G.R. No.

177240 September 8, 2010

PRUDENTIAL GUARANTEE AND ASSURANCE INC., Petitioner,

vs.
ANSCOR LAND, INC., Respondent.

DECISION

VILLARAMA, JR., J.:

This petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as
amended, assails the Decision1 dated April 28, 2006 of the Court of Appeals (CA) in CA-G.R. SP No.
72854 which modified the Decision2promulgated on September 2, 2002 by the Construction Industry
Arbitration Commission (CIAC) to the effect that herein petitioner Prudential Guarantee and
Assurance Inc. (PGAI) was declared solidarily liable with its principal Kraft Realty and Development
Corporation (KRDC) under the performance bond.

The facts follow.

On August 2, 2000, Anscor Land, Inc. (ALI) and KRDC entered into a Construction Contract3 for the
construction of an 8-unit townhouse (project) located in Capitol Hills, Quezon City.

Under the contract, KRDC was to build and complete the project within 275 continuous calendar
days from the date of receipt of a notice to proceed for the consideration of ₱18,800,000.00.

As part of its undertaking, KRDC submitted a surety bond amounting to ₱4,500,000.00 to secure the
reimbursement of the down payment paid by ALI in case of failure to finish the project and a
performance bond amounting to ₱4,700,000.00 to guarantee the supply of labor, materials, tools,
equipment, and necessary supervision to complete the project. The said bonds were issued in favor
of ALI by herein petitioner PGAI.

Under the Performance Bond,4 the parties agreed on a time-bar provision which states:

…Furthermore, it is hereby agreed and understood that PRUDENTIAL GUARANTEE AND

ASSURANCE INC., shall not be liable for any claim not discovered and presented to the company
within ten days from the expiration of this bond or from the occurrence of the default or failure of the
principal, whichever is the earliest, and that the obligee hereby waives his right to file any claim
against the Surety after the termination of the period of ten days above mentioned after which time
this bond shall definitely terminate and be deemed absolutely cancelled.

KRDC then received a notice to proceed on November 24, 1999. On October 16, 2000 or 325 days
after KRDC received the notice to proceed, and 50 days beyond the contract date of completion, ALI
sent PGAI a letter5notifying the latter that the contract with KRDC was terminated due to "very
serious delays". The letter also informed PGAI that ALI "may be making claims against the said
bonds".

KRDC, through a letter on October 20, 2000, asked ALI to reconsider its decision to terminate the
contract and requested that it be allowed to continue with the project. On October 27, 2000, ALI
replied6 with regrets that it stands by its earlier decision to terminate the construction contract.
Through a letter7 dated November 29, 2001, or exactly one (1) year after the expiration date in the
performance bond, ALI reiterated its claim against the performance bond issued by PGAI amounting
to ₱3,852,800.84. PGAI however did not respond to the letter.

On February 7, 2002, ALI commenced arbitration proceedings against KRDC and PGAI in the CIAC.
PGAI answered with cross-claim contending that it was not a party to the construction contract and
that the claim of ALI against the bonds was filed beyond the expiration period.

On September 2, 2002, the CIAC rendered judgment8 awarding a total of ₱7,552,632.74 to ALI and
a total of ₱1,292,487.81 to KRDC. CIAC also allowed the offsetting of the awards to both parties
which resulted to a net amount due to ALI of ₱6,260,144.93 to be paid by KRDC. Meanwhile, the
CIAC found PGAI liable for the reimbursement of the unliquidated portion of the down payment as a
solidary liability under the surety bond in the amount of ₱1,771,264.06.9

In the same judgment, the CIAC absolved PGAI from a claim against the performance bond. It
reasoned that ALI belatedly filed its claim on the performance bond. The CIAC accepted the view
that the November 29, 2001 letter of ALI to PGAI was the first and only claim on the performance
bond, which was filed unquestionably beyond the allowed period for filing claims under the contract.

The CIAC ruled that the October 16, 2000 letter of ALI to PGAI did not constitute a proper "claim"
under the performance bond. In so ruling, the CIAC relied on the tenor of the letter which used the
phrase "may be making claims against the said bonds". The CIAC interpreted this phrase as
tentative at best and far from a positive claim against PGAI. According to the CIAC, the letter merely
informed PGAI of the termination of the construction contract between ALI and KRDC and in no
sense did such letter present a valid claim against the performance bond issued by PGAI.

ALI then filed a petition for review on October 3, 200210 with the CA questioning the decision of the
CIAC to release PGAI from its solidary liability on the performance bond.

The CA found the petition meritorious in its questioned Decision11 dated April 28, 2006, to wit:

WHEREFORE, the petition is GRANTED. The decretal portion of the decision is MODIFIED to the
effect that PGAI is hereby pronounced solidarily liable with KRDC under the performance bond.

SO ORDERED.12

Petitioner PGAI now comes to this Court to seek relief.

Petitioner argues that the CIAC had no jurisdiction over the dispute as regards the claim of ALI
against the performance bond because petitioner was not a party to the construction contract. It
maintains that Executive Order (EO) No. 100813 did not vest jurisdiction on the CIAC to settle
disputes between a party to a construction contract on one hand and a non-party on the other.

The petitioner contends that CIAC’s jurisdiction was limited to the construction industry and cannot
extend to surety or guarantee contracts. By reason of the lack of jurisdiction of the CIAC over the
dispute, the September 2, 2002 judgment14 of the CIAC was void with regard to the liability of PGAI.

As to the award made by the CIAC on ALI’s claims, petitioner maintains that it cannot be held liable
under the performance bond because clearly, under the time-bar provision in the said bond, the
claim made by ALI in its letter to PGAI dated November 29, 2001 was submitted one (1) year late.
Petitioner points out that such letter was the first and only definite claim that ALI made against the
performance bond and unfortunately, it was filed beyond the allowed period. Hence, the Decision of
the CA declaring PGAI solidarily liable with KRDC under the performance bond is erroneous and
should be struck down.

On the other hand, respondent avers that the construction contract itself provided that the
performance and surety bond shall be deemed part of the construction contract, to wit:

Article 1
CONTRACT DOCUMENTS

1.1 The following shall form part of this Contract and together with this Contract, are known as the
"Contract Documents":

a. Bid Proposal

xxxx

d. Notice to proceed

xxxx

j. Appendices A & B (respectively, Surety Bond for Performance and, Supply of Materials by the
Developer)15

By reason of this express provision in the construction contract, respondent maintains that petitioner
PGAI became a party to such contract when it submitted its Surety and Performance bonds.
Consequently, petitioner’s argument that CIAC has not acquired jurisdiction over PGAI because the
latter was not a party to the construction contract, is untenable.

As to the alleged lack of jurisdiction of CIAC over the dispute arising from the surety contract,
respondent cites EO No. 1008, which provides that any dispute connected with a construction
contract comes within the original and exclusive jurisdiction of the CIAC. The surety bond being an
integral part of the construction contract, it is necessarily connected thereto which brings it under the
jurisdiction of the CIAC.

On the issue of timeliness of the "claim", respondent insists that its letter dated October 16, 2000
was for all intents and purposes a notification of termination of the construction contract and at the
same time a notice to petitioner that respondent is in fact making a claim on the performance bond.
Contrary to PGAI’s view that the November 29, 2001 letter was the first and only claim made,
respondent asserts that the said letter was merely a reiteration of its earlier October 16, 2000 claim.

In fine, there are two (2) main issues for this Court to resolve, to wit:

I.

Whether or not the CIAC had jurisdiction over the dispute.

II.

Whether or not the respondent made its claim on the performance bond within the period allowed by
the time-bar provision.
First Issue – Jurisdiction of the CIAC

Section 4 of EO No. 1008 defines the jurisdiction of the CIAC:

Sec. 4. Jurisdiction. The CIAC shall have original and exclusive jurisdiction over disputes arising
from, or connected with, contracts entered into by parties involved in construction in the Philippines,
whether the dispute arises before or after the completion of the contract, or after the abandonment
or breach thereof. These disputes may involve government or private contracts. For the Board to
acquire jurisdiction, the parties to a dispute must agree to submit the same to voluntary arbitration.

The jurisdiction of the CIAC may include but is not limited to violation of specifications for materials
and workmanship; violation of the terms of agreement; interpretation and/or application of
contractual time and delays; maintenance and defects; payment, default of employer or contractor
and changes in contract cost.

Excluded from the coverage of this law are disputes arising from employer-employee relationships
which shall continue to be covered by the Labor Code of the Philippines. (Italics supplied.)

EO No. 1008 expressly vests in the CIAC original and exclusive jurisdiction over disputes arising
from or connected with construction contracts entered into by parties that have agreed to submit
their dispute to voluntary arbitration. Under the aforequoted provision, it is apparent that a dispute
must meet two (2) requirements in order to fall under the jurisdiction of the CIAC: first, the dispute
must be somehow connected to a construction contract; and second, the parties must have agreed
to submit the dispute to arbitration proceedings.

As regards the first requirement, the Performance Bond issued by the petitioner was meant to
guarantee the supply of labor, materials, tools, equipment, and necessary supervision to complete
the project. A guarantee or a surety contract under Article 204716 of the Civil Code of the
Philippines is an accessory contract because it is dependent for its existence upon the principal
obligation guaranteed by it.17

In fact, the primary and only reason behind the acquisition of the performance bond by KRDC was to
guarantee to ALI that the construction project would proceed in accordance with the contract terms
and conditions. In effect, the performance bond becomes liable for the completion of the construction
project in the event KRDC fails in its contractual undertaking.

Because of the performance bond, the construction contract between ALI and KRDC is guaranteed
to be performed even if KRDC fails in its obligation. In practice, a performance bond is usually a
condition or a necessary component of construction contracts. In the case at bar, the performance
bond was so connected with the construction contract that the former was agreed by the parties to
be a condition for the latter to push through and at the same time, the former is reliant on the latter
for its existence as an accessory contract.

Although not the construction contract itself, the performance bond is deemed as an associate of the
main construction contract that it cannot be separated or severed from its principal. The
Performance Bond is significantly and substantially connected to the construction contract that there
can be no doubt it is the CIAC, under Section 4 of EO No. 1008, which has jurisdiction over any
dispute arising from or connected with it.

On the second requirement that the parties to a dispute must have previously agreed to submit to
arbitration, it is clear from Article 24 of the Construction Contract itself that the parties have indeed
agreed to submit their disputes to arbitration, to wit:
 Article 24
DISPUTES AND ARBITRATION

All disputes, controversies, or differences between the parties arising out of or in connection with this
Contract, or arising out of or in connection with the execution of the WORK shall be settled in
accordance with the procedures laid down by the Construction Industry Arbitration Commission. The
cost of arbitration shall be borne jointly by both CONTRACTOR and DEVELOPER on a fifty-fifty (50-
50) basis.18

Petitioner however argues that such provision in the construction contract does not bind it because it
is not a party to such contract and in effect did not give its consent to submit to arbitration in case of
any dispute on the performance bond. Such argument is untenable. The Performance Bond issued
by petitioner states that PGAI agreed --

To guarantee the supply of labor, materials, tools, equipment and necessary supervision to complete
the construction of Proposed Sigma Townhouses of the Obligee as per Notice to Proceed dated
November 23, 1999, copy of which is hereto attached and made an integral part of this bond.19

When it executed the performance bond, PGAI’s undertaking thereunder was that of a surety to the
obligation of KRDC, the principal under the construction contract. PGAI should not be allowed now
to insist that it had nothing to do with the construction contract and should be viewed as a non-party.
Since the liability of petitioner as surety is solidary with that of KRDC, it was properly impleaded as it
would be the party ultimately answerable under the bond should KRDC be adjudged liable for
breach of contract. Furthermore, it is well settled that accessory contracts should not be read
independently of the main contract. They should be construed together in order to arrive at their true
meaning.20 In Velasquez v. Court of Appeals,21 the Court labeled such rule as the "complementary
contracts construed together" doctrine. It states:

That the "complementary contracts construed together" doctrine applies in this case finds support in
the principle that the surety contract is merely an accessory contract and must be interpreted with its
principal contract, which in this case was the loan agreement. This doctrine closely adheres to the
spirit of Art. 1374 of the Civil Code which states that–

Art. 1374. The various stipulations of a contract shall be interpreted together, attributing to the
doubtful ones that sense which may result from all of them taken jointly.

In the case at bar, the performance bond was silent with regard to arbitration. On the other hand, the
construction contract was clear as to arbitration in the event of disputes. Applying the said doctrine,
we rule that the silence of the accessory contract in this case could only be construed as
acquiescence to the main contract. The construction contract breathes life into the performance
bond. We are not ready to assume that the performance bond contains reservations with regard to
some of the terms and conditions in the construction contract where in fact it is silent. On the other
hand, it is more reasonable to assume that the party who issued the performance bond carefully and
meticulously studied the construction contract that it guaranteed, and if it had reservations, it would
have and should have mentioned them in the surety contract.

Second Issue – Petitioner’s Liability Under the Performance Bond

On the second issue, the crux of the controversy revolves upon a letter dated October 16, 2000 sent
by ALI to PGAI. It reads:

xxxx
This pertains to the contract between Kraft Realty Development Corp. and Anscor Land, Inc., which
is covered by surety and performance bonds by your good company.

Please be advised that we are now terminating the contract of Kraft due to the breach by Kraft of the
terms and conditions of the construction contract. More specifically, the project has accumulated
very serious delays, in spite of the full cooperation that this company has extended to Kraft.

Kindly refer to the attached letter of termination dated 16 October 2000.

Anscor Land [Inc.] may be making claims against the said bonds and in this regard, kindly
coordinate with the following for any matter with which we can assist you with.

Engr. Teodelito de Vera

Anscor Land, Inc.

Tel. 812-7941 to 48 Fax 813-5301

Thank you for your kind attention.22 (Italics supplied.)

The question really is whether or not the foregoing letter constituted a valid claim and effectively
complied with the time-bar provision in the performance bond.

It is clear that ALI communicated two (2) important points to PGAI in the letter. First, that ALI is
terminating the construction contract with KRDC and second, that ALI may be making a claim on the
bonds issued by PGAI.

The time-bar provision in the Performance Bond provides that any claim against the bond should be
"discovered and presented to the company within ten days from the expiration of this bond or from
the occurrence of the default or failure of the principal, whichever is the earliest". The purpose of this
provision in the performance bond is to give the issuer, in this case PGAI, notice of the claim at the
earliest possible time and to afford the issuer sufficient time to evaluate, and examine the validity of
the claim while the evidence or indicators of breach are fresh. In the construction industry, time is
precious, delay costs money and postponement in making a claim could cause additional expenses.

In line with the rationale behind the time-bar provision, we rule that the letter dated October 16, 2000
was a sufficient claim. The tenor of the letter adequately put PGAI on notice that ALI has terminated
the contract because of serious delays tantamount to breach by KRDC of its obligations. The letter
timely informed PGAI that ALI was in fact terminating the construction contract and thereby giving
rise to the obligation of PGAI under the performance bond. PGAI was informed within the time-bar
provision and had all the opportunity to conduct its evaluation and examination as to the validity of
the termination.

The CA thus correctly ruled that:

The fact of contract termination had been made known to PGAI as early as October 16, 2000. This
termination consequently meant that the principal KRDC would no longer be able to supply "labor,
materials, tools, equipment and necessary supervision" to complete the project. It was at this time,
therefore, that PGAI’s obligation guaranteeing the project completion arose, although the amount of
payment was still undetermined.
That ALI merely used the word "may" in expressing its intent to proceed against the bond does not
make its claim any less categorical as argued by PGAI. The point is the very condition giving rise to
the obligation to pay, i.e. KRDC’s default and the resulting contract termination, was clearly
mentioned in the 16 October 2000 letter. The citation of this fact is more than sufficient to place
PGAI in notice that ALI shall be making claims on the bonds.

xxxx

But the important consideration is that ALI, by its 16 October 2000 letter, was informing PGAI of the
contract termination, the very condition for its liabilities under the performance bond to accrue. ALI
had no other purpose in sending the letter than to notify PGAI that it was intending to
proceed against the performance bond. PGAI makes much out of ALI’s failure to identify the
particular bond against which it would be claiming. But the contract termination necessarily implies
that there would be hiatus in the supply of labor and materials.

Surely, no bond would answer for the non-implementation of contractual provisions other than the
performance bond. Further, the surety bond only guarantees reimbursement of the portion of the
downpayment and not the supply of labor, materials and equipment.23 (Emphasis supplied, italics in
the original.)

In interpreting the time-bar provision, the absence of any ambiguity in the words used would lead to
the conclusion that the generally accepted meaning of the words shall control. In the time-bar
provision, the word "claim" does not give rise to any ambiguity in interpretation and does not call for
a stretched understanding.

In Finasia Investments and Finance Corporation v. Court of Appeals,24 the Court had the occasion to
rule that:

The word "claim" is also defined as:

Right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or
right to an equitable remedy for breach of performance if such breach gives rise to a right to
payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent,
matured, unmatured, disputed, undisputed, secured, unsecured.

In conflicts of law, a receiver may be appointed in any state which has jurisdiction over the defendant
who owes a claim.25 (Italics supplied.)

In the case at bar, the claim of ALI against PGAI arose from the failure of KRDC to perform its
obligation under the construction contract. ALI therefore already had the "claim" or "right to payment"
against PGAI in the maximum amount of ₱4,700,000.00 from the moment KRDC failed to comply
with its obligation. According to the time-bar provision, in order to enforce such claim or recover the
said amount, ALI shall present its claim within ten (10) days from the occurrence of the default or
failure of KRDC.

The October 16, 2000 letter was the presentation of the claim. ALI’s intent to recover its claim was
communicated clearly to PGAI. By informing PGAI of the termination of the contract with KRDC, ALI
in effect presented a situation where PGAI is put on notice that ALI in fact has a right to payment by
virtue of the performance bond and it intends to recover it. Undeniably, ALI has substantially
complied with the time-bar provision of the performance bond.
WHEREFORE, the petition is DENIED and the Decision dated April 28, 2006 of the Court of Appeals
in CA-G.R. SP No. 72854 is hereby AFFIRMED.

With costs against the petitioner.

SO ORDERED.

G.R. Nos. 85962-63 August 3, 1992

ROSARIO GACOS, ARNULFO PRIETO, and RENITA PRIETO, petitioners,

vs.
COURT OF APPEALS, SOLOMON BRIONES, LEONOR BRIONES and TEODULFO
MENDONES, respondents.

Redentor Guyala for petitioners.

Romero B. Fortes for private respondents.

MEDIALDEA, J.:

This is a petition for review on certiorari of the decision of the Court of Appeals dated October 11,
1985 which affirmed the decision of the then Court of First Instance of Sorsogon, Branch II, now
Regional Trial Court of Sorsogon, declaring the Brioneses, plaintiffs in Civil Case No. 1008, as the
owners and entitled to the possession of the 1,292-square meter portion of the land in litigation, and
the Gabitos, defendants in Civil Case No. 1049, as the owners and entitled to the possession of Lot
No. 2452 of the Irosin Cadastral tax mapping containing an area of 84 square meters.

The controversy which gave rise to the two (2) consolidated cases jointly heard and tried by the then
Court of First Instance of Sorsogon involved a parcel of land reportedly containing an area of 2,242
square meters which formed part of the 6,584 square meter unregistered land owned by Eladio
Gacos. After the parcel of land was inherited by Patrona Gacos, one of the three (3) daughters of
Eladio Gacos, the same was successively sold in 1948 to Marcial Olaybal, then sold by the latter to
Rosario Gacos in 1950, then sold by the latter to Arnulfo Prieto in 1973.

The facts, as found by the appellate court, are as follows:

Eladio Gacos owned a 6,584 square meter unregistered land located in San Pedro district, Irosin,
Sorsogon. During the time he was ill sometime in 1935 or 1936, he verbally adjudicated to his three
(3) daughters, namely, Petrona, Fortunata and Lucia, their respective inheritance shares by dividing
the property lines from east to west and assigned the northernmost portion to Fortunata, the middle
portion to Lucia, and the southernmost portion to Petrona.

Upon adjudication of their respective shares, Petrona immediately took possession and occupied her
1/3 share of the land while her two sisters took possession of their shares only upon the death of
their father in 1937.
Sometime in 1948, or before the land was formally partitioned, Petrona offered to sell to her nephew-
in-law, Marcial Olaybal, son-in-law of her sister Fortunata G. Cambal, a part of her share which was
pointed and indicated to him. The transaction was consummated in a document written in Spanish
dated March 13, 1948 captioned "Escritura de Venta Absoluta" describing therein the land inherited
by Petrona as containing an area of 2,720 square meters. He immediately took possession of the
land, measured it and declared the same in his name under Tax Declaration No. 5487 (Exh. "A"-
1008) issued to him during the general revision in April, 1948 indicating therein an area of 866
square meters.

On January 16, 1949, Petrona Gacos died. She was survived by her four (4) minor children, namely:
Leonora, Solomon, Constantino and Benjamin, all surnamed Briones, who were left to the care and
custody of her sister Lucia but were later brought to Manila where they grew up. Petrona Gacos was
married to Constantino Briones, Sr. who predeceased her.

Before her death, Petrona Gacos, then afflicted with tuberculosis, instructed her sister Lucia, who
administered the remaining portion of her property, to sell the small area on the east for her funeral
expenses and novena. After her death, Lucia Gacos, following the wish of her sister, sold on
February 22, 1949 to Teodolfo Mendones the said portion of land on the east containing an area of
84 square meters in a document of sale captioned "Documents de Compra Absoluta" (Exh. "5"-
1049) expressly stating therein that the proceeds were to be spent for said funeral expenses and
novena.

Teodolfa Mendones took possession of the land and declared the same in his name under Tax
Declaration No. 6307 (Exh. "V-1"-1008; Exh. "20-A"-1049), later revised by Tax Declaration No.
6307 (Exh. "V"-1008; Exh. "20"-1049).

On May 14, 1950, Lucia Gacos on her own behalf and in representation of the deceased Petrona
Gacos, and Jose Cambal, in behalf of his deceased mother, Fortunata Gacos, executed an
"Agreement of Partition of Real Property" (Exh. "3"-1008; Exh. "C"-1049) formally confirming what
was apportioned to them by their father as their respective shares in the 6,854 square meter land, to
wit: Petrona, 2,242 square meters; Lucia, 2,148 square meters; and Fortunata, 2,194 square meters.

On or about the month of December, 1950, Marcial Olaybal offered to sell to Encarnacion Gacos the
parcel of land he bought in 1948 from Petrona Gacos but when the sale was consummated in a
"Deed of Absolute Sale" dated December 30, 1950, the name Rosario Gacos, sister of Encarnacion,
appeared as the vendee (Exh. "2"-1008; Exh. "B"-1049). The property sold was described therein as
containing an area of 2,025 square meters (a 1,159 square meter difference in area from what he
declared in the Tax Declaration No. 5487) and bounded as follows: on the North, formerly of late
Eladio Gacos, now Lucia Gacos and Rosario Gacos; on the East, national road Juban-Irosin-Bulan;
on the South, irrigation canal; and on the West, heirs of Petrona Gacos.

Rosario Gacos took possession of the land and registered the deed of absolute sale with the Office
of the Register of Deeds of Sorsogon and declared the same in her name under Tax Declaration No.
7047 (Exh. "22"-1008; Exh. "V"-1049).

Seventeen years later, or on April 4, 1967, Rosario Gacos executed a document captioned
"Ratification of Ownership of Realty" (Exh. "H"-1008; Exh. "10"-1049) consolidating into one parcel of
land for taxation purposes the four (4) small adjoining parcels of land, namely: (1) the 866 square
meter parcel of land covered by Tax Declaration No. 7047 acquired from Marcial Olaybal; (2) the
351 square meter parcel of land bought from Lucia Gacos on July 6, 1950 and the 534 square meter
parcel of land acquired from Lucia Gacos on January 19, 1951, both parcels covered by Tax
Declaration No. 7865; and (3) the 1,200 square meter parcel of land covered by Tax Declaration No.
4150 bought from Cornelio Galit; and (4) the 2,246 square meter parcel of land covered by Tax
Declaration No. 4152 bought from Rogelio Galit. In lieu of the three (3) separate tax declarations,
she was issued Tax Declaration No. 8179-A (Exh. "17"-1008; Exh. "O"-1049) which was later revised
by Tax Declaration No. 11024 covering the total area, as reported in four (4) tax declarations, of
5,187 square meters.

On October 24, 1973, or six (6) years after the four parcels of land were consolidated into one tax
declaration, Rosario Gacos sold the contiguous land covered by said Tax Declaration No. 11024 to
her nephew, Arnulfo Prieto, son of her sister Encarnacion Gacos and Roque Prieto. Arnulfo Prieto
took possession of the said land and declared the same in his name under Tax Declaration No. 9177
which was later canceled by Tax Declaration No. 9330.

On March 14, 1975, Arnulfo Prieto entered into a 15-year lease contract with his sister Vivencia
Prieto allowing her to use the land for her own purposes (Exh. "7"-1008; Exh "G"-1049). A ricemill
was constructed thereon by Vivencia Prieto.

On August 1, 1975, the children of Petrona Gacos, namely, Leonora, Solomon, Constantino, Jr. and
Benjamin, all surnamed Briones executed a "Deed of Extra-judicial Settlement" (Exh. "D"-1008)
adjudicating onto themselves the 1/3 undivided portion of the 2,242 square meters of their mother's
share of inheritance from Eladio Gacos after Leonora G. Briones was informed in 1972 by her aunt,
Lucia, that a portion of the land had been sold to Encarnacion Gacos although Rosario Gacos
appeared in the deed of sale as the vendee, and that a ricemill had been constructed on the land. In
the same document, they constituted and appointed their cousin, Jesus G. Gabito, as their attorney-
in-fact to do for and in their behalf whatever necessary anent the said land in Irosin, Sorsogon.

CIVIL CASE NO. 1008

On September 1, 1975, Solomon, Leonora, Constantino and Benjamin, all surnamed Briones,
legitimate heirs of the late Petrona Gacos, filed a complaint before the then CFI of Sorsogon,
docketed as Civil Case No. 1008, seeking to recover the 1,352 square meter land situated in San
Pedro District, Irosin, Sorsogon from the defendants Rosario Gacos and Arnulfo Prieto, which they
alleged to be the remnant of a 2,242 square meter land inherited by their mother Petrona Gacos
from her father Eladio Gacos after Petrona sold a portion therefrom consisting of 866 square meters
to Marcial Olaybal.

Plaintiffs Brioneses alleged, among others, that the remnant of the land which they inherited by
operation of law from their mother, Petrona Gacos, who died in 1949, were administered by their
aunt, Lucia Gacos, in the concept of negotiorum gestio as they were then minors and were taken to
Manila where they grew up; that when Lucia Gacos died in 1971, Rosario Gacos came into the
possession of the land in question and then executed a document captioned "Ratification of
Ownership" for the purpose of having the said land declared in her name for taxation purposes and
filed the same with the Office of the Provincial Assessor of Sorsogon in 1967; that without lawful
authority, Rosario Gacos sold the land to Arnulfo Prieto in or about 1973, who despite demands
made, refused to return the same to the Brioneses.

Defendants Rosario Gacos and Arnulfo Prieto admitted in their answer that Petrona Gacos inherited
the land from her father Eladio Gacos but contended that what Petrona Gacos sold to Marcial
Olaybal on March 13, 1948 was not a portion of the land but the whole share of Petrona Gacos
consisting of 2,780 square meters as per document of sale (Escritura de Venta Absoluta), thus,
there is no remnant consisting of 1,352 square meters to speak of.
Defendants also contended that considering that plaintiffs are no longer owners of the land in
dispute since 1948, they are therefore total strangers to the same and have no legal right to
intervene in the execution of the said "Ratification of Ownership" by Rosario Gacos; that because of
the continued and undisturbed possession for 27 years of the land in dispute by Arnulfo Prieto and
that of his predecessors-in-interest Rosario Gacos, whatever rights plaintiffs may now have over this
land have already been long barred by acquisitive prescription.

At the pre-trial hearing held on November 5, 1975, plaintiffs and defendants stipulated, among
others, that both parties will secure the services of a licensed geodetic engineer, sharing the fees
pro-rata, the same to be taxed as costs against the losing parties.

Pursuant to the pre-trial order of November 5, 1975, the court commissioned Geodetic Engineer
Carlos S. Borromeo to relocate and survey the inheritance share of Petrona Gacos. On December
29, 1975, Geodetic Engineer Borromeo submitted his report to the trial court which, in brief, stated
that the property claimed by the plaintiffs is designated in the survey as Lot No. 1724 with an area of
1248 sq. meters (Brioneses) and Lot No. 2452 of Irosin Cadm-462-D with an area of 83 sq. meters
(Mendones) or a total area of 1321 square meters, bounded on the North by the property of Rosario
Gacos, part of Lot 1724, and a proposed roadwidening; on the East by National Road, proposed
roadwidening, and Lot No. 2053 (PC Barracks); on the South by Irrigation Canal beyond said
Irrigation by Lot No. 1720 (Magdalena Baswel); and on the West by Lot No. 1514 (Encarnacion
Gacos).

CIVIL CASE NO. 1049

Sometime on June 1, 1976 spouses Arnulfo Prieto and Renita Chua Prieto filed a complaint with the
then CFI of Sorsogon, docketed as Civil Case No. 1049, seeking to recover from Teodolfo
Mendones and Visitacion Borrega and spouses Jesus and Merced Gabitos the 84-square meter
portion of hereditary share of Petrona Gacos which, according to plaintiffs, such hereditary share
was entirely sold by Petrona Gacos to their predecessor-in-interest, Marcial Olaybal, sometime in
1950. Plaintiffs claimed that the eastern portion of the said hereditary share was fraudulently and
without authority sold by Lucia Gacos to Teodolfo Mendones who thereafter sold it to spouses Jesus
and Merced Gabitos; that spouses Gabitos hurriedly constructed a residential house thereon
blocking from public view the Prieto Ricemill and damaging their business.

In their answer, defendants Mendones and Gabitos denied that Petrona Gacos sold the entire area
of her hereditary share to Marcial Olaybal, alleging, that Marcial Olaybal did not, and could not have
legally sold to Rosario Gacos, alleged predecessor-in-interest of the plaintiffs, the entire hereditary
estate because what was sold was only 866 square meters of the total area of 2,242 square meters;
that the Mendoneses acquired the 84-square meter portion in good faith and for value on February
22, 1949 as evidenced by a document of sale executed by Lucia Gacos with the conformity of
Petrona Gacos' brothers and sister pursuant to the instruction of late Petrona Gacos during her
illness; that having lawfully acquired the lot, the Mendoneses have, the right to legally sell the same
to the other defendants, the Gabitos, who acquired it in good faith, for value and under color of title;
that the Gabitos, as rightful owners by virtue of purchase, are entitled to the exercise of their right of
dominion over the said lot by building a residential house thereon.

At the pre-trial conference on August 4, 1976 in Civil Case No. 1049, plaintiffs Prietos and
defendants Mendones and Gabito entered into a stipulation of facts and, among others, simplified
the issues into the following: (1) whether the sale executed by Petrona Gacos in favor of Marcial
Olaybal an March 13, 1948 really reflected the true intent of the parties; and (2) whether acquisitive
prescription lies in favor of the defendants spouses Mendones and spouses Gabito.
After joint trial, as the two cases are related to each other, the then CFI of Sorsogon rendered its
decision (pp. 90-124, Record on Appeal, p. 89, Rollo) in favor of plaintiffs Brioneses in Civil Case
No. 1008 and in favor of defendants Mendones and Gabitos in Civil Case No. 1049, the dispositive
portion of which reads:

WHEREFORE, judgment is hereby rendered:

IN CIVIL CASE NO. 1008

(a) Declaring the Brioneses the owners of the 1,292-square meter portion of the land
in litigation as described in paragraph 3 of the Complaint and reflected in the sketch
plan (Exhs. "B" & "B-2"), and entitled to the possession thereof;

(b)

(c) Requiring the parties to engage the services of a geodetic engineer to survey the
land, defining and segregating the 1,292 square meters unsold portion of land from
the property measuring 866 square meters sold to the Prietos.

IN CIVIL CASE NO. 1049

(a) Declaring the Gabitos the owners and entitled to the possession of the land in
question and designated as Lot No. 2452 of the Irosin Cadastral tax mapping;

(b) Ordering the plaintiffs to desist from disturbing the Gabitos' possession.

With costs against the Prietos in both cases.

SO ORDERED. (pp. 49-50, Rollo)

Dissatisfied, the Prietos appealed to the Court of Appeals assailing principally, among others, the
findings of the trial court that Petrona Gacos sold only 866 square meters out of her hereditary share
to Marcial Olaybal on March 13, 1948, and that the portion sold by Lucia Gacos to Teodolfo
Mendones on February 22, 1949, described later as Lot No. 2452, could be a part of the unsold
portion of Petrona Gacos' share.

On October 11, 1985, the Court of Appeals promulgated its decision affirming the decision of the
lower court (pp. 49-63, Rollo). The motion for reconsideration was denied on November 22, 1988
(pp. 65-67, Rollo).

Hence, the instant petition for review.

In disputing the findings of the appellate court, petitioners argued that the contract of sale "Escritura
de Venta Absoluta" dated March 18, 1948 from Petrona Gacos to Marcial Olaybal clearly indicates
that the property conveyed is not a portion of her hereditary share but her entire share in the
inheritance of her father Eladio Gacos, thus the following description of the land in the said deed of
sale:

. . . la parcela de terreno urbano que a mi me pertenece en herencia de nuestro

difunto padre, Eladio Gacos, situado en la distrito de San Pedro, Irosin, Sorsogon, de
2,780 m.c. o sea VEINTISIETE AREAS, lindado al Norte y Oeste, con el terreno del
 difunto Eladio Gacos; correspondiente a los demas herederos mencionados arriba,
con la viuda del difunto Severo Gacos, Sra. Angela viuda de Gacos, al este, la
Carretera Nacional de Irosin Juban y Bulan, y al Sur, un canal de regadio al otro lado
de los citados herederos. La mejora permanentes 10 ponos de coco fructiferos. Los
limites visibles, son la carretera nacional y estacas de arboles visibles. . . . (p. 440,
Records)

Petitioners contended that in delineating the boundaries of the property sold, as in the cases
of Smith Bell and Co. v. Director of Lands, 50 Phil. 879 (1924); Buiser v. Cabrera, 81 Phil. 699
(1948), and Sta. Ana v. Hernandez, G.R. No. L-16394, December 17, 1966, 18 SCRA 973 (1966),
the boundaries indicated in the deed of sale (Escritura de Venta Absoluta) as enclosing the land and
indicating its limit put its identification beyond doubt and not the area mentioned in its description
(pp. 18-19, Rollo).

The argument would have merit if, as in the cases cited, the boundaries of the land claimed by
petitioners to have been sold to them in its entirety were certain and definite. This is not true in the
instant case where the boundaries given in the "Escritura de Venta Absoluta" dated Match 13, 1948
between Petrona Gacos and Marcial Olaybal do not coincide with the boundaries described in the
"Deed of Absolute Sale" dated December 30, 1950 when Marcial Olaybal sold the same land to
Rosario Gacos. The said boundaries of the land claimed do not even coincide with the boundaries of
the hereditary share of Petrona Gacos stated in "Agreement of Partition of Real Property." (Exh. "3"-
1008; Exh. "C"-1049) executed on May 14, 1950.

The boundaries described in the "Escritura de Venta Absoluta" are not only general but vague.
Translated in English, it states that the subject property is bounded on the North and West by the
land of the late Eladio Gacos and other heirs abovementioned, together with the widow of the late
Severo Gacos, Mrs. Angela Vda. de Gacos, on the East by National Road Irosin-Juban-Bulan, and
on the South, irrigation canal, and beyond the heirs abovementioned.

Neither the statement concerning the area (2,750 square meters) in the "Escritura de Venta
Absoluta" identifies with absolute certainty the land sold by Petrona Gacos to Marcial Olaybal as it
does not coincide with the area (2,025 square meters) stated in the "Deed of Absolute Sale"
between Marcial Olaybal and Rosario Gacos. The variance in the boundaries and the statement of
the area (a difference of 1159 square meters) thus put to doubt the identity of the land sold by
Petrona Gacos to Marcial Olaybal which was eventually transferred by the latter to Rosario Gacos.
The rule thus enunciated in the cases cited by petitioners does not apply. Neither the exception to
the rule that area prevails when the boundaries relied upon do not identify the land beyond doubt
applies in the instant case.

Recourse by the trial court therefore to other proofs other than the "Escritura de Venta Absoluta"
which are closely related to and contemporaneous with Marcial Olaybal's acquisition of the land was
warranted under the rules on interpretation of written agreements under Rule 130, Section 7 par. (a)
in relation to Article 1371 of the Civil Code. On appeal by petitioners, all the evidence were
meticulously re-examined and carefully analyzed by the Court of Appeals.

It is thus apparent that the decision of the Court of Appeals resolved the basic issue of the
comparative weight of the parties' respective proofs in substantiation of their conflicting claims of
ownership and possession of the disputed land. Imperative considerations of sound policy, therefore,
bar a review of the findings of the Court of Appeals by this Court.

This Court has emphatically declared that it is not the function of the Supreme Court to analyze or
weigh such evidence all over again, its jurisdiction being limited to reviewing errors of law that might
have committed by the lower court (Morales vs. Court of Appeals, G.R. No. 91003, May 23, 1991,
197 SCRA 391 (1991); Banigued vs. Court of Appeals, G.R. No. L-47531, February 20, 1984, 127
SCRA 596 (1984). In the absence of showing that the findings complained of are totally devoid of
support in the record, or that they are so glaringly erroneous as to constitute serious abuse of
discretion, as petitioners failed to do in the instant case, such findings must stand, for this Court is
not expected or required to examine or contrast the oral argument and documentary evidence
submitted by the parties (Santa Ana, Jr. vs. Hernandez, G.R. L-16394, December 17, 1966, 18
SCRA 970 (1966).

Besides, We are not prepared to overturn the findings of the Court of Appeals that only a portion of
the hereditary share of Petrona Gacos was sold to Marcial Olaybal on March 13, 1948 containing an
area of 866 square meters. It correctly relied on Tax Declaration No. 5487 (Exh. "A"-1008) dated
October 24, 1948 of Marcial Olaybal himself declaring in his name the disputed land with an area of
866 square meters as well as the "sketch plan" of the said land (Exh. "R"-1008) and the "field sheet"
(Exh. "R-1"-1008) specifying the area of 866 square meters in both documents, submitted by Marcial
Olaybal to the assessor's office during the general revision in April, 1948. The Court of Appeals
likewise correctly relied on his testimony during the trial on March 27, 1976 that he bought only 866
square meters of the land of Petrona Gacos which said Court correctly categorized as an admission
of a party to a relevant fact under Section 22, Rule 130 of the Rules of Court. Considering that he
even pointed and specifically identified the land he bought in the sketch plan made by Geodetic
Engineer Carlos Borromeo (Exh. "B"-1008) by encircling the area sold to him with a red ballpen line
(Exh. "B-1"-1008).

It must be noted that the boundaries stated in the "Deed of Absolute Sale" dated December 30, 1950
between Marcial Olaybal and Rosario Gacos indicates the following: "NORTH, formerly Eladio
Gacos, now Lucia Gacos and Rosario Gacos; SOUTH, irrigation canal; EAST, National
Road; WEST, Heirs of the late Petrona Gacos." The boundary on the west clearly indicates that
Petrona Gacos did not sell her entire share to Marcial Olaybal in 1948; neither did Marcial Olaybal
sell the entire hereditary share of Petrona Gacos to Rosario Gacos in 1950 for he cannot sell what
he does not own.

In support of their theory on the primacy of the area within the boundaries as indicated in the
"Escritura de Venta Absoluta" over and above the area as may stated therein or elsewhere,
petitioners also claimed that the sale of the disputed land in the instant case is a sale for a "lump
sum" (a cuerpo cierto or par precio alzado), not at the rate per unit under Art. 1542 of the Civil Code
where the vendor "shall be bound to deliver all that is included within said boundaries, even when it
exceeds the area or number specified in the contract" (p. 23, Rollo).

In Buiser vs. Cabrera, etc. 81 Phil. 669 (1948) involving the question whether, in describing the
fourth parcel of land covered in the mortgage contract with description of its boundaries therein, the
parties to the said contract of mortgage intended to include therein the entire lot of 4,008 square
meters which Nemesio Cabrera had inherited from his father or only that portion of 500 square
meters, as stated in the mortgage contract, on which his house was built, the Court rejected
petitioner's contention that Article 1542 (formerly 1471) of the Civil Code applies to support his
theory that in case of conflict between the boundaries and the area the former should prevail. In
ruling that only that portion of 500 square meters is included in the mortgage contract on the basis of
the findings that the boundaries relied upon do not identify the land beyond doubt, the Court applied
instead the provisions found in Article 1372 (formerly Art. 1283) and Article 1378 (formerly Art. 1289)
of the New Civil Code, thus:
 Art. 1372. However general the terms of a contract may be, they shall not be
understood to comprehend things that are distinct and cases that are different from
those upon which the parties intended to agree.

Art. 1378. When it is absolutely impossible to settle doubts by the rules established in
the preceding articles, and the doubts refer to incidental circumstances of a
gratuitous contract, the least transmission of rights and interests shall prevail. If the
contract is onerous, the doubt shall be settled in favor of the greatest reciprocity of
interest.

The Court finds the abovequoted articles applicable in the instant case. It must be observed that the
"Escritura de Venta Absoluta" was consummated in favor of a close relative, a nephew-in-law
(Marcial Olaybal) of Petrona Gacos, he being married to the daughter of her sister Fortunata Gacos-
Cambal. Thus, in accordance with Article 1378 of the Civil Code, said contract should be interpreted
as "to effect the least possible transmission of rights or interests." Besides, Petrona Gacos could not
have sold her entire hereditary share as she and her four (4) minor children were then staying in the
disputed land with her sister Lucia.

Petitioners then argued that their continued possession in good faith and in the concept of an owner
with just title over the disputed property which includes that of their predecessors-in-interest, Rosario
Gacos, for 27 years ripened into ownership by acquisitive prescription.

Possession, under the Civil Code, to constitute the foundation of a prescriptive right, must be
possession under claim of title (en concepto de dueno) or it must be adverse (Cuayong vs.
Benedicto, 37 Phil. 783). Acts of possessory character performed by one who holds by mere
tolerance of the owner are clearly not "en concepto de dueno," and such possessory acts, no matter
how long so continued, do not start the running of the period of prescription (Manila Electric
Company vs. IAC, G.R. No. 71393, June 28, 1989).

Even under ordinary acquisitive prescription of immovables and other real rights through adverse
possession of 10 years, the possession of petitioners' predecessors-in-interest of the unsold portion
of 1,159 square meters cannot be characterized as adverse possession in good faith (Art. 1134, Civil
Code; Negrete vs. CFI of Marinduque, L-31267, November 24, 1972, 48 SCRA 113). As found by
the trial court and the appellate court, as early as April 26, 1949, petitioners' predecessors-in-
interest, Rosario Gacos, knew and recognized the sale on February 22, 1949 by Lucia Gacos to
Teodolfo Mendones of the eastern portion (Lot No. 2452) of the hereditary estate of Petrona Gacos
reportedly containing an area of 84 square meters. In the "Escritura de Venta con Pacto de Retro"
dated April 26, 1949 (Exh. "BB"-1008; Exh. "26"-1049) between Lucia Gacos and Rosario Gacos
involving the share of Lucia Gacos, Teodolfo Mendones is mentioned as the boundary owner on the
south. In fact, Encarnacion Prieto, mother of petitioners, signed as a witness in the said pacto de
retro sale, thus impliedly recognizing the ownership of the lot involved in Civil Case No. 1049.

If the entire hereditary share of Petrona was sold on March 13, 1948, as asserted by petitioners, the
eastern portion (Lot 2452) of her hereditary estate involved in Civil Case No. 1049 could not have
been sold to Teodolfo Mendones on February 22, 1949. Petitioners never raised any objection on
the exercise of Teodolfo Mendones of his dominical rights over the said eastern portion when the
latter mortgaged the land as a collateral for a loan with the Rural Bank of Bulan, Inc. which was
discharged and released on April 15, 1975. Earlier, or on July 7, 1972, Teadolfo Mendones even
leased the 84 square meter land to Jesus Gabito (Exh. "W"-1008; Exh. "21"-1049) who, on May 21,
1975, bought the same from Teodolfo Mendones (Exh. "X"-1008; Exh. "22"-1049). For their part, the
spouses Gabito constructed a residential house thereon and declared the land under Tax
Declaration No. 7371 (Exh. "EE"-1008; Exh. "29"-1049). There was even a fence constructed by
Marcial Olaybal separating the property he bought from that of Petrona Gacos (p. 7, Court of Appeal
decision, pp. 49-63, Rollo).

We take judicial notice of the road-widening project of the national highway (Juban-Irosin-Bulan
National Road) of the then Department of Public Highways, now the DPWH, undertaken sometime in
the 1970's which required a 15-meter road-right of way from the centerline of the road. This road-
widening project had materially altered the areas of the disputed land thus substantially reducing the
areas appertaining to two or all of the parties considering that a welcome rotonda was constructed
leading to the three neighboring towns of Bulan, Bulusan and Matnog (Samar-Masbate route) and
Juban (Sorsogon, Sorsogon route). In the same manner, developments in the configuration of
disputed land, natural or man-made, like the expansion of the ditches into irrigation canals, and other
improvements thereon had also materially altered the areas stated in the documents of sale
mentioned in the instant case. Thus, the services of a duly licensed geodetic engineer which the trial
court required the parties to engage is necessary to determine the actual metes and bounds of the
disputed land to apportion the area, in accordance with the decision in the instant case.

ACCORDINGLY, the decision of the Court of Appeals dated October 11, 1985 affirming that of the
then Court of First Instance of Sorsogon, Branch 11, now Regional Trial Court of Sorsogon, dated
December 4, 1979, is AFFIRMED. Costs against petitioners.

SO ORDERED.

G.R. No. 86150 March 2, 1992

GUZMAN, BOCALING & CO., petitioner,

vs.
RAOUL S. V. BONNEVIE, respondent.

E. Voltaire Garcia for petitioner.

Guinto Law Office for private respondent.

CRUZ, J.:

The subject of the controversy is a parcel of land measuring six hundred (600) square meters, more
or less, with two buildings constructed thereon, belonging to the Intestate Estate of Jose L. Reynoso.

This property was leased to Raoul S. Bonnevie and Christopher Bonnevie by the administratrix,
Africa Valdez de Reynoso, for a period of one year beginning August 8, 1976, at a monthly rental of
P4,000.00.

The Contract of lease contained the following stipulation:

 20. — In case the LESSOR desire or decides to sell the lease property, the
LESSEES shall be given a first priority to purchase the same, all things and
considerations being equal.

On November 3, 1976 according to Reynoso, she notified the private respondents by registered mail
that she was selling the leased premises for P600.000.00 less a mortgage loan of P100,000.00, and
was giving them 30 days from receipt of the letter within which to exercise their right of first priority to
purchase the subject property. She said that in the event that they did not exercise the said right,
she would expect them to vacate the property not later then March, 1977.

On January 20, 1977, Reynoso sent another letter to private respondents advising them that in view
of their failure to exercise their right of first priority, she had already sold the property.

Upon receipt of this letter, the private respondents wrote Reynoso informing her that neither of them
had received her letter dated November 3, 1976; that they had advised her agent to inform them
officially should she decide to sell the property so negotiations could be initiated; and that they were
"constrained to refuse (her) request for the termination of the lease.

On March 7, 1977, the leased premises were formally sold to petitioner Guzman, Bocaling & Co.
The Contract of Sale provided for immediate payment of P137,500.00 on the purchase price, the
balance of P262,500.00 to be paid only when the premises were vacated.

On April 12, 1977, Reynoso wrote a letter to the private respondents demanding that they vacate the
premises within 15 days for their failure to pay the rentals for four months. When they refuse,
Reynoso filed a complaint for ejectment against them which was docketed as Civil Case No.
043851-CV in the then City Court of Manila.

On September 25, 1979, the parties submitted a Compromise Agreement, which provided inter
alia that "the defendant Raoul S.V. Bonnevie shall vacate the premises subject of the Lease
Contract, Voluntarily and Peacefully not later than October 31, 1979."

This agreement was approved by the City Court and became the basis of its decision. However, as
the private respondents failed to comply with the above-qouted stipulation, Reynoso filed a motion
for execution of the judgment by compromise, which was granted on November 8, 1979.

On November 12, 1979, private respondent Raoul S. Bonnevie filed a motion to set aside the
decision of the City Court as well as the Compromise Agreement on the sole ground that Reynoso
had not delivered to him the "records of payments and receipts of all rentals by or for the account of
defendant ..." The motion was denied and the case was elevated to the then Court of First Instance.
That Court remanded the case to the City Court of Manila for trial on the merits after both parties had
agreed to set aside the Compromise Agreement.

On April 29, 1980, while the ejectment case was pending in the City Court, the private respondents
filed an action for annulment of the sale between Reynoso and herein petitioner Guzman, Bocaling &
Co. and cancellation of the transfer certificate of title in the name of the latter. They also asked that
Reynoso be required to sell the property to them under the same terms ands conditions agreed upon
in the Contract of Sale in favor of the petitioner This complaint was docketed as Civil Case No.
131461 in the then Court of First Instance of Manila.

On May 5, 1980, the City Court decided the ejectment case, disposing as follows:
 WHEREFORE, judgment is hereby rendered ordering defendants and all persons
holding under them to vacate the premises at No. 658 Gen. Malvar Street, Malate,
Manila, subject of this action, and deliver possession thereof to the plaintiff, and to
pay to the latter; (1) The sum of P4,000.00 a month from April 1, 1977 to August 8,
1977; (2) The sum of P7,000.00 a month, as reasonable compensation for the
continued unlawful use and occupation of said premises, from August 9, 1977 and
every month thereafter until defendants actually vacate and deliver possession
thereof to the plaintiff; (3) The sum of P1,000.00 as and for attorney's fees; and (4)
The costs of suit.

The decision was appealed to the then Court of First Instance of Manila, docketed as Civil Case No.
132634 and consolidated with Civil Case No. 131461. In due time, Judge Tomas P. Maddela, Jr.,
decided the two cases as follows:

WHEREFORE, premises considered, this Court in Civil Case No. 132634 hereby
modifies the decision of the lower court as follows:

1 Ordering defendants Raoul S.V. Bonnevie and Christopher Bonnevie and all
persons holding under them to vacate the premises at No. 658 Gen. Malvar St.,
Malate, Manila subject of this action and deliver possessions thereof to the plaintiff;
and

2 To pay the latter the sum of P4,000.00 a month from April 1, 1977 up to September
21, 1980 (when possession of the premises was turned over to the Sheriff) after
deducting whatever payments were made and accepted by Mrs. Africa Valdez Vda.
de Reynoso during said period, without pronouncement as to costs.

As to Civil Case No. 131461, the Court hereby renders judgment in favor of the
plaintiff Raoul Bonnevie as against the defendants Africa Valdez Vda. de Reynoso
and Guzman and Bocaling & Co. declaring the deed of sale with mortgage executed
by defendant Africa Valdez Vda. de Reynoso in favor of defendant Guzman and
Bocaling null and void; cancelling the Certificate of Title No. 125914 issued by the
Register of Deeds of Manila in the name of Guzman and Bocaling & Co.,; the name
of Guzman and Bocaling & Co.,; ordering the defendant Africa Valdez Vda. de
Reynoso to execute favor of the plaintiff Raoul Bonnevie a deed of sale with
mortgage over the property leased by him in the amount of P400,000.00 under the
same terms and conditions should there be any other occupants or tenants in the
premises; ordering the defendants jointly and severally to pay the plaintiff Raoul
Bonnevie the amount of P50,000.00 as temperate damages; to pay the plaintiff jointly
and severally the of P2,000.00 per month from the time the property was sold to
defendant Guzman and Bocaling by defendant Africa Valdez Vda de Reynoso on
March 7, 1977, up to the execution of a deed of sale of the property by defendant
Africa Valdez Vda. de Reynoso in favor of plaintiff Bonnevie; to pay jointly and
severally the plaintiff Bonnevie the amount of P20,000.00 as exemplary damages, for
attorney's fees in the amount of P10,000.00, and to pay the cost of suit.

Both Reynoso and the petitioner company filed with the Court of Appeals a petition for review of this
decision. The appeal was eventually resolved against them in a decision promulgated on March 16,
1988, where the respondent court substantially affirmed the conclusions of the lower court but
reduced the award of damages. 1
Its motion for reconsideration having been denied on December 14, 1986, the petitioner has come to
this Court asserting inter alia that the respondent court erred in ruling that the grant of first priority to
purchase the subject properties by the judicial administratrix needed no authority from the probate
court; holding that the Contract of Sale was not voidable but rescissible; considering the petitioner as
a buyer in bad faith ordering Reynoso to execute the deed of sale in favor of the Bonnevie; and not
passing upon the counterclaim. Reynoso has not appealed.

The Court has examined the petitioner's contentions and finds them to be untenable.

Reynoso claimed to have sent the November 3, 1976 letter by registered mail, but the registry return
card was not offered in evidence. What she presented instead was a copy of the said letter with a
photocopy of only the face of a registry return card claimed to refer to the said letter. A copy of the
other side of the card showing the signature of the person who received the letter and the data of the
receipt was not submitted. There is thus no satisfactory proof that the letter was received by the
Bonnevies.

Even if the letter had indeed been sent to and received by the private respondent and they did not
exercise their right of first priority, Reynoso would still be guilty of violating Paragraph 20 of the
Contract of Lease which specifically stated that the private respondents could exercise the right of
first priority, "all things and conditions being equal." The Court reads this mean that there should be
identity of the terms and conditions to be offered to the Bonnevies and all other prospective buyers,
with the Bonnevies to enjoy the right of first priority.

The selling price qouted to the Bonnevies was P600,000.00, to be fully paid in cash less only the
mortgage lien of P100,000.00. 2 On the other hand, the selling price offered to and accepted by the
petitioner was only P400,000.00 and only P137,500.00 was paid in cash while the balance of
P272,500.00 was to be paid "when the property (was) cleared of tenants or occupants. 3

The fact that the Bonnevies had financial problems at that time was no justification for denying them
the first option to buy the subject property. Even if the Bonnevies could not buy it at the price qouted,
Reynoso could not sell it to another for a lower price and under more favorable terms and conditions.
Only if the Bonnevies failed to exercise their right of first priority could Reynoso lawfully sell the
subject property to others, and at that only under the same terms and conditions offered to the
Bonnevies.

The Court agrees with the respondent court that it was not necessary to secure the approval by the
probate court of the Contract of Lease because it did not involve an alienation of real property of the
estate nor did the term of the lease exceed one year so as top make it fall under Article 1878(8) of
the Civil Code. Only if Paragraph 20 of the Contract of Lease was activated and the said property
was intended to be sold would it be required of the administratrix to secure the approval of the
probate court pursuant to Rule 89 of the Rules of Court.

As a strict legal proposition, no judgment of the probate court was reviewed and eventually annuled
collaterally by the respondent court as contended by the petitioner. The order authorizing the sale in
its favor was duly issued by the probate court, which thereafter approved the Contract of Sale
resulting in the eventual issuance if title in favor of the petitioner. That order was valid insofar as it
recognized the existence of all the essential elements of a valid contract of sale, but without regard
to the special provision in the Contract of Lease giving another party the right of first priority.

Even if the order of the probate court was valid, the private respondents still had a right to rescind
the Contract of Sale because of the failure of Reynoso to comply with her duty to give them the first
opportunity to purchase the subject property.
The petitioner argues that assuming the Contract of Sale to be voidable, only the parties thereto
could bring an action to annul it pursuant to Article 1397 of the Civil Code. It is stressed that private
respondents are strangers to the agreement and therefore have no personality to seek its
annulment.

The respondent court correctly held that the Contract of Sale was not voidable rescissible. Under
Article 1380 to 1381 (3) of the Civil Code, a contract otherwise valid may nonetheless be
subsequently rescinded by reason of injury to third persons, like creditors. The status of creditors
could be validly accorded the Bonnevies for they had substantial interests that were prejudiced by
the sale of the subject property to the petitioner without recognizing their right of first priority under
the Contract of Lease.

According to Tolentino, rescission is a remedy granted by law to the contracting parties and even
to third persons, to secure reparation for damages caused to them by a contract, even if this should
be valid, by means of the restoration of things to their condition at the moment prior to the
celebration of said contract. 4 It is a relief allowed for the protection of one of the contracting
parties and even third persons from all injury and damage the contract may cause, or to protect
some incompatible and preferent right created by the contract. 5 Recission implies a contract which,
even if initially valid, produces a lesion or pecuniary damage to someone that justifies its invalidation
for reasons of equity. 6

It is true that the acquisition by a third person of the property subject of the contract is an obstacle to
the action for its rescission where it is shown that such third person is in lawful possession of the
subject of the contract and that he did not act in bad faith. 7 However, this rule is not applicable in the
case before us because the petitioner is not considered a third party in relation to the Contract of
Sale nor may its possession of the subject property be regarded as acquired lawfully and in good
faith.

Indeed, Guzman, Bocaling and Co. was the vendee in the Contract of Sale. Moreover, the petitioner
cannot be deemed a purchaser in good faith for the record shows that its categorically admitted it
was aware of the lease in favor of the Bonnevies, who were actually occupying the subject property
at the time it was sold to it. Although the Contract of Lease was not annotated on the transfer
certificate of title in the name of the late Jose Reynoso and Africa Reynoso, the petitioner cannot
deny actual knowledge of such lease which was equivalent to and indeed more binding than
presumed notice by registration.

A purchaser in good faith and for value is one who buys the property of another without notice that
some other person has a right to or interest in such property and pays a full and fair price for the
same at the time of such purchase or before he has notice of the claim or interest of some other
person in the property.8 Good faith connotes an honest intention to abstain from taking
unconscientious advantage of another. 9 Tested by these principles, the petitioner cannot tenably
claim to be a buyer in good faith as it had notice of the lease of the property by the Bonnevies and
such knowledge should have cautioned it to look deeper into the agreement to determine if it
involved stipulations that would prejudice its own interests.

The petitioner insists that it was not aware of the right of first priority granted by the Contract of
Lease, Assuming this to be true, we nevertherless agree with the observation of the respondent
court that:

If Guzman-Bocaling failed to inquire about the terms of the Lease Contract, which
includes Par. 20 on priority right given to the Bonnevies, it had only itself to blame.
Having known that the property it was buying was under lease, it behooved it as a
 prudent person to have required Reynoso or the broker to show to it the Contract of
Lease in which Par. 20 is contained.

Finally, the petitioner also cannot invoke the Compromise Agreement which it says canceled the
right of first priority granted to the Bonnevies by the Contract of Lease. This agreement was set side
by the parties thereto, resulting in the restoration of the original rights of the private respondents
under the Contract of Lease. The Joint Motion to Remand filed by Reynoso and the private
respondents clearly declared inter alia:

That without going into the merits of instant petition, the parties have agreed to SET
ASIDE the compromise agreement, dated September 24, 1979 and remand Civil
Case No. 043851 of the City Court of Manila to Branch IX thereof for trial on the
merits. 10

We find, in sum, that the respondent court did not commit the errors imputed to it by the petitioner.
On the contrary, its decision is conformable to the established facts and the applicable law and
jurisprudence and so must be sustained.

WHEREFORE, the petition in DENIED, with costs against the petitioner. The challeged decision is
AFFIRMED in toto. It is so ordered.

G.R. No. 104234 June 30, 1995

AIR FRANCE, petitioner,

vs.
HONORABLE COURT OF APPEALS, IOLANI DIONISIO, MULTINATIONAL TRAVEL
CORPORATION OF THE PHIL., FIORELLO and VICKY PANOPIO, respondents.

ROMERO, J.:

This is a petition for review on certiorari of the decision of the Court of Appeals 1 which annulled and
set aside the orders of the Regional Trial Court of Manila, Branch 27.

The facts, as found by respondent Court of Appeals, are as follows:

Petitioner Air France filed a complaint for sum of money and damages against private respondents
Multinational Travel Corporation of the Philippines, Fiorello Panopio and Vicky Panopio before the
Regional Trial Court of Manila, Branch 27, then presided over by the Hon. Ricardo Diaz.

After trial, the court rendered judgment on August 31, 1987 in favor of petitioner, ordering private
respondents to pay petitioner, jointly and severally, the amount of P2,518,698.66, with legal rate of
interest per annum from September 22, 1986, until fully paid and P50,000.00 as and for attorney's
fees.
On December 29, 1989, petitioner moved for the issuance of an alias writ of execution on the ground
of unsatisfied judgment. It likewise moved to declare the sale to Iolani Dionisio of a parcel of land
with a house erected thereon in the name of the Multinational Food Corporation and covered by
Transfer Certificate of Title No. 353935 as one in fraud of creditors.

Petitioner, in said motion, stated that private respondent spouses jointly owned 91% of Multinational
Food and Catering Corporation (Multinational Food), other stockholders being: Aldo Glen Panopio
(brother of Fiorello) — 3%; Jaime Dionisio (husband of private respondent Iolani Dionisio) — 3%;
and Marie Rose Ricasa — 3%. Petitioner stated that although Multinational Food was registered with
the Securities and Exchange Corporation, it neither engaged in operations nor held meetings
because of adverse business conditions. The Corporation, through its President Iolani Dionisio, filed
a sworn statement to this effect with the SEC dated July 28, 1986. However, petitioner alleged that
despite its being non-operational, Multinational Food acquired from Ayala Investment and
Development Corporation (Ayala Corporation) the subject property on February 1, 1985.

Petitioner further alleged that private respondent spouses subsequently sold the property to Iolani
Dionisio on April 11, 1985. However, the sale was not registered until one year and nine months
later or at the time petitioner was pursuing the issuance of a writ of attachment.

Petitioner's motion was set for hearing on January 4, 1990, on which date the respondent court
ordered the issuance of an alias writ of execution and on January 8, 1990, the same was issued.

Private respondent spouses filed their opposition thereto on the following grounds:

. . . (a) the respondent court has no jurisdiction because the alleged buyer in the
person of Iolani Dionisio is not a party in the case; (b) that Iolani Dionisio was not
served with summons and therefore to declare the sale to her in fraud of creditors
without even jurisdiction would amount to deprivation of property without due process
of law; and (c) that the proper remedy is an independent civil action where
indispensable parties are to be impleaded to afford them to answer and/or refute
charges.

On January 19, 1990, the trial court issued an order requiring Iolani Dionisio and Multinational Food
to answer the allegations contained in petitioner's motion. However, both parties failed to file their
respective answers thereto.

On November 19, 1990, the court issued an order finding the sale in favor of Iolani Dionisio of the
subject property covered by TCT No. 353935 registered with the Registry of Deeds of Quezon City
in the name of Multinational Food as having been made in fraud of creditors.

Private respondents filed a motion for reconsideration which was denied in the order of February 15,
1991; whereupon, they then filed a petition for certiorari with the Court of Appeals, alleging that the
lower court acted with grave abuse of discretion amounting to lack of jurisdiction.

On February 24, 1992, the appellate court rendered a decision annulling and setting aside the
questioned orders. It further enjoined petitioner from proceeding against the property in question.

Hence, this petition.

The sole issue to be resolved in the instant case is whether or not the Court of Appeals erred in
annulling and setting aside the orders of the trial court.
Petitioner claims that a separate civil action, as proposed by private respondents, will only perpetrate
fraud.

We find petitioner's contention to be devoid of merit.

First, the subject property is registered with the Register of Deeds of Quezon City in the name of the
Multinational Food and Catering Corporation and not in the name of either the Multinational Travel
Corporation of the Philippines or of the spouses Fiorello and Vicky Panopio who are the judgment
debtors.

It is well-settled that the power of the court in the execution of judgments extends only over
properties unquestionably belonging to the judgment debtor. 2 Here, the property in question was
sold to private respondent Iolani Dionisio, who was not a party to the case subject of execution.

In Bayer Philippines, Inc. v. Agana, 3 the Court said:

. . . Once a court renders a final judgment, all the issues between or among the
parties before it are deemed resolved and its judicial function as regards any matter
related to the controversy litigated comes to an end. The execution of its judgment is
purely a ministerial phase of adjudication. Indeed, the nature of its duty to see to it
that the claim of the prevailing party is fully satisfied from the properties of the loser is
generally ministerial. . . .

xxx xxx xxx

In other words, construing Section 17 of Rule 39 of the Revised Rules of Court, the
rights of third-party claimants over certain properties levied upon by the sheriff to
satisfy the judgment should not be decided in the action where the third-party claims
have been presented, but in the separate action instituted by the claimants.

This is evident from the very nature of the proceedings. In Herald Publishing, supra,
We intimated that the levy by the sheriff of a property by virtue of a writ of
attachment may be considered as made under authority of the court only when the
property levied upon unquestionably belongs to the defendant. If he attach properties
(sic) other than those of defendant, he acts beyond the limits of his
authority.Otherwise stated, the court issuing a writ of execution is supposed to
enforce its authority only over properties of the judgment debtor, and should a third
party appear to claim the property levied upon by the sheriff, the procedure laid down
by the Rules is that such claim should be the subject of a separate and independent
action. (Emphasis supplied)

Multinational Food and Iolani Dionisio, not being parties to the case, the property covered by TCT
No. 353935 may not be levied upon to satisfy the obligations of private respondent spouses and the
Multinational Travel Corporation.

Petitioner's contrary claim that the property belongs to private respondent spouses, if true, requires a
rescissory action which cannot be done in the same case, but through the filing of a separate action.

Rescission is a relief which the law grants on the premise that the contract is valid for the protection
of one of the contracting parties and third persons from all injury and damage the contract may
cause, or to protect some incompatible and preferential right created by the contract. 4
Under Art. 1381 of the Civil Code, the following contracts are rescissible:

xxx xxx xxx

(1) Those which are entered into by guardians whenever the wards whom they
represent suffer lesion by more than one fourth of the value of the things which are
the object thereof;

(2) Those agreed upon in representation of absentees, if the latter suffer the lesion
stated in the preceeding number;

(3) Those undertaken in fraud of creditors when the latter cannot in any other manner
collect the claims due them;

(4) Those which refer to things under litigation if they have been entered into by the
defendant without the knowledge and approval of the litigants or of competent judicial
authority;

(5) All other contracts specially declared by law to be subject to rescission.

Rescissible contracts, not being void, they remain legally effective until set aside in a rescissory
action and may convey title. Nor can they be attacked collaterally upon the grounds for rescission in
a land registration proceeding. 5

An action for rescission may not be raised or set up in a summary proceeding through a motion, but
in an independent civil action and only after a full-blown trial. As Article 1383 of the Civil Code
provides:

Art. 1383. The action for rescission is subsidiary; it cannot be instituted except when
the party suffering damage has no other legal means to obtain reparation for the
same.

Regarding contracts undertaken in fraud of creditors, the existence of the intention to prejudice the
same should be determined either by the presumption established by Article 1387 6 or by the proofs
presented in the trial of the case. 7 In any case, the presumption of fraud established by this article is
not conclusive, and may be rebutted by satisfactory and convincing evidence. 8 To repeat, an
independent action is necessary to prove that the contract is rescissible.

Under Article 1389 of the Civil Code, an "accion pauliana," 9 the action to rescind contracts made in
favor of creditors, must be commenced within four years.

Clearly, the rights and defenses which the parties in a rescissible contract may raise or set up
cannot be properly ventilated in a motion but only in a full trial.

The appellate court did not err in holding that the trial court acted with grave abuse of discretion in
resolving these matters through mere motion of petitioner.

WHEREFORE, the decision of the Court of Appeals is hereby AFFIRMED in toto.

SO ORDERED.
G.R. No. 144934 January 15, 2004

ADELFA S. RIVERA, CYNTHIA S. RIVERA, and JOSE S. RIVERA, petitioners,

vs.
FIDELA DEL ROSARIO (deceased and substituted by her co-respondents), and her children,
OSCAR, ROSITA, VIOLETA, ENRIQUE JR., CARLOS, JUANITO and ELOISA, all surnamed DEL
ROSARIO, respondents.

DECISION

QUISUMBING, J.:

Before us is a petition for review on certiorari of the Court of Appeals’ decision1, dated November 29,
1999, in CA-G.R. CV No. 60552, which affirmed the judgment2 of the Regional Trial Court (RTC) of
Malolos, Bulacan, Branch 17, in Civil Case No. 151-M-93. The RTC granted respondents’ complaint
for nullity of contract of sale and annulment of the transfer certificates of title issued in favor of
petitioners.

The facts, as found by the Court of Appeals, are as follows:

Respondents Fidela (now deceased), Oscar, Rosita, Violeta, Enrique Jr., Carlos, Juanito and
Eloisa, all surnamed Del Rosario, were the registered owners of Lot No. 1083-C, a parcel of
land situated at Lolomboy, Bulacan. This lot spanned an area of 15,029 square meters and
was covered by TCT No. T-50.668 (M) registered in the Registry of Deeds of Bulacan.

On May 16, 1983, Oscar, Rosita, Violeta, Enrique Jr., Juanito, and Eloisa, executed a Special Power
of Attorney3 in favor of their mother and co-respondent, Fidela, authorizing her to sell, lease,
mortgage, transfer and convey their rights over Lot No. 1083-C.4 Subsequently, Fidela
borrowed P250,000 from Mariano Rivera in the early part of 1987. To secure the loan, she and
Mariano Rivera agreed to execute a deed of real estate mortgage and an agreement to sell the land.
Consequently, on March 9, 1987, Mariano went to his lawyer, Atty. Efren Barangan, to have three
documents drafted: the Deed of Real Estate Mortgage5, a Kasunduan (Agreement to Sell)6, and a
Deed of Absolute Sale.7

The Kasunduan provided that the children of Mariano Rivera, herein petitioners Adelfa, Cynthia and
Jose, would purchase Lot No. 1083-C for a consideration of P2,141,622.50. This purchase price was
to be paid in three installments: P250,000 upon the signing of the Kasunduan, P750,000 on August
31, 1987, and P1,141,622.50 on December 31, 1987.8 It also provided that the Deed of Absolute
Sale would be executed only after the second installment is paid and a postdated check for the last
installment is deposited with Fidela.9 As previously stated, however, Mariano had already caused the
drafting of the Deed of Absolute Sale. But unlike the Kasunduan, the said deed stipulated a
purchase price of only P601,160, and covered a certain Lot No. 1083-A in addition to Lot No. 1083-
C.10 This deed, as well as the Kasunduan and the Deed of Real Estate Mortgage11, was signed by
Mariano’s children, petitioners Adelfa, Cynthia and Jose, as buyers and mortgagees, on March 9,
1987.12

The following day, Mariano Rivera returned to the office of Atty. Barangan, bringing with him the
signed documents. He also brought with him Fidela and her son Oscar del Rosario, so that the latter
two may sign the mortgage and the Kasunduan there.

Although Fidela intended to sign only the Kasunduan and the Real Estate Mortgage, she
inadvertently affixed her signature on all the three documents in the office of Atty. Barangan on the
said day, March 10, 1987. Mariano then gave Fidela the amount of P250,000. On October 30, 1987,
he also gave Fidela a check for P200,000. In the ensuing months, also, Mariano gave Oscar del
Rosario several amounts totaling P67,800 upon the latter’s demand for the payment of the balance
despite Oscar’s lack of authority to receive payments under the Kasunduan.13 While Mariano was
making payments to Oscar, Fidela entrusted the owner’s copy of TCT No. T-50.668 (M) to Mariano
to guarantee compliance with the Kasunduan.

When Mariano unreasonably refused to return the TCT,14 one of the respondents, Carlos del
Rosario, caused the annotation on TCT No. T-50.668 (M) of an Affidavit of Loss of the owner’s
duplicate copy of the title on September 7, 1992. This annotation was offset, however, when Mariano
registered the Deed of Absolute Sale on October 13, 1992, and afterwards caused the annotation of
an Affidavit of Recovery of Title on October 14, 1992. Thus, TCT No. T-50.668 (M) was cancelled,
and in its place was issued TCT No. 158443 (M) in the name of petitioners Adelfa, Cynthia and Jose
Rivera.15

Meanwhile, the Riveras, representing themselves to be the new owners of Lot No. 1083-C, were
also negotiating with the tenant, Feliciano Nieto, to rid the land of the latter’s tenurial right. When
Nieto refused to relinquish his tenurial right over 9,000 sq. m. of the land, the Riveras offered to give
4,500 sq. m. in exchange for the surrender. Nieto could not resist and he accepted. Subdivision Plan
No. Psd-031404-052505 was then made on August 12, 1992. Later, it was inscribed on TCT No.
158443 (M), and Lot No. 1083-C was divided into Lots 1083 C-1 and 1083 C-2.16

To document their agreement with Feliciano Nieto, the Riveras executed a Kasulatan sa Pagtatakwil
ng Karapatan sa Pagmamay-ari ng Bahagi ng Isang Lagay na Lupa (Written Abdication of Rights
over a Portion of a Parcel of Land)17 on November 16, 1992. Four days later, they registered the
document with the Registry of Deeds. Two titles were then issued: TCT No. T-161784 (M) in the
name of Nieto, for 4,500 sq. m. of land, and TCT No. T-161785 (M) in the name of petitioners Adelfa,
Cynthia and Jose Rivera, over the remaining 10,529 sq. m. of land.18

On February 18, 1993, respondents filed a complaint19 in the Regional Trial Court of Malolos, asking
that the Kasunduan be rescinded for failure of the Riveras to comply with its conditions, with
damages. They also sought the annulment of the Deed of Absolute Sale on the ground of fraud, the
cancellation of TCT No. T-161784 (M) and TCT No. T-161785 (M), and the reconveyance to them of
the entire property with TCT No. T-50.668 (M) restored.20

Respondents claimed that Fidela never intended to enter into a deed of sale at the time of its
execution and that she signed the said deed on the mistaken belief that she was merely signing
copies of the Kasunduan. According to respondents, the position where Fidela’s name was typed
and where she was supposed to sign her name in the Kasunduan was roughly in the same location
where it was typed in the Deed of Absolute Sale. They argued that given Fidela’s advanced age (she
was then around 72 at the time)21 and the fact that the documents were stacked one on top of the
other at the time of signing, Fidela could have easily and mistakenly presumed that she was merely
signing additional copies of the Kasunduan.22 They also alleged that petitioners acquired possession
of the TCT through fraud and machination.

In their defense, petitioners denied the allegations and averred that the Deed of Absolute Sale was
validly entered into by both parties. According to petitioners, Fidela del Rosario mortgaged Lot No.
1083-C to their predecessor in interest, Mariano Rivera, on March 9, 1987. But on the following day
Fidela decided to sell the lot to petitioners for P2,161,622.50. When Mariano agreed (on the
condition that Lot No. 1083-C will be delivered free from all liens and encumbrances),
the Kasunduan was consequently drawn up and signed. After that, however, Fidela informed
Mariano of the existence of Feliciano Nieto’s tenancy right over the lot to the extent of 9,000 sq. m.
When Mariano continued to want the land, albeit on a much lower price of only P601,160, as he had
still to deal with Feliciano Nieto, the parties drafted the Deed of Absolute Sale on March 10, 1987, to
supersede the Kasunduan.

Petitioners likewise argued that respondents’ cause of action had been barred by laches or estoppel
since more than four years has lapsed from the time the parties executed the Deed of Absolute Sale
on March 10, 1987, to the time respondents instituted their complaint on February 18, 1993.

Petitioners also filed a counterclaim asking for moral and exemplary damages and the payment of
attorney’s fees and costs of suit.

After trial, the RTC ruled in favor of respondents:

WHEREFORE, in the light of all the foregoing, judgment is hereby rendered:

1. Declaring the Deed of Absolute Sale dated March 10, 1987 as null and void;

2. Annulling TCT No. T-158443 (M) and TCT No. T-161785 (M) both in the names of
Adelfa, Cynthia and Jose, all surnamed Rivera;

3. Declaring the plaintiffs to be the legitimate owners of the land covered by TCT No.
T-161785 (M) and ordering defendant Adelfa, Cynthia, and Jose, all surnamed
Rivera, to reconvey the same to the plaintiffs;

4. Ordering the Register of Deeds of Bulacan to cancel TCT No. T-161785 (M) and to
issue in its place a new certificate of title in the name of the plaintiffs as their names
appear in TCT No. T-50.668;

5. Declaring TCT No. T-161784 (M) in the name of Feliciano Nieto as valid;

6. Ordering the defendant Riveras to pay the plaintiffs solidarily the following
amounts:

a) P191,246.98 as balance for the 4,500 square-meter portion given to

defendant Feliciano Nieto

b) P200,000.00 as moral damages

c) P50,000.00 as exemplary damages

d) P50,000.00 as attorney’s fees

e) costs of the suit.

7. Dismissing the counterclaim of the defendant Riveras;

8. Dismissing the counterclaim and the crossclaim of defendant Feliciano Nieto.

SO ORDERED.23
The trial court ruled that Fidela’s signature in the Deed of Absolute Sale was genuine, but found that
Fidela never intended to sign the said deed. Noting the peculiar differences between
the Kasunduan and the Deed of Absolute Sale, the trial court concluded that the Riveras were guilty
of fraud in securing the execution of the deed and its registration in the Registry of Deeds.24 This
notwithstanding, the trial court sustained the validity of TCT No. T-161784 (M) in the name of
Feliciano Nieto since there was no fraud proven on Nieto’s part. The trial court found him to have
relied in good faith on the representations of ownership of Mariano Rivera. Thus, Nieto’s rights,
according to the trial court, were akin to those of an innocent purchaser for value.25

On the foregoing, the trial court rescinded the Kasunduan but ruled that the P450,000 paid by
petitioners be retained by respondents as payment for the 4,500 sq. m. portion of Lot No. 1083-C
that petitioners gave to Nieto.26 The trial court likewise ordered petitioners to pay P191,246.98 as
balance for the price of the land given to Nieto, P200,000 as moral damages, P50,000 as exemplary
damages, P50,000 as attorney’s fees, and the costs of suit.27

On appeal to the Court of Appeals, the trial court’s judgment was modified as follows:

WHEREFORE, the judgment appealed from is hereby AFFIRMED with the MODIFICATION
that the Deed of Absolute Sale dated March 10, 1987 is declared null and void only insofar
as Lot No. 1083-C is concerned, but valid insofar as it conveyed Lot No. 1083-A, that TCT
No. 158443 (M) is valid insofar as Lot No. 1083-A is concerned and should not be annulled,
and increasing the amount to be paid by the defendants-appellants to the plaintiffs-appellees
for the 4,500 square meters of land given to Feliciano Nieto to P323,617.50.

Costs against the defendants-appellants.

SO ORDERED.28

Petitioners’ motion for reconsideration was denied. Hence, this petition.

While this petition was pending, respondent Fidela del Rosario died. She was substituted by her
children, herein respondents.

In this petition, petitioners rely on the following grounds:

THE HONORABLE COURT OF APPEALS COMMITTED A SERIOUS, GRAVE AND REVERSIBLE

ERROR IN AWARDING LOT 1083-A IN FAVOR OF THE PETITIONERS AND FELICIANO NIETO
WHICH IS ADMITTEDLY A PART AND PORTION OF THE EXISTING NORTH LUZON
EXPRESSWAY AND AS SUCH ACTED WITHOUT OR IN EXCESS OF ITS JURISDICTION, OR
WITH GRAVE ABUSE OF JUDICIAL DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION.

II

RESPONDENTS FAILED TO PAY THE CORRECT DOCKET, FILING AND OTHER LAWFUL FEES
WITH THE OFFICE OF THE CLERK OF COURT OF THE COURT A QUO (RTC, MALOLOS,
BULACAN) AT THE TIME OF THE FILING OF THE ORIGINAL COMPLAINT IN 1993 PURSUANT
TO THE SIOL29 DOCTRINE.
 III

[THE] TRIAL COURT AWARDED RELIEFS NOT SPECIFICALLY PRAYED FOR IN THE
AMENDED COMPLAINT WITHOUT REQUIRING THE PAYMENT OF THE CORRECT DOCKET,
FILING AND OTHER LAWFUL FEES.

IV

THE COURT A QUO HAS NO JURISDICTION OVER THE RESPONDENTS’ CAUSE OF ACTION
AND OVER THE RES CONSIDERING THAT FELICIANO NIETO IS AN AGRICULTURAL TENANT
OF THE RICELAND IN QUESTION.

RESPONDENTS[’] MAIN CAUSE OF ACTION [IS] FOR RESCISSION OF CONTRACT WHICH IS

SUBSIDIARY IN NATURE[,] AND ANNULMENT OF SALE[,] BOTH OF WHICH HAVE ALREADY
PRESCRIBED UNDER ARTICLES 1389 AND 1391 OF THE CIVIL CODE.30

Petitioners’ assignment of errors may be reduced into three issues: (1) Did the trial court acquire
jurisdiction over the case, despite an alleged deficiency in the amount of filing fees paid by
respondents and despite the fact that an agricultural tenant is involved in the case? (2) Did the Court
of Appeals correctly rule that the Deed of Absolute Sale is valid insofar as Lot 1083-A is concerned?
(3) Is the respondents’ cause of action barred by prescription?

On the first issue, petitioners contend that jurisdiction was not validly acquired because the filing
fees respondents paid was only P1,554.45 when the relief sought was reconveyance of land that
was worth P2,141,622.50 under the Kasunduan. They contend that respondents should have paid
filing fees amounting to P12,183.70. In support of their argument, petitioners invoke the doctrine
in Sun Insurance Office, Ltd., (SIOL) v. Asuncion31 and attach a certification32 from the Clerk of Court
of the RTC of Quezon City.

Respondents counter that it is beyond dispute that they paid the correct amount of docket fees when
they filed the complaint. If the assessment was inadequate, they could not be faulted because the
clerk of court made no notice of demand or reassessment, respondents argue. Respondents also
add that since petitioners failed to contest the alleged underpayment of docket fees in the lower
court, they cannot raise the same on appeal.33

We rule in favor of respondents. Jurisdiction was validly acquired over the complaint. In Sun
Insurance Office, Ltd., (SIOL) v. Asuncion,34 this Court ruled that the filing of the complaint or
appropriate initiatory pleading and the payment of the prescribed docket fee vest a trial court with
jurisdiction over the subject matter or nature of the action. If the amount of docket fees paid is
insufficient considering the amount of the claim, the clerk of court of the lower court involved or his
duly authorized deputy has the responsibility of making a deficiency assessment. The party filing the
case will be required to pay the deficiency, but jurisdiction is not automatically lost.

Here it is beyond dispute that respondents paid the full amount of docket fees as assessed by the
Clerk of Court of the Regional Trial Court of Malolos, Bulacan, Branch 17, where they filed the
complaint. If petitioners believed that the assessment was incorrect, they should have questioned it
before the trial court. Instead, petitioners belatedly question the alleged underpayment of docket
fees through this petition, attempting to support their position with the opinion and certification of the
Clerk of Court of another judicial region. Needless to state, such certification has no bearing on the
instant case.
Petitioners also contend that the trial court does not have jurisdiction over the case because it
involves an agricultural tenant. They insist that by virtue of Presidential Decree Nos. 316 and
1038,35 it is the Department of Agrarian Reform Adjudication Board (DARAB) that has jurisdiction.36

Petitioners’ contention lacks merit. The DARAB has exclusive original jurisdiction over cases
involving the rights and obligations of persons engaged in the management, cultivation and use of all
agricultural lands covered by the Comprehensive Agrarian Reform Law.37 However, the cause of
action in this case is primarily against the petitioners, as indispensable parties, for rescission of the
Kasunduan and nullification of the Deed of Sale and the TCTs issued because of them. Feliciano
Nieto was impleaded merely as a necessary party, stemming from whatever rights he may have
acquired by virtue of the agreement between him and the Riveras and the corresponding TCT
issued. Hence, it is the regular judicial courts that have jurisdiction over the case.

On the second issue, contrary to the ruling of the Court of Appeals that the Deed of Absolute Sale is
void only insofar as it covers Lot No. 1083-C, we find that the said deed is void in its entirety.
Noteworthy is that during the oral arguments before the Court of Appeals, both petitioners and
respondents admitted that Lot No. 1083-A had been expropriated by the government long before the
Deed of Absolute Sale was entered into.38 What’s more, this case involves only Lot No. 1083-C. It
never involved Lot 1083-A. Thus, the Court of Appeals had no jurisdiction to adjudicate on Lot 1083-
A, as it was never touched upon in the pleadings or made the subject of evidence at trial.39

As to the third issue, petitioners cite Articles 1383,40 138941 and 139142 of the New Civil Code. They
submit that the complaint for rescission of the Kasunduan should have been dismissed, for
respondents’ failure to prove that there was no other legal means available to obtain reparation other
than to file a case for rescission, as required by Article 1383. Moreover, petitioners contend that
even assuming respondents had satisfied this requirement, prescription had already set in, the
complaint having been filed in 1992 or five years after the execution of the Deed of Absolute Sale in
March 10, 1987.

Respondents counter that Article 1383 of the New Civil Code applies only to rescissible contracts
enumerated under Article 1381 of the same Code, while the cause of action in this case is for
rescission of a reciprocal obligation, to which Article 119143 of the Code applies. They assert that
their cause of action had not prescribed because the four-year prescriptive period is counted from
the date of discovery of the fraud, which, in this case, was only in 1992.

Rescission of reciprocal obligations under Article 1191 of the New Civil Code should be
distinguished from rescission of contracts under Article 1383 of the same Code. Both presuppose
contracts validly entered into as well as subsisting, and both require mutual restitution when proper,
nevertheless they are not entirely identical.44

In countless times there has been confusion between rescission under Articles 1381 and 1191 of the
Civil Code. Through this case we again emphasize that rescission of reciprocal obligations under
Article 1191 is different from rescissible contracts under Chapter 6 of the law on contracts under the
Civil Code.45 While Article 1191 uses the term rescission, the original term used in Article 1124 of the
old Civil Code, from which Article 1191 was based, was resolution.46 Resolution is a principal action
that is based on breach of a party, while rescission under Article 1383 is a subsidiary action limited
to cases of rescission for lesion under Article 1381 of the New Civil Code,47 which expressly
enumerates the following rescissible contracts:

ART. 1381. The following contracts are rescissible:

 (1) Those which are entered into by guardians whenever the wards whom they
represent suffer lesion by more than one-fourth of the value of the things which are
the object thereof;

(2) Those agreed upon in representation of absentees, if the latter suffer the lesion
stated in the preceding number;

(3) Those undertaken in fraud of creditors when the latter cannot in any other manner
collect the claims due them;

(4) Those which refer to things under litigation if they have been entered into by the
defendant without the knowledge and approval of the litigants or of competent judicial
authority;

(5) All other contracts specially declared by law to be subject to rescission.

Obviously, the Kasunduan does not fall under any of those situations mentioned in Article 1381.
Consequently, Article 1383 is inapplicable. Hence, we rule in favor of the respondents.

May the contract entered into between the parties, however, be rescinded based on Article 1191?

A careful reading of the Kasunduan reveals that it is in the nature of a contract to sell, as
distinguished from a contract of sale. In a contract of sale, the title to the property passes to the
vendee upon the delivery of the thing sold; while in a contract to sell, ownership is, by agreement,
reserved in the vendor and is not to pass to the vendee until full payment of the purchase price.48 In
a contract to sell, the payment of the purchase price is a positive suspensive condition,49 the failure
of which is not a breach, casual or serious, but a situation that prevents the obligation of the vendor
to convey title from acquiring an obligatory force.50

Respondents in this case bound themselves to deliver a deed of absolute sale and clean title
covering Lot No. 1083-C after petitioners have made the second installment. This promise to sell
was subject to the fulfillment of the suspensive condition that petitioners pay P750,000 on August
31, 1987, and deposit a postdated check for the third installment of P1,141,622.50.51 Petitioners,
however, failed to complete payment of the second installment. The non-fulfillment of the condition
rendered the contract to sell ineffective and without force and effect. It must be stressed that the
breach contemplated in Article 1191 of the New Civil Code is the obligor’s failure to comply with an
obligation already extant, not a failure of a condition to render binding that obligation.52 Failure to pay,
in this instance, is not even a breach but an event that prevents the vendor’s obligation to convey
title from acquiring binding force.53 Hence, the agreement of the parties in the instant case may be
set aside, but not because of a breach on the part of petitioners for failure to complete payment of
the second installment. Rather, their failure to do so prevented the obligation of respondents to
convey title from acquiring an obligatory force.54

Coming now to the matter of prescription. Contrary to petitioners’ assertion, we find that prescription
has not yet set in. Article 1391 states that the action for annulment of void contracts shall be brought
within four years. This period shall begin from the time the fraud or mistake is discovered. Here, the
fraud was discovered in 1992 and the complaint filed in 1993. Thus, the case is well within the
prescriptive period.

On the matter of damages, the Court of Appeals awarded respondents P323,617.50 as actual
damages for the loss of the land that was given to Nieto, P200,000 as moral damages, P50,000 as
exemplary damages, P50,000 as attorney’s fees and the costs of suit. Modifications are in order,
however.

Moral damages may be recovered in cases where one willfully causes injury to property, or in cases
of breach of contract where the other party acts fraudulently or in bad faith.55 Exemplary damages
are imposed by way of example or correction for the public good,56 when the party to a contract acts
in a wanton, fraudulent, oppressive or malevolent manner.57 Attorney’s fees are allowed when
exemplary damages are awarded and when the party to a suit is compelled to incur expenses to
protect his interest.58

While it has been sufficiently proven that the respondents are entitled to damages, the actual
amounts awarded by the lower court must be reduced because damages are not intended for a
litigant’s enrichment, at the expense of the petitioners.59 The purpose for the award of damages
other than actual damages would be served, in this case, by reducing the amounts awarded.

Respondents were amply compensated through the award of actual damages, which should be
sustained. The other damages awarded total P300,000, or almost equivalent to the amount of actual
damages. Practically this will double the amount of actual damages awarded to respondents. To
avoid breaching the doctrine on enrichment, award for damages other than actual should be
reduced. Thus, the amount of moral damages should be set at only P30,000, and the award of
exemplary damages at only P20,000. The award of attorney’s fees should also be reduced
to P20,000, which under the circumstances of this case appears justified and reasonable.

WHEREFORE, the assailed decision of the Court of Appeals is MODIFIED. The Deed of Absolute
Sale in question is declared NULL and VOID in its entirety. Petitioners are ORDERED to pay
respondents P323,617.50 as actual damages, P30,000.00 as moral damages, P20,000.00 as
exemplary damages and P20,000.00 as attorney’s fees. No pronouncement as to costs.

SO ORDERED.

G.R. No. 176008 August 10, 2011

METROPOLITAN BANK and TRUST COMPANY, substituted by MERIDIAN (SPV-AMCI)

CORPORATION,Petitioner,
vs.
INTERNATIONAL EXCHANGE BANK, Respondent.

x - - - - - - - - - - - - - - - - - - - - - - -x

G.R. No. 176131

CHUAYUCO STEEL MANUFACTURING, Petitioner,

vs.
INTERNATIONAL EXCHANGE BANK (now UNION BANK OF THE PHILIPPINES), Respondent.

DECISION
PERALTA, J.:

Before the Court are two consolidated petitions for review on certiorari under Rule 45 of the Rules of
Court, both of which are seeking the reversal and setting aside of the Decision1 and Resolution2 of
the Court of Appeals (CA) dated May 5, 2006 and December 22, 2006, respectively, in CA-G.R. SP
No. 00549-MIN which annulled and set aside the Orders dated September 6, 2004 and February 14,
2005, the Resolution dated March 15, 2005 and the Joint Resolution dated June 8, 2005 of the
Regional Trial Court (RTC) of Misamis Oriental, Branch 17 in Civil Case Nos. 2004-197 and 2004-
200.

The pertinent factual and procedural antecedents of the case are as follows:

Sacramento Steel Corporation (SSC) is a business entity engaged in manufacturing and producing
steel and steel products, such as cold rolled coils and galvanized sheets, in its own steel
manufacturing plant located at Tagoloan, Misamis Oriental.

For the purpose of increasing its capital, SSC entered into a Credit Agreement with herein
respondent International Exchange Bank (IEB) on September 10, 2001 wherein the latter granted
the former an omnibus credit line in the amount of ₱60,000,000.00, a loan of ₱20,000,000.00 and a
subsequent credit line with a limit of ₱100,000,000.00.

As security for its loan obligations, SSC executed five separate deeds of chattel mortgage
constituted over various equipment found in its steel manufacturing plant. The deeds of mortgage
were dated September 17, 2001, February 26, 2003, April 16, 2003, May 25, 2004 and June 7,
2004.

Subsequently, SSC defaulted in the payment of its obligations. IEB's demand for payment went
unheeded. On July 7, 2004, the IEB filed with the RTC of Misamis Oriental an action for injunction
for the purpose of enjoining SSC from taking out the mortgaged equipment from its premises. The
case was docketed as Civil Case No. 2004-197. Thereafter, IEB filed a Supplemental Complaint
praying for the issuance of a writ of replevin or, in the alternative, for the payment of SSC's
outstanding obligations and attorney's fees.3

On the other hand, on July 18, 2004, SSC filed with the same RTC of Misamis Oriental a Complaint
for annulment of mortgage and specific performance for the purpose of compelling the IEB to
restructure SSC's outstanding obligations. SSC also prayed for the issuance of a Temporary
Restraining Order (TRO) and writ of preliminary injunction to prevent IEB from taking any steps to
dispossess SSC of any equipment in its steel manufacturing plant as well as to restrain it from
foreclosing the mortgage on the said equipment.4 The RTC issued a TRO. The case was docketed
as Civil Case No. 2004-200 and was subsequently consolidated with Civil Case No. 2004-197.

On July 23, 2004, the RTC issued an Order5 granting IEB's application for the issuance of a writ of
replevin. However, upon agreement of the parties, the implementation of the said writ was held in
abeyance pending the trial court's resolution of the other incidents in the said case.6 The RTC also
directed that there shall be "no commercial operation without court approval.7

On August 26, 2004, the IEB filed a petition for extrajudicial foreclosure of chattel mortgage.

SSC opposed IEB's petition and prayed for the issuance of a writ of preliminary injunction.

On September 6, 2004, the RTC issued an Order disposing as follows:

WHEREFORE, let a Writ of preliminary injunction be issued restraining defendant iBank [IEB], the
Sheriff, his agents and other person/s acting in their behalf as agents – privies or representative[s] in
whatever capacity, from conducting foreclosure, whether judicial or extrajudicial, of any properties
subject of the controversy and are further directed not to take any steps that will, in effect,
dispossess plaintiff [SSC] of any of its machineries and equipment in its steel manufacturing plant
pending determination of the case. Let a bond (cash or surety) of Five Hundred Thousand
(P500,000.00) Pesos be posted by the plaintiff Sacramento Steel Corporation as required by law.

SO ORDERED.8

Meanwhile, on August 30, 2004, SSC entered into a Capacity Lease Agreement with herein
petitioner Chuayuco Steel Manufacturing Corporation (CSMC) which allowed the latter to lease and
operate the former's cold rolling mill and galvanizing plant for a period of five years.

On October 21, 2004, herein petitioner Metropolitan Bank and Trust Company (Metrobank) filed a
motion for intervention contending that it has legal interest in the properties subject of the litigation
between IEB and SSC because it is a creditor of SSC and that the mortgage contracts between IEB
and SSC were entered into to defraud the latter's creditors.9 Metrobank prayed for the rescission of
the chattel mortgages executed by SSC in favor of IEB.

On January 21, 2005, CSMC filed an Omnibus Motion for intervention and for allowance to
immediately operate the cold rolling mill and galvanizing plant of SSC contending that its purpose in
intervening is to seek the approval of the court to operate the said plant pursuant to the Capacity
Lease Agreement it entered into with SSC.10 IEB filed its Opposition to the said Motion.11

On February 14, 2005, the RTC issued an Order12 admitting the motions for intervention filed by
CSMC and Metrobank.

On March 15, 2005, the RTC issued a Resolution, the dispositive portion of which reads, thus:

WHEREFORE, premises considered, the motion to operate the machineries pendente lite is hereby
GRANTED based on law and equity as soon as practicable. This is without prejudice on the part of
the I-bank [IEB] to assert the enforcement of the proposed schedule of payment submitted by SSC
to the Court (Exh. "A" – Motion for Early Resolution, 2/16/2005 hearing) and to continually post their
security guards unless withdrawn.

SO ORDERED.13

On June 8, 2005, the RTC issued a Joint Resolution14 reiterating its admission of CSMC's motion for
intervention and directing the latter to file its complaint-in-intervention.

On August 25, 2005, IEB filed a petition for certiorari, prohibition and mandamus with the CA
assailing the RTC Orders dated September 6, 2004 and February 14, 2005, Resolution dated March
15, 2005 and Joint Resolution dated June 8, 2005.15

On May 5, 2006, the CA rendered its presently assailed Decision which disposed of the case as
follows:

WHEREFORE, the petition is hereby GRANTED. The questioned Orders dated September 6, 2004,
February 14, 2005, March 15, 2005 and June 8, 2005 issued by public respondent RTC, Branch 17,
Misamis Oriental, presided by Hon. Florencia D. Sealana-Abbu in Civil Case Nos. 2004-197 and
2004-200 are hereby ANNULLED and SET ASIDE. Public respondent is hereby DIRECTED to turn-
over the mortgaged properties covered by the writ of replevin to petitioner I-Bank for the eventual
foreclosure thereof.

SO ORDERED.16

Metrobank, CSMC and SSC filed their respective motions for reconsideration, but these were all
denied by the CA in its Resolution dated December 22, 2006.

Hence, the instant petitions for review on certiorari.

In G.R. No. 176008, petitioner Metrobank submits the following issues:

(A) WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED WHEN IT

RULED THAT PETITIONER'S COMPLAINT-IN-INTERVENTION IS AN ACCION
PAULIANA, A SUBSIDIARY ACTION, WHICH PRESUPPOSES AN UNSATISFIED
JUDGMENT, WHICH UNSATISFIED JUDGMENT IS ABSENT IN THE CASE AT BAR.

(B) WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED WHEN IT

RULED THAT THE TRIAL COURT COMMITTED GRAVE ABUSE OF DISCRETION IN
ALLOWING PETITIONER'S COMPLAINT-IN-INTERVENTION.17

In G.R. No. 176131, petitioner CSMC raises the following grounds:

I. THE HONORABLE COURT ERRED IN NOT PASSING UPON THE ISSUE THAT HEREIN
RESPONDENT IBANK IS GUILTY OF FORUM-SHOPPING.

II. THE HONORABLE COURT ERRED IN NOT RULING THAT HEREIN RESPONDENT
IBANK'S FAILURE TO FILE A MOTION FOR RECONSIDERATION TO THE ORDER
DATED 08 JUNE 2005 IS FATAL TO ITS PETITION.

III. THE HONORABLE COURT ERRED IN RULING THAT THE ORDER OF JUDGE
SEALANA-ABBU ADMITTING THE INTERVENTION OF HEREIN PETITIONER CSMC IS
WITHOUT LEGAL BASIS.18

In a Manifestation and Motion dated September 26, 2007, petitioner Metrobank manifested that it no
longer has any interest in pursuing the instant case as the loan obligation owed by SSC to it has
been sold by the latter to a corporation known as Meridian (SPV-AMC) Corporation (Meridian).
Accordingly, Metrobank prayed that it be substituted by Meridian as petitioner in the instant case.19

In a Resolution20 dated November 12, 2007, this Court granted Metrobank's Motion.

At the outset, the Court takes note that no arguments or questions were raised by petitioners with
respect to the September 6, 2004 Order and March 15, 2005 Resolution of the RTC which were
annulled by the CA. Hence, the only issues left for resolution in the instant petition are whether or
not petitioners Metrobank and CSMC may be allowed to intervene in Civil Case Nos. 2004-197 and
2004-200.

The Court will dwell first on the issues raised by Metrobank in G.R. No. 176008.
In its first assigned error, Metrobank contends that the CA erred in ruling that its Complaint-in-
Intervention is in the nature of an accion pauliana.

The Court does not agree.

A perusal of Metrobank's Complaint-in-Intervention would show that its main objective is to have the
chattel mortgages executed by SSC in favor of IEB rescinded. This is clearly evident in its prayer,
which reads as follows:

WHEREFORE, premises considered, it is respectfully prayed unto the Honorable Court that
judgment be rendered:

(1) RESCINDING the chattel mortgages executed by Defendants Sacramento and

Delmo in favor of Defendant Ibank dated May 25, 2004 and June 7, 2004, respectively;

(2) Ordering defendants Sacramento, Delmo and Ibank to pay, jointly and severally, Plaintiff-
Intervenor the amounts of:

(A) ₱500,000.00, as and by way of exemplary damages;

(B) ₱500,000.00, as and by way of attorney's fees; and

(C) Costs of suit.

Other reliefs as may be just and equitable under the premises are likewise prayed for.

x x x x21

Under Article 1381 of the Civil Code, an accion pauliana is an action to rescind contracts in fraud of
creditors.22

However, jurisprudence is clear that the following successive measures must be taken by a creditor
before he may bring an action for rescission of an allegedly fraudulent contract: (1) exhaust the
properties of the debtor through levying by attachment and execution upon all the property of the
debtor, except such as are exempt by law from execution; (2) exercise all the rights and actions of
the debtor, save those personal to him (accion subrogatoria); and (3) seek rescission of the
contracts executed by the debtor in fraud of their rights (accion pauliana).23 It is thus apparent that an
action to rescind, or an accion pauliana, must be of last resort, availed of only after the creditor has
exhausted all the properties of the debtor not exempt from execution or after all other legal remedies
have been exhausted and have been proven futile.24

It does not appear that Metrobank sought other properties of SSC other than the subject lots alleged
to have been transferred in fraud of creditors. Neither is there any showing that Metrobank
subrogated itself in SSC's transmissible rights and actions. Without availing of the first and second
remedies, Metrobank simply undertook the third measure and filed an action for annulment of the
chattel mortgages. This cannot be done. Article 1383 of the New Civil Code is very explicit that the
right or remedy of the creditor to impugn the acts which the debtor may have done to defraud them
is subsidiary in nature.25 It can only be availed of in the absence of any other legal remedy to obtain
reparation for the injury.26 This fact is not present in this case. No evidence was presented nor even
an allegation was offered to show that Metrobank had availed of the abovementioned remedies
before it tried to question the validity of the contracts of chattel mortgage between IEB and SSC.
Metrobank also contends that in order to apply the concept of, and the rules pertaining to, accion
pauliana, the subject matter must be a conveyance, otherwise valid, which is undertaken in fraud of
creditors. Metrobank claims that since there is no conveyance involved in the contract of chattel
mortgage between SSC and IEB, which Metrobank seeks to rescind, the CA erred in ruling that the
latter's Complaint-in-Intervention is an accion pauliana.

The Court is not persuaded.

In the instant case, the contract of chattel mortgage entered into by and between SSC and IEB
involves a conveyance of patrimonial benefit in favor of the latter as the properties subject of the
chattel mortgage stand as security for the credit it extended to SSC. In a very recent case involving
an action for the rescission of a real estate mortgage,27 while this Court found that some of the
elements of accion pauliana were not present, it found that a mortgage contract involves the
conveyance of a patrimonial benefit.

In sum, Metrobank may not be allowed to intervene and pray for the rescission of the chattel
mortgages executed by SSC in favor of IEB. The remedy being sought by Metrobank is in the nature
of an accion pauliana which, under the factual circumstances obtaining in the present case, may not
be allowed. Based on the foregoing, the Court finds no error in the ruling of the CA that the RTC
committed grave abuse of discretion in allowing Metrobank's intervention.

The Court will now proceed to resolve the issues raised by petitioner CSMC in G.R. No. 176131.

Firstly, CSMC contends that IEB was forum shopping when it filed a petition for certiorari with the CA
seeking, among others, the enjoinment of the commercial operation of the subject machineries and
equipment when its Opposition28 to the implementation of the Capacity Lease Agreement between
SSC and CSMC is still pending determination by the RTC.

The Court does not agree.

Forum shopping has been defined as an act of a party, against whom an adverse judgment has
been rendered in one forum, of seeking and possibly getting a favorable opinion in another
forum, other than by appeal or a special civil action for certiorari, or the institution of two or
more actions or proceedings grounded on the same cause on the supposition that one or the other
court would make a favorable disposition.29

Forum shopping exists when two or more actions involve the same transactions, essential facts and
circumstances, and raise identical causes of action, subject matter, and issues.30 Still another test of
forum shopping is when the elements of litis pendencia are present or where a final judgment in one
case will amount to res judicata in another – whether in the two or more pending cases, there is an
identity of (a) parties (or at least such parties as represent the same interests in both actions); (b)
rights or causes of action, and (c) reliefs sought.31

In the instant case on the one hand, IEB's Opposition questions the legality and seeks to prevent the
implementation of the Capacity Lease Agreement between CSMC and SSC which, in essence,
authorizes CSMC to operate the subject machineries pendente lite. On the other hand, the petition
for certiorari filed by IEB assails and seeks to nullify, among others, the March 15, 2005 and June 8,
2005 Orders of the RTC allowing SSC to operate the subject machineries pendente lite. It is, thus,
clear that there is no identity of subject matter, cause of action and reliefs sought in IEB's Opposition
filed with the RTC and in its petition for certiorari filed with the CA. Hence, IEB is not guilty of forum
shopping.
Secondly, CSMC argues that IEB's failure to file a motion for reconsideration of the RTC Order dated
June 8, 2005 is fatal to its petition for certiorari filed with the CA.

The Court is not persuaded.

While the general rule is that before certiorari may be availed of, petitioner must have filed a motion
for reconsideration of the act or order complained of, the Court has dispensed with this requirement
in several instances.32 Thus, a previous motion for reconsideration before the filing of a petition
for certiorari is necessary unless: (i) the issue raised is one purely of law; (ii) public interest is
involved; (iii) there is urgency; (iv) a question of jurisdiction is squarely raised before and decided by
the lower court; and (v) the order is a patent nullity.33 In the instant case, the Court agrees with the
CA that there is no need for such motion because the issue regarding the applicability of the rule on
intervention raised by IEB in its petition for certiorari filed with the CA, insofar as the June 8, 2005
Order of the RTC is concerned, is one purely of law.

The foregoing notwithstanding, the Court finds that the CA erred in ruling that the allowance of
CSMC's motion for intervention is improper. CSMC's intervention should be allowed.

The purpose of intervention is to enable a stranger to an action to become a party in order for him to
protect his interest and for the court to settle all conflicting claims.34 Intervention is allowed to avoid
multiplicity of suits more than on due process considerations.35 To warrant intervention under Rule
19 of the Rules of Court, two requisites must concur: (1) the movant has a legal interest on the
matter in litigation; and (2) intervention must not unduly delay or prejudice the adjudication of the
rights of the parties, nor should the claim of the intervenor be capable of being properly decided in a
separate proceeding.36

In the present case, CSMC, being a lessee of the subject properties, has a legal interest
therein. The RTC correctly held, thus:
1awphil

Under the Rules of Court, intervention is permissive and maybe permitted by the Court when the
applicant shows facts which satisfy the requirements of the law authorizing intervention. (Firestone
Ceramics Inc. vs. CA 313 SCRA 522) Records of the case showed that on August 30, 2004, an
agreement was finalized and entered into by applicant Chuayuco and defendant/plaintiff Sacramento
Steel Corporation whereby the former shall lease and make use of the machineries of Sacramento
Steel under the Capacity Lease Agreement (CLA). One of the terms and condition[s] under [the]
CLA was for the monthly lease payments to take effect upon signing of the contract. A person
seeking to intervene in a suit must show that he has legal interest which must be actual and
material, direct and immediate. He must show that he will either gain or lose by direct legal operation
and effect of a judgment. (Hrs. of Nicolas Orosa vs. Migrino 218 SCRA 311) The Court finds that
Chuayuco had a constituted and sufficient legal interest in the machineries subject of the litigation
which is actual and material. Any disposition of the case will adversely affect the standing of the
intervenor.37

Moreover, considering that CSMC's interest is limited only to the operation of the subject
machineries pursuant to its lease contract with SSC, its intervention would not unduly delay or
prejudice the adjudication of the rights of SSC and IEB. CSMC's intervention should be treated as
one pro interesse suo which is a mode of intervention in equity wherein a stranger desires to
intervene for the purpose of asserting a property right in the res, or thing, which is the subject matter
of the litigation, without becoming a formal plaintiff or defendant, and without acquiring control over
the course of a litigation, which is conceded to the main actors therein.38
Lastly, the Court does not agree with the CA when it ruled that the applicable provision is Rule 3,
Section 19 (erroneously cited as Section 20) of the Rules of Court on transfer of interest and
substitution of parties. Being a mere lessee of the subject properties, CSMC is a stranger insofar as
the dispute between SSC and IEB is concerned. The action filed by IEB against SSC is an action for
the payment or satisfaction of the loans incurred by the latter, which includes a possible foreclosure
of the subject properties given as security for the said loans. CSMC may not be considered a
successor, and may not be substituted in place of SSC, insofar as these loans are concerned. If any,
what has been transferred to CSMC is only the right of SSC to operate the subject equipment and
machineries which it owns. As such, SSC may not be removed as defendant because its interest in
the subject properties remains, being the owner thereof.

WHEREFORE, the assailed Decision and Resolution of the Court of Appeals in CA-G.R. SP No.
00549-MIN are AFFIRMED with MODIFICATION. The February 14, 2005 Order of the Regional Trial
Court of Misamis Oriental, Branch 17, is MODIFIED by denying Metrobank's Motion for Intervention,
while the Joint Resolution of the same trial court, dated June 8, 2005, reiterating its admission of
CSMC's Motion for Intervention and directing the latter to file its complaint-in-intervention,
is REINSTATED.

SO ORDERED.

G.R. No. 176008 August 10, 2011

METROPOLITAN BANK and TRUST COMPANY, substituted by MERIDIAN (SPV-AMCI)

CORPORATION,Petitioner,
vs.
INTERNATIONAL EXCHANGE BANK, Respondent.

x - - - - - - - - - - - - - - - - - - - - - - -x

G.R. No. 176131

CHUAYUCO STEEL MANUFACTURING, Petitioner,

vs.
INTERNATIONAL EXCHANGE BANK (now UNION BANK OF THE PHILIPPINES), Respondent.

DECISION

PERALTA, J.:

Before the Court are two consolidated petitions for review on certiorari under Rule 45 of the Rules of
Court, both of which are seeking the reversal and setting aside of the Decision1 and Resolution2 of
the Court of Appeals (CA) dated May 5, 2006 and December 22, 2006, respectively, in CA-G.R. SP
No. 00549-MIN which annulled and set aside the Orders dated September 6, 2004 and February 14,
2005, the Resolution dated March 15, 2005 and the Joint Resolution dated June 8, 2005 of the
Regional Trial Court (RTC) of Misamis Oriental, Branch 17 in Civil Case Nos. 2004-197 and 2004-
200.
The pertinent factual and procedural antecedents of the case are as follows:

Sacramento Steel Corporation (SSC) is a business entity engaged in manufacturing and producing
steel and steel products, such as cold rolled coils and galvanized sheets, in its own steel
manufacturing plant located at Tagoloan, Misamis Oriental.

For the purpose of increasing its capital, SSC entered into a Credit Agreement with herein
respondent International Exchange Bank (IEB) on September 10, 2001 wherein the latter granted
the former an omnibus credit line in the amount of ₱60,000,000.00, a loan of ₱20,000,000.00 and a
subsequent credit line with a limit of ₱100,000,000.00.

As security for its loan obligations, SSC executed five separate deeds of chattel mortgage
constituted over various equipment found in its steel manufacturing plant. The deeds of mortgage
were dated September 17, 2001, February 26, 2003, April 16, 2003, May 25, 2004 and June 7,
2004.

Subsequently, SSC defaulted in the payment of its obligations. IEB's demand for payment went
unheeded. On July 7, 2004, the IEB filed with the RTC of Misamis Oriental an action for injunction
for the purpose of enjoining SSC from taking out the mortgaged equipment from its premises. The
case was docketed as Civil Case No. 2004-197. Thereafter, IEB filed a Supplemental Complaint
praying for the issuance of a writ of replevin or, in the alternative, for the payment of SSC's
outstanding obligations and attorney's fees.3

On the other hand, on July 18, 2004, SSC filed with the same RTC of Misamis Oriental a Complaint
for annulment of mortgage and specific performance for the purpose of compelling the IEB to
restructure SSC's outstanding obligations. SSC also prayed for the issuance of a Temporary
Restraining Order (TRO) and writ of preliminary injunction to prevent IEB from taking any steps to
dispossess SSC of any equipment in its steel manufacturing plant as well as to restrain it from
foreclosing the mortgage on the said equipment.4 The RTC issued a TRO. The case was docketed
as Civil Case No. 2004-200 and was subsequently consolidated with Civil Case No. 2004-197.

On July 23, 2004, the RTC issued an Order5 granting IEB's application for the issuance of a writ of
replevin. However, upon agreement of the parties, the implementation of the said writ was held in
abeyance pending the trial court's resolution of the other incidents in the said case.6 The RTC also
directed that there shall be "no commercial operation without court approval.7

On August 26, 2004, the IEB filed a petition for extrajudicial foreclosure of chattel mortgage.

SSC opposed IEB's petition and prayed for the issuance of a writ of preliminary injunction.

On September 6, 2004, the RTC issued an Order disposing as follows:

WHEREFORE, let a Writ of preliminary injunction be issued restraining defendant iBank [IEB], the
Sheriff, his agents and other person/s acting in their behalf as agents – privies or representative[s] in
whatever capacity, from conducting foreclosure, whether judicial or extrajudicial, of any properties
subject of the controversy and are further directed not to take any steps that will, in effect,
dispossess plaintiff [SSC] of any of its machineries and equipment in its steel manufacturing plant
pending determination of the case. Let a bond (cash or surety) of Five Hundred Thousand
(P500,000.00) Pesos be posted by the plaintiff Sacramento Steel Corporation as required by law.

SO ORDERED.8
Meanwhile, on August 30, 2004, SSC entered into a Capacity Lease Agreement with herein
petitioner Chuayuco Steel Manufacturing Corporation (CSMC) which allowed the latter to lease and
operate the former's cold rolling mill and galvanizing plant for a period of five years.

On October 21, 2004, herein petitioner Metropolitan Bank and Trust Company (Metrobank) filed a
motion for intervention contending that it has legal interest in the properties subject of the litigation
between IEB and SSC because it is a creditor of SSC and that the mortgage contracts between IEB
and SSC were entered into to defraud the latter's creditors.9 Metrobank prayed for the rescission of
the chattel mortgages executed by SSC in favor of IEB.

On January 21, 2005, CSMC filed an Omnibus Motion for intervention and for allowance to
immediately operate the cold rolling mill and galvanizing plant of SSC contending that its purpose in
intervening is to seek the approval of the court to operate the said plant pursuant to the Capacity
Lease Agreement it entered into with SSC.10 IEB filed its Opposition to the said Motion.11

On February 14, 2005, the RTC issued an Order12 admitting the motions for intervention filed by
CSMC and Metrobank.

On March 15, 2005, the RTC issued a Resolution, the dispositive portion of which reads, thus:

WHEREFORE, premises considered, the motion to operate the machineries pendente lite is hereby
GRANTED based on law and equity as soon as practicable. This is without prejudice on the part of
the I-bank [IEB] to assert the enforcement of the proposed schedule of payment submitted by SSC
to the Court (Exh. "A" – Motion for Early Resolution, 2/16/2005 hearing) and to continually post their
security guards unless withdrawn.

SO ORDERED.13

On June 8, 2005, the RTC issued a Joint Resolution14 reiterating its admission of CSMC's motion for
intervention and directing the latter to file its complaint-in-intervention.

On August 25, 2005, IEB filed a petition for certiorari, prohibition and mandamus with the CA
assailing the RTC Orders dated September 6, 2004 and February 14, 2005, Resolution dated March
15, 2005 and Joint Resolution dated June 8, 2005.15

On May 5, 2006, the CA rendered its presently assailed Decision which disposed of the case as
follows:

WHEREFORE, the petition is hereby GRANTED. The questioned Orders dated September 6, 2004,
February 14, 2005, March 15, 2005 and June 8, 2005 issued by public respondent RTC, Branch 17,
Misamis Oriental, presided by Hon. Florencia D. Sealana-Abbu in Civil Case Nos. 2004-197 and
2004-200 are hereby ANNULLED and SET ASIDE. Public respondent is hereby DIRECTED to turn-
over the mortgaged properties covered by the writ of replevin to petitioner I-Bank for the eventual
foreclosure thereof.

SO ORDERED.16

Metrobank, CSMC and SSC filed their respective motions for reconsideration, but these were all
denied by the CA in its Resolution dated December 22, 2006.

Hence, the instant petitions for review on certiorari.

In G.R. No. 176008, petitioner Metrobank submits the following issues:

(A) WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED WHEN IT

RULED THAT PETITIONER'S COMPLAINT-IN-INTERVENTION IS AN ACCION
PAULIANA, A SUBSIDIARY ACTION, WHICH PRESUPPOSES AN UNSATISFIED
JUDGMENT, WHICH UNSATISFIED JUDGMENT IS ABSENT IN THE CASE AT BAR.

(B) WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED WHEN IT

RULED THAT THE TRIAL COURT COMMITTED GRAVE ABUSE OF DISCRETION IN
ALLOWING PETITIONER'S COMPLAINT-IN-INTERVENTION.17

In G.R. No. 176131, petitioner CSMC raises the following grounds:

I. THE HONORABLE COURT ERRED IN NOT PASSING UPON THE ISSUE THAT HEREIN
RESPONDENT IBANK IS GUILTY OF FORUM-SHOPPING.

II. THE HONORABLE COURT ERRED IN NOT RULING THAT HEREIN RESPONDENT
IBANK'S FAILURE TO FILE A MOTION FOR RECONSIDERATION TO THE ORDER
DATED 08 JUNE 2005 IS FATAL TO ITS PETITION.

III. THE HONORABLE COURT ERRED IN RULING THAT THE ORDER OF JUDGE
SEALANA-ABBU ADMITTING THE INTERVENTION OF HEREIN PETITIONER CSMC IS
WITHOUT LEGAL BASIS.18

In a Manifestation and Motion dated September 26, 2007, petitioner Metrobank manifested that it no
longer has any interest in pursuing the instant case as the loan obligation owed by SSC to it has
been sold by the latter to a corporation known as Meridian (SPV-AMC) Corporation (Meridian).
Accordingly, Metrobank prayed that it be substituted by Meridian as petitioner in the instant case.19

In a Resolution20 dated November 12, 2007, this Court granted Metrobank's Motion.

At the outset, the Court takes note that no arguments or questions were raised by petitioners with
respect to the September 6, 2004 Order and March 15, 2005 Resolution of the RTC which were
annulled by the CA. Hence, the only issues left for resolution in the instant petition are whether or
not petitioners Metrobank and CSMC may be allowed to intervene in Civil Case Nos. 2004-197 and
2004-200.

The Court will dwell first on the issues raised by Metrobank in G.R. No. 176008.

In its first assigned error, Metrobank contends that the CA erred in ruling that its Complaint-in-
Intervention is in the nature of an accion pauliana.

The Court does not agree.

A perusal of Metrobank's Complaint-in-Intervention would show that its main objective is to have the
chattel mortgages executed by SSC in favor of IEB rescinded. This is clearly evident in its prayer,
which reads as follows:

WHEREFORE, premises considered, it is respectfully prayed unto the Honorable Court that
judgment be rendered:
 (1) RESCINDING the chattel mortgages executed by Defendants Sacramento and
Delmo in favor of Defendant Ibank dated May 25, 2004 and June 7, 2004, respectively;

(2) Ordering defendants Sacramento, Delmo and Ibank to pay, jointly and severally, Plaintiff-
Intervenor the amounts of:

(A) ₱500,000.00, as and by way of exemplary damages;

(B) ₱500,000.00, as and by way of attorney's fees; and

(C) Costs of suit.

Other reliefs as may be just and equitable under the premises are likewise prayed for.

x x x x21

Under Article 1381 of the Civil Code, an accion pauliana is an action to rescind contracts in fraud of
creditors.22

However, jurisprudence is clear that the following successive measures must be taken by a creditor
before he may bring an action for rescission of an allegedly fraudulent contract: (1) exhaust the
properties of the debtor through levying by attachment and execution upon all the property of the
debtor, except such as are exempt by law from execution; (2) exercise all the rights and actions of
the debtor, save those personal to him (accion subrogatoria); and (3) seek rescission of the
contracts executed by the debtor in fraud of their rights (accion pauliana).23 It is thus apparent that an
action to rescind, or an accion pauliana, must be of last resort, availed of only after the creditor has
exhausted all the properties of the debtor not exempt from execution or after all other legal remedies
have been exhausted and have been proven futile.24

It does not appear that Metrobank sought other properties of SSC other than the subject lots alleged
to have been transferred in fraud of creditors. Neither is there any showing that Metrobank
subrogated itself in SSC's transmissible rights and actions. Without availing of the first and second
remedies, Metrobank simply undertook the third measure and filed an action for annulment of the
chattel mortgages. This cannot be done. Article 1383 of the New Civil Code is very explicit that the
right or remedy of the creditor to impugn the acts which the debtor may have done to defraud them
is subsidiary in nature.25 It can only be availed of in the absence of any other legal remedy to obtain
reparation for the injury.26 This fact is not present in this case. No evidence was presented nor even
an allegation was offered to show that Metrobank had availed of the abovementioned remedies
before it tried to question the validity of the contracts of chattel mortgage between IEB and SSC.

Metrobank also contends that in order to apply the concept of, and the rules pertaining to, accion
pauliana, the subject matter must be a conveyance, otherwise valid, which is undertaken in fraud of
creditors. Metrobank claims that since there is no conveyance involved in the contract of chattel
mortgage between SSC and IEB, which Metrobank seeks to rescind, the CA erred in ruling that the
latter's Complaint-in-Intervention is an accion pauliana.

The Court is not persuaded.

In the instant case, the contract of chattel mortgage entered into by and between SSC and IEB
involves a conveyance of patrimonial benefit in favor of the latter as the properties subject of the
chattel mortgage stand as security for the credit it extended to SSC. In a very recent case involving
an action for the rescission of a real estate mortgage,27 while this Court found that some of the
elements of accion pauliana were not present, it found that a mortgage contract involves the
conveyance of a patrimonial benefit.

In sum, Metrobank may not be allowed to intervene and pray for the rescission of the chattel
mortgages executed by SSC in favor of IEB. The remedy being sought by Metrobank is in the nature
of an accion pauliana which, under the factual circumstances obtaining in the present case, may not
be allowed. Based on the foregoing, the Court finds no error in the ruling of the CA that the RTC
committed grave abuse of discretion in allowing Metrobank's intervention.

The Court will now proceed to resolve the issues raised by petitioner CSMC in G.R. No. 176131.

Firstly, CSMC contends that IEB was forum shopping when it filed a petition for certiorari with the CA
seeking, among others, the enjoinment of the commercial operation of the subject machineries and
equipment when its Opposition28 to the implementation of the Capacity Lease Agreement between
SSC and CSMC is still pending determination by the RTC.

The Court does not agree.

Forum shopping has been defined as an act of a party, against whom an adverse judgment has
been rendered in one forum, of seeking and possibly getting a favorable opinion in another
forum, other than by appeal or a special civil action for certiorari, or the institution of two or
more actions or proceedings grounded on the same cause on the supposition that one or the other
court would make a favorable disposition.29

Forum shopping exists when two or more actions involve the same transactions, essential facts and
circumstances, and raise identical causes of action, subject matter, and issues.30 Still another test of
forum shopping is when the elements of litis pendencia are present or where a final judgment in one
case will amount to res judicata in another – whether in the two or more pending cases, there is an
identity of (a) parties (or at least such parties as represent the same interests in both actions); (b)
rights or causes of action, and (c) reliefs sought.31

In the instant case on the one hand, IEB's Opposition questions the legality and seeks to prevent the
implementation of the Capacity Lease Agreement between CSMC and SSC which, in essence,
authorizes CSMC to operate the subject machineries pendente lite. On the other hand, the petition
for certiorari filed by IEB assails and seeks to nullify, among others, the March 15, 2005 and June 8,
2005 Orders of the RTC allowing SSC to operate the subject machineries pendente lite. It is, thus,
clear that there is no identity of subject matter, cause of action and reliefs sought in IEB's Opposition
filed with the RTC and in its petition for certiorari filed with the CA. Hence, IEB is not guilty of forum
shopping.

Secondly, CSMC argues that IEB's failure to file a motion for reconsideration of the RTC Order dated
June 8, 2005 is fatal to its petition for certiorari filed with the CA.

The Court is not persuaded.

While the general rule is that before certiorari may be availed of, petitioner must have filed a motion
for reconsideration of the act or order complained of, the Court has dispensed with this requirement
in several instances.32 Thus, a previous motion for reconsideration before the filing of a petition
for certiorari is necessary unless: (i) the issue raised is one purely of law; (ii) public interest is
involved; (iii) there is urgency; (iv) a question of jurisdiction is squarely raised before and decided by
the lower court; and (v) the order is a patent nullity.33 In the instant case, the Court agrees with the
CA that there is no need for such motion because the issue regarding the applicability of the rule on
intervention raised by IEB in its petition for certiorari filed with the CA, insofar as the June 8, 2005
Order of the RTC is concerned, is one purely of law.

The foregoing notwithstanding, the Court finds that the CA erred in ruling that the allowance of
CSMC's motion for intervention is improper. CSMC's intervention should be allowed.

The purpose of intervention is to enable a stranger to an action to become a party in order for him to
protect his interest and for the court to settle all conflicting claims.34 Intervention is allowed to avoid
multiplicity of suits more than on due process considerations.35 To warrant intervention under Rule
19 of the Rules of Court, two requisites must concur: (1) the movant has a legal interest on the
matter in litigation; and (2) intervention must not unduly delay or prejudice the adjudication of the
rights of the parties, nor should the claim of the intervenor be capable of being properly decided in a
separate proceeding.36

In the present case, CSMC, being a lessee of the subject properties, has a legal interest
therein. The RTC correctly held, thus:
1awphil

Under the Rules of Court, intervention is permissive and maybe permitted by the Court when the
applicant shows facts which satisfy the requirements of the law authorizing intervention. (Firestone
Ceramics Inc. vs. CA 313 SCRA 522) Records of the case showed that on August 30, 2004, an
agreement was finalized and entered into by applicant Chuayuco and defendant/plaintiff Sacramento
Steel Corporation whereby the former shall lease and make use of the machineries of Sacramento
Steel under the Capacity Lease Agreement (CLA). One of the terms and condition[s] under [the]
CLA was for the monthly lease payments to take effect upon signing of the contract. A person
seeking to intervene in a suit must show that he has legal interest which must be actual and
material, direct and immediate. He must show that he will either gain or lose by direct legal operation
and effect of a judgment. (Hrs. of Nicolas Orosa vs. Migrino 218 SCRA 311) The Court finds that
Chuayuco had a constituted and sufficient legal interest in the machineries subject of the litigation
which is actual and material. Any disposition of the case will adversely affect the standing of the
intervenor.37

Moreover, considering that CSMC's interest is limited only to the operation of the subject
machineries pursuant to its lease contract with SSC, its intervention would not unduly delay or
prejudice the adjudication of the rights of SSC and IEB. CSMC's intervention should be treated as
one pro interesse suo which is a mode of intervention in equity wherein a stranger desires to
intervene for the purpose of asserting a property right in the res, or thing, which is the subject matter
of the litigation, without becoming a formal plaintiff or defendant, and without acquiring control over
the course of a litigation, which is conceded to the main actors therein.38

Lastly, the Court does not agree with the CA when it ruled that the applicable provision is Rule 3,
Section 19 (erroneously cited as Section 20) of the Rules of Court on transfer of interest and
substitution of parties. Being a mere lessee of the subject properties, CSMC is a stranger insofar as
the dispute between SSC and IEB is concerned. The action filed by IEB against SSC is an action for
the payment or satisfaction of the loans incurred by the latter, which includes a possible foreclosure
of the subject properties given as security for the said loans. CSMC may not be considered a
successor, and may not be substituted in place of SSC, insofar as these loans are concerned. If any,
what has been transferred to CSMC is only the right of SSC to operate the subject equipment and
machineries which it owns. As such, SSC may not be removed as defendant because its interest in
the subject properties remains, being the owner thereof.
WHEREFORE, the assailed Decision and Resolution of the Court of Appeals in CA-G.R. SP No.
00549-MIN are AFFIRMED with MODIFICATION. The February 14, 2005 Order of the Regional Trial
Court of Misamis Oriental, Branch 17, is MODIFIED by denying Metrobank's Motion for Intervention,
while the Joint Resolution of the same trial court, dated June 8, 2005, reiterating its admission of
CSMC's Motion for Intervention and directing the latter to file its complaint-in-intervention,
is REINSTATED.

SO ORDERED.

G.R. No. 47206 September 27, 1989

GLORIA M. DE ERQUIAGA, administratrix of the estate of the late SANTIAGO DE ERQUIAGA

& HON. FELICIANO S. GONZALES, petitioners,
vs.
HON. COURT OF APPEALS, AFRICA VALDEZ VDA. DE REYNOSO, JOSES V. REYNOSO, JR.,
EERNESTO , SYLVIA REYNOSO, LOURDES REYNOSO, CECILE REYNOSO, EDNA REYNOSO,
ERLINDA REYNOSO & EMILY REYNOSO, respondents.

Agrava, Lucero, Gineta & Roxas for petitioners.

Bausa, Ampil, Suarez, Parades & Bausa for private respondents.

GRINO-AQUINO, J.:

This is a case that began in the Court of First Instance of Sorsogon in 1970. Although the decision
dated September 30, 1972 of the trial court (pp. 79-106, Rollo) became final and executory because
none of the parties appealed, its execution has taken all of the past seventeen (17) years with the
end nowhere in sight. The delay in writing finis to this case is attributable to several factors, not the
least of which is the intransigence of the defeated party. Now, worn down by this attrital suit, both
have pleaded for a decision to end this case.

Assailed in this petition for review are:

(a) the decision of the Court of Appeals dated May 31, 1976 in CA-G.R. No. SP
04811, entitled "Africa Valdez Vda. de Reynoso et al. vs. Hon. Feliciano S. Gonzales
and Santiago de Erquiaga" (pp. 275-290, Rollo);

(b) its resolution dated August 3, 1976, denying the motion for reconsideration (p.
298, Rollo);

(c) its resolution of August 24, 1977, ordering entry of judgment (p. 316, Rollo); and
 (d) its resolution of October 4, 1977, denying the motion to set aside the entry of
judgment.

Santiago de Erquiaga was the owner of 100% or 3,100 paid-up shares of stock of the Erquiaga
Development Corporation which owns the Hacienda San Jose in Irosin, Sorsogon (p. 212, Rollo). On
November 4,1968, he entered into an Agreement with Jose L. Reynoso to sell to the latter his 3,100
shares (or 100%) of Erquiaga Development Corporation for P900,000 payable in installments on
definite dates fixed in the contract but not later than November 30, 1968. Because Reynoso failed to
pay the second and third installments on time, the total price of the sale was later increased to
P971,371.70 payable on or before December 17, 1969. The difference of P71,371.70 represented
brokers' commission and interest (CFI Decision, pp. 75, 81, 90, 99,Rollo).

As of December 17, 1968, Reynoso was able to pay the total sum of P410,000 to Erquiaga who
thereupon transferred all his shares (3,100 paid-up shares) in Erquiaga Development Corporation to
Reynoso, as well as the possession of the Hacienda San Jose, the only asset of the corporation (p.
100, Rollo). However, as provided in paragraph 3, subparagraph (c) of the contract to sell, Reynoso
pledged 1,500 shares in favor of Erquiaga as security for the balance of his obligation (p. 100,
Rollo). Reynoso failed to pay the balance of P561,321.70 on or before December 17, 1969, as
provided in the promissory notes he delivered to Erquiaga. So, on March 2, 1970, Erquiaga, through
counsel, formally informed Reynoso that he was rescinding the sale of his shares in the Erquiaga
Development Corporation (CFI Decision, pp. 81-100, Rollo).

As recited by the Court of Appeals in its decision under review, the following developments occurred
thereafter:

On March 30, 1970, private respondent Santiago de Erquiaga filed a complaint for
rescission with preliminary injunction against Jose L. Reynoso and Erquiaga
Development Corporation, in the Court of First Instance of Sorsogon, Branch I (Civil
Case No. 2446).** After issues have been joined and after trial on the merits, the lower court rendered judgment
(on September 30, 1972),*** the dispositive portion of which reads as follows:

In view of the foregoing, judgment is hereby rendered in favor of the

plaintiff and against the defendant Jose L. Reynoso, rescinding the
sale of 3,100 paid up shares of stock of the Erquiaga Development
Corporation to the defendant, and ordering:

(a) The defendant to return and reconvey to the plaintiff the 3,100 paid up shares of
stock of the Erquiaga Development Corporation which now stand in his name in the
books of the corporation;

(b) The defendant to render a full accounting of the fruits he received by virtue of said
3,100 paid up shares of stock of the Erquiaga Development Corporation, as well as
to return said fruits received by him to plaintiff Santiago de Erquiaga;

(c) The plaintiff to return to the defendant the amount of P100,000.00 plus legal
interest from November 4,1968, and the amount of P310,000.00 plus legal interest
from December 17, 1968, until paid;

(d) The defendant to pay the plaintiff as actual damages the amount of P12,000.00;

(e) The defendant to pay the plaintiff the amount of P50,000.00 as attorney's fees;
and
(f) The defendant to pay the costs of this suit and expenses of litigation. (Annex A-
Petition.)

The parties did not appeal therefrom and it became final and executory.

On March 21, 1973, the CFI of Sorsogon issued an Order, pertinent portions of which
reads:

It will be noted that both parties having decided not to appeal, the
decision has become final and executory. Nevertheless, the Court
finds merit in the contention of the plaintiff that the payment to the
defendant of the total sum of P410,000.00 plus the interest, should be
held in abeyance pending rendition of the accounting by the
defendant of the fruits received by him on account of the 3,100
shares of the capital stock of Erquiaga Development
Corporation. The same may be said with respect to the sums due the
plaintiff from the defendant for damages and attorney's fees. Indeed it
is reasonable to suppose, as contended by the plaintiff, that when
such accounting is made and the accounting, as urged by plaintiff,
should refer not only to the dividends due from the shares of stock
but to the products of the hacienda which is the only asset of the
Erquiaga Development Corporation, certain sums may be found due
to the plaintiff from the defendant which may partially or entirely off
set (sic) the amount adjudged against him in the decision.

It is the sense of the court that the fruits referred to in the decision
include not only the dividends received, if any, on the 3,100 shares of
stocks but more particularly the products received by the defendant
from the hacienda. The hacienda and the products thereon produced
constitute the physical assets of the Erquiaga Development
Corporation represented by the shares of stock and it would be
absurd to suppose that any accounting could be made by the
defendant without necessarily taking into account the products
received which could be the only basis for determining whether
dividends are due or not on account of the investment. The hacienda
and its natural fruits as represented by the shares of stock which the
defendant received as manager and controlling stockholder of the
Erquiaga Development Corporation can not be divorced from the
certificates of stock in order to determine whether the defendant has
correctly reported the income of the corporation or concealed part of
it for his personal advantage. It is hardly necessary for the Court to
restate an obvious fact that on both legal and equitable grounds, the
Erquiaga Development Corporation and defendant Jose Reynoso are
one and the same persons as far as the obligation to account for the
products of the hacienda is concerned,' (pp. 4-6, Annex 1, Answer.)

In the same Order, the CFI of Sorsogon appointed a receiver upon the filing of a
bond in the amount of P100,000.00. The reasons of the lower court for appointing a
receiver 'were that the matter of accounting of the fruits received by defendant
Reynoso as directed in the decision will take time; that plaintiff Erquiaga has shown
sufficient and justifiable ground for the appointment of a receiver in order to preserve
the Hacienda which has obviously been mismanaged by the defendant to a point
where the amortization of the loan with the Development Bank of the Philippines has
been neglected and the arrears in payments have risen to the amount of
P503,510.70 as of October 19, 1972, and there is danger that the Development Bank
of the Philippines may institute foreclosure proceedings to the damage and prejudice
of the plaintiff.' (p. 7, Id.)

On April 26, 1973, defendant Jose L. Reynoso died and he was substituted by his
surviving spouse Africa Valdez Vda. de Reynoso and children, as party defendants.

Defendants filed a petition for certiorari with a prayer for a writ of preliminary
injunction seeking the annulment of the aforementioned Order of March 21, 1973. On
June 28, 1973, the Court of Appeals rendered judgment dismissing the petition with
costs against the petitioners, ruling that said Order is valid and the respondent court
did not commit any grave abuse of discretion in issuing the same (Annex 2,
Id.). Petitioners brought the case up to the Supreme Court on a petition for review on
certiorari which was denied by said tribunal in a Resolution dated February 5, 1974
(Annex 3, Id.). Petitioners' motion for reconsideration thereof was likewise denied by
the Supreme Court on March 29,1974.

Upon motion of Erquiaga, the CFI of Sorsogon issued an order, dated February
12,1975, dissolving the receivership and ordering the delivery of the possession of
the Hacienda San Jose to Erquiaga, the filing of bond by said Erquiaga in the amount
of P410,000.00 conditioned to the payment of whatever may be due to the
substituted heirs of deceased defendant Reynoso (petitioners herein) after the
approval of the accounting report submitted by Reynoso. Said order further directed
herein petitioners to allow counsel for Erquiaga to inspect, copy and photograph
certain documents related to the accounting report (Annex B, Petition).

On March 3,1975, the CFI of Sorsogon approved the P410,000.00 bond submitted
by Erquiaga and the possession, management and control of the hacienda were
turned over to Erquiaga (Annex C, Petition). Petitioners (Reynosos) filed their motion
for reconsideration which the CFI of Sorsogon denied in an Order, dated June 23,
1975 (Annex D, Id.).

In an Omnibus Motion, dated July 25,1975, filed by Erquiaga, and over the objections
interposed thereto by herein petitioners (Reynosos), the CFI of Sorsogon issued an
Order, dated October 9, 1975, the dispositive portion of which reads:

WHEREFORE, in view of the foregoing, on the first count, the

defendants are directed (to deliver) to the plaintiff or his counsel
within five (5) days from receipt of this order the 1,600 shares of stock
of the Erquiaga Development Corporation which are in their
possession. Should the defendants refuse or delay in delivering such
shares of stock, as prayed for, the plaintiff is authorized:

(a) To call and hold a special meeting of the stockholders of the Erquiaga
Development Corporation to elect the members of the Board of Directors;

(b) In the said meeting the plaintiff is authorized to vote not only the 1,500 shares of
stock in his name but also the 1,600 shares in the name and possession of the
defendants;
 (c) The question as to who shall be elected members of the Board of Directors and
officers of the board is left to the discretion of the plaintiff;

(d) The members of the board and the officers who are elected are authorized to
execute any and all contracts or agreements under such conditions as may be
required by the Development Bank for the purpose of restructuring the loan of the
Erquiaga Development Corporation with the said bank.

On the second count, the prayer to strike out all expenses alleged[ly]
incurred by the defendants in the production of the fruits of Hacienda
San Jose and declaring the obligation of the plaintiff under paragraph
(c) of the judgment to pay the defendant the sum of P410,000.00 with
interest as fully compensated by the fruits earned by the defendants
from the property, as well as the issuance of a writ of execution
against the defendants to pay the plaintiffs P62,000.00 under
paragraphs (e) and (d) and costs of litigation under paragraph (f) of
the judgment of September 30, 1972, is denied.

The defendants are once more directed to comply with the order of
February 12, 1975, by answering the interrogatories propounded by
counsel for the plaintiff and allowing said counsel or his
representative to inspect, copy and photograph the documents
mentioned by the plaintiff during reasonable hours of any working day
within twenty (20) days from receipt of this order, should the
defendants persist in their refusal or failure to comply with the order,
the plaintiff may inform the court seasonably so that the proper action
may be taken. (Annex J, Id.)

Hence, the present petition for certiorari, prohibition and mandamus instituted by the
substituted defendants, heirs of the deceased defendant Jose L. Reynoso against
the CFI of Sorsogon and (plaintiff) Santiago de Erquiaga. (pp. 276- 281, Rollo.)

On May 31, 1976, the Court of Appeals rendered judgment holding that:

IN VIEW OF ALL THE FOREGOING, this court finds that the respondent court had
acted with grave abuse of discretion or in excess of jurisdiction in issuing the
assailed order of October 9, 1975 (Annex A, Petition) insofar only as that part of the
Order (1) giving private respondent voting rights on the 3,100 shares of stock of the
Erquiaga Development Corporation without first divesting petitioners of their title
thereto and ordering the registration of the same in the corporation books in the
name of private respondent, pursuant to Section 10, Rule 39 of the Revised Rules of
Court; (2) authorizing corporate meetings and election of members of the Board of
Directors of said corporation and (3) refusing to order the reimbursement of the
purchase price of the 3,100 shares of stock in the amount of P410,000.00 plus
interests awarded in said final decision of September 30, 1972 and the set-off
therewith of the amount of P62,000.00 as damages and attorney's fees in favor of
herein private respondent are concerned. Let writs of certiorari and prohibition issue
against the aforesaid acts, and the writ of preliminary injunction heretofore issued is
hereby made permanent only insofar as (1), (2) and (3) above are concerned. As to
all other matters involved in said Order of October 9, 1975, the issuance of writs
prayed for in the petition are not warranted and therefore denied.
 FINALLY, to give effect to all the foregoing, with a view of putting an end to a much
protracted litigation and for the best interest of the parties, let a writ
of mandamus issue, commanding the respondent Judge to order (1) the Clerk of
Court of the CFI of Sorsogon to execute the necessary deed of conveyance to effect
the transfer of ownership of the entire 3,100 shares of stock of the Erquiaga
Development Corporation to private respondent Santiago Erquiaga in case of failure
of petitioners to comply with the Order of October 9, 1975 insofar as the delivery of
the 1,600 shares of stock to private respondent is concerned, within five (5) days
from receipt hereof; and (2) upon delivery by petitioners or transfer by the Clerk of
Court of said shares of stock to private respondent, as the case may be, to issue a
writ of execution ordering private respondent to pay petitioners the amount of
P410,000.00 plus interests in accordance with the final decision of September 30,
1972 in Civil Case No. 2448, setting-off therewith the amount of P62,000.00
adjudged in favor of private respondent, and against petitioners' predecessor-in-
interest, Jose L. Reynoso, in the same decision, as damages and attorney's fees.
(pp. 289-290, Rollo.)

It may be seen from the foregoing narration of facts that as of the time the Court of Appeals
rendered its decision on May 31, 1976 (now under review) only the following have been done by the
parties in compliance with the final judgment in the main case (Civil Case No. 2446):

1. The Hacienda San Jose was returned to Erquiaga on March 3, 1975 upon
approval of Erquiaga's surety bond of P410,000 in favor of Reynoso;

2. Reynoso has returned to Erquiaga only the pledged 1,500 shares of stock of the
Erquiaga Development Corporation, instead of 3,100 shares, as ordered in
paragraph (a) of the final judgment.

What the parties have not done yet are:

1. Reynoso has not returned 1,600 shares of stock to Erquiaga as ordered in

paragraph (a,) of the decision;

2. Reynoso has not rendered a full accounting of the fruits he has received from
Hacienda San Jose by virtue of the 3,100 shares of stock of the Erquiaga
Development Corporation delivered to him under the sale, as ordered in paragraph
(b) of the decision;

3. Erquiaga has not returned the sum of P100,000 paid by Reynoso on the sale, with
legal interest from November 4, 1968 and P310,000 plus legal interest from
December 17, 1968, until paid (total: P410,000) as ordered in paragraph (c) of the
decision;

4. Reynoso has not paid the judgment of Pl2,000 as actual damages in favor of
Erquiaga, under paragraph (d) of the judgment;

5. .Reynoso has not paid the sum of P50,000 as attorney's fees to Erquiaga under
paragraph (e) of the judgment; and

6. Reynoso has not paid the costs of suit and expenses of litigation as ordered in
paragraph (f) of the final judgment.
The petitioner alleges, in her petition for review, that:

I. The decision of the Court of Appeals requiring the petitioner to pay the private
respondents the sum of P410,000 plus interest, without first awaiting Reynoso's
accounting of the fruits of the Hacienda San Jose, violates the law of the case and
Article 1385 of the Civil Code, alters the final order dated February 12, 1975 of the
trial court, and is inequitous.

II. The Court of Appeals erroneously applied the Corporation Law.

III. The Court of Appeals erred in ordering entry of its judgment.

We address first the third assignment of error for it will be futile to discuss the first and second if,
after all, the decision complained of is already final, and the entry of judgment which the Court of
Appeals directed to be made in its resolution of August 24,1977 (p. 316, Rollo) was proper. After
examining the records, we find that the Court of Appeals' decision is not yet final. The entry of
judgment was improvident for the Court of Appeals, in its resolution of December 13, 1976,
suspended the proceedings before it "pending the parties' settlement negotiations" as prayed for in
their joint motion (p. 313, Rollo). Without however giving them an ultimatum or setting a deadline for
the submission of their compromise agreement, the Court of Appeals, out of the blue, issued a
resolution on August 24, 1977 ordering the Judgment Section of that Court to enter final judgment in
the case (p. 316, Rollo).

We hold that the directive was precipitate and premature. Erquiaga received the order on September
2, 1977 and filed on September 12, 1977 (p. 317, Rollo) a motion for reconsideration which the
Court of Appeals denied on October 4, 1977 (p. 322, Rollo). The order of denial was received on
October 14, 1977 (p. 7, Rollo). On October 28, 1977, Erquiaga filed in this Court a timely motion for
extension of time to file a petition for review, and the petition was filed within the extension granted
by this Court.

We now address the petitioners' first and second assignments of error.

After deliberating on the petition for review, we find no reversible error in the Court of Appeals'
decision directing the clerk of court of the trial court to execute a deed of conveyance to Erquiaga of
the 1,600 shares of stock of the Erquiaga Development Corporation still in Reynoso's name and/or
possession, in accordance with the procedure in Section 10, Rule 39 of the Rules of Court. Neither
did it err in annulling the trial court's order: (1) allowing Erquiaga to vote the 3,100 shares of
Erquiaga Development Corporation without having effected the transfer of those shares in his name
in the corporate books; and (2) authorizing Erquiaga to call a special meeting of the stockholders of
the Erquiaga Development Corporation and to vote the 3,100 shares, without the pre-requisite
registration of the shares in his name. It is a fundamental rule in Corporation Law (Section 35) that a
stockholder acquires voting rights only when the shares of stock to be voted are registered in his
name in the corporate books.

Until registration is accomplished, the transfer, though valid between the parties,
cannot be effective as against the corporation. Thus, the unrecorded transferee
cannot enjoy the status of a stockholder; he cannot vote nor be voted for, and he will
not be entitled to dividends. The Corporation will be protected when it pays dividend
to the registered owner despite a previous transfer of which it had no knowledge. The
purpose of registration therefore is two-fold; to enable the transferee to exercise all
the rights of a stockholder, and to inform the corporation of any change in share
ownership so that it can ascertain the persons entitled to the rights and subject to the
 liabilities of a stockholder. (Corporation Code, Comments, Notes and Selected cases
by Campos & Lopez-Campos, p. 838,1981 Edition.)

The order of respondent Court directing Erquiaga to return the sum of P410,000 (or net P348,000
after deducting P62,000 due from Reynoso under the decision) as the price paid by Reynoso for the
shares of stock, with legal rate of interest, and the return by Reynoso of Erquiaga's 3,100 shares
with the fruits(construed to mean not only dividends but also fruits of the corporation's Hacienda San
Jose) is in full accord with Art. 1385 of the Civil Code which provides:

ART. 1385. Rescission creates the obligation to return the things which were the
object of the contract, together with their fruits, and the price with its interest;
consequently, it can be carried out only when he who demands rescission can return
whatever he may be obliged to restore.

Neither shall rescission take place when the things which are the object of the
contract are legally in the possession of third persons who did not act in bad faith.

In this case, indemnity for damages may be demanded from the person causing the
loss.

The Hacienda San Jose and 1,500 shares of stock have already been returned to Erquiaga.
Therefore, upon the conveyance to him of the remaining 1,600 shares, Erquiaga (or his heirs) should
return to Reynoso the price of P410,000 which the latter paid for those shares. Pursuant to the
rescission decreed in the final judgment, there should be simultaneous mutual restitution of the
principal object of the contract to sell (3,100 shares) and of the consideration paid (P410,000). This
should not await the mutual restitution of the fruits, namely: the legal interest earned by Reynoso's
P410,000 while in the possession of Erquiaga and its counterpart: the fruits of Hacienda San Jose
which Reynoso received from the time the hacienda was delivered to him on November 4,1968 until
it was placed under receivership by the court on March 3, 1975. However, since Reynoso has not
yet given an accounting of those fruits, it is only fair that Erquiaga's obligation to deliver to Reynoso
the legal interest earned by his money, should await the rendition and approval of his accounting. To
this extent, the decision of the Court of Appeals should be modified. For it would be inequitable and
oppressive to require Erquiaga to pay the legal interest earned by Reynoso's P410,000 since 1968
or for the past 20 years (amounting to over P400,000 by this time) without first requiring Reynoso to
account for the fruits of Erquiaga's hacienda which he allegedly squandered while it was in his
possession from November 1968 up to March 3, 1975.

WHEREFORE, the petition for review is granted. The payment of legal interest by Erquiaga to
Reynoso on the price of P410,000 paid by Reynoso for Erquiaga's 3,100 shares of stock of the
Erquiaga Development Corporation should be computed as provided in the final judgment in Civil
Case No. 2446 up to September 30,1972, the date of said judgment. Since Reynoso's judgment
liability to Erquiaga for attorney's fees and damages in the total sum of P62,000 should be set off
against the price of P410,000 that Erquiaga is obligated to return to Reynoso, the balance of the
judgment in favor of Reynoso would be only P348,000 which should earn legal rate of interest after
September 30,1972, the date of the judgment. However, the payment of said interest by Erquiaga
should await Reynoso's accounting of the fruits received by him from the Hacienda San Jose. Upon
payment of P348,000 by Erquiaga to Reynoso, Erquiaga's P410,000 surety bond shall be deemed
cancelled. In all other respects, the decision of the Court of Appeals in CA-G.R. No, 04811-SP is
affirmed. No pronouncement as to costs.

SO ORDERED.
G.R. No. 134241 August 11, 2003

DAVID REYES (Substituted by Victoria R. Fabella), petitioner,

vs.
JOSE LIM, CHUY CHENG KENG and HARRISON LUMBER, INC., respondents.

CARPIO, J.:

The Case

This is a petition for review on certiorari of the Decision1 dated 12 May 1998 of the Court of Appeals
in CA-G.R. SP No. 46224. The Court of Appeals dismissed the petition for certiorari assailing the
Orders dated 6 March 1997, 3 July 1997 and 3 October 1997 of the Regional Trial Court of
Paranaque, Branch 2602 ("trial court") in Civil Case No. 95-032.

The Facts

On 23 March 1995, petitioner David Reyes ("Reyes") filed before the trial court a complaint for
annulment of contract and damages against respondents Jose Lim ("Lim"), Chuy Cheng Keng
("Keng") and Harrison Lumber, Inc. ("Harrison Lumber").

The complaint3 alleged that on 7 November 1994, Reyes as seller and Lim as buyer entered into a
contract to sell ("Contract to Sell") a parcel of land ("Property") located along F.B. Harrison Street,
Pasay City. Harrison Lumber occupied the Property as lessee with a monthly rental of P35,000. The
Contract to Sell provided for the following terms and conditions:

1. The total consideration for the purchase of the aforedescribed parcel of land together with
the perimeter walls found therein is TWENTY EIGHT MILLION (P28,000,000.00) PESOS
payable as follows:

(a) TEN MILLION (P10,000,000.00) PESOS upon signing of this Contract to Sell;

(b) The balance of EIGHTEEN MILLION (P18,000,000.00) PESOS shall be paid on or before
March 8, 1995 at 9:30 A.M. at a bank to be designated by the Buyer but upon the complete
vacation of all the tenants or occupants of the property and execution of the Deed of
Absolute Sale. However, if the tenants or occupants have vacated the premises earlier than
March 8, 1995, the VENDOR shall give the VENDEE at least one week advance notice for
the payment of the balance and execution of the Deed of Absolute Sale.

2. That in the event, the tenants or occupants of the premises subject of this sale shall not
vacate the premises on March 8, 1995 as stated above, the VENDEE shall withhold the
payment of the balance of P18,000,000.00 and the VENDOR agrees to pay a penalty of Four
percent (4%) per month to the herein VENDEE based on the amount of the downpayment of
TEN MILLION (P10,000,000.00) PESOS until the complete vacation of the premises by the
tenants therein.4

The complaint claimed that Reyes had informed Harrison Lumber to vacate the Property before the
end of January 1995. Reyes also informed Keng5 and Harrison Lumber that if they failed to vacate
by 8 March 1995, he would hold them liable for the penalty of P400,000 a month as provided in the
Contract to Sell. The complaint further alleged that Lim connived with Harrison Lumber not to vacate
the Property until the P400,000 monthly penalty would have accumulated and equaled the unpaid
purchase price of P18,000,000.

On 3 May 1995, Keng and Harrison Lumber filed their Answer6 denying they connived with Lim to
defraud Reyes. Keng and Harrison Lumber alleged that Reyes approved their request for an
extension of time to vacate the Property due to their difficulty in finding a new location for their
business. Harrison Lumber claimed that as of March 1995, it had already started transferring some
of its merchandise to its new business location in Malabon.7

On 31 May 1995, Lim filed his Answer8 stating that he was ready and willing to pay the balance of
the purchase price on or before 8 March 1995. Lim requested a meeting with Reyes through the
latter’s daughter on the signing of the Deed of Absolute Sale and the payment of the balance but
Reyes kept postponing their meeting. On 9 March 1995, Reyes offered to return the P10 million
down payment to Lim because Reyes was having problems in removing the lessee from the
Property. Lim rejected Reyes’ offer and proceeded to verify the status of Reyes’ title to the Property.
Lim learned that Reyes had already sold the Property to Line One Foods Corporation ("Line One")
on 1 March 1995 for P16,782,840. After the registration of the Deed of Absolute Sale, the Register of
Deeds issued to Line One TCT No. 134767 covering the Property. Lim denied conniving with Keng
and Harrison Lumber to defraud Reyes.

On 2 November 1995, Reyes filed a Motion for Leave to File Amended Complaint due to
supervening facts. These included the filing by Lim of a complaint for estafa against Reyes as well
as an action for specific performance and nullification of sale and title plus damages before another
trial court.9 The trial court granted the motion in an Order dated 23 November 1995.

In his Amended Answer dated 18 January 1996,10 Lim prayed for the cancellation of the Contract to
Sell and for the issuance of a writ of preliminary attachment against Reyes. The trial court denied the
prayer for a writ of preliminary attachment in an Order dated 7 October 1996.

On 6 March 1997, Lim requested in open court that Reyes be ordered to deposit the P10 million
down payment with the cashier of the Regional Trial Court of Parañaque. The trial court granted this
motion.

On 25 March 1997, Reyes filed a Motion to Set Aside the Order dated 6 March 1997 on the ground
the Order practically granted the reliefs Lim prayed for in his Amended Answer.11 The trial court
denied Reyes’ motion in an Order12 dated 3 July 1997. Citing Article 1385 of the Civil Code, the trial
court ruled that an action for rescission could prosper only if the party demanding rescission can
return whatever he may be obliged to restore should the court grant the rescission.

The trial court denied Reyes’ Motion for Reconsideration in its Order13 dated 3 October 1997. In the
same order, the trial court directed Reyes to deposit the P10 million down payment with the Clerk of
Court on or before 30 October 1997.

On 8 December 1997, Reyes14 filed a Petition for Certiorari15 with the Court of Appeals. Reyes
prayed that the Orders of the trial court dated 6 March 1997, 3 July 1997 and 3 October 1997 be set
aside for having been issued with grave abuse of discretion amounting to lack of jurisdiction. On 12
May 1998, the Court of Appeals dismissed the petition for lack of merit.

Hence, this petition for review.

The Ruling of the Court of Appeals

The Court of Appeals ruled the trial court could validly issue the assailed orders in the exercise of its
equity jurisdiction. The court may grant equitable reliefs to breathe life and force to substantive law
such as Article 138516of the Civil Code since the provisional remedies under the Rules of Court do
not apply to this case.

The Court of Appeals held the assailed orders merely directed Reyes to deposit the P10 million to
the custody of the trial court to protect the interest of Lim who paid the amount to Reyes as down
payment. This did not mean the money would be returned automatically to Lim.

The Issues

Reyes raises the following issues:

1. Whether the Court of Appeals erred in holding the trial court could issue the questioned
Orders dated March 6, 1997, July 3, 1997 and October 3, 1997, requiring petitioner David
Reyes to deposit the amount of Ten Million Pesos (P10,000,000.00) during the pendency of
the action, when deposit is not among the provisional remedies enumerated in Rule 57 to 61
of the 1997 Rules on Civil Procedure.

2. Whether the Court of Appeals erred in finding the trial court could issue the questioned
Orders on grounds of equity when there is an applicable law on the matter, that is, Rules 57
to 61 of the 1997 Rules on Civil Procedure.17

The Court’s Ruling

Reyes’ contentions are without merit.

Reyes points out that deposit is not among the provisional remedies enumerated in the 1997 Rules
of Civil Procedure. Reyes stresses the enumeration in the Rules is exclusive. Not one of the
provisional remedies in Rules 57 to 6118 applies to this case. Reyes argues that a court cannot apply
equity and require deposit if the law already prescribes the specific provisional remedies which do
not include deposit. Reyes invokes the principle that equity is "applied only in the absence of, and
never against, statutory law or x x x judicial rules of procedure."19 Reyes adds the fact that the
provisional remedies do not include deposit is a matter of dura lex sed lex.20

The instant case, however, is precisely one where there is a hiatus in the law and in the Rules of
Court. If left alone, the hiatus will result in unjust enrichment to Reyes at the expense of Lim. The
hiatus may also imperil restitution, which is a precondition to the rescission of the Contract to Sell
that Reyes himself seeks. This is not a case of equity overruling a positive provision of law or judicial
rule for there is none that governs this particular case. This is a case of silence or insufficiency of the
law and the Rules of Court. In this case, Article 9 of the Civil Code expressly mandates the courts to
make a ruling despite the "silence, obscurity or insufficiency of the laws."21 This calls for the
application of equity,22 which "fills the open spaces in the law."23

Thus, the trial court in the exercise of its equity jurisdiction may validly order the deposit of the P10
million down payment in court. The purpose of the exercise of equity jurisdiction in this case is to
prevent unjust enrichment and to ensure restitution. Equity jurisdiction aims to do complete justice in
cases where a court of law is unable to adapt its judgments to the special circumstances of a case
because of the inflexibility of its statutory or legal jurisdiction.24Equity is the principle by which
substantial justice may be attained in cases where the prescribed or customary forms of ordinary law
are inadequate.25
Reyes is seeking rescission of the Contract to Sell. In his amended answer, Lim is also seeking
cancellation of the Contract to Sell. The trial court then ordered Reyes to deposit in court the P10
million down payment that Lim made under the Contract to Sell. Reyes admits receipt of the P10
million down payment but opposes the order to deposit the amount in court. Reyes contends that
prior to a judgment annulling the Contract to Sell, he has the "right to use, possess and enjoy"26 the
P10 million as its "owner"27 unless the court orders its preliminary attachment.28

To subscribe to Reyes’ contention will unjustly enrich Reyes at the expense of Lim. Reyes sold to
Line One the Property even before the balance of P18 million under the Contract to Sell with Lim
became due on 8 March 1995. On 1 March 1995, Reyes signed a Deed of Absolute Sale29 in favor of
Line One. On 3 March 1995, the Register of Deeds issued TCT No. 13476730 in the name of Line
One.31 Reyes cannot claim ownership of the P10 million down payment because Reyes had already
sold to another buyer the Property for which Lim made the down payment. In fact, in his
Comment32 dated 20 March 1996, Reyes reiterated his offer to return to Lim the P10 million down
payment.

On balance, it is unreasonable and unjust for Reyes to object to the deposit of the P10 million down
payment. The application of equity always involves a balancing of the equities in a particular case, a
matter addressed to the sound discretion of the court. Here, we find the equities weigh heavily in
favor of Lim, who paid the P10 million down payment in good faith only to discover later that Reyes
had subsequently sold the Property to another buyer.

In Eternal Gardens Memorial Parks Corp. v. IAC,33 this Court held the plaintiff could not continue
to benefit from the property or funds in litigation during the pendency of the suit at the expense of
whomever the court might ultimately adjudge as the lawful owner. The Court declared:

In the case at bar, a careful analysis of the records will show that petitioner admitted among others
in its complaint in Interpleader that it is still obligated to pay certain amounts to private respondent;
that it claims no interest in such amounts due and is willing to pay whoever is declared entitled to
said amounts. x x x

Under the circumstances, there appears to be no plausible reason for petitioner’s objections to the
deposit of the amounts in litigation after having asked for the assistance of the lower court by filing a
complaint for interpleader where the deposit of aforesaid amounts is not only required by the nature
of the action but is a contractual obligation of the petitioner under the Land Development Program
(Rollo, p. 252).

There is also no plausible or justifiable reason for Reyes to object to the deposit of the P10 million
down payment in court. The Contract to Sell can no longer be enforced because Reyes himself
subsequently sold the Property to Line One. Both Reyes and Lim are now seeking rescission of the
Contract to Sell. Under Article 1385 of the Civil Code, rescission creates the obligation to return the
things that are the object of the contract. Rescission is possible only when the person demanding
rescission can return whatever he may be obliged to restore. A court of equity will not rescind a
contract unless there is restitution, that is, the parties are restored to the status quo ante.34

Thus, since Reyes is demanding to rescind the Contract to Sell, he cannot refuse to deposit the P10
million down payment in court.35 Such deposit will ensure restitution of the P10 million to its rightful
owner. Lim, on the other hand, has nothing to refund, as he has not received anything under the
Contract to Sell.36
In Government of the Philippine Islands v. Wagner and Cleland Wagner,37 the Court ruled the
refund of amounts received under a contract is a precondition to the rescission of the contract. The
Court declared:

The Government, having asked for rescission, must restore to the defendants whatever it
has received under the contract. It will only be just if, as a condition to rescission, the
Government be required to refund to the defendants an amount equal to the purchase price,
plus the sums expended by them in improving the land. (Civil Code, art. 1295.)

The principle that no person may unjustly enrich himself at the expense of another is embodied in
Article 2238 of the Civil Code. This principle applies not only to substantive rights but also to
procedural remedies. One condition for invoking this principle is that the aggrieved party has no
other action based on contract, quasi-contract, crime, quasi-delict or any other provision of
law.39 Courts can extend this condition to the hiatus in the Rules of Court where the aggrieved party,
during the pendency of the case, has no other recourse based on the provisional remedies of the
Rules of Court.

Thus, a court may not permit a seller to retain, pendente lite, money paid by a buyer if the seller
himself seeks rescission of the sale because he has subsequently sold the same property to another
buyer.40 By seeking rescission, a seller necessarily offers to return what he has received from the
buyer. Such a seller may not take back his offer if the court deems it equitable, to prevent unjust
enrichment and ensure restitution, to put the money in judicial deposit.

There is unjust enrichment when a person unjustly retains a benefit to the loss of another, or when a
person retains money or property of another against the fundamental principles of justice, equity and
good conscience.41 In this case, it was just, equitable and proper for the trial court to order the
deposit of the P10 million down payment to prevent unjust enrichment by Reyes at the expense of
Lim.42

WHEREFORE, we AFFIRM the Decision of the Court of Appeals.

SO ORDERED.

G.R. No. 155634 August 16, 2004

REPUBLIC OF THE PHILIPPINES, Represented by the SOCIAL SECURITY SYSTEM, petitioner,

vs.
JERRY V. DAVID, respondent.

DECISION
PANGANIBAN, J.:

Under the terms of the subject Contract, "actual possession" cannot be equated with "actual
occupancy." Inasmuch as the housing unit was physically occupied by parties other than those
intended to be benefited by the housing program of the Social Security System, there was a clear
violation of the Contract. Since respondent did not comply with his obligations, rescission is proper.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the October 9, 2002
Decision2 of the Court of Appeals (CA) in CA-GR CV No. 61374. The appellate court disposed as
follows:

"WHEREFORE, the instant appeal is DENIED for lack of merit. The decision of the Regional
Trial Court, Quezon City, Branch 105, in Civil Case No. Q-96-27031 is hereby AFFIRMED."3

The Facts

The CA narrated the facts thus:

"x x x [Respondent] Jerry V. David is an employee of the SSS, formerly assigned at its
Membership (Backroom) Department. Pursuant to its Employees' Housing Loan Program,
SSS awarded David a house and lot located at North Fairview, Quezon City. A Deed of
Conditional Sale over the subject property was thereafter executed between the parties.

"On reports that numerous violations have been committed by some of the housing
awardees in connection with the conditions governing their sales, SSS conducted an
investigation on the matter. The investigation revealed that in the case of [Respondent]
David, he committed two (2) violations of his deed of conditional sale, to wit: (1) neither the
[respondent] nor his immediate family resided and/or occupied the said housing unit, and (2)
he allowed a certain Buenaventura Penus to possess and occupy the property.

"As a consequence of these violations, SSS sent a letter to David formally revoking,
terminating and/or rescinding the deed of conditional sale. However, the latter refused to
vacate and surrender possession of the subject property, prompting SSS to institute a
complaint with the Quezon City RTC on March 28, 1996 revoking the deed of conditional
sale and likewise praying for the issuance of a writ of possession in its favor.

"During the pre-trial of the case, the court observed that while the complaint was captioned
'Petition for Recovery of Possession with [P]rayer for Issuance of a Writ of Possession,' an
examination of its body shows that the prayer was actually for the rescission of the deed of
conditional sale. For this reason, the court ordered the amendment of the complaint and in
compliance thereto, [petitioner] submitted its amended complaint on March 19, 1997.

"[Respondent] David denied the alleged violations of the deed of conditional sale, stating that
Buenaventura Penus, alluded to by the [petitioner] as possessor-occupant of the subject
property, was in fact a caretaker until and after the necessary renovations and modifications
on the house were made.

"In a [D]ecision dated July 1, 1998, the court a quo dismissed the complaint and adjudged
the [petitioner] liable for costs. The dispositive portion of the trial court's decision reads:
 'WHEREFORE, in the light of the foregoing, the Amended Complaint is dismissed,
with costs against the plaintiff.

'SO ORDERED.'

"In dismissing the complaint, the court ruled that the [petitioner] failed to prove that the
[respondent] purchased the subject property for the use and benefit of another undisclosed
party and not for his exclusive use, or that the defendant sold, assigned, encumbered,
mortgaged, leased, subleased or in any manner altered or disposed of the subject property
or his rights thereto at any other time. In arriving at its [D]ecision, the lower court considered
the testimony of the [respondent] that when the subject property was delivered to him on
October 23, 1992, the unit was not habitable so he had to make a few constructions thereon.
He secured the services of his cousin, Buenaventura Penus, to be the caretaker while
construction on the house was going on. With this, the court concluded that possession, as a
condition of the deed of sale between the parties, was sufficiently satisfied.

"Aggrieved, [Petitioner] SSS brought [an] appeal [to the CA], arguing that the court a
quo erred in holding that [respondent] did not violate the terms and conditions of the Deed of
Conditional Sale and in consequently dismissing the case."4

Ruling of the Court of Appeals

Affirming the trial court, the CA ruled that while other persons had been found occupying the subject
property, no proof was adduced by petitioner to prove that they had taken possession of it on their
own behalf and not merely as respondent's caretakers. The appellate court added that because of
the squalid condition of the property when it was delivered, respondent had to make improvements
thereon as well as ask Penus, and later on Oden Domingo, to stay there as caretakers.

Through his caretakers, respondent was deemed to have occupied and possessed the property as
required by the Deed of Sale between him and petitioner. The CA concluded that the property had
clearly been subject to respondent's will, a fact equivalent to possession under Article 5315 of the
Civil Code.

Hence, this Petition.6

Issues

In its Memorandum, petitioner raises this sole issue: "whether the Court of Appeals committed
reversible error in affirming the Decision of the trial court holding that respondent did not violate the
terms and conditions of the Deed of Conditional Sale."7

The Court's Ruling

The Petition is meritorious.

Sole Issue:
Violation of the Terms and Conditions
of the Deed of Conditional Sale
Petitioner avers that respondent violated the terms and conditions of the Deed of Conditional Sale,
when he failed to "actually occupy and possess the property at all times"8 and allowed other persons
to do so.9

It argues that contrary to the rulings of the trial and the appellate courts, the Deed of Conditional
Sale required "actual physical possession at all times," not just simple possession. It contends that
the material occupation of the property by other persons ran counter to the objective of the Social
Security System (SSS) housing program to restrict the use and enjoyment of the housing units to
SSS employees and their immediate families only.

Petitioner likewise submits that the appellate court erred in believing the claim of respondent that the
house was uninhabitable when it was delivered to him in 1992. His claim was belied by his
acceptance of the property without protest, as well as by the fact that his alleged caretakers had
lived there from 1992 to 1996. Petitioner adds that he should have used his available money to
improve the property, if the unit was indeed unlivable, instead of fully settling in advance in
December 1992 the unpaid balance of its purchase price.

Propriety of Review

At the outset, the Court stresses that a question of law has arisen from petitioner's contention that
simple possession under Article 531 of the Civil Code is not the same as "actual occupancy and
possession at all times," as required of respondent under the Deed. Such question -- of what law,
rule or principle is to govern a given state of facts -- is decidedly one of law.10 It may be raised in this
appeal by certiorari under Rule 45 of the Rules of Court.

Rules of Contract Interpretation

Certain rules of contract interpretation come to mind at this point. First, in construing a contract, it is
a fundamental task to ascertain the intention of the contracting parties.11 As a rule, such intention is
determined by looking at the words used -- at all the words rather than at a particular word or two;
and at words in context rather than just words standing alone.12

Indeed, under Article 1374 of the Civil Code, "the various stipulations of a contract shall be
interpreted together, attributing to the doubtful ones that sense which may result from all of them
taken jointly." Second, the ascertained intention of the parties is deemed an integral part of the
contract, as though it has been originally expressed in unequivocal terms.13 And third, the
reasonableness of the result obtained, after analysis and construction of a contract, must also be
carefully considered.14

The conditions that were allegedly violated by respondent are contained in paragraph 10 of the Deed
of Conditional Sale, as follows:

"10. The Contract shall further [provide] the following terms and conditions:

(a) The VENDEE is making this purchase for his/her own exclusive use and benefit
and not for the use and benefit of another undisclosed party/parties;

(b) The purpose of the sale shall be to aid the VENDEE in acquiring a house and lot
for himself/herself and/or his/her immediate family, and not to provide him/her with a
means for speculation or profit by a future assignment of his/her right herein acquired
or the resale of the PROPERTY subject of this Contract. Therefore, the VENDEE,
 within the first FIVE (5) years of the existence of this contract agrees not to sell,
assign, encumber, mortgage, lease, sub-let or in any manner alter or dispose of the
property subject hereof, or his rights thereto, at any time, in whole or in part. After the
FIVE (5) year period, VENDEE shall have the right to the full disposal of the property,
provided that, VENDEE has been able to fully pay all of his/her obligations herein.
However, the foregoing notwithstanding, the VENDEE may x x x at any time with
prior consent of the VENDOR transfer his right to the PROPERTY to any eligible
employee of the VENDOR, subject, however, to the right of first refusal by the
VENDOR who may refund to the VENDEE all of his/her installment payments and
the value of substantial improvements introduced by him/her if any, as appraised by
the VENDOR;

(c) The VENDEE, and his heirs and/or successors, shall actually occupy and be in
possession of the PROPERTY at all times;

(d) The VENDEE shall not obstruct or interfere in any manner whatsoever with the
right of the VENDOR or any of its duly authorized representatives to inspect, survey,
repair, lay water pipes, gas, electric and telephone lines or other works of similar
purposes;

(e) The VENDEE shall abide by and comply with the Vendor's Occupancy Rules and
Regulations the terms and conditions of which are made an integral part hereof by
reference, as well as that issued by any other governmental authority which may,
from time to time, be promulgated in regard to the use and preservation of the house
and lot;

(f) The VENDEE warrants in full the truth of the representation made in his/her
Application For EMPLOYEE HOUSING LOAN, the terms of which are likewise made
an integral part hereof by reference.

"The violation of any of the conditions herein stipulated shall be considered as a breach of
this Contract, and shall subject the VENDEE to the penalties provided for in paragraphs (11)
and (12) hereof, including administrative sanctions, when warranted, in the event x x x the
VENDEE has been found to have committed a misrepresentation/falsification in his/her
application for an Employee Housing Loan."15

Actual Occupancy and

Possession at All Times

Plainly, the primary intention behind the above-quoted stipulations is to restrict the sale, the use and
the benefit of the housing units to SSS employees and their immediate families only. This objective
is in line with that of the SSS housing loan program -- to aid its employees in acquiring their own
dwelling units at a low cost.16 Such intent, draws life also from the social justice policy of RA 1161, as
amended, otherwise known as the "Social Security System Law" granting direct housing loans to
covered employees and giving priority to low-income groups.17

Indeed, the above goal is confirmed by the requirement that respondent-vendee and his heirs or
assigns must actually occupy and possess the property at all times; by the proscription that he must
not sell, assign, encumber, mortgage, lease, sublet or in any manner alter or dispose of the property
for the first five (5) years; and by the further proviso that he may alienate or transfer his rights thereto
at any time prior to full payment, but only to petitioner under its right of first refusal or to any other
eligible SSS employee. These restrictive covenants are undeniably valid under Article 1306 18 of the
Civil Code.

The use of the conjunctive and in subparagraph (c) is not by any chance a surplusage. Neither is it
meant to be without any legal signification. Its use is confirmatory of the restrictive intent that the
houses provided by petitioner should be for the exclusive use and benefit of the SSS employee-
beneficiary.

It is easily discernible, therefore, that both "actual occupancy" and "possession at all times" -- not
just one or the other -- were imposed as conditions upon respondent. The word and -- whether it is
used to connect words, phrases or full sentences -- must be accepted in its common and usual
meaning as "binding together and as relating to one another."19 And implies a conjunction, joinder or
union.20

Thus, respondent had to comply with not one, but two, concurring conditions -- actual
occupancy and possession at all times. The question is, did he?

We rule that he did not.

No Actual Occupancy

First, actual possession is not the same as actual occupancy. Hence, it was an error on the part of
the lower courts to hold that the requirement of possession alone was a sufficient compliance with
the conditions under subparagraphs (a) and (c).

Under the law,21 "[p]ossession is acquired by the material occupation of a thing or the exercise of a
right, or by the fact that it is subject to the action of our will, or by the proper acts and legal
formalities established for acquiring such right." As such, actual possession consists in the
manifestation of acts of dominion over property of such a nature as a party would naturally exercise
over his own22 -- as when respondent himself is physically in occupation of the property, or even
when another person who recognizes the former's rights as owner is in occupancy.23 In short,
possession can be either "actual" or merely constructive.

On the other hand, actual occupancy connotes "something real, or actually existing, as opposed to
something merely possible, or to something which is presumptive or constructive."24 Unlike
possession, it can only be actual or real, not constructive.

Second, the uncontroverted fact remains that it was not respondent and/or his immediate family, but
Penus and his wife, who had lived in the property since 1992; and that it was from Penus that
Domingo took over possession in 1996. Thus, while it may be conceded that respondent
"possessed" the property through his caretakers, there is no escaping the fact that he and/or his
immediate family did not "actually occupy" it; and that he allowed other persons to benefit from its
use. In his letter to SSS Assistant Administrator Amador Monteiro on January 24, 1996,25respondent
admitted as much, but tried to justify his noncompliance by saying that the property was not in a
habitable condition at the time of delivery. This line of defense was sustained by the trial court on the
ground of respondent's allegedly "uncontroverted or unrebutted evidence."26

The RTC's finding, however, is neither borne out by the records nor by substantial evidence. Hence,
it constitutes an exception to the rule that this Court cannot review factual findings.27
Indeed, a thorough review of the records reveals that the averments of respondent were ably
controverted by denials made by petitioner. Negating his claim that the house was located adjacent
to a creek,28 it lengthily argued against it in the Memorandum it submitted to the trial court. Likewise, it
must be stressed that under the Rules of Court,29 the defense alleged in his Answer is deemed
controverted, whether or not petitioner filed a reply.

Moreover, it is a basic rule of evidence that the party asserting an affirmative allegation must prove
it.30 However, all that there is to back up the defense of respondent in this case is his self-serving
testimony and that of his witness, Domingo. As to the latter's testimony, it suffices to say that he
could not have affirmed the alleged condition of the unit in 1992, as he took possession of it only in
1996, four years after it had lain exposed to the elements with no improvements whatsoever.

For four years, respondent likewise kept his silence about the purported condition of the unit. He
accepted it without any whimper of protest on October 23, 1992, and even paid the housing loan in
full in December of the same year. If it was indeed uninhabitable, he should have refused to accept it
or immediately protested its condition.

On the other hand, there is enough documentary evidence to debunk his claim. The report of
petitioner's Internal Audit Service31 significantly established that 509 of the 728 awardees --
presumably situated similarly as he was -- had occupied their units in compliance with the assailed
requirement. The Interview Slip32 submitted in evidence by petitioner also showed that Penus and his
wife, and later Domingo, had lived in the unit since 1992. In the face of these facts, it is difficult to
believe the defense of respondent. For how could the units be habitable to many others, but not to
him?

Likewise, this Court takes judicial notice of the fact that low-cost houses such as those offered by
petitioner33 are usually core or shell units without adequate divisions, ceilings, cabinets, paint and, in
some cases, electrical connections -- features that have to be installed, completed or refurbished by
the awardees. The idea, of course, is to provide immediate but affordable living spaces that they can
work at improving, according to their needs and finances and while living therein. Certainly,
at P172,978.85 (the cost of the house and lot in this case), it is but fair to accept the lack of
amenities.

Neither can respondent assail the validity of the Contract as a one-sided "take it or leave it"
agreement. To begin with, a contract of adhesion -- wherein one party imposes a ready-made form
of contract on the other -- is not strictly against the law.34 The terms of the agreement cannot be
modified, but can be freely rejected in its entirety, by the other party. On the other hand, the latter's
adherence thereto would mean consent.35 We need only to remind respondent that contractual
obligations between the parties have the force of law and must be complied with in good faith.36

We therefore do not see any reason to discuss respondent's added arguments, other than to say
that the objectives of low-cost housing -- mandated under the social justice provisions of the
Constitution37 -- are too important to be sidetracked by lame, untimely and unfounded excuses. Such
excuses do nothing but harm to the salutary efforts of providing the underprivileged and the
homeless with cheap but decent houses. It is for this reason that we regard this case as no ordinary
skirmish over contractual relations.

Rescission

In view of the foregoing discussion, we rule that rescission of the Contract is the proper recourse.
Article 1191 of the Civil Code provides:
 "Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.

"The injured party may choose between fulfillment and the rescission of the obligation, with
the payment of damages in either case. He may also seek rescission even after he has
chosen fulfillment, if the latter should become impossible."

As noted in previous cases, the rescission contemplated under Article 1191 is a principal action for
"resolution," which is based on a breach by a party of its reciprocal obligations.38 The present
Contract is one of conditional sale -- oftentimes referred to as a contract to sell, wherein ownership
or title is retained by the vendor39 until "full payment by the VENDEE of the full purchase price of the
PROPERTY, with all the interest due thereon, as well as taxes and other charges AND upon their
faithful compliance with all the conditions of this Contract x x x."40

Although a transfer of ownership or title from the seller to the buyer is normally predicated upon the
payment of the purchase price, the parties are nevertheless free to stipulate other lawful conditions
by which they bind themselves and upon which transfer of ownership depends.41 In this case, that
other obligation was faithful compliance with the conditions of the Contract. Respondent did not
faithfully comply with the conditions under subparagraphs (10)(a) and (c). His noncompliance also
constituted a breach of his reciprocal obligations under the Deed.

The Deed itself provides for its annulment and cancellation by reason of a breach of the terms and
conditions stipulated therein. Paragraphs 11 and 12 provide thus:

"11. Should the VENDEE violate, refuse or fail to comply with any of the terms and
conditions stipulated herein, for whatever reason, or is found to have committed any
misrepresentation in his/her application for EMPLOYEE HOUSING LOAN, this Contract shall
be deemed annulled and cancelled without prejudice of the rights of the parties under
Republic Act No. 6652, otherwise known as the Maceda Law, and shall entitle the VENDOR
to immediately repossess the property as if this Contract was never made; for this purpose,
the VENDEE shall be considered and treated as a tenant holding the property without the
permission of the VENDOR, and must peacefully vacate the premises immediately upon
repossession thereof by the VENDOR. The annulment and cancellation of this Contract and
the right of the VENDOR to repossess the property shall become effective upon mere written
notice thereof to the VENDEE.

"12. In addition to the consequences stated in the immediately preceding paragraph, the
VENDEE shall forfeit in favor of the VENDOR all the installments made, to stand as rent for
his/her occupation of the property, likewise subject to the provisions of Republic Act No.
6552."42 (Italics supplied)

However, this Court holds that the forfeiture provision under paragraph 12 does not apply to the
payment made by respondent. The plain and simple reason is that he did not pay the purchase price
by installment, but instead paid it in full in December 1992 -- two months after the delivery of the unit.
Hence, that payment was beyond the ambit of Republic Act 6552, otherwise known as the Realty
Installment Buyer Act or the Maceda Law.

Doctrinally, mutual restitution must follow rescission. Under Article 1385 of the Civil Code,
"rescission creates the obligation to return the things which were the object of the contract, together
with their fruits, and the price with its interests x x x."43 Moreover, "[t]o rescind is to declare a contract
void at its inception and to put an end to it as though it never was."44 Hence, rescission restores the
parties to their relative positions, as if no contract has been made. Paragraph 11, cited above,
supports the mutual restitution required in rescission.

Respondent is thus obliged to return the house and lot sold, as well as rental payments he may have
earned, if any. On the other hand, petitioner is mandated to refund to him his full payment
of P172,978.85 plus legal interest of 6 percent per annum, as well as the value of substantial
improvements introduced by him, as appraised by petitioner. Indeed, stipulated in the Deed is such
appraisal by the vendor,45 upon transfer of the property to petitioner or to any of its eligible
employees. This condition is reasonably and justly applicable and proper in the present case.

WHEREFORE, this Petition is hereby GRANTED and the assailed Decision SET ASIDE. The Deed
of Conditional Sale is CANCELLED. Petitioner is ORDERED to pay respondent P172,978.85, plus
the legal interest and the value of any substantial improvements thereon. Respondent
is ORDERED to vacate immediately Block 18, Lot 8, SSS Housing, North Fairview, Quezon City;
and to surrender possession thereof to petitioner. No costs.

SO ORDERED.

G.R. No. 134685 November 19, 1999

MARIA ANTONIA SIGUAN, petitioner,

vs.
ROSA LIM, LINDE LIM, INGRID LIM and NEIL LIM, respondents.

DAVIDE, JR., C.J.:

May the Deed of Donation executed by respondent Rosa Lim (hereafter LIM) in favor of her children
be rescinded for being in fraud of her alleged creditor, petitioner Maria Antonia Siguan? This is the
pivotal issue to be resolved in this petition for review on certiorari under Rule 45 of the Revised
Rules of Court.

The relevant facts, as borne out of the records, are as follows:

On 25 and 26 August 1990, LIM issued two Metrobank checks in the sums of P300,000 and
P241,668, respectively, payable to "cash." Upon presentment by petitioner with the drawee bank, the
checks were dishonored for the reason "account closed." Demands to make good the checks proved
futile. As a consequence, a criminal case for violation of Batas Pambansa Blg. 22, docketed as
Criminal Cases Nos. 22127-28, were filed by petitioner against LIM with Branch 23 of the Regional
Trial Court (RTC) of Cebu City. In its decision 1 dated 29 December 1992, the court a quo convicted
LIM as charged. The case is pending before this Court for review and docketed as G.R. No. 134685.

It also appears that on 31 July 1990 LIM was convicted of estafa by the RTC of Quezon City in
Criminal Case No. Q-89-2216 2 filed by a certain Victoria Suarez. This decision was affirmed by the
Court of Appeals. On appeal, however, this Court, in a decision 3 promulgated on 7 April 1997,
acquitted LIM but held her civilly liable in the amount of P169,000, as actual damages, plus legal
interest.

Meanwhile, on 2 July 1991, a Deed of Donation 4 conveying the following parcels of land and
purportedly executed by LIM on 10 August 1989 in favor of her children, Linde, Ingrid and Neil, was
registered with the Office of the Register of Deeds of Cebu City:

(1) a parcel of land situated at Barrio Lahug, Cebu City, containing an

area of 563 sq. m. and covered by TCT No. 93433;

(2) a parcel of land situated at Barrio Lahug, Cebu City, containing an

area of 600 sq. m. and covered by TCT No. 93434;

(3) a parcel of land situated at Cebu City containing an area of 368

sq. m. and covered by TCT No. 87019; and

(4) a parcel of land situated at Cebu City, Cebu containing an area of

511 sq. m. and covered by TCT No. 87020.

New transfer certificates of title were thereafter issued in the names of the donees. 5

On 23 June 1993, petitioner filed an accion pauliana against LIM and her children before Branch 18
of the RTC of Cebu City to rescind the questioned Deed of Donation and to declare as null and void
the new transfer certificates of title issued for the lots covered by the questioned Deed. The
complaint was docketed as Civil Case No. CEB-14181. Petitioner claimed therein that sometime in
July 1991, LIM, through a Deed of Donation, fraudulently transferred all her real property to her
children in bad faith and in fraud of creditors, including her; that LIM conspired and confederated
with her children in antedating the questioned Deed of Donation, to petitioner's and other creditors'
prejudice; and that LIM, at the time of the fraudulent conveyance, left no sufficient properties to pay
her obligations.

On the other hand, LIM denied any liability to petitioner. She claimed that her convictions in Criminal
Cases Nos. 22127-28 were erroneous, which was the reason why she appealed said decision to the
Court of Appeals. As regards the questioned Deed of Donation, she maintained that it was not
antedated but was made in good faith at a time when she had sufficient property. Finally, she
alleged that the Deed of Donation was registered only on 2 July 1991 because she was seriously ill.

In its decision of 31 December 1994, 6 the trial court ordered the rescission of the questioned deed of
donation; (2) declared null and void the transfer certificates of title issued in the names of private
respondents Linde, Ingrid and Neil Lim; (3) ordered the Register of Deeds of Cebu City to cancel
said titles and to reinstate the previous titles in the name of Rosa Lim; and (4) directed the LIMs to
pay the petitioner, jointly and severally, the sum of P10,000 as moral damages; P10,000 as
attorney's fees; and P5,000 as expenses of litigation.

On appeal, the Court of Appeals, in a decision 7 promulgated on 20 February 1998, reversed the
decision of the trial court and dismissed petitioner's accion pauliana. It held that two of the requisites
for filing an accion pauliana were absent, namely, (1) there must be a credit existing prior to the
celebration of the contract; and (2) there must be a fraud, or at least the intent to commit fraud, to
the prejudice of the creditor seeking the rescission.
According to the Court of Appeals, the Deed of Donation, which was executed and acknowledged
before a notary public, appears on its face to have been executed on 10 August 1989. Under
Section 23 of Rule 132 of the Rules of Court, the questioned Deed, being a public document, is
evidence of the fact which gave rise to its execution and of the date thereof. No antedating of the
Deed of Donation was made, there being no convincing evidence on record to indicate that the
notary public and the parties did antedate it. Since LIM's indebtedness to petitioner was incurred in
August 1990, or a year after the execution of the Deed of Donation, the first requirement for accion
pauliana was not met.

Anent petitioner's contention that assuming that the Deed of Donation was not antedated it was
nevertheless in fraud of creditors because Victoria Suarez became LIM's creditor on 8 October 1987,
the Court of Appeals found the same untenable, for the rule is basic that the fraud must prejudice the
creditor seeking the rescission.

Her motion for reconsideration having been denied, petitioner came to this Court and submits the
following issue:

WHETHER OR NOT THE DEED OF DONATION, EXH. 1, WAS ENTERED INTO IN

FRAUD OF [THE] CREDITORS OF RESPONDENT ROSA [LIM].

Petitioner argues that the finding of the Court of Appeals that the Deed of Donation was not in fraud
of creditors is contrary to well-settled jurisprudence laid down by this Court as early as 1912 in the
case of Oria v. McMicking, 8which enumerated the various circumstances indicating the existence of
fraud in a transaction. She reiterates her arguments below, and adds that another fact found by the
trial court and admitted by the parties but untouched by the Court of Appeals is the existence of a
prior final judgment against LIM in Criminal Case No. Q-89-2216 declaring Victoria Suarez as LIM's
judgment creditor before the execution of the Deed of Donation.

Petitioner further argues that the Court of Appeals incorrectly applied or interpreted Section
23, 9 Rule 132 of the Rules of Court, in holding that "being a public document, the said deed of
donation is evidence of the fact which gave rise to its execution and of the date of the latter." Said
provision should be read with Section 30 10 of the same Rule which provides that notarial documents
are prima facie evidence of their execution, not "of the facts which gave rise to their execution and of
the date of the latter."

Finally, petitioner avers that the Court of Appeals overlooked Article 759 of the New Civil Code,
which provides: "The donation is always presumed to be in fraud of creditors when at the time of the
execution thereof the donor did not reserve sufficient property to pay his debts prior to the donation."
In this case, LIM made no reservation of sufficient property to pay her creditors prior to the execution
of the Deed of Donation.

On the other hand, respondents argue that (a) having agreed on the law and requisites of accion
pauliana, petitioner cannot take shelter under a different law; (b) petitioner cannot invoke the credit
of Victoria Suarez, who is not a party to this case, to support her accion pauliana; (c) the Court of
Appeals correctly applied or interpreted Section 23 of Rule 132 of the Rules of Court; (d) petitioner
failed to present convincing evidence that the Deed of Donation was antedated and executed in
fraud of petitioner; and (e) the Court of Appeals correctly struck down the awards of damages,
attorney's fees and expenses of litigation because there is no factual basis therefor in the body of the
trial court's decision.
The primordial issue for resolution is whether the questioned Deed of Donation was made in fraud of
petitioner and, therefore, rescissible. A corollary issue is whether the awards of damages, attorney's
fees and expenses of litigation are proper.

We resolve these issues in the negative.

The rule is well settled that the jurisdiction of this Court in cases brought before it from the Court of
Appeals via Rule 45 of the Rules of Court is limited to reviewing errors of law. Findings of fact of the
latter court are conclusive, except in a number of instances. 11 In the case at bar, one of the
recognized exceptions warranting a review by this Court of the factual findings of the Court of
Appeals exists, to wit, the factual findings and conclusions of the lower court and Court of Appeals
are conflicting, especially on the issue of whether the Deed of Donation in question was in fraud of
creditors.

Art. 1381 of the Civil Code enumerates the contracts which are rescissible, and among them are
"those contracts undertaken in fraud of creditors when the latter cannot in any other manner collect
the claims due them."

The action to rescind contracts in fraud of creditors is known as accion pauliana. For this action to
prosper, the following requisites must be present: (1) the plaintiff asking for rescission has a credit
prior to the alienation, 12although demandable later; (2) the debtor has made a subsequent contract
conveying a patrimonial benefit to a third person; (3) the creditor has no other legal remedy to satisfy
his claim; 13 (4) the act being impugned is fraudulent; 14(5) the third person who received the property
conveyed, if it is by onerous title, has been an accomplice in the fraud. 15

The general rule is that rescission requires the existence of creditors at the time of the alleged
fraudulent alienation, and this must be proved as one of the bases of the judicial pronouncement
setting aside the contract. 16 Without any prior existing debt, there can neither be injury nor fraud.
While it is necessary that the credit of the plaintiff in the accion pauliana must exist prior to the
fraudulent alienation, the date of the judgment enforcing it is immaterial. Even if the judgment be
subsequent to the alienation, it is merely declaratory, with retroactive effect to the date when the
credit was constituted. 17

In the instant case, the alleged debt of LIM in favor of petitioner was incurred in August 1990, while
the deed of donation was purportedly executed on 10 August 1989.

We are not convinced with the allegation of the petitioner that the questioned deed was antedated to
make it appear that it was made prior to petitioner's credit. Notably, that deed is a public document, it
having been acknowledged before a notary public. 18 As such, it is evidence of the fact which gave
rise to its execution and of its date, pursuant to Section 23, Rule 132 of the Rules of Court.

Petitioner's contention that the public documents referred to in said Section 23 are only those entries
in public records made in the performance of a duty by a public officer does not hold water. Section
23 reads:

Sec. 23. Public documents as evidence. — Documents consisting of entries in public

records made in the performance of a duty by a public officer are prima
facie evidence of the facts therein stated. All other public documents are evidence,
even against a third person, of the fact which gave rise to their execution and of the
date of the latter. (Emphasis supplied).
The phrase "all other public documents" in the second sentence of Section 23 means those public
documents other than the entries in public records made in the performance of a duty by a public
officer. And these include notarial documents, like the subject deed of donation. Section 19, Rule
132 of the Rules of Court provides:

Sec. 19. Classes of docum/ents. — For the purpose of their presentation in evidence,
documents are either public or private.

Public documents are:

(a) . . .

(b) Documents acknowledged before a notary public except last wills and
testaments. . . .

It bears repeating that notarial documents, except last wills and testaments, are public documents
and are evidence of the facts that gave rise to their execution and of their date.

In the present case, the fact that the questioned Deed was registered only on 2 July 1991 is not
enough to overcome the presumption as to the truthfulness of the statement of the date in the
questioned deed, which is 10 August 1989. Petitioner's claim against LIM was constituted only in
August 1990, or a year after the questioned alienation. Thus, the first two requisites for the
rescission of contracts are absent.

Even assuming arguendo that petitioner became a creditor of LIM prior to the celebration of the
contract of donation, still her action for rescission would not fare well because the third requisite was
not met. Under Article 1381 of the Civil Code, contracts entered into in fraud of creditors may be
rescinded only when the creditors cannot in any manner collect the claims due them. Also, Article
1383 of the same Code provides that the action for rescission is but a subsidiary remedy which
cannot be instituted except when the party suffering damage has no other legal means to obtain
reparation for the same. The term "subsidiary remedy" has been defined as "the exhaustion of all
remedies by the prejudiced creditor to collect claims due him before rescission is resorted to." 19 It is,
therefore, "essential that the party asking for rescission prove that he has exhausted all other legal
means to obtain satisfaction of his claim. 20 Petitioner neither alleged nor proved that she did so. On
this score, her action for the rescission of the questioned deed is not maintainable even if the fraud
charged actually did exist." 21

The fourth requisite for an accion pauliana to prosper is not present either.

Art. 1387, first paragraph, of the Civil Code provides: "All contracts by virtue of which the debtor
alienates property by gratuitous title are presumed to have been entered into in fraud of creditors
when the donor did not reserve sufficient property to pay all debts contracted before the donation.
Likewise, Article 759 of the same Code, second paragraph, states that the donation is always
presumed to be in fraud of creditors when at the time thereof the donor did not reserve sufficient
property to pay his debts prior to the donation.

For this presumption of fraud to apply, it must be established that the donor did not leave adequate
properties which creditors might have recourse for the collection of their credits existing before the
execution of the donation.
As earlier discussed, petitioner's alleged credit existed only a year after the deed of donation was
executed. She cannot, therefore, be said to have been prejudiced or defrauded by such alienation.
Besides, the evidence disclose that as of 10 August 1989, when the deed of donation was executed,
LIM had the following properties:

(1) A parcel of land containing an area of 220 square meters,

together with the house constructed thereon, situated in Sto. Niño
Village, Mandaue City, Cebu, registered in the name of Rosa Lim and
covered by TCT No. 19706; 22

(2) A parcel of land located in Benros Subdivision, Lawa-an, Talisay,

Cebu; 23

(3) A parcel of land containing an area of 2.152 hectares, with

coconut trees thereon, situated at Hindag-an, St. Bernard, Southern
Leyte, and covered by Tax Declaration No. 13572. 24

(4) A parcel of land containing an area of 3.6 hectares, with coconut

trees thereon, situated at Hindag-an, St. Bernard, Southern Leyte,
and covered by Tax Declaration No. 13571. 25

During her cross-examination, LIM declared that the house and lot mentioned in no. 1 was bought by
her in the amount of about P800,000 to P900,000. 26 Thus:

ATTY. FLORIDO:

Q These properties at the Sto. Niño Village, how much did you
acquire this property?

A Including the residential house P800,000.00 to P900,000.00.

Q How about the lot which includes the house. How much was the
price in the Deed of Sale of the house and lot at Sto. Niño Violage
[sic]?

A I forgot.

Q How much did you pay for it?

A That is P800,000.00 to P900,000.00.

Petitioner did not adduce any evidence that the price of said property was lower. Anent the
property in no. 2, LIM testified that she sold it in 1990. 27 As to the properties in nos. 3 and 4,
the total market value stated in the tax declarations dated 23 November 1993 was
P56,871.60. Aside from these tax declarations, petitioner did not present evidence that would
indicate the actual market value of said properties. It was not, therefore, sufficiently
established that the properties left behind by LIM were not sufficient to cover her debts
existing before the donation was made. Hence, the presumption of fraud will not come into
play.
Nevertheless, a creditor need not depend solely upon the presumption laid down in Articles 759 and
1387 of the Civil Code. Under the third paragraph of Article 1387, the design to defraud may be
proved in any other manner recognized by the law of evidence. Thus in the consideration of whether
certain transfers are fraudulent, the Court has laid down specific rules by which the character of the
transaction may be determined. The following have been denominated by the Court as badges of
fraud:

(1) The fact that the consideration of the conveyance is fictitious or is

inadequate;

(2) A transfer made by a debtor after suit has begun and while it is
pending against him;

(3) A sale upon credit by an insolvent debtor;

(4) Evidence of large indebtedness or complete insolvency;

(5) The transfer of all or nearly all of his property by a debtor,

especially when he is insolvent or greatly embarrassed financially;

(6) The fact that the transfer is made between father and son, when
there are present other of the above circumstances; and

(7) The failure of the vendee to take exclusive possession of all the
property. 28

The above enumeration, however, is not an exclusive list. The circumstances evidencing fraud are
as varied as the men who perpetrate the fraud in each case. This Court has therefore declined to
define it, reserving the liberty to deal with it under whatever form it may present itself. 29

Petitioner failed to discharge the burden of proving any of the circumstances enumerated above or
any other circumstance from which fraud can be inferred. Accordingly, since the four requirements
for the rescission of a gratuitous contract are not present in this case, petitioner's action must fail.

In her further attempt to support her action for rescission, petitioner brings to our attention the 31
July 1990 Decision 30 of the RTC of Quezon City, Branch 92, in Criminal Case No. Q-89-2216. LIM
was therein held guilty of estafa and was ordered to pay complainant Victoria Suarez the sum of
P169,000 for the obligation LIM incurred on 8 October 1987. This decision was affirmed by the Court
of Appeals. Upon appeal, however, this Court acquitted LIM of estafa but held her civilly liable for
P169,000 as actual damages.

It should be noted that the complainant in that case, Victoria Suarez, albeit a creditor prior to the
questioned alienation, is not a party to this accion pauliana. Article 1384 of the Civil Code provides
that rescission shall only be to the extent necessary to cover the damages caused. Under this
Article, only the creditor who brought the action for rescission can benefit from the rescission; those
who are strangers to the action cannot benefit from its effects. 31And the revocation is only to the
extent of the plaintiff creditor's unsatisfied credit; as to the excess, the alienation is
maintained. 32 Thus, petitioner cannot invoke the credit of Suarez to justify rescission of the subject
deed of donation.
Now on the propriety of the trial court's awards of moral damages, attorney's fees and expenses of
litigation in favor of the petitioner. We have pored over the records and found no factual or legal
basis therefor. The trial court made these awards in the dispositive portion of its decision without
stating, however, any justification for the same in the ratio decidendi. Hence, the Court of Appeals
correctly deleted these awards for want of basis in fact, law or equity.

WHEREFORE, the petition is hereby DISMISSED and the challenged decision of the Court of
Appeals in CA-G.R. CV. No. 50091 is AFFIRMED in toto.

No pronouncement as to costs.

SO ORDERED.

G.R. No. 126013 February 12, 1997

SPOUSES HEINZRICH THEIS AND BETTY THEIS, petitioners,

vs.
HONORABLE COURT OF APPEALS, HONORABLE ELEUTERIO GUERRERO, ACTING
PRESIDING JUDGE, BRANCH XVIII, REGIONAL TRIAL COURT, TAGAYTAY CITY, CALSONS
DEVELOPMENT CORPORATION, respondents.

HERMOSISIMA, JR., J.:

In the instant petition, we shall have the occasion to apply the concept of mistake in the annulment
of contracts.

Private respondent Calsons Development Corporation is the owner of three (3) adjacent parcels of
land covered by Transfer Certificate of Title (TCT) Nos. 15515 (parcel no. 1 in the location map),
15516 (parcel no. 2) and 15684 (parcel no. 3), with the area of 1,000 square meters, 226 square
meters and 1,000 square meters, respectively. All three parcels of land are situated along Ligaya
Drive, Barangay Francisco, Tagaytay City. Adjacent to parcel no. 3, which is the lot covered by TCT
No. 15684, is a vacant lot denominated as parcel no. 4.

In 1985, private respondent constructed a two-storey house on parcel no. 3. The lots covered by
TCT No. 15515 and TCT No. 15516, which are parcel no. 1 and parcel no. 2, respectively, remained
idle.

However, in a survey conducted in 1985, parcel no. 3, where the two-storey house stands, was
erroneously indicated to be covered not by TCT No. 15684 but by TCT No. 15515, while the two idle
lands (parcel nos. 1 and 2) were mistakenly surveyed to be located on parcel no. 4 instead (which
was not owned by private respondent) and covered by TCT Nos. 15516 and 15684.
On October 26, 1987, unaware of the mistake by which private respondent appeared to be the
owner of parcel no. 4 as indicated in the erroneous survey, and based on the erroneous information
given by the surveyor that parcel no. 4 is covered by TCT No. 15516 and 15684, private respondent,
through its authorized representative, one Atty. Tarcisio S. Calilung, sold said parcel no. 4 to
petitioners.

Upon execution of the Deed of Sale, private respondent delivered TCT Nos. 15516 and 15684 to
petitioners who, on October 28, 1987, immediately registered the same with the Registry of Deeds of
Tagaytay City. Thus, TCT Nos. 17041 and 17042 in the names of the petitioners were issued.

Indicated on the Deed of Sale as purchase price was the amount of P130,000.00. The actual price
agreed upon and paid, however, was P486,000.00. This amount was not immediately paid to private
respondent; rather, it was deposited in escrow in an interest-bearing account in its favor with the
United Coconut Planters Bank in Makati City. The P486,000.00 in escrow was released to, and
received by, private respondent on December 4, 1987.

Thereafter, petitioners did not immediately occupy and take possession of the two (2) idle parcels of
land purchased from private respondent. Instead, petitioners went to Germany.

In the early part of 1990, petitioners returned to the Philippines. When, they went to Tagaytay to look
over the vacant lots and to plan the construction of their house thereon, they discovered that parcel
no. 4 was owned by another person. They also discovered that the lots actually sold to them were
parcel nos. 2 and 3 covered by TCT Nos. 15516 and 15684. respectively. Parcel no. 3, however,
could not have been sold to the petitioners by the private respondents as a two-storey house, the
construction cost of which far exceeded the price paid by the petitioners, had already been built
thereon even prior to the execution of the contract between the disputing parties.

Petitioners insisted that they wanted parcel no. 4, which is the idle lot adjacent to parcel no. 3, and
persisted in claiming that it was parcel no. 4 that private respondent sold to them. However, private
respondent could not have possibly sold the same to them for it did not own parcel no. 4 in the first
place.

The mistake in the identity of the lots is traceable to the erroneous survey conducted in 1985.

To remedy the mistake, private respondent offered parcel nos. 1 and 2 covered by TCT Nos. 15515
and 15516, respectively, as these two were precisely the two vacant lots which private respondent
owned and intended to sell when it entered into the transaction with petitioners. Petitioners
adamantly rejected the good faith offer. They refused to yield to reason and insisted on taking parcel
no. 3, covered by TCT No. 155864 and upon which a two-storey house stands, in addition to parcel
no. 2, covered by TCT No. 15516, on the ground that these TCTs have already been cancelled and
new ones issued in their name.

Such refusal of petitioners prompted private respondent to make another offer, this time, the return
of an amount double the price paid by petitioners. Petitioners still refused and stubbornly insisted in
their stand.

Private respondent was then compelled to file an action for annulment of deed of sale and
reconveyance of the properties subject thereof1 in the Regional Trial Court.2

The trial court rendered judgment in favor of private respondent. Identifying the core issue in the
instant controversy to be the voidability of the contract of sale between petitioners and private
respondent on the ground of mistake, the trial court annulled said contract of sale after finding that
there was indeed a mistake in the identification of the parcels of land intended to be the subject
matter of said sale. The trial court ratiocinated:

Meeting head-on the issue of alleged mistake in the object of the same, defendants
in their answer averred that they relied on the technical descriptions of TCT Nos.
15516 and 15684 appearing in the deed of sale.
...

A resolution of the conflicting claims of the parties to the instant controversy calls for
an inquiry on their real intent relative to the identity of the parcels which plaintiff
intended to sell to defendants and which the latter in turn, intended to buy from the
former. For, the Court cannot ignore the dictates of logic and common sense which,
ordinarily, could not push a person to sell to another, a property which the former
does not own in the first place, for fear of adverse consequences. The vendee,
following the same reasoning, would not buy a thing unless he is totally certain that
the seller is the real owner of the thing offered for sale. It is equally true that when
one sells or buys a real property, he either sells or buys the property as he sees it, in
its actual setting and by its physical metes and bounds, and not be the mere lot
number assigned to the same property in the certificate of title or in any document.
And, when a buyer of real property decides to purchase from his seller, he is
ordinarily bound by prudence to ascertain the true nature, identity or character of the
property that he intends to buy and ascertain the title of his vendor before he parts
with his money. It is quite obvious that the foregoing precepts and precautions were
observed by the parties in the case at bar as there is no question at all that he sale in
question was consummated through the initiative of Mrs. Gloria Contreras and then
Vice-Mayor Benjamin Erni . . . both brokers of the sale who, after a chance meeting
with defendants at the Taal Vista Lodge Hotel prior to the sale of plaintiffs parcels,
brought defendants to the vicinity where plaintiffs three (3) adjacent parcels of land
are located and pointed to defendants the two (2) vacant parcels right beside
plaintiffs house. It is also undisputed that when defendants intimated to the brokers
their desire to buy the vacant lots pointed to them when they visited the same place,
they were brought to plaintiffs representative, Tarcisio S. Calilung, at the latter's
office in Makati where the parties discussed the terms of the sale.

The Court notes further from the records that defendants' desire to buy vacant lots
from plaintiff is not only confirmed by the testimony of Gloria Contreras and the
ocular inspection conducted by the court but by defendant Betty Theis herself when
the latter testified as follows:

"COURT:

Q. Why, what was the lot that you intended to buy?

A. The right side of the house, Your Honor." (TSN of November 8,

1991, page 19)

Similarly, in answer to a question propounded to the same defendant by their counsel, she stated
that —

"ATTY. ROSALES:
 Q. In other words, the titles delivered to you were not the titles
covering the right side of the house?

A No, sir." (Ibid., page 20)

It is relevant to mention that when the defendants attempted to take possession of

the parcels of land they bought from the plaintiff on which they intended to construct
their house after their return from a foreign sojourn, they admittedly wanted to take
that vacant area, which as herein shown, turns out to be a property not owned by
plaintiff. From this act of the defendants, a clear meaning is shown. Defendants
themselves, knew right from the beginning that what they intended to buy was that
vacant lot, not the lot where plaintiffs house stands, covered by TCT No. 15684
which was wrongly mentioned as one of the objects of the sale. . . .

The fact that the Deed of Sale subsequently executed by plaintiff and the defendants
on October 27, 1987 covers the parcel of land where plaintiffs two- storey house was
constructed will clearly reflect a situation that is totally different from what defendants
had intended to buy from the plaintiff viz-a-viz [sic] the latter's intention to sell its two
(2) vacant lots to defendants. Notwithstanding defendants' claim that it was not
possible for plaintiffs representative not to be familiar with its properties, the acts and
circumstances established in this case would clearly show, and this Court is
convinced, that the inclusion of the parcel where plaintiffs house is constructed is
solely attributable to a mistake in the object of the sale between the parties. This
mistake, obviously, was made, on the part of plaintiffs representative when the latter
mistook the vacant lot situated on the right side of plaintiffs house as its vacant
parcels of land when its vacant lots are actually situated on the left side of the same
house. Indeed, such mistake on plaintiffs part appears to be tragic as it turned out
later that the vacant lot on the right side of plaintiffs house did not belong to plaintiff.
Worse, is the fact that what was conveyed to defendants under the deed of sale was
the parcel where plaintiff s house already stood at the time of the sale. This,
definitely, is not what the parties intended.

. . . Going by the facts established by defendants' evidence, it is clear

that defendants did not intend to buy the parcel of land where plaintiffs house stood
as defendant Betty Theis declared in her testimony that they wanted to buy the
parcel at the right side of plaintiffs house where she and her husband would
construct their house (TSN of June 4 1991, page 56). Neither can this Court accept
the hypothesis that plaintiff intended to sell that parcel where its house was already
constructed for if this was its true intention. it would not sell its two (2) lots at the price
of P486,000.00 which is way below the costs of its construction of P1,500,000.00.

The law itself explicitly recognizes that consent of the parties is one of the essential
elements to the validity of the contract and where consent is given through mistake,
the validity of the contractual relations between the parties is legally impaired.

As earlier stated, the facts obtaining in the case at bar undoubtedly show that when
defendants bought the properties of plaintiff, they intended to buy the vacant lots
owned by the latter. As the sale that was finally consummated by the parties had
covered the parcel where plaintiffs house was constructed even before the sale took
place, this Court can safely assume that the deed of sale executed by the parties did
not truly express their true intention. In other words, the mistake or error on the
subject of the sale in question appears to be substantial as the object of the same
 transaction is different from that intended by the parties. This fiasco could have been
cured and the pain and travails of this litigation avoided,had parties agreed to a
reformation of the deed of sale. But. as shown by the sequence of events occurring
after the sale was consummated. and the mistake was discovered. the defendants
refused, insisting that they wanted the vacant lots on the right side of plaintiffs house.
which was impossible the vacant lots on the right side for plaintiff to do, as said
vacant lots were not of its own dominion.3 [Emphasis ours]

Aggrieved by the decision of the trial court, petitioners sought its

reversal 4 from respondent Court of Appeals5. Respondent court, however, did not find the appeal
meritorious and accordingly affirmed6 the trial court decision. Ruled the respondent appellate court:

There is no doubt that when defendants-appellants attempted to take physical

possession of Parcel No. 4 in May, 1990, they were prevented by the true owner
thereof from taking possession of said land. To clear the matter, plaintiff-appellee
hired a new surveyor who revealed in his survey that Parcel No. 4 is not included in
plaintiff-appellee's Transfer Certificates of Title from which said plaintiff-appellee
mistakenly offered defendants-appellants said Parcel No. 4. Realizing its mistake,
plaintiff- appellee offered defendants-appellants Parcels Nos. 1 and 2 under the
same Transfer Certificates of Title or the reimbursement of the purchase price in
double amount. But defendants-appellants insisted this time to acquire Parcel No. 3
wherein plaintiff-appellee had already a house, and was not the object of the sale.

Said Parcel No. 3 cannot be the object of the sale between the parties as plaintiff-
appellee's house already stands in the said area even before defendants-appellants
had chosen Parcel No. 4 which was described to be on the right side of said plaintiff-
appellee's house in Parcel No. 3. There is no dispute that defendants-appellants
wanted to buy Parcel No. 4 as testified to by defendant-appellant Petty Theis, herself
(p. 19, tsn, Nov. 8, 1991), which lot turned out to be outside of the Transfer
Certificates of Title of plaintiff-appellee. Defendants-appellants cannot now insist on
Parcel No. 3 as the same was not the object of the sale between the parties.

Clearly, therefore. there was honest mistake on the part of Plaintiff- appellee in the
sale of Parcel No. 4 to defendants-appellants which plaintiff- appellee tried to remedy
by offering defendants-appellant instead his Parcels Nos. 1 or 2, or reimbursement of
the purchase price in double amount.7 [Emphasis ours]

We find that respondent court correctly affirmed the findings and conclusions of the trial court in
annulling the deed of sale as the former are supported by evidence and the latter are in accordance
with existing law and jurisprudence.

Art. 1390 of the New Civil Code provides:

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

(1) . . .

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

xxx xxx xxx

In the case at bar, the private respondent obviously committed an honest mistake in selling parcel
no. 4. As correctly noted by the Court of Appeals, it is quite impossible for said private respondent to
sell the lot in question as the same is not owned by it. The good faith of the private respondent is
evident in the fact that when the mistake was discovered, it immediately offered two other vacant lots
to the petitioners or to reimburse them with twice the amount paid. That petitioners refused either
option left the private respondent with no other choice but to file an action for the annulment of the
deed of sale on the ground of mistake. As enunciated in the case of Mariano vs. Court of Appeals:8

A contract may be annulled where the consent of one of the contracting parties was
procured by mistake, fraud, intimidation, violence, or undue influence.

Art. 1331 of the New Civil Code provides for the situations whereby mistake may invalidate consent.
It states:

Art. 1331. In order that mistake may invalidate consent, it should refer to the
substance of the thing which is the object of the contract, or to those conditions
which have principally moved one or both parties to enter into the contract.

Tolentino9 explains that the concept of error in this article must include both ignorance, which is the
absence of knowledge with respect to a thing, and mistake properly speaking, which is a wrong
conception about said thing, or a belief in the existence of some circumstance, fact, or event, which
in reality does not exist. In both cases, there is a lack of full and correct knowledge about the thing.
The mistake committed by the private respondent in selling parcel no. 4 to the petitioners falls within
the second type. Verily, such mistake invalidated its consent and as such, annulment of the deed of
sale is proper.

The petitioners cannot be justified in their insistence that parcel no. 3, upon which private
respondent constructed a two-storey house, be given to them in lieu of parcel no. 4. The cost of
construction in 1985 for the said house (P1,500,000.00) far exceeds the amount paid by the
petitioners to the private respondent (P486,000.00). Moreover, the trial court, in questioning private
respondent's witness, Atty. Tarciso Calilung (who is also its authorized representative) clarified that
parcel no. 4, the lot mistakenly sold, was a vacant lot: 10

COURT: What property did you point to them?

A. I pointed to parcel No. 4, as appearing in the sketch.

COURT: Parcel No. 4 is a vacant lot?

A. Yes, your Honor.

COURT: So, there was no house on that lot?

A. There was no house. There were pineapple crops existing on the property.

COURT: So, you are telling the Court that the intended lot is vacant lot or Parcel 4?

A. Yes, your Honor.

Thus, to allow the petitioners to take parcel no. 3 would be to countenance unjust enrichment.
Considering that petitioners intended at the outset to purchase a vacant lot, their refusal to accept
the offer of the private respondent to give them two (2) other vacant lots in exchange, as well as their
insistence on parcel no. 3, which is a house and lot, is manifestly unreasonable. As held by this
Court in the case of Security Bank and Trust Company v. Court of Appeals 11:

Hence, to allow petitioner bank to acquire the constructed building at a price far
below its actual construction cost would undoubtedly constitute unjust enrichment for
the bank to the prejudice of the private respondent. Such unjust enrichment, as
previously discussed, is not allowed by law.

WHEREFORE, the petition is hereby DISMISSED and the decision of the Court Appeals in CA-G.R.
47000 dated May 31, 1996 AFFIRMED. Costs against the petitioner.

SO ORDERED.

G.R. No. 125172 June 26, 1998

Spouses ANTONIO and LUZVIMINDA GUIANG, petitioners,

vs.
COURT OF APPEALS and GILDA COPUZ, respondents.

PANGANIBAN, J.:

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

The Case

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

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

ACCORDINGLY, judgment is rendered for the plaintiff and against the

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

2. Recognizing as lawful and valid the ownership and possession of plaintiff

Gilda Corpuz over the remaining one-half portion of Lot 9, Block 8, (LRC) Psd-
165409 which has been the subject of the Deed of Transfer of Rights (Exh.
"A");

3. Ordering plaintiff Gilda Corpuz to reimburse defendants Luzviminda Guiang

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

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

case.

Dissatisfied, petitioners-spouses filed an appeal with the Court of Appeals. Respondent

Court, in its challenged Decision, ruled as follow: 6

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

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

Finding that the issues raised in defendants-appellants motion for

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

The Facts

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

1. Plaintiff Gilda Corpuz and defendant Judie Corpuz are legally married
spouses. They were married on December 24, 1968 in Bacolod City, before a
judge. This is admitted by defendants-spouses Antonio and Luzviminda
Guiang in their answer, and also admitted by defendant Judie Corpuz when he
testified in court (tsn. p. 3, June 9, 1992), although the latter says that they
were married in 1967. The couple have three children, namely: Junie — 18
years old, Harriet — 17 years of age, and Jodie or Joji, the youngest, who was
15 years of age in August, 1990 when her mother testified in court.
Sometime on February 14, 1983, the couple Gilda and Judie Corpuz, with
plaintiff-wife Gilda Corpuz as vendee, bought a 421 sq. meter lot located in
Barangay Gen. Paulino Santos (Bo. 1), Koronadal, South Cotabato, and
particularly known as Lot 9, Block 8, (LRC) Psd-165409 from Manuel Callejo
who signed as vendor through a conditional deed of sale for a total
consideration of P14,735.00. The consideration was payable in installment,
with right of cancellation in favor of vendor should vendee fail to pay three
successive installments (Exh. "2", tsn p. 6, February 14, 1990).

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

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

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

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

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

Four (4) days after March 1, 1990 or on March 5, 1990, obviously to cure
whatever defect in defendant Judie Corpuz's title over the lot transferred,
defendant Luzviminda Guiang as vendee executed another agreement over Lot
9, Block 8, (LRC) Psd-165408 (Exh. "3"), this time with Manuela Jimenez
Callejo, a widow of the original registered owner from whom the couple Judie
and Gilda Corpuz originally bought the lot (Exh. "2"), who signed as vendor for
a consideration of P9,000.00. Defendant Judie Corpuz signed as a witness to
the sale (Exh. "3-A"). The new sale (Exh. "3") describes the lot sold as Lot 8,
Block 9, (LRC) Psd-165408 but it is obvious from the mass of evidence that the
correct lot is Lot 8, Block 9, (LRC) Psd-165409, the very lot earlier sold to the
couple Gilda and Judie Corpuz.

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

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

That respondent, Mrs. Gilda Corpuz and her three children,

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

FAIL NOT UNDER THE PENALTY OF THE LAW.

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

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

7. Defendant-spouses Guiang followed thru the amicable settlement with a

motion for the execution of the amicable settlement, filing the same with the
Municipal Trial Court of Koronadal, South Cotabato. The proceedings [are] still
pending before the said court, with the filing of the instant suit.

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

Ruling of Respondent Court

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

Hence, this petition. 9

The Issues

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

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

II

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

III

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

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

This Court's Ruling

The petition is bereft of merit.

First Issue: Void or Voidable Contract?

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

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

xxx xxx xxx

(2) Those where the consent is vitiated by mistake, violence, intimidation,

undue influence or fraud.

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

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

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

A I was still in Manila during that time.

xxx xxx xxx

ATTY. FUENTES:

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

A That was on March 11, 1990, Ma'am.

Q Now, when you arrived at Koronadal, was there any problem

which arose concerning the ownership of your residential house
at Callejo Subdivision?

A When I arrived here in Koronadal, there was a problem which

arose regarding my residential house and lot because it was
sold by my husband without my knowledge.

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

Art. 124. The administration and enjoyment of the conjugal partnerhip properly
shall belong to both spouses jointly. In case of disgreement, the husband's
decision shall prevail, subject recourse to the court by the wife for proper
remedy, which must be availed of within five years from the date of the
contract implementing such decision.
 In the event that one spouse is incapacitated or otherwise unable to participate
in the administration of the conjugal properties, the other spouse may assume
sole powers of administration. These powers do not include the powers of
disposition or encumbrance which must have the authority of the court or the
written consent of the other spouse. In the absence of such authority or
consent, the disposition or encumbrance shall be void. However, the
transaction shall be construed as a continuing offer on the part of the
consenting spouse and the third person, and may be perfected as a binding
contract upon the acceptance by the other spouse or authorization by the
court before the offer is withdrawn by either or both offerors. (165a) (Emphasis
supplied)

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

The legal provision is clear. The disposition or encumbrance is void. It

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

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

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

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

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

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

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

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

Art. 1422. Acontract which is the direct result of a previous

illegal contract, is also void and inexistent. (Civil Code of the
Philippines).

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

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

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

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

SO ORDERED.

G.R. No. 174118 April 11, 2012

THE ROMAN CATHOLIC CHURCH, represented by the Archbishop of Caceres, Petitioner,

vs.
REGINO PANTE, Respondent.
 DECISION

BRION, J.:

Through a petition for review on certiorari,1 the petitioner Roman Catholic Church (Church) seeks to
set aside the May 18, 2006 decision2 and the August 11, 2006 resolution3 of the Court of Appeals
(CA) in CA-G.R.-CV No. 65069. The CA reversed the July 30, 1999 decision4 of the Regional Trial
Court (RTC) of Naga City, Branch 24, in Civil Case No. 94-3286.

THE FACTUAL ANTECEDENTS

The Church, represented by the Archbishop of Caceres, owned a 32-square meter lot that measured
2x16 meters located in Barangay Dinaga, Canaman, Camarines Sur.5 On September 25, 1992, the
Church contracted with respondent Regino Pante for the sale of the lot (thru a Contract to Sell and to
Buy6 ) on the belief that the latter was an actual occupant of the lot. The contract between them fixed
the purchase price at ₱11,200.00, with the initial ₱1,120.00 payable as down payment, and the
remaining balance payable in three years or until September 25, 1995.

On June 28, 1994, the Church sold in favor of the spouses Nestor and Fidela Rubi (spouses Rubi) a
215-square meter lot that included the lot previously sold to Pante. The spouses Rubi asserted their
ownership by erecting a concrete fence over the lot sold to Pante, effectively blocking Pante and his
family’s access from their family home to the municipal road. As no settlement could be reached
between the parties, Pante instituted with the RTC an action to annul the sale between the Church
and the spouses Rubi, insofar as it included the lot previously sold to him.7

The Church filed its answer with a counterclaim, seeking the annulment of its contract with Pante.
The Church alleged that its consent to the contract was obtained by fraud when Pante, in bad faith,
misrepresented that he had been an actual occupant of the lot sold to him, when in truth, he was
merely using the 32-square meter lot as a passageway from his house to the town proper. It
contended that it was its policy to sell its lots only to actual occupants. Since the spouses Rubi and
their predecessors-in-interest have long been occupying the 215-square meter lot that included the
32-square meter lot sold to Pante, the Church claimed that the spouses Rubi were the rightful
buyers.

During pre-trial, the following admissions and stipulations of facts were made:

1. The lot claimed by Pante is a strip of land measuring only 2x16 meters;

2. The lot had been sold by the Church to Pante on September 25, 1992;

3. The lot was included in the sale to the spouses Rubi by the Church; and

4. Pante expressly manifested and represented to the Church that he had been actually
occupying the lot he offered to buy.8

In a decision dated July 30, 1999,9 the RTC ruled in favor of the Church, finding that the Church’s
consent to the sale was secured through Pante’s misrepresentation that he was an occupant of the
32-square meter lot. Contrary to his claim, Pante was only using the lot as a passageway; the
Church’s policy, however, was to sell its lots only to those who actually occupy and reside thereon.
As the Church’s consent was secured through its mistaken belief that Pante was a qualified
"occupant," the RTC annulled the contract between the Church and Pante, pursuant to Article 1390
of the Civil Code.10

The RTC further noted that full payment of the purchase price was made only on September 23,
1995, when Pante consigned the balance of ₱10,905.00 with the RTC, after the Church refused to
accept the tendered amount. It considered the three-year delay in completing the payment fatal to
Pante’s claim over the subject lot; it ruled that if Pante had been prompt in paying the price, then the
Church would have been estopped from selling the lot to the spouses Rubi. In light of Pante’s delay
and his admission that the subject lot had been actually occupied by the spouses Rubi’s
predecessors, the RTC upheld the sale in favor of the spouses Rubi.

Pante appealed the RTC’s decision with the CA. In a decision dated May 18, 2006,11 the CA granted
Pante’s appeal and reversed the RTC’s ruling. The CA characterized the contract between Pante
and the Church as a contract of sale, since the Church made no express reservation of ownership
until full payment of the price is made. In fact, the contract gave the Church the right to repurchase in
case Pante fails to pay the installments within the grace period provided; the CA ruled that the right
to repurchase is unnecessary if ownership has not already been transferred to the buyer.

Even assuming that the contract had been a contract to sell, the CA declared that Pante fulfilled the
condition precedent when he consigned the balance within the three-year period allowed under the
parties’ agreement; upon full payment, Pante fully complied with the terms of his contract with the
Church.

After recognizing the validity of the sale to Pante and noting the subsequent sale to the spouses
Rubi, the CA proceeded to apply the rules on double sales in Article 1544 of the Civil Code:

Article 1544. If the same thing should have been sold to different vendees, the ownership shall be
transferred to the person who may have first taken possession thereof in good faith, if it should be
movable property.

Should it be immovable property, the ownership shall belong to the person acquiring it who in good
faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good faith was first
in the possession; and, in the absence thereof, to the person who presents the oldest title, provided
there is good faith. [Emphasis ours.]

Since neither of the two sales was registered, the CA upheld the full effectiveness of the sale in favor
of Pante who first possessed the lot by using it as a passageway since 1963.

The Church filed the present petition for review on certiorari under Rule 45 of the Rules of Court to
contest the CA’s ruling.

THE PETITION

The Church contends that the sale of the lot to Pante is voidable under Article 1390 of the Civil
Code, which states:

Article 1390. The following contracts are voidable or annullable, even though there may have been
no damage to the contracting parties:
 (1) Those where one of the parties is incapable of giving consent to a contract;

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

These contracts are binding, unless they are annulled by a proper action in court. They are
susceptible of ratification. [Emphasis ours.]

It points out that, during trial, Pante already admitted knowing that the spouses Rubi have been
residing on the lot. Despite this knowledge, Pante misrepresented himself as an occupant because
he knew of the Church’s policy to sell lands only to occupants or residents thereof. It thus claims that
Pante’s misrepresentation effectively vitiated its consent to the sale; hence, the contract should be
nullified.

For the Church, the presence of fraud and misrepresentation that would suffice to annul the sale is
the primary issue that the tribunals below should have resolved. Instead, the CA opted to
characterize the contract between the Church and Pante, considered it as a contract of sale, and,
after such characterization, proceeded to resolve the case in Pante’s favor. The Church objects to
this approach, on the principal argument that there could not have been a contract at all considering
that its consent had been vitiated.

THE COURT’S RULING

The Court resolves to deny the petition.

No misrepresentation existed vitiating the

seller’s consent and invalidating the contract

Consent is an essential requisite of contracts12 as it pertains to the meeting of the offer and the
acceptance upon the thing and the cause which constitute the contract.13 To create a valid contract,
the meeting of the minds must be free, voluntary, willful and with a reasonable understanding of the
various obligations the parties assumed for themselves.14 Where consent, however, is given through
mistake, violence, intimidation, undue influence, or fraud, the contract is deemed
voidable.15 However, not every mistake renders a contract voidable. The Civil Code clarifies the
nature of mistake that vitiates consent:

Article 1331. In order that mistake may invalidate consent, it should refer to the substance of the
thing which is the object of the contract, or to those conditions which have principally moved one or
both parties to enter into the contract.

Mistake as to the identity or qualifications of one of the parties will vitiate consent only when such
identity or qualifications have been the principal cause of the contract.

A simple mistake of account shall give rise to its correction. [Emphasis ours.]

For mistake as to the qualification of one of the parties to vitiate consent, two requisites must concur:

1. the mistake must be either with regard to the identity or with regard to the qualification of
one of the contracting parties; and
 2. the identity or qualification must have been the principal consideration for the celebration
of the contract.16

In the present case, the Church contends that its consent to sell the lot was given on the mistaken
impression arising from Pante’s fraudulent misrepresentation that he had been the actual occupant
of the lot. Willful misrepresentation existed because of its policy to sell its lands only to their actual
occupants or residents. Thus, it considers the buyer’s actual occupancy or residence over the
subject lot a qualification necessary to induce it to sell the lot.

Whether the facts, established during trial, support this contention shall determine if the contract
between the Church and Pante should be annulled. In the process of weighing the evidentiary value
of these established facts, the courts should consider both the parties’ objectives and the subjective
aspects of the transaction, specifically, the parties’ circumstances – their condition, relationship, and
other attributes – and their conduct at the time of and subsequent to the contract. These
considerations will show what influence the alleged error exerted on the parties and their intelligent,
free, and voluntary consent to the contract.17

Contrary to the Church’s contention, the actual occupancy or residency of a buyer over the land
does not appear to be a necessary qualification that the Church requires before it could sell its land.
Had this been indeed its policy, then neither Pante nor the spouses Rubi would qualify as buyers of
the 32-square meter lot, as none of them actually occupied or resided on the lot. We note in this
regard that the lot was only a 2x16-meter strip of rural land used as a passageway from Pante’s
house to the municipal road.

We find well-taken Pante’s argument that, given the size of the lot, it could serve no other purpose
than as a mere passageway; it is unthinkable to consider that a 2x16-meter strip of land could be
mistaken as anyone’s residence. In fact, the spouses Rubi were in possession of the adjacent lot,
but they never asserted possession over the 2x16-meter lot when the 1994 sale was made in their
favor; it was only then that they constructed the concrete fence blocking the passageway.

We find it unlikely that Pante could successfully misrepresent himself as the actual occupant of the
lot; this was a fact that the Church (which has a parish chapel in the same barangay where the lot
was located) could easily verify had it conducted an ocular inspection of its own property. The
surrounding circumstances actually indicate that the Church was aware that Pante was using the lot
merely as a passageway.

The above view is supported by the sketch plan,18 attached to the contract executed by the Church
and Pante, which clearly labeled the 2x16-meter lot as a "RIGHT OF WAY"; below these words was
written the name of "Mr. Regino Pante." Asked during cross-examination where the sketch plan
came from, Pante answered that it was from the Archbishop’s Palace; neither the Church nor the
spouses Rubi contradicted this statement.19

The records further reveal that the sales of the Church’s lots were made after a series of
conferences with the occupants of the lots.20 The then parish priest of Canaman, Fr. Marcaida, was
apparently aware that Pante was not an actual occupant, but nonetheless, he allowed the sale of the
lot to Pante, subject to the approval of the Archdiocese’s Oeconomous. Relying on Fr. Marcaida’s
recommendation and finding nothing objectionable, Fr. Ragay (the Archdiocese’s Oeconomous)
approved the sale to Pante.

The above facts, in our view, establish that there could not have been a deliberate, willful, or
fraudulent act committed by Pante that misled the Church into giving its consent to the sale of the
subject lot in his favor. That Pante was not an actual occupant of the lot he purchased was a fact
that the Church either ignored or waived as a requirement. In any case, the Church was by no
means led to believe or do so by Pante’s act; there had been no vitiation of the Church’s consent to
the sale of the lot to Pante.

From another perspective, any finding of bad faith, if one is to be made, should be imputed to the
Church. Without securing a court ruling on the validity of its contract with Pante, the Church sold the
subject property to the spouses Rubi. Article 1390 of the Civil Code declares that voidable contracts
are binding, unless annulled by a proper court action. From the time the sale to Pante was made and
up until it sold the subject property to the spouses Rubi, the Church made no move to reject the
contract with Pante; it did not even return the down payment he paid. The Church’s bad faith in
selling the lot to Rubi without annulling its contract with Pante negates its claim for damages.

In the absence of any vitiation of consent, the contract between the Church and Pante stands valid
and existing. Any delay by Pante in paying the full price could not nullify the contract, since (as
correctly observed by the CA) it was a contract of sale. By its terms, the contract did not provide a
stipulation that the Church retained ownership until full payment of the price.21 The right to repurchase
given to the Church in case Pante fails to pay within the grace period provided22 would have been
unnecessary had ownership not already passed to Pante.

The rule on double sales

The sale of the lot to Pante and later to the spouses Rubi resulted in a double sale that called for the
application of the rules in Article 1544 of the Civil Code:

Article 1544. If the same thing should have been sold to different vendees, the ownership shall be
transferred to the person who may have first taken possession thereof in good faith, if it should be
movable property.

Should it be immovable property, the ownership shall belong to the person acquiring it who in good
faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good faith was first
in the possession; and, in the absence thereof, to the person who presents the oldest title, provided
there is good faith. [Emphasis ours.]

As neither Pante nor the spouses Rubi registered the sale in their favor, the question now is who,
between the two, was first in possession of the property in good faith. 1âwphi1

Jurisprudence has interpreted possession in Article 1544 of the Civil Code to mean both actual
physical delivery and constructive delivery.23 Under either mode of delivery, the facts show that Pante
was the first to acquire possession of the lot.

Actual delivery of a thing sold occurs when it is placed under the control and possession of the
vendee.24 Pante claimed that he had been using the lot as a passageway, with the Church’s
permission, since 1963. After purchasing the lot in 1992, he continued using it as a passageway
1âwphi1

until he was prevented by the spouses Rubi’s concrete fence over the lot in 1994. Pante’s use of the
lot as a passageway after the 1992 sale in his favor was a clear assertion of his right of ownership
that preceded the spouses Rubi’s claim of ownership.

Pante also stated that he had placed electric connections and water pipes on the lot, even before he
purchased it in 1992, and the existence of these connections and pipes was known to the spouses
Rubi.25 Thus, any assertion of possession over the lot by the spouses Rubi (e.g., the construction of a
concrete fence) would be considered as made in bad faith because works had already existed on
the lot indicating possession by another. "[A] buyer of real property in the possession of persons
other than the seller must be wary and should investigate the rights of those in possession. Without
such inquiry, the buyer can hardly be regarded as a buyer in good faith and cannot have any right
over the property."26

Delivery of a thing sold may also be made constructively. Article 1498 of the Civil Code states that:

Article 1498. When the sale is made through a public instrument, the execution thereof shall be
equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary
does not appear or cannot clearly be inferred.

Under this provision, the sale in favor of Pante would have to be upheld since the contract executed
between the Church and Pante was duly notarized, converting the deed into a public instrument.27 In
Navera v. Court of Appeals,28 the Court ruled that:

[A]fter the sale of a realty by means of a public instrument, the vendor, who resells it to another,
does not transmit anything to the second vendee, and if the latter, by virtue of this second sale,
takes material possession of the thing, he does it as mere detainer, and it would be unjust to protect
this detention against the rights of the thing lawfully acquired by the first vendee.

Thus, under either mode of delivery, Pante acquired prior possession of the lot.

WHEREFORE, we DENY the petition for review on certiorari, and AFFIRM the decision of the Court
of Appeals dated May 18, 2006, and its resolution dated August 11, 2006, issued in CA-G.R.-CV No.
65069. Costs against the Roman Catholic Church.

SO ORDERED.

G.R. No. L-72623 December 18, 1989

TEODOSIA C. LEBRILLA and FERNANDO C. LEBRILLA, petitioners,

vs.
INTERMEDIATE APPELLATE COURT, (Fourth Civil Cases Division) and HEIRS OF THE
DECEASED SPOUSES PABLO DE CASTRO AND FRANCISCA BARRON, namely, FELISA,
AMADO, AND FILOMENA, all surnamed DE CASTRO; HEIRS OF THE DECEASED MIGUEL DE
CASTRO, namely, EDILBERTO, BELARMINO, NENITA, MIGUELA and PACIENCIA, all
surnamed DE CASTRO, HEIRS OF THE DECEASED DOLORES DE CASTRO, namely,
GREGORIO, ERNESTO, LOURDES, ESPELITO, ORITA and ELENA, all surnamed
SANTOS, respondents.

Ambrosio Padilla, Mempin & Reyes Law Offices for petitioners.

Arsenio Guinto Lazaro and B.L. Padilla for private respondents.

MEDIALDEA, J.:

This is a petition for review on certiorari of the decision of the then Intermediate Appellate Court in
AC-G.R. CV No. 02901 entitled "Teodosia Lebrilla, et al., plaintiffs-appellees v. The Heirs of the
Deceased Spouses Pedro de Castro and Francisca Barron, et al., defendants-appellants." Penned
by the Hon. Abdulwahid A. Bidin, now a distinguished member of this Court, the decision reversed
that of the Regional Trial Court of Bacoor, Cavite which had earlier decreed that the petitioners still
have a participation in the three lots under dispute. The petitioners had inherited an undivided
portion of the realties with respondents and although they had sold their interest therein to the latter
the lower court pronounced the sale to be void. The decision under review upheld the validity of the
sale and denied partition of the lots and its reconveyance to the petitioners.

The three lots under consideration were owned either by Pablo de Castro as his exclusive properties
or by him and his wife, Romana Lopez, as their conjugal property. The spouses had a daughter,
Maria de Castro who bore them two grandchildren, Teodosia and Fernando Lebrilla, the herein
petitioners. After Romana Lopez' demise Pablo de Castro re-married. From his second wife,
Francisca Barron, he had five children, three of whom are now the respondents while the others,
now deceased, are represented by their children also as respondents.

In 1943 Maria de Castro died. She was followed by her father, Pablo, about three months thereafter,
and the administration of the three parcels of land, which remained undistributed up to that time, was
passed to Francisca Barron, who together with respondents, possessed the lots, to the exclusion of
the petitioners, up to the present time.

On September 8, 1945, the petitioners sold to Francisca Barron for one thousand eight hundred (P
l,800.00) pesos "the portion corresponding to [their] deceased mother, Maria de Castro of the three
(3) parcels of land described therein." The document was never registered with the Register of
Deeds. After Francisca Barron's death sometime in 1950, her heirs, alleging succession and adverse
possession, caused the registration of the lands and consequently, Original Certificates of Title Nos.
(3154) O-S 1720-273 and 106753 were issued in 1962, 1963 and 1966, respectively, in the names
of the respondents.

On June 18, 1978, respondents sold the lot covered by OCT (3154) 0-8-172 to Casimiro
Development Corporation. The corporation paid half of the purchase price to the vendors while the
balance is now deposited with the Philippine National Bank. It should be noted that the corporation
was not named as party respondent in this petition. Recovery of the land bought by that entity,
therefore, is not the issue but rather the petitioners' share in the purchase price.

On October 18, 1978 the petitioners filed an action for "Partition, Reconveyance and Damages"
against the respondents where they claimed, among other things, that the deed of sale they had
executed in favor of Francisca Barron was null and void. The complaint was twice amended. During
the proceeding, Fernando Lebrilla manifested his disinterest in pursuing the case by filing a verified
"Motion to Dismiss" praying that the case be dismissed as far as he is concerned. The trial court
denied the motion and ruled, as aforementioned, that the sale Teodosia and Fernando Lebrilla
entered into with Francisca Barron was void on the grounds of minority, vitiated consent and lack of
consideration.

The appellate court, in reversing the decision of the trial court, reasoned that the defects of the sale
between the petitioners and respondents' predecessor-in-interest, rendered the transaction merely
voidable and not void. Then it decreed that Fernando Lebrilla could not now defeat the validity of the
sale on the ground of his minority during its execution because he failed to contest it within 4 years
after reaching majority in 1950, having filed the complaint only in 1978.
Also, it rejected the trial court's finding that the petitioners were victims of fraud. The trial court had
accepted the allegation of Teodosia Lebrilla that she and her brother, Fernando, were misled into
believing that the document they were signing was for them to receive their share in the fruits of the
disputed properties, and that in fact no consideration was given them. Unable to read English, they
signed the deed not knowing that it was in fact a sale. But the appellate court pointed to the
testimonies of the attorney who notarized the document and that of one of the subscribing
witnesses, who both stated that the contents of the deed of sale were explained to the petitioners,
and that the latter were in fact paid the purchase price. Coupled with the presumption of the
regularity of a public document, the appellate court rejected any notion of fraud. At any rate, the
court argued, more than ten years had elapsed from the dates of the registration of the lots before
the petitioners filed their complaint, and thus, an action for reconveyance based on constructive trust
is no longer available.

For preliminary consideration is petitioners' argument that the appellate court erred in not taking note
of the fact that the action they had filed with the lower court was not one for annulment of the sale
but for partition which kind of action does not prescribe. We believe the appellate court was correct
in identifying the crucial issue as to whether or not the petitioners are still co-owners of the disputed
lands, and to resolve the question, in passing on the validity of the sale under consideration. There is
no controversy on the point that an action for partition is imprescriptible. However, "an action for
partition among co-heirs ceases to be such, and becomes one for title where the defendants allege
exclusive ownership" (Moran, Comments on the Rules of Court, Vol. 3 pp. 294-95, 1980 ed., citing
Rodriguez v. Ravilan 17 Phil. 63, etc.) as in this case. Then it becomes necessary to determine if a
state of co-ownership still exists which brings us to the question of whether the sale between
petitioners and Francisca Barron is valid.

There can be no doubt as to the correctness of the pronouncement of the appellate court that
Fernando Lebrilla forfeited his opportunity to question the sale on the ground of his minority. It is
supported by the last paragraph of Art. 1391 of the New Civil Code. There is no need to elaborate on
this point since the statement of the appellate court summarized earlier is sufficient.

Neither may petitioners now have the sale annulled on the ground of vitiated consent. The four-year
period within which an action for annulment must be brought begins to run, in case of mistake or
fraud, from the time of the discovery of the same (See Article 1391, New Civil Code). In the case at
bar, the discovery of the fraud, if indeed there was any, is deemed to have occurred at the time the
subject properties were registered in respondents' names because then petitioners would have been
constructively notified of the adverse position taken by the respondents which was contrary to the
petitioners' belief that they were supposed to be co-owners of the realties. It is to be remembered
that the lots were registered separately in 1962, 1963 and 1966 while petitioners' complaint was filed
only in 1978.

In view of the foregoing, petitioners cannot even say that there was any defect in their consent
regarding the object and the cause of the contract. As for them, the object is the disputed parcels of
land and the cause is the amount of one thousand eight hundred (P l,800.00) pesos. They cannot
now allege that the amount represents their share in the fruits of the realties. Thus, for all legal
purposes the amount mentioned is the purchase price for the lots.

The petitioners insist, however, that the contract is not voidable but void because they were never
paid the purchase price. They cite the case of Ladanga v. Court of Appeals, No. L-55999, August 24,
1984, 131 SCRA 361, where We reiterated Our pronouncement in Mapalo, v. Mapalo, 123 Phil. 979,
that:
 A contract of purchase and sale is null and void and produces no effect whatsoever
where the same is without cost or consideration in that the purchase price, which
appears thereon as paid, has in fact never been paid by the purchaser to the vendor.

But as mentioned earlier, this case does not involve a contract without consideration as to render the
agreement void under Articles 1352 and 1409 (3) of the New Civil Code. If indeed petitioners were
not paid the purchase price then that merely entitled them to the remedies of an unpaid seller. But
even those remedies, unfortunately, are no longer available to petitioners because an action based
on a written contract prescribes in ten (10) years (Art. 1144 [1], New Civil Code). Even if We were to
count the period from 1945, the date of the execution of the document, or from 1950, the year
Fernando Lebrilla became of age, the conclusion would remain the same.

One last point on the matter of prescription. Petitioners invoke Article 1456 of the New Civil Code
which imposes on a person who acquires property through fraud to convey the property to the
defrauded. Assuming the law's applicability, the equitable remedy it provides is no longer available to
the petitioners. The obligation of the trustee ex maleficio, being created by law, prescribes in ten (10)
years (Art. 1144 [2]), the period counted from the date of the registration of the disputed lands (See
Villagonzalo v. Intermediate Appellate Court, G.R. No. 71110, November 22, 1988).

We agree with the appellate court that the document of sale was not tainted with any irregularity at
all. As against the selfserving statements of Teodosia Lebrilla, We give more credence to that of the
notary public and the subscribing witness. Indeed, it is highly inconsistent of Teodosia Lebrilla to say
that what she thought she signed was for her to receive her share in the income of the disputed lots
yet, she did not assert her right from that time in 1945 up to the filing of the instant case in 1978. It
was only in the latter year when respondents sold to Casimiro Development Corporation one of the
lots for a little less than a million pesos did Teodosia Lebrilla suddenly wake up claiming her interest
on the realties.

Having arrived at the conclusion that the petitioners had already sold their interest on the disputed
lots to the respondents, it is no longer necessary to discuss their other assignment of errors which
primarily asserts their right as co-heirs.

ACCORDINGLY, this petition is DENIED and the decision of the respondent appellate court which
reversed and set aside the decision of the trial court is hereby AFFIRMED.

SO ORDERED.

G.R. No. 107432 July 4, 1994

ERLINDA B. CAUSAPIN and ALBERTO CAUSAPIN, petitioners,

vs.
COURT OF APPEALS, EUSEBIO CALUGAY, RENATO MANALO, LORENZA MANALO and
BENJAMIN C. NADURATA, JR., and SPOUSES DOMINADOR S. DE GUZMAN and ANASTACIA
BATAS, respondents.

Tabaquero and Associates for petitioners.

Benedicto T. Librojo for Dominador S. De Guzman and Anastacia Batas.

BELLOSILLO, J.:

Petitioners are the heirs of Agapito Causapin who died in October 1954 leaving a 473-square meter
lot in Niugan, Cabuyao, Laguna. On 25 June 1963, they partitioned the land between them and the
corresponding tax declarations were issued in their individual names. Erlinda resided in the land until
1963 when she went to work in Manila. When she got married she settled in Mandaluyong.
Meanwhile, the land was left to the care of her cousin, respondent Lorenza Manalo.

In 1986, Erlinda returned to Niugan and discovered that a building was being constructed on the
land. Upon inquiry from the Register of Deeds of Calamba, Laguna, she learned that it was already
titled in the name of respondent-spouses Dominador de Guzman and Anastacia Batas under
Original Certificate of Title No. P-1796.

On 17 July 1986, Erlinda and Alberto lodged a complaint before the Regional Trial Court of Laguna
for rescission of deeds of sale and cancellation of OCT No. P-1796 against respondent-spouses
Dominador de Guzman and Anastacia, Eusebio Calugay, Renato Manalo, Lorenza Manalo and
Benjamin C. Nadurate, Jr.

Erlinda Causapin claimed that she never sold her share of the property to anyone and that the
signature appearing on the document purportedly conveying her share to respondent Eusebio
Calugay was not hers. With respect to Alberto's share, he claimed that he was intimidated by
respondent-spouses Renato and Lorenza Manalo, as well as respondent-spouses Dominador and
Anastacia de Guzman into signing an already prepared deed of sale on the pretense that he would
receive the consideration of the sale as soon as Erlinda could sign the deed as administratrix of the
land. However, up to the date of the filing of the complaint, he never received a centavo from the de
Guzmans.

On the other hand, respondent-spouses de Guzman asserted that sometime in 1967 they purchased
from Renato Manalo a 221-square meter parcel of land for P3,000.00, evidenced by a "Kasulatan ng
Bilihang Tuluyan" dated 17 July 1967. 1 The land was supposed to have been acquired by
respondent Renato Manalo from respondent Eusebio Calugay through a "Bilihan ng Lupa na Walang
Titulo" dated 26 October 1966 for P2,000.00. 2 In turn, respondent Eusebio Calugay bought the
property from petitioner Erlinda Causapin on 29 July 1963 for P1,500.00 as evidenced by a "Bilihang
Tuluyan." 3

Then on 17 August 1967, the de Guzmans bought the share of petitioner Alberto for
P2,500.00. 4 Upon acquisition of the two parcels of land, the de Guzmans applied for a free patent.
On 28 April 1977, OCT No. P-1796 was issued in their name. 5 Since then they have been paying
the land taxes up to the present.

Leonila Calugay, wife of respondent Eusebio Calugay, contended that in the early part of 1980,
Erlinda borrowed P2,500.00 from her which loan was secured by Tax Declaration No. 8155. Later,
Erlinda redeemed the land. Leonila, Erlinda and Eusebio executed the document of redemption in an
office at Escolta, Manila.

Respondent Lorenza Manalo attempted to show that her husband, respondent Renato Manalo,
acquired Erlinda's share through purchase from respondent Eusebio Calugay. The document of sale
was prepared and notarized on 26 October 1964 in an office at Escolta, Manila, in the presence of
respondent Calugay, Renato, and herself. The document of sale from respondent Renato to
respondent-spouses de Guzman was prepared and notarized in the same office although
respondent Lorenza Manalo could not remember when it was. She remembers however having
acted as witness to the execution of the document.

Weighing the foregoing conflicting evidence, the trial court concluded there was no valid transfer of
the property of Erlinda to respondents. Its conclusion was based on the following: (a) Erlinda was a
minor and single when the deed of sale between her and respondent Eusebio Calugay was
executed; (b) the alleged deed of sale to Eusebio Calugay was spurious and a forgery considering
the testimony of Leonila that the property was used as collateral for Erlinda's loan when she was
already married with three children and a resident of Mandaluyong; (c) granting that the document
was one of mortgage, it was unlikely that the consideration was only P1,500.00, as the document
stated, because the loan obtained by Erlinda was for P2,500.00; (d) Erlinda's signature on the
document was different from her signature on the verification of the complaint and on the deed of
sale between petitioner Alberto and respondent-spouses de Guzman; (e) respondents Eusebio and
Leonila denied having signed any deed of sale; (f) the notary public did not submit to the trial court a
copy of the document evidencing the sale between respondents Eusebio Calugay and Renato
Manalo; and, (g) the Tax Declaration of respondent Renato was not presented by respondent-
spouses de Guzman.

However, the trial court declared as valid the sale of Alberto's share to respondent-spouses de
Guzman because he failed to persuade the court that no consideration was paid for the sale.

Although an action to annul a deed of conveyance or contract based on minority or lack of capacity
to enter into the deed must be brought within four years from the time such incapacity ceases, 6 the
trial court nevertheless granted Erlinda's prayer. It relied on the principle of equity since it found that
the de Guzman couple did not act in good faith, which consisted in their failure to offer in evidence
the tax declaration of respondent Renato Manalo. Thus, on 13 October 1989, it rendered its
judgment: (a) ordering therein defendant-spouses Dominador and Anastacia de Guzman to pay
plaintiffs the sum equivalent to the present valuation of real property per square meter at Niugan,
Cabuyao, Laguna; (b) declaring that defendant-spouses de Guzman may pursue a claim for
reimbursement and damages against defendant-spouses Renato Manalo and Lorenza Manalo; (c)
ordering defendant-spouses Renato and Lorenza Manalo to jointly and severally pay plaintiff Erlinda
Causapin P10,000.00 as moral damages and P10,000.00 as compensatory damages; (d) ordering
defendant-spouses Dominador and Anastacia de Guzman jointly and severally with co-defendants
Renato and Lorenza Manalo to pay plaintiff Erlinda P5,000.00 as attorney's fees plus cost; and, (e)
relieving defendant-spouses Eusebio Calugay and Leonila Calugay of any civil liability as they did
not participate in the fraudulent act but instead duped into signing a document of sale which the
latter believed to be a document of redemption by Erlinda Causapin. 7

On 30 September 1992, at the instance of respondent-spouses de Guzman, the Court of Appeals

reversed the decision of the trial court 8 upon finding that: (a) the deeds of sale, being duly notarized,
could not be brushed aside and rendered inefficacious simply by the uncorroborated testimony of
petitioner Erlinda; (b) the failure of the notary public to transmit the deed of sale between
respondents Eusebio and Renato to the then Court of First Instance of Manila and the Bureau of
Archives did not, in any manner, convert it into a private document or invalidate the same; at most, it
might render the notary public administratively liable for his omission; (c) equity is applied only in the
absence of, and never against statutory law or judicial rules of procedure, much more the law on
prescription; (d) the general rule is that an original certificate of title issued on the strength of a
homestead patent partakes of the nature of a certificate issued in a judicial proceeding and becomes
indefeasible and incontrovertible at the expiration of one (1) year from the date of the issuance of the
patent; (e) even assuming that OCT No. P-1796 issued to respondent-spouses de Guzman could
still be set aside, an action for annulment of a patent should be filed only by the Solicitor General
pursuant to Sec. 101 of Commonwealth Act No. 141; and, (f) there was no conclusive evidence that
respondent-spouses de Guzman acted in bad faith.
In the instant petition, it is alleged that the Court of Appeals completely failed to give probative value
to the attendant facts and the testimony of petitioner Erlinda with respect to the purported source of
all the conveyances, the "Salaysay ng Paghahati." While that document and the alleged deed of sale
between petitioner Erlinda and respondent Eusebio Calugay stated that Erlinda was of age, she
however testified under oath that she was only seventeen (17) years old in 1963. Therefore, said
documents transferred no rights whatsoever to respondents due to Erlinda's incapacity by reason of
minority. Moreover, Erlinda testified that she did not execute said documents, in which event,
prescription did not lie against her and her brother. Consequently, the subsequent conveyances
were also void and that respondent-spouses de Guzman were not purchasers in good faith.

We are in full conformity with appellate court's reversal of the trial court's decision. The disputed
deeds of sale, namely: (a) "Bilihang Tuluyan" dated 29 July 1963 between petitioner Erlinda and
respondent Eusebio; (b) "Bilihan ng Lupa na Walang Titulo" dated 26 October 1966 between
respondents Eusebio and Renato; and, (c) "Kasulatan ng Bilihang Tuluyan" dated 17 July 1967
between respondents Renato and spouses de Guzman, were all duly notarized. In this connection,
we have held that when the evidence as to the validity or nullity of a notarial document is conflicting,
in the absence of a clear, strong and convincing evidence showing such falsity, the document should
be upheld. 9

Petitioners sought rescission of those documents on two grounds: first, Erlinda "never executed nor
signed any document or any deed of sale whatsoever transferring or selling her share on the real
property . . . to defendants or to any person for that matter;" 10 second, she was still a minor at the
time she allegedly executed the deed of sale in favor of respondent Eusebio. It should be pointed out
that petitioners' prayer for rescission is erroneous because this remedy only applies to contracts
validly agreed upon by the parties in the cases established by law. 11 Anyway, the error appears to
concern terminology only because petitioners are actually assailing the validity of said documents.

The trial court resolved the first ground in this wise: ". . . on close observation, the signature of
Erlinda appearing on the alleged Deed of Sale to Eusebio, which is of course denied, is very
different from her signature appearing in the verification of her complaint in the instant case, and
even in the Deed of Sale from Alberto Causapin to the de Guzmans which Erlinda signed as
Administratrix." 12 This is a loose end which the lower court failed to settle. An accurate examination
to determine forgery should dwell on both the differences and similarities in the questioned
signatures. The reason for this kind of examination was explained in Cesar v. Sandiganbayan: 13

There are two main questions, or difficulties, that confront the examiner of an alleged
forgery. The first of these is to determine how much and to what extent genuine
writing will diverge from a certain type, and the second is how and to what extent will
a more or less skillful forgery be likely to succeed and be likely to fail in embodying
the essential characteristics of a genuine writing. Here we have the very heart of the
problem, for, at least in some measure, a forgery will be like the genuine writing, and
there is also always bound to be some variation in the different examples of genuine
writing by the same writer. Incorrect reasoning infers forgery from any variation or
infers genuineness from any resemblance.

The process of identification, therefore, must include the determination of the extent,
kind, and significance of this resemblance as well as of the variation. It then becomes
necessary to determine whether the variation is due to the operation of a different
personality, or is only the expected and inevitable variation found in the genuine
writing of the same writer. It is also necessary to decide whether the resemblance is
the result of a more or less skillful imitation, or is the habitual and characteristic
 resemblance which naturally appears in a genuine writing. When these two questions
are correctly answered the whole problem of identification is solved.

A comparison of Erlinda's signature in the "Bilihang Tuluyan" with her signatures on the other
documents reveals that the slight differences in strokes are overshadowed by the significant
similarities. These similarities suffice to convince us that the signature of petitioner Erlinda on the
deed of sale between her and respondent Eusebio is genuine; a fortiori, the deed of sale between
them is valid. Moreover, it is highly noticeable that the signatures of Erlinda that were analyzed by
the trial court are on documents executed several years apart, to wit, 29 July 1963, 17 August 1967
and 20 June 1986. The passage of time and a person's increase in age may have decisive
influences in his writing characteristics. 14 Thus, authorities are of the opinion that in order to bring
about an accurate comparison and analysis, the standards of comparison must be as close as
possible in point of time to the suspected signature. 15

As regards the second ground, Art. 1391 of the Civil Code is specific that the action for annulment of
a contract entered into by minors or other incapacitated persons shall be brought within four years
from the time the guardianship ceases. Conformably with this provision, Erlinda should have filed a
complaint for annulment within four (4) years from 1966 when she turned 21. Her claim of minority
has undoubtedly prescribed when the complaint was filed in 1986.

Furthermore, petitioners' action for the cancellation of OCT No. P-1796 was not properly instituted. It
should be remembered that the questioned property was a public land. We have held in a multitude
of cases, among which areLopez v. Padilla 16 and Maximo v. CFI of Capiz, 17 that Sec. 101 of the
Public Land Act vests only in the Solicitor General or the officer acting in his stead the authority to
institute the action on behalf of the Republic for cancellation of title and for reversion of the
homestead to the Government. A recognized exception is that situation where plaintiff-claimant
seeks direct reconveyance from defendant public land unlawfully and in breach of trust titled by him,
on the principle of enforcement of a constructive trust, but such principle is in no way applicable nor
even invoked in this case.

In addition, an original certificate of title issued on the strength of a homestead patent is equivalent
to a certificate issued in a judicial proceeding and becomes indefeasible and incontrovertible after
one (1) year from the date of issuance thereof; 18 in this case, one year from 28 April 1977. The
exception is where an action for the cancellation of a patent and the certificate of title pursuant
thereto is instituted on the ground that they are void because the Bureau of Lands had no jurisdiction
to issue them at all, the land in question having been withdrawn from the public domain prior to the
subsequent award of the patent and the grant of a certificate of title to another person, which does
not obtain in this case. 19

As aforestated, the trial court granted relief to petitioner Erlinda based on equity since it found that
respondent-spouses de Guzman acted in bad faith when they acquired the land. Equity, which has
been aptly described as "a justice outside legality," is applied only in the absence of, and never
against, statutory law or judicial rules of procedure. The pertinent positive rules being present here,
they should pre-empt and prevail over all abstract arguments based only on equity. 20 Besides,
respondent-spouses de Guzman did not act in bad faith because there was no evidence of
impropriety in the sale made by respondent Renato Manalo to them.

WHEREFORE, the petition for review is DENIED. The decision of the Court of Appeals dated 30
September 1992 is AFFIRMED.

SO ORDERED.
G.R. No. 75287

HOUSE INTERNATIONAL BUILDING TENANTS ASSOCIATION, INC., petitioner-plaintiff,

vs.
INTERMEDIATE APPELLATE COURT, CENTERTOWN MARKETING CORP., MANILA TOWERS
DEVELOPMENT CORP., AND THE GOVERNMENT SERVICE INSURANCE
SYSTEM, respondents-defendants.

CORTES, J.:

Petitioner House International Building Tenants Association, Inc. (ASSOCIATION, for short) is a
domestic non-stock, non-profit civic corporation, whose incorporators, directors and members
constitute the great majority of more than a hundred heads of families who are tenants of long and
good standing of the 14-storey House International Building located at 777 Ongpin Street, Binondo,
Manila. The land and the improvements thereon were formerly owned by Atty. Felipe Ang who
mortgaged the same to the Government Service Insurance System (hereinafter referred to as GSIS)
to secure payment of an obligation. After foreclosure of the mortgage and for failure of Ang to
exercise his right of redemption over the foreclosed property, the ownership thereof was
consolidated with the GSIS which subsequently sold it to Centertown Marketing Corporation
(CENTERTOWN, for short) in a deed of conditional sale, without notice to the tenants of the building
and without securing the prior clearance of the then Ministry of Human Settlements.

As CENTERTOWN was not authorized by its Articles of Incorporation to engage in the real estate
business, it organized a sister corporation, with almost an the same incorporators and stockholders,
as CENTERTOWN'S, under the corporate name of Manila Towers Development Corporation
(TOWERS, for short) for the primary purpose of engaging in the real estate business. Subsequently,
CENTERTOWN assigned to its sister corporation TOWERS all its rights and obligations under the
Deed of Conditional Sale, with the consent and approval of the GSIS.

Thereafter, herein petitioner filed a complaint with the Regional Trial Court of Manila against
CENTERTOWN, TOWERS and GSIS for annulment of the deed of conditional sale and the
subsequent assignment thereof by CENTERTOWN to TOWERS. The complaint alleged in part that
the Deed of Conditional Sale is null and void ab initio for being ultra vires, since defendant
CENTERTOWN is not qualified to acquire real estate property or to engage in real estate
transactions.

The court a quo * dismissed the complaint. Petitioner appealed to the Court of Appeals after its
motion for reconsideration was denied by the trial court. The order of dismissal was affirmed by the
appellate court in a decision dated 4 February 1986 in AC-GR CV No. 02691. ** Petitioner filed a
motion for reconsideration, which was denied in a resolution dated 26 June 1986. Hence, this
petition for review on certiorari.

The main issues raised in the petition are: (1) whether petitioner has the personality to sue, on its
own, as a corporation representing its members who are tenants of the House International Building,
and (2) whether petitioner has a cause of action against respondents GSIS, CENTERTOWN and
TOWERS.

Section 2, Rule 3 of the Rules of Court provides:

 Sec. 2. Parties in interest. Every action must be prosecuted and defended in the name of the
real party in interest. All persons having an interest in the subject of the action and in
obtaining the relief amended shall be joined as plaintiffs.

The real party in interest is the party who stands to be benefited or injured by the judgment or the
party entitled to the avails of the suit. " Interest" within the meaning of the rule means material
interest, an interest in issue and to be affected by the decree, as distinguished from mere interest in
the question involved, or a mere incidental interest. Consequently, a person who is not a party to a
contract and for whose benefit it was not expressly made cannot maintain an action thereon,
notwithstanding that the contract, if performed by the parties to it, would incidentally inure to his
benefit. (Francisco, the Revised Rules of Court in the Phil., Vol., 1, p. 126).

In the present case, the real parties in interest are the tenants of the House International Building
and not the petitioner ASSOCIATION, which has a personality separate and distinct from that of its
members and therefore it has the capacity to sue and be sued although it is composed of the
tenants. Petitioner has not shown any real, actual, material, or substantial interest in the subject
matter of the action. In this connection, the Court of Appeals properly observed:

Appellant has sued in its name, but has not alleged any right belonging to it that was violated
or any wrong that was committed. The reason is obvious, the benefits are not really meant
for appellant but for the unnamed great majority" of its members who have allegedly been
tenants of' long standing of the building in question. (Decision of Court of Appeals, p. 2).

And, quoting from the Brief for the respondent-defendant GSIS, the Court of Appeals further said:

Assuming arguendo, that the tenants have the alleged right, such rights of the tenants are
personal and individual rights which can only be claimed by the tenants who must
necessarily be the indispensable and real parties in interest and certainly not the plaintiff-
appellant organization. (Ibid, p. 2.)

With regard to the second main issue, the petitioner asserts that the Court of Appeals erred in
ignoring the provisions of Art. 1409 of the Civil Code on void or inexistent contracts, the contract at
bar being void, inexistent, and absolutely wanting in civil effects because "its consideration is illicit
and/or the object violates some mandatory provisions of the laws."

Cited to support this assertion are provisions of the 1973 constitution on eminent domain (Art. IV,
sec. 2, also Art. XIV, sec. 3) agrarian reform (Art. XIV, sec. 12) and the Declaration of Principles and
State Policies particularly those emphasizing the "stewardship concept, under which property is
supposed to be held by the individual only as trustee for the people in general, who are its real
owners." (Art. II, secs. 6 and 7).

As bases for a declaration that the conditional sale between GSIS and CENTERTOWN is null and
void for being contrary to law or public policy, the constitutional provisions are inapposite. Not one of
those provisions render unlawful the contract in question. Except for the prohibition against the
taking of private property for public use without just compensation, the other provisions require
implementing legislation to confer a legal right and impose a legal duty which can be judicially
invoked.

P.D. No. 1517 which confers a preferential right to tenants of long standing to acquire leased land on
which they have constructed their houses. This has no application to the present case where the
property involved is land and building belonging to the lessor.
The petitioners likewise invoke our ruling in Mataas na Lupa Tenants Association Inc. et al. vs.
Dimayuga, et. al. (G.R. L-32049, June 25, 1984, 130 SCRA 30) where we upheld the petitioners
right of first refusal over land they had leased and occupied for more than ten (10) years and on
which they had constructed their houses, a right given them under P.D. No. 1517 (and Proclamation
No. 1967 of May 14, 1980). For two reasons this case gives the petitioners' case no support. In
Mataas na Lupa the members of the ASSOCIATION were also plaintiffs in their individual capacity.
This is not so in the present case. Furthermore, it is not the first time this issue has come before Us.
In the case of Santos vs. Court of Appeals, G.R. L-60210, March 27,1984, 128 SCRA 428. We laid
down the following doctrine.

P.D. 1517 in referring to the pre-emptive or redemptive right of a lessee speaks only of urban
land under lease on which a tenant has built a home and on which he has resided for ten
years or more. If both the land and the building belong to the lessor, the right referred to
hereinabove does not apply.

The main thrust of the petitioner's challenge on the validity of the conditional sale is that the contract
is ultra vires because the respondent CENTERTOWN is not qualified to acquire properties under its
Articles of Incorporation. The petitioner has confused a void contract with an ultra vires contract
which is merely voidable.

We agree with the Court of Appeals that on this issue the provision of Art. 1397 of the Civil Code is
in point, thus:

Art. 1397. The action for the annulment of contracts may be instituted by all who are thereby
obliged principally or subsidiarily.

Petitioner is neither a party nor a privy to the Deed of Conditional Sale and the assignment thereof:
thus, it cannot assail the validity of the said contracts. In Ibañez vs. Hongkong and Shanghai
Bank, we said:

From these legal provisions it is deduced that it is the interest had in a given contract, that is the
determining reason of the right which lies in favor of the party obligated principally or subsidiarily to
enable him to bring an action for the nullity of the contract in which he intervened, and, therefore, he
who has no right in a contract is not entitled to prosecute an action for nullity, for, according to the
precedents established by the courts, the person who is not a party to a contract, nor has any cause
of action or representation from those who intervened therein, is manifestly without right of action
and personality such as to enable him to assail the validity of the contract. (Decisions of the supreme
court of Spain, of April 18, 1901, and November 23, 1903, pronounced in cases requiring an
application of the preinserted article 1302 of the Civil Code.) (22 Phil. 572; 584).

In the decision sought to be reviewed We agree with the Court of Appeals that:

The corollary issue is whether appellant has the personality to assail the validity of the
conditional sale and its assignment. The answer is partly supplied by the above discussion:
further arguments against the appellant are the provisions of the Civil Code which say that
contracts take effect only between parties (Art. 131 1) hence the action for their annulment
may be instituted only by those who are thereby obliged principally or subsidiarily (Art. 1397).
Appellant is not privy to either the deed of conditional sale or the assignment. (Decision of
Court of Appeals, p. 3).

WHEREFORE, the petition is DENIED, with costs against the petitioner.

SO ORDERED.

G.R. No. 114299 September 24, 1999

TRADERS ROYAL BANK, petitioner,

vs.
HON. COURT OF APPEALS, PATRIA, RUBY ANN, MARGARITA, ROSARIO, CYNTHIA, LINDA JOY, all surnamed CAPAY and
RAMON A. GONZALES, respondents.

G.R. No. 118862 September 24, 1999

PATRIA, RUBY ANN, MARGARITA, ROSARIO, CYNTHIA, LINDA JOY, all surnamed CAPAY, and RAMON A. GONZALES, petitioners,
vs.
SPS. HONORATO D. SANTOS and MARIA CRISTINA S. SANTOS, SPS. CECILIO L. PE and JOSEFINA L. PE, FLORA LARON
WESCOMBE, SPS. TELESFORO P. ALFELOR II and LIZA R. ALFELOR, SPS. DEAN RODERICK FERNANDO and LAARNI MAGDAMO
FERNANDO, REMEDIOS OCA, DEVELOPMENT BANK OF THE PHILIPPINES and TRADERS ROYAL BANK, respondents.

KAPUNAN, J.:

The present controversy has its roots in a mortgage executed by the spouses Maximo and Patria Capay in favor of Traders Royal Bank
(TRB) pursuant to a loan extended by the latter to the former. The mortgage covered several properties, including a parcel of land, the
subject of the present
dispute. 1 The loan became due on January 8, 1964 and the same having remained unpaid, TRB instituted
extra-judicial foreclosure proceedings upon the mortgaged property.

To prevent the property's sale by public auction, the Capays, on September 22, 1966, filed a petition for
prohibition with preliminary injunction (Civil Case No. Q-10453) before the Court of First Instance (CFI) of
Rizal, alleging that the mortgage was void since they did not receive the proceeds of the loan. The trial
court initially granted the Capays' prayer for preliminary injunction.

On March 17, 1967, the Capays caused to be filed in the Register of Deeds of Baguio City a notice of lis
pendens over the disputed property. Said notice was entered in the Day Book, as well as in the Capays'
certificate of title.

Subsequently, the injunction issued by the trial court was lifted thus allowing the foreclosure sale to
proceed. Foreclosure proceedings were initiated and on October 17, 1968, the property was sold to TRB
which was the highest bidder at the auction sale. A sheriff certificate of sale was issued in its name on the
same day. On February 25, 1970, the property was consolidated in the name of TRB, the sole bidder in
the sale. TCT No. T-6595 in the name of the Capay spouses was then cancelled and a new one, TCT No.
T-16272, 2 was entered in the bank's name. The notice of lis pendens, however, was not carried over in
the certificate of title issued in the name TRB.

Thereafter, the Capays filed with the CFI a supplemental complaint praying for the recovery of the
property with damages and attorney's fees. Trial in Civil Case No. Q-10453 proceeded and, on October 3,
1977, the CFI rendered its decision declaring the mortgage void for want of consideration. The CFI
ordered, among other things, the cancellation of TCT No. T-16272 in the name of TRB and the issuance
of new certificates of title in the name of the Capay spouses.
TRB appealed to the Court of Appeals. While the case was pending in the Court of Appeals, TRB on
March 17, 1982 sold the land to Emelita Santiago in whose name a new certificate of title, TCT No.
33774, 3 was issued, also, without any notice of lis pendens annotated thereon. Santiago in turn divided
the land into six (6) lots and sold these to Marcial Alcantara, Armando Cruz and Artemio Sanchez, who
became co-owners thereof. 4 Alcantara and his co-owners developed the property and thereafter sold the
six (6) lots to seperate buyers who issued seperate titles, again, bearing no notice of lis pendens. 5

On July 30, 1982, the Court of Appeals rendered its decision modifying the decision of the trial court as to
the award of damages but affirming the same in all other respects.

For having been filed out of time and for lack of merit, the petition for certiorari filed by TRB before this
Court 6 was denied in a Resolution dated September 12, 1983. TRB's motion for reconsideration was
similarly denied in a Resolution dated October 12, 1983. The Court's September 12, 1983 Resolution
having become final and executory on November 9, 1983, the trial court issued a writ of execution
directing the Register of Deeds of Baguio City to cancel TCT No. 16272 in the name of TRB, and to issue
a new one in the name of the Capay spouses.

Said writ, however, could not be implemented because of the successive subsequent transfers of the
subdivided property to buyers who obtained separate titles thereto. Thus, a complaint for recovery of
possession ownership dated 8 June 1985 was filed before the Quezon City Regional Trial Court against
TRB and the subsequent transferees of the property, the respondents in G.R. No. 118862 (hereinafter,
"the non-bank respondents"). Plaintiffs in said case were Patria Capay, her children by Maximo 7 who
succeeded him upon his death on August 25, 1976, and Ramon Gonzales, counsel of the spouses in Civil
Case No. Q-10453 who become co-owner of the property to the extent of 35% thereof as his attorney's
fees (collectively, "the Capays"). On March 27, 1991, the trial court rendered its decision, the dispositive
portion of which states:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs against the

defendants and ordering the Register of Deeds for Baguio to cancel TCT No. T-
36177, Books 198, Page 177 in the names of defendants Spouses Honorato D.
Santos and Maria Cristina Santos; to cancel TCT No. 36707, Book 201, Page
107 in the names of defendant Spouses Cecilio Pe and Josefina L. Pe; to cancel
TCT No. T-36051, Book 198, Page 51 in the name of Flora Laron Wescombe,
married to Kevin Lind Wescombe (now deceased); to cancel TCT No. 36147,
Book 198, page 147 in the names of Spouses Telesforo P. Alfelor II and Liza R.
Alfelor; to cancel TCT No. T-36730, Book 201, Page 130 in the names of
Spouses Dean Roderick Fernando and Laarni Magdamo Fernando; to cancel
TCT No. 37437, Book 205, Page 37 in the name of Remedios Oca, and issue
new ones free from all liens and encumbrances, together with all the
improvements therein in the names of plaintiffs sharing pro indiviso as follows:
35% to Ramon A. Gonzales, married to Lilia Y. Gonzales, of legal age, with
postal address at 23 Sunrise Hill, New Manila, Quezon City 37.92% to Patria B.
Capay, of legal age, widow, Filipino; 5.41% each to Ruby Ann Capay, of legal
age, Filipino married to Pokka Vainio, Finnish citizen; Chona Margarita Capay, of
legal age, Filipino, married to Waldo Flores; Rosario Capay of legal age, Filipino,
married to Jose Cuaycong, Jr.; Cynthia Capay, of legal age, Filipino, married to
Raul Flores; Linda Joy Capay, of legal age, Filipino, married to Pedro Duran, all
with postal address at 37 Sampaguita St., Capitolville Subd., Bacolod City,
ordering said defendants to vacate the premises in question and restoring
plaintiffs thereto and for defendant Traders Royal Bank to pay each of the
plaintiffs moral damages in the amount of P100,000.00, P40,000.00 in exemplary
damages and P40,000.00 as attorney's fees, all with legal interest from the filing
of the complaint, with costs against defendants.

SO ORDERED. 8
TRB and the non-bank respondents appealed to the Court of Appeals. In a Decision promulgated on
February 24, 1994 in CA-G.R. CV No. 33920, the appellate court affirmed the decision of the trial court in
toto. 9 It ruled that the non-bank respondents cannot be considered as purchasers for value and in good
faith, having purchased the property subsequent to the action in Civil Case No. Q-10453 and that while
the notice of lis pendens was not carried over to TRB's certificate of title, as well as to the subsequent
transferees' titles, it was entered in the Day Book which is sufficient to constitute registration and notice to
all persons of such adverse claim, citing the cases of Villasor vs. Camon, 10 Levin vs. Bass 11 and Director
of Lands vs. Reyes. 12

As regard TRB, the Court of Appeals said that the bank was in bad faith when it sold the property
knowing that it was under the litigation and without informing the buyer of that fact.

On April 26, 1994, TRB filed with this Court a petition for review to set aside the CA decision, docketed
herein as G.R. No. 114299, invoking the following grounds:

I.

THE RESPONDENT HONORABLE COURT OF APPEALS

COMMITTED GRAVE AND SERIOUS ERROR OF LAW IN
PROMULGATING THE DISPUTED DECISION AND THEREBY
DECIDED A QUESTION OF SUBSTANCE WHOLLY CONTRARY TO
SETTLED JURISPRUDENCE AND TOTALLY NOT IN ACCORD WITH
APPLICABLE DECISION OF THIS HONORABLE SUPREME COURT.

II.

THE RESPONDENT HONORABLE COURT OF APPEALS HAS

COMMITTED SO GRAVE AND SERIOUS ERRORS OF LAW IN
SANCTIONING A DEPARTURE FROM THE USUAL AND ACCEPTED
COURSE OF JUDICIAL PROCEEDING AS TO CALL FOR THE
EXERCISE OF THE POWER OF BY THIS HONORABLE SUPREME
COURT.

a) The public respondent has plainly and manifestly acted whimsically,

arbitrarily, capriciously, with grave abuse of discretion, in excess of
jurisdiction tantamount to lack of jurisdiction.

xxx xxx xxx

b) The public respondent erred in not finding that it was not the fault of
petitioner when the notice of lis pendens was not carried over to its new
title.

xxx xxx xxx

c) The public respondent erred in not finding that PD No. 1271 had
legally caused the invalidation of the Capay's property and the
subsequent validation of TRB's title over the same property was effective
even as against the Capays. 13

Meanwhile, the non-bank respondents moved for a reconsideration of the Court of Appeals' decision.
Convinced of the movants' arguments, the Court of Appeals in a Resolution promulgated on August 10,
1994 granted the motion for reconsideration and dismissed the complaint as against them. The
dispositive portion of the resolution states:

ACCORDINGLY, in view of the foregoing disquisitions and finding merit in the motion for
reconsideration, the same is hereby GRANTED. Consequently, the decision of this Court,
promulgated on February 24, 1994, is hereby RECONSIDERED. The complaint filed
against defendants-appellants with the court a quo is hereby ordered DISMISSED, and
the certificate of titles originally issued to them in their individual names are hereby
ordered restored and duly respected. We make no pronouncement as to costs.

SO ORDERED. 14

The Capays thus filed with this Court a petition for review, docketed as G.R. No. 118862 to set aside the
resolution of the Court of Appeals raising the following errors:

THE COURT OF APPEALS PALPABLY ERRED IN REVERSING ITSELF BY NOW

HOLDING THAT TUAZON VS. REYES, 48 PHIL. 814 AND RIVERA VS. MORAN, 48
PHIL. 836 ARE NOT APPLICABLE HEREOF, WHILE PINO VS. COURT OF APPEALS,
198 SCRA 436, IS APPLICABLE.

II

THE COURT OF APPEALS PALPABLY ERRED IN REVERSING ITSELF BY NOW

HOLDING THAT ATUN VS. MUNOZ, 97 PHIL. 762 AND LAROZA VS. GUIA, 134 SCRA
34, ARE NOT APPLICABLE.

III

THE COURT OF APPEALS PALPABLY ERRED IN REVERSING ITSELF BY NOW

HOLDING THAT LEVIN VS. BASS, 91 PHIL. 419 VILLASOR VS. CAMON, 89 PHIL. 404
AND DIRECTOR OF LANDS VS. REYES, 68 SCRA 73, ARE NOT APPLICABLE
HEREOF.

IV

THE COURT OF APPEALS PALPABLY ERRED IN REVERSING ITSELF BY NOW

HOLDING THAT PETITIONERS ARE GUILTY OF LACHES.

THE COURT OF APPEALS PALPABLY ERRED IN REVERSING ITSELF BY NOW

HOLDING THAT THERE IS NO DISTINCTION IN THE REGISTRATION OF
VOLUNTARY INSTRUMENTS VIS-A-VISINVOLUNTARY INSTRUMENTS.

VI

THE COURT OF APPEALS PALPABLY ERRED IN REVERSING ITSELF BY NOW

HOLDING THAT RESPONDENTS WHO ARE LAWYERS, RESPONSIBLE CITIZENS
AND WELL-RESPECTED RESIDENTS IN THE COMMUNITY, ARE EXEMPTED FROM
THE EFFECTS OF THE CONSTRUCTIVE NOTICE ARISING FROM REGISTRATION.
 VII

THE COURT OF APPEALS PALPABLY ERRED IN REVERSING ITSELF WITH

REGARDS TO TRADERS ROYAL BANK, AFTER THE LATTER HAS PERFECTED ITS
APPEAL TO THE SUPREME COURT.

VIII

THE COURT OF APPEALS PALPABLY ERRED IN NOT RULING ON THE COUNTER-

ASSIGNMENT OF ERROR THAT:

B) THE LOWER COURT ERRED IN NOT HOLDING THAT

DEFENDANTS ARE BOUND BY THE DECISION IN CIVIL CASE NO.
Q-10453.

Subsequently, G.R. No. 118862 was consolidated with G.R No. 114299, pursuant to this Court's
Resolution dated July 3, 1996. 15

The consolidated cases primarily involve two issues: (1) who, as between the Capays and the non-bank
respondents, has a better right to the disputed property, and (2) whether or not TRB is liable to the
Capays for damages.

On the first issue, we rule for the non-bank respondents.

First, when TRB purchased the property at the foreclosure sale, the notice of lis pendens that the Capays
caused to be annotated on their certificate of title was not carried to the new one issued to TRB. Neither
did the certificate of title of Emelita Santiago, who purchased the property from TRB, contain any such
notice. When Santiago caused the property to be divided, six (6) new certificates of title were issued,
none of which contained any notice of lis pendens. Santiago then sold the lots to Marcial Alcantara and
his co-owners who next sold each of these to the non-bank respondents. The non-bank respondents,
therefore, could not have been aware that the property in question was the subject of litigation when they
acquired their respective portions of said property. There was nothing in the certificates of title or
respective predecessors-in-interest that could have aroused their suspicion. The non-bank respondents
had a right to rely on what appeared on the face of the title of their respective predecessors-in-interest,
and were not bound to go beyond the same. To hold otherwise would defeat one of the principal objects
of the Torrens system of land registration, that is, to facilitate transactions involving lands.

The main purpose of the Torrens system is to avoid possible conflicts of title to
real estate and to facilitate transactions relative thereto by giving the public the
right to rely upon the face of a Torrens certificate of title and to dispense with the
need of inquiring further, except when the party concerned has actual knowledge
of facts and circumstances that should impel a reasonably cautious man to make
such further inquiry. Where innocent third persons, relying on the correctness of
the certificate of title thus issued, acquire rights over the property, the court
cannot disregard such rights and order the total cancellation of the certificate.
The effect of such an outright cancellation would be to impair public confidence in
the certificate of title, for everyone dealing with property registered under the
Torrens system would have to inquire in every instance as to whether the title
has been regularly or irregularly issued by the court. Every person dealing with
registered land may safely rely on the correctness of the certificate of title issued
therefor and the law will in no way oblige him to go beyond the certificate to
determine the condition of the property.
 The Torrens system was adopted in this country because it was believed to be
the most effective measure to guarantee the integrity of land titles and to protect
their indefeasibility once the claim of ownership is established and recognized. If
a person purchases a piece of land on the assurance that the seller's title thereto
is valid, he should not run the risk of being told later that his acquisition was
ineffectual after all. This would not only be unfair to him. What is worse is that if
this were permitted, public confidence in the system would be eroded and land
transactions would have to be attended by complicated and not necessarily
conclusive investigations and proof of ownership. The further consequence
would be that land conflicts could be even more numerous and complex than
they are now and possibly also more abrasive, if not even violent. The
Government, recognizing the worthy purposes of the Torrens system, should be
the first to accept the validity of titles issued thereunder once the conditions laid
down by the law are satisfied. 16

Second, the foregoing rule notwithstanding, the non-bank respondents nevertheless physically inspected
the properties and inquired from the register of Deeds to ascertain the absence of any defect in the title of
the property they were purchasing — an exercise of diligence above that required by law.

Thus, respondent Aida Fernando Meeks, who bought Lot 5 for her son Dean, testified:

Q How did you come to live in Baguio City, particulary in Kim. 2.5 San
Luis, Baguio City?

A In one of my visits to my sister who has been residing here for twelve
(12) years now, I got interested in buying a property here.

Q How did you come to know of this property at Asin Road where you
now reside?

A My sister, Ruth Ann Valdez, sir.

Q When this particular property was bought by you, when was that?

A I do not remember the exact date, but it was in 1984, sir.

Q At the time when you went to see the place where you now reside,
how did it look?

A This particular property that I bought was then a small one (1) room
structure, it is a two (2)-storey one (1) bedroom structure.

Q What kind of structure with regards to material?

A It is a semi-concrete structure, sir.

Q And aside from this two (2)-storey one (1)-room structure, how did the
surrounding area look like at the time you visited?

A There were stone walls from the road and there were stone walls in
front of the property and beside the property.
Q At the time you went to see the property with your agent, rather your
sister Ruth Ann Valdez did you come to know the owner?

A We did because at the time we went there, Mr. Alcantara was there
supervising the workers.

Q And who?

A Amado Cruz sir.

Q After you saw this property, what else did you do?

A My first concern then was am I buying a property with a clean title.

Q In regards to this concern of yours, did you find an answer to this

concern of yours?

A At first; I asked Mr. Alcantara and I was answered by him.

Q What was his answer?

A That it was a property with a clean title, that he has shown me the
mother title and it is a clean title.

Q Aside from being informed that it is a property with a clean title, did
you do anything to answer your question?

A Yes, sit.

Q What did you do?

A Well, the first step I did was to go to the Land Registration Office.

Q Are you referring to the City Hall of Baguio?

A Yes, the City Hall of Baguio.

Q And what did you do in the Registry of Deeds?

A We looked for the title, the original title, sir.

Q When you say we, who was your companion?

A Mr. Alcantara and my present husband, sir.

Q The three (3) of you?

A Yes, sir.

Q What title did you see there?

A We saw the title that was made up in favor of Amado Cruz, sir.

Q And what was the result of your looking up for this title in the name of
Amado Cruz?

A We had to be reassured that it was a genuine one, so we asked Atty.

Diomampo who heads the office. We showed him a copy of that title and
we were also reassured by him that anything that was signed by him was
as good as it is.

Q Did this Atty. Diomampo reassure you that the title was good?

A He did.

Q After your conversation with the Register of Deeds, what did you do?

A The second step we did was to confer with our lawyer, a friend from
RCBC Binondo, Manila this is Atty. Nelson Waje.

Q What is your purpose in going to this lawyer?

A We wanted an assurance that we were getting a valid title just in case

we think of buying the property.

Q What was the result of your conference with this lawyer?

A He was absolutely certain that was a valid title.

Q Mrs. Meeks, after looking at the place, going to the Register of Deeds,
looking at the title and seeing your lawyer friend, what decision did you
finally make regarding the property?

A We wanted more reassurances, so we proceeded to Banaue, as

advised by that same lawyer, there is another office of the Bureau of
Lands. I cannot recall the office but it has something to do with
registration of the old.

Q What is your purpose in going to this Office in Banaue?

A I wanted more reassuances that I was getting a valid title.

Q What was the result of your visit to the Banaue Office?

A We found the title of this property and there was reassurance that it
was a clean title and we saw the mother title under the Hilario family.

Q Mrs. Meeks, when you say Banaue, what particular place is this
Banaue?

A It is in Banaue Street in Quezon City, sir.

 Q And when you saw the title to this property and the mother title, what
was the result of your investigation, the investigation that you made?

A We were reassured that we were purchasing a valid title, we had a

genuine title.

Q When you were able to determine that you had a valid, authentic or
genuine title, what did you do?

17
A That is when I finally thought of purchasing the property.

Telesforo Alfelor II, the purchaser of Lot 4, narrated going through a similar routine:

Q How did you come to know of this place as Asin Road where you are
presently residing?

A It was actually through Mrs. Flory Recto who is presently the Branch
Manager of CocoBank. She informed my wife that there is a property for
sale at Asin Road, and she was the one who introduced to us Mr.
Alcantara, sir.

Q When you were informed by Mrs. Recto and when you met with Mr.
Alcantara, did you see the property that was being offered for sale?

A Yes, sir.

Q When did you specifically see the property, if you can recall?

A I would say it is around the third quarter of 1983, sir.

Q When you went to see the place, could you please describe what you
saw at that time?

A When we went there the area is still being developed by Mr. Alcantara.
As a matter of fact the road leading to the property is still not passable
considering that during that time it was rainy season and it was muddy,
we fell on our way going to the property and walked to have an ocular
inspection and physical check on the area, sir.

xxx xxx xxx

Q What was the improvement, if any, that was in that parcel which you
are going to purchase?

A During that time, the riprap of the property is already there, the one-
half of the riprap sir.

Q Do you know who was making this improvement at the time that you
went there?

A I would understand that it was Marcial Alcantara, sir.

 Q After you saw the place riprap and you were in the course of deciding
to purchase this property, what else did you do?

A First, I have to consider that the property is clean.

Q How did you go about determining whether the title of the property is
clean?

A Considering that Marcial Alcantara is a real estate broker, I went to his

office and checked the documents he has regarding the property.

Q And what was the result of your checking as to whether the title of the
property is clean?

A He showed me the copy of the title and it was clean, sir.

Q Aside from going to Mr. Alcantara to check up the title of the property,
what else did you do?

A Well, the next thing is I requested his wife to accompany me to the

Bureau of Lands or rather the Registry of Deeds, sir.

Q What registry of Deeds are you referring to?

A The Registry of Deeds of Baguio City, sir.

Q And were you able to see the Register of Deeds regarding what you
would like to know?

A Yes, and we were given a certification regarding this particular area

that it was clean, sir.

Q What Certification are you referring to?

A It is a Certification duly signed by the employee of the Registry of

Deeds Adelina Tabangin, sir.

Q Do you have a copy of that Certification?

A Yes, I have, sir. 18

The testimonies of Honorato Santos 19 and Josefina Pe 20 were to the same effect.

The non-bank respondent predecessor-in-interest, Marcial Alcantara, was less thorough:

Q And will you give a brief description of what you do?

A I normally acquire land, quite big tract of land and subdivide it into
smaller lots and sold it to some interested parties.

Q Specifically, Mr. Alcantara will you please inform the Court in what
place in Baguio have you acquired and subdivided and sold lots?
A Dominican Hill, Leonila Hill, Cristal Cave and Asin Road, sir.

Q You mentioned Asin Road, what particular place in Asin Road are you
referring?

A That property I bought from Emelita Santiago, sir.

Q When you say you bought it from Emelita Santiago, how did you come
to know that Emelita Santiago is disposing of the property?

A Because of the father, he is the one who offered me the property, sir,
Armando Gabriel.

Q Is he also a resident of Baguio?

A He is from Buyagan, La Trinidad sir,

Q How did you come to know of this Armando Gabriel wanting to sell a
property in Asin?

A He approached me in the house, sir. He has acquired a title from the

Traders Royal Bank.

Q Can you inform the Honorable Court when you had this conversation
with Armando Gabriel on the sale of the property at Asin Road?

A Later part of March, 1983, sir.

Q Now, when this Armando Gabriel informed you that he wants his
property to be sold, what did you do?

A I went to the place with the agent, sir.

Q When you say you went to the place with the agent, what place?

A Kilometer 2, Asin Road sir.

Q And when you went there to see the place, did you actually go there to
see the place?

A By walking, I parked my car a kilometer away, sir.

Q Is it my understanding that when you went to see the property there

were no roads?

A None, sir.

xxx xxx xxx

Q Mr. Alcantara, when you went to see this place at Asin Road last week
of March, 1983, will you please briefly describe how this place looked like
at that time?
A The place was mountainous, grassy, there were cogon trees, some of
the roads were eroding already, so we cannot possibly enter the
property, sir.

Q At the time you entered the place, was there any visible sign of claim
by anyone?

A None, sir.

Q In terms of fence in the area?

A There is no such, sir.

xxx xxx xxx

Q Aside from looking or going to the property, what else did you do to
this property prior to your purchase?

A I investigated it with the Register of Deeds, sir.

Q What is your purpose in investigating it with the Register of Deeds?

A To see if the paper in clean and there are no encumbrances, sir.

Q To whom did you talk?

A To Atty. Ernesto Diomampo, sir.

Q And when you went to the Registry of Deeds to investigate and check,
did you have occasion to talk with Atty. Diomampo?

A Yes, sir.

Q And what was the result of your talk with Atty. Diomampo?

A The papers are clean except to the annotation at the back with the
road right of way, sir.

Q After making this investigation with the Register of Deeds and talking
with Atty. Diomampo, what else transpired?

A We bought the property, sir.

Q After purchasing the property from Emelita Santiago, could you please
tell the Honorable Court what you did with that deed of sale?

A We registered it with the Register of Deeds for the Certificate of Title

because at that time when we bought the property, Emelita Santiago had
it subdivided into six (6) lots, sir.

Q Is it our understanding that prior to your purchase the property was

subdivided into six (6) parcels?
 A Yes, sir.

Q Could you please inform the Honorable Court if you have any buyers
in the subdivision of this property prior to your purchase?

A Yes, I have.

Q This subdivision of this property, to what office was it brought for

action?

A Bureau of Lands, San Fernando, La Union, sir.

Q Now, Mr. Alcantara, at the time that you had this property subdivided
by the owner, could you please inform the Court if there was any claim
by any other party opposing the subdivision or claiming the property?

A None, sir.

Q When the Deed of Sale was executed and you said that you presented
it to the Register of Deeds and after the subdivision already, what action
did the Register of Deeds have regarding the matter?

A They approved it and registered it already in six (6) titles, sir.

Q In whose names?

A One (1) title under my name, Amado Cruz and Dr. Sanchez, sir.

Q Initially, Mr. Alcantara, you said that you are the sole purchaser of this
entire area of One Thousand Five Hundred Ninety One (1,591) Square
Meters. Now, you are informing this Honorable Court that one Amado
Cruz and one Dr. Sanchez were also issued two (2) titles. Could you
explain how these titles came into their possession?

A Actually, two (2) are our co-owners, sir.

Q So, is it our understanding that the Deed of Sale from Emelita

Santiago is in favor of these two (2) Atty. Cruz and Dr. Sanchez?

A Yes, sir. 21

Third, between two innocent persons, the one who made it possible for the wrong to be done should be
the one to bear the resulting loss. 22 The Capays filed the notice of lis pendens way back on March 17,
1967 but the same was not TRB's title. The Capays and their counsel Atty. Ramon A. Gonzales knew in
1968 of the extra-judicial foreclosure sale of the property to TRB and the consolidation of title in the
bank's name following the lapse of the one-year period of redemption. But in the next fifteen (15) years or
so, they did not bother to find out the status of their title or whether the liens noted on the original
certificate of title were still existing considering that the property had already been foreclosed. In the
meantime, the subject property had undergone a series of transfers to buyers in good and for value. It
was not until after the land was subdivided and developed with the buyers building their houses on the
other lots when the Capays suddenly appeared and questioned the occupants' titles. At the very least, the
Capays are guilty of laches. Laches has been defined as the failure or neglect, for an unreasonable and
unexplained length of time, to do that which by exercising due diligence could nor should have been done
earlier; it is negligence or omission to assert a right within a reasonable time, warranting presumption that
the party entitled to it either has abandoned it or declined to assert it. 23

Verily, the principle on prescription of actions is designed to cover situations such as the
case at bar, where there have been a series of transfers to innocent purchasers for value.
To set aside these transactions only to accommodate a party who has slept on his rights
is anathema to good order.

Independently of the principle of prescription of actions working against petitioners, the

doctrine of laches may further be counted against them, which latter tenet finds
application even to imprescriptible
actions. . . . 24

In De La Calzada-Cierras vs. Court of Appeals, 25 we held:

While it is true that under the law it is the act of registration of the deed of
conveyance that serves as the operative act to convey the land registered under
the Torrens System (Davao Grains, Inc. vs. Intermediate Appellate Court, 171
SCRA 612), the petitioners cannot invoke said dictum because their action to
recover Lot 4362 is barred by the equitable doctrine of laches.

The act of registering the conveyance to Rosendo was constructive notice to the
whole world of the fact of such conveyance (Heirs of Maria Marasigan vs.
Intermediate Appellate Court, 152 SCRA 253).

But the petitioners' complaint to recover the title and possession of Lot 4362 was filed
only on July 21, 1981, twelve (12) years after the registration of the sale to Rosendo. The
petitioners failed and neglected for an unreasonably long time to assert their right, if any,
to the property in Rosendo's possession.

Being guilty of laches, the Capays cannot invoke the ruling in Villasor vs. Camon Levin Bass and Director
of Lands vs. Reyes 26 to the effect that entry of the notice of lis pendens in the day book (primary entry
book) is sufficient to constitute registration and such entry is notice to all persons of such adverse claim.
Certainly, it is most iniquitous for the Capays who, after sleeping on their rights for fifteen years to assert
ownership over the property that has undergone several transfers made in good faith and for value and
already subdivided into several lots with improvements introduced thereon by their owners.

In the same vein, the cases cited by the Capays in their first two (2) assignment of errors, do not help
them any, as the transferees in said cases were not innocent purchasers for value and in good faith.
In Tuazon vs. Reyes and
Siochi, 27 where the land involved therein was sold by Petronilo David to Vicente Tuazon, it was with a
deed containing the recital that the land was in dispute between the vendor and Roberto Siochi. Tuazon,
who was merely subrogated to the rights of the vendor was aware of the dispute and, furthermore, David
did not warrant the title to the same. In Rivera vs. Moran, 28 Rivera acquired interest in the land before the
final decree was entered in the cadastral proceedings. Rivera, the transferee, was aware of the pending
litigation and, consequently, could not have been considered a purchaser in good faith. Similarly,
in Atun, et al. vs. Nuñez, et al. 29 and Laroza vs. Guia, 30 the buyers of the property at the time of their
acquisition knew of the existence of the notice of lis pendens. In contrast to the cited cases, the non-bank
respondents in the case at bar acquired their respective portions of the land with clean title from their
predecessors-in-interest.

II

We come now to TRB's liability towards the Capays.

The Bank unconvincingly tries to wash its hands off the present controversy, and attempts to shift the
blame on the Capays, thus:

xxx xxx xxx

23. The petitioner Bank, during all the time that it was holding the title for over fourteen
(14) years that there was no legal impediment for it to sell said property, Central Bank
regulations require that real properties of banks should not he held for more than five (5)
years:

24. The fault of the Register of Deeds in not carrying over the Notice of Lis Pendens to
the new title of the petitioner Bank should not be absorbed by the latter considering that
in all good faith, it was not aware of the existence of said annotation during all the time
that said title was in its possession for almost fourteen (14) years before the property was
sold to Emelita G. Santiago. . . . 31

TRB concludes that "(t)he inaction and negligence of private respondents allowing ownership to pass for
almost 15 years constitute prescription of action and/or laches." 32

Sec. 25 of the General Banking Act, 33 provides that no bank "shall hold the possession of any real estate
under mortgage or trust, deed, or the title and possession of any real estate purchased to secure any
debt due to it, for a longer period than five years." TRB, however, admits hoding on to the foreclosed
property for twelve (12) years after consolidating title in its name. The bank is, therefore, estopped from
involving banking laws and regulations to justify its belated disposition of the property. It cannot be
allowed to hide behind the law which it itself violated.

TRB cannot feign ignorance of the existence of the lis pendens because when the property was
foreclosed by it, the notice of lis pendens was annotated on the title. But when TCT No. T-6595 in the
name of the Capay spouses was cancelled after the foreclosure, TCT No. T-16272 which was issued in
place thereof in the name of TRB did not carry over the notice of lis pendens.

We do not find the Capays guilty of "inaction and negligence" as against TRB. It may be recalled that
upon the commencement of foreclosure proceedings by TRB, the Capays filed an action for prohibition on
September 22, 1966 against the TRB before the CFI to stop the foreclosure sale. Failing in that attempt,
the Capays filed a supplemental complaint for the recovery of the property. The case reached this Court.
Prescription or laches could not have worked against the Capays because they had persistently pursued
their suit against TRB to recover their property.

On the other hand, it is difficult to believe TRB's assertion that after holding on to the property for more
than ten (10) years, it suddenly realized that it was acting in violation of the General Bank Act. What is
apparent is that TRB took advantage of the absence of the notice of lis pendens at the back of their
certificate of title and sold the property to an unwary purchaser. This notwithstanding the adverse decision
of the trial court and the pendency of its appeal. TRB, whose timing indeed smacks of bad faith, thus
transferred caused the property without the lis pendens annotated on its title to put it beyond the Capays'
reach. Clearly, the bank acted in a manner contrary to morals, good customs and public policy and should
be held liable for damages. 34

Considering however, that the mortgage in favor of TRB had been declared null and void for want of
consideration and, consequently, the foreclosure proceedings did not have a valid effect, the Capays
would ordinarily be entitled to the recovery of their property. Nevertheless, this remedy is not now
available to the Capays inasmuch as title to said property has passed into the hands of third parties who
acquired the same in good faith and for value. Such being the case, TRB is duty bound to pay the Capays
the fair market value of the property at the time it was sold to Emelita Santiago, the transferee of TRB.
WHEREFORE, the Decision of the Court of Appeals dated Frebruary 24, 1994 in CA-G.R. CV No. 33920,
as modified by its Resolution dated August 10, 1994 is hereby AFFIRMED. In addition, Traders Royal
Bank is ordered to pay the Capays the fair market value of the property at the time it was sold to Emelita
Santiago.

This Decision is without prejudice to whatever criminal, civil or administrative action against the Register
of Deeds and or his assistants that may be taken by the party or parties prejudiced by the failure of the
former to carry over the notice of lis pendens to the certificate of title in the name of TRB.

SO ORDERED.

G.R. No. 85240 July 12, 1991

HEIRS OF CECILIO (also known as BASILIO) CLAUDEL, namely, MODESTA CLAUDEL,

LORETA HERRERA, JOSE CLAUDEL, BENJAMIN CLAUDEL, PACITA CLAUDEL, CARMELITA
CLAUDEL, MARIO CLAUDEL, ROBERTO CLAUDEL, LEONARDO CLAUDEL, ARSENIA
VILLALON, PERPETUA CLAUDEL and FELISA CLAUDEL, petitioners,
vs.
HON. COURT OF APPEALS, HEIRS OF MACARIO, ESPERIDIONA, RAYMUNDA and
CELESTINA, all surnamed CLAUDEL, respondents.

Ricardo L. Moldez for petitioners.

Juan T. Aquino for private respondents

SARMIENTO, J.:

This petition for review on certiorari seeks the reversal of the decision rendered by the Court of
Appeals in CA-G.R. CV No. 044291 and the reinstatement of the decision of the then Court of First
Instance (CFI) of Rizal, Branch CXI, in Civil Case No. M-5276-P, entitled. "Heirs of Macario Claudel,
et al. v. Heirs of Cecilio Claudel, et al.," which dismissed the complaint of the private respondents
against the petitioners for cancellation of titles and reconveyance with damages.2

As early as December 28, 1922, Basilio also known as "Cecilio" Claudel, acquired from the Bureau
of Lands, Lot No. 1230 of the Muntinlupa Estate Subdivision, located in the poblacion of Muntinlupa,
Rizal, with an area of 10,107 square meters; he secured Transfer Certificate of Title (TCT) No. 7471
issued by the Registry of Deeds for the Province of Rizal in 1923; he also declared the lot in his
name, the latest Tax Declaration being No. 5795. He dutifully paid the real estate taxes thereon until
his death in 1937.3 Thereafter, his widow "Basilia" and later, her son Jose, one of the herein
petitioners, paid the taxes.

The same piece of land purchased by Cecilio would, however, become the subject of protracted
litigation thirty-nine years after his death.
Two branches of Cecilio's family contested the ownership over the land-on one hand the children of
Cecilio, namely, Modesto, Loreta, Jose, Benjamin, Pacita, Carmelita, Roberto, Mario, Leonardo,
Nenita, Arsenia Villalon, and Felisa Claudel, and their children and descendants, now the herein
petitioners (hereinafter referred to as HEIRS OF CECILIO), and on the other, the brother and sisters
of Cecilio, namely, Macario, Esperidiona, Raymunda, and Celestina and their children and
descendants, now the herein private respondents (hereinafter referred to as SIBLINGS OF
CECILIO). In 1972, the HEIRS OF CECILIO partitioned this lot among themselves and obtained the
corresponding Transfer Certificates of Title on their shares, as follows:

TCT No. 395391 1,997 sq. m. –– Jose Claudel

TCT No. 395392 1,997 sq. m. –– Modesta Claudel and children

TCT No. 395393 1,997 sq. m. –– Armenia C. Villalon

TCT No. 395394 1,997 sq. m. –– Felisa Claudel4

Four years later, on December 7, 1976, private respondents SIBLINGS OF CECILIO, filed Civil Case
No. 5276-P as already adverted to at the outset, with the then Court of First Instance of Rizal, a
"Complaint for Cancellation of Titles and Reconveyance with Damages," alleging that 46 years
earlier, or sometime in 1930, their parents had purchased from the late Cecilio Claudel several
portions of Lot No. 1230 for the sum of P30.00. They admitted that the transaction was verbal.
However, as proof of the sale, the SIBLINGS OF CECILIO presented a subdivision plan of the said
land, dated March 25, 1930, indicating the portions allegedly sold to the SIBLINGS OF CECILIO.

As already mentioned, the then Court of First Instance of Rizal, Branch CXI, dismissed the
complaint, disregarding the above sole evidence (subdivision plan) presented by the SIBLINGS OF
CECILIO, thus:

Examining the pleadings as well as the evidence presented in this case by the parties, the
Court can not but notice that the present complaint was filed in the name of the Heirs of
Macario, Espiridiona, Raymunda and Celestina, all surnamed Claudel, without naming the
different heirs particularly involved, and who wish to recover the lots from the defendants.
The Court tried to find this out from the evidence presented by the plaintiffs but to no avail.
On this point alone, the Court would not be able to apportion the property to the real party in
interest if ever they are entitled to it as the persons indicated therein is in generic term
(Section 2, Rule 3). The Court has noticed also that with the exception of plaintiff Lampitoc
and (sic) the heirs of Raymunda Claudel are no longer residing in the property as they have
(sic) left the same in 1967. But most important of all the plaintiffs failed to present any
document evidencing the alleged sale of the property to their predecessors in interest by the
father of the defendants. Considering that the subject matter of the supposed sale is a real
property the absence of any document evidencing the sale would preclude the admission of
oral testimony (Statute of Frauds). Moreover, considering also that the alleged sale took
place in 1930, the action filed by the plaintiffs herein for the recovery of the same more than
thirty years after the cause of action has accrued has already prescribed.

WHEREFORE, the Court renders judgment dismissing the complaint, without

pronouncement as to costs.

SO ORDERED.5

On appeal, the following errors6 were assigned by the SIBLINGS OF CECILIO:

 1. THE TRIAL COURT ERRED IN DISMISSING PLAINTIFFS' COMPLAINT DESPITE
CONCLUSIVE EVIDENCE SHOWING THE PORTION SOLD TO EACH OF PLAINTIFFS'
PREDECESSORS.

2. THE TRIAL COURT ERRED IN HOLDING THAT PLAINTIFFS FAILED TO PROVE ANY
DOCUMENT EVIDENCING THE ALLEGED SALE.

3. THE TRIAL COURT ERRED IN NOT GIVING CREDIT TO THE PLAN, EXHIBIT A,
SHOWING THE PORTIONS SOLD TO EACH OF THE PLAINTIFFS' PREDECESSORS-IN-
INTEREST.

4. THE TRIAL COURT ERRED IN NOT DECLARING PLAINTIFFS AS OWNERS OF THE

PORTION COVERED BY THE PLAN, EXHIBIT A.

5. THE TRIAL COURT ERRED IN NOT DECLARING TRANSFER CERTIFICATES OF

TITLE NOS. 395391, 395392, 395393 AND 395394 OF THE REGISTER OF DEEDS OF
RIZAL AS NULL AND VOID.

The Court of Appeals reversed the decision of the trial court on the following grounds:

1. The failure to bring and prosecute the action in the name of the real party in interest, namely the
parties themselves, was not a fatal omission since the court a quo could have adjudicated the lots to
the SIBLINGS OF CECILIO, the parents of the herein respondents, leaving it to them to adjudicate
the property among themselves.

2. The fact of residence in the disputed properties by the herein respondents had been made
possible by the toleration of the deceased Cecilio.

3. The Statute of Frauds applies only to executory contracts and not to consummated sales as in the
case at bar where oral evidence may be admitted as cited in Iñigo v. Estate of Magtoto7 and Diana,
et al. v. Macalibo.8

In addition,

. . . Given the nature of their relationship with one another it is not unusual that no document
to evidence the sale was executed, . . ., in their blind faith in friends and relatives, in their
lack of experience and foresight, and in their ignorance, men, in spite of laws, will make and
continue to make verbal contracts. . . .9

4. The defense of prescription cannot be set up against the herein petitioners despite the lapse of
over forty years from the time of the alleged sale in 1930 up to the filing of the "Complaint for
Cancellation of Titles and Reconveyance . . ." in 1976.

According to the Court of Appeals, the action was not for the recovery of possession of real property
but for the cancellation of titles issued to the HEIRS OF CECILIO in 1973. Since the SIBLINGS OF
CECILIO commenced their complaint for cancellation of titles and reconveyance with damages on
December 7, 1976, only four years after the HEIRS OF CECILIO partitioned this lot among
themselves and obtained the corresponding Transfer Certificates of Titles, then there is no
prescription of action yet.
Thus the respondent court ordered the cancellation of the Transfer Certificates of Title Nos. 395391,
395392, 395393, and 395394 of the Register of Deeds of Rizal issued in the names of the HEIRS
OF CECILIO and corollarily ordered the execution of the following deeds of reconveyance:

To Celestina Claudel, Lot 1230-A with an area of 705 sq. m.

To Raymunda Claudel, Lot 1230-B with an area of 599 sq. m.

To Esperidiona Claudel, Lot 1230-C with an area of 597 sq. m.

To Macario Claudel, Lot 1230-D, with an area of 596 sq. m.10

The respondent court also enjoined that this disposition is without prejudice to the private
respondents, as heirs of their deceased parents, the SIBLINGS OF CECILIO, partitioning among
themselves in accordance with law the respective portions sold to and herein adjudicated to their
parents.

The rest of the land, lots 1230-E and 1230-F, with an area of 598 and 6,927 square meters,
respectively would go to Cecilio or his heirs, the herein petitioners. Beyond these apportionments,
the HEIRS OF CECILIO would not receive anything else.

The crux of the entire litigation is whether or not the Court of Appeals committed a reversible error in
disposing the question of the true ownership of the lots.

And the real issues are:

1. Whether or not a contract of sale of land may be proven orally:

2. Whether or not the prescriptive period for filing an action for cancellation of titles and
reconveyance with damages (the action filed by the SIBLINGS OF CECILIO) should be
counted from the alleged sale upon which they claim their ownership (1930) or from the date
of the issuance of the titles sought to be cancelled in favor of the HEIRS OF CECILIO
(1976).

The rule of thumb is that a sale of land, once consummated, is valid regardless of the form it may
have been entered into.11 For nowhere does law or jurisprudence prescribe that the contract of sale
be put in writing before such contract can validly cede or transmit rights over a certain real property
between the parties themselves.

However, in the event that a third party, as in this case, disputes the ownership of the property, the
person against whom that claim is brought can not present any proof of such sale and hence has no
means to enforce the contract. Thus the Statute of Frauds was precisely devised to protect the
parties in a contract of sale of real property so that no such contract is enforceable unless certain
requisites, for purposes of proof, are met.

The provisions of the Statute of Frauds pertinent to the present controversy, state:

Art. 1403 (Civil Code). The following contracts are unenforceable, unless they are ratified:

xxx xxx xxx

 2) Those that do not comply with the Statute of Frauds as set forth in this number. In the
following cases, an agreement hereafter made shall be unenforceable by action unless the
same, or some note or memorandum thereof, be in writing, and subscribed by the party
charged, or by his agent; evidence, therefore, of the agreement cannot be received without
the writing, or a secondary evidence of its contents:

xxx xxx xxx

e) An agreement for the leasing for a longer period than one year, or for the sale of real
property or of an interest therein;

xxx xxx xxx

(Emphasis supplied.)

The purpose of the Statute of Frauds is to prevent fraud and perjury in the enforcement of
obligations depending for their evidence upon the unassisted memory of witnesses by requiring
certain enumerated contracts and transactions to be evidenced in Writing.12

The provisions of the Statute of Frauds originally appeared under the old Rules of Evidence.
However when the Civil Code was re-written in 1949 (to take effect in 1950), the provisions of the
Statute of Frauds were taken out of the Rules of Evidence in order to be included under the title on
Unenforceable Contracts in the Civil Code. The transfer was not only a matter of style but to show
that the Statute of Frauds is also a substantive law.

Therefore, except under the conditions provided by the Statute of Frauds, the existence of the
contract of sale made by Cecilio with his siblings13 can not be proved.

On the second issue, the belated claim of the SIBLINGS OF CECILIO who filed a complaint in court
only in 1976 to enforce a light acquired allegedly as early as 1930, is difficult to comprehend.

The Civil Code states:

Art. 1145. The following actions must be commenced within six years:

(1) Upon an oral contract . . . (Emphasis supplied).

If the parties SIBLINGS OF CECILIO had allegedly derived their right of action from the oral
purchase made by their parents in 1930, then the action filed in 1976 would have clearly prescribed.
More than six years had lapsed.

We do not agree with the parties SIBLINGS OF CECILIO when they reason that an implied trust in
favor of the SIBLINGS OF CECILIO was established in 1972, when the HEIRS OF CECILIO
executed a contract of partition over the said properties.

But as we had pointed out, the law recognizes the superiority of the torrens title.

Above all, the torrens title in the possession of the HEIRS OF CECILIO carries more weight as proof
of ownership than the survey or subdivision plan of a parcel of land in the name of SIBLINGS OF
CECILIO.
The Court has invariably upheld the indefeasibility of the torrens title. No possession by any person
of any portion of the land could defeat the title of the registered owners thereof.14

A torrens title, once registered, cannot be defeated, even by adverse, open and notorious
possession. A registered title under the torrens system cannot be defeated by
prescription. The title, once registered, is notice to the world. All persons must take notice.
1âw phi 1

No one can plead ignorance of the registration.15

xxx xxx xxx

Furthermore, a private individual may not bring an action for reversion or any action which
would have the effect of cancelling a free patent and the corresponding certificate of title
issued on the basis thereof, with the result that the land covered thereby will again form part
of the public domain, as only the Solicitor General or the officer acting in his stead may do
so.16

It is true that in some instances, the Court did away with the irrevocability of the torrens title, but the
circumstances in the case at bar varied significantly from these cases.

In Bornales v. IAC, 17 the defense of indefeasibility of a certificate of title was disregarded when the
transferee who took it had notice of the flaws in the transferor's title. No right passed to a transferee
from a vendor who did not have any in the first place. The transferees bought the land registered
under the torrens system from vendors who procured title thereto by means of fraud. With this
knowledge, they can not invoke the indefeasibility of a certificate of title against the private
respondent to the extent of her interest. This is because the torrens system of land registration,
though indefeasible, should not be used as a means to perpetrate fraud against the rightful owner of
real property.

Mere registration of the sale is not good enough, good faith must concur with registration. Otherwise
registration becomes an exercise in futility.18

In Amerol v. Bagumbaran,19 we reversed the decision of the trial court. In this case, the title was
wrongfully registered in another person's name. An implied trust was therefore created. This trustee
was compelled by law to reconvey property fraudulently acquired notwithstanding the irrevocability of
the torrens title.20

In the present case, however, the facts belie the claim of ownership.

For several years, when the SIBLINGS OF CECILIO, namely, Macario, Esperidiona Raymunda, and
Celestina were living on the contested premises, they regularly paid a sum of money, designated as
"taxes" at first, to the widow of Cecilio, and later, to his heirs.21 Why their payments were never
directly made to the Municipal Government of Muntinlupa when they were intended as payments for
"taxes" is difficult to square with their claim of ownership. We are rather inclined to consider this fact
as an admission of non-ownership. And when we consider also that the petitioners HEIRS OF
CECILIO had individually paid to the municipal treasury the taxes corresponding to the particular
portions they were occupying,22 we can readily see the superiority of the petitioners' position.

Renato Solema and Decimina Calvez, two of the respondents who derive their right from the
SIBLINGS OF CLAUDEL, bought a portion of the lot from Felisa Claudel, one of the HEIRS OF
CLAUDEL.23 The Calvezes should not be paying for a lot that they already owned and if they did not
acknowledge Felisa as its owner.
In addition, before any of the SIBLINGS OF CECILIO could stay on any of the portions of the
property, they had to ask first the permission of Jose Claudel again, one of the HEIRS OF
CECILIO.24 In fact the only reason why any of the heirs of SIBLINGS OF CECILIO could stay on the
lot was because they were allowed to do so by the HEIRS OF CECILIO.25

In view of the foregoing, we find that the appellate court committed a reversible error in denigrating
the transfer certificates of title of the petitioners to the survey or subdivision plan proffered by the
private respondents. The Court generally recognizes the profundity of conclusions and findings of
facts reached by the trial court and hence sustains them on appeal except for strong and cogent
reasons inasmuch as the trial court is in a better position to examine real evidence and observe the
demeanor of witnesses in a case.

No clear specific contrary evidence was cited by the respondent appellate court to justify the reversal
of the lower court's findings. Thus, in this case, between the factual findings of the trial court and the
appellate court, those of the trial court must prevail over that of the latter.26

WHEREFORE, the petition is GRANTED We REVERSE and SET ASIDE the decision rendered in
CA-G.R. CV No. 04429, and we hereby REINSTATE the decision of the then Court of First Instance
of Rizal (Branch 28, Pasay City) in Civil Case No. M-5276-P which ruled for the dismissal of the
Complaint for Cancellation of Titles and Reconveyance with Damages filed by the Heirs of Macario,
Esperidiona Raymunda, and Celestina, all surnamed CLAUDEL. Costs against the private
respondents.

SO ORDERED.

G.R. No. 118509 December 1, 1995

LIMKETKAI SONS MILLING, INC., petitioner,

vs.
COURT OF APPEALS, BANK OF THE PHILIPPINE ISLANDS and NATIONAL BOOK
STORE, respondents.

MELO, J.:

The issue in the petition before us is whether or not there was a perfected contract between
petitioner Limketkai Sons Milling, Inc. and respondent Bank of the Philippine Islands (BPI) covering
the sale of a parcel of land, approximately 3.3 hectares in area, and located in Barrio Bagong Ilog,
Pasig City, Metro Manila.

Branch 151 of the Regional Trial Court of the National Capital Judicial Region stationed in Pasig
ruled that there was a perfected contract of sale between petitioner and BPI. It stated that there was
mutual consent between the parties; the subject matter is definite; and the consideration was
determined. It concluded that all the elements of a consensual contract are attendant. It ordered the
cancellation of a sale effected by BPI to respondent National Book Store (NBS) while the case was
pending and the nullification of a title issued in favor of said respondent NBS.

Upon elevation of the case to the Court of Appeals, it was held that no contract of sale was perfected
because there was no concurrence of the three requisites enumerated in Article 1318 of the Civil
Code. The decision of the trial court was reversed and the complaint dismissed.

Hence, the instant petition.

Shorn of the interpretations given to the acts of those who participated in the disputed sale, the
findings of facts of the trial court and the Court of Appeals narrate basically the same events and
occurrences. The records show that on May 14, 1976, Philippine Remnants Co., Inc. constituted BPI
as its trustee to manage, administer, and sell its real estate property. One such piece of property
placed under trust was the disputed lot, a 33,056-square meter lot at Barrio Bagong Ilog, Pasig,
Metro Manila covered by Transfer Certificate of Title No. 493122.

On June 23, 1988, Pedro Revilla, Jr., a licensed real estate broker was given formal authority by BPI
to sell the lot for P1,000.00 per square meter. This arrangement was concurred in by the owners of
the Philippine Remnants.

Broker Revilla contacted Alfonso Lim of petitioner company who agreed to buy the land. On July 8,
1988, petitioner's officials and Revilla were given permission by Rolando V. Aromin, BPI Assistant
Vice-President, to enter and view the property they were buying.

On July 9, 1988, Revilla formally informed BPI that he had procured a buyer, herein petitioner. On
July 11, 1988, petitioner's officials, Alfonso Lim and Albino Limketkai, went to BPI to confirm the
sale. They were entertained by Vice-President Merlin Albano and Asst. Vice-President Aromin.
Petitioner asked that the price of P1,000.00 per square meter be reduced to P900.00 while Albano
stated the price to be P1,100.00. The parties finally agreed that the lot would be sold at P1,000.00
per square meter to be paid in cash. Since the authority to sell was on a first come, first served and
non-exclusive basis, it may be mentioned at this juncture that there is no dispute over petitioner's
being the first comer and the buyer to be first served.

Notwithstanding the final agreement to pay P1,000.00 per square meter on a cash basis, Alfonso
Lim asked if it was possible to pay on terms. The bank officials stated that there was no harm in
trying to ask for payment on terms because in previous transactions, the same had been allowed. It
was the understanding, however, that should the term payment be disapproved, then the price shall
be paid in cash.

It was Albano who dictated the terms under which the installment payment may be approved, and
acting thereon, Alfonso Lim, on the same date, July 11, 1988, wrote BPI through Merlin Albano
embodying the payment initially of 10% and the remaining 90% within a period of 90 days.

Two or three days later, petitioner learned that its offer to pay on terms had been frozen. Alfonso Lim
went to BPI on July 18, 1988 and tendered the full payment of P33,056,000.00 to Albano. The
payment was refused because Albano stated that the authority to sell that particular piece of
property in Pasig had been withdrawn from his unit. The same check was tendered to BPI Vice-
President Nelson Bona who also refused to receive payment.

An action for specific performance with damages was thereupon filed on August 25, 1988 by
petitioner against BPI. In the course of the trial, BPI informed the trial court that it had sold the
property under litigation to NBS on July 14, 1989. The complaint was thus amended to include NBS.
On June 10, 1991, the trial court rendered judgment in the case as follows:

WHEREFORE, judgment is hereby rendered in favor of plaintiff and against

defendants Bank of the Philippine Islands and National Book Store, Inc.: —

1. Declaring the Deed of Sale of the property covered by T.C.T. No. 493122 in the
name of the Bank of the Philippine Islands, situated in Barrio Bagong Ilog, Pasig,
Metro Manila, in favor of National Book Store, Inc., null and void;

2. Ordering the Register of Deeds of the Province of Rizal to cancel the Transfer
Certificate of Title which may have been issued in favor of National Book Store, Inc.
by virtue of the aforementioned Deed of Sale dated July 14, 1989;

3. Ordering defendant BPI, upon receipt by it from plaintiff of the sum of

P33,056,000.00, to execute a Deed of Sale in favor of plaintiff of the aforementioned
property at the price of P1,000.00 per square meter; in default thereof, the Clerk of
this Court is directed to execute the said deed;

4. Ordering the Register of Deeds of Pasig, upon registration of the said deed,
whether executed by defendant BPI or the Clerk of Court and payment of the
corresponding fees and charges, to cancel said T.C.T. No. 493122 and to issue, in
lieu thereof, another transfer certificate of title in the name of plaintiff;

5. Ordering defendants BPI and National Book Store, Inc. to pay, jointly and
severally, to the plaintiff the sums of P10,000,000.00 as actual and consequential
damages and P150,000.00 as attorney's fees and litigation expenses, both with
interest at 12% per annum from date hereof;

6. On the cross-claim of defendant bank against National Book Store, ordering the
latter to indemnify the former of whatever amounts BPI shall have paid to the plaintiff
by reason hereof; and

7. Dismissing the counterclaims of the defendants against the plaintiff and National
Book Store's cross-claim against defendant bank.

Costs against defendants.

(pp. 44-45, Rollo.)

As earlier intimated, upon the decision being appealed, the Court of Appeals (Buena [P], Rasul, and
Mabutas, JJ.), on August 12, 1994, reversed the trial court's decision and dismissed petitioner's
complaint for specific performance and damages.

The issues raised by the parties revolve around the following four questions:

(1) Was there a meeting of the minds between petitioner Limketkai and respondent BPI as to the
subject matter of the contract and the cause of the obligation?

(2) Were the bank officials involved in the transaction authorized by BPI to enter into the questioned
contract?
(3) Is there competent and admissible evidence to support the alleged meeting of the minds?

(4) Was the sale of the disputed land to the NBS during the pendency of trial effected in good faith?

There is no dispute in regard to the following: (a) that BPI as trustee of the property of Philippine
Remnant Co. authorized a licensed broker, Pedro Revilla, to sell the lot for P1,000.00 per square
meter; (b) that Philippine Remnants confirmed the authority to sell of Revilla and the price at which
he may sell the lot; (c) that petitioner and Revilla agreed on the former buying the property; (d) that
BPI Assistant Vice-President Rolando V. Aromin allowed the broker and the buyer to inspect the
property; and (e) that BPI was formally informed about the broker having procured a buyer.

The controversy revolves around the interpretation or the significance of the happenings or events at
this point.

Petitioner states that the contract to sell and to buy was perfected on July 11, 1988 when its top
officials and broker Revilla finalized the details with BPI Vice-Presidents Merlin Albano and Rolando
V. Aromin at the BPI offices.

Respondents, however, contend that what transpired on this date were part of continuing
negotiations to buy the land and not the perfection of the sale. The arguments of respondents center
on two propositions — (1) Vice-Presidents Aromin and Albano had no authority to bind BPI on this
particular transaction and (2) the subsequent attempts of petitioner to pay under terms instead of full
payment in cash constitutes a counter-offer which negates the existence of a perfected contract.

The alleged lack of authority of the bank officials acting in behalf of BPI is not sustained by the
record.

At the start of the transactions, broker Revilla by himself already had full authority to sell the disputed
lot. Exhibit B dated June 23, 1988 states, "this will serve as your authority to sell on an as is, where
is basis the property located at Pasig Blvd., Bagong Ilog . . . ." We agree with Revilla's testimony that
the authority given to him was to sell and not merely to look for a buyer, as contended by
respondents.

Revilla testified that at the time he perfected the agreement to sell the litigated property, he was
acting for and in behalf of the BPI as if he were the Bank itself. This notwithstanding and to firm up
the sale of the land, Revilla saw it fit to bring BPI officials into the transaction. If BPI could give the
authority to sell to a licensed broker, we see no reason to doubt the authority to sell of the two BPI
Vice-Presidents whose precise job in the Bank was to manage and administer real estate property.

Respondent BPI alleges that sales of trust property need the approval of a Trust Committee made
up of top bank officials. It appears from the record that this trust committee meets rather infrequently
and it does not have to pass on regular transactions.

Rolando Aromin was BPI Assistant Vice-President and Trust Officer. He directly supervised the BPI
Real Property Management Unit. He had been in the Real Estate Division since 1985 and was the
head supervising officer of real estate matters. Aromin had been with the BPI Trust Department
since 1968 and had been involved in the handling of properties of beneficial owners since 1975 (tsn.,
December 3, 1990, p. 5).

Exhibit 10 of BPI, the February 15, 1989 letter from Senior Vice-President Edmundo Barcelon, while
purporting to inform Aromin of his poor performance, is an admission of BPI that Aromin was in
charge of Torrens titles, lease contracts, problems of tenants, insurance policies, installment
receivables, management fees, quitclaims, and other matters involving real estate transactions. His
immediate superior, Vice-President Merlin Albano had been with the Real Estate Division for only
one week but he was present and joined in the discussions with petitioner.

There is nothing to show that Alfonso Lim and Albino Limketkai knew Aromin before the incident.
Revilla brought the brothers directly to Aromin upon entering the BPI premises. Aromin acted in a
perfectly natural manner on the transaction before him with not the slightest indication that he was
acting ultra vires. This shows that BPI held Aromin out to the public as the officer routinely handling
real estate transactions and, as Trust Officer, entering into contracts to sell trust properties.

Respondents state and the record shows that the authority to buy and sell this particular trust
property was later withdrawn from Trust Officer Aromin and his entire unit. If Aromin did not have
any authority to act as alleged, there was no need to withdraw authority which he never possessed.

Petitioner points to Areola vs. Court of Appeals (236 SCRA 643 [1994]) which cited Prudential Bank
vs. Court of Appeals (22 SCRA 350 [1993]), which in turn relied upon McIntosh vs. Dakota Trust Co.
(52 ND 752, 204 NW 818, 40 ALR 1021), to wit:

Accordingly a banking corporation is liable to innocent third persons where the

representation is made in the course of its business by an agent acting within the
general scope of his authority even though, in the particular case, the agent is
secretly abusing his authority and attempting to perpetrate a fraud upon his principal
or some other person for his own ultimate benefit.

(at pp. 652-653.)

In the present case, the position and title of Aromin alone, not to mention the testimony and
documentary evidence about his work, leave no doubt that he had full authority to act for BPI in the
questioned transaction. There is no allegation of fraud, nor is there the least indication that Aromin
was acting for his own ultimate benefit. BPI later dismissed Aromin because it appeared that a top
official of the bank was personally interested in the sale of the Pasig property and did not like
Aromin's testimony. Aromin was charged with poor performance but his dismissal was only
sometime after he testified in court. More than two long years after the disputed transaction, he was
still Assistant Vice-President of BPI.

The records show that the letter of instruction dated June 14, 1988 from the owner of Philippine
Remnants Co. regarding the sale of the firm's property was addressed to Aromin. The P1,000.00
figure on the first page of broker Revilla's authority to sell was changed to P1,100.00 by Aromin. The
price was later brought down again to P1,000.00, also by Aromin. The permission given to petitioner
to view the lot was signed by Aromin and honored by the BPI guards. The letter dated July 9, 1988
from broker Revilla informing BPI that he had a buyer was addressed to Aromin. The conference on
July 11, 1988 when the contract was perfected was with Aromin and Vice-President Albano. Albano
and Aromin were the ones who assured petitioner Limketkai's officers that term payment was
possible. It was Aromin who called up Miguel Bicharra of Philippine Remnants to state that the BPI
rejected payment on terms and it was to Aromin that Philippine Remnants gave the go signal to
proceed with the cash sale. Everything in the record points to the full authority of Aromin to bind the
bank, except for the self-serving memoranda or letters later produced by BPI that Aromin was an
inefficient and undesirable officer and who, in fact, was dismissed after he testified in this case. But,
of course, Aromin's alleged inefficiency is not proof that he was not fully clothed with authority to bind
BPI.
Respondents' second contention is that there was no perfected contract because petitioner's request
to pay on terms constituted a counter-offer and that negotiations were still in progress at that point.

Asst. Vice-President Aromin was subpoenaed as a hostile witness for petitioner during trial. Among
his statements is one to the effect that —

. . . Mr. Lim offered to buy the property at P900.00 per square meter while Mr. Albano
counter-offered to sell the property at P1,100.00 per square meter but after the usual
haggling, we finally agreed to sell the property at the price of P1,000.00 per square
meter . . .

(tsn, 12-3-90, p. 17; Emphasis supplied.)

Asked if there was a meeting of the minds between the buyer and the bank in respect to the price of
P1,000.00 per square meter, Aromin answered:

Yes, sir, as far as my evaluation there was a meeting of the minds as far as the price
is concerned, sir.

(ibid, p. 17.)

The requirements in the payment of the purchase price on terms instead of cash were suggested by
BPI Vice-President Albano. Since the authority given to broker Revilla specified cash payment, the
possibility of paying on terms was referred to the Trust Committee but with the mutual agreement
that "if the proposed payment on terms will not be approved by our Trust Committee, Limketkai
should pay in cash . . . the amount was no longer subject to the approval or disapproval of the
Committee, it is only on the terms." (ibid, p. 19). This is incontrovertibly established in the following
testimony of Aromin:

A. After you were able to agree on the price of P1,000.00/sq. m.,

since the letter or authority says the payment must be in cash basis,
what transpired later on?

B. After we have agreed on the price, the Lim brothers inquired on

how to go about submitting the covering proposal if they will be
allowed to pay on terms. They requested us to give them a guide on
how to prepare the corresponding letter of proposal. I recall that,
upon the request of Mr. Albino Limketkai, we dictated a guide on how
to word a written firm offer that was to be submitted by Mr. Lim to the
bank setting out the terms of payment but with the mutual agreement
that if his proposed payment on terms will not be approved by our
trust committee, Limketkai should pay the price in cash.

Q And did buyer Limketkai agree to pay in cash in case the offer of
terms will be cash (disapproved).

A Yes, sir.

Q At the start, did they show their willingness to pay in cash?

A Yes, sir.
 Q You said that the agreement on terms was to be submitted to the
trust committee for approval, are you telling the Court that what was
to be approved by the trust committee was the provision on the
payment on terms?

A Yes, sir.

Q So the amount was no longer subject to the approval or

disapproval of the committee, it is only on the terms?

A Yes, sir.

(tsn, Dec. 3, 1990, pp. 18-19; Emphasis supplied.)

The record shows that if payment was in cash, either broker Revilla or Aromin had full authority. But
because petitioner took advantage of the suggestion of Vice-President Albano, the matter was sent
to higher officials. Immediately upon learning that payment on terms was frozen and/or denied,
Limketkai exercised his right within the period given to him and tendered payment in full. The BPI
rejected the payment.

In its Comment and Memorandum, respondent NBS cites Ang Yu Asuncion vs. Court of
Appeals (238 SCRA 602 [1994]) to bolster its case. Contrarywise, it would seem that the legal
principles found in said case strengthen and support petitioner's submission that the contract was
perfected upon the meeting of the minds of the parties.

The negotiation or preparation stage started with the authority given by Philippine Remnants to BPI
to sell the lot, followed by (a) the authority given by BPI and confirmed by Philippine Remnants to
broker Revilla to sell the property, (b) the offer to sell to Limketkai, (c) the inspection of the property
and finally (d) the negotiations with Aromin and Albano at the BPI offices.

The perfection of the contract took place when Aromin and Albano, acting for BPI, agreed to sell and
Alfonso Lim with Albino Limketkai, acting for petitioner Limketkai, agreed to buy the disputed lot at
P1,000.00 per square meter. Aside from this there was the earlier agreement between petitioner and
the authorized broker. There was a concurrence of offer and acceptance, on the object, and on the
cause thereof.

The phases that a contract goes through may be summarized as follows:

a. preparation, conception or generation, which is the period of negotiation and

bargaining, ending at the moment of agreement of the parties;

b. perfection or birth of the contract, which is the moment when the parties come to
agree on the terms of the contract; and

c. consummation or death, which is the fulfillment or performance of the terms

agreed upon in the contract (Toyota Shaw, Inc. vs. Court of Appeals, G.R. No.
116650, May 23, 1995).

But in more graphic prose, we turn to Ang Yu Asuncion, per Justice Vitug:
 . . . A contract undergoes various stages that include its negotiation or preparation,
its perfection and, finally, its consummation. Negotiation covers the period from the
time the prospective contracting parties indicate interest in the contract to the time
the contract is concluded (perfected). The perfection of the contract takes place upon
the concurrence of the essential elements thereof. A contract which is consensual as
to perfection is so established upon a mere meeting of minds, i.e., the concurrence of
offer and acceptance, on the object and on the cause thereof. A contract which
requires, in addition to the above, the delivery of the object of the agreement, as in a
pledge or commodatum, is commonly referred to as a real contract. In
a solemn contract, compliance with certain formalities prescribed by law, such as in a
donation of real property, is essential in order to make the act valid, the prescribed
form being thereby an essential element thereof. The stage of consummation begins
when the parties perform their respective undertakings under the contract
culminating in the extinguishment thereof.

Until the contract is perfected, it cannot, as an independent source of obligation,

serve as a binding juridical relation. In sales, particularly, to which the topic for
discussion about the case at bench belongs, the contract is perfected when a
person, called the seller, obligates himself, for a price certain, to deliver and to
transfer ownership of a thing or right to another, called the buyer, over which the
latter agrees.

(238 SCRA 602; 611 [1994].)

In Villonco Realty Company vs. Bormaheco (65 SCRA 352 [1975]), bearing factual antecendents
similar to this case, the Court, through Justice Aquino (later to be Chief Justice), quoting authorities,
upheld the perfection of the contract of sale thusly:

The contract of sale is perfected at the moment there is a meeting of minds upon the
thing which is the object of the contract and upon the price. From that moment, the
parties may reciprocally demand performance, subject to the provisions of the law
governing the form of contracts. (Art. 1475, Ibid.)

xxx xxx xxx

Consent is manifested by the meeting of the offer and the acceptance upon the thing
and the cause which are to constitute the contract. The offer must be certain and the
acceptance absolute. A qualified acceptance constitutes a counter-offer (Art. 1319,
Civil Code). "An acceptance may be express or implied." (Art. 1320, Civil Code).

xxx xxx xxx

It is true that an acceptance may contain a request for certain changes in the terms
of the offer and yet be a binding acceptance. "So long as it is clear that the meaning
of the acceptance is positively and unequivocally to accept the offer, whether such
request is granted or not, a contract is formed." (Stuart vs. Franklin Life Ins. Co., 105
Fed. 2nd 965, citing Sec. 79, Williston on Contracts).

xxx xxx xxx

 . . . the vendor's change in a phrase of the offer to purchase, which change does not
essentially change the terms of the offer, does not amount to a rejection of the offer
and the tender or a counter-offer. (Stuart vs. Franklin Life Ins. Co., supra.)

(at pp. 362-363; 365-366.)

In the case at bench, the allegation of NBS that there was no concurrence of the offer and
acceptance upon the cause of the contract is belied by the testimony of the very BPI official with
whom the contract was perfected. Aromin and Albano concluded the sale for BPI. The fact that the
deed of sale still had to be signed and notarized does not mean that no contract had already been
perfected. A sale of land is valid regardless of the form it may have been entered into (Claudel vs.
Court of Appeals, 199 SCRA 113, 119 [1991]). The requisite form under Article 1458 of the Civil
Code is merely for greater efficacy or convenience and the failure to comply therewith does not
affect the validity and binding effect of the act between the parties (Vitug, Compendium of Civil Law
and Jurisprudence, 1993 Revised Edition, p. 552). If the law requires a document or other special
form, as in the sale of real property, the contracting parties may compel each other to observe that
form, once the contract has been perfected. Their right may be exercised simultaneously with action
upon the contract (Article 1359, Civil Code).

Regarding the admissibility and competence of the evidence adduced by petitioner, respondent
Court of Appeals ruled that because the sale involved real property, the statute of frauds is
applicable.

In any event, petitioner cites Abrenica vs. Gonda (34 Phil. 739 [1916]) wherein it was held that
contracts infringing the Statute of Frauds are ratified when the defense fails to object, or asks
questions on cross-examination. The succinct words of Justice Araullo still ring in judicial cadence:

As no timely objection or protest was made to the admission of the testimony of the
plaintiff with respect to the contract; and as the motion to strike out said evidence
came too late; and, furthermore, as the defendants themselves, by the cross-
questions put by their counsel to the witnesses in respect to said contract, tacitly
waived their right to have it stricken out, that evidence, therefore, cannot be
considered either inadmissible or illegal, and court, far from having erred in taking it
into consideration and basing his judgment thereon, notwithstanding the fact that it
was ordered to be stricken out during the trial, merely corrected the error he
committed in ordering it to be so stricken out and complied with the rules of
procedure hereinbefore cited.

(at p. 748.)

In the instant case, counsel for respondents cross-examined petitioner's witnesses at length on the
contract itself, the purchase price, the tender of cash payment, the authority of Aromin and Revilla,
and other details of the litigated contract. Under the Abrenica rule (reiterated in a number of cases,
among them Talosig vs. Vda. de Nieba 43 SCRA 472 [1972]), even assuming that parol evidence
was initially inadmissible, the same became competent and admissible because of the cross-
examination, which elicited evidence proving the evidence of a perfected contract. The cross-
examination on the contract is deemed a waiver of the defense of the Statute of Frauds (Vitug,
Compendium of Civil Law and Jurisprudence, 1993 Revised Edition, supra, p. 563).

The reason for the rule is that as pointed out in Abrenica "if the answers of those witnesses were
stricken out, the cross-examination could have no object whatsoever, and if the questions were put
to the witnesses and answered by them, they could only be taken into account by connecting them
with the answers given by those witnesses on direct examination" (pp. 747-748).

Moreover, under Article 1403 of the Civil Code, an exception to the unenforceability of contracts
pursuant to the Statute of Frauds is the existence of a written note or memorandum evidencing the
contract. The memorandum may be found in several writings, not necessarily in one document. The
memorandum or memoranda is/are written evidence that such a contract was entered into.

We cite the findings of the trial court on this matter:

In accordance with the provisions of Art. 1403 of the Civil Code, the existence of a
written contract of the sale is not necessary so long as the agreement to sell real
property is evidenced by a written note or memorandum, embodying the essentials of
the contract and signed by the party charged or his agent. Thus, it has been held:

The Statute of Frauds, embodied in Article 1403 of the Civil Code of

the Philippines, does not require that the contract itself be
written. The plain test of Article 1403, Paragraph (2) is clear that a
written note or memorandum, embodying the essentials of the
contract and signed by the party charged, or his agent suffices to
make the verbal agreement enforceable, taking it out of the operation
of the statute. (Emphasis supplied)

xxx xxx xxx

In the case at bar, the complaint in its paragraph 3 pleads that the
deal had been closed by letter and telegram (Record on Appeal, p.
2), and the letter referred to was evidently the one copy of which was
appended as Exhibit A to plaintiffs opposition to the motion to
dismiss. The letter, transcribed above in part, together with the one
marked as Appendix B, constitute an adequate memorandum of the
transaction. They are signed by the defendant-appellant; refer to the
property sold as a Lot in Puerto Princesa, Palawan, covered by
T.C.T. No. 62, give its area as 1,825 square meters and the purchase
price of four (P4.00) pesos per square meter payable in cash. We
have in them, therefore, all the essential terms of the contract and
they satisfy the requirements of the Statute of Frauds.

(Footnote 26, Paredes vs. Espino, 22 SCRA 1000 [1968]).

While there is no written contract of sale of the Pasig property executed by BPI in
favor of plaintiff, there are abundant notes and memoranda extant in the records of
this case evidencing the elements of a perfected contract. There is Exhibit P, the
letter of Kenneth Richard Awad addressed to Roland Aromin, authorizing the sale of
the subject property at the price of P1,000.00 per square meter giving 2%
commission to the broker and instructing that the sale be on cash basis.
Concomitantly, on the basis of the instruction of Mr. Awad, (Exh. P), an authority to
sell, (Exh. B) was issued by BPI to Pedro Revilla, Jr., representing Assetrade Co.,
authorizing the latter to sell the property at the initial quoted price of P1,000.00 per
square meter which was altered on an unaccepted offer by Technoland. After the
letter authority was issued to Mr. Revilla, a letter authority was signed by Mr. Aromin
allowing the buyer to enter the premises of the property to inspect the same (Exh. C).
 On July 9, 1988, Pedro Revilla, Jr., acting as agent of BPI, wrote a letter to BPI
informing it that he had procured a buyer in the name of Limketkai Sons Milling, Inc.
with offices at Limketkai Bldg., Greenhills, San Juan, Metro Manila, represented by
its Exec. Vice-President, Alfonso Lim (Exh. D). On July 11, 1988, the plaintiff,
through Alfonso Lim, wrote a letter to the bank, through Merlin Albano, confirming
their transaction regarding the purchase of the subject property (Exh. E). On July 18,
1988, the plaintiff tendered upon the officials of the bank a check for P33,056,000.00
covered by Check No. CA510883, dated July 18, 1988. On July 1, 1988, Alfonso
Zamora instructed Mr. Aromin in a letter to resubmit new offers only if there is no
transaction closed with Assetrade Co. (Exh. S). Combining all these notes and
memoranda, the Court is convinced of the existence of perfected contract of sale.
Aptly, the Supreme Court, citing American cases with approval, held:

No particular form of language or instrument is necessary to

constitute a memorandum or note in writing under the statute of
frauds; any document or writing, formal or informal, written either for
the purpose of furnishing evidence of the contract or for another
purpose, which satisfies all the requirements of the statute as to
contents and signature, as discussed respectively infra secs. 178-
200, and infra secs. 201-205, is a sufficient memorandum or note. A
memorandum may be written as well with lead pencil as with pen and
ink. It may also be filled in on a printed form. (37 C.J.S., 653-654).

The note or memorandum required by the statute of frauds need not

be contained in a single document, nor, when contained in two or
more papers, need each paper be sufficient as to contents and
signature to satisfy the statute. Two or more writings properly
connected may be considered together, matters missing or uncertain
in one may be supplied or rendered certain by another, and their
sufficiency will depend on whether, taken together, they meet the
requirements of the statute as to contents and the requirements of
the statutes as to signature, as considered respectively infra secs.
179-200 and secs. 201-215.

(pp. 460-463, Original RTC Record).

The credibility of witnesses is also decisive in this case. The trial court directly observed the
demeanor and manner of testifying of the witnesses while the Court of Appeals relied merely on the
transcript of stenographic notes.

In this regard, the court of origin had this to say:

Apart from weighing the merits of the evidence of the parties, the Court had occasion
to observe the demeanor of the witnesses they presented. This is one important
factor that inclined the Court to believe in the version given by the plaintiff because
its witnesses, including hostile witness Roland V. Aromin, an assistant vice-president
of the bank, were straightforward, candid and unhesitating in giving their respective
testimonies. Upon the other hand, the witnesses of BPI were evasive, less than
candid and hesitant in giving their answers to cross examination questions.
Moreover, the witnesses for BPI and NBS contradicted each other. Fernando Sison
III insisted that the authority to sell issued to Mr. Revilla was merely an evidence by
which a broker may convince a prospective buyer that he had authority to offer the
 property mentioned therein for sale and did not bind the bank. On the contrary,
Alfonso Zamora, a Senior Vice-President of the bank, admitted that the authority to
sell issued to Mr. Pedro Revilla, Jr. was valid, effective and binding upon the bank
being signed by two class "A" signatories and that the bank cannot back out from its
commitment in the authority to sell to Mr. Revilla.

While Alfredo Ramos of NBS insisted that he did not know personally and was not
acquainted with Edmundo Barcelon, the latter categorically admitted that Alfredo
Ramos was his friend and that they have even discussed in one of the luncheon
meetings the matter of the sale of the Pasig property to NBS. George Feliciano
emphatically said that he was not a consultant of Mr. Ramos nor was he connected
with him in any manner, but his calling card states that he was a consultant to the
chairman of the Pacific Rim Export and Holdings Corp. whose chairman is Alfredo
Ramos. This deliberate act of Mr. Feliciano of concealing his being a consultant to
Mr. Alfredo Ramos evidently was done by him to avoid possible implication that he
committed some underhanded maneuvers in manipulating to have the subject
property sold to NBS, instead of being sold to the plaintiff.

(pp. 454-455, Original RTC Record.)

On the matter of credibility of witnesses where the findings or conclusions of the Court of Appeals
and the trial court are contrary to each other, the pronouncement of the Court in Serrano vs. Court of
Appeals (196 SCRA 107 [1991]) bears stressing:

It is a settled principle of civil procedure that the conclusions of the trial court
regarding the credibility of witnesses are entitled to great respect from the appellate
courts because the trial court had an opportunity to observe the demeanor of
witnesses while giving testimony which may indicate their candor or lack thereof.
While the Supreme Court ordinarily does not rule on the issue of credibility of
witnesses, that being a question of fact not properly raised in a petition under Rule
45, the Court has undertaken to do so in exceptional situations where, for instance,
as here, the trial court and the Court of Appeals arrived at divergent conclusions on
questions of fact and the credibility of witnesses.

(at p. 110.)

On the fourth question of whether or not NBS is an innocent purchaser for value, the record shows
that it is not. It acted in bad faith.

Respondent NBS ignored the notice of lis pendens annotated on the title when it bought the lot. It
was the willingness and design of NBS to buy property already sold to another party which led BPI to
dishonor the contract with Limketkai.

Petitioner cites several badges of fraud indicating that BPI and NBS conspired to prevent petitioner
from paying the agreed price and getting possession of the property:

1. The sale was supposed to be done through an authorized broker, but top officials of BPI
personally and directly took over this particular sale when a close friend became interested.

2. BPI Senior Vice President Edmundo Barcelon admitted that NBS's President, Alfredo Ramos, was
his friend; that they had lunch meetings before this incident and discussed NBS's purchase of the lot.
Barcelon's father was a business associate of Ramos.
3. George Feliciano, in behalf of NBS, offered P5 million and later P7 million if petitioner would drop
the case and give up the lot. Feliciano went to petitioner's office and haggled with Alfonso Lim but
failed to convince him inspite of various and increasing offers.

4. In a place where big and permanent buildings abound, NBS had constructed only a warehouse
marked by easy portability. The warehouse is bolted to its foundations and can easily be dismantled.

It is the very nature of the deed of absolute sale between BPI and NBS which, however, clearly
negates any allegation of good faith on the part of the buyer. Instead of the vendee insisting that the
vendor guarantee its title to the land and recognize the right of the vendee to proceed against the
vendor if the title to the land turns out to be defective as when the land belongs to another person,
the reverse is found in the deed of sale between BPI and NBS. Any losses which NBS may incur in
the event the title turns out to be vested in another person are to be borne by NBS alone. BPI is
expressly freed under the contract from any recourse of NBS against it should BPI's title be found
defective.

NBS, in its reply memorandum, does not refute or explain the above circumstance squarely. It simply
cites the badges of fraud mentioned in Oria vs. McMicking (21 Phil. 243 [1912]) and argues that the
enumeration there is exclusive. The decision in said case plainly states "the following are some of
the circumstances attending sales which have been denominated by courts (as) badges of fraud."
There are innumerable situations where fraud is manifested. One enumeration in a 1912 decision
cannot possibly cover all indications of fraud from that time up to the present and into the future.

The Court of Appeals did not discuss the issue of damages. Petitioner cites the fee for filing the
amended complaint to implead NBS, sheriffs fees, registration fees, plane fare and hotel expenses
of Cebu-based counsel. Petitioner also claimed, and the trial court awarded, damages for the profits
and opportunity losses caused to petitioner's business in the amount of P10,000,000.00.

We rule that the profits and the use of the land which were denied to petitioner because of the non-
compliance or interference with a solemn obligation by respondents is somehow made up by the
appreciation in land values in the meantime.

Prescinding from the above, we rule that there was a perfected contract between BPI and petitioner
Limketkai; that the BPI officials who transacted with petitioner had full authority to bind the bank; that
the evidence supporting the sale is competent and admissible; and that the sale of the lot to NBS
during the trial of the case was characterized by bad faith.

WHEREFORE, the questioned judgment of the Court of Appeals is hereby REVERSED and SET
ASIDE. The June 10, 1991 judgment of Branch 151 of the Regional Trial Court of The National
Capital Judicial Region stationed in Pasig, Metro Manila is REINSTATED except for the award of
Ten Million Pesos (P10,000,000.00) damages which is hereby DELETED.

SO ORDERED.

G.R. No. 148116 April 14, 2004

ANTONIO K. LITONJUA and AURELIO K. LITONJUA, JR., petitioners,
vs.
MARY ANN GRACE FERNANDEZ, HEIRS OF PAZ TICZON ELEOSIDA, represented by
GREGORIO T. ELEOSIDA, HEIRS OF DOMINGO B. TICZON, represented by MARY MEDIATRIX
T. FERNANDEZ, CRISTETA TICZON, EVANGELINE JILL R. TICZON, ERLINDA T. BENITEZ,
DOMINIC TICZON, JOSEFINA LUISA PIAMONTE, JOHN DOES and JANE DOES, respondents.

DECISION

CALLEJO, SR., J.:

This is a petition for review on certiorari of the Decision1 of the Court of Appeals in CA-G.R. CV No.
64940, which reversed and set aside the June 23, 1999 Decision2 of the Regional Trial Court of
Pasig City, Branch 68, in Civil Case No. 65629, as well as its Resolution dated April 30, 2001
denying the petitioners’ motion for reconsideration of the aforesaid decision.

The heirs of Domingo B. Ticzon3 are the owners of a parcel of land located in San Pablo City,
covered by Transfer Certificate of Title (TCT) No. T-36766 of the Register of Deeds of San Pablo
City.4 On the other hand, the heirs of Paz Ticzon Eleosida, represented by Gregorio T. Eleosida, are
the owners of a parcel of land located in San Pablo City, covered by TCT No. 36754, also of the
Register of Deeds of San Pablo City.5

The Case for the Petitioners

Sometime in September 1995, Mrs. Lourdes Alimario and Agapito Fisico who worked as brokers,
offered to sell to the petitioners, Antonio K. Litonjua and Aurelio K. Litonjua, Jr., the parcels of land
covered by TCT Nos. 36754 and 36766. The petitioners were shown a locator plan and copies of the
titles showing that the owners of the properties were represented by Mary Mediatrix Fernandez and
Gregorio T. Eleosida, respectively. The brokers told the petitioners that they were authorized by
respondent Fernandez to offer the property for sale. The petitioners, thereafter, made two ocular
inspections of the property, in the course of which they saw some people gathering coconuts.

In the afternoon of November 27, 1995, the petitioners met with respondent Fernandez and the two
brokers at the petitioners’ office in Mandaluyong City.6 The petitioners and respondent Fernandez
agreed that the petitioners would buy the property consisting of 36,742 square meters, for the price
of P150 per square meter, or the total sum of P5,098,500. They also agreed that the owners would
shoulder the capital gains tax, transfer tax and the expenses for the documentation of the sale. The
petitioners and respondent Fernandez also agreed to meet on December 8, 1995 to finalize the sale.
It was also agreed upon that on the said date, respondent Fernandez would present a special power
of attorney executed by the owners of the property, authorizing her to sell the property for and in
their behalf, and to execute a deed of absolute sale thereon. The petitioners would also remit the
purchase price to the owners, through respondent Fernandez. However, only Agapito Fisico
attended the meeting. He informed the petitioners that respondent Fernandez was encountering
some problems with the tenants and was trying to work out a settlement with them.7 After a few
weeks of waiting, the petitioners wrote respondent Fernandez on January 5, 1995, demanding that
their transaction be finalized by January 30, 1996.8

When the petitioners received no response from respondent Fernandez, the petitioners sent her
another Letter9dated February 1, 1996, asking that the Deed of Absolute Sale covering the property
be executed in accordance with their verbal agreement dated November 27, 1995. The petitioners
also demanded the turnover of the subject properties to them within fifteen days from receipt of the
said letter; otherwise, they would have no option but to protect their interest through legal means.

Upon receipt of the above letter, respondent Fernandez wrote the petitioners on February 14,
199610 and clarified her stand on the matter in this wise:

1) It is not true I agreed to shoulder registration fees and other miscellaneous expenses, etc.
I do not recall we ever discussed about them. Nonetheless, I made an assurance at that time
that there was no liens/encumbrances and tenants on my property (TCT – 36755).

2) It is not true that we agreed to meet on December 8, 1995 in order to sign the Deed of
Absolute Sale. The truth of the matter is that you were the one who emphatically stated that
you would prepare a Contract to Sell and requested us to come back first week of December
as you would be leaving the country then. In fact, what you were demanding from us was to
apprise you of the status of the property, whether we would be able to ascertain that there
are really no tenants. Ms. Alimario and I left your office, but we did not assure you that we
would be back on the first week of December.

Unfortunately, some people suddenly appeared and claiming to be "tenants" for the entire
properties (including those belonging to my other relatives.) Another thing, the Barangay
Captain now refuses to give a certification that our properties are not tenanted.

Thereafter, I informed my broker, Ms. Lulu Alimario, to relay to Mr. Agapito that due to the
appearance of "alleged tenants" who are demanding for a one-hectare share, my cousin and
I have thereby changed our mind and that the sale will no longer push through. I specifically
instructed her to inform you thru your broker that we will not be attending the meeting to be
held sometime first week of December.

In view thereof, I regret to formally inform you now that we are no longer selling the property
until all problems are fully settled. We have not demanded and received from you any
earnest money, thereby, no obligations exist. In the meantime, we hope that in the future we
will eventually be able to transact business since we still have other properties in San Pablo
City.11

Appended thereto was a copy of respondent Fernandez’ letter to the petitioners dated January 16,
1996, in response to the latter’s January 5, 1996 letter.12

On April 12, 1996, the petitioners filed the instant Complaint for specific performance with
damages13 against respondent Fernandez and the registered owners of the property. In their
complaint, the petitioners alleged, inter alia, the following:

4. On 27 November 1995, defendants offered to sell to plaintiffs two (2) parcels of land
covered by Transfer Certificates of Title Nos. 36766 and 36754 measuring a total of 36,742
square meters in Barrio Concepcion, San Pablo City. … After a brief negotiation, defendants
committed and specifically agreed to sell to plaintiffs 33,990 square meters of the two (2)
aforementioned parcels of land at P150.00 per square meter.
5. The parties also unequivocally agreed to the following:

(a) The transfer tax and all the other fees and expenses for the titling of the subject property
in plaintiffs’ names would be for defendants’ account.

(b) The plaintiffs would pay the entire purchase price of P5,098,500.00 for the
aforementioned 33,990 square meters of land in plaintiffs’ office on 8 December 1995.

6. Defendants repeatedly assured plaintiffs that the two (2) subject parcels of land were free
from all liens and encumbrances and that no squatters or tenants occupied them.

7. Plaintiffs, true to their word, and relying in good faith on the commitment of defendants,
pursued the purchase of the subject parcels of lands. On 5 January 1996, plaintiffs sent a
letter of even date to defendants, … setting the date of sale and payment on 30 January
1996.

7.1 Defendants received the letter on 12 January 1996 but did not reply to it.

8. On 1 February 1996, plaintiffs again sent a letter of even date to defendants demanding
execution of the Deed of Sale.

8.1 Defendants received the same on 6 February 1996. Again, there was no reply.
Defendants thus reneged on their commitment a second time.

9. On 14 February 1996, defendant Fernandez sent a written communication of the same

date to plaintiffs enclosing therein a copy of her 16 January 1996 letter to plaintiffs which
plaintiffs never received before. Defendant Fernandez stated in her 16 January 1996 letter
that despite the meeting of minds among the parties over the 33,990 square meters of land
for P150.00 per square meter on 27 November 1995, defendants suddenly had a change of
heart and no longer wished to sell the same. Paragraph 6 thereof unquestionably shows
defendants’ previous agreement as above-mentioned and their unjustified breach of their
obligations under it. …

10. Defendants cannot unilaterally, whimsically and capriciously cancel a perfected contract
to sell. …

11. Plaintiffs intended to use the subject property for their subdivision project to support
plaintiffs’ quarry operations, processing of aggregate products and manufacture of
construction materials. Consequently, by reason of defendants’ failure to honor their just
obligations, plaintiffs suffered, and continue to suffer, actual damages, consisting in
unrealized profits and cost of money, in the amount of at least P5 Million.

12. Plaintiffs also suffered sleepless nights and mental anxiety on account of defendants’
fraudulent actuations for which reason defendants are liable to plaintiffs for moral damages
in the amount of at least P1.5 Million.

13. By reason of defendants’ above-described fraudulent actuations, plaintiffs, despite their

willingness and ability to pay the agreed purchase price, have to date been unable to take
delivery of the title to the subject property. Defendants acted in a wanton, fraudulent and
malevolent manner in violating the contract to sell. By way of example or correction for the
 public good, defendants are liable to plaintiff for exemplary damages in the amount of
P500,000.00.

14. Defendants’ bad faith and refusal to honor their just obligations to plaintiffs constrained
the latter to litigate and to engage the services of undersigned counsel for a fee in the
amount of at least P250,000.00.14

The petitioners prayed that, after due hearing, judgment be rendered in their favor ordering the
respondents to –

(a) Secure at defendants’ expense all clearances from the appropriate government agencies
that will enable defendants to comply with their obligations under the Contract to Sell;

(b) Execute a Contract to Sell with terms agreed upon by the parties;

(c) Solidarily pay the plaintiffs the following amounts:

1. P5,000,000.00 in actual damages;

2. P1,500,000.00 in moral damages;

3. P500,000.00 in exemplary damages;

4. P250,000.00 in attorney’s fees.15

On July 5, 1996, respondent Fernandez filed her Answer to the complaint.16 She claimed that while
the petitioners offered to buy the property during the meeting of November 27, 1995, she did not
accept the offer; thus, no verbal contract to sell was ever perfected. She specifically alleged that the
said contract to sell was unenforceable for failure to comply with the statute of frauds. She also
maintained that even assuming arguendo that she had, indeed, made a commitment or promise to
sell the property to the petitioners, the same was not binding upon her in the absence of any
consideration distinct and separate from the price. She, thus, prayed that judgment be rendered as
follows:

1. Dismissing the Complaint, with costs against the plaintiffs;

2. On the COUNTERCLAIM, ordering plaintiffs to pay defendant moral damages in the

amount of not less than P2,000,000.00 and exemplary damages in the amount of not less
than P500,000.00 and attorney’s fees and reimbursement expenses of litigation in the
amount of P300,000.00.17

On September 24, 1997, the trial court, upon motion of the petitioners, declared the other
respondents in default for failure to file their responsive pleading within the reglementary period.18 At
the pre-trial conference held on March 2, 1998, the parties agreed that the following issues were to
be resolved by the trial court: (1) whether or not there was a perfected contract to sell; (2) in the
event that there was, indeed, a perfected contract to sell, whether or not the respondents breached
the said contract to sell; and (3) the corollary issue of damages.19

Respondent Fernandez testified that she requested Lourdes Alimario to look for a buyer of the
properties in San Pablo City "on a best offer basis." She was later informed by Alimario that the
petitioners were interested to buy the properties. On November 27, 1995, along with Alimario and
another person, she met with the petitioners in the latter’s office and told them that she was at the
conference merely to hear their offer, that she could not bind the owners of the properties as she
had no written authority to sell the same. The petitioners offered to buy the property at P150 per
square meter. After the meeting, respondent Fernandez requested Joy Marquez to secure a
barangay clearance stating that the property was free of any tenants. She was surprised to learn that
the clearance could not be secured. She contacted a cousin of hers, also one of the owners of the
property, and informed him that there was a prospective buyer of the property but that there were
tenants thereon. Her cousin told her that he was not selling his share of the property and that he was
not agreeable to the price of P150 per square meter. She no longer informed the other owners of the
petitioners’ offer. Respondent Fernandez then asked Alimario to apprise the petitioners of the
foregoing developments, through their agent, Agapito Fisico. She was surprised to receive a letter
from the petitioners dated January 5, 1996. Nonetheless, she informed the petitioners that she had
changed her mind in pursuing the negotiations in a Letter dated January 18, 1996. When she
received petitioners’ February 1, 1996 Letter, she sent a Reply-Letter dated February 14, 1996.

After trial on the merits, the trial court rendered judgment in favor of the petitioners on June 23,
1999,20 the dispositive portion of which reads:

WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of
plaintiffs ANTONIO K. LITONJUA and AURELIO K. LITONJUA and against defendants
MARY MEDIATRIX T. FERNANDEZ, HEIRS OF PAZ TICZON ELEOSIDA, represented by
GREGORIO T. ELEOSIDA, JOHN DOES and JANE DOES; HEIRS OF DOMINGO B.
TICZON, represented by MARY MEDIATRIX T. FERNANDEZ, CRISTETA TICZON,
EVANGELINE JILL R. TICZON, ERLINDA T. BENITEZ, DOMINIC TICZON, JOSEFINA
LUISA PIAMONTE, JOHN DOES and JANE DOES, ordering defendants to:

1. execute a Contract of Sale and/or Absolute Deed of Sale with the terms agreed
upon by the parties and to secure all clearances from the concerned government
agencies and removal of any tenants from the subject property at their expense to
enable defendants to comply with their obligations under the perfected agreement to
sell; and

2. pay to plaintiffs the sum of Two Hundred Thousand (P200,000.00) Pesos as and
by way of attorney’s fees.21

On appeal to the Court of Appeals, the respondents ascribed the following errors to the court a quo:

I. THE LOWER COURT ERRED IN HOLDING THAT THERE WAS A PERFECTED

CONTRACT OF SALE OF THE TWO LOTS ON NOVEMBER 27, 1995.

II. THE LOWER COURT ERRED IN NOT HOLDING THAT THE VERBAL CONTRACT OF
SALE AS CLAIMED BY PLAINTIFFS-APPELLEES ANTONIO LITONJUA AND AURELIO
LITONJUA WAS UNENFORCEABLE.

III. THE LOWER COURT ERRED IN HOLDING THAT THE LETTER OF DEFENDANT-
APPELLANT FERNANDEZ DATED JANUARY 16, 1996 WAS A CONFIRMATION OF THE
PERFECTED SALE AND CONSTITUTED AS WRITTEN EVIDENCE THEREOF.

IV. THE LOWER COURT ERRED IN NOT HOLDING THAT A SPECIAL POWER OF
ATTORNEY WAS REQUIRED IN ORDER THAT DEFENDANT-APPELLANT FERNANDEZ
COULD NEGOTIATE THE SALE ON BEHALF OF THE OTHER REGISTERED CO-
OWNERS OF THE TWO LOTS.
 V. THE LOWER COURT ERRED IN AWARDING ATTORNEY’S FEES IN THE
DISPOSITIVE PORTION OF THE DECISION WITHOUT STATING THE BASIS IN THE
TEXT OF SAID DECISION.22

On February 28, 2001, the appellate court promulgated its decision reversing and setting aside the
judgment of the trial court and dismissing the petitioners’ complaint, as well as the respondents’
counterclaim.23 The appellate court ruled that the petitioners failed to prove that a sale or a contract to
sell over the property between the petitioners and the private respondent had been perfected.

Hence, the instant petition for review on certiorari under Rule 45 of the Revised Rules of Court.

The petitioners submit the following issues for the Court’s resolution:

A. WHETHER OR NOT THERE WAS A PERFECTED CONTRACT OF SALE BETWEEN

THE PARTIES.

B. WHETHER OR NOT THE CONTRACT FALLS UNDER THE COVERAGE OF THE

STATUTE OF FRAUDS.

C. WHETHER OR NOT THE DEFENDANTS DECLARED IN DEFAULT ARE BENEFITED

BY THE ASSAILED DECISION OF THE COURT OF APPEALS.24

The petition has no merit.

The general rule is that the Court’s jurisdiction under Rule 45 of the Rules of Court is limited to the
review of errors of law committed by the appellate court. As the findings of fact of the appellate court
are deemed continued, this Court is not duty-bound to analyze and calibrate all over again the
evidence adduced by the parties in the court a quo.25 This rule, however, is not without exceptions,
such as where the factual findings of the Court of Appeals and the trial court are conflicting or
contradictory.26 Indeed, in this case, the findings of the trial court and its conclusion based on the said
findings contradict those of the appellate court. However, upon careful review of the records of this
case, we find no justification to grant the petition. We, thus, affirm the decision of the appellate court.

On the first and second assignment of errors, the petitioners assert that there was a perfected
contract of sale between the petitioners as buyers and the respondents-owners, through respondent
Fernandez, as sellers. The petitioners contend that the perfection of the said contract is evidenced
by the January 16, 1996 Letter of respondent Fernandez.27 The pertinent portions of the said letter
are as follows:

… [M]y cousin and I have thereby changed our mind and that the sale will no longer push
through. I specifically instructed her to inform you thru your broker that we will not be
attending the meeting to be held sometime first week of December.

In view thereof, I regret to formally inform you now that we are no longer selling the
property until all problems are fully settled. We have not demanded and received from you
any earnest money, thereby, no obligations exist…28

The petitioners argue that the letter is a sufficient note or memorandum of the perfected contract,
thus, removing it from the coverage of the statute of frauds. The letter specifically makes reference
to a sale which respondent Fernandez agreed to initially, but which the latter withdrew because of
the emergence of some people who claimed to be tenants on both parcels of land. According to the
petitioners, the respondents-owners, in their answer to the complaint, as well as respondent
Fernandez when she testified, admitted the authenticity and due execution of the said letter.
Besides, when the petitioner Antonio Litonjua testified on the contract of sale entered into between
themselves and the respondents-owners, the latter did not object thereto. Consequently, the
respondents-owners thereby ratified the said contract of sale. The petitioners thus contend that the
appellate court’s declaration that there was no perfected contract of sale between the petitioners and
the respondents-owners is belied by the evidence, the pleadings of the parties, and the law.

The petitioners’ contention is bereft of merit. In its decision, the appellate court ruled that the Letter
of respondent Fernandez dated January 16, 1996 is hardly the note or memorandum contemplated
under Article 1403(2)(e) of the New Civil Code, which reads:

Art. 1403. The following contracts are unenforceable, unless they are ratified:

(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the
following cases an agreement hereafter made shall be unenforceable by action, unless the
same, or some note or memorandum thereof, be in writing, and subscribed by the party
charged, or by his agent; evidence, therefore, of the agreement cannot be received without
the writing, or secondary evidence of its contents:

(e) An agreement for the leasing for a longer period than one year, or for the sale of
real property or of an interest therein.29

The appellate court based its ruling on the following disquisitions:

In the case at bar, the letter dated January 16, 1996 of defendant-appellant can hardly be
said to constitute the note or memorandum evidencing the agreement of the parties to enter
into a contract of sale as it is very clear that defendant-appellant as seller did not accept the
condition that she will be the one to pay the registration fees and miscellaneous expenses
and therein also categorically denied she had already committed to execute the deed of sale
as claimed by the plaintiffs-appellees. The letter, in fact, stated the reasons beyond the
control of the defendant-appellant, why the sale could no longer push through – because of
the problem with tenants. The trial court zeroed in on the statement of the defendant-
appellant that she and her cousin changed their minds, thereby concluding that defendant-
appellant had unilaterally cancelled the sale or backed out of her previous commitment.
However, the tenor of the letter actually reveals a consistent denial that there was any such
commitment on the part of defendant-appellant to sell the subject lands to plaintiffs-
appellees. When defendant-appellant used the words "changed our mind," she was clearly
referring to the decision to sell the property at all (not necessarily to plaintiffs-appellees) and
not in selling the property to herein plaintiffs-appellees as defendant-appellant had not yet
made the final decision to sell the property to said plaintiffs-appellees. This conclusion is
buttressed by the last paragraph of the subject letter stating that "we are no longer selling the
property until all problems are fully settled." To read a definite previous agreement for the
sale of the property in favor of plaintiffs-appellees into the contents of this letter is to unduly
restrict the freedom of the contracting parties to negotiate and prejudice the right of every
property owner to secure the best possible offer and terms in such sale transactions. We
believe, therefore, that the trial court committed a reversible error in finding that there was a
perfected contract of sale or contract to sell under the foregoing circumstances. Hence, the
 defendant-appellant may not be held liable in this action for specific performance with
damages.30

In Rosencor Development Corporation vs. Court of Appeals,31 the term "statute of frauds" is
descriptive of statutes which require certain classes of contracts to be in writing. The statute does
not deprive the parties of the right to contract with respect to the matters therein involved, but merely
regulates the formalities of the contract necessary to render it enforceable. The purpose of the
statute is to prevent fraud and perjury in the enforcement of obligations, depending for their
existence on the unassisted memory of witnesses, by requiring certain enumerated contracts and
transactions to be evidenced by a writing signed by the party to be charged. The statute is satisfied
or, as it is often stated, a contract or bargain is taken within the statute by making and executing a
note or memorandum of the contract which is sufficient to state the requirements of the statute.32 The
application of such statute presupposes the existence of a perfected contract. However, for a note or
memorandum to satisfy the statute, it must be complete in itself and cannot rest partly in writing and
partly in parol. The note or memorandum must contain the names of the parties, the terms and
conditions of the contract and a description of the property sufficient to render it capable of
identification.33 Such note or memorandum must contain the essential elements of the contract
expressed with certainty that may be ascertained from the note or memorandum itself, or some other
writing to which it refers or within which it is connected, without resorting to parol evidence.34 To be
binding on the persons to be charged, such note or memorandum must be signed by the said party
or by his agent duly authorized in writing.35

In City of Cebu v. Heirs of Rubi,36 we held that the exchange of written correspondence between the
parties may constitute sufficient writing to evidence the agreement for purposes of complying with
the statute of frauds.

In this case, we agree with the findings of the appellate court that there was no perfected contract of
sale between the respondents-owners, as sellers, and the petitioners, as buyers.

There is no documentary evidence on record that the respondents-owners specifically authorized

respondent Fernandez to sell their properties to another, including the petitioners. Article 1878 of the
New Civil Code provides that a special power of attorney is necessary to enter into any contract by
which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable
consideration,37 or to create or convey real rights over immovable property,38 or for any other act of
strict dominion.39 Any sale of real property by one purporting to be the agent of the registered owner
without any authority therefor in writing from the said owner is null and void.40 The declarations of the
agent alone are generally insufficient to establish the fact or extent of her authority.41 In this case, the
only evidence adduced by the petitioners to prove that respondent Fernandez was authorized by the
respondents-owners is the testimony of petitioner Antonio Litonjua that respondent Fernandez
openly represented herself to be the representative of the respondents-owners,42 and that she
promised to present to the petitioners on December 8, 1996 a written authority to sell the
properties.43 However, the petitioners’ claim was belied by respondent Fernandez when she testified,
thus:

Q Madam Witness, what else did you tell to the plaintiffs?

A I told them that I was there representing myself as one of the owners of the properties, and
I was just there to listen to his proposal because that time, we were just looking for the best
offer and I did not have yet any written authorities from my brother and sisters and relatives. I
cannot agree on anything yet since it is just a preliminary meeting, and so, I have to secure
authorities and relate the matters to my relatives, brother and sisters, sir.
 Q And what else was taken up?

A Mr. Antonio Litonjua told me that they will be leaving for another country and he requested
me to come back on the first week of December and in the meantime, I should make an
assurance that there are no tenants in our properties, sir.44

The petitioners cannot feign ignorance of respondent Fernandez’ lack of authority to sell the
properties for the respondents-owners. It must be stressed that the petitioners are noted
businessmen who ought to be very familiar with the intricacies of business transactions, such as the
sale of real property.

The settled rule is that persons dealing with an assumed agent are bound at their peril, and if they
would hold the principal liable, to ascertain not only the fact of agency but also the nature and extent
of authority, and in case either is controverted, the burden of proof is upon them to prove it.45 In this
case, respondent Fernandez specifically denied that she was authorized by the respondents-owners
to sell the properties, both in her answer to the complaint and when she testified. The Letter dated
January 16, 1996 relied upon by the petitioners was signed by respondent Fernandez alone, without
any authority from the respondents-owners. There is no evidence on record that the respondents-
owners ratified all the actuations of respondent Fernandez in connection with her dealings with the
petitioners. As such, said letter is not binding on the respondents as owners of the subject
properties.

Contrary to the petitioners’ contention, the letter of January 16, 199646 is not a note or memorandum
within the context of Article 1403(2) because it does not contain the following: (a) all the essential
terms and conditions of the sale of the properties; (b) an accurate description of the property subject
of the sale; and, (c) the names of the respondents-owners of the properties. Furthermore, the letter
made reference to only one property, that covered by TCT No. T-36755.

We note that the petitioners themselves were uncertain as to the specific area of the properties they
were seeking to buy. In their complaint, they alleged to have agreed to buy from the respondents-
owners 33,990 square meters of the total acreage of the two lots consisting of 36,742 square
meters. In their Letter to respondent Fernandez dated January 5, 1996, the petitioners stated that
they agreed to buy the two lots, with a total area of 36,742 square meters.47 However, in their Letter
dated February 1, 1996, the petitioners declared that they agreed to buy a portion of the properties
consisting of 33,990 square meters.48 When he testified, petitioner Antonio Litonjua declared that the
petitioners agreed to buy from the respondents-owners 36,742 square meters at P150 per square
meter or for the total price of P5,098,500.49

The failure of respondent Fernandez to object to parol evidence to prove (a) the essential terms and
conditions of the contract asserted by the petitioners and, (b) her authority to sell the properties for
the respondents-registered owners did not and should not prejudice the respondents-owners who
had been declared in default.50

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The decision of the appellate court is
AFFIRMED IN TOTO. Costs against the petitioners.

SO ORDERED.
G.R. No. 141877 August 13, 2004

GREGORIO F. AVERIA and SYLVANNA A. VERGARA, representing the absentee heir TERESA
AVERIA,petitioners,
vs.
DOMINGO AVERIA, ANGEL AVERIA, FELIPE AVERIA, and the Heirs of FELIMON F.
AVERIA, respondents.

DECISION

CARPIO-MORALES, J.:

Macaria Francisco (Macaria) and Marcos Averia contracted marriage which bore six issues, namely:
Gregorio, Teresa, Domingo, Angel, Felipe and Felimon.

Macaria was widowed and she contracted a second marriage with Roberto Romero (Romero) which
bore no issue.

Romero died on February 28, 1968,1 leaving three adjoining residential lots located at Sampaloc,
Manila.

In a Deed of Extrajudicial Partition and Summary Settlement of the Estate of Romero, the house and
lot containing 150 square meters at 725 Extremadura Street, Sampaloc was apportioned to Macaria.

Transfer Certificate of Title (TCT) No. 93310 covering the Extremadura property was accordingly
issued in the name of Macaria.2

Alleging that fraud was employed by her co-heirs in the partition of the estate of Romero, Macaria
filed on June 1, 1970 an action for annulment of title and damages before the Court of First Instance
of Manila against her co-heirs Domingo Viray, et al., docketed as Civil Case No. 79955. Macaria was
represented in the case by Atty. Mario C. R. Domingo. The case was pending litigation for about ten
years until the decision of the Court of Appeals which adjudged Macaria as entitled to an additional
30 square meters of the estate of Romero became final and executory.

Macaria’s son Gregorio and his family and daughter Teresa’s family lived with her at Extremadura
until her death on March 28, 1983.3

Close to six years after Macaria’s demise or on January 19, 1989, her children Domingo, Angel and
Felipe, along with Susan Pelayo vda. de Averia (widow of Macaria’s deceased son Felimon), filed
before the Regional Trial Court (RTC) of Manila a complaint against their brother Gregorio and niece
Sylvanna Vergara "representing her absentee mother" Teresa Averia, for judicial partition of the
Extremadura property inclusive of the 30 square meters judicially awarded.4 The case which was
docketed as Civil Case No. 89-47554 is now the subject of the present decision.
The defendants Gregorio and Sylvanna Vergara, in their February 8, 1989 Answer to the Complaint,
countered that Gregorio and his late wife Agripina spent for the litigation expenses in Civil Case No.
79955, upon the request of Macaria, and the couple spent not less P20,000.00 for the purpose
"which amount due to the inflation of the Philippine peso is now equivalent to more or
less P200,000.00;" that from 1974 to 1983, Macaria was bedridden and it was Gregorio’s wife
Agripina who nursed and took care of her; that before Macaria died, she in consideration of the court
and other expenses which were defrayed by Gregorio and his wife in prosecuting Civil Case No.
79955 and of "the kindness of the said couple in caring for her," verbally sold to the spouses
Gregorio and Agripina one-half (½) of her Extremadura property.

Gregorio and Sylvanna further countered that the plaintiff Domingo sold and assigned to the
spouses Gregorio and Agripina his one sixth (1/6) share in the remaining ½ portion of the
Extremadura property.

Gregorio and Sylvanna concluded in their Answer that the plaintiffs are not co-owners of the
Extremadura property as ½ thereof is solely owned by Gregorio and 1/6 of the other half representing
Domingo’s share thereof had already been sold and assigned by him (Domingo) to Gregorio and his
wife who died on May 20, 1987.5

During the pendency of the case or on June 7, 1989, Macaria’s son Felipe executed a Waiver-
Affidavit6 waiving his "share" in the property subject of litigation in favor of his co-heirs.

After trial, the trial court, Branch 31 RTC of Manila, rendered a decision of July 19, 19917 crediting
the version of the defendants in this wise, quoted verbatim:

The defendant Gregorio Averia, Sr. had established that he had paid plaintiff Domingo Averia
P10,000.00 although denied by the latter but Domingo Averia did not deny receiving the
amount of P5,000.00 on July 10, 1983 given by Gregorio Averia’s wife Agrifina. According to
the testimony of defendant’s witness, plaintiff Domingo Averia sold on July 10, 1983 his
inheritance share in the property [consisting of a] house and lot located at 725 Extremadura
because he was in . . . need of money and that he was paid P5,000.00 on July 10, 1983 by
Agrifina Averia and another P5,000.00 by Major Gregorio Averia inside his room at the
Makati Police Department three (3) days later. The reason why Domingo Averia became
insistent in claiming his inheritance is the fact that Gregorio Averia refused the request of
Domingo Averia and his children to occupy the portion of subject house which was sold to
him by their mother and it was for this reason that they sought the assistance of the Citizens
Legal Assistance Office (CLAO), Atty. Benjamin Roxas in writing defendant Gregorio Averia
to allow him (Domingo Averia) to occupy a portion of subject house but plaintiff Domingo
Averia did not tell his brothers and sisters that he had already sold his 1/6 share of the
inheritance although verbally in favor of Gregorio Averia and his wife.

In the light of the foregoing, the Court, after a circumspect assessment of the evidence presented by
both parties, hereby declares, that defendant Gregorio Averia then a major of police precinct in
Makati was the person responsible for the expenses in litigation in Civil Case No. 79955, involving
the property and their mother had indeed awarded him with ½ portion of the property and that
Domingo Averia sold 1/6 of [his] share of the remaining ½ portion of the property to defendant
Gregorio. (Underscoring supplied)

Accordingly, the trial court disposed as follows, quoted verbatim:

WHEREFORE, the remaining 5/6 of ½ of the property may still be subject of partition among
the remaining heirs but the summary settlement of the remaining estate of the 5/6 remaining
 portion of the estate . . . may be sold and the proceeds thereof be distributed among the
heirs in accordance with the aliquot portions of each and every heir of the deceased Macaria
Francisco.

Both parties are hereby ordered to shoulder their respective expenses for attorney’s fees and
litigation costs. (Underscoring supplied)

On appeal to the Court of Appeals (CA) wherein the plaintiffs Domingo et al. assigned two errors, to
wit:

A. THE TRIAL COURT ERRED IN ITS FINDING THAT THERE WAS A SALE OF ONE-
HALF OF THE DECEASED MACARIA F. AVERIA’S INTEREST AND OWNERSHIP OVER
THE SUBJECT PROPERTY IN FAVOR OF DEFENDANT-APPELLEE GREGORIO AVERIA.

B. THE TRIAL COURT ERRED IN ALLOWING THE RECEPTION OF PAROL EVIDENCE

TO THE EFFECT THAT PLAINTIFF-APPELLANT DOMINGO AVERIA HAD ALREADY
DISPOSED OF HIS ONE SIXTH (1/6) SHARE OF THE SUBJECT PROPERTY IN FAVOR
OF DEFENDANT-APPELLEE GREGORIO AVERIA8(Emphasis supplied),

the appellate court reversed the decision of the trial court.

In reversing the trial court, the appellate court, noting that the alleged transfers made by Macaria and
Domingo in favor of Gregorio were bereft of any written memoranda, held that it was error for the
trial court to rely solely on the evidence adduced by the defendants consisting of the testimonies of
Gregorio, Veronica Bautista, Sylvanna Vergara Clutario, Atty. Mario C.R. Domingo, Felimon
Dagondon and Gregorio Averia, Jr. The CA explained its ruling in this wise:

[T]he alleged conveyances purportedly made by Macaria Francisco and plaintiff-appellant

Domingo Averia are unenforceable as the requirements under the Statute of Frauds have not
been complied with. Article 1403, 2(e) of the New Civil Code is explicit:

Art. 1403. The following contracts are unenforceable, unless they are ratified:

(1) x x x

(2) Those that do not comply with the Statute of Frauds as set forth in this number. In
the following cases an agreement thereafter made shall be unenforceable by action,
unless the same, or some note or memorandum thereof, be in writing and subscribed
by the party charged, or by this agent; evidence, therefore, of the agreement cannot
be received without the writing, or a secondary evidence of its contents:

(a) x x x;

(b) x x x;

(e) an agreement for the leasing for a longer period than one year, or for the sale of
real property or of an interest therein;

(f) x x x"
 The two (2) transactions in question being agreements for the sale of real property or of an
interest therein are in clear contravention of the prescription that it must be in writing and
subscribed by the party charged or by an agent thereof. Hence, the strong insistence by
defendants-appellees on the verbal conveyances cannot be made the basis for the alleged
ownership over the undivided interests claimed by Gregorio Averia.

The parol evidence upon which the trial court anchored its award in favor of defendant-
appellee Gregorio Averia is irregular as such kind of evidence is foreclosed by Article 1403 of
the Civil Code that no evidence of the alleged agreements can be received without the
writing of secondary evidence which embodies the sale of the real property. The introduction
of the testimonies of Gregorio Averia’s witnesses were timely objectedto by plaintiffs-
appellants. Since the testimonies of defendants-appellees’ witnesses are inadmissible, then
such exclusion has pulled the rug under the assailed decision of the trial court and it has no
more leg to stand on.

In the vain attempt to salvage the situation, defendants-appellees however argue that the
Article 1403 or the Statute of Frauds does not apply because the same only refers to purely
executory contracts and not to partially or completely executed contracts.

This contention is untenable. It was not amply demonstrated how such alleged transfers
were executed since plaintiffs-appellants have vigorously objected and opposed the claims
of ownership by defendants-appellees. He who asserts a fact or the affirmative of an issue
has the burden of proving it. Defendants-appellees miserably failed in this respect.

While this Court cannot discount the fact that either defendant-appellee Gregorio Averia or
plaintiff-appellant Domingo Averia may have valid claims against the estate of Macaria
Francsico, such matter can best be threshed out in the proceedings for partition before the
court a quo bearing in mind that such partition is subject to the payment of the debts of the
deceased under Article 1078 of the Civil Code.9 (Citations omitted; Emphasis and
underscoring supplied)

The appellate court thus remanded the case to the trial court.

WHEREFORE, the decision dated July 19, 1991 is reversed and set aside. The case
is remanded to the court a quo which is directed to effect the partition of the subject property
or if not, possible, sell the entire lot and distribute the proceeds of the sale based on equal
shares among the children of the late Macaria Francisco after debts of the said deceased are
paid or settled pursuant to Article 1078 of the Civil Code.10 (Underscoring supplied)

Gregorio and Sylvanna’s motion for reconsideration having been denied by the appellate court, they
lodged the Petition for Review on Certiorari at bar upon the following assignment of errors:

I. THE COURT OF APPEALS (SECOND DIVISION) ERRED IN ITS FINDING THAT THERE
WAS NO SALE OF ONE-HALF (1/2) OF THE DECEASED MACARIA F. AVERIA’S
INTEREST AND OWNERSHIP OVER THE SUBJECT PROPERTY IN FAVOR OF
PETITIONER GREGORIO F. AVERIA.

II. THE COURT OF APPEALS (SECOND DIVISION) ERRED IN ITS FINDING THAT THE
RECEPTION OF PAROL EVIDENCE TO THE EFFECT THAT RESPONDENT DOMINGO
AVERIA HAD ALREADY SOLD HIS ONE SIXTH (1/6) SHARE IN THE SUBJECT
PROPERTY IN FAVOR OF PETITIONER GREGORIO AVERIA IS NOT IN ACCORDANCE
WITH LAW.11
Petitioners contend that contrary to the findings of the Court of Appeals, they were able to amply
establish, by the testimonies of credible witnesses, the conveyances to Gregorio of ½ of the
Sampaloc property and 1/6 of the remaining half representing the share of Domingo.12

With respect to the application by the appellate court of the Statute of Frauds, petitioners contend
that the same refers only to purely executory contracts and not to partially or completely executed
contracts as in the instant case. The finding of the CA that the testimonies of petitioners’ witnesses
were timely objected to by respondents is not, petitioners insist, borne out in the records of the case
except with respect to the testimony of Gregorio.13

Petitioners thus conclude that respondents waived any objection to the admission of parol evidence,
hence, it is admissible and enforceable14 following Article 140515 of the Civil Code.16

The Court finds for petitioner.

Indeed, except for the testimony of petitioner Gregorio bearing on the verbal sale to him by Macaria
of the property, the testimonies of petitioners’ witnesses Sylvanna Vergara Clutario and Flora Lazaro
Rivera bearing on the same matter were not objected to by respondents. Just as the testimonies of
Gregorio, Jr. and Veronica Bautista bearing on the receipt by respondent Domingo on July 23, 1983
from Gregorio’s wife of P5,000.00 representing partial payment of the P10,000.00 valuation of his
(Domingo’s) 1/6 share in the property, and of the testimony of Felimon Dagondon bearing on the
receipt by Domingo of P5,000.00 from Gregorio were not objected to. Following Article 1405 of the
Civil Code,17 the contracts which infringed the Statute of Frauds were ratified by the failure to object
to the presentation of parol evidence, hence, enforceable.

ARTICLE 1403. The following contracts are unenforceable, unless they are ratified:

xxx

(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the
following cases an agreement hereafter made shall be unenforceable by action,
unless the same, or some note or memorandum thereof, be in writing, and subscribed
by the party charged, or by his agent; evidence, therefore, of the agreement cannot be
received without the writing, or a secondary evidence of its contents:

xxx

(e) An agreement for the leasing for a longer period than one year, or for the sale of
real property or of an interest therein;

x x x (Emphasis and underscoring supplied),

Contrary then to the finding of the CA, the admission of parol evidence upon which the trial court
anchored its decision in favor of respondents is not irregular and is not foreclosed by Article 1405.

In any event, the Statute of Frauds applies only to executory contracts and not to contracts which
are either partially or totally performed.18 In the case at bar, petitioners claimed that there was total
performance of the contracts, full payment of the objects thereof having already been made and the
vendee Gregorio having, even after Macaria’s death in 1983, continued to occupy the property until
and after the filing on January 19, 1989 of the complaint subject of the case at bar as in fact he is still
occupying it.
In proving the fact of partial or total performance, oral evidence may be received as what the trial
court in the case at bar did. Noted civilist Arturo M. Tolentino elucidates on the matter:

The statute of frauds is not applicable to contracts which are either totally or partially
performed, on the theory that there is a wide field for the commission of frauds in executory
contracts which can only be prevented by requiring them to be in writing, a fact which is
reduced to a minimum in executed contracts because the intention of the parties becomes
apparent by their execution, and execution concludes, in most cases, the rights of the
parties. However it is not enough for a party to allege partial performance in order to
render the Statute of Frauds inapplicable; such partial performance must be duly
proved. But neither is such party required to establish such partial performance by
documentary proof before he could have the opportunity to introduce oral testimony
on the transaction. The partial performance may be proved by either
documentary or oral evidence.19 (Emphasis, underscoring and italics supplied)

The testimonies of petitioners’ witnesses being credible and straightforward, the trial court did not err
in giving them credence.

The testimony of Sylvana Vergara Clutario, daughter of Teresa, in fact was more than sufficient to
prove the conveyance of half of the subject property by Macaria to Gregorio.

ATTY. DOMINGO:

Q: Are you the same Sylvana Vergara representing the defendant Teresa Averia in this
case?

WITNESS:

A: Yes, sir.

Q: Now on February 28, 1972, about 5:30 in the afternoon, where were you?

A: As far as I can remember, I was inside my residence at 725 Extremadura at that date, and
time.

Q: On that date and time, where were you residing?

A: At said address, 725 Extremadura Street, that time and date at 5:30 in the afternoon.

Q: Who were your companions if you have any?

A: I was there with my brothers and sisters and Uncle Gregorio and Auntie Agripina and the
children and my grand mother and also the lady who is leading in the prayers because on
that date it is the anniversary of the death of my grandfather.

Q: What is the name of your grandmother?

A: Macaria Averia, sir.

Q: Now, this Gregorio Averia whom you identified to be your Uncle, is he the same Gregorio
Averia who is also the defendant in this case?
WITNESS:

A: The same, sir.

Q: What is the name of your grandfather whom you said whose death anniversary you are
then celebrating on that date?

A: Roberto Romero, sir.

Q: What actually you were doing that time 5:30?

A: We had a gathering and merienda in recollection of the celebration (sic) of the death of my
grandfather, sir.

Q: When you said you were eating then, where were you eating then?

A: It was beside my grandmother.

Q: Where?

A: At the dining room, sir.

Q: So you were sitting at the dining table all of you?

A: Yes, sir the others were a little bit near the table.

Q: Who were seated in the dining table?

A: The Spouses Gregorio and Agripina, my sister Beth and my cousins and my Lola Macaria.

Q: When you were then seated in taking that ginatan as you stated what transpired?

A: Somebody called up and the one who called up was the Secretary of a lawyer and they
were asking for [payment of] expenses in connection with . . . [Criminal Case No. 79955].

Q: You said that it was Agripina who was the one who answered that telephone call. After
answering it, what did she say to anyone seated in that table?

A: Agripina said if Gregorio has some money, he will pay them but Gregorio said he will be
responsible for the expenses.

Q: Did you come to know how much was amount being asked?

A: P500.00, sir.

Q: What else happened after Gregorio said that he would answer for the expenses to be sent
to the lawyer?

A: My Lola said that she was embarrassed and ashame[d] because at that time she d[id] not
have any money and it was the couple who was taking the expenses of the case.
 Q: When you said "Lola," you are referring to Macaria Averia?

A: Yes, sir.

Q: What else transpired?

A: Because of her embarrassment, she told [them that] one half (1/2) of the House and Lot
will be given to the couple to cover the expenses of the case.

ATTY. DOMINGO:

Q: To whom did your grandmother say this?

A: Well, she said that to Gregorio and Agripina and Gregorio told her, if that is what you wish,
I will agree to your proposal.

Q: What was the reply of your grand mother?

A: My Lola told Gregorio that since you agree, you better prepare all the documents and we
will make ready the documents for the division or partition.

Q: Do you know what House and Lot one half (1/2) of which your grand mother was given
(sic) to your Uncle and Auntie . . .?

A: She is referring to the House and Lot where I used to live before.

Q: You are referring to the House and Lot located at 725 Extremadura Street, Sampaloc,
Manila.

A: Yes, sir.

x x x20 (Emphasis and underscoring supplied)

Not only on account of Sylvana’s manner of testifying that her testimony should be given weight. Her
testimony was against the interest of her mother Teresa whom she represented, her mother being
also an heir of Macaria. If the transfer by Macaria to Gregorio of ½ of the property is upheld as valid
and enforceable, then the share of the other heirs including Sylvanna’s mother would considerably
be reduced.

That Atty. Mario C. R. Domingo who was admittedly Macaria’s counsel in Civil Case No. 79955
(which, as priorly reflected, entailed a period of ten years in court), affirmed on the witness stand that
Gregorio and his wife were the ones who paid for his attorney’s fees amounting
to P16,000.0021 should no doubt strongly lend credence to Gregorio’s claim to that effect.

As to the sale of Domingo’s 1/6 share to Gregorio, petitioners were able to establish said transaction
by parol evidence, consisting of the testimonies of Gregorio Averia, Jr.,22 Veronica Averia23 and
Felimon Dagondon24 the presentation of which was, it bears repeating, not objected to.
Albeit Domingo never denied having received the total amount of P10,000.00 from Gregorio and his
wife, he denied having sold to Gregorio his interest over the property. Such disclaimer cannot,
however, prevail over the categorical, positive statements of petitioners’ above-named witnesses.

In sum, not only did petitioners’ witnesses prove, by their testimonies, the forging of the contracts of
sale or assignment. They proved the full performance or execution of the contracts as well.

WHEREFORE, the petition is hereby GRANTED. The January 31, 2000 Decision of the Court of
Appeals in CA-G.R. No. 44704 is hereby SET ASIDE.

The case is hereby remanded to the trial court, Branch 31 of the RTC of Manila, for appropriate
action, following Section 2 of Rule 69 of the Rules of Civil Procedure.

SO ORDERED.

G.R. No. 176841 June 29, 2010

ANTHONY ORDUÑA, DENNIS ORDUÑA, and ANTONITA ORDUÑA, Petitioners,

vs.
EDUARDO J. FUENTEBELLA, MARCOS S. CID, BENJAMIN F. CID, BERNARD G. BANTA, and
ARMANDO GABRIEL, JR., Respondents.

DECISION

VELASCO, JR., J.:

In this Petition for Review1 under Rule 45 of the Rules of Court, Anthony Orduña, Dennis Orduña
and Antonita Orduña assail and seek to set aside the Decision2 of the Court of Appeals (CA) dated
December 4, 2006 in CA-G.R. CV No. 79680, as reiterated in its Resolution of March 6, 2007, which
affirmed the May 26, 2003 Decision3 of the Regional Trial Court (RTC), Branch 3 in Baguio City, in
Civil Case No. 4984-R, a suit for annulment of title and reconveyance commenced by herein
petitioners against herein respondents.

Central to the case is a residential lot with an area of 74 square meters located at Fairview
Subdivision, Baguio City, originally registered in the name of Armando Gabriel, Sr. (Gabriel Sr.)
under Transfer Certificate of Title (TCT) No. 67181 of the Registry of Deeds of Baguio City.4

As gathered from the petition, with its enclosures, and the comments thereon of four of the five
respondents,5 the Court gathers the following relevant facts:

Sometime in 1996 or thereabouts, Gabriel Sr. sold the subject lot to petitioner Antonita Orduña
(Antonita), but no formal deed was executed to document the sale. The contract price was
apparently payable in installments as Antonita remitted from time to time and Gabriel Sr. accepted
partial payments. One of the Orduñas would later testify that Gabriel Sr. agreed to execute a final
deed of sale upon full payment of the purchase price.6

As early as 1979, however, Antonita and her sons, Dennis and Anthony Orduña, were already
occupying the subject lot on the basis of some arrangement undisclosed in the records and even
constructed their house thereon. They also paid real property taxes for the house and declared it for
tax purposes, as evidenced by Tax Declaration No. (TD) 96-04012-1110877 in which they place the
assessed value of the structure at PhP 20,090.

After the death of Gabriel Sr., his son and namesake, respondent Gabriel Jr., secured TCT No. T-
714998 over the subject lot and continued accepting payments from the petitioners. On December
12, 1996, Gabriel Jr. wrote Antonita authorizing her to fence off the said lot and to construct a road in
the adjacent lot.9 On December 13, 1996, Gabriel Jr. acknowledged receipt of a PhP 40,000
payment from petitioners.10 Through a letter11 dated May 1, 1997, Gabriel Jr. acknowledged that
petitioner had so far made an aggregate payment of PhP 65,000, leaving an outstanding balance of
PhP 60,000. A receipt Gabriel Jr. issued dated November 24, 1997 reflected a PhP 10,000 payment.

Despite all those payments made for the subject lot, Gabriel Jr. would later sell it to Bernard Banta
(Bernard) obviously without the knowledge of petitioners, as later developments would show.

As narrated by the RTC, the lot conveyance from Gabriel Jr. to Bernard was effected against the
following backdrop: Badly in need of money, Gabriel Jr. borrowed from Bernard the amount of PhP
50,000, payable in two weeks at a fixed interest rate, with the further condition that the subject lot
would answer for the loan in case of default. Gabriel Jr. failed to pay the loan and this led to the
execution of a Deed of Sale12 dated June 30, 1999 and the issuance later of TCT No. T-7278213 for
subject lot in the name of Bernard upon cancellation of TCT No. 71499 in the name of Gabriel, Jr. As
the RTC decision indicated, the reluctant Bernard agreed to acquire the lot, since he had by then
ready buyers in respondents Marcos Cid and Benjamin F. Cid (Marcos and Benjamin or the Cids).

Subsequently, Bernard sold to the Cids the subject lot for PhP 80,000. Armed with a Deed of
Absolute Sale of a Registered Land14 dated January 19, 2000, the Cids were able to cancel TCT No.
T-72782 and secure TCT No. 7278315 covering the subject lot. Just like in the immediately preceding
transaction, the deed of sale between Bernard and the Cids had respondent Eduardo J. Fuentebella
(Eduardo) as one of the instrumental witnesses.

Marcos and Benjamin, in turn, ceded the subject lot to Eduardo through a Deed of Absolute
Sale16 dated May 11, 2000. Thus, the consequent cancellation of TCT No. T-72782 and issuance on
May 16, 2000 of TCT No. T-327617over subject lot in the name of Eduardo.

As successive buyers of the subject lot, Bernard, then Marcos and Benjamin, and finally Eduardo,
checked, so each claimed, the title of their respective predecessors-in-interest with the Baguio
Registry and discovered said title to be free and unencumbered at the time each purchased the
property. Furthermore, respondent Eduardo, before buying the property, was said to have inspected
the same and found it unoccupied by the Orduñas.18

Sometime in May 2000, or shortly after his purchase of the subject lot, Eduardo, through his lawyer,
sent a letter addressed to the residence of Gabriel Jr. demanding that all persons residing on or
physically occupying the subject lot vacate the premises or face the prospect of being ejected.19

Learning of Eduardo’s threat, petitioners went to the residence of Gabriel Jr. at No. 34 Dominican
Hill, Baguio City. There, they met Gabriel Jr.’s estranged wife, Teresita, who informed them about
her having filed an affidavit-complaint against her husband and the Cids for falsification of public
documents on March 30, 2000. According to Teresita, her signature on the June 30, 1999 Gabriel
Jr.–Bernard deed of sale was a forgery. Teresita further informed the petitioners of her intent to
honor the aforementioned 1996 verbal agreement between Gabriel Sr. and Antonita and the partial
payments they gave her father-in-law and her husband for the subject lot.
On July 3, 2001, petitioners, joined by Teresita, filed a Complaint20 for Annulment of Title,
Reconveyance with Damages against the respondents before the RTC, docketed as Civil Case No.
4984-R, specifically praying that TCT No. T-3276 dated May 16, 2000 in the name of Eduardo be
annulled. Corollary to this prayer, petitioners pleaded that Gabriel Jr.’s title to the lot be reinstated
and that petitioners be declared as entitled to acquire ownership of the same upon payment of the
remaining balance of the purchase price therefor agreed upon by Gabriel Sr. and Antonita.

While impleaded and served with summons, Gabriel Jr. opted not to submit an answer.

Ruling of the RTC

By Decision dated May 26, 2003, the RTC ruled for the respondents, as defendants a quo, and
against the petitioners, as plaintiffs therein, the dispositive portion of which reads:

WHEREFORE, the instant complaint is hereby DISMISSED for lack of merit. The four (4) plaintiffs
are hereby ordered by this Court to pay each defendant (except Armando Gabriel, Jr., Benjamin F.
Cid, and Eduardo J. Fuentebella who did not testify on these damages), Moral Damages of Twenty
Thousand (P20,000.00) Pesos, so that each defendant shall receive Moral Damages of Eighty
Thousand (P80,000.00) Pesos each. Plaintiffs shall also pay all defendants (except Armando
Gabriel, Jr., Benjamin F. Cid, and Eduardo J. Fuentebella who did not testify on these damages),
Exemplary Damages of Ten Thousand (P10,000.00) Pesos each so that each defendant shall
receive Forty Thousand (P40,000.00) Pesos as Exemplary Damages. Also, plaintiffs are ordered to
pay eachdefendant (except Armando Gabriel, Jr., Benjamin F. Cid, and Eduardo J. Fuentebella who
did not testify on these damages), Fifty Thousand (P50,000.00) Pesos as Attorney’s Fees, jointly
and solidarily.

Cost of suit against the plaintiffs.21

On the main, the RTC predicated its dismissal action on the basis of the following grounds and/or
premises:

1. Eduardo was a purchaser in good faith and, hence, may avail himself of the provision of
Article 154422 of the Civil Code, which provides that in case of double sale, the party in good
faith who is able to register the property has better right over the property;

2. Under Arts. 135623 and 135824 of the Code, conveyance of real property must be in the
proper form, else it is unenforceable;

3. The verbal sale had no adequate consideration; and

4. Petitioners’ right of action to assail Eduardo’s title prescribes in one year from date of the
issuance of such title and the one-year period has already lapsed.

From the above decision, only petitioners appealed to the CA, their appeal docketed as CA-G.R. CV
No. 79680.

The CA Ruling

On December 4, 2006, the appellate court rendered the assailed Decision affirming the RTC
decision. The falloreads:
WHEREFORE, premises considered, the instant appeal is hereby DISMISSED and the 26 May 2003
Decision of the Regional Trial Court, Branch 3 of Baguio City in Civil Case No. 4989-R is hereby
AFFIRMED.

SO ORDERED.25

Hence, the instant petition on the submission that the appellate court committed reversible error of
law:

1. xxx WHEN IT HELD THAT THE SALE OF THE SUBJECT LOT BY ARMANDO GABRIEL,
SR. AND RESPONDENT ARMANDO GABRIEL, JR. TO THE PETITIONERS IS
UNENFORCEABLE.

2. xxx IN NOT FINDING THAT THE SALE OF THE SUBJECT LOT BY RESPONDENT
ARMANDO GABRIEL, JR. TO RESPONDENT BERNARD BANTA AND ITS SUBSEQUENT
SALE BY THE LATTER TO HIS CO-RESPONDENTS ARE NULL AND VOID.

3. xxx IN NOT FINDING THAT THE RESPONDENTS ARE BUYERS IN BAD FAITH

4. xxx IN FINDING THAT THE SALE OF THE SUBJECT LOT BETWEEN GABRIEL, SR.
AND RESPONDENT GABRIEL, JR. AND THE PETITIONERS HAS NO ADEQUATE
CONSIDERATION.

5. xxx IN RULING THAT THE INSTANT ACTION HAD ALREADY PRESCRIBED.

6. xxx IN FINDING THAT THE PLAINTIFFS-APPELLANTS ARE LIABLE FOR MORAL AND
EXEMPLARY DAMAGES AND ATTORNEY’S FEES.26

The Court’s Ruling

The core issues tendered in this appeal may be reduced to four and formulated as follows, to
wit: first, whether or not the sale of the subject lot by Gabriel Sr. to Antonita is unenforceable under
the Statute of Frauds; second, whether or not such sale has adequate consideration; third, whether
the instant action has already prescribed; and, fourth, whether or not respondents are purchasers in
good faith.

The petition is meritorious.

Statute of Frauds Inapplicable to Partially Executed Contracts

It is undisputed that Gabriel Sr., during his lifetime, sold the subject property to Antonita, the
purchase price payable on installment basis. Gabriel Sr. appeared to have been a recipient of some
partial payments. After his death, his son duly recognized the sale by accepting payments and
issuing what may be considered as receipts therefor. Gabriel Jr., in a gesture virtually
acknowledging the petitioners’ dominion of the property, authorized them to construct a fence
around it. And no less than his wife, Teresita, testified as to the fact of sale and of payments
received.

Pursuant to such sale, Antonita and her two sons established their residence on the lot, occupying
the house they earlier constructed thereon. They later declared the property for tax purposes, as
evidenced by the issuance of TD 96-04012-111087 in their or Antonita’s name, and paid the real
estates due thereon, obviously as sign that they are occupying the lot in the concept of owners.

Given the foregoing perspective, Eduardo’s assertion in his Answer that "persons appeared in the
property"27 only after "he initiated ejectment proceedings"28 is clearly baseless. If indeed petitioners
entered and took possession of the property after he (Eduardo) instituted the ejectment suit, how
could they explain the fact that he sent a demand letter to vacate sometime in May 2000?

With the foregoing factual antecedents, the question to be resolved is whether or not the Statute of
Frauds bars the enforcement of the verbal sale contract between Gabriel Sr. and Antonita.

The CA, just as the RTC, ruled that the contract is unenforceable for non-compliance with the
Statute of Frauds.

We disagree for several reasons. Foremost of these is that the Statute of Frauds expressed in
Article 1403, par. (2),29 of the Civil Code applies only to executory contracts, i.e., those where no
performance has yet been made. Stated a bit differently, the legal consequence of non-compliance
with the Statute does not come into play where the contract in question is completed, executed,
or partially consummated.30

The Statute of Frauds, in context, provides that a contract for the sale of real property or of an
interest therein shall be unenforceable unless the sale or some note or memorandum thereof is in
writing and subscribed by the party or his agent. However, where the verbal contract of sale has
been partially executed through the partial paymentsmade by one party duly received by the
vendor, as in the present case, the contract is taken out of the scope of the Statute.

The purpose of the Statute is to prevent fraud and perjury in the enforcement of obligations
depending for their evidence on the unassisted memory of witnesses, by requiring certain
enumerated contracts and transactions to be evidenced by a writing signed by the party to be
charged.31 The Statute requires certain contracts to be evidenced by some note or memorandum in
order to be enforceable. The term "Statute of Frauds" is descriptive of statutes that require certain
classes of contracts to be in writing. The Statute does not deprive the parties of the right to contract
with respect to the matters therein involved, but merely regulates the formalities of the contract
necessary to render it enforceable.32

Since contracts are generally obligatory in whatever form they may have been entered into, provided
all the essential requisites for their validity are present,33 the Statute simply provides the method by
which the contracts enumerated in Art. 1403 (2) may be proved but does not declare them
invalid because they are not reduced to writing. In fine, the form required under the Statute is for
convenience or evidentiary purposes only.

There can be no serious argument about the partial execution of the sale in question. The records
show that petitioners had, on separate occasions, given Gabriel Sr. and Gabriel Jr. sums of money
as partial payments of the purchase price. These payments were duly receipted by Gabriel Jr. To
recall, in his letter of May 1, 1997, Gabriel, Jr. acknowledged having received the aggregate
payment of PhP 65,000 from petitioners with the balance of PhP 60,000 still remaining unpaid. But
on top of the partial payments thus made, possession of the subject of the sale had been transferred
to Antonita as buyer. Owing thus to its partial execution, the subject sale is no longer within the
purview of the Statute of Frauds.

Lest it be overlooked, a contract that infringes the Statute of Frauds is ratified by the acceptance of
benefits under the contract.34 Evidently, Gabriel, Jr., as his father earlier, had benefited from the
partial payments made by the petitioners. Thus, neither Gabriel Jr. nor the other respondents—
successive purchasers of subject lots—could plausibly set up the Statute of Frauds to thwart
petitioners’ efforts towards establishing their lawful right over the subject lot and removing any cloud
in their title. As it were, petitioners need only to pay the outstanding balance of the purchase price
and that would complete the execution of the oral sale.

There was Adequate Consideration

Without directly saying so, the trial court held that the petitioners cannot sue upon the oral sale since
in its own words: "x x x for more than a decade, [petitioners] have not paid in full Armando Gabriel,
Sr. or his estate, so that the sale transaction between Armando Gabriel Sr. and [petitioners] [has] no
adequate consideration."

The trial court’s posture, with which the CA effectively concurred, is patently flawed. For starters,
they equated incomplete payment of the purchase price with inadequacy of price or what passes as
lesion, when both are different civil law concepts with differing legal consequences, the first being a
ground to rescind an otherwise valid and enforceable contract. Perceived inadequacy of price, on
the other hand, is not a sufficient ground for setting aside a sale freely entered into, save perhaps
when the inadequacy is shocking to the conscience.35

The Court to be sure takes stock of the fact that the contracting parties to the 1995 or 1996 sale
agreed to a purchase price of PhP 125,000 payable on installments. But the original lot owner,
Gabriel Sr., died before full payment can be effected. Nevertheless, petitioners continued remitting
payments to Gabriel, Jr., who sold the subject lot to Bernard on June 30, 1999. Gabriel, Jr., as may
be noted, parted with the property only for PhP 50,000. On the other hand, Bernard sold it for PhP
80,000 to Marcos and Benjamin. From the foregoing price figures, what is abundantly clear is that
what Antonita agreed to pay Gabriel, Sr., albeit in installment, was very much more than what his
son, for the same lot, received from his buyer and the latter’s buyer later. The Court, therefore,
cannot see its way clear as to how the RTC arrived at its simplistic conclusion about the transaction
between Gabriel Sr. and Antonita being without "adequate consideration."

The Issues of Prescription and the Bona

Fides of the Respondents as Purchasers

Considering the interrelation of these two issues, we will discuss them jointly.

There can be no quibbling about the fraudulent nature of the conveyance of the subject lot effected
by Gabriel Jr. in favor of Bernard. It is understandable that after his father’s death, Gabriel Jr.
inherited subject lot and for which he was issued TCT No. No. T-71499. Since the Gabriel Sr. –
Antonita sales transaction called for payment of the contract price in installments, it is also
understandable why the title to the property remained with the Gabriels. And after the demise of his
father, Gabriel Jr. received payments from the Orduñas and even authorized them to enclose the
subject lot with a fence. In sum, Gabriel Jr. knew fully well about the sale and is bound by the
contract as predecessor-in-interest of Gabriel Sr. over the property thus sold.

Yet, the other respondents (purchasers of subject lot) still maintain that they are innocent purchasers
for value whose rights are protected by law and besides which prescription has set in against
petitioners’ action for annulment of title and reconveyance.

The RTC and necessarily the CA found the purchaser-respondents’ thesis on prescription correct
stating in this regard that Eduardo’s TCT No. T-3276 was issued on May 16, 2000 while petitioners
filed their complaint for annulment only on July 3, 2001. To the courts below, the one-year
prescriptive period to assail the issuance of a certificate of title had already elapsed.

We are not persuaded.

The basic complaint, as couched, ultimately seeks the reconveyance of a fraudulently registered
piece of residential land. Having possession of the subject lot, petitioners’ right to the reconveyance
thereof, and the annulment of the covering title, has not prescribed or is not time-barred. This is so
for an action for annulment of title or reconveyance based on fraud is imprescriptible where the
suitor is in possession of the property subject of the acts,36 the action partaking as it does of a suit for
quieting of title which is imprescriptible.37 Such is the case in this instance. Petitioners have
possession of subject lots as owners having purchased the same from Gabriel, Sr. subject only to
the full payment of the agreed price.

The prescriptive period for the reconveyance of fraudulently registered real property is 10 years,
reckoned from the date of the issuance of the certificate of title, if the plaintiff is not in possession,
but imprescriptible if he is in possession of the property.38 Thus, one who is in actual possession of a
piece of land claiming to be the owner thereof may wait until his possession is disturbed or his title is
attacked before taking steps to vindicate his right.39As it is, petitioners’ action for reconveyance is
imprescriptible.

This brings us to the question of whether or not the respondent-purchasers, i.e., Bernard, Marcos
and Benjamin, and Eduardo, have the status of innocent purchasers for value, as was the thrust of
the trial court’s disquisition and disposition.

We are unable to agree with the RTC.

It is the common defense of the respondent-purchasers that they each checked the title of the
subject lot when it was his turn to acquire the same and found it clean, meaning without annotation
of any encumbrance or adverse third party interest. And it is upon this postulate that each claims to
be an innocent purchaser for value, or one who buys the property of another without notice that
some other person has a right to or interest in it, and who pays therefor a full and fair price at the
time of the purchase or before receiving such notice.40

The general rule is that one dealing with a parcel of land registered under the Torrens System may
safely rely on the correctness of the certificate of title issued therefor and is not obliged to go beyond
the certificate.41 Where, in other words, the certificate of title is in the name of the seller, the innocent
purchaser for value has the right to rely on what appears on the certificate, as he is charged with
notice only of burdens or claims on the res as noted in the certificate. Another formulation of the rule
is that (a) in the absence of anything to arouse suspicion or (b) except where the party has actual
knowledge of facts and circumstances that would impel a reasonably cautious man to make such
inquiry or (c) when the purchaser has knowledge of a defect of title in his vendor or of sufficient facts
to induce a reasonably prudent man to inquire into the status of the title of the property,42 said
purchaser is without obligation to look beyond the certificate and investigate the title of the seller.

Eduardo and, for that matter, Bernard and Marcos and Benjamin, can hardly claim to be innocent
purchasers for value or purchasers in good faith. For each knew or was at least expected to know
that somebody else other than Gabriel, Jr. has a right or interest over the lot. This is borne by the
fact that the initial seller, Gabriel Jr., was not in possession of subject property. With respect to
Marcos and Benjamin, they knew as buyers that Bernard, the seller, was not also in possession of
the same property. The same goes with Eduardo, as buyer, with respect to Marcos and Benjamin. ten.lihpw a1
Basic is the rule that a buyer of a piece of land which is in the actual possession of persons other
than the seller must be wary and should investigate the rights of those in possession. Otherwise,
without such inquiry, the buyer can hardly be regarded as a buyer in good faith. When a man
proposes to buy or deal with realty, his duty is to read the public manuscript, i.e., to look and see
who is there upon it and what his rights are. A want of caution and diligence which an honest man of
ordinary prudence is accustomed to exercise in making purchases is, in contemplation of law, a want
of good faith. The buyer who has failed to know or discover that the land sold to him is in adverse
possession of another is a buyer in bad faith.43

Where the land sold is in the possession of a person other than the vendor, the purchaser must go
beyond the certificates of title and make inquiries concerning the rights of the actual
possessor.44 And where, as in the instant case, Gabriel Jr. and the subsequent vendors were not in
possession of the property, the prospective vendees are obliged to investigate the rights of the one
in possession. Evidently, Bernard, Marcos and Benjamin, and Eduardo did not investigate the rights
over the subject lot of the petitioners who, during the period material to this case, were in actual
possession thereof. Bernard, et al. are, thus, not purchasers in good faith and, as such, cannot be
accorded the protection extended by the law to such purchasers.45 Moreover, not being purchasers
in good faith, their having registered the sale, will not, as against the petitioners, carry the day for
any of them under Art. 1544 of the Civil Code prescribing rules on preference in case of double sales
of immovable property. Occeña v. Esponilla46laid down the following rules in the application of Art.
1544: (1) knowledge by the first buyer of the second sale cannot defeat the first buyer’s rights except
when the second buyer first register in good faith the second sale; and (2) knowledge gained by the
second buyer of the first sale defeats his rights even if he is first to register, since such knowledge
taints his registration with bad faith.

Upon the facts obtaining in this case, the act of registration by any of the three respondent-
purchasers was not coupled with good faith. At the minimum, each was aware or is at least
presumed to be aware of facts which should put him upon such inquiry and investigation as might be
necessary to acquaint him with the defects in the title of his vendor.

The award by the lower courts of damages and attorney’s fees to some of the herein respondents
was predicated on the filing by the original plaintiffs of what the RTC characterized as an
unwarranted suit. The basis of the award, needless to stress, no longer obtains and, hence, the
same is set aside.

WHEREFORE, the petition is hereby GRANTED. The appealed December 4, 2006 Decision and the
March 6, 2007 Resolution of the Court of Appeals in CA-G.R. CV No. 79680 affirming the May 26,
2003 Decision of the Regional Trial Court, Branch 3 in Baguio City are hereby REVERSED and SET
ASIDE. Accordingly, petitioner Antonita Orduña is hereby recognized to have the right of ownership
over subject lot covered by TCT No. T-3276 of the Baguio Registry registered in the name of
Eduardo J. Fuentebella. The Register of Deeds of Baguio City is hereby ORDERED to cancel said
TCT No. T-3276 and to issue a new one in the name of Armando Gabriel, Jr. with the proper
annotation of the conditional sale of the lot covered by said title in favor of Antonita Orduña subject
to the payment of the PhP 50,000 outstanding balance. Upon full payment of the purchase price by
Antonita Orduña, Armando Gabriel, Jr. is ORDERED to execute a Deed of Absolute Sale for the
transfer of title of subject lot to the name of Antonita Orduña, within three (3) days from receipt of
said payment.

No pronouncement as to costs.

SO ORDERED.
G.R. No. 168289 March 22, 2010

THE MUNICIPALITY OF HAGONOY, BULACAN, represented by the HON. FELIX V. OPLE,

Municipal Mayor, and FELIX V. OPLE, in his personal capacity, Petitioners,
vs.
HON. SIMEON P. DUMDUM, JR., in his capacity as the Presiding Judge of the REGIONAL
TRIAL COURT, BRANCH 7, CEBU CITY; HON. CLERK OF COURT & EX-OFFICIO SHERIFF of
the REGIONAL TRIAL COURT of CEBU CITY; HON. CLERK OF COURT & EX-OFFICIO
SHERIFF of the REGIONAL TRIAL COURT of BULACAN and his DEPUTIES; and EMILY ROSE
GO KO LIM CHAO, doing business under the name and style KD SURPLUS, Respondents.

DECISION

PERALTA, J.:

This is a Joint Petition1 under Rule 45 of the Rules of Court brought by the Municipality of Hagonoy,
Bulacan and its former chief executive, Mayor Felix V. Ople in his official and personal capacity, from
the January 31, 2005 Decision2 and the May 23, 2005 Resolution3 of the Court of Appeals in CA-
G.R. SP No. 81888. The assailed decision affirmed the October 20, 2003 Order4 issued by the
Regional Trial Court of Cebu City, Branch 7 in Civil Case No. CEB-28587 denying petitioners’ motion
to dismiss and motion to discharge/dissolve the writ of preliminary attachment previously issued in
the case. The assailed resolution denied reconsideration.

The case stems from a Complaint5 filed by herein private respondent Emily Rose Go Ko Lim Chao
against herein petitioners, the Municipality of Hagonoy, Bulacan and its chief executive, Felix V.
Ople (Ople) for collection of a sum of money and damages. It was alleged that sometime in the
middle of the year 2000, respondent, doing business as KD Surplus and as such engaged in buying
and selling surplus trucks, heavy equipment, machinery, spare parts and related supplies, was
contacted by petitioner Ople. Respondent had entered into an agreement with petitioner municipality
through Ople for the delivery of motor vehicles, which supposedly were needed to carry out certain
developmental undertakings in the municipality. Respondent claimed that because of Ople’s earnest
representation that funds had already been allocated for the project, she agreed to deliver from her
principal place of business in Cebu City twenty-one motor vehicles whose value totaled
₱5,820,000.00. To prove this, she attached to the complaint copies of the bills of lading showing that
the items were consigned, delivered to and received by petitioner municipality on different
dates.6 However, despite having made several deliveries, Ople allegedly did not heed respondent’s
claim for payment. As of the filing of the complaint, the total obligation of petitioner had already
totaled ₱10,026,060.13 exclusive of penalties and damages. Thus, respondent prayed for full
payment of the said amount, with interest at not less than 2% per month, plus ₱500,000.00 as
damages for business losses, ₱500,000.00 as exemplary damages, attorney’s fees of ₱100,000.00
and the costs of the suit.

On February 13, 2003, the trial court issued an Order7 granting respondent’s prayer for a writ of
preliminary attachment conditioned upon the posting of a bond equivalent to the amount of the claim.
On March 20, 2003, the trial court issued the Writ of Preliminary Attachment8 directing the sheriff "to
attach the estate, real and personal properties" of petitioners.

Instead of addressing private respondent’s allegations, petitioners filed a Motion to Dismiss9 on the
ground that the claim on which the action had been brought was unenforceable under the statute of
frauds, pointing out that there was no written contract or document that would evince the supposed
agreement they entered into with respondent. They averred that contracts of this nature, before
being undertaken by the municipality, would ordinarily be subject to several preconditions such as a
public bidding and prior approval of the municipal council which, in this case, did not obtain. From
this, petitioners impress upon us the notion that no contract was ever entered into by the local
government with respondent.10 To address the claim that respondent had made the deliveries under
the agreement, they advanced that the bills of lading attached to the complaint were hardly
probative, inasmuch as these documents had been accomplished and handled exclusively by
respondent herself as well as by her employees and agents.11

Petitioners also filed a Motion to Dissolve and/or Discharge the Writ of Preliminary Attachment
Already Issued,12invoking immunity of the state from suit, unenforceability of the contract, and failure
to substantiate the allegation of fraud.13

On October 20, 2003, the trial court issued an Order14 denying the two motions. Petitioners moved
for reconsideration, but they were denied in an Order15 dated December 29, 2003.

Believing that the trial court had committed grave abuse of discretion in issuing the two orders,
petitioners elevated the matter to the Court of Appeals via a petition for certiorari under Rule 65. In it,
they faulted the trial court for not dismissing the complaint despite the fact that the alleged contract
was unenforceable under the statute of frauds, as well as for ordering the filing of an answer and in
effect allowing private respondent to prove that she did make several deliveries of the subject motor
vehicles. Additionally, it was likewise asserted that the trial court committed grave abuse of
discretion in not discharging/dissolving the writ of preliminary attachment, as prayed for in the
motion, and in effect disregarding the rule that the local government is immune from suit.

On January 31, 2005, following assessment of the parties’ arguments, the Court of Appeals, finding
no merit in the petition, upheld private respondent’s claim and affirmed the trial court’s
order.16 Petitioners moved for reconsideration, but the same was likewise denied for lack of merit
and for being a mere scrap of paper for having been filed by an unauthorized counsel.17 Hence, this
petition.

In their present recourse, which raises no matter different from those passed upon by the Court of
Appeals, petitioners ascribe error to the Court of Appeals for dismissing their challenge against the
trial court’s October 20 and December 29, 2003 Orders. Again, they reason that the complaint
should have been dismissed at the first instance based on unenforceability and that the motion to
dissolve/discharge the preliminary attachment should have been granted.18

Commenting on the petition, private respondent notes that with respect to the Court of Appeals’
denial of the certiorari petition, the same was rightly done, as the fact of delivery may be properly
and adequately addressed at the trial of the case on the merits; and that the dissolution of the writ of
preliminary attachment was not proper under the premises inasmuch as the application for the writ
sufficiently alleged fraud on the part of petitioners. In the same breath, respondent laments that the
denial of petitioners’ motion for reconsideration was rightly done by the Court of Appeals, because it
raised no new matter that had not yet been addressed.19

After the filing of the parties’ respective memoranda, the case was deemed submitted for decision.

We now rule on the petition.

To begin with, the Statute of Frauds found in paragraph (2), Article 1403 of the Civil Code,20 requires
for enforceability certain contracts enumerated therein to be evidenced by some note or
memorandum. The term "Statute of Frauds" is descriptive of statutes that require certain classes of
contracts to be in writing; and that do not deprive the parties of the right to contract with respect to
the matters therein involved, but merely regulate the formalities of the contract necessary to render it
enforceable.21

In other words, the Statute of Frauds only lays down the method by which the enumerated contracts
may be proved. But it does not declare them invalid because they are not reduced to writing
inasmuch as, by law, contracts are obligatory in whatever form they may have been entered into,
provided all the essential requisites for their validity are present.22 The object is to prevent fraud and
perjury in the enforcement of obligations depending, for evidence thereof, on the unassisted memory
of witnesses by requiring certain enumerated contracts and transactions to be evidenced by a writing
signed by the party to be charged.23 The effect of noncompliance with this requirement is simply that
no action can be enforced under the given contracts.24 If an action is nevertheless filed in court, it
shall warrant a dismissal under Section 1(i),25 Rule 16 of the Rules of Court, unless there has been,
among others, total or partial performance of the obligation on the part of either party.26

It has been private respondent’s consistent stand, since the inception of the instant case that she
has entered into a contract with petitioners. As far as she is concerned, she has already performed
her part of the obligation under the agreement by undertaking the delivery of the 21 motor vehicles
contracted for by Ople in the name of petitioner municipality. This claim is well substantiated — at
least for the initial purpose of setting out a valid cause of action against petitioners — by copies of
the bills of lading attached to the complaint, naming petitioner municipality as consignee of the
shipment. Petitioners have not at any time expressly denied this allegation and, hence, the same is
binding on the trial court for the purpose of ruling on the motion to dismiss. In other words, since
there exists an indication by way of allegation that there has been performance of the obligation on
the part of respondent, the case is excluded from the coverage of the rule on dismissals based on
unenforceability under the statute of frauds, and either party may then enforce its claims against the
other.

No other principle in remedial law is more settled than that when a motion to dismiss is filed, the
material allegations of the complaint are deemed to be hypothetically admitted.27 This hypothetical
admission, according to Viewmaster Construction Corporation v. Roxas28 and Navoa v. Court of
Appeals,29 extends not only to the relevant and material facts well pleaded in the complaint, but also
to inferences that may be fairly deduced from them. Thus, where it appears that the allegations in
the complaint furnish sufficient basis on which the complaint can be maintained, the same should not
be dismissed regardless of the defenses that may be raised by the defendants.30 Stated differently,
where the motion to dismiss is predicated on grounds that are not indubitable, the better policy is to
deny the motion without prejudice to taking such measures as may be proper to assure that the ends
of justice may be served.31

It is interesting to note at this point that in their bid to have the case dismissed, petitioners theorize
that there could not have been a contract by which the municipality agreed to be bound, because it
was not shown that there had been compliance with the required bidding or that the municipal
council had approved the contract. The argument is flawed. By invoking unenforceability under the
Statute of Frauds, petitioners are in effect acknowledging the existence of a contract between them
and private respondent — only, the said contract cannot be enforced by action for being non-
compliant with the legal requisite that it be reduced into writing. Suffice it to say that while this
assertion might be a viable defense against respondent’s claim, it is principally a matter of evidence
that may be properly ventilated at the trial of the case on the merits.

Verily, no grave abuse of discretion has been committed by the trial court in denying petitioners’
motion to dismiss this case. The Court of Appeals is thus correct in affirming the same.
We now address the question of whether there is a valid reason to deny petitioners’ motion to
discharge the writ of preliminary attachment.

Petitioners, advocating a negative stance on this issue, posit that as a municipal corporation, the
Municipality of Hagonoy is immune from suit, and that its properties are by law exempt from
execution and garnishment. Hence, they submit that not only was there an error committed by the
trial court in denying their motion to dissolve the writ of preliminary attachment; they also advance
that it should not have been issued in the first place. Nevertheless, they believe that respondent has
not been able to substantiate her allegations of fraud necessary for the issuance of the writ.32

Private respondent, for her part, counters that, contrary to petitioners’ claim, she has amply
discussed the basis for the issuance of the writ of preliminary attachment in her affidavit; and that
petitioners’ claim of immunity from suit is negated by Section 22 of the Local Government Code,
which vests municipal corporations with the power to sue and be sued. Further, she contends that
the arguments offered by petitioners against the writ of preliminary attachment clearly touch on
matters that when ruled upon in the hearing for the motion to discharge, would amount to a trial of
the case on the merits.33

The general rule spelled out in Section 3, Article XVI of the Constitution is that the state and its
political subdivisions may not be sued without their consent. Otherwise put, they are open to suit but
only when they consent to it. Consent is implied when the government enters into a business
contract, as it then descends to the level of the other contracting party; or it may be embodied in a
general or special law34 such as that found in Book I, Title I, Chapter 2, Section 22 of the Local
Government Code of 1991, which vests local government units with certain corporate powers —one
of them is the power to sue and be sued.

Be that as it may, a difference lies between suability and liability. As held in City of Caloocan v.
Allarde,35 where the suability of the state is conceded and by which liability is ascertained judicially,
the state is at liberty to determine for itself whether to satisfy the judgment or not. Execution may not
issue upon such judgment, because statutes waiving non-suability do not authorize the seizure of
property to satisfy judgments recovered from the action. These statutes only convey an implication
that the legislature will recognize such judgment as final and make provisions for its full satisfaction.
Thus, where consent to be sued is given by general or special law, the implication thereof is limited
only to the resultant verdict on the action before execution of the judgment.36

Traders Royal Bank v. Intermediate Appellate Court,37 citing Commissioner of Public Highways v.
San Diego,38 is instructive on this point. In that case which involved a suit on a contract entered into
by an entity supervised by the Office of the President, the Court held that while the said entity
opened itself to suit by entering into the subject contract with a private entity; still, the trial court was
in error in ordering the garnishment of its funds, which were public in nature and, hence, beyond the
reach of garnishment and attachment proceedings. Accordingly, the Court ordered that the writ of
preliminary attachment issued in that case be lifted, and that the parties be allowed to prove their
respective claims at the trial on the merits. There, the Court highlighted the reason for the rule, to
wit:

The universal rule that where the State gives its consent to be sued by private parties either by
general or special law, it may limit claimant’s action "only up to the completion of proceedings
anterior to the stage of execution" and that the power of the Courts ends when the judgment is
rendered, since government funds and properties may not be seized under writs of execution or
garnishment to satisfy such judgments, is based on obvious considerations of public policy.
Disbursements of public funds must be covered by the corresponding appropriations as required by
law. The functions and public services rendered by the State cannot be allowed to be paralyzed or
disrupted by the diversion of public funds from their legitimate and specific objects. x x x39

With this in mind, the Court holds that the writ of preliminary attachment must be dissolved and,
indeed, it must not have been issued in the very first place. While there is merit in private
respondent’s position that she, by affidavit, was able to substantiate the allegation of fraud in the
same way that the fraud attributable to petitioners was sufficiently alleged in the complaint and,
hence, the issuance of the writ would have been justified. Still, the writ of attachment in this case
would only prove to be useless and unnecessary under the premises, since the property of the
municipality may not, in the event that respondent’s claim is validated, be subjected to writs of
execution and garnishment — unless, of course, there has been a corresponding appropriation
provided by law.401avvphi1

Anent the other issues raised by petitioners relative to the denial of their motion to dissolve the writ
of attachment, i.e., unenforceability of the contract and the veracity of private respondent’s allegation
of fraud, suffice it to say that these pertain to the merits of the main action. Hence, these issues are
not to be taken up in resolving the motion to discharge, lest we run the risk of deciding or prejudging
the main case and force a trial on the merits at this stage of the proceedings.41

There is one final concern raised by petitioners relative to the denial of their motion for
reconsideration. They complain that it was an error for the Court of Appeals to have denied the
motion on the ground that the same was filed by an unauthorized counsel and, hence, must be
treated as a mere scrap of paper.42

It can be derived from the records that petitioner Ople, in his personal capacity, filed his Rule 65
petition with the Court of Appeals through the representation of the law firm Chan Robles &
Associates. Later on, municipal legal officer Joselito Reyes, counsel for petitioner Ople, in his official
capacity and for petitioner municipality, filed with the Court of Appeals a Manifestation with Entry of
Appearance43 to the effect that he, as counsel, was "adopting all the pleadings filed for and in behalf
of [Ople’s personal representation] relative to this case."44

It appears, however, that after the issuance of the Court of Appeals’ decision, only Ople’s personal
representation signed the motion for reconsideration. There is no showing that the municipal legal
officer made the same manifestation, as he previously did upon the filing of the petition.45 From this,
the Court of Appeals concluded that it was as if petitioner municipality and petitioner Ople, in his
official capacity, had never moved for reconsideration of the assailed decision, and adverts to the
ruling in Ramos v. Court of Appeals46 and Municipality of Pililla, Rizal v. Court of Appeals47 that only
under well-defined exceptions may a private counsel be engaged in lawsuits involving a municipality,
none of which exceptions obtains in this case.48

The Court of Appeals is mistaken. As can be seen from the manner in which the Manifestation with
Entry of Appearance is worded, it is clear that petitioner municipality’s legal officer was intent on
adopting, for both the municipality and Mayor Ople, not only the certiorari petition filed with the Court
of Appeals, but also all other pleadings that may be filed thereafter by Ople’s personal
representation, including the motion for reconsideration subject of this case. In any event, however,
the said motion for reconsideration would warrant a denial, because there seems to be no matter
raised therein that has not yet been previously addressed in the assailed decision of the Court of
Appeals as well as in the proceedings below, and that would have otherwise warranted a different
treatment of the issues involved.

WHEREFORE, the Petition is GRANTED IN PART. The January 31, 2005 Decision of the Court of
Appeals in CA-G.R. SP No. 81888 is AFFIRMED insofar as it affirmed the October 20, 2003
Decision of the Regional Trial Court of Cebu City, Branch 7 denying petitioners’ motion to dismiss in
Civil Case No. CEB-28587. The assailed decision is REVERSED insofar as it affirmed the said trial
court’s denial of petitioners’ motion to discharge the writ of preliminary attachment issued in that
case. Accordingly, the August 4, 2003 Writ of Preliminary Attachment issued in Civil Case No. CEB-
28587 is ordered lifted.

SO ORDERED.

G.R. No. 144169 March 28, 200

KHE HONG CHENG, alias FELIX KHE, SANDRA JOY KHE and RAY STEVEN KHE, petitioners,
vs.
COURT OF APPEALS, HON. TEOFILO GUADIZ, RTC 147, MAKATI CITY and PHILAM
INSURANCE CO., INC., respondents.

KAPUNAN, J.:

Before the Court is a Petition for Review on Certiorari under Rule 45, seeking to set aside the
decision of the Court of Appeals dated April 10, 2000 and its resolution dated July 11, 2000 denying
the motion for reconsideration of the aforesaid decision. The original complaint that is the subject
matter of this case is an accion pauliana -- an action filed by Philam Insurance Company, Inc.
(respondent Philam) to rescind or annul the donations made by petitioner Khe Hong Cheng allegedly
in fraud of creditors. The main issue for resolution is whether or not the action to rescind the
donations has already prescribed. While the first paragraph of Article 1389 of the Civil Code states:
"The action to claim rescission must be commenced within four years..." the question is, from which
point or event does this prescriptive period commence to run?

The facts are as follows:

Petitioner Khe Hong Cheng, alias Felix Khe, is the owner of Butuan Shipping Lines. It appears that
on or about October 4, 1985, the Philippine Agricultural Trading Corporation shipped on board the
vessel M/V PRINCE ERIC, owned by petitioner Khe Hong Cheng, 3,400 bags of copra at Masbate,
Masbate, for delivery to Dipolog City, Zamboanga del Norte. The said shipment of copra was
covered by a marine insurance policy issued by American Home Insurance Company (respondent
Philam's assured). M/V PRINCE ERlC, however, sank somewhere between Negros Island and
Northeastern Mindanao, resulting in the total loss of the shipment. Because of the loss, the insurer,
American Home, paid the amount of P354,000.00 (the value of the copra) to the consignee. 1âwphi 1.nêt

Having been subrogated into the rights of the consignee, American Home instituted Civil Case No.
13357 in the Regional Trial Court (RTC) of Makati , Branch 147 to recover the money paid to the
consignee, based on breach of contract of carriage. While the case was still pending, or on
December 20, 1989, petitioner Khe Hong Cheng executed deeds of donations of parcels of land in
favor of his children, herein co-petitioners Sandra Joy and Ray Steven. The parcel of land with an
area of 1,000 square meters covered by Transfer Certificate of Title (TCT) No. T-3816 was donated
to Ray Steven. Petitioner Khe Hong Cheng likewise donated in favor of Sandra Joy two (2) parcels
of land located in Butuan City, covered by TCT No. RT-12838. On the basis of said deeds, TCT No.
T-3816 was cancelled and in lieu thereof, TCT No. T-5072 was issued in favor of Ray Steven and
TCT No. RT-12838 was cancelled and in lieu thereof, TCT No. RT-21054 was issued in the name of
Sandra Joy.

The trial court rendered judgment against petitioner Khe Hong Cheng in Civil Case No.13357 on
December 29, 1993, four years after the donations were made and the TCTs were registered in the
donees' names. The decretal portion of the aforesaid decision reads:

"Wherefore, in view of the foregoing, the Court hereby renders judgment in favor of the
plaintiff and against the defendant, ordering the latter to pay the former:

1) the sum of P354,000.00 representing the amount paid by the plaintiff to the Philippine
Agricultural Trading Corporation with legal interest at 12% from the time of the filing of the
complaint in this case;

2) the sum of P50,000.00 as attorney's fees;

3) the costs.1

After the said decision became final and executory, a writ of execution was forthwith' issued on
September 14, 1995. Said writ of execution however, was not served. An alias writ of execution was,
thereafter, applied for and granted in October 1996. Despite earnest efforts, the sheriff found no
property under the name of Butuan Shipping Lines and/or petitioner Khe Hong Cheng to levy or
garnish for the satisfaction of the trial court's decision. When the sheriff, accompanied by counsel of
respondent Philam, went to Butuan City on January 17, 1997, to enforce the alias writ of execution,
they discovered that petitioner Khe Hong Cheng no longer had any property and that he had
conveyed the subject properties to his children.

On February 25, 1997, respondent Philam filed a complaint with the Regional Trial Court of Makati
City, Branch 147, for the rescission of the deeds of donation executed by petitioner Khe Hong Cheng
in favor of his children and for the nullification of their titles (Civil Case No.97-415). Respondent
Philam alleged, inter alia, that petitioner Khe Hong Cheng executed the aforesaid deeds in fraud of
his creditors, including respondent Philam.2

Petitioners subsequently filed their answer to the complaint a quo. They moved for its dismissal on
the ground that the action had already prescribed. They posited that the registration of the deeds of
donation on December 27, 1989 constituted constructive notice and since the complaint a quo was
filed only on February 25, 1997, or more than four (4) years after said registration, the action was
already barred by prescription.3

Acting thereon, the trial court denied the motion to dismiss. It held that respondent Philam's
complaint had not yet prescribed. According to the trial court, the prescriptive period began to run
only from December 29, 1993, the date of the decision of the trial court in Civil Case No. 13357.4

On appeal by petitioners, the CA affirmed the trial court's decision in favor of respondent Philam.
The CA declared that the action to rescind the donations had not yet prescribed. Citing Articles 1381
and 1383 of the Civil Code, the CA basically ruled that the four year period to institute the action for
rescission began to run only in January 1997, and not when the decision in the civil case became
final and executory on December 29, 1993. The CA reckoned the accrual of respondent Philam's
cause of action on January 1997, the time when it first learned that the judgment award could not be
satisfied because the judgment creditor, petitioner Khe Hong Cheng, had no more properties in his
name. Prior thereto, respondent Philam had not yet exhausted all legal means for the satisfaction of
the decision in its favor, as prescribed under Article 1383 of the Civil Code.5
The Court of Appeals thus denied the petition for certiorari filed before it, and held that the trial court
did not commit any error in denying petitioners' motion to dismiss. Their motion for reconsideration
was likewise dismissed in the appellate court's resolution dated July 11, 2000.

Petitioners now assail the aforesaid decision and resolution of the CA alleging that:

PUBLIC RESPONDENT GRAVELY ERRED AND ACTED IN GRAVE ABUSE OF

DISCRETION WHEN IT DENIED THE PETITION TO DISMISS THE CASE BASED ON THE
GROUND OF PRESCRIPTION.

II

PUBLIC RESPONDENT COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT

PRESCRIPTION BEGINS TO RUN WHEN IN JANUARY 1997 THE SHERIFF WENT TO
BUTUAN CITY IN SEARCH OF PROPERTIES OF PETITIONER FELIX KHE CHENG TO
SATISFY THE JUDGMENT IN CIVIL CASE NO.13357 AND FOUND OUT THAT AS EARLY
AS DEC. 20, 1989, PETITIONERS KHE CHENG EXECUTED THE DEEDS OF
DONATIONS IN FAVOR OF HIS CO-PETITIONERS THAT THE ACTION FOR
RESCISSION ACCRUED BECAUSE PRESCRIPTION BEGAN TO RUN WHEN THESE
DONATIONS WERE REGISTERED WITH THE REGISTER OF DEEDS IN DECEMBER
1989, AND WHEN THE COMPLAINT WAS FILED ONLY IN FEBRUARY 1997, MORE
THAN FOUR YEARS HAVE ALREADY LAPSED AND THEREFORE, IT HAS ALREADY
PRESCRIBED.6

Essentially, the issue for resolution posed by petitioners is this: When did the four (4) year
prescriptive period as provided for in Article 1389 of the Civil Code for respondent Philam to file its
action for rescission of the subject deeds of donation commence to run?

The petition is without merit.

Article 1389 of the Civil Code simply provides that, "The action to claim rescission must be
commenced within four years." Since this provision of law is silent as to when the prescriptive period
would commence, the general rule, i.e., from the moment the cause of action accrues, therefore,
applies. Article 1150 of the Civil Code is particularly instructive:

Art. 1150. The time for prescription for all kinds of actions, when there is no special provision
which ordains otherwise, shall be counted from the day they may be brought.

Indeed, this Court enunciated the principle that it is the legal possibility of bringing the action which
determines the starting point for the computation of the prescriptive period for the action.7 Article
1383 of the Civil Code provides as follows:

Art. 1383. An action for rescission is subsidiary; it cannot be instituted except when the party
suffering damage has no other legal means to obtain reparation for the same.

It is thus apparent that an action to rescind or an accion pauliana must be of last resort, availed of
only after all other legal remedies have been exhausted and have been proven futile. For an accion
pauliana to accrue, the following requisites must concur:
 1) That the plaintiff asking for rescission has a credit prior to, the alienation, although
demandable later; 2) That the debtor has made a subsequent contract conveying a
patrimonial benefit to a third person; 3) That the creditor has no other legal remedy to satisfy
his claim, but would benefit by rescission of the conveyance to the third person; 4) That the
act being impugned is fraudulent; 5) That the third person who received the property
conveyed, if by onerous title, has been an accomplice in the fraud.8 (Emphasis ours)

We quote with approval the following disquisition of the CA on the matter:

An accion pauliana accrues only when the creditor discovers that he has no other legal
remedy for the satisfaction of his claim against the debtor other than an accion
pauliana. The accion pauliana is an action of a last resort. For as long as the creditor still has
a remedy at law for the enforcement of his claim against the debtor, the creditor will not have
any cause of action against the creditor for rescission of the contracts entered into by and
between the debtor and another person or persons. Indeed, an accion pauliana presupposes
a judgment and the issuance by the trial court of a writ of execution for the satisfaction of the
judgment and the failure of the Sheriff to enforce and satisfy the judgment of the court. It
presupposes that the creditor has exhausted the property of the debtor. The date of the
decision of the trial court against the debtor is immaterial. What is important is that the credit
of the plaintiff antedates that of the fraudulent alienation by the debtor of his property. After
all, the decision of the trial court against the debtor will retroact to the time when the debtor
became indebted to the creditor.9

Petitioners, however, maintain that the cause of action of respondent Philam against them for the
rescission of the deeds of donation accrued as early as December 27, 1989, when petitioner Khe
Hong Cheng registered the subject conveyances with the Register of Deeds. Respondent Philam
allegedly had constructive knowledge of the execution of said deeds under Section 52 of
Presidential Decree No. 1529, quoted infra, as follows:

Section 52. Constructive knowledge upon registration. - Every conveyance, mortgage, lease,
lien, attachment, order, judgment, instrument or entry affecting registered land shall, if
registered, filed or entered in the Office of the Register of Deeds for the province or city
where the land to which it relates lies, be constructive notice to all persons from the time of
such registering, filing, or entering.

Petitioners argument that the Civil Code must yield to the Mortgage and Registration Laws is
misplaced, for in no way does this imply that the specific provisions of the former may be all together
ignored. To count the four year prescriptive period to rescind an allegedly fraudulent contract from
the date of registration of the conveyance with the Register of Deeds, as alleged by the petitioners,
would run counter to Article 1383 of the Civil Code as well as settled jurisprudence. It would likewise
violate the third requisite to file an action for rescission of an allegedly fraudulent conveyance of
property, i.e., the creditor has no other legal remedy to satisfy his claim.

An accion pauliana thus presupposes the following: 1) A judgment; 2) the issuance by the trial court
of a writ of execution for the satisfaction of the judgment, and 3) the failure of the sheriff to enforce
and satisfy the judgment of the court. It requires that the creditor has exhausted the property of the
debtor: The date of the decision of the trial court is immaterial. What is important is that the credit of
the plaintiff antedates that of the fraudulent alienation by the debtor of his property. After all, the
decision of the trial court against the debtor will retroact to the time when the debtor became
indebted to the creditor.

Tolentino, a noted civilist, explained:

 "xxx[T]herefore, credits with suspensive term or condition are excluded, because the accion
pauliana presupposes a judgment and unsatisfied execution, which cannot exist when the
debt is not yet demandable at the time the rescissory action is brought. Rescission is a
subsidiary action, which presupposes that the creditor has exhausted the property of the
debtor which is impossible in credits which cannot be enforced because of a suspensive
term or condition.

While it is necessary that the credit of the plaintiff in the accion pauliana must be prior to the
fraudulent alienation, the date of the judgment enforcing it is immaterial. Even if the judgment
be subsequent to the alienation, it is merely declaratory with retroactive effect to the date
when the credit was constituted."10

These principles were reiterated by the Court when it explained the requisites of an accion
pauliana in greater detail, to wit:

"The following successive measures must be taken by a creditor before he may bring an
action for rescission of an allegedly fraudulent sale: (1) exhaust the properties of the debtor
through levying by attachment and execution upon all the property of the debtor, except such
as are exempt from execution; (2) exercise all the rights and actions of the debtor, save
those personal to him (accion subrogatoria); and (3) seek rescission of the contracts
executed by the debtor in fraud of their rights (accion pauliana). Without availing of the first
and second remedies, i.e.. exhausting the properties of the debtor or subrogating themselves
in Francisco Bareg's transmissible rights and actions. petitioners simply: undertook the third
measure and filed an action for annulment of sale. This cannot be done."11 (Emphasis ours)

In the same case, the Court also quoted the rationale of the CA when it upheld the dismissal of
the accion pauliana on the basis of lack of cause of action:

"In this case, plaintiffs appellants had not even commenced an action against defendants-
appellees Bareng for the collection of the alleged indebtedness, Plaintiffs-appellants had not
even tried to exhaust the property of defendants-appellees Bareng, Plaintiffs-appellants, in
seeking the rescission of the contracts of sale entered into between defendants-
appellees, failed to show and prove that defendants-appellees Bareng had no other
property, either at the time of the sale or at the time this action was filed, out of which they
could have collected this (sic) debts." (Emphasis ours)

Even if respondent Philam was aware, as of December 27, 1989, that petitioner Khe Hong Cheng
had executed the deeds of donation in favor of his children, the complaint against Butuan Shipping
Lines and/or petitioner Khe Hong Cheng was still pending before the trial court. Respondent Philam
had no inkling, at the time, that the trial court’s judgment would be in its favor and further, that such
judgment would not be satisfied due to the deeds of donation executed by petitioner Khe Hong
Cheng during the pendency of the case. Had respondent Philam filed his complaint on December
27, 1989, such complaint would have been dismissed for being premature. Not only were all other
legal remedies for the enforcement of respondent Philam's claims not yet exhausted at the time the
needs of donation were executed and registered. Respondent Philam would also not have been able
to prove then that petitioner Khe Hong Cheng had no more property other than those covered by the
subject deeds to satisfy a favorable judgment by the trial court.

It bears stressing that petitioner Khe Hong Cheng even expressly declared and represented that he
had reserved to himself property sufficient to answer for his debts contracted prior to this date:
 "That the DONOR further states, for the same purpose as expressed in the next preceding
paragraph, that this donation is not made with the object of defrauding his creditors having
reserved to himself property sufficient to answer his debts contracted prior to this date".12

As mentioned earlier, respondent Philam only learned about the unlawful conveyances made by
petitioner Khe Hong Cheng in January 1997 when its counsel accompanied the sheriff to Butuan
City to attach the properties of petitioner Khe Hong Cheng. There they found that he no longer had
any properties in his name. It was only then that respondent Philam's action for rescission of the
deeds of donation accrued because then it could be said that respondent Philam had exhausted all
legal means to satisfy the trial court's judgment in its favor. Since respondent Philam filed its
complaint for accion pauliana against petitioners on February 25, 1997, barely a month from its
discovery that petitioner Khe Hong Cheng had no other property to satisfy the judgment award
against him, its action for rescission of the subject deeds clearly had not yet prescribed.
1âwphi1.nêt

A final point. Petitioners now belatedly raise on appeal the defense of improper venue claiming that
respondent Philam's complaint is a real action and should have been filed with the RTC of Butuan
City since the property subject matter or the donations are located therein. Suffice it to say that
petitioners are already deemed to have waived their right to question the venue of the instant case.
Improper venue should be objected to as follows 1) in a motion to dismiss filed within the time but
before the filing of the answer;13 or 2) in the answer as an affirmative defense over which, in the
discretion of the court, a preliminary hearing may be held as if a motion to dismiss had been
filed.14 Having failed to either file a motion to dismiss on the ground of improper of venue or include
the same as an affirmative defense in their answer, petitioners are deemed to have their right to
object to improper venue.

WHEREFORE, premises considered, the petition is hereby DENIED for lack of merit.

SO ORDERED.