Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-11827 July 31, 1961

FERNANDO A. GAITE, plaintiff-appellee,

vs.
ISABELO FONACIER, GEORGE KRAKOWER, LARAP MINES & SMELTING CO., INC., SEGUNDINA VIVAS, FRNACISCO DANTE,
PACIFICO ESCANDOR and FERNANDO TY, defendants-appellants.

Alejo Mabanag for plaintiff-appellee.

Simplicio U. Tapia, Antonio Barredo and Pedro Guevarra for defendants-appellants.

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

This appeal comes to us directly from the Court of First Instance because the claims involved aggregate more than P200,000.00.

Defendant-appellant Isabelo Fonacier was the owner and/or holder, either by himself or in a representative capacity, of 11 iron lode mineral claims, known as
the Dawahan Group, situated in the municipality of Jose Panganiban, province of Camarines Norte.

By a "Deed of Assignment" dated September 29, 1952(Exhibit "3"), Fonacier constituted and appointed plaintiff-appellee Fernando A. Gaite as his true and
lawful attorney-in-fact to enter into a contract with any individual or juridical person for the exploration and development of the mining claims
aforementioned on a royalty basis of not less than P0.50 per ton of ore that might be extracted therefrom. On March 19, 1954, Gaite in turn executed a
general assignment (Record on Appeal, pp. 17-19) conveying the development and exploitation of said mining claims into the Larap Iron Mines, a single
proprietorship owned solely by and belonging to him, on the same royalty basis provided for in Exhibit "3". Thereafter, Gaite embarked upon the
development and exploitation of the mining claims in question, opening and paving roads within and outside their boundaries, making other improvements
and installing facilities therein for use in the development of the mines, and in time extracted therefrom what he claim and estimated to be approximately
24,000 metric tons of iron ore.

For some reason or another, Isabelo Fonacier decided to revoke the authority granted by him to Gaite to exploit and develop the mining claims in question,
and Gaite assented thereto subject to certain conditions. As a result, a document entitled "Revocation of Power of Attorney and Contract" was executed on
December 8, 1954 (Exhibit "A"),wherein Gaite transferred to Fonacier, for the consideration of P20,000.00, plus 10% of the royalties that Fonacier would
receive from the mining claims, all his rights and interests on all the roads, improvements, and facilities in or outside said claims, the right to use the business
name "Larap Iron Mines" and its goodwill, and all the records and documents relative to the mines. In the same document, Gaite transferred to Fonacier all
his rights and interests over the "24,000 tons of iron ore, more or less" that the former had already extracted from the mineral claims, in consideration of the
sum of P75,000.00, P10,000.00 of which was paid upon the signing of the agreement, and

b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00) will be paid from and out of the first letter of credit covering the first shipment of iron
ores and of the first amount derived from the local sale of iron ore made by the Larap Mines & Smelting Co. Inc., its assigns, administrators, or successors in
interests.

To secure the payment of the said balance of P65,000.00, Fonacier promised to execute in favor of Gaite a surety bond, and pursuant to the promise, Fonacier
delivered to Gaite a surety bond dated December 8, 1954 with himself (Fonacier) as principal and the Larap Mines and Smelting Co. and its stockholders
George Krakower, Segundina Vivas, Pacifico Escandor, Francisco Dante, and Fernando Ty as sureties (Exhibit "A-1"). Gaite testified, however, that when
this bond was presented to him by Fonacier together with the "Revocation of Power of Attorney and Contract", Exhibit "A", on December 8, 1954, he
refused to sign said Exhibit "A" unless another bond under written by a bonding company was put up by defendants to secure the payment of the P65,000.00
balance of their price of the iron ore in the stockpiles in the mining claims. Hence, a second bond, also dated December 8, 1954 (Exhibit "B"),was executed
by the same parties to the first bond Exhibit "A-1", with the Far Eastern Surety and Insurance Co. as additional surety, but it provided that the liability of the
surety company would attach only when there had been an actual sale of iron ore by the Larap Mines & Smelting Co. for an amount of not less then
P65,000.00, and that, furthermore, the liability of said surety company would automatically expire on December 8, 1955. Both bonds were attached to the
"Revocation of Power of Attorney and Contract", Exhibit "A", and made integral parts thereof.

On the same day that Fonacier revoked the power of attorney he gave to Gaite and the two executed and signed the "Revocation of Power of Attorney and
Contract", Exhibit "A", Fonacier entered into a "Contract of Mining Operation", ceding, transferring, and conveying unto the Larap Mines and Smelting Co.,
Inc. the right to develop, exploit, and explore the mining claims in question, together with the improvements therein and the use of the name "Larap Iron
Mines" and its good will, in consideration of certain royalties. Fonacier likewise transferred, in the same document, the complete title to the approximately
24,000 tons of iron ore which he acquired from Gaite, to the Larap & Smelting Co., in consideration for the signing by the company and its stockholders of
the surety bonds delivered by Fonacier to Gaite (Record on Appeal, pp. 82-94).

Up to December 8, 1955, when the bond Exhibit "B" expired with respect to the Far Eastern Surety and Insurance Company, no sale of the approximately
24,000 tons of iron ore had been made by the Larap Mines & Smelting Co., Inc., nor had the P65,000.00 balance of the price of said ore been paid to Gaite
by Fonacier and his sureties payment of said amount, on the theory that they had lost right to make use of the period given them when their bond, Exhibit "B"
automatically expired (Exhibits "C" to "C-24"). And when Fonacier and his sureties failed to pay as demanded by Gaite, the latter filed the present complaint
against them in the Court of First Instance of Manila (Civil Case No. 29310) for the payment of the P65,000.00 balance of the price of the ore, consequential
damages, and attorney's fees.

All the defendants except Francisco Dante set up the uniform defense that the obligation sued upon by Gaite was subject to a condition that the amount of
P65,000.00 would be payable out of the first letter of credit covering the first shipment of iron ore and/or the first amount derived from the local sale of the
iron ore by the Larap Mines & Smelting Co., Inc.; that up to the time of the filing of the complaint, no sale of the iron ore had been made, hence the condition
had not yet been fulfilled; and that consequently, the obligation was not yet due and demandable. Defendant Fonacier also contended that only 7,573 tons of
the estimated 24,000 tons of iron ore sold to him by Gaite was actually delivered, and counterclaimed for more than P200,000.00 damages.

At the trial of the case, the parties agreed to limit the presentation of evidence to two issues:

(1) Whether or not the obligation of Fonacier and his sureties to pay Gaite P65,000.00 become due and demandable when the defendants failed to renew the
surety bond underwritten by the Far Eastern Surety and Insurance Co., Inc. (Exhibit "B"), which expired on December 8, 1955; and

(2) Whether the estimated 24,000 tons of iron ore sold by plaintiff Gaite to defendant Fonacier were actually in existence in the mining claims when these
parties executed the "Revocation of Power of Attorney and Contract", Exhibit "A."

On the first question, the lower court held that the obligation of the defendants to pay plaintiff the P65,000.00 balance of the price of the approximately
24,000 tons of iron ore was one with a term: i.e., that it would be paid upon the sale of sufficient iron ore by defendants, such sale to be effected within one
year or before December 8, 1955; that the giving of security was a condition precedent to Gait's giving of credit to defendants; and that as the latter failed to

1
put up a good and sufficient security in lieu of the Far Eastern Surety bond (Exhibit "B") which expired on December 8, 1955, the obligation became due and
demandable under Article 1198 of the New Civil Code.

As to the second question, the lower court found that plaintiff Gaite did have approximately 24,000 tons of iron ore at the mining claims in question at the
time of the execution of the contract Exhibit "A."

Judgment was, accordingly, rendered in favor of plaintiff Gaite ordering defendants to pay him, jointly and severally, P65,000.00 with interest at 6% per
annum from December 9, 1955 until payment, plus costs. From this judgment, defendants jointly appealed to this Court.

During the pendency of this appeal, several incidental motions were presented for resolution: a motion to declare the appellants Larap Mines & Smelting Co.,
Inc. and George Krakower in contempt, filed by appellant Fonacier, and two motions to dismiss the appeal as having become academic and a motion for new
trial and/or to take judicial notice of certain documents, filed by appellee Gaite. The motion for contempt is unmeritorious because the main allegation therein
that the appellants Larap Mines & Smelting Co., Inc. and Krakower had sold the iron ore here in question, which allegedly is "property in litigation", has not
been substantiated; and even if true, does not make these appellants guilty of contempt, because what is under litigation in this appeal is appellee Gaite's right
to the payment of the balance of the price of the ore, and not the iron ore itself. As for the several motions presented by appellee Gaite, it is unnecessary to
resolve these motions in view of the results that we have reached in this case, which we shall hereafter discuss.

The main issues presented by appellants in this appeal are:

(1) that the lower court erred in holding that the obligation of appellant Fonacier to pay appellee Gaite the P65,000.00 (balance of the price of the iron ore in
question)is one with a period or term and not one with a suspensive condition, and that the term expired on December 8, 1955; and

(2) that the lower court erred in not holding that there were only 10,954.5 tons in the stockpiles of iron ore sold by appellee Gaite to appellant Fonacier.

The first issue involves an interpretation of the following provision in the contract Exhibit "A":

7. That Fernando Gaite or Larap Iron Mines hereby transfers to Isabelo F. Fonacier all his rights and interests over the 24,000 tons of iron ore, more or less,
above-referred to together with all his rights and interests to operate the mine in consideration of the sum of SEVENTY-FIVE THOUSAND PESOS
(P75,000.00) which the latter binds to pay as follows:

a. TEN THOUSAND PESOS (P10,000.00) will be paid upon the signing of this agreement.

b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00)will be paid from and out of the first letter of credit covering the first shipment of iron ore
made by the Larap Mines & Smelting Co., Inc., its assigns, administrators, or successors in interest.

We find the court below to be legally correct in holding that the shipment or local sale of the iron ore is not a condition precedent (or suspensive) to the
payment of the balance of P65,000.00, but was only a suspensive period or term. What characterizes a conditional obligation is the fact that its efficacy or
obligatory force (as distinguished from its demandability) is subordinated to the happening of a future and uncertain event; so that if the suspensive condition
does not take place, the parties would stand as if the conditional obligation had never existed. That the parties to the contract Exhibit "A" did not intend any
such state of things to prevail is supported by several circumstances:

1) The words of the contract express no contingency in the buyer's obligation to pay: "The balance of Sixty-Five Thousand Pesos (P65,000.00) will be paid
out of the first letter of credit covering the first shipment of iron ores . . ." etc. There is no uncertainty that the payment will have to be made sooner or later;
what is undetermined is merely the exact date at which it will be made. By the very terms of the contract, therefore, the existence of the obligation to pay is
recognized; only its maturity or demandability is deferred.

2) A contract of sale is normally commutative and onerous: not only does each one of the parties assume a correlative obligation (the seller to deliver and
transfer ownership of the thing sold and the buyer to pay the price),but each party anticipates performance by the other from the very start. While in a sale the
obligation of one party can be lawfully subordinated to an uncertain event, so that the other understands that he assumes the risk of receiving nothing for
what he gives (as in the case of a sale of hopes or expectations, emptio spei), it is not in the usual course of business to do so; hence, the contingent
character of the obligation must clearly appear. Nothing is found in the record to evidence that Gaite desired or assumed to run the risk of losing his right
over the ore without getting paid for it, or that Fonacier understood that Gaite assumed any such risk. This is proved by the fact that Gaite insisted on a bond
a to guarantee payment of the P65,000.00, an not only upon a bond by Fonacier, the Larap Mines & Smelting Co., and the company's stockholders, but also
on one by a surety company; and the fact that appellants did put up such bonds indicates that they admitted the definite existence of their obligation to pay
the balance of P65,000.00.

3) To subordinate the obligation to pay the remaining P65,000.00 to the sale or shipment of the ore as a condition precedent, would be tantamount to leaving
the payment at the discretion of the debtor, for the sale or shipment could not be made unless the appellants took steps to sell the ore. Appellants would thus
be able to postpone payment indefinitely. The desireability of avoiding such a construction of the contract Exhibit "A" needs no stressing.

4) Assuming that there could be doubt whether by the wording of the contract the parties indented a suspensive condition or a suspensive period (dies ad
quem) for the payment of the P65,000.00, the rules of interpretation would incline the scales in favor of "the greater reciprocity of interests", since sale is
essentially onerous. The Civil Code of the Philippines, Article 1378, paragraph 1, in fine, provides:

If the contract is onerous, the doubt shall be settled in favor of the greatest reciprocity of interests.

and there can be no question that greater reciprocity obtains if the buyer' obligation is deemed to be actually existing, with only its maturity (due date)
postponed or deferred, that if such obligation were viewed as non-existent or not binding until the ore was sold.

The only rational view that can be taken is that the sale of the ore to Fonacier was a sale on credit, and not an aleatory contract where the transferor, Gaite,
would assume the risk of not being paid at all; and that the previous sale or shipment of the ore was not a suspensive condition for the payment of the balance
of the agreed price, but was intended merely to fix the future date of the payment.

This issue settled, the next point of inquiry is whether appellants, Fonacier and his sureties, still have the right to insist that Gaite should wait for the sale or
shipment of the ore before receiving payment; or, in other words, whether or not they are entitled to take full advantage of the period granted them for
making the payment.

We agree with the court below that the appellant have forfeited the right court below that the appellants have forfeited the right to compel Gaite to wait for
the sale of the ore before receiving payment of the balance of P65,000.00, because of their failure to renew the bond of the Far Eastern Surety Company or
else replace it with an equivalent guarantee. The expiration of the bonding company's undertaking on December 8, 1955 substantially reduced the security of
the vendor's rights as creditor for the unpaid P65,000.00, a security that Gaite considered essential and upon which he had insisted when he executed the deed
of sale of the ore to Fonacier (Exhibit "A"). The case squarely comes under paragraphs 2 and 3 of Article 1198 of the Civil Code of the Philippines:

"ART. 1198. The debtor shall lose every right to make use of the period:

(1) . . .

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(2) When he does not furnish to the creditor the guaranties or securities which he has promised.

(3) When by his own acts he has impaired said guaranties or securities after their establishment, and when through fortuitous event they disappear, unless he
immediately gives new ones equally satisfactory.

Appellants' failure to renew or extend the surety company's bond upon its expiration plainly impaired the securities given to the creditor (appellee Gaite),
unless immediately renewed or replaced.

There is no merit in appellants' argument that Gaite's acceptance of the surety company's bond with full knowledge that on its face it would automatically
expire within one year was a waiver of its renewal after the expiration date. No such waiver could have been intended, for Gaite stood to lose and had
nothing to gain barely; and if there was any, it could be rationally explained only if the appellants had agreed to sell the ore and pay Gaite before the surety
company's bond expired on December 8, 1955. But in the latter case the defendants-appellants' obligation to pay became absolute after one year from the
transfer of the ore to Fonacier by virtue of the deed Exhibit "A.".

All the alternatives, therefore, lead to the same result: that Gaite acted within his rights in demanding payment and instituting this action one year from and
after the contract (Exhibit "A") was executed, either because the appellant debtors had impaired the securities originally given and thereby forfeited any
further time within which to pay; or because the term of payment was originally of no more than one year, and the balance of P65,000.00 became due and
payable thereafter.

Issue #2
Coming now to the second issue in this appeal, which is whether there were really 24,000 tons of iron ore in the stockpiles sold by appellee Gaite to appellant
Fonacier, and whether, if there had been a short-delivery as claimed by appellants, they are entitled to the payment of damages, we must, at the outset, stress
two things: first, that this is a case of a sale of a specific mass of fungible goods for a single price or a lump sum, the quantity of "24,000 tons of iron ore,
more or less," stated in the contract Exhibit "A," being a mere estimate by the parties of the total tonnage weight of the mass; and second, that the evidence
shows that neither of the parties had actually measured of weighed the mass, so that they both tried to arrive at the total quantity by making an estimate of the
volume thereof in cubic meters and then multiplying it by the estimated weight per ton of each cubic meter.

The sale between the parties is a sale of a specific mass or iron ore because no provision was made in their contract for the measuring or weighing of the ore
sold in order to complete or perfect the sale, nor was the price of P75,000,00 agreed upon by the parties based upon any such measurement.(see Art. 1480,
second par., New Civil Code). The subject matter of the sale is, therefore, a determinate object, the mass, and not the actual number of units or tons contained
therein, so that all that was required of the seller Gaite was to deliver in good faith to his buyer all of the ore found in the mass, notwithstanding that the
quantity delivered is less than the amount estimated by them (Mobile Machinery & Supply Co., Inc. vs. York Oilfield Salvage Co., Inc. 171 So. 872,
applying art. 2459 of the Louisiana Civil Code). There is no charge in this case that Gaite did not deliver to appellants all the ore found in the stockpiles in
the mining claims in questions; Gaite had, therefore, complied with his promise to deliver, and appellants in turn are bound to pay the lump price.

But assuming that plaintiff Gaite undertook to sell and appellants undertook to buy, not a definite mass, but approximately 24,000 tons of ore, so that any
substantial difference in this quantity delivered would entitle the buyers to recover damages for the short-delivery, was there really a short-delivery in this
case?

We think not. As already stated, neither of the parties had actually measured or weighed the whole mass of ore cubic meter by cubic meter, or ton by ton.
Both parties predicate their respective claims only upon an estimated number of cubic meters of ore multiplied by the average tonnage factor per cubic meter.

Now, appellee Gaite asserts that there was a total of 7,375 cubic meters in the stockpiles of ore that he sold to Fonacier, while appellants contend that by
actual measurement, their witness Cirpriano Manlagit found the total volume of ore in the stockpiles to be only 6.609 cubic meters. As to the average
weight in tons per cubic meter, the parties are again in disagreement, with appellants claiming the correct tonnage factor to be 2.18 tons to a cubic meter,
while appellee Gaite claims that the correct tonnage factor is about 3.7.

In the face of the conflict of evidence, we take as the most reliable estimate of the tonnage factor of iron ore in this case to be that made by Leopoldo F.
Abad, chief of the Mines and Metallurgical Division of the Bureau of Mines, a government pensionado to the States and a mining engineering graduate of the
Universities of Nevada and California, with almost 22 years of experience in the Bureau of Mines. This witness placed the tonnage factor of every cubic
meter of iron ore at between 3 metric tons as minimum to 5 metric tons as maximum. This estimate, in turn, closely corresponds to the average tonnage factor
of 3.3 adopted in his corrected report (Exhibits "FF" and FF-1") by engineer Nemesio Gamatero, who was sent by the Bureau of Mines to the mining claims
involved at the request of appellant Krakower, precisely to make an official estimate of the amount of iron ore in Gaite's stockpiles after the dispute arose.

Even granting, then, that the estimate of 6,609 cubic meters of ore in the stockpiles made by appellant's witness Cipriano Manlagit is correct, if we multiply
it by the average tonnage factor of 3.3 tons to a cubic meter, the product is 21,809.7 tons, which is not very far from the estimate of 24,000 tons made by
appellee Gaite, considering that actual weighing of each unit of the mass was practically impossible, so that a reasonable percentage of error should be
allowed anyone making an estimate of the exact quantity in tons found in the mass. It must not be forgotten that the contract Exhibit "A" expressly stated the
amount to be 24,000 tons, more or less. (ch. Pine River Logging & Improvement Co. vs U.S., 279, 46 L. Ed. 1164).

There was, consequently, no short-delivery in this case as would entitle appellants to the payment of damages, nor could Gaite have been guilty of any fraud
in making any misrepresentation to appellants as to the total quantity of ore in the stockpiles of the mining claims in question, as charged by appellants, since
Gaite's estimate appears to be substantially correct.

WHEREFORE, finding no error in the decision appealed from, we hereby affirm the same, with costs against appellants.

Bengzon, C.J., Padilla, Labrador, Concepcion, Barrera, Paredes, Dizon, De Leon and Natividad, JJ., concur.

SECOND DIVISION
[G.R. No. 133749. August 23, 2001]

HERNANDO R. PEALOSA alias HENRY PEALOSA, petitioner, vs. SEVERINO C. SANTOS (deceased), Substituted by his heirs: OLIVER
SANTOS and ADYLL M. SANTOS, and ADELA DURAN MENDEZ SANTOS, respondents.
DECISION
QUISUMBING, J.:

Petitioner appeals by certiorari from the decision of the Court of Appeals, which affirmed the judgment of the Regional Trial Court of Quezon City, Branch
78, in Civil Case No. Q-92-13531, declaring the deed of absolute sale entered into between petitioner and respondents as void and inexistent and ordering
petitioner to vacate the subject property and to pay reasonable compensation for its use.

The facts, as revealed by the records, are as follows:

3
Respondents Severino C. Santos (deceased) and Adela Mendez Santos are registered owners of a residential house and lot located at No. 113 Scout Rallos
Street, Quezon City under TCT No. PT-23458 (54434).[1] In 1988, Severino and Adela decided to sell their property and for this purpose, negotiated with
petitioner Hernando (or Henry) Pealosa. The property was then occupied by a lessee, Eleuterio Perez, who was given preference to buy it under the same
terms offered by the buyer.[2] Perez proposed less favorable terms[3] and expectedly, Severino rejected his offer.

On August 1, 1988, petitioner Henry Pealosa and respondent Severino Santos attempted to enter into an agreement whereby the latter, for a consideration of
P1,800,000.00, would sell to the former the property subject of the instant case. The deed of absolute sale[4] (first deed) evidencing this transaction was
signed by Henry but not by Severino, because according to the latter, Henry took time to decide on the matter.[5]

On August 15, 1988, Henry signed a document[6] stating that the first deed was executed between him and Severino, for the sole purpose of helping the latter
eject Perez, the occupant of the property. Henry acknowledged in said document that although Severino had agreed to sell the property to him, he had not
paid the consideration stated in the first deed.

Thereafter, Henry and Severino executed another deed of absolute sale[7] (second deed) for a higher consideration of P2,000,000.00. Although the second
deed was originally dated August 1988, superimposed upon the same was the date September 12, 1988. This second deed was signed by both parties and
duly notarized. It states that Severino sells and transfers the house and lot to Henry, who had paid the full price of P2,000.000.00 therefor.

Severino explained that his initial asking price for the property was only P1,800,000.00 as shown in the first deed. But he later asked for a higher price
because Henry could not give the money as soon as expected. However, Severino claimed that he made it clear to Henry that he agreed to sell the property
under the second deed for P2,000,000.00, provided that payment be immediately effected. Severino said that he wanted to use the money to invest in another
property located in Alabang and told Henry that if payment was made at a later date, the price would be the current market value at the time of payment.

Henry then gave Severino P300,000.00 as earnest money, purportedly with the understanding that the former was to pay the balance within 60 days.
Otherwise, said amount would be forfeited in favor of Severino.[8] The latter also maintained that he signed the second deed only for the purpose of
facilitating Henrys acquisition of a bank loan to finance payment of the balance of the purchase price[9] and added that execution of the second deed was
necessary to enable Henry to file a court action for ejectment of the tenant.[10]

After execution of the second deed, Henry filed a loan application with the Philippine American Life Insurance Company (Philam Life) for the amount of
P2,500,000.00.[11] According to Henry, he had agreed with Severino during the signing of the second deed, that the balance of P1,700,000.00 would be paid
by means of a loan, with the property itself given as collateral.[12]

Meanwhile, on the strength of the first deed and as new owner of the property, Henry wrote a letter[13] dated August 8, 1988 to the lessee, Eleuterio Perez,
demanding that the latter vacate the premises within 10 days. Failing in this effort, Henry brought a complaint for ejectment[14] against Perez before the
Office of the Barangay Captain.

On September 1, 1988, a Certification To File Action[15] was issued by the barangay lupon. This led to the subsequent filing of Civil Case No. 88-0439 for
unlawful detainer, before the Metropolitan Trial Court of Quezon City, Branch 43, entitled Henry Pealosa, Plaintiff vs. Eleuterio Perez, Defendant. Claiming
that he still had a subsisting contract of lease over the property, Perez countersued and brought Civil Case No. Q-88-1062 before the Regional Trial Court of
Quezon City, Branch 96, entitled Eleuterio Perez, Plaintiff vs. Severino Santos, et. al, Defendants. In this latter case, Perez assailed the validity of the sale
transaction between Henry and Severino and impleaded the former as co-defendant of Severino.

While the aforesaid court cases were pending resolution, Philam Life informed Severino through a letter,[16] that Henrys loan application had been approved
by the company on January 18, 1989. Philam Life stated in the letter that of the total purchase price of P2,500,000.00, the amount of P1,700,000.00 would
be paid directly to Severino by Philam Life, while P800,000.00 would be paid by Henry.

The release of the loan proceeds was made subject to the submission of certain documents in Severinos possession, one of which is the owners duplicate of
the Transfer Certificate of Title (TCT) pertaining to the property. However, when Henry and Severino met with officials of Philam Life to finalize the
loan/mortgage contract, Severino refused to surrender the owners duplicate title and insisted on being paid immediately in cash.[17] As a consequence, the
loan/mortgage contract with Philam Life did not materialize.

Subsequently, on April 28, 1989, judgment[18] was rendered by the MTC-QC, Branch 43, in Civil Case No. 0439, ordering the tenant Perez to vacate and
surrender possession of the property to Henry. In said judgment, Henry was explicitly recognized as the new owner of the property by virtue of the contract
of sale dated September 12, 1988, after full payment of the purchase price of P2,000,000.00, receipt of which was duly acknowledged by Severino.

Upon finality of said judgment, Henry and his family moved into the disputed house and lot on August 1989, after making repairs and improvements.[19]
Henry spent a total of P700,000.00 for the renovation, as evidenced by receipts.[20]

On July 27, 1992, Severino sent a letter[21] to Henry, through counsel, demanding that Henry vacate the house and lot, on the ground that Henry did not
conclusively offer nor tender a price certain for the purchase of the property. The letter also stated that Henrys alleged offer and promise to buy the property
has since been rejected by Severino.

When Henry refused to vacate the property, Severino brought this action for quieting of title, recovery of possession and damages before the Regional Trial
Court of Quezon City, Branch 78, on September 28, 1992. Severino alleged in his complaint[22] that there was a cloud over the title to the property, brought
about by the existence of the second deed of sale.

Essentially, Severino averred that the second deed was void and inexistent because: a) there was no cause or consideration therefor, since he did not receive
the P2,000,000.00 stated in the deed; b) his wife, Adela, in whose name the property was titled, did not consent to the sale nor sign the deed; c) the deed was
not registered with the Register of Deeds; d) he did not acknowledge the deed personally before the notary public; e) his residence certificate, as appearing in
the deed, was falsified; and f) the deed is fictitious and simulated because it was executed only for the purpose of placing Henry in possession of the property
because he tendered earnest money. Severino also claimed that there was no meeting of minds with respect to the cause or consideration, since Henrys varied
offers of P1,800,000.00, P2,000,000.00, and P2,500,000.00, were all rejected by him.

For his part, Henry asserted that he was already the owner of the property being claimed by Severino, by virtue of a final agreement reached with the latter.
Contrary to Severinos claim, the price of the property was pegged at P2,000,000.00, as agreed upon by the parties under the second deed. Prior to the filing of
the action, his possession of the property remained undisturbed for three (3) years. Nevertheless, he admitted that since the signing of the second deed, he has
not paid Severino the balance of the purchase price. He, however, faulted the latter for the non-payment, since according to him, Severino refused to deliver
the owners duplicate title to the financing company.

On Aug. 20, 1993, the trial court rendered judgment in favor of Severino and disposed:

WHEREFORE, judgment is rendered as follows:

1) DECLARING the Deed of Absolute Sale which was signed by the plaintiff Severino C. Santos as vendor and the defendant as vendee and which was
entered in the notarial register of notary public Dionilo Marfil of Quezon City as Doc. No. 474, Page No. 95, Book No. 173, Series of 1988, as inexistent and
void from the beginning; and consequently, plaintiffs title to the property under T.C.T. No. PT-23458 (54434) issued by the Register of Deeds of Quezon
City is quieted, sustained and maintained;

4
2) ORDERING the defendant to pay plaintiffs the amount of P 15, 000.00 a month as reasonable compensation for the use of the House and Lot located at
No. 113 Scout Rallos St., Quezon City, beginning on the month of August, 1993, until the premises is fully vacated, (the compensation for the use thereof
from the time the defendant had occupied the premises up to July, 1993, is recompensed for the repairs made by him); and

3) ORDERING the plaintiffs to reimburse the defendant the amount of P300,000.00 after defendant had vacated the premises in question, and the reasonable
compensation for the use thereof had been paid.

All other claims and counterclaims are DENIED for lack of legal and factual bases. No pronouncement as to costs.

SO ORDERED.[23]

Both Henry and Severino appealed the above decision to the Court of Appeals. Before the appellate court could decide the same, Severino passed away and
was substituted by his wife and children as respondents. Henry filed a motion for leave to be allowed to deposit P1,700,000.00 in escrow with the Landbank
of the Philippines to answer for the money portion of the decision.[24] This motion was granted.

On December 29, 1997, the appellate court affirmed[25] the judgment of the trial court and thereafter, denied Henrys motion for reconsideration.[26] Thus,
Henry brought this petition, citing the following as alleged errors:

I.

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN CONCLUDING THAT THERE WAS NO PERFECTED CONTRACT OF SALE
BETWEEN SEVERINO C. SANTOS AND PETITIONER HENRY R. PEALOSA.

II.

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN CONSIDERING NON-PAYMENT OF THE FULL PURCHASE PRICE AS
CAUSE FOR DECLARING A PERFECTED CONTRACT OF SALE AS NULL AND VOID.

III.

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN REFUSING TO RECOGNIZE THAT OWNERSHIP OF THE SUBJECT
PROPERTY HAD BEEN EFFECTIVELY VESTED UPON PETITIONER HENRY R. PEALOSA WHEN ACTUAL POSSESSION THEREOF HAD
LAWFULLY TRANSFERRED TO PETITIONER HENRY R. PEALOSA BY VIRTUE OF THE COURT JUDGMENT IN THE EJECTMENT SUIT
AGAINST THE FORMER LESSEE.[27]

The pivotal issue presented before us is whether or not the second deed is valid and constitutes evidence of the final agreement between the parties regarding
the sale transaction entered into by them.

Petitioner maintains that the existence of a perfected contract of sale in this case is beyond doubt, since there clearly was a meeting of minds between the
parties as to the object and consideration of the contract. According to petitioner, the agreement of the parties is evidenced by provisions contained in the
second deed, which cannot possibly be simulated or fictitious. Subsequent and contemporaneous acts indubitably point to the fact that the parties truly
intended to be bound by the second deed. Accordingly, the P2,000,000.00 stated therein was the actual price agreed upon by the parties as consideration for
the sale.

On the other hand, in their memorandum, respondents insist that the second deed is a complete nullity because, as found by both the appellate and trial court:
a) the consideration stated in the deed was not paid; b) Severinos passport showed that he was in the U.S. when said deed was notarized; c) Severino did not
surrender a copy of the title at the time of the alleged sale; d) petitioner did not pay real estate taxes on the property; e) it was executed only for the purpose
of helping Severino eject the tenant; f) Severinos wife, Adela, did not sign the deed; and g) the various documentary exhibits proved that there was no price
certain accepted or paid.

Respondents additionally argue that petitioner merely seeks a review of the aforesaid factual findings of the lower court and that consequently, we should
deny the petition on the ground that it raises only factual questions.

Considering the pivotal issue presented after close scrutiny of the assigned errors as well as the arguments of the parties, we are unable to agree with
respondents and we must give due course to the petition.

First of all, the petition filed before this Court explicitly questions the legal significance and consequences of the established facts[28] and not the findings of
fact themselves. As pointed out by petitioner, he submits to the factual findings of the lower court, but maintains that its legal conclusions are irreconcilable
and inconsistent therewith. He also states that the grounds relied upon in this petition do not call for the weighing of conflicting evidence submitted by the
parties. Rather, he merely asks the Court to give due significance to certain undisputed and admitted facts spread throughout the record, which, if properly
appreciated, would justify a different conclusion.

At any rate, in Baricuatro, Jr. vs. Court of Appeals, 325 SCRA 137, 145 (2000), we reiterated the doctrine that findings of fact of the Court of Appeals are
binding and conclusive upon this Court, subject to certain exceptions, one of which is when the judgment is based on a misapprehension of facts. In this case,
after carefully poring over the records, we are convinced that the lower courts misappreciated the evidence presented by the parties and that, indeed, a
reversal of the assailed judgment is in order.

It should have been readily apparent to the trial court that the circumstances it cited in its decision are not proper grounds for holding that the second deed is
simulated. Simulation is a declaration of a fictitious will, deliberately made by agreement of the parties, in order to produce, for purposes of deception, the
appearance of a juridical act which does not exist or is different from that which was really executed. Its requisites are: a) an outward declaration of will
different from the will of the parties; b) the false appearance must have been intended by mutual agreement; and c) the purpose is to deceive third
persons.[29] None of these requisites is present in this case.

The basic characteristic of an absolutely simulated or fictitious contract is that the apparent contract is not really desired or intended to produce legal effects
or alter the juridical situation of the parties in any way.[30] However, in this case, the parties already undertook certain acts which were directed towards
fulfillment of their respective covenants under the second deed, indicating that they intended to give effect to their agreement.

In particular, as early as August 8, 1988, after execution of the first deed, Severino authorized petitioner to bring an action for ejectment against the
overstaying tenant and allowed petitioner to pursue the ejectment case to its final conclusion, presumably to secure possession of the property in petitioners
favor. Petitioner also applied for a loan, which was approved by Philam Life, to complete payment of the stipulated price. After making extensive repairs
with the knowledge of Severino, petitioner moved into the premises and actually occupied the same for three years before this action was brought. Moreover,
simultaneous with the execution of the second deed, petitioner gave Severino P300,000.00 in earnest money, which under Article 1482[31] of the New Civil
Code, is part of the purchase price and proof of perfection of the contract.

5
What may have led the lower courts into incorrectly believing that the second deed was simulated is Exhibit D - a document in which petitioner declared that
the deed was executed only for the purpose of helping Severino eject the tenant. However, a perusal of this document reveals that it made reference to the
first deed and not the second deed, which was executed only after Exhibit D. So that while the first deed was qualified by stipulations contained in Exhibit D,
the same cannot be said of the second deed which was signed by both parties.

Further, the fact that Severino executed the two deeds in question, primarily so that petitioner could eject the tenant and enter into a loan/mortgage contract
with Philam Life, is to our mind, a strong indication that he intended to transfer ownership of the property to petitioner. For why else would he authorize the
latter to sue the tenant for ejectment under a claim of ownership, if he truly did not intend to sell the property to petitioner in the first place? Needless to state,
it does not make sense for Severino to allow petitioner to pursue the ejectment case, in petitioners own name, with petitioner arguing that he had bought the
property from Severino and thus entitled to possession thereof, if petitioner did not have any right to the property.

Also worth noting is the fact that in the case filed by Severinos tenant against Severino and petitioner in 1989, assailing the validity of the sale made to
petitioner, Severino explicitly asserted in his sworn answer to the complaint that the sale was a legitimate transaction. He further alleged that the ejectment
case filed by petitioner against the tenant was a legitimate action by an owner against one who refuses to turn over possession of his property.[32]

Our attention is also drawn to the fact that the genuineness and due execution of the second deed was not denied by Severino. Except to allege that he was
not physically present when the second deed was notarized before the notary public, Severino did not assail the truth of its contents nor deny that he ever
signed the same. As a matter of fact, he even admitted that he affixed his signature on the second deed to help petitioner acquire a loan. This can only signify
that he consented to the manner proposed by petitioner for payment of the balance and that he accepted the stipulated price of P2,000,000.00 as consideration
for the sale.

Since the genuineness and due execution of the second deed was not seriously put in issue, it should be upheld as the best evidence of the intent and true
agreement of the parties. Oral testimony, depending as it does exclusively on human memory, is not as reliable as written or documentary evidence.[33]

It should be emphasized that the non-appearance of the parties before the notary public who notarized the deed does not necessarily nullify nor render the
parties transaction void ab initio. We have held previously that the provision of Article 1358[34] of the New Civil Code on the necessity of a public
document is only for convenience, not for validity or enforceability. Failure to follow the proper form does not invalidate a contract. Where a contract is not
in the form prescribed by law, the parties can merely compel each other to observe that form, once the contract has been perfected.[35] This is consistent with
the basic principle that contracts are obligatory in whatever form they may have been entered into, provided all essential requisites are present.[36]

The elements of a valid contract of sale under Art. 1458 of the Civil Code are: (1) consent or meeting of the minds; (2) determinate subject matter; and (3)
price certain in money or its equivalent.[37] In the instant case, the second deed reflects the presence of all these elements and as such, there is already a
perfected contract of sale.

Respondents contention that the second deed was correctly nullified by the lower court because Severinos wife, Adela, in whose name the property was
titled, did not sign the same, is unavailing. The records are replete with admissions made by Adela that she had agreed with her husband to sell the
property[38] which is conjugal in nature[39] and that she was aware of this particular transaction with petitioner. She also said that it was Severino who
actually administered their properties with her consent, because she did not consider this as her responsibility.[40]

We also observe that Severinos testimony in court contained (1) admissions that he indeed agreed to sell the property and (2) references to petitioners failure
to pay the purchase price.[41] He did not mention that he did not intend at all to sell the property to petitioner and instead, stressed the fact that the purchase
price had not yet been paid. Why would Severino stress non-payment if there was no sale at all?

However, it is well-settled that non-payment of the purchase price is not among the instances where the law declares a contract to be null and void. It should
be pointed out that the second deed specifically provides:

That for and in consideration of the sum of TWO MILLION PESOS (P2,000,000.00), Philippine Currency paid in full by HENRY R. PEALOSA, receipt of
which is hereby acknowledged by me to my full satisfaction, I hereby by these presents, sells (sic), cede, convey and otherwise dispose of the above
described parcel of land, unto HENRY R. PEALOSA, his heirs, successors and assigns, free from all liens and encumbrances.

xxx

(SGD.)
SEVERINO C. SANTOS
VENDOR

x x x[42]

As can be seen from above, the contract in this case is absolute in nature and is devoid of any proviso that title to the property is reserved in the seller until
full payment of the purchase price. Neither does the second deed give Severino a unilateral right to resolve the contract the moment the buyer fails to pay
within a fixed period.[43] At most, the non-payment of the contract price merely results in a breach of contract for non-performance and warrants an action
for rescission or specific performance under Article 1191 of the Civil Code.[44]

Be that as it may, we agree with petitioner that although the law allows rescission as a remedy for breach of contract, the same may not be availed of by
respondents in this case. To begin with, it was Severino who prevented full payment of the stipulated price when he refused to deliver the owners original
duplicate title to Philam Life. His refusal to cooperate was unjustified, because as Severino himself admitted, he signed the deed precisely to enable petitioner
to acquire the loan. He also knew that the property was to be given as security therefor. Thus, it cannot be said that petitioner breached his obligation towards
Severino since the former has always been willing to and could comply with what was incumbent upon him.

In sum, the only conclusion which can be deduced from the aforesaid circumstances is that ownership of the property has been transferred to petitioner.
Article 1477 of the Civil Code states that ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof. It is
undisputed that the property was placed in the control and possession of petitioner[45] when he came into material possession thereof after judgment in the
ejectment case. Not only was the contract of sale perfected, but also actual delivery of the property effectively consummated the sale.

WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals dated December 29, 1997 and its resolution dated April 15, 1998 in CA-
G.R. CV No. 45206 which had affirmed the judgment of the Regional Trial Court of Quezon City, Branch 78, are REVERSED and SET ASIDE. A new
judgment is hereby rendered UPHOLDING the validity of Exhibit B, the Deed of Absolute Sale dated September 12, 1988, entered into between the parties.
The Landbank of the Philippines is further ordered to RELEASE to respondents the amount of P1,700,000.00 held in escrow, representing the balance of the
purchase price agreed upon by the parties under the deed of absolute sale. Finally, the respondents are ordered to DELIVER to petitioner the owners
duplicate copy of TCT No. PT-23458 after said release, with the corresponding payment of taxes due. Costs against respondents.

SO ORDERED.

THIRD DIVISION
[G.R. No. 112212. March 2, 1998]

6
GREGORIO FULE, petitioner, vs. COURT OF APPEALS, NINEVETCH CRUZ and JUAN BELARMINO, respondents.
DECISION
ROMERO, J.:

This petition for review on certiorari questions the affirmance by the Court of Appeals of the decision[1] of the Regional Trial Court of San Pablo City,
Branch 30, dismissing the complaint that prayed for the nullification of a contract of sale of a 10-hectare property in Tanay, Rizal in consideration of the
amount of P40,000.00 and a 2.5 carat emerald-cut diamond (Civil Case No. SP-2455). The lower courts decision disposed of the case as follows:

WHEREFORE, premises considered, the Court hereby renders judgment dismissing the complaint for lack of merit and ordering plaintiff to pay:

1. Defendant Dra. Ninevetch M. Cruz the sum of P300,000.00 as and for moral damages and the sum of P100,000.00 as and for exemplary damages;

2. Defendant Atty. Juan Belarmino the sum of P250,000.00 as and for moral damages and the sum of P150,000.00 as and for exemplary damages;

3. Defendant Dra. Cruz and Atty. Belarmino the sum of P25,000.00 each as and for attorneys fees and litigation expenses; and

4. The costs of suit.

SO ORDERED.

As found by the Court of Appeals and the lower court, the antecedent facts of this case are as follows:

Petitioner Gregorio Fule, a banker by profession and a jeweler at the same time, acquired a 10-hectare property in Tanay, Rizal (hereinafter Tanay property),
covered by Transfer Certificate of Title No. 320725 which used to be under the name of Fr. Antonio Jacobe. The latter had mortgaged it earlier to the Rural
Bank of Alaminos (the Bank), Laguna, Inc. to secure a loan in the amount of P10,000.00, but the mortgage was later foreclosed and the property offered for
public auction upon his default.

In July 1984, petitioner, as corporate secretary of the bank, asked Remelia Dichoso and Oliva Mendoza to look for a buyer who might be interested in the
Tanay property. The two found one in the person of herein private respondent Dr. Ninevetch Cruz. It so happened that at the time, petitioner had shown
interest in buying a pair of emerald-cut diamond earrings owned by Dr. Cruz which he had seen in January of the same year when his mother examined and
appraised them as genuine. Dr. Cruz, however, declined petitioners offer to buy the jewelry for P100,000.00. Petitioner then made another bid to buy them
for US$6,000.00 at the exchange rate of $1.00 to P25.00. At this point, petitioner inspected said jewelry at the lobby of the Prudential Bank branch in San
Pablo City and then made a sketch thereof. Having sketched the jewelry for twenty to thirty minutes, petitioner gave them back to Dr. Cruz who again
refused to sell them since the exchange rate of the peso at the time appreciated to P19.00 to a dollar.

Subsequently, however, negotiations for the barter of the jewelry and the Tanay property ensued. Dr. Cruz requested herein private respondent Atty. Juan
Belarmino to check the property who, in turn, found out that no sale or barter was feasible because the one-year period for redemption of the said property
had not yet expired at the time.

In an effort to cut through any legal impediment, petitioner executed on October 19, 1984, a deed of redemption on behalf of Fr. Jacobe purportedly in the
amount of P15,987.78, and on even date, Fr. Jacobe sold the property to petitioner for P75,000.00. The haste with which the two deeds were executed is
shown by the fact that the deed of sale was notarized ahead of the deed of redemption. As Dr. Cruz had already agreed to the proposed barter, petitioner went
to Prudential Bank once again to take a look at the jewelry.

In the afternoon of October 23, 1984, petitioner met Atty. Belarmino at the latters residence to prepare the documents of sale.[2] Dr. Cruz herself was not
around but Atty. Belarmino was aware that she and petitioner had previously agreed to exchange a pair of emerald-cut diamond earrings for the Tanay
property. Atty. Belarmino accordingly caused the preparation of a deed of absolute sale while petitioner and Dr. Cruz attended to the safekeeping of the
jewelry.

The following day, petitioner, together with Dichoso and Mendoza, arrived at the residence of Atty. Belarmino to finally execute a deed of absolute sale.
Petitioner signed the deed and gave Atty. Belarmino the amount of P13,700.00 for necessary expenses in the transfer of title over the Tanay property.
Petitioner also issued a certification to the effect that the actual consideration of the sale was P200,000.00 and not P80,000.00 as indicated in the deed of
absolute sale. The disparity between the actual contract price and the one indicated on the deed of absolute sale was purportedly aimed at minimizing the
amount of the capital gains tax that petitioner would have to shoulder. Since the jewelry was appraised only at P160,000.00, the parties agreed that the
balance of P40,000.00 would just be paid later in cash.

As pre-arranged, petitioner left Atty. Belarminos residence with Dichoso and Mendoza and headed for the bank, arriving there at past 5:00 p.m. Dr. Cruz also
arrived shortly thereafter, but the cashier who kept the other key to the deposit box had already left the bank. Dr. Cruz and Dichoso, therefore, looked for said
cashier and found him having a haircut. As soon as his haircut was finished, the cashier returned to the bank and arrived there at 5:48 p.m., ahead of Dr. Cruz
and Dichoso who arrived at 5:55 p.m. Dr. Cruz and the cashier then opened the safety deposit box, the former retrieving a transparent plastic or cellophane
bag with the jewelry inside and handing over the same to petitioner. The latter took the jewelry from the bag, went near the electric light at the banks lobby,
held the jewelry against the light and examined it for ten to fifteen minutes. After a while, Dr. Cruz asked, Okay na ba iyan? Petitioner expressed his
satisfaction by nodding his head.

For services rendered, petitioner paid the agents, Dichoso and Mendoza, the amount of US$300.00 and some pieces of jewelry. He did not, however, give
them half of the pair of earrings in question which he had earlier promised.

Later, at about 8:00 oclock in the evening of the same day, petitioner arrived at the residence of Atty. Belarmino complaining that the jewelry given to him
was fake. He then used a tester to prove the alleged fakery. Meanwhile, at 8:30 p.m., Dichoso and Mendoza went to the residence of Dr. Cruz to borrow her
car so that, with Atty. Belarmino, they could register the Tanay property. After Dr. Cruz had agreed to lend her car, Dichoso called up Atty. Belarmino. The
latter, however, instructed Dichoso to proceed immediately to his residence because petitioner was there. Believing that petitioner had finally agreed to give
them half of the pair of earrings, Dichoso went posthaste to the residence of Atty. Belarmino only to find petitioner already demonstrating with a tester that
the earrings were fake. Petitioner then accused Dichoso and Mendoza of deceiving him which they, however, denied. They countered that petitioner could
not have been fooled because he had vast experience regarding jewelry. Petitioner nonetheless took back the US$300.00 and jewelry he had given them.

Thereafter, the group decided to go to the house of a certain Macario Dimayuga, a jeweler, to have the earrings tested. Dimayuga, after taking one look at the
earrings, immediately declared them counterfeit. At around 9:30 p.m., petitioner went to one Atty. Reynaldo Alcantara residing at Lakeside Subdivision in
San Pablo City, complaining about the fake jewelry. Upon being advised by the latter, petitioner reported the matter to the police station where Dichoso and
Mendoza likewise executed sworn statements.

On October 26, 1984, petitioner filed a complaint before the Regional Trial Court of San Pablo City against private respondents praying, among other things,
that the contract of sale over the Tanay property be declared null and void on the ground of fraud and deceit.

On October 30, 1984, the lower court issued a temporary restraining order directing the Register of Deeds of Rizal to refrain from acting on the pertinent
documents involved in the transaction. On November 20, 1984, however, the same court lifted its previous order and denied the prayer for a writ of
preliminary injunction.

7
After trial, the lower court rendered its decision on March 7, 1989. Confronting the issue of whether or not the genuine pair of earrings used as consideration
for the sale was delivered by Dr. Cruz to petitioner, the lower court said:

The Court finds that the answer is definitely in the affirmative. Indeed, Dra. Cruz delivered (the) subject jewelries (sic) into the hands of plaintiff who even
raised the same nearer to the lights of the lobby of the bank near the door. When asked by Dra. Cruz if everything was in order, plaintiff even nodded his
satisfaction (Hearing of Feb. 24, 1988). At that instance, plaintiff did not protest, complain or beg for additional time to examine further the jewelries (sic).
Being a professional banker and engaged in the jewelry business plaintiff is conversant and competent to detect a fake diamond from the real thing. Plaintiff
was accorded the reasonable time and opportunity to ascertain and inspect the jewelries (sic) in accordance with Article 1584 of the Civil Code. Plaintiff took
delivery of the subject jewelries (sic) before 6:00 p.m. of October 24, 1984. When he went at 8:00 p.m. that same day to the residence of Atty. Belarmino
already with a tester complaining about some fake jewelries (sic), there was already undue delay because of the lapse of a considerable length of time since
he got hold of subject jewelries (sic). The lapse of two (2) hours more or less before plaintiff complained is considered by the Court as unreasonable delay.[3]

The lower court further ruled that all the elements of a valid contract under Article 1458 of the Civil Code were present, namely: (a) consent or meeting of
the minds; (b) determinate subject matter, and (c) price certain in money or its equivalent. The same elements, according to the lower court, were present
despite the fact that the agreement between petitioner and Dr. Cruz was principally a barter contract. The lower court explained thus:

x x x. Plaintiffs ownership over the Tanay property passed unto Dra. Cruz upon the constructive delivery thereof by virtue of the Deed of Absolute Sale (Exh.
D). On the other hand, the ownership of Dra. Cruz over the subject jewelries (sic) transferred to the plaintiff upon her actual personal delivery to him at the
lobby of the Prudential Bank. It is expressly provided by law that the thing sold shall be understood as delivered, when it is placed in the control and
possession of the vendee (Art. 1497, Civil Code; Kuenzle & Straff vs. Watson & Co. 13 Phil. 26). The ownership and/or title over the jewelries (sic) was
transmitted immediately before 6:00 p.m. of October 24, 1984. Plaintiff signified his approval by nodding his head. Delivery or tradition, is one of the modes
of acquiring ownership (Art. 712, Civil Code).

Similarly, when Exhibit D was executed, it was equivalent to the delivery of the Tanay property in favor of Dra. Cruz. The execution of the public instrument
(Exh. D) operates as a formal or symbolic delivery of the Tanay property and authorizes the buyer, Dra. Cruz to use the document as proof of ownership
(Florendo v. Foz, 20 Phil. 399). More so, since Exhibit D does not contain any proviso or stipulation to the effect that title to the property is reserved with the
vendor until full payment of the purchase price, nor is there a stipulation giving the vendor the right to unilaterally rescind the contract the moment the
vendee fails to pay within a fixed period (Taguba v. Vda. De Leon, 132 SCRA 722; Luzon Brokerage Co. Inc. vs. Maritime Building Co. Inc. 86 SCRA 305;
Froilan v. Pan Oriental Shipping Co. et al. 12 SCRA 276).[4]

Aside from concluding that the contract of barter or sale had in fact been consummated when petitioner and Dr. Cruz parted ways at the bank, the trial court
likewise dwelt on the unexplained delay with which petitioner complained about the alleged fakery. Thus:

x x x. Verily, plaintiff is already estopped to come back after the lapse of considerable length of time to claim that what he got was fake. He is a Business
Management graduate of La Salle University, Class 1978-79, a professional banker as well as a jeweler in his own right. Two hours is more than enough time
to make a switch of a Russian diamond with the real diamond. It must be remembered that in July 1984 plaintiff made a sketch of the subject jewelries (sic)
at the Prudential Bank. Plaintiff had a tester at 8:00 p.m. at the residence of Atty. Belarmino. Why then did he not bring it out when he was examining the
subject jewelries (sic) at about 6:00 p.m. in the banks lobby? Obviously, he had no need for it after being satisfied of the genuineness of the subject jewelries
(sic). When Dra. Cruz and plaintiff left the bank both of them had fully performed their respective prestations. Once a contract is shown to have been
consummated or fully performed by the parties thereto, its existence and binding effect can no longer be disputed. It is irrelevant and immaterial to dispute
the due execution of a contract if both of them have in fact performed their obligations thereunder and their respective signatures and those of their witnesses
appear upon the face of the document (Weldon Construction v. CA G.R. No. L-35721, Oct. 12, 1987).[5]

Finally, in awarding damages to the defendants, the lower court remarked:

The Court finds that plaintiff acted in wanton bad faith. Exhibit 2-Belarmino purports to show that the Tanay property is worth P25,000.00. However, also on
that same day it was executed, the propertys worth was magnified at P75,000.00 (Exh. 3-Belarmino). How could in less than a day (Oct. 19, 1984) the value
would (sic) triple under normal circumstances? Plaintiff, with the assistance of his agents, was able to exchange the Tanay property which his bank valued
only at P25,000.00 in exchange for a genuine pair of emerald cut diamond worth P200,000.00 belonging to Dra. Cruz. He also retrieved the US$300.00 and
jewelries (sic) from his agents. But he was not satisfied in being able to get subject jewelries for a song. He had to file a malicious and unfounded case
against Dra. Cruz and Atty. Belarmino who are well known, respected and held in high esteem in San Pablo City where everybody practically knows
everybody. Plaintiff came to Court with unclean hands dragging the defendants and soiling their clean and good name in the process. Both of them are near
the twilight of their lives after maintaining and nurturing their good reputation in the community only to be stunned with a court case. Since the filing of this
case on October 26, 1984 up to the present they were living under a pall of doubt. Surely, this affected not only their earning capacity in their practice of their
respective professions, but also they suffered besmirched reputations. Dra. Cruz runs her own hospital and defendant Belarmino is a well respected legal
practitioner.

The length of time this case dragged on during which period their reputation were (sic) tarnished and their names maligned by the pendency of the case, the
Court is of the belief that some of the damages they prayed for in their answers to the complaint are reasonably proportionate to the sufferings they
underwent (Art. 2219, New Civil Code). Moreover, because of the falsity, malice and baseless nature of the complaint defendants were compelled to litigate.
Hence, the award of attorneys fees is warranted under the circumstances (Art. 2208, New Civil Code).[6]

From the trial courts adverse decision, petitioner elevated the matter to the Court of Appeals. On October 20, 1992, the Court of Appeals, however, rendered
a decision[7]affirming in toto the lower courts decision. His motion for reconsideration having been denied on October 19, 1993, petitioner now files the
instant petition alleging that:

I. THE TRIAL COURT ERRED IN DISMISSING PLAINTIFFS COMPLAINT AND IN HOLDING THAT THE PLAINTIFF ACTUALLY RECEIVED A
GENUINE PAIR OF EMERALD CUT DIAMOND EARRING(S) FROM DEFENDANT CRUZ x x x;

II. THE TRIAL COURT ERRED IN AWARDING MORAL AND EXEMPLARY DAMAGES AND ATTORNEYS FEES IN FAVOR OF DEFENDANTS
AND AGAINST THE PLAINTIFF IN THIS CASE; and

III.THE TRIAL COURT ERRED IN NOT DECLARING THE DEED OF SALE OF THE TANAY PROPERTY (EXH. `D) AS NULL AND VOID OR IN
NOT ANNULLING THE SAME, AND IN FAILING TO GRANT REASONABLE DAMAGES IN FAVOR OF THE PLAINTIFF.[8]

As to the first allegation, the Court observes that petitioner is essentially raising a factual issue as it invites us to examine and weigh anew the facts regarding
the genuineness of the earrings bartered in exchange for the Tanay property. This, of course, we cannot do without unduly transcending the limits of our
review power in petitions of this nature which are confined merely to pure questions of law. We accord, as a general rule, conclusiveness to a lower courts
findings of fact unless it is shown, inter alia, that: (1) the conclusion is a finding grounded on speculations, surmises or conjectures; (2) the inference is
manifestly mistaken, absurd and impossible; (3) when there is a grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5)
when the findings of fact are conflicting; and (6) when the Court of Appeals, in making its findings, went beyond the issues of the case and the same is
contrary to the admission of both parties.[9] We find nothing, however, that warrants the application of any of these exceptions.

Consequently, this Court upholds the appellate courts findings of fact especially because these concur with those of the trial court which, upon a thorough
scrutiny of the records, are firmly grounded on evidence presented at the trial.[10] To reiterate, this Courts jurisdiction is only limited to reviewing errors of

8
law in the absence of any showing that the findings complained of are totally devoid of support in the record or that they are glaringly erroneous as to
constitute serious abuse of discretion.[11]

Nonetheless, this Court has to closely delve into petitioners allegation that the lower courts decision of March 7, 1989 is a ready-made one because it was
handed down a day after the last date of the trial of the case.[12] Petitioner, in this regard, finds it incredible that Judge J. Ausberto Jaramillo was able to
write a 12-page single-spaced decision, type it and release it on March 7, 1989, less than a day after the last hearing on March 6, 1989. He stressed that Judge
Jaramillo replaced Judge Salvador de Guzman and heard only his rebuttal testimony.

This allegation is obviously no more than a desperate effort on the part of petitioner to disparage the lower courts findings of fact in order to convince this
Court to review the same. It is noteworthy that Atty. Belarmino clarified that Judge Jaramillo had issued the first order in the case as early as March 9, 1987
or two years before the rendition of the decision. In fact, Atty. Belarmino terminated presentation of evidence on October 13, 1987, while Dr. Cruz finished
hers on February 4, 1989, or more than a month prior to the rendition of the judgment. The March 6, 1989 hearing was conducted solely for the presentation
of petitioner's rebuttal testimony.[13] In other words, Judge Jaramillo had ample time to study the case and write the decision because the rebuttal evidence
would only serve to confirm or verify the facts already presented by the parties.

The Court finds nothing anomalous in the said situation. No proof has been adduced that Judge Jaramillo was motivated by a malicious or sinister intent in
disposing of the case with dispatch. Neither is there proof that someone else wrote the decision for him. The immediate rendition of the decision was no more
than Judge Jaramillos compliance with his duty as a judge to dispose of the courts business promptly and decide cases within the required periods.[14] The
two-year period within which Judge Jaramillo handled the case provided him with all the time to study it and even write down its facts as soon as these were
presented to court. In fact, this Court does not see anything wrong in the practice of writing a decision days before the scheduled promulgation of judgment
and leaving the dispositive portion for typing at a time close to the date of promulgation, provided that no malice or any wrongful conduct attends its
adoption.[15] The practice serves the dual purposes of safeguarding the confidentiality of draft decisions and rendering decisions with promptness. Neither
can Judge Jaramillo be made administratively answerable for the immediate rendition of the decision. The acts of a judge which pertain to his judicial
functions are not subject to disciplinary power unless they are committed with fraud, dishonesty, corruption or bad faith.[16] Hence, in the absence of
sufficient proof to the contrary, Judge Jaramillo is presumed to have performed his job in accordance with law and should instead be commended for his
close attention to duty.

Having disposed of petitioners first contention, we now come to the core issue of this petition which is whether the Court of Appeals erred in upholding the
validity of the contract of barter or sale under the circumstances of this case.

The Civil Code provides that contracts are perfected by mere consent. From this moment, the parties are bound not only to the fulfillment of what has been
expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law.[17] A contract of
sale is perfected at the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the price.[18] Being consensual, a
contract of sale has the force of law between the contracting parties and they are expected to abide in good faith by their respective contractual commitments.
Article 1358 of the Civil Code which requires the embodiment of certain contracts in a public instrument, is only for convenience,[19] and registration of the
instrument only adversely affects third parties.[20] Formal requirements are, therefore, for the benefit of third parties. Non-compliance therewith does not
adversely affect the validity of the contract nor the contractual rights and obligations of the parties thereunder.

It is evident from the facts of the case that there was a meeting of the minds between petitioner and Dr. Cruz. As such, they are bound by the contract unless
there are reasons or circumstances that warrant its nullification. Hence, the problem that should be addressed in this case is whether or not under the facts
duly established herein, the contract can be voided in accordance with law so as to compel the parties to restore to each other the things that have been the
subject of the contract with their fruits, and the price with interest.[21]

Contracts that are voidable or annullable, even though there may have been no damage to the contracting parties are: (1) those where one of the parties is
incapable of giving consent to a contract; and (2) those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud.[22]
Accordingly, petitioner now stresses before this Court that he entered into the contract in the belief that the pair of emerald-cut diamond earrings was
genuine. On the pretext that those pieces of jewelry turned out to be counterfeit, however, petitioner subsequently sought the nullification of said contract on
the ground that it was, in fact, tainted with fraud[23] such that his consent was vitiated.

There is fraud when, through the 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.[24] The records, however, are bare of any evidence manifesting that private respondents employed such insidious words
or machinations to entice petitioner into entering the contract of barter. Neither is there any evidence showing that Dr. Cruz induced petitioner to sell his
Tanay property or that she cajoled him to take the earrings in exchange for said property. On the contrary, Dr. Cruz did not initially accede to petitioners
proposal to buy the said jewelry. Rather, it appears that it was petitioner, through his agents, who led Dr. Cruz to believe that the Tanay property was worth
exchanging for her jewelry as he represented that its value was P400,000.00 or more than double that of the jewelry which was valued only at P160,000.00. If
indeed petitioners property was truly worth that much, it was certainly contrary to the nature of a businessman-banker like him to have parted with his real
estate for half its price. In short, it was in fact petitioner who resorted to machinations to convince Dr. Cruz to exchange her jewelry for the Tanay property.

Moreover, petitioner did not clearly allege mistake as a ground for nullification of the contract of sale. Even assuming that he did, petitioner cannot
successfully invoke the same. To invalidate a contract, mistake must refer to the substance of the thing that is the object of the contract, or to those conditions
which have principally moved one or both parties to enter into the contract.[25] An example of mistake as to the object of the contract is the substitution of a
specific thing contemplated by the parties with another.[26] In his allegations in the complaint, petitioner insinuated that an inferior one or one that had only
Russian diamonds was substituted for the jewelry he wanted to exchange with his 10-hectare land. He, however, failed to prove the fact that prior to the
delivery of the jewelry to him, private respondents endeavored to make such substitution.

Likewise, the facts as proven do not support the allegation that petitioner himself could be excused for the mistake. On account of his work as a banker-
jeweler, it can be rightfully assumed that he was an expert on matters regarding gems. He had the intellectual capacity and the business acumen as a banker to
take precautionary measures to avert such a mistake, considering the value of both the jewelry and his land. The fact that he had seen the jewelry before
October 24, 1984 should not have precluded him from having its genuineness tested in the presence of Dr. Cruz. Had he done so, he could have avoided the
present situation that he himself brought about. Indeed, the finger of suspicion of switching the genuine jewelry for a fake inevitably points to him. Such a
mistake caused by manifest negligence cannot invalidate a juridical act.[27] As the Civil Code provides, (t)here is no mistake if the party alleging it knew the
doubt, contingency or risk affecting the object of the contract.[28]

Furthermore, petitioner was afforded the reasonable opportunity required in Article 1584 of the Civil Code within which to examine the jewelry as he in fact
accepted them when asked by Dr. Cruz if he was satisfied with the same.[29] By taking the jewelry outside the bank, petitioner executed an act which was
more consistent with his exercise of ownership over it. This gains credence when it is borne in mind that he himself had earlier delivered the Tanay property
to Dr. Cruz by affixing his signature to the contract of sale. That after two hours he later claimed that the jewelry was not the one he intended in exchange for
his Tanay property, could not sever the juridical tie that now bound him and Dr. Cruz. The nature and value of the thing he had taken preclude its return after
that supervening period within which anything could have happened, not excluding the alteration of the jewelry or its being switched with an inferior kind.

Both the trial and appellate courts, therefore, correctly ruled that there were no legal bases for the nullification of the contract of sale. Ownership over the
parcel of land and the pair of emerald-cut diamond earrings had been transferred to Dr. Cruz and petitioner, respectively, upon the actual and constructive
delivery thereof.[30] Said contract of sale being absolute in nature, title passed to the vendee upon delivery of the thing sold since there was no stipulation in
the contract that title to the property sold has been reserved in the seller until full payment of the price or that the vendor has the right to unilaterally resolve
the contract the moment the buyer fails to pay within a fixed period.[31] Such stipulations are not manifest in the contract of sale.

9
While it is true that the amount of P40,000.00 forming part of the consideration was still payable to petitioner, its nonpayment by Dr. Cruz is not a sufficient
cause to invalidate the contract or bar the transfer of ownership and possession of the things exchanged considering the fact that their contract is silent as to
when it becomes due and demandable.[32]

Neither may such failure to pay the balance of the purchase price result in the payment of interest thereon. Article 1589 of the Civil Code prescribes the
payment of interest by the vendee for the period between the delivery of the thing and the payment of the price in the following cases:

(1) Should it have been so stipulated;

(2) Should the thing sold and delivered produce fruits or income;

(3) Should he be in default, from the time of judicial or extrajudicial demand for the payment of the price.

Not one of these cases obtains here. This case should, of course, be distinguished from De la Cruz v. Legaspi,[33] where the court held that failure to pay the
consideration after the notarization of the contract as previously promised resulted in the vendees liability for payment of interest. In the case at bar, there is
no stipulation for the payment of interest in the contract of sale nor proof that the Tanay property produced fruits or income. Neither did petitioner demand
payment of the price as in fact he filed an action to nullify the contract of sale.

All told, petitioner appears to have elevated this case to this Court for the principal reason of mitigating the amount of damages awarded to both private
respondents which petitioner considers as exorbitant. He contends that private respondents do not deserve at all the award of damages. In fact, he pleads for
the total deletion of the award as regards private respondent Belarmino whom he considers a mere nominal party because no specific claim for damages
against him was alleged in the complaint. When he filed the case, all that petitioner wanted was that Atty. Belarmino should return to him the owners
duplicate copy of TCT No. 320725, the deed of sale executed by Fr. Antonio Jacobe, the deed of redemption and the check alloted for expenses. Petitioner
alleges further that Atty. Belarmino should not have delivered all those documents to Dr. Cruz because as the lawyer for both the seller and the buyer in the
sale contract, he should have protected the rights of both parties. Moreover, petitioner asserts that there was no firm basis for damages except for Atty.
Belarminos uncorroborated testimony.[34]

Moral and exemplary damages may be awarded without proof of pecuniary loss. In awarding such damages, the court shall take into account the
circumstances obtaining in the case and assess damages according to its discretion.[35] To warrant the award of damages, it must be shown that the person to
whom these are awarded has sustained injury. He must likewise establish sufficient data upon which the court can properly base its estimate of the amount of
damages.[36] Statements of facts should establish such data rather than mere conclusions or opinions of witnesses.[37] Thus:

x x x. For moral damages to be awarded, it is essential that the claimant must have satisfactorily proved during the trial the existence of the factual basis of
the damages and its causal connection with the adverse partys acts. If the court has no proof or evidence upon which the claim for moral damages could be
based, such indemnity could not be outrightly awarded. The same holds true with respect to the award of exemplary damages where it must be shown that the
party acted in a wanton, oppressive or malevolent manner.[38]

In this regard, the lower court appeared to have awarded damages on a ground analogous to malicious prosecution under Article 2219(8) of the Civil
Code[39] as shown by (1) petitioners wanton bad faith in bloating the value of the Tanay property which he exchanged for a genuine pair of emerald-cut
diamond worth P200,000.00; and (2) his filing of a malicious and unfounded case against private respondents who were well known, respected and held in
high esteem in San Pablo City where everybody practically knows everybody and whose good names in the twilight of their lives were soiled by petitioners
coming to court with unclean hands, thereby affecting their earning capacity in the exercise of their respective professions and besmirching their reputation.

For its part, the Court of Appeals affirmed the award of damages to private respondents for these reasons:

The malice with which Fule filed this case is apparent. Having taken possession of the genuine jewelry of Dra. Cruz, Fule now wishes to return a fake
jewelry to Dra. Cruz and, more than that, get back the real property, which his bank owns. Fule has obtained a genuine jewelry which he could sell anytime,
anywhere and to anybody, without the same being traced to the original owner for practically nothing. This is plain and simple, unjust enrichment.[40]

While, as a rule, moral damages cannot be recovered from a person who has filed a complaint against another in good faith because it is not sound policy to
place a penalty on the right to litigate,[41] the same, however, cannot apply in the case at bar. The factual findings of the courts a quo to the effect that
petitioner filed this case because he was the victim of fraud; that he could not have been such a victim because he should have examined the jewelry in
question before accepting delivery thereof, considering his exposure to the banking and jewelry businesses; and that he filed the action for the nullification of
the contract of sale with unclean hands, all deserve full faith and credit to support the conclusion that petitioner was motivated more by ill will than a sincere
attempt to protect his rights in commencing suit against respondents.

As pointed out earlier, a closer scrutiny of the chain of events immediately prior to and on October 24, 1984 itself would amply demonstrate that petitioner
was not simply negligent in failing to exercise due diligence to assure himself that what he was taking in exchange for his property were genuine diamonds.
He had rather placed himself in a situation from which it preponderantly appears that his seeming ignorance was actually just a ruse. Indeed, he had
unnecessarily dragged respondents to face the travails of litigation in speculating at the possible favorable outcome of his complaint when he should have
realized that his supposed predicament was his own making. We, therefore, see here no semblance of an honest and sincere belief on his part that he was
swindled by respondents which would entitle him to redress in court. It must be noted that before petitioner was able to convince Dr. Cruz to exchange her
jewelry for the Tanay property, petitioner took pains to thoroughly examine said jewelry, even going to the extent of sketching their appearance. Why at the
precise moment when he was about to take physical possession thereof he failed to exert extra efforts to check their genuineness despite the large
consideration involved has never been explained at all by petitioner. His acts thus failed to accord with what an ordinary prudent man would have done in the
same situation. Being an experienced banker and a businessman himself who deliberately skirted a legal impediment in the sale of the Tanay property and to
minimize the capital gains tax for its exchange, it was actually gross recklessness for him to have merely conducted a cursory examination of the jewelry
when every opportunity for doing so was not denied him. Apparently, he carried on his person a tester which he later used to prove the alleged fakery but
which he did not use at the time when it was most needed. Furthermore, it took him two more hours of unexplained delay before he complained that the
jewelry he received were counterfeit. Hence, we stated earlier that anything could have happened during all the time that petitioner was in complete
possession and control of the jewelry, including the possibility of substituting them with fake ones, against which respondents would have a great deal of
difficulty defending themselves. The truth is that petitioner even failed to successfully prove during trial that the jewelry he received from Dr. Cruz were not
genuine. Add to that the fact that he had been shrewd enough to bloat the Tanay propertys price only a few days after he purchased it at a much lower value.
Thus, it is our considered view that if this slew of circumstances were connected, like pieces of fabric sewn into a quilt, they would sufficiently demonstrate
that his acts were not merely negligent but rather studied and deliberate.

We do not have here, therefore, a situation where petitioners complaint was simply found later to be based on an erroneous ground which, under settled
jurisprudence, would not have been a reason for awarding moral and exemplary damages.[42] Instead, the cause of action of the instant case appears to have
been contrived by petitioner himself. In other words, he was placed in a situation where he could not honestly evaluate whether his cause of action has a
semblance of merit, such that it would require the expertise of the courts to put it to a test. His insistent pursuit of such case then coupled with circumstances
showing that he himself was guilty in bringing about the supposed wrongdoing on which he anchored his cause of action would render him answerable for all
damages the defendant may suffer because of it. This is precisely what took place in the petition at bar and we find no cogent reason to disturb the findings of
the courts below that respondents in this case suffered considerable damages due to petitioners unwarranted action.

WHEREFORE, the decision of the Court of Appeals dated October 20, 1992 is hereby AFFIRMED in toto. Dr. Cruz, however, is ordered to pay petitioner
the balance of the purchase price of P40,000.00 within ten (10) days from the finality of this decision. Costs against petitioner.

10
SO ORDERED.
G.R. No. L-11491 August 23, 1918

ANDRES QUIROGA, plaintiff-appellant,

vs.
PARSONS HARDWARE CO., defendant-appellee.

Alfredo Chicote, Jose Arnaiz and Pascual B. Azanza for appellant.

Crossfield & O'Brien for appellee.

AVANCEA, J.:

On January 24, 1911, in this city of manila, a contract in the following tenor was entered into by and between the plaintiff, as party of the first part, and J.
Parsons (to whose rights and obligations the present defendant later subrogated itself), as party of the second part:

CONTRACT EXECUTED BY AND BETWEEN ANDRES QUIROGA AND J. PARSONS, BOTH MERCHANTS ESTABLISHED IN MANILA, FOR
THE EXCLUSIVE SALE OF "QUIROGA" BEDS IN THE VISAYAN ISLANDS.

ARTICLE 1. Don Andres Quiroga grants the exclusive right to sell his beds in the Visayan Islands to J. Parsons under the following conditions:

(A) Mr. Quiroga shall furnish beds of his manufacture to Mr. Parsons for the latter's establishment in Iloilo, and shall invoice them at the same price he
has fixed for sales, in Manila, and, in the invoices, shall make and allowance of a discount of 25 per cent of the invoiced prices, as commission on the sale;
and Mr. Parsons shall order the beds by the dozen, whether of the same or of different styles.

(B) Mr. Parsons binds himself to pay Mr. Quiroga for the beds received, within a period of sixty days from the date of their shipment.

(C) The expenses for transportation and shipment shall be borne by M. Quiroga, and the freight, insurance, and cost of unloading from the vessel at the
point where the beds are received, shall be paid by Mr. Parsons.

(D) If, before an invoice falls due, Mr. Quiroga should request its payment, said payment when made shall be considered as a prompt payment, and as
such a deduction of 2 per cent shall be made from the amount of the invoice.

The same discount shall be made on the amount of any invoice which Mr. Parsons may deem convenient to pay in cash.

(E) Mr. Quiroga binds himself to give notice at least fifteen days before hand of any alteration in price which he may plan to make in respect to his
beds, and agrees that if on the date when such alteration takes effect he should have any order pending to be served to Mr. Parsons, such order shall enjoy the
advantage of the alteration if the price thereby be lowered, but shall not be affected by said alteration if the price thereby be increased, for, in this latter case,
Mr. Quiroga assumed the obligation to invoice the beds at the price at which the order was given.

(F) Mr. Parsons binds himself not to sell any other kind except the "Quiroga" beds.

ART. 2. In compensation for the expenses of advertisement which, for the benefit of both contracting parties, Mr. Parsons may find himself obliged to
make, Mr. Quiroga assumes the obligation to offer and give the preference to Mr. Parsons in case anyone should apply for the exclusive agency for any
island not comprised with the Visayan group.

ART. 3. Mr. Parsons may sell, or establish branches of his agency for the sale of "Quiroga" beds in all the towns of the Archipelago where there are no
exclusive agents, and shall immediately report such action to Mr. Quiroga for his approval.

ART. 4. This contract is made for an unlimited period, and may be terminated by either of the contracting parties on a previous notice of ninety days to the
other party.

Of the three causes of action alleged by the plaintiff in his complaint, only two of them constitute the subject matter of this appeal and both substantially
amount to the averment that the defendant violated the following obligations: not to sell the beds at higher prices than those of the invoices; to have an open
establishment in Iloilo; itself to conduct the agency; to keep the beds on public exhibition, and to pay for the advertisement expenses for the same; and to
order the beds by the dozen and in no other manner. As may be seen, with the exception of the obligation on the part of the defendant to order the beds by the
dozen and in no other manner, none of the obligations imputed to the defendant in the two causes of action are expressly set forth in the contract. But the
plaintiff alleged that the defendant was his agent for the sale of his beds in Iloilo, and that said obligations are implied in a contract of commercial agency.
The whole question, therefore, reduced itself to a determination as to whether the defendant, by reason of the contract hereinbefore transcribed, was a
purchaser or an agent of the plaintiff for the sale of his beds.

In order to classify a contract, due regard must be given to its essential clauses. In the contract in question, what was essential, as constituting its cause and
subject matter, is that the plaintiff was to furnish the defendant with the beds which the latter might order, at the price stipulated, and that the defendant was
to pay the price in the manner stipulated. The price agreed upon was the one determined by the plaintiff for the sale of these beds in Manila, with a discount
of from 20 to 25 per cent, according to their class. Payment was to be made at the end of sixty days, or before, at the plaintiff's request, or in cash, if the
defendant so preferred, and in these last two cases an additional discount was to be allowed for prompt payment. These are precisely the essential features of
a contract of purchase and sale. There was the obligation on the part of the plaintiff to supply the beds, and, on the part of the defendant, to pay their price.
These features exclude the legal conception of an agency or order to sell whereby the mandatory or agent received the thing to sell it, and does not pay its
price, but delivers to the principal the price he obtains from the sale of the thing to a third person, and if he does not succeed in selling it, he returns it. By
virtue of the contract between the plaintiff and the defendant, the latter, on receiving the beds, was necessarily obliged to pay their price within the term
fixed, without any other consideration and regardless as to whether he had or had not sold the beds.

It would be enough to hold, as we do, that the contract by and between the defendant and the plaintiff is one of purchase and sale, in order to show that it was
not one made on the basis of a commission on sales, as the plaintiff claims it was, for these contracts are incompatible with each other. But, besides,
examining the clauses of this contract, none of them is found that substantially supports the plaintiff's contention. Not a single one of these clauses
necessarily conveys the idea of an agency. The words commission on sales used in clause (A) of article 1 mean nothing else, as stated in the contract itself,
than a mere discount on the invoice price. The word agency, also used in articles 2 and 3, only expresses that the defendant was the only one that could sell
the plaintiff's beds in the Visayan Islands. With regard to the remaining clauses, the least that can be said is that they are not incompatible with the contract of
purchase and sale.

The plaintiff calls attention to the testimony of Ernesto Vidal, a former vice-president of the defendant corporation and who established and managed the
latter's business in Iloilo. It appears that this witness, prior to the time of his testimony, had serious trouble with the defendant, had maintained a civil suit
against it, and had even accused one of its partners, Guillermo Parsons, of falsification. He testified that it was he who drafted the contract Exhibit A, and,
when questioned as to what was his purpose in contracting with the plaintiff, replied that it was to be an agent for his beds and to collect a commission on
sales. However, according to the defendant's evidence, it was Mariano Lopez Santos, a director of the corporation, who prepared Exhibit A. But, even
supposing that Ernesto Vidal has stated the truth, his statement as to what was his idea in contracting with the plaintiff is of no importance, inasmuch as the

11
agreements contained in Exhibit A which he claims to have drafted, constitute, as we have said, a contract of purchase and sale, and not one of commercial
agency. This only means that Ernesto Vidal was mistaken in his classification of the contract. But it must be understood that a contract is what the law
defines it to be, and not what it is called by the contracting parties.

The plaintiff also endeavored to prove that the defendant had returned beds that it could not sell; that, without previous notice, it forwarded to the defendant
the beds that it wanted; and that the defendant received its commission for the beds sold by the plaintiff directly to persons in Iloilo. But all this, at the most
only shows that, on the part of both of them, there was mutual tolerance in the performance of the contract in disregard of its terms; and it gives no right to
have the contract considered, not as the parties stipulated it, but as they performed it. Only the acts of the contracting parties, subsequent to, and in
connection with, the execution of the contract, must be considered for the purpose of interpreting the contract, when such interpretation is necessary, but not
when, as in the instant case, its essential agreements are clearly set forth and plainly show that the contract belongs to a certain kind and not to another.
Furthermore, the return made was of certain brass beds, and was not effected in exchange for the price paid for them, but was for other beds of another kind;
and for the letter Exhibit L-1, requested the plaintiff's prior consent with respect to said beds, which shows that it was not considered that the defendant had a
right, by virtue of the contract, to make this return. As regards the shipment of beds without previous notice, it is insinuated in the record that these brass beds
were precisely the ones so shipped, and that, for this very reason, the plaintiff agreed to their return. And with respect to the so-called commissions, we have
said that they merely constituted a discount on the invoice price, and the reason for applying this benefit to the beds sold directly by the plaintiff to persons in
Iloilo was because, as the defendant obligated itself in the contract to incur the expenses of advertisement of the plaintiff's beds, such sales were to be
considered as a result of that advertisement.

In respect to the defendant's obligation to order by the dozen, the only one expressly imposed by the contract, the effect of its breach would only entitle the
plaintiff to disregard the orders which the defendant might place under other conditions; but if the plaintiff consents to fill them, he waives his right and
cannot complain for having acted thus at his own free will.

For the foregoing reasons, we are of opinion that the contract by and between the plaintiff and the defendant was one of purchase and sale, and that the
obligations the breach of which is alleged as a cause of action are not imposed upon the defendant, either by agreement or by law.

The judgment appealed from is affirmed, with costs against the appellant. So ordered.

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

G.R. No. L-8506 August 31, 1956

CELESTINO CO & COMPANY, petitioner,

vs.
COLLECTOR OF INTERNAL REVENUE, respondent.

Office of the Solicitor General Ambrosio Padilla, Fisrt Assistant Solicitor General Guillermo E. Torres and Solicitor Federico V. Sian for respondent.

BENGZON, J.:

Appeal from a decision of the Court of Tax Appeals.

Celestino Co & Company is a duly registered general copartnership doing business under the trade name of "Oriental Sash Factory". From 1946 to 1951 it
paid percentage taxes of 7 per cent on the gross receipts of its sash, door and window factory, in accordance with section one hundred eighty-six of the
National Revenue Code imposing taxes on sale of manufactured articles. However in 1952 it began to claim liability only to the contractor's 3 per cent tax
(instead of 7 per cent) under section 191 of the same Code; and having failed to convince the Bureau of Internal Revenue, it brought the matter to the Court
of Tax Appeals, where it also failed. Said the Court:

To support his contention that his client is an ordinary contractor . . . counsel presented . . . duplicate copies of letters, sketches of doors and windows and
price quotations supposedly sent by the manager of the Oriental Sash Factory to four customers who allegedly made special orders to doors and window from
the said factory. The conclusion that counsel would like us to deduce from these few exhibits is that the Oriental Sash Factory does not manufacture ready-
made doors, sash and windows for the public but only upon special order of its select customers. . . . I cannot believe that petitioner company would take, as
in fact it has taken, all the trouble and expense of registering a special trade name for its sash business and then orders company stationery carrying the bold
print "Oriental Sash Factory (Celestino Co & Company, Prop.) 926 Raon St. Quiapo, Manila, Tel. No. 33076, Manufacturers of all kinds of doors, windows,
sashes, furniture, etc. used season-dried and kiln-dried lumber, of the best quality workmanships" solely for the purpose of supplying the needs for doors,
windows and sash of its special and limited customers. One ill note that petitioner has chosen for its tradename and has offered itself to the public as a
"Factory", which means it is out to do business, in its chosen lines on a big scale. As a general rule, sash factories receive orders for doors and windows of
special design only in particular cases but the bulk of their sales is derived from a ready-made doors and windows of standard sizes for the average home.
Moreover, as shown from the investigation of petitioner's book of accounts, during the period from January 1, 1952 to September 30, 1952, it sold sash, doors
and windows worth P188,754.69. I find it difficult to believe that this amount which runs to six figures was derived by petitioner entirely from its few
customers who made special orders for these items.

Even if we were to believe petitioner's claim that it does not manufacture ready-made sash, doors and windows for the public and that it makes these articles
only special order of its customers, that does not make it a contractor within the purview of section 191 of the national Internal Revenue Code. there are no
less than fifty occupations enumerated in the aforesaid section of the national Internal Revenue Code subject to percentage tax and after reading carefully
each and every one of them, we cannot find under which the business of manufacturing sash, doors and windows upon special order of customers fall under
the category of "road, building, navigation, artesian well, water workers and other construction work contractors" are those who alter or repair buildings,
structures, streets, highways, sewers, street railways railroads logging roads, electric lines or power lines, and includes any other work for the construction,
altering or repairing for which machinery driven by mechanical power is used. (Payton vs. City of Anadardo 64 P. 2d 878, 880, 179 Okl. 68).

Having thus eliminated the feasibility off taxing petitioner as a contractor under 191 of the national Internal Revenue Code, this leaves us to decide the
remaining issue whether or not petitioner could be taxed with lesser strain and more accuracy as seller of its manufactured articles under section 186 of the
same code, as the respondent Collector of Internal Revenue has in fact been doing the Oriental Sash Factory was established in 1946.

The percentage tax imposed in section 191 of our Tax Code is generally a tax on the sales of services, in contradiction with the tax imposed in section 186 of
the same Code which is a tax on the original sales of articles by the manufacturer, producer or importer. (Formilleza's Commentaries and Jurisprudence on
the National Internal Revenue Code, Vol. II, p. 744). The fact that the articles sold are manufactured by the seller does not exchange the contract from the
purview of section 186 of the National Internal Revenue Code as a sale of articles.

There was a strong dissent; but upon careful consideration of the whole matter are inclines to accept the above statement of the facts and the law. The
important thing to remember is that Celestino Co & Company habitually makes sash, windows and doors, as it has represented in its stationery and
advertisements to the public. That it "manufactures" the same is practically admitted by appellant itself. The fact that windows and doors are made by it only
when customers place their orders, does not alter the nature of the establishment, for it is obvious that it only accepted such orders as called for the
employment of such material-moulding, frames, panels-as it ordinarily manufactured or was in a position habitually to manufacture.

Perhaps the following paragraph represents in brief the appellant's position in this Court:

12
Since the petitioner, by clear proof of facts not disputed by the respondent, manufacturers sash, windows and doors only for special customers and upon their
special orders and in accordance with the desired specifications of the persons ordering the same and not for the general market: since the doors ordered by
Don Toribio Teodoro & Sons, Inc., for instance, are not in existence and which never would have existed but for the order of the party desiring it; and since
petitioner's contractual relation with his customers is that of a contract for a piece of work or since petitioner is engaged in the sale of services, it follows that
the petitioner should be taxed under section 191 of the Tax Code and NOT under section 185 of the same Code." (Appellant's brief, p. 11-12).

But the argument rests on a false foundation. Any builder or homeowner, with sufficient money, may order windows or doors of the kind manufactured by
this appellant. Therefore it is not true that it serves special customers only or confines its services to them alone. And anyone who sees, and likes, the doors
ordered by Don Toribio Teodoro & Sons Inc. may purchase from appellant doors of the same kind, provided he pays the price. Surely, the appellant will not
refuse, for it can easily duplicate or even mass-produce the same doors-it is mechanically equipped to do so.

That the doors and windows must meet desired specifications is neither here nor there. If these specifications do not happen to be of the kind habitually
manufactured by appellant special forms for sash, mouldings of panels it would not accept the order and no sale is made. If they do, the transaction
would be no different from a purchasers of manufactured goods held is stock for sale; they are bought because they meet the specifications desired by the
purchaser.

Nobody will say that when a sawmill cuts lumber in accordance with the peculiar specifications of a customer-sizes not previously held in stock for sale to
the public-it thereby becomes an employee or servant of the customer,1 not the seller of lumber. The same consideration applies to this sash manufacturer.

The Oriental Sash Factory does nothing more than sell the goods that it mass-produces or habitually makes; sash, panels, mouldings, frames, cutting them to
such sizes and combining them in such forms as its customers may desire.

On the other hand, petitioner's idea of being a contractor doing construction jobs is untenable. Nobody would regard the doing of two window panels a
construction work in common parlance.2

Appellant invokes Article 1467 of the New Civil Code to bolster its contention that in filing orders for windows and doors according to specifications, it did
not sell, but merely contracted for particular pieces of work or "merely sold its services".

Said article reads as follows:

A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business manufactures or procures for the general
market, whether the same is on hand at the time or not, is a contract of sale, but if the goods are to be manufactured specially for the customer and upon his
special order, and not for the general market, it is contract for a piece of work.

It is at once apparent that the Oriental Sash Factory did not merely sell its services to Don Toribio Teodoro & Co. (To take one instance) because it also sold
the materials. The truth of the matter is that it sold materials ordinarily manufactured by it sash, panels, mouldings to Teodoro & Co., although in such
form or combination as suited the fancy of the purchaser. Such new form does not divest the Oriental Sash Factory of its character as manufacturer. Neither
does it take the transaction out of the category of sales under Article 1467 above quoted, because although the Factory does not, in the ordinary course of its
business, manufacture and keep on stock doors of the kind sold to Teodoro, it could stock and/or probably had in stock the sash, mouldings and panels it used
therefor (some of them at least).

In our opinion when this Factory accepts a job that requires the use of extraordinary or additional equipment, or involves services not generally performed by
it-it thereby contracts for a piece of work filing special orders within the meaning of Article 1467. The orders herein exhibited were not shown to be
special. They were merely orders for work nothing is shown to call them special requiring extraordinary service of the factory.

The thought occurs to us that if, as alleged-all the work of appellant is only to fill orders previously made, such orders should not be called special work, but
regular work. Would a factory do business performing only special, extraordinary or peculiar merchandise?

Anyway, supposing for the moment that the transactions were not sales, they were neither lease of services nor contract jobs by a contractor. But as the doors
and windows had been admittedly "manufactured" by the Oriental Sash Factory, such transactions could be, and should be taxed as "transfers" thereof under
section 186 of the National Revenue Code.

The appealed decision is consequently affirmed. So ordered.

Paras, C. J., Padilla, Montemayor, Bautista Angelo, Concepcion, Reyes, J. B. L., and Felix, JJ., concur.

G.R. No. L-27044 June 30, 1975

THE COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
ENGINEERING EQUIPMENT AND SUPPLY COMPANY AND THE COURT OF TAX APPEALS, respondents.

G.R. No. L-27452 June 30, 1975

ENGINEERING EQUIPMENT AND SUPPLY COMPANY, petitioner,

vs.
THE COMMISSIONER OF INTERNAL REVENUE AND THE COURT OF TAX APPEALS, respondent.

Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Felicisimo R. Rosete, Solicitor Lolita O. Gal-lang, and Special Attorney
Gemaliel H. Montalino for Commissioner of Internal Revenue, etc.

Melquides C. Gutierrez, Jose U. Ong, Juan G. Collas, Jr., Luis Ma. Guerrero and J.R. Balonkita for Engineering and Supply Company.

ESGUERRA, J.:

Petition for review on certiorari of the decision of the Court of Tax Appeals in CTA Case No. 681, dated November 29, 1966, assessing a
compensating tax of P174,441.62 on the Engineering Equipment and Supply Company.

As found by the Court of Tax Appeals, and as established by the evidence on record, the facts of this case are as follows:

Engineering Equipment and Supply Co. (Engineering for short), a domestic corporation, is an engineering and machinery firm. As operator of an
integrated engineering shop, it is engaged, among others, in the design and installation of central type air conditioning system, pumping plants and
steel fabrications. (Vol. I pp. 12-16 T.S.N. August 23, 1960)

13
On July 27, 1956, one Juan de la Cruz, wrote the then Collector, now Commissioner, of Internal Revenue denouncing Engineering for tax evasion
by misdeclaring its imported articles and failing to pay the correct percentage taxes due thereon in connivance with its foreign suppliers (Exh. "2"
p. 1 BIR record Vol. I). Engineering was likewise denounced to the Central Bank (CB) for alleged fraud in obtaining its dollar allocations. Acting on
these denunciations, a raid and search was conducted by a joint team of Central Bank, (CB), National Bureau of Investigation (NBI) and Bureau of
Internal Revenue (BIR) agents on September 27, 1956, on which occasion voluminous records of the firm were seized and confiscated. (pp. 173-177
T.S.N.)

On September 30, 1957, revenue examiners Quesada and Catudan reported and recommended to the then Collector, now Commissioner, of Internal
Revenue (hereinafter referred to as Commissioner) that Engineering be assessed for P480,912.01 as deficiency advance sales tax on the theory that it
misdeclared its importation of air conditioning units and parts and accessories thereof which are subject to tax under Section 185(m)1 of the Tax
Code, instead of Section 186 of the same Code. (Exh. "3" pp. 59-63 BIR rec. Vol. I) This assessment was revised on January 23, 1959, in line with the
observation of the Chief, BIR Law Division, and was raised to P916,362.56 representing deficiency advance sales tax and manufacturers sales tax, inclusive
of the 25% and 50% surcharges. (pp. 72-80 BIR rec. Vol. I)

On March 3, 1959. the Commissioner assessed against, and demanded upon, Engineering payment of the increased amount and suggested that P10,000 be
paid as compromise in extrajudicial settlement of Engineering's penal liability for violation of the Tax Code. The firm, however, contested the tax assessment
and requested that it be furnished with the details and particulars of the Commissioner's assessment. (Exh. "B" and "15", pp. 86-88 BIR rec. Vol. I) The
Commissioner replied that the assessment was in accordance with law and the facts of the case.

On July 30, 1959, Engineering appealed the case to the Court of Tax Appeals and during the pendency of the case the investigating revenue examiners
reduced Engineering's deficiency tax liabilities from P916,362.65 to P740,587.86 (Exhs. "R" and "9" pp. 162-170, BIR rec.), based on findings after
conferences had with Engineering's Accountant and Auditor.

On November 29, 1966, the Court of Tax Appeals rendered its decision, the dispositive portion of which reads as follows:

For ALL THE FOREGOING CONSIDERATIONS, the decision of respondent appealed from is hereby modified, and petitioner, as a contractor, is declared
exempt from the deficiency manufacturers sales tax covering the period from June 1, 1948. to September 2, 1956. However, petitioner is ordered to pay
respondent, or his duly authorized collection agent, the sum of P174,141.62 as compensating tax and 25% surcharge for the period from 1953 to September
1956. With costs against petitioner.

The Commissioner, not satisfied with the decision of the Court of Tax Appeals, appealed to this Court on January 18, 1967, (G.R. No. L-27044). On the
other hand, Engineering, on January 4, 1967, filed with the Court of Tax Appeals a motion for reconsideration of the decision abovementioned. This was
denied on April 6, 1967, prompting Engineering to file also with this Court its appeal, docketed as G.R. No. L-27452.

Since the two cases, G.R. No. L-27044 and G.R. No. L-27452, involve the same parties and issues, We have decided to consolidate and jointly decide them.

Engineering in its Petition claims that the Court of Tax Appeals committed the following errors:

1. That the Court of Tax Appeals erred in holding Engineering Equipment & Supply Company liable to the 30% compensating tax on its importations
of equipment and ordinary articles used in the central type air conditioning systems it designed, fabricated, constructed and installed in the buildings and
premises of its customers, rather than to the compensating tax of only 7%;

2. That the Court of Tax Appeals erred in holding Engineering Equipment & Supply Company guilty of fraud in effecting the said importations on the
basis of incomplete quotations from the contents of alleged photostat copies of documents seized illegally from Engineering Equipment and Supply
Company which should not have been admitted in evidence;

3. That the Court of Tax Appeals erred in holding Engineering Equipment & Supply Company liable to the 25% surcharge prescribed in Section 190
of the Tax Code;

4. That the Court of Tax Appeals erred in holding the assessment as not having prescribed;

5. That the Court of Tax Appeals erred in holding Engineering Equipment & Supply Company liable for the sum of P174,141.62 as 30%
compensating tax and 25% surcharge instead of completely absolving it from the deficiency assessment of the Commissioner.

The Commissioner on the other hand claims that the Court of Tax Appeals erred:

1. In holding that the respondent company is a contractor and not a manufacturer.

2. In holding respondent company liable to the 3% contractor's tax imposed by Section 191 of the Tax Code instead of the 30% sales tax prescribed in
Section 185(m) in relation to Section 194(x) both of the same Code;

3. In holding that the respondent company is subject only to the 30% compensating tax under Section 190 of the Tax Code and not to the 30%
advance sales tax imposed by section 183 (b), in relation to section 185(m) both of the same Code, on its importations of parts and accessories of air
conditioning units;

4. In not holding the company liable to the 50% fraud surcharge under Section 183 of the Tax Code on its importations of parts and accessories of air
conditioning units, notwithstanding the finding of said court that the respondent company fraudulently misdeclared the said importations;

5. In holding the respondent company liable for P174,141.62 as compensating tax and 25% surcharge instead of P740,587.86 as deficiency advance
sales tax, deficiency manufacturers tax and 25% and 50% surcharge for the period from June 1, 1948 to December 31, 1956.

The main issue revolves on the question of whether or not Engineering is a manufacturer of air conditioning units under Section 185(m), supra, in relation to
Sections 183(b) and 194 of the Code, or a contractor under Section 191 of the same Code.

The Commissioner contends that Engineering is a manufacturer and seller of air conditioning units and parts or accessories thereof and, therefore, it is subject
to the 30% advance sales tax prescribed by Section 185(m) of the Tax Code, in relation to Section 194 of the same, which defines a manufacturer as follows:

Section 194. Words and Phrases Defined. In applying the provisions of this Title, words and phrases shall be taken in the sense and extension indicated
below:

xxx xxx xxx

(x) "Manufacturer" includes every person who by physical or chemical process alters the exterior texture or form or inner substance of any raw
material or manufactured or partially manufactured products in such manner as to prepare it for a special use or uses to which it could not have been put in its
original condition, or who by any such process alters the quality of any such material or manufactured or partially manufactured product so as to reduce it to
marketable shape, or prepare it for any of the uses of industry, or who by any such process combines any such raw material or manufactured or partially

14
manufactured products with other materials or products of the same or of different kinds and in such manner that the finished product of such process of
manufacture can be put to special use or uses to which such raw material or manufactured or partially manufactured products in their original condition could
not have been put, and who in addition alters such raw material or manufactured or partially manufactured products, or combines the same to produce such
finished products for the purpose of their sale or distribution to others and not for his own use or consumption.

In answer to the above contention, Engineering claims that it is not a manufacturer and setter of air-conditioning units and spare parts or accessories thereof
subject to tax under Section 185(m) of the Tax Code, but a contractor engaged in the design, supply and installation of the central type of air-conditioning
system subject to the 3% tax imposed by Section 191 of the same Code, which is essentially a tax on the sale of services or labor of a contractor rather than
on the sale of articles subject to the tax referred to in Sections 184, 185 and 186 of the Code.

The arguments of both the Engineering and the Commissioner call for a clarification of the term contractor as well as the distinction between a contract of
sale and contract for furnishing services, labor and materials. The distinction between a contract of sale and one for work, labor and materials is tested by the
inquiry whether the thing transferred is one not in existence and which never would have existed but for the order of the party desiring to acquire it, or a thing
which would have existed and has been the subject of sale to some other persons even if the order had not been given.2 If the article ordered by the purchaser
is exactly such as the plaintiff makes and keeps on hand for sale to anyone, and no change or modification of it is made at defendant's request, it is a contract
of sale, even though it may be entirely made after, and in consequence of, the defendants order for it.3

Our New Civil Code, likewise distinguishes a contract of sale from a contract for a piece of work thus:

Art. 1467. A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business manufactures or
procures for the general market, whether the same is on hand at the time or not, is a contract of sale, but if the goods are to be manufactured specially for the
customer and upon his special order and not for the general market, it is a contract for a piece of work.

The word "contractor" has come to be used with special reference to a person who, in the pursuit of the independent business, undertakes to do a specific job
or piece of work for other persons, using his own means and methods without submitting himself to control as to the petty details. (Araas, Annotations and
Jurisprudence on the National Internal Revenue Code, p. 318, par. 191 (2), 1970 Ed.) The true test of a contractor as was held in the cases of Luzon
Stevedoring Co., vs. Trinidad, 43, Phil. 803, 807-808, and La Carlota Sugar Central vs. Trinidad, 43, Phil. 816, 819, would seem to be that he renders service
in the course of an independent occupation, representing the will of his employer only as to the result of his work, and not as to the means by which it is
accomplished.

With the foregoing criteria as guideposts, We shall now examine whether Engineering really did "manufacture" and sell, as alleged by the Commissioner to
hold it liable to the advance sales tax under Section 185(m), or it only had its services "contracted" for installation purposes to hold it liable under section 198
of the Tax Code.

After going over the three volumes of stenographic notes and the voluminous record of the BIR and the CTA as well as the exhibits submitted by both
parties, We find that Engineering did not manufacture air conditioning units for sale to the general public, but imported some items (as refrigeration
compressors in complete set, heat exchangers or coils, t.s.n. p. 39) which were used in executing contracts entered into by it. Engineering, therefore,
undertook negotiations and execution of individual contracts for the design, supply and installation of air conditioning units of the central type (t.s.n. pp. 20-
36; Exhs. "F", "G", "H", "I", "J", "K", "L", and "M"), taking into consideration in the process such factors as the area of the space to be air conditioned; the
number of persons occupying or would be occupying the premises; the purpose for which the various air conditioning areas are to be used; and the sources of
heat gain or cooling load on the plant such as sun load, lighting, and other electrical appliances which are or may be in the plan. (t.s.n. p. 34, Vol. I)
Engineering also testified during the hearing in the Court of Tax Appeals that relative to the installation of air conditioning system, Engineering designed and
engineered complete each particular plant and that no two plants were identical but each had to be engineered separately.

As found by the lower court, which finding4 We adopt

Engineering, in a nutshell, fabricates, assembles, supplies and installs in the buildings of its various customers the central type air conditioning system;
prepares the plans and specifications therefor which are distinct and different from each other; the air conditioning units and spare parts or accessories thereof
used by petitioner are not the window type of air conditioner which are manufactured, assembled and produced locally for sale to the general market; and the
imported air conditioning units and spare parts or accessories thereof are supplied and installed by petitioner upon previous orders of its customers
conformably with their needs and requirements.

The facts and circumstances aforequoted support the theory that Engineering is a contractor rather than a manufacturer.

The Commissioner in his Brief argues that "it is more in accord with reason and sound business management to say that anyone who desires to have air
conditioning units installed in his premises and who is in a position and willing to pay the price can order the same from the company (Engineering) and,
therefore, Engineering could have mass produced and stockpiled air conditioning units for sale to the public or to any customer with enough money to buy
the same." This is untenable in the light of the fact that air conditioning units, packaged, or what we know as self-contained air conditioning units, are distinct
from the central system which Engineering dealt in. To Our mind, the distinction as explained by Engineering, in its Brief, quoting from books, is not an idle
play of words as claimed by the Commissioner, but a significant fact which We just cannot ignore. As quoted by Engineering Equipment & Supply Co., from
an Engineering handbook by L.C. Morrow, and which We reproduce hereunder for easy reference:

... there is a great variety of equipment in use to do this job (of air conditioning). Some devices are designed to serve a specific type of space; others to
perform a specific function; and still others as components to be assembled into a tailor-made system to fit a particular building. Generally, however, they
may be grouped into two classifications unitary and central system.

The unitary equipment classification includes those designs such as room air conditioner, where all of the functional components are included in one or two
packages, and installation involves only making service connection such as electricity, water and drains. Central-station systems, often referred to as applied
or built-up systems, require the installation of components at different points in a building and their interconnection.

The room air conditioner is a unitary equipment designed specifically for a room or similar small space. It is unique among air conditioning equipment in two
respects: It is in the electrical appliance classification, and it is made by a great number of manufacturers.

There is also the testimony of one Carlos Navarro, a licensed Mechanical and Electrical Engineer, who was once the Chairman of the Board of Examiners for
Mechanical Engineers and who was allegedly responsible for the preparation of the refrigeration and air conditioning code of the City of Manila, who said
that "the central type air conditioning system is an engineering job that requires planning and meticulous layout due to the fact that usually architects assign
definite space and usually the spaces they assign are very small and of various sizes. Continuing further, he testified:

I don't think I have seen central type of air conditioning machinery room that are exactly alike because all our buildings here are designed by architects
dissimilar to existing buildings, and usually they don't coordinate and get the advice of air conditioning and refrigerating engineers so much so that when we
come to design, we have to make use of the available space that they are assigning to us so that we have to design the different component parts of the air
conditioning system in such a way that will be accommodated in the space assigned and afterwards the system may be considered as a definite portion of the
building. ...

15
Definitely there is quite a big difference in the operation because the window type air conditioner is a sort of compromise. In fact it cannot control humidity
to the desired level; rather the manufacturers, by hit and miss, were able to satisfy themselves that the desired comfort within a room could be made by a
definite setting of the machine as it comes from the factory; whereas the central type system definitely requires an intelligent operator. (t.s.n. pp. 301-305,
Vol. II)

The point, therefore, is this Engineering definitely did not and was not engaged in the manufacture of air conditioning units but had its services contracted
for the installation of a central system. The cases cited by the Commissioner (Advertising Associates, Inc. vs. Collector of Customs, 97, Phil. 636; Celestino
Co & Co. vs. Collector of Internal Revenue, 99 Phil. 841 and Manila Trading & Supply Co. vs. City of Manila, 56 O.G. 3629), are not in point. Neither are
they applicable because the facts in all the cases cited are entirely different. Take for instance the case of Celestino Co where this Court held the taxpayer to
be a manufacturer rather than a contractor of sash, doors and windows manufactured in its factory. Indeed, from the very start, Celestino Co intended itself to
be a manufacturer of doors, windows, sashes etc. as it did register a special trade name for its sash business and ordered company stationery carrying the bold
print "ORIENTAL SASH FACTORY (CELESTINO CO AND COMPANY, PROP.) 926 Raon St., Quiapo, Manila, Tel. No. etc., Manufacturers of All
Kinds of Doors, Windows ... ." Likewise, Celestino Co never put up a contractor's bond as required by Article 1729 of the Civil Code. Also, as a general rule,
sash factories receive orders for doors and windows of special design only in particular cases, but the bulk of their sales is derived from ready-made doors
and windows of standard sizes for the average home, which "sales" were reflected in their books of accounts totalling P118,754.69 for the period from
January, 1952 to September 30, 1952, or for a period of only nine (9) months. This Court found said sum difficult to have been derived from its few
customers who placed special orders for these items. Applying the abovestated facts to the case at bar, We found them to he inapposite. Engineering
advertised itself as Engineering Equipment and Supply Company, Machinery Mechanical Supplies, Engineers, Contractors, 174 Marques de Comillas,
Manila (Exh. "B" and "15" BIR rec. p. 186), and not as manufacturers. It likewise paid the contractors tax on all the contracts for the design and construction
of central system as testified to by Mr. Rey Parker, its President and General Manager. (t.s.n. p. 102, 103) Similarly, Engineering did not have ready-made air
conditioning units for sale but as per testimony of Mr. Parker upon inquiry of Judge Luciano of the CTA

Q Aside from the general components, which go into air conditioning plant or system of the central type which your company undertakes, and the
procedure followed by you in obtaining and executing contracts which you have already testified to in previous hearing, would you say that the covering
contracts for these different projects listed ... referred to in the list, Exh. "F" are identical in every respect? I mean every plan or system covered by these
different contracts are identical in standard in every respect, so that you can reproduce them?

A No, sir. They are not all standard. On the contrary, none of them are the same. Each one must be designed and constructed to meet the particular
requirements, whether the application is to be operated. (t.s.n. pp. 101-102)

What We consider as on all fours with the case at bar is the case of S.M. Lawrence Co. vs. McFarland, Commissioner of Internal Revenue of the State of
Tennessee and McCanless, 355 SW 2d, 100, 101, "where the cause presents the question of whether one engaged in the business of contracting for the
establishment of air conditioning system in buildings, which work requires, in addition to the furnishing of a cooling unit, the connection of such unit with
electrical and plumbing facilities and the installation of ducts within and through walls, ceilings and floors to convey cool air to various parts of the building,
is liable for sale or use tax as a contractor rather than a retailer of tangible personal property. Appellee took the Position that appellant was not engaged in the
business of selling air conditioning equipment as such but in the furnishing to its customers of completed air conditioning systems pursuant to contract, was a
contractor engaged in the construction or improvement of real property, and as such was liable for sales or use tax as the consumer of materials and
equipment used in the consummation of contracts, irrespective of the tax status of its contractors. To transmit the warm or cool air over the buildings, the
appellant installed system of ducts running from the basic units through walls, ceilings and floors to registers. The contract called for completed air
conditioning systems which became permanent part of the buildings and improvements to the realty." The Court held the appellant a contractor which used
the materials and the equipment upon the value of which the tax herein imposed was levied in the performance of its contracts with its customers, and that the
customers did not purchase the equipment and have the same installed.

Applying the facts of the aforementioned case to the present case, We see that the supply of air conditioning units to Engineer's various customers, whether
the said machineries were in hand or not, was especially made for each customer and installed in his building upon his special order. The air conditioning
units installed in a central type of air conditioning system would not have existed but for the order of the party desiring to acquire it and if it existed without
the special order of Engineering's customer, the said air conditioning units were not intended for sale to the general public. Therefore, We have but to affirm
the conclusion of the Court of Tax Appeals that Engineering is a contractor rather than a manufacturer, subject to the contractors tax prescribed by Section
191 of the Code and not to the advance sales tax imposed by Section 185(m) in relation to Section 194 of the same Code. Since it has been proved to Our
satisfaction that Engineering imported air conditioning units, parts or accessories thereof for use in its construction business and these items were never sold,
resold, bartered or exchanged, Engineering should be held liable to pay taxes prescribed under Section 1905 of the Code. This compensating tax is not a tax
on the importation of goods but a tax on the use of imported goods not subject to sales tax. Engineering, therefore, should be held liable to the payment of
30% compensating tax in accordance with Section 190 of the Tax Code in relation to Section 185(m) of the same, but without the 50% mark up provided in
Section 183(b).

II

We take up next the issue of fraud. The Commissioner charged Engineering with misdeclaration of the imported air conditioning units and parts or
accessories thereof so as to make them subject to a lower rate of percentage tax (7%) under Section 186 of the Tax Code, when they are allegedly subject to a
higher rate of tax (30%) under its Section 185(m). This charge of fraud was denied by Engineering but the Court of Tax Appeals in its decision found
adversely and said"

... We are amply convinced from the evidence presented by respondent that petitioner deliberately and purposely misdeclared its importations. This evidence
consists of letters written by petitioner to its foreign suppliers, instructing them on how to invoice and describe the air conditioning units ordered by
petitioner. ... (p. 218 CTA rec.)

Despite the above findings, however, the Court of Tax Appeals absolved Engineering from paying the 50% surcharge prescribe by Section 183(a) of the Tax
Code by reasoning out as follows:

The imposition of the 50% surcharge prescribed by Section 183(a) of the Tax Code is based on willful neglect to file the monthly return within 20 days after
the end of each month or in case a false or fraudulent return is willfully made, it can readily be seen, that petitioner cannot legally be held subject to the 50%
surcharge imposed by Section 183(a) of the Tax Code. Neither can petitioner be held subject to the 50% surcharge under Section 190 of the Tax Code
dealing on compensating tax because the provisions thereof do not include the 50% surcharge. Where a particular provision of the Tax Code does not impose
the 50% surcharge as fraud penalty we cannot enforce a non-existing provision of law notwithstanding the assessment of respondent to the contrary.
Instances of the exclusion in the Tax Code of the 50% surcharge are those dealing on tax on banks, taxes on receipts of insurance companies, and franchise
tax. However, if the Tax Code imposes the 50% surcharge as fraud penalty, it expressly so provides as in the cases of income tax, estate and inheritance
taxes, gift taxes, mining tax, amusement tax and the monthly percentage taxes. Accordingly, we hold that petitioner is not subject to the 50% surcharge
despite the existence of fraud in the absence of legal basis to support the importation thereof. (p. 228 CTA rec.)

We have gone over the exhibits submitted by the Commissioner evidencing fraud committed by Engineering and We reproduce some of them hereunder for
clarity.

As early as March 18, 1953, Engineering in a letter of even date wrote to Trane Co. (Exh. "3-K" pp. 152-155, BIR rec.) viz:

Your invoices should be made in the name of Madrigal & Co., Inc., Manila, Philippines, c/o Engineering Equipment & Supply Co., Manila, Philippines
forwarding all correspondence and shipping papers concerning this order to us only and not to the customer.

16
When invoicing, your invoices should be exactly as detailed in the customer's Letter Order dated March 14th, 1953 attached. This is in accordance with the
Philippine import licenses granted to Madrigal & Co., Inc. and such details must only be shown on all papers and shipping documents for this shipment. No
mention of words air conditioning equipment should be made on any shipping documents as well as on the cases. Please give this matter your careful
attention, otherwise great difficulties will be encountered with the Philippine Bureau of Customs when clearing the shipment on its arrival in Manila. All
invoices and cases should be marked "THIS EQUIPMENT FOR RIZAL CEMENT CO."

The same instruction was made to Acme Industries, Inc., San Francisco, California in a letter dated March 19, 1953 (Exh. "3-J-1" pp. 150-151, BIR rec.)

On April 6, 1953, Engineering wrote to Owens-Corning Fiberglass Corp., New York, U.S.A. (Exh. "3-1" pp. 147-149, BIR rec.) also enjoining the latter
from mentioning or referring to the term 'air conditioning' and to describe the goods on order as Fiberglass pipe and pipe fitting insulation instead. Likewise
on April 30, 1953, Engineering threatened to discontinue the forwarding service of Universal Transcontinental Corporation when it wrote Trane Co. (Exh.
"3-H" p. 146, BIR rec.):

It will be noted that the Universal Transcontinental Corporation is not following through on the instructions which have been covered by the above
correspondence, and which indicates the necessity of discontinuing the use of the term "Air conditioning Machinery or Air Coolers". Our instructions
concerning this general situation have been sent to you in ample time to have avoided this error in terminology, and we will ask that on receipt of this letter
that you again write to Universal Transcontinental Corp. and inform them that, if in the future, they are unable to cooperate with us on this requirement, we
will thereafter be unable to utilize their forwarding service. Please inform them that we will not tolerate another failure to follow our requirements.

And on July 17, 1953 (Exh- "3-g" p. 145, BIR rec.) Engineering wrote Trane Co. another letter, viz:

In the past, we have always paid the air conditioning tax on climate changers and that mark is recognized in the Philippines, as air conditioning equipment.
This matter of avoiding any tie-in on air conditioning is very important to us, and we are asking that from hereon that whoever takes care of the processing of
our orders be carefully instructed so as to avoid again using the term "Climate changers" or in any way referring to the equipment as "air conditioning."

And in response to the aforequoted letter, Trane Co. wrote on July 30, 1953, suggesting a solution, viz:

We feel that we can probably solve all the problems by following the procedure outlined in your letter of March 25, 1953 wherein you stated that in all future
jobs you would enclose photostatic copies of your import license so that we might make up two sets of invoices: one set describing equipment ordered simply
according to the way that they are listed on the import license and another according to our ordinary regular methods of order write-up. We would then
include the set made up according to the import license in the shipping boxes themselves and use those items as our actual shipping documents and invoices,
and we will send the other regular invoice to you, by separate correspondence. (Exh- No. "3-F-1", p. 144 BIR rec.)

Another interesting letter of Engineering is one dated August 27, 1955 (Exh. "3-C" p. 141 BIR rec.)

In the process of clearing the shipment from the piers, one of the Customs inspectors requested to see the packing list. Upon presenting the packing list, it
was discovered that the same was prepared on a copy of your letterhead which indicated that the Trane Co. manufactured air conditioning, heating and heat
transfer equipment. Accordingly, the inspectors insisted that this equipment was being imported for air conditioning purposes. To date, we have not been
able to clear the shipment and it is possible that we will be required to pay heavy taxes on equipment.

The purpose of this letter is to request that in the future, no documents of any kind should be sent with the order that indicate in any way that the equipment
could possibly be used for air conditioning.

It is realized that this a broad request and fairly difficult to accomplish and administer, but we believe with proper caution it can be executed. Your
cooperation and close supervision concerning these matters will be appreciated. (Emphasis supplied)

The aforequoted communications are strongly indicative of the fraudulent intent of Engineering to misdeclare its importation of air conditioning units and
spare parts or accessories thereof to evade payment of the 30% tax. And since the commission of fraud is altogether too glaring, We cannot agree with the
Court of Tax Appeals in absolving Engineering from the 50% fraud surcharge, otherwise We will be giving premium to a plainly intolerable act of tax
evasion. As aptly stated by then Solicitor General, now Justice, Antonio P. Barredo: 'this circumstance will not free it from the 50% surcharge because in any
case whether it is subject to advance sales tax or compensating tax, it is required by law to truly declare its importation in the import entries and internal
revenue declarations before the importations maybe released from customs custody. The said entries are the very documents where the nature, quantity and
value of the imported goods declared and where the customs duties, internal revenue taxes, and other fees or charges incident to the importation are
computed. These entries, therefore, serve the same purpose as the returns required by Section 183(a) of the Code.'

Anent the 25% delinquency surcharge, We fully agree to the ruling made by the Court of Tax Appeals and hold Engineering liable for the same. As held by
the lower court:

At first blush it would seem that the contention of petitioner that it is not subject to the delinquency, surcharge of 25% is sound, valid and tenable. However,
a serious study and critical analysis of the historical provisions of Section 190 of the Tax Code dealing on compensating tax in relation to Section 183(a) of
the same Code, will show that the contention of petitioner is without merit. The original text of Section 190 of Commonwealth Act 466, otherwise known as
the National Internal Revenue Code, as amended by Commonwealth Act No. 503, effective on October 1, 1939, does not provide for the filing of a
compensation tax return and payment of the 25 % surcharge for late payment thereof. Under the original text of Section 190 of the Tax Code as amended by
Commonwealth Act No. 503, the contention of the petitioner that it is not subject to the 25% surcharge appears to be legally tenable. However, Section 190
of the Tax Code was subsequently amended by the Republic Acts Nos. 253, 361, 1511 and 1612 effective October 1, 1946, July 1, 1948, June 9, 1949, June
16, 1956 and August 24, 1956 respectively, which invariably provides among others, the following:

... If any article withdrawn from the customhouse or the post office without payment of the compensating tax is subsequently used by the importer for other
purposes, corresponding entry should be made in the books of accounts if any are kept or a written notice thereof sent to the Collector of Internal Revenue
and payment of the corresponding compensating tax made within 30 days from the date of such entry or notice and if tax is not paid within such period the
amount of the tax shall be increased by 25% the increment to be a part of the tax.

Since the imported air conditioning units-and spare parts or accessories thereof are subject to the compensating tax of 30% as the same were used in the
construction business of Engineering, it is incumbent upon the latter to comply with the aforequoted requirement of Section 190 of the Code, by posting in its
books of accounts or notifying the Collector of Internal Revenue that the imported articles were used for other purposes within 30 days. ... Consequently; as
the 30% compensating tax was not paid by petitioner within the time prescribed by Section 190 of the Tax Code as amended, it is therefore subject to the
25% surcharge for delinquency in the payment of the said tax. (pp. 224-226 CTA rec.)

III

Lastly the question of prescription of the tax assessment has been put in issue. Engineering contends that it was not guilty of tax fraud in effecting the
importations and, therefore, Section 332(a) prescribing ten years is inapplicable, claiming that the pertinent prescriptive period is five years from the date the
questioned importations were made. A review of the record however reveals that Engineering did file a tax return or declaration with the Bureau of Customs
before it paid the advance sales tax of 7%. And the declaration filed reveals that it did in fact misdeclare its importations. Section 332 of the Tax Code which
provides:

17
Section 332. Exceptions as to period of limitation of assessment and collection of taxes.

(a) In the case of a false or fraudulent return with intent to evade tax or of a failure to file a return, the tax may be assessed, or a proceeding in court for
the collection of such tax may be begun without assessment at any time within ten years after the discovery of the falsity, fraud or omission.

is applicable, considering the preponderance of evidence of fraud with the intent to evade the higher rate of percentage tax due from Engineering. The, tax
assessment was made within the period prescribed by law and prescription had not set in against the Government.

WHEREFORE, the decision appealed from is affirmed with the modification that Engineering is hereby also made liable to pay the 50% fraud surcharge.

SO ORDERED.

Makalintal, C.J., Castro, Makasiar and Martin, JJ., concur.

G.R. No. 44471 September 26, 1938

H. E. HEACOCK COMPANY, Plaintiff-Appellee, vs. BUNTAL MANUFACTURING COMPANY, GREGORIO NIEVA, and MARIA A. DE
NIEVA Defendants-Appellant.

Crispin Oben for appellants.

Eulalio Chavez for appellee.

DIAZ, J.:

The main, if not the sole, question raised by the appeal taken by defendants from the judgment of the lower court is the following:chanrobles virtual law
library

Is the document Exhibit A which plaintiff and the first two defendants executed on May 12, 1931 a contract for the lease of an adding and calculating
machine therein described, with option to purchase by defendants; or is it, on the contrary, a contract of purchase and sale on installments in which said
defendants were vendees and plaintiff, vendor?chanrobles virtual law library

The lower court held that it was one of lease and thereafter decided that since defendants failed to pay plaintiff the rents which they had bound themselves to
pay it, at the rate of P35 a month from August, 1931, and which then amounted to P555, they should deliver to plaintiff the aforesaid sum with costs. This it
resolved notwithstanding that it had been shown at the trial that upon plaintiff's demand in its complaint for preliminary attachment, defendants had to return
to it the said machine which it accepted to its satisfaction, without the necessity of making use of the writ of attachment. Said acts of defendants constituted
compliance with the prayer in plaintiff's complaint that one of these things, and not both at the same time, be done: "The delivery of said personal property,
and if delivery cannot be effected then judgment for the rents in arrears." chanrobles virtual law library

Defendants chose to make delivery so as to dispose of the question in this manner.chanroblesvirtualawlibrary chanrobles virtual law library

Defendants maintain that in deciding the case in the way it has done, the lower court erred in the following respects:

I. In granting plaintiff's petition that it be allowed to file an amended complaint after defendants had been declared in default with respect to the
original complaint.chanroblesvirtualawlibrary chanrobles virtual law library

II. In granting plaintiff the two alternative remedies for which it had prayed in its original complaint upon its asking for both in the amended
complaint.chanroblesvirtualawlibrary chanrobles virtual law library

III. In not holding that the contract entered into between the parties was one of purchase and sale on installments and that once the same was rescinded
by plaintiff upon its taking the machine which is the subject matter thereof, it lost all right to recover from them the balance of its price.

1. Two hearings were held in the case: The first took place in the absence and default of defendants, and the second after the original complaint had
been amended and the answer of defendants filed. Upon the objection of the latter's attorney, who appeared in the first trial, upon the ground that plaintiff
could have no other relief than the confirmation of its possession of the machine in question after it had taken and received the same from defendants for the
reason that the prayer for relief in the complaint did not ask for more than "the delivery of said personal property" (referring to the machine in question), or
for "judgment for the rents in arrears," "if delivery cannot be effected then," plaintiff decided to ask for, which it did and obtained, leave from the lower court
to amend its complaint in the sense of eliminating from the prayer thereof the phrase "if delivery cannot be effected then." This it did, no doubt, so as to be
able to secure two things at the same time: The return of its machine and the amount it claimed as rents. After amendment of the complaint a second hearing
was held in which the lower court rendered the judgment appealed from. We find no error in the act of the lower court granting leave to plaintiff to amend its
complaint, which error may be considered prejudicial to defendants. There was no attempt to amend an essential part of the complaint, but only a part of its
prayer for relief; and it is known that the prayer for relief is not the complaint itself nor is it a part of the allegations which state the cause or causes of action
submitted to the consideration of the court for its resolution. (Aguilar vs. Rubiato and Gonzalez Vila, 40 Phil., 570; Campomanes vs. Bartolome and German
and Co., 38 Phil., 808; Rosales vs. Reyes and Ordoveza, 25 Phil., 495.) Moreover, the amendment was made substantially in accordance with the provisions
of sections 109 and 110 of Act No. 190. The first error attributed to the lower court, is therefore, without merit.chanroblesvirtualawlibrary chanrobles virtual
law library

2. The determination of the other error alleged to have been committed by the lower court depends upon our consideration of the nature of the
contract Exhibit A and upon the conclusion which we may reach with respect thereto. If it is a lease, then said errors can not exist.chanroblesvirtualawlibrary
chanrobles virtual law library

Among the clauses appearing in the contract in question, there are several showing that it is not really a contract of lease but of purchase and sale on
installments. Said clauses are the following:

That the owner hereby leases unto the hirer and the hirer hereby
hires from the owner one Dalton adding, calculating and
posting machine, Multiplex Model 490-180 Serial No. 4- 160.00
103493

To credit one Dalton adding machine S. H. Serial No. 116182 700.00

for P110 and by cash P50. Initial payment
Balance due
P860.00

18
which the hirer acknowledges having received in good state and condition, for the term of 20 calendar months from the date hereof at the rental of P35 per
calendar month, and . . . calendar months at the rental . . . subject to the following terms and conditions:

1. The hirer agrees with the owner as follows:chanrobles v irtual law library

( a) To pay the owner at its office at 122 Escolta, the said hire monthly on the 12th day of every month within three days
thereafter.chanroblesvirtualawlibrary chanrobles virtual law library

6. In consideration of the sum of P160 to it in hand paid by the hirer, the owner hereby grants to the hirer the option to purchase, while the present
lease is in force and effect, the property made the subject of this agreement, at the purchase price of P860. In the event of the exercise of said option, the hirer
shall be entitled to a credit on the purchase price for an amount equal to the rentals actually paid hereunder and the payment made under this paragraph; it
being expressly understood and agreed, however, that the said chattel shall remain the property of the owner until after the complete exercise of such option,
and the payment in full of the purchase price agreed upon, and, until such time the hirer shall not have any property right in said chattel or be deemed to have
purchased or obligated to purchase the same. Should the hirer not exercise the option herein granted, the amount paid by him for said option under this
paragraph shall become forfeited to the owner.

In the first clause above-quoted it appears that defendants paid the amount of P160 on account of the price of the machine which was fixed at P860. It is
therein stated that said amount was delivered to plaintiff as "initial payment." It was for this reason that upon the signing of the contract care was taken to
express therein that the balance which defendants were bound to pay to plaintiff for the machine was only P700. So as to facilitate the payment of this
amount by defendants, it was agreed between them and plaintiff that the former would complete the same in twenty monthly installments of P35. Dividing
P700 by 20, the resulting amount is exactly P35.chanroblesvirtualawlibrary chanrobles virtual law library

It is true that in the contract it is often stated that plaintiff leased the machine to defendants, giving them the option to buy it upon their paying it the sum of
P860 and crediting them with so much as they might be able to pay as rents at the above rate of P35 a month. It should be noted, however, that in the clause
aforementioned, it is clearly stated that defendant paid the sum of P160 on account of the price of the machine. This payment shows that the real contract
between the parties was that of purchase and sale on installments and not a lease. In spite of any effort to prove the contrary, the aforesaid amount of P160
can not be understood to constitute payment in advance of the rents agreed upon for there is nothing in the contract to indicate that it was and because,
according to the contract itself, the rents could not be more nor less than P35 a month, payable monthly. Following the theory of plaintiff and in accordance
with the sound principles of accounting, the amount of P160 can not be considered as payment of rents in advance; otherwise we would reach the conclusion
that defendants, without being bound to do so and in violation of the terms of the contract, paid plaintiff rents not monthly but from day to day inasmuch as
said sum corresponds to four months and twenty days. Furthermore, it must be borne in mind that the mention in the aforesaid contract of the fact that the
sum of P160 constituted an "initial payment" on account of the price of the machine in question can have no other effect than to contradict and nullify that
stated in clause 6, which is one of those above-quoted, to the effect that the same is the consideration by virtue of which plaintiff granted defendants the
option to buy the machine. Defendants did not have to pay anything for the option for the reason that they made the payment of P160 to buy the machine on
installments, binding themselves to pay the balance by delivering to plaintiff the sum of P35 a month. It should be stated, moreover, that the fact that the
price of the machine was fixed in the contract makes the latter not a lease but a purchase and sale because in contracts of lease, as distinguished from those of
purchase and sale, it is plain redundancy to fix or make any mention of the price of the thing given in lease (article 1445, 1543, Civil Code). When the terms
of a contract are not clear or conflict with each other, as those appearing in Exhibit A, effect must be given to the intention of the parties (article 1281, Civil
Code); and the intention of plaintiff and defendants in this case as we gather it from Exhibit A, considered in connection with all its terms and clauses, is that
the contract entered into between them is one of purchase and sale on installments and not a lease.chanroblesvirtualawlibrary chanrobles virtual law library

Accordingly, the act of plaintiff in requiring, as it did, the return of the machine in question, receiving and accepting the same thereafter from defendants
when the latter voluntarily returned it, shows that plaintiff not only consented to, but desired the rescission of the contract it had entered with defendants,
specially when it is taken into consideration that it thus expressed itself in its original complaint wherein it prayed not for the return of the machine and
payment of supposed rents due at the same time, but only for one of these things. Upon taking the machine under such circumstances plaintiff performed a
positive act indicating its intention to rescind the contract, and having done so and retained what defendants had up to then paid to it, amounting to P305
without any objection on their part, it can not and must not have any right to anything more. Its right was reduced to demanding compliance with the terms of
Exhibit A as contract of purchase and sale or to rescind the same, and it chose the latter alternative and to retain the aforesaid sum of P305 (articles 1506 and
1124, Civil Code).chanroblesvirtualawlibrary chanrobles virtual law library

In conclusion we hold that the contract Exhibit A is that of purchase and sale on installments; that said contract was rescinded without objection on the part
of defendants; and that the appeal of the latter is well taken.chanroblesvirtualawlibrary chanrobles virtual law library

Wherefore, declaring Exhibit A rescinded, the judgment appealed from is reversed, absolving defendants from the complaint and sentencing plaintiff to pay
the costs in both instances. So ordered.chanroblesvirtualawlibrary chanrobles virtual law library

Avancea, C.J., Villa-Real, Abad Santos, Imperial, Laurel and Concepcion, JJ., concur.

FIRST DIVISION

PCI LEASING AND FINANCE, INC.,

Petitioner,
- versus -
GIRAFFE-X CREATIVE IMAGING, INC.,
Respondent.

G.R. No. 142618

Present:

PUNO, C.J., Chairperson,*SANDOVAL-GUTIERREZ,CORONA,AZCUNA, andGARCIA, JJ.

Promulgated:

July 12, 2007

DECISION

GARCIA, J.:

19
On a pure question of law involving the application of Republic Act (R.A.) No. 5980, as amended by R.A. No. 8556 in relation to Articles 1484 and 1485 of
the Civil Code, petitioner PCI Leasing and Finance, Inc. (PCI LEASING, for short) has directly come to this Court via this petition for review under Rule 45
of the Rules of Court to nullify and set aside the Decision and Resolution dated December 28, 1998 and February 15, 2000, respectively, of the Regional
Trial Court (RTC) of Quezon City, Branch 227, in its Civil Case No. Q-98-34266, a suit for a sum of money and/or personal property with prayer for a writ
of replevin, thereat instituted by the petitioner against the herein respondent, Giraffe-X Creative Imaging, Inc. (GIRAFFE, for brevity).

The facts:

On December 4, 1996, petitioner PCI LEASING and respondent GIRAFFE entered into a Lease Agreement,[1] whereby the former leased out to the latter
one (1) set of Silicon High Impact Graphics and accessories worth P3,900,00.00 and one (1) unit of Oxberry Cinescan 6400-10 worth P6,500,000.00. In
connection with this agreement, the parties subsequently signed two (2) separate documents, each denominated as Lease Schedule.[2] Likewise forming
parts of the basic lease agreement were two (2) separate documents denominated Disclosure Statements of Loan/Credit Transaction (Single Payment or
Installment Plan)[3] that GIRAFFE also executed for each of the leased equipment. These disclosure statements inter alia described GIRAFFE, vis--vis the
two aforementioned equipment, as the borrower who acknowledged the net proceeds of the loan, the net amount to be financed, the financial charges, the
total installment payments that it must pay monthly for thirty-six (36) months, exclusive of the 36% per annum late payment charges. Thus, for the Silicon
High Impact Graphics, GIRAFFE agreed to pay P116,878.21 monthly, and for Oxberry Cinescan, P181.362.00 monthly. Hence, the total amount GIRAFFE
has to pay PCI LEASING for 36 months of the lease, exclusive of monetary penalties imposable, if proper, is as indicated below:

P116,878.21 @ month (for the Silicon High

Impact Graphics) x 36 months = P 4,207,615.56

-- PLUS--

P181,362.00 @ month (for the Oxberry

Cinescan) x 36 months = P 6,529,032.00
Total Amount to be paid by GIRAFFE
(or the NET CONTRACT AMOUNT) P 10,736,647.56

By the terms, too, of the Lease Agreement, GIRAFFE undertook to remit the amount of P3,120,000.00 by way of guaranty deposit, a sort of performance
and compliance bond for the two equipment. Furthermore, the same agreement embodied a standard acceleration clause, operative in the event GIRAFFE
fails to pay any rental and/or other accounts due.

A year into the life of the Lease Agreement, GIRAFFE defaulted in its monthly rental-payment obligations. And following a three-month default, PCI
LEASING, through one Atty. Florecita R. Gonzales, addressed a formal pay-or-surrender-equipment type of demand letter[4] dated February 24, 1998 to
GIRAFFE.

The demand went unheeded.

Hence, on May 4, 1998, in the RTC of Quezon City, PCI LEASING instituted the instant case against GIRAFFE. In its complaint,[5] docketed in said court
as Civil Case No. 98-34266 and raffled to Branch 227[6] thereof, PCI LEASING prayed for the issuance of a writ of replevin for the recovery of the leased
property, in addition to the following relief:

2. After trial, judgment be rendered in favor of plaintiff [PCI LEASING] and against the defendant [GIRAFFE], as follows:

a. Declaring the plaintiff entitled to the possession of the subject properties;

b. Ordering the defendant to pay the balance of rental/obligation in the total amount of P8,248,657.47 inclusive of interest and charges thereon;

c. Ordering defendant to pay plaintiff the expenses of litigation and cost of suit. (Words in bracket added.)

Upon PCI LEASINGs posting of a replevin bond, the trial court issued a writ of replevin, paving the way for PCI LEASING to secure the seizure and
delivery of the equipment covered by the basic lease agreement.

Instead of an answer, GIRAFFE, as defendant a quo, filed a Motion to Dismiss, therein arguing that the seizure of the two (2) leased equipment stripped PCI
LEASING of its cause of action. Expounding on the point, GIRAFFE argues that, pursuant to Article 1484 of the Civil Code on installment sales of personal
property, PCI LEASING is barred from further pursuing any claim arising from the lease agreement and the companion contract documents, adding that the
agreement between the parties is in reality a lease of movables with option to buy. The given situation, GIRAFFE continues, squarely brings into applicable
play Articles 1484 and 1485 of the Civil Code, commonly referred to as the Recto Law. The cited articles respectively provide:

ART. 1484. In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise any of the following remedies:

(1) Exact fulfillment of the obligation, should the vendee fail to pay;

(2) Cancel the sale, should the vendee's failure to pay cover two or more installments;

(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee's failure to pay cover two or more installments. In this
case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void.
(Emphasis added.)

ART. 1485. The preceding article shall be applied to contracts purporting to be leases of personal property with option to buy, when the lessor has
deprived the lessee of the possession or enjoyment of the thing.

It is thus GIRAFFEs posture that the aforequoted Article 1484 of the Civil Code applies to its contractual relation with PCI LEASING because the lease
agreement in question, as supplemented by the schedules documents, is really a lease with option to buy under the companion article, Article 1485.
Consequently, so GIRAFFE argues, upon the seizure of the leased equipment pursuant to the writ of replevin, which seizure is equivalent to foreclosure,

20
PCI LEASING has no further recourse against it. In brief, GIRAFFE asserts in its Motion to Dismiss that the civil complaint filed by PCI LEASING is
proscribed by the application to the case of Articles 1484 and 1485, supra, of the Civil Code.

In its Opposition to the motion to dismiss, PCI LEASING maintains that its contract with GIRAFFE is a straight lease without an option to buy. Prescinding
therefrom, PCI LEASING rejects the applicability to the suit of Article 1484 in relation to Article 1485 of the Civil Code, claiming that, under the terms and
conditions of the basic agreement, the relationship between the parties is one between an ordinary lessor and an ordinary lessee.

In a decision[7] dated December 28, 1998, the trial court granted GIRAFFEs motion to dismiss mainly on the interplay of the following premises: 1) the
lease agreement package, as memorialized in the contract documents, is akin to the contract contemplated in Article 1485 of the Civil Code, and 2)
GIRAFFEs loss of possession of the leased equipment consequent to the enforcement of the writ of replevin is akin to foreclosure, the condition precedent
for application of Articles 1484 and 1485 [of the Civil Code]. Accordingly, the trial court dismissed Civil Case No. Q-98-34266, disposing as follows:

WHEREFORE, premises considered, the defendant [GIRAFFE] having relinquished any claim to the personal properties subject of replevin which are now
in the possession of the plaintiff [PCI LEASING], plaintiff is DEEMED fully satisfied pursuant to the provisions of Articles 1484 and 1485 of the New Civil
Code. By virtue of said provisions, plaintiff is DEEMED estopped from further action against the defendant, the plaintiff having recovered thru (replevin) the
personal property sought to be payable/leased on installments, defendants being under protection of said RECTO LAW. In view thereof, this case is hereby
DISMISSED.

With its motion for reconsideration having been denied by the trial court in its resolution of February 15, 2000,[8] petitioner has directly come to this Court
via this petition for review raising the sole legal issue of whether or not the underlying Lease Agreement, Lease Schedules and the Disclosure Statements that
embody the financial leasing arrangement between the parties are covered by and subject to the consequences of Articles 1484 and 1485 of the New Civil
Code.

As in the court below, petitioner contends that the financial leasing arrangement it concluded with the respondent represents a straight lease covered by R.A.
No. 5980, the Financing Company Act, as last amended by R.A. No. 8556, otherwise known as Financing Company Act of 1998, and is outside the
application and coverage of the Recto Law. To the petitioner, R.A. No. 5980 defines and authorizes its existence and business.

The recourse is without merit.

R.A. No. 5980, in its original shape and as amended, partakes of a supervisory or regulatory legislation, merely providing a regulatory framework for the
organization, registration, and regulation of the operations of financing companies. As couched, it does not specifically define the rights and obligations of
parties to a financial leasing arrangement. In fact, it does not go beyond defining commercial or transactional financial leasing and other financial leasing
concepts. Thus, the relevancy of Article 18 of the Civil Code which reads:

Article 18. - In matters which are governed by special laws, their deficiency shall be supplied by the provisions of this [Civil] Code.

Petitioner foists the argument that the Recto Law, i.e., the Civil Code provisions on installment sales of movable property, does not apply to a financial
leasing agreement because such agreement, by definition, does not confer on the lessee the option to buy the property subject of the financial lease. To the
petitioner, the absence of an option-to-buy stipulation in a financial leasing agreement, as understood under R.A. No. 8556, prevents the application thereto
of Articles 1484 and 1485 of the Civil Code.
We are not persuaded.

The Court can allow that the underlying lease agreement has the earmarks or made to appear as a financial leasing,[9] a term defined in Section 3(d) of R.A.
No. 8556 as -

a mode of extending credit through a non-cancelable lease contract under which the lessor purchases or acquires, at the instance of the lessee, machinery,
equipment, office machines, and other movable or immovable property in consideration of the periodic payment by the lessee of a fixed amount of money
sufficient to amortize at least seventy (70%) of the purchase price or acquisition cost, including any incidental expenses and a margin of profit over an
obligatory period of not less than two (2) years during which the lessee has the right to hold and use the leased property but with no obligation or option on
his part to purchase the leased property from the owner-lessor at the end of the lease contract.

In its previous holdings, however, the Court, taking into account the following mix: the imperatives of equity, the contractual stipulations in question and the
actuations of parties vis--vis their contract, treated disguised transactions technically tagged as financing lease, like here, as creating a different contractual
relationship. Notable among the Courts decisions because of its parallelism with this case is BA Finance Corporation v. Court of Appeals[10] which involved
a motor vehicle. Thereat, the Court has treated a purported financial lease as actually a sale of a movable property on installments and prevented recovery
beyond the buyers arrearages. Wrote the Court in BA Finance:

The transaction involved is one of a "financial lease" or "financial leasing," where a financing company would, in effect, initially purchase a mobile
equipment and turn around to lease it to a client who gets, in addition, an option to purchase the property at the expiry of the lease period. xxx.

xxx xxx xxx

The pertinent provisions of [RA] 5980, thus implemented, read:

"'Financing companies,' are primarily organized for the purpose of extending credit facilities to consumers either by leasing of motor vehicles, and
office machines and equipment, and other movable property."

"'Credit' shall mean any loan, any contract to sell, or sale or contract of sale of property or service, under which part or all of the price is payable subsequent
to the making of such sale or contract; any rental-purchase contract; .;"

The foregoing provisions indicate no less than a mere financing scheme extended by a financing company to a client in acquiring a motor vehicle and
allowing the latter to obtain the immediate possession and use thereof pending full payment of the financial accommodation that is given.

In the case at bench, xxx. [T]he term of the contract [over a motor vehicle] was for thirty six (36) months at a "monthly rental" (P1,689.40), or for a total
amount of P60,821.28. The contract also contained [a] clause [requiring the Lessee to give a guaranty deposit in the amount of P20,800.00] xxx

After the private respondent had paid the sum of P41,670.59, excluding the guaranty deposit of P20,800.00, he stopped further payments. Putting the two
sums together, the financing company had in its hands the amount of P62,470.59 as against the total agreed "rentals" of P60,821.28 or an excess of
P1,649.31.

21
The respondent appellate court considered it only just and equitable for the guaranty deposit made by the private respondent to be applied to his arrearages
and thereafter to hold the contract terminated. Adopting the ratiocination of the court a quo, the appellate court said:

xxx In view thereof, the guaranty deposit of P20,800.00 made by the defendant should and must be credited in his favor, in the interest of fairness, justice
and equity. The plaintiff should not be allowed to unduly enrich itself at the expense of the defendant. xxx This is even more compelling in this case where
although the transaction, on its face, appear ostensibly, to be a contract of lease, it is actually a financing agreement, with the plaintiff financing the
purchase of defendant's automobile . The Court is constrained, in the interest of truth and justice, to go into this aspect of the transaction between
the plaintiff and the defendant with all the facts and circumstances existing in this case, and which the court must consider in deciding the case, if it
is to decide the case according to all the facts. xxx.

xxx xxx xxx

Considering the factual findings of both the court a quo and the appellate court, the only logical conclusion is that the private respondent did opt, as he has
claimed, to acquire the motor vehicle, justifying then the application of the guarantee deposit to the balance still due and obligating the petitioner to recognize
it as an exercise of the option by the private respondent. The result would thereby entitle said respondent to the ownership and possession of the
vehicle as the buyer thereof. We, therefore, see no reversible error in the ultimate judgment of the appellate court.[11] (Italics in the original;
underscoring supplied and words in bracket added.)

In Cebu Contractors Consortium Co. v. Court of Appeals,[12] the Court viewed and thus declared a financial lease agreement as having been
simulated to disguise a simple loan with security, it appearing that
the financing company purchased equipment already owned by a capital-strapped client, with the intention of leasing it back to the latter.

In the present case, petitioner acquired the office equipment in question for their subsequent lease to the respondent, with the latter undertaking to pay a
monthly fixed rental therefor in the total amount of P292,531.00, or a total of P10,531,116.00 for the whole 36 months. As a measure of good faith,
respondent made an up-front guarantee deposit in the amount of P3,120,000.00. The basic agreement provides that in the event the respondent fails to pay
any rental due or is in a default situation, then the petitioner shall have cumulative remedies, such as, but not limited to, the following:[13]

1. Obtain possession of the property/equipment;

2. Retain all amounts paid to it. In addition, the guaranty deposit may be applied towards the payment of liquidated damages;

3. Recover all accrued and unpaid rentals;

4. Recover all rentals for the remaining term of the lease had it not been cancelled, as additional penalty;

5. Recovery of any and all amounts advanced by PCI LEASING for GIRAFFEs account xxx;

6. Recover all expenses incurred in repossessing, removing, repairing and storing the property; and,

7. Recover all damages suffered by PCI LEASING by reason of the default.

In addition, Sec. 6.1 of the Lease Agreement states that the guaranty deposit shall be forfeited in the event the respondent, for any reason, returns the
equipment before the expiration of the lease.

At bottom, respondent had paid the equivalent of about a years lease rentals, or a total of P3,510,372.00, more or less. Throw in the guaranty deposit
(P3,120,000.00) and the respondent had made a total cash outlay of P6,630,372.00 in favor of the petitioner. The replevin-seized leased equipment had, as
alleged in the complaint, an estimated residual value of P6,900.000.00 at the time Civil Case No. Q-98-34266 was instituted on May 4, 1998. Adding all cash
advances thus made to the residual value of the equipment, the total value which the petitioner had actually obtained by virtue of its lease agreement with the
respondent amounts to P13,530,372.00 (P3,510,372.00 + P3,120,000.00 + P6,900.000.00 = P13,530,372.00).

The acquisition cost for both the Silicon High Impact Graphics equipment and the Oxberry Cinescan was, as stated in no less than the petitioners letter to
the respondent dated November 11, 1996[14] approving in the latters favor a lease facility, was P8,100,000.00. Subtracting the acquisition cost of
P8,100,000.00 from the total amount, i.e., P13,530,372.00, creditable to the respondent, it would clearly appear that petitioner realized a gross income of
P5,430,372.00 from its lease transaction with the respondent. The amount of P5,430,372.00 is not yet a final figure as it does not include the rentals in
arrears, penalties thereon, and interest earned by the guaranty deposit.

As may be noted, petitioners demand letter[15] fixed the amount of P8,248,657.47 as representing the respondents rental balance which became due and
demandable consequent to the application of the acceleration and other clauses of the lease agreement. Assuming, then, that the respondent may be
compelled to pay P8,248,657.47, then it would end up paying a total of P21,779,029.47 (P13,530,372.00 + P8,248,657.47 = P21,779,029.47) for its use - for
a year and two months at the most - of the equipment. All in all, for an investment of P8,100,000.00, the petitioner stands to make in a years time, out of the
transaction, a total of P21,779,029.47, or a net of P13,679,029.47, if we are to believe its outlandish legal submission that the PCI LEASING-GIRAFFE
Lease Agreement was an honest-to-goodness straight lease.

A financing arrangement has a purpose which is at once practical and salutary. R.A. No. 8556 was, in fact, precisely enacted to regulate financing companies
operations with the end in view of strengthening their critical role in providing credit and services to small and medium enterprises and to curtail acts and
practices prejudicial to the public interest, in general, and to their clienteles, in particular.[16] As a regulated activity, financing arrangements are not meant
to quench only the thirst for profit. They serve a higher purpose, and R.A. No. 8556 has made that abundantly clear.

We stress, however, that there is nothing in R.A. No. 8556 which defines the rights and obligations, as between each other, of the financial lessor and the
lessee. In determining the respective responsibilities of the parties to the agreement, courts, therefore, must train a keen eye on the attendant facts and
circumstances of the case in order to ascertain the intention of the parties, in relation to the law and the written agreement. Likewise, the public interest and
policy involved should be considered. It may not be amiss to state that, normally, financing contracts come in a standard prepared form, unilaterally thought
up and written by the financing companies requiring only the personal circumstances and signature of the borrower or lessee; the rates and other important
covenants in these agreements are still largely imposed unilaterally by the financing companies. In other words, these agreements are usually one-sided in
favor of such companies. A perusal of the lease agreement in question exposes the many remedies available to the petitioner, while there are only the
standard contractual prohibitions against the respondent. This is characteristic of standard printed form contracts.

There is more. In the adverted February 24, 1998 demand letter[17] sent to the respondent, petitioner fashioned its claim in the alternative: payment of the
full amount of P8,248,657.47, representing the unpaid balance for the entire 36-month lease period or the surrender of the financed asset under pain of legal
action. To quote the letter:

22
Demand is hereby made upon you to pay in full your outstanding balance in the amount of P8,248,657.47 on or before March 04, 1998 OR to surrender to us
the one (1) set Silicon High Impact Graphics and one (1) unit Oxberry Cinescan 6400-10

We trust you will give this matter your serious and preferential attention. (Emphasis added).

Evidently, the letter did not make a demand for the payment of the P8,248,657.47 AND the return of the equipment; only either one of the two was required.
The demand letter was prepared and signed by Atty. Florecita R. Gonzales, presumably petitioners counsel. As such, the use of or instead of and in the letter
could hardly be treated as a simple typographical error, bearing in mind the nature of the demand, the amount involved, and the fact that it was made by a
lawyer. Certainly Atty. Gonzales would have known that a world of difference exists between and and or in the manner that the word was employed in the
letter.

A rule in statutory construction is that the word "or" is a disjunctive term signifying dissociation and independence of one thing from other things enumerated
unless the context requires a different interpretation.[18]

In its elementary sense, "or", as used in a statute, is a disjunctive article indicating an alternative. It often connects a series of words or propositions indicating
a choice of either. When "or" is used, the various members of the enumeration are to be taken separately.[19]

The word "or" is a disjunctive term signifying disassociation and independence of one thing from each of the other things enumerated.[20]

The demand could only be that the respondent need not return the equipment if it paid the P8,248,657.47 outstanding balance, ineluctably suggesting that the
respondent can keep possession of the equipment if it exercises its option to acquire the same by paying the unpaid balance of the purchase price. Stated
otherwise, if the respondent was not minded to exercise its option of acquiring the equipment by returning them, then it need not pay the outstanding balance.
This is the logical import of the letter: that the transaction in this case is a lease in name only. The so-called monthly rentals are in truth monthly
amortizations of the price of the leased office equipment.

On the whole, then, we rule, as did the trial court, that the PCI LEASING- GIRAFFE lease agreement is in reality a lease with an option to purchase the
equipment. This has been made manifest by the actions of the petitioner itself, foremost of which is the declarations made in its demand letter to the
respondent. There could be no other explanation than that if the respondent paid the balance, then it could keep the equipment for its own; if not, then it
should return them. This is clearly an option to purchase given to the respondent. Being so, Article 1485 of the Civil Code should apply.

The present case reflects a situation where the financing company can withhold and conceal - up to the last moment - its intention to sell the property subject
of the finance lease, in order that the provisions of the Recto Law may be circumvented. It may be, as petitioner pointed out, that the basic lease agreement
does not contain a purchase option clause. The absence, however, does not necessarily argue against the idea that what the parties are into is not a straight
lease, but a lease with option to purchase. This Court has, to be sure, long been aware of the practice of vendors of personal property of denominating a
contract of sale on installment as one of lease to prevent the ownership of the object of the sale from passing to the vendee until and unless the price is fully
paid. As this Court noted in Vda. de Jose v. Barrueco:[21]
Sellers desirous of making conditional sales of their goods, but who do not wish openly to make a bargain in that form, for one reason or another, have
frequently resorted to the device of making contracts in the form of leases either with options to the buyer to purchase for a small consideration at the end of
term, provided the so-called rent has been duly paid, or with stipulations that if the rent throughout the term is paid, title shall thereupon vest in the lessee. It
is obvious that such transactions are leases only in name. The so-called rent must necessarily be regarded as payment of the price in installments since the
due payment of the agreed amount results, by the terms of the bargain, in the transfer of title to the lessee.

In another old but still relevant case of U.S. Commercial v. Halili,[22] a lease agreement was declared to be in fact a sale of personal property by
installments. Said the Court:

. . . There can hardly be any question that the so-called contracts of lease on which the present action is based were veritable leases of personal
property with option to purchase, and as such come within the purview of the above article [Art. 1454-A of the old Civil Code on sale of personal
property by installment]. xxx

Being leases of personal property with option to purchase as contemplated in the above article, the contracts in question are subject to the provision that
when the lessor in such case has chosen to deprive the lessee of the enjoyment of such personal property, he shall have no further action against the lessee for
the recovery of any unpaid balance owing by the latter, agreement to the contrary being null and void.

In choosing, through replevin, to deprive the respondent of possession of the leased equipment, the petitioner waived its right to bring an action to recover
unpaid rentals on the said leased items. Paragraph (3), Article 1484 in relation to Article 1485 of the Civil Code, which we are hereunder re-reproducing,
cannot be any clearer.

ART. 1484. In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise any of the following remedies:
xxx xxx xxx

(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee's failure to pay cover two or more installments. In this
case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void.

ART. 1485. The preceding article shall be applied to contracts purporting to be leases of personal property with option to buy, when the lessor has deprived
the lessee of the possession or enjoyment of the thing.

As we articulated in Elisco Tool Manufacturing Corp. v. Court of Appeals,[23] the remedies provided for in Article 1484 of the Civil Code are alternative,
not cumulative. The exercise of one bars the exercise of the others. This limitation applies to contracts purporting to be leases of personal property with
option to buy by virtue of the same Article 1485. The condition that the lessor has deprived the lessee of possession or enjoyment of the thing for the purpose
of applying Article 1485 was fulfilled in this case by the filing by petitioner of the complaint for a sum of money with prayer for replevin to recover
possession of the office equipment.[24] By virtue of the writ of seizure issued by the trial court, the petitioner has effectively deprived respondent of their
use, a situation which, by force of the Recto Law, in turn precludes the former from maintaining an action for recovery of accrued rentals or the recovery of
the balance of the purchase price plus interest. [25]

The imperatives of honest dealings given prominence in the Civil Code under the heading: Human Relations, provide another reason why we must hold the
petitioner to its word as embodied in its demand letter. Else, we would witness a situation where even if the respondent surrendered the equipment
voluntarily, the petitioner can still sue upon its claim. This would be most unfair for the respondent. We cannot allow the petitioner to renege on its word. Yet

23
more than that, the very word or as used in the letter conveys distinctly its intention not to claim both the unpaid balance and the equipment. It is not difficult
to discern why: if we add up the amounts paid by the respondent, the residual value of the property recovered, and the amount claimed by the petitioner as
sued upon herein (for a total of P21,779,029.47), then it would end up making an instant killing out of the transaction at the expense of its client, the
respondent. The Recto Law was precisely enacted to prevent this kind of aberration. Moreover, due to considerations of equity, public policy and justice, we
cannot allow this to

happen. Not only to the respondent, but those similarly situated who may fall prey to a similar scheme.

WHEREFORE, the instant petition is DENIED and the trial courts decision is AFFIRMED.

Costs against petitioner.

SO ORDERED.

PARAGAS v. HEIRS OF DOMINADOR BALACANO

FACTS: Gregorio Balacano, married to Lorenza, owned 2 parcels of land. He was already 81 years old, very weak, could barely talk, and had been battling
w/ liver disease for over a month. On his deathbed, barely a week before he died, he allegedly signed a Deed of Absolute Sale over the lots in favor of the
Paragas Spouses, accompanied by Atty. De Guzman who proceeded to notarize the same, alleging that it was a mere confirmation of a previous sale and that
Gregorio had already paiad a P 50,000.00 deposit. The
Paragas driver was also there to take a picture of Gregorio signing the said deed, w/ a ballpen in his hand. There was nothing to show that the contents of the
deed were explained to Gregorio. Paragas then sold a portion of the disputed lot to Catalino. The grandson of Gregorio, Domingo, sought to annul the sale
and partition. There was no sufficient evidence to support any prior agreement or partial execution thereof.

ISSUE: W/N Balacano is incapacitated to enter into a contract of sale

HELD: A person is not rendered incompetent merely because of old age; however, when such age has impaired the mental faculties as to prevent a person
from protecting his rights, then he is undeniably incapacitated. He is clearly at a disadvantage, and the courts must be vigilant for his protection. In this case,
Gregorios consent was clearly absent hence the sale was null and void. The dubious circumstances raise serious doubts on his capacity to render consent.
Considering that the Paragas Spouses are not owners of the said properties, it only follows that the subsequent sale thereof to Catalino who was not in good
faithis likewise void. Further, the lots pertained to the conjugal partnershiphaving been inherited by Gregorio during his marriage to Lorenza. It cannot
thus be sold w/o the latters consent.

SECOND DIVISION
[G.R. No. 168220. August 31, 2005]

SPS. RUDY PARAGAS and CORAZON B. PARAGAS, petitioners, vs. HRS. OF DOMINADOR BALACANO, namely: DOMINIC, RODOLFO,
NANETTE and CYRIC, all surnamed BALACANO, represented by NANETTE BALACANO and ALFREDO BALACANO, respondents.
RESOLUTION
CHICO-NAZARIO, J.:

This petition for review seeks to annul the Decision[1] dated 15 February 2005 of the Court of Appeals in CA-G.R. CV No. 64048, affirming with
modification the 8 March 1999 Decision[2] of the Regional Trial Court (RTC), Branch 21, of Santiago City, Isabela, in Civil Case No. 21-2313. The petition
likewise seeks to annul the Resolution[3] dated 17 May 2005 denying petitioners motion for reconsideration.

The factual antecedents were synthesized by the Court of Appeals in its decision.

Gregorio Balacano, married to Lorenza Sumigcay, was the registered owner of Lot 1175-E and Lot 1175-F of the Subd. Plan Psd-38042 [located at Baluarte,
Santiago City, Isabela] covered by TCT No. T-103297 and TCT No. T-103298 of the Registry of Deeds of the Province of Isabela.

Gregorio and Lorenza had three children, namely: Domingo, Catalino and Alfredo, all surnamed Balacano. Lorenza died on December 11, 1991. Gregorio,
on the other hand, died on July 28, 1996.

Prior to his death, Gregorio was admitted at the Veterans General Hospital in Bayombong, Nueva Vizcaya on June 28, 1996 and stayed there until July 19,
1996. He was transferred in the afternoon of July 19, 1996 to the Veterans Memorial Hospital in Quezon City where he was confined until his death.

Gregorio purportedly sold on July 22, 1996, or barely a week prior to his death, a portion of Lot 1175-E (specifically consisting of 15,925 square meters from
its total area of 22,341 square meters) and the whole Lot 1175-F to the Spouses Rudy (Rudy) and Corazon Paragas (collectively, the Spouses Paragas) for the
total consideration of P500,000.00. This sale appeared in a deed of absolute sale notarized by Atty. Alexander V. de Guzman, Notary Public for Santiago
City, on the same date July 22, 1996 and witnessed by Antonio Agcaoili (Antonio) and Julia Garabiles (Julia). Gregorios certificates of title over Lots 1175-E
and 1175-F were consequently cancelled and new certificates of title were issued in favor of the Spouses Paragas.

The Spouses Paragas then sold on October 17, 1996 a portion of Lot 1175-E consisting of 6,416 square meters to Catalino for the total consideration of
P60,000.00.

Domingos children (Dominic, Rodolfo, Nanette and Cyric, all surnamed Balacano;) filed on October 22, 1996 a complaint for annulment of sale and partition
against Catalino and the Spouses Paragas. They essentially alleged in asking for the nullification of the deed of sale that: (1) their grandfather Gregorio could
not have appeared before the notary public on July 22, 1996 at Santiago City because he was then confined at the Veterans Memorial Hospital in Quezon
City; (2) at the time of the alleged execution of the deed of sale, Gregorio was seriously ill, in fact dying at that time, which vitiated his consent to the
disposal of the property; and (3) Catalino manipulated the execution of the deed and prevailed upon the dying Gregorio to sign his name on a paper the
contents of which he never understood because of his serious condition. Alternatively, they alleged that assuming Gregorio was of sound and disposing mind,
he could only transfer a half portion of Lots 1175-E and 1175-F as the other half belongs to their grandmother Lorenza who predeceased Gregorio they
claimed that Lots 1175-E and 1175-F form part of the conjugal partnership properties of Gregorio and Lorenza. Finally, they alleged that the sale to the
Spouses Paragas covers only a 5-hectare portion of Lots 1175-E and 1175-F leaving a portion of 6,416 square meters that Catalino is threatening to dispose.
They asked for the nullification of the deed of sale executed by Gregorio and the partition of Lots 1175-E and 1175-F. They likewise asked for damages.

Instead of filing their Answer, the defendants Catalino and the Spouses Paragas moved to dismiss the complaint on the following grounds: (1) the plaintiffs
have no legal capacity - the Domingos children cannot file the case because Domingo is still alive, although he has been absent for a long time; (2) an
indispensable party is not impleaded that Gregorios other son, Alfredo was not made a party to the suit; and (3) the complaint states no cause of action that
Domingos children failed to allege a ground for the annulment of the deed of sale; they did not cite any mistake, violence, intimidation, undue influence or
fraud, but merely alleged that Gregorio was seriously ill. Domingos children opposed this motion.

24
The lower court denied the motion to dismiss, but directed the plaintiffs-appellees to amend the complaint to include Alfredo as a party. Alfredo was
subsequently declared as in default for his failure to file his Answer to the Complaint.

The defendants-appellees filed their Answer with Counterclaim on May 7, 1997, denying the material allegations of the complaint. Additionally, they
claimed that: (1) the deed of sale was actually executed by Gregorio on July 19 (or 18), 1996 and not July 22, 1996; (2) the Notary Public personally went to
the Hospital in Bayombong, Nueva Vizcaya on July 18, 1996 to notarize the deed of sale already subject of a previously concluded covenant between
Gregorio and the Spouses Paragas; (3) at the time Gregorio signed the deed, he was strong and of sound and disposing mind; (4) Lots 1175-E and 1175-F
were Gregorios separate capital and the inscription of Lorenzas name in the titles was just a description of Gregorios marital status; (5) the entire area of Lots
1175-E and 1175-F were sold to the Spouses Paragas. They interposed a counterclaim for damages.

At the trial, the parties proceeded to prove their respective contentions.

Plaintiff-appellant Nanette Balacano testified to prove the material allegations of their complaint. On Gregorios medical condition, she declared that: (1)
Gregorio, who was then 81 years old, weak and sick, was brought to the hospital in Bayombong, Nueva Vizcaya on June 28, 1996 and stayed there until the
afternoon on July 19, 1996; (2) thereafter, Gregorio, who by then was weak and could no longer talk and whose condition had worsened, was transferred in
the afternoon of July 19, 1996 to the Veterans Memorial Hospital in Quezon City where Gregorio died. She claimed that Gregorio could not have signed a
deed of sale on July 19, 1996 because she stayed at the hospital the whole of that day and saw no visitors. She likewise testified on their agreement for
attorneys fees with their counsel and the litigation expenses they incurred.

Additionally, the plaintiffs-appellees presented in evidence Gregorios medical records and his death certificate.

Defendants-appellees, on the other hand, presented as witnesses Notary Public de Guzman and instrumental witness Antonio to prove Gregorios execution of
the sale and the circumstances under the deed was executed. They uniformly declared that: (1) on July 18, 1996, they went to the hospital in Bayombong,
Nueva Vizcaya where Gregorio was confined with Rudy; (2) Atty. De Guzman read and explained the contents of the deed to Gregorio; (3) Gregorio
signed the deed after receiving the money from Rudy; (4) Julia and Antonio signed the deed as witnesses. Additionally, Atty. De Guzman explained that
the execution of the deed was merely a confirmation of a previous agreement between the Spouses Paragas and Gregorio that was concluded at least
a month prior to Gregorios death; that, in fact, Gregorio had previously asked him to prepare a deed that Gregorio eventually signed on July 18, 1996. He
also explained that the deed, which appeared to have been executed on July 22, 1996, was actually executed on July 18, 1996; he notarized the deed and
entered it in his register only on July 22, 1996. He claimed that he did not find it necessary to state the precise date and place of execution (Bayombong,
Nueva Vizcaya, instead of Santiago City) of the deed of sale because the deed is merely a confirmation of a previously agreed contract between
Gregorio and the Spouses Paragas. He likewise stated that of the stated P500,000.00 consideration in the deed, Rudy paid Gregorio P450,000.00 in the
hospital because Rudy had previously paid Gregorio P50,000.00. For his part, Antonio added that he was asked by Rudy to take pictures of Gregorio signing
the deed. He also claimed that there was no entry on the date when he signed; nor did he remember reading Santiago City as the place of execution of the
deed. He described Gregorio as still strong but sickly, who got up from the bed with Julias help.

Witness for defendants-appellants Luisa Agsalda testified to prove that Lot 1175-E was Gregorios separate property. She claimed that Gregorios father
(Leon) purchased a two-hectare lot from them in 1972 while the other lot was purchased from her neighbor. She also declared that Gregorio inherited these
lands from his father Leon; she does not know, however, Gregorios brothers share in the inheritance. Defendant-appellant Catalino also testified to
corroborate the testimony of witness Luisa Agsalda; he said that Gregorio told him that he (Gregorio) inherited Lots 1175-E and 1175-F from his father
Leon. He also stated that a portion of Lot 1175-E consisting of 6,416 square meters was sold to him by the Spouses Paragas and that he will pay the Spouses
Paragas P50,000.00, not as consideration for the return of the land but for the transfer of the title to his name.

Additionally, the defendants-appellants presented in evidence the pictures taken by Antonio when Gregorio allegedly signed the deed.[4]

RTC RULING:

The lower court, after trial, rendered the decision declaring null and void the deed of sale purportedly executed by Gregorio Balacano in favor of
the spouses Rudy Paragas and Corazon Paragas. In nullifying the deed of sale executed by Gregorio, the lower court initially noted that at the time
Gregorio executed the deed, Gregorio was ill. The lower courts reasoning in declaring the deed of sale null and void and this reasonings premises may be
summarized as follows: (1) the deed of sale was improperly notarized; thus it cannot be considered a public document that is usually accorded the
presumption of regularity; (2) as a private document, the deed of sales due execution must be proved in accordance with Section 20, Rule 132 of the
Revised Rules on Evidence either: (a) by anyone who saw the document executed or written; or (b) by evidence of the genuineness of the signature or
handwriting of the maker; and (3) it was incumbent upon the Spouses Paragas to prove the deed of sales due execution but failed to do so the lower
court said that witness Antonio Agcaoili is not credible while Atty. Alexander De Guzman is not reliable.[5]

The lower court found the explanations of Atty. De Guzman regarding the erroneous entries on the actual place and date of execution of the deed of
sale as justifications for a lie. The lower court said

The Court cannot imagine an attorney to undertake to travel to another province to notarize a document when he must certainly know, being a
lawyer and by all means, not stupid, that he has no authority to notarize a document in that province. The only logical thing that happened was that
Rudy Paragas brought the deed of sale to him on July 22, 1996 already signed and requested him to notarize the same which he did, not knowing
that at that time the vendor was already in a hospital and [sic] Quezon City. Of course had he known, Atty. De Guzman would not have notarized
the document. But he trusted Rudy Paragas and moreover, Gregorio Balacano already informed him previously in June that he will sell his lands to
Paragas. In addition [sic, (,) was omitted] Rudy Paragas also told him that Balacano received an advance of P50,000.00.

The intention to sell is not actual selling. From the first week of June when, according to Atty. De Guzman, Gregorio Balacano informed him that he will
sell his land to Rudy Paragas, enough time elapsed to the time he was brought to the hospital on June 28, 1996. Had there been a meeting of the minds
between Gregorio Balacano and Rudy Paragas regarding the sale, surely Gregorio Balacano would have immediately returned to the office of Atty.
De Guzman to execute the deed of sale. He did not until he was brought to the hospital and diagnosed to have liver cirrhosis. Because of the seriousness
of his illness, it is not expected that Gregorio Balacano would be negotiating a contract of sale. Thus, Rudy Paragas negotiated with Catalino
Balacano, the son of Gregorio Balacano with whom the latter was staying.[6]

The lower court also did not consider Antonio Agcaoili, petitioner Rudy Paragass driver, a convincing witness, concluding that he was telling a
rehearsed story. The lower court said

The only portion of his testimony that is true is that he signed the document. How could the Court believe that he brought a camera with him just to take
pictures of the signing? If the purpose was to record the proceeding for posterity, why did he not take the picture of Atty. De Guzman when the latter
was reading and explaining the document to Gregorio Balacano? Why did he not take the picture of both Gregorio Balacano and Atty. de Guzman
while the old man was signing the document instead of taking a picture of Gregorio Balacano alone holding a ball pen without even showing the
document being signed? Verily there is a picture of a document but only a hand with a ball pen is shown with it. Why? Clearly the driver Antonio
Agcaoili must have only been asked by Rudy Paragas to tell a concocted story which he himself would not dare tell in Court under oath.[7]

25
The lower court likewise noted that petitioner Rudy Paragas did not testify about the signing of the deed of sale. To the lower court, Rudys refusal or
failure to testify raises a lot of questions, such as: (1) was he (Rudy) afraid to divulge the circumstances of how he obtained the signature of Gregorio
Balacano, and (2) was he (Rudy) afraid to admit that he did not actually pay the P500,000.00 indicated in the deed of sale as the price of the land?[8]

The lower court also ruled that Lots 1175-E and 1175-F were Gregorios and Lorenzas conjugal partnership properties. The lower court found that
these lots were acquired during the marriage because the certificates of title of these lots clearly stated that the lots are registered in the name
Gregorio, married to Lorenza Sumigcay. Thus, the lower court concluded that the presumption of law (under Article 160 of the Civil Code of the
Philippines) that property acquired during the marriage is presumed to belong to the conjugal partnership fully applies to Lots 1175-E and 1175-
F.[9]

Thus, on 8 March 1999, the RTC, Branch 21, of Santiago City, Isabela, rendered a Decision[10] in Civil Case No. 21-2313, the dispositive portion of which
reads as follows:

WHEREFORE in the light of the foregoing considerations judgment is hereby rendered:

1. DECLARING as NULL and VOID the deed of sale purportedly executed by Gregorio Balacano in favor of the spouses Rudy Paragas and Corazon
Paragas over lots 1175-E and 1175-F covered by TCT Nos. T-103297 and T-103298, respectively;

2. ORDERING the cancellation of TCT Nos. T-258042 and T-258041 issued in the name of the spouses Rudy and Corazon Paragas by virtue of the deed
of sale; and

DECLARING the parcel of lands, lots 1175-E and 1175-F as part of the estate of the deceased spouses Gregorio Balacano and Lorenza Balacano.[11]

CA RULING:

In the assailed Decision dated 15 February 2005, the Court of Appeals affirmed the Decision of the trial court, with the modification that Lots 1175-E
and 1175-F were adjudged as belonging to the estate of Gregorio Balacano. The appellate court disposed as follows:

WHEREFORE, premises considered, the appeal is hereby DISMISSED. We AFFIRM the appealed Decision for the reasons discussed above, with the
MODIFICATION that Lots 1175-E and 1175-F belong to the estate of Gregorio Balacano.

Let a copy of this Decision be furnished the Office of the Bar Confidant for whatever action her Office may take against Atty. De Guzman.[12] (Emphasis in
the original.)

Herein petitioners motion for reconsideration was met with similar lack of success when it was denied for lack of merit by the Court of Appeals in its
Resolution[13] dated 17 May 2005.

Hence, this appeal via a petition for review where petitioners assign the following errors to the Court of Appeals, viz:

A. THE HONORABLE COURT OF APPEALS, WITH GRAVE ABUSE OF DISCRETION, SERIOUSLY ERRED IN FINDING THAT THERE WAS NO
PERFECTED AND PARTIALLY EXECUTED CONTRACT OF SALE OVER LOTS 1175-E AND 1175-F PRIOR TO THE SIGNING OF THE DEED
OF SALE.

B. THE HONORABLE COURT OF APPEALS, WITH GRAVE ABUSE OF DISCRETION, SERIOUSLY FAILED TO APPRECIATE THE
SIGNIFICANCE OF THE JUDICIAL ADMISSION ON THE AUTHENTICITY AND DUE EXECUTION OF THE DEED OF SALE MADE BY THE
RESPONDENTS DURING THE PRE-TRIAL CONFERENCE.

C. THE HONORABLE COURT OF APPEALS, WITH GRAVE ABUSE OF DISCRETION, BASED ITS CONCLUSION THAT GREGORIOS
CONSENT TO THE SALE OF THE LOTS WAS ABSENT MERELY ON SPECULATIONS AND SURMISES.

D. THE HONORABLE COURT OF APPEALS, WITH GRAVE ABUSE OF DISCRETION, SERIOUSLY ERRED IN NOT RULING ON THE ISSUE OF
RESPONDENTS LACK OF LEGAL CAPACITY TO SUE FOR NOT BEING THE PROPER PARTIES IN INTEREST.

E. THE HONORABLE COURT OF APPEALS, WITH GRAVE ABUSE OF DISCRETION, SERIOUSLY ERRED IN DISMISSING ATTY.
ALEXANDER DE GUZMAN AND ANTONIO AGCAOILI AS NOT CREDIBLE WITNESSES.[14]

At bottom is the issue of whether or not the Court of Appeals committed reversible error in upholding the findings and conclusions of the trial court on the
nullity of the Deed of Sale purportedly executed between petitioners and the late Gregorio Balacano.

SC RULING:

To start, we held in Blanco v. Quasha[15] that this Court is not a trier of facts. As such, it is not its function to examine and determine the weight of the
evidence supporting the assailed decision. Factual findings of the Court of Appeals, which are supported by substantial evidence, are binding, final and
conclusive upon the Supreme Court,[16] and carry even more weight when the said court affirms the factual findings of the trial court. Moreover, well-
entrenched is the prevailing jurisprudence that only errors of law and not of facts are reviewable by this Court in a petition for review on certiorari under
Rule 45 of the Revised Rules of Court.

The foregoing tenets in the case at bar apply with greater force to the petition under consideration because the factual findings by the Court of Appeals are
in full agreement with that of the trial court.

Specifically, the Court of Appeals, in affirming the trial court, found that there was no prior and perfected contract of sale that remained to be fully
consummated. The appellate court explained -

In support of their position, the defendants-appellants argue that at least a month prior to Gregorios signing of the deed, Gregorio and the Spouses Paragas
already agreed on the sale of Lots 1175-E and 1175-F; and that, in fact, this agreement was partially executed by Rudys payment to Gregorio of P50,000.00
before Gregorio signed the deed at the hospital. In line with this position, defendants-appellants posit that Gregorios consent to the sale should be
determined, not at the time Gregorio signed the deed of sale on July 18, 1996, but at the time when he agreed to sell the property in June 1996 or a
month prior to the deeds signing; and in June 1996, Gregorio was of sound and disposing mind and his consent to the sale was in no wise vitiated at
that time. The defendants-appellants further argue that the execution or signing of the deed of sale, however, irregular it might have been, does not affect the
validity of the previously agreed sale of the lots, as the execution or signing of the deed is merely a formalization of a previously agreed oral contract.

26
...

In the absence of any note, memorandum or any other written instrument evidencing the alleged perfected contract of sale, we have to rely on oral
testimonies, which in this case is that of Atty. de Guzman whose testimony on the alleged oral agreement may be summarized as follows: (1) that sometime
in the first week of June 1996, Gregorio requested him (Atty. de Guzman) to prepare a deed of sale of two lots; (2) Gregorio came to his firms office in the
morning with a certain Doming Balacano, then returned in the afternoon with Rudy; (3) he (Atty. de Guzman) asked Gregorio whether he really intends to
sell the lots; Gregorio confirmed his intention; (4) Gregorio and Rudy left the law office at 5:00 p.m., leaving the certificates of title; (5) he prepared the deed
a day after Rudy and Gregorio came. With regard to the alleged partial execution of this agreement, Atty. de Guzman said that he was told by Rudy that there
was already a partial payment of P50,000.00.

We do not consider Atty. de Guzmans testimony sufficient evidence to establish the fact that there was a prior agreement between Gregorio and the
Spouses Paragas on the sale of Lots 1175-E and 1175-F. This testimony does not conclusively establish the meeting of the minds between Gregorio and
the Spouses Paragas on the price or consideration for the sale of Lots 1175-E and 1175-F Atty. de Guzman merely declared that he was asked by
Gregorio to prepare a deed; he did not clearly narrate the details of this agreement. We cannot assume that Gregorio and the Spouses Paragas agreed to a
P500,000.00 consideration based on Atty. de Guzmans bare assertion that Gregorio asked him to prepare a deed, as Atty. de Guzman was not personally
aware of the agreed consideration in the sale of the lots, not being privy to the parties agreement. To us, Rudy could have been a competent witness to
testify on the perfection of this prior contract; unfortunately, the defendants-appellants did not present Rudy as their witness.

We seriously doubt too the credibility of Atty. de Guzman as a witness. We cannot rely on his testimony because of his tendency to commit falsity.
He admitted in open court that while Gregorio signed the deed on July 18, 1996 at Bayombong, Nueva Vizcaya, he nevertheless did not reflect these matters
when he notarized the deed; instead he entered Santiago City and July 22, 1996, as place and date of execution, respectively. To us, Atty. de Guzmans
propensity to distort facts in the performance of his public functions as a notary public, in utter disregard of the significance of the act of notarization,
seriously affects his credibility as a witness in the present case. In fact, Atty. de Guzmans act in falsifying the entries in his acknowledgment of the
deed of sale could be the subject of administrative and disciplinary action, a matter that we however do not here decide.

Similarly, there is no conclusive proof of the partial execution of the contract because the only evidence the plaintiffs-appellants presented to prove
this claim was Atty. de Guzmans testimony, which is hearsay and thus, has no probative value. Atty. de Guzman merely stated that Rudy told him that
Rudy already gave P50,000.00 to Gregorio as partial payment of the purchase price; Atty. de Guzman did not personally see the payment being
made.[17]

But, did Gregorio give an intelligent consent to the sale of Lots 1175-E and 1175-F when he signed the deed of sale? The trial court as well as the appellate
court found in the negative. In the Court of Appeals rationale-

It is not disputed that when Gregorio signed the deed of sale, Gregorio was seriously ill, as he in fact died a week after the deeds signing. Gregorio
died of complications caused by cirrhosis of the liver. Gregorios death was neither sudden nor immediate; he fought at least a month-long battle against the
disease until he succumbed to death on July 22, 1996. Given that Gregorio purportedly executed a deed during the last stages of his battle against his
disease, we seriously doubt whether Gregorio could have read, or fully understood, the contents of the documents he signed or of the consequences
of his act. We note in this regard that Gregorio was brought to the Veterans Hospital at Quezon City because his condition had worsened on or about the
time the deed was allegedly signed. This transfer and fact of death not long after speak volumes about Gregorios condition at that time. We likewise see no
conclusive evidence that the contents of the deed were sufficiently explained to Gregorio before he affixed his signature. The evidence the defendants-
appellants offered to prove Gregorios consent to the sale consists of the testimonies of Atty. de Guzman and Antonio. As discussed above, we do not find
Atty. de Guzman a credible witness. Thus, we fully concur with the heretofore-quoted lower courts evaluation of the testimonies given by Atty. de Guzman
and Antonio because this is an evaluation that the lower court was in a better position to make.

Additionally, the irregular and invalid notarization of the deed is a falsity that raises doubts on the regularity of the transaction itself. While the deed
was indeed signed on July 18, 1996 at Bayombong, Nueva Vizcaya, the deed states otherwise, as it shows that the deed was executed on July 22, 1996
at Santiago City. Why such falsity was committed, and the circumstances under which this falsity was committed, speaks volume about the regularity and
the validity of the sale. We cannot but consider the commission of this falsity, with the indispensable aid of Atty. de Guzman, an orchestrated attempt to
legitimize a transaction that Gregorio did not intend to be binding upon him nor on his bounty.

Article 24 of the Civil Code tells us that in all contractual, property or other relations, when one of the parties is at a disadvantage on account of his
moral dependence, ignorance, indigence, mental weakness, tender age or other handicap, the courts must be vigilant for his protection.[18]

Based on the foregoing, the Court of Appeals concluded that Gregorios consent to the sale of the lots was absent, making the contract null and void.
Consequently, the spouses Paragas could not have made a subsequent transfer of the property to Catalino Balacano. Indeed, nemo dat quod non habet.
Nobody can dispose of that which does not belong to him.[19]

We likewise find to be in accord with the evidence on record the ruling of the Court of Appeals declaring the properties in controversy as paraphernal
properties of Gregorio in the absence of competent evidence on the exact date of Gregorios acquisition of ownership of these lots.

On the credibility of witnesses, it is in rhyme with reason to believe the testimonies of the witnesses for the complainants vis--vis those of the defendants. In
the assessment of the credibility of witnesses, we are guided by the following well-entrenched rules: (1) that evidence to be believed must not only spring
from the mouth of a credible witness but must itself be credible, and (2) findings of facts and assessment of credibility of witness are matters best left to the
trial court who had the front-line opportunity to personally evaluate the witnesses demeanor, conduct, and behavior while testifying.[20]

In the case at bar, we agree in the trial courts conclusion that petitioners star witness, Atty. De Guzman is far from being a credible witness. Unlike this
Court, the trial court had the unique opportunity of observing the demeanor of said witness. Thus, we affirm the trial court and the Court of Appeals uniform
decision based on the whole evidence in record holding the Deed of Sale in question to be null and void.

In Domingo v. Court of Appeals,[21] the Court declared as null and void the deed of sale therein inasmuch as the seller, at the time of the execution of the
alleged contract, was already of advanced age and senile. We held

. . . She died an octogenarian on March 20, 1966, barely over a year when the deed was allegedly executed on January 28, 1965, but before copies of the deed
were entered in the registry allegedly on May 16 and June 10, 1966. The general rule is that a person is not incompetent to contract merely because of
advanced years or by reason of physical infirmities. However, when such age or infirmities have impaired the mental faculties so as to prevent the
person from properly, intelligently, and firmly protecting her property rights then she is undeniably incapacitated. The unrebutted testimony of
Zosima Domingo shows that at the time of the alleged execution of the deed, Paulina was already incapacitated physically and mentally. She narrated that
Paulina played with her waste and urinated in bed. Given these circumstances, there is in our view sufficient reason to seriously doubt that she consented to
the sale of and the price for her parcels of land. Moreover, there is no receipt to show that said price was paid to and received by her. Thus, we are in
agreement with the trial courts finding and conclusion on the matter: . . .

27
In the case at bar, the Deed of Sale was allegedly signed by Gregorio on his death bed in the hospital. Gregorio was an octogenarian at the time of the
alleged execution of the contract and suffering from liver cirrhosis at that circumstances which raise grave doubts on his physical and mental
capacity to freely consent to the contract. Adding to the dubiety of the purported sale and further bolstering respondents claim that their uncle Catalino,
one of the children of the decedent, had a hand in the execution of the deed is the fact that on 17 October 1996, petitioners sold a portion of Lot 1175-E
consisting of 6,416 square meters to Catalino for P60,000.00.[22] One need not stretch his imagination to surmise that Catalino was in cahoots with
petitioners in maneuvering the alleged sale.

On the whole, we find no reversible error on the part of the appellate court in CA-G.R. CV No. 64048 that would warrant the reversal thereof.

WHEREFORE, the present petition is hereby DENIED. Accordingly, the Decision[23] and the Resolution,[24] dated 15 February 2005 and 17 May 2005,
respectively, of the Court of Appeals in CA-G.R. CV No. 64048 are hereby AFFIRMED. No costs.

SO ORDERED.

IDA C. LABAGALA, petitioner, vs. NICOLASA T. SANTIAGO, AMANDA T. SANTIAGO and HON. COURT OF APPEALS, respondents.
DECISION
QUISUMBING, J.:

This petition for review on certiorari seeks to annul the decision dated March 4, 1997,[1] of the Court of Appeals in CA-G.R. CV No. 32817, which reversed
and set aside the judgment dated October 17, 1990,[2] of the Regional Trial Court of Manila, Branch 54, in Civil Case No. 87-41515, finding herein
petitioner to be the owner of 1/3 pro indiviso share in a parcel of land.

The pertinent facts of the case, as borne by the records, are as follows:

Jose T. Santiago owned a parcel of land covered by TCT No. 64729, located in Rizal Avenue Extension, Sta. Cruz, Manila. Alleging that Jose had
fraudulently registered it in his name alone, his sisters Nicolasa and Amanda (now respondents herein), sued Jose for recovery of 2/3 share of the
property.[3] On April 20, 1981, the trial court in that case decided in favor of the sisters, recognizing their right of ownership over portions of the property
covered by TCT No. 64729. The Register of Deeds of Manila was required to include the names of Nicolasa and Amanda in the certificate of title to said
property.[4]

Jose died intestate on February 6, 1984. On August 5, 1987, respondents filed a complaint for recovery of title, ownership, and possession against
herein petitioner, Ida C. Labagala, before the Regional Trial Court of Manila, to recover from her the 1/3 portion of said property pertaining to Jose
but which came into petitioners sole possession upon Joses death.

Respondents alleged that Joses share in the property belongs to them by operation of law, because they are the only legal heirs of their brother, who
died intestate and without issue. They claimed that the purported sale of the property made by their brother to petitioner sometime in March 1979[5]
was executed through petitioners machinations and with malicious intent, to enable her to secure the corresponding transfer certificate of title (TCT No.
172334[6]) in petitioners name alone.[7]

Respondents insisted that the deed of sale was a forgery. The deed showed that Jose affixed his thumbmark thereon but respondents averred that,
having been able to graduate from college, Jose never put his thumbmark on documents he executed but always signed his name in full. They
claimed that Jose could not have sold the property belonging to his poor and unschooled sisters who sacrificed for his studies and personal welfare.[8]
Respondents also pointed out that it is highly improbable for petitioner to have paid the supposed consideration of P150,000 for the sale of the subject
property because petitioner was unemployed and without any visible means of livelihood at the time of the alleged sale. They also stressed that it was
quite unusual and questionable that petitioner registered the deed of sale only on January 26, 1987, or almost eight years after the execution of the
sale.[9]

PETITIONER ARGUMENTS:
On the other hand, petitioner claimed that her true name is not Ida C. Labagala as claimed by respondent but Ida C. Santiago. She claimed not to know any
person by the name of Ida C. Labagala. She claimed to be the daughter of Jose and thus entitled to his share in the subject property. She maintained that she
had always stayed on the property, ever since she was a child. She argued that the purported sale of the property was in fact a donation to her, and that
nothing could have precluded Jose from putting his thumbmark on the deed of sale instead of his signature. She pointed out that during his lifetime, Jose
never acknowledged respondents claim over the property such that respondents had to sue to claim portions thereof. She lamented that respondents had to
disclaim her in their desire to obtain ownership of the whole property.

Petitioner revealed that respondents had in 1985 filed two ejectment cases against her and other occupants of the property. The first was decided in her and
the other defendants favor, while the second was dismissed. Yet respondents persisted and resorted to the present action.

Petitioner recognized respondents ownership of 2/3 of the property as decreed by the RTC. But she averred that she caused the issuance of a title in
her name alone, allegedly after respondents refused to take steps that would prevent the property from being sold by public auction for their failure to pay
realty taxes thereon. She added that with a title issued in her name she could avail of a realty tax amnesty.

On October 17, 1990, the trial court ruled in favor of petitioner, decreeing thus:

WHEREFORE, judgment is hereby rendered recognizing the plaintiffs [herein respondents] as being entitled to the ownership and possession each of
one-third (1/3) pro indiviso share of the property originally covered by Transfer Certificate of Title No. 64729, in the name of Jose T. Santiago and
presently covered by Transfer Certificate of Title No. 172334, in the name of herein defendant [herein petitioner] and which is located at No. 3075-A Rizal
Avenue Extension, Sta. Cruz, Manila, as per complaint, and the adjudication to plaintiffs per decision in Civil Case No. 56226 of this Court, Branch VI, and
the remaining one-third (1/3) pro indiviso share adjudicated in said decision to defendant Jose T. Santiago in said case, is hereby adjudged and adjudicated to
herein defendant as owner and entitled to possession of said share. The Court does not see fit to adjudge damages, attorneys fees and costs. Upon finality of
this judgment, Transfer Certificate of Title No. 172334 is ordered cancelled and a new title issued in the names of the two (2) plaintiffs and the defendant as
owners in equal shares, and the Register of Deeds of Manila is so directed to effect the same upon payment of the proper fees by the parties herein.

SO ORDERED.[10]

TRIAL COURT:
According to the trial court, while there was indeed no consideration for the deed of sale executed by Jose in favor of petitioner, said deed constitutes
a valid donation. Even if it were not, petitioner would still be entitled to Joses 1/3 portion of the property as Joses daughter. The trial court ruled that
the following evidence shows petitioner to be the daughter of Jose: (1) the decisions in the two ejectment cases filed by respondents which stated that

28
petitioner is Joses daughter, and (2) Joses income tax return which listed petitioner as his daughter. It further said that respondents knew of
petitioners existence and her being the daughter of Jose, per records of the earlier ejectment cases they filed against petitioner. According to the court,
respondents were not candid with the court in refusing to recognize petitioner as Ida C. Santiago and insisting that she was Ida C. Labagala, thus affecting
their credibility.

Respondents appealed to the Court of Appeals, which reversed the decision of the trial court.

CA RULING:
WHEREFORE, the appealed decision is REVERSED and one is entered declaring the appellants Nicolasa and Amanda Santiago the co-owners in
equal shares of the one-third (1/3) pro indiviso share of the late Jose Santiago in the land and building covered by TCT No. 172334. Accordingly, the
Register of Deeds of Manila is directed to cancel said title and issue in its place a new one reflecting this decision.

SO ORDERED.

Apart from respondents testimonies, the appellate court noted that the birth certificate of Ida Labagala presented by respondents showed that Ida was
born of different parents, not Jose and his wife. It also took into account the statement made by Jose in Civil Case No. 56226 that he did not have
any child.

Hence, the present petition wherein the following issues are raised for consideration:

1. Whether or not petitioner has adduced preponderant evidence to prove that she is the daughter of the late Jose T. Santiago, and

2. Whether or not respondents could still impugn the filiation of the petitioner as the daughter of the late Jose T. Santiago.

PETITIONER CONTENTION:
Petitioner contends that the trial court was correct in ruling that she had adduced sufficient evidence to prove her filiation by Jose Santiago, making her
his sole heir and thus entitled to inherit his 1/3 portion. She points out that respondents had, before the filing of the instant case, previously considered[11]
her as the daughter of Jose who, during his lifetime, openly regarded her as his legitimate daughter. She asserts that her identification as Joses daughter in his
ITR outweighs the strange answers he gave when he testified in Civil Case No. 56226.

Petitioner asserts further that respondents cannot impugn her filiation collaterally, citing the case of Sayson v. Court of Appeals[12] in which we held that
(t)he legitimacy of (a) child can be impugned only in a direct action brought for that purpose, by the proper parties and within the period limited by law.[13]
Petitioner also cites Article 263 of the Civil Code in support of this contention.[14]

For their part, respondents contend that petitioner is not the daughter of Jose, per her birth certificate that indicate her parents as Leo Labagala and Cornelia
Cabrigas, instead of Jose Santiago and Esperanza Cabrigas.[15] They argue that the provisions of Article 263 of the Civil Code do not apply to the present
case since this is not an action impugning a childs legitimacy but one for recovery of title, ownership, and possession of property.

ISSUE:
The issues for resolution in this case, to our mind, are (1) whether or not respondents may impugn petitioners filiation in this action for recovery of title
and possession; and (2) whether or not petitioner is entitled to Joses 1/3 portion of the property he co-owned with respondents, through succession,
sale, or donation.

On the first issue, we find petitioners reliance on Article 263 of the Civil Code to be misplaced. Said article provides:

Art. 263. The action to impugn the legitimacy of the child shall be brought within one year from the recording of the birth in the Civil Register, if the
husband should be in the same place, or in a proper case, any of his heirs.

If he or his heirs are absent, the period shall be eighteen months if they should reside in the Philippines; and two years if abroad. If the birth of the child has
been concealed, the term shall be counted from the discovery of the fraud.

This article should be read in conjunction with the other articles in the same chapter on paternity and filiation in the Civil Code. A careful reading of said
chapter would reveal that it contemplates situations where a doubt exists that a child is indeed a mans child by his wife, and the husband (or, in proper cases,
his heirs) denies the childs filiation. It does not refer to situations where a child is alleged not to be the child at all of a particular couple.[16]

Article 263 refers to an action to impugn the legitimacy of a child, to assert and prove that a person is not a mans child by his wife. However, the present case
is not one impugning petitioners legitimacy. Respondents are asserting not merely that petitioner is not a legitimate child of Jose, but that she is not a
child of Jose at all.[17] Moreover, the present action is one for recovery of title and possession, and thus outside the scope of Article 263 on
prescriptive periods.

Petitioners reliance on Sayson is likewise improper. The factual milieu present in Sayson does not obtain in the instant case. What was being challenged
by petitioners in Sayson was (1) the validity of the adoption of Delia and Edmundo by the deceased Teodoro and Isabel Sayson, and (2) the legitimate status
of Doribel Sayson. While asserting that Delia and Edmundo could not have been validly adopted since Doribel had already been born to the Sayson couple at
the time, petitioners at the same time made the conflicting claim that Doribel was not the child of the couple. The Court ruled in that case that it was too late
to question the decree of adoption that became final years before. Besides, such a challenge to the validity of the adoption cannot be made collaterally but in
a direct proceeding.[18]

In this case, respondents are not assailing petitioners legitimate status but are, instead, asserting that she is not at all their brothers child. The birth certificate
presented by respondents support this allegation.

We agree with the Court of Appeals that::

The Certificate of Record of Birth (Exhibit H)[19] plainly states that Ida was the child of the spouses Leon Labagala and [Cornelia] Cabrigas. This
document states that it was Leon Labagala who made the report to the Local Civil Registrar and therefore the supplier of the entries in said Certificate.
Therefore, this certificate is proof of the filiation of Ida. Appellee however denies that Exhibit H is her Birth Certificate. She insists that she is not Ida
Labagala but Ida Santiago. If Exhibit H is not her birth certificate, then where is hers? She did not present any though it would have been the easiest
thing to do considering that according to her baptismal certificate she was born in Manila in 1969. This court rejects such denials and holds that
Exhibit H is the certificate of the record of birth of appellee Ida

Against such evidence, the appellee Ida could only present her testimony and a baptismal certificate (Exhibit 12) stating that appellees parents were Jose
Santiago and Esperanza Cabrigas. But then, a decisional rule in evidence states that a baptismal certificate is not a proof of the parentage of the baptized

29
person. This document can only prove the identity of the baptized, the date and place of her baptism, the identities of the baptismal sponsors and the priest
who administered the sacrament -- nothing more.[20] (Citations omitted.)

At the pre-trial conducted on August 11, 1988, petitioners counsel admitted that petitioner did not have a birth certificate indicating that she is Ida
Santiago, though she had been using this name all her life.[21]

Petitioner opted not to present her birth certificate to prove her relationship with Jose and instead offered in evidence her baptismal certificate.[22] However,
as we held in Heirs of Pedro Cabais v. Court of Appeals:

a baptismal certificate is evidence only to prove the administration of the sacrament on the dates therein specified, but not the veracity of the declarations
therein stated with respect to [a persons] kinsfolk. The same is conclusive only of the baptism administered, according to the rites of the Catholic Church, by
the priest who baptized subject child, but it does not prove the veracity of the declarations and statements contained in the certificate concerning the
relationship of the person baptized.[23]

A baptismal certificate, a private document, is not conclusive proof of filiation.[24] More so are the entries made in an income tax return, which only shows
that income tax has been paid and the amount thereof.[25]

We note that the trial court had asked petitioner to secure a copy of her birth certificate but petitioner, without advancing any reason therefor, failed to do so.
Neither did petitioner obtain a certification that no record of her birth could be found in the civil registry, if such were the case. We find petitioners
silence concerning the absence of her birth certificate telling. It raises doubt as to the existence of a birth certificate that would show petitioner to be the
daughter of Jose Santiago and Esperanza Cabrigas. Her failure to show her birth certificate would raise the presumption that if such evidence were
presented, it would be adverse to her claim. Petitioners counsel argued that petitioner had been using Santiago all her life. However, use of a family name
certainly does not establish pedigree.

Further, we note that petitioner, who claims to be Ida Santiago, has the same birthdate as Ida Labagala.[26] The similarity is too uncanny to be a mere
coincidence.

During her testimony before the trial court, petitioner denied knowing Cornelia Cabrigas, who was listed as the mother in the birth certificate of Ida
Labagala. In her petition before this Court, however, she stated that Cornelia is the sister of her mother, Esperanza. It appears that petitioner made
conflicting statements that affect her credibility and could cast a long shadow of doubt on her claims of filiation.

Thus, we are constrained to agree with the factual finding of the Court of Appeals that petitioner is in reality the child of Leon Labagala and Cornelia
Cabrigas, and contrary to her averment, not of Jose Santiago and Esperanza Cabrigas. Not being a child of Jose, it follows that petitioner can not inherit
from him through intestate succession. It now remains to be seen whether the property in dispute was validly transferred to petitioner through sale or
donation.

On the validity of the purported deed of sale, however, we agree with the Court of Appeals that:

This deed is shot through and through with so many intrinsic defects that a reasonable mind is inevitably led to the conclusion that it is fake. The intrinsic
defects are extractable from the following questions: a) If Jose Santiago intended to donate the properties in question to Ida, what was the big idea of
hiding the nature of the contract in the faade of the sale? b) If the deed is a genuine document, how could it have happened that Jose Santiago who was
of course fully aware that he owned only 1/3 pro indiviso of the properties covered by his title sold or donated the whole properties to Ida? c) Why in
heavens name did Jose Santiago, a college graduate, who always signed his name in documents requiring his signature (citation omitted) [affix] his
thumbmark on this deed of sale? d) If Ida was [the] child of Jose Santiago, what was the sense of the latter donating his properties to her when she
would inherit them anyway upon his death? e) Why did Jose Santiago affix his thumbmark to a deed which falsely stated that: he was single (for he
was earlier married to Esperanza Cabrigas); Ida was of legal age (for [s]he was then just 15 years old); and the subject properties were free from liens
and encumbrances (for Entry No. 27261, Notice of Adverse Claim and Entry No. 6388, Notice of Lis Pendens were already annotated in the title of said
properties). If the deed was executed in 1979, how come it surfaced only in 1984 after the death of Jose Santiago and of all people, the one in
possession was the baptismal sponsor of Ida?[27]

Clearly, there is no valid sale in this case. Jose did not have the right to transfer ownership of the entire property to petitioner since 2/3 thereof
belonged to his sisters.[28] Petitioner could not have given her consent to the contract, being a minor at the time.[29] Consent of the contracting parties is
among the essential requisites of a contract,[30] including one of sale, absent which there can be no valid contract. Moreover, petitioner admittedly
did not pay any centavo for the property,[31] which makes the sale void. Article 1471 of the Civil Code provides:

Art. 1471. If the price is simulated, the sale is void, but the act may be shown to have been in reality a donation, or some other act or contract.

Neither may the purported deed of sale be a valid deed of donation. Again, as explained by the Court of Appeals:

Even assuming that the deed is genuine, it cannot be a valid donation. It lacks the acceptance of the donee required by Art. 725 of the Civil Code.
Being a minor in 1979, the acceptance of the donation should have been made by her father, Leon Labagala or [her] mother Cornelia Cabrigas or her
legal representative pursuant to Art. 741 of the same Code. No one of those mentioned in the law - in fact no one at all - accepted the donation for
Ida.[32]

In sum, we find no reversible error attributable to the assailed decision of the Court of Appeals, hence it must be upheld.

WHEREFORE, the petition is DENIED, and the decision of the Court of Appeals in CA-G.R. CV No. 32817 is AFFIRMED.

Costs against petitioner.

SO ORDERED.

FIRST DIVISION
[G.R. No. 125172. June 26, 1998]

Spouses ANTONIO and LUZVIMINDA GUIANG, petitioners, vs. COURT OF APPEALS and GILDA CORPUZ, respondents.
DECISION
PANGANIBAN, J.:

The sale of a conjugal property requires the consent of both the husband and the wife. The absence of the consent of one renders the sale null and void, while
the vitiation thereof makes it merely voidable. Only in the latter case can ratification cure the defect.

30
The Case

These were the principles that guided the Court in deciding this petition for review of the Decision[1] dated January 30, 1996 and the Resolution[2] dated
May 28, 1996, promulgated by the Court of Appeals in CA-GR CV No. 41758, affirming the Decision of the lower court and denying reconsideration,
respectively.

On May 28, 1990, Private Respondent Gilda Corpuz filed an Amended Complaint[3] against her husband Judie Corpuz and Petitioners-Spouses Antonio and
Luzviminda Guiang. The said Complaint sought the declaration of a certain deed of sale, which involved the conjugal property of private respondent and her
husband, null and void. The case was raffled to the Regional Trial Court of Koronadal, South Cotabato, Branch 25. In due course, the trial court rendered a
Decision[4] dated September 9, 1992, disposing as follows:[5]

ACCORDINGLY, judgment is rendered for the plaintiff and against the defendants,

1. Declaring both the Deed of Transfer of Rights dated March 1, 1990 (Exh. A) and the amicable settlement dated March 16, 1990 (Exh. B) as null and void
and of no effect;

2. Recognizing as lawful and valid the ownership and possession of plaintiff Gilda Corpuz over the remaining one-half portion of Lot 9, Block 8, (LRC) Psd-
165409 which has been the subject of the Deed of Transfer of Rights (Exh. A);

3. Ordering plaintiff Gilda Corpuz to reimburse defendants Luzviminda and Antonio Guiang the amount of NINE THOUSAND (P9,000.00) PESOS
corresponding to the payment made by defendants Guiangs to Manuel Callejo for the unpaid balance of the account of plaintiff in favor of Manuel Callejo,
and another sum of P379.62 representing one-half of the amount of realty taxes paid by defendants Guiangs on Lot 9, Block 8, (LRC) Psd-165409, both with
legal interests thereon computed from the finality of the decision.

No pronouncement as to costs in view of the factual circumstances of the case.

Dissatisfied, petitioners-spouses filed an appeal with the Court of Appeals. Respondent Court, in its challenged Decision, ruled as follows:[6]

WHEREFORE, the appealed decision of the lower court in Civil Case No. 204 is hereby AFFIRMED by this Court. No costs considering plaintiff-appellees
failure to file her brief, despite notice.

Reconsideration was similarly denied by the same court in its assailed Resolution:[7]

Finding that the issues raised in defendants-appellants motion for reconsideration of Our decision in this case of January 30, 1996, to be a mere rehash of the
same issues which We have already passed upon in the said decision, and there [being] no cogent reason to disturb the same, this Court RESOLVES to
DENY the instant motion for reconsideration for lack of merit.

The Facts

The facts of this case are simple. Over the objection of private respondent and while she was in Manila seeking employment, her husband sold to the
petitioners-spouses one half of their conjugal property, consisting of their residence and the lot on which it stood. The circumstances of this sale are set forth
in the Decision of Respondent Court, which quoted from the Decision of the trial court, as follows:[8]

1. Plaintiff Gilda Corpuz and defendant Judie Corpuz are legally married spouses. They were married on December 24, 1968 in Bacolod City, before a judge.
This is admitted by defendants-spouses Antonio and Luzviminda Guiang in their answer, and also admitted by defendant Judie Corpuz when he testified in
court (tsn. p..3, June 9, 1992), although the latter says that they were married in 1967. The couple have three children, namely: Junie 18 years old, Harriet 17
years of age, and Jodie or Joji, the youngest, who was 15 years of age in August, 1990 when her mother testified in court.

Sometime on February 14, 1983, the couple Gilda and Judie Corpuz, with plaintiff-wife Gilda Corpuz as vendee, bought a 421 sq. meter lot located in
Barangay Gen. Paulino Santos (Bo. 1), Koronadal, South Cotabato, and particularly known as Lot 9, Block 8, (LRC) Psd-165409 from Manuel Callejo who
signed as vendor through a conditional deed of sale for a total consideration of P14,735.00. The consideration was payable in installment, with right of
cancellation in favor of vendor should vendee fail to pay three successive installments (Exh. 2, tsn. p. 6, February 14, 1990).

2. Sometime on April 22, 1988, the couple Gilda and Judie Corpuz sold one-half portion of their Lot No. 9, Block 8, (LRC) Psd-165409 to the defendants-
spouses Antonio and Luzviminda Guiang. The latter have since then occupied the one-half portion [and] built their house thereon (tsn. p. 4, May 22, 1992).
They are thus adjoining neighbors of the Corpuzes.

3. Plaintiff Gilda Corpuz left for Manila sometime in June 1989. She was trying to look for work abroad, in [the] Middle East. Unfortunately, she became a
victim of an unscrupulous illegal recruiter. She was not able to go abroad. She stayed for sometime in Manila however, coming back to Koronadal, South
Cotabato, x x x on March 11, 1990. Plaintiffs departure for Manila to look for work in the Middle East was with the consent of her husband Judie Corpuz
(tsn. p. 16, Aug.12, 1990; p. 10, Sept. 6, 1991).

After his wifes departure for Manila, defendant Judie Corpuz seldom went home to the conjugal dwelling. He stayed most of the time at his place of work at
Samahang Nayon Building, a hotel, restaurant, and a cooperative. Daughter Harriet Corpuz went to school at Kings College, Bo. 1, Koronadal, South
Cotabato, but she was at the same time working as household help of, and staying at, the house of Mr. Panes. Her brother Junie was not working. Her
younger sister Jodie (Joji) was going to school. Her mother sometimes sent them money (tsn. p. 14, Sept. 6, 1991).

Sometime in January 1990, Harriet Corpuz learned that her father intended to sell the remaining one-half portion including their house, of their homelot to
defendants Guiangs. She wrote a letter to her mother informing her. She [Gilda Corpuz] replied that she was objecting to the sale. Harriet, however, did not
inform her father about this; but instead gave the letter to Mrs. Luzviminda Guiang so that she [Guiang] would advise her father (tsn. pp. 16-17, Sept. 6,
1991).

4. However, in the absence of his wife Gilda Corpuz, defendant Judie Corpuz pushed through the sale of the remaining one-half portion of Lot 9, Block 8,
(LRC) Psd-165409. On March 1, 1990, he sold to defendant Luzviminda Guiang thru a document known as Deed of Transfer of Rights (Exh. A) the
remaining one-half portion of their lot and the house standing thereon for a total consideration of P30,000.00 of which P5,000.00 was to be paid in June ,
1990. Transferor Judie Corpuzs children Junie and Harriet signed the document as witnesses.

Four (4) days after March 1, 1990 or on March 5, 1990, obviously to cure whatever defect in defendant Judie Corpuzs title over the lot transferred, defendant
Luzviminda Guiang as vendee executed another agreement over Lot 9, Block 8, (LRC) Psd-165408 (Exh. 3), this time with Manuela Jimenez Callejo, a
widow of the original registered owner from whom the couple Judie and Gilda Corpuz originally bought the lot (Exh. 2), who signed as vendor for a
consideration of P9,000.00. Defendant Judie Corpuz signed as a witness to the sale (Exh. 3-A). The new sale (Exh. 3) describes the lot sold as Lot 8, Block 9,

31
(LRC) Psd-165408 but it is obvious from the mass of evidence that the correct lot is Lot 8, Block 9, (LRC) Psd-165409, the very lot earlier sold to the couple
Gilda and Judie Corpuz.

5. Sometime on March 11, 1990, plaintiff returned home. She found her children staying with other households. Only Junie was staying in their house.
Harriet and Joji were with Mr. Panes. Gilda gathered her children together and stayed at their house. Her husband was nowhere to be found. She was
informed by her children that their father had a wife already.

6. For staying in their house sold by her husband, plaintiff was complained against by defendant Luzviminda Guiang and her husband Antonio Guiang before
the Barangay authorities of Barangay General Paulino Santos (Bo. 1), Koronadal, South Cotabato, for trespassing (tsn. p. 34, Aug. 17, 1990). The case was
docketed by the barangay authorities as Barangay Case No. 38 for trespassing. On March 16, 1990, the parties thereat signed a document known as amicable
settlement. In full, the settlement provides for, to wit:

That respondent, Mrs. Gilda Corpuz and her three children, namely: Junie, Hariet and Judie to leave voluntarily the house of Mr. and Mrs. Antonio Guiang,
where they are presently boarding without any charge, on or before April 7, 1990.

FAIL NOT UNDER THE PENALTY OF THE LAW.

Believing that she had received the shorter end of the bargain, plaintiff went to the Barangay Captain of Barangay Paulino Santos to question her signature on
the amicable settlement. She was referred however to the Officer-In-Charge at the time, a certain Mr. de la Cruz. The latter in turn told her that he could not
do anything on the matter (tsn. p. 31, Aug. 17, 1990).

This particular point was not rebutted. The Barangay Captain who testified did not deny that Mrs. Gilda Corpuz approached him for the annulment of the
settlement. He merely said he forgot whether Mrs. Corpuz had approached him (tsn. p. 13, Sept. 26, 1990). We thus conclude that Mrs. Corpuz really
approached the Barangay Captain for the annulment of the settlement. Annulment not having been made, plaintiff stayed put in her house and lot.

7. Defendant-spouses Guiang followed thru the amicable settlement with a motion for the execution of the amicable settlement, filing the same with the
Municipal Trial Court of Koronadal, South Cotabato. The proceedings [are] still pending before the said court, with the filing of the instant suit.

8. As a consequence of the sale, the spouses Guiang spent P600.00 for the preparation of the Deed of Transfer of Rights, Exh. A; P9,000.00 as the amount
they paid to Mrs. Manuela Callejo, having assumed the remaining obligation of the Corpuzes to Mrs. Callejo (Exh. 3); P100.00 for the preparation of Exhibit
3; a total of P759.62 basic tax and special educational fund on the lot; P127.50 as the total documentary stamp tax on the various documents; P535.72 for the
capital gains tax; P22.50 as transfer tax; a standard fee of P17.00; certification fee of P5.00. These expenses particularly the taxes and other expenses towards
the transfer of the title to the spouses Guiangs were incurred for the whole Lot 9, Block 8, (LRC) Psd-165409.

Ruling of Respondent Court

Respondent Court found no reversible error in the trial courts ruling that any alienation or encumbrance by the husband of the conjugal property without the
consent of his wife is null and void as provided under Article 124 of the Family Code. It also rejected petitioners contention that the amicable settlement
ratified said sale, citing Article 1409 of the Code which expressly bars ratification of the contracts specified therein, particularly those prohibited or declared
void by law.

Hence, this petition.[9]

The Issues

In their Memorandum, petitioners assign to public respondent the following errors:[10]

Whether or not the assailed Deed of Transfer of Rights was validly executed.

II

Whether or not the Court of Appeals erred in not declaring as voidable contract under Art. 1390 of the Civil Code the impugned Deed of Transfer of Rights
which was validly ratified thru the execution of the amicable settlement by the contending parties.

III

Whether or not the Court of Appeals erred in not setting aside the findings of the Court a quo which recognized as lawful and valid the ownership and
possession of private respondent over the remaining one half (1/2) portion of the subject property.

In a nutshell, petitioners-spouses contend that (1) the contract of sale (Deed of Transfer of Rights) was merely voidable, and (2) such contract was ratified by
private respondent when she entered into an amicable settlement with them.

This Courts Ruling

The petition is bereft of merit.

First Issue: Void or Voidable Contract?

Petitioners insist that the questioned Deed of Transfer of Rights was validly executed by the parties-litigants in good faith and for valuable consideration.
The absence of private respondents consent merely rendered the Deed voidable under Article 1390 of the Civil Code, which provides:

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

xxxxxxxxx

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

These contracts are binding, unless they are annulled by a proper action in court. They are susceptible of ratification.(n)

32
The error in petitioners contention is evident. Article 1390, par. 2, refers to contracts visited by vices of consent, i.e., contracts which were entered into by a
person whose consent was obtained and vitiated through mistake, violence, intimidation, undue influence or fraud. In this instance, private respondents
consent to the contract of sale of their conjugal property was totally inexistent or absent. Gilda Corpuz, on direct examination, testified thus:[11]

Q Now, on March 1, 1990, could you still recall where you were?

A I was still in Manila during that time.

xxxxxxxxx

ATTY. FUENTES:

Q When did you come back to Koronadal, South Cotabato?

A That was on March 11, 1990, Maam.

Q Now, when you arrived at Koronadal, was there any problem which arose concerning the ownership of your residential house at Callejo Subdivision?

A When I arrived here in Koronadal, there was a problem which arose regarding my residential house and lot because it was sold by my husband without
my knowledge.

This being the case, said contract properly falls within the ambit of Article 124 of the Family Code, which was correctly applied by the two lower courts:

ART. 124. The administration and enjoyment of the conjugal partnership property shall belong to both spouses jointly. In case of disagreement, the husbands
decision shall prevail, subject to recourse to the court by the wife for proper remedy, which must be availed of within five years from the date of the contract
implementing such decision.

In the event that one spouse is incapacitated or otherwise unable to participate in the administration of the conjugal properties, the other spouse may assume
sole powers of administration. These powers do not include the powers of disposition or encumbrance which must have the authority of the court or the
written consent of the other spouse. In the absence of such authority or consent, the disposition or encumbrance shall be void. However, the transaction shall
be construed as a continuing offer on the part of the consenting spouse and the third person, and may be perfected as a binding contract upon the acceptance
by the other spouse or authorization by the court before the offer is withdrawn by either or both offerors.(165a) (Italics supplied)

Comparing said law with its equivalent provision in the Civil Code, the trial court adroitly explained the amendatory effect of the above provision in this
wise:[12]

The legal provision is clear. The disposition or encumbrance is void. It becomes still clearer if we compare the same with the equivalent provision of the
Civil Code of the Philippines. Under Article 166 of the Civil Code, the husband cannot generally alienate or encumber any real property of the conjugal
partnership without the wifes consent. The alienation or encumbrance if so made however is not null and void. It is merely voidable. The offended wife may
bring an action to annul the said alienation or encumbrance. Thus, the provision of Article 173 of the Civil Code of the Philippines, to wit:

Art. 173. The wife may, during the marriage and within ten years from the transaction questioned, ask the courts for the annulment of any contract of the
husband entered into without her consent, when such consent is required, or any act or contract of the husband which tends to defraud her or impair her
interest in the conjugal partnership property. Should the wife fail to exercise this right, she or her heirs after the dissolution of the marriage, may demand the
value of property fraudulently alienated by the husband.(n)

This particular provision giving the wife ten (10) years x x x during [the] marriage to annul the alienation or encumbrance was not carried over to the Family
Code. It is thus clear that any alienation or encumbrance made after August 3, 1988 when the Family Code took effect by the husband of the conjugal
partnership property without the consent of the wife is null and void.

Furthermore, it must be noted that the fraud and the intimidation referred to by petitioners were perpetrated in the execution of the document embodying the
amicable settlement. Gilda Corpuz alleged during trial that barangay authorities made her sign said document through misrepresentation and coercion.[13] In
any event, its execution does not alter the void character of the deed of sale between the husband and the petitioners-spouses, as will be discussed later. The
fact remains that such contract was entered into without the wifes consent.

In sum, the nullity of the contract of sale is premised on the absence of private respondents consent. To constitute a valid contract, the Civil Code requires the
concurrence of the following elements: (1) cause, (2) object, and (3) consent,[14] the last element being indubitably absent in the case at bar.

Second Issue: Amicable Settlement

Insisting that the contract of sale was merely voidable, petitioners aver that it was duly ratified by the contending parties through the amicable settlement they
executed on March 16, 1990 in Barangay Case No. 38.

The position is not well taken. The trial and the appellate courts have resolved this issue in favor of the private respondent. The trial court correctly held:[15]

By the specific provision of the law [Art. 1390, Civil Code] therefore, the Deed of Transfer of Rights (Exh. A) cannot be ratified, even by an amicable
settlement. The participation by some barangay authorities in the amicable settlement cannot otherwise validate an invalid act. Moreover, it cannot be denied
that the amicable settlement (Exh. B) entered into by plaintiff Gilda Corpuz and defendant spouses Guiang is a contract. It is a direct offshoot of the Deed of
Transfer of Rights (Exh. A). By express provision of law, such a contract is also void. Thus, the legal provision, to wit:

Art. 1422. A contract which is the direct result of a previous illegal contract, is also void and inexistent. (Civil Code of the Philippines).

In summation therefore, both the Deed of Transfer of Rights (Exh. A) and the amicable settlement (Exh. 3) are null and void.

Doctrinally and clearly, a void contract cannot be ratified.[16]

Neither can the amicable settlement be considered a continuing offer that was accepted and perfected by the parties, following the last sentence of Article
124. The order of the pertinent events is clear: after the sale, petitioners filed a complaint for trespassing against private respondent, after which the barangay
authorities secured an amicable settlement and petitioners filed before the MTC a motion for its execution. The settlement, however, does not mention a
continuing offer to sell the property or an acceptance of such a continuing offer. Its tenor was to the effect that private respondent would vacate the property.
By no stretch of the imagination, can the Court interpret this document as the acceptance mentioned in Article 124.

33
WHEREFORE, the Court hereby DENIES the petition and AFFIRMS the challenged Decision and Resolution. Costs against petitioners.

SO ORDERED.

G.R. No. L-46850 June 20, 1940

UY SIU PIN and CHUA HUE, petitioners,

vs.
CASIMIRA CANTOLLAS, ET AL., respondents.

Trinidad & Enriquez and Sumulong, Lavidez and Sumulong for petitioners.
Azada, Veluz and De Luna for respondents.

LAUREL, J.:

In the year 1929 or thereabout the spouses Pedro Velegao and Casimira Cantollas were indebted to El Hogar Filipino in the sum of P2,000 secured by a
mortgage on certain land covered by original certificate of title No. 1017. Upon the death of Pedro Velegao in the same year, there remained an unpaid
balance of P1,300. On April 2, 1932 Casimira Cantollas and her son Blas Velegao, who succeeded to the mortgaged land, entered into a contract with Uy
Siu Pin by which Casimira and Blas agreed to deliver the latter to possess and enjoy the same with its improvements during the period of fifteen years from
April 2, 1932, on condition that Uy Siu Pin would pay to El Hogar Filipino the unpaid balance of the indebtedness of Casimira and Blas, together with all
other expenses including realty taxes. It was further covenanted that after the lapse of fifteen years, Uy Siu Pin would return the land to Casimira Cantollas
and Blas Velegao without any obligation on the part of the latter to pay anything to Uy Siu Pin, but that, if after the expiration of five years from April 2,
1932, Casimira and Blas would be in a position to do so, they had the right to redeem said land by paying to Uy Siu Pin or his successors in interest the sum
of P1,750. In pursuance of this agreement, Uy Siu Pin, on April 2, 1932, took possession of the land and proceeded to make payments to El Hogar Filipino
upon account of the indebtedness of Casimira Cantollas and Blas Velegao. The payments thus made amounted to P600 up to July, 1933, when Uy Siu Pin
ceased to make further payments to El Hogar Filipino , as a result of which the latter foreclosed the mortgage which it held on the land in question which was
then in the possession of Uy Siu Pin by reason of the agreement between him and Casimira and Blas already above referred to. In the foreclosure sale, the
land was bought by El Hogar Filipino for P1,062.66. The mortgage debtors, Casimira and Blas, having failed to redeem the land within the statutory period, a
final deed of sale was issued in favor of El Hogar Filipino on December 24, 1934. On December 26, 1934 the latter sold the aforesaid land to Uy Siu Pin for
P1,198.17. On December 28, 1934 Uy Siu Pin in turn sold the land to his wife Chua Hue in consideration of P4,000. Transfer certificate of title No. 8446 was
issued in favor of Uy Siu Pin but it was later cancelled by a new transfer certificate of title No. 8447, issued in the name of Chua Hue.

On December 10, 1935, Casimira Cantollas and Blas Velegao filed in the Court of First Instance of Tayabas a complaint against Uy Siu Pin and Chua Hue
in which, as subsequently amended, it was prayed that the sale in favor of Chua Hue and transfer certificate of title No. 8447 in her name be cancelled; that
the agreement entered into between Uy Siu Pin and Casimira and Blas on April 2, 1932, and attached to the complaint as Exhibit A, be noted on the transfer
certificate of title issued in favor of Uy Siu Pin, and that the defendants be ordered to pay to the plaintiffs the sum of P380 by way of damages and the sum of
P7,500 as the value of the land in question. On December 11, 1935 a notice of lis pendens was inscribed in the office of the register of deeds of Tayabas and
noted on the back of transfer certificate of title No. 8447. The defendant Uy Siu Pin and Chua Hue filed an answer containing a general denial and the special
defenses that Uy Siu Pin entered into the contract Exhibit A through fraud on the part of the plaintiffs Casimira and Blas, that the latter failed to perform their
part of the contract in that they failed to deliver to Uy Siu Pin the possession of the land in question, and that Uy Siu Pin, after acquiring said land from El
Hogar Filipino independently of the contract Exhibit A, sold the same to his codefendant Chua Hue Juan Magbajos intervening the action, prayed that he be
declared the owner of the land involved therein by virtue of the sale executed in his favor by Chua Hue on December 31, 1935. After trial, the Court of First
Instance of Tayabas rendered judgment setting aside the sale executed by Uy Siu Pin in favor of Chua Hue as well as the sale executed by the latter in favor
of Juan Magbajos, ordering the register of deeds of Tayabas to cancel transfer certificate of title No. 8447 issued in the name of Chua Hue and to note the
agreement Exhibit A on transfer certificate of title No. 8446 issued in the name of Uy Siu Pin, and sentencing the latter to pay to the plaintiffs as damages the
sum of P380 plus the costs of the action. Upon appeal from this judgment by the defendants and the intervenor, the Court of Appeals, on July 18, 1939,
affirmed the same with the sole modification that the award of damages in the sum of P380 was eliminated therefrom.

The present petition for certiorari has been presented by Uy Siu Pin and Chua Hue with a view to obtaining a favorable judgment in their favor, the
petitioners contending that: I. The Court of Appeals erred in declaring that under the agreement Exhibit A, the petitioner Uy Siu Pin received the land in
question from the respondents Casimira Cantollas and Blas Velegao as mere trustee with right of usufruct; II. The Court of Appeals erred in declaring that
the petitioner El Hogar Filipino, not in his own right but as trustee of the respondents Casimira Cantollas and Blas Velegao; III. The Court of Appeals erred
in holding that the obligation assumed by petitioner Uy Siu Pin under Exhibit A has not been validly extinguished; IV. The Court of Appeals erred in
declaring null and void the sale of the land in question in favor of the petitioner Chua Hue V. The Court of Appeals erred in denying petitioner's motion for
reconsideration.

Counsel for the petitioners stress the argument that Exhibit A was not a contract creating a trust relation as held by the Court of Appeals, but was one of
antichresis. We find it unnecessary to make any pronouncement on this point, because whatever may be its denomination, the petitioner Uy Siu Pin is bound
to comply therewith, it being still in full force and effect as found by the Court of Appeals. The respondents Casimira Cantollas and Blas Velegao
performed their part of the contract when they delivered on April 2, 1932 the land involved herein to the petitioner Uy Siu Pin. Thereafter it was incumbent
upon the latter to fulfill his obligation to pay the debt owning by said respondents to El Hogar Filipino and to return said land to them, after the period of
fifteen years. It cannot be contended with fairness that Uy Siu Pin acquired the land in his own right from El Hogar Filipino after the latter had foreclosure
the mortgage thereon, because the foreclosure was brought about by his own failure to pay, as stipulated in the contract Exhibit A, the indebtedness of
Casimira and Blas. Neither could the latter be blamed for their failure to redeem the land from El Hogar Filipino after the foreclosure sale, for the reason that
they had the perfect right to rely on their contract with Uy Siu Pin. In any event, whether we consider Uy Siu Pin as having purchased the land from El Hogar
Filipino in his own right, and not on behalf of Casimira Cantollas and Blas Velegao, he is still bound, under the circumstances of this case, to reconvey the
same to Casimira and Blas after the expiration of the period stipulated in the existing contract Exhibit A. It is pretended, however, that the obligations
assumed by Uy Siu Pin under Exhibit A have been validly extinguished when "he returned the possession of the property in question to the debtors Casimira
Cantollas and Blas Velegao." Against this pretension there is the finding of fact of the Court of Appeals, not capable of review by us in the present
proceedings, that Uy Siu Pin has remained in possession of the land since April 2, 1932.

The sale from Uy Siu Pin to his wife Chua Hue is null and void not only because the former had no right to dispose of the land in controversy in view of the
existence of the contract Exhibit A but because such sale comes within the prohibition of article 1458 of the Civil Code. It is not necessary to dwell upon the
sale from Chua Hue to the intervenor Juan Magbajos, as the latter has not appealed from the decision complained of by the petitioners.

The petition for certiorari will therefore be dismissed and the appealed decision affirmed, with costs against the petitioners. So ordered.

Avancea, C.J., Imperial, Diaz and Moran, JJ., concur.

THIRD DIVISION
[G.R. No. 109355. October 29, 1999]

34
SERAFIN MODINA, petitioner vs. COURT OF APPEALS AND ERNESTO HONTARCIEGO, PAUL FIGUEROA, TEODORO HIPALLA AND
RAMON CHIANG, MERLINDA CHIANG, respondents.
DECISION
PURISIMA, J.:

At bar is a Petition for Review on Certiorari assailing the decision of the Court of Appeals in CA - G.R. CV No. 26051 affirming the decision of the trial
court in the case, entitled Serafin Modina vs Ernesto Hontarciego, Paulino Figueroa and Ramon Chiang vs Merlinda Plana Chiang, intervenors, which
declared as void and inexistent the deed of definite sale dated December 17, 1975 as well as the Certificates of Title Nos. T-86912, T-86913, T-86914 in the
name of Ramon Chiang.

The facts that matter are as follows:

The parcels of land in question are those under the name of Ramon Chiang (hereinafter referred to as CHIANG ) covered by TCT Nos. T-86912, T-86913,
and T-86914. He theorized that subject properties were sold to him by his wife, Merlinda Plana Chiang (hereinafter referred to as MERLINDA), as
evidenced by a Deed of Absolute Sale dated December 17, 1975,[1] and were subsequently sold by CHIANG to the petitioner Serafin Modina (MODINA),
as shown by the Deeds of Sale, dated August 3, 1979 and August 24, 1979, respectively.

MODINA brought a Complaint for Recovery of Possession with Damages against the private respondents, Ernesto Hontarciego, Paul Figueroa and Teodoro
Hipalla, docketed as Civil Case No. 13935 before the Regional Trial Court of Iloilo City.

Upon learning the institution of the said case, MERLINDA presented a Complaint-in-intervention, seeking the declaration of nullity of the Deed of Sale
between her husband and MODINA on the ground that the titles of the parcels of land in dispute were never legally transferred to her husband. Fraudulent
acts were allegedly employed by him to obtain a Torrens Title in his favor. However, she confirmed the validity of the lease contracts with the other private
respondents.

MERLINDA also admitted that the said parcels of land were those ordered sold by Branch 2 of the then Court of First Instance of Iloilo in Special
Proceeding No. 2469 in Intestate Estate of Nelson Plana where she was appointed as the administratix, being the widow of the deceased, her first husband.
An Authority to Sell was issued by the said Probate Court for the sale of the same properties.[2]

After due hearing, the Trial Court decided in favor of MERLINDA, disposing thus:

WHEREFORE, judgment is hereby rendered (1) declaring as void and inexistent the sale of Lots 10063, 10088, 10085 and 10089 of the Cadastral Survey of
Sta. Barbara by Merlinda Plana in favor of Ramon Chiang as evidenced by the deed of definite sale dated December 17, 1975 (Exhibits H; 3-Chiang; 9
Intervenor) as well as the Certificates of Title Nos. T-86912, T-86913, T-86914 and T-86915 in the name of Ramon Chiang; (2) declaring as void and
inexistent the sale of the same properties by Ramon Chiang in favor of Serafin Modina as evidenced by the deeds of sale (Exhibits A, B, 6 Chiang and 7
Chiang) dated August 3, and 24, 1979, as well as. Certificates of Title Nos. T-102631, 102630, 102632 and 102890 in the name of Serafin Modina; (3)
ordering the Register of Deeds of Iloilo to cancel said certificates of title in the names of Ramon Chiang and Serafin Modina and to reinstate the Certificates
of Title Nos. T-57960, T-57962, T-57963 and T-57864 in the name of Nelson Plana; (4) ordering Serafin Modina to vacate and restore possession of the lots
in question to Merlinda Plana Chiang; (5) ordering Ramon Chiang to restitute and pay to Serafin Modina the sum of P145,800.00 and; (6) ordering Serafin
Modina to pay Ernesto Hontarciego the sum of P44,500.00 as actual and compensatory damages plus the sum of P5,000.00, for and as attorneys fees, with
costs in favor of said defendants against the plaintiff.

On appeal, the Court of Appeals affirmed the aforesaid decision in toto.

Dissatisfied therewith, petitioner found his way to this Court via the present Petition for Review under Rule 45 seeking to set aside the assailed decision of
the Court of Appeals.

Raised for resolution here are: (1) whether the sale of subject lots should be nullified, (2) whether petitioner was not a purchaser in good faith, (3) whether
the decision of the trial court was tainted with excess of jurisdiction; and (4) whether or not only three-fourths of subject lots should be returned to the private
respondent.

Anent the first issue, petitioner theorizes that the sale in question is null and void for being violative of Article 1490[3] of the New Civil Code prohibiting
sales between spouses. Consequently, what is applicable is Article 1412[4] supra on the principle of in pari delicto, which leaves both guilty parties where
they are, and keeps undisturbed the rights of third persons to whom the lots involved were sold; petitioner stressed.

Petitioner anchors his submission on the following statements of the Trial Court which the Court of Appeals upheld, to wit:

Furthermore, under Art. 1490, husband and wife are prohibited to sell properties to each other. And where, as in this case, the sale is inexistent for lack of
consideration, the principle of in pari delicto non oritur actio does not apply. (Vasquez vs Porta, 98 Phil 490). (Emphasis ours) Thus, Art. 1490
provides:

Art. 1490. The husband and the wife cannot sell property to each other, except:

(1) when a separation of property was agreed upon in the marriage settlements; or

(2) when there has been a judicial separation of property under Art. 191.

The exception to the rule laid down in Art. 1490 of the New Civil Code not having existed with respect to the property relations of Ramon Chiang and
Merlinda Plana Chiang, the sale by the latter in favor of the former of the properties in question is invalid for being prohibited by law. Not being the owner of
subject properties, Ramon Chiang could not have validly sold the same to plaintiff Serafin Modina. The sale by Ramon Chiang in favor of Serafin Modina is,
likewise, void and inexistent.

xxx xxx xxx[5]

The Court of Appeals, on the other hand, adopted the following findings a quo: that there is no sufficient evidence establishing fault on the part of
MERLINDA, and therefore, the principle of in pari delicto is inapplicable and the sale was void for want of consideration. In effect, MERLINDA can
recover the lots sold by her husband to petitioner MODINA. However, the Court of Appeals ruled that the sale was void for violating Article 1490 of the
Civil Code, which prohibits sales between spouses.

The principle of in pari delicto non oritur actio[6] denies all recovery to the guilty parties inter se. It applies to cases where the nullity arises from the
illegality of the consideration or the purpose of the contract.[7] When two persons are equally at fault, the law does not relieve them. The exception to this
general rule is when the principle is invoked with respect to inexistent contracts.[8]

35
In the petition under consideration, the Trial Court found that subject Deed of Sale was a nullity for lack of any consideration.[9] This finding duly supported
by evidence was affirmed by the Court of Appeals. Well-settled is the rule that this Court will not disturb such finding absent any evidence to the
contrary.[10]

Under Article 1409[11] of the New Civil Code, enumerating void contracts, a contract without consideration is one such void contract. One of the
characteristics of a void or inexistent contract is that it produces no effect. So also, inexistent contracts can be invoked by any person whenever juridical
effects founded thereon are asserted against him. A transferor can recover the object of such contract by accion reivindicatoria and any possessor may refuse
to deliver it to the transferee, who cannot enforce the transfer.[12]

Thus, petitioners insistence that MERLINDA cannot attack subject contract of sale as she was a guilty party thereto is equally unavailing.

But the pivot of inquiry here is whether MERLINDA is barred by the principle of in pari delicto from questioning subject Deed of Sale.

It bears emphasizing that as the contracts under controversy are inexistent contracts within legal contemplation, Articles 1411 and 1412 of the New Civil
Code are inapplicable. In pari delicto doctrine applies only to contracts with illegal consideration or subject matter, whether the attendant facts constitute an
offense or misdemeanor or whether the consideration involved is merely rendered illegal.[13]

The statement below that it is likewise null and void for being violative of Article 1490 should just be treated as a surplusage or an obiter dictum on the part
of the Trial Court as the issue of whether the parcels of land in dispute are conjugal in nature or they fall under the exceptions provided for by law, was
neither raised nor litigated upon before the lower Court. Whether the said lots were ganancial properties was never brought to the fore by the parties and it is
too late to do so now.

Futhermore, if this line of argument be followed, the Trial Court could not have declared subject contract as null and void because only the heirs and the
creditors can question its nullity and not the spouses themselves who executed the contract with full knowledge of the prohibition.[14]

Records show that in the complaint-in-intervention of MERLINDA, she did not aver the same as a ground to nullify subject Deed of Sale. In fact, she denied
the existence of the Deed of Sale in favor of her husband. In the said Complaint, her allegations referred to the want of consideration of such Deed of Sale.
She did not put up the defense under Article 1490, to nullify her sale to her husband CHIANG because such a defense would be inconsistent with her claim
that the same sale was inexistent.

The Trial Court debunked petitioners theory that MERLINDA intentionally gave away the bulk of her and her late husbands estate to defendant CHIANG as
his exclusive property, for want of evidentiary anchor. They insist on the Deed of Sale wherein MERLINDA made the misrepresentation that she was a
widow and CHIANG was single, when at the time of execution thereof, they were in fact already married. Petitioner insists that this document conclusively
established bad faith on the part of MERLINDA and therefore, the principle of in pari delicto should have been applied.

These issues are factual in nature and it is not for this Court to appreciate and evaluate the pieces of evidence introduced below. An appellate court defers to
the factual findings of the Trial Court, unless petitioner can show a glaring mistake in the appreciation of relevant evidence.

Since one of the characteristics of a void or inexistent contract is that it does not produce any effect, MERLINDA can recover the property from petitioner
who never acquired title thereover.

As to the second issue, petitioner stresses that his title should have been respected since he is a purchaser in good faith and for value. The Court of Appeals,
however, opined that he (petitioner) is not a purchaser in good faith. It found that there were circumstances known to MODINA which rendered their
transaction fraudulent under the attendant circumstances.

As a general rule, in a sale under the Torrens system, a void title cannot give rise to a valid title. The exception is when the sale of a person with a void title is
to a third person who purchased it for value and in good faith.

A purchaser in good faith is one who buys the property of another without notice that some other person has a right to or interest in such property and pays a
full and fair price at the time of the purchase or before he has notice of the claim or interest of some other person in the property.

In the case under scrutiny, petitioner cannot claim that he was a purchaser in good faith. There are circumstances which are indicia of bad faith on his part, to
wit: (1) He asked his nephew, Placido Matta, to investigate the origin of the property and the latter learned that the same formed part of the properties of
MERLINDAs first husband; (2) that the said sale was between the spouses; (3) that when the property was inspected, MODINA met all the lessees who
informed that subject lands belong to MERLINDA and they had no knowledge that the same lots were sold to the husband.

It is a well-settled rule that a purchaser cannot close his eyes to facts which would put a reasonable man upon his guard to make the necessary inquiries, and
then claim that he acted in good faith. His mere refusal to believe that such defect exists, or his wilful closing of his eyes to the possibility of the existence of
a defect in his vendors title, will not make him an innocent purchaser for value, if it afterwards develops that the title was in fact defective, and it appears that
he had such notice of the defect as would have led to its discovery had he acted with that measure of precaution which may reasonably be required of a
prudent man in a like situation.[15]

Thus, petitioner cannot claim that the sale between him and MODINA falls under the exception provided for by law.

With regard to the third issue posed by petitioner - whether the Trial Courts decision allowing recovery on the part of Merlinda Chiang of subject properties
was void - petitioners contention is untennable. It is theorized that as the sale by MERLINDA was by virtue of an Order to Sell issued in the Intestate Estate
Proceedings of her late husband, Nelson Plana - to allow recovery will defeat the said order of the Probate Court. Petitioner equated the aforesaid Order to
Sell as a judgment, which another court in a regular proceeding has no jurisdiction to reverse.

Petitioner is under the mistaken impression that as the Order to Sell had become a judgment in itself as to the validity of the sale of the properties involved,
any question as to its nullity should have been brought before the Court of Appeals on appeal when the said Order was issued.

It is a well-settled rule that a Court of First Instance (now Regional Trial Court) has jurisdiction over a case brought to rescind a sale made upon prior
authority of a Probate Court. This does not constitute an interference or review of the order of a co-equal Court since the Probate Court has no jurisdiction
over the question of title to subject properties. Consequently, a separate action may be brought to determine the question of ownership.[16]

Lastly, on the issue of whether only three-fourths of the property in question should have been returned to MERLINDA, petitioners stance is equally
unsustainable. It is a settled doctrine that an issue which was neither averred in the Complaint nor raised during the trial before the lower court cannot be
raised for the first time on appeal, as such a recourse would be offensive to the basic rules of fair play, justice, and due process.[17]

36
The issue of whether only three-fourths of subject property will be returned was never an issue before the lower court and therefore, the petitioner cannot do
it now. A final word. In a Petition for Review, only questions of law may be raised. It is perceived by the Court that what petitioner is trying to, albeit subtly,
is for the Court to examine the probative value or evidentiary weight of the evidence presented below[18] The Court cannot do that unless the appreciation of
the pieces of evidence on hand is glaringly erroneous. But this is where petitioner utterly failed.

WHEREFORE, the Petition is DENIED and the decision of the Court of Appeals, dated September 30, 1992, in CA-G.R. CV No. 26051 AFFIRMED. No
pronouncement as to costs.

SO ORDERED.

EN BANC

[G.R. No. L-8477. May 31, 1956.]

THE PHILIPPINE TRUST COMPANY, as Guardian of the Property of the minor, MARIANO L. BERNARDO, Petitioner, vs. SOCORRO
ROLDAN, FRANCISCO HERMOSO, FIDEL C. RAMOS and EMILIO CRUZ, Respondents.

DECISION

BENGZON, J.:

As guardian of the property of the minor Mariano L. Bernardo, the Philippine Trust Company filed in the Manila court of first instance a complaint to annul
two contracts regarding 17 parcels of land:chanroblesvirtuallawlibrary (a) sale thereof by Socorro Roldan, as guardian of said minor, to Fidel C. Ramos; chan
roblesvirtualawlibraryand (b) sale thereof by Fidel C. Ramos to Socorro Roldan personally. The complaint likewise sought to annul a conveyance of four out
of the said seventeen parcels by Socorro Roldan to Emilio Cruz.

The action rests on the proposition that the first two sales were in reality a sale by the guardian to herself therefore, null and void under Article 1459 of the
Civil Code. As to the third conveyance, it is also ineffective, because Socorro Roldan had acquired no valid title to convey to Cruz.

The material facts of the case are not complicated. These 17 parcels located in Guiguinto, Bulacan, were part of the properties inherited by Mariano L.
Bernardo from his father, Marcelo Bernardo, deceased. In view of his minority, guardianship proceedings were instituted, wherein Socorro Roldan was
appointed his guardian. She was the surviving spouse of Marcelo Bernardo, and the stepmother of said Mariano L. Bernardo.

On July 27, 1947, Socorro Roldan filed in said guardianship proceedings (Special Proceeding 2485, Manila), a motion asking for authority to sell as guardian
the 17 parcels for the sum of P14,700 to Dr. Fidel C. Ramos, the purpose of the sale being allegedly to invest the money in a residential house, which the
minor desired to have on Tindalo Street, Manila. The motion was granted.

On August 5, 1947 Socorro Roldan, as guardian, executed the proper deed of sale in favor of her brother-in-law Dr. Fidel C. Ramos (Exhibit A-1), and on
August 12, 1947 she asked for, and obtained, judicial confirmation of the sale. On August 13, 1947, Dr. Fidel C. Ramos executed in favor of Socorro Roldan,
personally, a deed of conveyance covering the same seventeen parcels, for the sum of P15,000 (Exhibit A-2). And on October 21, 1947 Socorro Roldan sold
four parcels out of the seventeen to Emilio Cruz for P3,000, reserving to herself the right to repurchase (Exhibit A-3).

The Philippine Trust Company replaced Socorro Roldan as guardian, on August 10, 1948. And this litigation, started two months later, seeks to undo what
the previous guardian had done. The step-mother in effect, sold to herself, the properties of her ward, contends the Plaintiff, and the sale should be annulled
because it violates Article 1459 of the Civil Code prohibiting the guardian from purchasing either in person or through the mediation of another the
property of her ward.

The court of first instance, following our decision in Rodriguez vs. Mactal, 60 Phil. 13 held the article was not controlling, because there was no proof that
Fidel C. Ramos was a mere intermediary or that the latter had previously agreed with Socorro Roldan to buy the parcels for her benefit.

However, taking the former guardian at her word - she swore she had repurchased the lands from Dr. Fidel C. Ramos to preserve it and to give her protege
opportunity to redeem the court rendered judgment upholding the contracts but allowing the minor to repurchase all the parcels by paying P15,000, within
one year.

The Court of Appeals affirmed the judgment, adding that the minor knew the particulars of, and approved the transaction, and that only clear and positive
evidence of fraud or bad faith, and not mere insinuations and inferences will overcome the presumptions that a sale was concluded in all good faith for
value.

At first glance the resolutions of both courts accomplished substantial justice:chanroblesvirtuallawlibrary the minor recovers his properties. But if the
conveyances are annulled as prayed for, the minor will obtain a better deal:chanroblesvirtuallawlibrary he receives all the fruits of the lands from the year
1947 (Article 1303 Civil Code) and will return P14,700, not P15,000.

To our minds the first two transactions herein described couldnt be in a better juridical situation than if this guardian had purchased the seventeen parcels on
the day following the sale to Dr. Ramos. Now, if she was willing to pay P15,000 why did she sell the parcels for less? In one day (or actually one week) the
price could not have risen so suddenly. Obviously when, seeking approval of the sale she represented the price to be the best obtainable in the market, she
was not entirely truthful. This is one phase to consider.

37
Again, supposing she knew the parcels were actually worth P17,000; chan roblesvirtualawlibrarythen she agreed to sell them to Dr. Ramos at P14,700; chan
roblesvirtualawlibraryand knowing the realtys value she offered him the next day P15,000 or P15,500, and got it. Will there be any doubt that she was
recreant to her guardianship, and that her acquisition should be nullified? Even without proof that she had connived with Dr. Ramos. Remembering the
general doctrine that guardianship is a trust of the highest order, and the trustee cannot be allowed to have any inducement to neglect his wards interest and
in line with the courts suspicion whenever the guardian acquires the wards property 1 we have no hesitation to declare that in this case, in the eyes of the
law, Socorro Roldan took by purchase her wards parcels thru Dr. Ramos, and that Article 1459 of the Civil Code applies.

She acted it may be true without malice; chan roblesvirtualawlibrarythere may have been no previous agreement between her and Dr. Ramos to the effect that
the latter would buy the lands for her. But the stubborn fact remains that she acquired her proteges properties, through her brother-in-law. That she planned
to get them for herself at the time of selling them to Dr. Ramos, may be deduced from the very short time between the two sales (one week). The temptation
which naturally besets a guardian so circumstanced, necessitates the annulment of the transaction, even if no actual collusion is proved (so hard to prove)
between such guardian and the intermediate purchaser. This would uphold a sound principle of equity and justice. 2

We are aware of course that in Rodriguez vs. Mactal, 60 Phil. p. 13 wherein the guardian Mactal sold in January 1926 the property of her ward to Silverio
Chioco, and in March 1928 she bought it from Chioco, this Court said:chanroblesvirtuallawlibrary

In order to bring the sale in this case within the part of Article 1459, quoted above, it is essential that the proof submitted establish some agreement between
Silverio Chioco and Trinidad Mactal to the effect that Chioco should buy the property for the benefit of Mactal. If there was no such agreement, either
express or implied, then the sale cannot be set aside cralaw . (Page 16; chan roblesvirtualawlibraryItalics supplied.)

However, the underlined portion was not intended to establish a general principle of law applicable to all subsequent litigations. It merely meant that the
subsequent purchase by Mactal could not be annulled in that particular case because there was no proof of a previous agreement between Chioco and her.
The court then considered such proof necessary to establish that the two sales were actually part of one scheme guardian getting the wards property
through another person because two years had elapsed between the sales. Such period of time was sufficient to dispel the natural suspicion of the
guardians motives or actions. In the case at bar, however, only one week had elapsed. And if we were technical, we could say, only one day had elapsed
from the judicial approval of the sale (August 12), to the purchase by the guardian (Aug. 13).

Attempting to prove that the transaction was beneficial to the minor, Appellees attorney alleges that the money (P14,700) invested in the house on Tindalo
Street produced for him rentals of P2,400 yearly; chan roblesvirtualawlibrarywhereas the parcels of land yielded to his step-mother only an average of P1,522
per year. 3 The argument would carry some weight if that house had been built out of the purchase price of P14,700 only. 4 One thing is
certain:chanroblesvirtuallawlibrary the calculation does not include the price of the lot on which the house was erected. Estimating such lot at P14,700 only,
(ordinarily the city lot is more valuable than the building) the result is that the price paid for the seventeen parcels gave the minor an income of only P1,200 a
year, whereas the harvest from the seventeen parcels netted his step-mother a yearly profit of P1,522.00. The minor was thus on the losing end.

Hence, from both the legal and equitable standpoints these three sales should not be sustained:chanroblesvirtuallawlibrary the first two for violation of article
1459 of the Civil Code; chan roblesvirtualawlibraryand the third because Socorro Roldan could pass no title to Emilio Cruz. The annulment carries with is
(Article 1303 Civil Code) the obligation of Socorro Roldan to return the 17 parcels together with their fruits and the duty of the minor, through his guardian
to repay P14,700 with legal interest.

Judgment is therefore rendered:chanroblesvirtuallawlibrary

a. Annulling the three contracts of sale in question; chan roblesvirtualawlibraryb. declaring the minor as the owner of the seventeen parcels of land, with the
obligation to return to Socorro Roldan the price of P14,700 with legal interest from August 12, 1947; chan roblesvirtualawlibraryc. Ordering Socorro Roldan
and Emilio Cruz to deliver said parcels of land to the minor; chan roblesvirtualawlibraryd. Requiring Socorro Roldan to pay him beginning with 1947 the
fruits, which her attorney admits, amounted to P1,522 a year; chan roblesvirtualawlibrarye. Authorizing the minor to deliver directly to Emilio Cruz, out of
the price of P14,700 above mentioned, the sum of P3,000; chan roblesvirtualawlibraryand f. charging Appellees with the costs. SO ORDERED.

G.R. No. L-39720 April 4, 1934

In re Intestate of the deceased Mauricia de Guzman.

PEDRO RODRIGUEZ, ET AL., petitioners-appellants,
vs.
TRINIDAD MACTAL, administratrix-appellee.

Leoncio de la Cruz for appellants.

Mateo F. Virola for appellee.

GODDARD, J.:

This is an appeal from an order of the Court of First Instance of Nueva Ecija, issued in the intestate proceeding of Mauricia de Guzman, deceased, denying
the motion of the appellants in which they sought to annul a sale, executed January 23, 1926, by the administratrix Trinidad Mactal, of a parcel of land to
Silverio Choco and a resale of the same land on March 10, 1928, to the administratrix Trinidad Mactal.

The appellants Pedro, Catalina and Benigno Rodriguez, and the appellee Trinidad Mactal, are all heirs of Mauricia de Guzman whose estate is under
administration in civil case No. 3152 of the Court of First Instance of Nueva Ecija. At the time the motion in question was filed in that case that appellants
were 24, 19 and 15 years of age. Mauricia de Guzman died on March 22, 1922.

On March 17, 1923, the appellee Trinidad Mactal was appointed and duly qualified as administratrix of the intestate estate of Mauricia de Guzman. The
committee of claims, on April 16, 1924, submitted a report in which the following claims against the estate were allowed: Irene de Gonzales and Isidro
Gonzales for the sum of P3,050; Esperanza Fernandez and Fruto Aquino for P200; and the Philippine National Bank for P200.88, a total of P3,450.88 aside
from the fees of the members of the committee of claims which amounted to P104. The report of this committee was approved by the court on April 29, 1942
and in this order of approval the court ordered the administratrix "que se provea de fondos para pagar las deudas admitidas por la Comision de Avaluo y
Reclamaciones y sancionadas por el Juzgado." By reason of this order the administratrix in a motion dated May 13, 1924, prayed that she be allowed to sell
the only parcel of land belonging to the estate with an area of 19 hectares, 79 ares and 74 centares for the purpose of paying debts. This land was a part of a
parcel of land of 23 hectares, 79 ares and 74 centares, 4 hectares of which belonged to Teofilo Rodriguez. A copy of this motion was served upon Juliana del
Rosario, the mother and guardian of the appellants, all of whom were minors and under her care at that time. That Juliana del Rosario was the guardian of her
children is evidenced by the fact that she and Trinidad Mactal executed on July 6, 1922, a contract of lease of this same land to Timoteo de Guzman, at an
annual rental of P150, in which it appears that Juliana del Rosario executed the same "en concepto de tutora de sus hijos"

The court authorized the administratrix to sell the land for the sum of P9,000. Later it was found that no one would buy at that price and the authorized
selling price was reduced to P7,000 and then, as of the administratix, fixed the selling price at not less than P3,800. Later the land was sold to Silverio Choco
for the sum of P4,000 on January 23, 1926. Juliana del Rosario received a copy of all motions. On February 16, 1926, the administratrix paid the approved

38
claim of Irene de Gonzales and Isidro Gonzales of P3,050, and the claim of Esperanza Fernandez and Fruto Aquino of P200. The claim of the Philippine
National Bank with interest thereon was also paid as were the fees of the members of the committee of claims amounting to P104, the surveyor's fee of P120
for the segregation of the four hectares belonging to Teofilo Rodriguez and the overdue tax on the land amounting to more than P300.

These payments, all of which were made after the sale in favor of Silverio Choco, conclusively prove that sale was not fictitious as alleged by the appellants.

On March 10, 1928, more than two years later, Silverio Choco sold the same land to the spouses Pio Villar and Trinidad Mactal for the sum of P4,500, who
in turn mortgaged it to the Philippine National Bank for the same amount. The appellants also allege that this sale was fictitious, that there was collusion
between Silverio Choco and Trinidad Mactal and that the former never paid the latter the sum of P4,000. As we have seen, immediately after the sale to
Choco, Trinidad Mactal paid out considerable sums of money, which undoubtedly came out of the P4,000 Choco paid her for the land.

The appellants rely on article 1459 of the Civil Code which reads in part as follows:

The following persons cannot take by purchase, even at a public or judicial auction, either in person or through the mediation of another:

xxx xxx xxx

2. An agent, any property of which the management or sale may have been intrusted to him;

3. Executors, the property intrusted to their care;

xxx xxx xxx

They insist the administratrix bought the land indirectly through the mediation of Silverio Choco and that both sales should be annulled under the provisions
of the article cited above. The proofs in this case do not substantiate this claim of the appellants. The lower court refused to annul these sales and we find
nothing in the record that would justify this court in reversing that finding. In order to bring the sale in this case within the part of article 1459, quoted above,
it is essential that the proof submitted establish some agreement between Silverio Choco and Trinidad Mactal to the effect that Choco should buy the
property for the benefit of Mactal. If there was no such agreement, either express or implied, then the sale can not be set aside. The evidence before this court
does not establish such agreement.

The appellants also allege that the order of the court authorizing the administrator to sell the land in question is null and void due to the fact the motion of
Trinidad Mactal, praying that she be authorized to sell, was not accompanied by the written consent of the heirs or their duly authorized guardian. They rely
upon section 714 of the Code of Civil Procedure which, before it was amended by Act No. 3882, provided that ". . . where a testator has not otherwise made
sufficient provision for the payment of such debts and charges, the court, on application of the executor or administrator with the consent and approbation, in
writing, of the heirs, devisees, and legatees, residing in the Philippine Islands, may grant a license to the executor or administrator to sell, mortgage or
otherwise encumber for that purpose real, in lieu of personal estate, if it clearly appears that such sale, mortgaging or encumbrance of real state would be
beneficial to the persons interested and will not defeat any devise of land; in which case the assent of the devisee shall be required."

As amended by Act No. 3882, approved November 14, 1931, section 714 reads:

Realty may be sold or encumbered. When there is no personal estate of the deceased or when, though there be such, its sale would redound to the
detriment of the interests of the participants in the estate and the deceased has left no testamentary disposition for the payment of his debts and charges of
administration, the court, on application of the executor or administrator, and on written notice to the heirs, devisees, and other persons interested, may grant
him a license to sell, mortgage, or otherwise encumber for that purpose real estate, if it clearly appears that such sale, mortgaging or encumbrance would be
beneficial to the persons interested and will not defeat any devise of land; in which case the assent of the devisee shall be required.

The last paragraph of this Act provides that it "shall take effect on its approval and shall be applicable to all testamentary or intestate proceedings pending at
the time of its approval."

The record in this case shows that the intestate proceeding of Mauricia de Guzman, deceased, is still pending in the Court of First Instance of Nueva Ecija.

The appealed order of the lower court is affirmed with costs against the appellants.

Malcolm, Villa-Real, Hull and Imperial, JJ., concur.

The Lawphil Project - Arellano Law Foundation

G.R. No. L-35702 May 29, 1973

DOMINGO D. RUBIAS, plaintiff-appellant,

vs.
ISAIAS BATILLER, defendant-appellee.

Gregorio M. Rubias for plaintiff-appellant.

Vicente R. Acsay for defendant-appellee.

TEEHANKEE, J.:

In this appeal certified by the Court of Appeals to this Court as involving purely legal questions, we affirm the dismissal order rendered by the Iloilo court of
first instance after pre-trial and submittal of the pertinent documentary exhibits.

Such dismissal was proper, plaintiff having no cause of action, since it was duly established in the record that the application for registration of the land in
question filed by Francisco Militante, plaintiff's vendor and predecessor interest, had been dismissed by decision of 1952 of the land registration court as
affirmed by final judgment in 1958 of the Court of Appeals and hence, there was no title or right to the land that could be transmitted by the purported sale to
plaintiff.

As late as 1964, the Iloilo court of first instance had in another case of ejectment likewise upheld by final judgment defendant's "better right to possess the
land in question . having been in the actual possession thereof under a claim of title many years before Francisco Militante sold the land to the plaintiff."

39
Furthermore, even assuming that Militante had anything to sell, the deed of sale executed in 1956 by him in favor of plaintiff at a time when plaintiff was
concededly his counsel of record in the land registration case involving the very land in dispute (ultimately decided adversely against Militante by the Court
of Appeals' 1958 judgment affirming the lower court's dismissal of Militante's application for registration) was properly declared inexistent and void by the
lower court, as decreed by Article 1409 in relation to Article 1491 of the Civil Code.

The appellate court, in its resolution of certification of 25 July 1972, gave the following backgrounder of the appeal at bar:

On August 31, 1964, plaintiff Domingo D. Rubias, a lawyer, filed a suit to recover the ownership and possession of certain portions of lot under Psu-99791
located in Barrio General Luna, Barotac Viejo, Iloilo which he bought from his father-in-law, Francisco Militante in 1956 against its present occupant
defendant, Isaias Batiller, who illegally entered said portions of the lot on two occasions in 1945 and in 1959. Plaintiff prayed also for damages and
attorneys fees. (pp. 1-7, Record on Appeal). In his answer with counter-claim defendant claims the complaint of the plaintiff does not state a cause of action,
the truth of the matter being that he and his predecessors-in-interest have always been in actual, open and continuous possession since time immemorial
under claim of ownership of the portions of the lot in question and for the alleged malicious institution of the complaint he claims he has suffered moral
damages in the amount of P 2,000.00, as well as the sum of P500.00 for attorney's fees. ...

On December 9, 1964, the trial court issued a pre-trial order, after a pre-trial conference between the parties and their counsel which order reads as follows..

'When this case was called for a pre-trial conference today, the plaintiff appeared assisted by himself and Atty. Gregorio M. Rubias. The defendant also
appeared, assisted by his counsel Atty. Vicente R. Acsay.

A. During the pre-trial conference, the parties have agreed that the following facts are attendant in this case and that they will no longer introduced any
evidence, testimonial or documentary to prove them:

1. That Francisco Militante claimed ownership of a parcel of land located in the Barrio of General Luna, municipality of Barotac Viejo province of
Iloilo, which he caused to be surveyed on July 18-31, 1934, whereby he was issued a plan Psu-99791 (Exhibit "B"). (The land claimed contained an area of
171:3561 hectares.)

2. Before the war with Japan, Francisco Militante filed with the Court of First Instance of Iloilo an application for the registration of the title of the
land technically described in psu-99791 (Exh. "B") opposed by the Director of Lands, the Director of Forestry and other oppositors. However, during the war
with Japan, the record of the case was lost before it was heard, so after the war Francisco Militante petitioned this court to reconstitute the record of the case.
The record was reconstituted on the Court of the First Instance of Iloilo and docketed as Land Case No. R-695, GLRO Rec. No. 54852. The Court of First
Instance heard the land registration case on November 14, 1952, and after the trial this court dismissed the application for registration. The appellant,
Francisco Militante, appealed from the decision of this Court to the Court of Appeals where the case was docketed as CA-GR No. 13497-R..

3. Pending the disposal of the appeal in CA-GR No. 13497-R and more particularly on June 18, 1956, Francisco Militante sold to the plaintiff,
Domingo Rubias the land technically described in psu-99791 (Exh. "A"). The sale was duly recorded in the Office of the Register of Deeds for the province
of Iloilo as Entry No. 13609 on July 11, 1960 (Exh. "A-1").

(NOTE: As per deed of sale, Exh. A, what Militante purportedly sold to plaintiff-appellant, his son-in-law, for the sum of P2,000.00 was "a parcel of untitled
land having an area Of 144.9072 hectares ... surveyed under Psu 99791 ... (and) subject to the exclusions made by me, under (case) CA-i3497, Land
Registration Case No. R-695, G.L.R.O. No. 54852, Court of First Instance of the province of Iloilo. These exclusions referred to portions of the original area
of over 171 hectares originally claimed by Militante as applicant, but which he expressly recognized during the trial to pertain to some oppositors, such as the
Bureau of Public Works and Bureau of Forestry and several other individual occupants and accordingly withdrew his application over the same. This is
expressly made of record in Exh. A, which is the Court of Appeals' decision of 22 September 1958 confirming the land registration court's dismissal of
Militante's application for registration.)

4. On September 22,1958 the Court of appeals in CA-G.R. No. 13497-R promulgated its judgment confirming the decision of this Court in Land Case
No. R-695, GLRO Rec. No. 54852 which dismissed the application for Registration filed by Francisco Militante (Exh. "I").

5. Domingo Rubias declared the land described in Exh. 'B' for taxation purposes under Tax Dec. No. 8585 (Exh. "C") for 1957; Tax Dec. Nos. 9533
(Exh. "C-1") and 10019 (Exh. "C-3")for the year 1961; Tax Dec. No. 9868 (Exh. "C-2") for the year 1964, paying the land taxes under Tax Dec. No. 8585
and 9533 (Exh. "D", "D-1", "G-6").

6. Francisco Militante immediate predecessor-in-interest of the plaintiff, has also declared the land for taxation purposes under Tax Dec. No. 5172 in
1940 (Exh. "E") for 1945; under Tax Dec. No. T-86 (Exh. "E-1") for 1948; under Tax Dec. No. 7122 (Exh. "2"), and paid the land taxes for 1940 (Exhs. "G"
and "G-7"), for 1945 46 (Exh. "G-1") for 1947 (Exh. "G-2"), for 1947 & 1948 (Exh. "G-3"), for 1948 (Exh. "G-4"), and for 1948 and 1949 (Exh. "G-5").

7. Tax Declaration No. 2434 in the name of Liberato Demontao for the land described therein (Exh. "F") was cancelled by Tax. Dec. No. 5172 of
Francisco Militante (Exh. "E"). Liberato Demontao paid the land tax under Tax Dec. No. 2434 on Dec. 20, 1939 for the years 1938 (50%) and 1959 (Exh.
"H").

8. The defendant had declared for taxation purposes Lot No. 2 of the Psu-155241 under Tax Dec. Not. 8583 for 1957 and a portion of Lot No. 2, Psu-
155241, for 1945 under Tax Dec. No. 8584 (Exh. "2-A" Tax No. 8583 (Exh. "2") was revised by Tax Dec. No. 9498 in the name of the defendant (Exh. "2-
B") and Tax Dec. No. 8584 (Exh. "2-A") was cancelled by Tax Dec. No. 9584 also in the name of the defendant (Exh. "2-C"). The defendant paid the land
taxes for Lot 2, Psu-155241, on Nov. 9, 1960 for the years 1945 and 1946, for the year 1950, and for the year 1960 as shown by the certificate of the treasurer
(Exh. "3"). The defendant may present to the Court other land taxes receipts for the payment of taxes for this lot.

9. The land claimed by the defendant as his own was surveyed on June 6 and 7,1956, and a plan approved by Director of Land on November 15,
1956 was issued, identified as Psu 155241 (Exh. "5").

10. On April 22, 1960, the plaintiff filed forcible Entry and Detainer case against Isaias Batiller in the Justice of the Peace Court of Barotac Viejo
Province of Iloilo (Exh. "4") to which the defendant Isaias Batiller riled his answer on August 29, 1960 (Exh. "4-A"). The Municipal Court of Barotac Viejo
after trial, decided the case on May 10, 1961 in favor of the defendant and against the plaintiff (Exh. "4-B"). The plaintiff appealed from the decision of the
Municipal Court of Barotac Viejo which was docketed in this Court as Civil Case No. 5750 on June 3, 1961, to which the defendant, Isaias Batiller, on June
13, 1961 filed his answer (Exh. "4-C"). And this Court after the trial. decided the case on November 26, 1964, in favor of the defendant, Isaias Batiller and
against the plaintiff (Exh. "4-D").

(NOTE: As per Exh. 4-B, which is the Iloilo court of first instance decision of 26 November 1964 dismissing plaintiff's therein complaint for ejectment
against defendant, the iloilo court expressly found "that plaintiff's complaint is unjustified, intended to harass the defendant" and "that the defendant, Isaias
Batiller, has a better right to possess the land in question described in Psu 155241 (Exh. "3"), Isaias Batiller having been in the actual physical possession
thereof under a claim of title many years before Francisco Militante sold the land to the plaintiff-hereby dismissing plaintiff's complaint and ordering the
plaintiff to pay the defendant attorney's fees ....")

40
B. During the trial of this case on the merit, the plaintiff will prove by competent evidence the following:

1. That the land he purchased from Francisco Militante under Exh. "A" was formerly owned and possessed by Liberato Demontao but that on
September 6, 1919 the land was sold at public auction by virtue of a judgment in a Civil Case entitled "Edw J. Pflieder plaintiff vs. Liberato Demontao
Francisco Balladeros and Gregorio Yulo, defendants", of which Yap Pongco was the purchaser (Exh. "1-3"). The sale was registered in the Office of the
Register of Deeds of Iloilo on August 4, 1920, under Primary Entry No. 69 (Exh. "1"), and a definite Deed of Sale was executed by Constantino A. Canto,
provincial Sheriff of Iloilo, on Jan. 19, 1934 in favor of Yap Pongco (Exh. "I"), the sale having been registered in the Office of the Register of Deeds of Iloilo
on February 10, 1934 (Exh. "1-1").

2. On September 22, 1934, Yap Pongco sold this land to Francisco Militante as evidenced by a notarial deed (Exh. "J") which was registered in the
Registry of Deeds on May 13, 1940 (Exh. "J-1").

3. That plaintiff suffered damages alleged in his complaint.

C. Defendants, on the other hand will prove by competent evidence during the trial of this case the following facts:

1. That lot No. 2 of the Psu-1552 it (Exh. '5') was originally owned and possessed by Felipe Batiller, grandfather of the defendant Basilio Batiller, on
the death of the former in 1920, as his sole heir. Isaias Batiller succeeded his father , Basilio Batiller, in the ownership and possession of the land in the year
1930, and since then up to the present, the land remains in the possession of the defendant, his possession being actual, open, public, peaceful and continuous
in the concept of an owner, exclusive of any other rights and adverse to all other claimants.

2. That the alleged predecessors in interest of the plaintiff have never been in the actual possession of the land and that they never had any title
thereto.

3. That Lot No. 2, Psu 155241, the subject of Free Patent application of the defendant has been approved.

4. The damages suffered by the defendant, as alleged in his counterclaim."'1

The appellate court further related the developments of the case, as follows:

On August 17, 1965, defendant's counsel manifested in open court that before any trial on the merit of the case could proceed he would file a motion to
dismiss plaintiff's complaint which he did, alleging that plaintiff does not have cause of action against him because the property in dispute which he
(plaintiff) allegedly bought from his father-in-law, Francisco Militante was the subject matter of LRC No. 695 filed in the CFI of Iloilo, which case was
brought on appeal to this Court and docketed as CA-G.R. No. 13497-R in which aforesaid case plaintiff was the counsel on record of his father-in-law,
Francisco Militante. Invoking Arts. 1409 and 1491 of the Civil Code which reads:

'Art. 1409. The following contracts are inexistent and void from the beginning:

xxx xxx xxx

(7) Those expressly prohibited by law.

'ART. 1491. The following persons cannot acquire any purchase, even at a public auction, either in person of through the mediation of another: .

xxx xxx xxx

(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other officers and employees connected with the administration
of justice, the property and rights of in litigation or levied upon an execution before the court within whose jurisdiction or territory they exercise their
respective functions; this prohibition includes the act of acquiring an assignment and shall apply to lawyers, with respect to the property and rights which
may be the object of any litigation in which they may take part by virtue of their profession.'

defendant claims that plaintiff could not have acquired any interest in the property in dispute as the contract he (plaintiff) had with Francisco Militante was
inexistent and void. (See pp. 22-31, Record on Appeal). Plaintiff strongly opposed defendant's motion to dismiss claiming that defendant can not invoke
Articles 1409 and 1491 of the Civil Code as Article 1422 of the same Code provides that 'The defense of illegality of contracts is not available to third
persons whose interests are not directly affected' (See pp. 32-35 Record on Appeal).

On October 18, 1965, the lower court issued an order disclaiming plaintiffs complaint (pp. 42-49, Record on Appeal.) In the aforesaid order of dismissal the
lower court practically agreed with defendant's contention that the contract (Exh. A) between plaintiff and Francism Militante was null and void. In due
season plaintiff filed a motion for reconsideration (pp. 50-56 Record on Appeal) which was denied by the lower court on January 14, 1966 (p. 57, Record on
Appeal).

Hence, this appeal by plaintiff from the orders of October 18, 1965 and January 14, 1966.

Plaintiff-appellant imputes to the lower court the following errors:

'1. The lower court erred in holding that the contract of sale between the plaintiff-appellant and his father-in-law, Francisco Militante, Sr., now
deceased, of the property covered by Plan Psu-99791, (Exh. "A") was void, not voidable because it was made when plaintiff-appellant was the counsel of the
latter in the Land Registration case.

'2. The lower court erred in holding that the defendant-appellee is an interested person to question the validity of the contract of sale between plaintiff-
appellant and the deceased, Francisco Militante, Sr.

'3. The lower court erred in entertaining the motion to dismiss of the defendant-appellee after he had already filed his answer, and after the termination
of the pre-trial, when the said motion to dismiss raised a collateral question.

'4. The lower court erred in dismissing the complaint of the plaintiff-appellant.'

The appellate court concluded that plaintiffs "assignment of errors gives rise to two (2) legal posers (1) whether or not the contract of sale between
appellant and his father-in-law, the late Francisco Militante over the property subject of Plan Psu-99791 was void because it was made when plaintiff was
counsel of his father-in-law in a land registration case involving the property in dispute; and (2) whether or not the lower court was correct in entertaining

41
defendant-appellee's motion to dismiss after the latter had already filed his answer and after he (defendant) and plaintiff-appellant had agreed on some
matters in a pre-trial conference. Hence, its elevation of the appeal to this Court as involving pure questions of law.

It is at once evident from the foregoing narration that the pre-trial conference held by the trial court at which the parties with their counsel agreed and
stipulated on the material and relevant facts and submitted their respective documentary exhibits as referred to in the pre-trial order, supra,2 practically
amounted to a fulldress trial which placed on record all the facts and exhibits necessary for adjudication of the case.

The three points on which plaintiff reserved the presentation of evidence at the-trial dealing with the source of the alleged right and title of Francisco
Militante's predecessors, supra,3 actually are already made of record in the stipulated facts and admitted exhibits. The chain of Militante's alleged title and
right to the land as supposedly traced back to Liberato Demontao was actually asserted by Militante (and his vendee, lawyer and son-in-law, herein
plaintiff) in the land registration case and rejected by the Iloilo land registration court which dismissed Militante's application for registration of the land.
Such dismissal, as already stated, was affirmed by the final judgment in 1958 of the Court of Appeals.4

The four points on which defendant on his part reserved the presentation of evidence at the trial dealing with his and his ancestors' continuous, open, public
and peaceful possession in the concept of owner of the land and the Director of Lands' approval of his survey plan thereof, supra,5 are likewise already duly
established facts of record, in the land registration case as well as in the ejectment case wherein the Iloilo court of first instance recognized the superiority of
defendant's right to the land as against plaintiff.

No error was therefore committed by the lower court in dismissing plaintiff's complaint upon defendant's motion after the pre-trial.

1. The stipulated facts and exhibits of record indisputably established plaintiff's lack of cause of action and justified the outright dismissal of the
complaint. Plaintiff's claim of ownership to the land in question was predicated on the sale thereof for P2,000.00 made in 1956 by his father-in- law,
Francisco Militante, in his favor, at a time when Militante's application for registration thereof had already been dismissed by the Iloilo land registration court
and was pending appeal in the Court of Appeals.

With the Court of Appeals' 1958 final judgment affirming the dismissal of Militante's application for registration, the lack of any rightful claim or title of
Militante to the land was conclusively and decisively judicially determined. Hence, there was no right or title to the land that could be transferred or sold by
Militante's purported sale in 1956 in favor of plaintiff.

Manifestly, then plaintiff's complaint against defendant, to be declared absolute owner of the land and to be restored to possession thereof with damages was
bereft of any factual or legal basis.

2. No error could be attributed either to the lower court's holding that the purchase by a lawyer of the property in litigation from his client is
categorically prohibited by Article 1491, paragraph (5) of the Philippine Civil Code, reproduced supra;6 and that consequently, plaintiff's purchase of the
property in litigation from his client (assuming that his client could sell the same since as already shown above, his client's claim to the property was defeated
and rejected) was void and could produce no legal effect, by virtue of Article 1409, paragraph (7) of our Civil Code which provides that contracts "expressly
prohibited or declared void by law' are "inexistent and that "(T)hese contracts cannot be ratified. Neither can the right to set up the defense of illegality be
waived."

The 1911 case of Wolfson vs. Estate of Martinez7 relied upon by plaintiff as holding that a sale of property in litigation to the party litigant's lawyer "is not
void but voidable at the election of the vendor" was correctly held by the lower court to have been superseded by the later 1929 case of Director of Lands vs.
Abagat.8 In this later case of Abagat, the Court expressly cited two antecedent cases involving the same transaction of purchase of property in litigation by
the lawyer which was expressly declared invalid under Article 1459 of the Civil Code of Spain (of which Article 1491 of our Civil Code of the Philippines is
the counterpart) upon challenge thereof not by the vendor-client but by the adverse parties against whom the lawyer was to enforce his rights as vendee thus
acquired.

These two antecedent cases thus cited in Abagat clearly superseded (without so expressly stating the previous ruling in Wolfson:

The spouses, Juan Soriano and Vicente Macaraeg, were the owners of twelve parcels of land. Vicenta Macaraeg died in November, 1909, leaving a large
number of collateral heirs but no descendants. Litigation between the surviving husband, Juan Soriano, and the heirs of Vicenta immediately arose, and the
herein appellant Sisenando Palarca acted as Soriano's lawyer. On May 2, 1918, Soriano executed a deed for the aforesaid twelve parcels of land in favor of
Sisenando Palarca and on the following day, May 3, 1918, Palarca filed an application for the registration of the land in the deed. After hearing, the Court of
First Instance declared that the deed was invalid by virtue of the provisions of article 1459 of the Civil Code, which prohibits lawyers and solicitors from
purchasing property rights involved in any litigation in which they take part by virtue of their profession. The application for registration was consequently
denied, and upon appeal by Palarca to the Supreme Court, the judgement of the lower court was affirmed by a decision promulgated November 16,1925.
(G.R. No. 24329, Palarca vs. Director of Lands, not reported.)

In the meantime cadastral case No. 30 of the Province of Tarlac was instituted, and on August 21, 1923, Eleuteria Macaraeg, as administratrix of the estate of
Vicente Macaraeg, filed claims for the parcels in question. Buenaventura Lavitoria administrator of the estate of Juan Soriano, did likewise and so did
Sisenando Palarca. In a decision dated June 21, 1927, the Court of First Instance, Judge Carballo presiding, rendered judgment in favor of Palarea and
ordered the registration of the land in his name. Upon appeal to this court by the administration of the estates of Juan Soriano and Vicente Macaraeg, the
judgment of the court below was reversed and the land adjudicated to the two estates as conjugal property of the deceased spouses. (G.R. No. 28226,
Director of Lands vs. Abagat, promulgated May 21, 1928, not reported.)9

In the very case of Abagat itself, the Court, again affirming the invalidity and nullity of the lawyer's purchase of the land in litigation from his client, ordered
the issuance of a writ of possession for the return of the land by the lawyer to the adverse parties without reimbursement of the price paid by him and other
expenses, and ruled that "the appellant Palarca is a lawyer and is presumed to know the law. He must, therefore, from the beginning, have been well aware of
the defect in his title and is, consequently, a possessor in bad faith."

As already stated, Wolfson and Abagat were decided with relation to Article 1459 of the Civil Code of Spain then adopted here, until it was superseded on
August 30, 1950 by the Civil Code of the Philippines whose counterpart provision is Article 1491.

Article 1491 of our Civil Code (like Article 1459 of the Spanish Civil Code) prohibits in its six paragraphs certain persons, by reason of the relation of trust
or their peculiar control over the property, from acquiring such property in their trust or control either directly or indirectly and "even at a public or judicial
auction," as follows: (1) guardians; (2) agents; (3) administrators; (4) public officers and employees; judicial officers and employees, prosecuting attorneys,
and lawyers; and (6) others especially disqualified by law.

In Wolfson which involved the sale and assignment of a money judgment by the client to the lawyer, Wolfson, whose right to so purchase the judgment was
being challenged by the judgment debtor, the Court, through Justice Moreland, then expressly reserved decision on "whether or not the judgment in question
actually falls within the prohibition of the article" and held only that the sale's "voidability can not be asserted by one not a party to the transaction or his
representative," citing from Manresa 10 that "(C)onsidering the question from the point of view of the civil law, the view taken by the code, we must limit
ourselves to classifying as void all acts done contrary to the express prohibition of the statute. Now then: As the code does not recognize such nullity by the

42
mere operation of law, the nullity of the acts hereinbefore referred to must be asserted by the person having the necessary legal capacity to do so and decreed
by a competent
court." 11

The reason thus given by Manresa in considering such prohibited acquisitions under Article 1459 of the Spanish Civil Code as merely voidable at the
instance and option of the vendor and not void "that the Code does not recognize such nullity de pleno derecho" is no longer true and applicable to our
own Philippine Civil Code which does recognize the absolute nullity of contracts "whose cause, object, or purpose is contrary to law, morals, good customs,
public order or public policy" or which are "expressly prohibited or declared void by law" and declares such contracts "inexistent and void from the
beginning." 12

The Supreme Court of Spain and modern authors have likewise veered from Manresa's view of the Spanish codal provision itself. In its sentencia of 11 June
1966, the Supreme Court of Spain ruled that the prohibition of Article 1459 of the Spanish Civil Code is based on public policy, that violation of the
prohibition contract cannot be validated by confirmation or ratification, holding that:

... la prohibicion que el articulo 1459 del C.C. establece respecto a los administradores y apoderados, la cual tiene conforme a la doctrina de esta Sala,
contendia entre otras, en S. de 27-5-1959, un fundamento de orden moral lugar la violacion de esta a la nulidad de pleno derecho del acto o negocio
celebrado, ... y prohibicion legal, afectante orden publico, no cabe con efecto alguno la aludida retification ... 13

The criterion of nullity of such prohibited contracts under Article 1459 of the Spanish Civil Code (Article 1491 of our Civil Code) as a matter of public order
and policy as applied by the Supreme Court of Spain to administrators and agents in its above cited decision should certainly apply with greater reason to
judges, judicial officers, fiscals and lawyers under paragraph 5 of the codal article.

Citing the same decisions of the Supreme Court of Spain, Gullon Ballesteros, his "Curso de Derecho Civil, (Contratos Especiales)" (Madrid, 1968) p. 18,
affirms that, with respect to Article 1459, Spanish Civil Code:.

Que caracter tendra la compra que se realice por estas personas? Porsupuesto no cabe duda de que el caso (art.) 1459, 40 y 50, la nulidad esabsoluta porque el
motivo de la prohibicion es de orden publico. 14

Perez Gonzales in such view, stating that "Dado el caracter prohibitivo delprecepto, la consequencia de la infraccion es la nulidad radical y ex lege." 15

Castan, quoting Manresa's own observation that.

"El fundamento do esta prohibicion es clarisimo. No sa trata con este precepto tan solo de guitar la ocasion al fraude; persiguese, ademasel proposito de
rodear a las personas que intervienen en la administrcionde justicia de todos los retigios que necesitan pora ejercer su ministerio librandolos de toda
suspecha, que aunque fuere in fundada, redundura endescredito de la institucion." 16 arrives at the contrary and now accepted view that "Puede considerace
en nuestro derecho inexistente 'o radicalmente nulo el contrato en los siguentes cases: a) ...; b) cuando el contrato se ha celebrado en violacion de una
prescripcion 'o prohibicion legal, fundada sobre motivos de orden publico (hipotesis del art. 4 del codigo) ..." 17

It is noteworthy that Caltan's rationale for his conclusion that fundamental consideration of public policy render void and inexistent such expressly prohibited
purchase (e.g. by public officers and employees of government property intrusted to them and by justices, judges, fiscals and lawyers of property and rights
in litigation and submitted to or handled by them, under Article 1491, paragraphs (4) and (5) of our Civil Code) has been adopted in a new article of our Civil
Code, viz, Article 1409 declaring such prohibited contracts as "inexistent and void from the beginning." 18

Indeed, the nullity of such prohibited contracts is definite and permanent and cannot be cured by ratification. The public interest and public policy remain
paramount and do not permit of compromise or ratification. In his aspect, the permanent disqualification of public and judicial officers and lawyers grounded
on public policy differs from the first three cases of guardians, agents and administrators (Article 1491, Civil Code), as to whose transactions it had been
opined that they may be "ratified" by means of and in "the form of a new contact, in which cases its validity shall be determined only by the circumstances at
the time the execution of such new contract. The causes of nullity which have ceased to exist cannot impair the validity of the new contract. Thus, the object
which was illegal at the time of the first contract, may have already become lawful at the time of the ratification or second contract; or the service which was
impossible may have become possible; or the intention which could not be ascertained may have been clarified by the parties. The ratification or second
contract would then be valid from its execution; however, it does not retroact to the date of the first contract." 19

As applied to the case at bar, the lower court therefore properly acted upon defendant-appellant's motion to dismiss on the ground of nullity of plaintiff's
alleged purchase of the land, since its juridical effects and plaintiff's alleged cause of action founded thereon were being asserted against defendant-appellant.
The principles governing the nullity of such prohibited contracts and judicial declaration of their nullity have been well restated by Tolentino in his treatise
on our Civil Code, as follows:

Parties Affected. Any person may invoke the in existence of the contract whenever juridical effects founded thereon are asserted against him. Thus, if
there has been a void transfer of property, the transferor can recover it by the accion reinvindicatoria; and any prossessor may refuse to deliver it to the
transferee, who cannot enforce the contract. Creditors may attach property of the debtor which has been alienated by the latter under a void contract; a
mortgagee can allege the inexistence of a prior encumbrance; a debtor can assert the nullity of an assignment of credit as a defense to an action by the
assignee.

Action On Contract. Even when the contract is void or inexistent, an action is necessary to declare its inexistence, when it has already been fulfilled.
Nobody can take the law into his own hands; hence, the intervention of the competent court is necessary to declare the absolute nullity of the contract and to
decree the restitution of what has been given under it. The judgment, however, will retroact to the very day when the contract was entered into.

If the void contract is still fully executory, no party need bring an action to declare its nullity; but if any party should bring an action to enforce it, the other
party can simply set up the nullity as a defense. 20

ACCORDINGLY, the order of dismissal appealed from is hereby affirmed, with costs in all instances against plaintiff-appellant. So ordered.

Makalintal, Zaldivar, Castro,. Fernando, Barredo, Makasiar, Antonio and Esguerra, JJ., concur.

G.R. No. L-26096 February 27, 1979

THE DIRECTOR OF LANDS, petitioner,

vs.
SILVERETRA ABABA, ET AL., claimants, JUAN LARRAZABAL, MARTA C. DE LARRAZABAL, MAXIMO ABAROQUEZ and ANASTACIA
CABIGAS, petitioners-appellants, ALBERTO FERNANDEZ, adverse claimant-appellee.

Juanito Ll. Abao for petitioners-appellants.

43
Alberto R Fernandez in his own behalf.

MAKASIAR, J.:

This is an appeal from the order of the Court of First Instance of Cebu dated March 19, 1966 denying the petition for the cancellation of an adverse claim
registered by the adverse claimant on the transfer certificate of title of the petitioners.

The adverse claimant, Atty. Alberto B. Fernandez was retained as counsel by petitioner, Maximo Abarquez, in Civil Case No. R-6573 of the Court of First
Instance of Cebu, entitled "Maximo Abarquez vs. Agripina Abarquez", for the annulment of a contract of sale with right of repurchase and for the recovery of
the land which was the subject matter thereof. The Court of First Instance of Cebu rendered a decision on May 29, 1961 adverse to the petitioner and so he
appealed to the Court of Appeals.

Litigating as a pauper in the lower court and engaging the services of his lawyer on a contingent basis, petitioner, liable to compensate his lawyer whom he
also retained for his appeal executed a document on June 10, 1961 in the Cebuano-Visayan dialect whereby he obliged himself to give to his lawyer one-half
(1/2) of whatever he might recover from Lots 5600 and 5602 should the appeal prosper. The contents of the document as translated are as follows:

AGREEMENT

KNOW ALL MEN BY THESE PRESENTS:

That I, MAXIMO ABARQUEZ, Plaintiff in Case No. R-6573 of the Court of First Instance of Cebu, make known through this agreement that for the
services rendered by Atty. Alberto B. Fernandez who is my lawyer in this case, if the appeal is won up to the Supreme Court, I Promise and will guarantee
that I win give to said lawyer one-half (1/2) of what I may recover from the estate of my father in Lots No. 5600 and 5602 which are located at Bulacao
Pardo, City of Cebu. That with respect to any money which may be adjudged to me from Agripina Abarquez, except 'Attorney's Fees', the same shall pertain
to me and not to said lawyer.

IN WITNESS WHEREOF, I have caused my right thumb. mark to be affixed hereto this 10th of June, 1961, at the City of Cebu.

THUMBMARK
MAXIMO ABARQUEZ

(p. 5, Petitioner-Appellant's Brief, p. 26, rec.)

The real Property sought to be recovered in Civil Case No. R6573 was actually the share of the petitioner in Lots 5600 and 5602, which were part of the
estate of his deceased parents and which were partitioned the heirs which included petitioner Maximo Abarquez and his elder sister Agripina Abarquez, the
defendant in said civil case.

This partition was made pursuant to a project of partition approved by the Court which provided am other that Lots Nos. 5600 and 5602 were to be divided
into three equal Parts, one third of which shall be given to Maximo Abarquez. However, Agripina Abarquez the share of her brother stating that the latter
executed an instrument of pacto de retro prior to the partition conveying to her any or all rights in the estate of their parents. Petitioner discovered later that
the claim of his sister over his share was based on an instrument he was believe all along to be a mere acknowledgment of the receipt of P700.00 which his
sister gave to him as a consideration for g care of their father during the latter's illness and never an instrument of pacto de retro. Hence, he instituted an
action to annul the alleged instrument of pacto de retro.

The Court of Appeals in a decision promulgated on August 27, 1963 reversed the decision of the lower court and annulled the dead of pacto de retro.
Appellee Agripina Abarquez filed a motion for reconsideration but the same was denied in a resolution dated January 7, 1964 (p. 66, Record on Appeal; p.
13, Rec.) and the judgment became final and executory on January 22,1964.

Subsequently, Transfer Certificate of Title No. 31841 was issued on May 19,1965 in the name of Maximo Abarquez, married to Anastacia Cabigas, over his
adjudged share in Lots Nos. 5600 and 5602 containing an area of 4,085 square meters (p. 110, ROA; p. 13, rec.). These parcels of land later by the subject
matter of the adverse claim filed by the claimant.

The case having been resolved and title having been issued to petitioner, adverse claimant waited for petitioner to comply with ha obligation under the
document executed by him on June 10, 1961 by delivering the one-half () portion of the said parcels of land.

Petitioner refused to comply with his obligation and instead offered to sell the whole parcels of land covered by TCT No. 31841 to petitioner-spouses Juan
Larrazabal and Marta C. de Larrazabal. Upon being informed of the intention of the petitioner, adverse t claimant immediately took stops to protect his
interest by filing with the trial court a motion to annotate Ins attorney's lien on TCT No. 31841 on June 10, 1965 and by notifying the prospective buyers of
his claim over the one-half portion of the parcels of land.

Realizing later that the motion to annotate attorney's lien was a wrong remedy, as it was not within the purview of Section 37, rule 138 of the Revised Rule of
Court, but before the same was by the trial court, adverse t by an affidavit of adverse claim on July 19, 1965 with the Register of Deeds of Cebu (p. 14, ROA;
p. 13, rec.). By virtue of the petition of mid affidavit the adverse claim for one-half () of the lots covered by the June 10, 1961 document was annotated on
TCT No. 31841.

Notwithstanding the annotation of the adverse claim, petitioner-spouse Maximo Abarquez and Anastacia Cabigas conveyed by deed of absolute sale on July
29, 1965 two-thirds (2/3) of the lands covered by TCT No. 31841 to petitioner-spouses Juan Larrazabal and Marta C. de Larrazabal. When the new transfer
certificate of title No. 32996 was issued, the annotation of adverse claim on TCT No. 31841 necessarily had to appear on the new transfer certificate of title.
This adverse claim on TCT No. 32996 became the subject of cancellation proceedings filed by herein petitioner-spouses on March 7, 1966 with the Court of
First Instance of Cebu (p. 2 ROA; p. 13, rec.). The adverse claimant, Atty. Alberto B. Fernandez, filed his opposition to the petition for cancellation on
March 18, 1966 (p. 20, ROA; p. 13 rec.). The trial court resolved the issue on March 19, 1966, when it declared that:

...the petition to cancel the adverse claim should be denied. The admission by the petitioners that the lawyers (Attys. Fernandez and Batiguin) are entitled to
only one-third of the lot described in Transfer Certificate of Title No. 32966 is the best proof of the authority to maintain said adverse claim (p. 57, ROA; p.
13, rec.).

Petitioner-spouses decided to appeal the order of dismissal to this Court and correspondingly filed the notice of appeal on April 1, 1966 with the trial court.
On April 2, 1966, petitioner-spouses filed the appeal bond and subsequently filed the record on appeal on April 6, 1966. The records of the case were
forwarded to this Court through the Land Registration Commission of Manila and were received by this Court on May 5, 1966.

44
Counsel for the petitioner-spouses filed the printed record on appeal on July 12, 1966. Required to file the appellants' brief, counsel filed one on August 29,
1966 while that of the appellee was filed on October 1, 1966 after having been granted an extension to file his brief.

The case was submitted for decision on December 1, 1966. Counsel for the petitioners filed a motion to expunge appellees' brief on December 8, 1966 for
having been filed beyond the reglementary period, but the same was denied by this Court in a resolution dated February 13, 1967.

The pivotal issue to be resolved in the instant case is the validity or nullity of the registration of the adverse claim of Atty. Fernandez, resolution of which in
turn hinges on the question of whether or not the contract for a contingent fee, basis of the interest of Atty. Fernandez, is prohibited by the Article 1491 of the
New Civil Code and Canon 13 of the Canons of Professional Ethics.

Petitioners contend that a contract for a contingent fee violates Article 1491 because it involves an assignment of a property subject of litigation. That article
provides:

Article 1491. The following persons cannot acquire by purchase even at a public or judicial auction, either in person or through the petition of another.

xxx xxx xxx

(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior and other o and employees connected with the administration of justice, the
property and rights in litigation or levied upon an execution before the court within whose jurisdiction or territory they exercise their respective functions;
this prohibition includes the act of acquiring by assignment and shall apply to lawyers, with respect to the property and rights which may be the object of any
litigation in which they may take part by virtue of their profession (Emphasis supplied).

This contention is without merit. Article 1491 prohibits only the sale or assignment between the lawyer and his client, of property which is the subject of
litigation. As WE have already stated. "The prohibition in said article a only to applies stated: " The prohibition in said article applies only to a sale or
assignment to the lawyer by his client of the property which is the subject of litigation. In other words, for the prohibition to operate, the sale or t of the
property must take place during the pendency of the litigation involving the property" (Rosario Vda. de Laig vs. Court of Appeals, et al., L-26882, November
21, 1978).

Likewise, under American Law, the prohibition does not apply to "cases where after completion of litigation the lawyer accepts on account of his fee, an
interest the assets realized by the litigation" (Drinker, Henry S., Legal Ethics, p. 100 [1953], citing App. A, 280; N.Y. Ciu 714). "There is a clear distraction
between such cases and one in which the lawyer speculates on the outcome of the matter in which he is employed" (Drinker, supra, p. 100 citing A.B.A. Op.
279).

A contract for a contingent fee is not covered by Article 1491 because the tranfer or assignment of the property in litigation takes effect only after the finality
of a favorable judgment. In the instant case, the attorney's fees of Atty. Fernandez, consisting of one-half (1/2) of whatever Maximo Abarquez might recover
from his share in the lots in question, is contingent upon the success of the appeal. Hence, the payment of the attorney's fees, that is, the transfer or
assignment of one-half (1/2) of the property in litigation will take place only if the appeal prospers. Therefore, the tranfer actually takes effect after the
finality of a favorable judgment rendered on appeal and not during the pendency of the litigation involving the property in question. Consequently, the
contract for a contingent fee is not covered by Article 1491.

While Spanish civilists differ in their views on the above issue whether or not a contingent fee contract (quota litis agreement) is covered by Article 1491
with Manresa advancing that it is covered, thus:

Se ha discutido si en la incapacidad de Ion Procumdam y Abogados asta o el pecto de quota litis. Consiste este, como es sabido, en la estipulacion de que el
Abogado o el Procurador ban de hacer suyos una parte alicuota de In cona que se li m la son es favorable. Con es te concepto a la vista, es para nosortros
que el articulo que comentamos no menciona ese pacto; pero como la incapacidad de los Abogados y Procuradores se extinede al acto de adquirir por cesion;
y la efectividad del pacto de quota litis implica necesariamente una cesion, estimamos que con solo el num. 5 del articulo 1459 podria con exito la nulidad de
ese pacto tradicionalmente considerado como ilicito.

xxx xxx xxx

Debe tenerse tambien en cuenta, respecto del ultimo parrafo del articulo 1459, la sentencia del Tribunal Supreme de 25 Enero de 1902, que delcara que si
bien el procurador no puede adquirir para si los bienes, en cuanto a los cuales tiene incapacidad, puede adquirirlos para otra persona en quien no concurra
incapacidad alguna (Manresa, Comentarios al Codigo Civil Espaol, Tomo X, p. 110 [4a ed., 1931] emphasis supplied).

Castan, maintaining that it is not covered, opines thus;

C. Prohibiciones impuestas a las personas encargadas, mas o menos directamente, de la administracion de justicia.El mismo art. 1,459 del Codigo
civil prohibe a los Magistrados, Jueces, individuos del Minesterio fiscal, Secretarios de Tribunales y Juzgados y Oficiales de Justicia adquirir por compra
(aunque sea en subasta publica o judicial, por si ni por persona alguna intermedia). 'Los bienes y derechos que estuviesen en litigio ante el Tribunal en cuya
jurisdicion on teritorio ejercieran sus respectivas funciones, extendiendo se esta prohibicion al acto de adquirir por cesion', y siendo tambien extensiva ' Alos
Abogados y Procuradores respecto a los bienes y derecho que fueran objeto del un litigio en que intervengan pos su profession y oficio.'

El fundamento de esta prohibicion es clarismo. No solo se tratadice Manresade quitar la ocasion al fraude; persiguese, ademas, el proposito de rodear a
las personas que intervienen en la administracion de justicia de todos los prestigios que necesitan para ejercer su ministerio, librando los de toda sospecha,
que, aunque fuere infundada, redundaria en descredito de la institucion.

Por no dor lugar a recelos de ninguna clase, admite el Codigo (en el apartado penutimo del art. 1.459) algunos casos en que, por excepcion, no se aplica el
pricipio prohibitivo de que venimos hablando. Tales son los de que se trate de acciones hereditarias entre coheredero, de cesion en pago de creditos, o de
garantia de los bienes que posean los funcionarios de justicia.

Algunos autores (Goyena, Manresa, Valverde) creen que en la prohibicion del art. 1.459 esta comprendido el pacto de quota litis (o sea el convenio por el
cual se concede al Abogado o Procurador, para el caso de obtener sentencia favorable una parte alicuota de la cosa o cantidad que se litiga), porque dicho
pacto supone la venta o cesion de una parte de la cosa o drecho que es objecto del litigio. Pero Mucius Scaevola oberva, conrazon, que en el repetido pacto
no hay propiamente caso de compraventa ni de cesion de derechos, y bastan para estimario nulo otros preceptos del Codigo como los relativos a la ilicitud de
la causa (Castan, Derecho Civil Espol, Tomo 4, pp. 68-69, [9a ed., 1956], emphasis supplied).

The Supreme Court of Spain, in its sentencia of 12 November 1917, has ruled that Article 1459 of the Spanish Civil Code (Article 1491 of our Civil Code)
does not apply to a contract for a contingent fee because it is not contrary to morals or to law, holding that:

45
... que no es susceptible de aplicarse el precepto contenido en el num. 5 del art. 1.459 a un contrato en el que se restrigen los honorarios de un Abogado a un
tanto por ciento de lo que se obtuviera en el litigio, cosa no repudiada por la moral ni por la ley (Tolentino, Civil Code of the Philippines, p. 35, Vol. V
[1959]; Castan, supra; Manresa, supra).

In the Philippines, among the Filipino commentators, only Justice Capistrano ventured to state his view on the said issue, thus:

The incapacity to purchase or acquire by assignment, which the law also extends to lawyers with t to the property and rights which may be the object of any
litigation in which they may take part by virtue of their profession, also covers contracts for professional services quota litis. Such contracts, however, have
been declared valid by the Supreme Court" (Capistrano, Civil Code of the Philippines, p. 44, Vol. IV [1951]).

Dr. Tolentino merely restated the views of Castan and Manresa as well as the state of jurisprudence in Spain, as follows:

Attorneys-at-lawSome writers, like Goyena, Manresa and Valverde believe that this article covers quota litis agreements, under which a lawyer is to be
given an aliquot part of the property or amount in litigation if he should win the case for his client. Scaevola and Castan, however, believe that such a
contract does not involve a sale or assignment of right but it may be void under other articles of the Code, such as those referring to illicit cause- On the
other hand the Spanish Supreme Court has held that this article is not applicable to a contract which limits the fees of a lawyer to a certain percentage of
what may be recovered in litigation, as this is not contrary to moral or to law. (Tolentino, Civil Code of the Philippines, p. 35, Vol. V [1959]; Castan, supra,
Emphasis supplied).

Petitioners her contend that a contract for a contingent fee violates the Canons of Professional Ethics. this is likewise without merit This posture of petitioners
overlooked Canon 13 of the Canons which expressly contingent fees by way of exception to Canon 10 upon which petitioners relied. For while Canon 10
prohibits a lawyer from purchasing ...any interest in the subject matter of the litigation which he is conducting", Canon 13, on the other hand, allowed a
reasonable contingent fee contract, thus: "A contract for a con. tangent fee where sanctioned by law, should be reasonable under all the circumstances of the
ca including the risk and uncertainty of the compensation, but should always be subject to the supervision of a court, as to its reasonableness." As pointed out
by an authority on Legal Ethics:

Every lawyer is intensely interested in the successful outcome of his case, not only as affecting his reputation, but also his compensation. Canon 13
specifically permits the lawyer to contract for a con tangent fee which of itself, negatives the thought that the Canons preclude the lawyer's having a stake in
his litigation. As pointed out by Professor Cheatham on page 170 n. of his Case Book, there is an inescapable conflict of interest between lawyer and client in
the matter of fees. Nor despite some statements to the con in Committee opinions, is it believed that, particularly in view of Canon 13, Canon 10 precludes in
every case an arrangement to make the lawyer's fee payable only out of the results of the litigation. The distinction is between buying an interest in the
litigation as a speculation which Canon 10 condemns and agreeing, in a case which the lawyer undertakes primarily in his professional capacity, to accept
his compensation contingent on the outcome (Drinker, Henry S Legal Ethics, p. 99, [1953], Emphasis supplied).

These Canons of Professional Ethics have already received "judicial recognition by being cited and applied by the Supreme Court of the Philippines in its
opinion" Malcolm, Legal and Judicial Ethics, p. 9 [1949]). And they have likewise been considered sources of Legal Ethics. More importantly, the American
Bar Association, through Chairman Howe of the Ethics Committee, opined that "The Canons of Professional Ethics are legislative expressions of
professional opinion ABA Op. 37 [1912])" [See footnote 25, Drinker, Legal Ethics, p. 27]. Therefore, the Canons have some binding effect

Likewise, it must be noted that this Court has already recognized this type of a contract as early as the case of Ulanday vs. Manila Railroad Co. (45 PhiL 540
[1923]), where WE held that "contingent fees are not prohibited in the Philippines, and since impliedly sanctioned by law 'Should be under the supervision of
the court in order that clients may be protected from unjust charges' (Canons of Profession 1 Ethics)". The same doctrine was subsequently reiterated in Grey
vs. Insular Lumber Co. (97 PhiL 833 [1955]) and Recto vs. Harden (100 PhiL 427 [1956]).

In the 1967 case of Albano vs. Ramos (20 SCRA 171 [19671), the attorney was allowed to recover in a separate action her attomey's fee of one-third (1/3) of
the lands and damages recovered as stipulated in the contingent fee contract. And this Court in the recent case of Rosario Vda de Laig vs. Court of Appeals,
et al. (supra), which involved a contingent fee of one-half () of the property in question, held than ,contingent fees are recognized in this i jurisdiction
(Canon 13 of the Canons of Professional Ethics adopted by the Philippine Bar association in 1917 [Appendix B, Revised Rules of Court)), which contingent
fees may be a portion of the property in litigation."

Contracts of this nature are permitted because they redound to the benefit of the poor client and the lawyer "especially in cases where the client has
meritorious cause of action, but no means with which to pay for legal services unless he can, with the sanction of law, make a contract for a contingent fee to
be paid out of the proceeds of the litigation" (Francisco, Legal Ethics, p. 294 [1949], citing Lipscomb vs. Adams 91 S.W. 1046, 1048 [1949]). Oftentimes,
contingent fees are the only means by which the poor and helpless can redress for injuries sustained and have their rights vindicated. Thus:

The reason for allowing compensation for professional services based on contingent fees is that if a person could not secure counsel by a promise of large
fees in case of success, to be derived from the subject matter of the suit, it would often place the poor in such a condition as to amount to a practical denial of
justice. It not infrequently happens that person are injured through the negligence or willful misconduct of others, but by reason of poverty are unable to
employ counsel to assert their rights. In such event their only means of redress lies in gratuitous service, which is rarely given, or in their ability to find some
one who will conduct the case for a contingent fee. That relations of this king are often abused by speculative attorneys or that suits of this character are
turned into a sort of commercial traffic by the lawyer, does not destroy the beneficial result to one who is so poor to employ counsel (id, at p. 293, citing
Warvelle, Legal Ethics, p. 92, Emphasis supplied).

Justice George Malcolm, writing on contingent fees, also stated that:

... the system of contingent compensation has the merit of affording to certain classes of persons the opportunity to procure the prosecution of their claims
which otherwise would be beyond their means. In many cases in the United States and the Philippines, the contingent fee is socially necessary (Malcolm,
Legal and Judicial Ethics, p. 55 [1949], emphasis supplied).

Stressing further the importance of contingent fees, Professor Max Radin of the University of California, said that:

The contingent fee certainly increases the possibility that vexatious and unfounded suits will be brought. On the other hand, it makes possible the
enforcement of legitimate claims which otherwise would be abandoned because of the poverty of the claimants. Of these two possibilities, the social
advantage seems clearly on the side of the contingent fee. It may in fact be added by way of reply to the first objection that vexations and unfounded suits
have been brought by men who could and did pay substantial attorney's fees for that purpose (Radin, Contingent Fees in California, 28 Cal. L. Rev. 587, 589
[1940], emphasis supplied).

Finally, a contingent fee contract is always subject to the supervision of the courts with respect to the stipulated amount and may be reduced or nullified. So
that in the event that there is any undue influence or fraud in the execution of the contract or that the fee is excessive, the client is not without remedy because
the court will amply protect him. As held in the case of Grey vs. Insular Lumber Co., supra, citing the case of Ulanday vs. Manila Railroad Co., supra:

46
Where it is shown that the contract for a contingent fee was obtained by any undue influence of the attorney over the client, or by any fraud or imposition, or
that the compensation is so clearly excessive as to amount to extortion, the court win in a proper case protect the aggrieved party.

In the present case, there is no iota of proof to show that Atty. Fernandez had exerted any undue influence or had Perpetrated fraud on, or had in any manner
taken advantage of his client, Maximo Abarquez. And, the compensation of one-half of the lots in question is not excessive nor unconscionable considering
the contingent nature of the attorney's fees.

With these considerations, WE find that the contract for a contingent fee in question is not violative of the Canons of Professional Ethics. Consequently, both
under the provisions of Article 1491 and Canons 10 and 13 of the Canons of Profession Ethics, a contract for a contingent fee is valid

In resolving now the issue of the validity or nullity for the registration of the adverse claim, Section 110 of the Land Registration Act (Act 496) should be
considered. Under d section, an adverse claim may be registered only by..

Whoever claims any part or interest in registered land adverse to the registered owner, arising subsequent to the date of the o registration ... if no other
provision is made in this Act for registering the same ...

The contract for a contingent fee, being valid, vested in Atty Fernandez an interest or right over the lots in question to the extent of one-half thereof. Said
interest became vested in Atty. Fernandez after the case was won on appeal because only then did the assignment of the one-half () portion of the lots in
question became effective and binding. So that when he filed his affidavit of adverse claim his interest was already an existing one. There was therefore a
valid interest in the lots to be registered in favor of Atty. Fernandez adverse to Mo Abarquez.

Moreover, the interest or claim of Atty. Fernandez in the lots in question arose long after the original petition which took place many years ago. And, there is
no other provision of the Land Registration Act under which the interest or claim may be registered except as an adverse claim under Section 110 thereof.
The interest or claim cannot be registered as an attorney's charging lien. The lower court was correct in denying the motion to annotate the attomey's lien. A
charging lien under Section 37, Rule 138 of the Revised Rules of Court is limited only to money judgments and not to judgments for the annulment of a
contract or for delivery of real property as in the instant case. Said Section provides that:

Section 37. An attorney shall have a lien upon the funds, documents and papers of his client which have lawfully come into his oppossession and
may retain the same until his lawful fees and disbursements have been paid, and may apply such funds to the satisfaction thereof. He shall also have a lien to
the same extent upon all judgments, for the payment of money, and executions issued in pursuance of such judgments, which he has secured in a litigation of
his client ... (emphasis supplied).

Therefore, as an interest in registered land, the only adequate remedy open to Atty. Fernandez is to register such interest as an adverse claim. Consequently,
there being a substantial compliance with Section 110 of Act 496, the registration of the adverse claim is held to be valid. Being valid, its registration should
not be cancelled because as WE have already stated, "it is only when such claim is found unmeritorious that the registration thereof may be cancelled" (Paz
Ty Sin Tei vs. Jose Lee Dy Piao 103 Phil. 867 [1958]).

The one-half () interest of Atty. Fernandez in the lots in question should therefore be respected. Indeed, he has a better right than petitioner-spouses, Juan
Larrazabal and Marta C. de Larrazabal. They purchased their two-thirds (2/3) interest in the lots in question with the knowledge of the adverse claim of Atty.
Fernandez. The adverse claim was annotated on the old transfer certificate of title and was later annotated on the new transfer certificate of title issued to
them. As held by this Court:

The annotation of an adverse claim is a measure designed to protect the interest of a person over a piece of real property where the registration of such
interest or right is not otherwise provided for by the Land Registration Act, and serves as a notice and warning to third parties dealing with said property that
someone is claiming an interest on the same or a better right than the registered owner thereof (Sanchez, Jr. vs. Court of Appeals, 69 SCRA 332 [1976]; Paz
Ty Sin Tei vs. Jose Le Dy Piao supra).

Having purchased the property with the knowledge of the adverse claim, they are therefore in bad faith. Consequently, they are estopped from questioning
the validity of the adverse claim.

WHEREFORE, THE DECISION OF THE LOWER COURT DENYING THE PETITION FOR THE CANCELLATION OF THE ADVERSE CLAIM
SHOULD BE, AS IT IS HEREBY AFFIRMED, WITH COSTS AGAINST PETITIONER-APPELLANTS JUAN LARRAZABAL AND MARTA C. DE
LARRAZABAL.

SO ORDERED.

Teehankee (Chairman), Fernandez, Guerrero, De Castro and Melencio-Herrera, JJ., concur.

G.R. No. L-68838 March 11, 1991

FLORENCIO FABILLO and JOSEFA TANA (substituted by their heirs Gregorio Fabillo, Roman Fabillo, Cristeta F. Maglinte and Antonio
Fabillo), petitioners,
vs.
THE HONORABLE INTERMEDIATE APPELLATE COURT (Third Civil Case Division) and ALFREDO MURILLO (substituted by his heirs
Fiamita M. Murillo, Flor M. Agcaoili and Charito M. Babol), respondents.

Francisco A. Tan for petitioners.

Von Kaiser P. Soro for private respondent.

FERNAN, C.J.:

In the instant petition for review on certiorari, petitioners seek the reversal of the appellate court's decision interpreting in favor of lawyer Alfredo M. Murillo
the contract of services entered into between him and his clients, spouses Florencio Fabillo and Josefa Taa.

In her last will and testament dated August 16, 1957, Justina Fabillo bequeathed to her brother, Florencio, a house and lot in San Salvador Street, Palo, Leyte
which was covered by tax declaration No. 19335, and to her husband, Gregorio D. Brioso, a piece of land in Pugahanay, Palo, Leyte.1 After Justina's death,
Florencio filed a petition for the probate of said will. On June 2, 1962, the probate court approved the project of partition "with the reservation that the
ownership of the land declared under Tax Declaration No. 19335 and the house erected thereon be litigated and determined in a separate proceedings."2

Two years later, Florencio sought the assistance of lawyer Alfredo M. Murillo in recovering the San Salvador property. Acquiescing to render his services,
Murillo wrote Florencio the following handwritten letter:

47
Dear Mr. Fabillo:

I have instructed my stenographer to prepare the complaint and file the same on Wednesday if you are ready with the filing fee and sheriffs fee of not less
than P86.00 including transportation expenses.

Considering that Atty. Montilla lost this case and the present action is a revival of a lost case, I trust that you will gladly give me 40% of the money value of
the house and lot as a contigent (sic) fee in case of a success. When I come back I shall prepare the contract of services for your signature.

Thank you.

Cordially yours,
(Sgd.) Alfredo M. Murillo
Aug. 9, 19643

Thirteen days later, Florencio and Murillo entered into the following contract:

CONTRACT OF SERVICES

KNOW ALL MEN BY THESE PRESENTS:

That I, FLORENCIO FABILLO, married to JOSEFA TANA, of legal age, Filipino citizen and with residence and postal address at Palo, Leyte, was the
Petitioner in Special Proceedings No. 843, entitled "In the Matter of the Testate Estate of the late Justina Fabillo, Florencio Fabillo, Petitioner" of the Court
of First Instance of Leyte;

That by reason of the Order of the Court of First Instance of Leyte dated June 2, 1962, my claim for the house and lot mentioned in paragraph one (1) of the
last will and testament of the late Justina Fabillo, was denied altho the will was probated and allowed by the Court;

That acting upon the counsel of Atty. Alfredo M. Murillo, I have cause(d) the preparation and filing of another case, entitled "Florencio Fabillo vs. Gregorio
D. Brioso," which was docketed as Civil Case No. 3532 of the Court of First Instance of Leyte;

That I have retained and engaged the services of Atty. ALFREDO M. MURILLO, married and of legal age, with residence and postal address at Santa Fe,
Leyte to be my lawyer not only in Social Proceedings No. 843 but also in Civil Case No. 3532 under the following terms and conditions;

That he will represent me and my heirs, in case of my demise in the two cases until their successful conclusion or until the case is settled to my entire
satisfaction;

That for and in consideration for his legal services, in the two cases, I hereby promise and bind myself to pay Atty. ALFREDO M. MURILLO, in case of
success in any or both cases the sum equivalent to FORTY PER CENTUM (40%) of whatever benefit I may derive from such cases to be implemented as
follows:

If the house and lot in question is finally awarded to me or a part of the same by virtue of an amicable settlement, and the same is sold, Atty. Murillo, is
hereby constituted as Atty. in-fact to sell and convey the said house and lot and he shall be given as his compensation for his services as counsel and as
attorney-in-fact the sum equivalent to forty per centum of the purchase price of the house and lot;

If the same house and lot is just mortgage(d) to any person, Atty. Murillo shall be given the sum equivalent to forty per centum (40%) of the proceeds of the
mortgage;

If the house and lot is leased to any person, Atty. Murillo shall be entitled to receive an amount equivalent to 40% (FORTY PER CENTUM) of the rentals of
the house and lot, or a part thereof;

If the house and lot or a portion thereof is just occupied by the undersigned or his heirs, Atty. Murillo shall have the option of either occupying or leasing to
any interested party FORTY PER CENT of the house and lot.

Atty. Alfredo M. Murillo shall also be given as part of his compensation for legal services in the two cases FORTY PER CENTUM of whatever damages,
which the undersigned can collect in either or both cases, provided, that in case I am awarded attorney's fees, the full amount of attorney's fees shall be given
to the said Atty. ALFREDO M. MURILLO;

That in the event the house and lot is (sic) not sold and the same is maintained by the undersigned or his heirs, the costs of repairs, maintenance, taxes and
insurance premiums shall be for the account of myself or my heirs and Attorney Murillo, in proportion to our rights and interest thereunder that is forty per
cent shall be for the account of Atty. Murillo and sixty per cent shall be for my account or my heirs.

IN WITNESS HEREOF, I hereby set unto my signature below this 22nd day of August 1964 at Tacloban City.

(Sgd.) FLORENCIO FABILLO

(Sgd.) JOSEFA T. FABILLO

WITH MY CONFORMITY:

(Sgd.) ALFREDO M. MURILLO

(Sgd.) ROMAN T. FABILLO
(Witness) (Sgd.) CRISTETA F. MAGLINTE
(Witness)4
Pursuant to said contract, Murillo filed for Florencio Fabillo Civil Case No. 3532 against Gregorio D. Brioso to recover the San Salvador property. The case
was terminated on October 29, 1964 when the court, upon the parties' joint motion in the nature of a compromise agreement, declared Florencio Fabillo as
the lawful owner not only of the San Salvador property but also the Pugahanay parcel of land.

Consequently, Murillo proceeded to implement the contract of services between him and Florencio Fabillo by taking possession and exercising rights of
ownership over 40% of said properties. He installed a tenant in the Pugahanay property.

Sometime in 1966, Florencio Fabillo claimed exclusive right over the two properties and refused to give Murillo his share of their produce.5 Inasmuch as his
demands for his share of the produce of the Pugahanay property were unheeded, Murillo filed on March 23, 1970 in the then Court of First Instance of Leyte

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a complaint captioned "ownership of a parcel of land, damages and appointment of a receiver" against Florencio Fabillo, his wife Josefa Taa, and their
children Ramon (sic) Fabillo and Cristeta F. Maglinte.6

Murillo prayed that he be declared the lawful owner of forty per cent of the two properties; that defendants be directed to pay him jointly and severally
P900.00 per annum from 1966 until he would be given his share of the produce of the land plus P5,000 as consequential damages and P1,000 as attorney's
fees, and that defendants be ordered to pay moral and exemplary damages in such amounts as the court might deem just and reasonable.

In their answer, the defendants stated that the consent to the contract of services of the Fabillo spouses was vitiated by old age and ailment; that Murillo
misled them into believing that Special Proceedings No. 843 on the probate of Justina's will was already terminated when actually it was still pending
resolution; and that the contingent fee of 40% of the value of the San Salvador property was excessive, unfair and unconscionable considering the nature of
the case, the length of time spent for it, the efforts exerted by Murillo, and his professional standing.

They prayed that the contract of services be declared null and void; that Murillo's fee be fixed at 10% of the assessed value of P7,780 of the San Salvador
property; that Murillo be ordered to account for the P1,000 rental of the San Salvador property which he withdrew from the court and for the produce of the
Pugahanay property from 1965 to 1966; that Murillo be ordered to vacate the portion of the San Salvador property which he had occupied; that the
Pugahanay property which was not the subject of either Special Proceedings No. 843 or Civil Case No. 3532 be declared as the exclusive property of
Florencio Fabillo, and that Murillo be ordered to pay moral damages and the total amount of P1,000 representing expenses of litigation and attorney's fees.

In its decision of December 2, 1975,7 the lower court ruled that there was insufficient evidence to prove that the Fabillo spouses' consent to the contract was
vitiated. It noted that the contract was witnessed by two of their children who appeared to be highly educated. The spouses themselves were old but literate
and physically fit.

In claiming jurisdiction over the case, the lower court ruled that the complaint being one "to recover real property from the defendant spouses and their heirs
or to enforce a lien thereon," the case could be decided independent of the probate proceedings. Ruling that the contract of services did not violate Article
1491 of the Civil Code as said contract stipulated a contingent fee, the court upheld Murillo's claim for "contingent attorney's fees of 40% of the value of
recoverable properties." However, the court declared Murillo to be the lawful owner of 40% of both the San Salvador and Pugahanay properties and the
improvements thereon. It directed the defendants to pay jointly and severally to Murillo the amount of P1,200 representing 40% of the net produce of the
Pugahanay property from 1967 to 1973; entitled Murillo to 40% of the 1974 and 1975 income of the Pugahanay property which was on deposit with a bank,
and ordered defendants to pay the costs of the suit.

Both parties filed motions for the reconsideration of said decision: Fabillo, insofar as the lower court awarded 40% of the properties to Murillo and the latter
insofar as it granted only P1,200 for the produce of the properties from 1967 to 1973. On January 29, 1976, the lower court resolved the motions and
modified its decision thus:

ACCORDINGLY, the judgment heretofore rendered is modified to read as follows:

(a) Declaring the plaintiff as entitled to and the true and lawful owner of forty percent (40%) of the parcels of land and improvements thereon covered
by Tax Declaration Nos. 19335 and 6229 described in Paragraph 5 of the complaint;

(b) Directing all the defendants to pay jointly and severally to the plaintiff the sum of Two Thousand Four Hundred Fifty Pesos (P2,450.00)
representing 40% of the net produce of the Pugahanay property from 1967 to 1973;

(c) Declaring the plaintiff entitled to 40% of the 1974 and 1975 income of said riceland now on deposit with the Prudential Bank, Tacloban City,
deposited by Mr. Pedro Elona, designated receiver of the property;

(d) Ordering the defendants to pay the plaintiff the sum of Three Hundred Pesos (P 300.00) as attorney's fees; and

(e) Ordering the defendants to pay the costs of this suit.

SO ORDERED.

In view of the death of both Florencio and Justina Fabillo during the pendency of the case in the lower court, their children, who substituted them as parties
to the case, appealed the decision of the lower court to the then Intermediate Appellate Court. On March 27, 1984, said appellate court affirmed in toto the
decision of the lower court.8

The instant petition for review on certiorari which was interposed by the Fabillo children, was filed shortly after Murillo himself died. His heirs likewise
substituted him in this case. The Fabillos herein question the appellate court's interpretation of the contract of services and contend that it is in violation of
Article 1491 of the Civil Code.

The contract of services did not violate said provision of law. Article 1491 of the Civil Code, specifically paragraph 5 thereof, prohibits lawyers from
acquiring by purchase even at a public or judicial auction, properties and rights which are the objects of litigation in which they may take part by virtue of
their profession. The said prohibition, however, applies only if the sale or assignment of the property takes place during the pendency of the litigation
involving the client's property.9

Hence, a contract between a lawyer and his client stipulating a contingent fee is not covered by said prohibition under Article 1491 (5) of the Civil Code
because the payment of said fee is not made during the pendency of the litigation but only after judgment has been rendered in the case handled by the
lawyer. In fact, under the 1988 Code of Professional Responsibility, a lawyer may have a lien over funds and property of his client and may apply so much
thereof as may be necessary to satisfy his lawful fees and disbursements.10

As long as the lawyer does not exert undue influence on his client, that no fraud is committed or imposition applied, or that the compensation is clearly not
excessive as to amount to extortion, a contract for contingent fee is valid and enforceable.11 Moreover, contingent fees were impliedly sanctioned by No. 13
of the Canons of Professional Ethics which governed lawyer-client relationships when the contract of services was entered into between the Fabillo spouses
and Murillo.12

However, we disagree with the courts below that the contingent fee stipulated between the Fabillo spouses and Murillo is forty percent of the properties
subject of the litigation for which Murillo appeared for the Fabillos. A careful scrutiny of the contract shows that the parties intended forty percent of the
value of the properties as Murillo's contingent fee. This is borne out by the stipulation that "in case of success of any or both cases," Murillo shall be paid
"the sum equivalent to forty per centum of whatever benefit" Fabillo would derive from favorable judgments. The same stipulation was earlier embodied by
Murillo in his letter of August 9, 1964 aforequoted.

Worth noting are the provisions of the contract which clearly states that in case the properties are sold, mortgaged, or leased, Murillo shall be entitled
respectively to 40% of the "purchase price," "proceeds of the mortgage," or "rentals." The contract is vague, however, with respect to a situation wherein the

49
properties are neither sold, mortgaged or leased because Murillo is allowed "to have the option of occupying or leasing to any interested party forty per cent
of the house and lot." Had the parties intended that Murillo should become the lawful owner of 40% of the properties, it would have been clearly and
unequivocally stipulated in the contract considering that the Fabillos would part with actual portions of their properties and cede the same to Murillo.

The ambiguity of said provision, however, should be resolved against Murillo as it was he himself who drafted the contract.13 This is in consonance with the
rule of interpretation that, in construing a contract of professional services between a lawyer and his client, such construction as would be more favorable to
the client should be adopted even if it would work prejudice to the lawyer.14 Rightly so because of the inequality in situation between an attorney who
knows the technicalities of the law on the one hand and a client who usually is ignorant of the vagaries of the law on the other hand.15

Considering the nature of the case, the value of the properties subject matter thereof, the length of time and effort exerted on it by Murillo, we hold that
Murillo is entitled to the amount of Three Thousand Pesos (P3,000.00) as reasonable attorney's fees for services rendered in the case which ended on a
compromise agreement. In so ruling, we uphold "the time-honored legal maxim that a lawyer shall at all times uphold the integrity and dignity of the legal
profession so that his basic ideal becomes one of rendering service and securing justice, not money-making. For the worst scenario that can ever happen to a
client is to lose the litigated property to his lawyer in whom all trust and confidence were bestowed at the very inception of the legal controversy."16

WHEREFORE, the decision of the then Intermediate Appellate Court is hereby reversed and set aside and a new one entered (a) ordering the petitioners to
pay Atty. Alfredo M. Murillo or his heirs the amount of P3,000.00 as his contingent fee with legal interest from October 29, 1964 when Civil Case No. 3532
was terminated until the amount is fully paid less any and all amounts which Murillo might have received out of the produce or rentals of the Pugahanay and
San Salvador properties, and (b) ordering the receiver of said properties to render a complete report and accounting of his receivership to the court below
within fifteen (15) days from the finality of this decision. Costs against the private respondent.

SO ORDERED.
A.M. No. 1625 February 12, 1990

ANGEL L. BAUTISTA, complainant,

vs.
ATTY. RAMON A. GONZALES, respondent.

RESOLUTION

PER CURIAM:

In a verified complaint filed by Angel L. Bautista on May 19, 1976, respondent Ramon A. Gonzales was charged with malpractice, deceit, gross misconduct
and violation of lawyer's oath. Required by this Court to answer the charges against him, respondent filed on June 19, 1976 a motion for a bill of particulars
asking this Court to order complainant to amend his complaint by making his charges more definite. In a resolution dated June 28, 1976, the Court granted
respondent's motion and required complainant to file an amended complaint. On July 15, 1976, complainant submitted an amended complaint for disbarment,
alleging that respondent committed the following acts:

1. Accepting a case wherein he agreed with his clients, namely, Alfaro Fortunado, Nestor Fortunado and Editha Fortunado [hereinafter referred to as
the Fortunados] to pay all expenses, including court fees, for a contingent fee of fifty percent (50%) of the value of the property in litigation.

2. Acting as counsel for the Fortunados in Civil Case No. Q-15143, wherein Eusebio Lopez, Jr. is one of the defendants and, without said case being
terminated, acting as counsel for Eusebio Lopez, Jr. in Civil Case No. Q-15490;

3. Transferring to himself one-half of the properties of the Fortunados, which properties are the subject of the litigation in Civil Case No. Q-15143,
while the case was still pending;

4. Inducing complainant, who was his former client, to enter into a contract with him on August 30, 1971 for the development into a residential
subdivision of the land involved in Civil Case No. Q-15143, covered by TCT No. T-1929, claiming that he acquired fifty percent (50%) interest thereof as
attorney's fees from the Fortunados, while knowing fully well that the said property was already sold at a public auction on June 30, 1971, by the Provincial
Sheriff of Lanao del Norte and registered with the Register of Deeds of Iligan City;

5. Submitting to the Court of First Instance of Quezon City falsified documents purporting to be true copies of "Addendum to the Land Development
Agreement dated August 30, 1971" and submitting the same document to the Fiscal's Office of Quezon City, in connection with the complaint for estafa filed
by respondent against complainant designated as I.S. No. 7512936;

6. Committing acts of treachery and disloyalty to complainant who was his client;

7. Harassing the complainant by filing several complaints without legal basis before the Court of First Instance and the Fiscal's Office of Quezon
City;

8. Deliberately misleading the Court of First Instance and the Fiscal's Office by making false assertion of facts in his pleadings;

9. Filing petitions "cleverly prepared (so) that while he does not intentionally tell a he, he does not tell the truth either."

Respondent filed an answer on September 29, 1976 and an amended answer on November 18, 1976, denying the accusations against him. Complainant filed
a reply to respondent's answer on December 29, 1976 and on March 24, 1977 respondent filed a rejoinder.

In a resolution dated March 16, 1983, the Court referred the case to the Office of the Solicitor General for investigation, report and recommendation. In the
investigation conducted by the Solicitor General, complainant presented himself as a witness and submitted Exhibits "A" to "PP", while respondent appeared
both as witness and counsel and submitted Exhibits "1" to "11". The parties were required to submit their respective memoranda.

On May 16, 1988 respondent filed a motion to dismiss the complaint against him, claiming that the long delay in the resolution of the complaint against him
constitutes a violation of his constitutional right to due process and speedy disposition of cases. Upon order of the Court, the Solicitor General filed a
comment to the motion to dismiss on August 8, 1988, explaining that the delay in the investigation of the case was due to the numerous requests for
postponement of scheduled hearings filed by both parties and the motions for extension of time to file their respective memoranda." [Comment of the
Solicitor General, p. 2; Record, p. 365]. Respondent filed a reply to the Solicitor General's comment on October 26, 1988. In a resolution dated January 16,
1989 the Court required the Solicitor General to submit his report and recommendation within thirty (30) days from notice.

On April 11, 1989, the Solicitor General submitted his report with the recommendation that Atty. Ramon A. Gonzales be suspended for six (6) months. The
Solicitor General found that respondent committed the following acts of misconduct:

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a. transferring to himself one-half of the properties of his clients during the pendency of the case where the properties were involved;

b. concealing from complainant the fact that the property subject of their land development agreement had already been sold at a public auction prior
to the execution of said agreement; and

c. misleading the court by submitting alleged true copies of a document where two signatories who had not signed the original (or even the xerox
copy) were made to appear as having fixed their signatures [Report and Recommendation of the Solicitor General, pp. 17-18; Rollo, pp. 403-404].

Respondent then filed on April 14, 1989 a motion to refer the case to the Integrated Bar of the Philippines (IBP) for investigation and disposition pursuant to
Rule 139-B of the Revised Rules of Court. Respondent manifested that he intends to submit more evidence before the IBP. Finally, on November 27, 1989,
respondent filed a supplemental motion to refer this case to the IBP, containing additional arguments to bolster his contentions in his previous pleadings.

I.

Preliminarily, the Court will dispose of the procedural issue raised by respondent. It is respondent's contention that the preliminary investigation conducted
by the Solicitor General was limited to the determination of whether or not there is sufficient ground to proceed with the case and that under Rule 139 the
Solicitor General still has to file an administrative complaint against him. Respondent claims that the case should be referred to the IBP since Section 20 of
Rule 139-B provides that:

This Rule shall take effect on June 1, 1988 and shall supersede the present Rule 139 entitled DISBARMENT OR SUSPENSION OF ATTORNEYS. All
cases pending investigation by the Office of the Solicitor General shall be transferred to the Integrated Bar of the Philippines Board of Governors for
investigation and disposition as provided in this Rule except those cases where the investigation has been substantially completed.

The above contention of respondent is untenable. In the first place, contrary to respondent's claim, reference to the IBP of complaints against lawyers is not
mandatory upon the Court [Zaldivar v. Sandiganbayan, G.R. Nos. 79690-707; Zaldivar v. Gonzales, G.R. No. 80578, October 7, 1988]. Reference of
complaints to the IBP is not an exclusive procedure under the terms of Rule 139-B of the Revised Rules of Court [Ibid]. Under Sections 13 and 14 of Rule
139-B, the Supreme Court may conduct disciplinary proceedings without the intervention of the IBP by referring cases for investigation to the Solicitor
General or to any officer of the Supreme Court or judge of a lower court. In such a case, the report and recommendation of the investigating official shall be
reviewed directly by the Supreme Court. The Court shall base its final action on the case on the report and recommendation submitted by the investigating
official and the evidence presented by the parties during the investigation.

Secondly, there is no need to refer the case to the IBP since at the time of the effectivity of Rule 139-B [June 1, 1988] the investigation conducted by the
Office of the Solicitor General had been substantially completed. Section 20 of Rule 139-B provides that only pending cases, the investigation of which has
not been substantially completed by the Office of the Solicitor General, shall be transferred to the IBP. In this case the investigation by the Solicitor General
was terminated even before the effectivity of Rule 139-B. Respondent himself admitted in his motion to dismiss that the Solicitor General terminated the
investigation on November 26, 1986, the date when respondent submitted his reply memorandum [Motion to Dismiss, p. 1; Record, p. 353].

Thirdly, there is no need for further investigation since the Office of the Solicitor General already made a thorough and comprehensive investigation of the
case. To refer the case to the IBP, as prayed for by the respondent, will result not only in duplication of the proceedings conducted by the Solicitor General
but also to further delay in the disposition of the present case which has lasted for more than thirteen (13) years.

Respondent's assertion that he still has some evidence to present does not warrant the referral of the case to the IBP. Considering that in the investigation
conducted by the Solicitor General respondent was given ample opportunity to present evidence, his failure to adduce additional evidence is entirely his own
fault. There was therefore no denial of procedural due process. The record shows that respondent appeared as witness for himself and presented no less than
eleven (11) documents to support his contentions. He was also allowed to cross-examine the complainant who appeared as a witness against him.

II.

The Court will now address the substantive issue of whether or not respondent committed the acts of misconduct alleged by complainant Bautista.

After a careful review of the record of the case and the report and recommendation of the Solicitor General, the Court finds that respondent committed acts of
misconduct which warrant the exercise by this Court of its disciplinary power.

The record shows that respondent prepared a document entitled "Transfer of Rights" which was signed by the Fortunados on August 31, 1971. The document
assigned to respondent one-half (1/2) of the properties of the Fortunados covered by TCT No. T-1929, with an area of 239.650 sq. mm., and TCT No. T-
3041, with an area of 72.907 sq. m., for and in consideration of his legal services to the latter. At the time the document was executed, respondent knew that
the abovementioned properties were the subject of a civil case [Civil Case No. Q-15143] pending before the Court of First Instance of Quezon City since he
was acting as counsel for the Fortunados in said case [See Annex "B" of Original Complaint, p. 12; Rollo, p. 16]. In executing the document transferring one-
half (1/2) of the subject properties to himself, respondent violated the law expressly prohibiting a lawyer from acquiring his client's property or interest
involved in any litigation in which he may take part by virtue of his profession [Article 1491, New Civil Code]. This Court has held that the purchase by a
lawyer of his client's property or interest in litigation is a breach of professional ethics and constitutes malpractice [Hernandez v. Villanueva, 40 Phil. 774
(1920); Go Beltran v. Fernandez, 70 Phil. 248 (1940)].

However, respondent notes that Canon 10 of the old Canons of Professional Ethics, which states that "[t]he lawyer should not purchase any interests in the
subject matter of the litigation which he is conducting," does not appear anymore in the new Code of Professional Responsibility. He therefore concludes that
while a purchase by a lawyer of property in litigation is void under Art. 1491 of the Civil Code, such purchase is no longer a ground for disciplinary action
under the new Code of Professional Responsibility.

This contention is without merit. The very first Canon of the new Code states that "a lawyer shall uphold the Constitution, obey the laws of the land and
promote respect for law and legal process" (Emphasis supplied), Moreover, Rule 138, Sec. 3 of the Revised Rules of Court requires every lawyer to take an
oath to 44 obey the laws [of the Republic of the Philippines] as well as the legal orders of the duly constituted authorities therein." And for any violation of
this oath, a lawyer may be suspended or disbarred by the Supreme Court [Rule 138, Sec. 27, Revised Rules of Court]. All of these underscore the role of the
lawyer as the vanguard of our legal system. The transgression of any provision of law by a lawyer is a repulsive and reprehensible act which the Court will
not countenance. In the instant case, respondent, having violated Art. 1491 of the Civil Code, must be held accountable both to his client and to society.

Parenthetically, it should be noted that the persons mentioned in Art. 1491 of the Civil Code are prohibited from purchasing the property mentioned therein
because of their existing trust relationship with the latter. A lawyer is disqualified from acquiring by purchase the property and rights in litigation because of
his fiduciary relationship with such property and rights, as well as with the client. And it cannot be claimed that the new Code of Professional Responsibility
has failed to emphasize the nature and consequences of such relationship. Canon 17 states that "a lawyer owes fidelity to the cause of his client and he shall
be mindful of the trust and confidence reposed in him." On the other hand, Canon 16 provides that "a lawyer shall hold in trust all moneys and properties of
his client that may come into his possession." Hence, notwithstanding the absence of a specific provision on the matter in the new Code, the Court,

51
considering the abovequoted provisions of the new Code in relation to Art. 1491 of the Civil Code, as well as the prevailing jurisprudence, holds that the
purchase by a lawyer of his client's property in litigation constitutes a breach of professional ethics for which a disciplinary action may be brought against
him.

Respondent's next contention that the transfer of the properties was not really implemented, because the land development agreement on which the transfer
depended was later rescinded, is untenable. Nowhere is it provided in the Transfer of Rights that the assignment of the properties of the Fortunados to
respondent was subject to the implementation of the land development agreement. The last paragraph of the Transfer of Rights provides that:

... for and in consideration of the legal services of ATTY. RAMON A. GONZALES, Filipino, married to Lilia Yusay, and a resident of 23 Sunrise Hill, New
Manila, Quezon City, rendered to our entire satisfaction, we hereby, by these presents, do transfer and convey to the said ATTY. RAMON A. GONZALES,
his heirs, successor, and assigns, one-half (1/2) of our rights and interests in the abovedescribed property, together with all the improvements found therein
[Annex D of the Complaint, Record, p. 28; Emphasis supplied].

It is clear from the foregoing that the parties intended the transfer of the properties to respondent to be absolute and unconditional, and irrespective of
whether or not the land development agreement was implemented.

Another misconduct committed by respondent was his failure to disclose to complainant, at the time the land development agreement was entered into, that
the land covered by TCT No. T-1929 had already been sold at a public auction. The land development agreement was executed on August 31, 1977 while the
public auction was held on June 30, 1971.

Respondent denies that complainant was his former client, claiming that his appearance for the complainant in an anti-graft case filed by the latter against a
certain Gilbert Teodoro was upon the request of complainant and was understood to be only provisional. Respondent claims that since complainant was not
his client, he had no duty to warn complainant of the fact that the land involved in their land development agreement had been sold at a public auction.
Moreover, the sale was duly annotated at the back of TCT No. T-1929 and this, respondent argues, serves as constructive notice to complainant so that there
was no concealment on his part.

The above contentions are unmeritorious. Even assuming that the certificate of sale was annotated at the back of TCT No. T-1929, the fact remains that
respondent failed to inform the complainant of the sale of the land to Samauna during the negotiations for the land development agreement. In so doing,
respondent failed to live up to the rigorous standards of ethics of the law profession which place a premium on honesty and condemn duplicitous conduct.
The fact that complainant was not a former client of respondent does not exempt respondent from his duty to inform complainant of an important fact
pertaining to the land which is subject of their negotiation. Since he was a party to the land development agreement, respondent should have warned the
complainant of the sale of the land at a public auction so that the latter could make a proper assessment of the viability of the project they were jointly
undertaking. This Court has held that a lawyer should observe honesty and fairness even in his private dealings and failure to do so is a ground for
disciplinary action against him [Custodio v. Esto, Adm. Case No. 1113, February 22, 1978, 81 SCRA 517].

Complainant also charges respondent with submitting to the court falsified documents purporting to be true copies of an addendum to the land development
agreement.

Based on evidence submitted by the parties, the Solicitor General found that in the document filed by respondent with the Court of First Instance of Quezon
City, the signatories to the addendum to the land development agreement namely, Ramon A. Gonzales, Alfaro T. Fortunado, Editha T. Fortunado, Nestor T.
Fortunado, and Angel L. Bautistawere made to appear as having signed the original document on December 9, 1972, as indicated by the letters (SGD.)
before each of their names. However, it was only respondent Alfaro Fortunado and complainant who signed the original and duplicate original (Exh. 2) and
the two other parties, Edith Fortunado and Nestor Fortunado, never did. Even respondent himself admitted that Edith and Nestor Fortunado only signed the
xerox copy (Exh. 2-A) after respondent wrote them on May 24, 1973, asking them to sign the said xerox copy attached to the letter and to send it back to him
after signing [Rejoinder to Complainant's Reply, pp. 4-6; Rollo, pp. 327-329]. Moreover, respondent acknowledged that Edith and Nestor Fortunado had
merely agreed by phone to sign, but had not actually signed, the alleged true copy of the addendum as of May 23, 1973 [Respondent's Supplemental Motion
to Refer this Case to the Integrated Bar of the Philippines, p. 16]. Thus, when respondent submitted the alleged true copy of the addendum on May 23, 1973
as Annex "A" of his Manifestation filed with the Court of First Instance of Quezon City, he knowingly misled the Court into believing that the original
addendum was signed by Edith Fortunado and Nestor Fortunado. Such conduct constitutes willful disregard of his solemn duty as a lawyer to act at all times
in a manner consistent with the truth. A lawyer should never seek to mislead the court by an artifice or false statement of fact or law [Section 20 (d), Rule
138, Revised Rules of Court; Canon 22, Canons of Professional Ethics; Canon 10, Rule 10.01, Code of Professional Responsibility].

Anent the first charge of complainant, the Solicitor General found that no impropriety was committed by respondent in entering into a contingent fee contract
with the Fortunados [Report and Recommendation, p. 8; Record, p. 394]. The Court, however, finds that the agreement between the respondent and the
Fortunados, which provides in part that:

We the [Fortunados] agree on the 50% contingent fee, provided, you [respondent Ramon Gonzales] defray all expenses, for the suit, including court fees.

Alfaro T. Fortunado [signed]

Editha T. Fortunado [signed]
Nestor T. Fortunado [signed]

CONFORME

Ramon A. Gonzales [signed]

[Annex A to the Complaint, Record, p. 4].

is contrary to Canon 42 of the Canons of Professional Ethics which provides that a lawyer may not properly agree with a client to pay or bear the expenses of
litigation. [See also Rule 16.04, Code of Professional Responsibility]. Although a lawyer may in good faith, advance the expenses of litigation, the same
should be subject to reimbursement. The agreement between respondent and the Fortunados, however, does not provide for reimbursement to respondent of
litigation expenses paid by him. An agreement whereby an attorney agrees to pay expenses of proceedings to enforce the client's rights is champertous [JBP
Holding Corp. v. U.S. 166 F. Supp. 324 (1958)]. Such agreements are against public policy especially where, as in this case, the attorney has agreed to carry
on the action at his own expense in consideration of some bargain to have part of the thing in dispute [See Sampliner v. Motion Pictures Patents Co., et al.,
255 F. 242 (1918)]. The execution of these contracts violates the fiduciary relationship between the lawyer and his client, for which the former must incur
administrative sanctions.

The Solicitor General next concludes that respondent cannot be held liable for acting as counsel for Eusebio Lopez, Jr. in Civil Case No. Q-15490 while
acting as counsel for the Fortunados against the same Eusebio Lopez, Jr. in Civil Case No. Q-15143. The Court, after considering the record, agrees with the
Solicitor General's findings on the matter. The evidence presented by respondent shows that his acceptance of Civil Case No. Q-15490 was with the
knowledge and consent of the Fortunados. The affidavit executed by the Fortunados on June 23, 1976 clearly states that they gave their consent when
respondent accepted the case of Eusebio Lopez, Jr. [Affidavit of Fortunados, dated June 23, 1976; Rollo, p. 198]. One of the recognized exceptions to the

52
rule against representation of conflicting interests is where the clients knowingly consent to the dual representation after full disclosure of the facts by
counsel [Canon 6, Canons of Professional Ethics; Canon 15, Rule 15.03, Code of Professional Responsibility].

Complainant also claims that respondent filed several complaints against him before the Court of First Instance and the Fiscal's Office of Quezon City for the
sole purpose of harassing him.

The record shows that at the time of the Solicitor General's investigation of this case, Civil Case No. Q-18060 was still pending before the Court of First
Instance of Quezon City, while the complaints for libel (I.S. No. 76-5912) and perjury (I.S. No. 5913) were already dismissed by the City Fiscal for
insufficiency of evidence and lack of interest, respectively [Report and Recommendation, pp. 16-17; Rollo, pp. 402-403]. The Solicitor General found no
basis for holding that the complaints for libel and perjury were used by respondent to harass complainant. As to Civil Case No. Q-18060, considering that it
was still pending resolution, the Solicitor General made no finding on complainants claim that it was a mere ploy by respondent to harass him. The
determination of the validity of the complaint in Civil Case No. Q-18060 was left to the Court of First Instance of Quezon City where the case was pending
resolution.

The Court agrees with the above findings of the Solicitor General, and accordingly holds that there is no basis for holding that the respondent's sole purpose
in filing the aforementioned cases was to harass complainant.

Grounds 6, 8 and 9 alleged in the complaint need not be discussed separately since the above discussion on the other grounds sufficiently cover these
remaining grounds.

The Court finds clearly established in this case that on four counts the respondent violated the law and the rules governing the conduct of a member of the
legal profession. Sworn to assist in the administration of justice and to uphold the rule of law, he has "miserably failed to live up to the standards expected of
a member of the Bar." [Artiaga v. Villanueva, Adm. Matter No. 1892, July 29, 1988, 163 SCRA 638, 647]. The Court agrees with the Solicitor General that,
considering the nature of the offenses committed by respondent and the facts and circumstances of the case, respondent lawyer should be suspended from the
practice of law for a period of six (6) months.

WHEREFORE, finding that respondent Attorney Ramon A. Gonzales committed serious misconduct, the Court Resolved to SUSPEND respondent from the
practice of law for SIX (6) months effective from the date of his receipt of this Resolution. Let copies of this Resolution be circulated to all courts of the
country for their information and guidance, and spread in the personal record of Atty. Gonzales.

SO ORDERED.

G.R. No. L-10439 October 17, 1916

GAN TIANGCO, plaintiff-appellee,

vs.
SILVINO PABINGUIT, defendant-ppellant.

Leopoldo Rovira for appellant.

No appearance for appellee.

ARELLANO, C.J.:

It is not disputed in these proceedings that Candida Acabo was the owner of six parcels of land, all situated in the municipality of Jimalalud, Oriental Negros,
of the following dimensions: The first, 8 hectares; the second, 40 ares; the third and fourth, each 20 ares; the fifth, 40 ares; and the sixth parcel, 20 ares.

According to the notarial instrument, Exhibit A, admitted in evidence without objection, these lands were sold on June 12, 1911, by their owner Candida
Acabo, to one Gan Tingco, for P500. .

But the purchaser Gan Tingcowas unable to take possession of the six parcels of land sold him by Acabo, for they were in the possession of Silvino
Pabinguit, who alleges certain rights therein. He claims to have purchased them for P375 from Faustino Abad; that Abad yhad become their owner through
purchase from Henry Gardner; that the latter, in turn, had owned tyhem by reason of having purchased them for P555 at a public auctiona held in the barrio
of Martelo, municipality of Tayasan, on MArch 20, 1907. An effort was made to prove these facts by documents Exhibits 1, 2, and 3. Exhibit 1 is a notarial
instrument, dated April 29, 1907, which purports to show that on this date Henry Gardner sold to Faustino Abad seven parcels of land for P275. Exhibit 2 is a
notarial instrument which sets forth that Faustino Abad, on June 19, 1907, for the sum of P375 sold to Silvino Pabinguit six parcels of land, the area, situation
and bounds of which are described in the document. Exhibit 3 is a copy which the deputy sheriff said he kept of the proceedings had by virtue of a writ of
execution issued by the justice of the peace of Guijulngan, in whcih the latter directed him to make a demand upon Candida Acabo to comply with the
judgment rendered against her as a result of the complaint, filed by Silvestre Basaltos, and further ordering him, in case of her failure to comply tehrewith, to
levy upon "fixtures and other chattels and to collect the amounts ordered, that is, P157.50, plus P300 for losses damages, the proper costs and those of this
execution." The date of the writ appears to be (for it has been corrected in an illegible manner) that of January 2, 1907, and the fist execution proceedings
bear the date of March 14, 1907. In the return the deputy sheriff begins by saying that he made demand upon Candida Acabo and that the latter stated that she
had neither corn nor money; that he levied upon three plow carabaos, one brood caraballa and the six parcles of land in question, for their identity was
expressly admitted; that their sale was announced for the 20th of March, 1907 (but the return does not show the signature of the woman upon whom the
demand was made, nor does it disclose any evidence whatever to show that the owner of this property had any knowledge of this attachment or levy); that on
March 20, 1907, he proceeded to sell at public auction all the property levied upon; that the jsutice of the peace who ordered the execution, Henry Gardner,
himself appeared as the highest bidder and offered P280 for the four carabaos and P275 for all the coconut groves, that, is the six parcels of land measuring
nine hectares and a fraction in area, containing bearing fruit trees, or a total sum of P555, which the said successful bidder then and there paid over; and,
finally, that the same justice of the peace, Gardner, the highest bidder, himself received the sum of P157.50, the remainder of the proceeds from the execution
sale after deduction of the costs, as the person authrized so to do by the plaintiff Silvestre Basaltos; and that Gardner alone, not Basaltos nor the judgment
debtor Candida Acabo, signed the record of the proceedings. Afterwards the deputy sheriff certified that the costs of the execution amounted to P52.50, and
that there was a surplus of P45 to Candida Acabo's credit, which was to be delivered to her after settlement of the matter of the certificates of ownership and
the arrangment of the trabsfer of the carabaos. These proceedings were signed only by the deputy sheriff and recite that "by authorization of Candida Acabo I
have delivered the sum of P29 as the true balance in favor of the Said Candida Acabo, of the P45 mentione in the precedeing statement, from which latter
sum there has been deducted the amount of P16 which was paid to the treasusrer of this municipality on the following accounts: Fine, P8; certificate of
ownership, P4; and certificate of transfer, P4." In that manner was the record closed and it was not signed by any other person than the deputy sheriff,
ALejandro Sanchez.

The jusrice of the peace, Gardner, and the deputy sheriff, Sanchez, were summoned to appear in the trial court on March 18, 1914. Sanchez did not put in an
appearance, and on being required by telegraph to explain the reason and show why he should not be punished for contempt of court, he wired back, saying:
"From 12th to 18th instant was making investigations attempted rape and theft. Will arrive there Monday, 23d. Will have enough time to finish
investigation," and on the day for the hearing he presented the document Exhibit 3, referred to in the preceding paragragh.

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Henry Gardner, in testifying for the defense, stated that the deputy sheriff had executed in Gardner's favor a certificate of his purchase at auction sale, but
witness did not know where the document was and did not need it because he, in turn, has sold everything he had purchased at that sale; that he was formerly
justice of the peace of the municipality of Guijulngan, of Tayasan, and knew of a complaint by Silvestre Basaltos against Candida Acabo; that afterwards
when the auction was held, he took part therein, but that as he subsequently learned that he was forbidden to do so, he sold what he had purchased to Faustino
Abad, Candida Acabo's son, who was but a boy at the time; that the writ of execution was returnmed to him and he made a record of that matter; that he had
it in the justice of the peace court and left it there when he ceased to hold office, in 1909.

Faustino Abad testified that Henry Gardner did actually sell to him for P275 the coconut groves which Gardner had purchased at auction; that it was true that
on April 29, 1907, witness was only 19 years old; that he knew that the coconut groves were those that had belonged to his mother Candida Acabo; and that
he, in turn, sold the said coconut groves to Silvino Pabinguit for P375, on June 19 of the same year. Both Gardner's deed of sale to Abad and the latter's to
Pabinguit were certified by the same deputy sheriff ALejandro Sanchez as notary public of the municipality of Tayasan.

This same Alejandro Sanchez, being then the justice of the peace of Tayasan, testified as a witness for the defense. He began by recognizing the aforesaid
deeds as having been certified by him in his capacity of notary public of Tayasan, and afterwards stated that he had something to do with a writ of execution
issued by the justice of the peace of Guijulngan, Henry Gardner, upon certain real estate belonging to Candida Acabo (it odes not so appear in the writ,
wherein only fixtures and other chattels are referred to); that, in consideration of the P555 which Gardner paid at the time of the auction, witness, without any
reservation whatsoever, delivered to Gardner the carabaos and lands knocked down to him at the sale; and that after he had received from Gardner the
purchase price he returned it to him, just as he would have delivered it to the plaintiff Silvestre Basaltos, of whom Gardner claimed to be the representative
duly authorized as such by this plaintiff.

Candida Acabo testified that Alejandro Sanchez, while sheriff of Tayasan, did not take possession of her lands by reason of the levy; that the only property
which he levied upon was four carabaos, and she did not know whether they had been sold at auction; and that Sanchez had not told her that he lands had
been levied upon, or that they had been sold at auction.

Silvino Pabinguit testified that in the month of February he was in Guijilngan searching for the record of the auction sale of Candida Acabo's property; that
four persons made the search; and . . . the record was not found. This last statement was made by Alejandro Sanchez.

The Court of First Instance of Oriental NEgros rendered judgment in behalf of the plaintiff, Gan Tingco, declaring him the owner of the lands described in
the complaint, and ordered the defendant, Silvino Pabinguit, to restore the plaintiff to their possession. No express finfding was made as to the costs.

The defendant appealed, with the right to a review of the evidence. The appeal was heard by this court, it having been brought it by bill of exceptions.

The appellant alleges that the trial court erred in holding that, notwithstanding the sale of the lands in question at public auction, Candida Acabo did not cease
to be the owner of these properties, because there were certain irregularities and defects in the said auction.

In the judgment appealed from several of these defects are specified and it is unnecessary to treat of them in detail. With respect to the legality of the
proceedings had up to the time of the sale of the lands, there is certainly room for doubt. No evidence is found that Silvestre Basaltos filed any complaint
against Candida Acabo before the justice of the peace court of Guijulngan and that any judgment was rendered on January 2, 1907, enabling the plaintiff to
recover from the defendant 150 cavanes of corn, or in default thereof the sum of P157.50, and in addition P300 for losses and damages and court costs. Only
the writ of execution appears in the record. The original copy of the return to the wirt of execution was not presented, because it was not found; there was
offered in evidence only what the sheriff said was a copy of the return, and he delayed as long in presenting it as he did in obeting the summons of the court
to appear as a witness. No copy of that judgment was delivered to the judgment debtor, in violation of the provisions of section 446 of Act No. 190. The
sheriff sold lands belonging to the judgment debtor, and it does not appear that the provisions of section 445 of the same Act were complied with, to wit, that
if real estate be levied upon and sold by virtue of the execution, the clerk must record the execution and the officer's return thereon and certify the same under
his hand, as true copies, in a book to be called the "Execution Book." The justice of peace, in his writ, certainly did not order the levy upon ior sale of real
estate, but only fixtures and other chattles; but the sheriff's return includes real estate levied upon and solt at public auction. The purchaser at public auction,
the same justice of the peace, could not exhibit the instrument which he said the sheriff executed in his behalf, because, as he said, he did not know where it
was and that he did not need it. We are not sure that Candida Acabo, a simple country woman, was not despoiled of her lands under the pretexts of debt,
judgment, and execution.

Leaving out of account that things which should have been proven at trial were not proven, it is a positive fact that Henry Gardner, justice of peace of
Guijulngan, was the purchaser at public auction of Candida Acabo's lands and carabaos levied upon as a result of the judgment, and that he delivered the
price of the sale, P555, to the sheriff; but hte latter returned this sum to the justice of the peace, who said that he wea authorized by Silvestre Basaltos, the
supposed creditor, to receive the same. At the finish the sheriff delivered nothing to the owner Acabo, all the proceeds of the auction sale having been
expended in one way or another without the consent of the judgment debtor appearing of record.

Aside from everything else, the trial court was impressed by the circumstance that in the public auction the purchaser was the justice of the peace himself.
This, in the judge's opinion, was unauthorized, because article 1459, No. 5, of the Civil Code, prohibits judges from acquring by purchase, even at pub;ic or
judicial sale, either in person or by an agent, any property or rights litigated in the court in the jurisdiction or territory within which they exercise their
respective duties; this prohibition includes taking of property by assignment.

The appellant alleges that the property purchased by justice of the peace Gardner was not the subject of litigation in the justice court; that the action was to
recover a certain sum of money, and that he had ordered the property sold on execution.

This raises, therefore, a question as to the true meaning of paragraph 5 of article 1459 of the Civil Code. lawphil.net

The Ley de Bases, in accordance with which the Civil Code was enacted, provides as follows, in Base No. 26:

The forms, requirements and conditions of each particular contract shall be determined and defined subject to the general list of obligations and their effects,
with the understanding that the legislation in force and the legal principles evolved therefrom by judicial decisions, etc., etc., shall serve as basis.

One of the bodies of law which conastitute the legislation now in force in the Novisima Recopilacion. In Law 4, Title 14, Book 5 of the same is found the
following provision: "We order that in public auctions held by direction of our alcaldes, neither the latter nor any person whomsoever in their name shall bid
in anything sold at such public auctions." The word alcaldes means judges. The caption of Title 14 is "Alcaldes or Provincial Judges," and the entire title
deals with the exercise of judicial jurisdiction. Prior to the enactment of the Civil Code, the Penal Code was also in force. Article 400 of the latter prohinits,
under penalty, any judge from taking part, either directly, or indirectly, in any operation of exchange, trade or porfit with respect to things not the product of
his own property, within the territory over which he exercises jurisdiction. Judging from the legal oprecedents on which the Civil Code is based, it would not
seem too much to conclude that the said article of the Civil Code does not make any distinction between property in litigation. In effect, it appears to be as
delicate a matter for a judge to take part in the sale of property that had been the subject of ligitgation in his court, as to intervene in auction of property
which, though not directly litigated in his court, is nevertheless levied upon and sold as the result of a writ of execution issued by him. What the law intends
to avoid is the improper interference with an interest of a judge in a thing levied upon and sold by his order.

54
If under the law Gardner was prohibited from acquiring the ownership of Acabo's lands, then he could not have transmitted to Faustino Abad the right of
ownership that he did not possess; nor could Abad, to whom this alleged ownership had not been transmitte, have conveyed the same to Pabinguit. What
Gardner should have done in view of the fact that the sale, as he finally acknowledged, was void, was to claim the price that had been deposited in court, and
the justice of the peace of Guijulngan should have declared the auction void and have ordered a new sale to be held, besides correcting the errors that had
been committed in the proceedings. To the reasons already stated, there is to be added the additional one, with respect to the sale made by Faustino Abad to
Silvino Pabinguit, that Abad was a minor at the time a circumstance that deprived him of capacity to sell (Civil Code, art. 1263). Abad had no ownership
to transmit to anyone and, besides, he had no personality to enable him to contract by himself, on account of his lack of legal age.

Sanchez, the sheriff, the sole notary who certified all these deeds of conveyance in order that Pabinguit might become owner of those coconut lands with
which his own lands adjoined, was in such a hurry that, as he testified at the trial, on the very same day of the auction he had already executed in behalf of
Henry Gardner the final deed of sale of the said lands, without allowing time for their possible redemption. Section 466 of Act No. 190 prescribes that if
redemption has not been requested, this deed is to be executed within the twelve months subsequent to the sale.

This court finds no reason whatever why it should not affirm the judgment appealed from. It is therefore hereby affirmed with the costs of this instance
against the appellant. So ordered..

Torres, Johnson, Trent, and Araullo, JJ., concur.

G.R. No. L-23072 November 29, 1968

SIMEON B. MIGUEL, ET AL., plaintiffs-appellants,

vs.
FLORENDO CATALINO, defendant-appellee.

Bienvenido L. Garcia for plaintiffs-appellants.

Moises P. Cating for defendant-appellee.

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

Direct appeal from the judgment in Civil Case No. 1090 of the Court of First Instance of Baguio, dismissing the plaintiffs' complaint for recovery of
possession of a parcel of land, registered under Act 496, in the name of one Bacaquio,1 a long-deceased illiterate non-Christian resident of Mountain
Province, and declaring the defendant to be the true owner thereof.

On January 22, 1962, appellants Simeon, Emilia and Marcelina Miguel, and appellant Grace Ventura brought suit in the Court below against Florendo
Catalino for the recovery of the land above-described, plaintiffs claiming to be the children and heirs of the original registered owner, and averred that
defendant, without their knowledge or consent, had unlawfully taken possession of the land, gathered its produce and unlawfully excluded plaintiffs
therefrom. Defendant answered pleading ownership and adverse possession for 30 years, and counterclaimed for attorney's fees. After trial the Court
dismissed the complaint, declared defendant to be the rightful owner, and ordered the Register of Deeds to issue a transfer certificate in lieu of the original.
Plaintiffs appealed directly to this Court, assailing the trial Court's findings of fact and law.

As found by the trial Court, the land in dispute is situated in the Barrio of San Pascual, Municipality of Tuba, Benguet, Mountain Province and contains an
area of 39,446 square meters, more or less. It is covered by Original Certificate of Title No. 31, which was issued on 28 December 1927 in the name of
Bacaquio (or Bakakew), a widower. No encumbrance or sale has ever been annotated in the certificate of title.

The plaintiff-appellant Grace Ventura2 is the only child of Bacaquio by his first wife, Debsay, and the other plaintiffs-appellants, Simeon, Emilia and
Marcelina, all surnamed "Miguel", are his children by his third wife, Cosamang. He begot no issue with his second wife, Dobaney. The three successive
wives have all died.

Bacaquio, who died in 1943, acquired the land when his second wife died and sold it to Catalino Agyapao, father of the defendant Florendo Catalino, for
P300.00 in 1928. Of the purchase price P100.00 was paid and receipted for when the land was surveyed, but the receipt was lost; the balance was paid after
the certificate of title was issued. No formal deed of sale was executed, but since the sale in 1928, or for more than 30 years, vendee Catalino Agyapao and
his son, defendant-appellee Florendo Catalino, had been in possession of the land, in the concept of owner, paying the taxes thereon and introducing
improvements.

On 1 February 1949, Grace Ventura, by herself alone, "sold" (as per her Transferor's Affidavit, Exhibit "6") anew the same land for P300.00 to defendant
Florendo Catalino.

In 1961, Catalino Agyapao in turn sold the land to his son, the defendant Florendo Catalino.

This being a direct appeal from the trial court, where the value of the property involved does not exceed P200,000.00, only the issues of law are reviewable
by the Supreme Court, the findings of fact of the court a quo being deemed conceded by the appellant (Jacinto v. Jacinto, 105 Phil. 1218; Del Castillo v.
Guerro, L-11994, 25 July 1960; Abuyo, et al. v. De Suazo, L-21202, 29 Oct. 1966; 18 SCRA 600, 601). We are thus constrained to discard appellant's second
and third assignments of error.

In their first assignment, appellants assail the admission in evidence over the objection of the appellant of Exhibit "3". This exhibit is a decision in favor of
the defendant-appellee against herein plaintiff-appellant Grace Ventura, by the council of Barrio of San Pascual, Tuba, Benguet, in its Administrative Case
No. 4, for the settlement of ownership and possession of the land. The decision is ultra vires because barrio councils, which are not courts, have no judicial
powers (Sec. 1, Art. VIII, Constitution; see Sec. 12, Rep. Act 2370, otherwise known as the Barrio Charter). Therefore, as contended by appellants, the
exhibit is not admissible in a judicial proceeding as evidence for ascertaining the truth respecting the fact of ownership and possession (Sec. 1, Rule 128,
Rules of Court).

Appellants are likewise correct in claiming that the sale of the land in 1928 by Bacaquio to Catalino Agyapao, defendant's father, is null and void ab initio,
for lack of executive approval (Mangayao et al. vs. Lasud, et al., L-19252, 29 May 1964). However, it is not the provisions of the Public Land Act
(particularly Section 118 of Act 2874 and Section 120 of Commonwealth Act 141) that nullify the transaction, for the reason that there is no finding, and the
contending parties have not shown, that the land titled in the name of Bacaquio was acquired from the public domain (Palad vs. Saito, 55 Phil. 831). The laws
applicable to the said sale are: Section 145(b) of the Administrative Code of Mindanao and Sulu, providing that no conveyance or encumbrance of real
property shall be made in that department by any non-christian inhabitant of the same, unless, among other requirements, the deed shall bear indorsed upon it
the approval of the provincial governor or his representative duly authorized in writing for the purpose; Section 146 of the same Code, declaring that every
contract or agreement made in violation of Section 145 "shall be null and void"; and Act 2798, as amended by Act 2913, extending the application of the
above provisions to Mountain Province and Nueva Vizcaya.

55
Since the 1928 sale is technically invalid, Bacaquio remained, in law, the owner of the land until his death in 1943, when his title passed on, by the law on
succession, to his heirs, the plaintiffs-appellants.

Notwithstanding the errors aforementioned in the appealed decision, we are of the opinion that the judgment in favor of defendant-appellee Florendo
Catalino must be sustained. For despite the invalidity of his sale to Catalino Agyapao, father of defendant-appellee, the vendor Bacaquio suffered the latter to
enter, possess and enjoy the land in question without protest, from 1928 to 1943, when the seller died; and the appellants, in turn, while succeeding the
deceased, also remained inactive, without taking any step to reivindicate the lot from 1944 to 1962, when the present suit was commenced in court. Even
granting appellants' proposition that no prescription lies against their father's recorded title, their passivity and inaction for more than 34 years (1928-1962)
justifies the defendant-appellee in setting up the equitable defense of laches in his own behalf. As a result, the action of plaintiffs-appellants must be
considered barred and the Court below correctly so held. Courts can not look with favor at parties who, by their silence, delay and inaction, knowingly induce
another to spend time, effort and expense in cultivating the land, paying taxes and making improvements thereon for 30 long years, only to spring from
ambush and claim title when the possessor's efforts and the rise of land values offer an opportunity to make easy profit at his expense. In Mejia de Lucas vs.
Gamponia, 100 Phil. 277, 281, this Court laid down a rule that is here squarely applicable:

Upon a careful consideration of the facts and circumstances, we are constrained to find, however, that while no legal defense to the action lies, an equitable
one lies in favor of the defendant and that is, the equitable defense of laches. We hold that the defense of prescription or adverse possession in derogation of
the title of the registered owner Domingo Mejia does not lie, but that of the equitable defense of laches. Otherwise stated, we hold that while defendant may
not be considered as having acquired title by virtue of his and his predecessors' long continued possession for 37 years, the original owner's right to recover
back the possession of the property and title thereto from the defendant has, by the long period of 37 years and by patentee's inaction and neglect, been
converted into a stale demand.

As in the Gamponia case, the four elements of laches are present in the case at bar, namely: (a) conduct on the part of the defendant, or of one under whom he
claims, giving rise to the situation of which complaint is made and for which the complaint seeks a remedy; (b) delay in asserting the complainant's rights,
the complainant having had knowledge or notice, of the defendant's conduct and having been afforded an opportunity to institute a suit; (c) lack of knowledge
or notice on the part of the defendant that the complainant would assert the right on which he bases his suit; and (d) injury or prejudice to the defendant in the
event relief is accorded to the complainant, or the suit is not held to be barred. In the case at bar, Bacaquio sold the land in 1928 but the sale is void for lack
of the governor's approval. The vendor, and also his heirs after him, could have instituted an action to annul the sale from that time, since they knew of the
invalidity of the sale, which is a matter of law; they did not have to wait for 34 years to institute suit. The defendant was made to feel secure in the belief that
no action would be filed against him by such passivity, and also because he "bought" again the land in 1949 from Grace Ventura who alone tried to question
his ownership; so that the defendant will be plainly prejudiced in the event the present action is not held to be barred.

The difference between prescription and laches was elaborated in Nielsen & Co., Inc. vs. Lepanto Consolidated Mining Co., L-21601, 17 December 1966, 18
SCRA p. 1040, as follows:

Appellee is correct in its contention that the defense of laches applies independently of prescription. Laches is different from the statute of limitations.
Prescription is concerned with the fact of delay, whereas laches is concerned with the effect of delay. Prescription is a matter of time; laches is principally a
question of inequity of permitting a claim to be enforced, this inequity being founded on some change in the condition of the property or the relation of the
parties. Prescription is statutory; laches is not. Laches applies in equity, whereas prescription applies at law. Prescription is based on fixed time laches is not,
(30 C.J.S., p. 522. See also Pomeroy's Equity Jurisprudence, Vol. 2, 5th ed., p. 177) (18 SCRA 1053).

With reference to appellant Grace Ventura, it is well to remark that her situation is even worse than that of her co-heirs and co-plaintiffs, in view of her
executing an affidavit of transfer (Exh. 6) attesting under oath to her having sold the land in controversy to herein defendant-appellee, and the lower Court's
finding that in 1949 she was paid P300.00 for it, because she, "being a smart woman of enterprise, threatened to cause trouble if the defendant failed to give
her P300.00 more, because her stand (of being the owner of the land) was buttressed by the fact that Original Certificate of Title No. 31 is still in the name of
her father, Bacaquio" (Decision, Record on Appeal, p. 24). This sale, that was in fact a quitclaim, may not be contested as needing executive approval; for it
has not been shown that Grace Ventura is a non-christian inhabitant like her father, an essential fact that cannot be assumed (Sale de Porkan vs. Yatco, 70
Phil. 161, 175).

Since the plaintiffs-appellants are barred from recovery, their divestiture of all the elements of ownership in the land is complete; and the Court a quo was
justified in ordering that Bacaquio's original certificate be cancelled, and a new transfer certificate in the name of Florendo Catalino be issued in lieu thereof
by the Register of Deeds.

FOR THE FOREGOING REASONS, the appealed decision is hereby affirmed, with costs against the plaintiffs-appellants.

Concepcion C.J., Dizon, Makalintal, Zaldivar, Sanchez, Fernando and Capistrano, JJ., concur.
Castro, J., took no part.

56