ANTONIO MEDINA, petitioner, vs.

COLLECTOR OF INTERNAL REVENUE

Petition to review a decision of the Court of Tax Appeals upholding a tax assessment of the Collector of Internal
Revenue except with respect to the imposition of so-called compromise penalties, which were set aside.
The records show that on or about May 20, 1944, petitioning taxpayer Antonio Medina married Antonia
Rodriguez. Before 1946, the spouses had neither property nor business of their own. Later, however, petitioner
acquired forest, concessions in the municipalities of San Mariano and Palanan in the Province of Isabela. From
1946 to 1948, the logs cut and removed by the petitioner from his concessions were sold to different persons in
Manila through his agent, Mariano Osorio.
Some time in 1949, Antonia R. Medina, petitioner's wife, started to engage in business as a lumber dealer, and
up to around 1952, petitioner sold to her almost all the logs produced in his San Mariano, concession. Mrs.
Medina, In turn, sold in Manila the logs bought from her husband through the same agent, Mariano Osorio. The
proceeds were, upon instructions from petitioner, either received by Osorio for petitioner or deposited by said
agent in petitioner's current account with the Philippine National Bank.
On the thesis that the sales made by petitioner to his wife were null and void pursuant to the provisions of Article
1490 of the Civil Code of the Philippines (formerly, Art. 1458, Civil Code of 1889), the Collector considered the
sales made by Mrs. Medina as the petitioner's original sales taxable under Section 186 of the National Internal
Revenue Code and, therefore, imposed a tax assessment on petitioner, calling for the payment of P4,553.54 as
deficiency sales taxes and surcharges from 1949 to 1952. This same assessment of September 26, 1953 sought
also the collection of another sum of P643.94 as deficiency sales tax and surcharge based on petitioner's
quarterly returns from 1946 to 1952.
On November 30, 1953, petitioner protested the assessment; however, respondent Collector insisted on his
demand. On July 9, 1954, petitioner filed a petition for reconsideration revealing for the first time the existence
of an alleged premarital agreement of complete separation of properties between him and his wife, and
contending that the assessment for the years 1946 to 1952 had already prescribed. After one hearing, the
Conference Staff of the Bureau of Internal Revenue eliminated the 50% fraud penalty and held that the taxes
assessed against him before 1948 had already prescribed. Based on these findings, the Collector issued a
modified assessment, demanding the payment of only P3,325.68, computed as follows:

5% tax due on P7,209.83 -1949P 360.49

5% tax due on 16,945.55 - 1950847.28
5% tax due on 16,874.52 – 1951 843.75
5% tax due on 11,009.94 - 1952 550.50
TOTAL sales tax due P2,602.0
25% Surcharge thereon 650.51
Short taxes per quarterly returns, 3rd quarter, 1950 58.52
25% Surcharge thereon 14.63
TOTAL AMOUNT due & collectible P3,325.68

Petitioner again requested for reconsideration, but respondent Collector, in his letter of April 4, 1955, denied the
same.
Petitioner appealed to the Court of Tax Appeals, which rendered judgment as aforesaid. The Court's decision
was based on two main findings, namely, (a) that there was no premarital agreement of absolute separation of
property between the Medina spouse; and (b) assuming that there was such an agreement, the sales in question
made by petitioner to his wife were fictitious, simulated, and not bona fide.
In his petition for review to this Court, petitioner raises several assignments of error revolving around the central
issue of whether or not the sales made by the petitioner to his wife could be considered as his original taxable
sales under the provisions of Section 186 of the National Internal Revenue Code.

Relying mainly on testimonial evidence that before their marriage, he and his wife executed and recorded a
prenuptial agreement for a regime of complete separation of property, and that all trace of the document was
lost on account of the war, petitioner imputes lack of basis for the tax court's factual finding that no agreement
of complete separation of property was ever executed by and between the spouses before their marriage. We
do not think so. Aside from the material inconsistencies in the testimony of petitioner's witnesses pointed out by
the trial court, the circumstantial evidence is against petitioner's claim. Thus, it appears that at the time of the
marriage between petitioner and his wife, they neither had any property nor business of their own, as to have
really urged them to enter into the supposed property agreement. Secondly, the testimony that the separation
of property agreement was recorded in the Registry of Property three months before the marriage, is patently
absurd, since such a prenuptial agreement could not be effective before marriage is celebrated, and would
automatically be cancelled if the union was called off. How then could it be accepted for recording prior to the
marriage? In the third place, despite their insistence on the existence of the ante nuptial contract, the couple,
strangely enough, did not act in accordance with its alleged covenants. Quite the contrary, it was proved that
even during their taxable years, the ownership, usufruct, and administration of their properties and business
were in the husband. And even when the wife was engaged in lumber dealing, and she and her husband
contracted sales with each other as aforestated, the proceeds she derived from her alleged subsequent
disposition of the logs — incidentally, by and through the same agent of her husband, Mariano Osorio — were
either received by Osorio for the petitioner or deposited by said agent in petitioner's current account with the
Philippine National Bank. Fourth, although petitioner, a lawyer by profession, already knew, after he was
informed by the Collector on or about September of 1953, that the primary reason why the sales of logs to his
wife could not be considered as the original taxable sales was because of the express prohibition found in Article
1490 of the Civil Code of sales between spouses married under a community system; yet it was not until July of
1954 that he alleged, for the first time, the existence of the supposed property separation agreement. Finally,
the Day Book of the Register of Deeds on which the agreement would have been entered, had it really been
registered as petitioner insists, and which book was among those saved from the ravages of the war, did not
show that the document in question was among those recorded therein.
We have already ruled that when the credibility of witnesses is the one at issue, the trial court's judgment as to
their degree of credence deserves serious consideration by this Court (Collector vs. Bautista, et al., G.R. Nos. L-
12250 & L-12259, May 27, 1959). This is all the more true in this case because not every copy of the supposed
agreement, particularly the one that was said to have been filed with the Clerk of Court of Isabela, was accounted
for as lost; so that, applying the "best evidence rule", the court did right in giving little or no credence to the
secondary evidence to prove the due execution and contents of the alleged document (see Comments on the
Rules of Court, Moran, 1957 Ed., Vol. 3, pp. 10.12).
The foregoing findings notwithstanding, the petitioner argues that the prohibition to sell expressed under Article
1490 of the Civil Code has no application to the sales made by said petitioner to his wife, because said
transactions are contemplated and allowed by the provisions of Articles 7 and 10 of the Code of Commerce. But
said provisions merely state, under certain conditions, a presumption that the wife is authorized to engage in
business and for the incidents that flow therefrom when she so engages therein. But the transactions permitted
are those entered into with strangers, and do not constitute exceptions to the prohibitory provisions of Article
1490 against sales between spouses.
Petitioner's contention that the respondent Collector can not assail the questioned sales, he being a stranger to
said transactions, is likewise untenable. The government, as correctly pointed out by the Tax Court, is always
an interested party to all matters involving taxable transactions and, needless to say, qualified to question their
validity or legitimacy whenever necessary to block tax evasion.
Contracts violative of the provisions of Article 1490 of the Civil Code are null and void (Uy Sui Pin vs. Cantollas,
70 Phil. 55; Uy Coque vs. Sioca 45 Phil. 43). Being void transactions, the sales made by the petitioner to his wife
were correctly disregarded by the Collector in his tax assessments that considered as the taxable sales those
made by the wife through the spouses' common agent, Mariano Osorio. In upholding that stand, the Court below
committed no error.
It is also the petitioner's contention that the lower court erred in using illegally seized documentary evidence
against him. But even assuming arguendo the truth of petitioner's charge regarding the seizure, it is now settled
in this jurisdiction that illegally obtained documents and papers are admissible in evidence, if they are found to
be competent and relevant to the case (see Wong & Lee vs. Collector of Internal Revenue, G.R. No. L-10155,
August 30, 1958). In fairness to the Collector, however, it should be stated that petitioner's imputation is
vehemently denied by him, and relying on Sections 3, 9, 337 and 338 of the Tax Code and the pertinent portions
of Revenue Regulations No. V-1 and citing this Court's ruling in U.S. vs. Aviado, 38 Phil. 10, the Collector
maintains that he and other internal revenue officers and agents could require the production of books of
accounts and other records from a taxpayer. Having arrived at the foregoing conclusion, it becomes unnecessary
to discuss the other issues raised, which are but premised on the assumption that a premarital agreement of
total separation of property existed between the petitioner and his wife.
WHEREFORE, the decision appealed from is affirmed, with costs against the petitioner.
G.R. No. L-35702 May 29, 1973

DOMINGO D. RUBIAS, plaintiff-appellant, vs.ISAIAS BATILLER, defendant-appellee.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

3. That plaintiff suffered damages alleged in his complaint.

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

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

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

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

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

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

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

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

xxx xxx xxx

(7) Those expressly prohibited by law.

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

xxx xxx xxx

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

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

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

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

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

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

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

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

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

The appellate court concluded that plaintiffs "assignment of errors gives rise to two (2) legal posers — (1)
whether or not the contract of sale between appellant and his father-in-law, the late Francisco Militante over the
property subject of Plan Psu-99791 was void because it was made when plaintiff was counsel of his father-in-
law in a land registration case involving the property in dispute; and (2) whether or not the lower court was
correct in entertaining defendant-appellee's motion to dismiss after the latter had already filed his answer and
after he (defendant) and plaintiff-appellant had agreed on some matters in a pre-trial conference. Hence, its
elevation of the appeal to this Court as involving pure questions of law.

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

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

The four points on which defendant on his part reserved the presentation of evidence at the trial dealing with
his and his ancestors' continuous, open, public and peaceful possession in the concept of owner of the land and
the Director of Lands' approval of his survey plan thereof, supra,5 are likewise already duly established facts of
record, in the land registration case as well as in the ejectment case wherein the Iloilo court of first instance
recognized the superiority of defendant's right to the land as against plaintiff.
No error was therefore committed by the lower court in dismissing plaintiff's complaint upon defendant's motion
after the pre-trial.

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

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

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

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

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

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

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

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

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

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

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

In Wolfson which involved the sale and assignment of a money judgment by the client to the lawyer, Wolfson,
whose right to so purchase the judgment was being challenged by the judgment debtor, the Court, through
Justice Moreland, then expressly reserved decision on "whether or not the judgment in question actually falls
within the prohibition of the article" and held only that the sale's "voidability can not be asserted by one not a
party to the transaction or his representative," citing from Manresa 10 that "(C)onsidering the question from the
point of view of the civil law, the view taken by the code, we must limit ourselves to classifying as void all acts
done contrary to the express prohibition of the statute. Now then: As the code does not recognize such nullity
by the mere operation of law, the nullity of the acts hereinbefore referred to must be asserted by the person
having the necessary legal capacity to do so and decreed by a competent
court." 11

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

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

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

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

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

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

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

Castan, quoting Manresa's own observation that.

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

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

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

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

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

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

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

ACCORDINGLY, the order of dismissal appealed from is hereby affirmed, with costs in all instances against
plaintiff-appellant. So ordered.
G.R. No. L-65594 July 9, 1986

MAHARLIKA PUBLISHING CORPORATIONV. TAGLE

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. Ibañez 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.

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 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 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
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. 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. Ibañez 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.
G.R. No. L-36902 January 30, 1982

LUIS PICHEL, petitioner, vs. PRUDENCIO ALONZO,

This is a petition to review on certiorari the decision of the Court of First Instance of Basilan City dated January
5, 1973 in Civil Case No. 820 entitled "Prudencio Alonzo, plaintiff, vs. Luis Pichel, defendant."

This case originated in the lower Court as an action for the annulment of a "Deed of Sale" dated August 14,
1968 and executed by Prudencio Alonzo, as vendor, in favor of Luis Pichel, as vendee, involving property awarded
to the former by the Philippine Government under Republic Act No. 477. Pertinent portions of the document
sued upon read as follows:

That the VENDOR for and in consideration of the sum of FOUR THOUSAND TWO HUNDRED PESOS (P4,200.00),
Philippine Currency, in hand paid by the VENDEE to the entire satisfaction of the VENDOR, the VENDOR hereby
sells transfers, and conveys, by way of absolute sale, all the coconut fruits of his coconut land, designated as
Lot No. 21 - Subdivision Plan No. Psd- 32465, situated at Balactasan Plantation, Lamitan, Basilan City, Philippines;

That for the herein sale of the coconut fruits are for all the fruits on the aforementioned parcel of land presently
found therein as well as for future fruits to be produced on the said parcel of land during the years period; which
shag commence to run as of SEPTEMBER 15,1968; up to JANUARY 1, 1976 (sic);

That the delivery of the subject matter of the Deed of Sale shall be from time to time and at the expense of the
VENDEE who shall do the harvesting and gathering of the fruits;

That the Vendor's right, title, interest and participation herein conveyed is of his own exclusive and absolute
property, free from any liens and encumbrances and he warrants to the Vendee good title thereto and to defend
the same against any and all claims of all persons whomsoever. 1

After the pre-trial conference, the Court a quo issued an Order dated November 9, 1972 which in part read thus:

The following facts are admitted by the parties:

Plaintiff Prudencio Alonzo was awarded by the Government that parcel of land designated as Lot No. 21 of
Subdivision Plan Psd 32465 of Balactasan, Lamitan, Basilan City in accordance with Republic Act No. 477. The
award was cancelled by the Board of Liquidators on January 27, 1965 on the ground that, previous thereto,
plaintiff was proved to have alienated the land to another, in violation of law. In 197 2, plaintiff's rights to the
land were reinstated.

On August 14, 1968, plaintiff and his wife sold to defendant an the fruits of the coconut trees which may be
harvested in the land in question for the period, September 15, 1968 to January 1, 1976, in consideration of
P4,200.00. Even as of the date of sale, however, the land was still under lease to one, Ramon Sua, and it was
the agreement that part of the consideration of the sale, in the sum of P3,650.00, was to be paid by defendant
directly to Ramon Sua so as to release the land from the clutches of the latter. Pending said payment plaintiff
refused to snow the defendant to make any harvest.

In July 1972, defendant for the first time since the execution of the deed of sale in his favor, caused the harvest
of the fruit of the coconut trees in the land.

xxx xxx xxx

Considering the foregoing, two issues appear posed by the complaint and the answer which must needs be
tested in the crucible of a trial on the merits, and they are:

First.— Whether or nor defendant actually paid to plaintiff the full sum of P4,200.00 upon execution of the deed
of sale.

Second.— Is the deed of sale, Exhibit 'A', the prohibited encumbrance contemplated in Section 8 of Republic Act
No. 477? 2

Anent the first issue, counsel for plaintiff Alonzo subsequently 'stipulated and agreed that his client ... admits
fun payment thereof by defendant. 3 The remaining issue being one of law, the Court below considered the
case submitted for summary judgment on the basis of the pleadings of the parties, and the admission of facts
and documentary evidence presented at the pre-trial conference.

The lower court rendered its decision now under review, holding that although the agreement in question is
denominated by the parties as a deed of sale of fruits of the coconut trees found in the vendor's land, it actually
is, for all legal intents and purposes, a contract of lease of the land itself. According to the Court:

... the sale aforestated has given defendant complete control and enjoyment of the improvements of the land.
That the contract is consensual; that its purpose is to allow the enjoyment or use of a thing; that it is onerous
because rent or price certain is stipulated; and that the enjoyment or use of the thing certain is stipulated to be
for a certain and definite period of time, are characteristics which admit of no other conclusion. ... The provisions
of the contract itself and its characteristics govern its nature. 4

The Court, therefore, concluded that the deed of sale in question is an encumbrance prohibited by Republic Act
No. 477 which provides thus:

Sec. 8. Except in favor of the Government or any of its branches, units, or institutions, land acquired under the
provisions of this Act or any permanent improvements thereon shall not be thereon and for a term of ten years
from and after the date of issuance of the certificate of title, nor shall they become liable to the satisfaction of
any debt contracted prior to the expiration of such period.

Any occupant or applicant of lands under this Act who transfers whatever rights he has acquired on said lands
and/or on the improvements thereon before the date of the award or signature of the contract of sale, shall not
be entitled to apply for another piece of agricultural land or urban, homesite or residential lot, as the case may
be, from the National Abaca and Other Fibers Corporation; and such transfer shall be considered null and void.
5

The dispositive portion of the lower Court's decision states:

WHEREFORE, it is the judgment of this Court that the deed of sale, Exhibit 'A', should be, as it is, hereby declared
nun and void; that plaintiff be, as he is, ordered to pay back to defendant the consideration of the sale in the
sum of P4,200.00 the same to bear legal interest from the date of the filing of the complaint until paid; that
defendant shall pay to the plaintiff the sum of P500.00 as attorney's fees.

Costs against the defendant. 6

Before going into the issues raised by the instant Petition, the matter of whether, under the admitted facts of
this case, the respondent had the right or authority to execute the "Deed of Sale" in 1968, his award over Lot
No. 21 having been cancelled previously by the Board of Liquidators on January 27, 1965, must be clarified. The
case in point is Ras vs. Sua 7 wherein it was categorically stated by this Court that a cancellation of an award
granted pursuant to the provisions of Republic Act No. 477 does not automatically divest the awardee of his
rights to the land. Such cancellation does not result in the immediate reversion of the property subject of the
award, to the State. Speaking through Mr. Justice J.B.L. Reyes, this Court ruled that "until and unless an
appropriate proceeding for reversion is instituted by the State, and its reacquisition of the ownership and
possession of the land decreed by a competent court, the grantee cannot be said to have been divested of
whatever right that he may have over the same property." 8

There is nothing in the record to show that at any time after the supposed cancellation of herein respondent's
award on January 27, 1965, reversion proceedings against Lot No. 21 were instituted by the State. Instead, the
admitted fact is that the award was reinstated in 1972. Applying the doctrine announced in the above-cited Ras
case, therefore, herein respondent is not deemed to have lost any of his rights as grantee of Lot No. 21 under
Republic Act No. 477 during the period material to the case at bar, i.e., from the cancellation of the award in
1965 to its reinstatement in 1972. Within said period, respondent could exercise all the rights pertaining to a
grantee with respect to Lot No. 21.

This brings Us to the issues raised by the instant Petition. In his Brief, petitioner contends that the lower Court
erred:

1. In resorting to construction and interpretation of the deed of sale in question where the terms thereof
are clear and unambiguous and leave no doubt as to the intention of the parties;

2. In declaring — granting without admitting that an interpretation is necessary — the deed of sale in
question to be a contract of lease over the land itself where the respondent himself waived and abandoned his
claim that said deed did not express the true agreement of the parties, and on the contrary, respondent admitted
at the pre-trial that his agreement with petitioner was one of sale of the fruits of the coconut trees on the land;

3. In deciding a question which was not in issue when it declared the deed of sale in question to be a
contract of lease over Lot 21;

4. In declaring furthermore the deed of sale in question to be a contract of lease over the land itself on the
basis of facts which were not proved in evidence;

5. In not holding that the deed of sale, Exhibit "A" and "2", expresses a valid contract of sale;

6. In not deciding squarely and to the point the issue as to whether or not the deed of sale in question is
an encumbrance on the land and its improvements prohibited by Section 8 of Republic Act 477; and

7. In awarding respondent attorney's fees even granting, without admitting, that the deed of sale in
question is violative of Section 8 of Republic Act 477.

The first five assigned errors are interrelated, hence, We shall consider them together. To begin with, We agree
with petitioner that construction or interpretation of the document in question is not called for. A perusal of the
deed fails to disclose any ambiguity or obscurity in its provisions, nor is there doubt as to the real intention of
the contracting parties. The terms of the agreement are clear and unequivocal, hence the literal and plain
meaning thereof should be observed. Such is the mandate of the Civil Code of the Philippines which provides
that:

Art. 1370. If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties,
the literal meaning of its stipulation shall control ... .

Pursuant to the afore-quoted legal provision, the first and fundamental duty of the courts is the application of
the contract according to its express terms, interpretation being resorted to only when such literal application is
impossible. 9

Simply and directly stated, the "Deed of Sale dated August 14, 1968 is precisely what it purports to be. It is a
document evidencing the agreement of herein parties for the sale of coconut fruits of Lot No. 21, and not for
the lease of the land itself as found by the lower Court. In clear and express terms, the document defines the
object of the contract thus: "the herein sale of the coconut fruits are for an the fruits on the aforementioned
parcel of land during the years ...(from) SEPTEMBER 15, 1968; up to JANUARY 1, 1976." Moreover, as petitioner
correctly asserts, the document in question expresses a valid contract of sale. It has the essential elements of a
contract of sale as defined under Article 1485 of the New Civil Code which provides thus:

Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of
and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.

A contract of sale may be absolute or conditional.

The subject matter of the contract of sale in question are the fruits of the coconut trees on the land during the
years from September 15, 1968 up to January 1, 1976, which subject matter is a determinate thing. Under
Article 1461 of the New Civil Code, things having a potential existence may be the object of the contract of sale.
And in Sibal vs. Valdez, 50 Phil. 512, pending crops which have potential existence may be the subject matter
of the sale. Here, the Supreme Court, citing Mechem on Sales and American cases said which have potential
existence may be the subject matter of sale. Here, the Supreme Court, citing Mechem on Sales and American
cases said:
Mr. Mechem says that a valid sale may be made of a thing, which though not yet actually in existence, is
reasonably certain to come into existence as the natural increment or usual incident of something already in
existence, and then belonging to the vendor, and the title will vest in the buyer the moment the thing comes
into existence. (Emerson vs. European Railway Co., 67 Me., 387; Cutting vs. Packers Exchange, 21 Am. St. Rep.
63) Things of this nature are said to have a potential existence. A man may sell property of which he is potentially
and not actually possess. He may make a valid sale of the wine that a vineyard is expected to produce; or the
grain a field may grow in a given time; or the milk a cow may yield during the coming year; or the wool that
shall thereafter grow upon sheep; or what may be taken at the next case of a fisherman's net; or fruits to grow;
or young animals not yet in existence; or the goodwill of a trade and the like. The thing sold, however, must be
specific and Identified. They must be also owned at the time by the vendor. (Hull vs. Hull 48 Conn. 250 (40 Am.
Rep., 165) (pp. 522-523).

We do not agree with the trial court that the contract executed by and between the parties is "actually a contract
of lease of the land and the coconut trees there." (CFI Decision, p. 62, Records). The Court's holding that the
contract in question fits the definition of a lease of things wherein one of the parties binds himself to give to
another the enjoyment or use of a thing for a price certain and for a period which may be definite or indefinite
(Art. 1643, Civil Code of the Philippines) is erroneous. The essential difference between a contract of sale and a
lease of things is that the delivery of the thing sold transfers ownership, while in lease no such transfer of
ownership results as the rights of the lessee are limited to the use and enjoyment of the thing leased.

In Rodriguez vs. Borromeo, 43 Phil. 479, 490, the Supreme Court held:

Since according to article 1543 of the same Code the contract of lease is defined as the giving or the concession
of the enjoyment or use of a thing for a specified time and fixed price, and since such contract is a form of
enjoyment of the property, it is evident that it must be regarded as one of the means of enjoyment referred to
in said article 398, inasmuch as the terms enjoyment, use, and benefit involve the same and analogous meaning
relative to the general utility of which a given thing is capable. (104 Jurisprudencia Civil, 443)

In concluding that the possession and enjoyment of the coconut trees can therefore be said to be the possession
and enjoyment of the land itself because the defendant-lessee in order to enjoy his right under the contract, he
actually takes possession of the land, at least during harvest time, gather all of the fruits of the coconut trees in
the land, and gain exclusive use thereof without the interference or intervention of the plaintiff-lessor such that
said plaintiff-lessor is excluded in fact from the land during the period aforesaid, the trial court erred. The
contract was clearly a "sale of the coconut fruits." The vendor sold, transferred and conveyed "by way of absolute
sale, all the coconut fruits of his land," thereby divesting himself of all ownership or dominion over the fruits
during the seven-year period. The possession and enjoyment of the coconut trees cannot be said to be the
possession and enjoyment of the land itself because these rights are distinct and separate from each other, the
first pertaining to the accessory or improvements (coconut trees) while the second, to the principal (the land).
A transfer of the accessory or improvement is not a transfer of the principal. It is the other way around, the
accessory follows the principal. Hence, the sale of the nuts cannot be interpreted nor construed to be a lease of
the trees, much less extended further to include the lease of the land itself.

The real and pivotal issue of this case which is taken up in petitioner's sixth assignment of error and as already
stated above, refers to the validity of the "Deed of Sale", as such contract of sale, vis-a-vis the provisions of Sec.
8, R.A. No. 477. The lower Court did not rule on this question, having reached the conclusion that the contract
at bar was one of lease. It was from the context of a lease contract that the Court below determined the
applicability of Sec. 8, R.A. No. 477, to the instant case.

Resolving now this principal issue, We find after a close and careful examination of the terms of the first
paragraph of Section 8 hereinabove quoted, that the grantee of a parcel of land under R.A. No. 477 is not
prohibited from alienating or disposing of the natural and/or industrial fruits of the land awarded to him. What
the law expressly disallows is the encumbrance or alienation of the land itself or any of the permanent
improvements thereon. Permanent improvements on a parcel of land are things incorporated or attached to the
property in a fixed manner, naturally or artificially. They include whatever is built, planted or sown on the land
which is characterized by fixity, immutability or immovability. Houses, buildings, machinery, animal houses, trees
and plants would fall under the category of permanent improvements, the alienation or encumbrance of which
is prohibited by R.A. No. 477. While coconut trees are permanent improvements of a land, their nuts are natural
or industrial fruits which are meant to be gathered or severed from the trees, to be used, enjoyed, sold or
otherwise disposed of by the owner of the land. Herein respondents, as the grantee of Lot No. 21 from the
Government, had the right and prerogative to sell the coconut fruits of the trees growing on the property.

By virtue of R.A. No. 477, bona fide occupants, veterans, members of guerilla organizations and other qualified
persons were given the opportunity to acquire government lands by purchase, taking into account their limited
means. It was intended for these persons to make good and productive use of the lands awarded to them, not
only to enable them to improve their standard of living, but likewise to help provide for the annual payments to
the Government of the purchase price of the lots awarded to them. Section 8 was included, as stated by the
Court a quo, to protect the grantees from themselves and the incursions of opportunists who prey on their
misery and poverty." It is there to insure that the grantees themselves benefit from their respective lots, to the
exclusion of other persons.
The purpose of the law is not violated when a grantee sells the produce or fruits of his land. On the contrary,
the aim of the law is thereby achieved, for the grantee is encouraged and induced to be more industrious and
productive, thus making it possible for him and his family to be economically self-sufficient and to lead a
respectable life. At the same time, the Government is assured of payment on the annual installments on the
land. We agree with herein petitioner that it could not have been the intention of the legislature to prohibit the
grantee from selling the natural and industrial fruits of his land, for otherwise, it would lead to an absurd situation
wherein the grantee would not be able to receive and enjoy the fruits of the property in the real and complete
sense.

Respondent through counsel, in his Answer to the Petition contends that even granting arguendo that he
executed a deed of sale of the coconut fruits, he has the "privilege to change his mind and claim it as (an)
implied lease," and he has the "legitimate right" to file an action for annulment "which no law can stop." He
claims it is his "sole construction of the meaning of the transaction that should prevail and not petitioner. (sic).
10 Respondent's counsel either misapplies the law or is trying too hard and going too far to defend his client's
hopeless cause. Suffice it to say that respondent-grantee, after having received the consideration for the sale of
his coconut fruits, cannot be allowed to impugn the validity of the contracts he entered into, to the prejudice of
petitioner who contracted in good faith and for a consideration.

The issue raised by the seventh assignment of error as to the propriety of the award of attorney's fees made by
the lower Court need not be passed upon, such award having been apparently based on the erroneous finding
and conclusion that the contract at bar is one of lease. We shall limit Ourselves to the question of whether or
not in accordance with Our ruling in this case, respondent is entitled to an award of attorney's fees. The Civil
Code provides that:

Art. 2208. In the absence of stipulation, attorney's fees and expenses of litigation, other than judicial costs,
cannot be recovered, except:

(1) When exemplary damages are awarded;

(2) When the defendant's act or omission has compelled the plaintiff to litigate with third persons or to incur
expenses to protect his interest;

(3) In criminal cases of malicious prosecution against the plaintiff;

(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;

(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff's plainly valid,
just and demandable claim;

(6) In actions for legal support;

(7) In actions for the recovery of wages of household helpers, laborers and skilled workers;

(8) In actions for indemnity under workmen's compensation and employer's liability laws;

(9) In a separate civil action to recover civil liability arising from a crime;

(10) When at least double judicial costs are awarded;

(11) In any other case where the court deems it just and equitable that attorney's fees and expenses of litigation
should be recovered.

In all cases, the attorney's fees and expenses of litigation must be reasonable.

We find that none of the legal grounds enumerated above exists to justify or warrant the grant of attorney's
fees to herein respondent.

IN VIEW OF THE FOREGOING, the judgment of the lower Court is hereby set aside and another one is entered
dismissing the Complaint. Without costs.
MENDOZA, J.:

This is a petition for review on certiorari of the decision, dated September 7, 1995, and resolution, dated January
31, 1996, of the Court of Appeals, which affirmed the decisions of the Regional Trial Court, Branches 25[1] and
28,[2] Cabanatuan City, finding private respondents spouses Reynaldo and Susan Veneracion owners of the land
in dispute, subject to petitioners rights as a builder in good faith.

The facts are as follows:

Sometime in February 1981, private respondents Godofredo De la Paz and his sister Manuela De la Paz, married
to Maximo Hipolito, entered into an oral contract with petitioner Rev. Fr. Dante Martinez, then Assistant parish
priest of Cabanatuan City, for the sale of Lot No. 1337-A-3 at the Villa Fe Subdivision in Cabanatuan City for the
sum of P15,000.00. The lot is located along Maharlika Road near the Municipal Hall of Cabanatuan City. At the
time of the sale, the lot was still registered in the name of Claudia De la Paz, mother of private respondents,
although the latter had already sold it to private respondent Manuela de la Paz by virtue of a Deed of Absolute
Sale dated May 26, 1976 (Exh. N/Exh. 2-Veneracion).[3] Private respondent Manuela subsequently registered
the sale in her name on October 22, 1981 and was issued TCT No. T-40496 (Exh. 9).[4] When the land was
offered for sale to petitioner, private respondents De la Paz were accompanied by their mother, since petitioner
dealt with the De la Pazes as a family and not individually. He was assured by them that the lot belonged to
Manuela De la Paz. It was agreed that petitioner would give a downpayment of P3,000.00 to private respondents
De la Paz and that the balance would be payable by installment. After giving the P3,000.00 downpayment,
petitioner started the construction of a house on the lot after securing a building permit from the City Engineers
Office on April 23, 1981, with the written consent of the then registered owner, Claudia de la Paz (Exh. B/Exh,
1).[5] Petitioner likewise began paying the real estate taxes on said property (Exh. D, D-1, D-2).[6] Construction
on the house was completed on October 6, 1981 (Exh. V).[7] Since then, petitioner and his family have
maintained their residence there.[8]

On January 31, 1983, petitioner completed payment of the lot for which private respondents De la Paz executed
two documents. The first document (Exh. A) read:

1-31-83

Ang halaga ng Lupa sa Villa Fe Subdivision na ipinagbili kay Fr. Dante Martinez ay P15,000.00 na pinangangako
namin na ibibigay ang Deed of Sale sa ika-25 ng Febrero 1983.

[SGD.] METRING HIPOLITO

[SGD.] JOSE GODOFREDO DE LA PAZ[9]

The second writing (Exh. O) read:

Cabanatuan City

March 19, 1986

TO WHOM IT MAY CONCERN:

This is to certify that Freddie dela Paz has agreed to sign tomorrow (March 20) the affidavit of sale of lot located
at Villa Fe Subdivision sold to Fr. Dante Martinez.

[Sgd.] Freddie dela Paz

FREDDIE DELA PAZ[10]

However, private respondents De la Paz never delivered the Deed of Sale they promised to petitioner.

In the meantime, in a Deed of Absolute Sale with Right to Repurchase dated October 28, 1981 (Exh. 10),[11]
private respondents De la Paz sold three lots with right to repurchase the same within one year to private
respondents spouses Reynaldo and Susan Veneracion for the sum of P150,000.00. One of the lots sold was the
lot previously sold to petitioner.[12]

Reynaldo Veneracion had been a resident of Cabanatuan City since birth. He used to pass along Maharlika
Highway in going to the Municipal Hall or in going to and from Manila. Two of the lots subject of the sale were
located along Maharlika Highway, one of which was the lot sold earlier by the De la Pazes to petitioner. The
third lot (hereinafter referred to as the Melencio lot) was occupied by private respondents De la Paz. Private
respondents Veneracion never took actual possession of any of these lots during the period of redemption, but
all titles to the lots were given to him.[13]

Before the expiration of the one year period, private respondent Godofredo De la Paz informed private
respondent Reynaldo Veneracion that he was selling the three lots to another person for P200,000.00. Indeed,
private respondent Veneracion received a call from a Mr. Tecson verifying if he had the titles to the properties,
as private respondents De la Paz were offering to sell the two lots along Maharlika Highway to him (Mr. Tecson)
for P180,000.00 The offer included the lot purchased by petitioner in February, 1981. Private respondent
Veneracion offered to purchase the same two lots from the De la Pazes for the same amount. The offer was
accepted by private respondents De la Paz. Accordingly, on June 2, 1983, a Deed of Absolute Sale was executed
over the two lots (Exh. I/Exh. 5-Veneracion).[14] Sometime in January, 1984, private respondent Reynaldo
Veneracion asked a certain Renato Reyes, petitioners neighbor, who the owner of the building erected on the
subject lot was. Reyes told him that it was Feliza Martinez, petitioners mother, who was in possession of the
property. Reynaldo Veneracion told private respondent Godofredo about the matter and was assured that
Godofredo would talk to Feliza. Based on that assurance, private respondents Veneracion registered the lots
with the Register of Deeds of Cabanatuan on March 5, 1984. The lot in dispute was registered under TCT No.
T-44612 (Exh. L/Exh. 4-Veneracion).[15]

Petitioner discovered that the lot he was occupying with his family had been sold to the spouses Veneracion
after receiving a letter (Exh. P/Exh. 6-Veneracion) from private respondent Reynaldo Veneracion on March 19,
1986, claiming ownership of the land and demanding that they vacate the property and remove their
improvements thereon.[16] Petitioner, in turn, demanded through counsel the execution of the deed of sale
from private respondents De la Paz and informed Reynaldo Veneracion that he was the owner of the property
as he had previously purchased the same from private respondents De la Paz.[17]

The matter was then referred to the Katarungang Pambarangay of San Juan, Cabanatuan City for conciliation,
but the parties failed to reach an agreement (Exh. M/Exh. 13).[18] As a consequence, on May 12, 1986, private
respondent Reynaldo Veneracion brought an action for ejectment in the Municipal Trial Court, Branch III,
Cabanatuan City against petitioner and his mother (Exh. 14).[19]

On the other hand, on June 10, 1986, petitioner caused a notice of lis pendens to be recorded on TCT No. T-
44612 with the Register of Deeds of Cabanatuan City (Exh. U).[20]

During the pre-trial conference, the parties agreed to have the case decided under the Rules on Summary
Procedure and defined the issues as follows:

1. Whether or not defendant (now petitioner) may be judicially ejected.

2. Whether or not the main issue in this case is ownership.

3. Whether or not damages may be awarded.[21]

On January 29, 1987, the trial court rendered its decision, pertinent portions of which are quoted as follows:

With the foregoing findings of the Court, defendants [petitioner Rev. Fr. Dante Martinez and his mother] are the
rightful possessors and in good faith and in concept of owner, thus cannot be ejected from the land in question.
Since the main issue is ownership, the better remedy of the plaintiff [herein private respondents Veneracion] is
Accion Publiciana in the Regional Trial Court, having jurisdiction to adjudicate on ownership.

Defendants counterclaim will not be acted upon it being more than P20,000.00 is beyond this Courts power to
adjudge.

WHEREFORE, judgment is hereby rendered, dismissing plaintiffs complaint and ordering plaintiff to pay Attorneys
fee of P5,000.00 and cost of suit.

SO ORDERED.[22]

On March 3, 1987, private respondents Veneracion filed a notice of appeal with the Regional Trial Court, but
failed to pay the docket fee. On June 6, 1989, or over two years after the filing of the notice of appeal, petitioner
filed a Motion for Execution of the Judgment, alleging finality of judgment for failure of private respondents
Veneracion to perfect their appeal and failure to prosecute the appeal for an unreasonable length of time.

Upon objection of private respondents Veneracion, the trial court denied on June 28, 1989 the motion for
execution and ordered the records of the case to be forwarded to the appropriate Regional Trial Court. On July
11, 1989, petitioner appealed from this order. The appeal of private respondents Veneracion from the decision
of the MTC and the appeal of petitioner from the order denying petitioners motion for execution were forwarded
to the Regional Trial Court, Branch 28, Cabanatuan City. The cases were thereafter consolidated under Civil Case
No. 670-AF.

On February 20, 1991, the Regional Trial Court rendered its decision finding private respondents Veneracion as
the true owners of the lot in dispute by virtue of their prior registration with the Register of Deeds, subject to
petitioners rights as builder in good faith, and ordering petitioner and his privies to vacate the lot after receipt
of the cost of the construction of the house, as well as to pay the sum of P5,000.00 as attorneys fees and the
costs of the suit. It, however, failed to rule on petitioners appeal of the Municipal Trial Courts order denying
their Motion for Execution of Judgment.

Meanwhile, on May 30, 1986, while the ejectment case was pending before the Municipal Trial Court, petitioner
Martinez filed a complaint for annulment of sale with damages against the Veneracions and De la Pazes with the
Regional Trial Court, Branch 25, Cabanatuan City. On March 5, 1990, the trial court rendered its decision finding
private respondents Veneracion owners of the land in dispute, subject to the rights of petitioner as a builder in
good faith, and ordering private respondents De la Paz to pay petitioner the sum of P50,000.00 as moral damages
and P10,000.00 as attorneys fees, and for private respondents to pay the costs of the suit.
On March 20, 1991, petitioner then filed a petition for review with the Court of Appeals of the RTCs decision in
Civil Case No. 670-AF (for ejectment). Likewise, on April 2, 1991, petitioner appealed the trial courts decision in
Civil Case No. 44-[AF]-8642-R (for annulment of sale and damages) to the Court of Appeals. The cases were
designated as CA G.R. SP. No. 24477 and CA G.R. CV No. 27791, respectively, and were subsequently
consolidated. The Court of Appeals affirmed the trial courts decisions, without ruling on petitioners appeal from
the Municipal Trial Courts order denying his Motion for Execution of Judgment. It declared the Veneracions to
be owners of the lot in dispute as they were the first registrants in good faith, in accordance with Art. 1544 of
the Civil Code. Petitioner Martinez failed to overcome the presumption of good faith for the following reasons:

1. when private respondent Veneracion discovered the construction on the lot, he immediately informed private
respondent Godofredo about it and relied on the latters assurance that he will take care of the matter.

2. the sale between petitioner Martinez and private respondents De la Paz was not notarized, as required by
Arts. 1357 and 1358 of the Civil Code, thus it cannot be said that the private respondents Veneracion had
knowledge of the first sale.[23]

Petitioners motion for reconsideration was likewise denied in a resolution dated January 31, 1996.[24] Hence
this petition for review. Petitioner raises the following assignment of errors:

I THE PUBLIC RESPONDENTS HONORABLE COURT OF APPEALS AND REGIONAL TRIAL COURT JUDGES
JOHNSON BALLUTAY AND ADRIANO TUAZON ERRED IN HOLDING THAT PRIVATE RESPONDENTS REYNALDO
VENERACION AND WIFE ARE BUYERS AND REGISTRANTS IN GOOD FAITH IN RESOLVING THE ISSUE OF
OWNERSHIP AND POSSESSION OF THE LAND IN DISPUTE.

II THAT PUBLIC RESPONDENTS ERRED IN NOT RESOLVING AND DECIDING THE APPLICABILITY OF THE
DECISION OF THIS HONORABLE COURT IN THE CASES OF SALVORO VS. TANEGA, ET AL., G.R. NO. L 32988
AND IN ARCENAS VS. DEL ROSARIO, 67 PHIL 238, BY TOTALLY IGNORING THE SAID DECISIONS OF THIS
HONORABLE COURT IN THE ASSAILED DECISIONS OF THE PUBLIC RESPONDENTS.

III THAT THE HONORABLE COURT OF APPEALS ERRED IN NOT GIVING DUE COURSE TO THE PETITION FOR
REVIEW IN CA G.R. SP. NO. 24477.

IV THAT THE HONORABLE COURT OF APPEALS IN DENYING PETITIONERS PETITION FOR REVIEW
AFORECITED INEVITABLY SANCTIONED AND/OR WOULD ALLOW A VIOLATION OF LAW AND DEPARTURE
FROM THE USUAL COURSE OF JUDICIAL PROCEEDINGS BY PUBLIC RESPONDENT HONORABLE JUDGE
ADRIANO TUAZON WHEN THE LATTER RENDERED A DECISION IN CIVIL CASE NO. 670-AF [ANNEX D]
REVERSING THE DECISION OF THE MUNICIPAL TRIAL COURT JUDGE SENDON DELIZO IN CIVIL CASE NO.
9523 [ANNEX C] AND IN NOT RESOLVING IN THE SAME CASE THE APPEAL INTERPOSED BY DEFENDANTS ON
THE ORDER OF THE SAME COURT DENYING THE MOTION FOR EXECUTION.

V THAT THE RESOLUTION [ANNEX B] (OF THE COURT OF APPEALS) DENYING PETITIONERS MOTION FOR
RECONSIDERATION [ANNEX I] WITHOUT STATING CLEARLY THE FACTS AND THE LAW ON WHICH SAID
RESOLUTION WAS BASED, (IS ERRONEOUS).

These assignment of errors raise the following issues:

1. Whether or not private respondents Veneracion are buyers in good faith of the lot in dispute as to make them
the absolute owners thereof in accordance with Art. 1544 of the Civil Code on double sale of immovable property.

2. Whether or not payment of the appellate docket fee within the period to appeal is not necessary for the
perfection of the appeal after a notice of appeal has been filed within such period.

3. Whether or not the resolution of the Court of Appeals denying petitioners motion for reconsideration is
contrary to the constitutional requirement that a denial of a motion for reconsideration must state the legal
reasons on which it is based.

First. It is apparent from the first and second assignment of errors that petitioner is assailing the findings of fact
and the appreciation of the evidence made by the trial courts and later affirmed by the respondent court. While,
as a general rule, only questions of law may be raised in a petition for review under Rule 45 of the Rules of
Court, review may nevertheless be granted under certain exceptions, namely: (a) when the conclusion is a
finding grounded entirely on speculation, surmises, or conjectures; (b) when the inference made is manifestly
mistaken, absurd, or impossible; (c) where there is a grave abuse of discretion; (d) when the judgment is based
on a misapprehension of facts; (e) when the findings of fact are conflicting; (f) when the Court of Appeals, in
making its findings, went beyond the issue of the case and the same is contrary to the admissions of both
appellant and appellee; (g) when the findings of the Court of Appeals are contrary to those of the trial court;
(h) when the findings of fact are conclusions without citation of specific evidence on which they are based; (i)
when the facts set forth in the petition as well as in the petitioners main and reply briefs are not disputed by the
respondents; (j) when the finding of fact of the Court of Appeals is premised on the supposed absence of
evidence but is contradicted by the evidence on record; and (k) when the Court of Appeals manifestly overlooked
certain relevant facts not disputed by the parties and which, if properly considered, would justify a different
conclusion.[25]

In this case, the Court of Appeals based its ruling that private respondents Veneracion are the owners of the
disputed lot on their reliance on private respondent Godofredo De la Pazs assurance that he would take care of
the matter concerning petitioners occupancy of the disputed lot as constituting good faith. This case, however,
involves double sale and, on this matter, Art. 1544 of the Civil Code provides that where immovable property is
the subject of a double sale, ownership shall be transferred (1) to the person acquiring it who in good faith first
recorded it to the Registry of Property; (2) in default thereof, to the person who in good faith was first in
possession; and (3) in default thereof, to the person who presents the oldest title.[26] The requirement of the
law, where title to the property is recorded in the Register of Deeds, is two-fold: acquisition in good faith and
recording in good faith. To be entitled to priority, the second purchaser must not only prove prior recording of
his title but that he acted in good faith, i.e., without knowledge or notice of a prior sale to another. The presence
of good faith should be ascertained from the circumstances surrounding the purchase of the land.[27]

1. With regard to the first sale to private respondents Veneracion, private respondent Reynaldo Veneracion
testified that on October 10, 1981, 18 days before the execution of the first Deed of Sale with Right to
Repurchase, he inspected the premises and found it vacant.[28] However, this is belied by the testimony of
Engr. Felix D. Minor, then building inspector of the Department of Public Works and Highways, that he conducted
on October 6, 1981 an ocular inspection of the lot in dispute in the performance of his duties as a building
inspector to monitor the progress of the construction of the building subject of the building permit issued in
favor of petitioner on April 23, 1981, and that he found it 100 % completed (Exh. V).[29] In the absence of
contrary evidence, he is to be presumed to have regularly performed his official duty.[30] Thus, as early as
October, 1981, private respondents Veneracion already knew that there was construction being made on the
property they purchased.

2. The Court of Appeals failed to determine the nature of the first contract of sale between the private
respondents by considering their contemporaneous and subsequent acts.[31] More specifically, it overlooked
the fact that the first contract of sale between the private respondents shows that it is in fact an equitable
mortgage.

The requisites for considering a contract of sale with a right of repurchase as an equitable mortgage are (1) that
the parties entered into a contract denominated as a contract of sale and (2) that their intention was to secure
an existing debt by way of mortgage.[32] A contract of sale with right to repurchase gives rise to the presumption
that it is an equitable mortgage in any of the following cases: (1) when the price of a sale with a right to
repurchase is unusually inadequate; (2) when the vendor remains in possession as lessee or otherwise; (3)
when, upon or after the expiration of the right to repurchase, another instrument extending the period of
redemption or granting a new period is executed; (4) when the purchaser retains for himself a part of the
purchase price; (5) when the vendor binds himself to pay the taxes on the thing sold; (6) in any other case
where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the
payment of a debt or the performance of any other obligation.[33] In case of doubt, a contract purporting to be
a sale with right to repurchase shall be construed as an equitable mortgage.[34]

In this case, the following circumstances indicate that the private respondents intended the transaction to be an
equitable mortgage and not a contract of sale: (1) Private respondents Veneracion never took actual possession
of the three lots; (2) Private respondents De la Paz remained in possession of the Melencio lot which was co-
owned by them and where they resided; (3) During the period between the first sale and the second sale to
private respondents Veneracion, they never made any effort to take possession of the properties; and (4) when
the period of redemption had expired and private respondents Veneracion were informed by the De la Pazes
that they are offering the lots for sale to another person for P200,000.00, they never objected. To the contrary,
they offered to purchase the two lots for P180,000.00 when they found that a certain Mr. Tecson was prepared
to purchase it for the same amount. Thus, it is clear from these circumstances that both private respondents
never intended the first sale to be a contract of sale, but merely that of mortgage to secure a debt of
P150,000.00.

With regard to the second sale, which is the true contract of sale between the parties, it should be noted that
this Court in several cases,[35] has ruled that a purchaser who is aware of facts which should put a reasonable
man upon his guard cannot turn a blind eye and later claim that he acted in good faith. Private respondent
Reynaldo himself admitted during the pre-trial conference in the MTC in Civil Case No. 9523 (for ejectment) that
petitioner was already in possession of the property in dispute at the time the second Deed of Sale was executed
on June 1, 1983 and registered on March 4, 1984. He, therefore, knew that there were already occupants on
the property as early as 1981. The fact that there are persons, other than the vendors, in actual possession of
the disputed lot should have put private respondents on inquiry as to the nature of petitioners right over the
property. But he never talked to petitioner to verify the nature of his right. He merely relied on the assurance of
private respondent Godofredo De la Paz, who was not even the owner of the lot in question, that he would take
care of the matter. This does not meet the standard of good faith.

3. The appellate courts reliance on Arts. 1357 and 1358 of the Civil Code to determine private respondents
Veneracions lack of knowledge of petitioners ownership of the disputed lot is erroneous.
Art. 1357[36] and Art. 1358,[37] in relation to Art. 1403(2)[38] of the Civil Code, requires that the sale of real
property must be in writing for it to be enforceable. It need not be notarized. If the sale has not been put in
writing, either of the contracting parties can compel the other to observe such requirement.[39] This is what
petitioner did when he repeatedly demanded that a Deed of Absolute Sale be executed in his favor by private
respondents De la Paz. There is nothing in the above provisions which require that a contract of sale of realty
must be executed in a public document. In any event, it has been shown that private respondents Veneracion
had knowledge of facts which would put them on inquiry as to the nature of petitioners occupancy of the disputed
lot.

Second. Petitioner contends that the MTC in Civil Case No. 9523 (for ejectment) erred in denying petitioners
Motion for Execution of the Judgment, which the latter filed on June 6, 1989, two years after private respondents
Veneracion filed a notice of appeal with the MTC on March 3, 1987 without paying the appellate docket fee. He
avers that the trial courts denial of his motion is contrary to this Courts ruling in the cases of Republic v. Director
of Lands,[40] and Aranas v. Endona[41] in which it was held that where the appellate docket fee is not paid in
full within the reglementary period, the decision of the MTC becomes final and unappealable as the payment of
docket fee is not only a mandatory but also a jurisdictional requirement.

Petitioners contention has no merit. The case of Republic v. Director of Lands deals with the requirement for
appeals from the Courts of First Instance, the Social Security Commission, and the Court of Agrarian Relations
to the Court of Appeals. The case of Aranas v. Endona, on the other hand, was decided under the 1964 Rules
of Court and prior to the enactment of the Judiciary Reorganization Act of 1981 (B.P. Blg. 129) and the issuance
of its Interim Rules and Guidelines by this Court on January 11, 1983. Hence, these cases are not applicable to
the matter at issue.

On the other hand, in Santos v. Court of Appeals,[42] it was held that although an appeal fee is required to be
paid in case of an appeal taken from the municipal trial court to the regional trial court, it is not a prerequisite
for the perfection of an appeal under 20[43] and 23[44] of the Interim Rules and Guidelines issued by this Court
on January 11, 1983 implementing the Judiciary Reorganization Act of 1981 (B.P. Blg. 129). Under these
sections, there are only two requirements for the perfection of an appeal, to wit: (a) the filing of a notice of
appeal within the reglementary period; and (b) the expiration of the last day to appeal by any party. Even in the
procedure for appeal to the regional trial courts,[45] nothing is mentioned about the payment of appellate docket
fees.

Indeed, this Court has ruled that, in appealed cases, the failure to pay the appellate docket fee does not
automatically result in the dismissal of the appeal, the dismissal being discretionary on the part of the appellate
court.[46] Thus, private respondents Veneracions failure to pay the appellate docket fee is not fatal to their
appeal.

Third. Petitioner contends that the resolution of the Court of Appeals denying his motion for reconsideration was
rendered in violation of the Constitution because it does not state the legal basis thereof.

This contention is likewise without merit.

Art. VIII, Sec. 14 of the Constitution provides that No petition for review or motion for reconsideration of a
decision of the court shall be refused due course or denied without stating the basis therefor. This requirement
was fully complied with when the Court of Appeals, in denying reconsideration of its decision, stated in its
resolution that it found no reason to change its ruling because petitioner had not raised anything new.[47] Thus,
its resolution denying petitioners motion for reconsideration states:

For resolution is the Motion for Reconsideration of Our Decision filed by the petitioners.

Evidently, the motion poses nothing new. The points and arguments raised by the movants have been considered
and passed upon in the Decision sought to be reconsidered. Thus, We find no reason to disturb the same.

WHEREFORE, the motion is hereby DENIED.

SO ORDERED.[48]

Attorneys fees should be awarded as petitioner was compelled to litigate to protect his interest due to private
respondents act or omission.[49]

WHEREFORE, the decision of the Court of Appeals is REVERSED and a new one is RENDERED:

(1) declaring as null and void the deed of sale executed by private respondents Godofredo and Manuela De la
Paz in favor of private respondents spouses Reynaldo and Susan Veneracion;

(2) ordering private respondents Godofredo and Manuela De la Paz to execute a deed of absolute sale in favor
of petitioner Rev. Fr. Dante Martinez;
(3) ordering private respondents Godofredo and Manuela De la Paz to reimburse private respondents spouses
Veneracion the amount the latter may have paid to the former;

(4) ordering the Register of Deeds of Cabanatuan City to cancel TCT No. T-44612 and issue a new one in the
name of petitioner Rev. Fr. Dante Martinez; and

(5) ordering private respondents to pay petitioner jointly and severally the sum of P20,000.00 as attorneys fees
and to pay the costs of the suit.
MELLIZA V CITY OF ILOILO
Juliana Melliza during her lifetime owned, among other properties, three parcels of residential land in Iloilo City
registered in her name under Original Certificate of Title No. 3462. Said parcels of land were known as Lots Nos.
2, 5 and 1214. The total area of Lot No. 1214 was 29,073 square meters.
On November 27, 1931 she donated to the then Municipality of Iloilo, 9,000 square meters of Lot 1214, to serve
as site for the municipal hall. 1 The donation was however revoked by the parties for the reason that the area
donated was found inadequate to meet the requirements of the development plan of the municipality, the so-
called "Arellano Plan". 2
Subsequently, Lot No. 1214 was divided by Certeza Surveying Co., Inc. into Lots 1214-A and 1214-B. And still
later, Lot 1214-B was further divided into Lots 1214-B-1, Lot 1214-B-2 and Lot 1214-B-3. As approved by the
Bureau of Lands, Lot 1214-B-1 with 4,562 square meters, became known as Lot 1214-B; Lot 1214-B-2, with
6,653 square meters, was designated as Lot 1214-C; and Lot 1214-B-13, with 4,135 square meters, became Lot
1214-D.
On November 15, 1932 Juliana Melliza executed an instrument without any caption containing the following:
Que en consideracion a la suma total de SEIS MIL CUATRO CIENTOS VEINTIDOS PESOS (P6,422.00),
moneda filipina que por la presente declaro haber recibido a mi entera satisfaccion del Gobierno Municipal
de Iloilo, cedo y traspaso en venta real y difinitiva a dicho Gobierno Municipal de Iloilo los lotes y
porciones de los mismos que a continuacion se especifican a saber: el lote No. 5 en toda su extension;
una porcion de 7669 metros cuadrados del lote No. 2, cuya porcion esta designada como sub-lotes Nos.
2-B y 2-C del piano de subdivision de dichos lotes preparado por la Certeza Surveying Co., Inc., y una
porcion de 10,788 metros cuadrados del lote No. 1214 — cuya porcion esta designada como sub-lotes
Nos. 1214-B-2 y 1214-B-3 del mismo plano de subdivision.
Asimismo nago constar que la cesion y traspaso que ariba se mencionan es de venta difinitiva, y que
para la mejor identificacion de los lotes y porciones de los mismos que son objeto de la presente, hago
constar que dichos lotes y porciones son los que necesita el Gobierno Municipal de Iloilo para la
construccion de avenidas, parques y City Hall site del Municipal Government Center de iloilo, segun el
plano Arellano.
On January 14, 1938 Juliana Melliza sold her remaining interest in Lot 1214 to Remedios Sian Villanueva who
thereafter obtained her own registered title thereto, under Transfer Certificate of Title No. 18178. Remedios in
turn on November 4, 1946 transferred her rights to said portion of land to Pio Sian Melliza, who obtained Transfer
Certificate of Title No. 2492 thereover in his name. Annotated at the back of Pio Sian Melliza's title certificate
was the following:
... (a) that a portion of 10,788 square meters of Lot 1214 now designated as Lots Nos. 1214-B-2 and
1214-B-3 of the subdivision plan belongs to the Municipality of Iloilo as per instrument dated November
15, 1932....
On August 24, 1949 the City of Iloilo, which succeeded to the Municipality of Iloilo, donated the city hall site
together with the building thereon, to the University of the Philippines (Iloilo branch). The site donated consisted
of Lots Nos. 1214-B, 1214-C and 1214-D, with a total area of 15,350 square meters, more or less.
Sometime in 1952, the University of the Philippines enclosed the site donated with a wire fence. Pio Sian Melliza
thereupon made representations, thru his lawyer, with the city authorities for payment of the value of the lot
(Lot 1214-B). No recovery was obtained, because as alleged by plaintiff, the City did not have funds (p. 9,
Appellant's Brief.)
The University of the Philippines, meanwhile, obtained Transfer Certificate of Title No. 7152 covering the three
lots, Nos. 1214-B, 1214-C and 1214-D.
On December 10, 1955 Pio Sian Melliza filed an action in the Court of First Instance of Iloilo against Iloilo City
and the University of the Philippines for recovery of Lot 1214-B or of its value.
The defendants answered, contending that Lot 1214-B was included in the public instrument executed by Juliana
Melliza in favor of Iloilo municipality in 1932. After stipulation of facts and trial, the Court of First Instance
rendered its decision on August 15, 1957, dismissing the complaint. Said court ruled that the instrument executed
by Juliana Melliza in favor of Iloilo municipality included in the conveyance Lot 1214-B. In support of this
conclusion, it referred to the portion of the instrument stating:
Asimismo hago constar que la cesion y traspaso que arriba se mencionan es de venta difinitiva, y que
para la major identificacion de los lotes y porciones de los mismos que son objeto de la presente, hago
constar que dichos lotes y porciones son los que necesita el Gobierno municipal de Iloilo para la
construccion de avenidas, parques y City Hall site del Municipal Government Center de Iloilo, segun el
plano Arellano.
and ruled that this meant that Juliana Melliza not only sold Lots 1214-C and 1214-D but also such other portions
of lots as were necessary for the municipal hall site, such as Lot 1214-B. And thus it held that Iloilo City had the
right to donate Lot 1214-B to the U.P.
Pio Sian Melliza appealed to the Court of Appeals. In its decision on May 19, 1965, the Court of Appeals affirmed
the interpretation of the Court of First Instance, that the portion of Lot 1214 sold by Juliana Melliza was not
limited to the 10,788 square meters specifically mentioned but included whatever was needed for the
construction of avenues, parks and the city hall site. Nonetheless, it ordered the remand of the case for reception
of evidence to determine the area actually taken by Iloilo City for the construction of avenues, parks and for city
hall site.
The present appeal therefrom was then taken to Us by Pio Sian Melliza. Appellant maintains that the public
instrument is clear that only Lots Nos. 1214-C and 1214-D with a total area of 10,788 square meters were the
portions of Lot 1214 included in the sale; that the purpose of the second paragraph, relied upon for a contrary
interpretation, was only to better identify the lots sold and none other; and that to follow the interpretation
accorded the deed of sale by the Court of Appeals and the Court of First Instance would render the contract
invalid because the law requires as an essential element of sale, a "determinate" object (Art. 1445, now 1448,
Civil Code).
Appellees, on the other hand, contend that the present appeal improperly raises only questions of fact. And,
further, they argue that the parties to the document in question really intended to include Lot 1214-B therein,
as shown by the silence of the vendor after Iloilo City exercised ownership thereover; that not to include it would
have been absurd, because said lot is contiguous to the others admittedly included in the conveyance, lying
directly in front of the city hall, separating that building from Lots 1214-C and 1214-D, which were included
therein. And, finally, appellees argue that the sale's object was determinate, because it could be ascertained, at
the time of the execution of the contract, what lots were needed by Iloilo municipality for avenues, parks and
city hall site "according to the Arellano Plan", since the Arellano plan was then already in existence.
The appeal before Us calls for the interpretation of the public instrument dated November 15, 1932. And
interpretation of such contract involves a question of law, since the contract is in the nature of law as between
the parties and their successors-in-interest.
At the outset, it is well to mark that the issue is whether or not the conveyance by Juliana Melliza to Iloilo
municipality included that portion of Lot 1214 known as Lot 1214-B. If not, then the same was included, in the
instrument subsequently executed by Juliana Melliza of her remaining interest in Lot 1214 to Remedios Sian
Villanueva, who in turn sold what she thereunder had acquired, to Pio Sian Melliza. It should be stressed, also,
that the sale to Remedios Sian Villanueva — from which Pio Sian Melliza derived title — did not specifically
designate Lot 1214-B, but only such portions of Lot 1214 as were not included in the previous sale to Iloilo
municipality (Stipulation of Facts, par. 5, Record on Appeal, p. 23). And thus, if said Lot 1214-B had been
included in the prior conveyance to Iloilo municipality, then it was excluded from the sale to Remedios Sian
Villanueva and, later, to Pio Sian Melliza.
The point at issue here is then the true intention of the parties as to the object of the public instrument Exhibit
"D". Said issue revolves on the paragraph of the public instrument aforequoted and its purpose, i.e., whether it
was intended merely to further describe the lots already specifically mentioned, or whether it was intended to
cover other lots not yet specifically mentioned.
First of all, there is no question that the paramount intention of the parties was to provide Iloilo municipality
with lots sufficient or adequate in area for the construction of the Iloilo City hall site, with its avenues and parks.
For this matter, a previous donation for this purpose between the same parties was revoked by them, because
of inadequacy of the area of the lot donated.
Secondly, reading the public instrument in toto, with special reference to the paragraphs describing the lots
included in the sale, shows that said instrument describes four parcels of land by their lot numbers and area;
and then it goes on to further describe, not only those lots already mentioned, but the lots object of the sale,
by stating that said lots are the ones needed for the construction of the city hall site, avenues and
parks according to the Arellano plan. If the parties intended merely to cover the specified lots — Lots 2, 5, 1214-
C and 1214-D, there would scarcely have been any need for the next paragraph, since these lots are already
plainly and very clearly described by their respective lot number and area. Said next paragraph does not really
add to the clear description that was already given to them in the previous one.
It is therefore the more reasonable interpretation, to view it as describing those other portions of land contiguous
to the lots aforementioned that, by reference to the Arellano plan, will be found needed for the purpose at hand,
the construction of the city hall site.
Appellant however challenges this view on the ground that the description of said other lots in the aforequoted
second paragraph of the public instrument would thereby be legally insufficient, because the object would
allegedly not be determinate as required by law.
Such contention fails on several counts. The requirement of the law that a sale must have for its object a
determinate thing, is fulfilled as long as, at the time the contract is entered into, the object of the sale is capable
of being made determinate without the necessity of a new or further agreement between the parties (Art. 1273,
old Civil Code; Art. 1460, New Civil Code). The specific mention of some of the lots plus the statement that the
lots object of the sale are the ones needed for city hall site, avenues and parks, according to the Arellano plan,
sufficiently provides a basis, as of the time of the execution of the contract, for rendering determinate said lots
without the need of a new and further agreement of the parties.
The Arellano plan was in existence as early as 1928. As stated, the previous donation of land for city hall site on
November 27, 1931 was revoked on March 6, 1932 for being inadequate in area under said Arellano plan.
Appellant claims that although said plan existed, its metes and bounds were not fixed until 1935, and thus it
could not be a basis for determining the lots sold on November 15, 1932. Appellant however fails to consider
that the area needed under that plan for city hall site was then already known; that the specific mention of some
of the lots covered by the sale in effect fixed the corresponding location of the city hall site under the plan; that,
therefore, considering the said lots specifically mentioned in the public instrument Exhibit "D", and the projected
city hall site, with its area, as then shown in the Arellano plan (Exhibit 2), it could be determined which, and
how much of the portions of land contiguous to those specifically named, were needed for the construction of
the city hall site.
And, moreover, there is no question either that Lot 1214-B is contiguous to Lots 1214-C and 1214-D, admittedly
covered by the public instrument. It is stipulated that, after execution of the contract Exhibit "D", the Municipality
of Iloilo possessed it together with the other lots sold. It sits practically in the heart of the city hall site.
Furthermore, Pio Sian Melliza, from the stipulation of facts, was the notary public of the public instrument. As
such, he was aware of its terms. Said instrument was also registered with the Register of Deeds and such
registration was annotated at the back of the corresponding title certificate of Juliana Melliza. From these
stipulated facts, it can be inferred that Pio Sian Melliza knew of the aforesaid terms of the instrument or is
chargeable with knowledge of them; that knowing so, he should have examined the Arellano plan in relation to
the public instrument Exhibit "D"; that, furthermore, he should have taken notice of the possession first by the
Municipality of Iloilo, then by the City of Iloilo and later by the University of the Philippines of Lot 1214-B as part
of the city hall site conveyed under that public instrument, and raised proper objections thereto if it was his
position that the same was not included in the same. The fact remains that, instead, for twenty long years, Pio
Sian Melliza and his predecessors-in-interest, did not object to said possession, nor exercise any act of possession
over Lot 1214-B. Applying, therefore, principles of civil law, as well as laches, estoppel, and equity, said lot must
necessarily be deemed included in the conveyance in favor of Iloilo municipality, now Iloilo City.
WHEREFORE, the decision appealed from is affirmed insofar as it affirms that of the Court of First Instance, and
the complaint in this case is dismissed. No costs. So ordered.

ASUNCION ATILANO, , vs.LADISLAO ATILANO and GREGORIO M. ATILANO, defendants-appellants.

In 1916 Eulogio Atilano I acquired, by purchase from one Gerardo Villanueva, lot No. 535 of the then municipality
of Zamboanga cadastre. The vendee thereafter obtained transfer certificate of title No. 1134 in his name. In
1920 he had the land subdivided into five parts, identified as lots Nos. 535-A, 535-B, 535-C, 535-D and 535-E,
respectively. On May 18 of the same year, after the subdivision had been effected, Eulogio Atilano I, for the sum
of P150.00, executed a deed of sale covering lot No. 535-E in favor of his brother Eulogio Atilano II, who
thereupon obtained transfer certificate of title No. 3129 in his name. Three other portions, namely lots Nos. 535-
B, 535-C and 535-D, were likewise sold to other persons, the original owner, Eulogio Atilano I, retaining for
himself only the remaining portion of the land, presumably covered by the title to lot No. 535-A. Upon his death
the title to this lot passed to Ladislao Atilano, defendant in this case, in whose name the corresponding certificate
(No. T-556) was issued.

On December 6, 1952, Eulogio Atilano II having become a widower upon the death of his wife Luisa Bautista,
he and his children obtained transfer certificate of title No. 4889 over lot No. 535-E in their names as co-owners.
Then, on July 16, 1959, desiring to put an end to the co-ownership, they had the land resurveyed so that it
could properly be subdivided; and it was then discovered that the land they were actually occupying on the
strength of the deed of sale executed in 1920 was lot No. 535-A and not lot 535-E, as referred to in the deed,
while the land which remained in the possession of the vendor, Eulogio Atilano I, and which passed to his
successor, defendant Ladislao Atilano, was lot No. 535-E and not lot No. 535-A.

On January 25, 1960, the heirs of Eulogio Atilano II, who was by then also deceased, filed the present action in
the Court of First Instance of Zamboanga, alleging, inter alia, that they had offered to surrender to the
defendants the possession of lot No. 535-A and demanded in return the possession of lot No. 535-E, but that
the defendants had refused to accept the exchange. The plaintiffs' insistence is quite understandable, since lot
No. 535-E has an area of 2,612 square meters, as compared to the 1,808 square-meter area of lot No. 535-A.

In their answer to the complaint the defendants alleged that the reference to lot No. 535-E in the deed of sale
of May 18, 1920 was an involuntary error; that the intention of the parties to that sale was to convey the lot
correctly identified as lot No. 535-A; that since 1916, when he acquired the entirety of lot No. 535, and up to
the time of his death, Eulogio Atilano I had been possessing and had his house on the portion designated as lot
No. 535-E, after which he was succeeded in such possession by the defendants herein; and that as a matter of
fact Eulogio Atilano I even increased the area under his possession when on June 11, 1920 he bought a portion
of an adjoining lot, No. 536, from its owner Fruto del Carpio. On the basis of the foregoing allegations the
defendants interposed a counterclaim, praying that the plaintiffs be ordered to execute in their favor the
corresponding deed of transfer with respect to lot No. 535-E.

The trial court rendered judgment for the plaintiffs on the sole ground that since the property was registered
under the Land Registration Act the defendants could not acquire it through prescription. There can be, of
course, no dispute as to the correctness of this legal proposition; but the defendants, aside from alleging adverse
possession in their answer and counterclaim, also alleged error in the deed of sale of May 18, 1920, thus:
"Eulogio Atilano 1.o, por equivocacion o error involuntario, cedio y traspaso a su hermano Eulogio Atilano 2.do
el lote No. 535-E en vez del Lote No. 535-A."lawphi1.ñet
The logic and common sense of the situation lean heavily in favor of the defendants' contention. When one sells
or buys real property — a piece of land, for example — one sells or buys the property as he sees it, in its actual
setting and by its physical metes and bounds, and not by the mere lot number assigned to it in the certificate
of title. In the particular case before us, the portion correctly referred to as lot No. 535-A was already in the
possession of the vendee, Eulogio Atilano II, who had constructed his residence therein, even before the sale in
his favor even before the subdivision of the entire lot No. 535 at the instance of its owner, Eulogio Atillano I. In
like manner the latter had his house on the portion correctly identified, after the subdivision, as lot No. 535-E,
even adding to the area thereof by purchasing a portion of an adjoining property belonging to a different owner.
The two brothers continued in possession of the respective portions the rest of their lives, obviously ignorant of
the initial mistake in the designation of the lot subject of the 1920 until 1959, when the mistake was discovered
for the first time.

The real issue here is not adverse possession, but the real intention of the parties to that sale. From all the facts
and circumstances we are convinced that the object thereof, as intended and understood by the parties, was
that specific portion where the vendee was then already residing, where he reconstructed his house at the end
of the war, and where his heirs, the plaintiffs herein, continued to reside thereafter: namely, lot No. 535-A; and
that its designation as lot No. 535-E in the deed of sale was simple mistake in the drafting of the
document.1âwphi1.ñet The mistake did not vitiate the consent of the parties, or affect the validity and binding
effect of the contract between them. The new Civil Code provides a remedy for such a situation by means of
reformation of the instrument. This remedy is available when, there having been a meeting of the funds of the
parties to a contract, their true intention is not expressed in the instrument purporting to embody the agreement
by reason of mistake, fraud, inequitable conduct on accident (Art. 1359, et seq.) In this case, the deed of sale
executed in 1920 need no longer reformed. The parties have retained possession of their respective properties
conformably to the real intention of the parties to that sale, and all they should do is to execute mutual deeds
of conveyance.

WHEREFORE, the judgment appealed from is reversed. The plaintiffs are ordered to execute a deed of
conveyance of lot No. 535-E in favor of the defendants, and the latter in turn, are ordered to execute a similar
document, covering lot No. 595-A, in favor of the plaintiffs. Costs against the latter.