G.R. No.

L-5496 February 19, 1910

MERCEDES MARTINEZ Y FERNANDEZ, ET AL., plaintiffs-appellants, vs.

hypothecated to the bank to secure the indebtedness of Aldecoa & Co., but that this
obligation had been wrongfully transferred by Alejandro S. Macleod into an obligation
in favor in his wife, Mercedes Martinez, to the prejudice of the bank. In May, 1907,
Aldecoa & Co. began a civil action against Alejandro S. Macleod and others for the
recovery of certain shares of stock of the par value of P161.000 and for damages in the
sum of P150,000, basing its right to recover upon alleged criminal misconduct of Mr.
Macleod in his management of the firm's affairs.

THE HONGKONG & SHANGHAI BANKING CORPORATION, ET AL.,

defendants-appellants.

Bruce & Lawrence, for appellants.

Haussermann & Cohn and Rosado, Sanz & Opisso, for appellees.

MORELAND, J.:

This is an action to set aside a contract on the ground that plaintiff's consent thereto was
given under duress and undue influence. Alejandro S. Macleod is joined as plaintiff only
for the reason that he is the husband of Mercedes Martinez and he takes no part in the
action personally.

In the statement of facts and some of the legal propositions involved, we have made free
use of the forms contained in the briefs of both parties.

Alejandro S. Macleod was for many years the managing partner of the house of Aldecoa
& Co. in the city of Manila. He withdrew from the management on the 31st day of
December, 1906, when Aldecoa & Co. went into liquidation. At the time that Aldecoa &
Co. ceased active business the Hongkong & Shanghai banking Corporation was a
creditor of that firm to the extent of several hundred thousand pesos and claimed to have
a creditor's lien in the nature of a pledge over certain properties of the debtor. In April,
1907, the bank began a civil action against Alejandro S. Macleod, his wife, Mercedes
Martinez, Aldecoa & Co., and the firm known as Viuda e Hijos de Escao. In the bank's
complaint it was alleged that a certain undertaking in favor of Aldecoa & Co. had been

When the two causes of action above referred to were discovered and the suits there
mentioned commenced, Alejandro S. Macleod and Mercedes Martinez, his wife, engaged the
services of Messrs. Del-Pan, Ortigas and Fisher, attorneys at law, to represent and defend
them in the matter. Soon thereafter these attorneys made overtures to the liquidation of
Aldecoa & Co, for the settlement of the latter's claims. While these negotiations were
pending Aldecoa & Co. claimed that they had made discoveries of many frauds which
Macleod had perpetrated against the company during the period of his management, whereby
the company had been defrauded of many thousands of pesos.

On the 13th day of July, 1907, it becoming apparent that criminal proceedings would be
instituted against him, Macleod went from Manila to the Portuguese colony of Macao, a
territory not covered, it appears, by extradition treaty between the United States and the
Portuguese Government. Four days thereafter, on the 17th day of July, Aldecoa & Co.
filed a complaint against Mr. Macleod, charging him with the falsification of a
commercial document, and a warrant for his arrest was issued by the Court of First
Instance of Manila, and the executive department of the Philippine Government issued a
formal request to the Portuguese authorities for the extradition of the accused. This
request was denied. In the meantime the attorneys for the respective parties were
engaged in negotiations for the settlement and compromise of the difference then
pending and a clearance of Mr. Macleod from all claims and demands of his creditors.
Aldecoa & Co. and the bank, as a consideration for such settlement, insisted upon the
conveyance not only of all the property of Alejandro S. Macleod but also of at least a
portion of the property claimed by his wife, the plaintiff herein. The settlement offered
at that time was the same which was subsequently accepted and consummated on the
14th of August as shown by Exhibit A. There appears to have been little resistance to
this demand on the part of the representatives of Mr. Macleod, but his wife, the plaintiff
herein, stoutly objected to the conveyance required of her, maintaining that the property
which she was asked to transfer was her separate and exlusive property and not liable for
the debts of her husband. Her position was fully stated by her to her attorney, Mr. Fisher,
and to her attorney-in-fact, Mr. William Macleod. An interview between her attorney
and the attorney for Aldecoa & Co. followed this declaration on her part. Thereafter and
on the night of August 4 another interview was had between the plaintiff and her
counsel, Mr. Fisher, and others, at which a long list of claims against Mr. Macleod,

prepared by Aldecoa & Co., was exhibited to the plaintiff and its contends explained to
her by Mr. Fisher and her attorney-in-fact. Some of these claims involved criminal as
well as civil liability. Mr. Fisher at that time favored a settlement in accordance with the
terms proposed by Aldecoa & Co. The plaintiff, however, refused to accept such
settlement.

This being the state of affairs, one of the attorneys for the bank, on the 7th of August,
1907, was called upon by counsel for both Aldecoa & Co. and the plaintiff in this action,
who requested him to act as intermediary between the parties and to suggest means by
which a settlement could be obtained. At that interview it was agreed that a full
explanation of the condition of affairs should be made to Mr. Kingcome, a son-in-law of
the plaintiff and a businessman. This explanation was made by Mr. Stephen, manager of
the settlement were consummated additional and mortifying misfortunes wound fall
upon Mr. Macleod's family.

About the time that the inmterview between Kingcome and Stephen was celebrated Mr.
Fisher was enlisting the services of Mr. William Macleod, a nephew and close friend of
plaintiff and her husband, and plaintiff's attorney-in-fact, for a mission to plaintiff of a
similar character to that of Mr. Kingcome. Mr. William Macleod, as well as Mr. Kingcome,
seems to have been persuaded by what he was told that the consequences of plaintiff's
continued refusal to make the settlement would be disastrous to Alejandro S. Macleod and
his family and would be an exhibition of very bad judgment in every way.

On August 9, 1907, the prosecuting attorney filed a second complaint against Alejandro
S. Macleod and his associate, Osorio, charging them with embezzlement and causing
warrants of extradition to issue. The complaint was made at the instance of the
prosecuting attorney because he had heard that Macleod and Osorio were about to leave
for Europe and he wanted to intercept them in territory from which they could be
extradited.

On the 11th of August a long conference was held between plaintiff, her attorney, Mr.
Kingcome, her son-in-law, and William Macleod, her attorney-in-fact, at which she was
informed in substance that if she assented to the requirements of Aldecoa & Co. and the
bank the civil suits against herself and her husband would be dismissed and the criminal
charges against him withdrawn, while if she refused her husband must either spend the
rest of his life in Macao or be criminally prosecuted on the charged already filed and
tobe filed. At that interview plaintiff refused to accede to the terms of settlement and that
interview was terminated by a statement on the part of Mr. Fisher, which was

the Hongkong & Shanghai Banking Corporation, one of the friends of Mr. Kingcome, at
an interview arranged between them pursuant to the arrangements made by the attorneys
for the parties. Whether or not Mr. Kingcome communicated the substance of that
interview with Mr. Stephen to his mother-in-law, the plaintiff, before she signed the
document in question is in dispute in this case. There is some doubt from the record as to
the exact language used in this conversation between Kingcome and Stephen, but it
appears that some reference was made tothe interest which the British colony in Manila,
of which Messrs. Stephen, Kingcome, and Macleod were prominent members, would
have in avoiding the scandal and disgrace to the latter which might be expected to ensue
unless the differences between the parties to this action were amicably arranged. It
seems at that interview that Mr. Stephen suggested to Mr. Kingcome that he advise his
mother-in-law to act reasonably in negotiating the proposed settlement. It appears that
Mr. Kingcome got the impression from that interview that Mr. Stephen thought unless
"Gentlemen, it is evident that there can be no compromise or settlement, and the only
thing left us to do is to defend Mr. Macleod in the best possible manner."

On the 12th of August, at an interview had between theplaintiff and her attorney-in-fact,
Mr. William Macleod, the plaintiff acceded to the terms proposed by the defendants and
authorized Mr. William Macleod to execute the contractof settlement on her behalf. The
document of settlement was prepared and after certain corrections upon the part of the
plaintiff's attorneys, making the same entirely satisfactory to them, it was signed by the
plaintiff's attorney-in-fact on her behalf on the 14th of August. It was thereafter and on
the same day ratified by the plaintiff, who executed the same in person.

After Adecoa & Co. and the bank had taken possession of the property of plaintiff and
her husband, conveyed to them by Exhibit A, the civil suits were dismissed, the criminal
charges withdrawn, and Mr. Macleod returned from macao to Manila. The plaintiff had a
surveyor divide the property in Malate, of which she had conveyed a half interest, into
two equal parts. She negotiated for apartition of the land on the basis of this survey. She
joined in the motion for the dismissal of the civil action to which she had been a party
and in the motion in the Court of Land Registration for the recording in the name of
thegrantees of a half interest in the Malate land. All of these acts were in pursuance of
Exhibit A.

On December 3, 1907, the plaintiff filed her complaint in the present action, and, after
the joining of issue and thehearing of evidence, judgment was rendered in favor of
defendants on the 29th day of May, 1909. From this judgment, after the usual motion for
a new trial, its denial and exception to such denial, plaintiff appealed to this court.

The Civil Code in relation to the subject-matter in hand contains the following
provisions:

ART. 1265. Consent given under error, violence, intimidation, or deceit shall be null.

ART. 1267. There is violence when, inorder to obtain the consent, irresistible force is
used.

There is intimidation when one of the contracting parties gives his consent on account of
a reasonable and well-grounded fear of suffering an imminent and serious injury to his
person or property, or to the person or property of his spouse, descendants, or
ascendants.

In determining whether or not there is intimidation the age, sex, and status of the person
intimidated must be considered.

force of the punishment threatened. Nevertheless such contract is binding and

enforceable. Such a contract differs entirely in its incidents from a contractentered into
by a party for the purpose of gain. The latter contract is made with pleasure and its terms
complied with gladly. The former is a contract the execution of which the party is very
apt to repent and the terms of which he is very likely to evade if he can. It is not
conclusive against them that Aldecoa & Co. demanded that the plaintiff do something
upon pain of punishing her husband for his crimes. It is not conclusive that the plaintiff
disliked exceedingly to do what they demanded. Neither is it conclusive that the plaintiff
now regrets having performed at their demand instead of compelling a resort to judicial
proceedings. It is not for these reasons that this contract may be declared null and void.
If such a contract were illegal whereby pending litigation is settled by agreement of the
parties rather than by decision of the court. If such a contract were null and void, then
would be null and void every contract whereby a wrongdoer and he who assisted him

Fear of displeasing the persons to whom obedience and respect are due shall not annul
the contract.

ART. 1268. Violence or intimidation shall annul the obligation, even though such
violence or intimidation shall have been used by a third person who did not take part in
the contract.

In order that this contract be annuled it must be shown that the plaintiff never gave her
consent to the execution thereof. If a competent person has once assented to a contract
freely and fairly, he is bound. Contracts which are declared void and of no force upon
the ground that they were obtained by fraud, duress, or undue influence are so declared
for the reason that the complaining party never really gave his consent thereto. The
consent in such case is not in the eye of the law a consent at all. The person has not
acted. He has done nothing he was in vinculis.

It is necessary to distinguish between real duress and the motive which is present when one
gives his consent reluctantly. A contract is valid even though one of the parties entered into it
against his wishes and desires or even against his better judgment. Contracts are also valid
even though they are entered into by one of the parties without hope of advantage or profit. A
contract whereby reparation is made by one party for injuries which he has willfully inflicted
upon another is one which from its inherent nature is entered into reluctantly and against the
strong desires of the party making the reparation. He is confronted with a situation in which
he finds the necessityeither of making reparation or of taking the consequences, civil or
criminal, of his unlawfull acts. Hemakes the contract of reparation with extreme reluctance
and only by thecompelling

made reparation for that which he had mis appropriated or misapplied. In legal effect
there is no difference between a contract wherein one of the contracting parties
exchanges one condition for another because he looks for greater gain or profit by
reason of such change and an agreement wherein one of the contracting parties agrees to
accept the lesser of two disadvantages. In either case he makes a choice free and
untrammeled and must accordingly abide by it. These are evidence of duress, facts from
which duress may be inferred, but they are not duress of themselves. In the absence of
other proof and circumstances, they might very well be held to establish duress. But
there is other proof and we do not believe that under all the facts of this case as
disclosed by the record we can say that the court below erred when he refused to
findthat the plaintiff entered into the contract in question by reason of duress and undue
influence. We find lacking in this case amny of the essential elements usually found in
cases of duress. The most that the facts disclose is that the plaintiff was loath to

relinquish certain rights which she claimed to have in certain property to the end that
she might be relieved from litigation then pending against her and that her husband
might escape prosecution for crimes alleged to have been committed; and that she
persisted for a considerable time in her refusal to relinquish such claimed rights. The
fact that she did relinquish them upon such consideration and under such condition does
not of itself constitute duress or intimidation, nor does it destroy the obligatory effect
and force of her consent. In order to do so something more is needed. Such influence
must havebeen exercised over her that she was deprived of her free will and choice. She
must have acted from fear and not from judgment.

Not every contract made by a wife to relieve her husband from the consequences of his
crimes is viodable. Subject to certain restrictions a wife may legally dispose of
herproperty as she pleases; she may squander it; she may give it away; she may pledge
or transfer it to keep her husband out of state prison. The question in each case is exactly
the same as in all such relations, was she acting according to the dictates of her own
judgment, whether good or bad, or from fear, force, or undue influence? If there are time
and opportunity for judgment to take the place of fear, and if apart from the threat there
are reasons disclosed which might lead one in the exercise of good judgment to perform
the acts complained of, then the evidence as to duress and undue influence must be very
clear in order that such acts may be recalled.

The appellant cites many cases in support of her contention that the contract of the 14th
of August should be abrogated.

We have carefully examined not only all of the cases cited by the appellant but also
substancially all of the cases within our reach relating to the questions before vs. Among
them are the following: Adams vs. Irving National Bank (116 N.Y., 606); Allen vs
Laflore County (76 Miss., 671); Bently vs. Ronson (11 Mich., 691; Burton vs McMillan
(8 L. R. A., N.S., 991); Bell vs. Campbell (123 Mo., 1); Galusha vs Sherman (47 L. R.
A., 417); MaMahon vs. Smith (47 Conn., 221, 36 Am Rep., 67); Gorringe vs Reed (23
Utah, 120, 90 Am St. Rep., 692); Bank vs Bryan (62 Ia., 42); Rau vs. Zedlitz (132 Mass.,
164); Lomerson vs. Johnston (47 N. J. Eq., 312); McGrory vs. Reilly (14 Phila., 111);
Foley vs. Greene (14 R.I., 618); Coffman vs. Lookout Bank (5 Lea., 232); Haynes vs.
Rudd (102 N. Y., 372); Cribbs vs. Sowle (87 Mich., 340); Osborne vs. Robins (36 N.Y.,
365); Rall vs. Raguet (4 Ohio, 400); Bank vs. Kirk (90 Pa. St., 49); Eadie vs. Slimmon
(26 N.Y., 9); Harris vs. Carmody (131 Mass., 51; Taylor vs. Jacques (106 Mass., 291);
Bryant vs. Peck & W. Co. (154 Mass., 460); Hesinger vs. Dyer (147 Mo., 219); Mack vs.
Praug (104 Wis., 1); Benedict vs. Broome (106 Mich., 378); Williams vs Bayley (1 Eng.
& Ir. App. Cas., 200); Central Bank vs. Copeland (18 Md., 305 , 81 Am. Dec., 597);
Bradley vs. Irish (42 Ill. app., 85); Snyder vs. Willey (33 Mich., 483).

All of the above cases, except Harris vs. Carmody, Hesinger vs. Dyer, and Williams vs.
Bayley, are distinguishable from the case at bar in the following particulars:

In those cases there was no time within which to deliberate the matter as it should have
been deliberated.

There was no time or opportunity to take the advice of friends or of disinterested

persons.

There was no time or opportunity to take advice of counsel.

The treats made to secure the performance of the acts complained of were made directly
to the complaining party by the person directly interested or by somene in his behalf
who was working in his interest and who had no interest whatever in the welfare of the
complaining party.

There was no consideration for the performance of the act complained of except
immunity from the prosecution threatened.

The property transferred or incumbered by the act complained of was the separate
property of the person performing the act in which the person for whome the act was
performed claimed no interest whatever.
In the cases of Harris vs. Carmody, Hesinger vs. Dyer, and Williams vs. Bayley, above
excepted, the complainant had the benefit of legal advice and the advice of some friend but
in none of those were there present any of the other circumstances just enumerated.

In the case of Hesinger and another vs. Dyer (147 Mo., 219), it appeared that the
plaintiffs were the tenants of the defendant on defendant's farm. During the last year that
they had occupied this farm they raised some 500 bushels of corn upon which the
defendant claimed to have a lien under the statue. The plaintiff Hesinger sold the corn
and applied the proceeds to his own use. Dyer threatened to institute criminal
proceedings against Hesinger for embezzling the corn if he and his wife did not execute
to him their note for its value, secured by a deed of trust upon the land of Mrs. Hesinger.
They testified that because of this threat and in fear of said prosecution they executed
the note and deed of trust as required. Shortly before the papers were executed the
defendant's home, taking with him a notary public to take the acknowledgement of the
deed of trust in the event that he succeeded in getting the plaintiffs to execute it. This
was one of the occasions upon which the defendant threatened to prosecute Hesinger if
he and his wife did not execute the deed of trust as required. Mrs. Hesinger had all the
time refused and still refused to execute the deed; but upon the afternoon of that day
plaintiffs went to Sedalia to consult with their son and with their attorney and thereafter
went to J.M. Bailer's office and there executed the papers in question. The court held
that the note and deed of trust were voidable as having been executed under duress.

It is at once apparent, however, that the facts differ materially from those in the case at
bar. In that case the plaintiffs contended against the personal presence of the defendant
and all of the influence which that presence implies. In that case there was absolutely no
consideration moving to Mrs. Hesinger inducing the execution of the papers in question
except the release of her husband from prosecution. There was lacking in that case
everything, every consideration which would appeal to the judgment or reason of the
complaining party.

There was no dispute as to the title of the property transferred or incumbered, no claim
made to it by anybody, no suits pending to recover it or any portion of it, and no
pretension that it could be taken for the debts of the husband or of any other person.

The same may be said of the other two cases, Harris vs. Carmody and Williams vs.
Bayley.

The plaintiff cites also the case of Jalbuena vs. Ledesma et al. (8 Phil. Rep., 601). In that
case it appeared, as stated by the court, that

Ildefonso Doronila, having been the tutor of the Ledesma minor children, was cited in
August, 1900, before the provost court of Iloilo on the petition of the defendant Lopez,
to show cause why he should not surrender the papers, securities, and money in his
charge, and he was in the course of the proceeding ordered to render his accounts as
tutor, and it is to be inferred from the testimony of the defendant Ledesma that the
accounts were in fact rendered. On December 3 he came to an agreement with the
defendant Lopez, as representative of the children, whereby his accounts were allowed
and accepted and the value of the missing papers, claimed to have been lost in the
bombardment of Iloilo, was fixed at P12,000, and a certain obligation of the estate to
Juan Casells to the amount of P4,000 was assumed by him. Subsequently this agreement
was ratified by the family council, which

imposed, however, an additional condition that security should be given by Doronila for
the payment of P16,000 in case the missing papers should not be produced within six
months and the novation of the debt of Juan Casells accepted by the debtor. Thereafter
he was brought before the provost judge in the pending proceeding and was ordered to
give additional security, and failing to do so was committed to jail, where he had already
been once confined on the institution of the proceeding. As all of his property was
already bound to the estate for the performance of his duty as guardian, it became
expedient to find a surety for him, and the plaintiff (wife of Doronila), who had
accompanied him to the court, was thereupon induced to join with him in this
undertaking. As to the preceedings in court, the testimony of the plaintiff, reduced to
narrative form, is as follows:

"I remeber having been in the office of the provost judge of Iloilo in December, 1900. I
went there to visit my husband, who was in jail. While there I was summoned before the
provost judge by a soldier, and I went up before the provost and requested him to set my
husband free, he not being guilty of anything. I asked him, crying, to put my husmand at
liberty, but the provost did not listen to me; on the contrary, he asked me to file security
for what was lost in my house during the bombardment, and he told me that he was
going to put my husband in jail if I did not obligate my property as security. Fearing that
he was going to be put in jail again, I was compelled to sign, it being a time when we
and others were under fear and I was afraid that he would be punished and that they
would deport him. In the fear that I was then under I did not know any other remedy but
to sign. He told me that my husband would be sent again to jail if I did not sign."
A careful analysis of this case discloses the following pecularities:

In the first place, the undisputed evidence demostrates that the first offers of
compromise were made by the plaintiff herself through her representatives. It appears
that from first to last the effort and anxiety to compromise the claims of the defendants
were on the part of the plaintiff through her representatives. The position of Aldecoa &
Co. throughout the negotiations, as it appears from the testimony in the case, was that a
settlement of their claims against the plaintiffs would not result in any peculiar or
especial benefit to them inasmuch as by the actions already commenced against the
plaintiff and her husband the defendants would be able, so they contended, to secure
exactly the same property that they would obtain by the settlement proposed. The
soundness of this contention was admitted by the attorneys for the plaintiff. It was the
desire on the part of at least one of the persons especially interested in Aldecoa & Co.
that Alejandro S. Macleod should suffer criminally for the acts which he had committed
against that company and such person did not hesitate to say so repeatedly. There seems
to have been throughout the negotations a fear of the part of the attornets for the plaintiff
that, partly, at least, by reason of this especial desire of said person, the negotiations

This communication was carried on through the medium of an interpreter, one Pedro
Regalado, who testified:

"The provost judge told Sra. Vicenta . . . in these terms: "You sign a document
guaranteeing with your property the obligation contracted by Sr. Doronila, your
husband." She answered to these words that her husband was not guilty of the loss of the
documents, as when the bombardment came the documents were in a trunk and were
lost during the bombardment. When she said that she could not respond, then the
provost said: "You sign this document; you either sign this document or I will send you
husband back to jail." More or less I remember that he said: "Interpreter, tell her to
either sign this document or I will have her husband sent again to jail."

In this case the wife sued to set aside the obligation upon the ground that it was obtained
from her by duress and undue influence. She justly succeded.

A mere reading of the facts in that case discloses that it can not be used as an authority
in the case at bar. It is widely different in its facts.
would be broken off by Aldecoa & Co. before a settlement could be consummated. The
defendants never urged the ultimatum laid down by the defendants. They simply stated
to the attorneys for the plaintiffs that they must claims, and it appeared from the position
assumed that it was immaterial to them whether they obtained those properties through
the courts or by means of a settlement. They left Macleod and his wife to choose foir
themselves, upon their own judgment and upon the advice of their attorneys and
relatives, the course to be by them pursued. That the defendants were not especially
urging the settlement in question is demonstrated by the fact that Mr. Fisher, the attorney
for the plaintiffs, was doubtful about securing the participation of Aldecoa & Co. in the
agreement up to the very moment of its execution, and it appears from the evidence of
Mr. Cohn that Mr. Fisher, laboring under such apprehension, actually withheld important
information from Aldecoa & Co. for fear such information would deter them at the last
moment from giving their assent to the arrangement.

In the secon place, there were at no time during the course of these negotiations for
settlement any direct personal relations or communications between the parties to this
action. During the whole course of the negotiations no person communicated with the

plaintiffs on behalf of the defendants alone. The offers, proposition, or treats, if any,
made by the defendants were filtered to her through the personality, mind, and judgment
of her own attorneys or relatives, all of them being persons who had her welfare and the
welfare of her family deeply at heart and who were acting for her and her husband and
not for the defendants. That personal presence of threatening party and the influence
springing therefrom, factors so potent in duress and undue influence, were wholly
lacking.

On the trial an attempt was made to show that the defendants had attempted to influence the
plaintiff, Mercedes Martinez, by acting upon her through her son-in-law, Mr. Kingcome. As
stated above, Mr. Stephen was asked by the attorneys for the plaintiff, as well as the
attorneys for the defendants, to see Mr. Kingcome and ask him to explain to his mother-inlaw the facts and circumstances which were the cause of the attempts at settlement for the
purpose of inducing her to act reasonably in the premises. There was

some dispute as to whether or not Mr. Kingcome actually communicated the substance
of the interview to his mother-in-law prior to her signing the contract in question. Mr.
Kingcome in his testimony states that according to his best recollection he
communicated the substance of that interview to his mother-in-law on the 11th day of
August. In considering this matter it must be remembered that the interview between
Mr. Stephen and Mr. Kingcome was not brought about by Aldecoa & Co. or its
representative. It was brought about by Mr. Cohn acting as mediary between Mr. Fisher
and Mr. Rosado, the one the attorney for the plaintiffs and the other the attorney for the
defendant company, upon the request and with the express approval of both of them.
The interview which followed between Mr. Stephen and Mr. Kingcome was the direct
act of plaintiff in exactly the same manner and in exactly the same degree as it was the
act of Aldecoa & Co.

In the third place, the plaintiff by means of the negotiations and settlement in question
was engaged partly at least in the settlement of her own suits and controversies. The
plaintiff, Mercedes Martinez, together with Aldecoa & Co. and Viuda e Hijos de F.
significance in determining the question whether duress and undue influence were
exercised or weighing the reasons pro and con.

In the fifth place, we must bot overlook the fact that the plaintiff took advantage of said
contract after its execution and required the complete fulfilling of every one of its
provisions favorable to herself. She negotiated with Aldecoa & Co. for a partition of the

Escao were sued in April, 1907, by the Hongkong & Shanghai Banking Corporation in
relation to P45,000 worth of notes claimed to have been fraudulently taken from the
assets of Aldecoa & Co. and transferred into the name and possessio of the plaintiff,
Mercedes Martinez. This was one of the actions settled and terminated by the contract in
question. In this property the plaintiff released her rights under the settlement. The only
other property to which she released her rights was a half interest in property in Malate.
As to the legality of her claim that this property was her own individual property there
was a serious question, so serious in fact that she was formally and reapetedly advised
by her attorneys that such claim was in their judgment unfounded. These are the only
interest which the plaintiff, Mercedes Martinez, released or gave over in the settlement
complainted of. Both of the claims were substantially in litigation and the legality of
both was seriously questioned and strongly doubted by her own attorneys. While it is not
necessary to decide and we do not decide whether her claim to either of those properties
was valid or invalid, still the fact that the validity of her claims thereto was denied by
her own attorneys strongly tends to impeach the claim that she released those properties
by reason of duress and undue influence, rather that as a result of her own deliberate
judgment.

In the fourt place, it must be remembered that the plaintiff, Mercedes Martinez, never at
any time stood alone in the negotiations. There was never a moment when she did not
have interposed between her and the defendants the counsel of skilled attorneys and of
interested relatives. Whatever came to her from the defendants, their demands or their
threats, if any, reached her through the medium of her friends and advisers. She had the
assistance of legal learning and business intelligence and experience. She had the careful
and thoughtful advice of her family. She was as far as possible relieved from all fear,
stress, or influence except such as were inherent in the circumstances themselves. It
appears undisputed that she and her relatives and lawyers considered throughout the
negotiations and down to and including the time of the execution of the agreement of
settlement that her best interest would be subserved by acceding to the terms laid down
by the defendants. From the evidence in the case it is difficult to arrive at a conclusion
other that that the acts which she performed in making the settlement in question were
acts which contributed to her welfare and the welfare of her whole family. While this
fact may not be conclusive in the present case, it nevertheless is of very importance and
Malate property and to that end caused a survey and a division thereof to be made. She
demanded of Aldecoa & Co. payment of the P2,000 provided for by the contract, which
said sum she received. She caused one-half of said Malate property to be assessed
against said company. She caused a change to be made in the proceedings to register the
title to said Malate lands, previously begun by her, so as to register her title to only onehalf thereof. She caused to be dismissed the action pending against her on account of the
Escao notes, which dismissal occured after this present action was commenced.

These acts are mentioned not to show a ratification of the contract in the sence that those
acts estopped her from thereafter questioning the same, but rather as confirmatory of the
theory that in the execution of the contract complained of she acted accroding to the
dictates of good business judgment rather that from duress and undue influence.

As we have already stated, not every contract executed by a wife, even though made
solely to save her husband from the consequences of his crimes, is voidable.
Solicitation, importunity, argument, and persuasion are not undue influence and a
contract is not to be set aside merely because one party used these means to obtain the
consent of the other. Influence obtained by persuation or argument or by appeals to the
affection is not prohibited either in law or morals and is not obnoxious even in courts of
equity. Such may be termed "due influence." The line between due and undue influence,
when drawn, must be with full recognition of the liberty due every true owner to obey
the voice of justice, the dictates of friendship, of gratitude and of benevolence, as well
as the claims of kindred, and, when not hindered by personal incapacity or particular
regulation, to dispose of his own property according to his own free choice. (9 Cyc. 455,
and cases there cited.)

On the other hand contracts entered into by a wife whereby she conveys property
unquestionably hers, the sole and only consideration for which contract is the obtaining for
her husband immunity from criminal prosecution, are always justly the objects of suspicion,
and it is a wise jurisprudence which holds that, where she defends upon the ground that she
was duressed, the party enforcing such contract must expect the very closest scrunity of the
transaction with the presumptions all against him. Where, however, as in this case, there is a
real question as to the validity of claims laid by the wife to the property transferred, some of
which claimed rights are involved in actual litigation in which she is a party, while the
remainder are alleged by opposing claimants to be subject to seizure and sale under
judgements against the husband; and competent and honorable counsel, after careful and
extended consideration of the facts and the law, advise her that the rights so claimed by her
in the property transferred are fictitious, unreal, and defeasible, having no foundation in law,
and she, after abundant opportunity for deliberate consideration, release such claimed rights
and thereby not only secures immunity for her husband, but also quiets litigation against
herself, a very different question is presented. It is undisputed that the attorneys for the
plaintiff in this case

advised her that, from the facts which they had before them, facts of which she was fully
informed, her husband had been guilty of embezzlement and misappropriation in the
management of the business of Aldecoa & Co. and that, in their judgment, if prosecuted
therefor, he would be convicted. They further advised her that the P45,000 worth of
notes claimed by her and to recover which was part of the purpose of the action against
her and her husband by the Hongkong & Shanghai Banking Corporation were a part of
the property of which her husband had criminally deprived the said company. They
advised her that she would not be able to hold such notes as her own. They further
advised her that from the facts before them Aldecoa & Co. would have no difficulty in
getting a judgment for a very large amount against her husband, and, in that event, the
interest which she claimed in the Malate property would be liable in their judgment
ganancial. They informed her that all that Aldecoa & Co. required of here was the
transfer of her claims rights in said property. They further advised her that if she did not
so transfer such property, Aldecoa & Co. would nevertheless obtain it by means of the
actions already commenced and to be commenced; that if she did transfer it she would
lose no more than she would lose by means of said action and she would gain in
addition the immunity of her husband from criminal prosecution. In other words, under
the advice of her counsel, the situation was so presented to her that it was evidenct that
in signing the agreement of the 14th of August she had all to gain and nothing to lose,
whereas, in refusing to sign said agreement, she had all to lose and nothing to gain. In
the one case she would lose her property and save her husband. In the other, she would
lose her property and her husband too. The argument thus presented to her by her
attorneys addressed itself to judgment and not to fear. It appealed to reason and not to
passion. It asked her to be moved by common sense and not by love of family. It spoke
to her own interest as much as to those of her husband. The argument went to her
financial interest as well as to those of the defendants. It spoke to her business judgment
as well as to her wifely affections. From the opinions of her attorneys, as they were
presented to her upon facts assumed by all to be true, we do not well see how she could
reasonably have reached a conclusion other than that which she did reach. It is of no
consequence here whether or not her lawyers, as matter of law, she would have been
deprived of her alleged interests in the properties mentioned in the manner described
and advised by her attorneys. The important thing is that she believed and accepted their
judicial and acted upon it. The question is not did he make a mistake, but did she
consent; not was she wrongly advised, but was she coerced; not was she wise, but was
she duressed.

From the whole case we are of the opinion that the finding of the court below that the
plaintiff executed the contract in suit of her own free will and choice and not from
duress is fully sustained by the evidence.

The judgment of the court below, is therefore, affirmed with costs against the appellant.
So ordered.
Arellano, C.J., Torres, Mapa and Johnson, JJ., concur.
G.R. No. L-48194 March 15, 1990

JOSE M. JAVIER and ESTRELLA F. JAVIER, petitioners, vs.

Oriental. On February 15, 1966 he executed a "Deed of Assignment"

of herein petitioners the material parts of which read as follows:

in favor

COURT OF APPEALS and LEONARDO TIRO, respondents.

xxx xxx xxx
Eddie Tamondong for petitioners.
Lope Adriano and Emmanuel Pelaez, Jr. for private respondent.

I, LEONARDO A. TIRO, of legal age, married and a resident of

Medina, Misamis Oriental, for and in consideration of the sum of

REGALADO, J.:

ONE HUNDRED TWENTY THOUSAND PESOS

Petitioners pray for the reversal of the decision of respondent Court of Appeals
in CA-G.R. No. 52296-R, dated March 6, 1978,
decrees:

the dispositive portion whereof

WHEREFORE, the judgment appealed from is hereby set aside and another
one entered ordering the defendants-appellees, jointly and solidarily, to pay
plaintiff-appellant the sum of P79,338.15 with legal interest thereon from the
filing of the complaint, plus attorney's fees in the amount of P8,000.00. Costs
against defendants-appellees.

(P120,000.00), Philippine Currency, do by these presents,

ASSIGN, TRANSFER AND CONVEY, absolutely and forever unto JOSE M.

JAVIER and ESTRELLA F. JAVIER, spouses, of legal age and a resident (sic) of
2897 F.B. Harrison, Pasay City, my shares of stocks in the TIMBERWEALTH
CORPORATION in the total amount of P120,000.00, payment of which shall be
made in the following manner:

Twenty thousand (P20,000.00) Pesos upon signing of this contract;

As found by respondent court or disclosed by the records,
generated by the following antecedent facts.

this case was

The balance of P100,000.00 shall be paid

Private respondent is a holder of an ordinary timber license issued by the Bureau of

Forestry covering 2,535 hectares in the town of Medina, Misamis

P10,000.00 every shipment of export logs

That for and in consideration of the aforementioned transfer of rights over said
additional area to TIMBERWEALTH
actually produced from the forest concession of Timberwealth Corporation.

CORPORATION, ESTRELLA F. JAVIER and JOSE M. JAVIER, both directors and

stockholders of said corporation, do hereby undertake to pay LEONARDO TIRO, as
soon as said additional area is approved and transferred to TIMBERWEALTH

That I hereby agree to sign and endorse the stock certificate in favor of Mr. &
Mrs. Jose M. Javier, as soon as stock certificates are issued.

CORPORATION the sum of THIRTY THOUSAND PESOS

xxx xxx xxx
(P30,000.00), which amount of money shall form part of their paid up capital stock in
TIMBERWEALTH CORPORATION;

At the time the said deed of assignment was executed, private respondent had
a pending application, dated October 21, 1965, for an additional forest
concession covering an area of 2,000 hectares southwest of and adjoining the
area of the concession subject of the deed of assignment. Hence, on February
28, 1966, private respondent and petitioners entered into another "Agreement"
with the following stipulations:

That this Agreement is subject to the approval of the members of the Board of
Directors of the TIMBERWEALTH

CORPORATION.
xxx xxx xxx
xxx xxx
That LEONARDO TIRO hereby agrees and binds himself to transfer, cede and
convey whatever rights he may acquire, absolutely and forever, to
TIMBERWEALTH CORPORATION, a corporation duly organized and existing
under the laws of the Philippines, over a forest concession which is now
pending application and approval as additional area to his existing licensed
area under O.T. License No. 391-103166, situated at Medina, Misamis Oriental;

On November 18, 1966, the Acting Director of Forestry wrote private respondent that
his forest concession was renewed up to May 12, 1967 under O.T.L. No.

391-51267, but since the concession consisted of only 2,535 hectares, he was
therein informed that:
In pursuance of the Presidential directive of May 13, 1966, you are hereby given
until May 12, 1967 to form an organization such as a cooperative, partnership or
corporation with other adjoining licensees so as to have a total holding area of not
less than 20,000 hectares of contiguous and compact territory and an aggregate
allowable annual cut of not less than 25,000 cubic meters, otherwise, your license
will not be further renewed.

Consequently, petitioners, now acting as timber license holders by virtue of the

deed of assignment executed by private respondent in their favor, entered into a
7

Forest Consolidation Agreement on April 10, 1967 with other ordinary timber
license holders in Misamis Oriental, namely, Vicente L. De Lara, Jr., Salustiano
R. Oca and Sanggaya Logging Company. Under this consolidation agreement,
they all agreed to pool together and merge their respective forest concessions
into a working unit, as envisioned by the aforementioned directives. This
consolidation agreement was approved by the Director of Forestry on May 10,

1967. The working unit was subsequently incorporated as the North Mindanao
Timber Corporation, with the petitioners and the other signatories of the
aforesaid Forest Consolidation Agreement as incorporators.

On July 16, 1968, for failure of petitioners to pay the balance due under the two
deeds of assignment, private respondent filed an action against petitioners,
based on the said contracts, for the payment of the amount of P83,138.15 with
interest at 6% per annum from April 10, 1967 until full payment, plus P12,000.00
for attorney's fees and costs.

On September 23, 1968, petitioners filed their answer admitting the due
execution of the contracts but interposing the special defense of nullity thereof
since private respondent failed to comply with his contractual obligations and,
further, that the conditions for the enforceability of the obligations of the parties
failed to materialize. As a counterclaim, petitioners sought the return of

P55,586.00 which private respondent had received from them pursuant to an

alleged management agreement, plus attorney's fees and costs.

On October 7, 1968, private respondent filed his reply refuting the defense of
nullity of the contracts in this wise:

What were actually transferred and assigned to the defendants were plaintiff's rights
and interest in a logging concession described in the deed of assignment, attached
to the complaint and marked as Annex A, and agreement Annex E; that the

"shares of stocks" referred to in paragraph II of the complaint are terms used therein
merely to designate or identify those rights and interests in said logging concession.
The defendants actually made use of or enjoyed not the "shares of stocks" but the
logging concession itself; that since the proposed

Timberwealth Corporation was owned solely and entirely by defendants, the

personalities of the former and the latter are

one and the same. Besides, before the logging concession of the plaintiff or the
latter's rights and interests therein were assigned or transferred to defendants,
they never became the property or assets of the Timberwealth Corporation
which is at most only an association of persons composed of the defendants.

10

and contending that the counterclaim of petitioners in the amount of P55,586.39

is actually only a part of the sum of P69,661.85 paid by the latter to the former
in partial satisfaction of the latter's claim.

11

After trial, the lower court rendered judgment dismissing private respondent's
complaint and ordering him to pay petitioners the sum of P33,161.85 with legal
interest at six percent per annum from the date of the filing of the answer until
complete payment.

12

On April 11, 1978, petitioners filed their motion for reconsideration in the Court of
15

Appeals. On April 21, 1978, private respondent filed a consolidated opposition to

said motion for reconsideration on the ground that the decision of respondent court
had become final on March 27, 1978, hence the motion for extension filed on March
28, 1978 was filed out of time and there was no more period to extend. However,
this was not acted upon by the

Court of Appeals for the reason that on April 20, 1978, prior to its receipt of said
opposition, a resolution was issued denying petitioners' motion for
reconsideration, thus:

The motion for reconsideration filed on April 11, 1978 by counsel for defendantsappellees is denied. They did not file any brief in this case. As a matter of fact
this case was submitted for decision without appellees' brief. In their said
motion, they merely tried to refute the rationale of the Court in deciding to
reverse the appealed judgment.

16

As earlier stated, an appeal was interposed by private respondent to the Court

of Appeals which reversed the decision of the court of a quo.

On March 28, 1978, petitioners filed a motion in respondent court for extension of
time to file a motion for reconsideration, for the reason that they needed to change

Petitioners then sought relief in this Court in the present petition for review on
certiorari. Private respondent filed his comment, reiterating his stand that the
decision of the Court of Appeals under review is already final and executory.

13

counsel. Respondent court, in its resolution dated March 31, 1978, gave
petitioners fifteen (15) days from March 28, 1978 within which to file said motion for
reconsideration, provided that the subject motion for extension was filed on time.

14

determination, instead of being suppressed on technical and insubstantial

reasons. Moreover, the aforesaid one (1) day delay in the filing of their motion
for extension is excusable, considering that petitioners had to change their
former counsel who failed to file their brief in the appellate court, which
substitution of counsel took place at a time when there were many successive
intervening holidays.

Petitioners countered in their reply that their petition for review presents
substantive and fundamental questions of law that fully merit judicial
The one (1) day delay in the filing of the said motion for extension can justifiably
be excused, considering that aside from the change of counsel, the last day for
filing the said motion fell on a holiday following another holiday, hence, under
such circumstances, an outright dismissal of the petition would be too harsh.
Litigations should, as much as possible, be decided on their merits and not on
technicalities. In a number of cases, this Court, in the exercise of equity
jurisdiction, has relaxed the stringent application of technical rules in order to
17

On July 26, 1978, we resolved to give due course to the petition.

resolve the case on its merits. Rules of procedure are intended to promote,
not to defeat, substantial justice and, therefore, they should not be applied in a
very rigid and technical sense.

We now proceed to the resolution of this case on the merits.

Petitioners, after the execution of the deed of assignment, assumed the

operation of the logging concessions of private respondent.

The assignment of errors of petitioners hinges on the central issue of whether

the deed of assignment dated February 15, 1966 and the agreement of
February 28, 1966 are null and void, the former for total absence of
consideration and the latter for non-fulfillment of the conditions stated therein.

Petitioners contend that the deed of assignment conveyed to them the shares of
stocks of private respondent in Timberwealth Corporation, as stated in the deed
itself. Since said corporation never came into existence, no share of stocks was
ever transferred to them, hence the said deed is null and void for lack of cause
or consideration.

19

The statement of advances to respondent prepared by petitioners stated:

"P55,186.39 advances to L.A. Tiro be applied to succeeding shipments. Based

on the agreement, we pay P10,000.00 every after (sic) shipment. We had only 2
shipments"

20

Petitioners entered into a Forest Consolidation Agreement with other holders of

forest concessions on the strength of the questioned deed of assignment.

We do not agree. As found by the Court of Appeals, the true cause or

consideration of said deed was the transfer of the forest concession of private
respondent to petitioners for P120,000.00. This finding is supported by the
following considerations, viz:

21

The aforesaid contemporaneous and subsequent acts of petitioners and private

respondent reveal that the cause stated in the questioned deed of assignment is
false. It is settled that the previous and simultaneous and subsequent acts of the
22

Both parties, at the time of the execution of the deed of assignment knew that
the Timberwealth Corporation stated therein was non-existent.

18

parties are properly cognizable indica of their true intention. Where the parties
to a contract have given it a practical construction by their conduct as by acts in
partial performance, such construction may be considered by the court in
construing the contract, determining its meaning and ascertaining the mutual
23

In their subsequent agreement, private respondent conveyed to petitioners his

inchoate right over a forest concession covering an additional area for his
existing forest concession, which area he had applied for, and his application
was then pending in the Bureau of Forestry for approval.

intention of the parties at the time of contracting. The parties' practical

construction of their contract has been characterized as a clue or index to, or as
evidence of, their intention or meaning and as an important, significant,
convincing, persuasive, or influential factor in determining the proper
construction of the agreement.

24

The deed of assignment of February 15, 1966 is a relatively simulated contract

which states a false cause or consideration, or one where the parties conceal
their true agreement.
26

25

A contract with a false consideration is not null and void

per se. Under Article 1346 of the Civil Code, a relatively simulated contract,
when it does not prejudice a third person and is not intended for any purpose
contrary to law, morals, good customs, public order or public policy binds the
parties to their real agreement.

parties agreed on a consideration of P120,000.00. P20,000.00 of which was paid,

upon the signing of the contract and the balance of

The Court of Appeals, therefore, did not err in holding petitioners liable under the
said deed and in ruling that

. . . In view of the analysis of the first and second assignment of errors, the
defendants-appellees are liable to the plaintiff-appellant for the sale and transfer in
their favor of the latter's forest concessions. Under the terms of the contract, the

P100,000.00 to be paid at the rate of P10,000.00 for every shipment of export

logs actually produced from the forest concessions of the appellant sold to the
appellees. Since plaintiff-appellant's forest concessions were consolidated or
merged with those of the other timber license holders by appellees' voluntary act
under the Forest Consolidation Agreement (Exhibit D), approved by the Bureau
of Forestry

(Exhibit D-3), then the unpaid balance of P49,338.15 (the amount of P70,661.85
having been received by the plaintiff-appellant from the defendants-appellees)
became due and demandable.

27

As to the alleged nullity of the agreement dated February 28, 1966, we agree
with petitioners that they cannot be held liable thereon. The efficacy of said
deed of assignment is subject to the condition that the application of private
respondent for an additional area for forest concession be approved by the
Bureau of Forestry. Since private respondent did not obtain that approval, said
deed produces no effect. When a contract is subject to a suspensive condition,
its birth or effectivity can take place only if and when the event which constitutes
the condition happens or is fulfilled.

28

If the suspensive condition does not take

place, the parties would stand as if the conditional obligation had never existed.
29

The said agreement is a bilateral contract which gave rise to reciprocal

obligations, that is, the obligation of private respondent to transfer his rights in
the forest concession over the additional area and, on the other hand, the
obligation of petitioners to pay P30,000.00. The demandability of the obligation
of one party depends upon the fulfillment of the obligation of the other. In this
case, the failure of private respondent to comply with his obligation negates his
right to demand performance from petitioners. Delivery and payment in a
contract of sale, are so interrelated and intertwined with each other that without
delivery of the goods there is no corresponding obligation to pay. The two
complement each other.

30

Moreover, under the second paragraph of Article 1461 of the Civil Code, the
efficacy of the sale of a mere hope or expectancy is deemed subject to the
condition that the thing will come into existence. In this case, since private
respondent never acquired any right over the additional area for failure to
secure the approval of the Bureau of Forestry, the agreement executed therefor,

which had for its object the transfer of said right to petitioners, never became
effective or enforceable.

WHEREFORE, the decision of respondent Court of Appeals is hereby

MODIFIED. The agreement of the parties dated February 28, 1966 is declared
without force and effect and the amount of P30,000.00 is hereby ordered to be
deducted from the sum awarded by respondent court to private respondent. In all
other respects, said decision of respondent court is affirmed.

SO ORDERED.

Melencio-Herrera, Paras, Padilla and Sarmiento JJ., concur

G.R. No. 135634 May 31, 2000

HEIRS OF JUAN SAN

ANDRES (VICTOR S. ZIGA)
and SALVACION S. TRIA,
petitioners,

MENDOZA, J.:

This is a petition for review on

certiorari of the decision of the
1

vs.
VICENTE RODRIGUEZ,
respondent.

Court of Appeals reversing the

decision of the Regional Trial
Court, Naga City, Branch 19, in
Civil Case No. 87-1335, as well
as the appellate court's
resolution denying
reconsideration.

The antecedent facts are as

follows:

Juan San Andres was the

registered owner of Lot No.
1914-B-2 situated in Liboton,
Naga City. On September 28,
1964, he sold a portion thereof,
consisting of 345 square meters,
to respondent Vicente S.
Rodriguez for P2,415.00. The
sale is evidenced by a Deed of
Sale.

Upon the death of Juan San

Andres on May 5, 1965, Ramon
San Andres was appointed
judicial administrator of the
decedent's estate in Special
Proceedings No. R-21, RTC,
Branch 19, Naga City. Ramon
San Andres engaged the services
of a geodetic engineer, Jose
Peero, to prepare a
consolidated plan (Exh. A) of
the estate. Engineer Peero also
prepared a sketch plan of the
345-square meter lot sold to
respondent. From the result of

the survey, it was found that

respondent had enlarged the area
which he purchased from the
late Juan San Andres by 509
square meters.
3

Accordingly, the judicial

4

administrator sent a letter,

dated July 27, 1987, to
respondent demanding that the
latter vacate the portion
allegedly encroached by him.
However, respondent refused to
do so, claiming he had
purchased the same from the late
Juan San Andres. Thereafter, on
November 24, 1987, the judicial
administrator brought an action,
in behalf of the estate of Juan
San Andres, for recovery of
possession of the 509-square
meter lot.

In his Re-amended Answer filed

on February 6, 1989, respondent
alleged that apart from the 345square meter lot which had been

sold to him by Juan San Andres

on September 28, 1964, the
latter likewise sold to him the
following day the remaining
portion of the lot consisting of
509 square meters, with both
parties treating the two lots as
one whole parcel with a total
area of 854 square meters.
Respondent alleged that the full
payment of the 509-square
meter lot would be effected
within five (5) years from the
execution of a formal deed of
sale after a survey is conducted
over said property. He further
alleged that with the consent of
the former owner, Juan San
Andres, he took possession of
the same and introduced
improvements thereon as early
as 1964.

As proof of the sale to him of

509 square meters, respondent
attached to his answer a receipt

(Exh. 2) signed by the late

Juan San Andres, which reads in
full as follows:

Received from Vicente

Rodriguez the sum of Five
Hundred (P500.00) Pesos
representing an advance
payment for a residential lot
adjoining his previously paid lot
on three sides excepting on the
frontage with the agreed price of
Fifteen (15.00) Pesos per square
meter and the payment of the
full consideration based on a
survey shall be due and payable
in five (5) years period from the
execution of the formal deed of
sale; and it is agreed that the
expenses of survey and its
approval by the Bureau of Lands
shall be borne by Mr. Rodriguez.

Naga City, September 29, 1964.

(Sgd.)

VICENTE
RODRIGUEZ

Vendee

Respondent also
attached to his
answer a letter of
judicial administrator
Ramon San Andres
6

(Exh. 3), asking

payment of the
balance of the
purchase price. The
letter reads:

Dear Inting,

Please accommodate
my request for Three
Hundred (P300.00)
Pesos as I am in need
Noted:

of funds as I intimated to you the

other day.

We will just adjust it with

whatever balance you have
payable to the subdivision.

Thanks.

S
A

A
N
D
R
E
S

Vendor

Vicente Rodriguez

Penafrancia
Subdivision, Naga
City
P.S.
3/30/66
You can let bearer Enrique del
Castillo sign for the amount.

Received One Hundred Only

(Sgd.)

RAMON SAN ANDRES

Respondent deposited in court the

balance of the purchase price
amounting to P7,035.00 for the
aforesaid 509-square meter lot.

While the proceedings were

pending, judicial administrator
Ramon San Andres died and was
substituted by his son Ricardo
San Andres. On the other band,

respondent Vicente Rodriguez

died on August 15, 1989 and
was substituted by his heirs.

Petitioner, as plaintiff, presented

two witnesses. The first witness,
8

Engr. Jose Peero, testified

that based on his survey
conducted sometime between
1982 and 1985, respondent had
enlarged the area which he
purchased from the late Juan
San Andres by 509 square
meters belonging to the latter's
estate. According to Peero, the
titled property (Exh. A-5) of
respondent was enclosed with a
fence with metal holes and
barbed wire, while the expanded
area was fenced with barbed
wire and bamboo and light
materials.

The second witness, Ricardo San

9

Andres, administrator of the

estate, testified that respondent
had not filed any claim before
Special Proceedings No. R-21 and
denied knowledge of Exhibits 2
and 3. However, he recognized

the signature in Exhibit 3 as

similar to that of the former
administrator, Ramon San Andres.
Finally, he declared that the
expanded portion occupied by the
family of respondent is now
enclosed with barbed wire fence
unlike before where it was found
without fence.

On the other hand, Bibiana B.

10

Rodriguez, widow of
respondent Vicente Rodriguez,
testified that they had purchased
the subject lot from Juan San
Andres, who was their compadre,
on September 29, 1964, at P15.00
per

square meter. According to her,

they gave P500.00 to the late
Juan San Andres who later
affixed his signature to Exhibit
2. She added that on March 30,
1966; Ramon San Andres wrote
them a letter asking for P300.00
as partial payment for the
subject lot, but they were able to
give him only P100.00. She
added that they had paid the
total purchase price of P7,035.00

on November 21, 1988 by

depositing it in court. Bibiana B.
Rodriquez stated that they had
been in possession of the 509square meter lot since 1964
when the late Juan San Andres
signed the receipt. (Exh. 2)
Lastly, she testified that they did
not know at that time the exact
area sold to them because they
were told that the same would be
known after the survey of the
subject lot.

On September 20, 1994, the trial

11

court rendered judgment in

favor of petitioner. It ruled that
there was no contract of sale to
speak of for lack of a valid
object because there was no
sufficient indication in Exhibit 2
to identify the property subject
of the sale, hence, the need to
execute a new contract.

Respondent appealed to the

Court of Appeals, which on
April 21, 1998 rendered a
decision reversing the decision
of the trial court. The appellate

court held that the object of the

contract was determinable, and
that there was a conditional sale
with the balance of the purchase
price payable within five years
from the execution of the deed
of sale. The dispositive portion
of its decision's reads:

IN VIEW OF ALL THE

FOREGOING, the judgment
appealed from is hereby
REVERSED and SET ASIDE
and a new one entered
DISMISSING the complaint and
rendering judgment against the
plaintiff-appellee:

to accept the P7,035.00

representing the balance of the
purchase price of the portion and
which is deposited in court
under Official Receipt No.
105754 (page 122, Records);

to execute the formal deed of

sale over the said 509 square
meter portion of Lot 1914-B-2 in
favor of appellant Vicente
Rodriguez;

to pay the defendant-appellant

the amount of P50,000.00 as
damages and P10,000.00
attorney's fees as stipulated by
them during the trial of this case;
and

LACKING ONE OF THE

ESSENTIAL

ELEMENTS OF A
CONTRACT,
NAMELY, OBJECT CERTAIN
AND

to pay the costs of the suit.

SUFFICIENTLY DESCRIBED.
SO ORDERED.
II. THE HON. COURT OF
APPEALS
Hence, this petition. Petitioner
assigns the following errors as
having been allegedly
committed by the trial court:

I. THE HON. COURT OF

APPEALS

ERRED IN HOLDING THAT

PETITIONER IS OBLIGED TO
HONOR
THE PURPORTED
CONTRACT TO

ERRED IN HOLDING THAT

THE

SELL DESPITE NONFULFILLMENT

DOCUMENT (EXHIBIT "2") IS

A

BY RESPONDENT OF THE
CONDITION

CONTRACT TO SELL
DESPITE ITS

THEREIN OF PAYMENT OF
THE
BALANCE OF THE
PURCHASE PRICE.

III. THE HON. COURT OF

APPEALS

ERRED IN HOLDING THAT

CONSIGNATION WAS VALID
DESPITE
NON-COMPLIANCE WITH
THE
MANDATORY
REQUIREMENTS
THEREOF.

IV. THE HON. COURT OF

APPEALS
ERRED IN HOLDING THAT
LACHES
AND PRESCRIPTION DO
NOT APPLY
TO RESPONDENT WHO
SOUGHT

INDIRECTLY TO ENFORCE
THE

PURPORTED CONTRACT
AFTER THE
LAPSE OF 24 YEARS.

Consent or meeting of the

minds, that is, consent to transfer
ownership in exchange for the
price;

The petition has no merit.

Determinate subject matter; and,

First. Art. 1458 of the Civil Code

provides:

Price certain in money or its

By the contract of sale one of the

contracting parties obligates
himself to transfer the ownership
of and to deliver a determinate
thing, and the other to pay
therefor a price certain in money
or its equivalent.

A contract of sale may be

absolute or conditional.

As thus defined, the essential

elements of sale are the
following:

equivalent.

12

As shown in the receipt, dated

September 29, 1964, the late
Juan San Andres received
P500.00 from respondent as
"advance payment for the
residential lot adjoining his
previously paid lot on three
sides excepting on the frontage;
the agreed purchase price was
P15.00 per square meter; and the
full amount of the purchase price
was to be based on the results of
a survey and would be due and
payable in five (5) years from
the execution of a deed of sale.

Petitioner contends, however,

that the "property subject of the

sale was not described with

sufficient certainty such that
there is a necessity of another
agreement between the parties to
finally ascertain the identity; size
and purchase price of the
property which is the object of
1

the alleged sale." He argues

Art. 1349. The object of every
contract must be determinate as to
its kind. The fact that the quantity
is not determinable shall not be an
obstacle to the existence of a
contract, provided it is possible to
determine the same without the
need of a new contract between
the parties.

Art. 1460. . . . The requisite that a

thing be determinate is satisfied if
at the time the contract is entered
into, the thing is capable of being
made determinate without the
necessity of a new and further
agreement between the parties.

that the "quantity of the object is

not determinate as in fact a
survey is needed to determine its
exact size and the full purchase
14

price therefor" In support of

his contention, petitioner cites
the following provisions of the
Civil Code:
is located in the middle of Lot
1914-B-2, which has a total area
of 854 square meters, and is
clearly what was referred to in
the receipt as the "previously
paid lot." Since the lot
subsequently sold to respondent
is said to adjoin the "previously
paid lot" on three sides thereof,
the subject lot is capable of
being determined without the
need of any new contract. The
fact that the exact area of these
adjoining residential lots is
subject to the result of a survey
does not detract from the fact
that they are determinate or
determinable. As the Court of
Appeals explained:

Petitioner's contention is without

merit. There is no dispute that
respondent purchased a portion
of Lot 1914-B-2 consisting of
345 square meters. This portion

15

Concomitantly, the object of the

sale is certain and determinate.
Under Article 1460 of the New

Civil Code, a thing sold is

determinate if at the time the
contract is entered into, the thing
is capable of being determinate
without necessity of a new or
further agreement between the
parties. Here, this definition
finds realization.

Appellee's Exhibit "A" (page 4,

Records) affirmingly shows that
the original 345 sq. m. portion
earlier sold lies at the middle of
Lot 1914-B-2 surrounded by the
remaining portion of the said Lot
1914-B-2 on three (3) sides, in the
east, in the west and in the north.
The northern boundary is a 12
meter road. Conclusively,
therefore, this is the only
remaining 509 sq. m. portion of
Lot 1914-B-2 surrounding the 345
sq. m. lot initially purchased by
Rodriguez. It is quite difined,
determinate and certain. Withal,
this is the same portion
adjunctively occupied and
possessed by Rodriguez since
September 29, 1964,

unperturbed by anyone for over

twenty (20) years until appellee
instituted this suit.

Thus, all of the essential

elements of a contract of sale are
present, i.e., that there was a
meeting of the minds between
the parties, by virtue of which
the late Juan San Andres
undertook to transfer ownership
of and to deliver a determinate
thing for a price certain in
money. As Art. 1475 of the Civil
Code provides:

The contract of sale is perfected

at the moment there is a meeting
of minds upon the thing which is
the object of the contract and
upon the price. . . .

That the contract of sale is

perfected was confirmed by the
former administrator of the
estates, Ramon San Andres, who
wrote a letter to respondent on
March 30, 1966 asking for
P300.00 as partial payment for

the subject lot. As the Court of

Appeals observed:

Without any doubt, the receipt

profoundly speaks of a meeting
of the mind between San Andres
and Rodriguez for the sale of the
property adjoining the 345
square meter portion previously
sold to Rodriguez on its three (3)
sides excepting the frontage. The
price is certain, which is P15.00
per square meter. Evidently, this
is a perfected contract of sale on
a deferred payment of the
purchase price. All the prerequisite elements for a valid
purchase transaction are present.
Sale does not require any formal
document for its existence and
validity. And delivery of
possession of land sold is a
proof of he sale over the
remaining portion of Lot 1914B-2 and a confirmation by
Ramon San Andres of the
existence thereof.

16

There is a need, however, to

clarify what the Court of

consummation of the sale (Galar

vs. Husain, 20 SCRA 186
[1967]). A private deed of sale is
a valid contract between the
parties (Carbonell v. CA, 69
SCRA 99 [1976]).

In the same vein, after the late

Juan R. San Andres received the
P500.00 downpayment on March
30, 1966, Ramon R. San Andres
wrote a letter to Rodriguez and
received from Rodriguez the
amount of P100.00 (although
P300.00 was being requested)
deductible from the purchase
price of the subject portion.
Enrique del Castillo, Ramon's
authorized agent, correspondingly
signed the receipt for the P100.00.
Surely, this is explicitly a
veritable

Appeals said is a conditional

contract of sale. Apparently, the
appellate court considered as a
"condition" the stipulation of the
parties that the full
consideration, based on a survey
of the lot, would be due and
payable within five (5) years
from the execution of a formal

deed of sale. It is evident from

the stipulations in the receipt
that the vendor Juan San Andres
sold the residential lot in
question to respondent and
undertook to transfer the
ownership thereof to respondent
without any qualification,
reservation or condition. In Ang
Yu Asuncion v. Court of Appeals,
17

we held:

In Dignos v. Court of Appeals

(158 SCRA 375), we have said
that, although denominated a
"Deed of Conditional Sale," a
sale is still absolute where the
contract is devoid of any proviso
that title is reserved or the right
to unilaterally rescind is
stipulated, e.g., until or unless
the price is paid. Ownership will
then be transferred to the buyer
upon actual or constructive
delivery (e.g., by the execution
of a public document) of the
property sold. Where the
condition is imposed upon the
perfection of the contract itself,
the failure of the condition
would prevent such perfection.
If the condition is imposed on

the obligation of a party which is

not fulfilled, the other party may
either waive the condition or
refuse to proceed with the sale.
(Art. 1545, Civil Code).

Thus, in. one case, when the

sellers declared in a "Receipt of
Down Payment" that they
received an amount as purchase
price for a house and lot without
any reservation of title until full
payment of the entire purchase
price, the implication was that
18

they sold their property. In

People's Industrial Commercial
Corporation v. Court of Appeals,
19

it was stated:

A deed of sale is considered

absolute in nature where there is
neither a stipulation in the deed
that title to the property sold is
reserved in the seller until full
payment of the price, nor one
giving the vendor the right to
unilaterally resolve

the contract the moment the

buyer fails to pay within a fixed
period.

Applying these principles to this

case, it cannot be gainsaid that
the contract of sale between the
parties is absolute, not
conditional. There is no
reservation of ownership nor a
stipulation providing for a
unilateral rescission by either
party. In fact, the sale was
consummated upon the delivery
20

of the lot to respondent. Thus,

Art. 1477 provides that the
ownership of the thing sold shall
be transferred to the vendee
upon the actual or constructive
delivery thereof.

The stipulation that the

"payment of the full
consideration based on a survey
shall be due and payable in five
(5) years from the execution of a
formal deed of sale" is not a
condition which affects the
efficacy of the contract of sale. It
merely provides the manner by
which the full consideration is to

be computed and the time within

which the same is to be paid.
But it does not affect in any
manner the effectivity of the
contract. Consequently, the
contention that the absence of a
formal deed of sale stipulated in
the receipt prevents the
happening of a sale has no merit.

Second. With respect to the

contention that the Court of
Appeals erred in upholding the
validity of a consignation of
P7,035.00 representing the
balance of the purchase price of
the lot, nowhere in the decision
of the appellate court is there
any mention of consignation.
Under Art. 1257 of this Civil
Code, consignation is proper
only in cases where an existing
obligation is due. In this case,
however, the contracting parties
agreed that full payment of
purchase price shall be due and
payable within five (5) years
from the execution of a formal
deed of sale. At the time
respondent deposited the amount
of P7,035.00 in the court, no
formal deed of sale had yet been

executed by the parties, and,

therefore, the five-year period
during which the purchase price
should be paid had not
commenced. In short, the
purchase price was not yet due
and payable.

This is not to say, however, that

the deposit of the purchase price
in the court is erroneous. The

Court of Appeals correctly

ordered the execution of a deed
of sale and petitioners to accept
the amount deposited by
respondent.

Third. The claim of petitioners

that the price of P7,035.00 is
iniquitous is untenable. The
amount is based on the
agreement of the parties as

evidenced by the receipt (Exh. 2). Time and again, we have stressed the
rule that a contract is the law between the parties, and courts have no
choice but to enforce such contract so long as they are not contrary to
law, morals, good customs or public policy. Otherwise, court would be
interfering with the freedom of contract of the parties. Simply put, courts
cannot stipulate for the parties nor amend the latter's agreement, for to do
so would be to alter the real intentions of the contracting parties when the
contrary function of courts is to give force and effect to the intentions of
the parties.

Fourth. Finally, petitioners argue that respondent is barred by prescription

and laches from enforcing the contract. This contention is likewise
untenable. The contract of sale in this case is perfected, and the delivery of
the subject lot to respondent effectively transferred ownership to him. For
this reason, respondent seeks to comply with his obligation to pay the full
purchase price, but because the deed of sale is yet to be executed, he deemed
it appropriate to deposit the balance of the purchase price in court.
Accordingly, Art. 1144 of the Civil Code has no application to the instant
21

case. Considering that a survey of the lot has already been conducted and
approved by the Bureau of Lands, respondent's heirs, assign or successorsin-interest should reimburse the expenses incurred by herein petitioners,
pursuant to the provisions of the contract.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED with

the modification that respondent is ORDERED to reimburse petitioners
for the expenses of the survey.

SO ORDERED.

Bellosillo and Buena, JJ., concur.

Quisumbing and De Leon, Jr., JJ., are on leave.

G.R. No. L-23276
November 29, 1968

MELECIO COQUIA, MARIA

ESPANUEVA and MANILA
YELLOW TAXICAB CO.,
INC., plaintiffs-appellees,

vs.
FIELDMEN'S INSURANCE
CO., INC., defendant-appellant.

Antonio de Venecia for

plaintiffs-appellees.
Rufino Javier for defendantappellant.

CONCEPCION, C.J.:

This is an appeal from a decision

of the Court of First Instance of
Manila, certified to us by the
Court of Appeals, only questions
of law being involved therein.
Indeed, the pertinent facts have
been stipulated and/or, admitted
by the parties at the hearing of
the case in the trial court, to
dispense with the presentation of
evidence therein.

It appears that on December 1,

1961, appellant Fieldmen's
Insurance Company, Inc.
hereinafter referred to as the
Company issued, in favor of
the Manila Yellow Taxicab Co.,
Inc. hereinafter referred to as
the Insured a common carrier
accident insurance policy,
covering the period from
December 1, 1961 to December
1, 1962. It was stipulated in said
policy that:

The Company will, subject to the

Limits of Liability and under the
Terms of this Policy, indemnify
the Insured in the event of
accident caused by or arising out
of the use of Motor Vehicle
against all sums which the
Insured will become legally
liable to pay in respect of: Death
or bodily injury to any farepaying passenger including the
Driver, Conductor and/or
Inspector who is riding in the
Motor Vehicle insured at the
time of accident or injury.

September 18, 1962, the Insured

and Carlito's

parents, namely, Melecio Coquia

and Maria Espanueva
hereinafter referred to as the
Coquias filed a complaint
against the Company to collect
the proceeds of the
aforementioned policy. In its
answer, the Company admitted
the existence thereof, but
pleaded lack of cause of action
on the part of the plaintiffs.

While the policy was in force, or

on February 10, 1962, a taxicab of
the Insured, driven by Carlito
Coquia, met a vehicular accident
at Mangaldan, Pangasinan, in
consequence of which Carlito
died. The Insured filed therefor a
claim for P5,000.00 to which the
Company replied with an offer to
pay P2,000.00, by way of
compromise. The Insured rejected
the same and made a counter-offer
for P4,000.00, but the Company
did not accept it. Hence, on

After appropriate proceedings,

the trial court rendered a
decision sentencing the
Company to pay to the plaintiffs
the sum of P4,000.00 and the
costs. Hence, this appeal by the
Company, which contends that
plaintiffs have no cause of action
because: 1) the Coquias have no
contractual relation with the
Company; and 2) the Insured has
not complied with the provisions
of the policy concerning
arbitration.

As regards the first defense, it

should be noted that, although,
in general, only parties to a
contract may bring an action
based thereon, this rule is subject
to exceptions, one of which is
found in the second paragraph of
Article 1311 of the Civil Code of
the Philippines, reading:

If a contract should contain

some stipulation in favor of a
third person, he may demand its
fulfillment provided he
communicated his acceptance to
the obligor before its revocation.
A mere incidental benefit or
interest of a person is not
sufficient. The contracting
parties must have clearly and
deliberately conferred a favor
upon a third person.

This is but the restatement of a

well-known principle concerning

contracts pour autrui, the

enforcement of which may be
demanded by a third party for
whose benefit it was made,
although not a party to the
contract, before the stipulation in
his favor has been revoked by
the contracting parties. Does the
policy in question belong to such
class of contracts pour autrui?

In this connection, said policy

provides, inter alia:

Section I Liability to
Passengers. 1. The Company will,
subject to the Limits of Liability
and under the Terms of this
Policy, indemnify the Insured in
the event of accident caused by or
arising out of the use of Motor
Vehicle against all sums which the
Insured will become legally liable
to pay in respect of: Death or
bodily injury to any fare-paying
passenger including the Driver ...
who is

riding in the Motor Vehicle

insured at the time of accident or
injury.

Section II Liability to the

Public

xxx

xxx

xxx

3. In terms of and subject to the

limitations of and for the
purposes of this Section, the
Company will indemnify any
authorized Driver who is driving
the Motor Vehicle....

Conditions

xxx

xxx

indemnify his personal

representatives in terms of and
subject to the limitations of this
Policy, provided, that such
representatives shall, as though
they were the Insured, observe,
fulfill and be subject to the
Terms of this Policy insofar as
they can apply.

xxx

In the event of death of any

person entitled to indemnity
under this Policy, the Company
will, in respect of the liability
incurred by such person,

The Company may, at its option,

make indemnity payable directly
to the claimants or heirs of
claimants, with or without
securing the consent of or prior
notification to the Insured, it
being the true intention of this
Policy to protect, to the extent
herein specified and subject
always to the Terms Of this
Policy, the liabilities of the
Insured towards the passengers
of the Motor Vehicle and the
Public.

Pursuant to these stipulations,

the Company "will indemnify
any authorized Driver who is
driving the Motor Vehicle" of
the Insured and, in the event of

death of said driver, the

Company shall, likewise,
"indemnify his personal
representatives." In fact, the
Company "may, at its option,
make indemnity payable directly
to the claimants or heirs of
claimants ... it being the true
intention of this Policy to protect
... the liabilities of the Insured
towards the passengers of the
Motor Vehicle and the Public"
in other words, third parties.

Thus, the policy under

consideration is typical of
contracts pour autrui, this
character being made more
manifest by the fact that the
deceased driver paid fifty
percent (50%) of the
corresponding premiums, which
were deducted from his weekly
commissions. Under these
conditions, it is clear that the
Coquias who, admittedly, are
the sole heirs of the deceased
have a direct cause of action
3

against the Company, and,

since they could have
maintained this action by
themselves, without the
assistance of the Insured, it goes
without saying that they could
and did properly join the latter in
filing the complaint herein.

The second defense set up by the

Company is based upon Section
17 of the policy reading:

If any difference or dispute shall

arise with respect to the amount

of the Company's liability under

this Policy, the same shall be
referred to the decision of a
single arbitrator to be agreed
upon by both parties or failing
such agreement of a single
arbitrator, to the decision of two
arbitrators, one to be appointed
in writing by each of the parties
within one calendar month after
having been required in writing
so to do by either of the parties
and in case of disagreement
between the arbitrators, to the
decision of an umpire who shall
have been appointed in writing
by the arbitrators before entering
on the reference and the costs of
and incident to the reference
shall be dealt with in the Award.
And it is hereby expressly
stipulated and declared that it
shall be a condition precedent to
any right of action or suit upon
this Policy that the award by
such arbitrator, arbitrators or

Another well-settled rule for

interpretation of all contracts is
that the court will lean to that

umpire of the amount of the

Company's liability hereunder if
disputed shall be first obtained.

The record shows, however, that

none of the parties to the
contract invoked this section, or
made any reference to
arbitration, during the
negotiations preceding the
institution of the present case. In
fact, counsel for both parties
stipulated, in the trial court, that
none of them had, at any time
during said negotiations, even
suggested the settlement of the
issue between them by
arbitration, as provided in said
section. Their aforementioned
acts or omissions had the effect
of a waiver of their respective
right to demand an arbitration.
Thus, in Kahnweiler vs. Phenix
5

Ins. Co. of Brooklyn, it was

held:
interpretation of a contract
which will make it reasonable
and just. Bish. Cont. Sec. 400.
Applying these rules to the tenth
clause of this policy, its proper

interpretation seems quite clear.

When there is a difference
between the company and the
insured as to the amount of the
loss the policy declares: "The
same shall then be submitted to
competent and impartial
arbitrators, one to be selected by
each party ...". It will be
observed that the obligation to
procure or demand an arbitration
is not, by this clause, in terms
imposed on either party. It is not
said that either the company or
the insured shall take the
initiative in setting the
arbitration on foot. The company
has no more right to say the
insured must do it than the
insured has to say the company
must do it. The contract in this
respect is neither unilateral nor
self-executing. To procure a
reference to arbitrators, the joint
and concurrent action of both
parties to the contract is
indispensable. The right it gives
and the obligation it creates to
refer the differences between the
parties to arbitrators are mutual.
One party to the contract cannot
bring about an arbitration. Each

party is entitled to demand a

reference, but neither can
compel it, and neither has the
right to insist that the other shall
first demand it, and shall forfeit
any right by not doing so. If the
company demands it, and the
insured refuses to arbitrate, his
right of action is suspended until
he consents to an arbitration; and
if the insured demands an
arbitration, and the company
refuses to accede to the demand,
the insured may maintain a suit
on the policy, notwithstanding
the language of the twelfth
section of the policy, and, where
neither party demands an
arbitration, both parties thereby
6

waive it.

To the same effect was the

decision of the Supreme Court
of Minnesota in Independent
School Dist. No. 35, St. Louis
County vs. A. Hedenberg & Co.,
7

Inc. from which we quote:

This rule is not new in our state.

In Meyer v. Berlandi, 53 Minn.
59, 54 N.W. 937, decided in 1893,
this court held that the parties to a
construction contract, having
proceeded throughout the entire
course of their dealings with each
other in entire disregard of the
provision of the contract
regarding the mode of
determining by arbitration the
value of the extras, thereby
waived such provision.

xxx

xxx

xxx

The test for determining whether

there has been a waiver in a
particular case is stated by the
author of an exhaustive annotation
in 117 A.L.R. p. 304, as follows:
"Any conduct of the parties
inconsistent with the notion that
they treated the arbitration
provision as in effect, or any
conduct which might be
reasonably construed as showing
that they did not intend to avail
themselves of such provision,
may amount to a waiver thereof
and estop the party charged with
such conduct from claiming its
benefits".

xxx

xxx

xxx

The decisive facts here are that

both parties from the inception
of their dispute proceeded in
entire disregard of the provisions
of the contract relating to
arbitration and that neither at
any stage of such dispute, either

before or after commencement

of the action, demanded
arbitration, either by oral or
written demand, pleading, or
otherwise. Their conduct was as
effective a rejection of the right
to arbitrate as if, in the best
Coolidge tradition, they had
said, "We do not choose to
arbitrate". As arbitration under
the express provisions of article
40 was "at the choice of either
party," and was chosen by
neither, a waiver by both of the
right to arbitration followed as a
matter of law.

WHEREFORE, the decision

appealed from should be as it is
hereby affirmed in toto, with
costs against the herein
defendant-appellant, Fieldmen's
Insurance Co., Inc. It is so
ordered.

Reyes, J.B.L., Dizon,

Makalintal, Zaldivar, Sanchez,
Castro, Fernando and
Capistrano, JJ., concur.

G.R. No. L-22962 September 28, 1972

Filiberto Leonardo for petitioners.

PILAR N. BORROMEO, MARIA B. PUTONG,

FEDERICO V. BORROMEO, JOSE
BORROMEO, CONSUELO B. MORALES and
CANUTO V. BORROMEO, JR., petitioners,

Ramon Duterte for private respondents.

vs.
FERNANDO, J.:p
COURT OF APPEALS and JOSE A.
VILLAMOR, (Deceased) Substituted by
FELISA VILLAMOR, ROSARIO V. LIAO
LAMCO, MANUEL VILLAMOR, AMPARO V.
COTTON, MIGUEL VILLAMOR and
CARMENCITA VILLAMOR, respondents.

The point pressed on us by private

1
respondents, in this petition for

of a decision of

review

the Court of Appeals in the

interpretation of a stipulation which
admittedly is not free from ambiguity,
there being a mention of a waiver of
the defense of prescription, is not
calculated to elicit undue judicial
sympathy. For if accorded
acceptance, a creditor, now

the latter certain amounts from time

to time. On one occasion with some
pressing obligation to settle with Mr.
Miller, defendant borrowed from
plaintiff a large sum of money for
which he mortgaged his land and
house in

represented by his heirs, who,

following the warm and generous
impulse of friendship, came to the
rescue of a debtor from a serious
predicament of his own making
would be barred from recovering the
money loaned. Thus the promptings
of charity, unfortunately not often
persuasive enough, would be
discredited. It is unfortunate then that
respondent

Court of Appeals did not see it that

way. For its decision to be upheld
would be to subject the law to such a
scathing indictment. A careful study
of the relevant facts in the light of
applicable doctrines calls for the
reversal of its decision.

The facts as found by the Court of

Appeals follow: "Before the year
1933, defendant [Jose A. Villamor]
was a distributor of lumber belonging
to Mr. Miller who was the agent of the
Insular Lumber Company in Cebu
City. Defendant being a friend and
former classmate of plaintiff [Canuto
O. Borromeo] used to borrow from

Cebu City. Mr. Miller filed civil

action against the defendant and
attached his properties including
those mortgaged to plaintiff,
inasmuch as the deed of mortgage
in favor of plaintiff could not be
registered because not properly
drawn up. Plaintiff then pressed the
defendant for settlement of his
obligation, but defendant instead
offered to execute a document
promising to pay his indebtedness
even after the lapse of ten years.
Liquidation was made and
defendant was found to be indebted
to plaintiff in the sum of P7,220.00,
for which defendant signed a
promissory note therefor on
November 29, 1933 with interest at
the rate of 12% per annum,
agreeing to pay 'as soon as I have
money'. The note further stipulates
that defendant 'hereby relinquish,
renounce, or otherwise waive my
rights to the prescriptions
established by our Code of Civil
Procedure for the collection or
recovery of the above sum of
P7,220.00. ...

at any time even after the lapse of

ten years from the date of this
instrument'.

After the execution of the document,

plaintiff limited himself to verbally
requesting defendant to settle his
indebtedness from time to time.
Plaintiff did not file any complaint
against the defendant within ten
years from the execution of the
document as there was no property
registered in defendant's name, who
furthermore assured him that he
could collect even after the lapse of
ten years.

After the last war, plaintiff made

various oral demands, but
defendants failed to settle his
account, hence the present
3

complaint for collection." It was

then noted in the decision under
review that the Court of First
Instance of Cebu did sentence the
original defendant, the deceased
Jose A. Villamor, to pay Canuto O.
Borromeo, now represented by
petitioners, the sum of P7,220.00
within ninety days from the date of
the receipt of such decision with
interest at the rate of 12% per
annum from the expiration of such
ninety-day period. That was the

judgment reversed by the Court of

Appeals in its decision of March 7,
1964, now the subject of this
petition for review. The legal basis
was the lack of validity of the
stipulation amounting to a waiver in
line with the principle "that a person
cannot renounce future
prescription."

The rather summary and curt

disposition of the crucial legal
question of respondent Court in its
five-page decision, regrettably
rising not too-far-above the
superficial level of analysis hardly
commends itself for approval. In the
first place, there appeared to be
undue reliance on certain words
employed in the written instrument
executed by the parties to the total
disregard of their intention. That
was to pay undue homage to
verbalism. That was to ignore the
warning of Frankfurter against
succumbing to the vice of literalism
in the interpretation of language
whether found in a constitution, a
statute, or a contract. Then, too, in
effect it would nullify what ought to
have been evident by a perusal that
is not-too-cursory, namely, that the
creditor moved by ties of friendship
was more than willing to give the
debtor the utmost latitude as to
when his admittedly scanty
resources will allow him to pay. He

was not renouncing any right; he

was just being considerate,
perhaps excessively so. Under the
view of respondent Court, however,
what had been agreed upon was in
effect voided. That was to run
counter to the well-settled maxim
that between two possible
interpretations, that which saves
rather than destroys is to be
preferred. What vitiates most the
appealed decision, however, is that
it would amount not to just negating
an agreement duly entered into but
would put a premium on conduct
that is hardly fair and could be
characterized as duplicitous.
Certainly, it would reflect on a
debtor apparently bent all the while
on repudiating his obligation. Thus
he would be permitted to repay an
act of kindness with base
ingratitude. Since as will hereafter
be shown, there is, on the contrary,
the appropriate construction of the

wording that found its way in the

document, one which has all the
earmarks of validity and at the
same time is in consonance with
the demands of justice and
morality, the decision on appeal, as
was noted at the outset, must be
reversed.

in 1933 what respondent Court called

"a large sum of money for which he
mortgaged his land and house in

seeking the satisfaction of the sum

due with Villamor unable to pay, but
executing a document promising "to
pay his indebtedness even after the

Cebu City." It was noted that this

Miller did file a suit against him,
attaching his properties including
those he did mortgage to the late
Borromeo, there being no valid
objection to such a step as the
aforesaid mortgage, not being
properly drawn up, could not be
registered. Mention was then made of
the late Borromeo in his lifetime

1. The facts rightly understood

argue for the reversal of the
decision arrived at by respondent
Court of Appeals. Even before the
event that gave rise to the loan in
question, the debtor, the late Jose
A. Villamor, being a friend and a
former classmate, used to borrow
from time to time various sums of
money from the creditor, the late
Canuto O. Borromeo. Then faced
with the need to settle a pressing
obligation with a certain Miller, he
did borrow from the latter sometime

lapse of ten years." It is with such a

background that the words employed
in the instrument of November 29,
1933 should be viewed. There is
nothing implausible in the view that
such language renouncing the
debtor's right to the prescription
established by the Code of Civil
Procedure should be given the

meaning, as noted in the preceding

sentence of the decision of
respondent Court, that the debtor
could be trusted to pay even after the
termination of the ten-year
prescriptive period. For as was also
made clear therein, there had been
since then verbal requests on the part
of the creditor made to the debtor for
the settlement of such a loan. Nor
was the Court of Appeals unaware
that such indeed was within the
contemplation of the parties as shown
by this sentence in its decision:
"Plaintiff did not file any complaint
against the defendant within ten
years from the execution of the
document as there was no property
registered in defendant's name who
furthermore assured him that he
could collect even after the lapse of
ten years."

thrown on them. Obviously, it did not

suffice for the respondent Court of
Appeals. It preferred to reach a
conclusion which for it was
necessitated by the strict letter of the
law untinged by any spirit of good
morals and justice, which should not
be alien to legal norms. Even from
the standpoint of what for some is
strict legalism, the decision arrived at
by the

Court of Appeals calls for

disapproval. It is a fundamental
principle in the interpretation of
contracts that while ordinarily the
literal sense of the words employed
is to be followed, such is not the
case where they "appear to be
contrary to the evident intention of
the contracting parties," which
8

"intention shall prevail." Such a

codal provision has been given full
force and effect since the leading
2. There is much to be said then for
the contention of petitioners that the
reference to the prescriptive period is
susceptible to the construction that
only after the lapse thereof could the
demand be made for the payment of
the obligation. Whatever be the
obscurity occasioned by the words is
illumined when the light arising from
the relationship of close friendship
between the parties as well as the
unsuccessful effort to execute a
mortgage, taken in connection with
the various oral demands made, is

case of Reyes v. Limjap, a 1910

decision. Justice Torres, who
penned the above decision, had
occasion to reiterate such a
principle when he spoke for the
10

Court in De la Vega v. Ballilos

thus: "The contract entered into by
the contracting parties which has
produced between them rights and
obligations is in fact one of
antichresis, for article 1281 of the
Civil Code prescribes among other
things that if the words should

appear to conflict with the evident

intent of the contracting parties, the
intent shall prevail."
Gonzaga,

12

11

In Abella v.

this

contract was a sale on installments,

for such was the evident intention of
the parties in entering into said
13

contract. Only lately in Nielson

and Company v. Lepanto
14

Court through the then Justice

Villamor, gave force to such a codal
provision when he made clear that
the inevitable conclusion arrived at
was "that although in the contract
Exhibit A the usual words 'lease,'
'lessee,' and 'lessor' were
employed, that is no obstacle to
holding, as we do hereby hold, that
said

Consolidated Mining Company,

this Court, with Justice Zaldivar, as
ponente, after stressing the
primordial rule that in the
construction and interpretation of a
document, the intention of the
parties must be sought, went on to
state: "This is the basic rule in the
interpretation of contracts because
all other rules are but ancillary to
the ascertainment of the meaning
intended by the parties. And once
this intention has been ascertained
it becomes an integral part of the
contract as though it had been
originally expressed therein in
15

unequivocal terms ... ." While not

directly in point, what was said by
Justice Labrador in Tumaneng v.
16

Abad is relevant: "There is no

question that the terms of the
contract are not clear on the period
of redemption. But the intent of the
parties thereto is the law between
them, and it must be ascertained
17

and enforced." Nor is it to be

forgotten, following what was first
announced in Velasquez v. Teodoro
18

that "previous, simultaneous and

subsequent acts of the parties are
properly cognizable indicia of their
true intention."

19

There is another fundamental rule

in the interpretation of contracts
specifically referred to in Kasilag v.
Rodriguez,

20

21

as "not less

important" than other principles

which "is to the effect that the
terms, clauses and conditions
contrary to law, morals and public
order should be separated from the
valid and legal contract when such
separation can be made because
they are independent of the valid
contract which expresses the will of
the contracting parties. Manresa,
commenting on article 1255 of the
Civil Code and stating the rule of
separation just mentioned, gives his
views as follows: 'On the
supposition that the various pacts,
clauses, or conditions are valid, no
difficulty is presented; but should
they be void, the question is as to
what extent they may produce the
nullity of the principal obligation.
Under the view that such features of
the obligation are added to it and do
not go to its essence, a criterion
based upon the stability of juridical
relations should tend to consider
the nullity as confined to the clause
or pact suffering therefrom, except
in cases where the latter, by an
established connection or by
manifest intention of the parties, is
inseparable from the principal
obligation, and is a condition,

juridically speaking, of that the

nullity of which it would also
occasion.' ... The same view
prevails in the Anglo-American law
as condensed in the following
words: 'Where an agreement
founded on a legal consideration
contains several promises, or a
promise to do several things, and a
part only of the things to be done
are illegal, the promises which can
be separated, or the promise, so far
as it can be separated, from the
illegality, may be valid. The rule is
that a lawful promise made for a
lawful consideration is not invalid
merely because an unlawful
promise was made at the same
time and for the same
consideration, and this rule applies,
although the invalidity is due to
violation of a statutory provision,
unless the statute expressly or by
necessary implication declares the
entire contract void. ..."

22

Nor is it to be forgotten that as early

as Compania Agricola Ultramar v.
Reyes, 23 decided in 1904, the
then Chief Justice Arellano in a
concurring opinion explicitly
declared: "It is true that contracts
are not what the parties may see fit
to call them, but what they really
are as determined by the principles
of law."

24

Such a doctrine has been

subsequently adhered to since

then. As was
rephrased by Justice Recto in
Aquino v.

25

Deala: "The validity of these

agreements, however, is one thing,
while the juridical qualification of the
contract resulting therefrom is very
26

distinctively another." In a recent

decision, Shell Company of the
Phils., Ltd. vs. Firemen's Insurance
27

Co. of Newark, this court, through

Justice Padilla, reaffirmed the
doctrine thus: "To determine the
nature of a contract courts do not
have or are not bound to rely upon
the name or title given it by the
contracting parties, should there be a
controversy as to what they really
had intended to enter into, but the
way the contracting parties do or
perform their respective obligations,
stipulated or agreed upon may be
shown and inquired into, and should
such performance conflict with the
name or title given the contract by the
parties, the former must prevail over
28

the latter." Is it not rather evident

that since even the denomination of
the entire contract itself is not
conclusively determined by what the
parties call it but by the law, a
stipulation found therein should
likewise be impressed with the
characterization the law places upon
it?

What emerges in the light of all the

principles set forth above is that the
first ten years after November 29,
1933 should not be counted in
determining when the action of
creditor, now represented by
petitioners, could be filed. From the
joint record on appeal, it is
undoubted that the complaint was
filed on January 7, 1953. If the first
ten-year period was to be excluded,
the creditor had until November 29,
1953 to start judicial proceedings.
After deducting the first ten-year
period which expired on November
29, 1943, there was the additional
29

period of still another ten years.

Nor could there be any legal
objection to the complaint by the
creditor Borromeo of January 7,
1953 embodying not merely the
fixing of the period within which the
debtor Villamor was to pay but
likewise the collection of the
amount that until then was not paid.
An action combining both features
did receive the imprimatur of the
approval of this Court. As was
clearly set forth in Tiglao v. The
30

Manila Railroad Company:

"There is something to defendant's
contention that in previous cases
this Court has held that the duration

of the term should be fixed in a

separate action for that express
purpose. But we think the lower
court has given good reasons for
not adhering to technicalities in its

33

justice and equity be not ignored."

This is a principle that dates back to
the earliest years of this Court. The
then Chief

31

desire to do substantial justice."

The justification became even more
apparent in the latter portion of the
opinion of Justice Alex Reyes for
this Court: "We may add that
defendant does not claim that if a
separate action were instituted to
fix the duration of the term of its
obligation, it could present better
proofs than those already adduced
in the present case. Such separate
action would, therefore, be a mere
formality and would serve no
32

purpose other than to delay."

There is no legal obstacle then to
the action for collection filed by the
creditor. Moreover, the judgment of
the lower court, reversed by the
respondent Court of Appeals,
ordering the payment of the amount
due is in accordance with law.

3. There is something more to be

said about the stress in the Tiglao
decision on the sound reasons for not
adhering to technicalities in this
Court's desire to do substantial
justice. The then Justice, now Chief
Justice, Concepcion expressed a
similar thought in emphasizing that in
the determination of the rights of the
contracting parties "the interest of

Justice Bengzon in Arrieta v. Bellos,

34

invoked equity. Mention has been

made of "practical and substantial
35

justice," "[no] sacrifice of the

substantial rights of a litigant in the
altar of sophisticated technicalities
with impairment of the sacred
principles of justice,"
substantial justice"

36

37

"to afford

and "what

38

equity demands." There has

been disapproval when the result
reached is "neither fair, nor
39

equitable." What is to be avoided

is an interpretation that "may work
injustice rather than promote
40

justice." What appears to be

most obvious is that the decision of
respondent Court of Appeals under
review offended most grievously
against the above fundamental
postulate that underlies all systems
of law.

WHEREFORE, the decision of

respondent Court of Appeals of
March 7, 1964 is reversed, thus
giving full force and effect to the
decision of the lower court of

November 15, 1956. With costs

against private respondents.

Concepcion, C.J., Zaldivar, Castro,

Teehankee, Barredo, Makasiar,
Antonio and Esguerra, JJ., concur.

Makalintal, J., is on leave.

[G.R. No. 134241. August 11,

2003]

DAVID REYES (Substituted by

Victoria R. Fabella), petitioner,
vs. JOSE LIM, CHUY CHENG
KENG and HARRISON
LUMBER, INC., respondents.

DECISION

CARPIO, J.:

The Case

This is a petition for review on

certiorari of the Decision1[1] dated
12 May 1998 of the Court of
Appeals in CA-G.R. SP No.
46224. The Court of Appeals

dismissed the petition for

certiorari assailing the Orders
dated 6 March 1997, 3 July 1997
and 3 October 1997 of the
Regional Trial Court of
Paranaque, Branch 2602[2] (trial
court) in Civil Case No. 95-032.

The Facts

On 23 March 1995, petitioner

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

The complaint3[3] alleged that on

7 November 1994, Reyes as
seller and

Lim as buyer entered into a

contract to sell (Contract to Sell)
a parcel of land (Property)
located along F.B. Harrison Street,
Pasay City. Harrison

Lumber occupied the Property as

lessee with a monthly rental of
P35,000. The Contract to Sell
provided for the following terms
and conditions:

1. The total consideration for the

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

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

The balance of EIGHTEEN

MILLION (P18,000,000.00)

PESOS shall be paid on or

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

2. That in the event, the tenants

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

PESOS until the complete

vacation of the premises by the
tenants therein.4[4]

The complaint claimed that

Reyes had informed Harrison
Lumber to vacate the Property
before the end of January 1995.
Reyes also informed Keng5[5]
and Harrison Lumber that if they
failed to vacate by 8 March
1995, he would hold them liable
for the penalty of P400,000 a
month as provided in the
Contract to Sell. The complaint
further alleged that Lim
connived with Harrison Lumber
1995, it had already started
transferring some of its
merchandise to its new business
location in Malabon.7[7]

On 31 May 1995, Lim filed his

Answer8[8] stating that he was
ready and willing to pay the
balance of the purchase price on
or before 8 March

not to vacate the Property until

the P400,000 monthly penalty
would have accumulated and
equaled the unpaid purchase
price of P18,000,000.

On 3 May 1995, Keng and

Harrison Lumber filed their
Answer6[6] denying they connived
with Lim to defraud Reyes. Keng
and Harrison Lumber alleged that
Reyes approved their request for
an extension of time to vacate the
Property due to their difficulty in
finding a new location for their
business. Harrison Lumber
claimed that as of March
1995. Lim requested a meeting
with Reyes through the latters
daughter on the signing of the
Deed of Absolute Sale and the
payment of the balance but Reyes
kept postponing their meeting. On
9 March 1995, Reyes offered to
return the P10 million down
payment to Lim because Reyes
was having problems in removing
the lessee from the Property.

Lim rejected Reyes offer and

proceeded to verify the status of
Reyes title to the Property. Lim
learned that Reyes had already
sold the Property to Line One
Foods Corporation (Line One)
on 1 March 1995 for

P16,782,840. After the

registration of the Deed of
Absolute Sale, the Register of
Deeds issued to Line One TCT
No. 134767 covering the
Property. Lim denied conniving
with Keng and Harrison Lumber
to defraud Reyes.

On 2 November 1995, Reyes

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

In his Amended Answer dated 18

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

On 6 March 1997, Lim requested

in open court that Reyes be
ordered to deposit the P10
million down payment with the
cashier of the Regional Trial
Court of Paraaque. The trial
court granted this motion.

On 25 March 1997, Reyes filed

a Motion to Set Aside the Order
dated 6 March 1997 on the
ground the Order practically
granted the reliefs Lim prayed
for in his Amended Answer.11[11]
The trial court denied Reyes
motion in an Order12[12] dated 3
July 1997. Citing Article 1385 of
the Civil Code, the trial court
ruled that an action for
rescission could prosper only if
the party demanding rescission
can return whatever he may be
obliged to restore should the
court grant the rescission.

Orders of the trial court dated 6

March 1997, 3 July 1997 and 3
October 1997 be set aside for
having been issued with grave
abuse of discretion amounting to
lack of jurisdiction. On 12 May
1998, the Court of Appeals
dismissed the petition for lack of
merit.

The trial court denied Reyes

Motion for Reconsideration in
its Order13[13] dated 3 October
1997. In the same order, the trial
court directed Reyes to deposit
the P10 million down payment
with the Clerk of Court on or
before 30 October 1997.

The Court of Appeals ruled the

trial court could validly issue the
assailed orders in the exercise of
its equity jurisdiction. The court
may grant equitable reliefs to
breathe life and force to
substantive law such as Article
138516[16] of the Civil Code since
the provisional remedies under
the Rules of Court do not apply
to this case.

On 8 December 1997,
Reyes14[14] filed a Petition for
Certiorari15[15] with the Court of
Appeals. Reyes prayed that the

Hence, this petition for review.

The Ruling of the Court of

Appeals

The Court of Appeals held the

assailed orders merely directed
Reyes to deposit the P10 million

to the custody of the trial court

to protect the

interest of Lim who paid the

amount to Reyes as down
payment. This did not mean the
money would be returned
automatically to Lim.

the 1997 Rules on Civil

Procedure.

The Issues

Reyes raises the following

issues:

Whether the Court of Appeals

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

Whether the Court of Appeals

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

The Courts Ruling

Reyes contentions are without

merit.

Reyes points out that deposit is

not among the provisional
remedies enumerated in the 1997
Rules of Civil Procedure. Reyes
stresses the enumeration in the
Rules is exclusive. Not one of
the provisional remedies in

Rules 57 to 6118[18] applies to

this case. Reyes argues that a
court cannot apply equity and
require deposit if the law already
prescribes the specific
provisional remedies which do
not include deposit. Reyes
invokes the principle that equity
is applied only in the absence
of, and never against, statutory
law or x x x judicial rules of
procedure.19[19]

Reyes adds the fact that the

provisional remedies do not
include deposit is a matter of
dura lex sed lex.20[20]

The instant case, however, is

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

Thus, the trial court in the

exercise of its equity jurisdiction
may validly order the deposit of
the P10 million down payment
in court. The purpose of the
exercise of equity jurisdiction in
this case is to prevent unjust
enrichment and to ensure
restitution. Equity jurisdiction
aims to do complete justice in
cases where a court of law is
unable to adapt its judgments to
the special circumstances of a
case because of the inflexibility
of its statutory or legal
jurisdiction.24[24] Equity is the
principle by which substantial
justice may be attained in cases
where the prescribed or
customary forms of ordinary law
are inadequate.25[25]

Reyes is seeking rescission of

the Contract to Sell. In his
amended answer, Lim is also
seeking cancellation of the
Contract to Sell. The trial court
then ordered Reyes to deposit in
court the P10 million down
payment that Lim made under
the Contract to Sell. Reyes
admits receipt of the P10 million
down payment but opposes the
order to deposit the amount in
court. Reyes contends that prior
to a judgment annulling the

million as its owner27[27]

unless the court orders its
preliminary attachment.28[28]

before the balance of P18 million

under the Contract to Sell with
Lim became due on 8 March
1995. On 1 March 1995, Reyes
signed a Deed of Absolute
Sale29[29] in favor of Line One. On
3 March 1995, the Register of
Deeds issued TCT No.
13476730[30] in the name of Line

To subscribe to Reyes contention

will unjustly enrich Reyes at the
expense of Lim. Reyes sold to
Line One the Property even

Contract to Sell, he has the

right to use, possess and
enjoy26[26] the P10

One.31[31] Reyes cannot claim

ownership of the P10 million
down payment because Reyes
had already sold to another buyer
the Property for which Lim made
the down payment. In fact, in his
Comment32[32] dated 20 March
1996, Reyes reiterated his offer to
return to Lim the P10 million
down payment.

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

In Eternal Gardens Memorial

Parks Corp. v. IAC,33[33] this

Court held the plaintiff could not

continue to benefit from the
property or funds in litigation
during the pendency of the suit at
the expense of whomever the
court might ultimately adjudge as
the lawful owner. The Court
declared:

In the case at bar, a careful

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

Under the circumstances, there

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

There is also no plausible or

justifiable reason for Reyes to
object to the deposit of the P10
million down payment in court.
The Contract to Sell can no
longer be enforced because
Reyes himself subsequently
sold the Property to Line One.
Both Reyes and Lim are now
seeking rescission of the
Contract to Sell. Under Article
1385 of the Civil Code,
rescission creates the obligation
to return the things that are the
object of the contract.

Rescission is possible only when

the person demanding rescission
can return whatever he may be
obliged to restore. A court of
equity will not rescind a contract
unless there is restitution, that is,
the parties are restored to the
status quo ante.34[34]

Thus, since Reyes is demanding

to rescind the Contract to Sell,
he cannot refuse to deposit the
P10 million down payment in
court.35[35] Such deposit will
ensure restitution of the P10
million to its rightful owner.
Lim, on the other hand, has
nothing to refund, as he has not
received anything under the
Contract to Sell.36[36]

In Government of the
Philippine Islands v. Wagner
and Cleland Wagner,37[37] the
Court ruled the refund of
amounts received under a
contract is a precondition to the
rescission of the contract. The
Court declared:

The Government, having asked

for rescission, must restore to
the defendants whatever it has
received under the contract. It
will only be just if, as a

condition to rescission, the

Government be required to
refund to the defendants an
amount equal to the purchase
price, plus the sums expended
by them in improving the land.
(Civil Code, art. 1295.)

The principle that no person may unjustly enrich himself at the expense
of another is embodied in Article 2238[38] of the Civil Code. This principle
applies not only to substantive rights but also to procedural remedies.
One condition for invoking this principle is that the aggrieved party has
no other action based on contract, quasi-contract, crime, quasi-delict or
any other provision of law.39[39] Courts can extend this condition to the
hiatus in the Rules of Court where the aggrieved party, during the
pendency of the case, has no other recourse based on the provisional
remedies of the Rules of Court.

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

There is unjust enrichment when a person unjustly retains a benefit to the

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

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

SO ORDERED.

Davide, Jr., C.J., (Chairman), Vitug, Ynares-Santiago, and Azcuna, JJ.,

concur.
G.R. No. 101762 July 6, 1993

VERMEN REALTY
DEVELOPMENT
CORPORATION, petitioner, vs.

THE COURT OF APPEALS

and SENECA HARDWARE
CO., INC., respondents.

Ramon P. Gutierrez for

petitioner. Adriano Velasco for
private respondent.

BIDIN, J.:

Petitioner seeks a review of the

decision of the Court of
Appeals in CA-G.R. CV No.
15730, which set aside the
decision of the Regional Trial
Court of Quezon City, Branch
92 in Civil Case No. Q-45232.
The dispositive portion of the

assailed decision reads

as follows:

WHEREFORE, the
decision a quo is set
aside. As prayed for by
plaintiff-appellant, the
"Offsetting Agreement"
(Exhibit "E" or "2") is
hereby rescinded.
Room 601 of Phase I of
the Vermen Pines
Condominium should
be returned by plaintiffappellant to defendantappellee upon payment
by the latter of the sum
of P330,855.25 to the
former, plus damages
in the sum of P5,000.00
and P50.00 for the
furnishings of Phase I
of Condo (sic) Units
Nos. 601 and 602, and
three (3) day rental of
Room 402 during the
Holy Week of 1982,
respectively. In
addition, defendantappellee is hereby

ordered to pay plaintiffappellant, who was compelled

to litigate and hire the services
of counsel to protect its
interests against defendantappellee's violation of their
Offsetting Agreement, the sum
of P10,000.00 as an award for
attorney's fee (sic) and other
expenses of litigation. The
claim for unrealized profits in a
sum equivalent to 10% to 20%
percent or P522,000.00 not
having been duly proved, is
therefore DENIED. No costs.
(Rollo, p. 31)

On March 2, 1981, petitioner

Vermen Realty and
Development Corporation, as
First Party, and private
respondent Seneca Hardware
Co., Inc., as Second

Party, entered into a contract

denominated as "Offsetting
Agreement". The said
agreement contained the
following stipulations:

PINES
CONDOMINIUM
located at Bakakeng
Road, Baguio

City;

That the SECOND

PARTY is in business of
construction materials
and other hardware
items;

That the SECOND

PARTY desires to buy
from the FIRST PARTY
two (2) residential
condominium units,
studio type, with a total
floor area of 76.22
square meter (sic) more
or less worth
TWO HUNDRED
SEVENTY SIX
THOUSAND
(P276,000.00)

PESOS only;
That the FIRST PARTY is the
owner/developer of VERMEN

That the FIRST PARTY desires

to but from the SECOND

favor of the SECOND

PARTY;

PARTY construction materials

mostly steel bars, electrical
materials and other related
items worth FIVE HUNDRED
FIFTY TWO THOUSAND
(P552,000.00) PESOS only;

That the SECOND

PARTY shall deliver to
the FIRST PARTY said
construction materials
under the agreed price
and conditions stated in
the price quotation
approved by both
parties and made an
integral part of this
document;

That the FIRST PARTY shall

pay the SECOND PARTY TWO
HUNDRED SEVENTY SIX
THOUSAND (P276,000.00)
PESOS in cash upon delivery
of said construction materials
and the other TWO HUNDRED
SEVENTY SIX THOUSAND
(P276,000.00) PESOS shall be
paid in the form of two (2)
residential condominium units,
studio type, with a total floor
area of 76.22 square meter
(sic) more or less also worth
P276,000.00;

That, for every staggered

delivery of construction
materials, fifty percent (50%)
shall be paid by the FIRST
PARTY to the SECOND
PARTY C.O.D. and, fifty
percent (50%) shall be credited
to the said condominium unit in

That the SECOND

PARTY is obliged to
start delivering to the

FIRST PARTY all items

in the purchase order
seven (7) days from
receipt of said purchase
order until such time
that the whole amount
of P552,000.00 is
settled;

That the place of

delivery shall be
Vermen Pines

Condominium at Bakakeng
Road, Baguio City;

That the freight cost of said

materials shall be borne fifty
percent (50%) by the FIRST
PARTY and fifty percent (50%)
by the SECOND PARTY;

PINES
CONDOMINIUM
PHASE II which is the
subject of this contract,
shall deliver to the
SECOND PARTY the
possession of
residential
condominium, Phase I,
Unit Nos. 601 and 602,

That the FIRST PARTY pending

completion of the VERMEN

studio type with a total area of

76.22 square meters or less, worth
P276,000.00;

12. That after the completion of

Vermen Pines Condominium

Phase II, the SECOND PARTY

shall be given by the FIRST

PARTY the first option to transfer

from Phase I to Phase II under the
same price, terms and conditions.
(Rollo, pp. 26-28).

As found by the appellate court and

admitted by both parties, private

respondent had paid petitioner the

amount of P110,151.75, and at the
same time delivered construction
materials worth P219,727.00.
Pending completion of Phase II of
the Vermen Pines Condominiums,
petitioner delivered to private
respondent units 601 and 602 at
Phase I of the Vermen Pines
Condominiums (Rollo, p. 28). In
1982, the petitioner repossessed
unit 602. As a consequence of the
repossession, the officers of the
private respondent corporation had
to rent another unit for their use
when they went to Baguio on April
8, 1982. On May 10, 1982, the
officers of the private respondent
corporation requested for a
clarification of the petitioner's action
of preventing them and their
families from occupying
condominium unit 602.

In its reply dated May 24, 1982, the

petitioner corporation averred that
Room 602 was leased to another
tenant because private respondent
corporation had not paid anything
for purchase of the condominium
unit. Petitioner corporation
demanded payment of P27,848.25
representing the balance of the
purchase price of Room 601.

In 1983, the loan application for the

construction of the Vermen Pines
Condominium Phase II was denied.
Consequently, construction of the
condominium project stopped and
has not been resumed since then.

On June 21, 1985, private

respondent filed a complaint with
the Regional Trial

Court of Quezon City (Branch 92) for

rescission of the Offsetting
Agreement with damages. In said
complaint, private respondent alleged
that petitioner Vermen

Realty Corporation had stopped

issuing purchase orders of
construction materials after April,

1982, without valid reason, thus

resulting in the stoppage of
deliveries of construction materials
on its (Seneca Hardware) part, in
violation of the Offsetting
Agreement.

In its Answer filed on August 15,

1985, petitioner alleged that the
fault lay with private respondent
(plaintiff therein): although petitioner
issued purchase orders, it was
private respondent who could not
deliver the supplies ordered,
alleging that they were out of stock.
(However, during a hearing on
January 28, 1987, the Treasurer of
petitioner corporation, when asked
where the purchase orders were,
alleged that she was going to
produce the same in court, but the
same was never produced (Rollo,
p. 30). Moreover, private
respondent quoted higher prices for
the construction materials which
were available. Thus, petitioner had
to resort to its other suppliers.
Anent the query as to why Unit 602
was leased to

another tenant, petitioner averred

that this was done because private
respondent had not paid anything
for it.

Petitioner now comes before us

with the following assignment of
errors:

I
As of December 16, 1986, private
respondent had paid petitioner
P110,151.75 in cash, made
deliveries of construction materials
worth P219,727.00, leaving a
balance of P27,848.25 representing
the purchase price of unit 601
(Rollo, p. 28). The price of one
condominium unit was
P138,000.00.

After conducting hearings, the trial

court rendered a decision
dismissing the complaint and
ordering the plaintiff (private
respondent in this petition) to pay
defendant (petitioner in this petition)
on its counterclaim in the amount of
P27,848.25 representing the
balance due on the purchase price
of condominium unit 601.

THE RESPONDENT COURT OF

APPEALS ERRED, AND ITS
ERROR IS REVIEWABLE BY THIS
HONORABLE COURT, WHEN IT
SUPPLANTED CONTRARY TO
THE EVIDENCE ON RECORD,
THE TRIAL COURT'S
CONCLUSIONS THAT
PETITIONER DID NOT VIOLATE
THE "OFFSETTING AGREEMENT"
IT ENTERED INTO WITH THE
SENECA
HARDWARE CO., INC. WITH ITS
TOTALLY BASELESS

"PERCEPTION" THAT IT WAS

PETITIONER WHICH
DISCONTINUED TO ISSUE
PURCHASE ORDERS DUE TO

On appeal, respondent court

reversed the trial court's decision as
adverted to above.

THE STOPPAGE OF THE

CONSTRUCTION OF PHASE II OF
THE CONDOMINIUM PROJECT
WHEN THE LOAN ON THE

SAID PROJECT WAS STOPPED.

DID NOT SEND PURCHASE

ORDERS TO PRIVATE

II

THE RESPONDENT COURT OF

APPEALS ERRED, AND ITS
ERROR IS REVIEWABLE BY THIS
HONORABLE COURT,

WHEN IT CONCLUDED THAT IT

WAS PETITIONER WHICH
BREACHED THE "OFFSETTING
AGREEMENT" BECAUSE IT
III

THE RESPONDENT COURT OF

APPEALS ERRED, AND ITS

ERROR IS REVIEWABLE BY THIS

HONORABLE COURT,

WHEN IT CONCLUDED THAT IT

WAS PETITIONER WHICH

RESPONDENT AND
DISCONTINUED THE
CONSTRUCTION OF THE
CONDOMINIUM PROJECT
DESPITE THE FACT THAT THE
EXHIBITS ATTESTING TO THIS
FACT WAS

FORMALLY OFFERED IN
EVIDENCE IN COURT AND
MENTIONED BY IT IN ITS
DECISION.
BREACHED THE "OFFSETTING
AGREEMENT" DESPITE THE
ADMISSION MADE BY PRIVATE
RESPONDENT'S OWN

WITNESS THAT PETITIONER

HAD THE DISCRETION TO
ORDER OR NOT TO ORDER THE
CONSTRUCTION MATERIAL (SIC)
FROM THE FORMER. (Rollo, p. )

The issue presented before the

Court is whether or not the
circumstances of the case warrant

rescission of the Offsetting

Agreement as prayed for by Private
Respondent when he instituted the
case before the trial court.

We rule in favor of private

respondent. There is no
controversy that the provisions of
the Offsetting Agreement are
reciprocal in nature. Reciprocal
obligations are those created or
established at the same time, out of
the same cause, and which results
in a mutual relationship of creditor
and debtor between parties. In
reciprocal obligations, the
performance of one is conditioned
on the simultaneous fulfillment of
the other obligation (Abaya vs.
Standard Vacuum Oil Co., 101 Phil.
1262 [1957]). Under the agreement,
private respondent shall deliver to
petitioner construction materials
worth P552,000.00 under the
conditions set forth in the Offsetting
Agreement. Petitioner's obligation
under the agreement is three-fold:
he shall pay private respondent
P276,000.00 in cash; he shall
deliver possession of units 601 and
602, Phase I, Vermen Pines
Condominiums (with total value of
P276,000.00) to private
respondent; upon completion of
Vermen Pines Condominiums
Phase II, private respondent shall

be given option to transfer to similar

units therein.

Article 1191 of the Civil Code

provides the remedy of rescission in
(more appropriately, the term is
"resolution") in case of reciprocal
obligations, where one of the
obligors fails to comply with that is
incumbent upon him.

The general rule is that rescission of

a contract will not be permitted for a
slight or causal breach, but only for
such substantial and fundamental
breach as would defeat the very
object of the parties in executing the
agreement. The question of whether
a breach of contract is substantial
depends upon the attendant
circumstances (Universal Food Corp.
vs. Court of Appeals, 33 SCRA 1,
[1970]).

In the case at bar, petitioner argues

that it was private respondent who
failed to perform its obligation in the
Offsetting Agreement. It averred that
contrary to the appellate court's
ruling, the mere stoppage of the loan
for the construction of Phase II of the
Vermen Pines Condominiums should
not have had any effect on the
fulfillment of the obligations set forth
in the Offsetting Agreement.

Petitioner moreover stresses that

contrary to private respondent's
averments, purchase orders were
sent, but there was failure to deliver
the materials ordered because they
were allegedly out of stock. Petitioner
points out that, as admitted by private

respondent's witness, petitioner had

the discretion to order or not to
order constructions materials, and
that it was only after petitioner
approved the price, after making a
canvass from other suppliers, that
the latter would issue a purchase
order. Petitioner argues that this
was the agreement, and therefore
the law between the parties, hence,
when no purchase orders were
issued, no provision of the
agreement was violated.

Private respondent, on the other

hand, points out that the subject of
the Offsetting Agreement is Phase
II of the Vermen Pines
Condominiums. It alleges that since
construction of Phase II of the
Vermen Pines Condominiums has
failed to begin (Rollo, p. 104), it has
reason to move for rescission of the
Offsetting Agreement, as it cannot
forever wait for the delivery of the
condominium units to it.

It is evident from the facts of the

case that private respondent did not
fail to fulfill its obligation in the
Offsetting Agreement. The
discontinuance of delivery of
construction materials to petitioner
stemmed from the failure of
petitioner to send purchase orders
to private respondent. The
allegation that petitioner had been
sending purchase orders to private
respondent, which the latter could
not fill, cannot be given credence.
Perhaps in the beginning, it would
send purchase orders to private
respondent (as evidenced by the
purchase orders presented in
court), and the latter would deliver
the construction materials ordered.
However, according to private
respondent, after April, 1982,
petitioner stopped sending
purchase orders. Petitioner failed to
refute this allegation. When
petitioner's witness, Treasurer of
the petitioner corporation, was
asked to produce the purchase
orders in court, the latter promised
to do so, but this was never
complied with.

On the other hand, petitioner would

never able to fulfill its obligation in
allowing private respondent to
exercise the option to transfer from
Phase I to Phase II, as the
construction of Phase II has ceased

and the subject condominium units

will never be available.

The impossibility of fulfillment of the

obligation on the part of petitioner
necessitates resolution of the
contract for indeed, the nonfulfillment of the obligation
aforementioned constitutes
substantial breach of the Offsetting

Agreement. The possibility of

exercising the option of whether or
not to transfer to condominium units
in Phase II was one of the factors
which were considered by private
respondent when it entered into the
G.R. No. 97347 July 6, 1999

agreement. Since the construction

of the Vermen Pines Condominium
Phase II has stopped, petitioner
would be in no position to perform
its obligation to give private
respondent the option to transfer to
Phase II. It would be the height of
injustice to make private
respondent wait for something that
may never come.

WHEREFORE, the petition is

DENIED for lack of merit. Costs
against petitioner.SO ORDERED.

Feliciano, Davide, Jr., Romero and

Melo, JJ., concur.
YNARES-SANTIAGO,
J.:

JAIME G. ONG, petitioner, vs.

THE HONORABLE COURT

OF APPEALS, SPOUSES
MIGUEL K. ROBLES and
ALEJANDRO M. ROBLES,
respondents.

Before us is a petition
for review on certiorari
from the judgment
rendered by the Court
of Appeals which,
except as to the award
of exemplary damages,
affirmed the decision of
the Regional Trial Court
of Lucena City, Branch
60, setting aside the
"Agreement of
Purchase and Sale"

entered into by herein

petitioner and private
respondent spouses in Civil
Case No. 85-85.1wphi1.nt

On May 10, 1983, petitioner

Jaime Ong, on the one hand,
and respondent spouses
Miguel K. Robles and Alejandra
Robles, on the other hand,
executed an "Agreement of
Purchase and Sale" respecting
two parcels of land situated at
Barrio Puri, San Antonio,
Quezon. The terms and
conditions of the contract read:"

1. That for and in consideration

of the agreed purchase price of
TWO MILLION PESOS
(P2,000,000.00), Philippine
currency, the mode and
manner of payment is as
follows:

A. The initial payment of SIX

HUNDRED

THOUSAND PESOS
(P600,000.00) as verbally
agreed by the parties, shall be
broken down as follows:

1. P103,499.91 shall be
paid, and as already paid
by the

BUYER to the
SELLERS on

March 22, 1983, as

stipulated under the
Certification of
undertaking dated March
22,

1983 and covered by a

check of even date.

2. That the sum of

P496,500.09 shall be
paid directly by the

BUYER to the Bank of

Philippine Islands to
answer for the loan of
the SELLERS which as
of March 15, 1983

amounted to P537,310.10, and

for the interest that may
accrued (sic) from March 15,

1983, up to the time said

obligation of the SELLERS with
the said bank has been settled,
provided however that the
amount in excess of

P496,500.09, shall be
chargeable from the time
deposit of the SELLERS with
the aforesaid bank.

B. That the balance of ONE

MILLION FOUR HUNDRED
THOUSAND (P1,400,000.00)
PESOS shall be paid by the
BUYER to the SELLERS in
four (4) equal quarterly
installments of THREE
HUNDRED FIFTY THOUSAND
PESOS (P350,000.00), the first
to be due and payable on June
15, 1983, and every quarter
thereafter, until the whole
amount is fully paid, by these
presents promise to sell to said
BUYER the two (2) parcels of
agricultural land including the
rice mill and the piggery which
are the most notable
improvements thereon, situated

at Barangay Puri, San

Antonio Quezon, . . .

That upon the payment

of the total purchase
price by the

BUYER the SELLERS

bind themselves to
deliver to the former a
good and sufficient
deed of sale and
conveyance for the
described two (2)
parcels of land, free
and clear from all liens
and encumbrances.

That immediately upon

the execution of this
document, the

SELLERS shall deliver,

surrender and transfer
possession of the said
parcels of land
including all the
improvements that may
be found thereon, to the
BUYER, and the latter
shall take over from the
SELLER the

possession, operation, control

and management of the
RICEMILL and PIGGERY
found on the aforesaid parcels
of land.

Barangay Puri, San

Antonio, Quezon unless
another place shall have
been subsequently
designated by both
parties in writing.

That all payments due and

payable under this contract
shall be effected in the
residence of the SELLERS
located at

xxx xxx

On May 15, 1983, petitioner Ong

took possession of the subject
parcels of land together with the
piggery, building, ricemill,
residential house and other
improvements thereon.

To answer for his balance of

P1,400,000.00 petitioner issued
four (4) post-dated Metro Bank
checks payable to respondent
spouses in the amount of
P350,0000.00 each, namely: Check
No. 157708 dated June 15, 1983,
Check No. 157709 dated

Pursuant to the contract they

executed, petitioner paid respondent
2

spouses the sum of P103,499.91

by depositing it with the United
Coconut Planters Bank.
Subsequently, petitioner deposited
sums of money with the Bank of
Philippine

Islands (BPI), in accordance with

their stipulation that petitioner pay
the loan of respondents with BPI.

September 15, 1983, Check No.

157710 dated December 15, 1983
and Check No. 157711 dated
7

March 15, 1984. When presented

for payment, however, the checks
were dishonored due to insufficient
funds. Petitioner promised to
replace the checks but failed to do
so. To make matters worse, out of
the P496,500.00 loan of respondent
spouses with the Bank of the
Philippine Islands, which petitioner,
as per agreement, should have
paid, petitioner only managed to
dole out no more than
P393,679.60. When the bank

threatened to foreclose the

respondent spouses' mortgage,
they sold three transformers of the
rice mill worth P51,411.00 to pay off
their outstanding obligation with
said bank, with the knowledge and
conformity of petitioner.

Petitioner, in return, voluntarily

gave the spouses authority to
9

operate the rice mill. He,

however, continued to be in
possession of the two parcels of
land while private respondents
were forced to use the rice mill for
residential purposes.

On August 2, 1985, respondent

spouses, through counsel, sent
petitioner a demand letter asking for
the return of the properties. Their
demand was left unheeded, so, on
September 2, 1985, they filed with
the Regional Trial Court of

Lucena City, Branch 60, a complaint

for rescission of contract and
recovery of properties with damages.
Later, while the case was still
pending with the trial court, petitioner
introduced major improvements on
the subject properties by constructing
a complete fence made of hollow
blocks and expanding the piggery.

These prompted the respondent

spouses to ask for a writ of
10

preliminary injunction. The trial

court granted the application and
enjoined petitioner from introducing
improvements on the properties
except for repairs.

11

On June 1, 1989 the trial court

rendered a decision, the dispositive
portion of which reads as follows:

IN VIEW OF THE FOREGOING,

judgment is hereby rendered:

a) Ordering that the contract

entered into by plaintiff spouses
Miguel K. Robles and Alejandra M.
Robles and the defendant,

Jaime Ong captioned "Agreement

of Purchase and Sale," marked as
Exhibit "A" set aside;

Ordering defendant, Jaime Ong to

deliver the two (2) parcels of land
which are the subject matter of
Exhibit "A" together with the
improvements thereon to the
spouses Miguel K. Robles and
Alejandro M. Robles;

Ordering plaintiff spouses, Miguel

Robles and Alejandra Robles to
return to Jaime Ong the sum of
P497,179.51;

Ordering defendant Jaime Ong to

pay the plaintiffs the sum of
P100,000.00 as exemplary
damages; and

Ordering defendant Jaime Ong to

pay the plaintiffs spouses Miguel K.
Robles and Alejandra Robles the
sum of P20,000.00 as attorney's
fees and litigation expenses.

The motion of the plaintiff spouses

Miguel K. Roles and Alejandra
Robles for the appointment of
receivership is rendered moot and
academic.

SO ORDERED.

12

From this decision, petitioner

appealed to the Court of Appeals,
which affirmed the decision of the
Regional Trial Court but deleted the
award of exemplary damages. In
affirming the decision of the trial
court, the Court of Appeals noted that
the failure of petitioner to completely
pay the purchase price is a
substantial breach of his obligation
which entitles the private respondents
to rescind their contract under Article
1191 of the New Civil Code. Hence,
the instant petition.

At the outset, it must be stated that

the issues raised by the petitioner are
generally factual in nature and were
already passed upon by the Court of

Appeals and the trial court. Time

and again, we have stated that it is
not the function of the Supreme
Court to assess and evaluate all
over again the evidence,
testimonial and documentary,
adduced by the parties to an
appeal, particularly where, such as
in the case at bench, the findings of
both the trial court and the
appellate court on the matter
coincide. There is no cogent reason

shown that would justify the court

to discard the factual findings of the
two courts below and to
superimpose its own.

13

The only pertinent legal issues raised

which are worthy of discussion are
(1) whether the contract entered into
by the parties may be validly
rescinded under

instead, to the effect that where

specific performance is
available as a remedy,
rescission may not be resorted
to.

A discussion of the aforesaid

articles is in order.

Rescission, as contemplated in
Articles 1380, et seq., of the
New Civil Code, is a remedy
granted by law to the
contracting parties and even to
third persons, to secure the
reparation of damages caused
to them by a contract, even if
this should be valid, by
restoration of things to their
condition at the moment prior to
the celebration of the contract.

Article 1191 of the New Civil Code;

and (2) whether the parties had
novated their original contract as to
the time and manner of payment.

Petitioner contends that Article 1191

of the New Civil Code is not
applicable since he has already paid
respondent spouses a considerable
sum and has therefore substantially
complied with his obligation. He cites
Article 1383
14

It implies a contract,
which even if initially
valid, produces a lesion
or a pecuniary damage
to someone.

15

On the other hand,

Article 1191 of the New
Civil Code refers to
rescission applicable to
reciprocal obligations.
Reciprocal obligations
are those which arise
from the same cause,
and in which each party
is a debtor and a
creditor of the other,
such that the obligation
of one is dependent
upon the obligation of
16

the other. They are to

be performed

simultaneously such that the

performance of one is
conditioned upon the
simultaneous fulfillment of the
other. Rescission of reciprocal
obligations under Article 1191
of the New Civil Code should
be distinguished from
rescission of contracts under
Article 1383. Although both
presuppose contracts validly
entered into and subsisting and
both require mutual restitution
when proper, they are not
entirely identical.

While Article 1191 uses the term

"rescission," the original term
which was used in the old Civil
Code, from which the article was
based, was "resolution.

17

"

Resolution is a principal action

which is based on breach of a
party, while rescission under
Article 1383 is a subsidiary
action limited to cases of
rescission for lesion under
Article 1381 of the New Civil
Code, which expressly
enumerates the following
rescissible contracts:

Those which are entered

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

Those agreed upon in

representation of
absentees, if the latter
suffer the lesion stated
in the preceding
number;

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

Those which refer to

things under litigation if
they have been entered
into by the defendant
without the knowledge
and approval of the
litigants or of competent
judicial authority;

5. All other contracts specially

declared by law to be subject to
rescission.

Obviously, the contract entered

into by the parties in the case
at bar does not fall under any of
those mentioned by Article
1381.

Consequently, Article 1383 is

inapplicable.

May the contract entered into

between the parties, however,
be rescinded based on Article
1191?

A careful reading of the parties'

"Agreement of Purchase and
Sale" shows that it is in the
nature of a contract to sell, as
distinguished from a contract of
sale. In a contract of sale, the
title to the property passes to
the vendee upon the delivery of
the thing sold; while in a
contract to sell, ownership is,
by agreement, reserved in the
vendor and is not to pass to the
vendee until full payment of the
purchase price.

18

In a contract

to sell, the payment of

the purchase price is a
positive suspensive
condition, the failure of
which is not a breach,
casual or serious, but a
situation that prevents
the obligation of the
vendor to convey title
from acquiring an
obligatory force.

19

Respondents in the
case at bar bound
themselves to deliver a
deed of absolute sale
and clean title covering
the two parcels of land
upon full payment by
the buyer of the
purchase price of
P2,000,000.00. This
promise to sell was
subject to the fulfillment
of the suspensive
condition of full
payment of the
purchase price by the
petitioner. Petitioner,
however, failed to
complete payment of
the purchase price. The
non-fulfillment of the
condition of full
payment rendered the
contract to sell
ineffective and without

force and effect. It must be

stressed that the breach
contemplated in Article 1191 of
the New Civil Code is the
obligor's failure to comply with

spouses to convey title

from acquiring an
obligatory force.

20

an obligation. Failure to pay,

in this instance, is not even a
breach but merely an event
which prevents the vendor's
obligation to convey title from

Petitioner insists,
however, that the
contract was novated
as to the manner and
time of payment.

21

acquiring binding force.

Hence, the agreement of the
parties in the case at bench
may be set aside, but not
because of a breach on the
part of petitioner for failure to
complete payment of the
purchase price. Rather, his
failure to do so brought about a
situation which prevented the
obligation of respondent
declared in unequivocal
terms, or that the old and the
new obligations be on every
point incompatible with each
other."

Novation is never
presumed, it must be
proven as a fact either by
express stipulation of the
parties or by implication
derived from an
irreconcilable
incompatibility between the

We are not persuaded.

Article 1292 of the New
Civil Code states that,
"In order that an
obligation may be
extinguished by another
which substitutes the
same, it is imperative
that it be so
old and the new obligation.
22

Petitioner cites the

following instances as proof
that the contract was
novated: the retrieval of the
transformers from
petitioner's custody and
their sale by the
respondents to MERALCO
on the condition that the
proceeds thereof be
accounted for by the
respondents and deducted
from the price of the
contract; the take-over by

the respondents of the

custody and operation of
the rice mill; and the
continuous and regular
withdrawals by respondent
Miguel Robles of
installment sums per
vouchers (Exhs. "8" to "47")
on the condition that these
installments be credited to
petitioner's account and
deducted from the balance
of the purchase price.

Contrary to petitioner's
claim, records show that
the parties never even
intended to novate their
previous agreement. It is
true that petitioner paid
respondents small sums of
money amounting to
P48,680.00, in
contravention of the
manner of payment
stipulated in their contract.
These installments were,
however, objected to by
respondent spouses, and
petitioner replied that these
represented the interest of
the principal amount which
23

he owed them. Records

further show that petitioner
agreed to the sale of
MERALCO transformers by
private respondents to pay

for the balance of their

subsisting loan with the
Bank of Philippine Islands.
Petitioner's letter of
authorization reads:

xxx xxx xxx

Under this authority, it is

mutually understood that
whatever payment received
from MERALCO as payment
to the transfromers will be
considered as partial
payment of the
undersigned's obligation to
Mr. and Mrs. Miguel K.
Robles.

The same will be utilized as

partial payment to existing
loan with the Bank of
Philippine Islands.

It is also mutually
understood that this
payment to the Bank of
Philippine Islands will be
reimbursed to Mr. and Mrs.
Miguel K. Robles by the
undersigned. [Emphasis
supplied]

24

It should be noted that while

it was. agreed that part of the
purchase price in the sum of
P496,500.00 would be
directly

deposited by petitioner to
the Bank of Philippine
Islands to answer for the
loan of respondent
spouses, petitioner only
managed to deposit
P393,679.60. When the
bank threatened to
foreclose the properties,
petitioner apparently could
not even raise the sum
needed to forestall any
action on the part of the
bank. Consequently, he
authorized respondent
spouses to sell the three (3)
transformers. However,
although the parties agreed
to credit the proceeds from
the sale of the transformers
to petitioner's obligation, he
was supposed to reimburse
the same later to
respondent spouses. This
can only mean that there
was never an intention on
the part of either of the
parties to novate
petitioner's manner of
payment.

Petitioner contends that the

parties verbally agreed to
novate the manner of
payment when respondent
spouses proposed to
operate the rice mill on the

condition that they will

account for its earnings.
We find that this is
unsubstantiated by the
evidenced on the record.
The tenor of his letter dated
August 12, 1984 to
respondent spouses, in
fact, shows that petitioner
had a "little
misunderstanding" with
respondent spouses whom
he was evidently trying to
appease by authorizing
them to continue
temporarily with the
operation of the rice mill.
Clearly, while petitioner
might have wanted to
novate the original
agreement as to his
manner of payment, the
records are bereft of
evidence that respondent
spouses willingly agreed to
modify their previous
arrangement.

In order for novation to take

place, the concurrence of
the following requisites is
indispensable: (1) there
must be a previous valid
obligation; (2) there must
be an agreement of the
parties concerned to a new
contract; (3) there must be

the extinguishment of the

old contract; and (4) there
must be the validity of the
25

new contract. The

aforesaid requisites are not
found in the case at bench.
The subsequent acts of the
parties hardly demonstrate
their intent to dissolve the
old obligation as a
consideration for the
emergence of the new one.
We repeat to the point of
triteness, novation is never
presumed, there must be
an express intention to
novate.

As regards the
improvements introduced
by petitioner to the
premises and for which he
claims reimbursement, we
see no reason to depart
from the ruling of the trial
court and the appellate
court that petitioner is a
builder in bad faith. He
introduced the
improvements on the
premises knowing fully well
that he has not paid the
consideration of the
contract in full and over the
vigorous objections of
respondent spouses.
Moreover, petitioner

introduced major
improvements on the
premises even while the

case against him was

pending before the trial
court.

The award of exemplary damages

was correctly deleted by the Court
of Appeals in as much as no moral,
temperate, liquidated or
compensatory damages in addition
to exemplary damages were
awarded.

WHEREFORE, the decision

rendered by the Court of Appeals is
hereby AFFIRMED with the
MODIFICATION that respondent
spouses are ordered to return to
petitioner the sum of P48,680.00 in
addition to the amounts already
awarded. Costs against
petitioner.1wphi1.nt
G.R. No. 126812 November 24,
1998
SO ORDERED.
GOLDENROD, INC., petitioner, vs.
Davide, Jr., C.J., Melo, Kapunan
and Pardo, JJ., concur.
COURT OF APPEALS, PIO
BARRETO & SONS, INC., PIO
BARRETO REALTY
DEVELOPMENT, INC. and
ANTHONY QUE, respondents.

BELLOSILLO, J.:

In the absence of a specific

stipulation, may the seller of real
estate keep the earnest money to
answer for damages in the event
the sale fails due to the fault of the
prospective buyer?

Pio Barreto and Sons, Inc.

(BARRETO & SONS) owned fortythree (43) parcels of registered land
with a total area of 18,500 square
meters located at Carlos

Palanca St., Quiapo, Manila, which

were mortgaged with United
Coconut

Planters Bank (UCPB). In 1988, the

obligation of the corporation with
UCPB remained unpaid making
foreclosure of the mortgage
imminent.

Goldenrod, Inc. (GOLDENROD),

offered to buy the property from
BARRETO & SONS. On 25 May
1988, through its president Sonya
G. Mathay, petitioner wrote
respondent Anthony Que, President
of respondent BARRETO & SONS,
as follows:

Thank you for your reply to our

letter offering to buy your property
in Echague (C. Palanca) Quiapo.

We are happy that you accepted

our offer except the two
amendments concerning the
payment of interest which should be
monthly instead of semi-annually
and the period to remove the
trusses, steel frames etc. which
shall be 180 days instead of 90
days only. Please be advised that
we agree to your amendments.

As to your other query, we prefer

that the lots be reconsolidated back
to its (sic) mother titles.

Enclosed is the earnest money of

P1 million which shall form part of
the purchase price.

Payment of the agreed total

consideration shall be effected in
accordance with our offer as you
have accepted and upon execution
of the necessary documents of sale
to be implemented after the said
reconsolidation of the lots.

Kindly acknowlege receipt of the

earnest money.

When the term of existence of

BARRETO & SONS expired, all its
assets and liabilities including the
property located in Quiapo were
transferred to respondent

Pio Barreto Realty Development, Inc.

(BARRETO REALTY). Petitioner's
offer to buy the property resulted in its
agreement with respondent
BARRETO REALTY that petitioner
would pay the following amounts: (a)
P24.5 million representing the
outstanding obligations of BARRETO
REALTY with UCPB on 30 June
1988, the deadline set by the bank for

reconsolidation of the titles was made

pursuant to the request of petitioner
in its letter to private respondents on
25 May 1988. Respondent

payment; and, (b) P20 million which

was the balance of the purchase
price of the property to be paid in
installments within a

3-year period with interes at 18%

per annum.

Petitioner did not pay UCPB the

P24.5 million loan obligation of
BARRETO

REALTY on the deadline set for

payment; instead, it asked for an
extension of one (1) month or up to
31 July 1988 to settle the obligation,
which the bank granted. On 31 July
1988, petitioner requested another
extension of sixty (60) days to pay
the loan. This time bank demurred.

In the meantime BARRETO REALTY

was able to cause the reconsolidation
of the forty-three (43) titles covering
the property subject of the purchase
into two

(2) titles covering Lots 1 and 2,

which were issued on 4 August
1988. The
BARRETO REALTY allegedly
incurred expenses for the
reconsolidation amounting to
P250,000.00.

On 25 August 1988 petitioner

sought reconsideration of the denial
by the bank of its request for
extension of sixty (60) days by
asking for a shorter period of thirty
(30) days. This was again denied
by UCPB.

On 30 August 1988 Alicia P.

Logarta, President of Logarta
Realty and Development
Corporation (LOGARTA REALTY),
which acted as agent and broker of
petitioner, wrote private respondent
Anthony Que informing him on
behalf of petitioner that it could not
go through with the purchase of the
property due to circumstances
beyond its fault, i.e., the denial by
UCPB of its request for extension of
time to pay the obligation. In the
same letter, Logarta also demanded
the refund of the earnest money of
P1 million which petitioner gave to
respondent BARRETO REALTY.

On 31 August 1988 respondent

BARRETTO REALTY sold to
Asiaworld Trade Center Phils., Inc.
(ASIAWORLD), Lot 2, one of the
two (2) consolidated lots, for the
price of P23 million. On 13 October
1988 respondent BARRETTO
REALTY executed a deed

transferring by way of "dacion" the

property reconsolidated as Lot 1 in
favor of UCPB, which in turn sold
the property to ASIAWORLD for
P24 million.

On 12 December 1988 Logarta again

wrote respondent Que demanding
the return of the earnest money to
GOLDENROD. On 7 February 1989
petitioner through its lawyer reiterated
its demand, but the same remained
unheeded by private respondents.
This prompted petitioner to file a
complaint with the Regional Trial
Court of Manila against private
respondents for the return of the
amount of P1 million and the payment
of damages including lost interests or
profits. In their answer, private
respondents contended that it was
the agreement of the parties that the
earnest money of P1 million would be
forfeited to answer for losses and
damages that might be suffered by
private respondents in case of failure
by petitioner to comply with the terms
of their purchase agreement.

On 15 March 1991 the trial court

1

rendered a decision ordering

private respondents jointly and
severally to pay petitioner
P1,000.000.00 with legal interest
from 9 February 1989 until fully
paid, P50,000.00 representing

unrealized profits and P10,000.00

as attorney's fees. The trial court
found that there was no written
agreement between the parties
concerning forfeiture of the earnest
money if the sale did not push
through. It further declared that the
earnest money given by petitioner
to respondent BARRETO REALTY
was intended to form part of the
purchase price; thus, the refusal of
the latter to return the money when
the sale was not consummated
violated Arts. 22 and 23 of the Civil
Code against unjust enrichment.

Obviously dissatisfied with the

decision of the trial court, private
respondents appealed to the Court
of Appeals which reversed the trial
court and ordered the dismissal of
the complaint; hence, this petition.

Petitioner alleges that the Court of

Appeals erred in disregarding the
finding of the trial court that the
earnest money given by petitioner
to respondent BARRETTO REALTY
should be returned to the former.
The absence of an express
stipulation that the same shall be
forfeited in favor of the seller in
case the buyer fails to comply with
his obligation is compelling. It
argues that the forfeiture of the
money in favor of respondent
BARRETTO REALTY would
amount to unjust enrichment at the
expense of petitioner.

We sustain petitioner. Under Art.

1482 of the Civil Code, whenever
earnest money is given in a
contract of sale, it shall be
considered as part of the purchase
price and as proof of the perfection
of the contract. Petitioner clearly
stated without any objection from
private respondents that the
earnest money was intended to
form part of the purchase price. It

was an advance payment which

must be deducted from the total
price. Hence, the parties could not
have intended that the earnest
money or advance payment would
be forfeited when the buyer should
fail to pay the balance of the price,
especially in the absence of a clear
and express agreement thereon. By
reason oi its failure to make
payment petitioner, through its
agent, informed private
respondents that it would no longer
push through with the sale. In other
words, petitioner resorted to
extrajudicial rescission of its
agreement with private
respondents.

validity of the rescinding party's

claim.

Private respondents did not

interpose any objection to the
rescission by petitioner of the
agreement. As found by the Court
of Appeals, private respondent
BARRETTO REALTY even sold Lot
2 of the subject consolidated lots to
another buyer, ASIAWORLD, one
day after its President Anthony Que
received the broker's letter
rescinding tne sale. Subsequently,
on 13 October
1988 respondent BARRETO
REALTY also conveyed ownership
over Lot 1 to

In University of the Philippines v. de

2

los Angeles, the right to rescind

contracts is not absolute and is
subject to scrutiny and review by
the proper court. We held further, in
the more recent case of Adelfa
Properties, Inc. v. Court of Appeals,
3

that rescission of reciprocal

contracts may be extrajudicially
rescinded unless successfully
impugned in court. If the party does
not oppose the declaration of
rescission of the other party,
specifying the grounds therefor, and
it fails to reply or protest against it,
its silence thereon suggests an
admission of the veracity and

UCPB which, in turn, sold the same

to ASIAWORLD.

Art. 1385 of the Civil Code provides

that rescission creates the obligation
to return the things which were the
object of the contract together with
their fruits and interest. The vendor is
therefore obliged to return the
purchase price paid to him by the
4

buyer if the latter rescinds the sale,

or when the transaction was called off
and the subject property had already
been sold to a third person, as what

obtained in this case. Therefore, by

virtue of the extrajudicial rescission of

the contract to sell by petitioner without opposition from private respondents who, in
turn, sold the property to other persons, private respondent BARRETTO

REALTY, as the vendor, had the obligation to return the earnest money of

P1000,000.00 plus legal interest from the date it received notice of rescission
from petitioner, i.e., 30 August 1988, up to the date of the return or payment. It
would be most inequitable if resondent BARRETTO REALTY would be allowed
to retain petitioner's payment of P1,000,000.00 and at the same time
appropriate the proceeds of the second sale made to another.

WHEREFORE, the Petition is GRANTED. The decision of the Court of Appeals

is REVERSED and SET ASIDE. Private respondent Pio Barretto Realty
Development, Inc. (BARRETTO REALTY), its successors and assigns are
ordered to return to petitioner Goldenrod, Inc. (GOLDENROD), the amount of
P1,000,000.00 with legal interest thereon from 30 August 1988, the date of
notice of extrajudicial rescission, until the amount is fully paid, with costs against
private respondents.

SO ORDERED.

Davide, Jr., Vitug, Panganiban and Quisumbing, JJ., concur.

[G.R. No. 125485. September 13,
2004]

RESTITUTA LEONARDO, assisted

by JOSE T. RAMOS, petitioners, vs.
COURT OF APPEALS, and

TEODORO SEBASTIAN, VICENTE

SEBASTIAN, CORAZON
SEBASTIAN, assisted by ANDRES
MARCELO; PEDAD SEBASTIAN,
HEIRS OF EDUVIGIS SEBASTIAN,
namely: EDUARDO S. TENORLAS,
ABELARDO J. TENORLAS, ADELA
S. and SOLEDAD S. TENORLAS,

represented by EDUARDO S.
TENORLAS, and HEIRS OF
DOMINADOR, namely: NAPOLEON
SEBASTIAN, RUPERTO
SEBASTIAN, ADORACION
SEBASTIAN, PRISCILLA
SEBASTIAN, LITA SEBASTIAN,
TITA SEBASTIAN and GLORIA
SEBASTIAN, represented by
NAPOLEON SEBASTIAN; EVELYN
SEBASTIAN; AURORA
SEBASTIAN; and JULIETA
SEBASTIAN, respondents.

DECISION

CORONA, J.:

This is a petition for review under Rule

45 of the Rules of Court seeking to
reverse and set aside the decision[1] of
the Court of Appeals which in turn
affirmed the judgment[2] of Branch
57, Regional Trial Court (RTC) of San
Carlos City, dismissing for lack of
cause of action the complaint filed by
petitioner against private respondents
for declaration of nullity of the
extrajudicial settlement of the estate of
Jose Sebastian and Tomasina Paul.

Petitioner Restituta Leonardo is the only

legitimate child of the late spouses
Tomasina Paul and Balbino Leonardo.
Private respondents Teodoro, Victor,
Corazon, Piedad, as well as the late
Eduvigis and Dominador, all surnamed
Sebastian, are the illegitimate children of
Tomasina with Jose Sebastian after she
separated from Balbino Leonardo.

In an action to declare the nullity of the

extrajudicial settlement of the estate of
Tomasina Paul and Jose Sebastian before
Branch 57, RTC of San Carlos City,
Pangasinan, petitioner alleged that, on
June 24, 1988, at around 5:00 p.m.,
private respondent Corazon Sebastian
and her niece Julieta Sebastian, and a
certain Bitang, came to petitioners house
to persuade her to sign a deed of
extrajudicial partition of the estate of
Tomasina Paul and Jose Sebastian.
Before signing the document, petitioner
allegedly insisted that they wait for her
husband Jose Ramos so he could
translate the document which was written
in English. Petitioner, however,
proceeded to sign the document even
without her husband and without reading
the document, on the assurance of private
respondent Corazon Sebastian that
petitioners share as a legitimate daughter
of Tomasina Paul was provided for in the
extrajudicial partition. Petitioner then
asked private respondent Corazon and
her companions to wait for her husband
so he could read the document. When
petitioners husband arrived, however,
private respondent

Corazon and her companions had left

without leaving a copy of the
document. It was only when petitioner
hired a lawyer that they were able to
secure a copy and read the contents
thereof.

Petitioner refuted[3] private

respondents claim that they were the
legitimate children and sole heirs of
Jose Sebastian and Tomasina Paul.
Despite the (de facto) separation of
petitioners father Balbino Leonardo
and Tomasina Paul, the latter remained
the lawful wife of Balbino. Petitioner
maintained that no joint settlement of
the estate of Jose Sebastian and
Tomasina Paul could be effected since
what existed between them was coownership, not conjugal partnership.
They were never married to each other.
The extrajudicial partition was
therefore unlawful and illegal.

Petitioner also claimed that her consent

was vitiated because she was deceived
into signing the extrajudicial
settlement. She further denied having
appeared before Judge Juan Austria of
the Municipal Trial Court (MTC) of
Urbiztondo, Pangasinan on July 27,
1988 to acknowledge the execution of
the extrajudicial partition.

Private respondents, in their answer

with counterclaim,[4] raised the
defense of lack of cause of action.
They insisted that the document in
question was valid and binding
between the parties. According to
them, on July 27, 1988, they personally
appeared before Judge Austria of the
MTC of Urbiztondo, who read and
explained the contents of the document
which all of them, including petitioner,
voluntarily signed.

Private respondents contended that

their declaration that they were
legitimate children of Jose Sebastian
and Tomasina Paul did not affect the
validity of the extrajudicial partition.
Petitioners act of signing the
document estopped her to deny or
question its validity. They moreover
averred that the action filed by
petitioner was incompatible with her
complaint. Considering that petitioner
claimed vitiation of consent, the proper
action was annulment and not
declaration of nullity of the instrument.

On July 27, 1989, petitioner filed an

amended complaint[5] to include parties
to the extrajudicial partition who were
not named as defendants in the original
complaint.

During the August 23, 1990 pre-trial

conference,[6] no amicable settlement
was reached and the parties agreed that
the only issue to be resolved was
whether petitioners consent to the
extrajudicial partition was voluntarily
given.

In a decision dated February 22, 1993,

the RTC of San Carlos City,
Pangasinan rendered a decision[7]
dismissing the complaint as well as the
counterclaim. The court a quo ruled
that the element of duress or fraud that
vitiates consent was not established
and that the proper action was the
The sole issue in this case is whether
the consent given by petitioner to the
extrajudicial settlement of estate was
given voluntarily.

We hold that it was not.

The essence of consent is the

agreement of the parties on the terms
of the contract, the acceptance by one
of the offer made by the other. It is the
concurrence of the minds of the parties
on the object and the cause which
constitutes the contract.[9] The area of
agreement must extend to all points

reformation of the instrument, not the

declaration of nullity of the
extrajudicial settlement of estate. By
way of obiter dictum, the trial court
stated that, being a legitimate child,
petitioner was entitled to one-half (or
19,282.5 sq.m.) of Tomasina Pauls
estate as her legitime. The 7,671.75
square meters allotted to her in the
assailed extrajudicial partition was
therefore less than her correct share as
provided by law.

On appeal, the Court of Appeals

affirmed the judgment of the trial court
in its May 23, 1996 decision.[8] Hence,
this petition for review on certiorari
under Rule 45.
that the parties deem material or there
is no consent at all.[10]

To be valid, consent must meet the

following requisites: (a) it should be
intelligent, or with an exact notion of
the matter to which it refers; (b) it
should be free and (c) it should be
spontaneous. Intelligence in consent is
vitiated by error; freedom by violence,
intimidation or undue influence; and
spontaneity by fraud.[11]

In determining the effect of an alleged

error, the courts must consider both the

objective and subjective aspects of the

case which is the intellectual capacity
of the person who committed the
mistake.[12]

Mistake, on the other hand, in order to

invalidate consent should refer to the
substance of the thing which is the
object of the contract, or to those
conditions which have principally
moved one or both parties to enter into
the contract.[13]

According to the late civil law

authority, Arturo M. Tolentino, the
(old) rule that a party is presumed to
know the import of a document to
which he affixes his signature and is
bound thereby, has been altered by Art.
1332 of the Civil Code. The provision
states that [w]hen one of the parties is
unable to read, or if the contract is in a
language not understood by him, and
mistake or fraud is alleged, the person
enforcing the contract must show that
the terms thereof have been fully
explained to the former.

Article 1332 was a provision taken

from american law, necessitated by the
fact that there continues to be a fair
number of people in this country
without the benefit of a good education
or documents have been written in

English or Spanish.[14] The provision

was intended to protect a party to a
contract disadvantaged by illiteracy,
ignorance, mental weakness or some
other handicap. It contemplates a
situation wherein a contract is entered
into but the consent of one of the
contracting parties is vitiated by
mistake or fraud committed by the
other.[15]

Thus, in case one of the parties to a

contract is unable to read and fraud is
alleged, the person enforcing the
contract must show that the terms
thereof have been fully explained to
the former.[16] Where a party is unable
to read, and he expressly pleads in his
reply that he signed the voucher in
question without knowing (its)
contents which have not been
explained to him, this plea is
tantamount to one of mistake or fraud
in the execution of the voucher or
receipt in question and the burden is
shifted to the other party to show that
the former fully understood the
contents of the document; and if he

fails to prove this, the presumption of

mistake (if not fraud) stands unrebutted
and controlling.[17]

Contracts where consent is given by

mistake or because of violence,
intimidation, undue influence or fraud
are voidable.[18] These circumstances
are defects of the will, the existence of
which impairs the freedom,
intelligence, spontaneity and
voluntariness of the party in giving
consent to the agreement. In
determining whether consent is vitiated
by any of the circumstances mentioned
in Art. 1330 of the Civil Code, courts
are given a wide latitude in weighing
the facts or circumstances in a given
case and in deciding in favor of what
they believe actually occurred,
considering the age, physical infirmity,
intelligence, relationship and the
conduct of the parties at the time of
making the contract and subsequent
thereto, irrespective of whether the
contract is in a public or private
writing.[19]

Although under Art. 1332 there exists a

presumption of mistake or error
accorded by the law to those who have
not had the benefit of a good
education, one who alleges any defect
or the lack of a valid consent to a
contract must establish the same by
full, clear and convincing evidence, not

merely by preponderance of evidence.

[20] Hence, even as the burden of
proof shifts to the defendants to rebut
the presumption of mistake, the
plaintiff who alleges such mistake (or
fraud) must show that his personal
circumstances warrant the application
of Art. 1332.

In this case, the presumption of

mistake or error on the part of
petitioner was not sufficiently rebutted
by private respondents. Private
respondents failed to offer any
evidence to prove that the extrajudicial
settlement of estate was explained in a
language known to the petitioner, i.e.
the Pangasinan dialect. Clearly,
petitioner, who only finished Grade 3,
was not in a position to give her free,
voluntary and spontaneous consent
without having the document, which
was in English, explained to her in the
Pangasinan dialect. She stated in open
court that she did not understand
English. Her testimony, translated into
English, was as follows:

Q: While you were there is your house

at barangay Angatel, Urbiztondo,
Pangasinan, what happened?

On June 24, 1988, I was in our house

because I got sick, sir.

Q: What happened?

Q: What did you do?

A: When the time was about 5:00

oclock, I was awaken by my daughterin-law, Rita Ramos, and told me that
my half sister Corazon would like to
tell us something, sir.

I let them come in, sir.

Q: Did they come in?

Yes, sir.
Q: Did they tell you their purpose?
Q: Who was the companion of your
half sister Corazon Sebastian when she
arrived in your house?

Julita Sebastian and her daughter

Bitang, sir.

Q: And who is this Julita Sebastian to

you?

A: I asked their purpose in coming to

our house and they told me, I came
here because I have a partition
executed so that the share of each one
of us will be given, she said sir.

Q: Did you see that document?

Yes, sir.
She is my niece, sir.
ATTY. L. TULAGAN
Q: And then when they got inside the
house, what happened?
Q: Did you read the document?

I asked them their purpose, sir.

A: No, sir because I was waiting for

my husband to have that document
read or translated to me because I
could not understand, sir.

Q: Did you sign immediately?

A: Yes, sir, because according to her,

all my shares were embodied in that
document as a legal daughter.[21]

Q: What could you not understand?

I can not understand English, sir.

Q: But anyway, can you read?

Yes, sir in Pangasinan.

Q: Now, that document which

according to you was brought by your
half sister Corazon Sebastian, what
happened to that document?

Petitioners wish to wait for her

husband, Jose T. Ramos, to explain to
her the contents of the document in the
Pangasinan dialect was a reasonable
and prudent act that showed her
uncertainty over what was written. Due
to her limited educational attainment,
she could not understand the document
in English. She wanted to seek
assistance from her husband who was
then out of the house. However, due to
the misrepresentation, deception and
undue pressure of her half-sister
Corazon Sebastian, petitioner signed
the document. Corazon assured
petitioner that she would receive her
legitimate share in the estate of their
late mother.

Corazon Sebastian request(ed) me to

sign, sir.
Later on, when petitioners husband
examined the extrajudicial partition
agreement, he found out that petitioner
was deprived of her full legitime. Under
the law, petitioners share should have
been one-half of her mothers estate,
comprising a total area of

19,282.50 square meters. Under the

defective extrajudicial settlement of
estate, however, petitioner was to
receive only 7,671.75 square meters.
This was a substantial mistake clearly
prejudicial to the substantive interests
of petitioner in her mothers estate.
There is no doubt that, given her lack
of education, petitioner is protected by
Art. 1332 of the Civil Code. There is
reason to believe that, had the
provisions of the extrajudicial
agreement been explained to her in the
Pangasinan dialect, she would not have
consented to the significant and
unreasonable diminution of her rights.

MTC Judge Austria, the officer who

notarized the extrajudicial settlement,
stated that he explained the contents to
all the parties concerned. Granting
arguendo, however, that Judge Austria
did indeed explain the provisions of the
agreement to them, the records do not
reflect that he explained it to petitioner
in a language or dialect known to her.
Judge Austria never stated in his
testimony before the court a quo what
language or dialect he used in
explaining the contents of the
document to the parties.[22]

Significantly, he was not even certain

if the parties to the agreement were
present during the notarization of the
document:

ATTY. TULAGAN

Q: Reflected upon all the pages of this

Exhibit 1 are numerous signatures,
two of whom belongs (sic) to Piedad
Paul Sebastian and Eduardo Sebastian
Tenorlas.

ATTY. D. TULAGAN

(continuing)

The Philippines on July, 1989, will you

please educate us now Judge Austria
on this document?

ATTY. O. DE GUZMAN

That will be improper, your Honor.

COURT

What is the question, you repeat the

question.

INTERPRETER:

ATTY. O. DE GUZMAN:

Reflected upon all the pages of this

Exhibit 1 are numerous signatures, two
of whom belongs (sic) to Piedad Paul
Sebastian and Eduardo Sebastian
Tenorlas, in your just concluded
testimony, you said that everyone of
them appeared with you, we have here a
documented evidence coming from the
Department of Justice, Bureau of
Immigration and Deportation, Manila,
certifying that Piedad Paul Sebastian and
Eduardo Sebastian Tenorlas did not
arrive in the Philippines or departed from
the Philippines on July, 1998, will you
please educate us now Judge Austria on
this document?

But not a particular date, for the record.

ATTY. L. TULAGAN:

For the whole month of July, no

departure and no arrival. This is a
certificate from the Bureau of
Immigration, Manila. I do not know
about this, as a matter of fact, I do not
even know this person personally

WITNESS:
ATTY. O. DE GUZMAN:
Somebody that kind of name appeared
before me.
Your Honor please, before the witness
answer, may we examine the
certification first and may we state for
the record that the month of July, 1998
does not specify any date.

ATTY. L. TULAGAN:

July.

ATTY. L. TULAGAN:

Q: Since you do not know everybody

from Urbiztondo, Pangasinan it is
possible that another person appeared
and signed for that name?

Yes, possible.[23]

Therefore, the presumption of mistake

under Article 1332 is controlling,
having remained unrebutted by private
respondents. The evidence proving that
the document was not fully explained
to petitioner in a language known to
her, given her low educational
attainment, remained uncontradicted by
private respondents. We find that, in
the light of the circumstances presented
by the testimonies of the witnesses for
both parties, the consent of petitioner
was invalidated by a substantial
mistake or error, rendering the
agreement voidable. The extrajudicial
partition between private respondents
and petitioner should therefore be
annulled and set aside on the ground of
mistake.

In Rural Bank of Caloocan, Inc. v. Court

of Appeals,[24] we ruled that a contract
may be annulled on the ground of
vitiated consent, even if the act
complained of is committed by a third
party without the connivance or
complicity of one of the contracting
parties. We found that a substantial
mistake arose from the employment of
fraud or misrepresentation. The plaintiff
in that case was a 70-year-old unschooled
and unlettered woman who signed an
unauthorized loan obtained by a third
party on her behalf. The Court annulled

the contract due to a substantial mistake

which invalidated her consent.

By the same reasoning, if it is one of

the contracting parties who commits
the fraud or misrepresentation, such
contract may all the more be annulled
due to substantial mistake.

In Remalante v. Tibe,[25] this Court

ruled that misrepresentation to an
illiterate woman who did not know
how to read and write, nor understand
English, is fraudulent. Thus, the deed
of sale was considered vitiated with
substantial error and fraud. This Court
further held:[26]

Since it has been established by

uncontradicted evidence that the
plaintiff is practically unschooled and
illiterate, not knowing how to read,
write and understand the English
language in which Exhibit 22 was
drafted, it would have been incumbent
upon the defendant to show that the
terms there of have been fully
explained to the plaintiff. The evidence
is entirely lacking at this point, and the
lack of it is fatal to the cause of the
defendant for his failure to discharge
the burden of proof.

Generally, the remedy of appeal by

certiorari under Rule 45 of the Rules of
Court contemplates only questions of
law and not issues of fact.[27] This
rule, however, is inapplicable in cases
such as the one at bar where the factual
findings complained of are absolutely
devoid of support in the records or the
assailed judgment of the appellate
court is based on a misapprehension of

facts.[28] Thus, this case is an

exception to the general rule on the
conclusiveness of facts, the evidence
pointing to no other conclusion but the
existence of vitiated consent, given the
diminished intellectual capacity of the
petitioner and the misrepresentation of
private respondent Corazon Sebastian
on the contents of the extrajudicial
partition.

Private respondents also maintain that petitioner has no cause of action since the remedy that
should be pursued is an action for annulment and not for declaration of nullity. Private
respondents therefore pray for the dismissal of this petition on the ground of lack of cause of
action.

Before ruling on this procedural matter, a distinction between an action for annulment and one for
declaration of nullity of an agreement is called for.

An action for annulment of contract is one filed where consent is vitiated by lack of legal capacity
of one of the contracting parties, or by mistake, violence, intimidation, undue influence or fraud.
[29] By its very nature, annulment contemplates a contract which is voidable, that is, valid until
annulled. Such contract is binding on all the contracting parties until annulled and set aside by a
court of law. It may be ratified. An action for annulment of contract has a four-year prescriptive
period.[30]

On the other hand, an action for declaration of nullity of contract presupposes a void contract or
one where all of the requisites prescribed by law for contracts are present but the cause, object or
purpose is contrary to law, morals, good customs, public order or public policy, prohibited by law
or declared by law to be void.[31] Such contract as a rule produces no legal and binding effect
even if it is not set aside by direct legal action. Neither may it be ratified. An action for the
declaration of nullity of contract is imprescriptible.[32]

The petitioners pleading was for the declaration of nullity of the extrajudicial settlement of estate.
However, this did not necessarily mean the automatic dismissal of the case on the ground of lack
of cause of action.

Granting that the action filed by petitioner was incompatible with her allegations, it is not the
caption of the pleading but the allegations that determine the nature of the action.[33] The court
should grant the relief warranted by the allegations and the proof even if no such relief is prayed
for.[34] In this case, the allegations in the pleading and the evidence adduced point to no other
remedy but to annul the extrajudicial settlement of estate because of vitiated consent.

WHEREFORE, the decision of the Court of Appeals dated 23 May 1996 is hereby REVERSED.
The extrajudicial settlement of the estate of Tomasina Paul and Jose Sebastian is hereby
ANNULLED and SET ASIDE. No cost.

SO ORDERED.

Panganiban, (Chairman), and Sandoval-Gutierrez, JJ., concur.

Carpio-Morales, J., on official leave.

G.R. No. 108245 November 25, 1994

MANOLO P. SAMSON, petitioner, vs.

COURT OF APPEALS, SANTOS & SONS, INC.,

and ANGEL SANTOS, respondents.

PUNO, J.:

Petitioner MANOLO P. SAMSON prays for the

reversal of the Decision of the Court of Appeals,
dated

Clara Dumandan-Singh for petitioner.

Paterno A. Catacutan for private respondents.

modifying the decision

of the Regional Trial Court of Pasig,
Branch 157, dated November 29, 1990,
and absolving private respondent Angel
November 27, 1992,

Santos from liability for the damages

sustained by petitioner.
5

The antecedent facts, as borne by the

records, are as follows:

31, 1984. Private respondent also

continued to occupy the leased
premises beyond the extended term.

On February 5, 1985, private respondent

The subject matter of this case is a

commercial unit at the Madrigal
Building, located at Claro M. Recto
Avenue, Sta. Cruz, Manila. The building
is owned by Susana Realty Corporation
and the subject premises was leased to
private respondent Angel Santos. The
lessee's haberdashery store, Santos &
Sons, Inc., occupied the premises for
almost twenty (20) years on a yearly
2

basis. Thus, the lease contract in

force between the parties in the year
1983 provided that the term of the lease
shall be one (1) year, starting on August
1, 1983 until July 31, 1984.

On June 28, 1984, the lessor Susana

Realty Corporation, through its
representative Mr. Jes Gal R. Sarmiento,
Jr., informed respondents that the lease
contract which was to expire on July 31,
1984 would not be renewed.

Nonetheless, private respondent's

lease contract was extended until
December

received a letter from the lessor, through

its Real Estate Accountant Jane F.
Bartolome, informing him of the increase
in rentals, retroactive to January 1985,
pending renewal of his contract until the
arrival of Ms. Ma. Rosa Madrigal (one of
the owners of Susana Realty).

Four days later or on February 9, 1985,

petitioner Manolo Samson saw private
respondent in the latter's house and
offered to buy the store of Santos &
Sons and his right to lease the subject
7

premises. Petitioner was advised to

return after a week.

On February 15, 1985, petitioner

returned to private respondent's house
to confirm his offer. On said occasion,
private respondent presented petitioner
with a letter containing his counter
proposal, thus:

MANOLO SAMSON

Marikina, Metro Manila

Petitioner affixed his signature on the

letter-proposal signifying his
8

Sir:

In line with our negotiation to sell our

rights in the Madrigal building at Recto,
Rizal Avenue, I propose the following:

The lease contract between Santos and

Sons, Inc. and Madrigal was impliedly
renewed. It will be formally renewed
this monthly (sic) when Tanya Madrigal
arrives.

To avoid breach of contract with

Madrigal, I suggest that you acquire all
our shares in Santos and Sons, Inc.

I will answer and pay all obligations of

Santos and Sons, Inc. as of February
28, 1985.

Very truly yours,

Angel C. Santos

acceptance. They agreed that the

consideration for the sale of the store
and leasehold right of Santos & Sons,
Inc. shall be P300,000.00.

On February 20, 1985, petitioner paid

P150,000.00 to private respondent
representing the value of existing
improvements in the Santos & Sons
store. The parties agreed that the
balance of P150,000.00 shall be paid
upon the formal renewal of the lease
contract between private respondent
and Susana Realty. It was also a
condition precedent to the transfer of
the leasehold right of private respondent
to petitioner.

In March 1985, petitioner began to

occupy the Santos & Sons store. He
utilized the store for the sale of his own
goods.

10

All went well for a few months. In July

1985, however, petitioner received a
notice from Susana Realty, addressed
to Santos & Sons, Inc., directing the
latter to vacate the leased premises on
or before July 15, 1985.

11

Private

respondent failed to renew his lease

over the premises and petitioner was

forced to vacate the same on July 16,

1985.

Petitioner then filed an action for damages

against private respondent. He imputed
fraud and bad faith against private
respondent when the latter stated in his
letter-proposal that his lease contract with
Susana Realty has been impliedly
renewed. Petitioner claimed that this
misrepresentation induced him to
purchase the store of Santos & Sons and
the leasehold right of private respondent.

rendered in favor of plaintiff Manolo P.

Samson and against defendants Santos
and Sons, Inc., and Angel C. Santos,
ordering the said defendants to pay
jointly and severally unto the plaintiff:

In defense, respondent alleged that their

agreement was to the effect that the
consideration for the sale was
P300,000.00, broken down as follows:
P150,000.00 shall be for the
improvements in the store, and the
balance of P150,000.00 shall be for the
sale of the leasehold right of Santos &
Sons over the subject premises. The
balance shall be paid only after the
formal renewal of the lease contract and
its actual transfer to petitioner.

Trial on the merits ensued. On

November 29, 1990, the trial court
12

rendered a decision in favor of

petitioner. The dispositive portion reads:

WHEREFORE, AND IN VIEW OF ALL

THE FOREGOING, judgment is hereby

The sum of P150,000.00, representing

the cash advance payment for the store
and the right to occupy its leased
premises subject matter of the sale
involved, with interest thereon at the
legal rate from the filing of the complaint
on November 5, 1985 until the same is
fully paid;

The sum of P70,000.00 representing

the cost of additional improvements of
the store sold, also with legal interest
from November 5, 1985 until the full
payment thereof;

The sum of P150,000.00, representing the

loss that the plaintiff suffered from the sale
at bargain prices of the goods taken out of
the store, with legal interest thereon from
the (d)ate of this decision until the same is
fully paid;

The sum of P100,000.00 representing

the profits which plaintiff failed to realize

from the sale of the goods referred to

above, with legal interest thereon from
the date of the decision until said
amount is fully paid;

The amounts of P100,000.00 and

P50,000.00 as moral and exemplary
damages, respectively, also with legal
interest thereon, from the date of this
judgment until fully paid; and

The sum of P45,000.00 as and for

attorney's fees and expenses of
litigation, in addition to judicial costs.

On the defendants' counterclaim, the

plaintiff is ordered to return to the
defendants the latter's steel filing
cabinet, adding machine, typewriter and
all its unused sales invoices, receipts
and blank checks, if the plaintiff still has
any of the said papers or documents.

SO ORDERED.

13

Private respondent appealed to the Court

of Appeals. In a Decision dated November
14

27, 1992, the appellate court modified

the decision of the trial court after finding
that private respondent did not exercise
fraud or bad faith in its dealings with
petitioner. The dispositive portion of the
impugned decision reads:

WHEREFORE, the appealed decision is

hereby MODIFIED by reducing the
amounts the trial court awarded to
appellee Manolo P. Samson in that
appellants Santos & Sons, Inc. and
Angel C. Santos are ordered to pay
appellee, by way of reimbursement, the
P150,000.00 which the latter gave
appellants as advance payment for their
store and lease right with legal interest
to be reckoned from the promulgation
date of this decision; and AFFIRMED
with respect to the trial court's judgment
ordering appellee to return to appellants
the latter's filing cabinet, adding
machine, typewriter, and all their unused
sales invoices, receipts and blank
checks, if appellee still has any of these
documents. No costs.

SO ORDERED.

15

Hence this petition for review with the

following assigned errors:

WHETHER OR NOT THE COURT OF

APPEALS ERRED IN

DISREGARDING THE FOLLOWING

FACTUAL FINDINGS OF
THE TRIAL COURT:

THAT RESPONDENTS DELIBERATELY

AND FRAUDULENTLY CONCEALED
FROM

THE PETITIONER THE FACT THAT

THE
LEASE ON THE SUBJECT STORE

PREMISES HAD ALREADY EXPIRED

AND
WOULD NO LONGER BE RENEWED
BY THE

LESSOR.

THAT SOLELY BY REASON OF

RESPONDENTS' FRAUDULENT
CONDUCT AND BAD FAITH,
PETITIONER EXERCISING THE
DILIGENCE REQUIRED UNDER THE
CIRCUMSTANCES, THE LATTER
INCURRED DAMAGES AND LOSSES.

II

one's rights or duties, but by some

WHETHER OR NOT THE COURT OF

APPEALS ERRED IN HOLDING
RESPONDENTS FREE FROM
LIABILITY TO PETITIONER FOR THE
DAMAGES THE LATTER HAD
INCURRED ON ACCOUNT OF THE
RESPONDENTS' BAD FAITH.

The pivotal issue in the case at bench is

whether or not private respondent Angel
Santos committed fraud or bad faith in
representing to petitioner that his
contract of lease over the subject
premises has been impliedly renewed
by Susana Realty. Undoubtedly, it was
this representation which induced
petitioner to enter into the subject
contract with private respondent.

We find the petition devoid of merit.

Bad faith is essentially a state of mind

affirmatively operating with furtive design
16

or with some motive of ill-will. It does

not simply connote bad judgment or
negligence. It imports a dishonest purpose
or some moral obliquity and conscious
17

doing of wrong. Bad faith is thus

synonymous with fraud and involves a
design to mislead or deceive another, not
prompted by an honest mistake as to

interested or sinister motive.

18

In contracts, the kind of fraud that will

vitiate consent is one where, through
insidious words or machinations of one
of the contracting parties, the other is
induced to enter into a contract which,
without them, he would not have agreed
19

to. This is known as dolo causante or

causal fraud which is basically a
deception employed by one party prior
to or simultaneous to the contract in
order to secure the consent of the other.

Petitioner claims that their agreement was

that the amount of P300,000.00 is the
consideration for the transfer of private
respondent's leasehold right to him and

he paid P150,000.00 as downpayment

therefor. He insists that private respondent
acted in bad faith in assuring him that his
lease contract with Susana

Realty has been impliedly renewed and

would be formally renewed upon the
arrival of Tanya Madrigal (representative
of Susana Realty). As evidence of
private respondent's bad faith, petitioner
stresses that private respondent himself
admitted that prior to February 15,
1985, he was informed by his lawyer
that he could not yet sell his lease right
to petitioner for his lease over the
premises has not been renewed by
Susana Realty Corporation.

on February 5, 1985, the lessor, thru its

Real Estate Accountant, sent petitioner
a letter
follows:

20

of even date, worded as

February 5, 1985

Mr. Angel Santos

1609-1613 C.M. Recto Avenue

Sta. Cruz, Manila

Dear Mr. Santos:

After carefully examining the records,
we sustain the finding of public
respondent Court of Appeals that
private respondent was neither guilty of
fraud nor bad faith in claiming that there
was implied renewal of his contract of
lease with Susana Realty. The records
will bear that the original contract of
lease between the lessor Susana Realty
and the lessee private respondent was
for a period of one year, commencing
on August 1, 1983 until July 31, 1984.
Subsequently, however, private
respondent's lease was extended until
December 31, 1984. At this point, it was
clear that the lessor had no intention to
renew the lease contract of private
respondent for another year. However,

This is to notify you that the rentals for

the
1609-1613 C.M. Recto Avenue, Sta.
Cruz,

Manila, which you are leasing with (sic)

us has been increased from P77.81 to
P100.00 per square meter retroactive
January 1985 (as you have not vacated
the place) pending renewal of your
contract until the arrival of Miss Ma.
Rosa A.S. Madrigal.

Thus, your new rate will be PESOS:

FIFTY ONLY (P14,250.00) since you

are occupying One Hundred Forty-Two
and 50/100 square meters.

FOURTEEN THOUSAND TWO

HUNDRED
Please note that we are charging the
same for everybody and they all agreed
to pay the new rate.
We do expect your full cooperation with
regards (sic) to this matter.

agreement regarding the transfer of

private respondent's leasehold right to
petitioner was concerned, the object
22

Very truly yours,

thereof relates to a future right. It is a

conditional contract recognized in civil

(Sgd.) JANE F. BARTOLOME

law, the efficacy of which depends

upon an expectancy the formal
renewal of the lease contract between
private respondent and Susana Realty.

Accountant-Real Estate

Clearly, this letter led private respondent

to believe and conclude that his lease
contract was impliedly renewed and that
formal renewal thereof would be made
upon the arrival of Tanya Madrigal. This
much was admitted by petitioner himself
when he testified during crossexamination that private respondent
initially told him of the fact that his lease
contract with Susana Realty has already
expired but he was anticipating its
formal renewal upon the arrival of
21

Madrigal. Thus, from the start, it was

known to both parties that, insofar as the

23

The records would also reveal that

private respondent's lawyer informed
him that he could sell the improvements
within the store for he already owned
them but the sale of his leasehold right
over the store could not as yet be made
for his lease contract had not been
actually renewed by Susana Realty.
Indeed, it was precisely pursuant to this
advice that private respondent and
petitioner agreed that the improvements
in the store shall be sold to petitioner for
24

P150,000.00 while the leasehold right

shall be sold for the same amount of
P150,000.00, payable only upon the
formal renewal of the lease contract and
the actual transfer of the leasehold right

25

to petitioner. The efficacy of the

contract between the parties was thus
made dependent upon the happening of
this suspensive condition.

Moreover, public respondent Court of

Appeals was correct when it faulted
petitioner for failing to exercise sufficient
diligence in verifying first the status of
private respondent's lease. We thus
quote with approval the decision of the
Court of Appeals when it ruled, thus:

When appellant Angel C. Santos said that

the lease contract had expired but that it
was impliedly renewed, that
representation should have put appellee
on guard. To protect his interest, appellee
should have checked with the lessor
whether that was so, and this he failed to
do; or he would have simply deferred his
decision on the proposed sale until Miss

Madrigal's arrival, and this appellee also

failed to do. In short, as a buyer of the
store and lease right in question or as a
buyer of any object of commerce for that
matter appellee was

charged with the obligation of caution

aptly expressed in the universal maxim
caveat emptor.

26

Indeed, petitioner had every opportunity to

verify the status of the lease contract of
private respondent with Susana Realty. As
held by this Court in the case of

27

Caram, Jr. v. Laureta, the rule caveat

emptor requires the purchaser to be
aware of the supposed title of the
vendor and he who buys without
checking the vendor's title takes all the
risks and losses consequent to such
failure. In the case at bench, the means
of verifying for himself the status of
private respondent's lease contract with
Susana Realty was open to petitioner.
Nonetheless, no effort was exerted by
petitioner to confirm the status of the
28

subject lease right. He cannot now

claim that he has been deceived.

In sum, we hold that under the facts

proved, private respondent cannot be
held guilty of fraud or bad faith when he
entered into the subject contract with
petitioner. Causal fraud or bad faith on
the part of one of the contracting parties
which allegedly induced the other to
enter into a contract must be proved by

clear and convincing evidence. This

petitioner failed to do.
SO ORDERED.

IN VIEW WHEREOF, the appealed

decision is hereby AFFIRMED in toto.
Costs against petitioner.
[G.R. No. 128120. October 20, 2004]

SWEDISH MATCH, AB, JUAN

ENRIQUEZ, RENE DIZON, FRANCISCO
RAPACON, FIEL SANTOS, BETH
FLORES, LAMBRTO DE LA EVA,
GLORIA REYES, RODRIGO ORTIZ,
NICANOR ESCALANTE, PETER
HODGSON, SAMUEL PARTOSA,
HERMINDA ASUNCION, JUANITO
HERRERA, JACOBUS NICOLAAS,
JOSEPH PEKELHARING (now
Representing himself without court sanction
as JOOST PEKELHARING),
MASSIMO ROSSI and ED ENRIQUEZ,
petitioners, vs. COURT OF APPEALS,
ALS MANAGEMENT &
DEVELOPMENT CORPORATION and
ANTONIO K. LITONJUA, respondents.

DECISION

TINGA, J.:

Narvasa, C.J., Regalado and Mendoza,

JJ., concur.
Petitioners seek a reversal of the twin
Orders[1] of the Court of Appeals dated 15
November 1996[2] and 31 January 1997,[3]
in CA-G.R. CV No. 35886, entitled ALS
Management et al., v. Swedish Match, AB et
al. The appellate court overturned the trial
courts Order[4] dismissing the respondents
complaint for specific performance and
remanded the case to the trial court for
further proceedings.

Swedish Match, AB (hereinafter SMAB) is a

corporation organized under the laws of
Sweden not doing business in the Philippines.
SMAB, however, had three subsidiary
corporations in the Philippines, all organized
under Philippine laws, to wit: Phimco
Industries, Inc. (Phimco), Provident Tree
Farms, Inc., and OTT/Louie (Phils.), Inc.

Sometime in 1988, STORA, the then parent

company of SMAB, decided to sell SMAB
of Sweden and the latters worldwide match,
lighter and shaving products operation to
Eemland Management Services, now known
as Swedish Match NV of Netherlands,
(SMNV), a corporation organized and
existing under the laws of Netherlands.

STORA, however, retained for itself the

packaging business.

SMNV initiated steps to sell the worldwide

match and lighter businesses while retaining
for itself the shaving business. SMNV
adopted a two-pronged strategy, the first
being to sell its shares in Phimco Industries,
Inc. and a match company in Brazil, which
proposed sale would stave-off defaults in
the loan covenants of SMNV with its
syndicate of lenders. The other move was to
sell at once or in one package all the SMNV
companies worldwide which were engaged
in match and lighter operations thru a global
deal (hereinafter, global deal).

Ed Enriquez (Enriquez), Vice-President of

Swedish Match Sociedad Anonimas
(SMSA)the management company of the
Swedish Match groupwas commissioned
and granted full powers to negotiate by
SMNV, with the resulting transaction,
however, made subject to final approval by
the board. Enriquez was held under strict
instructions that the sale of Phimco shares
should be executed on or before 30 June
1990, in view of the tight loan covenants of
SMNV. Enriquez came to the Philippines in
November 1989 and informed the
Philippine financial and business circles
that the Phimco shares were for sale.

Several interested parties tendered offers to

acquire the Phimco shares, among whom
were the AFP Retirement and Separation
Benefits System, herein respondent ALS
Management & Development Corporation
and respondent Antonio Litonjua (Litonjua),
the president and general manager of ALS.

In his letter dated 3 November 1989,

Litonjua submitted to SMAB a firm offer to
buy all of the latters shares in Phimco and
all of Phimcos shares in Provident Tree
Farm, Inc. and OTT/Louie (Phils.), Inc. for
the sum of P750,000,000.00.[5]

Through its Chief Executive Officer,

Massimo Rossi (Rossi), SMAB, in its letter
dated 1 December 1989, thanked
respondents for their interest in the Phimco
shares. Rossi informed respondents that
their price offer was below their
expectations but urged them to undertake a
comprehensive review and analysis of the
value and profit potentials of the Phimco
shares, with the assurance that respondents
would enjoy a certain priority although
several parties had indicated their interest to
buy the shares.[6]

Thereafter, an exchange of correspondence

ensued between petitioners and respondents
regarding the projected sale of the Phimco
shares. In his letter dated 21 May 1990,
Litonjua offered to buy the disputed shares,

excluding the lighter division for US$30.6

million, which per another letter of the same
date was increased to US$36 million.[7]
Litonjua stressed that the bid amount could
be adjusted subject to availability of
additional information and audit verification
of the company finances.

Responding to Litonjuas offer, Rossi sent

his letter dated 11 June 1990, informing the
former that ALS should undertake a due
diligence process or pre-acquisition audit
and review of the draft contract for the
Match and Forestry activities of Phimco at
ALS convenience. However, Rossi made it
clear that at the completion of the due
diligence process, ALS should submit its
final offer in US dollar terms not later than
30 June 1990, for the shares of SMAB
corresponding to ninety-six percent (96%)
of the Match and Forestry activities of
Phimco. Rossi added that in case the
global deal presently under negotiation
for the Swedish Match Lights Group would
materialize, SMAB would reimburse up to
US$20,000.00 of ALS costs related to the
due diligence process.[8]

been completed. He said, however, that they

would be able to finalize their bid on 17 July
1990 and that in case their bid would turn
out better than any other proponent, they

Litonjua in a letter dated 18 June 1990,

expressed disappointment at the apparent
change in SMABs approach to the bidding
process. He pointed out that in their 4 June
1990 meeting, he was advised that one final
bidder would be selected from among the
four contending groups as of that date and
that the decision would be made by 6 June
1990.

He criticized SMABs decision to accept a

new bidder who was not among those who
participated in the 25 May 1990 bidding. He
informed Rossi that it may not be possible
for them to submit their final bid on 30 June
1990, citing the advice to him of the
auditing firm that the financial statements
would not be completed until the end of
July. Litonjua added that he would indicate
in their final offer more specific details of
the payment mechanics and consider the
possibility of signing a conditional sale at
that time.[9]

Two days prior to the deadline for submission

of the final bid, Litonjua again advised Rossi
that they would be unable to submit the final
offer by 30 June 1990, considering that the
acquisition audit of Phimco and the review of
the draft agreements had not yet

would remit payment within ten (10) days

from the execution of the contracts.[10]

Enriquez sent notice to Litonjua that they

would be constrained to entertain bids from
other parties in view of Litonjuas failure to
make a firm commitment for the shares of

Swedish Match in Phimco by 30 June 1990.

[11]

In a letter dated 3 July 1990, Rossi informed

Litonjua that on 2 July 1990, they signed a
conditional contract with a local group for
the disposal of Phimco. He told Litonjua
that his bid would no longer be considered
unless the local group would fail to
consummate the transaction on or before 15
September1990.[12]

Apparently irked by SMABs decision to

junk his bid, Litonjua promptly responded
by letter dated 4 July 1990. Contrary to his
prior manifestations, he asserted that, for all
intents and purposes, the US$36 million bid
which he submitted on 21 May 1990 was
their final bid based on the financial
statements for the year 1989. He pointed out
that they submitted the best bid and they
were already finalizing the terms of the sale.
He stressed that they were firmly committed
to their bid of US$36 million and if ever
there would be adjustments in the bid
amount, the adjustments were brought about
by

SMABs subsequent disclosures and

validated accounts, such as the aspect that
only ninety-six percent (96%) of Phimco
shares was actually being sold and not onehundred percent (100%).[13]

More than two months from receipt of

Litonjuas last letter, Enriquez sent a fax
communication to the former, advising him
that the proposed sale of SMABs shares in
Phimco with local buyers did not
materialize. Enriquez then invited Litonjua
to resume negotiations with SMAB for the
sale of Phimco shares. He indicated that
SMAB would be prepared to negotiate with
ALS on an exclusive basis for a period of
fifteen (15) days from 26 September 1990
subject to the terms contained in the letter.
Additionally, Enriquez clarified that if the
sale would not be completed at the end of
the fifteen (15)-day period, SMAB would
enter into negotiations with other buyers.
[14]

Shortly thereafter, Litonjua sent a letter

expressing his objections to the totally new
set of terms and conditions for the sale of
the Phimco shares. He emphasized that the
new offer constituted an attempt to reopen
the already perfected contract of sale of the
shares in his favor. He intimated that he
could not accept the new terms and
conditions contained therein.[15]

On 14 December 1990, respondents, as

plaintiffs, filed before the Regional Trial
Court (RTC) of Pasig a complaint for
specific performance with damages, with a
prayer for the issuance of a writ of
preliminary injunction, against defendants,
now petitioners. The individual defendants
were sued in their respective capacities as
officers of the corporations or entities
involved in the aborted transaction.

Aside from the averments related to their

principal cause of action for specific
performance, respondents alleged that the
Phimco management, in utter bad faith,

induced SMAB to violate its contract with

respondents. They contended that the
Phimco management took an interest in
acquiring for itself the Phimco shares and
that petitioners conspired to thwart the
closing of such sale by interposing various
obstacles to the completion of the
acquisition audit.[16] Respondents claimed
that the Phimco management maliciously
and deliberately delayed the delivery of
documents to Laya Manabat Salgado & Co.
which prevented them from completing the
acquisition audit in time for the deadline on
30 June 1990 set by petitioners.[17]
Respondents added that

SMABs refusal to consummate the

perfected sale of the Phimco shares
amounted to an abuse of right and
constituted conduct which is contrary to
law, morals, good customs and public
policy.[18]

Respondents prayed that petitioners be

enjoined from selling or transferring the
Phimco shares, or otherwise implementing
the sale or transfer thereof, in favor of any
person or entity other than respondents, and
that any such sale to third parties be
annulled and set aside. Respondents also
asked that petitioners be ordered to execute
all documents or instruments and perform
all acts necessary to consummate the sales
agreement in their favor.

Traversing the complaint, petitioners alleged

that respondents have no cause of action,
contending that no perfected contract, whether
verbal or written, existed between them.

Petitioners added that respondents cause of

action, if any, was barred by the Statute of

Frauds since there was no written

instrument or document evidencing the
alleged sale of the Phimco shares to
respondents.

Petitioners filed a motion for a preliminary

hearing of their defense of bar by the Statute
of Frauds, which the trial court granted.
Both parties agreed to adopt as their
evidence in support of or against the motion
to dismiss, as the case may be, the evidence
which they adduced in support of their
respective positions on the writ of
preliminary injunction incident.

In its Order dated 17 April 1991, the RTC

dismissed respondents complaint.[19] It
ruled that there was no perfected contract of
sale between petitioners and respondents.
WITHOUT THE BENEFIT OF A FULLBLOWN TRIAL AND ON THE MERE
MOTION TO DISMISS.

The court a quo said that the letter dated 11

June 1990, relied upon by respondents,
showed that petitioners did not accept the
bid offer of respondents as the letter was a
mere invitation for respondents to conduct a
due diligence process or pre-acquisition
audit of Phimcos match and forestry
operations to enable them to submit their
final offer on 30 June 1990. Assuming that
respondents bid was favored by an oral
acceptance made in private by officers of
SMAB, the trial court noted, such
acceptance was merely preparatory to a
formal acceptance by the SMABthe
acceptance that would eventually lead to the
execution and signing of the contract of
sale. Moreover, the court noted that
respondents failed to submit their final bid
on the deadline set by petitioners.

Respondents appealed to the Court of

Appeals, assigning the following errors:

A. THE TRIAL COURT EXCEEDED ITS

AUTHORITY AND JURISDICTION
WHEN IT ERRED PROCEDURALLY IN
MOTU PROPIO (sic) DISMISSING THE
COMPLAINT IN ITS ENTIRETY FOR
LACK OF A VALID CAUSE OF
ACTION

THE TRIAL COURT ERRED IN

IGNORING PLAINTIFF-APPELLANTS

CAUSE OF ACTION BASED ON TORT

WHICH, HAVING BEEN SUFFICIENTLY
PLEADED, INDEPENDENTLY
WARRANTED A FULL-BLOWN TRIAL.

THE TRIAL COURT ERRED IN

IGNORING PLAINTIFFS-APPELLANTS
CAUSE OF ACTION BASED ON
PROMISSORY ESTOPPEL WHICH,
HAVING BEEN SUFFICIENTLY
PLEADED, WARRANTED A FULLBLOWN TRIAL, INDEPENDENTLY FOR
THE OTHER CAUSES OF ACTION.

THE TRIAL COURT JUDGE ERRED IN

FORSWEARING JUDICIAL
OBJECTIVITY TO FAVOR
DEFENDANTS-APPELLEES BY
MAKING UNFOUNDED FINDINGS, ALL
IN VIOLATION OF PLAINTIFFSAPPELLANTS RIGHT TO DUE
PROCESS.[20]

After assessing the respective arguments of

the parties, the Court of Appeals reversed
the trial courts decision. It ruled that the
series of written communications between
petitioners and respondents collectively
constitute a sufficient memorandum of their
agreement under Article 1403 of the Civil
Code; thus, respondents complaint should
not have been dismissed on the ground that
it was unenforceable under the Statute of
Frauds. The appellate court opined that any

document or writing, whether formal or

informal, written either for the purpose of
furnishing evidence of the contract or for
another purpose which satisfies all the
Statutes requirements as to contents and
signature would be sufficient; and, that two
or more writings properly connected could
be considered together. The appellate court
concluded that the letters exchanged by and
between the parties, taken together, were
sufficient to establish that an agreement to
sell the disputed shares to respondents was
reached.

The Court of Appeals clarified, however,

that by reversing the appealed decision it
was not thereby declaring that respondents
are entitled to the reliefs prayed for in their
complaint, but only that the case should not
have been dismissed on the ground of
unenforceability under the Statute of Frauds.
It ordered the remand of the case to the trial
court for further proceedings.

Hence, this petition.

Petitioners argue that the Court of Appeals

erred in failing to consider that the Statute of
Frauds requires not just the existence of any
note or memorandum but that such note or
memorandum should evidence an agreement
to sell; and, that in this case, there was no
word, phrase, or statement in the letters
exchanged between the two parties to show or

even imply that an agreement had been

reached for the sale of the shares to
respondent.

Petitioners stress that respondent Litonjua

made it clear in his letters that the quoted
prices were merely tentative and still subject to
further negotiations between him and the
seller. They point out that there was no
meeting of the minds on the essential terms
and

conditions of the sale because SMAB did

not accept respondents offer that
consideration would be paid in Philippine
pesos. Moreover, Litonjua signified their
inability to submit their final bid on 30 June
1990, at the same time stating that the broad
terms and conditions described in their
meeting were inadequate for them to make a
response at that time so much so that he
would have to await the corresponding
specifics. Petitioners argue that the
foregoing circumstances prove that they
failed to reach an agreement on the sale of
the Phimco shares.

In their Comment, respondents maintain that

the Court of Appeals correctly ruled that the
Statute of Frauds does not apply to the
instant case. Respondents assert that the sale
of the subject shares to them was perfected
as shown by the following circumstances,
namely: petitioners assured them that should
they increase their bid, the sale would be
awarded to them and that they did in fact
increase their previous bid of US$30.6
million to US$36 million; petitioners orally
accepted their revised offer and the
acceptance was relayed to them by Rene
Dizon; petitioners directed them to proceed
with the acquisition audit and to submit a
comfort letter from the United Coconut
Planters Bank (UCPB); petitioner
corporation confirmed its previous verbal
acceptance of their offer in a letter dated 11
June 1990; with the prior approval of
petitioners, respondents engaged the
services of Laya, Manabat, Salgado & Co.,

an independent auditing firm, to

immediately proceed with the acquisition
audit; and, petitioner corporation reiterated
its commitment to be bound by the result of
the acquisition audit and promised to
reimburse respondents cost to the extent of
US$20,000.00. All these incidents,
according to respondents, overwhelmingly
prove that the contract of sale of the Phimco
shares was perfected.

The basic issues to be resolved are: (1)

whether the appellate court erred in
reversing the trial courts decision
dismissing the complaint for being
unenforceable under the Statute of Frauds;
and (2) whether there was a perfected
contract of sale between petitioners and
respondents with respect to the Phimco
shares.

Further, respondents argued that there was

partial performance of the perfected contract
on their part. They alleged that with the
prior approval of petitioners, they engaged
the services of Laya, Manabat, Salgado &
Co. to conduct the acquisition audit. They
averred that petitioners agreed to be bound
by the results of the audit and offered to
reimburse the costs thereof to the extent of
US$20,000.00. Respondents added that in
compliance with their obligations under the
contract, they have submitted a comfort
letter from UCPB to show petitioners that
the bank was willing to finance the
acquisition of the Phimco shares.[21]

The Statute of Frauds embodied in Article

1403, paragraph (2), of the Civil Code[22]
requires certain contracts enumerated
therein to be evidenced by some note or
memorandum in order to be enforceable.
The term Statute of Frauds is descriptive
of statutes which require certain classes of
contracts to be in writing. The Statute does
not deprive the parties of the right to
contract with respect to the matters therein
involved, but merely regulates the
formalities of the contract necessary to
render it enforceable.[23] Evidence of the
agreement cannot be received without the
writing or a secondary evidence of its
contents.

The Statute, however, simply provides the

method by which the contracts enumerated
therein may be proved but does not declare
them invalid because they are not reduced to
writing. By law, contracts are obligatory in
whatever form they may have been entered
into, provided all the essential requisites for
their validity are present. However, when
the law requires that a contract be in some

form in order that it may be valid or

enforceable, or that a contract be proved in a
certain way, that requirement is absolute and
indispensable.[24] Consequently, the effect
of non-compliance with the requirement of
the Statute is simply that no action can be
enforced unless the requirement is complied
with.[25] Clearly, the form required is for
evidentiary purposes only. Hence, if the

parties permit a contract to be proved,

without any objection, it is then just as
binding as if the Statute has been complied
with.[26]

The purpose of the Statute is to prevent

fraud and perjury in the enforcement of
obligations depending for their evidence on
the unassisted memory of witnesses, by
requiring certain enumerated contracts and
transactions to be evidenced by a writing
signed by the party to be charged.[27]

However, for a note or memorandum to

satisfy the Statute, it must be complete in
itself and cannot rest partly in writing and
partly in parol. The note or memorandum
must contain the names of the parties, the
terms and conditions of the contract, and a
description of the property sufficient to
render it capable of identification.[28] Such
note or memorandum must contain the
essential elements of the contract expressed
with certainty that may be ascertained from
the note or memorandum itself, or some
other writing to which it refers or within
which it is connected, without resorting to
parol evidence.[29]

Contrary to the Court of Appeals

conclusion, the exchange of correspondence
between the parties hardly constitutes the
note or memorandum within the context of
Article 1403 of the Civil Code. Rossis

letter dated 11 June 1990, heavily relied

upon by respondents, is not complete in
itself. First, it does not indicate at what price
the shares were being sold. In paragraph (5)
of the letter, respondents were supposed to
submit their final offer in U.S. dollar terms,
at that after the completion of the due
diligence process. The paragraph
undoubtedly proves that there was as yet no
definite agreement as to the price. Second,
the letter does not state the mode of
payment of the price. In fact, Litonjua was
supposed to indicate in his final offer how
and where payment for the shares was
planned to be made.[30]

Evidently, the trial courts dismissal of the

complaint on the ground of unenforceability
under the Statute of Frauds is warranted.[31]

Even if we were to consider the letters

between the parties as a sufficient
memorandum for purposes of taking the
case out of the operation of the Statute the
action for specific performance would still
fail.

A contract is defined as a juridical convention

manifested in legal form, by virtue of which
one or more persons bind themselves in favor
of another, or others, or reciprocally, to the
fulfillment of a prestation to give, to do, or not
to do.[32] There can be no contract unless the

following requisites concur: (a) consent of the

contracting

parties; (b) object certain which is the

subject matter of the contract; (c) cause of
the obligation which is established.[33]
Contracts are perfected by mere consent,
which is manifested by the meeting of the
offer and the acceptance upon the thing and
the cause which are to constitute the
contract.[34]

Specifically, in the case of a contract of sale,

required is the concurrence of three elements,
to wit: (a) consent or meeting of the minds,
that is, consent to transfer ownership in
exchange for the price; (b) determinate subject
matter, and (c) price certain in money or its
equivalent.[35] Such contract is born from the
moment there is a meeting of minds upon the
thing which is the object of the contract and
upon the price.[36]

In general, contracts undergo three distinct

stages, to wit: negotiation; perfection or
birth; and consummation. Negotiation
begins from the time the prospective
contracting parties manifest their interest in
the contract and ends at the moment of
agreement of the parties. Perfection or birth
of the contract takes place when the parties
agree upon the essential elements of the
contract. Consummation occurs when the
parties fulfill or perform the terms agreed
upon in the contract, culminating in the
extinguishment thereof.[37]

A negotiation is formally initiated by an

offer. A perfected promise merely tends to
insure and pave the way for the celebration
of a future contract. An imperfect promise
(policitacion), on the other hand, is a mere
unaccepted offer.[38] Public advertisements
or solicitations and the like are ordinarily
construed as mere invitations to make offers
or only as proposals. At any time prior to
the perfection of the contract, either
negotiating party may stop the negotiation.
[39] The offer, at this stage, may be
withdrawn; the withdrawal is effective
immediately after its manifestation, such as
by its mailing and not necessarily when the
offeree learns of the withdrawal.[40]

Quite obviously, Litonjuas letter dated 21

May 1990, proposing the acquisition of the
Phimco shares for US$36 million was
merely an offer. This offer, however, in

Litonjuas own words, is understood to be

subject to adjustment on the basis of an
audit of the assets, liabilities and net worth
of Phimco and its subsidiaries and on the
final negotiation between ourselves.[42]

Was the offer certain enough to satisfy the

requirements of the Statute of Frauds?
Definitely not.

An offer would require, among other things,

a clear certainty on both the object and the
cause or consideration of the envisioned
contract. Consent in a contract of sale
should be manifested by the meeting of the
offer and the acceptance upon the thing and
the cause which are to constitute the
contract. The offer must be certain and the
acceptance absolute. A qualified acceptance
constitutes a counter-offer.[41]

Litonjua repeatedly stressed in his letters

that they would not be able to submit their
final bid by 30 June 1990.[43] With
indubitable inconsistency, respondents later
claimed that for all intents and purposes, the
US$36 million was their final bid. If this
were so, it would be inane for Litonjua to
state, as he did, in his letter dated 28 June
1990 that they

would be in a position to submit their final

bid only on 17 July 1990. The lack of a
definite offer on the part of respondents
could not possibly serve as the basis of their
claim that the sale of the Phimco shares in
their favor was perfected, for one essential
element of a contract of sale was obviously
wantingthe price certain in money or its

equivalent. The price must be certain,

otherwise there is no true consent between
the parties.[44] There can be no sale without
a price.[45] Quite recently, this Court
reiterated the long-standing doctrine that the
manner of payment of the purchase price is
an essential element before a valid and
binding contract of sale can exist since the

agreement on the manner of payment goes

into the price such that a disagreement on
the manner of payment is tantamount to a
failure to agree on the price.[46]

Granting arguendo, that the amount of

US$36 million was a definite offer, it would
remain as a mere offer in the absence of
evidence of its acceptance. To produce a
contract, there must be acceptance, which
may be express or implied, but it must not
qualify the terms of the offer.[47] The
acceptance of an offer must be unqualified
and absolute to perfect the contract.[48] In
other words, it must be identical in all
respects with that of the offer so as to
produce consent or meeting of the minds.
[49]

Respondents attempt to prove the alleged

verbal acceptance of their US$36 million bid
becomes futile in the face of the overwhelming
evidence on record that there was in the first
place no meeting of the minds with respect to
the price. It is dramatically clear that the
US$36 million was not the actual price agreed
upon but merely a preliminary offer which was
subject to adjustment after the conclusion of
the audit of the company finances.
Respondents failure to submit their final bid
on the deadline set by petitioners prevented the
perfection of the contract of sale. It was not
perfected due to the absence of one essential
element which was the price certain in money
or its equivalent.

At any rate, from the procedural stand point,

the continuing objections raised by
petitioners to the admission of parol
evidence[50] on the alleged verbal
acceptance of the offer rendered any
evidence of acceptance inadmissible.

Respondents plea of partial performance

should likewise fail. The acquisition audit and
submission of a comfort letter, even if
considered together, failed to prove the
perfection of the contract. Quite the contrary,
they indicated that the sale was far from
concluded.

Respondents conducted the audit as part of

the due diligence process to help them arrive
at and make their final offer. On the other
hand, the submission of the comfort letter
was merely a guarantee that respondents had
the financial capacity to pay the price in the
event that their bid was accepted by
petitioners.

The Statute of Frauds is applicable only to

contracts which are executory and not to
those which have been consummated either
totally or partially.[51] If a contract has been
totally or partially performed, the exclusion
of parol evidence would promote fraud or
bad faith, for it would enable the defendant
to keep the benefits already derived by him

from the transaction in litigation, and at the

same time, evade the obligations,
responsibilities or liabilities assumed or
contracted by him thereby.[52] This rule,
however, is predicated on the fact of
ratification of the contract within the
meaning of Article 1405 of the Civil Code
either (1) by failure to object to the
presentation of oral evidence to prove the
same, or (2) by the acceptance of benefits
under them. In the

instant case, respondents failed to prove that

there was partial performance of the contract
within the purview of the Statute.

Respondents insist that even on the

assumption that the Statute of Frauds is
applicable in this case, the trial court erred
in dismissing the complaint altogether. They
point out that the complaint presents several
causes of action.

A close examination of the complaint

reveals that it alleges two distinct causes of
action, the first is for specific
performance[53] premised on the existence
of the contract of sale, while the other is
solely for damages, predicated on the
purported dilatory maneuvers executed by
the Phimco management.[54]

With respect to the first cause of action for

specific performance, apart from petitioners
alleged refusal to honor the contract of sale
which has never been perfected in the
first placerespondents made a number of
averments in their complaint all in support
of said cause of action. Respondents
claimed that petitioners were guilty of
promissory estoppel,[55] warranty
breaches[56] and tortious conduct[57] in
refusing to honor the alleged contract of
sale. These averments are predicated on or
at least interwoven with the existence or
perfection of the contract of sale. As there

was no such perfected contract, the trial

court properly rejected the averments in
conjunction with the dismissal of the
complaint for specific performance.

their allegations with respect to its cause of

action for damages against the officers of
Phimco based on the latters alleged selfserving dilatory maneuvers.

However, respondents second cause of action

due to the alleged malicious and deliberate
delay of the Phimco management in the
delivery of documents necessary for the
completion of the audit on time, not being
based on the existence of the contract of sale,
could stand independently of the action for
specific performance and should not be
deemed barred by the dismissal of the cause of
action predicated on the failed contract. If
substantiated, this cause of action would
entitle respondents to the recovery of damages
against the officers of the corporation
responsible for the acts complained of.

WHEREFORE, the petition is in part

GRANTED. The appealed Decision is
hereby MODIFIED insofar as it declared the
agreement between the parties enforceable
under the Statute of Frauds. The complaint
before the trial court is ordered DISMISSED
insofar as the cause of action for specific
performance is concerned. The case is
ordered REMANDED to the trial court for
further proceedings with respect to the cause
of action for damages as above specified.

SO ORDERED.
Thus, the Court cannot forthwith order
dismissal of the complaint without affording
respondents an opportunity to substantiate

Puno, J., (Chairman), Austria-Martinez,

Callejo, Sr. and Chico-Nazario, JJ., concur.

G.R. No. 87550 February 11, 1991

J.C. Baldoz & Associates for petitioner.
DIVINA J. VICTORIANO, petitioner, vs.

HON. COURT OF APPEALS AND

HEIRS OF CRISPIN ARCILLA,
represented by LADISLAWA A.
MASIGLA, respondents.

Baltazar J. Llamas for private

respondents.

do so within 30 days from finality

hereof, the
MEDIALDEA, J.:p

This petition seeks the review on

certiorari of the decision of the Court of
Appeals dated January 10, 1989, which
reversed the ruling of the trial court
declaring petitioner Divina J. Victoriano
(hereafter "Victoriano") as owner of Lot
897, and instead, declaring the heirs of
Crispin Arcilla, herein represented by
Ladislawa A. Masigla (hereafter
"Masigla") as true owners thereof. The
dispositive portion of the Court of
Appeals' decision provides as follows:

WHEREFORE, in view of the foregoing,

the judgment appealed from is hereby
reversed and set aside. In lieu thereof,
judgment is hereby rendered:

Declaring plaintiffs-appellants as the

owners of Lot #897 located in Barangay
Santol, Tanza, Cavite;

Ordering defendant-appellee to execute

the proper deed of sale to enable
plaintiffs-appellants to transfer the title
to the property in their name and in
case of failure of defendant-appellee to

Register of Deeds of Cavite is hereby

directed to cancel

Transfer Certificate of Title No. T124731 in the name of defendantappellant and issue a new one in the
name of plaintiffs-appellants.

SO ORDERED. (pp. 21-22, Rollo)

The facts of the case, as obtained from

the Court of Appeals' decision, are as
follows:

Masigla was in possession of Lot 897

which is situated in Barangay Santol,

Tanza, Cavite. In 1987, her son, Domingo

Masigla entered the adjoining property,
Lot 898, owned by Victoriano, and
prohibited her and her tenants from

cultivating the land. Victoriano filed a

criminal case for theft, malicious
mischief, usurpation and squatting

against Domingo. In the process,

Victoriano discovered that title to Lot
No. 897 was registered in the name of
her grandfather, Cirilo Tamio (TCT No.
1648). She secured an extrajudicial
partition from all the heirs of Cirilo
Tamio, who thus waived their shares in
the lot in her favor. Victoriano thereafter
secured a title (TCT No. 124731) to
said lot in her name.

The heirs of Crispin Arcilla, represented

by Masigla, filed a complaint in court
(RTC-Cavite, Trece Martires, Br. 23) for
reconveyance of Lot No. 897, claiming
that their father, Crispin Arcilla, had
bought the lot from Cirilo Tamio, and
that they had been in possession
thereof since 1927. Masigla could not,
however, present a deed of sale
evidencing the transfer of the property
from Cirilo Tamio to Crispin Arcilla. All
that she and her heirs could present
were a "Sinumpaang Salaysay" dated
January 20, 1927, wherein the children
of Cirilo Tamio authorized their mother
to sell Lot 897 to Crispin Arcilla; the
owner's duplicate of the title to the
property in the name of Cirilo Tamio
and real property tax receipts and tax
declarations, the earliest of which is
1944. Masigla claimed that taxes were
being paid since 1927 but the receipt
had been lost or destroyed.

Victoriano on the other hand, presented

the Transfer Certificate of Title in her
name (TCT 124731), a tax declaration
and a receipt dated March 30, 1983 (p.
18, Rollo).

In a decision dated October 5, 1987 (p.

61, Rollo), the trial court ruled in favor of
Victoriano, declaring her the lawful and
absolute owner of Lot No. 897.

Masigla appealed, assigning as errors,

the failure of the trial court to consider
Masigla's evidence submitted in support
of her claim for reconveyance and
rendering instead a decision allowing
recovery of possession in favor of

Victoriano, based on the allegation and

evidence in her counterclaim.

The Court of Appeals reversed the

decision of the trial court and declared

Masigla and her co-heirs as true owners

of the property. In the resolution dated
March 17, 1989, it denied Victoriano's
motion for reconsideration.

Victoriano filed this petition on the

following grounds:

The respondent Court of Appeals

abused its discretion by deciding this
case based on the principles of the
"Statute of

Frauds" and then on the principle of

"laches" which principles were never
raised in the lower court.

The respondent Court of Appeals

decided questions of substance in a
way not in accord with law or with the
applicable decisions of the Supreme
Court. (p. 9, Rollo)

We uphold the Court of Appeals'

decision.

The trial court's ruling was anchored

solely on the failure of Masigla to prove
transfer of ownership from Cirilo Tamio to
their predecessor-in-interest, Crispin

Arcilla, because of the absence of a

deed of sale.

Apparently, the trial court relied on the

Statute of Frauds principle which requires

"an agreement for the sale . . ." of real

property or an interest therein (Art.

1403(e)) to be in writing. It overlooked

the fact that this principle applies only to
executory contracts. As correctly
observed by the Court of Appeals:

The Statute of Frauds is applicable only

to executory contracts, not to contracts
either totally or partially performed.
Thus, where a contract of sale is alleged
to be consummated, it matters not that
neither the receipt for the consideration
nor the sale itself was in writing,
because oral evidence of the alleged
consummated sale is not forbidden by
the Statute of Frauds and may not be
excluded in court. (Iigo vs. Estate of
Maloto, 21 SCRA (1901) 246)

Thus, the testimony of plaintiffsappellants on this point is admissible to

prove the existence of the sale, it being
of record that the land has been in their
possession since 1927. (CA Decision,
pp. 19-20, Rollo)

Performance of the contract, whether total

or partial, takes it out of the operation of

the statute (Gomez v. Salcedo, 26 Phil.

485; Hernandez v. Andal, 78 Phil.

196). This performance, necessarily

must be duly proved. And it is in this
light that Masigla pointed out the
circumstances to show performance on
the contract or transfer of ownership, as
follows:

Plaintiffs-appellants are in possession of

the owner's copy of the title;

They have been undisturbed in their

possession of the land for more than
fifty years;

They are in possession of "Sinumpaang

Salaysay" wherein the children of Cirilo
Tamio authorized their mother to sell Lot

specifically to Crispin Arcilla, the

predecessor of plaintiffs-appellants;

They introduced improvements on the

land;

They incurred expenses for the resurvey

of the land when they had the title in the
name of Cirilo Tamio reconstituted

(T.S.N. p. 30, Nov. 29, 1983);

The tax declarations over the property

were in the name of plaintiff s father;

Plaintiffs-appellants have been religious

in paying taxes over the property;

The immediate heirs of Cirilo Tamio, that

is, his wife and children, never
contested plaintiffs-appellants'
possession of the land, nor did they set
up any claim over the property. This
behavior negates any pretense that
there was no sale in favor of Crispin
Arcilla. (ibid., p. 20, Rollo)

In ruling in favor of Masigla, the Court of

Appeals mentioned the principle of the
Statute of Frauds merely to point out the
trial court's improper reliance thereon. It
was not raised as a new issue. Precisely,
the inapplicability of the Statute of Frauds
allows the filing of Masigla's complaint
seeking the reconveyance of property,
which was erroneously registered in
Victoriano's name.

Likewise, We agree with the Court of

Appeals when it barred Victoriano's
action to recover possession of Lot No.
897, premised on the principle of
laches. Defined as "such neglect or
omission to assert a right taken in
conjunction with the lapse of time and
other circumstances causing prejudice
to an adverse party, as will operate as a
bar in equity." (Heirs of Batiog Lacamen
v. Heirs of Laruan, G.R. No, L-27088,
July 31, 1975, 65 SCRA 125) the Court
of Appeals observed:

However, defendant-appellee
disregards the fact that plaintiffsappellants have been in continuous
possession of the land

Since 1927 and they were not ousted

therefrom by the grandfather of

defendant-appellee who sold the

property to them, nor by the immediate
successors of the seller. It was only
after decades had passed that it was
discovered that the sale was never
registered or the title cancelled and
transferred in the name of plaintiffsappellants. True, titled lands cannot be
acquired by prescription, however,
defendant-appellee's inaction for more
than 50 years now bars her from
acquiring possession of the land on the
ground of laches. (p. 25, Rollo)

Again, the principle of laches was

mentioned to refute Victoriano's claims
that "no title to registered land in
derogation to that of the registered owner
shall be acquired by prescription or
adverse possession (Sec. 46, Act No. 496,
now Sec.

47 of PD No. 1529). Thus, the Court of

Appeals stated:

At this state, therefore, respondents-appellants' claim of absolute ownership

over the land cannot be countenanced. It has been held that while a person
may not acquire title to the registered property through continuous adverse
possession, in derogation of the title of the original registered owner, the heir of
the latter, however, may lose his right to recover back the possession of such
property and the title thereto, by reason of laches. (p. 25, Rollo)

ACCORDINGLY, the petition is DENIED and the decision of the Court of

Appeals dated January 10, 1989 as well as its Resolution dated March 17, 1989
declaring the heirs of Crispin Arcilla, represented by Ladislawa A. Masigla as the
owners of Lot No. 897 are AFFIRMED.

SO ORDERED.

Narvasa, Cruz, Gancayco and Grio-Aquino, JJ., concur.

[G.R. No. 132474.

November 19, 1999]

RENATO CENIDO (deceased),

represented by VICTORIA
CENIDOSA, petitioner, vs.
SPOUSES AMADEO
APACIONADO and
HERMINIA STA. ANA,
respondents.

DECISION

PUNO, J.:

In this petition for review,

petitioner Renato Cenido seeks
to reverse and set aside the
decision of the Court of
Appealsi[1] in CA-G.R. CV No.
41011 which declared the
private respondents as the
owners of a house and lot in
Binangonan, Rizal.ii[2]

The antecedent facts are as

follows:

On May 22, 1989, respondent

spouses Amadeo Apacionado
and Herminia Sta. Ana filed
with the Regional Trial Court,
Branch 70, Rizal a complaint
against petitioner Renato Cenido
for Declaration of Ownership,
Nullity, with Damages.iii[3] The
spouses alleged that: (1) they are
the owners of a parcel of
unregistered land, 123 square
meters in area and located at
Rizal Street, Barrio Layunan,
Binangonan, Rizal, more
particularly described as
follows:

the West by Simplicio Aparato,

and the residential house
standing thereon.iv[4]

(2) this house and lot were

purchased by the spouses from
its previous owner, Bonifacio
Aparato, now deceased, who
lived under the spouses' care and
protection for some twenty years
prior to his death; (3) while he
was alive, Bonifacio Aparato
mortgaged the said property
twice, one to the Rural Bank of
Binangonan and the other to
Linda C. Ynares, as security for
loans obtained by him; (4) the
loans were paid off by the
spouses thereby securing the
release and cancellation of said
mortgages;

x x x that certain parcel of land

located at Rizal, St., Layunan,

Binangonan, Rizal, with an area

of 123 square meters, more or
less, bounded on the North by
Gavino Aparato; on the East by
Rizal St., on the South by
Tranquilino Manuzon; and on

(5) the spouses also paid and

continue to pay the real estate
taxes on the property; (6) from the
time of sale, they have been in
open, public, continuous and
uninterrupted possession of the
property in the concept of

owners; (7) that on January 7,

1987, petitioner Renato Cenido,
claiming to be the owner of the
subject house and lot, filed a
complaint for ejectment against
them with the Municipal Trial
Court, Branch 2, Binangonan,
Rizal; (8) through fraudulent
and unauthorized means, Cenido
was able to cause the issuance in
his name of Tax Declaration No.
02-0368 over the subject
property, which fact the spouses
learned only upon the filing of
the ejectment case; (9) although
the ejectment case was
dismissed by the Municipal Trial
Court (MTC), Branch 2, the tax
declaration in Cenido's name
was not cancelled and still
subsisted; (10) the spouses have
referred the matter to the
barangay for conciliation but
Cenido unjustifiably refused to
appear thereat. The spouses thus
prayed that:

WHEREFORE, it is
respectfully prayed of the
Honorable Court that judgment
issue in the case:

Declaring them (plaintiffs) the

true and absolute owners of the
house and lot now covered by
Tax Declaration No. 02-0368;

Declaring Tax Declaration No.

02-0368 in the name of
defendant Renato Cenido as null
and void and directing the
Provincial Assessor of Rizal and
the Municipal Assessor of
Binangonan, Rizal to register
and to declare the house and lot
covered by the same in their
names (plaintiffs) for purposes
of taxation;

Ordering defendant to pay them

in the least amount of
P50,000.00 as and for moral
damages suffered;

Ordering defendant to pay them

the amount of P10,000.00 as and
for attorney's fees;

Ordering payment by defendant

of exemplary damages in such
amount which the Honorable
Court may deem just and
equitable in the premises;

Plaintiffs pray for such other and

further relief which the Honorable
Court may deem just and
equitable considering the
foregoing premises.v[5]

Ordering defendant to pay the

costs of suit; and

Petitioner Cenido answered

claiming that: (1) he is the
illegitimate son of Bonifacio
Aparato, the deceased owner of
the subject property; (2) as

Aparato's sole surviving heir, he

became the owner of the
property as evidenced by the
cancellation of Tax Declaration
No. 02-0274 in Bonifacio's
name and the issuance of Tax
Declaration No. 02-0368 in his
name; (3) his ownership over the
house and lot was also
confirmed in 1985 by the
Municipal Trial Court, Branch 1,
Binangonan in Case No. 2264
which adjudicated various
claims involving the same
subject property wherein
plaintiffs were privy to the said
case; (4) that in said case, the
Apacionado spouses participated
in the execution of the
compromise agreement

partitioning the deceased's estate

among his heirs, which
agreement was adopted by the
Municipal Trial Court as its
judgment; (5) that the
Apacionado spouses were
allowed to stay in his father's
house temporarily; (6) the
mortgages on the property were
obtained by his father upon
request of the Apacionados who
used the proceeds of the loans
exclusively for themselves; (7)
the real estate taxes on the
property were paid for by his
father, the principal, and the
spouses were merely his agents;
(8) the instrument attesting to
the alleged sale of the house and
lot by Bonifacio Aparato to the

spouses is not a public

document; (8) petitioner Cenido
was never summoned to appear
before the barangay for
conciliation proceedings.vi[6]

Respondent spouses replied that:

(1) Cenido is not the illegitimate
son of Bonifacio, Cenido's claim
of paternity being spurious; (2)
the ownership of the property
was not the proper subject in
Civil Case No. 2264 before the
MTC, Branch I, nor were the
spouses parties in said case.vii[7]

The parties went to trial.

Respondent spouses presented
four (4) witnesses, namely,
respondent Herminia Sta. Ana
Apacionado; Rolando Nieves, the
barangay captain; Norberto
Aparato, the son of Gavino
Aparato, Bonifacio's brother; and
Carlos Inabayan, one of the two
witnesses to the deed of sale
between Bonifacio Aparato and
the spouses over the property.
Petitioner Cenido presented only
himself as witness.

On March 30, 1993, the trial

court rendered judgment. The
court upheld petitioner Cenido's
ownership over the property by
virtue of the recognition made
by Bonifacio's then surviving
brother, Gavino, in the
compromise judgment of the
MTC. Concomitantly, the court
also did not sustain the deed of
sale between Bonifacio and the
spouses because it was neither
notarized nor signed by
Bonifacio and was intrinsically
defective. The court ordered
thus:

WHEREFORE, in the light of

the foregoing considerations, the
Court believes that
preponderance of evidence is on
the side of defendant and so the
complaint could not be given
due course. Accordingly, the
case is, as it should be,
dismissed. No attorney's fees or
damages is being awarded as no
evidence to this effect had been
given by defendant. With costs
against plaintiffs.

SO ORDERED.viii[8]

Respondent spouses appealed to

the Court of Appeals. In a
decision dated September 30,
1997, the appellate court found
the appeal meritorious and
reversed the decision of the trial
court. It held that the recognition
of Cenido's filiation by Gavino,
Bonifacio's brother, did not
comply with the requirements of
the Civil Code and the Family
Code; that the deed between
Bonifacio and respondent spouses
was a valid contract of sale over

the property; and Cenido's failure

to object to the presentation of the
deed before the trial court was a
waiver of the defense of the
Statute of Frauds. The Court of
Appeals disposed of as follows:

WHEREFORE, the appealed

Decision is hereby REVERSED
and SET

ASIDE. Plaintiffs-Appellants
Spouses Amadeo Apacionado
and Herminia Sta. Ana are
declared owners of the subject
house and lot now covered by
Tax Declaration No. 026368.ix[9]

Hence, this recourse. Petitioner

Cenido alleges that:

1. The unsigned, unnotarized

and highly doubtful private
document designated as
Pagpapatunay which is solely
relied upon by the respondents
in support of their case is not

sufficient to vest ownership of

and transfer the title, rights and
interest over the subject property
to the respondents.

x.

2. The Court of Appeals

departed from the accepted and
Victoria Cenidosa, in
representation of petitioner
Cenido, has manifested, through
counsel, that petitioner died in
September 1993; that on
December 18, 1985, eight years
before his death, Cenido sold the
subject house and lot to Maria
D. Ojeda for the sum of
P70,000.00; that Maria D. Ojeda
is now old and sickly, and is thus
being represented in the instant
case by her daughter, Victoria O.
Cenidosa.xi[11]

In the same vein, respondent

Herminia Sta. Ana Apacionado
also manifested that her
husband, Amadeo Apacionado,

usual course of judicial

proceedings in that it ruled
against the petitioner in view of
the alleged weakness of his
defense rather than evaluate the
case based on the strength of the
respondents evidence, thereby
necessitating this Honorable
Court's exercise of its power of
supervision.x[10]

died on August 11, 1989.

Amadeo is now being
represented by his compulsory
heirs.xii[12]

Before ruling on petitioner's

arguments, it is necessary to
establish certain facts essential
for a proper adjudication of the
case.

The records reveal that the late

Bonifacio Aparato had two
siblings-- a sister named Ursula
and a brother named
Gavino.xiii[13] Ursula died on
March 1, 1979,xiv[14] Bonifacio
on January 3, 1982xv[15] and

Gavino, sometime after

Bonifacio's death. Both Ursula
and Bonifacio never married and
died leaving no legitimate
offspring. Gavino's son,
Norberto, however, testified that
there was a fourth sibling, a
sister, who married but also
died; as to when she died or
whether she left any heirs,
Norberto did not know.xvi[16]
What is clear and undisputed is
that Bonifacio was survived by
Gavino who also left legitimate
heirs.

Both Bonifacio and Ursula lived

in the subject property under the
care and protection of the
Apacionados. Herminia Sta. Ana
Apacionado started living with
them in 1976. She took care of
Bonifacio and Ursula, who died
three years later. Herminia
married Amado Apacionado,
whose paternal grandmother was
a sister of Bonifacio.xvii[17]
Amadeo moved into Bonifacio's
house and assisted Herminia in
taking care of the old man until
his demise.

Shortly after Bonifacio's death,

Civil Case No. 2264 was
instituted by petitioner Cenido
against Gavino Aparato before
the Municipal Trial Court,
Branch 1, Binangonan. The
records do not reveal the nature
of this action.xviii[18]
Nevertheless, three years after
filing of the case, the parties
entered into a compromise
agreement. The parties listed the
properties of Bonifacio
comprising two parcels of land:
one parcel was the residential
house and lot in question and the
other was registered agricultural
land with an area of 38,641
square meters; Gavino Aparato
expressly recognized Renato
Cenido as the sole illegitimate
son of his

brother, likewise, Cenido

recognized Gavino as the
brother of Bonifacio; as
Bonifacio's heirs, they
partitioned his estate among
themselves, with the subject
property and three portions of
the agricultural land as Cenido's
share, and the remaining 15,309
square meters of the agricultural
land as Gavino's; both parties
agreed to share in the
documentation, registration and
other expenses for the transfer of
their shares. This compromise
agreement was adopted as the
decision of the MTC on January
31, 1985.xix[19]

In the same year, petitioner

Cenido obtained in his name Tax
Declaration No. 02-6368 over
the subject property. Two years
later, in January 1987, he filed
an ejectment case against
respondent spouses who
continued occupying the
property in question. This case
was dismissed.

Respondent spouses claim of

ownership over the subject
property is anchored on a onepage typewritten document
entitled Pagpapatunay, executed
by Bonifacio Aparato. The
Pagpapatunay reads as follows:

PAGPAPATUNAY

DAPAT MALAMAN NG
LAHAT:

Akong si BONIFACIO
APARATO, binata, Pilipino,
husto sa gulang, at kasalukuyang
naninirahan sa Layunan,
Binangonan, Rizal, ay
nagpapatunay nitong mga
sumusunod:

Una: -- Na, ako ang siyang

nagmamay-ari ng isang lagay na
lupang SOLAR at Bahay
Tirahan na nakatirik sa
nabanggit na solar na makikita
sa lugar ng Rizal St., Layunan,
Binangonan, Rizal;

Ikalawa: -- Na, sapagkat ang

nagalaga sa akin hanggang sa
ako'y tuluyang kunin ng
Dakilang Maykapal ay walang
iba kungdi ang mag-asawang
AMADEO APACIONADO at
HERMINIA STA. ANA
APACIONADO;

Na, patunay na ito ay aking

nilagdaan ng maliwanag ang
aking isip at nalalaman ko ang
lahat ng nilalaman nito.

Ikatlo: -- Na, pinatutunayan ko

sa mga maykapangyarihan at
kanginumang tao na ang
nabanggit na SOLAR at bahay
tirahan ay ipinagbili ko sa
nabanggit na mag-asawa sa
halagang SAMPUNG LIBONG
(P10,000.00) PISO, bilang
pakunsuwelo sa kanilang
pagmamalasakit sa aking
pagkatao at kalalagayan;
NILAGDAAN SA HARAP
NINA:

(SGD.)
SA KATUNAYAN NG LAHAT,
lumagda ako ng aking pangalan
at apelyido ngayong ika-10 ng
Disyembre 1981, dito sa
Layunan, Binangonan, Rizal.

(Thumbmarked) BONIFACIO
APARATO

Nagpatunay

(SGD.)

Virgilio O. Cenido Carlos

Inabayan

Saksi Saksi -xx[20]

On its face, the document

Pagpapatunay attests to the
fact that

Bonifacio Aparato was the

owner of the house and lot in
Layunan, Rizal; that because the
Apacionado spouses took care of
him until the time of his death,
Bonifacio sold said property to
them for the sum of P10,000.00;
that he was signing the same
document with a clear mind and
with full knowledge of its
contents; and as proof thereof,
he was affixing his signature on
said document on the tenth day
of December 1981 in Layunan,
Binangonan, Rizal. Bonifacio
affixed his thumbmark on the
space above his name; and this
was witnessed by Virgilio O.
Cenido and Carlos Inabayan.

Petitioner Cenido disputes the

authenticity and validity of the

Pagpapatunay. He claims that

it is not a valid contract of sale

and its genuineness is highly

doubtful because: (1) it was not
notarized and is merely a private
instrument; (2) it was not signed
by the vendor, Bonifacio; (3) it
was improbable for Bonifacio to
have executed the document and
dictated the words lumagda ako
ng aking pangalan at apelyido
because he was paralyzed and
could no longer sign his name at
that time; and (4) the phrase
ang nag-alaga sa akin hanggang
sa ako'y tuluyang kunin ng
Dakilang Maykapal speaks of
an already departed

Bonifacio and could have been

made only by persons other than
the dead man himself.xxi[21]

To determine whether the

Pagpapatunay is a valid
contract of sale, it must contain
the essential requisites of
contracts, viz: (1) consent of the
contracting parties; (2) object
certain which is the subject
matter of the contract; and (3)
cause of the obligation which is
established.xxii[22]

The object of the

Pagpapatunay is the house and
lot. The consideration is
P10,000.00 for the services
rendered to Aparato by
respondent spouses. According
to respondent Herminia
Apacionado, this P10,000.00
was not actually paid to
Bonifacio because the amount
merely quantified the services
they rendered to the old man. It
was the care the spouses
voluntarily gave that was the
cause of the sale.xxiii[23] The

cause therefore was the service

remunerated.xxiv[24]

Petitioner alleges that Bonifacio

did not give his consent to the
deed because he did not affix his
signature, but merely his
thumbmark, on the document.
Bonifacio was a literate person
who could legibly sign his full
name, and his signature is
evident in several documents
such as his identification card as
member of the Anderson FilAmerican Guerillas;xxv[25] the
Kasulatan ng Palasanglaan
dated July 25, 1974 where he
and his two other siblings
mortgaged the subject property
for P2,000.00 to one Linda Y.
Cenido;xxvi[26] Padagdag sa
Sanglaan dated

June 16, 1976;xxvii[27] and

another Padagdag sa Sanglaan
dated March

2, 1979.xxviii[28]

Respondent Herminia Sta. Ana

Apacionado testified that
Bonifacio Aparato affixed his
thumbmark because he could no
longer write at the time of
execution of the document. The
old man was already 61 years of
age and could not properly see
with his eyes. He was stricken
by illness a month before and
was paralyzed from the waist
down. He could still speak,
albeit in a garbled manner, and
be understood. The contents of
the

Bonifacio, respondent
Apacionados, and a woman and
her husband. He was given a sheet
of paper to read. He read the
paper and understood that it was a
deed of sale of the house and lot
executed by Bonifacio in favor of
the Apacionados. Thereafter,
Bonifacio requested him to sign
the document as witness.
Reexamining the Pagpapatunay,
Inabayan saw that Bonifacio
affixed his thumbmark on the

Pagpapatunay were actually

dictated by him to one Leticia
Bandola who typed the same on
a typewriter she brought to his
house.xxix[29]

That Bonifacio was alive at the

time of execution of the contract
and voluntarily gave his consent
to the instrument is supported by
the testimony of Carlos
Inabayan, the lessee of
Bonifacio's billiard hall at the
ground floor of the subject
property. Inabayan testified that
on December 10, 1981, he was
summoned to go up to
Bonifacio's house. There, he saw
space above his name. Inabayan
thus signed the document and
returned to the billiard hall.xxx[30]

Inabayan's testimony has not

been rebutted by petitioner.
Petitioner, through counsel,
waived his right to do so, finding
no need to cross-examine the
witness.xxxi[31] This waiver was

granted by the court in the order

of September 23, 1992.xxxii[32]

One who alleges any defect or

the lack of a valid consent to a
contract must establish the same
by full, clear and convincing
evidence, not merely by
preponderance thereof.xxxiii[33]
Petitioner has not alleged that
the old man, by his physical or
mental state, was incapacitated
to give his consent at the time of
execution of the
Pagpapatunay. Petitioner has
not shown that Bonifacio was
insane or demented or a deafmute who did not know how to
write.xxxiv[34] Neither has
petitioner claimed, at the very
least, that the consent of
Bonifacio to the contract was
vitiated by mistake, violence,
intimidation, undue influence or
fraud.xxxv[35] If by assailing the
intrinsic defects in the wordage
of the Pagpapatunay petitioner
Cenido seeks to specifically
allege the exercise of extrinsic
fraud and undue influence on the
old man, these defects are not

substantial as to render the entire

contract void. There must be
clear and convincing evidence of
what specific acts of undue
influencexxxvi[36] or
fraudxxxvii[37] were employed by
respondent spouses that gave
rise to said defects. Absent such
proof, Bonifacio's presumed
consent to the

Pagpapatunay remains.

The Pagpapatunay, therefore,

contains all the essential
requisites of a contract. Its
authenticity and due execution
have not been disproved either.
The finding of the trial court that
the document was prepared by
another person and the
thumbmark of the dead
Bonifacio was merely affixed to
it is pure conjecture. On the
contrary, the testimonies of
respondent Herminia Sta. Ana
and Carlos Inabayan prove that
the document is authentic and
was duly executed by Bonifacio
himself.

The Pagpapatunay is
undisputably a private
document. And this fact does not
detract from its validity. The
Civil Code, in Article 1356
provides:

Art. 1356. Contracts shall be

obligatory, in whatever form
they may have been entered
into, provided all the essential
requisites for their validity are
present. However, when the
law requires that a contract be
in some form in order that it
may be valid or enforceable, or
that a contract be proved in a
certain way, that requirement
is absolute and indispensable.
In such cases, the right of the
parties stated in the following
article cannot be exercised.

Generally, contracts are

obligatory, in whatever form
such contracts may have been
entered into, provided all the
essential requisites for their
validity are present. When,
however, the law requires that a

contract be in some form for it to

be valid or enforceable, that
requirement must be complied
with.

A certain form may be

prescribed by law for any of the
following purposes: for validity,
enforceability, or greater
efficacy of the contract.xxxviii[38]
When the form required is for
validity, its non-observance
renders the contract void and of
no effect.xxxix[39] When the
required form is for
enforceability, non-compliance
therewith will not permit, upon
the objection of a party, the
contract, although otherwise
valid, to be proved or enforced
by action.xl[40] Formalities
intended for greater efficacy or
convenience or to bind third
persons, if not done, would not
adversely affect the validity or
enforceability of the contract
between the contracting parties
themselves.xli[41]

Article 1358 of the Civil Code

requires that:

Art. 1358. The following must

appear in a public document:

extinguishment of real rights

over immovable property;
sales of real property or of an
interest therein are governed
by Articles 1403, No. 2 and
1405;

Acts and contracts which have

for their object the creation,
transmission, modification or

The cession, repudiation or

renunciation of hereditary rights
or of those of the conjugal
partnership of gains;

The power to administer

property, or any other power
which has for its object an act
appearing or which should
appear in a public document, or
should prejudice a third person;

in action are governed by

Articles 1403, No. 2 and

The cession of actions or rights

proceeding from an act
appearing in a public document.

All other contracts where the

amount involved exceeds five
hundred pesos must appear in
writing, even a private one. But
sales of goods, chattels or things

1405.

Acts and contracts which create,

transmit, modify or extinguish
real rights over immovable
property should be embodied in a
public document. Sales of real
property are governed by the
Statute of Frauds which reads:

Art. 1403. The following

contracts are unenforceable,
unless they are ratified:

xxx
(3) x x x.
Those that do not comply with the
Statute of Frauds as set forth in
this number. In the following
cases an agreement hereafter
made shall be unenforceable by
action, unless the same, or some
note or memorandum thereof,
be in writing, and subscribed
and by the party charged, or by
his agent; evidence, therefore, of
the agreement cannot be received
without the writing, or a
secondary evidence of its
contents:

(a) An agreement that by its

terms is not to be performed
within a year from the making
thereof;

xxx

(e) An agreement for the leasing

for a longer period than one year,
or for the sale of real property
or of an interest therein;

The sale of real property should

be in writing and subscribed by
the party charged for it to be
enforceable. The Pagpapatunay
is in writing and subscribed by
Bonifacio Aparato, the vendor;
hence, it is enforceable

under the Statute of Frauds. Not

having been subscribed and
sworn to before a notary public,
however, the Pagpapatunay is
not a public document, and
therefore does not comply with
Article 1358, paragraph 1 of the
Civil Code.

The requirement of a public

document in Article 1358 is not
for the validity of the instrument
but for its efficacy.xlii[42]
Although a conveyance of land
is not made in a public
document, it does not affect the
validity of such
conveyance.xliii[43] Article 1358
does not require the
accomplishment of the acts or
contracts in a public instrument
in order to validate the act or
contract but only to insure its
efficacy,xliv[44] so that after the
existence of said contract has
been admitted, the party bound
may be compelled to execute the
proper document.xlv[45] This is
clear from Article 1357, viz:

Art. 1357. If the law requires

a document or other special
form, as in the acts and
contracts enumerated in the
following article [Article
1358], the contracting parties
may compel each other to
observe that form, once the
contract has been perfected.
This right may be exercised
simultaneously with the action
upon the contract.

The private conveyance of the

house and lot is therefore valid
between Bonifacio Aparato and
respondent spouses. The
question of whether the

Pagpapatunay is sufficient to
transfer and convey title to the
land for purposes of original
registrationxlvi[46] or the issuance
of a real estate tax declaration in
respondent spouses' names, as
prayed for by respondent
spouses,xlvii[47] is another matter
altogether.xlviii[48] For greater
efficacy of the contract,
convenience of the parties and to

bind third persons, respondent

spouses have the right to compel
the vendor or his heirs to execute
the necessary document to
properly convey the
property.xlix[49]

Anent petitioner's second

assigned error, the fact that the
Court of

Appeals sustained the validity of

the Pagpapatunay was not a
conclusion that necessarily
should be nullified, as prayed
for by respondent spouses in
their complaint.

Tax Declaration No. 026368l[50] in petitioner Cenido's

name was issued pursuant to the
compromise judgment of the
MTC where Gavino Aparato,
Bonifacio's brother, expressly
recognized petitioner Cenido as
Bonifacio's sole illegitimate son.
The compromise judgment was

resulted from the weakness of

petitioner's claim of filiation to
Bonifacio Aparato. Of and by
itself, the Pagpapatunay is a
valid contract of sale between
the parties and the Court of
Appeals did not err in upholding
its validity.

The issue of petitioner's

paternity, however, is essential
to determine whether Tax
Declaration No. 02-6368 in the
name of petitioner Cenido
rendered in 1985, three years
after Bonifacio's demise.

Under the Civil Code,li[51]

natural children and illegitimate
children other than natural are
entitled to support and
successional rights only when
recognized or acknowledged by
the putative parent.lii[52] Unless
recognized, they have no rights
whatsoever against their alleged
parent or his estate.liii[53]

The filiation of illegitimate

children may be proved by any
of the forms of recognition of
natural children.liv[54] This
recognition may be made in
three ways:lv[55] (1) voluntarily,
which must be express such as
that in a record of birth, a will, a
statement before a court of
record, or in any authentic
writing;lvi[56] (2) legally, i.e.,
when a natural child is
recognized, such recognition
extends to his or her brothers
and sisters of the full
blood;lvii[57] and (3) judicially
or compulsorily, which may be
demanded by the illegitimate
child of his parents.lviii[58] The
action for compulsory
recognition of the illegitimate
child must be brought during the
lifetime of the presumed
parents. This is explicitly
provided in Article 285 of the
Civil Code, viz:

Art. 285. The action for the

recognition of natural children
may be brought only during the
lifetime of the presumed

parents, except in the following

cases:

If the father or mother died

during the minority of the child,
in which case the latter may file
the action before the expiration
of four years from the
attainment of his majority;

If after the death of the father or

of the mother a document should
appear of which nothing had
been heard and in which either
or both parents recognize the
child.

In this case, the action must be

commenced within four years
from the finding of the
document.

The illegitimate child can file an

action for compulsory
recognition only during the
lifetime of the presumed parent.
After the parent's death, the
child cannot bring such action,
except, however, in only two
instances: one is when the
supposed parent died during the
minority of the child, and the
other is when after the death of
the parent, a document should
be discovered in which the
parent recognized the child as
his. The action must be brought
within four years from the
attainment of majority in the
first case, and from the
discovery of the document in
the second case. The
requirement that the action be
filed during the parent's lifetime
is to prevent illegitimate
children, on account of strong
temptations to large estates left
by dead persons, to claim part of
this estate without giving the
alleged parent personal
opportunity to be heard.lix[59] It
is vital that the parent be heard
for only the parent is in a
position to reveal the true facts

surrounding the claimant's

conception.lx[60]

In the case at bar, petitioner

Cenido did not present any
record of birth, will or any
authentic writing to show he was
voluntarily recognized by
Bonifacio as his illegitimate son.
In fact, petitioner admitted on
the witness stand that he had no
document to prove Bonifacio's
recognition, much less his
filiation.lxi[61] The voluntary
recognition of petitioner's
filiation by Bonifacio's brother
before the MTC does not qualify
as a

statement in a court of record.

Under the law, this statement
must be made personally by the
parent himself or herself, not by
any brother, sister or relative;
after all, the concept of
recognition speaks of a
voluntary declaration by the
parent, or if the parent refuses,
by judicial authority, to establish
the paternity or maternity of

children born outside

wedlock.lxii[62]

The compromise judgment of

the MTC does not qualify as a
compulsory recognition of
petitioner. In the first place,
when he filed this case against
Gavino Aparato, petitioner was
no longer a minor. He was
already pushing fifty years
old.lxiii[63] Secondly, there is no
allegation that after Bonifacio's

death, a document was

discovered where Bonifacio
recognized petitioner Cenido as
his son. Thirdly, there is nothing
in the compromise judgment that
indicates that the action before
the MTC was a settlement of
Bonifacio's estate with a gross
value not exceeding
P20,000.00.lxiv[64] Definitely,
the action could not have been
for compulsory recognition
because the MTC had no
jurisdiction over the subject
matter.lxv[65]

The Real Property Tax Code provides that real property tax be assessed in
the name of the person owning or administering the property on which
the tax is levied.lxvi[66] Since petitioner Cenido has not proven any
successional or administrative rights to Bonifacio's estate, Tax
Declaration No. 02-6368 in Cenido's name must be declared null and
void.

IN VIEW WHEREOF, the petition is denied and the Decision and

Resolution of the Court of Appeals in CA-G.R. CV No. 41011 are
affirmed. Tax Declaration No. 02-6368 in the name of petitioner Renato
Cenido is declared null and void.

No costs.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Kapunan, Pardo, and Ynares-Santiago, JJ.,

concur.
G.R. No. 153447 February 23, 2004

VILLARANDA; and
COLORHOUSE LABORATORIES,
INC., respondents.

VICENTE G. VILLARANDA,
petitioner, vs.
DECISION
Spouses HONORIO G.
VILLARANDA and ANA MARIA Y.

PANGANIBAN, J.:

Without the wifes consent, the

husbands alienation or encumbrance of
conjugal property prior to the effectivity
of the Family Code is not void, but
merely voidable.

The trial courts Decision that was

affirmed by the CA had disposed as
follows:

"WHEREFORE, judgment is hereby

rendered in favor of plaintiffs and
against defendant:

The Case

Before us is a Petition for Review

under Rule 45 of the Rules of Court,
challenging the October 25, 2001
2

Decision and the April 23, 2002

3

Resolution of the Court of Appeals

(CA) in CA-GR CV No. 55810. The
assailed Decision disposed as follows:

"UPON THE VIEW WE TAKE OF

THIS CASE, the present appeal is
hereby DISMISSED and the judgment
appealed from AFFIRMED in toto.
Costs shall be taxed against
appellant."

The assailed Resolution denied

petitioners Motion for
Reconsideration.

"(a) ORDERING the latter to reconvey

to plaintiffs Lot 448-B-7 covered by
Transfer Certificate of Title No. T65893 Registry of Deeds of Cagayan
de Oro City located at Divisoria,
Cagayan de Oro City, in his name
without any consideration; and

"(b) ORDERING defendant to choose

his 500 square-meter portion on the lot
of plaintiffs at Bontola, Macasandig,
Cagayan de Oro City. After he shall
have chosen his 500 square meter
portion of the lot of plaintiff, plaintiff
shall thru a surveyor, segregate this
portion. After the subdivision plan
shall have been approved by the
Executive Director of the DENR,
Region 10, Cagayan de Oro City, to
execute a deed of conveyance in favor
of defendant over this 500 squaremeter portion of his land located at
Bontola, Macasandig, Cagayan de Oro
City, also without consideration;

"(c) With this judgment, plaintiffs and

intervenor may now consummate their
transaction.

"WITHOUT PRONOUNCEMENT AS
TO COSTS."

Exchange. Under this instrument,

Vicente agreed to convey his 64.22square-meter portion to Honorio, in
exchange for a 500-square-meter
property in Macasandig, Cagayan de
Oro City, which was covered by
Transfer Certificate of Title (TCT) No.
7

2138.

The Facts

After the execution of the Deed,

Honorio took possession of the 64.22square-meter lot and constructed a

This controversy revolves around a

Deed of Exchange executed by and
between two brothers, herein
Petitioner Vicente Villaranda and
Private Respondent Honorio
Villaranda.

building thereon.

A 471-square-meter parcel of land

located at Divisoria, Cagayan de Oro
City, was left to the two brothers and
their eight other siblings by their
parents. Estate Administrator Bebiano
Luminarias leased 124 square meters
of the property to Honorio starting on
May 1, 1976, until May 31, 1986.
Vicente, on the other hand, inherited
64.22 square meters of the property
that had not been leased to Honorio.

On July 6, 1976, the two brothers

executed the assailed Deed of

Years later, on April 6, 1992, a

subdivision plan for Lot 448-B was
completed, in pursuit of which TCT
No. T-65893 for the 64.22 squaremeter share of Vicente was issued in
his name and designated as Lot 448-B7. The other heirs were issued their
own TCTs for their respective shares.

Honorio and his wife, Respondent Ana

Maria Y. Villaranda, then brought an
10

action for specific performance

before the Regional Trial Court (RTC)
of Cagayan de Oro City (Branch 24) to
compel Vicente to comply with his
obligations under the Deed of
Exchange. The spouses alleged that
they could not fully use or dispose of
their Macasandig property, because

Vicente had yet to identify and

delineate his undivided 500- squaremeter portion of the property. They
asked the court to compel him to do
so, as well as to convey to them the
64.22-square-meter Divisoria lot, in
compliance with his obligations under
the Deed.

11

During the pendency of the case,

Honorio conditionally sold the Divisoria
lot to Colorhouse Laboratories, Inc.
which, by virtue thereof, intervened in
the civil case.

12

considerations therein were iniquitous.

Honorio agreed, provided certain
conditions he had disclosed were

Vicente did not deny that he had

entered into the Deed of Exchange
with Honorio. The former, however,
averred that he was not bound
13

thereby, contending that because the

property had not been delivered, the
Deed had not been consummated.
Moreover, he claimed that the Deed
had already been revoked by both
14

parties. According to him, he,

together with his co-heirs, requested
Honorio to agree to its rescission,
because the
already stated, the trial court ruled in
favor of respondent spouses.

15

met. Vicente contended that he had

complied with those conditions; and
that, therefore, he and respondent
spouses had already revoked the Deed
of Exchange.

During pretrial, the parties stipulated

the following facts: (a) the existence
and due execution of the Deed of
Exchange; (b) the identity of the
parties; (c) the existence of TCT No. T65893, which had been registered in
the Registry of Deeds of Cagayan de
Oro City in the name of petitioner; and
(d) the physical possession by
Colorhouse, through Honorio, of the
16

64.22-square-meter Divisoria lot. As

Ruling of the Court of Appeals

On appeal, the CA held that the

provisions of the Civil Code were
applicable to the case at bar, since the
Deed of Exchange had been entered
into prior to the enactment of the
17

Family Code. Thus, the absence of

the wifes signature on the Deed made
it only voidable,

18

not void.

The CA further found that Ana was

aware of the execution of the Deed,

19

and

yet she brought no action for its

annulment within ten (10) years from its
execution. Her omission or refusal to
rescind it, as well as her act of joining her
husband in filing the case for specific
performance, points to the conclusion
that she assented to the Deed.

parties entered into the Deed showed

that the consideration was not
altogether unconscionable as to warrant
voiding the Contract.

20

Hence, this Petition.

The CA also ruled that the spouses
cause of action had accrued, not from
the date of the execution of the Deed,
but only from the moment Vicente
refused to cause the transfer of his title
to Honorio, some two months before
the filing of the present case. It was
only then that the prescriptive period
commenced to run.

27

In his Memorandum, petitioner raises

two issues for our consideration:

21

Further, the CA held that as regards the

capacity of the parties to enter into the
Deed of Exchange, the only time to be
reckoned with was the moment of its
22

execution. Honorio acquired his

American citizenship only in September
23

1992, which was years thereafter. The

CA further explained that according to
the 1987 Constitution, a natural-born
citizen of the Philippines who had lost
Philippine citizenship may own private
24

Finally, the appellate court ruled that

the circumstances at the time the

26

The Issues

I.

lands.

25

"Whether there was a perfected and

consummated deed of exchange on
account of the following:

The Petition has no merit.

First Issue:
There was no specific identification
and delineation of the object of the
Deed of Exchange and that there was a
condition precedent for petitioner to
examine and accept the specific area to
effect the exchange;

Perfection and Consummation of the

Deed of Exchange

There was a need for another contract

to be executed in order to identify the
object of the exchange;

Petitioner argues that the Contract was

not perfected or consummated because,
at the time of its execution, its object
was not determinate or at least not
determinable without need for a new
agreement between the parties, as
mandated by the provisions of the law
29

There was no acceptance and actual

delivery of the 500 square meters lot to
petitioner at any given time;

II.

Whether the Deed of Exchange which

was not signed by the wife of
Respondent Honorio G. Villaranda is
valid and enforceable."

The Courts Ruling

28

on sales. He argues that, first, he has

to make an ocular inspection of the
area; second, the particular 500-squaremeter portion of the Macasandig lot
that is the object of the Deed still has to
be particularly identified and
delineated; third, the finally determined
portion is still subject to the acceptance
and agreement of the parties; and lastly,
absent a delineation of the specified
portion, no delivery -- which is
essential to the perfection of the
30

contract -- is possible. He further

contends that, at best, he merely gave a
qualified acceptance amounting to a
counter-offer, which was contingent
upon the final delineation and
acceptance of the 500-square-meter
portion.

31

Respondent spouses, on the other hand,

argue that petitioner should not be
allowed to adopt a new theory of the
case by impugning the validity of the
Deed based on a different ground that
was not alleged in the pleadings or
raised before the lower and the
appellate courts.

In any event, respondent spouses contend

that the Deed contains all the essential
elements of a contract --consent, object
33

and consideration. They insist that what

needs to be executed is not another
contract to give effect to their original
agreements, but one

32
34

in the nature of a partition agreement.

They aver that the Deed is akin to a
contract of co-ownership, because it
involves the conveyance of an
undivided interest over land. Further
agreement between the parties is
necessary only to effect partition of the
properties and thus terminate the
existing co-ownership.

considered by a reviewing court, as

they cannot be raised for the first time
37

at that late stage. Basic rules of fair

play, justice and due process impel this
rule. Any issue raised for the first time
on appeal is barred by estoppel.

38

35

There are, however, exceptions to the

39

Respondent Colorhouse raises the same

issues as those brought up by
respondent spouses. It adds that when
petitioner asked that the agreement be
revoked, he was estopped from
claiming its non-perfection, because
revocation presupposes the existence of
a valid contract.

general rule. Though not raised below,

the following issues may be considered
by the reviewing court: lack of
jurisdiction over the subject matter, as
this issue may be raised at any stage;
40

plain error; jurisprudential

developments affecting the issues; or the
41

raising of a matter of public policy.

36

Petitioners contentions must fail. It is

well-settled that points of law, theories,
issues and arguments not brought to the
attention of the lower court need not be
-- and ordinarily will not be --

Too late in the day is petitioners

argument that the Deed of Exchange is
null and void on the ground that the
object of the contract is not determinate
or at least determinable. Considering
that this issue does not fall under any

of the enumerated exceptions, there is

no cogent reason for the Court to pass
upon it.

Second Issue:

Absence of Spouses Signature

used.

Petitioner also contends that the Deed

of Exchange is null and void because
the signature of Honorios wife, Ana,
42

does not appear on the instrument. To

support his argument, he cites the
Family Code; as well as Garcia v.
Court of Appeals

43

and Nicolas v.

44

Court of Appeals, in which the Court

declared the Deeds of Sale void
because of the absence of the wives
conformity to the disposition of the
conjugal properties involved therein.

Respondents, on the other hand, argue

that the absence of the signature of Ana
on the Deed does not prove lack of her
consent thereto, because a contract may
validly exist even if the parties have
not reduced their stipulations to
45

writing. Too, assuming that her

consent to the Deed is lacking, such
fact would not render the agreement
void, but merely voidable.

46

Indeed, petitioners contention is

untenable. The Deed was entered into on
July 6, 1976, while the Family Code took
effect only on August 3, 1998. Laws
should be applied prospectively only,
unless a legislative intent to give them
retroactive effect is expressly declared or
is necessarily implied from the language
47

Hence, the provisions of the

48

Civil Code, not the Family Code, are

applicable to the present case. The
Macasandig lot was part of Honorio and
Anas conjugal properties. The relevant
provisions of the

Civil Code on the disposition of real

properties of the conjugal partnership
are the following:

"Article 166. Unless the wife has been

declared a non compos mentis or a
spendthrift, or is under civil interdiction
or is confined in a leprosarium, the
husband cannot alienate or encumber any
real property of the conjugal partnership
without the wifes consent. x x x

"Article 173. The wife may, during the

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

According to Article 166, the husband

cannot alienate or encumber any real
property of the conjugal partnership
without the wifes consent. This
provision, however, must be read in
conjunction with Article 173 of the
same Code. The latter states that an
action to annul an alienation or
encumbrance may be instituted by the
wife during the marriage and within ten
years from the transaction questioned.
Videlicet, the lack of consent on her
part will not make the husbands
alienation or encumbrance of real
property of the conjugal partnership
49

void, but merely voidable. Hence, the

Deed is valid until and unless annulled.

In this case, the records show no

evidence that any action to annul the
transfer made by Honorio was ever
brought by Ana within ten years from
"the transaction questioned." Her right
to bring an action to invalidate the
contract has thus prescribed. Hence,
the assailed Deed is still valid and
enforceable.

50

Moreover, in Papa v. Montenegro,

the Court explained that the legal
prohibition against the disposition of
conjugal property by one spouse
without consent of the other has been
established for the benefit, not of third
persons, but only of the other spouse

for whom the law desires to save the

conjugal partnership from damages that
might be caused. Not being the proper
party, Vicente cannot avail himself of
the remedy prescribed by Article 173.

Furthermore, his reliance on Garcia v.

Court of Appeals and Nicolas v. Court
of Appeals is misplaced. Unlike the
present case, the cited cases involve a
Petition brought by one of the spouses

for the annulment of the contracts

entered into by the other spouse.
Additionally, we must point out that
contrary to petitioners contention, the
contracts involved therein were not
void ab initio, but merely voidable.

WHEREFORE, the Petition is

DENIED and the challenged Decision
AFFIRMED. Costs against petitioner.

SO ORDERED.

Davide, Jr., C.J., (Chairman), YnaresSantiago, Carpio, and Azcuna, JJ.,

concur.

[G.R. No. 125172. June 26, 1998]

Spouses ANTONIO and

LUZVIMINDA GUIANG, petitioners,
vs. COURT OF

APPEALS and GILDA CORPUZ,

respondents.

DECISION

PANGANIBAN, J.:

The sale of a conjugal property

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

The Case

These were the principles that

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

On May 28, 1990, Private

Respondent Gilda Corpuz filed an
Amended Complaintlxix[3] against
her husband Judie Corpuz and
Petitioners-Spouses

Antonio and Luzviminda Guiang.

The said Complaint sought the
declaration of a certain deed of
sale, which involved the conjugal
property of private respondent and
her husband, null and void. The
case was raffled to the Regional
Trial Court of Koronadal, South
Cotabato, Branch 25. In due
course, the trial court rendered a
Decisionlxx[4] dated September 9,
1992, disposing as follows:lxxi[5]

ACCORDINGLY, judgment is
rendered for the plaintiff and
against the defendants,

Declaring both the Deed of

Transfer of Rights dated March 1,
1990

(Exh. A) and the amicable

settlement dated March 16, 1990
(Exh. B) as null and void and of
no effect;

Recognizing as lawful and valid the

ownership and possession of
plaintiff Gilda Corpuz over the
remaining one-half portion of Lot 9,
Block 8, (LRC) Psd-165409 which

has been the subject of the Deed

of Transfer of Rights

(Exh. A);

Ordering plaintiff Gilda Corpuz to

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

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

Dissatisfied, petitioners-spouses
filed an appeal with the Court of
Appeals. Respondent Court, in its
challenged Decision, ruled as
follows:lxxii[6]

WHEREFORE, the appealed

decision of the lower court in Civil
Case

No. 204 is hereby AFFIRMED by

this Court. No costs considering
plaintiff-appellees failure to file her
brief, despite notice.

Reconsideration was similarly

denied by the same court in its
assailed
Resolution:lxxiii[7]

Finding that the issues raised in

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

The Facts

The facts of this case are simple.

Over the objection of private
respondent and while she was in
Manila seeking employment, her
husband sold to the petitionersspouses one half of their conjugal
property, consisting of their
residence and the lot on which it
stood. The circumstances of this
Bacolod City, before a judge.
This is admitted by defendantsspouses Antonio and
Luzviminda Guiang in their
answer, and also admitted by
defendant Judie Corpuz when
he testified in court (tsn. p..3,
June 9,

1992), although the latter says

that they were married in 1967.
The couple have three
children, namely: Junie 18
years old, Harriet 17 years of
age, and Jodie or Joji, the
youngest, who was 15 years of
age in August, 1990 when her
mother testified in court.

Sometime on February 14,

1983, the couple Gilda and
Judie Corpuz, with plaintiff-wife
Gilda Corpuz as vendee,
bought a 421 sq. meter lot

sale are set forth in the Decision of

Respondent Court, which quoted
from the Decision of the trial court,
as follows:lxxiv[8]

1. Plaintiff Gilda Corpuz and

defendant Judie Corpuz are legally
married spouses. They were married
on December 24, 1968 in

located in Barangay Gen.

Paulino Santos (Bo. 1),
Koronadal, South

Cotabato, and particularly known

as Lot 9, Block 8, (LRC) Psd165409 from Manuel Callejo who
signed as vendor through a
conditional deed of sale for a
total consideration of
P14,735.00. The consideration
was payable in installment, with
right of cancellation in favor of
vendor should vendee fail to pay
three successive installments
(Exh. 2, tsn. p.

6, February 14, 1990).

Sometime on April 22, 1988,

the couple Gilda and Judie
Corpuz sold one-half portion of
their Lot No. 9, Block 8, (LRC)
Psd-165409 to the defendantsspouses Antonio and

Luzviminda Guiang. The latter

have since then occupied the
one-half portion [and] built their
house thereon (tsn. p. 4, May
22, 1992). They are thus
adjoining neighbors of the
Corpuzes.

Plaintiff Gilda Corpuz left for

Manila sometime in June 1989.
She was trying to look for work
abroad, in [the] Middle East.
Unfortunately, she became a
victim of an unscrupulous
illegal recruiter. She was not
able to go abroad. She stayed
for sometime in Manila
however, coming back to
Koronadal, South Cotabato, x x
x on March 11, 1990.

Plaintiffs departure for Manila

to look for work in the Middle
East was with the consent of
her husband Judie Corpuz
(tsn. p. 16, Aug.12,
1990; p. 10, Sept. 6, 1991).

After his wifes departure for

Manila, defendant Judie
Corpuz seldom went home to
the conjugal dwelling. He
stayed most of the time at his

place of work at Samahang

Nayon Building, a hotel,
restaurant, and a cooperative.
Daughter Harriet Corpuz went
to school at Kings College,

Bo. 1, Koronadal, South

Cotabato, but she was at the
same time working as
household help of, and staying
at, the house of Mr. Panes. Her
brother Junie was not working.
Her younger sister Jodie (Joji)
was going to school. Her
mother sometimes sent them
money (tsn. p. 14, Sept. 6,
1991).

Sometime in January 1990,

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

4. However, in the absence of

his wife Gilda Corpuz,
defendant Judie Corpuz
pushed through the sale of the
remaining one-half portion of

Lot 9, Block 8, (LRC) Psd165409. On March 1, 1990, he

sold to defendant Luzviminda
Guiang thru a document known
as Deed of

Transfer of Rights (Exh. A) the

remaining one-half portion of
their lot and the house standing
thereon for a total consideration
of P30,000.00 of which
P5,000.00 was to be paid in
June , 1990. Transferor Judie

widow of the original registered

owner from whom the couple
Judie and Gilda Corpuz
originally bought the lot

(Exh. 2), who signed as

vendor for a consideration of
P9,000.00.
Defendant Judie Corpuz
signed as a witness to the sale
(Exh. 3-A).

The new sale (Exh. 3)

describes the lot sold as Lot 8,
Block 9, (LRC)

Corpuzs children Junie and

Harriet signed the document as
witnesses.

Psd-165408 but it is obvious

from the mass of evidence that
the correct lot is Lot 8, Block 9,
(LRC) Psd-165409, the very lot
earlier sold to the couple Gilda
and Judie Corpuz.

Four (4) days after March 1,

1990 or on March 5, 1990,
obviously to cure whatever
defect in defendant Judie
Corpuzs title over the lot
transferred, defendant
Luzviminda Guiang as vendee
executed another agreement
over Lot 9, Block 8, (LRC) Psd165408 (Exh. 3), this time with
Manuela Jimenez Callejo, a

Sometime on March 11, 1990,

plaintiff returned home. She
found her children staying with
other households. Only Junie
was staying in their house.
Harriet and Joji were with Mr.
Panes. Gilda gathered her
children together and stayed at
their house. Her husband was
nowhere to be found. She was

informed by her children that

their father had a wife already.

the settlement provides for, to

wit:

For staying in their house sold

by her husband, plaintiff was
complained against by
defendant Luzviminda Guiang
and her husband

That respondent, Mrs. Gilda

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

Antonio Guiang before the

Barangay authorities of
Barangay General
Paulino Santos (Bo. 1),
Koronadal, South Cotabato, for
trespassing

(tsn. p. 34, Aug. 17, 1990). The

case was docketed by the
barangay authorities as
Barangay Case No. 38 for
trespassing. On March 16,

1990, the parties thereat

signed a document known as
amicable settlement. In full,
in turn told her that he could not do
anything on the matter (tsn. p. 31,
Aug. 17, 1990).

FAIL NOT UNDER THE

PENALTY OF THE LAW.

Believing that she had received

the shorter end of the bargain,
plaintiff went to the Barangay
Captain of Barangay Paulino
Santos to question her
signature on the amicable
settlement. She was referred
however to the Officer-InCharge at the time, a certain
Mr. de la Cruz. The latter
This particular point was not
rebutted. The Barangay Captain
who testified did not deny that Mrs.
Gilda Corpuz approached him for
the annulment of the settlement.

He merely said he forgot whether

Mrs.

Corpuz had approached him (tsn. p.

13, Sept. 26, 1990). We thus
conclude that Mrs. Corpuz really
approached the Barangay Captain
for the annulment of the settlement.
Annulment not having been made,
plaintiff stayed put in her house and
lot.

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

As a consequence of the sale, the

spouses Guiang spent P600.00 for
the preparation of the Deed of
Transfer of Rights, Exh. A;

P9,000.00 as the amount they paid to

Mrs. Manuela Callejo, having
assumed the remaining obligation of
the Corpuzes to Mrs. Callejo (Exh.

3); P100.00 for the preparation of

Exhibit 3; a total of P759.62 basic
tax and special educational fund on
the lot; P127.50 as the total
documentary stamp tax on the
various documents; P535.72 for the
capital gains tax; P22.50 as
transfer tax; a standard fee of
P17.00; certification fee of P5.00.
These expenses particularly the
taxes and other expenses towards
the transfer of the title to the
spouses Guiangs were incurred for
the whole Lot 9, Block 8, (LRC)
Psd-165409.

Ruling of Respondent Court

Respondent Court found no

reversible error in the trial courts
ruling that any alienation or
encumbrance by the husband of the
conjugal property without the consent
of his wife is null and void as
provided under Article 124 of the
Family

Code. It also rejected petitioners

contention that the amicable
settlement ratified said sale, citing
Article 1409 of the Code which

expressly bars ratification of the

contracts specified therein,
particularly those prohibited or
declared void by law.

Whether or not the assailed Deed

of Transfer of Rights was validly
executed.

II
Hence, this petition.lxxv[9]

The Issues

In their Memorandum, petitioners

assign to public respondent the
following errors:lxxvi[10]

Whether or not the Court of Appeals

erred in not declaring as voidable
contract under Art. 1390 of the Civil
Code the impugned Deed of

Transfer of Rights which was

validly ratified thru the execution of
the

amicable settlement by the

contending parties.

III

Whether or not the Court of

Appeals erred in not setting aside
the findings of the Court a quo
which recognized as lawful and
valid the ownership and possession
of private respondent over the
remaining one half (1/2) portion of
the subject property.

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

ART. 1390. The following contracts

are voidable or annullable, even
though there may have been no
damage to the contracting parties:

xxx

xxx

xxx

This Courts Ruling

The petition is bereft of merit.

(2) Those where the consent is

vitiated by mistake, violence,
intimidation, undue influence or
fraud.

First Issue: Void or Voidable Contract?

Petitioners insist that the

questioned Deed of Transfer of
Rights was validly executed by the
parties-litigants in good faith and for
valuable consideration.

The absence of private

respondents consent merely
rendered the Deed voidable under
Article 1390 of the Civil Code,
which provides:

consent to the contract of sale of

their conjugal property was totally
inexistent or absent. Gilda Corpuz,

These contracts are binding, unless

they are annulled by a proper
action in court. They are
susceptible of ratification.(n)

The error in petitioners contention

is evident. Article 1390, par. 2,
refers to contracts visited by vices
of consent, i.e., contracts which
were entered into by a person
whose consent was obtained and
vitiated through mistake, violence,
intimidation, undue influence or
fraud. In this instance, private
respondents
on direct examination, testified
thus:lxxvii[11]

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

A
I was still in Manila during
that time.

xxx

xxx

which arose regarding my

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

This being the case, said contract

properly falls within the ambit of
Article 124 of the Family Code,
which was correctly applied by the
two lower courts:

xxx

ATTY. FUENTES:

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

A
That was on March 11,
1990, Maam.

Q Now, when you arrived at

Koronadal, was there any problem
which arose concerning the
ownership of your residential house
at Callejo Subdivision?

A When I arrived here in

Koronadal, there was a problem

ART. 124. The administration and

enjoyment of the conjugal
partnership property shall belong to
both spouses jointly. In case of
disagreement, the husbands
decision shall prevail, subject to
recourse to the court by the wife for
proper remedy, which must be
availed of within five years from the
date of the contract implementing
such decision.

In the event that one spouse is

incapacitated or otherwise unable to
participate in the administration of the
conjugal properties, the other spouse
may assume sole powers of
administration. These powers do not
include the powers of disposition or
encumbrance which must have the
authority of the court or the written
consent of the other spouse. In the
absence of such authority or

consent, the disposition or

encumbrance shall be void.
However, the transaction shall be
construed as a continuing offer on
the part of the consenting spouse
and the third person, and may be
perfected as a binding contract upon
the acceptance by the other spouse
or authorization by the court before
the offer is withdrawn by either or
both offerors.(165a) (Italics
supplied)

Comparing said law with its

equivalent provision in the Civil
Code, the trial court adroitly
explained the amendatory effect of
the above provision in this
wise:lxxviii[12]

The legal provision is clear. The

disposition or encumbrance is void.

It becomes still clearer if we

compare the same with the
equivalent provision of the Civil
Code of the Philippines. Under
Article 166 of the

Civil Code, the husband cannot

generally alienate or encumber any
real property of the conjugal
partnership without the wifes
consent.

The alienation or encumbrance if

so made however is not null and
void. It is merely voidable. The
offended wife may bring an action
to annul the said alienation or
encumbrance. Thus, the provision
of Article 173 of the Civil Code of
the Philippines, to wit:

Art. 173. The wife may, during the

marriage and within ten years from
the transaction questioned, ask the
courts for the annulment of any
contract of the husband entered
into without her consent, when
such consent is required, or any
act or contract of the husband
which tends to defraud her or
impair her interest in the conjugal
partnership property.

Should the wife fail to exercise this

right, she or her heirs after the
dissolution of the marriage, may
demand the value of property
fraudulently alienated by the
husband.(n)

This particular provision giving the

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

referred to by petitioners were

perpetrated in the execution of the
document embodying the amicable
settlement. Gilda Corpuz alleged
during trial that barangay
authorities made her sign said
document through
misrepresentation and
coercion.lxxix[13]

In any event, its execution does not

alter the void character of the deed of
sale between the husband and the
petitioners-spouses, as will be
discussed later.

The fact remains that such contract

was entered into without the wifes
consent.

In sum, the nullity of the contract of

sale is premised on the absence of
private respondents consent. To
constitute a valid contract, the Civil
Code requires the concurrence of
the following elements: (1) cause,
(2) object, and (3) consent,lxxx[14]
the last element being indubitably
absent in the case at bar.

Second Issue: Amicable Settlement

Furthermore, it must be noted that

the fraud and the intimidation

Insisting that the contract of sale

was merely voidable, petitioners
aver that it was duly ratified by the
contending parties through the

amicable settlement they

executed on March 16, 1990 in
Barangay Case No. 38.

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

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

A). By express provision of law, such a contract is also void. Thus, the legal
provision, to wit:

Art. 1422. A contract which is the direct result of a previous illegal contract, is also
void and inexistent. (Civil Code of the

Philippines).

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

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

Neither can the amicable settlement be considered a continuing offer that was
accepted and perfected by the parties, following the last sentence of Article 124.

The order of the pertinent events is clear: after the sale, petitioners filed a complaint
for trespassing against private respondent, after which the barangay authorities
secured an amicable settlement and petitioners filed before the

MTC a motion for its execution. The settlement, however, does not mention a
continuing offer to sell the property or an acceptance of such a continuing offer.

Its tenor was to the effect that private respondent would vacate the property. By
no stretch of the imagination, can the Court interpret this document as the
acceptance mentioned in Article 124.

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

SO ORDERED.

Davide, Jr., (Chairman), Bellosillo, Vitug, and Quisumbing, JJ., concur.