G.R. No.

193577 September 7, 2011

ANTONIO FRANCISCO, substituted by his heirs: NELIA E.S. FRANCISCO, EMILIA F. BERTIZ, REBECCA E.S. FRANCISCO,
ANTONIO E.S. FRANCISCO, JR., SOCORRO F. FONTANILLA, and JOVITO E.S. FRANCISCO, Petitioners,
vs.
CHEMICAL BULK CARRIERS, INCORPORATED, Respondent.

DECISION

CARPIO, J.:

The Case

This is a petition for review1 of the 31 May 2010 Decision2 and 31 August 2010 Resolution3 of the Court of Appeals in CA
G.R. CV No. 63591. In its 31 May 2010 Decision, the Court of Appeals set aside the 21 August 1998 Decision4 of the
Regional Trial of Pasig City, Branch 71 (trial court), and ordered petitioner Antonio Francisco (Francisco) to pay
respondent Chemical Bulk Carriers, Incorporated (CBCI) ₱1,119,905 as actual damages. In its 31 August 2010 Resolution,
the Court of Appeals denied Francisco’s motion for reconsideration.

The Facts

Since 1965, Francisco was the owner and manager of a Caltex station in Teresa, Rizal. Sometime in March 1993, four
persons, including Gregorio Bacsa (Bacsa), came to Francisco’s Caltex station and introduced themselves as employees
of CBCI. Bacsa offered to sell to Francisco a certain quantity of CBCI’s diesel fuel.

After checking Bacsa’s identification card, Francisco agreed to purchase CBCI’s diesel fuel. Francisco imposed the
following conditions for the purchase: (1) that Petron Corporation (Petron) should deliver the diesel fuel to Francisco at
his business address which should be properly indicated in Petron’s invoice; (2) that the delivery tank is sealed; and (3)
that Bacsa should issue a separate receipt to Francisco.

The deliveries started on 5 April 1993 and lasted for ten months, or up to 25 January 1994.5 There were 17 deliveries to
Francisco and all his conditions were complied with.

In February 1996, CBCI sent a demand letter to Francisco regarding the diesel fuel delivered to him but which had been
paid for by CBCI.6 CBCI demanded that Francisco pay CBCI ₱1,053,527 for the diesel fuel or CBCI would file a complaint
against him in court. Francisco rejected CBCI’s demand.

On 16 April 1996, CBCI filed a complaint for sum of money and damages against Francisco and other unnamed
defendants.7 According to CBCI, Petron, on various dates, sold diesel fuel to CBCI but these were delivered to and
received by Francisco. Francisco then sold the diesel fuel to third persons from whom he received payment. CBCI alleged
that Francisco acquired possession of the diesel fuel without authority from CBCI and deprived CBCI of the use of the
diesel fuel it had paid for. CBCI demanded payment from Francisco but he refused to pay. CBCI argued that Francisco
should have known that since only Petron, Shell and Caltex are authorized to sell and distribute petroleum products in
the Philippines, the diesel fuel came from illegitimate, if not illegal or criminal, acts. CBCI asserted that Francisco violated
Articles 19,8 20,9 21,10 and 2211 of the Civil Code and that he should be held liable. In the alternative, CBCI claimed that
Francisco, in receiving CBCI’s diesel fuel, entered into an innominate contract of do ut des (I give and you give) with CBCI
for which Francisco is obligated to pay CBCI ₱1,119,905, the value of the diesel fuel. CBCI also prayed for exemplary
damages, attorney’s fees and other expenses of litigation.

On 20 May 1996, Francisco filed a Motion to Dismiss on the ground of forum shopping.12 CBCI filed its Opposition.13 In an
Order dated 15 November 1996, the trial court denied Francisco’s motion.14

Thereafter, Francisco filed his Answer.15 Francisco explained that he operates the Caltex station with the help of his
family because, in February 1978, he completely lost his eyesight due to sickness. Francisco claimed that he asked Jovito,

1
his son, to look into and verify the identity of Bacsa, who introduced himself as a radio operator and confidential
secretary of a certain Mr. Inawat (Inawat), CBCI’s manager for operations. Francisco said he was satisfied with the proof
presented by Bacsa. When asked to explain why CBCI was selling its fuel, Bacsa allegedly replied that CBCI was in
immediate need of cash for the salary of its daily paid workers and for petty cash. Francisco maintained that Bacsa
assured him that the diesel fuel was not stolen property and that CBCI enjoyed a big credit line with Petron. Francisco
agreed to purchase the diesel fuel offered by Bacsa on the following conditions:

1) Defendant [Francisco] will not accept any delivery if it is not company (Petron) delivered, with his name and address
as shipping point properly printed and indicated in the invoice of Petron, and that the product on the delivery tank is
sealed; [and]

2) Although the original invoice is sufficient evidence of delivery and payment, under ordinary course of business,
defendant still required Mr. Bacsa to issue a separate receipt duly signed by him acknowledging receipt of the amount
stated in the invoice, for and in behalf of CBCI.16

During the first delivery on 5 April 1993, Francisco asked one of his sons to verify whether the delivery truck’s tank was
properly sealed and whether Petron issued the invoice. Francisco said all his conditions were complied with. There were
17 deliveries made from 5 April 1993 to 25 January 1994 and each delivery was for 10,000 liters of diesel fuel at
₱65,865.17 Francisco maintained that he acquired the diesel fuel in good faith and for value. Francisco also filed a
counterclaim for exemplary damages, moral damages and attorney’s fees.

In its 21 August 1998 Decision, the trial court ruled in Francisco’s favor and dismissed CBCI’s complaint. The dispositive
portion of the trial court’s 21 August 1998 Decision reads:

WHEREFORE, Judgment is hereby rendered:

1. Dismissing the complaint dated March 13, 1996 with costs.

2. Ordering plaintiff (CBCI), on the counterclaim, to pay defendant the amount of ₱100,000.00 as moral damages and
₱50,000.00 as and by way of attorney’s fees.

SO ORDERED.18

CBCI appealed to the Court of Appeals.19 CBCI argued that Francisco acquired the diesel fuel from Petron without legal
ground because Bacsa was not authorized to deliver and sell CBCI’s diesel fuel. CBCI added that Francisco acted in bad
faith because he should have inquired further whether Bacsa’s sale of CBCI’s diesel fuel was legitimate.

In its 31 May 2010 Decision, the Court of Appeals set aside the trial court’s 21 August 1998 Decision and ruled in CBCI’s
favor. The dispositive portion of the Court of Appeals’ 31 May 2010 Decision reads:

IN VIEW OF THE FOREGOING, the assailed decision is hereby REVERSED and SET ASIDE. Antonio Francisco is ordered to
pay Chemical Bulk Carriers, Incorporated the amount of ₱1,119,905.00 as actual damages.

SO ORDERED.20

On 15 January 2001, Francisco died.21 Francisco’s heirs, namely: Nelia E.S. Francisco, Emilia F. Bertiz, Rebecca E.S.
Francisco, Antonio E.S. Francisco, Jr., Socorro F. Fontanilla, and Jovito E.S. Francisco (heirs of Francisco) filed a motion for
substitution.22 The heirs of Francisco also filed a motion for reconsideration.23 In its 31 August 2010 Resolution, the
Court of Appeals granted the motion for substitution but denied the motion for reconsideration.

Hence, this petition.

The Ruling of the Trial Court

2
The trial court ruled that Francisco was not liable for damages in favor of CBCI because the 17 deliveries were covered
by original and genuine invoices. The trial court declared that Bacsa, as confidential secretary of Inawat, was CBCI’s
authorized representative who received Francisco’s full payment for the diesel fuel. The trial court stated that if Bacsa
was not authorized, CBCI should have sued Bacsa and not Francisco. The trial court also considered Francisco a buyer in
good faith who paid in full for the merchandise without notice that some other person had a right to or interest in such
diesel fuel. The trial court pointed out that good faith affords protection to a purchaser for value. Finally, since CBCI was
bound by the acts of Bacsa, the trial court ruled that CBCI is liable to pay damages to Francisco.

The Ruling of the Court of Appeals

The Court of Appeals set aside the trial court’s 21 August 1998 Decision and ruled that Bacsa’s act of selling the diesel
fuel to Francisco was his personal act and, even if Bacsa connived with Inawat, the sale does not bind CBCI.

The Court of Appeals declared that since Francisco had been in the business of selling petroleum products for a
considerable number of years, his blindness was not a hindrance for him to transact business with other people. With
his condition and experience, Francisco should have verified whether CBCI was indeed selling diesel fuel and if it had
given Bacsa authority to do so. Moreover, the Court of Appeals stated that Francisco cannot feign good faith since he
had doubts as to the authority of Bacsa yet he did not seek confirmation from CBCI and contented himself with an
improvised receipt. Francisco’s failure to verify Bacsa’s authority showed that he had an ulterior motive. The receipts
issued by Bacsa also showed his lack of authority because it was on a plain sheet of bond paper with no letterhead or
any indication that it came from CBCI. The Court of Appeals ruled that Francisco cannot invoke estoppel because he was
at fault for choosing to ignore the tell-tale signs of petroleum diversion and for not exercising prudence.

The Court of Appeals also ruled that CBCI was unlawfully deprived of the diesel fuel which, as indicated in the invoices,
CBCI had already paid for. Therefore, CBCI had the right to recover the diesel fuel or its value from Francisco. Since the
diesel fuel can no longer be returned, the Court of Appeals ordered Francisco to give back the actual amount paid by
CBCI for the diesel fuel.

The Issues

The heirs of Francisco raise the following issues:

I. WHETHER THE COURT OF APPEALS ERRED IN NOT FINDING THAT DEFENDANT ANTONIO FRANCISCO EXERCISED THE
REQUIRED DILIGENCE OF A BLIND PERSON IN THE CONDUCT OF HIS BUSINESS; and

II. WHETHER ON THE BASIS OF THE FACTUAL FINDINGS OF THE COURT OF APPEALS AND THE TRIAL COURT AND
ADMITTED FACTS, IT CAN BE CONCLUDED THAT THE PLAINTIFF APPROVED EXPRESSLY OR TACITLY THE TRANSACTIONS.24

The Ruling of the Court

The petition has no merit.

Required Diligence of a Blind Person

The heirs of Francisco argue that the Court of Appeals erred when it ruled that Francisco was liable to CBCI because he
failed to exercise the diligence of a good father of a family when he bought the diesel fuel. They argue that since
Francisco was blind, the standard of conduct that was required of him was that of a reasonable person under like
disability. Moreover, they insist that Francisco exercised due care in purchasing the diesel fuel by doing the following: (1)
Francisco asked his son to check the identity of Bacsa; (2) Francisco required direct delivery from Petron; (3) Francisco
required that he be named as the consignee in the invoice; and (4) Francisco required separate receipts from Bacsa to
evidence actual payment.

Standard of conduct is the level of expected conduct that is required by the nature of the obligation and corresponding
to the circumstances of the person, time and place.25 The most common standard of conduct is that of a good father of a

3
family or that of a reasonably prudent person.26 To determine the diligence which must be required of all persons, we
use as basis the abstract average standard corresponding to a normal orderly person.27

However, one who is physically disabled is required to use the same degree of care that a reasonably careful person who
has the same physical disability would use.28 Physical handicaps and infirmities, such as blindness or deafness, are
treated as part of the circumstances under which a reasonable person must act. Thus, the standard of conduct for a
blind person becomes that of a reasonable person who is blind.

We note that Francisco, despite being blind, had been managing and operating the Caltex station for 15 years and this
was not a hindrance for him to transact business until this time. In this instance, however, we rule that Francisco failed
to exercise the standard of conduct expected of a reasonable person who is blind. First, Francisco merely relied on the
identification card of Bacsa to determine if he was authorized by CBCI. Francisco did not do any other background check
on the identity and authority of Bacsa. Second, Francisco already expressed his misgivings about the diesel fuel, fearing
that they might be stolen property,29 yet he did not verify with CBCI the authority of Bacsa to sell the diesel fuel. Third,
Francisco relied on the receipts issued by Bacsa which were typewritten on a half sheet of plain bond paper.30 If
Francisco exercised reasonable diligence, he should have asked for an official receipt issued by CBCI. Fourth, the delivery
to Francisco, as indicated in Petron’s invoice, does not show that CBCI authorized Bacsa to sell the diesel fuel to
Francisco. Clearly, Francisco failed to exercise the standard of conduct expected of a reasonable person who is blind.

Express or Tacit Approval of the Transaction

The heirs of Francisco argue that CBCI approved expressly or tacitly the transactions. According to them, there was
apparent authority for Bacsa to enter into the transactions. They argue that even if the agent has exceeded his
authority, the principal is solidarily liable with the agent if the former allowed the later to act as though he had full
powers.31 They insist CBCI was not unlawfully deprived of its property because Inawat gave Bacsa the authority to sell
the diesel fuel and that CBCI is bound by such action. Lastly, they argue that CBCI should be considered in estoppel for
failure to act during the ten month period that deliveries were being made to Francisco.

The general principle is that a seller without title cannot transfer a better title than he has.32 Only the owner of the
goods or one authorized by the owner to sell can transfer title to the buyer.33 Therefore, a person can sell only what he
owns or is authorized to sell and the buyer can, as a consequence, acquire no more than what the seller can legally
transfer.34

Moreover, the owner of the goods who has been unlawfully deprived of it may recover it even from a purchaser in good
faith.35 Thus, the purchaser of property which has been stolen from the owner has been held to acquire no title to it
even though he purchased for value and in good faith.

The exception from the general principle is the doctrine of estoppel where the owner of the goods is precluded from
denying the seller’s authority to sell.36 But in order that there may be estoppel, the owner must, by word or conduct,
have caused or allowed it to appear that title or authority to sell is with the seller and the buyer must have been misled
to his damage.37 1avvphi1

In this case, it is clear that Bacsa was not the owner of the diesel fuel.1âwphi1 Francisco was aware of this but he
claimed that Bacsa was authorized by CBCI to sell the diesel fuel. However, Francisco’s claim that Bacsa was authorized
is not supported by any evidence except his self-serving testimony. First, Francisco did not even confirm with CBCI if it
was indeed selling its diesel fuel since it is not one of the oil companies known in the market to be selling petroleum
products. This fact alone should have put Francisco on guard. Second, it does not appear that CBCI, by some direct and
equivocal act, has clothed Bacsa with the indicia of ownership or apparent authority to sell CBCI’s diesel fuel. Francisco
did not state if the identification card presented by Bacsa indicated that he was CBCI’s agent or a mere employee. Third,
the receipt issued by Bacsa was typewritten on a half sheet of plain bond paper. There was no letterhead or any
indication that it came from CBCI. We agree with the Court of Appeals that this was a personal receipt issued by Bacsa
and not an official receipt issued by CBCI. Consequently, CBCI is not precluded by its conduct from denying Bacsa’s

4
authority to sell. CBCI did not hold out Bacsa or allow Bacsa to appear as the owner or one with apparent authority to
dispose of the diesel fuel.

Clearly, Bacsa cannot transfer title to Francisco as Bacsa was not the owner of the diesel fuel nor was he authorized by
CBCI to sell its diesel fuel. CBCI did not commit any act to clothe Bacsa with apparent authority to sell the diesel fuel that
would have misled Francisco. Francisco, therefore, did not acquire any title over the diesel fuel. Since CBCI was
unlawfully deprived of its property, it may recover from Francisco, even if Francisco pleads good faith.

WHEREFORE, we DENY the petition. We AFFIRM the 31 May 2010 Decision and 31 August 2010 Resolution of the Court
of Appeals.

SO ORDERED.

5
G.R. No. 143573 January 30, 2009

ADORACION ROSALES RUFLOE, ALFREDO RUFLOE and RODRIGO RUFLOE, Petitioners,

vs.
LEONARDA BURGOS, ANITA BURGOS, ANGELITO BURGOS, AMY BURGOS, ELVIRA DELOS REYES and JULIAN C.
TUBIG, Respondents.

DECISION

LEONARDO-DE CASTRO, J.:

Under consideration is this petition for review under Rule 45 of the Rules of Court seeking the reversal and setting aside
of the Decision1 dated January 17, 2000 of the Court of Appeals (CA) in CA-G.R. CV. No. 49939, and its Resolution2 dated
June 9, 2000, denying petitioners’ motion for reconsideration.

The assailed decision reversed and set aside the February 10, 1995 decision3 of the Regional Trial Court (RTC) at
Muntinlupa, Metro Manila, Branch 276,4 in its Civil Case No. 90-359, an action for Declaration of Nullity of Contract and
Cancellation of Transfer Certificate of Titles and Damages, commenced by the petitioners against herein respondents.

The factual antecedents are as follows:

Petitioner Adoracion Rufloe is the wife of Angel Rufloe, now deceased, while co-petitioners Alfredo and Rodrigo are
their children. During the marriage of Adoracion and Angel, they acquired a 371-square meter parcel of land located at
Barangay Bagbagan, Muntinlupa, and covered by Transfer Certificate of Title (TCT) No. 406851 which is the subject of
the present controversy.

Sometime in 1978, respondent Elvira Delos Reyes forged the signatures of Adoracion and Angel in a Deed of Sale dated
September 8, 1978 to make it appear that the disputed property was sold to her by the spouses Rufloe. On the basis of
the said deed of sale, Delos Reyes succeeded in obtaining a title in her name, TCT No. S-74933.

Thus, in November 1979, the Rufloes filed a complaint for damages against Delos Reyes with the RTC of Pasay City
alleging that the Deed of Sale was falsified as the signatures appearing thereon were forged because Angel Rufloe died
in 1974, which was four (4) years before the alleged sale in favor of Delos Reyes. The complaint was docketed as Civil
Case No. M-7690.5 They also filed a notice of adverse claim on November 5, 1979.

On December 4, 1984, during the pendency of Civil Case No. M-7690, Delos Reyes sold the subject property to
respondent siblings Anita, Angelina, Angelito and Amy (Burgos siblings). A new title, TCT No. 135860, was then issued in
their names.

On December 12, 1985, the Burgos siblings, in turn, sold the same property to their aunt, Leonarda Burgos. However,
the sale in favor of Leonarda was not registered. Thus, no title was issued in her name. The subject property remained in
the name of the Burgos siblings who also continued paying the real estate taxes thereon.

On February 6, 1989, the RTC of Pasay City, Branch 108,6 rendered its decision in Civil Case No. M-7690 declaring that
the Deed of Sale in favor of Delos Reyes was falsified as the signatures of the spouses Rufloe had been forged. The trial
court ruled that Delos Reyes did not acquire ownership over the subject property. Said decision had become final and
executory.

Such was the state of things when, on February 8, 1990, in the RTC of Muntinlupa, the Rufloes filed their complaint for
Declaration of Nullity of Contract and Cancellation of Transfer Certificate of Titles against respondents Leonarda and the
Burgos siblings, and Delos Reyes. In their complaint, docketed as Civil Case No. 90-359, the Rufloes basically alleged that
inasmuch as the Deed of Sale in favor of Delos Reyes was falsified, no valid title was ever conveyed to the Burgos
siblings.7 The Burgos siblings executed a simulated deed of sale in favor of Leonarda knowing fully well that their title
was a nullity.

6
In their common "Answer," respondents maintained that they bought the property in good faith after they were shown
a genuine copy of the title of the disputed property by Delos Reyes. They also insisted that they were innocent
purchasers in good faith and for value.8

On February 10, 1995, the trial court rendered a decision declaring that Leonarda and the Burgos siblings were not
innocent purchasers for value and did not have a better right to the property in question than the true and legal owners,
the Rufloes. The trial court also held that the subsequent conveyance of the disputed property to Leonarda by the
Burgos siblings was simulated to make it appear that Leonarda was a buyer in good faith. The trial court then directed
the Register of Deeds of Makati, Rizal to reinstate the title of the spouses Rufloe, and to cancel all other titles
subsequent to the said title particularly TCT No. S-74933 issued to Delos Reyes and TCT No. 135860 issued to the Burgos
siblings.9

Respondents interposed an appeal to the CA, whereat the appellate recourse was docketed as CA-G.R. CV. No. 49939.

As stated at the threshold hereof, the CA, in its decision dated January 17, 2000, reversed and set aside that of the trial
court, declaring in the process that respondents were purchasers in good faith and for value. In so ruling, the CA
explained:

Measured by this yardstick, defendants-appellants [herein respondents] are purchasers in good faith and for value.
Amado Burgos bought the subject property (for his children Anita, Angelina, Angelito and Amy) free from any lien or
encumbrance or any notice of adverse claim annotated thereto. He was presented with a clean title already in the name
of the seller. 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. If we were to void a sale of property covered
by a clean and unencumbered torrens title, public confidence in the Torrens System would be eroded and transactions
would have to be attended by complicated and inconclusive investigations and uncertain proof of ownership. The
consequences would be that land conflicts could proliferate and become more abrasive, if not violent. (Words in bracket
ours).10

Their motion for reconsideration having been denied by the CA in its equally challenged resolution of June 9, 2000,
petitioners are now with us via the present recourse, faulting the CA as follows:

A. THE HONORABLE COURT OF APPEALS DECIDED THIS CASE IN A WAY NOT IN ACCORD WITH THE APPLICABLE
DECISIONS OF THE HONORABLE SUPREME COURT.

B. THERE ARE SPECIAL AND IMPORTANT REASONS THAT REQUIRE A REVIEW OF THE CA DECISION.

C. THE HONORABLE CA ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION WHEN IT
COUNTERMANDED THE FINDINGS OF THE REGIONAL TRIAL COURT EVEN ON POINTS AND QUESTIONS OF CREDIBILITY.

D. THE CA JUDGMENT THAT REVERSED THE RTC DECISION IS NOT SUPPORTED BY THE EVIDENCE ON RECORD AND IS
CONTRARY TO ESTABLISHED PRECEDENTS LAID DOWN BY THE HONORABLE SUPREME COURT.

E. THE CA ERRED IN LAW IN PRACTICALLY HOLDING THAT A DEAD MAN ANGEL RUFLOE (ANGEL NEVER SIGNED) VALIDLY
DISPOSED OF HIS PROPERTY (A HOUSE AND LOT COVERED BY A TCT THROUGH A FALSIFIED DEED OF SALE) AFTER HIS
DEATH FOUR (4) YEARS BEFORE THE EXECUTION OF THE DEED.

F. THE CA ERRED IN LAW IN HOLDING ANITA, ANGELINA, AMY AND ANGELITO BURGOS AND THEIR SUCCESOR-IN-
INTEREST (THEIR AUNT) LEONARDA BURGOS ARE BUYERS IN GOOD FAITH.

G. THE CA IGNORED THE PLAIN PROVISIONS OF THE CIVIL CODE THAT "IN ALL CONTRACTUAL, PROPERTY OR OTHER
RELATIONS, WHEN ONE OF THE PARTIES IS AT A DISADVANTAGE ON ACCOUNT OF HIS MORAL DEPENDENCE,
IGNORANCE, INDIGENCE, MENTAL WEAKNESS, TENDER AGE OR OTHER HANDICAP, THE COURT MUST BE VIGILANT FOR
HIS PROTECTION."11

7
In a gist, the issues to be resolved are (1) whether the sale of the subject property by Delos Reyes to the Burgos siblings
and the subsequent sale by the siblings to Leonarda were valid and binding; and (2) whether respondents were innocent
purchasers in good faith and for value despite the forged deed of sale of their transferor Delos Reyes.

The issues necessitate an inquiry into the facts. While, as a rule, factual issues are not within the province of this Court,
nonetheless, in light of the conflicting factual findings of the two (2) courts below, an examination of the facts obtaining
in this case is in order.

The Rufloes aver that inasmuch as the Deed of Sale purportedly executed by them in favor of Delos Reyes was a forgery,
she could not pass any valid right or title to the Burgos siblings and Leonarda. The Rufloes also contend that since the
Burgos siblings and Leonarda acquired the subject property with notice that another person has a right to or interest in
such property, they cannot be considered innocent purchasers in good faith and for value.

For their part, the Burgos siblings and Leonarda insist that their title is valid and binding. They maintain that under the
Torrens System, a person dealing with registered land may safely rely on the correctness on the certificate of title
without the need of further inquiry. For this reason, the Court cannot disregard the right of an innocent third person
who relies on the correctness of the certificate of title even if the sale is void.

We find merit in the petition.

The issue concerning the validity of the deed of sale between the Rufloes and Delos Reyes had already been resolved
with finality in Civil Case No. M-7690 by the RTC of Pasay City which declared that the signatures of the alleged vendors,
Angel and Adoracion Rufloe, had been forged.12 It is undisputed that the forged deed of sale was null and void and
conveyed no title. It is a well-settled principle that no one can give what one does not have, nemo dat quod non habet.
One can sell only what one owns or is authorized to sell, and the buyer can acquire no more right than what the seller
can transfer legally.13 Due to the forged deed of sale, Delos Reyes acquired no right over the subject property which she
could convey to the Burgos siblings. All the transactions subsequent to the falsified sale between the spouses Rufloe and
Delos Reyes are likewise void, including the sale made by the Burgos siblings to their aunt, Leonarda.

We now determine whether respondents Burgos siblings and Leonarda Burgos were purchasers in good faith. It has
been consistently ruled that a forged deed can legally be the root of a valid title when an innocent purchaser for value
intervenes.14

An innocent purchaser for value is one who buys the property of another without notice that some other person has a
right to or interest in it, and who pays a full and fair price at the time of the purchase or before receiving any notice of
another person’s claim.15 The burden of proving the status of a purchaser in good faith and for value lies upon one who
asserts that status. This onus probandi cannot be discharged by mere invocation of the ordinary presumption of good
faith.16

As a general rule, every person dealing with registered land, as in this case, may safely rely on the correctness of the
certificate of title issued therefor and will in no way oblige him to go beyond the certificate to determine the condition
of the property. However, this rule admits of an unchallenged exception:

… a person dealing with registered land has a right to rely on the Torrens certificate of title and to dispense with the
need of inquiring further except when the party has actual knowledge of facts and circumstances that would impel a
reasonably cautious man to make such inquiry or when the purchaser has knowledge of a defect or the lack 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 in
litigation. The presence of anything which excites or arouses suspicion should then prompt the vendee to look beyond
the certificate and investigate the title of the vendor appearing on the face of said certificate. One who falls within the
exception can neither be denominated an innocent purchaser for value nor a purchaser in good faith and, hence, does
not merit the protection of the law.17

The circumstances surrounding this case point to the absolute lack of good faith on the part of respondents. The
evidence shows that the Rufloes caused a notice of adverse claim to be annotated on the title of Delos Reyes as early as
8
November 5, 1979.18 The annotation of an adverse claim is a measure designed to protect the interest of a person over a
piece of real property, and serves as a notice and warning to third parties dealing with said property that someone is
claiming an interest on the same or may have a better right than the registered owner thereof. Despite the notice of
adverse claim, the Burgos siblings still purchased the property in question.

Too, at the time the Burgos siblings bought the subject property on December 4, 1984, Civil Case No. M-7690,19 an
action for damages, and Criminal Case No. 10914-P,20 for estafa, filed by the Rufloes against Delos Reyes, were both
pending before the RTC of Pasay City. This circumstance should have alerted the Burgos siblings as to the validity of
Delos Reyes’ title and her authority and legal right to sell the property.

Equally significant is the fact that Delos Reyes was not in possession of the subject property when she sold the same to
the Burgos siblings. It was Amado Burgos who bought the property for his children, the Burgos siblings. Amado was not
personally acquainted with Delos Reyes prior to the sale because he bought the property through a real estate broker, a
certain Jose Anias, and not from Delos Reyes herself. There was no showing that Amado or any of the Burgos siblings
exerted any effort to personally verify with the Register of Deeds if Delos Reyes’ certificate of title was clean and
authentic. They merely relied on the title as shown to them by the real estate broker. An ordinarily prudent man would
have inquired into the authenticity of the certificate of title, the property’s location and its owners. Although it is a
recognized principle that a person dealing with registered land need not go beyond its certificate of title, it is also a
firmly established rule that where circumstances exist which would put a purchaser on guard and prompt him to
investigate further, such as the presence of occupants/tenants on the property offered for sale, it is expected that the
purchaser would inquire first into the nature of possession of the occupants, i.e., whether or not the occupants possess
the land in the concept of an owner. Settled is the rule that a buyer of real property that is in the possession of a person
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.21

In the same vein, Leonarda cannot be categorized as a purchaser in good faith. Since it was the Rufloes who continued
to have actual possession of the property, Leonarda should have investigated the nature of their possession.

We cannot ascribe good faith to those who have not shown any diligence in protecting their rights. Respondents had
knowledge of facts that should have led them to inquire and investigate in order to acquaint themselves with possible
defects in the title of the seller of the property.1avvphi1.zw+ However, they failed to do so. Thus, Leonarda, as well as
the Burgos siblings, cannot take cover under the protection the law accords to purchasers in good faith and for value.
They cannot claim valid title to the property.

Moreover, the defense of indefeasibility of a Torrens title does not extend to a transferee who takes it with notice of a
flaw in the title of his transferor. To be effective, the inscription in the registry must have been made in good faith. A
holder in bad faith of a certificate of title is not entitled to the protection of the law, for the law cannot be used as a
shield for fraud.22

We quote with approval the following findings of the trial court showing that the sale between the Burgos siblings and
Leonarda is simulated:

1. The sale was not registered, a circumstance which is inconceivable in a legitimate transfer. A true vendee would not
brook any delay in registering the sale in his favor. Not only because registration is the operative act that effects
property covered by the Torrens System, but also because registration and issuance of new title to the transferee,
enable this transferee to assume domiciliary and possessory rights over the property. These benefits of ownership shall
be denied him if the titles of the property shall remain in the name of vendor. Therefore, it is inconceivable as contrary
to behavioral pattern of a true buyer and the empirical knowledge of man to assume that a buyer who invested on the
property he bought would be uninvolved and not endeavor to register the property he bought. The nonchalance of
Leonarda amply demonstrates the pretended sale to her, and the evident scheme of her brother Amado who invested
on the property he bought.

9
2. Despite the sale of property to Leonarda, the sellers continued paying taxes on the property from the time they
acquired it from Elvira in 1984 up to the present or a period of ten years. The tax payment receipts remained in the
name of Anita and her siblings, (Exhibits "16" to "16-H"). On the other hand, Leonarda does not even pretend to have
paid any tax on the land she allegedly bought in 1985. Even the Tax Declaration issued in 1988, three years after the sale
to her (Leonarda) is still in the name of her nieces and nephew. These circumstances can only account for the fact that
her nieces and nephew remained the owners of the land and continued paying taxes thereon.

3. Leonarda never exercised the attributes of ownership. Far from it, she vested the exercise of domiciliary and
possessory rights in her brother Amado the father of Anita, Angelina, Angelito and Amy, by constituting him with full
power including the ejectment of plaintiffs, to defend and to enter a compromise of any case he may file. She allowed
the children of Amado to remain as the registered owners of the property without pressing for its transfer to her.

4. And, this simulated sale is the handiwork of Amado who apparently acted advisedly to make it appear that his sister
Leonarda as the second transferee of the property is an innocent purchaser for value. Since he or his children could not
plausibly assume the stance of a buyer in good faith from the forger Elvira Delos Reyes, knowing of Elvira’s defective
title, Amado hoped that the entry of his sister Leonarda, might conjure the image and who might pass off as an innocent
purchaser, specially considering that the notice of adverse claim of the Plaintiffs which was annotated in Elvira’s title was
not, strangely enough, NOT carried over in the title of his children, who were made to appear as the sellers to their Aunt
Leonarda. It was a neat chicanery of Amado to bring the property out of the reach of Plaintiffs thru a series of transfers
involving a third party, to make her appear as an innocent purchaser for value. His sister could be manipulated to evict
or oust the real owners from their own property thru a documentary manipulation. Unfortunately, his scheme has not
passed unnoticed by a discerning and impartial evaluator, like this court. The Municipal Court of Muntinlupa in Civil Case
No. 17446 has even established that Amado’s children Anita and others are buyers in bad faith who knew of the
defective title of their transferor Elvira Delos Reyes, the forger, as aforestated.

These circumstances taken altogether would show that the sale, which occurred between Leonarda and the Burgos
siblings, was simply a scheme designed to cleanse the title passed on to them by the forger Delos Reyes. Respondents
had to resort to this strategy because they were fully aware that their title, having originated from the forged deed of
sale of Delos Reyes, was not a clean and valid title. The trial court explained, thus:

And, this simulated sale is the handiwork of Amado who apparently acted advisedly to make it appear that his sister
Leonarda as the second transferee of the property is an innocent purchaser for value. Since he or his children could not
plausibly assume the stamp of a buyer in good faith from the forger Elvira Delos Reyes, knowing Elvira’s defective title,
Amado had hoped that the entry of his sister Leonarda, might conjure the image and might pass off as an innocent
purchaser. xxx. It was a neat chicanery of Amado to bring the property out of the reach of plaintiffs [herein petitioners]
thru a series of transfers involving a third party, to make her appear as an innocent purchaser for value. Unfortunately,
his scheme has not passed unnoticed by a discerning and impartial evaluator, like this Court.23 (Words in bracket ours)

Patently, the Burgos siblings were not innocent purchasers for value and the simulated sale to Leonarda did not remove
the defect in their title.

Accordingly, we sustain the trial court’s award of ₱20,000.00 as moral damages, ₱50,000.00 as exemplary damages, and
P50,000.00 as attorney’s fees.24

However, the actual damages in the amount of ₱134,200.00 should be deleted. In view of this Court’s ruling that the
property rightfully belongs to petitioners and must be restored to them, there is no more basis for the award of said
actual damages to the Rufloes.

WHEREFORE, the petition for review is hereby GRANTED. The assailed decision and resolution of the Court of Appeals in
CA-G.R. CV. No. 49939 are REVERSED and SET ASIDE. Accordingly, the decision of the trial court is hereby REVIVED,
except the award of actual damages which must be deleted.

SO ORDERED.

10
11
G.R. No. 154450 July 28, 2008

JOSEPH L. SY, NELSON GOLPEO and JOHN TAN, Petitioners,

vs.
NICOLAS CAPISTRANO, JR., substituted by JOSEFA B. CAPISTRANO, REMEDIOS TERESITA B. CAPISTRANO and MARIO
GREGORIO B. CAPISTRANO; NENITA F. SCOTT; SPS. JUANITO JAMILAR and JOSEFINA JAMILAR; SPS. MARIANO
GILTURA and ADELA GILTURA, Respondents.

RESOLUTION

NACHURA, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court of the Decision of the Court of Appeals (CA)
dated July 23, 2002 in CA-G.R. CV No. 53314.

The case originated from an action for reconveyance of a large tract of land in Caloocan City before the Regional Trial
Court (RTC), Branch 129, Caloocan City, entitled Nicolas Capistrano, Jr. v. Nenita F. Scott, Spouses Juanito and Josefina
Jamilar, Joseph L. Sy, Nelson Golpeo and John Tan, and the Register of Deeds, Caloocan City. Said case was docketed as
Civil Case No. C-15791.

The antecedents are as follows:

Sometime in 1980, Nenita Scott (Scott) approached respondent Nicolas Capistrano, Jr. (Capistrano) and offered her
services to help him sell his 13,785 square meters of land covered by Transfer Certificate of Title (TCT) No. 76496 of the
Register of Deeds of Caloocan City. Capistrano gave her a temporary authority to sell which expired without any sale
transaction being made. To his shock, he discovered later that TCT No. 76496, which was in his name, had already been
cancelled on June 24, 1992 and a new one, TCT No. 249959, issued over the same property on the same date to Josefina
A. Jamilar. TCT No. 249959 likewise had already been cancelled and replaced by three (3) TCTs (Nos. 251524, 251525,
and 251526), all in the names of the Jamilar spouses. TCT Nos. 251524 and 251526 had also been cancelled and replaced
by TCT Nos. 262286 and 262287 issued to Nelson Golpeo and John B. Tan, respectively.

Upon further inquiries, Capistrano also discovered the following:

1. The cancellation of his TCT No. 76496 and the issuance of TCT No. 249959 to Jamilar were based upon two (2) deeds
of sale, i.e., a "Deed of Absolute Sale" purportedly executed by him in favor of Scott on March 9, 1980 and a "Deed of
Absolute Sale" allegedly executed by Scott in favor of Jamilar on May 17, 1990.

2. The supposed 1980 sale from him to Scott was for ₱150,000.00; but despite the lapse of more than 10 years
thereafter, the alleged 1990 sale from Scott to Jamilar was also for ₱150,000.00.

3. Both deeds were presented for registration simultaneously on June 24, 1992.

4. Although the deed in favor of Scott states that it was executed on March 9, 1980, the annotation thereof at the back
of TCT No. 76496 states that the date of the instrument is March 9, 1990.

5. Even if there was no direct sale from Capistrano to Jamilar, the transfer of title was made directly to the latter. No TCT
was issued in favor of Scott.

6. The issuance of TCT No. 249959 in favor of Jamilar was with the help of Joseph Sy, who provided for (sic) money for
the payment of the capital gains tax, documentary stamps, transfer fees and other expenses of registration of the deeds
of sale.

7. On July 8, 1992, an Affidavit of Adverse Claim was annotated at the back of Jamilar’s TCT No. 249959 at the instance
of Sy, Golpeo, and Tan under a Contract to Sell in their favor by the Jamilar spouses. Said contract was executed
sometime in May, 1992 when the title to the property was still in the name of Capistrano.
12
8. Around July 28, 1992, upon request of the Jamilar spouses, TCT No. 249959 was cancelled and three (3) new
certificates of title (TCT Nos. 251524, 251525, and 251526) all in the name of Jamilar on the basis of an alleged
subdivision plan (No. Psd-13-011917) without Capistrano’s knowledge and consent as registered owner. The notice of
adverse claim of Sy, Golpeo, and Tan was carried over to the three new titles.

9. Around August 18, 1992, Sy, Golpeo, and Tan filed Civil Case No. C-15551 against the Jamilars and another couple, the
Giltura spouses, for alleged violations of the Contract to Sell. They caused a notice of lis pendens to be annotated on the
three (3) TCTs in Jamilar’s name. Said civil case, however, was not prosecuted.

10. On January 26, 1993, a Deed of Absolute Sale was executed by the Jamilars and the Gilturas, in favor of Golpeo and
Tan. Thus, TCT Nos. 251524 and 251526 were cancelled and TCT Nos. 262286 and 262287 were issued to Golpeo and
Tan, respectively. TCT No. 251525 remained in the name of Jamilar.1

Thus, the action for reconveyance filed by Capistrano, alleging that his and his wife’s signatures on the purported deed
of absolute sale in favor of Scott were forgeries; that the owner’s duplicate copy of TCT No. 76496 in his name had
always been in his possession; and that Scott, the Jamilar spouses, Golpeo, and Tan were not innocent purchasers for
value because they all participated in defrauding him of his property. Capistrano claimed ₱1,000,000.00 from all
defendants as moral damages, ₱100,000.00 as exemplary damages; and ₱100,000.00 as attorney’s fees.

In their Answer with Counterclaim, the Jamilar spouses denied the allegations in the complaint and claimed that
Capistrano had no cause of action against them, as there was no privity of transaction between them; the issuance of
TCT No. 249959 in their names was proper, valid, and legal; and that Capistrano was in estoppel. By way of
counterclaim, they sought ₱50,000.00 as actual damages, ₱50,000.00 as moral damages, ₱50,000.00 as exemplary
damages, and ₱50,000.00 as attorney’s fees.

In their Answer, Sy, Golpeo, and Tan denied the allegations in the complaint and alleged that Capistrano had no cause of
action against them; that at the time they bought the property from the Jamilars and the Gilturas as unregistered
owners, there was nothing in the certificates of title that would indicate any vice in its ownership; that a buyer in good
faith of a registered realty need not look beyond the Torrens title to search for any defect; and that they were innocent
purchasers of the land for value. As counterclaim, they sought ₱500,000.00 as moral damages and ₱50,000.00 as
attorney’s fees.

In her Answer with Cross-claim, Scott denied the allegations in the complaint and alleged that she had no knowledge or
any actual participation in the execution of the deeds of sale in her favor and the Jamilars’; that she only knew of the
purported conveyances when she received a copy of the complaint; that her signatures appearing in both deeds of sale
were forgeries; that when her authority to sell the land expired, she had no other dealings with it; that she never
received any amount of money as alleged consideration for the property; and that, even if she were the owner, she
would never have sold it at so low a price.

By way of Cross-claim against Sy, Golpeo, Tan, and the Jamilars, Scott alleged that when she was looking for a buyer of
the property, the Jamilars helped her locate the property, and they became conversant with the details of the
ownership and other particulars thereof; that only the other defendants were responsible for the seeming criminal
conspiracy in defrauding Capistrano; that in the event she would be held liable to him, her other co-defendants should
be ordered to reimburse her of whatever amount she may be made to pay Capistrano; that she was entitled to
₱50,000.00 as moral damages and ₱50,000.00 as attorney’s fees from her co-defendants due to their fraudulent
conduct.

Later, Sy, Golpeo, and Tan filed a third-party complaint against the Giltura spouses who were the Jamilars’ alleged co-
vendors of the subject property.

Thereafter, trial on the merits ensued.

Subsequently, the trial court decided in favor of Capistrano. In its Decision dated May 7, 1996, adopting the theory of
Capistrano as presented in his memorandum, the trial court rendered judgment as follows:
13
1. Declaring plaintiff herein as the absolute owner of the parcel of land located at the Tala Estate, Bagumbong, Caloocan
City and covered by TCT No. 76496;

2. Ordering defendant Register of Deeds to cause the cancellation of TCT No. 251525 registered in the name of
defendant Josefina Jamilar;

3. Ordering defendant Register of Deeds to cause the cancellation of TCT Nos. 262286 and 262287 registered in the
names of defendants Nelson Golpeo and John B. Tan;

4. Ordering defendant Register of Deeds to cause the issuance to plaintiff of three (3) new TCTs, in replacement of the
aforesaid TCTs Nos. 251525, 262286 and 262287;

5. Ordering all the private defendants in the above-captioned case to pay plaintiff, jointly and severally, the reduced
amount of ₱400,000.00 as moral damages;

6. Ordering all the private defendants in the above-captioned case to pay to plaintiff, jointly and severally, the reduced
sum of ₱50,000.00 as exemplary damages;

7. Ordering all the private defendants in the above-captioned case to pay plaintiff’s counsel, jointly and severally, the
reduced amount of ₱70,000.00 as attorney’s fees, plus costs of suit;

8. Ordering the dismissal of defendants Sy, Golpeo and Tan’s Cross-Claim against defendant spouses Jamilar;

9. Ordering the dismissal of defendants Sy, Golpeo and Tan’s Third-Party Complaint against defendant spouses Giltura;
and

10. Ordering the dismissal of the Counterclaims against plaintiff.

SO ORDERED.2

On appeal, the CA, in its Decision dated July 23, 2002, affirmed the Decision of the trial court with the modification that
the Jamilar spouses were ordered to return to Sy, Golpeo, and Tan the amount of ₱1,679,260.00 representing their full
payment for the property, with legal interest thereon from the date of the filing of the complaint until full payment.

Hence, this petition, with petitioners insisting that they were innocent purchasers for value of the parcels of land
covered by TCT Nos. 262286 and 262287. They claim that when they negotiated with the Jamilars for the purchase of
the property, although the title thereto was still in the name of Capistrano, the documents shown to them – the court
order directing the issuance of a new owner’s duplicate copy of TCT No. 76496, the new owner’s duplicate copy thereof,
the tax declaration, the deed of absolute sale between Capistrano and Scott, the deed of absolute sale between Scott
and Jamilar, and the real estate tax receipts – there was nothing that aroused their suspicion so as to compel them to
look beyond the Torrens title. They asseverated that there was nothing wrong in financing the cancellation of
Capistrano’s title and the issuance of titles to the Jamilars because the money they spent therefor was considered part
of the purchase price they paid for their property.

In their Comment, the heirs of Capistrano, who were substituted after the latter’s death, reiterated the factual
circumstances which should have alerted the petitioners to conduct further investigation, thus –

(a) Why the "Deed of Absolute Sale" supposedly executed by Capistrano had remained unregistered for so long, i.e.,
from March 9, 1980 up to June 1992, when they were negotiating with the Jamilars and the Gilturas for their purchase o
the subject property;

(b) Whether or not the owner’s copy of Capistrano’s certificate of title had really been lost;

(c) Whether Capistrano really sold his property to Scott and whether Scott actually sold it to the Jamilars, which matters
were easily ascertainable as both Capistrano and Scott were still alive and their names appear on so many documents;

14
(d) Why the consideration for both the March 9, 1980 sale and the May 17, 1990 sale was the same (₱150,000.00),
despite the lapse of more than 10 years;

(e) Why the price was so low (₱10.88 per square meter, both in 1980 and in 1990) when the petitioners were willing to
pay and actually paid ₱150.00 per square meter in May 1992; and

(f) Whether or not both deeds of sale were authentic.3

In addition, the heirs of Capistrano pointed out that petitioners entered into negotiations over the property, not with
the registered owner thereof, but only with those claiming ownership thereof based on questionable deeds of sale.

The petition should be denied. The arguments proffered by petitioners all pertain to factual issues which have already
been passed upon by both the trial court and the CA.

Findings of facts of the CA are final and conclusive and cannot be reviewed on appeal, as long as they are based on
substantial evidence. While, admittedly, there are exceptions to this rule such as: (a) when the conclusion is a finding
grounded entirely on speculations, surmises or conjectures; (b) when the inference made is manifestly mistaken, absurd
or impossible; (c) when there is grave abuse of discretion; (d) when the judgment is based on a misapprehension of
facts; (e) when the findings of facts are conflicting; (f) when the CA, in making its findings, went beyond the issues of the
case and the same were contrary to the admissions of both the appellant and appellee.4 Not one of these exceptional
circumstances is present in this case.

First. The CA was correct in upholding the finding of the trial court that the purported sale of the property from
Capistrano to Scott was a forgery, and resort to a handwriting expert was not even necessary as the specimen signature
submitted by Capistrano during trial showed marked variance from that found in the deed of absolute sale. The
technical procedure utilized by handwriting experts, while usually helpful in the examination of forged documents, is not
mandatory or indispensable to the examination or comparison of handwritings.5

By the same token, we agree with the CA when it held that the deed of sale between Scott and the Jamilars was also
forged, as it noted the stark differences between the signatures of Scott in the deed of sale and those in her handwritten
letters to Capistrano.

Second. In finding that the Jamilar spouses were not innocent purchasers for value of the subject property, the CA
properly held that they should have known that the signatures of Scott and Capistrano were forgeries due to the patent
variance of the signatures in the two deeds of sale shown to them by Scott, when Scott presented to them the deeds of
sale, one allegedly executed by Capistrano in her favor covering his property; and the other allegedly executed by Scott
in favor of Capistrano over her property, the ₱40,000.00 consideration for which ostensibly constituted her initial and
partial payment for the sale of Capistrano’s property to her.

The CA also correctly found the Gilturas not innocent purchasers for value, because they failed to check the veracity of
the allegation of Jamilar that he acquired the property from Capistrano.

In ruling that Sy was not an innocent purchaser for value, we share the observation of the appellate court that Sy knew
that the title to the property was still in the name of Capistrano, but failed to verify the claim of the Jamilar spouses
regarding the transfer of ownership of the property by asking for the copies of the deeds of absolute sale between
Capistrano and Scott, and between Scott and Jamilar. Sy should have likewise inquired why the Gilturas had to affix their
conformity to the contract to sell by asking for a copy of the deed of sale between the Jamilars and the Gilturas. Had Sy
done so, he would have learned that the Jamilars claimed that they purchased the property from Capistrano and not
from Scott.

We also note, as found by both the trial court and the CA, Tan’s testimony that he, Golpeo and Sy are brothers, he and
Golpeo having been adopted by Sy’s father. Tan also testified that he and Golpeo were privy to the transaction between
Sy and the Jamilars and the Gilturas, as shown by their collective act of filing a complaint for specific performance to
enforce the contract to sell.1avvphi1
15
Also noteworthy – and something that would have ordinarily aroused suspicion – is the fact that even before the
supposed execution of the deed of sale by Scott in favor of the Jamilars, the latter had already caused the subdivision of
the property into nine (9) lots, with the title to the property still in the name of Capistrano.

Notable likewise is that the owner’s duplicate copy of TCT No. 76496 in the name of Capistrano had always been in his
possession since he gave Scott only a photocopy thereof pursuant to the latter’s authority to look for a buyer of the
property. On the other hand, the Jamilars were able to acquire a new owner’s duplicate copy thereof by filing an
affidavit of loss and a petition for the issuance of another owner’s duplicate copy of TCT No. 76496. The minimum
requirement of a good faith buyer is that the vendee of the real property should at least see the owner’s duplicate copy
of the title.6 A person who deals with registered land through someone who is not the registered owner is expected to
look beyond the certificate of title and examine all the factual circumstances thereof in order to determine if the vendor
has the capacity to transfer any interest in the land. He has the duty to ascertain the identity of the person with whom
he is dealing and the latter’s legal authority to convey.7

Finally, there is the questionable cancellation of the certificate of title of Capistrano which resulted in the immediate
issuance of a certificate of title in favor of the Jamilar spouses despite the claim that Capistrano sold his property to
Scott and it was Scott who sold the same to the Jamilars.

In light of the foregoing disquisitions, based on the evidence on record, we find no error in the findings of the CA as to
warrant a discretionary judicial review by this Court.

WHEREFORE, the petition is DENIED DUE COURSE for failure to establish reversible error on the part of the Court of
Appeals. Costs against petitioners.

SO ORDERED.

16
G.R. No. 142618 July 12, 2007

PCI LEASING AND FINANCE, INC., Petitioner,

vs.
GIRAFFE-X CREATIVE IMAGING, INC., Respondent.

DECISION

GARCIA, J.:

On a pure question of law involving the application of Republic Act (R.A.) No. 5980, as amended by R.A. No. 8556¸ in
relation to Articles 1484 and 1485 of the Civil Code, petitioner PCI Leasing and Finance, Inc. (PCI LEASING, for short) has
directly come to this Court via this petition for review under Rule 45 of the Rules of Court to nullify and set aside the
Decision and Resolution dated December 28, 1998 and February 15, 2000, respectively, of the Regional Trial Court (RTC)
of Quezon City, Branch 227, in its Civil Case No. Q-98-34266, a suit for a sum of money and/or personal property with
prayer for a writ of replevin, thereat instituted by the petitioner against the herein respondent, Giraffe-X Creative
Imaging, Inc. (GIRAFFE, for brevity).

The facts:

On December 4, 1996, petitioner PCI LEASING and respondent GIRAFFE entered into a Lease Agreement,1 whereby the
former leased out to the latter one (1) set of Silicon High Impact Graphics and accessories worth ₱3,900,00.00 and one
(1) unit of Oxberry Cinescan 6400-10 worth ₱6,500,000.00. In connection with this agreement, the parties subsequently
signed two (2) separate documents, each denominated as Lease Schedule.2 Likewise forming parts of the basic lease
agreement were two (2) separate documents denominated Disclosure Statements of Loan/Credit Transaction (Single
Payment or Installment Plan)3 that GIRAFFE also executed for each of the leased equipment. These disclosure
statements inter alia described GIRAFFE, vis-à-vis the two aforementioned equipment, as the "borrower" who
acknowledged the "net proceeds of the loan," the "net amount to be financed," the "financial charges," the "total
installment payments" that it must pay monthly for thirty-six (36) months, exclusive of the 36% per annum "late
payment charges." Thus, for the Silicon High Impact Graphics, GIRAFFE agreed to pay ₱116,878.21 monthly, and for
Oxberry Cinescan, ₱181.362.00 monthly. Hence, the total amount GIRAFFE has to pay PCI LEASING for 36 months of the
lease, exclusive of monetary penalties imposable, if proper, is as indicated below:

P116,878.21 @ month (for the Silicon High

Impact Graphics) x 36 months = P 4,207,615.56

-- PLUS--

P181,362.00 @ month (for the Oxberry

Cinescan) x 36 months = P 6,529,032.00

Total Amount to be paid by GIRAFFE

(or the NET CONTRACT AMOUNT) P 10,736,647.56

By the terms, too, of the Lease Agreement, GIRAFFE undertook to remit the amount of ₱3,120,000.00 by way of
"guaranty deposit," a sort of performance and compliance bond for the two equipment. Furthermore, the same

17
agreement embodied a standard acceleration clause, operative in the event GIRAFFE fails to pay any rental and/or other
accounts due.

A year into the life of the Lease Agreement, GIRAFFE defaulted in its monthly rental-payment obligations. And following
a three-month default, PCI LEASING, through one Atty. Florecita R. Gonzales, addressed a formal pay-or-surrender-
equipment type of demand letter4 dated February 24, 1998 to GIRAFFE.

The demand went unheeded.

Hence, on May 4, 1998, in the RTC of Quezon City, PCI LEASING instituted the instant case against GIRAFFE. In its
complaint,5 docketed in said court as Civil Case No. 98-34266 and raffled to Branch 2276 thereof, PCI LEASING prayed for
the issuance of a writ of replevin for the recovery of the leased property, in addition to the following relief:

2. After trial, judgment be rendered in favor of plaintiff [PCI LEASING] and against the defendant [GIRAFFE], as follows:

a. Declaring the plaintiff entitled to the possession of the subject properties;

b. Ordering the defendant to pay the balance of rental/obligation in the total amount of ₱8,248,657.47 inclusive of
interest and charges thereon;

c. Ordering defendant to pay plaintiff the expenses of litigation and cost of suit…. (Words in bracket added.)

Upon PCI LEASING’s posting of a replevin bond, the trial court issued a writ of replevin, paving the way for PCI LEASING
to secure the seizure and delivery of the equipment covered by the basic lease agreement.

Instead of an answer, GIRAFFE, as defendant a quo, filed a Motion to Dismiss, therein arguing that the seizure of the two
(2) leased equipment stripped PCI LEASING of its cause of action. Expounding on the point, GIRAFFE argues that,
pursuant to Article 1484 of the Civil Code on installment sales of personal property, PCI LEASING is barred from further
pursuing any claim arising from the lease agreement and the companion contract documents, adding that the
agreement between the parties is in reality a lease of movables with option to buy. The given situation, GIRAFFE
continues, squarely brings into applicable play Articles 1484 and 1485 of the Civil Code, commonly referred to as the
Recto Law. The cited articles respectively provide:

ART. 1484. In a contract of sale of personal property the price of which is payable in installments, the vendor may
exercise any of the following remedies:

(1) Exact fulfillment of the obligation, should the vendee fail to pay;

(2) Cancel the sale, should the vendee's failure to pay cover two or more installments;

(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee's failure to pay
cover two or more installments. In this case, he shall have no further action against the purchaser to recover any unpaid
balance of the price. Any agreement to the contrary shall be void. (Emphasis added.)

ART. 1485. The preceding article shall be applied to contracts purporting to be leases of personal property with option to
buy, when the lessor has deprived the lessee of the possession or enjoyment of the thing.

It is thus GIRAFFE’s posture that the aforequoted Article 1484 of the Civil Code applies to its contractual relation with PCI
LEASING because the lease agreement in question, as supplemented by the schedules documents, is really a lease with
option to buy under the companion article, Article 1485. Consequently, so GIRAFFE argues, upon the seizure of the
leased equipment pursuant to the writ of replevin, which seizure is equivalent to foreclosure, PCI LEASING has no
further recourse against it. In brief, GIRAFFE asserts in its Motion to Dismiss that the civil complaint filed by PCI LEASING
is proscribed by the application to the case of Articles 1484 and 1485, supra, of the Civil Code.

18
In its Opposition to the motion to dismiss, PCI LEASING maintains that its contract with GIRAFFE is a straight lease
without an option to buy. Prescinding therefrom, PCI LEASING rejects the applicability to the suit of Article 1484 in
relation to Article 1485 of the Civil Code, claiming that, under the terms and conditions of the basic agreement, the
relationship between the parties is one between an ordinary lessor and an ordinary lessee.

In a decision7 dated December 28, 1998, the trial court granted GIRAFFE’s motion to dismiss mainly on the interplay of
the following premises: 1) the lease agreement package, as memorialized in the contract documents, is akin to the
contract contemplated in Article 1485 of the Civil Code, and 2) GIRAFFE’s loss of possession of the leased equipment
consequent to the enforcement of the writ of replevin is "akin to foreclosure, … the condition precedent for application
of Articles 1484 and 1485 [of the Civil Code]." Accordingly, the trial court dismissed Civil Case No. Q-98-34266, disposing
as follows:

WHEREFORE, premises considered, the defendant [GIRAFFE] having relinquished any claim to the personal properties
subject of replevin which are now in the possession of the plaintiff [PCI LEASING], plaintiff is DEEMED fully satisfied
pursuant to the provisions of Articles 1484 and 1485 of the New Civil Code. By virtue of said provisions, plaintiff is
DEEMED estopped from further action against the defendant, the plaintiff having recovered thru (replevin) the personal
property sought to be payable/leased on installments, defendants being under protection of said RECTO LAW. In view
thereof, this case is hereby DISMISSED.

With its motion for reconsideration having been denied by the trial court in its resolution of February 15,
2000,8 petitioner has directly come to this Court via this petition for review raising the sole legal issue of whether or not
the underlying Lease Agreement, Lease Schedules and the Disclosure Statements that embody the financial leasing
arrangement between the parties are covered by and subject to the consequences of Articles 1484 and 1485 of the New
Civil Code.

As in the court below, petitioner contends that the financial leasing arrangement it concluded with the respondent
represents a straight lease covered by R.A. No. 5980, the Financing Company Act, as last amended by R.A. No. 8556,
otherwise known as Financing Company Act of 1998, and is outside the application and coverage of the Recto Law. To
the petitioner, R.A. No. 5980 defines and authorizes its existence and business.

The recourse is without merit.

R.A. No. 5980, in its original shape and as amended, partakes of a supervisory or regulatory legislation, merely providing
a regulatory framework for the organization, registration, and regulation of the operations of financing companies. As
couched, it does not specifically define the rights and obligations of parties to a financial leasing arrangement. In fact, it
does not go beyond defining commercial or transactional financial leasing and other financial leasing concepts. Thus, the
relevancy of Article 18 of the Civil Code which reads:

Article 18. - In matters which are governed by … special laws, their deficiency shall be supplied by the provisions of this
[Civil] Code.

Petitioner foists the argument that the Recto Law, i.e., the Civil Code provisions on installment sales of movable
property, does not apply to a financial leasing agreement because such agreement, by definition, does not confer on the
lessee the option to buy the property subject of the financial lease. To the petitioner, the absence of an option-to-buy
stipulation in a financial leasing agreement, as understood under R.A. No. 8556, prevents the application thereto of
Articles 1484 and 1485 of the Civil Code.

We are not persuaded.

The Court can allow that the underlying lease agreement has the earmarks or made to appear as a financial leasing,9 a
term defined in Section 3(d) of R.A. No. 8556 as -

a mode of extending credit through a non-cancelable lease contract under which the lessor purchases or acquires, at the
instance of the lessee, machinery, equipment, … office machines, and other movable or immovable property in
19
consideration of the periodic payment by the lessee of a fixed amount of money sufficient to amortize at least seventy
(70%) of the purchase price or acquisition cost, including any incidental expenses and a margin of profit over an
obligatory period of not less than two (2) years during which the lessee has the right to hold and use the leased property
… but with no obligation or option on his part to purchase the leased property from the owner-lessor at the end of the
lease contract.

In its previous holdings, however, the Court, taking into account the following mix: the imperatives of equity, the
contractual stipulations in question and the actuations of parties vis-à-vis their contract, treated disguised transactions
technically tagged as financing lease, like here, as creating a different contractual relationship. Notable among the
Court’s decisions because of its parallelism with this case is BA Finance Corporation v. Court of Appeals10 which involved
a motor vehicle. Thereat, the Court has treated a purported financial lease as actually a sale of a movable property on
installments and prevented recovery beyond the buyer’s arrearages. Wrote the Court in BA Finance:

The transaction involved … is one of a "financial lease" or "financial leasing," where a financing company would, in
effect, initially purchase a mobile equipment and turn around to lease it to a client who gets, in addition, an option to
purchase the property at the expiry of the lease period. xxx.

xxx xxx xxx

The pertinent provisions of [RA] 5980, thus implemented, read:

"'Financing companies,' … are primarily organized for the purpose of extending credit facilities to consumers … either by
… leasing of motor vehicles, … and office machines and equipment, … and other movable property."

"'Credit' shall mean any loan, … any contract to sell, or sale or contract of sale of property or service, … under which part
or all of the price is payable subsequent to the making of such sale or contract; any rental-purchase contract; ….;"

The foregoing provisions indicate no less than a mere financing scheme extended by a financing company to a client in
acquiring a motor vehicle and allowing the latter to obtain the immediate possession and use thereof pending full
payment of the financial accommodation that is given.

In the case at bench, xxx. [T]he term of the contract [over a motor vehicle] was for thirty six (36) months at a "monthly
rental" … (P1,689.40), or for a total amount of P60,821.28. The contract also contained [a] clause [requiring the Lessee
to give a guaranty deposit in the amount of P20,800.00] xxx

After the private respondent had paid the sum of P41,670.59, excluding the guaranty deposit of P20,800.00, he stopped
further payments. Putting the two sums together, the financing company had in its hands the amount of P62,470.59 as
against the total agreed "rentals" of P60,821.28 or an excess of P1,649.31.

The respondent appellate court considered it only just and equitable for the guaranty deposit made by the private
respondent to be applied to his arrearages and thereafter to hold the contract terminated. Adopting the ratiocination of
the court a quo, the appellate court said:

xxx In view thereof, the guaranty deposit of P20,800.00 made by the defendant should and must be credited in his favor,
in the interest of fairness, justice and equity. The plaintiff should not be allowed to unduly enrich itself at the expense of
the defendant. xxx This is even more compelling in this case where although the transaction, on its face, appear
ostensibly, to be a contract of lease, it is actually a financing agreement, with the plaintiff financing the purchase of
defendant's automobile …. The Court is constrained, in the interest of truth and justice, to go into this aspect of the
transaction between the plaintiff and the defendant … with all the facts and circumstances existing in this case, and
which the court must consider in deciding the case, if it is to decide the case according to all the facts. xxx.

xxx xxx xxx

20
Considering the factual findings of both the court a quo and the appellate court, the only logical conclusion is that the
private respondent did opt, as he has claimed, to acquire the motor vehicle, justifying then the application of the
guarantee deposit to the balance still due and obligating the petitioner to recognize it as an exercise of the option by the
private respondent. The result would thereby entitle said respondent to the ownership and possession of the vehicle as
the buyer thereof. We, therefore, see no reversible error in the ultimate judgment of the appellate court.11 (Italics in the
original; underscoring supplied and words in bracket added.)

In Cebu Contractors Consortium Co. v. Court of Appeals,12 the Court viewed and thus declared a financial lease
agreement as having been simulated to disguise a simple loan with security, it appearing that the financing company
purchased equipment already owned by a capital-strapped client, with the intention of leasing it back to the latter.

In the present case, petitioner acquired the office equipment in question for their subsequent lease to the respondent,
with the latter undertaking to pay a monthly fixed rental therefor in the total amount of ₱292,531.00, or a total of
₱10,531,116.00 for the whole 36 months. As a measure of good faith, respondent made an up-front guarantee deposit
in the amount of ₱3,120,000.00. The basic agreement provides that in the event the respondent fails to pay any rental
due or is in a default situation, then the petitioner shall have cumulative remedies, such as, but not limited to, the
following:13

1. Obtain possession of the property/equipment;

2. Retain all amounts paid to it. In addition, the guaranty deposit may be applied towards the payment of "liquidated
damages";

3. Recover all accrued and unpaid rentals;

4. Recover all rentals for the remaining term of the lease had it not been cancelled, as additional penalty;

5. Recovery of any and all amounts advanced by PCI LEASING for GIRAFFE’s account xxx;

6. Recover all expenses incurred in repossessing, removing, repairing and storing the property; and,

7. Recover all damages suffered by PCI LEASING by reason of the default.

In addition, Sec. 6.1 of the Lease Agreement states that the guaranty deposit shall be forfeited in the event the
respondent, for any reason, returns the equipment before the expiration of the lease.

At bottom, respondent had paid the equivalent of about a year’s lease rentals, or a total of ₱3,510,372.00, more or less.
Throw in the guaranty deposit (₱3,120,000.00) and the respondent had made a total cash outlay of ₱6,630,372.00 in
favor of the petitioner. The replevin-seized leased equipment had, as alleged in the complaint, an estimated residual
value of ₱6,900.000.00 at the time Civil Case No. Q-98-34266 was instituted on May 4, 1998. Adding all cash advances
thus made to the residual value of the equipment, the total value which the petitioner had actually obtained by virtue of
its lease agreement with the respondent amounts to ₱13,530,372.00 (₱3,510,372.00 + ₱3,120,000.00 + ₱6,900.000.00 =
₱13,530,372.00).

The acquisition cost for both the Silicon High Impact Graphics equipment and the Oxberry Cinescan was, as stated in no
less than the petitioner’s letter to the respondent dated November 11, 199614 approving in the latter’s favor a lease
facility, was ₱8,100,000.00. Subtracting the acquisition cost of ₱8,100,000.00 from the total amount, i.e.,
₱13,530,372.00, creditable to the respondent, it would clearly appear that petitioner realized a gross income of
₱5,430,372.00 from its lease transaction with the respondent. The amount of ₱5,430,372.00 is not yet a final figure as it
does not include the rentals in arrears, penalties thereon, and interest earned by the guaranty deposit.

As may be noted, petitioner’s demand letter15 fixed the amount of ₱8,248,657.47 as representing the respondent’s
"rental" balance which became due and demandable consequent to the application of the acceleration and other
clauses of the lease agreement. Assuming, then, that the respondent may be compelled to pay ₱8,248,657.47, then it

21
would end up paying a total of ₱21,779,029.47 (₱13,530,372.00 + ₱8,248,657.47 = ₱21,779,029.47) for its use - for a
year and two months at the most - of the equipment. All in all, for an investment of ₱8,100,000.00, the petitioner stands
to make in a year’s time, out of the transaction, a total of ₱21,779,029.47, or a net of ₱13,679,029.47, if we are to
believe its outlandish legal submission that the PCI LEASING-GIRAFFE Lease Agreement was an honest-to-goodness
straight lease.

A financing arrangement has a purpose which is at once practical and salutary. R.A. No. 8556 was, in fact, precisely
enacted to regulate financing companies’ operations with the end in view of strengthening their critical role in providing
credit and services to small and medium enterprises and to curtail acts and practices prejudicial to the public interest, in
general, and to their clienteles, in particular.16 As a regulated activity, financing arrangements are not meant to quench
only the thirst for profit. They serve a higher purpose, and R.A. No. 8556 has made that abundantly clear.

We stress, however, that there is nothing in R.A. No. 8556 which defines the rights and obligations, as between each
other, of the financial lessor and the lessee. In determining the respective responsibilities of the parties to the
agreement, courts, therefore, must train a keen eye on the attendant facts and circumstances of the case in order to
ascertain the intention of the parties, in relation to the law and the written agreement. Likewise, the public interest and
policy involved should be considered. It may not be amiss to state that, normally, financing contracts come in a standard
prepared form, unilaterally thought up and written by the financing companies requiring only the personal
circumstances and signature of the borrower or lessee; the rates and other important covenants in these agreements
are still largely imposed unilaterally by the financing companies. In other words, these agreements are usually one-sided
in favor of such companies. A perusal of the lease agreement in question exposes the many remedies available to the
petitioner, while there are only the standard contractual prohibitions against the respondent. This is characteristic of
standard printed form contracts.

There is more. In the adverted February 24, 1998 demand letter17 sent to the respondent, petitioner fashioned its claim
in the alternative: payment of the full amount of ₱8,248,657.47, representing the unpaid balance for the entire 36-
month lease period or the surrender of the financed asset under pain of legal action. To quote the letter:

Demand is hereby made upon you to pay in full your outstanding balance in the amount of P8,248,657.47 on or before
March 04, 1998 OR to surrender to us the one (1) set Silicon High Impact Graphics and one (1) unit Oxberry Cinescan
6400-10…

We trust you will give this matter your serious and preferential attention. (Emphasis added).

Evidently, the letter did not make a demand for the payment of the ₱8,248,657.47 AND the return of the equipment;
only either one of the two was required. The demand letter was prepared and signed by Atty. Florecita R. Gonzales,
presumably petitioner’s counsel. As such, the use of "or" instead of "and" in the letter could hardly be treated as a
simple typographical error, bearing in mind the nature of the demand, the amount involved, and the fact that it was
made by a lawyer. Certainly Atty. Gonzales would have known that a world of difference exists between "and" and "or"
in the manner that the word was employed in the letter.

A rule in statutory construction is that the word "or" is a disjunctive term signifying dissociation and independence of
one thing from other things enumerated unless the context requires a different interpretation.18

In its elementary sense, "or", as used in a statute, is a disjunctive article indicating an alternative. It often connects a
series of words or propositions indicating a choice of either. When "or" is used, the various members of the
enumeration are to be taken separately.19

The word "or" is a disjunctive term signifying disassociation and independence of one thing from each of the other
things enumerated.20

The demand could only be that the respondent need not return the equipment if it paid the ₱8,248,657.47 outstanding
balance, ineluctably suggesting that the respondent can keep possession of the equipment if it exercises its option to
acquire the same by paying the unpaid balance of the purchase price. Stated otherwise, if the respondent was not
22
minded to exercise its option of acquiring the equipment by returning them, then it need not pay the outstanding
balance. This is the logical import of the letter: that the transaction in this case is a lease in name only. The so-called
monthly rentals are in truth monthly amortizations of the price of the leased office equipment.

On the whole, then, we rule, as did the trial court, that the PCI LEASING- GIRAFFE lease agreement is in reality a lease
with an option to purchase the equipment. This has been made manifest by the actions of the petitioner itself, foremost
of which is the declarations made in its demand letter to the respondent. There could be no other explanation than that
if the respondent paid the balance, then it could keep the equipment for its own; if not, then it should return them. This
is clearly an option to purchase given to the respondent. Being so, Article 1485 of the Civil Code should apply.

The present case reflects a situation where the financing company can withhold and conceal - up to the last moment - its
intention to sell the property subject of the finance lease, in order that the provisions of the Recto Law may be
circumvented. It may be, as petitioner pointed out, that the basic "lease agreement" does not contain a "purchase
option" clause. The absence, however, does not necessarily argue against the idea that what the parties are into is not a
straight lease, but a lease with option to purchase. This Court has, to be sure, long been aware of the practice of vendors
of personal property of denominating a contract of sale on installment as one of lease to prevent the ownership of the
object of the sale from passing to the vendee until and unless the price is fully paid. As this Court noted in Vda. de Jose v.
Barrueco:21

Sellers desirous of making conditional sales of their goods, but who do not wish openly to make a bargain in that form,
for one reason or another, have frequently resorted to the device of making contracts in the form of leases either with
options to the buyer to purchase for a small consideration at the end of term, provided the so-called rent has been duly
paid, or with stipulations that if the rent throughout the term is paid, title shall thereupon vest in the lessee. It is obvious
that such transactions are leases only in name. The so-called rent must necessarily be regarded as payment of the price
in installments since the due payment of the agreed amount results, by the terms of the bargain, in the transfer of title
to the lessee.

In another old but still relevant case of U.S. Commercial v. Halili,22 a lease agreement was declared to be in fact a sale of
personal property by installments. Said the Court:

. . . There can hardly be any question that the so-called contracts of lease on which the present action is based were
veritable leases of personal property with option to purchase, and as such come within the purview of the above article
[Art. 1454-A of the old Civil Code on sale of personal property by installment]. xxx

Being leases of personal property with option to purchase as contemplated in the above article, the contracts in
question are subject to the provision that when the lessor in such case "has chosen to deprive the lessee of the
enjoyment of such personal property," "he shall have no further action" against the lessee "for the recovery of any
unpaid balance" owing by the latter, "agreement to the contrary being null and void."

In choosing, through replevin, to deprive the respondent of possession of the leased equipment, the petitioner waived
its right to bring an action to recover unpaid rentals on the said leased items. Paragraph (3), Article 1484 in relation to
Article 1485 of the Civil Code, which we are hereunder re-reproducing, cannot be any clearer.

ART. 1484. In a contract of sale of personal property the price of which is payable in installments, the vendor may
exercise any of the following remedies:

xxx xxx xxx

(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee's failure to pay
cover two or more installments. In this case, he shall have no further action against the purchaser to recover any unpaid
balance of the price. Any agreement to the contrary shall be void.

ART. 1485. The preceding article shall be applied to contracts purporting to be leases of personal property with option to
buy, when the lessor has deprived the lessee of the possession or enjoyment of the thing.
23
As we articulated in Elisco Tool Manufacturing Corp. v. Court of Appeals,23 the remedies provided for in Article 1484 of
the Civil Code are alternative, not cumulative. The exercise of one bars the exercise of the others. This limitation applies
to contracts purporting to be leases of personal property with option to buy by virtue of the same Article 1485. The
condition that the lessor has deprived the lessee of possession or enjoyment of the thing for the purpose of applying
Article 1485 was fulfilled in this case by the filing by petitioner of the complaint for a sum of money with prayer for
replevin to recover possession of the office equipment.24 By virtue of the writ of seizure issued by the trial court, the
petitioner has effectively deprived respondent of their use, a situation which, by force of the Recto Law, in turn
precludes the former from maintaining an action for recovery of "accrued rentals" or the recovery of the balance of the
purchase price plus interest. 25

The imperatives of honest dealings given prominence in the Civil Code under the heading: Human Relations, provide
another reason why we must hold the petitioner to its word as embodied in its demand letter. Else, we would witness a
situation where even if the respondent surrendered the equipment voluntarily, the petitioner can still sue upon its
claim. This would be most unfair for the respondent. We cannot allow the petitioner to renege on its word. Yet more
than that, the very word "or" as used in the letter conveys distinctly its intention not to claim both the unpaid balance
and the equipment. It is not difficult to discern why: if we add up the amounts paid by the respondent, the residual
value of the property recovered, and the amount claimed by the petitioner as sued upon herein (for a total of
₱21,779,029.47), then it would end up making an instant killing out of the transaction at the expense of its client, the
respondent. The Recto Law was precisely enacted to prevent this kind of aberration. Moreover, due to considerations of
equity, public policy and justice, we cannot allow this to happen.1avvphil.zw+ Not only to the respondent, but those
similarly situated who may fall prey to a similar scheme.

WHEREFORE, the instant petition is DENIED and the trial court’s decision is AFFIRMED.

Costs against petitioner.

SO ORDERED.

24
PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari[1] are the Decision[2] dated February 13, 2014 and the Resolution[3] dated
October 8, 2014 of the Court of Appeals (CA) in CA-G.R. CV No. 96008, which partially affirmed the Decision[4] dated May
20, 2010 of the Regional Trial Court of Pasay City, Branch 114 (RTC) in Civil Case No. 07-03 86-CFM and ordered
petitioner Equitable Savings Bank, now BDO Unibank, Inc. (petitioner), to reimburse respondent Rosalinda C. Palces
(respondent) the installments she made in March 2007 amounting to P103,000.00.

The Facts

On August 15, 2005, respondent purchased a Hyundai Starex GRX Jumbo (subject vehicle) through a loan granted by
petitioner in the amount of P1,196,100.00. In connection therewith, respondent executed a Promissory' Note with
Chattel Mortgage[5] in favor of petitioner, stating, inter alia, that: (a) respondent shall pay petitioner the aforesaid
amount in 36-monthly installments of P33,225.00 per month, beginning September 18, 2005 and every 18th of the
month thereafter until full payment of the loan; (b) respondent's default in paying any installment renders the
remaining balance due and payable; and (c) respondent's failure to pay any installments shall give petitioner the right to
declare the entire obligation due and payable and may likewise, at its option, x x x foreclose this mortgage; or file an
ordinary civil action for collection and/or such other action or proceedings as may be allowed under the law.[6]

From September 18, 2005 to December 21, 2006, respondent paid the monthly installment of P33,225.00 per month.
However, she failed to pay the monthly installments in January and February 2007, thereby triggering the acceleration
clause contained in the Promissory Note with Chattel Mortgage[7] and prompting petitioner to send a demand
letter[8] dated February 22, 2007 to compel respondent to pay the remaining balance of the loan in the amount of
P664,500.00.[9] As the demand went unheeded, petitioner filed on March 7, 2007 the instant Complaint for Recovery of
Possession with Replevin with Alternative Prayer for Sum of Money and Damages[10] against respondent before the RTC,
praying that the court a quo: (a) issue a writ of replevin ordering the seizure of the subject vehicle and its delivery to
petitioner; or (b) in the alternative as when the recovery of the subject vehicle cannot be effected, to render judgment
ordering respondent to pay the remaining balance of the loan, including penalties, charges, and other costs appurtenant
thereto.[11]

Pending respondent's answer, summons[12] and a writ of replevin[13] were issued and served to her personally on April
26, 2007, and later on, a Sheriffs Return[14] dated May 8, 2007 was submitted as proof of the implementation of such
writ.[15]

In her defense,[16] while admitting that she indeed defaulted on her installments for January and February 2007,
respondent nevertheless insisted that she called petitioner regarding such delay in payment and spoke to a bank officer,
a certain Rodrigo Dumagpi, who gave his consent thereto. Respondent then maintained that in order to update her
installment payments, she paid petitioner the amounts of P70,000.00 on March 8, 2007 and P33,000.00 on March 20,
2007, or a total of P103,000.00. Despite the aforesaid payments, respondent was surprised when petitioner filed the
instant complaint, resulting in the sheriff taking possession of the subject vehicle.[17]

The RTC Ruling

25
In a Decision[18] dated May 20, 2010, the RTC ruled in petitioner's favor and, accordingly, confirmed petitioner's right and
possession over the subject vehicle and ordered respondent to pay the former the amount of P15,000.00 as attorney's
fees as well as the costs of suit.[19]

The RTC found that respondent indeed defaulted on her installment payments in January and February 2007, thus,
rendering the entire balance of the loan amounting to P664,500.00 due and demandable. In this relation, the RTC
observed that although respondent made actual payments of the installments due, such payments were all late and
irregular, and the same were not enough to fully pay her outstanding obligation, considering that petitioner had already
declared the entire balance of the loan due and demandable. However, since the writ of replevin over the subject
vehicle had already been implemented, the RTC merely confirmed petitioner's right to possess the same and ruled that
it is no longer entitled to its alternative prayer, i.e., the payment of the remaining balance of the loan, including
penalties, charges, and other costs appurtenant thereto.[20]

Respondent moved for reconsideration,[21] but was denied in an Order[22] dated August 31, 2010. Dissatisfied,
respondent appealed[23] to the CA, contending that petitioner acted in bad faith in seeking to recover more than what is
due by attempting to collect the balance of the loan and, at the same time, recover the subject vehicle.[24]

The CA Ruling

In a Decision[25] dated February 13, 2014, the CA affirmed the RTC ruling with modification: (a) ordering petitioner to
return the amount of P103,000.00 to respondent; and (b) deleting the award of attorney's fees in favor of petitioner for
lack of sufficient basis. It held that while respondent was indeed liable to petitioner under the Promissory Note with
Chattel Mortgage, petitioner should not have accepted respondent's late partial payments in the aggregate amount of
P103,000.00. In this regard, the CA opined that by choosing to recover the subject vehicle via a writ of replevin,
petitioner already waived its right to recover any unpaid installments, pursuant to Article 1484 of the Civil Code. As such,
the CA concluded that respondent is entitled to the recovery of the aforesaid amount.[26]

Aggrieved, petitioner moved for partial reconsideration[27] - specifically praying for the setting aside of the order to
return the amount of P103,000.00 to respondent - which was, however, denied in a Resolution[28] dated October 8,
2014; hence, this petition.

The Issues Before The Court

The issues raised for the Court's resolution are whether or not the CA correctly: (a) ordered petitioner to return to
respondent the amount of P103,000.00 representing the latter's late installment payments; and (b) deleted the award of
attorney's fees in favor of petitioner.

The Court's Ruling

The petition is partly meritorious.

Citing Article 1484 of the Civil Code, specifically paragraph 3 thereof, the CA ruled that petitioner had already waived its
right to recover any unpaid installments when it sought - and was granted - a writ of replevin in order to regain
26
possession of the subject vehicle. As such, petitioner is no longer entitled to receive respondent's late partial payments
in the aggregate amount of P103,000.00.

The CA is mistaken on this point.

Article 1484 of the Civil Code, which governs the sale of personal properties in installments, states in full:

Article 1484. In a contract of sale of personal property the price of which is payable in installments, the vendor may
exercise any of the following remedies:

(1) Exact fulfilment of the obligation, should the vendee fail to pay;

(2) Cancel the sale, should the vendee's failure to pay cover two or more installments;

(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee's failure to pay
cover two or more installments. In this case, he shall have no further action against the purchaser to recover any unpaid
balance of the price. Any agreement to the contrary shall be void. (Emphases and underscoring supplied)

In this case, there was no vendor-vendee relationship between respondent and petitioner. A judicious perusal of the
records would reveal that respondent never bought the subject vehicle from petitioner but from a third party, and
merely sought financing from petitioner for its full purchase price. In order to document the loan transaction between
petitioner and respondent, a Promissory Note with Chattel Mortgage[29] dated August 18, 2005 was executed
wherein, inter alia, respondent acknowledged her indebtedness to petitioner in the amount of P1,196,100.00 and
placed the subject vehicle as a security for the loan.[30] Indubitably, a loan contract with the accessory chattel mortgage
contract - and not a contract of sale of personal property in installments - was entered into by the parties with
respondent standing as the debtor-mortgagor and petitioner as the creditor-mortgagee. Therefore, the conclusion of
the CA that Article 1484 finds application in this case is misplaced, and thus, must be set aside.

The Promissory Note with Chattel Mortgage subject of this case expressly stipulated, among others, that: (a) monthly
installments shall be paid on due date without prior notice or demand;[31] (b) in case of default, the total unpaid principal
sum plus the agreed charges shall become immediately due and payable;[32] and (c) the mortgagor's default will allow
the mortgagee to exercise the remedies available to it under the law. In light of the foregoing provisions, petitioner is
justified in filing his Complaint[33] before the RTC seeking for either the recovery of possession of the subject vehicle so
that it can exercise its rights as a mortgagee, i.e., to conduct foreclosure proceedings over said vehicle;[34] or in the event
that the subject vehicle cannot be recovered, to compel respondent to pay the outstanding balance of her loan.[35] Since
it is undisputed that petitioner had regained possession of the subject vehicle, it is only appropriate that foreclosure
proceedings, if none yet has been conducted/concluded, be commenced in accordance with the provisions of Act No.
1508,[36] otherwise known as "The Chattel Mortgage Law," as intended. Otherwise, respondent will be placed in an
unjust position where she is deprived of possession of the subject vehicle while her outstanding debt remains unpaid,
either in full or in part, all to the undue advantage of petitioner - a situation which law and equity will never permit.[37]

Further, there is nothing in the Promissory Note with Chattel Mortgage that bars petitioner from receiving any late
partial payments from respondent. If at all, petitioner's acceptance of respondent's late partial payments in the
aggregate amount of P103,000.00 will only operate to reduce her outstanding obligation to petitioner from P664,500.00
to P561,500.00. Such a reduction in respondent's outstanding obligation should be accounted for when petitioner
conducts the impending foreclosure sale of the subject vehicle. Once such foreclosure sale has been made, the proceeds
thereof should be applied to the reduced amount of respondent's outstanding obligation, and the excess of said
proceeds, if any, should be returned to her.[38]

In sum, the CA erred in ordering petitioner to return the amount of P103,000.00 to respondent. In view of petitioner's
prayer for and subsequent possession of the subject vehicle in preparation for its foreclosure, it is only proper that
27
petitioner be ordered to commence foreclosure proceedings, if none yet has been conducted/concluded, over the
vehicle in accordance with the provisions of the Chattel Mortgage Law, i.e., within thirty (30) days from the finality of
this Decision.[39]

Finally, anent the issue of attorney's fees, it is settled that attorney's fees "cannot be recovered as part of damages
because of the policy that no premium should be placed on the right to litigate. They are not to be awarded every time a
party wins a suit. The power of the court to award attorney's fees under Article 2208[40] of the Civil Code demands
factual, legal, and equitable justification. Even when a claimant is compelled to litigate with third persons or to incur
expenses to protect his rights, still, attorney's fees may not be awarded where no sufficient showing of bad faith could
be reflected in a party's persistence in a case other than an erroneous conviction of the righteousness of his cause."[41] In
this case, suffice it to say that the CA correctly ruled that the award of attorney's fees and costs of suit should be deleted
for lack of sufficient basis.

WHEREFORE, the petition is PARTLY GRANTED. The Decision dated February 13, 2014 and the Resolution dated October
8, 2014 of the Court of Appeals in CA-G.R. CV No. 96008 are hereby SET ASIDE. In case foreclosure proceedings on the
subject chattel mortgage has not yet been conducted/concluded, petitioner Equitable Savings Bank, now BDO Unibank,
Inc., is ORDERED to commence foreclosure proceedings on the subject vehicle in accordance with the Chattel Mortgage
Law, i.e., within thirty (30) days from the finality of this Decision. The proceeds therefrom should be applied to the
reduced outstanding balance of respondent Rosalinda C. Palces in the amount of P561,500.00, and the excess, if any,
should be returned to her.

SO ORDERED.

28
29