Obli of vendor

The omission of the name of the vendee's husband in the deed of sale gave rise to a problem. Precisely because of it, the Register of Deeds
Nos. L-46715-16. July 29,1988.*
refused to accept it for registration. A second deed of sale—couched in the same terms as the first, acknowledge before the same Notary Public,
LEONCIA T. ZAIDE and PRIMITXVO ZAIDE, substituted by SIMEON TOLENTINO, Guardian ad litem of the Minors, PACITA, ALEX, MARIA
Judge Rafael Madrazo, and bearing exactly the same date (January 11, 1965) and document identification in Judge Madrazo's Notarial Registry
ZERLINA, all surnamed ZAIDE, etc., petitioners, vs.HON. COURT OF APPEALS, ROBERTO DE LEON and EDITA T. ZAIDE, respondents.
(i.e, "Doc. 955, Page No. 92, Book'No. 4, Series of 1965"), actually differing from the first only in that it set forth the names ofthe husbands of both
the vendor and the vendee3—was shortly thereafter presented to, and was promptly accepted for registration, by the Register of Deeds. The latter
Contracts; Lease; Sales; Sale ofland.—If the agreement concerns "the sale of land or pf an interest therein," the law requires not only that
then cancelled TCT No. 69088, and issued a new one, TCT No. 138606, in the name of "Leoncia T. Zaide, married to Primitivo Zaide."
"the same, or some note or memorandum thereof, be in writing, and subscribed by the party charged," in order that it may be enforceable by action
With this lot as collateral, the Zaide Spouses thereafter obtained a loan from the Government Service Insurance System in the sum of
(Article 1403 [2]), but also that the writing be in the form of a "public document" (Article 1358). The law fmally provides that, "if the law requires a
P28,500.00. This was sometime in November, 1964. The proceeds were used to construct a two-story apartment building on the land.4
document or other special form," as in the acts and contracts enumerated in Article 1358, the contracting parties may compel each other to observe
On June 1, 1969, the house of the de Leons burned down. They moved to one of the doors of the apartment built by the Zaide Spouses. They
that form, once the contraet has been perfected and such right may be exercised simultaneously with the action upon the contract (Article 1357).
were asked to pay rentals. They refused. Litigation ensued.
Same; Same; Same; Evidence; When testimony of expert not sustained.—The conclusion of forgery was founded on the testimony
On July 4,1969, the de Leon Spouses filed a complaint with the Court of First Instance of Rizal against the Zaide Spouses.5The case was
________________
docketed as Civil Case No. 11977. Briefly, the de Leons alleged that in June, 1964 they discovered that their title to the land in question (TCT No.
69088) had been cancelled and aiiother (TCT No. 138606) issued to the Zaides, on the strength of "a forged deed of sale supposedly executed in
* FIRST DIVISION. Tagaytay City on the llth day of January, 1965," and that they "could not possibly have sold their lot for the measly sum
________________
706

3 Id., pp. 13-14, 85-86.

706 SUPREME COURT REPORTS ANNOTATED 4 Thenceforth identified as No. 1388 Newton, Makati, Rizal.
5 JH., pp. 29-31. An "Affidavit of Adverse Claim" dated June 4, 1969 also appears to have been filed by the de Leon Spouses with the
Zaide vs. Court of Appeals
Registry of Deeds.
of a handwriting expert. A naked assertion that the expert's evidence proved the forgery, without any discussion, much less refutation of
the facts militating against it cannot be sustained, and cannot be accorded that conclusiveness conceded as a rule to factual findings of the Court of 708
Appeals.
708 SUPREME COURT REPORTS ANNOTATED

APPEAL by certiorari to review the decision of the Court of Appeals. Zaide vs. Court ofAppeals

of P5,000.00 appearing in the forged deed x x considering that the market price of the land x x cannot be less than P20,000.00 ft. They thus prayed

The facts are stated in the opinion of the Court. for the cancellation of TCT No. 138606 and the re-issuance of another "in the name of plaintiff, EDITA ZAIDE," as well as the payment to them of

Tolentino & Associatesfor petitioners. damages and attorneys' fees. Because Primitivo Zaide and Leoncia T. Zaide "were both killed in Tagaytay City" on January 14,1970, the complaint

Benjamin C. Sebastianfor private respondents. was amended to substitute in their stead their minor children: Pacita, Alexander and Maria Zerlina, represented by their guardian ad
litem,SimeonTolentino.6
On October 20, 1970, said Zaide children, through their guardian, Simeon Tolentino, in turn filed suit against the de Leon Spouses in the
NARVASA, J.:
same Court of First Instance of Rizal, to recover the possession of the apartment unit occupied by the latter and pay rentals at the rate of P300.00
pursuant to a "verbal contract of lease.7" The case, docketed as Civil Case No. 14044, was later transferred to the same branch to which the earlier
Edita Zaide and her husband, Roberto de Leon, were the registered owners of a parcel of land situated in Makati, Rizal, with an area of 201 square
one (No. 11977), had been assigned. The cases were then tried jointly.8
meters, covered by TCT No. 69088 of the Register of Deeds of Rizal.
Judgment was rendered in favor of the Zaide Spouses on September 25,1972,9 the dispositive portion of which reads:10
Sometime in the middle sixties, Primitivo Zaide, Edita's brother, gave to Edita and her husband, Roberto de Leon, P2,000.00 as a loan, which
"WHEREFORE, the Court renders judgment dismissing the complaint filed in Civil Case No. 11977 and declaring the sale of the lot covered by
the latter used to redeem the land mortgaged by them to the Pasay Rural Bank. At about this time, too, Primitivo Zaide and his wife, Leoncia T.
Transfer Certificate of Title No. 138606 issued in the names of the deceased spouses Leoncia T. Zaide and Primitivo Zaide legal and valid; ordering
Zaide, transferred ownership of a jitney1 owned by them, valued at P7,000.00, to Roberto de Leon. It is the Zaide Spouses' claim that the vehicle
the plaintiffs as defendants in Civil Case No. 14044 to pay Pacita, Alexander and Maricar all surnamed Zaide, as plaintiffs in Civil Case No.
was thus ceded as part of the purchase price of the de Leons' above described land, which they had agreed to buy. In any case, neither the loan nor
14044 the sum of P250.00 representing the rental of the use and occupancy of one of the doors of the apartment, beginning January 1, 1969 and
the transfer of the vehicle is disputed.
every month thereafter until the said Edita Zaide and Roberto de Leon shall have fmally vacated the premises; and ordering Edita Zaide and
On January 11,1965, Edita Zaide executed a public instrument denominated "Deed of Sale" by which, in consideration of P5,000.00 paid to
Robertc de Leon or any person claiming rights from them to immediately vacate the apartment they are now occupying situated on the land in
her, she sold the parcel of land covered by TCT No. 69088 to Leoncia T. Zaide.2 The deed described both the vendor, Edita Zaide, and the vendee,
question.
Leoncia T. Zaide, as "married," but named neither of their husbands. The docu-
_________________
________________

1 A "Willy's jitney," over which Roberto de Leon subsequently obtained Registration Certificate No. GRC-271467 in his name (par. 10,
6 Id., pp. 45-47.
Amended Answer in Civil Case No. 11977: Rollo, p. 37).
7 Id., pp. 78-79.
2 Rollo,pp. 12-13.
8 Id., pp. 79-82.
9 By Hon. Benjamin H. Aquino, Rollo, pp. 62-65.
707
10 Rollo,pp. 65, 81-82.
VOL. 163, JULY 29, 1988 707
709
Zaide us. Court ofAppeals
VOL. 163, JULY 29, 1988 709
ment however did bear the signature of Edita's husband, Roberto de Leon, indicating his "marital consent."

1
Obli of vendor

declaring the late spouses Primitivo Zaide and Leoncia T. Zaide, parents of the minors who are the plaintiffsappellees in CA-G.R. No. 53880-R, as
Zaide vs. Court of Appeals
builders in bad faith of the apartment built on the contested lot in CA-G.R. No. 53879-R and (2) relieving appellant Roberto de Leon in CA-G.R. No.
With costs against Edita Zaide and Roberto de Leon as plaintiffs in Civil Case No. 11977 and defendants in Civil Case No. 14044."
53880-R (who is the defendant in Civil Case No. 14044) from paying rental in occupying one door of said apartment which should not be vacated by
him and his wife or any person claiming any right from them. In all other respects, the said portion relative to Civil Case No. 14044 is AFFIRMED
This judgment was however reversed by another Judge by Order dated April 10, 1973,11 upon a motion for reconsideration seasonably presented by
with costs in both instances to be taxed on the defendantsappellants, Simeon Tolentino, guardian ad litem of the Minors Pacita, Alexander, Maria
the Spouses de Leon. In that Order, the Court declared that the "firm and unshakable" testimony of an NBI handwriting expert established that
Zerlina, all surnamed Zaide, who are the plaintiffs-appellees in CA-G.R. No. 53880-R."
the signatures of both plaintiffs Edita Zaide and Roberto de Leon as appearing in the x x (second deed of sale,) Exhibit 'A' (Exhibit 2 of the
defendants) x x were forgeries based on the sample signatures of the two appearing in the other documents furnished to the NBI x x." The Court
The case is now before this Court on an appeal by certiorari of the Zaide children from the decision of the Appellate Court.
further stated that the defect in the admittedly genuine first deed of sale—consisting of the omission of the names of the husbands of the vendor
There are two (2) deeds of sale which, as already remarked, are exactly the same as to date, contents, and identification in the notarial
and vendee—could not be corrected by a forged document which is considered inexistent before the law. It therefore ruled that TCT No. 138606
registry, differing only in that the second contains the names of the spouses of the vendor and the vendee.15 It is the Zaides' claim that the second,
issued to the Zaide Spouses was null and void, being "the fruit of a forged deed of sale." The Order closed with the following dispositive paragraph:
Exhibit 2, is a forgery, and the first, Exhibit 1, had not been admitted by them.
"WHEREFORE, in view of the fmdings of this Court the motion for the reconsideration of the decision is hereby granted, and the decision insofar as
The record shows that the deed, Exhibit 1, was in fact admitted by the de Leons. Copies of both deeds, Exhibits 1 and 2, were pleaded by the
the Court ruled the dismissal of the complaint in Civil Case No. 11977 and declared the sale of the lot covered by Transfer Certificate of Title No.
Zaides in their amended answer as an "actionable document"16 or as "a written instrument or document" on which "an action or defense is based"
138606 issued in the names of the deceased spouses Leoncia T. Zaide and Primitivo Zaide legal and valid is set aside, and this Court declares that
in accordance with Section 7, Rule 8 of the Rules of Court. The de Leons failed to specifically deny "the genuineness and due execution of the
Transfer Certificate of Title No. 138606 issued in the name of defendant Leoncia T. Zaide as cancelled, it being found by the Court as proceeding
annexed instrument(s) x x under oath, x x (and to set forth what they claim) to be the facts;" hence, under Section 8 of the same Rule, "the
from a forged Deed of Sale Exhibit 'A.' As a result of this, this Court orders the Register of Deeds of Rizal to reissue the Transfer Certificate of Title
genuineness and due execution" of the deeds should "be deemed admitted."
over the disputed parcel of land in the name of the plaintiff. With respect to the other case, Civil Case No. 14044, this Court will not disturb the
_________________
fmdings made by the Presiding Judge who rendered the decision sought to be reconsidered. The decision having been thus reconsidered insofar
as Civil Case No. 11977is concerned, costs of suit in this case are chargeable to the defendants."
15 SEE footnote 3, supra.
16 The term used in the Rules of Court of 1940, which was not however adopted in the Rules of 1964.
________________

712
11 Rendered by Hon. Nicanor S. Sison, who succeeded Judge Aquino.
712 SUPREME COURT REPORTS ANNOTATED

710
Zaide vs. Court ofAppeals
710 SUPREME COURT REPORTS ANNOTATED The de Leons however insist that they should not be saddled with any such admission because the amended answer (in which the deeds had been
pleaded) had never been admitted by the Court a quo. This is not correct. At least two (2) orders of the Trial Court made clear its admission of the
Zaide us. Court of Appeals
amended answer. At one of the hearings, the Court categorically stated that "for purposes of record, the court admits the amended complaint as well
There is, it will be observed, a curious ambivalence in the amending order: while it declares the de Leons to be the owner of the land (and orders the
as the amended answer."17 In an earlier Order, dated January 6, 1971, lifting an order of default entered against the Zaides, the Court cited as
re-issuance of title to them), it did "not disturb the findings" in the original judgment "with respect to Civil Case No. 14044," to the effect that the
reason therefor the fact that "defendants have filed not only an answer but also an amended answer to the original complaint."18 It is not the
Zaide children are entitled to receive rents for "the use and occupancy of one of the doors of the apartment" by the de Leons.12 Be this as it may, the
ceremonial phrase of express admission of an amended pleading that should control, but the unequivocal acts of the Court in relation to the revised
defendants in Civil Case No. 11977—the children of the deceased Zaide Spouses—and the defendant in Civil Case No. 14044—Roberto de Leon—
pleading.
appealed to the Court of Appeals.13
Moreover, the de Leons' counsel, Atty. Mariano, explicitly manifested to the Court that they were not contesting Exhibit 1. This is made clear
The Court of Appeals found that, contrary to the Zaides' claim, there had been no admission by the de Leons of the genuineness of the first
by the following recorded exchange19 between the Court and counsel, following the observation of the Zaides' attorney, Mr. San Jose, that inter
deed of sale (Exh. 1), and their counsePs stateinent in the course of the trial that his clients were "not contesting" that deed, did "not amount to an
alia the de Leons had not objected to the genuineness of Exhibit 1 when formally offered, the only objection being "that it did not contain
outright admission of the genuineness thereof but x x (was) rather an indication on their part to limit themselves within the issue of forgery of
documentary stamps."
Exhibit 2 or the second deed of sale;" that the signatures on the latter deed were definitely forgeries, and since the Zaides invoked that deed as
"ATTY. MARIANO:
basis of their title to the land, they could not be deemed buyers in good faith; and the judgment in Civil Case No. 14044 decreeing the ejectment of
the de Leons was incongruous to its findings of the spurious nature of the deed of sale and the Zaides' character as buyers in bad faith. The Court of The trouble is we are not contesting Exhibit 1, what we are contesting is Exhibit 2, as a forgery which Exh. 2 is the basis of the registration.
Appeals thus AFFIRMED the Order of April 10,1973—which superseded the judgment of September 25,1972—in so far as it declared that the sale
"COURT:
of the land in favor of the Zai^es was null and void and the land should therefore revert to the de Leons, but MODIFIED it by relieving Roberto de
Leon of any obligation to pay rent for his occupancy of one door of the apartment building on the land, "which should not be vacated by him and his What has been attached to the answer?
wife or any person claiming any right from them." The dispositive paragraph of the Court's decision14 reads as follows:
"ATTY. SAN JOSE:
_________________

Both of them. May we have it on record that what they are contesting is Exhibit 2, and not Exhibit 1.

12 See footnote 10, supra.

"COURT:
13 The appeal of the heirs of the Spouses Zaide was docketed as CA-G.R. No. 53879-R; that of Roberto de Leon, as CA-G.R. No. 53880R.
14 Promulgated on July 26,1977, Rollo, pp. 77, 96-97; Santiago, Jr.. J.. nonente: Reves and Serrann. ,7,7. ronmrrincr Put it on record. But (that) he is not so such objecting on the document Exhibit 1.

"ATTY. MARIANO:
711
We are not contesting Exhibit 1.We are contesting Ex
VOL. 163, JULY 29, 1988 711
_________________
Zaide vs. Court of Appeals

"WHEREFORE, We hereby affirm the appealed Order, dated April 10, 1973, insofar as it relates to Civil Case No. 11977 of the Court of First 17 TSN, May 30,1972, p. 9; petitioners' brief, p. 14.

Instance at Pasig, Rizal, and hereby modify that portion of the same order insofar as it relates to Civil Case No. 14044 of the same Court by (1) 18 Rollo, pp. 49-50.

2
Obli of vendor
19 TSN, July 11,1972, p. 17-21; italics supplied.
713
VOL. 163, JULY 29, 1988 713
Zaide vs. Court ofAppeals
hibit 2.
"COURT:
Precisely, you are not contesting Exhibit 1.
"ATTY. MARIANO:
Yes, Your Honor."
It is difficult to imagine how an admission of a document could be made any more plain. Prescinding from this, no evidence whatever has been
presented or proferred by the de Leons of the spuriousness of Exhibit 1. Their manifestations with respect to Exhibit 1 have been limited to an
insistence on limiting the issue to the alleged falsity of the second deed, Exhibit 2. But, to repeat, they have made no effort whatever to prove
Exhibit 1 to be other than genuiiie. Under the circumstances, the genuineness and due execution of Exhibit 1, which had been formally offered and
admitted by the Court, cannot but be conceded, not merely 011 the strength of the unrebutted presumptions of regularity of private
transactions,20 but also and particularly, the admissions by the de Leons just detailed.
However, although the first deed of sale (Exh. 1) was genuine, it was so far defective as to render it unregistrable in the Registry of Property.
As already pointed out, it did not set forth the name of the vendee's husband and was for this reason refused registration by the Register of Deeds.
The defect was unsubstantial. It did not invalidate the deed. The legal dispositions are clear Though defective in form, the sale was valid; and the
parties could compel each other to do what was needful to make the document of sale registrable. The law generally allows a contract of sale to be
entered into in any form, whether "in writing, or by word of mouth, or partly in writing and partly by word or mouth, or (even) inferred from the
conduct of the parties;" but if the agreement concerns "the sale of land or of an interest therein," the law requires not only that "the same, or some
note or memorandum thereof, be in writing, and subscribed by the party charged" in order that it may be
_______________
20 "p) That private transactions have been fair and regular;" "(q) That the ordinary course of business has been followed;" (r) That there was
a sufficient consideration for a written contract;" and as regards the notarization of Exhibit 1 by the Municipal Judge, "(m) That official duty has
been regularly performed" (Sec. 5, Rule 131, Rules of Court)
714
714 SUPREME COURT REPORTS ANNOTATED
Zaide vs. Court of Appeals
enforceable by action,21 but also that the writing be in the form of a "public document."22 The law finally provides that "If the law requires a
document or other special form, as in the acts and contracts enumerated in x x (Article 1358), the contracting parties may compel each other to
observe that form, once the contract has been perfected x x (and such) right may be exercised simultaneously with the action upon the contract."23
In the case at bar, the Zaides thus had the right to compel the de Leons to observe the special form prescribed by law; i.e., revised the public
document by inserting the name of the vendee's husband. Indeed, this was precisely what was done in the second deed of sale, Exhibit 2.
The de Leons however contend that Exhibit 2 is a nullity: they had never signed it; their purported signatures thereon had been forged.
Assuming this to be so, for the sake of argument, it does not alter (1) the fact that the parties had voluntarily executed a sale in-writing, Exhibit 1,
which recites that the price of P5,000.00 had been paid, and the further fact that (a) the de Leons had received from the Zaides the sum of
P2,000.00 as well as a vehicle valued at P7,000.00 and (b) they, the de Leons, knew that the Zaides had exercised an act of ownership over the
property thereby acquired by mortgaging it as security for a loan; or (2) the legal consequence flowing therefrom: that in order to cure the defect in
the first deed, in that it did not specify the name of the vendee's husband, the Zaides could legally compel the de Leons to execute another deed
containing this omitted circumstance. Hence, even if the second document of sale be invalidated as a forgery, and the de Leons' title to the land
restored to them, this would be inutile, an empty ceremony, since the de Leons could nevertheless still be compelled by the Zaides to execute
another deed, in proper form, to carry into effect the sale originally entered into.
But it is not as indubitable as the Appellate Court and the
________________
21 The Statute of Frauds: ART. 1403 (2), Civil Code; italics supplied.
22ART. 1358. Civil Code, provides. that among those which "must appear in a public document" are "contracts which have for their object the
creation, transmission, modiflcation or extinguishment of real rights over immovable property." Italics supplied.
23 ART. 1357, Civil Code.
715
VOL. 163, JULY 29, 1988 715
Zaide vs. Court of Appeals
Trial Court seem to believe that the second deed of sale, Exhibit 2, was in truth a forgery. The conclusion of forgery was founded on the testimony of
a handwriting expert. There is in any case no satisfactory explanation why the expert did not see fit to use, for purposes of comparison, the
document nearest in point of time to the questioned deed (Exhibit 2), namely, Exhibit 1; or why such expert's testimony should be accorded full
faith and credit despite its (1) not having been subjected to cross-examination, and (2) being contradicted by the positive testimony of a subscribing
witness, and of the judge who, as notary public ex oficio, had notarized both deeds of sale, both of whom had affirmed that the vendors and vendees
had actually signed the documents. There was simply a naked assertion that the expert's evidence proved the forgery without any discussion, much
less refutation, of the facts militating against it. Obviously, such an unreasoned assertion cannot be sustained. It cannot be accorded that
conclusiveness conceded as a rule to factual findings of the Court of Appeals. In this situation, it cannot rightfully be ruled that the second deed of
sale, Exhibit 2, is indeed a forgery. The most that may perhaps be said about it is that its genuineness has been placed in doubt by the evidence
given by the handwriting expert. But this is inconsequential, in view of the facts and legal considerations set out in the next preceding paragraph.
WHEREFORE, the judgment of the Court of Appeals in CAG.R. No. 53879-R and CA-G.R. No. 53880-R dated July 26, 1977, and the Order of
the Trial Court dated April 10, 1973 thereby affirmed with modification, are REVERSED AND SET ASIDE, and the decision of said Trial Court
rendered on September 25, 1972, SUSTAINED AND AFFIRMED in toto. Costs against private respondents.
Cruz, Gancayco, Grino-Aquino and Medialdea, JJ., concur.
Judgment and order affirmed with modification.
Note.—Contract of sale is perfected upon meeting of the minds on subject matter and price even if neither is delivered. (Obana vs. Court of
Appeals, 135 SCRA 557.)
——oOo——
716
© Copyright 2019 Central Book Supply, Inc. All rights reserved.
54 SUPREME COURT REPORTS ANNOTATED
Chua vs. Court of Appeals
G.R. No. 119255. April 9, 2003.*
TOMAS K. CHUA, petitioner, vs. COURT OF APPEALS and ENCARNACION VALDES-CHOY, respondents.
Civil Procedure; Pleadings and Practice; Appeals; An issue not raised in the court below cannot be raised for the first time on appeal.—An
issue not raised in the court below cannot be raised for the first time on appeal, as this is offensive to the basic rules of fair play, justice and due
process. In addition, when a party deliberately adopts a certain theory, and the case is tried and decided on that theory in the court below, the party
will not be permitted to change his theory on appeal. To permit him to change his theory will be unfair to the adverse party.
Civil Law; Contracts; Sales; Contract of Sale vs. Contract to Sell; The distinction between a contract of sale and contract to sell is well-
settled.—In a contract of sale, the title to the property passes to the vendee upon the delivery of the thing sold; in a contract to sell, ownership is, by
agreement, reserved in the vendor and is not to pass to the vendee until full payment of the purchase price. Otherwise stated, in a contract of sale,
the vendor loses ownership over the property and cannot recover it until and unless the contract is resolved or rescinded; whereas, in a contract to
sell, title is retained by the vendor until full payment of the price. In the latter contract, payment of the price is a positive suspensive condition,
failure of which is not a breach but an event that prevents the obligation of the vendor to convey title from becoming effective.
Same; Same; Same; Earnest Money; The earnest money forms part of the consideration only if the sale is consummated upon full payment
of the purchase price.—It is true that Article 1482 of the Civil Code provides that “[W]henever earnest money is given in a contract of sale, it shall
be considered as part of the price and proof of the perfection of the contract.” However, this article speaks of earnest money given in a contract of
sale. In this case, the earnest money was given in a contract to sell. The Receipt evidencing the contract to sell stipulates that the earnest money is
a forfeitable deposit, to be forfeited if the sale is not consummated should Chua fail to pay the balance of the purchase price. The earnest money
forms part of the consideration only if the sale is consummated upon full payment of the purchase price.
Same; Same; Same; It is only upon the existence of the contract of sale that the seller becomes obligated to transfer the ownership of the
thing sold to the buyer.—It is only upon the existence of the contract of sale that the
3
Obli of vendor

______________ RECEIVED from MR. TOMAS K. CHUA PBCom Check No. 206011 in the amount of ONE HUNDRED THOUSAND PESOS ONLY (P100,000.00)
as EARNEST MONEY for the sale of the property located at 40 Tampingco cor. Hidalgo, San Lorenzo Village, Makati, Metro Manila (Area : 718 sq.

* FIRST DIVISION. meters).

55

______________
VOL. 401, APRIL 9, 2003 55

Chua vs. Court of Appeals 1 In CA-G.R. CV No. 37652, dated 23 February 1995, penned by Associate Justice Artemon D. Luna with Associate Justices Cancio C. Garcia

seller becomes obligated to transfer the ownership of the thing sold to the buyer. Article 1458 of the Civil Code defines a contract of sale and Godardo A. Jacinto concurring.

as follows: Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a 2 Civil Case No. 89-5772.

determinate thing, and the other to pay therefor a price certain in money or its equivalent. x x x. (Emphasis supplied) Prior to the existence of the 3 Branch 142, Makati, National Capital Judicial Region, presided by Judge Salvador P. De Guzman, Jr.

contract of sale, the seller is not obligated to transfer ownership to the buyer, even if there is a contract to sell between them. It is also upon the 4 Dated 29 August 1991.

existence of the contract of sale that the buyer is obligated to pay the purchase price to the seller. Since the transfer of ownership is in exchange for 57

the purchase price, these obligations must be simultaneously fulfilled at the time of the execution of the contract of sale, in the absence of a
VOL. 401, APRIL 9, 2003 57
contrary stipulation.
Same; Same; Same; Delivery; The delivery, therefore, made in any of the forms provided in articles 1497 to 1505 signifies that the Chua vs. Court of Appeals

transmission of ownership from vendor to vendee has taken place.—Delivery is not only a necessary condition for the enjoyment of the thing, but is a The balance of TEN MILLION SEVEN HUNDRED THOUSAND (P10,700,000.00) is payable on or before 155July 1989. Capital Gains Tax
mode of acquiring dominion and determines the transmission of ownership, the birth of the real right. The delivery, therefore, made in any of the for the account of the seller. Failure to pay balance on or before 15 July 1989 forfeits the earnest money. This provided that all papers are in proper
forms provided in articles 1497 to 1505 signifies that the transmission of ownership from vendor to vendee has taken place. The delivery of the thing order.6
constitutes an indispensable requisite for the purpose of acquiring ownership. Our law does not admit the doctrine of transfer of property by mere CONFORME: ENCARNACION VALDES
consent; the ownership, the property right, is derived only from delivery of the thing. x x x. (Emphasis supplied) Seller
Same; Same; Same; Same; Payment of the capital gains tax, however, is not a pre-requisite to the transfer of ownership to the lawyer.—The TOMAS K. CHUA
buyer has more interest in having the capital gains tax paid immediately since this is a pre-requisite to the issuance of a new Torrens title in his Buyer
name. Nevertheless, as far as the government is concerned, the capital gains tax remains a liability of the seller since it is a tax on the seller’s gain x x x.7
from the sale of the real estate. Payment of the capital gains tax, however, is not a pre-requisite to the transfer of ownership to the buyer. The In the morning of 13 July 1989, Chua secured from Philippme Bank of Commerce (“PBCom”) a manager’s check for P480,000.00. Strangely, after
transfer of ownership takes effect upon the signing and notarization of the deed of absolute sale. securing the manager’s check, Chua immediately gave PBCom a verbal stop payment order claiming that this manager’s check for P480,000.00
“was lost and/or misplaced.”8 On the same day, after receipt of Chua’s verbal order, PBCom Assistant Vice-President Julie C. Pe notified in
PETITION for review on certiorari of a decision of the Court of Appeals. writing9 the PBCom Operations Group of Chua’s stop payment order.
In the afternoon of 13 July 1989, Chua and Valdes-Choy met with their respective counsels to execute the necessary documents and arrange

The facts are stated in the opinion of the Court. the payments.10 Valdes-Choy as vendor and Chua as vendee signed two Deeds of Absolute Sale (“Deeds of Sale”). The first Deed of Sale covered the

Benito Fabie for petitioner. house and lot for the purchase price of P8,000,000.00.11 The second Deed of Sale covered the furnishings, fixtures and movable properties

Reynaldo A. Ruiz for private respondent. contained in the house for the purchase price of P2,800,000.00.12 The parties also computed the capital gains tax to amount to P485,000.00.

56 On 14 July 1989, the parties met again at the office of Valdes-Choy’s counsel. Chua handed to Valdes-Choy the PBCom manager’s check for
P485,000.00 so Valdes-Choy could pay the capital
56 SUPREME COURT REPORTS ANNOTATED

Chua vs. Court of Appeals ______________

5 The typewritten figure “30” was corrected in ink to “15”.

CARPIO, J.:
6 The italicized portions were also handwritten in ink and initialed by Chua.
7 Annex “A,” Records, p. 7.
The Case 8 TSN, 24 July 1990, pp. 20-28.

This is a petition for review on certiorari seeking to reverse the decision1 of the Court of Appeals in an action for specific performance2filed in the 9 Exhibit “8,” Records, p. 140.

Regional Trial Court3 by petitioner Tomas K. Chua (“Chua”) against respondent Encarnacion Valdes-Choy (“Valdes-Choy”). Chua sought to compel 10 TSN, 25 January 1990, p. 87.

Valdes-Choy to consummate the sale of her paraphernal house and lot in Makati City. The Court of Appeals reversed the decision4 rendered by the 11 Exhibit “B,” Records, pp. 107-109.

trial court in favor of Chua. 12 Exhibit “C,” Records, pp. 110-112.

58
The Facts
Valdes-Choy advertised for sale her paraphernal house and lot (“Property”) with an area of 718 square meters located at No. 40 Tampingco Street 58 SUPREME COURT REPORTS ANNOTATED

comer Hidalgo Street, San Lorenzo Village, Makati City. The Property is covered by Transfer Certificate of Title No. 162955 (“TCT”) issued by the
Chua vs. Court of Appeals
Register of Deeds of Makati City in the name of Valdes-Choy. Chua responded to the advertisement. After several meetings, Chua and Valdes-Choy
agreed on a purchase price of P10,800,000.00 payable in cash. gains tax as she did not have sufficient funds to pay the tax. Valdes-Choy issued a receipt showing that Chua had a remaining balance of

On 30 June 1989, Valdes-Choy received from Chua a check for P100,000.00. The receipt (“Receipt”) evidencing the transaction, signed by P10,215,000.00 after deducting the advances made by Chua. This receipt reads:

Valdes-Choy as seller, and Chua as buyer, reads:

30 June 1989 July 14, 1989

RECEIPT

4
Obli of vendor

Received from MR. TOMAS K. CHUA PBCom. Check No. 325851 in the amount of FOUR HUNDRED EIGHTY FIVE THOUSAND PESOS ONLY 14 TSN, 25 January 1990, p. 226.
(P485,000.00) as Partial Payment for the sale of the property located at 40 Tampingco Cor. Hidalgo St., San Lorenzo Village, Makati, Metro Manila 15 Exhibit “9,” Records, p. 141.
(Area 718 sq. meters), covered by TCT No. 162955 of the Registry of Deeds of Makati, Metro Manila. 16 TSN, 24 July 1989, p. 37.
The total purchase price of the above-mentioned property is TEN MILLION EIGHT HUNDRED THOUSAND PESOS only, broken down as 17 TSN, 5 February 1990, pp. 37-38.
follows: 60

SELLING PRICE 60 P10,800,000.00 SUPREME COURT REPORTS ANNOTATED

EARNEST MONEY P100,000.00 Chua vs. Court of Appeals

PARTIAL PAYMENT 485,000.00

1.
585,000.00 a.the owner’s duplicate copy of TCT No. 162955 registered in her name;
2. b.the covering tax declaration and the latest tax receipt evidencing payment of real estate taxes;
BALANCE DUE TO
3. c.the two deeds of sale prepared by Atty. Mark Bocobo on July 13, 1989, duly executed by defendant in favor of the plaintiff, whether

ENCARNACION VALDEZ-CHOY P10,215,000.00 notarized or not; and

PLUS P80,000.00 for documentary

1. 2.Within five (5) days from compliance by the defendant of the above, ordering the plaintiff to deliver to the Branch Clerk of Court of
stamps paid in advance by seller 80,000.00
this Court the sum of P10,295,000.00 representing the balance of the consideration (with the sum of P80,000.00 for stamps

P10,295,000.00 already included);

x x x.13 2. 3.Ordering the Branch Clerk of this Court or her duly authorized representative:

On the same day, 14 July 1989, Valdes-Choy, accompanied by Chua, deposited the P485,000.00 manager’s check to her account with Traders Royal
Bank, She then purchased a Traders Royal Bank manager’s check for P480,000.00 payable to the Commissioner of Internal Revenue for the capital 1.
gains tax. Valdes-Choy and Chua returned to the office of Valdes-Choy’s counsel and handed the Traders Royal Bank check to the counsel who
undertook to pay the capital gains tax. It was then also that Chua showed to Valdes-Choy a PBCom manager’s check for P10,215,000.00 2.
representing the balance of the purchase price. Chua, however, did not give this PBCom manager’s check to Valdes-Choy because the TCT was still
registered in the name of Val- 3.
a.to make representations with the BIR for the payment of capital gains tax for the sale of the house and lot (not to include the
fixtures) and to pay the same from the funds deposited with her;
b.to present the deed of sale executed in favor of the plaintiff, together with the owner’s duplicate copy of TCT No. 162955, real
estate tax receipt and proof of payment of capital gains tax, to the Makati Register of Deeds;
c.to pay the required registration fees and stamps (if not yet advanced by the defendant) and if needed update the real estate taxes
all to be taken from the funds deposited with her; and

______________ 4. d.surrender to the plaintiff the new Torrens title over the property;

13 Records, p. 73. 1. 4.Should the defendant fail or refuse to surrender the two deeds of sale over the property and the fixtures that were prepared by
59 Atty. Mark Bocobo and executed by the parties, the Branch Clerk of Court of this Court is hereby authorized and empowered to

VOL. 401, APRIL 9, 2003 59 prepare, sign and execute the said deeds of sale for and in behalf of the defendant;
2. 5.Ordering the defendant to pay to the plaintiff;
Chua vs. Court of Appeals

des-Choy. Chua required that the Property be registered first in his name before he would turn over the check to Valdes-Choy. This angered
1. a.the sum of P100,000.00 representing moral and compensatory damages for the plaintiff; and
Valdes-Choy who tore up the Deeds of Sale, claiming that what Chua required was not part of their agreement.14
2. b.the sum of P50,000.00 as reimbursement for plaintiffs attorney’s fees and cost of litigation.
On the same day, 14 July 1989, Chua confirmed his stop payment order by submitting to PBCom an affidavit of loss15 of the PBCom
Manager’s Check for P480,000.00. PBCom Assistant Vice-President Pe, however, testified that the manager’s check was nevertheless honored
because Chua subsequently verbally advised the bank that he was lifting the stop-payment order due to his “special arrangement” with the bank.16 1. 6.Authorizing the Branch Clerk of Court of this Court to release to the plaintiff, to be taken from the funds said plaintiff has

On 15 July 1989, the deadline for the payment of the balance of the purchase price, Valdes-Choy suggested to her counsel that to break the deposited with the Court, the amounts covered at paragraph 5 above;

impasse Chua should deposit in escrow the P10,215,000.00 balance.17 Upon such deposit, Valdes-Choy was willing to cause the issuance of a new 2. 7.Ordering the release of the P10,295,000.00 to the defendant after deducting therefrom the following amounts:

TCT in the name of Chua even without receiving the balance of the purchase price. Valdes-Choy believed this was the only way she could protect
herself if the certificate of title is transferred in the name of the buyer before she is fully paid. Valdes-Choy’s counsel promised to relay her 61
suggestion to Chua and his counsel, but nothing came out of it.
VOL. 401, APRIL 9, 2003 61
On 17 July 1989, Chua filed a complaint for specific performance against Valdes-Choy which the trial court dismissed on 22 November 1989.
On 29 November 1989, Chua re-filed his complaint for specific performance with damages. After trial in due course, the trial court rendered Chua vs. Court of Appeals
judgment in favor of Chua, the dispositive portion of which reads:
“Applying the provisions of Article 1191 of the new Civil Code, since this is an action for specific performance where the plaintiff, as vendee, wants
to pursue the sale, and in order that the fears of the defendant may be allayed and still have the sale materialize, judgment is hereby rendered: 1. a.the capital gains tax paid to the BIR;
2. b.the expenses incurred in the registration of the sale, updating of real estate taxes, and transfer of title; and
3. c.the amounts paid under this judgment to the plaintiff.
1. I.1. Ordering the defendant to deliver to the Court not later than five (5) days from finality of this decision:

1. 8.Ordering the defendant to surrender to the plaintiff or his representatives the premises with the furnishings intact within
______________
seventy-two (72) hours from receipt of the proceeds of the sale;

5
Obli of vendor

2. 9.No interest is imposed on the payment to be made by the plaintiff because he had always been ready to pay the balance and the ______________
premises had been used or occupied by the defendant for the duration of this case.

19 Ibid., p. 62.
63
1. II.In the event that specific performance cannot be done for reasons or causes not attributable to the plaintiff, judgment is hereby
rendered ordering the defendant: VOL. 401, APRIL 9, 2003 63

Chua vs. Court of Appeals

1. 1.To refund to the plaintiff the earnest money in the sum of P100,000.00, with interest at the legal rate from June 30, 1989 until
trial court concluded that these documents were all useless without the Bureau of Internal Revenue receipt evidencing full payment of the capital
fully paid;
gains tax which is a pre-requisite to the issuance of a new certificate of title in Chua’s name.
2. 2.To refund to the plaintiff the sum of P485,000.00 with interest at the legal rate from July 14, 1989 until fully paid;
The trial court held that Chua’s non-payment of the balance of P10,215,000.00 on the agreed date was due to Valdes-Choy’s fault.
3. 3.To pay to the plaintiff the sum of P700,000.00 in the concept of moral damages and the additional sum of P300,000.00 in the
concept of exemplary damages; and The Court of Appeals’ Ruling
4. 4.To pay to the plaintiff the sum of P100,000.00 as reimbursement of attorney’s fees and cost of litigation. In reversing the trial court, the Court of Appeals ruled that Chua’s stance to pay the full consideration only after the Property is registered in his
name was not the agreement of the parties. The Court of Appeals noted that there is a whale of difference between the phrases “all papers are in
proper order” as written on the Receipt, and “transfer of title” as demanded by Chua.
SO ORDERED.”18
Contrary to the findings of the trial court, the Court of Appeals found that all the papers were in order and that Chua had no valid reason
Valdes-Choy appealed to the Court of Appeals which reversed the decision of the trial court. The Court of Appeals handed down a new judgment,
not to pay on the agreed date. Valdes-Choy was in a position to deliver the owner’s duplicate copy of the TCT, the signed Deeds of Sale, the tax
disposing as follows:
declarations, and the latest realty tax receipt. The Property was also free from all liens and encumbrances.
“WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE, and another one is rendered:
The Court of Appeals declared that the trial court erred in considering Chua’s showing to Valdes-Choy of the PBCom manager’s check for
P10,215,000.00 as compliance with Chua’s obligation to pay on or before 15 July 1989. The Court of Appeals pointed out that Chua did not want to
1. (1)Dismissing Civil Case No. 89-5772; give up the check unless “the property was already in his name.”20 Although Chua demonstrated his capacity to pay, this could not be equated with
2. (2)Declaring the amount of P100,000.00, representing earnest money as forfeited in favor of defendant-appellant; actual payment which he refused to do.
3. (3)Ordering defendant-appellant to return/refund the amount of P485,000.00 to plaintiff-appellee without interest; The Court of Appeals did not consider the non-payment of the capital gains tax as failure by Valdes-Choy to put the papers “in proper order.”
4. (4)Dismissing defendant-appellant’s compulsory counter-claim; and The Court of Appeals explained that the payment of the capital gains tax has no bearing on the validity of the Deeds of Sale. It is only after the
deeds are signed and notarized can the final computation and payment of the capital gains tax be made.

______________
The Issues
In his Memorandum, Chua raises the following issues:
18 Rollo, pp. 71-72.
62
______________

62 SUPREME COURT REPORTS ANNOTATED

20 Rollo, p. 60.
Chua vs. Court of Appeals
64

64 SUPREME COURT REPORTS ANNOTATED

1. (5)Ordering the plaintiff-appellee to pay the costs.”19
Chua vs. Court of Appeals

Hence, the instant petition.

1. 1.WHETHER THERE IS A PERFECTED CONTRACT OF SALE OF IMMOVABLE PROPERTY;

The Trial Court’s Ruling
2. 2.WHETHER VALDES-CHOY MAY RESCIND THE CONTRACT IN CONTROVERSY WITHOUT OBSERVING THE
The trial court found that the transaction reached an impasse when Valdes-Choy wanted to be first paid the full consideration before a new TCT
PROVISIONS OF ARTICLE 1592 OF THE NEW CIVIL CODE;
covering the Property is issued in the name of Chua. On the other hand, Chua did not want to pay the consideration in full unless a new TCT is
3. 3.WHETHER THE WITHHOLDING OF PAYMENT OF THE BALANCE OF THE PURCHASE PRICE ON THE PART OF CHUA
first issued in his name. The trial court faulted Valdes-Choy for this impasse.
(AS VENDEE) WAS JUSTIFIED BY THE CIRCUMSTANCES OBTAINING AND MAY NOT BE RAISED AS GROUND FOR
The trial court held that the parties entered into a contract to sell on 30 June 1989, as evidenced by the Receipt for the P100,000.00 earnest
THE AUTOMATIC RESCISSION OF THE CONTRACT OF SALE;
money. The trial court pointed out that the contract to sell was subject to the following conditions: (1) the balance of P10,700,000.00 was payable
4. 4.WHETHER THERE IS LEGAL AND FACTUAL BASIS FOR THE COURT OF APPEALS TO DECLARE THE “EARNEST
not later than 15 July 1989; (2) Valdes-Choy may stay in the Property until 13 August 1989; and (3) all papers must be “in proper order” before full
MONEY” IN THE AMOUNT OF P100,000.00 AS FORFEITED IN FAVOR OF VALDES-CHOY;
payment is made.
5. 5.WHETHER THE TRIAL COURT’S JUDGMENT IS IN ACCORD WITH LAW, REASON AND EQUITY DESERVING OF BEING
The trial court held that Chua complied with the terms of.the contract to sell. Chua showed that he was prepared to pay Valdes-Choy the
REINSTATED AND AFFIRMED.21
consideration in full on 13 July 1989, two days before the deadline of 15 July 1989. Chua even added P80,000.00 for the documentary stamp tax. He
purchased from PBCom two manager’s checks both payable to Valdes-Choy. The first check for P485,000.00 was to pay the capital gains tax. The
second check for P10,215,000.00 was to pay the balance of the purchase price. The trial court was convinced that Chua demonstrated his capacity The issues for our resolution are: (a) whether the transaction between Chua and Valdes-Choy is a perfected contract of sale or a mere contract to
and readiness to pay the balance on 13 July 1989 with the production of the PBCom manager’s check for P10,215,000.00. sell, and (b) whether Chua can compel Valdes-Choy to cause the issuance of a new TCT in Chua’s name even before payment of the full purchase
On the other hand, the trial court found that Valdes-Choy did not perform her correlative obligation under the contract to sell to put all the price.
papers in order. The trial court noted that as of 14 July 1989, the capital gains tax had not been paid because Valdes-Choy’s counsel who was
The Court’s Ruling
supposed to pay the tax did not do so. The trial court declared that Valdes-Choy was in a position to deliver only the owner’s duplicate copy of the
The petition is bereft of merit.
TCT, the signed Deeds of Sale, the tax declarations, and the latest realty tax receipt. The

6
Obli of vendor
There is no dispute that Valdes-Choy is .the absolute owner of the Property which is registered in her name under TCT No. 162955, free from
all liens and encumbrances. She was ready, able and willing to deliver to Chua the owner’s duplicate copy of the TCT, the signed Deeds of Sale, the
tax declarations, and the latest realty tax receipt. There is also no dispute that on 13 July 1989, Valdes-Choy received PBCom Check No. 206011 for
P100,000.00 as earnest money from Chua. Likewise, there is no controversy that the Receipt for the P100,000.00 earnest money embodied the
terms of the binding contract between Valdes-Choy and Chua.
Further, there is no controversy that as embodied in the Receipt, Valdes-Choy and Chua agreed on the following terms: (1) the balance of
P10,215,000.00 is payable on or before 15 July 1989; (2) the
______________
21 Ibid., p. 203.
65
VOL. 401, APRIL 9, 2003 65
Chua vs. Court of Appeals
capital gains tax is for the account of Valdes-Choy; and (3) if Chua fails to pay the balance of P10,215,000.00 on or before 15 July 1989, Valdes-Choy
has the right to forfeit the earnest money, provided that “all papers are in proper order.” On 13 July 1989, Chua gave Valdes-Choy the PBCom
manager’s check for P485,000.00 to pay the capital gains tax.
Both the trial and appellate courts found that the balance of P10,215,000.00 was not actually paid to Valdes-Choy on the agreed date. On 13
July 1989, Chua did show to Valdes-Choy the PBCom manager’s check for P10,215,000.00, with Valdes-Choy as payee. However, Chua refused to
give this check to Valdes-Choy until a new TCT covering the Property is registered in Chua’s name. Or, as the trial court put it, until there is proof
of payment of the capital gains tax which is a pre-requisite to the issuance of a new certificate of title.
First and Second Issues: Contract of Sale or Contract to Sell?
Chua has consistently characterized his agreement with Valdez-Choy, as evidenced by the Receipt, as a contract to sell and not a contract of sale.
This has been Chua’s persistent contention in his pleadings before the trial and appellate courts.
Chua now pleads for the first time that there is a perfected contract of sale rather than a contract to sell. He contends that there was no
reservation in the contract of sale that Valdes-Choy shall retain title to the Property until after the sale. There was no agreement for an automatic
rescission of the contract in case of Chua’s default. He argues for the first time that his payment of earnest money and its acceptance by Valdes-
Choy precludes the latter from rejecting the binding effect of the contract of sale. Thus, Chua claims that Valdes-Choy may not validly rescind the
contract of sale without following Article 159222 of the Civil Code which requires demand, either judicially or by notarial act, before rescission may
take place.
______________
22 Art. 1592. In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time
agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no
demand for rescission of the contract has been made upon him either judicially or by a notarial act. After the demand, the court may not grant him
a new term.
66
66 SUPREME COURT REPORTS ANNOTATED
Chua vs. Court of Appeals
Chua’s new theory is not well taken in light of well-settled jurisprudence. An issue not raised in the court below cannot be raised for the first time
on appeal, as this is offensive to the basic rules of fair play, justice and due process.23 In addition, when a party deliberately adopts a certain
theory, and the case is tried and decided on that theory in the court below, the party will not be permitted to change his theory on appeal. To permit
him to change his theory will be unfair to the adverse party.24
Nevertheless, in order to put to rest all doubts on the matter, we hold that the agreement between Chua and Valdes-Choy, as evidenced by
the Receipt, is a contract to sell and not a contract of sale. The distinction between a contract of sale and contract to sell is well-settled:
In a contract of sale, the title to the property passes to the vendee upon the delivery of the thing sold; in a contract to sell, ownership is, by
agreement, reserved in the vendor and is not to pass to the vendee until full payment of the purchase price. Otherwise stated, in a contract of sale,
the vendor loses ownership over the property and cannot recover it until and unless the contract is resolved or rescinded; whereas, in a contract to
sell, title is retained by the vendor until full payment of the price. In the latter contract, payment of the price is a positive suspensive condition,
failure of which is not a breach but an event that prevents the obligation of the vendor to convey title from becoming effective.25
A perusal of the Receipt shows that the true agreement between the parties was a contract to sell. Ownership over the Property was retained by
Valdes-Choy and was not to pass to Chua until full payment of the purchase price.
First, the Receipt provides that the earnest money shall be forfeited in case the buyer fails to pay the balance of the purchase price on or
before 15 July 1989. In such event, Valdes-Choy can sell the Property to other interested parties. There is in effect a right reserved in favor of
Valdes-Choy not to push through with the sale upon Chua’s failure to remit the balance of the purchase price
______________
23 Rivera v. Court of Appeals, G.R. No. 44111, 10 August 1989, 176 SCRA 169.
24 FMIC v. Court of Appeals, G.R. No. 85141, 28 November 1989, 179 SCRA 638.
25 Salazar v. Court of Appeals, G.R. No. 118203, 5 July 1996, 258 SCRA 317.
67
VOL. 401, APRIL 9, 2003 67
Chua vs. Court of Appeals
before the deadline. This is in the nature of a stipulation reserving ownership in the seller until full payment of the purchase price. This is also
similar to giving the seller the right to rescind unilaterally the contract the moment the buyer fails to pay within a fixed period.26
Second, the agreement between Chua and Valdes-Choy was embodied in a receipt rather than in a deed of sale, ownership not having passed
between them. The signing of the Deeds of Sale came later when Valdes-Choy was under the impression that Chua was about to pay the balance of
the purchase price. The absence of a formal deed of conveyance is a strong indication that the parties did not intend immediate transfer of
ownership, but only a transfer after full payment of the purchase price.27
Third, Valdes-Choy retained possession of the certificate of title and all other documents relative to the sale. When Chua refused to pay
Valdes-Choy the balance of the purchase price, Valdes-Choy also refused to turn-over to Chua these documents.28 These are additional proof that
the agreement did not transfer to Chua, either by actual or constructive delivery, ownership of the Property.29
It is true that Article 1482 of the Civil Code provides that “[W]henever earnest money is given in a contract of sale, it shall be considered as
part of the price and proof of the perfection of the contract.” However, this article speaks of earnest money given in a contract of sale. In this case,
the earnest money was given in a contract to sell. The Receipt evidencing the contract to sell stipulates that the earnest money is a forfeitable
deposit, to be forfeited if the sale is not consummated should Chua fail to pay the balance of the purchase price. The earnest money forms part of
the consideration only if the sale is consummated upon full payment of the purchase price. If there is a contract of sale, Valdes-Choy should have
the right to compel Chua to pay the balance of the purchase price. Chua, however, has the right to walk away from the transaction, with no
obligation to pay the balance, although he will forfeit the earnest money. Clearly, there is no contract of sale. The ear-
______________
26 Philippine National Bank v. Court of Appeals, G.R. No. 119580, 26 September 1996, 262 SCRA 464.
27 Alfonso v. Court of Appeals, G.R. No. 63745, 8 June 1990, 186 SCRA 400.
28 TSN, 5 February 1990, pp. 33-34.
29 Salazar v. Court of Appeals, supra, see note 25.
68
68 SUPREME COURT REPORTS ANNOTATED
Chua vs. Court of Appeals
nest money was given in a contract to sell, and thus Article 1482, which speaks of a contract of sale, is not applicable.
Since the agreement between Valdes-Choy and Chua is a mere contract to sell, the full payment of the purchase price partakes of a
suspensive condition. The non-fulfillment of the condition prevents the obligation to sell from arising and ownership is retained by the seller
without further remedies by the buyer.30 Article 1592 of the Civil Code permits the buyer to pay, even after the expiration of the period, as long as
no demand for rescission of the contract has been made upon him either judicially or by notarial act. However, Article 1592 does not apply to a
contract to sell where the seller reserves the ownership until full payment of the price.31
Third and Fourth Issues: Withholding of Payment of the Balance
of the Purchase Price and Forfeiture of the Earnest Money
Chua insists that he was ready to pay the balance of the purchase price but withheld payment because Valdes-Choy did not fulfill her contractual
obligation to put all the papers in “proper order.” Specifically, Chua claims that Valdes-Choy failed to show that the capital gains tax had been paid
7
Obli of vendor
after he had advanced the money for its payment. For the same reason, he contends that Valdes-Choy may not forfeit the earnest money even if he
did not pay on time.
There is a variance of interpretation on the phrase “all papers are in proper order” as written in the Receipt. There is no dispute though, that
as long as the papers are “in proper order,” Valdes-Choy has the right to forfeit the earnest money if Chua fails to pay the balance before the
deadline.
The trial court interpreted the phrase to include payment of the capital gains tax, with the Bureau of Internal Revenue receipt as proof of
payment. The Court of Appeals held otherwise. We quote verbatim the ruling of the Court of Appeals on this matter:
The trial court made much fuss in connection with the payment of the capital gains tax, of which Section 33 of the National Internal Revenue Code
of 1977, is the governing provision insofar as its computation is concerned. The trial court failed to consider Section 34-(a) of the said Code,
______________
30 Roque v. Lapuz, G.R. No. L-32811, 31 March 1980, 96 SCRA 741.
31 Alfonso v. Court of Appeals, supra,see note 27.
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VOL. 401, APRIL 9, 2003 69
Chua vs. Court of Appeals
the last sentence of which provides, that “[t]he amount realized from the sale or other disposition of property shall be the sum of money
received plus the fair market value of the property (other than money) received;” and that the computation of the capital gains tax can only be
finally assessed by the Commission on Internal Revenue upon the presentation of the Deeds of Absolute Sale themselves, without which any
premature computation of the capital gains tax becomes of no moment. At any rate, the computation and payment of the capital gains tax has no
bearing insofar as the validity and effectiveness of the deeds of sale in question are concerned, because it is only after the contracts of sale are
finally executed in due form and have been duly notarized that the final computation of the capital gains tax can follow as a matter of course.
Indeed, exhibit “D”, the PBC Check No. 325851, dated July 13, 1989, in the amount of P485,000.00, which is considered as part of the consideration
of the sale, was deposited in the name of appellant, from which she in turn, purchased the corresponding check in the amount representing the sum
to be paid for capital gains tax and drawn in the name of the Commissioner of Internal Revenue, which then allayed any fear or doubt that that
amount would not be paid to the Government after all.32
We see no reason to disturb the ruling of the Court of Appeals.
In a contract to sell, the obligation of the seller to sell becomes demandable only upon the happening of the suspensive condition. In this case,
the suspensive condition is the full payment of the purchase price by Chua. Such full payment gives rise to Chua’s right to demand the execution of
the contract of sale.
It is only upon the existence of the contract of sale that the seller becomes obligated to transfer the ownership of the thing sold to the buyer.
Article 1458 of the Civil Code defines a contract of sale as follows:
Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing,
and the other to pay therefor a price certain in money or its equivalent.
x x x. (Emphasis supplied)
Prior to the existence of the contract of sale, the seller is not obligated to transfer ownership to the buyer, even if there is a contract to sell between
them. It is also upon the existence of the contract of sale that the buyer is obligated to pay the purchase price to the
______________
32 Rollo, pp. 60-61.
70
70 SUPREME COURT REPORTS ANNOTATED
Chua vs. Court of Appeals
seller. Since the transfer of ownership is in exchange for the purchase price, these obligations must be simultaneously fulfilled at the time of the
execution of the contract of sale, in the absence of a contrary stipulation.
In a contract of sale, the obligations of the seller are specified in Article 1495 of the Civil Code, as follows:
Art. 1495. The vendor is bound to transfer the ownership of and deliver, as well as warrant the thing which is the object of the sale. (Emphasis
supplied)
The obligation of the seller is to transfer to the buyer ownership of the thing sold. In the sale of real property, the seller is not obligated to transfer
in the name of the buyer a new certificate of title, but rather to transfer ownership of the real property. There is a difference between transfer of the
certificate of title in the name of the buyer, and transfer of ownership to the buyer. The buyer may become the owner of the real property even if the
certificate of title is still registered in the name of the seller. As between the seller and buyer, ownership is transferred not by the issuance of a new
certificate of title in the name of the buyer but by the execution of the instrument of sale in a public document.
In a contract of sale, ownership is transferred upon delivery of the thing sold. As the noted civil law commentator Arturo M. Tolentino
explains it,—
Delivery is not only a necessary condition for the enjoyment of the thing, but is a mode of acquiring dominion and determines the transmission of
ownership, the birth of the real right. The delivery, therefore, made in any of the forms provided in articles 1497 to 1505 signifies that the
transmission of ownership from vendor to vendee has taken place. The delivery of the thing constitutes an indispensable requisite for the purpose of
acquiring ownership. Our law does not admit the doctrine of transfer of property by mere consent; the ownership, the property right, is derived only
from delivery of the thing. x x x.33 (Emphasis supplied)
In a contract of sale of real property, delivery is effected when the instrument of sale is executed in a public document. When the deed of absolute
sale is signed by the parties and notarized, then
______________
33 ARTURO M. TOLENTINO, CIVIL CODE OF THE PHILIPPINES, VOL. V, p. 51 (1992).
71
VOL. 401, APRIL 9, 2003 71
Chua vs. Court of Appeals
delivery of the real property is deemed made by the seller to the buyer. Article 1498 of the Civil Code provides that—
Art. 1498. When the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the
object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred.
x x x.
Similarly, in a contract to sell real property, once the seller is ready, able and willing to sign the deed of absolute sale before a notary public, the
seller is in a position to transfer ownership of the real property to the buyer. At this point, the seller complies with his undertaking to sell the real
property in accordance with the contract to sell, and to assume all the obligations of a vendor under a contract of sale pursuant to the relevant
articles of the Civil Code. In a contract to sell, the seller is not obligated to transfer ownership to the buyer. Neither is the seller obligated to cause
the issuance of a new certificate of title in the name of the buyer. However, the seller must put all his papers in proper order to the point that he is
in a position to transfer ownership of the real property to the buyer upon the signing of the contract of sale.
In the instant case, Valdes-Choy was in a position to comply with all her obligations as a seller under the contract to sell. First, she already
signed the Deeds of Sale in the office of her counsel in the presence of the buyer. Second, she was prepared to turn-over the owner’s duplicate of the
TCT to the buyer, along with the tax declarations and latest realty tax receipt. Clearly, at this point Valdes-Choy was ready, able and willing to
transfer ownership of the Property to the buyer as required by the contract to sell, and by Articles 1458 and 1495 of the Civil Code to consummate
the contract of sale.
Chua, however, refused to give to Valdes-Choy the PBCom manager’s check for the balance of the purchase price. Chua imposed the
condition that a new TCT should first be issued in his name, a condition that is found neither in the law nor in the contract to sell as evidenced by
the Receipt. Thus, at this point Chua was not ready, able and willing to pay the full purchase price which is his obligation under the contract to sell.
Chua was also not in a position to assume the principal obligation of a vendee in a contract of
72
72 SUPREME COURT REPORTS ANNOTATED
Chua vs. Court of Appeals
sale, which is also to pay the full purchase price at the agreed time. Article 1582 of the Civil Code provides that—
Art. 1582. The vendee is bound to accept delivery and to pay the price of the thing sold at the time and place stipulated in the contract.
x x x. (Emphasis supplied)
In this case, the contract to sell stipulated that Chua should pay the balance of the purchase price “on or before 15 July 1989.” The signed Deeds of
Sale also stipulated that the buyer shall pay the balance of the purchase price upon signing of the deeds. Thus, the Deeds of Sale, both signed by
Chua, state as follows:
Deed of Absolute Sale covering the lot:
xxx
8
Obli of vendor

For and in consideration of the sum of EIGHT MILLION PESOS (P8,000,000.00), Philippine Currency, receipt of which in full is hereby In this case, Valdes-Choy was ready, able and willing to submit to Chua all the papers that customarily would complete the sale, and to pay
acknowledged by the VENDOR from the VENDEE, the VENDOR sells, transfers and conveys unto the VENDEE, his heirs, successors and assigns, as well the capital gains tax. On the other hand, Chua’s condition that a new TCT be first issued in his name before he pays the balance of
the said parcel of land, together with the improvements existing thereon, free from all liens and encumbrances.34 (Emphasis supplied) P10,215,000.00, representing 94.58% of the purchase price, is not customary in a sale of real estate. Such a condition, not specified in the contract
to sell as evidenced by the Receipt, cannot be considered part of the “omissions of stipulations which are ordinarily established” by usage or

Deed of Absolute Sale covering the furnishings: custom.41 What is increasingly becoming customary is to deposit in escrow the balance of the purchase price pending the issuance of a new
certificate of title in the name of the buyer. Valdes-Choy suggested this solution but unfortunately, it drew no response from Chua.
Chua had no reason to fear being swindled. Valdes-Choy was prepared to turn-over to him the owner’s duplicate copy of the TCT, the signed
xxx
Deeds of Sale, the tax declarations, and the latest realty tax receipt. There was no hindrance to paying the capital gains tax as Chua himself had
For and in consideration of the sum of TWO MILLION EIGHT HUNDRED THOUSAND PESOS (P2,800,000.00), Philippine
advanced the money to pay the same and Valdes-Choy had procured a manager’s check payable to the Bureau of Internal Revenue covering the
Currency, receipt of which in full is hereby acknowledged by the VENDOR from the VENDEE, the VENDOR sells, transfers and conveys unto the
amount. It was only a matter of time before the capital gains tax would be paid. Chua acted precipitately in filing the action for specific
VENDEE, his heirs, successors and assigns, the said furnitures, fixtures and other movable properties thereon, free from all liens and
performance a mere
encumbrances.35(Emphasis supplied)
However, on the agreed date, Chua refused to pay the balance of the purchase price as required by the contract to sell, the signed Deeds of Sale,
and Article 1582 of the Civil Code. Chua was therefore in default and has only himself to blame for the rescission by Valdes-Choy of the contract to ______________

sell.
37 Garcia v. Court of Appeals, G.R. Nos. L-48971 and 49011, 22 January 1980, 95 SCRA 380.

______________ 38 Sections 51 and 52, Property Registration Decree (PD No. 1529).
39 Sapto v. Fabiana, 103 Phil. 658 (1958); Abuyo, et al. v. De Suazo, 124 Phil.1138 (1966); Philippine Suburban Development Corp. v. Auditor
General, G.R. No. L-19545, 18 April 1975, 63 SCRA 397.
34 Exhibit “B,” Records, pp. 51-53.
40 Bollozos v. Yu Tieng Su, G.R. No. L-29442, 11 November 1987, 155 SCRA 506.
35 Exhibit “C,” Records, pp. 54-54-(A).
41 Mirasol v. Yusay, et al., 120 Phil. 407; 11 SCRA 410 (1964).
73
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Chua vs. Court of Appeals

Chua vs. Court of Appeals
Even if measured under existing usage or custom, Valdes-Choy had all her papers “in proper order.” Article 1376 of the Civil Code provides that:
two days after the deadline of 15 July 1989 when there was an impasse. While this case was dismissed on 22 November 1989, he did not waste any
Art. 1376. The usage or custom of the place shall be borne in mind in the interpretation of the ambiguities of a contract, and shall fill the omission
time in re-filing the same on 29 November 1989.
of stipulations which are ordinarily established.
Accordingly, since Chua refused to pay the consideration in full on the agreed date, which is a suspensive condition, Chua cannot compel
Customarily, in the absence of a contrary agreement, the submission by an individual seller to the buyer of the following papers would complete a
Valdes-Choy to consummate the sale of the Property. Article 1181 of the Civil Code provides that—
sale of real estate: (1) owner’s duplicate copy of the Torrens title;36 (2) signed deed of absolute sale; (3) tax declaration; and (3) latest realty tax
ART. 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired shall depend upon
receipt. The buyer can retain the amount for the capital gains tax and pay it upon authority of the seller, or the seller can pay the tax, depending on
the happening of the event which constitutes the condition.
the agreement of the parties.
Chua acquired no right to compel Valdes-Choy to transfer ownership of the Property to him because the suspensive condition—the full payment of
The buyer has more interest in having the capital gains tax paid immediately since this is a pre-requisite to the issuance of a new Torrens
the purchase price—did not happen. There is no correlative obligation on the part of Valdes-Choy to transfer ownership of the Property to Chua.
title in his name. Nevertheless, as far as the government is concerned, the capital gains tax remains a liability of the seller since it is a tax on the
There is also no obligation on the part of Valdes-Choy to cause the issuance of a new TCT in the name of Chua since unless expressly stipulated,
seller’s gain from the sale of the real estate. Payment of the capital gains tax, however, is not a pre-requisite to the transfer of ownership to the
this is not one of the obligations of a vendor.
buyer. The transfer of ownership takes effect upon the signing and notarization of the deed of absolute sale.
WHEREFORE, the Decision of the Court of Appeals in CA-G.R. CV No. 37652 dated 23 February 1995 is AFFIRMED in toto.
SO ORDERED.
______________
Davide, Jr. (C.J., Chairman), Vitug, Ynares-Santiago and Azcuna, JJ.,concur.
Judgment affirmed in toto.
36 Section 53 of PD No. 1529 provides: Note.—Transfer of title or an agreement to transfer it for a price paid or promised to be paid is the essence of sale. (Commissioner of Internal
Section 53. Presentation of owner’s duplicate upon entry of new certificate.—No voluntary instrument shall be registered by the Register of Deeds, Revenue vs. Court of Appeals, 271 SCRA 605[1997])
unless the owner’s duplicate certificate is presented with such instrument, except in cases expressly provided for in this Decree or upon order of the
court, for cause shown. ——o0o——
The production of the owner’s duplicate certificate, whenever any voluntary instrument is presented for registration, shall be conclusive
authority from the registered owner to the Register of Deeds to enter a new certificate or to make a memorandum of registration in accordance with
76
such instrument, and the new certificate or memorandum shall be binding upon the registered owner and upon all persons claiming under him, in
© Copyright 2019 Central Book Supply, Inc. All rights reserved.
favor of every purchaser for value and in good faith.
x x x.
74 145

74 SUPREME COURT REPORTS ANNOTATED

Chua vs. Court of Appeals

The recording of the sale with the proper Registry of Deeds37 and the transfer of the certificate of title in the name of the buyer are necessary only
to bind third parties to the transfer of ownership.38 As between the seller and the buyer, the transfer of ownership takes effect upon the execution
of a public instrument conveying the real estate.39Registration of the sale with the Registry of Deeds, or the issuance of a new certificate of title,
does not confer ownership on the buyer. Such registration or issuance of a new certificate of title is not one of the modes of acquiring ownership.40

9
Obli of vendor
VOL. 404, JUNE 17, 2003
Alfredo vs. Borras
G.R. No. 144225. June 17, 2003.*
SPOUSES GODOFREDO ALFREDO and CARMEN LIMON ALFREDO, SPOUSES ARNULFO SAVELLANO and EDITHA B. SAVELLANO,
DANTON D. MATAWARAN, SPOUSES DELFIN F. ESPIRITU, JR. and ESTELA S. ESPIRITU and ELIZABETH TUAZON,
petitioners, vs. SPOUSES ARMANDO BORRAS and ADELIA LOBATON BORRAS, respondents.
Civil Procedure; Appeals; Certiorari; In a petition for review on certiorari under Rule 45, the Supreme Court reviews only errors of law and
not errors of facts.—In a petition for review on certiorari under Rule 45, this Court reviews only errors of law and not errors of facts. The factual
findings of the appellate court are generally binding on this Court. This applies with greater force when both the trial court and the Court of
Appeals are in complete agreement on their factual findings.
Civil Law; Contracts; Sales; Perfection; The contract of sale between the spouses Godofredo and Carmen and the spouses Armando and
Adelia was a perfected contract.—The contract of sale between the spouses Godofredo and Carmen and the spouses Armando and Adelia was a
perfected contract. A contract is perfected once there is consent of the contracting parties on the object certain and on the cause of the obligation.
Same; Same; Same; Obligations; The contract of sale of the subject land has also been consummated because the sellers and buyers have
performed their respective obligations under the contract.—The contract of sale of the Subject Land has also been consummated because the sellers
and buyers have performed their respective obligations under the contract. In a contract of sale, the seller obligates himself to transfer the
ownership of the determinate thing sold, and to deliver the same, to the buyer who obligates himself to pay a price certain to the seller.
Same; Same; Same; Delivery; The physical delivery of the subject land also constituted a transfer of ownership.—This physical delivery of
the Subject Land also constituted a transfer of ownership of the Subject Land to Armando and Adelia. Ownership of the thing sold is transferred to
the vendee upon its actual or constructive delivery.
Same; Same; Same; Same; Statute of Frauds; The Statute of Frauds applies only to executory contracts and not to contracts either
partially or totally performed.—The Statute of Frauds applies only to executory con-
_______________
* FIRST DIVISION.
146
146 SUPREME COURT REPORTS ANNOTATED
Alfredo vs. Borras
tracts and not to contracts either partially or totally performed. Thus, where one party has performed one’s obligation, oral evidence will
be admitted to prove the agreement. In the instant case, the parties have consummated the sale of the Subject Land, with both sellers and buyers
performing their respective obligations under the contract of sale. In addition, a contract that violates the Statute of Frauds is ratified by the
acceptance of benefits under the contract. Godofredo and Carmen benefited from the contract because they paid their DBP loan and secured the
cancellation of their mortgage using the money given by Armando and Adelia. Godofredo and Carmen also accepted payment of the balance of the
purchase price.
Same; Same; Same; Same; Conjugal Property; Any alienation or encumbrance made by the husband of the conjugal partnership property
without the consent of the wife is void.—The Family Code, which took effect on 3 August 1988, provides that any alienation or encumbrance made
by the husband of the conjugal partnership property without the consent of the wife is void. However, when the sale is made before the effectivity of
the Family Code, the applicable law is the Civil Code. Article 173 of the Civil Code provides that the disposition of conjugal property without the
wife’s consent is not void but merely voidable.
Same; Same; Same; Same; It is not necessary that the seller himself deliver the title.—It is not necessary that the seller himself deliver the
title of the property to the buyer because the thing sold is understood as delivered when it is placed in the control and possession of the vendee.
Same; Same; Same; Homestead Property; A grantee or homesteader is prohibited from alienating to a private individual a land grant
within the five years from the time that the patent or grant is issued.—A grantee or homesteader is prohibited from alienating to a private individual
a land grant within five years from the time that the patent or grant is issued. A violation of this prohibition renders a sale void. This prohibition,
however, expires on the fifth year. From then on until the next 20 years the land grant may be alienated provided the Secretary of Agriculture and
Natural Resources approves the alienation. The Secretary is required to approve the alienation unless there are “constitutional and legal grounds”
to deny the approval. In this case, there are no apparent constitutional or legal grounds for the Secretary to disapprove the sale of the Subject Land.
Same; Same; Same; Same; The failure to secure the approval of the Secretary does not ipso facto make a sale void.—The failure to secure
the approval of the Secretary does not ipso facto make a sale void. The absence of approval by the Secretary does not nullify a sale made after the
expiration of the 5-year period, for in such event the requirement of Section 118 of the Public Land Act becomes merely directory or a formality. The
ap-
147
VOL. 404, JUNE 17, 2003 147
Alfredo vs. Borras
proval may be secured later, producing the effect of ratifying and adopting the transaction as if the sale had been previously authorized.
Civil Procedure; Actions; Reconveyance; Quieting of Title; An action for reconveyance is one that seeks to transfer property, wrongfully
registered by another, to its rightful and legal owner.—An action for reconveyance is one that seeks to transfer property, wrongfully registered by
another, to its rightful and legal owner. The body of the pleading or complaint determines the nature of an action, not its title or heading. Thus, the
present action should be treated as one for reconveyance.
Same; Same; Same; Prescription; An action for reconveyance based on an implied trust prescribes in ten years.—To determine when the
prescriptive period commenced in an action for reconveyance, plaintiff’s possession of the disputed property is material. An action for reconveyance
based on an implied trust prescribes in ten years. The ten-year prescriptive period applies only if there is an actual need to reconvey the property as
when the plaintiff is not in possession of the property. However, if the plaintiff, as the real owner of the property also remains in possession of the
property, the prescriptive period to recover title and possession of the property does not run against him. In such a case, an action for reconveyance,
if nonetheless filed, would be in the nature of a suit for quieting of title, an action that is imprescriptible.
Same; Same; Same; Same; The prescriptive period is reckoned from the date of the issuance of the certificate of title.—Correlating Section
53, paragraph 3 of Presidential Decree No. 1529 and Article 1456 of the Civil Code with Article 1144(2) of the Civil Code, supra, the prescriptive
period for the reconveyance of fraudulently registered real property is ten (10) years reckoned from the date of the issuance of the certificate of title
x x x.
Same; Same; Same; Same; Prescription does not run against the plaintiff in actual possession of the disputed land.—Prescription does not
run against the plaintiff in actual possession of the disputed land because such plaintiff has a right to wait until his possession is disturbed or his
title is questioned before initiating an action to vindicate his right. His undisturbed possession gives him the continuing right to seek the aid of a
court of equity to determine the nature of the adverse claim of a third party and its effect on his title.
Same; Same; Same; Laches; Neither is the action barred by laches.— Neither is the action barred by laches. We have defined laches as the
failure or neglect, for an unreasonable time, to do that which, by the exercise of due diligence, could or should have been done earlier. It is
negligence or omission to assert a right within a reasonable time, warranting a
148
148 SUPREME COURT REPORTS ANNOTATED
Alfredo vs. Borras
presumption that the party entitled to assert it either has abandoned it or declined to assert it.
Same; Same; Same; In case a title is issued to the second buyer, the first buyer may seek reconveyance of the property subject of the sale.—
The settled rule is when ownership or title passes to the buyer, the seller ceases to have any title to transfer to any third person. If the seller sells
the same land to another, the second buyer who has actual or constructive knowledge of the prior sale cannot be a registrant in good faith. Such
second buyer cannot defeat the first buyer’s title. In case a title is issued to the second buyer, the first buyer may seek reconveyance of the property
subject of the sale.
Land Registration; Torrens Title; Indefeasibility; Fraud; The principle of indefeasibility of title does not apply where fraud attended the
issuance of the titles as in this case.—The defense of indefeasibility of the Torrens Title does not extend to a transferee who takes the certificate of
title with notice of a flaw in his title. The principle of indefeasibility of title does not apply where fraud attended the issuance of the titles as in this
case.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Ortiguera, Zuniga, Pomer, Salaria, Sison Law Offices for petitioners.
David G. Paguio for private respondents.
CARPIO, J.:
The Case
Before us is a petition for review assailing the Decision1 of the Court of Appeals dated 26 November 1999 affirming the decision2of the Regional
Trial Court of Bataan, Branch 4, in Civil Case No. DH-256-94. Petitioners also question the Resolution of the Court of
10
Obli of vendor
_______________
1 Penned by Associate Justice Martin S. Villarama, Jr. with Associate Justices Angelina Sandoval-Gutierrez and Romeo A. Brawner,
concurring, Sixth Division.
2 Penned by Judge Pedro B. Villafuerte.
149
VOL. 404, JUNE 17, 2003 149
Alfredo vs. Borras
Appeals dated 26 July 2000 denying petitioners’ motion for reconsideration.
The Antecedent Facts
A parcel of land measuring 81,524 square meters (“Subject Land”) in Barrio Culis, Mabiga, Hermosa, Bataan is the subject of controversy in this
case. The registered owners of the Subject Land were petitioner spouses, Godofredo Alfredo (“Godofredo”) and Carmen Limon Alfredo (“Carmen”).
The Subject Land is covered by Original Certificate of Title No. 284 (“OCT No. 284”) issued to Godofredo and Carmen under Homestead Patent No.
V-69196.
On 7 March 1994, the private respondents, spouses Armando Borras (“Armando”) and Adelia Lobaton Borras (“Adelia”), filed a complaint for
specific performance against Godofredo and Carmen before the Regional Trial Court of Bataan, Branch 4. The case was docketed as Civil Case No.
DH-256-94.
Armando and Adelia alleged in their complaint that Godofredo and Carmen mortgaged the Subject Land for P7,000.00 with the Development
Bank of the Philippines (“DBP”). To pay the debt, Carmen and Godofredo sold the Subject Land to Armando and Adelia for P15,000.00, the buyers
to pay the DBP loan and its accumulated interest, and the balance to be paid in cash to the sellers.
Armando and Adelia gave Godofredo and Carmen the money to pay the loan to DBP which signed the release of mortgage and returned the
owner’s duplicate copy of OCT No. 284 to Godofredo and Carmen. Armando and Adelia subsequently paid the balance of the purchase price of the
Subject Land for which Carmen issued a receipt dated 11 March 1970. Godofredo and Carmen then delivered to Adelia the owner’s duplicate copy of
OCT No. 284, with the document of cancellation of mortgage, official receipts of realty tax payments, and tax declaration in the name of Godofredo.
Godofredo and Carmen introduced Armando and Adelia, as the new owners of the Subject Land, to the Natanawans, the old tenants of the Subject
Land. Armando and Adelia then took possession of the Subject Land.
In January 1994, Armando and Adelia learned that hired persons had entered the Subject Land and were cutting trees under instructions of
allegedly new owners of the Subject Land. Subse-
150
150 SUPREME COURT REPORTS ANNOTATED
Alfredo vs. Borras
quently, Armando and Adelia discovered that Godofredo and Carmen had re-sold portions of the Subject Land to several persons.
On 8 February 1994, Armando and Adelia filed an adverse claim with the Register of Deeds of Bataan. Armando and Adelia discovered that
Godofredo and Carmen had secured an owner’s duplicate copy of OCT No. 284 after filing a petition in court for the issuance of a new copy.
Godofredo and Carmen claimed in their petition that they lost their owner’s duplicate copy. Armando and Adelia wrote Godofredo and Carmen
complaining about their acts, but the latter did not reply. Thus, Armando and Adelia filed a complaint for specific performance.
On 28 March 1994, Armando and Adelia amended their complaint to include the following persons as additional defendants: the spouses
Arnulfo Savellano and Editha B. Savellano, Danton D. Matawaran, the spouses Delfin F. Espiritu, Jr. and Estela S. Espiritu, and Elizabeth Tuazon
(“Subsequent Buyers”). The Subsequent Buyers, who are also petitioners in this case, purchased from Godofredo and Carmen the subdivided
portions of the Subject Land. The Register of Deeds of Bataan issued to the Subsequent Buyers transfer certificates of title to the lots they
purchased.
In their answer, Godofredo and Carmen and the Subsequent Buyers (collectively “petitioners”) argued that the action is unenforceable under
the Statute of Frauds. Petitioners pointed out that there is no written instrument evidencing the alleged contract of sale over the Subject Land in
favor of Armando and Adelia. Petitioners objected to whatever parole evidence Armando and Adelia introduced or offered on the alleged sale unless
the same was in writing and subscribed by Godofredo. Petitioners asserted that the Subsequent Buyers were buyers in good faith and for value. As
counterclaim, petitioners sought payment of attorney’s fees and incidental expenses.
Trial then followed. Armando and Adelia presented the following witnesses: Adelia, Jesus Lobaton, Roberto Lopez, Apolinario Natanawan,
Rolando Natanawan, Tomas Natanawan, and Mildred Lobaton. Petitioners presented two witnesses, Godofredo and Constancia Calonso.
On 7 June 1996, the trial court rendered its decision in favor of Armando and Adelia. The dispositive portion of the decision reads:
151
VOL. 404, JUNE 17, 2003 151
Alfredo vs. Borras
“WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiffs, the spouses Adelia Lobaton Borras and Armando F.
Borras, and against the defendant-spouses Godofredo Alfredo and Carmen Limon Alfredo, spouses Arnulfo Sabellano and Editha B. Sabellano,
spouses Delfin F. Espiritu, Jr. and Estela S. Espiritu, Danton D. Matawaran and Elizabeth Tuazon, as follows:
1. 1.Declaring the Deeds of Absolute Sale of the disputed parcel of land (covered by OCT No. 284) executed by the spouses Godofredo
Alfredo and Carmen Limon Alfredo in favor of spouses Arnulfo Sabellano and Editha B. Sabellano, spouses Delfin F. Espiritu,
Danton D. Matawaran and Elizabeth Tuazon, as null and void;
2. 2.Declaring the Transfer Certificates of Title Nos. T-163266 and T-163267 in the names of spouses Arnulfo Sabellano and Editha B.
Sabellano; Transfer Certificates of Title Nos. T-163268 and 163272 in the names of spouses Delfin F. Espiritu, Jr. and Estela S.
Espiritu; Transfer Certificates of Title Nos. T-163269 and T-163271 in the name of Danton D. Matawaran; and Transfer
Certificate of Title No. T-163270 in the name of Elizabeth Tuazon, as null and void and that the Register of Deeds of Bataan is
hereby ordered to cancel said titles;
3. 3.Ordering the defendant-spouses Godofredo Alfredo and Carmen Limon Alfredo to execute and deliver a good and valid Deed of
Absolute Sale of the disputed parcel of land (covered by OCT No. 284) in favor of the spouses Adelia Lobaton Borras and Armando
F. Borras within a period of ten (10) days from the finality of this decision;
4. 4.Ordering defendant-spouses Godofredo Alfredo and Carmen Limon Alfredo to surrender their owner’s duplicate copy of OCT No.
284 issued to them by virtue of the Order dated May 20, 1992 of the Regional Trial Court of Bataan, Dinalupihan Branch, to the
Registry of Deeds of Bataan within ten (10) days from the finality of this decision, who, in turn, is directed to cancel the same as
there exists in the possession of herein plaintiffs of the owner’s duplicate copy of said OCT No. 284 and, to restore and/or
reinstate OCT No. 284 of the Register of Deeds of Bataan to its full force and effect;
5. 5.Ordering the defendant-spouses Godofredo Alfredo and Carmen Limon Alfredo to restitute and/or return the amount of the
respective purchase prices and/or consideration of sale of the disputed parcels of land they sold to their co-defendants within ten
(10) days from the finality of this decision with legal interest thereon from date of the sale;
152
152 SUPREME COURT REPORTS ANNOTATED
Alfredo vs. Borras
1. 6.Ordering the defendants, jointly and severally, to pay plaintiff-spouses the sum of P20,000.00 as and for attorney’s fees and
litigation expenses; and
2. 7.Ordering defendants to pay the costs of suit.
Defendants’ counterclaims are hereby dismissed for lack of merit.
SO ORDERED.”3
Petitioners appealed to the Court of Appeals.
On 26 November 1999, the Court of Appeals issued its Decision affirming the decision of the trial court, thus:
“WHEREFORE, premises considered, the appealed decision in Civil Case No. DH-256-94 is hereby AFFIRMED in its entirety. Treble costs against
the defendants-appellants.
SO ORDERED.”4
On 26 July 2000, the Court of Appeals denied petitioners’ motion for reconsideration.
The Ruling of the Trial Court
The trial court ruled that there was a perfected contract of sale between the spouses Godofredo and Carmen and the spouses Armando and Adelia.
The trial court found that all the elements of a contract of sale were present in this case. The object of the sale was specifically identified as the
81,524-square meter lot in Barrio Culis, Mabigas, Hermosa, Bataan, covered by OCT No. 284 issued by the Registry of Deeds of Bataan. The
purchase price was fixed at P15,000.00, with the buyers assuming to pay the sellers’ P7,000.00 DBP mortgage loan including its accumulated
interest. The balance of the purchase price was to be paid in cash to the sellers. The last payment of P2,524.00 constituted the full settlement of the
purchase price and this was paid on 11 March 1970 as evidenced by the receipt issued by Carmen.
The trial court found the following facts as proof of a perfected contract of sale: (1) Godofredo and Carmen delivered to Armando and Adelia
the Subject Land; (2) Armando and Adelia treated as their own tenants the tenants of Godofredo and Carmen; (3) Go-
11
Obli of vendor

_______________ 5 Rollo, p. 55.

6 205 Phil. 537; 120 SCRA 628(1983).
155
3 Rollo, pp. 48-49.
4 Ibid., p. 50. VOL. 404, JUNE 17, 2003 155
153
Alfredo vs. Borras
VOL. 404, JUNE 17, 2003 153
clared that the sale in this case binds the conjugal partnership even if only the wife signed the receipt because the proceeds of the sale were used for
Alfredo vs. Borras the benefit of the conjugal partnership. The appellate court based this conclusion on Article 1617 of the Civil Code.

dofredo and Carmen turned over to Armando and Adelia documents such as the owner’s duplicate copy of the title of the Subject Land, tax The Subsequent Buyers of the Subject Land cannot claim that they are buyers in good faith because they had constructive notice of the

declaration, and the receipts of realty tax payments in the name of Godofredo; and (4) the DBP cancelled the mortgage on the Subject Property adverse claim of Armando and Adelia. Calonso, who brokered the subsequent sale, testified that when she registered the subsequent deeds of sale,

upon payment of the loan of Godofredo and Carmen. Moreover, the receipt of payment issued by Carmen served as an acknowledgment, if not a the adverse claim of Armando and Adelia was already annotated on the title of the Subject Land. The Court of Appeals believed that the act of

ratification, of the verbal sale between the sellers and the buyers. The trial court ruled that the Statute of Frauds is not applicable because in this Calonso and the Subsequent Buyers in forcibly ejecting the Natanawans from the Subject Land buttresses the conclusion that the second sale was

case the sale was perfected. tainted with bad faith from the very beginning.

The trial court concluded that the Subsequent Buyers were not innocent purchasers. Not one of the Subsequent Buyers testified in court on Finally, the Court of Appeals noted that the issue of prescription was not raised in the Answer. Nonetheless, the appellate court explained

how they purchased their respective lots. The Subsequent Buyers totally depended on the testimony of Constancia Calonso (“Calonso”) to explain that since this action is actually based on fraud, the prescriptive period is four years, with the period starting to run only from the date of the

the subsequent sale. Calonso, a broker, negotiated with Godofredo and Carmen the sale of the Subject Land which Godofredo and Carmen discovery of the fraud. Armando and Adelia discovered the fraudulent sale of the Subject Land only in January 1994. Armando and Adelia lost no

subdivided so they could sell anew portions to the Subsequent Buyers. time in writing a letter to Godofredo and Carmen on 2 February 1994 and filed this case on 7 March 1994. Plainly, Armando and Adelia did not

Calonso admitted that the Subject Land was adjacent to her own lot. The trial court pointed out that Calonso did not inquire on the nature of sleep on their rights or lose their rights by prescription.

the tenancy of the Natanawans and on who owned the Subject Land. Instead, she bought out the tenants for P150,000.00. The buy out was The Court of Appeals sustained the award of attorney’s fees and imposed treble costs on petitioners.

embodied in a Kasunduan. Apolinario Natanawan (“Apolinario”) testified that he and his wife accepted the money and signed The Issues
the Kasunduanbecause Calonso and the Subsequent Buyers threatened them with forcible ejectment. Calonso brought Apolinario to the Agrarian Petitioners raise the following issues:
Reform Office where he was asked to produce the documents showing that Adelia is the owner of the Subject Land. Since Apolinario could not
produce the documents, the agrarian officer told him that he would lose the case. Thus, Apolinario was constrained to sign the Kasunduan and
_______________
accept the P150,000.00.
Another indication of Calonso’s bad faith was her own admission that she saw an adverse claim on the title of the Subject Land when she
registered the deeds of sale in the names of the Subsequent Buyers. Calonso ignored the adverse claim and proceeded with the registration of the 7 Article 161 of the Civil Code provides as follows: “The conjugal partnership shall be liable for:

deeds of sale. (1) All debts and obligations contracted by the husband for the benefit of the conjugal partnership, and those contracted by the wife, also for the

The trial court awarded P20,000.00 as attorney’s fees to Armando and Adelia. In justifying the award of attorney’s fees, the trial court same purpose, in the cases where she may legally bind the partnership.

invoked Article 2208 (2) of the Civil Code which allows a x x x.”

154 156

154 SUPREME COURT REPORTS ANNOTATED 156 SUPREME COURT REPORTS ANNOTATED

Alfredo vs. Borras Alfredo vs. Borras

court to award attorney’s fees, including litigation expenses, when it is just and equitable to award the same. The trial court ruled that Armando
and Adelia are entitled to attorney’s fees since they were compelled to file this case due to petitioners’ refusal to heed their just and valid demand. I

The Ruling of the Court of Appeals

The Court of Appeals found the factual findings of the trial court well supported by the evidence. Based on these findings, the Court of Appeals also
concluded that there was a perfected contract of sale and the Subsequent Buyers were not innocent purchasers.
The Court of Appeals ruled that the handwritten receipt dated 11 March 1970 is sufficient proof that Godofredo and Carmen sold the Subject
Whether the alleged sale of the Subject Land in favor of Armando and Adelia is valid and enforceable, where (1) it was orally entered into and not
in writing; (2) Carmen did not obtain the consent and authority of her husband, Godofredo, who was the sole owner of the Subject Land in whose
name the title thereto (OCT No. 284) was issued; and (3) it was entered into during the 25-year prohibitive period for alienating the Subject Land

Land to Armando and Adelia upon payment of the balance of the purchase price. The Court of Appeals found the recitals in the receipt as “sufficient without the approval of the Secretary of Agriculture and Natural Resources.

to serve as the memorandum or note as a writing under the Statute of Frauds.”5 The Court of Appeals then reiterated the ruling of the trial court
that the Statute of Frauds does not apply in this case. II
The Court of Appeals gave credence to the testimony of a witness of Armando and Adelia, Mildred Lobaton, who explained why the title to
the Subject Land was not in the name of Armando and Adelia. Lobaton testified that Godofredo was then busy preparing to leave for Davao. Whether the action to enforce the alleged oral contract of sale brought after 24 years from its alleged perfection had been barred by
Godofredo promised that he would sign all the papers once they were ready. Since Armando and Adelia were close to the family of Carmen, they prescription and by laches.
trusted Godofredo and Carmen to honor their commitment. Armando and Adelia had no reason to believe that their contract of sale was not
perfected or validly executed considering that they had received the duplicate copy of OCT No. 284 and other relevant documents. Moreover, they
III
had taken physical possession of the Subject Land.
The Court of Appeals held that the contract of sale is not void even if only Carmen signed the receipt dated 11 March 1970. Citing Felipe v.
Whether the deeds of absolute sale and the transfer certificates of title over the portions of the Subject Land issued to the Subsequent
Heirs of Maximo Aldon,6 the appellate court ruled that a contract of sale made by the wife without the husband’s consent is not void but merely
Buyers, innocent purchasers in good faith and for value whose individual titles to their respective lots are absolute and indefeasible, are valid.
voidable. The Court of Appeals further de-

_______________ IV

12
Obli of vendor

Whether petitioners are liable to pay Armando and Adelia P20,000.00 as attorney’s fees and litigation expenses and the treble costs, where Indeed, upon payment to DBP of the P7,000.00 and the accumulated interests, the DBP cancelled the mortgage on the Subject Land and returned
the claim of Armando and Adelia is clearly unfounded and baseless. the owner’s duplicate copy of OCT No. 284 to Godofredo and Carmen.
The trial and appellate courts correctly refused to apply the Statute of Frauds to this case. The Statute of Frauds16 provides that a contract

V for the sale of real property shall be unenforceable unless the contract or some note or memorandum of the sale is in writing and subscribed by the
party charged or his agent. The existence of the receipt dated 11 March 1970, which is a memorandum of the sale, removes the transaction from the
provisions of the Statute of Frauds.
Whether petitioners are entitled to the counterclaim for attorney’s fees and litigation expenses, where they have sustained such expenses by
The Statute of Frauds applies only to executory contracts and not to contracts either partially or totally performed.17 Thus, where one party
reason of institution of a clearly malicious and unfounded action by Armando and Adelia.8
has performed one’s obligation, oral evidence will be admitted to prove the agreement.18 In the instant case, the parties have consummated the
The Court’s Ruling sale of the Subject Land, with both sellers and buyers performing their respective obligations under the contract of sale. In addition, a contract that
The petition is without merit. violates the Statute of Frauds is ratified by the acceptance of benefits under the contract.19Godofredo and Carmen benefited from the contract
In a petition for review on certiorari under Rule 45, this Court reviews only errors of law and not errors of facts.9 The factual findings of the because they paid their DBP loan and secured the cancellation of their mortgage using the money given by Armando and Adelia. Godofredo and
appellate court are generally binding on this Carmen also accepted payment of the balance of the purchase price.

_______________ _______________

8 Rollo, pp. 106-107. 16 Article 1403, Civil Code.

9 W-Red Construction and Development Corporation v. Court of Appeals, G.R. No. 122648, 17 August 2000, 338 SCRA 341. 17 Article 1497 of the Civil Code. See also The Associated Anglo-American Tobacco Corporation v. Court of Appeals, G.R. No. 125602, 29
157 April 1999, 325 SCRA 694.
18 Ibid.
VOL. 404, JUNE 17, 2003 157
19 Article 1405, Civil Code.
Alfredo vs. Borras 159

Court.10 This applies with greater force when both the trial court and the Court of Appeals are in complete agreement on their factual VOL. 404, JUNE 17, 2003 159
findings.11 In this case, there is no reason to deviate from the findings of the lower courts. The facts relied upon by the trial and appellate courts
Alfredo vs. Borras
are borne out by the record. We agree with the conclusions drawn by the lower courts from these facts.
Godofredo and Carmen cannot invoke the Statute of Frauds to deny the existence of the verbal contract of sale because they have performed their
Validity and Enforceability of the Sale
obligations, and have accepted benefits, under the verbal contract,20 Armando and Adelia have also performed their obligations under the verbal
The contract of sale between the spouses Godofredo and Carmen and the spouses Armando and Adelia was a perfected contract. A contract is
contract. Clearly, both the sellers and the buyers have consummated the verbal contract of sale of the Subject Land. The Statute of Frauds was
perfected once there is consent of the contracting parties on the object certain and on the cause of the obligation.12 In the instant case, the object of
enacted to prevent fraud.21 This law cannot be used to advance the very evil the law seeks to prevent.
the sale is the Subject Land, and the price certain is P15,000.00. The trial and appellate courts found that there was a meeting of the minds on the
Godofredo and Carmen also claim that the sale of the Subject Land to Armando and Adelia is void on two grounds. First, Carmen sold the
sale of the Subject Land and on the purchase price of P15,000.00. This is a finding of fact that is binding on this Court. We find no reason to disturb
Subject Land without the marital consent of Godofredo. Second, the sale was made during the 25-year period that the law prohibits the alienation
this finding since it is supported by substantial evidence.
of land grants without the approval of the Secretary of Agriculture and Natural Resources.
The contract of sale of the Subject Land has also been consummated because the sellers and buyers have performed their respective
These arguments are without basis.
obligations under the contract. In a contract of sale, the seller obligates himself to transfer the ownership of the determinate thing sold, and to
The Family Code, which took effect on 3 August 1988, provides that any alienation or encumbrance made by the husband of the conjugal
deliver the same, to the buyer who obligates himself to pay a price certain to the seller.13 In the instant case, Godofredo and Carmen delivered the
partnership property without the consent of the wife is void. However, when the sale is made before the effectivity of the Family Code, the
Subject Land to Armando and Adelia, placing the latter in actual physical possession of the Subject Land. This physical delivery of the Subject
applicable law is the Civil Code.22
Land also constituted a transfer of ownership of the Subject Land to Armando and Adelia.14 Ownership of the thing sold is transferred to the
Article 173 of the Civil Code provides that the disposition of conjugal property without the wife’s consent is not void but merely voidable.
vendee upon its actual or constructive delivery.15Godofredo and Carmen also turned over to Armando and Adelia the documents of ownership to
Article 173 reads:
the Subject Land, namely the owner’s duplicate copy of
The wife may, during the marriage, and within ten years from the transaction questioned, ask the courts for the annulment of any contract of the
husband entered into without her consent, when such consent is required, or any act or contract of the husband which tends to defraud her or
_______________ impair her interest in the conjugal partnership property. Should the wife fail to exercise this right, she or her heirs, after the dissolution of the
marriage, may demand the value of property fraudulently alienated by the husband.
10 Ibid.
11 Ibid.
_______________
12 Article 1318, Civil Code.
13 Article 1458, Civil Code.
20 Mactan Cebu International Airport Authority v. Court of Appeals, 331 Phil. 1046; 263 SCRA 736 (1996).
14 Peñalosa v. Santos, G.R. No. 133749, 23 August 2001, 363 SCRA 545.
21 Ibid.
15 Article 1477, Civil Code.
22 Spouses Guiang v. Court of Appeals, 353 Phil. 578; 291 SCRA 372 (1998).
158
160
158 SUPREME COURT REPORTS ANNOTATED
160 SUPREME COURT REPORTS ANNOTATED

Alfredo vs. Borras

Alfredo vs. Borras
OCT No. 284, the tax declaration and the receipts of realty tax payments.
In Felipe v. Aldon,23 we applied Article 173 in a case where the wife sold some parcels of land belonging to the conjugal partnership without the
On the other hand, Armando and Adelia paid the full purchase price as evidenced by the receipt dated 11 March 1970 issued by Carmen.
consent of the husband. We ruled that the contract of sale was voidable subject to annulment by the husband. Following petitioners’ argument that
Armando and Adelia fulfilled their obligation to provide the P7,000.00 to pay the DBP loan of Godofredo and Carmen, and to pay the latter the
Carmen sold the land to Armando and Adelia without the consent of Carmen’s husband, the sale would only be voidable and not void.
balance of P8,000.00 in cash. The P2,524.00 paid under the receipt dated 11 March 1970 was the last installment to settle fully the purchase price.

13
Obli of vendor
However, Godofredo can no longer question the sale. Voidable contracts are susceptible of ratification.24Godofredo ratified the sale when he
introduced Armando and Adelia to his tenants as the new owners of the Subject Land. The trial court noted that Godofredo failed to deny
categorically on the witness stand the claim of the complainants’ witnesses that Godofredo introduced Armando and Adelia as the new landlords of
the tenants.25 That Godofredo and Carmen allowed Armando and Adelia to enjoy possession of the Subject Land for 24 years is formidable proof of
Godofredo’s acquiescence to the sale. If the sale was truly unauthorized, then Godofredo should have filed an action to annul the sale. He did not.
The prescriptive period to annul the sale has long lapsed. Godofredo’s conduct belies his claim that his wife sold the Subject Land without his
consent.
Moreover, Godofredo and Carmen used most of the proceeds of the sale to pay their debt with the DBP. We agree with the Court of Appeals
that the sale redounded to the benefit of the conjugal partnership. Article 161 of the Civil Code provides that the conjugal partnership shall be
liable for debts and obligations contracted by the wife for the benefit of the conjugal partnership. Hence, even if Carmen sold the land without the
consent of her husband, the sale still binds the conjugal partnership.
Petitioners contend that Godofredo and Carmen did not deliver the title of the Subject Land to Armando and Adelia as shown by this portion
of Adelia’s testimony on cross-examination;
Q No title was delivered to you by Godofredo Alfredo?
A I got the title from Julie Limon because my sister told me.26
_______________
23 Supra, see note 6.
24 Article 1390 of the Civil Code.
25 Rollo, p. 47.
26 Ibid., p. 18.
161
VOL. 404, JUNE 17, 2003 161
Alfredo vs. Borras
Petitioners raise this factual issue for the first time. The Court of Appeals could have passed upon this issue had petitioners raised this earlier, At
any rate, the cited testimony of Adelia does not convincingly prove that Godofredo and Carmen did not deliver the Subject Land to Armando and
Adelia. Adelia’s cited testimony must be examined in context not only with her entire testimony but also with the other circumstances.
Adelia stated during cross-examination that she obtained the title of the Subject Land from Julie Limon (“Julie”), her classmate in college
and the sister of Carmen. Earlier, Adelia’s own sister had secured the title from the father of Carmen. However, Adelia’s sister, who was about to
leave for the United States, gave the title to Julie because of the absence of the other documents. Adelia’s sister told Adelia to secure the title from
Julie, and this was how Adelia obtained the title from Julie.
It is not necessary that the seller himself deliver the title of the property to the buyer because the thing sold is understood as delivered when
it is placed in the control and possession of the vendee.27 To repeat, Godofredo and Carmen themselves introduced the Natanawans, their tenants,
to Armando and Adelia as the new owners of the Subject Land. From then on, Armando and Adelia acted as the landlords of the Natanawans.
Obviously, Godofredo and Carmen themselves placed control and possession of the Subject Land in the hands of Armando and Adelia.
Petitioners invoke the absence of approval of the sale by the Secretary of Agriculture and Natural Resources to nullify the sale. Petitioners
never raised this issue before the trial court or the Court of Appeals. Litigants cannot raise an issue for the first time on appeal, as this would
contravene the basic rules of fair play, justice and due process.28 However, we will address this new issue to finally put an end to this case.
The sale of the Subject Land cannot be annulled on the ground that the Secretary did not approve the sale, which was made within 25 years
from the issuance of the homestead title. Section
_______________
27 Article 1497 of the Civil Code. See also The Associated Anglo-American Tobacco Corporation v. Court of Appeals, G.R. No. 125602, 29
April 1999, 325 SCRA 694.
28 Sumbad v. Court of Appeals,368 Phil. 52; 308 SCRA 575 (1999).
162
162 SUPREME COURT REPORTS ANNOTATED
Alfredo vs. Borras
118 of the Public Land Act (Commonwealth Act No. 141) reads as follows:
SEC. 118. Except in favor of the Government or any of its branches, units, or institutions or legally constituted banking corporation, lands acquired
under free patent or homestead provisions shall not be subject to encumbrance or alienation from the date of the approval of the application and for
a term of five years from and after the date of the issuance of the patent or grant.
xxx
No alienation, transfer, or conveyance of any homestead after 5 years and before twenty-five years after the issuance of title shall be valid
without the approval of the Secretary of Agriculture and Commerce, which approval shall not be denied except on constitutional and legal grounds.
A grantee or homesteader is prohibited from alienating to a private individual a land grant within five years from the time that the patent or grant
is issued.29 A violation of this prohibition renders a sale void.30 This prohibition, however, expires on the fifth year. From then on until the next 20
years31 the land grant may be alienated provided the Secretary of Agriculture and Natural Resources approves the alienation. The Secretary is
required to approve the alienation unless there are “constitutional and legal grounds” to deny the approval. In this case, there are no apparent
constitutional or legal grounds for the Secretary to disapprove the sale of the Subject Land.
The failure to secure the approval of the Secretary does not ipso facto make a sale void.32 The absence of approval by the Secretary does not
nullify a sale made after the expiration of the 5-year period, for in such event the requirement of Section 118 of the Public Land Act becomes merely
directory33or a formality.34 The approval may be secured later, producing the effect of ratifying and adopting
_______________
29 Jacinto v. Jacinto, 105 Phil. 1218 (1959).
30 Ibid.
31 Ibid.
32 Ibid.
33 Ibid.; Evangelista v. Montano,93 Phil. 275 (1953); Flores v. Plasina, 94 Phil. 327 (1954).
34 De los Santos v. Roman Catholic Church of Midsayap, 94 Phil. 405 (1954).
163
VOL. 404, JUNE 17, 2003 163
Alfredo vs. Borras
the transaction as if the sale had been previously authorized35 As held in Evangelista v. Montano.36
Section 118 of Commonwealth Act No. 141, as amended, specifically enjoins that the approval by the Department Secretary “shall not be denied
except on constitutional and legal grounds.” There being no allegation that there were constitutional or legal impediments to the sales, and no
pretense that if the sales had been submitted to the Secretary concerned they would have been disapproved, approval was a ministerial duty, to be
had as a matter of course and demandable if refused. For this reason, and if necessary, approval may now be applied for and its effect will be to
ratify and adopt the transactions as if they had been previously authorized. (Emphasis supplied)
Action Not Barred by Prescription and Laches
Petitioners insist that prescription and laches have set in. We disagree.
The Amended Complaint filed by Armando and Adelia with the trial court is captioned as one for Specific Performance. In reality, the
ultimate relief sought by Armando and Adelia is the reconveyance to them of the Subject Land. An action for reconveyance is one that seeks to
transfer property, wrongfully registered by another, to its rightful and legal owner.37 The body of the pleading or complaint determines the nature
of an action, not its title or heading.38 Thus, the present action should be treated as one for reconveyance.39
Article 1456 of the Civil Code provides that a person acquiring property through fraud becomes by operation of law a trustee of an implied
trust for the benefit of the real owner of the property. The presence of fraud in this case created an implied trust in favor of Armando and Adelia.
This gives Armando and Adelia the right to seek reconveyance of the property from the Subsequent Buyers.40
_______________
35 Ibid.
36 93 Phil. 275 (1953).
37 Ibid.
38 David v. Malay, G.R. No. 132644, 19 November 1999, 318 SCRA 711.
39 Ibid.
40 Ibid. See also Heirs of Olviga v. Court of Appeals, G.R. No. 104813, 21 October 1993, 227 SCRA 330.
164
164 SUPREME COURT REPORTS ANNOTATED
14
Obli of vendor

In all cases of registration procured by fraud, the owner may pursue all his legal and equitable remedies against the parties to such fraud without
Alfredo vs. Borras
prejudice, however, to the rights of any innocent holder of the decree of registration on the original petition or application, x x x
To determine when the prescriptive period commenced in an action for reconveyance, plaintiff’s possession of the disputed property is material. An
This provision should be read in conjunction with Article 1456 of the Civil Code, which provides:
action for reconveyance based on an implied trust prescribes in ten years.41 The ten-year prescriptive period applies only if there is an actual need 166
to reconvey the property as when the plaintiff is not in possession of the property.42 However, if the plaintiff, as the real owner of the property also
166 SUPREME COURT REPORTS ANNOTATED
remains in possession of the property, the prescriptive period to recover title and possession of the property does not run against him.43In such a
case, an action for reconveyance, if nonetheless filed, would be in the nature of a suit for quieting of title, an action that is imprescriptible.44
Alfredo vs. Borras
In this case, the appellate court resolved the issue of prescription by ruling that the action should prescribe four years from discovery of the
Article 1456. If property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for
fraud. We must correct this erroneous application of the four-year prescriptive period. In Caro v. Court of Appeals,45 we explained why an action for
the benefit of the person from whom the property comes.
reconveyance based on an implied trust should prescribe in ten years. In that case, the appellate court also erroneously applied the four-year
The law thereby creates the obligation of the trustee to reconvey the property and the title thereto in favor of the true owner. Correlating Section
prescriptive period. We declared in Caro:
53, paragraph 3 of Presidential Decree No. 1529 and Article 1456 of the Civil Code with Article 1144(2) of the Civil Code, supra, the prescriptive
We disagree. The case of Liwalug Amerol, et al. v. Molok Bagumbaran, G.R. No. L-33261, September 30, 1987, 154 SCRA 396 illuminated what
period for the reconveyance of fraudulently registered real property is ten (10) years reckoned from the date of the issuance of the certificate of title
used to be a gray area on the prescriptive period for an action to reconvey the title to real property and, corollarily, its point of reference:
x x x (Emphasis supplied)46
x x x It must be remembered that before August 30, 1950, the date of the effectivity of the new Civil Code, the old Code of Civil Procedure
Following Caro, we have consistently held that an action for reconveyance based on an implied trust prescribes in ten years.47 We went further by
(Act No. 190) governed prescription. It provided:
specifying the reference point of the ten-year prescriptive period as the date of the registration of the deed or the issuance of the title.48
SEC. 43. Other civil actions; how limited.—Civil actions other than for the recovery of real property can only be brought within the following
Had Armando and Adelia remained in possession of the Subject Land, their action for reconveyance, in effect an action to quiet title to
periods after the right of action accrues:
property, would not be subject to prescription. Prescription does not run against the plaintiff in actual possession of the disputed land because such
xxx xxx xxx
plaintiff has a right to wait until his possession is disturbed or his title is questioned before initiating an action to vindicate his right.49 His
undisturbed possession gives him the continuing right to seek the aid of a court of equity to determine the nature of the adverse claim of a third
_______________
party and its effect on his title.50
Armando and Adelia lost possession of the Subject Land when the Subsequent Buyers forcibly drove away from the Subject Land the
41 Vda. de Cabrera v. Court of Appeals, 335 Phil. 19; 267 SCRA 339 (1997). Natanawans, the tenants of Armando and Adelia.51 This created an actual need for Armando and Adelia to seek reconveyance of the Subject Land.
42 Ibid. The statute of limitation becomes relevant in
43 Supra, see note 38.
44 Ibid.
_______________
45 G.R. No. 76148, 20 December 1989, 180 SCRA 401.
165
46 Ibid.
VOL. 404, JUNE 17, 2003 165
47 Development Bank of the Philippines v. Court of Appeals,G.R. No. 129471, 28 April 2000, 331 SCRA 267; David v. Malay, supra,see note
38; Vda. de Cabrera v. Court of Appeals, supra, see note 41.
Alfredo vs. Borras
48 Supra, see note 38.
3. Within four years: x x x An action for relief on the ground of fraud, but the right of action in such case shall not be deemed to have accrued until
49 Supra, see note 38.
the discovery of the fraud;
50 Supra, see note 38.
xxx xxx xxx
51 Rollo, p. 59; TSN, 8 March 1995, pp. 336-337 (Rolando Natanawan); TSN, 23 November 1994, p. 262 (Adelia Lobaton).
In contrast, under the present Civil Code, we find that just as an implied or constructive trust is an offspring of the law (Art. 1456, Civil Code), so is
167
the corresponding obligation to reconvey the property and the title thereto in favor of the true owner. In this context, and vis-a-vis prescription,
VOL. 404, JUNE 17, 2003 167
Article 1144 of the Civil Code is applicable.
Article 1144. The following actions must be brought within ten years from the time the right of action accrues:
Alfredo vs. Borras

this case. The ten-year prescriptive period started to run the date the Subsequent Buyers registered their deeds of sale with the Register of Deeds.
1. (1)Upon a written contract; The Subsequent Buyers bought the subdivided portions of the Subject Land on 22 February 1994, the date of execution of their deeds of sale.
2. (2)Upon an obligation created by law; The Register of Deeds issued the transfer certificates of title to the Subsequent Buyers on 24 February 1994. Armando and Adelia filed the
3. (3)Upon a judgment. Complaint on 7 March 1994. Clearly, prescription could not have set in since the case was filed at the early stage of the ten-year prescriptive period.
Neither is the action barred by laches. We have defined laches as the failure or neglect, for an unreasonable time, to do that which, by the

xxx xxx xxx exercise of due diligence, could or should have been done earlier.52 It is negligence or omission to assert a right within a reasonable time,

(Emphasis supplied). warranting a presumption that the party entitled to assert it either has abandoned it or declined to assert it.53 Armando and Adelia discovered in

An action for reconveyance based on an implied or constructive trust must perforce prescribe in ten years and not otherwise. A long line of January 1994 the subsequent sale of the Subject Land and they filed this case on 7 March 1994. Plainly, Armando and Adelia did not sleep on their

decisions of this Court, and of very recent vintage at that, illustrates this rule. Undoubtedly, it is now well-settled that an action for reconveyance rights.

based on an implied or constructive trust prescribes in ten years from the issuance of the Torrens title over the property. The only discordant note, it
seems, is Balbin vs. Medalla which states that the prescriptive period for a reconveyance action is four years. However, this variance can be
explained by the erroneous reliance on Gerona vs. de Guzman. But in Gerona, the fraud was discovered on June 25, 1948, hence Section 43(3) of Act
No. 190, was applied, the new Civil Code not coming into effect until August 30, 1950 as mentioned earlier. It must be stressed, at this juncture,
that article 1144 and article 1456, are new provisions. They have no counterparts in the old Civil Code or in the old Code of Civil Procedure, the
latter being then resorted to as legal basis of the four-year prescriptive period for an action for reconveyance of title of real property acquired under
false pretenses.
An action for reconveyance has its basis in Section 53, paragraph 3 of Presidential Decree No. 1529, which provides:
Validity of Subsequent Sale of Portions of the Subject Land
Petitioners maintain that the subsequent sale must be upheld because the Subsequent Buyers, the co-petitioners of Godofredo and Carmen,
purchased and registered the Subject Land in good faith. Petitioners argue that the testimony of Calonso, the person who brokered the second sale,
should not prejudice the Subsequent Buyers. There is no evidence that Calonso was the agent of the Subsequent Buyers and that she
communicated to them what she knew about the adverse claim and the prior sale. Petitioners assert that the adverse claim registered by Armando
and Adelia has no legal basis to render defective the transfer of title to the Subsequent Buyers.
We are not persuaded. Godofredo and Carmen had already sold the Subject Land to Armando and Adelia, The settled rule is when ownership
or title passes to the buyer, the seller ceases to have any title to transfer to any third person.54 If the seller sells the same

15
Obli of vendor

_______________ _______________

52 Coronel v. Court of Appeals, 331 Phil. 294; 263 SCRA 15 (1996). x x x instrument or entry affecting registered land shall, if registered, filed or entered in the office of the Register of Deeds for the province or
53 Ibid. city where the land to which it relates lies, be constructive notice to all personsfrom the time of such registering, filing or entering.” See also Caviles
54 Ibid. v. Bautista, G.R. No. 102648, 24 November 1999, 319 SCRA 24; Development Bank of the Philippines v. Acting Register of Deeds of Nueva Ecija,
168 UDK No. 7671, 23 June 1988, 162 SCRA 450.
62 Gardner v. Court of Appeals, G.R. No. L-59952, 31 August 1984, 131 SCRA 584; PNB v. Court of Appeals, G.R. No. L-30831 & L-31176, 21
168 SUPREME COURT REPORTS ANNOTATED
November 1979, 94 SCRA 357.
Alfredo vs. Borras 63 Supra, see note 41.
64 Supra, see note 41.
land to another, the second buyer who has actual or constructive knowledge of the prior sale cannot be a registrant in good faith.55Such second
65 Cipriano v. Court of Appeals, 331 Phil. 1019; 263 SCRA 711.
buyer cannot defeat the first buyer’s title.56In case a title is issued to the second buyer, the first buyer may seek reconveyance of the property
170
subject of the sale.57
Thus, to merit protection under the second paragraph of Article 154458 of the Civil Code, the second buyer must act in good faith in 170 SUPREME COURT REPORTS ANNOTATED
registering the deed.59 In this case, the Subsequent Buyers’ good faith hinges on whether they had knowledge of the previous sale. Petitioners do
People vs. Mallari
not dispute that Armando and Adelia registered their adverse claim with the Registry of Deeds of Bataan on 8 February 1994. The Subsequent
Buyers purchased their respective lots only on 22 February, 1994 as shown by the date of their deeds of sale. Consequently, the adverse claim blind eye on petitioners’ brazen tactics. Thus, we uphold the treble costs imposed by the Court of Appeals on petitioners.
registered prior to the second sale charged the Subsequent Buyers with constructive notice of the defect in the title of the sellers,60 Godofredo and WHEREFORE, the petition is DENIED and the appealed decision is AFFIRMED. Treble costs against petitioners.
Carmen. SO ORDERED.
It is immaterial whether Calonso, the broker of the second sale, communicated to the Subsequent Buyers the existence of the adverse claim. Davide, Jr. (C.J., Chairman), Vitug, Ynares-Santiago and Azcuna, JJ.,concur.
The registration of the adverse claim on 8 February 1994 constituted, by operation of law, notice to the whole world.61 Petition denied, judgment affirmed.
Note.—An action for reconveyance based on violation of a condition in the Deed of Donation should be instituted within ten (10) years from

_______________ the time of such violation. (Vda. de Delgado vs. Court of Appeals, 363 SCRA 758 [2001])

55 Ibid. ——o0o——

56 Ibid.
57 Ibid. © Copyright 2019 Central Book Supply, Inc. All rights reserved.

58 Article 1544 of the Civil Code provides as follows: “If the same thing should have been sold to different vendees, the ownership shall be
transferred to the person who may have first taken possession thereof in good faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of 316 SUPREME COURT REPORTS ANNOTATED
Property.
Liu vs. Loy, Jr.
Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence
thereof, to the person who presents the oldest title, provided there is good faith.” G.R. No. 145982. July 3, 2003.*
59 Bayoca v. Nogales, G.R. No. 138201, 12 September 2000, 340 SCRA 154. FRANK N. LIU, deceased, substituted by his surviving spouse DIANA LIU, and children,
60 See Balatbat v. Court of Appeals, 329 Phil. 858; 261 SCRA 128 (1996); Ocampo v. Court of Appeals, G.R. No. 97442, 30 June 1994, 233 namely: WALTER, MILTON, FRANK, JR., HENRY and JOCKSON, all surnamed LIU,
SCRA 551. REBECCA LIU SHUI and PEARL LIU RODRIGUEZ, petitioners, vs. ALFREDO LOY, JR.,
61 Section 52 of the Property Registration Decree (PD No. 1529) provides as follows: “Constructive notice upon registration.—Every x x x TERESITA A. LOY and ESTATE OF JOSE VAÑO, respondents.
lien, Civil Law; Contracts; Sales; Rescission; Although the law allows the extra-judicial
169 cancellation of a contract to sell upon failure of one party to comply with his obligation,
VOL. 404, JUNE 17, 2003 169 notice of such cancellation must still be given to the party who is at fault.—Although the law
allows the extra-judicial cancellation of a contract to sell upon failure of one party to comply
Alfredo vs. Borras with
From that date onwards, the Subsequent Buyers were deemed to have constructive notice of the adverse claim of Armando and Adelia. When the
Subsequent Buyers purchased portions of the Subject Land on 22 February 1994, they already had constructive notice of the adverse claim _______________
registered earlier.62 Thus, the Subsequent Buyers were not buyers in good faith when they purchased their lots on 22 February 1994. They were
also not registrants in good faith when they registered their deeds of sale with the Registry of Deeds on 24 February 1994. 19 In Re: Petition for Dismissal from Service and/or Disbarment of Judge Baltazar R.
The Subsequent Buyers’ individual titles to their respective lots are not absolutely indefeasible. The defense of indefeasibility of the Torrens
Dizon, A.M. No. 3086, 31 May 1989, 173 SCRA 719.
Title does not extend to a transferee who takes the certificate of title with notice of a flaw in his title.63 The principle of indefeasibility of title does 20 Dionisio v. Escaño, 362 Phil. 46; 302 SCRA 411 [1999].
not apply where fraud attended the issuance of the titles as in this case.64 * FIRST DIVISION.

Attorney’s Fees and Costs 317

We sustain the award of attorney’s fees. The decision of the court must state the grounds for the award of attorney’s fees. The trial court complied
VOL. 405, JULY 3, 2003 317
with this requirement.65 We agree with the trial court that if it were not for petitioners’ unjustified refusal to heed the just and valid demands of
Armando and Adelia, the latter would not have been compelled to file this action. Liu vs. Loy, Jr.
The Court of Appeals echoed the trial court’s condemnation of petitioners’ fraudulent maneuverings in securing the second sale of the Subject
Land to the Subsequent Buyers. We will also not turn a

16
Obli of vendor
his obligation, notice of such cancellation must still be given to the party who is at
fault. The notice of cancellation to the other party is one of the requirements for a valid
cancellation of a contract to sell, aside from the existence of a lawful cause.
Same; Same; Same; One who buys from a person who is not the registered owner is not
a purchaser in good faith.—The registration by the Loys of their contracts of sale did not
defeat the right of prior buyers because the person who signed the Loys’ contracts was not
the registered owner. The registered owner of Lot Nos. 5 and 6 was the “Estate of Jose
Vaño.” Teodoro Vaño was the seller in the contract of sale with Alfredo Loy, Jr. The Estate
of Jose Vaño was the seller in the contract of sale with Teresita Loy. Teodoro Vaño signed
both contracts of sale. The rule is well-settled that “one who buys from a person who is not
the registered owner is not a purchaser in good faith.”
Same; Same; Same; Registration of the contracts without court approval would be
ineffective to bind third persons, especially creditors of the estate.—The contracts of the Loys
did not convey ownership of the lots to them as against third persons. The contracts were
binding only on the seller, Teodoro Vaño. The contracts of the Loys would become binding
against third persons only upon approval of the sale by the probate court and registration
with the Register of Deeds. Registration of the contracts without court approval would be
ineffective to bind third persons, especially creditors of the estate. Otherwise, this will open
the door to fraud on creditors of the estate.
Same; Same; Same; Trusts; It is mandatory that notice be served on the heirs and
other interested persons of the application for approval of any conveyance of property held in
trust by the deceased otherwise the order authorizing the conveyance, as well as the
conveyance itself, is completely void.—The failure to notify the administratrix and other
interested persons rendered the sale to the Loys void. As explained by Justice J.B.L. Reyes
in De Jesus v. De Jesus: Section 9, Rule 90, however, provides that authority can be given by
the probate court to the administrator to convey property held in trust by the deceased to
the beneficiaries of the trust only “after notice given as required in the last preceding
section”; i.e., that “no such conveyance shall be authorized until notice of the application for
that purpose has been given personally or by mail to all persons interested, and such further
notice has been given, by publication or otherwise, as the court deems proper” (sec. 8, Rule
90). This rule makes it mandatory that notice be served on the heirs and other interested
persons of the application for approval of any conveyance of property held in trust by the
deceased, and where no such notice is given, the order authorizing the conveyance, as well as
the conveyance itself, is completely void. (Emphasis supplied)
318
3 SUPREME COURT REPORTS ANNOTATED
18
Liu vs. Loy, Jr.
Same; Same; Same; A sale of estate property made by an administrator without court
authority is void and does not confer on the purchaser a title that is available against a
succeeding administrator.—In Teresita Loy’s case, her seller was the Estate of Jose Vaño.
Teodoro Vaño executed the contract of sale in his capacity as administrator of the Estate of
Jose Vaño, the registered owner of the lots. The Court has held that a sale of estate property
made by an administrator without court authority is void and does not confer on the
purchaser a title that is available against a succeeding administrator.
Same; Same; Same; An administrator cannot unilaterally cancel a contract to sell
made by the decedent in his lifetime.—A prior contract to sell made by the decedent prevails
over the subsequent contract of sale made by the administrator without probate court
approval. The administrator cannot unilaterally cancel a contract to sell made by the
decedent in his lifetime. Any cancellation must observe all legal requisites, like written
notice of cancellation based on lawful cause.
PETITION for review on certiorari of the decision and resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.
Loyola, Rodriguez, Delos Santos & Naidas Law Office for petitioners.
Diores Law Offices for private respondents Loys.
CARPIO, J.:
The Case
This is a petition for review on certiorari of the Decision1dated 13 June 2000 and the
Resolution dated 14 November 2002 of the Court of Appeals which affirmed the Decision2 of
the Regional Trial Court, Branch 14, Cebu City. The Court of Appeals agreed with the trial
court that the sales by the late Teodoro Vaño to respondents Alfredo Loy, Jr. and Teresita A.
Loy of Lot Nos. 5 and 6, respectively, were valid. The Court of Appeals also agreed with the
trial court that the unilateral extrajudicial rescission by the late Teodoro Vaño of the
contract to sell involving five lots, including Lot
_______________
1 Penned by Associate Justice Jose L. Sabio, Jr., with Associate Justices Ramon
Mabutas, Jr. and Demetrio G. Demetria concurring.
2 Penned by Judge Renato C. Dacudao.
319
VOL. 405, JULY 3, 2003 319
Liu vs. Loy, Jr.
Nos. 5 and 6, between him and Benito Liu (predecessor-in-interest of Frank Liu) was valid.
The Facts
On 13 January 1950, Teodoro Vaño, as attorney-in-fact of Jose Vaño, sold seven lots of the
Banilad Estate located in Cebu City to Benito Liu and Cirilo Pangalo. 3 Teodoro Vaño dealt
with Frank Liu, the brother of Benito Liu, in the sale of the lots to Benito Liu and Cirilo
Pangalo. The lots sold to Benito Liu were Lot Nos. 5, 6, 13, 14, and 15 of Block 12 for a total
price of P4,900. Benito Liu gave a down payment of P1,000, undertaking to pay the balance
of P3,900 in monthly installments of P100 beginning at the end of January 1950. The lots
sold to Cirilo Pangalo were Lot Nos. 14 and 15 of Block 11 for a total price of P1,967.50.
Cirilo Pangalo gave P400 as down payment, undertaking to pay the balance of P1,567.50 in
monthly installments of P400 beginning at the end of January 1950. Meanwhile, Jose Vaño
passed away.
Benito Liu subsequently paid installments totaling P2,900, leaving a balance of
P1,000.4 Apparently, Benito Liu stopped further payments because Teodoro Vaño admitted
his inability to transfer the lot titles to Benito Liu. Later, in a letter 5dated 16 October 1954,
Teodoro Vaño informed Frank Liu6 that the Supreme Court had already declared valid the
will of his father Jose Vaño. Thus, Teodoro Vaño could transfer the titles to the buyers’
names upon payment of the balance of the purchase price.
When Frank Liu failed to reply, Teodoro Vaño sent him another letter, 7 dated 1 January
1955, reminding him of his outstanding
_______________
3 Exhibit “A”, Records, pp. 6-9.
4 See Exhibits “B” and “F”, ibid.,pp. 62-63 and 68.
5 Exhibit “C”, ibid., p. 64.
6 The contract between Teodoro Vaño and Cirilo Pangalo provides that in case of death
of the vendee, the contract shall be considered as fully paid and a final deed of sale shall be
made in favor of the beneficiary, Frank N. Liu, provided vendee is not in arrears of not more
17
Obli of vendor
than two months. Also, in his letter to Frank Liu, dated 1 January 1955, Teodoro Vaño
stated that: “I have addressed my letter to you because ever since 1949, it has always been
you I dealt with, and not Mr. B. Liu, neither with Mr. C. Pangalo, though the last two
gentlemen were the ones who signed the agreements for the purchase of the lots.”
7 Exhibit “D”, Records, p. 65.
320
320 SUPREME COURT REPORTS ANNOTATED
Liu vs. Loy, Jr.
balance. It appears that it was only after nine years that Frank Liu responded through a
letter,8 dated 25 January 1964. In the letter, Frank Liu informed Teodoro Vaño that he was
ready to pay the balance of the purchase price of the seven lots. He requested for the
execution of a deed of sale of the lots in his name and the delivery of the titles to him.
On 22 April 1966, Benito Liu sold to Frank Liu the five lots (Lot Nos. 5, 6, 13, 14 and 15
of Block 12) which Benito Liu purchased from Teodoro Vaño. 9 Frank Liu assumed the
balance of P1,000 for the five lots. Cirilo Pangalo likewise sold to Frank Liu the two lots (Lot
Nos. 14 and 15 of Block 11) that Pangalo purchased from Teodoro Vaño. Frank Liu likewise
assumed the balance of P417 for the two lots.
On 21 March 1968, Frank Liu reiterated in a letter10his request for Teodoro Vaño to
execute the deed of sale covering the seven lots so he could secure the corresponding
certificates of title in his name. He also requested for the construction of the subdivision
roads pursuant to the original contract. In the letter, Frank Liu referred to another letter,
dated 25 June 1966, which he allegedly sent to Teodoro Vaño. According to Frank Liu, he
enclosed PBC Check No. D-782290 dated 6 May 1966 for P1,417, which is the total balance
of the accounts of Benito Liu and Cirilo Pangalo on the seven lots. However, Frank Liu did
not offer in evidence the letter or the check. Frank Liu sent two other letters,11 dated 7 June
1968 and 29 July 1968, to Teodoro Vaño reiterating his request for the execution of the deed
of sale in his favor but to no avail.
On 19 August 1968, Teodoro Vaño sold Lot No. 6 to respondent Teresita Loy for
P3,930.12 The Register of Deeds of Cebu City entered this sale in the Daybook on 24
February 1969.13
On 2 December 1968, Frank Liu filed a complaint against Teodoro Vaño for specific
performance, execution of deed of absolute
_______________
8 Exhibit “E”, Ibid., pp. 66-67; Although the letter adverted to another letter dated 18
January 1955 which he allegedly sent to Teodoro Vaño, no such letter was offered in
evidence.
9 See Exhibit “B”, Ibid., pp. 62-63.
10 Exhibit “F”, ibid., p. 68.
11 Exhibits “G” and “H”, ibid., pp. 69 and 70.
12 Exhibit “4-Teresita”, Folder of Exhibits, p. 22.
13 Exhibit “5-Teresita”, ibid., p. 23.
321
VOL. 405, JULY 3, 2003 321
Liu vs. Loy, Jr.
sale, issuance of certificates of title and construction of subdivision roads, before the Court
of First Instance of Davao. The case was docketed as Civil Case No. 6300.14
On 19 December 1968, Frank Liu filed with the Register of Deeds of Cebu City a notice
of lis pendenson the seven lots due to the pendency of Civil Case No. 6300.15 However, the
Register of Deeds denied the registration of the lis pendens “on the ground that the property
is under administration and said claim must be filed in court.”16
On 16 December 1969, Teodoro Vaño sold Lot No. 5 to respondent Alfredo Loy for
P3,910.17 The Register of Deeds of Cebu City entered this sale in the Daybook on 16 January
1970.18
On 3 October 1970, the Court of First Instance of Davao, on motion of Teodoro Vaño,
dismissed Civil Case No. 6300 on the ground that Frank Liu should have filed the claim
with the probate court.19 Thus, on 17 February 1972, Frank Liu filed before the probate
court a claim against the Estate of Jose Vaño for “Specific Performance, Execution of Deed
of Absolute Sale, Issuance of Certificate of Title, and Construction of Subdivision Roads.”20
During the proceedings, Teodoro Vaño died. His widow, Milagros Vaño, succeeded as
administratrix of the Estate of Jose Vaño.
On 24 February 1976, the probate court approved the claim of Frank Liu. On 5 March
1976, Milagros Vaño executed a deed of conveyance covering the seven lots in favor of Frank
Liu, in compliance with the probate court’s order.21 The deed of conveyance included Lot
Nos. 5 and 6, the same lots Teodoro Vaño sold respectively to Alfredo Loy, Jr. on 16
December 1969 and to Teresita Loy on 19 August 1968.
_______________
Exhibit “I”, Records, pp. 71-75.
14
Exhibit “J”, ibid., pp. 77-78.
15
16 Exhibit “J-3”, ibid., back of p. 78.
17 Exhibit “3-Alfredo”, Folder of Exhibits, p. 1.
18 Exhibits “4-Alfredo” and “5-Teresita”, ibid., pp. 2 and 23.
19 In Special Proceeding No. 619-R, “In the Matter of the Last Will and Testament of
Jose Vaño,” at the Court of First Instance of Cebu; Exhibit “2-Vaño”, ibid., p. 64.
20 Exhibit “L”, Records, pp. 81-83.
21 Exhibits “8-Vaño” and “N”, Folder of Exhibits, pp. 82-85 and Records, pp. 85-85A.
322
322 SUPREME COURT REPORTS ANNOTATED
Liu vs. Loy, Jr.
On 19 March 1976, the probate court, upon an ex-parte motion filed by Teresita Loy, issued
an Order22 approving the 16 August 1968 sale by Teodoro Vaño of Lot No. 6 in her favor.
Likewise, upon an ex-parte motion filed by Alfredo Loy, Jr., the probate court issued on 23
March 1976 an Order23 approving the 16 December 1969 sale of Lot No. 5 by Teodoro Vaño
in his favor.
On 10 May 1976, the Register of Deeds of Cebu City cancelled TCT No. 44204 in the
name of the Estate of Jose Vaño covering Lot No. 5 and issued a new title, TCT No. 64522,
in the name of Alfredo Loy, Jr. and Perfeccion V. Loy.24Likewise, on the same date, the
Register of Deeds cancelled TCT No. 44205 in the name of the Estate of Jose Vaño covering
Lot No. 6, and issued TCT No. 64523in the name of Teresita A. Loy.25
On 3 June 1976, Milagros Vaño, as administratrix of the estate, filed a motion for
reconsideration of the Orders of the probate court dated 19 and 23 March 1976. She
contended that she already complied with the probate court’s Order dated 24 February 1976
to execute a deed of sale covering the seven lots, including Lot Nos. 5 and 6, in favor of
Frank Liu. She also stated that no one notified her of the motion of the Loys, and if the Loys
or the court notified her, she would have objected to the sale of the same lots to the Loys.
On 4 June 1976, Frank Liu filed a complaint for reconveyance or annulment of title of
Lot Nos. 5 and 6. Frank Liu filed the case in the Regional Trial Court of Cebu City, Branch
14, which docketed it as Civil Case No. R-15342.
On 5 August 1978, the probate court denied the motion for reconsideration of Milagros
Vaño on the ground that the conflicting claims regarding the ownership of Lot Nos. 5 and 6
were already under litigation in Civil Case No. R-15342.
On 8 April 1991, the Regional Trial Court of Cebu City (“trial court”), Branch 14,
rendered judgment against Frank Liu as follows:
18
Obli of vendor

_______________
22 Exhibit “15-Teresita”, ibid., p. 42.
23 Exhibit “12-Alfredo”, Folder of Exhibits, p. 19.
24 Exhibit “9-Alfredo”, ibid., p. 7.
25 Exhibit “11-Teresita”, ibid., p. 29.
323
VOL. 405, JULY 3, 2003 323
Liu vs. Loy, Jr.
“WHEREFORE, judgment is hereby rendered:
(1) Dismissing the complaint at bar; and
(2) Confirming the unilateral extrajudicial rescission of the contract Exhibit “A” by the
late Teodoro Vaño, conditioned upon the refund by the Estate of Jose Vaño of one-half (1/2)
of what the plaintiff had paid under that contract.
The counterclaims by the defendants Alfredo A. Loy, Jr. and Teresita A. Loy and by the
defendant Estate of Jose Vaño, not having been substantiated, are hereby denied.
Without special pronouncement as to costs.
SO ORDERED.”26
Frank Liu appealed to the Court of Appeals, which affirmed in toto the decision of the trial
court. Frank Liu27filed a motion for reconsideration but the Court of Appeals denied the
same.
Hence, the instant petition.
The Trial Court’s Ruling
The trial court held that the contract between Teodoro Vaño and Benito Liu was a contract
to sell. Since title to Lot Nos. 5 and 6 never passed to Benito Liu due to non-payment of the
balance of the purchase price, ownership of the lots remained with the vendor. Therefore,
the trial court ruled that the subsequent sales to Alfredo Loy, Jr. and Teresita Loy of Lot
Nos. 5 and 6, respectively, were valid.
The trial court viewed the letter of Teodoro Vaño dated 1 January 1995 addressed to
Frank Liu as a unilateral extrajudicial rescission of the contract to sell. The trial court
upheld the unilateral rescission subject to refund by the Estate of Jose Vaño of one-half (1/2)
of what Frank Liu paid under the contract.
The trial court ruled that Teodoro Vaño, as administrator of the Estate of Jose Vaño
and as sole heir of Jose Vaño, acted both as principal and as agent when he sold the lots to
Alfredo Loy, Jr. and Teresita Loy. The probate court subsequently approved the sales. The
trial court also found that Alfredo Loy, Jr. and Teresita Loy were purchasers in good faith.
The Court of Appeals also held that the sales to Alfredo Loy, Jr. and Teresita Loy of Lot
Nos. 5 and 6, respectively, were valid despite lack of prior approval by the probate court.
The Court of Appeals declared that Teodoro Vaño sold the lots in his capacity as heir of Jose
Vaño. The appellate court ruled that an heir has a right to dispose of the decedent’s
property, even if the same is under administration, because the hereditary property is
deemed transmitted to the heir without interruption from the moment of the death of the
decedent.
The Court of Appeals held that there is no basis for the claim of moral damages and
attorney’s fees. The appellate court found that Frank Liu failed to prove that he suffered
mental anguish due to the actuations of the Loys. The Court of Appeals likewise disallowed
the award of attorney’s fees. The fact alone that a party was compelled to litigate and incur
expenses to protect his claim does not justify an award of attorney’s fees. Besides, the Court
of Appeals held that where there is no basis to award moral damages, there is also no basis
to award attorney’s fees.
The Issues
Petitioners28 raise the following issues:29
1. 1.Whether prior approval of the probate court is necessary to validate the sale of
Lot Nos. 5 and 6 to Loys;
2. 2.Whether the Loys can be considered buyers and registrants in good faith despite
the notice of lis pendens;
3. 3.Whether Frank Liu has a superior right over Lot Nos. 5 and 6;
_______________
28Petitioners are Frank Liu’s spouse and children, who substituted him upon his death.
29Rollo, pp. 18-19.
325
VOL. 405, JULY 3, 2003 325
Liu vs. Loy, Jr.
1. 4.Whether the Court of Appeals erred in not passing upon the trial court’s
declaration that the extra-judicial rescission by Teodoro Vaño of the sale in favor
of Frank Liu is valid;
2. 5.Whether petitioners are entitled to moral damages and attorney’s fees.

_______________
The Court’s Ruling
Rollo, p. 75.
26 The petition is meritorious.
27 Frank Liu died on 24 January 1992 and was substituted by his legal heirs. CA Rollo,
Whether there was a valid cancellation of the contract to sell
pp. 209-212. There was no valid cancellation of the contract to sell because there was no written notice of
324 the cancellation to Benito Liu or Frank Liu. There was even no implied cancellation of the
324 SUPREME COURT REPORTS ANNOTATED contract to sell. The trial court merely “viewed” the alleged “unilateral extrajudicial
rescission” from the letter of Teodoro Vaño, dated 1 January 1955, addressed to Frank Liu,
Liu vs. Loy, Jr. stating that:
Two months, I believe, is ample for the allowance of delays caused by your (sic) either too
The Court of Appeals’ Ruling
busy, or having been some place else, or for consultations. These are the only reasons I can
In affirming in toto the trial court’s decision, the appellate court found no evidence of fraud
think of that could have caused the delay in your answer, unless you do not think an answer
or ill-motive on the part of Alfredo Loy, Jr. and Teresita Loy. The Court of Appeals cited the
is necessary at all, as you are not the party concerned in the matter.
rule that “the law always presumes good faith such that any person who seeks to be
I shall therefor (sic) appreciate it very much, if you will write me within ten days from
awarded damages due to the acts of another has the burden of proving that the latter acted
receipt of this letter, or enterprete (sic) your silence as my mistake in having written to
in bad faith or ill-motive.”

19
Obli of vendor
the wrong party, and therefor (sic) proceed to write Misters: B. Liu and C.
Pangalo.30 (Emphasis supplied)
Obviously, we cannot construe this letter as a unilateral extrajudicial rescission of the
contract to sell. As clearly stated in the letter, the only action that Teodoro Vaño would take
if Frank Liu did not reply was that Teodoro Vaño would write directly to Benito Liu and
Cirilo Pangalo. The letter does not mention anything about rescinding or cancelling the
contract to sell.
Although the law allows the extrajudicial cancellation of a contract to sell upon failure
of one party to comply with his obligation, notice of such cancellation must still be given to
the party who is at
_______________
30Exhibit “D”, Records, p. 65.
326
326 SUPREME COURT REPORTS ANNOTATED
Liu vs. Loy, Jr.
fault.31 The notice of cancellation to the other party is one of the requirements for a valid
cancellation of a contract to sell, aside from the existence of a lawful cause. Even the case
cited by the trial court emphasizes the importance of such notice:
Of course, it must be understood that the act of a party in treating a contract as
cancelled or resolved on account of infractions by the other contracting party must
be made known to the otherand is always provisional, being ever subject to scrutiny and
review by the proper court. If the other party denies that rescission is justified, it is free to
resort to judicial action in its own behalf, and bring the matter to court. Then, should the
court, after due hearing, decide that the resolution of the contract was not warranted, the
responsible party will be sentenced to damages; in the contrary case, the resolution will be
affirmed, and the consequent indemnity awarded to the party prejudiced. 32(Emphasis
supplied)
The fact that Teodoro Vaño advised Frank Liu to file his claim with the probate court is
certainly not the conduct of one who supposedly unilaterally rescinded the contract with
Frank Liu.33
In this case, there was prior delay or default by the seller. As admitted by Teodoro
Vaño, he could not deliver the titles because of a case questioning the authenticity of the
will of his father. In a letter34 to Frank Liu dated 16 October 1954, Teodoro Vaño stated:
Some time last May, if I remember correctly, you offered to settle the whole balance of your
account if I can have the Titles transferred immediately in your brother’s name, and to that
of Mr. Pangalo’s. I cannot blame you if you were disappointed then, to know that I could
not have the titles transferred, even should you have paid in full. (Emphasis
supplied)
_______________
31 Active Realty & Development Corporation v. Daroya, G.R. No. 141205, 9 May
2002, 382 SCRA 152; Leaño v. Court of Appeals, G.R. No. 129018, 15 November 2001, 369
SCRA 36; Padilla v. Paredes, G.R. No. 124874, 17 March 2000, 328 SCRA 434.
32 Lim v. Court of Appeals, G.R. No. 85733, 23 February 1990, 182 SCRA 564, 571,
citing University of the Philippines v. De Los Angeles,146 Phil. 108, 114-115; 35 SCRA
102 (1970).
33 Civil Case No. 6300, instituted by Frank Liu against Teodoro Vaño, was dismissed on
motion of Teodoro Vaño on the ground that the remedy of Frank Liu is to file his claim in
the probate court; See Exhibits “2-Vaño” and “4-Vaño”, Folder of Exhibits, pp. 64 and 67.
34 Exhibit “C”, Records, p. 64.
327
VOL. 405, JULY 3, 2003 327
Liu vs. Loy, Jr.
In the same letter of 16 October 1954, Teodoro Vaño informed Frank Liu that the titles were
ready for transfer, thus:
However, last June 30, of this year, the Supreme Court, unanimously concurred in the
reversal of the decision of the Court of First Instance, as regard the legality of the Will of my
father. Now that the Will of my Father has been declared Legal, my opponents have lost
their personality in the case, and with it their power to harass me in court. Also, sometime
in the middle of July, also this year, the Supreme Court again declared that all the sales I
have made of the properties of my Father, were Legal, and that I should be empowered to
have the Titles transferred in the buyer’s names, should they have paid in full. A few have
already received their Titles. And yours can be had too in two days time from the time you
have paid in full.
Nevertheless, the subsequent approval by the probate court of the sale of Lot Nos. 5 and 6 to
Frank Liu rendered moot any question on the continuing validity of the contract to sell.
Whether the lis pendens in the Davao case served as notice to the Loys.
The lis pendens in the Davao case did not serve as notice to the Loys. The Register of Deeds
of Cebu City denied registration of the lis pendens on 19 December 1968.35 Frank Liu did
not appeal to the Land Registration Commission36 to keep alive the lis pendens.Republic Act
No. 1151,37which took effect 17 June 1954, provides:
SEC. 4. Reference of doubtful matters to Commissioner of Land Registration.—When the
Register of Deeds is in doubt with regard to the proper step to be taken or memorandum to
be made in pursuance of any deed, mortgage, or other instrument presented to him for
registration, or where any party in interest does not agree with the Register ofDeeds
with reference to any such matter, the question shall be submitted to the
Commissioner of Land Registration either upon thecertification of the Register of
Deeds, stating the question upon which he is in doubt, or upon the suggestion in
writing by the party in interest, and thereupon the Commissioner, after consideration of
the matter shown by the records certified to him, and in case of registered
_______________
See Exhibit “J-3”, Records, back of p. 78.
35
Now Land Registration Authority.
36
37 An Act Creating the Land Registration Commission, and Authorizing and
Appropriating the Necessary Funds Therefor.
328
328 SUPREME COURT REPORTS ANNOTATED
Liu vs. Loy, Jr.
lands, after notice to the parties and hearing, shall enter an order prescribing the step to be
taken or memorandum to be made. His decision in such cases shall be conclusive and
binding upon all Registers of Deeds: Provided, however, That when a party in interest
disagrees with a ruling or resolution of the Commissioner and the issue involves a question
of law, said decision may be appealed to the Supreme Court within thirty days from and
after receipt of the notice thereof. (Emphasis supplied)
Frank Liu’s failure to appeal38 the denial of the registration rendered the lis
pendens ineffective. The Court of First Instance of Davao City eventually dismissed Frank
Liu’s complaint on 3 October 1970.
20
Obli of vendor
Whether the registration by the Loys of their
contracts of sale made them the first
registrants in good faith to defeat prior buyers
The registration by the Loys of their contracts of sale did not defeat the right of prior buyers
because the person who signed the Loys’ contracts was not the registered owner. The
registered owner of Lot Nos. 5 and 6 was the “Estate of Jose Vaño.” Teodoro Vaño was the
seller in the contract of sale with Alfredo Loy, Jr. The Estate of Jose Vaño was the seller in
the contract of sale with Teresita Loy. Teodoro Vaño signed both contracts of sale. The rule
is well-settled that “one who buys from a person who is not the registered owner is not a
purchaser in good faith.”39 As held in Toledo-Banaga v. Court of Appeals:40
To repeat, at the time of the sale, the person from whom petitioner Tan bought the property
is neither the registered owner nor was the former authorized by the latter to sell the same.
She knew she was not dealing with the registered owner or a representative of the latter.
One who buys property with full knowledge of the flaws and defects in the title of his vendor
is enough proof of his bad faith and cannot claim that he ac-
_______________
38 Under Section 117 of the Property Registration Decree (PD No. 1529), which took
effect on 11 June 1978, the denial of the registration of a lis pendens must be appealed
within 5 days from notice of the denial.
39 Samonte v. Court of Appeals, G.R. No. 104223, 12 July 2001, 361 SCRA 173; Egao v.
Court of Appeals, G.R. No. 79787, June 29, 1989, 174 SCRA 484; Rivera v. Tirona, 109 Phil.
505 (1960); Revilla and Fajardo v. Galindez, 107 Phil. 481 (1960); Mirasol v. Gerochi, 93
Phil. 480 (1953); Mari v. Bonilla, 83 Phil. 137 (1949).
40 G.R. No. 127941, 28 January 1999, 302 SCRA 331, 345.
329
VOL. 405, JULY 3, 2003 329
Liu vs. Loy, Jr.
quired title in good faith as against the owner or of an interest therein. When she
nonetheless proceeded to buy the lot, petitioner Tan gambled on the result of litigation. She
is bound by the outcome of her indifference with no one to blame except herself if she looses
her claim as against one who has a superior right or interest over the property. x x x.
The Loys were under notice to inquire why the land was not registered in the name of the
person who executed the contracts of sale. They were under notice that the lots belonged to
the “Estate of Jose Vaño” and any sale of the lots required court approval. Any disposition
would be subject to the claims of creditors of the estate who filed claims before the probate
court.41
The contracts of the Loys did not convey ownership of the lots to them as against third
persons. The contracts were binding only on the seller, Teodoro Vaño. The contracts of the
Loys would become binding against third persons only upon approval of the sale by the
probate court and registration with the Register of Deeds. Registration of the contracts
without court approval would be ineffective to bind third persons, especially creditors of the
estate. Otherwise, this will open the door to fraud on creditors of the estate.
Whether the probate court’s ex-parte approval
of the contracts of the Loys was valid
Section 8, Rule 89 of the 1964 Rules of Court42specifically requires notice to all interested
parties in any application for court approval to convey property contracted by the decedent
in his lifetime. Thus:
SECTION 8. When court may authorize conveyance of realty which deceased contracted to
convey. Notice. Effect of deed.—Where the deceased was in his lifetime under contract,
binding in law, to deed real property, or an interest therein, the court having
jurisdiction of the estate may, on application for that purpose, authorize
theexecutor or administrator to convey such property according to such contract, or
with such modifications as are agreed upon by the parties and approved by the court; and if
the contract is to convey real property to the executor or administrator, the clerk of the
court shall execute the deed. The deed executed by such executor, administrator, or clerk of
court shall be as effectual to convey the property as if executed by
_______________
41See Baun v. Heirs of Baun, 53 Phil. 654 (1929).
42The Rules then prevailing.
330
330 SUPREME COURT REPORTS ANNOTATED
Liu vs. Loy, Jr.
the deceased in his lifetime; but no such conveyance shall be authorized until notice
of the application for that purpose has been givenpersonally or by mail to all
persons interested, and such further notice has been given, by publication or
otherwise, as the court deems proper; nor if the assets in the hands of the executor or
administrator will thereby be reduced so as to prevent a creditor from receiving his full debt
or diminish his dividend. (Rule 89, 1964 Rules of Court) (Emphasis supplied)
Despite the clear requirement of Section 8 of Rule 89, the Loys did not notify the
administratrix of the motion and hearing to approve the sale of the lots to them. The
administratrix, who had already signed the deed of sale to Frank Liu as directed by the
same probate court, objected to the sale of the same lots to the Loys. Thus, as found by the
trial court:
On June 3, 1976, Milagros H. Vaño moved for the reconsideration of the Order issued by
Judge Ramolete on March 19, 1976 and March 23, 1976, contending that she had not been
personally served with copies of the motions presented to the Court by Alfredo Loy, Jr. and
by Teresita Loy seeking the approval of the sales of the lots in their favor, as well as the
Orders that were issued by the Court pursuant thereto; that the Court in its Order of
February 24, 1976 had ordered her (Milagros H. Vaño), to execute a deed of absolute sale in
favor of the plaintiff, which sale had been approved by the Court; that she had not known of
the sale of Lots 5 and 6 to any other person except to the plaintiff; that the sale of the two
lots in favor of plaintiff was made earlier, when there was yet no litigation with the Bureau
of Internal Revenue, while those in favor of the defendant Loys were made when there was
already a prohibition by the Court against any sale thereof; that the sales in favor of the
Loys were made without Court authority; and that if the approval of the sales had not been
obtained ex-parteshe would have informed the Court of the complication arising therefrom,
and she would not have executed the sale in favor of plaintiff, and she would have asked the
Court to decide first as to who had preference over said lots.43
The failure to notify the administratrix and other interested persons rendered the sale to
the Loys void. As explained by Justice J.B.L. Reyes in De Jesus v. De Jesus:44
_______________
43Rollo, p. 188.
44G.R. No. L-16553, 29 November 1961, 3 SCRA 548, 551.
331
VOL. 405, JULY 3, 2003 331
Liu vs. Loy, Jr.
21
Obli of vendor
Section 9, Rule 90, however, provides that authority can be given by the probate court to the
administrator to convey property held in trust by the deceased to the beneficiaries of the
trust only “after notice given as required in the last preceding section”; i.e., that “no such
conveyance shall be authorized until notice of the application for that purpose has
been given personally or by mail to all persons interested, and such further notice
has been given, by publication or otherwise, as the court deems proper” (sec. 8, Rule
90). This rule makes it mandatory that notice be served on the heirs and other
interested persons of the application for approval of any conveyance of property
heldin trust by the deceased, and where no such notice is given, the order
authorizing the conveyance, as well as the conveyance itself, is completely
void. (Emphasis supplied)
In this case, the administratrix, the wife of the deceased Teodoro Vaño, was not notified of
the motion and hearing to approve the sale of the lots to the Loys. Frank Liu did not also
receive any notice, although he obviously was an interested party. The issuance of new titles
to the Loys on 10 May 1976 by the Registry of Deeds did not vest title to the Loys because
the “conveyance itself” was “completely void.” The consequences for the failure to notify the
administratrix and other interested parties must be borne by the Loys.
Necessity of court approval of sales
Indisputably, an heir can sell his interest in the estate of the decedent, or even his interest
in specific properties of the estate. However, for such disposition to take effect against third
parties, the court must approve such disposition to protect the rights of creditors of the
estate. What the deceased can transfer to his heirs is only the net estate, that is, the gross
estate less the liabilities. As held in Baun v. Heirs of Baun:45
The heir legally succeeds the deceased, from whom he derives his right and title, but only
after the liquidation of the estate, the payment of the debts of the same, and the
adjudication of the residue of the estate of the deceased; and in the meantime the only
person in charge by law to attend to all claims against the estate of the deceased debtor is
the executor or administrator appointed by the court.
_______________
45Supra, see note 41.
332
332 SUPREME COURT REPORTS ANNOTATED
Liu vs. Loy, Jr.
In Opulencia v. Court of Appeals,46 an heir agreed to convey in a contract to sell her share in
the estate then under probate settlement. In an action for specific performance filed by the
buyers, the seller-heir resisted on the ground that there was no approval of the contract by
the probate court. The Court ruled that the contract to sell was binding between the parties,
but subject to the outcome of the testate proceedings. The Court declared:
x x x Consequently, although the Contract to Sell was perfected between the petitioner
(seller-heir) and private respondents (buyers) during the pendency of the probate
proceedings, the consummation of the sale or the transfer of ownership over the parcel of
land to the private respondents is subject to the full payment of the purchase price and to
the termination and outcome of the testate proceedings. x x x Indeed, it is settled that
‘the sale made by an heir of his share in an inheritance, subject to the pending
administration, in no wise stands in the way of such administration.’ (Emphasis supplied)
In Alfredo Loy’s case, his seller executed the contract of sale after the death of the registered
owner Jose Vaño. The seller was Teodoro Vaño who sold the lot in his capacity as sole heir of
the deceased Jose Vaño. Thus, Opulencia applies to the sale of the lot to Alfredo Loy, Jr.,
which means that the contract of sale was binding between Teodoro Vaño and Alfredo Loy,
Jr., but subject to the outcome of the probate proceedings.
In Frank Liu’s case, as successor-in-interest of Benito Liu, his seller was Jose Vaño,
who during his lifetime executed the contract to sell through an attorney-in-fact, Teodoro
Vaño. This is a disposition of property contracted by the decedent during his lifetime.
Section 8 of Rule 89 specifically governs this sale:
SECTION 8. When court may authorize conveyance of realty which deceased contracted to
convey. Notice. Effect of deed.—Where the deceased was in his lifetime under contract,
binding in law, to deed real property, or an interest therein, the court having jurisdiction of
the estate may, on application for that purpose, authorize the executor or administrator to
convey such property according to such contract, or with such modifications as are agreed
upon by the parties and approved by the court; x x x
Thus, Frank Liu applied to the probate court for the grant of authority to the administratrix
to convey the lots in accordance
_______________
46355 Phil. 124; 293 SCRA 385(1998).
333
VOL. 405, JULY 3, 2003 333
Liu vs. Loy, Jr.
with the contract made by the decedent Jose Vaño during his lifetime. The probate court
approved the application.
In Teresita Loy’s case, her seller was the Estate of Jose Vaño. Teodoro Vaño executed
the contract of sale in his capacity as administrator of the Estate of Jose Vaño, the
registered owner of the lots. The Court has held that a sale of estate property made by an
administrator without court authority is void and does not confer on the purchaser a title
that is available against a succeeding administrator.47
Manotok Realty, Inc. v. Court of Appeals48emphasizes the need for court approval in the
sale by an administrator of estate property. The Court held in Manotok Realty:
We also find that the appellate court committed an error of law when it held that the sale of
the lot in question did not need the approval of the probate court.
Although the Rules of Court do not specifically state that the sale of an immovable
property belonging to an estate of a decedent, in a special proceeding, should be made with
the approval of the court, this authority is necessarily included in its capacity as a probate
court.
An administrator under the circumstances of this case cannot enjoy blanket authority to
dispose of real estate as he pleases, especially where he ignores specific directives to execute
proper documents and get court approval for the sale’s validity.
Section 91 of Act No. 496 (Land Registration Act) specifically requires court approval for any
sale of registered land by an executor or administrator, thus:
SEC. 91. Except in case of a will devising the land to an executor to his own use or upon
some trust or giving to the executor power to sell, no sale or transfer of registered land
shall be made by an executoror by an administrator in the course of
administration for the payment of debts or for any other purpose, except in
pursuance of an order of a court of competent jurisdiction obtained as provided by
law. (Emphasis supplied)
_______________
47 Dillena v. Court of Appeals,G.R. No. L-77660, 28 July 1988, 163 SCRA 630; Estate of
Amadeo Matute Olave, v. Hon. Reyes, 208 Phil. 678; 123 SCRA 167 (1983); Godoy v.
Orellano, 42 Phil. 347 (1921).
48 G.R. No. L-35367, 9 April 1987, 149 SCRA 174, 179-180.
334
22
Obli of vendor
334 SUPREME COURT REPORTS ANNOTATED
Liu vs. Loy, Jr.
Similarly, Section 88 of Presidential Decree No. 1529 (PropertyRegistration Decree)
provides:
SEC. 88. Dealings by administrator subject to court approval.—After a memorandum of the
will, if any, and order allowing the same, and letters testamentary or letters of
administration have been entered upon the certificate of title as hereinabove provided, the
executor or administrator may alienate or encumber registered land belonging to
the estate, or any interest therein, upon approval of the court obtained as provided
by the Rules of Court.(Emphasis supplied)
Clearly, both the law and jurisprudence expressly require court approval before any sale of
estate property by an executor or administrator can take effect.
Moreover, when the Loys filed in March 1976 their ex-parte motions for approval of
their contracts of sale, there was already a prior order of the probate court dated 24
February 1976 approving the sale of Lot Nos. 5 and 6 to Frank Liu. In fact, the
administratrix had signed the deed of sale in favor of Frank Liu on 5 March 1976 pursuant
to the court approval. This deed of sale was notarized on 5 March 1976, which transferred
ownership of Lot Nos. 5 and 6 to Frank Liu on the same date. 49
Thus, when the probate court approved the contracts of the Loys on 19 and 23 March
1976, the probate court had already lost jurisdiction over Lot Nos. 5 and 6 because the lots
no longer formed part of the Estate of Jose Vaño.
_______________
49 The Civil Code provides:
Art. 1477. The ownership of the thing sold shall be transferred to the vendee upon the
actual or constructive delivery thereof.
Art. 1496. The ownership of the thing sold is acquired by the vendee from the moment it
is delivered to him in any of the ways specified in Articles 1497 to 1501, or in any other
manner signifying an agreement that the possession is transferred from the vendor to the
vendee.
Art. 1498. When the sale is made through a public instrument, the execution thereof
shall be equivalent to the delivery of the thing which is the object of the contract, if from the
deed the contrary does not appear or cannot clearly be inferred.
xxx
335
VOL. 405, JULY 3, 2003 335
Liu vs. Loy, Jr.
In Dolar v. Sundiam,50 an heir sold parcels of land that were part of the estate of the
decedent. The probate court approved the sale. Thereafter, the probate court authorized the
administrator to sell again the same parcels of land to another person. The Court ruled that
the probate court had already lost jurisdiction to authorize the further sale of the parcels of
land to another person because such property no longer formed part of the estate of the
decedent. The Court declared:
In our opinion, where, as in this case, a piece of property which originally is a part of the
estate of a deceased person is sold by an heir of the deceased having a valid claim thereto,
and said piece of property is, by mistake, subsequently inventoried or considered part of the
deceased’s estate subject to settlement, and, thereafter, with the authority and approval of
the probate court, it sold once more to another person, a receiver of the property so sold
may, during the pendency of a motion to set aside the second sale, be appointed by the court
when in its sound judgment the grant of such temporary relief is reasonably necessary to
secure and protect the rights of its real owner against any danger of loss or material injury
to him arising from the use and enjoyment thereof by another who manifestly cannot
acquire any right of dominion thereon because the approving surrogate court had
already lost jurisdiction to authorize the further sale of such property. (Emphasis
supplied)
Similarly, in this case, the Loys cannot acquire any right of dominion over Lot Nos. 5 and 6
because the probate court had already lost jurisdiction to authorize the second sale of the
same lots. Moreover, the probate court’s approval of the sale to the Loys was completely void
due to the failure to notify the administratrix of the motion and hearing on the sale.
Whether the Loys were in good faith when they built on the Lots.
The Civil Code describes a possessor in good faith as follows:
Art. 526. He is deemed a possessor in good faith who is not aware that there exists in his
title or mode of acquisition any flaw which invalidates it.
He is deemed a possessor in bad faith who possesses in any case contrary to the
foregoing.
_______________
50148 Phil. 630; 38 SCRA 616(1971).
336
336 SUPREME COURT REPORTS ANNOTATED
Liu vs. Loy, Jr.
Mistake upon a doubtful or difficult question of law may be the basis of good faith.
Art. 1127. The good faith of the possessor consists in the reasonable belief that the
person from whom he received the thing was the owner thereof, and could transmit his
ownership.
In Duran v. Intermediate Appellate Court,51 the Court explained possession in good faith in
this manner:
Guided by previous decisions of this Court, good faith consists in the possessor’s belief that
the person from whom he received the thing was the owner of the same and could convey his
title (Arriola vs. Gomez de la Serna, 14 Phil. 627). Good faith, while it is always presumed in
the absence of proof to the contrary, requires a well-founded belief that the person from
whom title was received was himself the owner of the land, with the right to convey it
(Santiago vs. Cruz, 19 Phil. 148). There is good faith where there is an honest intention to
abstain from taking unconscientious advantage from another (Fule vs. Legare, 7 SCRA 351).
The Loys were not in good faith when they built on the lots because they knew that they
bought from someone who was not the registered owner. The registered owner on the TCTs
of the lots was the “Estate of Jose Vaño,” clearly indicating that the sale required probate
court approval. Teodoro Vaño did not show any court approval to the Loys when they
purchased the lots because there was none. To repeat, any one who buys from a person who
is not the registered owner is not a purchaser in good faith. 52 If the Loys built on the lots
before the court approval, then they took the risk.
Contract to sell versus contract of sale
A prior contract to sell made by the decedent prevails over the subsequent contract of sale
made by the administrator without probate court approval. The administrator cannot
unilaterally cancel a contract to sell made by the decedent in his lifetime. 53 Any cancellation
must observe all legal requisites, like written notice of cancellation based on lawful cause. 54
_______________
51 G.R. No. L-64159, 10 September 1985, 138 SCRA 489, 494.
52 See note 39.
23
Obli of vendor
53Lim v. Court of Appeals, G.R. No. 85733, 23 February 1990, 182 SCRA 564.
54Active Realty & Development Corporation v. Daroya, supra, see note 31.
337
VOL. 405, JULY 3, 2003 337
Liu vs. Loy, Jr.
It is immaterial if the prior contract is a mere contract to sell and does not immediately
convey ownership.55 If it is valid, then it binds the estate to convey the property in
accordance with Section 8 of Rule 89 upon full payment of the consideration.
Frank Liu’s contract to sell became valid and effective upon its execution. 56The seller,
Jose Vaño, was then alive and thus there was no need for court approval for the immediate
effectivity of the contract to sell. In contrast, the execution of the contracts of sale of the
Loys took place after the death of the registered owner of the lots. The law requires court
approval for the effectivity of the Loys’ contracts of sale against third parties. The probate
court did not validly give this approval since it failed to notify all interested parties of the
Loy’s motion for court approval of the sale. Besides, the probate court had lost jurisdiction
over the lots after it approved the earlier sale to Frank Liu. Clearly, Frank Liu’s contract to
sell prevails over the Loys’ contracts of sale.
Whether petitioners are entitled to award of
moral damages and attorney’s fees.
The Court upholds the ruling of the trial and appellate courts that petitioners are not
entitled to moral damages. Moral damages should not enrich a complainant at the expense
of the defendant.57
Likewise, as found by the trial court and the appellate court, there is no basis to award
attorney’s fees. The policy of the law is to put no premium on the right to litigate. 58 The
court may award attorney’s fees only in the instances mentioned in Article 2208 of
_______________
55See Adelfa Properties, Inc. v. Court of Appeals, 310 Phil. 623; 240 SCRA 565 (1995).
56Article 1315 of the Civil Code provides:
Art. 1315. Contracts are perfected by mere consent, and from that moment the parties are
bound not only to the fulfillment of what has been expressly stipulated but also to all the
consequences which, according to their nature, may be in keeping with good faith, usage and
law.
57 People v. Sanchez, G.R. Nos. 121039-45, 18 October 2001, 367 SCRA 520.
58 Country Bankers Ins. Corp. v. Lianga Bay and Community MultiPurpose Cooperative,
Inc. G.R. No. 136914, 25 January 2002, 374 SCRA 653; Padillo v. Court of Appeals, G.R. No.
119707, 29 November 2001, 371 SCRA 27.
338
338 SUPREME COURT REPORTS ANNOTATED
Liu vs. Loy, Jr.
the Civil Code. The award of attorney’s fees is the exception rather than the rule. 59 None of
the instances mentioned in Article 2208 apply to this case.
Conclusion
Since the Loys have no contract of sale validly approved by the probate court, while Frank
Liu has a contract of sale approved by the probate court in accordance with Section 8 of Rule
89, Lot Nos. 5 and 6 belong to Frank Liu. The Estate of Jose Vaño should reimburse the
Loys their payments on Lot Nos. 5 and 6, with annual interest at 6% from 4 June 1976, the
date of filing of the complaint, until finality of this decision, and 12% thereafter until full
payment.60
WHEREFORE, the Decision of the Court of Appeals is SET ASIDE and a new one is
RENDERED:
1. 1.Declaring null and void the deeds of sale of Lot Nos. 5 and 6 executed by Teodoro
Vaño in favor of Alfredo Loy, Jr. and Teresita Loy, respectively.
2. 2.Ordering the Register of Deeds of Cebu City to cancel TCT Nos. 64522 and
64523 and to issue a new one in the name of petitioner Frank N. Liu;
3. 3.Ordering the Estate of Jose Vaño to reimburse to respondent Loys the amounts
paid on Lot Nos. 5 and 6, with interest at 6% per annum from 4 June 1976 until
finality of this decision, and 12% per annumthereafter until full payment.
SO ORDERED.
Davide, Jr. (C.J., Chairman), Vitug, Ynares-Santiago and Azcuna, JJ.,concur.
_______________
59 Twin Towers Condominium Corporation v. Court of Appeals,G.R. No. 123552, 27
February 2003, 398 SCRA 203.
60 See Martinez v. Court of Appeals, G.R. No. 123547, 21 May 2001, 358 SCRA 38; Cavite
Development Bank v. Lim, G.R. No. 131679, 1 February 2000, 324 SCRA 346; St. Dominic
Corporation v. Intermediate Appellate Court, G.R. No. L-67207, 26 August 1985, 138 SCRA
242; Cruz v. Cabana, 214 Phil. 575; 129 SCRA 656 (1984); J.M. Tuason & Co., Inc. v. Court
of Appeals, G.R. No. L-41233, 21 November 1979, 94 SCRA 413. See also Eastern Assurance
and Surety Corp. v. Court of Appeals, 379 Phil. 84; 322 SCRA 73 (2000).
339
VOL. 405, JULY 3, 2003 339
People vs. Pidoy
Judgment set aside.
Note.—Mutual restitution is required in rescission, but this presupposes that both
parties may be restored in their original situation. (Asuncion vs. Evangelista,316 SCRA
848 [1999])
——o0o——
© Copyright 2019 Central Book Supply, Inc. All rights reserved.
VOL. 276, JULY 24, 1997 149
Nool vs. Court of Appeals
G.R. No. 116635. July 24, 1997.*
CONCHITA NOOL and GAUDENCIO ALMOJERA, petitioner, vs. COURT OF APPEALS,
ANACLETO NOOL and EMILIA NEBRE, respondents.
Contracts; Sales; Void Contracts; Article 1370 of the Civil Code is applicable only to
valid and enforceable contracts.—We cannot sustain petitioners’ view. Article 1370 of the
Civil Code is applicable only to valid and enforceable contracts. The Regional Trial Court
and the Court of Appeals ruled that the principal contract of sale contained in Exhibit C and
the auxiliary contract of repurchase in Exhibit D are both void. This conclusion of the two
lower courts appears to find support in Dignos vs. Court of Appeals, where the Court held:
“Be that as it may, it is evident that when petitioners sold said land to the Cabigas spouses,
they were no longer owners of the same and the sale is null and void.”
24
Obli of vendor
Same; Same; Same; A void contract cannot give rise to a valid one.—In the present
case, it is clear that the sellers no longer had any title to the parcels of land at the time of
sale. Since Exhibit D, the alleged contract of repurchase, was dependent on the validity of
Exhibit C, it is itself void. A void contract cannot give rise to a valid one. Verily, Article 1422
of the Civil Code provides that “(a) contract which is the direct result of a previous illegal
contract, is also void and inexistent.”
Same; Same; Same; Where the sellers can no longer deliver the object of the sale to the
buyers, as the buyers themselves have already acquired title and delivery thereof from the
rightful owner, such contract may be deemed to be inoperative and may thus fall, by analogy,
under item No. 5 of Article 1409 of the Civil Code—“Those which contemplate an impossible
service.”—In the present case however, it is likewise clear that the sellers can no longer
deliver the object of the sale to the buyers, as the buyers themselves have already acquired
title and delivery thereof from the rightful owner, the DBP. Thus, such contract may be
deemed to be inoperative and may thus fall, by analogy, under item No. 5 of Article 1409 of
the Civil Code: “Those which contemplate an impossible service.” Article
______________
*THIRD DIVISION.
150
1 SUPREME COURT REPORTS ANNOTATED
50
Nool vs. Court of Appeals
1459 of the Civil Code provides that “the vendor must have a right to transfer the
ownership thereof [object of the sale] at the time it is delivered.” Here, delivery of ownership
is no longer possible. It has become impossible.
Same; Same; Same; Pacto de Retro; The right to repurchase presupposes a valid
contract of sale between the same parties.—One “repurchases” only what one has previously
sold. In other words, the right to repurchase presupposes a valid contract of sale between
the same parties. Undisputedly, private respondents acquired title to the property from
DBP, and not from petitioners.
Same; Same; Same; Options; An accepted unilateral promise to buy or sell a
determinate thing for a price certain is binding upon the promissor if the promise is
supported by a consideration distinct from the price.—Assuming arguendo that Exhibit D is
separate and distinct from Exhibit C and is not affected by the nullity of the latter, still
petitioners do not thereby acquire a right to repurchase the property. In that scenario,
Exhibit D ceases to be a “right to repurchase” ancillary and incidental to the contract of sale;
rather, it becomes an accepted unilateral promise to sell. Article 1479 of the Civil Code,
however, provides that “an accepted unilateral promise to buy or sell a determinate thing
for a price certain is binding upon the promissor if the promise is supported by a
consideration distinct from the price.” In the present case, the alleged written contract of
repurchase contained in Exhibit D is bereft of any consideration distinct from the price.
Accordingly, as an independent contract, it cannot bind private respondents. The ruling
in Diamante vs. CA supports this.
Same; Same; Same; Estoppel; One is not estopped in impugning the validity of void
contracts; It is a well-settled doctrine that “as between parties to a contract, validity cannot
be given to it by estoppel if it is prohibited by law or it is against public policy.”—Petitioners
argue that “when Anacleto Nool took the possession of the two hectares, more or less, and
let the other two hectares to be occupied and cultivated by plaintiffs-appellants, Anacleto
Nool cannot later on disclaim the terms or contions (sic) agreed upon and his actuation is
within the ambit of estoppel x x x.” We disagree. The private respondents cannot be
estopped from raising the defense of nullity of contract, specially in this case where they
acted in good faith, believing that indeed petitioners could sell the two parcels of land in
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question. Article 1410 of the Civil Code mandates that “(t)he action or defense for the
declaration of the inexistence of a contract does not prescribe.” It is a well-settled doctrine
that “as between parties to a contract, validity cannot be given to it by estoppel if it is
prohibited by law or it is against public policy (19 Am. Jur. 802). It is not within the
competence of any citizen to barter away what public policy by law seeks to preserve.” Thus,
it is immaterial that private respondents initially acted to implement the contract of sale,
believing in good faith that the same was valid. We stress that a contract void at inception
cannot be validated by ratification or prescription and certainly cannot be binding on or
enforceable against private respondents.
Same; Same; Same; If a void contract has already been performed, the restoration of
what has been given is in order, and, corollarily, interest thereon will run only from the time
of the aggrieved party’s demand for the return of this amount.—We are not persuaded. Based
on the previous discussion, the balance of P14,000.00 under the void contract of sale may
not be enforced. Petitioners are the ones who have an obligation to return what they unduly
and improperly received by reason of the invalid contract of sale. Since they cannot legally
give title to what they “sold,” they cannot keep the money paid for the object of the sale. It is
basic that “(e)very person who through an act of performance by another, or any other
means, acquires or comes into possession of something at the expense of the latter without
just or legal ground, shall return the same.” Thus, if a void contract has already “been
performed, the restoration of what has been given is in order.” Corollarily and as aptly
ordered by respondent appellate court, interest thereon will run only from the time of
private respondents’ demand for the return of this amount in their counterclaim. In the
same vein, petitioners’ possession and cultivation of the two hectares are anchored on
private respondents’ tolerance. Clearly, the latter’s tolerance ceased upon their counterclaim
and demand on the former to vacate. Hence, their right to possess and cultivate the
land ipso factoceased.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Godofredo P. Melegritofor petitioners.
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Dionisio E. Bala, Jr. and Cesar C. Purugganan for private respondents.
PANGANIBAN, J.:
A contract of repurchase arising out of a contract of sale where the seller did not have any
title to the property “sold” is not valid. Since nothing was sold, then there is also nothing to
repurchase.
Statement of the Case
This postulate is explained by this Court as it resolves this petition for review on certiorari
assailing the January 20, 1993 Decision1of Respondent Court of Appeals2 in CA-G.R. CV No.
36473, affirming the decision3 of the trial court4which disposed as follows:5
“WHEREFORE, judgment is hereby rendered dismissing the complaint for no cause of
action, and hereby:
25
Obli of vendor
1. 1.Declaring the private writing, Exhibit ‘C,’ to be an option to sell, not binding and
considered validly withdrawn by the defendants for want of consideration;
2. 2.Ordering the plaintiffs to return to the defendants the sum of P30,000.00 plus
interest thereon at the legal rate, from the time of filing of defendants’
counterclaim until the same is fully paid;
3. 3.Ordering the plaintiffs to deliver peaceful possession of the two hectares
mentioned in paragraph 7 of the complaint and in paragraph 31 of defendants’
answer (counterclaim);
______________
1Rollo, pp. 20-25.
2Second Division, composed of J.Fidel P. Purisima, ponente and Chairman, and JJ.
Asaali S. Isnani and Corona Ibay Somera, concurring.
3 In Civil Case No. Br. 23-242.
4 Regional Trial Court of Roxas, Isabela, Second Judicial Region, Branch 23, presided by
Judge Teodulo E. Mirasol.
5 Decision of the Regional Trial Court, p. 5; Record of the Regional Trial Court, p. 180.
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4. Ordering the plaintiffs to pay reasonable rents on said two hectares at P5,000.00 per
annum or at P2,500.00 per cropping from the time of judicial demand mentioned in
paragraph 2 of the dispositive portion of this decision, until the said two hectares shall have
been delivered to the defendants; and
5. To pay the costs.
SO ORDERED.”
The Antecedent Facts
The facts, which appear undisputed by the parties, are narrated by the Court of Appeals as
follows:
“Two (2) parcels of land are in dispute and litigated upon here. The first has an area of 1
hectare. It was formerly owned by Victorino Nool and covered by Transfer Certificate of
Title No. T-74950. With an area of 3.0880 hectares, the other parcel was previously owned
by Francisco Nool under Transfer Certificate of Title No. T-100945. Both parcels are
situated in San Manuel, Isabela. The plaintiff spouses, Conchita Nool and Gaudencio
Almojera, now the appellants, seek recovery of the aforementioned parcels of land from the
defendants, Anacleto Nool, a younger brother of Conchita, and Emilia Nebre, now the
appellees.
In their complaint, plaintiff-appellants alleged inter aliathat they are the owners of
subject parcels of land, and they bought the same from Conchita’s other brothers, Victorino
Nool and Francisco Nool; that as plaintiffs were in dire need of money, they obtained a loan
from the Ilagan Branch of the Development Bank of the Philippines, in Ilagan, Isabela,
secured by a real estate mortgage on said parcels of land, which were still registered in the
names of Victorino Nool and Francisco Nool, at the time, and for the failure of plaintiffs to
pay the said loan, including interest and surcharges, totaling P56,000.00, the mortgage was
foreclosed; that within the period of redemption, plaintiffs contacted defendant Anacleto
Nool for the latter to redeem the foreclosed properties from DBP, which the latter did; and
as a result, the titles of the two (2) parcels of land in question were transferred to Anacleto
Nool; that as part of their arrangement or understanding, Anacleto Nool agreed to buy from
plaintiff Conchita Nool the two (2) parcels of land under controversy, for a total price of
P100,000.00, P30,000.00 of which price was paid
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154 SUPREME COURT REPORTS ANNOTATED
Nool vs. Court of Appeals
to Conchita, and upon payment of the balance of P14,000.00, plaintiffs were to regain
possession of the two (2) hectares of land, which amounts defendants failed to pay, and the
same day the said arrangement6 was made; another covenant7 was entered into by the
parties, whereby defendants agreed to return to plaintiffs the lands in question, at anytime
the latter have the necessary amount; that plaintiffs asked the defendants to return the
same but despite the intervention of the Barangay Captain of their place, defendants
refused to return the said parcels of land to plaintiffs; thereby impelling them (plaintiffs) to
come to court for relief.
In their Answer, defendants-appellees theorized that they acquired the lands in
question from the Development Bank of the Philippines, through negotiated sale, and were
misled by plaintiffs when defendant Anacleto Nool signed the private writing, agreeing to
return subject lands when plaintiffs have the money to redeem the same; defendant
Anacleto having been made to believe, then, that his sister, Conchita, still had the right to
redeem the said properties.
The pivot of inquiry here, as aptly observed below, is the nature and significance of the
private document, marked Exhibit ‘D’ for plaintiffs, which document has not been denied by
the defendants, as defendants even averred in their Answer that they gave an advance
payment of P30,000.00 therefor, and acknowledged that they had a balance of P14,000.00 to
complete their payment. On this crucial issue, the lower court adjudged the said private
writing (Exhibit ‘D’) as an option to sell not binding upon and considered the same validly
withdrawn by defendants for want of consideration; and decided the case in the manner
abovementioned.
There is no quibble over the fact that the two (2) parcels of land in dispute were
mortgaged to the Development Bank of the Philippines, to secure a loan obtained by
plaintiffs from DBP (Ilagan Branch), Ilagan, Isabela. For the non-payment of said loan, the
mortgage was foreclosed and in the process, ownership of the mortgaged lands was
consolidated in DBP (Exhibits 3 and 4 for defendants). After DBP became the absolute
owner of the two parcels of land, defendants negotiated with DBP and succeeded in
_______________
6 Exhibit C, executed in the parties’ native dialect, Ilocano, dated November 30, 1984,
Record of the Regional Trial Court, p. 95.
7 Exhibit D, executed in the parties’ native dialect, Ilocano, dated November 30, 1984,
Record of the Regional Trial Court, p. 97.
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buying the same. By virtue of such sale by DBP in favor of defendants, the titles of DBP
were cancelled and the corresponding Transfer Certificates of Title (Annexes ‘C’ and ‘D’ to
the Complaint) issued to the defendants.”8
It should be stressed that Manuel S. Mallorca, authorized officer of DBP, certified that the
one-year redemption period was from March 16, 1982 up to March 15, 1983 and that the
mortgagor’s right of redemption was not exercised within this period. 9Hence, DBP became
the absolute owner of said parcels of land for which it was issued new certificates of title,
both entered on May 23, 1983 by the Registry of Deeds for the Province of Isabela. 10 About
two years thereafter, on April 1, 1985, DBP entered into a Deed of Conditional
Sale11 involving the same parcels of land with Private Respondent Anacleto Nool as vendee.
Subsequently, the latter was issued new certificates of title on February 8, 1988. 12
The Court of Appeals ruled:13
26
Obli of vendor
“WHEREFORE, finding no reversible error infirming it, the appealed Judgment is hereby
AFFIRMED in toto. No pronouncement as to costs.”
The Issues
Petitioners impute to Respondent Court the following alleged “errors”:
“1. The Honorable Court of Appeals, Second Division has misapplied the legal import or
meaning of Exhibit ‘C’ in a way
______________
Decision of the Court of Appeals, pp. 2-3; rollo, pp. 21-22.
8 find support in Dignos vs. Court of Appeals,16 where the Court held:
Affidavit of Non-Redemption, p. 1; Record of the Regional Trial Court, p. 27.
9 “Be that as it may, it is evident that when petitioners sold said land to the Cabigas spouses,
10 DBP Transfer Certificates of Title, Record of the RegionalTrial Court, pp. 28-29.
11 Record of the Regional Trial Court, pp. 30-32.
12 Anacleto Nool’s Transfer Certificates of Title, Record of the Regional Trial Court, pp.
33-34.
13Ibid., p. 5; rollo, p. 24.
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156 SUPREME COURT REPORTS ANNOTATED
Nool vs. Court of Appeals
contrary to law and existing jurisprudence in stating that it has no binding effect between
the parties and considered validly withdrawn by defendants-appellees for want of
consideration.
2. The Honorable Court of Appeals, Second Division has miserably failed to give legal
significance to the actual possession and cultivation and appropriating exclusively the palay
harvest of the two (2) hectares land pending the payment of the remaining balance of
fourteen thousand pesos (P14,000.00) by defendants-appellees as indicated in Exhibit ‘C.’
3. The Honorable Court of Appeals has seriously erred in affirming the decision of the
lower court by awarding the payment of rents per annum and the return of P30,000.00 and
not allowing the plaintiffs-appellants to re-acquire the four (4) hectares, more or less upon
payment of one hundred thousand pesos (P100,000.00) as shown in Exhibit ‘D.’ ” 14
The Court’s Ruling
The petition is bereft of merit.
First Issue: Are Exhibits “C” and “D” Valid and Enforceable?
The petitioner-spouses plead for the enforcement of their agreement with private
respondents as contained in Exhibits “C” and “D,” and seek damages for the latter’s alleged
breach thereof. In Exhibit C, which was a private handwritten document labeled by the
parties as Resibo ti Katulagan or Receipt of Agreement, the petitioners appear to have “sold”
to private respondents the parcels of land in controversy covered by TCT No. T-74950 and
TCT No. T-100945. On the other hand, Exhibit D, which was also a private handwritten
document in Ilocano and labeled as Kasuratan, private respondents agreed that Conchita
Nool “can acquire back or repurchase later on said land when she has the money.”15
______________
14Petition, pp. 7-8; rollo, pp. 8-9.
15Exhibit D-1, English translation of the document marked as Exhibit D; records, p. 98.
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In seeking to enforce her alleged right to repurchase the parcels of land, Conchita (joined by
her co-petitioner-husband) invokes Article 1370 of the Civil Code which mandates that “(i)f
the terms of a contract are clear and leave no doubt upon the intention of the contracting
parties, the literal meaning of its stipulations shall control.” Hence, petitioners contend that
the Court of Appeals erred in affirming the trial court’s finding and conclusion that said
Exhibits C and D were “not merely voidable but utterly void and inexistent.”
We cannot sustain petitioners’ view. Article 1370 of the Civil Code is applicable only
to valid and enforceable contracts. The Regional Trial Court and the Court of Appeals ruled
that the principal contract of sale contained in Exhibit C and the auxiliary contract of
repurchase in Exhibit D are both void. This conclusion of the two lower courts appears to
they were no longer owners of the same and the sale is null and void.”
In the present case, it is clear that the sellers no longer had any title to the parcels of land
at the time of sale. Since Exhibit D, the alleged contract of repurchase, was dependent on
the validity of Exhibit C, it is itself void. A void contract cannot give rise to a valid
one.17 Verily, Article 1422 of the Civil Code provides that “(a) contract which is the direct
result of a previous illegal contract, is also void and inexistent.”
We should however add that Dignos did not cite its basis for ruling that a “sale is null
and void” where the sellers “were no longer the owners” of the property. Such a situation
(where the sellers were no longer owners) does not appear to be one of the void contracts
enumerated in Article 1409 of the Civil
______________
16158 SCRA 375, 383, February 29, 1988.
17Ibid., p. 732.
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Nool vs. Court of Appeals
Code.18 Moreover, the Civil Code19 itself recognizes a sale where the goods are to be
“acquired x x x by the seller after the perfection of the contract of sale,” clearly implying that
a sale is possible even if the seller was not the owner at the time of sale, provided he
acquires title to the property later on.
In the present case however, it is likewise clear that the sellers can no longer deliver the
object of the sale to the buyers, as the buyers themselves have already acquired title and
delivery thereof from the rightful owner, the DBP. Thus, such contract may be deemed to be
inoperative20 and may thus fall, by analogy, under item No. 5 of Article 1409 of the Civil
Code: “Those which contemplate an impossible service.” Article 1459 of the Civil Code
provides that “the vendor must have a right to transfer the ownership thereof [object of the
sale] at the time it is delivered.” Here, delivery of ownership is no longer possible. It has
become impossible.
Furthermore, Article 1505 of the Civil Code provides that “where goods are sold by a
person who is not the owner thereof, and who does not sell them under authority or with
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VOL. 276, JULY 24, 1997 159
Nool vs. Court of Appeals
consent of the owner, the buyer acquires no better title to the goods than the seller had,
unless the owner of the goods is by his conduct precluded from denying the seller’s authority
27
Obli of vendor
to sell.” Here, there is no allegation at all that petitioners were authorized by DBP to sell
the property to the private respondents. Jurisprudence, on the other hand, teaches us that
“a person can sell only what he owns or is authorized to sell; the buyer can as a consequence
acquire no more than what the seller can legally transfer.”21 No one can give what he does
not have—nemo dat quod non habet. On the other hand, Exhibit D presupposes that
petitioners could repurchase the property that they “sold” to private respondents. As
petitioners “sold” nothing, it follows that they can also “repurchase” nothing. Nothing sold,
nothing to repurchase. In this light, the contract of repurchase is also inoperative—and by
the same analogy, void.
Contract of Repurchase
Dependent on Validity of Sale
As borne out by the evidence on record, the private respondents bought the two parcels of
land directly from DBP on April 1, 1985 after discovering that petitioners did not own said
property, the subject of Exhibits C and D executed on November 30, 1984. Petitioners,
however, claim that they can exercise their alleged right to “repurchase” the property, after
private respondents had acquired the same from DBP.22 We cannot accede to this, for it
clearly contravenes the intention of the parties and the nature of their agreement. Exhibit D
reads:
“W R I T I N G
Nov. 30, 1984
That I, Anacleto Nool have bought from my sister Conchita Nool a land an area of four
hectares (4 has.) in the value of One Hundred Thousand (100,000.00) Pesos. It is our
agreement as
______________
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160 SUPREME COURT REPORTS ANNOTATED
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brother and sister that she can acquire back or repurchase later on said land when she has
the money. [Italics supplied]
As proof of this agreement we sign as brother and sister this written document this day
of Nov. 30, 1984, at District 4, San Manuel, Isabela.
Sgd ANACLETO NOOL
Anacleto Nool
Sgd EMILIO PARON
Witness
Sgd CONCHITA NOOL
Conchita Nool”23
One “repurchases” only what one has previously sold. In other words, the right to
repurchase presupposes a valid contract of sale between the same parties. Undisputedly,
private respondents acquired title to the property from DBP, and not from petitioners.
Assuming arguendo that Exhibit D is separate and distinct from Exhibit C and is not
affected by the nullity of the latter, still petitioners do not thereby acquire a right to
repurchase the property. In that scenario, Exhibit D ceases to be a “right
______________
23 Records, p. 98. The original document in Ilocano reads as follows:
“Kasuratan
Nov. 30, 1984
Siak ni Anacleto Nool adda ginatang ko keni kabsat ko nga ni Conchita Nool nga daga nga
uppat nga hectarya (4 has.) nga aggatad iti One Hundred Thousand (100,000.00) pesos. Ket
nagtulagan mi nga agkabsat nga mabalin nanto nga pasublien wenno repurchase nanto to
nasao nga daga no maadaan iti kuwarta.
Kas pammaneknek iti daytoy nga katulagan agpirma kami nga agkabsat iti daytoy nga
kasuratan ita nga aldaw Nov. 30, 1984 ditoy Dist. No. 4 San Manuel, Isabela.
(Sgd.) Emilio Padron (Sgd.) Anacleto Nool
Testigo (Sgd.) Anacleto Nool
(Sgd.) Conchita Nool”
(Records, p. 97)
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VOL. 276, JULY 24, 1997 161
Nool vs. Court of Appeals
to repurchase” ancillary and incidental to the contract of sale; rather, it becomes an
accepted unilateral promise to sell. Article 1479 of the Civil Code, however, provides that
“an accepted unilateral promise to buy or sell a determinate thing for a price certain is
binding upon the promissor if the promise is supported by a consideration distinct from the
price.” In the present case, the alleged written contract of repurchase contained in Exhibit D
is bereft of any consideration distinct from the price. Accordingly, as an independent
contract, it cannot bind private respondents. The ruling in Diamante vs. CA24 supports this.
In that case, the Court through Mr. Justice Hilario G. Davide, Jr. explained:
“Article 1601 of the Civil Code provides:
“Conventional redemption shall take place when the vendor reserves the right to repurchase
the thing sold, with the obligation to comply with the provisions of article 1616 and other
stipulations which may have been agreed upon.” In Villarica, et al. vs. Court of Appeals, et
al., decided on 29 November 1968, or barely seven (7) days before the respondent Court
promulgated its decisions in this case, this Court, interpreting the above Article, held:
“The right of repurchase is not a right granted the vendor by the vendee in a
subsequent instrument, but is a right reserved by the vendor in the same instrument of sale
as one of the stipulations of the contract. Once the instrument of absolute sale is executed,
the vendor can no longer reserve the right to repurchase, and any right thereafter granted
the vendor by the vendee in a separate instrument cannot be a right of repurchase but some
other right like the option to buy in the instant case. x x x.”
In the earlier case of Ramos, et al. vs. Icasiano, et al., decided in 1927, this Court had
already ruled that “an agreement to repurchase becomes a promise to sell when made after
the sale, because when the sale is made without such an agreement, the purchaser acquires
the thing sold absolutely, and if he afterwards grants the vendor the right to repurchase, it is
a new contract entered into by the purchaser, as absolute owner already of the object. In that
case the vendor has not reserved to himself the right to repurchase.”
______________
24206 SCRA 52, 60-61, February 7, 1992.
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162 SUPREME COURT REPORTS ANNOTATED
Nool vs. Court of Appeals
28
Obli of vendor
In Vda. De Cruzo, et al. vs. Carriaga, et al. this Court found another occasion to apply the
foregoing principle.
Hence, the Option to Repurchase executed by private respondent in the present case, was
merely a promise to sell, which must be governed by Article 1479 of the Civil Codewhich
reads as follows:
“Art. 1479.—A promise to buy and sell a determinate thing for a price certain is
reciprocally demandable.
‘An accepted unilateral promise to buy or to sell a determinate thing for a price certain
is binding upon the promissor if the promise is supported by a consideration distinct from
the price.’ ”
Right to Repurchase Based on
Homestead or Trust Non-Existent
Petitioners also base their alleged right to repurchase on (1) Sec. 119 of the Public Land
Act25 and (2) an implied trust relation as “brother and sister.”26 The Court notes that
Victorino Nool and Francisco Nool mortgaged the land to DBP. The brothers, together with
Conchita Nool and Anacleto Nool, were all siblings and heirs qualified to repurchase the two
parcels of land under Sec. 119 of the Public Land Act which provides that “(e)very
conveyance of land acquired under the free patent or homestead provisions, when proper,
shall be subject to repurchase by the applicant, his widow or legal heirs, within a period of
five years from the date of conveyance.” Assuming the applicability of this statutory
provision to the case at bar, it is indisputable that Private Respondent Anacleto Nool
already repurchased from DBP the contested properties. Hence, there was no more right of
repurchase that his sister Conchita or brothers Victorino and Francisco could exercise. The
properties were already owned by an heir of the homestead grantee and the rationale of the
provision to keep homestead lands within the family of the grantee was thus fulfilled. 27
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The claim of a trust relation is likewise without merit. The records show that private
respondents did not purchase the contested properties from DBP in trust for petitioners.
The former, as previously mentioned, in fact bought the land from DBP upon realization
that the latter could not validly sell the same. Obviously, petitioners bought it for
themselves. There is no evidence at all in the records that they bought the land in trust for
private respondents. The fact that Anacleto Nool was the younger brother of Conchita Nool
and that they signed a contract of repurchase, which as discussed earlier was void, does not
prove the existence of an implied trust in favor of petitioners.
Second Issue: No Estoppel in Impugning
the Validity of Void Contracts
Petitioners argue that “when Anacleto Nool took the possession of the two hectares, more or
less, and let the other two hectares to be occupied and cultivated by plaintiffs-appellants,
Anacleto Nool cannot later on disclaim the terms or contions (sic) agreed upon and his
actuation is within the ambit of estoppel x x x.”28We disagree. The private respondents
cannot be estopped from raising the defense of nullity of contract, specially in this case
where they acted in good faith, believing that indeed petitioners could sell the two parcels of
land in question. Article 1410 of the Civil Code mandates that “(t)he action or defense for
the declaration of the inexistence of a contract does not prescribe.” It is a well-settled
doctrine that “as between parties to a contract, validity cannot be given to it by estoppel if it
is prohibited by law or it is against public policy (19 Am. Jur. 802). It is not within the
competence of any citizen to barter away what public policy by law seeks to
preserve.”29 Thus, it is immaterial that private respondents initially acted to implement the
contract of sale,
______________
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Nool vs. Court of Appeals
believing in good faith that the same was valid. We stress that a contract void at inception
cannot be validated by ratification or prescription and certainly cannot be binding on or
enforceable against private respondents.30
Third Issue: Return of P30,000.00 with Interest
and Payment of Rent
Petitioners further argue that it would be a “miscarriage of justice” to order them (1) to
return the sum of P30,000.00 to private respondents when allegedly it was Private
Respondent Anacleto Nool who owed the former a balance of P14,000.00 and (2) to order
petitioners to pay rent when they “were allowed to cultivate the said two hectares.”31
We are not persuaded. Based on the previous discussion, the balance of P14,000.00
under the void contract of sale may not be enforced. Petitioners are the ones who have an
obligation to return what they unduly and improperly received by reason of the invalid
contract of sale. Since they cannot legally give title to what they “sold,” they cannot keep the
money paid for the object of the sale. It is basic that “(e)very person who through an act of
performance by another, or any other means, acquires or comes into possession of something
at the expense of the latter without just or legal ground, shall return the same.”32 Thus, if a
void contract has already “been performed, the restoration of what has been given is in
order.”33 Corollarily and as aptly ordered by respondent appellate court, interest thereon
will run only from the time of private respondents’ demand for the return of this amount in
their counterclaim.34 In the same vein, petitioners’ posses-
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Nool vs. Court of Appeals
sion and cultivation of the two hectares are anchored on private respondents’ tolerance.
Clearly, the latter’s tolerance ceased upon their counterclaim and demand on the former to
vacate. Hence, their right to possess and cultivate the land ipso facto ceased.
WHEREFORE, the petition is DENIED and the assailed Decision of the Court of
Appeals affirming that of the trial court is hereby AFFIRMED.
SO ORDERED.
Narvasa (C.J., Chairman), Davide, Jr., Melo and Francisco, JJ.,concur.
Petition denied, judgment affirmed.
Notes.—When the terms of a contract clearly show that it is one of sale with right of
repurchase, it must be interpreted according to its literal sense, and held to be such a
contract. (Ignacio vs. Court of Appeals, 246 SCRA 242 [1995])
The court will enforce the agreement or understanding in consonance with the true
intent of the parties at the time of the execution of the contract even if the purported Sale
Con Pacto de Retro was registered in the name of the transferee and a new certificate of
title was issued in his name. (Olea vs. Court of Appeals, 247 SCRA 274 [1995])
——o0o—.
29