Manzano vs Garcia, GR 179323, November 28, 2011
His three children were left in the
Facts
The subject parcel of land has an area of six thousand
nine hundred fifty-one (6,951) square meters and is
located in Balonguis, Balulang, Cagayan de Oro City.[3]
The above property was the subject of a deed of pacto de
retro sale dated May 26, 1992 allegedly executed by
Garcia in favor of Constancio Manzano, the predecessor-
in-interest and brother of petitioner Vicente Manzano,
Jr. (Vicente) for the amount of eighty thousand five
hundred pesos (P80,500.00). Under said contract, Garcia
purportedly reserved the right to repurchase the subject
property for the same price within three months from
the date of the instrument.[4]
On July 12, 1992, Constancio Manzano passed away. His
properties, including the subject of this case, were
adjudicated to his heirs by virtue of a deed of
extrajudicial partition with special power of attorney
executed by them. Vicente was named the administrator
of the intestate estate of Constancio Manzano.[5]
Garcia did not redeem the subject property within the
three-month period. Consequently, Vicente instituted
a petition for consolidation of ownership over the
property,[6] docketed as Civil Case No. 93-610. Garcia
filed an opposition and answer, alleging that the
document evidencing the pacto de retro sale was a
forgery. He claimed that he and his wife were in the
United States of America (USA) from June 1, 1988 to
November 14, 1992, and therefore could not have
possibly executed the said pacto de retro sale on May 26,
1992.[7]
On February 15, 1994, Garcia filed a complaint for
annulment of pacto de retro sale and recovery of the
owners title with preliminary injunction against
Vicente. The case was docketed as Civil Case No. 94-
097. In his complaint, Garcia reiterated that he and his
wife never participated in the execution of the alleged
deed of pacto de retro sale dated May 26, 1992 and that
in fact, they were still in possession of the said
property. He further alleged that he came to know the
existence of said document only when the counsel of
Vicente sent him a letter on January 18, 1993 demanding
that he should repurchase the property pursuant to the
purported terms of the pacto de retro sale within fifteen
days from receipt of said letter. Upon further inquiry, he
discovered that a certain Mr. P. Pacot had executed the
questioned document by misrepresenting himself as
Marcelino G. Garcia (bearing the wrong middle initial)
who resided in Casinglot, Misamis Oriental, as evidenced
by the Residence Certificate used in the
acknowledgement page of the pacto de retro sale.[8]
Vicentes petition for consolidation of ownership over the
property (Civil Case No. 93-610) and Garcias action for
annulment of pacto de retro sale and recovery of the
owners title with preliminary injunction (Civil Case No.
94-097) were consolidated before the trial court.[9]
During the trial, Vicente presented TCT No. T-25464 and
Tax Declaration No. 41672 to prove the due execution of
the pacto de retro sale, which was recorded in the office
of the Register of Deeds of Cagayan de Oro City.
On the other hand, Garcia testified that he went to the
USA on November 7, 1987. A few months later, he
returned to the Philippines. He went back to the USA on
June 1, 1988.
Philippines, while the titles to his properties were left in
the office of his business establishment in Tablon,
Cagayan de Oro City with two of their children. Garcia
testified that the signatures appearing in the pacto de
retro sale were not his and his wifes. He presented his
passport and drivers license, both of which bear an
entirely different signature than what appeared in
the pacto de retro sale document.[10]
Atty. Demosthenes Mediante, Jr. (Atty. Mediante), the
person who notarized the deed of conveyance in
question, testified that the Marcelino Garcia who
appeared in his office and who executed the pacto de
retro sale is not the same Marcelino Garcia who was in
court during the trial of the case.[11]
Perla Babano, one of the witnesses to the execution of
the pacto de retro sale, likewise testified that the person
who introduced himself as Marcelino G. Garcia and
signed the document on May 26, 1992 is not the same
Marcelino Garcia who was in court during the trial of the
case.[12]
On August 30, 1996, the trial court rendered its Decision
on the consolidated cases in favor of Vicente
Ruling
the variance in the alleged signature of Garcia in
the pacto de retro sale, on one hand, and in the evidence
on record and in the verifications of the pleadings before
this Court and the courts a quo, on the other hand, was
enormous and obvious, such that this Court can readily
conclude that the pacto de retro sale was in all likelihood
made by someone who has not even seen the customary
signature of Garcia.
Furthermore, the falsity of the signature on the pacto de
retro sale was affirmed by two persons present when the
instrument was signed, one of which is the very person
who notarized the same. An examination of their
testimonies reveals that the trial court had disregarded
their statements for very flimsy reasons.
The trial court was unconvinced by the testimony of the
notary public Atty. Mediante on account of his admission
that he could not describe or remember all the persons
appearing before him for notarization and his statement
that he had seen the alleged impostor Marcelino Garcia
sitting at the Cagayan de Oro Divisoria for two
weeks. The trial court found it incredulous that Atty.
Mediante could have been observing the whereabouts of
the alleged impostor for two weeks.[23] These
circumstances, however, were clearly explained by Atty.
Mediante, who testified that two weeks prior to the
signing of the document, he had been approached by
the impostor Marcelino Garcia who was asking for help
to secure a loan of P200,000.00 using his title as
collateral. Atty. Mediante informed the impostor Garcia
that his client, Tony Uy, had already stopped lending. It
was after this event, and before the signing of the pacto
de retro sale that Atty. Mediante observed the impostor
Garcia in Divisoria. Certainly, while Atty. Mediante could
not remember all of the parties in the 25 to 30
documents he notarized every month, he would
remember the person who asked him to broker a loan
for P200,000.00 and would probably recognize said
person when he encountered him every now and then in
a public place.
As regards Babano, the trial court found it unbelievable
that an impersonator would show a stranger important
documents such as the title to a property. We disagree
with this observation. On the contrary, this Court is of
the opinion that it would be highly suspicious for such an
impersonator to withhold the title of the property being
sold from a person signing as a witness to the sale. It was
precisely the presentation of the title that would
convince others that the impostor was the owner of the
real property involved in the sale.
Neither did it escape this Courts attention that the
person who signed the pacto de retro sale used a
residence certificate with the wrong middle initial of
respondent Garcia.As the respondents full name is
Marcelino de Claro Garcia, his middle initial should be
either D or C. It surely causes doubt when a person does
not know his own middle initial.
All things considered, Garcias statement that he and his
wife could have easily paid the P80,500.00 but refused in
principle to pay an account that is not theirs [24] is
certainly believable. It is difficult to conceive that Garcia
would sell their 6,951-square meter land at the heart of
the city of Cagayan de Oro for only P80,500.00
(or P11.58 per square meter). Garcia estimates the value
of the property at P4.5 million. While Garcia failed to
present evidence on such market value in 1992, it can be
ascertained that it is worth at least more than
the P170,000.00 mortgage to China Banking Corporation
which had been previously annotated and subsequently
cancelled at the back of the title of the property.[25] If the
property could be mortgaged to a bank for P170,000.00,
it is unlikely that a person needing money would instead
opt to sell the same for a much smaller amount.
Petitioner likewise argues that the Court of Appeals
erred in failing to appreciate that the notarized deed
of pacto de retro sale was entitled to the presumption of
regularity and should be given great weight. It is settled
that while a notarized document enjoys this
presumption, the fact that a deed is notarized is not a
guarantee of the validity of its contents.[26] The
presumption of regularity of notarized documents is not
absolute and may be rebutted by clear and convincing
evidence to the contrary.[27]
Irregularities in the notarization of the document may be
established by oral evidence of persons present in said
proceeding. Thus, in Eulogio v. Apeles,[28] where the party
insisting on the presumption of regularity of a notarized
deed of sale admitted that the same was notarized
without his presence, this Court held that such fact alone
overcomes the presumption of regularity, since a notary
public is enjoined not to notarize a document unless the
persons who signed the same are the very same persons
who executed and personally appeared before the said
notary public to attest to the contents and truth of what
are stated therein.[29] In the case at bar, even more
convincing evidence of the irregularity was presented as
it was the notary public himself who testified that the
person who appeared before him was not respondent
Garcia. Since the very official who attested to the crucial
facts in the notarization i.e., that the persons who
personally appeared before him are the same persons
who executed the deed of conveyance admitted in open
court the falsity of said manifestation, the reliability of
the Acknowledgment that clothes the document with a
presumption of regularity is completely shattered. We,
therefore, agree with the Court of Appeals that the
presumption of regularity of the notarized deed of pacto
de retro sale was sufficiently overcome by the testimony
of Atty. Mediante.
At this point, however, we should clarify that the proper
basis for the nullity of the forged pacto de retro sale is not
Article 1409[30] (which enumerates examples of void
contracts) in relation to Article 1505[31] (which refers to
an unenforceable contract and is applicable only
to goods) of the Civil Code as stated by the Court of
Appeals, but Article 1318 of the Civil Code, which
enumerates the essential requisites of a valid contract:
Article 1318. There is no contract unless the following
requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the
contract;
(3) Cause of the obligation which is established.
There are two types of void contracts: (1) those where
one of the essential requisites of a valid contract as
provided for by Article 1318 of the Civil Code is totally
wanting; and (2) those declared to be so under Article
1409 of the Civil Code.[32] [C]onveyances by virtue of a
forged signature x x x are void ab initio. The absence of
the essential [requisites] of consent and cause or
consideration in these cases rendered the contract
inexistent. x x x.
Pena vs Delos Santos, GR 202223, March 2, 2016
Facts
Jesus Delos Santos (Jesus) and Rosita Delos Santos
Flores (Rosita) were the judgment awardees of the two-
thirds portion or 9,915 square meters of four adjoining
lots designated as Lots 393-A, 393-B, 394-D and 394-E,
measuring 14,771 sq m, located in Boracay Island, Malay,
Aldan.
The losing parties in the case, Vicente Delos Santos, et
al. (plaintiffs) and Spouses Fred and Joan Elizalde
(appellants), appealed the foregoing judgment to the CA
thru petitions separately docketed as CA-G.R. CV No.
54136 and CA-G.R. SP No. 48475, respectively. Both
appeals were dismissed and considered withdrawn in the
CA Resolution dated May 11, 1999 upon the appellants'
motion to withdraw appeal. In the subsequent CA
Resolution dated January 31, 2000, the motion for
reconsideration and motion to reinstate appeal filed by
the plaintiffs were denied for being time-barred as it was
filed nine days late.7
The plaintiffs sought recourse with the Court via a
petition for review on certiorari docketed as G.R. Nos.
141810 and 141812.8 In a Decision dated February 2,
2007, the Court denied the petition on the ground that
the plaintiffs already lost their right of appeal to the CA
when they failed to file an appellant's brief during the
more than 180-day extension.9 The Court reiterated its
ruling in a Resolution dated April 23, 2007, which denied
reconsideration. An Entry of Judgment in the case was
forthwith issued.10
The case was then remanded to the RTC of Kalibo, Aklan
for the execution proceedings during which a Motion for
Substitution with a Motion for a Writ of Execution and
Demolition11 dated March 14, 2008 was filed by Peña.
Peña averred that he is the transferee of Jesus and
Rosita's adjudged allotments over the subject lots. He
claimed that he bought the same from Atty. Romeo
Robiso (Atty. Robiso) who in turn, acquired the
properties from Jesus and Rosita through assignment
and sale.
Atty. Robiso later on sold Lots No. 393-A and 394-D to
Peña on December 15, 2006 thru a Deed of Absolute
Sale.15 The tax declarations over the said portions were
subsequently registered in Peña's name.16
The plaintiffs opposed Peña's motion claiming that the
conveyance made by Jesus and Rosita in favor of Atty.
Robiso was null and void for being a prohibited
transaction because the latter was their counsel in the
case.
Apparently, Atty. Robiso was engaged by Jesus and
Rosita to be their counsel in Civil Case No. 3683 by virtue
of an Attorney's Agreement and Undertaking dated July
11, 1998.17 Under the agreement, Atty. Robiso bound
himself to render his legal services in connection with
Jesus and Rosita's involvement as party-litigants in Civil
Case No. 3683 and to any proceedings that may arise in
connection therewith before the CA and this Court. Atty.
Robiso undertook to advance his own funds for all
expenses and costs he may incur in relation to the case.
In consideration thereof, Jesus and Rosita obliged
themselves to give or pay to him as contingent
professional fees, 2,000 sq m of any and all lands that the
courts will award to them in the case.
Ruling
The basis of Peña's motion for substitution is infirm
because the lots were transferred to his predecessor-in-
interest, Atty. Robiso, through a prohibited sale
transaction. Article 1491(5) of the Civil Code expressly
prohibits lawyers from acquiring property or rights that
may be the object of any litigation in which they may
take part by virtue of their profession, thus:
Art. 1491. The following persons cannot acquire by
purchase, even at a public or judicial auction, either in
person or through the mediation of another:
xxxx
(5) Justices, judges, prosecuting attorneys, clerks of
superior and inferior courts, and other officers and
employees connected with the administration of justice,
the property and rights in litigation or levied upon an
execution before the court within whose jurisdiction or
territory they exercise their respective functions; this
prohibition includes the act of acquiring by assignment
and shall apply to lawyers, with respect to the property
and rights which may be the object of any litigation in
which they may take part by virtue of their profession.
xxxx
A complementary prohibition is also provided in Rule 10
of the Canons of Professional Ethics which states:
10. Acquiring interest in litigation.
The lawyer should not purchase any interest in the
subject matter of the litigation which he is conducting.
A property is in litigation if there is a contest or litigation
over it in court or when it is subject of a judicial
action.27 Records show that the judicial action over the
subject lots was still in the appellate proceedings stage
when they were conveyed to Jesus and Rosita's counsel,
Atty. Robiso. The Deed of Transfer or Conveyance and
the Deed of Absolute Sale both dated May 4, 2005 as
well as the Confirmation of Sale and Transfer dated
December 5, 2006 were all executed long before the
termination of the appellate proceedings before this
Court in G.R. Nos. 141810 and 141812 on February 2,
2007.
Clearly then, since the property conveyed to Atty.
Robiso by Jesus and Rosita was still the object of
litigation, the deeds of conveyance executed by the
latter are deemed inexistent. Under Article 1409 of the
Code, contracts which are expressly prohibited or
declared void by law are considered inexistent and void
from the beginning.28 This being so, Atty. Robiso could
not have transferred a valid title in favor of Peña over the
lots awarded to Jesus and Rosita in Civil Case No. 3683.
Consequently, Peña has no legal standing to be
substituted in the stead of or joined with Jesus and
Rosita as the first set of intervenors and to move for
issuance of a writ of execution in Civil Case No. 3683.
There is no need to bring a separate action for the
declaration of the subject deeds of conveyance as void.
A void or inexistent contract is one which has no force
and effect from the very beginning. Hence, it is as if it
has never been entered into and cannot be validated
either by the passage of time or by ratification.29
The need to bring a separate action for declaration of
nullity applies only if the void contract is no longer fully
executory. Contrary to Peña's stance, the deeds of
conveyance made in favor of Atty. Robiso in 2005 cannot
be considered as executory because at that time the
judgment award ceding the subject lots to Jesus and
Rosita was not yet implemented. A writ of
execution30 was issued only on July 10, 2008. "If the void
contract is still fully executory, no party need bring an
action to declare its nullity; but if any party should bring
an action to enforce it, the other party can simply set up
the nullity as a defense."31
This is notwithstanding the fact that the sale to Atty.
Robiso was made pursuant to a contingency fee
contract. It is true that contingent fee agreements are
recognized in this jurisdiction as a valid exception to the
prohibitions under Article 1491(5) of the Civil Code. 32 The
Court cannot extend a similar recognition to the present
case, however, since the payment to Atty. Robiso of his
contingency fees was made during the pendency of
litigation. "A contingent fee contract is an agreement in
writing where the fee, often a fixed percentage of what
may be recovered in the action, is made to depend upon
the success of the litigation. The payment of the
contingent fee is not made during the pendency of the
litigation involving the client's property but only after the
judgment has been rendered in the case handled by the
lawyer."33
Peña cannot rely on Article 143734 by claiming that Jesus
and Rosita are already estopped from questioning the
validity of their deeds of conveyance with Atty. Robiso.
Estoppel is a principle in equity and pursuant to Article
1432 it is adopted insofar as it is not in conflict with the
provisions of the Civil Code and other laws. Otherwise
speaking, estoppel cannot supplant and contravene the
provision of law clearly applicable to a
case.35 Conversely, it cannot give validity to an act that is
prohibited by law or one that is against public policy.36
The rationale advanced for the prohibition in Article
1491(5) is that public policy disallows the transactions in
view of the fiduciary relationship involved, i.e., the
relation of trust and confidence and the peculiar control
exercised by these persons. It is founded on public policy
because, by virtue of his office, an attorney may easily
take advantage of the credulity and ignorance of his
client and unduly enrich himself at the expense of his
client.37 The principle of estoppel runs counter to this
policy and to apply it in this case will be tantamount to
sanctioning a prohibited and void transaction.
Marubeni Corporation vs Lirag, GR 130998, August 10,
2001
Facts
Petitioner Marubeni Corporation (hereafter, Marubeni) is
a foreign corporation organized and existing under the
laws of Japan. It was doing business in the Philippines
through its duly licensed, wholly owned subsidiary,
Marubeni Philippines Corporation. Petitioners Ryoichi
Tanaka, Ryohei Kimura and Shoichi One were officers of
Marubeni assigned to its Philippine branch.[2]
On January 27, 1989, respondent Felix Lirag filed with
the Regional Trial Court, Makati a complaint[3] for
specific performance and damages claiming that
petitioners owed him the sum of P6,000,000.00
representing commission pursuant to an oral
consultancy agreement with Marubeni. Lirag claimed
that on February 2, 1987, petitioner Ryohei Kimura hired
his consultancy group for the purpose of obtaining
government contracts of various projects.
Petitioner Kimura authorized him to work on the
following projects: (1) National Telephone Project, (2)
Regional Telecommunications Project; (3) Cargo
Handling Equipment; (4) Maritime Communications; (5)
Philippine National Railways Depot; and (6) Bureau of
Posts (Phase II).[4] Petitioners promised to pay him six
percent (6%) consultancy fee based on the total costs of
the projects obtained.
The consultancy agreement was not reduced into writing
because of the mutual trust between Marubeni and the
Lirag family.[5] Their close business and personal
relationship dates back to 1960, when respondents
family was engaged in the textile fabric manufacturing
business, in which Marubeni supplied the needed
machinery, equipment, spare parts and raw materials.[6]
In compliance with the agreement, respondent Lirag
made representations with various government officials,
arranged for meetings and conferences, relayed
pertinent information as well as submitted feasibility
studies and project proposals, including pertinent
documents required by petitioners. As petitioners had
been impressed with respondents performance, six (6)
additional projects were given to his group under the
same undertaking.[7]
One of the projects handled by respondent Lirag, the
Bureau of Post project, amounting to P100,000,000.00
was awarded to the Marubeni-Sanritsu
tandem.[8] Despite respondents repeated formal verbal
demands for payment of the agreed consultancy fee,
petitioners did not pay. In response to the first demand
letter, petitioners promised to reply within fifteen (15)
days, but they did not do so.
Pursuant to the consultancy agreement, respondent
claimed a commission of six percent (6%) of the total
contract price, or a total of P6,000,000.00, or in the
alternative, that he be paid the same amount by way of
damages or as the reasonable value of the services he
rendered to petitioners, and further claimed twenty
percent (20%) of the amount recoverable as attorneys
fees and the costs of suit.
In their answer, petitioners denied the consultancy
agreement. Petitioner Ryohei Kimura did not have the
authority to enter into such agreement in behalf of
Marubeni. Only Mr. Morihiko Maruyama, the general
manager, upon issuance of a special power of attorney
by the principal office in Tokyo, Japan, could enter into
any contract in behalf of the corporation. Mr. Maruyama
did not discuss with respondent Lirag any of the matters
alleged in the complaint, nor agreed to the payment of
commission. Moreover, Marubeni did not participate in
the bidding for the Bureau of Post project, nor benefited
from the supposed project. Thus, petitioners moved for
the dismissal of the complaint.
Petitioner Shoichi One submitted a separate answer
raising similar arguments.
With regard to petitioner Ryohei Kimura, the trial court
did not acquire jurisdiction over his person because he
was recalled to the principal office in Tokyo, Japan
before the complaint and the summons could be served
on him.
During the pre-trial conferences held on September 18
and October 16, 1989 and on January 24, March 15 and
May 17, 1990, no amicable settlement was reached. Trial
on the merits ensued.
On April 29, 1993, the trial court promulgated a decision
and ruled that respondent is entitled to a
commission. Respondent was led to believe that there
existed an oral consultancy agreement. Hence, he
performed his part of the agreement and helped
petitioners get the project.
Ruling
An assiduous scrutiny of the testimonial and
documentary evidence extant leads us to the conclusion
that the evidence could not support a solid conclusion
that a consultancy agreement, oral or written, was
agreed between petitioners and
respondent. Respondent attempted to fortify his own
testimony by presenting several corroborative
witnesses. However, what was apparent in the
testimonies of these witnesses was the fact that they
learned about the existence of the consultancy
agreement only because that was what respondent told
them.[23]
In civil cases, he who alleges a fact has the burden of
proving it; a mere allegation is not evidence.[24] He must
establish his cause by a preponderance of
evidence,[25] which respondent failed to establish in the
instant case.
Assuming for the sake of argument that an oral
consultancy agreement has been perfected between the
parties, respondent Lirag could not still claim fees on the
project that has not been awarded to Marubeni.
If respondents contentions were to be taken as truth, he
would be entitled to 6% consulting fee based on the
total cost of the projects obtained,[26] or on success
basis.[27]
However, even respondent admitted that the Bureau of
Post project was not awarded to Marubeni, but to
Sanritsu.[28] Marubeni did not even join the bidding for
the Bureau of Post project.
Respondent could not claim from Sanritsu because of
the absence of any agreement between him and the
latter. When asked to clarify whether he has an existing
consultancy agreement with Sanritsu, respondent
answered in the negative.
Contrary to the trial courts finding that petitioners led
respondent to believe that they hired respondents
services as consultant, the evidence proved
otherwise. Petitioner Shoichi One, one of the officers of
Marubeni Phils., testified that at the onset, Marubeni
Phils. informed respondent that it had no authority to
commit to anything, as it all depended on the decision of
the principal headquarters in Tokyo, Japan.However,
respondent Lirag insisted on providing assistance to
Marubeni to get coveted government contracts because
Marubeni might encounter difficulties due to
discrimination from the government.[32]Despite such
knowledge, respondent said that its alright with him as
he believes Marubeni was an old time friend so he
wanted to work for those projects.[33] Hence, how could
petitioners be guilty of misleading respondent on the
acceptance of the latters offer of consultancy service?
With regard to the Court of Appeals ratiocination that
petitioner Tanakas response dated October 13, 1988 to
the demand letter of September 26, 1988, amounted to
an implied admission of the consultancy agreement, the
records showed that, to the contrary, this fact
strengthened petitioners allegation that Marubeni Phils.
lacked the requisite authority to enter into any binding
agreement.
As explained by petitioner Shoichi One, Marubeni Phils.
could enter into a consultancy agreement only after
submitting a recommendation to the principal
headquarters in Tokyo, Japan. If the office in Tokyo,
Japan agrees to hire consultants, it would then give a
power of attorney to its general manager in Manila
authorizing the latter to enter into such agreement.
In the instant case, the parties did not reach the second
stage as the headquarters in Tokyo, Japan did not see it
fit to hire a consultant as they decided not to participate
in the bidding. Hence, no consultancy agreement was
perfected, whether oral or written. There was no
absolute acceptance of respondents offer of consultancy
services.
Assuming arguendo that the petitioner accepted
respondents offer of consultancy services, we could not
give legal imprimatur to the agreement. The service
rendered by respondent contemplated the exploitation
of personal influence and solicitation on a public officer.
Respondent said that petitioners sought out his services
because they needed somebody who can help them
penetrate and establish goodwill with the
government.[34] Petitioners found it difficult to arrange a
meeting with Postmaster General Angelito Banayo
because of petitioners reputation of engaging in
questionable transactions.[35] Suddenly, through the
intervention of respondent, the postmaster general
became accessible to petitioners. This became possible
because of respondents close personal relationship with
the postmaster general, his trusted and long-time friend.
Any agreement entered into because of the actual or
supposed influence which the party has, engaging him to
influence executive officials in the discharge of their
duties, which contemplates the use of personal influence
and solicitation rather than an appeal to the judgment of
the official on the merits of the object sought is contrary
to public policy.[39] Consequently, the agreement,
assuming that the parties agreed to the consultancy, is
null and void as against public policy.[40] Therefore, it is
unenforceable before a court of justice.[41]
In light of the foregoing, we rule that the preponderance
of evidence established no consultancy agreement
between petitioners and respondent from which the
latter could anchor his claim for a six percent (6%)
consultancy fee on a project that was not awarded to
petitioners.
Prudential Bank vs Rapanot, GR 191636, January 16,
2017
Facts
Golden Dragon is the developer of Wack-Wack Twin
Towers Condominium, located in Mandaluyong City. On
May 9, 1995, Rapanot paid Golden Dragon the amount
ofP453,329.64 as reservation fee for a 41.1050-square
meter unit in said condominium, particularly designated
as Unit 2308-B2,6 and covered by Condominium
Certificate of Title (CCT) No. 2383 in the name of Golden
Dragon.7
On September 13, 1995, the Bank extended a loan to
Golden Dragon amounting to P50,000,000.008 to be
utilized by the latter as additional working capital.9 To
secure the loan, Golden Dragon executed a Mortgage
Agreement in favor of the Bank, which had the effect of
constituting a real estate mortgage over several
condominium units owned and registered under Golden
Dragon's name. Among the units subject of the
Mortgage Agreement was Unit 2308-B2.10 The mortgage
was annotated on CCT No. 2383 on September 13,
1995.11
On May 21, 1996, Rapanot and Golden Dragon entered
into a Contract to Sell covering Unit 2308-B2. On April
23, 1997, Rapanot completed payment of the full
purchase price of said unit amounting to
P1,511,098.97.12 Golden Dragon executed a Deed of
Absolute Sale in favor of Rapanot of the same
date.13 Thereafter, Rapanot made several verbal
demands for the delivery of Unit 2308-B2.14
Prompted by Rapanot's verbal demands, Golden Dragon
sent a letter to the Bank dated March 17, 1998,
requesting for a substitution of collateral for the purpose
of replacing Unit 2308-B2 with another unit with the
same area. However, the Bank denied Golden Dragon's
request due to the latter's unpaid accounts.15Because of
this, Golden Dragon failed to comply with Rapanot's
verbal demands.
Thereafter, Rapanot, through his counsel, sent several
demand letters to Golden Dragon and the Bank, formally
demanding the delivery of Unit 2308-B2 and its
corresponding CCT No. 2383, free from all liens and
encumbrances.16 Neither Golden Dragon nor the Bank
complied with Rapanot's written demands.
Ruling
The Mortgage Agreement is null and void as against
Rapanot, and thus cannot be enforced against him.
The Court finds the Bank's assertions indefensible.

First of all, under Presidential Decree No. 957 (PD 957),
no mortgage on any condominium unit may be
constituted by a developer without prior written
approval of the National Housing Authority, now
HLURB.57PD 957 further requires developers to notify
buyers of the loan value of their corresponding
mortgaged properties before the proceeds of the
secured loan are released.
In Far East Bank & Trust Co. v. Marquez,58 the Court
clarified the legal effect of a mortgage constituted in
violation of the foregoing provision, thus:
The lot was mortgaged in violation of Section 18 of PD
957. Respondent, who was the buyer of the property,
was not notified of the mortgage before the release of
the loan proceeds by petitioner. Acts executed against
the provisions of mandatory or prohibitory laws shall be
void. Hence, the mortgage over the lot is null and void
insofar as private respondent is concerned.
thus, the Mortgage Agreement cannot have the effect of
curtailing Rapanot's right as buyer of Unit 2308-B2,
precisely because of the Bank's failure to comply with PD
957.
Moreover, contrary to the Bank's assertions, it cannot be
considered a mortgagee in good faith. The Bank failed to
ascertain whether Golden Dragon secured HLURB's prior
written approval as required by PD 957 before it
accepted Golden Dragon's properties as collateral. It also
failed to ascertain whether any of the properties offered
as collateral already had corresponding buyers at the
time the Mortgage Agreement was executed.
The Bank cannot harp on the fact that the Mortgage
Agreement was executed before the Contract to Sell and
Deed of Absolute Sale between Rapanot and Golden
Dragon were executed, such that no amount of
verification could have revealed Rapanot's right over
Unit 2308-B2.62 The Court particularly notes that
Rapanot made his initial payment for Unit 2308-B2 as
early as May 9, 1995, four (4) months prior to the
execution of the Mortgage Agreement. Surely, the Bank
could have easily verified such fact if it had simply
requested Golden Dragon to confirm if Unit 2308-B2
already had a buyer, given that the nature of the latter's
business inherently involves the sale of condominium
units on a commercial scale.
Guillermo et al vs PIA, GR 223751, March 15, 2017
Facts
Guillermo and AV Manila alleged that in the last few
months of the Administration of Former President Gloria
Macapagal-Arroyo (Arroyo
Administration), then Acting Secretary of the
Department of Public Works and Highways Victor
Domingo (Acting Secretary Domingo), consulted and
discussed with Guillermo and AV Manila the urgent need
for an advocacy campaign (Campaign).4 The purpose of
the Campaign was to counteract the public's negative
perception of the performance of the outgoing Arroyo
Administration.5
After meetings with Acting Secretary Domingo and
some preliminary work, Guillermo and AV Manila
formally submitted in a letter-proposal dated February
26, 2010 the concept of "Joyride," a documentary film
showcasing milestones of the Arroyo
Administration.6 Acting Secretary Domingo signed a
marginal note on the letter-proposal, which read, "OK,
proceed!"7 Guillermo and AV Manila allegedly worked on
"Joyride" on a tight schedule and submitted the finished
product on April 4, 2010.8 "Joyride" was aired on NBN-
Channel 4 on April 5, 2010.9
Guillermo and AV Manila further claimed that
communications and meetings on the Campaign and
"Joyride" ensued between them and various government
agencies.10 These covered instructions from government
agencies, emphasis on the proprietary nature of
"Joyride," and discussions on the terms of reference,
deliverables, and submissions.11
Among the government agencies alleged by Guillermo
and AV Manila to have been involved in the
communications and meetings were: the National
Economic and Development Authority and National
Anti-Poverty Commission,12 Former Cabinet Secretary
Corazon K. Imperial,13 Department of Public Works and
Highways Senior Undersecretary Manuel M.
Bonoan,14 the Pro Performance System-Steering
Committee (PPS-SC),15 and respondent Philippine
Information Agency.16
Petitioners alleged that under the foregoing exchanges,
they, working with the Department of Public Works and
Highways' production team, committed to the following
deliverables: (a) reproduction and distribution of a
revised, expanded, and more comprehensive "Joyride"
documentary, for distribution to the Department of
Foreign Affairs, the Department of Transportation and
Communication, Philippine consulates and embassies,
and for showing to various transport sectors, as well as
to the audience of the Independence Day rites on June
12, 2010 at the Quirino Grandstand in Rizal Park; 17 (b)
production and distribution of a "Joyride" coffee table
book;18 (c) production of "Joyride" comics;19 (d)
production of a "Joyride" infomercial entitled "Sa Totoo
Lang!" in the form of a 45-second advertisement, which
captured the essence of the full length film;20 and (e)
production of a "Joyride" infomercial entitled "Sa Totoo
Lang-GFX", which was a representation of improved
government services, presented in a 45-second
advertisement.21 On April 20, 2010, petitioners
submitted samples and storyboards of the foregoing to
respondent Department of Public Works and Highways.
Petitioners further alleged that Acting Secretary
Domingo informed them that the total consideration of
₱25,000,000.00 for their services and deliverable items
was acceptable and approved.24 A Memorandum dated
May 6, 201025 addressed to Former President Gloria
Macapagal-Arroyo pertaining to the "Joyride" materials
was issued by Acting Secretary Domingo.26
It stated that petitioners were asked to produce the
"Joyride" materials. A Memorandum of Agreement
dated April 30, 201027 was entered into by the Road
Board and respondent Philippine Information Agency. In
the agreement, the Road Board was to provide
₱l5,000,000.00 to be released to the Philippine
Information Agency for the "Joyride" materials, and AV
Manila was the preferred production agency.28
Thereafter, Joan Marzan, Philippine Information
Agency's representative to PPS-SC, and Executive
Assistant of Philippine Information Agency Secretary
Conrado Limcauco, advised that, in light of the
foregoing agreement, a separate written contract was
no longer necessary.29 Thus, the Philippine Information
Agency instructed Guillermo to send billings directly to
the Philippine Information Agency.30
Ruling
The Complaint attempts to establish a contract that
involves expenditure of public funds. As pointed out by
respondents, contracts involving the expenditure of
public funds have additional requisites to be valid.
Sections 46, 47, and 48 of Book V, Title I, Subtitle B,
Chapter 8 of the Administrative Code provides for
essential requisites for the validity of contracts:
SECTION 46. Appropriation Before Entering into
Contract. - (1) No contract involving the expenditure of
public funds shall be entered into unless there is an
appropriation therefor, the unexpended balance of
which, free of other obligations, is sufficient to cover the
proposed expenditure; and
(2) Notwithstanding this provision, contracts for the
procurement of supplies and materials to be carried in
stock may be entered into under regulations of the
Commission provided that when issued, the supplies and
materials shall be charged to the proper appropriations
account.
SECTION 47. Certificate Showing Appropriation to Meet
Contract. - Except in the case of a contract for personal
service, for supplies for current consumption or to be
carried in stock not exceeding the estimated
consumption for three (3) months, or banking
transactions of government-owned or controlled banks,
no contract involving the expenditure of public funds by
any government agency shall be entered into or
authorized unless the proper accounting official of the
agency concerned shall have certified to the officer
entering into the obligation that funds have been duly
appropriated for the purpose and that the amount
necessary to cover the proposed contract for the current
calendar year is available for expenditure on account
thereof, subject to verification by the auditor concerned.
The certificate signed by the proper accounting official
and the auditor who verified it, shall be attached to and
become an integral part of the proposed contract, and
the sum so certified shall not thereafter be available for
expenditure for any other purpose until the obligation of
the government agency concerned under the contract is
fully extinguished.
SECTION 48. Void Contract and Liability of Officer. - Any
contract entered into contrary to the requirements of
the two (2) immediately preceding sections shall be void,
and the officer or officers entering into the contract shall
be liable to the Government or other contracting party
for any consequent damage to the same extent as if the
transaction had been wholly between private parties.
In Philippine National Railways v. Kanlaon Construction
Enterprises Co., lnc.,82 this Court has held that contracts
that do not comply with the foregoing requirements are
void:
Thus, the Administrative Code of 1987 expressly
prohibits the entering into contracts involving the
expenditure of public funds unless two prior
requirements are satisfied. First, there
must be an appropriation law authorizing the
expenditure required in the contract. Second, there must
be attached to the contract a certification by the proper
accounting official and auditor that funds have been
appropriated by law and such funds are available. Failure
to comply with any of these two requirements renders
the contract void.
In several cases, the Court had the occasion to apply
these provisions of the Administrative Code of 1987 and
the Government Auditing Code of the Philippines. In
these cases, the Court clearly ruled that the two
requirements-the existence of appropriation and the
attachment of the certification-are "conditions sine qua
non for the execution of government contracts."
In COMELEC v. Quijano-Padilla, we stated:
It is quite evident from the tenor of the language of the
law that the existence of appropriations and the
availability of funds are indispensable pre-requisites to or
conditions sine qua non for the execution of government
contracts. The obvious intent is to impose such
conditions as a priori requisites to the validity of the
proposed contract.
The law expressly declares void a contract that fails to
comply with the two requirements, namely, an
appropriation law funding the contract and a
certification of appropriation and fund availability. The
clear purpose of these requirements is to insure that
government contracts are never signed unless supported
by the corresponding appropriation law and fund
availability.
The three contracts between PNR and Kanlaon do not
comply with the requirement of a certification of
appropriation and fund availability.1âwphi1 Even if a
certification of appropriation is not applicable to PNR if
the funds used are internally generated, still a certificate
of fund availability is required. Thus, the three contracts
between PNR and Kanlaon are void for violation of
Sections 46, 4 7, and 48, Chapter 8, Subtitle B, Title I,
Book V of the Administrative Code of 1987, as well as
Sections 85, 86, and 87 of the Government Auditing
Code of the Philippines.
However, Kanlaon is not left without recourse. The law
itself affords it the remedy. Section 48 of the
Administrative Code of 1987 provides that "the officer or
officers entering into the contract shall be liable to the
Government or other contracting party for any
consequent damage to the same extent as if the
transaction had been wholly between private parties."
Kanlaon could go after the officers who signed the
contract and hold them personally liable.
The Complaint, however, completely ignored the
foregoing requisites for the validity of contracts
involving expenditure of public funds. Thus, the Regional
Trial Court could not order the enforcement of the
alleged contract on the basis of the Complaint, and the
Complaint was properly dismissed for failure to state a
cause of action.
Finally, petitioners' invocation of the principle
of quantum meruit could not save the Complaint from
dismissal. A careful reading reveals that the Complaint
does not mention the principle of quantum meruit, or any
facts showing that the public has derived any benefit
from the "Joyride" project. Even assuming that basis
exists to reimburse petitioners under the principle
of quantum meruit, no factual basis for its application
was laid down in the Complaint. Its belated invocation
does not retroactively make the Complaint sufficient.
However, as in Philippine National Railways, petitioners
are not without recourse.
Under the Administrative Code, officers who enter into
contracts contrary to Sections 46 and 47 of Book V, Title
I, Subtitle B, Chapter 8 of the Administrative Code are
liable to the government or to the other contracting
party for damages:
SECTION 48. Void Contract and Liability of Officer. - Any
contract entered into contrary to the requirements of
the two (2) immediately preceding sections shall be void,
and the officer or officers entering into the contract shall
be liable to the Government or other contracting party
for any consequent damage to the same extent as if the
transaction had been wholly between private parties.
Thus, assuming petitioners are able to prove a contract
was entered into, they may go after the officers who
entered into said contract and hold them personally
liable.
Penalosa vs Santos , GR 133749, August 23, 2001
Facts
Respondents Severino C. Santos (deceased) and Adela
Mendez Santos are registered owners of a residential
house and lot located at No. 113 Scout Rallos Street,
Quezon City under TCT No. PT-23458 (54434). 1 In 1988,
Severino and Adela decided to sell their property and for
this purpose, negotiated with petitioner Hernando (or
Henry) Peñalosa. The property was then occupied by a
lessee, Eleuterio Perez, who was given preference to buy
it under the same terms offered by the buyer. 2 Perez
proposed less favorable terms 3 and expectedly,
Severino rejected his offer.
On August 1, 1988, petitioner Henry Peñalosa and
respondent Severino Santos attempted to enter into an
agreement whereby the latter, for a consideration of
P1,800.000.00, would sell to the former the property
subject of the instant case. The deed of absolute sale 4
(first deed) evidencing this transaction was signed by
Henry but not by Severino, because according to the
latter, Henry "took time to decide" on the matter. 5
On August 15, 1988, Henry signed a document 6 stating
that the first deed was executed between him and
Severino, for the sole purpose of helping the latter eject
Perez, the occupant of the property. Henry
acknowledged in said document that although Severino
had agreed to sell the property to him, he had not paid
the consideration stated in the first deed.chanrobles
virtual law library
Thereafter, Henry and Severino executed another deed
of absolute sale 7 (second deed) for a higher
consideration of P2,000,000.00. Although the second
deed was originally dated "August 1988", superimposed
upon the same was the date "September 12, 1988." This
second deed was signed by both parties and duly
notarized. It states that Severino sells and transfers the
house and lot to Henry, who had paid the full price of
P2,000,000.00 therefor.
Severino explained that his initial asking price for the
property was only P1,800,000.00 as shown in the first
deed. But he later asked for a higher price because Henry
could not give the money as soon as expected. However,
Severino claimed that he made it clear to Henry that he
agreed to sell the property under the second deed for
P2,000,000.00, provided that payment be immediately
effected. Severino said that he wanted to use the money
to invest in another property located in Alabang and told
Henry that if payment was made at a later date, the price
would be the current market value at the time of
payment.
Henry then gave Severino P300,000.00 as "earnest
money", purportedly with the understanding that the
former was to pay the balance within 60 days.
Otherwise, said amount would be forfeited in favor of
Severino. 8 The latter also maintained that he signed the
second deed only for the purpose of facilitating Henry’s
acquisition of a bank loan to finance payment of the
balance of the purchase price 9 and added that
execution of the second deed was necessary to enable
Henry to file a court action for ejectment of the tenant.
10
After execution of the second deed, Henry filed a loan
application with the Philippine American Life Insurance
Company (Philam Life) for the amount of P2,500,000.00.
11 According to Henry, he had agreed with Severino
during the signing of the second deed, that the balance
of P1,700,000.00 would be paid by means of a loan, with
the property itself given as collateral. 12
Meanwhile, on the strength of the first deed and as new
"owner" of the property, Henry wrote a letter 13 dated
August 8, 1988 to the lessee, Eleuterio Perez,
demanding that the latter vacate the premises within 10
days. Failing in this effort, Henry brought a complaint for
ejectment 14 against Perez before the Office of the
Barangay Captain.
On September 1, 1988, a Certification To File Action 15
was issued by the barangay lupon. This led to the
subsequent filing of a Civil Case
Issue: whether or not the second deed is valid and
constitutes evidence of the final agreement between the
parties regarding the sale transaction entered into by
them.
Ruling
The basic characteristic of an absolutely simulated or
fictitious contract is that the apparent contract is not
really desired or intended to produce legal effects or
alter the juridical situation of the parties in any way. 30
However, in this case, the parties already undertook
certain acts which were directed towards fulfillment of
their respective covenants under the second deed,
indicating that they intended to give effect to their
agreement.chanrob1es virtua1 1aw 1ibrary
In particular, as early as August 8, 1988, after execution
of the first deed, Severino authorized petitioner to bring
an action for ejectment against the overstaying tenant
and allowed petitioner to pursue the ejectment case to
its final conclusion, presumably to secure possession of
the property in petitioner’s favor. Petitioner also applied
for a loan, which was approved by Philam Life, to
complete payment of the stipulated price. After making
extensive repairs with the knowledge of Severino,
petitioner moved into the premises and actually
occupied the same for three years before this action was
brought. Moreover, simultaneous with the execution of
the second deed, petitioner gave Severino P300,000.00
in earnest money, which under Article 1482 31 of the
New Civil Code, is part of the purchase price and proof of
perfection of the contract.
What may have led the lower courts into incorrectly
believing that the second deed was simulated is Exhibit
D — a document in which petitioner declared that the
deed was executed only for the purpose of helping
Severino eject the tenant. However, a perusal of this
document reveals that it made reference to the first
deed and not the second deed, which was executed only
after Exhibit D. So that while the first deed was qualified
by stipulations contained in Exhibit D, the same cannot
be said of the second deed which was signed by both
parties.chanrob1es virtua1 1aw 1ibrary
Further, the fact that Severino executed the two deeds
in question, primarily so that petitioner could eject the
tenant and enter into a loan/mortgage contract with
Philam Life, is to our mind, a strong indication that he
intended to transfer ownership of the property to
petitioner. For why else would he authorize the latter to
sue the tenant for ejectment under a claim of ownership,
if he truly did not intend to sell the property to petitioner
in the first place? Needless to state, it does not make
sense for Severino to allow petitioner to pursue the
ejectment case, in petitioner’s own name, with
petitioner arguing that he had bought the property from
Severino and thus entitled to possession thereof, if
petitioner did not have any right to the
property.chanrob1es virtua1 1aw 1ibrary
Also worth noting is the fact that in the case filed by
Severino’s tenant against Severino and petitioner in
1989, assailing the validity of the sale made to
petitioner, Severino explicitly asserted in his sworn
answer to the complaint that the sale was a legitimate
transaction. He further alleged that the ejectment case
filed by petitioner against the tenant was a legitimate
action by an owner against one who refuses to turn over
possession of his property. 32
Our attention is also drawn to the fact that the
genuineness and due execution of the second deed was
not denied by Severino. Except to allege that he was not
physically present when the second deed was notarized
before the notary public, Severino did not assail the truth
of its contents nor deny that he ever signed the same. As
a matter of fact, he even admitted that he affixed his
signature on the second deed to help petitioner acquire a
loan. This can only signify that he consented to the
manner proposed by petitioner for payment of the
balance and that he accepted the stipulated price of
P2,000,000.00 as consideration for the sale.
Since the genuineness and due execution of the second
deed was not seriously put in issue, it should be upheld
as the best evidence of the intent and true agreement of
the parties. Oral testimony, depending as it does
exclusively on human memory, is not as reliable as
written or documentary evidence. 33
It should be emphasized that the non-appearance of the
parties before the notary public who notarized the deed
does not necessarily nullify nor render the parties’
transaction void ab initio. We have held previously that
the provision of Article 1358 34 of the New Civil Code on
the necessity of a public document is only for
convenience, not for validity or enforceability. Failure to
follow the proper form does not invalidate a contract.
Where a contract is not in the form prescribed by law,
the parties can merely compel each other to observe
that form, once the contract has been perfected. 35 This
is consistent with the basic principle that contracts are
obligatory in whatever form they may have been entered
into, provided all essential requisites are present. 36
Spouses Abella vs Spouses Abella, GR 195166, July 8,
2015
Facts
petitioners alleged that respondents obtained a loan
from them in the amount of P500,000.00. The loan was
evidenced by an acknowledgment receipt dated March
22, 1999 and was payable within one (1) year. Petitioners
added that respondents were able to pay a total of
P200,000.00—P100,000.00 paid on two separate
occasions—leaving an unpaid balance of
P300,000.00.7redarclaw
In their Answer8 (with counterclaim and motion to
dismiss), respondents alleged that the amount involved
did not pertain to a loan they obtained from petitioners
but was part of the capital for a joint venture involving
the lending of money.9redarclaw
Specifically, respondents claimed that they were
approached by petitioners, who proposed that if
respondents were to "undertake the management of
whatever money [petitioners] would give them,
[petitioners] would get 2.5% a month with a 2.5% service
fee to [respondents]."10 The 2.5% that each party would
be receiving represented their sharing of the 5% interest
that the joint venture was supposedly going to charge
against its debtors. Respondents further alleged that the
one year averred by petitioners was not a deadline for
payment but the term within which they were to return
the money placed by petitioners should the joint venture
prove to be not lucrative. Moreover, they claimed that
the entire amount of P500,000.00 was disposed of in
accordance with their agreed terms and conditions and
that petitioners terminated the joint venture, prompting
them to collect from the joint venture's borrowers. They
were, however, able to collect only to the extent of
P200,000.00; hence, the P300,000.00 balance remained
unpaid.11redarclaw
In the Decision12 dated December 28, 2005, the Regional
Trial Court ruled in favor of petitioners.
Ruling
Thus, it remains that where interest was stipulated in
writing by the debtor and creditor in a simple loan or
mutuum, but no exact interest rate was mentioned, the
legal rate of interest shall apply. At present, this is 6%
per annum, subject to Nacar's qualification on
prospective application.
Applying this, the loan obtained by respondents from
petitioners is deemed subjected to conventional interest at
the rate of 12% per annum, the legal rate of interest at
the time the parties executed their agreement.
Moreover, should conventional interest still be due as of
July 1, 2013, the rate of 12% per annum shall persist as the
rate of conventional interest.
This is so because interest in this respect is used as a
surrogate for the parties' intent, as expressed as of the
time of the execution of their contract. In this sense, the
legal rate of interest is an affirmation of the contracting
parties' intent; that is, by their contract's silence on a
specific rate, the then prevailing legal rate of interest
shall be the cost of borrowing money. This rate, which by
their contract the parties have settled on, is deemed to
persist regardless of shifts in the legal rate of interest.
Stated otherwise, the legal rate of interest, when applied
as conventional interest, shall always be the legal rate at
the time the agreement was executed and shall not be
susceptible to shifts in rate.
Petitioners, however, insist on conventional interest at
the rate of 2.5% per month or 30% per annum. They
argue that the acknowledgment receipt fails to show the
complete and accurate intention of the contracting
parties. They rely on Article 1371 of the Civil Code, which
provides that the contemporaneous and subsequent acts
of the contracting parties shall be considered should
there be a need to ascertain their intent.44 In addition,
they claim that this case falls under the exceptions to the
Parol Evidence Rule, as spelled out in Rule 130, Section 9
of the Revised Rules on Evidence.45redarclaw
It is a basic precept in legal interpretation and
construction that a rule or provision that treats a subject
with specificity prevails over a rule or provision that
treats a subject in general terms.46redarclaw
The rule spelled out in Security Bank and Spouses
Toring is anchored on Article 1956 of the Civil Code and
specifically governs simple loans or mutuum. Mutuum is
a type of nominate contract that is specifically
recognized by the Civil Code and for which the Civil Code
provides a specific set of governing rules: Articles 1953 to
1961. In contrast, Article 11371 is among the Civil Code
provisions generally dealing with contracts. As this case
particularly involves a simple loan, the specific rule
spelled out in Security Bank and Spouses Toring finds
preferential application as against Article 1371.
Contrary to petitioners' assertions, there is no room for
entertaining extraneous (or parol) evidence. In Spouses
Bonifacio and Lucia Paras v. Kimwa Construction and
Development Corporation,47 we spelled out the requisites
for the admission of parol evidence:
In sum, two (2) things must be established for parol
evidence to be admitted: first, that the existence of any
of the four (4) exceptions has been put in issue in a
party's pleading or has not been objected to by the
adverse party; and second, that the parol evidence
sought to be presented serves to form the basis of the
conclusion proposed by the presenting party.48
The issue of admitting parol evidence is a matter that is
proper to the trial, not the appellate, stage of a case.
Petitioners raised the issue of applying the exceptions to
the Parol Evidence Rule only in the Reply they filed
before this court. This is the last pleading that either of
the parties has filed in the entire string of proceedings
culminating in this Decision. It is, therefore, too late for
petitioners to harp on this rule. In any case, what is at
issue is not admission of evidence per se, but the
appreciation given to the evidence adduced by the
parties. In the Petition they filed before this court,
petitioners themselves acknowledged that checks
supposedly attesting to payment of monthly interest at
the rate of 2.5% were admitted by the trial court (and
marked as Exhibits "2," "3," "4," "5," "6," "7," and
"8").49 What petitioners have an issue with is not the
admission of these pieces of evidence but how these
have not been appreciated in a manner consistent with
the conclusions they advance.
Even if it can be shown that the parties have agreed to
monthly interest at the rate of 2.5%, this is
unconscionable. As emphasized in Castro v. Tan,50 the
willingness of the parties to enter into a relation
involving an unconscionable interest rate is
inconsequential to the validity of the stipulated rate:
The imposition of an unconscionable rate of interest on a
money debt, even if knowingly and voluntarily assumed,
is immoral and unjust. It is tantamount to a repugnant
spoliation and an iniquitous deprivation of property,
repulsive to the common sense of man. It has no support
in law, in principles of justice, or in the human conscience
nor is there any reason whatsoever which may justify
such imposition as righteous and as one that may be
sustained within the sphere of public or private morals.51
The imposition of an unconscionable interest rate is void
ab initio for being "contrary to morals, and the
law."52redarclaw
In determining whether the rate of interest is
unconscionable, the mechanical application of pre-
established floors would be wanting. The lowest rates
that have previously been considered unconscionable
need not be an impenetrable minimum. What is more
crucial is a consideration of the parties' contexts.
Moreover, interest rates must be appreciated in light of
the fundamental nature of interest as compensation to
the creditor for money lent to another, which he or she
could otherwise have used for his or her own purposes at
the time it was lent. It is not the default vehicle for
predatory gain. As such, interest need only be
reasonable. It ought not be a supine mechanism for the
creditor's unjust enrichment at the expense of another.
Petitioners here insist upon the imposition of 2.5%
monthly or 30% annual interest. Compounded at this
rate, respondents' obligation would have more than
doubled—increased to 219.7% of the principal—by the
end of the third year after which the loan was contracted
if the entire principal remained unpaid. By the end of the
ninth year, it would have multiplied more than tenfold
(or increased to 1,060.45%). In 2015, this would have
multiplied by more than 66 times (or increased to
6,654.17%). Thus, from an initial loan of only
P500,000.00, respondents would be obliged to pay more
than P33 million. This is grossly unfair, especially since up
to the fourth year from when the loan was obtained,
respondents had been assiduously delivering payment.
This reduces their best efforts to satisfy their obligation
into a protracted servicing of a rapacious loan.
The legal rate of interest is the presumptive reasonable
compensation for borrowed money. While parties are
free to deviate from this, any deviation must be
reasonable and fair. Any deviation that is far-removed is
suspect. Thus, in cases where stipulated interest is more
than twice the prevailing legal rate of interest, it is for
the creditor to prove that this rate is required by
prevailing market conditions. Here, petitioners have
articulated no such justification.
In sum, Article 1956 of the Civil Code, read in light of
established jurisprudence, prevents the application of
any interest rate other than that specifically provided for
by the parties in their loan document or, in lieu of it, the
legal rate. Here, as the contracting parties failed to make
a specific stipulation, the legal rate must apply.
Moreover, the rate that petitioners adverted to is
unconscionable. The conventional interest due on the
principal amount loaned by respondents from
petitioners is held to be 12% per annum.
Spouses Mallari vs Prudential Bank, GR 197861, June
5, 2013
Facts
On December 11, 1984, petitioner Florentino T. Mallari
(Florentino) obtained from respondent Prudential Bank-
Tarlac Branch (respondent bank), a loan in the amount of
₱300,000.00 as evidenced by Promissory Note (PN) No.
BD 84-055.3 Under the promissory note, the loan was
subject to an interest rate of 21% per annum (p.a.),
attorney's fees equivalent to 15% of the total amount
due but not less than ₱200.00 and, in case of default, a
penalty and collection charges of 12% p.a. of the total
amount due. The loan had a maturity date of January 10,
1985, but was renewed up to February 17, 1985.
Petitioner Florentino executed a Deed of
Assignment4 wherein he authorized the respondent
bank to pay his loan with his time deposit with the latter
in the amount of ₱300,000.00.
On December 22, 1989, petitioners spouses Florentino
and Aurea Mallari (petitioners) obtained again from
respondent bank another loan of ₱1.7 million as
evidenced by PN No. BDS 606-895 with a maturity date
of March 22, 1990. They stipulated that the loan will bear
23% interest p.a., attorney's fees equivalent to 15% p.a.
of the total amount due, but not less than ₱200.00, and
penalty and collection charges of 12% p.a. Petitioners
executed a Deed of Real Estate Mortgage6 in favor of
respondent bank covering petitioners' property under
Transfer Certificate of Title (TCT) No. T-215175 of the
Register of Deeds of Tarlac to answer for the said loan.
Petitioners failed to settle their loan obligations with
respondent bank, thus, the latter, through its lawyer,
sent a demand letter to the former for them to pay their
obligations, which when computed up to January 31,
1992, amounted to ₱571,218.54 for PN No. BD 84-055
and ₱2,991,294.82 for PN No. BDS 606-89.
On February 25, 1992, respondent bank filed with the
Regional Trial Court (RTC) of Tarlac, a petition for the
extrajudicial foreclosure of petitioners' mortgaged
property for the satisfaction of the latter's obligation of
₱1,700,000.00 secured by such mortgage, thus, the
auction sale was set by the Provincial Sheriff on April 23,
1992.7
On April 10, 1992, respondent bank's Assistant Manager
sent petitioners two (2) separate Statements of Account
as of April 23, 1992, i.e., the loan of ₱300,000.00 was
increased to ₱594,043.54, while the ₱1,700,000.00 loan
was already ₱3,171,836.18.
On April 20, 1992, petitioners filed a complaint for
annulment of mortgage, deeds, injunction, preliminary
injunction, temporary restraining order and damages
Ruling
In Medel v. Court of Appeals,21 we found the stipulated
interest rate of 66% p.a. or a 5.5% per month on a
₱500,000.00 loan excessive, unconscionable and
exorbitant, hence, contrary to morals if not against the
law and declared such stipulation void.
In Toring v. Spouses Ganzon-Olan,22 the stipulated
interest rates involved were 3% and 3.81% per month on
a ₱10 million loan, which we find under the
circumstances excessive and reduced the same to 1% per
month. While in Chua v. Timan,23 where the stipulated
interest rates were 7% and 5% a month, which are
equivalent to 84% and 60% p.a., respectively, we had
reduced the same to 1% per month or 12% p.a. We said
that we need not unsettle the principle we had affirmed
in a plethora of cases that stipulated interest rates of 3%
per month and higher are excessive, unconscionable and
exorbitant, hence, the stipulation was void for being
contrary to morals.24
In this case, the interest rate agreed upon by the parties
was only 23% p.a., or less than 2% per month, which are
much lower than those interest rates agreed upon by the
parties in the above-mentioned cases. Thus, there is no
similarity of factual milieu for the application of those
cases.
We do not consider the interest rate of 23% p.a. agreed
upon by petitioners and respondent bank to be
unconscionable.
In Villanueva v. Court of Appeals,25 where the issue
raised was whether the 24% p.a. stipulated interest rate
is unreasonable under the circumstances, we answered
in the negative and held:
In Spouses Zacarias Bacolor and Catherine Bacolor v.
Banco Filipino Savings and Mortgage Bank, Dagupan
City Branch, this Court held that the interest rate of 24%
per annum on a loan of ₱244,000.00, agreed upon by the
parties, may not be considered as unconscionable and
excessive. As such, the Court ruled that the borrowers
cannot renege on their obligation to comply with what is
incumbent upon them under the contract of loan as the
said contract is the law between the parties and they are
bound by its stipulations.
Also, in Garcia v. Court of Appeals, this Court sustained
the agreement of the parties to a 24% per annum
interest on an ₱8,649,250.00 loan finding the same to be
reasonable and clearly evidenced by the amended credit
line agreement entered into by the parties as well as two
promissory notes executed by the borrower in favor of
the lender.
Based on the above jurisprudence, the Court finds that
the 24% per annum interest rate, provided for in the
subject mortgage contracts for a loan of ₱225,000.00,
may not be considered unconscionable. Moreover,
considering that the mortgage agreement was freely
entered into by both parties, the same is the law
between them and they are bound to comply with the
provisions contained therein.26
Clearly, jurisprudence establish that the 24% p.a.
stipulated interest rate was not considered
unconscionable, thus, the 23% p.a. interest rate imposed
on petitioners' loan in this case can by no means be
considered excessive or unconscionable.
We also do not find the stipulated 12% p.a. penalty
charge excessive or unconscionable.
In Ruiz v. CA,27 we held:
The 1% surcharge on the principal loan for every month
of default is valid. This surcharge or penalty stipulated in
a loan agreement in case of default partakes of the
nature of liquidated damages under Art. 2227 of the New
Civil Code, and is separate and distinct from interest
payment. Also referred to as a penalty clause, it is
expressly recognized by law. It is an accessory
undertaking to assume greater liability on the part of an
obligor in case of breach of an obligation. The obligor
would then be bound to pay the stipulated amount of
indemnity without the necessity of proof on the
existence and on the measure of damages caused by the
breach. x x x28
And in Development Bank of the Philippines v. Family
Foods Manufacturing Co., Ltd.,29 we held that:
x x x The enforcement of the penalty can be demanded
by the creditor only when the non-performance is due to
the fault or fraud of the debtor. The non-performance
gives rise to the presumption of fault; in order to avoid
the payment of the penalty, the debtor has the burden
of proving an excuse - the failure of the performance was
due to either force majeure or the acts of the creditor
himself.30
Here, petitioners defaulted in the payment of their loan
obligation with respondent bank and their contract
provided for the payment of 12% p.a. penalty charge,
and since there was no showing that petitioners' failure
to perform their obligation was due to force majeure or
to respondent bank's acts, petitioners cannot now back
out on their obligation to pay the penalty charge. A
contract is the law between the parties and they are
bound by the stipulations therein.
Spouses Jonsay vs Solidbank, GR 206459, April 6,
2016
Facts
Momarco, controlled and owned by the Spouses Jonsay,
is an importer, manufacturer and distributor of animal
health and feedmill products catering to cattle, hog and
poultry producers. On November 9, 1995, and again on
April 28, 1997, Momarco obtained loans of
P40,000,000.00 and P20,000,000.00, respectively, from
Solidbank for which the Spouses Jonsay executed a
blanket mortgage over three parcels of land they owned
in Calamba City, Laguna registered in their names under
Transfer Certificates of Title Nos. T-224751, T-210327
and T-269668 containing a total of 23,733 square
meters.5 On November 3, 1997,6 the loans were
consolidated under one promissory note7 for the
combined amount of P60,000,000.00, signed by Florante
as President of Momarco, with his wife
Luzviminda also signing as co-maker.8 The stipulated
rate of interest was 18.75% per annum, along with an
escalation clause tied to increases in pertinent Central
Bank-declared interest rates, by which Solidbank was
eventually able to unilaterally increase the interest
charges up to 30% per annum. 9
Momarco religiously paid the monthly interests charged
by Solidbank from November 199510 until January 1998,
when it paid Pl,370,321.09. Claiming business reverses
brought on by the 1997 Asian financial crisis, Momarco
tried unsuccessfully to negotiate a moratorium or
suspension in its interest payments. Due to persistent
demands by Solidbank, Momarco made its next, and its
last, monthly interest payment in April 1998 in the
amount of Pl,000,000.00. Solidbank applied the said
payment to Momarco's accrued interest for February
1998. Momarco sought a loan from Landbank of the
Philippines to pay off its aforesaid debt but its
application fell through.
The anticipated expropriation by the Department of
Public Works and Highways of the mortgaged lots for
the extension of the South Luzon Expressway (SLEX)
also did not materialize. 11
Solidbank proceeded to extrajudicially foreclose on the
mortgage, and at the auction sale held on March 5, 1999,
it submitted the winning bid of
P82,327,249.54, 12 representing Momarco's outstanding
loans, interests and penalties, plus attorney's fees of
P3,600,000.00. But Momarco now claims that on the
date of the auction the fair market value of their
mortgaged lots had increased sevenfold to
P441,750,000.00. 13 On March 22, 1999, Sheriff Adelio
Perocho (Sheriff Perocho) issued a certificate of sale to
Solidbank, duly annotated on April 15, 1999 on the lots'
titles. 14
On March 9, 2000, a month before the expiration of the
period to redeem the lots, the petitioners filed a
Complaint15against Solidbank
Ruling
An escalation clause in a loan
agreement granting the lending
bank authority to unilaterally
increase the interest rate without
prior notice to and consent of the
borrower is void.
After annulling the foreclosure of mortgage, the RTC
reduced the interest imposable on the petitioners' loans
to 12%, the legal interest allowed for a loan or
forbearance of credit, citing Medel v. CA.69 In effect, the
RTC voided not just the unilateral increases in the
monthly interest, but also the contracted interest of
18.75%. The implication is to allow the petitioners to
recover what they may have paid in excess of what was
validly due to Solidbank, if any.
In Floirendo, Jr. v. Metropolitan Bank and Trust Co., 70 the
promissory note provided for interest at 15.446% per
annum for the first 30 days, subject to upward/downward
adjustment every 30 days thereafter.71 It was further
provided that:
The rate of interest and/or bank charges herein
stipulated, during the term of this Promissory Note, its
extension, renewals or other modifications, may be
increased, decreased, or otherwise changed from time to
time by the Bank without advance notice to me/us in the
event of changes in the interest rate prescribed by law or
the Monetary Board of the Central Bank of the Philippines,
in the rediscount rate of member banks with the Central
Bank of the Philippines, in the interest rates on savings
and time deposits, in the interest rates on the banks
borrowings, in the reserve requirements, or in the overall
costs of funding or money[.]72 (Italics ours)
The Court ordered the "reformation" of the real estate
mortgage contract and the promissory note, in that any
increases in the interest rate beyond 15.446% per
annum could not be collected by respondent bank since
it was devoid of prior consent of the petitioner, as well as
ordered that the interest paid by the debtor in excess of
15.446% be applied to the payment of the principal
obligation. 73
In Philippine National Bank v. CA, 74 the Court declared
void the escalation clause in a credit agreement whereby
the "bank reserves the right to increase the interest rate
within the limits allowed by law at any time depending on
whatever policy it may adopt in the future x x x."75 The
Court said:
It is basic that there can be no contract in the true sense
in the absence of the element of agreement, or of
mutual assent of the parties. If this assent is wanting on
the part of one who contracts, his act has no more
efficacy than if it had been done under duress or by a
person of unsound mind.
Similarly, contract changes must be made with the
consent of the contracting parties. The minds of all the
parties must meet as to the proposed modification,
especially when it affects an important aspect of the
agreement. In the case of loan contracts, it cannot be
gainsaid that the rate of interest is always a vital
component, for it can make or break a capital venture.
Thus, any change must be mutually agreed upon,
otherwise, it is bereft of any binding effect.
We cannot countenance petitioner bank's posturing that
the escalation clause at bench gives it unbridled right
to unilaterally upwardly adjust the interest on private
respondents' loan. That would completely take away
from private respondents the right to assent to an
important modification in their agreement, and would
negate the element of mutuality in contracts. x x
x. 76 (Citation omitted and italics in the original)
In New Sampaguita Builders Construction, Inc. (NSBCJ) v.
PNB,77 the Court condemned as the "zenith of farcicality"
a mortgage contract whereby the parties "specify and
agree upon rates that could be subsequently upgraded
at whim by only one party to the agreement."78 The
Court declared as a contract of adhesion a pro forma
promissory note which creates a "take it or leave it"
dilemma for borrower and gives the mortgagee bank an
unbridled right to adjust the interest independently and
upwardly, thereby completely taking away from the
borrower the "right to assent to an important
modification in their agreement," thus negating the
element of mutuality in their contracts.79The Court
quotes:
Increases in Interest Baseless
Promissorv Notes.
In each drawdown, the Promissory Notes specified the
interest rate to be charged: 19.5 percent in the first, and
21.5 percent in the second and again in the third.
However, a uniform clause therein permitted respondent
to increase the rate "within the limits allowed by law at
any time depending on whatever policy it may adopt
in the future x x x," without even giving prior notice to
petitioners. The Court holds that petitioners' accessory
duty to pay interest did not give respondent
unrestrained freedom to charge any rate other than that
which was agreed upon. No interest shall be due, unless
expressly stipulated in writing. It would be the zenith of
farcicality to specify and agree upon rates that could be
subsequently upgraded at whim by only one party to the
agreement.
The "unilateral detennination and imposition" of
increased rates is "violative of the principle of mutuality
of contracts ordained in Article 1308 of the Civil Code."
One-sided impositions do not have the force of law
between the parties, because such impositions are not
based on the parties' essential equality.
Although escalation clauses are valid in maintaining
fiscal stability and retaining the value of money on long-
term contracts, giving respondent an unbridled right to
adjust the interest independently and upwardly would
completely take away from petitioners the "right to
assent to an important modification in their agreement"
and would also negate the element of mutuality in their
contracts.
The clause cited earlier made the fulfillment of the
contracts "dependent exclusively upon the uncontrolled
will" of respondent and was therefore void. Besides, the
pro forma promissory notes have the character of
a contract d'adhesion, "where the parties do not bargain
on equal footing, the weaker party's [the debtor's]
participation being reduced to the alternative 'to take it
or leave it."'
"While the Usury Law ceiling on interest rates was lifted
by [Central Bank] Circular No. 905, nothing in the said
Circular grants lenders carte blanche authority to raise
interest rates to levels which will either enslave their
borrowers or lead to a hemorrhaging of their assets." In
fact, we have declared nearly ten years ago that neither
this Circular nor PD 1684, which further amended the
Usury Law, "authorized either party to unilaterally raise
the interest rate without the other's consent."
Moreover, a similar case eight years ago pointed out to
the same respondent (PNB) that borrowing signified a
capital transfusion from lending institutions to
businesses and industries and was done for the purpose
of stimulating their growth; yet respondent's continued
"unilateral and lopsided policy" of increasing interest
rates "without the prior assent" of the borrower not only
defeats this purpose, but also deviates from this
pronouncement. Although such increases are not
usurious, since the "Usury Law is now legally inexistent" -
the interest ranging from 26 percent to 35 percent in the
statements of account - "must be equitably reduced for
being iniquitous, unconscionable and exorbitant." Rates
found to be iniquitous or unconscionable are void, as if it
there were no express contract thereon. Above all, it is
undoubtedly against public policy to charge excessively
for the use of money. 80 (Citations omitted and emphasis
ours)
In New Sampaguita, the Court invoked Article 131081 of
the Civil Code which grants courts authority to reduce or
increase interest rates equitably. It eliminated the
escalated rates, insurance and penalties and imposed
only the stipulated interest rates of 19.5% and 21.5% on
the notes, to be reduced to the legal rate of 12% upon
their automatic conversion into medium-term loans after
maturity: 82
[T]o give full force to the Truth in Lending Act, only the
interest rates of 19.5 percent and 21.5 percent stipulated
in the Promissory Notes may be imposed by respondent
on the respective availments. After 730 days, the
portions remaining unpaid are automatically converted
into medium-term loans at the legal rate of 12 percent.
In all instances, the simple method of interest
computation is followed.x x x.83
Thus, all payments made by the petitioners were applied
pro-rated to the notes, and after eliminating the
charges, penalties and insurance, the result of the
recomputation was an overcollection by the bank of
P3,686, 101.52, which the Court ordered refunded to the
petitioners with straight interest at 6% per annum from
the filing of the complaint until Finality.84

85
In Equitable PCI Bank v. Ng Sheung Ngor, the Court
annulled the escalation clause and imposed the original
stipulated rate of interest on the loan,
until maturity, and thereafter, the legal interest of
12% per annum was imposed on the outstanding loans.
Thus, the Court ordered the borrower to pay Equitable
the stipulated interest rate of 12.66% per annum for the
dollar denominated loans, and the stipulated 20% per
annum for the peso denominated loans, up to maturity,
and afterwards Equitable was to collect legal interest of
12% per annum on all loans due.86 Incidentally, under
Monetary Board Circular No. 799, the rate of interest for
the loan or forbearance of money, in the absence of
stipulation, shall now be 6% per annum starting July 1,
2013.87
Thus, the Court disregarded the unilaterally escalated
interest rates and imposed the mutually stipulated rates,
which it applied up to the maturity of the loans.
Thereafter, the Court imposed the legal rate of 12% per
annum on the outstanding loans, or 6% per annum legal
rate on the excess of the borrower's payments.
Aujero vs PCSC, GR 19384, January 18, 2012
Facts
It was in 1967 that the petitioner started working for
respondent Philippine Communications Satellite
Corporation (Philcomsat) as an accountant in the latter's
Finance Department. On August 15, 2001 or after thirty-
four (34) years of service, the petitioner applied for early
retirement. His application for retirement was approved,
effective September 15, 2001, entitling him to receive
retirement benefits at a rate equivalent to one and a half
of his monthly salary for every year of service. At that
time, the petitioner was Philcomsat's Senior Vice-
President with a monthly salary of Two Hundred
Seventy-Four Thousand Eight Hundred Five Pesos
(P274,805.00).4
On September 12, 2001, the petitioner executed a Deed
of Release and Quitclaim5 in Philcomsat’s favor,
following his receipt from the latter of a check in the
amount of Nine Million Four Hundred Thirty-Nine
Thousand Three Hundred Twenty-Seven and 91/100
Pesos (P9,439,327.91).6
Almost three (3) years thereafter, the petitioner filed a
complaint for unpaid retirement benefits, claiming that
the actual amount of his retirement pay is Fourteen
Million Fifteen Thousand and Fifty-Five Pesos
(P14,015,055.00) and the P9,439,327.91 he received from
Philcomsat as supposed settlement for all his claims is
unconscionable, which is more than enough reason to
declare his quitclaim as null and void. According to the
petitioner, he had no choice but to accept a lesser
amount as he was in dire need thereof and was all set to
return to his hometown and he signed the quitclaim
despite the considerable deficiency as no single centavo
would be released to him if he did not execute a release
and waiver in Philcomsat's favor.7
Ruling
Absent any evidence that any of the vices of consent is
present and considering the petitioner’s position and
education, the quitclaim executed by the petitioner
constitutes a valid and binding agreement.
In Goodrich Manufacturing Corporation, v. Ativo,25 this
Court reiterated the standards that must be observed in
determining whether a waiver and quitclaim has been
validly executed:
Not all waivers and quitclaims are invalid as against
public policy. If the agreement was voluntarily entered
into and represents a reasonable settlement, it is binding
on the parties and may not later be disowned simply
because of a change of mind. It is only where there is
clear proof that the waiver was wangled from an
unsuspecting or gullible person, or the terms of
settlement are unconscionable on its face, that the
law will step in to annul the questionable
transaction. But where it is shown that the person
making the waiver did so voluntarily, with full
understanding of what he was doing, and the
consideration for the quitclaim is credible and
reasonable, the transaction must be recognized as a
valid and binding undertaking.26 (emphasis supplied)
In Callanta v. National Labor Relations Commission,27 this
Court ruled that:
It is highly unlikely and incredible for a man of
petitioner’s position and educational attainment to so
easily succumb to private respondent company’s alleged
pressures without even defending himself nor
demanding a final audit report before signing any
resignation letter. Assuming that pressure was indeed
exerted against him, there was no urgency for petitioner
to sign the resignation letter. He knew the nature of the
letter that he was signing, for as argued by respondent
company, petitioner being "a man of high educational
attainment and qualification, x x x he is expected to
know the import of everything that he executes,
whether written or oral.”28
While the law looks with disfavor upon releases and
quitclaims by employees who are inveigled or pressured
into signing them by unscrupulous employers seeking to
evade their legal responsibilities, a legitimate waiver
representing a voluntary settlement of a laborer's claims
should be respected by the courts as the law between
the parties.29 Considering the petitioner's claim of fraud
and bad faith against Philcomsat to be unsubstantiated,
this Court finds the quitclaim in dispute to be legitimate
waiver.
While the petitioner bewailed as having been coerced or
pressured into signing the release and waiver, his failure
to present evidence renders his allegation self-serving
and inutile to invalidate the same. That no portion of his
retirement pay will be released to him or his urgent need
for funds does not constitute the pressure or coercion
contemplated by law.
That the petitioner was all set to return to his hometown
and was in dire need of money would likewise not qualify
as undue pressure sufficient to invalidate the quitclaim.
"Dire necessity" may be an acceptable ground to annul
quitclaims if the consideration is unconscionably low and
the employee was tricked into accepting it, but is not an
acceptable ground for annulling the release when it is
not shown that the employee has been forced to execute
it.30 While it is our duty to prevent the exploitation of
employees, it also behooves us to protect the sanctity of
contracts that do not contravene our laws.31
The petitioner is not an ordinary laborer. He is mature,
intelligent and educated with a college degree, who
cannot be easily duped or tricked into performing an act
against his will. As no proof was presented that the said
quitclaim was entered into through fraud, deception,
misrepresentation, the same is valid and binding. The
petitioner is estopped from questioning the said
quitclaim and cannot renege after accepting the benefits
thereunder. This Court will never satisfy itself with
surmises, conjectures or speculations for the purpose of
giving imprimatur to the petitioner's attempt to abdicate
from his obligations under a valid and binding release
and waiver.
The petitioner's educational background and
employment stature render it improbable that he was
pressured, intimidated or inveigled into signing the
subject quitclaim. This Court cannot permit the
petitioner to relieve himself from the consequences of
his act, when his knowledge and understanding thereof
is expected. Also, the period of time that the petitioner
allowed to lapse before filing a complaint to recover the
supposed deficiency in his retirement pay clouds his
motives, leading to the reasonable conclusion that his
claim of being aggrieved is a mere afterthought, if not a
mere pretention.
The CA and the NLRC were unanimous in holding that
the petitioner voluntarily executed the subject quitclaim.
The Supreme Court (SC) is not a trier of facts, and this
doctrine applies with greater force in labor cases. Factual
questions are for the labor tribunals to resolve and
whether the petitioner voluntarily executed the subject
quitclaim is a question of fact. In this case, the factual
issues have already been determined by the NLRC and
its findings were affirmed by the CA. Judicial review by
this Court does not extend to a reevaluation of the
sufficiency of the evidence upon which the proper labor
tribunal has based its determination.32
Irao vs By the Bay, GR 177120, July 14, 2008
Facts
In June of 2002, the Estate of Doa Trinidad de Leon
Roxas represented by Ruby Roxas as lessor, and herein
respondent represented by Ronald M. Magbitang as
lessee, forged a contract of lease[4] over a three-storey
building with an area of 662 square meters, located at
Roxas Boulevard corner Salud Street, Pasay City, for a
term of five (5) years commencing on July 1, 2002 until
June 30, 2007, for a monthly rental of P200,000.00, to be
increased annually by P50,000.00.[5]
It appears that in November 2003, respondents
restaurant business at the leased premises was closed
down by the City Government.
Respondent defaulted in the payment of rentals which,
as of January 2004, totaled P2,517,333.36[6] inclusive of
interest and penalty charges. Despite demands to pay
the amount and comply with the terms and conditions of
the contract, respondent failed and refused to do so.[7]
The lessors counsel thereupon demanded, by
letter[8] of January 16, 2004, the payment by respondent
of P2,517,333.36 within five (5) days from
notice otherwise the Contract of Lease would be
terminated without notice. It appears that the letter to
respondent was received on January 23, 2004.[9]
Respondent failed to heed the demand, however,
drawing the lessor to terminate the contract without
notice, in accordance with Section 31 of the contract
which provides:
31. DEFAULT The LESSEE agrees that all the covenants
and agreements herein contained shall be deemed
conditions as well as covenants and that if default or
breach be made of any of such covenants and
conditions then this lease, at the discretion of the
LESSOR, may be terminated and cancelled forthwith,
and the LESSEE shall be liable for any and all damages,
actual and consequential, resulting from such default
and termination.
If after due notice has been given to the LESSEE of the
cancellation of the lease, the latter fails to comply with
the LESSORs demand for the return to it of the
possession of the premises and the payment of the
LESSEEs accrued obligations pursuant to the provisions
of this Contract or in the event the LESSOR should
exercise its Contract or in the event the LESSOR should
exercise its right to enforce its preferred lien on the
personal properties of the LESSEE existing on the
Leased Premises, or in the event of default or breach by
the LESSEE of any of the provisions herein
contained, the LESSEE hereby empowers the
LESSOR and/or her authorized representatives to
open, enter, occupy, padlock, secure, enclose, fence
and/or discontinue public utilities and otherwise take
full and complete physical possession and control of
the Leased Premises without resorting to court action;
x x x. For purposes of this provision and other pertinent
provisions of this Contract, the LESSEE hereby
constitutes the LESSOR and her authorized
representatives as the LESSEEs attorney-in-fact, and
all acts performed by them in the exercise of their
authority are hereby confirmed. The LESSEE hereby
expressly agrees that only or all acts performed by the
LESSOR, her authorized agents, employees and/or
representatives under the provisions of this Section may
not be the subject of any Petition for a Writ of
Preliminary Injunction or Mandatory Injunction in
court.[10] (Emphasis and underscoring supplied)
Subsequently or on February 4, 2004, the lessor
executed a lease contract[11] over the same property with
herein petitioner, Paul T. Irao, effective February 1,
2004 until January 30, 2009. Paragraph 6 of this contract
empowers petitioner to enter and take over the
possession of the leased premises, thus:
6. TURNOVER OF POSSESSION The Leased Premises is
presently being unlawfully detained by the previous
lessee and the LESSEE acknowledges and recognizes
such fact. The LESSEE undertakes that it shall take the
necessary legal measures to eject or evict the previous
lessee and its employees and assigns and take over
possession of the Leased Premises.[12]
Consequently, on or about February 6, 2004, petitioner,
accompanied by a Barangay Kagawad and some security
guards from the Spy Master Security Agency, entered
and took possession of the leased premises.
Respondent thereupon filed with the Metropolitan Trial
Court (MeTC) of Pasay City a complaint[13] for forcible
entry with prayer for preliminary mandatory injunction
Issue: Whether the lessors demand letter to respondent
contains a notice of termination of the lease contract
and a demand to vacate the leased premises to justify
the taking over of possession thereof by the lessor
and/or its representative-herein petitioner.
Ruling
The pertinent portions of the demand letter read:
xxxx
Our client [the lessor] has informed us that since June
2003, you failed to pay and refused to pay your
monthly rentals including the interest due thereon,
which to date amounts to Php1,450,000. In addition, you
also owe our client the amount of Php567,333.36 by
way of penalty and interest for late payment of your
rentals from January 2003 to January 2004. A
statement of account is attached herewith for your
guidance and information.
xxxx
In view of the foregoing, formal demand is hereby
made on you to pay our client the full amount of
Php2,517,333.36 within five (5) days from
receipt hereof, otherwise we shall be constrained,
much to our regret, to terminate your Contract of
Lease and take the necessary legal measures against
you to protect our clients interest, without
further notice. (Emphasis and underscoring supplied)
The language and intent of the abovequoted portions of
the demand letter are unambiguous. The lessor
demanded from respondent the full payment of its
unpaid rentals of P2,517,333.36 within five days from
notice. The phrase otherwise we shall be constrained,
much to our regret in the letter sends a
clear warning that failure to settle the amount within
the stated period would constrain the lessor
to terminate [the] Contract of Lease and take the
necessary legal measures against [respondent] to
protect [its] interest without further notice.
The letter made it clear to respondent that the therein
stated adverse consequences would ensue without
further notice, an unmistakable warning to respondent
that upon its default, the lease contract would
be deemed terminated and that its continued
possession of the leased premises would no longer be
permitted.
The notice of impending termination was not
something strange to respondent since it merely
implemented the stipulation in Section 31 of their
contract that if default or breach be made of any of such
covenants and conditions, then this lease, at the
discretion of the LESSOR, may be terminated and
cancelled forthwith.
To warn means to give notice to somebody beforehand,
especially of danger; and a warning may be a notice of
termination of an agreement, employment, etc.[22] Its
purpose is to apprise a party of the existence of danger
of which he is not aware to enable him to protect
himself against it.[23]
[W]here, as here, the party is aware of the danger, the
warning will serve no useful purpose and is unnecessary,
and there is no duty to warn against risks which are open
and obvious.[24]
The appellate courts ruling that the lessors letter did not
demand respondent to vacate is flawed. A notice or
demand to vacate does not have to expressly use the
word vacate, as it suffices that the demand letter puts
the lessee or occupant on notice that if he does not pay
the rentals demanded or comply with the terms of the
lease contract, it should move out of the leased
premises.[25]
It bears reiteration that the demand letter priorly warned
respondent that upon its default the lease contract
would not only be terminated, but the lessor would take
the necessary legal measures against [respondent] to
protect [its] interest, without further notice and without
resorting to court action as stipulated in their lease
contract. The necessary legal measures are those
expressly stipulated in Section 31 of the lease
contract among which are, for expediency, requoted
below:
x x x in the event of default or breach by the LESSEE of
any of the provisions herein contained, the LESSEE
hereby empowers the LESSOR and/or her authorized
representatives to open, enter, occupy, x x x and
otherwise take full and complete physical possession
and control of the Leased Premises without resorting
to court action; x x x. For purposes of this provision and
other pertinent provisions of this Contract, the LESSEE
hereby constitutes the LESSOR and her authorized
representatives as the LESSEEs attorney-in-fact, and
all acts performed by them in the exercise of their
authority are hereby confirmed. x x x. (Emphasis and
underscoring supplied)
Contractual stipulations empowering the lessor and/or
his representative to repossess the leased
property extrajudicially from a deforciant lessee, as in
the present case, have been held to be valid.[26] Being the
law between the parties, they must be
respected. Respondent cannot thus feign ignorance that
the repossession of the leased property by the lessor
and/or its representative-herein petitioner was the
appropriate legal measure it (respondent) itself
authorized under their contract.
In Viray v. Intermediate Appellate Court[27] where the
lessor and the lessee stipulated as follows:
7. Upon failure of the Lessee to comply with any of the
terms and conditions of this lease, as well as such other
terms and conditions which may be imposed by the
Lessor prior to and/or upon renewal of this lease
agreement as provided in par. 2 above, then the Lessor
shall have the right, upon five (5) days written notice to
the Lessee or in his absence, upon written notice posted
at the entrance of the premises leased, to enter and take
possession of the said premises holding in his trust and
custody and such possessions and belongings of the
Lessee found therein after an inventory of the same in
the presence of a witness, all these acts being hereby
agreed to by the Lessee as tantamount to his voluntary
vacation of the leased premises without the necessity of
suit in court. (Underscoring supplied; italics in the
original),
this Court, finding that the stipulation empowered the
lessor to reposses the leased premises extrajudicially,
and citing, inter alia, Consing v. Jamadre[28] wherein this
Court sustained the validity of a lease agreement
empowering the sub-lessor to take possession of the
leased premises, in case the sub-lessee fails to comply
with any of the terms and conditions of the contract
without necessity of resorting to court action, held that
the stipulation was valid.
In Subic Bay Metropolitan Authority v. Universal
International Group of Taiwan,[29] this Court, in resolving
in the affirmative the issue of whether a stipulation
authorizing [the therein petitioner-lessor] to
extrajudicially rescind its contract [with the therein
respondent-lessee] and to recover possession of the
property in case of contractual breach is lawful,
considered, among other things, the therein lessees
several violations of the Lease and Development
Agreement including its failure to complete the
rehabilitation of the Golf Course in time for the APEC
Leaders Summit, and to pay accumulated lease rentals,
and to post the required performance bond, which
violations the lessee did not deny or controvert. The
Court therein concluded that the lessee effectively . . .
offered no valid or sufficient objection to the lessors
exercise of its stipulated right to extrajudicially rescind
the [agreement] and take over the property in case of
material breach.
As in Subic Bay,[30] herein respondent-lessee violated its
agreement with the lessor and offered no valid or
sufficient objection to the exercise by the lessor through
petitioner of its stipulated right to extrajudicially take
possession of the leased premises.
Apropos with respect to herein respondents having
already been ousted of the leased premises is this Courts
explanation in Viray that the existence of . . . an
affirmative right of action [of the lessor] constitutes a
valid defense against, and is fatal to any action by the
tenant who has been ousted otherwise than judicially to
recover possession, citing Apundar v. Andrin[31] which
held:
. . . The existence of an affirmative right of action on the
part of the landlord to oust the tenant is fatal to the
maintenance of any action by the tenant. Otherwise, the
absurd result would follow that a tenant ousted under
the circumstances here revealed would be restored to
possession only himself to be immediately put out in a
possessory action instituted by the landlord. To prevent
circuity of action, therefore, we must recognize the
affirmative right of action on the part of the landlord as a
complete and efficacious defense to the maintenance of
an action by the tenant. Circuitus est evitandus; et boni
judices est lites dirimere, ne lis ex lite oriatur.
Another consideration based upon an idea familiar to
jurisprudence is equally decisive. This is found in one of
the implications of the familiar maxim, Ubi jus
ibi remedium, the converse of which is of course equally
true, namely: Nullum jus nullum remedium. Applying this
idea to the case before us, it is manifest that inasmuch as
the plaintiffs right of possession has been destroyed, the
remedy is also necessarily taken away.[32] (Underscoring
supplied)
To restore possession of the premises to herein
respondent, who was ousted under the circumstances
reflected above, would undoubtedly, certainly result to
absurdity.
Arsenal vs IAC, GR L-66693, July 14, 1986
Facts
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.
Ruling
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
Heirs of Injugtiro vs Casals, GR 134718, August 20,
2001
Facts
During the Second World War, or some sixty (60) years
ago, Mamerto Ingjug died leaving behind the subject
parcel of land covered by Original Certificate of Title No.
RO-0376 in his name as owner in fee simple. Upon his
death title thereto devolved upon his five (5) children,
namely, Romana, Francisco, Francisca, Luisa and Maria,
all surnamed Ingjug. On 9 July 1965, or more than two
(2) decades later, Luisa, Maria, one Eufemio Ingjug, and
Guillerma Ingjug Fuentes-Pagubo, daughter of
Francisca, sold the disputed land to herein respondents,
the spouses Leon V. Casals and Lilia C. Casals, the
spouses Carlos L. Climaco and Lydia R. Climaco, the
spouses Jose L. Climaco, Jr. and Blanquita C. Climaco,
and Consuelo L. Climaco. The vendors allegedly
represented to the vendees that the property was
inherited by them from the late Mamerto Ingjug, and
that they were his only surviving heirs. The sale was
evidenced by a Deed of Sale of Unregistered Land[1] and
an Extrajudicial Settlement and Confirmation of
Sale[2] executed by the vendors in favor of the vendees.
On 10 August 1992, herein petitioners as heirs of
Romana Ingjug, namely, Bedesa, Pedro, Rita and
Barbara; heirs of Francisco Ingjug, namely, Leonardo,
Lilia, Fernanda, Zenaida, Pacita and Antonio; and, heirs
of Francisca, namely, Uldarico, and Paulina, challenged
respondents' ownership of the property by filing a
complaint for Partition, Recovery of Ownership and
Possession, Declaration of Nullity: Deed of Sale of
Unregistered Land; Extrajudicial Settlement and
Confirmation of Sale,[3] against herein
respondents. Petitioners alleged that they only
discovered in 1990 that the property had already been
sold and titled to respondents, and that respondents
refused, despite repeated demands, to deliver and return
to them their shares in the property. Petitioners also
prayed that the Deed of Sale of Unregistered Land as well
as the Extrajudicial Settlement and Confirmation of
Sale executed by Luisa, Maria, Eufemio and Guillerma be
nullified to the extent of petitioners' shares in the
property.
Respondents - the spouses Leon Casals and Lilia Casals,
and Consuelo L. Climaco - failed to answer within the
reglementary period, hence, on motion of petitioners'
counsel, they were declared in default.[4] On the other
hand, respondents - the spouses Carlos L. Climaco and
Lydia R. Climaco, and the spouses Jose L. Climaco, Jr.
and Blanquita C. Climaco - filed a motion to dismiss,
instead of an answer, arguing that the complaint failed
to state a cause of action and was barred by prescription
and laches. They further averred that the original
certificate of title in the name of Mamerto Ingjug was
lost during the war, and that they bought the property
from the heirs of Mamerto Ingjug pending the
reconstitution of the title; that they acquired the
property in good faith believing that the vendors were
indeed the only surviving heirs of Mamerto Ingjug; that
upon the issuance of the reconstituted title the vendors
executed the questioned Deed of Extrajudicial Settlement
and Confirmation of Sale in their favor; and that, on the
basis of the deed, the original certificate of title in the
name of Mamerto Ingjug was cancelled and Transfer
Certificate of Title No. T-1150 was issued in their names.
Issue: whether petitioners' right to institute a complaint
for partition and reconveyance is effectively barred by
prescription and laches.
Ruling
A cursory reading of the complaint, however, reveals
that the action filed by petitioners was for partition,
recovery of ownership and possession, declaration of
nullity of a deed of sale of unregistered land and
extrajudicial settlement and confirmation of
sale. Petitioners' causes of action are premised on their
claim that: (a) the Deed of Sale of Unregistered Land is
void and of no effect since their respective shares in the
inheritance were included in the sale without their
knowledge and consent, and one of the vendor-
signatories therein, Eufemio Ingjug (Eufemio
Tiro,[9] husband of Romana Ingjug[10]), was not even a
direct and compulsory heir of the decedent; and (b)
the Extrajudicial Settlement and Confirmation of Sale is
simulated and therefore null and void ab initio, as it was
purportedly executed in 1967 by, among others, Eufemio
Tiro who was not an heir, and by Francisco Ingjug who
died in 1963. Also, the prayer in the same complaint
expressly asks that all those transactions be declared null
and void. In other words, it is the nullity of the deeds of
sale and the extrajudicial settlement and confirmation of
the sale which is the basic hypothesis upon which the
instant civil action rests. Thus, it appears that we are
dealing here not with simple voidable contracts tainted
with fraud, but with contracts that are altogether null
and void ab initio.
Assuming petitioners' allegations to be true, without
however prejudging the validity or invalidity of the
contract of sale and the extrajudicial settlement which
will ultimately be determined by the trial court, Romana,
Francisco, Francisca, Luisa and Maria, succeeded to the
possession and ownership of the land from the time of
the death of their father Mamerto Ingjug. The property
should have been divided equally among them, but prior
to its partition these heirs of Mamerto Ingjug owned the
property in common. It follows then that Luisa, Maria
and Guillerma (daughter of Francisca) and Eufemio
Ingjug could not, by themselves, validly dispose of the
entire litigated property to the exclusion of and without
the knowledge and consent of the other heirs since
Luisa, Maria, Guillerma and Eufemio are not the
exclusive owners thereof. More so in the case of
Eufemio, who is claimed to be a total stranger to and
therefore has no legal interest whatsoever in the
inherited property not being a direct heir.
Article 1458 of the New Civil Code provides: "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." It is essential that the
vendors be the owners of the property sold otherwise
they cannot dispose that which does not belong to
them. As the Romans put it:"Nemo dat quod non
habet." No one can give more than what he has. The sale
of the realty to respondents is null and void insofar as it
prejudiced petitioners' interests and participation
therein. At best, only the ownership of the shares of
Luisa, Maria and Guillerma in the disputed property
could have been transferred to respondents.
Consequently, respondents could not have acquired
ownership over the land to the extent of the shares of
petitioners. The issuance of a certificate of title in their
favor could not vest upon them ownership of the entire
property; neither could it validate the purchase thereof
which is null and void. Registration does not vest title; it
is merely the evidence of such title. Our land registration
laws do not give the holder any better title than what he
actually has.[11] Being null and void, the sale to
respondents of petitioners' shares produced no legal
effects whatsoever.
Similarly, the claim that Francisco Ingjug died in 1963 but
appeared to be a party to the Extrajudicial Settlement
and Confirmation of Sale executed in 1967 would be fatal
to the validity of the contract, if proved by clear and
convincing evidence. Contracting parties must be juristic
entities at the time of the consummation of the
contract. Stated otherwise, to form a valid and legal
agreement it is necessary that there be a party capable
of contracting and a party capable of being contracted
with. Hence, if any one party to a supposed contract was
already dead at the time of its execution, such contract is
undoubtedly simulated and false and therefore null and
void by reason of its having been made after the death of
the party who appears as one of the contracting parties
therein.[12] The death of a person terminates contractual
capacity.
In actions for reconveyance of property predicated on
the fact that the conveyance complained of was null and
void ab initio, a claim of prescription of action would be
unavailing.[13] The action or defense for the declaration
of the inexistence of a contract does not
prescribe."[14] Neither could laches be invoked in the case
at bar. Laches is a doctrine in equity and our courts are
basically courts of law and not courts of equity. Equity,
which has been aptly described as "justice outside
legality," should be applied only in the absence of, and
never against, statutory law. Aequetas nunguam
contravenit legis. The positive mandate of Art. 1410 of
the New Civil Code conferring imprescriptibility to
actions for declaration of the inexistence of a contract
should pre-empt and prevail over all abstract arguments
based only on equity. Certainly, laches cannot be set up
to resist the enforcement of an imprescriptible legal
right, and petitioners can validly vindicate their
inheritance despite the lapse of time.
Considering the foregoing, the trial court judge should
not have summarily dismissed petitioners' complaint;
instead, he should have required the defendants to
answer the complaint, deferred action on the special
defenses of prescription and laches, and ordered the
parties to proceed with the trial on the merits. Verily, the
dismissal of the case on the ground of prescription
and laches was premature. The summary or outright
dismissal of an action is not proper where there are
factual matters in dispute which need presentation and
appreciation of evidence. Here, petitioners still had to
prove the following: first, that they were the coheirs and
co-owners of the inherited property; second, that their
coheirs-co-owners sold their hereditary rights thereto
without their knowledge and consent; third, that forgery,
fraud and deceit were committed in the execution of
the Deed of Extrajudicial Settlement and Confirmation of
Sale since Francisco Ingjug who allegedly executed the
deed in 1967 actually died in 1963, hence, the thumbprint
found in the document could not be his; fourth, that
Eufemio Ingjug who signed the deed of sale is not the
son of Mamerto Ingjug, and therefore not an heir
entitled to participate in the disposition of the
inheritance; fifth, that respondents have not paid the
taxes since the execution of the sale in 1965 until the
present date and the land in question is still declared for
taxation purposes in the name of Mamerto Ingjug, the
original registered owner, as of 1998; sixth, that
respondents had not taken possession of the land
subject of the complaint nor introduced any
improvement thereon; and seventh, that respondents
are not innocent purchasers for value.
Without any evidence on record relating to these points,
this Court cannot affix its imprimatur to the peremptory
dismissal of the complaint in light of the pleas of
petitioners for their just share in the inheritance and for
the partition of their common predecessor's
estate. Indeed, it is but fair and just that, without
prejudging the issues, the parties be allowed to
substantiate their respective claims and defenses in a
full-blown trial, and secure a ruling on all the issues
presented in their respective pleadings.
Delos Santos et al vs Abejon, GR 215820, March 20,
2017
Facts
The complaint alleged that Erlinda and her late husband
Pedro Delos Santos (Pedro) borrowed the amount of
₱l00,000.00 from the former's sister, Teresita, as
evidenced by a Promissory Note dated April 8, 1998. As
security for the loan, Erlinda and Pedro mortgaged their
property consisting of 43.50 square meters situated at
2986 Gen. Del Pilar Street, Bangkal, Makati City covered
by Transfer Certificate of Title (TCT) No. 131753 (subject
land) which mortgage was annotated on the title.
After Pedro died, Erlinda ended up being unable to pay
the loan, and as such, agreed to sell the subject land to
Teresita for ₱l50,000.00, or for the amount of the loan
plus an additional ₱50,000.00. On July 8, 1992, they
executed a Deed of Sale and a Release of Mortgage, and
eventually, TCT No. 131753 was cancelled and TCT No.
180286 was issued in the name of "Teresita, Abejon[,]
married to Alberto S. Abejon."
Thereafter, respondents constructed a three (3)-storey
building worth ₱2,000,000.00 on the subject land.
Despite the foregoing, petitioners refused to
acknowledge the sale, pointing out that since Pedro died
in 1989, his signature in the Deed of Sale executed in
1992 was definitely forged. As such, respondents
demanded from petitioners the amounts of ₱l50,000.00
representing the consideration for the sale of the subject
land and ₱2,000,000.00 representing the construction
cost of the three (3)-storey building, but to no avail.
Thus, respondents filed the instant case.6
In defense, petitioners denied any participation relative
to the spurious Deed of Sale, and instead, maintained
that it was Teresita who fabricated the same and caused
its registration before the Register of Deeds of Makati
City. They likewise asserted that Erlinda and Pedro never
sold the subject land to Teresita for ₱l50,000.00 and that
they did not receive any demand for the payment of
₱l00,000.00 representing the loan, as well as the
₱2,000,000.00 representing the construction cost of the
building. Finally, they claimed that the improvements
introduced by Teresita on the subject land were all
voluntary on her part.
Issue: WON Deed of Sale and the Release of Mortgage
both dated July 8, 1992 are NULL and VOID
Ruling
It is settled that "the declaration of nullity of a contract
which is void ab initio operates to restore things to the
state and condition in which they were found before the
execution thereof."28 Pursuant to this rule, since the
Deed of Sale involving the subject land stands to be
nullified in view of the parties' stipulation to this effect, it
is incumbent upon the parties to return what they have
received from said sale. Accordingly, Erlinda and the rest
of petitioners (as Pedro's heirs) are entitled to the return
of the subject land as stipulated during .the pre-trial.
To effect the same, the Register of Deeds of Makati City
should cancel TCT No. 180286 issued in the name of
Teresita, and thereafter, reinstate TCT No. 131753 in the
name of Pedro and Erlinda and, restore the same to its
previous state before its cancellation, i.e., with the
mortgage executed by the parties annotated thereon.
On the other hand, respondents, as Teresita's
successors-in-interest, are entitled to the refund of the
additional PS0,000.00 consideration she paid for such
sale. However, it should be clarified that the liability for
the said amount will not fall on all petitioners, but only
on Erlinda, as she was the only one among the
petitioners who was involved in the said sale. Pursuant
to Nacar v. Gallery Frames,29 the amount of PS0,000.00
shall be subjected to legal interest of six percent (6%) per
annum from the finality of this Decision until fully paid.
In this case, it bears stressing that the execution of the
Deed of Sale involving the subject land was done in
1992. However, and as keenly pointed out by Justice
Alfredo Benjamin S. Caguioa during the deliberations of
this case, Teresita was apprised of Pedro's death as early
as 1990 when she went on a vacation in the
Philippines.35 As such, she knew all along that the
aforesaid Deed of Sale - which contained a signature
purportedly belonging to Pedro, who died in 1989, or
three (3) years prior to its execution - was void and would
not have operated to transfer any rights over the subject
land to her name. Despite such awareness of the defect
in their title to the subject land, respondents still
proceeded in constructing a three (3)-storey building
thereon. Indubitably, they should be deemed as builders
in bad faith.
Lita Enterprises vs IAC, GR L-64693, April 27, 1984
Facts
The spouses Nicasio M. Ocampo and Francisca Garcia,
herein private respondents, purchased in installment
from the Delta Motor Sales Corporation five (5) Toyota
Corona Standard cars to be used as taxicabs. Since they
had no franchise to operate taxicabs, they contracted
with petitioner Lita Enterprises, Inc., through its
representative, Manuel Concordia, for the use of the
latter's certificate of public convenience in consideration
of an initial payment of P1,000.00 and a monthly rental
of P200.00 per taxicab unit.
To effectuate Id agreement, the aforesaid cars were
registered in the name of petitioner Lita Enterprises, Inc,
Possession, however, remained with tile spouses
Ocampo who operated and maintained the same under
the name Acme Taxi, petitioner's trade name.
About a year later, on March 18, 1967, one of said
taxicabs driven by their employee, Emeterio Martin,
collided with a motorcycle whose driver, one Florante
Galvez, died from the head injuries sustained therefrom.
A criminal case was eventually filed against the driver
Emeterio Martin, while a civil case for damages was
instituted by Rosita Sebastian Vda. de Galvez, heir of the
victim, against Lita Enterprises, Inc., as registered owner
of the taxicab in the latter case, Civil Case No. 72067 of
the Court of First Instance of Manila, petitioner Lita
Enterprises, Inc. was adjudged liable for damages in the
amount of P25,000.00 and P7,000.00 for attorney's fees.
This decision having become final, a writ of execution
was issued. One of the vehicles of respondent spouses
with Engine No. 2R-914472 was levied upon and sold at
public auction for 12,150.00 to one Sonnie Cortez, the
highest bidder. Another car with Engine No. 2R-915036
was likewise levied upon and sold at public auction for
P8,000.00 to a certain Mr. Lopez.
Thereafter, in March 1973, respondent Nicasio Ocampo
decided to register his taxicabs in his name. He
requested the manager of petitioner Lita Enterprises,
Inc. to turn over the registration papers to him, but the
latter allegedly refused. Hence, he and his wife filed a
complaint against Lita Enterprises, Inc., Rosita Sebastian
Vda. de Galvez, Visayan Surety & Insurance Co. and the
Sheriff of Manila for reconveyance of motor vehicles
with damages, docketed as Civil Case No. 90988 of the
Court of First Instance of Manila.
Ruling
Unquestionably, the parties herein operated under an
arrangement, comonly known as the "kabit system",
whereby a person who has been granted a certificate of
convenience allows another person who owns motors
vehicles to operate under such franchise for a fee. A
certificate of public convenience is a special privilege
conferred by the government .
Abuse of this privilege by the grantees thereof cannot be
countenanced. The "kabit system" has been Identified as
one of the root causes of the prevalence of graft and
corruption in the government transportation offices. In
the words of Chief Justice Makalintal, 1 "this is a
pernicious system that cannot be too severely
condemned. It constitutes an imposition upon the goo
faith of the government.
Although not outrightly penalized as a criminal offense,
the "kabit system" is invariably recognized as being
contrary to public policy and, therefore, void and
inexistent under Article 1409 of the Civil Code, It is a
fundamental principle that the court will not aid either
party to enforce an illegal contract, but will leave them
both where it finds them. Upon this premise, it was
flagrant error on the part of both the trial and appellate
courts to have accorded the parties relief from their
predicament. Article 1412 of the Civil Code denies them
such aid. It provides:
ART. 1412. if the act in which the unlawful or forbidden
cause consists does not constitute a criminal offense, the
following rules shall be observed;
(1) when the fault, is on the part of both contracting
parties, neither may recover what he has given by virtue
of the contract, or demand the performance of the
other's undertaking.
The defect of inexistence of a contract is permanent and
incurable, and cannot be cured by ratification or by
prescription. As this Court said in Eugenio v.
Perdido, 2 "the mere lapse of time cannot give efficacy to
contracts that are null void."
The principle of in pari delicto is well known not only in
this jurisdiction but also in the United States where
common law prevails. Under American jurisdiction, the
doctrine is stated thus: "The proposition is universal that
no action arises, in equity or at law, from an illegal
contract; no suit can be maintained for its specific
performance, or to recover the property agreed to be
sold or delivered, or damages for its property agreed to
be sold or delivered, or damages for its violation. The
rule has sometimes been laid down as though it was
equally universal, that where the parties are in pari
delicto, no affirmative relief of any kind will be given to
one against the other." 3 Although certain exceptions to
the rule are provided by law, We see no cogent reason
why the full force of the rule should not be applied in the
instant case.
Jose vs Chelda Enterprises, GR L-25704, April 24, 1968
Facts
Plaintiff corporation filed suit in the Court of First
Instance of Manila on May 29, 1964 against the
partnership Chelda Enterprises and David Syjueco, its
capitalist partner, for recovery of alleged unpaid loans in
the total amount of P20,880.00, with legal interest from
the filing of the complaint, plus attorney’s fees of
P5,000.00. Alleging that post dated checks issued by
defendants to pay said account were dishonored, that
defendants’ industrial partner, Chellaram I. Mohinani,
had left the country, and that defendants have removed
or disposed of their property, or are about to do so, with
intent to defraud their creditors, preliminary attachment
was also sought.
Answering, defendants averred that they obtained four
loans from plaintiff in the total amount of P26,500.00, of
which P5,620.00 had been paid, leaving a balance of
P20,880.00; that plaintiff charged and deducted from
the loan usurious interest thereon, at rates of 2% and
2.5% per month, and, consequently, plaintiff has no
cause of action against defendants and should not be
permitted to recover under the law. A counterclaim for
P2,000.00 attorney’s fees was interposed.
Ruling
Article 1411 of the New Civil Code is not new; it is the
same as Article 1305 of the Old Civil Code. Therefore,
said provision is no warrant for departing from previous
interpretation that, as provided in the Usury Law (Act
No. 2655, as amended), a loan with usurious interest is
not totally void but void only as to the interest.
True, as stated in Article 1411 of the New Civil Code, the
rule of pari delicto applies where a contract’s nullity
proceeds from illegality of the cause or object of said
contract.
However, appellants fail to consider that a contract of
loan with usurious interest consists of principal and
accessory stipulations; the principal one is to pay the
debt; the accessory stipulation is to pay interest thereon.
2 interest by way of damages (Art. 2209, Civil Code). The
And said two stipulations are divisible in the sense that
the former can still stand without the latter. Article 1273,
Civil Code, attests to this: "The renunciation of the
principal debt shall extinguish the accessory obligations;
but the waiver of the latter shall leave the former in
force."cralaw virtua1aw library
The question therefore to resolve is whether the illegal
terms as to payment of interest likewise renders a nullity
the legal terms as to payments of the principal debt.
Article 1420 of the New Civil Code provides in this
regard: "In case of a divisible contract, if the illegal terms
can be separated from the legal ones, the latter may be
enforced."cralaw virtua1aw library
In simple loan with stipulation of usurious interest, the
prestation of the debtor to pay the principal debt, which
is the cause of the contract (Article 1350, Civil Code), is
not illegal. The illegality lies only as to the prestation to
pay the stipulated interest; hence, being separable, the
latter only should be deemed void, since it is the only
one that is illegal.
Neither is there a conflict between the New Civil Code
and the Usury Law. Under the latter, in Sec. 6, any
person who for a loan shall have paid a higher rate or
greater sum or value than is allowed in said law, may
recover the whole interest paid. The New Civil Code, in
Article 1413 states: "Interest paid in excess of the interest
allowed by the usury laws may be recovered by the
debtor, with interest thereon from the date of payment."
Article 1413, in speaking of "interest paid in excess of the
interest allowed by the usury laws" means the whole
usurious interest; that is, in a loan of P1,000, with
interest of 20% per annum or P200 for one year, if the
borrower pays said P200, the whole P200 is the usurious
interest, not just that part thereof in excess of the
interest allowed by law. It is in this case that the law does
not allow division. The whole stipulation as to interest is
void, since payment of said interest is the cause or object
and said interest is illegal. The only change effected,
therefore, by Article 1413, New Civil Code, is not to
provide for the recovery of the interest paid in excess of
that allowed by law, which the Usury law already
provided for, but to add that the same can be recovered
"with interest thereon from the date of payment."cralaw
virtua1aw library
The foregoing interpretation is reached with the
philosophy of usury legislation in mind; to discourage
stipulations on usurious interest, said stipulations are
treated as wholly void, so that the loan becomes one
without stipulation as to payment of interest. It should
not, however, be interpreted to mean forfeiture even of
the principal, for this would unjustly enrich the borrower
at the expense of the lender. Furthermore, penal
sanctions are available against a usurious lender, as a
further deterrence to usury.
The principal debt remaining without stipulation for
payment of interest can thus be recovered by judicial
action. And in case of such demand, and the debtor
incurs in delay, the debt earns interest from the date of
the demand (in this case from the filing of the
complaint). Such interest is not due to stipulation, for
there was none, the same being void. Rather, it is due to
the general provision of law that in obligations to pay
money, where the debtor incurs in delay, he has to pay
court a quo therefore, did not err in ordering defendants
to pay the principal debt with interest thereon at the
legal rate, from the date of filing of the complaint.
Spouses De Guzman vs CA, GR 185757, March 2, 2016
Facts
The property subject of this case (property) is a 480-
square meter lot that formed part of Lot No. 532 located
at North Poblacion, Medina, Misamis Oriental. Lot No.
532, which has a total area of 25,178 square meters, was
acquired by Lamberto Bajao's (respondent) parent,
Leoncio Bajao,6 through Free Patent No. 4000877 issued
on May 28, 1968.8
Petitioners acquired the property in two transactions. On
May 24, 1969, Spouses Bajao sold 200 square meters of
Lot No. 532 to them for P1,000.9 On June 18, 1970,
Spouses Bajao sold another 280 square meters of Lot
No. 532 to petitioners for P1,400.10 Both transactions
were evidenced by separate Deeds of Absolute
Sale.11 Spouses Bajao allegedly promised to segregate
the property from the remaining area of Lot No.
53212 and to deliver a separate title to petitioners
covering it.13 However, because the promise was not
forthcoming, petitioner Lydia S. de Guzman executed an
Affidavit of Adverse Claim14 on April 21, 1980 covering
the property. This was annotated on the title covering
Lot No. 532, Original Certificate of Title (OCT) No. P-
6903, on April 25, 1980.15
On May 29, 1980, petitioners initiated the segregation of
the property from Lot No. 532 through a survey.16 As a
result of the survey, petitioners acquired Lot 2-A, Psd-
10-002692.17 They allegedly acquired possession over
the land immediately, fenced the area, introduced
improvements, and planted it with fruit-bearing trees.18
On September 26, 1980,19 or after the death of Leoncio
Bajao on February 1, 1972,20 respondent and Anastacia
Bajao executed an Extrajudicial Settlement Among
Heirs21 (Extrajudicial Settlement), which subdivided Lot
No. 532 into three parts.22 The property was included in
Lot No. 532-C, which was adjudicated in favor of
respondent.23 The Extrajudicial Settlement was
registered on December 10, 1980.24
On December 16, 1980, respondent caused the
cancellation of petitioners' annotated adverse claim over
the property and later obtained Transfer Certificate of
Title (TCT) No. T-7133 on February 13 and October 2,
1981.25 Petitioners thereafter requested respondent to
deliver TCT No. T-7133 so they could present it to the
Register of Deeds, together with the two Deeds of
Absolute Sale, for proper annotation.26Respondent,
however, refused to heed their request.27cralawred
Thus, on January 21, 2000, petitioners filed a Complaint
for Reconveyance with Writ of Preliminary Mandatory
Injunction and Damages.
Ruling
Under Section 124 of the Public Land Act, any
acquisition, conveyance, alienation, transfer, or other
contract made or executed in violation of Sections 118 to
123 of the Public Land Act shall be unlawful and null and
void from its execution. The violation shall also produce
the effect of annulling and cancelling the grant, title,
patent or permit originally issued, recognized or
confirmed actually or presumptively. The violation shall
also cause the reversion of the property and its
improvements to the State. The contract executed in
violation of these sections being void, it is not
susceptible of ratification, and the action for the
declaration of the absolute nullity of such a contract is
imprescriptible.73
In this case, portions of Lot No. 532 were conveyed to
petitioners by virtue of two Deeds of Absolute Sale
executed on May 24, 1969 and June 18, 1970, or after the
grant and issuance of Free Patent No. 40008774 on May
28, 1968. Both Deeds of Absolute Sale were executed
within the prohibited period of five years. Consequently,
following Section 124, these Deeds are null and void and
produce no effect. They did not convey any right from
Spouses Bajao to petitioners on the property.
The rule of pari delicto will not apply here in view of the
nullity of the contracts of sale between the parties.79 To
have it otherwise would go against the public policy of
preserving the grantee's right to the land under the
homestead law.80 In Binayug v. Ugaddan,81 we returned
the properties which were acquired through a grant of a
homestead patent to the heirs of the original owner after
it was proven that the properties were alienated within
the five-year prohibition period under Section 118 of the
Public Land Act.
Jurisprudence, therefore, supports the return of the
subject properties to respondents as Gerardo's heirs
following the declaration that the Absolute Deed of Sale
dated July 10, 1951 between Gorardo and Juan is void for
being in violation of Section 118 of the Public Land Act,
as amended. That the subject properties should revert to
the Slate under Section 124 of the Public Land Act, as
amended, is a non-issue, the State not even being a
party herein.
With respect to the purchase price of P2,400 which
petitioners paid for the land, respondent should return it
with interest.84 We similarly ruled in the recent case
of Tingalan v. Spouses Melliza85 which also involved the
void sale of land covered by the Public Land Act, as
amended. We applied the rule that upon annulment of
the sale, the purchaser's claim is reduced to the purchase
price and its interest.
Olea vs CA, GR 109696, August 14, 1995
Facts
On 27 January 1947 spouses Filoteo Pacardo and Severa
de Pacardo executed a deed of Sale Con Pacto de Retro
over Lot No. 767 of the Passi Cadastre covered by
Transfer Certificate of Title No. 26424 in their name for a
consideration of P950.00 in favor of Maura Palabrica,
predecessor in interest of petitioner, subject to the
condition that —
. . . if we, the said spouses, Filoteo Pacardo and Severa
de Pacardo, our heirs, assigns, successors-in-interest,
executors and administrators shall and will truly
repurchase the above-described parcel of land from the
said Maura Palabrica, her heirs, assigns, successors-in-
interest after THREE YEARS counting from the date of
the execution of this instrument, to wit, on January 27,
1950 in cash payment in the sum of Five Hundred Pesos,
Philippine currency, plus Four Hundred and Fifty Pesos
(P450), also lawful currency, in cash or eighteen (18)
cavans of palay (Provincial Measurement) at our option,
then this sale shall become null and void and of no force
and effect whatsoever. On the contrary, the same will
become irrevocable, definite and final and will vest
complete and absolute title on the vendee upon the
premises. 1
The contract of sale with right to repurchase was
acknowledged by the vendors before Notary Public
Victorio Tagamolila on the same day the contract was
executed in the Municipality of Passi, Province of Iloilo.
The vendors also delivered to the vendee their owner’s
copy of the title.
After the execution of the sale, the Pacardo spouses as
vendors remained in possession of the land and
continued the cultivation thereof. Since the sale on 27
January 1947 up to August 1987, or for a period of about
40 years, the spouses delivered annually one-third (1/3)
of the produce of the land to Maura Palabrica and kept
for themselves the remaining two-thirds (2/3).
On 27 January 1950, despite the lapse of three (3) years,
the Pacardo spouses did not repurchase the land but
faithfully continued to give 1/3 of the produce to Maura
Palabrica. When the spouses died, their son Filoteo Jr.,
took over the possession and assumed the cultivation of
the land and, like his parents, gave 1/3 of the produce to
Maura Palabrica and later to her daughter, petitioner
herein, who would eventually buy from her the lot
subject of the litigation.
On 22 September 1966 Maura Palabrica caused the
registration of the Sale Con Pacto de Retro with the
Register of Deeds of Iloilo and its annotation on Transfer
Certificate of Title No. 26424 covering the subject lot.
On 10 May 1978 Maura Palabrica sold Lot No. 767 for
P40,000.00 to one of her daughters, petitioner Thelma
Olea. From then on it was petitioner who received the
one-third (1/3) share of the annual produce of the land
from Filoteo Pacardo, Jr., until he died in August 1987.
His widow Elena Vda. de Pacardo however refused to
give to petitioner the one-third (1/3) share of the
produce. After Elena transferred residence to another
barangay the spouses Jesus and Elizabeth Palencia took
over the possession and cultivation of the property.
Elizabeth Palencia is a sister of Filoteo Jr., and is one of
the children of spouses Filoteo and Severina Pacardo.
The Palencias delivered the share of the produce not to
petitioner but to respondent Elena Pacardo.

Hence, on 25 January 1989, petitioner filed a complaint

against Elena Pacardo and the spouses Jesus and
Elizabeth Palencia for recovery of possession with
damages.

Ruling
The rule is settled that where in a contract of sale with
pacto de retro the vendor remains in physical possession
of the land sold as lessee or otherwise, the contract
should be considered an equitable mortgage. 9 The
same presumption applies when the vendee was given
the right to appropriate the fruits thereof in lieu of
receiving interest on the loan. 10

Moreover, the terms of the document itself can aid in

arriving at the true nature of the transaction. Where the
contract contains a stipulation, as in this case, that upon
payment by the vendor of the purchase price within a
certain period the document shall become null and void
and have no legal force or effect, the purported sale
should be considered a mortgage contract. In pacto de
retro sale the payment of the repurchase price does not
merely render the document null and void but there is
the obligation on the part of the vendee to sell back the
property. 11

It has been consistently held that the presence of even

one of the circumstances enumerated in Art. 1602 of the
New Civil Code is sufficient to declare a contract of sale
with right to repurchase an equitable mortgage. 12 This
is so because pacto de retro sales with the stringent and
onerous effects that accompany them are not favored. In
case of doubt, a contract purporting to be a sale with
right to repurchase shall be construed as an equitable
mortgage. 13

Petitioner, to prove her claim, cannot rely on the

stipulation in the contract providing that complete and
absolute title shall be vested on the vendee should the
vendors fail to redeem the property on the specified
date. Such stipulation that the ownership of the property
would automatically pass to the vendee in case no
redemption was effected within the stipulated period is
void for being a pactum commissorium which enables
the mortgagee to acquire ownership of the mortgaged
property without need of foreclosure. Its insertion in the
contract is an avowal of the intention to mortgage rather
than to sell the property.