G.R. No.
L-57499 June 22, 1984 were built and planted with conjugal funds and through her industry; that the
MERCEDES CALIMLIM- CANULLAS, petitioner,
vs.
HON. WILLELMO FORTUN, Judge, Court of First instance of
Pangasinan, Branch I, and CORAZON DAGUINES, respondents.
Fernandez Law Offices for petitioner.
Francisco Pulido for respondents.
MELENCIO-HERRERA, J.:
Petition for Review on certiorari assailing the Decision, dated October 6,
1980, and the Resolution on the Motion for Reconsideration, dated
November 27, 1980, of the then Court of First Instance of Pangasinan,
Branch I, in Civil Case No. 15620 entitled "Corazon DAGUINES vs.
MERCEDES Calimlim-Canullas," upholding the sale of a parcel of land in
favor of DAGUINES but not of the conjugal house thereon'
The background facts may be summarized as follows: Petitioner
MERCEDES Calimlim-Canullas and FERNANDO Canullas were married on
December 19, 1962. They begot five children. They lived in a small house on
the residential land in question with an area of approximately 891 square
meters, located at Bacabac, Bugallon, Pangasinan. After FERNANDO's
father died in 1965, FERNANDO inherited the land.
In 1978, FERNANDO abandoned his family and was living with private
respondent Corazon DAGUINES. During the pendency of this appeal, they
were convicted of concubinage in a judgment rendered on October 27, 1981
by the then Court of First Instance of Pangasinan, Branch II, which judgment
has become final.
On April 15, 1980, FERNANDO sold the subject property with the house
thereon to DAGUINES for the sum of P2,000.00. In the document of sale,
FERNANDO described the house as "also inherited by me from my
deceased parents."
Unable to take possession of the lot and house, DAGUINES initiated a
complaint on June 19, 1980 for quieting of title and damages against
MERCEDES. The latter resisted and claimed that the house in dispute where
she and her children were residing, including the coconut trees on the land,
sale of the land together with the house and improvements to DAGUINES
was null and void because they are conjugal properties and she had not
given her consent to the sale,
In its original judgment, respondent Court principally declared DAGUINES
"as the lawful owner of the land in question as well as the one-half () of the
house erected on said land." Upon reconsideration prayed for by
MERCEDES, however, respondent Court resolved:
WHEREFORE, the dispositive portion of the Decision of this
Court, promulgated on October 6, 1980, is hereby amended
to read as follows:
(1) Declaring plaintiff as the true and lawful owner of the land
in question and the 10 coconut trees;
(2) Declaring as null and void the sale of the conjugal house
to plaintiff on April 15, 1980 (Exhibit A) including the 3
coconut trees and other crops planted during the conjugal
relation between Fernando Canullas (vendor) and his
legitimate wife, herein defendant Mercedes Calimlim-
Canullas;
xxx xxx xxx
The issues posed for resolution are (1) whether or not the construction of a
conjugal house on the exclusive property of the husband ipso facto gave the
land the character of conjugal property; and (2) whether or not the sale of the
lot together with the house and improvements thereon was valid under the
circumstances surrounding the transaction.
The determination of the first issue revolves around the interpretation to be
given to the second paragraph of Article 158 of the Civil Code, which reads:
xxx xxx xxx
Buildings constructed at the expense of the partnership
during the marriage on land belonging to one of the spouses
also pertain to the partnership, but the value of the land shall
be reimbursed to the spouse who owns the same.
We hold that pursuant to the foregoing provision both the land and the
building belong to the conjugal partnership but the conjugal partnership is
1
indebted to the husband for the value of the land. The spouse owning the lot
becomes a creditor of the conjugal partnership for the value of the
lot, 1 which value would be reimbursed at the liquidation of the conjugal
partnership. 2
In his commentary on the corresponding provision in the Spanish Civil Code
(Art. 1404), Manresa stated:
El articulo cambia la doctrine; los edificios construidos
durante el matrimonio en suelo propio de uno de los
conjuges son gananciales, abonandose el valor del suelo al
conj uge a quien pertenezca.
It is true that in the case of Maramba vs. Lozano, 3 relied upon by respondent
Judge, it was held that the land belonging to one of the spouses, upon which
the spouses have built a house, becomes conjugal property only when the
conjugal partnership is liquidated and indemnity paid to the owner of the
land. We believe that the better rule is that enunciated by Mr. Justice J.B.L.
Reyes in Padilla vs. Paterno, 3 SCRA 678, 691 (1961), where the following
was explained:
As to the above properties, their conversion from
paraphernal to conjugal assets should be deemed to retroact
to the time the conjugal buildings were first constructed
thereon or at the very latest, to the time immediately before
the death of Narciso A. Padilla that ended the conjugal
partnership. They can not be considered to have become
conjugal property only as of the time their values were paid
to the estate of the widow Concepcion Paterno because by
that time the conjugal partnership no longer existed and it
could not acquire the ownership of said properties. The
acquisition by the partnership of these properties was, under
the 1943 decision, subject to the suspensive condition that
their values would be reimbursed to the widow at the
liquidation of the conjugal partnership; once paid, the effects
of the fulfillment of the condition should be deemed to
retroact to the date the obligation was constituted (Art. 1187,
New Civil Code) ...
The foregoing premises considered, it follows that FERNANDO could not
have alienated the house and lot to DAGUINES since MERCEDES had not
given her consent to said sale. 4
Anent the second issue, we find that the contract of sale was null and void for
being contrary to morals and public policy. The sale was made by a husband
in favor of a concubine after he had abandoned his family and left the
conjugal home where his wife and children lived and from whence they
derived their support. That sale was subversive of the stability of the family, a
basic social institution which public policy cherishes and protects. 5
Article 1409 of the Civil Code states inter alia that: contracts whose cause,
object, or purpose is contrary to law, morals, good customs, public order, or
public policy are void and inexistent from the very beginning.
Article 1352 also provides that: "Contracts without cause, or with unlawful
cause, produce no effect whatsoever. The cause is unlawful if it is contrary to
law, morals, good customs, public order, or public policy."
Additionally, the law emphatically prohibits the spouses from selling property
to each other subject to certain exceptions.6 Similarly, donations between
spouses during marriage are prohibited. 7 And this is so because if transfers
or con conveyances between spouses were allowed during marriage, that
would destroy the system of conjugal partnership, a basic policy in civil law. It
was also designed to prevent the exercise of undue influence by one spouse
over the other,8 as well as to protect the institution of marriage, which is the
cornerstone of family law. The prohibitions apply to a couple living as
husband and wife without benefit of marriage, otherwise, "the condition of
those who incurred guilt would turn out to be better than those in legal
union." Those provisions are dictated by public interest and their criterion
must be imposed upon the wig of the parties. That was the ruling
in Buenaventura vs. Bautista, also penned by Justice JBL Reyes (CA) 50
O.G. 3679, and cited in Matabuena vs. Cervantes. 9 We quote hereunder the
pertinent dissertation on this point:
We reach a different conclusion. While Art. 133 of the Civil
Code considers as void a donation between the spouses
during the marriage, policy considerations of the most
exigent character as wen as the dictates of morality require
that the same prohibition should apply to a common-law
relationship.
As announced in the outset of this opinion, a 1954 Court of
Appeals decision, Buenaventura vs. Bautista, 50 OG 3679,
interpreting a similar provision of the old Civil Code speaks
unequivocally. If the policy of the law is, in the language of
the opinion of the then Justice J.B.L. Reyes of that Court, 'to
prohibit donations in favor of the other consort and his
descendants because of fear of undue influence
and improper pressure upon the donor, a prejudice deeply
rooted in our ancient law, ..., then there is every reason to
2
 apply the same prohibitive policy to persons living together
as husband and wife without benefit of nuptials. For it is not
to be doubted that assent to such irregular connection for
thirty years bespeaks greater influence of one party over the
other, so that the danger that the law seeks to avoid is
correspondingly increased'. Moreover, as pointed out by
Ulpian (in his lib 32 ad Sabinum, fr. 1), "It would not be just
that such donations should subsist, lest the conditions of
those who incurred guilt should turn out to be better." So
long as marriage remains the cornerstone of our family law,
reason and morality alike demand that the disabilities
attached to marriage should likewise attach
to concubinage (Emphasis supplied),
WHEREFORE, the Decision of respondent Judge, dated October 6, 1980,
and his Resolution of November 27, 1980 on petitioner's Motion for
Reconsideration, are hereby set aside and the sale of the lot, house and
improvements in question, is hereby declared null and void. No costs.
SO ORDERED.
[G.R. No. 112954. August 25, 2000]
RICARDO DISTAJO, ERNESTO DISTAJO, RAUL DISTAJO, FEDERICO
DISTAJO, ZACARIAS A. DISTAJO, EDUARDO DISTAJO, and
PILAR DISTAJO TAPAR, petitioners, vs. COURT OF APPEALS
and LAGRIMAS SORIANO DISTAJO, respondents.
DECISION
PARDO, J.:
The case under consideration is a petition for review on certiorari of a
decision of the Court of Appeals[1], which modified the ruling of the Regional
Trial Court, Roxas City regarding seven parcels of land located in Barangay
Hipona, Pontevedra, Capiz.[2]
During the lifetime of Iluminada Abiertas, she designated one of her sons,
Rufo Distajo, to be the administrator of her parcels of land denoted as Lot Nos.
1018, 1046, 1047, and 1057 situated in Barangay Hipona, Pontevedra, Capiz.
On May 21, 1954, Iluminada Abiertas sold a portion of Lot No. 1018
(1018-A) to her other children, namely, Raul Distajo, Ricardo Distajo, Ernesto
Distajo, Federico Distajo, and Eduardo Distajo.[3]
On May 29, 1963, Iluminada Abiertas certified to the sale of Lot Nos. 1046
and 1047 in favor of Rufo Distajo.[4]
On June 4, 1969, Iluminada Abiertas sold Lot No. 1057 to Rhodora
Distajo, the daughter of Rufo Distajo.[5]
On July 12, 1969, Iluminada Abiertas sold Lot No. 1018 to Rufo Distajo.[6]
Meanwhile, Justo Abiertas, Jr., the brother of Iluminada Abiertas, died
leaving behind his children, Teresita, Alicia, Josefa and Luis Abiertas. Teresita
paid for the real estate taxes of the following properties, which she inherited
from her father: Lot Nos. 1001, 1048, 1049, and a portion of Lot No. 1047, all
located in Capiz. On May 26, 1954, Teresita Abiertas sold Lot No. 1001 in
favor of Rufo Distajo.[7] On June 2, 1965, Teresita Abiertas, for herself and
representing her sisters and brother, sold Lot Nos. 1048, 1049, and a portion
of Lot No. 1047 to Rufo Distajo.[8]
After purchasing the above-mentioned parcels of land, Rufo Distajo took
possession of the property and paid the corresponding real estate taxes
thereon. Rhodora Distajo likewise paid for the real estate taxes of Lot No.
1057.
When Iluminada Abiertas died in 1971, Zacarias Distajo, Pilar Distajo-
Tapar, and Rizaldo Distajo,[9] demanded possession of the seven parcels of
land from Lagrimas S. Distajo, and her husband, Rufo Distajo. The latter
refused.
Consequently, on June 5, 1986, Ricardo Distajo, with the other heirs of
Iluminada Abiertas, namely, Ernesto Distajo, Raul Distajo, Federico Distajo,
Zacarias Distajo, Eduardo Distajo, and Pilar Distajo, filed with the Regional
Trial Court, Roxas City a complaint for recovery of possession and ownership
of Lot No. 1018, partition of Lot Nos. 1001, 1018-B, 1046, 1047, 1048, 1049,
1057, and damages.
On September 4, 1986, private respondent Lagrimas Distajo [10] filed an
answer with counterclaim.
On April 9, 1990, the trial court dismissed the complaint for lack of cause
of action, laches and prescription. The counterclaim was likewise
dismissed. The parties appealed to the Court of Appeals.[11]
On August 21, 1992, the Court of Appeals rendered its decision, [12] the
dispositive portion of which states as follows:
PREMISES CONSIDERED, the decision appealed from is hereby SET
ASIDE and a new judgment rendered, as follows:
3
WHEREFORE, the Court decides the case in favor of the defendant and
dismisses the plaintiffs complaint for lack of cause of action except with
regard to the plaintiffs claim over a 238 sq. m. portion of Lot No. 1018 (the
portion adjoining the market site and measuring seventeen meters and that
adjoining the property of E. Rodriguez measuring 14 meters). The Court
hereby Orders the partition of Lot No. 1018 to conform to the following: 238
sq. m. as above specified to belong to the plaintiffs as prayed for by them
while the rest is declared property of the defendant.
Upon partition of Lot No. 1018 in accordance with this Courts Order, the City
Assessor of Roxas City is hereby Ordered to cancel Tax Declaration 2813 in
the name of Rufo Distajo (or any subsequent tax declaration/s issued relative
to the above-cited Tax Declaration No. 2813) and forthwith to issue the
corresponding tax declarations in the names of the respective parties herein.
SO ORDERED.
On September 10, 1992, Ricardo Distajo filed a motion for
reconsideration.[13] On December 9, 1993, the Court of Appeals denied the
motion.[14]
Hence, this petition.[15]
Petitioner alleges that Iluminada Abiertas exclusively owns the seven
parcels of land delineated as Lot Nos. 1001, 1018, 1046, 1047, 1048, 1049,
and 1057, all of which should be partitioned among all her heirs. Furthermore,
Rufo Distajo cannot acquire the subject parcels of land owned by Iluminada
Abiertas because the Civil Code prohibits the administrator from acquiring
properties under his administration.[16] Rufo Distajo merely employed
fraudulent machinations in order to obtain the consent of his mother to the
sale, and may have even forged her signature on the deeds of sale of the
parcels of land.
In her comment dated May 13, 1994, private respondent Lagrimas S.
Distajo contends that Rufo Distajo rightfully owns the subject parcels of land
because of various deeds of sale executed by Iluminada Abiertas selling Lot
Nos. 1018-B, 1047 and 1046 in favor of Rufo Distajo and Lot No. 1057 in favor
of Rhodora Distajo. Private respondent also avers that petitioner cannot claim
any right over Lot Nos. 1001, 1048 and 1049, considering that such lands
belong to the brother of Iluminada Abiertas, namely, Justo Abiertas, Jr., whose
heirs sold said parcels of land to Rufo Distajo.
The petition lacks merit.
Factual findings of the trial court will not be disturbed on appeal unless
the court has overlooked or ignored some fact or circumstance of sufficient
weight or significance, which, if considered, would alter the result of the
case.[17]When there is no conflict between the findings of the trial and appellate
courts, a review of the facts found by the appellate court is unnecessary. [18]
Since the trial court and the Court of Appeals agree that Iluminada
Abiertas owned Lot Nos. 1046, 1057 and a portion of Lot No. 1047, and that
Justo Abiertas Jr. owned Lot Nos. 1001, 1048, and 1049, such findings are
binding on this Court, which is not a trier of facts.[19] However, the record shows
that Lot No. 1018 should be divided into Lot No. 1018-A and 1018-B, the
delineation of which the Court of Appeals clarified in its decision.
The issues in this case, therefore, are limited to those properties which
were owned by Iluminada Abiertas, ascendant of petitioner, consisting of Lot
Nos. 1018-A, 1046, 1057, and a portion of 1047.
In his petition, Ricardo Distajo assails the genuineness of the signatures
of Iluminada Abiertas in the deeds of sale of the parcels of land, and claims
that Rufo Distajo forged the signature of Iluminada Abiertas. However, no
handwriting expert was presented to corroborate the claim of
forgery. Petitioner even failed to present a witness who was familiar with the
signature of Iluminada Abiertas. Forgery should be proved by clear and
convincing evidence, and whoever alleges it has the burden of proving the
same.[20]
Petitioner likewise contends that the sale transactions are void for having
been entered into by the administrator of the properties. We disagree. The
pertinent Civil Code provision provides:
Art. 1491. The following persons cannot acquire by purchase, even at a
public or judicial auction, either in person or through the mediation of
another:
(1) The guardian, the property of the person or persons who may be
under guardianship;
(2) Agents, the property whose administration or sale may have
been entrusted to them, unless the consent of the principal has
been given;
(3) Executors and administrators, the property of the estate under
administration; x x x
Under paragraph (2) of the above article, the prohibition against agents
purchasing property in their hands for sale or management is not absolute. It
does not apply if the principal consents to the sale of the property in the hands
of the agent or administrator. In this case, the deeds of sale signed by
Iluminada Abiertas shows that she gave consent to the sale of the properties
in favor of her son, Rufo, who was the administrator of the properties. Thus,
4
the consent of the principal Iluminada Abiertas removes the transaction out of
the prohibition contained in Article 1491(2).
Petitioner also alleges that Rufo Distajo employed fraudulent
machinations to obtain the consent of Iluminada Abiertas to the sale of the
parcels of land. However, petitioner failed to adduce convincing evidence to
substantiate his allegations.
In the absence of any showing of lack of basis for the conclusions made
by the Court of Appeals, this Court finds no cogent reason to reverse the ruling
of the appellate court.
WHEREFORE, the Court DENIES the petition and AFFIRMS the decision
of the Court of Appeals in CA-G.R. CV No. 30063.
SO ORDERED.
G.R. No. L-65594 July 9, 1986
MAHARLIKA PUBLISHING CORPORATION, ANGELA CALICA, ADOLFO
CALICA and the HEIRS OF THE LATE PIO CALICA, petitioners,
vs.
SPOUSES LUZ R. TAGLE and EDILBERTO TAGLE and the
GOVERNMENT SERVICE INSURANCE SYSTEM and the HONORABLE
INTERMEDIATE APPELLATE COURT, respondents.
GUTIERREZ, JR., J.:
The Government Service Insurance System (GSIS) was the registered owner
of a parcel of land consisting of 1,373 square meters situated in the district of
Paco and covered by Transfer Certificate of Title No. 5986 of the Registry of
Deeds of Manila.
On June 4, 1963, the GSIS entered into a conditional contract to sell the
parcel of land to petitioner Maharlika Publishing Corporation (Maharlika for
short) together with the building thereon as well as the printing machinery
and equipment therein. Among the conditions of the sale are that the
petitioner shall pay to the GSIS monthly installments of P969.94 until the total
purchase price shall have been fully paid and that upon the failure of
petitioner to pay any monthly installment within ninety (90) days from due
date, the contract shall be deemed automatically cancelled.
After Maharlika failed to pay the installments for several months, the GSIS,
on June 7, 1966, notified Maharlika in writing of its arrearages and warned
Maharlika that the conditions of the contract would be enforced should
Maharlika fail to settle its account within fifteen (15) days from notice.
Because of Maharlika's failure to settle the unpaid accounts, the GSIS
notified Maharlika in writing on June 26, 1967 that the conditional contract of
sale was annulled and cancelled and required Maharlika to sign a lease
contract. Maharlika refused to vacate the premises and to sign the lease
contract.
Sometime later, the GSIS published an invitation to bid several acquired
properties, among which was the property in question, to be held at the
Office of the General Manager, second floor, GSIS Building, Arroceros
Street, Manila, from 9:00 a.m. to 3:00 p.m. on February 12, 1971.
Meanwhile, on February 11, 1971, or one day before the scheduled public
bidding, Maharlika represented by its president Adolfo Calica addressed to
GSIS a letter-proposal to repurchase their foreclosed properties proposing
that they be allowed to pay P11,000.00 representing ten percent (10%) of
their total account; that they be allowed to pay P18,300.00 as balance to
complete the twenty-five percent (25%) of their total arrearages(
P117,175.00) not later than February 28, 1971 and the remaining seventy-
five percent (75%) to be paid in twenty four (24) months.
This letter-proposal was discussed by Adolfo Calica with GSIS Board Vice-
Chairman Leonilo Ocampo, who wrote a note to the General Manager
Roman Cruz, Jr., the last paragraph of which reads as follows:
It sounds fair and reasonable subject to your wise judgment,
as usual. (Exhibit 4, Maharlika)
Said letter-proposal and Ocampo's note were taken by Calica to General
Manager Cruz, Jr., who, in turn, wrote on the face of Exhibit 4-Maharlika a
note to one Mr. Ibaez which reads: "Hold Bidding. Discuss with me." The
letter-proposal together with two (2) checks amounting to P11,000.00 were
submitted to the office of General Manager Cruz, Jr. and were received by
his Secretary.
On February 12, 1971, however, the public bidding of this particular property
was held as scheduled prompting Adolfo Calica to submit his bid to the
Bidding Committee with a deposit of P11,000.00 represented by the same
two checks submitted to General Manager Cruz, Jr., together with his letter-
proposal. His bid proposal reads: "I bid to match the highest bidder."
The bidding committee rejected Maharlika's bid as an imperfect bid and
recommended acceptance of private respondent Luz Tagle's bid of
P130,000.00 with a ten percent (10%) deposit of P13,000.00.
5
On February 19, 1971, the GSIS addressed a letter to Adolfo Calica
informing him of the non-acceptance of his bid and returning his two checks.
After approval and confirmation of the sale of the subject property to Luz
Tagle on April 20, 1971, the GSIS executed a Deed of Conditional Sale in
favor of the Tagles on June 8, 1971.
Due to the refusal of petitioners to surrender the possession of the property
in question, respondent spouses Luz R. Tagle and Edilberto Tagle filed a
case for Recovery of Possession with Damages with the Court of First
Instance of Manila which rendered the following decision on May 15, 1974:"
IN VIEW OF THE FOREGOING CONSIDERATIONS, the
Court hereby renders judgment:
(a) declaring the letter-proposal (Exh.. 3-Maharlika)
ineffective and without any binding effect, being imperfect to
create any contractual relation between GSIS and
defendants Maharlika and Adolfo Calica;
(b) declaring plaintiffs and (sic) entitled to the possession of
the properties in question and directing, therefore,
defendants Maharlika and Adolfo Calica, or any person or
persons holding or possessing the properties in their behalf,
to forthwith vacate the properties in question and to
surrender the same to the plaintiffs;"
(c) dismissing the complaint as against defendants 'Heirs of
the deceased Pio Calica' (except Angela Calica) it appearing
that they were not properly summoned and represented in
the instant suit:"
(d) directing the defendants Maharlika, Adolfo Calica and
Angela Calica, to pay jointly and severally the plaintiffs a
monthly rental of the properties in question in the sum of
P976.00 a month commencing 12 February 1971, until the
said properties are vacated by said defendants, with legal
interest of all sums due from 12 Feb. 1971 up to the
rendition of this judgment in this instant suit, such interest to
commence from the filing of the complaint until the same is
fully paid; and that such monthly rentals commencing from
the date of this judgment, shall also earn interest at the legal
rate unless paid within the first ten days of the current month
for the rental of the preceding month;"
(e) dismissing the counterclaim of defendants Maharlika and
the Calicas against plaintiffs;
(f) dismissing the cross-claim of defendants Maharlika and
the Calicos against defendant GSIS;"
(g) dismissing all other claims which the parties may have
against each other; and
(h) directing defendants Maharlika, Adolfo Calica and Angela
Calica to pay the costs of this suit.
After a motion to set aside judgment and grant a new trial was denied by the
trial court for lack of merit, the case was brought on appeal to the former
Court of Appeals on April 8, 1976. On March 2, 1983, the Intermediate
Appellate Court affirmed the decision of the trial court, stating as follows:
xxx xxx xxx
The mere offer to repurchase of the subject property and the
deposit of the amount of P11,000.00 by the defendants on
February 11, 1971, does not have the effect of reviving the
conditional deed of sale (Exhibit 4-GSIS, Ibid, p. 29)
executed by the GSIS and the defendants. To revive the
said contract, and for the defendants to be deemed to have
repurchased the subject property, there should have been
payment in favor of the GSIS of all the installments due and
interests thereon in the total amount of P117,175.00 as of
February 11, 1971
But the defendants insist that the notations of Leonilo M.
Ocampo, Vice-Chairman of the GSIS Board of Trustees, to
GSIS General Manager Roman Cruz, Jr. (Exhibits 4-A and
4-B Maharlika, Ibid, p. 76) as well as the notation of GSIS
General Manager Roman Cruz, Jr.' to hold bidding. Discuss
with me' (Exhibit 4-C Maharlika, Ibid, p. 76) means that the
GSIS had accepted defendants' offer and had revived the
conditional contract of sale dated June 4, 1963.
This interpretation is far-fetched. The notations referred to by
the defendants do not show acceptance of defendants' offer
to repurchase the subject property. In fact, the defendants
themselves were aware that their offer was not accepted at
all because they submitted to and participated in the bidding
6
 of the subject property on February 12,1971 (Exhibits K, K-1,
6, 6-A, Ibid, pp. 16-34), using its letter- proposal as deposit
for its bid. But defendants' bid was rejected because it was
imperfect and not accompanied with a deposit of 10% of the
highest bid (Exhibits B-1, 7 GSIS, 7-A Maharlika, Ibid, pp. 5,
35), and that defendants' bid did not contain a specific bid
price proposal (Exhibit 7 GSIS, Ibid, p. 35).
The consequent auction sale of the property on February 12,
1971 and execution of the conditional deed of sale in favor of
the plaintiffs (Exhibit A, Ibid, p. 1) is valid. The plaintiffs are
entitled to the possession of the subject property.
xxx xxx xxx
A motion for reconsideration and/or new trial was filed by petitioners. The
motion was denied by the respondent Appellate Court.
Hence, this petition for review on certiorari filed on December 16,1983.
On January 9, 1984, we resolved to deny in a minute resolution, the petition
for lack of merit. A timely motion for reconsideration was filed by the
petitioners which contained the following reasons to warrant review of the
case:
It is apparent that petitioners will suffer serious injustice,
consisting in the loss of the subject property, by reason of
the failure of respondent Court to decide questions of
substance involved herein in a way not in accord with law
and the applicable decisions of this Honorable Court, such
questions being the following:
(1) Whether or not respondent Edilberto Tagle's being a
GSIS officer at the time of the sale by the GSIS of the
subject property to his wife should be allowed to be
introduced as newly discovered evidence or at any rate
received in the interest of justice;"
(2) Whether or not respondent Court acted with grave abuse
of discretion in ignoring the irregular appearance of
respondent Luz Tagle's bid and the inference of fraud
flowing therefrom in the context of surrounding
circumstances;
(3) Whether or not the auction sale in question is void for
having been conducted despite the directive of the GSIS
General Manager to suspend the same in virtue of
petitioners' offer to repurchase the subject property and their
payment of P11,000.00 in checks as earnest money which
he accepted.
Significantly, on September 21, 1984, the GSIS filed a Supplemental
Memorandum submitting for resolution of this Court the matter of whether the
respondent spouses Luz and Edilberto Tagle can still enforce their claim as
winning bidders considering the fact that they have so far made only two
payments to the GSIS amounting to P32,500.00 in violation of the terms and
conditions of the conditional sale executed in their favor and which provides
for its automatic cancellation in such case, or whether the petitioners can still
repurchase the property in question as original owners thereof.
We find the petitioners' motion for reconsideration impressed with merit.
The certification secured by the petitioners from GSIS on April 28, 1983
shows that Edilberto Tagle was Chief, Retirement Division, GSIS, from 1970
to 1978. He worked for the GSIS since 1952. Strictly speaking, the evidence
of Mr. Tagle's being a GSIS official when his wife bid for the disputed
property is not newly discovered evidence. However, we cannot simply
ignore the fact that on February 12, 1971 when Adolfo Calica was
desperately trying to retrieve the property foreclosed against him, after
receiving assurances from the highest GSIS officials that his letter- proposal
would be accepted and after the sale at public auction of the property was, in
fact, ordered to be stopped, the wife of a GSIS official would be allowed to
bid for that property and would actually win in the bidding.
As stated by the petitioners, this important factor implicit in good government,
should have been considered in the interest of justice. It was incumbent
under the law for GSIS to have rejected the bid of the wife of a GSIS official
and to have refused to enter into the deed of conditional sale with the
respondents Tagle.
The petitioners bank on the allegation that the indirect participation of
Edilberto Tagle in the public bidding creates a "conflict of interests situation"
which invalidates the aforesaid transaction under the precept laid down in
Article 1409 paragraph (1) of the Civil Code making his participation void for
being contrary to morals, good customs, and public policy.
The Supreme Court has ample authority to go beyond the pleadings when in
the interest of justice and the promotion of public policy there is a need to
make its own finding to support its conclusions. In this particular case, there
7
is absolutely no doubt that Mr. Edilberto Tagle was a GSIS Division Chief
when his wife bid for the property being sold by GSIS. The only issue is
whether or not to consider this fact because it surfaced only after trial proper.
We declare it to be a policy of the law that public officers who hold positions
of trust may not bid directly or indirectly to acquire prop properties foreclosed
by their offices and sold at public auction.
Article XIII, Section 1 of our Constitution states that:
Public office is a public trust. Public officers and employees
shall serve with the highest degree of responsibility, integrity,
loyalty and efficiency, and shall remain accountable to the
people.
We stated in Ancheta vs. Hilario (96 SCRA 62);
xxx xxx xxx
...A public servant must exhibit at all times the highest sense of honesty and
integrity. ...
Under Article 1491 of the Civil Code the following persons cannot acquire by
purchase, even at a public or judicial auction, either in person or through the
mediation of another:
(1) The guardian, the property of the person or persons who
may be under his guardianship;
(2) Agents, the property whose administration or sale may
have been intrusted to them, unless the consent of the
principal has been given;
(3) Executors and administrators, the property of the estate
under administration;
(4) Public officers and employees, the property of the State
or of any subdivisions thereof, or of any government owned
or controlled corporation, or institution, the administration of
which has been intrusted to them; this provision shall apply
to judges and government experts who, in any manner
whatsoever, take part in the sale;
(5) Justices, judges, prosecuting attorneys, clerk of superior
and inferior courts, and other officers 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;
(6) Any others specially disqualified by law.
In so providing, the Code tends to prevent fraud, or more precisely, tends not
to give occasion for fraud, which is what can and must be done
(Francisco, Sales, p. 111). We, therefore, reject the contention of
respondents that the fact that Edilberto Tagle was, at the time of the public
bidding, a GSIS official, will not alter or change the outcome of the case.
A Division Chief of the GSIS is not an ordinary employee without influence or
authority. The mere fact that he exercises ample authority with respect to a
particular activity, i.e., retirement, shows that his influence cannot be lightly
regarded.
The point is that he is a public officer and his wife acts for and in his name in
any transaction with the GSIS. If he is allowed to participate in the public
bidding of properties foreclosed or confiscated by the GSIS, there will always
be the suspicion among other bidders and the general public that the insider
official had access to information and connections with his fellow GSIS
officials as to allow him to eventually acquire the property. It is precisely the
need to forestall such suspicions and to restore confidence in the public
service that the Civil Code now declares such transactions to be void from
the beginning and not merely voidable (Rubias vs. Batiller, 51 SCRA 120).
The reasons are grounded on public order and public policy. We do not
comment on the motives of the private respondents or the officers
supervising the bidding when they entered into the contract of sale. Suffice it
to say that it fags under the prohibited transactions under Article 1491 of the
Civil Code and, therefore, void under Article 1409.
In the case of Garciano vs. Oyao (102 SCRA 195), this Court held:
xxx xxx xxx
...We need not exaggerate the importance of being
absolutely free from any suspicion which may unnecessarily
8
 erode the faith and confidence of the People in their
government. As the Constitution categorically declared:
'Public office is a public trust. Public officers and employees
shall serve with the highest degree of responsibility, integrity,
loyalty and efficiency, and shall remain accountable to the
people' (Art. XIII, Sec. 1, Constitution).
xxx xxx xxx
Respondent Wilfredo Oyao, should avoid so far as
reasonably possible a situation which would normally tend to
arouse any reasonable suspicion that he is utilizing his
official position for personal gain or advantage to the
prejudice of party litigants or the public in general. In the
language of then Justice, now Chief Justice Enrique M.
Fernando in the case of Pineda vs. Claudio (28 SCRA 34,
54): 'There may be occasion then where the needs of the
collectivity that is the government may collide with his private
interest as an individual.
In Mclain vs. Miller County (23 SW 2d. 2-4; 255) the Court ruled that:
As the efficiency of the public service is a matter of vital
concern to the public, it is not surprising that agreements
tending to injure such service should be regarded as being
contrary to public policy. It is not necessary that actual fraud
should be shown, for a contract which tends to the injury of
the public service is void, although the parties entered into it
honestly, and proceeded under it in good faith. The courts do
not inquire into the motives of the parties in the particular
case to ascertain whether they were corrupt or not, but stop
when it is ascertained that the contract is one which is
opposed to public policy. Nor is it necessary to show that
any evil was in fact, done by or through the contract. The
purpose of the rule is to prevent persons from assuming a
position where selfish motives may impel them to sacrifice
the public good to private benefit.
There is no need, therefore, to pass upon the issue of irregularity in the
appearance of the private respondents' bid and the alleged inference of fraud
flowing therefrom.
We reiterate that assuming the transaction to be fair and not tainted with
irregularity, it is still looked upon with disfavor because it places the officer in
a position which might become antagonistic to his public duty.
There are other grounds which contain us to grant this petition.
We now come to the issue whether or not there was a repurchase of the
property in question from the GSIS effected by the petitioners the day before
the public bidding.
In Article 1475 of the Civil Code, we find that "the contract of sale is
perfected at the moment there is a meeting of minds upon the thing which is
the object of the contract and upon the price. From that moment, the parties
may reciprocally demand performance, subject to the law governing the form
of contracts. "
This Court in the case of Central Bank of the Philippines vs. Court of
Appeals (63 SCRA 431) ruled on the perfection of government contracts in
the following manner:
We are not persuaded that petitioner's posture conforms with
law and equity. According to Paragraph IB 114.1 of the
Instructions to Bidders, Ablaza was 'required to appear in the
office of the Owner (the Bank) in person, or, if a firm or
corporation, a duly authorized representative (thereof )and to
execute the contract within five (5) days after notice that the
contract has been awarded to him. Failure or neglect to do
so shall constitute a breach of agreement effected by the
acceptance of the Proposal. There can be no other meaning
of this provision than that the Bank's acceptance of the bid of
respondent Ablaza effected an actionable agreement
between them. We cannot read it in the unilateral sense
suggested by petitioner that it bound only the contractor,
without any corresponding responsibility or obligation at all
on the part of the Bank. An agreement presupposed a
meeting of minds and when that point is reached in the
negotiations between two parties intending to enter into a
contract, the purported contract is deemed perfected and
none of them may thereafter disengage himself therefrom
without being liable to the other in an action for specific
performance. "
In American Jurisprudence, 2d., Section 73 (pp. 186-187), we read:
The principle is fundamental that a party cannot be held to
have contracted if there was no assent, and this is so both
as to express contracts and contracts implied in fact. There
must be mutual assent or a meeting of minds in all essential
elements or terms in order to form a binding contract.
9
 However, ordinarily no more is meant by this than an
expression or manifestation of mutual assent, as an
objective thing, is necessary, and that is generally deemed
sufficient in the formation of a contract ... In other words,
appropriate conduct by the parties may be sufficient to
establish an agreement, and there may be instances where
interchanged correspondence does not disclose the exact
point at which the deal was closed, but the actions of the
parties may indicate that a binding obligation has been
undertaken.
It is undisputed that when the letter-proposal of petitioners was presented to
GSIS General Manager Roman Cruz, Jr., he wrote on the face of such letter
the words "Hold Bidding. Discuss with me." These instructions were
addressed to one Mr. Ibaez who was in-charge of public bidding.
Thereafter, a deposit of P11,000.00 in checks was accepted by the Secretary
of Mr. Roman Cruz, Jr. In the light of these circumstances an inference may
be made that General Manager Cruz, Jr. had already accepted the
petitioners' offer of repurchase or at the very least had led them to
understand that he had arrived at a decision to accept it.
It should also be noted that there is no serious denial as to General Manager
Cruz, Jr.'s capacity to enter into binding contractual obligations for GSIS
without the prior approval of the Board of Trustees.
On the other hand, the letter of endorsement made by the GSIS Board Vice-
Chairman Leonilo Ocampo which states ...subject to your wise judgment, as
usual leads one to conclude that it has been the practice of GSIS to permit
the General Manager to do acts within the scope of his apparent authority.
In the case of Francisco vs. Government Service Insurance System (7 SCRA
577), we held that:
xxx xxx xxx
... Corporate transactions would speedily come to a standstill
were every person dealing with a corporation held duty-
bound to disbelieve every act of its responsible officers, no
matter how regular they should appear on their face. This
Court has observed in Ramirez vs. Orientalist Co., 38 Phil.
634, 654-655, that
In passing upon the liability of a corporation in cases of this
kind it is always well to keep in mind the situation as it
presents itself to the third party with whom the contract is
made. Naturally he can have little or no information as to
what occurs in corporate meetings; and he must necessarily
rely upon the external manifestation of corporate consent.
The integrity of commercial transactions can only be
maintained by holding the corporation strictly to the liability
fixed upon it by its agents in accordance with law; and we
would be sorry to announce a doctrine which would permit
the property of a man in the city of Paris to be whisked out of
his hands and carried into a remote quarter of the earth
without recourse against the corporation whose name and
authority had been used in the manner disclosed in this
case. As already observed, it is familiar doctrine that if a
corporation knowingly permits one of its officers, or any other
agent, to do acts within the scope of an apparent authority,
and thus holds him out to the public as possessing power to
do those acts, the corporation will, as against any one who
has in good faith dealt with the corporation through such
agent, be estopped from denying his authority; and where it
is said if the corporation permits' this means the same as 'if
the thing is permitted by the directing power of the
corporation.
We note that the petitioners are not complete strangers entering into a
contract with respondent GSIS for the first time. There was an earlier
contract to sell the same properties to the petitioners. That contract was
perfected and there had been partial compliance with its terms. The
transaction now under question in this case merely referred to the curing of
certain defects which led to the cancellation of the earlier contract by GSIS.
Under the peculiar circumstances of this case, therefore, the acceptance of
the petitioners' letter-proposal by Mr. Roman Cruz, Jr., the person with
authority to do so, and his order to his subordinates to stop the bidding so
that they could first discuss the matter with him, created an agreement of
binding nature with the petitioners.
WHEREFORE, the decision and resolution of the Intermediate Appellate
Court subject of the instant petition for review on certiorari are hereby SET
ASIDE. The conditional sale entered into between public respondent GSIS
and private respondents Luz and Edilberto Tagle is declared NULL and VOID
for being contrary to public policy. The prayer of petitioners for the
repurchase of the subject property in an amount equal to the amount offered
by private respondents and to retain ownership and possession of the
disputed property is GRANTED.
SO ORDERED.
10
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:
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.
11
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 (Sgd.) CRISTETA F. MAGLINTE
(Witness) (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 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
12
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
13
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 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. 632 June 27, 1940
In re Attorney MELCHOR E. RUSTE, respondent,
The respondent in his own behalf.
Office of the Solicitor-General Hilado for the Government.
LAUREL, J.:
By virtue of an administrative complaint filed by Mateo San Juan against
Melchor E. Ruste on February 27, 1934, to which the respondent made
answer on March 15, 1934, this Court, by resolution of December 1, 1934,
referred the case to the Solicitor-General for report. The reference brought
forth the following formal complaint filed by the Solicitor-General against the
respondent on March 26, 1935:
Comes now the undersigned Solicitor-General of the Philippine
Islands in the above entitled administrative case, and pursuant to the
provisions of Rule 5 of the rules concerning disbarment or
14
suspension of attorneys-at-law, to this Honorable Supreme Court,
respectively alleges:
1. That in cadastral case No. 6, G. L. R. O. Record No. 483 of the
Court of First Instance of Zamboanga, the respondent, Melchor E.
Ruste, appeared for and represented, as counsel, Severa Ventura
and her husband, Mateo San Juan, the herein complainant, who
claimed lot No. 3765; and as a result of said cadastral proceedings,
an undivided eleven-twentieth (11/20) share of said lot was
adjudicated by said court to said claimants;
2. That there was no agreement the respondent and his said clients
as to the amount of his fees; but that they paid to him upon demand
on different occasions the sums of (30 and P25 as attorney's fees;
3. That after said payments, the respondent again demanded of the
complainant and his wife as additional fees the sum of P25, but they
had no money to pay, him, and so he asked them to execute in his
favor a contract of lease, and a contract of sale, of their share in said
lot No. 3764 in order that he may be able to borrow or raise said sum
of P25;
4. That in accordance with said respondent's request, the
complainant and his wife executed on September 22, 1930, a
contract of lease, whereby in consideration of P100, they leased to
him their coconut and banana plantation in said lot No. 3764 for a
term of five years, and also a deed of sale, whereby in consideration
of P1,000, they sold and transferred to him their undivided eleven-
twentieth (11/20) share in said lot No . 3764, although, ,in fact and in
truth, neither of the consideration mentioned in said contracts of
lease and sale were ever receive by them;
5. That on March 21, 1931, the respondent executed a deed of sale,
whereby in consideration of P370 he sold and transferred to Ong
Chua said undivided eleven-twentieth (11/20) share in lot No. 3764
excluding the house and its lot, occupied by the complainant and his
wife; and on March 28, 1931, the respondent executed another deed
of sale, whereby in consideration of the same amount of P370 paid
to him by the same Ong Chua, he sold and transferred to the latter
the same undivided eleven-twentieth (11/20") share in lot No. 3764,
but already including said houses and its lot;
6. That by virtue of the sale to him, Ong Chua has taken possession
of said eleven-twentieth share in lot No. 3764;
7. That notwithstanding said second deed of sale, the respondent
obtained from Ong Chua to allow the complaint and his wife to
continue living house for a period of two years without paying any
rent;
8. That on October 10, 1933, however, the respondent notified the
complainant and his wife in writing that the said house still belonged
to the respondent, and requires said spouses to pay, the sum of
P40.50, representing ten months' rental in arrears, and thereafter a
monthly rental of P1.50; and
9. That the respondent did not turn over to the complainant and his
wife the amount of P370 paid by Ong Chua nor any part thereof.
Wherefore, the undersigned prays that disciplinary action be taken
against the respondent.
To the foregoing complaint, the respondent, on April 23, 1935, interposed the
following answer:
Comprarece el infrascrito, en su propiarepresentacion y a la
Honorable Corte Suprema, alega:
Niega, general y especificamente sus alegaciones en dicha
demanda, sobretodo en cuanto al pago de cantidades monetarias
alli especificadas, y como defensa especial, alega:
Que el denunciante Mateo San Juan, y sus testigos Esperato Bucoy
y Severa Ventura han infringido la Ley del Perjurio; ademasd el
Fiscal Provincial Jose Evangelista es una parte interesada en el
resultado de este asunto;
Por todo lo expuesto, al Honorable Tribunal pide:
(a) Que para la substanciacion de esta causa que actue de Fiscal, el
Honorable Enrique Braganza, Fiscal de Jolo, Sulu;
(b) Que dicho Honorable Fiscal Enrique Braganza, sea requerido a
investigar a los testigos, Esperato Bucoy y Severa, Ventura, y la Ley
del Perjirio tal como esta enmendada.
Sometido respetuosamente.
15
By resolution of this court of April 24, 1935, the said formal complaint and
answer were referred to the judge of First Instance of Zamboanga for
investigation, report, and recommendation. After various and postponements,
transpiring between August 3, 1935 and October 18, 1939, the Honorable
Catalino Buenaventura, then presiding over the Court of First Instance of
Zamboanga, elevated the record of the case of this court. On October 31,
1939, the case was included in the January, 1940 calendar, and at the
hearing thereof on February 1, 1940, the respondent submitted the case
without oral argument, and the memorandum presented by the Solicitor-
General, recommending the dismissal of the complaint filed against
respondent, was ordered attached to the record.
From a perusal of the entire record, particularly of the formal complaint filed
by the Solicitor-General against the respondent attorney, we gather the
following material charges formulated against the latter, to wit, (1) that he
engineered the execution in his favor, by the spouses Mateo San Juan and
Severa Ventura, of the contract of lease, Exhibit A, and of the deed of sale,
Exhibit B, covering the property in question; (2) that he did turn over the
considerations therefor to the said spouses; (3) that he likewise deeded the
same property to one Ong Chua, for P370, without paying the spouses the
said purchase price, and (4) that he required the spouses to pay (40.50 for
ten months' rental in arrears, and thereafter a monthly rental of P1.50 for the
house occupied by the said spouses.
Sometime in July, 1930, the respondent acted as counsel for the complainant
and his wife when the latter laid claim of ownership upon lot No. 3764 in case
No. 6, G. L. R. O., Cadastral Record 483 of the Court of First Instance of
Zamboanga, eleven-twentieth of said lot having been eventually adjudicated
to the wife, Severa Ventura, on December 20, 1933. On September 22,
1930, that is, during pendency of said cadastral case, the spouses
purportedly leased a part of said lot to the respondent for P100, which lease
was cancelled and superseded by a deed of sale executed on the same
date, whereby the said spouses, in consideration of P1,000, conveyed
eleven-twentieth of the same land in favor of the respondent. This is also the
finding of the Solicitor-General in his report submitted in this case:
. . . convinieron cancelar el arrendamiento y otorgar en sustitucion
un contrato de compraventa absoluta a favor del recurrido, como en
efecto se hizo y es el Exhibito B (pp. 37-38, Rollo 1), por cuyo
documento Severa Ventura con el consentimiento marital
correspondiente vendio definitivamente al recurrido su participacion
pro indivisa da 11/20 partes en el rferido lote, y estando aun el
mismo pendiente de vista u decision el Expediente Catastral No. 6,
Record No. 483, del Juzgado de Primera Instancia de Zamboanga.
(Pp. 19-20.)
The property being thus in suit, which the respondent was waging on behalf
of his clients, his acquisition thereof by the deed of sale, Exhibit B,
constitutes malpractice. (Hernandez vs. Villanueva, 40 Phil., 775; In
re Calderon, 7 Phil. 427.) Whether the deed of sale in question was executed
at the instance of the spouses driven by financial necessity, as contended by
the respondent, or at the latter's behest, as contended by the complainant, is
of no moment. In either case as attorney occupies a vantage position to
press upon or dictate his terms to a harassed client, in breach of the "rule so
amply protective of the confidential relations, which must necessarily exist
between attorney and client, and of the rights of both."
(Hernandez vs. Villanueva, supra.)
There is evidence to show that the respondent has failed to account to the
aggrieved spouses for the various amounts received by him on account of
the transactions effected by him pertaining to the portion of lot No. 3764.
However, as the evidence is conflicting and the statements of the parties are
contradictory on this point, it is believed that the determination of the exact
amount due them by the respondent should better elucidated and determined
in an appropriate action which the complaint and his spouse may institute
against the respondent for this purpose.
For having improperly acquired the property referred to in Exhibits A and B,
under the above circumstances, which property was then subject matter of a
judicial proceedings, in which he was counsel, the respondent is found guilty
of malpractice and is hereby suspended for a period of one year, reserving to
the complainant and his spouse such action as may by proper for the
recovery of such amount or amounts as may be due from the respondent. So
ordered.
Avancea, C.J., Imperial, Diaz, Concepcion and Moran, JJ., concur.
G.R. No. 91029 February 7, 1991
NORKIS DISTRIBUTORS, INC., petitioner,
vs.
THE COURT OF APPEALS & ALBERTO NEPALES, respondents.
Jose D. Palma for petitioner.
Public Attorney's Office for private respondent.
GRIO-AQUINO, J.:
16
Subject of this petition for review is the decision of the Court of Appeals
(Seventeenth Division) in CA-G.R. No. 09149, affirming with modification the
judgment of the Regional Trial Court, Sixth (6th) Judicial Region, Branch LVI.
Himamaylan, Negros Occidental, in Civil Case No. 1272, which was private
respondent Alberto Nepales' action for specific performance of a contract of
sale with damages against petitioner Norkis Distributors, Inc.
The facts borne out by the record are as follows:
Petitioner Norkis Distributors, Inc. (Norkis for brevity), is the distributor of
Yamaha motorcycles in Negros Occidental with office in Bacolod City with
Avelino Labajo as its Branch Manager. On September 20, 1979, private
respondent Alberto Nepales bought from the Norkis-Bacolod branch a brand
new Yamaha Wonderbike motorcycle Model YL2DX with Engine No. L2-
329401K Frame No. NL2-0329401, Color Maroon, then displayed in the
Norkis showroom. The price of P7,500.00 was payable by means of a Letter
of Guaranty from the Development Bank of the Philippines (DBP),
Kabankalan Branch, which Norkis' Branch Manager Labajo agreed to accept.
Hence, credit was extended to Nepales for the price of the motorcycle
payable by DBP upon release of his motorcycle loan. As security for the loan,
Nepales would execute a chattel mortgage on the motorcycle in favor of
DBP. Branch Manager Labajo issued Norkis Sales Invoice No. 0120 (Exh.1)
showing that the contract of sale of the motorcycle had been perfected.
Nepales signed the sales invoice to signify his conformity with the terms of
the sale. In the meantime, however, the motorcycle remained in Norkis'
possession.
On November 6, 1979, the motorcycle was registered in the Land
Transportation Commission in the name of Alberto Nepales. A registration
certificate (Exh. 2) in his name was issued by the Land Transportation
Commission on November 6, 1979 (Exh. 2-b). The registration fees were
paid by him, evidenced by an official receipt, Exhibit 3.
On January 22, 1980, the motorcycle was delivered to a certain Julian
Nepales who was allegedly the agent of Alberto Nepales but the latter denies
it (p. 15, t.s.n., August 2, 1984). The record shows that Alberto and Julian
Nepales presented the unit to DBP's Appraiser-Investigator Ernesto Arriesta
at the DBP offices in Kabankalan, Negros Occidental Branch (p. 12, Rollo).
The motorcycle met an accident on February 3, 1980 at Binalbagan, Negros
Occidental. An investigation conducted by the DBP revealed that the unit
was being driven by a certain Zacarias Payba at the time of the accident (p.
33, Rollo). The unit was a total wreck (p. 36, t.s.n., August 2,1984; p.
13, Rollo), was returned, and stored inside Norkis' warehouse.
On March 20, 1980, DBP released the proceeds of private respondent's
motorcycle loan to Norkis in the total sum of P7,500. As the price of the
motorcycle later increased to P7,828 in March, 1980, Nepales paid the
difference of P328 (p. 13, Rollo) and demanded the delivery of the
motorcycle. When Norkis could not deliver, he filed an action for specific
performance with damages against Norkis in the Regional Trial Court of
Himamaylan, Negros Occidental, Sixth (6th) Judicial Region, Branch LVI,
where it was docketed as Civil Case No. 1272. He alleged that Norkis failed
to deliver the motorcycle which he purchased, thereby causing him damages.
Norkis answered that the motorcycle had already been delivered to private
respondent before the accident, hence, the risk of loss or damage had to be
borne by him as owner of the unit.
After trial on the merits, the lower court rendered a decision dated August 27,
1985 ruling in favor of private respondent (p. 28, Rollo.) thus:
WHEREFORE, judgment is rendered in favor of the plaintiff and
against the defendants. The defendants are ordered to pay solidarity
to the plaintiff the present value of the motorcycle which was totally
destroyed, plus interest equivalent to what the Kabankalan Sub-
Branch of the Development Bank of the Philippines will have to
charge the plaintiff on fits account, plus P50.00 per day from
February 3, 1980 until full payment of the said present value of the
motorcycle, plus P1,000.00 as exemplary damages, and costs of the
litigation. In lieu of paying the present value of the motorcycle, the
defendants can deliver to the plaintiff a brand-new motorcycle of the
same brand, kind, and quality as the one which was totally destroyed
in their possession last February 3, 1980. (pp. 28-29, Rollo.)
On appeal, the Court of appeals affirmed the appealed judgment on August
21, 1989, but deleted the award of damages "in the amount of Fifty (P50.00)
Pesos a day from February 3, 1980 until payment of the present value of the
damaged vehicle" (p35, Rollo). The Court of Appeals denied Norkis' motion
for reconsideration. Hence, this Petition for Review.
The principal issue in this case is who should bear the loss of the motorcycle.
The answer to this question would depend on whether there had already
been a transfer of ownership of the motorcycle to private respondent at the
time it was destroyed.
Norkis' theory is that:
. . . After the contract of sale has been perfected (Art. 1475) and
even before delivery, that is, even before the ownership is
17
 transferred to the vendee, the risk of loss is shifted from the vendor
to the vendee. Under Art. 1262, the obligation of the vendor to
deliver a determinate thing becomes extinguished if the thing is lost
by fortuitous event (Art. 1174), that is, without the fault or fraud of the
vendor and before he has incurred in delay (Art. 11 65, par. 3). If the
thing sold is generic, the loss or destruction does not extinguish the
obligation (Art. 1263). A thing is determinate when it is particularly
designated or physically segregated from all others of the same
class (Art. 1460). Thus, the vendor becomes released from his
obligation to deliver the determinate thing sold while the vendee's
obligation to pay the price subsists. If the vendee had paid the price
in advance the vendor may retain the same. The legal effect,
therefore, is that the vendee assumes the risk of loss by fortuitous
event (Art. 1262) after the perfection of the contract to the time of
delivery. (Civil Code of the Philippines, Ambrosio Padilla, Vol. 5,1987
Ed., p. 87.)
Norkis concedes that there was no "actual" delivery of the vehicle. However,
it insists that there was constructive delivery of the unit upon: (1) the
issuance of the Sales Invoice No. 0120 (Exh. 1) in the name of the private
respondent and the affixing of his signature thereon; (2) the registration of
the vehicle on November 6, 1979 with the Land Transportation Commission
in private respondent's name (Exh. 2); and (3) the issuance of official receipt
(Exh. 3) for payment of registration fees (p. 33, Rollo).
That argument is not well taken. As pointed out by the private respondent,
the issuance of a sales invoice does not prove transfer of ownership of the
thing sold to the buyer. An invoice is nothing more than a detailed statement
of the nature, quantity and cost of the thing sold and has been considered
not a bill of sale (Am. Jur. 2nd Ed., Vol. 67, p. 378).
In all forms of delivery, it is necessary that the act of delivery whether
constructive or actual, be coupled with the intention of delivering the thing.
The act, without the intention, is insufficient (De Leon, Comments and Cases
on Sales, 1978 Ed., citing Manresa, p. 94).
When the motorcycle was registered by Norkis in the name of private
respondent, Norkis did not intend yet to transfer the title or ownership to
Nepales, but only to facilitate the execution of a chattel mortgage in favor of
the DBP for the release of the buyer's motorcycle loan. The Letter of
Guarantee (Exh. 5) issued by the DBP, reveals that the execution in its favor
of a chattel mortgage over the purchased vehicle is a pre-requisite for the
approval of the buyer's loan. If Norkis would not accede to that arrangement,
DBP would not approve private respondent's loan application and,
consequently, there would be no sale.
In other words, the critical factor in the different modes of effecting delivery,
which gives legal effect to the act, is the actual intention of the vendor to
deliver, and its acceptance by the vendee. Without that intention, there is no
tradition (Abuan vs. Garcia, 14 SCRA 759).
In the case of Addison vs. Felix and Tioco (38 Phil. 404, 408), this Court
held:
The Code imposes upon the vendor the obligation to deliver the thing
sold. The thing is considered to be delivered when it is "placed in the
hands and possession of the vendee." (Civil Code, Art. 1462). It is
true that the same article declares that the execution of a public
instrument is equivalent to the delivery of the thing which is the
object of the contract, but, in order that this symbolic delivery may
produce the effect of tradition, it is necessary that the vendor shall
have had such control over the thing sold that, at the moment of the
sale, its material delivery could have been made. It is not enough to
confer upon the purchaser the ownership and the right of
possession. The thing sold must be placed in his control. When there
is no impediment whatever to prevent the thing sold passing into the
tenancy of the purchaser by the sole will of the vendor, symbolic
delivery through the execution of a public instrument is sufficient.
But if notwithstanding the execution of the instrument, the purchaser
cannot have the enjoyment and material tenancy of the thing and
make use of it himself or through another in his name, because such
tenancy and enjoyment are opposed by the interposition of another
will, then fiction yields to reality-the delivery has riot been
effects .(Emphasis supplied.)
The Court of Appeals correctly ruled that the purpose of the execution of the
sales invoice dated September 20, 1979 (Exh. B) and the registration of the
vehicle in the name of plaintiff-appellee (private respondent) with the Land
Registration Commission (Exhibit C) was not to transfer to Nepales the
ownership and dominion over the motorcycle, but only to comply with the
requirements of the Development Bank of the Philippines for processing
private respondent's motorcycle loan. On March 20, 1980, before private
respondent's loan was released and before he even paid Norkis, the
motorcycle had already figured in an accident while driven by one Zacarias
Payba. Payba was not shown by Norkis to be a representative or relative of
private respondent. The latter's supposed relative, who allegedly took
possession of the vehicle from Norkis did not explain how Payba got hold of
the vehicle on February 3, 1980. Norkis' claim that Julian Nepales was acting
as Alberto's agent when he allegedly took delivery of the motorcycle (p. 20,
Appellants' Brief), is controverted by the latter. Alberto denied having
authorized Julian Nepales to get the motorcycle from Norkis Distributors or to
18
enter into any transaction with Norkis relative to said motorcycle. (p. 5, t.s.n.,
February 6, 1985). This circumstances more than amply rebut the disputable
presumption of delivery upon which Norkis anchors its defense to Nepales'
action (pp. 33-34, Rollo).
Article 1496 of the Civil Code which provides that "in the absence of an
express assumption of risk by the buyer, the things sold remain at seller's
risk until the ownership thereof is transferred to the buyer," is applicable to
this case, for there was neither an actual nor constructive delivery of the
thing sold, hence, the risk of loss should be borne by the seller, Norkis, which
was still the owner and possessor of the motorcycle when it was wrecked.
This is in accordance with the well-known doctrine of res perit domino.
WHEREFORE, finding no reversible error in the decision of the Court of
Appeals in CA-G.R. No. 09149, we deny the petition for review and hereby
affirm the appealed decision, with costs against the petitioner.
SO ORDERED.
G.R. No. 147839 June 8, 2006
GAISANO CAGAYAN, INC. Petitioner,
vs.
INSURANCE COMPANY OF NORTH AMERICA, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a petition for review on certiorari of the Decision1 dated
October 11, 2000 of the Court of Appeals (CA) in CA-G.R. CV No. 61848
which set aside the Decision dated August 31, 1998 of the Regional Trial
Court, Branch 138, Makati (RTC) in Civil Case No. 92-322 and upheld the
causes of action for damages of Insurance Company of North America
(respondent) against Gaisano Cagayan, Inc. (petitioner); and the CA
Resolution dated April 11, 2001 which denied petitioner's motion for
reconsideration.
The factual background of the case is as follows:
Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue
Jeans. Levi Strauss (Phils.) Inc. (LSPI) is the local distributor of products
bearing trademarks owned by Levi Strauss & Co.. IMC and LSPI separately
obtained from respondent fire insurance policies with book debt
endorsements. The insurance policies provide for coverage on "book debts
in connection with ready-made clothing materials which have been sold or
delivered to various customers and dealers of the Insured anywhere in the
Philippines."2 The policies defined book debts as the "unpaid account still
appearing in the Book of Account of the Insured 45 days after the time of the
loss covered under this Policy."3 The policies also provide for the following
conditions:
1. Warranted that the Company shall not be liable for any unpaid
account in respect of the merchandise sold and delivered by the
Insured which are outstanding at the date of loss for a period in
excess of six (6) months from the date of the covering invoice or
actual delivery of the merchandise whichever shall first occur.
2. Warranted that the Insured shall submit to the Company within
twelve (12) days after the close of every calendar month all amount
shown in their books of accounts as unpaid and thus become
receivable item from their customers and dealers. x x x4
xxxx
Petitioner is a customer and dealer of the products of IMC and LSPI. On
February 25, 1991, the Gaisano Superstore Complex in Cagayan de Oro
City, owned by petitioner, was consumed by fire. Included in the items lost or
destroyed in the fire were stocks of ready-made clothing materials sold and
delivered by IMC and LSPI.
On February 4, 1992, respondent filed a complaint for damages against
petitioner. It alleges that IMC and LSPI filed with respondent their claims
under their respective fire insurance policies with book debt endorsements;
that as of February 25, 1991, the unpaid accounts of petitioner on the sale
and delivery of ready-made clothing materials with IMC was P2,119,205.00
while with LSPI it was P535,613.00; that respondent paid the claims of IMC
and LSPI and, by virtue thereof, respondent was subrogated to their rights
against petitioner; that respondent made several demands for payment upon
petitioner but these went unheeded.5
In its Answer with Counter Claim dated July 4, 1995, petitioner contends that
it could not be held liable because the property covered by the insurance
policies were destroyed due to fortuities event or force majeure; that
respondent's right of subrogation has no basis inasmuch as there was no
breach of contract committed by it since the loss was due to fire which it
could not prevent or foresee; that IMC and LSPI never communicated to it
that they insured their properties; that it never consented to paying the claim
of the insured.6
19
At the pre-trial conference the parties failed to arrive at an amicable
settlement.7 Thus, trial on the merits ensued.
On August 31, 1998, the RTC rendered its decision dismissing respondent's
complaint.8 It held that the fire was purely accidental; that the cause of the
fire was not attributable to the negligence of the petitioner; that it has not
been established that petitioner is the debtor of IMC and LSPI; that since the
sales invoices state that "it is further agreed that merely for purpose of
securing the payment of purchase price, the above-described merchandise
remains the property of the vendor until the purchase price is fully paid", IMC
and LSPI retained ownership of the delivered goods and must bear the loss.
Dissatisfied, petitioner appealed to the CA.9 On October 11, 2000, the CA
rendered its decision setting aside the decision of the RTC. The dispositive
portion of the decision reads:
WHEREFORE, in view of the foregoing, the appealed decision is
REVERSED and SET ASIDE and a new one is entered ordering defendant-
appellee Gaisano Cagayan, Inc. to pay:
1. the amount of P2,119,205.60 representing the amount paid by the
plaintiff-appellant to the insured Inter Capitol Marketing Corporation,
plus legal interest from the time of demand until fully paid;
2. the amount of P535,613.00 representing the amount paid by the
plaintiff-appellant to the insured Levi Strauss Phil., Inc., plus legal
interest from the time of demand until fully paid.
With costs against the defendant-appellee.
SO ORDERED.10
The CA held that the sales invoices are proofs of sale, being detailed
statements of the nature, quantity and cost of the thing sold; that loss of the
goods in the fire must be borne by petitioner since the proviso contained in
the sales invoices is an exception under Article 1504 (1) of the Civil Code, to
the general rule that if the thing is lost by a fortuitous event, the risk is borne
by the owner of the thing at the time the loss under the principle of res perit
domino; that petitioner's obligation to IMC and LSPI is not the delivery of the
lost goods but the payment of its unpaid account and as such the obligation
to pay is not extinguished, even if the fire is considered a fortuitous event;
that by subrogation, the insurer has the right to go against petitioner; that,
being a fire insurance with book debt endorsements, what was insured was
the vendor's interest as a creditor.11
Petitioner filed a motion for reconsideration12 but it was denied by the CA in
its Resolution dated April 11, 2001.13
Hence, the present petition for review on certiorari anchored on the following
Assignment of Errors:
THE COURT OF APPEALS ERRED IN HOLDING THAT THE INSURANCE
IN THE INSTANT CASE WAS ONE OVER CREDIT.
THE COURT OF APPEALS ERRED IN HOLDING THAT ALL RISK OVER
THE SUBJECT GOODS IN THE INSTANT CASE HAD TRANSFERRED TO
PETITIONER UPON DELIVERY THEREOF.
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS
AUTOMATIC SUBROGATION UNDER ART. 2207 OF THE CIVIL CODE IN
FAVOR OF RESPONDENT.14
Anent the first error, petitioner contends that the insurance in the present
case cannot be deemed to be over credit since an insurance "on credit"
belies not only the nature of fire insurance but the express terms of the
policies; that it was not credit that was insured since respondent paid on the
occasion of the loss of the insured goods to fire and not because of the non-
payment by petitioner of any obligation; that, even if the insurance is deemed
as one over credit, there was no loss as the accounts were not yet due since
no prior demands were made by IMC and LSPI against petitioner for
payment of the debt and such demands came from respondent only after it
had already paid IMC and LSPI under the fire insurance policies.15
As to the second error, petitioner avers that despite delivery of the goods,
petitioner-buyer IMC and LSPI assumed the risk of loss when they secured
fire insurance policies over the goods.
Concerning the third ground, petitioner submits that there is no subrogation
in favor of respondent as no valid insurance could be maintained thereon by
IMC and LSPI since all risk had transferred to petitioner upon delivery of the
goods; that petitioner was not privy to the insurance contract or the payment
between respondent and its insured nor was its consent or approval ever
secured; that this lack of privity forecloses any real interest on the part of
respondent in the obligation to pay, limiting its interest to keeping the insured
goods safe from fire.
For its part, respondent counters that while ownership over the ready- made
clothing materials was transferred upon delivery to petitioner, IMC and LSPI
have insurable interest over said goods as creditors who stand to suffer
20
direct pecuniary loss from its destruction by fire; that petitioner is liable for
loss of the ready-made clothing materials since it failed to overcome the
presumption of liability under Article 126516 of the Civil Code; that the fire
was caused through petitioner's negligence in failing to provide stringent
measures of caution, care and maintenance on its property because electric
wires do not usually short circuit unless there are defects in their installation
or when there is lack of proper maintenance and supervision of the property;
that petitioner is guilty of gross and evident bad faith in refusing to pay
respondent's valid claim and should be liable to respondent for contracted
lawyer's fees, litigation expenses and cost of suit.17
As a general rule, in petitions for review, the jurisdiction of this Court in cases
brought before it from the CA is limited to reviewing questions of law which
involves no examination of the probative value of the evidence presented by
the litigants or any of them.18 The Supreme Court is not a trier of facts; it is
not its function to analyze or weigh evidence all over again.19 Accordingly,
findings of fact of the appellate court are generally conclusive on the
Supreme Court.20
Nevertheless, jurisprudence has recognized several exceptions in which
factual issues may be resolved by this Court, such as: (1) when the findings
are grounded entirely on speculation, surmises or conjectures; (2) when the
inference made is manifestly mistaken, absurd or impossible; (3) when there
is grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of facts are conflicting; (6)
when in making its findings the CA went beyond the issues of the case, or its
findings are contrary to the admissions of both the appellant and the
appellee; (7) when the findings are contrary to the trial court; (8) when the
findings are conclusions without citation of specific evidence on which they
are based; (9) when the facts set forth in the petition as well as in the
petitioner's main and reply briefs are not disputed by the respondent; (10)
when the findings of fact are premised on the supposed absence of evidence
and contradicted by the evidence on record; and (11) when the CA
manifestly overlooked certain relevant facts not disputed by the parties,
which, if properly considered, would justify a different
conclusion.21 Exceptions (4), (5), (7), and (11) apply to the present petition.
At issue is the proper interpretation of the questioned insurance policy.
Petitioner claims that the CA erred in construing a fire insurance policy on
book debts as one covering the unpaid accounts of IMC and LSPI since such
insurance applies to loss of the ready-made clothing materials sold and
delivered to petitioner.
The Court disagrees with petitioner's stand.
It is well-settled that when the words of a contract are plain and readily
understood, there is no room for construction.22 In this case, the questioned
insurance policies provide coverage for "book debts in connection with
ready-made clothing materials which have been sold or delivered to various
customers and dealers of the Insured anywhere in the Philippines."23 ; and
defined book debts as the "unpaid account still appearing in the Book of
Account of the Insured 45 days after the time of the loss covered under this
Policy."24 Nowhere is it provided in the questioned insurance policies that the
subject of the insurance is the goods sold and delivered to the customers
and dealers of the insured.
Indeed, when the terms of the agreement are clear and explicit that they do
not justify an attempt to read into it any alleged intention of the parties, the
terms are to be understood literally just as they appear on the face of the
contract.25 Thus, what were insured against were the accounts of IMC and
LSPI with petitioner which remained unpaid 45 days after the loss through
fire, and not the loss or destruction of the goods delivered.
Petitioner argues that IMC bears the risk of loss because it expressly
reserved ownership of the goods by stipulating in the sales invoices that "[i]t
is further agreed that merely for purpose of securing the payment of the
purchase price the above described merchandise remains the property of the
vendor until the purchase price thereof is fully paid."26
The Court is not persuaded.
The present case clearly falls under paragraph (1), Article 1504 of the Civil
Code:
ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk
until the ownership therein is transferred to the buyer, but when the
ownership therein is transferred to the buyer the goods are at the buyer's risk
whether actual delivery has been made or not, except that:
(1) Where delivery of the goods has been made to the buyer or to a bailee for
the buyer, in pursuance of the contract and the ownership in the goods has
been retained by the seller merely to secure performance by the buyer of his
obligations under the contract, the goods are at the buyer's risk from the time
of such delivery; (Emphasis supplied)
xxxx
21
Thus, when the seller retains ownership only to insure that the buyer will pay
its debt, the risk of loss is borne by the buyer.27 Accordingly, petitioner bears
the risk of loss of the goods delivered.
IMC and LSPI did not lose complete interest over the goods. They have an
insurable interest until full payment of the value of the delivered goods.
Unlike the civil law concept of res perit domino, where ownership is the basis
for consideration of who bears the risk of loss, in property insurance, one's
interest is not determined by concept of title, but whether insured has
substantial economic interest in the property.28
Section 13 of our Insurance Code defines insurable interest as "every
interest in property, whether real or personal, or any relation thereto, or
liability in respect thereof, of such nature that a contemplated peril might
directly damnify the insured." Parenthetically, under Section 14 of the same
Code, an insurable interest in property may consist in: (a) an existing
interest; (b) an inchoate interest founded on existing interest; or (c) an
expectancy, coupled with an existing interest in that out of which the
expectancy arises.
Therefore, an insurable interest in property does not necessarily imply a
property interest in, or a lien upon, or possession of, the subject matter of the
insurance, and neither the title nor a beneficial interest is requisite to the
existence of such an interest, it is sufficient that the insured is so situated
with reference to the property that he would be liable to loss should it be
injured or destroyed by the peril against which it is insured. 29 Anyone has an
insurable interest in property who derives a benefit from its existence or
would suffer loss from its destruction.30Indeed, a vendor or seller retains an
insurable interest in the property sold so long as he has any interest therein,
in other words, so long as he would suffer by its destruction, as where he has
a vendor's lien.31 In this case, the insurable interest of IMC and LSPI pertain
to the unpaid accounts appearing in their Books of Account 45 days after the
time of the loss covered by the policies.
The next question is: Is petitioner liable for the unpaid accounts?
Petitioner's argument that it is not liable because the fire is a fortuitous event
under Article 117432 of the Civil Code is misplaced. As held earlier, petitioner
bears the loss under Article 1504 (1) of the Civil Code.
Moreover, it must be stressed that the insurance in this case is not for loss of
goods by fire but for petitioner's accounts with IMC and LSPI that remained
unpaid 45 days after the fire. Accordingly, petitioner's obligation is for the
payment of money. As correctly stated by the CA, where the obligation
consists in the payment of money, the failure of the debtor to make the
payment even by reason of a fortuitous event shall not relieve him of his
liability.33 The rationale for this is that the rule that an obligor should be held
exempt from liability when the loss occurs thru a fortuitous event only holds
true when the obligation consists in the delivery of a determinate thing and
there is no stipulation holding him liable even in case of fortuitous event. It
does not apply when the obligation is pecuniary in nature.34
Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic
thing, the loss or destruction of anything of the same kind does not extinguish
the obligation." If the obligation is generic in the sense that the object thereof
is designated merely by its class or genus without any particular designation
or physical segregation from all others of the same class, the loss or
destruction of anything of the same kind even without the debtor's fault and
before he has incurred in delay will not have the effect of extinguishing the
obligation.35 This rule is based on the principle that the genus of a thing can
never perish. Genus nunquan perit.36 An obligation to pay money is generic;
therefore, it is not excused by fortuitous loss of any specific property of the
debtor.37
Thus, whether fire is a fortuitous event or petitioner was negligent are
matters immaterial to this case. What is relevant here is whether it has been
established that petitioner has outstanding accounts with IMC and LSPI.
With respect to IMC, the respondent has adequately established its claim.
Exhibits "C" to "C-22"38 show that petitioner has an outstanding account with
IMC in the amount of P2,119,205.00. Exhibit "E"39 is the check voucher
evidencing payment to IMC. Exhibit "F"40 is the subrogation receipt executed
by IMC in favor of respondent upon receipt of the insurance proceeds. All
these documents have been properly identified, presented and marked as
exhibits in court. The subrogation receipt, by itself, is sufficient to establish
not only the relationship of respondent as insurer and IMC as the insured, but
also the amount paid to settle the insurance claim. The right of subrogation
accrues simply upon payment by the insurance company of the insurance
claim.41 Respondent's action against petitioner is squarely sanctioned by
Article 2207 of the Civil Code which provides:
Art. 2207. If the plaintiff's property has been insured, and he has received
indemnity from the insurance company for the injury or loss arising out of the
wrong or breach of contract complained of, the insurance company shall be
subrogated to the rights of the insured against the wrongdoer or the person
who has violated the contract. x x x
Petitioner failed to refute respondent's evidence.
22
As to LSPI, respondent failed to present sufficient evidence to prove its
cause of action. No evidentiary weight can be given to Exhibit "F Levi
Strauss",42 a letter dated April 23, 1991 from petitioner's General Manager,
Stephen S. Gaisano, Jr., since it is not an admission of petitioner's unpaid
account with LSPI. It only confirms the loss of Levi's products in the amount
of P535,613.00 in the fire that razed petitioner's building on February 25,
1991.

Moreover, there is no proof of full settlement of the insurance claim of LSPI;

no subrogation receipt was offered in evidence. Thus, there is no evidence
that respondent has been subrogated to any right which LSPI may have
against petitioner. Failure to substantiate the claim of subrogation is fatal to
petitioner's case for recovery of the amount of P535,613.00.

WHEREFORE, the petition is partly GRANTED. The assailed Decision dated

October 11, 2000 and Resolution dated April 11, 2001 of the Court of
Appeals in CA-G.R. CV No. 61848 are AFFIRMED with
the MODIFICATION that the order to pay the amount of P535,613.00 to
respondent is DELETED for lack of factual basis.

No pronouncement as to costs.

SO ORDERED.

23