G.R. No.

L-31271 April 29, 1974

ROMEO MARTINEZ and LEONOR SUAREZ, spouses, petitioners-appellants,

vs.
HON. COURT OF APPEALS, SECRETARY and UNDERSECRETARY OF PUBLIC WORKS & COMMUNICATIONS, respondents-
appellees.

Flores Macapagal, Ocampo and Balbastro for petitioners-appellants.

Office of the Solicitor General Felix Q. Antonio, Acting Assistant Solicitor General Dominador L. Quiroz and Solicitor Concepcion T. Agapinan
for respondents-appellees.

ESGUERRA, J.:p

Petition for review by certiorari of the judgment of the Court of Appeals dated November 17, 1969 in its CA-G.R. 27655-R which reverses the
judgment of the Court of First Instance of Pampanga in favor of petitioners-appellants against the Secretary and Undersecretary of Public
Works & Communications in the case instituted to annul the order of November 25, 1958 of respondent Secretary of Public Works &
Communications directing the removal by the petitioners of the dikes they had constructed on Lot No. 15856 of the Register of Deeds of
Pampanga, which order was issued pursuant to the provisions of Republic Act No. 2056. The dispositive portion of the judgment of reversal
of the Court of Appeals reads as follows:

IN VIEW OF THE FOREGOING CONSIDERATIONS, the judgment appealed from is hereby reversed, and another
entered: [1] upholding the validity of the decision reached by the respondent officials in the administrative case; [2]
dissolving the injunction issued by the Court below; and [3] cancelling the registration of Lot No. 2, the disputed area,
and ordering its reconveyance to the public domain. No costs in this instance.

The background facts are stated by the Court of Appeals as follows:

The spouses Romeo Martinez and Leonor Suarez, now petitioners-appellees, are the registered owners of two (2)
parcels of land located in Lubao, Pampanga, covered by transfer certificate of title No. 15856 of the Register of Deeds
of the said province. Both parcels of land are fishponds. The property involved in the instant case is the second parcel
mentioned in the above-named transfer certificate of title.

The disputed property was originally owned by one Paulino Montemayor, who secured a "titulo real" over it way back in
1883. After the death of Paulino Montemayor the said property passed to his successors-in-interest, Maria Montemayor
and Donata Montemayor, who in turn, sold it, as well as the first parcel, to a certain Potenciano Garcia.

Because Potenciano Garcia was prevented by the then municipal president of Lubao, Pedro Beltran, from restoring the
dikes constructed on the contested property, the former, on June 22, 1914, filed Civil Case No. 1407 with the Court of
First Instance against the said Pedro Beltran to restrain the latter in his official capacity from molesting him in the
possession of said second parcel, and on even date, applied for a writ of preliminary injunction, which was issued
against said municipal president. The Court, by decision promulgated June 12, 1916, declared permanent the
preliminary injunction, which, decision, on appeal, was affirmed by the Supreme Court on August 21, 1918. From June
22, 1914, the dikes around the property in question remained closed until a portion thereof was again opened just
before the outbreak of the Pacific War.

On April 17, 1925. Potenciano Garcia applied for the registration of both parcels of land in his name, and the Court of
First Instance of Pampanga, sitting as land registration court, granted the registration over and against the opposition of
the Attorney-General and the Director of Forestry. Pursuant to the Court's decision, original certificate of title No.
14318, covering said parcels 1 and 2 was issued to the spouses Potenciano Garcia and Lorenza Sioson.

These parcels of land were subsequently bought by Emilio Cruz de Dios in whose name transfer certificate of title No.
1421 was first issued on November 9, 1925.

Thereafter, the ownership of these properties changed hands until eventually they were acquired by the herein
appellee spouses who hold them by virtue of transfer certificate of title No. 15856.

To avoid any untoward incident, the disputants agreed to refer the matter to the Committee on Rivers and Streams, by
then composed of the Honorable Pedro Tuason, at that time Secretary of Justice, as chairman, and the Honorable
Salvador Araneta and Vicente Orosa, Secretary of Agriculture and National Resources and Secretary of Public Works
and Communications, respectively, as members. This committee thereafter appointed a Sub-Committee to investigate
the case and to conduct an ocular inspection of the contested property, and on March 11, 1954, said Sub-Committee
submitted its report to the Committee on Rivers and Streams to the effect that Parcel No. 2 of transfer certificate of title
No. 15856 was not a public river but a private fishpond owned by the herein spouses.

On July 7, 1954, the Committee on Rivers and Streams rendered its decision the dispositive part of which reads:

"In view of the foregoing considerations, the spouses Romeo Martinez and Leonor Suarez should
be restored to the exclusive possession, use and enjoyment of the creek in question which forms
part of their registered property and the decision of the courts on the matter be given full force
and effect."

The municipal officials of Lubao, led by Acting Mayor Mariano Zagad, apparently refused to recognize the above
decision, because on September 1, 1954, the spouses Romeo Martinez and Leonor Suarez instituted Civil Case No.
751 before the Court of First Instance of Pampanga against said Mayor Zagad, praying that the latter be enjoined from
molesting them in their possession of their property and in the construction of the dikes therein. The writ of preliminary
injunction applied for was issued against the respondent municipal Mayor, who immediately elevated the injunction suit
for review to the Supreme Court, which dismissed Mayor Zagad's petition on September 7, 1953. With this dismissal
order herein appellee spouses proceeded to construct the dikes in the disputed parcel of land.

Some four (4) years later, and while Civil Case No. 751 was still pending the Honorable Florencio Moreno, then
Secretary of Public Works and Communications, ordered another investigation of the said parcel of land, directing the
appellees herein to remove the dikes they had constructed, on the strength of the authority vested in him by Republic
Act No. 2056, approved on June 13, 1958, entitled "An Act To Prohibit, Remove and/or Demolish the Construction of
Dams. Dikes, Or Any Other Walls In Public Navigable Waters, Or Waterways and In Communal Fishing Grounds, To
Regulate Works in Such Waters or Waterways And In Communal Fishing Grounds, And To Provide Penalties For Its
Violation, And For Other Purposes. 1 The said order which gave rise to the instant proceedings, embodied a threat that
the dikes would be demolished should the herein appellees fail to comply therewith within thirty (30) days.

The spouses Martinez replied to the order by commencing on January 2, 1959 the present case, which was decided in
their favor by the lower Court in a decision dated August 10, 1959, the dispositive part of which reads:

"WHEREFORE, in view of the foregoing considerations, the Court hereby declares the decision,
Exhibit S, rendered by the Undersecretary of Public Works and Communications null and void;
declares the preliminary injunction, hereto for issued, permanent, and forever enjoining both
respondents from molesting the spouses Romeo Martinez and Leonor Suarez in their
possession, use and enjoyment of their property described in Plan Psu-9992 and referred to in
their petition."

"Without pronouncement as to costs."

"SO ORDERED."

As against this judgment respondent officials of the Department of Public Works and Communications took the instant
appeal, contending that the lower Court erred:

1. In holding that then Senator Rogelio de la Rosa, complainant in the administrative case, is not an interested party
and his letter-complaint dated August 15, 1958 did not confer jurisdiction upon the respondent Undersecretary of Public
Works and Communications to investigate the said administrative case;

2. In holding that the duty to investigate encroachments upon public rivers conferred upon the respondent Secretary
under Republic Act No. 7056 cannot be lawfully delegated by him to his subordinates;

3. In holding that the investigation ordered by the respondent Secretary in this case is illegal on the ground that the said
respondent Secretary has arrogated unto himself the power, which he does not possess, of reversing, making
nugatory, and setting aside the two lawful decisions of the Court Exhibits K and I, and even annulling thereby, the one
rendered by the highest Tribunal of the land;

4. In not sustaining respondent's claim that petitioners have no cause of action because the property in dispute is a
public river and in holding that the said claim has no basis in fact and in law;

5. In not passing upon and disposing of respondent's counterclaim;

6. In not sustaining respondent's claim that the petition should not have been entertained on the ground that the
petitioners have not exhausted administrative remedies; and
 7. In holding that the decision of the respondents is illegal on the ground that it violates the principles that laws shall
have no retroactive effect unless the contrary is provided and in holding that the said Republic Act No. 2056 is
unconstitutional on the ground that respondents' threat of prosecuting petitioners under Section 3 thereof for acts done
four years before its enactment renders the said law ex post facto.

The Court of Appeals sustained the above-mentioned assignment of errors committed by the Court of First Instance of Pampanga and, as
previously stated, reversed the judgment of the latter court. From this reversal this appeal by certiorari was taken, and before this Court,
petitioners-appellants assigned the following errors allegedly committed by the Court of Appeals:

1. THE COURT OF APPEALS ERRED IN DECLARING IN THE INSTANT CASE THAT PARCEL NO. 2 OF
TRANSFER CERTIFICATE OF TITLE NO. 15856 IS A PUBLIC RIVER AND ORDERING THE CANCELLATION OF
ITS REGISTRATION BECAUSE THIS CONSTITUTES A COLLATERAL ATTACK ON A TORRENS TITLE IN
VIOLATION OF THE LAW AND THE WELL-SETTLED JURISPRUDENCE ON THE MATTER.

2. THE COURT OF APPEALS ERRED IN REOPENING AND RE-LITIGATING THE ISSUE AS TO WHETHER OR
NOT LOT NO. 2 OF TRANSFER CERTIFICATE OF TITLE NO. 15856 REGISTER OF DEEDS OF PAMPANGA, IS A
PUBLIC RIVER NOTWITHSTANDING THE FACT THAT THIS ISSUE HAS BEEN LONG RESOLVED AND SETTLED
BY THE LAND REGISTRATION COURT OF PAMPANGA IN LAND REGISTRATION PROCEEDING NO. 692 AND IS
NOW RES JUDICATA.

3. THE COURT OF APPEALS ERRED IN ORDERING THE CANCELLATION OF THE REGISTRATION OF LOT NO.
2 OF TRANSFER CERTIFICATE OF TITLE NO. 15856 NOTWITHSTANDING THE FACT THAT THE TORRENS
TITLE COVERING IT HAS BEEN VESTED IN THE PETITIONERS WHO ARE THE SEVENTH OF THE SUCCESSIVE
INNOCENT PURCHASERS THEREOF AND WHO IN PURCHASING THE SAME RELIED ON THE PRINCIPLE THAT
THE PERSONS DEALING WITH REGISTERED LAND NEED NOT GO BEHIND THE REGISTER TO DETERMINE
THE CONDITION OF THE PROPERTY.

The 1st and 2nd assignment of errors, being closely related, will be taken up together.

The ruling of the Court of Appeals that Lot No. 2 covered by Transfer Certificate of Title No. 15856 of the petitioners-appellants is a public
stream and that said title should be cancelled and the river covered reverted to public domain, is assailed by the petitioners-appellants as
being a collateral attack on the indefeasibility of the torrens title originally issued in 1925 in favor of the petitioners-appellants' predecessor-in-
interest, Potenciano Garcia, which is violative of the rule of res judicata. It is argued that as the decree of registration issued by the Land
Registration Court was not re-opened through a petition for review filed within one (1) year from the entry of the decree of title, the certificate
of title issued pursuant thereto in favor of the appellants for the land covered thereby is no longer open to attack under Section 38 of the
Land Registration Act (Act 496) and the jurisprudence on the matter established by this Tribunal. Section 38 of the Land Registration Act
cited by appellants expressly makes a decree of registration, which ordinarily makes the title absolute and indefeasible, subject to the
exemption stated in Section 39 of the said Act among which are: "liens, claims or rights arising or existing under the laws or Constitution of
the United States or of the Philippine Islands which the statute of the Philippine Islands cannot require to appear of record in the registry."

At the time of the enactment of Section 496, one right recognized or existing under the law is that provided for in Article 339 of the old Civil
Code which reads as follows:

Property of public ownership is:

1. That destined to the public use, such as roads, canals, rivers, torrents, ports, and bridges constructed by the State,
and banks shores, roadsteads, and that of a similar character. (Par. 1)

The above-mentioned properties are parts of the public domain intended for public use, are outside the commerce of men and, therefore, not
subject to private appropriation. ( 3 Manresa, 6th ed. 101-104.)

In Ledesma v. Municipality of Iloilo, 49 Phil. 769, this Court held:

A simple possession of a certificate of title under the Torrens system does not necessarily make the possessor a true
owner of all the property described therein. If a person obtains title under the Torrens system which includes by
mistake or oversight, lands which cannot be registered under the Torrens system, he does not by virtue of said
certificate alone become the owner of the land illegally included.

In Mercado v. Municipal President of Macabebe, 59 Phil. 592, it was also said:

It is useless for the appellant now to allege that she has obtained certificate of title No. 329 in her favor because the
said certificate does not confer upon her any right to the creek in question, inasmuch as the said creek, being of the
public domain, is included among the various exceptions enumerated in Section 39 of Act 496 to which the said
certificate is subject by express provision of the law.
The same ruling was laid down in Director of Lands v. Roman Catholic Bishop of Zamboanga, 61 Phil. 644, as regards public plaza.

In Dizon, et al. v. Rodriguez, et al., G.R. No. L-20300-01 and G.R. No. L-20355-56, April 30, 1965, 20 SCRA 704, it was held that the
incontestable and indefeasible character of a Torrens certificate of title does not operate when the land covered thereby is not capable of
registration.

It is, therefore, clear that the authorities cited by the appellants as to the conclusiveness and incontestability of a Torrens certificate of title do
not apply here. The Land Registration Court has no jurisdiction over non-registerable properties, such as public navigable rivers which are
parts of the public domain, and cannot validly adjudge the registration of title in favor of a private applicant. Hence, the judgment of the Court
of First Instance of Pampanga as regards the Lot No. 2 of Certificate of Title No. 15856 in the name of petitioners-appellants may be
attacked at any time, either directly or collaterally, by the State which is not bound by any prescriptive period provided for by the Statute of
Limitations (Article 1108, par. 4, new Civil Code). The right of reversion or reconveyance to the State of the public properties fraudulently
registered and which are not capable of private appropriation or private acquisition does not prescribe. (Republic v. Ramona Ruiz, et al., G.R.
No. L-23712, April 29, 1968, 23 SCRA 348; Republic v. Ramos, G.R. No.
L-15484, January 31, 1963, 7 SCRA 47.)

When it comes to registered properties, the jurisdiction of the Secretary of Public Works & Communications under Republic Act 2056 to order
the removal or obstruction to navigation along a public and navigable creek or river included therein, has been definitely settled and is no
longer open to question (Lovina v. Moreno, G.R. No L-17821, November 29, 1963, 9 SCRA 557; Taleon v. Secretary of Public Works &
Communications G.R. No. L-24281, May 16, 1961, 20 SCRA 69, 74).

The evidence submitted before the trial court which was passed upon by the respondent Court of Appeals shows that Lot No. 2 (Plan Psu
992) of Transfer Certificate of Title No. 15856, is a river of the public domain. The technical description of both Lots Nos. 1 and 2 appearing
in Original Certificate of Title No. 14318 of the Register of Deeds of Pampanga, from which the present Transfer Certificate of Title No. 15856
was derived, confirms the fact that Lot No. 2 embraced in said title is bounded practically on all sides by rivers. As held by the Court of First
Instance of Pampanga in Civil Case No. 1247 for injunction filed by the petitioners' predecessors-in-interest against the Municipal Mayor of
Lubao and decided in 1916 (Exh. "L"), Lot No. 2 is a branch of the main river that has been covered with water since time immemorial and,
therefore, part of the public domain. This finding having been affirmed by the Supreme Court, there is no longer any doubt that Lot No. 2 of
Transfer Certificate of Title No. 15856 of petitioners is a river which is not capable of private appropriation or acquisition by prescription.
(Palanca v. Com. of the Philippines, 69 Phil. 449; Meneses v. Com. of the Philippines, 69 Phil. 647). Consequently, appellants' title does not
include said river.

II

As regards the 3rd assignment of error, there is no weight in the appellants' argument that, being a purchaser for value and in good faith of
Lot No. 2, the nullification of its registration would be contrary to the law and to the applicable decisions of the Supreme Court as it would
destroy the stability of the title which is the core of the system of registration. Appellants cannot be deemed purchasers for value and in good
faith as in the deed of absolute conveyance executed in their favor, the following appears:

6. Que la segunda parcela arriba descrita y mencionada esta actualmente abierta, sin malecones y excluida de la
primera parcela en virtud de la Orden Administrative No. 103, tal como fue enmendada, del pasado regimen o
Gobierno.

7. Que los citados compradores Romeo Martinez y Leonor Suarez se encargan de gestionar de las autoridades
correspondientes para que la citada segunda parcela pueda ser convertida de nuevo en pesqueria, corriendo a cuenta
y cargo de los mismos todos los gastos.

8. Que en el caso de que dichos compradores no pudiesen conseguir sus propositos de convertir de nuevo en
pesquera la citada segunda parcela, los aqui vendedores no devolveran ninguna cantidad de dinero a los referidos
compradores; este es, no se disminuiriat el precio de esta venta. (Exh. 13-a, p. 52, respondents record of exhibits)

These stipulations were accepted by the petitioners-appellants in the same conveyance in the following terms:

Romeo Martinez y Leonor Suarez, mayores de edad, filipinos y residentes en al Barrio de Julo Municipio de Malabon,
Provincia de Rizal, por la presente, declaran que estan enterados del contenido de este documento y lo aceptan en los
precisos terminos en que arriba uedan consignados. (Exh. 13-a, ibid)

Before purchasing a parcel of land, it cannot be contended that the appellants who were the vendees did not know exactly the condition of
the land that they were buying and the obstacles or restrictions thereon that may be put up by the government in connection with their project
of converting Lot No. 2 in question into a fishpond. Nevertheless, they willfully and voluntarily assumed the risks attendant to the sale of said
lot. One who buys something with knowledge of defect or lack of title in his vendor cannot claim that he acquired it in good faith (Leung Lee
v. Strong Machinery Co., et al., 37 Phil. 664).

The ruling that a purchaser of a registered property cannot go beyond the record to make inquiries as to the legality of the title of the
registered owner, but may rely on the registry to determine if there is no lien or encumbrances over the same, cannot be availed of as
against the law and the accepted principle that rivers are parts of the public domain for public use and not capable of private appropriation or
acquisition by prescription.
FOR ALL THE FOREGOING, the judgment of the Court of Appeals appealed from is in accordance with law, and the same is hereby
affirmed with costs against the petitioners-appellants.

G.R. No. L-24732 April 30, 1968

PIO SIAN MELLIZA, petitioner,

vs.
CITY OF ILOILO, UNIVERSITY OF THE PHILIPPINES and THE COURT APPEALS,
respondents.

Cornelio P. Ravena for petitioner.

Office of the Solicitor General for respondents.

BENGZON, J.P., J.:

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.

G.R. No. L-22487 May 21, 1969

ASUNCION ATILANO, CRISTINA ATILANO, ROSARIO ATILANO, assisted by their

respective husbands, HILARIO ROMANO, FELIPE BERNARDO, and MAXIMO
LACANDALO, ISABEL ATILANO and GREGORIO ATILANO, plaintiffs-appellees,
vs.
LADISLAO ATILANO and GREGORIO M. ATILANO, defendants-appellants.

Climaco and Azcarraga for plaintiff-appellee.

T. de los Santos for defendants-appellants.

MAKALINTAL, J.:

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-5056) 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.

Reyes, J.B.L., Dizon, Zaldivar, Sanchez, Fernando and Capistrano, JJ., concur.
Teehankee and Barredo, JJ., took no part.
Concepcion C.J., and Castro, J., are on leave.

G.R. No. L-9935 February 1, 1915

YU TEK and CO., plaintiff-appellant,

vs.
BASILIO GONZALES, defendant-appellant.

Beaumont, Tenney and Ferrier for plaintiff.

Buencamino and Lontok for defendant.

TRENT, J.:

The basis of this action is a written contract, Exhibit A, the pertinent paragraphs of which follow:
 1. That Mr. Basilio Gonzalez hereby acknowledges receipt of the sum of P3,000
Philippine currency from Messrs. Yu Tek and Co., and that in consideration of said sum
be obligates himself to deliver to the said Yu Tek and Co., 600 piculs of sugar of the first
and second grade, according to the result of the polarization, within the period of three
months, beginning on the 1st day of January, 1912, and ending on the 31st day of March
of the same year, 1912.

2. That the said Mr. Basilio Gonzales obligates himself to deliver to the said Messrs. Yu
Tek and Co., of this city the said 600 piculs of sugar at any place within the said
municipality of Santa Rosa which the said Messrs. Yu Tek and Co., or a representative of
the same may designate.

3. That in case the said Mr. Basilio Gonzales does not deliver to Messrs. Yu Tek and Co.
the 600 piculs of sugar within the period of three months, referred to in the second
paragraph of this document, this contract will be rescinded and the said Mr. Basilio
Gonzales will then be obligated to return to Messrs. Yu Tek and Co. the P3,000 received
and also the sum of P1,200 by way of indemnity for loss and damages.

Plaintiff proved that no sugar had been delivered to it under this contract nor had it been able to
recover the P3,000. Plaintiff prayed for judgment for the P3,000 and, in addition, for P1,200
under paragraph 4, supra. Judgment was rendered for P3,000 only, and from this judgment both
parties appealed.

The points raised by the defendant will be considered first. He alleges that the court erred in
refusing to permit parol evidence showing that the parties intended that the sugar was to be
secured from the crop which the defendant raised on his plantation, and that he was unable to
fulfill the contract by reason of the almost total failure of his crop. This case appears to be one to
which the rule which excludes parol evidence to add to or vary the terms of a written contract is
decidedly applicable. There is not the slightest intimation in the contract that the sugar was to be
raised by the defendant. Parties are presumed to have reduced to writing all the essential
conditions of their contract. While parol evidence is admissible in a variety of ways to explain
the meaning of written contracts, it cannot serve the purpose of incorporating into the contract
additional contemporaneous conditions which are not mentioned at all in the writing, unless there
has been fraud or mistake. In an early case this court declined to allow parol evidence showing
that a party to a written contract was to become a partner in a firm instead of a creditor of the
firm. (Pastor vs. Gaspar, 2 Phil. Rep., 592.) Again, in Eveland vs. Eastern Mining Co. (14 Phil.
Rep., 509) a contract of employment provided that the plaintiff should receive from the
defendant a stipulated salary and expenses. The defendant sought to interpose as a defense to
recovery that the payment of the salary was contingent upon the plaintiff's employment
redounding to the benefit of the defendant company. The contract contained no such condition
and the court declined to receive parol evidence thereof.

In the case at bar, it is sought to show that the sugar was to be obtained exclusively from the crop
raised by the defendant. There is no clause in the written contract which even remotely suggests
such a condition. The defendant undertook to deliver a specified quantity of sugar within a
specified time. The contract placed no restriction upon the defendant in the matter of obtaining
the sugar. He was equally at liberty to purchase it on the market or raise it himself. It may be true
that defendant owned a plantation and expected to raise the sugar himself, but he did not limit his
obligation to his own crop of sugar. Our conclusion is that the condition which the defendant
seeks to add to the contract by parol evidence cannot be considered. The rights of the parties
must be determined by the writing itself.

The second contention of the defendant arises from the first. He assumes that the contract was
limited to the sugar he might raise upon his own plantation; that the contract represented a
perfected sale; and that by failure of his crop he was relieved from complying with his
undertaking by loss of the thing due. (Arts. 1452, 1096, and 1182, Civil Code.) This argument is
faulty in assuming that there was a perfected sale. Article 1450 defines a perfected sale as
follows:

The sale shall be perfected between vendor and vendee and shall be binding on both of
them, if they have agreed upon the thing which is the object of the contract and upon the
price, even when neither has been delivered.

Article 1452 reads: "The injury to or the profit of the thing sold shall, after the contract has been
perfected, be governed by the provisions of articles 1096 and 1182."

This court has consistently held that there is a perfected sale with regard to the "thing" whenever
the article of sale has been physically segregated from all other articles Thus, a particular tobacco
factory with its contents was held sold under a contract which did not provide for either delivery
of the price or of the thing until a future time. McCullough vs. Aenlle and Co. (3 Phil. Rep., 295).
Quite similar was the recent case of Barretto vs. Santa Marina (26 Phil. Rep., 200) where
specified shares of stock in a tobacco factory were held sold by a contract which deferred
delivery of both the price and the stock until the latter had been appraised by an inventory of the
entire assets of the company. In Borromeo vs. Franco (5 Phil. Rep., 49) a sale of a specific house
was held perfected between the vendor and vendee, although the delivery of the price was
withheld until the necessary documents of ownership were prepared by the vendee. In Tan
Leonco vs. Go Inqui (8 Phil. Rep., 531) the plaintiff had delivered a quantity of hemp into the
warehouse of the defendant. The defendant drew a bill of exchange in the sum of P800,
representing the price which had been agreed upon for the hemp thus delivered. Prior to the
presentation of the bill for payment, the hemp was destroyed. Whereupon, the defendant
suspended payment of the bill. It was held that the hemp having been already delivered, the title
had passed and the loss was the vendee's. It is our purpose to distinguish the case at bar from all
these cases.

In the case at bar the undertaking of the defendant was to sell to the plaintiff 600 piculs of sugar
of the first and second classes. Was this an agreement upon the "thing" which was the object of
the contract within the meaning of article 1450, supra? Sugar is one of the staple commodities of
this country. For the purpose of sale its bulk is weighed, the customary unit of weight being
denominated a "picul." There was no delivery under the contract. Now, if called upon to
designate the article sold, it is clear that the defendant could only say that it was "sugar." He
could only use this generic name for the thing sold. There was no "appropriation" of any
particular lot of sugar. Neither party could point to any specific quantity of sugar and say: "This
is the article which was the subject of our contract." How different is this from the contracts
discussed in the cases referred to above! In the McCullough case, for instance, the tobacco
factory which the parties dealt with was specifically pointed out and distinguished from all other
tobacco factories. So, in the Barretto case, the particular shares of stock which the parties desired
to transfer were capable of designation. In the Tan Leonco case, where a quantity of hemp was
the subject of the contract, it was shown that that quantity had been deposited in a specific
warehouse, and thus set apart and distinguished from all other hemp.

A number of cases have been decided in the State of Louisiana, where the civil law prevails,
which confirm our position. Perhaps the latest is Witt Shoe Co. vs. Seegars and Co. (122 La.,
145; 47 Sou., 444). In this case a contract was entered into by a traveling salesman for a quantity
of shoes, the sales having been made by sample. The court said of this contract:

But it is wholly immaterial, for the purpose of the main question, whether Mitchell was
authorized to make a definite contract of sale or not, since the only contract that he was in
a position to make was an agreement to sell or an executory contract of sale. He says that
plaintiff sends out 375 samples of shoes, and as he was offering to sell by sample shoes,
part of which had not been manufactured and the rest of which were incorporated in
plaintiff's stock in Lynchburg, Va., it was impossible that he and Seegars and Co. should
at that time have agreed upon the specific objects, the title to which was to pass, and
hence there could have been no sale. He and Seegars and Co. might have agreed, and did
(in effect ) agree, that the identification of the objects and their appropriation to the
contract necessary to make a sale should thereafter be made by the plaintiff, acting for
itself and for Seegars and Co., and the legend printed in red ink on plaintiff's billheads
("Our responsibility ceases when we take transportation Co's. receipt `In good order'"
indicates plaintiff's idea of the moment at which such identification and appropriation
would become effective. The question presented was carefully considered in the case of
State vs. Shields, et al. (110 La., 547, 34 Sou., 673) (in which it was absolutely necessary
that it should be decided), and it was there held that in receiving an order for a quantity of
goods, of a kind and at a price agreed on, to be supplied from a general stock,
warehoused at another place, the agent receiving the order merely enters into an
executory contract for the sale of the goods, which does not divest or transfer the title of
any determinate object, and which becomes effective for that purpose only when specific
goods are thereafter appropriated to the contract; and, in the absence of a more specific
agreement on the subject, that such appropriated takes place only when the goods as
ordered are delivered to the public carriers at the place from which they are to be shipped,
consigned to the person by whom the order is given, at which time and place, therefore,
the sale is perfected and the title passes.

This case and State vs. Shields, referred to in the above quotation are amply illustrative of the
position taken by the Louisiana court on the question before us. But we cannot refrain from
referring to the case of Larue and Prevost vs. Rugely, Blair and Co. (10 La. Ann., 242) which is
summarized by the court itself in the Shields case as follows:

. . . It appears that the defendants had made a contract for the sale, by weight, of a lot of
cotton, had received $3,000 on account of the price, and had given an order for its
 delivery, which had been presented to the purchaser, and recognized by the press in
which the cotton was stored, but that the cotton had been destroyed by fire before it was
weighed. It was held that it was still at the risk of the seller, and that the buyer was
entitled to recover the $3,000 paid on account of the price.

We conclude that the contract in the case at bar was merely an executory agreement; a promise
of sale and not a sale. At there was no perfected sale, it is clear that articles 1452, 1096, and 1182
are not applicable. The defendant having defaulted in his engagement, the plaintiff is entitled to
recover the P3,000 which it advanced to the defendant, and this portion of the judgment appealed
from must therefore be affirmed.

The plaintiff has appealed from the judgment of the trial court on the ground that it is entitled to
recover the additional sum of P1,200 under paragraph 4 of the contract. The court below held
that this paragraph was simply a limitation upon the amount of damages which could be
recovered and not liquidated damages as contemplated by the law. "It also appears," said the
lower court, "that in any event the defendant was prevented from fulfilling the contract by the
delivery of the sugar by condition over which he had no control, but these conditions were not
sufficient to absolve him from the obligation of returning the money which he received."

The above quoted portion of the trial court's opinion appears to be based upon the proposition
that the sugar which was to be delivered by the defendant was that which he expected to obtain
from his own hacienda and, as the dry weather destroyed his growing cane, he could not comply
with his part of the contract. As we have indicated, this view is erroneous, as, under the contract,
the defendant was not limited to his growth crop in order to make the delivery. He agreed to
deliver the sugar and nothing is said in the contract about where he was to get it.

We think is a clear case of liquidated damages. The contract plainly states that if the defendant
fails to deliver the 600 piculs of sugar within the time agreed on, the contract will be rescinded
and he will be obliged to return the P3,000 and pay the sum of P1,200 by way of indemnity for
loss and damages. There cannot be the slightest doubt about the meaning of this language or the
intention of the parties. There is no room for either interpretation or construction. Under the
provisions of article 1255 of the Civil Code contracting parties are free to execute the contracts
that they may consider suitable, provided they are not in contravention of law, morals, or public
order. In our opinion there is nothing in the contract under consideration which is opposed to any
of these principles.

For the foregoing reasons the judgment appealed from is modified by allowing the recovery of
P1,200 under paragraph 4 of the contract. As thus modified, the judgment appealed from is
affirmed, without costs in this instance.

Arellano, C.J., Torres, Carson and Araullo, JJ., concur.

Johnson, J., dissents.

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

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

Alejo Mabanag for plaintiff-appellee.

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

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

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

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

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

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

b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00) will be paid from

and out of the first letter of credit covering the first shipment of iron ores and of the first
 amount derived from the local sale of iron ore made by the Larap Mines & Smelting Co.
Inc., its assigns, administrators, or successors in interests.

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

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

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

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

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

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

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

On the first question, the lower court held that the obligation of the defendants to pay plaintiff
the P65,000.00 balance of the price of the approximately 24,000 tons of iron ore was one with a
term: i.e., that it would be paid upon the sale of sufficient iron ore by defendants, such sale to be
effected within one year or before December 8, 1955; that the giving of security was a condition
precedent to Gait's giving of credit to defendants; and that as the latter failed to put up a good
and sufficient security in lieu of the Far Eastern Surety bond (Exhibit "B") which expired on
December 8, 1955, the obligation became due and demandable under Article 1198 of the New
Civil Code.

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

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

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

The main issues presented by appellants in this appeal are:

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

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

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

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

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

b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00)will be paid from and

out of the first letter of credit covering the first shipment of iron ore made by the Larap
Mines & Smelting Co., Inc., its assigns, administrators, or successors in interest.

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

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

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

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

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

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

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

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

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

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

(1) . . .

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

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

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

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

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

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

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

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

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

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

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

Even granting, then, that the estimate of 6,609 cubic meters of ore in the stockpiles made by
appellant's witness Cipriano Manlañgit is correct, if we multiply it by the average tonnage factor
of 3.3 tons to a cubic meter, the product is 21,809.7 tons, which is not very far from the estimate
of 24,000 tons made by appellee Gaite, considering that actual weighing of each unit of the mass
was practically impossible, so that a reasonable percentage of error should be allowed anyone
making an estimate of the exact quantity in tons found in the mass. It must not be forgotten that
the contract Exhibit "A" expressly stated the amount to be 24,000 tons, more or less. (ch. Pine
River Logging & Improvement Co. vs U.S., 279, 46 L. Ed. 1164).
There was, consequently, no short-delivery in this case as would entitle appellants to the
payment of damages, nor could Gaite have been guilty of any fraud in making any
misrepresentation to appellants as to the total quantity of ore in the stockpiles of the mining
claims in question, as charged by appellants, since Gaite's estimate appears to be substantially
correct.

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

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

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

LUIS PICHEL, petitioner,

vs.
PRUDENCIO ALONZO, respondent.

GUERRERO, J.:

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.

SO ORDERED.

Teehankee (Chairman), Makasiar, Fernandez, Melencio-Herrera and Plana, JJ., concur.

G.R. No. L-66696 July 14, 1986

FRANCISCA ARSENAL and REMEDIO ARSENAL, petitioners,

vs.
THE INTERMEDIATE APPELLATE COURT, HEIRS OF TORCUATO SURALTA, and SPOUSES FILOMENO PALAOS and MAHINA
LAGWAS, respondents.
Ruben Gamolo for respondent Filomeno Palaos.

GUTIERREZ, JR., J.:

The question to be resolved in this case is who among the two alleged purchasers of a four-hectare portion of land granted in homestead has
acquired a valid title thereto.

The facts as stated by the trial court are:

On January 7, 1954, the defendant Filomeno Palaos secured OCT No. P-290 (Exh. A) from the Register of Deeds of
Bukidnon for Lot 81, Pls-112, consisting of 87,829 sq. m. more or less, situated at former barrio of Kitaotao now a
municipality of Bukidnon, by virtue of Homestead Patent No. V-23602 granted to him.

On September 10, 1957, said Filomeno Palaos and his wife Mahina Lagwas executed in favor of the plaintiff, Torcuato
Suralta, sold four (4) hectares of the land embraced in his Torrens Certificate for the sum of P 890.00, Philippine
Currency, by means of a deed of acknowledged before a Notary (Exh. C). Plaintiff Suralta immediately took possession
of the four-hectare portion of Lot 81 above-mentioned cultivated and worked the same openly, continuously and
peacefully up to the present time in concept of owner thereof. He built a house and introduced permanent
improvements thereon now valued at no less than P20,000.00.

Sometime in 1964, the defendant-spouses Francisca Arsenal and Remedio Arsenal became tenants of an adjoining
land owned by Eusebio Pabualan that is separated from the land in question only by a public road. They also came to
know the plaintiff as their neighbor who became their compadre later, and saw him very often working and cultivating
the land in question. In the course of their relationship the plaintiff came to know of their intention to buy the remaining
land of Filomeno Palaos (t.s.n., pp. 13-14, 45-47).

On March 14, 1967, said Filomeno Palaos and his wife executed a notarial Deed of Sale (Exh. 1 for the defendant) in
consideration of the amount of P800.00, Philippine Currency, supposedly for the remaining three (3) hectares of their
land without knowing that the document covered the entirety of Lot 81 including the four-hectare portion previously
deeded by them to the plaintiff. The deed of sale was presented to the Office of the Commission on National Integration
at Malaybalay for approval because Palaos and his wife belong to the cultural minorities and unlettered. The field
representative and inspector of that office subsequently approved the same (Exh. K and Exh. 2) without inspecting the
land to determine the actual occupants thereon.

The defendants Arsenal took possession of the three-hectare portion of Lot 81 after their purchase and have cultivated
the same up to the present time but they never disturbed the plaintiff's possession over the four-hectare portion that he
had purchased in 1957. On March 28, 1967, Francisca Arsenal caused the tax declaration of the entire lot to be
transferred in her name (Exh. 6). The plaintiff learned of the transfer of the tax declaration to Francisca Arsenal and
because of their good relations at the time, he agreed with Arsenal to contribute in the payment of the land taxes and
paid yearly from 1968 to 1973 the amount of P10.00 corresponding to his four-hectare portion to Francisca Arsenal
(Exhs. F, F-1, G, G-1, H, and H-1).

On July 11, 1973, the plaintiff presented his Sales Contract in the Office of the Register of Deeds but it was refused
registration for having been executed within the prohibitive period of five years from the issuance of the patent. In order
to cure the defect, he caused Filomeno Palaos to sign a new Sales Contract (Exh. D) in his favor before Deputy Clerk
of Court Florentina Villanueva covering the same four-hectare portion of Lot 81. In August 1973, the plaintiff caused the
segregation of his portion from the rest of the land by Geodetic Engineer Benito P. Balbuena, who conducted the
subdivision survey without protest from Francisca Arsenal who was notified thereof. The subdivision plan (Exh. E) was
approved by the Commissioner of Land Registration on April 18, 1974.

In December 1973, however, the plaintiff saw for the first time the Deed of Sale embracing the whole Lot 81 signed by
Filomeno Palaos in favor of Francisca Arsenal. Immediately he asked Palaos for explanation but the latter told him that
he sold only three hectares to Arsenal. Plaintiff approached Francisca Arsenal for a satisfactory arrangement but she
insisted on abiding by her contract. Because of their disagreement, Francisca Arsenal registered her Deed of Sale on
December 6, 1973 and obtained Transfer Certificate of Title No. T-7879 (Exh. E) for the entire Lot 81 without the
knowledge of the plaintiff.

On January 7, 1974, the plaintiff sent a telegram (Exh. 1) to the Secretary of Agriculture and Natural Resources
requesting suspensions of the approval of the sale executed by Filomeno Palaos in favor of Francisca Arsenal, not
knowing that the latter had already secured a transfer certificate of title from the Register of Deeds.

In the middle part of said month of January 1974, plaintiff however learned of the cancellation of the original certificate
of title of Palaos and the issuance of the Transfer Certificate to Arsenal so he sought the help of the municipal
authorities of Kitaotao to reach an amicable settlement with Francisca Arsenal who, on the other hand, refused to
entertain all overture to that effect. ... .
On March 6, 1974, Torcuato Suralta filed a case against Filomeno Palaos, Mahina Lagwas, Francisca Arsenal, Remedio Arsenal and the
Register of Deeds of Bukidnon for the annulment of Transfer Certificate of Title No. T-7879 issued to the Arsenals insofar as it covers the
four-hectare portion previously sold to him.

In answer to the complaint, the Arsenals denied previous knowledge of the sale to Suralta of the land in question. As a special defense, they
assailed the validity of the purchase by Suralta in 1957, pointing to the prohibition contained in the Public Land Law against its disposal
within the period of five years from the issuance of the homestead patent. They also questioned the legality of the sale made to Suralta in
1957 by Filomeno Palaos and Mahina Lagwas for not having been approved by the Commission on National Integration despite the fact that
Palaos and his wife belong to the cultural minorities, are illiterates, and do not understand the English language in which the deed of sale in
favor of Suralta was written.

In their answer, the spouses Filomeno Palaos and Mahina Lagwas sustained the sale made by them to Suralta. They alleged that they
verbally sold one hectare to one Tiburcio Tadena and sold the remaining 3.7829 hectares to the Arsenals. They stated that they informed the
Arsenals about the previous sale of four hectares to Suralta. They also claimed that the Arsenals took undue advantage of their ignorance
and illiteracy and caused them to sign the document of sale so as to include the entire 87,829 sq. m.covered by their original title.

On May 4, 1976, the trial court rendered judgment in favor of Suralta. It imputed bad faith to the Arsenals and declared them disqualified to
avail of the protection afforded by the provisions of the Civil Code to innocent purchasers although they registered their purchase ahead of
Suralta.

The court held that:

xxx xxx xxx

The defendants Arsenal could not also avail of the prohibition in the Public Land Act against the disposal of any land
granted to a citizen under that law because the benefit of said prohibition does not inure to any third party. Only the
government could have filed the adequate proceedings for confiscation of the land for violation of the condition of the
grant by Palaos. Moreover, a verbal sale of land is valid and effective as between the parties to the agreement and
Filomeno Palaos had reaffirmed the sale he made in favor of the plaintiff in 1957 by executing another instrument in
1973 to cure whatever defects which may have affected their formal contract.

Likewise, Francisca Arsenal cannot take advantage of the lack of approval by the Commission on National Integration
of the sale made by Filomeno Palaos in favor of plaintiff Torcuato Suralta. Only the latter, in whose favor the protection
is afforded, could contest the document on the ground, as Francisca Arsenal was not a party to said contract and even
if she is also a member of the cultural minority for being only half a native of Bukidnon because she and her husband
who is from Cebu are both literates.

On appeal to the Intermediate Appellate Court, the aforestated decision was affirmed in toto on October 24, 1983. The Court maintained that:

The disquisition of the lower court having been made mainly upon assessment of the facts as borne by the testimonies
of witnesses presented as resolved in a long line of decisions, this Court is loath to overturn findings of facts of the
court a quo, which is more in a position to determine their truth or falsity, having heard the witnesses testify ... .

On March 20, 1984, the spouses Arsenal went to this Court in a petition for review on certiorari assigning the following alleged errors of the
court below:

THE INTERMEDIATE APPELLATE COURT ERRED IN NOT DISMISSING THE APPEALED CASE FOR LACK OF
CAUSE OF ACTION.

II

THE INTERMEDIATE APPELLATE COURT ERRED IN AFFIRMING THE TRIAL COURT'S ARGUMENT TO THE
EFFECT THAT THE BENEFIT OF THE PROHIBITION IN THE PUBLIC LAND LAW AGAINST THE DISPOSAL OF
ANY LAND GRANTED TO A CITIZEN UNDER THAT LAW DOES NOT INSURE TO ANY THIRD PARTY, HENCE,
PETITIONERS COULD NOT AVAIL OF THE SAID PROHIBITION.

III

THE INTERMEDIATE APPELLATE COURT ERRED IN AFFIRMING THE TRIAL COURT'S ARGUMENT THAT THE
PETITIONERS COULD NOT TAKE ADVANTAGE OF THE LACK OF APPROVAL BY THE COMMISSION ON
NATIONAL INTEGRATION OF THE SALE MADE BY RESPONDENT TORCUATO SURALTA.
 IV

THE INTERMEDIATE APPELLATE COURT ERRED IN GIVING TOO MUCH WEIGHT TO THE ALLEGED BAD FAITH
OF PETITIONERS.

THE INTERMEDIATE APPELLATE COURT ERRED IN AFFIRMING THE DECISION OF THE TRIAL COURT
DECLARING RESPONDENT TORCUATO SURALTA TO BE THE LEGITIMATE OWNER OF THE DISPUTED LAND
AND IN ORDERING THE REGISTER OF DEEDS OF BUKIDNON TO CANCEL TCT NO. T-7879 AND ORDERING
THE ISSUANCE OF ANOTHER TITLE FOR THE PORTION DESIGNATED AS LOT 8l-A OF THE SUBDIVISION
PLAN LRC-PLD-198451.

VI

THE INTERMEDIATE APPELLATE COURT ERRED IN AFFIRMING THE AWARD OF MORAL DAMAGES AND
ATTORNEY's FEES TO PRIVATE RESPONDENTS.

In resisting respondent Suralta's claim, the petitioners rely heavily on the nullity of the contract of sale executed in 1957 between the
respondents Palaos and Suralta. They allege that because the previous sale was void from the beginning, it cannot be ratified and "No
amount of bad faith on the part of the petitioners could make it valid and enforceable in the courts of law."

These arguments are impressed with merit.

The law on the matter which is the Public Land Act (Commonwealth Act No. 141, as amended) provides:

Sec. 118. Except in favor, of the Government or any of its branches, units or institutions, lands acquired under free
patent or homestead provisions shall not be subject to encumbrance or alienation from the date of the approval of the
application and for a term of five years from and after the date of issuance of the patent or grant nor shall they become
liable to the satisfaction of any debt contracted prior to the expiration of said period, but the improvements or crops on
the land may be mortgaged or pledged to qualified persons, associations, or corporations.

No alienation, transfer, or conveyance of any homestead after five years and before twenty-five years after issuance of
title shall be valid without the approval of the Secretary of Agriculture and Natural Resources, which approval shall not
be denied except on constitutional and legal ground (As amended by Com. Act No. 456, approved June 8, 1939).

xxx xxx xxx

Sec. 120. Conveyance and encumbrance made by persons belonging to the so-called 'non-Christian Filipinos' or
national cultural minorities, when proper, shall be valid if the person making the conveyance or encumbrance is able to
read and can understand the language in which the instrument or conveyance or encumbrance is written.
Conveyances and encumbrances made by illiterate non-Christians or literate non-Christians where the instrument of
conveyance is in a language not understood by the said literate non-Christian shall not be valid unless duly approved
by the Chairman of the Commission on National Integration. (As amended by Rep. Act No. 3872, approved June 18,
1964).

xxx xxx xxx

Sec. 124. Any acquisition, conveyance, alienation, transfer, or other contract made or executed in violation of any of
the provisions of sections one hundred and eighteen, one hundred and twenty, one hundred and twenty-one, one
hundred and twenty-two, and one hundred twenty-three of this Act shall be unlawful and null and void from its
execution and shall produce the effect of annulling and cancelling the grant, title, patent, or permit originally issued,
recognized or confirmed, actually or presumptively, and cause the reversion of the property and its improvements to
the State.

The above provisions of law are clear and explicit. A contract which purports of alienate, transfer, convey or encumber any homestead within
the prohibitory period of five years from the date of the issuance of the patent is void from its execution. In a number of cases, this Court has
held that such provision is mandatory (De los Santos v. Roman Catholic Church of Midsayap, 94 Phil. 405).

Under the provisions of the Civil Code, a void contract is inexistent from the beginning. It cannot be ratified neither can the right to set up the
defense of its illegality be waived. (Art. 1409, Civil Code).

To further distinguish this contract from the other kinds of contract, a commentator has stated that:
 The right to set up the nullity of a void or non-existent contract is not limited to the parties as in the case of annullable
or voidable contracts; it is extended to third persons who are directly affected by the contract. (Tolentino, Civil Code of
the Philippines, Vol. IV, p. 604, [1973]).

Any person may invoke the inexistence of the contract whenever juridical effects founded thereon are asserted against
him. (Id. p. 595).

Concededly, the contract of sale executed between the respondents Palaos and Suralta in 1957 is void. It was entered into three (3) years
and eight (8) months after the grant of the homestead patent to the respondent Palaos in 1954.

Being void, the foregoing principles and rulings are applicable. Thus, it was erroneous for the trial court to declare that the benefit of the
prohibition in the Public Land Act "does not inure to any third party." Such a sweeping declaration does not find support in the law or in
precedents. A third person who is directly affected by a void contract may set up its nullity. In this case, it is precisely the petitioners' interest
in the disputed land which is in question.

As to whether or not the execution by the respondents Palaos and Suralta of another instrument in 1973 cured the defects in their previous
contract, we reiterate the rule that an alienation or sale of a homestead executed within the five-year prohibitory period is void and cannot be
confirmed or ratified. This Court has on several occasions ruled on the nature of a confirmatory sale and the public policy which proscribes it.
In the case of Menil v. Court of Appeals (84 SCRA 413), we stated that:

It cannot be claimed that there are two contracts: one which is undisputably null and void, and another, having been
executed after the lapse of the 5-year prohibitory period, which is valid. The second contract of sale executed on March
3, 1964 is admittedly a confirmatory deed of sale. Even the petitioners concede this point. (Record on Appeal, pp. 55-
56). Inasmuch as the contract of sale executed on May 7, 1960 is void for it is expressly prohibited or declared void by
law (CA 141, Section 118), it therefore cannot be confirmed nor ratified. ... .

xxx xxx xxx

Further, noteworthy is the fact that the second contract of sale over the said homestead in favor of the same vendee,
petitioner Potenciano Menil, is for the same price of P415.00. Clearly, the unvarying term of the said contract is ample
manifestation that the same is simulated and that no object or consideration passed between the parties to the
contract. It is evident from the whole record of the case that the homestead had long been in the possession of the
vendees upon the execution of the first contract of sale on May 7, 1960; likewise, the amount of P415.00 had long been
paid to Agueda Garan on that same occasion. ...

In another case, Manzano v. Ocampo (1 SCRA 691, 697), where the sale was perfected during the prohibitory period but the formal deed of
conveyance was executed after such period, this Court ruled that:

xxx xxx xxx

... This execution of the formal deed after the expiration of the prohibitory period did not and could not legalize a
contract that was void from its inception. Nor was this formal deed of sale 'a totally distinct transaction from the
promissory note and the deed of mortgage', as found by the Court of Appeals, for it was executed only in compliance
and fulfillment of the vendor's previous promise, under the perfected sale of January 4, 1938, to execute in favor of his
vendee the formal act of conveyance after the lapse of the period of inhibition of five years from the date of the
homestead patent. What is more, the execution of the formal deed of conveyance was postponed by the parties
precisely to circumvent the legal prohibition of their sale.

The law prohibiting any transfer or alienation of homestead land within five years from the issuance of the patent does
not distinguish between executory and consummated sales; and it would hardly be in keeping with the primordial aim of
this prohibition to preserve and keep in the family of the homesteader the piece of land that the State had gratuitously
given to them, (Pascua v. Talens, 45 O.G. No. 9 [Supp.] 413; De los Santos v. Roman Catholic Church of .Midsayap,
G.R. No. L-6088, Feb. 25, 1954.) to hold valid a homestead sale actually perfected during the period of prohibition but
with the execution of the formal deed of conveyance and the delivery of possession of the land sold to the buyer
deferred until after the expiration of the prohibitory period, purposely to circumvent the very law that prohibits and
declares invalid such transaction to protect the homesteader and his family. To hold valid such arrangements would be
to throw the door wide open to all possible fraudulent subterfuges and schemes that persons interested in land given to
homesteaders may devise to circumvent and defeat the legal provision prohibiting their alienation within five years from
the issuance of the homestead's patent.

The respondents Palaos and Suralta admitted that they executed the subsequent contract of sole in 1973 in order to cure the defects of their
previous contract. The terms of the second contract corroborate this fact as it can easily be seen from its terms that no new consideration
passed between them. The second contract of sale being merely confirmatory, it produces no effect and can not be binding.

Notwithstanding the above circumstances of the case, however, we still think that the petitioners' claim to the land must fail.
The petitioner's view that the court erred in giving too much weight to their alleged bad faith has no merit. The issue of bad faith constitutes
the fundamental barrier to their claim of ownership.

The finding of bad faith by the lower court is binding on us since it is not the function of this Court to analyze and review evidence on this
point all over again (Sweet Lines, Inc. v. Court of Appeals, 121 SCRA 769) but only to determine its substantiality (Dela Concepcion v.
Mindanao Portland Cement Corporation, 127 SCRA 647).

In this case, there is substantial evidence to sustain the verdict of bad faith. We find several significant findings of facts made by the courts
below, which were not disputed by the petitioners, crucial to its affirmance.

First of all, we agree with the lower court that it is unusual for the petitioners, who have, been occupying the disputed land for four years with
respondent Suralta to believe, without first verifying the fact, that the latter was a mere mortgagee of the portion of the land he occupies.

Second, it is unlikely that the entire 8.7879 hectares of land was sold to them for only P800,00 in 1967 considering that in 1957, a four-
hectare portion of the same was sold to the respondent Suralta for P819.00. The increased value of real properties through the years and the
disparity of the land area show a price for the land too inadequate for a sale allegedly done in good faith and for value.

Third, contrary to the usual conduct of good faith purchasers for value, the petitioners actively encouraged the respondent Suralta to believe
that they were co-owners of the land. There was no dispute that the petitioners, without informing the respondent Suralta of their title to the
land, kept the latter in peaceful possession of the land he occupies and received annual real estate tax contributions from him. It was only in
1973 when the respondent Suralta discovered the petitioners' title to the land and insisted on a settlement of the adverse claim that the
petitioners registered their deed of sale and secured a transfer certificate of title in their favor.

Clearly, the petitioners were in bad faith in including the entire area of the land in their deed of sale. They cannot be entitled to the four-
hectare portion of the land for lack of consideration. To uphold their claim of ownership over that portion of land would be contrary to the well-
entrenched principle against unjust enrichment consecrated in our Civil Code to the end that in cases not foreseen by the lawmaker, no one
may unjustly benefit himself to the prejudice of another (Report of the Code Commission, p. 41).

Who then is entitled to the portion of the land which is under litigation?

The peculiar circumstances of the case seem to make a categorical pronouncement on the case difficult.

At first blush, the equities of the case seem to lean in favor of the respondent Suralta who, since 1957, has been in possession of the land
which was almost acquired in an underhanded manner by the petitioners. We cannot, however, gloss over the fact that the respondent
Suralta was himself guilty of transgressing the law by entering, in 1957, into a transaction clearly prohibited by law. It is a long standing
principle that equity follows the law. Courts exercising equity jurisdiction are bound by rules of law and have no arbitrary discretion to
disregard them. Equitable reasons will not control against any well-settled rule of law or public policy (McCurdy v. County of Shiawassee, 118
N.W. 625). Thus, equity cannot give validity to a void contract. If, on the basis of equity, we uphold the respondent Suralta's claim over the
land which is anchored on the contracts previously executed we would in effect be giving life to a void contract.

There is another observation worthy of consideration. This Court has ruled in a number of cases that the reversion of a public land grant to
the government is effected only at the instance of the Government itself (Gacayan v. Leano, 121 SCRA 260; Gonzalo Puyat & Sons, Inc. v.
De las Ama and Aliño, 74 Phil. 3). The reversion contemplated in the Public Land Act is not automatic. The Government has to take action to
cancel the patent and the certificate of title in order that the land involved may be reverted to it (Villacorta v. Ulanday, 73 Phil. 655).
Considering that this is an ordinary civil action in which the Government has not been included as a party and in view of the settled
jurisprudence, we rule against the automatic reversion of the land in question to the State.

Lastly, in cases where the homestead has been the subject of void conveyances, the law still regards the original owner as the rightful owner
subject to escheat proceedings by the State. In the Menil and Monzano cases earlier cited, this Court awarded the land back to the original
owner notwithstanding the fact that he was equally guilty with the vendee in circumventing the law. This is so because this Court has
consistently held that "the pari delicto doctrine may not be invoked in a case of this kind since it would run counter to an avowed fundamental
policy of the State, that the forfeiture of a homestead is a matter between the State and the grantee or his heirs, and that until the State had
taken steps to annul the grant and asserts title to the homestead the purchaser is, as against the vendor or his heirs, no more entitled to
keep the land than any intruder." (Acierto et al. v. De los Santos, et al. 95 Phil. 887; de los Santos v. Roman Catholic Church of Midsayap, et
al., supra) We should stress that the vendors of the homestead are unlettered members of a tribe belonging to the cultural minorities.

We see, however, a distinguishing factor in this case that sets it apart from the above cases. The original owners in this case, the respondent
Palaos and his wife, have never disaffirmed the contracts executed between them and the respondent Suralta. More than that, they
expressly sustained the title of the latter in court and failed to show any interest in recovering the land. Nonetheless, we apply our earlier
rulings because we believe that as in pari delicto may not be invoked to defeat the policy of the State neither may the doctrine of estoppel
give a validating effect to a void contract. Indeed, it is generally considered that as between parties to a contract, validity cannot be given to it
by estoppel if it is prohibited by law or is against public policy (19 Am. Jur. 802). It is not within the competence of any citizen to barter away
what public policy by law seeks to preserve (Gonzalo Puyat & Sons, Inc. v. De los Amas and Aliño, supra). Of course, this pronouncement
covers only the previous transactions between the respondents. We cannot pass upon any new contract, between the same parties involving
the same land if this is their clear intention. Any new transaction, however, would be subject to whatever steps the Government may take for
the reversion of the property to it.
With the resolution of the principal issues and in view of our own conclusions of facts and law, we hold untenable the lower court's award of
moral damages, attorney's fees and litigation expenses.

WHEREFORE, the decision of the Intermediate Appellate Court is REVERSED and SET ASIDE. Judgment is hereby rendered:

(a) Declaring null and void the sale of the four-hectare portion of the homestead to respondent Torcuato Suralta and his heirs;

(b) Declaring null and void the sale of the same portion of land to the petitioners Francisca Arsenal and Remedio Arsenal:

(c) Ordering the Register of Deeds of Bukidnon to cancel Transfer Certificate of Title No. T-7879 as to the disputed four-hectare portion and
to reissue an Original Certificate of Title for the portion designated as Lot 81-A of the Subdivision Plan LRC-PLD-198451 prepared by
Geodetic Engineer Benito P. Balbuena and approved by the Commission on Land Registration, in favor of the respondents Filomeno Palaos
and Mahina Lagwas;

(d) Ordering the respondents Filomeno Palaos and Mahina Lagwas to reimburse the heirs of the respondent Torcuato Suralta the sum of
EIGHT HUNDRED NINETY PESOS (P890.00), the price of the sale. The value of any improvements made on the land and the interests on
the purchase price are compensated by the fruits the respondent Suralta and his heirs received from their long possession of the homestead.

This judgment is without prejudice to any appropriate action the Government may take against the respondents Filomeno Palaos and Mahina
Lagwas pursuant to Section 124 of Commonwealth Act No. 141, as amended.

SO ORDERED.

Feria (Chairman), Fernan, Alampay and Paras, JJ., concur.