDERATION DISTINCT FROM THE PRICE.

president is limited only by the "declared objects and

purpose of the corporation and existing provisions of law."

II

28

It likewise interpreted the provision on the power of the president to "operate

and conduct the business of the corporation according to the orders,

THE TRIAL COURT ERRED IN NOT AWARDING TO THE

PLAINTIFF ACTUAL DAMAGES, SUFFICIENT EXEMPLARY

directives or resolutions of the board of directors and according to his own

DAMAGES AND ATTORNEY'S FEES AS ALLEGED IN THE

judgment and discretion whenever the same is not expressly limited by such

COMPLAINT AND PROVEN DURING THE TRIAL."

31

orders, directives and resolutions," to mean that the president can operate
and conduct the business of the corporation according to his own judgment

while the private respondent cited the following errors:

and discretion as long as it is not expressly limited by the orders, directives

or resolutions of the board of directors.

29

The trial court found no evidence

that the board had set a prior limitation upon the exercise of such judgment
and discretion; it further ruled that the By-Laws, does not require that
Exhibit "A" be approved by the Board of Directors. Finally, in the light of the
Chairman's power to "execute and sign for and in behalf of the corporation all
contracts or agreements which the corporation may enter into" (Exhibit "I-1"),
it concluded that Mr. Maglana merely followed the By-Laws "presumably both
as president and chairman of the board thereof."

30

Hence, Exhibit "A" was

THE TRIAL COURT ERRED IN HOLDING THAT EXHIBIT "A"

IS A VALID CONTRACT OR PLAINTIFF CAN CLAIM THAT
THE PROPOSED LETTER-CONTRACT, EXHIBIT "A" IS
LEGALLY ENFORCEABLE, AS THE SAME IS A MERE
UNACCEPTED PROPOSAL, NOT HAVING BEEN
PREVIOUSLY AUTHORIZED TO BE ENTERED INTO OR

validly entered into by Maglana and thus binds the corporation.

LATER ON RATIFIED BY THE DEFENDANTS BOARD OF

The trial court, however, ruled that the option to sell is not valid because it is

REJECTED AND DISAPPROVED IN TOTO BY THE

not supported by any consideration distinct from the price; it was exercised
before compliance with the original contract by PWCC; and the repudiation of

DIRECTORS; IN FACT EXHIBIT "A" WAS TOTALLY

DEFENDANT'S BOARD OF DIRECTORS IN CLEAR, PLAIN
LANGUAGE AND DULY INFORMED AND TRANSMITTED TO
PLAINTIFF.

184

II

Investment and Development Corporation (NIDC), a

subsidiary investment of the Philippine National Bank (PNB),

THE TRIAL COURT ERRED IN HOLDING THAT PLAINTIFF

with cash financial exposure of some P10,000,000.00. PNB

CAN LEGALLY UTILIZE THE COURTS AS THE FORUM TO

is a government financial institution whose Board is

GIVE LIFE AND VALIDITY TO A TOTALLY UNENFORCEABLE

chairmaned (sic) by the Minister of National Defense. This

OR NON-EXISTING CONTRACT.

fact is very material to the issue of whether defendant

corporations president can bind the corporation with his
own act.

III
THE TRIAL COURT ERRED IN ALLOWING YAO KA SIN TO

Second, for failure to deny under oath the following

IMPUGN AND CONTRADICT HIS VERY OWN ACTUATIONS

actionable documents in support of defendant's

AND REPUDIATE HIS ACCEPTANCE AND RECEIPTS OF

counterclaim:

BENEFITS FROM THE COUNTER-OFFER OF DEFENDANT

FOR 10,000 BAGS OF CEMENT ONLY, UNDER THE PRICE,

1. The resolution contained in defendant's

TERMS AND CONDITIONS TOTALLY FOREIGN TO AND

letter to plaintiff dated July 5, 1973, on the

WHOLLY DIFFERENT FROM THOSE WHICH APPEAR IN

10,000 bags of white cement delivered to

EXHIBIT "A".

plaintiff was not by reason of the letter

contract, Exhibit "A", which was totally
disapproved by defendant corporation's

IV

board of directors, clearly stating that "If

THE TRIAL COURT ERRED IN DISMISSING DEFENDANT'S

within ten (10) days from date hereof, we will

COUNTER-CLAIMS AS THE SAME ARE DULY SUPPORTED

not hear from you but you will withdraw

BY CLEAR AND INDUBITABLE EVIDENCE.

32

cement at P24.30 per bag from our plant,

then we will deposit your check of

In its decision

33

promulgated on 21 December 1979, the respondent Court

reversed the decision of the trial court, thus:

WHEREFORE, the judgment appealed from is REVERSED
and set aside, Plaintiff's complaint is dismissed with costs.
Plaintiff is ordered to pay defendant corporation P25,000.00

P243,000.00 dated June 7, 1973 issued by

the Producers Bank of the Philippines, per
instruction of the Board." (Annex "I" to
defendant's Answer).
2. Letter of defendant to plaintiff dated

exemplary damages, and P10,000.00 attorney's fees.

August 4, 1973 that defendant "only

SO ORDERED.

paid 10,000 bags of white cement of which

Such conclusion is based on its findings, to wit:

committed to you and which you accordingly

4,150 bags were already delivered to you as
of August 1, 1973" (Annex "2" of defendant's
Answer).

Before resolving the issue, it is helpful to bring out some

preliminary facts. First, the defendant corporation is
supervised and principally financed by the National

185

3. Letter dated August 21, 1973 to plaintiff

agreement is unenforceable (Art. 1403 (1), Civil Code;

reiterating defendant's letter of August 4,

Raquiza et al. vs. Lilles et al., 13 CA Rep. 343; Gana vs.

1973 (Annex "3" to defendant's Answer).

Archbishop of Manila, 43 O-G. 3224).

4. Letter to stores dated August 21, 1973,

While it may be true that Maglana is President of defendant

corporation nowhere in the Articles of Incorporation nor in

5. Receipt from plaintiff (sic) P243,000.00 in

the By-Laws of said corporation was he empowered to enter

payment of 10,000 bags of white cement at

into any contract all by himself and bind the corporation

P24.30 per bag (Annex "5", to defendant's

without first securing the authority and consent of the

Answer).

Board of Directors. Whatever authority Maglana may have

must be derived from the Board of Directors of defendant

plaintiff is deemed to have admitted, not only the due

corporation. A corporate officers power as an agent must be

execution and genuiness (sic) of said documents, (Rule 8

sought from the law, the articles of incorporation and the

Sec. 8, Rules of Court) but also the allegations therein (Rule

By-Laws or from a resolution of the Board (Vicente vs.

9, Sec. 1, Rules of Court). All of the foregoing documents

Geraldez, 52 SCRA 227, Board of Liquidators vs. Kalaw, 20

tend to prove that the letter-offer, Exhibit "A", was rejected by

SCRA 987).

defendant corporation's Board of Directors and plaintiff was

duly notified thereof and that the P243,000.00 check was

It clearly results from the foregoing that the judgment

considered by both parties as payment of the 10,000 bags of

appealed from is untenable. Having no cause of action

cement under a separate transaction. As proof of which

against defendant corporation, plaintiff is not entitled to any

plaintiff did not complain nor protest until February 9, 1974,

relief. We see no justification, therefore, for the court a

when he threatened legal action.

quo's awards in its favor. . . .

34

Third, Maglana's signing the letter-offer prepared for him in

Its motion for reconsideration having been denied by the respondent Court in

the Solidbank was made clearly upon the condition that it

its resolution

was subject to the approval of the board of directors of

defendant corporation. We find consistency herein because
according to the Corporation Law, and the By-Laws of
defendant corporation, all corporate commitments and
business are conducted by, and contracts entered into
through, the express authority of the Board of Directors
(Sec. 28. Corp. Law, Exh "I" or "8").
Fourth, What Henry Yao and Maglana agreed upon as
embodied in Exhibit "A", insofar as defendant corporation is
concerned, was an unauthorized contract (Arts. 1317 and
1403 (1), Civil Code). And because Maglana was not
authorized by the Board of Directors of defendant

35

dated 15 April 1980, petitioner filed the instant petition

based on the following grounds:

1. That the contract (Exh. "A") entered into by the President
and Chairman of the Board of Directors Constancio B.
Maglana in behalf of the respondent corporation binds the
said corporation.
2. That the contract (Exh. "A") was never novated nor
superceded (sic) by a subsequent contract.
3. That the option to renew the contract as contained in
Exhibit "A" is enforceable.

corporation nor was his, actuation ratified by the Board, the

186

4. That Sec. 8, Rule 8 of the Rules of Court only applies

The law merely recognizes the existence of a sole

when the adverse party appear (sic) to be a party to the

proprietorship as a form of business organization conducted

instrument but not to one who is not a party to the

for profit by a single individual, and requires the proprietor

instrument and Sec. 1, Rule 9 of the said Rules with regards

or owner thereof to secure licenses and permits, register the

(sic) to denying under oath refers only to allegations of

business name, and pair taxes to the national government. It

usury.

does not vest juridical or legal personality upon the sole

36

proprietorship nor empower it to file or defend an action in

We gave due course
Comment

38

37

court.

to the petition after private respondent filed its

45

and required the parties to submit simultaneously their

Memoranda, which the parties subsequently complied with.

Accordingly, the proper party plaintiff/petitioner should be YAO KA SIN.

39

The complaint then should have been amended to implead Yao Ka Sin as

Before going any further, this Court must first resolve an issue which,
although raised in the Answer of private respondent, was neither pursued in
its appeal before the respondent Court nor in its Comment and
Memorandum in this case. It also eluded the attention of the trial court and
the respondent Court. The issue, which is of paramount importance,
concerns the lack of capacity of plaintiff/petitioner to sue. In the caption of
both the complaint and the instant petition, the plaintiff and the petitioner,
respectively, is:

the history of this case to dismiss this petition and, in effect, nullify all
proceedings had before the trial court and the respondent Court on the sole
ground of petitioner's lack of capacity to sue. Considering that private
respondent did not pursue this issue before the respondent Court and this
Court; that, as We held in Juasing, the defect is merely formal and not
substantial, and an amendment to cure such defect is expressly authorized
the designation of the parties may be summarily corrected at any stage of the
action provided no prejudice is caused thereby to the adverse party;" and

owned and operated by

YAO KA SIN.

that "[a] sole proprietorship does not, of coarse, possess any juridical

40

personality separate and apart from the personality of the owner of the
enterprise and the personality of the persons acting in the name of such

and is described in the body thereof as "a business concern of single

proprietorship owned and operated by Yao Ka Sin."

41

proprietorship,"

In the body of the

petition, it is described as "a single proprietorship business concern."

42

It

also appears that, as gathered from the decision of the trial court, no Yao Ka
Sin testified. Instead, one Henry Yao took the witness stand and testified that
he is the "manager of Yao Ka Sin Trading" and "it was in representation of the
43

Under Section 1, Rule 3 of the Rules of

Court, only natural or juridical persons or entities authorized by law may be

parties in a civil action. In Juasing Hardware vs. Mendoza,

44

this Court held

that a single proprietorship is neither a natural person nor a juridical person

under Article 44 of the Civil Code; it is not an entity authorized by law to
bring suit in court:

plaintiff in substitution of Yao Ka Sin Trading. However, it is now too late in

by Section 4, Rule 10 of the Rules of Court which provides that "[a] defect in
YAO KA SIN TRADING,

plaintiff" that he signed Exhibit "A"

46

47

We hold and declare that Yao Ka Sin should be deemed as

the plaintiff in Civil Case No. 5064 and the petitioner in the instant case. As
this Court stated nearly eighty (80) years ago in Alonso vs. Villamor:

48

No one has been misled by the error in the name of the party
plaintiff. If we should by reason of this error send this case
back for amendment and new trial, there would be on the
retrial the same complaint, the same answer, the same
defense, the same interests, the same witnesses, and the
same evidence. The name of the plaintiff would constitute
the only difference between the old trial and the new. In our
judgment there is not enough in a name to justify such
action.

187

And now to the merits of the petition.

individuals and private persons."

51

Moreover, " . . . a corporate officer or

agent may represent and bind the corporation in transactions with third
The respondent Court correctly ruled that Exhibit "A" is not binding upon

persons to the extent that authority to do so has been conferred upon him,

the private respondent. Mr. Maglana, its President and Chairman, was not

and this includes powers which have been intentionally conferred, and also

empowered to execute it. Petitioner, on the other hand, maintains that it is a

such powers as, in the usual course of the particular business, are incidental

valid contract because the Maglana has the power to enter into contracts for

to, or may be implied from, the powers intentionally conferred, powers added

the corporation as implied from the following provisions of the By-Laws of

by custom and usage, as usually pertaining to the particular officer or agent,

private respondent:

and such apparent powers as the corporation has caused persons dealing
with the officer or agent to believe that it has conferred.

52

a) The power of the Board of Directors to . . . enter into (sic)

agreement or contract of any kind with any person in the
name and for and in behalf of the corporation through its
President, subject only to the declared objects and purpose
of the corporation and the existing provisions of law. (Exhibit
"8-A"); and

"execute and sign, for and in behalf of the corporation, all

contracts or agreements which the corporation may enter
into" (Exhibit "I-1").

authorized under the By-Laws, the private respondent, pursuant to the

doctrine laid down by this Court in Francisco vs. Government Service
Insurance
and Board of Liquidators vs. Kalaw,

signed Exhibit "A", the above provisions of said private respondent's By-Laws
do not in any way confer upon the President the authority to enter into
power is exclusively lodged in the latter. Nevertheless, to expedite or facilitate
the execution of the contract, only the President and not all the members
of the Board, or so much thereof as are required for the act shall sign it for
the corporation. This is the import of the wordsthrough the president in
Exhibit "8-A" and the clear intent of the power of the chairman "to execute

And even admitting, for the sake of argument, that Mr. Maglana was not so

49

President and Chairman of private respondent corporation at the time he

contracts for the corporation independently, of the Board of Directors. That

b) The power of the Chairman of the Board of Directors to

System

While there can be no question that Mr. Maglana was an officer the

50

and sign for and in behalf of the corporation all contracts and agreements
which the corporation may enter into" in Exhibit "I-1". Both powers
presuppose a prior act of the corporation exercised through the Board of
Directors. No greater power can be implied from such express, but limited,
delegated authority. Neither can it be logically claimed that any power greater

is still bound by his act for

than that expressly conferred is inherent in Mr. Maglana's position as

clothing him with apparent authority.

president and chairman of the corporation.

We are not persuaded.

Although there is authority "that if the president is given general control and
supervision over the affairs of the corporation, it will be presumed that he

Since a corporation, such as the private respondent, can act only through its

has authority to make contract and do acts within the course of its ordinary

officers and agents, "all acts within the powers of said corporation may be

business,"

performed by agents of its selection; and, except so far as limitations or

corporation has ageneral manager who, under its By-Laws has, inter alia, the

restrictions may be imposed by special charter, by-law, or statutory

provisions, the same general principles of law which govern the relation of
agency for a natural person govern the officer or agent of a corporation, of
whatever status or rank, in respect to his power to act for the corporation;
and agents when once appointed, or members acting in their stead, are
subject to the same rules, liabilities and incapacities as are agents of

53

We find such inapplicable in this case. We note that the private

following powers: "(a) to have the active and direct management of the
business and operation of the corporation, conducting the same accordingly
to the order, directives or resolutions of the Board of Directors or of the
president." It goes without saying then that Mr. Maglana did not have a direct
and active and in the management of the business and operations of the
corporation. Besides, no evidence was adduced to show that Mr. Maglana

188

had, in the past, entered into contracts similar to that of Exhibit "A" either

bound the corporations on the basis of ratification. In the first case, it was

with the petitioner or with other parties.

established that the offer of compromise made by plaintiff in the letter,

Exhibit "A", was validly accepted by the GSIS. The terms of the trial offer

Petitioner's last refuge then is his alternative proposition, namely, that

were clear, and over the signature of defendant's general manager Rodolfo

private respondent had clothed Mr. Maglana with the apparent power to act

Andal, plaintiff was informed telegraphically that her proposal had been

for it and had caused persons dealing with it to believe that he was conferred

accepted. It was sent by the GSIS Board Secretary and defendant did not

with such power. The rule is of course settled that "[a]lthough an officer or

disown the same. Moreover, in a letter remitting the payment of P30,000

agent acts without, or in excess of, his actual authority if he acts within the

advanced by her father, plaintiff quoted verbatim the telegram of acceptance.

scope of an apparent authority with which the corporation has clothed him

This was in itself notice to the corporation of the terms of the allegedly

by holding him out or permitting him to appear as having such authority, the

unauthorized telegram. Notwithstanding this notice, GSIS pocketed the

corporation is bound thereby in favor of a person who deals with him in good

amount and kept silent about the telegram. This Court then ruled that:

faith in reliance on such apparent authority, as where an officer is allowed to

exercise a particular authority with respect to the business, or a particular
branch of it, continuously and publicly, for a considerable time."

54

Also, "if a

This silence, taken together with the unconditional

acceptance of three other subsequent remittances from

private corporation intentionally or negligently clothes its officers or agents

plaintiff, constitutes in itself a binding ratification of the

with apparent power to perform acts for it, the corporation will be estopped to

original agreement (Civil Code, Art. 1393).

deny that such apparent authority in real, as to innocent third persons

dealing in good faith with such officers or agents."

55

Art. 1393. Ratification may be effected

This "apparent

expressly or tactly it is understood that

authority may result from (1) the general manner, by which the corporation

there is a tacit ratification if, with knowledge

holds out an officer or agent as having power to act or, in other words, the

of the reason which renders the contract

apparent authority with which it clothes him to act in general or (2)

voidable and such reason having ceased, the

acquiescence in his acts of a particular nature, with actual or constructive

person who has a right to invoke it should

knowledge thereof, whether within or without the scope of his ordinary

powers.

execute an act which necessarily implies an

56

It was incumbent upon the petitioner to prove that indeed the private
respondent had clothed Mr. Maglana with the apparent power to execute
Exhibit "A" or any similar contract. This could have been easily done by
evidence of similar acts executed either in its favor or in favor of other
parties. Petitioner miserably failed to do that. Upon the other hand, private
respondent's evidence overwhelmingly shows that no contract can be signed
by the president without first being approved by the Board of Directors; such
approval may only be given after the contract passes through, at least, the

intention to waive his right

In the second case, this Court found:
In the case at bar, the practice of the corporation has been to
allow its general manager to negotiate and execute contracts
in its copra trading activities for and in NACOCO's
behalf without prior board approval. If the by-laws were to be
literally followed, the board should give its stamp of prior

comptroller, who is the NIDC representative, and the legal counsel.

approval on all corporate contracts. But that board itself, by

The cases then of Francisco vs. GSIS and Board of Liquidators vs. Kalaw are

by-laws requirement of prior approval.

hopelessly unavailing to the petitioner. In said cases, this Court found

sufficient evidence, based on the conduct and actuations of the corporations
concerned, of apparent authority conferred upon the officer involved which

its acts and through acquiescence, practically laid aside the

Under the given circumstances, the Kalaw contracts are valid

corporate acts.

189

The inevitable conclusion then is that Exhibit "A" is an unenforceable

When the offerer has allowed the offeree a certain period to

contract under Article 1317 of the Civil Code which provides as follows:

accept, the offer may be withdrawn at any time before

acceptance by communicating such withdrawal, except when

Art. 1317. No one may contract in the name of another

the option is founded upon a consideration, as something

without being authorized by the latter, or unless he has by

paid or promised.

law a right to represent him.

while Article 1749 of the same Code provides:
A contract entered into in the name of another by one who
has no authority or legal representation, or who has acted

A promise to buy and sell a determinate thing for a price

beyond his powers, shall be unenforceable, unless it is

certain is reciprocally demandable.

ratified, expressly or impliedly, by the person on whose

behalf it, has been execrated, before it is revoked by the

An accepted unilateral promise to buy or to sell a

other contracting party.

determinate thing for a price certain is binding upon the

promissor if the promise is supported by a consideration

The second ground is based on a wrong premise. It assumes, contrary to Our

distinct from the price.

conclusion above, that Exhibit "A" is a valid contract binding upon the
private respondent. It was effectively disapproved and rejected by the Board

Accordingly, even if it were accepted, it can not validly bind the private

of Directors which, at the same time, considered the amount of P243,000.00

respondent.

58

received Mr. Maglana as payment for 10,000 bags of white cement, treated as
an entirely different contract, and forthwith notified petitioner of its decision

The fourth ground is, however, meritorious.

that "If within ten (10) days from date hereof we will not hear from you but
you will withdraw cement at P24.30 per bag from our plant, then we will
deposit your check of P243,000.00 dated June 7, 1973 issued by the
Producers Bank of the Philippines, per instruction of the Board."

57

Section 8, Rule 8 of the Rules of Court provides:

Petitioner

Sec. 8. How to contest genuineness of such documents

received the copy of this notification and thereafter accepted without any

When an action or defense is founded upon a written

protest the Delivery Receipt covering the 10,000 bags and the Official Receipt

instrument, copied in or attached in the corresponding

for the P243,000.00. The respondent Court thus correctly ruled that

pleading as provided in the preceding section, the

petitioner had in fact agreed to a new transaction involving only 10,000 bags

genuineness and due execution of the instrument shall be

of white cement.

deemed admitted unless the adverse party, under oath,

specifically denies them, and sets forth what he claims to be

The third ground must likewise fail. Exhibit "A" being unenforceable, the

the facts; but this provision does not apply when the adverse

option to renew it would have no leg to stand on. The river cannot rise higher

party does not appear, to be a party to the instrument or

than its source. In any event, the option granted in. this case is without any

when compliance with an order for an inspection of the

consideration Article 1324 of the Civil Code expressly provides that:

original instrument is refused.

It is clear that the petitioner is not a party to any of the documents attached
to the private respondent's Answer. Thus, the above quoted rule is not
applicable.

59

While the respondent Court, erred in holding otherwise, the

190

challenged decision must, nevertheless, stand in view of the above

On 30 May 1994, respondent and his manager filed an action against

disquisitions on the first to the third grounds of the petition.

petitioner before the Regional Trial Court of Quezon City, docketed Civil Case
No. Q-94-20714 and raffled to Branch 76, for rescission of contract with

WHEREFORE, judgment is hereby rendered AFFIRMING the decision of

damages. In his complaint, respondent contended that he was entitled to

respondent Court of Appeals in C.A. G.R. No. 61072-R promulgated on 21

rescind the contract, plus damages, and to be released from further

December 1979.

commitment to work exclusively for petitioner owing to the latters failure to

honor the agreement.

Cost against the petitioner.

Instead of filing an answer to the complaint, petitioner moved for its
dismissal on the allegation that the parties had settled their differences
amicably. Petitioner averred that both parties had executed an agreement,
dated 17 June 1994, which was to so operate as an addendum to the 1991

[G.R. No. 139532. August 9, 2001]

and 1993 contracts between them. The agreement was signed by a

REGAL FILMS, INC., petitioner, vs. GABRIEL CONCEPCION, respondent.
DECISION

settlement between the parties; thereupon, the trial court ordered Solis and
respondent to comment on petitioner's motion to dismiss.

The case involves a compromise judgment issued by the Regional Trial

Court of Quezon City, later affirmed by the Court of Appeals, and now being
assailed in the instant petition for review.

appear to be in serious dispute.

movie actor, through his manager Lolita Solis, entered into a contract with
petitioner Regal Films, Inc., for services to be rendered by respondent in
petitioners motion pictures. Petitioner, in turn, undertook to give two parcels
of land to respondent, one located in Marikina and the other in Cavite, on top
of the talent fees it had agreed to pay.
In 1993, the parties renewed the contract, incorporating the same
first

respondent Concepcion himself opposed the motion to dismiss contending

that the addendum, containing provisions grossly disadvantageous to him,

agreement. Despite

Solis had since ceased to be his manager and had no authority to sign
the addendum for him.
During the preliminary conference held on 23 June 1995, petitioner
intimated to respondent and his counsel its willingness to allow respondent
to be released from his 1991 and 1993 contracts with petitioner rather than
to further pursue the addendum which respondent had challenged.

undertaking on the part of petitioner to give respondent the two parcels of

the

reiterating that she, acting for herself and for respondent Concepcion, had

was executed without his knowledge and consent. Respondent stated that

In 1991, respondent Gabriel "Gabby" Concepcion, a television artist and

in

On 30 September 1994, Solis filed a motion to dismiss the complaint

already settled the case amicably with petitioner. On 17 October 1994,

Culled from the records, the facts that led to the controversy would not

mentioned

of respondent Concepcion.
The preliminary conference held by the trial court failed to produce a

VITUG, J.:

land

representative of petitioner and by Solis purportedly acting for and in behalf

the

appearance

of

respondent in several films produced by petitioner, the latter failed to comply

with its promise to convey to respondent the two aforementioned lots.

On 03 July 1995, respondent filed a manifestation with the trial court to

the effect that he was now willing to honor the addendum to the 1991 and
1993 contracts and to have it considered as a compromise agreement as to
warrant a judgment in accordance therewith. The manifestation elicited a
comment from both petitioner and Solis to the effect that the relationship

191

between the parties had by then become strained, following the notorious

DOCUMENT TO THE TRIAL COURT MERELY TO SERVE AS BASIS FOR ITS

Manila Film Festival scam involving respondent, but that it was still willing to

MOTION TO DISMISS;

release respondent from his contract.

II.
On 24 October 1995, the trial court issued an order rendering judgment
on compromise based on the subject addendum which respondent had

THE COURT OF APPEALS ERRED IN RENDERING JUDGMENT ON A

previously challenged but later agreed to honor pursuant to his manifestation

COMPROMISE WHEN THE PARTIES DID NOT AGREE TO SUCH A

of 03 July 1995.

COMPROMISE;

Petitioner moved for reconsideration; having been denied, it then

III.

elevated the case to the Court of Appeals arguing that the trial court erred in
treating the addendum of 17 June 1994 as being a compromise agreement
and in depriving it of its right to procedural due process.
On 30 July 1999, the appellate court rendered judgment affirming the

THE COURT OF APPEALS ERRED IN HOLDING THAT THE MINDS OF THE

PARTIES HAD MET TO ELEVATE THE PREVIOUSLY REJECTED
ADDENDUM TO THE LEVEL OF A JUDGMENT ON A COMPROMISE." [2]

order of the trial court of 24 October 1995; it ruled:

The petition is meritorious.

"In the instant case, there was an Addendum to the contract signed by Lolita
and Regal Films' representative to which addendum Concepcion through his
Manifestation expressed his conformity. There was, therefore, consent of all

Petitioner argues that the subject addendum could not be the basis of
the compromise judgment. The Court agrees.

the parties.

A compromise is an agreement between two or more persons who, for

The addendum/compromise agreement was perfected and is binding on the

parties and may not later be disowned simply because of a change of mind of
Regal Films and/or Lolita by claiming, in their Opposition/Reply to
Concepcion's Manifestation, that after the 1995 Metro Manila Films Festival
scam/fiasco in which Concepcion was involved, the relationship between the
parties had become bitter to render compliance with the terms and
conditions of the Addendum no longer possible and consequently release
Concepcion from the 1991 and 1993 contracts."[1]
Dissatisfied, petitioner appealed to this Court claiming in its petition for
review that -

preventing or putting an end to a lawsuit, adjust their respective positions by

mutual consent in the way they feel they can live with. Reciprocal
concessions are the very heart and life of every compromise agreement,
[3]

where each party approximates and concedes in the hope of gaining

balanced by the danger of losing. [4] It is, in essence, a contract. Law and
jurisprudence recite three minimum elements for any valid contract - (a)
consent; (b) object certain which is the subject matter of the contract; and (c)
cause of the obligation which is established. [5] Consent is manifested by the
meeting of the offer and the acceptance upon the thing and the cause which
are to constitute the agreement. The offer, however, must be certain and the
acceptance seasonable and absolute; if qualified, the acceptance would
merely constitute a counter-offer.[6]

"I.

In this instance, the addendum was flatly rejected by respondent on the

theses (a) that he did not give his consent thereto nor authorized anyone to

THE COURT OF APPEALS ERRED IN AFFIRMING THE TRIAL COURT'S

enter into the agreement, and (b) that it contained provisions grossly

ACTION IN RENDERING JUDGMENT ON A COMPROMISE BASED ON THE

disadvantageous to him. The outright rejection of the addendum made

ADDENDUM WHEN PETITIONER REGAL FILMS SUBMITTED THIS

known to the other ended the offer. When respondent later filed his

192

Manifestation, stating that he was, after all, willing to honor the addendum,
there was nothing to still accept.

DECISION

Verily, consent could be given not only by the party himself but by

ABAD, J.:

anyone duly authorized and acting for and in his behalf. But by respondent's
own admission, the addendum was entered into without his knowledge and
consent. A contract entered into in the name of another by one who
ostensibly might have but who, in reality, had no real authority or legal
representation, or who, having such authority, acted beyond his powers,
would be unenforceable.[7] The addendum, let us then assume, resulted in an
unenforceable contract, might it not then be susceptible to ratification by the
person on whose behalf it was executed? The answer would obviously be in
the affirmative; however, that ratification should be made before its
revocation by

the other contracting party. [8] The adamant refusal of

respondent to accept the terms of the addendum constrained petitioner,

during the preliminary conference held on 23 June 1995, to instead express
its willingness to release respondent from his contracts prayed for in his
complaint and to thereby forego the rejected addendum. Respondent's
subsequent attempt to ratify the addendum came much too late for, by then,
the addendum had already been deemed revoked by petitioner.
WHEREFORE, the petition is GRANTED, and the appealed judgment of
the Court of Appeals affirming that of the trial court is SET ASIDE, and the
case is remanded to the trial court for further proceedings. No costs.
SO ORDERED.

The present case involves a determination of the perfection of contract of

sale.
The Facts and the Case
On April 17, 1988 Ramon Licup wrote Msgr. Domingo A. Cirilos, offering to
buy three contiguous parcels of land in Paraaque that The Holy See and
Philippine Realty Corporation (PRC) owned for P1,240.00 per square meter.
Licup accepted the responsibility for removing the illegal settlers on the land
and enclosed a check for P100,000.00 to "close the transaction." [1] He
undertook to pay the balance of the purchase price upon presentation of the
title for transfer and once the property has been cleared of its
occupants.cralaw
Msgr. Cirilos, representing The Holy See and PRC, signed his name on
the conforme portion of the letter and accepted the check. But the check
could not be encashed due to Licup's stop-order payment. Licup wrote Msgr.
Cirilos on April 26, 1988, requesting that the titles to the land be instead
transferred to petitioner Starbright Sales Enterprises, Inc. (SSE). He
enclosed a new check for the same amount. SSE's representatives, Mr. and
Mrs. Cu, did not sign the letter.
On November 29, 1988 Msgr. Cirilos wrote SSE, requesting it to remove the
occupants on the property and, should it decide not to do this, Msgr. Cirilos
would return to it the P100,000.00 that he received. On January 24, 1989
SSE replied with an "updated proposal."[2] It would be willing to comply with
Msgr. Cirilos' condition provided the purchase price is lowered to P1,150.00
per square meter.

THIRD DIVISION
[G.R. No. 177936 : January 18, 2012]
STARBRIGHT SALES ENTERPRISES, INC., PETITIONER, VS. PHILIPPINE
REALTY CORPORATION, MSGR. DOMINGO A. CIRILOS, TROPICANA
PROPERTIES AND DEVELOPMENT CORPORATION AND STANDARD
REALTY CORPORATION, RESPONDENTS.

On January 26, 1989 Msgr. Cirilos wrote back, rejecting the "updated
proposal." He said that other buyers were willing to acquire the property on
an "as is, where is" basis at P1,400.00 per square meter. He gave SSE seven
days within which to buy the property at P1,400.00 per square meter,
otherwise, Msgr. Cirilos would take it that SSE has lost interest in the same.
He enclosed a check for P100,000.00 in his letter as refund of what he earlier
received.

193

On February 4, 1989 SSE wrote Msgr. Cirilos that they already had a
perfected contract of sale in the April 17, 1988 letter which he signed and
that, consequently, he could no longer impose amendments such as the
removal of the informal settlers at the buyer's expense and the increase in
the purchase price.
SSE claimed that it got no reply from Msgr. Cirilos and that the next thing
they knew, the land had been sold to Tropicana Properties on March 30,
1989. On May 15, 1989 SSE demanded rescission of that sale. Meanwhile,
on August 4, 1989 Tropicana Properties sold the three parcels of land to
Standard Realty.
Its demand for rescission unheeded, SSE filed a complaint for annulment of
sale and reconveyance with damages before the Regional Trial Court (RTC) of
Makati, Branch 61, against The Holy See, PRC, Msgr. Cirilos, and Tropicana
Properties in Civil Case 90-183. SSE amended its complaint on February 24,
1992, impleading Standard Realty as additional defendant.
The Holy See sought dismissal of the case against it, claiming that as a
foreign government, it cannot be sued without its consent. The RTC held
otherwise but, on December 1, 1994,[3] the Court reversed the ruling of the
RTC and ordered the case against The Holy See dismissed. By Order of
January 26, 1996 the case was transferred to the Paraaque RTC, Branch
258.
SSE alleged that Licup's original letter of April 17, 1988 to Msgr. Cirilos
constituted a perfected contract. Licup even gave an earnest money of
P100,000.00 to "close the transaction." His offer to rid the land of its
occupants was a "mere gesture of accommodation if only to expedite the
transfer of its title."[4] Further, SSE claimed that, in representing The Holy
See and PRC, Msgr. Cirilos acted in bad faith when he set the price of the
property at P1,400.00 per square meter when in truth, the property was sold
to Tropicana Properties for only P760.68 per square meter.
Msgr. Cirilos maintained, on the other hand, that based on their exchange of
letters, no contract of sale was perfected between SSE and the parties he
represented. And, only after the negotiations between them fell through did
he sell the land to Tropicana Properties.
In its Decision of February 14, 2000, the Paraaque RTC treated the April
17, 1988 letter between Licum and Msgr. Cirilos as a perfected contract of
sale between the parties. Msgr. Cirilos attempted to change the terms of
contract and return SSE's initial deposit but the parties reached no
agreement regarding such change. Since such agreement was wanting, the
original terms provided in the April 17, 1988 letter continued to bind the

parties.
On appeal to the Court of Appeals (CA), the latter rendered judgment on
November 10, 2006,[5]reversing the Paraaque RTC decision. The CA held
that no perfected contract can be gleaned from the April 17, 1988 letter that
SSE had relied on. Indeed, the subsequent exchange of letters between SSE
and Msgr. Cirilos show that the parties were grappling with the terms of the
sale. Msgr. Cirilos made no unconditional acceptance that would give rise to
a perfected contract.
As to the P100,000.00 given to Msgr. Cirilos, the CA considered it an option
money that secured for SSE only the privilege to buy the property even if
Licup called it a "deposit." The CA denied SSE's motion for reconsideration
on May 2, 2007.
The Issue Presented
The only issue in this case is whether or not the CA erred in holding that no
perfected contract of sale existed between SSE and the land owners,
represented by Msgr. Cirilos.
The Court's Ruling
Three elements are needed to create a perfected contract: 1) the consent of
the contracting parties; (2) an object certain which is the subject matter of
the contract; and (3) the cause of the obligation which is established. [6]
Under the law on sales, a contract of sale is perfected when the seller,
obligates himself, for a price certain, to deliver and to transfer ownership of a
thing or right to the buyer, over which the latter agrees. [7] From that moment,
the parties may demand reciprocal performance.
The Court believes that the April 17, 1988 letter between Licup and Msgr.
Cirilos, the representative of the property's owners, constituted a perfected
contract. When Msgr. Cirilos affixed his signature on that letter, he
expressed his conformity to the terms of Licup's offer appearing on it. There
was meeting of the minds as to the object and consideration of the contract.
But when Licup ordered a stop-payment on his deposit and proposed in his
April 26, 1988 letter to Msgr. Cirilos that the property be instead transferred
to SSE, a subjective novation took place.
A subjective novation results through substitution of the person of the debtor
or through subrogation of a third person to the rights of the creditor. To
accomplish a subjective novation through change in the person of the debtor,
the old debtor needs to be expressly released from the obligation and the

194

third person or new debtor needs to assume his place in the relation. [8]

of Appeals Decision dated November 10, 2006 in CA-G.R. CV 67366.

Novation serves two functions - one is to extinguish an existing obligation,

the other to substitute a new one in its place - requiring concurrence of four
requisites: 1) a previous valid obligation; 2) an agreement of all parties
concerned to a new contract; 3) the extinguishment of the old obligation; and
4) the birth of a valid new obligation.[9]

SO ORDERED.

Notably, Licup and Msgr. Cirilos affixed their signatures on the original
agreement embodied in Licup's letter of April 26, 1988. No similar letter
agreement can be found between SSE and Msgr. Cirilos.
The proposed substitution of Licup by SSE opened the negotiation stage for a
new contract of sale as between SSE and the owners. The succeeding
exchange of letters between Mr. Stephen Cu, SSE's representative, and Msgr.
Cirilos attests to an unfinished negotiation. Msgr. Cirilos referred to his
discussion with SSE regarding the purchase as a "pending transaction." [10]
Cu, on the other hand, regarded SSE's first letter to Msgr. Cirilos as an
"updated proposal."[11] This proposal took up two issues: which party would
undertake to evict the occupants on the property and how much must the
consideration be for the property. These are clear indications that there was
no meeting of the minds between the parties. As it turned out, the parties
reached no consensus regarding these issues, thus producing no perfected
sale between them.
Parenthetically, Msgr. Cirilos did not act in bad faith when he sold the
property to Tropicana even if it was for a lesser consideration. More than a
month had passed since the last communication between the parties on
February 4, 1989. It is not improbable for prospective buyers to offer to buy
the property during that time.
The P100,000.00 that was given to Msgr. Cirilos as "deposit" cannot be
considered as earnest money. Where the parties merely exchanged offers
and counter-offers, no contract is perfected since they did not yet give their
consent to such offers.[12] Earnest money applies to a perfected sale.
SSE cannot revert to the original terms stated in Licup's letter to Msgr.
Cirilos dated April 17, 1988 since it was not privy to such contract. The
parties to it were Licup and Msgr. Cirilos. Under the principle of relativity of
contracts, contracts can only bind the parties who entered into it. It cannot
favor or prejudice a third person.[13] Petitioner SSE cannot, therefore, impose
the terms Licup stated in his April 17, 1988 letter upon the owners.cralaw
WHEREFORE, the Court DISMISSES the petition and AFFIRMS the Court

[G.R. No. 129459. September 29, 1998]

SAN JUAN STRUCTURAL AND STEEL FABRICATORS, INC., petitioner,
vs. COURT OF APPEALS, MOTORICH SALES CORPORATION,
NENITA LEE GRUENBERG, ACL DEVELOPMENT CORP. and JNM
REALTY AND DEVELOPMENT CORP., respondents.
DECISION
PANGANIBAN, J.
May a corporate treasurer, by herself and without any authorization
from the board of directors, validly sell a parcel of land owned by the
corporation? May the veil of corporate fiction be pierced on the mere ground
that almost all of the shares of stock of the corporation are owned by said
treasurer and her husband?
The Case
These questions are answered in the negative by this Court in resolving
the Petition for Review on Certiorari before us, assailing the March 18, 1997
Decision[1] of the Court of Appeals[2] in CA GR CV No. 46801 which, in turn,
modified the July 18, 1994 Decision of the Regional Trial Court of Makati,
Metro Manila, Branch 63[3] in Civil Case No. 89-3511. The RTC dismissed
both the Complaint and the Counterclaim filed by the parties. On the other
hand, the Court of Appeals ruled:
WHEREFORE, premises considered, the appealed decision is
AFFIRMED WITH MODIFICATION ordering defendant-appellee
Nenita Lee Gruenberg to REFUND or return to plaintiff-appellant
the downpayment of P100,000.00 which she received from
plaintiff-appellant. There is no pronouncement as to costs. [4]

195

The petition also challenges the June 10, 1997 CA Resolution denying
reconsideration.[5]

that on April 6, 1989, defendant ACL Development Corporation

and Motorich Sales Corporation entered into a Deed of Absolute
Sale whereby the former transferred to the latter the subject

The Facts

property; that by reason of said transfer, the Registry of Deeds of

Quezon City issued a new title in the name of Motorich Sales

The facts as found by the Court of Appeals are as follows:

Corporation, represented by defendant-appellee Nenita Lee

Gruenberg and Reynaldo L. Gruenberg, under Transfer Certificate

Plaintiff-appellant San Juan Structural and Steel Fabricators,

of Title No. 3571; that as a result of defendants-appellees Nenita

Inc.s amended complaint alleged that on 14 February 1989,

Lee Gruenberg and Motorich Sales Corporations bad faith in

plaintiff-appellant entered into an agreement with defendant-

refusing to execute a formal Transfer of Rights/Deed of

appellee Motorich Sales Corporation for the transfer to it of a

Assignment, plaintiff-appellant suffered moral and nominal

parcel of land identified as Lot 30, Block 1 of the Acropolis Greens

damages which may be assessed against defendants-appellees in

Subdivision located in the District of Murphy, Quezon City, Metro

the sum of Five Hundred Thousand (500,000.00) Pesos; that as a

Manila, containing an area of Four Hundred Fourteen (414) square

result of defendants-appellees Nenita Lee Gruenberg and Motorich

meters, covered by TCT No. (362909) 2876; that as stipulated in

Sales Corporations unjustified and unwarranted failure to execute

the Agreement of 14 February 1989, plaintiff-appellant paid the

the required Transfer of Rights/Deed of Assignment or formal deed

down payment in the sum of One Hundred Thousand

of sale in favor of plaintiff-appellant, defendants-appellees should

(P100,000.00) Pesos, the balance to be paid on or before March 2,

be assessed exemplary damages in the sum of One Hundred

1989; that on March 1, 1989, Mr. Andres T. Co, president of

Thousand (P100,000.00) Pesos; that by reason of defendants-

plaintiff-appellant corporation, wrote a letter to defendant-appellee

appellees bad faith in refusing to execute a Transfer of

Motorich Sales Corporation requesting for a computation of the

Rights/Deed of Assignment in favor of plaintiff-appellant, the latter

balance to be paid; that said letter was coursed through defendant-

lost the opportunity to construct a residential building in the sum

appellees broker, Linda Aduca, who wrote the computation of the

of One Hundred Thousand (P100,000.00) Pesos; and that as a

balance; that on March 2, 1989, plaintiff-appellant was ready with

consequence of defendants-appellees Nenita Lee Gruenberg and

the amount corresponding to the balance, covered by Metrobank

Motorich Sales Corporations bad faith in refusing to execute a

Cashiers Check No. 004223, payable to defendant-appellee

deed of sale in favor of plaintiff-appellant, it has been constrained

Motorich Sales Corporation; that plaintiff-appellant and defendant-

to obtain the services of counsel at an agreed fee of One Hundred

appellee Motorich Sales Corporation were supposed to meet in the

Thousand (P100,000.00) Pesos plus appearance fee for every

office of plaintiff-appellant but defendant-appellees treasurer,

appearance in court hearings.

Nenita Lee Gruenberg, did not appear; that defendant-appellee

Motorich Sales Corporation despite repeated demands and in utter

In its answer, defendants-appellees Motorich Sales Corporation

disregard of its commitments had refused to execute the Transfer

and Nenita Lee Gruenberg interposed as affirmative defense that

of Rights/Deed of Assignment which is necessary to transfer the

the President and Chairman of Motorich did not sign the

certificate of title; that defendant ACL Development Corp. is

agreement adverted to in par. 3 of the amended complaint; that

impleaded as a necessary party since Transfer Certificate of Title

Mrs. Gruenbergs signature on the agreement (ref: par. 3 of

No. (362909) 2876 is still in the name of said defendant; while

Amended Complaint) is inadequate to bind Motorich. The other

defendant JNM Realty & Development Corp. is likewise impleaded

signature, that of Mr. Reynaldo Gruenberg, President and

as a necessary party in view of the fact that it is the transferor of

Chairman of Motorich, is required; that plaintiff knew this from

right in favor of defendant-appellee Motorich Sales Corporation;

the very beginning as it was presented a copy of the Transfer of

196

Rights (Annex B of amended complaint) at the time the Agreement

pledge or otherwise dispose of all or substantially

(Annex B of amended complaint) was signed; that plaintiff-

all of its property and assets, including its goodwill

appellant itself drafted the Agreement and insisted that Mrs.

xxx when authorized by the vote of the

Gruenberg accept the P100,000.00 as earnest money; that

stockholders representing at least two third (2/3)

granting, without admitting, the enforceability of the agreement,

of the outstanding capital stock x x x.

plaintiff-appellant nonetheless failed to pay in legal tender within

the stipulated period (up to March 2, 1989); that it was the

No such vote was obtained by defendant Nenita Lee

understanding between Mrs. Gruenberg and plaintiff-appellant

Gruenberg for that proposed sale[;] neither was there

that the Transfer of Rights/Deed of Assignment will be signed only

evidence to show that the supposed transaction was

upon receipt of cash payment; thus they agreed that if the

ratified by the corporation. Plaintiff should have been on

payment be in check, they will meet at a bank designated by

the look out under these circumstances. More so, plaintiff

plaintiff-appellant where they will encash the check and sign the

himself [owns] several corporations (tsn dated August 16,

Transfer of Rights/Deed. However, plaintiff-appellant informed

1993, p. 3) which makes him knowledgeable on

Mrs. Gruenberg of the alleged availability of the check, by phone,

corporation matters.

only after banking hours.

Regarding the question of damages, the Court likewise,
On the basis of the evidence, the court a quo rendered the

does not find substantial evidence to hold defendant

judgment appealed from[,] dismissing plaintiff-appellants

Nenita Lee Gruenberg liable considering that she did not

complaint, ruling that:

in anyway misrepresent herself to be authorized by the

corporation to sell the property to plaintiff (tsn dated

'The issue to be resolved is: whether plaintiff had the right

September 27, 1991, p. 8).

to compel defendants to execute a deed of absolute sale in

accordance with the agreement of February 14, 1989; and

In the light of the foregoing, the Court hereby renders

if so, whether plaintiff is entitled to damages.

judgment DISMISSING the complaint at instance for lack

of merit.

As to the first question, there is no evidence to show that

defendant Nenita Lee Gruenberg was indeed authorized by

Defendants counterclaim is also DISMISSED for lack of

defendant corporation, Motorich Sales, to dispose of that

basis. (Decision, pp. 7-8; Rollo, pp. 34-35)

property covered by T.C.T. No. (362909) 2876. Since the

property is clearly owned by the corporation, Motorich
Sales, then its disposition should be governed by the

For clarity, the Agreement dated February 14, 1989 is reproduced

hereunder:

requirement laid down in Sec. 40, of the Corporation Code

of the Philippines, to wit:
Sec. 40, Sale or other disposition of

AGREEMENT
KNOW ALL MEN BY THESE PRESENTS:

assets. Subject to the provisions of existing laws

on illegal combination and monopolies, a

This Agreement, made and entered into by and between:

corporation may by a majority vote of its board of

directors xxx sell, lease, exchange, mortgage,

197

MOTORICH SALES CORPORATION, a corporation duly organized and

the monthly amortization starting March 21, 1989 shall be

existing under and by virtue of Philippine Laws, with principal office address

for the account of the Transferee;

at 5510 South Super Hi-way cor. Balderama St., Pio del Pilar, Makati, Metro
Manila, represented herein by its Treasurer, NENITA LEE GRUENBERG,

The transferor warrants that he [sic] is the lawful owner of the above-

hereinafter referred to as the TRANSFEROR;

described property and that there [are] no existing liens and/or

encumbrances of whatsoever nature;

- and -In case of failure by the Transferee to pay the balance on the date specified
SAN JUAN STRUCTURAL & STEEL FABRICATORS, a corporation duly

on 1. (b), the earnest money shall be forfeited in favor of the Transferor.

organized and existing under and by virtue of the laws of the Philippines,
with principal office address at Sumulong Highway, Barrio Mambungan,

That upon full payment of the balance, the TRANSFEROR agrees to execute a

Antipolo, Rizal, represented herein by its President, ANDRES T. CO,

TRANSFER OF RIGHTS/DEED OF ASSIGNMENT in favor of the

hereinafter referred to as the TRANSFEREE.

TRANSFEREE.

WITNESSETH, That:

IN WITNESS WHEREOF, the parties have hereunto set their hands this 14th
day of February, 1989 at Greenhills, San Juan, Metro Manila, Philippines.

WHEREAS, the TRANSFEROR is the owner of a parcel of land identified as

Lot 30 Block 1 of the ACROPOLIS GREENS SUBDIVISION located at the

MOTORICH SALES CORPORATION

SAN STRUCTURAL &

District of Murphy, Quezon City, Metro Manila, containing an area of FOUR

HUNDRED FOURTEEN (414) SQUARE METERS, covered by a TRANSFER OF

TRANSFEROR

RIGHTS between JNM Realty & Dev. Corp. as the Transferor and Motorich

STEEL

FABRICATORS

Sales Corp. as the Transferee;

TRANSFEREE
NOW, THEREFORE, for and in consideration of the foregoing premises, the
parties have agreed as follows:

[SGD.]

1. That the purchase price shall be at FIVE THOUSAND TWO

By:

HUNDRED PESOS (P5,200.00) per square meter; subject

[SGD.]
NENITA LEE

GRUENBERG

By: ANDRES T. CO

to the following terms:

Treasurer
a.

Earnest money amounting to ONE HUNDRED

Pres

ident

THOUSAND PESOS (P100,000.00), will be paid upon

the execution of this agreement and shall form part

Signed in the presence of:

of the total purchase price;

[SGD.]
b.

Balance shall be payable on or before March 2, 1989;

2. That the monthly amortization for the month of February

[SG

D.]
_________________________

_____________________[6]

1989 shall be for the account of the Transferor; and that

198

In its recourse before the Court of Appeals, petitioner insisted:

1. Was there a valid contract of sale between petitioner and

Motorich?

1.

Appellant is entitled to compel the appellees to execute a

Deed of Absolute Sale in accordance with the Agreement of

2. May the doctrine of piercing the veil of corporate fiction be

February 14, 1989,

applied to Motorich?

Plaintiff is entitled to damages.[7]

2.

3. Is the alleged alteration of Gruenbergs testimony as

recorded in the transcript of stenographic notes material to
the disposition of this case?

As stated earlier, the Court of Appeals debunked petitioners arguments

and affirmed the Decision of the RTC with the modification that Respondent
Nenita Lee Gruenberg was ordered to refundP100,000 to petitioner, the

4. Are respondents liable for damages and attorneys fees?

amount remitted as downpayment or earnest money. Hence, this petition

before us.[8]

The Courts Ruling

The Issues

The petition is devoid of merit.

Before this Court, petitioner raises the following issues:

I.

First Issue: Validity of Agreement

Whether or not the doctrine of piercing the veil of

Petitioner San Juan Structural and Steel Fabricators, Inc. alleges that

corporate fiction is applicable in the instant case

on February 14, 1989, it entered through its president, Andres Co, into the
disputed Agreement with Respondent Motorich Sales Corporation, which was

II.

Whether or not the appellate court may consider

in

matters which the parties failed to raise in the lower

Gruenberg. Petitioner insists that [w]hen Gruenberg and Co affixed their

court

signatures on the contract they both consented to be bound by the terms

turn

allegedly

represented

by

its

treasurer,

Nenita

Lee

thereof. Ergo, petitioner contends that the contract is binding on the two
III.

Whether or not there is a valid and enforceable contract

corporations. We do not agree.

between the petitioner and the respondent corporation

True, Gruenberg and Co signed on February 14, 1989, the Agreement
IV.

V.

Whether or not the Court of Appeals erred in holding

according to which a lot owned by Motorich Sales Corporation was

that there is a valid correction/substitution of answer

purportedly sold. Such contract, however, cannot bind Motorich, because it

in the transcript of stenographic note[s]

never authorized or ratified such sale.

Whether or not respondents are liable for damages and

attorneys fees[9]

A corporation is a juridical person separate and distinct from its

stockholders or members. Accordingly, the property of the corporation is not
the property of its stockholders or members and may not be sold by the

The

Court

synthesized

them seriatim as follows:

the

foregoing

and

will

thus

discuss

stockholders

or

members

without

express

authorization

from

the

corporations board of directors.[10] Section 23 of BP 68, otherwise known as

the Corporation Code of the Philippines, provides:

199

SEC. 23. The Board of Directors or Trustees. -- Unless otherwise

shown any provision of said respondents articles of incorporation, bylaws or

provided in this Code, the corporate powers of all corporations

board resolution to prove that Nenita Gruenberg possessed such power.

formed under this Code shall be exercised, all business conducted

and all property of such corporations controlled and held by the

That Nenita Gruenberg is the treasurer of Motorich does not free

board of directors or trustees to be elected from among the holders

petitioner from the responsibility of ascertaining the extent of her authority

of stocks, or where there is no stock, from among the members of

to represent the corporation. Petitioner cannot assume that she, by virtue of

the corporation, who shall hold office for one (1) year and until

her position, was authorized to sell the property of the corporation. Selling is

their successors are elected and qualified.

obviously foreign to a corporate treasurers function, which generally has

been described as to receive and keep the funds of the corporation, and to

Indubitably, a corporation may act only through its board of directors,

or, when authorized either by its bylaws or by its board resolution, through

disburse them in accordance with the authority given him by the board or
the properly authorized officers.[17]

its officers or agents in the normal course of business. The general principles
of agency govern the relation between the corporation and its officers or

Neither was such real estate sale shown to be a normal business activity

agents, subject to the articles of incorporation, bylaws, or relevant provisions

of Motorich. The primary purpose of Motorich is marketing, distribution,

of law.[11] Thus, this Court has held that a corporate officer or agent may

export and import in relation to a general merchandising business.

represent and bind the corporation in transactions with third persons to the

[18]

extent that the authority to do so has been conferred upon him, and this

authority to buy or sell real property, an activity which falls way beyond the

includes powers which have been intentionally conferred, and also such

scope of her general authority.

Unmistakably, its treasurer is not cloaked with actual or apparent

powers as, in the usual course of the particular business, are incidental to,
or may be implied from, the powers intentionally conferred, powers added by

Articles 1874 and 1878 of the Civil Code of the Philippines provides:

custom and usage, as usually pertaining to the particular officer or agent,

and such apparent powers as the corporation has caused persons dealing

ART. 1874. When a sale of a piece of land or any interest therein

with the officer or agent to believe that it has conferred. [12]

is through an agent, the authority of the latter shall be in writing;

otherwise, the sale shall be void.

Furthermore, the Court has also recognized the rule that persons
dealing with an assumed agent, whether the assumed agency be a general or

ART. 1878 Special powers of attorney are necessary in the

special one, are bound at their peril, if they would hold the principal liable,

following case:

to ascertain not only the fact of agency but also the nature and extent of
authority, and in case either is controverted, the burden of proof is upon

xxx

xxx

xxx

them to establish it (Harry Keeler v. Rodriguez, 4 Phil. 19). [13] Unless duly
authorized, a treasurer, whose powers are limited, cannot bind the

(5)

corporation in a sale of its assets.[14]

immovable is transmitted or acquired either gratuitously or for a

To enter any contract by which the ownership of an

valuable consideration;
In the case at bar, Respondent Motorich categorically denies that it ever
authorized Nenita Gruenberg, its treasurer, to sell the subject parcel of land.
[15]

xxx

xxx

x x x.

Consequently, petitioner had the burden of proving that Nenita Gruenberg

was

the

Petitioner further contends that Respondent Motorich has ratified said

transaction. Petitioner failed to discharge this burden. Its offer of evidence

in

fact

authorized

to

represent

and

bind

Motorich

in

contract of sale because of its acceptance of benefits, as evidenced by the

before the trial court contained no proof of such authority. [16] It has not

receipt issued by Respondent Gruenberg.[19]Petitioner is clutching at straws.

200

As a general rule, the acts of corporate officers within the scope of their

99.866% to be accurate, of the subscribed capital stock [25] of Motorich,

authority are binding on the corporation. But when these officers exceed

petitioner argues that Gruenberg needed no authorization from the board to

their authority, their actions cannot bind the corporation, unless it has

enter into the subject contract. [26] It adds that, being solely owned by the

ratified such acts or is estopped from disclaiming them.

[20]

Spouses Gruenberg, the company can be treated as a close corporation

which can be bound by the acts of its principal stockholder who needs no

In this case, there is a clear absence of proof that Motorich ever

specific authority. The Court is not persuaded.

authorized Nenita Gruenberg, or made it appear to any third person that she
had the authority, to sell its land or to receive the earnest money. Neither

First, petitioner itself concedes having raised the issue belatedly, [27] not

was there any proof that Motorich ratified, expressly or impliedly, the

having done so during the trial, but only when it filed its sur-rejoinder before

contract. Petitioner rests its argument on the receipt, which, however, does

the Court of Appeals.[28] Thus, this Court cannot entertain said issue at this

not prove the fact of ratification. The document is a hand-written one, not a

late stage of the proceedings. It is well-settled that points of law, theories

corporate receipt, and it bears only Nenita Gruenbergs signature. Certainly,

and arguments not brought to the attention of the trial court need not be,

this document alone does not prove that her acts were authorized or ratified

and ordinarily will not be, considered by a reviewing court, as they cannot be

by Motorich.

raised for the first time on appeal. [29] Allowing petitioner to change horses in
midstream, as it were, is to run roughshod over the basic principles of fair

Article 1318 of the Civil Code lists the requisites of a valid and perfected

play, justice and due process.

contract: (1) consent of the contracting parties; (2) object certain which is
the subject matter of the contract; (3) cause of the obligation which is

Second, even if the above-mentioned argument were to be addressed at

established. As found by the trial court[21] and affirmed by the Court of

this time, the Court still finds no reason to uphold it. True, one of the

Appeals,[22] there is no evidence that Gruenberg was authorized to enter into

advantages of a corporate form of business organization is the limitation of

the contract of sale, or that the said contract was ratified by Motorich. This

an investors liability to the amount of the investment. [30] This feature flows

factual finding of the two courts is binding on this Court. [23] As the consent of

from the legal theory that a corporate entity is separate and distinct from its

the seller was not obtained, no contract to bind the obligor was

stockholders. However, the statutorily granted privilege of a corporate veil

perfected. Therefore, there can be no valid contract of sale between petitioner

may be used only for legitimate purposes. [31] On equitable considerations, the

and Motorich.

veil can be disregarded when it is utilized as a shield to commit fraud,

illegality or inequity; defeat public convenience; confuse legitimate issues; or

Because

Motorich

had

never

given

written

authorization

to

Respondent Gruenberg to sell its parcel of land, we hold that the February

serve as a mere alter ego or business conduit of a person or an

instrumentality, agency or adjunct of another corporation.[32]

14, 1989 Agreement entered into by the latter with petitioner is void under
Article 1874 of the Civil Code. Being inexistent and void from the beginning,
said contract cannot be ratified.

[24]

Thus, the Court has consistently ruled that [w]hen the fiction is used
as a means of perpetrating a fraud or an illegal act or as a vehicle for the
evasion of an existing obligation, the circumvention of statutes, the

Second Issue:

achievement or perfection of a monopoly or generally the perpetration of

knavery or crime, the veil with which the law covers and isolates the

Piercing the Corporate Veil Not Justified

Petitioner also argues that the veil of corporate fiction of Motorich
should be pierced, because the latter is a close corporation. Since Spouses
Reynaldo L. Gruenberg and Nenita R. Gruenberg owned all or almost all or

corporation from the members or stockholders who compose it will be lifted

to allow for its consideration merely as an aggregation of individuals. [33]
We stress that the corporate fiction should be set aside when it becomes
a shield against liability for fraud, illegality or inequity committed on third

201

persons. The question of piercing the veil of corporate fiction is essentially,

Petitioner

cites Manuel

R.

Dulay

Enterprises,

Inc.

v.

Court

of

then, a matter of proof. In the present case, however, the Court finds no

Appeals[37] wherein the Court ruled that xxx petitioner corporation is

reason to pierce the corporate veil of Respondent Motorich. Petitioner utterly

classified as a close corporation and, consequently, a board resolution

failed to establish that said corporation was formed, or that it is operated, for

authorizing the sale or mortgage of the subject property is not necessary to

the purpose of shielding any alleged fraudulent or illegal activities of its

bind the corporation for the action of its president. [38] But the factual milieu

officers or stockholders; or that the said veil was used to conceal fraud,

in Dulay is not on all fours with the present case. In Dulay, the sale of real

illegality or inequity at the expense of third persons, like petitioner.

property was contracted by the president of a close corporation with the

knowledge and acquiescence of its board of directors. [39] In the present case,

Petitioner claims that Motorich is a close corporation. We rule that it is

Motorich is not a close corporation, as previously discussed, and the

not. Section 96 of the Corporation Code defines a close corporation as

agreement was entered into by the corporate treasurer without the knowledge

follows:

of the board of directors.

SEC. 96.

Definition and Applicability of Title. -- A close

The Court is not unaware that there are exceptional cases where an

corporation, within the meaning of this Code, is one whose articles

action by a director, who singly is the controlling stockholder, may be

of incorporation provide that: (1) All of the corporations issued

considered as a binding corporate act and a board action as nothing more

stock of all classes, exclusive of treasury shares, shall be held of

than a mere formality.[40] The present case, however, is not one of them.

record by not more than a specified number of persons, not

exceeding twenty (20); (2) All of the issued stock of all classes shall

As stated by petitioner, Spouses Reynaldo and Nenita Gruenberg own

be subject to one or more specified restrictions on transfer

almost 99.866% of Respondent Motorich. [41] Since Nenita is not the sole

permitted by this Title; and (3) The corporation shall not list in any

controlling stockholder of Motorich, the aforementioned exception does not

stock exchange or make any public offering of any of its stock of

apply. Granting arguendo that the corporate veil of Motorich is to be

any class. Notwithstanding the foregoing, a corporation shall be

disregarded, the subject parcel of land would then be treated as conjugal

deemed not a close corporation when at least two-thirds (2/3) of its

property of Spouses Gruenberg, because the same was acquired during their

voting stock or voting rights is owned or controlled by another

marriage. There being no indication that said spouses, who appear to have

corporation which is not a close corporation within the meaning of

been married before the effectivity of the Family Code, have agreed to a

this Code. xxx.

different property regime, their property relations would be governed by

conjugal partnership of gains.[42] As a consequence, Nenita Gruenberg could

The articles of incorporation

[34]

of Motorich Sales Corporation does not

not have effected a sale of the subject lot because [t]here is no co-ownership

contain any provision stating that (1) the number of stockholders shall not

between the spouses in the properties of the conjugal partnership of

exceed 20, or (2) a preemption of shares is restricted in favor of any

gains. Hence, neither spouse can alienate in favor of another his or her

stockholder or of the corporation, or (3) listing its stocks in any stock

interest in the partnership or in any property belonging to it; neither spouse

exchange or making a public offering of such stocks is prohibited. From its

can ask for a partition of the properties before the partnership has been

articles, it is clear that Respondent Motorich is not a close corporation.

legally dissolved.[43]

[35]

Motorich does not become one either, just because Spouses Reynaldo and

Nenita Gruenberg owned 99.866% of its subscribed capital stock. The

Assuming further, for the sake of argument, that the spouses property

[m]ere ownership by a single stockholder or by another corporation of all or

regime is the absolute community of property, the sale would still be

nearly all of the capital stock of a corporation is not of itself sufficient ground

invalid. Under this regime, alienation of community property must have the

for disregarding the separate corporate personalities. [36] So too, a narrow

written consent of the other spouse or the authority of the court without

distribution of ownership does not, by itself, make a close corporation.

202

which the disposition or encumbrance is void.[44] Both requirements are

I just told them that I was the treasurer of the corporation and it
[was] also the president who [was] also authorized to sign on behalf

manifestly absent in the instant case.

of the corporation.
Third Issue: Challenged Portion of TSN Immaterial
Q

You did not say that you were not authorized nor did you say that
you were authorized?

Petitioner calls our attention to the following excerpt of the transcript of

stenographic notes(TSN):
A
Q

Did you ever represent to Mr. Co that you were authorized by the
corporation to sell the property?

first meeting.[47]

authorized her to sell its property. On the other hand, her testimony

Petitioner claims that the answer Yes was crossed out, and, in its place
was written a No with an initial scribbled above it.

to put up a P100,000.00 earnest money at that time. That was our

Clearly then, Nenita Gruenberg did not testify that Motorich had

Yes, sir.[45]

Mr. Co was very interested to purchase the property and he offered

[46]

This, however, is

insufficient to prove that Nenita Gruenberg was authorized to represent

demonstrates that the president of Petitioner Corporation, in his great desire

to buy the property, threw caution to the wind by offering and paying the
earnest money without first verifying Gruenbergs authority to sell the lot.

Respondent Motorich in the sale of its immovable property. Said excerpt

should be understood in the context of her whole testimony. During her

Fourth Issue:

cross-examination, Respondent Gruenberg testified:

Damages and Attorneys Fees
Q

So, you signed in your capacity as the treasurer?

Finally, petitioner prays for damages and attorneys fees, alleging that

[A] Yes, sir.

[i]n an utter display of malice and bad faith, [r]espondents attempted and
succeeded in impressing on the trial court and [the] Court of Appeals that

Even then you kn[e]w all along that you [were] not authorized?

Gruenberg did not represent herself as authorized by Respondent Motorich

despite the receipt issued by the former specifically indicating that she was

Yes, sir.

signing on behalf of Motorich Sales Corporation. Respondent Motorich

likewise acted in bad faith when it claimed it did not authorize Respondent

You stated on direct examination that you did not represent that you
were authorized to sell the property?

Gruenberg and that the contract [was] not binding, [insofar] as it [was]
concerned, despite receipt and enjoyment of the proceeds of Gruenbergs
act.[48] Assuming that Respondent Motorich was not a party to the alleged

Yes, sir.

fraud, petitioner maintains that Respondent Gruenberg should be held liable

because she acted fraudulently and in bad faith [in] representing herself as

But you also did not say that you were not authorized to sell the

duly authorized by [R]espondent [C]orporation. [49]

property, you did not tell that to Mr. Co, is that correct?
As already stated, we sustain the findings of both the trial and the
A

That was not asked of me.

Yes, just answer it.

appellate courts that the foregoing allegations lack factual bases. Hence, an
award of damages or attorneys fees cannot be justified. The amount paid as
earnest money was not proven to have redounded to the benefit of

203

Respondent Motorich. Petitioner claims that said amount was deposited to

As correctly ruled by the Court of Appeals, however, Nenita Gruenberg

the account of Respondent Motorich, because it was deposited with the

should be ordered to return to petitioner the amount she received as earnest

account of Aren Commercial c/o Motorich Sales Corporation. [50] Respondent

money, as no one shall enrich himself at the expense of another, [54] a

Gruenberg, however, disputes the allegations of petitioner. She testified as

principle embodied in Article 2154 of the Civil Code. [55] Although there was

follows:

no binding relation between them, petitioner paid Gruenberg on the mistaken

belief that she had the authority to sell the property of Motorich. [56] Article

You voluntarily accepted the P100,000.00, as a matter of fact, that

2155 of the Civil Code provides that [p]ayment by reason of a mistake in the

was encashed, the check was encashed.

construction or application of a difficult question of law may come within the

scope of the preceding article.

Yes, sir, the check was paid in my name and I deposit[ed] it . . .

In your account?

Yes, sir. [51]

WHEREFORE, the petition is hereby DENIED and the assailed Decision

is AFFIRMED.
SO ORDERED.

In any event, Gruenberg offered to return the amount to petitioner xxx

since the sale did not push through. [52]
Moreover, we note that Andres Co is not a neophyte in the world of
corporate business. He has been the president of Petitioner Corporation for

[G.R. No. 128850. November 20, 1998]

more than ten years and has also served as chief executive of two other
corporate entities.[53] Co cannot feign ignorance of the scope of the authority
of a corporate treasurer such as Gruenberg. Neither can he be oblivious to
his duty to ascertain the scope of Gruenbergs authorization to enter into a
contract to sell a parcel of land belonging to Motorich.
Indeed, petitioners claim of fraud and bad faith is unsubstantiated and

ARCHIPELAGO

AND

MARKETING

CORPORATION, petitioner, vs. COURT OF APPEALS and the

HEIRS OF ROSALINA SANTOS-MORALES, namely, EMETERIO
MORALES,

LYDIA

TRINIDAD,

ROGELIO

DE

LA

PAZ

and

EMMANUEL S. DE LA PAZ, respondents.

fails to persuade the Court. Indubitably, petitioner appears to be the victim

DECISION

of its own officers negligence in entering into a contract with and paying an
unauthorized officer of another corporation.

MANAGEMENT

PANGANIBAN, J.:
The issue of whether fraud attended the execution of a contract is
factual in nature. Normally, this Court is bound by the appellate courts
findings, unless they are contrary to those of the trial court, in which case
we may wade into the factual dispute to settle it with finality. However, after
meticulously poring over the records and carefully weighing the arguments of
the parties, we find no reversible error in the Amended Decision of the Court
of Appeals resolving this property dispute between the separate heirs of the

204

The Facts

first marriages of a widow and a widower who, after the death of their
respective first spouses, married each other.

The factual antecedents of the case were identically summarized by the

The Case

appellate tribunal in both its original and its amended Decisions, as follows:

This is the gist of our ruling on the Petition for Review before us, which

At the center of the controversy is a parcel of land upon which are erected

seeks to set aside the January 28, 1997 Amended Decision [1] and the April

residential buildings located at No. 58, South Maya Street, Philamlife Homes,

23, 1997 Resolution[2] of the Court of Appeals[3] in CA-GR CV No. 46014. The

Quezon City. Before the controversy, the subject property was owned and

Amended Decision granted private respondents Motion for Reconsideration,

titled in the name of Rosalina Santos Morales, covered by TCT No.

[4]

255716. The latter had children by first marriage, one of whom is Lydia

viz.:

Trinidad (plaintiff-appellant). When Rosalina was widowed, she married

WHEREFORE, the Decision of this Court dated July 31, 1996 dismissing

Emeterio Morales, a widower, who also had children by a former marriage,

the complaint is SET ASIDE, and a new one is hereby

including Narciso Morales, president of Archipelago Management and

Marketing Corporation (defendant-appellee). For more than forty (40) years,

rendered, REVERSING the appealed Decision of the lower court and

declaring the Deed of Absolute Sale dated May 3, 1989 ANNULLED.[5]
The April 23, 1997 Resolution, on the other hand, denied petitioners
own Motion for Reconsideration.

Damages, filed[6] before the Regional Trial Court (RTC) of Quezon City [7] by
Rosalina Santos-Morales, through her daughter Lydia Trinidad, against
Petitioner Archipelago Management and Marketing Corporation. Upon the
death of Rosalina on October 7, 1992, [8] herein private respondents, in their
capacity as heirs, filed an Amended Complaint [9] stating inter alia that they
were substituting the deceased as plaintiffs.[10]

dismissed in the RTC Decision, which was initially affirmed by the Court of
Appeals (CA) in its original Decision dated July 31, 1996. [12] Acting on private
respondents Motion for Reconsideration with Motion for New Trial, the
its

Amended

Decision,

reversed

its

previous

ruling. Subsequently, as already stated, it also denied petitioners own plea

for reconsideration.
Undaunted, petitioner has brought this appeal for a final ruling on the
matter.[14]

When several offices in the Quezon City Hall w[ere] razed by fire in 1988,
ashes. Consequently, landowners with real properties in Quezon City had to
apply for reconstitution of their individual titles. Sometime in August of that
year, it is alleged that Emeterio Morales took the owners duplicate certificate
of title over the subject property from Rosalinas designated caretaker, and on
the pretext that he was going to apply for reconstitution of title, he was able
to convince Rosalina to affix her signature on several documents. One of
those documents turned out to be a Deed of Absolute Sale dated May 3,
1989, wherein it was stipulated that Rosalina sold to the defendant-appellee

On April 15, 1994, the Complaint and the Counterclaim [11] were

court,[13] in

building as a retreat house to outside parties.

many records, including original certificates of title[,] were reduced to

This case originated from a Complaint for Annulment of Contract with

appellate

Rosalina and Emeterio lived together in the subject property, leasing out the

corporation the subject property for One Million Two Hundred Thousand
(P1,200,000.00) Pesos. By virtue thereof, a new title was issued in favor of
the defendant-appellee corporation.
Meanwhile, Rosalina Morales and her husband, Emeterio, continued to
reside in the subject property. She even entered into a 5-year lease contract
over the buildings with the siblings of Rodolfo and Nympha Alano on May 19,
1989. She also continued to pay the yearly realty taxes on said property.
In 1992, Rosalinas daughter, Lydia Trinidad, returned from the United
States of America. Lydia inquired about the title to the subject property,
and she learned from the Office of the Register of Deeds of Quezon City about

205

the Deed of Absolute Sale between Rosalina and the defendant-appellee

have known of nor consented to her daughters filing of the present action, for

corporation.

her (plaintiff) thumbmark could have easily been affixed on the adverse claim
and the complaint itself by Lydia Trinidad. The defendant also questioned

On July 17, 1992, Rosalina Santos-Morales, represented by Lydia Trinidad,

Lydia Trinidads authority to file the action when she had not yet been

filed an action for annulment of the Deed of Absolute Sale with damages

appointed guardian ad litem.

against the defendant corporation. She denied having sold the subject
property, allegedly paraphernal, to anybody, much less to the defendant

Moreover, the defendant negated the plaintiffs allegation that Emeterio

corporation. She further alleged that her signature on the said document

Morales took the certificate of title from the caretaker since the said title was

was obtained by means of fraud, deceit and insidious machinations on the

in Rosalina Morales possession, and he could not have misled her to sign the

part of her husband, Emeterio, and her stepson, Narciso Morales, for and in

Deed of Absolute Sale on the pretext that it was only in connection with the

behalf of the defendant corporation. She also denied having received any

application for reconstitution of said title. It was pointed out that at that

consideration in the amount of P1,200,000.00. In fact, when she learned of

time, Rosalina Morales was in full possession of her mental faculties and was

the said transaction, she immediately filed an affidavit of adverse claim

in fact, a very intelligent and astute woman. To corroborate this allegation,

before the Register of Deeds of Quezon City. She argued that the fact the she

the defendant corporation attached as annexes several motions and a

entered into a contract of lease over the subject property even after the Deed

compromise agreement executed by Rosalina Morales in Special Proceeding

of Absolute Sale was supposedly executed is proof that she knew of no sale to

No. 5010 before the RTC of Pasig, Metro Manila, in the exercise of her duties

the defendant corporation. Consequently, she contended that the said Deed

as administratrix of the sizable estate of her deceased aunt. Thus, there was

of Absolute Sale was invalid for fraud and vices of consent.

no truth to the allegation that Rosalina Morales consent to the sale of the
subject property was not given freely and voluntarily, considering that she

Furthermore, she pointed out that there were irregularities in the execution

was mentally and physically aware of everything that was going on around

of the disputed Deed of Absolute Sale. First, the residence certificate cited in

her.

the Deed dated May 3, 1989 was issued way back on January 26, 1988 in
Malabon, Rizal, when she already had a new one issued on January 26, 1989

Furthermore, the defendant argued that the alleged irregularity in the

in Quezon City. Second, Vicente M. Joyas, who notarized the disputed Deed

residence certificate and the notarization of the document would not in any

of Absolute Sale was not appointed as Notary Public of Manila in 1988 for the

way affect the validity of the sale since a public instrument [was] not

term ending on December 31, 1989, per verification from the Office of the

essential to its validity. Insofar as the lease was concerned, Narciso Morales

Clerk of Court of Manila.

alleged that he tolerated it since he made a commitment to his father and

stepmother (the Morales spouses) that they could reside in and enjoy the

Accordingly, she prayed that the Deed of Absolute Sale be annulled; that

fruits of the subject property for as long as they lived, out of his love and

Lydia Trinidad be appointed her guardian ad litem; and that the defendant

devotion for them. Thus, the plaintiff had no cause of action and the suit

corporation be made to pay P200,000.00 as and for moral

was baseless in fact and in law.

damages; P100,000.00 as and for actual and compensatory

damages; P150,000.00 as and for attorneys fees and litigation costs.

The defendant then prayed that judgment be rendered in its favor,

dismissing the complaint and ordering the plaintiff to pay P1,000,000.00 by

In its answer, the defendant corporation denied that the subject property

way of compensatory damages, P500,000.00 as corrective

was paraphernal, claiming that it was purchased and the improvements

damages; P200,000.00 as and for attorneys fees and costs of suit.

thereon constructed using the money of Emeterio Morales, the plaintiffs

husband, during the existence of their marriage. It was also contended that

Even before the pre-trial conference could be held, on October 7, 1992,

the plaintiff, who was at that point physically disabled and senile, could not

plaintiff Rosalina Santos-Morales passed away. Accordingly, her heirs,

206

namely, Lydia Trinidad, Rogelio de la Paz, Emmanuel de la Paz and Emeterio

The appellate court held that fraud vitiated the consent of Rosalina as

Morales, as her surviving spouse, were substituted as co-plaintiffs. Emeterio

indicated by the following circumstances surrounding the signing of the

Morales thereafter executed an affidavit wherein he declared that his

Deed of Sale: (1) she was tricked into believing that what she was signing

inclusion as a party-plaintiff was without his consent or authorization. He

was an application for the reconstitution of the lost [certificate of] title but

also deposed that as one of Rosalina Morales forced heirs, he [was]

which was actually a deed of absolute sale of the property in question; (2)

requesting that the civil case be withdrawn and/or dismissed.

there was no reason for [her] to sell her house and lot, because [t]here was
no evidence that would hint that the couple was in any economic

On April 30, 1993, the trial court issued the pre-trial Order limiting the

problem;

(3)

the

person

who

notarized

the

document was

not

issues to be resolved to the following[:]

commissioned notary public; (4) her expired residence certificate appeared on

the Deed, although a new one had already been issued to her; (5) there is no

I.

Whether or not the plaintiff, Rosalina Santos Morales, was of

sound mind when the questioned Deed of Absolute Sale was

substantial proof of payment; and (6) her subsequent acts showed that she
did not know or was not aware that she signed any deed of sale. [17]

executed on May 3, 1989.

The Issue

II. Whether or not the consent of Rosalina Santos-Morales, when

she affixed her signature on the questioned Deed of Absolute

Petitioner raises this solitary issue:

Sale was vitiated by fraud.

Whether or not the Court of Appeals committed a reversible error in
III. Whether or not defendant corporation paid the consideration
stated in the Deed of Absolute Sale. [15]

reversing its original decision and the decision of the Regional Trial Court by
annulling the Deed of Absolute Sale on a mere motion for reconsideration
which did not raise new and substantial issues. [18]

The Ruling of the Court of Appeals

Simply put, the main issue is whether the appellate court committed
In its assailed Amended Decision reversing the trial courts judgment, as

reversible error in ruling that the signature of Rosalina was fraudulently

well as its own earlier pronouncement, the CA ruled that Rosalina never sold

obtained. However, in discussing and determining the existence of a

the property in question to defendant, contrary to what the Deed of Absolute

reversible error, we shall take up all the issues raised by petitioner before the

Sale dated May 3, 1989 purports to show.[16]

Court of Appeals, as all of them revolve around the core question of

fraud. First, we shall tackle a preliminary matter: the propriety of private
respondents Motion for Reconsideration before the CA.
This Courts Ruling

The petition is devoid of merit.

Preliminary Issue:

Motion for Reconsideration

207

The petitioner submits that the CA should have denied private

respondents Motion for Reconsideration, as it did not raise new and

of the other by using deception, without which such consent would not have
been given.[25]

substantial arguments and issues that would warrant the reversal of its
original Decision.

Because the factual findings of the trial court and the Court of Appeals
differed, we undertook a scrutiny of the records, which persuaded us that

We rule otherwise. Rule 9 of the Revised Internal Rules of the Court of

the assailed Amended Decision should be affirmed and the contested

Appeals simply requires that a motion for reconsideration state (1) the

contract annulled. We believe that causal fraud is clearly demonstrated by

material dates and (2) the grounds relied upon by the movant. [19] The

the following facts which were duly established during the trial.

appellate tribunal is thus accorded the opportunity to correct a possible

error in its decision.[20]

Certificate of Title Obtained by Misrepresentation

Herein private respondents Motion for Reconsideration (MR) alleged that

When Emeterio Morales, father of Narciso Morales, took the owners

there was a newly discovered evidence -- the holographic will [21] of

duplicate certificate of title of the subject property from Gregorio Baonguis,

Rosalina. It is therefore incorrect to say that the arguments in the MR were

Rosalinas caretaker, he did not reveal that the property was the subject of a

mere rehashes of those already passed upon by the appellate court.

sale. Instead, Emeterio claimed that he needed the owners duplicate to

enable him to follow up Rosalinas application for a reconstitution of the

More important, the following discussion will show that the CA

committed no reversible error in granting the Motion for Reconsideration,

certificate of title, which had been burned during the fire that gutted the
Quezon City Hall. This is evident from Baonguis testimony: [26]

because the reversal of the original CA Decision was clearly justified.

Q Where is the title of this property now?
Main Issue:

It was taken from me by Mr. Emeterio Morales, in 1988, sir.

Where did you give it to him?

In their house at 58 South Maya Street, Philamlife Homes, Quezon

Circumstances Showing Fraud

A contract is a meeting of minds between two persons, whereby one is

bound to give something or to render some service to the other. [22] A valid

City, sir.

contract requires the concurrence of the following essential requisites: (1)

consent of the contracting parties, (2) object certain which is the subject
matter of the contract, and (3) cause of the obligation which is established.
[23]

Did Mr. Morales tell you his purpose why he need[ed] that owners
copy of the title?

Under Article 1330 of the Civil Code, consent may be vitiated by any of the

following: (1) mistake, (2) violence, (3) intimidation, (4) undue influence, and
(5) fraud.

According to him, he need[ed] that owners copy to facilitate the

reconstitution of title. They [would] be the one to follow it up, sir.

As earlier noted, the present case revolves around the question of

fraud. There is fraud when one party is induced by the other to enter into a

Did you come to know the result of this reconstitution of this title[?]

After that, sir, I heard nothing about it anymore.

contract, through and solely because of the latters insidious words or

machinations.[24] But not all forms of fraud can vitiate consent. Under Article
1330, fraud refers to dolo causante or causal fraud, in which, prior to or
simultaneous with the execution of a contract, one party secures the consent

208

Worse,

when

confronted

by

Lydia

Trinidad

(Rosalinas

daughter), Emeterio denied that he had ever taken the certificate of title from
Baonguis. She testified:

being that she never appeared before Atty. Joyas to present her residence
certificate to the latter. x x x (Underscoring supplied.)

[27]

The conclusion of the Court of Appeals is buttressed by the fact that

Q After learning from Mr. B[a]ong[u]is that the title of the property in
question was taken by your stepfather, what did you do?
A

I confronted my stepfather and asked for it and he denied.

What, more or less, did you ask your stepfather about this thing?

I asked him about the title and he said he [did] not have it.

After learning from your stepfather that he did not have this title,

Atty. Vicente M. Joyas, who notarized the Deed of Absolute Sale, was not a
commissioned notary.[29]
We have ruled that while [a] writing may have been accompanied by the
most

solemn

formalities,

no

instrument

sacred when tainted with fraud as to place

it

beyond

is

so

scrutiny

of

extrinsic evidence. This evidence overcomes the known presumption fraus

est odiosa et non praesumenda.[30] Such rule is especially applicable when
the instrument fails to conform to the formalities required by law.
what did you do next?
A

I told him that I [was] inquiring from the Register of Deeds.

Acts of Ownership Exercised by Rosalina Even After the Alleged Execution of the Deed of Sale

Ownership of a property means, among others, the right to enjoy and

dispose of it, subject to limitations established by law. [31] The law recognizes

Irregularities in the Notarization

in the owner the right to enjoy and dispose of the thing owned. The right to
enjoy includes: the jus utendi or the right to receive from the thing what it

Irregularities also impair the notarization of the alleged Deed of

produces, and the jus abutendi or the right to consume the thing by its

Sale. Very glaring is the fact that the Deed carried the expired residence

use. Further, [t]he right to dispose or the jus disponendi, is the power of

certificate of Rosalina, although a new one had been issued to her at the

the owner to alienate, encumber, transform, and even destroy the thing

time.[28] The significance of this detail was correctly appreciated by the Court

owned.[32]

of Appeals in the following terms:

In

the

present

case,

even

after

Rosalina

allegedly

sold

her

x x x Furthermore, investigation also revealed that an [a]pplication for

paraphernal

[r]econstitution of the original TCT No. 255716, duly signed by Rosalina

ownership over the same. Sixteen days after the alleged execution of the

Santos-Morales, was filed with the Office of the Registry of Deeds of Quezon

Deed of Sale,[34] she entered into a contract of lease [35] with siblings Rodolfo

City on August 8, 1988, and that her Residence Certificate No. 85119801-G

and Nympha as lessees. The lease contract clearly stated that Rosalina was

issued on January 26, 1988, in Malabon, Rizal, appearing therein [was] the

the absolute owner of the disputed property. [36] Indeed, she did not even

same as that one appearing in the Deed of Absolute Sale dated May 3, 1989,

mention petitioners alleged interest over the property when she signed the

which is an indication of irregularity considering that as early as January

said contract. This was affirmed on the witness stand by Nymphas

26, 1989, she had already been issued Residence Certificate No. 04022287 in

husband, Reynaldo Ortiz, who stated that he was unaware of the existence of

Quezon City, which was even used in the notarization of the Contract of

either Petitioner Corporation or Narciso Morales.[37]

[33]

property to herein petitioner, she still performed acts of

Lease dated May 19, 1989. If it were true that Rosalina Morales personally
appeared before Atty. Joyas and herself presented her residence certificate to

Furthermore, Rosalina (and her heirs) continued to possess the

Atty. Joyas, there is no reason why her 1988 residence certificate should be

disputed property even after the alleged sale. She also paid the real estate

the one that should appear in the deed of sale, the only possible conclusion

taxes and collected rentals from the lessees. In fact, after the alleged

209

execution of the questioned Deed of Sale, she even executed a holographic

will bequeathing the property to her husband Emeterio, her caretaker

She said she never sold that. She told me she did not receive any
single amount out of that sale.

Baonguis and her children by her first husband.

Thereafter,
In stark contrast, petitioner never exercised acts of ownership over the

Rosalina

executed

an

affidavit

repudiating

the

said

contract. The following averments in the affidavit are instructive:

property. Indeed, aside from the alleged Deed of Sale, it presented no other
evidence

of

its

ownership

such

as

books,

records

or

financial

1.

I am the registered owner of that parcel of land, together with the

statements. Moreover, it did not pay the real estate taxes even after a new

improvements thereon, located in Philamlife Homes, Quezon City, covered by

TCT had been issued in its name on May 5, 1989 as a consequence of the

Transfer Certificate of Title No. 255716 issued by the Register of Deeds of

registration of the purported Deed.[38] It must also be underscored that Atty.

Quezon City, which property is my paraphernal property;

Narciso Morales, president of the petitioner corporation, knew of the

subsequent acts of Rosalina, but offered no objection thereto.

2.

Considering my present state of health, I requested my daughter Lydia

Santos dela Paz Trinidad, to make the necessary verification with the Office
Rosalinas Immediate Disavowal of the Deed of Sale

of the Register of Deeds of Quezon regarding said property because my

owners copy of the title was reportedly taken by my husband, Emeterio S.

Upon learning of the existence of the Deed of Absolute Sale, Rosalina

Morales, from my caretaker without my previous authority and consent;

immediately denied that she ever signed the said contract. Her reaction was
described by her daughter Lydia, who testified thus: [39]

3.

Said verification made by my daughter disclosed that on May 5, 1989,

[a] Deed of Absolute Sale purporting to have been executed by me in favor of

Q What did you do with this Deed of Absolute Sale and the title you
procured from the Office of the Register of Deeds when you talked to

Archipelago Management and Marketing Corporation, covering said property,

was presented to the Office of the Register of Deeds of Quezon City;

your mother?
4.
A

I showed it to my mother and she said: No I have not sold this. Over

I was very much surprised to learn this because I ha[d] not sold the

said property to anybody much less to Archipelago Management and

and over again, that was her answer.

Marketing Corporation;

In this Deed of Absolute Sale, marked in evidence as Exhibit C, it

5.

appears that it purports that this property which is the parcel of

purpose of requesting the Office of the Register of Deeds of Quezon City

land covered by TCT No. 255716 from the Register of Deeds of

and/or the Land Registration Authority not to deliver the reconstituted

Quezon City, to have been sold by your mother to the defendant

owners duplicate of the said TCT No. 255716 except to me or to my duly

corporation in the consideration of P1,200,000.00. Did you mention

authorized representative under my written authority.

In view of this, I have executed this Affidavit of Adverse Claim for the

this to your mother? Did you confront her with this particular
portion of the Deed of Absolute Sale?

6.

I hereby further request the said Office to hold in abeyance registration

of any document affecting the said parcel of land. [40]

A

Yes, sir.
Eventually, Rosalina filed the present Complaint to annul the contract of

What did she tell you?

sale.
Consideration for the Sale

210

There is no conclusive showing that Rosalina ever received any

In this case, Rosalina was not aware that she ever signed any deed of

consideration for the alleged sale. Although petitioner argues that private

sale. All she knew was that she had applied for the reconstitution of her

respondents failed to overcome the legal presumption that there was

title. In fact, her subsequent conduct confirms that she did not sell or intend

sufficient consideration for the contract,[41] its own evidence fails to provide

to sell her property.

any factual basis for the presumption.

Petitioner maintains that she should have read the documents before
Indeed, petitioners version is so outlandish that it defies belief. It

signing the same. The peculiar circumstances of this case, however, render

asserts that the geriatric Rosalina travelled all the way from her home in

that contention unacceptable. While it may be presumed that Rosalina was

Quezon City to Narciso Morales Greenhills residence where she was given

of sound mind, it is undisputed that she was also quite old. In fact, two

the payment. Afterwards, the parties supposedly went to the Manila City

years after the alleged execution of the Deed of Sale, according to the

Hall to have the Deed of Sale notarized. Incredibly, petitioner alleges that the

testimony

payment, which was in cash, was made in Greenhills because Rosalina was

childhood. Thus, while Rosalinas mind may have been sound when she

afraid of holdups!

signed the said contract, it was degenerating and becoming susceptible to

of

Narciso

Morales,[45]Rosalina

entered

into

her

second

surreptitious machinations. Furthermore, it was her husband who asked

Simply stated, petitioners account is highly implausible. We find more

her to sign the documents, purportedly in connection with her application for

credibility in private respondents version denying that Rosalina ever sold her

a reconstitution of title. She cannot be expected to have exercised the same

property, executed a deed of sale, or received any amount from the petitioner.

high degree of vigilance usually observed in ordinary arms length

[42]

transactions.

The fact that Rosalinas bank passbook shows no increase in the deposit

on or after the date of the alleged sale [43] supports the cause of the private
respondents.

All

the

foregoing

circumstances

militate

against

petitioners

cause. Apropos to the present case is the following pronouncement of this

Deceased Not Guilty of Negligence

Citing Songco v. Sellner, [44] petitioner argues that private respondents

Court:
x x x. The statement that fraud cannot be presumed does not mean that the

cannot invoke fraud, because Rosalina was negligent in signing the Deed of

presumption of fraud may not arise, and be legitimately deduced, from

Sale. It contends that Rosalina did not exercise due care when she affixed

circumstantial evidence, but only that it is not to be assumed of a

her signature to the Deed of Absolute Sale without first reading the contents

transaction that it is fraudulent, in the absence of proof afforded by intrinsic

thereof.

evidence of unfairness in the transaction itself, or extrinsic facts and

circumstances leading to that conclusion. The general rule, therefore, must

The argument is not persuasive. In the first place, Songco does not
apply. In that case, a party claimed fraud based on the vendors exaggerated
statement concerning the probable yield of sugar from the cane sold. The
Court held that such party should have exercised diligence instead of merely
relying on the representation of the vendor. Clearly, the factual setting
of Songco is different from that of the present controversy.

be understood only as affirming that a contract or conduct apparently honest

and lawful must be treated as such until it is shown to be otherwise by either
positive or circumstantial evidence. Fraud may be, and often is, proved by or
inferred from circumstances, and the circumstances proved may in some
cases raise a presumption of its existence. On the other hand it has been
held that while fraud may be proved by circumstances or presumed from
them, it cannot be demonstrated by construction, and hence must be
prove[n] in all cases.[46]
Conclusion

211

After an exhaustive scrutiny of the records of this case, we find no

the alleged Deed of Sale, and that during her lifetime, she considered herself

reversible error in the CAs conclusion that fraud attended the execution of

the absolute owner of the property. Au contraire, petitioner and its president

the subject Deed.

manifested no conduct showing ownership or challenge to her dominion over

the subject real estate, even after the alleged execution of the Deed.

In reversing its original Decision, the reviewing court ratiocinated:

In closing, an earlier observation of this Court is aptly reiterated
hereunder: [51]

Considering the above pleadings of the parties, which necessitated a rereview of the facts and issues of the case, it appears that there were certain
facts of substance and value which were overlooked that, if considered, would

[T]he fertility of mans invention in devising new schemes of fraud is so great

affect the outcome of the case. Thus, the need to render this Amended

that courts have declined to define it, reserving to themselves the liberty to

Decision.

deal with it under whatever form it may present itself. In the case at bar the
fraudulent scheme is evidenced by a series of related acts committed one

While it is true that Rosalina Morales was of sound mind when she executed

after another, silently, quietly and surreptitiously. Our jurisprudence

the disputed Deed of Absolute Sale, it is likewise true that it does not

abounds with cases where fraud had been held to exist but we have found

necessarily follow that no fraud was committed, since, through deceit and

none in which all the circumstances above indicated are present, the

certain manipulations, she could be made to erroneously affix her signature

circumstances being varied as the men who schemed the fraud in each case.

to the deed of sale. Again, while it is true that a deed of sale does not have to
be notarized to be valid, it is likewise true that consent may be vitiated as

WHEREFORE, the petition is hereby DENIED for lack of merit. The

shown by the circumstances surrounding the signing of the deed of sale,

assailed Decision dated January 28, 1997 and the Resolution dated April 23,

thereby rendering the sale voidable for lack of consent, x x x [47]

1997, both promulgated by the Court of Appeals in CA-GR No. 46014,

are AFFIRMED. Costs against petitioner.

The chain of circumstances indubitably shows that Rosalina was

tricked into believing[48] that what she was signing were papers pertinent to
her application for the reconstitution of her burned certificate of title. And

SO ORDERED.

the CA correctly observed that x x x Rosalina Morales series of acts

subsequent to the alleged date of execution of the deed of sale shows that she
did not know, and was not aware, of having affixed her signature on a
document that turned out later to be a deed of sale xxx. [49] Petitioner could
not have obtained the signature of Rosalina without the help of Emeterio
Morales. Thus, the appellate court had reason to rule that Atty. Narciso
Morales, x x x, as president of the defendant corporation, conspiring and
confederating with his father, Mr. Emeterio Morales, obtained by means of
fraud and deceit the signature of Rosalina Santos-Morales.
Taken

together,

the

aforecited

circumstances

[50]

in

this

case

overwhelmingly demonstrate the causal fraud committed in obtaining

Rosalinas signature on the Deed of Sale. Rosalina had no intention to part
with her property, and as the appellate court ruefully observed, she had no

THIRD DIVISION
G.R. No. 138463

October 30, 2006

HEIRS OF CIPRIANO REYES: RICARDO REYES, DAYLINDA REYES,

BEATRIZ REYES, JULIAN CUECO, ESPERANSA REYES, VICTORINO
REYES, AND JOVITO REYES, petitioners,
vs.
JOSE CALUMPANG, GEOFFREY CALUMPANG, AGAPITO AGALA,
LORENZO MANABAN, RESTITUTO MANABAN, OLYMPIA MANABAN,
PELAGIA MANABAN AND FELIPE CUECO, respondents.

reason to. In fact, her conduct reveals that she had no knowledge at all of

212

DECISION

VELASCO, JR., J.:

Say not you know another entirely,
til you have divided an inheritance with him.
Johann Kaspar Lavater
Can a party who lost rights of ownership in a parcel of land due to laches be
allowed to regain such ownership when one who benefited from the delay
waives such benefit? This is the core issue to be resolved from this Petition
for Review on Certiorari1 that seeks to set aside the January 26, 1999
Decision2 of the Court of Appeals (CA) in CA-GR CV No. 54795 which
overturned the April 2, 1996 Decision of the Dumaguete City Regional Trial
Court (RTC) in Civil Case No. 9975 declaring null and void the December 27,
1972 Deed of Quitclaim executed by petitioners Jovito Reyes and Victorino
Reyes and ordering respondents to vacate Lot No. 3880 in Tanjay, Negros
Oriental, remove their houses from the said lot, and pay petitioners
attorneys fees of PhP 10,000.00. Also challenged is the March 25, 1999
Resolution3 which denied petitioners February 12, 1999 Motion for
Reconsideration.4
The Facts
It is sad and tedious when relatives bicker over inheritancewhen the
differences could have been amicably settled and harmony prevail among
relatives. The instant case involves Lot No. 3880 of the Cadastral Survey of
Tanjay, Negros Oriental which has a land area of around 25,277 square
meters, more or less. Said lot was originally owned by a certain Isidro Reyes,
who sired eight children, viz: Victoriana Reyes Manaban, Telesfora Reyes
Manaban, Leonardo Reyes, Juan Reyes, Eduarda Reyes, Miguel Reyes,
Eleuteria Reyes, and Hermogenes Reyes.
The protagonists are the descendants, specifically the grandchildren, of the
three eldest children of Isidro Reyes, namely, Victoriana, Telesfora and
Leonardo. To better understand the relation of the parties, it is apt to
mention the lineal positions of the pertinent heir-litigants whose names are
emphasized for clarity and identity.
1. Daughter Victoriana Reyes Manaban had five children, namely: Antonia
Manaban Sta. Cruz, Emerencia Manaban Agala, Juana Manaban Aguilar,
Lope Manaban, and Arcadia Manaban Balsamo. a.) Granddaughter
Emerencia Manaban Agala had five children, namely: Agapito Agala,

Cresencio Agala, Nicasia Agala, Filomena Agala, Baldomera Manaban Alido,

and Pelagia Manaban Cueco, the last two being illegitimate children. b.)
Granddaughter Antonia Manaban Sta. Cruz had no issue. c.) Granddaughter
Juana Manaban Aguilar had eight children, namely: Fructuoso, Salvadora,
Delfin, Rufina, Felomina, Ceferino, Lucia, and Cipriano, all surnamed
Aguilar. d.) Grandson Lope Manaban had seven children, namely: Aniana,
Lucas, Isidro, Genera, Abadias, Jose, and Gabriela, all surnamed Manaban.
e.) Granddaughter Arcadia Manaban Balsamo had seven children, namely:
Lucrecia, Bienvenida, Gregoria, Antonio, Moises, Marcela, and Maria, all
surnamed Balsamo. Of the grandchildren of Victoriana Reyes Manaban,
Agapito Agala and Pelagia Manaban Cueco, are among the respondents in
the instant case. Respondent Felipe Cueco was included among the
litigants, being the husband of Pelagia Manaban.
2. Daughter Telesfora Reyes Manaban had only one child, Valentin Manaban
who in turn had three children, namely: Olympia
Manaban Mayormita, Restituto Manaban, and Lorenzo Manaban, all of
whom are among the respondents in the instant case.
3. Son Leonardo Reyes had six children, namely: Higino Reyes, Policarpio
Reyes, Ines Reyes Calumpang, Exaltacion Reyes Agir, Honorata Reyes, and
Sofia Reyes. a.) Grandson Higino Reyes had six children,
namely:Victorino, Cipriano, Luis, Ricardo, Jesus, and Daylinda, all
surnamed Reyes. b.) Grandson Policarpio Reyes had three children, namely:
Beatriz, Guillermo, and Jovito, all surnamed Reyes. Most of the children of
Higino and Policarpio Reyes are the petitioners in the instant case. c.)
Granddaughter Ines Reyes Calumpang on the other hand had five children,
namely: Jose, Pedring, Cesar, Zosima, and Angel, all surnamed Calumpang.
Great-grandson Jose Calumpang and his son, Geoffrey Calumpang, a greatgreat-grandson of Isidro, are among the respondents in the instant case. d.)
Granddaughter Exaltacion Reyes Agir had seven children, namely: Rafael
Agir, Remedios Agir, Cordova Agir Gabas, Natividad Agir, Rogelio Agir, Ramon
Agir, and Zenaida Agir Lopez.
The records do not show the heirs of granddaughters Honorata and Sofia
Reyes, the last two children of Leonardo Reyes. Likewise, the records do not
mention the heirs of the last five children of Isidro Reyes, namely: Juan,
Eduarda, Miguel, Eleuteria, and Hermogenes.
For clarity, a chart showing the family tree originating from Isidro Reyes is
provided as follows (with the parties names given emphasis):
With the foregoing perspective on the relational positions of the protagonists,
we move on to the factual antecedents:
Among Isidros children, it was Leonardo Reyes, in behalf of his seven (7)
siblings, who managed the properties of their father. In 1924, a cadastral

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survey was conducted pursuant to Act No. 2259. Leonardo, through his
representative, Angel Calumpang, filed an answer in the cadastral court
naming all eight children of Isidro Reyes as claimants of the said lot.
However, on July 10, 1949, a certain Dominador Agir filed another claim over
the disputed lot, this time naming some grandchildren of Leonardo Reyes
(great-grandchildren of Isidro Reyes), which included most of the children of
Higino and Policarpio Reyes as claimants, namely: Victorino, Cipriano, Luis,
Ricardo, and Daylinda all surnamed Reyes, who are the children of Higino
Reyes; and Beatriz, Guillermo, and Jovito all surnamed Reyes, who are the
children of Policarpio Reyes. Subsequently, on July 19, 1949, a Decision was
rendered in Cadastral Case No. 12, G.L.R.O. Cad. Rec. No. 31 which covered
four (4) lots, among which is Lot No. 3880, whereby the Decision granted
judicial confirmation of the imperfect title of petitioners over said lot.
Consequently, Original Certificate of Title (OCT) No. OV-227 was issued on
August 5, 1954 in the name of petitioners, namely: Victorino, Cipriano, Luis,
Ricardo, Jesus, Daylinda, Jovito, Guillermo, and Beatriz, all surnamed
Reyes.
The nine (9) registered co-owners, however, did not take actual possession of
the said lot, and it was Victorino and Cipriano Reyes who paid the land
taxes. The heirs of Telesfora Reyes Manaban and Victoriana Reyes Manaban
(daughters of Isidro Reyes) retained possession over a hectare portion of the
said lot where they built their houses and planted various crops and fruit
bearing trees. Meanwhile, sometime in 1968, Jose Calumpang, grandson of
Leonardo Reyes and cousin of petitioners, also took possession over a hectare
of the said lot, planting it with sugarcane. Thus, Jose Calumpang and his
son Geoffrey continued to plant sugarcane over almost a hectare of the said
lot while the heirs of Telesfora Reyes Manaban and Victoriana Reyes
Manabanthe respondents Agalas and Manabansoccupied the rest of the
same lot which is about one hectare.
Sometime in 1972, respondent Agapito Agala (grandson of Victoriana Reyes
Manaban) was informed by his cousin Victorino Reyes, one of the petitioners
and registered co-owner of Lot No. 3880, that there was already a title over
the said lot. This prompted respondent Agapito Agala and the other heirs of
Telesfora and Victoriana to seek advice from a judge who suggested that they
request the registered co-owners to sign a quitclaim over the said lot.
A conference was allegedly held on December 27, 1972, where three (3) of the
registered co-ownersVictorino, Luis, and Jovito all surnamed Reyessigned
a Deed of Quitclaim,5 where, for a consideration of one peso (P1.00), they
agreed to "release, relinquish and quitclaim" all their rights over the land "in
favor of the legal heirs of the late Victoriana Reyes and Telesfora Reyes." 6
The Deed of Quitclaim was annotated on the back of OCT No. OV-227.
Thereafter, respondent Agapito Agala had the then Police Constabulary (PC)

summon the other registered co-owners, namely: Cipriano, Ricardo,

Daylinda, Guillermo, and Beatriz, to sign another deed of quitclaim. But the
latter allegedly ignored the call, prompting the heirs of Victoriana and
Telesfora Reyes to file on June 9, 1975 in Civil Case No. 6238, with the
Dumaguete City RTC, Branch 40, a Complaint for Reconveyance of Real
Property, Cancellation of Certificate of Title and Damages against the
registered co-owners of the disputed lot who did not sign a deed of quitclaim
and Dominador Agir, who filed the amended answer in the cadastral
proceedings in 1949. On April 28, 1987, the trial court dismissed the
complaint and ruled in favor of the registered co-owners of Lot No. 3880. On
appeal, the CA upheld the trial court and affirmed the RTC November 29,
1989 Decision.7 The CA Decision was not raised for review before this Court,
thereby attaining finality.
Consequently, on July 2, 1991, petitioners filed the instant civil case for
Recovery of Possession, Declaration of Non-existence of a Document,
Quieting of Title and Damages against Jose Calumpang, Geoffrey
Calumpang, Agapito Agala, Lorenzo Manaban, Heirs of Olympia Manaban,
Pelagia Manaban, Felipe Cueco and Heirs of Restituto Manaban (herein
respondents) in Dumaguete City RTC. It was docketed as Civil Case No. 9975
and raffled to RTC Branch 44.
In gist, petitioners, as registered owners of Lot No. 3880, alleged that by
tolerance they allowed respondents Jose and Geoffrey Calumpang to cultivate
an area of about one hectare of the said property; and also by tolerance
allowed respondents Manabans and Agalas to occupy another hectare
portion of the same lot. They further alleged that in December 1972,
petitioners Victorino, Luis, and Jovito Reyes got sick; and believing that they
were bewitched by the occupants of the said lot, they signed a Deed of
Quitclaim, waiving all their rights and interests over their respective shares
in the disputed lot in favor of the heirs of Victoriana and Telesfora Reyes; and
that thereafter, the latter filed Civil Case No. 6238 in 1987, which was
dismissed by the Dumaguete City RTC.
During the hearing of the instant case, petitioners presented their sole
witness, Ricardo Reyes, who testified on the identity of OCT No. OV-227, the
character of its possession, existence, and the Decision in the prior Civil
Case No. 6238;8 and the estimated income of the disputed lot, and the
expenses incurred in pursuing the instant case.
On the other hand, respondent-heirs of Victoriana and Telesfora Reyes
presented Lorenzo Manaban,9 who testified on the relationship of
respondents to Victoriana and Telesfora Reyes; that they were in actual and
adverse possession of Lot No. 3880; and, the existence and due execution of
the assailed Deed of Quitclaim in their favor which was duly annotated on
the back of OCT No. OV-227. Respondents Jose and Geoffrey Calumpang did
not participate in the trial although they filed their answer.

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Subsequently, the trial court rendered its judgment on April 2, 1996. The
dispositive portion reads:
WHEREFORE, this Court renders judgment declaring NULL and
VOID the Deed of Quitclaim dated December 27, 1972 signed by
Jovito and Victorino all surnamed Reyes. Ordering defendants to
vacate Lot No. 3880, Cadastral Survey of Tanjay and to remove their
house thereon; and to pay jointly and severally plaintiffs the sum of
P10, 000.00, by way of reimbursement for attorneys fees, and to pay
the costs.10
Believing that they were the legal and true owners of Lot No. 3880,
respondents interposed an appeal to the CA on June 27, 1996, which was
docketed as CA-G.R. CV No. 54795.
The Ruling of the Court of Appeals
For non-payment of the requisite docket fee, the appeal of respondent Jose
Calumpang was dismissed by the CA on December 19, 1997, 11 and a Partial
Entry of Judgment for Appellant Jose Calumpang Only12 was issued on
January 23, 1998.
However, the appeal filed by respondents Agalas and Manabans was found to
be meritorious, and on January 26, 1999, the CA reversed the Decision of
the trial court and dismissed Civil Case No. 9975. While it ruled that
petitioners had a cause of action to institute the case assailing the Deed of
Quitclaim as its validity was not disputed in Civil Case No. 6238, upon review
of the evidence adduced, the CA found that petitioners utterly failed to
present evidence substantiating their allegation of fraud and mistake in the
execution of the assailed quitclaim. The CA reasoned out that it was
incumbent for petitioners to prove their allegations of fraud and mistake, but
they failed to overcome the presumptions that a person takes ordinary care of
ones concerns and that private transactions have been fair and regular.
Thus, the CA ruled that the trial court had no basis in fact and in law to
declare the Deed of Quitclaim null and void, and concluded that it remained
valid and binding to all the signatories. The rights and interests in the shares
of Victorino, Luis, and Jovito Reyes over Lot No. 3880 were deemed waived in
favor of the heirs of Victoriana and Telesfora Reyes (that is, respondents
Agalas and Manabans) who had the right to retain possession of the lot.
Petitioners registered a Motion for Reconsideration of the January 26, 1999
Decision of the CA, which was however turned down in its March 25, 1999
Resolution, as petitioners were unable to raise new substantial issues which
had not been duly considered in arriving at the challenged judgment.
Hence, the instant petition.
The Issues

In the instant petition, petitioner raises the following assignment of errors for
our consideration:
(a) In exercising jurisdiction over the appeal of the defendants when
in fact the issues are purely questions of law misfiled in the Court of
Appeals, which should have been filed directly to the Supreme Court
at that time;
(b) In reversing the RTC Decision dated April 2, 1993; and in
reversing its own resolution dated December 19, 1997;
(c) In declaring that the fraud and mistake in the execution of the
waiver was not substantiated, when in fact there is overwhelming
evidence of infirmity of the document as found by the trial court,
which should not be disturbed on appeal.
(d) In sweepingly dismissing the complaint, including the claim
against the Calumpang defendants, even as the latter did not adduce
any evidence in the trial court, and whose appeal had already been
dismissed by the CA Resolution dated December 19, 1997; and the
Calumpang defendants did not also appeal to the Supreme Court
from such dismissal.13
The Courts Ruling
The petition is partly meritorious.
First Assignment of Error:
There is a Question of Fact
In the first assignment of error, petitioners argue that the appeal of the heirs
of Victoriana and Telesfora Reyes should have been filed before this Court
and not in the CA since it involves only pure questions of law, that is,
whether their counterclaims are barred by the judgment in Cadastral Case
No. 12, LRC 311, rendered by the Hon. Roman Ibaez, Judge of the CFI of
Negros Oriental, which involves the law on estoppel by judgment, and
Sections 38, 39, and 47 of Act 496.
We disagree.
A question of law exists when the doubt or controversy concerns the correct
application of law or jurisprudence to a certain set of facts; or when the issue
does not call for an examination of the probative value of the evidence
presented, the truth or falsehood of facts being admitted. A question of fact
exists when the doubt or difference arises as to the truth or falsehood of
facts or when the query invites calibration of the whole evidence considering
mainly the credibility of the witnesses, the existence and relevancy of specific
surrounding circumstances, as well as their relation to each other and to the
whole, and the probability of the situation.14

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The appeal before the CA by respondent-heirs of Victoriana and Telesfora

Reyes clearly assails the trial courts decision, inter alia, on the ground of
lack of evidence and questions the factual findings of the trial court. This
question is undoubtedly one of fact, falling squarely within the exclusive
appellate jurisdiction of the Court of Appeals.15

This finding is consonant with the findings of the trial court in the prior Civil
Case No. 6238,22 as affirmed in CA-G.R. CV No. 14527,23 that while
respondents Agalas and Manabans (the heirs of Victoriana and Telesfora
Reyes) had lost their equitable remedy in law on the ground of laches, yet the
Deed of Quitclaim is deemed valid and binding.

The second issue "that the CA erred in reversing the April 2, 1993 Decision
of the RTC and its resolution dated December 19, 1997" will be jointly
discussed with the fourth issue that "the CA erred in dismissing the
complaint including the claim against the Calumpang defendants."

Equitable Rights Subsist Despite Laches

Third Assignment of Error:

Question of Evidence
In the third assignment of error, petitioners strongly assert that
overwhelming evidence of infirmity of the document substantiated the fraud
and mistake in the execution of the questioned waiver or deed of quitclaim.
We are not persuaded.
Petitioners failed to adduce evidence
Petitioners admit the execution of the quitclaim by Victorino, Luis, and
Jovito, all surnamed Reyes; however, petitioners allege fraud and mistake in
its execution. But, as correctly held by the appellate court, petitioners failed
to present evidence in support of their allegation. Indeed, even a cursory
glance at the records reveals that no evidence was adduced substantiating
petitioners allegation of fraud and mistake in the execution of the assailed
quitclaim, neither from the documentary evidence formally offered 16 nor from
the testimonial evidence of petitioners sole witness, Ricardo Reyes, who
testified on the identity of some documents to prove ownership, the character
of the possession of the subject lot, and the existence of the Decision in Civil
Case No. 6238.
Basic is the rule of actori incumbit onus probandi, or the burden of proof lies
with the plaintiff. Differently stated, upon the plaintiff in a civil case, the
burden of proof never parts.17 In the case at bar, petitioners must therefore
establish their case by a preponderance of evidence, 18 that is, evidence that
has greater weight, or is more convincing than that which is offered in
opposition to it19which petitioners utterly failed to do so. Besides, it is an
age-old rule in civil cases that one who alleges a fact has the burden of
proving it and a mere allegation is not evidence.20 Fraud is never presumed,
but must be established by clear and convincing evidence. 21 Thus, by
admitting that Victorino, Luis, and Jovito, all surnamed Reyes, indeed
executed the Deed of Quitclaim coupled with the absence of evidence
substantiating fraud and mistake in its execution, we are constrained to
uphold the appellate courts conclusion that the execution of the Deed of
Quitclaim was valid.

On the issue of the rights of the heirs of Victoriana and Telesfora Reyes being
barred by the indefeasibility of petitioners Torrens Title over subject lot, we
qualify. White it is true that the indefeasibility of petitioners title on the
ground of laches bars the rights or interests of the heirs of Victoriana and
Telesfora Reyes over the disputed lot, still, the indefeasible rights of a holder
of a Torrens Title may be waived in favor of another whose equitable rights
may have been barred by laches.
In Soliva v. The Intestate Estate of Villalba, laches is defined as:
the failure or neglect, for an unreasonable and unexplained length of
time, to do that which by the exercise of due diligence could or
should have been done earlier. It is the negligence or omission to
assert a right within a reasonable period, warranting the
presumption that the party entitled to assert it has either abandoned
or declined to assert it.
Under this time-honored doctrine, relief has been denied to
litigants who, by sleeping on their rights for an unreasonable
length of time either by negligence, folly or inattention
have allowed their claims to become stale. Vigilantibus, sed non
dormientibus, jura subveniunt. The laws aid the vigilant, not those
who slumber on their rights.24 (Emphasis supplied and citations
omitted.)
Verily, laches serves to deprive a party guilty of it to any judicial remedies.
However, the equitable rights barred by laches still subsist and are not
otherwise extinguished. Thus, parties guilty of laches retains equitable rights
albeit in an empty manner as they cannot assert their rights judicially.
However, such equitable rights may be revived or activated by the waiver of
those whose right has ripened due to laches, and can be exercised to the
extent of the right waived.
Equitable Rights Revived through Waiver
In the case at bar, petitioners title over Lot No. 3880 had become indefeasible
due to the laches of the heirs of Victoriana and Telesfora Reyes. However, like
any rights over immovable property, titleholders may convey, dispose, or
encumber their right or interest. Thus, through the waiver and quitclaim, the
rights of the heirs of Victoriana and Telesfora Reyes were acknowledged,

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revived, and activated to the extent of the rights waived by titleholders

Victorino, Luis, and Jovito Reyes. Clearly, the quitclaim executed by
titleholders Victorino, Luis, and Jovito Reyes waived and conveyed their
rights over the said lot in favor of the heirs of Victoriana and Telesfora Reyes,
whose equitable rights were barred by laches.
In this light, we note that both trial and appellate courts in Civil Case No.
6238 did not categorically pronounce that the heirs of Victoriana and
Telesfora Reyes had no rights over the disputed lot. Their pronouncements
were to the effect that whatever equitable rights the heirs of Victoriana and
Telesfora Reyes may have had over the subject lot had been barred by laches.
Thus, the voluntary waiver of Victorino, Luis, and Jovito Reyes revived and
activated the equitable rights of the heirs of Victoriana and Telesfora Reyes
over Lot No. 3880. But such revived and activated rights over Lot No. 3880
correspond only to the extent of the rights of Victorino, Luis, and Jovito
Reyes waived in their favor.
The Quitclaim (Waiver) is Valid
The waiver is clear. The recent case of Valderama v. Macalde reiterated the
three (3) essential elements of a valid waiver, thus: "(a) existence of a right; (b)
athe knowledge of the existence thereof; and, (c) an intention to relinquish
such right." 25 These elements are all present in the case at bar. The three (3)
executors, who were co-owners and titleholders of the said lot since 1954,
were aware of their rights, and executed the Deed of Quitclaim in clear and
unambiguous language to waive and relinquish their rights over Lot No. 3880
in favor of the heirs of Victoriana and Telesfora Reyes. Thus, the existence of
a valid waiver has been positively demonstrated. Moreover, in People v.
Bodoso, cited in Valderama, it was held that the standard of a valid waiver
requires that it "not only must be voluntary, but must be knowing,
intelligent, and done with sufficient awareness of the relevant circumstances
and likely consequences."26 In the instant case, petitioners utterly failed to
adduce any evidence showing that the assailed quitclaim was done absent
such standard. Indeed, we note with approval the CAs apt application of the
presumption "that a person takes ordinary care of his concerns and that
private transactions have been fair and regular." 27
Waiver Complies with the Requisites of a Valid Contract
and the Formal Requisites to Convey Real Property
Petitioners argue that even if the conveyance or waiver was duly executed,
such is ineffective on the grounds of non-compliance with the requirements
of Article 1318 of the new Civil Code on the requisites of a contract, and that
it cannot be considered a donation for non-compliance with the formalities
required by the law on donation, for example, acceptance.
The argument is bereft of merit.

The Deed of Quitclaim complies with the essential requisites of a contract

provided in Article 1318 of the Civil Code, viz: (a) consent of the parties; (b)
object certain that is the subject matter of the waiver and quitclaim; and, (c)
the cause of the waiver and quitclaim that is established. First, there is no
doubt as to the consent of the executing parties and the heirs of Victoriana
and Telesfora Reyes. Second, the object is the executors right over the
subject land. And third, the cause is certain, that is, the recognition by the
executors of the rights of the heirs of Victoriana and Telesfora Reyes over the
disputed lot.
It likewise complies with Article 1358 (1) of the Civil Code which requires that
"acts and contracts which have for their object the creation, transmission,
modification or extinguishments of real rights over immovable property" must
appear in a public document. This is complied with, as the Deed of Quitclaim
is a public document having been acknowledged before a notary
public.28 Moreover, the Deed of Quitclaim has been duly annotated in the
original certificate of title covering the subject lot.
Deed of Quitclaim not a donation
Petitioners contended that the Deed of Quitclaim is really a donation and
thus necessitates acceptance by respondents Agalas and Manabans. A
purview of the factual antecedents of the execution of the Deed of Quitclaim
shows otherwise. Victorino, Luis, and Jovito Reyes signed the Deed of
Quitclaim to relinquish their rights in recognition of respondents right over
the said land and thus conveyed their rights and interest in the quitclaim to
respondents Agalas and Manabans (the heirs of Victoriana and Telesfora
Reyes).
It should be remembered that respondents Agalas and Manabans are the
heirs of Victoriana and Telesfora Reyes. Originally the rights and interests of
respondents over Lot No. 3880 were formally filed in 1924 in the cadastral
proceedings in the Cadastral Court. Leonardo Reyes instructed his
representative to file an answer asserting the ownership of said lot by the
eight (8) children of Isidro Reyes which includes Victoriana and Telesfora.
However on July 10, 1949, another claim was filed by Dominador Agir only in
behalf of the children of Higino and Policarpio Reyes, and excluded Victoriana
and Telesfora Reyes. Thus, when OCT No. OV-227 was issued, the
respondents Agalas and Manabans, as heirs of Victoriana and Telesfora, were
excluded.
In this factual setting, respondents could have filed an action for
reconveyance to recover their shares in Lot No. 3880. However, instead of
instituting such a suit, respondents were able to convince Victorino, Luis,
and Jovito, all surnamed Reyes, to execute a Deed of Quitclaim restoring to
them their shares. Therefore, it is clear that the quitclaim is not a donation
for the three (3) ReyesesVictorino, Luis, and Jovitowho merely

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acknowledged the ownership of and the better right over the said lot by the
heirs of Victoriana and Telesfora Reyes. Having acquired title over the
property in 1954 to the exclusion of respondents Agalas and Manabans,
through the Deed of Quitclaim executed in 1972, the three (3) Reyeses merely
acknowledged the legal rights of respondents over their shares in the said lot.
In fine, the Deed of Quitclaim, not being a donation, no formal acceptance is
needed from the Agalas and Manabans.
After resolving the validity of the Deed of Quitclaim and elucidating on why
the deed is not tantamount to a donation, we will now resolve what the heirs
of Victoriana and Telesfora Reyes are entitled to own and why they can legally
possess the disputed lot:
Heirs of Victoriana and Telesfora Reyes entitled to 1/3 of disputed lot
Through the Deed of Quitclaim, the heirs of Victoriana and Telesfora Reyes
respondents Agalas and Manabans and their co-heirsare entitled to the
aggregate shares of Victorino, Luis, and Jovito Reyes over Lot No. 3880.
OCT No. OV-227 shows that the said lot has a total area of around 25,277
square meters, more or less. The shares of the registered co-owners in the
OCT are given as follows:
[I]t is hereby decreed that [1] Victorino Reyes, single; [2] Cipriano
Reyes, single; [3] Luis Reyes, 19 years of age, single; [4] Ricardo
Reyes, 17 years of age, single; [5] Jesus Reyes, 11 years of age; [6]
Daylinda Reyes, 8 years of age; [7] Jovito Reyes, single; [8] Guillermo
Reyes, 19 years of age, single; and [9] Beatriz Reyes, 17 years of age,
single; in the proportion of undivided 1/2 in equal shares to the first
six (6) named and the remaining 1/2 in undivided equal shares, to
the last three (3) named x x x
From the foregoing division of pro-indiviso shares, Victorinos share is 1/6 of
1/2 undivided share or 1/12 of the total area. Luis has the same share as
Victorinos; while Jovitos share is 1/3 of 1/2 undivided share or 2/12 [1/6]
of the total area. Thus, Victorino and Luis have equal shares of 2,106.417
square meters while Jovito has a share of 4,212.833 square meters. Thus,
the aggregate area of the shares of Victorino, Luis, and Jovito is 8,425.667
square meters or 1/3 of the total land area of subject lot, which will be
passed on to the heirs of Victoriana and Telesfora Reyesrespondents Agalas
and Manabans, and their co-heirs, the Balsamos, Aguilars, and Mayormitas.
Second and Fourth Issues:
Respondent Calumpangs barred by Civil Case No. 6238
We will now tackle both alleged assignments of errors as regards respondents
Calumpangs because both issues are closely related. In the second
assignment of error, petitioners, as registered owners, contend that they are
in constructive possession of the disputed land and have the right to demand

that respondent Calumpangs, who are occupying the land, to vacate it. And,
in the last assignment of error, petitioners contend that the appellate court
erred in dismissing the complaint, including the claim against respondents
Jose and Geoffrey Calumpang, who did not contest the case in the trial
court, aside from their joint answer and whose appeal before the appellate
court was dismissed with finality.
We agree with petitioners.
As mentioned above, petitioners title over Lot No. 3880, Tanjay Cadastre,
Original Certificate of Title No. OV-227 issued in their names sometime in
1954, had become indefeasible pursuant to the trial courts Decision duly
affirmed by the appellate court in Civil Case No. 6238. Respondent
Calumpangs apparently did not adduce evidence to assert their rights over
subject lot both in the prior Civil Case No. 6238 and in the instant one. Be
that as it may, the claim of respondent Calumpangs over Lot No. 3880 had
been conclusively denied in Civil Case No. 6238. Thus, whatever rights and
interests respondents Jose and Geoffrey Calumpang have had over Lot No.
3880 are barred by the Decision in Civil Case No. 6238. Moreover, the
December 19, 1997 Resolution of the CA had become final and executory.
Consequently, having no rights over Lot No. 3880, there is no reason for
respondents Jose and Geoffrey Calumpang to continue occupying a portion
of Lot No. 3880.
WHEREFORE, the petition is partly GRANTED. The January 26, 1999
Decision and the March 25, 1999 Resolution of the Court of Appeals in CAG.R. CV No. 54795 are hereby SET ASIDE. Respondents Jose and Geoffrey
Calumpang are ORDERED to VACATE Lot No. 3880, REMOVE their houses
from the said lot, if any, and PAY petitioners, jointly and severally, PhP
10,000.00 as attorneys fees. The heirs of Victoriana and Telesfora Reyes
among whom are respondents Agalas and Manabansare entitled to
8,425.667 square meters of Lot No. 3880. The parties are ORDERED to have
Lot No. 3880 surveyed, and a subdivision plan prepared showing the
respective shares of the parties as basis for the issuance of separate titles.
The Register of Deeds of Tanjay, Negros Oriental is hereby ORDERED to issue
separate Transfer Certificates of Title based on the said survey plan; one title
in the name of the heirs of Victoriana and Telesfora Reyes over 8,425.667
square meters, who will retain possession of such area only, and another title
over the remaining area of 16,851.333 square meters of Lot No. 3880 which
shall be issued in the names of Cipriano, Ricardo, Jesus, Daylinda,
Guillermo, and Beatriz, all surnamed Reyes, excluding Victorino, Luis, and
Jovito Reyes, whose shares were conveyed to the heirs of Victoriana and
Telesfora Reyes.
No costs.
SO ORDERED.

218

within one month from the signing of the Deed of Sale. Montecillos Deed of
Sale states as follows:
That I, IGNACIA T. REYNES, of legal age, Filipino, widow, with residence and
[G.R. No. 138018. July 26, 2002]

postal address at Mabolo, Cebu City, Philippines, for and in consideration

of FORTY SEVEN THOUSAND (P47,000.00) PESOS, Philippine Currency,

RIDO MONTECILLO, petitioner, vs. IGNACIA REYNES and SPOUSES

REDEMPTOR and ELISA ABUCAY, respondents.

to me in hand paid by RIDO MONTECILLO, of legal age, Filipino, married,

with residence and postal address at Mabolo, Cebu City, Philippines,
the receipt hereof is hereby acknowledged, have sold, transferred, and

DECISION

conveyed, unto RIDO MONTECILLO, his heirs, executors, administrators,

and assigns, forever, a parcel of land together with the improvements
thereon, situated at Mabolo, Cebu City, Philippines, free from all liens and

CARPIO, J.:

encumbrances, and more particularly described as follows:

The Case

A parcel of land (Lot 203-B-2-B of the subdivision plan Psd-07-01-00 2370,

On March 24, 1993, the Regional Trial Court of Cebu City, Branch 18,
rendered a Decision[1] declaring the deed of sale of a parcel of land in favor of
petitioner null and void ab initio. The Court of Appeals,
1998 Decision

[3]

as well as its February 11, 1999 Order

[4]

[2]

in its July 16,

denying petitioners

Motion for Reconsideration, affirmed the trial courts decision in toto. Before
this Court now is a Petition for Review on Certiorari

[5]

assailing the Court of

Appeals decision and order.

(GLRO) Record No. 5988), situated in the Barrio of Mabolo, City of

Cebu. Bounded on the SE., along line 1-2 by Lot 206; on the SW., along line
2-3, by Lot 202, both of Banilad Estate; on the NW., along line 4-5, by Lot
203-B-2-A of the subdivision of Four Hundred Forty Eight (448) square
meters, more or less.
of which I am the absolute owner in accordance with the provisions of the
Land Registration Act, my title being evidenced by Transfer Certificate of Title

The Facts

No. 74196 of the Registry of Deeds of the City of Cebu, Philippines. That

Respondents Ignacia Reynes (Reynes for brevity) and Spouses Abucay

(Abucay Spouses for brevity) filed on June 20, 1984 a complaint for
Declaration of Nullity and Quieting of Title against petitioner Rido Montecillo
(Montecillo for brevity). Reynes asserted that she is the owner of a lot
situated in Mabolo, Cebu City, covered by Transfer Certificate of Title No.
74196 and containing an area of 448 square meters (Mabolo Lot for
brevity). In 1981, Reynes sold 185 square meters of the Mabolo Lot to the
Abucay Spouses who built a residential house on the lot they bought.
Reynes alleged further that on March 1, 1984 she signed a Deed of Sale
of the Mabolo Lot in favor of Montecillo (Montecillos Deed of Sale for
brevity). Reynes, being illiterate,

being a portion of Lot 203-B-2, described on plan (LRC) Psd-76821, L.R.C.

[6]

signed by affixing her thumb-mark

[7]

on the

document. Montecillo promised to pay the agreed P47,000.00 purchase price

This Land Is Not Tenanted and Does Not Fall Under the Purview of P.D.
27.[8] (Emphasis supplied)
Reynes further alleged that Montecillo failed to pay the purchase price
after the lapse of the one-month period, prompting Reynes to demand from
Montecillo the return of the Deed of Sale. Since Montecillo refused to return
the Deed of Sale,[9] Reynes executed a document unilaterally revoking the sale
and gave a copy of the document to Montecillo.
Subsequently, on May 23, 1984 Reynes signed a Deed of Sale
transferring to the Abucay Spouses the entire Mabolo Lot, at the same time
confirming the previous sale in 1981 of a 185-square meter portion of the
lot. This Deed of Sale states:

219

I, IGNACIA T. REYNES, of legal age, Filipino, widow and resident of Mabolo,

In his Answer, Montecillo, a bank executive with a B.S. Commerce

Cebu City, do hereby confirm the sale of a portion of Lot No. 74196 to an

degree,[12] claimed he was a buyer in good faith and had actually paid

extent of 185 square meters to Spouses Redemptor Abucay and Elisa Abucay

the P47,000.00 consideration stated in his Deed of Sale. Montecillo, however,

covered by Deed per Doc. No. 47, Page No. 9, Book No. V, Series of 1981 of

admitted he still owed Reynes a balance of P10,000.00. He also alleged that

notarial register of Benedicto Alo, of which spouses is now in occupation;

he paid P50,000.00 for the release of the chattel mortgage which he argued
constituted a lien on the Mabolo Lot. He further alleged that he paid for the

That for and in consideration of the total sum of FIFTY THOUSAND (P50,000)

real property tax as well as the capital gains tax on the sale of the Mabolo

PESOS, Philippine Currency, received in full and receipt whereof is herein

Lot.

acknowledged from SPOUSES REDEMPTOR ABUCAY and ELISA ABUCAY, do

hereby in these presents, SELL, TRANSFER and CONVEY absolutely unto

In their Reply, Reynes and the Abucay Spouses contended that

said Spouses Redemptor Abucay and Elisa Abucay, their heirs, assigns and

Montecillo did not have authority to discharge the chattel mortgage,

successors-in-interest the whole parcel of land together with improvements

especially after Reynes revoked Montecillos Deed of Sale and gave the

thereon and more particularly described as follows:

mortgagee a copy of the document of revocation. Reynes and the Abucay

Spouses claimed that Montecillo secured the release of the chattel mortgage
through machination. They further asserted that Montecillo took advantage

TCT No. 74196

of the real property taxes paid by the Abucay Spouses and surreptitiously
A parcel of land (Lot 203-B-2-B of the subdivision plan psd-07-01-002370,

caused the transfer of the title to the Mabolo Lot in his name.

being a portion of Lot 203-B-2, described on plan (LRC) Psd 76821, LRC
(GLRO) Record No. 5988) situated in Mabolo, Cebu City, along Arcilla Street,

During pre-trial, Montecillo claimed that the consideration for the sale

containing an area of total FOUR HUNDRED FORTY EIGHT (448) Square

of the Mabolo Lot was the amount he paid to Cebu Ice and Cold Storage

meters.

Corporation (Cebu Ice Storage for brevity) for the mortgage debt of
Bienvenido Jayag (Jayag for brevity). Montecillo argued that the release of

of which I am the absolute owner thereof free from all liens and

the mortgage was necessary since the mortgage constituted a lien on the

encumbrances and warrant the same against claim of third persons and

Mabolo Lot.

other deeds affecting said parcel of land other than that to the said spouses
Reynes, however, stated that she had nothing to do with Jayags

and inconsistent hereto is declared without any effect.

mortgage debt except that the house mortgaged by Jayag stood on a portion
rd

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

of the Mabolo Lot. Reynes further stated that the payment by Montecillo to
release the mortgage on Jayags house is a matter between Montecillo and

[10]

Jayag. The mortgage on the house, being a chattel mortgage, could not be
Reynes and the Abucay Spouses alleged that on June 18, 1984 they

interpreted in any way as an encumbrance on the Mabolo Lot. Reynes

received information that the Register of Deeds of Cebu City issued

further claimed that the mortgage debt had long prescribed since the

Certificate of Title No. 90805 in the name of Montecillo for the Mabolo Lot.

P47,000.00 mortgage debt was due for payment on January 30, 1967.

Reynes and the Abucay Spouses argued that for lack of consideration
there

(was)

no

Montecillo. Thus,

meeting
the

trial

of

the

court

minds

should

[11]

between

declare

null

and

void ab

cancellation of Montecillos Transfer Certificate of Title No. 90805 and the

Reynes
and

initio Montecillos Deed of Sale, and order the cancellation of Certificate of

Title No. 90805 in the name of Montecillo.

The trial court rendered a decision on March 24, 1993 declaring the
Deed of Sale to Montecillo null and void. The trial court ordered the
issuance of a new certificate of title in favor of the Abucay Spouses. The trial
court found that Montecillos Deed of Sale had no cause or consideration

220

because Montecillo never paid Reynes the P47,000.00 purchase price,

2. If there was none, is the Deed of Sale void from the beginning
or simply rescissible?[15]

contrary to what is stated in the Deed of Sale that Reynes received the
purchase price. The trial court ruled that Montecillos Deed of Sale produced
no effect whatsoever for want of consideration. The dispositive portion of the

The Ruling of the Court

trial courts decision reads as follows:

The petition is devoid of merit.
WHEREFORE, in view of the foregoing consideration, judgment is hereby
rendered declaring the deed of sale in favor of defendant null and void and of
no force and effect thereby ordering the cancellation of Transfer Certificate of

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

Title No. 90805 of the Register of Deeds of Cebu City and to declare plaintiff
Spouses Redemptor and Elisa Abucay as rightful vendees and Transfer
Certificate of Title to the property subject matter of the suit issued in their
names. The defendants are further directed to pay moral damages in the sum
of P20,000.00 and attorneys fees in the sum of P2,000.00 plus cost of the
suit.

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

xxx

Civil Code provides as follows:

Not satisfied with the trial courts Decision, Montecillo appealed the

same to the Court of Appeals.

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

Ruling of the Court of Appeals

it.
Thus, Montecillos payment to Cebu Ice Storage is not the payment that

The appellate court affirmed the Decision of the trial court in toto and
dismissed the appeal

[13]

would extinguish[16] Montecillos obligation to Reynes under the Deed of Sale.

on the ground that Montecillos Deed of Sale is void

for lack of consideration. The appellate court also denied Montecillos Motion
for Reconsideration[14] on the ground that it raised no new arguments.

It militates against common sense for Reynes to sell her Mabolo Lot
for P47,000.00 if this entire amount would only go to Cebu Ice Storage,
leaving not a single centavo to her for giving up ownership of a valuable

Still dissatisfied, Montecillo filed the present petition for review on

certiorari.

property. This incredible allegation of Montecillo becomes even more absurd

when one considers that Reynes did not benefit, directly or indirectly, from
the payment of the P47,000.00 to Cebu Ice Storage.

The Issues
The trial court found that Reynes had nothing to do with Jayags
Montecillo raises the following issues:

mortgage debt with Cebu Ice Storage. The trial court made the following
findings of fact:

1. Was there an agreement between Reynes and Montecillo that

the stated consideration of P47,000.00 in the Deed of Sale be

x x x. Plaintiff Ignacia Reynes was not a party to nor privy of the obligation

paid to Cebu Ice and Cold Storage to secure the release of the

in favor of the Cebu Ice and Cold Storage Corporation, the obligation being

Transfer Certificate of Title?

exclusively of Bienvenido Jayag and wife who mortgaged their residential

221

house constructed on the land subject matter of the complaint. The payment

Montecillo argues there is only a breach of his obligation to pay the full

by the defendant to release the residential house from the mortgage is a

purchase price on time. Such breach merely gives Reynes a right to ask for

matter between him and Jayag and cannot by implication or deception be

specific performance, or for annulment of the obligation to sell the Mabolo

made to appear as an encumbrance upon the land.[17]

Lot. Montecillo maintains that in reciprocal obligations, the injured party

can

choose

between

fulfillment

and

rescission,[20] or

more

properly

Thus, Montecillos payment to Jayags creditor could not possibly

cancellation, of the obligation under Article 1191[21] of the Civil Code. This

redound to the benefit[18] of Reynes. We find no reason to disturb the factual

Article also provides that the court shall decree the rescission claimed,

findings of the trial court. In petitions for review on certiorari as a mode of

unless there be just cause authorizing the fixing of the period.

appeal under Rule 45, as in the instant case, a petitioner can raise only

claims that because Reynes failed to make a demand for payment, and

questions of law.[19] This Court is not the proper venue to consider a factual

instead unilaterally revoked Montecillos Deed of Sale, the court has a just

issue as it is not a trier of facts.

cause to fix the period for payment of the balance of the purchase price.

Montecillo

These arguments are not persuasive.

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

rescissible.

Montecillos Deed of Sale states that Montecillo paid, and Reynes

Under Article 1318 of the Civil Code, [T]here is no contract unless the
following requisites concur: (1) Consent of the contracting parties; (2) Object
certain which is the subject matter of the contract; (3) Cause of the obligation
which is established. Article 1352 of the Civil Code also provides that
[C]ontracts without cause x x x produce no effect whatsoever.

received, the P47,000.00 purchase price on March 1, 1984, the date of

signing of the Deed of Sale. This is clear from the following provision of the
Deed of Sale:
That I, IGNACIA T. REYNES, x x x for and in consideration of FORTY
SEVEN THOUSAND (P47,000.00) PESOS, Philippine Currency, to me in

Montecillo argues that his Deed of Sale has all the requisites of a valid
contract. Montecillo points out that he agreed to purchase, and Reynes
agreed to sell, the Mabolo Lot at the price of P47,000.00. Thus, the three
requisites

for

a valid

contract concur:

consent,

object certain and

hand paid by RIDO MONTECILLO xxx, receipt of which is hereby

acknowledged, have sold, transferred, and conveyed, unto RIDO
MONTECILLO, x x x a parcel of land x x x.

consideration. Montecillo asserts there is no lack of consideration that

would prevent the existence of a valid contract. Rather, there is only nonpayment of the consideration within the period agreed upon for payment.

On its face, Montecillos Deed of Absolute Sale [22] appears supported by a

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

From the allegations in the pleadings of both parties and the oral and
documentary evidence adduced during the trial, the court is convinced that
the Deed of Sale (Exhibits 1 and 1-A) executed by plaintiff Ignacia Reynes
acknowledged before Notary Public Ponciano Alvinio is devoid of any
consideration. Plaintiff Ignacia Reynes through the representation of Baudillo
Baladjay had executed a Deed of Sale in favor of defendant on the promise

222

that the consideration should be paid within one (1) month from the

Where the deed of sale states that the purchase price has been paid but

execution of the Deed of Sale. However, after the lapse of said period,

in fact has never been paid, the deed of sale is null and void ab initio for lack

defendant failed to pay even a single centavo of the consideration. The answer

of consideration. This has been the well-settled rule as early as Ocejo Perez

of the defendant did not allege clearly why no consideration was paid by him

& Co. v. Flores,[27] a 1920 case. As subsequently explained in Mapalo v.

except for the allegation that he had a balance of onlyP10,000.00. It turned

Mapalo[28]

out during the pre-trial that what the defendant considered as the
consideration was the amount which he paid for the obligation of Bienvenido
Jayag with the Cebu Ice and Cold Storage Corporation over which plaintiff
Ignacia Reynes did not have a part except that the subject of the mortgage
was constructed on the parcel of land in question. Plaintiff Ignacia Reynes
was not a party to nor privy of the obligation in favor of the Cebu Ice and
Cold Storage Corporation, the obligation being exclusively of Bienvenido
Jayag and wife who mortgaged their residential house constructed on the
land subject matter of the complaint. The payment by the defendant to
release the residential house from the mortgage is a matter between him and
Jayag and cannot by implication or deception be made to appear as an
encumbrance upon the land. [23]
Factual findings of the trial court are binding on us, especially if the
Court of Appeals affirms such findings. [24] We do not disturb such findings
unless the evidence on record clearly does not support such findings or such
findings are based on a patent misunderstanding of facts, [25] which is not the
case here. Thus, we find no reason to deviate from the findings of both the
trial and appellate courts that no valid consideration supported Montecillos
Deed of Sale.
This is not merely a case of failure to pay the purchase price, as
Montecillo claims, which can only amount to a breach of obligation with
rescission as the proper remedy. What we have here is a purported contract
that lacks a cause - one of the three essential requisites of a valid
contract. Failure to pay the consideration is different from lack of
consideration. The former results in a right to demand the fulfillment or
cancellation of the obligation under an existing valid contract [26] while the
latter prevents the existence of a valid contract

In our view, therefore, the ruling of this Court in Ocejo Perez & Co. vs.
Flores, 40 Phil. 921, is squarely applicable herein. In that case we ruled that
a contract of purchase and sale is null and void and produces no effect
whatsoever where the same is without cause or consideration in that the
purchase price which appears thereon as paid has in fact never been paid by
the purchaser to the vendor.
The Court reiterated this rule in Vda. De Catindig v. Heirs of
Catalina Roque,[29] to wit
The Appellate Courts finding that the price was not paid or that the
statement in the supposed contracts of sale (Exh. 6 to 26) as to the payment
of the price was simulated fortifies the view that the alleged sales were void.
If the price is simulated, the sale is void . . . (Art. 1471, Civil Code)
A contract of sale is void and produces no effect whatsoever where the price,
which appears thereon as paid, has in fact never been paid by the purchaser
to the vendor (Ocejo, Perez & Co. vs. Flores and Bas, 40 Phil. 921; Mapalo vs.
Mapalo, L-21489, May 19, 1966, 64 O.G. 331, 17 SCRA 114, 122). Such a
sale is non-existent (Borromeo vs. Borromeo, 98 Phil. 432) or cannot be
considered consummated (Cruzado vs. Bustos and Escaler, 34 Phil. 17;
Garanciang vs. Garanciang, L-22351, May 21, 1969, 28 SCRA 229).
Applying this well-entrenched doctrine to the instant case, we rule that
Montecillos Deed of Sale is null and void ab initio for lack of consideration.
Montecillo asserts that the only issue in controversy is the mode
and/or manner of payment and/or whether or not payment has been
made.[30] Montecillo implies that the mode or manner of payment is separate
from the consideration and does not affect the validity of the contract. In the
recent case of San Miguel Properties Philippines, Inc. v. Huang, [31] we
ruled that

223

In Navarro v. Sugar Producers Cooperative Marketing Association, Inc. (1

SO ORDERED.

SCRA 1181 [1961]), we laid down the rule that the manner of payment of
the purchase price is an essential element before a valid and binding
contract of sale can exist. Although the Civil Code does not expressly state
that the minds of the parties must also meet on the terms or manner of
payment of the price, the same is needed, otherwise there is no sale. As held
in Toyota Shaw, Inc. v. Court of Appeals(244 SCRA 320 [1995]), agreement on

[G. R. No. 127094. February 6, 2002]

the manner of payment goes into the price such that a disagreement on the
manner of payment is tantamount to a failure to agree on the
price. (Emphasis supplied)

ALEJANDRIA PINEDA and SPOUSES ADEODATO DUQUE, JR., and

EVANGELINE MARY JANE DUQUE, petitioners, vs. COURT OF
APPEALS

One of the three essential requisites of a valid contract is consent of the

parties on the object and cause of the contract.

In a contract of sale, the

and

parties must agree not only on the price, but also on the manner of payment

contract for lack of consent. This lack of consent is separate and distinct

hand, Montecillo thought that his agreement with Reynes required him to
pay the P47,000.00 purchase price to Cebu Ice Storage to settle Jayags
mortgage debt. Montecillo also acknowledged a balance of P10,000.00 in
favor of Reynes although this amount is not stated in Montecillos Deed of
Sale. Thus, there was no consent, or meeting of the minds, between Reynes
and Montecillo on the manner of payment. This prevented the existence of a
valid contract because of lack of consent.
In summary, Montecillos Deed of Sale is null and void ab initio not
only for lack of consideration, but also for lack of consent. The cancellation
of TCT No. 90805 in the name of Montecillo is in order as there was no valid
contract transferring ownership of the Mabolo Lot from Reynes to Montecillo.
WHEREFORE, the petition is DENIED and the assailed Decision dated
July 16, 1998 of the Court of Appeals in CA-G.R. CV No. 41349 is
AFFIRMED. Costs against petitioner.

and

MERCEDES

The Case

paid when in fact it has never been paid.

price within one month after the signing of the Deed of Sale. On the other

BAEZ

PARDO, J.:

from lack of considerationwhere the contract states that the price has been

Reynes expected Montecillo to pay him directly the P47,000.00 purchase

NELSON

DECISION

of the price. An agreement on the price but a disagreement on the manner of

its payment will not result in consent, thus preventing the existence of a valid

SPOUSES

BAEZ, respondents.

The case is an appeal via certiorari from the decision of the Court of
Appeals,[1] affirming that of the Regional Trial Court, Quezon City, Branch 76,
declaring that the Baez spouses are the lawful owners of the property in
question and the petitioners could not convey title to the Duque spouses who
were buyers in bad faith.
The Facts
The facts, as found by the Court of Appeals, are as follows:
Appellees Nelson Baez and Mercedes Baez are the original owners of a
parcel of land together with its improvements located
at 32 Sarangaya St., White Plains, Quezon City while Ms.Alejandria Pineda is
the owner of a house located at 5224 Buchanan St., Los Angeles, California.
On January 11, 1983, the appellees and Alejandria Pineda, together with
the latters spouse Alfredo Caldona, executed an Agreement to Exchange Real
Properties (Exh. A, p. 16, Folder of Exhibits). In the agreement, the parties
agreed to: 1) exchange their respective properties; 2) Pineda to pay an earnest

224

money in the total amount of $12,000.00 on or before the first week of

1985; and 5) $330 on February 7, 1985 (Exhs. 4 to 8, pp. 55-57, Ibid).

February 1983; and 3) to consummate the exchange of properties not later

The appellants physically occupied the premises on June or July 1985 (Pre-

than June 1983. It appears that the parties undertook to clear the mortgages

Trial Order, p. 156, Records).

over their respective properties. At the time of the execution of the exchange
agreement, the White Plains property was mortgaged with the Government

Upon their return to the Philippines sometime in March

Service Insurance System (GSIS) while the Californiaproperty had a total

1985, the appellees discovered that the appellants were occupying the White

mortgage obligation of $84,000.00 (Exh. A-2, p. 18, Ibid).

Plains property. They talked with appellant Atty.Adeodato Duque who showed
interest in buying the property and the latter mentioned that they gave

In the meantime, the appellees were allowed to occupy or lease to a tenant

money to Mrs. Pineda to facilitate the redemption of her property in the U.

Pinedas California property (Exh. A-1, p. 17, Ibid) and Pineda was

S. (pp. 23-26, November 9, 1989, TSN). Appellees alleged that they

authorized to occupy appellees White Plains property (Complaint; p. 8.

confronted Pineda on their title to the property but the latter replied that she

Records). Pursuant to the exchange agreement, Alejandria Pineda paid

gave the title to the appellants. They did not insist on its return from the

the appellees the total amount of $12,000.00 broken down as follows: 1)

appellants as the latter were interested in buying the property (pp. 33-

$5,000.00, on January 1983; 2) $4,000.00 on April 1983; 3) $3,000.00 on

35, November 9, 1989, TSN).

January 1985 (Exh. C & D, pp. 28; 36 Ibid).

A series of communications ensued between the representatives of
On December 18, 1984, unknown to the appellees, Alejandria Pineda and

the appellees and Ms. Pineda with regards to the status of the exchange

the appellants Adeodato C. Duque, Jr. and Evangeline Mary

agreement which resulted in its rescission for failure of Pineda to clear her

Jane Duque executed an Agreement to Sell over the White Plains property

mortgage obligation of the California property (Exhs. B, C & D, pp. 24-

whereby Pineda sold the property to the appellants for the amount of

29; 35-37, Folder of Exhibits). Negotiations for the purchase of the property

P1,600,000.00 (Exh. 1, p. 51, Ibid). The contract provides that: 1) upon

were held between the appellants and the appellees but the same failed

signing of the agreement, the purchaser shall pay P450,000.00 and the seller

which resulted in the appellees demanding for the appellants to vacate the

shall cause the release of the property from any encumbrance and deliver to

property (Exhs. F to F-12, pp. 81-93, Ibid).

the purchaser the title to the property; 2) balance shall be paid by the
purchaser to the seller on or before the end of January 1985; 3) upon full

Appellees claim that upon their return to the Philippines on July 1987, they

payment, the seller shall deliver to the purchaser a deed of absolute sale duly

discovered from the Register of Deeds that the title over their White

signed by its registered owner, the appellees. On the same date, Pineda, out

Plains property was cancelled and a new one was issued in the name

of the downpayment received from the appellants, paid the appellees

of Alejandria Pineda. They also discovered a fictitious deed of sale

mortgage obligation with the GSIS in the sum of P112,690.75 (Exhs. D-1 to

dated September 5, 1979 in favor of Pineda. Appellees alleged that the deed of

D-3, pp. 41-43, Ibid).

absolute sale is fictitious and their signatures a forgery (pp. 37-39, November
9, 1989, TSN). Appellants maintained that on December 22, 1986, they

Pineda then requested the appellees for a written authority for the release of

discovered the property was registered in the name of Pineda by virtue of a

the title from the GSIS (pp. 18-19, November 9, 1989, TSN). On January 1,

deed of sale and they informed the appellees of the existence of the deed of

1985, the appellees gave Pineda the aforementioned authority with the

sale in a meeting in the United States on March 1987 (pp. 3-4, October 22,

understanding that Pineda will personally deliver the title to

1990, TSN).

the appellees (Exh. E, p. 44, Ibid). The record shows that pursuant to the
agreement to sell the following payments were made by the appellants to

During that meeting, an agreement was reached by the appellants and

Pineda: 1) $25,000.00 on December 26, 1984; 2) $10,000.00 on January 18,

the appellees for the sale of the property at $89,000.00. Appellees alleged

1985; 3) P50,000.00 on January 24, 1985; 4) $500.00 on February 1,

that the purchase price was reduced to $60,000.00 which appellants failed to

225

pay (pp. 40- 41, November 10, 1989, TSN). They admitted however to have

of Title in the name of plaintiffs Nelson S. Baez, married to Mercedez Baez,

received the sum of P 100,000.00 from Atty. Duque (pp. 51-52,November 10,

both of legal age, Filipinos and residents of No. 32 Sarangaya St., White

1989, TSN). On the other hand, the appellants alleged that the purchase

Plains, Quezon City, covering the lot in question.

price of $89,000.00 was conditioned that all payments made to Pineda as

well as expenses incurred will be considered as forming part of the purchase

4. Declaring as null and void ab-initio that certain Agreement to Sell

price (pp. 3-4, October 22, 1990, TSN). The records are silent as to what

dated December 18, 1988 (Exh. 1) executed by and between

happened to this agreement.

defendant Alejandria Pineda and spouses defendantsAdeodata C. Duque, Jr.

and Evangeline Mary Jane Duque, over the house and lot in question;

On September 3, 1987, the present complaint was filed before the court a
quo. Since the record of this case was burned during the fire that razed

5. Declaring alleged vendees, defendants Adeodato Duque, Jr. and

the Quezon City Hall Building sometime in June 1988, the record was

Evangeline Mary Jane Duque as purchasers in bad faith of the house and

reconstituted upon petition of the plaintiffs Nelson S. Baez and

land in suit and as builders in bad faith over whatever improvements

Mercedes Baez, without objection from the defendant Duques. For failure to

introduced by them in the house and lot in question;

serve summons by personal delivery on defendant Alejandria Pineda,

an alias writ of summons was issued by publication. After the lapse of sixty

6. Ordering herein defendants Adeodato Duque, Jr. and Evangeline Mary

(60) days from the last publication of summons, the court, upon motion,

Jane Duque, their heirs, and assigns, and all persons claiming under them

declared Pineda in default in its order dated March 4, 1988. Thereafter,

to vacate and peacefully surrender possession of the premises in question

defendant spouses Adeodato and Evangeline Mary Jane L. Duque, appellants

located at no. 32 Sarangaya St., White Plains, Quezon City. Afterwhich, said

herein, filed their Answer.[2]

defendants, their heirs and assigns are likewise ordered to respect and not to
molest the peaceful possession of plaintiffs spouses Baezes over the

On February

17,

1992,

the

trial

court

rendered

decision,

premises in question;

the decretal portion of which reads as follows:

7. Ordering defendants spouses Duques to pay plaintiffs the sum of
WHEREFORE, prescinding from the foregoing, judgment is hereby rendered:

P10,000.00 monthly rentals since August 1985 until they shall have
peacefully surrendered physical possession of the premises in question to

1. Declaring plaintiffs spouses Nelson S. Baez and Mercedes Baez the

plaintiffs;

absolute owners in fee simple title of the house and lot in question located
at 32 Sarangaya St., White Plains,Quezon City, entitled as such to all the

8. Ordering plaintiffs spouses Baez to reimburse defendants spouses the

rights blossoming forth from such ownership.

sum of P 100,000.00 representing the amount they received when said

defendants Duques offered a proposal to buy the premises in question (Exh.

2. Declaring as null and void ab-initio for being a patent forgery that Deed of

N, p. 487, dated July 24, 1987), with interest at the legal rate, which amount

Absolute Sale dated September 5, 1979 (Exh. I) purportedly executed by

however shall be deducted from the accumulated past rentals due the

plaintiffs in favor of defendantAlejandria Pineda;

plaintiffs;

3. Declaring as null and void that TCT No. T-338857 (Exh. H) of the land

9. Ordering defendant Pineda to pay plaintiffs the sum of P200,000.00 by

records of Quezon City, issued January 03, 1986 in the name

way of moral damages, plus the sum of P 100,000.00 by way of exemplary

of Alejandria (dra) B. Pineda, widow, of legal age, Filipino and the Register of

damages;

Deeds of Quezon City, after the finality of this decision, is hereby ordered to
cancel said Certificate of Title and, in lieu thereof, to issue a new Certificate

226

10. Ordering defendants spouses Duques to pay plaintiffs Baezes the sum
of P 100,000.00 by way of moral damages, plus the sum of P50,000.00 by

We deny the petition. The issue raised is factual. In an appeal via

certiorari, we may not review the findings of fact of the Court of Appeals. [11]

way of exemplary damages;

Nevertheless, it appears that the Baez spouses were the original
11. Ordering herein defendant Pineda and defendants spouses Duques to

owners

pay jointly and severally the sum of P50,000.00, plus 10% of the sums

at 32 Sarangaya St., White

awarded to plaintiffs by way of reasonable attorneys fees; and

the Baez spouses and petitioner Pineda executed an agreement to exchange

of

the

parcel

of

land

and

Plains,Quezon City.

improvements
On January

11,

located
1983,

real properties. However, the exchange did not materialize.

12. Both defendants to pay the costs.
Petitioner Pinedas sale of the property to petitioners Duque was not
SO ORDERED.

[3]

authorized by the real owners of the land, respondent Baez. The Civil Code
provides that in a sale of a parcel of land or any interest therein made

In time, petitioners appealed the decision to the Court of Appeals.

[4]

through an agent, a special power of attorney is essential. [12] This authority

must be in writing, otherwise the sale shall be void. [13] In his testimony,

On September 18, 1992, respondents Nelson and Mercedes Baez filed

with the Court of Appeals a motion for execution pending appeal.

[5]

On April

27, 1993, the Court of Appeals denied the motion for lack of merit. [6]
On May 20, 1996, the Court of Appeals promulgated a decision,
the dispositive portion of which reads:

petitioner Adeodato Duque confirmed that at the time he purchased

respondents property from Pineda, the latter had no Special Power of
Authority to sell the property.[14]
A special power of attorney is necessary to enter into any contract by
which the ownership of an immovable is transmitted or acquired for a
valuable consideration.[15] Without an authority in writing, petitioner Pineda

WHEREFORE, premises considered, the decision appealed from is

could not validly sell the subject property to petitioners Duque. Hence, any

AFFIRMED with the modification that rental payments should commence on

sale in favor of petitioners Duque is void.[16]

January 1986 (not August 1985) and appellants are liable for attorneys fees
Further, Article 1318 of the Civil Code lists the requisites of a valid and

only in the sum of P50,000.00.[7]

perfected contract, namely: (1) consent of the contracting parties; (2) object
On June 26, 1996, petitioners filed a motion for reconsideration of the
above quoted decision.

[8]

On November 7, 1996, the Court of Appeals denied

certain which is the subject matter of the contract; (3) cause of the obligation
which is established.[17] Pineda was not authorized to enter into a contract to
sell the property. As the consent of the real owner of the property was not

the motion.[9]

obtained, no contract was perfected.[18]

Hence, this appeal.[10]
Consequently, petitioner Duque failed to validly acquire the subject
The Issue
The issue raised is whether petitioners validly acquired the subject

property.
The Fallo

property.
WHEREFORE, the Court DENIES the petition and AFFIRMS the
The Court's Ruling

decision of the Court of Appeals,[19] in toto.

227

No costs.

Eligio Herrera, Sr., the father of respondent, was the owner of two
parcels of land, one consisting of 500 sq. m. and another consisting of 451
sq. m., covered by Tax Declaration (TD) Nos. 01-00495 and 01-00497,

SO ORDERED.

respectively. Both were located at Barangay San Andres, Cainta, Rizal. [3]
On January 3, 1991, petitioner bought from said landowner the first
parcel, covered by TD No. 01-00495, for the price of P1,000,000, paid in
installments from November 30, 1990 to August 10, 1991.
[G.R. No. 139982. November 21, 2002]

On March 12, 1991, petitioner bought the second parcel covered by TD

JULIAN FRANCISCO (Substituted by his Heirs, namely: CARLOS ALTEA

FRANCISCO;

the

namely: CONCHITA
his

children

heirs

late

ARCADIO

FRANCISCO,

SALANGSANG-FRANCISCO (surviving spouse),

namely: TEODULO

FRANCISCO,

S.

THOMAS

S.

and

FRANCISCO,

EMILIANO S.

S.

FRANCISCO,

MARIA THERESA

PAULINA S. FRANCISCO,
FRANCISCO;

of

FRANCISCO;

CARINAFRANCISCO-ALCANTARA;

PEDRO

ALTEA

No. 01-00497, for P750,000.

Contending that the contract price for the two parcels of land was
grossly inadequate, the children of Eligio, Sr., namely, Josefina Cavestany,
Eligio Herrera, Jr., and respondent Pastor Herrera, tried to negotiate with
petitioner to increase the purchase price. When petitioner refused, herein
respondent then filed a complaint for annulment of sale, with the RTC of

EFREN ALTEA

Antipolo City, docketed as Civil Case No. 92-2267. In his complaint,

FRANCISCO; DOMINGA LEA FRANCISCO-REGONDON; BENEDICTO ALTEA

respondent claimed ownership over the second parcel, which is the lot

FRANCISCO and

covered by TD No. 01-00497, allegedly by virtue of a sale in his favor since

ANTONIO ALTEA

FRANCISCO), petitioner,

vs.

PASTOR HERRERA, respondent.

DECISION
QUISUMBING, J.:
This is a petition for review on certiorari of the decision [1] of the Court of
Appeals, dated August 30, 1999, in CA-G.R. CV No. 47869, which affirmed in
toto the judgment[2] of the Regional Trial Court (RTC) of Antipolo City, Branch
73, in Civil Case No. 92-2267. The appellate court sustained the trial courts
ruling which: (a) declared null and void the deeds of sale of the properties
covered by Tax Declaration Nos. 01-00495 and 01-00497; and (b) directed
petitioner to return the subject properties to respondent who, in turn, must
refund to petitioner the purchase price of P1,750,000.
The facts, as found by the trial court and affirmed by the Court of
Appeals, are as follows:

1973. He likewise claimed that the first parcel, the lot covered by TD No. 0100495, was subject to the co-ownership of the surviving heirs of Francisca A.
Herrera, the wife of Eligio, Sr., considering that she died intestate on April 2,
1990, before the alleged sale to petitioner. Finally, respondent also alleged
that the sale of the two lots was null and void on the ground that at the time
of sale, Eligio, Sr. was already incapacitated to give consent to a contract
because he was already afflicted with senile dementia, characterized by
deteriorating mental and physical condition including loss of memory.
In his answer, petitioner as defendant below alleged that respondent was
estopped from assailing the sale of the lots. Petitioner contended that
respondent had effectively ratified both contracts of sales, by receiving the
consideration offered in each transaction.
On November 14, 1994, the Regional Trial Court handed down its
decision, the dispositive portion of which reads:
WHEREFORE, in view of all the foregoing, this court hereby orders that:

228

1. The deeds of sale of the properties covered by Tax Dec. Nos. 01-

B. WAS CONTRARY TO ESTABLISHED JURISPRUDENCE; AND

00495 and 01-00497 are declared null and void;

C. WAS PURELY CONJECTURAL, THE CONJECTURE BEING
2. The defendant is to return the lots in question including all

ERRONEOUS.

improvements thereon to the plaintiff and the plaintiff is

ordered to simultaneously return to the defendant the purchase

III. THE COURT OF APPEALS WAS IN GROSS ERROR AND IN

price of the lots sold totalling to P750,000.00 for lot covered by

FACT VIOLATED PETITIONERS RIGHT TO DUE PROCESS

TD 01-00497 and P1,000,000.00 covered by TD 01-00495;

WHEN IT RULED THAT THE CONSIDERATION FOR THE

QUESTIONED CONTRACTS WAS GROSSLY INADEQUATE.[6]

3. The court also orders the defendant to pay the cost of the suit.
The resolution of this case hinges on one pivotal issue: Are the assailed
4. The counter-claim of the defendant is denied for lack of merit.

contracts of sale void or merely voidable and hence capable of being ratified?

SO ORDERED.[4]

Petitioner contends that the Court of Appeals erred when it ignored the
basic distinction between void and voidable contracts. He argues that the

Petitioner then elevated the matter to the Court of Appeals in CA-G.R.

contracts of sale in the instant case, following Article 1390 [7] of the Civil Code

CV No. 47869. On August 30, 1999, however, the appellate court affirmed

are merely voidable and not void ab initio. Hence, said contracts can be

the decision of the Regional Trial Court, thus:

ratified. Petitioner argues that while it is true that a demented person cannot
give

consent

to

contract

pursuant

to

Article

1327, [8] nonetheless

WHEREFORE, premises considered, the decision appealed from is hereby

the dementia affecting one of the parties will not make the contract void per

AFFIRMED in toto. Costs against defendant-appellant.

se but merely voidable. Hence, when respondent accepted the purchase price
on behalf of his father who was allegedly suffering fromsenile dementia,

SO ORDERED.[5]

respondent effectively ratified the contracts. The ratified contracts then

become valid and enforceable as between the parties.

Hence, this petition for review anchored on the following grounds:

Respondent counters that his act of receiving the purchase price does
I. THE COURT OF APPEALS COMPLETELY IGNORED THE BASIC

not imply ratification on his part. He only received the installment payments

DIFFERENCE BETWEEN A VOID AND A MERELY VOIDABLE

on his senile fathers behalf, since the latter could no longer account for the

CONTRACT THUS MISSING THE ESSENTIAL SIGNIFICANCE

previous payments. His act was thus meant merely as a safety measure to

OF THE ESTABLISHED FACT OF RATIFICATION BY THE

prevent the money from going into the wrong hands. Respondent also

RESPONDENT WHICH EXTINGUISHED WHATEVER BASIS

maintains that the sales of the two properties were null and void. First, with

RESPONDENT MAY HAVE HAD IN HAVING THE CONTRACT AT

respect to the lot covered by TD No. 01-00497, Eligio, Sr. could no longer sell

BENCH ANNULLED.

the same because it had been previously sold to respondent in 1973. As to

lot covered by TD No. 01-00495, respondent contends that it is co-owned by

II. THE DECISION OF THE COURT OF APPEALS ON SENILE

DEMENTIA:
A. DISREGARDED THE FACTUAL BACKGROUND OF THE CASE;

Eligio, Sr. and his children, as heirs of Eligios wife. As such, Eligio, Sr. could
not sell said lot without the consent of his co-owners.
We note that both the trial court and the Court of Appeals found that
Eligio, Sr. was already suffering from senile dementia at the time he sold the

229

lots in question. In other words, he was already mentally incapacitated when

happened. As found by the trial court and the Court of Appeals, upon

he entered into the contracts of sale. Settled is the rule that findings of fact of

learning of the sale, respondent negotiated for the increase of the purchase

the trial court, when affirmed by the appellate court, are binding and

price while receiving the installment payments. It was only when respondent

conclusive upon the Supreme Court.[9]

failed to convince petitioner to increase the price that the former instituted
the complaint for reconveyance of the properties. Clearly, respondent was

Coming now to the pivotal issue in this controversy. A void or inexistent

agreeable to the contracts, only he wanted to get more. Further, there is no

contract is one which has no force and effect from the very beginning. Hence,

showing that respondent returned the payments or made an offer to do so.

it is as if it has never been entered into and cannot be validated either by the

This bolsters the view that indeed there was ratification. One cannot

passage of time or by ratification. There are two types of void contracts: (1)

negotiate for an increase in the price in one breath and in the same breath

those where one of the essential requisites of a valid contract as provided

contend that the contract of sale is void.

for by Article 1318[10] of the Civil Code is totally wanting; and (2) those
declared to be so under Article 1409[11] of the Civil Code. By contrast, a

Nor can we find for respondents argument that the contracts were void

voidable or annullable contract is one in which the essential requisites for

as Eligio, Sr., could not sell the lots in question as one of the properties had

validity under Article 1318 are present, but vitiated by want of capacity,

already been sold to him, while the other was the subject of a co-ownership

error, violence, intimidation, undue influence, or deceit.

among the heirs of the deceased wife of Eligio, Sr. Note that it was found by
both the trial court and the Court of Appeals that Eligio, Sr., was the

Article 1318 of the Civil Code states that no contract exists unless there

declared owner of said lots. This finding is conclusive on us. As declared

is a concurrence of consent of the parties, object certain as subject matter,

owner of said parcels of land, it follows that Eligio, Sr., had the right to

and cause of the obligation established. Article 1327 provides that insane or

transfer the ownership thereof under the principle of jus disponendi.

demented persons cannot give consent to a contract. But, if an insane or

demented person does enter into a contract, the legal effect is that the
contract is voidable or annullable as specifically provided in Article 1390.

[12]

In sum, the appellate court erred in sustaining the judgment of the trial
court that the deeds of sale of the two lots in question were null and void.

In the present case, it was established that the vendor Eligio, Sr. entered

WHEREFORE, the instant petition is GRANTED. The decision dated

into an agreement with petitioner, but that the formers capacity to consent

August 30, 1999 of the Court of Appeals in CA-G.R. CV No. 47869, affirming

was vitiated by senile dementia. Hence, we must rule that the assailed

the decision of the Regional Trial Court in Civil Case No. 92-2267 is

contracts are not void or inexistent per se; rather, these are contracts that

REVERSED. The two contracts of sale covering lots under TD No. 01-00495

are valid and binding unless annulled through a proper action filed in court

and No. 01-00497 are hereby declared VALID. Costs against respondent.

seasonably.
SO ORDERED.
An annullable contract may be rendered perfectly valid by ratification,
which can be express or implied. Implied ratification may take the form of
accepting and retaining the benefits of a contract. [13] This is what happened
in this case. Respondents contention that he merely received payments on
behalf of his father merely to avoid their misuse and that he did not intend to
concur with the contracts is unconvincing. If he was not agreeable with the
contracts, he could have prevented petitioner from delivering the payments,
or if this was impossible, he could have immediately instituted the action for
reconveyance and have the payments consigned with the court. None of these

G.R. No. 111238 January 25, 1995

230

ADELFA PROPERTIES, INC., petitioner,

3. Thereafter, herein petitioner expressed interest in buying the western

vs.

portion of the property from private respondents. Accordingly, on November

COURT OF APPEALS, ROSARIO JIMENEZ-CASTAEDA and SALUD

25, 1989, an "Exclusive Option to Purchase" 5 was executed between

JIMENEZ, respondents.

petitioner and private respondents, under the following terms and conditions:
1. The selling price of said 8,655 square meters of the
subject property is TWO MILLION EIGHT HUNDRED FIFTY
SIX THOUSAND ONE HUNDRED FIFTY PESOS ONLY

REGALADO, J.:

(P2,856,150.00)

The main issues presented for resolution in this petition for review

2. The sum of P50,000.00 which we received from ADELFA

on certiorari of the judgment of respondent Court of appeals, dated April 6,

PROPERTIES, INC. as an option money shall be credited as

1993, in CA-G.R. CV No. 34767 are (1) whether of not the "Exclusive Option

partial payment upon the consummation of the sale and the

to Purchase" executed between petitioner Adelfa Properties, Inc. and private

balance in the sum of TWO MILLION EIGHT HUNDRED SIX

respondents Rosario Jimenez-Castaeda and Salud Jimenez is an option

THOUSAND ONE HUNDRED FIFTY PESOS (P2,806,150.00)

contract; and (2) whether or not there was a valid suspension of payment of

to be paid on or before November 30, 1989;

the purchase price by said petitioner, and the legal effects thereof on the
contractual relations of the parties.

3. In case of default on the part of ADELFA PROPERTIES,

INC. to pay said balance in accordance with paragraph 2

The records disclose the following antecedent facts which culminated in the

hereof, this option shall be cancelled and 50% of the option

present appellate review, to wit:

money to be forfeited in our favor and we will refund the

remaining 50% of said money upon the sale of said property

1. Herein private respondents and their brothers, Jose and Dominador

to a third party;

Jimenez, were the registered co-owners of a parcel of land consisting of

17,710 square meters, covered by Transfer Certificate of Title (TCT) No.

4. All expenses including the corresponding capital gains

309773, 2situated in Barrio Culasi, Las Pias, Metro Manila.

tax, cost of documentary stamps are for the account of the

VENDORS, and expenses for the registration of the deed of

2. On July 28, 1988, Jose and Dominador Jimenez sold their share

sale in the Registry of Deeds are for the account of ADELFA

consisting of one-half of said parcel of land, specifically the eastern portion

PROPERTIES, INC.

thereof, to herein petitioner pursuant to a "Kasulatan sa Bilihan ng

Lupa." 3Subsequently, a "Confirmatory Extrajudicial Partition
Agreement" 4 was executed by the Jimenezes, wherein the eastern portion of
the subject lot, with an area of 8,855 square meters was adjudicated to Jose
and Dominador Jimenez, while the western portion was allocated to herein
private respondents.

Considering, however, that the owner's copy of the certificate of title issued to
respondent Salud Jimenez had been lost, a petition for the re-issuance of a
new owner's copy of said certificate of title was filed in court through Atty.
Bayani L. Bernardo, who acted as private respondents' counsel. Eventually, a
new owner's copy of the certificate of title was issued but it remained in the
possession of Atty. Bernardo until he turned it over to petitioner Adelfa
Properties, Inc.

231

4. Before petitioner could make payment, it received summons 6 on November

9. On the same day, February 28, 1990, private respondents executed a Deed

29, 1989, together with a copy of a complaint filed by the nephews and nieces

of Conditional Sale

of private respondents against the latter, Jose and Dominador Jimenez, and

for P3,029,250, of which P1,500,000.00 was paid to private respondents on

herein petitioner in the Regional Trial Court of Makati, docketed as Civil Case

said date, with the balance to be paid upon the transfer of title to the

No. 89-5541, for annulment of the deed of sale in favor of Household

specified one-half portion.

10

in favor of Emylene Chua over the same parcel of land

Corporation and recovery of ownership of the property covered by TCT No.

309773. 7

10. On April 16, 1990, Atty. Bernardo wrote private respondents informing
the latter that in view of the dismissal of the case against them, petitioner

5. As a consequence, in a letter dated November 29, 1989, petitioner

was willing to pay the purchase price, and he requested that the

informed private respondents that it would hold payment of the full purchase

corresponding deed of absolute sale be executed.

price and suggested that private respondents settle the case with their

private respondents.

11

This was ignored by

nephews and nieces, adding that ". . . if possible, although November 30,
1989 is a holiday, we will be waiting for you and said plaintiffs at our office

11. On July 27, 1990, private respondents' counsel sent a letter to petitioner

up to 7:00 p.m." Another letter of the same tenor and of even date was sent

enclosing therein a check for P25,000.00 representing the refund of fifty

by petitioner to Jose and Dominador Jimenez. 9 Respondent Salud Jimenez

percent of the option money paid under the exclusive option to purchase.

refused to heed the suggestion of petitioner and attributed the suspension of

Private respondents then requested petitioner to return the owner's duplicate

payment of the purchase price to "lack of word of honor."

copy of the certificate of title of respondent Salud Jimenez.

12

Petitioner failed

to surrender the certificate of title, hence private respondents filed Civil Case
6. On December 7, 1989, petitioner caused to be annotated on the title of the

No. 7532 in the Regional Trial Court of Pasay City, Branch 113, for

lot its option contract with private respondents, and its contract of sale with

annulment of contract with damages, praying, among others, that the

Jose and Dominador Jimenez, as Entry No. 1437-4 and entry No. 1438-4,

exclusive option to purchase be declared null and void; that defendant,

respectively.

herein petitioner, be ordered to return the owner's duplicate certificate of

title; and that the annotation of the option contract on TCT No. 309773 be

7. On December 14, 1989, private respondents sent Francisca Jimenez to see

cancelled. Emylene Chua, the subsequent purchaser of the lot, filed a

Atty. Bernardo, in his capacity as petitioner's counsel, and to inform the

complaint in intervention.

latter that they were cancelling the transaction. In turn, Atty. Bernardo
13

offered to pay the purchase price provided that P500,000.00 be deducted

12. The trial court rendered judgment

therein on September 5, 1991

therefrom for the settlement of the civil case. This was rejected by private

holding that the agreement entered into by the parties was merely an option

respondents. On December 22, 1989, Atty. Bernardo wrote private

contract, and declaring that the suspension of payment by herein petitioner

respondents on the same matter but this time reducing the amount from

constituted a counter-offer which, therefore, was tantamount to a rejection of

P500,000.00 to P300,000.00, and this was also rejected by the latter.

the option. It likewise ruled that herein petitioner could not validly suspend
payment in favor of private respondents on the ground that the vindicatory

8. On February 23, 1990, the Regional Trial Court of Makati dismissed Civil

action filed by the latter's kin did not involve the western portion of the land

Case No. 89-5541. Thus, on February 28, 1990, petitioner caused to be

covered by the contract between petitioner and private respondents, but the

annotated anew on TCT No. 309773 the exclusive option to purchase as

eastern portion thereof which was the subject of the sale between petitioner

Entry No. 4442-4.

and the brothers Jose and Dominador Jimenez. The trial court then directed
the cancellation of the exclusive option to purchase, declared the sale to
intervenor Emylene Chua as valid and binding, and ordered petitioner to pay
damages and attorney's fees to private respondents, with costs.

232

13. On appeal, respondent Court of appeals affirmed in toto the decision of

1. In view of the extended disquisition thereon by respondent court, it would

the court a quo and held that the failure of petitioner to pay the purchase

be worthwhile at this juncture to briefly discourse on the rationale behind

price within the period agreed upon was tantamount to an election by

our treatment of the alleged option contract as a contract to sell, rather than

petitioner not to buy the property; that the suspension of payment

a contract of sale. The distinction between the two is important for in

constituted an imposition of a condition which was actually a counter-offer

contract of sale, the title passes to the vendee upon the delivery of the thing

amounting to a rejection of the option; and that Article 1590 of the Civil Code

sold; whereas in a contract to sell, by agreement the ownership is reserved in

on suspension of payments applies only to a contract of sale or a contract to

the vendor and is not to pass until the full payment of the price. In a contract

sell, but not to an option contract which it opined was the nature of the

of sale, the vendor has lost and cannot recover ownership until and unless

document subject of the case at bar. Said appellate court similarly upheld

the contract is resolved or rescinded; whereas in a contract to sell, title is

the validity of the deed of conditional sale executed by private respondents in

retained by the vendor until the full payment of the price, such payment

favor of intervenor Emylene Chua.

being a positive suspensive condition and failure of which is not a breach but
an event that prevents the obligation of the vendor to convey title from

In the present petition, the following assignment of errors are raised:

becoming effective. Thus, a deed of sale is considered absolute in nature

where there is neither a stipulation in the deed that title to the property sold

1. Respondent court of appeals acted with grave abuse of discretion in

is reserved in the seller until the full payment of the price, nor one giving the

making its finding that the agreement entered into by petitioner and private

vendor the right to unilaterally resolve the contract the moment the buyer

respondents was strictly an option contract;

fails to pay within a fixed period.

2. Granting arguendo that the agreement was an option contract, respondent

There are two features which convince us that the parties never intended to

court of Appeals acted with grave abuse of discretion in grievously failing to

transfer ownership to petitioner except upon the full payment of the purchase

consider that while the option period had not lapsed, private respondents

price. Firstly, the exclusive option to purchase, although it provided for

could not unilaterally and prematurely terminate the option period;

automatic rescission of the contract and partial forfeiture of the amount

15

already paid in case of default, does not mention that petitioner is obliged to
3. Respondent Court of Appeals acted with grave abuse of discretion in failing

return possession or ownership of the property as a consequence of non-

to appreciate fully the attendant facts and circumstances when it made the

payment. There is no stipulation anent reversion or reconveyance of the

conclusion of law that Article 1590 does not apply; and

property to herein private respondents in the event that petitioner does not
comply with its obligation. With the absence of such a stipulation, although

4. Respondent Court of Appeals acted with grave abuse of discretion in

there is a provision on the remedies available to the parties in case of breach,

conforming with the sale in favor of appellee Ma. Emylene Chua and the

it may legally be inferred that the parties never intended to transfer

award of damages and attorney's fees which are not only excessive, but also

ownership to the petitioner to completion of payment of the purchase price.

without in fact and in law.

14

In effect, there was an implied agreement that ownership shall not pass to
An analysis of the facts obtaining in this case, as well as the evidence

the purchaser until he had fully paid the price. Article 1478 of the civil code

presented by the parties, irresistibly leads to the conclusion that the

does not require that such a stipulation be expressly made. Consequently, an

agreement between the parties is a contract to sell, and not an option

implied stipulation to that effect is considered valid and, therefore, binding

contract or a contract of sale.

and enforceable between the parties. It should be noted that under the law
and jurisprudence, a contract which contains this kind of stipulation is
I

considered a contract to sell.

233

21

Moreover, that the parties really intended to execute a contract to sell, and

nature.

not a contract of sale, is bolstered by the fact that the deed of absolute sale

"Exclusive Option to Purchase" is not controlling where the text thereof shows

would have been issued only upon the payment of the balance of the

that it is a contract to sell.

Hence, the fact that the document under discussion is entitled

purchase price, as may be gleaned from petitioner's letter dated April 16,
1990

16

wherein it informed private respondents that it "is now ready and

An option, as used in the law on sales, is a continuing offer or contract by

willing to pay you simultaneously with the execution of the corresponding

which the owner stipulates with another that the latter shall have the right to

deed of absolute sale."

buy the property at a fixed price within a certain time, or under, or in

compliance with, certain terms and conditions, or which gives to the owner of

Secondly, it has not been shown there was delivery of the property, actual or

the property the right to sell or demand a sale. It is also sometimes called an

constructive, made to herein petitioner. The exclusive option to purchase is

"unaccepted offer." An option is not of itself a purchase, but merely secures

not contained in a public instrument the execution of which would have been

the privilege to buy.

considered equivalent to delivery.

17

Neither did petitioner take actual,

22

It is not a sale of property but a sale of property but a

sale of the right to purchase.

23

It is simply a contract by which the owner of

physical possession of the property at any given time. It is true that after the

property agrees with another person that he shall have the right to buy his

reconstitution of private respondents' certificate of title, it remained in the

property at a fixed price within a certain time. He does not sell his land; he

possession of petitioner's counsel, Atty. Bayani L. Bernardo, who thereafter

does not then agree to sell it; but he does sell something, that it is, the right

delivered the same to herein petitioner. Normally, under the law, such

or privilege to buy at the election or option of the other party.

possession by the vendee is to be understood as a delivery.

18

However, private

24

Its

distinguishing characteristic is that it imposes no binding obligation on the

respondents explained that there was really no intention on their part to

person holding the option, aside from the consideration for the offer. Until

deliver the title to herein petitioner with the purpose of transferring

acceptance, it is not, properly speaking, a contract, and does not vest,

ownership to it. They claim that Atty. Bernardo had possession of the title

transfer, or agree to transfer, any title to, or any interest or right in the

only because he was their counsel in the petition for reconstitution. We have

subject matter, but is merely a contract by which the owner of property gives

no reason not to believe this explanation of private respondents, aside from

the optionee the right or privilege of accepting the offer and buying the

the fact that such contention was never refuted or contradicted by petitioner.

property on certain terms.

2. Irrefragably, the controverted document should legally be considered as a

On the other hand, a contract, like a contract to sell, involves a meeting of

perfected contract to sell. On this particular point, therefore, we reject the

position and ratiocination of respondent Court of Appeals which, while
awarding the correct relief to private respondents, categorized the instrument
as "strictly an option contract."

minds two persons whereby one binds himself, with respect to the other, to
give something or to render some service.
perfected by mere consent,

27

26

Contracts, in general, are

which is manifested by the meeting of the offer

and the acceptance upon the thing and the cause which are to constitute the

The important task in contract interpretation is always the ascertainment of

the intention of the contracting parties and that task is, of course, to be
discharged by looking to the words they used to project that intention in their
contract, all the words not just a particular word or two, and words in
context not words standing alone.

25

19

Moreover, judging from the subsequent

acts of the parties which will hereinafter be discussed, it is undeniable that

the intention of the parties was to enter into a contract to sell.
the title of a contract does not necessarily determine its true

20

In addition,

contract. The offer must be certain and the acceptance absolute.

28

The distinction between an "option" and a contract of sale is that an option is

an unaccepted offer. It states the terms and conditions on which the owner is
willing to sell the land, if the holder elects to accept them within the time
limited. If the holder does so elect, he must give notice to the other party, and
the accepted offer thereupon becomes a valid and binding contract. If an
acceptance is not made within the time fixed, the owner is no longer bound
by his offer, and the option is at an end. A contract of sale, on the other

234

hand, fixes definitely the relative rights and obligations of both parties at the

corresponding capital gains tax, cost of documentary stamps are for the

time of its execution. The offer and the acceptance are concurrent, since the

account of the vendors, and expenses for the registration of the deed of sale

minds of the contracting parties meet in the terms of the agreement.

29

in the Registry of Deeds are for the account of Adelfa properties, Inc." Hence,
there was nothing left to be done except the performance of the respective

A perusal of the contract in this case, as well as the oral and documentary

obligations of the parties.

evidence presented by the parties, readily shows that there is indeed a

concurrence of petitioner's offer to buy and private respondents' acceptance

We do not subscribe to private respondents' submission, which was upheld

thereof. The rule is that except where a formal acceptance is so required,

by both the trial court and respondent court of appeals, that the offer of

although the acceptance must be affirmatively and clearly made and must be

petitioner to deduct P500,000.00, (later reduced to P300,000.00) from the

evidenced by some acts or conduct communicated to the offeror, it may be

purchase price for the settlement of the civil case was tantamount to a

made either in a formal or an informal manner, and may be shown by acts,

counter-offer. It must be stressed that there already existed a perfected

conduct, or words of the accepting party that clearly manifest a present

contract between the parties at the time the alleged counter-offer was made.

intention or determination to accept the offer to buy or sell. Thus, acceptance

Thus, any new offer by a party becomes binding only when it is accepted by

may be shown by the acts, conduct, or words of a party recognizing the

the other. In the case of private respondents, they actually refused to concur

existence of the contract of sale.

in said offer of petitioner, by reason of which the original terms of the

30

contract continued to be enforceable.

The records also show that private respondents accepted the offer of
petitioner to buy their property under the terms of their contract. At the time
petitioner made its offer, private respondents suggested that their transfer
certificate of title be first reconstituted, to which petitioner agreed. As a
matter of fact, it was petitioner's counsel, Atty. Bayani L. Bernardo, who
assisted private respondents in filing a petition for reconstitution. After the
title was reconstituted, the parties agreed that petitioner would pay either in
cash or manager's check the amount of P2,856,150.00 for the lot. Petitioner
was supposed to pay the same on November 25, 1989, but it later offered to
make a down payment of P50,000.00, with the balance of P2,806,150.00 to
be paid on or before November 30, 1989. Private respondents agreed to the
counter-offer made by petitioner.

31

As a result, the so-called exclusive option

to purchase was prepared by petitioner and was subsequently signed by

private respondents, thereby creating a perfected contract to sell between

At any rate, the same cannot be considered a counter-offer for the simple
reason that petitioner's sole purpose was to settle the civil case in order that
it could already comply with its obligation. In fact, it was even indicative of a
desire by petitioner to immediately comply therewith, except that it was being
prevented from doing so because of the filing of the civil case which, it
believed in good faith, rendered compliance improbable at that time. In
addition, no inference can be drawn from that suggestion given by petitioner
that it was totally abandoning the original contract.
More importantly, it will be noted that the failure of petitioner to pay the
balance of the purchase price within the agreed period was attributed by
private respondents to "lack of word of honor" on the part of the former. The
reason of "lack of word of honor" is to us a clear indication that private

them.

respondents considered petitioner already bound by its obligation to pay the

It cannot be gainsaid that the offer to buy a specific piece of land was definite

or exacting fulfillment of the obligation from herein petitioner. with the

and certain, while the acceptance thereof was absolute and without any
condition or qualification. The agreement as to the object, the price of the
property, and the terms of payment was clear and well-defined. No other
significance could be given to such acts that than they were meant to finalize
and perfect the transaction. The parties even went beyond the basic
requirements of the law by stipulating that "all expenses including the

balance of the consideration. In effect, private respondents were demanding

arrival of the period agreed upon by the parties, petitioner was supposed to
comply with the obligation incumbent upon it to perform, not merely to
exercise an option or a right to buy the property.
The obligation of petitioner on November 30, 1993 consisted of an obligation
to give something, that is, the payment of the purchase price. The contract

235

did not simply give petitioner the discretion to pay for the property. 32 It will be

The term "balance," connotes a remainder or something remaining from the

noted that there is nothing in the said contract to show that petitioner was

original total sum already agreed upon.

merely given a certain period within which to exercise its privilege to buy. The
agreed period was intended to give time to herein petitioner within which to

In other words, the alleged option money of P50,000.00 was actually earnest

fulfill and comply with its obligation, that is, to pay the balance of the

money which was intended to form part of the purchase price. The amount of

purchase price. No evidence was presented by private respondents to prove

P50,000.00 was not distinct from the cause or consideration for the sale of

otherwise.

the property, but was itself a part thereof. It is a statutory rule that whenever
earnest money is given in a contract of sale, it shall be considered as part of
38

The test in determining whether a contract is a "contract of sale or purchase"

the price and as proof of the perfection of the contract.

or a mere "option" is whether or not the agreement could be specifically

advance payment and must, therefore, be deducted from the total price. Also,

enforced.

33

There is no doubt that the obligation of petitioner to pay the

It constitutes an

earnest money is given by the buyer to the seller to bind the bargain.

purchase price is specific, definite and certain, and consequently binding and
enforceable. Had private respondents chosen to enforce the contract, they

There are clear distinctions between earnest money and option money, viz.:

could have specifically compelled petitioner to pay the balance of

(a) earnest money is part of the purchase price, while option money ids the

P2,806,150.00. This is distinctly made manifest in the contract itself as an

money given as a distinct consideration for an option contract; (b) earnest

integral stipulation, compliance with which could legally and definitely be

money is given only where there is already a sale, while option money applies

demanded from petitioner as a consequence.

to a sale not yet perfected; and (c) when earnest money is given, the buyer is
bound to pay the balance, while when the would-be buyer gives option

This is not a case where no right is as yet created nor an obligation declared,

money, he is not required to buy.

39

as where something further remains to be done before the buyer and seller
obligate themselves.

34

An agreement is only an "option" when no obligation

The aforequoted characteristics of earnest money are apparent in the so-

rests on the party to make any payment except such as may be agreed on

called option contract under review, even though it was called "option money"

between the parties as consideration to support the option until he has made

by the parties. In addition, private respondents failed to show that the

up his mind within the time specified.

35

An option, and not a contract to

purchase, is effected by an agreement to sell real estate for payments to be

made within specified time and providing forfeiture of money paid upon

payment of the balance of the purchase price was only a condition precedent
to the acceptance of the offer or to the exercise of the right to buy. On the
contrary, it has been sufficiently established that such payment was but an

failure to make payment, where the purchaser does not agree to purchase, to

element of the performance of petitioner's obligation under the contract to

make payment, or to bind himself in any way other than the forfeiture of the

sell.

payments made.

36

40

As hereinbefore discussed, this is not the situation

II

obtaining in the case at bar.

While there is jurisprudence to the effect that a contract which provides that

1. This brings us to the second issue as to whether or not there was valid

the initial payment shall be totally forfeited in case of default in payment is to

suspension of payment of the purchase price by petitioner and the legal

be considered as an option contract,

37

still we are not inclined to conform

with the findings of respondent court and the court a quo that the contract
executed between the parties is an option contract, for the reason that the
parties were already contemplating the payment of the balance of the
purchase price, and were not merely quoting an agreed value for the property.

consequences thereof. To justify its failure to pay the purchase price within
the agreed period, petitioner invokes Article 1590 of the civil Code which
provides:
Art. 1590. Should the vendee be disturbed in the possession
or ownership of the thing acquired, or should he have

236

reasonable grounds to fear such disturbance, by a

with the existence of a vindicatory action if the vendee should give a security

vindicatory action or a foreclosure of mortgage, he may

for the return of the price.

suspend the payment of the price until the vendor has

caused the disturbance or danger to cease, unless the latter

2. Be that as it may, and the validity of the suspension of payment

gives security for the return of the price in a proper case, or

notwithstanding, we find and hold that private respondents may no longer be

it has been stipulated that, notwithstanding any such

compelled to sell and deliver the subject property to petitioner for two

contingency, the vendee shall be bound to make the

reasons, that is, petitioner's failure to duly effect the consignation of the

payment. A mere act of trespass shall not authorize the

purchase price after the disturbance had ceased; and, secondarily, the fact

suspension of the payment of the price.

that the contract to sell had been validly rescinded by private respondents.

Respondent court refused to apply the aforequoted provision of law on the

The records of this case reveal that as early as February 28, 1990 when

erroneous assumption that the true agreement between the parties was a

petitioner caused its exclusive option to be annotated anew on the certificate

contract of option. As we have hereinbefore discussed, it was not an option

of title, it already knew of the dismissal of civil Case No. 89-5541. However, it

contract but a perfected contract to sell. Verily, therefore, Article 1590 would

was only on April 16, 1990 that petitioner, through its counsel, wrote private

properly apply.

respondents expressing its willingness to pay the balance of the purchase

price upon the execution of the corresponding deed of absolute sale. At most,

Both lower courts, however, are in accord that since Civil Case No. 89-5541

that was merely a notice to pay. There was no proper tender of payment nor

filed against the parties herein involved only the eastern half of the land

consignation in this case as required by law.

subject of the deed of sale between petitioner and the Jimenez brothers, it did
not, therefore, have any adverse effect on private respondents' title and

The mere sending of a letter by the vendee expressing the intention to

ownership over the western half of the land which is covered by the contract

pay, without the accompanying payment, is not considered a valid tender of

subject of the present case. We have gone over the complaint for recovery of

payment.

ownership filed in said case

41

and we are not persuaded by the factual

43

Besides, a mere tender of payment is not sufficient to compel

private respondents to deliver the property and execute the deed of absolute

findings made by said courts. At a glance, it is easily discernible that,

sale. It is consignation which is essential in order to extinguish petitioner's

although the complaint prayed for the annulment only of the contract of sale

obligation to pay the balance of the purchase price.

executed between petitioner and the Jimenez brothers, the same likewise

case of an option contract

prayed for the recovery of therein plaintiffs' share in that parcel of land
specifically covered by TCT No. 309773. In other words, the plaintiffs therein
were claiming to be co-owners of the entire parcel of land described in TCT
No. 309773, and not only of a portion thereof nor, as incorrectly interpreted
by the lower courts, did their claim pertain exclusively to the eastern half
adjudicated to the Jimenez brothers.
Such being the case, petitioner was justified in suspending payment of the
balance of the purchase price by reason of the aforesaid vindicatory action
filed against it. The assurance made by private respondents that petitioner
did not have to worry about the case because it was pure and simple
harassment

42

is not the kind of guaranty contemplated under the exceptive

clause in Article 1590 wherein the vendor is bound to make payment even

repurchase,

46

45

44

The rule is different in

or in legal redemption or in a sale with right to

wherein consignation is not necessary because these cases

involve an exercise of a right or privilege (to buy, redeem or repurchase)

rather than the discharge of an obligation, hence tender of payment would be
sufficient to preserve the right or privilege. This is because the provisions on
consignation are not applicable when there is no obligation to pay.

47

contract to sell, as in the case before us, involves the performance of an

obligation, not merely the exercise of a privilege of a right. consequently,
performance or payment may be effected not by tender of payment alone but
by both tender and consignation.
Furthermore, petitioner no longer had the right to suspend payment after the
disturbance ceased with the dismissal of the civil case filed against it.

237

Necessarily, therefore, its obligation to pay the balance again arose and

has been effectively estopped from seeking the affirmative relief it now

resumed after it received notice of such dismissal. Unfortunately, petitioner

desires but which it had theretofore disdained.

failed to seasonably make payment, as in fact it has deposit the money with
the trial court when this case was originally filed therein.

WHEREFORE, on the foregoing modificatory premises, and considering that

the same result has been reached by respondent Court of Appeals with

By reason of petitioner's failure to comply with its obligation, private

respect to the relief awarded to private respondents by the court a quo which

respondents elected to resort to and did announce the rescission of the

we find to be correct, its assailed judgment in CA-G.R. CV No. 34767 is

contract through its letter to petitioner dated July 27, 1990. That written

hereby AFFIRMED.

notice of rescission is deemed sufficient under the circumstances. Article

1592 of the Civil Code which requires rescission either by judicial action or
notarial act is not applicable to a contract to sell.

48

SO ORDERED.

Furthermore, judicial

action for rescission of a contract is not necessary where the contract

provides for automatic rescission in case of breach, 49 as in the contract
involved in the present controversy.
We are not unaware of the ruling in University of the Philippines vs. De los
Angeles, etc.

50

[G.R. No. 125761. April 30, 2003]

that the right to rescind is not absolute, being ever subject to

scrutiny and review by the proper court. It is our considered view, however,
that this rule applies to a situation where the extrajudicial rescission is

SALVADOR P. MALBAROSA, petitioner, vs. HON. COURT OF APPEALS

and S.E.A. DEVELOPMENT CORP. respondents.

contested by the defaulting party. In other words, resolution of reciprocal

contracts may be made extrajudicially unless successfully impugned in

DECISION

court. If the debtor impugns the declaration, it shall be subject to judicial

determination 51 otherwise, if said party does not oppose it, the extrajudicial
rescission shall have legal effect.

52

In the case at bar, it has been shown that although petitioner was duly
furnished and did receive a written notice of rescission which specified the
grounds therefore, it failed to reply thereto or protest against it. Its silence
thereon suggests an admission of the veracity and validity of private
respondents' claim.

53

Furthermore, the initiative of instituting suit was

transferred from the rescinder to the defaulter by virtue of the automatic

rescission clause in the contract.

54

But then, the records bear out the fact

CALLEJO, SR., J.:

Philtectic Corporation and Commonwealth Insurance Co., Inc. were only
two of the group of companies wholly-owned and controlled by respondent
S.E.A.

Development

Corporation

(SEADC). The

petitioner

Salvador

P.

Malbarosa was the president and general manager of Philtectic Corporation,

and an officer of other corporations belonging to the SEADC group of
companies. The respondent assigned to the petitioner one of its vehicles
covered by Certificate of Registration No. 04275865 [1] described as a 1982
model Mitsubishi Gallant Super Saloon, with plate number PCA 180 for his

that aside from the lackadaisical manner with which petitioner treated

use. He was also issued membership certificates in the Architectural Center,

private respondents' latter of cancellation, it utterly failed to seriously seek

Inc. Louis Da Costa was the president of the respondent and Commonwealth

redress from the court for the enforcement of its alleged rights under the

Insurance Co., Inc., while Senen Valero was the Vice-Chairman of the Board

contract. If private respondents had not taken the initiative of filing Civil

of Directors of the respondent and Vice-Chairman of the Board of Directors of

Case No. 7532, evidently petitioner had no intention to take any legal action

Philtectic Corporation.

to compel specific performance from the former. By such cavalier disregard, it

238

Date: _____________________[5]

Sometime in the first week of January 1990, the petitioner intimated to

Senen Valero his desire to retire from the SEADC group of companies and
requested that his 1989 incentive compensation as president of Philtectic

On March 16, 1990, Da Costa met with the petitioner and handed to

Corporation be paid to him. On January 8, 1990, the petitioner sent a letter

him the original copy of the March 14, 1990 Letter-offer for his consideration

to Senen Valero tendering his resignation, effective February 28, 1990 from

and conformity. The petitioner was dismayed when he read the letter and

all his positions in the SEADC group of companies, and reiterating therein

learned

his request for the payment of his incentive compensation for 1989.

[2]

that

he

was

being

offered

an

incentive

compensation

of

only P251,057.67. He told Da Costa that he was entitled to no less

than P395,000 as incentive compensation. The petitioner refused to sign the

Louis Da Costa met with the petitioner on two occasions, one of which

letter-offer on the space provided therefor. He received the original of the

was on February 5, 1990 to discuss the amount of the 1989 incentive

letter and wrote on the duplicate copy of the letter-offer retained by Da Costa,

compensation petitioner was entitled to, and the mode of payment

the words: Recd original for review purposes. [6] Despite the lapse of more

thereof. Da Costa ventured that the petitioner would be entitled to an

than two weeks, the respondent had not received the original of the March

incentive compensation in the amount of around P395,000.

14, 1990 Letter-offer of the respondent with the conformity of the petitioner
on the space provided therefor. The respondent decided to withdraw its

On March 14, 1990, the respondent, through Senen Valero, signed a

March 14, 1990 Offer. On April 3, 1996, the Board of Directors of the

stating therein that petitioners

respondent approved a resolution authorizing the Philtectic Corporation

resignation from all the positions in the SEADC group of companies had been

and/or Senen Valero to demand from the petitioner for the return of the car

accepted by the respondent, and that he was entitled to an incentive

and to take such action against the petitioner including the institution of an

compensation in the amount of P251,057.67, and proposing that the amount

action in court against the petitioner for the recovery of the motor vehicle. [7]

letter-offer addressed to the petitioner

[3]

be satisfied, thus:
On April 4, 1990, Philtectic Corporation, through its counsel, wrote the
- The 1982 Mitsubishi Super saloon car assigned to you by the company

petitioner withdrawing the March 14, 1990 Letter-offer of the respondent and

shall be transferred to you at a value of P220,000.00. (Although you have

demanding that the petitioner return the car and his membership certificate

indicated a value of P180,000.00, our survey in the market indicates

in the Architectural Center, Inc. within 24 hours from his receipt thereof.

that P220,000.00 is a reasonable reflection of the value of the car.)

[8]

- The membership share of our subsidiary, Tradestar International, Inc. in

The petitioner received the original copy of the letter on the same day.
On April 7, 1990, the petitioner wrote the counsel of Philtectic

the Architectural Center, Inc. will be transferred to you. (Although we do not

Corporation informing the latter that he cannot comply with said demand as

as yet have full information as to the value of these shares, we have been

he already accepted the March 14, 1990 Letter-offer of the respondent when

informed that the shares have traded recently in the vicinity of P60,000.00.)[4]

he affixed on March 28, 1990 his signature on the original copy of the letteroffer.[9] The petitioner enclosed a xerox copy of the original copy of the March

The respondent required that if the petitioner agreed to the offer, he had
to affix his conformity on the space provided therefor and the date thereof on

14, 1990 Letter-offer of the respondent, bearing his signature on the space
provided therefore dated March 28, 1990. [10]

the right bottom portion of the letter, thus:

With the refusal of the petitioner to return the vehicle, the respondent,
Agreed:

as plaintiff, filed a complaint against the petitioner, as defendant, for recovery

of personal property with replevin with damages and attorneys fees, thus:

SALVADOR P. MALBAROSA

239

WHEREFORE, PREMISES CONSIDERED, it is respectfully prayed before this

Honorable Court that:

In

his

Answer

to

the

complaint,

the

petitioner,

as

defendant

therein, alleged that he had already agreed on March 28, 1990 to the
March 14, 1990 Letter-offer of the respondent, the plaintiff therein, and had

1. Before hearing and upon approval of plaintiffs bond, a writ be issued

notified the said plaintiff of his acceptance; hence, he had the right to the

immediately for the seizure of the vehicle described in paragraph 3 hereof,

possession of the car. Philtectic Corporation had no right to withdraw the

wherever it may be found, and for its delivery to plaintiff;

offer of the respondent SEADC. The petitioner testified that after conferring
with his counsel, he had decided to accept the offer of the respondent,

2. After trial of the issues, judgment be rendered adjudging that plaintiff has

and had affixed his signature on the space below the word Agree in the

the right to the possession of the said motor vehicle, and, in the alternative,

March 14, 1990 Letter-offer, thus:

that defendant must deliver such motor vehicle to plaintiff or pay to plaintiff
the value thereof in case delivery cannot be made;

Agreed:
(Sgd.)

3. After trial, hold the defendant liable to plaintiff for the use of the motor
vehicle in the amount of P1,000.00 per day from date of demand until the
motor vehicle is returned to plaintiff.

SALVADOR P. MALBAROSA

4. After trial, hold the defendant liable to plaintiff for attorneys fees and

Date: 3 28 - 90[15]

costs of litigation in the amount of P100,000.00.

The petitioner adduced evidence that on March 9, 1990, he had written
Plaintiffs likewise prays for such other reliefs as are just and equitable under

Senen Valero that he

the circumstances.[11]

of P218,000 to be settled by the respondent by transferring the car to the

petitioner

valued

was

at P180,000

agreeable to an incentive
and P38,000

worth

compensation

of shares

of

the

On April 30, 1990, the trial court issued an order for the issuance of a

Architectural Center, Inc. on the claim of Da Costa that respondent was

writ of replevin.[12] Correspondingly, the writ of replevin was issued on May 8,

almost bankrupt. However, the petitioner learned that the respondent was

1990.[13]

financially

sound;

hence,

he

had

compensation of P395,000 in cash.

[16]

decided

to

receive

his

incentive

On March 29, 1990, the petitioner

On May 11, 1990, the Sheriff served the writ on the petitioner and was

called up the office of Louis Da Costa to inform the latter of his acceptance of

able to take possession of the vehicle in question. On May 15, 1990, the

the letter-offer of the respondent. However, the petitioner was told by

petitioner was able to recover the possession of the vehicle upon his filing of

Liwayway Dinglasan, the telephone receptionist of Commonwealth Insurance

the counter-bond.[14]

Co, that Da Costa was out of the office. The petitioner asked Liwayway to
inform Da Costa that he had called him up and that he had already
accepted the letter-offer. Liwayway promised to relay the message to Da
Costa. Liwayway testified that she had relayed the petitioners message to Da
Costa and that the latter merely nodded his head.
After trial, the court a quo rendered its Decision[17] on July 28, 1992, the
dispositive portion of which reads as follows:

240

WHEREFORE, in view of all the foregoing, judgment is rendered ordering the

On February 8, 1996, the Court of Appeals rendered its Decision,

[20]

defendant:

affirming the decision of the trial court. The dispositive portion of the

decision reads:
1.

To deliver the motor vehicle prescribed [sic] in the complaint

to plaintiff SEADC, or pay its value of P220,000 in case

WHEREFORE, the Decision dated July 28, 1992 and the Order dated

delivery cannot be made;

October 10, 1992 of the Regional Trial Court of Pasig (Branch 158) are
hereby AFFIRMED with the MODIFICATION that the period of payment of

2.

pay plaintiff SEADC P50,000 as and for attorneys fees; and

3.

Cost of litigation.

rentals at the rate of P1,000.00 per day shall be from the time this decision
becomes final until actual delivery of the motor vehicle to plaintiff-appellee is

SO ORDERED.[18]
The trial court stated that there existed no perfected contract between

made.
Costs against the defendant-appellant.
SO ORDERED.[21]

the petitioner and the respondent on the latters March 14, 1990 Letter-offer
for failure of the petitioner to effectively notify the respondent of his

The Court of Appeals stated that the petitioner had not accepted the

acceptance of said letter-offer before the respondent withdrew the same. The

respondents March 14, 1990 Letter-offer before the respondent withdrew

respondent filed a motion for the amendment of the decision of the trial

said offer on April 4, 1990.

court, praying that the petitioner should be ordered to pay to the respondent
reasonable rentals for the car. On October 10, 1992, the court a quo issued
an order, granting plaintiffs motion and amending the dispositive portion of

The petitioner filed a petition for review on certiorari of the decision of

the Court of Appeals.

its July 28, 1992 Decision:

The petitioner raises two issues, namely: (a) whether or not there was a
1.

Ordering defendant to pay to plaintiff lease rentals for the

valid acceptance on his part of the March 14, 1990 Letter-offer of the

use of the motor vehicle at the rate of P1,000.00 per Day

respondent;[22] and (b) whether or not there was an effective withdrawal by

from May 8, 1990 up to the date of actual delivery to the

the respondent of said letter-offer.

plaintiff of the motor vehicle; and

The petition is dismissed.
2.

Ordering First Integrated Bonding & Insurance Co. to make

good on its obligations to plaintiff under the Counterbond
issued pursuant to this case.

Anent the first issue, the petitioner posits that the respondent had
given him a reasonable time from March 14, 1990 within which to accept or
reject its March 14, 1990 Letter-offer. He had already accepted the offer of

SO ORDERED.

[19]

the respondent when he affixed his conformity thereto on the space provided
therefor on March 28, 1990 [23] and had sent to the respondent corporation on

The petitioner appealed from the decision and the order of the court a
quo to the Court of Appeals.

April 7, 1990 a copy of said March 14, 1990 Letter-offer bearing his
conformity to the offer of the respondent; hence, the respondent can no
longer demand the return of the vehicle in question. He further avers that he
had already impliedly accepted the offer when after said respondents offer,
he retained possession of the car.

241

For its part, the respondent contends that the issues raised by the

offeree. The contract is perfected only from the time an acceptance of an

petitioner are factual. The jurisdiction of the Court under Rule 45 of the

offer is made known to the offeror. If an offeror prescribes the exclusive

Rules of Court, as amended, is limited to revising and correcting errors of law

manner in which acceptance of his offer shall be indicated by the offeree, an

of the CA. As concluded by the Court of Appeals, there had been no

acceptance of the offer in the manner prescribed will bind the offeror. On

acceptance by the petitioner of its March 14, 1990 Letter-offer. The receipt by

the other hand, an attempt on the part of the offeree to accept the offer in a

the petitioner of the original of the March 14, 1990 Letter-offer for review

different manner does not bind the offeror as the absence of the meeting of

purposes amounted merely to a counter-offer of the petitioner. The findings

the minds on the altered type of acceptance. [29] An offer made inter

of the Court of Appeals are binding on the petitioner. The petitioner adduced

praesentes must be accepted immediately. If the parties intended that there

no proof that the respondent had granted him a period within which to

should be an express acceptance, the contract will be perfected only upon

accept its offer. The latter deemed its offer as not accepted by the petitioner

knowledge by the offeror of the express acceptance by the offeree of the

in light of petitioners ambivalence and indecision on March 16, 1990 when

offer. An acceptance which is not made in the manner prescribed by the

he received the letter-offer of respondent.

offeror is not effective but constitutes a counter-offer which the offeror may
accept or reject.[30] The contract is not perfected if the offeror revokes or

We do not agree with the petitioner.

withdraws its offer and the revocation or withdrawal of the offeror is the first
to reach the offeree.[31] The acceptance by the offeree of the offer after

Under Article 1318 of the Civil Code, the essential requisites of a

contract are as follows:

knowledge of the revocation or withdrawal of the offer is inefficacious. The

termination of the contract when the negotiations of the parties terminate
and the offer and acceptance concur, is largely a question of fact to be

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

(1)

Consent of the contracting parties;

(2)

Object certain which is the subject matter of the contract;

(3)

Cause of the obligation which is established.

determined by the trial court.[32]

In this case, the respondent made its offer through its Vice-Chairman of
the Board of Directors, Senen Valero. On March 16, 1990, Da Costa handed
over the original of the March 14, 1990 Letter-offer of the respondent to the
petitioner. The respondent required the petitioner to accept the offer by
affixing his signature on the space provided in said letter-offer and writing
the date of said acceptance, thus foreclosing an implied acceptance or any

Under Article 1319 of the New Civil Code, the consent by a party

other mode of acceptance by the petitioner. However, when the letter-offer of

is manifested by the meeting of the offer and the acceptance upon the thing

the respondent was delivered to the petitioner on March 16, 1990, he did not

and the cause which are to constitute the contract. An offer may be reached

accept or reject the same for the reason that he needed time to decide

at any time until it is accepted. An offer that is not accepted does not give

whether to reject or accept the same.[33] There was no contract perfected

rise to a consent. The contract does not come into existence.[24] To produce a

between the petitioner and the respondent corporation. [34] Although the

contract, there must be acceptance of the offer which may be express or

petitioner claims that he had affixed his conformity to the letter-offer on

implied

[25]

but must not qualify the terms of the offer. The acceptance must

be absolute, unconditional and without variance of any sort from the offer. [26]

March 28, 1990, the petitioner failed to transmit the said copy to the
respondent. It was only on April 7, 1990 when the petitioner appended to his
letter to the respondent a copy of the said March 14, 1990 Letter-offer

The acceptance of an offer must be made known to the offeror. [27] Unless

bearing his conformity that he notified the respondent of his acceptance to

the offeror knows of the acceptance, there is no meeting of the minds of the

said offer. But then, the respondent, through Philtectic Corporation, had

parties, no real concurrence of offer and acceptance. [28] The offeror may

already withdrawn its offer and had already notified the petitioner of said

withdraw its offer and revoke the same before acceptance thereof by the

withdrawal via respondents letter dated April 4, 1990 which was delivered to

242

the petitioner on the same day. Indubitably, there was no contract perfected

withdraw the respondents offer. Even then, there was no need for the

by the parties on the March 14, 1990 Letter-offer of the respondent.

respondent to withdraw its offer because the petitioner had already rejected
the respondents offer on March 16, 1990 when the petitioner received the

The petitioners plaint that he was not accorded by the respondent

reasonable time to accept or reject its offer does not persuade. It must be

original of the March 14, 1990 Letter-offer of the respondent without the
petitioner affixing his signature on the space therefor.

underscored that there was no time frame fixed by the respondent for the
petitioner to accept or reject its offer. When the offeror has not fixed a period

We do not agree with the petitioner. Implicit in the authority given to

for the offeree to accept the offer, and the offer is made to a person present,

Philtectic Corporation to demand for and recover from the petitioner the

the acceptance must be made immediately. [35] In this case, the respondent

subject car and to institute the appropriate action against him to recover

made its offer to the petitioner when Da Costa handed over on March 16,

possession of the car is the authority to withdraw the respondents March

1990 to the petitioner its March 14, 1990 Letter-offer but that the petitioner

14, 1990 Letter-offer. It cannot be argued that respondent authorized

did not accept the offer. The respondent, thus, had the option to withdraw or

Philtectic Corporation to demand and sue for the recovery of the car and yet

revoke the offer, which the respondent did on April 4, 1990.

did not authorize it to withdraw its March 14, 1990 Letter-offer to the
petitioner. Besides, when he testified, Senen Valero stated that the April 4,

Even if it is assumed that the petitioner was given a reasonable period

1990 letter of Philtectic Corporation to the petitioner was upon his

to accept or reject the offer of the respondent, the evidence on record shows

instruction and conformably with the aforesaid resolution of the Board of

that from March 16, 1990 to April 3, 1990, the petitioner had more than two

Directors of the respondent:

weeks which was more than sufficient for the petitioner to accept the offer of
the respondent. Although the petitioner avers that he had accepted the offer

of the respondent on March 28, 1990, however, he failed to transmit to the

Mr. Valero, after the Board passed this resolution. (sic) What
action did you take, if any?

respondent the copy of the March 14, 1990 Letter-offer bearing his
conformity thereto. Unless and until the respondent received said copy of the

After that resolution was passed. (sic) I instructed our lawyers

letter-offer, it cannot be argued that a contract had already been perfected

to proceed with the demand letter for the recovery of the

between the petitioner and the respondent.

vehicle.

On the second issue, the petitioner avers that Philtectic Corporation,

although a wholly-owned and controlled subsidiary of the respondent, had

Do you know if that demand letter was every (sic) made by your
lawyer?

no authority to withdraw the offer of the respondent. The resolution of the

respondent authorizing Philtectic Corporation to take such action against the

Yes. I know that because I was the one who gave the

petitioner including the institution of an action against him for the recovery

instruction and before it was finally served on Malbarosa, I

of the subject car does not authorize Philtectic Corporation to withdraw the

was shown about the demand letter.

March 14, 1990 Letter-offer of the respondent. The withdrawal by Philtectic

Corporation on April 4, 1990 of the offer of the respondent was ineffective

C/Pltf. -

Your honor, or rather

insofar as the petitioner was concerned. The respondent, for its part, asserts
that the petitioner had failed to put in issue the matter of lack of authority of

Mr. Valero, if I show you a copy of that letter, will you be able to

Philtectic Corporation to withdraw for and in behalf of the respondent its

identify the same?

March 14, 1990 Letter-offer. It contends that the authority of Philtectic

Corporation to take such action including the institution of an action against

Yes, sir.

the petitioner for the recovery of the car necessarily included the authority to

243

I am now showing to you a copy of the letter dated April 4,

It is the same.[36]

1990, addressed to Mr. Salvador P. Malbarosa and signed by

Romulo, Mabanta, Buenaventura, Sayoc and Delos Angeles by
_____. What relation, if any, does that demand letter have with

IN LIGHT OF ALL THE FOREGOING, the petition is dismissed. The

Decision of the Court of Appeals is AFFIRMED.

the demand letter that you are talking about?

A

Its the same one I am referring to.

SO ORDERED.

C/Pltf. Your honor, we manifest that the letter has been

previously marked as our exh. D.
Q

Mr. Valero, on the first paragraph of this demand letter, you

[G.R. No. 124045. May 21, 1998]

stated that the letter is written in behalf of Philtectic

Corporation. Do you have any knowledge why it was written
this way?
A

Yes. Because Philtectic, being the agent used here by S.E.A.

SPOUSES VIVENCIO BABASA and ELENA CANTOS BABASA, petitioners,

vs. COURT OF APPEALS, TABANGAO REALTY, INC., and SHELL
GAS PHILIPPINES, INC., respondents.

Development Corporation for the one using the car, it was

DECISION

only deemed proper that Philtectic will be the one to send the
demand letter.
BELLOSILLO, J.:
Q

In the second paragraph of that letter, Mr. Valero, you stated

that there was an allusion made to the offer made on March

On 11 April 1981 a contract of Conditional Sale of Registered

14, 1990. That the 1982 Mitsubishi Galant Super Saloon car

Lands was executed between the spouses Vivencio and Elena Babasa as

with plate# M-PCA-189 assigned to you by the company, and

vendors and Tabangao Realty, Inc. (TABANGAO) as a vendee over three (3)

the membership share in the Architectural Center Inc., be

parcels of land, Lots Nos. 17827-A, 17827-B and 17827-C, situated in Brgy.

transferred to you in settlement. You previously stated about

Libjo, Batangas City. Since the certificates of title over the lots were in the

this March 14 letter. What relation, if any, does this second

name of third persons who had already executed deeds of reconveyance and

paragraph with the letter-offer that you previously stated.

disclaimer in favor of the BABASAS, it was agreed that the total purchase
price of P2,121,920.00 would be paid in the following manner:

C/Def. - Objection, your honor. This witness is incompetent

P300,000.00 upon signing of the contract, and P1,821,920.00 upon
C/Pltf. - But he was the one who instructed, your honor.

presentation by the BABASAS of transfer certificates of titles in their name,

free from all liens and encumbrances, and delivery of registerable documents

Court - LET the witness answer.

of sale in favor of TABANGAO within twenty (20) months from the signing of
the contract. In the meantime, the retained balance of the purchase price

Witness- (Stenographer reads back the previous question asked by

counsel for him to answer, and.)

would earn interest at seventeen percent (17%) per annum or P20,648.43

monthly payable to the BABASAS until 31 December 1982. It was expressly
stipulated that TABANGAO would have the absolute and unconditional right

244

to take immediate possession of the lots as well as introduce any

position to secure clean certificates of title and execute registerable document

improvements thereon.

of sale since execution of judgment pending appeal had already been granted
in their favor in Civil Case No. 519, while an order directing reconstitution of

On 18 May 1981 TABANGAO leased the lots to Shell Gas Philippines,

the original copies of TCT Nos. T-32565, T-32566 and T-32567 covering the

Inc., (SHELL), which immediately started the construction thereon of a

lots had been issued in Petition No. 373. The BABASAS moved to dismiss

Liquefied Petroleum Gas Terminal Project, an approved zone export

the complaint on the ground that their contract with TABANGAO became

enterprise of the Export Processing Zone. TABANGAO is the real estate arm

null and void with the expiration of the 20-month period given them within

of SHELL.

which to deliver clean certificates of title. SHELL entered the dispute as

intervenor praying that its lease over the premises be respected by the

The

parties

substantially

complied

with

the

terms

of

the

BASABAS.

contract. TABANGAO paid the first installment of P300,000.00 to the

BABASAS while the latter delivered actual possession of the lots to the

Despite the pendency of the case the BASABAS put up several

former. In addition, TABANGAO paid P379,625.00 to the tenants of the lots

structures within the area in litigation to impede the movements of persons

as disturbance compensation and as payment for existing crops as well

and vehicles therein, laid claim to twelve (12) heads of cattle belonging to

as P334,700.00 to the owners of the house standing thereon in addition to

intervenor SHELL and threatened to collect levy from all buyers of liquefied

granting them residential lots with the total area of 2,800 square

petroleum gas (LPG) for their alleged use of the BABASA estate in their

meters. TABANGAO likewise paid the stipulated monthly interest for the 20

business transactions with intervenor SHELL. As a result, SHELL applied

month period amounting to P408,580.80. Meanwhile, the BABASAS filed

for and was granted on 10 April 1990 a temporary restraining order against

Civil Case No. 519[1] and Petition No. 373[2]for the transfer of titles of the lots

the Babasa spouses and anyone acting for and in their behalf upon filing of

in their name.

a P2-million bond.[4]
Eventually, judgment was rendered in favor of TABANGAO and SHELL.

However, two (2) days prior to the expiration of the 20-month period,
specifically on 31 December 1982, the BABASAS asked TABANGAO for an

[5]

indefinite extension within which to deliver clean title over the lots. They

was never meant to be its term such that upon its expiration the respective

asked that TABANGAO continue paying monthly interest of P20,648.43

obligations of the parties would be extinguished. On the contrary, the

starting January 1983 on the ground that Civil Case no. 519 and Petition No.

expiration thereof merely gave rise to the right of TABANGAO to either

373 had not been resolved with finality in their favor. TABANGAO refused

rescind the contract or to demand that the BABASAS comply with their

the request. In retaliation the BABASAS executed a notarized unilateral

contractual obligation to deliver to it clean titles and registerable documents

rescission dated 28 February 1983 to which TABANGAO responded by

of sale. The notarial rescission executed by the BABASAS was declared void

reminding the BABASAS that they were the ones who did not comply with

and of no legal effect

The court a quo ruled that the 20-month period stipulated in the contract

their contractual obligation to deliver clean titles within the stipulated 20month

period,

hence,

had

no

right

to

rescind

their

contract. The

xxxx

BABASAS insisted on the unilateral rescission and demanded the SHELL

vacate the lots.

1.

The unilateral rescission of contract, dated February 28, 1983,

executed by the defendant-spouses is null and void, without any legal force
On 19 July 1983 TABANGAO instituted an action for specific
performance with damages in the Regional Trial Court of Batangas City to

and effect on the agreement dated April 11, 1981, executed between the
plaintiff and the defendant-spouses;

compel the spouses to comply with their obligation to deliver clean titles over
the properties.[3] TABANGAO alleged that the BABASAS were already in a

245

2.

The lease contract dated, May 18, 1981, executed by the plaintiff in

the BABASAS that the contract of 11 April 1981 was one of lease, not of sale;

favor of the intervenor is deemed legally binding on the defendant-spouses

[8]

insofar as it affects the three lots subject of this case;

conditional. However, compounded interest was ordered paid from 19 July

and described it instead as one of absolute sale though denominated

1983 only, the date of filing of the complaint, not from January 1983 as
3.

The defendant-spouses Vivencio Babasa and Elena Cantos are hereby

decreed by the trial court.

ordered to deliver to the plaintiff Tabangao Realty, Inc., clean transfer

certificates of title in their name and execute all the necessary deeds and

The BABASAS now come to us reiterating their contention that the

documents necessary for the Register of Deeds of Batangas City to facilitate

contract of 11 April 1981 was in reality a contract of lease, not for sale; but

the issuance of Transfer Certificates of Title in the name of plaintiff,

even assuming that it was indeed a sale, its nature was conditional only, the

Tabangao Realty, Inc. In the event the defendant-spouses fail to do so, the

efficacy of which was extinguished upon the non-happening of the condition,

Register of Deeds of Batangas City is hereby directed to cancel the present

i.e., non-delivery of clean certificates of title and registerable documents of

transfer certificates of title over the three lots covered by the Conditional Sale

sale in favor of TABANGAO within twenty (20) months from the signing of the

of Registered Lands executed by and between plaintiff, Tabangao Realty, Inc.,

contract.

and the defendant-spouses Vivencio Babasa and Elena Cantos-Babasa on

April 11, 1981, upon presentation of credible proof that said defendant-

We find no merit in the petition. Respondent appellate court has

spouses have received full payment for the lots or payment thereof duly

correctly concluded that the allegation of petitioners that the contract of 11

consigned to the Court for the amount of the defendant-spouses;

April 1981 is one of lease, not of sale, is simply incredible. First, the contract
is replete with terms and stipulations clearly indicative of a contract of

4.

Plaintiff Tabangao Realty, Inc., is directed to pay the defendant-

sale. Thus, the opening whereas clause states that the parties desire and

spouses Vivencio Babasa and Elena Cantos-Babasa the remaining balance

mutually agreed on the sale and purchase of the x x x three parcels of

of P1,821,920.00 out of the full purchase price for these three lots

land; the BABASAS were described as the vendors while TABANGAO as

enumerated in the agreement dated April 11, 1981 plus interest thereon of

the vendee from the beginning of the contract to its end; the amount

17% per annum or P 20,648.43 a month compounded annually beginning

of P2,121,920.00 was stated as the purchase price of the lots; TABANGAO,

January 1983 until fully paid;

as vendee, was granted absolute and unconditional right to take immediate

possession of the premises while the BABASAS, as vendors, warranted such

5.

The Order dated April 10, 1990 issued in favor of the intervenor

peaceful possession forever; TABANGAO was to shoulder the capital gains

enjoining and restraining defendant-spouses Vivencio Babasa and Elena

tax, and; lastly, the BABASAS were expected to execute a Final Deed of

Cantos-Babasa and/or anyone acting for and in their behalf from putting up

Absolute Sale in favor of TABANGAO necessary for the issuance oftransfer

any structure on the three lots or interfering in any way in the activities of

certificates of title the moment they were able to secure clean certificates of

the intervenor, its employees and agents, is made permanent, and the bond

title in their name. Hence, with all the foregoing, we cannot give credence to

posted by the intervenor cancelled; and,

the claim of petitioners that subject contract was one of lease simply because
the word ownership was never mentioned therein. Besides, as correctly

6.

Defendant-spouses Vivencio Babasa and Elena Cantos-Babasa shall

pointed out by respondent court, the BABASAS did not object to the terms

pay the costs of this proceeding as well as the premium the intervenor may

and stipulations employed in the contract at the time of its execution when

have paid in the posting of the P2,000,000.00 bond for the issuance of the

they could have easily done so considering that they were then ably assisted

restraining order of April 10, 1990.[6]

by their counsel, Atty. Edgardo M. Carreon, whose legal training negates their
pretended ignorance on the matter. Hence, it is too late for petitioners to

The BABASAS appealed to the Court of Appeals [7] which on 29 February

insist that the contract is not what they intended to be.

1996 affirmed the decision of the trial court court rejecting the contention of

246

But the BABASAS lament that they never intended to sell their ancestral

We do not agree with petitioners that their contract with TABANGAO lost

lots but were merely forced to do so when TABANGAO dangled the threat of

its efficacy when the 20-month period stipulated therein expired without

expropriation by the government (through the Export Processing Zone

petitioners being able to deliver clean certificates of title such that

Authority) in the event voluntary negotiations failed. Although a cause to

TABANGAO

may

no

longer

demand
[15]

performance

of

their
[16]

commiserate with petitioners may be perceived, it is not enough to provide

obligation. In Romero v. Court of Appeals

them with an avenue to escape contractual obligations validly entered

Court distinguished between a condition imposed on the perfection of a

into. We have already held that contracts are valid even though one of the

contract and a condition imposed merely on the performance of an

parties entered into it against his own wish and desire, or even against his

obligation. While failure to comply with the first condition results in the

better judgment.

[9]

and Lim v. Court of Appeals

the

Besides, a threat of eminent domain proceedings by the

failure of a contract, failure to comply with the second merely gives the other

government cannot be legally classified as the kind of imminent, serious and

party the option to either refuse to proceed with the sale or to waive the

wrongful injury to a contracting party as to vitiate his consent. [10] Private

condition.[17]

landowners ought to realize, and eventually accept, that property rights must
yield to the valid exercise by the state of its all-important power of eminent
domain.

[11]

Here, a perfected contract of absolute sale exists between the BABASAS

and TABANGAO when they agreed on the sale of a determinate subject
matter, i.e., Lots no. 17827-A, 17827-B and 17827-C, and the price certain

Finally, petitioners contend that ownership over the three (3) lots was

therefor without any condition or reservation of title on the part of the

never transferred to TABANGAO and that the contract of 11 April 1981 was

BABASAS. However, the obligation of TABANGAO as vendee to pay

rendered lifeless when the 20-month period stipulated therein expired

the full amount of the purchase price was made subject to the condition that

without them being able to deliver clean certificates of title to TABANGAO

petitioners first deliver the clean titles over the lots within twenty (20) months

through no fault of their own. Consequently, their unilateral rescission

from the signing of the contract. If petitioners succeed in delivering the titles

dated 28 February 1983 should have been upheld as valid.

within the stipulated 20-month period, they would get P1,821,920.00

representing

We disagree. Although denominated Conditional Sale of Registered

the

entire

balance

of

the

purchase

price

retained

by

TABANGAO. Otherwise, the deed of sale itself provides that

Lands, we hold, as did respondent court, that the contract of 11 April 1981
between

petitioners

and

respondent

TABANGAO

is

one

of

absolute

x x x upon the expiration of the 20-month period from the signing of the

sale. Aside from the terms and stipulations used therein indicating such

contract the Vendee is hereby authorized to settle out of the balance retained

kind of sale, there is absolutely no proviso reserving title in the BABASAS

by the Vendee all legally valid and existing obligations on the properties x x x

until full payment of the purchase price, nor any stipulation giving them the

and whatever balance remaining after said settlement shall be paid to the

right to unilaterally rescind the contract in case of non-payment. A deed of

Vendor.

sale is absolute in nature although denominated a conditional sale absent

such stipulations.[12] In such cases, ownership of the thing sold passes to the

Clearly then, the BABASAS act of unilaterally rescinding their contract

vendee upon the constructive or actual delivery thereof. [13] In the instant

with TABANGAO is unwarranted. Even without the abovequoted stipulation

case, ownership over Lots Nos. 17827-A, 17827-B, and 17827-C passed to

in the deed, the failure of petitioners to deliver clean titles within twenty (20)

TABANGAO both by constructive and actual delivery. Constructive delivery

months from the signing of the contract merely gives TABANGAO the option

was accomplished upon the execution of the contract of 11 April 1981

to either refuse to proceed with the sale of to waive the condition in

without any reservation of title on the part of the BABASAS while actual

consonance with Art. 1545 of the New Civil Code. [18] Besides, it would be the

delivery was made when TABANGAO took unconditional possession of the

height of inequity to allow the BABASAS to rescind their contract of sale with

lots and leased them to its associate company SHELL which constructed its

TABANGAO by invoking as a ground therefor their own failure to deliver the

multi-million peso LPG Project thereon.

[14]

titles over the lots within the stipulated period.

247

WHEREFORE , the petition is DENIED. The appealed decision of the

latter during her husband's sojourn in the United States

Court of Appeals in CA-G.R. CV No. 39554 affirming that of the Regional

since 1968. Sometime in 1975, Miguela Villanueva sought

Trial Court of Batangas City, Br. 4, is AFFIRMED. No Costs.

the help of one Jose Viudez, the then Officer-in-Charge of

the PVB branch in Makati if she could obtain a loan from

SO ORDERED.

said bank. Jose Viudez told Miguela Villanueva to surrender

the titles of said lots as collaterals. And to further facilitate a
bigger loan, Viudez, in connivance with one Andres
Sebastian, swayed Miguela Villanueva to execute a deed of
sale covering the two (2) disputed lots, which she did but
without the signature of her husband Celestino. Miguela

G.R. No. 114870 May 26, 1995

MIGUELA R. VILLANUEVA, RICHARD R. VILLANUEVA, and MERCEDITA
VILLANUEVA-TIRADOS, petitioners,
vs.
COURT OF APPEALS, CENTRAL BANK OF THE PHILIPPINES,
ILDEFONSO C. ONG, and PHILIPPINE VETERANS BANK, respondents.

Villanueva, however, never got the loan she was expecting.

Subsequent attempts to contact Jose Viudez proved futile,
until Miguela Villanueva thereafter found out that new titles
over the two (2) lots were already issued in the name of the
PVB. It appeared upon inquiry from the Registry of Deeds
that the original titles of these lots were canceled and new
ones were issued to Jose Viudez, which in turn were again
canceled and new titles issued in favor of Andres Sebastian,
until finally new titles were issued in the name of PNB
[should be PVB] after the lots were foreclosed for failure to
pay the loan granted in the name of Andres Sebastian.

DAVIDE, JR., J.:

Miguela Villanueva sought to repurchase the lots from the
Do petitioners have a better right than private respondent Ildefonso Ong to

PVB after being informed that the lots were about to be sold

purchase from the Philippine Veterans Bank (PVB) the two parcels of land

at auction. The PVB told her that she can redeem the lots for

described as Lot No. 210-D-1 and Lot No. 210-D-2 situated at Muntinglupa,

the price of P110,416.00. Negotiations for the repurchase of

Metro Manila, containing an area of 529 and 300 square meters,

the lots nevertheless were stalled by the filing of liquidation

respectively? This is the principal legal issue raised in this petition.

proceedings against the PVB on August of 1985.

In its decision of 27 January 1994 in CA-G.R. CV No. 35890, 1 the Court of

Plaintiff-appellant [Ong] on the other hand expounds on his

Appeals held for Ong, while the trial court, Branch 39 of the Regional Trial

claim over the disputed lots in this manner:

Court (RTC) of Manila, ruled for the petitioners in its joint decision of 31
October 1991 in Civil Case No. 87-42550 2 and Sp. Proc. No. 85-32311. 3

In October 1984, plaintiff-appellant offered

to purchase two pieces of Land that had

The operative antecedent facts are set forth in the challenged decision as
follows:

been acquired by PVB through foreclosure.

To back-up plaintiff-appellant's offer he
deposited the sum of P10,000.00.

The disputed lots were originally owned by the spouses

Celestino Villanueva and Miguela Villanueva, acquired by the

248

In 23 November 1984, while appellant was

From the pleadings, the following additional or amplificatory facts are

still abroad, PVB approved his subject offer

established:

under Board Resolution No. 10901-84.

Among the conditions imposed by PVB is

The efforts of Miguela Villanueva to reacquire the property began on 8 June

that: "The purchase price shall be

1983 when she offered to purchase the lots for P60,000.00 with a 20%

P110,000.00 (Less deposit of P10,000.00)

downpayment and the balance payable in five years on a quarterly

payable in cash within fifteen (15) days from

amortization basis. 5

receipt of approval of the offer."

In mid-April 1985, appellant returned to the
country. He immediately verified the status
of his offer with the PVB, now under the
control of CB, where he was informed that
the same had already been approved. On 16
April 1985, appellant formally informed CB
of his desire to pay the subject balance
provided the bank should execute in his
favor the corresponding deed of conveyance.
The letter was not answered.
Plaintiff-appellant sent follow-up Letters that
went unheeded, the last of which was on 21
May 1987. On 26 May 1987, appellant's
payment for the balance of the subject
properties were accepted by CB under
Official Receipt #0816.
On 17 September 1987, plaintiff-appellant
through his counsel, sent a letter to CB
demanding for the latter to execute the
corresponding deed of conveyance in favor of
appellant. CB did not bother to answer the
same. Hence, the instant case.

Her offer not having been accepted, 6 Miguela Villanueva increased her bid to
P70,000.00. It was only at this time that she disclosed to the bank her
private transactions with Jose Viudez. 7
After this and her subsequent offers were rejected, 8 Miguela sent her sealed
bid of P110,417.00 pursuant to the written advice of the vice president of the
PVB. 9
The PVB was placed under receivership pursuant to Monetary Board (MB)
Resolution No. 334 dated 3 April 1985 and later, under liquidation pursuant
to MB Resolution No. 612 dated 7 June 1985. Afterwards, a petition for
liquidation was filed with the RTC of Manila, which was docketed as Sp. Proc.
No. 85-32311 and assigned to Branch 39 of the said court.
On 26 May 1987, Ong tendered the sum of P100,000.00 representing the
balance of the purchase price of the litigated lots.

10

An employee of the PVB

received the amount conditioned upon approval by the Central Bank

liquidator.

11

Ong's demand for a deed of conveyance having gone unheeded,

he filed on 23 October 1987 with the RTC of Manila an action for specific
performance against the Central Bank. 12 It was raffled to Branch 47 thereof.
Upon learning that the PVB had been placed under liquidation, the presiding
judge of Branch 47 ordered the transfer of the case to Branch 39, the
liquidation court. 13
On 15 June 1989, then Presiding Judge Enrique B. Inting issued an order
14

While appellant's action for specific

allowing the purchase of the two lots at the price of P150,000.00.

The

performance against CB was pending,

Central Bank liquidator of the PVB moved for the reconsideration of the order

Miguela Villanueva and her children filed

asserting that it is contrary to law as the disposal of the lots should be made

their claims with the Liquidation court.

through public auction.

15

(Appellant's Brief, pp. 3-4). 4

249

On 26 July 1989, Miguela Villanueva filed her claim with the liquidation

1. Setting aside the order of

court. She averred, among others, that she is the lawful and registered owner

this court issued on June

of the subject lots which were mortgaged in favor of the PVB thru the

15, 1989 under the caption

falsification committed by Jose Viudez, the manager of the PVB Makati

Civil Case No. 87-42550

Branch, in collusion with Andres Sebastian; that upon discovering this

entitled "Ildefonso Ong vs.

fraudulent transaction, she offered to purchase the property from the bank;

Central Bank of the Phils.,

and that she reported the matter to the PC/INP Criminal Investigation

et al.;

Service Command, Camp Crame, and after investigation, the CIS officer
recommended the filing of a complaint for estafa through falsification of

2. Dismissing the claim of

public documents against Jose Viudez and Andres Sebastian. She then asked

Ildefonso Ong over the two

that the lots be excluded from the assets of the PVB and be conveyed back to

parcels of land originally

her.

16

Later, in view of the death of her husband, she amended her claim to

include her children, herein petitioners Mercedita Villanueva-Tirados and

Richard Villanueva.

and 366364 in the names of

Miguela Villanueva and

17

On 31 October 1991, the trial court rendered judgment

covered by TCT No. 438073

Celestino Villanueva,
18

holding that while

the board resolution approving Ong's offer may have created in his favor a
vested right which may be enforced against the PVB at the time or against
the liquidator after the bank was placed under liquidation proceedings, the
said right was no longer enforceable, as he failed to exercise it within the
prescribed 15-day period. As to Miguela's claim, the court ruled that the
principle of estoppel bars her from questioning the transaction with Viudez
and the subsequent transactions because she was a co-participant thereto,
though only with respect to her undivided one-half (1/2) conjugal share in
the disputed lots and her one-third (1/3) hereditary share in the estate of her

respectively which are now

covered by TCT No. 115631
and 115632 in the name of
the PVB;
3. Declaring the Deed of
Absolute Sale bearing the
signature of Miguela
Villanueva and the falsified
signature of Celestino [sic]

husband.

Viudez under date May 6,

Nevertheless, the trial court allowed her to purchase the lots if only to restore

and related documents

1975 and all transactions

their status as conjugal properties. It further held that by reason of estoppel,

the transactions having been perpetrated by a responsible officer of the PVB,
and for reasons of equity, the PVB should not be allowed to charge interest on
the price of the lots; hence, the purchase price should be the PVB's claim as
of 29 August 1984 when it considered the sealed bids, i.e., P110,416.20,

executed thereafter referring

to the two lots covered by
the above stated titles as
null and void;

which should be borne by Miguela Villanueva alone.

4. Ordering the Register of

The dispositive portion of the decision of the trial court reads as follows:

jurisdiction over the two

WHEREFORE, judgment is hereby rendered as follows:

Deeds of Makati which has

parcels of land in question
to re-instate in his land
records, TCT No. 438073 in

250

the name of Miguela

ordering the disputed-lots be awarded in favor of plaintiff-

Villanueva and TCT No.

appellant Ildefonso Ong upon defendant-appellee Central

366364 in the name of

Bank's execution of the corresponding deed of sale in his

Celestino Villanueva who

favor.

20

were the registered owners

thereof, and to cancel all

In support thereof, the Court of Appeals declared that Ong's failure to pay

subsequent titles emanating

the balance within the prescribed period was excusable because the PVB

therefrom; and

neither notified him of the approval of his bid nor answered his letters
manifesting his readiness to pay the balance, for which reason he could not

5. Ordering the Liquidator

have known when to reckon the 15-day period prescribed under its

to reconvey the two lots

resolution. It went further to suggest that the Central Bank was in estoppel

described in TCT No.

because it accepted Ong's late-payment of the balance. As to the petitioners'

115631 and 115632 and

claim, the Court of Appeals stated:

executing the corresponding

deed of conveyance of the

The conclusion reached by the lower court favorable to

said lots upon the payment

Miguela Villanueva is, as aptly pointed out by plaintiff-

of One Hundred Ten

appellant, indeed confusing. While the lower court's decision

Thousand Four Hundred

declared Miguela Villanueva as estopped from recovering her

Sixteen and 20/100

proportionate share and interest in the two (2) disputed lots

(P110,416.20) Pesos without

for being a "co-participant" in the fraudulent scheme

interest and less the

perpetrated by Jose Viudez and Andres Sebastian a

amount deposited by the

factual finding which We conform to and which Miguela

claimant, Miguela

Villanueva does not controvert in this appeal by not filing her

Villanueva in connection

appellee's brief, yet it ordered the reconveyance of the

with the bidding where she

disputed lots to Miguela Villanueva as the victorious party

had participated and

upon her payment of P110,416.20. Would not estoppel defeat

conducted by the PVB on

the claim of the party estopped? If so, which in fact must be

August 29, 1984.

so, would it not then be absurd or even defiant for the lower
court to finally entitle Miguela Villanueva to the disputed lots

Cost against Ildefonso Ong and the PVB.

after having been precluded from assailing their subsequent

conveyance in favor of Jose Viudez by reason of her own

SO ORDERED.

19

negligence and/or complicity therein? The intended punitive

effect of estoppel would merely be a dud if this Court leaves

Only Ong appealed the decision to the Court of Appeals. The appeal was

the lower court's conclusion unrectified.

21

docketed as CA-G.R. CV No. 35890. In its decision of 27 January 1994, the

Court of Appeals reversed the decision of the trial court and ruled as follows:
WHEREFORE, premises considered, the assailed decision is

Their motion for reconsideration

22

having been denied,

this petition for review on certiorari.

23

the petitioners filed

24

hereby REVERSED and SET ASIDE, and a new one entered

251

Subsequently, the respondent Central Bank apprised this Court that the PVB

There is no doubt that the approval of Ong's offer constitutes an acceptance,

was no longer under receivership or liquidation and that the PVB has been

the effect of which is to perfect the contract of sale upon notice thereof to

back in operation since 3 August 1992. It then prayed that it be dropped

Ong.

from this case or at least be substituted by the PVB, which is the real party

obstacle to his claim of a better right and deny support to the conclusion of

in interest.

25

29

The peculiar circumstances in this case, however, pose a legal

the Court of Appeals.

In its Manifestation and Entry of Appearance, the PVB declared that it

Ong did not receive any notice of the approval of his offer. It was only

submits to the jurisdiction of this Court and that it has no objection to its

sometime in mid-April 1985 when he returned from the United States and

inclusion as a party respondent in this case in lieu of the Central

inquired about the status of his bid that he came to know of the approval.

Bank.

26

The petitioners did not object to the substitution.

27

It must be recalled that the PVB was placed under receivership pursuant to
Later, in its Comment dated 10 October 1994, the PVB stated that it

the MB Resolution of 3 April 1985 after a finding that it was insolvent,

"submits to and shall abide by whatever judgment this Honorable Supreme

illiquid, and could not operate profitably, and that its continuance in

Tribunal may announce as to whom said lands may be awarded without any

business would involve probable loss to its depositors and creditors. The PVB

touch of preference in favor of one or the other party litigant in the instant

was then prohibited from doing business in the Philippines, and the receiver

case."

28

In support of their contention that the Court of Appeals gravely erred in

holding that Ong is better entitled to purchase the disputed lots, the
petitioners maintain that Ong is a disqualified bidder, his bid of P110,000.00
being lower than the starting price of P110,417.00 and his deposit of
P10,000.00 being less than the required 10% of the bid price; that Ong failed
to pay the balance of the price within the 15-day period from notice of the
approval of his bid; and that his offer of payment is ineffective since it was

appointed was directed to "immediately take charge of its assets and

liabilities, as expeditiously as possible collect and gather all the assets and
administer the same for the benefit of its creditors, exercising all the powers
necessary for these purposes."
Under Article 1323 of the Civil Code, an offer becomes ineffective upon the
death, civil interdiction, insanity, or insolvency of either party before
acceptance is conveyed. The reason for this is that:

conditioned on PVB's execution of the deed of absolute sale in his favor.

[T]he contract is not perfected except by the concurrence of

On the other hand, Ong submits that his offer, though lower than Miguela

they occur. The contract is not yet perfected at any time

ViIlanueva's bid by P417.00, is much better, as the same is payable in cash,

while Villanueva's bid is payable in installment; that his payment could not
be said to have been made after the expiration of the 15-day period because

two wills which exist and continue until the moment that
before acceptance is conveyed; hence, the disappearance of
either party or his loss of capacity before perfection prevents
the contractual tie from being formed.

30

this period has not even started to run, there being no notice yet of the
approval of his offer; and that he has a legal right to compel the PVB or its

It has been said that where upon the insolvency of a bank a receiver therefor

liquidator to execute the corresponding deed of conveyance.

is appointed, the assets of the bank pass beyond its control into the
possession and control of the receiver whose duty it is to administer the
assets for the benefit of the creditors of the bank. 31 Thus, the appointment of
a receiver operates to suspend the authority of the bank and of its directors
and officers over its property and effects, such authority being reposed in the
receiver, and in this respect, the receivership is equivalent to an injunction to

252

restrain the bank officers from intermeddling with the property of the bank
in any way.

Corollarily, he cannot invoke the resolution of the bank approving his bid as
basis for his alleged right to buy the disputed properties.

32

Section 29 of the Central Bank Act, as amended, provides thus:

Nor may the acceptance by an employee of the PVB of Ong's payment of

P100,000.00 benefit him since the receipt of the payment was made subject

Sec. 29. Proceedings upon insolvency. Whenever, upon

to the approval by the Central Bank liquidator of the PVB thus:

examination by the head of the appropriate supervising or

examining department or his examiners or agents into the

Payment for the purchase price of the former property of

condition of any bank or non-bank financial intermediary

Andres Sebastian per approved BR No. 10902-84 dated

performing quasi-banking functions, it shall be disclosed

11/13/84, subject to the approval of CB liquidator.

33

that the condition of the same is one of insolvency, or that its

continuance in business would involve probable loss to its

This payment was disapproved on the ground that the subject

depositors or creditors, shall be the duty of the department

property was already in custodia legis, and hence, disposable only by

head concerned forthwith, in writing, to inform the Monetary

public auction and subject to the approval of the liquidation court.

34

Board of the facts. The Board may, upon finding the

statements of the department head to be true, forbid the

The Court of Appeals therefore erred when it held that Ong had a better right

institution to do business in the Philippines and designate

than the petitioners to the purchase of the disputed lots.

an official of the Central Bank or a person of recognized

competence in banking or finance as receiver to immediately
take charge of its assets and liabilities, as expeditiously as
possible collect and gather all the assets and administer the
same for the benefit of its creditors . . . exercising all the
powers necessary for these purposes. . . .
xxx xxx xxx

Considering then that only Ong appealed the decision of the trial court, the
PVB and the Central Bank, as well as the petitioners, are deemed to have
fully and unqualifiedly accepted the judgment, which thus became final as to
them for their failure to appeal.
WHEREFORE, the instant petition is GRANTED and the challenged decision
of the Court of Appeals of 27 January 1994 in CA-G.R. CV No. 35890 is
hereby SET ASIDE. The decision of Branch 39 of the Regional Trial Court of

The assets of an institution under receivership or liquidation

Manila of 31 October 1991 in Civil Case No. 87-42550 and Sp. Proc. No. 85-

shall be deemed in custodia legis in the hands of the receiver

32311 is hereby REINSTATED.

or liquidator and shall, from the moment of such

receivership or liquidation, be exemp from any order of

Respondent Philippine Veterans Bank is further directed to return to private

garnishment, levy, attachment, or execution.

respondent Ildefonso C. Ong the amount of P100,000.00.

In a nutshell, the insolvency of a bank and the consequent appointment of a

No pronouncement as to costs.

receiver restrict the bank's capacity to act, especially in relation to its

property, Applying Article 1323 of the Civil Code, Ong's offer to purchase the
subject lots became ineffective because the PVB became insolvent before the

SO ORDERED.

bank's acceptance of the offer came to his knowledge. Hence, the purported
contract of sale between them did not reach the stage of perfection.

253

G.R. No. 109125 December 2, 1994

defendants to put their offer in writing to which request

defendants acceded; that in reply to defendant's letter,

ANG YU ASUNCION, ARTHUR GO AND KEH TIONG, petitioners,

vs.
THE HON. COURT OF APPEALS and BUEN REALTY DEVELOPMENT
CORPORATION, respondents.
Antonio M. Albano for petitioners.
Umali, Soriano & Associates for private respondent.

plaintiffs wrote them on October 24, 1986 asking that they

specify the terms and conditions of the offer to sell; that
when plaintiffs did not receive any reply, they sent another
letter dated January 28, 1987 with the same request; that
since defendants failed to specify the terms and conditions of
the offer to sell and because of information received that
defendants were about to sell the property, plaintiffs were
compelled to file the complaint to compel defendants to sell
the property to them.
Defendants filed their answer denying the material
allegations of the complaint and interposing a special

VITUG, J.:

defense of lack of cause of action.

Assailed, in this petition for review, is the decision of the Court of Appeals,
dated 04 December 1991, in CA-G.R. SP No. 26345 setting aside and
declaring without force and effect the orders of execution of the trial court,
dated 30 August 1991 and 27 September 1991, in Civil Case No. 87-41058.
The antecedents are recited in good detail by the appellate court thusly:
On July 29, 1987 a Second Amended Complaint for Specific
Performance was filed by Ang Yu Asuncion and Keh Tiong, et
al., against Bobby Cu Unjieng, Rose Cu Unjieng and Jose
Tan before the Regional Trial Court, Branch 31, Manila in
Civil Case No. 87-41058, alleging, among others, that
plaintiffs are tenants or lessees of residential and
commercial spaces owned by defendants described as Nos.
630-638 Ongpin Street, Binondo, Manila; that they have
occupied said spaces since 1935 and have been religiously
paying the rental and complying with all the conditions of
the lease contract; that on several occasions before October
9, 1986, defendants informed plaintiffs that they are offering
to sell the premises and are giving them priority to acquire
the same; that during the negotiations, Bobby Cu Unjieng
offered a price of P6-million while plaintiffs made a counter
offer of P5-million; that plaintiffs thereafter asked the

After the issues were joined, defendants filed a motion for

summary judgment which was granted by the lower court.
The trial court found that defendants' offer to sell was never
accepted by the plaintiffs for the reason that the parties did
not agree upon the terms and conditions of the proposed
sale, hence, there was no contract of sale at all. Nonetheless,
the lower court ruled that should the defendants
subsequently offer their property for sale at a price of P11million or below, plaintiffs will have the right of first refusal.
Thus the dispositive portion of the decision states:
WHEREFORE, judgment is hereby rendered
in favor of the defendants and against the
plaintiffs summarily dismissing the
complaint subject to the aforementioned
condition that if the defendants
subsequently decide to offer their property
for sale for a purchase price of Eleven
Million Pesos or lower, then the plaintiffs
has the option to purchase the property or
of first refusal, otherwise, defendants need
not offer the property to the plaintiffs if the

254

purchase price is higher than Eleven Million

no reason not to grant the same right of first

Pesos.

refusal to herein appellants in the event that

the subject property is sold for a price in
excess of Eleven Million pesos. No

SO ORDERED.

pronouncement as to costs.
Aggrieved by the decision, plaintiffs appealed to this Court in
SO ORDERED.

CA-G.R. CV No. 21123. In a decision promulgated on

September 21, 1990 (penned by Justice Segundino G. Chua
and concurred in by Justices Vicente V. Mendoza and

The decision of this Court was brought to the Supreme

Fernando A. Santiago), this Court affirmed with modification

Court by petition for review on certiorari. The Supreme Court

the lower court's judgment, holding:

denied the appeal on May 6, 1991 "for insufficiency in form

and substances" (Annex H, Petition).

In resume, there was no meeting of the

minds between the parties concerning the

On November 15, 1990, while CA-G.R. CV No. 21123 was

sale of the property. Absent such

pending consideration by this Court, the Cu Unjieng spouses

requirement, the claim for specific

executed a Deed of Sale (Annex D, Petition) transferring the

performance will not lie. Appellants' demand

property in question to herein petitioner Buen Realty and

for actual, moral and exemplary damages

Development Corporation, subject to the following terms and

will likewise fail as there exists no justifiable

conditions:

ground for its award. Summary judgment for

defendants was properly granted. Courts

1. That for and in consideration of the sum

may render summary judgment when there

of FIFTEEN MILLION PESOS

is no genuine issue as to any material fact

(P15,000,000.00), receipt of which in full is

and the moving party is entitled to a

hereby acknowledged, the VENDORS hereby

judgment as a matter of law (Garcia vs.

sells, transfers and conveys for and in favor

Court of Appeals, 176 SCRA 815). All

of the VENDEE, his heirs, executors,

requisites obtaining, the decision of the

administrators or assigns, the above-

court a quois legally justifiable.

described property with all the

improvements found therein including all

WHEREFORE, finding the appeal

the rights and interest in the said property

unmeritorious, the judgment appealed from

free from all liens and encumbrances of

is hereby AFFIRMED, but subject to the

whatever nature, except the pending

following modification: The court a quo in

ejectment proceeding;

the aforestated decision gave the plaintiffsappellants the right of first refusal only if

2. That the VENDEE shall pay the

the property is sold for a purchase price of

Documentary Stamp Tax, registration fees

Eleven Million pesos or lower; however,

for the transfer of title in his favor and other

considering the mercurial and uncertain

expenses incidental to the sale of above-

forces in our market economy today. We find

255

described property including capital gains

decision in CA G.R. CV-21123, and elevated

tax and accrued real estate taxes.

to the Supreme Court upon the petition for

review and that the same was denied by the

As a consequence of the sale, TCT No. 105254/T-881 in the

highest tribunal in its resolution dated May

name of the Cu Unjieng spouses was cancelled and, in lieu

6, 1991 in G.R. No.

thereof, TCT No. 195816 was issued in the name of

L-97276, had now become final and

petitioner on December 3, 1990.

executory. As a consequence, there was an

Entry of Judgment by the Supreme Court as

On July 1, 1991, petitioner as the new owner of the subject

of June 6, 1991, stating that the aforesaid

property wrote a letter to the lessees demanding that the

modified decision had already become final

latter vacate the premises.

and executory.

On July 16, 1991, the lessees wrote a reply to petitioner

It is the observation of the Court that this

stating that petitioner brought the property subject to the

property in dispute was the subject of

notice of lis pendens regarding Civil Case No. 87-41058

the Notice of Lis Pendens and that the

annotated on TCT No. 105254/T-881 in the name of the Cu

modified decision of this Court promulgated

Unjiengs.

by the Court of Appeals which had become

final to the effect that should the defendants

The lessees filed a Motion for Execution dated August 27,

decide to offer the property for sale for a

1991 of the Decision in Civil Case No. 87-41058 as modified

price of P11 Million or lower, and

by the Court of Appeals in CA-G.R. CV No. 21123.

considering the mercurial and uncertain

forces in our market economy today, the

On August 30, 1991, respondent Judge issued an order

same right of first refusal to herein

(Annex A, Petition) quoted as follows:

plaintiffs/appellants in the event that the

subject property is sold for a price in excess

Presented before the Court is a Motion for

of Eleven Million pesos or more.

Execution filed by plaintiff represented by

Atty. Antonio Albano. Both defendants

WHEREFORE, defendants are hereby

Bobby Cu Unjieng and Rose Cu Unjieng

ordered to execute the necessary Deed of

represented by Atty. Vicente Sison and Atty.

Sale of the property in litigation in favor of

Anacleto Magno respectively were duly

plaintiffs Ang Yu Asuncion, Keh Tiong and

notified in today's consideration of the

Arthur Go for the consideration of P15

motion as evidenced by the rubber stamp

Million pesos in recognition of plaintiffs'

and signatures upon the copy of the Motion

right of first refusal and that a new Transfer

for Execution.

Certificate of Title be issued in favor of the

buyer.

The gist of the motion is that the Decision of

the Court dated September 21, 1990 as

All previous transactions involving the same

modified by the Court of Appeals in its

property notwithstanding the issuance of

256

another title to Buen Realty Corporation, is

In this petition for review on certiorari, petitioners contend that Buen Realty

hereby set aside as having been executed in

can be held bound by the writ of execution by virtue of the notice of lis

bad faith.

pendens, carried over on TCT No. 195816 issued in the name of Buen Realty,
at the time of the latter's purchase of the property on 15 November 1991

SO ORDERED.
On September 22, 1991 respondent Judge issued another

from the Cu Unjiengs.

We affirm the decision of the appellate court.

order, the dispositive portion of which reads:

A not too recent development in real estate transactions is the adoption of
WHEREFORE, let there be Writ of Execution

such arrangements as the right of first refusal, a purchase option and a

issue in the above-entitled case directing the

contract to sell. For ready reference, we might point out some fundamental

Deputy Sheriff Ramon Enriquez of this

precepts that may find some relevance to this discussion.

Court to implement said Writ of Execution

ordering the defendants among others to

An obligation is a juridical necessity to give, to do or not to do (Art. 1156,

comply with the aforesaid Order of this

Civil Code). The obligation is constituted upon the concurrence of the

Court within a period of one (1) week from

essential elements thereof, viz: (a) The vinculum juris or juridical tie which is

receipt of this Order and for defendants to

the efficient cause established by the various sources of obligations (law,

execute the necessary Deed of Sale of the

contracts, quasi-contracts, delicts and quasi-delicts); (b) the object which is

property in litigation in favor of the plaintiffs

the prestation or conduct; required to be observed (to give, to do or not to do);

Ang Yu Asuncion, Keh Tiong and Arthur Go

and (c) thesubject-persons who, viewed from the demandability of the

for the consideration of P15,000,000.00 and

obligation, are the active (obligee) and the passive (obligor) subjects.

ordering the Register of Deeds of the City of

Manila, to cancel and set aside the title

Among the sources of an obligation is a contract (Art. 1157, Civil Code),

already issued in favor of Buen Realty

which is a meeting of minds between two persons whereby one binds himself,

Corporation which was previously executed

with respect to the other, to give something or to render some service (Art.

between the latter and defendants and to

1305, Civil Code). A contract undergoes various stages that include its

register the new title in favor of the aforesaid

negotiation or preparation, its perfection and, finally, its

plaintiffs Ang Yu Asuncion, Keh Tiong and

consummation. Negotiation covers the period from the time the prospective

Arthur Go.

contracting parties indicate interest in the contract to the time the contract is
concluded (perfected). The perfection of the contract takes place upon the

SO ORDERED.

concurrence of the essential elements thereof. A contract which

is consensual as to perfection is so established upon a mere meeting of

On the same day, September 27, 1991 the corresponding

minds, i.e., the concurrence of offer and acceptance, on the object and on

writ of execution (Annex C, Petition) was issued. 1

the cause thereof. A contract which requires, in addition to the above, the
delivery of the object of the agreement, as in a pledge or commodatum, is

On 04 December 1991, the appellate court, on appeal to it by private

commonly referred to as a real contract. In a solemn contract, compliance

respondent, set aside and declared without force and effect the above

with certain formalities prescribed by law, such as in a donation of real

questioned orders of the court a quo.

property, is essential in order to make the act valid, the prescribed form
being thereby an essential element thereof. The stage of consummation begins

257

when the parties perform their respective undertakings under the contract

An accepted unilateral promise which specifies the thing to be sold and the

culminating in the extinguishment thereof.

price to be paid, when coupled with a valuable consideration

distinct and separate from the price, is what may properly be termed a

Until the contract is perfected, it cannot, as an independent source of

perfected contract ofoption. This contract is legally binding, and in sales, it

obligation, serve as a binding juridical relation. In sales, particularly, to

conforms with the second paragraph of Article 1479 of the Civil Code, viz:

which the topic for discussion about the case at bench belongs, the contract
is perfected when a person, called the seller, obligates himself, for a price

Art. 1479. . . .

certain, to deliver and to transfer ownership of a thing or right to another,

called the buyer, over which the latter agrees. Article 1458 of the Civil Code

An accepted unilateral promise to buy or to sell a

provides:

determinate thing for a price certain is binding upon the

promissor if the promise is supported by a consideration
Art. 1458. By the contract of sale one of the contracting

distinct from the price. (1451a) 6

parties obligates himself to transfer the ownership of and to

deliver a determinate thing, and the other to pay therefor a
price certain in money or its equivalent.

optionee has the right, but not the obligation, to buy. Once the option is
exercised timely, i.e., the offer is accepted before a breach of the option, a

A contract of sale may be absolute or conditional.

bilateral promise to sell and to buy ensues and both parties are then

When the sale is not absolute but conditional, such as in a "Contract to Sell"
where invariably the ownership of the thing sold is retained until the
fulfillment of a positive suspensive condition (normally, the full payment of
the purchase price), the breach of the condition will prevent the obligation to
convey title from acquiring an obligatory force. 2 In Dignos vs. Court of
Appeals (158 SCRA 375), we have said that, although denominated a "Deed
of Conditional Sale," a sale is still absolute where the contract is devoid of
any proviso that title is reserved or the right to unilaterally rescind is
stipulated, e.g., until or unless the price is paid. Ownership will then be
transferred to the buyer upon actual or constructive delivery (e.g., by the
execution of a public document) of the property sold. Where the condition is
imposed upon the perfection of the contract itself, the failure of the condition
would prevent such perfection. 3 If the condition is imposed on the obligation
of a party which is not fulfilled, the other party may either waive the
condition or refuse to proceed with the sale (Art. 1545, Civil Code).

Observe, however, that the option is not the contract of sale itself. 7 The

reciprocally bound to comply with their respective undertakings. 8

Let us elucidate a little. A negotiation is formally initiated by an offer. An
imperfect promise (policitacion) is merely an offer. Public advertisements or
solicitations and the like are ordinarily construed as mere invitations to
make offers or only as proposals. These relations, until a contract is
perfected, are not considered binding commitments. Thus, at any time prior
to the perfection of the contract, either negotiating party may stop the
negotiation. The offer, at this stage, may be withdrawn; the withdrawal is
effective immediately after its manifestation, such as by its mailing and not
necessarily when the offeree learns of the withdrawal (Laudico vs. Arias, 43
Phil. 270). Where a period is given to the offeree within which to accept the
offer, the following rules generally govern:
(1) If the period is not itself founded upon or supported by a consideration,
the offeror is still free and has the right to withdraw the offer before its
acceptance, or, if an acceptance has been made, before the offeror's coming

An unconditional mutual promise to buy and sell, as long as the object is

to know of such fact, by communicating that withdrawal to the offeree

made determinate and the price is fixed, can be obligatory on the parties,

(see Art. 1324, Civil Code; see also Atkins, Kroll & Co. vs. Cua, 102 Phil. 948,

and compliance therewith may accordingly be exacted.

holding that this rule is applicable to a unilateral promise to sell under Art.
1479, modifying the previous decision in South Western Sugar vs. Atlantic
Gulf, 97 Phil. 249; see also Art. 1319, Civil Code; Rural Bank of Paraaque,

258

Inc., vs. Remolado, 135 SCRA 409; Sanchez vs. Rigos, 45 SCRA 368). The

inconclusive) but by, among other laws of general application, the pertinent

right to withdraw, however, must not be exercised whimsically or arbitrarily;

scattered provisions of the Civil Code on human conduct.

otherwise, it could give rise to a damage claim under Article 19 of the Civil
Code which ordains that "every person must, in the exercise of his rights and

Even on the premise that such right of first refusal has been decreed under a

in the performance of his duties, act with justice, give everyone his due, and

final judgment, like here, its breach cannot justify correspondingly an

observe honesty and good faith."

issuance of a writ of execution under a judgment that merely recognizes its

existence, nor would it sanction an action for specific performance without

(2) If the period has a separate consideration, a contract of "option" is

thereby negating the indispensable element of consensuality in the perfection

deemed perfected, and it would be a breach of that contract to withdraw the

of contracts. 11 It is not to say, however, that the right of first refusal would be

offer during the agreed period. The option, however, is an independent

inconsequential for, such as already intimated above, an unjustified disregard

contract by itself, and it is to be distinguished from the projected main

thereof, given, for instance, the circumstances expressed in Article 19 12 of

agreement (subject matter of the option) which is obviously yet to be

concluded. If, in fact, the optioner-offeror withdraws the offer before its
acceptance (exercise of the option) by the optionee-offeree, the latter may not
sue for specific performance on the proposed contract ("object" of the option)
since it has failed to reach its own stage of perfection. The optioner-offeror,
however, renders himself liable for damages for breach of the option. In these
cases, care should be taken of the real nature of theconsideration given, for if,

the Civil Code, can warrant a recovery for damages.

The final judgment in Civil Case No. 87-41058, it must be stressed, has
merely accorded a "right of first refusal" in favor of petitioners. The
consequence of such a declaration entails no more than what has heretofore
been said. In fine, if, as it is here so conveyed to us, petitioners are aggrieved
by the failure of private respondents to honor the right of first refusal, the

in fact, it has been intended to be part of the consideration for the main

remedy is not a writ of execution on the judgment, since there is none to

contract with a right of withdrawal on the part of the optionee, the main

execute, but an action for damages in a proper forum for the purpose.

contract could be deemed perfected; a similar instance would be an "earnest

money" in a contract of sale that can evidence its perfection (Art. 1482, Civil

Furthermore, whether private respondent Buen Realty Development

Code).

Corporation, the alleged purchaser of the property, has acted in good faith or
bad faith and whether or not it should, in any case, be considered bound to

In the law on sales, the so-called "right of first refusal" is an innovative

respect the registration of the lis pendens in Civil Case No. 87-41058 are

juridical relation. Needless to point out, it cannot be deemed a perfected

matters that must be independently addressed in appropriate proceedings.

contract of sale under Article 1458 of the Civil Code. Neither can the right of

Buen Realty, not having been impleaded in Civil Case No. 87-41058, cannot

first refusal, understood in its normal concept, per se be brought within the

be held subject to the writ of execution issued by respondent Judge, let alone

purview of an option under the second paragraph of Article 1479,

ousted from the ownership and possession of the property, without first being

aforequoted, or possibly of an offer under Article 1319 9 of the same Code. An

duly afforded its day in court.

option or an offer would require, among other things,

10

a clear certainty on

both the object and the cause or consideration of the envisioned contract. In

We are also unable to agree with petitioners that the Court of Appeals has

a right of first refusal, while the object might be made determinate, the

erred in holding that the writ of execution varies the terms of the judgment

exercise of the right, however, would be dependent not only on the grantor's

in Civil Case No. 87-41058, later affirmed in CA-G.R. CV-21123. The Court of

eventual intention to enter into a binding juridical relation with another but

Appeals, in this regard, has observed:

also on terms, including the price, that obviously are yet to be later firmed
up. Prior thereto, it can at best be so described as merely belonging to a class

Finally, the questioned writ of execution is in variance with

of preparatory juridical relations governed not by contracts (since the

the decision of the trial court as modified by this Court. As

essential elements to establish the vinculum juriswould still be indefinite and

already stated, there was nothing in said decision

13

that

259

decreed the execution of a deed of sale between the Cu

covered by Original Certificate of Title (OCT) No. RP 1379 (RP-154 [300]).

Unjiengs and respondent lessees, or the fixing of the price of

[2]

the sale, or the cancellation of title in the name of petitioner

wife, Maria Ondoy, and their eleven (11) children, namely:

(Limpin vs. IAC, 147 SCRA 516; Pamantasan ng Lungsod ng

Cornelio, Bernalda, Bienvenido, Encarnacion, Loreta, Lourdes, Felicidad,

Maynila vs. IAC, 143 SCRA 311; De Guzman vs. CA, 137

Adela, Dominador, and Angelina, all surnamed Ape.

Upon Cleopas Apes death sometime in 1950, the property passed on to his
Fortunato,

SCRA 730; Pastor vs. CA, 122 SCRA 885).

On 15 March 1973, Generosa Cawit de Lumayno (private respondent
It is likewise quite obvious to us that the decision in Civil Case No. 87-41058

herein), joined by her husband, Braulio, [3] instituted a case for Specific

could not have decreed at the time the execution of any deed of sale between

Performance of a Deed of Sale with Damages against Fortunato and his wife

the Cu Unjiengs and petitioners.

Perpetua (petitioner herein) before the then Court of First Instance of Negros
Occidental. It was alleged in the complaint that on 11 April 1971, private

WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting aside

respondent and Fortunato entered into a contract of sale of land under which

the questioned Orders, dated 30 August 1991 and 27 September 1991, of the

for a consideration of P5,000.00, Fortunato agreed to sell his share in Lot No.

court a quo. Costs against petitioners.

2319 to private respondent.

The agreement was contained in a receipt

prepared by private respondents son-in-law, Andres Flores, at her behest.

Said receipt was attached to the complaint as Annex A thereof and later

SO ORDERED.

marked as Exhibit G for private respondent. The receipt states:

April 11,
1971

[G.R. No. 133638. April 15, 2005]

PERPETUA VDA. DE APE, petitioner, vs. THE HONORABLE COURT OF
APPEALS

and

GENOROSA

CAWIT

VDA.

DE

LUMAYNO,respondents.
DECISION

TO WHOM IT MAY CONCERN:

This date received from Mrs. Generosa Cawit de Lumayno the sum of THIRTY
PESOS ONLY as Advance Payment of my share in Land Purchased, for FIVE
THOUSAND PESOS LOT #2319.
(Signed)

CHICO-NAZARIO, J.:

FORTUNATO

Before Us is a petition for review on certiorari of the Decision[1] of the

APE

Court of Appeals in CA-G.R. CV No. 45886 entitled, Generosa Cawit de

Lumayno, accompanied by her husband Braulio Lumayno v. Fortunato Ape,
including his wife Perpetua de Ape.
The pertinent facts are as follows:
Cleopas Ape was the registered owner of a parcel of land particularly
known as Lot No. 2319 of the Escalante Cadastre of Negros Occidental and

P30.00

WITNESS:

(Illegible) [4]
As private respondent wanted to register the claimed sale transaction,
she supposedly demanded that Fortunato execute the corresponding deed of
sale and to receive the balance of the consideration. However, Fortunato

260

unjustifiably refused to heed her demands. Private respondent, therefore,

During the trial, private respondent testified that she and her husband

prayed that Fortunato be ordered to execute and deliver to her a sufficient

acquired the various portions of Lot No. 2319 belonging to Fortunatos co-

and registrable deed of sale involving his one-eleventh (1/11) share or

owners. Thereafter, her husband caused the annotation of an adverse claim

participation in Lot No. 2319 of the Escalante Cadastre; to pay P5,000.00 in

on the certificate of title of Lot No. 2319.[10] The annotation states:

damages; P500.00 reimbursement for litigation expenses as well as

additional P500.00 for every appeal made; P2,000.00 for attorneys fees; and
to pay the costs.

[5]

Entry No. 123539 Adverse claim filed by Braulio Lumayno. Notice of

adverse claim filed by Braulio Lumayno affecting the lot described in this title
to the extent of 77511.93 square meters, more or less, the aggregate area of

Fortunato and petitioner denied the material allegations of the

shares sold to him on the basis of (alleged) sales in his possession. Doc. No.

complaint and claimed that Fortunato never sold his share in Lot No. 2319 to

157, Page No. 33, Book No. XI, Series of 1967 of Alexander Cawit of

private respondent and that his signature appearing on the purported receipt

Escalante, Neg. Occ. Date of instrument. June 22, 1967 at 8:30 a.m. (SGD)

was forged. By way of counterclaim, the defendants below maintained having

FEDENCIORRAZ, Actg. Register of Deeds.[11]

entered into a contract of lease with respondent involving Fortunatos portion

of Lot No. 2319. This purported lease contract commenced in 1960 and was

In addition, private respondent claimed that after the acquisition of

supposed to last until 1965 with an option for another five (5) years. The

those shares, she and her husband had the whole Lot No. 2319 surveyed by

annual lease rental was P100.00 which private respondent and her husband

a certain Oscar Mascada who came up with a technical description of said

allegedly paid on installment basis. Fortunato and petitioner also assailed

piece of land.[12] Significantly, private respondent alleged that Fortunato was

private respondent and her husbands continued possession of the rest of Lot

present when the survey was conducted.[13]

No. 2319 alleging that in the event they had acquired the shares of
Fortunatos co-owners by way of sale, he was invoking his right to redeem the
same.

Also presented as evidence for private respondent were pictures taken of

Finally, Fortunato and petitioner prayed that the lease contract

some parts of Lot No. 2319 purportedly showing the land belonging to

between them and respondent be ordered annulled; and that respondent be

Fortunato being bounded by a row of banana plants thereby separating it

ordered to pay them attorneys fees; moral damages; and exemplary damages.

from the rest of Lot No. 2319.[14]

[6]

As regards the circumstances surrounding the sale of Fortunatos

In their reply,[7] the private respondent and her husband alleged that

portion of the land, private respondent testified that Fortunato went to her

they had purchased from Fortunatos co-owners, as evidenced by various

store at the time when their lease contract was about to expire. He allegedly

written instruments,[8]their respective portions of Lot No. 2319. By virtue of

demanded the rental payment for his land but as she was no longer

these sales, they insisted that Fortunato was no longer a co-owner of Lot No.

interested in renewing their lease agreement, they agreed instead to enter

2319 thus, his right of redemption no longer existed.

into a contract of sale which Fortunato acceded to provided private

respondent bought his portion of Lot No. 2319 for P5,000.00. Thereafter, she

Prior to the resolution of this case at the trial court level, Fortunato died

asked her son-in-law Flores to prepare the aforementioned receipt. Flores

and was substituted in this action by his children named Salodada, Clarita,

read the document to Fortunato and asked the latter whether he had any

Narciso, Romeo, Rodrigo, Marieta, Fortunato, Jr., and Salvador, all surnamed

objection thereto. Fortunato then went on to affix his signature on the

Ape.

[9]

receipt.
For her part, petitioner insisted that the entire Lot No. 2319 had not yet
been formally subdivided;[15] that on 11 April 1971 she and her husband
went to private respondents house to collect past rentals for their land then

261

leased by the former, however, they managed to collect only thirty pesos;

of the deeds of sale or conveyance of their co-heirs and co-owners share

[16]

within which to exercise their right of legal redemption.[24]

that private respondent made her (petitioners) husband sign a receipt

acknowledging the receipt of said amount of money; [17] and that the contents
of said receipt were never explained to them. [18] She also stated in her

Within the reglementary period, both parties filed their respective

testimony that her husband was an illiterate and only learned how to write

notices of appeal before the trial court with petitioner and her children taking

his name in order to be employed in a sugar central. [19] As for private

exception to the finding of the trial court that the period within which they

respondents purchase of the shares owned by Fortunatos co-owners,

could invoke their right of redemption had already lapsed. [25] For her part,

petitioner maintained that neither she nor her husband received any notice

private respondent raised as errors the trial courts ruling that there was no

regarding those sales transactions.

[20]

The testimony of petitioner was later on

corroborated by her daughter-in-law, Marietta Ape Dino.[21]

contract of sale between herself and Fortunato and the dismissal of their
complaint for specific performance.[26]

After due trial, the court a quo rendered a decision [22] dismissing both

The Court of Appeals, in the decision now assailed before us, reversed

the complaint and the counterclaim. The trial court likewise ordered that

and set aside the trial courts dismissal of the private respondents complaint

deeds or documents representing the sales of the shares previously owned by

but upheld the portion of the court a quos decision ordering the dismissal of

Fortunatos co-owners be registered and annotated on the existing certificate

petitioner and her childrens counterclaim. The dispositive portion of the

of title of Lot No. 2319. According to the trial court, private respondent failed

appellate courts decision reads:

to prove that she had actually paid the purchase price of P5,000.00 to
Fortunato and petitioner. Applying, therefore, the provision of Article 1350 of

WHEREFORE, the decision dated March 11, 1994, is hereby REVERSED and

the Civil Code,[23] the trial court concluded that private respondent did not

SET ASIDE insofar as the dismissal of plaintiffs-appellants complaint is

have the right to demand the delivery to her of the registrable deed of sale

concerned, and another one is entered ordering the defendant-appellant

over Fortunatos portion of the Lot No. 2319.

Fortunato Ape and/or his wife Perpetua de Ape and successors-in-interest to

execute in favor of plaintiff-appellant Generosa Cawit de Lumayno a Deed of

The trial court also rejected Fortunato and petitioners claim that they

Absolute Sale involving the one-eleventh (1/11) share or participation of

had the right of redemption over the shares previously sold to private

Fortunato Ape in Lot No. 2319, Escalante Cadastre, containing an area of

respondent and the latters husband, reasoning as follows:

12,527.19 square meters, more or less, within (30) days from finality of this
decision, and in case of non-compliance with this Order, that the Clerk of

Defendants in their counterclaim invoke their right of legal redemption under

Court of said court is ordered to execute the deed on behalf of the vendor.

Article 1623 of the New Civil Code in view of the alleged sale of the undivided

The decision is AFFIRMED insofar as the dismissal of defendants-appellants

portions of the lot in question by their co-heirs and co-owners as claimed by

counterclaim is concerned.

the plaintiffs in their complaint. They have been informed by the plaintiff
about said sales upon the filing of the complaint in the instant case as far

Without pronouncement as to costs.[27]

back as March 14, 1973. Defendant themselves presented as their very own
exhibits copies of the respective deeds of sale or conveyance by their said coheirs and co-owners in favor of the plaintiffs or their predecessors-in-interest

The Court of Appeals upheld private respondents position that Exhibit

G had all the earmarks of a valid contract of sale, thus:

way back on January 2, 1992 when they formally offered their exhibits in the
instant case; meaning, they themselves acquired possession of said

Exhibit G is the best proof that the P5,000.00 representing the purchase

documentary exhibits even before they formally offered them in evidence.

price of the 1/11th share of Fortunato Ape was not paid by the vendee on

Under Art. 1623 of the New Civil Code, defendants have only THIRTY (30)

April 11, 1971, and/or up to the present, but that does not affect the binding

DAYS counted from their actual knowledge of the exact terms and conditions

force and effect of the document. The vendee having paid the vendor an

262

advance payment of the agreed purchase price of the property, what the

Aggrieved by the decision of the appellate court, petitioner is now before

vendor can exact from the vendee is full payment upon his execution of the

us raising, essentially, the following issues: whether Fortunato was furnished

final deed of sale. As is shown, the vendee precisely instituted this action to

with a written notice of sale of the shares of his co-owners as required by

compel the vendor Fortunato Ape to execute the final document, after she

Article 1623 of the Civil Code; and whether the receipt signed by Fortunato

was informed that he would execute the same upon arrival of his daughter

proves the existence of a contract of sale between him and private

Bala from Mindanao, but afterwards failed to live up to his contractual

respondent.

obligation (TSN, pp. 11-13, June 10, 1992).

In her memorandum, petitioner claimed that the Court of Appeals erred
It is not right for the trial court to expect plaintiff-appellant to pay the

in sustaining the court a quos pronouncement that she could no longer

balance of the purchase price before the final deed is executed, or for her to

redeem the portion of Lot No. 2319 already acquired by private respondent

deposit the equivalent amount in court in the form of consignation.

for no written notice of said sales was furnished them. According to her, the

Consignation comes into fore in the case of a creditor to

Court of Appeals unduly expanded the scope of the law by equating

whom tender of payment has been made and refuses without just cause to

Fortunatos receipt of Second Owners Duplicate of OCT (RP) 1379 (RP-154

accept it (Arts. 1256 and 1252, N.C.C.; Querino vs. Pelarca, 29 SCRA 1). As

([300]) with the written notice requirement of Article 1623. In addition, she

vendee, plaintiff-appellant Generosa Cawit de Lumayno does not fall within

argued that Exhibit G could not possibly be a contract of sale of Fortunatos

the purview of a debtor.

share in Lot No. 2319 as said document does not contain (a) definite
agreement on the manner of payment of the price. [29] Even assuming that

We, therefore, find and so hold that the trial court should have found that

Exhibit G is, indeed, a contract of sale between private respondent and

exhibit G bears all the earmarks of a private deed of sale which is valid,

Fortunato, the latter did not have the obligation to deliver to private

binding and enforceable between the parties, and that as a consequence of

respondent a registrable deed of sale in view of private respondents own

the failure and refusal on the part of the vendor Fortunato Ape to live up to

failure to pay the full purchase price of Fortunatos portion of Lot No. 2319.

his contractual obligation, he and/or his heirs and successors-in-interest

Petitioner is also of the view that, at most, Exhibit G merely contained a

can be compelled to execute in favor of, and to deliver to the vendee, plaintiff-

unilateral promise to sell which private respondent could not enforce in the

appellant Generosa Cawit de Lumayno a registerable deed of absolute sale

absence of a consideration distinct from the purchase price of the land.

involving his one-eleventh (1/11 ) share or participation in Lot No. 2319,

Further, petitioner reiterated her claim that due to the illiteracy of her

Escalante Cadastre, containing an area of 12,527.19 square meters, more or

husband, it was incumbent upon private respondent to show that the

less, within 30 days from finality of this decision, and, in case of non-

contents of Exhibit G were fully explained to him.

compliance within said period, this Court appoints the Clerk of Court of the

pointed out that the Court of Appeals erred when it took into consideration

trial court to execute on behalf of the vendor the said document. [28]

the same exhibit despite the fact that only its photocopy was presented

th

Finally, petitioner

before the court.

The Court of Appeals, however, affirmed the trial courts ruling on the
It ruled that

On the other hand, private respondent argued that the annotation on

Fortunatos receipt of the Second Owners Duplicate of OCT (RP) 1379 (RP-

the second owners certificate over Lot No. 2319 constituted constructive

154 ([300]), containing the adverse claim of private respondent and her

notice to the whole world of private respondents claim over the majority of

husband, constituted a sufficient compliance with the written notice

said parcel of land.

requirement of Article 1623 of the Civil Code and the period of redemption

Villanueva,[30] private respondent insisted that when Fortunato received a

under this provision had long lapsed.

copy of the second owners certificate, he became fully aware of the contracts

issue of petitioner and her childrens right of redemption.

Relying on our decision in the case of Cabrera v.

of sale entered into between his co-owners on one hand and private
respondent and her deceased husband on the other.

263

Private respondent also averred that although (Lot No. 2319) was not

The reasons for requiring that the notice should be given by the seller, and

actually partitioned in a survey after the death of Cleopas Ape, the land was

not by the buyer, are easily divined. The seller of an undivided interest is in

partitioned in a hantal-hantal manner by the heirs.

the best position to know who are his co-owners that under the law must be

Each took and

possessed specific portion or premises as his/her share in land, farmed their

notified of the sale. Also, the notice by the seller removes all doubts as to

respective portion or premises, and improved them, each heir limiting

fact of the sale, its perfection; and its validity, the notice being a reaffirmation

his/her improvement within the portion or premises which were his/her

thereof, so that the party notified need not entertain doubt that the seller

respective share.

[31]

Thus, when private respondent and her husband

purchased the other parts of Lot No. 2319, it was no longer undivided as

may still contest the alienation. This assurance would not exist if the notice
should be given by the buyer.[33]

petitioner claims.
The interpretation was somehow modified in the case of De Conejero, et
The petition is partly meritorious.

al. v. Court of Appeals, et al.[34] wherein it was pointed out that Article 1623
does not prescribe a particular form of notice, nor any distinctive method for

Article 1623 of the Civil Code provides:

notifying the redemptioner thus, as long as the redemptioner was notified in

writing of the sale and the particulars thereof, the redemption period starts
This view was reiterated in Etcuban v. The Honorable Court of

The right of legal pre-emption or redemption shall not be exercised except

to run.

within thirty days from the notice in writing by the prospective vendor, or by

Appeals, et al.,[35] Cabrera v. Villanueva,[36] Garcia, et al. v. Calaliman, et al.,

the vendor, as the case may be. The deed of sale shall not be recorded in the

[37]

Registry of Property, unless accompanied by an affidavit of the vendor that he

al. v. Hon. Court of Appeals, et al.[39]

Distrito, et al. v. The Honorable Court of Appeals, et al., [38] and Mariano, et

has given written notice thereof to all possible redemptioners.

However, in the case of Salatandol v. Retes,[40] wherein the plaintiffs were
Despite the plain language of the law, this Court has, over the years,

not furnished any written notice of sale or a copy thereof by the vendor, this

been tasked to interpret the written notice requirement of the above-quoted

Court again referred to the principle enunciated in the case of Butte. As

provision. In the caseButte v. Manuel Uy & Sons, Inc.,[32] we declared that

observed by Justice Vicente Mendoza, such reversion is only sound, thus:

In considering whether or not the offer to redeem was timely, we think that

Art. 1623 of the Civil Code is clear in requiring that the written

the notice given by the vendee (buyer) should not be taken into account. The

notification should come from the vendor or prospective vendor, not from any

text of Article 1623 clearly and expressly prescribes that the thirty days for

other person. There is, therefore, no room for construction. Indeed, the

making the redemption are to be counted from notice in writing by the

principal difference between Art. 1524 of the former Civil Code and Art. 1623

vendor. Under the old law (Civ. Code of 1889, Art. 1524), it was immaterial

of the present one is that the former did not specify who must give the notice,

who gave the notice; so long as the redeeming co-owner learned of the

whereas the present one expressly says the notice must be given by the

alienation in favor of the stranger, the redemption period began to run. It is

vendor. Effect must be given to this change in statutory language. [41]

thus apparent that the Philippine legislature in Article 1623 deliberately

selected a particular method of giving notice, and that method must be

In this case, the records are bereft of any indication that Fortunato was

deemed exclusive. (39 Am. Jur., 237; Payne vs. State, 12 S.W. 2(d) 528). As

given any written notice of prospective or consummated sale of the portions

ruled in Wampler vs. Lecompte, 150 Atl. 458 (affd. in 75 Law Ed. [U.S.] 275)

of Lot No. 2319 by the vendors or would-be vendors. The thirty (30)-day
redemption period under the law, therefore, has not commenced to run.

why these provisions were inserted in the statute we are not informed, but we
may assume until the contrary is shown, that a state of facts in respect
thereto existed, which warranted the legislature in so legislating.

Despite this, however, we still rule that petitioner could no longer invoke
her right to redeem from private respondent for the exercise of this right

264

presupposes the existence of a co-ownership at the time the conveyance is

The shares of Cornelia, Loreta, Encarnacion and Adela.

How could you determine their own shares?

They were residing in their respective assumed portions.

How about determining their respective boundaries?

made by a co-owner and when it is demanded by the other co-owner or coowners.[42] The regime of co-ownership exists when ownership of an
undivided thing or right belongs to different persons. [43] By the nature of a coownership, a co-owner cannot point to specific portion of the property owned
in common as his own because his share therein remains intangible. [44] As
legal redemption is intended to minimize co-ownership, [45] once the property
is subdivided and distributed among the co-owners, the community ceases to
exist and there is no more reason to sustain any right of legal redemption. [46]

It could be determined by stakes and partly a row of banana

plantations planted by my son-in-law.

In this case, records reveal that although Lot No. 2319 has not yet been
formally subdivided, still, the particular portions belonging to the heirs of

Who is this son-in-law you mentioned?

Narciso Ape.

Cleopas Ape had already been ascertained and they in fact took possession of
their respective parts. This can be deduced from the testimony of petitioner
herself, thus:
ATTY. CAWIT
Q

When the plaintiffs leased the share of your husband, were

there any metes and bounds?

(Continuing)

It was not formally subdivided. We have only a definite

portion. (hantal-hantal)

You said that there were stakes to determine the hantalhantal of your husband and the hantal-hantal of the other
heirs, did I get you right?

This hantal-hantal of your husband, was it also separate and

distinct from the hantal-hantal or the share of the brothers

ATTY. TAN

and sisters of your husband?

Admitted, Your Honor.
A

Well, this property in question is a common property.

To the north, whose share was that which is adjacent to your

husbands assumed partition?

I do not know what [does] this north [mean].

COURT
(To Witness)

ATTY. CAWIT
Q

Mrs. Ape, in 1960, Cleopas Ape was already dead, is that correct?

Certainly, since he died in 1950.

Q

By the manifestation of your counsel that the entire land (13

hectares) of your father-in-law, Cleopas Ape, was leased to

To the place from where the sun rises, whose share was that?

Generosa Lumayno, is this correct?

265

No, it is only the assumed portion of my husband [which] was

leased to Generosa Lumayno.

From the foregoing, it is evident that the partition of Lot No. 2319 had
already been effected by the heirs of Cleopas Ape. Although the partition
might have been informal is of no moment for even an oral agreement of

For clarification, it was only the share of your husband

partition is valid and binding upon the parties. [50] Likewise, the fact that the

[which] was leased to Generosa Cawit Lumayno?

respective shares of Cleopas Apes heirs are still embraced in one and the
same certificate of title and have not been technically apportioned does not

Yes.

make said portions less determinable and identifiable from one another nor

[47]

does it, in any way, diminish the dominion of their respective owners. [51]
ATTY. CAWIT
Turning now to the second issue of the existence of a contract of sale, we
Q

My question: is that portion which you said was leased by

rule that the records of this case betray the stance of private respondent that

your husband to the Lumayno[s] and which was included to

Fortunato Ape entered into such an agreement with her.

the lease by your mother-in-law to the Lumayno[s], when the

A contract of sale is a consensual contract, thus, it is perfected by mere

Lumayno[s] returned your husband[s] share, was that the

same premises that your husband leased to the Lumayno[s]?

consent of the parties. It is born from the moment there is a meeting of

minds upon the thing which is the object of the sale and upon the price.

[52]

The same.

Upon its perfection, the parties may reciprocally demand performance,

that is, the vendee may compel the transfer of the ownership and to deliver
Q

In re-possessing this portion of the land corresponding to the

the object of the sale while the vendor may demand the vendee to pay the

share of your husband, did your husband demand that they

thing sold.[53] For there to be a perfected contract of sale, however, the

should re-possess the land from the Lumayno[s] or did the

following elements must be present: consent, object, and price in money or

Lumayno[s] return them to your husband voluntarily?

its equivalent. In the case of Leonardo v. Court of Appeals, et al.,[54] we

explained the element of consent, to wit:

They just returned to us without paying the rentals.

The essence of consent is the agreement of the parties on the terms of the
contract, the acceptance by one of the offer made by the other. It is the

COURT

concurrence of the minds of the parties on the object and the cause which
Q

Was the return the result of your husbands request or just

constitutes the contract. The area of agreement must extend to all points

voluntarily they returned it to your husband?

that the parties deem material or there is no consent at all.

No, sir, it was just returned voluntarily, and they abandoned

To be valid, consent must meet the following requisites: (a) it should be

the area but my husband continued farming.

[48]

intelligent, or with an exact notion of the matter to which it refers; (b) it

should be free and (c) it should be spontaneous. Intelligence in consent is

Similarly telling of the partition is the stipulation of the parties during

the pre-trial wherein it was admitted that Lot No. 2319 had not been

vitiated by error; freedom by violence, intimidation or undue influence;

spontaneity by fraud.[55]

subdivided nevertheless, Fortunato Ape had possessed a specific portion of

the land ostensibly corresponding to his share.[49]

In this jurisdiction, the general rule is that he who alleges fraud or

mistake in a transaction must substantiate his allegation as the presumption
is that a person takes ordinary care for his concerns and that private

266

dealings have been entered into fairly and regularly. [56] The exception to this

In the store, yes, sir.

rule is provided for under Article 1332 of the Civil Code which provides that
[w]hen one of the parties is unable to read, or if the contract is in a language

not understood by him, and mistake or fraud is alleged, the person enforcing

When you signed that document of course you acted as

witness upon request of your mother-in-law?

the contract must show that the terms thereof have been fully explained to
the former.

In this case, as private respondent is the one seeking to enforce the

No, this portion, I was the one who prepared that document.
Q

Without asking of (sic) your mother-in-law, you prepared that

claimed contract of sale, she bears the burden of proving that the terms of

document or it was your mother-in-law who requested you to

the agreement were fully explained to Fortunato Ape who was an illiterate.

prepare that document and acted as witness?

This she failed to do. While she claimed in her testimony that the contents of
the receipt were made clear to Fortunato, such allegation was debunked by

She requested me to prepare but does not instructed (sic) me

Andres Flores himself when the latter took the witness stand. According to

to act as witness. It was our opinion that whenever I

Flores:

prepared the document, I signed it as a witness.

ATTY. TAN

Did it not occur to you to ask other witness to act on the side
of Fortunato Ape who did not know how to read and write

Mr. Witness, that receipt is in English, is it not?

Yes, sir.
Q

English?
A

When you prepared that receipt, were you aware that

It occurred to me.
Q

Fortunato Ape doesnt know how to read and write English?

But you did not bother to request a person who is not related
to your mother-in-law, considering that Fortunato Ape did
not know how to read and write English?

Yes, sir, I know.

A
Q

Mr. Witness, you said you were present at the time of the

The one who represented Fortunato Ape doesnt know also

how to read and write English. One a maid.

signing of that alleged receipt of P30.00, correct?

Q
A

Yes, sir.

Where, in what place was this receipt signed?

At the store.

You mentioned that there [was another] person inside the

store, under your previous statement, when the document
was signed, there [was another] person in the store aside
from you, your mother-in-law and Fortunato Ape, is not
true?
A

That is true, there is one person, but that person

doesnt know how to read also.

At the time of the signing of this receipt, were there other

person[s] present aside from you, your mother-in-law and
Fortunato Ape?

267

Of course, Mr. Witness, since it occurred to you that there

decision dated 11 March 1994 of the Regional Trial Court, Branch 58, San

was need for other witness to sign that document for

Carlos City, Negros Occidental, dismissing both the complaint and the

Fortunato Ape, is it not a fact that the Municipal Building is

counterclaim, is hereby REINSTATED. No costs.

very near your house?

SO ORDERED.
A

Quite (near).
Q

But you could readily proceed to the Municipal Building and

request one who is knowledgeable in English to act as
witness?

bother myself to go.

Q

[G.R. No. 151035. June 3, 2004]

I think there is no need for that small receipt. So I dont

ANDREA

MAYOR

and

Yes, I know.[57]

vs. LOURDES

DECISION
YNARES-SANTIAGO, J.:

As can be gleaned from Floress testimony, while he was very much

aware of Fortunatos inability to read and write in the English language, he
did not bother to fully explain to the latter the substance of the receipt
(Exhibit G). He even dismissed the idea of asking somebody else to assist
Fortunato considering that a measly sum of thirty pesos was involved.
Evidently, it did not occur to Flores that the document he himself prepared
pertains to the transfer altogether of Fortunatos property to his mother-inlaw. It is precisely in situations such as this when the wisdom of Article
1332 of the Civil Code readily becomes apparent which is to protect a party
to a contract disadvantaged by illiteracy, ignorance, mental weakness or
some other handicap.

ROMULO, petitioners,

MASANGKAY Y BELEN and LEONARDO BELEN, respondents.

You did not consider that receipt very important because you
said that small receipt?

VERGEL

[58]

In sum, we hold that petitioner is no longer entitled to the right of

redemption under Article 1632 of the Civil Code as Lot No. 2319 had long
been partitioned among its co-owners. This Court likewise annuls the
contract of sale between Fortunato and private respondent on the ground of
vitiated consent.
WHEREFORE, premises considered, the decision dated 25 March 1998
of the Court of Appeals is hereby REVERSED and SET ASIDE and the

The crux of the controversy in this petition for review is whether or not
the execution of the Kasulatan ng Bilihang Tuluyan and Kasulatan ng
Sanglaan covering a 179 square meter lot on which stands the house where
respondents live is tainted with irregularity. Petitioners claim that said
contracts are binding on respondents because the latter freely and
voluntarily executed them. The respondents, however, contend that the
execution of the documents was procured through fraud and undue
influence. The trial court sustained respondents. The ruling of the lower
court was affirmed on appeal with modifications by the appellate tribunal.
Aggrieved, petitioners elevated their cause by way of this proceeding to this
Court.
The undisputed facts as culled from the factual findings of the appellate
court[1] are as follows:
Petitioner Andrea Mayor was the original owner of the a parcel of land
located at Bonifacio Street, San Pablo City measuring about 179 square
meters, more or less. On November 27, 1979, respondent Lourdes M. Belen
purchased the subject property from Andrea Mayor in consideration of

268

P18,000.00 payable in installments. Lourdes M. Belen was able to pay

On August 11, 1980, Leonardo Belen filed a complaint for Annulment of

P11,445.00 out of the P18,000.00 purchase price leaving a balance of

Deed of Absolute Sale and Real Estate Mortgage against Andrea Mayor and

P6,555.00.

Lourdes Masangkay a.k.a Lourdes M. Belen. In the complaint, docketed as

Civil Case No. SP-1756, he averred that he is living with Lourdes M. Belen

On June 17, 1980, Lourdes M. Belen sold back the subject property to

without benefit of marriage. Lourdes bought the subject property from

Andrea Mayor in consideration of P18,000.00. For this purpose, Lourdes M.

Andrea Mayor using their common fund. On account of the fraudulent acts of

Belen executed theKasulatan ng Bilihang Tuluyan in favor of Andrea Mayor.

Andrea Mayor in connivance with Virgilio Romulo, Lourdes M. Belen agreed

to

On June 19, 1980, to secure a loan in the amount of P12,000.00

obtained from Lourdes M. Belen, Andrea Mayor executed a real estate
mortgage

over

the

subject

property

denominated

as Kasulatan

execute

the Kasulatan

ng

Bilihang

Tuluyan and

the Kasulatan

ng

Sanglaan. For lack of his approval or consent thereto, as co-owner of the

property, the said documents are null and void.

ng
Denying the allegations of the complaint, Andrea Mayor in her answer

Sanglaan in favor of the former.

with counterclaim averred that Leonardo Belen did not have a cause of action
On August 4, 1980, Lourdes M. Belen filed a civil suit against Andrea

because he was neither a party nor a privy to any of the subject

Mayor, docketed as Civil Case No. SP-1755, for annulment of the Kasulatang

contracts. Andrea also alleged that the execution thereof was Lourdess free

Bilihang Tuluyan andKasulatan ng Sanglaan.

and voluntary act.

In the complaint, Lourdes alleged, among others, that petitioner Andrea

Subsequently on February 16, 1981, Leonardo Belen and Lourdes M.

Mayor, through co-petitioner Vergel Romulo a.k.a. Virgilio Romulo, made her

Belen filed a complaint for Damages against Virgilio Romulo. In the

believe that the sale in her favor by Andrea is void because the deed of

complaint, docketed as Civil Case No. SP-1821, Lourdes and Leonardo

conveyance did not reflect the true agreement of the parties as to the mode of

averred that they sustained damages for Virgilios fraudulent acts of inducing

payment of the purchase price, i.e., the purchase price was made on

Lourdes to sign the subject contracts.

installments and not in cash as stipulated in the document. Lourdes further

averred that she was also made to believe that she might lose what she had

In his answer, Virgilio Romulo insisted that he never had any

already paid which amounted to 70% of the purchase price. She was

transaction with Lourdes M. Belen and Leonardo Belen. For instituting a

convinced by the representations of Andrea and Romulo that it would be best

baseless action against him, Lourdes and Leonardo should be held liable for

for the latter to make it appear that Andrea was merely mortgaging the

damages.

subject property to her. Lourdes readily agreed to the scheme believing that
it was for the protection of her rights. It turned out that the scheme was in

The three cases were consolidated and jointly tried. After trial, the

fact a ruse employed by Romulo and Andrea to re-acquire the property, thus,

court a quo rendered judgment in favor of the Belens, the dispositive portion

Lourdess

consent

in

the

execution

of

the Kasulatan

ng

Bilihang

of which reads:

Tuluyan and Kasulatan ng Sanglaan was obtained through fraud and undue
influence.

WHEREFORE, judgment is hereby rendered declaring the Kasulatan ng

Bilihang Tuluyan dated June 17, 1980 and the Kasulatan ng Sanglaan dated

In her answer with counterclaim, Andrea Mayor denied the material

June 19, 1980 null and void and ordering:

allegations of the complaint insisting, in sum, that Lourdes M. Belen freely

and voluntarily executed the subject contracts and the same is binding on

1.

the parties thereto.

Belen and Lourdes Masangkay Belen the sum of P15,000.00 for their

the defendants to jointly and severally pay to the plaintiffs Leonardo

attorneys fees and costs of litigation in these three cases.

269

2.

Virgilio Romulo to pay the plaintiffs the sum of P20,000.00 as moral

We disagree.

damages.
Impressive as the arguments petitioners have advanced in support of
Dissatisfied, petitioners elevated their cause to the Court of Appeals

their cause may be, the fatal flaw lies in their inability to convincingly

which rendered judgment[2] affirming the assailed decision but deleting the

substantiate their claim that Lourdes M. Belen signed the contracts freely

award of attorneys fees. A motion for reconsideration was subsequently

and voluntarily.

denied.

[3]

This brings to the fore Lourdes M. Belens limited educational

Hence, the instant petition filed by petitioners who argue:

attainment. While indeed petitioners point out that the deeds denominated
as Kasulatan ng Bilihang Tuluyan and Kasulatan ng Sanglaan were executed

THAT WITH DUE RESPECT TO THE FINDINGS MADE BY PUBLIC

in Tagalog, a

RESPONDENT HONORABLE COURT OF APPEALS, THE PRIVATE

practically literal translations of their English counterparts. Thus, the mere

RESPONDENTS WERE NOT ABLE TO PROVE THE FRAUD AND

fact that the documents were executed in the vernacular neither clarified nor

UNDUE INFLUENCE THEY CLAIMED TO HAVE BEEN EXERTED

simplified matters for Lourdes who admitted on cross-examination that she

ON THEM BY THE PETITIONER IN THE EXECUTION OF THE

merely finished Grade 3, could write a little, and understand a little of

QUESTIONEDKASULATAN

NG

BILIHAN AND KASULATAN

NG

close

scrutiny

thereof

shows

that

they

are

the Tagalog language.[6]

SANGLAAN.
The appellate court could not then be faulted when it invoked Article
The issue for resolution is whether or not fraud attended the execution

1332 of the Civil Code which states:

of the Kasulatan ng Bilihan and Kasulatan ng Sanglaan.

ART. 1332. When one of the parties is unable to read, or if the contract is in
The Civil Code provides that

a language not understood by him, and mistake or fraud is alleged, the

person enforcing the contract must show that the terms thereof have been

ART. 1338. There is fraud when, through insidious words or machinations of

fully explained to the former.

one of the contracting parties, the other is induced to enter into a contract
which, without them, he would not have agreed to.

As aptly pointed out by the Court of Appeals, the principle that a party
is presumed to know the import of a document to which he affixes his

As defined, fraud refers to all kinds of deception, whether through

signature is modified by the foregoing article. Under the said article, where a

insidious machination, manipulation, concealment or misrepresentation to

party is unable to read or when the contract is in a language not understood

The deceit employed must be serious. It must

by a party and mistake or fraud is alleged, the obligation to show that the

be sufficient to impress or lead an ordinarily prudent person into error,

terms of the contract had been fully explained to said party who is unable to

lead another party into error.

[4]

taking into account the circumstances of each case.

[5]

read or understand the language of the contract devolves on the party

seeking to enforce it. The burden rests upon the party who seeks to enforce

In support of their cause, petitioners intone the shopworn legal maxim

the contract to show that the other party fully understood the contents of the

that fraus est odiosa et non praesumenda and argue that to establish the

document. If he fails to discharge this burden, the presumption of mistake, if

claim of fraud, evidence must be clear and more than merely preponderant.

not, fraud, stands unrebutted and controlling.[7]

They contend, in sum, that the two deeds were duly executed by the parties
thereto in accordance with the formalities required by law and as public
documents the evidence to overcome their recitals is wanting.

In this case, petitioners alleged that Lourdes M. Belen affixed her

signature on the questioned contracts freely and voluntarily. We have

270

assiduously scoured the record but like the appellate court we have not come

There are, moreover, other factual circumstances pointed out by both

across convincing evidence to support their allegations. In civil cases, he

the trial and appellate courts which militate against the contention of

who alleges a fact has the burden of proving it by a preponderance of

petitioners. The evidence on record shows that the respondents Belens

evidence.[8] Suffice it to state that such self-serving claims are not enough to

intended to stay and occupy the subject land for a considerable length of

rebut the presumption of fraud provided for in Article 1332 of the Civil Code.

time. As borne out by the records, respondents bought from Celita Bordeos

As the party claiming affirmative relief from the court, it is incumbent upon

the house standing on the subject land then owned by Andrea Mayor. [14] Four

petitioners to convincingly prove their claim. This they failed to do. Bare

years later or on November 27, 1979, respondents bought the subject land

allegations, unsubstantiated by evidence are not equivalent to proof under

from petitioner Andrea Mayor.[15]

our Rules.

[9]

In short, mere allegations are not evidence.

[10]

They bought the said land through installments and already paid
Concededly, both the Kasulatan ng Bilihang Tuluyan and the Kasulatan

P11,445.00 of the P18,000.00 purchase price. They also caused the transfer

ng Sanglaan are public documents and there is no dispute that generally, a

in their names of the tax declarations over the subject land and house. This

notarized document carries the evidentiary weight conferred upon it with

they did even before they could have completed the payment of the purchase

respect to its due execution. In addition, documents acknowledged before a

price. In short, their intention and desire to stay on the property is very

notary public have in their favor the presumption of regularity. However, the

evident. Petitioners

presumption is not absolute and may be rebutted by clear and convincing

sudden volte face and decided to resell the property to them seven months

suggestion,

therefore,

that

respondents

made

The presumption cannot be made to apply in this

from the date of the propertys acquisition, after payment of almost two-

case because the regularity in the execution of the documents were

thirds of the purchase price and transferring the tax declarations thereof in

challenged in the proceedings below where their prima facie validity was

respondents names, borders on the absurd and the incredible. It simply is

overthrown by the highly questionable circumstances pointed out by both

contrary to human experience for respondents to have had a hasty change of

trial and appellate courts. Furthermore, notarization per se is not a

heart to dispose of the land on which they intend to make their home and

guarantee of the validity of the contents of a document. Indeed, as stated by

upon which they had invested so much.

evidence to the contrary.

[11]

the Supreme Court in Nazareno v. CA:

[12]

Petitioners advance the excuse that respondents wanted to immediately

The fact that the deed of sale was notarized is not a guarantee of the validity

dispose of the subject property because the area would be soon converted

of its contents. As held in Suntay v. Court of Appeals:[13]

into a park. If this were so, why would Lourdes Belen thereafter accept the

Though the notarization of the deed of sale in question vests in its favor the

public domain?

very same property as security knowing fully well that it would revert to the

presumption of regularity, it is not the intention nor the function of the notary
public to validate and make binding an instrument never, in the first place,
intended to have any binding legal effect upon the parties thereto. The
intention of the parties still and always is the primary consideration
in determining the true nature of the contract.
The impugned documents cannot be presumed as valid because of the

A mortgage subjects the property upon which it is imposed, whoever the

possessor may be, to the fulfillment of the obligation whose security it was
constituted.[16] Thus, in case of non-payment, the creditor may proceed
against the property for the fulfillment of the obligation. No creditor would
accept property as security for the fulfillment of the obligation knowing that
the property offered as security would soon be out of the commerce of man.
[17]

direct challenge posed thereto by respondents, which is precisely the reason

for the commencement of this case: to bring to the fore the irregularity in
their execution.

Finally, the non-presentation of petitioner Andrea Mayor on the witness

stand is likewise not lost on us and adds to the weakness of petitioners

271

cause. While it is true that the non-presentation of a witness is not a reason

Petitioner San Miguel Properties Philippines, Inc. is a domestic corporation

for discrediting a partys defense, still we are inclined to take this omission

engaged in the purchase and sale of real properties. Part of its inventory are

against them in view of the numerous loopholes in their defense.

[18]

two parcels of land totalling 1, 738 square meters at the corner of Meralco
Avenue and General Capinpin Street, Barrio Oranbo, Pasig City, which are

All told, we see no reason in overturning the findings of the appellate

court. As has often been stated, [t]he jurisdiction of this Court over cases

covered by TCT Nos. PT-82395 and PT-82396 of the Register of Deeds of Pasig
City.

brought to it from the Court of Appeals is limited to a review of questions of

law since the factual conclusions thereon are conclusive. There are of course

On February 21, 1994, the properties were offered for sale

exceptions to this rule, but none obtain in the case at bar to warrant a

for P52,140,000.00 in cash. The offer was made to Atty. Helena M. Dauz who

scrutiny of the Court of Appeals conclusions which are supported by the

was acting for respondent spouses as undisclosed principals. In a

evidence on record and carry more weight, it having affirmed the trial courts

letter[2] dated March 24, 1994, Atty. Dauz signified her clients interest in

factual conclusions.[19]

purchasing the properties for the amount for which they were offered by
petitioner, under the following terms: the sum of P500,000.00 would be given

WHEREFORE, in view of all the foregoing, the petition is DENIED and

as earnest money and the balance would be paid in eight equal monthly

the decision dated April 3, 2001 of the Court of Appeals in CA-G.R. CV No.

installments from May to December, 1994. However, petitioner refused the

48646, is AFFIRMEDin toto.

counter-offer.
On March 29, 1994, Atty. Dauz wrote another letter [3] proposing the following

SO ORDERED.

terms for the purchase of the properties, viz:

This is to express our interest to buy your-above-mentioned
property with an area of 1, 738 sq. meters. For this purpose,
we are enclosing herewith the sum ofP1,000,000.00
[G.R. No. 137290. July 31, 2000]

SAN MIGUEL PROPERTIES PHILIPPINES, INC., petitioner, vs. SPOUSES

ALFREDO HUANG and GRACE HUANG, respondents.
DECISION
MENDOZA, J.:

representing earnest-deposit money, subject to the following

conditions.
1. We will be given the exclusive option to purchase the
property within the 30 days from date of your acceptance of
this offer.
2. During said period, we will negotiate on the terms and
conditions of the purchase; SMPPI will secure the necessary
Management and Board approvals; and we initiate the

This is a petition for review of the decision,[1] dated April 8, 1997, of the Court

documentation if there is mutual agreement between us.

of Appeals which reversed the decision of the Regional Trial Court, Branch
153, Pasig City dismissing the complaint brought by respondents against

3. In the event that we do not come to an agreement on this

petitioner for enforcement of a contract of sale.

transaction, the said amount of P1,000,000.00 shall be

refundable to us in full upon demand. . . .

The facts are not in dispute.

272

Isidro A. Sobrecarey, petitioners vice-president and operations manager for

purchase price and was thus unenforceable and (2) the complaint did not

corporate real estate, indicated his conformity to the offer by affixing his

allege a cause of action because there was no "meeting of the minds" between

signature to the letter and accepted the "earnest-deposit" of P1 million. Upon

the parties and, therefore, no perfected contract of sale. The motion was

request of respondent spouses, Sobrecarey ordered the removal of the "FOR

opposed by respondents.

SALE" sign from the properties.

On December 12, 1994, the trial court granted petitioners motion and
Atty. Dauz and Sobrecarey then commenced negotiations. During their

dismissed the action. Respondents filed a motion for reconsideration, but it

meeting on April 8, 1994, Sobrecarey informed Atty. Dauz that petitioner was

was denied by the trial court. They then appealed to the Court of Appeals

willing to sell the subject properties on a 90-day term. Atty. Dauz countered

which, on April 8, 1997, rendered a decision[6] reversing the judgment of the

with an offer of six months within which to pay.

trial court. The appellate court held that all the requisites of a perfected
contract of sale had been complied with as the offer made on March 29,

On April 14, 1994, the parties again met during which Sobrecarey informed

1994, in connection with which the earnest money in the amount of P1

Atty. Dauz that petitioner had not yet acted on her counter-offer. This

million was tendered by respondents, had already been accepted by

prompted Atty. Dauz to propose a four-month period of amortization.

petitioner. The court cited Art. 1482 of the Civil Code which provides that
"[w]henever earnest money is given in a contract of sale, it shall be

On April 25, 1994, Atty. Dauz asked for an extension of 45 days from April

considered as part of the price and as proof of the perfection of the contract."

29, 1994 to June 13, 1994 within which to exercise her option to purchase

The fact the parties had not agreed on the mode of payment did not affect the

the property, adding that within that period, "[we] hope to finalize [our]

contract as such is not an essential element for its validity. In addition, the

agreement on the matter."[4] Her request was granted.

court found that Sobrecarey had authority to act in behalf of petitioner for
the sale of the properties.[7]

On July 7, 1994, petitioner, through its president and chief executive officer,
Federico Gonzales, wrote Atty. Dauz informing her that because the parties

Petitioner moved for reconsideration of the trial courts decision, but its

failed to agree on the terms and conditions of the sale despite the extension

motion was denied. Hence, this petition.

granted by petitioner, the latter was returning the amount of P1 million given
as "earnest-deposit."[5]

Petitioner contends that the Court of Appeals erred in finding that there was
a perfected contract of sale between the parties because the March 29, 1994

On July 20, 1994, respondent spouses, through counsel, wrote petitioner

letter of respondents, which petitioner accepted, merely resulted in an option

demanding the execution within five days of a deed of sale covering the

contract, albeit it was unenforceable for lack of a distinct consideration.

properties. Respondents attempted to return the "earnest-deposit" but

Petitioner argues that the absence of agreement as to the mode of payment

petitioner refused on the ground that respondents option to purchase had

was fatal to the perfection of the contract of sale. Petitioner also disputes the

already expired.

appellate courts ruling that Isidro A. Sobrecarey had authority to sell the
subject real properties.[8]

On August 16, 1994, respondent spouses filed a complaint for specific

performance against petitioner before the Regional Trial Court, Branch 133,

Respondents were required to comment within ten (10) days from notice.

Pasig City where it was docketed as Civil Case No. 64660.

However, despite 13 extensions totalling 142 days which the Court had given
to them, respondents failed to file their comment. They were thus considered

Within the period for filing a responsive pleading, petitioner filed a motion to

to have waived the filing of a comment.

dismiss the complaint alleging that (1) the alleged "exclusive option" of
respondent spouses lacked a consideration separate and distinct from the

The petition is meritorious.

273

In holding that there is a perfected contract of sale, the Court of Appeals

secure the necessary approvals while respondents would handle the

relied on the following findings: (1) earnest money was allegedly given by

documentation.

respondents and accepted by petitioner through its vice-president and

operations manager, Isidro A. Sobrecarey; and (2) the documentary evidence

The first condition for an option period of 30 days sufficiently shows that a

in the records show that there was a perfected contract of sale.

sale was never perfected. As petitioner correctly points out, acceptance of this
condition did not give rise to a perfected sale but merely to an option or an

With regard to the alleged payment and acceptance of earnest money, the

accepted unilateral promise on the part of respondents to buy the subject

Court holds that respondents did not give the P1 million as "earnest money"

properties within 30 days from the date of acceptance of the offer. Such

as provided by Art. 1482 of the Civil Code. They presented the amount

option giving respondents the exclusive right to buy the properties within the

merely as a deposit of what would eventually become the earnest money or

period agreed upon is separate and distinct from the contract of sale which

downpayment should a contract of sale be made by them. The amount was

the parties may enter.[11] All that respondents had was just the option to buy

thus given not as a part of the purchase price and as proof of the perfection

the properties which privilege was not, however, exercised by them because

of the contract of sale but only as a guarantee that respondents would not

there was a failure to agree on the terms of payment. No contract of sale may

back out of the sale. Respondents in fact described the amount as an

thus be enforced by respondents.

"earnest-deposit." In Spouses Doromal, Sr. v. Court of Appeals,[9] it was held:

Furthermore, even the option secured by respondents from petitioner was
. . . While the P5,000 might have indeed been paid to Carlos

fatally defective. Under the second paragraph of Art. 1479, an accepted

in October, 1967, there is nothing to show that the same was

unilateral promise to buy or sell a determinate thing for a price certain is

in the concept of the earnest money contemplated in Art.

binding upon the promisor only if the promise is supported by a distinct

1482 of the Civil Code, invoked by petitioner, as signifying

consideration. Consideration in an option contract may be anything of value,

perfection of the sale. Viewed in the backdrop of the factual

unlike in sale where it must be the price certain in money or its equivalent.

milieu thereof extant in the record, We are more inclined to

There is no showing here of any consideration for the option. Lacking any

believe that the said P5,000.00 were paid in the concept of

proof of such consideration, the option is unenforceable.

earnest money as the term was understood under the Old

Civil Code, that is, as a guarantee that the buyer would not

Equally compelling as proof of the absence of a perfected sale is the second

back out, considering that it is not clear that there was

condition that, during the option period, the parties would negotiate the

already a definite agreement as to the pricethen and that

terms and conditions of the purchase. The stages of a contract of sale are as

petitioners were decided to buy 6/7 only of the property

follows: (1) negotiation, covering the period from the time the prospective

should respondent Javellana refuse to agree to part with her

contracting parties indicate interest in the contract to the time the contract is

1/7 share.[10]

perfected; (2) perfection, which takes place upon the concurrence of the
essential elements of the sale which are the meeting of the minds of the

In the present case, the P1 million "earnest-deposit" could not have been

parties as to the object of the contract and upon the price; and

given as earnest money as contemplated in Art. 1482 because, at the time

(3) consummation, which begins when the parties perform their respective

when petitioner accepted the terms of respondents offer of March 29, 1994,

undertakings under the contract of sale, culminating in the extinguishment

their contract had not yet been perfected. This is evident from the following

thereof.[12] In the present case, the parties never got past the negotiation

conditions attached by respondents to their letter, to wit: (1) that they be

stage. The alleged "indubitable evidence"[13] of a perfected sale cited by the

given the exclusive option to purchase the property within 30 days from

appellate court was nothing more than offers and counter-offers which did

acceptance of the offer; (2) that during the option period, the parties would

not amount to any final arrangement containing the essential elements of a

negotiate the terms and conditions of the purchase; and (3) petitioner would

contract of sale. While the parties already agreed on the real properties which

274

were the objects of the sale and on the purchase price, the fact remains that

In the absence of a perfected contract of sale, it is immaterial whether Isidro

they failed to arrive at mutually acceptable terms of payment, despite the 45-

A. Sobrecarey had the authority to enter into a contract of sale in behalf of

day extension given by petitioner.

petitioner. This issue, therefore, needs no further discussion.

The appellate court opined that the failure to agree on the terms of payment

WHEREFORE, the decision of the Court of Appeals is REVERSED and

was no bar to the perfection of the sale because Art. 1475 only requires

respondents complaint is DISMISSED.

agreement by the parties as to the price of the object. This is error.

In Navarro v. Sugar Producers Cooperative Marketing Association, Inc.,[14] we
laid down the rule that the manner of payment of the purchase price is an

SO ORDERED.

essential element before a valid and binding contract of sale can exist.
Although the Civil Code does not expressly state that the minds of the
parties must also meet on the terms or manner of payment of the price, the

G.R. No. 135929. April 20, 2001]

same is needed, otherwise there is no sale. As held in Toyota Shaw, Inc. v.

Court of Appeals,[15]agreement on the manner of payment goes into the price
such that a disagreement on the manner of payment is tantamount to a
failure to agree on the price.[16] In Velasco v. Court of Appeals,[17] the parties to
a proposed sale had already agreed on the object of sale and on the purchase
price. By the buyers own admission, however, the parties still had to agree

LOURDES ONG LIMSON, petitioner, vs. COURT OF APPEALS, SPOUSES

LORENZO DE VERA and ASUNCION SANTOS-DE VERA, TOMAS
CUENCA,

and

SUNVAR

REALTY

DEVELOPMENT

CORPORATION, respondents.

on how and when the downpayment and the installments were to be paid. It

DECISION

was held:
. . . Such being the situation, it can not, therefore, be said

JR.,

BELLOSILLO, J.:

that a definite and firm sales agreement between the parties

had been perfected over the lot in question. Indeed, this

Filed under Rule 45 of the Rules of Court this Petition for Review on

Court has already ruled before that a definite agreement on

Certiorari seeks to review, reverse and set aside the Decision[1] of the Court of

the manner of payment of the purchase price is an essential

Appeals dated 18 May 1998 reversing that of the Regional Trial Court dated

element in the formation of a binding and enforceable

30 June 1993. The petition likewise assails the Resolution[2] of the appellate

contract of sale. The fact, therefore, that the petitioners

court of 19 October 1998 denying petitioners Motion for Reconsideration.

delivered to the respondent the sum of P10,000 as part of

the down-payment that they had to pay cannot be

Petitioner Lourdes Ong Limson, in her 14 May 1979 Complaint filed

considered as sufficient proof of the perfection of any

before the trial court,[3] alleged that in July 1978 respondent spouses Lorenzo

purchase and sale agreement between the parties herein

de Vera and Asuncion Santos-de Vera, through their agent Marcosa Sanchez,

under Art. 1482 of the new Civil Code, as the petitioners

offered to sell to petitioner a parcel of land consisting of 48,260 square

themselves admit that some essential matter - the terms of

meters, more or less, situated in Barrio San Dionisio, Paraaque, Metro

the payment - still had to be mutually covenanted.

[18]

Manila; that respondent spouses informed her that they were the owners of
the subject property; that on 31 July 1978 she agreed to buy the property at

Thus, it is not the giving of earnest money, but the proof of the concurrence

the price of P34.00 per square meter and gave the sum ofP20,000.00 to

of all the essential elements of the contract of sale which establishes the

respondent spouses as "earnest money;" that respondent spouses signed a

existence of a perfected sale.

receipt therefor and gave her a 10-day option period to purchase the

275

property; that respondent Lorenzo de Vera then informed her that the subject

The Deed of Sale between respondent spouses and respondent SUNVAR

property was mortgaged to Emilio Ramos and Isidro Ramos; that respondent

was executed on 15 September 1978 and TCT No. S-72377 was issued in

Lorenzo de Vera asked her to pay the balance of the purchase price to enable

favor of the latter on 26 September 1978 with the Adverse Claim of petitioner

him and his wife to settle their obligation with the Ramoses.

annotated thereon. Petitioner claimed that when respondent spouses sold

the property in dispute to SUNVAR, her valid and legal right to purchase it

Petitioner also averred that she agreed to meet respondent spouses and

was ignored if not violated. Moreover, she maintained that SUNVAR was in

the Ramoses on 5 August 1978 at the Office of the Registry of Deeds of

bad faith as it knew of her "contract" to purchase the subject property from

Makati, Metro Manila, to consummate the transaction but due to the failure

respondent spouses.

of respondent Asuncion Santos-de Vera and the Ramoses to appear, no

transaction was formalized. In a second meeting scheduled on 11 August

Finally, for the alleged unlawful and unjust acts of respondent spouses,

1978 she claimed that she was willing and ready to pay the balance of the

which caused her damage, prejudice and injury, petitioner claimed that

purchase price but the transaction again did not materialize as respondent

the Deed of Sale, should be annuled and TCT No. S-72377 in the name of

spouses failed to pay the back taxes of subject property. Subsequently, on 23

respondent SUNVAR canceled and TCT No. S-72946 restored. She also

August 1978 petitioner allegedly gave respondent Lorenzo de Vera three (3)

insisted that a Deed of Sale between her and respondent spouses be now

checks in the total amount of P36,170.00 for the settlement of the back taxes

executed upon her payment of the balance of the purchase price agreed

of the property and for the payment of the quitclaims of the three (3) tenants

upon, plus damages and attorneys fees.

of subject land. The amount was purportedly considered part of the

purchase price and respondent Lorenzo de Vera signed the receipts therefor.

In their Answer[4] respondent spouses maintained that petitioner had no

sufficient cause of action against them; that she was not the real party in

Petitioner alleged that on 5 September 1978 she was surprised to learn

interest; that the option to buy the property had long expired; that there was

from the agent of respondent spouses that the property was the subject of a

no perfected contract to sell between them; and, that petitioner had no legal

negotiation

capacity to sue. Additionally, respondent spouses claimed actual, moral and

for

the

sale

to

respondent

Sunvar

Realty

Development

Corporation (SUNVAR) represented by respondent Tomas Cuenca, Jr. On 15

exemplary damages, and attorneys fees against petitioner.

September 1978 petitioner discovered that although respondent spouses

purchased the property from the Ramoses on 20 March 1970 it was only on

On the other hand, respondents SUNVAR and Cuenca, in their Answer,

15 September 1978 that TCT No. S-72946 covering the property was issued

[5]

to respondent spouses. As a consequence, she filed on the same day

cause of action against them. But, even assuming that petitioner was the

an Affidavit of Adverse Claim with the Office of the Registry of Deeds of

proper party in interest, they claimed that she could only be entitled to the

Makati, Metro Manila, which was annotated on TCT No. S-72946. She also

return of any amount received by respondent spouses. In the alternative,

claimed that on the same day she informed respondent Cuenca of her

they argued that petitioner had lost her option to buy the property for failure

"contract" to purchase the property.

to comply with the terms and conditions of the agreement as embodied in the

alleged that petitioner was not the proper party in interest and/or had no

receipt issued therefor. Moreover, they contended that at the time of the
execution of the Deed of Sale and the payment of consideration to respondent
spouses, they "did not know nor was informed" of petitioners interest or
claim over the subject property. They claimed furthermore that it was only
after the signing of the Deed of Sale and the payment of the corresponding
amounts to respondent spouses that they came to know of the claim of
petitioner as it was only then that they were furnished copy of the title to the
property where the Adverse Claim of petitioner was annotated. Consequently,

276

they also instituted a Cross-Claim against respondent spouses for bad faith in

On appeal, the Court of Appeals completely reversed the decision of the

encouraging the negotiations between them without telling them of the claim

trial court. It ordered (a) the Register of Deeds of Makati City to lift

of petitioner. The same respondents maintained that had they known of the

the Adverse Claim and such other encumbrances petitioner might have filed

claim of petitioner, they would not have initiated negotiations with

or caused to be annotated on TCT No. S-75377; and, (b) petitioner to pay (1)

respondent spouses for the purchase of the property. Thus, they prayed for

respondent

reimbursement of all amounts and monies received from them by respondent

exemplary

spouses, attorneys fees and expenses for litigation in the event that the trial

spouses, P15,000.00

court should annul the Deed of Sale and deprive them of their ownership and

damages and P10,000.00 as attorneys fees; and, (3) the costs.

SUNVAR P50,000.00
damages

as

nominal

damages, P30,000.00

and P20,000

as

as

damages, P10,000.00

nominal

attorneys

fees;

(2)
as

as

respondent
exemplary

possession of the subject land.

Petitioner timely filed a Motion for Reconsideration which was denied by
In their Answer to the Cross-Claim

[6]

of respondents SUNVAR and

the Court of Appeals on 19 October 1998. Hence, this petition.

Cuenca, respondent spouses insisted that they negotiated with the former
only after the expiration of the option period given to petitioner and her

At issue for resolution by the Court is the nature of the contract entered

failure to comply with her commitments thereunder. Respondent spouses

into between petitioner Lourdes Ong Limson on one hand, and respondent

contended that they acted legally and validly, in all honesty and good

spouses Lorenzo de Vera and Asuncion Santos-de Vera on the other.

faith. According to them, respondent SUNVAR made a verification of the title

with the Office of the Register of Deeds of Metro Manila District IV before the

The main argument of petitioner is that there was a perfected contract

execution of the Deed of Absolute Sale. Also, they claimed that the Cross-

to sell between her and respondent spouses. On the other hand, respondent

Claim was barred by a written waiver executed by respondent SUNVAR in

spouses and respondents SUNVAR and Cuenca argue that what was

their favor. Thus, respondent spouses prayed for actual damages for the

perfected between petitioner and respondent spouses was a mere option.

unjustified filing of the Cross-Claim, moral damages for the mental anguish
and similar injuries they suffered by reason thereof, exemplary damages "to

A scrutiny of the facts as well as the evidence of the parties

prevent others from emulating the bad example" of respondents SUNVAR and

overwhelmingly leads to the conclusion that the agreement between the

Cuenca, plus attorneys fees.

parties was a contract of option and not a contract to sell.

After a protracted trial and reconstitution of the court records due to the

An option, as used in the law of sales, is a continuing offer or contract

fire that razed the Pasay City Hall on 18 January 1992, the Regional Trial

by which the owner stipulates with another that the latter shall have the

Court rendered its 30 June 1993 Decision[7] in favor of petitioner. It ordered

right to buy the property at a fixed price within a time certain, or under, or in

(a) the annulment and rescission of the Deed of Absolute Sale executed on 15

compliance with, certain terms and conditions, or which gives to the owner of

September 1978 by respondent spouses in favor of respondent SUNVAR; (b)

the property the right to sell or demand a sale. It is also sometimes called an

the cancellation and revocation of TCT No. S-75377 of the Registry of Deeds,

"unaccepted offer." An option is not of itself a purchase, but merely secures

Makati, Metro Manila, issued in the name of respondent Sunvar Realty

the privilege to buy.[8] It is not a sale of property but a sale of the right to

Development Corporation, and the restoration or reinstatement of TCT No. S-

purchase.[9] It is simply a contract by which the owner of property agrees with

72946 of the same Registry issued in the name of respondent spouses; (c)

another person that he shall have the right to buy his property at a fixed

respondent spouses to execute a deed of sale conveying ownership of the

price within a certain time. He does not sell his land; he does not then agree

property covered by TCT No. S-72946 in favor of petitioner upon her payment

to sell it; but he does sell something, i.e., the right or privilege to buy at the

of the balance of the purchase price agreed upon; and, (d) respondent

election or option of the other party. [10] Its distinguishing characteristic is that

spouses to pay petitioner P50,000.00 as and for attorneys fees, and to pay

it imposes no binding obligation on the person holding the option, aside from

the costs.

the consideration for the offer. Until acceptance, it is not, properly speaking,

277

a contract, and does not vest, transfer, or agree to transfer, any title to, or any

property at a fixed price of P34.00 per square meter within ten (10) days from

interest or right in the subject matter, but is merely a contract by which the

31 July 1978. Respondent spouses did not sell their property; they did not

owner of the property gives the optionee the right or privilege of accepting the

also agree to sell it; but they sold something, i.e., the privilege to buy at the

offer and buying the property on certain terms. [11]

election or option of petitioner. The agreement imposed no binding obligation

on petitioner, aside from the consideration for the offer.

On the other hand, a contract, like a contract to sell, involves the

meeting of minds between two persons whereby one binds himself, with

The consideration of P20,000.00 paid by petitioner to respondent

respect to the other, to give something or to render some service.

spouses was referred to as "earnest money." However, a careful examination

[12]

Contracts, in general, are perfected by mere consent, [13] which is

of the words used indicates that the money is not earnest money but option

manifested by the meeting of the offer and the acceptance upon the thing

money. "Earnest money" and "option money" are not the same but

and the cause which are to constitute the contract. The offer must be

distinguished thus: (a) earnest money is part of the purchase price, while

certain and the acceptance absolute.

[14]

option money is the money given as a distinct consideration for an option

contract; (b) earnest money is given only where there is already a sale, while

The Receipt

[15]

that

contains

the

contract

between

petitioner

and

option money applies to a sale not yet perfected; and, (c) when earnest money
is given, the buyer is bound to pay the balance, while when the would-be

respondent spouses provides

buyer gives option money, he is not required to buy, [18] but may even forfeit it
depending on the terms of the option.

Received from Lourdes Limson the sum of Twenty Thousand Pesos

(P20,000.00) under Check No. 22391 dated July 31, 1978 as earnest money
with option to purchase a parcel of land owned by Lorenzo de Vera located at

There is nothing in the Receipt which indicates that the P20,000.00 was

Barrio San Dionisio, Municipality of Paraaque, Province of Rizal with an area

part of the purchase price. Moreover, it was not shown that there was a

of forty eight thousand two hundred sixty square meters more or less at the

perfected sale between the parties where earnest money was given. Finally,

price of Thirty Four Pesos (P34.00)

[16]

when petitioner gave the "earnest money," the Receipt did not reveal that she

cash subject to the condition and

stipulation that have been agreed upon by the buyer and me which will form

was bound to pay the balance of the purchase price. In fact, she could even

part of the receipt. Should the transaction of the property not materialize not

forfeit the money given if the terms of the option were not met. Thus,

on the fault of the buyer, I obligate myself to return the full amount

the P20,000.00 could only be money given as consideration for the option

of P20,000.00 earnest money with option to buy or forfeit on the fault of the

contract. That the contract between the parties is one of option is buttressed

buyer. I guarantee to notify the buyer Lourdes Limson or her representative

by the provision therein that should the transaction of the property not

and get her conformity should I sell or encumber this property to a third

materialize without fault of petitioner as buyer, respondent Lorenzo de Vera

person. This option to buy is good within ten (10) days until the absolute deed

obligates himself to return the full amount of P20,000.00 "earnest money"

of sale is finally signed by the parties or the failure of the buyer to comply with

with option to buy or forfeit the same on the fault of petitioner. It is further

the terms of the option to buy as herein attached.

representative would be notified in case the subject property was sold or

In the interpretation of contracts, the ascertainment of the intention of

the contracting parties is to be discharged by looking to the words they used
to project that intention in their contract, all the words, not just a particular
word or two, and words in context, not words standing alone.

bolstered by the provision therein that guarantees petitioner that she or her

[17]

The

above Receipt readily shows that respondent spouses and petitioner only
entered into a contract of option; a contract by which respondent spouses
agreed with petitioner that the latter shall have the right to buy the formers

encumbered to a third person. Finally, the Receipt provided for a period

within which the option to buy was to be exercised, i.e., "within ten (10) days"
from 31 July 1978.
Doubtless, the agreement between respondent spouses and petitioner
was an "option contract" or what is sometimes called an "unaccepted offer."
During the option period the agreement was not converted into a bilateral

278

promise to sell and to buy where both respondent spouses and petitioner

spouses and respondent SUNVAR clearly manifested that their offer to sell

were then reciprocally bound to comply with their respective undertakings as

subject property to petitioner was no longer exclusive to her.

petitioner did not timely, affirmatively and clearly accept the offer of
respondent spouses.

We cannot subscribe to the argument of petitioner that respondent

spouses extended the option period when they extended the authority of

The rule is that except where a formal acceptance is not required,

their agent until 31 August 1978. The extension of the contract of agency

although the acceptance must be affirmatively and clearly made and

could not operate to extend the option period between the parties in the

evidenced by some acts or conduct communicated to the offeror, it may be

instant case. The extension must not be implied but categorical and must

made either in a formal or an informal manner, and may be shown by acts,

show the clear intention of the parties.

conduct or words by the accepting party that clearly manifest a present

intention or determination to accept the offer to buy or sell. But there is

As to whether respondent spouses were at fault for the non-

nothing in the acts, conduct or words of petitioner that clearly manifest a

consummation of their contract with petitioner, we agree with the appellate

present intention or determination to accept the offer to buy the property of

court that they were not to be blamed. First, within the option period, or on

respondent spouses within the 10-day option period. The only occasion

4 August 1978, it was respondent spouses and not petitioner who initiated

within the option period when petitioner could have demonstrated her

the meeting at the Office of the Register of Deeds of Makati. Second, that the

acceptance was on 5 August 1978 when, according to her, she agreed to

Ramoses failed to appear on 4 August 1978 was beyond the control of

meet respondent spouses and the Ramoses at the Office of the Register of

respondent spouses. Third, the succeeding meetings that transpired to

Deeds of Makati. Petitioners agreement to meet with respondent spouses

consummate the contract were all beyond the option period and, as declared

presupposes an invitation from the latter, which only emphasizes their

by the Court of Appeals, the question of who was at fault was already

persistence in offering the property to the former. But whether that showed

immaterial. Fourth, even assuming that the meetings were within the option

acceptance by petitioner of the offer is hazy and dubious.

period, the presence of petitioner was not enough as she was not even
prepared to pay the purchase price in cash as agreed upon. Finally, even

On or before 10 August 1978, the last day of the option period, no

without the presence of the Ramoses, petitioner could have easily made the

affirmative or clear manifestation was made by petitioner to accept the

necessary payment in cash as the price of the property was already set

offer. Certainly, there was no concurrence of private respondent spouses

at P34.00 per square meter and payment of the mortgage could very well be

offer

left to respondent spouses.

and

petitioners

acceptance

thereof

within

the

option

period. Consequently, there was no perfected contract to sell between the

parties.

Petitioner further claims that when respondent spouses sent her a

telegram demanding full payment of the purchase price on 14 September

On 11 August 1978 the option period expired and the exclusive right of
petitioner

to

buy

the

property

of

respondent

spouses

ceased. The

1978 it was an acknowledgment of their contract to sell, thus denying them

the right to claim otherwise.

subsequent meetings and negotiations, specifically on 11 and 23 August

1978, between the parties only showed the desire of respondent spouses to

We do not agree. As explained above, there was no contract to sell

sell their property to petitioner. Also, on 14 September 1978 when

between petitioner and respondent spouses to speak of. Verily, the telegram

respondent spouses sent a telegram to petitioner demanding full payment of

could not operate to estop them from claiming that there was such contract

the purchase price on even date simply demonstrated an inclination to give

between

her preference to buy subject property. Collectively, these instances did not

respondent spouses extended the option period. The telegram only showed

indicate that petitioner still had the exclusive right to purchase subject

that respondent spouses were willing to give petitioner a chance to buy

property. Verily, the commencement of negotiations between respondent

subject property even if it was no longer exclusive.

them

and

petitioner. Neither

could

it

mean that

279

The option period having expired and acceptance was not effectively

way of example or correction for the public good and only in addition to the

made by petitioner, the purchase of subject property by respondent SUNVAR

moral, temperate, liquidated or compensatory damages. [20] No such kinds of

was perfectly valid and entered into in good faith. Petitioner claims that in

damages were awarded by the Court of Appeals, only nominal, which was not

August 1978 Hermigildo Sanchez, the son of respondent spouses agent,

justified in this case. Finally, attorneys fees could not also be recovered as

Marcosa Sanchez, informed Marixi Prieto, a member of the Board of Directors

the Court does not deem it just and equitable under the circumstances.

of

respondent

SUNVAR,

that

the

property

was

already

sold

to

petitioner. Also, petitioner maintains that on 5 September 1978 respondent

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

Cuenca met with her and offered to buy the property from her at P45.00 per

Appeals ordering the Register of Deeds of Makati City to lift the adverse claim

square meter. Petitioner contends that these incidents, including the

and such other encumbrances petitioner Lourdes Ong Limson may have filed

annotation of her Adverse Claim on the title of subject property on 15

or caused to be annotated on TCT No. S-75377 is AFFIRMED, with the

September 1978 show that respondent SUNVAR was aware of the perfected

MODIFICATION that the award of nominal and exemplary damages as well as

sale between her and respondent spouses, thus making respondent SUNVAR

attorneys fees is DELETED.

a buyer in bad faith.

SO ORDERED.

Petitioner is not correct. The dates mentioned, at least 5 and 15

September 1978, are immaterial as they were beyond the option period given
to petitioner. On the other hand, the referral tosometime in August 1978 in
the testimony of Hermigildo Sanchez as emphasized by petitioner in her
petition

is

very

vague. It

could

be

within

or

beyond

the

option

period. Clearly then, even assuming that the meeting with Marixi Prieto
actually transpired, it could not necessarily mean that she knew of the
agreement between petitioner and respondent spouses for the purchase of
subject property as the meeting could have occurred beyond the option
period. In which case, no bad faith could be attributed to respondent
SUNVAR. If, on the other hand, the meeting was within the option period,

G.R. No. 102606 July 3, 1992

LINO R. TOPACIO, petitioner,
vs.
HON. COURT OF APPEALS, BPI INVESTMENT CORP., respondents.

petitioner was remiss in her duty to prove so. Necessarily, we are left with
the conclusion that respondent SUNVAR bought subject property from
respondent spouses in good faith, for value and without knowledge of any
flaw or defect in its title.
The appellate court awarded nominal and exemplary damages plus

PARAS, J.:
This is an appeal by way of certiorari from the decision
2

attorneys fees to respondent spouses and respondent SUNVAR. But nominal

which reversed the decision

damages are adjudicated to vindicate or recognize the right of the plaintiff

City in Civil Case No. 51954.

in CA G.R. CV 23258

of the Regional Trial Court, Branch 98, Quezon

that has been violated or invaded by the defendant. [19] In the instant case, the
Court recognizes the rights of all the parties and finds no violation or

On March 9, 1988, the parties submitted the following stipulation of facts:

invasion of the rights of respondents by petitioner. Petitioner, in filing her

complaint, only seeks relief, in good faith, for what she believes she was

1. The parties admit the personal and corporate

entitled to and should not be made to suffer therefor. Neither should

circumstances of each other as found in the complaint.

exemplary damages be awarded to respondents as they are imposed only by

280

2. The spouses Juan P. de Villa, Jr. and Rosalia de Villa,

6. Plaintiff asked for extensions within which to pay the

parents-in-law of the plaintiff, were the former owners of Lot

balance. The first was made on January 8, 1986 (Annex 3,

No. 13, Block 21-A, covered by TCT No. 280808 of the

Answer), another on April 22, 1986 (Annex 4, Answer).

Registry of Deeds of Quezon City. This property was

Defendant agreed to extend the payment up to June 30,

previously mortgaged to the Ayala Investment and

1986, in accordance with defendant's letter dated May 5,

Development Corporation to secure an obligation of

1986, requiring plaintiff, in addition, to pay interest at

P500,000.00. For failure of the said mortgagors to pay upon

24% per annum on the unpaid balance (Annex 5, Answer).

maturity, the mortgage was foreclosed and consequently,

defendant acquired the property as highest bidder in the

7. Plaintiff, not having been able to meet defendant's

auction sale, following the foreclosure. No redemption having

deadline (June 30, 1986), defendant wrote a letter to plaintiff

been exercised by the mortgagors, the defendant was able to

dated September 6, 1986 (Annex 6, Answer) declaring itself

consolidate its title over the property.

(defendant) free to sell the property to other buyers and

informing plaintiff that he could already claim his initial

3. Plaintiff, who lives with his in-laws, negotiated to

payment of P375,000.00

purchase the property from defendant. He first made an offer

on August 9, 1985 (Annex A, complaint) for P900,000.00 but

8. In response, plaintiff, in its letter dated October 22, 1986

defendant asked plaintiff to improve his offer. Subsequently,

(Annex 7, Answer), asked for an extension of another six (6)

the plaintiff and Mr. Manuel Ablan, then Manager of the

months, within which to pay the balance of P875,000.00.

Loans Adjustment and Special Asset Department of the

Defendant denied plaintiff's request and asked plaintiff to get

defendant arrived at P1,250,000.00 as the purchase price,

back his P375,000.00, in defendant's letter to plaintiff dated

with 30% downpayment, and the balance, payable in cash,

November 7, 1986 (Annex 8, Answer).

upon execution of the Deed of Sale. Plaintiff confirmed his

offer in his letter to the defendant dated November 27, 1985

9. On January 5, 1987, defendant wrote plaintiff, reiterating

(Annex B, complaint; Annex, 1, Answer), with his check

its request that plaintiff get back his P375,000.00 (Annex 9,

payment of P375,000.00.

Answer) and on February 12, 1987 (Annex E, Complaint,

Annex 10, Answer), defendant mailed to plaintiff a cashier's

4. Defendant received plaintiff's initial payment of

check for P375,000.00, payable to him. Plaintiff replied in

P375,000.00 on November 28, 1985, for which a receipt was

March 6, 1987 (Annex F, Complaint, Annex 11, Answer),

issued under defendant's Official Receipt No. 112375 (Annex

declining acceptance of the P375,000.00 and insisting

C, Complaint).

therein the defendant allow plaintiff to pay the balance of

P875,000.00.

5. On December 4, 1985, defendant wrote to the plaintiff,

informing him of the terms and conditions of the sale, as

10. Subsequently, defendant informed plaintiff that the

approved by the management of defendant, which, among

property is being sold for P1,600.00, in its Answer. Plaintiff

other things, gives plaintiff up to January 4, 1986 within

then wrote on April 1, 1987 to Mr. Xavier Loinaz of defendant

which to pay the balance of P875,000.00 (Annex D,

(Annex 13, Answer) asking that original price of

Complaint, Annex 2, Answer).

P1,250,000.00 be maintained. Defendant again wrote to

plaintiff on May 29, 1987 (Annex 14, Answer) reiterating its
position that defendant was willing to sell at P1,600,000.00.

281

11. Plaintiff, in its letter to defendant dated July 21, 1987,

Pangatlo At isagawa ng nasasakdal na BPI Investment

(Annex G, Complaint, Annex 15, Answer), returned the

Corporation ang pagsasalin ng ari-arian na nabanggit sa

cashier's check earlier issued by defendant in favor of

dakong itaas sa pamamagitan ng isang bilihan tuluyan sa

plaintiff. Defendant acknowledged receipt of said letter but

kapakanan ng nasasakdal na si Lino Topacio at kanyang

declined to take back the said check as expressed in

may-bahay.

defendant's letter of the same date (Annex 16, Answer).

Ang gastos ay dapat bayaran ng ipinagsasakdal.
12. The cashier's check of P375,000.00 payable to plaintiff
remains uncashed to date and is still in the hands of the

IPINAG-UUTOS. (Rollo, p. 24)

plaintiff, after defendant refused to accept its return.

The Court of Appeals, on appeal, reversed the trial court's decision stating
13. Plaintiff admits that Annexes 1 to 16 attached to the

that the letter dated December 4, 1985, sent by BPI to the petitioner reveals

Answer are true and faithful copies of the originals.

that the contract entered into by them is a contract to sell, not a contract of

Defendant likewise admits that Annexes A to G attached to

sale.

the complaint are true and faithful copies of the originals.

Said Annexes are hereby adopted by the parties as part of

The letter of December 4, 1985 is hereby quoted as follows:

this Stipulation of Facts and may be received in evidence

without further authentication or identification. (Rollo, pp.

We are pleased to inform you that the managament has

21-24)

approved for the sale for the above property to you under the
following terms and conditions:

On the basis of the foregoing stipulation, the trial court rendered judgment
in favor of the petitioner, finding that there is a perfected contract of sale

1. Selling price of P1,250,000.00 is on CASH basis;

which is still enforceable because the respondent failed to rescind either by

judicial or notarial rescission.

2. Execution of a Deed of Absolute Sale;

The dispositive portion of the trial court's decision is quoted hereunder:

3. All expenses relative to the sale/transfer of title shall be

for the account of the buyer;

Samakatwid, iginagawad ng hukumang ito ang pasiya para

sa nagsasakdal at ipinag-uutos sa ipinagsakdal na BPI

4. Eviction of tenants, if any, shall be for the account of the

Investment Corporation na tanggapin mula sa nagsasakdal.

buyer;

Una Ang tsekeng P375,000.00 bilang paunang bayad na

5. Sale of the property is on as-is where-is basis.

tatlumpung porsiento ng buong halaga.

If you are agreeable to the foregoing, kindly indicate your
Pangalawa Ang hulihang P875,000.00 na may kalakip na

conformity by signing on the space provided below and

interes na labindalawang (12%) porsiento simula sa ika-lima

return the copies to us together with your balance of

ng Oktubre, 1987 hanggang mabayaran ito;

P875,000.00. The validity of the above approval is good up to

January 4, 1986. (Rollo, pp. 7-8)

282

The petition is impressed with merit.

downpayment), the parties have agreed on the price which is

P1,250,000.00.

The payment by petitioner of P375,000.00 on November 28, 1991 which

respondent accepted, and for which an official receipt was issued, the body of

Nowhere in the transaction indicates that BPI reserved its title property nor

which hereby quoted:

did it provide for any automatic rescission in case of default. So when

petitioner failed to pay the balance of P875,000.00 despite several extensions

Partial payment for the purchase of real property, formerly

given by private respondent, the latter could not validly rescind the contract

owned by Juan de Villa.

without complying with the provision of Article 1592 or Article 1191 on

notarial or judicial rescission respectively. The ruling in Taguba v. Vda. de
Leon, 132 SCRA 722 applies in the case at bar, to wit:
P375,000.00

was the operative act that gave rise to a perfected contract of sale

Considering, therefore the nature of the transaction between

between the parties. Article 1482 of the Civil Code provides:

petitioner Taguba and private respondent, which We affirm

and sustain to be a contract of sale, absolute in nature the

Art. 1482. Whenever earnest money is given in a contract of

applicable provisions of Article 1592 of the New Civil Code

sale, it shall be considered as part of the price and as proof

which states:

of the perfection of the contract.

Art. 1592. In the sale of immovable property,
Earnest money is something of value to show that the buyer was

even though it may have been stipulated

really in earnest, and given to the seller to bind the bargain. Under

that upon failure to pay the price at the time

the Civil Code, earnest money is considered part of the purchase

agreed upon the rescission of the contract

price and as proof of the perfection of the contract. The P375,000.00

shall of right take place, the vendee may pay,

given by the petitioner representing 30% of the purchase price is

even after the expiration of the period, as

earnest money.

long as no demand for rescission of the

contract has been made upon him either

Furthermore, Article 1475 of the Civil Code states:

judicially or by notarial act. After the

demand the court may not grant him a new

Art. 1475. The contract of sale is perfected at the moment

term.

there is a meeting of the minds upon the thing which is the

object of the contract and upon the price.

In the case at bar, it is undisputed that the petitioner Taguba

never notified private respondent by notarial act that he was

From the moment, the parties may reciprocally demand

rescinding the contract, and neither had he filed suit in suit

performance, subject to the provisions of the law governing

court to rescind the sale.

the form of contracts.

Respondent cannot just consider the sale cancelled by simply
Based on the aforecited article, the parties have agreed on the object

returning the downpayment which petitioner refused to accept.

of the contract which is the house and lot located at No. 32

Whitefield St., White Plains, Quezon City and even before November

WHEREFORE, the appealed decision of the Court of Appeals is hereby

27, 1985, (the date petitioner sent his letter together with the 30%

REVERSED and SET ASIDE and the decision of the Regional Trial Court of

283

Quezon City, Branch 89, dated April 10, 1989 is AFFIRMED with costs

This Court has consistently ruled that a plan whereby prizes can be obtained

against respondent.

without any additional consideration (when a product is purchased) is not a

lottery (Uy v. Palomar L-23248, February 28, 1969; U.S. v. Baguio, 39 Phil.

SO ORDERED.

862; Caltex (Phil.) Inc. v. Postmaster-General, 18 SCRA 247). It is thus clear

that the schemes in the case at bar are not lotteries.
The allegation that the prohibition by the Postmaster General should have

.R. No. L-29062 March 9, 1987

first been appealed to the Department Secretary concerned in view of the

PHILIPPINE REFINING COMPANY, plaintiff-appellee,

application here because one recognized exception to the doctrine is when

vs.
HON. ENRICO PALOMAR, in his capacity as Postmaster
General, defendant-appellant.

doctrine denominated as "the exhaustion of administrative remedies" has no

the issue raised is purely a legal one.
In view of the foregoing, the Court RESOLVED to DISMISS this appeal and to
AFFIRM the assailed decision of the Court of First Instance.

Parades, Poblador, Nazareno & Adaza Law Office for plaintiff-appellee.

RESOLUTION

KOREAN AIR CO., LTD.

G.R. No. 170369

and SUK KYOO KIM,

Petitioners,
Present:

PARAS, J.:

CARPIO, J., Chairperson,

This is an appeal from the decision of the Court of First Instance of Manila in
Civil Case No. 72498, 1 entitled "Philippine Refining Company v. Hon. Enrico
Palomar," finding that plaintiff-appellee's promotion schemes ("Breeze Easy
Money" and "CAMIA Lucky-Key Hunt") were not in the nature of a lottery and

BRION,*
- versus -

PERALTA,

enjoining appellant from issuing a "fraud order" on the aforementioned

ABAD, and

schemes of appellee.

PEREZ,** JJ.

It appears that the Philippine Refining Company, herein appellee, resorted to

two schemes to promote the sale of its products: Breeze Easy Money and
CAMIA Lucky-Key Hunt, both of which envisioned the giving away for free of
certain prizes (without additional consideration) for the purchase of Breeze
soap and CAMIA cooking oil. In other words, the participants would get the
exact value of the price for the goods plus the chance of winning in the

ADELINA A.S. YUSON,

Promulgated:

Respondent.

June 16, 2010

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

scheme. No one would be required to pay more than the usual price of the
products.

DECISION

284

CARPIO, J.:

The Case

This is a petition[1] for review on certiorari under Rule 45 of the Rules of

Court. The petition challenges the 28 June 2005 Decision [2] and
3
November 2005 Resolution[3] of the Court of Appeals in CA-G.R. SP
No.
86762. The Court of Appeals set aside the 30 July 2004 Resolution [4] of the
National Labor Relations Commission (NLRC) in NLRC NCR CA No. 03492803, affirming the 31 January 2003 Decision [5] of Labor Arbiter Ariel Cadiente
Santos (Labor Arbiter Santos) in NLRC-NCR S Case No. 30-11-05543-01.

The Facts

In July 1975, Korean Air Co., Ltd. (Korean Air) hired Adelina A.S.
Yuson (Yuson) as reservations agent. Korean Air promoted Yuson to
assistant manager in 1993, and to passenger sales manager in 1999.

Korean Air had an International Passenger Manual (IPM) which

contained, among others, travel benefit to its employees. However, Korean Air
never implemented the travel benefit under the manual. Instead, Korean Air
granted all its employees travel benefit as contained in the collective
bargaining agreement (CBA). Yuson availed of the travel benefit under the
CBA during her stay in the company.

In order to cut costs, Korean Air offered its employees an early

retirement program (ERP). In a memorandum[6] dated 21 August 2001,
Korean Air stated that:

The results of operation of Korean Air for the Year

2000, was [sic] bad. The Company suffered a net loss of over
THREE HUNDRED SIXTY SEVEN MILLION DOLLARS,
(USD367,000,000.00). For this reason, the budget for the
Year 2001 was reduced by 10%. Accordingly, to prevent
further losses, Head Office recently implemented an early
retirement program not only for Head Office staffs but
throughout all Korean Air branches abroad. Unfortunately,
in Head Office alone, 500 positions will be affected. This
program is being offered before finally conducting a
retrenchment program.

In compliance with Head Office instruction, MNLSM

Management, on its discretion, is hereby offering the said
early retirement program to its staff. Availing employees
shall be given ONE AND A HALF MONTHS (1.50%) [sic]
salary for every year of service and other benefits. This rate
is 50% higher than the retrenchment pay prevailing in the
CBA.

Please accept our deepest regrets.[7]

In
2000,
Korean
Air
suffered
a
net
loss
of
over
$367,000,000. Consequently, Korean Air reduced its budget for 2001 by 10
percent.

In April 2001, Yuson requested Korean Air that she be transferred from
the passenger sales department to the cargo department. Yuson wanted to
be exposed to the operations of the cargo department because she intended
to pursue a cargo agency business after her retirement. On 4 June 2001,
Korean Air temporarily transferred Yuson to the cargo department as cargo
dispatch. Yuson continued to receive the same compensation and exercise
the same authority as passenger sales manager.

In a letter[8] dated 23 August 2001 and addressed to Korean Airs

Philippine general manager Suk Kyoo Kim (Suk), Yuson accepted the offer for
early retirement.

In a letter[9] dated 24 August 2001, Suk informed Yuson that she was
excluded from the ERP because she was retiring on 8 January 2002. Suk
stated that:

285

Please be informed that you are excluded from the Early

Retirement Program. The program is intended to staffs,
upon discretion of management, who still have long years left
with the Company before reaching retirement age. You are
already due for retirement on January 8, 2002. This
program is being implemented by the Company as a cost
saving tool to prevent further losses.[10]

In a letter[11] dated 1 September 2001 and addressed to Suk, Yuson

claimed that Korean Air was bound by the perfected contract and accused
the company of harassment and discrimination. Yuson stated that:

2001. I sincerely hope I will not have to engage the services

of counsel to enforce performance of our Contract as this will
subject me to further distress and mental anguish, plus a
considerable amount of expenditure, which can be the basis
for additional claim for damages.[12]

In a letter[13] dated 12 September 2001 and addressed to Yuson, Suk

stated that:

1.

The Early Retirement Program (ERP) is a plan by

the Head Office for the purpose of reducing the
workforce of Korean Air (the Company) due to
substantial losses prior to undertaking a retrenchment
program. Contrary to your assertion, my letter dated 21
August 2001 was not an absolute offer but rather an
invitation to possible qualified employees to consider the
ERP subject to the approval and acceptance by the
Company, through the Head Office, in the exercise of its
discretion. x x x

2.

This explains the Companys position stated in my

letter-response dated 24 August 2001 wherein the ERP is
supposedly for employees who have still a number of
years to serve the Company in order to prevent further
losses. It is, therefore, clear why you are disqualified
under the ERP since you are scheduled to retire on 08
January 2002. There is no closure of business
contemplated herein but merely a reduction of personnel
to prevent further losses to the Company.

Korean Air offered the Early Retirement Program

through its memo under MNLSM#01-13 dated 21 August
2001. I accepted this offer under my letter dated 23 August
2001. With this Offer and Acceptance, a Contract has been
legally perfected between Korean Air and myself.

xxxx

Not too long ago, you tried to demote me from my

position as Passenger Sales Manager to Cargo Dispatch, a
clerical position. This was not only done internally but also
communicated with other airlines. This has caused me
undue embarrassment and humiliation. x x x

Your unilateral decision to exclude me from the early

Retirement Program which Head Office has stated as (and I
quote) ..... [sic] not only for Head Office staffs but
THROUGHOUT ALL KOREAN AIR BRANCHES ABROAD is
another case of harassment and discrimination. It is very
clear that the Program does not allow for discretion on the
part of Korean Air MNL Manager to harass or discriminate
against any employee for any reason whatsoever, be it age,
gender or nationality.

I therefore request that Korean Air perform its

obligation arising out of a Contract legally perfected with the
Offer of 21 August 2001 and Acceptance of 23 August

3.

4.

xxxx

It is unfortunate that you invoke the afore-said [sic]

announcement knowing that as early as April 2001, your
request for payment of one and one-half 1 and 1/2
months for every year of service retirement benefit was
denied by our SSG, Mr. Lee. As unmistakably explained
to you, you cannot avail of the ERP since you are due to
retire on 08 January 2002. As a cost-saving measure, it
would be contrary to this objective of the Company to

286

include you simply because you accept the offer for

early retirement.

5.

6.

7.

8.

9.

On the other hand, you have also been informed that

since you have less than one (1) year from your
retirement date, you have the option to retire before such
date. x x x

obviously not clerical or derogatory of my rank and

authority.

11.

Also, as in previous ERPs implemented by the

Company, you very well know as Sales Manager that the
Head Office does the acceptance and approval of any
ERP application. In fact, in the case of your staff, I even
consult your opinion before forwarding MNLSMs
recommendation on the matter to the Head Office. x x x

xxxx

For the record, your supposed transfer from Passenger

Sales Department to the Cargo Department on June 4,
2001 was upon your own request in April 2001 since, as
you mentioned to me, you intend to pursue a cargo
agency business with your sister upon your
retirement. x x x

Lest you forgot our discussion on the matter, you were

never demoted from your position as Sales Manager,
whether in terms of your compensation or scope of
authority. As agreed upon, your transfer was temporary
for you to learn the particulars involving cargo
operations. In fact, I never appointed a new Sales
Manager to replace you.

10. The term Cargo Dispatch, again as known to you, is a

phrase peculiar to the Company referring to the Cargo
Department. I, for instance, while assigned as Regional
Sales Manager of Manila, if temporarily assigned to
Hongkong [sic] Cargo, would be referred to as HKGRH
Cargo Dispatch. This position, despite the title, is

Everybody in our Office can attest to the truth that

you yourself requested the temporary transfer to cargo. I
am saddened, therefore, to hear, especially from you, of
your accusation that I have tried to demote and/or
discriminate against you. For your information, before
your transfer, I even instructed SSF, Mr. Kim, to extend
his full support to you in your desire to learn cargo
operations.[14]

In a memorandum[15] dated 20 September 2001, Korean Air informed

its employees that application for the ERP ended on 15 September 2001 and
that only the applications of eligible employees shall be forwarded to the head
office for approval.

In a letter[16] dated 22 September 2001 and addressed to Suk, Yuson

reiterated her claims that (1) Korean Airs offer for early retirement and her
acceptance of the offer constituted a perfected contract; (2) Korean Air
unjustly transferred her from passenger sales department to cargo
department; and (3) the transfer caused her embarrassment.

In a letter[17] dated 10 October 2001 and addressed to Yuson, Suk

stated that:

1.

We believe that the Companys position regarding the

Early Retirement Program (ERP) has been fully
explained to you in our letters dated 21 September 2001
and 24 August 2001, respectively.

2.

You complained of injustice, undue embarrassment

and humiliation, in relation to your transfer to
Cargo. However, in our meeting on 04 October 2001,
with SSG, Tito Cosico and Chito Cajucom, you informed
us to forget about the issue on discrimination

287

concerning Cargo Dispatch, since you just included it

when you were excluded from the ERP. Furthermore,
you also stated I like to be in Cargo, I love working in
Cargo, I have no regrets.[18]

In a letter[19] dated 6 November 2001 and addressed to Suk, a certain

Patricia A. Galang, representing Yuson, followed up and made a final demand
for Yusons benefit under the ERP. In another letter[20] dated 27 November
2001 and addressed to Suk, Yuson applied for travel benefit under the
IPM. Chapter 14, Section 2.14.3.4 of the manual states:

2.14.3.4 Retired Officers or Employees

Retired officers or employees may be granted free

transportation on the following basis provided that the
application therefore shall be submitted to the office which
he/she belonged just before retirement for approval not later
than maximum five years from the date of retirement:

In a letter[22] dated 29 November 2001, Suk informed Yuson that the

points system as contained in the IPM had never been practiced in the
Philippines. Suk stated that:

The points system of earning travel benefits you

referred to under Chapter 14 of the International Passenger
Manual (IPM) is not applicable in your case since the
Company follows the system as agreed upon between
MNLSM staffs and Management. You are aware that in our
26 years of operation in Manila, we never used point system
in this regard. Doing so can result to a lesser travel benefit
which is a violation of the said agreement.[23]

On 8 January 2002, her 60 th birthday, Yuson availed of the optional

retirement under Article 287[24] of the Labor Code, as amended.

On 12 March 2002, Yuson filed with the Makati Prosecution Office a

criminal complaint against Korean Air officials Tae Sang Kim (Tae), Kwan Hee
Lee (Lee), and Benedicto Cajucom for violation of Article 287. A
corresponding information was filed with Branch 146 of the Makati Regional
Trial Court (RTC).

xxxx

b) Employees who terminated their employment after having

served ten consecutive years or more and their immediate
families be favored with their Points (if any) not later than
three years from the date of retirement.

c) Officers who completed their term of services or employees

who reached full retirement status and their immediate
families may be favored with their Points (if any) not later
than five years from the date of retirement.[21]

On 28 November 2001, Yuson filed with the arbitration branch of the

NLRC a complaint against Korean Air and Suk for payment of benefit under
the ERP, moral damages, exemplary damages, and attorneys fees.

Yuson filed with the Bureau of Immigration a complaint for deportation

against Korean Air officials Tae, Lee, Byung Jo Kim, Ja Chool Koo, Yoo Jin
Kim, Cho Mahn Hung, Kim Seong Ung, Evi Sung Hwang, and Park Jin
Suk. In a Resolution[25] dated 30 July 2002, the Bureau dismissed the
complaint.

The Labor Arbiters Ruling

In his 31 January 2003 Decision, Labor Arbiter Santos denied for lack
of merit Yusons claims for benefit under the ERP, for moral and exemplary
damages, and for attorneys fees. The dispositive portion of the Decision
stated:

WHEREFORE, premises considered, complainants

claim under the Early Retirement Program and payment of
moral and exemplary damages, and attorneys fees are

288

hereby denied for lack of merit. Complainant is nevertheless

deemed to have opted to retire on January 8, 2002 when she
reached the age of sixty years pursuant to Article 287 of the
Labor Code. However, in view of the previous offer of
respondent company to pay complainant one (1) month for
every year of service, respondent company is accordingly
directed to pay complainant her retirement benefits as
follows:

Monthly salary x No. of Years in Service

years

P59,000.00

x
- P1,534,000.00

26

Messrs. Tae Sang Kim, Benedicto Cajucom and the Company

have agreed to pay Adelina A.S. Yuson, and the latter
acknowledges receipt from them the amount of ONE
MILLION SIX HUNDRED SEVENTY ONE THOUSAND FIVE
HUNDRED FORTY SIX PESOS AND NINETY TWO
CENTAVOS (P1,671,546.92), representing her retirement
benefit pursuant to Article 287 of the Labor Code, as
amended. This amount includes six percent (6%) legal
interest from the date of her retirement on 8 January 2002
until 8 February 2003, less Ms. Yusons salary loan balance
in the amount of TWENTY FIVE THOUSAND PESOS
(P25,000.00). x x x This amount represents a complete
settlement of all her claims in the RTC Case and such
compensation and benefits to which she may be entitled
under Article 287 of the Labor Code, as amended;

SO ORDERED.[26]
2. x x x x
Labor Arbiter Santos held that (1) the 21 August 2001 ERP
memorandum included only rank-and-file, and excluded managerial,
employees; (2) the memorandum reserved to Korean Air discretion in
approving applications for the ERP; (3) approval of applications for the ERP
was a valid exercise of Korean Airs management prerogative; (4) Yuson could
not claim benefits under both Article 287 and Korean Airs ERP;
(5)
Yusons claim for benefit under the ERP became moot when she availed of the
optional retirement under Article 287; (6) Yuson was not entitled to travel
benefit under the IPM because Korean Air never implemented such travel
benefit; (7) Yuson was not demoted she requested to be transferred to the
cargo department and continued to receive the same compensation
and exercise the same authority as passenger sales manager; (8) Yuson was
not entitled to moral damages because there was no showing of evil motive on
Korean Airs part; (9) Yuson was not entitled to exemplary damages because
Korean Air did not act in a wanton, oppressive, or malevolent manner; and
(10) Korean Air acted in good faith.

On 14 February 2003, Tae and Yuson entered into a compromise

agreement[27] and amicably settled the criminal case. They stated that:

3. x x x x

4. x x x x

5. The parties hereby agree and understand that the

withdrawal of the RTC Case is without prejudice to other
claims, which Mrs. Yuson may have in the NLRC Case. The
parties agree and understand that Ms. Yuson shall continue
to pursue her claims in the NLRC Case, which shall remain
pending until final decision by the NLRC and the appropriate
courts. The parties agree that Ms. Yuson shall deduct the
amount of ONE MILLION FIVE HUNDRED NINETY THREE
THOUSAND ONE PESOS AND EIGHTY CENTAVOS
(P1,593,001.80), which she received under this Compromise
Agreement, from the amount that will be awarded to her by
the NLRC and the appropriate courts should the NLRC Case
be decided in her favor.[28]

1. Without necessarily admitting that they violated

any law, and in deference to the desire of the Honorable
Judge that the parties amicably settle the RTC Case if only
to buy peace and avoid a protracted criminal litigation,

289

Yuson filed with the NLRC an appeal memorandum [29] dated 10 March
2003 challenging Labor Arbiter Santos 31 January 2003 Decision. The
NLRC referred the case to Labor Arbiter Cristeta D. Tamayo (Labor Arbiter
Tamayo) for report and recommendation.

The NLRCs Ruling

In its 30 January 2004 Decision, [30] the NLRC adopted the report and
recommendations of Labor Arbiter Tamayo to order Korean Air and Suk to
pay Yuson her benefit under the ERP and to give her 10 Korean Air economy
tickets.

Korean Air and Suk filed with the NLRC a motion [31] for reconsideration
dated 6 May 2004. In its 30 July 2004 Resolution, the NLRC set aside its 30
January 2004 Decision and affirmed Labor Arbiter Santos 31 January 2003
Decision. The NLRC held that (1) the 21 August 2001 memorandum
reserved to Korean Air discretion in approving applications for the ERP; (2)
approval of applications for the ERP was a valid exercise of Korean Airs
management prerogative; (3) Yuson was retiring on 8 January 2002; (4)
inclusion of Yuson in the ERP would have been contrary to the objective of
the program as a cost-saving scheme;
(5) Labor Arbiter Tamayo had no
basis in granting Yuson 10 Korean Air economy tickets; (6) Yuson did not
show that Korean Air ever implemented the travel benefit under the IPM; and
(7) Korean Air and Suk adequately showed that the company had been giving
one Korean Air ticket to retiring employees.

Yuson filed with the Court of Appeals a petition [32] for certiorari under
Rule 65 of the Rules of Court.

The Court of Appeals Ruling

In its 28 June 2005 Decision, the Court of Appeals set aside the
NLRCs 30 July 2004 Resolution and affirmed the commissions 30 January
2004 Decision. The Court of Appeals held that (1) the 21 August 2001
memorandum
included
both
rank-and-file
and
managerial
employees;
(2) Korean Airs offer for early retirement and Yusons
acceptance of the offer constituted a perfected contract under Article 1315 of

the Civil Code; (3) Korean Air forced Yuson to retire on 8 January 2002; and
(4) Korean Airs reason for excluding Yuson in the ERP was misplaced
because the company would have incurred more costs by keeping Yuson in
its employ until her compulsory retirement on 8 January 2007.

Hence, the present petition.

The Issues

Korean Air and Suk raise as issues that the Court of Appeals erred in
(1) failing to consider that Yusons claim for benefit under the ERP became
moot when she availed of the optional retirement under Article 287 of the
Labor Code, as amended; (2) ruling that Yuson may claim benefit under the
ERP; and (3) awarding Yuson 10 Korean Air economy tickets.

The Courts Ruling

The petition is meritorious.

On 8 January 2002, Yuson availed of the optional retirement under

Article 287 of the Labor Code, as amended. The third paragraph of Article
287 states that:

In the absence of a retirement plan or agreement

providing for retirement benefits of employees in the
establishment, an employee upon reaching the age of sixty
(60) years or more, but not beyond sixty-five (65) years which
is hereby declared the compulsory retirement age, who has
served at least five (5) years in the said establishment, may
retire and shall be entitled to retirement pay equivalent to at
least one-half (1/2) month salary for every year of service, a
fraction of at least six (6) months being considered as one
whole year.

290

On 14 February 2003, Yuson accepted P1,671,546.92 as retirement

benefit under Article 287. The compromise agreement between Tae and
Yuson stated that:

Without necessarily admitting that they violated any law, and

in deference to the desire of the Honorable Judge that the
parties amicably settle the RTC Case if only to buy peace and
avoid a protracted criminal litigation, Messrs. Tae Sang
Kim, Benedicto Cajucom and the Company have agreed
to pay Adelina A.S. Yuson, and the latter acknowledges
receipt from them the amount of ONE MILLION SIX
HUNDRED SEVENTY ONE THOUSAND FIVE HUNDRED
FORTY SIX PESOS AND NINETY TWO CENTAVOS
(P1,671,546.92), representing her retirement benefit
pursuant to Article 287 of the Labor Code, as
amended. This amount includes six percent (6%) legal
interest from the date of her retirement on 8 January 2002
until 8 February 2003, less Ms. Yusons salary loan balance
in the amount of TWENTY FIVE THOUSAND PESOS
(P25,000.00). x x x This amount represents a complete
settlement of all her claims in the RTC Case and such
compensation and benefits to which she may be entitled
under Article 287 of the Labor Code, as amended.
[33]
(Emphasis supplied)

Yusons claim for benefit under the ERP became moot when she availed
of the optional retirement under Article 287 and accepted the benefit. By her
acceptance of the benefit, Yuson is deemed to have opted to retire under
Article 287. In Capili v. National Labor Relations Commission,[34] the Court
held that:

[A] suprevening event worked against the petitioner. On 30

April 1994, after receiving the Labor Arbiters decision but
before filing his appeal from that decision, the petitioner
received partial payment of his retirement pay and other
accrued benefits from respondent UM. During the pendency
of his appeal with the NLRC, specifically, on 6 October 1994,
he received full payment of his retirement benefits. In his
Counter-Manifestation he declared:

COMPLAINANT-APPELLANT . . . most
respectfully maintains that the partial
acceptance of the retirement benefits does
not render the instant case moot and
academic. The complainant-appellant who
had long and unjustly been denied of his
retirement benefits since August 18, 1993
cannot be expected to remain idle.

By his acceptance of retirement benefits the

petitioner is deemed to have opted to retire under the
third paragraph of Article 287 of the Labor Code, as
amended by R.A. No. 7641. Thereunder he could choose to
retire upon reaching the age of 60 years, provided it is before
reaching 65 years, which is the compulsory age of
retirement.

Also worth noting is his statement that he had long

and unjustly been denied of his retirement benefits since
August 18, 1993. Elsewise stated, he was entitled to
retirement benefits as early as 18 August 1993 but was
denied thereof without justifiable reason. This could only
mean that he has already acceded to his retirement, effective
on such date when he reached the age of 60 years.
[35]
(Emphasis supplied)

The Court of Appeals held that Yuson may claim benefit under the ERP
because the offer was certain and the acceptance is absolute; hence, there
is a valid contract pursuant to the last paragraph of Article 1315 of the New
Civil Code.[36]

The Court disagrees. Articles 1315, 1318 and 1319 of the Civil Code,
respectively, state:

Art. 1315. Contracts are perfected by mere consent,

and from that moment the parties are bound not only to the
fulfillment of what has been expressly stipulated but also to

291

all the consequences which, according to their nature, may

be in keeping with good faith, usage and law.

Korean Airs intention, which was, to prevent further losses. Korean Air
could not have intended to ministerially approve all applications for the ERP.

Art. 1318. There is no contract unless the following

requisites concur:

The Court of Appeals held that Korean Air forced Yuson to retire on 8
January 2002. The Court of Appeals stated that, By its letter of August 24,
2001, Private Respondent is forcing Petitioner to retire even if the choice of
optional retirement belongs to the latter.[39]

(1)

Consent of the contracting parties;

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

(3)
Cause
established.

of

the

obligation

the

subject

which

is

Art. 1319. Consent is manifested by the meeting of

the offer and the acceptance upon the thing and the cause
which are to constitute the contract. The offer must be
certainand the acceptance absolute. x x x (Emphasis
supplied)

An offer is a unilateral proposition made by one party to another for the

celebration of a contract. For an offer to be certain, a contract must come
into existence by the mere acceptance of the offeree without any further act
on the offerors part. The offer must be definite, complete and
intentional. In Spouses Paderes v. Court of Appeals,[37] the Court held that,
There is an offer in the context of Article 1319 only if the contract can come
into existence by the mere acceptance of the offeree, without any further act
on the part of the offeror. Hence, the offer must be definite, complete and
intentional.[38]

In the present case, the offer is not certain: (1) the 21 August 2001
memorandum clearly states that, MNLSM Management, on its discretion,
is hereby offering the said early retirement program to its staff;
(2)
applications for the ERP were forwarded to the head office for approval, and
further acts on the offerors part were necessary before the contract could
come into existence; and (3) the 21 August 2001 memorandum clearly states

The Court disagrees. The surrounding circumstances show that

Korean Air did not force Yuson to retire on 8 January 2002. Yuson was
actually retiring on 8 January 2002: (1) in April 2001, Yuson requested
Korean Air that she be transferred to the cargo department because she
intended to pursue a cargo agency business after her retirement; (2) in its
24 August and 12 September 2001 letters, Korean Air clearly stated that
Yuson was retiring on 8 January 2002; (3) Yuson never corrected or denied
Korean Airs statements regarding her retirement date; (4) on 8 January
2002, Yuson retired under Article 287 of the Labor Code, as amended;
(5)
in his 31 January 2003 Decision, Labor Arbiter Santos stated, As admitted
by complainant, she was set to retire by January 2002;[40] and (6) in its
30 July 2004 Resolution, the NLRC stated, it was shown in the records of
this case that [Yuson] was about to retire sometime in January 2002, which
in fact happened.[41]

Approval of applications for the ERP is within Korean Airs management

prerogatives. The exercise of management prerogative is valid as long as it is
not done in a malicious, harsh, oppressive, vindictive, or wanton manner.
[42]
In the present case, the Court sees no bad faith on Korean Airs part. The
21 August 2001 memorandum clearly states that Korean Air, on its
discretion, was offering ERP to its employees. The memorandum also states
that the reason for the ERP was to prevent further losses. Korean Air did not
abuse its discretion when it excluded Yuson in the ERP. To allow Yuson to
avail of the ERP would have been contrary to the purpose of the ERP.

The Court of Appeals awarded Yuson 10 Korean Air economy

tickets. The Court disagrees. Aside from a photocopy of two pages of the
IPM, the records fail to show the basis for the award of the tickets. Even the
Court of Appeals totally failed to discuss the basis for the award. In his 31
January 2003 Decision, Labor Arbiter Santos held that Yuson was not
entitled to the tickets. Labor Arbiter Santos stated that:

292

Anent the issue on the applicability of the IPM,

complainant alleged that the non-implementation thereof
with respect to her was a discriminatory act on the part of
the respondents. Such argument would have been
meritorious if said policy was used in the Philippines by
respondent company but was denied her. x x x

Verily the use of different policies for employees

benefits
in
various
countries
is
not
necessarily
discriminatory. Complainants
reliance
on
Pakistan
International Airlines vs. Ople (190 SCRA 90) is
unfortunately misplaced. In said case, the issue is the
enforceability of the provisions in the employment contract
which provided for the exclusive application of Pakistani laws
in case of labor disputes and the venue for settlement of any
dispute arising out of or in connection with the contract
which should only be heard in the courts of Karachi,
Pakistan. For this reason, the Supreme Court correctly
ruled that said provision was inapplicable considering that
employer-employee relationship is imbued with public
interest, thus, Philippine laws were applicable.[43]

In its 30 July 2004 Resolution, the NLRC also held that Yuson was not
entitled to the tickets. The NLRC stated that:

2.14.3.4 of the International Passenger Manual of Korean

Air, nevertheless, it is also very clear that complainant has
not shown that this policy has been implemented in the
Philippines or has ever been granted to local managers. In
the absence of a single precedent where this privilege was
extended by the respondent company, the effort of
complainant to prove her entitlement to this benefit must
also fall on barren ground. In contrast, respondents have
adequately shown that, during complainants tenure,
respondent company has extended to her CBA benefits on
free tickets, and even more. Certainly, complainant cannot
enjoy the best of both worlds, so to speak.[44]

Korean Air had never implemented the IPM in the Philippines. Its,
employees, including Yuson, received the travel benefit under the
CBA. During her 26-year stay in Korean Air, Yuson already received more
than 10 tickets.

WHEREFORE, we GRANT the petition. We SET ASIDE the 28 June

2005 Decision and 3 November 2005 Resolution of the Court of Appeals in
CA-G.R. SP No. 86762, and AFFIRM the 30 July 2004 Resolution of the
National Labor Relations Commission in NLRC NCR CA No. 034928-03
which, in turn, affirmed the 31 January 2003 Decision of the Labor Arbiter
in NLRC-NCR S Case No. 30-11-05543-01.

SO ORDERED.
[O]n the award of ten (10) Korean Air tickets, we likewise
assiduously re-examined the record of this case and we must
admit that we have overlooked the fact that in the
recommendation made by Labor Arbiter Cristeta D. Tamayo,
which as we stated earlier was adopted en toto by former
Commissioner Vicente S.E. Veloso, except in her summation,
there was nothing in her disquisition which shows that she
ever discussed the basis of her award of ten Korean Air
tickets in favor of complainant. Decisions, however,
concisely written, must distinctly and clearly set forth the
facts and the law upon which they are based, a rule
applicable as well to dispositions by quasi-judicial and
administrative bodies. (Naguiat vs. NLRC, 269 SCRA 664) In
any event, while it may be argued that the point system of
earning travel benefits is mentioned in Chapter 14, Section

SPOUSES CARMEN S. TONGSON

G.R. No. 167874

and JOSE C. TONGSON

substituted by his children namely:

Present:

JOSE TONGSON, JR.,

RAUL TONGSON,

CARPIO, J., Chairperson,

293

TITA TONGSON,

BRION,

GLORIA TONGSON
CASTILLO,

DEL

ALMA TONGSON,

ABAD, and

Petitioners,

PEREZ, JJ.

- versus -

EMERGENCY PAWNSHOP BULA,

Promulgated:

INC. and DANILO R. NAPALA,

Respondents.

January 15, 2010

The Facts

In May 1992, Napala offered to purchase from the Spouses Tongson

their 364-square meter parcel of land, situated in Davao City and covered by
Transfer Certificate of Title (TCT) No. 143020, for P3,000,000. Finding the
offer acceptable, the Spouses Tongson executed with Napala a Memorandum
of Agreement[4]dated 8 May 1992.

On 2 December 1992, respondents lawyer Atty. Petronilo A. Raganas,

Jr. prepared a Deed of Absolute Sale[5] indicating the consideration as
onlyP400,000. When Carmen Tongson noticed that the consideration was
very low, she [complained] and called the attention of Napala but the latter
told her not to worry as he would be the one to pay for the taxes and she
would receive the net amount of P3,000,000.[6]

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

DECISION

CARPIO, J.:

The Case

Before the Court is a petition for review [1] of the 31 August 2004
Decision[2] and 10 March 2005 Resolution[3] of the Court of Appeals in CAG.R. CV No. 58242. In the 31 August 2004 Decision, the Court of Appeals
partially granted the appeal filed by Emergency Pawnshop Bula, Inc. (EPBI)
and Danilo R. Napala (Napala) by modifying the decision of the trial court. In
the 10 March 2005 Resolution, the Court of Appeals denied the motion for
partial reconsideration filed by the Spouses Jose C. Tongson and Carmen S.
Tongson (Spouses Tongson).

To conform with the consideration stated in the Deed of Absolute Sale,

the parties executed another Memorandum of Agreement, which allegedly
replaced the first Memorandum of Agreement, [7] showing that the selling
price of the land was only P400,000.[8]

Upon signing the Deed of Absolute Sale, Napala paid P200,000 in cash
to the Spouses Tongson and issued a postdated Philippine National Bank
(PNB) check in the amount of P2,800,000,[9] representing the remaining
balance of the purchase price of the subject property. Thereafter, TCT
No.
143020 was cancelled and TCT No. T-186128 was issued in the name of
EPBI.[10]

When presented for payment, the PNB check was dishonored for the
reason Drawn Against Insufficient Funds. Despite the Spouses Tongson's
repeated demands to either pay the full value of the check or to return the
subject parcel of land, Napala failed to do either. Left with no other recourse,
the Spouses Tongson filed with the Regional Trial Court, Branch 16, Davao
City a Complaint for Annulment of Contract and Damages with a Prayer for
the Issuance of a Temporary Restraining Order and a Writ of Preliminary
Injunction.[11]

294

In their Answer, respondents countered that Napala had already

delivered to the Spouses Tongson the amount of P2,800,000 representing the
face value of the PNB check, as evidenced by a receipt issued by the Spouses
Tongson. Respondents pointed out that the Spouses Tongson never returned
the PNB check claiming that it was misplaced. Respondents asserted that
the payment they made rendered the filing of the complaint baseless. [12]

1)

2)

reconvey the property

subject matter of the
case to the plaintiffs;

pay plaintiffs:
a)

At the pre-trial, Napala admitted, among others, issuing the postdated

PNB check in the sum of P2,800,000.[13] The Spouses Tongson, on the other
hand, admitted issuing a receipt which showed that they received the PNB
check from Napala. Thereafter, trial ensued.

a
s

The Ruling of the Trial Court

m
o
r
a
l
d
a
m
a
g
e
s
;

The trial court found that the purchase price of the subject property
has not been fully paid and that Napalas assurance to the Spouses Tongson
that the PNB check would not bounce constituted fraud that induced the
Spouses Tongson to enter into the sale. Without such assurance, the
Spouses Tongson would not have agreed to the contract of sale. Accordingly,
there was fraud within the ambit of Article 1338 of the Civil Code,
[14]
justifying the annulment of the contract of sale, the award of damages and
attorneys fees, and payment of costs.

The dispositive portion of the 9 December 1996 Decision of the trial

court reads:

WHEREFORE, judgment is hereby rendered

I Annulling the contract entered into by the plaintiffs

with the
defendants;
II Declaring the writs of preliminary injunctions
issued permanent;
III Ordering defendants to:

P
1
0
0
,
0
0
0

b) P50,000 as
damages;

exemplary

c) P20,000 as
fees; and

attorneys

d) P35,602.50 cost of suit

broken down as follows:
P70.00 bond fee
P60.00 lis pendens fee
P902.00 docket fee
P390.00 docket fee

295

P8.00 summons fee

P12.00 SDF

The dispositive portion of the 31 August 2004 Decision of the Court of

Appeals reads:

P178.50 Xerox
P9,000 Sidcor Insurance Bond fee
P25,000 Sidcor Insurance Bond fee

or the total sum of P205,602.50.

It is further ordered that the monetary award be offsetted [sic] to

defendants downpayment of P200,000 thereby leaving a balance
of P5,602.50.[15]

Respondents appealed to the Court of Appeals.

The Ruling of the Court of Appeals

The Court of Appeals agreed with the trial courts finding that
Napala employed fraud when he misrepresented to the Spouses Tongson
that the PNB check in the amount of P2,800,000 would be properly funded
at its maturity. However, the Court of Appeals found that the issuance and
delivery of the PNB check and fraudulent representation made by Napala
could not be considered as the determining cause for the sale of the subject
parcel of land. Hence, such fraud could not be made the basis for annulling
the contract of sale. Nevertheless, the fraud employed by Napala is a proper
and valid basis for the entitlement of the Spouses Tongson to the balance of
the purchase price in the amount of P2,800,000 plus interest at the legal
rate of 6% per annum computed from the date of filing of the complaint
on
11 February 1993.

Finding the trial courts award of damages unconscionable, the Court

of Appeals reduced the moral damages from P100,000 to P50,000 and the
exemplary damages from P50,000 to P25,000.

WHEREFORE, the instant appeal is PARTIALLY

GRANTED. The assailed decision of the Regional Trial Court,
11th Judicial Region, Branch 16, Davao City, in Civil Case No.
21,858-93, is hereby MODIFIED, to read:

WHEREFORE, judgment is hereby rendered

ordering defendants to pay plaintiffs:

a) the
sum
of P2,800,000.00
representing the balance of the purchase
price of the subject parcel of land, plus
interest at the legal rate of 6% per annum
computed from the date of filing of the
complaint on 11 February 1993, until the
finality of the assailed decision; thereafter,
the interest due shall be at the legal rate of
12% per annum until fully paid;

b) P50,000 as moral damages;

c) P25,000 as exemplary damages;
d) P20,000 as attorneys fees; and
e) The costs of suit in the total amount of P35,602.50.

It is understood, however, that plaintiffs entitlement to items a to d,

is subject to the condition that they have not received the same or equivalent
amounts in criminal case for Violation of Batas Pambansa Bilang 22,
docketed as Criminal Case No. 30508-93, before the Regional Trial Court of
Davao City, Branch 12, instituted against the defendant Danilo R. Napala by
plaintiff Carmen S. Tongson.

SO ORDERED.[16]

296

The Spouses Tongson filed a partial motion for reconsideration which

was denied by the Court of Appeals in its Resolution dated 10 March 2005.

A contract is a meeting of the minds between two persons, whereby one

is bound to give something or to render some service to the other. [17] A valid
contract requires the concurrence of the following essential elements: (1)
consent or meeting of the minds, that is, consent to transfer ownership in
exchange for the price; (2) determinate subject matter; and (3) price certain
in money or its equivalent.[18]

The Issues

The Spouses Tongson raise the following issues:

1.

WHETHER THE CONTRACT OF SALE CAN BE

ANNULLED BASED ON THE FRAUD EMPLOYED BY
NAPALA; and

2.

WHETHER THE COURT OF APPEALS ERRED IN

REDUCING THE AMOUNT OF DAMAGES AWARDED BY
THE TRIAL COURT.

The Ruling of the Court

The petition has merit.

In the present case, there is no question that the subject matter of the
sale is the 364-square meter Davao lot owned by the Spouses Tongson and the
selling price agreed upon by the parties is P3,000,000. Thus, there is no
dispute as regards the presence of the two requisites for a valid sales contract,
namely, (1) a determinate subject matter and (2) a price certain in money.

The problem lies with the existence of the remaining element, which is
consent of the contracting parties, specifically, the consent of the
Spouses Tongson to sell the property to Napala. Claiming that their consent
was vitiated, the Spouses Tongson point out that Napalas fraudulent
representations of sufficient funds to pay for the property induced them into
signing the contract of sale. Such fraud, according to the Spouses Tongson,
renders the contract of sale void.

On the contrary, Napala insists that the Spouses Tongson willingly

consented to the sale of the subject property making the contract of sale
valid. Napala maintains that no fraud attended the execution of the sales
contract.

The trial and appellate courts had conflicting findings on the question
of whether the consent of the Spouses Tongson was vitiated by fraud. While
the Court of Appeals agreed with the trial courts finding that Napala
employed fraud when he assured the Spouses Tongson that the postdated
PNB check was fully funded when it fact it was not, the Court of Appeals
disagreed with the trial courts ruling that such fraud could be the basis for
the annulment of the contract of sale between the parties.

On the existence of fraud

297

Under Article 1338 of the Civil Code, there is fraud when, through
insidious words or machinations of one of the contracting parties, the other
is induced to enter into a contract which, without them, he would not have
agreed to. In order that fraud may vitiate consent, it must be the causal
(dolo causante), not merely the incidental (dolo incidente), inducement to the
making of the contract.[19] Additionally, the fraud must be serious.[20]

We find no causal fraud in this case to justify the annulment of the

contract of sale between the parties. It is clear from the records that the
Spouses Tongson agreed to sell their 364-square meter Davao property to
Napala who offered to pay P3,000,000 as purchase price therefor. Contrary
to the Spouses Tongsons belief that the fraud employed by Napala was
already operational at the time of the perfection of the contract of sale, the
misrepresentation by Napala that the postdated PNB check would not bounce
on its maturity hardly equates to dolo causante. Napalas assurance that the
check he issued was fully funded was not the principal inducement for the
Spouses Tongson to sign the Deed of Absolute Sale. Even before Napala
issued the check, the parties had already consented and agreed to the sale
transaction. The Spouses Tongson were never tricked into selling their
property to Napala. On the contrary, they willingly accepted Napalas offer to
purchase the property at P3,000,000. In short, there was a meeting of the
minds as to the object of the sale as well as the consideration therefor.

Some of the instances where this Court found the existence of causal
fraud include: (1) when the seller, who had no intention to part with her
property, was tricked into believing that what she signed were papers
pertinent to her application for the reconstitution of her burned certificate of
title, not a deed of sale;[21](2) when the signature of the authorized corporate
officer was forged;[22] or (3) when the seller was seriously ill, and died a week
after signing the deed of sale raising doubts on whether the seller could have
read, or fully understood, the contents of the documents he signed or of the
consequences of his act.[23] Suffice it to state that nothing analogous to these
badges of causal fraud exists in this case.

However, while no causal fraud attended the execution of the sales

contract, there is fraud in its general sense, which involves a false
representation of a fact,[24] when Napala inveigled the Spouses Tongson to
accept the postdated PNB check on the representation that the check would
be sufficiently funded at its maturity. In other words, the fraud surfaced
when Napala issued the worthless check to the Spouses Tongson, which is
definitely not during the negotiation and perfection stages of the sale. Rather,
the fraud existed in the consummation stage of the sale when the parties are

in the process of performing their respective obligations under the perfected

contract of sale. In Swedish Match, AB v. Court of Appeals,[25] the Court
explained the three stages of a contract, thus:

I n general, contracts undergo three distinct stages, to

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

Indisputably, the Spouses Tongson as the sellers had already

performed their obligation of executing the Deed of Sale, which led to the
cancellation of their title in favor of EPBI. Respondents as the buyers, on
the other hand, failed to perform their correlative obligation of paying the
full amount of the contract price. While Napala paid P200,000 cash to the
Spouses Tongson as partial payment, Napala issued an insufficiently funded
PNB check to pay the remaining balance ofP2.8 million. Despite repeated
demands and the filing of the complaint, Napala failed to pay the P2.8 million
until the present. Clearly, respondents committed a substantial breach of
their reciprocal obligation, entitling the Spouses Tongson to the rescission of
the sales contract. The law grants this relief to the aggrieved party, thus:

Article 1191 of the Civil Code provides:

Article 1191. The power to rescind obligations is

implied in reciprocal ones, in case one of the obligors should
not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the
rescission of the obligation, with payment of damages in either case. He may
also seek rescission, even after he has chosen fulfillment, if the latter should
become impossible.

298

Article 1385 of the Civil Code provides the effects of rescission, viz:

ART. 1385. Rescission creates the obligation to return

the things which were the object of the contract, together
with their fruits, and the price with its interest;
consequently, it can be carried out only when he who
demands rescission can return whatever he may be obliged
to restore.

Neither shall rescission take place when the things which are the
object of the contract are legally in the possession of third persons who did
not act in bad faith.

While they did not file an action for the rescission of the sales contract,
the Spouses Tongson specifically prayed in their complaint for the
annulment of the sales contract, for the immediate execution of a deed of
reconveyance, and for the return of the subject property to them. [26] The
Spouses Tongson likewise prayed for such other reliefs which may be
deemed just and equitable in the premises. In view of such prayer, and
considering respondents substantial breach of their obligation under the
sales contract, the rescission of the sales contract is but proper and
justified. Accordingly, respondents must reconvey the subject property to the
Spouses Tongson, who in turn shall refund the initial payment of P200,000
less the costs of suit.

Napalas claims that rescission is not proper and that he should be

given more time to pay for the unpaid remaining balance of P2,800,000
cannot be countenanced. Having acted fraudulently in performing his
obligation, Napala is not entitled to more time to pay the remaining balance
of P2,800,000, and thereby erase the default or breach that he had
deliberately incurred.[27] To do otherwise would be to sanction a deliberate
and reiterated infringement of the contractual obligations incurred by
Napala, an attitude repugnant to the stability and obligatory force of
contracts.[28]

The Court notes that the selling price indicated in the Deed of Absolute
Sale was only P400,000, instead of the true purchase price of P3,000,000.

The undervaluation of the selling price operates to defraud the government

of the taxes due on the basis of the correct purchase price. Under the law,
[29]
the sellers have the obligation to pay the capital gains tax. In this case,
Napala undertook to advance the capital gains tax, among other fees,
under the Memorandum of Agreement, thus:

ATTY. ALABASTRO:

Q
gains

Is it not a fact that you were the one who paid for the capital
tax?

No, I only advanced the money.

To whom?

To BIR.

COURT:

You were the one who went to the BIR to pay the capital gains tax?
A

It is embodied in the memorandum agreement. [30]

While Carmen Tongson protested against the very low consideration,

she eventually agreed to the reduced selling price indicated in the Deed of
Absolute since Napala assured her not to worry about the taxes and
expenses, as he had allegedly made arrangements with the Bureau of
Internal Revenue (BIR) regarding the payment of the taxes, thus:

What is the amount in the Deed of Absolute Sale?

A
It was only Four Hundred Thousand. And he told me not to worry
because x x x the BIR and not to worry because he will pay me what was
agreed the amount of Three Million and he will be paying all these expenses
so I was thinking, if that is the case, anyway he paid me the Two Hundred
Thousand cash and a subsequent Two Point Eight Million downpayment
check so I really thought that he was paying the whole amount.

COURT:

299

Proceed.

As discussed above, Napala defrauded the Spouses Tongson in his acts

of issuing a worthless check and representing to the Spouses Tongson that
the check was funded, committing in the process a substantial breach of his
obligation as a buyer. For such fraudulent acts, the law, specifically the Civil
Code, awards moral damages to the injured party, thus:

ATTY. LIZA:

Q
So you eventually agreed that this consideration be reduced to Four
Hundred Thousand Pesos and to be reflected in the Deed of Absolute Sale?
A
Yes, but when I was complaining to him why it is so because I was
worried why that was like that but Mr. Napala told me dont worry because
[he] can remedy this. And I asked him how can [he] remedy this? And he
told me we can make another Memorandum of Agreement.

COURT:

Q
Before you signed the Deed of Absolute Sale, you found out the
amount?
A

Yes, sir.

And you complained?

A

Yes.[31]

Considering that the undervaluation of the selling price of the subject

property, initiated by Napala, operates to defraud the government of the
correct amount of taxes due on the sale, the BIR must therefore be informed
of this Decision for its appropriate action.

On the award of damages

Citing Article 1338 of the Civil Code, the trial court awarded P100,000
moral damages and P50,000 exemplary damages to the Spouses Tongson.
While agreeing with the trial court on the Spouses Tongsons entitlement to
moral and exemplary damages, the Court of Appeals reduced such awards
for being unconscionable. Thus, the moral damages was reduced
from P100,000 to P50,000, and the exemplary damages was reduced
from P50,000 to P25,000.

ART. 2220. Willful injury to property may be a legal

ground for awarding moral damages if the court should find
that, under the circumstances, such damages are justly
due. The same rule applies to breaches of contract
where the defendant acted fraudulently or in bad
faith. (Emphasis supplied)

Considering that the Spouses Tongson are entitled to moral damages,

the Court may also award exemplary damages, thus:

ART. 2232. In contracts and quasi-contracts, the

court may award exemplary damages if the defendant acted
in a wanton, fraudulent, reckless, oppressive, or malevolent
manner.

Article 2234. When the amount of the exemplary

damages need not be proved, the plaintiff must show that
he is entitled to moral, temperate or compensatory
damages before the court may consider the question of
whether or not exemplary damages would be awarded. In
case liquidated damages have been agreed upon, although
no proof of loss is necessary in order that such liquidated
damages may be recovered, nevertheless, before the court
may consider the question of granting exemplary in addition
to the liquidated damages, the plaintiff must show that he
would be entitled to moral, temperate or compensatory
damages were it not for the stipulation for liquidated
damages. (Emphasis supplied)

300

The above petitioners, it appears, received from Villa Abrille, as a loan, on

Accordingly, we affirm the Court of Appeals awards of moral and
exemplary damages, which we find equitable under the circumstances in this
case.

October 30, 1944 P70,000 in Japanese war notes and in consideration

thereof, promised in writing (Exhibit A) to pay him P10,000 "in legal currency
of the P. I. two years after the cessation of the present hostilities or as soon
as International Exchange has been established in the Philippines", plus 2 %

WHEREFORE,
we PARTIALLY
GRANT the
petition.
We SET
ASIDE the 31 August 2004 Decision and 10 March 2005 Resolution of the
Court of Appeals in CA-G.R. CV No. 58242, except as to the award of moral
and exemplary damages, and ORDER the rescission of the contract of sale
between the Spouses Tongson and Emergency Pawnshop Bula, Inc.

per annum.
Because payment had not been made, Villa Abrille sued them in March 1949.
In their answer before the Manila court of first Instance, defendants claimed
to have received P40,000 only instead of P70,000 as plaintiff asserted.
They also averred that Guillermo and Rodolfo were minors when they signed
the promissory note Exhibit A. After hearing the parties and their evidence,
said court rendered judgment, which the appellate court affirmed, in the
terms above described.
There can be no question about the responsibility of Mrs. Rosario L.

Let a copy of this Decision be forwarded to the Bureau of Internal

Revenue for its appropriate action.

Braganza because the minority of her consigners note release her from
liability; since it is a personal defense of the minors. However, such defense
will benefit her to the extent of the shares for which such minors may be
responsible, (Art. 1148, Civil Code). It is not denied that at the time of

SO ORDERED.

signing Exhibit A, Guillermo and Rodolfo Braganza were minors-16 and 18

respectively. However, the Court of Appeals found them liable pursuant to the
following reasoning:

G.R. No. L-12471

April 13, 1959

. . . . These two appellants did not make it appears in the promissory

ROSARIO L. DE BRAGANZA, ET AL., petitioners,

note that they were not yet of legal age. If they were really to their

vs.

creditor, they should have appraised him on their incapacity, and if

FERNANDO F. DE VILLA ABRILLE, respondent.

the former, in spite of the information relative to their age, parted

with his money, then he should be contended with the consequence

Oscar M. Herrera for petitioners.

of his act. But, that was not the case. Perhaps defendants in their

R. P. Sarandi and F. Valdez Anama for respondents.

desire to acquire much needed money, they readily and willingly

BENGZON, J.:

with respect to Guillermo and Rodolfo. When minor, like in the

Rosario L. de Braganza and her sons Rodolfo and Guillermo petition for

will not later on be permitted to excuse themselves from the

review of the Court of Appeal's decision whereby they were required solidarily
to pay Fernando F. de Villa Abrille the sum of P10,000 plus 2 % interest from
October 30, 1944.

signed the promissory note, without disclosing the legal impediment

instant case, pretended to be of legal age, in fact they were not, they
fulfillment of the obligation contracted by them or to have it
annulled. (Mercado, et al. vs. Espiritu, 37 Phil., 215.) [Emphasis
Ours.]

301

We cannot agree to above conclusion. From the minors' failure to disclose

majority in 1947, it was too late to invoke it because more than 4 years had

their minority in the same promissory note they signed, it does not follow as a

elapsed after he had become emancipated upon reaching the age of majority.

legal proposition, that they will not be permitted thereafter to assert it. They

The provisions of Article 1301 of the Civil Code are quoted to the effect that

had no juridical duty to disclose their inability. In fact, according to Corpuz

"an action to annul a contract by reason of majority must be filed within 4

Juris Secundum, 43 p. 206;

years" after the minor has reached majority age. The parties do not specify
the exact date of Rodolfo's birth. It is undenied, however, that in October

. . . . Some authorities consider that a false representation as to age

1944, he was 18 years old. On the basis of such datum, it should be held

including a contract as part of the contract and accordingly hold that

that in October 1947, he was 21 years old, and in October 1951, he was 25

it cannot be the basis of an action in tort. Other authorities hold that

years old. So that when this defense was interposed in June 1951, four years

such misrepresentation may be the basis of such an action, on the

had not yet completely elapsed from October 1947.

theory that such misrepresentation is not a part of, and does not
grow out of, the contract, or that the enforcement of liability for such

Furthermore, there is reason to doubt the pertinency of the 4-years period

misrepresentation as tort does not constitute an indirect of enforcing

fixed by Article 1301 of the Civil Code where minority is set up only as a

liability on the contract. In order to hold infant liable, however, the

defense to an action, without the minors asking for any positive relief from

fraud must be actual and not constructure. It has been held that his

the contract. For one thing, they have not filed in this case an action for

mere silence when making a contract as to age does not constitute a

annulment.2 They merely interposed an excuse from liability.

fraud which can be made the basis of an action of decit. (Emphasis

Ours.)

Upon the other hand, these minors may not be entirely absolved from
monetary responsibility. In accordance with the provisions of Civil Code, even

The fraud of which an infant may be held liable to one who contracts

if their written contact is unenforceable because of non-age, they shall make

with him in the belief that he is of full age must be actual not

restitution to the extent that they have profited by the money they received.

constructive, and mere failure of the infant to disclose his age is not

(Art. 1340) There is testimony that the funds delivered to them by Villa

sufficient. (27 American Jurisprudence, p. 819.)

Abrille were used for their support during the Japanese occupation. Such
being the case, it is but fair to hold that they had profited to the extent of the

The Mecado case1 cited in the decision under review is different because the

value of such money, which value has been authoritatively established in the

document signed therein by the minorspecifically stated he was of age; here

so-called Ballantine Schedule: in October 1944, P40.00 Japanese notes were

Exhibit A contained no such statement. In other words, in the Mercado case,

equivalent to P1 of current Philippine money.

the minor was guilty of active misrepresentation; whereas in this case, if the
minors were guilty at all, which we doubt it is of passive (or constructive)

Wherefore, as the share of these minors was 2/3 of P70,000 of P46,666.66,

misrepresentation. Indeed, there is a growing sentiment in favor of limiting

they should now return P1,166.67.3Their promise to pay P10,000 in

the scope of the application of the Mercado ruling, what with the

Philippine currency, (Exhibit A) can not be enforced, as already stated, since

consideration that the very minority which incapacitated from contracting

they were minors incapable of binding themselves. Their liability, to repeat, is

should likewise exempt them from the results of misrepresentation.

presently declared without regard of said Exhibit A, but solely in pursuance

of Article 1304 of the Civil Code.

We hold, on this point, that being minors, Rodolfo and Guillermo Braganza
could not be legally bound by their signatures in Exhibit A.

Accordingly, the appealed decision should be modified in the sense that

Rosario Braganza shall pay 1/3 of P10,000 i.e., P3,333.33 4 plus 2% interest

It is argued, nevertheless, by respondent that inasmuch as this defense was

from October 1944; and Rodolfo and Guillermo Braganza shall pay jointly 5 to

interposed only in 1951, and inasmuch as Rodolfo reached the age of

302

the same creditor the total amount of P1,166.67 plus 6% interest beginning
March 7, 1949, when the complaint was filed. No costs in this instance.

G.R. No. L-7041

February 21, 1957

JESUS MA. CUI, ET AL., plaintiffs-appellants,

vs.
ANTONIO MA. CUI, ET AL., defendants-appellees.
Claro M. Recto, Jose P. Laurel and Vicente Jayme for appellants.
Pimintel & Pimintel and Amador E. Gomez for appellees.
BAUTISTA ANGELO, J.:
On May 25, 1948, Jesus Ma. Cui and Jorge Ma. Cui brought an action in the
Court of First Instance of Cebu against Antonio Ma. Cui and Mercedes Cui de
Ramos seeking the annulment of the sale of three parcels of land against
Antonio Ma. Cui and Mercedes Cui de Ramas of the latter and the partition
of the same among the heirs who should inherit them including the
plaintiffs. The Rehabilitation Finance Corporation was included as party
defendant because the lands above-mentioned were mortgaged to it to secure
a loan of P130,000, the object being to have the mortgage declared null and
void.
On March 19, 1949, Rosario Cui, daughter of Don Mariano Cui, filed in the
same court a petition for the appointment of a guardian of the person and
properties of her father on the ground of incompetency and, accordingly, he
was declared incompetent on March 31, 1949 and one Victorino Reynes was
appointed as his guardian.
On July 13, 1949, the complaint was amended by including as party
plaintiffs the guardian as party plaintiffs the guardian Victorino Reynes and
the other children and relatives of Don Mariano, namely, Jose Ma. Cui,
Serafin Ma. Cui, Rosario Cui, her husband Irineo Encarnacion, Lourdes C.
Velez, Priscilla Velez and Federico Tamayo.
Defendants in their answer set up the defense that the sale mentioned in the
complaint is valid because it was executed when Don Mariano Cui was still in
possession of his mental faculties and that, while the sale was at first
executed in favor of the defendants and their sister Rosario Cui, the latter
however resold her share to Don Mariano for reason stated in the deed of
resale executed to the effect. They prayed that the complaint be dismissed.

On May 22, 1951, after due hearing and the presentation of voluminous
evidence on the part of both parties, the court rendered its decision
dismissing the complaint and which plaintiffs appealed in due time, and
because the value of the property involved exceeds the amount of P50,000,
the case was certified to us for decision by the Court of Appeals under
section 1 of Republic Act No. 296.
Plaintiffs and defendants, with the exception of the Rehabilitation Finance
Corporation, are the legitimate children of Don Mariano Cui and Doa
Antonia Perales who died intestate in the City of Cebu on March 20, 1939.
Plaintiffs in their complaint allege that during the marriage of Don Mariano
Cui and Doa Antonia Perales, the spouses acquired certain properties in the
City of Cebu, namely, Lots Nos. 2312, 2313 and 2319, with an approximate
area of 2,658 square meters, having an assessed value of P159,480, and a
market value of 120 per square meter; that upon the death of Doa Antonia
Perales, the conjugal partnership did not leave any indebtedness and the
conjugal properties were placed under the administration of Don Mariano
Cui; that while the latter was 84 years of age and under the influence of
defendants, the latter, by means of deceit, secured the transfer to themselves
of the aforementioned lots without any pecuniary consideration; that in the
deed of sale executed on March 8, 1946, Rosario Cui appeared as one of the
vendees, but on learning of this fact she subsequently renounced her rights
under the sale and returned her portion to Don Mariano Cui by executing a
deed of resale in his favor on October 11, 1946; that defendants, fraudulently
and with the desire of enriching themselves unjustly at the expense of their
father, Don Mariano Cui, and of their brothers and co-heirs, secured a loan
of P130,000 from the Rehabilitation properties, and with the loan thus
obtained, defendants contructed thereon an apartment building of strong
materials consisting of 14 doors, valued at approximately P130,000 and
another building on the same parcels of land, which buildings were leased to
some Cinese commercial firms a monthly rental of P7,600, which defendants
have collected and will continue to collect to the prejudice of the plaintiffs;
and because of this fraudulent and illegal transaction, plaintiffs prayed that
the sale and mortgage executed on the properties in question, in so far as the
shares of the plaintiffs are concerned, be declared null and void and the
defendants be ordered to pay the plaintiffs their shares in the rentals of the
properties at the rate of P7,600 a month from November 1, 1947 up to the
time of their full payment, together with whatever interest may be thereon
and the expenses of litigation.
Defendants, on the other hand, aver that while the properties in question
were acquired during the marriage of Don Mariano Cui and Doa Antonia
Perales, however, they were entirely the exclusive property of Don Mariano
Cui up to the time of their transfer to defendants under the deed of Sale
Exhibit A, having been acquired by him as a donation from his uncle Don
Pedro Cui and his aunt Doa Benigna Cui; that this fact was known to the

303

plaintiffs and to the guardian of Don Mariano, Victorino Reynes, because in

the extra-judicial partition executed between plaintiffs and defendants on
December 6, 1946 of the properties of the deceased Antonia Perales, the
three lots in question did not form part of the conjugal properties of the
spouses Don Mariano Cui and Doa Antonia Perales; that Don Mariano Cui,
for a consideration, voluntarily and without deceit, pressure or influence on
the part of defendants, executed and signed the deed of sale Exhibit A; and
that Don Cariano Cui was at that time in full enjoyment of his mental
faculties and only suffered loss of memory several years later when he was
declared by the court incompetent to manage his properties.
Defendants denied that the building constructed on the three lots in question
consisted of 14 doors and alleged that it consisted of only 12 doors. They also
denied that they received the sum of P7,600 as monthly rental of said
building because what they have been receiving was only a monthly rental of
P4,800. As a special defense, they aver that they are the owners of the naked
ownership of 2/3 of the three lots in question subject to the usufruct over the
rents of products thereof in favor of Don Mariano Cui during his lifetime,
with the exception of the rents from the building constructed on
the 2/3 portion belonging to them; that the 2/3 of the lots in question did
not produce any rent at the time of their acquisition by the defendants, for
they produced rentals only after the defendants had constructed the 12-door
apartment now standing thereon; that subsequently and by verbal agreement
between Don Mariano Cui and the defendants, the usufruct of the former
over said 2/3 portion was fixed at P400 monthly, and this sum Don Mariano
has been receiving since then up to the present time. Defendants also aver
that they are the exclusive owner of the 12-door apartment constructed on
the 2/3 portion of the lots in question, having been constructed at their
expense and by virtue of the authorization given to them in the deed of sale
Exhibit A; that the loan of P130,000 obtained from the Rehabilitation
Finance Corporation was solicited personally by defendants Antonio Ma. Cui
and Mercedes Cui de Ramas for their exclusive benefit and for the purpose of
investing it in the construction of said building; that since the property is
undivided, Don Mariano Cui, as one of the co-owners, consented to the
execution of a mortgage thereon in favor of said corporation to guarantee the
payment of the loan jointly with his co-owners, the aforesaid defendants, for
the sole purpose of accommodating the latter and to enable them to obtain
the loan; that the plaintiffs are in estoppel to claim that the lots in question
belong to the conjugal partnership of their parents Don Mariano Cui and
Doa Antonia Perales, and that plaintiffs instituted the present action
because they do not like the manner in which their father had disposed of
said lots, especially Jesus Ma. Cui who was unsuccessful in his request that
the /3 said lots be sold to him. They prayed that the action be dismissed.
In this appeal, appellants now contended that the lower court erred: (1) "In
not declaring the deed of sale, Exhibit A, avoid or inexistent for lack of valid

consent and consideration"; (2) "In not declaring illegal the sale, evidenced by
Exhibit A, on the ground that it was a transaction between principal and
agent, which is prohibited by paragraph (2), Article 1959 of the old Civil
Code"; (3) "In not finding that the three lots conveyed by means of the deed of
sale, Exhibit A, belong to the unliquidated conjugal partnership of Don
Mariano Cui and his deceased wife Doa Antonia Perales, and that entire
property"; and (4) "In not finding that the plaintiffs are entitled to seveneights (7/8) of property in question and of the rentals thereof beginning
November 1, 1947." We will discuss these issues separately.
In support of their contention that Don Mariano Cui did not and could not
have validly consented to the deed of sale in question, appellants submitted
the following proposition: (a) Don Mariano was incapacitated to give his
consent by reason of his age and ailment; (b) Don Mariano acted under a
mistake, and his signature was secured by means of deceit; and (c) the sale
Exhibit A is vatiated by undue influence.
In support of the first proposition, it is argued that Don Mariano, at the time
he signed the deed of sale Exhibit A on March 8, 1946, was already 83 years
old, was sickly and infirm, and frequently complained of ill health. It is also
contended that six days before the sale, or on March 2, 1946, he had
executed a general power of attorney in favor of defendant Antonio Cui, which
act could signify that Don Mariano himself realized that he was longer
capacitated to administer his properties and found it necessary to relieve
himself of the task of dealing with other persons in connection therewith. It
is also pointed out that his children, Jorge, Jesus and Rosario Cui testified
that he was ill, he was forgetful, he could not read nor remember well what
he read, and his letters show that he was no longer familiar with the rules of
orthography. In his letter he also complained about his illness and he
realized that his affections were due to his old age. It is also emphasized that
as early as August, 1944, Jesus Cui noted that his father was "muy debil . . .
en cuestiones negocios" and that "en cuanto a su capacidad para administar
sus bienes en que tenia que producir o estudiar, el (Don Mariano) no se
acordaba." Although he was not in same when he signed the deed of sale
Exhibit A, yet he was admittedly "incompetente para manejar su dinero." (pp.
85-86, Brief for plaintiffs and Appellants.)
As regards the second proportion, it is insinuated that if Don Mariano, by
reason of his advanced age, his weak mind and body and feeble will and
reason, was not capacitated to give his consent, it would follow as a corollary
that he could not fully understand the contents of the deed of sale. He must
have therefore labored under a mistake as to true nature of the transaction
especially when it was written in a language which he did not understand.
Other insinuation leading to the same result are: Don Mariano must have
erroneously thought that the only way to pay his debt of P3,000 to Ramon
Aboitiz was by executing the sale, just as he gave consent to the sale of his

304

conjugal property of San Jose St., Cebu City, because he thought it was the
only available way to pay his indebtedness to the Insular Life Assurance Co.
Or he must have thought that the document he was made to sign by Antonio
Cui was not a sale but a mere authority to administer the property for
purpose of revenue, or he must have been induced to signing it after he was
promised a life annuity in the form of usufruct over the rents of the
properties in question. In other words the insinuation is made that Antonio
Cui employed deceit in securing the signature Don Mariano to the sale in
question in order merely to satisfy his selfish ends. There being, therefore,
error and deceit, there is no valid consent which can give validity to the sale
on the sale on the part of Don Mariano.
And with regard to the third proposition, the following circumstances are
pointed out: At the time of the sale, Don Mariano was already 83 years old,
was infirm and was living with the vendees, herein appellees. Antonio Cui
was his lawyer and attorney in fact and there was between them confidential
family and spiritual relations. Don Mariano was then in financial as shown
by the fact that he was worried about his debt to Ramon Aboitiz, and way
back in 1946 he had to borrow money from his daughter Rosario Cui which
remained unpaid even after the sale in question. The presence of undue
influence is further shown, appellants contend, in the execution by Don
Mariano of the Mortgage in favor of the Rehabilitation Finance Corporation,
the extrajudicial partition Exhibit 1-a, the partition of the property in
question, the alleged oral waiver of usufrutuary rights, and the alleged
explanatory statement Exhibit 34. These acts, which were allegedly
mastermined by Antonio Cui, show, appellants contend, that Antonio Cui
could get from father whatever he wanted.
We do not believe the arguments advanced by appellants in an effort to
nullify the deed of sale Exhibit A sufficient in law to invalidate the same on
the ground of lack of valid consent on the part of Don Mariano for the simple
reason that they are merely based on surmises or conjectures or
circumstances which, though they may show inferentially that he was sickly
or forgetful because of his advanced age, do not however point unremittingly
to the conclusion that at the time he signed said deed of sale he was not full
enjoyment of his mental faculties as to disqualify him to do so or that he was
not aware of the nature of the transaction he was then undertaking.
Although at the time of the sale he was already 83 years old, he was sickly
and forgetful, as contended, yet, according to the authorities, weakness of
mind alone, not caused by insanity, is not a ground for avoiding a contract,
for it is still necessary to show that the person at the time of doing the act "is
not capable of understanding with reasonable clearness the nature and effect
of the transaction in which he is engaging" (Page on Contracts, Vol. III, p.
2810). Or, as well stated in the very case cited by counsel for appellants only
when there is "great weakness of mind in a person executing a conveyance of
land, arising from age, sickness, or any other cause", can a person ask a

court of equity to interfere in order to set aside the conveyance (Allore vs.
Jewell, 24 Law Ed., 263-264). And here the evidence shows that such is not
the case, for the several letters and documents signed all executed by Don
Mariano many months after the execution of the deed of sale Exhibit A
clearly indicate that, while he was of an advanced age, he was however still
physically fit and his mind was keen and clear. This we will see in the
following discussion of the evidence.
One of such evidence is the testimony of Rosario Cui, one of the appellants
herein. It should be remembered that it was she who initiated the
proceedings for the declaration of incompetency of Don Mariano Cui in order
that he may be placed under guardianship and at the hearing held for that
purpose, she was the main witness. When called upon to testify as to the
state of health and mental condition of Don Mariano, she stated that during
the period she had been living with her father in Calapan, Mindoro, which
dates as for back as the Japanese occupation, she had observed that the
state of his mind was very good, he was not yet so forgetful as he is now, and
that she discovered his mental weakness which makes him incompetent to
manage his own affairs only sometime in the month of January, 1949 (pp. 5
and 6, Exhibit 9; p. 136, t.s.n). And on the strenght of her testimony, Don
Mariano was declared incompetent on March 31, 1949. This is an indication
that, when the deed of sale was executed on March 8, 1946, three years
before his declaration of incompetency, Don Mariano was still in the full
enjoyment of his mental-faculties. It should be stated that his testimony of
Rosario Cui stands undisputed.
A circumstance which strongly corroborates this testimony of Rosario Cui is
the letter Exhibit 26 which Don Mariano wrote to Don Ramon Aboitiz on May
31, 1946, two months after the execution of the deed of sale Exhibit A, in
relation to the indebtedness he owed him by reason of his having acted as the
surety of his son Jesus Cui which the latter had not been able to settle. This
letter, which shows how lucid, keen, clear and analytical his mind was, is
herein reproduced for ready reference:
Cebu, Mayo 31, 1946
Sr. DON RAMON ABOITIZ
CEBU
ESTIMADO AMIGO
La portadora de la presente es mi hija Mercedes, esposa del Dr.
Ramas, a quien he dado el encargo de presentarse a Vd. con esta
carta y pagarle en mi nombre como fiador de mi hijo Jesus Cui el
saldo resultante de laliquidacion hecha por Vd. el 5 de Diciembre de
1941 de la deuda que este contrajo, de Vd. por cierto prestamo en
metalico que le dio bajo mi garantia consistente en hipoteca.

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Como Vd. trata de cobrar intereses sobre el mencionado saldo hasta

la fecha en que se pague el mismo a partir desde el 1.o de Enero de
1944, permitame que le suplique encarecidamente apelando a su
buen corazon y reconocida generosidad, deje Vd. de cobrarme esos
intereses. En apoyo de esta suplica someto a su buen criterio lo
siguiente: 1.o, mi buenavoluntad, diligencia y prontitud en finiquitar
al citado saldo; 2.o el motivo, como Vd. lo sabe, se tuvo que contraer
la citada deuda sin ningun provecho para mi, antes bien me ha
causada molestias y apuros para pagarla completamente, y 3.o
durante la ocupacion japonesa en Cebu y estando yo ya refugiado en
Manila le escribia de vez en cuando a mi dicho hijo Jesusy siempre le
recordaba que procurara hacerlo por todos los medios, sabiendo yo
que el disponia de bastante dinero; lo cual demuestra a Vd. que la
prealudida deuda me ha tenido en constante preocupacion,
realizandose porultimo mis temores de que al fin habria yo que pagar
casi a la deuda entera.
Como Vd. muy pronto se va a marchar de este nuestro pais,
concedame Vd. lo que le pido en la precedente suplica como un
recuerdo, imperecerederopara mi, de nuestra buena amistad. Le
deseo un feliz viaje, asi como una feliz estancia en el pais donde
establecerse, con buen exito ademas en susnegocios.
Disponga como gusto de affmo. amigo y servidor.
(Fdo.)
Scarcely four months before the execution of the deed of sale, Don Mariano
was residing in Calapan, Mindoro, in the house of Rosario Cui, and while
there he received several letters from his daughter-in-law, Carmen Gomez,
wherein in a very expressive and persuasive manner she asked her father-inlaw, Don Mariano, to extend a helping hand to his son Jesus Cui, who was
then confined in the stockade of the military authorities in Leyte for
collaboration, so that he may get his provisional release by putting up a bail
bond for him. Because Jesus Cui, his son, had embarked him into some
commercial venture even before the war which resulted in a disastrous failure
and made him suffer a loss of nearly P25,000, aside from the undertaking he
assumed as a surety for the payment of a loan of P3,000 which Jesus had
contracted from Don Ramon Aboitiz on January 27, 1941 which Jesus failed
to pay, all of which made him bitter and resentful against his own son, Don
Mariano turned a deaf ear to the plea of Carmen stating in a language as
forceful as it is clear the reasons for his attitude. These reasons were
expressed by Don Mariano in letters dated November 11, 1945 and November
22, 1945 which are also herein reproduced for ready reference, omitting the
letters of Carmen, which are referred to therein, for being unnecessary for

our purpose. Note that the person named Chong appearing in the letters is
the nickname given to Jesus, son of Don Mariano:
Calapan, Mindoro
Nbre. 11, 1945
MI ESTIMADA MAMING
Recibi el 9 del actual tu carta, fechada el 21 de Obre. ppdo y me
entere desu contenido.
Empiezo dandote las expressivas gracias por su interes y buen deseo
por mi salud, que ya no es tan buena como antes; tengo ya mis
achaques a causa de mi vejez que va avanzando cada dia mas; no
puedo esperar ya buena salud.
Me haces una apologia en favor de tu marido Chong, mi hijo,
alabandole comoun buen hijo; comprendo que lo hagas, porque la
pasion te ciega; pero no me lo digas a mi que conozco muy a-fondo a
Chong. Nunca le he conocido a Chong como buen hijo mio, pues me
ha dado el los mayores disgustos que he tenido en mi vida. Mes
mijores amigos que esteban al tanto de la vida de Chong y de sus
fracasos en los negocios y con quienes a veces me desahogaba, me
echaban a mi la culpa porque era yo demasiado apasionado por el.
Ahora que llegado a ser pobre, lo comprendo y lo lamento, y me
recuerda de lo que me dijo a mi tia Benigna, ya difunta (q.e.p.d) un
dia, muy formalmente y en serio, que presentia que yo a la vez me
quedaria pobre y me aconsejo que tuviera mucho cuidado en
administrar mis bienes con prudencia..
Siento mucho tener que decirte que no me encuentro en condiciones
para prestar la fianza que me pides en favor de Chong; primero,
porque no dispongo de beienes inmuebles para constituir la fianza y
segundo, porque si bien es verdad que me quedan solares en la calle
Manalili de esa Ciudad, pero el gravamen de hipoteca sobre estos
solares esta sin cancelarse aun en el registro de propiedad, lo cual
tendra aun bastante tiempo, y por otra parte, me reservo los mismos,
siempre libres, para poder disponer de ellos cuando fuere necesario,
para atendar mis gastos. Dispensame, pues, que no pueda
complacerte en lo que me pides. Ahora le escribo a nene para que te
envie esta carta como me lo pides.
En retorno Yre y Nenita te envian sus recuerdos.
Termino deseando a ti y Nene siempre beuna salud y enviando a este
un carioso beso y a ti.

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En sincero afecto de tu suergo

MARIANO CUI
Calapan, Mindoro
Nbre. 22, 1945
ME APRECIABLE MAMING
Recibi el 20 del actual por correo tu carta escrita ya alli en Manila y
me apresuro a contestartela.
Ya habras recibido y te habras enterado ya de mi carta, fecha 11 del
actual. Contestando la tuya anterior portador de aquella mi nieto
Liling, que semarcho de aqui para alli el sabado pasado.
Siento mucho tener que desirte que insisto en mi negativa de ser
fiador de Chong en la forma indirecta que se me propone por los que
negocian en prestar fianzas; yo que he sido juez conozco el alcance
de esa fianza queyo otorgue a favor de Don Ramon Aboitiz para
garantir el prestamo, que este hizo a Chong, de TRES MIL PESOS,
que creo que estan sin pagar aun y que yo como burro de carga
tendre que pagarlos. Debes, pues dejarme ya en pazporque tengo
mala pata en ser fiador de Chong. Estoy pidiendo a Dios que me de
medios para poder ayudarle. Temo, ademas, que Dios me castigue
haciendomal uso de los pocos bienes que me ga dejado para
mantenerme durante los pocos anos de vida que me va considiendo
aun y para ni vivir pidiendo limosna, ya que de mis hijos poco puedo
esperar.
Agradezco mucho to oferta de que cuando os establicias alli en
Manila pararesidir permanentemente me distenares una habitacion
para mi, y me reservotal oferta para cuando sea conveniente
aceptarla.
Sin otra cosa mas, afectuoso recuerdos a Chong y a ti mi aprecio
sincero.
Tu suegro,
Rosario Cui not only testified that Don Mariano was still good and of sound
mind when he lived with her for eighteen months from September, 1944 up
to February, 1946, and for another four months from July, 1946 to October,
1946 in Calapan, Mindoro, but she also sustained correspondence with Don
Mariano even as late as the year 1947. Hereunder we transcribe Don
Mariano's letter to Rosario on July 14, 1947:
Cebu, Julio 14, 1947

Sra. ROSARIO C. DE ENCARNACION

CALAPAN, MINDOROMI
QUERIDISIMA HIJA
Siento mucho que el no haber tu recibido carta mia desde que he
llegado aquios haya preocupado tanto artibuyendolo a mi falta de
buena salud. Gracias a Dios no fue asi.
A la semana despues de haber llegado he recibido una carta tuya,
disculpandote de no haber tu podido despedirnos abordo del barco
en que ibamos con motivo de las fuertes lluvias que entonces
cayeron. Te conteste que habias hecho muy bien, teniendo tu una
salud muy delicada para cogerte unas mojaduras de funestas
consecuencias para ti.
A mediados de mayo ultimo calcule que estarias aun en Manila a
consequenciaaun de la operacion de tu matriz; pero no sabiendo que
direccion pner en micarta a ti desisti de escribirte.
Cuanta bondad y generosidad en el arreglo de mi cuarto o
habitacion. Aunqueno lo veo aun, os lo agradezco ya de todo corazon.
Debe de estar ya muy confortable, y sin las goteras que tanto me
molestaban. Espero poder volveraun alli en cuanto se termine estos
asuntos.
Te deseo que se te desaperezca pronto la debilidad de tu corazon
para que notengas mas inveycciones de alcampor.
Envio mis mas afectuosos recuerdos a Yre y chiquillos.
Te da un fuerte abrazo tu padre que entranablamente te quiere.
Another interesting circumstance is the discussion which Jesus Ma. Cui had
with his father Don Mariano on April 20, 1946 relative to the sale of the lots
in question. It should be noted that when Jesus came to know of that sale he
could not refrain his anger feeling that he had been ignored or the subject of
discrimination on the part of his father and give vent to his feeling he wrote
to him on March 20, 1947 a letter, copy of which was marked Exhibit M-2,
wherein he appealed to him (his father) to give him and his other children an
opportunity to buy the properties in question, to which letter Don Mariano
answered with another date April 22, 1947 wherein he apparently gave in to
the demand of Jesus subject to certain condition. As the evidence shows,
Don Mariano came to answer the letter of Jesus in this manner: Don
Mariano discussed the matter with his son Antonio showing to him the letter
of Jesus on which occasion Antonio said: "Bueno papa, si tu crees que en eso
el esta empeado y si queres darle a el y el ha dicho a ti que el va a hacer

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todos los medios para conseguir dicho terreno, puedes hacer todo lo que
quiera con tal de que me devuelves mi dinero que yo habia pagado porque era
dinero de mi esposa." To this Don Mariano answered: "Vamos a ver primero,
que es lo que van a contestar a la carta que voy a mandar."

shows that he was fully conscious of what was transpiring and of the
transaction he was executing so much so that he went to the extent of
demanding from Rosario the resale of her interest when she failed to pay her
share in the consideration of the sale.

The letter thus referred to is the one sent by Don Mariano to Jesus, Exhibit I,
wherein the former made known to Jesus that he was willing to give to all his
children equal opportunity to buy the lots in question subject to the
condition that his son or daughter who is not able to pay his debt or
obligations or has no money with which to pay them would be automatically
excluded from the sale. The evidence also shows that neither Jesus nor the
other children who wanted to participate in the sale took the trouble of
answering the letter nor made known their desire as to the proposition of
their father, and such silence is undoubtedly due to the fact that they were
not in a financial condition to comply with the condition imposed in the
letter. In fact, according to Antonio Cui, such is the predicament in which his
brothers were situated as shown by the fact that Jorge at that time was
indebted to his father in the amount of P6,000, Jesus in the amount of
P18,000, Jose in the amount of P14,000, while his other brothers did not
have the necessary means to take part in the sale. The fact unfolded in
connection with this incident constitute a clear indication of the state of
mind then enjoyed by Don Mariano for he took the precaution before
answering the letter of Jesus of discussing the matter first with his son
Antonio who was the one mostly affected by the decision he was about to
make considering the menacing attitude and the incessant demand of Jesus
regarding the transaction. Only a person of sound mind could have adopted
such precaution and circumspections.

There are other letters and documents which Don Mariano had prepared and
executed in the neighborhood of the time the deed of sale in question was
executed which also depict the mental condition that he possessed at the
time, and to show this we can do no better than to quote what the lower
court said on this point:

The deed of sale Exhibit A was executed by Don Mariano Cui, Antonio Cui
and Mercedes Cui de Ramas on March 8, 1946 in the city of Cebu, and by
Rosario Cui and her husband Dr. Ireneo Encarnacion in the City of Manila
on March 20, 1946. The consideration of the sale was P64,000 plus the
reservation of the right in favor of Don Mariano "to enjoy the fruits and rents
of the same" as long as he lives. It appears however that, while in said deed
of sale it is stated that Don Mariano has acknowledged receipt of said
consideration of P64,000, the same is not true with regard to the share of
Rosario Cui. So Don Mariano went to Calapan, Mindoro in July, 1946 to
collect from Rosario her share of the purchase price amounting to P20,000.
Rosario then excused herself from going ahead with the sale alleging as
reason that she needed what money she had to rehabilitate her electric plant
in Calapan and also because Cebu was very far from Mindoro where they had
already their permanent residence. Not being able to pay her share in the
consideration of the sale, Don Mariano demanded from her the resale of her
interest. This was done when she went to Manila on October 11, 1946 to
execute the deed of resale in favor of Don Mariano. This attitude of Don
Mariano is very significant in so far as his state of mind is concerned. It

Ademas de lo que ya dejamos expuesto, Don Mariano Cui ejecuto

varios actos que tambien impugnan la contension de que el ya estuvo
mentalmente incapacitado al otogar el Exh. A. Poco antes y tambien
despues de otogar dicha escritura, el escribo varias cartas a sus
hijos y otogo varios documentos. Entre las cartas figuran el Exh. 4,
que esta dirigida a Jorge, lleva la fecha 24 de marzo de 1945; Exh.
23, dirigida a su hija Mercedes, fechada 9 de septiembre de 1946;
Exh. 26, dirigida a Don Ramon Aboitiz, fechada el 21 de mayo de
1946; Exhs. 36 y 40 dirigidas a su hijo Antonio, y fechadas 3 de julio
p. 13 de agosto de 1945, respectivamente; Exhs. 41 y 42,
contestaciones de las cartas de Carmen, esposa de Jesus, fechadas
el 11 y 22 de noviembre de 1945, respectivamente; y exh. 57, dirigida
a su hija Rosario, fechada Julio 14, 1947. Entre los documentos
figuran; Exh. 1-a, escitura de reparticion extrajudicial, otorgada el 6
de deciembre de 1946; Exh. 3-b, un affidavit de fecha 20 de febrero
de 1945; Exh. 24, recibo a favor de Gil Ramas, otorgado el 5 de
marzo de 1946; Exh. 24, constanciaque fue suscrita y jurada ante el
Escribano de este Juzgado el 23 de febrerode 1948; Exh. 34,
borrador de exhibit anterior con las correcciones hechas de puno y
letra de Don Mariano Cui; Exh. 44, autorizacion a Mercedes y
Antonio para hipotecar su participacion en los lotes en cuestion,
fechadael 7 de enero de 1947; Exh. 45, convenio entre Don Mariano,
por una parte, y Mercedes y Antonio, por otra parte, referente a los
terrenos en cuestion, que lleva fecha 30 de septiembre de 1947; Exh.
C escritura de hipoteca a favor de la RFC de fecha 15 de abril de
1947; y Exh. S, un memorandum que contiene algunas notas de sus
ingresos y gastos que comprende has ta el mes de enero de 1949,
poco antes de haber perdido su memoria.
Una lectura de las cartas arribas mencionadas dos lleva a la
necesaria conviccion de que durante el periodo en que se escibieron
las mismas, o sea hasta el mes de Julio de 1947, Don Mariano Cui
aun tenia el pleno goce de sus facultades mentales, pues de otro
modo, el no podia expresarsecon tanta claridad y precision en los
asuntos que trataba en dichas cartas. Con respecto a los

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documentos arriba referidos, los mismos, son de tal naturaleza e

importancia, que no se podian haber otorgardo por Don Mariano si el
no estaba en su cabal juicio. El Exh. S fue presentado por los
mismos demandantes, y esta circunstancia, naturalmente,
presupone que ellos admiten que Don Mariano Cui estuvo
mentalmente sano al anotar los asientos en dicho memorandum,
muchos de los cuales tuvieron lugar ya despues de otorgarse el
documento en cuestion Exh. A.
It is obvious from the foregoing discussion that Don Mariano signed and
executed the deed of sale Exhibit A not only at a time when he was still in the
full enjoyment of his mental faculties, but also under conditions which
indicate that he knew what he was doing and, as a consequence, it cannot be
said that he has entered into the transaction without his consent or under a
misapprehension that the document he was signing was not the sale of the
properties in question but one merely pertaining to their administration.
In connection with the contention that the deed of sale Exhibit A was
executed by Don Mariano under circumstances which point out that he has
done so because of undue influence on the part of the defendants, counsel
for appellants mentions the following circumstances: (1) Don Mariano was
already 83 years old, he was the father of the vendees, and at the time of the
sale or long before it was consummated, he was living with the vendees; (2)
one of the vendees, Antonio Cui, was his attorney in fact and lawyer; (3) the
vendor and the vendees had obviously confidential family and spiritual
relations; (4) the vendor was suffering from mental weakness; and (5) the
vendor was in financial distress. The presence of undue influence, according
to appellants, is further shown by the execution of the mortgage in favor of
the Rehabilitation Finance Corporation, the extra-judicial petition Exh. 1-a,
the partition of the properties in question, the alleged oral waiver of
usufructuary rights, and the explanatory statement Exhibit 34, which acts,
it is claimed, in which Don Mariano was supposed to have taken part and
which were all masterminded by Antonio Cui, show that Antonio Cui could
get from his father whatever he wanted.
There is however no concrete proof that may substantiate this claim of undue
influence. The only direct evidence on the matter is the testimony of Jesus
Cui which in the main is based on mere conjecture and not on actual facts.
The circumstance that Don Mariano Cui was then living in the house of
Mercedes Cui when the deed of sale was signed does not necessarily imply
that he was made to sign it under the insidious machinations practiced on
him by his daughter. On the contrary, the evidence shows that Don Mariano
lived most of the time before the execution of the sale with his other children
and not necessarily with herein defendants. Thus, according to the testimony
of Jesus Cui himself, during the Japanese occupation, or from 1942 to 1943,
his father lived in the City of Cebu. During the month of September, 1943, he

went to Manila and lived in the house of his daughter Lourdes Cui de Velez,
where he stayed up to September, 1944. Then he went to Calapan, Mindoro
to live in the house of his daughter Rosario where he stayed up to February,
1946 when he returned to Cebu. It was only then that he began living in the
house of Mercedes Cui. In Mercedes Cui when the deed of sale was executed
on March 8, 1946. There is therefore no basis for concluding that said deed
of sale was executed simply under the undue influence of Antonio Cui and
Mercedes Cui. The fact that about six days before the sale Antonio Cui was
made by Don Mariano Cui his attorney in fact could not mean anything
unusual for he was then getting old and he needed one who could help him
administer the properties of his deceased spouse, and the choice fell on
Antonio because he was the only lawyer in the family. And if to all this we
add that Don Mariano was then in full enjoyment of his mental faculties, as
we have already pointed out elsewhere, it would be presumptuous, if not
unfair, on our part to affirm, as appellants want us to do, that he allowed
himself to do an act which is not fully accord with his free and voluntary will.
We will not take up the claim that the deed of sale Exhibit A was executed
without mediating any consideration on the part of the vendees. if this were
true then said deed would be void and inexistent for it would then be
afictitious or simulated contract. This claim is merely predicated on the
documents Exhibits G and H and the declarations of Rosario Cui and Jesus
Ma. Cui. We will briefly discuss this evidence.
Exhibit G is an alleged written statement made by Don Mariano Cui
on January 24, 1949 which reads as follows:
A quien corresponde:
Habiendome enterado que hoy existe un lio entre mis hijos en el
Juzgado sobre mis propiedades t los de mi difunta esposa, y sobre
todo porque el transpaso de las misma a mi hijo Antonio Ma. Cui ya
hija Mercedes Cui de Ramas no se halla aun pagado por los mismos,
es mi deseo que el pleito entre mis hijos sea inmediatamente
zanjadoy todas participen por igual dichos bienes.
Y para que asi consta firmo esta declaracion en la Ciudad de Cebu,
hoy a 24 de enero de 1949.
(Fdo.) MARIANO CUI
Rosario Cui, testifying on the circumstances surrounding the preparation of
said Exhibit G, said as follows:
Sr. PIMENTEL:
P. Ayer declaro usted sobre este Exhibit G que, segun usted, esta
firmadopor su Padres?

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R. Si, seor.
P. Como llego a su poder este documento?
R. Esto me dio mi papa; sabe usted cuando estaba tratando con mi
hermano,este me insulto y estaba y llorando, y despues se fueron al
cine; y entoncesdijo el; Deja Vd. y mande preparar una orden mia de
que yo quiero se termineese asunto y que se arregle entre estedes y
no me gusta que haya pleito y yo voy a firmar y se preparo eso.
P. Usted mando preparar el exhibit G en la localidad?
R. Si, seor, con el S. Jayme.
P. Donde lo firmo este exhibit G?
R. En la casa de mi hermana Mercedes. Cuando lo firmo estabamos
los dos, mi marido y yo.
P. Su hermano de usted estaba presente?
R. Estaba en casa mi hermana Mercedes, pero no estaba delante. Mi
hermano estaba ausente. Cuando se hizo este, debla haberse
firmado el 24, pero era por suplica de mi papa, y habia mucha gente,
y ademas en aquel dia noquiera dar disgustos, y cuando nos
marchamos, le dije: "Papa, esta aqui el papel que me ha entregado,
que voy a hacer", y dijo: "voy a firmarlo."
P. Eso fue cuando?
R. El enero 25.
P. Sabiendo usted que su padre vivia en la casa de Mercedes por que
no llamo usted a Mercedes para ser mas legal?
No me acuerdo de eso.
P. Ni siquiera el esposo de su hermana, el Doctor, llamo usted para
que preseciara la firma de este Exhibit G?
R. No me acorde de eso. (pags. 162-B, 163 y164, transcripcion,)
If we would give credit to what document Exhibit G literally says, we would
indeed come to the conclusion that Antonio Ma. Cui and his sister Mercedes,
vendees of the property, have not as yet paid the consideration of the sale to
their father Don Mariano, but the testimony of Rosario Cui itself belies that
such was the real intention of Don Mariano when the statement was
allegedly made. According to Rosario Cui, when Don Mariano was informed
that a case was brought to court to seek the annulment of the sale of the
Manalili property and she informed him of the attitude of the other children,
Don Mariano said: "Deje Vd. y mande preparar una orden mia de que yo
quieroque se termine el asunto y se arregle entre ustedes y no me gusta que

haya pleito, y yo voy a firmar y se preparo eso." Then she caused that
statementto be prepared by Atty. Jayme which was signed by Don Mariano in
the house of Mercedes, If we were to believe the testimony of Rosario Cui, we
would find that the only wish of Don Mariano was to have the litigation
terminated and amicably settled and that nothing was said about the alleged
non-payment of the consideration. And it is strange that the statement was
signed in the house of Mercedes Cui and the latter never came to know about
it before it was presented in court. It is apparent that the whole thing was a
concoction of some of those interested in winning the case which was already
pending in court by inserting something that might serve as basis for the
nullification of the sale; and our suspicion is strengthened when we consider
that statement was allegedly signed at a time when, according to Rosario Cui
herself, her father was already mentally infirm, so much so that about one
month thereafter he was declared incompetent and mentally incapacitated.
The document Exhibit H is an alleged letter of Don Mariano to his son-in-law,
Dr. Ireneo Encarnacion, husband of Rosario, dated January 30, 1949,
wherein Don Mariano apparently added at the foot the following statement:
"PD. Quizas te podre pagar cuando me paguen ellos Nene los solares de
Manalili." If we will give credit to the above statement, we would also
conclude that the vendees have not paid the consideration of the sale of the
Manalili property. Again we can say that such cannot represent the clear will
of Don Mariano if we want to be consistent with our finding that at that time
he was no longer in possession of his mental faculties. Apparently, this is
another scheme employed by Rosario Cui and her husband to bolster up
their case seeking the annulment of the sale.
But the most serious attempt to show that the defendants did not pay any
consideration for the sale of the lots in question is the story that is now being
brought to bear on the sale of the San Jose property by Don Mariano to his
daughter-in-law, Elisa Quintos, wife of Antonio Cui, on August 31, 1944
which, it is alleged, does not show on its face the true consideration paid by
Elisa to don Mariano regarding said property. In relating the so try relative to
this transaction, the picture which counsel for appellants wants to portray is
that the true consideration paid by Elisa to Don Mariano is the sum of
P125,000, and not simply P50,000 as it was made to appear therein, and,
therefore, when the deed of sale was executed on March 8, 1946 no actual
consideration passed from Antonio Cui to Don Mariano because the latter
was not then owing any amount either to said Antonio or to his wife Elisa
Quintos.
Before discussing the details concerning the sale of the San Jose property as
narrated by counsel for appellants, let us take note of the version of Antonio
Cui as to how he came to pay the consideration of P21,333 assigned to him
in the transaction. Antonio Cui testified that of the said sum of P21,333
representing his share in the consideration of the sale, P1,333 was advanced

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in his favor by his sister Mercedes as shown by the receipt Exhibit 24 issued
by Don Mariano in favor of the latter. The balance of P20,000 represents
settlement of the debt his father then owed to his wife Elisa. This
indebtedness, according to Antonio, arose in the following manner: On June
10, 1935, the conjugal partnership of the spouses Don Mariano Cui and
Doa Antonia Perales contracted an obligation of P80,000 with the Filipinas
Life Assurance Co., Ltd. secured by a mortgaged on real estate belonging
both to the conjugal partnership and to the estate of Don Mariano. On March
23, 1942, the company made a demand on Don Mariano for the payment of
the obligation which was then increasing in view of the accumulation of the
interests. In order that he may settle this obligation, Don Mariano asked his
son Jesus Cui to look for a buyer of the San Jose property in Cebu City.

cannot be truthful and that the sale of the San Jose property, as well as that
of the lots in question, are but the product of his insidious scheme and
manipulations to serve his own selfish interests, they brought forth in this
case certain documents and telegrams tending to show that Don Mariano
could have intended to sell the San Jose property for less than the amount of
his obligation to the insurance company more so when he had received offers
for the purchase of said property in the amount of not less than P150,000.
Thus, an attempt was made to show that on August 25, 1944, or five days
before the sale to Elisa Quintos was consummated, Paulino Gullas offered to
buy the property for P150,000. There was also an attempt to show that at
about the time the sale was being made to Elisa Quintos of that property,
Sergio Osmea, Jr. also made an offer in the same amount of P150,000.

Apparently, Jesus made efforts to look for a buyer as shown by several letters
and telegrams he sent to his father regarding the matter so much so that
Don Mariano, acknowledging said efforts, sent to him on October 5, 1943 a
letter thanking him for the interest he was displaying and stating that he
could keep for himself whatever amount he might secure in excess of the
sum of P90,000 which at that time was the totality of the obligation (Exh.
49). But since two years had passed and nothing concrete came from the
efforts exerted by Jesus, Don Mariano had to turn for help to his son
Antonio. Antonio agree to help and said that he would talk to his wife about
it. The best way he and his wife found to raise the money was to sell the
property his wife had in Malate, City of Manila, for the sum P300,000. Of this
amount, they gave to his father the sum of P125,000 to cover his needs and
obligations. With this money, Don Mariano pay his debt to the insurance
company of P94,736.93, including interests, deducted the sum of P5,000
representing the amount spent by him for the wedding of Antonio and Elisa,
and applied P50,000 as consideration for the sale to Elisa Quintos of the
house and lot at San Jose street in Cebu City. And in recognition of the help
extended to him by Antonio and Elisa, Don Mariano acknowledged in their
favor the sum of P70,000 as a loan. The deed of sale of the San Jose property
to Elisa Quintos was executed by Don Mariano Cui on August 31, 1944 with
two of his children, Lourdes Cui de Velez and Jorge Cui as witnesses. And
when the sale of the lots in question came, it was agreed that the loan of
P70,000 be reduced to P20,000, Philippine currency, in deference to the
request of Don Mariano which amount, in addition to the sum of P1,333
advanced by Mercedes, became the consideration paid by Antonio Cui for his
share in the transaction. This is the explanation given by Antonio of how he
came to pay the consideration of the sale, and apparently this is supported
by the same deed of sale wherein Don Mariano acknowledged having received
the total consideration (Exhibit A).

While these facts are true because they are supported by unrefuted evidence,
it is however also true that those offers came when the negotiation between
Don Mariano Cui and Elisa Quintos had already been completed. It should
be borne in mind that the authority given by Don Mariano Cui to Jesus Cui
to sell the property was given even as early as 1942 and despite the lapse of
two years nothing concrete came out in spite of the efforts made by Jesus to
look for a buyer, and so Elisa Quintos had to sell her property in Manila just
to please and accommodate her father-in-law, Don Mariano. The offer,
therefore, of Paulino Gullas or of Sergio Osmea, Jr., even for the sum of
P150,000, came late, and under the circumstances, Don Mariano had no
other alternative, as any other decent man would have done, than to reject
the offers and maintain the sale he made to Elisa even at the sacrifice of
some material advantage in his favor. He wrote to Jesus on August 7, 1944
(Exhibit 52) and told him that he had already sold the San Jose property to
Elisa assuring him at the same time that although the price paid for it was
not high, still he considered the sale to his advantage as Elisa and Antonio
spontaneously reserved in his favor the right to occupy for life any room he
may choose in the same house included in the transaction when he should
return to Cebu to live there, a privilege which Don Mariano knew no other
buyer would be in position to offer. This explains somewhat this apparent
incongruity in the transaction. This consideration may really appear low
especially when done in Japanese currency, but at the same time we cannot
overlook the fact that some moral factor has played an important part in the
transaction. At any rate, that is the consideration that appears in the
document (Exhibit R), and its genuineness and due execution is not now
disputed. We are, therefore, constrained to consider it on its face value.

Appellants, however, do not seem to agree to this narration for they do not
give faith and credit to the explanation given by Antonio Cui as to how he
came to pay his share in the consideration of sale, and to show that Antonio

The consideration paid by Mercedes Cui for her share in the sale in question
is also disputed by appellants who claim that she has not paid any amount
and that the explanation she has given as to how she came to pay said
consideration is not worthy of credence. Mercedes Cui, on this matter,
testified that before her father Mariano left for Manila in the month of July,
1943, he had been taking from her on several occasions sum of money which

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reached a total of P140,000; that in February, 1946, her father returned to

Cebu and she again gave him the sum of P2,000, making a total of P16,000,
the money taken by her father; that after receiving the sum of P2,000, her
father offered to sell her /3 of the interest in the three lots in question,
which she accepted; that days before she signed the deed of sale Exhibit A,
she gave her father the sum of P6,666, of which P1,333 were given for the
account of her brother Antonio Cui, and the sum of P5,333 was applied to
cover the balance of her share in the consideration to complete the amount of
P16,000 previously taken by her father; that in acknowledgement of the
receipt from her of said amounts, her father executed the receipts Exhibit 24
in his own handwriting, and days after, she was made to sign said deed of
sale; and that her father did not include in the sale her other brothers and
sisters because he knew their precarious financial situation.
The weakness which appellants find in this explanation given by Mercedes
Cui lies in that she has been able to produce any receipt showing the
deliveries of money she claimed to have made to her father. This may be true,
but this was explained by her saying that it has never been her habit to ask
for receipt from her father for any money she may have given him, unlike her
sister Rosario who has the habit of asking for receipts. On the other hand,
she claims that her payment of the consideration cannot be disputed for Don
Mariano has expressly acknowledged having received it in a document
written in his own handwriting, as evidence by Exhibit 24, the genuineness
of which is not disputed. And there is one circumstance that bolster up this
claim, which also holds true with regard to Antonio Cui, and that is the
attitude shown by Don Mariano when Rosario Cui has not paid her
consideration in the sale. It should be recalled that when Don Mariano came
to know this fact, he went to Calapan, Mindoro, where Rosario was residing,
to demand payment from her, and when she failed, he asked her to execute a
deed of resale in his favor. If Antonio or Mercedes, as appellants now claim,
has not paid his or her share in the consideration, Don Mariano would have
also demanded from any one of them the resale of the property, in the same
way that Rosario was required. The fact that Don Mariano did not do so
shows that both paid their shares to his full satisfaction.
But appellants are not yet satisfied with this reasoning. They insist that
Mercedes has not paid any consideration because, they contend, if it were
true that she has given her father the different sums of money she claims
she has given, which amount to P16,000, the receipt of said amounts would
have been noted by Don Mariano in the diary Exhibit KK which was kept by
him during the years 1942 to 1945 wherein several entries appear of
different sums of money received and disbursed by him for sundry expenses.
When these alleged sums were not noted down in said diary, they contend, it
is because they are not true.

If we were to believe the testimony of Jesus Ma. Cui that his father had the
habit of writing down in said diary all the receipts and expenses he makes
daily up to the last centavo, the contention may be correct, considering that
the sums of money delivered by Mercedes do not appear in said diary. But
that statement of Jesus Cui is an exaggeration for, as affirmed by Antonio
Cui, not all the entries appearing therein are in the handwriting of Don
Mariano, nor is it true that all the receipts and expenses he makes everyday
are noted down therein, for the truth is that there are many money
transactions and expenses made by Don Mariano during the period of 1942
to 1945 that have not been recorded therein. Thus, the expenses and receipts
had by Don Mariano while he was in Manila, do not appear therein, nor
those incurred by him in his travels from Manila to Calapan, and vice-versa.
Nor do they appear therein the expenses incurred by Don Mariano for his son
Jorge and his family when they went to Calapan; neither does it appear the
loan of P3,000 made to Miguel Ortigas. It does not also appear the sum of
P18,000 borrowed from him by Jorge while they were in Manila as testified by
the latter.
In connection with this diary, we may also point out the suspicious
circumstances surrounding its presentation in court as evidence. It appears
that this document was presented by Rosario Cui who testified that she
received it from her father after Mercedes had already testified in this case,
which was on September 30, 1949. According to her, Don Mariano on that
occasion gave her instruction as to where to get said document and what to
do with it. She said that when she talked with her father about the claim of
Antonio that the consideration he paid was P70,000 which were reduced to
P20,000 upon his request, her father said: "despues me dijo mi papa
quebuscara en sus libros, porque el tenia un libro diario donde apuntaba
susgastos y tenia varios cuadernos todavia alli pero yo no quise sacar todo;
entonses al me dijo que yo lo llevara y lo utilizara para comprobar dos gastos
y las entradas durante esos aos." (p. 112, Memorandum for Appellees)What
Rosario has attributed to her father as regards the use of the diary Exhibit
KK is hard to believe considering that by that time, September 30,1949, Don
Mariano could no longer hold such a coherent conversation and much less
give instructions as to the best way could make use of the diary, considering
that Don Mariano at that time has already been declared mentally
incapacitated. The presentation of said diary can have no other meaning
than that it is an eleventh hour attempt to bolster up the claim of appellants
that the deed of sale Exhibit A lacks consideration.
As an additional arguemen to nullify the deed of sale Exhibit A, even
partially, in the supposition that all their previous arguments would prove of
no avail, appellants raise the question that said sale should be invalidated at
least in so far as the portion of the property sold to Antonio Cui is concerned,
for the reason that when that sale was effected he was then acting as the
agent or administrator of the properties of Don Mariano Cui. In advancing

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this argument, appellants lay stress on the power of attorney Exhibit L which
was executed by Don Mariano in favor of Antonio Cui on March 2, 1946,
wherein the former has constituted the latter as his "true and lawful
attorney" to perform in his name and that of the intestate heirs of Doa
Antonia Perales the following acts:
. . . to administer, sell, mortgage, lease, demand, claim, represent me
and the intestate heirs, in all meetings of corporations, associations,
of which my or their presence is required, sue for, collect, cash,
indorse checks drawn in my favor or of the intestate heirs against
any person or entity or bank, and sign all documents, that I and or
the intestate heirs to which I am the administrator are entitled to;
giving and granting untomy said attorney full power to perform and
to make everything necessary to be done or which he believes to be
necessary or beneficial for me and the said heirs as fully and to all
intents and purposes as I might or could do if personally present,
with full power of substitution, and revocation, hereby granting
ratifying all that he or his substitutes shall lawfully do or cause to be
done by virtue of these presents.
While under article 1459 of the old Civil Code an agent or administrator is
disqualified from purchasing property in his hands for sale or management,
and, in this case, the property in question was sold to Antonio Cui while he
was already the agent or administrator of the properties of Don Mariano Cui,
we however believe that this question can not now be raised or invoked for
the following reasons.
(1) This contention is being raised in this appeal for the first time. It was
never raised in the trial court. An examination of the complaints, both
original as well as amended, will show that nowhere therein do they raise the
invalidity of the sale on that ground nor ask as an alternative relief for the
partial revocation of the sale in so far as Antonio's share is concerned
because of the alleged relation of principal and agent between vendor and
vendee. It is undoubtedly for this reason that the trial has not passed upon
this question in its decision. And considering that under Section 19, Rule 48,
of our Rules of Court, an appellant may only include "In his assignment of
error any question of law or fact that has been raised in the court below and
which is within the issues made by the parties in their pleadings", it follows
that appellants are now prevented from raising this question for the first time
in this instance.
(2) The power of attorney in question is couched in so general a language that
one cannot tell whether it refers to the properties of Don Mariano or only to
the conjugal properties of the spouses. However, considering that the
appointment was extended to Antonio Cui by Don Mariano so that he may
act as agent "for me and for the intestate heirs of the deceased Antonia
Perales", one is led to believe that the power refers to the conjugal properties

wherein he had one-half interest in the heirs of Doa Antonia, the remaining
half. Moreover, the power of attorney was executed on March 2, 1946 while
the deed of sale was executed on March 8, 1946. They were therefore
executed practically at the same time, which makes it doubtful as to whether
such sale can be deemed to be within the prohibition of the law.
(3) The prohibition of the law is contained in article 1459 of the old Civil
Code, but this prohibition has already been removed. Under the provisions of
article 1491, section 2, of the new Civil Code, an agent may now buy property
placed in his hands for sale or administration, provided that the principal
gives his consent thereto. While the new Code came into effect only on
August 30, 1950, however, since this is a right that is declared for the first
time, the same may be given retroactive effect if no vested or acquired right is
impaired (Article 2253, new Civil Code). During the lifetime Don Mariano,
and particularly on March 8, 1946, the herein appellants could not claim any
vested or acquired right in these properties, for, as heirs, the most they had
was a mere expentancy. We may, therefore, invoke now this practical and
liberal provision of our new Civil Code even if the sale had taken place before
its effectivity.
The remaining question to be determined refers to the nature of the
properties in question which appellants claim belong to the conjugal
partnership of Don Mariano Cui and Doa Antonia Perales while, on the
other hand, appellees contend belong exclusively to Don Mariano.
In support of their contention, appellants rely on the legal presumption that
said properties are conjugal because they were acquired by Don Mariano and
his wife during their marriage, and on the testimony of Jesus, Jorge and
Rosario Cui, three of the children of Don Mariano, who testified that said
properties are conjugal because they have always been of the belief or
impression that they belong to the conjugal partnership of their parents.
They have not presented any documentary evidence in support of their
contention.
It is true that the properties in question were acquired during the marriage of
Don Mariano Cui Doa Antonia Perales", and as much they are presumed to
be conjugal properties (Article 1407, old Civil Code), but this presumption
appears here rebutted by conclusive and strong evidence to the contrary. It
should be stated that these properties originally belonged to Don Pedro Cui
and Doa Benigna Cui, uncle and aunt, respectively, of Don Mariano, which
were donated by them to Don Mariano on April 12, 1912 on condition that
the latter renounce any further inheritance he might have been in the
intestate estate of the donors. And while appellees have been able to
introduce any copy of the deed of donation because the same has already
disappeared, the fact however remains that it has been clearly established
that such donation has been actually made exclusively to Don Mariano by
clear and satisfactory evidence. The following is a discussion of such

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evidence which consists in the testimony of Marta Cui and Generoso Vda. de
Jakosalem, both nieces of the donors, and in numerous documents the
genuineness of which is not disputed.
Marta Cui, a woman 81 years old, testified that since she was 10 years of age
she lived in the company of her uncle Pedro Cui and aunt Benigna Cui; that
during their lifetime these two made donations of their lands to their
nephews and nieces subject to the condition that they should renounce
whatever share they might have in their inheritance and among the donees
was Don Mariano Cui; that the donations were made exclusively to their
nephews and nieces, or without including their respective spouses; that the
donation made in her favor is contained in the document Exhibit 21; and
that the lots in question were donated to Don Mariano Cui to the exclusion of
his spouse Antonia Perales. Examining said donation Exhibit 21 one would
find that it was really made exclusive in favor of Marta Cui subject to the
condition that she would renounce whatever inheritance she might have from
the donors.
Generoso Vda. de Jakosalem, another woman of advanced age who because
of unexpected illness was not able to continue testifying, also affirmed that
the lots in question were donated to Don Mariano by her uncle Pedro Cui and
aunt Benigna Cui exclusively, and this she knows personally because on the
same date such donation was made, she also received a donation from the
same donors.
Antonia Ma. Cui, testifying on this matter, said: that while he was acting as
private secretary of his father Don Mariano before the was, he had an
opportunity to see a copy of the deed of donation of the lots in question in his
favor (his father), which copy was furnished by the clerk of court, and at the
foot thereof there appears a note to the effect that the original of said deed
was on file in the record of the cadastral case covering the property; that said
document appears signed by the donors Pedro Cui and Benigna Cui, by the
donee Mariano Cui and the instrumental witnesses Victor Cui and Dionisio
Jakosalem; that said copy having been lost, he went to see the clerk of court
to inquire about the original that was on file in the record of the cadastral
case but the clerk of court told him that the record was destroyed during the
last was; that he them went to the office of the Bureau of Achives to see if he
could get a copy of the document but in said office he only found the notarial
register of the notary public Raymundo Enrique wherein the deed of donation
appears recorded; that at his request the chief of said office issued photastic
copies of the pages of the notarial register which contained the annotation
relative not only to the deed of donation in question but also to that which
pertains to the other deeds of donation executed by the donors Pedro Cui and
Benigna Cui (Exhibit 31-a and 31-b); that the entry No. 310 that appears in
the copy marked Exhibit 31-b refers to the deed of donation of the lots in
question in favor of his father because said entry refers to a property situated

in Plaza Washington, Cebu, where his father did not have any other property
except that donated to him by his relatives, which was later divided into three
lots, and that it is of common knowledge among members of the Cui family
that all the nephews of Pedro Cui and Benigna Cui received from them by
way of donation several pieces of lands subject to the condition that they
renounce their right to inherit from the donors.
Entry No. 310 which appears in photastic copy Exhibit 31-b contains under
the heading "Nature of Instrument" the following annotation: "Donacion
condicional que hacen Pedro Cui y Benigna Cui a favor de su sobrino
Mariano Cui de un solar con todas sus mejoras y edifficio en la plaza de
Washington, Cebu; y la aceptacion del donatario quien agradece a los
donantes." In the same entry there also appears that the document was
executed on April 12, 1912 by Pedro Cui, Benigna Cui, and attested by Victor
Cui and Dionisio Jakosalem.
In the photastic copy Exhibit 31-a, there appear entries Nos. 301, 303, 304
and 305 which refer to the deeds of donnation executed by Pedro Cui and
Benigna Cui in favor of their nephews and nieces Mauricio Cui, Marta Cui,
Victor Cui, Angel Cui and Felicidad Cui. Note that these donations were made
exclusively in favor of the nephews and nieces without including their
respective spouses and were all executed on April 11, 1912, or one day before
the execution of the donation in favor of Don Mariano Cui. The two
photostatic copies Exhibits 31-a and 31-b corroborate the testimony of Marta
Cui and Generoso Vda. de Jakosalem to the effect that all the donations
made by Don Pedro Cui and Benigna Cui in favor of their nephews and
nieces were made to them exclusively or without including their respective
spouses, and subject to the condition that they should renounce their right
to inherit from the donors.
In addition to the foregoing evidence, there are other documents which
strenghten the contention that the lots in question were donated exclusively
to Don Mariano Cui. One of them is the inventory prepared by Don Mariano
of the properties which belonged to him exclusively and those which belonged
to the conjugal partnership, as a result of the death of his wife Antonia
Perales in 1939, copies of which were furnished to all the children of Don
Mariano. In this inventory marked Exhibit 8, under the heading "Bienes del
esposo superviviente Don Mariano Cui," the following appears: "1.-Un solar
compuesto de los lotes 2312, 2313 y 2319, del Catastro de Cebu, con sus
mejoras consistentes en una casa de pierda y madera con techo de teja y con
una azotea tambien de pierda y madera." In the same inventory under the
heading "Bienes ganancials habidos durante el matrimonio de Don Mariano
Cui y Doa Antonia Perales," there also appears the following statement: "1.
Un edificio mixto de concreto y madera con techo de hierro galvanizado . . .
construido un una porcion de terreno, de mildosientos cincuenta (1,250)
metros cuadrados de superficie, mas o menos, la cual forma parte de un

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solar de mayor extention, situado entre las Calles Manalili y Calderon de la

ciudad de Cebu, Cebu . . . y pertenece en propiedad exclusiva al esposa
superviviente Don Mariano Cui." This property is the one known as lots Nos.
2312, 2313, and 2319. This inventory was never objected to by the heirs and
shows clearly that while the land belongs exclusively to Don Mariano Cui the
building constructed thereon was considered as conjugal property.
Another important document is the extra-judicial partition of the properties
pertaining to the conjugal partnership of Don Mariano Cui and the deceased
wife Antonia Perales, marked Exhibit 1-a, which was signed by Don Mariano
and all his children, with the exception of Jorge Cui, who was then in Manila
when the document was signed on December 6, 1946. In said document
mention is made of the inventory which was prepared by Don Mariano of the
conjugal properties belonging to him and his wife, as well as the powers of
attorney executed in favor of Don Mariano by his children authorizing him to
administer the properties belonging to the conjugal partnership. It is
interesting to note that in this deed of partition a relation is made of the
conjugal properties as well as of the debts and obligation which were then
existing against the partnership and the disposition made of the properties to
pay said debts and obligations. It is also interesting to note that the three lots
in question are not included in this deed of partition. The fact that all the
heirs, with the exception of Jorge, signed this deeds of partition without any
protest, is a clear proof that they knew right along that said lots were
exclusive property of their father and did not belong to the conjugal
partnership. It is true that appellants Jesus Ma. Cui and Rosario Cui, while
admitting the authenticity and due execution of the above deed of partition,
now contend that they signed the same without being aware of its contents,
but this contention can hardly be given credit, for we can not suppose that,
referring as it does to an important document which concern precisely a
partition of inheritance, they should sign the same without first ascertaining
or satisfying themselves of the nature of the transaction.
Other important documents that may have a bearing on this matter are
inheritance tax return Exhibit 32 and the relation Exhibit 33 of the real
properties of Don Mariano Cui for the purpose required by law relative to the
issuance of the Residence Certificate B. The inheritance tax return was filed
by Don Mariano Cui in 1939 in connection with the hereditary left by his wife
Antonia Perales and in said the lots in question were not included, while the
relation Exhibit 33 includes said lots because they were deemed by Don
Mariano as his exclusive property and as such should be included in the
assessment to be made in connection with the issuance of the Residence
Certificate B. These two documents, which were prepared by Don Mariano
Cui, clearly indicate that the lots in question were always considered by him
as his exclusive property.

There can therefore be no doubt, in the light of the overhelming evidence,

testimonial as well as documentary, we have discussed in the preceeding
paragraphs, that these three lots in question have always been considered
not only by Don Mariano Cui, but by his children and other relatives, him by
his uncle Pedro Cui and aunt Benigna Cui to the exclusion of his wife
Antonia Perales. Consequently, the contention that, in disposing of said
property, Don Mariano Cui has appropriated what belongs to his co-heirs,
has completely no function in the evidence.
Having reached the conclusion that the lots in question were the exclusive
property of Don Mariano Cui and that the deed of sale Exhibit A was
executed by him freely, intelligently, and with sufficient pecuniary
consideration, we deem it unnecessary to dwell on the other points discussed
by both parties in their briefs and in their respective memoranda. While
these points, vehemently advocated by appellants' counsel may throw could
on the due execution of the sale, or may cast doubt on the sufficiency of its
consideration, we are however constrained to uphold its validity if we are to
be consistent with our conclusion that Don Mariano has executed it while
still in the full enjoyment of his mental faculties, considering that he never
lifted a finger to dispute it, in the same manner he did with regard to Rosario
Cui. No other conclusion is plausible and proper, considering all the
circumstances of the case.
Wherefore, we hereby affirm the decision appealed from, without
pronouncement as to costs.
Paras, C.J., Bengzon, Montemayor, Reyes A., Labrador, Reyes, J.B.L., Endencia
and Felix, JJ., concur.

G.R. No. L-27710

January 30, 1928

ISIDRO BAMBALAN Y PRADO, plaintiff-appellant,

vs.
GERMAN MARAMBA and GENOVEVA MUERONG, defendants-appellants.
Pedro C. Quinto for plaintiff-appellant.
Turner, Rheberg and Sanchez for defendants-appellants.
ROMUALDEZ, J.:

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The defendants admit in their amended answer those paragraphs of the

As regards this minority, the doctrine laid down in the case of Mercado and

complaint wherein it is alleged that Isidro Bambalan y Colcotura was the

Mercado vs. Espiritu (37 Phil., 215), wherein the minor was held to be

owner, with Torrens title, of the land here in question and that the plaintiff is

estopped from contesting the contract executed by him pretending to be age,

the sole and universal heir of the said deceased Isidro Bambalan y Colcotura,

is not applicable herein. In the case now before us the plaintiff did not

as regards the said land. This being so, the fundamental question to be

pretend to be of age; his minority was well known to the purchaser, the

resolved in this case is whether or not the plaintiff sold the land in question

defendant, who was the one who purchased the plaintiff's first cedula used in

to the defendants.

the acknowledgment of the document.

The defendants affirm they did and as proof of such transfer present

In regard to the amount of money that the defendants allege to have given the

document Exhibit 1, dated July 17, 1922. The plaintiff asserts that while it is

plaintiff and her son in 1992 as the price of the land, the preponderance of

true that he signed said document, yet he did so by intimidation made upon

evidence shows that no amount was given by the defendants to the alleged

his mother Paula Prado by the defendant Genoveva Muerong, who threatened

vendors in said year, but that the sum of P663.40, which appears in the

the former with imprisonment. While the evidence on this particular point

document Exhibit 1, is arrived at, approximately, by taking the P150 received

does not decisively support the plaintiff's allegation, this document, however,

by Paula Prado and her husband in 1915 and adding thereto interest at the

is vitiated to the extent of being void as regards the said plaintiff, for the

rate of 50 per cent annum, then agreed upon, or P75 a year for seven years

reason that the latter, at the time he signed it, was a minor, which is clearly

up to July 31, 1922, the sate of Exhibit 1.

shown by the record and it does not appear that it was his real intention to
sell the land in question.

The damages claimed by the plaintiff have not been sufficiently proven,
because the witness Paula Prado was the only one who testified thereto,

What is deduced from the record is, that his mother Paula Prado and the

whose testimony was contradicted by that of the defendant Genoveva

latter's second husband Vicente Lagera, having received a certain sum of

Muerong who, moreover, asserts that she possesses about half of the land in

money by way of a loan from Genoveva Muerong in 1915 which, according to

question. There are, therefore, not sufficient data in the record to award the

Exhibit 3, was P200 and according to the testimony of Paula Prado, was

damages claimed by the plaintiff.

P150, and Genoveva Muerong having learned later that the land within
which was included that described in said Exhibit 3, had a Torrens title

In view of the foregoing, the dispositive part of the decision appealed from is

issued in favor of the plaintiff's father, of which the latter is the only heir and

hereby affirmed, without any express findings as to the costs in this

caused the plaintiff to sign a conveyance of the land.

instance. So ordered.

At any rate, even supposing that the document in question, Exhibit 1,

embodies all of the requisites prescribed by law for its efficacy, yet it does not,
according to the provisions of section 50 of Act No. 496, bind the land and
would only be a valid contract between the parties and as evidence of
authority to the register of deeds to make the proper registration, inasmuch
as it is the registration that gives validity to the transfer. Therefore, the
defendants, by virtue of the document Exhibit 1 alone, did not acquire any
right to the property sold as much less, if it is taken into consideration, the
vendor Isidro Bambalan y Prado, the herein plaintiff, was a minor.

G.R. No. 162593

September 26, 2006

REMEGIA Y. FELICIANO, Substituted by the Heirs of REMEGIA Y.

FELICIANO, as represented by NILO Y. FELICIANO, petitioners,
vs.
SPOUSES AURELIO and LUZ ZALDIVAR, respondents.

316

DECISION

Remegia denied that she sold the subject lot either to Gil or Dalman. She
likewise impugned as falsified the joint affidavit of confirmation of sale that

CALLEJO, SR., J.:

she and her uncle, Narciso Labuntog, purportedly executed before a notary
public, where Remegia appears to have confirmed the sale of the subject

Before the Court is the petition for review on certiorari filed by the Heirs of
Remegia Y. Feliciano (as represented by Nilo Y. Feliciano) seeking the reversal
1

of the Decision dated July 31, 2003 of the Court of Appeals (CA) in CA-G.R.
CV No. 66511 which ordered the dismissal of the complaint filed by Remegia

property to Gil. She alleged that she never parted with the certificate of title
and that it was never lost. As proof that the sale of the subject lot never
transpired, Remegia pointed out that the transaction was not annotated on
TCT No. T-8502.

Y. Feliciano for declaration of nullity of title and reconveyance of property.

The assailed decision of the appellate court reversed and set aside that of the

In their answer, the spouses Zaldivar denied the material allegations in the

Regional Trial Court (RTC) of Cagayan de Oro City, Branch 25 in Civil Case

complaint and raised the affirmative defense that Aurelio is the absolute

No. 92-423.

owner and possessor of the subject lot as evidenced by TCT No. 17993 and
Tax Declaration No. 26864 covering the same. Aurelio claimed that he

The factual and procedural antecedents of the present case are as follows:

acquired the subject lot by purchase from Dalman who, in turn, bought the

Remegia Y. Feliciano filed against the spouses Aurelio and Luz Zaldivar a

Remegia and this sale was allegedly conformed and ratified by the latter and

complaint for declaration of nullity of Transfer Certificate of Title (TCT) No. T-

same from Gil on April 4, 1951. Gil allegedly purchased the subject lot from
her uncle, Narciso Labuntog, before a notary public on December 3, 1965.

17993 and reconveyance of the property covered therein consisting of 243

square meters of lot situated in Cagayan de Oro City. The said title is
registered in the name of Aurelio Zaldivar.

After Aurelio obtained a loan from the Government Service Insurance System
(GSIS), the spouses Zaldivar constructed their house on the subject lot. They
alleged that they and their predecessors-in-interest had been occupying the

In her complaint, Remegia alleged that she was the registered owner of a
parcel of land situated in the District of Lapasan in Cagayan de Oro City with
an area of 444 square meters, covered by TCT No. T-8502. Sometime in 1974,
Aurelio, allegedly through fraud, was able to obtain TCT No. T-17993
covering the 243-sq-m portion of Remegias lot as described in her TCT No. T8502.

said property since 1947 openly, publicly, adversely and continuously or for
over 41 years already. Aurelio filed a petition for the issuance of a new
owners duplicate copy of TCT No. T-8502 because when he asked Remegia
about it, the latter claimed that it had been lost.
After due trial, the RTC rendered judgment in favor of Remegia. It declared
that TCT No. 17993 in the name of Aurelio was null and void for having been

According to Remegia, the 243-sq-m portion (subject lot) was originally

leased from her by Pio Dalman, Aurelios father-in-law, for P5.00 a month,
later increased to P100.00 a month in 1960. She further alleged that she was

obtained through misrepresentation, fraud or evident bad faith by claiming

in his affidavit that Remegias title (TCT No. T-8502) had been lost, when in
fact it still existed.

going to mortgage the subject lot to Ignacio Gil for P100.00, which, however,
did not push through because Gil took back the money without returning the

The court a quo explained that "the court that orders a title reconstituted

receipt she had signed as evidence of the supposed mortgage contract.

when the original is still existing has not acquired jurisdiction over the case.

Thereafter, in 1974, Aurelio filed with the then Court of First Instance of

A judgment otherwise final may be annulled not only on extrinsic fraud but

Misamis Oriental a petition for partial cancellation of TCT No. T-8502. It was

also for lack of jurisdiction."3 Aurelios use of a false affidavit of loss,

allegedly made to appear therein that Aurelio and his spouse Luz acquired

according to the court a quo, was similar to the use during trial of a forged

the subject lot from Dalman who, in turn, purchased it from Gil. The petition

document or perjured testimony that prevented the adverse party, Remegia,

was granted and TCT No. T-17993 was issued in Aurelios name.

from presenting her case fully and fairly.

317

The RTC likewise noted that no public instrument was presented in evidence

before notary public Francisco Velez on December 3, 1965, Remegia and her

conveyancing or transferring title to the subject lot from Remegia to Dalman,

uncle, Narciso Labuntog, confirmed the sale by Remegia of the subject lot to

the alleged predecessor-in-interest of the spouses Zaldivar. The only evidence

Gil and its subsequent conveyance to Dalman. Per Exhibit "6," the CA

presented by the said spouses was a joint affidavit of confirmation of sale

likewise found that Dalman had declared the subject lot for taxation

purportedly signed by Remegia and her uncle, the execution of which was

purposes in his name. In 1965, Dalman sold the same to the spouses

denied by the latters children. The certificate of title of the spouses Zaldivar

Zaldivar who, in turn, had it registered in their names for taxation purposes

over the subject property was characterized as irregular because it was

beginning 1974. Also in the same year, Aurelio filed with the then CFI of

issued in a calculated move to deprive Remegia of dominical rights over her

Misamis Oriental a petition for the issuance of a new owners duplicate copy

own property. Further, the spouses Zaldivar could not set up the defense of

of TCT No. T-8502, alleging that the owners duplicate copy was lost; the CFI

indefeasibility of Torrens title since this defense does not extend to a

granted the petition on March 20, 1974. Shortly, Aurelio filed with the same

transferor who takes the certificate of title with notice of a flaw therein.

CFI another petition, this time for the partial cancellation of TCT No. T-8502

Registration, thus, did not vest title in favor of the spouses; neither could

and for the issuance of a new certificate of title in Aurelios name covering the

they rely on their adverse or continuous possession over the subject lot for

subject lot. The CFI issued an order granting the petition and, on the basis

over 41 years, as this could not prevail over the title of the registered owner

thereof, the Register of Deeds of Cagayan de Oro City issued TCT No. T-17993

pursuant to Sections 504 and 515 of Act No. 496, otherwise known as The

covering the subject lot in Aurelios name.

Land Registration Act.

Based on the foregoing factual findings, the appellate court upheld the
The dispositive portion of the decision of the court a quo reads:

spouses Zaldivars ownership of the subject lot. The CA stated that Remegias
claim that she did not sell the same to Gil was belied by Exhibit "5," a deed

IN THE LIGHT OF THE FOREGOING, and by preponderance of evidence,

which showed that she transferred ownership thereof in favor of Gil. The fact

judgment is hereby rendered canceling TCT T-17993 and reconveyance of

that the said transaction was not annotated on Remegias title was not given

243 square meters the title and possession of the same, by vacating and

significance by the CA since the lack of annotation would merely affect the

turning over possession of the 243 square meters of the subject property to

rights of persons who are not parties to the said contract. The CA also held

the plaintiff [referring to Remegia] which is part of the land absolutely owned

that the joint affidavit of confirmation of sale executed by Remegia and

by the plaintiff covered by [TCT] T-8502 and to solidarily pay the plaintiff

Narciso Labuntog before a notary public was a valid instrument, and carried

Fifty Thousand Pesos (P50,000.00) as moral damages; Ten Thousand Pesos

the evidentiary weight conferred upon it with respect to its due

(P10,000.00) as exemplary damages; Fifty Thousand Pesos (P50,000.00) as

execution.7 Moreover, the CA found that the notary public (Atty. Francisco

attorneys fees and Ten Thousand Pesos (P10,000.00) expenses for litigation

Velez) who notarized the said document testified not only to its due execution

to the plaintiff.

and authenticity but also to the truthfulness of its contents. The

contradiction between the testimonies of the children of Narciso Labuntog

SO ORDERED.

and the notary public (Atty. Velez), according to the CA, casts doubt on the
credibility of the former as it was ostensible that their version of the story

On appeal, the CA reversed the decision of the RTC and ruled in favor of the

was concocted.8

spouses Zaldivar. In holding that Remegia sold to Gil a 243 sq m portion of

the lot covered by TCT No. T-8502, the appellate court gave credence to

The CA further accorded in favor of the judge who issued the order for the

Exhibit "5," the deed of sale presented by the spouses Zaldivar to prove the

issuance of the new owners duplicate copy of TCT No. T-8502 the

transaction. The CA likewise found that Gil thereafter sold the subject

presumption of regularity in the performance of his official duty. It noted that

property to Dalman who took actual possession thereof. By way of a

the same was issued by the CFI after due notice and hearing.

document denominated as joint affidavit of confirmation of sale executed

318

Moreover, prescription and laches or estoppel had already set in against

in denying the motion for reconsideration which was filed within the fifteen-

Remegia. The appellate court pointed out that TCT No. T-17993 in the name

day reglementary period in violation to the rules of court.

of Aurelio was issued on September 10, 1974, while Remegias complaint for
annulment and reconveyance of property was filed more than 17 years

c.

thereafter or on August 10, 1992. Consequently, Remegias action was barred

by prescription because an action for reconveyance must be filed within 10

in ruling that the court who ordered the issuance of new certificate of title

years from the issuance of the title since such issuance operates as a

despite existence of owners duplicate copy that was never lost has

constructive notice.9 The CA also noted that the spouses Zaldivar constructed

jurisdiction over the case.

their house on the subject lot some time in 1974-1975, including a 12-foot
firewall made of hollow blocks, and Remegia took no action to prevent the

d.

said construction.
in concluding that petitioners (Plaintiff-appellee) claim of ownership over the
The dispositive portion of the assailed CA decision reads:
WHEREFORE, foregoing premises considered, the December 3, 1999

subject lot was barred by estoppel or laches.

e.

Decision of the Regional Trial Court of Misamis Oriental, Cagayan de Oro

City, in Civil Case No. 92-423, is REVERSED and SET ASIDE and a new one

in concluding that the respondents (defendants-appellants) are the absolute

is entered DISMISSING the said civil case.

owners of the subject lot based on tct no. 17993 issued to them.

SO ORDERED.10

f.

When their motion for reconsideration was denied by the CA in the assailed

in obviating essential and relevant facts, had it been properly appreciated,

Resolution dated February 4, 2004, the heirs of Remegia (the petitioners)

would maintain absolute ownership of petitioner (plaintiff-appellee) over the

sought recourse to the Court. In their petition for review, they allege that the

subject lot as evidenced by existing tct no. t-8502. 11

appellate court gravely erred

The Court finds the petition meritorious.
A.
It should be recalled that respondent Aurelio Zaldivar filed with the then CFI
IN NOT DISMISSING THE APPEAL OF THE RESPONDENTS (DEFENDANTS-

of Misamis Oriental a petition for issuance of a new owners duplicate copy of

APELLANTS) MOTU PROPIO OR EXPUNGING THE BRIEF FOR

TCT No.T-8502, alleging that the owners duplicate copy was lost. In the

DEFENDANTS-APPELLANTS FROM RECORD FOR FAILURE TO FILE THE

Order dated March 20, 1974, the said CFI granted the petition and

REQUIRED BRIEF FOR THE DEFENDANTS-APPELLANTS ON TIME BUT

consequently, a new owners duplicate copy of TCT No. T-8502 was issued.

BEYOND THE LAST AND FINAL EXTENDED PERIOD WITHIN WHICH TO

FILE THE SAID BRIEF IN VIOLATION TO Section 7 and section 12, rule 44 of

However, as the trial court correctly held, the CFI which granted respondent

the revised rules of court and in contradiction to the ruling enunciated in

Aurelios petition for the issuance of a new owners duplicate copy of TCT No.

catalina roxas, et al. vs. court of appeals, g.r. no. L-76549, december 10,

T-8502 did not acquire jurisdiction to issue such order. It has been

1987.

consistently ruled that "when the owners duplicate certificate of title has not
been lost, but is in fact in the possession of another person, then the
B.

reconstituted certificate is void, because the court that rendered the decision

319

had no jurisdiction. Reconstitution can validly be made only in case of loss of

Consequently, the court a quo correctly nullified TCT No. T-17993 in

the original certificate."12 In such a case, the decision authorizing the

Aurelios name, emanating as it did from the new owners duplicate TCT No.

issuance of a new owners duplicate certificate of title may be attacked any

T-8502, which Aurelio procured through fraud. Respondent Aurelio cannot

time.13

raise the defense of indefeasibility of title because "the principle of

indefeasibility of a Torrens title does not apply where fraud attended the

The new owners duplicate TCT No. T-8502 issued by the CFI upon the

issuance of the title. The Torrens title does not furnish a shield for

petition filed by respondent Aurelio is thus void. As Remegia averred during

fraud."15 As such, a title issued based on void documents may be annulled. 16

her testimony, the owners duplicate copy of TCT No. T-8502 was never lost
and was in her possession from the time it was issued to her:

The appellate courts reliance on the joint affidavit of confirmation of sale

purportedly executed by Remegia and her uncle, Narciso Labuntog, is not

Q A while ago, you said that you were issued a title in 1968, can you tell the

proper. In the first place, respondent Aurelio cannot rely on the joint affidavit

Honorable Court who was in possession of the title?

of confirmation of sale to prove that they had validly acquired the subject lot
because, by itself, an affidavit is not a mode of acquiring

A I am the one in possession and I am the one keeping the title.

Q Even up to the present?
A Yes, Sir.

ownership.17 Moreover, the affidavit is written entirely in English in this wise:

JOINT AFFIDAVIT OF CONFIRMATION OF SALE18
We, NARCISO LABUNTOG and REMEGIA YAPE DE FELICIANO, both of legal
age, Filipino citizens and residents of Lapasan, Cagayan de Oro City,

Q Was there any instance that this title was borrowed from you?
A No, Sir.

Philippines, after being duly sworn according to law, depose and say:
1. That the late FRANCISCO LABUNTOG is our common ancestor, the
undersigned NARCISO LABUNTOG being one of his sons and the

Q Was there any instance that this title was lost from your possession?

undersigned REMEGIA YAPE DE FELICIANO being the daughter of the late

Emiliana Labuntog, sister of Narciso Labuntog;

A No, Sir.
2. That after his death, the late Francisco Labuntog left behind a parcel of
Q Was there any instance that this title was surrendered to the Register of

land known as Lot No. 2166 C-2 of the Cagayan Cadastre situated at

Deeds of the City of Cagayan de Oro?

Lapasan, City of Cagayan de Oro, Philippines which is being administered by

the undersigned Narciso Labuntog under Tax Decl. No. 27633;

A No, Sir. There never was an instance There never was an instance that
this title was surrendered to the Register of Deeds.

3. That the entire Cadastral Lot No. 2166 C-2 has been subdivided and
apportioned among the heirs of the late Francisco Labuntog, both of the

Q As there any instance that you petitioned to the Honorable Court for the

undersigned affiants having participated and shared in the said property,

issuance of a new owners duplicate copy of this title in lieu of the lost copy of

Remegia Yape de Feliciano having inherited the share of her mother Emiliana

said title?

Labuntog, sister of Narciso Labuntog;

A No, Sir. There was never an instance because this title was never lost. 14

320

4. That on April 4, 1951, Remegia Yape de Feliciano sold a portion of her

(SGD.) ILLEGIBLE

share to one Ignacio Gil and which portion is more particularly described and
bounded as follows:

FRANCISCO X. VELEZ

"On the North for 13 meters by Agustin Cabaraban;

Notary Public

On the South for 13 meters by Antonio Babanga;

However, based on Remegias testimony, she could not read and understand
English:

On the East for 18 meters by Clotilde Yape; and

COURT:
On the West for 18meters by Agustin Cabaraban;"
Can you read English?
5. That sometime in the year 1960, the said Ignacio Gil conveyed the same
portion to Pio Dalman, who is of legal age, Filipino citizen and likewise a

A No, I cannot read and understand English.

resident of Lapasan, Cagayan de Oro City and that since 1960 up to the
present, the said Pio Dalman has been in continuous, open, adverse and

ATTY. LEGASPI:

exclusive possession of the property acquired by him in concept of owner;

Q What is your highest educational attainment?
6. That we hereby affirm, ratify and confirm the acquisition of the above
described portion acquired by Pio Dalman inasmuch as the same is being

A Grade 3.

used by him as his residence and family home and we hereby request the
Office of the City Assessor to segregate this portion from our Tax Decl. No.

Q But you can read and understand Visayan?

27633 and that a new tax declaration be issued in the name of PIO DALMAN
embracing the area acquired and occupied by him.

A Yes, I can read Visayan, but I cannot understand well idiomatic visayan
terms (laglom nga visayan).19

IN WITNESS WHEREOF, we have hereunto affixed our signatures on this 3rd

day of December, 1965 at Cagayan de Oro City, Philippines.

On this point, Article 1332 of the Civil Code is relevant:

(SGD.) Narciso Labuntog (SGD.)Remegia Yape de Feliciano

ART.1332. When one of the parties is unable to read, or if the contract is in a

language not understood by him, and mistake or fraud is alleged, the person

NARCISO LABUNTOG REMEGIA YAPE DE FELICIANO

enforcing the contract must show that the terms thereof have been fully
explained to the former.

Affiant Affiant
The principle that a party is presumed to know the import of a document to
SUBSCRIBED & SWORN to before me this 3rd day of December, 1965 at

which he affixes his signature is modified by the foregoing article. Where a

Cagayan de Oro City, Philippines, affiants exhibited their Residence

party is unable to read or when the contract is in a language not understood

Certificates as follows: NARCISO LABUNTOG, A-1330509 dated Oct. 5, 1965

by the party and mistake or fraud is alleged, the obligation to show that the

and REMEGIA YAPE DE FELICIANO, A-1811104 dated Dec. 3, 1965 both

terms of the contract had been fully explained to said party who is unable to

issued at Cagayan de Oro City.

read or understand the language of the contract devolves on the party

321

seeking to enforce the contract to show that the other party fully understood

Appellants claim of acquisitive prescription is likewise baseless. Under

the contents of the document. If he fails to discharge this burden, the

Article 1126 of the Civil Code, prescription of ownership of lands registered

presumption of mistake, if not, fraud, stands unrebutted and controlling.

20

under the Land Registration Act shall be governed by special laws.

Correlatively, Act No. 496 provides that no title to registered land in

Applying the foregoing principles, the presumption is that Remegia,

derogation of that of the registered owner shall be acquired by adverse

considering her limited educational attainment, did not understand the full

possession. Consequently, proof of possession by the defendants is both

import of the joint affidavit of confirmation of sale and, consequently, fraud

immaterial and inconsequential.25

or mistake attended its execution. The burden is on respondents, the

spouses Zaldivar, to rebut this presumption. They tried to discharge this

Neither can the respondents spouses Zaldivar rely on the principle of

onus by presenting Atty. Francisco Velez (later RTC Judge) who notarized the

indefeasibility of TCT No. 17793 which was issued on September 10, 1974 in

said document. Atty. Velez testified that he "read and interpreted" the

favor of respondent Aurelio. As it is, the subject lot is covered by two different

document to the affiants and he asked them whether the contents were

titles: TCT No. T-8502 in Remegias name covering an area of 444 sq m

correct before requiring them to affix their signatures thereon. 21 The bare

including therein the subject lot, and TCT No. 17793 in the name of

statement of Atty. Velez that he "read and interpreted" the document to the

respondent Aurelio covering the subject lot. Aurelios title over the subject lot

affiants and that he asked them as to the correctness of its contents does not

has not become indefeasible, by virtue of the fact that TCT No. T-8502 in the

necessarily establish that Remegia actually comprehended or understood the

name of Remegia has remained valid. The following disquisition is apropos:

import of the joint affidavit of confirmation of sale. Nowhere is it stated in the

affidavit itself that its contents were fully explained to Remegia in the

The claim of indefeasibility of the petitioners title under the Torrens land title

language that she understood before she signed the same. Thus, to the mind

system would be correct if previous valid title to the same parcel of land did

of the Court, the presumption of fraud or mistake attending the execution of

not exist. The respondent had a valid title x x x It never parted with it; it

the joint affidavit of confirmation of sale was not sufficiently overcome.

never handed or delivered to anyone its owners duplicate of the transfer

certificate of title; it could not be charged with negligence in the keeping of its

Moreover, the purported joint affidavit of confirmation of sale failed to state

duplicate certificate of title or with any act which could have brought about

certain important information. For example, it did not mention the

the issuance of another certificate upon which a purchaser in good faith and

consideration or price for the alleged sale by Remegia of the subject lot to

for value could rely. If the petitioners contention as to indefeasibility of his

Ignacio Gil. Also, while it stated that the subject lot was conveyed by Ignacio

title should be upheld, then registered owners without the least fault on their

Gil to Pio Dalman, it did not say whether the conveyance was by sale,

part could be divested of their title and deprived of their property. Such

donation or any other mode of transfer. Finally, it did not also state how the

disastrous results which would shake and destroy the stability of land titles

ownership of the subject lot was transferred from Pio Dalman to respondent

had not been foreseen by those who had endowed with indefeasibility land

Aurelio or respondents.

titles issued under the Torrens system.26

Respondents claim that they had been occupying the subject lot since 1947

Remegias TCT No. T-8502, thus, prevails over respondent Aurelios TCT No.

openly, publicly, adversely and continuously or for over 41 years is

17793, especially considering that, as earlier opined, the latter was correctly

unavailing. In a long line of cases,22 the Court has consistently ruled that

nullified by the RTC as it emanated from the new owners duplicate TCT No.

lands covered by a title cannot be acquired by prescription or adverse

T-8502, which in turn, respondent Aurelio was able to procure through

possession. A claim of acquisitive prescription is baseless when the land

fraudulent means.

involved is a registered land following Article 1126

23

of the Civil Code in

relation to Section 46 of Act No. 496 or the Land Registration Act (now
Section 4724 of P.D. No 1529):

322

Contrary to the appellate courts holding, laches has not set in against

A Yes.

Remegia. She merely tolerated the occupation by the respondents of the

subject lot:

Q Can you tell us what is the distance between your house and the house
constructed by the defendants in 1974?

Q You also stated in the direct that the defendants in this case, Mr. and Mrs.
Zaldivar, were issued a title over a portion of this land which you described a

A They are very near because they constructed their house in my lot.

while ago?
Q How many meters, more or less?
A We knew about that only recently.
A It is very near, very close.
Q When was that when you knew that the defendants were issued title over a
portion of the land you described a while ago?

Q When they constructed their house, meaning the defendants, did you not
stop the defendants from the construction?

A In June, 1992.
A I did not bother in stopping the Zaldivars in constructing the house
Q In what way did you discover that a portion of the land was titled in the

because I am certain that I can get the land because I own the land.

name of the defendants?

Q Aside from not protesting to the construction, did you not bring this matter
A I discovered that my property was titled by Mr. and Mrs. Zaldivar when I

to the attention of the barangay captain or to the police authorities?

went to the Register of Deeds for the purpose of partitioning my property

among my children.

A No, because I did not bring this matter to the barangay captain nor to the
police authorities. It is only now that we discovered that it is already titled.

Q And you were surprised why it is titled in their names?

Q When you said now, it is in 1992?
A Yes.
A Yes.
Q Is it not a fact that the defendants have constructed their house on a
portion of the land you described a while ago?

Q Is it not a fact that after the house was finished the defendants and their
family resided in that house which they constructed?

A Yes. I knew that the Zaldivars built a house on the property I described a
while ago, but I did not bother because I know that I can get that property

A Yes, after the house was finished, they resided in that house.

because I own that property.

Q As a matter of fact, from that time on up to the present, the defendants are
Q And the defendants constructed that house in 1974-75, am I correct?

still residing in that house which they constructed in 1974 or 1975, am I

correct?

A Yes.
A Yes.
Q And as a matter of fact, you have also a house very near to the house that
was constructed by the defendants in this case?

323

Q As a matter of fact also the defendants fenced the lot in which their house

Q Neither did you bring any action in court or with the barangay captain or

was constructed with hollow blocks, am I correct?

the police authorities when the Zaldivars constructed that hollow blocks
fence?

A Yes, the house of the Zaldivars was fenced by them with hollow blocks and
I did not stop them to avoid trouble.

A No, I did not complain the fencing by the Zaldivars. Only now that we know
that we bring this matter to the barangay captain.

Q As a matter of fact, the boundary between your house and the house of
Zaldivar, there was constructed a firewall made of hollow blocks about twelve

Q And in the [office of the] barangay captain, you were able to meet the

feet in height, am I correct?

defendants, am I correct?

A Yes.

A No. When we went to the barangay captain, the Zaldivars did not appear
there; therefore, we hired a lawyer and filed this case. 27

Q Such that you cannot see their house and also the Zaldivars cannot see
your house because of that high firewall, am I correct?

Case law teaches that if the claimants possession of the land is merely
tolerated by its lawful owner, the latters right to recover possession is never

A We can still see each other because the firewall serves as the wall of their

barred by laches:

house.
As registered owners of the lots in question, the private respondents have a
Q When did the Zaldivars construct that hollow blocks fence? After the house

right to eject any person illegally occupying their property. This right is

was finished?

imprescriptible. Even if it be supposed that they were aware of the

petitioners occupation of the property, and regardless of the length of that

A I cannot remember.

possession, the lawful owners have a right to demand the return of their
property at any time as long as the possession was unauthorized or merely

Q But it could be long time ago?

tolerated, if at all. This right is never barred by laches. 28

ATTY. VEDAD:

Nonetheless, the Court is not unmindful of the fact that respondents had
built their house on the subject lot and, despite knowledge thereof, Remegia

Q That would be repetitious. She answered she could not remember.

did not lift a finger to prevent it. Article 453 of the Civil Code is applicable to
their case:

ATTY. LEGASPI:
ART. 453. If there was bad faith, not only on the part of the person who built,
Q It could be many years ago?

planted or sowed on the land of another, but also on the part of the owner of
such land, the rights of one and the other shall be the same as though both

A I cannot remember when they constructed the fence.

had acted in good faith.

Q Did you [file] any protest or complaint when the Zaldivars constructed the

It is understood that there is bad faith on the part of the landowner whenever

hollow blocks fence?

the act was done with his knowledge and without opposition on his part.

A No.

324

Under the circumstances, respondents and Remegia are in mutual bad faith

or (2) sell the subject lot to the respondents. Petitioners cannot refuse to

and, as such, would entitle the former to the application of Article 448 of the

exercise either option and compel respondents to remove their house from

Civil Code governing builders in good faith:

the land.34 In case petitioners choose to exercise the second option,

respondents are not obliged to purchase the subject lot if its value is

ART. 448. The owner of the land on which anything has been built, sown or

considerably more than the improvements thereon and in which case,

planted in good faith, shall have the right to appropriate as his own the

respondents must pay rent to petitioners. If they are unable to agree on the

works, sowing or planting, after payment of the indemnity provided for in

terms of the lease, the court shall fix the terms thereof.

Articles 54629 and 548,30 or to oblige the one who built or planted to pay the
price of the land, and the one who sowed, the proper rent. However, the

In light of the foregoing disquisition, the Court finds it unnecessary to resolve

builder or planter cannot be obliged to buy the land if its value is

the procedural issues raised by petitioners.

considerably more than that of the building or trees. In such a case, he shall
pay reasonable rent, if the owner of the land does not choose to appropriate

WHEREFORE, the petition is GRANTED. The Decision dated July 31, 2003

the building or trees after the proper indemnity. The parties shall agree upon

and Resolution dated February 4, 2004 of the Court of Appeals in CA-G.R.

the terms of the lease and in case of disagreement, the court shall fix the

CV No. 66511 are REVERSED and SET ASIDE. The Decision dated December

terms thereof.

3, 1999 of the Regional Trial Court of Cagayan de Oro City, Branch 25 in Civil
Case No. 92-423 is REINSTATED with the MODIFICATION that petitioners

Following the above provision, the owner of the land on which anything has

are likewise ordered to exercise the option under Article 448 of the Civil Code.

been built, sown or planted in good faith shall have the right to appropriate
as his own the building, planting or sowing, after payment to the builder,

SO ORDERED.

planter or sower of the necessary and useful expenses, and in the proper
case, expenses for pure luxury or mere pleasure. 31
The owner of the land may also oblige the builder, planter or sower to
purchase and pay the price of the land. If the owner chooses to sell his land,
the builder, planter or sower must purchase the land, otherwise the owner

G.R. No. 188288

may remove the improvements thereon. The builder, planter, or sower,

however, is not obliged to purchase the land if its value is considerably more
than the building, planting or sowing. In such case, the builder, planter or

SPOUSES FERNANDO and LOURDES VILORIA, Petitioners,

vs.

sower must pay rent to the owner of the land. If the parties cannot come to
terms over the conditions of the lease, the court must fix the terms thereof.

32

CONTINENTAL AIRLINES, INC.,

DECISION

The right to choose between appropriating the improvement or selling the

land on which the improvement of the builder, planter or sower stands, is
given to the owner of the land,33 Remegia, in this case, who is now
substituted by petitioners as her heirs.
Consequently, the petitioners are obliged to exercise either of the following
options: (1) to appropriate the improvements, including the house, built by

January 16, 2012

REYES, J.:
This is a petition for review under Rule 45 of the Rules of Court from the
January 30, 2009 Decision1 of the Special Thirteenth Division of the Court of
Appeals (CA) in CA-G.R. CV No. 88586 entitled "Spouses Fernando and

the respondents on the subject lot by paying the indemnity required by law,

325

Lourdes Viloria v. Continental Airlines, Inc.," the dispositive portion of which

traveling by night, Fernando opted to request for a refund. Mager, however,

states:

denied his request as the subject tickets are non-refundable and the only
option that Continental Airlines can offer is the re-issuance of new tickets

WHEREFORE, the Decision of the Regional Trial Court, Branch 74, dated 03

within one (1) year from the date the subject tickets were issued. Fernando

April 2006, awarding US$800.00 or its peso equivalent at the time of

decided to reserve two (2) seats with Frontier Air.

payment, plus legal rate of interest from 21 July 1997 until fully paid,
[P]100,000.00 as moral damages, [P]50,000.00 as exemplary damages,

As he was having second thoughts on traveling via Frontier Air, Fernando

[P]40,000.00 as attorneys fees and costs of suit to plaintiffs-appellees is

went to the Greyhound Station where he saw an Amtrak station nearby.

hereby REVERSED and SET ASIDE.

Fernando made inquiries and was told that there are seats available and he

Defendant-appellants counterclaim is DENIED.

purchased two (2) tickets for Washington, D.C.

Costs against plaintiffs-appellees.

From Amtrak, Fernando went to Holiday Travel and confronted Mager with

SO ORDERED.

On April 3, 2006, the Regional Trial Court of Antipolo City, Branch 74 (RTC)
rendered a Decision, giving due course to the complaint for sum of money
and damages filed by petitioners Fernando Viloria (Fernando) and Lourdes
Viloria (Lourdes), collectively called Spouses Viloria, against respondent
Continental Airlines, Inc. (CAI). As culled from the records, below are the
facts giving rise to such complaint.
On or about July 21, 1997 and while in the United States, Fernando
purchased for himself and his wife, Lourdes, two (2) round trip airline tickets
from San Diego, California to Newark, New Jersey on board Continental
Airlines. Fernando purchased the tickets at US$400.00 each from a travel
agency called "Holiday Travel" and was attended to by a certain Margaret
Mager (Mager). According to Spouses Viloria, Fernando agreed to buy the
said tickets after Mager informed them that there were no available seats at
Amtrak, an intercity passenger train service provider in the United States.
Per the tickets, Spouses Viloria were scheduled to leave for Newark on August

can travel on Amtrak anytime and any day he pleased. Fernando then

the Amtrak tickets, telling her that she had misled them into buying the
Continental Airlines tickets by misrepresenting that Amtrak was already fully
booked. Fernando reiterated his demand for a refund but Mager was firm in
her position that the subject tickets are non-refundable.
Upon returning to the Philippines, Fernando sent a letter to CAI on February
11, 1998, demanding a refund and alleging that Mager had deluded them
into purchasing the subject tickets.3
In a letter dated February 24, 1998, Continental Micronesia informed
Fernando that his complaint had been referred to the Customer Refund
Services of Continental Airlines at Houston, Texas.4
In a letter dated March 24, 1998, Continental Micronesia denied Fernandos
request for a refund and advised him that he may take the subject tickets to
any Continental ticketing location for the re-issuance of new tickets within
two (2) years from the date they were issued. Continental Micronesia
informed Fernando that the subject tickets may be used as a form of
payment for the purchase of another Continental ticket, albeit with a re-

13, 1997 and return to San Diego on August 21, 1997.

issuance fee.5

Subsequently, Fernando requested Mager to reschedule their flight to Newark

On June 17, 1999, Fernando went to Continentals ticketing office at Ayala

to an earlier date or August 6, 1997. Mager informed him that flights to

Newark via Continental Airlines were already fully booked and offered the
alternative of a round trip flight via Frontier Air. Since flying with Frontier Air
called for a higher fare of US$526.00 per passenger and would mean

Avenue, Makati City to have the subject tickets replaced by a single round
trip ticket to Los Angeles, California under his name. Therein, Fernando was
informed that Lourdes ticket was non-transferable, thus, cannot be used for
the purchase of a ticket in his favor. He was also informed that a round trip

326

ticket to Los Angeles was US$1,867.40 so he would have to pay what will not

Following a full-blown trial, the RTC rendered its April 3, 2006 Decision,

be covered by the value of his San Diego to Newark round trip ticket.

holding that Spouses Viloria are entitled to a refund in view of Magers

misrepresentation in obtaining their consent in the purchase of the subject

In a letter dated June 21, 1999, Fernando demanded for the refund of the

tickets.9 The relevant portion of the April 3, 2006 Decision states:

subject tickets as he no longer wished to have them replaced. In addition to

the dubious circumstances under which the subject tickets were issued,

Continental Airlines agent Ms. Mager was in bad faith when she was less

Fernando claimed that CAIs act of charging him with US$1,867.40 for a

candid and diligent in presenting to plaintiffs spouses their booking options.

round trip ticket to Los Angeles, which other airlines priced at US$856.00,

Plaintiff Fernando clearly wanted to travel via AMTRAK, but defendants

and refusal to allow him to use Lourdes ticket, breached its undertaking

agent misled him into purchasing Continental Airlines tickets instead on the

under its March 24, 1998 letter.6

fraudulent misrepresentation that Amtrak was fully booked. In fact,

defendant Airline did not specifically denied (sic) this allegation.

On September 8, 2000, Spouses Viloria filed a complaint against CAI, praying

that CAI be ordered to refund the money they used in the purchase of the

Plainly, plaintiffs spouses, particularly plaintiff Fernando, were tricked into

subject tickets with legal interest from July 21, 1997 and to

buying Continental Airline tickets on Ms. Magers misleading

payP1,000,000.00 as moral damages, P500,000.00 as exemplary damages

misrepresentations. Continental Airlines agent Ms. Mager further relied on

and P250,000.00 as attorneys fees.

and exploited plaintiff Fernandos need and told him that they must book a
flight immediately or risk not being able to travel at all on the couples

CAI interposed the following defenses: (a) Spouses Viloria have no right to

preferred date. Unfortunately, plaintiffs spouses fell prey to the airlines and

ask for a refund as the subject tickets are non-refundable; (b) Fernando

its agents unethical tactics for baiting trusting customers."10

cannot insist on using the ticket in Lourdes name for the purchase of a
round trip ticket to Los Angeles since the same is non-transferable; (c) as

Citing Articles 1868 and 1869 of the Civil Code, the RTC ruled that Mager is

Mager is not a CAI employee, CAI is not liable for any of her acts; (d) CAI, its

CAIs agent, hence, bound by her bad faith and misrepresentation. As far as

employees and agents did not act in bad faith as to entitle Spouses Viloria to

the RTC is concerned, there is no issue as to whether Mager was CAIs agent

moral and exemplary damages and attorneys fees. CAI also invoked the

in view of CAIs implied recognition of her status as such in its March 24,

following clause printed on the subject tickets:

1998 letter.

3. To the extent not in conflict with the foregoing carriage and other services

The act of a travel agent or agency being involved here, the following are the

performed by each carrier are subject to: (i) provisions contained in this

pertinent New Civil Code provisions on agency:

ticket, (ii) applicable tariffs, (iii) carriers conditions of carriage and related
regulations which are made part hereof (and are available on application at

Art. 1868. By the contract of agency a person binds himself to render some

the offices of carrier), except in transportation between a place in the United

service or to do something in representation or on behalf of another, with the

States or Canada and any place outside thereof to which tariffs in force in

consent or authority of the latter.

those countries apply.

Art. 1869. Agency may be express, or implied from the acts of the principal,
According to CAI, one of the conditions attached to their contract of carriage

from his silence or lack of action, or his failure to repudiate the agency,

is the non-transferability and non-refundability of the subject tickets.

knowing that another person is acting on his behalf without authority.

The RTCs Ruling

Agency may be oral, unless the law requires a specific form.

327

As its very name implies, a travel agency binds itself to render some service

agent of Continental Airlines. Proceeding from this premise, they contend

or to do something in representation or on behalf of another, with the

that Continental Airlines should be held liable for the acts of Mager. The trial

consent or authority of the latter. This court takes judicial notice of the

court held the same view.

common services rendered by travel agencies that represent themselves as

such, specifically the reservation and booking of local and foreign tours as

We do not agree. By the contract of agency, a person binds him/herself to

well as the issuance of airline tickets for a commission or fee.

render some service or to do something in representation or on behalf of

another, with the consent or authority of the latter. The elements of agency

The services rendered by Ms. Mager of Holiday Travel agency to the plaintiff

are: (1) consent, express or implied, of the parties to establish the

spouses on July 21, 1997 were no different from those offered in any other

relationship; (2) the object is the execution of a juridical act in relation to a

travel agency. Defendant airline impliedly if not expressly acknowledged its

third person; (3) the agent acts as a representative and not for him/herself;

principal-agent relationship with Ms. Mager by its offer in the letter dated

and (4) the agent acts within the scope of his/her authority. As the basis of

March 24, 1998 an obvious attempt to assuage plaintiffs spouses hurt

agency is representation, there must be, on the part of the principal, an

feelings.11

actual intention to appoint, an intention naturally inferable from the

principals words or actions. In the same manner, there must be an intention

Furthermore, the RTC ruled that CAI acted in bad faith in reneging on its

on the part of the agent to accept the appointment and act upon it. Absent

undertaking to replace the subject tickets within two (2) years from their date

such mutual intent, there is generally no agency. It is likewise a settled rule

of issue when it charged Fernando with the amount of US$1,867.40 for a

that persons dealing with an assumed agent are bound at their peril, if they

round trip ticket to Los Angeles and when it refused to allow Fernando to use

would hold the principal liable, to ascertain not only the fact of agency but

Lourdes ticket. Specifically:

also the nature and extent of authority, and in case either is controverted,
the burden of proof is upon them to establish it. Agency is never presumed,

Tickets may be reissued for up to two years from the original date of issue.

neither is it created by the mere use of the word in a trade or business name.

When defendant airline still charged plaintiffs spouses US$1,867.40 or more

We have perused the evidence and documents so far presented. We find

than double the then going rate of US$856.00 for the unused tickets when

nothing except bare allegations of plaintiffs-appellees that Mager/Holiday

the same were presented within two (2) years from date of issue, defendant

Travel was acting in behalf of Continental Airlines. From all sides of legal

airline exhibited callous treatment of passengers.

12

prism, the transaction in issue was simply a contract of sale, wherein

Holiday Travel buys airline tickets from Continental Airlines and then,

The Appellate Courts Ruling

through its employees, Mager included, sells it at a premium to clients. 13

On appeal, the CA reversed the RTCs April 3, 2006 Decision, holding that

The CA also ruled that refund is not available to Spouses Viloria as the word

CAI cannot be held liable for Magers act in the absence of any proof that a

"non-refundable" was clearly printed on the face of the subject tickets, which

principal-agent relationship existed between CAI and Holiday Travel.

constitute their contract with CAI. Therefore, the grant of their prayer for a

According to the CA, Spouses Viloria, who have the burden of proof to

refund would violate the proscription against impairment of contracts.

establish the fact of agency, failed to present evidence demonstrating that

Holiday Travel is CAIs agent. Furthermore, contrary to Spouses Vilorias

Finally, the CA held that CAI did not act in bad faith when they charged

claim, the contractual relationship between Holiday Travel and CAI is not an

Spouses Viloria with the higher amount of US$1,867.40 for a round trip

agency but that of a sale.

ticket to Los Angeles. According to the CA, there is no compulsion for CAI to
charge the lower amount of US$856.00, which Spouses Viloria claim to be

Plaintiffs-appellees assert that Mager was a sub-agent of Holiday Travel who

the fee charged by other airlines. The matter of fixing the prices for its

was in turn a ticketing agent of Holiday Travel who was in turn a ticketing

328

services is CAIs prerogative, which Spouses Viloria cannot intervene. In

prevailing in June 1999, the time when Fernando asked CAI to apply the

particular:

value of the subject tickets for the purchase of a new one. 16 CAI likewise
argued that it did not undertake to protect Spouses Viloria from any changes

It is within the respective rights of persons owning and/or operating

or fluctuations in the prices of airline tickets and its only obligation was to

business entities to peg the premium of the services and items which they

apply the value of the subject tickets to the purchase of the newly issued

provide at a price which they deem fit, no matter how expensive or

tickets.

exhorbitant said price may seem vis--vis those of the competing companies.
The Spouses Viloria may not intervene with the business judgment of
Continental Airlines.

With respect to Spouses Vilorias claim that they are not aware of CAIs
restrictions on the subject tickets and that the terms and conditions that are

14

printed on them are ambiguous, CAI denies any ambiguity and alleged that
The Petitioners Case

its representative informed Fernando that the subject tickets are nontransferable when he applied for the issuance of a new ticket. On the other

In this Petition, this Court is being asked to review the findings and

hand, the word "non-refundable" clearly appears on the face of the subject

conclusions of the CA, as the latters reversal of the RTCs April 3, 2006

tickets.

Decision allegedly lacks factual and legal bases. Spouses Viloria claim that
CAI acted in bad faith when it required them to pay a higher amount for a

CAI also denies that it is bound by the acts of Holiday Travel and Mager and

round trip ticket to Los Angeles considering CAIs undertaking to re-issue

that no principal-agency relationship exists between them. As an

new tickets to them within the period stated in their March 24, 1998 letter.

independent contractor, Holiday Travel was without capacity to bind CAI.

CAI likewise acted in bad faith when it disallowed Fernando to use Lourdes
Issues

ticket to purchase a round trip to Los Angeles given that there is nothing in
Lourdes ticket indicating that it is non-transferable. As a common carrier, it
is CAIs duty to inform its passengers of the terms and conditions of their

To determine the propriety of disturbing the CAs January 30, 2009 Decision

contract and passengers cannot be bound by such terms and conditions

and whether Spouses Viloria have the right to the reliefs they prayed for, this

which they are not made aware of. Also, the subject contract of carriage is a

Court deems it necessary to resolve the following issues:

contract of adhesion; therefore, any ambiguities should be construed against

CAI. Notably, the petitioners are no longer questioning the validity of the

a. Does a principal-agent relationship exist between CAI and Holiday

subject contracts and limited its claim for a refund on CAIs alleged breach of

Travel?

its undertaking in its March 24, 1998 letter.

b. Assuming that an agency relationship exists between CAI and
The Respondents Case

Holiday Travel, is CAI bound by the acts of Holiday Travels agents

and employees such as Mager?

In its Comment, CAI claimed that Spouses Vilorias allegation of bad faith is
negated by its willingness to issue new tickets to them and to credit the value

c. Assuming that CAI is bound by the acts of Holiday Travels agents

of the subject tickets against the value of the new ticket Fernando requested.

and employees, can the representation of Mager as to unavailability

CAI argued that Spouses Vilorias sole basis to claim that the price at which

of seats at Amtrak be considered fraudulent as to vitiate the consent

CAI was willing to issue the new tickets is unconscionable is a piece of

of Spouse Viloria in the purchase of the subject tickets?

hearsay evidence an advertisement appearing on a newspaper stating that

airfares from Manila to Los Angeles or San Francisco cost US$818.00. 15 Also,

d. Is CAI justified in insisting that the subject tickets are non-

the advertisement pertains to airfares in September 2000 and not to airfares

transferable and non-refundable?

329

e. Is CAI justified in pegging a different price for the round trip ticket

in transactions with third persons. The essential elements of agency are: (1)

to Los Angeles requested by Fernando?

there is consent, express or implied of the parties to establish the

relationship; (2) the object is the execution of a juridical act in relation to a

f. Alternatively, did CAI act in bad faith or renege its obligation to

third person; (3) the agent acts as a representative and not for himself, and

Spouses Viloria to apply the value of the subject tickets in the

(4) the agent acts within the scope of his authority.1avvphi1

purchase of new ones when it refused to allow Fernando to use

Lourdes ticket and in charging a higher price for a round trip ticket

Agency is basically personal, representative, and derivative in nature. The

to Los Angeles?

authority of the agent to act emanates from the powers granted to him by his
principal; his act is the act of the principal if done within the scope of the
This Courts Ruling

authority. Qui facit per alium facit se. "He who acts through another acts
himself."19

I. A principal-agent relationship exists between CAI and Holiday Travel.

With respect to the first issue, which is a question of fact that would require
this Court to review and re-examine the evidence presented by the parties
below, this Court takes exception to the general rule that the CAs findings of
fact are conclusive upon Us and our jurisdiction is limited to the review of
questions of law. It is well-settled to the point of being axiomatic that this
Court is authorized to resolve questions of fact if confronted with contrasting
factual findings of the trial court and appellate court and if the findings of
the CA are contradicted by the evidence on record.

17

Contrary to the findings of the CA, all the elements of an agency exist in this
case. The first and second elements are present as CAI does not deny that it
concluded an agreement with Holiday Travel, whereby Holiday Travel would
enter into contracts of carriage with third persons on CAIs behalf. The third
element is also present as it is undisputed that Holiday Travel merely acted
in a representative capacity and it is CAI and not Holiday Travel who is
bound by the contracts of carriage entered into by Holiday Travel on its
behalf. The fourth element is also present considering that CAI has not made
any allegation that Holiday Travel exceeded the authority that was granted to
it. In fact, CAI consistently maintains the validity of the contracts of carriage

According to the CA, agency is never presumed and that he who alleges that
it exists has the burden of proof. Spouses Viloria, on whose shoulders such
burden rests, presented evidence that fell short of indubitably demonstrating

that Holiday Travel executed with Spouses Viloria and that Mager was not
guilty of any fraudulent misrepresentation. That CAI admits the authority of
Holiday Travel to enter into contracts of carriage on its behalf is easily

the existence of such agency.

discernible from its February 24, 1998 and March 24, 1998 letters, where it

We disagree. The CA failed to consider undisputed facts, discrediting CAIs

Travel with Spouses Viloria. When Fernando informed CAI that it was Holiday

impliedly recognized the validity of the contracts entered into by Holiday

denial that Holiday Travel is one of its agents. Furthermore, in erroneously

characterizing the contractual relationship between CAI and Holiday Travel
as a contract of sale, the CA failed to apply the fundamental civil law
principles governing agency and differentiating it from sale.
In Rallos v. Felix Go Chan & Sons Realty Corporation,

18

this Court explained

Travel who issued to them the subject tickets, CAI did not deny that Holiday
Travel is its authorized agent.
Prior to Spouses Vilorias filing of a complaint against it, CAI never refuted
that it gave Holiday Travel the power and authority to conclude contracts of
carriage on its behalf. As clearly extant from the records, CAI recognized the

the nature of an agency and spelled out the essential elements thereof:

validity of the contracts of carriage that Holiday Travel entered into with

Out of the above given principles, sprung the creation and acceptance of

terms and conditions thereof; and this constitutes an unequivocal testament

the relationship of agencywhereby one party, called the principal (mandante),

authorizes another, called the agent (mandatario), to act for and in his behalf

Spouses Viloria and considered itself bound with Spouses Viloria by the
to Holiday Travels authority to act as its agent. This Court cannot therefore
allow CAI to take an altogether different position and deny that Holiday Travel

330

is its agent without condoning or giving imprimatur to whatever damage or

makes him liable to the transferor as a debtor for the agreed price, and not

prejudice that may result from such denial or retraction to Spouses Viloria,

merely as an agent who must account for the proceeds of a resale, the

who relied on good faith on CAIs acts in recognition of Holiday Travels

transaction is a sale; while the essence of an agency to sell is the delivery to

authority. Estoppel is primarily based on the doctrine of good faith and the

an agent, not as his property, but as the property of the principal, who

avoidance of harm that will befall an innocent party due to its injurious

remains the owner and has the right to control sales, fix the price, and

reliance, the failure to apply it in this case would result in gross travesty of

terms, demand and receive the proceeds less the agent's commission upon

justice.

20

Estoppel bars CAI from making such denial.

sales made. 1 Mechem on Sales, Sec. 43; 1 Mechem on Agency, Sec. 48;
Williston on Sales, 1; Tiedeman on Sales, 1." (Salisbury v. Brooks, 94 SE 117,

As categorically provided under Article 1869 of the Civil Code, "[a]gency may

118-119)22

be express, or implied from the acts of the principal, from his silence or lack
of action, or his failure to repudiate the agency, knowing that another person

As to how the CA have arrived at the conclusion that the contract between

is acting on his behalf without authority."

CAI and Holiday Travel is a sale is certainly confounding, considering that

CAI is the one bound by the contracts of carriage embodied by the tickets

Considering that the fundamental hallmarks of an agency are present, this

being sold by Holiday Travel on its behalf. It is undisputed that CAI and not

Court finds it rather peculiar that the CA had branded the contractual

Holiday Travel who is the party to the contracts of carriage executed by

relationship between CAI and Holiday Travel as one of sale. The distinctions

Holiday Travel with third persons who desire to travel via Continental

between a sale and an agency are not difficult to discern and this Court, as

Airlines, and this conclusively indicates the existence of a principal-agent

early as 1970, had already formulated the guidelines that would aid in

relationship. That the principal is bound by all the obligations contracted by

differentiating the two (2) contracts. InCommissioner of Internal Revenue v.

the agent within the scope of the authority granted to him is clearly provided

Constantino,

21

this Court extrapolated that the primordial differentiating

consideration between the two (2) contracts is the transfer of ownership or

under Article 1910 of the Civil Code and this constitutes the very notion of
agency.

title over the property subject of the contract. In an agency, the principal
retains ownership and control over the property and the agent merely acts on

II. In actions based on quasi-delict, a principal can only be held liable

the principals behalf and under his instructions in furtherance of the

for the tort committed by its agents employees if it has been

objectives for which the agency was established. On the other hand, the
contract is clearly a sale if the parties intended that the delivery of the
property will effect a relinquishment of title, control and ownership in such a
way that the recipient may do with the property as he pleases.
Since the company retained ownership of the goods, even as it delivered
possession unto the dealer for resale to customers, the price and terms of
which were subject to the company's control, the relationship between the
company and the dealer is one of agency, tested under the following criterion:
"The difficulty in distinguishing between contracts of sale and the creation of
an agency to sell has led to the establishment of rules by the application of
which this difficulty may be solved. The decisions say the transfer of title or
agreement to transfer it for a price paid or promised is the essence of sale. If
such transfer puts the transferee in the attitude or position of an owner and

established by preponderance of evidence that the principal was also at

fault or negligent or that the principal exercise control and supervision
over them.
Considering that Holiday Travel is CAIs agent, does it necessarily follow that
CAI is liable for the fault or negligence of Holiday Travels employees?
Citing China Air Lines, Ltd. v. Court of Appeals, et al.,23CAI argues that it
cannot be held liable for the actions of the employee of its ticketing agent in
the absence of an employer-employee relationship.
An examination of this Courts pronouncements in China Air Lines will reveal
that an airline company is not completely exonerated from any liability for the
tort committed by its agents employees. A prior determination of the nature
of the passengers cause of action is necessary. If the passengers cause of

331

action against the airline company is premised on culpa aquiliana or quasi-

request for a refund or Fernandos use of Lourdes ticket for the re-issuance

delict for a tort committed by the employee of the airline companys agent,

of a new one, and simultaneously claim that they are not bound by Magers

there must be an independent showing that the airline company was at fault

supposed misrepresentation for purposes of avoiding Spouses Vilorias claim

or negligent or has contributed to the negligence or tortuous conduct

for damages and maintaining the validity of the subject contracts. It may

committed by the employee of its agent. The mere fact that the employee of

likewise be argued that CAI cannot deny liability as it benefited from Magers

the airline companys agent has committed a tort is not sufficient to hold the

acts, which were performed in compliance with Holiday Travels obligations as

airline company liable. There is no vinculum juris between the airline

CAIs agent.

company and its agents employees and the contractual relationship between
the airline company and its agent does not operate to create a juridical tie

However, a persons vicarious liability is anchored on his possession of

between the airline company and its agents employees. Article 2180 of the

control, whether absolute or limited, on the tortfeasor. Without such control,

Civil Code does not make the principal vicariously liable for the tort

there is nothing which could justify extending the liability to a person other

committed by its agents employees and the principal-agency relationship per

than the one who committed the tort. As this Court explained in Cangco v.

se does not make the principal a party to such tort; hence, the need to prove

Manila Railroad Co.:25

the principals own fault or negligence.

With respect to extra-contractual obligation arising from negligence,
On the other hand, if the passengers cause of action for damages against the
airline company is based on contractual breach or culpa contractual, it is not
necessary that there be evidence of the airline companys fault or negligence.
As this Court previously stated in China Air Lines and reiterated inAir France
vs. Gillego,24 "in an action based on a breach of contract of carriage, the
aggrieved party does not have to prove that the common carrier was at fault
or was negligent. All that he has to prove is the existence of the contract and
the fact of its non-performance by the carrier."
Spouses Vilorias cause of action on the basis of Magers alleged fraudulent
misrepresentation is clearly one of tort or quasi-delict, there being no preexisting contractual relationship between them. Therefore, it was incumbent
upon Spouses Viloria to prove that CAI was equally at fault.
However, the records are devoid of any evidence by which CAIs alleged
liability can be substantiated. Apart from their claim that CAI must be held
liable for Magers supposed fraud because Holiday Travel is CAIs agent,
Spouses Viloria did not present evidence that CAI was a party or had
contributed to Magers complained act either by instructing or authorizing
Holiday Travel and Mager to issue the said misrepresentation.
It may seem unjust at first glance that CAI would consider Spouses Viloria
bound by the terms and conditions of the subject contracts, which Mager

whether of act or omission, it is competent for the legislature to elect

and our Legislature has so elected to limit such liability to cases in which
the person upon whom such an obligation is imposed is morally culpable or,
on the contrary, for reasons of public policy, to extend that liability,
without regard to the lack of moral culpability, so as to include
responsibility for the negligence of those persons whose acts or
omissions are imputable, by a legal fiction, to others who are in a
position to exercise an absolute or limited control over them. The
legislature which adopted our Civil Code has elected to limit extracontractual liability with certain well-defined exceptions to cases in
which moral culpability can be directly imputed to the persons to be charged.
This moral responsibility may consist in having failed to exercise due care in
one's own acts, or in having failed to exercise due care in the selection and
control of one's agent or servants, or in the control of persons who, by
reasons of their status, occupy a position of dependency with respect to the
person made liable for their conduct.26 (emphasis supplied)
It is incumbent upon Spouses Viloria to prove that CAI exercised control or
supervision over Mager by preponderant evidence. The existence of control or
supervision cannot be presumed and CAI is under no obligation to prove its
denial or nugatory assertion. Citing Belen v. Belen,27 this Court ruled
inJayme v. Apostol,28 that:

entered into with them on CAIs behalf, in order to deny Spouses Vilorias

332

In Belen v. Belen, this Court ruled that it was enough for defendant to deny

Whether the subject contracts are annullable, this Court is required to

an alleged employment relationship. The defendant is under no obligation to

determine whether Magers alleged misrepresentation constitutes causal

prove the negative averment. This Court said:

fraud. Similar to the dispute on the existence of an agency, whether fraud

attended the execution of a contract is factual in nature and this Court, as

"It is an old and well-settled rule of the courts that the burden of proving the

discussed above, may scrutinize the records if the findings of the CA are

action is upon the plaintiff, and that if he fails satisfactorily to show the facts

contrary to those of the RTC.

upon which he bases his claim, the defendant is under no obligation to prove
his exceptions. This [rule] is in harmony with the provisions of Section 297 of

Under Article 1338 of the Civil Code, there is fraud when, through insidious

the Code of Civil Procedure holding that each party must prove his own

words or machinations of one of the contracting parties, the other is induced

affirmative allegations, etc."29 (citations omitted)

to enter into a contract which, without them, he would not have agreed to. In
order that fraud may vitiate consent, it must be the causal (dolo causante),

Therefore, without a modicum of evidence that CAI exercised control over

not merely the incidental (dolo incidente), inducement to the making of the

Holiday Travels employees or that CAI was equally at fault, no liability can be

contract.30 InSamson v. Court of Appeals,31 causal fraud was defined as "a

imposed on CAI for Magers supposed misrepresentation.

deception employed by one party prior to or simultaneous to the contract in

order to secure the consent of the other." 32

III. Even on the assumption that CAI may be held liable for the acts of
Mager, still, Spouses Viloria are not entitled to a refund. Magers
statement cannot be considered a causal fraud that would justify the
annulment of the subject contracts that would oblige CAI to indemnify
Spouses Viloria and return the money they paid for the subject tickets.
Article 1390, in relation to Article 1391 of the Civil Code, provides that if the
consent of the contracting parties was obtained through fraud, the contract
is considered voidable and may be annulled within four (4) years from the
time of the discovery of the fraud. Once a contract is annulled, the parties
are obliged under Article 1398 of the same Code to restore to each other the
things subject matter of the contract, including their fruits and interest.
On the basis of the foregoing and given the allegation of Spouses Viloria that
Fernandos consent to the subject contracts was supposedly secured by
Mager through fraudulent means, it is plainly apparent that their demand for
a refund is tantamount to seeking for an annulment of the subject contracts
on the ground of vitiated consent.

Also, fraud must be serious and its existence must be established by clear
and convincing evidence. As ruled by this Court in Sierra v. Hon. Court of
Appeals, et al.,33 mere preponderance of evidence is not adequate:
Fraud must also be discounted, for according to the Civil Code:
Art. 1338. There is fraud when, through insidious words or machinations of
one of the contracting parties, the other is induced to enter into a contract
which without them, he would not have agreed to.
Art. 1344. In order that fraud may make a contract voidable, it should be
serious and should not have been employed by both contracting parties.
To quote Tolentino again, the "misrepresentation constituting the fraud must
be established by full, clear, and convincing evidence, and not merely by a
preponderance thereof. The deceit must be serious. The fraud is serious
when it is sufficient to impress, or to lead an ordinarily prudent person into
error; that which cannot deceive a prudent person cannot be a ground for
nullity. The circumstances of each case should be considered, taking into
account the personal conditions of the victim."34
After meticulously poring over the records, this Court finds that the fraud
alleged by Spouses Viloria has not been satisfactorily established as causal in

333

nature to warrant the annulment of the subject contracts. In fact, Spouses

Implied ratification may take diverse forms, such as by silence or

Viloria failed to prove by clear and convincing evidence that Magers

acquiescence; by acts showing approval or adoption of the contract; or by

statement was fraudulent. Specifically, Spouses Viloria failed to prove that (a)

acceptance and retention of benefits flowing therefrom. 36

there were indeed available seats at Amtrak for a trip to New Jersey on
August 13, 1997 at the time they spoke with Mager on July 21, 1997; (b)

Simultaneous with their demand for a refund on the ground of Fernandos

Mager knew about this; and (c) that she purposely informed them otherwise.

vitiated consent, Spouses Viloria likewise asked for a refund based on CAIs
supposed bad faith in reneging on its undertaking to replace the subject

This Court finds the only proof of Magers alleged fraud, which is Fernandos

tickets with a round trip ticket from Manila to Los Angeles.

testimony that an Amtrak had assured him of the perennial availability of

seats at Amtrak, to be wanting. As CAI correctly pointed out and as Fernando

In doing so, Spouses Viloria are actually asking for a rescission of the subject

admitted, it was possible that during the intervening period of three (3)

contracts based on contractual breach. Resolution, the action referred to in

weeks from the time Fernando purchased the subject tickets to the time he

Article 1191, is based on the defendants breach of faith, a violation of the

talked to said Amtrak employee, other passengers may have cancelled their

reciprocity between the parties37 and in Solar Harvest, Inc. v. Davao

bookings and reservations with Amtrak, making it possible for Amtrak to

Corrugated Carton Corporation,38 this Court ruled that a claim for a

accommodate them. Indeed, the existence of fraud cannot be proved by mere

reimbursement in view of the other partys failure to comply with his

speculations and conjectures. Fraud is never lightly inferred; it is good faith

obligations under the contract is one for rescission or resolution.

that is. Under the Rules of Court, it is presumed that "a person is innocent of
crime or wrong" and that "private transactions have been fair and

However, annulment under Article 1390 of the Civil Code and rescission

regular."35 Spouses Viloria failed to overcome this presumption.

under Article 1191 are two (2) inconsistent remedies. In resolution, all the
elements to make the contract valid are present; in annulment, one of the

IV. Assuming the contrary, Spouses Viloria are nevertheless deemed to

essential elements to a formation of a contract, which is consent, is absent.

have ratified the subject contracts.

In resolution, the defect is in the consummation stage of the contract when

Even assuming that Magers representation is causal fraud, the subject

annulment, the defect is already present at the time of the negotiation and

contracts have been impliedly ratified when Spouses Viloria decided to

exercise their right to use the subject tickets for the purchase of new ones.
Under Article 1392 of the Civil Code, "ratification extinguishes the action to

the parties are in the process of performing their respective obligations; in

perfection stages of the contract. Accordingly, by pursuing the remedy of
rescission under Article 1191, the Vilorias had impliedly admitted the validity
of the subject contracts, forfeiting their right to demand their annulment. A

annul a voidable contract."

party cannot rely on the contract and claim rights or obligations under it and

Ratification of a voidable contract is defined under Article 1393 of the Civil

enjoined from taking inconsistent positions.39

Code as follows:

at the same time impugn its existence or validity. Indeed, litigants are

V. Contracts cannot be rescinded for a slight or casual breach.

Art. 1393. Ratification may be effected expressly or tacitly. It is understood

that there is a tacit ratification if, with knowledge of the reason which

CAI cannot insist on the non-transferability of the subject tickets.

renders the contract voidable and such reason having ceased, the person
who has a right to invoke it should execute an act which necessarily implies

Considering that the subject contracts are not annullable on the ground of

an intention to waive his right.

vitiated consent, the next question is: "Do Spouses Viloria have the right to
rescind the contract on the ground of CAIs supposed breach of its
undertaking to issue new tickets upon surrender of the subject tickets?"

334

Article 1191, as presently worded, states:

Contrary to CAIs claim, that the subject tickets are non-transferable cannot
be implied from a plain reading of the provision printed on the subject tickets

The power to rescind obligations is implied in reciprocal ones, in case one of

stating that "[t]o the extent not in conflict with the foregoing carriage and

the obligors should not comply with what is incumbent upon him.

other services performed by each carrier are subject to: (a) provisions
contained in this ticket, x x x (iii) carriers conditions of carriage and related

The injured party may choose between the fulfilment and the rescission of

regulations which are made part hereof (and are available on application at

the obligation, with the payment of damages in either case. He may also seek

the offices of carrier) x x x." As a common carrier whose business is imbued

rescission, even after he has chosen fulfillment, if the latter should become

with public interest, the exercise of extraordinary diligence requires CAI to

impossible.

inform Spouses Viloria, or all of its passengers for that matter, of all the
terms and conditions governing their contract of carriage. CAI is proscribed

The court shall decree the rescission claimed, unless there be just cause

from taking advantage of any ambiguity in the contract of carriage to impute

authorizing the fixing of a period.

knowledge on its passengers of and demand compliance with a certain

condition or undertaking that is not clearly stipulated. Since the prohibition

This is understood to be without prejudice to the rights of third persons who

on transferability is not written on the face of the subject tickets and CAI

have acquired the thing, in accordance with articles 1385 and 1388 and the

failed to inform Spouses Viloria thereof, CAI cannot refuse to apply the value

Mortgage Law.

of Lourdes ticket as payment for Fernandos purchase of a new ticket.

According to Spouses Viloria, CAI acted in bad faith and breached the

CAIs refusal to accept Lourdes ticket for the purchase of a new ticket

subject contracts when it refused to apply the value of Lourdes ticket for

for Fernando is only a casual breach.

Fernandos purchase of a round trip ticket to Los Angeles and in requiring

him to pay an amount higher than the price fixed by other airline companies.
In its March 24, 1998 letter, CAI stated that "non-refundable tickets may be
used as a form of payment toward the purchase of another Continental ticket
for $75.00, per ticket, reissue fee ($50.00, per ticket, for tickets purchased
prior to October 30, 1997)."
Clearly, there is nothing in the above-quoted section of CAIs letter from
which the restriction on the non-transferability of the subject tickets can be
inferred. In fact, the words used by CAI in its letter supports the position of
Spouses Viloria, that each of them can use the ticket under their name for
the purchase of new tickets whether for themselves or for some other person.

Nonetheless, the right to rescind a contract for non-performance of its

stipulations is not absolute. The general rule is that rescission of a contract
will not be permitted for a slight or casual breach, but only for such
substantial and fundamental violations as would defeat the very object of the
parties in making the agreement.40 Whether a breach is substantial is largely
determined by the attendant circumstances.41
While CAIs refusal to allow Fernando to use the value of Lourdes ticket as
payment for the purchase of a new ticket is unjustified as the nontransferability of the subject tickets was not clearly stipulated, it cannot,
however be considered substantial. The endorsability of the subject tickets is
not an essential part of the underlying contracts and CAIs failure to comply
is not essential to its fulfillment of its undertaking to issue new tickets upon

Moreover, as CAI admitted, it was only when Fernando had expressed his

Spouses Vilorias surrender of the subject tickets. This Court takes note of

interest to use the subject tickets for the purchase of a round trip ticket

CAIs willingness to perform its principal obligation and this is to apply the

between Manila and Los Angeles that he was informed that he cannot use

price of the ticket in Fernandos name to the price of the round trip ticket

the ticket in Lourdes name as payment.

between Manila and Los Angeles. CAI was likewise willing to accept the ticket
in Lourdes name as full or partial payment as the case may be for the
purchase of any ticket, albeit under her name and for her exclusive use. In

335

other words, CAIs willingness to comply with its undertaking under its

There is also no showing that Spouses Viloria were discriminated against in

March 24, 1998 cannot be doubted, albeit tainted with its erroneous

bad faith by being charged with a higher rate. The only evidence the

insistence that Lourdes ticket is non-transferable.

petitioners presented to prove that the price of a round trip ticket between
Manila and Los Angeles at that time was only $856.00 is a newspaper

Moreover, Spouses Vilorias demand for rescission cannot prosper as CAI

advertisement for another airline company, which is inadmissible for being

cannot be solely faulted for the fact that their agreement failed to

"hearsay evidence, twice removed." Newspaper clippings are hearsay if they

consummate and no new ticket was issued to Fernando. Spouses Viloria have

were offered for the purpose of proving the truth of the matter alleged. As

no right to insist that a single round trip ticket between Manila and Los

ruled in Feria v. Court of Appeals,:44

Angeles should be priced at around $856.00 and refuse to pay the difference
between the price of the subject tickets and the amount fixed by CAI. The

[N]ewspaper articles amount to "hearsay evidence, twice removed" and are

petitioners failed to allege, much less prove, that CAI had obliged itself to

therefore not only inadmissible but without any probative value at all

issue to them tickets for any flight anywhere in the world upon their

whether objected to or not, unless offered for a purpose other than proving

surrender of the subject tickets. In its March 24, 1998 letter, it was clearly

the truth of the matter asserted. In this case, the news article is admissible

stated that "[n]on-refundable tickets may be used as a form of payment

only as evidence that such publication does exist with the tenor of the news

toward the purchase of another Continental ticket"42 and there is nothing in

therein stated.45 (citations omitted)

it suggesting that CAI had obliged itself to protect Spouses Viloria from any
fluctuation in the prices of tickets or that the surrender of the subject tickets

The records of this case demonstrate that both parties were equally in

will be considered as full payment for any ticket that the petitioners intend to

default; hence, none of them can seek judicial redress for the cancellation or

buy regardless of actual price and destination. The CA was correct in holding

resolution of the subject contracts and they are therefore bound to their

that it is CAIs right and exclusive prerogative to fix the prices for its services

respective obligations thereunder. As the 1st sentence of Article 1192

and it may not be compelled to observe and maintain the prices of other

provides:

airline companies.

43

Art. 1192. In case both parties have committed a breach of the

The conflict as to the endorsability of the subject tickets is an altogether
different matter, which does not preclude CAI from fixing the price of a round
trip ticket between Manila and Los Angeles in an amount it deems proper
and which does not provide Spouses Viloria an excuse not to pay such price,
albeit subject to a reduction coming from the value of the subject tickets. It
cannot be denied that Spouses Viloria had the concomitant obligation to pay
whatever is not covered by the value of the subject tickets whether or not the
subject tickets are transferable or not.1avvphi1

obligation, the liability of the first infractor shall be equitably tempered

by the courts. If it cannot be determined which of the parties first violated
the contract, the same shall be deemed extinguished, and each shall bear his
own damages. (emphasis supplied)
Therefore, CAIs liability for damages for its refusal to accept Lourdes ticket
for the purchase of Fernandos round trip ticket is offset by Spouses Vilorias
liability for their refusal to pay the amount, which is not covered by the
subject tickets. Moreover, the contract between them remains, hence, CAI is
duty bound to issue new tickets for a destination chosen by Spouses Viloria
upon their surrender of the subject tickets and Spouses Viloria are obliged to
pay whatever amount is not covered by the value of the subject tickets.
This Court made a similar ruling in Central Bank of the Philippines v. Court of
Appeals.46 Thus:

336

Since both parties were in default in the performance of their respective

Before us is a petition for review on certiorari assailing the November 26,

reciprocal obligations, that is, Island Savings Bank failed to comply with its

2004 Decision1 and June 29, 2005 Resolution2 of the Court of Appeals (CA)

obligation to furnish the entire loan and Sulpicio M. Tolentino failed to

in CA-G.R. CV No. 71831. The CA had affirmed with modification the

comply with his obligation to pay his P17,000.00 debt within 3 years as

Decision3 of the Regional Trial Court (RTC), Branch 24, of Echague, Isabela,

stipulated, they are both liable for damages.

in Civil Case No. 24-0495 entitled "Josephine De Guzman vs. Spouses Jose
and Milagros Villaceran, et al."

Article 1192 of the Civil Code provides that in case both parties have
committed a breach of their reciprocal obligations, the liability of the first

The antecedent facts follow:

infractor shall be equitably tempered by the courts. WE rule that the liability
of Island Savings Bank for damages in not furnishing the entire loan is offset

Josephine De Guzman filed a Complaint4 with the RTC of Echague, Isabela

by the liability of Sulpicio M. Tolentino for damages, in the form of penalties

against the spouses Jose and Milagros Villaceran and Far East Bank & Trust

and surcharges, for not paying his overdue P17,000.00 debt. x x x.47

Company (FEBTC), Santiago City Branch, for declaration of nullity of sale,

reconveyance, redemption of mortgage and damages with preliminary

Another consideration that militates against the propriety of holding CAI

injunction. The complaint was later amended to include annulment of

liable for moral damages is the absence of a showing that the latter acted

foreclosure and Sheriffs Certificate of Sale.

fraudulently and in bad faith. Article 2220 of the Civil Code requires evidence
of bad faith and fraud and moral damages are generally not recoverable

In her Amended Complaint,5 De Guzman alleged that she is the registered

in culpa contractual except when bad faith had been proven. 48 The award of

owner of a parcel of land covered by Transfer Certificate of Title (TCT) No. T-

exemplary damages is likewise not warranted. Apart from the requirement

236168,6 located in Echague, Isabela, having an area of 971 square meters

that the defendant acted in a wanton, oppressive and malevolent manner, the

and described as Lot 8412-B of the Subdivision Plan Psd-93948. On April 17,

claimant must prove his entitlement to moral damages. 49

1995, she mortgaged the lot to the Philippine National Bank (PNB) of
Santiago City to secure a loan of P600,000. In order to secure a bigger loan to

WHEREFORE, premises considered, the instant Petition is DENIED.

finance a business venture, De Guzman asked Milagros Villaceran to obtain

an additional loan on her behalf. She executed a Special Power of Attorney in
favor of Milagros. Considering De Guzmans unsatisfactory loan record with

SO ORDERED.

the PNB, Milagros suggested that the title of the property be transferred to
her and Jose Villaceran and they would obtain a bigger loan as they have a
credit line of up to P5,000,000 with the bank.
G.R. No. 169055

February 22, 2012

SPOUSES JOSE and MILAGROS VILLACERAN and FAR EAST BANK &
TRUST COMPANY, Petitioners,

Sale7 in favor of the spouses Villaceran. On the same day, they went to the
PNB and paid the amount of P721,891.67 using the money of the spouses
Villaceran. The spouses Villaceran registered the Deed of Sale and secured

vs.
JOSEPHINE DE GUZMAN, Respondent.
DECISION
VILLARAMA, JR., J.:

On June 19, 1996, De Guzman executed a simulated Deed of Absolute

TCT No. T-2574168 in their names. Thereafter, they mortgaged the property
with FEBTC Santiago City to secure a loan of P1,485,000. However, the
spouses Villaceran concealed the loan release from De Guzman. Later, when
De Guzman learned of the loan release, she asked for the loan proceeds less
the amount advanced by the spouses Villaceran to pay the PNB loan.
However, the spouses Villaceran refused to give the money stating that they

337

are already the registered owners of the property and that they would

paid in full De Guzmans outstanding obligation with PNB which already

reconvey the property to De Guzman once she returns the P721,891.67 they

reached P880,000.13

paid to PNB.9
Since De Guzmans total obligation already reached P1,380,000, the spouses
De Guzman offered to pay P350,000 provided that the spouses Villaceran

Villaceran requested her to execute a deed of absolute sale over the subject

would execute a deed of reconveyance of the property. In view of the

property in their favor. Thus, the Deed of Absolute Sale is supported by a

simulated character of their transaction, the spouses Villaceran executed a

valuable consideration, and the spouses Villaceran became the lawful owners

Deed of Absolute Sale10 dated September 6, 1996 in favor of De Guzman.

of the property as evidenced by TCT No. 257416 issued by the Office of the

They also promised to pay their mortgage debt with FEBTC to avoid exposing

Register of Deeds of Isabela. Later, they mortgaged the property to FEBTC

the property to possible foreclosure and auction sale. However, the spouses

for P1,485,000.

Villaceran failed to settle the loan and subsequently the property was
extrajudicially foreclosed. A Sheriffs Certificate of Sale was issued in favor of

The spouses Villaceran denied having executed a deed of conveyance in favor

FEBTC for the amount of P3,594,000. De Guzman asserted that the spouses

of De Guzman relative to the subject property and asserted that the

Villaceran should be compelled to redeem their mortgage so as not to

signatures appearing on the September 6, 1996 Deed of Sale, which

prejudice her as the real owner of the property. 11

purported to sell the subject property back to De Guzman, are not genuine
but mere forgeries.14

On the other hand, the spouses Villaceran and FEBTC, in their Amended
Answer,12 averred that in 1996 De Guzman was introduced to Milagros by a

After due proceedings, the trial court rendered its decision on September 27,

certain Digna Maranan. Not long afterwards, De Guzman requested Milagros

2000.

to help her relative who had a loan obligation with the PNB in the amount
of P300,000. As a consideration for the accommodation, De Guzman would

The RTC ruled that the Deed of Sale dated June 19, 1996 executed by De

convey her property located at Maligaya, Echague, Isabela which was then

Guzman in favor of the spouses Villaceran covering the property located in

being held in trust by her cousin, Raul Sison. Because of this agreement,

Echague, Isabela was valid and binding on the parties. The RTC ruled that

Milagros paid De Guzmans obligation with the PNB in the amount

the said contract was a relatively simulated contract, simulated only as to

of P300,000.

the purchase price, but nonetheless binding upon the parties insofar as their
true agreement is concerned. The RTC ruled that De Guzman executed the

When Milagros asked for the title of the lot, De Guzman explained that her

Deed of Absolute Sale dated June 19, 1996 so that the spouses Villaceran

cousin would not part with the property unless he is reimbursed the amount

may use the property located in Echague, Isabela as collateral for a loan in

of P200,000 representing the amount he spent tilling the land. Milagros

view of De Guzmans need for additional capital to finance her business

advanced the amount of P200,000 but De Guzmans cousin still refused to

venture. The true consideration for the sale, according to the RTC, was

reconvey the property. In order for De Guzman to settle her obligation, she

the P300,000 the spouses Villaceran gave to De Guzman plus

offered to sell her house and lot in Echague, Isabela. At first, Milagros

the P721,891.67 they paid to PNB in order that the title to the subject

signified her non-interest in acquiring the same because she knew that it

property may be released and used to secure a bigger loan in another bank.

was mortgaged with the PNB Santiago forP600,000. De Guzman proposed

that they will just secure a bigger loan from another bank using her house

The RTC also found that although the spouses Villaceran had already

and lot as security. The additional amount will be used in settling De

mortgaged the subject property with FEBTC and the title was already in the

Guzmans obligation with PNB. Later, De Guzman proposed that she borrow

possession of FEBTC -- which facts were known to De Guzman who even

an additional amount from Milagros which she will use to settle her loan with

knew that the loan proceeds amounting to P1,485,000 had been released --

PNB. To this request, Milagros acceded. Hence, they went to the PNB and

the spouses Villaceran were nonetheless still able to convince De Guzman

338

that they could still reconvey the subject property to her if she pays the

On November 26, 2004, the CA rendered its Decision, the dispositive portion

amount they had paid to PNB. The RTC found that the Deed of Sale dated

of which reads as follows:

September 6, 1996 was actually signed by the spouses Villaceran although

De Guzman was able to pay only P350,000, which amount was stated in said

IN VIEW OF ALL THE FOREGOING, the judgment appealed from is hereby

deed of sale as the purchase price. The RTC additionally said that the

AFFIRMED with MODIFICATION, to read as follows:

spouses Villaceran deceived De Guzman when the spouses Villaceran

mortgaged the subject property with the understanding that the proceeds

WHEREFORE, judgment is hereby rendered as follows:

would go to De Guzman less the amounts the spouses had paid to PNB.
Hence, according to the RTC, the spouses Villaceran should return to De

1. Declaring the Deed of Sale dated June 16, 1996 (Exh. "B") and

Guzman (1) the P350,000 which she paid to them in consideration of the

September 6, 1996, as not reflective of the true intention of the

September 6, 1996 Deed of Sale, which sale did not materialize because the

parties, as the same were merely executed for the purpose of the loan

title was in the possession of FEBTC; and (2) the amount of P763,108.33

accommodation in favor of the plaintiff-appellee by the defendants-

which is the net proceeds of the loan after deducting the P721,891.67 that

appellants;

the spouses paid to PNB. Thus, the decretal portion of the RTC decision
reads:

2. Ordering defendants-appellants Villaceran to pay plaintiff-appellee

the difference between the FEBTC loan of P1,485,000.00

WHEREFORE, judgment is hereby rendered as follows:

less P721,891.67 (used to redeem the PNB loan), plus legal interest
thereon starting from the date of the filing of this case;

a) declaring the Deed of Sale, dated June 1996 (Exhibit "B") as valid
and binding;

3. Declaring the extrajudicial foreclosure and certificate of sale in

favor of FEBTC, as valid; and

b) ordering defendants Villaceran to pay to plaintiff the amount of

P763,108.33 and P350,000.00 or the total amount of P1,113,108.33

4. For the appellants to pay the costs of the suit.

plus the legal rate of interest starting from the date of the filing of
this case;

SO ORDERED.17

c) declaring the Extrajudicial Foreclosure and the Certificate of Sale

The CA ruled that the RTC was correct in declaring that there was relative

as valid;

simulation of contract because the deeds of sale did not reflect the true
intention of the parties. It found that the evidence established that the

d) ordering defendants Villaceran to pay attorneys fees in the

documents were executed for the purpose of an agency to secure a higher

amount of P20,000.00 and to pay the costs of suit.

loan whereby the spouses Villaceran only accommodated De Guzman.

However, the CA did not find any evidence to prove that De Guzman actually

SO ORDERED.15

parted away with the P350,000 as consideration of the reconveyance of the

property. Thus, it held the trial court erred in ordering the spouses

Aggrieved, the spouses Villaceran appealed to the CA arguing that the trial

Villaceran to return the P350,000 to De Guzman.

court erred in declaring the June 19, 1996 Deed of Sale as a simulated
contract and ordering them to pay De Guzman P1,113,108.33 plus legal rate

Furthermore, the CA observed that the spouses Villaceran were the ones who

of interest and attorneys fees.16

redeemed the property from the mortgage with PNB by paying P721,891.67
so that De Guzmans title could be released. Once registered in their name,

339

the spouses Villaceran mortgaged the property with FEBTC

Essentially, the issue for our resolution is whether the CA erred in ruling

for P1,485,000. With the loan proceeds ofP1,485,000, there was no need for

that the Deed of Sale dated June 19, 1996 is a simulated contract and not a

the spouses Villaceran to demand for the return of the P721,891.67 they

true sale of the subject property.

paid in releasing the PNB loan before the property is reconveyed to De

Guzman. All they had to do was to deduct the amount of P721,891.67 from

Petitioners contend that the previous loans they extended to De Guzman in

the P1,485,000 FEBTC loan proceeds. Hence, the CA ruled that only the

the amounts of P300,000, P600,000 and P200,000 should have been

balance of the P1,485,000 loan proceeds from FEBTC minus

considered by the CA. When added to the P721,891.67 used to settle the PNB

the P721,891.67 used to redeem the PNB loan should be paid by the spouses

loan, De Guzmans total loan obtained from them would amount

Villaceran to De Guzman. The CA also deleted the grant of attorneys fees for

to P1,821,891.67. Thus, it would clearly show that the Deed of Sale dated

lack of factual, legal or equitable justification.

June 19, 1996, being supported by a valuable consideration, is not a

simulated contract.

On December 22, 2004, the spouses Villaceran filed a motion for

reconsideration of the foregoing decision. Said motion, however, was denied

We do not agree.

for lack of merit by the CA in its Resolution dated June 29, 2005. Hence, this
Article 134519 of the Civil Code provides that the simulation of a contract

appeal.

may either be absolute or relative. In absolute simulation, there is a colorable

In their petition for review on certiorari, the spouses Villaceran allege that:

contract but it has no substance as the parties have no intention to be

bound by it. The main characteristic of an absolute simulation is that the

1. THE RESPONDENT COURT OF APPEALS ERRED AND GRAVELY

apparent contract is not really desired or intended to produce legal effect or

ABUSED ITS DISCRETION IN DECLARING THE DEED OF SALE

in any way alter the juridical situation of the parties.20 As a result, an

DATED JUNE 19, 1996 AS SIMULATED AND THAT THE SAME WAS

absolutely simulated or fictitious contract is void, and the parties may

MERELY EXECUTED FOR THE PURPOSE OF THE LOAN

recover from each other what they may have given under the contract.

ACCOMODATION OF PETITIONERS VILLACERAN IN FAVOR OF THE

However, if the parties state a false cause in the contract to conceal their real

RESPONDENT DE GUZMAN INSTEAD OF DECLARING SAID DEED

agreement, the contract is only relatively simulated and the parties are still

AS A VALID DEED OF ABSOLUTE SALE, THE CONTENTS OF

bound by their real agreement. Hence, where the essential requisites of a

WHICH ARE CLEARLY REFLECTIVE OF THEIR TRUE INTENTION

contract are present and the simulation refers only to the content or terms of

TO ENTER INTO A CONTRACT OF SALE AND NOT OTHERWISE, IN

the contract, the agreement is absolutely binding and enforceable between

DIRECT CONTRAVENTION OF THE RULES ON EVIDENCE AND OF

the parties and their successors in interest. 21

THE ADMISSIONS OF THE PARTIES AND THE HONORABLE

COURTS RULINGS OR JURISPRUDENCE ON THE MATTER; AND

The primary consideration in determining the true nature of a contract is the

intention of the parties. If the words of a contract appear to contravene the

2. THE RESPONDENT COURT OF APPEALS ERRED AND GRAVELY

evident intention of the parties, the latter shall prevail. Such intention is

ABUSED ITS DISCRETION IN ORDERING PETITIONERS

determined not only from the express terms of their agreement, but also from

VILLACERAN TO PAY RESPONDENT DE GUZMAN THE

the contemporaneous and subsequent acts of the parties. 22 In the case at

DIFFERENCE BETWEEN THE FAR EAST BANK AND TRUST

bar, there is a relative simulation of contract as the Deed of Absolute Sale

COMPANY (FEBTC) LOAN OF PHP1,485,000.00 LESS P721,891.67

dated June 19, 1996 executed by De Guzman in favor of petitioners did not

(USED TO PAY THE PHILIPPINE NATIONAL BANK [PNB] LOAN) PLUS

reflect the true intention of the parties.

LEGAL INTEREST THEREON AND TO PAY THE COSTS OF SUIT. 18

340

It is worthy to note that both the RTC and the CA found that the evidence

The Court has time and again ruled that conclusions and findings of fact of

established that the aforesaid document of sale was executed only to enable

the trial court are entitled to great weight and should not be disturbed on

petitioners to use the property as collateral for a bigger loan, by way of

appeal, unless strong and cogent reasons dictate otherwise. This is because

accommodating De Guzman. Thus, the parties have agreed to transfer title

the trial court is in a better position to examine the real evidence, as well as

over the property in the name of petitioners who had a good credit line with

to observe the demeanor of the witnesses while testifying in the case. 24 In

the bank. The CA found it inconceivable for De Guzman to sell the property

sum, the Court finds that there exists no reason to disturb the findings of

for P75,000 as stated in the June 19, 1996 Deed of Sale when petitioners

the CA.

were able to mortgage the property with FEBTC for P1,485,000. Another
indication of the lack of intention to sell the property is when a few months

WHEREFORE, the petition for review on certiorari is DENIED. The Decision

later, on September 6, 1996, the same property, this time already registered

dated November 26, 2004 and Resolution dated June 29, 2005 of the Court

in the name of petitioners, was reconveyed to De Guzman allegedly

of Appeals in CA-G.R. CV No. 71831 are AFFIRMED.

for P350,000.
With costs against the petitioners.
As regards petitioners assertion that De Guzmans previous loans should
have been considered to prove that there was an actual sale, the Court finds

SO ORDERED.

the same to be without merit. Petitioners failed to present any evidence to

prove that they indeed extended loans to De Guzman in the amounts
of P300,000, P600,000 and P200,000. We note that petitioners tried to
explain that on account of their close friendship and trust, they did not ask
for any promissory note, receipts or documents to evidence the loan. But in
view of the substantial amounts of the loans, they should have been duly
covered by receipts or any document evidencing the transaction.
Consequently, no error was committed by the CA in holding that the June
19, 1996 Deed of Absolute Sale was a simulated contract.

[G.R. No. 132474. November 19, 1999]

RENATO
CENIDO
(deceased),
represented
by
VICTORIA
CENIDOSA, petitioner, vs. SPOUSES AMADEO APACIONADO and
HERMINIA STA. ANA,respondents.
DECISION

The issue of the genuineness of a deed of sale is essentially a question of

fact.1wphi1 It is settled that this Court is not duty-bound to analyze and
weigh again the evidence considered in the proceedings below. This is
especially true where the trial courts factual findings are adopted and
affirmed by the CA as in the present case. Factual findings of the trial court,
affirmed by the CA, are final and conclusive and may not be reviewed on
appeal.23

PUNO, J.:
In this petition for review, petitioner Renato Cenido seeks to reverse and
set aside the decision of the Court of Appeals [1] in CA-G.R. CV No. 41011
which declared the private respondents as the owners of a house and lot in
Binangonan, Rizal.[2]
The antecedent facts are as follows:
On May 22, 1989, respondent spouses Amadeo Apacionado and
Herminia Sta. Ana filed with the Regional Trial Court, Branch 70, Rizal a
complaint against petitioner Renato Cenido for Declaration of Ownership,
Nullity, with Damages.[3] The spouses alleged that: (1) they are the owners of
a parcel of unregistered land, 123 square meters in area and located at Rizal
Street, Barrio Layunan, Binangonan, Rizal, more particularly described as
follows:

341

x x x that certain parcel of land located at Rizal, St., Layunan, Binangonan,

Rizal, with an area of 123 square meters, more or less, bounded on the North
by Gavino Aparato; on the East by Rizal St., on the South by Tranquilino
Manuzon; and on the West by Simplicio Aparato, and the residential house
standing thereon.[4]
(2) this house and lot were purchased by the spouses from its previous
owner, Bonifacio Aparato, now deceased, who lived under the spouses' care
and protection for some twenty years prior to his death; (3) while he was
alive, Bonifacio Aparato mortgaged the said property twice, one to the Rural
Bank of Binangonan and the other to Linda C. Ynares, as security for loans
obtained by him; (4) the loans were paid off by the spouses thereby securing
the release and cancellation of said mortgages; (5) the spouses also paid and
continue to pay the real estate taxes on the property; (6) from the time of
sale, they have been in open, public, continuous and uninterrupted
possession of the property in the concept of owners; (7) that on January 7,
1987, petitioner Renato Cenido, claiming to be the owner of the subject
house and lot, filed a complaint for ejectment against them with the
Municipal Trial Court, Branch 2, Binangonan, Rizal; (8) through fraudulent
and unauthorized means, Cenido was able to cause the issuance in his name
of Tax Declaration No. 02-0368 over the subject property, which fact the
spouses learned only upon the filing of the ejectment case; (9) although the
ejectment case was dismissed by the Municipal Trial Court (MTC), Branch 2,
the tax declaration in Cenido's name was not cancelled and still subsisted;
(10) the spouses have referred the matter to the barangay for conciliation but
Cenido unjustifiably refused to appear thereat. The spouses thus prayed
that:
WHEREFORE, it is respectfully prayed of the Honorable Court that
judgment issue in the case:
1. Declaring them (plaintiffs) the true and absolute owners of the house and
lot now covered by Tax Declaration No. 02-0368;
2. Declaring Tax Declaration No. 02-0368 in the name of defendant Renato
Cenido as null and void and directing the Provincial Assessor of Rizal and the
Municipal Assessor of Binangonan, Rizal to register and to declare the house
and lot covered by the same in their names (plaintiffs) for purposes of
taxation;
3. Ordering defendant to pay them in the least amount of P50,000.00 as and
for moral damages suffered;
4. Ordering defendant to pay them the amount of P10,000.00 as and for
attorney's fees;
5. Ordering payment by defendant of exemplary damages in such amount
which the Honorable Court may deem just and equitable in the premises;

6. Ordering defendant to pay the costs of suit; and

Plaintiffs pray for such other and further relief which the Honorable Court
may deem just and equitable considering the foregoing premises. [5]
Petitioner Cenido answered claiming that: (1) he is the illegitimate son
of Bonifacio Aparato, the deceased owner of the subject property; (2) as
Aparato's sole surviving heir, he became the owner of the property as
evidenced by the cancellation of Tax Declaration No. 02-0274 in Bonifacio's
name and the issuance of Tax Declaration No. 02-0368 in his name; (3) his
ownership over the house and lot was also confirmed in 1985 by the
Municipal Trial Court, Branch 1, Binangonan in Case No. 2264 which
adjudicated various claims involving the same subject property wherein
plaintiffs were privy to the said case; (4) that in said case, the Apacionado
spouses participated in the execution of the compromise agreement
partitioning the deceased's estate among his heirs, which agreement was
adopted by the Municipal Trial Court as its judgment; (5) that the
Apacionado spouses were allowed to stay in his father's house temporarily;
(6) the mortgages on the property were obtained by his father upon request of
the Apacionados who used the proceeds of the loans exclusively for
themselves; (7) the real estate taxes on the property were paid for by his
father, the principal, and the spouses were merely his agents; (8) the
instrument attesting to the alleged sale of the house and lot by Bonifacio
Aparato to the spouses is not a public document; (8) petitioner Cenido was
never summoned to appear before the barangay for conciliation proceedings.
[6]

Respondent spouses replied that: (1) Cenido is not the illegitimate son
of Bonifacio, Cenido's claim of paternity being spurious; (2) the ownership of
the property was not the proper subject in Civil Case No. 2264 before the
MTC, Branch I, nor were the spouses parties in said case. [7]
The parties went to trial. Respondent spouses presented four (4)
witnesses, namely, respondent Herminia Sta. Ana Apacionado; Rolando
Nieves, the barangay captain; Norberto Aparato, the son of Gavino Aparato,
Bonifacio's brother; and Carlos Inabayan, one of the two witnesses to the
deed of sale between Bonifacio Aparato and the spouses over the
property. Petitioner Cenido presented only himself as witness.
On March 30, 1993, the trial court rendered judgment. The court
upheld petitioner Cenido's ownership over the property by virtue of the
recognition made by Bonifacio's then surviving brother, Gavino, in the
compromise judgment of the MTC. Concomitantly, the court also did not
sustain the deed of sale between Bonifacio and the spouses because it was
neither notarized nor signed by Bonifacio and was intrinsically defective. The
court ordered thus:

342

WHEREFORE, in the light of the foregoing considerations, the Court

believes that preponderance of evidence is on the side of defendant and so
the complaint could not be given due course. Accordingly, the case is, as it
should be, dismissed. No attorney's fees or damages is being awarded as no
evidence to this effect had been given by defendant. With costs against
plaintiffs.
SO ORDERED.[8]
Respondent spouses appealed to the Court of Appeals. In a decision
dated September 30, 1997, the appellate court found the appeal meritorious
and reversed the decision of the trial court. It held that the recognition of
Cenido's filiation by Gavino, Bonifacio's brother, did not comply with the
requirements of the Civil Code and the Family Code; that the deed between
Bonifacio and respondent spouses was a valid contract of sale over the
property; and Cenido's failure to object to the presentation of the deed before
the trial court was a waiver of the defense of the Statute of Frauds. The
Court of Appeals disposed of as follows:
WHEREFORE, the appealed Decision is hereby REVERSED and SET
ASIDE. Plaintiffs-Appellants Spouses Amadeo Apacionado and Herminia
Sta. Ana are declared owners of the subject house and lot now covered by Tax
Declaration No. 02-6368.[9]
Hence, this recourse. Petitioner Cenido alleges that:
1. The unsigned, unnotarized and highly doubtful private document
designated as Pagpapatunay which is solely relied upon by the respondents
in support of their case is not sufficient to vest ownership of and transfer the
title, rights and interest over the subject property to the respondents.
x

x.

2. The Court of Appeals departed from the accepted and usual course of
judicial proceedings in that it ruled against the petitioner in view of the
alleged weakness of his defense rather than evaluate the case based on the
strength of the respondents evidence, thereby necessitating this Honorable
Court's exercise of its power of supervision.[10]
Victoria Cenidosa, in representation of petitioner Cenido, has
manifested, through counsel, that petitioner died in September 1993; that on
December 18, 1985, eight years before his death, Cenido sold the subject
house and lot to Maria D. Ojeda for the sum of P70,000.00; that Maria D.
Ojeda is now old and sickly, and is thus being represented in the instant case
by her daughter, Victoria O. Cenidosa. [11]
In the same vein, respondent Herminia Sta. Ana Apacionado also
manifested that her husband, Amadeo Apacionado, died on August 11,
1989. Amadeo is now being represented by his compulsory heirs. [12]

Before ruling on petitioner's arguments, it is necessary to establish

certain facts essential for a proper adjudication of the case.
The records reveal that the late Bonifacio Aparato had two siblings-- a
sister named Ursula and a brother named Gavino. [13] Ursula died on March 1,
1979,[14] Bonifacio on January 3, 1982[15]and Gavino, sometime after
Bonifacio's death. Both Ursula and Bonifacio never married and died leaving
no legitimate offspring. Gavino's son, Norberto, however, testified that there
was a fourth sibling, a sister, who married but also died; as to when she died
or whether she left any heirs, Norberto did not know. [16] What is clear and
undisputed is that Bonifacio was survived by Gavino who also left legitimate
heirs.
Both Bonifacio and Ursula lived in the subject property under the care
and protection of the Apacionados. Herminia Sta. Ana Apacionado started
living with them in 1976. She took care of Bonifacio and Ursula, who died
three years later. Herminia married Amado Apacionado, whose paternal
grandmother was a sister of Bonifacio. [17] Amadeo moved into Bonifacio's
house and assisted Herminia in taking care of the old man until his demise.
Shortly after Bonifacio's death, Civil Case No. 2264 was instituted by
petitioner Cenido against Gavino Aparato before the Municipal Trial Court,
Branch 1, Binangonan. The records do not reveal the nature of this action.
[18]
Nevertheless, three years after filing of the case, the parties entered into a
compromise agreement. The parties listed the properties of Bonifacio
comprising two parcels of land: one parcel was the residential house and lot
in question and the other was registered agricultural land with an area of
38,641 square meters; Gavino Aparato expressly recognized Renato Cenido
as the sole illegitimate son of his brother, likewise, Cenido recognized Gavino
as the brother of Bonifacio; as Bonifacio's heirs, they partitioned his estate
among themselves, with the subject property and three portions of the
agricultural land as Cenido's share, and the remaining 15,309 square meters
of the agricultural land as Gavino's; both parties agreed to share in the
documentation, registration and other expenses for the transfer of their
shares. This compromise agreement was adopted as the decision of the MTC
on January 31, 1985.[19]
In the same year, petitioner Cenido obtained in his name Tax
Declaration No. 02-6368 over the subject property. Two years later, in
January 1987, he filed an ejectment case against respondent spouses who
continued occupying the property in question. This case was dismissed.
Respondent spouses claim of ownership over the subject property is
anchored on a one-page typewritten document entitled Pagpapatunay,
executed by Bonifacio Aparato. The Pagpapatunay reads as follows:
PAGPAPATUNAY

343

DAPAT MALAMAN NG LAHAT:

Akong si BONIFACIO APARATO, binata, Pilipino, husto sa gulang, at
kasalukuyang naninirahan sa Layunan, Binangonan, Rizal, ay nagpapatunay
nitong mga sumusunod:
Una: -- Na, ako ang siyang nagmamay-ari ng isang lagay na lupang SOLAR at
Bahay Tirahan na nakatirik sa nabanggit na solar na makikita sa lugar ng
Rizal St., Layunan, Binangonan, Rizal;
Ikalawa: -- Na, sapagkat ang nagalaga sa akin hanggang sa ako'y tuluyang
kunin ng Dakilang Maykapal ay walang iba kungdi ang mag-asawang
AMADEO APACIONADO at HERMINIA STA. ANA APACIONADO;
Ikatlo: -- Na, pinatutunayan ko sa mga maykapangyarihan at kanginumang
tao na ang nabanggit na SOLAR at bahay tirahan ay ipinagbili ko sa
nabanggit na mag-asawa sa halagang SAMPUNG LIBONG (P10,000.00) PISO,
bilang pakunsuwelo sa kanilang pagmamalasakit sa aking pagkatao at
kalalagayan;
Na, patunay na ito ay aking nilagdaan ng maliwanag ang aking isip at
nalalaman ko ang lahat ng nilalaman nito.
SA KATUNAYAN NG LAHAT, lumagda ako ng aking pangalan at apelyido
ngayong ika-10 ng Disyembre 1981, dito sa Layunan, Binangonan, Rizal.
(Thumbmarked)
BONIFACIO APARATO
Nagpatunay
NILAGDAAN SA HARAP NINA:
(SGD.)
(SGD.)
Virgilio O.
Cenido

Carlos Inabayan
- Saksi

- Saksi -[20]

On its face, the document Pagpapatunay attests to the fact that

Bonifacio Aparato was the owner of the house and lot in Layunan, Rizal; that
because the Apacionado spouses took care of him until the time of his death,
Bonifacio sold said property to them for the sum of P10,000.00; that he was
signing the same document with a clear mind and with full knowledge of its
contents; and as proof thereof, he was affixing his signature on said
document on the tenth day of December 1981 in Layunan, Binangonan,
Rizal. Bonifacio affixed his thumbmark on the space above his name; and
this was witnessed by Virgilio O. Cenido and Carlos Inabayan.

Petitioner Cenido disputes the authenticity and validity of the

Pagpapatunay. He claims that it is not a valid contract of sale and its
genuineness is highly doubtful because: (1) it was not notarized and is
merely a private instrument; (2) it was not signed by the vendor, Bonifacio;
(3) it was improbable for Bonifacio to have executed the document and
dictated the words lumagda ako ng aking pangalan at apelyido because he
was paralyzed and could no longer sign his name at that time; and (4) the
phrase ang nag-alaga sa akin hanggang sa ako'y tuluyang kunin ng
Dakilang Maykapal speaks of an already departed Bonifacio and could have
been made only by persons other than the dead man himself. [21]
To determine whether the Pagpapatunay is a valid contract of sale, it
must contain the essential requisites of contracts, viz: (1) consent of the
contracting parties; (2) object certain which is the subject matter of the
contract; and (3) cause of the obligation which is established. [22]
The object of the Pagpapatunay is the house and lot. The
consideration is P10,000.00 for the services rendered to Aparato by
respondent spouses. According to respondent Herminia Apacionado, this
P10,000.00 was not actually paid to Bonifacio because the amount merely
quantified the services they rendered to the old man. It was the care the
spouses voluntarily gave that was the cause of the sale. [23] The cause
therefore was the service remunerated.[24]
Petitioner alleges that Bonifacio did not give his consent to the deed
because he did not affix his signature, but merely his thumbmark, on the
document. Bonifacio was a literate person who could legibly sign his full
name, and his signature is evident in several documents such as his
identification card as member of the Anderson Fil-American Guerillas; [25] the
Kasulatan ng Palasanglaan dated July 25, 1974 where he and his two other
siblings mortgaged the subject property for P2,000.00 to one Linda Y. Cenido;
[26]
Padagdag sa Sanglaan dated June 16, 1976;[27]and another Padagdag sa
Sanglaan dated March 2, 1979.[28]
Respondent Herminia Sta. Ana Apacionado testified that Bonifacio
Aparato affixed his thumbmark because he could no longer write at the time
of execution of the document. The old man was already 61 years of age and
could not properly see with his eyes. He was stricken by illness a month
before and was paralyzed from the waist down. He could still speak, albeit in
a garbled manner, and be understood. The contents of the Pagpapatunay
were actually dictated by him to one Leticia Bandola who typed the same on
a typewriter she brought to his house.[29]
That Bonifacio was alive at the time of execution of the contract and
voluntarily gave his consent to the instrument is supported by the testimony
of Carlos Inabayan, the lessee of Bonifacio's billiard hall at the ground floor
of the subject property. Inabayan testified that on December 10, 1981, he

344

was summoned to go up to Bonifacio's house. There, he saw Bonifacio,

respondent Apacionados, and a woman and her husband. He was given a
sheet of paper to read. He read the paper and understood that it was a deed
of sale of the house and lot executed by Bonifacio in favor of the
Apacionados. Thereafter, Bonifacio requested him to sign the document as
witness. Reexamining the Pagpapatunay, Inabayan saw that Bonifacio
affixed his thumbmark on the space above his name. Inabayan thus signed
the document and returned to the billiard hall.[30]
Inabayan's testimony has not been rebutted by petitioner. Petitioner,
through counsel, waived his right to do so, finding no need to cross-examine
the witness.[31] This waiver was granted by the court in the order of
September 23, 1992.[32]
One who alleges any defect or the lack of a valid consent to a contract
must establish the same by full, clear and convincing evidence, not merely by
preponderance thereof.[33] Petitioner has not alleged that the old man, by his
physical or mental state, was incapacitated to give his consent at the time of
execution of the Pagpapatunay. Petitioner has not shown that Bonifacio was
insane or demented or a deaf-mute who did not know how to write. [34] Neither
has petitioner claimed, at the very least, that the consent of Bonifacio to the
contract was vitiated by mistake, violence, intimidation, undue influence or
fraud.[35] If by assailing the intrinsic defects in the wordage of the
Pagpapatunay petitioner Cenido seeks to specifically allege the exercise of
extrinsic fraud and undue influence on the old man, these defects are not
substantial as to render the entire contract void. There must be clear and
convincing evidence of what specific acts of undue influence [36] or
fraud[37] were employed by respondent spouses that gave rise to said
defects. Absent such proof, Bonifacio's presumed consent to the
Pagpapatunay remains.
The Pagpapatunay, therefore, contains all the essential requisites of a
contract. Its authenticity and due execution have not been disproved
either. The finding of the trial court that the document was prepared by
another person and the thumbmark of the dead Bonifacio was merely affixed
to it is pure conjecture. On the contrary, the testimonies of respondent
Herminia Sta. Ana and Carlos Inabayan prove that the document is
authentic and was duly executed by Bonifacio himself.
The Pagpapatunay is undisputably a private document. And this fact
does not detract from its validity. The Civil Code, in Article 1356 provides:
Art. 1356. Contracts shall be obligatory, in whatever form they may
have been entered into, provided all the essential requisites for their
validity are present. However, when the law requires that a contract be
in some form in order that it may be valid or enforceable, or that a
contract be proved in a certain way, that requirement is absolute and

indispensable. In such cases, the right of the parties stated in the following
article cannot be exercised.
Generally, contracts are obligatory, in whatever form such contracts may
have been entered into, provided all the essential requisites for their validity
are present. When, however, the law requires that a contract be in some
form for it to be valid or enforceable, that requirement must be complied
with.
A certain form may be prescribed by law for any of the following
purposes: for validity, enforceability, or greater efficacy of the contract.
[38]
When the form required is for validity, its non-observance renders the
contract void and of no effect.[39] When the required form is for enforceability,
non-compliance therewith will not permit, upon the objection of a party, the
contract, although otherwise valid, to be proved or enforced by action.
[40]
Formalities intended for greater efficacy or convenience or to bind third
persons, if not done, would not adversely affect the validity or enforceability
of the contract between the contracting parties themselves. [41]
Article 1358 of the Civil Code requires that:
Art. 1358. The following must appear in a public document:
(1) Acts and contracts which have for their object the creation,
transmission, modification or extinguishment of real rights over
immovable property; sales of real property or of an interest therein are
governed by Articles 1403, No. 2 and 1405;
(2) The cession, repudiation or renunciation of hereditary rights or of those of
the conjugal partnership of gains;
(3) The power to administer property, or any other power which has for its
object an act appearing or which should appear in a public document, or
should prejudice a third person;
(4) The cession of actions or rights proceeding from an act appearing in a
public document.
All other contracts where the amount involved exceeds five hundred pesos
must appear in writing, even a private one. But sales of goods, chattels or
things in action are governed by Articles 1403, No. 2 and 1405.
Acts and contracts which create, transmit, modify or extinguish real rights
over immovable property should be embodied in a public document. Sales of
real property are governed by the Statute of Frauds which reads:
Art. 1403. The following contracts are unenforceable, unless they are
ratified:
(1) x x x

345

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

Anent petitioner's second assigned error, the fact that the Court of
Appeals sustained the validity of the Pagpapatunay was not a conclusion
that necessarily resulted from the weakness of petitioner's claim of filiation to
Bonifacio Aparato. Of and by itself, the Pagpapatunay is a valid contract of
sale between the parties and the Court of Appeals did not err in upholding its
validity.

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

The issue of petitioner's paternity, however, is essential to determine

whether Tax Declaration No. 02-6368 in the name of petitioner Cenido
should be nullified, as prayed for by respondent spouses in their complaint.

xxx
(e) An agreement for the leasing for a longer period than one year, or for the
sale of real property or of an interest therein;
(3) x x x.
The sale of real property should be in writing and subscribed by the party
charged for it to be enforceable. The Pagpapatunay is in writing and
subscribed by Bonifacio Aparato, the vendor; hence, it is enforceable under
the Statute of Frauds. Not having been subscribed and sworn to before a
notary public, however, the Pagpapatunay is not a public document, and
therefore does not comply with Article 1358, paragraph 1 of the Civil Code.
The requirement of a public document in Article 1358 is not for the
validity of the instrument but for its efficacy. [42] Although a conveyance of
land is not made in a public document, it does not affect the validity of such
conveyance.[43] Article 1358 does not require the accomplishment of the acts
or contracts in a public instrument in order to validate the act or contract
but only to insure its efficacy,[44] so that after the existence of said contract
has been admitted, the party bound may be compelled to execute the proper
document.[45] This is clear from Article 1357, viz:
Art. 1357. If the law requires a document or other special form, as in
the acts and contracts enumerated in the following article [Article
1358], the contracting parties may compel each other to observe that
form, once the contract has been perfected. This right may be exercised
simultaneously with the action upon the contract.
The private conveyance of the house and lot is therefore valid between
Bonifacio Aparato and respondent spouses. The question of whether the
Pagpapatunay is sufficient to transfer and convey title to the land for
purposes of original registration[46] or the issuance of a real estate tax
declaration in respondent spouses' names, as prayed for by respondent
spouses,[47] is another matter altogether.[48] For greater efficacy of the
contract, convenience of the parties and to bind third persons, respondent
spouses have the right to compel the vendor or his heirs to execute the
necessary document to properly convey the property. [49]

Tax Declaration No. 02-6368[50] in petitioner Cenido's name was issued

pursuant to the compromise judgment of the MTC where Gavino Aparato,
Bonifacio's brother, expressly recognized petitioner Cenido as Bonifacio's sole
illegitimate son. The compromise judgment was rendered in 1985, three
years after Bonifacio's demise.
Under the Civil Code,[51] natural children and illegitimate children other
than natural are entitled to support and successional rights only when
recognized or acknowledged by the putative parent. [52] Unless recognized, they
have no rights whatsoever against their alleged parent or his estate. [53]
The filiation of illegitimate children may be proved by any of the forms of
recognition of natural children.[54] This recognition may be made in three
ways:[55] (1) voluntarily, which must be express such as that in a record of
birth, a will, a statement before a court of record, or in any authentic writing;
[56]
(2) legally, i.e., when a natural child is recognized, such recognition
extends to his or her brothers and sisters of the full blood; [57] and (3)
judicially or compulsorily, which may be demanded by the illegitimate child of
his parents.[58] The action for compulsory recognition of the illegitimate child
must be brought during the lifetime of the presumed parents. This is
explicitly provided in Article 285 of the Civil Code, viz:
Art. 285. The action for the recognition of natural children may be brought
only during the lifetime of the presumed parents, except in the following
cases:
(1) If the father or mother died during the minority of the child, in which case
the latter may file the action before the expiration of four years from the
attainment of his majority;
(2) If after the death of the father or of the mother a document should appear
of which nothing had been heard and in which either or both parents
recognize the child.
In this case, the action must be commenced within four years from the
finding of the document.

346

The illegitimate child can file an action for compulsory recognition only
during the lifetime of the presumed parent. After the parent's death, the
child cannot bring such action, except, however, in only two instances: one is
when the supposed parent died during the minority of the child, and the
other is when after the death of the parent, a document should be discovered
in which the parent recognized the child as his. The action must be brought
within four years from the attainment of majority in the first case, and from
the discovery of the document in the second case. The requirement that the
action be filed during the parent's lifetime is to prevent illegitimate children,
on account of strong temptations to large estates left by dead persons, to
claim part of this estate without giving the alleged parent personal
opportunity to be heard.[59] It is vital that the parent be heard for only the
parent is in a position to reveal the true facts surrounding the claimant's
conception.[60]
In the case at bar, petitioner Cenido did not present any record of birth,
will or any authentic writing to show he was voluntarily recognized by
Bonifacio as his illegitimate son. In fact, petitioner admitted on the witness
stand that he had no document to prove Bonifacio's recognition, much less
his filiation.[61] The voluntary recognition of petitioner's filiation by Bonifacio's
brother before the MTC does not qualify as a statement in a court of record.
Under the law, this statement must be made personally by the parent himself
or herself, not by any brother, sister or relative; after all, the concept of
recognition speaks of a voluntary declaration by the parent, or if the parent
refuses, by judicial authority, to establish the paternity or maternity of
children born outside wedlock.[62]
The compromise judgment of the MTC does not qualify as a compulsory
recognition of petitioner. In the first place, when he filed this case against
Gavino Aparato, petitioner was no longer a minor. He was already pushing
fifty years old.[63] Secondly, there is no allegation that after Bonifacio's death,
a document was discovered where Bonifacio recognized petitioner Cenido as
his son. Thirdly, there is nothing in the compromise judgment that indicates
that the action before the MTC was a settlement of Bonifacio's estate with a
gross value not exceeding P20,000.00. [64] Definitely, the action could not have
been for compulsory recognition because the MTC had no jurisdiction over
the subject matter.[65]
The Real Property Tax Code provides that real property tax be assessed
in the name of the person owning or administering the property on which
the tax is levied.[66] Since petitioner Cenido has not proven any successional
or administrative rights to Bonifacio's estate, Tax Declaration No. 02-6368 in
Cenido's name must be declared null and void.
IN VIEW WHEREOF, the petition is denied and the Decision and
Resolution of the Court of Appeals in CA-G.R. CV No. 41011 are

affirmed. Tax Declaration No. 02-6368 in the name of petitioner Renato

Cenido is declared null and void.
No costs.
SO ORDERED.

G.R. No. L-39044 January 3, 1985

MANOTOK REALTY, INC., petitioner,
vs.
THE HON. COURT OF APPEALS and FELIPE CARILLO, respondents.

GUTIERREZ, JR., J.:

In this petition for review, the petitioner asks that we reverse the decision of
the Court of Appeals, now the Intermediate Appellate Court, which declared
respondent Felipe Carillo a builder in good faith with the right to remain in
the questioned premises, free of rent, until reimbursed by the petitioner for
the necessary and useful expenses introduced on the land.
The dispositive portion of the Court of Appeals' decision reads:
WHEREFORE, the appealed judgment is hereby modified in
the sense that the appellant being a builder in good faith is
entitled to the right of retention of the lot introduced
thereon, and he is not hable to pay rentals for the
occupation thereof pending payment of the indemnity for
such improvements. In all other respects, the appealed
judgment is affirmed, without pronouncement as to costs.
The background facts of the case are found in the decision of
the respondent court as follows:
There is no dispute that herein appellee is the registered
owner of a parcel of land covered by Tax Declaration Nos.
2455 and 2456 issued by the City Assessor's Office of Manila

347

with a total assessed value of P3,059,180.00 and by TCT

After the petitioner failed in its attempts to take possession of the lot, it filed

55125 (Exh. A) and TCT No. 76130 of the Register of Deeds

the reivindicatory action against the respondent.

of the City of Manila. It acquired the aforementioned

property from the Testate Estate of Clara Tambunting de

The trial court decided the case in favor of the petitioner. The dispositive

Legarda, being the highest bidder in a sale conducted by the

portion of its decision reads:

Probate Court (Exhs. C-7 & C-7-A).

In Civil Case No. 64578:
After having acquired said property, the appellee subdivided
it, but could not take possession thereof because the whole

(1) Ordering defendant Felipe Carino to vacate and/or

area is occupied by several houses among which is the one

surrender possession to plaintiff Manotok Realty Inc. of the

belonging to the herein appellant Felipe Carillo, Lot 143,

parcel of land subject matter of the complaint described in

Block 2 of the subdivision plan (Exh. A-4 Carillo).

paragraph 2 thereof;

Demands to vacate and to surrender possession of the

(2) To pay plaintiff the sum of P75.50 per month from

property were made by the appellee verbally and by

January 21, 1961 up to the time he actually surrenders

publication (Exhs. D, D-1 & D-2) and by circulars served to

possession of the said parcel to the plaintiff; and

the appellant. In spite of such demands, the appellant

continued to occupy the disputed lot and refused to

(3) To pay plaintiff the sum of Pl,000.00 as attorney's fees

surrender possession thereof to the appellee.

and to pay costs.

On the other hand, appellant's evidence tends to show that

On August 15, 1984, we required the parties to show whether or not the

he acquired the lot in dispute from a certain Delfin Dayrit on

disputed lot falls within the area expropriated under P.D. No. 1669 and P.D.

September 25, 1962, pursuant to a deed of assignment (Exh.

No. 1670. It appears that the expropriated portion of the Tambunting Estate

1-Carillo); that Dayrit in turn had acquired the property

is the area located at the east side adjacent to the Chinese Cemetery. The lot

from the late Carla Tambunting by virtue of a Contract of

is on the unexpropriated and mainly commercial portion on the west side,

Sale on Installment Basis (EXIL 2-Carillo); that Dayrit had

across from Rizal Avenue.

religiously paid the monthly installments as they fell due, his

last payment being on May 25, 1954, in the sum of P200.00,

In this petition, the petitioner maintains that the appellate court erred in

then leaving an unpaid balance of Pl,306.00 when the said

considering the respondent a possessor and builder in good faith. It argues

parcel was conveyed to defendant Carino, for which receipts

that at the time of the execution of the deed of assignment in favor of the

were duly issued (Exhs. 3-Carillo to 24-Carillo); that Dayrit

respondent, the land was already registered in its name; and that if the

could not continue paying the succeeding installments as

respondent were really acting in good faith, he should have verified from the

they fen due because Vicente Legarda, the surviving spouse

Register of Deeds of Manila who was the registered owner of the land in

of Clara Tambunting, refused to receive any payment for the

question.

same and that it was only lately, more specifically on

September 25, 1962, when Dayrit conveyed the lot to

We agree.

appellant Carillo.
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. (Caram v. Laureta, 103

348

SCRA 7, Art. 526, Civil Code). One who acquires real estate with knowledge

In this case, it was shown that under the contract of sale on

of a defect or lack of title in his vendor cannot claim that he has acquired title

installment basis, Delfin Dayrit had only paid a total of

thereto in good faith as against the true owner of the land or of an interest

P4,917.30, leaving an unpaid balance of P3,860.20 as of

therein; and the same rule must be applied to one who has knowledge of

August 9, 1954 (Dec. RA p. 43). The said contract specifically

facts which should put a reasonable man upon his guard, and then claims

provides that ". . . if for some reason or other the purchaser

that he acted in good faith under the belief that there was no defect in the

cannot pay a certain installment on the date agreed upon, it

title of the vendor. (See Leung Yee v. FL Strong Machinery Co., 37 Phil. 644).

is hereby agreed that said purchaser will be given a

maximum limit of two months' grace in which to pay his

The records show that when Dayrit executed the deed of' assignment in favor

arrears, after which the property will revert to the original

of the respondent, the disputed lot was already registered and titled in the

owner hereof: the Clara Tambunting Subdivision, No. 50

name of the petitioner. Such an act of registration served as a constructive

Reina Regente St., Binondo, Manila, P.I." The subsequent

notice to the whole world and the title issued in favor of petitioner made his

installment after August 9, 1954, not having been paid, the

ownership conclusive upon and against all persons including Dayrit and.

property, therefore, reverted to Clara Tambunting and

herein respondent, although no personal notice was served on either of the

therefore formed part of her estate, which was subsequently

latter. (See Garcia v. Bello, 13 SCRA 769; Demontano v. Court of Appeals, 81

acquired by appellee. Thus, when appellant purchased the

SCRA 286). Therefore, the presumption of good faith in favor of the

parcel of land in question from Dayrit on August 25, 1962

respondent cannot apply because as far as the law is concerned, he had

or eight (8) years after the defaultthe latter had no more

notice of the ownership by the petitioner over said lot. It is also unthinkable

right over the same.

that in the big Tambunting Estate beset with one of the most serious
squatter problems in Metro Manila, any tenant or prospective buyer would be

It was incumbent on appellant to inquire into the title of his

unaware that the petitioner acquired the estate as highest bidder at the sale

vendor over the property. Had appellant demanded from his

ordered by the probate court. Furthermore, the respondent did not even

vendor, Dayrit, the certificate of his ownership of the

bother to inquire about the certificate of title covering the lot in question to

property subject of the negotiation, he would have learned

verify who was the real owner thereof, despite the fact that his transferor,

that the latter had no right, much less, title over the same

Dayrit, never showed him any title thereto; a circumstance which should

because of his default in the payment of the monthly

have put him upon such inquiry or investigation. His failure to exercise that

installments. A purchaser cannot close his eyes to facts

measure of precaution which was reasonably required of a prudent man in

which should put a reasonable man upon his guard and

order to acquaint him with the defects in the title of his vendor precludes him

then claim that he acted in good faith under the behef that

from claiming possession in good faith.

there was no defect in the title of the vendor (Leung Yee v.

Strong Machinery Co., 37 Phil. 644). Consequently, appellant

We agree with the following observations of Justice Guillermo S. Santos in

cannot be deemed a possessor in good faith and is not,

his separate concurring and dissenting opinion:

therefore, entitled to reimbursement for the improvements he

had introduced in the property in question.

The issue now is whether appellant may be considered as a

possessor in good faith of the property in question. Article

No installments and rentals have been paid for the lot since 1954 or for more

256 of the Civil Code defines a possessor in good faith as one

than thirty (30) years. While Dayrit transferred to Carillo whatever rights he

who is not aware that there exists in his title or mode of

may have had to the lot and its improvements on September 25, 1962, the

acquisition any flaw which invalidates it.

claim for back rentals was from March 20, 1959 while the trial court ordered
payment as of January 21, 1961 or twenty four (24) years ago. Considering

349

the facts, applicable law, and equities of this case, the decision of the trial

The factual and procedural antecedents of this case may be

court appears to be correct and is, therefore, reinstated.

briefly stated as follows:

WHEREFORE, the questioned decision of the Court of Appeals is hereby SET

On June 20, 1983, private-respondents filed a complaint

ASIDE and another one is entered AFFIRMING in toto the decision of the

before the Regional Trial Court of Laguna, Branch XXIV, for

Court of First Instance of Manila in Civil Case No. 64578.

rescission of contract and damages, alleging among others:

SO ORDERED.

1. x x x
2. That on March 31, 1975, plaintiffs being the owners of a
parcel of land situated at Barrio San Antonio, San Pedro,
Laguna, entered into a contract denominated as DEED OF
SECOND DIVISION

G.R. No. 73893 June 30, 1987

MARGARITA SURIA AND GRACIA R. JOVEN, petitioners,
vs.
HON. INTERMEDIATE APPELLATE COURT, HON. JOSE MAR GARCIA
(Presiding Judge of the RTC of Laguna, Branch XXIV, Bian, Laguna),
and SPOUSES HERMINIO A. CRISPIN and NATIVIDAD C.
CRISPIN,respondents.

SALE WITH MORTGAGE, with herein defendants, a true

copy of said contract (which is made an integral part hereof)
is hereto attached as ANNEX ."A":
3. x x x
4. That the defendants violated the terms and conditions of
the contract by failing to pay the stipulated installments and
in fact only one installment due in July 1975 (paid very late
in the month of September, 1975) was made all the others
remaining unsettled to the present time;

De Castro & Cagampang Law Offices for petitioners.

5. That repeated verbal and written demands were made by

plaintiff upon the defendants for the payment of the

Nelson A. Loyola for private respondents.

installments, some of said written demands having been

made on September 24, 1981, February 7, 1982, February

RESOLUTION

24, 1983, March 13, 1983, and April 12, 1983, but
defendants for no justifiable reason failed to comply with the
demands of plaintiffs;

GUTIERREZ, JR., J.:

6. x x x

This is a petition for review on certiorari of the decision of the Court of

On November 14, 1983, petitioners filed their answer with

Appeals dismissing for lack of merit the petition for certiorari filed therein.

counterclaim.

As factual background, we quote from the Court of Appeals' decision:

On July 16, 1984, petitioners filed a motion to disniiss

complaint, alleging that:

350

1. That plaintiffs are not entitled to the subsidiary remedy of

lack of cause of action the allegations of the complaint must

rescission because of the presence of remedy of

be assumed to be true, the Court finds and holds that the

foreclosure in the Deed of Sale with Mortgage (Annex "A",

motion to dismiss dated July 24, 1984 filed by defendants

Complaint);

lacks merit and therefore denied the same.

2. That, assuming arguendo that rescission were a proper

SO ORDERED.

remedy, it is apparent in the face of the Complaint that the

plaintiffs failed to comply with the requirements of law,

On January 31, 1985, petitioners filed a motion for

hence the rescission was ineffective, illegal, null and void,

reconsideration to which private-respondents filed their

and invalid.

opposition on February 11, 1985. On February 19, 1985,

petitioners filed their reply.

On July 26, 1984, private-respondents filed their opposition

to the above motion.

On March 13, 1985, the respondent-Court denied the motion

for reconsideration. The order reads in part:

In the meantime, on August 6, 1984, petitioners formerly

offered to pay private-respondents all the outstanding

xxx xxx xxx

balance under the Deed of Sale with Mortgage, which offer

was rejected by private respondents on August 7, 1984.

Perusing the grounds invoked by the defendants in their

Motion for Reconsideration and Reply as well as the

On November 26, 1984, the respondent-Court denied the

objections raised by plaintiffs in their opposition, and it

motion to dismiss. The order reads:

appearing that in its Order dated November 26, 1984, the

Court has sufficiently, althou (sic) succinctly stated its

Defendants through counsel filed a Second Motion to

reason for denying the motion to dismiss dated July 16,

Dismiss dated July 24, 1984 based on an affirmative defense

1984, that is, for lack of merit, the Court finds no overriding

raised in their answer, that is, that the complaint fails to

reason or justification from the grounds invoked in the said

state a cause of action for rescission against defendants

Motion for Reconsideration for it to reconsider, change,

because (1) plaintiffs are not entitled to the subsidiary

modify, or set aside its Order dated November 26, 1984. The

remedy of rescission because of the presence of the remedy

Court still believes that the two (2) grounds invoked by

of foreclosure in the Deed of Sale with Mortgage (Annex "A",

defendants in their Motion to Dismiss dated July 16, 1984

Complaint) and (2) assuming arguendo that rescission

are not meritorious when considered in the light of prevailing

were a proper remedy, it is apparent from the face of the

law and jurisprudence and the hypothetically admitted

Complaint that the plaintiffs failed to comply with the

allegations of the complaint, and for that reason it denied the

requirements of law, hence the rescission was ineffective,

motion to dismiss in its said order of November 26, 1984.

illegal, null and void, and invalid.

The instant Motion for Reconsideration is therefore denied
After a careful perusal of the allegations of the complaint

for lack of merit. (Pp, 29-32, Rollo)

considered in the light of existing applicable law and

jurisprudence touching on the matters in issue, and mindful

The questions raised by petitioner are as follows:

of the settled rule that in a motion to dismiss grounded on

351

The petition was denied in a minute resolution on June 13, 1986 but was
given due course on September 29, 1986 on a motion for reconsideration.
IN A DEED OF SALE, WHICH IS COUPLED WITH A
MORTGAGE TO SECURE PAYMENT OF THE BALANCE OF

The petition is impressed with merit.

THE PURCHASE PRICE, MAY THE SELLER RESORT TO

THE REMEDY OF RESCISSION UNDER ARTICLE 1191 OF

The respondent court rejected the petitioners' reliance on paragraph (H) of

THE CIVIL CODE WHICH PROVIDES FOR THE SUBSIDIARY

the contract which grants to the vendors mortgagees the right to foreclose "in

AND EQUITABLE REMEDY OF RESCISSION IN CASE OF

the event of the failure of the vendees-mortgagors to comply with any

BREACH OF RECIPROCAL OBLIGATIONS?

provisions of this mortgage." According to the appellate court, this stipulation

merely recognizes the right of the vendors to foreclose and realize on the

Otherwise stated,

mortgage but does not preclude them from availing of other remedies under
the law, such as rescission of contract and damages under Articles 1191 and

IS THE SUBSIDIARY AND EQUITABLE REMEDY OF

1170 of the Civil Code in relation to Republic Act No. 6552.

RESCISSION AVAILABLE IN THE PRESENCE OF A REMEDY

OF FORECLOSURE IN THE LIGHT OF THE EXPRESS

The appellate court committed reversible error. As will be explained later, Art.

PROVISION OF ARTICLE 1383 OF THE CIVIL CODE THAT:

1191 on reciprocal obligations is not applicable under the facts of this case.

'THE ACTION FOR RESCISSION IS SUBSIDIARY; IT CANNOT

Moreover, Art. 1383 of the Civil Code provides:

BE INSTITUTED EXCEPT WHEN THE PARTY SUFFERING

DAMAGE HAS NO OTHER LEGAL MEANS TO OBTAIN

The action for rescission is subsidiary; it cannot be

REPARATION FOR THE SAME?

instituted except when the party suffering damage has no

other legal means to obtain reparation for the same.

xxx xxx xxx

The concurring opinion of Justice J.B.L. Reyes in Universal Food Corp. v.
II

Court of Appeals (33 SCRA 22) was cited by the appellate court.
MAY THE SELLER LEGALLY DEMAND RESCISSION OF THE

In that case, Justice J.B.L. Reyes explained:

DEED OF SALE WITH MORTGAGE WITHOUT OFFERING TO

RESTORE TO THE BUYER WHAT HE HAS PAID, AS

xxx xxx xxx

REQUIRED BY ARTICLE 1385, OR COMPLYING WITH THE

REQUIREMENTS OF THE MACEDA LAW (REPUBLIC ACT

... The rescission on account of breach of stipulations is not

6552) GRANTING THE BUYER A GRACE PERIOD TO PAY

predicated on injury to economic interests of the party

WITHOUT INTEREST, AND, IN CASE OF CANCELLATION IN

plaintiff but on the breach of faith by the defendant, that

CASE THE BUYER STILL COULD NOT PAY WITHIN THE

violates the reciprocity between the parties. It is not a

GRACE PERIOD, REQUIRING THE SELLER TO ORDER

subsidiary action, and Article 1191 may be scanned without

PAYMENT OF THE CASH SURRENDER VALUE BEFORE

disclosing anywhere that the action for rescission thereunder

THE CANCELLATION MAY LEGALLY TAKE EFFECT (SEC.

is subordinated to anything other than the culpable breach

3[b], LAST PAR., REP. ACT 6552)?

of his obligations by the defendant. This rescission is a

principal action retaliatory in character, it being unjust that
a party be held bound to fulfill his promises when the other

352

violates his. As expressed in the old Latin aphorism: "Non

This is understood to be without prejudice to the rights of

servanti fidem, non est fides servanda," Hence, the

third persons who have acquired the thing, in accordance

reparation of damages for the breach is purely secondary.

with articles 1385 and 1388 and the Mortgage Law.

On the contrary, in the rescission by reason of lesion or

There is no dispute that the parties entered into a contract of sale as

economic prejudice, the cause of action is subordinated to

distinguished from a contract to sell.

the existence of that prejudice, because it is the raison d

'etre as well as the measure of the right to rescind. Hence,

By the contract of sale, the vendor obligates himself to transfer the ownership

where the defendant makes good the damages caused, the

of and to deliver a determinate thing to the buyer, who in turn, is obligated to

action cannot be maintained or continued, as expressly

pay a price certain in money or its equivalent (Art. 1458, Civil Code). From

provided in Articles 1383 and 1384. But the operation of

the respondents' own arguments, we note that they have fully complied with

these two articles is limited to the cases of rescission for

their part of the reciprocal obligation. As a matter of fact, they have already

lesion enumerated in Article 1381 of the Civil Code of the

parted with the title as evidenced by the transfer certificate of title in the

Philippines, and does not apply to cases under Article 1191.

petitioners' name as of June 27, 1975.

It is probable that the petitioner's confusion arose from the

The buyer, in tum, fulfilled his end of the bargain when he executed the deed

defective technique of the new Code that terms both

of mortgage. The payments on an installment basis secured by the execution

instances as "rescission" without distinctions between them;

of a mortgage took the place of a cash payment. In other words, the

unlike the previous Spanish Civil Code of 1889, that

relationship between the parties is no longer one of buyer and seller because

differentiated "resolution" for breach of stipulations from

the contract of sale has been perfected and consummated. It is already one of

"rescission" by reason of lesion or damage. But the

a mortgagor and a mortgagee. In consideration of the petitioners'promise to

terminological vagueness does not justify confusing one case

pay on installment basis the sum they owe the respondents, the latter have

with the other, considering the patent difference in causes

accepted the mortgage as security for the obligation.

and results of either action.

The situation in this case is, therefore, different from that envisioned in the
According to the private respondents, the applicable law is Article 1191 of the

cited opinion of Justice J.B.L. Reyes. The petitioners' breach of obligations is

Civil Code which provides:

not with respect to the perfected contract of sale but in the obligations
created by the mortgage contract. The remedy of rescission is not a principal

The power to rescind obligations is implied in reciprocal

action retaliatory in character but becomes a subsidiary one which by law is

ones, in case one of the obligors should not comply with

available only in the absence of any other legal remedy. (Art. 1384, Civil

what is incumbent upon him.

Code).

The injured party may choose between the fulfilment and the

Foreclosure here is not only a remedy accorded by law but, as earlier stated,

rescission of the obligation, with the payment of damages in

is a specific provision found in the contract between the parties.

either case. He may also seek rescission, even after he has

chosen fulfiument, if the latter should become impossible.

The petitioners are correct in citing this Court's ruling in Villaruel v. Tan
King (43 Phil. 251) where we Stated:

The court shall decree the rescission claimed, unless there

be just cause authorizing the fixing of a period.

353

At the outset it must be said that since the subject-matter of

Article 1124 of the Civil Code, as we have seen, is not

the sale in question is real property, it does not come strictly

applicable to this case. Neither is the doctrine enunciated in

within the provisions of article 1124 of the Civil Code, but is

the case of Ocejo, Perez & Co. v. International Banking

rather subjected to the stipulations agreed upon by the

Corporation (37 Phil. 631), which plaintiff alleges to be

contracting parties and to the provisions of Article 1504 of

applicable, because that principle has reference to the sale of

the Civil Code.

personal property. (at p. 257)

The "pacto comisorio" of "ley comisoria" is nothing more than

The petitioners have offered to pay au past due accounts. Considering the

a condition subsequent of the contract of purchase and sale.

lower purchasing value of the peso in terms of prices of real estate today, the

Considered carefully, it is the very condition subsequent that

respondents are correct in stating they have suffered losses. However, they

is always attached to all bilateral obligations according to

are also to blame for trusting persons who could not or would not comply

article 1124; except that when applied to real property it is

with their obligations in time. They could have foreclosed on the mortgage

not within the scope of said article 1124, and it is

immediately when it fell due instead of waiting all these years while trying to

subordinate to the stipulations made by the contracting

enforce the wrong remedy.

parties and to the provisions of the article on which we are

now commenting" (article 1504). (Manresa, Civil Code,

WHEREFORE, the petition is hereby GRANTED. The Intermediate Appellate

volume 10, page 286, second edition.)

Court's decision dated November 8, 1985 and the resolution dated December
6, 1985 and February 28, 1986 are REVERSED and SET ASIDE. The

Now, in the contract of purchase and sale before us, the

petitioners are ordered to pay the balance of their indebtedness under the

parties stipulated that the payment of the balance of one

Deed of Absolute Sale with Mortgage with legal interests from the second

thousand pesos (P1,000) was guaranteed by the mortgage of

installment due on October 24, 1975 until fully paid, failing which the

the house that was sold. This agreement has the two-fold

respondents may resort to foreclosure.

effect of acknowledging indisputably that the sale had been

consummated, so much so that the vendee was disposing of

SO ORDERED.

it by mortgaging it to the vendor, and of waiving the pacto

comisorio, that is, the resolution of the sale in the event of
failure to pay the one thousand pesos (P1,000) such waiver
[G.R. Nos. 145156-57. July 29, 2005]

being proved by the execution of the mortgage to guarantee

the payment, and in accord therewith the vendor's adequate
remedy, in case of nonpayment, is the foreclosure of such
mortgage. (at pp. 255-256).

SOLID HOMES, INC., petitioner, vs. SPOUSES ANCHETA K. TAN and

CORAZON DE JESUS TAN, respondents.

xxx xxx xxx

There is, therefore, no cause for the resolution of the sale as
prayed for by the plaintiff. His action, at all events, should
have been one for the foreclosure of the mortgage, which is
not the action brought in this case.

DECISION
GARCIA, J.:
In this appeal by way of a petition for review on certiorari under Rule 45
of the Rules of Court, petitioner Solid Homes, Inc. urges us to nullify and set

354

aside the following issuances of the Court of Appeals in CA-G.R. SP No.

developer of a subdivision project to develop the same within one year from

53443 and 55324, to wit:

the issuance of its license.

1.

Decision dated May 23, 2000,[1] setting aside an earlier decision

of the Office of the President in a complaint for breach of
obligation filed by the herein respondents against the petitioner

2.

Having received no reply from petitioner, respondents filed with the Field
Office of the Housing and Land Use Regulatory Board (HLURB), NCR a
complaint for specific performance and damages therein praying, inter alia,

in connection with the sale of a subdivision lot; and

that petitioner be ordered to provide the needed facilities in the premises and

Resolution dated September 12, 2000,[2] denying petitioners

respondents property with another lot in the same subdivision where there

motion for reconsideration.

The material facts, undisputed by the parties, may be briefly stated, as
follows:

rid the same of squatters; or, in the alternative, for petitioner to replace
are facilities and sans squatters.
After due proceedings, the Housing and Land Use Arbiter, in a decision
dated September 17, 1996,[3] rendered judgment for the respondents by
directing petitioner:

On April 7, 1980, petitioner Solid Homes, Inc., sold to the spouses Joe

a.

Uy and Myrna Uy a subdivision lot with an area of 1,069 square meters,

subject premises and to rid the premises of squatters. In the

more particularly identified as Lot 18, Block 2, located at petitioners Loyola

alternative, at the option of complainants xxx to replace subject

Grand Villas Subdivision, Quezon City. Thereafter, the lot was registered in

lot with a lot of similar size and with available facilities, located

the name of the Uys under Transfer Certificate of Title (TCT) No. 280963/T-

in the subject subdivision.

1409 of the Register of Deeds of Quezon City.

b.

Sometime in February, 1985, the spouses Uy sold the same lot to herein
respondents, the spouses Ancheta K. Tan and Corazon de Jesus-Tan, by
reason of which the former title covering the lot was cancelled and replaced
by TCT No. RT-14465 (327754) in respondents name.
From then on, respondents visited their property a number of times,
only to find out the sad state of development thereat. There was no
infrastructure and utility systems for water, sewerage, electricity and
telephone, as announced in the approved plans and advertisements of the
subdivision. Worse, squatters occupy their lot and its surrounding areas. In
short, there has been no development at all.
Accordingly, in a letter dated December 18, 1995, respondents
demanded on petitioner to provide the needed utility systems and clear the
area of squatters and other obstructions by the end of January, 1996 to
enable them to start the construction of their house thereon and to allow
other lot owners in the area a full access to and peaceful possession of their
respective lots, conformably with P.D. No. 957 which requires an owner or

to perform its obligation to provide subdivision facilities in the

to pay complainants P20,000.00 as and by way of attorneys fees.

In the same decision, the Arbiter dismissed the complaint against petitioners
co-defendant, Purita Soliven.
Dissatisfied, petitioner went on appeal to the HLURB Board of
Commissioners, which, in a decision dated April 16, 1997, [4] affirmed that of
the Arbiter.
From there, petitioner elevated the case to the Office of the President
(O.P.).
In a decision[5] dated June 3, 1999, the O.P., thru then Executive
Secretary Ronaldo B. Zamora, affirmed with modification the appealed
decision of the HLURB Board of Commissioners, thus:
WHEREFORE, premises considered, the first paragraph of the decision
appealed from is hereby AFFIRMED with the modification that in case Solid

355

Homes, Inc. fails to replace subject lot with a lot of similar size and with

WHEREFORE, Premises Considered, the assailed Decision dated 03 June

available facilities located in the subdivision, because it had already sold or

1999 is hereby SET ASIDE and the Decision of the HLURB dated 16 April

transferred all of its properties in the subdivision, it shall pay spouses Ancheta

1997 is hereby AFFIRMED subject to the modification that if there is no more

Tan and Corazon Tan the total amount received from them as purchase price,
with legal rate of interest from February 1985, until fully paid. Save for this

available lot in Loyola Grand Villas to replace subject lot, Solid Homes, Inc.
should pay the spouses Tan the current market value of their lot.

modification, the decision appealed from is hereby AFFIRMED.

SO ORDERED.
SO ORDERED (Italics, ours).
This time, petitioner moved for reconsideration but its motion was
On

June

25,

1999,

respondents

filed

motion

for

partial

denied by the same court in its resolution of September 12, 2000.[8]

reconsideration of the aforementioned decision, praying for the deletion of

that portion thereof giving petitioner the option of merely paying them
the purchase price with interest in the event petitioner fails to replace

Hence, petitioners present recourse, contending that the Court of

Appeals erred

subject lot with a lot of similar size and with available facilities located in the
subdivision, because it had already sold or transferred all of its properties in

1.

XXX IN RULING THAT PRESCRIPTION HAS NOT SET-IN;

2.

XXX IN APPLYING THE PRINCIPLE ON EQUITY AS AGAINST

the subdivision. Respondents argued that it would be more in accord with

equity and fair play if they will be paid the fair market value of the lot in
question and not merely its purchase price, should there be no available lot

POSITIVE LAW TO THE PREJUDICE OF HEREIN PETITIONER;

with facilities in the area.

AND

However, in a resolution dated September 22, 1999, [6] O.P. denied

3.

XXX IN RULING THAT PETITIONER SHOULD PAY

RESPONDENTS THE CURRENT MARKET VALUE OF THE LOT

respondents motion.

IN QUESTION.
Both parties then went to the Court of Appeals via their respective
petitions for review, thereat separately docketed as CA- G.R. SP No.
53443 (for

petitioners)

and CA-G.R.

SP

No.

55324 (for

respondent).

Pursuant to Section 1, Rule 31 of the Rules of the Court, the appellate court
ordered the consolidation of the two (2) petitions.
As stated at the threshold hereof, the Court of Appeals, in its
consolidated decision dated May 23, 2000,

[7]

set aside that of the O.P. and

affirmed the earlier decision dated April 16, 1997 of the HLURB Board of
Commissioners, but subject to the modification that petitioner shall pay
respondents the current market value of the lot, not merely its purchase
price, should there be no more available lots with facilities in petitioners
Loyola Grand Villas Subdivision.
appellate courts decision:

We DENY.

We quote the decretal portion of the

The errors assigned actually simmered down to only two (2) issues,
namely: (1) whether or not respondents right to bring the instant case
against petitioner has already prescribed; and (2) in the event respondents
opt to rescind the contract, should petitioner pay them merely the price they
paid for the lot plus interest or the current market value thereof.
In the matter of prescription, it is petitioners posture that respondents
right to bring the action against it has already prescribed, arguing that the
10-year prescriptive period therefor should be reckoned from April 7, 1980
when petitioner originally sold the lot in question to the spouses Joe Uy and
Myrna Uy, or, at the latest from February, 1985, when respondents acquired
the same lot from the Uy spouses. Hence, and as respondents action was

356

filed with the HLURB Field Office only on April 1, 1996 or after more than

Thus, the period of prescription of any action is reckoned only from the date

ten (10) years, it follows that the same was filed out of time and, therefore,

the cause of action accrued. And a cause of action arises when that

ought to have been dismissed.

which should have been done is not done, or that which should not have

We disagree.
There can be no debate at all on the legal postulate that the prescriptive
period for bringing action for specific performance, as here, prescribes in ten
(10) years. This is so provided in Article 1144 of the Civil Code. What we
cannot agree on with the petitioner, and about which petitioner is in serious
error, is its submission that the 10-year prescriptive period should
commence either on April 7, 1980, when petitioner originally sold the lot to
spouses Uy; or in February, 1985, when the respondents thereafter bought
the same lot from the Uy couple. Obviously, petitioner misread Article 1144
which specifically provides that the 10-year period therein referred to
commences to run only from the time the right of action accrues. We quote in
full the codal provision relied upon by petitioner:
Article 1144. The following actions must be brought within ten years from
the time the right of action accrues:

been done is done. The period should not be made to retroact to the date of
execution of the contract on January 15, 1975 as claimed by the petitioner
for at that time, there would be no way for the respondents to know of the
violation of their rights. The Court of Appeals therefore correctly found that
respondents cause of action accrued on October 30, 1978, the date they
received the statement of account showing the increased rate of interest, for
it was only from that moment that they discovered the petitioners unilateral
increase thereof. We quote with approval the pertinent portions of the Court
of Appeals decision as follows:
It is the legal possibility of bringing the action that determines the starting
point for the computation of the period of prescription. [10] In fine, the ten-year
prescriptive period is to be reckoned from the accrual of the Appellees right
of action, not necessarily on the very date of the execution of the contracts
subject of the action[11] (Emphasis supplied)
In law, a cause of action exists when the following requisites concur, to
wit: (1) a right in favor of the plaintiff by whatever means and under

(1)

Upon a written contract;

(2)

Upon an obligation created by law;

(3)

Upon a judgment (Emphasis supplied).

whatever law it arises or is created; (2) an obligation on the part on the

defendant to respect such right; and (3) an act or omission on the part of
such defendant violative of the right of the plaintiff.[12]
Time and again, we have emphasized that it is only upon the happening
of the last element when it can be said that a cause of action has arisen. In

If not on a written contract, petitioners obligation to introduce

short, it is from the time an act is performed or an omission incurred which

improvements on the area in question arises from law, more specifically P.D.

is violative of the plaintiffs right, that signals the accrual of a cause of

957, as amended by P.D. 1216, Section 31 of which pertinently reads:

action.

And it is from that time that the 10-year prescriptive period

commences to run.
SECTION 31. Roads, Alleys, Sidewalks and Open Spaces. The owner as
developer of a subdivision shall provide adequate roads, alleys and

Here, it was only on December 18, 1995 when respondents made a

sidewalks. For subdivision projects one (1) hectare or more, the owner or

written demand upon petitioner to construct subdivision roads, put up utility

developer shall reserve thirty percent (30%) of the gross area for open space.

facilities

and

rid

the

premises

of

squatters,

obligations

unquestionably in the nature of anobligation to do.

which

are

And under Article

The next inquiry, then, is when the respondents cause of action

1169[13] of the Code, a party who is under obligation to do something incurs

accrued. Our earlier ruling in Banco Filipino Savings and Mortgage Bank vs.

delay only from the time that the obligee demands, either judicially or

CA[9] provides the answer:

extrajudicially, for the fulfillment of the obligation.

357

Parenthetically, and as we have said in Social Security System vs.

availed of only in the absence of and never against statutory law or judicial

Moonwalk Development and Housing Corporation, et al.,[14] an obligor violates

rules of procedure. It then invokes Article 1385 of the New Civil Code, which

his obligation to the obligee from the time the latter made a demand for

provides:

performance, which demand also marks the point of time when the former
Article 1385. Rescission creates the obligation to return the things which

incurs mora or delay:

were the object of the contract, together with their fruits, and the price with
The debtor, therefore, violates the obligation in point of time if there

its interests; consequently, it can be carried out only when he who demands

is mora or delay. Now, there is no mora or delay unless there is a demand. It

rescission can return whatever he may be obliged to restore.

is noteworthy that in the present case during all the period when the
On surface, petitioners argument appears infallible. However, a closer

principal obligation was still subsisting, although there were late

amortizations there was no demand made by the creditor, plaintiff-appellant

look at our laws and the reason and spirit behind their enactment, as well as

for the payment of the penalty. Therefore up to the time of the letter of

established jurisprudence, negates petitioners thesis.

plaintiff-appellant there was no demand for the payment of the penalty,

It is true that this Court have, in the past, applied the provision of

hence the debtor was not in mora in the payment of the penalty.

Article 1385 to cases of rescission due to breach of obligation under Article

Hence, absent any demand from the obligee, the obligor does not incur
delay. And so long as the obligor does not incur in delay, he cannot be said

1191.[15] But this notwithstanding, the Court finds no reason to alter the
ruling of the Court of Appeals.

to be guilty of some omission violative of the obligees rights. Consequently,

as long as the obligor is not guilty of some omission violative of the obligees

In many instances, this Court has refused to apply the literal import of

rights, the latter has no cause of action against the former. As a result, the

a particular provision of law when to do so would lead to unjust, unfair and

prescriptive period within which the obligee may bring an action against the

absurd results. After all, it is the function of courts to see to it that justice is

obligor does not commence to run until a demand is made.

dispensed, fairness is observed and absurdity prevented. So it is that

in Commissioner of Internal Revenue vs. Solidbank Corporation,[16] we made

With the reality that in this case, respondents made their written

the following pronouncement:

demand upon petitioner to perform what is incumbent upon it only on

December 18, 1995, it was only from that date when the 10-year prescriptive

A literal application of any part of a statute is to be rejected if it will

period under Article 1144 commenced to run. And since respondents

operate unjustly, lead to absurd results, or contradict the evident

complaint for specific performance was filed with the Field Office of the
HLURB only on April 1, 1996, or less than four (4) months after the date of
their demand, petitioners reliance on prescription of action is simply without
any leg to stand on.

submits

literal application of the aforesaid sections of the Tax Code and its
implementing regulations does not operate unjustly or contradict the evident
meaning of the statute taken as a whole. Neither does it lead to absurd
results. Indeed, our courts are not to give words meanings that would lead to

This brings us to the second question.

Petitioner

meaning of the statute taken as a whole. Unlike the CA, we find that the

as

erroneous

absurd or unreasonable consequences. We have repeatedly held thus:

the

appellate

courts

ruling

that [e]quity and justice dictate that the injured party should be paid the
market value of the lot, otherwise, respondents Solid Homes, Inc. & Purita
Soliven would enrich themselves at the expense of herein lot owners when they

xxx [Statutes should receive a sensible construction, such as will give

effect to the legislative intention and so as to avoid an unjust or an
absurd conclusion. (Emphasis supplied.)

sell the same lot at the present market value. To petitioner, equity may be

358

Were we to follow the letter of Article 1385, we will in effect be paving the
way to an absurd situation whereby subdivision developers who have reneged
on their contractual and legal obligation to provide utility systems and
facilities for the use of subdivision lot owners may themselves profit from
their very own wrongs and shortcomings. In the curt language of the Court of
Appeals, to which we are in full accord:
Indeed, there would be unjust enrichment if respondents Solid Homes, Inc. &
Purita Soliven are made to pay only the purchase price plus interest. It is
definite that the value of the subject property already escalated after almost
two decades from the time the petitioner paid for it. Equity and justice
dictate that the injured party should be paid the market value of the lot,
otherwise, respondents Solid Homes, Inc. & Purita Soliven would enrich
themselves at the expense of herein lot owners when they sell the same lot at
the present market value. Surely, such a situation should not be

G.R. No. 176008

August 10, 2011

METROPOLITAN BANK and TRUST COMPANY, substituted by MERIDIAN

(SPV-AMCI) CORPORATION,Petitioner,
vs.
INTERNATIONAL EXCHANGE BANK, Respondent.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 176131

countenanced for to do so would be contrary to reason and therefore,

CHUAYUCO STEEL MANUFACTURING, Petitioner,

unconscionable. Over time, courts have recognized with almost pedantic

vs.

adherence that what is inconvenient or contrary to reason is not allowed in

INTERNATIONAL EXCHANGE BANK (now UNION BANK OF THE

law.

PHILIPPINES), Respondent.
The foregoing scenario becomes even more intolerable when it is

DECISION

considered that P.D. 959 was issued precisely as a measure against

subdivision owners, developers, operators and/or sellers who reneged on
their obligation to provide the needed utility systems and facilities in their
subdivisions. As expressed in one of the decrees whereas clauses:
WHEREAS, numerous reports reveal that many real estate subdivision
owners, developers, operators and/or sellers have reneged on their
representations and obligations to provide and maintain properly subdivision
roads, drainage, sewerage, water systems, lighting systems, and other similar
basic requirements, thus endangering the health and safety of home and lot
buyers.
WHEREFORE, the instant petition is DENIED and the assailed decision

PERALTA, J.:
Before the Court are two consolidated petitions for review on certiorari under
Rule 45 of the Rules of Court, both of which are seeking the reversal and
setting aside of the Decision1 and Resolution2 of the Court of Appeals (CA)
dated May 5, 2006 and December 22, 2006, respectively, in CA-G.R. SP No.
00549-MIN which annulled and set aside the Orders dated September 6,
2004 and February 14, 2005, the Resolution dated March 15, 2005 and the
Joint Resolution dated June 8, 2005 of the Regional Trial Court (RTC) of
Misamis Oriental, Branch 17 in Civil Case Nos. 2004-197 and 2004-200.
The pertinent factual and procedural antecedents of the case are as follows:

and resolution of the Court of Appeals AFFIRMED.

Sacramento Steel Corporation (SSC) is a business entity engaged in
Costs against petitioner.

manufacturing and producing steel and steel products, such as cold rolled
coils and galvanized sheets, in its own steel manufacturing plant located at

SO ORDERED.

Tagoloan, Misamis Oriental.

359

For the purpose of increasing its capital, SSC entered into a Credit

SSC opposed IEB's petition and prayed for the issuance of a writ of

Agreement with herein respondent International Exchange Bank (IEB) on

preliminary injunction.

September 10, 2001 wherein the latter granted the former an omnibus credit
line in the amount of P60,000,000.00, a loan of P20,000,000.00 and a

On September 6, 2004, the RTC issued an Order disposing as follows:

subsequent credit line with a limit of P100,000,000.00.

WHEREFORE, let a Writ of preliminary injunction be issued restraining
As security for its loan obligations, SSC executed five separate deeds of

defendant iBank [IEB], the Sheriff, his agents and other person/s acting in

chattel mortgage constituted over various equipment found in its steel

their behalf as agents privies or representative[s] in whatever capacity, from

manufacturing plant. The deeds of mortgage were dated September 17, 2001,

conducting foreclosure, whether judicial or extrajudicial, of any properties

February 26, 2003, April 16, 2003, May 25, 2004 and June 7, 2004.

subject of the controversy and are further directed not to take any steps that
will, in effect, dispossess plaintiff [SSC] of any of its machineries and

Subsequently, SSC defaulted in the payment of its obligations. IEB's demand

equipment in its steel manufacturing plant pending determination of the

for payment went unheeded. On July 7, 2004, the IEB filed with the RTC of

case. Let a bond (cash or surety) of Five Hundred Thousand (P500,000.00)

Misamis Oriental an action for injunction for the purpose of enjoining SSC

Pesos be posted by the plaintiff Sacramento Steel Corporation as required by

from taking out the mortgaged equipment from its premises. The case was

law.

docketed as Civil Case No. 2004-197. Thereafter, IEB filed a Supplemental

Complaint praying for the issuance of a writ of replevin or, in the alternative,

SO ORDERED.8

for the payment of SSC's outstanding obligations and attorney's fees. 3

Meanwhile, on August 30, 2004, SSC entered into a Capacity Lease
On the other hand, on July 18, 2004, SSC filed with the same RTC of

Agreement with herein petitioner Chuayuco Steel Manufacturing Corporation

Misamis Oriental a Complaint for annulment of mortgage and specific

(CSMC) which allowed the latter to lease and operate the former's cold rolling

performance for the purpose of compelling the IEB to restructure SSC's

mill and galvanizing plant for a period of five years.

outstanding obligations. SSC also prayed for the issuance of a Temporary

Restraining Order (TRO) and writ of preliminary injunction to prevent IEB

On October 21, 2004, herein petitioner Metropolitan Bank and Trust

from taking any steps to dispossess SSC of any equipment in its steel

Company (Metrobank) filed a motion for intervention contending that it has

manufacturing plant as well as to restrain it from foreclosing the mortgage on

legal interest in the properties subject of the litigation between IEB and SSC

the said equipment.4 The RTC issued a TRO. The case was docketed as Civil

because it is a creditor of SSC and that the mortgage contracts between IEB

Case No. 2004-200 and was subsequently consolidated with Civil Case No.

and SSC were entered into to defraud the latter's creditors. 9 Metrobank

2004-197.

prayed for the rescission of the chattel mortgages executed by SSC in favor of
IEB.
5

On July 23, 2004, the RTC issued an Order granting IEB's application for
the issuance of a writ of replevin. However, upon agreement of the parties,

On January 21, 2005, CSMC filed an Omnibus Motion for intervention and

the implementation of the said writ was held in abeyance pending the trial

for allowance to immediately operate the cold rolling mill and galvanizing

court's resolution of the other incidents in the said case. 6 The RTC also

plant of SSC contending that its purpose in intervening is to seek the

directed that there shall be "no commercial operation without court

approval of the court to operate the said plant pursuant to the Capacity

approval.7

Lease Agreement it entered into with SSC.10 IEB filed its Opposition to the
said Motion.11

On August 26, 2004, the IEB filed a petition for extrajudicial foreclosure of
chattel mortgage.

360

On February 14, 2005, the RTC issued an Order 12 admitting the motions for

Metrobank, CSMC and SSC filed their respective motions for reconsideration,

intervention filed by CSMC and Metrobank.

but these were all denied by the CA in its Resolution dated December 22,
2006.

On March 15, 2005, the RTC issued a Resolution, the dispositive portion of
which reads, thus:

Hence, the instant petitions for review on certiorari.

WHEREFORE, premises considered, the motion to operate the

In G.R. No. 176008, petitioner Metrobank submits the following issues:

machineries pendente lite is hereby GRANTED based on law and equity as

soon as practicable. This is without prejudice on the part of the I-bank [IEB]

(A) WHETHER OR NOT THE HONORABLE COURT OF APPEALS

to assert the enforcement of the proposed schedule of payment submitted by

ERRED WHEN IT RULED THAT PETITIONER'S COMPLAINT-IN-

SSC to the Court (Exh. "A" Motion for Early Resolution, 2/16/2005

INTERVENTION IS AN ACCION PAULIANA, A SUBSIDIARY ACTION,

hearing) and to continually post their security guards unless withdrawn.

WHICH PRESUPPOSES AN UNSATISFIED JUDGMENT, WHICH

UNSATISFIED JUDGMENT IS ABSENT IN THE CASE AT BAR.

SO ORDERED.13
(B) WHETHER OR NOT THE HONORABLE COURT OF APPEALS
On June 8, 2005, the RTC issued a Joint Resolution 14 reiterating its

ERRED WHEN IT RULED THAT THE TRIAL COURT COMMITTED

admission of CSMC's motion for intervention and directing the latter to file its

GRAVE ABUSE OF DISCRETION IN ALLOWING PETITIONER'S

complaint-in-intervention.

COMPLAINT-IN-INTERVENTION.17

On August 25, 2005, IEB filed a petition for certiorari, prohibition and

In G.R. No. 176131, petitioner CSMC raises the following grounds:

mandamus with the CA assailing the RTC Orders dated September 6, 2004
and February 14, 2005, Resolution dated March 15, 2005 and Joint

I. THE HONORABLE COURT ERRED IN NOT PASSING UPON THE

Resolution dated June 8, 2005.15

ISSUE THAT HEREIN RESPONDENT IBANK IS GUILTY OF FORUMSHOPPING.

On May 5, 2006, the CA rendered its presently assailed Decision which

disposed of the case as follows:

II. THE HONORABLE COURT ERRED IN NOT RULING THAT HEREIN

RESPONDENT IBANK'S FAILURE TO FILE A MOTION FOR

WHEREFORE, the petition is hereby GRANTED. The questioned Orders dated

RECONSIDERATION TO THE ORDER DATED 08 JUNE 2005 IS

September 6, 2004, February 14, 2005, March 15, 2005 and June 8, 2005

FATAL TO ITS PETITION.

issued by public respondent RTC, Branch 17, Misamis Oriental, presided by

Hon. Florencia D. Sealana-Abbu in Civil Case Nos. 2004-197 and 2004-200

III. THE HONORABLE COURT ERRED IN RULING THAT THE ORDER

are hereby ANNULLED and SET ASIDE. Public respondent is hereby

OF JUDGE SEALANA-ABBU ADMITTING THE INTERVENTION OF

DIRECTED to turn-over the mortgaged properties covered by the writ of

HEREIN PETITIONER CSMC IS WITHOUT LEGAL BASIS. 18

replevin to petitioner I-Bank for the eventual foreclosure thereof.

In a Manifestation and Motion dated September 26, 2007, petitioner
SO ORDERED.16

Metrobank manifested that it no longer has any interest in pursuing the

instant case as the loan obligation owed by SSC to it has been sold by the
latter to a corporation known as Meridian (SPV-AMC) Corporation (Meridian).

361

Accordingly, Metrobank prayed that it be substituted by Meridian as

(C) Costs of suit.

petitioner in the instant case.19

Other reliefs as may be just and equitable under the premises are likewise
In a Resolution20 dated November 12, 2007, this Court granted Metrobank's

prayed for.

Motion.
x x x x21
At the outset, the Court takes note that no arguments or questions were
raised by petitioners with respect to the September 6, 2004 Order and March

Under Article 1381 of the Civil Code, an accion pauliana is an action to

15, 2005 Resolution of the RTC which were annulled by the CA. Hence, the

rescind contracts in fraud of creditors.22

only issues left for resolution in the instant petition are whether or not
petitioners Metrobank and CSMC may be allowed to intervene in Civil Case

However, jurisprudence is clear that the following successive measures must

Nos. 2004-197 and 2004-200.

be taken by a creditor before he may bring an action for rescission of an

allegedly fraudulent contract: (1) exhaust the properties of the debtor

The Court will dwell first on the issues raised by Metrobank in G.R. No.

through levying by attachment and execution upon all the property of the

176008.

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 (accion

In its first assigned error, Metrobank contends that the CA erred in ruling

subrogatoria); and (3) seek rescission of the contracts executed by the debtor

that its Complaint-in-Intervention is in the nature of an accion pauliana.

in fraud of their rights (accion pauliana).23 It is thus apparent that an action

to rescind, or an accion pauliana, must be of last resort, availed of only after

The Court does not agree.

the creditor has exhausted all the properties of the debtor not exempt from
execution or after all other legal remedies have been exhausted and have

A perusal of Metrobank's Complaint-in-Intervention would show that its

been proven futile.24

main objective is to have the chattel mortgages executed by SSC in favor of

IEB rescinded. This is clearly evident in its prayer, which reads as follows:

It does not appear that Metrobank sought other properties of SSC other than
the subject lots alleged to have been transferred in fraud of creditors. Neither

WHEREFORE, premises considered, it is respectfully prayed unto the

is there any showing that Metrobank subrogated itself in SSC's transmissible

Honorable Court that judgment be rendered:

rights and actions. Without availing of the first and second remedies,
Metrobank simply undertook the third measure and filed an action for

(1) RESCINDING the chattel mortgages executed by Defendants

annulment of the chattel mortgages. This cannot be done. Article 1383 of the

Sacramento and Delmo in favor of Defendant Ibank dated May

New Civil Code is very explicit that the right or remedy of the creditor to

25, 2004 and June 7, 2004, respectively;

impugn the acts which the debtor may have done to defraud them is

(2) Ordering defendants Sacramento, Delmo and Ibank to pay, jointly

legal remedy to obtain reparation for the injury.26 This fact is not present in

and severally, Plaintiff-Intervenor the amounts of:

(A) P500,000.00, as and by way of exemplary damages;

subsidiary in nature.25 It can only be availed of in the absence of any other

this case. No evidence was presented nor even an allegation was offered to
show that Metrobank had availed of the abovementioned remedies before it
tried to question the validity of the contracts of chattel mortgage between IEB
and SSC.

(B) P500,000.00, as and by way of attorney's fees; and

362

Metrobank also contends that in order to apply the concept of, and the rules

special civil action for certiorari, or the institution of two or more actions

pertaining to, accion pauliana, the subject matter must be a conveyance,

or proceedings grounded on the same cause on the supposition that one or

otherwise valid, which is undertaken in fraud of creditors. Metrobank claims

the other court would make a favorable disposition. 29

that since there is no conveyance involved in the contract of chattel mortgage

between SSC and IEB, which Metrobank seeks to rescind, the CA erred in

Forum shopping exists when two or more actions involve the same

ruling that the latter's Complaint-in-Intervention is an accion pauliana.

transactions, essential facts and circumstances, and raise identical causes of

action, subject matter, and issues.30 Still another test of forum shopping is

The Court is not persuaded.

when the elements of litis pendencia are present or where a final judgment in
one case will amount to res judicata in another whether in the two or more

In the instant case, the contract of chattel mortgage entered into by and

pending cases, there is an identity of (a) parties (or at least such parties as

between SSC and IEB involves a conveyance of patrimonial benefit in favor of

represent the same interests in both actions); (b) rights or causes of action,

the latter as the properties subject of the chattel mortgage stand as security

and (c) reliefs sought.31

for the credit it extended to SSC. In a very recent case involving an action for
the rescission of a real estate mortgage,27 while this Court found that some of

In the instant case on the one hand, IEB's Opposition questions the legality

the elements of accion pauliana were not present, it found that a mortgage

and seeks to prevent the implementation of the Capacity Lease Agreement

contract involves the conveyance of a patrimonial benefit.

between CSMC and SSC which, in essence, authorizes CSMC to operate the
subject machineries pendente lite. On the other hand, the petition

In sum, Metrobank may not be allowed to intervene and pray for the

for certiorari filed by IEB assails and seeks to nullify, among others, the

rescission of the chattel mortgages executed by SSC in favor of IEB. The

March 15, 2005 and June 8, 2005 Orders of the RTC allowing SSC to operate

remedy being sought by Metrobank is in the nature of an accion

the subject machineries pendente lite. It is, thus, clear that there is no

pauliana which, under the factual circumstances obtaining in the present

identity of subject matter, cause of action and reliefs sought in IEB's

case, may not be allowed. Based on the foregoing, the Court finds no error in

Opposition filed with the RTC and in its petition for certiorari filed with the

the ruling of the CA that the RTC committed grave abuse of discretion in

CA. Hence, IEB is not guilty of forum shopping.

allowing Metrobank's intervention.

Secondly, CSMC argues that IEB's failure to file a motion for reconsideration
The Court will now proceed to resolve the issues raised by petitioner CSMC in

of the RTC Order dated June 8, 2005 is fatal to its petition for certiorari filed

G.R. No. 176131.

with the CA.

Firstly, CSMC contends that IEB was forum shopping when it filed a petition

The Court is not persuaded.

for certiorari with the CA seeking, among others, the enjoinment of the
commercial operation of the subject machineries and equipment when its
28

Opposition

to the implementation of the Capacity Lease Agreement between

SSC and CSMC is still pending determination by the RTC.

While the general rule is that before certiorari may be availed of, petitioner
must have filed a motion for reconsideration of the act or order complained
of, the Court has dispensed with this requirement in several
instances.32 Thus, a previous motion for reconsideration before the filing of a

The Court does not agree.

petition for certiorari is necessary unless: (i) the issue raised is one purely of
law; (ii) public interest is involved; (iii) there is urgency; (iv) a question of

Forum shopping has been defined as an act of a party, against whom an

jurisdiction is squarely raised before and decided by the lower court; and (v)

adverse judgment has been rendered in one forum, of seeking and possibly

the order is a patent nullity.33 In the instant case, the Court agrees with the

getting a favorable opinion in another forum, other than by appeal or a

CA that there is no need for such motion because the issue regarding the

363

applicability of the rule on intervention raised by IEB in its petition

Moreover, considering that CSMC's interest is limited only to the operation of

for certiorari filed with the CA, insofar as the June 8, 2005 Order of the RTC

the subject machineries pursuant to its lease contract with SSC, its

is concerned, is one purely of law.

intervention would not unduly delay or prejudice the adjudication of the

rights of SSC and IEB. CSMC's intervention should be treated as one pro

The foregoing notwithstanding, the Court finds that the CA erred in ruling

interesse suo which is a mode of intervention in equity wherein a stranger

that the allowance of CSMC's motion for intervention is improper. CSMC's

desires to intervene for the purpose of asserting a property right in the res, or

intervention should be allowed.

thing, which is the subject matter of the litigation, without becoming a

formal plaintiff or defendant, and without acquiring control over the course

The purpose of intervention is to enable a stranger to an action to become a

of a litigation, which is conceded to the main actors therein. 38

party in order for him to protect his interest and for the court to settle all
conflicting claims.34 Intervention is allowed to avoid multiplicity of suits more

Lastly, the Court does not agree with the CA when it ruled that the

than on due process considerations.35 To warrant intervention under Rule 19

applicable provision is Rule 3, Section 19 (erroneously cited as Section 20) of

of the Rules of Court, two requisites must concur: (1) the movant has a legal

the Rules of Court on transfer of interest and substitution of parties. Being a

interest on the matter in litigation; and (2) intervention must not unduly

mere lessee of the subject properties, CSMC is a stranger insofar as the

delay or prejudice the adjudication of the rights of the parties, nor should the

dispute between SSC and IEB is concerned. The action filed by IEB against

claim of the intervenor be capable of being properly decided in a separate

SSC is an action for the payment or satisfaction of the loans incurred by the

proceeding.36

latter, which includes a possible foreclosure of the subject properties given as

security for the said loans. CSMC may not be considered a successor, and

In the present case, CSMC, being a lessee of the subject properties, has a

may not be substituted in place of SSC, insofar as these loans are concerned.

legal interest therein.1awphil The RTC correctly held, thus:

If any, what has been transferred to CSMC is only the right of SSC to operate
the subject equipment and machineries which it owns. As such, SSC may not

Under the Rules of Court, intervention is permissive and maybe permitted by

be removed as defendant because its interest in the subject properties

the Court when the applicant shows facts which satisfy the requirements of

remains, being the owner thereof.

the law authorizing intervention. (Firestone Ceramics Inc. vs. CA 313 SCRA
522) Records of the case showed that on August 30, 2004, an agreement was

WHEREFORE, the assailed Decision and Resolution of the Court of Appeals

finalized and entered into by applicant Chuayuco and defendant/plaintiff

in CA-G.R. SP No. 00549-MIN areAFFIRMED with MODIFICATION. The

Sacramento Steel Corporation whereby the former shall lease and make use
of the machineries of Sacramento Steel under the Capacity Lease Agreement
(CLA). One of the terms and condition[s] under [the] CLA was for the monthly
lease payments to take effect upon signing of the contract. A person seeking
to intervene in a suit must show that he has legal interest which must be
actual and material, direct and immediate. He must show that he will either
gain or lose by direct legal operation and effect of a judgment. (Hrs. of Nicolas
Orosa vs. Migrino 218 SCRA 311) The Court finds that Chuayuco had a
constituted and sufficient legal interest in the machineries subject of the
litigation which is actual and material. Any disposition of the case will
adversely affect the standing of the intervenor. 37

February 14, 2005 Order of the Regional Trial Court of Misamis Oriental,
Branch 17, is MODIFIED by denying Metrobank's Motion for Intervention,
while the Joint Resolution of the same trial court, dated June 8, 2005,
reiterating its admission of CSMC's Motion for Intervention and directing the
latter to file its complaint-in-intervention, is REINSTATED.
SO ORDERED.
G.R. No. 75287 June 30, 1987
HOUSE INTERNATIONAL BUILDING TENANTS ASSOCIATION,
INC., petitioner-plaintiff,

364

vs.

is null and void ab initio for being ultra vires, since defendant CENTERTOWN

INTERMEDIATE APPELLATE COURT, CENTERTOWN MARKETING CORP.,

is not qualified to acquire real estate property or to engage in real estate

MANILA TOWERS DEVELOPMENT CORP., AND THE GOVERNMENT

transactions.

SERVICE INSURANCE SYSTEM, respondents-defendants.

The court a quo * dismissed the complaint. Petitioner appealed to the Court
of Appeals after its motion for reconsideration was denied by the trial court.
The order of dismissal was affirmed by the appellate court in a decision

CORTES, J.:

dated 4 February 1986 in AC-GR CV No. 02691. ** Petitioner filed a motion

Petitioner House International Building Tenants Association, Inc.

Hence, this petition for review on certiorari.

(ASSOCIATION, for short) is a domestic non-stock, non-profit civic

corporation, whose incorporators, directors and members constitute the
great majority of more than a hundred heads of families who are tenants of
long and good standing of the 14-storey House International Building located
at 777 Ongpin Street, Binondo, Manila. The land and the improvements
thereon were formerly owned by Atty. Felipe Ang who mortgaged the same to
the Government Service Insurance System (hereinafter referred to as GSIS) to
secure payment of an obligation. After foreclosure of the mortgage and for
failure of Ang to exercise his right of redemption over the foreclosed property,
the ownership thereof was consolidated with the GSIS which subsequently
sold it to Centertown Marketing Corporation (CENTERTOWN, for short) in a
deed of conditional sale, without notice to the tenants of the building and
without securing the prior clearance of the then Ministry of Human
Settlements.
As CENTERTOWN was not authorized by its Articles of Incorporation to
engage in the real estate business, it organized a sister corporation, with
almost an the same incorporators and stockholders, as CENTERTOWN'S,
under the corporate name of Manila Towers Development Corporation
(TOWERS, for short) for the primary purpose of engaging in the real estate
business. Subsequently, CENTERTOWN assigned to its sister corporation
TOWERS all its rights and obligations under the Deed of Conditional Sale,

for reconsideration, which was denied in a resolution dated 26 June 1986.

The main issues raised in the petition are: (1) whether petitioner has the
personality to sue, on its own, as a corporation representing its members
who are tenants of the House International Building, and (2) whether
petitioner has a cause of action against respondents GSIS, CENTERTOWN
and TOWERS.
Section 2, Rule 3 of the Rules of Court provides:
Sec. 2. Parties in interest. Every action must be prosecuted
and defended in the name of the real party in interest. All
persons having an interest in the subject of the action and in
obtaining the relief amended shall be joined as plaintiffs.
The real party in interest is the party who stands to be benefited or injured
by the judgment or the party entitled to the avails of the suit. " Interest"
within the meaning of the rule means material interest, an interest in issue
and to be affected by the decree, as distinguished from mere interest in the
question involved, or a mere incidental interest. Consequently, a person who
is not a party to a contract and for whose benefit it was not expressly made
cannot maintain an action thereon, notwithstanding that the contract, if
performed by the parties to it, would incidentally inure to his benefit.

with the consent and approval of the GSIS.

(Francisco, the Revised Rules of Court in the Phil., Vol., 1, p. 126).

Thereafter, herein petitioner filed a complaint with the Regional Trial Court of

In the present case, the real parties in interest are the tenants of the House

Manila against CENTERTOWN, TOWERS and GSIS for annulment of the deed
of conditional sale and the subsequent assignment thereof by CENTERTOWN
to TOWERS. The complaint alleged in part that the Deed of Conditional Sale

International Building and not the petitioner ASSOCIATION, which has a

personality separate and distinct from that of its members and therefore it
has the capacity to sue and be sued although it is composed of the tenants.
Petitioner has not shown any real, actual, material, or substantial interest in

365

the subject matter of the action. In this connection, the Court of Appeals

provisions require implementing legislation to confer a legal right and impose

properly observed:

a legal duty which can be judicially invoked.

Appellant has sued in its name, but has not alleged any right

P.D. No. 1517 which confers a preferential right to tenants of long standing to

belonging to it that was violated or any wrong that was

acquire leased land on which they have constructed their houses. This has

committed. The reason is obvious, the benefits are not really

no application to the present case where the property involved is land and

meant for appellant but for the unnamed great majority" of

building belonging to the lessor.

its members who have allegedly been tenants of' long

standing of the building in question. (Decision of Court of

The petitioners likewise invoke our ruling in Mataas na Lupa Tenants

Appeals, p. 2).

Association Inc. et al. vs. Dimayuga, et. al.(G.R. L-32049, June 25, 1984, 130
SCRA 30) where we upheld the petitioners right of first refusal over land they

And, quoting from the Brief for the respondent-defendant GSIS, the Court of

had leased and occupied for more than ten (10) years and on which they had

Appeals further said:

constructed their houses, a right given them under P.D. No. 1517 (and
Proclamation No. 1967 of May 14, 1980). For two reasons this case gives the

Assuming arguendo, that the tenants have the alleged right,

petitioners' case no support. In Mataas na Lupa the members of the

such rights of the tenants are personal and individual rights

ASSOCIATION were also plaintiffs in their individual capacity. This is not so

which can only be claimed by the tenants who must

in the present case. Furthermore, it is not the first time this issue has come

necessarily be the indispensable and real parties in interest

before Us. In the case of Santos vs. Court of Appeals, G.R. L-60210, March

and certainly not the plaintiff-appellant organization.

27,1984, 128 SCRA 428. We laid down the following doctrine.

(Ibid, p.2.)
P.D. 1517 in referring to the pre-emptive or redemptive right
With regard to the second main issue, the petitioner asserts that the Court of

of a lessee speaks only of urban land under lease on which a

Appeals erred in ignoring the provisions of Art. 1409 of the Civil Code on void

tenant has built a home and on which he has resided for ten

or inexistent contracts, the contract at bar being void, inexistent, and

years or more. If both the land and the building belong to the

absolutely wanting in civil effects because "its consideration is illicit and/or

lessor, the right referred to hereinabove does not apply.

the object violates some mandatory provisions of the laws."

The main thrust of the petitioner's challenge on the validity of the conditional
Cited to support this assertion are provisions of the 1973 constitution on

sale is that the contract is ultra viresbecause the respondent CENTERTOWN

eminent domain (Art. IV, sec. 2, also Art. XIV, sec. 3) agrarian reform (Art.

is not qualified to acquire properties under its Articles of Incorporation. The

XIV, sec. 12) and the Declaration of Principles and State Policies particularly

petitioner has confused a void contract with an ultra vires contract which is

those emphasizing the "stewardship concept, under which property is

merely voidable.

supposed to be held by the individual only as trustee for the people in

general, who are its real owners." (Art. II, secs. 6 and 7).

We agree with the Court of Appeals that on this issue the provision of Art.
1397 of the Civil Code is in point, thus:

As bases for a declaration that the conditional sale between GSIS and
CENTERTOWN is null and void for being contrary to law or public policy, the

Art. 1397. The action for the annulment of contracts may be

constitutional provisions are inapposite. Not one of those provisions render

instituted by all who are thereby obliged principally or

unlawful the contract in question. Except for the prohibition against the

subsidiarily.

taking of private property for public use without just compensation, the other

366

Petitioner is neither a party nor a privy to the Deed of Conditional Sale and
the assignment thereof: thus, it cannot assail the validity of the said
contracts. In Ibaez vs. Hongkong and Shanghai Bank, we said:
[G.R. No. 141877. August 13, 2004]

From these legal provisions it is deduced that it is the

interest had in a given contract, that is the determining
reason of the right which lies in favor of the party obligated
principally or subsidiarily to enable him to bring an action
for the nullity of the contract in which he intervened, and,
therefore, he who has no right in a contract is not entitled to

GREGORIO F. AVERIA and SYLVANNA A. VERGARA, representing the

absentee

heir

TERESA

AVERIA, petitioners, vs. DOMINGO

AVERIA, ANGEL AVERIA, FELIPE AVERIA, and the Heirs of

FELIMON F. AVERIA, respondents.

prosecute an action for nullity, for, according to the

DECISION

precedents established by the courts, the person who is not

a party to a contract, nor has any cause of action or
representation from those who intervened therein, is

CARPIO-MORALES, J.:

manifestly without right of action and personality such as to

enable him to assail the validity of the contract. (Decisions of

Macaria Francisco (Macaria) and Marcos Averia contracted marriage

the supreme court of Spain, of April 18, 1901, and November

which bore six issues, namely: Gregorio, Teresa, Domingo, Angel, Felipe and

23, 1903, pronounced in cases requiring an application of

Felimon.

the preinserted article 1302 of the Civil Code.) (22 Phil. 572;
584).

Macaria was widowed and she contracted a second marriage with

Roberto Romero (Romero) which bore no issue.

In the decision sought to be reviewed We agree with the Court of Appeals

that:

Romero died on February 28, 1968, [1] leaving three adjoining residential
lots located at Sampaloc, Manila.
The corollary issue is whether appellant has the personality
to assail the validity of the conditional sale and its

In a Deed of Extrajudicial Partition and Summary Settlement of the

assignment. The answer is partly supplied by the above

Estate of Romero, the house and lot containing 150 square meters at 725

discussion: further arguments against the appellant are the

Extremadura Street, Sampaloc was apportioned to Macaria.

provisions of the Civil Code which say that contracts take

effect only between parties (Art. 131 1) hence the action for
their annulment may be instituted only by those who are

Transfer Certificate of Title (TCT) No. 93310 covering the Extremadura

property was accordingly issued in the name of Macaria. [2]

thereby obliged principally or subsidiarily (Art. 1397).

Appellant is not privy to either the deed of conditional sale or
the assignment. (Decision of Court of Appeals, p. 3).

Alleging that fraud was employed by her co-heirs in the partition of the
estate of Romero, Macaria filed on June 1, 1970 an action for annulment of
title and damages before the Court of First Instance of Manila against her co-

WHEREFORE, the petition is DENIED, with costs against the petitioner.

heirs Domingo Viray, et al., docketed as Civil Case No. 79955. Macaria was
represented in the case by Atty. Mario C. R. Domingo. The case was pending

SO ORDERED.

litigation for about ten years until the decision of the Court of Appeals which

367

adjudged Macaria as entitled to an additional 30 square meters of the estate

of Romero became final and executory.

During the pendency of the case or on June 7, 1989, Macarias son

Felipe executed a Waiver-Affidavit[6]

waiving his share in the property

subject of litigation in favor of his co-heirs.

Macarias son Gregorio and his family and daughter Teresas family lived
with her at Extremadura until her death on March 28, 1983. [3]

After trial, the trial court, Branch 31 RTC of Manila, rendered a decision
of July 19, 1991[7] crediting the version of the defendants in this

Close to six years after Macarias demise or on January 19, 1989, her

wise, quoted verbatim:

children Domingo, Angel and Felipe, along with Susan Pelayo vda. de Averia
(widow of Macarias deceased son Felimon), filed before the Regional Trial

The defendant Gregorio Averia, Sr. had established that he had paid plaintiff

Court (RTC) of Manila a complaint against their brother Gregorio and niece

Domingo Averia P10,000.00 although denied by the latter but Domingo

Sylvanna Vergara representing her absentee mother Teresa Averia, for

Averia did not deny receiving the amount of P5,000.00 on July 10, 1983

judicial partition of the Extremadura property inclusive of the 30 square

given by Gregorio Averias wife Agrifina. According to the testimony of

meters judicially awarded.[4] The case which was docketed as Civil Case No.

defendants witness, plaintiff Domingo Averia sold on July 10, 1983 his

89-47554 is now the subject of the present decision.

inheritance share in the property [consisting of a] house and lot located at

725 Extremadura because he was in . . . need of money and that he was

The defendants Gregorio and Sylvanna Vergara, in their February 8,

paid P5,000.00 on July 10, 1983 by Agrifina Averia and another P5,000.00

1989 Answer to the Complaint, countered that Gregorio and his late wife

by Major Gregorio Averia inside his room at the Makati Police Department

Agripina spent for the litigation expenses in Civil Case No. 79955, upon the

three (3) days later. The reason why Domingo Averia became insistent in

request of Macaria, and the couple spent not less P20,000.00 for the purpose

claiming his inheritance is the fact that Gregorio Averia refused the request

which amount due to the inflation of the Philippine peso is now equivalent to

of Domingo Averia and his children to occupy the portion of subject house

more or less P200,000.00; that from 1974 to 1983, Macaria was bedridden

which was sold to him by their mother and it was for this reason that they

and it was Gregorios wife Agripina who nursed and took care of her; that

sought the assistance of the Citizens Legal Assistance Office (CLAO), Atty.

before Macaria died, she in consideration of the court and other expenses

Benjamin Roxas in writing defendant Gregorio Averia to allow him (Domingo

which were defrayed by Gregorio and his wife in prosecuting Civil Case No.

Averia) to occupy a portion of subject house but plaintiff Domingo Averia did

79955 and of the kindness of the said couple in caring for her,verbally sold

not tell his brothers and sisters that he had already sold his 1/6 share of the

to the spouses Gregorio and Agripina one-half () of her Extremadura

inheritance although verbally in favor of Gregorio Averia and his wife.

property.
In the light of the foregoing, the Court, after a circumspect assessment
Gregorio and Sylvanna further countered that the plaintiff Domingo sold

of the evidence presented by both parties, hereby declares, that defendant

and assigned to the spouses Gregorio and Agripina his one sixth ( 1/6) share

Gregorio Averia then a major of police precinct in Makati was the person

in the remaining portion of the Extremadura property.

responsible for the expenses in litigation in Civil Case No. 79955, involving
the property and their mother had indeed awarded him with portion of the

Gregorio and Sylvanna concluded in their Answer that the plaintiffs are
not co-owners of the Extremadura property as thereof is solely owned by

property and that Domingo Averia sold 1/6 of [his] share of the remaining
portion of the property to defendant Gregorio. (Underscoring supplied)

Gregorio and /6 of the other half representing Domingos share thereof had
already been sold and assigned by him (Domingo) to Gregorio and his wife
who died on May 20, 1987.

Accordingly, the trial court disposed as follows, quoted verbatim:

[5]

WHEREFORE, the remaining 5/6 of of the property may still be subject of

partition among the remaining heirs but the summary settlement of the

368

remaining estate of the 5/6 remaining portion of the estate . . . may be sold

Art. 1403. The following contracts are unenforceable, unless they are

and the proceeds thereof be distributed among the heirs in accordance with

ratified:

the aliquot portions of each and every heir of the deceased Macaria
Francisco.

(1) x x x

Both parties are hereby ordered to shoulder their respective expenses for

(2) Those that do not comply with the Statute of Frauds as set forth in this

attorneys fees and litigation costs. (Underscoring supplied)

number. In the following cases an agreement thereafter made shall

be unenforceable by action, unless the same, or some note or memorandum

On appeal to the Court of Appeals (CA) wherein the plaintiffs Domingo

et al. assigned two errors, to wit:

thereof, be in writing and subscribed by the party charged, or by this agent;

evidence, therefore, of the agreement cannot be received without the writing,
or a secondary evidence of its contents:

A. THE TRIAL COURT ERRED IN ITS FINDING THAT THERE

WAS A SALE OF ONE-HALF OF THE DECEASED MACARIA F.
AVERIAS INTEREST AND OWNERSHIP OVER THE SUBJECT
PROPERTY IN FAVOR OF DEFENDANT-APPELLEE GREGORIO
AVERIA.

(b) x x x;
(e) an agreement for the leasing for a longer period than one year, or for

B. THE TRIAL COURT ERRED IN ALLOWING THE RECEPTION

OF PAROL EVIDENCE TO THE EFFECT THAT PLAINTIFFAPPELLANT DOMINGO AVERIA HAD ALREADY DISPOSED
OF HIS ONE SIXTH (1/6) SHARE OF THE SUBJECT
PROPERTY

(a) x x x;

IN

FAVOR

OF

DEFENDANT-APPELLEE

GREGORIO AVERIA[8] (Emphasis supplied),

the appellate court reversed the decision of the trial court.
In reversing the trial court, the appellate court, noting that the alleged
transfers made by Macaria and Domingo in favor of Gregorio were bereft of
any written memoranda, held that it was error for the trial court to rely solely
on the evidence adduced by the defendants consisting of the testimonies of
Gregorio, Veronica Bautista, Sylvanna Vergara Clutario, Atty. Mario C.R.
Domingo, Felimon Dagondon and Gregorio Averia, Jr. The CA explained its
ruling in this wise:
[T]he alleged conveyances purportedly made by Macaria Francisco and
plaintiff-appellant Domingo Averia are unenforceable as the requirements
under the Statute of Frauds have not been complied with. Article 1403, 2(e)

the sale of real property or of an interest therein;

(f) x x x
The two (2) transactions in question being agreements for the sale of real
property or of an interest therein are in clear contravention of the
prescription that it must be in writing and subscribed by the party charged
or by an agent thereof. Hence, the strong insistence by defendants-appellees
on the verbal conveyances cannot be made the basis for the alleged
ownership over the undivided interests claimed by Gregorio Averia.
The parol evidence upon which the trial court anchored its award in favor of
defendant-appellee Gregorio Averia is irregular as such kind of evidence is
foreclosed by Article 1403 of the Civil Code that no evidence of the alleged
agreements can be received without the writing of secondary evidence which
embodies the sale of the real property. The introduction of the testimonies of
Gregorio Averias witnesses were timely objected to by plaintiffs-appellants.
Since the testimonies of defendants-appellees witnesses are inadmissible,
then such exclusion has pulled the rug under the assailed decision of the
trial court and it has no more leg to stand on.

of the New Civil Code is explicit:

369

In the vain attempt to salvage the situation, defendants-appellees however

II. THE COURT OF APPEALS (SECOND DIVISION) ERRED IN ITS

argue that the Article 1403 or the Statute of Frauds does not apply because

FINDING THAT THE RECEPTION OF PAROL EVIDENCE TO

the same only refers to purely executory contracts and not to partially or

THE EFFECT THAT RESPONDENT DOMINGO AVERIA HAD

completely executed contracts.

ALREADY SOLD HIS ONE SIXTH (1/6) SHARE IN THE

SUBJECT PROPERTY IN FAVOR OF PETITIONER GREGORIO

This contention is untenable. It was not amply demonstrated how such

AVERIA IS NOT IN ACCORDANCE WITH LAW.[11]

alleged transfers were executed since plaintiffs-appellants have vigorously

objected and opposed the claims of ownership by defendants-appellees. He
who asserts a fact or the affirmative of an issue has the burden of proving it.
Defendants-appellees miserably failed in this respect.

Gregorio Averia or plaintiff-appellant Domingo Averia may have valid claims

against the estate of Macaria Francsico, such matter can best be threshed
out in the proceedings for partition before the court a quo bearing in mind
that such partition is subject to the payment of the debts of the deceased
under Article 1078 of the Civil Code.

(Citations omitted; Emphasis and

underscoring supplied)

With respect to the application by the appellate court of the Statute of

Frauds, petitioners contend that the same refers only to purely executory
contracts and not to partially or completely executed contracts as in the
instant case. The finding of the CA that the testimonies of petitioners
witnesses were timely objected to by respondents is not, petitioners insist,
borne out in the records of the case except with respect to the testimony of

Petitioners thus conclude that respondents waived any objection to the

WHEREFORE, the decision dated July 19, 1991 is reversed and set aside.
The case is remanded to the court a quo which is directed
to effect the partition of the subject property or if not, possible, sell the entire
lot and distribute the proceeds of the sale based on equal shares among the
children of the late Macaria Francisco after debts of the said deceased are
paid or settled pursuant to Article 1078 of the Civil Code.[10] (Underscoring
supplied)

admission

of

parol

evidence,

hence,

it

is

admissible

and

enforceable[14] following Article 1405[15] of the Civil Code.[16]

The Court finds for petitioner.
Indeed, except for the testimony of petitioner Gregorio bearing on the
verbal sale to him by Macaria of the property, the testimonies of petitioners
witnesses Sylvanna Vergara Clutario and Flora Lazaro Rivera bearing on the

Gregorio and Sylvannas motion for reconsideration having been denied

by the appellate court, they lodged the Petition for Review on Certiorari at bar
upon the following assignment of errors:

FINDING THAT THERE WAS NO SALE OF ONE-HALF (1/2) OF

DECEASED

MACARIA

F.

same matter were not objected to by respondents. Just as the testimonies of

Gregorio, Jr. and Veronica Bautista bearing on the receipt by respondent
Domingo on July 23, 1983 from Gregorios wife of P5,000.00 representing
partial payment of the P10,000.00 valuation of his (Domingos) 1/6 share in

THE COURT OF APPEALS (SECOND DIVISION) ERRED IN ITS

THE

the conveyances to Gregorio of of the Sampaloc property and 1/6 of the

Gregorio.[13]

The appellate court thus remanded the case to the trial court.

I.

they were able to amply establish, by the testimonies of credible witnesses,

remaining half representing the share of Domingo. [12]

While this Court cannot discount the fact that either defendant-appellee

[9]

Petitioners contend that contrary to the findings of the Court of Appeals,

AVERIAS

INTEREST

AND

OWNERSHIP OVER THE SUBJECT PROPERTY IN FAVOR OF

PETITIONER GREGORIO F. AVERIA.

the property, and of the testimony of Felimon Dagondon bearing on the

receipt by Domingo of P5,000.00 from Gregorio were not objected to.
Following Article 1405 of the Civil Code, 17 the contracts which infringed the
Statute of Frauds were ratified by the failure to object to the presentation of
parol evidence, hence, enforceable.

370

ARTICLE 1403. The following contracts are unenforceable, unless they are

requiring them to be in writing, a fact which is reduced to a minimum in

ratified:

executed contracts because the intention of the parties becomes apparent by

their execution, and execution concludes, in most cases, the rights of the
xxx

(2) Those that do not comply with the Statute of Frauds as set forth in this
number. In the following cases an agreement hereafter made shall be
unenforceable by action, unless the same, or some note or memorandum
thereof, be in writing, and subscribed by the party charged, or by his
agent; evidence, therefore, of the agreement cannot be received without
the writing, or a secondary evidence of its contents:
xxx
(e) An agreement for the leasing for a longer period than one year, or for the
sale of real property or of an interest therein;

parties. However it is not enough for a party to allege partial

performance in order to render the Statute of Frauds inapplicable;
such partial performance must be duly proved. But neither is such party
required to establish such partial performance by documentary proof
before he could have the opportunity to introduce oral testimony on the
transaction. The partial performance may be proved by either
documentary or oral evidence.19 (Emphasis, underscoring and italics
supplied)
The

testimonies

of

petitioners

witnesses

being

credible

and

straightforward, the trial court did not err in giving them credence.
The testimony of Sylvana Vergara Clutario, daughter of Teresa, in fact
was more than sufficient to prove the conveyance of half of the subject

x x x (Emphasis and underscoring supplied),

Contrary then to the finding of the CA, the admission of parol evidence

property by Macaria to Gregorio.

ATTY. DOMINGO:

upon which the trial court anchored its decision in favor of respondents is
not irregular and is not foreclosed by Article 1405.

Q:

Are you the same Sylvana Vergara representing the defendant

Teresa Averia in this case?

In any event, the Statute of Frauds applies only to executory contracts

and not to contracts which are either partially or totally performed. 18 In the

WITNESS:

case at bar, petitioners claimed that there was total performance of the
contracts, full payment of the objects thereof having already been made and

A:

Yes, sir.

the vendee Gregorio having, even after Macarias death in 1983, continued to
occupy the property until and after the filing on January 19, 1989 of the

Q: Now on February 28, 1972, about 5:30 in the afternoon, where

complaint subject of the case at bar as in fact he is still occupying it.

In proving the fact of partial or total performance, oral evidence may be

were you?
A:

received as what the trial court in the case at bar did. Noted civilist Arturo

As far as I can remember, I was inside my residence at 725

Extremadura at that date, and time.

M. Tolentino elucidates on the matter:

Q: On that date and time, where were you residing?
The statute of frauds is not applicable to contracts which are either totally or
partially performed, on the theory that there is a wide field for the
commission of frauds in executory contracts which can only be prevented by

A:

At said address, 725 Extremadura Street, that time and date

at 5:30 in the afternoon.

371

Q: Who were your companions if you have any?

A:

A:

Q: Who were seated in the dining table?

I was there with my brothers and sisters and Uncle Gregorio

Yes, sir the others were a little bit near the table.

and Auntie Agripina and the children and my grand mother

and also the lady who is leading in the prayers because on

A:

that date it is the anniversary of the death of my grandfather.

Q: What is the name of your grandmother?
A:

Macaria Averia, sir.

Q:

Now, this Gregorio Averia whom you identified to be your

Q:

A:

The same, sir.

Q:

What is the name of your grandfather whom you said whose

death anniversary you are then celebrating on that date?

Somebody called up and the one who called up was the

Secretary of a lawyer and they were asking for [payment
of] expenses in connection with . . . [Criminal Case No.

defendant in this case?

A:

When you were then seated in taking that ginatan as you

stated what transpired?

Uncle, is he the same Gregorio Averia who is also the

WITNESS:

The Spouses Gregorio and Agripina, my sister Beth and my

cousins and my Lola Macaria.

79955].
Q:

You said that it was Agripina who was the one who
answered that telephone call. After answering it, what did
she say to anyone seated in that table?

A:

Agripina said if Gregorio has some money, he will pay

them but Gregorio said he will be responsible for the

A:

expenses.

Roberto Romero, sir.

Q: What actually you were doing that time 5:30?

Q:

Did you come to know how much was amount being asked?

A:

A:

P500.00, sir.

Q:

What else happened after Gregorio said that he would

We had a gathering and merienda in recollection of the

celebration (sic) of the death of my grandfather, sir.

Q:

When you said you were eating then, where were you eating

answer for the expenses to be sent to the lawyer?

then?
A:

It was beside my grandmother.

A:

because at that time she d[id] not have any money and it
was the couple who was taking the expenses of the case.

Q: Where?
A:

At the dining room, sir.

Q: So you were sitting at the dining table all of you?

My Lola said that she was embarrassed and ashame[d]

Q:

When you said Lola, you are referring to Macaria Averia?

A:

Yes, sir.

372

Q:

What else transpired?

the transfer by Macaria to Gregorio of of the property is upheld as valid

and enforceable, then the share of the other heirs including Sylvannas

A:

Because of her embarrassment, she told [them that] one

half (1/2) of the House and Lot will be given to the couple
to cover the expenses of the case.

ATTY. DOMINGO:
Q:
A:

To whom did your grandmother say this?

Well, she said that to Gregorio and Agripina and Gregorio
told her, if that is what you wish, I will agree to your
proposal.

Q:

What was the reply of your grand mother?

mother would considerably be reduced.

That Atty. Mario C. R. Domingo who was admittedly Macarias counsel
in Civil Case No. 79955 (which, as priorly reflected, entailed a period of ten
years in court), affirmed on the witness stand that Gregorio and his wife were
the ones who paid for his attorneys fees amounting to P16,000.0021 should
no doubt strongly lend credence to Gregorios claim to that effect.
As to the sale of Domingos 1/6 share to Gregorio, petitioners were able to
establish said transaction by parol evidence, consisting of the testimonies of
Gregorio

Averia,

Jr.,22 Veronica

Averia23 and

Felimon

Dagondon24 the

presentation of which was, it bears repeating, not objected to.

Albeit Domingo never denied having received the total amount
of P10,000.00 from Gregorio and his wife, he denied having sold to Gregorio

A:

My Lola told Gregorio that since you agree, you better

his interest over the property. Such disclaimer cannot, however, prevail over

prepare all the documents and we will make ready the

the categorical, positive statements of petitioners above-named witnesses.

documents for the division or partition.

Q:

Do you know what House and Lot one half (1/2) of which
your grand mother was given (sic) to your Uncle and
Auntie . . .?

A:

She is referring to the House and Lot where I used to live

before.

Q:

You are referring to the House and Lot located at 725

Extremadura Street, Sampaloc, Manila.

A:

Yes, sir.

In sum, not only did petitioners witnesses prove, by their testimonies,

the forging of the contracts of sale or assignment. They proved the full
performance or execution of the contracts as well.
WHEREFORE, the petition is hereby GRANTED. The January 31, 2000
Decision of the Court of Appeals in CA-G.R. No. 44704 is hereby SET ASIDE.
The case is hereby remanded to the trial court, Branch 31 of the RTC of
Manila, for appropriate action, following Section 2 of Rule 69 of the Rules of
Civil Procedure.
SO ORDERED.

x x x20 (Emphasis and underscoring supplied)

Not only on account of Sylvanas manner of testifying that her testimony
should be given weight. Her testimony was against the interest of her mother
Teresa whom she represented, her mother being also an heir of Macaria. If

373

G.R. No. L-51058 January 27, 1992

Check No. Amount Due Date

10112253 P10,000.00 June 30, 1976

ASIA PRODUCTION CO., INC., WANG TA PENG and WINSTON

10112254 20,000.00 July 30, 1976

WANG, petitioners,

10112255 20,000.00 August 30, 1976

vs.

10112256 20,000.00 September 30, 1976

HON. ERNANI CRUZ PAO, as Judge of the Court of First Instance of

10112257 20,000.00 October 30, 1976

Rizal (Quezon City, Branch XVIII), LOLITA LEE LE HUA and ALBERTO

10112258 20,000.00 November 30, 1976

DY, respondents.

10112259 20,000.00 December 30, 1976

10112260 20,000.00 January 31, 1977

Ismael J. Andres for petitioner Asia Production Co., Inc.

Burgos, Sarte, Rebueno & Sarte for petitioners.
Roman Careaga for Alberto Dy.

Relying on the good faith of private respondents, petitioners constructed in

May 1976 a weaving factory on the leased lot. Unfortunately, private
respondents, despite extensions granted, failed to comply with their
undertaking to execute the deed to sale and to assign the contract despite
the fact that they were able to encash the checks dated 30 June and 30 July
1976 in the total amount of P30,000.00. Worse, the lot owner made it plain

DAVIDE, JR. J.:

The simple issue in this case is whether or not an action for the refund of
partial payments of the purchase price of a building covered by an oral
agreement to sell it with an oral promise to assign the contract of lease on
the lot where the building is constructed is barred by the Statute of Frauds.
Sometime in March 1976, private respondents, who claimed to be the owners
of a building constructed on a lot leased from Lucio San Andres and located
in Valenzuela, Bulacan, offered to sell the building to the petitioners for
P170,000.00. Petitioners agreed because of private respondents' assurance
that they will also assign to the petitioners the contract of lease over the
land. The above agreement and promise were not reduced to writing. Private
respondents undertook to deliver to the petitioners the deed of conveyance
over the building and the deed of assignment of the contract of lease within
sixty (60) days from the date of payment of the downpayment of P20,000.00.
The balance was to be paid in monthly installments. On 20 March 1976,
petitioners paid the downpayment and issued eight (8) postdated checks
drawn against the Equitable Banking Corporation for the payment of the
eight (8) monthly installments, as follows:

to petitioners that he was unwilling to give consent to the assignment of the

lease unless petitioners agreed to certain onerous terms, such as an increase
in rental, or the purchase of the land at a very unconscionable price.
Petitioners were thus compelled to request for a stop payment order of the six
(6) remaining checks. Succeeding negotiations to save the transaction proved
futile by reason of the continued failure of private respondents to execute the
deed of sale of the building and the deed of assignment of the contract of
lease.
So, on or about 29 December 1976, upon prior agreement with private
respondents, petitioners removed all their property, machinery and
equipment from the building, vacated the same and returned its possession
to private respondents. Petitioners demanded from the latter the return of
their partial payment for the purchase price of the building in the total sum
of P50,000.00. Private respondents refused to return it. Hence, petitioners,
filed against private respondents a complaint

for its recovery and for actual,

moral and exemplary damages and attorney's fees with the then Court of
First Instance (now Regional Trial Court) of Quezon City, which was docketed
as Civil Case No. Q-23593. The case was raffled to Branch XVIII of the court
which was then presided over by herein respondent Judge.

374

Private respondent Lolita Lee Le Hua did not file an Answer; hence, she was

had been full payment of P170,000.00, the situation would

declared in default.

have been different.

Upon the other hand, private respondent Alberto Dy filed a motion

Plaintiffs knew or should have known that their contract (as

to dismiss the complaint on the ground that the claim on which the action is

described by them in their complaint) was unenforceable;

based an alleged purchase of a building which is not evidenced by any

they had thereby voluntarily assumed the risks attendant to

writing cannot be proved by parol evidence since Article 1356 in relation to

such contract. Moreover, the primordial aim of the Statutes

Article 1358 of the Civil Code requires that it should be in writing.

opposition

of Fraud (sic) is to prevent fraud and perjury in the

In their

enforcement of obligations depending upon the unassisted

to said motion, petitioners argue that their complaint is

memory of witnesses (Shoemaker vs. La Tondea, 68 Phil.

essentially for collection of a sum of money; it does not seek to enforce the

24). The Court would find it difficult to determine whether

sale, but aims to compel private respondents to refund a sum of money

the sum of P50,000.00 was paid because of the

which was paid to them as purchase price in a sale which did not materialize

unenforceable contract or for some other transactions.

by reason of their bad faith. Furthermore, the execution of the document was
an undertaking of the private respondents, which they refused to comply
with. Hence, they cannot now be heard to complain against something which

Their motion for reconsideration

they themselves brought about.

in his Order

having been denied by respondent Judge

of 21 June 1979 for the reason that the oral contract in this

case was not removed from the operation of the Statute of Frauds because
In his Order

of 18 April 1979, respondent Judge granted the motion to

dismiss on the ground that the complaint is barred by the Statute of Frauds.
He says:

there was no full or complete performance by the petitioners of the contract

as required in Paterno vs. Jao Yan
this petition

and Babao vs. Perez, 8 petitioners filed

on 16 July 1979, alleging therein as ground therefor grave

abuse of discretion on the part of respondent Judge in issuing the orders of

It cannot be disputed that the contract in this case is

18 April 1979 and 21 June 1979.

condemned by the Statutes of Fraud (sic) it involves not

merely the sale of real property (the building), it also
includes an alleged lease agreement that must certainly be
for more than one year (See Art. 1403, No. 2, subparagraph
e, New Civil Code).
Plaintiffs cannot avoid the Statutes of Fraud (sic) by saying
that this is merely an action for the collection of a sum of
money. To be entitled to the sum of P50,000.00, it is
necessary to show that such contract was executed and the

After private respondent Alberto Dy filed his Comment

compliance with the resolution
Reply

12

11

to said comment on 2 April 1980, this Court gave due course

Fraud (sic). This is so because plaintiffs have not fully

complied with their obligation to pay P170,000.00. If there

13

to

the petition. Private respondent Lolita Lee Le Hua was considered to have
waived her right to file her comment to the petition. 14
Petitioners were subsequently required to file their Brief, which they complied
with on 13 October 1981;

15

they make the following assignment of errors:

I

proving this alleged agreement by parol evidence.

of P50,000.00 the contract was removed from the Statutes of

to the petition in

of 23 July 1979 and petitioners filed their

same was violated but plaintiffs are prevented from

Neither may plaintiffs claim that by the payment of the sum

10

The lower court erred in holding that for a contract of

purchase and sale to be removed from the operation of the
Statute of Frauds, there must be full and complete payment
of the purchase price.

375

II

(a) An agreement that by its terms is not to

be performed within a year from the making

The lower court erred in failing to appreciate the nature of

thereof;

petitioners' cause of action.

(b) A special promise to answer for the debt,
III

default, or miscarriage of another;

The lower court erred in not finding that this case is not

(c) An agreement made in consideration of

covered by the Statute of Frauds.

marriage, other than a mutual promise to

marry;

IV
(d) An agreement for the sale of goods,
The lower court erred in not following the procedure

chattels or things in action, at a price not

prescribed by this Honorable Court in cases when partial

less than five hundred pesos, unless the

performance is alleged.

buyer accept and receive part of such goods

and chattels, or the evidences, or some of
V

them, of such things in action, or pay at the

time some part of the purchase money; but

The lower court erred in dismissing the case.

when a sale is made by auction and entry is

made by the auctioneer in his sales book, at

Private respondents did not file their Brief.

the time of the sale, of the amount and kind

of property sold, terms of sale, price, names

We find merit in the petition. Respondent Judge committed grave abuse of

of the purchasers and person on whose

discretion in dismissing the complaint on the ground that the claim is barred

account the sale is made, it is a sufficient

by the Statute of Frauds.

memorandum;

Article 1403 of the Civil Code declares the following contracts, among others,

(e) An agreement for the leasing for a longer

as unenforceable, unless they are ratified:

period than one year, or for the sale of real

property or of an interest therein;

xxx xxx xxx

(f) A representation to the credit of a third
(2) Those that do not comply with the Statute of Frauds as

person.

set forth in this number. In the following cases an agreement

hereafter made shall be unenforceable by action, unless the

xxx xxx xxx

same, or some note or memorandum thereof, be in writing,

and subscribed by the party charged, or by his agent;

The purpose of the statute is to prevent fraud and perjury in the enforcement

evidence, therefore, of the agreement cannot be received

of obligations depending for their evidence on the unassisted memory of

without the writing, or a secondary evidence of its contents:

witnesses by requiring certain enumerated contracts and transactions to be

evidenced by a writing signed by the party to be charged.

16

It was not

376

designed to further or perpetuate fraud. Accordingly, its application is

In the words of former Chief Justice Moran: "The reason is

limited. It makes only ineffective actions for specific performance of the

simple. In executory contracts there is a wide field for fraud

contracts covered by it; it does not declare them absolutely void and of no

because unless they be in writing there is no palpable

effect. As explicitly provided for in the above-quoted paragraph (2), Article

evidence of the intention of the contracting parties. The

1403 of the Civil Code, the contracts concerned are simply "unenforceable"

statute has precisely been enacted to prevent fraud."

and the requirement that they or some note or memorandum thereof be

(Comments on the Rules of Court, by Moran, Vol. III [1957

in writing refers only to the manner they are to be proved. It goes without

ed.] p. 178). However, if a contract has been totally or

saying then, as held in the early case of Almirol, et al. vs. Monserrat,

17

that

partially performed, the exclusion of parol evidence would

the statute will apply only to executory rather than executed contracts.

promote fraud or bad faith, for it would enable the defendant

Partial execution is even enough to bar the application of the statute.

to keep the benefits already derived by him form the

In Carbonnel vs. Poncio, et al.,

18

this Court held:

. . . It is well-settled in this jurisdiction that the Statute of

Frauds is applicable only to executory contracts (Facturan
vs. Sabanal, 81 Phil. 512), not to contracts that are totally
or partially performed (Almirol, et al. vs. Monserrat, 48 Phil.
67, 70; Robles vs. Lizarraga Hermanos, 50 Phil. 387; Diana
vs. Macalibo, 74 Phil. 70).

transaction in litigation, and, at the same time, evade the

obligations, responsibilities or liabilities assumed or
contracted by him thereby.
It follows then that the statute applies only to executory contracts
and in actions for their specific performance. It does not apply to
actions which are neither for violation of a contract nor for the
performance thereof.

19

Subject to a rule to the contrary followed in

There can be no dispute that the instant case is not for specific performance

a few jurisdictions, it is the accepted view

of the agreement to sell the building and to assign the leasehold right.

that part performance of a parol contract for

Petitioners merely seek to recover their partial payment for the agreed

the sale of real estate has the effect, subject

purchase price of the building, which was to be paid on installments, with

to certain conditions concerning the nature

the private respondents promising to execute the corresponding deed of

and extent of the acts constituting

conveyance, together with the assignment of the leasehold rights, within two

performance and the right to equitable relief

(2) months from the payment of the agreed downpayment of P20,000.00. By

generally, of taking such contract from the

their motion to dismiss, private respondents theoretically or hypothetically

operation of the statute of frauds, so that

admitted the truth of the allegations of fact in the complaint.

chancery may decree its specific

allegations therein are:

performance or grant other equitable relief.

(1) that the P50,000.00 sought to be recovered represents the downpayment

It is well settled in Great Britain and in this

of P20,000.00 and two (2) monthly installments of the purchase price, and

country, with the exception of a few states,

(2) that petitioners decided, in effect, to withdraw from the agreement by

that a sufficient part performance by the

ordering the stop payment of the remaining six (6) checks and to return the

purchaser under a parol contract for the

possession of the building to private respondents because of the latter's

sale of real estate removes the contract form

failure to comply with their agreement. The action is definitely not one for

the operation of the statute of frauds (49

specific performance, hence the Statute of Frauds does not apply. And even if

Am. Jur. 722-723).

it were for specific performance, partial execution thereof by petitioners

20

Among the

effectively bars the private respondents from invoking it. Since it is for refund
of what petitioners had paid under the agreement, originally unenforceable

377

under the statute, because petitioners had withdrawn therefrom due to the

We thus rule that an action by a withdrawing party to recover his partial

"bad faith" of the private respondents, the latter cannot be allowed to take

payment of the consideration of a contract, which is otherwise unenforceable

shelter under the statute and keep the P50,000.00 for themselves. If this

under the Statute of Frauds, by reason of the failure of the other contracting

were the case, the statute would only become a shield for fraud, allowing

party to comply with his obligation, is not covered by the Statute of Frauds.

private respondents not only to escape performance of their obligations, but

also to keep what they had received from petitioners, thereby unjustly

WHEREFORE, the petition is hereby GRANTED. The challenged Orders of 18

enriching themselves.

April 1979 and 21 June 1979 in Civil Case No. Q-23593 of the court below
are hereby ANNULLED and SET ASIDE, and the complaint in said case is

Besides, even if the action were for specific performance, it was premature for

hereby ordered REINSTATED. The default order against private respondent

the respondent Judge to dismiss the complaint by reason of the Statute of

Lolita Lee Le Hua shall stand and private respondent Alberto Dy is ordered to

Frauds despite the explicit allegations of partial payment. As this Court

file his Answer to the complaint with the court below within ten (10) days

stated in Carbonnel vs. Poncio, et al.:

from receipt of this decision. This decision shall be immediately executory.

21

For obvious reasons, it is not enough for a party

Costs against private respondents.

to allege partial performance in order to hold that there has

been such performance and to render a decision declaring

IT IS SO ORDERED.

that the Statute of Frauds is inapplicable. But neither is

such party required to establish such partial performance
by documentaryproof before he could have the opportunity to
introduce oral testimony on the transaction. Indeed, such
oral testimony would usually be unnecessary if there were
documents proving partial performance. Thus, the rejection
of any and all testimonial evidence on partial performance,

[G.R. No. L-61932. June 30, 1987.]

ENRIQUE P. SYQUIA, Petitioner, v. THE HONORABLE COURT OF
APPEALS AND EDWARD LITTON, Respondents.

would nullify the rule that the Statute of Frauds is

inapplicable to contracts which have been partly executed,
and lead to the very evils that the statute seeks to prevent.

DECISION

xxx xxx xxx

When the party concerned has pleaded partial performance,

PARAS, J.:

such party is entitled to a reasonable chance to establish by

parol evidence the truth of this allegation, as well as the
contract itself. "The recognition of the exceptional effect of
part performance in taking an oral contract out of the
statute of frauds involves the principle that oral evidence is
admissible in such cases to prove both the contract and the
part performance of the contract" (49 Am. Jur. 927).

Before Us is an appeal by certiorari from the split decision 1 of a division of

five of the Court of Appeals dated March 16, 1982 as well as that resolution
of the Court of Appeals denying petitioners Motion for Reconsideration.
The instant action arose from an ejectment case against petitioner by Edward
Litton based on the expiration of the Contract of Lease over the Dutch Inn
Building originally owned by the Heirs of Doa Rosa Litton or the Litton coownership who leased it to Litton Finance and Investment Corporation. The

378

latter sublet it to herein petitioner for a period commencing on February 1,

1970 and ending on January 31, 1979.
On August 9, 1976, the Litton co-ownership was dissolved by partition (Exh.
"E") and the ownership of the Dutch Inn Building and the lots on which it is
built was adjudicated to herein private respondent Edward Litton. On
December 1, 1976, the latter gave notice in writing (Exh. "F") that as the new
owner of said properties, rentals of the same should be remitted to him
starting January, 1977. Petitioner signified his conformity (Exh. "F-1") to this
notice and accordingly paid his rentals directly to private Respondent.
On December 1, 1978, petitioner wrote to respondent manifesting his
willingness to renew the contract of lease upon its expiration on January 31,
1979 under such terms as may be agreeable to both of them (Exh. "I" for
petitioner and Exh. "S" for respondents).

The case was elevated to the Court of Appeals by way of Petition for Review
under Republic Act 6031, with Syquia assailing the aforementioned decision.
The appellate court upon a split vote of four Justices concurring to one
dissenting, affirmed the decision of the lower court and dismissed the
petition for review. Hence this appeal, petitioner relying on the following
arguments:chanrob1es virtual 1aw library
A

Respondent Court of Appeals has decided this case not in accord with law as
well as applicable decisions of the Supreme Court.
B

A series of communications ensued between them, private respondent, thru

counsel, consistently invoking the clear and unequivocal terms of the
contract of lease (Exh. "G") especially the duration thereof which allegedly
does not provide for renewal or extension. On December 15, 1978 and
thereafter on January 4, 11 and 22, 1979, private respondent, thru counsel,
asked petitioner in writing to vacate the premises on or before the expiration
of the lease contract on January 31, 1979, and upon his failure to vacate the
premises after the expiry date of the lease contract, he should pay the
amount of P58,685.00 per month as compensation for the use and
occupation of the premises (Exh. "L"). Petitioner objected to the amount as
not being fair and reasonable rental, petitioner invoking the huge investment
he has put in the Dutch Inn Building from 1970 to 1979 and also the alleged
verbal assurance by plaintiff-appellees predecessor-in-interest of petitioners
priority to renew the lease of the premises in question.

Respondent Court of Appeals has gravely erred in its interpretation and

application of Art. 1403 of the Civil Code of the Philippines and likewise erred
in its failure to correctly apply Section 7, Rule 130 of our Rules of Court.

Upon petitioners refusal to vacate the premises upon written demand made
by private respondent on February 1, 1979, private respondent filed the case
for ejectment based on the expiration of the Contract of Lease. The City
Court rendered a decision 2 in favor of plaintiff Edward Litton (herein private
respondent) and ordered defendant, Enrique Syquia (herein petitioner) to
vacate the premises and to pay plaintiff Litton, P31,781.16 a month as the
reasonable value of the use and occupation of the premises from February 1,
1979 until defendant Syquia vacates the premises the amount of P3,000.00
as attorneys fees and the costs. On appeal to the RTC (then CFI), the
judgment 3 was slightly modified in that the monthly rental was reduced to
P28,000.00, less any amount that defendant may have deposited with the
court and withdrawn by the plaintiff and that defendants counterclaim was
dismissed for lack of merit.

Respondent Court of Appeals has committed grave abuse of discretion in its

failure to extend petitioners stay in the leased premises.

Respondent Court of Appeals has committed grave abuse of discretion

amounting to lack of jurisdiction in affirming the lower Courts award of
increased rental and/or reasonable compensation for the use of the premises
in question in the amount of P28,000.00 a month.
D

Respondent Court of Appeals has likewise erred in its failure to award unto
petitioner the reasonable amount of damages and/or compensation as has
been proven by him and unrebutted by privateRespondent.
F

379

Respondent Court of Appeals has committed a grave abuse of discretion in its

failure to extend petitioners stay in the leased premises.
G

Respondent Court of Appeals has likewise erred in its failure to award unto
petitioner the reasonable amount of damages and/or compensation as has
been proven by him and is more than substantially shown by the records.
(pp. 29-30, rollo).
To have a better grasp of the facts and issues of the case, We find it
necessary to quote the pertinent portion of the judgment of the Regional Trial
Court, to wit:jgc:chanrobles.com.ph
"After a careful perusal of the evidence of both parties, their arguments and
their memoranda, the court finds that the principal issue is whether or not
the defendant is entitled to a renewal of the contract of lease, Exhibit "G",
which on its face, expired on January 31, 1979. In other words, can the
alleged verbal assurances of George Litton Sr. and Gloria Litton del Rio be
sufficient basis to vary the written contract and allow the defendant an
extension of the lease contract, which, on its surface, already expired on
January 31, 1979? There is no dispute that the contract of lease, Exhibit
"G", entered into by and between the defendant and plaintiffs predecessorsin-interest, has been terminated by its express provision appearing in
paragraph 1, which states that the lease shall be for a period of nine (9) years
commencing on January 1, 1970 and ending on January 31, 1979.
"Defendant claims that this case was filed prematurely considering that he is
entitled to a renewal of the contract, that one of the inducements which
made him enter into a lease agreement with plaintiffs predecessor-in-interest
was the oral assurance of said plaintiffs predecessor-in-interest that the
defendant is entitled to a renewal or a priority to lease the premises upon the
expiration of the contract of lease; that in view of the close relationship then
existing between the defendant and George Litton Sr. and Gloria Litton del
Rio and the trust and confidence relied by defendant on both parties,
defendant did not insist on the insertion of the provision regarding his
priority to lease the premises in Exhibit "G" ; that Exhibit "G" is merely a
copy of a previous contract of lease, Exhibit "12" ; that when defendant
pointed to George Litton Sr. and Gloria Litton del Rio of his priority to lease
the premises, the latter assured him that he should not worry regarding the
absence of the option to renew the lease contract, Exhibit "G" because he
would be given priority to lease the premises upon the expiration of the lease
contract; that because of this verbal assurance of George Litton Sr. and
Gloria Litton del Rio, and that plaintiff, having assumed or acquired the

rights and obligations of the former when he became the owner of the
property subject of this case, the plaintiff is now duty-bound to respect the
verbal assurance given by the plaintiffs predecessor to give him a renewal or
priority to a new lease over the property and that defendant should now be
made to exercise his option to renew the lease. In other words, plaintiff
should be compelled to abide by the commitment made by his predecessorin-interest.
"Defendant further claims that he is entitled to exercise his option to extend
or renew the lease considering the huge investment he has made on the
Dutch Inn Building. Plaintiff, however, insists that by the expiration of the
contract of lease, he has the right to demand to take action for unlawful
detainer and that defendant should vacate the premises and to pay the
amount of P58,685.00 as monthly rental, which is the reasonable
compensation for the use of the premises after January 31, 1979.
"From his testimony in the lower court, defendant stated that he was assured
or promised by George Litton Sr. and Gloria Litton del Rio, representatives of
the Litton Finance & Investment Corp.; that he, defendant, Enrique Syquia,
would be given priority to lease the same property after the expiration of the
lease contract.
"According to the plaintiff, there is infringement of the Statute of Frauds as
well as the Parol Evidence Rule. On the other hand, the defendant invokes
the exception contained in Section 7, Rule 130 of the Rules of Court (Parol
Evidence Rule). Defendant contends that antecedent factors were involved
which induced him to enter into the contract of lease with Litton Finance &
Investment Corp. This brings us to the provisions of Statute of Frauds under
Article 1403, No. 2(E), which provides as follows:chanrob1es virtual 1aw
library
Art. 1403. The following contracts are unenforceable unless they are
ratified:chanrob1es virtual 1aw library
(1) . . .
(2) Those that do not comply with the Statute of Frauds as set forth in this
number. In the following cases an agreement hereafter made shall be
unenforceable by action, unless the same, or some note or memorandum
thereof, be in writing, and subscribed by the party charged, or by his agent;
evidence, therefore, of the agreement cannot be received without the writing,
or a secondary evidence of its contents:chanrob1es virtual 1aw library
(A) . . .

380

(B) . . .
(C) . . .
(D) . . .
(E) An agreement for the leasing for a longer period than one year, or for the
sale of real property or of an interest therein.

parties therein, simply because the provisions for extension or renewal are
not found in or capable of being inferred from the express terms of Exhibit
"G." It is significant to note that defendant failed to point out the mistake or
imperfection or failure to express the true intent and agreement of the parties
or any ambiguity of the contract.
x

So, under 2(e) of Article 1403 of the Civil Code as quoted above, the alleged
oral assurance or promise of the representatives of the Litton Finance &
Investment Corp, that defendant should be given priority or a renewal of
Exhibit "G" cannot be enforceable against plaintiff. Likewise, under the Parol
Evidence Rule, defendants claim that he is entitled to a renewal of the
contract of lease for the reason that the lessors have given him the option to
renew the contract cannot be maintained. The Parol Evidence Rule, Sec. 7.
Rule 130 of the Rules of Court provides:chanrob1es virtual 1aw library

"The testimony of the defendant that there was am oral understanding

between him and the representatives of Litton Finance & Investment Corp. to
be allowed to extend or renew or be given priority to lease the property at the
expiration of the contract of lease on January 31, 1979 is belied by his letter
to plaintiff dated December 1, 1978, which is inconsistent to what all along
said defendant had professed. This is shown by paragraph 2 of the letter
marked as Exhibit "S" for the plaintiff and Exhibit "I" for the
defendant:chanrob1es virtual 1aw library

When the terms of an agreement have been reduced to writing, it is to be

considered as containing all such terms, and therefore, there can be,
between the parties and their successors in interest, no evidence of the terms
of the agreement other than the contents of the writing, except in the
following cases:chanrob1es virtual 1aw library

Since our contract of lease will terminate on January 31, 1979, we are
writing you this letter to inform you that we are willing to renew said contract
under such terms as may be agreeable to both of us.

(A) Where a mistake or imperfection of the writing, or its failure to express

the true intent and agreement of the parties, or the validity of the agreement
is put in issue by the pleadings;
(B) When there is an intrinsic ambiquity in the writing. The term "agreement"
including wills.
"Applying the Parol Evidence Rule to the instant case, it is clear that there
being a written agreement between the parties, the same should be
controlling between them. The exceptions provided for in (A) and (B) cannot
apply in the instant case in view of the fact that the contract of lease, Exhibit
"G" is clear, thus precluding any mistake or imperfection or failure to express
the true intent and agreement of the parties. The Court cannot see any
ambiguity in the contract. The tests of completeness of a written contract is
the contract itself, as provided for under Sec. 1494 of Jones on Evidence . . ..
"Following these doctrines, there is absolutely no room to read into Exhibit
"G" the alleged extension or renewal or assurance or priority to lease after the
contract shall have expired, because the document is in itself, complete, and
no ambiquities can be ascribed to its terms and neither is there any mistake
or imperfection or failure to express the true intent and agreement of the

It is significant from this portion of the letter that the defendant never
mentioned his option or priority to lease the property. It is the observation of
the court that the alleged verbal assurance of George Litton Sr. and Gloria
Litton del Rio is only in afterthought of the defendant. It is merely an
eleventh hour defense of the defendant when the plaintiff refused to renew
the contract. The inference of said letter is very clear. That the defendant had
no right or reference to renew the contract and that was the reason why he
was requesting to negotiate for the renewal of the contract.
"Assuming for the sake of argument that there really was a verbal agreement
or promise on the part of George Litton Sr. and Gloria del Rio to allow
defendant to renew the contract of lease at its expiration, the court believes
that such assurance or promise would not have any binding effect on the
original lessor, the Litton Finance Investment Corporation, considering that
defendant did not adduce any evidence to show in what capacity George
Litton Sr. and Gloria Litton del Rio gave that assurance and considering
further that it was James Litton who signed the contract of lease, Exhibit "G"
in representation of Litton Finance & Investment Corporation as its DirectorVice President. Under the Corporation Law, corporations acts are only
valid if a board resolution authorizes said acts, otherwise, said unauthorized
acts are not binding to it. The evidence does not show that the act of George
Litton Sr. and Gloria Litton del Rio had been ratified.

381

"The last issue is the reasonable compensation for the use and occupation by
the defendant of the premises in question. The lower court fixed the
reasonable compensation in the amount of P31,781.16 a month. This court
cannot understand how the lower court reached at that alleged reasonable
monthly compensation.
"Antonio Doria, the expert witness, presented by the defendant appears to be
a natural and unbiased witness. Under cross examination by the plaintiff, he
testified as follows:chanrob1es virtual 1aw library
x

(pp, 141-155, Rollo).

From the foregoing, it is crystal clear that the court a quo did not
whimsically decide the case, nor decide it without substantial basis in
support thereof.
In dismissing the petition of appellant Syquia, respondent Court of Appeals
relied heavily on the findings of fact of the Regional Trial Court and
concluded that there is "a lot more than substantial evidence supporting the
court a quos finding of fact and that the conclusions arrived at by his Honor
are clearly not against the law and jurisprudence." The case involves
unlawful detainer and respondent Court of Appeals correctly applied the
"substantial evidence" rule as provided for under R.A. 6031, amending
Section 45 Judiciary Law of 1948. Said act which was applied in the case of
Gindoy v. Tapucar, 4 provides that "in cases falling under the exclusive
original jurisdiction of Municipal and City Courts 5 which are appealed to
the Court of First Instance, 6 the decision of the latter shall be final,
provided, that the findings of facts contained in said decision are supported
by substantial evidence as basis thereof, and the conclusions are not clearly
against the law and jurisprudence." 7
It is noted that petitioner is among other things a successful and experienced
business man. Considering his huge investment made on the building, he
should have taken steps to protect his investment within the protective
mantle of the law by insisting that the alleged verbal assurance be reduced
into writing. His failure to do so has considerably weakened his claim.
Proof of the alleged verbal assurance of a lease renewal cannot be allowed
both under the Parol Evidence Rule and the Statute of Frauds for failure to
put in writing said alleged stipulation, Upon the other hand. We are inclined
to consider Syquia as having constructed in good faith the improvements he
introduced in the Dutch Inn Building. His rights to said improvements are

governed by Art. 1678 of the Civil Code, which

provides:jgc:chanrobles.com.ph
"Art. 1678. If the lessee makes, in good faith, useful improvements which are
suitable to the use for which the lease is intended, without altering the form
or substance of the property leased, the lessor upon the termination of the
lease shall pay the lessee one-half of the value of the improvements at that
time. Should the lessor refuse to reimburse said amount, the lessee may
remove the improvements, even though the principal thing may suffer
damage thereby. He shall not, however, cause any more impairment upon the
property leased than is necessary.
"With regard to ornamental expenses, the lessee shall not be entitled to any
reimbursement, but he may remove the ornamental objects, provided no
damage is caused to the principal thing, and the lessor does not choose to
retain them by paying their value at the time the lease is
extinguished."cralaw virtua1aw library
Petitioner admits the fact of ownership of the private respondent over the
building in question. As the owner, it is only logical that he should have the
freedom to choose the tenant of the premises under such terms and
conditions as may enable him to realize reasonable and fair returns
therefrom. Since petitioner stubbornly refused to vacate the premises despite
repeated demands of respondent, he should be obliged to compensate the
latter such amount as may be deemed fair and reasonable under the
circumstances. What then is reasonable? An expert witness in the person of
Mr. Antonio Doria testified in the court below and thus established that
P28,000.00 is fair and reasonable rental under the premises. However,
judicial notice is requested by private respondent of the runaway inflation
which supervened since January 31, 1979, contending that had the
premises been vacated at the expiration of the contract on January 31, 1979,
the latter (private respondent) could have leased it immediately to other
interested parties under such terms that could have taken into consideration
the inflation rate at the time and provided for periodic rate escalation
corresponding to subsequent inflation. He contends likewise that petitioner is
a possessor in bad faith with his continued enjoyment of the premises after
the expiration of the lease.
We cannot grant the foregoing prayer of private respondent without denying
due process of law to petitioner. While We can take judicial cognizance of the
fact of inflation. there is no sufficient evidence presented to substantiate
respondents claim of his actual loss in petitioners failure to surrender the
premises.
We now come to the next assignment of error. The instant case is not within

382

the scope of Art. 1687 of the Civil Code which covers lease contracts with no
fixed period. The contract of lease in question is with a definite period. Thus
to extend the lease of petitioner would be completely devoid of legal basis.
Inasmuch as the stipulated period of the contract between the parties had
already expired and private respondent is unwilling to extend the same.
There is no way therefore that herein petitioner can hold on to the property
after January 31, 1979 without conformity of Plaintiff-Appellee.
WHEREFORE, premises considered, the assailed decision is hereby
AFFIRMED, with the modification that this case is hereby REMANDED to the
Regional Trial Court involved for the determination of the parties rights
under Art. 1678 of the Civil Code (supra).

the trial court to order the Spouses Firme to execute the deed of sale and to
deliver the title to the Property to Bukal Enterprises upon payment of the
agreed purchase price.
During trial, Bukal Enterprises presented five witnesses, namely, Aviles,
De Castro, Antonio Moreno, Jocelyn Napa and Antonio Ancheta.
Aviles testified that De Castro authorized him to negotiate on behalf of
Bukal Enterprises for the purchase of the Property. According to Aviles, he
met with the Spouses Firme on 23 January 1995 and he presented them
with a draft deed of sale [4] (First Draft) dated February 1995. The First Draft
of the deed of sale provides:
DEED OF ABSOLUTE SALE
KNOW ALL MEN BY THESE PRESENTS:

SO ORDERED.

[G.R. No. 146608. October 23, 2003]

SPOUSES CONSTANTE FIRME AND AZUCENA E. FIRME, petitioners, vs.
BUKAL
ENTERPRISES
AND
DEVELOPMENT
CORPORATION, respondent.
DECISION

This DEED OF ABSOLUTE SALE made and executed by and between the
Spouses CONSTANTE FIRME and AZUCENA E. FIRME, both of legal age,
Filipino citizens and with postal address at No. 1450 Union, Paco, City of
Manila, hereinafter called the VENDOR, and
BUKAL ENTERPRISES and DEVELOPMENT CORPORATION, a corporation
duly organized and registered in accordance with Philippine Laws, with
business address at Dahlia Avenue, Fairview Park, Quezon City, herein
represented by its PRESIDENT, MRS. ZENAIDA A. DE CASTRO, hereinafter
called the VENDEE.
WITNESSETH:

CARPIO, J.:
The Case
This is a petition for review on certiorari of the Decision[1] dated 3
January 2001 of the Court of Appeals in CA-G.R. CV No. 60747. The Court
of Appeals reversed the Decision[2] of the Regional Trial Court, Branch
223, Quezon City (trial court), which held that there was no perfected
contract of sale since there was no consent on the part of the seller.
The Facts
Petitioner Spouses Constante and Azucena Firme (Spouses Firme) are
the registered owners of a parcel of land [3] (Property) located on Dahlia
Avenue, Fairview Park, Quezon City. Renato de Castro (De Castro), the vice
president of Bukal Enterprises and Development Corporation (Bukal
Enterprises) authorized his friend, Teodoro Aviles (Aviles), a broker, to
negotiate with the Spouses Firme for the purchase of the Property.
On 28 March 1995, Bukal Enterprises filed a complaint for specific
performance and damages with the trial court, alleging that the Spouses
Firme reneged on their agreement to sell the Property. The complaint asked

That the VENDOR is the absolute and registered owner of a certain parcel of
land located at Fairview Park, Quezon City, and more particularly described
as follows:
A parcel of land (Lot 4, Block 33 of the consolidation-subdivision plan (LRC)
Pcs-8124, Sheet No. I, being a portion of the consolidation of Lots 41-B-2-A
and 41-B-2-C, Psd-1136 and Lot (LRC) Pcs-2665, (LRC) GLRO) Record. No.
1037), situated in Quezon City, Island ofLuzon. Bounded on the NE., points
2 to 5 by Road Lot 24, of the consolidation-subdivision plan. Beginning at a
point marked 1 on plan, being S. 67 deg. 23W., 9288.80 m. from BLLM I,
Mp of Montalban, Rizal; thence N. 85 deg. 35E., 17.39 m. to point 2; thence
S. 54 deg. 22E., 4.00 m. to point 3; thence S. 14 deg. 21E., 17.87 m. to
point 4; thence 3 deg. 56E., 17.92 m. to point 5; thence N. 85 deg. 12 W.,
23.38 m. to point 6; thence N. 4 deg. 55 W., 34.35 m. to the point of
beginning; containing an area of EIGHT HUNDRED AND SIX (806) SQUARE
METERS, more or less.
VENDORS title thereto being evidenced by Transfer Certificate of Title No.
264243 issued by the Register of Deeds of Quezon City;

383

That the VENDOR, for and in consideration of the sum of THREE MILLION
TWO HUNDRED TWENTY FOUR THOUSAND PESOS (P3,224,000.00)
Philippine Currency, to them in hand paid and receipt whereof is hereby
acknowledged, do hereby SELL, TRANSFER and CONVEY unto the said
VENDEE, its assigns, transferees and successors in interest the above
described property, free from all liens and encumbrances whatsoever;
It is hereby mutually agreed that the VENDEE shall bear all the expenses for
the capital gains tax, documentary stamps, documentation, notarization,
removal and relocation of the squatters, registration, transfer tax and other
fees as may be required by law;
That the VENDOR shall pay the real estate tax for the current year and back
real estate taxes, charges and penalties if there are any.
IN WITNESS WHEREOF, we have hereunto affixed our signatures this ____
day of February, 1995, at Quezon City, Philippines.
CONSTANTE FIRME
AND

BUKAL ENTERPRISES
DEVELOPM
ENT CORP.
BY:

AZUCENA E. FIRME
CASTRO

ZENAIDA A. DE

VENDOR

President
xxx

The Spouses Firme rejected this First Draft because of several

objectionable conditions, including the payment of capital gains and other
government taxes by the seller and the relocation of the squatters at the
sellers expense. During their second meeting, Aviles presented to the
Spouses Firme another draft deed of sale [5] (Second Draft) dated March
1995. The Spouses Firme allegedly accepted the Second Draft in view of the
deletion of the objectionable conditions contained in the First
Draft. According to Aviles, the Spouses Firme were willing to sell the
Property at P4,000 per square meter. They then agreed that payment would
be made at the Far East Bank and Trust Company (FEBTC), Padre Faura
Branch, Manila. However, the scheduled payment had to be postponed due to
problems in the transfer of funds. The Spouses Firme later
informed Aviles that they were no longer interested in selling the Property. [6]
De Castro testified that he authorized Aviles to negotiate for Bukal
Enterprises the purchase of the Property owned by the Spouses Firme. The
Property was located beside the Dahlia Commercial Complex owned by Bukal

Enterprises. Avilesinformed him that the Spouses Firme agreed to sell the
Property at P4,000 per square meter, payable in cash for a lump sum
of P3,224,000. Furthermore, Bukal Enterprises agreed to pay the taxes due
and to undertake the relocation of the squatters on the Property. For this
purpose, Bukal Enterprises applied for a loan of P4,500,000 which FEBTC
granted. Bukal Enterprises then relocated the four families squatting on the
Property at a cost of P60,000 per family. After the squatters vacated the
Property, Bukal Enterprises fenced the area, covered it with filling materials,
and
constructed
posts
and
riprap.
Bukal
Enterprises
spent
approximately P300,000 for these improvements. In a letter[7] dated 7 March
1995, Bukal Enterprises offered to pay the purchase price of P3,224,000 to
the Spouses Firme upon execution of the transfer documents and delivery of
the owners duplicate copy of TCT No. 264243. The Spouses Firme did not
accept this offer but instead sent Bukal Enterprises a letter demanding that
its workers vacate the Property. Bukal Enterprises then filed a complaint
for specific performance and damages.[8]
Antonio Moreno, one of the alleged squatters on the Property, testified
that he constructed his house on the Property sometime in 1982. On 26
February 1995, he was summoned together with the other squatters to a
meeting with Avilesregarding their relocation. They agreed to relocate
provided they would be given financial assistance of P60,000 per
family. Thus, on 6 March 1995, the squatter families were each paid P60,000
in the presence of De Castro and Aviles. Thereafter, they voluntarily
demolished their houses and vacated the Property.[9]
Jocelyn Mapa, the manager of FEBTC, Padre Faura Branch, testified
that Bukal Enterprises has been their client since 1994. According to her,
Bukal Enterprises applied for a loan of P4,500,000 on the third week of
February 1995 allegedly to buy a lot in Fairview. FEBTC approved the loan
on the last week of February and released the proceeds on the first week of
March.[10]
Antonio Ancheta (Ancheta), barangay captain of Barangay Fairview,
testified that he was present when one of the officers of Bukal Enterprises, a
certain Renato, paid each of the four squatter families around P60,000
to P100,000. Ancheta informed Dr. Constante Firme that he told the
squatters to leave considering that they already received payment for their
relocation. According to Ancheta, Dr. Constante Firme must have
misunderstood him and thought that the squatters left through Anchetas
own efforts.[11]
On the other hand, Dr. Constante Firme (Dr. Firme) was the sole
witness for the defendant spouses.
Dr. Firme testified that on 30 January 1995, he and his wife met
with Aviles at the Aristocrat Restaurant in Quezon City. Aviles arranged the

384

meeting
with
the
Spouses
Firme
involving
their
Property
in Fairview. Aviles offered to buy the Property atP2,500 per square
meter. The Spouses Firme did not accept the offer because they were
reserving the Property for their children. On 6 February 1995, the Spouses
Firme met again with Aviles upon the latters insistence. Aviles showed the
Spouses Firme a copy of a draft deed of sale [12] (Third Draft)
which Aviles prepared. The Third Draft of the deed of sale provides:
CONRACT OF SALE
KNOW ALL MEN BY THESE PRESENTS:
This AGREEMENT, executed this ___ day of February, 1995, by and between
the Spouses CONSTANTE FIRME and AZUCENA E. FIRME, both of legal age,
Filipino citizen and with postal address at __________, Quezon City,
hereinafter referred to as the VENDORS, and BUKAL ENTERPRISES and
DEVELOPMENT CORPORATION, a corporation duly organized and
registered in accordance with Philippine Laws, with postal address at
Fairview Park, Quezon City, herein represented by its President and Chief
Executive Officer, hereinafter referred to as the VENDEE.
WITNESSETH:
That for and in consideration of the sum of THREE MILLION TWO HUNDRED
TWENTY FOUR THOUSAND PESOS (P3,224,000.00), Philippine Currency,
payable in the form hereinafter expressed, agreed to sell to the VENDEE and
the VENDEE has agreed to buy from the VENDORS, a parcel of land
situated at Dahlia Avenue corner Rolex Street, Fairview Park, Quezon City,
containing an area of 806 Square Meters more or less, of which the
VENDORS are the absolute registered owners in accordance with the Land
Registration Act, as evidenced by Transfer Certificate of Title No.
264243 issued by the Register of Deeds of Quezon City, more particularly
described and bounded as follows:
(DESCRIPTION AND BOUNDARIES OF PROPERTY)
THE FURTHER TERMS AND CONDITIONS OF THE CONTRACT ARE AS
FOLLOWS:
1. The VENDEE agrees to pay the VENDORS upon execution of
this Contract the sum of ONE MILLION PESOS (P1,000,000.00),
Philippine Currency, as downpayment and agrees to pay the
balance of TWO MILLION TWO HUNDRED TWENTY FOUR
THOUSAND PESOS (P2,224,000.00) at the post office address of
the VENDORS in Quezon City, or such other place or Office as
the VENDORS may designate within a period of sixty (60) days
counted from the date of this Contract;

2. The VENDORS have hereunto authorized the VENDEE to

mortgage the property and submit this Contract, together with a
certified true copy of the TCT, Tax Declaration, Tax Clearance
and Vicinity/Lot Plan, with their Lending Bank. The proceeds
of the VENDEES Loan shall directly be paid and remitted by the
Bank to the VENDORS;
3. The said parcel of land shall remain in the name of the
VENDORS until the Lending Bank of the VENDEE shall have
issued a Letter Guaranty Payment in favor of the VENDORS, at
which time the VENDORS agree to execute a Deed of Absolute
Sale in favor of the VENDEE and cause the issuance of the
Certificate of Title in the name of the latter. The Capital Gains
Tax and Documentary Stamps shall be charged from the
VENDORS in accordance with law;
4. The payment of the balance of P2,224,000.00 by the VENDEE to
the VENDORS shall be within a period of sixty (60) days
effective from the date of this Contract. After the lapse of 60
days and the loan has not yet been released due to fortuitous
events the VENDEE shall pay an interest of the balance a
monthly interest based on existing bank rate until said
fortuitous event is no longer present;
5. The VENDEE shall remove and relocate the Squatters, however,
such actual, reasonable and necessary expenses shall be
charged to the VENDORS upon presentation of receipts
and documents to support the act;
6. The VENDEE shall be allowed for all legal purposes to take
possession of the parcel of land after the execution of this
Contract and payment of the downpayment;
7. The VENDEE shall shoulder all expenses like the
documentation, registration, transfer tax and relocation of the
property.
IN WITNESS WHEREOF, we have hereunto affixed our signatures this ____
day of February, 1995, at Quezon City, Philippines.
CONSTANTE E. FIRME
CORP.

BUKAL ENTERPRISES DEV.

VENDOR
AZUCENA E. FIRME
VENDOR

VENDEE
BY:
________________________
President & Chief Executive Officer

385

xxx
The Spouses Firme did not accept the Third Draft because they found
its provisions one-sided. The Spouses Firme particularly opposed the
provision on the delivery of the Propertys title to Bukal Enterprises for the
latter to obtain a loan from the bank and use the proceeds to pay for the
Property. The Spouses Firme repeatedly told Aviles that the Property was not
for sale when Aviles called on 2 and 4 March 1995 regarding the Property.
On 6 March 1995, the Spouses Firme visited their Property and discovered
that there was a hollow block fence on one side, concrete posts on another
side and bunkers occupied by workers of a certain Florante de Castro. On 11
March 1995, Spouses Firme visited the Property again with a surveyor. Dr.
Firme talked with Ancheta who told him that the squatters had voluntarily
demolished their shanties. The Spouses Firme sent a letter [13] dated 20 March
1995 to Bukal Enterprises demanding removal of the bunkers and
vacation by the occupants of the Property. On 22 March 1995, the
Spouses Firme received a letter[14] dated 7 March 1995 from Bukal
Enterprises demanding that they sell the Property. [15]
On 7 August 1998, the trial court rendered judgment against Bukal
Enterprises as follows:
WHEREFORE, in the light of the foregoing premises, the above-entitled case
[is] hereby DISMISSED and plaintiff BUKAL ENTERPRISES DEVELOPMENT
CORPORATION is hereby ordered to pay the defendants Spouses Constante
and Azucena Firme:
1.

the sum of Three Hundred Thirty Five Thousand Nine

Hundred Sixty Four and 90/100 (P335,964.90) as and by
way of actual and compensatory damages;

2.

the sum of Five Hundred Thousand Pesos (P500,000.00) as

and by way of moral damages;

3.

the sum of One Hundred Thousand Pesos (P100,000.00) as

and by way of attorneys fees; and

4.

the costs of the suit.

SO ORDERED.[16]
Bukal Enterprises appealed to the Court of Appeals, which reversed and
set aside the decision of the trial court. The dispositive portion of the
decision reads:
WHEREFORE, premises considered, the Decision, dated August 7, 1998, is
hereby REVERSED and SET ASIDE. The complaint is granted and the
appellees are directed to henceforth execute the Deed of Absolute Sale
transferring the ownership of the subject property to the appellant
immediately upon receipt of the purchase price of P3,224,000.00 and to

perform all such acts necessary and proper to effect the transfer of the
property covered by TCT No. 264243 to appellant. Appellant is directed to
deliver the payment of the purchase price of the property within sixty days
from the finality of this judgment. Costs against appellees.
SO ORDERED.[17]
Hence, the instant petition.
The Ruling of the Trial Court
The trial court held there was no perfected contract of sale. Bukal
Enterprises failed to establish that the Spouses Firme gave their consent to
the sale of the Property. The parties did not go beyond the negotiation stage
and there was no evidence of meeting of the minds between the
parties. Furthermore, Aviles had no valid authority to bind Bukal
Enterprises in the sale transaction. Under Sections 23 and 36 (No. 7) of the
Corporation Code, the corporate power to purchase a specific property is
exercised by the Board of Directors of the corporation. Without an
authorization from the Board of Directors, Aviles could not validly finalize the
purchase of the Property on behalf of Bukal Enterprises. There is no basis to
apply the Statute of Frauds since there was no perfected contract of sale.
The Ruling of the Court of Appeals
The Court of Appeals held that the lack of a board resolution
authorizing Aviles to act on behalf of Bukal Enterprises in the purchase of
the Property was cured by ratification. Bukal Enterprises ratified the
purchase when it filed the complaint for the enforcement of the sale.
The Court of Appeals also held there was a perfected contract of sale.
The appellate court ruled that the Spouses Firme revealed their intent to sell
the Property when they met with Aviles twice. The Spouses Firme rejected
the First Draft because they considered the terms unacceptable.
When Aviles presented the Second Draft without the objectionable
provisions, the Spouses Firme no longer had any cause for refusing to sell
the Property. On the other hand, the acts of Bukal Enterprises in fencing the
Property, constructing posts, relocating the squatters and obtaining a loan to
purchase the Property are circumstances supporting their claim that there
was a perfected contract of sale.
The Spouses Firme allowed Bukal Enterprises to exercise acts of
ownership over the Property when the latter introduced improvements on the
Property and evicted the squatters. These acts constitute partial
performance of the contract of sale that takes the oral contract out of the
scope of the Statute of Frauds.
The Issues

386

The Spouses Firme raise the following issues:

1. WHETHER THE COURT OF APPEALS ERRED IN FINDING
THAT
THERE
WAS
A
PERFECTED
CONTRACT
OF SALE BETWEEN
PETITIONERS
AND
RESPONDENT
DESPITE THE ADDUCED EVIDENCE PATENTLY TO THE
CONTRARY;
2. WHETHER THE COURT OF APPEALS ERRED IN NOT FINDING
THAT THE ALLEGED CONTRACT OF SALE IS ENFORCEABLE
DESPITE THE FACT THAT THE SAME IS COVERED BY THE
STATUTE OF FRAUDS;
3. WHETHER
THE
COURT
OF
APPEALS
ERRED
IN
DISREGARDING THE FACT THAT IT WAS NOT LEGALLY AND
FACTUALLY POSSIBLE FOR RESPONDENT TO PERFECT A
CONTRACT OF SALE; AND
4. THE COURT OF APPEALS ERRED IN RULING THAT THE
AWARD BY THE TRIAL COURT OF MORAL AND
COMPENSATORY DAMAGES TO PETITIONERS IS IMPROPER.
[18]

The Ruling of the Court

The petition is meritorious.
The fundamental question for resolution is whether there was a
perfected contract of sale between the Spouses Firme and Bukal
Enterprises. This requires a review of the factual and legal issues of this
case. As a rule, only questions of law are appealable to this Court under
Rule 45[19] of the Rules of Civil Procedure. The findings of fact by the Court of
Appeals are generally conclusive and binding on the parties and are not
reviewable by this Court. [20] However, when the factual findings of the Court
of Appeals are contrary to those of the trial court or when the inference made
is manifestly mistaken, this Court has the authority to review the findings of
fact.[21] Likewise, this Court may review findings of fact when the judgment of
the Court of Appeals is premised on a misapprehension of facts. [22] This is the
situation in this case.
Whether there was a perfected contract of sale
We agree with the finding of the trial court that there was no perfected
contract of sale. Clearly, the Court of Appeals misapprehended the facts of
the case in ruling otherwise.
First, the records indubitably show that there was no consent on the
part of the Spouses Firme. Aviles did not present any draft deed of sale
during his first meeting with the Spouses Firme on 30 January 1995.
[23]
Dr. Firme was consistent in his testimony that he and his wife rejected the

provisions of the Third Draft presented by Aviles during their second meeting
on 6 February 1995. The Spouses Firme found the terms and conditions
unacceptable and told Aviles that they would not sell the property.
[24]
Aviles showed them only one draft deed of sale (Third Draft) during their
second and last meeting on 6 February 1995.[25] When shown a copy of the
First Draft, Dr. Firme testified that it was not the deed of sale shown to them
by Aviles during their second meeting [26] and that the Third Draft was
completely different from the First Draft.[27]
On the other hand, Aviles gave conflicting testimony as to what
transpired during the two meetings with the Spouses Firme. In his direct
examination, Aviles testified that during his first meeting with the
Spouses Firme on 23 January 1995, he showed them the First Draft which
the Spouses Firme rejected.[28] On their second meeting, Aviles showed the
Spouses Firme the Second Draft, which the Spouses Firme allegedly
approved because the objectionable conditions contained in the First Draft
were already deleted. However, a perusal of the First Draft and the Second
Draft would show that both deeds of sale contain exactly the same
provisions. The only difference is that the date of the First Draft is February
1995 while that of the Second Draft is March 1995.
When Aviles testified again as rebuttal witness, his testimony became
more confusing. Aviles testified that during his first meeting with the
Spouses Firme on 30 January 1995, he showed them the Third Draft, which
was not acceptable to the latter. [29] However, upon further questioning by his
counsel, Aviles concurred with Dr. Firmes testimony that he presented the
Third Draft (Exh. 5; Exh. L) to the Spouses Firme only during their
second meeting. He also stated that he prepared and presented to the
Spouses Firme the First Draft (Exh. C) and the Second Draft (Exh. C-1)
during their first or second meeting. He testified:
ATTY. MARQUEDA:
Q: On page 11 of the tsn dated August 5, 1997 a question was
posed How did you find this draft the Contract of Sale which
was presented to you by Mr. Aviles on the second
meeting? The answer is On the first meeting(sic), we find it
totally unacceptable, sir.[30] What can you say on this? Before
that, Mr. Witness, what is this Contract of Sale that you
presented to Mr. Aviles on the second meeting? Is this
different from the Contract of Sale that was marked as Exhibit
5-L?
Q: May I see the document Exhibit 5 L?[31]
INTERPRETER:
Witness going over the record.

387

ATTY. MARQUEDA:
Q: Is that the same document that was presented by you to
Mr. Firme on the second meeting or there is a different
contract?
A:

This is the same document draft of the document that I

submitted to them during our second meeting. That was
February. This was the draft.

Q: What about Exhibit C and C-1 [which] were identified by

you. When was this presented to Dr. Firme?
A:

This is the same.

Yes because I prepared two documents during our

meeting. One already with notarial, the one without notarial
page and the other one with notarial page already, so I
prepared two documents but with the same contents both
were dated February of 1995.[32]

Q: So, you are referring now to Exhibit

plaintiff?
A:

Even after the two meetings with Aviles, the Spouses Firme were firm in
their decision not to sell the Property. Aviles called the Spouses Firme twice
after their last meeting. The Spouses Firme informed Aviles that they were
not selling the Property.[38] Aviles himself admitted this during his testimony,
thus:
Q. Now, the next question which states: But did you not have any
occasion to talk to him after that second meeting? and the
answer of Dr. Firme is He called up a month after,
thats March 2, 1995. What can you say on this?
A.

Q: Exhibit C and C-1?

A:

Considering the glaring inconsistencies in Aviles testimony, it was

proper for the trial court to give more credence to the testimony of Dr. Firme.

C and C-1 for the

C-1 is already in the final form because we agreed already as

to the date of the payment, so I prepared already another
document which is dated March 1995.[33] (Emphasis supplied)

In his cross-examination, Aviles again changed his testimony. According

to him, he presented the Third Draft to the Spouses Firme during their first
meeting.[34] However, when he went over the records, he again changed his
answer and stated that he presented the Third Draft during their second
meeting.[35]
In his re-direct examination, Aviles gave another version of what he
presented to the Spouses Firme during the two meetings. According to him,
he presented the Third Draft during the first meeting. On their second
meeting, he presented the First and the Second Drafts to the Spouses Firme.

Q. When?
A.

On March 4, 1995.

Q. And then the next question which also states: What did you
talked (sic) about over the telephone? The answer of Dr. Firme
was When I found out that he was calling, I told him that the
property is not for sale. What can you say on this?
A.

He mentioned that they are no longer interested to sell

their property, perhaps they would like a higher price of the
property. They did not mention to me. I do not know what
was their reason.

Q. The next question So, what happened next? The answer is

He called up two days later, March 4 and my wife answered
the telephone and told him that the property is not for sale,
sir. What can you say on this?
A.

[36]

Furthermore, Aviles admitted that the first proposal of Bukal

Enterprises was at P2,500 per square meter for the Property. [37] But the
First, Second and Third Drafts of the deed of sale prepared by Aviles all
indicated a purchase price of P4,000 per square meter or a lump sum
of P3,224,000 (P4,000 per sq.m. x 806 sq.m. = P3,224,000) for the Property.
Hence, Aviles could not have presented any of these draft deeds of sale to the
Spouses Firme during their first meeting.

I called him to inform him that the loan was already

transferred from Makati to Padre Faura Branch of the Far East
Bank, so I scheduled already the payment of their property.

That is true. That is what Mrs. Firme told me during our

conversation on the telephone that they are no longer
interested to sell the property for obvious reason.

Q. When was that?

A.

March 4, 1995, your honor.[39] (Emphasis supplied)

Significantly, De Castro also admitted that he was aware of the

Spouses Firmes refusal to sell the Property.[40]
The confusing testimony of Aviles taken together with De Castros
admission that he was aware of the Spouses Firmes refusal to sell the

388

Property reinforces Dr. Firmes testimony that he and his wife never
consented to sell the Property.
Consent is one of the essential elements of a valid contract. The Civil
Code provides:
Art. 1318. There is no contract unless the following requisites concur:
1.

Consent of the contracting parties;

2.

3.

Object certain which is the subject matter of the contract;

Cause of the obligation which is established.

The absence of any of these essential elements will negate the existence
of a perfected contract of sale. [41] Thus, where there is want of consent, the
contract is non-existent.[42] As held in Salonga, et al. v. Farrales, et al.:[43]
It is elementary that consent is an essential element for the existence of a
contract, and where it is wanting, the contract is non-existent. The essence
of consent is the conformity of the parties on the terms of the contract,
the acceptance by one of the offer made by the other. The contract to
sell is a bilateral contract. Where there is merely an offer by one party,
without the acceptance of the other, there is no consent. (Emphasis supplied)
In this case, the Spouses Firme flatly rejected the offer of Aviles to buy
the Property on behalf of Bukal Enterprises. There was therefore no
concurrence of the offer and the acceptance on the subject matter,
consideration and terms of payment as would result in a perfected contract of
sale.[44] Under Article 1475 of the Civil Code, the contract of sale is perfected
at the moment there is a meeting of minds on the thing which is the object of
the contract and on the price.
Another piece of evidence which supports the contention of the
Spouses Firme that they did not consent to the contract of sale is the fact
they never signed any deed of sale. If the Spouses Firme were already
agreeable to the offer of Bukal Enterprises as embodied in the Second Draft,
then the Spouses Firme could have simply affixed their signatures on the
deed of sale, but they did not.
Even the existence of a signed document purporting to be a contract of
sale does not preclude a finding that the contract is invalid when the
evidence shows that there was no meeting of the minds between the seller
and buyer.[45] In this case, what were offered in evidence were mere unsigned
deeds of sale which have no probative value. [46] Bukal Enterprises failed to
show the existence of a perfected contract of sale by competent proof.
Second, there was no approval from the Board of Directors of Bukal
Enterprises as would finalize any transaction with the Spouses
Firme. Aviles did not have the proper authority to negotiate for Bukal

Enterprises. Aviles testified that his friend, De Castro, had asked him to
negotiate with the Spouses Firme to buy the Property.[47] De Castro, as Bukal
Enterprises vice president, testified that he authorized Aviles to buy the
Property.[48] However, there is no Board Resolution authorizing Avilesto
negotiate and purchase the Property on behalf of Bukal Enterprises. [49]
It is the board of directors or trustees which exercises almost all the
corporate powers in a corporation. Thus, the Corporation Code provides:
SEC. 23. The board of directors or trustees. Unless otherwise provided in
this Code, the corporate powers of all corporations formed under this Code
shall be exercised, all business conducted and all property of such
corporations controlled and held by the board of directors or trustees to be
elected from among the holders of stock, or where there is no stock, from
among the members of the corporation, who shall hold office for one (1) year
and until their successors are elected and qualified. x x x
SEC. 36. Corporate powers and capacity. Every corporation incorporated
under this Code has the power and capacity:
xxx
7. To purchase, receive, take or grant, hold, convey, sell, lease,
pledge, mortgage and otherwise deal with such real and personal
property, including securities and bonds of other corporations, as
the transaction of a lawful business of the corporation may
reasonably and necessarily require, subject to the limitations
prescribed by the law and the Constitution.
xxx
Under these provisions, the power to purchase real property is vested in
the board of directors or trustees. While a corporation may appoint agents to
negotiate for the purchase of real property needed by the corporation, the
final say will have to be with the board, whose approval will finalize the
transaction.[50] A corporation can only exercise its powers and transact its
business through its board of directors and through its officers and agents
when authorized by a board resolution or its by-laws. [51] As held in AF Realty
& Development, Inc. v. Dieselman Freight Services, Co.:[52]
Section 23 of the Corporation Code expressly provides that the corporate
powers of all corporations shall be exercised by the board of directors. Just
as a natural person may authorize another to do certain acts in his behalf, so
may the board of directors of a corporation validly delegate some of its
functions to individual officers or agents appointed by it. Thus, contracts
or acts of a corporation must be made either by the board of directors
or by a corporate agent duly authorized by the board. Absent such
valid delegation/authorization, the rule is that the declarations of an

389

individual director relating to the affairs of the corporation, but not in

the course of, or connected with, the performance of authorized duties
of such director, are held not binding on the corporation. (Emphasis
supplied)
In this case, Aviles, who negotiated the purchase of the Property, is
neither an officer of Bukal Enterprises nor a member of the Board of
Directors of Bukal Enterprises. There is no Board Resolution
authorizing Aviles to negotiate and purchase the Property for Bukal
Enterprises. There is also no evidence to prove that Bukal Enterprises
approved whatever transaction Aviles made with the Spouses Firme. In fact,
the president of Bukal Enterprises did not sign any of the deeds of sale
presented to the Spouses Firme. Even De Castro admitted that he had never
met the Spouses Firme.[53] Considering all these circumstances, it is highly
improbable for Aviles to finalize any contract of sale with the Spouses Firme.
Furthermore, the Court notes that in the Complaint filed by Bukal
Enterprises with the trial court, Aviles signed[54] the verification and
certification of non-forum shopping.[55] The verification and certification of
non-forum shopping was not accompanied by proof that Bukal Enterprises
authorized Aviles to file the complaint on behalf of Bukal Enterprises.
The power of a corporation to sue and be sued is exercised by the board
of directors. The physical acts of the corporation, like the signing of
documents, can be performed only by natural persons duly authorized for
the purpose by corporate by-laws or by a specific act of the board of
directors.[56]
The purpose of verification is to secure an assurance that the
allegations in the pleading are true and correct and that it is filed in good
faith.[57] True, this requirement is procedural and not jurisdictional. However,
the trial court should have ordered the correction of the complaint
since Aviles was neither an officer of Bukal Enterprises nor authorized by its
Board of Directors to act on behalf of Bukal Enterprises.
Whether the Statute of Frauds is applicable
The Court of Appeals held that partial performance of the contract of
sale takes the oral contract out of the scope of the Statute of Frauds. This
conclusion arose from the appellate courts erroneous finding that there was
a perfected contract of sale. The records show that there was no perfected
contract of sale. There is therefore no basis for the application of the Statute
of Frauds. The application of the Statute of Frauds presupposes the
existence of a perfected contract.[58] Article 1403 of the Civil Code provides:
Art. 1403. The following contracts are unenforceable, unless they are ratified:

(1)
Those entered into in the name of another person by one who
has been given no authority or legal representation, or who has
acted beyond his powers;
(2)
Those that do not comply with the Statute of Frauds as set forth in this
number. In the following cases an agreement hereafter made shall be
unenforceable by action, unless the same, or some note or memorandum
thereof, be in writing and subscribed by the party charged or by his agent;
evidence, therefore, of the agreement cannot be received without the writing,
or a secondary evidence of its contents:
xxx
(e)
An agreement for the leasing for a longer period than one year, or for
the sale of real property or of an interest therein;
xxx
Whether Bukal Enterprises is a builder in good faith
Bukal Enterprises is not a builder in good faith. The Spouses Firme did
not accept Aviles offer to purchase the Property. Aviles testified that when he
called the Spouses Firme on 2 March 1995, Dr. Firme informed him that
they were no longer interested in selling the Property. On 4 March
1995, Aviles called again and this time Mrs. Firme told him that they were
not selling the Property. Aviles informed De Castro of the refusal of the
Spouses Firme to sell the Property. However, Bukal Enterprises still
proceeded in relocating the squatters and constructing improvements on the
Property. De Castro testified:
ATTY. EJERCITO:
Q: The truth of the matter, Mr. Witness, is that the post was
constructed sometime late 1994. Is that not correct?
A:

No, sir. It is not true.

Q: When was it constructed?

A:

That March.

Q: When in March?
A:

1995.

Q: When in March 1995?

A:

From the period of March 2, 1995 or two (2) weeks after

the removal of the squatters.

Q: When were the squatters removed?

WITNESS:

390

A:

March 6 and 7 because there were four (4) squatters.

ATTY. EJERCITO:
Q: When did you find out that the Spouses Firme did not want to
sell the same?
A:

First week of March 1995.

Q: In your Complaint you said you find out on March 3, 1995. Is

that not correct?
A:

I cannot exactly remember, sir.

ATTY. MARQUEDA:
In the Complaint it does not state March 3. Maybe counsel was
thinking of this Paragraph 6 which states, When the property
was rid of the squatters on March 2, 1995 for the
documentation and payment of the sale, xxx.
ATTY. EJERCITO:
Q: So, you found out on March 2, 1995 that the defendants
were no longer interested in selling to you the
property. Is that correct?
A:

Yes, sir, because Mr. Aviles relayed it to me.

Q: Mr. Aviles relayed to you that the Spouses Firme were no

longer interested in selling to you the property in March
2, 1995. Is that correct?
A:

Yes, sir. Mr. Aviles told me.

Q: In so many words, Mr. Witness, you learned that the

Spouses Firme were no longer interested in selling the
property before you spent allegedly all the sum of money
for the relocation of squatters for all this construction
that you are telling this Court now?
WITNESS:
A:

The refusal to sell is not yet formal and the lawyer sent a
letter tendering full payment of the purchase price.

ATTY. EJERCITO:
Q: You mean to say that you did not believe Mr. Aviles when he
told you that the Spouses Firme were no longer selling the
property?

A:

No, sir.

Q: Was there anything formal when you say the Spouses

Firme agreed to sell the property?
A:

None, sir.

Q: And yet that time you believe Mr. Aviles when he verbally
told you that the Sps. Firme agreed to sell the
property? At what point of the transaction with the
Spouses Firme were you advised by your lawyer?
WITNESS:
A:

At the time when they refused to sell the lot.

ATTY. EJERCITO:
Q: Was that before the squatters were relocated allegedly by
Bukal Enterprises?
A:

Yes, sir.

Q: In fact, it was the lawyer who advised you to relocate the

squatters. Is it not true?
A:

No, sir.[59] (Emphasis supplied)

Bukal Enterprises is obviously a builder in bad faith. No deed of sale

has been executed in this case. Despite the refusal of the Spouses Firme to
sell the Property, Bukal Enterprises still proceeded to introduce
improvements on the Property. Bukal Enterprises introduced improvements
on the Property without the knowledge and consent of the Spouses
Firme. When the Spouses Firme learned about the unauthorized
constructions made by Bukal Enterprises on the Property, they advised the
latter to desist from further acts of trespass on their Property. [60]
The Civil Code provides:
Art. 449. He who builds, plants or sows in bad faith on the land of another,
loses what is built, planted or sown without right of indemnity.
Art. 450. The owner of the land on which anything has been built, planted or
sown in bad faith may demand the demolition of the work, or that the
planting or sowing be removed, in order to replace things in their former
condition at the expense of the person who built, planted or sowed; or he
may compel the builder or planter to pay the price of the land, and the owner
the proper rent.
Under these provisions the Spouses Firme have the following options: (1)
to appropriate what Bukal Enterprises has built without any obligation to

391

pay indemnity; (2) to ask Bukal Enterprises to remove what it has built; or (3)
to compel Bukal Enterprises to pay the value of the land. [61] Since the
Spouses Firme are undoubtedly not selling the Property to Bukal
Enterprises, they may exercise any of the first two options. They may
appropriate what has been built without paying indemnity or they may ask
Bukal Enterprises to remove what it has built at Bukal Enterprises own
expense.
Bukal Enterprises is not entitled to reimbursement for the expenses
incurred in relocating the squatters. Bukal Enterprises spent for the
relocation of the squatters even after learning that the Spouses Firme were
no longer interested in selling the Property. De Castro testified that even
though the Spouses Firme did not require them to remove the squatters, they
chose to spend for the relocation of the squatters since they were interested
in purchasing the Property.[62]
Whether the Spouses Firme are entitled to
compensatory and moral damages
The Court agrees with the Court of Appeals to delete the award for
compensatory and moral damages. In awarding actual damages, the trial
court took into account the traveling expenses incurred by the
Spouses Firme who are already residing in the United States. However, the
trial court failed to consider the testimony of Dr. Firme that they normally
travel to the Philippines more than once a year to visit their children. [63] Thus,
the expenses for the roundtrip tickets dated 1996-1997 could not be
attributed solely for the attendance of hearings in the case.
Nevertheless, an award of nominal damages of P30,000 is warranted
since Bukal Enterprises violated the property rights of the Spouses Firme.
[64]
The Civil Code provides:
Art. 2221. Nominal damages are adjudicated in order that a right of the
plaintiff, which has been violated or invaded by the defendant, may be
vindicated or recognized, and not for the purpose of indemnifying the plaintiff
for any loss suffered by him.
Art. 2222. The court may award nominal damages in every obligation arising
from any source enumerated in article 1157, or in every case where any
property right has been invaded.
The award of damages is also in accordance with Article 451 of the Civil
Code which states that the landowner is entitled to damages from the builder
in bad faith.[65]
WHEREFORE, we SET ASIDE the Decision of the Court of Appeals and
RENDER a new one:

1.

Declaring that there was no perfected contract of sale;

2.

Ordering Bukal Enterprises to pay the Spouses

Firme P30,000 as nominal damages.

SO ORDERED.

FIRST DIVISION
G.R. No. 176841

June 29, 2010

ANTHONY ORDUA, DENNIS ORDUA, and ANTONITA

ORDUA, Petitioners,
vs.
EDUARDO J. FUENTEBELLA, MARCOS S. CID, BENJAMIN F. CID,
BERNARD G. BANTA, and ARMANDO GABRIEL, JR., Respondents.
DECISION
VELASCO, JR., J.:
In this Petition for Review1 under Rule 45 of the Rules of Court, Anthony
Ordua, Dennis Ordua and Antonita Ordua assail and seek to set aside
the Decision2 of the Court of Appeals (CA) dated December 4, 2006 in CAG.R. CV No. 79680, as reiterated in its Resolution of March 6, 2007, which
affirmed the May 26, 2003 Decision 3 of the Regional Trial Court (RTC),
Branch 3 in Baguio City, in Civil Case No. 4984-R, a suit for annulment of
title and reconveyance commenced by herein petitioners against herein
respondents.
Central to the case is a residential lot with an area of 74 square meters
located at Fairview Subdivision, Baguio City, originally registered in the name
of Armando Gabriel, Sr. (Gabriel Sr.) under Transfer Certificate of Title (TCT)
No. 67181 of the Registry of Deeds of Baguio City. 4
As gathered from the petition, with its enclosures, and the comments thereon
of four of the five respondents,5 the Court gathers the following relevant facts:

392

Sometime in 1996 or thereabouts, Gabriel Sr. sold the subject lot to

had by then ready buyers in respondents Marcos Cid and Benjamin F. Cid

petitioner Antonita Ordua (Antonita), but no formal deed was executed to

(Marcos and Benjamin or the Cids).

document the sale. The contract price was apparently payable in

installments as Antonita remitted from time to time and Gabriel Sr. accepted

Subsequently, Bernard sold to the Cids the subject lot for PhP 80,000. Armed

partial payments. One of the Orduas would later testify that Gabriel Sr.

with a Deed of Absolute Sale of a Registered Land 14 dated January 19, 2000,

agreed to execute a final deed of sale upon full payment of the purchase

the Cids were able to cancel TCT No. T-72782 and secure TCT No.

price.

7278315 covering the subject lot. Just like in the immediately preceding
transaction, the deed of sale between Bernard and the Cids had respondent

As early as 1979, however, Antonita and her sons, Dennis and Anthony

Eduardo J. Fuentebella (Eduardo) as one of the instrumental witnesses.

Ordua, were already occupying the subject lot on the basis of some
arrangement undisclosed in the records and even constructed their house

Marcos and Benjamin, in turn, ceded the subject lot to Eduardo through a

thereon. They also paid real property taxes for the house and declared it for

Deed of Absolute Sale16 dated May 11, 2000. Thus, the consequent

tax purposes, as evidenced by Tax Declaration No. (TD) 96-04012-111087 in

cancellation of TCT No. T-72782 and issuance on May 16, 2000 of TCT No. T-

which they place the assessed value of the structure at PhP 20,090.

327617over subject lot in the name of Eduardo.

After the death of Gabriel Sr., his son and namesake, respondent Gabriel Jr.,

As successive buyers of the subject lot, Bernard, then Marcos and Benjamin,

secured TCT No. T-714998 over the subject lot and continued accepting

and finally Eduardo, checked, so each claimed, the title of their respective

payments from the petitioners. On December 12, 1996, Gabriel Jr. wrote

predecessors-in-interest with the Baguio Registry and discovered said title to

Antonita authorizing her to fence off the said lot and to construct a road in

be free and unencumbered at the time each purchased the property.

the adjacent lot. On December 13, 1996, Gabriel Jr. acknowledged receipt of

Furthermore, respondent Eduardo, before buying the property, was said to

a PhP 40,000 payment from petitioners.10 Through a letter11 dated May 1,

have inspected the same and found it unoccupied by the Orduas. 18

1997, Gabriel Jr. acknowledged that petitioner had so far made an aggregate
payment of PhP 65,000, leaving an outstanding balance of PhP 60,000. A

Sometime in May 2000, or shortly after his purchase of the subject lot,

receipt Gabriel Jr. issued dated November 24, 1997 reflected a PhP 10,000

Eduardo, through his lawyer, sent a letter addressed to the residence of

payment.

Gabriel Jr. demanding that all persons residing on or physically occupying

the subject lot vacate the premises or face the prospect of being ejected. 19

Despite all those payments made for the subject lot, Gabriel Jr. would later
sell it to Bernard Banta (Bernard) obviously without the knowledge of

Learning of Eduardos threat, petitioners went to the residence of Gabriel Jr.

petitioners, as later developments would show.

at No. 34 Dominican Hill, Baguio City. There, they met Gabriel Jr.s estranged
wife, Teresita, who informed them about her having filed an affidavit-

As narrated by the RTC, the lot conveyance from Gabriel Jr. to Bernard was

complaint against her husband and the Cids for falsification of public

effected against the following backdrop: Badly in need of money, Gabriel Jr.

documents on March 30, 2000. According to Teresita, her signature on the

borrowed from Bernard the amount of PhP 50,000, payable in two weeks at a

June 30, 1999 Gabriel Jr.Bernard deed of sale was a forgery. Teresita

fixed interest rate, with the further condition that the subject lot would

further informed the petitioners of her intent to honor the aforementioned

answer for the loan in case of default. Gabriel Jr. failed to pay the loan and

1996 verbal agreement between Gabriel Sr. and Antonita and the partial

this led to the execution of a Deed of Sale12 dated June 30, 1999 and the

payments they gave her father-in-law and her husband for the subject lot.

issuance later of TCT No. T-72782

13

for subject lot in the name of Bernard

upon cancellation of TCT No. 71499 in the name of Gabriel, Jr. As the RTC

On July 3, 2001, petitioners, joined by Teresita, filed a

decision indicated, the reluctant Bernard agreed to acquire the lot, since he

Complaint20 for Annulment of Title, Reconveyance with Damages against the

393

respondents before the RTC, docketed as Civil Case No. 4984-R, specifically

2. Under Arts. 135623 and 135824 of the Code, conveyance of real

praying that TCT No. T-3276 dated May 16, 2000 in the name of Eduardo be

property must be in the proper form, else it is unenforceable;

annulled. Corollary to this prayer, petitioners pleaded that Gabriel Jr.s title
to the lot be reinstated and that petitioners be declared as entitled to acquire

3. The verbal sale had no adequate consideration; and

ownership of the same upon payment of the remaining balance of the

purchase price therefor agreed upon by Gabriel Sr. and Antonita.

4. Petitioners right of action to assail Eduardos title prescribes in

one year from date of the issuance of such title and the one-year

While impleaded and served with summons, Gabriel Jr. opted not to submit

period has already lapsed.

an answer.
From the above decision, only petitioners appealed to the CA, their appeal
Ruling of the RTC

docketed as CA-G.R. CV No. 79680.

The CA Ruling

By Decision dated May 26, 2003, the RTC ruled for the respondents, as
defendants a quo, and against the petitioners, as plaintiffs therein, the
dispositive portion of which reads:

On December 4, 2006, the appellate court rendered the assailed Decision

affirming the RTC decision. The falloreads:

WHEREFORE, the instant complaint is hereby DISMISSED for lack of merit.

The four (4) plaintiffs are hereby ordered by this Court to pay each defendant

WHEREFORE, premises considered, the instant appeal is hereby DISMISSED

(except Armando Gabriel, Jr., Benjamin F. Cid, and Eduardo J. Fuentebella

and the 26 May 2003 Decision of the Regional Trial Court, Branch 3 of

who did not testify on these damages), Moral Damages of Twenty Thousand

Baguio City in Civil Case No. 4989-R is hereby AFFIRMED.

(P20,000.00) Pesos, so that each defendant shall receive Moral Damages of

Eighty Thousand (P80,000.00) Pesos each. Plaintiffs shall also pay all

SO ORDERED.25

defendants (except Armando Gabriel, Jr., Benjamin F. Cid, and Eduardo J.

Fuentebella who did not testify on these damages), Exemplary Damages of

Hence, the instant petition on the submission that the appellate court

Ten Thousand (P10,000.00) Pesos each so that each defendant shall receive

committed reversible error of law:

Forty Thousand (P40,000.00) Pesos as Exemplary Damages. Also, plaintiffs

are ordered to pay eachdefendant (except Armando Gabriel, Jr., Benjamin F.

1. xxx WHEN IT HELD THAT THE SALE OF THE SUBJECT LOT BY

Cid, and Eduardo J. Fuentebella who did not testify on these damages), Fifty

ARMANDO GABRIEL, SR. AND RESPONDENT ARMANDO GABRIEL,

Thousand (P50,000.00) Pesos as Attorneys Fees, jointly and solidarily.

JR. TO THE PETITIONERS IS UNENFORCEABLE.

Cost of suit against the plaintiffs.21

2. xxx IN NOT FINDING THAT THE SALE OF THE SUBJECT LOT BY

RESPONDENT ARMANDO GABRIEL, JR. TO RESPONDENT

On the main, the RTC predicated its dismissal action on the basis of the

BERNARD BANTA AND ITS SUBSEQUENT SALE BY THE LATTER

following grounds and/or premises:

TO HIS CO-RESPONDENTS ARE NULL AND VOID.

1. Eduardo was a purchaser in good faith and, hence, may avail

3. xxx IN NOT FINDING THAT THE RESPONDENTS ARE BUYERS IN

himself of the provision of Article 154422 of the Civil Code, which

BAD FAITH

provides that in case of double sale, the party in good faith who is
able to register the property has better right over the property;

394

4. xxx IN FINDING THAT THE SALE OF THE SUBJECT LOT

Given the foregoing perspective, Eduardos assertion in his Answer that

BETWEEN GABRIEL, SR. AND RESPONDENT GABRIEL, JR. AND

"persons appeared in the property"27 only after "he initiated ejectment

THE PETITIONERS HAS NO ADEQUATE CONSIDERATION.

proceedings"28 is clearly baseless. If indeed petitioners entered and took

possession of the property after he (Eduardo) instituted the ejectment suit,

5. xxx IN RULING THAT THE INSTANT ACTION HAD ALREADY

how could they explain the fact that he sent a demand letter to vacate

PRESCRIBED.

sometime in May 2000?

6. xxx IN FINDING THAT THE PLAINTIFFS-APPELLANTS ARE

With the foregoing factual antecedents, the question to be resolved is whether

LIABLE FOR MORAL AND EXEMPLARY DAMAGES AND

or not the Statute of Frauds bars the enforcement of the verbal sale contract

ATTORNEYS FEES.26

between Gabriel Sr. and Antonita.

The Courts Ruling

The CA, just as the RTC, ruled that the contract is unenforceable for noncompliance with the Statute of Frauds.

The core issues tendered in this appeal may be reduced to four and
formulated as follows, to wit: first, whether or not the sale of the subject lot

We disagree for several reasons. Foremost of these is that the Statute of

by Gabriel Sr. to Antonita is unenforceable under the Statute of

Frauds expressed in Article 1403, par. (2), 29 of the Civil Code applies only to

Frauds; second, whether or not such sale has adequate consideration; third,

executory contracts, i.e., those where no performance has yet been made.

whether the instant action has already prescribed; and,fourth, whether or not

Stated a bit differently, the legal consequence of non-compliance with the

respondents are purchasers in good faith.

Statute does not come into play where the contract in question is completed,
executed, or partially consummated.30

The petition is meritorious.

The Statute of Frauds, in context, provides that a contract for the sale of real
Statute of Frauds Inapplicable to Partially Executed Contracts

property or of an interest therein shall be unenforceable unless the sale or

some note or memorandum thereof is in writing and subscribed by the party

It is undisputed that Gabriel Sr., during his lifetime, sold the subject

or his agent. However, where the verbal contract of sale has been partially

property to Antonita, the purchase price payable on installment basis.

executed through the partial paymentsmade by one party duly received by

Gabriel Sr. appeared to have been a recipient of some partial payments. After

the vendor, as in the present case, the contract is taken out of the scope of

his death, his son duly recognized the sale by accepting payments and

the Statute.

issuing what may be considered as receipts therefor. Gabriel Jr., in a gesture

virtually acknowledging the petitioners dominion of the property, authorized

The purpose of the Statute is to prevent fraud and perjury in the

them to construct a fence around it. And no less than his wife, Teresita,

enforcement of obligations depending for their evidence on the unassisted

testified as to the fact of sale and of payments received.

memory of witnesses, by requiring certain enumerated contracts and

transactions to be evidenced by a writing signed by the party to be

Pursuant to such sale, Antonita and her two sons established their residence

charged.31 The Statute requires certain contracts to be evidenced by some

on the lot, occupying the house they earlier constructed thereon. They later

note or memorandum in order to be enforceable. The term "Statute of

declared the property for tax purposes, as evidenced by the issuance of TD

Frauds" is descriptive of statutes that require certain classes of contracts to

96-04012-111087 in their or Antonitas name, and paid the real estates due

be in writing. The Statute does not deprive the parties of the right to contract

thereon, obviously as sign that they are occupying the lot in the concept of
owners.

395

with respect to the matters therein involved, but merely regulates the

The trial courts posture, with which the CA effectively concurred, is patently

formalities of the contract necessaryto render it enforceable.32

flawed. For starters, they equated incomplete payment of the purchase price
with inadequacy of price or what passes as lesion, when both are different

Since contracts are generally obligatory in whatever form they may have been

civil law concepts with differing legal consequences, the first being a ground

entered into, provided all the essential requisites for their validity are

to rescind an otherwise valid and enforceable contract. Perceived inadequacy

present,

33

the Statute simply provides the method by which the contracts

enumerated in Art. 1403 (2) may be proved but does not declare them
invalid because they are not reduced to writing. In fine, the form required
under the Statute is for convenience or evidentiary purposes only.
There can be no serious argument about the partial execution of the sale in
question. The records show that petitioners had, on separate occasions, given
Gabriel Sr. and Gabriel Jr. sums of money as partial payments of the
purchase price. These payments were duly receipted by Gabriel Jr. To recall,
in his letter of May 1, 1997, Gabriel, Jr. acknowledged having received the
aggregate payment of PhP 65,000 from petitioners with the balance of PhP
60,000 still remaining unpaid. But on top of the partial payments thus made,
possession of the subject of the sale had been transferred to Antonita as
buyer. Owing thus to its partial execution, the subject sale is no longer
within the purview of the Statute of Frauds.

freely entered into, save perhaps when the inadequacy is shocking to the
conscience.35
The Court to be sure takes stock of the fact that the contracting parties to
the 1995 or 1996 sale agreed to a purchase price of PhP 125,000 payable on
installments. But the original lot owner, Gabriel Sr., died before full payment
can be effected. Nevertheless, petitioners continued remitting payments to
Gabriel, Jr., who sold the subject lot to Bernard on June 30, 1999. Gabriel,
Jr., as may be noted, parted with the property only for PhP 50,000. On the
other hand, Bernard sold it for PhP 80,000 to Marcos and Benjamin. From
the foregoing price figures, what is abundantly clear is that what Antonita
agreed to pay Gabriel, Sr., albeit in installment, was very much more than
what his son, for the same lot, received from his buyer and the latters buyer
later. The Court, therefore, cannot see its way clear as to how the RTC
arrived at its simplistic conclusion about the transaction between Gabriel Sr.

Lest it be overlooked, a contract that infringes the Statute of Frauds is

ratified by the acceptance of benefits under the contract.

of price, on the other hand, is not a sufficient ground for setting aside a sale

34

and Antonita being without "adequate consideration."

Evidently, Gabriel,

The Issues of Prescription and the Bona

Jr., as his father earlier, had benefited from the partial payments made by

Fides of the Respondents as Purchasers

the petitioners. Thus, neither Gabriel Jr. nor the other respondents
successive purchasers of subject lotscould plausibly set up the Statute of
Frauds to thwart petitioners efforts towards establishing their lawful right

Considering the interrelation of these two issues, we will discuss them

over the subject lot and removing any cloud in their title. As it were,

jointly.

petitioners need only to pay the outstanding balance of the purchase price
and that would complete the execution of the oral sale.

There can be no quibbling about the fraudulent nature of the conveyance of

the subject lot effected by Gabriel Jr. in favor of Bernard. It is

There was Adequate Consideration

Without directly saying so, the trial court held that the petitioners cannot
sue upon the oral sale since in its own words: "x x x for more than a decade,
[petitioners] have not paid in full Armando Gabriel, Sr. or his estate, so that
the sale transaction between Armando Gabriel Sr. and [petitioners] [has] no
adequate consideration."

understandable that after his fathers death, Gabriel Jr. inherited subject lot
and for which he was issued TCT No. No. T-71499. Since the Gabriel Sr.
Antonita sales transaction called for payment of the contract price in
installments, it is also understandable why the title to the property remained
with the Gabriels. And after the demise of his father, Gabriel Jr. received
payments from the Orduas and even authorized them to enclose the subject
lot with a fence. In sum, Gabriel Jr. knew fully well about the sale and is

396

bound by the contract as predecessor-in-interest of Gabriel Sr. over the

We are unable to agree with the RTC.

property thus sold.

It is the common defense of the respondent-purchasers that they each
Yet, the other respondents (purchasers of subject lot) still maintain that they

checked the title of the subject lot when it was his turn to acquire the same

are innocent purchasers for value whose rights are protected by law and

and found it clean, meaning without annotation of any encumbrance or

besides which prescription has set in against petitioners action for

adverse third party interest. And it is upon this postulate that each claims to

annulment of title and reconveyance.

be an innocent purchaser for value, or one who buys the property of another
without notice that some other person has a right to or interest in it, and

The RTC and necessarily the CA found the purchaser-respondents thesis on

who pays therefor a full and fair price at the time of the purchase or before

prescription correct stating in this regard that Eduardos TCT No. T-3276 was

receiving such notice.40

issued on May 16, 2000 while petitioners filed their complaint for annulment
only on July 3, 2001. To the courts below, the one-year prescriptive period to

The general rule is that one dealing with a parcel of land registered under the

assail the issuance of a certificate of title had already elapsed.

Torrens System may safely rely on the correctness of the certificate of title
issued therefor and is not obliged to go beyond the certificate. 41 Where, in
other words, the certificate of title is in the name of the seller, the innocent

We are not persuaded.

purchaser for value has the right to rely on what appears on the certificate,
The basic complaint, as couched, ultimately seeks the reconveyance of a

as he is charged with notice only of burdens or claims on the res as noted in

fraudulently registered piece of residential land. Having possession of the

the certificate. Another formulation of the rule is that (a) in the absence of

subject lot, petitioners right to the reconveyance thereof, and the annulment

anything to arouse suspicion or (b) except where the party has actual

of the covering title, has not prescribed or is not time-barred. This is so for

knowledge of facts and circumstances that would impel a reasonably

an action for annulment of title or reconveyance based on fraud is

cautious man to make such inquiry or (c) when the purchaser has knowledge

imprescriptible where the suitor is in possession of the property subject of

of a defect of title in his vendor or of sufficient facts to induce a reasonably

the acts,36 the action partaking as it does of a suit for quieting of title which

prudent man to inquire into the status of the title of the property, 42 said

is imprescriptible.37 Such is the case in this instance. Petitioners have

purchaser is without obligation to look beyond the certificate and investigate

possession of subject lots as owners having purchased the same from

the title of the seller.

Gabriel, Sr. subject only to the full payment of the agreed price.
Eduardo and, for that matter, Bernard and Marcos and Benjamin, can hardly
The prescriptive period for the reconveyance of fraudulently registered real

claim to be innocent purchasers for value or purchasers in good faith. For

property is 10 years, reckoned from the date of the issuance of the certificate

each knew or was at least expected to know that somebody else other than

of title, if the plaintiff is not in possession, but imprescriptible if he is in

Gabriel, Jr. has a right or interest over the lot. This is borne by the fact that

possession of the property.

38

Thus, one who is in actual possession of a piece

the initial seller, Gabriel Jr., was not in possession of subject property. With
respect to Marcos and Benjamin, they knew as buyers that Bernard, the

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. As

seller, was not also in possession of the same property. The same goes with

it is, petitioners action for reconveyance is imprescriptible.

Eduardo, as buyer, with respect to Marcos and Benjamin.ten.lihpwa1

This brings us to the question of whether or not the respondent-

Basic is the rule that a buyer of a piece of land which is in the actual

purchasers, i.e., Bernard, Marcos and Benjamin, and Eduardo, have the

possession of persons other than the seller must be wary and should

status of innocent purchasers for value, as was the thrust of the trial courts

investigate the rights of those in possession. Otherwise, without such

disquisition and disposition.

inquiry, the buyer can hardly be regarded as a buyer in good faith. When a

39

397

man proposes to buy or deal with realty, his duty is to read the public

WHEREFORE, the petition is hereby GRANTED. The appealed December 4,

manuscript, i.e., to look and see who is there upon it and what his rights are.

2006 Decision and the March 6, 2007 Resolution of the Court of Appeals in

A want of caution and diligence which an honest man of ordinary prudence

CA-G.R. CV No. 79680 affirming the May 26, 2003 Decision of the Regional

is accustomed to exercise in making purchases is, in contemplation of law, a

Trial Court, Branch 3 in Baguio City are hereby REVERSED and SET ASIDE.

want of good faith. The buyer who has failed to know or discover that the

Accordingly, petitioner Antonita Ordua is hereby recognized to have the

land sold to him is in adverse possession of another is a buyer in bad faith. 43

right of ownership over subject lot covered by TCT No. T-3276 of the Baguio
Registry registered in the name of Eduardo J. Fuentebella. The Register of

Where the land sold is in the possession of a person other than the vendor,

Deeds of Baguio City is hereby ORDERED to cancel said TCT No. T-3276 and

the purchaser must go beyond the certificates of title and make inquiries

to issue a new one in the name of Armando Gabriel, Jr. with the proper

concerning the rights of the actual possessor. 44 And where, as in the instant

annotation of the conditional sale of the lot covered by said title in favor of

case, Gabriel Jr. and the subsequent vendors were not in possession of the

Antonita Ordua subject to the payment of the PhP 50,000 outstanding

property, the prospective vendees are obliged to investigate the rights of the

balance. Upon full payment of the purchase price by Antonita Ordua,

one in possession. Evidently, Bernard, Marcos and Benjamin, and Eduardo

Armando Gabriel, Jr. is ORDERED to execute a Deed of Absolute Sale for the

did not investigate the rights over the subject lot of the petitioners who,

transfer of title of subject lot to the name of Antonita Ordua, within three (3)

during the period material to this case, were in actual possession thereof.

days from receipt of said payment.

Bernard, et al. are, thus, not purchasers in good faith and, as such, cannot
be accorded the protection extended by the law to such

No pronouncement as to costs.

purchasers.45 Moreover, not being purchasers in good faith, their having

registered the sale, will not, as against the petitioners, carry the day for any

SO ORDERED.

of them under Art. 1544 of the Civil Code prescribing rules on preference in
case of double sales of immovable property. Occea v. Esponilla46laid down
the following rules in the application of Art. 1544: (1) knowledge by the first
buyer of the second sale cannot defeat the first buyers rights except when
the second buyer first register in good faith the second sale; and (2)
knowledge gained by the second buyer of the first sale defeats his rights even
if he is first to register, since such knowledge taints his registration with bad
faith.
Upon the facts obtaining in this case, the act of registration by any of the
three respondent-purchasers was not coupled with good faith. At the
minimum, each was aware or is at least presumed to be aware of facts which
should put him upon such inquiry and investigation as might be necessary
to acquaint him with the defects in the title of his vendor.

G.R. No. L-65510 March 9, 1987

TEJA MARKETING AND/OR ANGEL JAUCIAN, petitioner,
vs.
HONORABLE INTERMEDIATE APPELLATE COURT * AND PEDRO N.
NALE, respondents.
Cirilo A. Diaz, Jr. for petitioner.
Henry V. Briguera for private respondent.

The award by the lower courts of damages and attorneys fees to some of the
herein respondents was predicated on the filing by the original plaintiffs of
what the RTC characterized as an unwarranted suit. The basis of the award,
needless to stress, no longer obtains and, hence, the same is set aside.

PARAS, J.:

398

"'Ex pacto illicito' non oritur actio" (No action arises out of illicit bargain) is

Marketing and Angel Jaucian are one and the same, because

the time-honored maxim that must be applied to the parties in the case at

it was made to appear that way only as the defendant had no

bar. Having entered into an illegal contract, neither can seek relief from the

franchise of his own and he attached the unit to the

courts, and each must bear the consequences of his acts." (Lita Enterprises

plaintiff's MCH Line. The agreement also of the parties here

vs. IAC, 129 SCRA 81.)

was for the plaintiff to undertake the yearly registration of

the motorcycle with the Land Transportation Commission.

The factual background of this case is undisputed. The same is narrated by

Pursuant to this agreement the defendant on February 22,

the respondent court in its now assailed decision, as follows:

1976 gave the plaintiff P90.00, the P8.00 would be for the
mortgage fee and the P82.00 for the registration fee of the

On May 9, 1975, the defendant bought from the plaintiff a

motorcycle. The plaintiff, however failed to register the

motorcycle with complete accessories and a sidecar in the

motorcycle on that year on the ground that the defendant

total consideration of P8,000.00 as shown by Invoice No. 144

failed to comply with some requirements such as the

(Exh. "A"). Out of the total purchase price the defendant gave

payment of the insurance premiums and the bringing of the

a downpayment of P1,700.00 with a promise that he would

motorcycle to the LTC for stenciling, the plaintiff saying that

pay plaintiff the balance within sixty days. The defendant,

the defendant was hiding the motorcycle from him. Lastly,

however, failed to comply with his promise and so upon his

the plaintiff explained also that though the ownership of the

own request, the period of paying the balance was extended

motorcycle was already transferred to the defendant the

to one year in monthly installments until January 1976

vehicle was still mortgaged with the consent of the defendant

when he stopped paying anymore. The plaintiff made

to the Rural Bank of Camaligan for the reason that all

demands but just the same the defendant failed to comply

motorcycle purchased from the plaintiff on credit was

with the same thus forcing the plaintiff to consult a lawyer

rediscounted with the bank.

and file this action for his damage in the amount of P546.21
for attorney's fees and P100.00 for expenses of litigation. The

On his part the defendant did not dispute the sale and the

plaintiff also claims that as of February 20, 1978, the total

outstanding balance of P1,700. 00 still payable to the

account of the defendant was already P2,731.06 as shown in

plaintiff. The defendant was persuaded to buy from the

a statement of account (Exhibit. "B"). This amount includes

plaintiff the motorcycle with the side car because of the

not only the balance of P1,700.00 but an additional 12%

condition that the plaintiff would be the one to register every

interest per annum on the said balance from January 26,

year the motorcycle with the Land Transportation

1976 to February 27, 1978; a 2% service charge; and P

Commission. In 1976, however, the plaintfff failed to register

546.21 representing attorney's fees.

both the chattel mortgage and the motorcycle with the LTC
notwithstanding the fact that the defendant gave him P90.00

In this particular transaction a chattel mortgage (Exhibit 1)

for mortgage fee and registration fee and had the motorcycle

was constituted as a security for the payment of the balance

insured with La Perla Compana de Seguros (Exhibit "6") as

of the purchase price. It has been the practice of financing

shown also by the Certificate of cover (Exhibit "3"). Because

firms that whenever there is a balance of the purchase price

of this failure of the plaintiff to comply with his obligation to

the registration papers of the motor vehicle subject of the

register the motorcycle the defendant suffered damages when

sale are not given to the buyer. The records of the LTC show

he failed to claim any insurance indemnity which would

that the motorcycle sold to the defendant was first mortgaged

amount to no less than P15,000.00 for the more than two

to the Teja Marketing by Angel Jaucian though the Teja

times that the motorcycle figured in accidents aside from the

399

loss of the daily income of P15.00 as boundary fee beginning

Eventually, petitioner Teja Marketing and/or Angel Jaucian filed an action for

October 1976 when the motorcycle was impounded by the

"Sum of Money with Damages" against private respondent Pedro N. Nale in

LTC for not being registered.

the City Court of Naga City. The City Court rendered judgment in favor of
petitioner, the dispositive portion of which reads:

The defendant disputed the claim of the plaintiff that he was

hiding from the plaintiff the motorcycle resulting in its not

WHEREFORE, decision is hereby rendered dismissing the

being registered. The truth being that the motorcycle was

counterclaim and ordering the defendant to pay plaintiff the

being used for transporting passengers and it kept on

sum of P1,700.00 representing the unpaid balance of the

travelling from one place to another. The motor vehicle sold

purchase price with legal rate of interest from the date of the

to him was mortgaged by the plaintiff with the Rural Bank of

filing of the complaint until the same is fully paid; to pay

Camaligan without his consent and knowledge and the

plaintiff the sum of P546.21 as attorney's fees; to pay

defendant was not even given a copy of the mortgage deed.

plaintiff the sum of P200.00 as expenses of litigation; and to

The defendant claims that it is not true that the motorcycle

pay the costs.

was mortgaged because of re-discounting for rediscounting is

only true with Rural Banks and the Central Bank. The

SO ORDERED.

defendant puts the blame on the plaintiff for not registering

the motorcycle with the LTC and for not giving him the

On appeal to the Court of First Instance of Camarines Sur, the decision was

registration papers inspite of demands made. Finally, the

affirmed in toto. Private respondent filed a petition for review with the

evidence of the defendant shows that because of the filing of

Intermediate Appellate Court and on July 18, 1983 the said Court

this case he was forced to retain the services of a lawyer for a

promulgated its decision, the pertinent portion of which reads

fee on not less than P1,000.00.

However, as the purchase of the motorcycle for operation as a
xxx xxx xxx

trimobile under the franchise of the private respondent

Jaucian, pursuant to what is commonly known as the "kabit

... it also appears and the Court so finds that defendant

system", without the prior approval of the Board of

purchased the motorcycle in question, particularly for the

Transportation (formerly the Public Service Commission) was

purpose of engaging and using the same in the

an illegal transaction involving the fictitious registration of

transportation business and for this purpose said trimobile

the motor vehicle in the name of the private respondent so

unit was attached to the plaintiffs transportation line who had

that he may traffic with the privileges of his franchise, or

the franchise, so much so that in the registration certificate,

certificate of public convenience, to operate a tricycle service,

the plaintiff appears to be the owner of the unit.Furthermore,

the parties being in pari delicto, neither of them may bring

it appears to have been agreed, further between the plaintiff

an action against the other to enforce their illegal contract

and the defendant, that plaintiff would undertake the yearly

[Art. 1412 (a), Civil Code].

registration of the unit in question with the LTC. Thus, for

the registration of the unit for the year 1976, per agreement,

xxx xxx xxx

the defendant gave to the plaintiff the amount of P82.00 for

its registration, as well as the insurance coverage of the unit.

WHEREFORE, the decision under review is hereby set aside.

The complaint of respondent Teja Marketing and/or Angel
Jaucian, as well as the counterclaim of petitioner Pedro Nale

400

in Civil Case No. 1153 of the Court of First Instance of

The defect of in existence of a contract is permanent and cannot be cured by

Camarines Sur (formerly Civil Case No. 5856 of the City

ratification or by prescription. The mere lapse of time cannot give efficacy to

Court of Naga City) are dismissed. No pronouncement as to

contracts that are null and void.

costs.
WHEREFORE, the petition is hereby dismissed for lack of merit. The assailed
SO ORDERED.

decision of the Intermediate Appellate Court (now the Court of Appeals) is

AFFIRMED. No costs.

The decision is now before Us on a petition for review, petitioner Teja

Marketing and/or Angel Jaucian presenting a lone assignment of error

SO ORDERED.

whether or not respondent court erred in applying the doctrine of "pari

delicto."
We find the petition devoid of merit.

G.R. No. 163271

Unquestionably, the parties herein operated under an arrangement,

SPOUSES PATRICIO and MYRNA BERNALES, Petitioners,

commonly known as the "kabit system" whereby a person who has been

vs.

granted a certificate of public convenience allows another person who owns

HEIRS OF JULIAN SAMBAAN, namely: EMMA S. FELICILDA, ANITA S.

motor vehicles to operate under such franchise for a fee. A certificate of

public convenience is a special privilege conferred by the government. Abuse
of this privilege by the grantees thereof cannot be countenanced. The "kabit
system" has been Identified as one of the root causes of the prevalence of

SAMBAAN, VIOLETA S. DADSANAN, ABSALON S. SAMBAAN, AGUSTINE

S. SAMBAAN, EDITHA S. MANGUIRAN, GRACE S. NITCHA, CLODUALDO
S. SAMBAAN, GINA S. SAMBAAN and FE S. YAP, Respondents.

graft and corruption in the government transportation offices.

Although not outrightly penalized as a criminal offense, the kabit system is
invariably recognized as being contrary to public policy and, therefore, void
and in existent under Article 1409 of the Civil Code. It is a fundamental
principle that the court will not aid either party to enforce an illegal contract,
but will leave both where it finds then. Upon this premise it would be error to
accord the parties relief from their predicament. Article 1412 of the Civil
Code denies them such aid. It provides:
Art. 1412. If the act in which the unlawful or forbidden
cause consists does not constitute a criminal offense, the
following rules shall be observed:
1. When the fault is on the part of both contracting parties,
neither may recover that he has given by virtue of the
contract, or demand, the performance of the other's
undertaking.

January 15, 2010

DECISION
DEL CASTILLO, J.:
A legal tussle among children is a nightmare for their parents. Sometimes,
this happens when pecuniary interests takes precedence over family
relationship. In the instant case, we are at the forefront of a family squabble
over a disputed land situated in Cagayan de Oro City which was purportedly
conveyed to the eldest child through a Deed of Absolute Sale. 1
Branch 18 of the Regional Trial Court (RTC) of Misamis Oriental 2 rendered
judgment in favor of the herein respondents, which was affirmed in toto by
the Court of Appeals3 (CA). Alleging that the CA Decision4 is not in
accordance with law and jurisprudence, as well as the evidence on record,
petitioners now come to us via the instant Petition for Review on Certiorari.5
Factual Antecedents

401

Julian Sambaan (Julian), married to Guillerma Saarenas-Sambaan

Writ of Preliminary Injunction7 against herein petitioners. They alleged that

(Guillerma), was the registered owner of a property located at Bulua, Cagayan

in spite of the forged signature of their parents, the petitioners were able to

de Oro City. The lot was covered by Transfer Certificate of Title (TCT) No. T-

register the Deed of Absolute Sale with the Registry of Deeds of Cagayan de

142026 issued on March 8, 1972, and more particularly described as follows:

Oro City and secure TCT No. T-142048 on March 8, 1972. They prayed for an
injunctive relief in order to prevent the petitioners from selling, disposing, or

A parcel of land (Lot No. 5947-A of the Subdivision Plan (LRC) Psd-138019,

mortgaging said property. They further prayed that (i) the Deed of Absolute

being a portion of Lot No. 5947, Cagayan Cadastre, LRC Cad. Rec. No. 1572)

Sale and TCT No. T-14204 be annulled; (ii) they be declared the absolute

situated in the Barrio of Bulua, City of Cagayan de Oro, Island of Mindanao x

owners of the property; (iii) all documents executed, made and entered into

x x containing an area of THREE THOUSAND SIX HUNDRED FORTY THREE

relative to the said title be declared void; and, (iv) the petitioners be ordered

(3,643) SQUARE METERS, more or less.

to pay them P300,000.00 as moral and exemplary damages, and P50,000.00

as attorneys fees plus P1,000.00 as appearance fee.

The respondents herein and the petitioner Myrna Bernales (Myrna) are the
children of Julian and Guillerma. Myrna, who is the eldest of the siblings, is

On May 6, 1992, petitioners filed their Answer, 9 alleging that the subject

the present owner and possessor of the property in question.

property (Lot No. 5947-A) used to be a portion of Lot No. 5947, which was
originally owned by Clodualdo Sambaan (Clodualdo) and Gliceria Dacer

Sometime in 1975, Julian was ambushed at Merayon, Talakad, Bukidnon,

(Gliceria). Lot No. 5947 is more particularly described as follows:

and was hospitalized due to a gunshot wound. On April 11, 1975, Julian
allegedly requested his children to gather so that he could make his last two

A parcel of land (Lot No. 5947 of the Cadastral Survey of Cagayan) situated at

wishes. Julians first wish was for the children to redeem the subject property

Bulua, Cagayan de Oro City. Bounded on the NE., by Lot No. 5984 and 5948;

which was mortgaged to Myrna and her husband Patricio Bernales (Patricio),

E., by Lot Nos. 5948 and 5946, SW., by Lot No. 5946; and on the NW., by Lot

while his second wish was for his remains not to be brought to the house of

No. 5984, containing an area of 7,286 square meters, more or less, under Tax

Myrna at Nazareth, Cagayan de Oro City. Thus, in 1982, respondent Absalon

Declaration No. 21421 and covered by Original Certificate of Title No. 7921

Sambaan (Absalon), one of Julians children, offered to redeem the property

issued on September 23, 1940.

but the petitioners refused because they were allegedly using the property as
tethering place for their cattle.

After the death of Clodualdo and Gliceria in 1949, their heirs, namely, Alicia
Lago, wife of Pedro Gacusan; Bernardo Lago (single); Gloria Lago, wife of

In January 1991, respondents received information that the property covered

Jimmy Angco; Dionesia Lago, married to Paulino Unat; Prysbetero Sambaan,

by TCT No. T-14202 was already transferred to petitioners name.

married to Rosario Zaragosa; Juanito Sambaan, married to Renerio Galos;

Whereupon, they secured a copy of the Deed of Absolute Sale dated

Leo Sambaan, married to Adeloisa Tambulian; Renato Sambaan, married to

December 7, 1970 which bore the signatures of their parents and had it

Adelina Ablon; Aida Sambaan (single); Julian Sambaan, married to

examined by the National Bureau of Investigation (NBI). The result of the

Guillerma Saarenas; Paz Sambaan, wife of Rufinito Lago; and, Bernie

examination revealed that the signatures of their parents, Julian and

Sambaan, married to Alicia Sabuero, executed an Extra Judicial Settlement

Guillerma, were forged.

and Sale10 dated April 10, 1970 involving the abovementioned land covered
by Original Certificate of Title (OCT) No. 7921.

Proceedings before the Regional Trial Court

It appears, however, that Juanito, Aida and Renato sold their share to a
Thus, on April 13, 1993, the respondents, together with their mother

certain Domingo Ebarrat (Ebarrat). Hence, a portion of the property belonged

Guillerma, filed a Complaint for Annulment of Deed of Absolute Sale and

to Julian while another portion belonged to Ebarrat. In view of the co-

Cancellation of Transfer Certificate of Title No. T-14204 with Damages and

ownership between Ebarrat and Julian, the former and the latter executed a

402

Deed of Partition11 dated September 8, 1970 whereby Lot No. 5947 was

After trial on the merits, the trial court rendered its Decision 16 dated August

divided. The eastern half with an area of 3,643 square meters was assigned

2, 2001 ruling in favor of the respondents, the dispositive portion of which

to Julian, while the western half with the same area went to Ebarrat.

reads:

Petitioners claimed that Julian subsequently sold his share to them by virtue

WHEREFORE, in view of the foregoing, the plaintiffs were able to establish a

of a Deed of Absolute Sale

12

dated December 7, 1970. The said property is

strong preponderance of evidence in their favor. Accordingly, Transfer

Certificate of Title No. T-14204 is hereby declared NULL AND VOID, and is

described as follows:

hereby CANCELLED. Let another title be issued in the name of the late
Julian Sambaan. The defendants are jointly and severally directed to pay the

A Parcel of land (Lot No. 5947-A, being a portion of Lot No. 5947, Cadastral

plaintiffs the sum of P20,000.00 as moral damages, P20,000.00 as attorneys

Survey of Cagayan) situated at Bulua, Cagayan de Oro City. Bounded on the

fees andP1,671.00 representing actual expenses.17

North by Lot Nos. 5947-B and 5948, Cad. 237; South by Lot Nos. 5946, Cad237; East by Lot Nos. 5948 and 5946, Cad. 237; and West by Lot No. 5947-B,

Proceedings before the Court of Appeals

containing an area of 3643 square meters, more or less, covered by OCT No.
7921 (now TCT No. T-14202) of the Registry of Deeds of Cagayan de Oro City.

Petitioners, alleging among others that the trial court erred in finding that
the signature of Julian on the assailed document was a forgery, went to the

Thereafter, on December 10, 1970, Ebarrat and Patricio executed an

CA by way of ordinary appeal. On August 20, 2003, the CA rendered a

Agreement13 wherein Ebarrat acknowledged that petitioners are the owners of

Decision affirming the findings of the trial court, the dispositive portion of

the 18 coconut trees planted in Ebarrats property and even made Julian as

which reads:

a witness to the said Agreement.

WHEREFORE, premises considered, the appealed Decision dated August 2,
In addition, petitioners alleged that the imputation of falsification of the

2001 of the Regional Trial Court of Cagayan de Oro City, Branch 18, in Civil

signatures of Julian and Guillerma is a product of respondents inflamed

Case no. 92-179 is hereby AFFIRMED in toto. Costs against appellants. 18

imagination because the latter envy them for they have been successful in
managing their properties. Petitioners thus prayed that judgment be

Petitioners filed a Motion for Reconsideration19 which was denied by the CA in

rendered dismissing the complaint; affirming their title over the controverted

its Resolution20 dated March 17, 2004.

property and ordering respondents to pay them P500,000.00 as moral

damages;P300,000.00 as exemplary damages; P50,000.00 as attorneys fees

Issues

and costs of litigation.

On July 27, 1992, petitioners filed a Motion for Production and Inspection of
Document14 to compel respondents to produce and permit them to inspect
and to copy or photograph the Deed of Absolute Sale subject matter of said
examination. Thereafter, the trial court issued an Order 15 dated August 14,
1992 granting the motion and directing the Regional Office of the NBI to
bring the document to court so that the same may be properly examined.
On August 11, 1992, Guillerma died in Cagayan de Oro City and was
accordingly dropped as co-plaintiff.

In this Petition for Review on Certiorari, petitioners assail the Decision of the
CA on the following grounds:
A. THE COURT OF APPEALS ERRED WHEN IT RULED THAT
PRESCRIPTION DID NOT BAR RESPONDENTS ACTION TO
RECOVER OWNERSHIP OF THE SUBJECT PROPERTY.
B. THE COURT OF APPEALS ERRED WHEN IT DISREGARDED
SETTLED PRINCIPLES ON THE ADMISSIBILITY AND APPRECIATION
OF OPINIONS OF EXPERT WITNESSES IN ITS BLANKET

403

ACCEPTANCE OF THE INADEQUATE TESTIMONY OF THE

In Manila Bay Club Corporation v. Court of Appeals,21 we held that for a

DOCUMENT EXAMINER WHO WAS COMMISSIONED BY

question to be one of law, it must involve no examination of the probative

RESPONDENTS PRIOR TO THE COMMENCEMENT OF CIVIL CASE

value of the evidence presented by the litigants or any of them. There is a

NO. 92-179.

question of law when the doubt or difference arises as to what the law is
pertaining to a certain state of facts. On the other hand, there is a question

C. THE COURT OF APPEALS ERRED WHEN IT DISREGARDED THE

of fact when the doubt arises as to the truth or the falsity of alleged facts. 22

RULES OF EVIDENCE IN ARRIVING AT THE CONCLUSION THAT

THE DEED OF ABSOLUTE SALE WAS A FORGED DOCUMENT ON

In the case at bench, the issues raised by the petitioners are essentially

THE BASIS OF SPECIMEN SIGNATURES THE GENUINENESS OF

factual matters, the determination of which are best left to the courts below.

WHICH WERE NEVER ESTABLISHED.

Well-settled is the rule that the Supreme Court is not a trier of facts. Factual
findings of the lower courts are entitled to great weight and respect on

D. THE COURT OF APPEALS ERRED WHEN IT DISREGARDED

appeal, and in fact accorded finality when supported by substantial evidence

LEGAL PRINCIPLES ON HANDWRITING COMPARISON IN USING

on the record.23 Substantial evidence is more than a mere scintilla of

SPECIMEN SIGNATURES OF GUILLERMA SAMBAAN THAT WERE

evidence. It is that amount of relevant evidence that a reasonable mind might

MADE AT THE TIME AND FOR THE SPECIFIC PURPOSE OF THE

accept as adequate to support a conclusion,24even if other minds, equally

HANDWRITING ANALYSIS OF THE DEED OF ABSOLUTE SALE.

reasonable, might conceivably opine otherwise.25 But to erase any doubt on

the correctness of the assailed ruling, we have carefully perused the records

E. THE COURT OF APPEALS ERRED WHEN IT DISREGARDED

and, nonetheless, arrived at the same conclusion. We find that there is

JURISPRUDENCE ON THE PROOF REQUIRED TO ESTABLISH

substantial evidence on record to support the Court of Appeals and trial

FORGERY IN ARRIVING AT THE CONCLUSION THAT THE

courts conclusion that the signatures of Julian and Guillerma in the Deed of

SIGNATURE OF JULIAN SAMBAAN ON THE DEED OF ABSOLUTE

Absolute Sale were forged.

SALE WAS FORGED BECAUSE IT BELIEVED THAT GUILLERMA

SAMBAANS SIGNATURE WAS ALSO FORGED.

The examination conducted by the NBI disclosed that Julian and Guillermas
signatures were forged.

F. THE COURT OF APPEALS CONTRAVENED THE LEGAL RULES

GOVERNING THE APPRECIATION OF DOCUMENTS IN RULING

We find that both the trial court and the Court of Appeals correctly gave

AGAINST THE VALIDITY OF JULIAN SAMBAANS SALE OF THE

probative value to the testimony of the NBI Senior Document Examiner

SUBJECT PROPERTY TO PETITIONERS DESPITE THE EXISTENCE

Caroline Moldez Pitoy, who categorically testified that the signatures of Julian

OF THE AGREEMENT DATED 10 DECEMBER 1970 CONFIRMING

and Guillerma in the Deed of Absolute Sale were forged, viz:26

THE SALE.
Atty. Dalisay: As Senior Document Examiner of the National Bureau of
G. THE COURT OF APPEALS ERRED IN AFFIRMING THE TRIAL

Investigation, do [sic] you have [the] occasion of examining [sic] the

COURTS AWARD OF DAMAGES IN FAVOR OF RESPONDENTS AND

signatures of Julian Sambaan and Guillerma Saarenas by virtue of the case

IN DISMISSING PETITIONERS COUNTERCLAIMS FOR DAMAGES.

of the Regional Director, Regional Office of the National Bureau of

Investigation, Cagayan de Oro City?

Our Ruling
A: Yes sir.
The core issue to be resolved in the present controversy is the authenticity of
the Deed of Absolute Sale which is a question of fact rather than of law.

xxxx

404

Q: What was the result of the findings on the signatures of Julian Sambaan

as the writing style in capital G."28 What is more, Emma S. Felicilda, the

and Guillerma Saarenas Sambaan appearing on the Deed of Sale dated

daughter of then deceased Guillerma, likewise testified that "in fact my

December 12, 1990.

mother was the one who filed the complaint in this instant case because
according to her, she did not sign the said document". 29

A: After [conducting] comparative examinations x x x on the standard

specimen signatures of Julian Sambaan [and Guillerma Sambaan] as well as

The fact that the examination was commissioned by the respondents did not

the x x x questioned x x x signatures x x x we found out that [they were] not

make said examination null and void.

written by one and the same person.27

It is of no moment that the examination of the Deed of Absolute Sale was
xxxx

commissioned by the respondents. In the end, it is the court which has the
discretion and authority on whether to give probative value to the results of

Q: What was the procedure which you have taken x x x in examining the

the examination. As held in Sali v. Abubakar, 30 the fact that the NBI

authenticity of the signatures of Guillerma Saarenas Sambaan?

conducted the examination of certain contested documents upon the request

of a private litigant does not necessarily nullify the examination thus made:

A: Per Standard Operating Procedures, the first thing we did upon receipt of
the documents submitted to us is to check x x x the documents attached to

x x x Its purpose is, presumably, to assist the court having jurisdiction over

the basic letter-request and then the questioned and standard documents

said litigations, in the performance of its duty to settle correctly the issue

were classified as to the sufficiency and appropriateness of the standards,

relative to said documents. Even a non-expert private individual may

and then these were evaluated, after which, they were marked accordingly,

examine the same, if there are facts within his knowledge which may help the

then we go to examining all the standard/specimens first, to determine

courts in the determination of said issue. Such examination, which may

whether the handwriting is done by one and the same person before

properly be undertaken by a non-expert private individual, does not,

comparing with the questioned and standard signatures. x x x After they

certainly, become null and void when the examiner is an expert and/or an

were found to be written by one and the same person, before comparing with

officer of the NBI.

the questioned documents, the handwriting characteristics were properly

observed in these two (2) sheets of photographs, then, the final evaluation is

Indeed, any person, expert or not, either in his private or in his official

made, after which, a written report is made as a result of the examination,

capacity, may testify in court on matters, within his personal knowledge,

then the same is forwarded to the Document Examiner for re-examination

which are relevant to a suit, subject to the judicial authority to determine the

and this Examiner affixes his signature and submits the same to the Chief of

credibility of said testimony and the weight thereof. [On] the other hand, the

the Division for approval and the said report passes to the office of the

question whether a public official may or shall be ordered or permitted by his

Regional Director for final approval.

superior to examine documents and testify thereon in a given case, is one

mainly administrative in character, which is within the competence of said

Petitioners failed to present any evidence to rebut the findings of the NBI

superior officer, or the Bureau Director or Head of the Office, or the

handwriting expert.

corresponding department head to decide, and is independent of the validity

of the examination thus made or of the credence and weight to be given by

Moreover, the findings of the NBI document examiner were corroborated by

the Court to the conclusions reached, in consequence of said examination,

the trial courts own observation, as affirmed by the CA, that "even a cursory

by the official who made it.

examination of Guillermas questioned signature from her specimen

signatures in the enlarged photographs (Exhibits F and F-1) would show

The procedures taken by the NBI document examiner did not violate Section

that it needs no expert witness to notice the wide difference in stroke, as well

22, Rule 132 of the Rules of Court.

405

We are not swayed by petitioners allegation that the comparisons made by

the assailed deed and her purported signature merely appears next to the

the document examiner, the CA and the trial court, of Guillermas signature

supposed signature of Julian. This only confirms that the person who

in the Deed of Absolute Sale and her specimen signatures, violated Section

prepared the deed knew that her signature was unnecessary for the assailed

22, Rule 13231 of the Rules of Court on the authentication of private

document.

documents. It should be borne in mind that in this case respondents were

not presenting evidence to authenticate a private document. On the contrary,

The trial court and the CA further concluded:

they are challenging the signatures appearing in the Deed of Absolute Sale.
x x x If such was the case, we are in a query why the signature of
The confluence of the following circumstances prove by preponderance of

GUILLERMA must have to be forged when her consent, as spouse of JULIAN,

evidence that the Deed of Absolute Sale was forged.

is not necessary to the execution of the Deed of Absolute Sale? The answer to
this is simple: JULIAN never executed the assailed Deed of Absolute Sale in

Records show that Julian was unaware of any absolute conveyance of his

favor of MYRNA and such deed conveys no ownership in favor of the

rights over the subject property in favor of petitioners. As found by the trial

appellants.38

court and affirmed by the CA, Julian even requested his children to redeem
subject property from the petitioners. In furtherance of his fathers request,

Conclusions and findings of fact by the trial court are entitled to great weight

Absalon offered to redeem the subject property from the petitioners in 1982,

on appeal and should not be disturbed unless for strong and cogent reasons

however, the latter refused because they were allegedly using the same as

because the trial court is in a better position to examine real evidence, as

tethering place for their cattle.

well as to observe the demeanor of the witnesses while testifying in the

32

case.39 The fact that the CA adopted the findings of fact of the trial court
The caretaker of the subject property, Eufronio Abrea, also testified on cross-

makes the same binding upon this court.40 In Philippine Airlines, Inc. v.

examination that there were times when the brothers and sisters of Myrna

Court of Appeals,

went to the land and asked for coconuts.

33

Petitioners take this to imply that

the respondents "never owned the subject property because they had to ask
for coconuts from petitioners, who were the real owners of the property."

34

We

41

we held that factual findings of the CA which are

supported by substantial evidence are binding, final and conclusive upon the
Supreme Court. A departure from this rule may be warranted where the
findings of fact of the CA are contrary to the findings and conclusions of the

disagree with this interpretation. Harvesting of coconuts requires specialized

trial court,42 or when the same is unsupported by the evidence on

skills; an ordinary person who does not know how to climb necessarily has to

record.43 There is no ground to apply the exception in the instant case,

ask the caretaker to get the coconuts for him or her.

however, because the findings and conclusions of the CA are in full accord
with those of the trial court.

In addition, Myrna admitted that she was not present when her parents
signed the assailed Deed of Absolute Sale.35 Neither was she cognizant of who
the witnesses were to the said deed.

36

The forged Deed of Absolute Sale is null and conveys no title.

Interestingly, Guillerma, one of the

alleged signatories, would have been privy to the transaction that involved

Having affirmed the findings of fact of both the CA and the trial court that

her husband. Yet, she joined herein respondents in filing an action for the

the signatures of Julian and Guillerma are forgeries, we now come to the

Annulment of the Deed of Absolute Sale on the ground of forgery.

question of the validity of the transfer of title to the petitioners.

Lastly, the trial court and the CA were one in proclaiming that considering

In Sps. Solivel v. Judge Francisco, 44 we held that:

that the subject property belongs to Julians capital, the execution of the
assailed Deed of Absolute Sale could be validly made by Julian even without
his wifes signature.

37

As a matter of fact, the wifes name was not typed in

x x x in order that the holder of a certificate for value issued by virtue of the
registration of a voluntary instrument may be considered a holder in good

406

faith for value, the instrument registered should not be forged. When the

therefore be inferred that the subsequent issuance of Transfer Certificate of

instrument presented is forged, even if accompanied by the owners duplicate

Title No. T-14204 has no basis at all since ownership was not conveyed to

certificate of title, the registered owner does not thereby lose his title, and

appellants by reason of the forged Deed.1avvphi1

neither does the assignee in the forged deed acquire any right or title to the
property.

In addition, as to the issue that the Agreement dated December 10, 1970
(Record p. 375, Exhibit "4") executed between DOMINGO and PATRICIO were

x x x The innocent purchaser for value protected by law is one who purchases

excluded, we believe there is no need to delve on the said Agreement since

a titled land by virtue of a deed executed by the registered owner himself, not

the same will not in any way give justification to the forgery committed in the

by a forged deed, as the law expressly states. x x x

Deed of Absolute Sale. As explained by the court a quo, to which we concur,

appellees should not be faulted because they are not lawyers, and as such

In Instrade, Inc. v. Court of Appeals,

45

we reiterated the said ruling

maintaining that "[A]s early as Joaquin v. Madrid, x x x, we said that in order

they may not be able to appreciate the legal logic between Exhibits "3" and
"4".46

that the holder of a certificate for value issued by virtue of the registration of
a voluntary instrument may be considered a holder in good faith and for

Prescription did not bar respondents action to recover ownership of the

value, the instrument registered should not be forged". Indubitably, therefore,

subject property.

the questioned Deed of Absolute Sale did not convey any title to herein
petitioners. Consequently, they cannot take refuge in the protection accorded

Citing Article 145447 of the Civil Code, petitioners assert that since the

by the Torrens system on titled lands.

respondents admit that there was a mortgage transaction between Julian

and herein petitioners involving the subject property there is no dispute that

Thus, we hold that with the presentation of the forged deed, even if

an implied trust was created by operation of law. In which case, respondents

accompanied by the owners duplicate certificate of title, the registered owner

right to reconveyance had already prescribed when they filed the annulment

did not thereby lose his title, and neither does the assignee in the forged deed

case on April 3, 1992, or more than 10 years after petitioners repudiated

acquire any right or title to the said property. The CA has aptly arrived at the

such implied trust.

same conclusion in its August 20, 2003 Decision affirming in toto the August
2, 2001 Decision of the RTC of Cagayan de Oro City ratiocinating that:

On the other hand, respondents assert that the element of consent is totally
wanting in the assailed Deed of Absolute Sale because the signatures of

It is significant to stress that the main thrust in the case at bench is the

Julian and Guillerma, which is equivalent to their consent, were forged by

regularity and validity of the assailed Deed of Absolute Sale dated December

the petitioners.48 They maintain that the absence of consent made the said

7, 1970 (Record p. 374, Exhibit "3") allegedly executed by JULIAN in favor of

document null and void.49 Hence, this case falls under the purview of Article

the appellants. As such, we must not confuse the issue at hand by averring

1410 of the Civil Code which provides that an action to declare the

that other documents should be considered in determining the validity of the

inexistence of void contracts does not prescribe.50

deed of absolute sale. The reason is simple: the valid execution of the Deed of
Absolute Sale will convey and transfer ownership in favor of appellants title

We agree with the respondents. The supposed vendor's signature having been

based on the rule that by the contract of sale one of the contracting parties

proved to be a forgery, the instrument is totally void or inexistent as

obligates himself to transfer ownership of and to deliver a determinate thing,

"absolutely simulated or fictitious" under Article 1409 of the Civil

and the other to pay therefor a sum certain in money or its equivalent

Code.51According to Article 1410, "the action or defense for the declaration of

(Coronel vs. Court of Appeals, 263 SCRA 15). The fact that the assailed Deed

the inexistence of a contract does not prescribe". The inexistence of a

was not signed by JULIAN and the signatures of JULIAN and GUILLERMA

contract is permanent and incurable which cannot be cured either by

were forged per findings of the NBI Senior Document Examiner, it can

ratification or by prescription.52

407

The award of moral damages and attorneys fees is proper.

REPUBLIC OF THE PHILIPPINES, petitioner,

vs.

On this aspect, we must consider the blood relations among the parties. One
of the respondents, Emma S. Felicilda, testified on cross examination that
they had high regard for Myrna, their eldest sister. 53 The same was echoed by

GREGORIO AGUNOY, SR., et al., SPOUSES EDUARDO and ARCELITA

MARQUEZ and RURAL BANK OF GAPAN, NUEVA ECIJA, respondents.

respondent Anita Sambaan on cross examination. 54 They could not believe

DECISION

that Myrna would keep and appropriate the land for herself and transfer the
title exclusively to her name.55 On direct examination, respondent Emma S.
Felicilda likewise testified that the forgery caused them anger and bad
emotions.56

GARCIA, J.:
Interplaying in this case are two (2) counter-balancing doctrines in the law of

Moreover, it was Julians dying wish for the property to be redeemed from the
petitioners.57 Hence, it is not unexpected that the sentimental significance of
the property and the anger and emotions caused by the unlawful transfer of
the same have moved the respondents to recover the same through the
instant action. We therefore hold that the award of P20,000.00 as moral
damages is proper.

land titles: one, the doctrine of fraus et jus nunquam cohabitant, which
basically means that no one may enjoy the fruits of fraud, 1 and the other, the
doctrine that a fraudulent title may be the root of valid title in the name of an
innocent buyer for value and in good faith.2
Invoking the first, petitioner Republic of the Philippines in this petition for
review on certiorari under Rule 45 of the Rules of Court, seeks to nullify and

In addition, in view of the complexity of the instant case and the multiple
levels of appeal that this case had gone through, we also affirm the award of
attorneys fees of P20,000.00 as well as the actual damages of P1,671.00
incurred by the prevailing party which was substantiated during trial.
On a final note, it bears stressing that the arguments raised by the
petitioners are essentially the same issues they put forward before the CA
which have been duly passed upon and considered by the appellate court in
affirming the RTC Decision in toto.
WHEREFORE, the petition is DENIED.

set aside the decision dated September 26, 20023 of the Court of Appeals
inCA-G.R. CV No. 55732, which reversed an earlier decision of the Regional
Trial Court at Cabanatuan City, Branch 25, in its Civil Case No. 831-AF, an
action for cancellation of free patent, original certificate of title and derivative
transfer certificates of title, thereat filed by the petitioner against, among
others, the herein respondents.
The facts are well laid out in the decision under review:
On May 26, 1958, Gregorio Agunoy, Sr. filed his application for Free Patent
No. 5-1414 covering two parcels of land identified as Lot Nos. 1341 and 1342,
Cad 269, Sta. Rosa Cadastre, Nueva Ecija, containing an aggregate area of
18.6486 hectares with the Bureau of Lands. On January 18, 1967, he was

SO ORDERED.

issued Free Patent No. 314450 by the Director of Lands.

On February 6, 1967, the Register of Deeds of Nueva Ecija registered Free
Patent No. 314450 and issued the corresponding Original Certificate of Title
(OCT) No. P-4522 in the name of Gregorio Agunoy, Sr.

G.R. No. 155394

February 17, 2005

408

On March 10, 1967, the heirs of Eusebio Perez, represented by Francisca

On May 12, 1980, the adverse claim of Francisca Perez, et al. annotated at

Perez, caused the annotation on the said OCT of an adverse claim in their

the back of the OCT was cancelled by the Register of Deeds of Nueva

favor over a portion of 15.1593 hectares of the property.

Ecija (Exhibit G).

On July 30, 1975, the said heirs of Eusebio Perez filed a formal protest

On January 16, 1981, Joaquin Sangabol subdivided the property described

docketed as B.L. Claim No. 760 (n) with the Bureau of Lands alleging that Lot

as Lot 1341 in TCT No. NT-166271 into three lots designated as Lot Nos.

1341 of the Sta. Rosa Cadastre, Nueva Ecija, covered by Original Certificate

1341-A, 1341-B, and 1341-C of plan Psd-299875 duly approved by the Land

of Title No-P4522 is identical to Lots 1 and 2 of Plan Psu-47200 which had

Registration Commission.l^vvphi1.net

been adjudicated as private property of said protestant pursuant to a

decision promulgated on October 24, 1960 by the Court of First Instance of

TCT No. NT-166271 was cancelled and TCT No. NT-168972 covering Lot No.

Nueva Ecija in Land Registration Case No. 430, LRC Records No. 14876.

1341-A was issued to spouses Fortunato Para and Araceli Sena. TCT Nos.
NT-168973 and NT-168974 covering Lot Nos. 1341-B and 1341-C were

On May 3, 1976, the chief of the Legal Division, Bureau of Lands, conducted

issued in favor of Joaquin Sangabol.

a formal investigation and ocular inspection of the premises and it was

ascertained that Free Patent No. 314450 and its corresponding OCT No. P-

On June 15, 1982, Virginia P. Jimenez sold the property covered by TCT No.

4522 were improperly and fraudulently issued (Records, p.78)

NT-166287 in favor of spouses Blandino and Josefina A. Salva Cruz for

Eleven Thousand Five Hundred Pesos (P11,500.00) where TCT No. 174634

On July 31, 1979, upon the death of the wife of Gregorio Agunoy, Sr., the

was issued in favor of said spouses. On June 17, 1982, Josefina A. Salva

heirs, namely Gregorio Sr., Tomas, Lilian, Angelito and Gregorio, Jr.,

Cruz effected the subdivision of the property into thirteen (13) lots

executed a Deed of Extrajudicial Partition with Sale in favor of Joaquin

designated as Lot Nos. 1342-A t0 1342-M as per subdivision plan Psd-03-

Sangabol for and in consideration of the sum of Twenty Thousand Pesos

004756 thereby canceling TCT No. NT-174634 and TCT Nos. NT- 174635 to

(P20,000.00).

174647 were issued in lieu thereof.

The Original Certificate of Title No. P-4522 was cancelled by the Register of

On November 2, 1982, Fortunato Para, through his attorney-in-fact Gloria

Deeds of Nueva Ecija and Transfer Certificate of Title (TCT) No. 166270 was

Bergonia, mortgaged the property covered by TCT No. NT-168972 in favor of

issued in favor of the aforenamed heirs. Said TCT No. 166270 was again

the Perpetual Finance and Investment, Inc. in the amount of One Hundred

cancelled by reason of the concurrent sale to Joaquin Sangabol in whose

Twenty Five Thousand Pesos (P125,000.00). The mortgage was foreclosed and

favor TCT No. NT- 166271 was issued.

the property was sold at public auction. Thereafter, the corresponding

certificate of sale was executed in favor of Perpetual Finance and Credit, Inc.

On August 1, 1979, Joaquin Sangabol sold an undivided portion of three (3)

hectares of the property described as Lot 1341 in TCT No. NT-166271 to

On March 3, 1983, the properties covered by TCT Nos. NT-174643 and NT-

Fortunato Para for and in consideration of the sum of Three Thousand Five

174644 were mortgaged with the Rural Bank of Gapan for Forty Thousand

Hundred Pesos (3,500.00)

Pesos (P40,000.00). On February 25, 1985, the mortgage was likewise

foreclosed and the properties were sold at public auction in favor of the said

The following day, he sold the property described as Lot 1342 in TCT No. NT-

bank.

166271 to Virginia P. Jimenez for and in consideration of the sum of One

Thousand Five Hundred Pesos (P1,500.00) in whose favor TCT No. N-166287

On December 16, 1986, Joaquin Sangabol sold the property covered by TCT

was issued.

No. NT-168974 to Eduardo R. Dee for and in consideration of the sum of One
Hundred Twenty [Thousand] Pesos (P120,000.00). Subsequently, TCT No. NT-

409

168974 was cancelled and TCT No. 196579 was issued in the name

c) On May 13, 1952, said property was conveyed in favor of Isaias

of Eduardo R. Dee.

Carlos under TCT No. 11554 and the latter conveyed the same in
favor of the spouses Santiago Mateo and Leogarda Juliano;

On January 5, 1988, the heirs of Ruperto Perez (oldest son of Eusebio), now
represented by Sabina P. Hernandez, filed a supplemental protest alleging

d) TCT No. 11554 was cancelled and in lieu thereof, TCT No. 17471

that:

was issued in the name of Santiago Mateo. (Records, pp. 13;78)

a) Lot Nos. 1341 and 1342, Cad 269 of the Sta. Rosa Cadatre have

On May 10, 1988, the Chief of the Legal Division recommended to the

been exclusively occupied and cultivated by them and their

Director of Lands that court action be instituted for the cancellation of Free

immediate predecessors-in-interest who have introduced permanent

Patent No. 314450 and its corresponding Original Certificate of Title No. P-

improvements thereon consisting of irrigated ricelands, mango trees,

4522 in the name Gregorio Agunoy, Sr., as well as other subsequent transfer

bamboo groves and other crops;

certificates of title issued therefrom based on the foregoing findings

(Underscoring supplied).

b) Gregorio Agunoy, Sr. never occupied and cultivated said parcels of

land in the manner and for the period required by law;

It was against the foregoing backdrop of events when, on May 24, 1990, in
the Regional Trial Court at Gapan, Nueva Ecija petitioner Republic of the

c) Said parcels of land are identical to Lots 1, 3 and a portion of

Philippines, thru the Office of the Solicitor General, filed the complaint 4 in

87,674 square meters of Lot 4 of the amended plan-47200 Amd. as

this case against several defendants, among whom are the herein

shown by the relocation survey conducted by Geodetic Engineer

respondents Gregorio Agunoy, Sr., his children, the spouses Eduardo Dee

Deogracias L. Javier on July 29, 1977;

and Arcelita Marquez-Dee and the Rural Bank of Gapan, Nueva Ecija. In its
complaint, docketed as Civil Case No. 831-AF, petitioner Republic

d) The patent and title issued to Gregorio Agunoy, Sr. were obtained

alleged, inter alia, as follows:

through fraud and misrepresentation. (Records pp. 9-10)

"30. Free Patent No. 314450 and its corresponding Original Certificate of
The Bureau of Lands conducted anew an investigation and ocular inspection

Title No. P-4522 were procured by defendant Gregorio Agunoy, Sr., through

of Lot 1342, Cad. 269 of Sta. Rosa Cadastre, Nueva Ecija, and came out with

fraud, deceit and misrepresentation since the property in question (Lots 1341

the following findings, to wit:

and 1342) at the time the patent and the title were issued was already
adjudicated as private property of the heirs of Eusebio Perez and Valeriano

a) Lot 1342, Cad. 269 of Sta Rosa Cadastre, Nueva Ecija is located at

Espiritu, respectively. Consequently, the then Bureau of Lands, now Lands

Barangay Imbunia (formerly Marawa), Municipality of Jaen, Nueva

Management Bureau, no longer had any jurisdiction and control over the

Ecija;

same. xxx xxx.

b) Said lot was originally registered in the Office of the Register of

31. The fraudulent acts and misrepresentation of defendant Gregorio Agunoy,

Deeds of Cabanatuan City on May 23, 1914 under OCT No. 125

Sr. had misled the then Bureau of Lands in issuing said patent. Since the

issued in the name of Valeriano Espiritu, pursuant to Decree No.

property in question was no longer a disposable public land, Free Patent No.

15733 issued on May 20, 1914 in Land Registration Case No. 9552;

314450 and its corresponding Original Certificate of Title No. P-4522 issued
to defendant Gregorio Agunoy, Sr. are null and void and should be cancelled.
Moreover, Gregorio Agunoy, Sr. has not occupied and cultivated the land in

410

the manner and for the length of time required by law (C.A. 141 as amended;

2. Ordering defendants to surrender their owner's duplicate copies of

see also RA 782) (Emphasis supplied),

all the said subsequent transfer certificates of titles emanating from

Original Certificate of Title No. P-4522 to the Register of Deeds of
Nueva Ecija, and ordering the Register of Deeds to cancel the

and accordingly prayed for a judgment -

aforesaid certificates of titles;

1. Declaring Free Patent No. 314450 and the corresponding Original
Certificate of Title No. P-4522 in the name of Gregorio Agunoy, as

3. Ordering reversion of the pieces of land embraced in Free Patent

well as all other subsequent transfer certificates of title emanating

No. 314450 and OCT No. P-4522 of the Registry of Deeds of Nueva

therefrom, i.e., Transfer Certificates of Title Nos. NT-168972, NT-

Ecija, to the mass of public domain except the pieces of land which

168973, NT-196579, NT-174635 to NT-174647 (inclusive), including

were already the subject of land registration proceedings;

all liens and encumbrances annotated thereon, null and void;

4. Ordering that henceforth the defendants and all those claiming
2. Ordering defendants to surrender their owners duplicate copies of

under them to desist from disturbing the ownership of the

all subsequent transfer certificates of title emanating from Original

government over the said pieces of land, and

Certificate of Title No. P-4522 to the Register of Deeds of Nueva Ecija;

5. To pay costs of suits.
3. Directing the Register of Deeds of Nueva Ecija to cancel the
aforesaid certificates of title;

For lack of evidence, the third-party complaint filed by the Rural Bank of
Gapan, Inc. against defendants-Spouses Blandino Salva Cruz and Josefina

4. Ordering defendants and all those claiming under them to desist

Salva Cruz is hereby dismissed without pronouncement as to costs.

from exercising or representing acts of ownership and/or possession

in the premises (Underscoring supplied).

SO ORDERED (Underscoring supplied).

xxx xxx xxx

Therefrom, the spouses Eduardo Dee and Arcelita Marquez-Dee and the
Rural Bank of Gapan, Nueva Ecija went to the Court of Appeals, whereat
5

Eventually, in a decision dated September 9, 1996, the trial court rendered

their recourse was docketed as CA-G.R. CV No. 55732.

judgment for the Republic, thus:

As earlier stated herein, the appellate court, in a decision dated September
PREMISES CONSIDERED, judgment is hereby rendered in favor of the

26, 2002,6 reversed and set aside the appealed decision of the trial court, to

plaintiff and against the defendants as follows:

wit:

1. Declaring as null and void Free Patent No. 314450 and the
corresponding Original Certificate of Title No. P-4522 in the name of
Gregorio Agunoy, as well as all other subsequent transfer certificates
of titles emanating therefrom (TCT Nos. NT-166270, NT-166271, NT168972, NT-168973, NT-168974, NT-166287 and NT-174634 to NT174647, inclusive, of the Registry of Deeds of Nueva Ecija) including
all liens and encumbrances annotated thereon;

WHEREFORE, premises considered, the appeal is GRANTED and the

decision of the trial court is REVERSED and SET ASIDE. A new judgment is
hereby rendered to read as follows:
1. Defendant Gregorio Agunoy, Sr. is declared to have validly and
properly acquired Free Patent No. 314450 and the corresponding
Original Certificate of Title No. P-4522 over Lot Nos. 1341 and 1342,
Cad 269, Sta. Rosa Cadastre, Nueva Ecija; and

411

2. The title over the portion of Lot No. 1342, now covered by TCT No.

xxx. Consequently, the Republic is not a real party in interest and it may not

196579 in the name of defendants-appellants Spouses Dee is

institute the instant action. Nor may it raise the defense of imprescriptibility,

likewise declared valid for having acquired in good faith and for

the same being applicable only in cases where the government is a party in

value.

interest. Under Section 2 of Rule 3 of the 1997 Rules of Civil Procedure,

"every action must be prosecuted or defended in the name of the real party in
interest." To qualify a person to be a real party in interest in whose name an

SO ORDERED.

action must be prosecuted, he must appear to be the present real owner of

Hence, this recourse by the petitioner, submitting for our resolution the

the right sought to enforced (Pioneer Insurance v. CA, 175 SCRA 668 [1989]).
A real party in interest is the party who stands to be benefited or injured by

following issues :

the judgment in the suit, or the party entitled to the avails of the suit. And by
"I.

real interest is meant a present substantial interest, as distinguished from a

mere expectancy, or a future, contingent, subordinate or consequential

WHETHER OR NOT THE COURT OF APPEALS ERRED IN DECLARING THAT

interest.

PETITIONER IS NOT THE REAL PARTY-IN-INTEREST IN THIS CASE AND

THAT GREGORIO AGUNOY, SR. HAD VALIDLY ACQUIRED FREE PATENT

The very complaint in this case, supra, filed by petitioner Republic before the

NO. 314450 AND ORIGINAL CERTIFICATE OF TITLE NO. P-4522 OVER LOT

trial court unmistakably alleges that at the time Free Patent No. 31445 and

NOS. 1341 AND 1342, CAD. 269, STA. ROSA CADASTRE, NUEVA ECIJA.

its corresponding Original Certificate of Title No. P-45222 were issued to

Gregorio Agunoy, Sr., "the property in question (Lots 1341 and 1342) xxx was

II.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN DECLARING THAT
THE TITLE OVER THE PORTION OF LOT NO. 1342, NOW COVERED BY TCT
NO. 196579 IN THE NAMES OF RESPONDENTS SPOUSES EDUARDO DEE
AND ARCELITA MARQUEZ IS VALID FOR HAVING BEEN ACQUIRED IN
GOOD FAITH AND FOR VALUE".
We DENY.
To begin with, we agree with the Court of Appeals that petitioner Republic is
not the real party-in-interest in this case.
Basic it is in the law of procedure that every action must be prosecuted or
defended in the name of the real party-in-interest, meaning "the party who
stands to be benefited or injured by the judgment in the suit, or the party
entitled to the avails of the suit",8 a procedural rule reechoed in a long line of
cases decided by this Court. For sure, not too long ago, in Shipside, Inc. vs.
Court of Appeals,9 citing earlier cases, we wrote:

already adjudicated as private property of the heirs of Eusebio Perez and

Valeriano Espiritu", and that at that time, "the property in question was no
longer a disposable public land". In fact, in paragraph 27(f) of the same
complaint, petitioner further alleged:
f) Furthermore, it was found that prior to the issuance of Free Patent No.
314450 on January 18, 1967, Lot 1341 of Sta. Rosa Cadastre, Nueva Ecija,
which was one of the two (2) parcels of land applied for by Gregorio Agunoy,
Sr., was already the subject of an application for registration filed by the
heirs of Eusebio Perez in 1958 before the Court of First Instance of Nueva
Ecija, docketed as LRC Case No. 430, LRC Record No. 14876, and wherein a
Decision was promulgated on October 24, 1960 adjudicating Lots 1 and 2 of
Plan Psu-47200 as private properties of said heirs-claimants. The aforesaid
Decision was already final and executory at the time the patent was issued to
defendant Gregorio Agunoy, Sr". (Except for the underscoring on "as private
properties", the rest are of the petitioner itself).
With the very admissions by the petitioner itself in its basic pleading that
Lots No. 1341 and 1342 are alreadyprivate properties of the heirs of
Eusebio Perez and Valeriano Espiritu, and are, therefore, "no longer

412

disposable public land" over which the then Bureau of Lands, now Lands

For one, even granting as true the petitioners allegation of a prior cadastral

Management Bureau, "no longer had any jurisdiction and control", we are

case - LRC Case No. 430, LRC Rec. No. 148 - involving a portion of the lots

simply at a loss to understand how petitioner Republic can still profess to be

subject of Agunoys Free Patent, wherein a decision was allegedly

the real party-in-interest in this case, and insists that the disputed

promulgated on October 24, 1960 in favor of the heirs of Eusebio Perez,

properties are still part of the public domain. If ever, the real party-in-interest

which decision, according to petitioner, was already final and executory, we

could be none other than the heirs of Eusebio Perez and Valeriano Espiritu,

are greatly bothered by the fact that none of the heirs of Eusebio Perez could

but certainly not the petitioner.

show having exerted due diligence towards at least attempting to accomplish

the registration of the properties involved in the said cadastral case, which

Then, too, it is striking to note that even as the complaint is basically one for

properties, according to petitioner and the Perezes, are identical to Lot Nos.

reversion of private property to the mass of public domain, petitioner did not

1341 and 1342. Verily, were we to believe the allegations of the heirs of

implead either the heirs of Eusebio Perez or that of Valeriano Espiritu.

Eusebio Perez in their own protest with the Bureau of Lands dated July 30,

Without doubt, if our decision hereon were to be in favor of petitioner, the

1975,11 there is an express order for registration in LRC Case No. 430, as

real beneficiary thereof is not the State. And because, as no less admitted by

follows:

the petitioner, the lands subject of this case are no longer part of the public
domain, the nullification of Agunoys Free Patent P-314450 and OCT No. P-

"WHEREFORE, decision is hereby rendered affirming the order of general

4522 would not result in the reversion of the lands subject thereof to the

default heretofore entered and ordering the registration of Lots Nos. 1 and 2

mass of public land. And the government, not being the real party-in-

of Plan Psu-47200, situated in the Barrio of Marawa, Municipality of Jaen,

interest, is without personality to institute reversion proceedings. So it is that

Nueva Ecija, containing a total area of 21.9284 hectares in the following

in an earlier case,

10

we had an occasion to say:

manner:

There is no merit in petitioners' contention that only the State may bring an

xxx xxx xxx

action for reconveyance of the lots in dispute. To reiterate, Lot 2344 is a

private property in open, continuous, exclusive and notorious possession of

From as early as October 24, 1960, when the aforequoted decision in LRC

the Santiago family. The nullification of its free patent and title would not

Case No. 430 was promulgated, to as late as February 6, 1967, when OCT

therefore result in its reversion to the public domain. Hence, the State,

No. P-4522 of Gregorio Agunoy, Sr. was issued, or a slumber lasting for more

represented by the Solicitor General, is not the real party in interest.

than six (6) years, the heirs of Eusebio Perez had numerous opportunities to
cause the implementation of the said registration order. Inexplicably, they let

We could have, at this point, already written finis to this decision.

Nonetheless, for the peace of mind of those concerned, we have opted to
address the second issue raised in the petition: whether the appellate court

this chance passed by. Vigilantibus, sed non dormientibus, jura subveniunt,
the law aids the vigilant, not those who sleep on their rights. 12 And speaking
of rights, one may not sleep on a right while expecting to preserve it in its

erred in declaring as valid for having been acquired for value and in good

pristine purity.13

faith the title over the portion of Lot No. 1342, covered by TCT No. 196579 in
the name of the respondent spouses Eduardo Dee and Arcelita Marquez-Dee.

For another, Jose Mendigoria, Public Lands Inspector and Investigator of the
Bureau of Lands, made the following remarks in his certification

After sleeping for an unreasonably long period of time lasting for decades, the

dated February 28, 1966:14

heirs of Eusebio Perez can longer defeat the better right arising from the
Torrens titles in the names of the present transferees of the properties,
unless and until anyone succeeds in overcoming the presumption of good
faith in securing their respective titles.

413

10. Remarks: Attached hereto is the certification of the Clerk of Court

and the Register of Deeds, Cabanatuan City for ready references in

and in Heirs of Brusas vs. Court of Appeals:16

connection with the speedy issuance of patent in favor of the applicant.

The real purpose of the Torrens System of land registration is to quiet title to

It is informed in this connection that the survey claimants of these

the owner may rest secure without the necessity of waiting in the portals of

Lots, 1341 for Eusebio Perez and 1342 for Valenciano Espiritu could not
be located in the locality. The lots were already abandoned by them so
that in the year 1941, the present applicant took possession of the land
thru his tenants.
Countering the foregoing certification, petitioner Republic claims that a more
recent verification survey conducted onFebruary 15, 1988 by Geodetic

land and stop forever any question as to its legality. Once a title is registered
the court, or sitting on the mirador de su casa, to avoid the possibility of
losing his land. Indeed, titles over lands under the Torrens system should be
given stability for on it greatly depends the stability of the country's
economy.Interest reipublicae ut sit finis litium.1vvphi1.nt
If at all, the discrepancy in the two (2) separate survey reports of Mendigoria
and Mangahas can only be imputable to either the past or more recent
officials of the Bureau of Lands.

Engineer Melencio Mangahas, also of the Bureau of Lands, reveals an

anomaly in the issuance of Agunoy, Sr.s Free Patent No. 314450. Again, we
quote from petitioners complaint, particularly paragraph 27 (c) thereof, to
wit:

Of course, we are well aware of the rule reiterated in Republic vs. Court of
Appeals and Santos,17 that, generally, the State cannot be put in estoppel by
the mistakes or errors of its officials or agents. In that very case, however,
citing 31 CJS 675-676, we went further by saying -

c) The results of the verification survey conducted by Geodetic Engineer

Melencio Mangahas of the Bureau of Lands on February 15, 1988 on the
premises confirmed the earlier findings of said Office that Lot 1341 Cad. 269
of Sta. Rosa Cadastre, Nueva Ecija, covered by Free Patent No. 314450 and
OCT No. P-4522 in the name of Gregorio Agunoy, Sr., is identical to Lots 1, 3
and a portion of 87,674 square meters of Lot 4 of the amended Plan Psu47200 which was surveyed and approved on January 21, 1966 in the name
of Eusebio Perez. It was verified likewise that Lot 1341 is within Barrio

"xxx. Nevertheless, the government must not be allowed to deal dishonorably

or capriciously with its citizens, and must not play an ignoble part or do a
shabby thing; and subject to limitations xxx, the doctrine of equitable
estoppel may be invoked against public authorities as well as against private
individuals"
In any event, the verification survey conducted by Geodetic Engineer

Marawa, Jaen, Nueva Ecija.

Melencio Mangahas on February 15, 1988 came almost twenty-two (22) years
after the February 28, 1966 certification of Jose Mendigoria; more than

As between the February 28, 1966 certification of Jose

Mendigoria, supra, which led to the issuance of Agunoys OCT No. P-4522
and numerous derivative titles descending therefrom, and the February 15,

twenty-one (21) years after the issuance of Agunoy Sr.s Free Patent No.
314450 on January 18, 1967 and its registration as Original Certificate of
Title No. P-4522 on February 6, 1967; and more than eight (8) years

1988 verification survey of Geodetic Engineer Melencio Mangahas, cited in

reckoned from July 31, 1979 when, upon the death of the wife of Gregorio

the aforequoted paragraph of petitioners complaint, which led to nothing,

Agunoy, Sr., the heirs executed a Deed of Extrajudicial Partition with Sale in

15

suffice it to quote herein what this Court has said in PEZA vs. Fernandez:

favor of Joaquin Sangabol. In the meanwhile, for about half a decade

thereafter, ownership over the properties transferred from one buyer to

xxx. Indeed, the inevitable consequences of the Torrens system of land

another, with each and every transferee enjoying the presumption of good

registration must be upheld in order to give stability to it and provide finality

faith. If only on this score alone that the present petition must fall.

to land disputes,

414

There can be no debate at all on petitioners submission that no amount of

now very much ashore and firmly standing on the high solid ground of the

legal technicality may serve as a solid foundation for the enjoyment of the

Torrens system of land registration.1awphi1.nt

fruits of fraud. It is thus understandable why petitioner chants the dogma

offraus et jus nunquam cohabitant.

WHEREFORE, the assailed decision of the Court of Appeals is hereby

AFFIRMED and this petition DENIED.

Significantly, however, in the cases cited by petitioner Republic, 18 as well as in

those other cases19 where the doctrine of fraus et jus nunquam

SO ORDERED.

cohabitant was applied against a patent and title procured thru fraud or
misrepresentation, we note that the land covered thereby is either a part of
the forest zone which is definitely non-disposable, as in Animas, or that said
patent and title are still in the name of the person who committed the fraud
or misrepresentation, as in Acot, Animas, Republic vs. CA and Del
Mundo and Director of Lands vs. Abanilla, et al.and, in either instance, there
were yet no innocent third parties standing in the way.
Here, it bears stressing that, by petitioners own judicial admission, the lots
in dispute are no longer part of the public domain, and there are numerous
third, fourth, fifth and more parties holding Torrens titles in their favor and
enjoying the presumption of good faith. This brings to mind what we have

G.R. No. 155605

September 27, 2006

LECA REALTY CORPORATION, petitioner,

vs.
REPUBLIC OF THE PHILIPPINES, Represented by the Department of
Public Works and Highways,respondent.

reechoed in Pino vs. Court of Appeals20 and the cases21 therein cited:

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

[E]ven on the supposition that the sale was void, the general rule that the

G.R. No. 160179

direct result of a previous illegal contract cannot be valid (on the theory that

September 27, 2006

the spring cannot rise higher than its source) cannot apply here for We are

REPUBLIC OF THE PHILIPPINES, Represented by the Department of

confronted with the functionings of the Torrens System of Registration. The

Public Works and Highways, petitioner,

doctrine to follow is simple enough: a fraudulent or forged document of sale

vs.

may become the ROOT of a valid title if the certificate of title has already

BANK OF THE PHILIPPINE ISLANDS, CITYLAND INCORPORATED, LECA

been transferred from the name of the true owner to the name of the forger or

REALTY CORPORATION, and LEELENG REALTY

the name indicated by the forger.

CORPORATION,1 respondents.

It is even worse in this case because here, there is no forger to speak of. The

DECISION

remark of Land Inspector Jose Mendigoria about the abandonment by

Eusebio Perez and Valenciano Espiritu cannot, by itself, be fraudulent. And,
for all we know, that remark may even turn out to be the truth. What
petitioner perceives as fraud may be nothing more than the differences of
professional opinions between Land Inspector Jose Mendigoria and Geodetic
Engineer Melencio Mangahas. But regardless of who between the two is
correct, the hard reality is that the properties in question are no longer
floating objects on a spring that cannot rise higher than its source, as they are

PANGANIBAN, C.J.:
Zonal valuation is simply one of the indices of the fair market value of real
estate. By itself, however, this index cannot be the sole basis of "just
compensation" in expropriation cases. The standard is not the taker's gain,
but the owner's loss.

415

The Case

"Attached to the complaint is, among other things, Resolution No.

94-1 of the City Appraisal Committee of Mandaluyong, which was
2

Before the Court are two consolidated Petitions: the first is a Petition for
3

Review under Rule 45 filed by Leca Realty Corporation; and the second, a

created to appraise the properties that would be affected by the

construction of the project in question. In the said resolution, the

special civil action for certiorari filed under Rule 65 by the Republic of the

City Appraisal Committee fixed the fair market values of defendants'

Philippines, represented by the Department of Public Works and Highways

properties, as follows:

(DPWH) through the Office of the Solicitor General (OSG).

'1. All lots situated along Shaw Boulevard from Edsa going
Both Petitions urge this Court to set aside the Decision dated September 25,

westward towards Manila up to Samat Street, that City, at

2002, rendered by the Court of Appeals (CA) in CA-GR CV No. 60731. 5 The

THIRTY FIVE THOUSAND PESOS (P35,000) per square

assailed judgment affirmed in toto the Decision dated March 30, 1998,

meter[.]

issued by the Regional Trial Court (RTC) of Pasig City, Branch 159, in SCA
No. 1063.6 The RTC approved the amount of compensation as determined by

'2. All lots situated along Shaw Boulevard from Edsa going

the commissioners in their Report dated January 8, 1998. This

eastward towards Pasig up to San Miguel Avenue, Pasig,

compensation was for the subject properties expropriated in connection with

Metro Manila at FORTY FIVE THOUSAND PESOS (P45,000)

the construction of the EDSA-Shaw Boulevard (Mandaluyong City) flyover.

per square meter[.]

The Facts
The facts are narrated by the CA as follows:
"On 18 March 1996, the Republic of the Philippines, represented by
the Department of Public Works and Highways (DPWH), filed a
complaint for eminent domain for the taking of some portions of the
properties of Leca Realty Corp. (Leca), Leeleng Realty Inc. (Leeleng),
Metropolitan Bank and Trust Co. (Metrobank), Bank of the Philippine
Islands (BPI), and Cityland Inc. (Cityland). The said properties would
be affected by the construction of the EDSA-Shaw Boulevard
Overpass Project in Shaw Boulevard, Mandaluyong City, a public

"The property of defendant-appellant Leca is approximately 297.00

meters from the intersection of Shaw Boulevard and EDSA while that
of x x x Leeleng has an approximate distance of 146 meters from the
intersection of EDSA-Shaw Boulevard.
"The property of Metrobank is approximately 200 meters from EDSA
and located beside Shangri-La Plaza, within Ortigas Center while
that of BPI is approximately 237 meters from EDSA and southeast of
Shangri-La Plaza, within Ortigas Center.
"The property of Cityland, Inc. is one lot away from EDSA Plaza
Hotel, Shangri-La Plaza and walking distance to SM Department

purpose to be undertaken by the DPWH.

Store, within Ortigas Center.

"The complaint was filed with the Regional Trial Court of Pasig City

"On October 7, 1997, the court a quo appointed three (3) competent

and was raffled to Branch 159 of the said court.

and disinterested persons; namely, Atty. Benjamin C. Angeles, Mr.

Joselito E. Gunio and Mr. Melchor Savillo as commissioners to
ascertain and report the just compensation of the properties sought
to be taken.

416

"On January 9, 1998, the commissioners submitted their report

Hence, these Petitions.10

dated January 8, 1998, and recommended the fair market value of

the subject properties as follows:

The Issues

'1. Properties of Leca Realty Corporation and Leeleng Realty

The following issues were submitted to this Court for resolution:

Inc.: P50,000 per sq.m.

1. "Is the Republic bound and put in estoppel by
'2. Metropolitian Bank and Trust Co., Bank of the Philippine

the gross negligence/mistake of its agent/former counsel? Is the

Islands: P125,000 per sq.m.

Court of Appeals' Decision of September 25, 2002 in accord with law

and jurisprudence11

'3. Cityland, Inc.: P137,500 per sq.m. plus 10% corner

influence, for a total of P137,500 per sq.m. (sic)'

2. "Whether the Court of Appeals incurred an error of law in

affirming the amount fixed by the trial court based on the report of

"In arriving at the said Report, the Commissioners took into

the board of commissioners of P50,000 per square meter as just

consideration the following factors: property location, identification[,]

compensation for the taking of petitioner [Leca's] 1,217 square meter

neighborhood data, community facilities and utilities, highest and

property at Shaw Boulevard, Mandaluyong City, while adjudging

best use, valuation and reasonable indication of land values within

other parties whose lands were also expropriated in the same vicinity

the vicinity.

to payment of P125,000.00 per square meter for Metrobank and BPI,

and P137,500.00 per square meter for City Land, Inc. [or] more than

"On March 30, 1998, the court rendered the decision whereby the
Commissioners' Report was adopted."

double the value fixed for petitioner [Leca's] land." 12

Ruling of the CA

The Court's Ruling

The Petition in GR 155605 is meritorious, while that in GR 160179 is not.

The CA affirmed the lower court's judgment for the following reasons. First,
the RTC's appointment of the commissioners was fair and impartial. Second,
the fair market values of the affected properties were unanimously arrived at
by the appointed commissioners after a thorough and objective investigation
and analysis of the properties, with due consideration of the various factors
affecting those values: location, existing facilities, desirability, neighborhood,
and size.8
The appellate court likewise debunked the contention of the Republic of the
Philippines that the commissioners had erred in fixing the fair market values
of the properties, because the appraisals exceeded the zonal values
determined in Department of Finance Order No. 71-96. The CA held that the
zonal valuation was made for taxation purposes only and was not necessarily
reflective of the actual market values of the properties in the area. 9

First Issue:
Estoppel by the Government
Before this Court is the issue of whether Petitioner Republic is estopped by
its agent's failure to file an appeal of the CA Decision.
Clearly, the questioned Decision was received by the Republic through the
OSG on October 7, 2002. Accordingly, the government's lawyers had fifteen
(15) days or until October 22, 2002, to file a motion for reconsideration with
the CA; and, in case this motion was denied, another fifteen (15) days from
the notice of the denial to file a petition for review under Rule 45. But it was
only on October 20, 2003, more than one year later, that the Republic filed

417

the present Petition for Certiorari. Presumably, it resorted to the special civil

their counsel. Hence, it implores this Court to give due course to the Petition

action because of its failure to file an appeal within the 15-day reglementary

to prevent a miscarriage of justice.

period.
We are not convinced.
Time and time again, this Court has emphasized that a special civil action for
certiorari under Rule 65 lies only when "there is no appeal[;] nor any plain,
speedy and adequate remedy in the ordinary course of law."

13

That action is

not a substitute for a lost appeal; in general, it is not allowed when a party to

First, the time-honored rule that the government cannot be estopped by the
mistakes or errors of its agent is not without exceptions. In Republic of the
Philippines v. G Holdings,20 this Court held thus:

a case fails to appeal a judgment to the proper forum. 14

"While the Republic or the government is usually not estopped by the
In this case, there was no reason why the Republic could not have moved to

mistake or error on the part of its officials or agents, the Republic

reconsider the assailed CA Decision or appealed it within the reglementary

cannot now take refuge in the rule as it does not afford a blanket or

period. These procedural devices (reconsideration and appeal) were not only

absolute immunity. Our pronouncement in Republic v. Court of

available; they would have also constituted plain, speedy and adequate

Appeals is instructive: the Solicitor-General may not be excused from

remedies for questioning the alleged errors in the CA Decision.

its shortcomings by invoking the doctrine as if it were some magic

incantation that could benignly, if arbitrarily, condone and erase its

Besides, it is a hornbook doctrine that mere errors of judgment cannot be

errors."

the proper subject of a special civil action for certiorari. 15 International

Exchange Bank v. Court of Appeals16 stressed this rule as follows:

The rule on non-estoppel of the government is not designed to perpetrate an

injustice. In general, the rules on appeal are created and enforced to ensure

"x x x Where the issue or question involved affects the wisdom or

the orderly administration of justice. The judicial machinery would run

legal soundness of the decision not the jurisdiction of the court to

aground if late petitions, like the present one, are allowed on the flimsy

render said decision the same is beyond the province of a special

excuse that the attending lawyer was grossly lacking in vigilance.

civil action for certiorari. Erroneous findings and conclusions do not

render the appellate court vulnerable to the corrective writ of certiorari,

Besides, to countenance the Republic's plea for liberality would mean a

for where the court has jurisdiction over the case, even if its findings

reexamination of issues that have long been settled, at least from the points

are not correct, they would, at the most, constitute errors of law and

of view of the other respondents that did not appeal the CA Decision BPI,

17

not abuse of discretion correctible by certiorari."

(Emphasis supplied)

Cityland and Leeleng. As far as they are concerned, the appellate court's
judgment dated September 25, 2002, already attained finality on October 23,

Furthermore, petitions under Rule 65 must be filed within 60 days. In the

2002.21 Accordingly, the entry of judgment was ordered by the CA in its

present case, the Petition was filed after over a year.

Resolution dated July 25, 2003.22

Faced with the inevitable brick wall, the Republic through the OSG invokes
the principle that a lawyer's gross negligence will not bind the client.

18

The

Second, as Respondent BPI observed in its Memorandum, nowhere in the

pleadings of the OSG in the lower courts did the name of Solicitor Mauro

Republic imputes the failure to file a timely appeal to one of its lawyers,

Elinzano appear. The Republic's Brief before the Court of Appeals was signed

Solicitor Mauro Elinzano, who allegedly took no action after receiving the

by Assistant Solicitor General Pio C. Guerrero and Associate Solicitor Roland

adverse Decision of the Court of Appeals.

19

In support of its claim, the OSG

C. Villaluz.23 Neither was evidence adduced to show the participation in the

cites this Court's pronouncements that a lawyer's procedural blunder

case of Solicitor Elinzano, particularly as the attending counsel of the

constitutes an exception to the rule that clients are bound by the mistakes of

Republic.

418

Determination of Just Compensation

Third, we are hard-pressed in appreciating the so-called "grave injustice"

against the government. In a letter dated May 20, 1998, Secretary Gregorio
R. Vigilar of the DPWH instructed the OSG "to file the necessary pleading in

The more critical issue is the determination of the amount of just

court to either withdraw or drop the appeal on the Decision promulgated on

compensation for the expropriated property of Leca in GR 155605. The

March 30, 1998 by the RTC, National Capital Judicial Region, Pasig City,

Republic avers that the values arrived at in the Commissioners' Report were

Branch 159."24

not supported by sufficient evidence. Moreover, they were allegedly based on

newspaper listings of advertisements,29 which the commissioners deemed to

The request was predicated on the conclusion that the "compensation costs

be reasonable indices of the fair market value. Further, mere offers of sale --

as recommended by the commissioners and fixed by the court in the above-

not consummated transactions -- were these listed items, save for one, 30 as

mentioned Decision are reasonable and acceptable"; and that the "move will

follows:

hasten the legal process, thereby shorten the time of the proceedings and
stop the running of interest in the amount P6,240,000.00 per annum."25 The

"1. On February 12, 1997, a property with an area of 1,600 square

same request was reiterated in a second letter dated August 18, 1998, stating

meter, more or less, located along Meralco Avenue, within Ortigas

that "the market values recommended by the commissioners are [f]air and

Center, Pasig City, Metropolitan Manila was offered for sale through

reflective values prevailing in the area."26

the Manila Bulletin at an asking price of P218,000 per square meter.

The DPWH is the main government agency tasked to implement the

"2. On February 12, 1997, a property with an area of 2,015 square

expropriation and subsequent construction of the EDSA-Shaw Boulevard

meter more or less, located along Dona Julia Vargas Avenue, within

Overpass project. Thus, its judgment on this matter is impossible to ignore;

Ortigas Center, Pasig City, Metropolitan Manila, was offered for sale

quite the contrary, it should be accorded significant weight.

through the Manila Bulletin at an asking price of P330,000 per

square meter.

In the light of the circumstances, it is indeed plausible -- as Respondent BPI

submits -- that Solicitor Elinzano, or whoever was the government's handling

"3. On February 24, 1997, a commercial lot having an area of 2,000

lawyer, purposely exercised his discretion not to appeal the assailed CA

square meter more or less, located along Meralco Avenue, within

Decision. It was altogether possible that the OSG adopted the position of the

Ortigas Center, Pasig City, Metropolitan Manila, was offered for sale

DPWH that the valuation of the expropriated properties, as determined by

through the Manila Bulletin at an asking price of P200,000 per

the RTC, was correct and justified.

square meter.

Lastly, we note that the OSG seeks to excuse its failure to file a timely appeal

"4. On July 20, 1997, a property having an area of 1,749 square

in order to avert the alleged improvident release of public funds and

meter more or less, located along Dona Julia Vargas Avenue, within

consequent unjust enrichment of the concerned property owners. 27 Lest it be

Ortigas Center, Pasig City, Metropolitan Manila, was offered for sale

conveniently forgotten, the responsibility of preventing the improvident

through the Manila Bulletin at an asking price of 220,000 per square

release of public funds falls upon the OSG as counsel of the

meter."

government.28 The Court's duty in this case is merely to determine if the

Decision of the lower courts in fixing just compensation is in accord with the

The Revised Zonal Values of Real Properties in the City of Mandaluyong were

facts and the law.

implemented on April 29, 1996, by the Department of Finance under DO No.

71-96. The Republic further argues that, according to this listing, properties
Second Issue:

classified as residential condominiums in the vicinity of Shaw Boulevard had

a zonal value of P55,000 per square meter. On the other hand, those

419

properties classified as commercial condominiums had a zonal value

equivalent to be rendered for the property to be taken shall be real,

ofP60,000 per square meter.

substantial, full and ample.38

Hence, the fair market value of the subject properties of BPI and Cityland
should not be higher than P60,000 per square meter.

31

Given these

Necessarily, just compensation must not be arrived at arbitrarily, but

determined after an evaluation of different factors. In the present case, the

prescribed values, the Republic contends that the compensation was

Commissioners' Report made use of the so-called market-data approach in

rendered unfair, unjust and unconscionable by the gross discrepancies

arriving at the valuation of the properties. In this method, the value of the

between the values determined for the properties of Leca and Leeleng Realty

land is based on sales and listings of comparable property registered within

and for those of BPI and Cityland.

32

the vicinity.

Leca, on the other hand, alleges that the fair market value ascribed to its

As both the Republic and Leca correctly pointed out, however, the

property was not sufficient. Supposedly, the Court of Appeals did not give

Commissioners' Report relied heavily on newspaper advertisements of offers

due consideration to the Zonal Value Table of the Bureau of Internal

of sale of properties in the vicinity. Clearly, these offers were merely asking

33

Revenue. Worse, the CA totally ignored the Fair Market Value Appraisal

prices. By their very nature, they are subject to negotiations in which a buyer

dated November 10, 1997, prepared by Cuervo Appraisers, Inc. This

may ask for a lower price; understandably, it is customary for the owner to

appraisal, which was submitted in compliance with the directive of the

raise the price offer.

commissioners,34 had placed the value of Leca's property at P70,000 per

square meter.

Well-settled is the rule that in expropriation proceedings, the value of a

property must be determined either as of the date of the taking of the

In expropriation proceedings in general, the market value is the just

property or the filing of the complaint, whichever comes first. 39 In this case,

compensation to which the owner of a condemned property is entitled. More

the Complaint was filed on March 18, 1996, and the trial court issued the

precisely, market value is "that sum of money which a person desirous but

Writ of Possession on June 19, 1997.40 The offers cited in the

not compelled to buy, and an owner willing but not compelled to sell, would

Commissioners' Report, though, were made between May 1996 to February

agree on as a price to be given and received therefor."

35

1997, a period after the filing of the Complaint on March 18, 1996. Thus,
there is no evidence on record of the fair market value of the property as of

Republic v. Court of Appeals

36

ruled in this wise:

March 1996.

"The constitutional limitation of just 'compensation' is considered to

Moreover, the offers for sale were good for properties inside the Ortigas

be the sum equivalent of the market value of the property, broadly

Center.41 Thus, those offers cannot be used as bases for the values of

described to be the price fixed by the seller in open market in the

properties along EDSA, where the property of Petitioner Leca is situated. In

usual and ordinary course of legal action and competition or the fair

fact, no listing or evidence of concluded sales was submitted for properties in

value of the property as between one who receives, and one who

areas outside the Ortigas Center. While it is true that adjoining properties

desires to sell, it fixed at the time of the actual taking by the

may be valued differently, competent evidence still has to be presented to

government."37

establish the differences in market values.

Just compensation, then, is the full and fair equivalent of a property taken
from its owner by the expropriator. The measure is not the taker's gain, but
the owner's loss. Note must be taken that the word "just" is used to stress the
meaning of the word "compensation," in order to convey the idea that the

420

The Republic is incorrect, however, in alleging that the values were

"x x x. While market value may be one of the bases of determining

exorbitant, merely because they exceeded the maximum zonal value of real

just compensation, the same cannot be arbitrarily arrived at without

properties in the same location where the subject properties were located.

considering the factors to be appreciated in arriving at the fair

The zonal value may be one, but not necessarily the sole, index of the value

market value of the property e.g., the cost of acquisition, the current

of a realty.

42

National Power Corporation v. Manubay Agro-Industrial held thus:

value of like properties, its size, shape, location, as well as the tax
declarations thereon. Since these factors were not considered, a

"x x x [Market value] is not limited to the assessed value of the

remand of the case for determination of just compensation is

property or to the schedule of market values determined by the

necessary. x x x."48

provincial or city appraisal committee. However, these values may

serve as factors to be considered in the judicial valuation of the
property."

43

It must be noted, though, that the interest of Petitioner Leca is distinct and
separate from and will in no way affect the settled rights and interests of the
other parties that did not appeal the judgment of the trial court. As to

The above ruling finds support in EPZA v. Dulay44 in this wise:

Cityland Inc., Bank of the Philippine Islands, and Leeleng Realty Inc., the
Decision below has long become final and executory.

"Various factors can come into play in the valuation of specific

properties singled out for expropriation. The values given by

WHEREFORE, the Petition of the Republic in GR No. 160179 is DISMISSED,

provincial assessors are usually uniform for very wide areas covering

while that of Leca Realty Corporation is REMANDED to the trial court for the

several barrios or even an entire town with the exception of the

poblacion. Individual differences are never taken into account. The
value of land is based on such generalities as its possible cultivation
for rice, corn, coconuts or other crops. Very often land described as
'cogonal' has been cultivated for generations. Buildings are described
in terms of only two or three classes of building materials and
estimates of areas are more often inaccurate than correct.Tax values
can serve as guides but cannot be absolute substitutes for just
compensation."45 (Emphasis supplied)

proper determination of the amount of just compensation. To forestall any

further delay in the resolution of this case, the trial court is hereby ordered
to fix the "just compensation" for Leca's property within six months from its
receipt of this Decision; and afterwards to report to the Court its compliance.
Insofar as it affects the property of Leca Realty Corporation, the assailed
Decision of the Court of Appeals in CA GR CV No. 60731 is SET ASIDE. No
costs.
SO ORDERED.

As pointed out earlier, no other evidence was presented to support the values
determined as just compensation for Leca's property. The only items
submitted to the trial court were the Commissioner's Report and a location
map, which were evidently insufficient.46

G.R. No. 165548

In National Power Corporation v. Manubay Agro-Industrial Development

PHILIPPINE REALTY AND HOLDINGS CORPORATION, Petitioner,

vs.
LEY CONSTRUCTION AND DEVELOPMENT CORPORATION, Respondent.

Corporation,47 the recommended price of the city assessor was rejected by

this Court. The opinions of the banks and the realtors, as reflected in the
computation of the market value of the property and in the Commissioners'
Report, were not substantiated by any documentary evidence.

June 13, 2011

x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 167879

Moreover, Land Bank of the Philippines v. Wycoco ruled as follows:

421

LEY CONSTRUCTION AND DEVELOPMENT CORPORATION, Petitioner,

vs.
PHILIPPINE REALTY AND HOLDINGS CORPORATION, Respondent.
DECISION
SERENO, J.:
These are consolidated petitions for review under Rule 45 of the New Rules of
Civil Procedure filed by both parties from a Court of Appeals (CA) Decision in
CA-GR No. 71293 dated 30 September 2004. This Decision reversed a
Decision of the Regional Trial Court (RTC), National Capital Judicial Region
(NCJR), Branch 135 in Makati City dated 31 January 2001 in Civil Case No.
96-160.
The foregoing are the facts culled from the record, and from the findings of
the CA and the RTC.
Ley Construction and Development Corporation (LCDC) was the project
contractor for the construction of several buildings for Philippine Realty &
Holdings Corporation (PRHC), the project owner. Engineer Dennis Abcede
(Abcede) was the project construction manager of PRHC, while Joselito
Santos (Santos) was its general manager and vice-president for operations.
Sometime between April 1988 and October 1989, the two corporations
entered into four major construction projects, as evidenced by four duly
notarized "construction agreements." LCDC committed itself to the
construction of the buildings needed by PRHC, which in turn committed
itself to pay the contract price agreed upon. These were the four construction
projects the parties entered into involving a Project 1, Project 2, Project 3 (all
of which involve the Alexandra buildings) and a Tektite Building:
1. Construction Agreement dated 25 April 1988 Alexandra-Cluster
C involving the construction of two units of seven-storey buildings
with basement at a contract price of P 68,000,000 (Project 1);
2. Construction Agreement dated 25 July 1988 Alexandra-Cluster
B involving the construction of an eleven-storey twin-tower building
with a common basement at a contract price of P 140,500,000
(Project 2);
3. Construction Agreement dated 23 November 1988 AlexandraCluster E involving the construction of an eleven-storey twin-tower
building with common basement at a contract price
of P 140,500,000 (Project 3); and
4. Construction Agreement dated 10 October 1989 Tektite Towers
Phase I involving the construction of Tektite Tower Building I at
Tektite Road at a contract price of P 729,138,964 (Tektite Building).

The agreement covering the construction of the Tektite Building was signed
by a Mr. Campos under the words "Phil. Realty & Holdings Corp." and by
Santos as a witness. Manuel Ley, the president of LCDC, signed under the
words "Ley Const. & Dev. Corp."
The terms embodied in the afore-listed construction agreements were almost
identical. Each agreement provided for a fixed price to be paid by PRHC for
every project.
All the aforementioned agreements contain the following provisions:
ARTICLE IV CONTRACT PRICE
...

...

...

The Contract Price shall not be subject to escalation except due to work
addition, (approved by the OWNER and the ARCHITECT) and to official
increase in minimum wage as covered by the Labor Adjustment Clause below.
All costs and expenses over and above the Contract Price except as provided
in Article V hereof shall be for the account of the CONTRACTOR. It is
understood that there shall be no escalation on the price of materials.
However, should there be any increase in minimum daily wage level, the
adjustment on labor cost only shall be considered based on conditions as
stipulated below.
...

...

...

ARTICLE VII TIME OF COMPLETION

...

...

...

Should the work be delayed by any act or omission of the OWNER or any
other person employed by or contracted by the OWNER in the project,
including days in the delivery or (sic) materials furnished by the OWNER or
others, or by any appreciable additions or alterations in the work ordered by
the OWNER or the ARCHITECT, under Article V or by force majeure, war,
rebellion, strikes, epidemics, fires, riots, or acts of the civil or military
authorities, the CONTRACTOR shall be granted time extension.
Sometime after the execution of these agreements, two more were entered
into by the parties:
1. Letter-agreement dated 24 August 1989 Project 3 for
the construction of the drivers quarters in Project 3; and
2. Agreement dated 7 January 1993 Tektite Towers for
the concreting works on "GL, 5, 9, & A" (ground floor to the
5th floor) of the Tektite Towers.

422

Santos signed the letter-agreement on the construction of the drivers

quarters in Project 3,1 while both he and Abcede signed the letter-agreement
on the concreting works on GL, 5, 9, and A, and also of Project 3. 2
In order to jump-start the construction operations, LCDC was required to
submit a performance bond as provided for in the construction agreements.
As stated in these agreements, as soon as PRHC received the performance
bond, it would deliver its initial payment to LCDC. The remaining balance
was to be paid in monthly progress payments based on actual work
completed. In practice, these monthly progress payments were used by LCDC
to purchase the materials needed to continue the construction of the
remaining parts of the building.
In the course of the construction of the Tektite Building, it became evident to
both parties that LCDC would not be able to finish the project within the
agreed period. Thus, through its president, LCDC met with Abcede to discuss
the cause of the delay. LCDC explained that the unanticipated delay in
construction was due mainly to the sudden, unexpected hike in the prices of
cement and other construction materials. It claimed that, without a
corresponding increase in the fixed prices found in the agreements, it would
be impossible for it to finish the construction of the Tektite Building. In their
analysis of the project plans for the building and of all the external factors
affecting the completion of the project, the parties discovered that even if
LCDC were able to collect the entire balance from the contract, the collected
amount would still be insufficient to purchase all the materials needed to
complete the construction of the building.
Both parties agreed that their foremost objective should be to ensure that the
Tektite Building project would be completed. To achieve this goal, they
entered into another agreement. Abcede asked LCDC to advance the amount
necessary to complete construction. Its president acceded, on the absolute
condition that it be allowed to escalate the contract price. It wanted PRHC to
allow the escalation and to disregard the prohibition contained in Article VII
of the agreements. Abcede replied that he would take this matter up with the
board of directors of PRHC.
The board of directors turned down the request for an escalation
agreement.3 Neither PRHC nor Abcede gave notice to LCDC of the alleged
denial of the proposal. However, on 9 August 1991 Abcede sent a formal
letter to LCDC, asking for its conformity, to the effect that should it
infuse P36 million into the project, a contract price escalation for the same
amount would be granted in its favor by PRHC.4
This letter was signed by Abcede above the title "Construction Manager," as
well as by LCDC.5 A plain reading of the letter-agreement will reveal that the
blank above the words "PHIL. REALTY & HOLDINGS CORP." was never
signed,6 viz:

Very truly yours,

(Signed)
_______________________
DENNIS A. ABCEDE
Construction Manager
CONFORME:
(Signed)
_______________________
LEY CONST. & DEV. CORP.
APPROVED & ACCEPTED :
_______________________
PHIL. REALTY & HOLDINGS CORP.
Notwithstanding the absence of a signature above PRHCs name, LCDC
proceeded with the construction of the Tektite Building, expending the entire
amount necessary to complete the project. From August to December 1991, it
infused amounts totaling P 38,248,463.92. These amounts were not
deposited into the joint account of LCDC and PRHC, but paid directly to the
suppliers upon the instruction of Santos.7
LCDC religiously submitted to PRHC monthly reports 8 that contained the
amounts of infusion it made from the period August 1991 to December 1991.
These monthly reports all had the following heading:
...

...

...

MR. JOSELITO L. SANTOS

VICE PRESIDENT OPERATION
PHIL. REALTY & HOLDINGS CORP.
4th Floor Quad Alpha Centrum Bldg.
125 Pioneer St., Mandaluyong, M.M.
T H R U : D.A. ABCEDE & ASSOCIATES
Construction Managers
SUBJECT : P 36.0M INFUSION-TEKTITE TOWERS PROJECT
From these monthly reports, it can be gleaned that the following were the
cash infusions made by LCDC:
Month

Amount

Date of monthly report

August 1991

PhP 6,724,632.26

15 October 19919

423

September 1991

PhP 7,326,230.69

7 October 199110

October 1991

PhP 7,756,846.88

7 November 199111

November 1991

PhP 8,553,313.50

7 December 199112

December 1991

PhP 7,887,440.50

9 January 199213

In a letter dated 8 September 1992,14 when 96.43% of Tektite Building had

been completed, LCDC requested the release of the P 36 million escalation
price. PRHC did not reply, but after the construction of the building was
completed, it conveyed its decision in a letter on 7 December 1992. 15 That
decision was to set off, in the form of liquidated damages, its claim to the
supposed liability of LCDC, to wit:
...

PhP 38,248,463.92
PRHC never replied to any of these monthly reports.
On 20 January 1992, LCDC wrote a letter addressed to Santos stating that it
had already complied with its commitment as of 31 December 1991 and was
requesting the release of P 2,248,463.92. It attached a 16 January 1992
letter written by D.A. Abcede & Associates, informing PRHC of the total cash
infusion made by LCDC to the project, to wit:
in compliance with the commitment of Ley Construction and Devt Corp. to
infuse P36.00M for the above subject project x x x
x x x we would like to present the total cash infusion by LCDC for the period
covering the month of August, 1991 to December 1991 broken down as
follows:
...

...

...

T O T A L: P 38,248,463.92
PRHC never replied to this letter.
In another letter dated 7 September 1992, there was a reconciliation of
accounts between the two corporations with respect to the balances due for
Projects 1, 2, and 3. The reconciliation of accounts resulted in PRHC owing
LCDC the sum of P 20,862,546.41, broken down as follows:
Project 1

P 1,783,046.72

Project 2

P 13,550,003.93

Project 3

P 5,529,495.76
P 20,862,546.41

...

...

In this regard, please be advised that per owners decision; your claim
of P 36,000,00.00 adjustment will be applied to the liquidated damages for
concreting works computed in the amount of Thirty Nine Million Three
Hundred Twenty Six Thousand Eight Hundred Seventeen & 15/100
(P39,326,817.15) as shown in the attached sheet.
Further, the net difference P 3,326,817.15 will also be considered waived as
additional consideration.
...

...

...

In a letter dated 18 January 1993, LCDC, through counsel, demanded

payment of the agreed escalation price of P36 million. In its reply on 16
February 1993, PRHC suddenly denied any liability for the escalation price.
In the same letter, it claimed that LCDC had incurred 111 days of delay in
the construction of the Tektite Building and demanded that the latter
pay P 39,326,817.15 as liquidated damages. This claim was set forth in
PRHCs earlier 7 December 1992 letter.
LCDC countered that there were many times when its requests for time
extension although due to reasonable causes sanctioned by the
construction agreement such as power failures, water supply interruption,
and scarcity of construction materials were unreasonably reduced to
shorter periods by PRHC. In its letter dated 9 December 1992, LCDC claimed
that in a period of over two years, out of the 618 days of extension it
requested, only 256 days or not even half the number of days originally
requested were considered. It further claimed that its president inquired
from Abcede and Santos why its requests for extension of time were not
granted in full. The two, however, assured him that LCDC would not be
penalized with damages for even a single day of delay, because the fact that it
was working hard on the Tektite Building project was known to PRHC. 16
Thereafter, in a letter dated 18 January 1993, LCDC demanded payment of
the agreed total balance for Projects 1, 2, and 3. Through a reply letter dated
16 February 1993, PRHC denied any liability. During the course of the
proceedings, both parties conducted another reconciliation of their respective
records. The reconciliation showed the following balances in favor of LCDC:

424

Project 1

P 1,703,955.07

Project 2

P 13,251,152.61

Project 3

P 5,529,495.76

Total:

P 20,484,603.44

In addition to the agreed-upon outstanding balance in favor of LCDC, the

latter claimed another outstanding balance of P 232,367.96 in its favor for
the construction of the drivers quarters in Project 3.
It also further claimed the amount of P 7,112,738.82, representing the
balance for the concreting works from the ground floor to the fifth floor of the
Tektite Building.
Seeking to recover all the above-mentioned amounts, LCDC filed a Complaint
with Application for the Issuance of a Writ of Preliminary Attachment on 2
February 1996 before the RTC in Makati City docketed as Civil Case No. 96160:
WHEREFORE, it is respectfully prayed that:
1. Immediately upon the filing of this Complaint, an order of
preliminary attachment be issued over defendant Philrealtys
properties as security for any judgment which plaintiff may recover
against said defendant; and
2. After trial, judgment be rendered as follows:
2.1. On the first, second and third alternative causes of
action,
(a) Ordering defendant Philrealty to pay plaintiff
actual damages in the amount of P36,000,00.00
with legal interest thereon from the filing of this
Complaint until fully paid;
(b) In the alternative, ordering defendants Abcede
and Santos to jointly and severally, in the event that
they acted without necessary authority, to pay
plaintiff actual damages in the amount
of P36,000,00.00 with legal interest thereon from the
filing of this Complaint until fully paid; and
(c) Ordering defendant Philrealty or defendants
Abcede and Santos to pay plaintiff exemplary

damages in the amount to be determined by the

Honorable Court but not less thanP5,000,000.00
2.2. On the fourth cause of action, ordering defendant
Philrealty to pay plaintiff
(a) Actual damages in the amount of P7,112,738.82
with legal interest thereon from the filing of this
Complaint until fully paid; and
(b) Exemplary damages in the amount to be
determined by the Honorable Court but not less
than P1,000,000.00
2.3. On the fifth cause of action, ordering defendant
Philrealty to pay plaintiff
(a) Actual damages in the amount of P20,862,546.41
with legal interest thereon from the filing of this
Complaint until fully paid; and
(b) Exemplary damages in an amount to be
determined by the Honorable Court but not less
than P5,000,000.00.
2.4. On the sixth cause of action, ordering defendant
Philrealty to pay plaintiff
(a) Actual damages in the amount of P232,367.96
with legal interest thereon from the filing of this
Complaint until fully paid; and
(b) Exemplary damages in the amount to be
determined by the Honorable Court but not less
than P100,000.00
2.5. On the seventh cause of action, ordering defendant
Philrealty and/or defendants Abcede and Santos to pay
plaintiff attorneys fees in the amount of P750,000.00 and
expenses of litigation in the amount of P50,000.00, plus
costs.
Plaintiff prays for such other just and equitable reliefs as may be warranted
by the circumstances.
On 23 July 1999, a joint Stipulation of Facts17 was filed by the parties. In the
said stipulation, they reconciled their respective claims on the payments
made and the balances due for the construction of the Tektite Building
project, Project 1, and Project 2. The reconciliation shows that the following
amounts are due and/or overpaid:

425

Due to LCDC
Tektite Building
Project 1

Overpaid to LCDC
P4,646,947.35

P1,703,955.07

It must be noted that in the Stipulation of Facts, the parties had jointly
agreed that the P7,112,738.82 unpaid account in the concreting of Tektite
Building would no longer be included in the list of claims submitted to the
RTC for decision. Nonetheless, this amount was still included as an award in
the trial courts 7 May 2001 amended Decision, the dispositive portion of
which provides:
WHEREFORE, premises considered, judgment is hereby rendered:

Project 2

P3,251,152.61
P14,955,107.68

A. Dismissing the counter-claim of defendant DENNIS ABCEDE and

the cross-claim of defendant JOSELITO SANTOS; and
P4,646,947.35

Both parties agreed that the only remaining issues to be resolved by the
court, with respect to the Tektite Building project and Projects 1 to 3, were as
follows:

B. Ordering defendant PHILIPPINE REALTY AND HOLDING

CORPORATION to pay plaintiff LEY CONSTRUCTION AND
DEVELOPMENT CORPORATION:
1. P33,601,316.17, for the Tektite Tower I Project with legal
interest thereon from date of the filing of the complaint until
fully paid;

a) The validity of Ley Constructions claim that Philrealty had granted the
former a contract price escalation for Tektite Tower I in the amount
of P36,000,000.00

2. P13,251,152.61 for Alexandra Cluster B with legal interest

thereon from date of the filing of the complaint until fully
paid;

b) The validity of the claim of Philrealty that the following amounts should be
charged to Ley Construction:

3. P1,703,955.07 for Alexandra Cluster C with legal interest

thereon from date of the filing of the complaint until fully
paid;

Payments/Advances without LCDCs conformity and recommendation of the

Construction Manager, D.A. Abcede & Associates that subject items are
LCDCs account:

4. P7,112,738.82 in actual damages for the concreting works

of Tektite Tower I, with legal interest thereon from the date of
the filing of the complaint until fully paid;

a. Esicor, Inc. waterproofing works Cluster B P1,121,000.00

b. Ideal Marketing, Inc. waterproofing works at Cluster B, Quadrant
2 P885,000.00 P2,006,000.00

5. P5,529,495.76 in actual damages for the construction of

Alexandra Cluster E, with legal interest thereon from the
date of the filing of the complaint until fully paid;

c) The claim of Philrealty for liquidated damages for delay in completion of the
construction as follows:

6. P232,367.96 in actual damages for the construction of the

drivers quarters of Alexandra Cluster E, with legal interest
thereon from the date of the filing of the complaint until fully
paid;

d) Tektite Tower I - P39,326,817.15

Alexandra Cluster B - 12,785,000.00
Alexandra Cluster C - 1,100,000.00

7. P750,000.00 for attorneys fees and expenses of litigation;

and

and
e) The claim of Ley Construction for additional sum of P2,248,463.92 which
it allegedly infused for the Tektite Tower I project over and above the
original P36,000,000.00 it had allegedly bound itself to infuse. 18
On 31 January 2001, the RTC promulgated its Decision. LCDC filed a Motion
for Partial Reconsideration, which was granted.

8. Costs.
SO ORDERED.

19

PRHC filed a Notice of Appeal on 14 June 2001. The Court of Appeals, in CAG.R. CV No. 71293,20 reversed the lower courts amended Decision on 30
September 2004 and ruled thus:

426

WHEREFORE, premises considered, the assailed January 31, 2001 decision

and the May 7, 2001 amended decision are hereby REVERSED and SET
ASIDE and a new one is entered:
I. FINDING plaintiff-appellee LCDC LIABLE to defendant-appellant PRHC in
the amount of Sixty million Four Hundred Sixty Four (Thousand) Seven
Hundred Sixty Four 90/100 (P60,464,764.90) PESOS detailed as follows:
[1] P39,326,817.15 liquidated damages pursuant to contract for
delay incurred by plaintiff-appellee LCDC in the construction of
Tektite Tower Phase I, the length of delay having been signed and
confirmed by LCDC;
[2] P12,785,000.00 liquidated damages pursuant to contract for
delay incurred by plaintiff-appellee LCDC in the construction of
Alexandra Cluster B, the length of delay having been signed and
confirmed by LCDC;
[3] P1,700,000.00 liquidated damages pursuant to contract for delay
incurred by plaintiff appellee LCDC in the construction of Alexandra
Cluster C, the length of delay having been confirmed by LCDC;
[4] P4,646,947.75 overpayment by defendant-appellant PRHC to
plaintiff-appellee LCDC for the Tektite Tower Phase I Project;
[5] P1,121,000.00 expenses incurred by defendant-appellant PRHC
for corrective works to redo/repair allegedly defective Waterproofing
construction work or plaintiff-appellee LCDC in the Alexander
Cluster B Project which was paid by defendant-appellant PRHC to
contractor Escritor, Inc.;
[6] P885,000.00 expenses incurred by defendant-appellant PRHC for
corrective works to redo/repair allegedly defective Waterproofing
construction work of plaintiff-appellee LCDC at the Alexandra
Cluster B Quadrant in the Alexander Cluster B Project which was
paid by defendant-appellant PRHC to contractor Ideal Marketing Inc.,
and consideration.
...

...

...

In a letter dated 18 January 1993, LCDC, through counsel, demanded

payment of the agreed escalation price of P36 million. In its reply on 16
February 1993, PRHC suddenly denied any liability for the escalation price.
In the same letter, it claimed that LCDC had incurred 111 days of delay in
the construction of the Tektite Building and demanded that the latter
pay P 39,326,817.15 as liquidated damages. This claim was set forth in
PRHCs earlier 7 December 1992 letter.
LCDC countered that there were many times when its requests for time
extension although due to reasonable causes sanctioned by the

construction agreement such as power failures, water supply interruption,

and scarcity of construction materials were unreasonably reduced to
shorter periods by PRHC. In its letter dated 9 December 1992, LCDC claimed
that in a period of over two years, out of the 618 days of extension it
requested, only 256 days or not even half the number of days originally
requested were considered. It further claimed that its president inquired
from Abcede and Santos why its requests for extension of time were not
granted in full. The two, however, assured him that LCDC would not be
penalized with damages for even a single day of delay, because the fact that it
was working hard on the Tektite Building project was known to PRHC. 16
Thereafter, in a letter dated 18 January 1993, LCDC demanded payment of
the agreed total balance for Projects 1, 2, and 3. Through a reply letter dated
16 February 1993, PRHC denied any liability. During the course of the
proceedings, both parties conducted another reconciliation of their respective
records. The reconciliation showed the following balances in favor of LCDC:
Project 1

P 1,703,955.07

Project 2

P 13,251,152.61

Project 3

P 5,529,495.76

Total:

P 20,484,603.44

In addition to the agreed-upon outstanding balance in favor of LCDC, the

latter claimed another outstanding balance of P 232,367.96 in its favor for
the construction of the drivers quarters in Project 3.
It also further claimed the amount of P 7,112,738.82, representing the
balance for the concreting works from the ground floor to the fifth floor of the
Tektite Building.
Seeking to recover all the above-mentioned amounts, LCDC filed a Complaint
with Application for the Issuance of a Writ of Preliminary Attachment on 2
February 1996 before the RTC in Makati City docketed as Civil Case No. 96160:
WHEREFORE, it is respectfully prayed that:
1. Immediately upon the filing of this Complaint, an order of
preliminary attachment be issued over defendant Philrealtys
properties as security for any judgment which plaintiff may recover
against said defendant; and
2. After trial, judgment be rendered as follows:

427

2.1. On the first, second and third alternative causes of

action,
(a) Ordering defendant Philrealty to pay plaintiff
actual damages in the amount of P36,000,00.00
with legal interest thereon from the filing of this
Complaint until fully paid;
(b) In the alternative, ordering defendants Abcede
and Santos to jointly and severally, in the event that
they acted without necessary authority, to pay
plaintiff actual damages in the amount
of P36,000,00.00 with legal interest thereon from the
filing of this Complaint until fully paid; and
(c) Ordering defendant Philrealty or defendants
Abcede and Santos to pay plaintiff exemplary
damages in the amount to be determined by the
Honorable Court but not less thanP5,000,000.00
2.2. On the fourth cause of action, ordering defendant
Philrealty to pay plaintiff
(a) Actual damages in the amount of P7,112,738.82
with legal interest thereon from the filing of this
Complaint until fully paid; and
(b) Exemplary damages in the amount to be
determined by the Honorable Court but not less
than P1,000,000.00
2.3. On the fifth cause of action, ordering defendant
Philrealty to pay plaintiff
(a) Actual damages in the amount of P20,862,546.41
with legal interest thereon from the filing of this
Complaint until fully paid; and
(b) Exemplary damages in an amount to be
determined by the Honorable Court but not less
than P5,000,000.00.
2.4. On the sixth cause of action, ordering defendant
Philrealty to pay plaintiff
(a) Actual damages in the amount of P232,367.96
with legal interest thereon from the filing of this
Complaint until fully paid; and

(b) Exemplary damages in the amount to be

determined by the Honorable Court but not less
than P100,000.00
2.5. On the seventh cause of action, ordering defendant
Philrealty and/or defendants Abcede and Santos to pay
plaintiff attorneys fees in the amount of P750,000.00 and
expenses of litigation in the amount of P50,000.00, plus
costs.
Plaintiff prays for such other just and equitable reliefs as may be warranted
by the circumstances.
On 23 July 1999, a joint Stipulation of Facts17 was filed by the parties. In the
said stipulation, they reconciled their respective claims on the payments
made and the balances due for the construction of the Tektite Building
project, Project 1, and Project 2. The reconciliation shows that the following
amounts are due and/or overpaid:
Due to LCDC
Tektite Building

Overpaid to LCDC
P4,646,947.35

Project 1

P1,703,955.07

Project 2

P3,251,152.61
P14,955,107.68

P4,646,947.35

Both parties agreed that the only remaining issues to be resolved by the
court, with respect to the Tektite Building project and Projects 1 to 3, were as
follows:
a) The validity of Ley Constructions claim that Philrealty had granted
the former a contract price escalation for Tektite Tower I in the
amount of P36,000,000.00
b) The validity of the claim of Philrealty that the following amounts
should be charged to Ley Construction:
Payments/Advances without LCDCs conformity and
recommendation of the Construction Manager, D.A. Abcede &
Associates that subject items are LCDCs account:
a. Esicor, Inc. waterproofing works Cluster
B P1,121,000.00

428

b. Ideal Marketing, Inc. waterproofing works at Cluster B,

Quadrant 2 P885,000.00 P2,006,000.00

4. P7,112,738.82 in actual damages for the concreting works

of Tektite Tower I, with legal interest thereon from the date of
the filing of the complaint until fully paid;

c) The claim of Philrealty for liquidated damages for delay in

completion of the construction as follows:

5. P5,529,495.76 in actual damages for the construction of

Alexandra Cluster E, with legal interest thereon from the
date of the filing of the complaint until fully paid;

d) Tektite Tower I - P39,326,817.15

Alexandra Cluster B - 12,785,000.00

6. P232,367.96 in actual damages for the construction of the

drivers quarters of Alexandra Cluster E, with legal interest
thereon from the date of the filing of the complaint until fully
paid;

Alexandra Cluster C - 1,100,000.00

and
e) The claim of Ley Construction for additional sum of P2,248,463.92
which it allegedly infused for the Tektite Tower I project over and
above the original P36,000,000.00 it had allegedly bound itself to
infuse.18
On 31 January 2001, the RTC promulgated its Decision. LCDC filed a Motion
for Partial Reconsideration, which was granted.
It must be noted that in the Stipulation of Facts, the parties had jointly
agreed that the P7,112,738.82 unpaid account in the concreting of Tektite
Building would no longer be included in the list of claims submitted to the
RTC for decision. Nonetheless, this amount was still included as an award in
the trial courts 7 May 2001 amended Decision, the dispositive portion of
which provides:
WHEREFORE, premises considered, judgment is hereby rendered:
A. Dismissing the counter-claim of defendant DENNIS ABCEDE and
the cross-claim of defendant JOSELITO SANTOS; and
B. Ordering defendant PHILIPPINE REALTY AND HOLDING
CORPORATION to pay plaintiff LEY CONSTRUCTION AND
DEVELOPMENT CORPORATION:
1. P33,601,316.17, for the Tektite Tower I Project with legal
interest thereon from date of the filing of the complaint until
fully paid;
2. P13,251,152.61 for Alexandra Cluster B with legal interest
thereon from date of the filing of the complaint until fully
paid;
3. P1,703,955.07 for Alexandra Cluster C with legal interest
thereon from date of the filing of the complaint until fully
paid;

7. P750,000.00 for attorneys fees and expenses of litigation;

and
8. Costs.
SO ORDERED.

19

PRHC filed a Notice of Appeal on 14 June 2001. The Court of Appeals, in CAG.R. CV No. 71293,20 reversed the lower courts amended Decision on 30
September 2004 and ruled thus:
WHEREFORE, premises considered, the assailed January 31, 2001 decision
and the May 7, 2001 amended decision are hereby REVERSED and SET
ASIDE and a new one is entered:
I. FINDING plaintiff-appellee LCDC LIABLE to defendant-appellant
PRHC in the amount of Sixty million Four Hundred Sixty Four
(Thousand) Seven Hundred Sixty Four 90/100 (P60,464,764.90)
PESOS detailed as follows:
[1] P39,326,817.15 liquidated damages pursuant to contract
for delay incurred by plaintiff-appellee LCDC in the
construction of Tektite Tower Phase I, the length of delay
having been signed and confirmed by LCDC;
[2] P12,785,000.00 liquidated damages pursuant to contract
for delay incurred by plaintiff-appellee LCDC in the
construction of Alexandra Cluster B, the length of delay
having been signed and confirmed by LCDC;
[3] P1,700,000.00 liquidated damages pursuant to contract
for delay incurred by plaintiff appellee LCDC in the
construction of Alexandra Cluster C, the length of delay
having been confirmed by LCDC;
[4] P4,646,947.75 overpayment by defendant-appellant
PRHC to plaintiff-appellee LCDC for the Tektite Tower Phase I
Project;

429

[5] P1,121,000.00 expenses incurred by defendant-appellant

PRHC for corrective works to redo/repair allegedly defective
Waterproofing construction work or plaintiff-appellee LCDC
in the Alexander Cluster B Project which was paid by
defendant-appellant PRHC to contractor Escritor, Inc.;
[6] P885,000.00 expenses incurred by defendant-appellant
PRHC for corrective works to redo/repair allegedly defective
Waterproofing construction work of plaintiff-appellee LCDC
at the Alexandra Cluster B Quadrant in the Alexander
Cluster B Project which was paid by defendant-appellant
PRHC to contractor Ideal Marketing Inc., and
II. FINDING defendant-appellant PRHC LIABLE to plaintiff-appellee
LCDC in the amount of Fifty Six million Seven Hundred Sixteen
Thousand Nine Hundred Seventy One 40/100 (P56,716,971.40)
detailed as follows:
In Yao Ka Sin Trading v. Court of Appeals, et al,.43 this Court discussed the
applicable rules on the doctrine of apparent authority, to wit:
The rule is of course settled that "[a]lthough an officer or agent acts without,
or in excess of, his actual authority if he acts within the scope of an apparent
authority with which the corporation has clothed him by holding him out or
permitting him to appear as having such authority, the corporation is bound
thereby in favor of a person who deals with him in good faith in reliance on
such apparent authority, as where an officer is allowed to exercise a
particular authority with respect to the business, or a particular branch of it,
continuously and publicly, for a considerable time." Also, "if a private
corporation intentionally or negligently clothes its officers or agents with
apparent power to perform acts for it, the corporation will be estopped to
deny that such apparent authority is real, as to innocent third persons
dealing in good faith with such officers or agents." 44
In Peoples Aircargo and Warehousing Co. Inc. v. Court of Appeals, et al., 45 we
held that apparent authority is derived not merely from practice:
Its existence may be ascertained through (1) the general manner in which the
corporation holds out an officer or agent as having the power to act or, in
other words, the apparent authority to act in general, with which it clothes
him; or (2) the acquiescence in his acts of a particular nature, with actual or
constructive knowledge thereof, whether within or beyond the scope of his
ordinary powers.
We rule that Santos and Abcede held themselves out as possessing the
authority to act, negotiate and sign documents on behalf of PRHC; and that
PRHC sanctioned these acts. It would be the height of incongruity to now
allow PRHC to deny the extent of the authority with which it had clothed

both individuals. We find that Abcedes role as construction manager, with

regard to the construction projects, was akin to that of a general manager
with regard to the general operations of the corporation he or she is
representing.
Consequently, the escalation agreement entered into by LCDC and Abcede is
a valid agreement that PRHC is obligated to comply with. This escalation
agreement whether written or verbal has lifted, through novation, the
prohibition contained in the Tektite Building Agreement.
In order for novation to take place, the concurrence of the following requisites
is indispensable:
1. There must be a previous valid obligation.
2. The parties concerned must agree to a new contract.
3. The old contract must be extinguished.
4. There must be a valid new contract.46
All the aforementioned requisites are present in this case. The obligation of
both parties not to increase the contract price in the Tektite Building
Agreement was extinguished, and a new obligation increasing the old
contract price byP 36 million was created by the parties to take its place.
What makes this Court believe that it is incorrect to allow PRHC to escape
liability for the escalation price is the fact that LCDC was never informed of
the board of directors supposed non-approval of the escalation agreement
until it was too late. Instead, PRHC, for its own benefit, waited for the former
to finish infusing the entire amount into the construction of the building
before informing it that the said agreement had never been approved by the
board of directors. LCDC diligently informed PRHC each month of the partial
amounts the former infused into the project. PRHC must be deemed estopped
from denying the existence of the escalation agreement for having allowed
LCDC to continue infusing additional money spending for its own project,
when it could have promptly notified LCDC of the alleged disapproval of the
proposed escalation price by its board of directors.
Estoppel is an equitable principle rooted in natural justice; it is meant to
prevent persons from going back on their own acts and representations, to
the prejudice of others who have relied on them. 47 Article 1431 of the Civil
Code provides:
Through estoppel an admission or representation is rendered conclusive
upon the person making it, and cannot be denied or disproved as against the
person relying thereon.
Article 1431 is reflected in Rule 131, Section 2 (a) of the Rules of Court, viz.:

430

Sec. 2. Conclusive presumptions. The following are instances of conclusive

presumptions:

mistake, fraud, coercion, or request. Rather, it voluntarily infused the excess

amount with full knowledge that PRHC had no obligation to reimburse it.

(a) Whenever a party has by his own declaration, act or omission,

intentionally and deliberately led another to believe a particular thing true,
and to act upon such belief, he cannot, in any litigation arising out of such
declaration, act or omission be permitted to falsify it.

Parenthetically, we note that the CA had ruled that the 7 December 1992
letter demonstrates that PRHC treated the P 36 million as a loan deductible
from the liquidated damages for which LCDC is supposedly liable. 53 It ruled
that when PRHC informed LCDC that it would apply the P 36 million to the
liquidated damages, PRHC, in effect, acknowledged that it was in debt to
LCDC in the amount of P 36 million, and that forms the basis for PRHCs
liability to LCDC for the said amount.

This Court has identified the elements of estoppel as:

[F]irst, the actor who usually must have knowledge, notice or suspicion of the
true facts, communicates something to another in a misleading way, either by
words, conduct or silence; second, the other in fact relies, and relies
reasonably or justifiably, upon that communication; third, the other would be
harmed materially if the actor is later permitted to assert any claim
inconsistent with his earlier conduct; and fourth, the actor knows, expects or
foresees that the other would act upon the information given or that a
reasonable person in the actor's position would expect or foresee such
action.48
This liability of PRHC, however, has a ceiling. The escalation agreement
entered into was for P 36 millionthe maximum amount that LCDC
contracted itself to infuse and that PRHC agreed to reimburse. Thus, the
Court of Appeals was correct in ruling that the P 2,248,463.92 infused by
LCDC over and above the P 36 million should be for its account, since PRHC
never agreed to pay anything beyond the latter amount. While PRHC
benefited from this excess infusion, this did not result in its unjust
enrichment, as defined by law.
Unjust enrichment exists "when a person unjustly retains a benefit to the
loss of another, or when a person retains money or property of another
against the fundamental principles of justice, equity and good
conscience."49 Under Art. 22 of the Civil Code, there is unjust enrichment
when (1) a person is unjustly benefited, and (2) such benefit is derived at the
expense of or with damages to another.50 The term is further defined thus:
Unjust enrichment is a term used to depict result or effect of failure to make
remuneration of or for property or benefits received under circumstances
that give rise to legal or equitable obligation to account for them; to be
entitled to remuneration, one must confer benefit by mistake, fraud,
coercion, or request.51
In order for an unjust enrichment claim to prosper, one must not only prove
that the other party benefited from ones efforts or the obligations of others;
it must also be shown that the other party was unjustly enriched in the
sense that the term "unjustly" could mean "illegally" or "unlawfully." 52 LCDC
was aware that the escalation agreement was limited to P36 million. It is not
entitled to remuneration of the excess, since it did not confer this benefit by

We disagree with this analysis.

In a contract of loan, ownership of the money is transferred from the lender
to the borrower.54 In this case, ownership of the P 36 million was never
transferred to PRHC. As previously mentioned, such amount was paid
directly to the suppliers.55 We find that arrangement between PRHC and
LCDC cannot be construed as a loan agreement but rather, it was an
agreement to advance the costs of construction. In Liwanag v. Court of
Appeals et al., we state:
Neither can the transaction be considered a loan, since in a contract of loan
once the money is received by the debtor, ownership over the same is
transferred. Being the owner, the borrower can dispose of it for whatever
purpose he may deem proper. In the instant petition, however, it is evident
that Liwanag could not dispose of the money as she pleased because it was
only delivered to her for a single purpose, namely, for the purchase of
cigarettes, and if this was not possible then to return the money to Rosales.
LCDC is not liable for liquidated damages for delay in the construction of the
buildings for PRHC.
There is no question that LCDC was not able to fully construct the Tektite
Building and Projects 1, 2, and 3 on time. It reasons that it should not be
made liable for liquidated damages, because its rightful and reasonable
requests for time extension were denied by PRHC.56
It is important to note that PRHC does not question the veracity of the factual
representations of LCDC to justify the latters requests for extension of time.
It insists, however, that in any event LCDC agreed to the limits of the time
extensions it granted.57
The practice of the parties is that each time LCDC requests for more time, an
extension agreement is executed and signed by both parties to indicate their
joint approval of the number of days of extension agreed upon.
The applicable provision in the parties agreements is as follows:
ARTICLE VII TIME OF COMPLETION

431

...

...

...

contractor

Should the work be delayed by any act or omission of the OWNER or any
other person employed by or contracted by the OWNER in the project,
2 Sep 1991
including days in the delivery or (sic) materials furnished by the OWNER or
others, or by any appreciable additions or alterations in the work ordered by
the OWNER or the ARCHITECT, under Article V or by force majeure, war,
13 Oct 1991
rebellion, strikes, epidemics, fires, riots, or acts of the civil or military
authorities, the CONTRACTOR shall be granted time extension.
In case the CONTRACTOR encounters any justifiable cause or reason for
5 Dec 1991
delay, the CONTRACTOR shall within ten (10) days, after encountering such
cause of delay submit to the OWNER in writing a written request for time
extension indicating therein the requested contract time extension. Failure by
the CONTRACTOR to comply with this requirements (sic) will be adequate
2 Apr 1992
reason for the OWNER not to grant the time extension.1avvphi1
The following table shows the dates of LCDCs letter-requests, the supposed
causes justifying them, the number of days requested, and the number of 5 May 1992
days granted by PRHC and supposedly conformed to by LCDC:

Inclement weather and scarcity of cement

25

Water supply interruption and power failures preventing the

mixing of cement

15

Typhoon Uring and water supply interruption (typhoon Uring

alone caused a delay for more than 10 days due to strong and
continuous rains)

15

Inadequate supply of Portland cement and frequent power

failures

15

Inadequate supply of cement and frequent power failures

17
456

1avvphi1
Cause

# of days requested

# of days
granted

1 Mar 1990

Due to additional works and shortage of supplies and cement

30

4 Apr 1990

Shortage of cement supply

18

0 May 1990

Frequent power failures

10

9 Jul 1990

Bad weather which endangered the lives of the construction

workers ("heavy winds")

10

4 Sep 1990

Inclement weather that endangered the lives of the

construction workers

10

Architectural and structural revisions of R.C. beams at the 8th

floor level

20

8 Feb 1991

8 Aug 1991

For change order work and revisions in the plans initiated by

the architect and Abcedes delay in giving the revised plans to

271

additions and alterations in the work ordered by the owner and

architect

108

564
As previously mentioned, LCDC sent a 9 December 1992 letter to PRHC
claiming that, in a period of over two years, only 256 out of the 618 days of
extension requested were considered. We disregard these numbers presented
by LCDC because of its failure to present evidence to prove its allegation. The
tally that we will acceptas reflected by the evidence submitted to the lower
courtis as follows: out of the 564 days requested, only 237 were considered.
Essentially the same aforementioned reasons or causes are presented by
LCDC as defense against liability for both Projects 1 and 2. 58 In this regard,
the CA ruled:
Plaintiff-appellees allegation that determination by PHRC of extensions of
time were unreasonable or arbitrary is untenable in the light of express
provisions of the Construction Agreements which prescribed precise
procedures for extensions of time. In fact the procedure is fool-proof because
both OWNER and CONTRACTOR sign to indicate approval of the number of
days of extension. Computation of the penalty becomes mechanical after
that. Each extension as signed by the parties is a contract by itself and has
the force of law between them.

432

In fact, the parties followed that prescribed procedure strictly the

CONTRACTOR first requested the OWNER to approve the number of days
applied for as extension of time to finish the particular project and the
OWNER will counter-offer by approving only a lower number of days
extension of time for CONTRACTOR to finish the contract as recommended
by the CONSTRUCTION MANAGER ABCEDE, and in the end, both
CONTRACTOR and OWNER sign jointly the approved number of days agreed
upon. That signed extension of time is taken to be the contract between the
parties.59
The appellate court further ruled that each signed extension is a separate
contract that becomes the law between the parties: 60
there is nothing arbitrary or unreasonable about the number of days
extension of time because each extension is a meeting of the minds between
the parties, each under joint signature OWNER and CONTRACTOR witnessed
by the CONSTRUCTION MANAGER.61
Inasmuch as LCDCs claimed exemption from liability are beyond the
approved time extensions, LCDC, according to the majority of the CA, is
liable therefor.
Justice Juan Q. Enriquez, in his Dissenting Opinion, held that the reasons
submitted by LCDC fell under the definition of force majeure. 62 This specific
point was not refuted by the majority.
We agree with Justice Enriquez on this point and thereby disagree with the
majority ruling of the CA.
Article 1174 of the Civil Code provides: "Except in cases expressly specified
by the law, or when it is otherwise declared by stipulation or when the nature
of the obligation requires the assumption of risk, no person shall be
responsible for those events which could not be foreseen, or which though
foreseen, were inevitable." A perusal of the construction agreements shows
that the parties never agreed to make LCDC liable even in cases of force
majeure. Neither was the assumption of risk required. Thus, in the
occurrence of events that could not be foreseen, or though foreseen were
inevitable, neither party should be held responsible.
Under Article 1174 of the Civil Code, to exempt the obligor from liability for a
breach of an obligation due to an "act of God" or force majeure, the following
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 unforseeable 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.63

The shortage in supplies and cement may be characterized as force

majeure.64 In the present case, hardware stores did not have enough cement
available in their supplies or stocks at the time of the construction in the
1990s. Likewise, typhoons, power failures and interruptions of water supply
all clearly fall under force majeure. Since LCDC could not possibly continue
constructing the building under the circumstances prevailing, it cannot be
held liable for any delay that resulted from the causes aforementioned.
Further, PRHC is barred by the doctrine of promissory estoppel from denying
that it agreed, and even promised, to hold LCDC free and clear of any
liquidated damages. Abcede and Santos also promised that the latter
corporation would not be held liable for liquidated damages even for a single
day of delay despite the non-approval of the requests for extension. 65 Mr. Ley
testified to this fact as follows:
Q: So, Mr. Witness in all those requests for extension and whenever the D.A.
Abcede & Associates did not grant you the actual number of days stated in
your requests for extension, what did Ley construction and Development do,
if any?
A: We talked to Dennis Abcede and Mr. Santos, Maam.
Q: And what did you tell them?
A: I will tell them why did you not grant the extension for us, Maam.
Q: What was the response of Mr. Abcede and Mr. Santos?
A: Mr. Abcede and Mr. Santos told me, Mr. Ley dont worry, you will not be
liquidated of any single day for this because we can see that you worked so
hard for this project, Maam.
Q: And what did you do after you were given that response of Mr. Abcede and
Mr. Santos?
A: They told me you just relax and finish the project, and we will pay you up
to the last centavos, Maam.
Q: What did you do after taking that statement or assurance?
A: As gentlemans agreement I just continued working without complaining
anymore, Maam.66
The above testimony is uncontradicted. Even assuming that all the reasons
LCDC presented do not qualify as fortuitous events, as contemplated by law,
this Court finds that PRHC is estopped from denying that it had granted a
waiver of the liquidated damages the latter corporation may collect from the
former due to a delay in the construction of any of the buildings.

433

Courts may rule on causes of action not included in the Complaint, as long
as these have been proven during trial without the objection of the opposing
party.

No objection was raised when LCDC presented evidence to prove the

outstanding balances for Project 3, its drivers quarters, and the concreting
works in the Tektite Building.

PRHC argues that since the parties had already limited the issues to those
reflected in their joint stipulation of facts, neither the trial court nor the
appellate court has the authority to rule upon issues not included therein.
Thus it was wrong for the trial court and the CA to have awarded the
amounts of P 5,529,495.76 representing the remaining balance for Project 3
as well as for the P 232,367.96 representing the balance for the construction
of the drivers quarters in Project 3. PRHC claims that in the Stipulation of
Facts, all the issues regarding Project 3 were already made part of the
computation of the balances for the other projects. It thus argues that the
computation for the Tektite Building showed that the overpayment for Project
3 in the amount of P 9,531,181.80 was credited as payment for the Tektite
Tower Project.67 It reasons that, considering that it actually made an
overpayment for Project 3, it should not be made liable for the remaining
balances for Project 3 and the drivers quarters in Project 3. 68 It is LCDCs
position, however, that the Stipulation of Facts covers the balances due only
for the Tektite Tower Project, Project 1, and Project 2. 69 Since Project 3 was
not included in the reconciliation contained in the said stipulation, it
maintains that the balance for Project 3 remains at P 5,529,495.76,70 and
that the balance for the construction of the drivers quarters in Project 3
remains at P 232,367.96.

In Phil. Export and Foreign Loan Guarantee Corp. v. Phil. Infrastructures, et

al.,72 this Court held:

On its part, LCDC disputes the deletion by the CA of the lower courts grant
of the alleged P 7,112,738.82 unpaid balance for the concreting works in the
Tektite Building. The CA had ruled that this cause of action was withdrawn
by the parties when they did not include it in their Joint Stipulation of Facts.
LCDC argues that to the contrary, the silence of the Stipulation of Facts on
this matter proves that the claim still stands.71
Considering that the unpaid balances for Project 3, its drivers quarters, and
the concreting works in the Tektite Building were not covered by the
Stipulation of Facts entered into by the parties, we rule that no judicial
admission could have been made by LCDC regarding any issue involving the
unpaid balances for those pieces of work.
We affirm in this case the doctrine that courts may rule or decide on matters
that, although not submitted as issues, were proven during trial. The
admission of evidence, presented to support an allegation not submitted as
an issue, should be objected to at the time of its presentation by the party to
be affected thereby; otherwise, the court may admit the evidence, and the
fact that such evidence seeks to prove a matter not included or presented as
an issue in the pleadings submitted becomes irrelevant, because of the
failure of the appropriate party to object to the presentation.

It is settled that even if the complaint be defective, but the parties go to trial
thereon, and the plaintiff, without objection, introduces sufficient evidence to
constitute the particular cause of action which it intended to allege in the
original complaint, and the defendant voluntarily produces witnesses to meet
the cause of action thus established, an issue is joined as fully and as
effectively as if it had been previously joined by the most perfect pleadings.
Likewise, when issues not raised by the pleadings are tried by express or
implied consent of the parties, they shall be treated in all respects as if they
had been raised in the pleadings.
Considering the absence of timely and appropriate objections, the trial court
did not err in admitting evidence of the unpaid balances for Project 3, its
drivers quarters, and the concreting works in the Tektite Building.
Furthermore, both the lower and the appellate courts found that the
supporting evidence presented by LCDC were sufficient to prove that the
claimed amounts were due, but that they remained unpaid.
LCDC should be held liable for the corrective works to redo or repair the
defective waterproofing in Project 2.
The waterproofing of Project 2 was not undertaken by LCDC. Instead,
Vulchem Corporation (Vulchem), which was recommended by Santos and
Abcede, was hired for that task. Vulchems waterproofing turned out to be
defective. In order to correct or repair the defective waterproofing, PRHC had
to contract the services of another corporation, which charged it P2,006,000.
Denying liability by alleging that PRHC forced it into hiring Vulchem
Corporation for the waterproofing works in Project 2, LCDC argues that
under Article 1892, an agent is responsible for the acts of the substitute if he
was given the power to appoint a substitute. Conversely, if it is the principal
and not the agent who appointed the substitute, the agent bears no
responsibility for the acts of the sub-agent. 73 The provision reads:
"Art. 1892. The agent may appoint a substitute if the principal has not
prohibited him from doing so; but he shall be responsible for the acts of the
substitute:
(1) When he was not given the power to appoint one;
(2) When he was given such power, but without designating the
person, and the person appointed was notoriously incompetent or
insolvent."

434

LCDC argues that because PRHC, as the principal, had designated Vulchem
as sub-agent, LCDC, as the agent, should not be made responsible for the
acts of the substitute, even in the instance where the latter were notoriously
incompetent.74
LCDCs reliance on Art. 1892 is misplaced. The principles of agency are not
to be applied to this case, since the legal relationship between PRHC and
LCDC was not one of agency, but was rather that between the owner of the
project and an independent contractor under a contract of service. Thus, it is
the agreement between the parties and not the Civil Code provisions on
agency that should be applied to resolve this issue.
Art. XIV of the Project 2 Agreement clearly states that if the contractor
sublets any part of the agreement to a third party, who in effect becomes a
sub-contractor, the losses or expenses that result from the acts/inactions of
the sub-contractor should be for the contractors account, to wit:
ARTICLE XIV ASSIGNMENT
This Agreement, and/or any of the payments to be due hereunder shall not
be assigned in whole or in part by the CONTRACTOR nor shall any part of
the works be sublet by CONTRACTOR without the prior written consent of
OWNER, and such consent shall not relieve the CONTRACTOR from full
responsibility and liability for the works hereunder shall not be granted in
any event until CONTRACTOR has furnished OWNER with satisfactory
evidence that the Sub-Contractor is carrying ample insurance to the same
extent and in the same manner as herein provided to be furnished by
CONTRACTOR. If the agreement is assigned or any part thereof is sublet,
CONTRACTOR shall exonerate, indemnify and save harmless the OWNER
from and against any and all losses or expenses caused thereby. 75
LCDC had every right to reject Vulchem as sub-contractor for the
waterproofing work of Project 2 but it did not do so and proceeded to hire the
latter. It is not unusual for project owners to recommend sub-contractors,
and such recommendations do not diminish the liability of contractors in the
presence of an Article XIV-type clause in the construction agreement. The
failure of LCDC to ensure that the work of its sub-contractor is satisfactory
makes it liable for the expenses PRHC incurred in order to correct the
defective works of the sub-contractor. The CA did not err in ruling that the
contract itself gave PRHC the authority to recover the expenses for the "re-do"
works arising from the defective work of Vulchem.76
LCDC is entitled to attorneys fees and the expenses of litigation and costs.
According to the CA, LCDC was not entitled to attorneys fees, because it was
not the aggrieved party, but was the one that violated the terms of the
construction agreements and should thus be made to pay costs. 77 LCDC
claims, on the other hand, that the CA seriously erred in deleting the lower

courts award of P750,000 attorneys fees and the expenses of litigation in its
favor, since this award is justified under the law.78 To support its claim, LCDC
cites Article 2208(5), which provides:
ART. 2208. In the absence of stipulation, attorneys fees and expenses of
litigation, other than judicial costs, cannot be recovered, except:
...

...

...

(5) Where the defendant acted in gross and evident bad faith in refusing to
satisfy the plaintiffs plainly valid, just and demandable claim;
...

...

...

Attorney's fees may be awarded when the act or omission of the defendant
compelled the plaintiff to incur expenses to protect the latters interest. 79 In
ABS-CBN Broadcasting Corp. v. CA,80 we held thus:
The general rule is that attorney's fees cannot be recovered as part of
damages because of the policy that no premium should be placed on the
right to litigate. They are not to be awarded every time a party wins a suit.
The power of the court to award attorney's fees under Article 2208 demands
factual, legal, and equitable justification. Even when a claimant is compelled
to litigate with third persons or to incur expenses to protect his rights, still
attorney's fees may not be awarded where no sufficient showing of bad faith
could be reflected in a party's persistence in a case other than an erroneous
conviction of the righteousness of his cause.
LCDC has failed to establish bad faith on the part of PRHC so as to sustain
its position that it is entitled to attorneys fees. Nevertheless, the CA erred in
reversing the lower courts Decision granting LCDCs claim for attorneys fees
considering that the construction agreements contain a penal clause that
deals with the award of attorneys fees, as follows:
In the event the OWNER/CONTRACTOR institutes a judicial proceeding in
order to enforce any terms or conditions of this Agreement, the
CONTRACTOR/OWNER should it be adjudged liable in whole or in part, shall
pay the OWNER/CONTRACTOR reasonable attorneys fees in the amount
equivalent to Twenty Percent (20%) of the total amount claimed in addition to
all expenses of litigation and costs of the suit.
Equivalent to at least Twenty Percent (20%) of the total amount claimed in
addition to all expenses of litigation and costs of the suit.
As long as a stipulation does not contravene the law, morals, and public
order, it is binding upon the obligor.81Thus, LCDC is entitled to recover
attorneys fees. Nevertheless, this Court deems it proper to equitably reduce
the stipulated amount. Courts have the power to reduce the amount of
attorneys fees when found to be excessive,82viz:

435

We affirm the equitable reduction in attorneys fees. These are not an integral
part of the cost of borrowing, but arise only when collecting upon the Notes
becomes necessary. The purpose of these fees is not to give respondent a
larger compensation for the loan than the law already allows, but to protect it
against any future loss or damage by being compelled to retain counsel inhouse or notto institute judicial proceedings for the collection of its credit.
Courts have has the power to determine their reasonableness based on
quantum meruit and to reduce the amount thereof if excessive. 83

The respective liabilities of the parties as enumerated above are hereby SET
OFF against each other, and PRHC is hereby DIRECTED to pay LCDC the net
amount due, which is P 57,376,762.47, with legal interest from the date of
the filing of Complaint.
SO ORDERED.

We reverse the appellate courts Decision and reinstate the lower courts
award of attorneys fees, but reduce the amount from P750,000 to P200,000.
WHEREFORE, we SET ASIDE the Decision of the Court of Appeals and RULE
as follows:
I. We find Philippine Realty and Holdings Corporation (PRHC) LIABLE to Ley
Construction Development Corporation (LCDC) in the amount
of P 64,029,710.22, detailed as follows:
1. P 13,251,152.61 as balance yet unpaid by PRHC for
Project 2;
2. P 1,703,955.07 as balance yet unpaid by PRHC for Project
1;
3. P 5,529,495.76 as balance yet unpaid by PRHC for Project
3;
4. P 232,367.96 as balance yet unpaid by PRHC for the
drivers quarters for Project 3;
5. P 36,000,000.00 as agreed upon in the escalation
agreement entered into by PRHCs representatives and LCDC
for the Tektite Building;
6. P 7,112,738.82 as balance yet unpaid by PRHC for the
concreting works from the ground floor to the fifth floor of
the Tektite Building;
7. P 200,000.00 as LCDCs reduced attorneys fees.
II. Further, we find LCDC LIABLE to PRHC in the amount of P 6,652,947.75
detailed as follows:
1. P 4,646,947.75 for the overpayment made by PRHC for the
Tektite Building;
2. P 2,006,000.00 for the expenses incurred by PRHC for
corrective works to redo/repair the allegedly defective
waterproofing construction work done by LCDC in Project 2.

436

ADDITIONAL CASES FOR VICES OF CONSENT

Two years later, in March 1999, respondents filed before the SEC a
Complaint6 for refund of the P387,300.00 they spent to purchase FRCCI
shares of stock from petitioners. Respondents alleged that they had been
deceived into buying FRCCI shares because of petitioners fraudulent

.R. No. 154670

January 30, 2012

FONTANA RESORT AND COUNTRY CLUB, INC. AND RN DEVELOPMENT

CORP., Petitioners,

the policies, rules, and regulations of the country club were obscure.
Respondents narrated that they were able to book and avail themselves of
free accommodations at an FLP villa on September 5, 1998, a Saturday. They

vs.
SPOUSES ROY S. TAN AND SUSAN C. TAN, Respondents.
DECISION
LEONARDO-DE CASTRO, J.:
For review under Rule 45 of the Rules of Court is the Decision 1 dated May 30,
2002 and Resolution2 dated August 12, 2002 of the Court Appeals in CA-G.R.
SP No. 67816. The appellate court affirmed with modification the
Decision3 dated July 6, 2001 of the Securities and Exchange Commission
(SEC) En Banc in SEC AC Case No. 788 which, in turn, affirmed the
Decision4 dated April 28, 2000 of Hearing Officer Marciano S. Bacalla, Jr.
(Bacalla) of the SEC Securities Investigation and Clearing Department (SICD)
in SEC Case No. 04-99-6264.
Sometime in March 1997, respondent spouses Roy S. Tan and Susana C. Tan
bought from petitioner RN Development Corporation (RNDC) two class "D"
shares of stock in petitioner Fontana Resort and Country Club, Inc. (FRCCI),
worth P387,300.00, enticed by the promises of petitioners sales agents that
petitioner FRCCI would construct a park with first-class leisure facilities in
Clark Field, Pampanga, to be called Fontana Leisure Park (FLP); that FLP
would be fully developed and operational by the first quarter of 1998; and
that FRCCI class "D" shareholders would be admitted to one membership in
the country club, which entitled them to use park facilities and stay at a twobedroom villa for "five (5) ordinary weekdays and two (2) weekends every year
for free."5

misrepresentations. Construction of FLP turned out to be still unfinished and

requested that an FLP villa again be reserved for their free use on October 17,
1998, another Saturday, for the celebration of their daughters 18th birthday,
but were refused by petitioners. Petitioners clarified that respondents were
only entitled to free accommodations at FLP for "one week annually
consisting of five (5) ordinary days, one (1) Saturday and one (1) Sunday[,]"
and that respondents had already exhausted their free Saturday pass for the
year. According to respondents, they were not informed of said rule regarding
their free accommodations at FLP, and had they known about it, they would
not have availed themselves of the free accommodations on September 5,
1998. In January 1999, respondents attempted once more to book and
reserve an FLP villa for their free use on April 1, 1999, a Thursday. Their
reservation was confirmed by a certain Murphy Magtoto. However, on March
3, 1999, another country club employee named Shaye called respondents to
say that their reservation for April 1, 1999 was cancelled because the FLP
was already fully booked.
Petitioners filed their Answer7 in which they asserted that respondents had
been duly informed of the privileges given to them as shareholders of FRCCI
class "D" shares of stock since these were all explicitly provided in the
promotional materials for the country club, the Articles of Incorporation, and
the By-Laws of FRCCI. Petitioners called attention to the following paragraph
in their ads:
GUEST ROOMS
As a member of the Fontana Resort and Country Club, you are entitled to 7
days stay consisting of 5 weekdays, one Saturday and one Sunday. A total of
544 elegantly furnished villas available in two and three bedroom units. 8

437

Petitioners also cited provisions of the FRCCI Articles of Incorporation and

If at all, [respondents] were "wait-listed" as of January 4, 1999, meaning,

the By-Laws on class "D" shares of stock, to wit:

they would be given preference in the reservation in the event that any of the
confirmed members/guests were to cancel. The diligence on the part of the

Class D shares may be sold to any person, irrespective of nationality or

[herein petitioners] to inform [respondents] of the status of their reservation

Citizenship. Every registered owner of a class D share may be admitted to

can be manifested by the act of the Clubs personnel when it advised

one (1) Membership in the Club and subject to the Clubs rules and

[respondents] on March 3, 1999 that there were still no available villas for

regulations, shall be entitled to use a Two (2) Bedroom Multiplex Model Unit

their use because of full bookings.10

in the residential villas provided by the Club for one week annually consisting
of five (5) ordinary days, one (1) Saturday and one (1) Sunday. (Article

Lastly, petitioners averred that when respondents were first accommodated at

Seventh, Articles of Incorporation)

FLP, only minor or finishing construction works were left to be done and that
facilities of the country club were already operational.

Class D shares which may be sold to any person, irrespective of nationality

or Citizenship. Every registered owner of a class D share may be admitted to

SEC-SICD Hearing Officer Bacalla conducted preliminary hearings and trial

one (1) Membership in the Club and subject to the Clubs rules and

proper in the case. Respondents filed separate sworn Question and Answer

regulations, shall be entitled to use a Two (2) Bedroom Multiplex Model Unit

depositions.11 Esther U. Lacuna, a witness for respondents, also filed a sworn

in the residential villas provided by the Club for one week annually consisting

Question and Answer deposition.12 When petitioners twice defaulted, without

of five (5) ordinary days, one (1) Saturday and one (1) Sunday. [Section 2(a),

any valid excuse, to present evidence on the scheduled hearing dates,

Article II of the By-Laws.]

Hearing Officer Bacalla deemed petitioners to have waived their right to

present evidence and considered the case submitted for resolution. 13

Petitioners further denied that they unjustly cancelled respondents

reservation for an FLP villa on April 1, 1999, explaining that:

Based on the evidence presented by respondents, Hearing Officer Bacalla

made the following findings in his Decision dated April 28, 2000:

6. There is also no truth to the claim of [herein respondents] that they were
given and had confirmed reservations for April 1, 1998. There was no

To prove the merits of their case, both [herein respondents] testified. Ms.

reservation to cancel since there was no confirmed reservations to speak of

Esther U. Lacuna likewise testified in favor of [respondents].

for the reason that April 1, 1999, being Holy Thursday, all reservations for
the Holy Week were fully booked as early as the start of the current year. The

As established by the testimonies of [respondents] witnesses, Ms. Esther U.

Holy Week being a peak season for accommodations, all reservations had to

Lacuna, a duly accredited sales agent of [herein petitioners] who went to see

be made on a priority basis; and as admitted by [respondents], they tried to

[respondents] for the purpose of inducing them to buy membership shares of

make their reservation only on January 4, 1999, a time when all reservations

Fontana Resort and Country Club, Inc. with promises that the park will

have been fully booked. The fact of [respondents] non-reservation can be

provide its shareholders with first class leisure facilities, showing them

attested by the fact that no confirmation number was issued in their favor.

brochures (Exhibits "V", "V-1" and "V-2") of the future development of the
park.
Indeed [respondents] bought two (2) class "D" shares in Fontana Resort and
Country Club, Inc. payingP387,000.00 to [petitioners] as evidenced by
provisional and official receipts (Exhibits "A" to "S"), and signing two (2)
documents designated as Agreement to Sell and Purchase Shares of Stock
(Exhibits "T" to "U-2").

438

It is undisputed that many of the facilities promised were not completed

1) The amount of P387,000.00 plus interest at the rate of 21% per annum

within the specified date. Ms. Lacuna even testified that less than 50% of

computed from August 28, 1998 when demand was first made, until such

what was promised were actually delivered.

time as payment is actually made.15

What was really frustrating on the part of [respondents] was when they made

Petitioners appealed the above-quoted ruling of Hearing Officer Bacalla before

reservations for the use of the Clubs facilities on the occasion of their

the SEC en banc. In its Decision dated July 6, 2001, the SEC en banc held:

daughters 18th birthday on October 17, 1998 where they were deprived of
the clubs premises alleging that the two (2) weekend stay which class "D"

WHEREFORE, the instant appeal is hereby DENIED and the Decision of

shareholders are entitled should be on a Saturday and on a Sunday. Since

Hearing Officer Marciano S. Bacalla, Jr. dated April 28, 2000 is hereby

[respondents] have already availed of one (1) weekend stay which was a

AFFIRMED.16

Saturday, they could no longer have the second weekend stay also on a
Saturday.

In an Order17 dated September 19, 2001, the SEC en banc denied petitioners
Motion for Reconsideration for being a prohibited pleading under the SEC

Another occasion was when [respondents] were again denied the use of the

Rules of Procedure.

clubs facilities because they did not have a confirmation number although
their reservation was confirmed.

Petitioners filed before the Court of Appeals a Petition for Review under Rule
43 of the Rules of Court. Petitioners contend that even on the sole basis of

All these rules were never communicated to [respondents] when they bought

respondents evidence, the appealed decisions of Hearing Officer Bacalla and

their membership shares.

the SEC en banc are contrary to law and jurisprudence.

It would seem that [petitioners], through their officers, would make up rules

The Court of Appeals rendered a Decision on March 30, 2002, finding

as they go along. A clever ploy for [petitioners] to hide the lack of club

petitioners appeal to be partly meritorious.

facilities to accommodate the needs of their members.

The Court of Appeals brushed aside the finding of the SEC that petitioners
[Petitioners] failure to finish the development works at the Fontana Leisure

were guilty of fraudulent misrepresentation in inducing respondents to buy

Park within the period they promised and their failure or refusal to

FRCCI shares of stock. Instead, the appellate court declared that:

accommodate [respondents] for a reservation on October 17, 1998 and April

1, 1999, constitute gross misrepresentation detrimental not only to the

What seems clear rather is that in "inducing" the respondents to buy the

[respondents] but to the general public as well.

Fontana shares, RN Development Corporation merely repeated to the

spouses the benefits promised to all holders of Fontana Class "D" shares.

All these empty promises of [petitioners] may well be part of a scheme to

These inducements were in fact contained in Fontanas promotion brochures

attract, and induce [respondents] to buy shares because surely if [petitioners]

to prospective subscribers which the spouses must obviously have read. 18

had told the truth about these matters, [respondents] would never have
bought shares in their project in the first place. 14

Nonetheless, the Court of Appeals agreed with the SEC that the sale of the
two FRCCI class "D" shares of stock by petitioners to respondents should be

Consequently, Hearing Officer Bacalla adjudged:

rescinded. Petitioners defaulted on their promises to respondents that FLP

would be fully developed and operational by the first quarter of 1998 and

WHEREFORE, premises considered, judgment is hereby rendered directing

that as shareholders of said shares, respondents were entitled to the free use

[herein petitioners] to jointly and severally pay [herein respondents]:

of first-class leisure facilities at FLP and free accommodations at a two-

439

bedroom villa for "five (5) ordinary weekdays and two (2) weekends every

b. Was the order of the Court of Appeals to FRCCI which was not

year."

the seller of the thing sold (the seller was RNDC) to return the
purchase price to the buyers (the respondents) in accordance with
law?

The Court of Appeals modified the appealed SEC judgment by ordering

respondents to return their certificates of shares of stock to petitioners upon
the latters refund of the price of said shares since "[t]he essence of the

c. Was the imposition of 12% interest per annum from the date of

questioned [SEC] judgment was really to declare as rescinded or annulled the

extra-judicial demand on an obligation which is not a loan or

sale or transfer of the shares to the respondents." 19 The appellate court

forbearance of money in accordance with law?22

additionally clarified that the sale of the FRCCI shares of stock by petitioners
to respondents partakes the nature of a forbearance of money, since the

Petitioners averred that the ruling of the Court of Appeals that the essence of

amount paid by respondents for the shares was used by petitioners to defray

the SEC judgment is the rescission or annulment of the contract of sale of

the construction of FLP; hence, the interest rate of 12% per annum should be

the FRCCI shares of stock between petitioners and respondents is

imposed on said amount from the date of extrajudicial demand until its

inconsistent with Articles 1385 and 1398 of the Civil Code. The said SEC

return to respondents. The dispositive portion of the Court of Appeals

judgment did not contain an express declaration that it involved the

judgment reads:

rescission or annulment of contract or an explicit order for respondents to

return the thing sold. Petitioners also assert that respondents claim for

WHEREFORE, premises considered, the appealed judgment is MODIFIED: a)

refund based on fraud or misrepresentation should have been directed only

petitioner Fontana Resort and Country Club is hereby ordered to refund and

against petitioner RNDC, the registered owner and seller of the FRCCI class

pay to the respondents Spouses Roy S. Tan and Susana C. Tan the amount

"D" shares of stock. Petitioner FRCCI was merely the issuer of the shares sold

of P387,000.00, Philippine Currency, representing the price of two of its

to respondents. Petitioners lastly question the order of the Court of Appeals

Class "D" shares of stock, plus simple interest at the rate of 12% per annum

for petitioners to pay 12% interest per annum, the same being devoid of legal

computed from August 28, 1998 when demand was first made, until payment

basis since their obligation does not constitute a loan or forbearance of

is completed; b) the respondent spouses are ordered to surrender to

money.

petitioner Fontana Resort and Country Club their two (2) Class "D" shares
issued by said petitioner upon receipt of the full refund with interest as
herein ordered.

20

In their Memorandum,23 respondents chiefly argue that petitioners have

posited mere questions of fact and none of law, precluding this Court to take
cognizance of the instant Petition under Rule 45 of the Rules of Court. Even

Petitioners filed a Motion for Reconsideration, but it was denied by the Court

so, respondents maintain that the Court of Appeals did not err in ordering

of Appeals in its Resolution dated August 12, 2002.

them to return the certificates of shares of stock to petitioners upon the

latters refund of the price thereof as the essence of respondents claim for

Hence, the instant Petition for Review.

refund is to rescind the sale of said shares. Furthermore, both petitioners

should be held liable since they are the owners and developers of FLP.

Petitioners, in their Memorandum,

21

submit for our consideration the

following issues:

Petitioner FRCCI is primarily liable for respondents claim for refund, and
petitioner RNDC, at most, is only subsidiarily liable considering that
petitioner RNDC is a mere agent of petitioner FRCCI. Respondents finally

a. Was the essence of the judgment of the SEC which ordered the

insist that the imposition of the interest rate at 12% per annum, computed

return of the purchase price but not of the thing sold a declaration

from the date of the extrajudicial demand, is correct since the obligation of

of rescission or annulment of the contract of sale between RNDC and

petitioners is in the nature of a forbearance of money.

respondents?

440

We find merit in the Petition.

xxxx

We address the preliminary matter of the nature of respondents Complaint

22. [Petitioners] acted in bad faith when it sold membership shares

against petitioners. Well-settled is the rule that the allegations in the

to [respondents], promising development work will be completed by

complaint determine the nature of the action instituted.

24

the first quarter of 1998 when [petitioners] knew fully well that they
were in no position and had no intention to complete development

Respondents alleged in their Complaint that:

work within the time they promised. [Petitioners] also were

maliciously motivated when they promised [respondents] use of Club

16. [Herein petitioners] failure to finish the development works at the

facilities only to deny [respondents] such use later on.

Fontana Leisure Park within the time frame that they promised, and
[petitioners] failure/refusal to accom[m]odate [herein respondents]

23. It is detrimental to the interest of [respondents] and quite unfair

request for reservations on 17 October 1998 and 1 April 1999,

that they will be made to suffer from the delay in the completion of

constitute gross misrepresentation and a form of deception, not only

the development work, while [petitioners] are already enjoying the

to the [respondents], but the general public as well.

purchase price paid by [respondents].

17. [Petitioners] deliberately and maliciously misrepresented that

xxxx

development works will be completed when they knew fully well that
it was impossible to complete the development works by the deadline.

26. Apart from the refund of the amount of P387,300.00,

[Petitioners] also deliberately and maliciously deceived [respondents]

[respondents] are also entitled to be paid reasonable interest from

into believing that they have the privilege to utilize Club facilities,

their money. Afterall, [petitioners] have already benefitted from this

only for [respondents] to be later on denied such use of Club

money, having been able to use it, if not for the Fontana Leisure Park

facilities. All these acts are part of [petitioners] scheme to attract,

project, for their other projects as well. And had [respondents] been

induce and convince [respondents] to buy shares, knowing that had

able to deposit the money in the bank, or invested it in some

they told the truth about these matters, [respondents] would never

worthwhile undertaking, they would have earned interest on the

have bought shares in their project.

money at the rate of at least 21% per annum.25

18. On 28 August 1998, [respondents] requested their lawyer to write

The aforequoted allegations in respondents Complaint sufficiently state a

[petitioner] Fontana Resort and Country Club, Inc. a letter

cause of action for the annulment of a voidable contract of sale based on

demanding for the return of their payment. x x x.

fraud under Article 1390, in relation to Article 1398, of the Civil Code,
and/or rescission of a reciprocal obligation under Article 1191, in relation to

19. [Petitioner] Fontana Resort and Country Club, Inc. responded to

Article 1385, of the same Code. Said provisions of the Civil Code are

this letter, with a letter of its own dated 10 September 1998, denying

reproduced below:

[respondents] request for a refund. x x x.

Article 1390. The following contracts are voidable or annullable, even though
20. [Respondents] replied to [petitioner] Fontana Resort and Country

there may have been no damage to the contracting parties:

Clubs letter with a letter dated 13 October 1998, x x x. But despite

receipt of this letter, [petitioners] failed/refused and continue to

1. Those where one of the parties is incapable of giving consent to a

fail /refuse to refund/return [respondents] payments.

contract;

441

2. Those where the consent is vitiated by mistake, violence,

In this case, indemnity for damages may be demanded from the person

intimidation, undue influence or fraud.

causing the loss.

These contracts are binding, unless they are annulled by a proper action in

It does not matter that respondents, in their Complaint, simply prayed for

court. They are susceptible of ratification.

refund of the purchase price they had paid for their FRCCI shares, 26 without
specifically mentioning the annulment or rescission of the sale of said

Article 1398. An obligation having been annulled, the contracting parties

shares. The Court of Appeals treated respondents Complaint as one for

shall restore to each other the things which have been the subject matter of

annulment/rescission of contract and, accordingly, it did not simply order

the contract, with their fruits, and the price with its interest, except in cases

petitioners to refund to respondents the purchase price of the FRCCI shares,

provided by law.

but also directed respondents to comply with their correlative obligation of

surrendering their certificates of shares of stock to petitioners.

In obligations to render service, the value thereof shall be the basis for
damages.

Now the only issue left for us to determine whether or not petitioners
committed fraud or defaulted on their promises as would justify the

Article 1191. The power to rescind obligations is implied in reciprocal ones, in

annulment or rescission of their contract of sale with respondents requires

case one of the obligors should not comply with what is incumbent upon

us to reexamine evidence submitted by the parties and review the factual

him.

findings by the SEC and the Court of Appeals.

The injured party may choose between the fulfillment and the rescission of

As a general rule, "the remedy of appeal by certiorari under Rule 45 of the

the obligation, with the payment of damages in either case. He may also seek

Rules of Court contemplates only questions of law and not issues of fact. This

rescission, even after he has chosen fulfillment, if the latter should become

rule, however, is inapplicable in cases x x x where the factual findings

impossible.

complained of are absolutely devoid of support in the records or the assailed

judgment of the appellate court is based on a misapprehension of

The court shall decree the rescission claimed, unless there be just cause

facts."27 Another well-recognized exception to the general rule is when the

authorizing the fixing of a period.

factual findings of the administrative agency and the Court of Appeals are
contradictory.28 The said exceptions are applicable to the case at bar.

This is understood to be without prejudice to the rights of third persons who

have acquired the thing, in accordance with Articles 1385 and 1388 and the

There are contradictory findings below as to the existence of fraud: while

Mortgage Law.

Hearing Officer Bacalla and the SEC en banc found that there is fraud on the
part of petitioners in selling the FRCCI shares to respondents, the Court of

Article 1385. Rescission creates the obligation to return the things which

Appeals found none.

were the object of the contract, together with their fruits, and the price with
its interest; consequently, it can be carried out only when he who demands

There is fraud when one party is induced by the other to enter into a

rescission can return whatever he may be obliged to return.

contract, through and solely because of the latters insidious words or

machinations. But not all forms of fraud can vitiate consent. "Under Article

Neither shall rescission take place when the things which are the object of

1330, fraud refers to dolo causante or causal fraud, in which, prior to or

the contract are legally in the possession of third persons who did not act in

simultaneous with the execution of a contract, one party secures the consent

bad faith.

of the other by using deception, without which such consent would not have

442

been given."29"Simply stated, the fraud must be the determining cause of the

Yet, petitioners were able to satisfactorily explain, based on clear policies,

contract, or must have caused the consent to be given." 30

rules, and regulations governing FLP club memberships, why they rejected
respondents request for reservation on October 17, 1998. Respondents do

"[T]he general rule is that he who alleges fraud or mistake in a transaction

not dispute that the Articles of Incorporation and the By-Laws of FRCCI, as

must substantiate his allegation as the presumption is that a person takes

well as the promotional materials distributed by petitioners to the public

ordinary care for his concerns and that private dealings have been entered

(copies of which respondents admitted receiving), expressly stated that the

into fairly and regularly."

31

One who alleges defect or lack of valid consent to a

subscribers of FRCCI class "D" shares of stock are entitled free

contract by reason of fraud or undue influence must establish by full, clear

accommodation at an FLP two-bedroom villa only for "one week annually

and convincing evidence such specific acts that vitiated a partys consent,

consisting of five (5) ordinary days, one (1) Saturday and one (1) Sunday."

otherwise, the latters presumed consent to the contract prevails. 32

Thus, respondents cannot claim that they were totally ignorant of such rule
or that petitioners have been changing the rules as they go along.

In this case, respondents have miserably failed to prove how petitioners

Respondents had already availed themselves of free accommodations at an

employed fraud to induce respondents to buy FRCCI shares. It can only be

FLP villa on September 5, 1998, a Saturday, so that there was basis for

expected that petitioners presented the FLP and the country club in the most

petitioners to deny respondents subsequent request for reservation of an FLP

positive light in order to attract investor-members. There is no showing that

villa for their free use on October 17, 1998, another Saturday.

in their sales talk to respondents, petitioners actually used insidious words

or machinations, without which, respondents would not have bought the

Neither can we rescind the contract because construction of FLP facilities

FRCCI shares. Respondents appear to be literate and of above-average

were still unfinished by 1998. Indeed, respondents allegation of unfinished

means, who may not be so easily deceived into parting with a substantial

FLP facilities was not disputed by petitioners, but respondents themselves

amount of money. What is apparent to us is that respondents knowingly and

were not able to present competent proof of the extent of such

willingly consented to buying FRCCI shares, but were later on disappointed

incompleteness. Without any idea of how much of FLP and which particular

with the actual FLP facilities and club membership benefits.

FLP facilities remain unfinished, there is no way for us to determine whether

petitioners were actually unable to deliver on their promise of a first class

Similarly, we find no evidence on record that petitioners defaulted on any of

leisure park and whether there is sufficient reason for us to grant rescission

their obligations that would have called for the rescission of the sale of the

or annulment of the sale of FRCCI shares. Apparently, respondents were still

FRCCI shares to respondents.

able to enjoy their stay at FLP despite the still ongoing construction works,
enough for them to wish to return and again reserve accommodations at the

"The right to rescind a contract arises once the other party defaults in the

park.

33

performance of his obligation." "Rescission of a contract will not be

permitted for a slight or casual breach, but only such substantial and

Respondents additionally alleged the unreasonable cancellation of their

fundamental breach as would defeat the very object of the parties in making

confirmed reservation for the free use of an FLP villa on April 1, 1999.

the agreement."34 In the same case as fraud, the burden of establishing the

According to respondents, their reservation was confirmed by a Mr. Murphy

default of petitioners lies upon respondents, but respondents once more

Magtoto, only to be cancelled later on by a certain Shaye. Petitioners

failed to discharge the same.

countered that April 1, 1999 was a Holy Thursday and FLP was already fullybooked. Petitioners, however, do not deny that Murphy Magtoto and Shaye

Respondents decry the alleged arbitrary and unreasonable denial of their

are FLP employees who dealt with respondents. The absence of any

request for reservation at FLP and the obscure and ever-changing rules of the

confirmation number issued to respondents does not also discount the

country club as regards free accommodations for FRCCI class "D"

possibility that the latters reservation was mistakenly confirmed by Murphy

shareholders.

Magtoto despite FLP being fully-booked. At most, we perceive a mix-up in the

443

reservation process of petitioners. This demonstrates a mere negligence on

WHEREFORE, in view of the foregoing, the Petition is hereby GRANTED. The

the part of petitioners, but not willful intention to deprive respondents of

Decision dated May 30, 2002 and Resolution dated August 12, 2002 of the

their membership benefits. It does not constitute default that would call for

Court Appeals in CA-G.R. SP No. 67816 are REVERSED and SET ASIDE.

rescission of the sale of FRCCI shares by petitioners to respondents. For the

Petitioners are ORDERED to pay respondents the amount of P5,000.00 as

negligence of petitioners as regards respondents reservation for April 1,

nominal damages for their negligence as regards respondents cancelled

1999, respondents are at least entitled to nominal damages in accordance

reservation for April 1, 1999, but respondents Complaint, in so far as the

with Articles 2221 and 2222 of the Civil Code.

35

annulment or rescission of the contract of sale of the FRCCI class "D" shares
of stock is concerned, is DISMISSED for lack of merit.

In Almeda v. Cario,

36

we have expounded on the propriety of granting

nominal damages as follows:

SO ORDERED.

[N]ominal damages may be awarded to a plaintiff whose right has been

violated or invaded by the defendant, for the purpose of vindicating or
recognizing that right, and not for indemnifying the plaintiff for any loss

G.R. No. 170486

September 12, 2011

suffered by him. Its award is thus not for the purpose of indemnification for a
loss but for the recognition and vindication of a right. Indeed, nominal

SWIFT FOODS, INC., Petitioner,

damages are damages in name only and not in fact. When granted by the

vs.

courts, they are not treated as an equivalent of a wrong inflicted but simply a

SPOUSES JOSE MATEO, JR. and IRENE MATEO, Respondents.

recognition of the existence of a technical injury. A violation of the plaintiff's

right, even if only technical, is sufficient to support an award of nominal

DECISION

damages. Conversely, so long as there is a showing of a violation of the right

of the plaintiff, an award of nominal damages is proper.37

DEL CASTILLO, J.:

It is also settled that "the amount of such damages is addressed to the sound

A review of the facts of the case is necessary when the courts below fail to

discretion of the court, taking into account the relevant

circumstances."381wphi1
In this case, we deem that the respondents are entitled to an award
of P5,000.00 as nominal damages in recognition of their confirmed
reservation for the free use of an FLP villa on April 1, 1999 which was
inexcusably cancelled by petitioner on March 3, 1999.
In sum, the respondents Complaint sufficiently alleged a cause of action for
the annulment or rescission of the contract of sale of FRCCI class "D" shares
by petitioners to respondents; however, respondents were unable to establish
by preponderance of evidence that they are entitled to said annulment or
rescission.

make findings that are necessary for a proper disposition of the case.
Before the Court is a Petition for Review1 of the November 15, 2005
Decision2 of the Court of Appeals (CA) in CA-G.R. CV No. 73368. The
dispositive portion of the assailed Decision reads:
WHEREFORE, the appealed decision is AFFIRMED with MODIFICATION, in
that the trial courts award of attorneys fees to the [respondents] is deleted
for lack of basis.
SO ORDERED.3
The affirmed ruling of the trial court contained the following disposition:

444

WHEREFORE, in view of the foregoing, the Court hereby renders judgment in

Street in Mandaluyong City to its various warehouses in Luzon. Under this

favor of [respondents] SPS. JOSE & IRENE MATEO and against [petitioner]

agreement, respondents deposited cash bonds of P100,000.00 per truck.

SWIFT FOODS, INC., directing [petitioner] to:

Several years into their contract, only one truck of respondents remained
under contract but Swift maintained respondents cash bond of P100,000.00.

1. RETURN the Owners Duplicate Copies of Transfer Certificates of

Respondents requested the return of the excess cash bond but the same was

Title Nos. T-19808 P(M), T-19809 P (M) and T-19810 P(M) of the

inexplicably denied by Swift.

Registry of Deeds of Bulacan immediately;

In June 1995, respondent Jose Mateo (Jose) spoke with Swifts Feeds Sales
2. RETURN P100,000.00 cash bond upon the finality of this Decision

Supervisor, Efren Buhain5 (Buhain), regarding the possible lease of Joses

with interest at twelve [percent] (12%) per annum from the filing of

warehouse for the storage of Swifts feeds products. The two agreed and on

this Complaint until fully satisfied;

July 5, 1995, Jose signed the Warehousing Agreement, which was to remain
in force for a two-year period.6 The signatory for Swift was its Vice-President

3. PAY to [respondents] the following amounts, to wit:

for Feed Operations, Edward R. Acosta. 7 While the warehousing agreement

required Jose to post a bond to secure his faithful compliance with his

a. Two Hundred Forty Three Thousand (P243,000.00) Pesos

obligations,8 both parties nonetheless proceeded with the enforcement of the

as actual damages representing the warehousing fees from

contract even without compliance with such requirement.

May 13, 1996 up to June 30, 1997;

In the same month, Swift began delivering feeds to respondents
b. Two Hundred Thousand (P200,000.00) Pesos as moral

warehouse.9 Swifts booking salesman, Rosalino Enfestan10 (Enfestan),

damages;

worked closely with respondents in the warehouse operations, even

supervising the work of respondents bodegero, Vicente Mateo (Vicente). 11 To

c. One Hundred Thousand (P100,000.00) Pesos for and as

properly document the movement of the stocks, Swift, through Enfestan gave

attorneys fees; and

respondents two kinds of warehouse documents: the Daily Warehouse Stock

Report (DWSR), which is the inventory of incoming stocks, and the

d. Cost of suit.

Warehouse Issue Slip (WIS), which is a receipt for released

stocks.12 According to Swift, the WIS should contain the signature of the

SO ORDERED.4

sales personnel as proof that the latter received the released stocks, in
accordance with Paragraph V of the agreement. According to Jose, Wilfredo

Factual antecedents

Pacres (Wilfredo), Swifts National Feed Sales Manager, would sometimes

inspect respondents warehouse and the warehouse documents. 13

Petitioner Swift Foods, Inc. (Swift) is a corporation engaged in the

manufacture, sale, and distribution of animal feeds.

On February 16, 1996, seven months into the contract, the respondents in
apparent compliance with the bond requirement, delivered three land titles to

Respondent-spouses Jose and Irene Mateo (respondents) are businessmen

Swift.14 The acknowledgment receipt issued by Swift for the surrendered titles

engaged in a dealership in poultry and feeds supply and a trucking business

stated that these were "collateral for feeds warehousing." 15 The receipt was

in San Jose Del Monte, Bulacan.

duly signed by Swift officials and by respondent Jose.

In 1984, the two parties entered into a Trucking Agreement whereby

On May 9, 1996, Swifts personnel, Wilfredo and Jasmine Pena, conducted

respondents trucks hauled Swifts feeds from its central office in Pioneer

an audit of the stocks stored in respondents warehouse. They went over the

445

warehousing documents (i.e., WIS and DWSR) and counted the remaining

personnel. Respondents claimed actual damages from petitioner consisting of

stocks. A comparison of the two warehouse documents revealed one missing

the monthly rentals for the unexpired term of the contract for the unjustified

bag, which respondent Jose duly paid on the same day.

16

termination of their warehousing agreement.

On May 20, 1996, however, Swift informed respondents that it was

Respondents then filed an Amended Complaint. 25 They included an

terminating their contract effective May 13, 1996 because of respondents

additional cause of action, whereby respondents asserted that petitioner is in

violations of their Warehousing Agreement.

17

Swift explained that, under

possession of respondents cash bond, worth P100,000.00, under their

Paragraph V of the Warehousing Agreement, the warehouse operator should

expired trucking agreement. Respondents argued that petitioner had no right

only release stocks to Swifts sales personnel after the latter presents a

to retain the bond because the trucking agreement had already expired and

clearance to withdraw stocks.18 This was to ensure that Swifts stocks would

respondents did not incur liabilities under the said trucking agreement that

only be released to authorized individuals and Swift could collect payment

may be chargeable to the cash bond.

accordingly. Contrary to this provision, respondents released stocks without

the necessary clearance to withdraw and without the participation of Swifts

Petitioner countered in its Answer that it was respondents breach of the

sales personnel. The violations were evident from the WIS which did not

clear written terms of the agreement which facilitated the unauthorized sales

contain the signatures of Swifts sales personnel. The absence of the sales

committed by the sales personnel.26 It was respondents who were well aware

personnels signature meant that the warehouseman released stocks, without

that petitioners sales personnel were not following the procedure set out in

the participation of Swifts sales personnel, and without any written

the warehousing agreement. It was therefore incumbent upon them to have

authority from Swift. These unauthorized releases caused Swift a cash

alerted petitioner to the matter. Respondents failure to do so constitutes bad

shortage of around P2 million, for which respondents should be held

faith in the performance of their contractual obligations. 27

liable.19 Swift then retained respondents three land titles until the latter
shall have fully complied with their obligation. It cited as its basis Paragraph

Ruling of the Regional Trial Court28

XII of the Warehousing Agreement, which states that the "bond x x x shall
answer for whatever obligation the warehouse operator may have with

The trial court ruled in favor of respondents and ordered petitioner to return

[Swift]."20
the three land titles. The RTC held that respondents did not breach the
Respondents denied violating the terms of the warehousing agreement. They

Warehousing Agreement for which their titles may be answerable. They

explained their actions as mere obeisance to Buhain and Enfestans

merely followed the instructions given to them by Swifts sales personnel,

instructions to release the stocks directly to customers. As proof of these

which instructions they had no reason to doubt. Since respondents were

instructions, respondents presented the handwritten letter they received from

first-time warehouse operators, they could not have been presumed to have

Buhain21 authorizing them to release the stocks directly to customers.

any knowledge of the warehouse operating procedures. It was therefore

Respondents maintained that Buhain and Enfestan should answer for the

incumbent upon Swift to have conducted training and seminars for

cash shortages. Expecting their explanation to be satisfactory, respondents

respondents. It was Swifts failure to conduct such trainings for respondents

demanded that Swift return their three land titles.

22

When Swift did not

accede to their demand,23 respondents filed a complaint against Swift for the
surrender of their certificates of title with damages

24

that allowed the Swift sales personnel to take advantage of the novice
warehouse operators. Moreover, Swift should recover their cash shortages
from its own employees who appear to have malversed the same.

Respondents complaint alleged that petitioner is retaining respondents titles

In the absence of a breach of contract, Swift was not justified in prematurely

without legal justification. They maintained that the alleged cash shortage is

terminating the warehouse agreement. For this, it was ordered by the court

attributable to petitioners negligence in the supervision of its sales

446

to pay respondents the unrealized warehousing fees for the remaining

The CA also found sufficient basis for the trial courts award of moral

duration of the contract.

damages to respondents in the amount ofP200,000.00.35 The CA, however,

deleted the award of attorneys fees to respondents for lack of basis. 36

Since Swift did not allege damages incurred pursuant to the trucking
agreement, it is not justified in keeping theP100,000.00 cash bond beyond its

Hence, this petition.

purpose. Thus, the trial court ordered petitioner to return respondents cash
bond.29

Petitioners arguments

The trial court also ordered petitioner to pay P100,000.00 as attorneys fees

Petitioner assails the CA Decision that petitioner has no right to withhold

and P200,000.00 as moral damages, as well as costs of suit. 30

respondents land titles.

Petitioner appealed the adverse Decision. It argued that the trial court erred

Petitioner points out that respondent Jose and his bodegero, Vicente,

in finding respondents free of any liability under the warehousing agreement.

admitted in open court that they issued stocks directly to customers without

Respondents were not justified in contravening the written terms of their

a prior written clearance from the petitioner and without obtaining the

agreement. Their contractual breach is clear and their bond, consisting of the

signature of the sales personnel on the WIS. Respondents irregular practice

three land titles, is properly answerable for the damages caused to

constitutes a breach of the contract, which caused substantial financial

petitioner.1avvphi1

losses to petitioner and is chargeable against respondents collateral. 37

Ruling of the Court of Appeals31

Petitioner likewise assails the CA Decision for relieving respondents of all the
blame and finding petitioners sales personnel responsible for the incurred

The CA disagreed with petitioner. First, the CA held that petitioner had no

cash shortage. Petitioner insists that respondents did not present admissible

basis for terminating the Warehousing Agreement. The CA observed that

proof of the sales personnels culpability.38

petitioner did not bring the alleged contractual breach to respondents

attention. Its silence can be taken as its condonation of respondents

Petitioner maintains that the CA erred in ordering petitioner to return

acts.32 Having condoned these acts for several months, petitioners sudden

respondents cash bond of P100,000.00 under an alleged trucking

unilateral termination of the warehouse agreement was tainted with bad

agreement. Petitioner argues that there was no basis for the said Decision

faith for which petitioner should be held liable for damages. 33

given that respondents never presented such agreement and any proof of the
delivery of the cash bond to petitioner. It invoked the Best Evidence Rule that

Second, petitioner failed to prove its allegation that respondents incurred

when the contents of a document are in issue, the best evidence thereof is

cash shortages that can be charged against the surrendered titles. The CA

the original document which contains all the terms between the contracting

noted petitioners utter failure to present the Audit Report, which could have

parties.39

proven the existence and extent of the cash shortage. Moreover, it failed to
present the original or duplicate originals of the WIS. Weighing the evidence

Respondents arguments

on record, the CA ruled that the shortages appear to be attributable to

petitioners employees, Buhain and Enfestan, not to respondents. Thus,

Respondents pray for the dismissal of the petition on the ground that it

petitioner has no justification for withholding respondents titles and was

raises factual issues, which is beyond the province of a Rule 45 petition for

ordered to return the same to respondents.

34

review.40 1avvphil

447

With respect to the allegation that releasing stocks without prior written

orient respondents to warehouse operations. According to the lower courts, it

authority constitutes a breach of the Warehousing Agreement, respondents

was petitioners negligence that made the novice warehouse operators easy

replied that the breach was caused by petitioner itself when it never issued

prey to petitioners erring employees, and petitioner should have monitored

any written authority for the release of stocks. Moreover, petitioner was

its employees better to avoid the situation. The error in the Decisions below is

content to receive the collections from the sales of respondents warehouse,

apparent. They failed to decide the main question of whether respondents

without questioning the absence of prior written authorizations. 41

breached the contract. It is for this reason that this Court, which generally
does not review facts, is pressed to make its own findings for a proper

Respondents maintain that petitioner failed to prove respondents liability for

disposition of the case.

cash shortages. The photocopies of the WIS were inadmissible because

petitioner could not adequately explain why the originals were lost. Moreover,

The vinculum that binds respondents and petitioner is their contract,

petitioner could not present the audit report on the cash shortages despite

denominated as a warehousing agreement. Under the said contract, the

its contention that such report exists.

42

parties agreed that petitioner will pay respondents a monthly warehousing

fee ofP18,000.00, and in return, respondents will warehouse petitioners

As for the failure to present the Trucking Agreement in court, respondents

stocks and be accountable for all the stocks duly received and released by

argue that petitioner never objected to respondent Joses testimony regarding

them.44 Their contract also required respondents to post a bond to answer for

the existence of the same and the delivery of the cash bond to petitioner.

whatever obligations they may have with petitioner. 45

Thus, respondents maintain that this is a question of fact that was raised for
the first time in the appeal.43

The agreement also provided the procedures that respondents should

observe "in order to promote an effective and efficient warehouse
Issue

operation."46 For the purpose of this disposition, the relevant procedural

provision is Paragraph V, to wit:

Whether the CA erred in its appreciation of the evidence

V- RECEIPTS AND ISSUANCE OF STOCKS
Our Ruling
The WAREHOUSE OPERATORS shall duly acknowledge all incoming
This case involves respondents complaint against Swift to surrender their

deliveries from [Swift] signing on the corresponding Delivery Receipts and

land titles. Swift refused to return the titles on the ground that they were

Waybills.

being held as security for respondents liabilities for their breach of the
warehousing agreement. Respondents denied incurring any liability under

The WAREHOUSE OPERATORS shall issue stocks, duly documented, to all

the agreement. Thus, at the heart of the case is the issue of whether

feeds salesmen assigned in the area, which stocks may be issued only upon

respondents committed a breach of the warehousing agreement for which

presentment of the clearance to withdraw stocks.

they may be held liable to Swift.

Under no circumstanc[e] that the WAREHOUSE OPERATORS shall issue any
From a reading of the decisions below, it appears that the trial and appellate

stocks to any person, including themselves without any prior written

courts side-stepped this issue of breach. Both Decisions did not make

authority from [Swift]. In any event all stocks withdrawals must pass thru

categorical findings on the matter. Instead, they pronounced that

the authorized feeds salesman of [Swift]. 47

respondents actions, whether violative of the written contract or not, were

justified because petitioner neglected to inform respondents of their duties
under the warehousing agreement and to conduct trainings and seminars to

448

The foregoing provision of the Warehousing Agreement states that the

Worse, the real reason why respondent Jose did not notice the dubious

warehouseman should only release stocks to Swifts sales personnel who

nature of the procedures being introduced by the Swift personnel was his

present a clearance to withdraw stocks.

total ignorance of his obligations under the warehousing agreeement. He

admitted not reading the agreement, which was a total abdication of his

The records reveal that, contrary to this provision, respondents released

duties. Unless a contracting party cannot read or does not understand the

stocks without the necessary clearance. They admitted in court that they

language in which the agreement was written, he is presumed to know the

never required a clearance prior to the release of stocks. Moreover, they

import of his contract and is bound thereby.49 Not having alleged any of the

admitted that there were times when they released stocks directly to

foregoing, respondent Jose has no excuse for his actions. It was his

customers and not to petitioners sales personnel. When asked to explain his

nonchalance to his contractual duties and obligations, which facilitated the

actions which were in contrast to his contractual undertakings, respondent

malfeasance of petitioners personnel and exposed petitioner to undue risks.

Jose admitted not reading, much less understanding, the warehouse

agreement. He simply followed all the verbal instructions given to him by

Having come to the finding of breach, we come to the determination of

Buhain and Enfestan. Thus, respondents breach of Paragraph V of the

respondents liability. Swift maintains that, due to respondents unauthorized

Warehousing Agreement is clear.

stock releases, it was unable to collect the payments for 4,444 bags of feeds,
the price of which amounts to P2,197,063.00.50 What Swift is trying to

These admissions were ignored by the trial and appellate courts, which

recover are actual damages, which is only awarded to the extent that

seemed to brush off Joses negligence as understandable because he was a

pecuniary loss had been proven.51 Unfortunately for Swift, it miserably failed

novice in the warehousing business. But ones newness to the business is

to prove its actual damage.

not an excuse to violate the clear terms of ones contract. A seasoned

businessman such as Jose (who admitted in open court to having several

According to Paragraph IV of the Warehouse Agreement, Swifts "claims x x x

successful businesses) should have been alert to the dangers of contravening

against the operators shall be based on prevailing price list at the time of

the clear terms of ones contract. He should not have deviated from the

loss."52 The records show that Swift failed to prove the existence and extent of

procedure provided in the contract in the absence of any amendment therein.

the alleged shortages for which respondents are being held liable. It did not

At the very least, ordinary diligence required him to inquire with the head

even attempt to show in court the prevailing price of the feeds that

office whether the changes being introduced by Buhain or Enfestan were

respondents released. The least that Swift could have done was to produce

proper or authorized. Respondents total reliance on the word of petitioners

the audit report to serve as basis of its claims against respondents. As it is,

sales personnel, contrary to the written contract, is a clear act of negligence.

Swift only presented the WIS that did not contain the signatures of the sales

A contract is the law between the parties and those who are guilty of

personnel, which is only proof that respondents violated paragraph V of the

negligence in the performance of their obligations are liable for damages.

48

warehouse agreement, but is not sufficient proof of the damages caused by

the violation.
In these situations where there has been a breach of contract but actual
damages have not been established, nominal damages may be awarded to
vindicate the injured partys rights.53 Considering that the respondents did
not perform or even take efforts to fully comply with their duties and
obligations under the warehousing agreement, it is only just that they be
ordered to return P150,000.00 as nominal damages which is an
approximation of whatever benefit they received from such agreement.

449

As for the land titles surrendered by respondents, the Court determines that

conclusion is that it remains indebted to respondents for the said cash bond.

Swift has no basis for retaining the same as "collateral for feeds

Moreover, such debt was impliedly admitted by petitioner when it stated in its

warehousing."

54

While the warehousing agreement stipulated that the

Answer61 that it had agreed to offset the amount it owes respondent under

respondents shall post a bond (which may be in the form of a property bond),

the cash bond with respondents liability for breaching the warehousing

this was merely a future undertaking that did not actually materialize.

agreement.

Although the respondents delivered their land titles to Swift, they did not
actually execute any bond agreement or security instrument (such as real

Nevertheless, the Court finds basis for modifying the trial and the appellate

estate mortgage). In the absence of such bond agreement or security

courts disposition regarding the interest rate imposable on the cash

instrument, it cannot be said that a bond has actually been posted or

bond.62 Since the bond is not a loan or a forbearance of money, the interest

constituted. Besides, even assuming arguendo that the real properties served

rate should only be six percent (6%) per annum from May 17, 1999, 63 which

as collateral, petitioner cannot just appropriate them in view of the

is the date of judicial demand. The interest rate of twelve percent (12%) per

prohibition against pactum commissorium.

55

annum shall apply from the finality of judgment until its full satisfaction. 64

Considering petitioners wrongful retention of respondents titles, we affirm

WHEREFORE, premises considered, the petition is PARTIALLY GRANTED.

the lower courts award of moral damages in favor of respondents. "The

The November 15, 2005 Decision of the Court of Appeals in CA-G.R. CV No.

person claiming moral damages must prove the existence of bad faith by

73368 is REVERSED AND SET ASIDE insofar as it found SWIFT FOODS,

clear and convincing evidence for the law always presumes good faith." 56 "Bad

INC. liable to the spouses Jose Mateo, Jr. and Irene Mateo for actual

faith is defined in jurisprudence as a state of mind affirmatively operating

damages. Instead, the spouses Jose Mateo, Jr. and Irene Mateo are ordered

with furtive design or with some motive of self interest or ill will or for ulterior

to PAY SWIFT FOODS, INC. the amount of P150,000.00 by way of NOMINAL

purpose."

57

Respondents were able to prove that petitioner acted in bad faith

in keeping the titles despite its knowledge that there was no bond or real

DAMAGES, which amount may be offset (to the extent applicable) against the
monetary award in favor of spouses Jose Mateo, Jr. and Irene Mateo.

estate mortgage to justify its retention thereof. Petitioner knew that it needed
a real estate mortgage to keep the titles, as shown by the fact that its officer

The rest of the assailed Decision of the Court of Appeals is AFFIRMED with

even went to respondents home to try to obtain their signatures to a deed of

the MODIFICATIONS, to wit:

real estate mortgage (without success).58 Despite its failure to obtain such
bond, petitioner bull-headedly kept the titles.

1. The legal interest imposed on the P100,0000.00 cash bond shall

be at the rate of six percent (6%) per annum from May 17, 1999 and

The Court, however, finds the sum awarded as moral damages excessive
under the circumstances.

59

The Court believes that the amount

of P50,000.00 as moral damages is reasonable and sufficient. Moral damages

at the rate of twelve percent (12%) per annum from the time the
judgment of this Court becomes final and executory until the
obligation is fully satisfied;

are not punitive in nature and not intended to enrich the claimant at the
expense of the defendant.60

2. The award of moral damages in favor of spouses Jose Mateo, Jr.

and Irene Mateo is REDUCED toP50,000.00.

As for the cash bond of P100,000.00 still held by petitioner despite the
termination of the trucking agreement, the Court affirms the trial and

SO ORDERED.

appellate courts findings that the same has been duly established. Petitioner
did not deny receiving the cash bond. Neither did it allege that it has already
returned the cash bond, nor did it allege that respondents incurred liabilities
under the trucking agreement for which the bond may answer. The inevitable

450

G.R. No. 153290

September 5, 2007

b. That she was illegally dismissed or terminated [from] employment

on April 30, 1998; that before said date[,] however, she was asked by

BMG RECORDS (PHILS.), INC. and JOSE YAP, JR., petitioners,

vs.
AIDA C. APARECIO and NATIONAL LABOR RELATIONS
COMMISSION, respondents.

respondent to resign and will be paid (sic) all her benefits due like a
one-month pay for every year of service, payment of services
rendered, overtime and holiday pay, rest day, 13 th month, service
incentive leave and separation pay and to [execute] a letter of
resignation;

DECISION

c. That in view of respondent's insistence to prepare and [execute] a

letter-resignation[,] even without proper accounting of any

AZCUNA, J.:

accountability, the complainant was lured, induced and compelled to

This is a petition for review under Rule 45 of the Rules of Court assailing the
November 20, 2001 Decision1 and April 26, 2002 Resolution2 of the Court of
Appeals (CA) in C.A. G.R. SP No. 65403 affirming the August 23, 2000
Decision3 of the National Labor Relations Commission (NLRC) which reversed
and set aside the October 27, 1998 Decision 4 of the Labor Arbiter finding
that private respondent voluntarily resigned and was not illegally dismissed.
Petitioner BMG Records (Phils.), Inc. (BMG) is engaged in the business of
selling various audio records nationwide. On September 2, 1990, it hired
private respondent Aida C. Aparecio (Aparecio) as one of the promo girls in its
Cebu branch. For working from Monday to Sunday, she received a salary
of P181.00 per day.

submit a letter of resignation believing on respondent's promise and

assurance to pay all the benefits due her as aforesaid;
d. That after executing said resignation letter, the respondent did not
make good its promise and [instead] did an accounting by themselves
in the absence of herein complainant and arrived on a computation
that complainant's liability per their accounting reached to the
staggering amount of P8,000.00; that since they offered to pay a
separation pay of only P12,000.00, minus complainant's alleged
accountability of P8,000.00, they are ready to pay the balance
thereof any time;
e. That herein complainant was under respondent's employ for seven

On May 25, 1998, Aparecio filed a complaint against BMG and its Branch
Manager, Jose Yap, Jr., co-petitioner herein, for illegal dismissal and nonpayment of overtime pay, holiday pay, premium pay for rest day, 13 th month
pay, service incentive leave, and separation pay. 5 In her Position Paper, she
alleged:

(7) years, seven (7) months and twenty-eight (28) days when illegally
terminated [from] her employment xxx.

Petitioners, however, proffer a different version of the facts. They narrate that
Aparecio was initially performing well as an employee but as years passed by
she seemed to be complacent in the performance of her job and had been

xxx

comparing the salaries of promo girls in other companies. It appeared that

she was no longer interested in her job. In April 1998, Aparecio and two other
promo girls, Jovelina V. Soco and Veronica P. Mutya, intimated to their
supervisor that they were intending to resign and were requesting for some
financial assistance. BMG made it clear that, as a company policy, an
employee who resigns from service is not entitled to financial assistance, but
considering the length of their service and due to humanitarian
consideration it would accede to the request after they secure their respective
clearances. Forthwith, the three employees tendered their resignations,

451

which were accepted. When they processed the required individual clearance,

The NLRC admitted its dilemma in determining whether Aparecio offered to

it was found out that they had incurred some shortages after inventory. Per

resign on the condition that she would be paid with termination benefits or

agreement, said shortages were deducted from the amounts due them. Thus,

whether the resignation was triggered by BMG which offered the monetary

Soco and Mutya received their last salary, a proportion of the 13 th month pay,

consideration. While saying that Aparecio "offered no other evidence except

tax refund and financial assistance less the deductions, and they executed

her bare allegations," it was held that the sworn statement of Magno was not

their releases and quitclaims. Except for the financial assistance, Aparecio

sufficient to establish the position of petitioners. For the NLRC, the

also obtained the same yet refused to sign the release and quitclaim,

testimonies of Soco and Mutya would have been helpful had these been

protesting the amount of P9,170.12 deducted from the financial assistance.

presented by either side. Notwithstanding the "scanty data" available, it

She was adamant but BMG stood by the previous agreement.

concluded:

Attached to petitioners' Position Paper7 were the sworn statements of Jose

x x x We find that the elements of a valid resignation are not

Yap, Jr. and Evangeline A. Magno, supervisor of BMG.

obtaining in this case. It must be stressed that resignation is

inconsistent with the filing of the complaint. Moreover, even in the

On October 27, 1998, the labor arbiter dismissed Aparecio's complaint. Since

absence of physical force, duress or compulsion applied upon

the letter of resignation showed no signs that it was made through duress or

complainant when she executed the alleged resignation letter, factual

compulsion, it was concluded that the severance of her employment in BMG

circumstances tend to show the strong and irresistible economic

was brought about by her resignation and not by the illegal dismissal

pressure originating from respondent if only to push the complainant

supposedly committed by the latter. Nonetheless, realizing petitioners'

into accepting the offer. For, as ever, "[i]n the matter of employment

promise to pay financial assistance to Aparecio, the labor arbiter ordered the

bargaining, there is no doubt that the employer stands on higher

payment of P18,824.00 (fixed at half month pay for every year of service, with

footing than the employee. First of all, there is greater supply than

a fraction of at least six [6] months being considered as one year) instead

demand for labor. Secondly, the need for employment by labor comes

of P9,170.12 which was not amply substantiated.

from vital, and even desperate, necessity. Consequently, the law must

protect labor, at least, to the extent of raising him to equal footing in

Upon appeal, however, the NLRC found that Aparecio was illegally dismissed
9

from service, disposing in its August 23, 2000 Decision thus:

bargaining relations with capital and to shield him from abuses

brought about by the necessity of survival. It is safe therefore to
presume that an employee or laborer who waives in advance any

WHEREFORE, prescinding from the foregoing consideration, the

benefit granted him by law does so, certainly not in his interest or

Decision appealed from is REVERSED and SET ASIDE and a new

through generosity, but under the forceful intimidation or urgent

one ENTERED finding the dismissal of complainant illegal thus

ordering the respondent to pay her backwages from April 30, 1998
up to date hereof and in lieu of reinstatement, the respondent is
further ordered to pay complainant separation pay computes at the
rate of one (1) month pay for every year of service from date of hiring
on September 2, 1990 up to the finality of this decision.
All other claims are dismissed for lack of merit.
SO ORDERED.

10

need, and hence, he could not have done so acted freely and
voluntarily." xxx (citations omitted)11
A motion for reconsideration of the Decision was filed by petitioners. Attached
therein were the sworn statements of Soco and another promo girl, Marietta
Cinco, both dated September 21, 2000, confirming Aparecio's voluntary
resignation. The NLRC, however, resolved to deny the motion. 12
On appeal, the CA affirmed in toto the judgment of the NLRC. In its November
20, 2001 Decision,13 the appellate court held:

452

xxx

(b.) failure of the petition to show extraordinary circumstance

justifying a departure from the established doctrine that findings of

Based on the evidence submitted, the [petitioners] failed to support

facts of the Court of Appeals are well-nigh conclusive on this Court

[their] claim that [Aparecio's] resignation was made out of her own

and will not be reviewed or disturbed on appeal.16

volition. Granting arguendo that [Aparecio] executed a resignation

letter, it appears that she did it in consideration of the separation pay

Considering, however, the Motion for Reconsideration17 filed and the

and other benefits promised by the petitioner.

Comment18 as well as the Reply19 thereon, this Court resolved20 on April 23,
2003 to reinstate the petition and require the parties to submit their

Resignation, moreover, is inconsistent with the filing of a complaint

respective memoranda.

for illegal dismissal. It would have been illogical for the employee to
resign and then file a complaint for illegal dismissal x x x Thus, had

The petition is meritorious.

the private respondent been determined to resign and relinquish her

position in the petitioner company, she would not have commenced

As a rule, only questions of law may be raised in and resolved by this Court

an action for illegal dismissal.

on petitions brought under Rule 45 of the Rules of Court. The reason being
that the Court is not a trier of facts; it is not duty-bound to re-examine and

It must be remembered that the petitioner is in a more advantageous

calibrate the evidence on record. Moreover, findings of facts of quasi-judicial

position than [Aparecio] considering the ratio of the demand for

bodies like the NLRC, as affirmed by the CA, are generally conclusive on this

workers and the number of unemployed persons, so much so that

Court.21 In exceptional cases, however, we may be constrained to delve into

the employee is vulnerable to submit to whatever offer the employer

and resolve factual issues when there is insufficient or insubstantial evidence

may give. Most often than not, employees are placed in a position

to support the findings of the tribunal or court below, or when too much is

where there is only one choice which is to accede to the employer's

concluded, inferred or deduced from the bare or incomplete facts submitted

proposal.

by the parties.22 The present case is an exception to the rule. Hence, this

14

Court finds the need to review the records to determine the facts with
xxx

certainty not only because the NLRC and the labor arbiter have come up with
conflicting positions but also because the findings of the NLRC, as supported

Petitioners' motion for reconsideration was subsequently denied on April 26,

2002;

15

hence, this petition.

by the CA on substantial matters, appear to be contrary to the evidence at

hand.

In a Resolution dated August 12, 2002, this Court initially resolved to deny

Reading through the records would ineluctably reveal that the evidence upon

the petition for:

which both the NLRC and the CA based their conclusion rests on rather
shaky foundation. After careful analysis, this Court finds and so holds that

(a.) failure of the petitioners to sufficiently show that the Court of

the submissions of Aparecio in all her pleadings failed to substantiate the

Appeals committed any reversible error in the challenged decision

allegation that her consent was vitiated at the time she tendered her

and resolution as to warrant the exercise by this Court of its

resignation and that petitioners are guilty of illegal dismissal.

discretionary appellate jurisdiction in this case; and

In her memorandum of appeal before the NLRC, Aparecio asserted in main:
xxx The arbiter should have seriously considered the temper of the
time in relation to our deteriorating economy on the issue [of]

453

whether or not the resignation letter was voluntary. But he did not.

Two. The supposed decision of private respondent to tender a

To the arbiter[,] resignation letter can only be set aside if it is shown

resignation is vitiated by vices of consent. The resignation letter

that it was made through duress or compulsion. What about

was wrongfully obtained from private respondent on petitioners'

FRAUD? The complainant did not offer to resign. She was offered by

inducement and promise to pay employment benefits and financial

respondents that all labor standard benefits including but not

assistance without any deductions. However, it is now very clear that

limited to payment of overtime, salary differentials and separation

right from the start, petitioners did not intend to comply with their

pay should be given if she [would] resign. This she was made to

promise. After private respondent handed in a resignation letter,

believe by the respondents. And complainant really believed them.

petitioners raised all obstacles to prevent private respondent from

Unfortunately, however, complainant found herself jobless and

actually receiving the promised employment benefits and financial

penniless. Her resignation was obtained through fraud xxx It is clear

assistance. Accordingly, it can be easily said that fraud vitiated

that complainant submitted her resignation letter not because she

private respondent's consent.

has some accountabilities but because of respondents' offer which

was hard to resist xxx23

Three. The resignation letter was also obtained from private

respondent through undue pressure and influence which again

On the other hand, her Comment before the CA stated further:

xxx

vitiates the same. The respondent NLRC made this finding:

"Moreover, even in the absence of physical force, duress or
compulsion applied upon complainant when she executed the alleged

At any rate, respondents wish to point out that the finding of the
NLRC that private respondent (employee) did not voluntarily resign
but was illegally dismissed is well-supported by evidence. The
following considerations clearly show this, to wit:
One. It is admitted by both petitioners and the respondents that the
supposed resignation of private respondent was conditional in
nature. It was premised on petitioners' (employers) performance of
certain prestations or petitioners' compliance with certain
conditions.

resignation letter, factual circumstances tend to show the strong

and irresistible economic pressure originating from respondent
if only to push the complainant into accepting the offer."(NLRC
Decision, 23 August 2000, p. 5; underscoring ours)
Four. At the very least, it could be easily said that the decision to
resign is vitiated by mistake. It is unrebutted that private respondent
handed in a resignation letter on the firm belief that petitioners
would pay her the promised employment benefits and financial
assistance without deductions. Resignation is also a form of
contract. Like any other contracts, it can be vitiated by mistake and
other vices of consent x x x
Five. Finally, it could also be said that the resignation letter was
ineffective because there was no meeting of the minds on the
matter of resignation. As pointed out earlier, it is an admitted fact
that the supposed resignation was conditional in character in the
sense that it was premised on certain conditions. Accordingly, the
resignation letter could only be considered as a mere offer. Since the
petitioners obviously did not accept the conditions attendant to the

454

offer to resign, there is no resignation to speak of. (emphasis

supplied)

24

following requisites must be present: (1) that the intimidation caused the
consent to be given; (2) that the threatened act be unjust or unlawful; (3) that
the threat be real or serious, there being evident disproportion between the
evil and the resistance which all men can offer, leading to the choice of doing

xxx

the act which is forced on the person to do as the lesser evil; and (4) that it
In a nutshell, Aparecio submits that fraud, undue influence, intimidation,

produces a well-grounded fear from the fact that the person from whom it

and/or mistake were attendant upon her resignation from BMG. As her

comes has the necessary means or ability to inflict the threatened injury to

consent was allegedly vitiated, the act of resigning became involuntary;

his person or property. In the instant case, not one of these essential

hence, petitioners are guilty of illegal dismissal.

elements was amply proven by Aparecio. Bare allegations of threat or force do

not constitute substantial evidence to support a finding of forced

The argument is not tenable.

resignation.28

Based on the pleadings, this Court finds nothing to support Aparecio's

On the contrary, petitioners correctly point out that the NLRC finding, which

allegation that fraud was employed on her to resign. Fraud exists only when,

the CA erroneously affirmed, of a "strong and irresistible economic pressure

through insidious words or machinations, the other party is induced to act

originating from [petitioners] if only to push [Aparecio] into accepting the

This Court has held

offer" is not supported by any evidence in the records but is merely based on

that the circumstances evidencing fraud and misrepresentation are as varied

conjectures and guesswork. Truly, the factual circumstances upon which the

as the people who perpetrate it, each assuming different shapes and forms

legal conclusion was based were lacking as no less than the NLRC itself

and may be committed in as many different ways. Fraud and

admitted the absence of proof of any kind of pressure, economic or otherwise,

misrepresentation are, therefore, never presumed; it must be proved by clear

that petitioners applied to force Aparecio's resignation. What is clear is that

and convincing evidence and not mere preponderance of evidence. 26 Hence,

there is no concrete evidence, direct or circumstantial, showing that undue

this Court does not sustain findings of fraud upon circumstances which, at

influence was used by petitioners in such a way that it took improper

most, create only suspicion; otherwise, it would be indulging in speculations

advantage of its power over the will of Aparecio and deprived the latter of a

and without which, the latter would not have agreed to.

and surmises.

25

27

reasonable freedom of choice.29 Granting for the sake of argument that BMG
was in a "more advantageous position," as the CA had opined, it would

In this case, Aparecio alleged that her resignation was wrongfully obtained

nonetheless be unfair to presume that it utilized the same against Aparecio.

when petitioners did not keep the promise of giving her employment benefits

Indeed, the allegation of exploitation is a very serious matter and should not

and financial assistance without any deductions. Without a showing of the

be taken lightly. Proof is absolutely essential.

nature and extent of such "inducement," however, such submission fails to

establish that there was in fact a deception on the part of petitioners. Even if

Resignation is the voluntary act of an employee who is in a situation where

it is considered that there was an assurance given by petitioners and that

one believes that personal reasons cannot be sacrificed in favor of the

they later reneged on their promise, this Court still finds no injustice made

exigency of the service, and one has no other choice but to dissociate oneself

since Aparecio, who only questioned the manner by which the inventory was

from employment. It is a formal pronouncement or relinquishment of an

conducted that it was held without her presence but did not categorically

office, with the intention of relinquishing the office accompanied by the act of

deny her accountabilities with BMG, would unjustly be enriched without the

relinquishment. As the intent to relinquish must concur with the overt act of

deduction.

relinquishment, the acts of the employee before and after the alleged
resignation must be considered in determining whether in fact, he or she

Likewise, Aparecio did not adduce any competent evidence to prove that force

intended to sever from his or her employment.30

or threat was applied by petitioners. For intimidation to vitiate consent, the

455

Thus, this Court agrees with petitioners' contention that the circumstances

mind, he must ask for approval of the withdrawal of his resignation

surrounding Aparecio's resignation should be given due weight in

from his employer, as if he were re-applying for the job. It will then be

determining whether she had intended to resign. In this case, such intent is

up to the employer to determine whether or not his service would be

very evident:

continued. If the employer accepts said withdrawal, the employee

retains his job. If the employer does not x x x the employee cannot

First, Aparecio already communicated to other people that she was about to

claim illegal dismissal for the employer has the right to determine

resign to look for a better paying job since she had been complaining that

who his employees will be. To say that an employee who has resigned

employees like her in other companies were earning much more;

is illegally dismissed, is to encroach upon the right of employers to

hire persons who will be of service to them.34

Second, prior to the submission of her resignation letter, Aparecio and two
other promo girls, Soco and Mutya, approached their supervisor, intimated

Subsequently, in Philippine Today, Inc. v. NLRC,35 it was further held that:

their desire to resign, and requested that they be given financial assistance,
which petitioners granted on the condition that deductions would be made in

Obviously, this is a recognition of the contractual nature of

case of shortage after inventory;

employment which requires mutuality of consent between the

parties. An employment contract is consensual and voluntary.

Third, Aparecio, Soco, and Mutya submitted their duly signed resignation

Hence, if the employee "finds himself in a situation where he believes

letters, which were accepted by petitioners; and

that personal reasons cannot be sacrificed in favor of the exigency of

the service, then he has no other choice but to disassociate himself

Fourth, Aparecio already initiated the processing of her clearance; thus, she
th

was able to receive her last salary, 13 month pay, and tax refund but refused

from his employment". If accepted by the employer, the consequent

effect of resignation is severance of the contract of employment.

to receive the financial assistance less the deductions made.

A resigned employee who desires to take his job back has to re-apply
The foregoing facts were affirmatively narrated and attested to in the

therefor, and he shall have the status of a stranger who cannot

notarized affidavit of Soco and Cinco and have remained incontrovertible as

unilaterally demand an appointment. He cannot arrogate unto

they were never denied by Aparecio. The NLRC, thus, erred when it did not

himself the same position which he earlier decided to leave. To allow

give probative weight to their testimonies even if belatedly presented in

him to do so would be to deprive the employer of his basic right to

petitioners' motion for reconsideration.

choose whom to employ. Such is tantamount to undue oppression of

the employer. It has been held that an employer is free to regulate,

Now, the acceptance by petitioners of Aparecio's resignation rendered the

same effective.

31

Upon such acceptance, it may not be unilaterally withdrawn

without the consent of petitioners.

32

When the employee later signified the

intention of continuing his or her work, it was already up to the employer to

according to his own discretion and judgment, all aspects of

employment including hiring. The law, in protecting the rights of the
laborer, impels neither the oppression nor self-destruction of the
employer.36

accept the withdrawal of his or her resignation. The mere fact that the
withdrawal was not accepted does not constitute illegal dismissal, the

Certainly, what transpired here was caused by an employee's error of

acceptance of the withdrawal of the resignation being the employer's sole

judgment and not by the employer's application of means vitiating the

prerogative. As held in Intertrod Maritime, Inc. v. NLRC:33

consent to resign. It would be utterly unfair to attribute to petitioners the

commission of illegal dismissal and to impose upon them the burden of

Once an employee resigns and his resignation is accepted, he no

accepting back Aparecio who unequivocally manifested her intent and

longer has any right to the job. If the employee later changes his

willingness to sever her employment ties.

456

WHEREFORE, the petition is GRANTED and the November 20, 2001

3. the government as the owner of that portion sold by Simeon to Ugtongan

Decision and April 26, 2002 Resolution of the Court of Appeals in C.A. G.R.

Elementary School;

SP No. 65403 affirming the August 23, 2000 Decision of the National Labor
Relations Commission are hereby REVERSED AND SET ASIDE. The October
27, 1998 Decision of the Labor Arbiter finding that private respondent was
not illegally dismissed is hereby REINSTATED AND AFFIRMED.

and all the titles issued resulting from its partition as null and void.
The heirs of Maximo Mahilum having failed to assert their right over the
one-half portion of the whole property, the partition and subsequent transfer

No costs.

of ownership as to this portion stays.

SO ORDERED.

"SO ORDERED."[1]
[G. R. No. 123490. August 9, 2000]

The facts, as found by the Court of Appeals, are as follows:

SPOUSES NENA ARRIOLA and FRANCISCO ADOLFO, GENEROSA CAWITLUMAYNO, MANUEL LUMAYNO, TERESITA LUMAYNO-FLORES,
ZENAIDA

4. the reconstituted title OCT No. RO-1076 in the name of Eusebio Mahilum

LUMAYNO-JACILDO,

MA.VICTORIA

MADELINE

LUMAYNO-PETERSEN,

LUMAYNO-PRIEST,
and

BEMELO

The subject of the case at bench is a parcel of land known as Lot No. 1478-B
of the Escalante Cadastre, located at Ugtongan, Escalante, Negros
Occidental, containing an area of 11.1278 hectares.

MAHILUM, petitioners, vs. DEMETRIO, LOLITA, PEDRO, NENA,

"Lot No. 1478-B was originally owned by the spouses Eusebio Mahilum and

BRAULIO and DOMINGA, all surnamed MAHILUM, and THE

Dionisia Blase. On February 13, 1912, Eusebio and Dionisia sold the land to

HONORABLE COURT OF APPEALS, 10th DIVISION, respondents.

their son Simeon Mahilum, who took possession thereof and enjoyed the
fruits of the land in concept of owner, openly, publicly and uninterruptedly

DECISION
PARDO, J.:
The case before the Court is an appeal from the decision of the Court of
Appeals, the dispositive portion of which reads:
WHEREFORE, the decision appealed from is hereby REVERSED and set
aside and another one rendered declaring:
1. plaintiffs-appellants as absolute owners of one-half of Lot. No. 1478-B of
Escalante Cadastre, less the portions owned by Ugtongan Elementary School
and Ricardo Mahilum;
2. Ricardo Mahilum as the owner of that portion described in TCT No.
60561, which was bought by his predecessor-in-interest Fausto Moncada

except in 1972. He had the land declared in his name for taxation purposes.
"On March 10, 1931, the Court of First Instance of Negros Occidental acting
as a cadastral court rendered judgment adjudicating the land to the spouses
Simeon Mahilum and Adriana Pabalate.
"In 1932, Simeon Mahilum sold one-half (1/2) of the property to his brother
Maximo.
"Sometime thereafter, Simeon Mahilum sold 500 square meters of the
property to Fausto Moncada and another 500 sq. m., more or less to
Ugtongan Elementary School.
"On July 2, 1969, at the instance of his sister Rosario Mahilum, Simeon, who
is an illiterate, affixed his thumbmark on a document denominated as an
Extra-Judicial Partition of Inherited Real Estates [2] on the misrepresentation

from Simeon Mahilum;

457

of Rosario Faustina that Eusebio Mahilum's heirs would partition three other

"Generosa Cawit Lumayno and Braulio Lumayno later purchased Rosario

lots and did not include Simeon's Lot 1478-B.

Mahilum's share and were substituted as party defendants.

"On July 11, 1970, an inexistent title to the land in the names of Sps.

"In 1972 Simeon Mahilum discovered that the inexistent title was

Eusebio Mahilum and Dionisia Blase was reconstituted on the strength of

reconstituted and the property partitioned.

the technical description of the land and an affidavit executed by Rosario

Mahilum, and OCT No. RO-1076 was issued.

"On March 13, 1973, Simeon Mahilum and the heirs of Maximo Mahilum
filed a complaint for annulment of title with the then Court of First Instance

"The defendants-heirs of Eusebio Mahilum then partitioned the property

of Negros Occidental, alleging that the reconstituted OCT No. RO-1076 was

among themselves to the exclusion of Simeon Mahilum and on October 26,

null and void since there was no prior title to be reconsituted in the name of

1970, the following titles

[3]

were issued:

Lot 1478-B-1 TCT#60557 Joaquin Mahilum

B-3

60559 Rosario Mahilum

B-4

60560 Rosario Mahilum having bought Quirino

Mahilums share

rightful owner of Lot 1478-B, the same having been adjudicated to him by
the CFI at the cadastral proceedings in 1931; that Simeon's thumbmarks on
the Extra-Judicial Partition were obtained thru fraudulent
misrepresentations. Consequently, all titles that flowed therefrom are null
and void.
"In their answer, defendants contend that the property in question which was

B-5

60561 Fausto Moncada

B-6

60562 Eusebio Mahilum and Dionisia Blase

B-7

60563 Teresita Lumayno having bought Albina

Mahilums share

owned by Eusebio Mahilum and Dionisia Blase never truly conveyed to

Simeon Mahilum. When cadastral proceedings in Escalante, Negros
Occidental, went underway, Eusebio Mahilum entrusted to his eldest son,
Simeon the task of handling all matters pertaining to the titling of the land
inasmuch as he was too old to withstand the rigors attendant to the case,
traveling to Bacolod to find a lawyer and to attend the hearings and take care
of the other pertinent aspects of the registration proceedings. They assert

B-8

60564 Felipe Mahilum

B-9

60565 Heirs of Juan Mahilum

B-10

60566 Santiago Mahilum and Maximo Mahilum

"Later, TCT NO. T-60564 was cancelled and TCT No. T-69709 was issued to
defendant spouses Nena Arriola Adolfo and Francisco Adolfo who bought
Felipe Mahilum's share; likewise TCT No. T-60561 in the name of Fausto
Moncada was cancelled when he sold his lot to spouses Ricardo Mahilum
and Elena Bacuado.

Eusebio Mahilum and Dionisia Blase;[4] that Simeon Mahilum was the

their right of dominion over their respective portions of the property by

reason of inheritance from their deceased parents/grandparents, Eusebio
and Dionisia Mahilum.
"For their part, the other defendants profess to be purchasers in good faith
not aware of any flaw in their predecessors' titles.
"A second amended complaint was filed by plaintiffs minus the heirs of
Maximo Mahilum as "they are no longer interested because they have no
more father and they have no money to spend for the case." [5]
"After trial, the lower court rendered the assailed decision, the dispositive
portion of which reads:

458

the lower courts[13] or the findings are entirely grounded on speculalations.

"WHEREFORE, PREMISES CONSIDERED, the Court hereby:

[14]

Petitioner failed to prove that the case falls within the exceptions. [15]

"1. Orders the dismissal of this case;

Thus, the question of whether the subject parcel of land, Lot 1478-B
"2. Orders the plaintiffs to pay jointly and severally defendants the sum of
P5,000.00 as attorney's fees;

was sold by the original owners, Eusebio Mahilum and Dionisia Blase to
their son Simeon is a factual issue. Nonetheless, the cadastral court in its

"3. Orders respondents Francisco Mahilum and Rosela Mahilum to forthwith

surrender possession of the lands owned by defendants Generosa Lumayno
and Teresita Lumayno;

decision rendered in 1931 declared the land to be owned by Simeon. The

ruling was uncontested until 1973, when Simeon filed the complaint for
annulment of reconstituted title in the name of Eusebio Mahilum and
Dionisia Blase.

4. Finds the respondent spouses Francisco Mahilum and Rosela Mahilum

guilty of contempt of court and sentences them to an imprisonment of TEN
(10) days;
" 5. Orders the continued confinement of respondents beyond ten (10) days
should they still fail or refuse to restore said defendants-petitioners to the
possession of their lands.

We agree with the Court of Appeals that it was much too late for
petitioners' claim. Laches had set in.[16]
In like manner, we agree with the Court of Appeals that the partition of
the same lot was fraudulent. Rosario knew there was no other way to obtain
the partition of the subject property than having her brother Simeon sign a
deed of partition, making the latter believe that the deed pertained to the
three other lots. The scheme was simple enough considering that Simeon

" SO ORDERED."[6]

was illiterate. The law, however, requires that in case one of the parties to a

On May 17, 1991, respondents appealed to the Court of Appeals.

[7]

contract is unable to read and fraud is alleged, the person enforcing the
contract must show that the terms thereof have been fully explained to the

After the parties had submitted their respective briefs, on September 14,

former.[17]

1995, the Court of Appeals promulgated its decision reversing the appealed
decision, the decretal part of which is quoted in the opening paragraph of
this decision.

We are not persuaded that Rosario clearly and fully explained the
contents of the deed of partition to her brother Simeon. Petitioners'

[8]

allegations are negated by the fact that Simeon not only strongly opposed the
Hence, this appeal.

survey of the land in 1970 but also filed a complaint for annulment of

[9]

reconstituted title in 1973. Consent, having been obtained by fraud, the deed
The issues raised are (1) whether Simeon Mahilum acquired the subject
property by purchase from his parents, or by inheritance, and (2) whether
the titles issued as a result of partition of subject lot were void.
The issues raised are factual. We may not review the appellate court's
findings of fact in an appeal via certiorari.

[10]

entered into could be annulled. [18] Hence, if the deed was null, the
reconsituted title and all transfer titles arising therefrom were also void. [19]
IN VIEW WHEREOF, the Court DENIES the petition for review, hereby
AFFIRMING the decision of the Court of Appeals.

The findings of fact of the Court

of Appeals supported by substantial evidence are conclusive and binding on

the parties and are not reviewable by this Court,

[11]

No costs.

unless the case falls

under any of the exceptions to the rule, [12] such as diverse factual findings of

SO ORDERED.

459

Delta Motors Corporation.[7] The Decision was brought up to the Court of

Appeals for review.[8]
[G.R. No. 132887. August 11, 2005]
In the meantime, on 22 July 1993, herein private respondent, Edmundo
THE MANILA BANKING CORPORATION, petitioner, vs. EDMUNDO S.

requested TMBC to have the annotations on the subject properties cancelled

SILVERIO and THE COURT OF APPEALS, respondents.

as the properties were no longer owned by Ricardo, Sr.[10] This letter was
referred to the Bangko Sentral Ng Pilipinas, TMBCs statutory receiver. [11] No

DECISION

steps were taken to have the annotations cancelled. [12] Thus, on 17 December
1993, Edmundo filed in the RTC of Makati City a case for Cancellation of

CHICO-NAZARIO, J.:
Before

the

Court

Notice of Levy on Attachment and Writ of Attachment on Transfer Certificates

is

petition

for

review

on certiorari of

the

Decision[1] and Resolution[2] of the Court of Appeals reversing the dismissal by

the Regional Trial Court (RTC) of Makati City of the petition of private
respondent for cancellation of notice of levy on attachment and writ of
attachment on two (2) parcels of land located in Paraaque City.

No. 31444 (452448) and No. 45926 (452452) of the Registry of Deeds of
Paraaque City.[3]
On 16 April 1979, Purificacion Ver sold the properties to Ricardo C.
evidencing the transaction was not registered; hence, title remained with the
seller, Purificacion Ver.

could not be levied upon on 02 July 1990 to answer for the debt of Ricardo,

Ricardo, Sr., the debtor in Civil Case No. 90-513.

On 02 May 1995, after trial on the merits, the lower court rendered its
Decision dismissing Edmundos petition. TMBCs counterclaim was likewise

After a careful study of the facts proven in the instant case, the Court is
compelled to rule that the petitioner is not entitled to a cancellation of the
annotations/inscriptions of the notice of levy on attachment and writ of
attachment appearing on Transfer Certificates of Title Nos. 45228 31444 and

1990,

herein

petitioner,

The

Manila

Banking

Corporation (TMBC), filed a complaint with the RTC of Makati City for the
collection of a sum of money with application for the issuance of a writ of
attachment

case, were already sold to him by Ricardo, Sr. As such, these properties

dismissed for lack of sufficient merit. The trial court held:

Silverio, Sr. (Ricardo, Sr.) forP1,036,475.00.[4] The absolute deed of sale

preliminary

that as early as 11 September 1989, the properties, subject matter of the

Edmundo was void, therefore, the properties levied upon were still owned by

at La Huerta, Paraaque City, covered by Transfer Certificates of Title (TCTs)

February

and Deeds of Paraaque, Metro Manila. In his petition, Edmundo alleged

Counterclaim, TMBC alleged, among other things, that the sale in favor of

Purificacion Ver was the registered owner of two parcels of land located

22

of Title Nos. 452448 and 452452 of the Office of the Registrar of Land Titles

Sr. who was no longer the owner thereof. In its Answer with Compulsory

The facts that gave rise to the present controversy are as follows:

On

S. Silverio (Edmundo), the nephew[9] of judgment debtor Ricardo, Sr.,

against

Ricardo,

Sr.

and

the

Delta

Motors

Corporation docketed as Civil Case No. 90-513. [5] On 02 July 1990, by virtue
of an Order of Branch 62 of the RTC of Makati City, notice of levy on
attachment of real property and writ of attachment were inscribed on TCTs
No. 31444 (452448) and No. 45926 (452452). [6] On 29 March 1993, the trial
court rendered its Decision in favor of TMBC and against Ricardo, Sr. and the

(452452) 45926 of the Registry of Deeds of Paraaque, Metro Manila. The

Court is inclined to agree with the contention of oppositor that the supposed
deed of sale in favor of herein petitioner is fictitious and simulated and thus
void ab initio. The all-important factor that what appears in the notarial
register of the notary public, albeit in loose form, is not a deed of sale but a
mere affidavit of a different person Maria J. Segismundo --, as shown in
Exhibit 10-A, is sufficient to prove that no effective, valid and legal sale of the
properties in question was executed between the Silverio uncle and nephew.
There being no valid sale to him, petitioner has no right at all to ask for the
cancellation of the aforementioned annotations.

460

WHEREFORE, the instant petition is hereby dismissed, with costs against

FINDING THAT PETITIONER TMBC IS GUILTY OF BAD FAITH IN FAILING

petitioner. Oppositors counterclaim is ordered dismissed for lack of

TO MAKE INQUIRIES ON THE RIGHTS OF RICARDO SILVERIO, SR. OVER

sufficient merit.

[13]

THE SUBJECT PROPERTIES.

The Court of Appeals, upon reviewing the case at the instance of

Basic is the rule that only properties belonging to the debtor can be

Edmundo, reversed and set aside the trial courts ruling. The dispositive

attached, and an attachment and sale of properties belonging to a third party

portion of its Decision reads:

are void.[16] At the pith of the controversy, therefore, is the issue of ownership
of the subject properties at the time of the levy thereof as the right of

WHEREFORE, foregoing considered, the appealed decision is hereby

petitioner TMBC, as creditor, depends on whether such properties were still

REVERSED and SET-ASIDE. A new one is rendered ORDERING the Register

owned by its debtor, Ricardo, Sr., and not by Edmundo, who is concededly

of Deeds of Paraaque City to cancel the Notice of Levy on Attachment and

not a debtor of TMBC. If the properties were validly transferred to Edmundo

the Writ of Attachment made on TCT Nos. 452448 and 452452.

before the levy thereof then cancellation of the annotation is in order. If,
however, the sale was absolutely simulated and was entered into between

Costs against oppositor-appellee.

uncle and nephew for the lone reason of removing the properties from the

[14]

reach of TMBC, then the annotation should stay.

The motion for reconsideration filed by TMBC was denied for lack of
merit in a Resolution dated 25 February 1998.[15]

The issue of whether the contract is simulated or real is factual in

nature, and the Court eschews factual examination in a petition for review

Hence, the present petition, TMBC imputing upon the Court of Appeals

under Rule 45 of the Rules of Court. [17] This rule, however, is not without
exceptions, one of which is when there exists a conflict between the factual

grave error in:

findings of the trial court and of the appellate court,[18] as in the case at bar.
I.
The trial court, in ruling that TMBC was well within its rights to cause
. . . HOLDING THAT PETITIONER TMBC CANNOT QUESTION THE VALIDITY

the levy of the properties through a writ of preliminary attachment, held that

OF THE SALE OF THE PROPERTIES COVERED BY TCT NO. 31444 (452448)

the sale between Ricardo, Sr. and his nephew, Edmundo, ostensibly effected

AND 45926 (452452); UNDER ARTICLE 1421 OF THE CIVIL CODE, THE

before the levy of the subject properties, was void for being absolutely

DEFENSE OF NULLITY OF A CONTRACT IS AVAILABLE TO THIRD

simulated. The fictitious nature of the sale between the uncle and nephew,

PERSONS WHOSE INTERESTS ARE DIRECTLY AFFECTED.

according to the trial court, is made evident by the all-important factor that
what appears in the notarial register of the notary public, albeit in loose

II.

form, is not a deed of sale but a mere affidavit of a different person Maria J.
Segismundo -- as shown in Exhibit 10-A. The trial court thus concluded

ORDERING THE CANCELLATION OF THE NOTICE OF LEVY ON

that as the sale was void, the properties were still owned by Ricardo, Sr. at

ATTACHMENT AND THE WRIT OF ATTACHMENT MADE ON TCT NO. 452448

the time the levy thereon was effected.

AND 452452 SINCE AS AGAINST TWO (2) TRANSACTIONS CONCERNING

THE SAME LAND, THE REGISTERED TRANSACTION PREVAILS OVER THE
ALLEGED EARLIER UNREGISTERED RIGHT.

In reversing the trial court, the Court of Appeals reasoned, among other
things, that the sale between Ricardo, Sr. and Edmundo was not void and
that assuming it to be void, only the parties to the sale and/or their assigns

III.

can impugn or assail its validity. Moreover, assailing the validity of a sale for
being in fraud of creditors is a remedy of last resort, i.e., accion pauliana can

461

be availed of only after the creditor has had exhausted all the properties of

In herein case, badges of fraud and simulation permeate the whole

the debtor not exempt from execution. [19] In herein case, it does not appear

transaction, thus, we cannot but refuse to give the sale validity and

that TMBC sought other properties of Ricardo, Sr. other than the subject

legitimacy. Consider the following circumstances:

properties alleged to have been transferred in fraud of creditors. Thus, as the

sale of the subject properties was not void, it rightfully transferred ownership

1) There is no proof that the said sale took place prior to the date of the

to Edmundo who is not a debtor of TMBC. Consequently, TMBC could not

attachment. The notarized deed of sale, which would have served as the best

legally attach the same under Section 5, Rule 57 of the Rules of Civil

evidence of the transaction, did not materialize until 22 July 1993, or three

Procedure.

(3) years after TMBC caused the annotation of its lien on the titles subject
matter of the alleged sale. Mr. Jerry Tanchuan, Archivist 1 of the Records

The validity of the contract of sale being the focal point in the two

Management of the Archives Office (RMAO), testified that the procedure being

courts decision, we begin our analysis into the matter with two veritable

followed with respect to notarized documents is that the Records Section of

presumptions:

the

the RTC will transmit to the RMAO copies in its possession of the original

contract[20]and, second, that it was the result of a fair and regular private

documents notarized by a notary public together with the Notarial Registry

that

there

was

sufficient

consideration

Book.[28] In herein case, the RTC did not transmit any book of Atty. Anacleto

these presumptions infer prima facie the transactions validity, except that it

T. Lacanilao, Jr., the notary public who allegedly notarized the deed of sale

must yield to the evidence adduced.

between Ricardo, Sr. and Edmundo for the year 1989. [29] Instead, what the

As we held in Suntay v. Court of Appeals,

[22]

of

if shown to hold,

transaction.

[21]

first,

RMAO was in possession of was only a loose leaf entry form for Document
Between the disparate positions of the trial court and the Court of

No. 444, Page 90, Book No. 17, Series of 1989 which is an affidavit of one

Appeals, we find those of the trial court to be more in accord with the

Maria J. Segismundo dated 11 September 1989. [30] The RMAO did not have

evidence on hand and the laws applicable thereto.

available in its file the particular deed of sale acknowledged by Atty.

Lacanilao as Document No. 444, Page 90, Book No. 17, Series of 1989.

It will be noted that the Court of Appeals never justified its ruling that

[31]

In Tala Realty Services Corporation v. Banco Filipino Savings and Mortgage

the lower court erred in finding the subject sale was void. On the other

Bank,[32] as reiterated in two other Tala cases,[33] the Court rejected a

hand, the evidence is overwhelming that the sale dated 11 September 1989

notarized deed that was not reported to the Clerk of Court of the RTC by the

between Ricardo Sr. and Edmundo was absolutely simulated and that it was

notary public who notarized it.

non-existent prior to its initial appearance on 22 July 1993 when the latter

against the use of the document as basis to uphold the petitioners claim.

wrote TMBC to cause the cancellation of its lien.

The same is true in this case. The fact that the assailed deed of sale is not

The Court held that this fact militates

one of those submitted by Atty. Lacanilao to the Clerk of Court of the RTC of
An absolutely simulated contract, under Article 1346 of the Civil Code,

Makati City[34] renders it virtually worthless in the absence of corroboration

It takes place when the parties do not intend to be bound at all.

as to its due execution other than petitioner (now private respondent)

The characteristic of simulation is the fact that the apparent contract is

Edmundos self-serving statements. This being the case, Edmundo could

not really desired or intended to produce legal effects or in any way alter the

simply have presented the witnesses to the transaction (his wife and his

is void.
[24]

[23]

Thus, where a person, in order to place

lawyer), Atty. Lacanilao or the seller himself, Ricardo Sr., to testify as to the

his property beyond the reach of his creditors, simulates a transfer of it to

execution of the contract of sale on 11 September 1989. This he did not do,

another, he does not really intend to divest himself of his title and control of

thus lending more credence to the theory of TMBC that the sale was entered

the property; hence, the deed of transfer is but a sham. [26] Lacking, therefore,

into only as an afterthought, hatched to prevent the transfer of the properties

in a fictitious and simulated contract is consent which is essential to a valid

to TMBC after the latter had already annotated its lien thereon.

juridical situation of the parties.

[25]

and enforceable contract.[27]

462

2) Edmundo, to say the least, was very evasive when questioned

Q: With respect to the consideration for the purchase of subject

regarding details of the alleged sale. The deed of sale mentioned Three

parcels of land, what was the manner of payment for said

Million One Hundred Nine Thousand and Four Hundred Twenty-Five pesos

consideration?

(P3,109,425.00) as the contract price paid by hand during the execution of

the contract, yet, when asked on cross-examination, Edmundo could not

A:

It is already mentioned in the Deed of Absolute Sale.

remember if he paid directly to Ricardo, Sr. [35] Worse, he could not remember
where Ricardo, Sr. was at the time of the sale.[36] Thus:

Q: In the deed of Absolute Sale there is mentioned made by hand,

can you explain that?

Q: Now, Mr. Silverio, there is on page 2 marked as Exhibit D-1 a

signature over the typewritten name Edmundo S. Silverio, will

A:

you please tell us whose signature is that?

A.

The Deed of Absolute Sale clearly specified already the

payment on which the payment was made.

My signature.

Q: The Deed of Absolute Sale mentioned by hand, what does that

mean that you personally handed the payment to Mr.

Q. And again, there is a signature over the typewritten name

Silverio?

Ricardo Silverio, vendor, will you please tell us whose

A:

signature is that?

A:

That is the signature of the seller.

Q: By hand you mean he was present?

Q: And why do you say or how did you know that this is the

A:

signature of Ricardo Silverio?

A:

Payment was made to him.

When you said date, there was an exemption of payments

made.

Because the Deed of Absolute Sale was executed and signed

Q: But you gave the payment personally to Mr. Silverio?

infront of me.[37]
A:

I have to recall.

...
Q: So you cannot recall?
Q: And Mr. Witness, at the time of the Deed of Sale on September
11, 1989, was Ricardo Silverio in the country at that time?
A:

A:

I cannot give the exact presence of him. I cannot remember

now.

If it were true that money indeed changed hands on 11 September 1989

as evidenced by the assailed deed of sale, then, at the very least, Edmundo,
as

Q: But at the time of the Deed of Sale on September 11, 1989, you
know if he was in the country or not?

I cannot recall.[38]

buyer,

would

definitely

not

have

forgotten

personally

handing P3,109,425.00 to the seller, Ricardo, Sr. It goes against ordinary

human experience for a person to simply forget the details of the day when he
became poorer by P3,109,425.00 cash. The only logical conclusion is that

A:

I cannot remember.

there was actually no consideration for the said sale. Verily, a deed of sale in
which the stated consideration has not in fact been paid is a false contract

463

that is void ab initio.[39] Likewise, a contract of purchase and sale is null and

The Court of Appeals, however, erroneously ruled that TMBC should

void and produces no effect whatsoever where it appears that [the] same is

first go after the properties of its debtor, Ricardo, Sr., and, failing therein

without cause or consideration which should have been the motive thereof,

would be the only time it will acquire a material interest over the subject

or the purchase price appears thereon as paid but which in fact has never

properties, thus:

been paid by the purchaser to the vendor.

[40]

Article 117 of the New Civil Code is very explicit that the right or remedy of
3) As correctly pointed out by TMBC, an indication of simulation of

the creditor to impugn the acts which the debtor may have done to defraud

contract is the complete absence of an attempt in any manner on the part of

them is subsidiary in nature. It can only be availed of in the absence of any

the ostensible buyer to assert rights of ownership over the subject

other legal remedy to obtain reparation for the injury. Otherwise stated, the

properties. In herein case, Edmundo did not attempt to have the 1989 deed

right of accion pauliana can be availed of only AFTER the creditor have

of sale registered until 1993.

[42]

[41]

He was not in possession of the properties.

exhausted all the properties of the debtor not exempt from executions.

He did not have a contract of lease with the actual occupant of the

properties.[43] As late as 1991, it was Ricardo, Sr. who was claiming to be the

This fact is not present in this case. Not a single proof was offered to show

rightful owner of the properties in connection with an ejectment case he filed

that oppositor-appellee had exhausted all the properties of Ricardo Silverio

against third persons.[44] When asked to explain why it was Ricardo, Sr. who

before it tried to question the validity of the contract of sale. In fact,

was asserting ownership over the properties, Edmundo lamely replied

oppositor-appellee never alleged in its pleadings that it had exhausted all the

because I am asking him so.[45]

properties of Ricardo Silverio before it impugned the validity of the sale made
by Ricardo Silverio to petitioner-appellant.

Taken together with the other circumstances surrounding the sale,

Edmundos failure to exercise acts of dominium over the subject properties

This being the case, oppositor-appellee cannot and is not in the proper

buttresses TMBCs position that the former did not at all intend to be bound

position to question the validity of the sale of the subject properties by

by the contract of sale. In Suntay,

[46]

as reiterated in such cases as Santiago

v. Court of Appeals,[47]Cruz v. Bancom Finance Corporation [48] and Ramos v.

Ricardo Silverio to petitioner-appellant. Oppositor-appellee has not shown

that it has the material interest to question the sale.[53]

Heirs of Ramos, Sr.,[49] we held that the most proturberant index of

simulation is the complete absence of an attempt in any manner on the part

Contrary to the position taken by the Court of Appeals, TMBC need not

of the [ostensible buyer] to assert his rights of ownership over the [properties]

look farther than the subject properties to protect its rights. The remedy

in question. The supposed buyers failure to take exclusive possession of the

of accion pauliana is available when the subject matter is a conveyance,

property allegedly sold or, in the alternative, to collect rentals, is contrary to

otherwise valid undertaken in fraud of creditors. [54] Such a contract is

the principle of ownership.[50] Such failure is a clear badge of simulation that

governed by the rules on rescission which prescribe, under Art. 1383 of the

renders the whole transaction void pursuant to Article 1409 of the Civil

Civil Code, that such action can be instituted only when the party suffering

Code.

[51]

damage has no other legal means to obtain reparation for the same. The
contract of sale before us, albeit undertaken as well in fraud of creditors, is

When a contract is void, the right to set-up its nullity or non-existence is

not merely rescissible but is void ab initio for lack of consent of the parties to

available to third persons whose interests are directly affected thereby. [52] The

be bound thereby. A void or inexistent contract is one which has no force

material interest of TMBC need not be belabored. Suffice it to say that as

and effect from the very beginning, as if it had never been entered into; it

judgment creditor of Ricardo, Sr., it has the right to protect its lien acquired

produces no effect whatsoever either against or in favor of anyone.

through a writ of preliminary attachment as security for the satisfaction of

[55]

any judgment in its favor.

principle, quod nullum est nullum producit effectum, in void and inexistent

Rescissible contracts, on the other hand, are not void ab initio, and the

contracts is inapplicable.[56] Until set aside in an appropriate action,

464

rescissible contracts are respected as being legally valid, binding and in force.
[57]

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

Tolentino, a noted civilist, distinguished between these two types of

DECISION

contracts entered into in fraud of creditors, thus:

Absolute simulation implies that there is no existing contract, no real act
executed; while fraudulent alienation means that there is a true and existing
transfer or contract. The former can be attacked by any creditor, including
one subsequent to the contract; while the latter can be assailed only by the
creditors before the alienation. In absolute simulation, the insolvency of the
debtor making the simulated transfer is not a prerequisite to the nullity of
the contract; while in fraudulent alienation, the action to rescind, or accion
pauliana, requires that the creditor cannot recover in any other manner what

MENDOZA, J.:

These consolidated petitions for review on certiorari under Rule 45 of

the 1997 Revised Rules of Civil Procedure assail the April 20, 2004
Decision[1] of the Court of Appeals (CA), and its October 14, 2004
Resolution[2] in C.A.-G.R. CV No. 71399, which affirmed with modification the
April 26, 2001 Decision[3] of the Regional Trial Court, Branch 9, Kalibo,
Aklan (RTC) in Civil Case No. 5026.

is due him. Finally, the action to declare a contract absolutely simulated

does not prescribe (articles 1409 and 1410); while the accion paulianato
rescind a fraudulent alienation prescribes in four years (article 1389). [58]
IN SUM, considering that an absolutely simulated contract is not a
recognized mode of acquiring ownership, [59] the levy of the subject properties
on 02 July 1990 pursuant to a writ of preliminary attachment duly issued by
the RTC in favor of TMBC and against its debtor, Ricardo, Sr., was validly
made as the properties were invariably his. Consequently, Edmundo, who

The Facts

In his lifetime, Alfonso Ureta (Alfonso) begot 14 children, namely,

Policronio, Liberato, Narciso, Prudencia, Vicente, Francisco, Inocensio, Roque,
Adela, Wenefreda, Merlinda, Benedicto, Jorge, and Andres. The children of
Policronio (Heirs of Policronio), are opposed to the rest of Alfonsos children
and their descendants (Heirs of Alfonso).

has no legal interest in these properties, cannot cause the cancellation of the
annotation of such lien for the reasons stated in his petition.
WHEREFORE, premises considered, the Decision of the Court of
Appeals dated 17 October 1997 and its Resolution dated 25 February 1998
are hereby REVERSED and SET ASIDE. The Decision of the Regional Trial

Alfonso was financially well-off during his lifetime. He owned several

fishpens, a fishpond, a sari-sari store, a passenger jeep, and was engaged in
the buying and selling of copra. Policronio, the eldest, was the only child of
Alfonso who failed to finish schooling and instead worked on his fathers
lands.

Court of Makati City, Branch 145, dated 02 May 1995, is REINSTATED,

dismissing the petition for Cancellation of Notice of Levy on Attachment and
Writ of Attachment on Transfer Certificates of Title No. 31444 (452448) and
No. 45926 (452452) of the Registry of Deeds of Paraaque City. With costs.
SO ORDERED.

Sometime in October 1969, Alfonso and four of his children, namely,

Policronio, Liberato, Prudencia, and Francisco, met at the house of Liberato.
Francisco, who was then a municipal judge, suggested that in order to reduce
the inheritance taxes, their father should make it appear that he had sold
some of his lands to his children. Accordingly, Alfonso executed four
(4) Deeds of Sale covering several parcels of land in favor of Policronio,
[4]
Liberato,[5] Prudencia,[6] and his common-law wife, Valeriana Dela Cruz.
[7]
The Deed of Sale executed on October 25, 1969, in favor of Policronio,
covered six parcels of land, which are the properties in dispute in this case.

POLICARPIO URETA SR VS LIBERATO URETA

465

Since the sales were only made for taxation purposes and no monetary
consideration was given, Alfonso continued to own, possess and enjoy the
lands and their produce.

When Alfonso died on October 11, 1972, Liberato acted as the

administrator of his fathers estate. He was later succeeded by his sister
Prudencia, and then by her daughter, Carmencita Perlas. Except for a portion
of parcel 5, the rest of the parcels transferred to Policronio were tenanted by
the Fernandez Family. These tenants never turned over the produce of the
lands to Policronio or any of his heirs, but to Alfonso and, later, to the
administrators of his estate.

Policronio died on November 22, 1974. Except for the said portion of
parcel 5, neither Policronio nor his heirs ever took possession of the subject
lands.

not the Deed of Sale was valid; (2) whether or not the Deed of Extra-Judicial
Partition was valid; and (3) who between the parties was entitled to damages.

The Ruling of the RTC

On April 26, 2001, the RTC dismissed the Complaint of the Heirs of
Policronio and ruled in favor of the Heirs of Alfonso in a decision, the
dispositive portion of which reads:

WHEREFORE,
the
Court
finds
that
the
preponderance of evidence tilts in favor of the defendants,
hence the instant case is hereby DISMISSED.

The counterclaims are likewise DISMISSED.

On April 19, 1989, Alfonsos heirs executed a Deed of Extra-Judicial
Partition,[8] which included all the lands that were covered by the four (4)
deeds of sale that were previously executed by Alfonso for taxation purposes.
Conrado, Policronios eldest son, representing the Heirs of Policronio, signed
the Deed of Extra-Judicial Partition in behalf of his co-heirs.

After their fathers death, the Heirs of Policronio found tax declarations
in his name covering the six parcels of land. On June 15, 1995, they obtained
a copy of the Deed of Sale executed onOctober 25, 1969 by Alfonso in favor of
Policronio.

Not long after, on July 30, 1995, the Heirs of Policronio allegedly
learned about the Deed of Extra-Judicial Partition involving Alfonsos estate
when it was published in the July 19, 1995 issue of the Aklan Reporter.

Believing that the six parcels of land belonged to their late father, and
as such, excluded from the Deed of Extra-Judicial Partition, the Heirs of
Policronio sought to amicably settle the matter with the Heirs of Alfonso.
Earnest efforts proving futile, the Heirs of Policronio filed a Complaint for
Declaration of Ownership, Recovery of Possession, Annulment of Documents,
Partition, and Damages[9] against the Heirs of Alfonso before the RTC on
November 17, 1995 where the following issues were submitted: (1) whether or

With costs against plaintiffs.

SO ORDERED.

The RTC found that the Heirs of Alfonso clearly established that the
Deed of Sale was null and void. It held that the Heirs of Policronio failed to
rebut the evidence of the Heirs of Alfonso, which proved that the Deed of Sale
in the possession of the former was one of the four (4) Deeds of Sale executed
by Alfonso in favor of his 3 children and second wife for taxation
purposes; that although tax declarations were issued in the name of
Policronio, he or his heirs never took possession of the subject lands except a
portion of parcel 5; and that all the produce were turned over by the tenants
to Alfonso and the administrators of his estate and never to Policronio or his
heirs.

The RTC further found that there was no money involved in the sale.
Even granting that there was, as claimed by the Heirs of Policronio, 2,000.00
for six parcels of land, the amount was grossly inadequate. It was also noted
that the aggregate area of the subject lands was more than double the
average share adjudicated to each of the other children in the Deed of ExtraJudicial Partition; that the siblings of Policronio were the ones who shared in
the produce of the land; and that the Heirs of Policronio only paid real estate

466

taxes in 1996 and 1997. The RTC opined that Policronio must have been
aware that the transfer was merely for taxation purposes because he did not
subsequently take possession of the properties even after the death of his
father.

The Deed of Extra-Judicial Partition, on the other hand, was

declared valid by the RTC as all the heirs of Alfonso were represented and
received equal shares and all the requirements of a valid extra-judicial
partition were met. The RTC considered Conrados claim that he did not
understand the full significance of his signature when he signed in behalf of
his co-heirs, as a gratutitous assertion. The RTC was of the view that when
he admitted to have signed all the pages and personally appeared before the
notary public, he was presumed to have understood their contents.

Lastly, neither party was entitled to damages. The Heirs of Alfonso

failed
to
present
testimony
to
serve
as
factual
basis
for
moral
damages, no document was presented to prove actual damages,
and the Heirs of Policronio were found to have filed the case in good faith.

The Ruling of the CA

Aggrieved, the Heirs of Policronio appealed before the CA, which

rendered a decision on April 20, 2004, the dispositive portion of which reads
as follows:

WHEREFORE, the appeal is PARTIALLY GRANTED.

The appealed Decision, dated 26 April 2001, rendered by
Hon. Judge Dean R. Telan of the Regional Trial Court of
Kalibo, Aklan, Branch 9, is hereby AFFIRMED with
MODIFICATION:

1.) The Deed of Sale in favor of Policronio Ureta, Sr.,

dated 25 October 1969, covering six (6) parcels of land is
hereby declared VOID for being ABSOLUTELY SIMULATED;

3.) The claim for actual and exemplary damages

are DISMISSED for lack of factual and legal basis.

The case is hereby REMANDED to the court of origin

for the proper partition of ALFONSO URETAS Estate in
accordance with Rule 69 of the 1997 Rules of Civil
Procedure. No costs at this instance.

SO ORDERED.

The CA affirmed the finding of the RTC that the Deed of Sale was void.
It found the Deed of Sale to be absolutely simulated as the parties did not
intend to be legally bound by it. As such, it produced no legal effects and did
not alter the juridical situation of the parties. The CA also noted that Alfonso
continued to exercise all the rights of an owner even after the execution of the
Deed of Sale, as it was undisputed that he remained in possession of the
subject parcels of land and enjoyed their produce until his death.

Policronio, on the other hand, never exercised any rights pertaining

to an owner over the subject lands from the time they were sold to him up
until his death. He never took or attempted to take possession of the land
even after his fathers death, never demanded delivery of the produce from
the tenants, and never paid realty taxes on the properties. It was also noted
that Policronio never disclosed the existence of the Deed of Sale to his
children, as they were, in fact, surprised to discover its existence. The CA,
thus, concluded that Policronio must have been aware that the transfer was
only made for taxation purposes.

The testimony of Amparo Castillo, as to the circumstances

surrounding the actual arrangement and agreement between the parties prior
to the execution of the four (4) Deeds of Sale, was found by the CA to be
unrebutted. The RTCs assessment of the credibility of her testimony was
accorded respect, and the intention of the parties was given the primary
consideration in determining the true nature of the contract.

2.) The Deed of Extra-Judicial Partition, dated 19

April 1989, is ANNULLED;

467

Contrary to the finding of the RTC though, the CA annulled the Deed
of Extra-Judicial Partition due to the incapacity of one of the parties to give
his consent to the contract. It held that before Conrado could validly bind his
co-heirs to the Deed of Extra-Judicial Partition, it was necessary that he be
clothed with the proper authority. The CA ruled that a special power of
attorney was required under Article 1878 (5) and (15) of the Civil
Code. Without a special power of attorney, it was held that Conrado lacked
the legal capactiy to give the consent of his co-heirs, thus, rendering the Deed
of Extra-Judicial Partition voidable under Article 1390 (1) of the Civil Code.

As a consequence, the CA ordered the remand of the case to the RTC

for the proper partition of the estate, with the option that the parties may still
voluntarily effect the partition by executing another agreement or by adopting
the assailed Deed of Partition with the RTCs approval in either case.
Otherwise, the RTC may proceed with the compulsory partition of the estate
in accordance with the Rules.

On the other hand, the Heirs of Alfonso argued that the Deed of
Extra-Judicial Partition should not have been annulled, and instead the
preterited heirs should be given their share. The CA reiterated that Conrados
lack of capacity to give his co-heirs consent to the extra-judicial settlement
rendered the same voidable.

Hence, the present Petitions for Review on Certiorari.

The Issues

The issues presented for resolution by the Heirs of Policronio in G.R.

No. 165748 are as follows:
I.

With regard to the claim for damages, the CA agreed with the RTC
and dismissed the claim for actual and compensatory damages for lack of
factual and legal basis.

Both parties filed their respective Motions for Reconsideration, which

were denied by the CA for lack of merit in a Resolution dated October 14,
2004.

In their Motion for Reconsideration, the Heirs of Policronio argued that

the RTC violated the best evidence rule in giving credence to the testimony of
Amparo Castillo with regard to the simulation of the Deed of Sale, and that
prescription had set in precluding any question on the validity of the contract.

The CA held that the oral testimony was admissible under Rule 130,
Section 9 (b) and (c), which provides that evidence aliunde may be allowed to
explain the terms of the written agreement if the same failed to express the
true intent and agreement of the parties thereto, or when the validity of the
written agreement was put in issue. Furthermore, the CA found that the
Heirs of Policronio waived their right to object to evidence aliunde having
failed to do so during trial and for raising such only for the first time on
appeal. With regard to prescription, the CA ruled that the action or defense
for the declaration of the inexistence of a contract did not prescribe under
Article 1410 of the Civil Code.

Whether the Court of Appeals is correct in ruling that

the Deed of Absolute Sale of25 October 1969 is void for
being absolutely fictitious and in relation therewith, may
parol evidence be entertained to thwart its binding effect
after the parties have both died?

Assuming that indeed the said document is simulated,

whether or not the parties thereto including their
successors in interest are estopped to question its
validity, they being bound by Articles 1412 and 1421 of
the Civil Code?

II.

Whether prescription applies to bar any question

respecting
the
validity
of
the
Deed
of
Absolute Sale dated 25
October
1969?
Whether
prescription applies to bar any collateral attack on the

468

validity of the deed of absolute sale executed 21 years

earlier?

III.

Whether the Court of Appeals correctly ruled in

nullifying the Deed of Extrajudicial Partition because
Conrado Ureta signed the same without the written
authority from his siblings in contravention of Article
1878 in relation to Article 1390 of the Civil Code and in
relation therewith, whether the defense of ratification
and/or preterition raised for the first time on appeal
may be entertained?
The issues presented for resolution by the Heirs of Alfonso in G.R.
No. 165930 are as follows:

Granting arguendo that Conrado Ureta was not

authorized to represent his co-heirs and there was no
ratification, whether or not the Court of Appeals was
correct in ordering the remand of the case to the
Regional Trial Court for partition of the estate of Alfonso
Ureta.

IV.

Since the sale in favor of Policronio Ureta Sr. was null

and void ab initio, the properties covered therein formed
part of the estate of the late Alfonso Ureta and was
correctly included in the Deed of Extrajudicial Partition
even if no prior action for nullification of the sale was
filed by the heirs of Liberato Ureta.

I.
V.
Whether or not grave error was committed by the Trial
Court and Court of Appeals in declaring the Deed of Sale
of subject properties as absolutely simulated and null
and void thru parol evidence based on their factual
findings as to its fictitious nature, and there being
waiver of any objection based on violation of the parol
evidence rule.

II.

Whether or not the Court of Appeals was correct in

holding that Conrado Uretas lack of capacity to give his
co-heirs consent to the Extra-Judicial Partition
rendered the same voidable.

III.

Whether or not the heirs of Policronio Ureta Sr. can

claim that estoppel based on Article 1412 of the Civil
Code as well as the issue of prescription can still be
raised on appeal.
These various contentions revolve around two major issues, to wit: (1)
whether the Deed of Sale is valid, and (2) whether the Deed of Extra-Judicial
Partition is valid. Thus, the assigned errors shall be discussed jointly and
in seriatim.

The Ruling of the Court

Validity of the Deed of Sale

Two veritable legal presumptions bear on the validity of the Deed of

Sale: (1) that there was sufficient consideration for the contract; and (2) that
it was the result of a fair and regular private transaction. If shown to hold,

469

these presumptions infer prima facie the transactions validity, except that it
must yield to the evidence adduced.[10]

As will be discussed below, the evidence overcomes these two

presumptions.

Absolute Simulation

First, the Deed of Sale was not the result of a fair and regular private
transaction because it was absolutely simulated.

The Heirs of Policronio argued that the land had been validly
sold
to Policronio as the Deed of Sale contained all the essential
elements of a valid contract of sale, by virtue of which, the subject properties
were transferred in his name as evidenced by the tax declaration. There being
no invalidation prior to the execution of the Deed of Extra-Judicial Partition,
the probity and integrity of the Deed of Sale should remain undiminished
and accorded respect as it was a duly notarized public instrument.

The Heirs of Policronio posited that his loyal services to his father and
his being the eldest among Alfonsos children, might have prompted the old
man to sell the subject lands to him at a very low price as an advance
inheritance. They explained that Policronios failure to take possession of the
subject lands and to claim their produce manifests a Filipino family practice
wherein a child would take possession and enjoy the fruits of the land sold
by a parent only after the latters death. Policronio simply treated the lands
the same way his father Alfonso treated them - where his children enjoyed
usufructuary rights over the properties, as opposed to appropriating them
exclusively to himself. They contended that Policronios failure to take actual
possession of the lands did not prove that he was not the owner as he was
merely exercising his right to dispose of them. They argue that it was an
error on the part of the CA to conclude that ownership by Policronio was not
established by his failure to possess the properties sold. Instead, emphasis
should be made on the fact that the tax declarations, being indicia of
possession, were in Policronios name.

They further argued that the Heirs of Alfonso failed to appreciate that
the Deed of Sale was clear enough to convey the subject parcels of land.
Citing jurisprudence, they contend that there is a presumption that an

instrument sets out the true agreement of the parties thereto and that it was
executed for valuable consideration,[11] and where there is no doubt as to the
intention of the parties to a contract, the literal meaning of the stipulation
shall control.[12] Nowhere in the Deed of Sale is it indicated that the transfer
was only for taxation purposes. On the contrary, the document clearly
indicates that the lands were sold. Therefore, they averred that the literal
meaning of the stipulation should control.

The Court disagrees.

The Court finds no cogent reason to deviate from the finding of the
CA that the Deed of Sale is null and void for being absolutely simulated. The
Civil Code provides:

Art. 1345. Simulation of a contract may be absolute or

relative. The former takes place when the parties do not
intend to be bound at all; the latter, when the parties conceal
their true agreement.

Art. 1346. An absolutely simulated or fictitious contract is

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

Valerio v. Refresca[13] is instructive on the matter of simulation of

contracts:

In absolute simulation, there is a colorable contract

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

470

contract to conceal their real agreement, the contract is

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

Lacking, therefore, in an absolutely simulated contract is consent

which is essential to a valid and enforceable contract. [14] Thus, where a
person, in order to place his property beyond the reach of his creditors,
simulates a transfer of it to another, he does not really intend to divest
himself of his title and control of the property; hence, the deed of transfer is
but a sham.[15] Similarly, in this case, Alfonso simulated a transfer to
Policronio purely for taxation purposes, without intending to transfer
ownership over the subject lands.

The primary consideration in determining the true nature of a

contract is the intention of the parties. If the words of a contract appear to
contravene the evident intention of the parties, the latter shall prevail. Such
intention is determined not only from the express terms of their agreement,
but also from the contemporaneous and subsequent acts of the parties.
[16]
The true intention of the parties in this case was sufficiently proven by the
Heirs of Alfonso.

The Heirs of Alfonso established by a preponderance of

evidence[17] that the Deed of Sale was one of the four (4) absolutely simulated
Deeds of Sale which involved no actual monetary consideration, executed by
Alfonso in favor of his children, Policronio, Liberato, and Prudencia, and his
second wife, Valeriana, for taxation purposes.

Amparo Castillo, the daughter of Liberato, testified, to wit:

Q:
Now sometime in the year 1969 can you recall if your
grandfather and his children [met] in your house?

A:
Yes sir, that was sometime in October 1969 when
they [met] in our house, my grandfather, my late uncle
Policronio Ureta, my late uncle Liberato Ureta, my uncle

Francisco Ureta, and then my auntie Prudencia Ureta they

talk[ed] about, that idea came from my uncle Francisco
Ureta to [sell] some parcels of land to his children to lessen
the inheritance tax whatever happened to my grandfather,
actually no money involved in this sale.

Q:
Now you said there was that agreement, verbal
agreement. [W]here were you when this Alfonso Ureta and
his children gather[ed] in your house?

A:
I was near them in fact I heard everything they were
talking [about]

xxx

Q:
Were there documents of sale executed by Alfonso
Ureta in furtherance of their verbal agreement?

A:

Yes sir.

Q:
To whom in particular did your grandfather Alfonso
Ureta execute this deed of sale without money consideration
according to you?

A:
To my uncle Policronio Ureta and to Prudencia Ureta
Panadero.

Q:

And who else?

A:

To Valeriana dela Cruz.

Q:

How about your father?

A:

He has.[18]

471

The other Deeds of Sale executed by Alfonso in favor of his children

Prudencia and Liberato, and second wife Valeriana, all bearing the same date
of execution, were duly presented in evidence by the Heirs of Alfonso, and
were uncontested by the Heirs of Policronio. The lands which were the
subject of these Deeds of Sale were in fact included in the Deed of ExtraJudicial Partition executed by all the heirs of Alfonso, where it was expressly
stipulated:

That the above-named Amparo U. Castillo,

Prudencia U. Paradero, Conrado B. Ureta and Merlinda U.
Rivera do hereby recognize and acknowledge as a fact that
the properties presently declared in their respective names
or in the names of their respective parents and are included
in the foregoing instrument are actually the properties of the
deceased Alfonso Ureta and were transferred only for the
purpose of effective administration and development and
convenience in the payment of taxes and, therefore, all
instruments conveying or affecting the transfer of said
properties are null and void from the beginning.[19]

As found by the CA, Alfonso continued to exercise all the rights of an

owner even after the execution of the Deeds of Sale. It was undisputed that
Alfonso remained in possession of the subject lands and enjoyed their
produce until his death. No credence can be given to the contention of the
Heirs of Policrionio that their father did not take possession of the subject
lands or enjoyed the fruits thereof in deference to a Filipino family practice.
Had this been true, Policronio should have taken possession of the subject
lands after his father died. On the contrary, it was admitted that neither
Policronio nor his heirs ever took possession of the subject lands from the
time they were sold to him, and even after the death of both Alfonso and
Policronio.

The most protuberant index of simulation of contract is the complete

absence of an attempt in any manner on the part of the ostensible buyer to
assert rights of ownership over the subject properties. Policronios failure to
take exclusive possession of the subject properties or, in the alternative, to
collect rentals, is contrary to the principle of ownership. Such failure is a
clear badge of simulation that renders the whole transaction void. [20]

It is further telling that Policronio never disclosed the existence of the

Deed of Sale to his children. This, coupled with Policronios failure to exercise
any rights pertaining to an owner of the subject lands, leads to the
conclusion that he was aware that the transfer was only made for taxation
purposes and never intended to bind the parties thereto.

As the above factual circumstances remain unrebutted by the Heirs of

Policronio, the factual findings of the RTC, which were affirmed by the CA,
remain binding and conclusive upon this Court. [21]

It is clear that the parties did not intend to be bound at all, and as
such, the Deed of Sale produced no legal effects and did not alter the juridical
situation of the parties. The Deed of Sale is, therefore, void for being
absolutely simulated pursuant to Article 1409 (2) of the Civil Code which
provides:

Art. 1409. The following contracts are inexistent and void

from the beginning:

xxx

(2) Those which are absolutely simulated or fictitious;

It was also admitted by the Heirs of Policronio that the tenants of the
subject lands never turned over the produce of the properties to Policronio or
his heirs but only to Alfonso and the administrators of his estate. Neither was
there a demand for their delivery to Policronio or his heirs. Neither did
Policronio ever pay real estate taxes on the properties, the only payment on
record being those made by his heirs in 1996 and 1997 ten years after his
death. In sum, Policronio never exercised any rights pertaining to an owner
over the subject lands.

xxx

For guidance, the following are the most fundamental characteristics

of void or inexistent contracts:

472

1) As a general rule, they produce no legal effects whatsoever

in accordance with the principle "quod nullum est
nullum producit effectum."

2) They are not susceptible of ratification.

3) The right to set up the defense of inexistence or absolute

nullity cannot be waived or renounced.

4) The action or defense for the declaration of their

inexistence or absolute nullity is imprescriptible.

5) The inexistence or absolute nullity of a contract cannot be

invoked by a person whose interests are not directly
affected.[22]

Since the Deed of Sale is void, the subject properties were properly
included in the Deed of Extra-Judicial Partition of the estate of Alfonso.

Absence and Inadequacy of Consideration

The second presumption is rebutted by the lack of consideration for

the Deed of Sale.

In their Answer,[23] the Heirs of Alfonso initially argued that the Deed
of Sale was void for lack of consideration, and even granting that there was
consideration, such was inadequate. The Heirs of Policronio counter that the
defenses of absence or inadequacy of consideration are not grounds to render
a contract void.

The Heirs of Policronio contended that under Article 1470 of the Civil
Code, gross inadequacy of the price does not affect a contract of sale, except
as it may indicate a defect in the consent, or that the parties really intended
a donation or some other act or contract. Citing jurisprudence, they argued
that inadequacy of monetary consideration does not render a conveyance
inexistent as liberality may be sufficient cause for a valid contract, whereas

fraud or bad faith may render it either rescissible or voidable, although valid
until annulled.[24] Thus, they argued that if the contract suffers from
inadequate consideration, it remains valid until annulled, and the remedy of
rescission calls for judicial intervention, which remedy the Heirs of Alfonso
failed to take.

It is further argued that even granting that the sale of the subject
lands for a consideration of 2,000.00 was inadequate, absent any evidence
of the fair market value of the land at the time of its sale, it cannot be
concluded that the price at which it was sold was inadequate. [25] As there is
nothing in the records to show that the Heirs of Alfonso supplied the true
value of the land in 1969, the amount of 2,000.00 must thus stand as its
saleable value.

On this issue, the Court finds for the Heirs of Alfonso.

For lack of consideration, the Deed of Sale is once again found to be

void. It states that Policronio paid, and Alfonso received, the 2,000.00
purchase price on the date of the signing of the contract:

That I, ALFONSO F. URETA, x x x for and in

consideration of the sum of TWO THOUSAND (2,000.00)
PESOS, Philippine Currency, to me in hand paid by
POLICRONIO M. URETA, x x x, do hereby CEDE,
TRANSFER, and CONVEY, by way of absolute sale, x x x six
(6) parcels of land x x x.[26] [Emphasis ours]

Although, on its face, the Deed of Sale appears to be supported by

valuable consideration, the RTC found that there was no money involved in
the sale.[27] This finding was affirmed by the CA in ruling that the sale is void
for being absolutely simulated. Considering that there is no cogent reason to
deviate from such factual findings, they are binding on this Court.

It is well-settled in a long line of cases that where a deed of sale states

that the purchase price has been paid but in fact has never been paid, the
deed of sale is null and void for lack of consideration. [28] Thus, although the
contract states that the purchase price of 2,000.00 was paid by Policronio to

473

Alfonso for the subject properties, it has been proven that such was never in
fact paid as there was no money involved. It must, therefore, follow that the
Deed of Sale is void for lack of consideration.

Given that the Deed of Sale is void, it is unnecessary to discuss the

issue on the inadequacy of consideration.

Parol Evidence and Hearsay

The Heirs of Policronio aver that the rules on parol evidence and
hearsay were violated by the CA in ruling that the Deed of Sale was void.

They argued that based on the parol evidence rule, the Heirs of
Alfonso and, specifically, Amparo Castillo, were not in a position to prove the
terms outside of the contract because they were not parties nor successorsin-interest in the Deed of Sale in question. Thus, it is argued that the
testimony of Amparo Castillo violates the parol evidence rule.

Stemming from the presumption that the Heirs of Alfonso were not
parties to the contract, it is also argued that the parol evidence rule may not
be properly invoked by either party in the litigation against the other, where
at least one of the parties to the suit is not a party or a privy of a party to the
written instrument in question and does not base a claim on the instrument
or assert a right originating in the instrument or the relation established
thereby.[29]

Their arguments are untenable.

The objection against the admission of any evidence must be made at

the proper time, as soon as the grounds therefor become reasonably
apparent, and if not so made, it will be understood to have been waived. In
the case of testimonial evidence, the objection must be made when the
objectionable question is asked or after the answer is given if the
objectionable features become apparent only by reason of such answer. [30] In
this case, the Heirs of Policronio failed to timely object to the testimony of
Amparo Castillo and they are, thus, deemed to have waived the benefit of the
parol evidence rule.

Granting that the Heirs of Policronio timely objected to the testimony

of Amparo Castillo, their argument would still fail.

Section 9 of Rule 130 of the Rules of Court provides:

Section 9. Evidence of written agreements. When the
terms of an agreement have been reduced to writing, it is
considered as containing all the terms agreed upon and
there can be, between the parties and their successors in
interest, no evidence of such terms other than the contents
of the written agreement.
However, a party may present evidence to modify, explain or
add to the terms of written agreement if he puts in issue in
his pleading:
(a) An intrinsic ambiguity, mistake or imperfection in the
written agreement;
(b) The failure of the written agreement to express the true
intent and agreement of the parties thereto;
(c) The validity of the written agreement; or
(d) The existence of other terms agreed to by the parties or
their successors in interest after the execution of the written
agreement.
The term "agreement" includes wills.
[Emphasis ours]

Paragraphs (b) and (c) are applicable in the case at bench.

The failure of the Deed of Sale to express the true intent and
agreement of the parties was clearly put in issue in the Answer [31] of the Heirs
of Alfonso to the Complaint. It was alleged that the Deed of Sale was only
made to lessen the payment of estate and inheritance taxes and not meant to
transfer ownership. The exception in paragraph (b) is allowed to enable the
court to ascertain the true intent of the parties, and once the intent is clear,
it shall prevail over what the document appears to be on its face. [32] As the
true intent of the parties was duly proven in the present case, it now prevails
over what appears on the Deed of Sale.

474

The validity of the Deed of Sale was also put in issue in the Answer,
and was precisely one of the issues submitted to the RTC for resolution.
[33]
The operation of the parol evidence rule requires the existence of a valid
written agreement. It is, thus, not applicable in a proceeding where the
validity of such agreement is the fact in dispute, such as when a contract
may be void for lack of consideration. [34] Considering that the Deed of Sale
has been shown to be void for being absolutely simulated and for lack of
consideration, the Heirs of Alfonso are not precluded from presenting
evidence to modify, explain or add to the terms of the written agreement.

The Heirs of Policronio must be in a state of confusion in arguing

that the Heirs of Alfonso may not question the Deed of Sale for not being
parties or successors-in-interest therein on the basis that the parol evidence
rule may not be properly invoked in a proceeding or litigation where at least
one of the parties to the suit is not a party or a privy of a party to the written
instrument in question and does not base a claim on the instrument or
assert a right originating in the instrument or the relation established
thereby. If their argument was to be accepted, then the Heirs of Policronio
would themselves be precluded from invoking the parol evidence rule to
exclude the evidence of the Heirs of Alfonso.

Indeed, the applicability of the parol evidence rule requires that the
case be between parties and their successors-in-interest. [35] In this case, both
the Heirs of Alfonso and the Heirs of Policronio are successors-in-interest of
the parties to the Deed of Sale as they claim rights under Alfonso and
Policronio, respectively. The parol evidence rule excluding evidence aliunde,
however, still cannot apply because the present case falls under two
exceptions to the rule, as discussed above.

With respect to hearsay, the Heirs of Policronio contended that the

rule on hearsay was violated when the testimony of Amparo Castillo was
given weight in proving that the subject lands were only sold for taxation
purposes as she was a person alien to the contract. Even granting that they
did not object to her testimony during trial, they argued that it should not
have been appreciated by the CA because it had no probative value
whatsoever.[36]

The Court disagrees.

It has indeed been held that hearsay evidence whether objected to or

not cannot be given credence for having no probative value. [37] This principle,
however, has been relaxed in cases where, in addition to the failure to object
to the admissibility of the subject evidence, there were other pieces of
evidence presented or there were other circumstances prevailing to support
the fact in issue. In Top-Weld Manufacturing, Inc. v. ECED S.A., [38] this Court
held:

Hearsay evidence alone may be insufficient to

establish a fact in an injunction suit (Parker v. Furlong, 62 P.
490) but, when no objection is made thereto, it is, like any
other evidence, to be considered and given the importance it
deserves. (Smith v. Delaware & Atlantic Telegraph &
Telephone Co., 51 A 464). Although we should warn of the
undesirability of issuing judgments solely on the basis of the
affidavits submitted, where as here, said affidavits are
overwhelming, uncontroverted by competent evidence and
not inherently improbable, we are constrained to uphold the
allegations of the respondents regarding the multifarious
violations of the contracts made by the petitioner.

In the case at bench, there were other prevailing circumstances

which corroborate the testimony of Amparo Castillo. First, the other Deeds of
Sale which were executed in favor of Liberato, Prudencia, and Valeriana on
the same day as that of Policronios were all presented in evidence.Second, all
the properties subject therein were included in the Deed of Extra-Judicial
Partition of the estate of Alfonso. Third, Policronio, during his lifetime, never
exercised acts of ownership over the subject properties (as he never
demanded or took possession of them, never demanded or received the
produce thereof, and never paid real estate taxes thereon). Fourth, Policronio
never informed his children of the sale.

As the Heirs of Policronio failed to controvert the evidence presented,

and to timely object to the testimony of Amparo Castillo, both the RTC and
the CA correctly accorded probative weight to her testimony.

Prior Action Unnecessary

The Heirs of Policronio averred that the Heirs of Alfonso should have
filed an action to declare the sale void prior to executing the Deed of Extra-

475

Judicial Partition. They argued that the sale should enjoy the presumption of
regularity, and until overturned by a court, the Heirs of Alfonso had no
authority to include the land in the inventory of properties of Alfonsos
estate. By doing so, theyarrogated upon themselves the power of invalidating
the Deed of Sale which is exclusively vested in a court of law which, in
turn, can rule only upon the observance of due process. Thus, they
contended that prescription, laches, or estoppel have set in to militate against
assailing the validity of the sale.

The Heirs of Policronio are mistaken.

A simulated contract of sale is without any cause or consideration,

and is, therefore, null and void; in such case, no independent action to
rescind or annul the contract is necessary, and it may be treated as nonexistent for all purposes.[39] A void or inexistent contract is one which has no
force and effect from the beginning, as if it has never been entered into, and
which cannot be validated either by time or ratification. A void contract
produces no effect whatsoever either against or in favor of anyone; it does not
create, modify or extinguish the juridical relation to which it refers.
[40]
Therefore, it was not necessary for the Heirs of Alfonso to first file an
action to declare the nullity of the Deed of Sale prior to executing the Deed of
Extra-Judicial Partition.
Personality to Question Sale

The Heirs of Policronio contended that the Heirs of Alfonso are not
parties, heirs, or successors-in-interest under the contemplation of law to
clothe them with the personality to question the Deed of Sale. They argued
that under Article 1311 of the Civil Code, contracts take effect only between
the parties, their assigns and heirs. Thus, the genuine character of a
contract which personally binds the parties cannot be put in issue by a
person who is not a party thereto. They posited that the Heirs of Alfonso were
not parties to the contract; neither did they appear to be beneficiaries by way
of assignment or inheritance. Unlike themselves who are direct heirs of
Policronio, the Heirs of Alfonso are not Alfonsos direct heirs. For the Heirs of
Alfonso to qualify as parties, under Article 1311 of the Civil Code, they must
first prove that they are either heirs or assignees. Being neither, they have no
legal standing to question the Deed of Sale.

They further argued that the sale cannot be assailed for being barred
under Article 1421 of the Civil Code which provides that the defense of

illegality of a contract is not available to third persons whose interests are not
directly affected.

Again, the Court disagrees.

Article 1311 and Article 1421 of the Civil Code provide:

Art. 1311. Contracts take effect only between the parties,

their assigns and heirs, x x x

Art. 1421. The defense of illegality of contracts is not

available to third persons whose interests are not directly
affected.

The right to set up the nullity of a void or non-existent contract is not

limited to the parties, as in the case of annullable or voidable contracts; it is
extended to third persons who are directly affected by the contract. Thus,
where a contract is absolutely simulated, even third persons who may be
prejudiced thereby may set up its inexistence.[41] The Heirs of Alfonso are the
children of Alfonso, with his deceased children represented by their children
(Alfonsos grandchildren). The Heirs of Alfonso are clearly his heirs and
successors-in-interest and, as such, their interests are directly affected,
thereby giving them the right to question the legality of the Deed of Sale.

Inapplicability of Article 842

The Heirs of Policronio further argued that even assuming that the
Heirs of Alfonso have an interest in the Deed of Sale, they would still be
precluded from questioning its validity. They posited that the Heirs of Alfonso
must first prove that the sale of Alfonsos properties to Policronio
substantially diminished their successional rights or that their legitimes
would be unduly prejudiced, considering that under Article 842 of the Civil
Code, one who has compulsory heirs may dispose of his estate provided that
he does not contravene the provisions of the Civil Code with regard to the
legitime of said heirs. Having failed to do so, they argued that the Heirs of
Alfonso should be precluded from questioning the validity of the Deed of Sale.

476

Still, the Court disagrees.

Article 842 of the Civil Code provides:

Art. 842. One who has no compulsory heirs may dispose by

will of all his estate or any part of it in favor of any person
having capacity to succeed.

One who has compulsory heirs may dispose of his estate

provided he does not contravene the provisions of this Code
with regard to the legitime of said heirs.

This article refers to the principle of freedom of disposition by will.

What is involved in the case at bench is not a disposition by will but by Deed
of Sale. Hence, the Heirs of Alfonso need not first prove that the disposition
substantially diminished their successional rights or unduly prejudiced their
legitimes.

Inapplicability of Article 1412

The Heirs of Policronio contended that even assuming that the

contract was simulated, the Heirs of Alfonso would still be barred from
recovering the properties by reason of Article 1412 of the Civil Code, which
provides that if the act in which the unlawful or forbidden cause does not
constitute a criminal offense, and the fault is both on the contracting parties,
neither may recover what he has given by virtue of the contract or demand
the performance of the others undertaking. As the Heirs of Alfonso alleged
that the purpose of the sale was to avoid the payment of inheritance taxes,
they cannot take from the Heirs of Policronio what had been given to their
father.

On this point, the Court again disagrees.

Article 1412 of the Civil Code is as follows:

Art. 1412. If the act in which the unlawful or forbidden

cause consists does not constitute a criminal offense, the
following rules shall be observed:

(1) When the fault is on the part of both contracting

parties, neither may recover what he has given by virtue
of the contract, or demand the performance of the
others undertaking;

(2) When only one of the contracting parties is at fault, he

cannot recover what he has given by reason of the
contract, or ask for the fulfillment of what has been
promised him. The other, who is not at fault, may
demand the return of what he has given without any
obligation to comply with his promise.

Article 1412 is not applicable to fictitious or simulated contracts,

because they refer to contracts with an illegal cause or subject-matter. [42] This
article presupposes the existence of a cause, it cannot refer to fictitious or
simulated contracts which are in reality non-existent. [43] As it has been
determined that the Deed of Sale is a simulated contract, the provision
cannot apply to it.

Granting that the Deed of Sale was not simulated, the provision
would still not apply. Since the subject properties were included as properties
of Alfonso in the Deed of Extra-Judicial Partition, they are covered by
corresponding inheritance and estate taxes. Therefore, tax evasion, if at all
present, would not arise, and Article 1412 would again be inapplicable.

Prescription

From the position that the Deed of Sale is valid and not void, the
Heirs of Policronio argued that any question regarding its validity should
have been initiated through judicial process within 10 years from its
notarization in accordance with Article 1144 of the Civil Code. Since 21 years
had already elapsed when the Heirs of Alfonso assailed the validity of the
Deed of Sale in 1996, prescription had set in. Furthermore, since the Heirs
of Alfonso did not seek to nullify the tax declarations of Policronio, they had
impliedly acquiesced and given due recognition to the Heirs of Policronio as

477

the rightful inheritors and should, thus, be barred from laying claim on the
land.

The Heirs of Policronio are mistaken.

Article 1410 of the Civil Code provides:

Art. 1410. The action for the declaration of the inexistence of

a contract does not prescribe.

This is one of the most fundamental characteristics of void or

inexistent contracts.[44]

As the Deed of Sale is a void contract, the action for the declaration of
its nullity, even if filed 21 years after its execution, cannot be barred by
prescription for it is imprescriptible. Furthermore, the right to set up the
defense of inexistence or absolute nullity cannot be waived or renounced.
[45]
Therefore, the Heirs of Alfonso cannot be precluded from setting up the
defense of its inexistence.

Validity of the Deed of Extra-Judicial Partition

The Court now resolves the issue of the validity of the Deed of ExtraJudicial Partition.

Unenforceability

The Heirs of Alfonso argued that the CA was mistaken in annulling the
Deed of Extra-Judicial Partition due to the incapacity of Conrado to give the
consent of his co-heirs for lack of a special power of attorney. They
contended that what was involved was not the capacity to give consent in
behalf of the co-heirs but the authority to represent them. They argue that
the Deed of Extra-Judicial Partition is not a voidable or an annullable
contract under Article 1390 of the Civil Code, but rather, it is an
unenforceable or, more specifically, an unauthorized contract under Articles
1403 (1) and 1317 of the Civil Code. As such, the Deed of Extra-Judicial

Partition should not be annulled but only be rendered unenforceable against

the siblings of Conrado.

They further argued that under Article 1317 of the Civil Code, when
the persons represented without authority have ratified the unauthorized
acts, the contract becomes enforceable and binding. They contended that the
Heirs of Policronio ratified the Deed of Extra-Judicial Partition when Conrado
took possession of one of the parcels of land adjudicated to him and his
siblings, and when another parcel was used as collateral for a loan entered
into by some of the Heirs of Policronio. The Deed of Extra-Judicial Partition
having been ratified and its benefits accepted, the same thus became
enforceable and binding upon them.

The Heirs of Alfonso averred that granting arguendo that Conrado

was not authorized to represent his co-heirs and there was no ratification,
the CA should not have remanded the case to the RTC for partition of
Alfonsos estate. They argued that the CA should not have applied the Civil
Code general provision on contracts, but the special provisions dealing with
succession and partition. They contended that contrary to the ruling of the
CA, the extra-judicial parition was not an act of strict dominion, as it has
been ruled that partition of inherited land is not a conveyance but a
confirmation or ratification of title or right to the land. [46] Therefore, the law
requiring a special power of attorney should not be applied to partitions.

On the other hand, the Heirs of Policronio insisted that the CA

pronouncement on the invalidity of the Deed of Extra-Judicial Partition
should not be disturbed because the subject properties should not have been
included in the estate of Alfonso, and because Conrado lacked the written
authority to represent his siblings. They argued with the CA in ruling that a
special power of attorney was required before Conrado could sign in behalf of
his co-heirs.

The Heirs of Policronio denied that they ratified the Deed of ExtraJudicial Partition. They claimed that there is nothing on record that
establishes that they ratified the partition. Far from doing so, they precisely
questioned its execution by filing a complaint. They further argued that
under Article 1409 (3) of the Civil Code, ratification cannot be invoked to
validate the illegal act of including in the partition those properties which do
not belong to the estate as it provides another mode of acquiring ownership
not sanctioned by law.

478

Furthermore, the Heirs of Policronio contended that the defenses of

unenforceability, ratification, and preterition are being raised for the first
time on appeal by the Heirs of Alfonso. For having failed to raise them during
the trial, the Heirs of Alfonso should be deemed to have waived their right to
do so.

The Court agrees in part with the Heirs of Alfonso.

To begin, although the defenses of unenforceability, ratification and

preterition were raised by the Heirs of Alfonso for the first time on appeal,
they are concomitant matters which may be taken up.As long as the
questioned items bear relevance and close relation to those specifically
raised, the interest of justice would dictate that they, too, must be considered
and resolved. The rule that only theories raised in the initial proceedings may
be taken up by a party thereto on appeal should refer to independent, not
concomitant matters, to support or oppose the cause of action. [47]

In the RTC, the Heirs of Policronio alleged that Conrados consent

was vitiated by mistake and undue influence, and that he signed the Deed of
Extra-Judicial Partition without the authority or consent of his co-heirs.

The RTC found that Conrados credibility had faltered, and his
claims were rejected by the RTC as gratuitous assertions. On the basis of
such, the RTC ruled that Conrado duly represented his siblings in the Deed
of Extra-Judicial Partition.

On the other hand, the CA annulled the Deed of Extra-Judicial

Partition under Article 1390 (1) of the Civil Code, holding that a special power
of attorney was lacking as required under Article 1878 (5) and (15) of the Civil
Code. These articles are as follows:

Art. 1878. Special powers of attorney are necessary in the

following cases:
xxx

(5) To enter into any contract by which the ownership of an

immovable is transmitted or acquired either gratuitously or
for a valuable consideration;
xxx

(15) Any other act of strict dominion.

Art. 1390. The following contracts are voidable or annullable,

even though there may have been no damage to the
contracting parties:

(1) Those where one of the parties is incapable of giving

consent to a contract;

(2) Those where the consent is vitiated by mistake, violence,

intimidation, undue influence or fraud.

These contracts are binding, unless they are annulled by a

proper action in court. They are susceptible of ratification.

This Court finds that Article 1878 (5) and (15) is inapplicable to the
case at bench. It has been held in several cases [48] that partition among heirs
is not legally deemed a conveyance of real property resulting in change of
ownership. It is not a transfer of property from one to the other, but rather, it
is a confirmation or ratification of title or right of property that an heir is
renouncing in favor of another heir who accepts and receives the
inheritance. It is merely a designation and segregation of that part which
belongs to each heir. The Deed of Extra-Judicial Partition cannot, therefore,
be considered as an act of strict dominion. Hence, a special power of attorney
is not necessary.

In fact, as between the parties, even an oral partition by the heirs is

valid if no creditors are affected. The requirement of a written memorandum
under the statute of frauds does not apply to partitions effected by the heirs
where no creditors are involved considering that such transaction is not a
conveyance of property resulting in change of ownership but merely a
designation and segregation of that part which belongs to each heir. [49]

479

Neither is Article 1390 (1) applicable. Article 1390 (1) contemplates

the incapacity of a party to give consent to a contract. What is involved in the
case at bench though is not Conrados incapacity to give consent to the
contract, but rather his lack of authority to do so. Instead, Articles 1403 (1),
1404, and 1317 of the Civil Code find application to the circumstances
prevailing in this case. They are as follows:

Art. 1403. The following contracts are unenforceable, unless

they are ratified:

(1) Those entered into in the name of another person by one

who has been given no authority or legal representation, or
who has acted beyond his powers;

Art. 1404. Unauthorized contracts are governed by Article

1317 and the principles of agency in Title X of this Book.

Art. 1317. No one may contract in the name of another

without being authorized by the latter, or unless he has by
law a right to represent him.

A contract entered into in the name of another by one who

has no authority or legal representation, or who has acted
beyond his powers, shall be unenforceable, unless it is
ratified, expressly or impliedly, by the person on whose
behalf it has been executed, before it is revoked by the other
contracting party.

mistake, violence, intimidation, undue influence or fraud. x x

x

The deed of extrajudicial parition and sale is an

unenforceable or, more specifically, an unauthorized contract
under Articles 1403(1) and 1317 of the New Civil Code. [50]

Therefore, Conrados failure to obtain authority from his co-heirs to

sign the Deed of Extra-Judicial Partition in their behalf did not result in his
incapacity to give consent so as to render the contract voidable, but rather, it
rendered the contract valid but unenforceable against Conrados co-heirs for
having been entered into without their authority.

A closer review of the evidence on record, however, will show that the
Deed of Extra-Judicial Partition is not unenforceable but, in fact, valid,
binding and enforceable against all the Heirs of Policronio for having given
their consent to the contract. Their consent to the Deed of Extra-Judicial
Partition has been proven by a preponderance of evidence.

Regarding his alleged vitiated consent due to mistake and undue

influence to the Deed of Extra-Judicial Partition, Conrado testified, to wit:

Q:
Mr. Ureta you remember having signed a document
entitled deed of extra judicial partition consisting of 11 pages
and which have previously [been] marked as Exhibit I for the
plaintiffs?

A:

Yes sir.

Q:

Can you recall where did you sign this document?

A:

The way I remember I signed that in our house.

Such was similarly held in the case of Badillo v. Ferrer:

The Deed of Extrajudicial Partition and Sale is not a

voidable or an annullable contract under Article 1390 of the
New Civil Code. Article 1390 renders a contract voidable if
one of the parties is incapable of giving consent to the
contract or if the contracting partys consent is vitiated by

Q:
And who requested or required you to sign this
document?

480

Q:
After you have signed this document did you inform
your brothers and sisters that you have signed this
document?

A:

My aunties.

Q:

Who in particular if you can recall?

A:

Nay Pruding Panadero.

Q:
You mean that this document that you signed was
brought to your house by your Auntie Pruding Pa[r]adero
[who] requested you to sign that document?

A:
When she first brought that document I did not sign
that said document because I [did] no[t] know the contents
of that document.

Q:
How many times did she bring this document to you
[until] you finally signed the document?

A:

xxx

Q:
Now you read the document when it was allegedly
brought to your house by your auntPruding Pa[r]adero?

A:
I did not read it because as I told her I still want to
ask the advise of my brothers and sisters.

Q:
So do I get from you that you have never read the
document itself or any part thereof?

A:
A:

No I did not. [51]

I have read the heading.

Perhaps 3 times.
xxx

Q:

Can you tell the court why you finally signed it?

A:
Because the way she explained it to me that the land
of my grandfather will be partitioned.

Q:
When you signed this document were your brothers
and sisters who are your co-plaintiffs in this case aware of
your act to sign this document?

A:

Q:
And why is it that you did not read all the pages of
this document because I understand that you know also how
to read in English?

A:
Because the way Nay Pruding explained to me is that
the property of my grandfather will be partitioned that is
why I am so happy.

xxx

They do not know.

xxx

Q:
You mean to say that after you signed this deed of
extra judicial partition up to the present you never informed
them?

481

A:
Perhaps they know already that I have signed and
they read already the document and they have read the
document.

Although Conrados co-heirs claimed that they did not authorize

Conrado to sign the Deed of Extra-Judicial Partition in their behalf, several
circumstances militate against their contention.

Q:

My question is different, did you inform them?

A:

The document sir? I did not tell them.

Q:

Even until now?

First, the Deed of Extra-Judicial Partition was executed on April 19,

1989, and the Heirs of Policronio claim that they only came to know of its
existence on July 30, 1995 through an issue of the Aklan Reporter. It is
difficult to believe that Conrado did not inform his siblings about the Deed of
Extra-Judicial Partition or at least broach its subject with them for more
than five years from the time he signed it, especially after indicating in his
testimony that he had intended to do so.

A:

Until now I did not inform them.[52]

This Court finds no cogent reason to reverse the finding of the RTC
that Conrados explanations were mere gratuitous assertions not entitled to
any probative weight. The RTC found Conrados credibility to have faltered
when he testified that perhaps his siblings were already aware of the Deed of
Extra-Judicial Partition. The RTC was in the best position to judge the
credibility of the witness testimony. The CA also recognized that Conrados
consent was not vitiated by mistake and undue influence as it required a
special power of attorney in order to bind his co-heirs and, as such, the CA
thereby recognized that his signature was binding to him but not with
respect to his co-heirs. Findings of fact of the trial court, particularly when
affirmed by the CA, are binding to this Court.[53]

Furthermore, this Court notes other peculiarities in Conrados

testimony. Despite claims of undue influence, there is no indication that
Conrado was forced to sign by his aunt, Prudencia Paradero. In fact, he
testified that he was happy to sign because his grandfathers estate would be
partitioned. Conrado, thus, clearly understood the document he signed. It is
also worth noting that despite the document being brought to him on three
separate occasions and indicating his intention to inform his siblings about
it, Conrado failed to do so, and still neglected to inform them even after he
had signed the partition. All these circumstances negate his claim of vitiated
consent. Having duly signed the Deed of Extra-Judicial Partition, Conrado is
bound to it. Thus, it is enforceable against him.

Second, Conrado retained possession of one of the parcels of land

adjudicated to him and his co-heirs in the Deed of Extra-Judicial Partition.

Third, after the execution of the partition on April 19, 1989 and more
than a year before they claimed to have discovered the existence of the Deed
of Extra-Judicial Partition on July 30, 1995, some of the Heirs of Policronio,
namely, Rita Solano, Macario Ureta, Lilia Tayco, and Venancio Ureta executed
on June 1, 1994, a Special Power of Attorney[54] in favor of their sister Gloria
Gonzales, authorizing her to obtain a loan from a bank and to mortgage one
of the parcels of land adjudicated to them in the Deed of Extra-Judicial
Partition to secure payment of the loan. They were able to obtain the loan
using the land as collateral, over which a Real Estate Mortgage [55] was
constituted. Both the Special Power of Attorney and the Real Estate Mortgage
were presented in evidence in the RTC, and were not controverted or denied
by the Heirs of Policronio.

Fourth, in the letter dated August 15, 1995, sent by the counsel of the
Heirs of Policronio to the Heirs of Alfonso requesting for amicable settlement,
there was no mention that Conrados consent to the Deed of Extra-Judicial
Partition was vitiated by mistake and undue influence or that they had never
authorized Conrado to represent them or sign the document on their behalf.
It is questionable for such a pertinent detail to have been omitted. The body of
said letter is reproduced hereunder as follows:

Greetings:

482

Your nephews and nieces, children of your deceased

brother Policronio Ureta, has referred to me for appropriate
legal action the property they inherited from their father
consisting of six (6) parcels of land which is covered by a
Deed of Absolute Sale dated October 25, 1969. These
properties ha[ve] already been transferred to the name of
their deceased father immediately after the sale, machine
copy of the said Deed of Sale is hereto attached for your
ready reference.

Lately, however, there was published an Extrajudicial Partition of the estate of Alfonso Ureta, which to the
surprise of my clients included the properties already sold to
their father before the death of said Alfonso Ureta. This
inclusion of their property is erroneous and illegal because
these properties were covered by the Deed of Absolute Sale
in favor of their father Policronio Ureta no longer form part of
the estate of Alfonso Ureta. Since Policronio Ureta has [sic]
died in 1974 yet, these properties have passed by hereditary
succession to his children who are now the true and lawful
owners of the said properties.

My clients are still entitled to a share in the estate of

Alfonso Ureta who is also their grandfather as they have
stepped into the shoes of their deceased father Policronio
Ureta. But this estate of Alfonso Ureta should already
exclude the six (6) parcels of land covered by the Deed of
Absolute Sale in favor of Policronio Ureta.

My clients cannot understand why the properties of

their late father [should] be included in the estate of their
grandfather and be divided among his brothers and sisters
when said properties should only be divided among
themselves as children of Policronio Ureta.

Since this matter involves very close members of the

same family, I have counseled my clients that an earnest
effort towards a compromise or amicable settlement be first
explored before resort to judicial remedy is pursued. And a
compromise or amicable settlement can only be reached if all
the parties meet and discuss the problem with an open

mind. To this end, I am suggesting a meeting of the parties

on September 16, 1995 at 2:00 P.M. at B Place Restaurant
atC. Laserna St., Kalibo, Aklan. It would be best if the
parties can come or be represented by their duly designated
attorney-in-fact together with their lawyers if they so desire
so that the problem can be discussed unemotionally and
intelligently.

I would, however, interpret the failure to come to the

said meeting as an indication that the parties are not willing
to or interested in amicable settlement of this matter and as
a go signal for me to resort to legal and/or judicial remedies
to protest the rights of my clients.

Thank you very much.[56]

Based on the foregoing, this Court concludes that the allegation of

Conrados vitiated consent and lack of authority to sign in behalf of his coheirs was a mere afterthought on the part of the Heirs of Policronio. It
appears that the Heirs of Policronio were not only aware of the existence of
the Deed of Extra-Judicial Partition prior to June 30, 1995 but had, in fact,
given Conrado authority to sign in their behalf. They are now estopped from
questioning its legality, and the Deed of Extra-Judicial Partition is valid,
binding, and enforceable against them.

In view of the foregoing, there is no longer a need to discuss the issue

of ratification.

Preterition

The Heirs of Alfonso were of the position that the absence of the
Heirs of Policronio in the partition or the lack of authority of their
representative results, at the very least, in their preterition and not in the
invalidity of the entire deed of partition. Assuming there was actual
preterition, it did not render the Deed of Extra-Judicial Partition
voidable. Citing Article 1104 of the Civil Code, they aver that a partition
made with preterition of any of the compulsory heirs shall not be rescinded,
but the heirs shall be proportionately obliged to pay the share of the person
omitted. Thus, the Deed of Extra-Judicial Partition should not have been

483

annulled by the CA. Instead, it should have ordered the share of the heirs
omitted to be given to them.

The Heirs of Alfonso also argued that all that remains to be adjudged
is the right of the preterited heirs to represent their father, Policronio, and be
declared entitled to his share. They contend that remand to the RTC is no
longer necessary as the issue is purely legal and can be resolved by the
provisions of the Civil Code for there is no dispute that each of Alfonsos heirs
received their rightful share. Conrado, who received Policronios share,
should then fully account for what he had received to his other co-heirs and
be directed to deliver their share in the inheritance.

These arguments cannot be given credence.

Their posited theory on preterition is no longer viable. It has already

been determined that the Heirs of Policronio gave their consent to the Deed of
Extra-Judicial Partition and they have not been excluded from it.
Nonetheless, even granting that the Heirs of Policronio were denied their
lawful participation in the partition, the argument of the Heirs of Alfonso
would still fail.

Preterition under Article 854 of the Civil Code is as follows:

Art. 854. The preterition or omission of one, some, or all of
the compulsory heirs in the direct line, whether living at the
time of the execution of the will or born after the death of the
testator, shall annul the institution of heir; but the devises
and legacies shall be valid insofar as they are not inofficious.
If the omitted compulsory heirs should die before the
testator, the institution shall be effectual, without prejudice
to the right of representation.

Preterition has been defined as the total omission of a compulsory

heir from the inheritance. It consists in the silence of the testator with regard
to a compulsory heir, omitting him in the testament, either by not mentioning
him at all, or by not giving him anything in the hereditary property but
without expressly disinheriting him, even if he is mentioned in the will in the
latter case.[57]Preterition is thus a concept of testamentary succession and
requires a will. In the case at bench, there is no will involved. Therefore,
preterition cannot apply.

Remand Unnecessary

The Deed of Extra-Judicial Partition is in itself valid for complying

with all the legal requisites, as found by the RTC, to wit:

A persual of the Deed of Extra-judicial Partition

would reveal that all the heirs and children of Alfonso Ureta
were represented therein; that nobody was left out; that all of
them received as much as the others as their shares; that it
distributed all the properties of Alfonso Ureta except a
portion of parcel 29 containing an area of 14,000 square
meters, more or less, which was expressly reserved; that
Alfonso Ureta, at the time of his death, left no debts; that the
heirs of Policronio Ureta, Sr. were represented by Conrado B.
Ureta; all the parties signed the document, was witnessed
and duly acknowledged before Notary Public Adolfo M. Iligan
of Kalibo, Aklan; that the document expressly stipulated that
the heirs to whom some of the properties were transferred
before for taxation purposes or their children, expressly
recognize and acknowledge as a fact that the properties were
transferred only for the purpose of effective administration
and development convenience in the payment of taxes and,
therefore, all instruments conveying or effecting the transfer
of said properties are null and void from the beginning
(Exhs. 1-4, 7-d).[58]

Considering that the Deed of Sale has been found void and the Deed
of Extra-Judicial Partition valid, with the consent of all the Heirs of Policronio
duly given, there is no need to remand the case to the court of origin for
partition.

WHEREFORE, the petition in G.R. No. 165748 is DENIED. The

petition in G.R. No. 165930 is GRANTED. The assailed April 20,
2004 Decision and October 14, 2004 Resolution of the Court of Appeals in
CA-G.R. CV No. 71399, are hereby MODIFIED in this wise:

(1)

The Deed of Extra-Judicial Partition, dated April 19, 1989,

is

484

VALID, and

(2)

The order to remand the case to the court of origin is

hereby DELETED.

X
----------------------------------------------------------------------------------------------------X

DECISION

SO ORDERED.
MENDOZA, J.:

ADDITIONAL CASES FOR RESCISSIBLE CONTRACT

Subject of this petition for review is the February 13,
2009 Decision[1] of the Court of Appeals(CA) which affirmed with modification
the February 22, 2006 Decision [2] of the Regional Trial Court, Branch 172,
Valenzuela City (RTC), in Civil Case No. 3945-V-92, an action for Rescission
of Contract with Damages.

SECOND DIVISION

G.R. No. 188064

MILA A. REYES ,
Petitioner,

Present:

CARPIO, J., Chairperson,

NACHURA,
PERALTA,
ABAD, and

- versus -

MENDOZA, JJ.

Promulgated:
June 1, 2011
VICTORIA T. TUPARAN,

On September 10, 1992, Mila A. Reyes (petitioner) filed a complaint

for Rescission of Contract with Damages against Victoria T.
Tuparan (respondent) before the RTC. In her Complaint, petitioner alleged,
among others, that she was the registered owner of a 1,274 square meter
residential and commercial lot located in Karuhatan, Valenzuela City, and
covered by TCT No. V-4130; that on that property, she put up a three-storey
commercial building known as RBJ Building and a residential apartment
building; that since 1990, she had been operating a drugstore and cosmetics
store on the ground floor of RBJ Building where she also had been residing
while the other areas of the buildings including the sidewalks were being
leased and occupied by tenants and street vendors.

In December 1989, respondent leased from petitioner a space on the

ground floor of the RBJBuilding for her pawnshop business for a monthly
rental of 4,000.00. A close friendship developed between the two which led
to the respondent investing thousands of pesos in petitioners
financing/lending business from February 7, 1990 to May 27, 1990, with
interest at the rate of 6% a month.

Respondent.

485

On June 20, 1988, petitioner mortgaged the subject real properties

to the Farmers Savings Bank and Loan Bank, Inc. (FSL Bank) to secure a
loan of 2,000,000.00 payable in installments. OnNovember 15, 1990,
petitioners outstanding account on the mortgage reached 2,278,078.13.
Petitioner then decided to sell her real properties for at least 6,500,000.00
so she could liquidate her bank loan and finance her businesses. As a
gesture of friendship, respondent verbally offered to conditionally buy
petitioners real properties for 4,200,000.00 payable on installment basis
without interest and to assume the bank loan. To induce the petitioner to
accept her offer, respondent offered the following conditions/concessions:

1. That the conditional sale will be cancelled if the

plaintiff (petitioner) can find a buyer of said properties for the
amount of 6,500,000.00 within the next three (3) months
provided all amounts received by the plaintiff from the
defendant (respondent) including payments actually made by
defendant to Farmers Savings and Loan Bank would be
refunded to the defendant with additional interest of six (6%)
monthly;

2. That the plaintiff would continue using the space

occupied by her and drugstore and cosmetics store without
any rentals for the duration of the installment payments;

3. That there will be a lease for fifteen (15) years in

favor of the plaintiff over the space for drugstore and
cosmetics store at a monthly rental of only 8,000.00 after
full payment of the stipulated installment payments are
made by the defendant;

4. That the defendant will undertake the renewal

and payment of the fire insurance policies on the two (2)
subject buildings following the expiration of the then existing
fire insurance policy of the plaintiff up to the time that
plaintiff is fully paid of the total purchase price of
4,200,000.00.[3]

After petitioners verbal acceptance of all the conditions/concessions,

both parties worked together to obtain FSL Banks approval for respondent to
assume her (petitioners) outstanding bank account. The assumption would
be part of respondents purchase price for petitioners mortgaged real
properties. FSL Bank approved their proposal on the condition that petitioner
would sign or remain as co-maker for the mortgage obligation assumed by
respondent.

On November 26, 1990, the parties and FSL Bank executed the
corresponding Deed of Conditional Sale of Real Properties with Assumption
of Mortgage. Due to their close personal friendship and business
relationship, both parties chose not to reduce into writing the other terms of
their agreement mentioned in paragraph 11 of the complaint. Besides, FSL
Bank did not want to incorporate in the Deed of Conditional Sale of Real
Properties with Assumption of Mortgage any other side agreement between
petitioner and respondent.

Under the Deed of Conditional Sale of Real Properties with

Assumption of Mortgage, respondent was bound to pay the petitioner a lump
sum of 1.2 million pesos without interest as part of the purchase price in
three (3) fixed installments as follows:

a)

200,000.00 due January 31, 1991

b)

200,000.00 due June 30, 1991

c)

800,000.00 due December 31, 1991

Respondent, however, defaulted in the payment of her obligations on

their due dates. Instead of paying the amounts due in lump sum on their
respective maturity dates, respondent paid petitioner in small amounts from
time to time. To compensate for her delayed payments, respondent agreed to
pay petitioner an interest of 6% a month. As of August 31, 1992, respondent
had only paid 395,000.00, leaving a balance of 805,000.00 as principal on
the unpaid installments and 466,893.25 as unpaid accumulated interest.

Petitioner further averred that despite her success in finding a

prospective buyer for the subject real properties within the 3-month period
agreed upon, respondent reneged on her promise to allow the cancellation of
their deed of conditional sale. Instead, respondent became interested in
owning the subject real properties and even wanted to convert the entire

486

property into a modern commercial complex. Nonetheless, she consented

because respondent repeatedly professed friendship and assured her that all
their verbal side agreement would be honored as shown by the fact that since
December 1990, she (respondent) had not collected any rentals from the
petitioner for the space occupied by her drugstore and cosmetics store.

On March 19, 1992, the residential building was gutted by fire which
caused the petitioner to lose rental income in the amount of 8,000.00 a
month since April 1992. Respondent neglected to renew the fire insurance
policy on the subject buildings.

Since December 1990, respondent had taken possession of the

subject real properties and had been continuously collecting and receiving
monthly rental income from the tenants of the buildings and vendors of the
sidewalk fronting the RBJ building without sharing it with petitioner.

On September 2, 1992, respondent offered the amount of

751,000.00 only payable onSeptember 7, 1992, as full payment of the
purchase price of the subject real properties and demanded the
simultaneous execution of the corresponding deed of absolute sale.

Respondents Answer

Respondent countered, among others, that the tripartite agreement

erroneously designated by the petitioner as a Deed of Conditional Sale of Real
Property with Assumption of Mortgage was actually a pure and absolute
contract of sale with a term period. It could not be considered a conditional
sale because the acquisition of contractual rights and the performance of the
obligation therein did not depend upon a future and uncertain event.
Moreover, the capital gains and documentary stamps and other
miscellaneous expenses and real estate taxes up to 1990 were supposed to
be paid by petitioner but she failed to do so.

Respondent further averred that she successfully rescued the

properties from a definite foreclosure by paying the assumed mortgage in the
amount of 2,278,078.13 plus interest and other finance charges. Because of
her payment, she was able to obtain a deed of cancellation of mortgage and
secure a release of mortgage on the subject real properties including
petitioners ancestral residential property in Sta. Maria, Bulacan.

Petitioners claim for the balance of the purchase price of the subject
real properties was baseless and unwarranted because the full amount of the
purchase price had already been paid, as she did pay more than
4,200,000.00, the agreed purchase price of the subject real properties, and
she had even introduced improvements thereon worth more than
4,800,000.00. As the parties could no longer be restored to their original
positions, rescission could not be resorted to.

Respondent added that as a result of their business relationship,

petitioner was able to obtain from her a loan in the amount of 400,000.00
with interest and took several pieces of jewelry worth 120,000.00. Petitioner
also failed and refused to pay the monthly rental of 20,000.00
sinceNovember 16, 1990 up to the present for the use and occupancy of the
ground floor of the building on the subject real property, thus, accumulating
arrearages in the amount of 470,000.00 as of October 1992.

Ruling of the RTC

On February 22, 2006, the RTC handed down its decision finding that
respondent failed to pay in full the 4.2 million total purchase price of the
subject real properties leaving a balance of 805,000.00. It stated that the
checks and receipts presented by respondent refer to her payments of the
mortgage obligation with FSL Bank and not the payment of the balance of
1,200,000.00. The RTC also considered the Deed of Conditional Sale of Real
Property with Assumption of Mortgage executed by and among the two
parties and FSL Bank a contract to sell, and not a contract of sale. It was of
the opinion that although the petitioner was entitled to a rescission of the
contract, it could not be permitted because her non-payment in full of the
purchase price may not be considered as substantial and fundamental
breach of the contract as to defeat the object of the parties in entering into
the contract.[4] The RTC believed that the respondents offer stated in her
counsels letter datedSeptember 2, 1992 to settle what she thought was her
unpaid balance of 751,000.00 showed her sincerity and willingness to settle
her obligation. Hence, it would be more equitable to give respondent a chance
to pay the balance plus interest within a given period of time.

Finally, the RTC stated that there was no factual or legal basis to
award damages and attorneys fees because there was no proof that either
party acted fraudulently or in bad faith.

487

Thus, the dispositive portion of the RTC Decision reads:

WHEREFORE, judgment is hereby rendered as

follows:

1. Allowing the defendant to pay the plaintiff within

thirty (30) days from the finality hereof the amount
of 805,000.00, representing the unpaid purchase price of
the subject property, with interest thereon at 2% a month
from January 1, 1992 until fully paid. Failure of the
defendant to pay said amount within the said period shall
cause the automatic rescission of the contract (Deed of
Conditional Sale of Real Property with Assumption of
Mortgage) and the plaintiff and the defendant shall be
restored to their former positions relative to the subject
property with each returning to the other whatever benefits
each derived from the transaction;

2. Directing the defendant to allow the plaintiff to

continue using the space occupied by her for drugstore and
cosmetic store without any rental pending payment of the
aforesaid balance of the purchase price.

3. Ordering the defendant, upon her full payment of

the purchase price together with interest, to execute a
contract of lease for fifteen (15) years in favor of the plaintiff
over the space for the drugstore and cosmetic store at a fixed
monthly rental of 8,000.00; and

4. Directing the plaintiff, upon full payment to her

by the defendant of the purchase price together with interest,
to execute the necessary deed of sale, as well as to pay the
Capital Gains Tax, documentary stamps and other
miscellaneous expenses necessary for securing the BIR

Clearance, and to pay the real estate taxes due on the

subject property up to 1990, all necessary to transfer
ownership of the subject property to the defendant.

No pronouncement as to damages, attorneys fees

and costs.

SO ORDERED.[5]

Ruling of the CA

On February 13, 2009, the CA rendered its decision affirming with

modification the RTC Decision. The CA agreed with the RTC that the
contract entered into by the parties is a contract to sell but ruled that the
remedy of rescission could not apply because the respondents failure to pay
the petitioner the balance of the purchase price in the total amount of
805,000.00 was not a breach of contract, but merely an event that
prevented the seller (petitioner) from conveying title to the purchaser
(respondent). It reasoned that out of the total purchase price of the subject
property in the amount of 4,200,000.00, respondents remaining unpaid
balance was only 805,000.00. Since respondent had already paid a
substantial amount of the purchase price, it was but right and just to allow
her to pay the unpaid balance of the purchase price plus interest. Thus, the
decretal portion of the CA Decision reads:

WHEREFORE, premises considered, the Decision

dated
22 February 2006 and Order dated 22 December
2006 of the Regional Trial Court of Valenzuela City, Branch
172 in Civil Case No. 3945-V-92 are AFFIRMED with
MODIFICATION in that defendant-appellant Victoria T.
Tuparan
is
hereby
ORDERED
to
pay
plaintiffappellee/appellant Mila A. Reyes, within 30 days from
finality of this Decision, the amount of 805,000.00
representing the unpaid balance of the purchase price of the
subject property, plus interest thereon at the rate of 6% per
annum from 11 September 1992 up to finality of this
Decision and, thereafter, at the rate of 12% per annum until
full payment. The ruling of the trial court on the automatic
rescission of the Deed of Conditional Sale with Assumption
of Mortgage is hereby DELETED. Subject to the foregoing,

488

the dispositive portion of the trial courts decision is

AFFIRMED in all other respects.

SO ORDERED.[6]

After the denial of petitioners motion for reconsideration and

respondents motion for partial reconsideration, petitioner filed the subject
petition for review praying for the reversal and setting aside of the CA
Decision anchored on the following

B.
THE COURT OF APPEALS SERIOUSLY
ERRED
AND
ABUSED
ITS
DISCRETION
IN
DISREGARDING AS GROUND FOR THE RESCISSION OF
THE SUBJECT CONTRACT THE OTHER FRAUDULENT
AND
MALICIOUS
ACTS
COMMITTED
BY
THE
RESPONDENT AGAINST THE PETITIONER WHICH BY
THEMSELVES SUFFICIENTLY JUSTIFY A DENIAL OF A
GRACE PERIOD OF THIRTY (30) DAYS TO THE
RESPONDENT WITHIN WHICH TO PAY TO THE
PETITIONER
THE
805,000.00
PLUS
INTEREST
THEREON.

ASSIGNMENT OF ERRORS

A.
THE COURT OF APPEALS SERIOUSLY
ERRED AND ABUSED ITS DISCRETION IN DISALLOWING
THE OUTRIGHT RESCISSION OF THE SUBJECT DEED
OF CONDITIONAL SALE OF REAL PROPERTIES WITH
ASSUMPTION OF MORTGAGE ON THE GROUND THAT
RESPONDENT TUPARANS FAILURE TO PAY PETITIONER
REYES THE BALANCE OF THE PURCHASE PRICE OF
805,000.00 IS NOT A BREACH OF CONTRACT DESPITE
ITS OWN FINDINGS THAT PETITIONER STILL RETAINS
OWNERSHIP AND TITLE OVER THE SUBJECT REAL
PROPERTIES DUE TO RESPONDENTS REFUSAL TO PAY
THE BALANCE OF THE TOTAL PURCHASE PRICE OF
805,000.00 WHICH IS EQUAL TO 20% OF THE TOTAL
PURCHASE PRICE OF 4,200,000.00 OR 66% OF THE
STIPULATED LAST INSTALLMENT OF 1,200,000.00
PLUS THE INTEREST THEREON. IN EFFECT, THE COURT
OF APPEALS AFFIRMED AND ADOPTED THE TRIAL
COURTS CONCLUSION THAT THE RESPONDENTS NONPAYMENT OF THE 805,000.00 IS ONLY A SLIGHT OR
CASUAL BREACH OF CONTRACT.

C.
EVEN
ASSUMING
ARGUENDO
THAT
PETITIONER IS NOT ENTITLED TO THE RESCISSION OF
THE SUBJECT CONTRACT, THE COURT OF APPEALS
STILL SERIOUSLY ERRED AND ABUSED ITS DISCRETION
IN REDUCING THE INTEREST ON THE 805,000.00 TO
ONLY 6% PER ANNUM STARTING FROM THE DATE OF
FILING OF THE COMPLAINT ON SEPTEMBER 11, 1992
DESPITE THE PERSONAL COMMITMENT OF THE
RESPONDENT
AND
AGREEMENT
BETWEEN
THE
PARTIES THAT RESPONDENT WILL PAY INTEREST ON
THE 805,000.00 AT THE RATE OF 6% MONTHLY
STARTING THE DATE OF DELINQUENCY ON DECEMBER
31, 1991.

D.
THE COURT OF APPEALS SERIOUSLY
ERRED AND ABUSED ITS DISCRETION IN THE
APPRECIATION AND/OR MISAPPRECIATION OF FACTS
RESULTING INTO THE DENIAL OF THE CLAIM OF
PETITIONER REYES FOR ACTUAL DAMAGES WHICH
CORRESPOND TO THE MILLIONS OF PESOS OF
RENTALS/FRUITS OF THE SUBJECT REAL PROPERTIES
WHICH
RESPONDENT
TUPARAN
COLLECTED
CONTINUOUSLY SINCE DECEMBER 1990, EVEN WITH

489

THE UNPAID BALANCE OF 805,000.00 AND DESPITE

THE FACT THAT RESPONDENT DID NOT CONTROVERT
SUCH CLAIM OF THE PETITIONER AS CONTAINED IN
HER AMENDED COMPLAINT DATED APRIL 22, 2006.

E.

THE COURT OF APPEALS SERIOUSLY

ERRED AND ABUSED ITS DISCRETION IN THE
APPRECIATION OF FACTS RESULTING INTO THE DENIAL
OF THE CLAIM OF PETITIONER REYES FOR THE
29,609.00 BACK RENTALS THAT WERE COLLECTED BY
RESPONDENT TUPARAN FROM THE OLD TENANTS OF
THE PETITIONER.

F.
THE COURT OF APPEALS SERIOUSLY
ERRED AND ABUSED ITS DISCRETION IN DENYING THE
PETITIONERS EARLIER URGENT MOTION
FOR
ISSUANCE OF A PRELIMINARY MANDATORY AND
PROHIBITORY INJUNCTION DATED JULY 7, 2008 AND
THE SUPPLEMENT THERETO DATED AUGUST 4, 2008
THEREBY
CONDONING
THE
UNJUSTIFIABLE
FAILURE/REFUSAL OF JUDGE FLORO ALEJO TO
RESOLVE
WITHIN
ELEVEN
(11)
YEARS
THE
PETITIONERS THREE (3) SEPARATE MOTIONS FOR
PRELIMINARY INJUNCTION/ TEMPORARY RESTRAINING
ORDER, ACCOUNTING AND DEPOSIT OF RENTAL
INCOME DATED MARCH 17, 1995, AUGUST 19, 1996
AND JANUARY 7, 2006 THEREBY PERMITTING THE
RESPONDENT TO UNJUSTLY ENRICH HERSELF BY
CONTINUOUSLY
COLLECTING
ALL
THE
RENTALS/FRUITS OF THE SUBJECT REAL PROPERTIES
WITHOUT ANY ACCOUNTING AND COURT DEPOSIT OF
THE
COLLECTED
RENTALS/FRUITS
AND
THE
PETITIONERS
URGENT
MOTION
TO
DIRECT
DEFENDANT VICTORIA TUPARAN TO PAY THE
ACCUMULATED UNPAID REAL ESTATE TAXES AND SEF
TAXES ON THE SUBJECT REAL
PROPERTIES

DATED JANUARY 13, 2007 THEREBY EXPOSING THE

SUBJECT
REAL
PROPERTIES
TO
IMMINENT
AUCTION SALE BY
THE
CITY
TREASURER
OFVALENZUELA CITY.

G.
THE COURT OF APPEALS SERIOUSLY
ERRED AND ABUSED ITS DISCRETION IN DENYING THE
PETITIONERS CLAIM FOR MORAL AND EXEMPLARY
DAMAGES AND ATTORNEYS FEES AGAINST THE
RESPONDENT.

In sum, the crucial issue that needs to be resolved is whether or not

the CA was correct in ruling that there was no legal basis for the rescission
of the Deed of Conditional Sale with Assumption of Mortgage.

Position of the Petitioner

The petitioner basically argues that the CA should have granted the
rescission of the subject Deed of Conditional Sale of Real Properties with
Assumption of Mortgage for the following reasons:

1. The subject deed of conditional sale is a reciprocal

obligation whose outstanding characteristic is reciprocity
arising from identity of cause by virtue of which one
obligation is correlative of the other.

2. The petitioner was rescinding not enforcing the

subject Deed of Conditional Sale pursuant to Article 1191 of
the Civil Code because of the respondents failure/refusal to
pay the 805,000.00 balance of the total purchase price of
the petitioners properties within the stipulated period
ending December 31, 1991.

3. There was no slight or casual breach on the part

of the respondent because she (respondent) deliberately

490

failed to comply with her contractual obligations with the

petitioner by violating the terms or manner of payment of the
1,200,000.00 balance and unjustly enriched herself at the
expense of the petitioner by collecting all rental payments for
her personal benefit and enjoyment.

Furthermore, the petitioner claims that the respondent is liable to

pay interest at the rate of 6% per month on her unpaid installment of
805,000.00 from the date of the delinquency, December 31, 1991, because
she obligated herself to do so.

Finally, the petitioner asserts that her claim for damages or lost
income as well as for the back rentals in the amount of 29,609.00 has been
fully substantiated and, therefore, should have been granted by the CA. Her
claim for moral and exemplary damages and attorneys fees has been likewise
substantiated.

Position of the Respondent

The respondent counters that the subject Deed of Conditional Sale

with Assumption of Mortgage entered into between the parties is a contract to
sell and not a contract of sale because the title of the subject properties still
remains with the petitioner as she failed to pay the installment payments in
accordance with their agreement.

Respondent echoes the RTC position that her inability to pay the full
balance on the purchase price may not be considered as a substantial and
fundamental breach of the subject contract and it would be more equitable if
she would be allowed to pay the balance including interest within a certain
period of time. She claims that as early as 1992, she has shown her sincerity
by offering to pay a certain amount which was, however, rejected by the
petitioner.

Finally, respondent states that the subject deed of conditional sale

explicitly provides that the installment payments shall not bear any interest.
Moreover, petitioner failed to prove that she was entitled to back rentals.
The Courts Ruling

The petition lacks merit.

The Court agrees with the ruling of the courts below that the subject
Deed of Conditional Sale with Assumption of Mortgage entered into by and
among the two parties and FSL Bank on November 26, 1990 is a contract to
sell and not a contract of sale. The subject contract was correctly classified
as a contract to sell based on the following pertinent stipulations:

8. That the title and ownership of the subject real

properties shall remain with the First Party until the full
payment of the Second Party of the balance of the purchase
price and liquidation of the mortgage obligation
of 2,000,000.00. Pending payment of the balance of the
purchase price and liquidation of the mortgage obligation
that was assumed by the Second Party, the Second Party
shall not sell, transfer and convey and otherwise encumber
the subject real properties without the written consent of the
First and Third Party.

9. That upon full payment by the Second Party of

the full balance of the purchase price and the assumed
mortgage obligation herein mentioned the Third Party shall
issue the corresponding Deed of Cancellation of Mortgage
and the First Party shall execute the corresponding Deed of
Absolute Sale in favor of the Second Party.[7]

Based on the above provisions, the title and ownership of the subject
properties remains with the petitioner until the respondent fully pays the
balance of the purchase price and the assumed mortgage obligation.
Thereafter, FSL Bank shall then issue the corresponding deed of cancellation
of mortgage and the petitioner shall execute the corresponding deed of
absolute sale in favor of the respondent.

Accordingly, the petitioners obligation to sell the subject properties

becomes demandable only upon the happening of the positive suspensive
condition, which is the respondents full payment of the purchase price.
Without respondents full payment, there can be no breach of contract to
speak of because petitioner has no obligation yet to turn over the title.

491

Respondents failure to pay in full the purchase price is not the breach of
contract contemplated under Article 1191 of the New Civil Code but rather
just an event that prevents the petitioner from being bound to convey title to
the respondent.The 2009 case of Nabus v. Joaquin & Julia Pacson[8] is
enlightening:

The Court holds that the contract entered into by

the Spouses Nabus and respondents was a contract to sell,
not a contract of sale.

A contract of sale is defined in Article 1458 of the

Civil Code, thus:

Art. 1458. By the contract of sale, one of

contracting parties obligates himself to transfer
ownership of and to deliver a determinate thing, and
other to pay therefor a price certain in money or
equivalent.

the
the
the
its

xxx

Sale, by its very nature, is a consensual contract

because it is perfected by mere consent. The essential
elements of a contract of sale are the following:

a) Consent or meeting of the minds, that is,

consent to transfer ownership in
exchange for the price;
b) Determinate subject matter; and
c) Price certain in money or its equivalent.

Under this definition, a Contract to Sell may not be

considered as a Contract of Sale because the first essential
element is lacking. In a contract to sell, the prospective seller
explicitly reserves the transfer of title to the prospective
buyer, meaning, the prospective seller does not as yet agree
or consent to transfer ownership of the property subject of

the contract to sell until the happening of an event, which for

present purposes we shall take as the full payment of the
purchase price. What the seller agrees or obliges himself to
do is to fulfill his promise to sell the subject property when
the entire amount of the purchase price is delivered to him.
In other words, the full payment of the purchase price
partakes of a suspensive condition, the non-fulfillment of
which prevents the obligation to sell from arising and, thus,
ownership is retained by the prospective seller without
further remedies by the prospective buyer.

xxx
xxx

xxx

Stated positively, upon the fulfillment of the

suspensive condition which is the full payment of the
purchase price, the prospective sellers obligation to sell the
subject property by entering into a contract of sale with the
prospective buyer becomes demandable as provided in
Article 1479 of the Civil Code which states:

Art. 1479. A promise to buy and sell a determinate

thing for a price certain is reciprocally demandable.

An accepted unilateral promise to buy or to sell a

determinate thing for a price certain is binding upon the
promissor if the promise is supported by a consideration
distinct from the price.

A contract to sell may thus be defined as a bilateral

contract whereby the prospective seller, while expressly
reserving the ownership of the subject property despite
delivery thereof to the prospective buyer, binds himself to sell
the said property exclusively to the prospective buyer upon
fulfillment of the condition agreed upon, that is, full payment
of the purchase price.

A contract to sell as defined hereinabove, may not

even be considered as a conditional contract of sale where

492

the seller may likewise reserve title to the property subject of

the sale until the fulfillment of a suspensive condition,
because in a conditional contract of sale, the first element of
consent is present, although it is conditioned upon the
happening of a contingent event which may or may not
occur. If the suspensive condition is not fulfilled, the
perfection of the contract of sale is completely abated.
However, if the suspensive condition is fulfilled, the contract
of sale is thereby perfected, such that if there had already
been previous delivery of the property subject of the sale to
the buyer, ownership thereto automatically transfers to the
buyer by operation of law without any further act having to
be performed by the seller.

In a contract to sell, upon the fulfillment of the

suspensive condition which is the full payment of the
purchase price, ownership will not automatically transfer to
the buyer although the property may have been previously
delivered to him. The prospective seller still has to convey
title to the prospective buyer by entering into a contract of
absolute sale.

Further, Chua v. Court of Appeals, cited this

distinction between a contract of sale and a contract to sell:

In a contract of sale, the title to the

property passes to the vendee upon the
delivery of the thing sold; in a contract to
sell, ownership is, by agreement, reserved in
the vendor and is not to pass to the vendee
until full payment of the purchase price.
Otherwise stated, in a contract of sale, the
vendor loses ownership over the property
and cannot recover it until and unless the
contract is resolved or rescinded; whereas,
in a contract to sell, title is retained by the
vendor until full payment of the price. In
the latter contract, payment of the price is a
positive suspensive condition, failure of
which is not a breach but an event that
prevents the obligation of the vendor to
convey title from becoming effective.

It is not the title of the contract, but its express

terms or stipulations that determine the kind of contract
entered into by the parties. In this case, the contract entitled
Deed of Conditional Sale is actually a contract to sell. The
contract stipulated that as soon as the full consideration of
the sale has been paid by the vendee, the corresponding
transfer documents shall be executed by the vendor to the
vendee for the portion sold. Where the vendor promises to
execute a deed of absolute sale upon the completion by the
vendee of the payment of the price, the contract is only a
contract to sell. The aforecited stipulation shows that the
vendors reserved title to the subject property until full
payment of the purchase price.

xxx

Unfortunately for the Spouses Pacson, since the

Deed of Conditional Sale executed in their favor was merely a
contract to sell, the obligation of the seller to sell becomes
demandable only upon the happening of the suspensive
condition. The full payment of the purchase price is the
positive suspensive condition, the failure of which is not a
breach of contract, but simply an event that prevented the
obligation of the vendor to convey title from acquiring
binding force. Thus, for its non-fulfilment, there is no
contract to speak of, the obligor having failed to perform the
suspensive condition which enforces a juridical relation.
With this circumstance, there can be no rescission or
fulfillment of an obligation that is still non-existent, the
suspensive condition not having occurred as yet. Emphasis
should be made that the breach contemplated in Article
1191 of the New Civil Code is the obligors failure to
comply with an obligation already extant, not a failure of
a condition to render binding that obligation. [Emphases
and underscoring supplied]

493

Consistently, the Court handed down a similar ruling in the 2010

case of Heirs of Atienza v. Espidol, [9] where it was written:

Regarding the right to cancel the contract for

non-payment of an installment, there is need to initially
determine if what the parties had was a contract of sale
or a contract to sell. In a contract of sale, the title to the
property passes to the buyer upon the delivery of the thing
sold. In a contract to sell, on the other hand, the ownership
is, by agreement, retained by the seller and is not to pass to
the vendee until full payment of the purchase price. In the
contract of sale, the buyers non-payment of the price is a
negative resolutory condition; in the contract to sell, the
buyers full payment of the price is a positive suspensive
condition to the coming into effect of the agreement. In the
first case, the seller has lost and cannot recover the
ownership of the property unless he takes action to set aside
the contract of sale. In the second case, the title simply
remains in the seller if the buyer does not comply with the
condition precedent of making payment at the time specified
in the contract. Here, it is quite evident that the contract
involved was one of a contract to sell since the Atienzas, as
sellers, were to retain title of ownership to the land until
respondent Espidol, the buyer, has paid the agreed
price. Indeed, there seems no question that the parties
understood this to be the case.

Admittedly, Espidol was unable to pay the second

installment of P1,750,000.00 that fell due in December
2002. That payment, said both the RTC and the CA, was a
positive
suspensive
condition
failure
of
which
was not regarded a breach in the sense that there can be
no rescission of an obligation (to turn over title) that did
not yet exist since the suspensive condition had not
taken place. x x x. [Emphases and underscoring supplied]

Thus, the Court fully agrees with the CA when it resolved:

Considering, however, that the Deed of Conditional Sale was not cancelled
by Vendor Reyes (petitioner) and that out of the total purchase price of the
subject property in the amount of 4,200,000.00, the remaining unpaid

balance of Tuparan (respondent) is only 805,000.00, a substantial amount

of the purchase price has already been paid. It is only right and just to allow
Tuparan to pay the said unpaid balance of the purchase price to Reyes. [10]

Granting that a rescission can be permitted under Article 1191, the

Court still cannot allow it for the reason that, considering the circumstances,
there was only a slight or casual breach in the fulfillment of the obligation.

Unless the parties stipulated it, rescission is allowed only when the
breach of the contract is substantial and fundamental to the fulfillment of
the obligation. Whether the breach is slight or substantial is largely
determined by the attendant circumstances.[11] In the case at bench, the
subject contract stipulated the following important provisions:

2. That the purchase price of 4,200,000.00 shall be

paid as follows:

a) 278,078.13 received in cash by the First Party

but directly paid to the Third Party as partial payment of the
mortgage obligation of the First Party in order to reduce the
amount to 2,000,000.00 only as of November 15, 1990;

b) 721,921.87 received in cash by the First Party as

additional payment of the Second Party;

c)
1,200,000.00
installments as follows:

to

be

paid

1.

200,000.00
payable
before January 31, 1991;

on

or

2.

200,000.00
payable
before June 30, 1991;

on

or

3.

800,000.00
payable
before December 31, 1991;

on

or

in

494

Note: All the installments shall not bear any interest.

d)
2,000,000.00 outstanding balance of
the mortgage obligation as ofNovember 15, 1990 which is
hereby assumed by the Second Party.

xxx

3.
That the Third Party hereby acknowledges
receipts from the Second PartyP278,078.13 as partial
payment of the loan obligation of First Party in order to
reduce the account to only 2,000,000.00 as of November
15, 1990 to be assumed by the Second Party effective
November 15, 1990.[12]

From the records, it cannot be denied that respondent paid to FSL

Bank petitioners mortgage obligation in the amount of 2,278,078.13, which
formed part of the purchase price of the subject property. Likewise, it is not
disputed that respondent paid directly to petitioner the amount of
721,921.87 representing the additional payment for the purchase of the
subject property. Clearly, out of the total price of 4,200,000.00, respondent
was able to pay the total amount of 3,000,000.00, leaving a balance of
1,200,000.00 payable in three (3) installments.

Out of the 1,200,000.00 remaining balance, respondent paid on

several dates the first and second installments of 200,000.00 each. She,
however, failed to pay the third and last installment of 800,000.00 due
on December 31, 1991. Nevertheless, on August 31, 1992, respondent,
through counsel, offered to pay the amount of 751,000.00, which was
rejected by petitioner for the reason that the actual balance was 805,000.00
excluding the interest charges.

Considering that out of the total purchase price of 4,200,000.00,

respondent has already paid the substantial amount of 3,400,000.00, more
or less, leaving an unpaid balance of only 805,000.00, it is right and just to
allow her to settle, within a reasonable period of time, the balance of the
unpaid purchase price. The Court agrees with the courts below that the
respondent showed her sincerity and willingness to comply with her
obligation when she offered to pay the petitioner the amount of 751,000.00.

On the issue of interest, petitioner failed to substantiate her claim

that respondent made a personal commitment to pay a 6% monthly interest
on the 805,000.00 from the date of delinquency,December 31, 1991. As can
be gleaned from the contract, there was a stipulation stating that: All the
installments shall not bear interest. The CA was, however, correct in
imposing interest at the rate of 6% per annum starting from the filing of the
complaint on September 11, 1992.

Finally, the Court upholds the ruling of the courts below regarding
the non-imposition of damages and attorneys fees. Aside from petitioners
self-serving statements, there is not enough evidence on record to prove that
respondent acted fraudulently and maliciously against the petitioner. In the
case of Heirs of Atienza v. Espidol,[13] it was stated:

Respondents are not entitled to moral damages

because contracts are not referred to in Article 2219 of the
Civil Code, which enumerates the cases when moral
damages may be recovered. Article 2220 of the Civil Code
allows the recovery of moral damages in breaches of contract
where the defendant acted fraudulently or in bad faith.
However, this case involves a contract to sell, wherein full
payment of the purchase price is a positive suspensive
condition, the non-fulfillment of which is not a breach of
contract, but merely an event that prevents the seller from
conveying title to the purchaser. Since there is no breach of
contract in this case, respondents are not entitled to moral
damages.

In the absence of moral, temperate, liquidated or

compensatory damages, exemplary damages cannot be
granted for they are allowed only in addition to any of the
four kinds of damages mentioned.

495

EFFECT DEPRIVED THEM OF THEIR BASIC RIGHT TO DUE

PROCESS."
WHEREFORE, the petition is DENIED.

Movants first theorize that paragraphs 8 (limiting the right of the mortgagor
to sell the property, which we held as void) and 9 (on the right of first refusal
of respondent Corporation) should be "regarded as a tandem designed to
subvert the sound public policy prohibiting pactum commissarium"; that

SO ORDERED.

both paragraphs "constitute a package". In particular, petitioners argue that

"(P)aragraph 9 being intended to support paragraph 8, it is therefore coupled
thereto and is thus similarly mired in its invalidity".

[G.R. No. 130722. March 27, 2000]

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

This is the first time, though, that petitioners have raised the issue of
invalidity of paragraph 9. While respondent Corporation has consistently
invoked the provisions thereof, petitioners have remained silent insofar as
this provision is concerned, concentrating their pleadings on the invalidity of
paragraph 8 alone. Not having been timely objected to below, petitioners
cannot belatedly present their objections thereto at this stage.
At any rate, even if we were to entertain petitioners objections, the same will
still be held as without merit. To be sure, paragraphs 8 and 9 are separate

RESOLUTION

provisions of the subject contract and the invalidity of one does not
automatically render the other invalid. Indeed, Article 1420 of the New

YNARES-SANTIAGO, J.:

Civil Code holds that "(I)n case of a divisible contract, if the illegal terms can
be separated from the legal ones, the latter may be enforced." Contrary to the

For resolution is petitioners Motion for Partial Reconsideration of our

suppositions of petitioners, the invalid stipulation is independent from the

December 9, 1999 Decision on the following grounds:

rest of the terms of the agreement and can easily be separated therefrom
without doing violence to the manifest intention of the parties. This being so,

"I........THE PROVISION OF PARAGRAPH NO. 9 OF THE

the legal terms of the contract, including paragraph 9, can be enforced. [1]

SUBJECT MORTGAGE CONTRACT IS NULL AND VOID AB

INITIO.

Petitioners next argue that even if paragraph 9 is considered independently of

paragraph 8, it is still unenforceable for being null and void ab initio. In

II........THE RESCISSION OF THE DEED OF SALE DATED 6

support of their argument, petitioners point out that the provision in

AUGUST 1974 BETWEEN THE SPS. LITONJUA AND

paragraph 9 is not a perfected contract for lack of consideration as mandated

PHIILIPPINE WHITEHOUSE AUTO SUPPLY, INC. HAS

by Article 1479. Petitioners argue that our finding that the consideration for

NEVER BEEN INVOKED AS A DEFENSE BY RESPONDENT L

the pre-emptive right is incorporated in the amount of the loan is a

& R CORPORATION; THUS, DEEMED WAIVED.

presumption that enjoys no basis.

III........THE DECISION RESCINDING THE DEED OF SALE

Again, petitioners arguments must be brushed aside.

EXECUTED BY AND BETWEEN THE PETITIONERS IN

496

Petitioners contention that absent a consideration therefor, the right of first

defendant Valdes to sell to Borck the said hacienda during

refusal embodied in paragraph 9 is void ab initio is misplaced. Such

the period and for the price mentioned. x x x. There was,

contention loses sight of the difference between a right of first refusal and an

therefore, a meeting of minds on the part of the one and the

option contract where a separate consideration is, indeed, required. This

other, with regard to the stipulations made in the said

distinction was set out in the analogous case of Equatorial Realty

document. But it is not shown that there was any cause or

Development, Inc. vs. Mayfair Theater, Inc.[2] where it was held that

consideration for that agreement, and this omission is a bar

which precludes our holding that the stipulations contained

"Both contracts of lease in question provide the identically

in Exhibit E is a contract of option, for, x x x, there can be no

worded paragraph 8, which reads:

contract without the requisite, among others, of the cause

for the obligation to be established.

That if the LESSOR should desire to sell the leased

premises, the LESSEE shall be given 30-days exclusive

In his Law Dictionary, edition of 1897, Bouvier defines an

option to purchase the same.

option as a contract, in the following language:

In the event, however, that the leased premises is sold to

A contract by virtue of which A, in consideration of the payment of a

someone other than the LESSEE, the LESSOR is bound and

certain sum to B, acquires the privilege of buying from, or selling to

obligated, as it hereby binds and obligates itself, to stipulate

B, certain securities or properties within a limited time at a specified

in the Deed of Sale thereof that the purchaser shall

price. (Story vs. Salamon, 71 N.Y., 420).

recognize this lease and be bound by all the terms and

conditions thereof.

From vol. 6, page 5001, of the work Words and Phrases, citing the case of
Ide vs. Leiser (24 Pac., 695; 10 Mont., 5; 24 Am. St. Rep., 17) the following

We agree with the respondent Court of Appeals that the

quotation has been taken:

aforecited contractual stipulation provides for a right of first

refusal in favor of Mayfair. It is not an option clause or an

An agreement in writing to give a person the option to

option contract. It is a contract of a right of first refusal.

purchase lands within a given time at a named price is

neither a sale nor an agreement to sell. It is simply a

As early as 1916, in the case of Beaumont vs. Prieto,

contract by which the owner of property agrees with another

unequivocal was our characterization of an option contract

person that he shall have the right to buy his property at a

as one necessarily involving the choice granted to another for

fixed price within a certain time. He does not sell his land; he

a distinct and separate consideration as to whether or not to

does not then agree to sell it; but he does sell something;

purchase a determinate thing at a predetermined fixed price.

that is, the right or privilege to buy at the election or option

of the other party. The second party gets in praesenti, not

It is unquestionable that, by means of the document Exhibit

lands, not an agreement that he shall have lands, but he

E, to wit, the letter of December 4, 1911, quoted at the

does get something of value; that is, the right to call for and

beginning of this decision, the defendant Valdes granted to

receive lands if he elects. The owner parts with his right to

the plaintiff Borck the right to purchase the Nagtahan

sell his lands, except to the second party, for a limited

Hacienda belonging to Benito Legarda, during the period of

period. The second party receives the right, or, rather, from

three months and for its assessed valuation, a grant which

his point of view, he receives the right to elect to buy.

necessarily implied the offer or obligation on the part of the

497

But the two definitions abovecited refer to the contract of option, or, what

A contract of sale may be absolute or conditional.

amounts to the same thing, to the case where there was cause or
consideration for the obligation, the subject of the agreement made by the

When the sale is not absolute but conditional, such as in a

parties; while in the case at bar there was no such cause or consideration.

Contract to Sell where invariably the ownership of the thing

sold is retained until the fulfillment of a positive suspensive

The rule so early established in this jurisdiction is that the deed of option or

condition (normally, the full payment of the purchase price),

the option clause in a contract, in order to be valid and enforceable, must,

the breach of the condition will prevent the obligation to

among other things, indicate the definite price at which the person granting

convey title from acquiring an obligatory force. x x x.

the option, is willing to sell.

An unconditional mutual promise to buy and sell, as long as
Notably, in one case we held that the lessee loses his right to buy the leased

the object is made determinate and the price is fixed, can be

property for a named price per square meter upon failure to make the

obligatory on the parties, and compliance therewith may

purchase within the time specified; in one other case we freed the landowner

accordingly be exacted.

from her promise to sell her land if the prospective buyer could raise
P4,500.00 in three weeks because such option was not supported by a

An accepted unilateral promise which specifies the thing to

distinct consideration; in the same vein in yet one other case, we also

be sold and the price to be paid, when coupled with a

invalidated an instrument entitled, Option to Purchase a parcel of land for

valuable consideration distinct and separate from the price,

the sum of P1,510.00 because of lack of consideration; and as an exception

is what may properly be termed a perfected contract of

to the doctrine enumerated in the two preceding cases, in another case, we

option. This contract is legally binding, and in sales, it

ruled that the option to buy the leased premises for P12,000.00 as stipulated

conforms with the second paragraph of Article 1479 of the

in the lease contract, is not without consideration for in reciprocal contracts,

Civil Code, viz.

like lease, the obligation or promise of each party is the consideration for that
of the other. In all these cases, the selling price of the object thereof is always

ART. 1479. x x x.

predetermined and specified in the option clause in the contract or in the

separate deed of option. We elucidated, thus, in the very recent case of Ang

An accepted unilateral promise to buy or sell a determinate thing for

Yu Asuncion vs. Court of Appeals, that:

a price certain is binding upon the promisor if the promise is

supported by a consideration distinct from the price.

x x x. In sales, particularly, to which the topic for discussion

about the case at bench belongs, the contract is perfected

Observe, however, that the option is not the contract of sale

when a person, called the seller, obligates himself, for a price

itself. The optionee has the right, but not the obligation, to

certain, to deliver and to transfer ownership of a thing or

buy. Once the option is exercised timely, i.e., the offer is

right to another, called the buyer, over which the latter

accepted before a breach of the option, a bilateral promise to

agrees. Article 1458 of the Civil Code provides:

sell and to buy ensues and both parties are then reciprocally
bound to comply with their respective undertakings.

Art. 1458. By the contract of sale one of the contracting parties

obligates himself to transfer the ownership of and to deliver a

Let us elucidate a little. A negotiation is formally initiated by

determinate thing, and the other to pay therefor a price certain in

an offer. An imperfect promise (policitacion) is merely an

money or its equivalent.

offer. Public advertisements or solicitations and the like are

ordinarily construed as mere invitations to make offers or

498

only as proposals. These relations, until a contract is

contracts involved in the instant case, we so hold that no

perfected, are not considered binding commitments. Thus, at

option to purchase in contemplation of the second paragraph

any time prior to the perfection of the contract, either

of Article 1479 of the Civil Code, has been granted to Mayfair

negotiating party may stop the negotiation. The offer, at this

under the said lease contracts.

stage, may be withdrawn; the withdrawal is effective

immediately after its manifestation, such as by its mailing

Respondent Court of Appeals correctly ruled that the

and not necessarily when the offeree learns of the

said paragraph 8 grants the right of first refusal to

withdrawal. (Laudico vs. Arias, 43 Phil. 270). Where a period

is given to the offeree within which to accept the offer, the
following rules generally govern:
(1).......If the period is not itself founded upon or supported
by a consideration, the offeror is still free and has the right
to withdraw the offer before its acceptance, or, if an
acceptance has been made, before the offerors coming to
know of such fact, by communicating that withdrawal to the
offeree. The right to withdraw, however, must not be
exercised whimsically or arbitrarily; otherwise, it could give
rise to a damage claim under Article 19 of the Civil Code
which ordains that every person must, in the exercise of his
rights and in the performance of his duties, act with justice,
give everyone his due, and observe honesty and good faith.

Mayfair and is not an option contract. It also correctly

reasoned that as such, the requirement of a separate
consideration for the option, has no applicability in the
instant case.
There is nothing in the identical Paragraphs 8 of the June
1, 1967 and March 31, 1969 contracts which would bring
them into the ambit of the usual offer or option requiring an
independent consideration.
An option is a contract granting a privilege to buy or sell
within an agreed time and at a determined price. It is a
separate and distinct contract from that which the
parties may enter into upon the consummation of the
option. It must be supported by consideration. In the

(2).......If the period has a separate consideration, a contract

instant case, the right of first refusal is an integral part

of option is deemed perfected, and it would be a breach of

of the contracts of lease. The consideration is built into

that contract to withdraw the offer during the agreed period.

The option, however, is an independent contract by itself,
and it is to be distinguished from the projected main
agreement (subject matter of the option) which is obviously
yet to be concluded. If, in fact, the optioner-offeror withdraws
the offer before its acceptance (exercise of the option) by the
optionee-offeree, the latter may not sue for specific
performance on the proposed contract (object of the option)
since it has failed to reach its own stage of perfection. The
optioner-offeror, however, renders himself liable for damages
for breach of the option. x x x.
In the light of the foregoing disquisition and in view of the
wording of the questioned provision in the two lease

the reciprocal obligations of the parties.

To rule that a contractual stipulation such as that found in
paragraph 8 of the contracts is governed by Article 1324 on
withdrawal of the offer or Article 1479 on promise to buy
and sell would render ineffectual or inutile the provisions
on right of first refusal so commonly inserted in leases of real
estate nowadays. The Court of Appeals is correct in stating
that Paragraph 8 was incorporated into the contracts of
lease for the benefit of Mayfair which wanted to be assured
that it shall be given the first crack or the first option to buy
the property at the price which Carmelo is willing to
accept. It is not also correct to say that there is no

499

consideration in an agreement of right of first refusal.

Here, petitioners, being not only educated but businesspersons as well,

The stipulation is part and parcel of the entire contract

cannot claim being the weaker or disadvantaged parties in the subject

of lease. The consideration for the lease includes the

consideration for the right of first refusal. Thus, Mayfair
is in effect stating that it consents to lease the premises and
to pay the price agreed upon provided the lessor also
consents that, should it sell the leased property, then,
Mayfair shall be given the right to match the offered
purchase price and to buy the property at that price. As
stated in Vda. De Quirino vs. Palarca, in reciprocal contract,
the obligation or promise of each party is the consideration
for that of the other.
In the instant case, as we have already stated in our Decision sought to be
reconsidered, the consideration for the loan-mortgage includes the
consideration for the right of first refusal. Again, contrary to petitioners
charge that this conclusion enjoys no basis, we have merely taken our cue

contract so as to call for a strict interpretation against respondent

Corporation.
The court also went on to rule in the Ayala case (supra), that since the
stipulations in the subject Deed of Restrictions are plain and unambiguous,
which leave no room for interpretation, there was no cause for applying the
rule on stringent treatment towards contracts of adhesion. Indeed, while
ambiguities in a contract of adhesion are to be construed against the party
that prepared the same, this rule applies only if the stipulations in such
contract are obscure or ambiguous. If the terms thereof are clear and leave
no doubt upon the intention of the contracting parties, the literal meaning of
its stipulations control. In the latter case, there would be no need for
construction.[4] Coming now to the case at bar, considering that the contract
provision in question (paragraph 9) is likewise plain and unambiguous, we
also find no occasion to apply the aforesaid treatment called for by

from the Equatorial case, aforequoted.

petitioners.

Petitioners also pray that since the subject contract is a contract of adhesion,

With respect to the rescission of the Deed of Sale, petitioners complain that

its validity and legality should be strictly interpreted against respondent

Corporation. As explained in Ayala Corporation vs. Ray Burton Development
[3]

Corporation, however, where this court refrained from applying the rule on
strict interpretation of a contract of adhesion
"(T)he stringent treatment towards contracts of adhesion
which the courts are enjoined to observe is in pursuance of
the mandate in Article 24 of the New Civil Code that (i)n all
contractual, property or other relations, when one of the
parties is at a disadvantage on account of his moral
dependence, ignorance, indigence, mental weakness, tender
age or other handicap, the courts must be vigilant for his
protection.
Thus, the validity and/or enforceability of a contract of
adhesion will have to be determined by the peculiar
circumstances obtaining in each case and the situation of
the parties concerned."

this was never invoked as a defense by respondent corporation and is thus

deemed waived. Thus, petitioners also complain that our Decision deprived
them of due process since they were not given the opportunity to confront
the issue of rescission, not having been raised as a defense by respondent
corporation.
It cannot be denied, however, that respondent Corporation had always
invoked its right of first refusal, which became the basis for our order of
rescission. Stated differently, rescission was the necessary relief arising out
of the violation of the right of first refusal. For the same reason, neither may
petitioners complain of having been denied due process as they were given
the chance to meet the issue of violation of respondent Corporations right of
first refusal upon which we anchored our order for the rescission of the Deed
of Sale.
WHEREFORE, premises considered, petitioners Motion for Partial
Reconsideration is hereby DENIED for lack of merit.
SO ORDERED. 6/21/

500

intestate and without issue. Upon learning this, the petitioners filed a
supplemental petition to rescind the donation in accordance with Article
CONTRACTS; RECSISSION BY REASON OF SUBJECT BEING UNDER
LITIGATION

1381(4) of the Civil Code for such land belonged to the estate of the Spouses
Baylon. They further alleged that Rita was already sick and cannot consent
to such donation.
The decision of the RTC was to partition the lots in dispute and

Case Name: Lilia B. Luz, et al. vs. Florante Baylon

G.R. No.: G.R. No. 182435
Date: August 13, 2012
Petitioner: Lilia B. Ada, Luz B. Adanza, Flora C. Baylon, Remo Baylon, Jose
Baylon, Eric Baylon, Florentino Baylon, and Ma. Ruby Baylon
Respondent: Florante Baylon

rescinded the donation between Rita and Florante. It was held that the
donation was prejudicial to the petitioners and should be rescinded. So,
Florante appealed to the CA which reversed the decision of the RTC and
directed it to determine on whether the donated land was actually belonged
to the estate of the Spouses Baylon or it belonged to the exclusive property of
Rita Baylon.
ISSUE: Whether or not the donation may only be rescinded if such property
belonged to the estate of the Spouses Baylon?
HELD:

FACTS:

No, the Court held that rescission under the rescission under Article
The spouses Florentino Baylon and Maximina Elnas Baylon (Spouses
Baylon) who died survived by their legitimate children, namely, Rita Baylon
(Rita), Victoria Baylon (Victoria), Dolores Baylon (Dolores), Panfila Gomez
(Panfila), Ramon Baylon (Ramon) and herein petitioner Lilia B. Ada (Lilia).
Subsequently, the legitimate children Dolores died intestate and without
issue and Victoria who died was survived by her daughter, herein petitioner
Luz B. Adanza. Ramon died intestate and was survived by herein respondent
Florante Baylon (Florante), his child from his first marriage, as well as by
petitioner Flora Baylon, his second wife, and their legitimate children,
namely, Ramon, Jr. and herein petitioners Remo, Jose, Eric, Florentino and
Ma. Ruby, all surnamed Baylon.
The petitioners questioned the land that was owned by the spouses
Baylon and were not partitioned between the heirs. The petitioners contended
that Rita Baylon took possession of the parcels of land by the Spouses
Baylon and appropriated it for herself, plus the income from the same. Thus,
the petitioners filed a complaint with the RTC and during the pendency of
the case, Rita had donated a parcel of land to Florante Baylon and Rita died

1381(4) of the Civil Code is not preconditioned upon the judicial

determination as to the ownership of the thing subject of litigation. Such
rescission does not depend on the decision of the courts on the thing in
litigation. The primordial purpose of Article 1381(4) of the Civil Code is to
secure the possible effectivity of the impending judgment by a court with
respect to the thing subject of litigation. It seeks to protect the binding effect
of a courts impending adjudication vis--vis the thing subject of litigation
regardless of which among the contending claims therein would subsequently
be upheld. Accordingly, a definitive judicial determination with respect to the
thing subject of litigation is not a condition sine qua non before the
rescissory action contemplated under Article 1381(4) of the Civil Code may
be instituted.
The petitioners had sufficiently established the presence of the
requisites for the rescission of a contract pursuant to Article 1381(4) of the
Civil Code. It is undisputed that, at the time they were gratuitously conveyed
by Rita, Lot No. 4709 and half of Lot No. 4706 are among the properties that
were the subject of the partition case then pending with the RTC. It is also
undisputed that Rita, then one of the defendants in the partition case with

501

the RTC, did not inform nor sought the approval from the petitioners or of

Laches is a recourse in equity. Equity, however, is applied only in the

the RTC with regard to the donation inter vivos of the said parcels of land to

absence, never in contravention, of statutory law. Thus, laches cannot, as a

Florante.

rule, abate a collection suit filed within the prescriptive period mandated by
the Civil Code.

Also, the Court held that Even if the donation inter vivos is validly
rescinded, a determination as to the ownership of the subject parcels of land

The Case

is still necessary. It should be stressed that the partition proceedings before

the RTC only covers the properties co-owned by the parties therein in their

Before us is a Petition for Review on Certiorari under Rule 45 of the

respective capacity as the surviving heirs of Spouses Baylon. Hence, the

Rules of Court, assailing the November 26, 1997 Decision of the Court of

authority of the RTC to issue an order of partition in the proceedings before

Appeals,[1] which disposed as follows:

it only affects those properties which actually belonged to the estate of

Spouses Baylon.

IN VIEW OF THE FOREGOING, the decision of the lower court is hereby

AFFIRMED, with the modification that the award of attorneys fees is hereby

In this regard, lots as claimed by Florante, are indeed exclusively owned by

DELETED and the twelve percent (12%) interest on the P2,500,000.00 the

Rita, then the said parcels of land may not be partitioned simultaneously

defendant-appellants are to pay PNB should start from August 30, 1976, the

with the other properties subject of the partition case before the RTC. In

date when the complaint was filed.[2]

such case, although the parties in the case before the RTC are still co-owners
of the said parcels of land, the RTC would not have the authority to direct

The decretal portion of the aforementioned trial court ruling reads:

the partition of the said parcels of land as the proceedings before it is only
concerned with the estate of Spouses Baylon.

WHEREFORE, in view of the foregoing, in the interest of justice, judgment is

rendered in favor of the plaintiff ordering all the sureties jointly and severally,
to pay PNB as follows:

ADDITIONAL CASES FOR VOIDABLE CONTRACTS

a)

b)
[G.R. No. 133317. June 29, 1999]
ANTONIO R. AGRA, CAYETANO FERRERIA, NAPOLEON M. GAMO and
VICENTE O. NOVALES, petitioners, vs. PHILIPPINE NATIONAL
BANK, respondent.

ten percent (10%) of the total amount due as attorneys fees and cost

of the suit.
SO ORDERED.
Also assailed by petitioners is the April 2, 1998 Resolution of the Court
of Appeals, which denied their Motion for Reconsideration. [3]

DECISION
PANGANIBAN, J.:

the amount of P2,500,000.00 plus twelve per centum (12%) accrued

interest from August 1, 1976;

The Facts
The facts are summarized by the Court of Appeals (CA) in this wise: [4]

502

On August 30, 1976, an action for collection of a sum of money was filed

novation. The cause of action of the complainant is barred by laches and

by the Philippine National Bank (PNB, for brevity) against Fil-Eastern Wood

estoppel in that the plaintiff with full knowledge of the deteriorating

Industries, Inc. (Fil-Eastern, for short) in its capacity as principal debtor and

financial condition of Fil-Eastern did not take steps to collect from said

against Cayetano Ferreria, Pedro Atienza, Vicente O. Novales, Antonio R.

defendant corporation while still solvent. They also maintained that if

Agra, and Napoleon M. Gamo in their capacity as sureties.

anyone is liable for the payment of said loan, it is Felipe Ysmael, Jr. and not
them or it is only Fil-Eastern and the controlling officers who profited and

In its complaint, plaintiff PNB alleged that on July 17, 1967 Fil-Eastern was

made use of the proceeds of the loan. Defendant Agra likewise said that he

granted a loan in the amount of [t]wo [m]illion [f]ive [h]undred [t]housand

was made to sign the Surety Agreement and he did it because of the moral

[p]esos (P2,500,000.00) with interest at twelve percent (12%) per

influence and pressure exerted upon him by Felipe Ysmael, Jr. (their

annum. Drawings from said demand loan were made on different dates as

employer at the time of signing), thereby arousing strong fears of losing a

evidenced by several promissory notes and were credited to the account of

much needed employment to support his family should he refuse to sign as

Fil-Eastern. To secure the payment of the said loan Fil-Eastern as principal

Surety.

and sureties Ferreria, Atienza, Novales, Agra, and Gamo executed a Surety
Agreement whereby the sureties, jointly and severally with the principal,

In the order of the trial court dated October 30, 1978, defendant Fil-Eastern

guaranteed and warranted to PNB, its successors or assigns, prompt

was declared in default for its failure to answer the complaint within the

payment of subject obligation including notes, drafts, bills of exchange,

reglementary period and the case was scheduled for pre-trial

overdrafts and other obligations of every kind, on which Fil-Eastern was

conference. The individual defendants with the courts approval thereafter

indebted or may thereafter become indebted to PNB. It was further alleged

filed an amended third-party complaint against Felipe Ysmael, Jr.

that as of May 31, 1976 the total indebtedness of Fil-Eastern and its sureties
on subject loan amounted to [f]ive [m]illion [t]wo [h]undred [n]inety-[s]even

The amended third-party complaint alleged that at the time of execution of

[t]housand, [n]ine [h]undred [s]eventy-[s]ix [p]esos and [s]eventeen [c]entavos

the alleged Surety Agreement subject matter of the principal complaint,

(P5,297,976.17), excluding attorneys fees. Notwithstanding repeated

third-party plaintiffs were but employees of Ysmael Steel Manufacturing Co.,

demands, the defendants refused and failed to pay their loans.

owned by third-party-defendant. Third-party-plaintiffs were in no financial

position to act as sureties to a P2.5 million loan. They became incorporators

The defendants (herein sureties) filed separate answers (pp. 49, 68, 205, 208

of original defendant Fil-Eastern because of fear of losing their employment

and 231). Collating these, We drew the following: All of them claimed that

brought about by the tremendous pressure and moral influence exerted upon

they only signed the Surety Agreement with the understanding that the same

them by their employer-third-party-defendant. They signed the Surety

was a mere formality required of the officers of the corporation. They did not

Agreement upon the order of the third-party-defendant. In signing the said

in any way or manner receive a single cent from the proceeds of said loan

document, the third-party-plaintiffs were assured by the third-party-

and/or derive any profit therefrom. Neither did they receive any

defendant that they had nothing to fear and worry about because the latter

consideration valuable or otherwise, from defendant Fil-Eastern. They

will assume all liabilities as well as profits therefrom and that the loan

further claim that the loan in question was negotiated and approved under

subject of the Surety Agreement was with the prior approval and blessing of

highly irregular, anomalous and suspicious circumstances to the point that

a high government official. They were likewise assured that the surety

the Surety Agreement executed thereafter is invalid, null and void and

agreement was but a formality and that because of such pressure, influence

without force and effect. The extension of time of payment of the loan in

as well as assurances, third-party-plaintiffs signed the Surety Agreement.

question released and discharged the answering defendants from any liability
under the Surety Agreement. The Surety Agreement is null and void from

Third-party-defendant Felipe Ysmael, Jr. in his answer alleged that the

the beginning due to a defect in the consent of the defendants and that their

Surety Agreement was freely and voluntarily signed and executed by third-

liabilities under the Surety Agreement, if any, has been extinguished by

party-plaintiffs without any intimidation, undue, improper or fraudulent

503

representations. Further, granting arguendo that the consent of third-party

cause of action accrued. Thus, [private respondent] was well within the

plaintiffs in signing said Surety Agreement was vitiated with intimidation,

prescriptive period of ten years when it instituted the case in court. The

undue influence or fraudulent representation on the part of third-party-

Court of Appeals further ruled that placing the blame on [PNB] for its failure

defendant, said Surety Agreement is only voidable and therefore binding

to immediately pounce upon its debtors the moment the loan matured is

unless annulled by a proper action in court. The third-party-plaintiffs did

grossly unfair for xxx demand upon the sureties to pay is not necessary.

not file the proper court action for the annulment of said agreement. They
are now barred from filing an action for annulment of said agreement, the

The appellate court also held that petitioners proved only the first of the

prescriptive period therefor being only four (4) years from the time the defect

following four essential elements of laches: (1) conduct on the part of the

of the consent had ceased, and from the discovery of the all[e]ged fraud. In

defendant, or one under whom he claims, giving rise to the situation of which

addition, third-party plaintiffs had ratified said agreement which they signed

complaint is made and for which the complainant seeks a remedy; (2) delay

in July 1967 by signing their names on and execution of several promissory

in asserting the complainants rights, the complainant having had knowledge

thereafter.

or notice of the defendants conduct and having been afforded an opportunity

to institute a suit; (3) lack of knowledge or notice on the part of the defendant

At the pre-trial conference held on March 21, 1980, the parties failed to

that the complainant would assert the right on which he bases his suit; and

agree on a possible amicable settlement hence the case was set for trial on

(4) injury or prejudice to the defendant in the event relief is accorded to the

the merits. On July 5, 1984, during the pendency of the trial, third-party

complainant, or the suit is not held barred.

defendant Felipe Ysmael, Jr. died. He was substituted by his legal heirs
Patrick Ysmael and Jeanne Ysmael as third-party defendants. Defendant

Issues

Pedro Atienza died on January 4, 1987. It appearing that he has no legal

heirs, the case against him was dismissed.
After trial, the regional trial court (RTC) ruled against herein

In their Memorandum, petitioners raise the following issues: [6]

1. WHETHER OR NOT THE CLAIM OF THE PNB AGAINST THE

petitioners. On appeal, the CA modified the RTC ruling by deleting the award

PETITIONERS IS ALREADY BARRED BY THE EQUITABLE DEFENSE OF

of attorneys fees. Hence, this recourse to this Court.

LACHES?

Ruling of the Court of Appeals

2. WHETHER OR NOT THE RESPECTIVE CONJUGAL PARTNERSHIPS OF

THE PETITIONERS COULD BE HELD LIABLE FOR ANY LIABILITY OF THE

In ruling that petitioners were liable under the surety agreement, the

PETITIONERS UNDER THE SURETY AGREEMENT IN FAVOR OF THE PNB?

Court of Appeals rejected their defense of laches. It held that the lapse of
seven years and eight months from December 31, 1968 until the judicial

Under the first issue, petitioners submit four other questions:

demand on August 30, 1976 cannot be considered as unreasonable delay

which would necessitate the application of laches. The action filed by the

1-a

plaintiff has not yet prescribed. It is well within the ten-year prescriptive

APPLIES INDEPENDENTLY OF PRESCRIPTION?

WHETHER OR NOT THE EQUITABLE DEFENSE OF LACHES

period provided for by law wherein actions based on written contracts can be
instituted.[5]

1-b

WHETHER OR NOT THE CAUSE OF ACTION OF THE PNB

AGAINST THE PETITIONERS ACCRUED ONLY FROM THE TIME OF THE

The Court of Appeals also noted that the prescriptive period did not

JUDICIAL DEMAND ON AUGUST 30, 1976?

begin to run from December 31, 1968 as [herein petitioners] presupposed. It

was only from the time of the judicial demand on August 30, 1976 that the

504

1-c

WHETHER OR NOT THE FOUR (4) WELL-SETTLED ELEMENTS

OF LACHES ARE PRESENT IN THIS CASE?

overdrafts, etc., covered by this surety agreement, including those for the
custody, maintenance and preservation of the securities given therefor and
also for the collection thereof.

1-d

WHETHER OR NOT THE RULING IN THE CASE OF PHILIPPINE

NATIONAL BANK VS. COURT OF APPEALS, 217 SCRA 347, IS APPLICABLE

Both the Principal and the Surety shall be considered in default when they

IN THIS INSTANT CASE?

fail to pay the obligation upon maturity with or without demand and in such
case the Surety agrees to pay to the creditor, its [successors] or assigns, all

In the main, the issue is whether petitioners may raise the defense of
laches

in

order

to

avoid

their

liability

under

the

surety

outstanding obligations of the Principal, whether due or not due and whether
held by the Creditor as principal or agent, and it is agreed that a certified

agreement. Preliminarily, we shall also take up the question of petitioners

statement by the Creditor as to the amount due from the Principal shall be

liability as sureties.

accepted as correct by the Surety without question.

The Courts Ruling

The Surety expressly waives all rights to demand for payment and notice of
non-payment and protest, and agrees that the securities of every kind, that

The appeal is not meritorious.

are now and may hereafter be left with the Creditor, its successors, indorsees
or assigns, as collateral to any evidence of debt or obligations or upon which

Preliminary Matter: Liability of Petitioners as Sureties

a lien may exist thereon may be withdrawn or surrendered at any time, and
the time of payment thereof extended, without notice to, or consent by the

The present controversy began when the Philippine National Bank (PNB)

Surety; and that the liability on this guaranty shall be solidary, direct and

sought to enforce the Surety Agreement. The pertinent provisions of said

immediate and not contingent upon the pursuit by the Creditor, its successors,

Agreement are as follows:

indorsees or assigns, of whatever remedies it or they have against the

Principal or the securities or liens it or they may possess and the Surety will

WHEREAS, FIL-EASTERN WOOD INDUSTRIES, INC. herein referred to as

at any time, whether due or not due, pay to the Creditor with or without

the Principal, has obtained and/or desires to obtain certain credits, loans,

demand upon the Principal, any obligation or indebtedness of the Principal

overdrafts, discounts, etc., from the Creditor, for all of which the Creditor

not in excess of the amount abovementioned.

requires security; and the Surety, on account of valuable consideration

received from the Principal, has agreed and undertake to assist the principal

This instrument is intended to be a complete and perfect indemnity to the

by becoming such Surety.

Creditor to the extent above stated, for any indebtedness or liability of any
kind owing by the Principal to the Creditor from time to time, and to be valid

NOW THEREFORE, for the purpose above mentioned, the Surety, jointly and

and continuous without further notice to the Surety, andmay be revoked by

severally with the Principal, hereby guarantees and warrants to the Creditor,

the Surety at any time, but only after forty-eight hours notice in writing to the

its successors or assigns, the prompt payment at maturity of all the notes,

Creditor, and such revocation shall not operate to relieve the Surety from

drafts, bills of exchange, overdrafts and other obligations of every kind, on

responsibility for obligations incurred by the Principal prior to the

which the Principal may now be indebted or may hereafter become indebted

termination of such period. (Emphasis supplied.)

to the Creditor, but the liability of the Surety shall not at any time exceed the
sum of TWO MILLION FIVE HUNDRED THOUSAND ONLY (P2,500,000.00)

It

must

be

stressed

that

petitioners,

as

sureties,

bound

(demand loan of P2,500,000.00), Philippine Currency, plus the interest

themselves solidarily for the obligation of Fil-Eastern to PNB. Petitioners

thereon at the rate of (___%) per cent per annum, and the cost and expenses

admit that they signed the Surety Agreement, but they challenge their

of the Creditor incurred in connection with the granting of the credits, loans,

505

liability thereon on the ground that they were allegedly coerced by their

the defense of laches differs from and is applied independently of

employer into signing the deed. The argument is too late at best.

prescription. In support, they cite, among others, Nielson & Co., Inc. v.
Lepanto Consolidated Mining Co.,[8] in which the Supreme Court ruled:

As pointed out by the Court of Appeals, petitioners failed to challenge

their consent to the Agreement within the prescriptive period. Article 1391

[T]he defense of laches applies independently of prescription. Laches is

of the Civil Code provides that the action to annul a contract vitiated by

different from the statute of limitations. Prescription is concerned with the

intimidation, violence or undue influence shall be filed within four years from

fact of delay, whereas laches is concerned with the effect of

the cessation of such defects. In this case, Petitioners Agra, Gamo and

delay. Prescription is a matter of time; laches is principally a question of

Novales resigned from Fil-Eastern in 1967, 1968 and 1969, respectively. It

inequity of permitting a claim to be enforced, this inequity being founded on

was only in 1976, when PNB sought to enforce the contract, that they alleged

some change in the condition of the property or the relation of the

a defect in their consent. By their inaction, their alleged cause of action

parties. Prescription is statutory; laches is not. Laches applies in equity;

based on vitiated consent had precribed. There was no question that

whereas prescription applies at law. Prescription is based on fixed time,

petitioners, in their capacity as sureties, were answerable for the obligations

laches is not.

of Fil-Eastern to PNB.
True, prescription is different from laches, but petitioners reliance
We shall now go to the main issue of this case: Whether petitioners may

on Nielson is misplaced. As held in the aforecited case, laches is principally

invoke the defense of laches, considering that PNBs claim had not yet

a question of equity. Necessarily, there is no absolute rule as to what

prescribed.

constitutes laches or staleness of demand; each case is to be determined

according to its particular circumstances. The question of laches is
Main Issue: Laches

addressed to the sound discretion of the court and since laches is an

equitable

Petitioners admit that PNBs claim, though filed more than seven years

doctrine,

considerations.

[9]

its

application

is

controlled

by

equitable

Petitioners, however, failed to show that the collection suit

from the maturity of the obligation, fell within the ten-year prescriptive

against herein sureties was inequitable. Remedies in equity address only

period. They argue, however, that the cause was already barred by laches,

situations

which is defined as the failure or neglect for an unreasonable or unexplained

statutes. Indeed, the petitioners failed to prove the presence of all the four

length of time to do that which by exercising due diligence, could or should

established requisites of laches, viz:

tainted

with

inequity,

not

those

expressly

governed

by

have been done earlier warranting a presumption that he has abandoned his
right or declined to assert it. [7] In arguing that the appellate court erred in

(1) conduct on the part of the defendant or one under whom he claims,

rejecting the defense of laches, petitioners cite four reasons: (1) the defense

giving rise to the situation of which complaint is made and for which the

of laches applies independently of prescription; (2) the cause of action against

complainant seeks a remedy;

petitioners accrued from the maturity of the obligation, not from the time of
judicial demand; (3) the four well-settled elements of laches were duly proven;

(2) delay in asserting the complainants right, the complainant having had

and (4) PNB v. CA applies in the instant case. As will be shown below, all

knowledge or notice of defendants conduct and having been afforded an

these arguments are devoid of merit.

opportunity to institute a suit;

Application of Laches

(3) lack of knowledge or notice on the part of the defendant that the
complainant would assert the right on which he bases his claim; and

Assailing the CA ruling that laches was inapplicable because the claim
was brought within the ten-year prescriptive period, petitioners stress that

506

(4) injury or prejudice to the defendant in the event relief is accorded to the
complainant, or the suit is not held barred.[10]

Petitioners also failed to prove the third element of laches. It is absurd

to maintain that petitioners did not know that PNB would assert its right
under the Surety Agreement. It is unnatural, if not unheard of, for banks to

That the first element exists is undisputed. Neither Fil-Eastern nor the
sureties, herein petitioners, paid the obligation under the Surety Agreement.

condone debts without adequate recompense in some other form. Petitioners

have not given us reason why they assumed that PNB would not enforce the
Agreement against them.

The second element cannot be deemed to exist. Although the collection

suit was filed more than seven years after the obligation of the sureties

Finally, petitioners maintain that the fourth element is present because

became due, the lapse was within the prescriptive period for filing an

they would suffer damage or injury as a result of PNBs claim. This is the

action. In this light, we find immaterial petitioners insistence that the cause

crux of the controversy. In addition to the payment of the amount stipulated

of action accrued on December 31, 1968, when the obligation became due,

in

and not on August 30, 1976, when the judicial demand was made. In either

petitioners, viz:

the

Agreement,

other

equitable

grounds

were

enumerated

by

case, both submissions fell within the ten-year prescriptive period. In any
event, the fact of delay, standing alone, is insufficient to constitute laches. [11]

1. Petitioners acted as sureties under pressure from Felipe Baby Ysmael,

Jr., the headman of the Ysmael Group of Companies where the petitioners

Petitioners insist that the delay of seven years was unreasonable and

were all employed in various executive positions.

unexplained, because demand was not necessary. Again we point that,

unless reasons of inequitable proportions are adduced, a delay within the

2. Petitioners did not receive a single centavo in consideration of their acting

prescriptive period is sanctioned by law and is not considered to be a delay

as sureties.

that would bar relief. In Chavez v. Bonto-Perez,

[12]

the Court reiterated an

earlier holding, viz:

3. The surety agreement was not really a requisite for the grant of the loan to
FIL-EASTERN because the first release on the loan was made on July 17,

Laches is a doctrine in equity while prescription is based on law. Our courts

1967, or even before the Surety Agreement was executed by petitioners on

are basically courts of law and not courts of equity. Thus, laches cannot be

July 21, 1967.

invoked to resist the enforcement of an existing legal right. We have ruled in

Arsenal v. Intermediate Appellate Court x x x that it is a long standing

4. Petitioners were assured that the Surety Agreement was merely a

principle that equity follows the law. Courts exercising equity jurisdiction are

formality, and they had reason to believe that assurance because the loan

bound by rules of law and have no arbitrary discretion to disregard them. In

was principally secured by an assignment of 15% of the proceeds of the sale

Zabat, Jr. v. Court of Appeals x x x, this Court was more emphatic in

of logs of FIL-EASTERN to Iwai & Co., Ltd., and such assignment was clearly

upholding the rules of procedure. We said therein:

stated in PNB Board Resolution No. 407. In fact, while it was expressly
stated in all of the eight (8) promissory notes covering the releases of the loan

As for equity, which has been aptly described as justice outside legality, this

that the said loan was secured by 15% of the contract of sale with Iwai & Co.,

is applied only in the absence of, and never against, statutory law or, as in

Ltd., only three (3) promissory notes stated that the loan was also secured by

this case, judicial rules of procedure. Aequetas nunquam contravenit

the joint and several signatures of the officers of the corporation. It is to be

legis. This pertinent positive rules being present here, they should preempt

noted that no mention was even made of the joint and several signatures

and prevail over all abstract arguments based only on equity.

of petitioners as sureties. In other words, the principal security was the

Thus, where the claim was filed within the three-year statutory period,

assignment of 15% of the contract for the sale of logs to Iwai & Co., Ltd.

recovery therefore cannot be barred by laches.

507

5. For reasons not explained by PNB, PNB did not collect the 15% of the

If they had mistaken the import of the Surety Agreement, they could

proceeds of the sale of the logs to Iwai & Co., Ltd., and such failure resulted

have easily asked for its revocation. The Agreement stipulates that it may be

in the non-collection of the P2,500,000.00 demand loan, or at least a portion

revoked by the Surety at any time, but only after forty-eight hours notice in

of it.

writing to the Creditor, and such revocation shall not operate to relieve the
Surety from responsibility for obligations incurred by the Principal prior to

6. For reasons likewise unexplained by PNB, PNB did not make any demand

the termination of such period. This they did not do.

upon petitioners to pay the unpaid loan of FIL-EASTERN until after FILEASTERN had become bankrupt, and PNB was aware of this fact because it

Equally unavailing is petitioners allegation that the Surety Agreement

foreclosed the chattel mortgages on the other loans of FIL-EASTERN which

was not a requisite for the grant of the loan. Even if their assertion is true,

were secured by said chattel mortgages.[13] (Emphasis found in the original.)

the fact remains that they signed the contract and voluntarily bound
themselves to be solidarily liable for the loan amounting toP2,500,000.

These circumstances do not justify the application of laches. Rather,

they disclose petitioners failure to understand the language and the nature

The other equitable circumstances above enumerated fail to support

of the Surety Arrangement. They cannot now argue that the Surety

petitioners cause. As earlier stated, petitioners are already barred from

Agreement was merely a formality, secondary to the assignment of 15 percent

questioning the voluntariness of their consent. Furthermore, this Court has

of the proceeds of the sale of Fil-Easterns logs to Iwai and Co., Ltd. Neither

categorically ruled that a surety is liable for the debt of another, although he

can they rely on PNBs failure to collect the assigned share in the sale of the

or she received no benefit therefrom.[15]

logs or to make a demand on petitioners until after Fil-Eastern had become

bankrupt. The Court stresses that the obligation of a surety is direct,
primary and absolute. Thus, the Court has held:

Clearly, aside from the fact that the collection suit was filed only after
the lapse of seven years from the date the obligation became due and
demandable, petitioners failed to adduce any showing of inequity. Hence, the

[A]lthough the contract of a surety is in essence secondary only to a valid

rules on equity cannot protect them.

principal obligation, his liability to the creditor or promisee of the principal is

Applicability of PNB v. CA

said to be direct, primary, and absolute; in other words, he is directly

and equally bound with the principal. The surety therefore becomes liable
for the debt or duty of another although he possesses no direct or personal
interest over the obligations nor does he receive any benefit therefrom. [14]

Petitioners allege that the CA committed grave error in failing to

apply PNB v. Court of Appeals, [16] which they insist to be analogous to the
present case. The facts in said case are as follows:

When petitioners signed as sureties, they expressly and unequivocally

agreed to the stipulation that the liability on this guaranty shall be solidary,

Private Respondent B.P. Mata & Co. Inc. (Mata), is a private corporation

direct and immediate and not contingent upon the pursuit by the creditor, its

engaged in providing goods and services to shipping companies. Since 1966,

successors, indorsees or assigns, of whatever remedies it or they have against

it has acted as a manning or crewing agent for several foreign firms, one of

the principal or the securities or liens it or they may possess.

which is Star Kist foods, Inc., USA (Star Kist). As part of their agreement,
Mata makes advances for the crews basic personal needs. Subsequently,
Mata sends monthly billings to its foreign principal Star Kist, which in turn
reimburses Mata by sending a telegraphic transfer through banks for credit
to the latters account.

508

Against this background, on February 21, 1975, Security Pacific National

financial statements annually or more frequently, by the quarter, to notice its

Bank (SEPAC) of Los Angeles which had an agency arrangement with

error only seven years later. As a universal bank with worldwide operations,

Philippine National Bank (PNB), transmitted a cable message to the

PNB cannot afford to commit such costly mistakes. Moreover, as between

International Department of PNB to pay the amount of US$14,000 to Mata by

parties where negligence is imputable to one and not to the other, the former

crediting the latters account with the Insular Bank of Asia and America

must perforce bear the consequences of its neglect. Hence, petitioner should

(IBAA), per order of Star Kist. Upon receipt of this cabled message on

bear the cost of its own negligence.

February 24, 1975, PNBs International Department noticed an error and

sent a service message to SEPAC Bank. The latter replied with the
instructions that the amount of US$14,000 should only be for US$1,400.

Petitioners maintain that the delay in PNB v. CA was even shorter than
that in the present case. If the bank in the aforesaid case was negligent in
not discovering the

overpayment, herein petitioners assert that the

On the basis of the cable message dated February 24, 1975, Cashiers

negligence was even more culpable in the present case. They add that, given

Check No. 269522 in the amount of US$1,400 (P9,772.96) representing

the standard practice of banks to flag delinquent accounts, the inaction for

reimbursement from Star Kist, was issued by the Star Kist for the account of

almost seven years of herein respondent bank was gross and inexcusable.

Mata on February 25, 1975 through the Insular Bank of Asia and America
(IBAA).

We are not persuaded. There are no absolute rules in the application of

equity, and each case must be examined in the light of its peculiar

However, fourteen days after or on March 11, 1975, PNB effected another

facts. In PNB v. CA, there was a mistake, an inexcusable one, on the part of

payment through Cashiers Check No. 270271 in the amount of US$14,000

petitioner bank in making an overpayment and repeating the same error

(P97,878.60) purporting to be another transmittal of reimbursement from

fourteen days later. If the bank could not immediately discover the mistake

Star Kist, private respondents foreign principal.

despite all its agents and employees, the beneficiary of the amount could not
be expected to do so. It is, thus, inequitable to allow PNB to collect the

Six years later, or more specifically, on May 13, 1981, PNB requested Mata

amount, after such a long delay, from the beneficiary who had assumed, after

for refund of US$14,000 (P97,878.60) after it discovered its error in effecting

all those years, that the amount really belonged to it.

the second payment.

In the present case, there is no showing of any mistake or any
On February 4, 1982, PNB filed a civil case for collection and refund of

inequity. The fact alone that seven years had lapsed before PNB filed the

US$14,000 against Mata arguing that based on a constructive trust under

collection suit does not mean that it discovered the obligation of the sureties

Article 1456 of the Civil Code, it has a right to recover the said amount it

only then. There was a Surety Arrangement, and the law says that the said

erroneously credited to respondent Mata.

[17]

contract can be enforced by action within ten years. The bank and the
sureties all knew that the action to enforce the contract did not have to be

On the ground of laches, the Court decided against the claim of PNB,
stating that:

filed immediately. In other words, the bank committed no mistake or

inequitable conduct that needed correction, and the sureties had no
misconception about their liabilities under the contract.

[i]t is amazing that it took petitioner almost seven years before it discovered
that it had erroneously paid private respondent. Petitioner would attribute
its mistake to the heavy volume of international transactions handled by the

Clearly, petitioners have no recourse in equity, because they failed to

show any inequity on the part of PNB.

Cable and Remittance Division of the International Department of

PNB. Such specious reasoning is not persuasive. It is unbelievable for a

Additional Issue: Liability of Conjugal Assets

bank, and a government bank at that, which regularly publishes its balanced

509

In their Memorandum, petitioners belatedly ask the Court to rule that,

MINING INC.,

in case of a court ruling adverse to them, the conjugal properties would not

Respondents.

be liable for the husbands debts that did not redound to the benefit of the

January 22, 2007

conjugal partnership.[18]
x--------------------------------------------------------------------------------- x
This issue cannot be allowed, for it is being raised for the first time only
in petitioners Memorandum. Issues, arguments, theories and causes of
action not raised below may no longer be posed on appeal. [19] Furthermore,
petitioners are asking the Court to issue a ruling on a hypothetical

JORGE GONZALES,

situation. In effect, they are asking the Court to render an advisory opinion,

G.R. No. 167994

Petitioner,

a task which is beyond its constitutional mandate.

WHEREFORE, the petition is hereby DENIED and the assailed Decision
of the Court of Appeals is AFFIRMED. Costs against petitioners.

versus

SO ORDERED.
HON. OSCAR B. PIMENTEL, in his
capacity as PRESIDING JUDGE of BR. 148
of the REGIONAL TRIAL COURT of
MAKATI CITY, and CLIMAX-ARIMCO
JORGE GONZALES and

G.R. No. 161957

MINING CORPORATION,

PANEL OF ARBITRATORS,
Petitioners,

Respondents.
Present:

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

PUNO, C. J.,
Chairperson,
-

versus

AUSTRIA-MARTINEZ,

R E S O L U T I ON

CALLEJO, SR.,
TINGA, and

TINGA, J.:

NAZARIO, JJ.
CLIMAX MINING LTD.,
CLIMAX-ARIMCO MINING CORP.,
and AUSTRALASIAN PHILIPPINES

Promulgated:

This is a consolidation of two petitions rooted in the same disputed

Addendum Contract entered into by the parties. In G.R. No. 161957, the
Court in its Decision of 28 February 2005[1] denied the Rule 45 petition of
petitioner Jorge Gonzales (Gonzales). It held that the DENR Panel of

510

Arbitrators had no jurisdiction over the complaint for the annulment of the
Addendum Contract on grounds of fraud and violation of the Constitution
and that the action should have been brought before the regular courts as it
involved judicial issues. Both parties filed separate motions for
reconsideration. Gonzales avers in his Motion for Reconsideration[2] that the
Court erred in holding that the DENR Panel of Arbitrators was bereft of
jurisdiction, reiterating its argument that the case involves a mining dispute
that properly falls within the ambit of the Panels authority. Gonzales adds
that the Court failed to rule on other issues he raised relating to the
sufficiency of his complaint before the DENR Panel of Arbitrators and the
timeliness of its filing.

On the other hand, G.R. No. 167994 is a Rule 65 petition filed on 6

May 2005, or while the motions for reconsideration in G.R. No.
161957[10] were pending, wherein Gonzales challenged the orders of the
Regional Trial Court (RTC) requiring him to proceed with the arbitration
proceedings as sought by Climax-Arimco Mining Corporation (ClimaxArimco).

Respondents Climax Mining Ltd., et al., (respondents) filed their

Motion
for
Partial
Reconsideration
and/or
Clarification [3] seeking
reconsideration of that part of the Decision holding that the case should not
be brought for arbitration under Republic Act (R.A.) No. 876, also known as
the Arbitration Law.[4] Respondents, citing American jurisprudence[5] and the
UNCITRAL Model Law,[6] argue that the arbitration clause in the Addendum
Contract should be treated as an agreement independent of the other terms
of the contract, and that a claimed rescission of the main contract does not
avoid the duty to arbitrate. Respondents add that Gonzaless argument
relating to the alleged invalidity of the Addendum Contract still has to be
proven and adjudicated on in a proper proceeding; that is, an action separate
from the motion to compel arbitration. Pending judgment in such separate
action, the Addendum Contract remains valid and binding and so does the
arbitration clause therein. Respondents add that the holding in the Decision
that the case should not be brought under the ambit of the Arbitration Law
appears to be premised on Gonzaless having impugn[ed] the existence or
validity of the addendum contract. If so, it supposedly conveys the idea that
Gonzaless unilateral repudiation of the contract or mere allegation of its
invalidity is all it takes to avoid arbitration. Hence, respondents submit that
the courts holding that the case should not be brought under the ambit of
the Arbitration Law be understood or clarified as operative only where the
challenge to the arbitration agreement has been sustained by final
judgment.

We first tackle the more recent case which is G.R. No. 167994. It
stemmed from the petition to compel arbitration filed by respondent ClimaxArimco before the RTC of Makati City on 31 March 2000 while the complaint
for the nullification of the Addendum Contract was pending before the DENR
Panel of Arbitrators. On 23 March 2000, Climax-Arimco had sent Gonzales a
Demand for Arbitration pursuant to Clause 19.1[11] of the Addendum
Contract and also in accordance with Sec. 5 of R.A. No. 876. The petition for
arbitration was subsequently filed and Climax-Arimco sought an order to
compel the parties to arbitrate pursuant to the said arbitration clause. The
case, docketed as Civil Case No. 00-444, was initially raffled to Br. 132 of the
RTC of Makati City, with Judge Herminio I. Benito as Presiding
Judge. Respondent Climax-Arimco filed on 5 April 2000 a motion to set the
application to compel arbitration for hearing.

Both parties were required to file their respective comments to the

other partys motion for reconsideration/clarification. [7] Respondents filed
their Comment on 17 August 2005,[8] while Gonzales filed his only on 25 July
2006.[9]

On 5 June 2006, the two cases, G.R. Nos. 161957 and 167994, were
consolidated upon the recommendation of the Assistant Division Clerk of
Court since the cases are rooted in the same Addendum Contract.

On 14 April 2000, Gonzales filed a motion to dismiss which he

however failed to set for hearing. On 15 May 2000, he filed an Answer with
Counterclaim,[12] questioning the validity of the Addendum Contract
containing the arbitration clause. Gonzales alleged that the Addendum
Contract containing the arbitration clause is void in view of Climax-Arimcos
acts of fraud, oppression and violation of the Constitution. Thus, the
arbitration clause, Clause 19.1, contained in the Addendum Contract is also
null and void ab initio and legally inexistent.

On 18 May 2000, the RTC issued an order declaring Gonzaless motion

to dismiss moot and academic in view of the filing of his Answer with
Counterclaim.[13]

511

On 31 May 2000, Gonzales asked the RTC to set the case for pre-trial.
This the RTC denied on 16 June 2000, holding that the petition for
arbitration is a special proceeding that is summary in nature. [15] However,
on 7 July 2000, the RTC granted Gonzaless motion for reconsideration of
the 16 June 2000 Order and set the case for pre-trial on 10 August 2000, it
being of the view that Gonzales had raised in his answer the issue of the
making of the arbitration agreement.[16]
[14]

Climax-Arimco then filed a motion to resolve its pending motion to

compel arbitration. The RTC denied the same in its 24 July 2000 order.

On 28 July 2000, Climax-Arimco filed a Motion to Inhibit Judge

Herminio I. Benito for not possessing the cold neutrality of an impartial
judge.[17] On 5 August 2000, Judge Benito issued an Order granting the
Motion to Inhibit and ordered the re-raffling of the petition for arbitration.
[18]
The case was raffled to the sala of public respondent Judge Oscar B.
Pimentel of Branch 148.

On 23 August 2000, Climax-Arimco filed a motion for reconsideration

of the 24 July 2000 Order.[19] Climax-Arimco argued that R.A. No. 876 does
not authorize a pre-trial or trial for a motion to compel arbitration but directs
the court to hear the motion summarily and resolve it within ten days from
hearing. Judge Pimentel granted the motion and directed the parties to
arbitration. On 13 February 2001, Judge Pimentel issued the first assailed
order requiring Gonzales to proceed with arbitration proceedings and
appointing retired CA Justice Jorge Coquia as sole arbitrator.[20]

Gonzales moved for reconsideration on 20 March 2001 but this was

denied in the Order dated 7 March 2005.[21]

Gonzales thus filed the Rule 65 petition assailing the Orders

dated 13 February 2001 and 7 March 2005 of Judge Pimentel. Gonzales
contends that public respondent Judge Pimentel acted with grave abuse of
discretion in immediately ordering the parties to proceed with arbitration
despite the proper, valid, and timely raised argument in his Answer with
Counterclaim that the Addendum Contract, containing the arbitration
clause, is null and void. Gonzales has also sought a temporary restraining
order to prevent the enforcement of the assailed orders directing the parties

to arbitrate, and to direct Judge Pimentel to hold a pre-trial conference and

the necessary hearings on the determination of the nullity of the Addendum
Contract.

In support of his argument, Gonzales invokes Sec. 6 of R.A. No. 876:

SEC. 6. Hearing by court.A party aggrieved by

the failure, neglect or refusal of another to perform under
an agreement in writing providing for arbitration may
petition the court for an order directing that such
arbitration proceed in the manner provided for in such
agreement. Five days notice in writing of the hearing of
such application shall be served either personally or by
registered mail upon the party in default. The court shall
hear the parties, and upon being satisfied that the making
of the agreement or such failure to comply therewith is not
in issue, shall make an order directing the parties to
proceed to arbitration in accordance with the terms of the
agreement. If the making of the agreement or default be in
issue the court shall proceed to summarily hear such
issue. If the finding be that no agreement in writing
providing for arbitration was made, or that there is no
default in the proceeding thereunder, the proceeding shall
be dismissed. If the finding be that a written provision for
arbitration was made and there is a default in proceeding
thereunder, an order shall be made summarily directing
the parties to proceed with the arbitration in accordance
with the terms thereof.

The court shall decide all motions, petitions or

applications filed under the provisions of this Act, within
ten (10) days after such motions, petitions, or applications
have been heard by it.

Gonzales also cites Sec. 24 of R.A. No. 9285 or the Alternative

Dispute Resolution Act of 2004:

512

SEC. 24. Referral to Arbitration.A court before

which an action is brought in a matter which is the subject
matter of an arbitration agreement shall, if at least one
party so requests not later than the pre-trial conference, or
upon the request of both parties thereafter, refer the
parties to arbitration unless it finds that the arbitration
agreement is null and void, inoperative or incapable of
being performed.

According to Gonzales, the above-quoted provisions of law outline the

procedure to be followed in petitions to compel arbitration, which the RTC did
not follow. Thus, referral of the parties to arbitration by Judge Pimentel
despite the timely and properly raised issue of nullity of the Addendum
Contract was misplaced and without legal basis. Both R.A. No. 876 and R.A.
No. 9285 mandate that any issue as to the nullity, inoperativeness, or
incapability of performance of the arbitration clause/agreement raised by one
of the parties to the alleged arbitration agreement must be determined by the
court prior to referring them to arbitration. They require that the trial court
first determine or resolve the issue of nullity, and there is no other venue for
this determination other than a pre-trial and hearing on the issue by the
trial court which has jurisdiction over the case. Gonzales adds that the
assailed 13 February 2001 Order also violated his right to procedural due
process when the trial court erroneously ruled on the existence of the
arbitration agreement despite the absence of a hearing for the presentation of
evidence on the nullity of the Addendum Contract.

Respondent Climax-Arimco, on the other hand, assails the mode of

review availed of by Gonzales. Climax-Arimco cites Sec. 29 of R.A. No. 876:

SEC. 29. Appeals.An appeal may be taken from

an order made in a proceeding under this Act, or from a
judgment entered upon an award through certiorari
proceedings, but such appeals shall be limited to questions
of law. The proceedings upon such an appeal, including
the judgment thereon shall be governed by the Rules of
Court in so far as they are applicable.

Climax-Arimco mentions that the special civil action for certiorari

employed by Gonzales is available only where there is no appeal or any plain,
speedy, and adequate remedy in the ordinary course of law against the
challenged orders or acts. Climax-Arimco then points out that R.A. No. 876
provides for an appeal from such orders, which, under the Rules of Court,
must be filed within 15 days from notice of the final order or resolution
appealed from or of the denial of the motion for reconsideration filed in due
time. Gonzales has not denied that the relevant 15-day period for an appeal
had elapsed long before he filed this petition for certiorari. He cannot use the
special civil action of certiorari as a remedy for a lost appeal.

Climax-Arimco adds that an application to compel arbitration under

Sec. 6 of R.A. No. 876 confers on the trial court only a limited and special
jurisdiction, i.e., a jurisdiction solely to determine (a) whether or not the
parties have a written contract to arbitrate, and (b) if the defendant has failed
to comply with that contract. Respondent cites La Naval Drug Corporation v.
Court of Appeals,[22] which holds that in a proceeding to compel arbitration,
[t]he arbitration law explicitly confines the courts authority only to pass
upon the issue of whether there is or there is no agreement in writing
providing for arbitration, and [i]n the affirmative, the statute ordains that
the court shall issue an order summarily directing the parties to proceed
with the arbitration in accordance with the terms thereof. [23] Climax-Arimco
argues that R.A. No. 876 gives no room for any other issue to be dealt with in
such a proceeding, and that the court presented with an application to
compel arbitration may order arbitration or dismiss the same, depending
solely on its finding as to those two limited issues. If either of these matters
is disputed, the court is required to conduct a summary hearing on
it. Gonzaless proposition contradicts both the trial courts limited
jurisdiction and the summary nature of the proceeding itself.

Climax-Arimco further notes that Gonzaless attack on or repudiation

of the Addendum Contract also is not a ground to deny effect to the
arbitration clause in the Contract. The arbitration agreement is separate and
severable from the contract evidencing the parties commercial or economic
transaction, it stresses. Hence, the alleged defect or failure of the main
contract is not a ground to deny enforcement of the parties arbitration
agreement. Even the party who has repudiated the main contract is not
prevented from enforcing its arbitration provision. R.A. No. 876 itself treats
the arbitration clause or agreement as a contract separate from the
commercial, economic or other transaction to be arbitrated. The statute, in
particular paragraph 1 of Sec. 2 thereof, considers the arbitration stipulation
an independent contract in its own right whose enforcement may be

513

prevented only on grounds which legally make the arbitration agreement

itself revocable, thus:

SEC. 2. Persons and matters subject to arbitration.

Two or more persons or parties may submit to the
arbitration of one or more arbitrators any controversy
existing, between them at the time of the submission and
which may be the subject of an action, or the parties to any
contract may in such contract agree to settle by arbitration
a controversy thereafter arising between them. Such
submission or contract shall be valid, enforceable and
irrevocable, save upon such grounds as exist at law for the
revocation of any contract.

is brought in a matter which is subject of an arbitration agreement refers the

parties to arbitration, the arbitral proceedings may proceed even while the
action is pending.

Thus, the main issue raised in the Petition for Certiorari is whether it
was proper for the RTC, in the proceeding to compel arbitration under R.A.
No. 876, to order the parties to arbitrate even though the defendant therein
has raised the twin issues of validity and nullity of the Addendum Contract
and, consequently, of the arbitration clause therein as well. The resolution of
both Climax-Arimcos Motion for Partial Reconsideration and/or Clarification
in G.R. No. 161957 and Gonzaless Petition for Certiorari in G.R. No. 167994
essentially turns on whether the question of validity of the Addendum
Contract bears upon the applicability or enforceability of the arbitration
clause contained therein. The two pending matters shall thus be jointly
resolved.

xxxx

The grounds Gonzales invokes for the revocation of the Addendum

Contractfraud and oppression in the execution thereofare also not
grounds for the revocation of the arbitration clause in the Contract, ClimaxArimco notes. Such grounds may only be raised by way of defense in the
arbitration itself and cannot be used to frustrate or delay the conduct of
arbitration proceedings. Instead, these should be raised in a separate action
for rescission, it continues.

Climax-Arimco emphasizes that the summary proceeding to compel

arbitration under Sec. 6 of R.A. No. 876 should not be confused with the
procedure in Sec. 24 of R.A. No. 9285. Sec. 6 of R.A. No. 876 refers to an
application to compel arbitration where the courts authority is limited to
resolving the issue of whether there is or there is no agreement in writing
providing for arbitration, while Sec. 24 of R.A. No. 9285 refers to an ordinary
action which covers a matter that appears to be arbitrable or subject to
arbitration under the arbitration agreement. In the latter case, the statute is
clear that the court, instead of trying the case, may, on request of either or
both parties, refer the parties to arbitration, unless it finds that the
arbitration agreement is null and void, inoperative or incapable of being
performed. Arbitration may even be ordered in the same suit brought upon a
matter covered by an arbitration agreement even without waiting for the
outcome of the issue of the validity of the arbitration agreement. Art. 8 of
the UNCITRAL Model Law [24] states that where a court before which an action

We address the Rule 65 petition in G.R. No. 167994 first from the
remedial law perspective. It deserves to be dismissed on procedural grounds,
as it was filed in lieu of appeal which is the prescribed remedy and at that far
beyond the reglementary period. It is elementary in remedial law that the
use of an erroneous mode of appeal is cause for dismissal of the petition for
certiorari and it has been repeatedly stressed that a petition for certiorari is
not a substitute for a lost appeal. As its nature, a petition for certiorari lies
only where there is no appeal, and no plain, speedy and adequate remedy
in the ordinary course of law.[25] The Arbitration Law specifically provides for
an appeal by certiorari, i.e., a petition for review under certiorari under Rule
45 of the Rules of Court that raises pure questions of law. [26] There is no
merit to Gonzaless argument that the use of the permissive term may in
Sec. 29, R.A. No. 876 in the filing of appeals does not prohibit nor discount
the filing of a petition for certiorari under Rule 65. [27] Proper interpretation of
the aforesaid provision of law shows that the term may refers only to the
filing of an appeal, not to the mode of review to be employed. Indeed, the use
of may merely reiterates the principle that the right to appeal is not part of
due process of law but is a mere statutory privilege to be exercised only in
the manner and in accordance with law.

Neither can BF Corporation v. Court of Appeals[28] cited by Gonzales

support his theory. Gonzales argues that said case recognized and allowed a
petition for certiorari under Rule 65 appealing the order of the Regional Trial
Court disregarding the arbitration agreement as an acceptable
remedy.[29] The BF Corporation case had its origins in a complaint for
collection of sum of money filed by therein petitioner BF Corporation against

514

Shangri-la Properties, Inc. (SPI). SPI moved to suspend the proceedings

alleging that the construction agreement or the Articles of Agreement
between the parties contained a clause requiring prior resort to arbitration
before judicial intervention. The trial court found that an arbitration clause
was incorporated in the Conditions of Contract appended to and deemed an
integral part of the Articles of Agreement. Still, the trial court denied the
motion to suspend proceedings upon a finding that the Conditions of
Contract were not duly executed and signed by the parties. The trial court
also found that SPI had failed to file any written notice of demand for
arbitration within the period specified in the arbitration clause. The trial
court denied SPI's motion for reconsideration and ordered it to file its
responsive pleading. Instead of filing an answer, SPI filed a petition for
certiorari under Rule 65, which the Court of Appeals, favorably acted
upon. In a petition for review before this Court, BF Corporation alleged,
among others, that the Court of Appeals should have dismissed the petition
for certiorari since the order of the trial court denying the motion to suspend
proceedings is a resolution of an incident on the merits and upon the
continuation of the proceedings, the trial court would eventually render a
decision on the merits, which decision could then be elevated to a higher
court in an ordinary appeal.[30]

The Court did not uphold BF Corporations argument. The issue

raised before the Court was whether SPI had taken the proper mode of
appeal before the Court of Appeals. The question before the Court of Appeals
was whether the trial court had prematurely assumed jurisdiction over the
controversy. The question of jurisdiction in turn depended on the question of
existence of the arbitration clause which is one of fact. While on its face the
question of existence of the arbitration clause is a question of fact that is not
proper in a petition for certiorari, yet since the determination of the question
obliged the Court of Appeals as it did to interpret the contract documents in
accordance with R.A. No. 876 and existing jurisprudence, the question is
likewise a question of law which may be properly taken cognizance of in a
petition for certiorari under Rule 65, so the Court held. [31]

The situation in B.F. Corporation is not availing in the present

petition. The disquisition in B.F. Corporation led to the conclusion that in
order that the question of jurisdiction may be resolved, the appellate court
had to deal first with a question of law which could be addressed in a
certiorari proceeding. In the present case, Gonzaless petition raises a
question of law, but not a question of jurisdiction. Judge Pimentel acted in
accordance with the procedure prescribed in R.A. No. 876 when he ordered
Gonzales to proceed with arbitration and appointed a sole arbitrator after
making the determination that there was indeed an arbitration agreement. It

has been held that as long as a court acts within its jurisdiction and does
not gravely abuse its discretion in the exercise thereof, any supposed error
committed by it will amount to nothing more than an error of judgment
reviewable by a timely appeal and not assailable by a special civil action of
certiorari.[32] Even if we overlook the employment of the wrong remedy in the
broader interests of justice, the petition would nevertheless be dismissed for
failure of Gonzalez to show grave abuse of discretion.

Arbitration, as an alternative mode of settling disputes, has long been

recognized and accepted in our jurisdiction. The Civil Code is explicit on the
matter.[33] R.A. No. 876 also expressly authorizes arbitration of domestic
disputes. Foreign arbitration, as a system of settling commercial disputes of
an international character, was likewise recognized when the Philippines
adhered to the United Nations "Convention on the Recognition and the
Enforcement of Foreign Arbitral Awards of 1958," under the 10 May 1965
Resolution No. 71 of the Philippine Senate, giving reciprocal recognition and
allowing enforcement of international arbitration agreements between parties
of different nationalities within a contracting state. [34] The enactment of R.A.
No. 9285 on 2 April 2004 further institutionalized the use of alternative
dispute resolution systems, including arbitration, in the settlement of
disputes.

Disputes do not go to arbitration unless and until the parties have

agreed to abide by the arbitrators decision. Necessarily, a contract is
required for arbitration to take place and to be binding. R.A. No. 876
recognizes the contractual nature of the arbitration agreement, thus:

SEC. 2. Persons and matters subject to arbitration.

Two or more persons or parties may submit to the
arbitration of one or more arbitrators any controversy
existing, between them at the time of the submission and
which may be the subject of an action, or the parties to any
contract may in such contract agree to settle by
arbitration a controversy thereafter arising between
them. Such submission or contract shall be valid,
enforceable and irrevocable, save upon such grounds as
exist at law for the revocation of any contract.

Such submission or contract may include question

arising out of valuations, appraisals or other controversies

515

which may be collateral, incidental, precedent

subsequent to any issue between the parties.

or

A controversy cannot be arbitrated where one of the

parties to the controversy is an infant, or a person
judicially declared to be incompetent, unless the
appropriate court having jurisdiction approve a petition for
permission to submit such controversy to arbitration made
by the general guardian or guardian ad litem of the infant
or of the incompetent. [Emphasis added.]

Thus, we held in Manila Electric Co. v. Pasay Transportation Co.

that a submission to arbitration is a contract. A clause in a contract
providing that all matters in dispute between the parties shall be referred to
arbitration is a contract,[36] and in Del Monte Corporation-USA v. Court of
Appeals[37] that [t]he provision to submit to arbitration any dispute arising
therefrom and the relationship of the parties is part of that contract and is
itself a contract. As a rule, contracts are respected as the law between the
contracting parties and produce effect as between them, their assigns and
heirs.[38]

issue the court shall proceed to summarily hear such

issue. If the finding be that no agreement in writing
providing for arbitration was made, or that there is no
default in the proceeding thereunder, the proceeding shall
be dismissed. If the finding be that a written provision
for arbitration was made and there is a default in
proceeding thereunder, an order shall be made summarily
directing the parties to proceed with the arbitration in
accordance with the terms thereof.

The court shall decide all motions, petitions or

applications filed under the provisions of this Act, within
ten days after such motions, petitions, or applications have
been heard by it. [Emphasis added.]

[35]

The special proceeding under Sec. 6 of R.A. No. 876 recognizes the
contractual nature of arbitration clauses or agreements. It provides:

SEC. 6. Hearing by court.A party aggrieved by

the failure, neglect or refusal of another to perform under
an agreement in writing providing for arbitration may
petition the court for an order directing that such
arbitration proceed in the manner provided for in such
agreement. Five days notice in writing of the hearing of
such application shall be served either personally or by
registered mail upon the party in default. The court shall
hear the parties, and upon being satisfied that the making
of the agreement or such failure to comply therewith is
not in issue, shall make an order directing the parties to
proceed to arbitration in accordance with the terms of the
agreement. If the making of the agreement or default be in

This special proceeding is the procedural mechanism for the

enforcement of the contract to arbitrate. The jurisdiction of the courts in
relation to Sec. 6 of R.A. No. 876 as well as the nature of the proceedings
therein was expounded upon in La Naval Drug Corporation v. Court of
Appeals.[39] There it was held that R.A. No. 876 explicitly confines the court's
authority only to the determination of whether or not there is an agreement
in writing providing for arbitration. In the affirmative, the statute ordains
that the court shall issue an order "summarily directing the parties to
proceed with the arbitration in accordance with the terms thereof." If the
court, upon the other hand, finds that no such agreement exists, "the
proceeding shall be dismissed." [40] The cited case also stressed that the
proceedings are summary in nature.[41] The same thrust was made in the
earlier case of Mindanao Portland Cement Corp. v. McDonough Construction
Co. of Florida[42] which held, thus:

Since there obtains herein a written provision for

arbitration as well as failure on respondent's part to
comply therewith, the court a quo rightly ordered the
parties to proceed to arbitration in accordance with the
terms of their agreement (Sec. 6, Republic Act 876).
Respondent's arguments touching upon the merits of the
dispute are improperly raised herein. They should be
addressed to the arbitrators. This proceeding is merely a

516

summary remedy to enforce the agreement to arbitrate.

The duty of the court in this case is not to resolve the
merits of the parties' claims but only to determine if they
should proceed to arbitration or not. x x x x[43]

Implicit in the summary nature of the judicial proceedings is the

separable or independent character of the arbitration clause or
agreement. This was highlighted in the cases of Manila Electric Co.
v. Pasay Trans. Co.[44] and Del Monte Corporation-USA v. Court of Appeals.[45]

The doctrine of separability, or severability as other writers call

it, enunciates that an arbitration agreement is independent of the main
contract. The arbitration agreement is to be treated as a separate agreement
and the arbitration agreement does not automatically terminate when the
contract of which it is part comes to an end.[46]

The separability of the arbitration agreement is especially significant

to the determination of whether the invalidity of the main contract also
nullifies the arbitration clause. Indeed, the doctrine denotes that the
invalidity of the main contract, also referred to as the container contract,
does not affect the validity of the arbitration agreement. Irrespective of the
fact that the main contract is invalid, the arbitration clause/agreement still
remains valid and enforceable.[47]

The separability of the arbitration clause is confirmed in Art. 16(1) of

the UNCITRAL Model Law and Art. 21(2) of the UNCITRAL Arbitration Rules.

contract when in fact it was not and had even intended to file for bankruptcy
after executing the consultancy agreement. Thus, F & C served Prima Paint
with a notice of intention to arbitrate. Prima Paint sued in court for
rescission of the consulting agreement on the ground of fraudulent
misrepresentation and asked for the issuance of an order enjoining F & C
from proceeding with arbitration. F & C moved to stay the suit pending
arbitration. The trial court granted F & Cs motion, and the U.S. Supreme
Court affirmed.

The U.S. Supreme Court did not address Prima Paints argument
that it had been fraudulently induced by F & C to sign the consulting
agreement and held that no court should address this argument. Relying on
Sec. 4 of the Federal Arbitration Actwhich provides that if a party [claims
to be] aggrieved by the alleged failure x x x of another to arbitrate x x x, [t]he
court shall hear the parties, and upon being satisfied that the making of the
agreement for arbitration or the failure to comply therewith is not in issue,
the
court
shall
make
an
order
directing
the
parties
to proceed to arbitration
x x x. If the making of the arbitration
agreement or the failure, neglect, or refusal to perform the same be in issue,
the court shall proceed summarily to the trial thereofthe U.S. High Court
held that the court should not order the parties to arbitrate if the making of
the arbitration agreement is in issue. The parties should be ordered to
arbitration if, and only if, they have contracted to submit to
arbitration. Prima Paint was not entitled to trial on the question of whether
an arbitration agreement was made because its allegations of fraudulent
inducement were not directed to the arbitration clause itself, but only to the
consulting agreement which contained the arbitration agreement. [50] Prima
Paint held that arbitration clauses are separable from the contracts in
which they are embedded, and that where no claim is made that fraud was
directed to the arbitration clause itself, a broad arbitration clause will be held
to encompass arbitration of the claim that the contract itself was induced by
fraud.[51]

[48]

The separability doctrine was dwelt upon at length in the U.S. case
of Prima Paint Corp. v. Flood & Conklin Manufacturing Co. [49] In that case,
Prima Paint and Flood and Conklin (F & C) entered into a consulting
agreement whereby F & C undertook to act as consultant to Prima Paint for
six years, sold to Prima Paint a list of its customers and promised not to sell
paint to these customers during the same period. The consulting agreement
contained an arbitration clause. Prima Paint did not make payments as
provided in the consulting agreement, contending that F & C had
fraudulently misrepresented that it was solvent and able for perform its

There is reason, therefore, to rule against Gonzales when he alleges

that Judge Pimentel acted with grave abuse of discretion in ordering the
parties to proceed with arbitration. Gonzaless argument that the Addendum
Contract is null and void and, therefore the arbitration clause therein is void
as well, is not tenable. First, the proceeding in a petition for arbitration
under R.A. No. 876 is limited only to the resolution of the question of
whether the arbitration agreement exists. Second, the separability of the
arbitration clause from the Addendum Contract means that validity or
invalidity of the Addendum Contract will not affect the enforceability of the

517

agreement to arbitrate. Thus, Gonzaless petition for certiorari should be

dismissed.

This brings us back to G.R. No. 161957. The adjudication of the

petition in G.R. No. 167994 effectively modifies part of the Decision dated 28
February 2005 in G.R. No. 161957. Hence, we now hold that the validity of
the contract containing the agreement to submit to arbitration does not
affect the applicability of the arbitration clause itself. A contrary ruling
would suggest that a partys mere repudiation of the main contract is
sufficient to avoid arbitration. That is exactly the situation that the
separability doctrine, as well as jurisprudence applying it, seeks to avoid. We
add that when it was declared in G.R. No. 161957 that the case should not
be brought for arbitration, it should be clarified that the case referred to is
the case actually filed by Gonzales before the DENR Panel of Arbitrators,
which was for the nullification of the main contract on the ground of fraud,
as it had already been determined that the case should have been brought
before the regular courts involving as it did judicial issues.

The Motion for Reconsideration of Gonzales in G.R. No. 161957

should also be denied. In the motion, Gonzales raises the same question of
jurisdiction, more particularly that the complaint for nullification of the
Addendum Contract pertained to the DENR Panel of Arbitrators, not the
regular courts. He insists that the subject of his complaint is a mining
dispute since it involves a dispute concerning rights to mining areas, the
Financial and Technical Assistance Agreement (FTAA) between the parties,
and it also involves claimowners. He adds that the Court failed to rule on
other issues he raised, such as whether he had ceded his claims over the
mineral deposits located within the Addendum Area of Influence; whether the
complaint filed before the DENR Panel of Arbitrators alleged ultimate facts of
fraud; and whether the action to declare the nullity of the Addendum
Contract on the ground of fraud has prescribed.

These are the same issues that Gonzales raised in his Rule 45
petition in G.R. No. 161957 which were resolved against him in the Decision
of 28 February 2005. Gonzales does not raise any new argument that would
sway the Court even a bit to alter its holding that the complaint filed before
the DENR Panel of Arbitrators involves judicial issues which should properly

be resolved by the regular courts. He alleged fraud or misrepresentation in

the execution of the Addendum Contract which is a ground for the
annulment of a voidable contract. Clearly, such allegations entail legal
questions which are within the jurisdiction of the courts.

The question of whether Gonzales had ceded his claims over the
mineral deposits in the Addendum Area of Influence is a factual question
which is not proper for determination before this Court. At all events,
moreover, the question is irrelevant to the issue of jurisdiction of the DENR
Panel of Arbitrators. It should be pointed out that the DENR Panel of
Arbitrators made a factual finding in its Order dated 18 October 2001, which
it reiterated in its Order dated 25 June 2002, that Gonzales had, through
the various agreements, assigned his interest over the mineral claims all in
favor of [Climax-Arimco] as well as that without the complainant [Gonzales]
assigning his interest over the mineral claims in favor of [Climax-Arimco],
there would be no FTAA to speak of.[52] This finding was affirmed by the
Court of Appeals in its Decision dated 30 July 2003 resolving the petition for
certiorari filed by Climax-Arimco in regard to the 18 October 2001 Order of
the DENR Panel.[53]

The Court of Appeals likewise found that Gonzaless complaint

alleged fraud but did not provide any particulars to substantiate it. The
complaint repeatedly mentioned fraud, oppression, violation of the
Constitution and similar conclusions but nowhere did it give any ultimate
facts or particulars relative to the allegations.[54]

Sec. 5, Rule 8 of the Rules of Court specifically provides that in all

averments of fraud, the circumstances constituting fraud must be stated
with particularity. This is to enable the opposing party to controvert the
particular facts allegedly constituting the same. Perusal of the complaint
indeed shows that it failed to state with particularity the ultimate facts and
circumstances constituting the alleged fraud. It does not state what
particulars about Climax-Arimcos financial or technical capability were
misrepresented, or how the misrepresentation was done. Incorporated in the
body of the complaint are verbatim reproductions of the contracts,
correspondence and government issuances that reportedly explain the
allegations of fraud and misrepresentation, but these are, at best, evidentiary
matters that should not be included in the pleading.

As to the issue of prescription, Gonzaless claims of fraud and

misrepresentation attending the execution of the Addendum Contract are

518

grounds for the annulment of a voidable contract under the Civil Code.
[55]
Under Art. 1391 of the Code, an action for annulment shall be brought
within four years, in the case of fraud, beginning from the time of the
discovery of the same. However, the time of the discovery of the alleged fraud
is not clear from the allegations of Gonzaless complaint. That being the
situation coupled with the fact that this Court is not a trier of facts, any
ruling on the issue of prescription would be uncalled for or even
unnecessary.

the Motion for Partial Reconsideration and/or Clarification filed by Climax

Mining Ltd., et al. in G.R. No. 161957.

The Motion for Reconsideration filed by Jorge Gonzales in G.R. No.

161957 is DENIED WITH FINALITY.

SO ORDERED.

WHEREFORE, the Petition for Certiorari in G.R. No. 167994 is

DISMISSED. Such dismissal effectively renders superfluous formal action on

519