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Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 167874

January 15, 2010

SPOUSES CARMEN S. TONGSON and JOSE C. TONGSON substituted by his


children namely: JOSE TONGSON, JR., RAUL TONGSON, TITA TONGSON,
GLORIA TONGSON ALMA TONGSON, Petitioners,
vs.
EMERGENCY PAWNSHOP BULA, INC. and DANILO R. NAPALA, Respondents.
DECISION
CARPIO, J.:
The Case
Before the Court is a petition for review1 of the 31 August 2004 Decision2 and 10 March
2005 Resolution3 of the Court of Appeals in CA-G.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).
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 Sale5 indicating the consideration as only P400,000. 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
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
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
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.
The Ruling of the Trial Court
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:

1) reconvey the property subject matter of the case to the plaintiffs;


2) pay plaintiffs:
a) P100,000 as moral damages;
b) P50,000 as exemplary damages;
c) P20,000 as attorneys fees; and
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
P8.00 summons fee
P12.00 SDF
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.
The dispositive portion of the 31 August 2004 Decision of the Court of Appeals reads:
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
The Spouses Tongson filed a partial motion for reconsideration which was denied by the
Court of Appeals in its Resolution dated 10 March 2005.
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.
On the existence of fraud
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
In the present case, there is no question that the subject matter of the sale is the 364square 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.
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 of P2.8 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.
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 Is it not a fact that you were the one who paid for the capital gains tax?
A No, I only advanced the money.
Q To whom?
A To BIR.
COURT:
Q 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:
Q 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:
Proceed.
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.
Q 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.
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:
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)
Accordingly, we affirm the Court of Appeals awards of moral and exemplary damages,
which we find equitable under the circumstances in this case.
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.
Let a copy of this Decision be forwarded to the Bureau of Internal Revenue for its
appropriate action.
SO ORDERED.
ANTONIO T. CARPIO
Associate Justice
WE CONCUR:
ARTURO D. BRION
Associate Justice
MARIANO C. DEL CASTILLO
Associate Justice

ROBERTO A. ABAD
Associate Justice

JOSE P. PEREZ
Associate Justice
AT T E S TAT I O N
I attest that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.
ANTONIO T. CARPIO
Associate Justice
Chairperson

C E R T I F I C AT I O N
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons
Attestation, I certify that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the Courts
Division.
REYNATO S. PUNO
Chief Justice

Footnotes
1

Under Rule 45 of the Rules of Court.

Rollo, pp. 33-63. Penned by Associate Justice Perlita J. Tria Tirona with
Associate Justices Ruben T. Reyes and Jose C. Reyes, Jr., concurring.
3

Id. at 73-74.

Exhibit "B."

Exhibit "C."

Records, pp. 4-5; TSN, 29 April 1994, pp. 10-11.

TSN, 27 January 1995, pp. 5-6. Atty. Petronilo Raganas testified on this matter,
thus:
ATTY. ALABASTRO:
Q After this Exhibit "B" was prepared, a new Memorandum Agreement
was prepared to replace this Memorandum of Agreement marked as
Exhibit "B"?
A That other Memorandum Agreement was made to replace that
Memorandum Agreement in the amount of Three Million pesos to jibe with
the Deed of Sale.
Q So the first Memorandum Agreement which was prepared and replaced
by another Memorandum Agreement with the consideration of Four
Hundred Thousand pesos was this Memorandum Agreement wherein the
consideration was Three Million Pesos?
A Yes, sir.

Q And of course, this was notarized by you, this Exhibit "B"?


A Actually, this was notarized but this was replaced by another
Memorandum of Agreement using the same document.
Q You mean using the same document number, page number?
A Yes, to jibe.
Q Im showing to you these documents consisting of 2 pages marked as
Exhibit "J" and "J-1" with the letter head of Raganas Law Office. That is in
you own handwriting?
A Yes, sir.
Q So, the true consideration of the transaction involving the property of the
spouses is Three Million and not Four Hundred Thousand?
A In principle, they agreed on that amount.
8

Exhibit "EE-1."

Exhibit "D."

10

Exhibit "F."

11

Docketed as Civil Case No. 21,858-93.

12

Records, p. 27.

13

Id. at 110.

14

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.
15

Rollo, p. 148. Penned by Judge Romeo D. Marasigan.

16

Id. at 61-62.

17

Article 1305 of the Civil Code.

18

Article 1318 of the Civil Code in relation to Article 1458 of the same Code.
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.
ART. 1458. By the contract of sale one of the contracting 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.
19

Woodhouse v. Halili, 93 Phil. 526, 537 (1953).

20

Article 1344 of the Civil Code provides: "In order that fraud may make a
contract voidable, it should be serious and should not have been employed by
both contracting parties.
Incidental fraud only obliges the person employing it to pay damages."
21

Archipelago Management and Marketing Corp. v. CA, 359 Phil. 363 (1998).

22

Sanchez v. Mapalad, G.R. No. 148516, 27 December 2007, 541 SCRA 397.

23

Paragas v. Heirs of Balacano, G.R. No. 168220, 31 August 2005, 468 SCRA
717.
24

See Bartolo v. Sandiganbayan, G.R. No. 172173, 16 April 2009.

25

483 Phil. 735, 750-751 (2004), citing Bugatti v. Court of Appeals, 397 Phil. 376
(2000).
26

Records, p. 8.

27

Luzon Brokerage v. Maritime Building Co., Inc., 150 Phil. 114, 125 (1972).

28

Id.
(D) 29Capital Gains from Sale of Real Property.
(1) In General. - The provisions of Section 39(B) notwithstanding, a final
tax of six percent (6%) based on the gross selling price or current fair
market value as determined in accordance with Section 6(E) of this Code,
whichever is higher, is hereby imposed upon capital gains presumed to
have been realized from the sale, exchange, or other disposition of real
property located in the Philippines, classified as capital assets, including
pacto de retro sales and other forms of conditional sales, by individuals,
including estates and trusts: Provided, That the tax liability, if any, on gains

from sales or other dispositions of real property to the government or any


of its political subdivisions or agencies or to government-owned or
-controlled corporations shall be determined either under Section 24(A) or
under this Subsection, at the option of the taxpayer; x x x
30

TSN, 20 July 1995, p. 61.

31

TSN, 29 April 1994, pp. 10-11.

Republic of the Philippines


SUPREME COURT
Manila
SECOND DIVISION
G.R. NO. 170530

July 5, 2010

SARGASSO CONSTRUCTION & DEVELOPMENT CORPORATION/PICK & SHOVEL,


INC.,/ATLANTIC ERECTORS, INC. (JOINT VENTURE), Petitioner,

vs.
PHILIPPINE PORTS AUTHORITY, Respondent.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 which seeks to annul and set
aside the August 22, 2005 Decision1 of the Court of Appeals (CA) in CA-G.R. CV No.
63180 and its November 14, 2005 Resolution 2 denying petitioners motion for the
reconsideration thereof. The questioned CA decision reversed the June 8, 1998
Decision3 of the Regional Trial Court of Manila, Branch 14, in Civil Case No. 97-83916,
which granted petitioners action for specific performance.
The factual and procedural antecedents have been succinctly recited in the subject
Court of Appeals decision in this wise: 4
Plaintiff Sargasso Construction and Development Corporation, Pick and Shovel, Inc.
and Atlantic Erectors, Inc., a joint venture, was awarded the construction of Pier 2 and
the rock causeway (R.C. Pier 2) for the port of San Fernando, La Union, after a public
bidding conducted by the defendant PPA. Implementation of the project commenced on
August 14, 1990. The port construction was in pursuance of the development of the
Northwest Luzon Growth Quadrangle. Adjacent to Pier 2 is an area of P4,280 square
meters intended for the reclamation project as part of the overall port development plan.
In a letter dated October 1, 1992 of Mr. Melecio J. Go, Executive Director of the
consortium, plaintiff offered to undertake the reclamation between the Timber Pier and
Pier 2 of the Port of San Fernando, La Union, as an extra work to its existing
construction of R.C. Pier 2 and Rock Causeway for a price of P36,294,857.03.
Defendant replied thru its Assistant General Manager Teofilo H. Landicho who sent the
following letter dated December 18, 1992:
"This is to acknowledge receipt of your letter dated 01 October 1992 offering to
undertake the reclamation between the Timber Pier and Pier 2, at the Port of San
Fernando, La Union as an extra work to your existing contract.
"Your proposal to undertake the project at a total cost of THIRTY SIX MILLION TWO
HUNDRED NINETY FOUR THOUSAND EIGHT HUNDRED FIFTY SEVEN AND 03/100
PESOS (P36,294,857.03) is not acceptable to PPA. If you can reduce your offer to
THIRTY MILLION SEVEN HUNDRED NINETY FOUR THOUSAND TWO HUNDRED
THIRTY AND 89/100 (P30,794,230.89) we may consider favorably award of the
project in your favor, subject to the approval of higher authority.
Please signify your agreement to the reduced amount of P30,794,230.89 by signing in
the space provided below. (emphasis in the original)

On August 26, 1993, a Notice of Award signed by PPA General Manager Rogelio Dayan
was sent to plaintiff for the phase I Reclamation Contract in the amount of
P30,794,230.89 and instructing it to "enter into and execute the contract agreement with
this Office" and to furnish the documents representing performance security and credit
line. Defendant likewise stated [and] made it a condition that "fendering of Pier No. 2
Port of San Fernando, and the Port of Tabaco is completed before the approval of the
contract for the reclamation project." Installation of the rubber dock fenders in the said
ports was accomplished in the year 1994. PPA Management further set a condition
[that] "the acceptance by the contractor that mobilization/demobilization cost shall not
be included in the contract and that escalation shall be reckoned upon approval of the
Supplemental Agreement." The award of the negotiated contract as additional or
supplemental project in favor of plaintiff was intended "to save on the
mobilization/demobilization costs and some items as provided for in the original
contract." Hence, then General Manager Carlos L. Agustin presented for consideration
by the PPA Board of Directors the contract proposal for the reclamation project.
At its meeting held on September 9, 1994, the Board decided not to approve the
contract proposal, as reflected in the following excerpt of the minutes taken during said
board meeting:
"After due deliberation, the Board advised Management to bid the project since there is
no strong legal basis for Management to award the supplemental contract through
negotiation. The Board noted that the Pier 2 Project was basically for the construction of
a pier while the supplemental agreement refers to reclamation. Thus there is no basis to
compare the terms and conditions of the reclamation project with the original contract
(Pier 2 Project) of Sargasso."5
It appears that PPA did not formally advise the plaintiff of the Boards action on their
contract proposal. As plaintiff learned that the Board was not inclined to favor its
Supplemental Agreement, Mr. Go wrote General Manager Agustin requesting that the
same be presented again to the Board meeting for approval. However, no reply was
received by plaintiff from the defendant.
On June 30, 1997, plaintiff filed a complaint for specific performance and damages
before the Regional Trial Court of Manila alleging that defendant PPAs unjustified
refusal to comply with its undertaking, unnecessarily leading to the delay in the
implementation of the award under the August 26, 1993 Notice of Award, has put on
hold plaintiffs men and resources earmarked for the project, aside from effectively tying
its hands in undertaking other projects for fear that plaintiffs incapacity to undertake
work might be spread thinly and it might not be able to function efficiently if the PPA
project and other projects should require simultaneous attention. Plaintiff averred that it
sought reconsideration of the August 9, 1996 letter of PPA informing it that it did not
qualify to bid for the proposed extension of RC Pier No. 2, Port of San Fernando, La
Union for not having IAC Registration and Classification and not complying with
equipment requirement. In its letter dated September 19, 1996, plaintiff pointed out that
the disqualification was clearly unjust and totally without basis considering that

individual contractors of the joint venture have undertaken separately bigger projects,
and have been such individual contractors for almost 16 years. It thus prayed that
judgment be rendered by the court directing the defendant (a) to comply with its
undertaking under the Notice of Award dated August 26, 1993; and (b) to pay plaintiff
actual damages (P1,000,000.00), exemplary damages (P1,000,000.00), attorneys fees
(P300,000.00) and expenses of litigation and costs (P50,000.00).
Defendant PPA thru the Office of the Government Corporate Counsel (OGCC) filed its
Answer with Compulsory Counterclaim contending that the alleged Notice of Award has
already been properly revoked when the Supplemental Agreement which should have
implemented the award was denied approval by defendants Board of Directors. As to
plaintiffs pre-disqualification from participating in the bidding for the extension of R.C.
Pier No. 2 Project at the Port of San Fernando, La Union, the same is based on factual
determination by the defendant that plaintiff lacked IAC Registration and Classification
and equipment for the said project as communicated in the August 9, 1996 letter.
Defendant disclaimed any liability for whatever damages suffered by the plaintiff when it
"jumped the gun" by committing its alleged resources for the reclamation project despite
the fact that no Notice to Proceed was issued to plaintiff by the defendant. The cause of
action insofar as the Extension of R.C. Pier No. 2 of the Port of San Fernando, La
Union, is barred by the statute of limitation since plaintiff filed its request for
reconsideration way beyond the seven (7) day-period allowed under IB 6-5 of the
Implementing Rules and Regulations of P.D. 1594. Defendant clarified that the
proposed Reclamation Project and Extension of R.C. Pier No. 2 San Fernando, La
Union, are separate projects of PPA. The Board of Directors denied approval of the
Supplemental Agreement on September 9, 1994 for lack of legal basis to award the
supplemental contract through negotiation which was properly communicated to the
plaintiff as shown by its letter dated September 19, 1994 seeking reconsideration
thereof. As advised by the Board, PPA Management began to make preparations for the
public bidding for the proposed reclamation project. In the meantime, defendant decided
to pursue the extension of R.C. Pier 2, San Fernando, La Union. xxx It [prayed that the
complaint be dismissed]. (Emphasis supplied)
After trial, the lower court rendered a decision in favor of the plaintiff, the dispositive
portion of which reads:
"WHEREFORE, and in view of the foregoing considerations, judgment is hereby
rendered ordering the defendant to execute a contract in favor of the plaintiff for the
reclamation of the area between the Timber Pier and Pier 2 located at San Fernando,
La Union for the price of P30,794,230.89 and to pay the costs.
The counterclaim is dismissed for lack of merit.
SO ORDERED.6
In addressing affirmatively the basic issue of whether there was a perfected contract
between the parties for the reclamation project, the trial court ruled that the "higher

authority x x adverted to does not necessarily mean the Board of Directors (Board).
Under IRR, P.D. 1594 (1)B10.6, approval of award and contracts is vested on the head
of the infrastructure department or its duly authorized representative. Under Sec. 9 (iii)
of P.D. 857 which has amended P.D. 505 that created the PPA, one of the particular
powers and duties of the General Manager and Assistant General Manager is to sign
contracts."7 It went on to say that "in the case of the PPA, the power to enter into
contracts is not only vested on the Board of Directors, but also to the manager" citing
Section 9 (III) of P.D. No. 857.8
The trial court added that the tenor of the Notice of Award implied that respondents
general manager had been empowered by its Board of Directors to bind respondent by
contract. It noted that whereas the letter-reply contained the phrase "approval of the
higher authority," the conspicuous absence of the same in the Notice of Award
supported the finding that the general manager had been vested with authority to enter
into the contract for and in behalf of respondent. To the trial court, the disapproval by the
PPA Board of the supplementary contract for the reclamation on a ground other than the
general managers lack of authority was an explicit recognition that the latter was so
authorized to enter into the purported contract.
Respondent moved for a reconsideration of the RTC decision but it was denied for lack
of merit. Respondent then filed its Notice of Appeal. Subsequently, petitioner moved to
dismiss the appeal on the ground that respondent failed to perfect its appeal
seasonably. On June 27, 2000, the Court of Appeals issued a Resolution 9 dismissing
respondents appeal for having been filed out time. Respondents motion for
reconsideration of said resolution was also denied. 10
Undaunted, respondent elevated its problem to this Court via a petition for review on
certiorari under Rule 45 assailing the denial of its appeal. On July 30, 2004, the Court
rendered an en banc decision11 granting respondents petition on a liberal interpretation
of the rules of procedure, and ordering the CA to conduct further proceedings.
On August 22, 2005, the CA rendered the assailed decision reversing the trial courts
decision and dismissing petitioners complaint for specific performance and damages.
Thus, the dispositive portion thereof reads:
WHEREFORE, premises considered, the present appeal is hereby GRANTED. The
appealed Decision dated June 8, 1998 of the trial court in Civil Case No. 97-83916 is
hereby REVERSED and SET ASIDE. A new judgment is hereby entered DISMISSING
the complaint for specific performance and damages filed by Plaintiff Sargasso
Construction and Development Corporation/Pick & Shovel, Inc./Atlantic Erectors, Inc.,
(Joint Venture) against the Philippine Ports Authority for lack of merit.
In setting aside the trial courts decision, the CA ruled that the law itself should serve as
the basis of the general managers authority to bind respondent corporation and, thus,
the trial court erred in merely relying on the wordings of the Notice of Award and the
Minutes of the Board meeting in determining the limits of his authority; that the power of

the general manager "to sign contracts" is different from the Boards power "to make or
enter (into) contracts"; and that, in the execution of contracts, the general manager only
exercised a delegated power, in reference to which, evidence was wanting that the PPA
Board delegated to its general manager the authority to enter into a supplementary
contract for the reclamation project.
The CA also found the disapproval of the contract on a ground other than the general
managers lack of authority rather inconsequential because Executive Order 380 12
expressly authorized the governing boards of government-owned or controlled
corporations "to enter into negotiated infrastructure contracts involving not more than
fifty million (P50 million)." The CA further noted that the Notice of Award was only one of
those documents that comprised the entire contract and, therefore, did not in itself
evidence the perfection of a contract.
Hence, this petition.
The issue to be resolved in this case is whether or not a contract has been perfected
between the parties which, in turn, depends on whether or not the general manager of
PPA is vested with authority to enter into a contract for and on behalf of PPA.
The petition fails.
Petitioner contends that the existence of "Notice of Award of Contract and Contractors
Conforme thereto," resulting from its negotiation with respondent, proves that a contract
has already been perfected, and that the other documents enumerated under the
amended Rules and Regulations13 implementing P.D. 159414 are mere physical
representations of the parties meeting of the minds; that the "Approval of Award by
Approving Authority" is only a "supporting document," and not an evidence of perfection
of contract, and which merely "facilitates the approval of the contract;" 15 that PPA is
bound by the acts of its general manager in issuing the Notice of Award under the
doctrine of apparent authority; and that the doctrine of estoppel, being an equitable
doctrine, cannot be invoked to perpetuate an injustice against petitioner.
At the outset, it must be stated that there are two (2) separate and distinct, though
related, projects involving the parties herein, viz: (i) the construction of Pier 2 and the
rock causeway for the port of San Fernando, La Union, and (ii) the reclamation of the
area between the Timber Pier and Pier 2 of the same port. Petitioners action for specific
performance and damages merely relates to the latter.
Every contract has the following essential elements: (i) consent, (ii) object certain and
(iii) cause. Consent has been defined as the concurrence of the wills of the contracting
parties with respect to the object and cause which shall constitute the contract. 16 In
general, contracts undergo three distinct stages, to wit: negotiation, perfection or birth,
and consummation. Negotiation17 begins from the time the prospective contracting
parties manifest their interest in the contract and ends at the moment of their
agreement. Perfection or birth of the contract takes place when the parties agree upon

the essential elements of the contract, i.e., consent, object and price. Consummation
occurs when the parties fulfill or perform the terms agreed upon in the contract,
culminating in the extinguishment thereof. The birth or the perfection of the contract,
which is the crux of the present controversy, refers to that moment in the life of a
contract when there is finally a concurrence of the wills of the contracting parties with
respect to the object and the cause of the contract. 18
A government or public contract has been defined as a contract entered into by state
officers acting on behalf of the state, and in which the entire people of the state are
directly interested. It relates wholly to matter of public concern, and affects private rights
only so far as the statute confers such rights when its provisions are carried out by the
officer to whom it is confided to perform.19
A government contract is essentially similar to a private contract contemplated under the
Civil Code. The legal requisites of consent of the contracting parties, an object certain
which is the subject matter, and cause or consideration of the obligation must likewise
concur. Otherwise, there is no government contract to speak of. 20
As correctly found by the CA, the issue on the reclamation of the area between Timber
Pier and Pier 2 of the Port of San Fernando involves a government infrastructure
project, and it is beyond dispute that the applicable laws, rules and regulations on
government contracts or projects apply.
On the matter of entering into negotiated contracts by government-owned and
controlled corporations, the provisions of existing laws are crystal clear in requiring the
governing boards approval thereof. The Court holds that the CA correctly applied the
pertinent laws, to wit:
Executive Order No. 380 provides for revised levels of authority on approval of
government contracts. Section 1 thereof authorizes GOCCs:
1. To enter into infrastructure contracts awarded through public bidding
regardless of the amount involved;
2. To enter into negotiated infrastructure contracts involving not more than one
hundred million pesos (P100 million) in the case of the Department of
Transportation and Communications and the Department of Public Works and
Highways, and not more than fifty million pesos (P50 million) in the case of
the other Departments and governments corporations; Provided, That
contracts exceeding the said amounts shall only be entered into upon prior
authority from the Office of the President; and Provided, Further, That said
contracts shall only be awarded in strict compliance with Section 5 of Executive
Order No. 164, S. of 1987.
xxx

The rule on negotiated contracts, as amended on August 12, 2000 (IB 10.6.2) now
reads
1. Negotiated contract may be entered into only where any of the following
conditions exists and the implementing office/agency/corporation is not capable
of undertaking the contract by administration:
a. In times of emergencies arising from natural calamities where
immediate action is necessary to prevent imminent loss of life and/or
property or to restore vital public services, infrastructure and utilities such
as
b. Failure to award the contract after competitive public bidding for valid
cause or causes
c. Where the subject project is adjacent or contiguous to an on-going
project and it could be economically prosecuted by the same contractor
provided that subject contract has similar or related scope of works and it
is within the contracting capacity of the contractor, in which case, direct
negotiation may be undertaken with the said contractor
xxx
In cases a and b above, bidding may be undertaken through sealed canvass of at least
three (3) qualified contractors Authority to negotiate contract for projects under
these exceptional cases shall be subject to prior approval by heads of agencies
within their limits of approving authority."21 (emphasis in the original)
Furthermore, the Revised Administrative Code22 lays down the same requirement, thus:
Sec. 51. Who May Execute Contracts. Contracts in behalf of the Republic of the
Philippines shall be executed by the President unless authority therefore is expressly
vested by law or by him in any other public officer.
Contracts in behalf of the political subdivisions and corporate agencies or
instrumentalities shall be approved by their respective governing boards or councils and
executed by their respective executive heads.
Petitioner neither disputes nor admits the application of the foregoing statutory
provisions but insists, nonetheless, that the Notice of Award itself already embodies a
perfected contract having passed the negotiation stage 23 despite the clear absence
thereon of a condition requiring the prior approval of respondents higher authority.
Petitioners argument is untenable. Contracts to which the government is a party are
generally subject to the same laws and regulations which govern the validity and
sufficiency of contracts between private individuals. 24 A government contract, however,

is perfected25 only upon approval by a competent authority, where such approval is


required.26
The contracting officer functions as agent of the Philippine government for the purpose
of making the contract. There arises then, in that regard, a principal-agent relationship
between the Government, on one hand, and the contracting official, on the other. The
latter though, in contemplation of law, possesses only actual agency authority. This is to
say that his contracting power exists, where it exists at all, only because and by virtue
of a law, or by authority of law, creating and conferring it. And it is well settled that
he may make only such contracts as he is so authorized to make. Flowing from
these basic guiding principles is another stating that the government is bound only to
the extent of the power it has actually given its officers-agents. It goes without saying
then that, conformably to a fundamental principle in agency, the acts of such agents in
entering into agreements or contracts beyond the scope of their actual authority do not
bind or obligate the Government. The moment this happens, the principal-agent
relationship between the Government and the contracting officer ceases to exist. 27
(emphasis supplied)
It was stressed that
the contracting official who gives his consent as to the subject matter and the
consideration ought to be empowered legally to bind the Government and that his
actuations in a particular contractual undertaking on behalf of the government come
within the ambit of his authority. On top of that, the approval of the contract by a higher
authority is usually required by law or administrative regulation as a requisite for its
perfection.28
Under Article 1881 of the Civil Code, the agent must act within the scope of his authority
to bind his principal. So long as the agent has authority, express or implied, the principal
is bound by the acts of the agent on his behalf, whether or not the third person dealing
with the agent believes that the agent has actual authority.29 Thus, all signatories in a
contract should be clothed with authority to bind the parties they represent.
P.D. 857 likewise states that one of the corporate powers of respondents Board of
Directors is to "reclaim any part of the lands vested in the Authority." It also
"exercise[s] all the powers of a corporation under the Corporation Law." On the other
hand, the law merely vests the general manager the "general power to sign contracts"
and "to perform such other duties as the Board may assign" Therefore, unless
respondents Board validly authorizes its general manager, the latter cannot bind
respondent PPA to a contract.
The Court completely agrees with the CA that the petitioner failed to present competent
evidence to prove that the respondents general manager possessed such actual
authority delegated either by the Board of Directors, or by statutory provision. The
authority of government officials to represent the government in any contract must
proceed from an express provision of law or valid delegation of authority. 30 Without such

actual authority being possessed by PPAs general manager, there could be no real
consent, much less a perfected contract, to speak of.
It is of no moment if the phrase "approval of higher authority" appears nowhere in the
Notice of Award. It neither justifies petitioners presumption that the required approval
"had already been granted" nor supports its conclusion that no other condition (than the
completion of fendering of Pier 2 as stated in the Notice of Award) ought to be complied
with to create a perfected contract.31 Applicable laws form part of, and are read into, the
contract without need for any express reference thereto; 32 more so, to a purported
government contract, which is imbued with public interest.
Adopting the trial courts ratiocination, petitioner further argues that had it been true that
respondents general manager was without authority to bind respondent by contract,
then the former should have disapproved the supplemental contract on that ground. 33
Petitioner also interprets the Boards silence on the matter as an explicit recognition of
the latters authority to enter into a negotiated contract involving the reclamation project.
This posture, however, does not conform with the basic provisions of the law to which
we always go back. Section 4 of P.D. 159434 provides:35
Section 4. Bidding. Construction projects shall generally be undertaken by contract after
competitive public bidding. Projects may be undertaken by administration or force
account or by negotiated contract only in exceptional cases where time is of the
essence, or where there is lack of qualified bidders or contractors, or where there is a
conclusive evidence that greater economy and efficiency would be achieved through
this arrangement, and in accordance with provision of laws and acts on the matter,
subject to the approval of the Ministry of Public Works, Transportation and
Communications, the Minister of Public Highways, or the Minister of Energy, as the case
may be, if the project cost is less than P1 Million, and of the President of the Philippines,
upon the recommendation of the Minister, if the project cost is P1 Million or more.
Precisely, the Board of Directors of the respondent did not see fit to approve the
contract by negotiation after finding that "the Pier 2 Project was basically for the
construction of a pier while the supplemental agreement refers to reclamation. Thus,
there is no basis to compare the terms and conditions of the reclamation project with the
original contract (Pier 2 Project) of Sargasso." So even granting arguendo that the
Boards action or inaction is an "explicit" recognition of the authority of the general
manager, the purported contract cannot possibly be the basis of an action for specific
performance because the negotiated contract itself basically contravenes stringent legal
requirements aimed at protecting the interest of the public. The bottom line here is that
the facts do not conform to what the law requires.
No wonder petitioner conveniently omitted any attempt at presenting its case within the
statutory exceptions, and insisted that respondents disapproval of the supplemental
agreement was "a mere afterthought" "perhaps realizing the infirmity of its excuse"
(referring to petitioners belated pre-disqualification in the construction project). But the
Court, at the very outset, has previously clarified that the two projects involved herein

are distinct from each other. Hence, petitioners disqualification in the construction
project due to its lack of certain requirements has no significant bearing in this case.
Lastly, petitioners invocation of the doctrine of apparent authority 36 is misplaced. This
doctrine, in the realm of government contracts, has been restated to mean that the
government is NOT bound by unauthorized acts of its agents, even though within the
apparent scope of their authority.37 Under the law on agency, however, "apparent
authority" is defined as the power to affect the legal relations of another person by
transactions with third persons arising from the others manifestations to such third
person38 such that the liability of the principal for the acts and contracts of his agent
extends to those which are within the apparent scope of the authority conferred on him,
although no actual authority to do such acts or to make such contracts has been
conferred.391avvphi1
Apparent authority, or what is sometimes referred to as the "holding out" theory, or
doctrine of ostensible agency, imposes liability, not as the result of the reality of a
contractual relationship, but rather because of the actions of a principal or an employer
in somehow misleading the public into believing that the relationship or the authority
exists.40 The existence of apparent authority 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. It
requires presentation of evidence of similar act(s) executed either in its favor or in favor
of other parties.41
Easily discernible from the foregoing is that apparent authority is determined only by the
acts of the principal and not by the acts of the agent. The principal is, therefore, not
responsible where the agents own conduct and statements have created the apparent
authority.42
In this case, not a single act of respondent, acting through its Board of Directors, was
cited as having clothed its general manager with apparent authority to execute the
contract with it.
With the foregoing disquisition, the Court finds it unnecessary to discuss the other
arguments posed by petitioner.
WHEREFORE, the petition is DENIED.
SO ORDERED.
JOSE CATRAL MENDOZA
Associate Justice
WE CONCUR:

ANTONIO T. CARPIO
Associate Justice
Chairperson
ANTONIO EDUARDO B. NACHURA
Associate Justice

DIOSDADO M. PERALTA
Associate Justice

ROBERTO A. ABAD
Associate Justice
AT T E S TAT I O N
I attest that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.
ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division
C E R T I F I C AT I O N
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairpersons
Attestation, I certify that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the Courts
Division.
RENATO C. CORONA
Chief Justice

Footnotes
1

Penned by Associate Justice Martin S. Villarama, Jr., (now a member of this


Court) with Associate Justice Bienvenido L. Reyes and Associate Justice
Lucenito N. Tagle concurring.
2

Rollo, p. 30.

Penned by Judge Inocencio D. Maliaman.

Rollo, pp. 11-29.

Emphasis in the original.

Decision of the Trial Court, rollo, pp. 158-167.

Id. at 163.

Providing for the Reorganization of Port Administrative and Operation Functions


in the Philippines, Revising Presidential Decree No. 505 dated July 11, 1974,
Creating The Philippine Port Authority, by Substitution, and for other Purposes
otherwise known as the Revised Charter of the Philippine Ports Authority. Section
9 thereof provides:
Section 9. General Powers and Duties of the General Manager and
Assistant General Managers
a) General Powers and Duties of the General Manager.
The General Manager shall be responsible to the Board, and shall have
the following general powers, functions, and duties: xxx
(iii) To sign contracts, to approve expenditures and payments within the
budget provisions, and generally to do any all acts or things for the proper
operations of the Authority or any of the Ports under the jurisdiction,
control or ownership of the Authority.
9

Rollo, pp. 268-271.

10

Id. at 277.

11

Philippine Ports Authority v. Sargasso Construction and Development Corp.,


Pick & Shovel, Inc./ Atlantic Erectors, Inc. (Joint Venture), G.R. No. 146478, July
30, 2004, 435 SCRA 512.
12

Revising the Levels of Authority on Approval of Government Contracts (1989).

13

IB [2.10] 2.8 Documents Comprising The Contract


The following documents shall form part of the contract:
1. Contract Agreement
2. Conditions of Contract
3. Drawings/Plans
4. Specifications
5. Invitations to Bid
6. Instructions to Bidders

7. Addenda
8. Bid Form including the following Annexes:
a. Authority of the Signing Official
b. Bid Prices in the Bill of Quantities
c. Detailed Estimates
d. Construction Schedule
e. Construction Methods
f. Project Organizational Chart
g. Manpower Schedule
h. Equipment Utilization Schedule
i. Cash Flow and Payments Schedule
j. [Certification] AFFIDAVIT of Site Inspection
9. Performance Bond
10. Prequalification [and Post qualification Statements]
11. Certificate of Cash Deposit for Operating Expenses (IF NECESSARY)
12. Notice of Award of Contract and Contractors "Conforme" thereto
13. Other Contract Documents that may be required by the
Office/Agency/Corporation concerned
14

Prescribing Policies, Guidelines, Rules and Regulations for Government


Infrastructure Contracts (1978).
15

IB [2.11] 2.9 Supporting Documents


To facilitate the approval of the contract, the following supporting
documents shall be submitted:
1. xxx
6. Approval of Award by Approving Authority

xxx
16

Jurado. Desiderio P., Comments and Jurisprudence on Obligations and


Contracts, 1993, Tenth Revised Edition, p. 396; citing 3 Castan, 7th Ed., pp. 326327, 8 Manresa, 5th Ed., Bk. P. 365, and Sanchez Roman 191.
17

A negotiation is formally initiated by an offer which should be certain with


respect to both the object and the cause or consideration of the envisioned
contract. In order to produce a contract, there must be acceptance, which may be
express or implied, but it must not qualify the terms of the offer. The acceptance
of an offer must be unqualified and absolute to perfect the contract. In other
words, it must be identical in all respects with that of the offer so as to produce
consent or meeting of the minds.
18

Supra note 16 at 390.

19

Cobacha, Agapito P. and Lucenario, Domingo O, Law on Public Bidding and


Government Contracts, 1960, p. 283, citing People v. Palmer, 35 N.Y.S. 222, 14
Misc. 41.
20

Fernandez, Jr., Bartolome C., A Treatise on Government Contracts under


Philippine Law, 2003 Revised Edition, p. 10.
21

Decision of the Court of Appeals, pp. 14,16-17; rollo, pp. 86, 88-89.

22

Chapter II Book I Section 51.

23

Memorandum for the Petitioner, p. 20; rollo, p. 401.

24

Manual on Contracts Review, March 1997, p. 14.

25

The Court in Central Bank of the Philippines vs. Court of Appeals, G.R. No. L33022, April 22, 1975, 63 SCRA 446-447, involving a government contract, said
"An agreement presupposes a meeting of minds and when that point is reached
in the negotiations between two parties intending to enter into a contract, the
purported contract is deemed perfected and none of them may thereafter
disengage himself therefrom without being liable to the other in an action for
specific performance. xxx Even a government-owned corporation may not under
the guise of protecting the public interest unceremoniously disregard contractual
commitments to the prejudice of the other party.," cited in Government Contracts,
U.P. Law Center, 1982, p. 42. In said case, however, it is the Monetary Board of
respondent Central Bank which "unanimously voted and approved the award to
the plaintiff [petitioner therein]."
26

Supra note 19.

27

Supra note 20 at 8.

28

Id. at 10; cited in the Decision of the Court of Appeals.

29

De Leon, Hector S., Comments and Cases on Partnership, Agency, and Trusts,
2005 Sixth Edition, p. 460.
30

Manual on Contracts Review, March 1997, p. 25.

31

Memorandum for Petitioner, p. 24; rollo, p. 405.

32

Intra-Strata Assurance Corp. and Philippine Home Assurance Corp. v.


Republic, G.R. No. 156571, July 9, 2008, 557 SCRA 363.
33

Memorandum for the Petitioner, p. 29; rollo, pp. 410-412.

34

Now expressly repealed by R.A. 9184 (An Act Providing for the Modernization,
Standardization and Regulation of the Procurement Activities of the Government
and for Other Purposes) otherwise known as Government Procurement Reform
Act of 2003.
35

Cited in the Decision of the Court of Appeals.

36

Memorandum for Petitioner, p. 32, citing the case of First Phil. International
Bank v. Court of Appeals, 252 SCRA 259,295; rollo, p. 413.
37

Supra note 19 at 294-295.

38

3 Am. Jur. 2d 79.

39

2 Am. Jur. 82.

40

Professional Services, Inc. v. Agana, G.R. No. 126297, January 31, 2007, 513
SCRA 500-501.
41

Peoples Aircargo and Warehousing Co., Inc. v. CA, 357 Phil. 850 (1998).

42

3 Am. Jur. 2d 79.

Republic of the Philippines


SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 161074

March 22, 2010

MANUEL T. DE GUIA, for himself and as Attorney-in-Fact of FE DAVIS MARAMBA,


RENATO DAVIS, FLORDELIZA D. YEH, JOCELYN D. QUEBLATIN and BETTY
DAVIS, Petitioners,
vs.
HON. PRESIDING JUDGE, REGIONAL TRIAL COURT, BRANCH 12, MALOLOS,
BULACAN; SPOUSES TEOFILO R. MORTE, ANGELINA C. VILLARICO; SPOUSES
RUPERTO and MILAGROS VILLARICO; AND DEPUTY SHERIFF BENJAMIN C.
HAO, Respondents.
DECISION
PERALTA, J.:
Before us is a petition for review on certiorari which assails the Decision1 dated August
30, 2002 and the Resolution2 dated November 28, 2003 of the Court of Appeals (CA) in
CA-G.R. CV No. 38031.
Petitioners Fe Davis Maramba, Renato Davis, Flordeliza D. Yeh, Jocelyn D. Queblatin
and Betty Davis are the heirs of the late Primitiva Lejano Davis (Primitiva), the owner of
the undivided portion (subject property) of two parcels of land (fishpond), situated in
Meycauayan, Bulacan, covered by TCT No. T-6358 of the Register of Deeds of
Bulacan. Petitioner Manuel T. de Guia alleged to be the owner of the subject property,
having acquired the same from his co-petitioners.
The antecedents, as borne by the records, are as follows:
On August 8, 1973, Primitiva executed a document denominated as Kasulatan ng
Sanglaan (Exhibit "J"),3 a deed of mortgage, in favor of respondents spouses Teofilo R.
Morte and Angelina C. Villarico (respondents Spouses Morte) over the subject property
in consideration of Primitiva's loan in the amount of P20,000.00.
On February 15, 1974, Primitiva executed another document, Kasunduan ng Bilihang
Tuluyan (Exhibit "F"),4 a deed of sale, over the same subject property in favor of
spouses Ruperto C. Villarico and Milagros D. Barretto (respondents Spouses Villarico)
for and in consideration of the amount of P33,000.00.

On February 14, 1977, respondents Spouses Villarico executed a document


denominated as Kasunduan ng Bilihang Tuluyan (Exhibit "G"),5 a deed of sale, wherein
they sold back the subject property to Primitiva for the same amount of P33,000.00.
On March 26, 1977, Primitiva executed another document, Kasunduan ng Bilihang
Tuluyan (Exhibit"H"),6 a deed of sale, wherein she again sold the subject property to
respondents Spouses Villarico for the amount of P180,000.00.
On March 28, 1977, Primitiva executed a Kasulatan ng Sanglaan (Exhibit "I"),7 a deed of
mortgage, over the subject property in favor of respondents Spouses Morte in
consideration of a loan in the amount of P180,000.00.
Except for Exhibit "H," all documents were duly notarized and petitioner Renato was
one of the instrumental witnesses in all these documents.
On November 10, 1979, Primitiva, respondents Spouses Villarico and Spouses Morte
executed before Notary Public Mamerto A. Abao the following five (5) documents, each
of which was signed by petitioner Renato as an instrumental witness, to wit:
1. Kasulatan ng Sanglaan (Exhibit "A")8 - executed by Primitiva mortgaging the
subject property to respondent Spouses Morte in consideration of a loan in the
amount of P500,000.00 payable in one (1) year from date of contract at 12%
interest;
2. General Power of Attorney (Exhibit "B")9 - executed by Primitiva appointing
respondent Spouses Villarico as her attorney-in-fact in the exercise of general
control and supervision over the subject property with full authority to act as her
representative and agent, to lease, mortgage or sell said share, among other
things, for and in her behalf;
3. Kasulatan ng Pagpapabuwis ng Palaisdaan (Exhibit "C")10 - executed between
Primitiva, as lessor, and respondent Spouses Villarico, as lessees, over the same
subject property at P10,000.00 per year as rental. Primitiva also acknowledged in
the same document the receipt of P150,000.00 as advance payment of the
yearly rentals for a period of fifteen (15) years ;
4. Pagpapawalang Saysay ng Kasulatan ng Sanglaan (Exhibit "D")11 - executed
by respondent spouses Morte canceling and rendering without any valid force
and effect the "Kasulatan ng Sanglaan" (Exhibit "I") dated March 28, 1977 for a
loan of P180,000.00;
5. Kasulatan ng Pagpapawalang Saysay at Pagpapawalang Bisa ng mga
Kasulatan (Exhibit "E")12 - executed by Primitiva and respondent Spouses
Villarico canceling the following documents:
a) Kasunduan ng Bilihang Tuluyan (Exhibit "F") dated February 15, 1974;

b) Kasunduan ng Bilihang Tuluyan (Exhibit "G") dated February 14, 1977;


and
c) Kasunduan ng Bilihang Tuluyan (Exhibit "H") dated March 26, 1977;
because the amounts stated in those deeds had already been returned by Primitiva to
respondent Spouses Villarico.
Primitiva failed to pay her loan in the amount of P500,000.00 to respondents Spouses
Morte as secured by a real estate mortgage on the subject property (Exhibit "A")
executed on November 10, 1979. Thus, the latter filed with the Office of the Provincial
Sheriff of Bulacan, a petition for extrajudicial foreclosure of real estate mortgage. On
January 16, 1986, a Notice of Sheriffs Sale of the property was published.
On February 17, 1986, petitioner De Guia, for himself and as attorney-in-fact of the
other co-petitioners, filed with the Regional Trial Court (RTC) of Malolos, Bulacan, an
Amended Complaint for annulment of real estate mortgage and contract of lease with
preliminary injunction against respondents Spouses Morte, Spouses Villarico, and
Deputy Sheriff Benjamin C. Hao. Petitioners sought to annul the Kasulatan ng Sanglaan
(Exhibit "A") and Kasulatan ng Pagbubuwis ng Palaisdaan (Exhibit "C"), both executed
by Primitiva in favor of respondents Spouses on November 10, 1979, contending that
the documents were null and void, since Primitiva signed them under threat of
immediate foreclosure of mortgage on the subject property and without any valuable
consideration; and that respondent Sheriff Hao had scheduled the auction sale of the
subject property which would cause great and irreparable injury to petitioners. Thus,
they prayed that the public auction be enjoined.
In their Answer, respondents Spouses argued that these documents were executed for
valuable consideration, and that petitioner Renato was one of the instrumental
witnesses in these documents; that Atty. Mamerto Abao, the Notary Public who
notarized the questioned documents, was then Primitiva's lawyer and not of
respondents. Respondents clarified that the documents Pagpapawalang Saysay ng
Kasulatan ng Sanglaan (Exhibit "D") and the Pagpapawalang Saysay at
Pagpapawalang Bisa ng Mga Kasulatan (Exhibit "E"), both dated November 10, 1979,
which made the earlier documents, to wit: Exhibits "F," "G," "H" and "I," executed
between Primitiva and the respondents Spouses of no force and effect, were executed
to avoid confusion and to show that the latest documents dated November 10, 1979
represented the actual and subsisting transactions between the parties. In their
Counterclaim, respondents Spouses Villarico claimed that they should have been in
possession of the fishpond since 1979 if not for the unwarranted refusal of petitioner De
Guia to vacate the fishpond despite demands.
On March 6, 1986, the RTC issued an Order granting petitioners' application for the
issuance of a writ of preliminary injunction upon the filing of an injunction bond. A writ of
preliminary injunction was, subsequently, issued and was served on Sheriff Hao and
respondents Spouses.

Thereafter, trial ensued.


On February 28, 2002, the RTC rendered its Decision, 13 the dispositive portion of which
reads:
WHEREFORE, the evidence having shown the plaintiffs, particularly Manuel de Guia,
their successor-in-interest, not entitled upon the facts and the law to the relief prayed for
in the amended complaint, the same is hereby DISMISSED with costs against said
plaintiff. Instead as prayed for by defendants, judgment is hereby rendered :
1. Declaring the "Kasulatan ng Sanglaan (Exhs. "A" & "1") dated November 10,
1979, and the "Kasulatan ng Pagpapabuwis ng Palaisdaan (Exhs. "C" & "3") also
dated November 10, 1979, as valid for all legal intents and purposes;
2. Ordering the Ex-Officio Sheriff, RTC, Bulacan, to proceed with the extrajudicial
foreclosure of the subject real estate mortgage; and
3. Ordering plaintiffs to pay defendants attorney's fees in the amount of
P20,000.00
SO ORDERED.14
The RTC found that petitioner Renato, Primitiva's son and an instrumental witness to all
the questioned documents, did not deny the outstanding obligations of his mother to
respondents; that he explicitly declared that his mother had to execute Exhibit "A" to
restructure her indebtedness to respondents Spouses Morte, so as to avoid the
foreclosure of the mortgage over the subject property; that there was no other force or
intimidation used by respondents Spouses upon him or his mother. The RTC ruled that
if respondents Spouses Morte threatened to foreclose the mortgage because of
Primitiva's failure to pay her indebtedness to them, they were only exercising their right
as mortgagees and it was within their right to file a petition for extrajudicial foreclosure
of the real estate mortgage. The RTC also found that Primitiva executed the questioned
documents for valuable consideration as established by petitioner Renato's testimony
that his mother executed the documents to restructure her outstanding obligation with
respondents. And it was also established by Atty. Abao, a former lawyer of Primitiva,
that in his presence, certain amounts of money were given or paid by respondents
Spouses to Primitiva.
Petitioners filed their appeal with the CA. On August 30, 2002, the CA issued its
assailed Decision, the dispositive portion of which reads:
UPON THE VIEW WE TAKE OF THIS CASE, THUS, the judgment appealed from must
be, as it hereby is AFFIRMED. Costs shall be taxed against appellants. 15
Petitioners' motion for reconsideration was denied in a Resolution dated November 28,
2003.

Hence, petitioners filed a petition for review raising the following issues, to wit:
A. WHETHER OR NOT THE COURT OF APPEALS ERRED IN DECLARING
THAT THE "TRANSACTIONS" EXECUTED ON SAME DATE, NOVEMBER 10,
1979, ARE NOT VOID AND SIMULATED;
B. ASSUMING ARGUENDO, WHETHER OR NOT THE COURT OF APPEALS
ERRED IN NOT DECLARING THE SAID REAL ESTATE MORTGAGE FOR
P500,000.00 AND THE LEASE CONTRACT AS VOID WHEN BOTH
AGREEMENTS WERE NOT REGISTERED AND THEREFORE NOT BINDING
TO THIRD PERSONS, TO INCLUDE PETITIONER DE GUIA;
C. THE INSTANT PETITION INVOLVES A QUESTION OF LAW WELL WITHIN
THE POWER OF REVIEW BY THIS HONORABLE TRIBUNAL. 16
The issue for resolution of whether the CA committed a reversible error when it upheld
the RTC judgment declaring the Kasulatan ng Sanglaan (Exhibit "A") and the Kasulatan
ng Pagpapabuwis ng Palaisdaan (Exhibit "C"), both dated November 10, 1979, as valid,
is a factual issue.
In petitions for review on certiorari as a mode of appeal under Rule 45 of the Rules of
Court, the petitioner can raise only questions of law the Supreme Court is not the
proper venue to consider a factual issue as it is not a trier of facts. 17 A departure from
the general rule may be warranted where the findings of fact of the Court of Appeals are
contrary to the findings and conclusions of the trial court, or when the same is
unsupported by the evidence on record,18 which we found not obtaining in this case.
Petitioners' claim that Exhibit "A" was simulated, since the signatures of Primitiva and
petitioner Renato, as one of the instrumental witnesses, were obtained under threat of
an immediate foreclosure of the subject property, is devoid of merit.
The CA affirmed the RTC's finding that petitioner Renato admitted his mother's
outstanding obligations to respondents Spouses Morte when he testified that his mother
had to execute Exhibit "A" to restructure her indebtedness to respondents Spouses
Morte to avoid the foreclosure of the mortgage on the subject property; that other than
the threat of foreclosure, petitioner Renato declared that there was no other force or
intimidation exerted on them by respondents Spouses Morte to execute Exhibit "A"; and
that a threat to enforce one's just and legal claim through a competent authority did not
vitiate Primitiva and petitioner Renato's consent.
We agree. Records show that petitioner Renato indeed admitted that his mother
Primitiva was not able to pay her loan in the amount of P180,000.00, plus interest, as
agreed upon in the earlier Deed of Mortgage dated March 28, 1977 executed between
his mother and respondents Spouses Morte. Consequently, Primitiva approached the
Spouses Morte for the restructuring of her loan and, thus, she executed Exhibit "A" in

order that the subject property will not be foreclosed. Petitioner Renato's testimony on
cross-examination stated:
ATTY. PUNO:
xxxx
Q. Tell us, Mr. Davis, what was your participation in that mortgage for
P180,000.00?
A. I signed as witness to the document, sir.
Q. And I supposed that your mother signed as the mortgagor, is it not?
A. Yes, sir.
xxxx
Q. Now after this document or mortgage for P180,000.000 was executed by your
mother, what happened to that mortgage?
A. The same was not paid also, sir.
Q. It was not paid by your mother?
A. Yes, sir.
Q. And so what happened?
A. Because of that the interest on the same loan was added to that making it
bigger than the previously P180,000.00, sir.
Q. How long was the period for that mortgage for P180,000.00.
A. I could not recall how much but (interrupted).
Q. How long a period? The period?
A. It was also for another year at 12%.
Q. Interest?
A. Yes, sir.
Q. And so your mother was not able to pay that and naturally the interest
accumulated?

A. Yes, sir.
Q. What happened after that?
A. After the interest accumulated and since we cannot pay we have to execute
another mortgage in order not to foreclose the property, sir.
Q. Which mortgage are you referring to now, Mr. Davis?
A. We executed another mortgage for P500,000.00, sir.
Q. Do you recall what document was that?
A. It was a mortgage for P500,000.00 regarding the same property
Q. You are referring to Exh. "A."
ATTY. PUNO:
Q. Could you recall , Mr. Davis, when was the due date of that mortgage for
P180.000.00 which was signed by your mother and attested by you as an
instrumental witness thereon?
A. Actually, it was intended for only one (1) year, sir.
Q. What year was that?
A. About 1977, sir.
Q. Now is this Exhibit "A" one of the documents which you said you signed in the
office of Notary Public Mamerto Abao?
A. Yes, sir.
Q. Now when you read Before you signed this document as an instrumental
witness you read its contents, Mr. Davis?
A. Yes, sir.
Q. You understood its contents?
A. Yes, sir.
Q. Do you know what it meant ?
A. Yes, sir.

Q. And after that you signed as a witness?


A. Yes, sir.
Q. Your mother also signed this document "Kasulatan ng Sanglaan"?
A. Yes, sir.19
Petitioner Renato's claim that he and his mother were threatened of foreclosure of the
subject property if his mother would not sign Exhibit "A," thus, their consent were
vitiated, does not persuade us. As correctly ruled by the lower courts, the last paragraph
of Article 1335 of the New Civil Code was applicable in this case, which provides that a
threat to enforce one's claim through competent authority, if the claim is just or legal,
does not vitiate consent. It has been held that foreclosure of mortgaged properties in
case of default in payment of a debtor is a legal remedy afforded by law to a creditor.
Hence, a threat to foreclose the mortgage would not per se vitiate consent. 20
We, likewise, find no merit in petitioners' contention that Exhibit "C," executed between
Primitiva and the Spouses Villarico, was also simulated. As correctly found by the CA,
petitioners failed to adduce any evidence in support of such claim. It had been
established that petitioner Renato, an instrumental witness to this document, admitted
that he read and understood and was satisfied with the explanation of Notary Public
Abao regarding the contents of the same, before he and his mother affixed their
signatures on the documents. Thus, we find no reason to deviate from the findings of
both the trial and appellate courts that the assailed documents were validly executed by
Primitiva in favor of the respondents Spouses.1avvphi1
Petitioners' argument that both documents were executed without valuable
consideration deserves scant consideration. Notably, petitioner Renato admitted that
Exhibit "A" was executed by his mother to restructure his mother's outstanding loan
obligation to respondents Spouses Morte, which had not been paid. Moreover,
respondent Teofilo Morte had also given P200,000.00 to Primitiva when Exhibit "A" was
executed, thus, increasing the loaned amount to P500.000.00.21 In fact, Notary Public
Abao categorically declared that on the day the documents were executed, he saw
respondents, the Spouses Morte and the Spouses Villarico, give money to Primitiva and
his son petitioner Renato. Thus, it had been established that there was sufficient
consideration for the execution of the assailed documents.
Petitioners tried to show the fraudulent character of the assailed documents by alleging
that several documents had earlier been executed between Primitiva and the
respondents Spouses involving the subject property, to wit: Deed of Sale dated
February 15, 1974 (Exhibit "F"), where Primitiva sold the subject property to the
Spouses Villarico for P33,000.00; Deed of Sale dated February 14, 1977 (Exhibit "G")
where the subject property was sold back to Primitiva for the same amount of
P33,000.00; and Deed of Sale dated March 26, 1977 (Exhibit "H"), where Primitiva sold
the subject property to the Spouses Villarico for P180,000.00. Petitioners contend that

Primitiva could no longer mortgage the subject property to respondents Spouses Morte
on March 28, 1977, since the same was earlier sold by Primitiva to respondents
Spouses Villarico on March 26, 1977 (Exhibit "H").
We are not persuaded.
Respondent Milagros Villarico provided the explanation for the execution of Exhibits "F,"
"G" and "H." She testified that she, her husband Ruperto and Primitiva executed Exhibit
"F." However, when they went to the house of Judge Teofilo Abejo, the co-owner of the
other undivided portion of the property covered by TCT No. T-6358, (the other half is
the subject property) to ask his consent to the sale, the latter did not give his consent
thereto as he wanted to buy the subject property.22 Thus, they (respondents Spouses
Villarico) had to execute Exhibit "G" selling back the subject property to Primitiva.
However, Primitiva executed Exhibit "H," selling the subject property again to
respondents Spouses Villarico. Again, Judge Abejo did not give his consent to such
sale, thus, the sale did not push through, and in fact, the deed was not notarized. 23
Notably, Milagros's testimony was corroborated by the fact that Primitiva executed on
November 10, 1979, a document denominated as Pagpapawalang Saysay at
Pagpapawalang Bisa ng mga Kasulatan (Exhibit "E"), wherein she declared Exhibits "F,
"G" and "H," of no force and effect. It bears stressing that petitioner Renato was one of
the instrumental witnesses in the execution of Exhibit "E" and he testified that Notary
Public Abao had explained to him the reason why Exhibit "E" was executed, together
with the other documents, including the assailed documents, i.e., the documents
executed on November 10, 1979 which were the latest transactions between the
parties, were intended to show the nullity of the previously signed documents. As
petitioner Renato was satisfied with such explanation, coupled with the fact that he read
and understood the document, he and his mother then affixed their signatures on
Exhibit "E."
Finally, petitioner De Guia's claim that he was an innocent purchaser for value, who
bought the subject property without notice of the mortgage on the subject property, was
not raised in the trial court. As a rule, no question will be entertained on appeal unless it
has been raised in the court below. Points of law, theories, issues and arguments not
brought to the attention of the lower court need not be, and ordinarily will not be,
considered by a reviewing court, as they cannot be raised for the first time at that late
stage. Basic considerations of due process impel this rule. 24
WHEREFORE, the Petition is hereby DENIED. The assailed Decision of the Court of
Appeals, dated August 30, 2002 in CA-G.R. CV No. 38031, is AFFIRMED.
SO ORDERED.
DIOSDADO M. PERALTA
Associate Justice

WE CONCUR:
RENATO C. CORONA
Associate Justice
Chairperson
PRESBITERO J. VELASCO, JR.
Associate Justice

ANTONIO EDUARDO B. NACHURA


Associate Justice

JOSE CATRAL MENDOZA


Associate Justice
AT T E S TAT I O N
I attest that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.
RENATO C. CORONA
Associate Justice
Third Division, Chairperson
C E R T I F I C AT I O N
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairpersons
Attestation, I certify that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the Courts
Division.
REYNATO S. PUNO
Chief Justice

Footnotes
1

Penned by Associate Justice Renato C. Dacudao, with Associate Justices


Ruben T. Reyes and Amelita G. Tolentino, concurring; rollo, pp. 49-60.
2

Id. at 61.

Records, Vol. I, pp. 376-377.

Id. at 372.

Id. at 45.

Id. at 46.

Id. at 374-375.

Id. at 359-361.

Id. at 362-363.

10

Id. at 364-365.

11

Id. at 367.

12

Id. at 368-369.

13

Penned by Judge Crisanto C. Concepcion; rollo, pp. 126-133.

14

Id. at 132-133.

15

Rollo, p. 60.

16

Id. at 17.

17

Development Bank of the Philippines v. Perez, 484 Phil. 843, 854 (2004), citing
Montecillo v. Reynes, 385 SCRA 244 (2002).
18

Id., citing Changco v. Court of Appeals, 379 SCRA 590 (2002).

19

TSN, October 4, 1990, pp. 4-14.

20

Development Bank of the Philippines v. Perez, supra note 17.

21

TSN, November 15, 1990, p. 11.

22

TSN, January 31, 1991, pp. 4-6.

23

Id. at 8-9.

24

Del Rosario v. Bonga, 402 Phil. 949, 958 (2001), citing Keng Hua v. Court of
Appeals, 286 SCRA 257 (1998); Arcelona v. Court of Appeals, 280 SCRA 20
(1997); Mendoza v. Court of Appeals, 274 SCRA 527 (1997); Remman
Enterprises, Inc. v. Court of Appeals, 268 SCRA 688 (1997).

Republic of the Philippines


SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 180523

March 26, 2010

DOA ROSANA REALTY AND DEVELOPMENT CORPORATION and SY KA KIENG,


Petitioners,
vs.
MOLAVE DEVELOPMENT CORPORATION represented by TEOFISTA TINITIGAN,
Respondent.
DECISION
ABAD, J.:
This case is about the propriety of the trial courts dismissal of the plaintiffs complaint
after receiving evidence at a preliminary hearing of the affirmative defenses raised by
the defendant.
The Facts and the Case
Carmelita Austria Medina (Medina) owned an 86.4959-hectare land in Anupil, Bamban,
Tarlac, covered by Transfer Certificate of Title (TCT) T-31590. On December 16, 1994
she executed a contract to sell the land to respondent Molave Development Corporation
(Molave Development), represented by its president, Teofista P. Tinitigan (Tinitigan), for
P14 million. Molave Development paid P1 million to Medina upon the signing of the
contract and P1.3 million more as first installment. But it refused to pay the rest of the
installments on being informed by the Department of Agrarian Reform (DAR) of the
existence of alleged tenants on the land.
Two years later or in January 1997, Medina wrote respondent Molave Development a
letter, rescinding the contract to sell between them. Molave Development later learned
that a month earlier or on December 18, 1996, Medina sold the land to petitioner Doa
Rosana Realty and Development Corporation (Doa Rosana Realty) to whom the
Register of Deeds issued TCT 288633.
After learning of the sale or on March 3, 1997 respondent Molave Development filed
with the Regional Trial Court (RTC) of Capas, Tarlac, an action for specific performance,
delivery of possession, and annulment of title in Civil Case 389 against Medina,
petitioner Doa Rosana Realty, and its chairman of the board of directors, Sy Ka Kieng.
Molave Development claimed that Medina and Doa Rosana Realty conspired to
deprive it of the lot and prayed for an award of moral and exemplary damages plus
attorneys fees for a total of P1.1 million.

By way of third party complaint, petitioner Doa Rosana Realty sued Medinas nephew,
Wilfredo Miranda, and the latters lawyer, Atty. Delfin Supapo, Jr., for allegedly conniving
with Medina in concealing from it the contract to sell that Medina entered into with
respondent Molave Development.
The RTC declared Medina in default. Petitioner Doa Rosana Realty, on the other hand,
filed an answer and a motion to set the case for preliminary hearing on its special and
affirmative defenses. Doa Rosana Realty claimed that it acted in good faith in
purchasing the property and that respondent Molave Development was estopped from
questioning the sale because it agreed to cancel the contract to sell and, after the
complaint was filed, its president, Tinitigan, received from Medinas counsel a P1.3
million partial reimbursement as shown by a receipt dated March 13, 1997. 1
For its part, Molave Development presented Tinitigans letter to Medina dated March 15,
1997, informing the latter that she (Tinitigan) was treating the P1.3 million as partial
payment for the damages she sought in the pending case before the trial
court.1avvphi1
On February 5, 1998 the RTC denied petitioner Doa Rosana Realtys motion to
dismiss2 but, on petition with the Court of Appeals (CA), the latter court directed the RTC
to conduct a preliminary hearing on Doa Rosana Realtys special affirmative defense
of good faith.3 The RTC did so and on November 19, 2003 it dismissed the complaint
insofar as Doa Rosana Realty and Sy Ka Kieng were concerned. 4 It held that the latter
were buyers in good faith and, therefore, respondent Molave Development had no
cause of action against them. On July 16, 2004 the trial court denied Molave
Developments motion for reconsideration.5
On appeal, the CA held that contrary to the ruling of the trial court, respondent Molave
Developments complaint in fact stated a cause of action against Medina and petitioner
Doa Rosana Realty. The CA thus remanded the case to the RTC for further
proceedings.6 Not satisfied with this ruling, Doa Rosana Realty took recourse to this
Court through the present petition.
The Issue Presented
The issue presented in this case is whether or not the CA erred in holding that no
ground existed for dismissing respondent Molave Developments complaint against
petitioner Doa Rosana Realty given that such complaint stated a cause of action.
The Courts Ruling
The CA held, after closely examining respondent Molave Developments complaint
below, that the same in fact stated a cause of action. The complaint alleged that the
"circumstances show conspiracy and/or collusion to defraud plaintiffs by defendants."

But the CA seems to have missed the point in the RTC decision. It will be recalled that
petitioner Doa Rosana Realty filed a motion with the RTC to hear and resolve its
affirmative defenses. The RTC did so and resolved to deny the motion. On a petition
filed with the CA, however, the latter court directed the RTC to hear and resolve Doa
Rosana Realtys affirmative defense of good faith in buying Medinas property. The RTC
complied and, after hearing the evidence of the parties, dismissed the case, holding that
Doa Rosana Realty and its president were buyers of the property in good faith and
Molave Development did not have a cause of action against them. Clearly, The RTC did
not dismiss the case on the ground that the complaint did not state a cause of action,
which is an entirely different matter.
Section 1, Rule 16 of the Rules of Civil Procedure provides that the trial court may
dismiss a complaint on the ground that the claim or demand set forth in the plaintiffs
complaint has been paid, waived, abandoned, or otherwise extinguished. This ground
essentially admits the obligation set out in the complaint but points out that such
obligation has been extinguished, in this case apparently by abandonment after
respondent Molave Development received partial reimbursement from Medina as a
consequence of the cancellation of contract to sell between them.
On March 13, 1997, 10 days after it filed its complaint with the RTC, Molave
Development acknowledged having received P1.3 million as a consideration for the
cancellation of its contract to sell with Medina. The acknowledgment receipt its
president signed reads:
ACKNOWLEDGMENT RECEIPT
This is to acknowledge the receipt of one (1) Allied Bank Check No. 25111954 dated
March 4, 1997 in the amount of ONE MILLION THREE HUNDRED THOUSAND
(P1,300,000.00) from Ms. Carmelita Austria Medina as partial reimbursement pursuant
to the cancelled Contract to Sell (Doc. No. 447; page 190; Book 114; Series of 1994
Notarial Register of Atty. Delfin R. Supapo, Jr.) entered into between Ms. Medina and
Molave Dev. Corporation over that parcel of land located at Bamban, Tarlac covered by
TCT No. T-31590.7
Makati City. March 13, 1997.
MOLAVE DEV. CORPORATION
by:
TEOFISTA P. TINITIGAN
President8
Tinitigan of respondent Molave Development of course later asserted that she signed
the above receipt because Medinas lawyer would not have released the check to her.
But this is not a valid ground for claiming vitiation of consent. If she did not want to

agree to the cancellation, she had no business signing the receipt and accepting the
check. She could very well have stood her ground and pressed for complete
performance of the contract to sell. Having received the P1.3 million, Molave
Developments remaining remedy was to pursue a claim for the balance of P1 million
that it paid Medina upon the execution of the contract to sell.
Further, as the RTC correctly held, respondent Molave Development failed to overcome
the presumption of good faith in favor of petitioner Doa Rosana Realty. 9 The title to the
property was unencumbered when it bought the same. And the evidence shows that
Doa Rosana Realty learned of the existence of the unregistered contract to sell only
after it had bought the land. Indeed, it even filed a third party complaint against Willie
Miranda and Atty. Supapo, Jr., for allegedly conniving with Medina in concealing that
contract to sell.
The letter of petitioner Doa Rosana Realtys lawyer to the DAR dated September 17,
1996, stating that Medina had retained him to represent her in the tenancy case
involving the land cannot serve as notice to Doa Rosana Realty that Medina executed
a contract to sell in favor of respondent Molave Development. The letter did not mention
such contract. At best, the letter served as notice to Doa Rosana Realty that the land
could have a tenancy problem.
In light of the foregoing, the Court holds that respondent Molave Development has no
valid claim against petitioner Doa Rosana Realty and its president.
WHEREFORE, the Court REVERSES and SETS ASIDE the September 11, 2007
Decision and November 9, 2007 Resolution of the Court of Appeals in CA-G.R. CV
83599 and REINSTATES the November 19, 2003 Resolution of the Regional Trial Court
of Capas, Tarlac, Branch 66, dismissing the complaint against Doa Rosana Realty
Development Corporation and Sy Ka Kieng in Civil Case 389.
SO ORDERED.
ROBERTO A. ABAD
Associate Justice
WE CONCUR:
ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division
ARTURO D. BRION
Associate Justice

MARIANO C. DEL CASTILLO


Associate Justice

JOSE PORTUGAL PEREZ


Associate Justice

C E R T I F I C AT I O N
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in
the above Decision had been reached in consultation before the case was assigned to
the writer of the opinion of the Courts Division.
ANTONIO T. CARPIO
Acting Chief Justice

Footnotes
1

Records, p. 57.

Id. at 108.

CA-G.R. SP 49079. Molave filed a motion for reconsideration but was denied on
October 14, 1999 (Records, Vol. I, p. 406).
4

The Resolution was penned by Judge Alipio C. Yumul (Rollo, p. 128).

Records, Vol. II, p. 896.

Penned by Associate Justice Myrna Dimaranan-Vidal and concurred in by


Associate Justices Jose L. Sabio, Jr. and Jose C. Reyes, Jr.
7

Underscoring supplied.

Records, Vol. I, p. 57.

Records, Vol. II, p. 900.