Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 165724

November 2, 2006

ZAMORA REALTY and DEVELOPMENT CORPORATION and/or ERNESTO ZAMORA, Petitioners,

vs.
OFFICE OF THE PRESIDENT OF THE PHILIPPINES and EDILBERTO C. GALLARDO, Respondents.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari of the Decision 1 of the Court of Appeals (CA) in CA-G.R. SP No. 78319 and its
Resolution2 denying the motion for reconsideration thereof.
On October 8, 1985, respondent Edilberto C. Gallardo entered into a contract to sell with Amlac Development
Corporation (Amlac). The property
subject of the contract is Lot 1, Block 3 of Amlac-Ville Subdivision. Under the contract, Gallardo was to pay a
downpayment of P26,058.00, upon execution, the balance to be paid in installments of P1,987.50 until full settlement
of the purchase price of P130,290.00. Gallardo delivered the downpayment upon the signing of the contract, and
several months later, on March 11, 1987,3 the initial installment. Gallardo later informed the owner/developer of his
intention to stop further payments due to the latters non-compliance with its obligation to complete the development
of the subdivision project. The owner/developer nevertheless made several demands for him to pay the monthly
amortizations, which the latter ignored, insisting that he would suspend payment until the completion of the
subdivision project.
Thereafter, Zamora Realty and Development Corporation (Zamora Realty) sent a letter 4 dated January 22, 1990,
addressed to Jaime dela Rosa, copy furnished to all Amlac-Ville Subdivision buyers, advising them to defer payment of
monthly amortization due to a pending case between it and Amlac. On November 5, 1991, Gallardo sent a letter 5 to
the Amlac-Ville Subdivision reiterating his stand to suspend the amortization payments. The realty firm still made
demands on Gallardo to pay his back arrears which, per its second notice dated January 28, 1992, amounted
to P147,075.00. A final notice of demand was also sent to Gallardo, stating that his arrears already amounted
to P153,037.50.6 Finally, on May 14, 1992, Amlac/Zamora Realty sent Gallardo a notarial notice of cancellation of the
contract.7
On June 3, 1992, Gallardo filed a complaint with the Housing and Land Use Regulatory Board (HLURB) against Zamora
Realty and Development Corporation and/or Ernesto Zamora, assailing the notarial rescission of the contract to sell. 8 In
his complaint, he averred that his suspension of the amortization payment was justified by the non-development of the
subdivision project.
For their part, defendants countered that the subject project was almost substantially complete; the centralized water
distribution system had been installed, and the concreting of sidewalks had been concluded. They likewise argued that
plaintiff failed to observe the provision of Section 23 of Presidential Decree (P.D.) No. 957 before suspending
payments.9
The HLURB Arbiter conducted an ocular inspection of the project and found that development of the project was still
ongoing.10 Thus, the HLURB Arbiter rendered a decision in favor of Gallardo. The fallo reads:
WHEREFORE, premises considered, judgment is hereby rendered as follows:
1. Declaring the complainants suspension of payment beginning November 21, 1991, as legal and valid;

2. As a consequence of the foregoing, holding respondents rescission of contract over the controverted lot as
illegal; and
3. Ordering the complainant to pay the whole balance of his obligations sans penalty interest or interest of this
nature except the legal interest as stipulated in their contract conditioned upon respondents substantial
compliance with his obligation as certified by the Board. 11
Aggrieved, defendants appealed to the HLURB Board of Commissioners. On May 29, 1995, the Board dismissed the
appeal and affirmed in toto the decision of the HLURB Arbiter. 12
It noted that Amlac-Ville subdivision was registered as early as 1985, and under applicable laws, a subdivision
owner/developer must complete the development of the project within one year from the date of issuance of the
license of the subdivision.13 The Board gave credence to the ocular inspection report which stated that the
development of the subject subdivision was still ongoing as of 1992. It concluded that since there was no request for
extension, the project remained incomplete, and Gallardo was justified in withholding his payments.
Zamora Realty elevated the matter to the Office of the President (OP), which, however, dismissed the appeal in its
Resolution14 dated March 6, 2003. It then filed a motion for reconsideration, which was likewise denied in an
Order15 dated June 18, 2003.
Unsatisfied, Zamora Realty filed before the CA a petition for review 16 under Rule 43 of the Revised Rules of Court. It
relied on the following grounds:
1. We firmly submit to this Honorable Court that the Public Respondent OPP had grossly erred in not finding
that the herein Private Respondent clearly violated the Contract to Sell dated October 8, 1998 (sic);
2. The same Office likewise erred in not holding that Petitioners validly and lawfully rescinded already the said
Contract to Sell dated October 8, 1998; and
3. The said Public Respondent OPP also erred in not just requiring the herein Petitioners to reimburse any
payments already made therein by the herein Private Respondent plus the lawful rate of interest thereof or in
the alternative for the herein Petitioners to just give the herein Private Respondent a similar lot that can still be
transferred to the said Private Respondent granting that the latter is entitled to affirmative relief from it. 17
On May 31, 2004, the CA rendered a Decision 18 dismissing the petition. It sustained the validity of respondent
Gallardos suspension of payments, and ruled that it was in accordance with Sections 20 and 23 of Presidential Decree
(P.D.) No. 957. The CA stated that the development of the subdivision was still ongoing as of 1992, way beyond 1985
when it was first registered, and that such delay justified the buyers act of suspending payment. The CA, likewise,
gave weight to Gallardos letter19 to Amlac-Ville Subdivision, dated November 5, 1991, where he stated that after
March 11, 1987, he was stopping payment of his amortization due to non-development of the project.
After its motion for reconsideration was denied, petitioner sought recourse to the Court via petition for review on
certiorari, anchored on the following grounds:
I. THE HONORABLE COURT OF APPEALS CLEARLY ERRED IN NOT HOLDING THAT RESPONDENT EDILBERTO C.
GALLARDO VIOLATED HIS CONTRACT TO SELL WITH THE HEREIN PETITIONER;
II. THE HONORABLE COURT OF APPEALS LIKEWISE ERRED IN NOT HOLDING THAT RESPONDENT EDILBERTO C.
GALLARDO ALREADY VIOLATED THE SAID CONTRACT TO SELL WHEN HE OPTED TO SUSPEND HIS MONTHLY
AMORTIZATION THEREIN; and
III. THE HONORABLE COURT OF APPEALS ERRED IN NOT REQUIRING INSTEAD THE HEREIN PETITIONER TO JUST
REIMBURSE [PAYMENTS OF] THE RESPONDENT EDILBERTO C. GALLARDO OR CHANGE THE SAID LOT WITH AN
EQUIVALENT ONE.20
Petitioner avers that respondent is in bad faith; by his failure to pay the monthly amortization as agreed upon, he
flagrantly violated the contract to sell.21 It likewise claims that respondent is not an ordinary buyer of the property as

he was, in fact, a broker who could not simply feign ignorance of the stages of the development works. 22 After the
contract to sell was cancelled by notarial rescission, the subject property was already sold to another person.
Consequently, it should have instead been directed to reimburse payments made by respondent, or to sell an
equivalent lot to him.23
In his Comment24 on the petition, respondent insists that he is not in bad faith because the suspension of payment is
the direct result of petitioners failure to develop the subdivision. In fact, it had advised all Amlac buyers to suspend
amortization payments because of the issue of non-development. He insists that there is no showing that the lot in
question had already been sold.
After petitioner submitted its Reply,25 the parties were required to submit their respective Memoranda. Petitioner
reiterated that the contract between it and respondent was a contract to sell, and as such, ownership was reserved to
it until after respondent had fully paid. In fact, even after full payment, ownership is not automatically vested in the
buyer as a Deed of Absolute Sale is yet to be executed. 26 Lastly, petitioner asserts that the belated suspension of
payment by respondent is nothing but a mere afterthought. 27
The issues for determination can be summed up as follows: (a) whether respondent violated the contract to sell by his
failure to pay the monthly amortizations, and, if in the negative, whether he was justified to suspend payment due to
incomplete development of petitioners project; and (b) whether the CA erred in not directing petitioner either to
reimburse respondents payments, together with interests, or require it to sell to respondent a different lot equivalent
to the subject property.
The petition is bereft of merit.
At the outset, the Court noted that the instant petition is erroneously captioned as one filed against the "Office of the
President and Edilberto Gallardo." However, as correctly pointed out by the Office of the Solicitor General, the petition
is an offshoot of respondents complaint against the HLURB assailing the rescission of his contract with petitioner. As
such, a purely private interest is involved. In light of the provisions of Section 6, 28 Rule 43 of the Revised Rules of Court,
the agency which issued the assailed order should not have been impleaded, whether in the petition before the CA or
in this Court.
The contract entered into between petitioner and respondent is a contract to sell a subdivision lot. It bears stressing
that a contract to sell is a bilateral contract, whereby the prospective seller, while expressly reserving the ownership of
the subject property despite delivery thereof to the prospective buyer, binds himself to sell the said property
exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of the
purchase price.29 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. Thus, for its non-fulfillment, there will be no contract to speak of, the obligor having
failed to perform the suspensive condition which enforces a juridical relation. 30
The subject matter of the contract being a subdivision lot, the applicable law is P.D. No. 957 or "The Subdivision and
Condominium Buyers Protective Decree." As such, the right of the seller to consider the contract to sell ineffectual in
case of failure of the prospective buyer to pay the amortization, is limited. Sections 20 and 23 of P.D. No. 957 read as
follows:
Section 20. Time of Completion. Every owner or developer shall construct and provide the facilities, improvements,
infrastructures and other forms of development, including water supply and lighting facilities, which are offered and
indicated in the approved subdivision or condominium plans, brochures, prospectus, printed matters, letters or in any
form of advertisement, within one year from the date of the issuance of the license for the subdivision or condominium
project or such other period of time as may be fixed by the Authority.
Section 23. Non-forfeiture of Payments. No installment payment made by a buyer in a subdivision or condominium
project for the lot or unit he contracted to buy shall be forfeited in favor of the owner or developer when the buyer,
after due notice to the owner or developer, desists from further payment due to the failure of the owner or developer
to develop the subdivision or condominium project according to the approved plans and within the time limit for
complying with the same. Such buyer may, at his option, be reimbursed the total amount paid including amortization
interests but excluding delinquency interests, with interest thereon at the legal rate.

Thus, the only requirement under the law is to give due notice to the owner or developer of the buyers intention to
suspend payment.
It is undisputed that respondent had refused to pay the monthly amortizations on the property after the March 11,
1987 payment. Per findings of the HLURB, as of 1992, the development of the project was still ongoing. Since the
development of the subdivision was registered as early as 1985 and there is no showing that petitioner had been
granted an extension by the HLURB, petitioner in effect failed to complete the project within one year from the date of
the issuance of the license therefor, and as such is guilty of incomplete development of the subdivision project. Thus,
petitioner could not have validly exercised its right to cancel the contract to sell in favor of respondent.
A careful perusal of the records also show that respondent had refused to make payment as early as 1987, and sent a
letter to Amlac-Ville Subdivision only on November 5, 1991 with the following statement: "After paying your office last
March 11, 1987, (please refer to the attached xeroxed receipt) I said that I would suspend further payments until such
time that your office shall have complied with some of your development commitments to your lot buyers, e.g.,
centralized water system, concrete curbs and gutters, etc. because I had then planned to construct a house on the lot I
had contracted to buy from you (Lot 1 Block 3 Contract to Sell No. 017)." While the written notice of suspension of
payment was belatedly given, the above-quoted portion of the letter shows that petitioner was verbally notified of
respondents intention to suspend payment as early as 1987.
The law does not specifically provide the form of notice to be given to the owner/developer. Considering the purpose of
the law and the evil sought to be prevented, the Court holds that a verbal notice of the intention to suspend
remittance of payment is sufficient. Such a holding is consistent with our ruling in Francel Realty Corporation v.
Sycip,31 where the requirement of an HLURB clearance under Section 23, Rule VI of the Rules Implementing P.D. No.
957 before the buyer of a subdivision lot or a home could lawfully withhold monthly payments was declared void. The
Court explained:
x x x [T]o require clearance from the HLURB before stopping payment would not be in keeping with the intent of the
law to protect innocent buyer of lots or homes from scheming subdivision developers. To give full effect to such intent,
it would be fitting to treat the right to stop payment to be immediately effective upon giving due notice to the owner or
developer or upon filing a complaint before the HLURB against the erring developer.1wphi1 Such course of action
would be without prejudice to the subsequent determination of its propriety and consequences, should the suspension
of payment subsequently be found improper. 32
It must be stressed that P.D. No. 957 was enacted with no other end in view than to provide a protective mantle over
helpless citizens who may fall prey to the manipulations and machinations of unscrupulous subdivision and
condominium sellers.33 It was issued in the wake of numerous reports that many real estate subdivision owners,
developers, operators and/or sellers have reneged on their representations and obligations to provide and maintain
properly subdivision roads, drainage, sewerage, water systems, lighting systems, and other basic requirements for the
health and safety of home and lot buyers.34 Such intent of the law is nowhere expressed more clearly than in its
preamble, the pertinent portion of which reads:
WHERE
WHEREAS, it is the policy of the State to afford its inhabitants the requirements of decent human settlement and to
provide them with ample opportunities for improving their quality of life;
WHEREAS, numerous reports reveal that many real estate subdivision owners, developers, operators, and/or sellers
have reneged on their representations and obligations to provide and maintain properly subdivision roads, drainage,
sewerage, water systems, lighting systems, and other similar basic requirements, thus endangering the health and
safety of home and lot buyers;
WHEREAS, reports of alarming magnitude also show cases of swindling and fraudulent manipulations perpetrated by
unscrupulous subdivision and condominium sellers and operators, such as failure to deliver titles to the buyers or titles
free from liens and encumbrances, and to pay real estate taxes, and fraudulent sales of the same subdivision lots to
different innocent purchasers for value; x x x
Thus, respondent justly withheld the payment of amortization of the subject lot, and petitioners unilateral cancellation
of the contract to sell cannot be sustained. Consequently, the contract to sell between it and respondent subsists.

We note, however, that the HLURB Arbiter declared as valid the suspension of amortization payments by private
respondent beginning November 21, 1991. This finding has been affirmed by the HLURB Board of Commissioners, the
Office of the President, and the CA. Such ruling, however, requires re-examination. The decisions below contain
statements of fact to the effect that the last payment made by respondent was on March 11, 1987. The CA, in fact,
categorically stated that respondent did not make any more payments after March 11, 1987. 35 The same was later
reiterated in respondents November 1991 letter. Thus, respondent stopped remitting the amortizations over the
subject property after March 11, 1987. Since the subdivision was registered in 1985 and the completion of the
development
was still ongoing as of 1992, it follows that as of 1987, petitioner was already guilty of incomplete development. In fine
then, the validity of the suspension of payment should be reckoned from 1987, specifically after the last payment
made by respondent on March 11, 1987. This is more in keeping with the law and the factual circumstances of the
case.
As to whether or not the CA should have directed petitioner to reimburse the payments already made by respondent,
with payment of interest, or to require it to sell another lot equivalent to the subject property, we rule in the negative.
In case the developer of a subdivision or condominium fails in its obligation under Section 20 of P.D. No. 957, Section
23 of the law gives the buyer the option to demand reimbursement of the total amount paid, or to wait for further
development of the subdivision, and when the buyer opts for the latter alternative, he may suspend payment of
installments until such time that the owner or developer had fulfilled its obligation to him. 36
It is thus clear that the law provides two remedies in case of incomplete development of the subdivision project: (1)
reimbursement of the total amount paid, including amortization interests but excluding delinquency interests, with
interest thereon at the legal rate;37 or (2) for the buyer to suspend amortization payments until the completion of the
project. These remedies are available to the prospective buyer to give effect to the laws intent to protect the buyers
from abusive owners/developers of subdivisions. In cases of incomplete development, it is the developer who is the
one at fault, as it would then have violated its promise to the prospective buyers to provide the necessary facilities in
the subdivision. The aggrieved party, therefore, is the prospective buyer because of the non-fulfillment of the
developers commitment. As such, it is but logical that the option is given to the prospective buyer, not to the
developer.
Petitioner therefore cannot insist that payments made by respondent be returned to him; neither can respondent be
compelled to accept another property in lieu of the lot subject of the contract. To reiterate, respondent, as prospective
buyer, had opted to exercise his right to suspend payment and wait for the completion of the subdivision project. He
cannot therefore be forced to accept reimbursement of his amortization payments or to accept a lot different from the
subject of the contract.
Petitioner claims that the subject property was already sold to another person after it validly and legally cancelled the
contract to sell by notarial rescission.38 It further contends that under the situation, to still require the latter to sell the
subject property to respondent would be to expose petitioner to inevitable prosecution for estafa arising from the
double sale of the same property. As held by the CA, in default of evidentiary support from the records and on account
of the paucity of discussion thereon by the Office of the President and the HLURB, we cannot rule on petitioners
allegation that the subject lot has already been sold. 39
IN LIGHT OF ALL THE FOREGOING, the Decision of the Court of Appeals dated May 31, 2004 is AFFIRMED with
MODIFICATION. Respondent Edilberto C. Gallardo is declared to have validly exercised his right to suspend remittance
of payments as of March 12, 1987, not November 21, 1991.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 157906

November 2, 2006

JOAQUINITA P. CAPILI, Petitioner,

vs.
SPS. DOMINADOR CARDAA and ROSALITA CARDAA, Respondents.
DECISION
QUISUMBING, J.:
Before us is a petition for review assailing the Decision 1 dated October 18, 2002 of the Court of Appeals in CA-G.R. CV.
No. 54412, declaring petitioner liable for negligence that resulted in the death of Jasmin Cardaa, a school child aged
12, enrolled in Grade 6, of San Roque Elementary School, where petitioner is the principal. Likewise assailed is the
Resolution2 dated March 20, 2003 denying reconsideration.
The facts are as follows:
On February 1, 1993, Jasmin Cardaa was walking along the perimeter fence of the San Roque Elementary School
when a branch of a caimito tree located within the school premises fell on her, causing her instantaneous death. Thus,
her parents - Dominador and Rosalita Cardaa - filed a case for damages before the Regional Trial Court of Palo, Leyte
against petitioner.
The Cardaas alleged in their complaint that even as early as December 15, 1992, a resident of the barangay, Eufronio
Lerios, reported on the possible danger the tree posed to passersby. Lerios even pointed to the petitioner the tree that
stood near the principals office. The Cardaas averred that petitioners gross negligence and lack of foresight caused
the death of their daughter.
Petitioner denied the accusation and said that at that time Lerios had only offered to buy the tree. She also denied
knowing that the tree was dead and rotting. To prove her point, she presented witnesses who attested that she had
brought up the offer of Lerios to the other teachers during a meeting on December 15, 1992 and assigned Remedios
Palaa to negotiate the sale.
In a Decision3 dated February 5, 1996, the trial court dismissed the complaint for failure of the respondents to establish
negligence on the part of the petitioner.
On appeal, the Court of Appeals reversed the trial courts decision. The appellate court found the appellee (herein
petitioner) liable for Jasmins death, as follows:
Foregoing premises considered, the instant appeal is GRANTED. Appellee Joaquinita Capili is hereby declared liable for
negligence resulting to the death of Jasmin D. Cardaa. She is hereby ordered to indemnify appellants, parents of
Jasmin, the following amounts:
1. For the life of Jasmin D. Cardaa P50,000.00;
2. For burial expenses 15,010.00;
3. For moral damages 50,000.00;
4. For attorneys fees and litigation 10,000.00.
expenses
SO ORDERED.4
Petitioners motion for reconsideration was denied. Petitioner now comes before us submitting the following issues for
our resolution:
I

WHETHER OR NOT THE COURT OF APPEALS VIS--VIS THE SET OF FACTS STATED IN THE CHALLENGED
DECISION, ERRED IN FINDING THE PETITIONER NEGLIGENT AND THEREFORE LIABLE FOR DAMAGES UNDER
ARTICLE 2206 OF THE CIVIL CODE AND IN ORDERING THE PETITIONER TO PAY DAMAGES TO THE
RESPONDENTS; AND
II
WHETHER OR NOT THE COURT OF APPEALS ERRED IN DENYING PETITIONERS MOTION FOR
RECONSIDERATION.5
On the other hand, respondents posit the following issue:
Whether or not the Decision of the Honorable Court of Appeals, Twelfth Division, in CA G.R. CV. No. 54412 promulgated
on October 18, 2002 should be affirmed and respected, thus remain undisturbed. 6
Primarily, the issue is whether petitioner is negligent and liable for the death of Jasmin Cardaa.
Petitioner asserts that she was not negligent about the disposal of the tree since she had assigned her next-in-rank,
Palaa, to see to its disposal; that despite her physical inspection of the school grounds, she did not observe any
indication that the tree was already rotten nor did any of her 15 teachers inform her that the tree was already
rotten;7 and that moral damages should not be granted against her since there was no fraud nor bad faith on her part.
On the other hand, respondents insist that petitioner knew that the tree was dead and rotting, yet, she did not exercise
reasonable care and caution which an ordinary prudent person would have done in the same situation.
To begin, we have to point out that whether petitioner was negligent or not is a question of fact which is generally not
proper in a petition for review, and when this determination is supported by substantial evidence, it becomes
conclusive and binding on this Court.8 However, there is an exception, that is, when the findings of the Court of
Appeals are incongruent with the findings of the lower court. 9 In our view, the exception finds application in the
present case.
The trial court gave credence to the claim of petitioner that she had no knowledge that the tree was already dead and
rotting and that Lerios merely informed her that he was going to buy the tree for firewood. It ruled that petitioner
exercised the degree of care and vigilance which the circumstances require and that there was an absence of evidence
that would require her to use a higher standard of care more than that required by the attendant circumstances. 10 The
Court of Appeals, on the other hand, ruled that petitioner should have known of the condition of the tree by its mere
sighting and that no matter how hectic her schedule was, she should have had the tree removed and not merely
delegated the task to Palaa. The appellate court ruled that the dead caimitotree was a nuisance that should have
been removed soon after petitioner had chanced upon it.11
A negligent act is an inadvertent act; it may be merely carelessly done from a lack of ordinary prudence and may be
one which creates a situation involving an unreasonable risk to another because of the expectable action of the other,
a third person, an animal, or a force of nature. A negligent act is one from which an ordinary prudent person in the
actors position, in the same or similar circumstances, would foresee such an appreciable risk of harm to others as to
cause him not to do the act or to do it in a more careful manner. 12
The probability that the branches of a dead and rotting tree could fall and harm someone is clearly a danger that is
foreseeable. As the school principal, petitioner was tasked to see to the maintenance of the school grounds and safety
of the children within the school and its premises. That she was unaware of the rotten state of a tree whose falling
branch had caused the death of a child speaks ill of her discharge of the responsibility of her position.
In every tort case filed under Article 2176 of the Civil Code, plaintiff has to prove by a preponderance of evidence: (1)
the damages suffered by the plaintiff; (2) the fault or negligence of the defendant or some other person for whose act
he must respond; and (3) the connection of cause and effect between the fault or negligence and the damages
incurred.13

The fact, however, that respondents daughter, Jasmin, died as a result of the dead and rotting tree within the schools
premises shows that the tree was indeed an obvious danger to anyone passing by and calls for application of the
principle of res ipsa loquitur.
The doctrine of res ipsa loquitur applies where (1) the accident was of such character as to warrant an inference that it
would not have happened except for the defendants negligence; (2) the accident must have been caused by an
agency or instrumentality within the exclusive management or control of the person charged with the negligence
complained of; and (3) the accident must not have been due to any voluntary action or contribution on the part of the
person injured.14
The effect of the doctrine of res ipsa loquitur is to warrant a presumption or inference that the mere falling of the
branch of the dead and rotting tree which caused the death of respondents daughter was a result of petitioners
negligence, being in charge of the school.
In the case of D.M. Consunji, Inc. v. Court of Appeals,15 this Court held:
As a rule of evidence, the doctrine of res ipsa loquitur is peculiar to the law of negligence which recognizes
thatprima facie negligence may be established without direct proof and furnishes a substitute for specific proof of
negligence.
The concept of res ipsa loquitur has been explained in this wise:
While negligence is not ordinarily inferred or presumed, and while the mere happening of an accident or injury will not
generally give rise to an inference or presumption that it was due to negligence on defendants part, under the
doctrine of res ipsa loquitur, which means, literally, the thing or transaction speaks for itself, or in one jurisdiction, that
the thing or instrumentality speaks for itself, the facts or circumstances accompanying an injury may be such as to
raise a presumption, or at least permit an inference of negligence on the part of the defendant, or some other person
who is charged with negligence.
x x x where it is shown that the thing or instrumentality which caused the injury complained of was under the control
or management of the defendant, and that the occurrence resulting in the injury was such as in the ordinary course of
things would not happen if those who had its control or management used proper care, there is sufficient evidence, or,
as sometimes stated, reasonable evidence, in the absence of explanation by the defendant, that the injury arose from
or was caused by the defendants want of care.
The procedural effect of the doctrine of res ipsa loquitur is that petitioners negligence is presumed once respondents
established the requisites for the doctrine to apply. Once respondents made out a prima facie case of all requisites, the
burden shifts to petitioner to explain. The presumption or inference may be rebutted or overcome by other evidence
and, under appropriate circumstances a disputable presumption, such as that of due care or innocence, may outweigh
the inference.16
Was petitioners explanation as to why she failed to have the tree removed immediately sufficient to exculpate her?
As the school principal, petitioner was tasked to see to the maintenance of the school grounds and safety of the
children within the school and its premises. That she was unaware of the rotten state of the tree calls for an
explanation on her part as to why she failed to be vigilant.
Petitioner contends she was unaware of the state of the dead and rotting tree because Lerios merely offered to buy the
tree and did not inform her of its condition. Neither did any of her teachers inform her that the tree was an imminent
danger to anyone. She argues that she could not see the immediate danger posed by the tree by its mere sighting
even as she and the other teachers conducted ground inspections. She further argues that, even if she should have
been aware of the danger, she exercised her duty by assigning the disposition of the tree to another teacher.
We find petitioners explanation wanting. As school principal, petitioner is expected to oversee the safety of the
schools premises.1wphi1 The fact that she failed to see the immediate danger posed by the dead and rotting tree
shows she failed to exercise the responsibility demanded by her position.

Moreover, even if petitioner had assigned disposal of the tree to another teacher, she exercises supervision over her
assignee.17 The record shows that more than a month had lapsed from the time petitioner gave instruction to her
assistant Palaa on December 15, 1992, to the time the incident occurred on February 1, 1993. Clearly, she failed to
check seasonably if the danger posed by the rotting tree had been removed. Thus, we cannot accept her defense of
lack of negligence.
Lastly, petitioner questions the award of moral damages. Moral damages are awarded if the following elements exist in
the case: (1) an injury clearly sustained by the claimant; (2) a culpable act or omission factually established; (3) a
wrongful act or omission by the defendant as the proximate cause of the injury sustained by the claimant; and (4) the
award of damages predicated on any of the cases stated in Article 2219 of the Civil Code. 18However, the person
claiming moral damages must prove the existence of bad faith by clear and convincing evidence for the law always
presumes good faith. It is not enough that one merely suffered sleepless nights, mental anguish, and serious anxiety
as the result of the actuations of the other party. Invariably, such action must be shown to have been willfully done in
bad faith or with ill motive.19 Under the circumstances, we have to concede that petitioner was not motivated by bad
faith or ill motive vis--vis respondents daughters death. The award of moral damages is therefore not proper.
In line with applicable jurisprudence, we sustain the award by the Court of Appeals of P50,000 as indemnity for the
death of Jasmin,20 and P15,010 as reimbursement of her burial expenses.21
WHEREFORE, the petition is DENIED. The Decision dated October 18, 2002 and the Resolution dated March 20, 2003,
of the Court of Appeals in CA-G.R. CV. No. 54412 are AFFIRMED with MODIFICATION such that the award of moral
damages is hereby deleted.
Costs against petitioner.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 160016

February 27, 2006

ABACUS SECURITIES CORPORATION, Petitioner,

vs.
RUBEN U. AMPIL, Respondent.
DECISION
PANGANIBAN, CJ:
Stock market transactions affect the general public and the national economy. The rise and fall of stock market indices
reflect to a considerable degree the state of the economy. Trends in stock prices tend to herald changes in business
conditions. Consequently, securities transactions are impressed with public interest, and are thus subject to public
regulation. In particular, the laws and regulations requiring payment of traded shares within specified periods are
meant to protect the economy from excessive stock market speculations, and are thus mandatory.
In the present case, respondent cannot escape payment of stocks validly traded by petitioner on his behalf. These
transactions took place before both parties violated the trading law and rules. Hence, they fall outside the purview of
the pari delicto rule.
The Case

Before the Court is a Petition for Review1 under Rule 45 of the Rules of Court, challenging the March 21, 2003
Decision2 and the September 19, 2003 Resolution3 of the Court of Appeals (CA) in CA-GR CV No. 68273. The assailed
Decision disposed as follows:
"UPON THE VIEW WE TAKE OF THIS CASE THUS, this appeal is hereby DISMISSED. With costs." 4
The CA denied reconsideration in its September 19, 2003 Resolution.
The Facts
The factual antecedents were summarized by the trial court (and reproduced by the CA in its assailed Decision) in this
wise:
"Evidence adduced by the [petitioner] has established the fact that [petitioner] is engaged in business as a broker and
dealer of securities of listed companies at the Philippine Stock Exchange Center.
"Sometime in April 1997, [respondent] opened a cash or regular account with [petitioner] for the purpose of buying
and selling securities as evidenced by the Account Application Form. The parties business relationship was governed
by the terms and conditions [stated therein] x x x.
"Since April 10, 1997, [respondent] actively traded his account, and as a result of such trading activities, he
accumulated an outstanding obligation in favor of [petitioner] in the principal sum of P6,617,036.22 as of April 30,
1997.
"Despite the lapse of the period within which to pay his account as well as sufficient time given by [petitioner] for
[respondent] to comply with his proposal to settle his account, the latter failed to do so. Such that [petitioner]
thereafter sold [respondents] securities to set off against his unsettled obligations.
"After the sale of [respondents] securities and application of the proceeds thereof against his account, [respondents]
remaining unsettled obligation to [petitioner] was P3,364,313.56. [Petitioner] then referred the matter to its legal
counsel for collection purposes.
"In a letter dated August 15, 1997, [petitioner] through counsel demanded that [respondent] settle his obligation plus
the agreed penalty charges accruing thereon equivalent to the average 90-day Treasury Bill rate plus 2% per annum
(200 basis points).
"In a letter dated August [26], 1997, [respondent] acknowledged receipt of [petitioners] demand [letter] and admitted
his unpaid obligation and at the same time request[ed] for 60 days to raise funds to pay the same, which was granted
by [petitioner].
"Despite said demand and the lapse of said requested extension, [respondent] failed and/or refused to pay his
accountabilities to [petitioner].
"For his defense, [respondent] claims that he was induced to trade in a stock security with [petitioner] because the
latter allowed offset settlements wherein he is not obliged to pay the purchase price. Rather, it waits for the customer
to sell. And if there is a loss, [petitioner] only requires the payment of the deficiency (i.e., the difference between the
higher buying price and the lower selling price). In addition, it charges a commission for brokering the sale.
"However, if the customer sells and there is a profit, [petitioner] deducts the purchase price and delivers only the
surplus after charging its commission.
"[respondent] further claims that all his trades with [petitioner] were not paid in full in cash at anytime after purchase
or within the T+4 [4 days subsequent to trading] and none of these trades was cancelled by [petitioner] as required in
Exhibit A-1. Neither did [petitioner] apply with either the Philippine Stock Exchange or the SEC for an extension of
time for the payment or settlement of his cash purchases. This was not brought to his attention by his broker and so
with the requirement of collaterals in margin account. Thus, his trade under an offset transaction with [petitioner] is
unlimited subject only to the discretion of the broker. x x x [Had petitioner] followed the provision under par. 8 of Exh.

A-1 which stipulated the liquidation within the T+3 [3 days subsequent to trading], his net deficit would only
be P1,601,369.59. [respondent] however affirmed that this is not in accordance with RSA [Rule 25-1 par. C, which
mandates that if you do not pay for the first] order, you cannot subsequently make any further order without
depositing the cash price in full. So, if RSA Rule 25-1, par. C, was applied, he was limited only to the first transaction.
That [petitioner] did not comply with the T+4 mandated in cash transaction. When [respondent] failed to comply with
the T+3, [petitioner] did not require him to put up a deposit before it executed its subsequent orders. [Petitioner] did
not likewise apply for extension of the T+4 rule. Because of the offset transaction, [respondent] was induced to [take
a] risk which resulted [in] the filing of the instant suit against him [because of which] he suffered sleepless nights, lost
appetite which if quantified in money, would amount to P500,000.00 moral damages and P100,000.00 exemplary
damages."5
In its Decision6 dated June 26, 2000, the Regional Trial Court (RTC) of Makati City (Branch 57) held that petitioner
violated Sections 23 and 25 of the Revised Securities Act (RSA) and Rule 25-1 of the Rules Implementing the Act (RSA
Rules) when it failed to: 1) require the respondent to pay for his stock purchases within three (T+3) or four days (T+4)
from trading; and 2) request from the appropriate authority an extension of time for the payment of respondents cash
purchases. The trial court noted that despite respondents non-payment within the required period, petitioner did not
cancel the purchases of respondent. Neither did it require him to deposit cash payments before it executed the buy
and/or sell orders subsequent to the first unsettled transaction. According to the RTC, by allowing respondent to trade
his account actively without cash, petitioner effectively induced him to purchase securities thereby incurring excessive
credits.
The trial court also found respondent to be equally at fault, by incurring excessive credits and waiting to see how his
investments turned out before deciding to invoke the RSA. Thus, the RTC concluded that petitioner and respondent
were in pari delicto and therefore without recourse against each other.
Ruling of the Court of Appeals
The CA upheld the lower courts finding that the parties were in pari delicto. It castigated petitioner for allowing
respondent to keep on trading despite the latters failure to pay his outstanding obligations. It explained that "the
reason [behind petitioners act] is elemental in its simplicity. And it is not exactly altruistic. Because whether
[respondents] trading transaction would result in a surplus or deficit, he would still be liable to pay [petitioner] its
commission. [Petitioners] cash register will keep on ringing to the sound of incoming money, no matter what
happened to [respondent]."7
The CA debunked petitioners contention that the trial court lacked jurisdiction to determine violations of the RSA. The
court a quo held that petitioner was estopped from raising the question, because it had actively and voluntarily
participated in the assailed proceedings.
Hence, this Petition.8
Issues
Petitioner submits the following issues for our consideration:
"I.
Whether or not the Court of Appeals ruling that petitioner and respondent are in pari delicto which allegedly bars any
recovery, is in accord with law and applicable jurisprudence considering that respondent was the first one who violated
the terms of the Account Opening Form, [which was the] agreement between the parties.
"II.
Whether or not the Court of Appeals ruling that the petitioner and respondent are in pari delicto is in accord with law
and applicable jurisprudence considering the Account Opening Form is a valid agreement.
"III.

Whether or not the Court of Appeals ruling that petitioner cannot recover from respondent is in accord with law and
applicable jurisprudence since the evidence and admission of respondent proves that he is liable to petitioner for his
outstanding obligations arising from the stock trading through petitioner.
"IV.
Whether or not the Court of Appeals ruling on petitioners alleged violation of the Revised Securities Act [is] in accord
with law and jurisprudence since the lower court has no jurisdiction over violations of the Revised Securities Act." 9
Briefly, the issues are (1) whether the pari delicto rule is applicable in the present case, and (2) whether the trial court
had jurisdiction over the case.
The Courts Ruling
The Petition is partly meritorious.
Main Issue:
Applicability of the
Pari Delicto Principle
In the present controversy, the following pertinent facts are undisputed: (1) on April 8, 1997, respondent opened a
cash account with petitioner for his transactions in securities; 10 (2) respondents purchases were consistently unpaid
from April 10 to 30, 1997;11 (3) respondent failed to pay in full, or even just his deficiency, 12 for the transactions on
April 10 and 11, 1997;13 (4) despite respondents failure to cover his initial deficiency, petitioner subsequently
purchased and sold securities for respondents account on April 25 and 29; 14 (5) petitioner did not cancel or liquidate a
substantial amount of respondents stock transactions until May 6, 1997. 15
The provisions governing the above transactions are Sections 23 and 25 of the RSA 16 and Rule 25-1 of the RSA Rules,
which state as follows:
"SEC. 23. Margin Requirements.
xxxxxxxxx
(b) It shall be unlawful for any member of an exchange or any broker or dealer, directly or indirectly, to extend or
maintain credit or arrange for the extension or maintenance of credit to or for any customer
(1) On any security other than an exempted security, in contravention of the rules and regulations which the
Commission shall prescribe under subsection (a) of this Section;
(2) Without collateral or on any collateral other than securities, except (i) to maintain a credit initially extended in
conformity with the rules and regulations of the Commission and (ii) in cases where the extension or maintenance of
credit is not for the purpose of purchasing or carrying securities or of evading or circumventing the provisions of
subparagraph (1) of this subsection.
x x x x x x x x x"
"SEC. 25. Enforcement of margin requirements and restrictions on borrowings. To prevent indirect violations of the
margin requirements under Section 23 hereof, the broker or dealer shall require the customer in nonmargin
transactions to pay the price of the security purchased for his account within such period as the Commission may
prescribe, which shall in no case exceed three trading days; otherwise, the broker shall sell the security purchased
starting on the next trading day but not beyond ten trading days following the last day for the customer to pay such
purchase price, unless such sale cannot be effected within said period for justifiable reasons. The sale shall be without
prejudice to the right of the broker or dealer to recover any deficiency from the customer. x x x."

"RSA RULE 25-1

"Purchases and Sales in Cash Account
"(a) Purchases by a customer in a cash account shall be paid in full within three (3) business days after the trade date.
"(b) If full payment is not received within the required time period, the broker or dealer shall cancel or otherwise
liquidate the transaction, or the unsettled portion thereof, starting on the next business day but not beyond ten (10)
business days following the last day for the customer to pay, unless such sale cannot be effected within said period for
justifiable reasons.
"(c) If a transaction is cancelled or otherwise liquidated as a result of non-payment by the customer, prior to any
subsequent purchase during the next ninety (90) days, the customer shall be required to deposit sufficient funds in the
account to cover each purchase transaction prior to execution.
xxxxxxxxx
"(f) Written application for an extension of the period of time required for payment under paragraph (a) be made by
the broker or dealer to the Philippine Stock Exchange, in the case of a member of the Exchange, or to the Commission,
in the case of a non-member of the Exchange. Applications for the extension must be based upon exceptional
circumstances and must be filed and acted upon before the expiration of the original payment period or the expiration
of any subsequent extension."
Section 23(b) above -- the alleged violation of petitioner which provides the basis for respondents defense -- makes it
unlawful for a broker to extend or maintain credit on any securities other than in conformity with the rules and
regulations issued by Securities and Exchange Commission (SEC). Section 25 lays down the rules to prevent indirect
violations of Section 23 by brokers or dealers. RSA Rule 25-1 prescribes in detail the regulations governing cash
accounts.
The United States, from which our countrys security policies are patterned, 17 abound with authorities explaining the
main purpose of the above statute on margin18 requirements. This purpose is to regulate the volume of credit flow, by
way of speculative transactions, into the securities market and redirect resources into more productive uses.
Specifically, the main objective of the law on margins is explained in this wise:
"The main purpose of these margin provisions xxx is not to increase the safety of security loans for lenders. Banks and
brokers normally require sufficient collateral to make themselves safe without the help of law. Nor is the main purpose
even protection of the small speculator by making it impossible for him to spread himself too thinly although such a
result will be achieved as a byproduct of the main purpose.
xxxxxxxxx
"The main purpose is to give a [g]overnment credit agency an effective method of reducing the aggregate amount of
the nations credit resources which can be directed by speculation into the stock market and out of other more
desirable uses of commerce and industry x x x."19
A related purpose of the governmental regulation of margins is the stabilization of the economy. 20 Restrictions on
margin percentages are imposed "in order to achieve the objectives of the government with due regard for the
promotion of the economy and prevention of the use of excessive credit." 21
Otherwise stated, the margin requirements set out in the RSA are primarily intended to achieve a macroeconomic
purpose -- the protection of the overall economy from excessive speculation in securities. Their recognized secondary
purpose is to protect small investors.
The law places the burden of compliance with margin requirements primarily upon the brokers and dealers. 22Sections
23 and 25 and Rule 25-1, otherwise known as the "mandatory close-out rule," 23 clearly vest upon petitioner the
obligation, not just the right, to cancel or otherwise liquidate a customers order, if payment is not received within
three days from the date of purchase. The word "shall" as opposed to the word "may," is imperative and operates to

impose a duty, which may be legally enforced. For transactions subsequent to an unpaid order, the broker should
require its customer to deposit funds into the account sufficient to cover each purchase transaction prior to its
execution. These duties are imposed upon the broker to ensure faithful compliance with the margin requirements of
the law, which forbids a broker from extending undue credit to a customer.
It will be noted that trading on credit (or "margin trading") allows investors to buy more securities than their cash
position would normally allow.24 Investors pay only a portion of the purchase price of the securities; their broker
advances for them the balance of the purchase price and keeps the securities as collateral for the advance or
loan.25 Brokers take these securities/stocks to their bank and borrow the "balance" on it, since they have to pay in full
for the traded stock. Hence, increasing margins 26 i.e., decreasing the amounts which brokers may lend for the
speculative purchase and carrying of stocks is the most direct and effective method of discouraging an abnormal
attraction of funds into the stock market and achieving a more balanced use of such resources.
"x x x [T]he x x x primary concern is the efficacy of security credit controls in preventing speculative excesses that
produce dangerously large and rapid securities price rises and accelerated declines in the prices of given securities
issues and in the general price level of securities. Losses to a given investor resulting from price declines in thinly
margined securities are not of serious significance from a regulatory point of view. When forced sales occur and put
pressures on securities prices, however, they may cause other forced sales and the resultant snowballing effect may in
turn have a general adverse effect upon the entire market."27
The nature of the stock brokerage business enables brokers, not the clients, to verify, at any time, the status of the
clients account.28 Brokers, therefore, are in the superior position to prevent the unlawful extension of credit. 29Because
of this awareness, the law imposes upon them the primary obligation to enforce the margin requirements.
Right is one thing; obligation is quite another. A right may not be exercised; it may even be waived. An obligation,
however, must be performed; those who do not discharge it prudently must necessarily face the consequence of their
dereliction or omission.30
Respondent Liable for the First,
But Not for the Subsequent Trades
Nonetheless, these margin requirements are applicable only to transactions entered into by the present parties
subsequent to the initial trades of April 10 and 11, 1997. Thus, we hold that petitioner can still collect from respondent
to the extent of the difference between the latters outstanding obligation as of April 11, 1997 less the proceeds from
the mandatory sell out of the shares pursuant to the RSA Rules. Petitioners right to collect is justified under the
general law on obligations and contracts.31
Article 1236 (second paragraph) of the Civil Code, provides:
"Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the
knowledge or against the will of the debtor, he can recover only insofar as the payment has been beneficial to the
debtor." (Emphasis supplied)
Since a brokerage relationship is essentially a contract for the employment of an agent, principles of contract law also
govern the broker-principal relationship.32
The right to collect cannot be denied to petitioner as the initial transactions were entered pursuant to the instructions
of respondent. The obligation of respondent for stock transactions made and entered into on April 10 and 11, 1997
remains outstanding. These transactions were valid and the obligations incurred by respondent concerning his stock
purchases on these dates subsist. At that time, there was no violation of the RSA yet. Petitioners fault arose only when
it failed to: 1) liquidate the transactions on the fourth day following the stock purchases, or on April 14 and 15, 1997;
and 2) complete its liquidation no later than ten days thereafter, applying the proceeds thereof as payment for
respondents outstanding obligation.33

Elucidating further, since the buyer was not able to pay for the transactions that took place on April 10 and 11, that is
at T+4, the broker was duty-bound to advance the payment to the settlement banks without prejudice to the right of
the broker to collect later from the client.34
In securities trading, the brokers are essentially the counterparties to the stock transactions at the Exchange. 35Since
the principals of the broker are generally undisclosed, the broker is personally liable for the contracts thus
made.36 Hence, petitioner had to advance the payments for respondents trades. Brokers have a right to be reimbursed
for sums advanced by them with the express or implied authorization of the principal, 37 in this case, respondent.
It should be clear that Congress imposed the margin requirements to protect the general economy, not to give the
customer a free ride at the expense of the broker.38 Not to require respondent to pay for his April 10 and 11 trades
would put a premium on his circumvention of the laws and would enable him to enrich himself unjustly at the expense
of petitioner.
In the present case, petitioner obviously failed to enforce the terms and conditions of its Agreement with respondent,
specifically paragraph 8 thereof, purportedly acting on the plea 39 of respondent to give him time to raise funds
therefor. These stipulations, in relation to paragraph 4, 40 constituted faithful compliance with the RSA. By failing to
ensure respondents payment of his first purchase transaction within the period prescribed by law, thereby allowing
him to make subsequent purchases, petitioner effectively converted respondents cash account into a credit account.
However, extension or maintenance of credits on nonmargin transactions, are specifically prohibited under Section
23(b). Thus, petitioner was remiss in its duty and cannot be said to have come to court with "clean hands" insofar as it
intended to collect on transactions subsequent to the initial trades of April 10 and 11, 1997.
Respondent Equally Guilty
for Subsequent Trades
On the other hand, we find respondent equally guilty in entering into the transactions in violation of the RSA and RSA
Rules. We are not prepared to accept his self-serving assertions of being an "innocent victim" in all the transactions.
Clearly, he is not an unsophisticated, small investor merely prodded by petitioner to speculate on the market with the
possibility of large profits with low -- or no -- capital outlay, as he pictures himself to be. Rather, he is an experienced
and knowledgeable trader who is well versed in the securities market and who made his own investment decisions. In
fact, in the Account Opening Form (AOF), he indicated that he had excellent knowledge of stock investments; had
experience in stocks trading, considering that he had similar accounts with other firms. 41Obviously, he knowingly
speculated on the market, by taking advantage of the "no-cash-out" arrangement extended to him by petitioner.
We note that it was respondent who repeatedly asked for some time to pay his obligations for his stock transactions.
Petitioner acceded to his requests. It is only when sued upon his indebtedness that respondent raised as a defense the
invalidity of the transactions due to alleged violations of the RSA. It was respondents privilege to gamble or speculate,
as he apparently did so by asking for extensions of time and refraining from giving orders to his broker to sell, in the
hope that the prices would rise. Sustaining his argument now would amount to relieving him of the risk and
consequences of his own speculation and saddling them on the petitioner after the result was known to be
unfavorable.42 Such contention finds no legal or even moral justification and must necessarily be overruled.
Respondents conduct is precisely the behavior of an investor deplored by the law.
In the final analysis, both parties acted in violation of the law and did not come to court with clean hands with regard
to transactions subsequent to the initial trades made on April 10 and 11, 1997. Thus, the peculiar facts of the present
case bar the application of the pari delicto rule -- expressed in the maxims "Ex dolo malo non oritur action" and "In pari
delicto potior est conditio defendentis" -- to all the transactions entered into by the parties. The pari delecto rule
refuses legal remedy to either party to an illegal agreement and leaves them where they were. 43In this case, the pari
delicto rule applies only to transactions entered into after the initial trades made on April 10 and 11, 1997.
Since the initial trades are valid and subsisting obligations, respondent is liable for them. Justice and good conscience
require all persons to satisfy their debts. Ours are courts of both law and equity; they compel fair dealing; they do not
abet clever attempts to escape just obligations. Ineludibly, this Court would not hesitate to grant relief in accordance
with good faith and conscience.

Pursuant to RSA Rule 25-1, petitioner should have liquidated the transaction (sold the stocks) on the fourth day
following the transaction (T+4) and completed its liquidation not later than ten days following the last day for the
customer to pay (effectively T+14). Respondents outstanding obligation is therefore to be determined by using the
closing prices of the stocks purchased at T+14 as basis.
We consider the foregoing formula to be just and fair under the circumstances. When petitioner tolerated the
subsequent purchases of respondent without performing its obligation to liquidate the first failed transaction, and
without requiring respondent to deposit cash before embarking on trading stocks any further, petitioner, as the broker,
violated the law at its own peril. Hence, it cannot now complain for failing to obtain the full amount of its claim for
these latter transactions.
On the other hand, with respect to respondents counterclaim for damages for having been allegedly induced by
petitioner to generate additional purchases despite his outstanding obligations, we hold that he deserves no legal or
equitable relief consistent with our foregoing finding that he was not an innocent investor as he presented himself to
be.
Second Issue:
Jurisdiction
It is axiomatic that the allegations in the complaint, not the defenses set up in the answer or in the motion to dismiss
determine which court has jurisdiction over an action. 44 Were we to be governed by the latter rule, the question of
jurisdiction would depend almost entirely upon the defendant. 45
The instant controversy is an ordinary civil case seeking to enforce rights arising from the Agreement (AOF) between
petitioner and respondent. It relates to acts committed by the parties in the course of their business relationship. The
purpose of the suit is to collect respondents alleged outstanding debt to petitioner for stock purchases.
To be sure, the RSA and its Rules are to be read into the Agreement entered into between petitioner and respondent.
Compliance with the terms of the AOF necessarily means compliance with the laws. Thus, to determine whether the
parties fulfilled their obligations in the AOF, this Court had to pass upon their compliance with the RSA and its Rules.
This, in no way, deprived the Securities and Exchange Commission (SEC) of its authority to determine willful violations
of the RSA and impose appropriate sanctions therefor, as provided under Sections 45 and 46 of the Act.
Moreover, we uphold the SEC in its Opinion, thus:
"As to the issue of jurisdiction, it is settled that a party cannot invoke the jurisdiction of a court to secure affirmative
relief against his opponent and after obtaining or failing to obtain such relief, repudiate or question that same
jurisdiction.
"Indeed, after voluntarily submitting a cause and encountering an adverse decision on the merits, it is too late for
petitioner to question the jurisdictional power of the court. It is not right for a party who has affirmed and invoked the
jurisdiction of a court in a particular matter to secure an affirmative relief, to afterwards deny that same jurisdiction to
escape a penalty."46
WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are hereby MODIFIED. Respondent is
ordered to pay petitioner the difference between the formers outstanding obligation as of April 11, 1997 less the
proceeds from the mandatory sell out of shares pursuant to the RSA Rules, with interest thereon at the legal rate until
fully paid.
The RTC of Makati, Branch 57 is hereby directed to make a computation of respondents outstanding obligation using
the closing prices of the stocks at T+14 as basis -- counted from April 11, 1997 and to issue the proper order for
payment if warranted. It may hold trial and hear the parties to be able to make this determination.
No finding as to costs in this instance.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 167412

February 22, 2006

JUANITA NAVAL, Petitioner,

vs.
COURT OF APPEALS, JUANITO CAMALLA, JAIME NACION, CONRADO BALILA, ESTER MOYA and PORFIRIA
AGUIRRE, Respondents.
DECISION
YNARES-SANTIAGO, J.:

This petition for review assails the Decision1 of the Court of Appeals dated December 14, 2004, in CA-G.R. SP No.
86736, which reversed the Decision2 of the Regional Trial Court (RTC) of Naga City, Branch 26, in Civil Case No. 20040054 affirming the Decision3 of the Municipal Circuit Trial Court (MCTC) of Magarao-Canaman, Camarines Sur, as well
as the Resolution4 dated February 17, 2005 denying petitioners motion for reconsideration.
The facts of the case are as follows:
On December 2, 1969, Ildefonso A. Naval sold a parcel of land located in Sto. Tomas, Magarao, Camarines Sur,
consisting of 858 sq. m. to Gregorio B. Galarosa. The sale was recorded in the Registry of Property of the Registry of
Deeds of Camarines Sur on December 3, 1969 pursuant to Act No. 3344, the law governing registrations of all
instruments on unregistered lands.5
Subsequently, Gregorio sold portions of the land to respondents Conrado Rodrigo Balilla 6 on November 4, 1976, Jaime
Nacion7 on January 10, 1977 and spouses Ireneo and Ester Moya 8 in July 1977, and Juanito Camalla9 on September 4,
1987. All buyers occupied the portion they bought, built improvements thereon, and paid the taxes due thereto. 10
The controversy arose when petitioner Juanita Naval, the great granddaughter of Ildefonso, was issued on April 1, 1975
by the Register of Deeds of Camarines Sur an Original Certificate of Title (OCT) No. RP-5386 (29791), covering 733 sq.
m. of the subject land.11 She claimed that she bought the subject land from Ildefonso in 1972. 12
On November 10, 1977, petitioner filed a complaint for recovery of possession against Bartolome Aguirre, Conrado
Balila,13 Ireneo Moya, Jaime Nacion and Domingo Nacion, which was docketed as Civil Case No. 306. 14However, the
case was dismissed15 without prejudice16 for failure to prosecute the action for an unreasonable length of time.
Almost 20 years later, or on April 21, 1997, petitioner re-filed the complaint for recovery of possession with damages
before the MCTC of Magarao-Canaman, Camarines Sur, against Juanita 17 Camalla, Diosdado Balila, Conrado Balila,
Forferia18 Aguirre, Jaime Nacion and Ester Moya. The case was docketed as Civil Case No. 994.
After trial, the MCTC rendered its decision, the dispositive portion reads as follows:
WHEREFORE, for all the foregoing consideration, decision is hereby rendered in favor of the plaintiff and against
defendants:
1) Declaring the plaintiff to be the legal owner of the land as described in paragraph 2 of the complaint;
2) Ordering defendants Juanito Camalla, Diosdado Balila, Conrado Balila, Porferia Aguirre and Jaime Nacion to
vacate the property in question and to deliver its possession to the plaintiff;
3) Ordering Ester Moya to vacate the fifty (50) square meters occupied by her and to relinquish its possession
to the plaintiff;
4) Dismissing the respective claims for damages of the parties.
Pronouncing no costs.
SO ORDERED.19
Aggrieved, respondents appealed the decision to the RTC of Naga City, which affirmed in toto the assailed decision.20
Respondents thereafter elevated the case to the Court of Appeals via Rule 42 of the Rules of Court. Finding the prior
registration of the deed of sale between Ildefonso and Gregorio with the Register of Deeds as a constructive notice to
subsequent buyers, the appellate court reversed the decision of the RTC. Thus,
WHEREFORE, premises considered, the present petition is hereby GRANTED. The appealed decision of the courta quo is
hereby REVERSED and SET ASIDE and a new judgment is hereby entered dismissing respondent's complaint for
recovery of possession with damages. Petitioners' counterclaim for damages is likewise dismissed for lack of legal and
factual bases.

No pronouncement as to costs.
SO ORDERED.21
Hence, this petition assigning the following errors:
I
THE COURT OF APPEALS ERRED IN DECLARING THAT GREGORIO GALAROSA HAS RIGHTFULLY ACQUIRED
OWNERSHIP OVER THE LOT COVERED BY OCT RP #5386 (29791) AND DECLARING HIM TO HAVE POSSESSED
THE LOT BEFORE THE ALLEGED SALES TO RESPONDENTS.
II
THE COURT OF APPEALS ERRED IN HOLDING THAT THE PAYMENT OF TAXES BY RESPONDENTS
WERE (sic) EVIDENCE OF LAWFUL POSSESSION AND OWNERSHIP.
III
THE COURT OF APPEALS ERRED IN DECLARING THAT THE LOTS CLAIMED BY THE RESPONDENTS HAVE BEEN
POSSESSED BY THEM IN GOOD FAITH DESPITE THEIR KNOWLEDGE OF THE EXISTENCE OF OCT RP
#5386(29791).22
Petitioner claims that she has superior rights over the subject land because the sale between Ildefonso and Gregorio
and the subsequent registration thereof with the Register of Deeds had no legal effect since the subject land was
declared in the name of Agrifina Avila while the tax declaration cancelled by Gregorios was that of Gregorio Boaga.
Petitioner thus assails the right claimed by Gregorio over the subject land from which the respondents derived their
respective claims.23
On the other hand, respondents contend that the registered sale by Ildefonso to Gregorio in 1969 of the subject land,
from whom they derive their claims, vests them with better right than the petitioner; that registration under Act No.
3344 served as constructive notice to the whole world, including the petitioner, who claimed to have purchased the
subject land from Ildefonso in 1972, but failed to present evidence to prove such acquisition. 24
We deny the petition.
Prefatorily, a perusal of the records reveals that during the trial, petitioner vigorously asserted that the subject land
was the exclusive property of Ildefonso who sold it to her in 1972. 25 However, in this appeal, petitioner assails the
ownership not only of Gregorio but also of Ildefonso by alleging that at the time the latter sold the land to Gregorio, the
same was declared in the name of Agrifina Avila. When a party adopts a certain theory in the court below, he is not
allowed to change his theory on appeal, for to allow him to do so would not only be unfair to the other party, but it
would also be offensive to the basic rules of fair play, justice and due process. 26
In this appeal, the issue for resolution is who has the superior right to a parcel of land sold to different buyers at
different times by its former owner.
It is not disputed that the subject land belonged to Ildefonso and that it was not registered under the Torrens
System27 when it was sold to Gregorio in 1969 and to the petitioner in 1972. Further, the deed of sale between
Ildefonso and Gregorio was registered with the Register of Deeds of Camarines Sur pursuant to Act No. 3344, as shown
by Inscription No. 54609 dated December 3, 1969, Page 119, Volume 186, File No. 55409 at the back thereof.
In holding that respondents have a better right to possess the subject land in view of the bona fide registration of the
sale with the Register of Deeds of Camarines Sur by Ildefonso and Gregorio, the Court of Appeals applied Article 1544
of the Civil Code, which provides:
ART. 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the
person who may have first taken possession thereof in good faith, if it should be movable property.

Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded
it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession;
and, in the absence thereof, to the person who presents the oldest title, provided there is good faith.
While we agree with the appellate court that respondents have superior right over the petitioner on the subject
property, we find Article 1544 inapplicable to the case at bar since the subject land was unregistered at the time of the
first sale. The registration contemplated under this provision has been held to refer to registration under the Torrens
System, which considers the act of registration as the operative act that binds the land. 28 Thus, inCarumba v. Court of
Appeals,29 we held that Article 1544 of the Civil Code has no application to land not registered under Torrens System.
The law applicable therefore is Act No. 3344, which provides for the registration of all instruments on land neither
covered by the Spanish Mortgage Law nor the Torrens System. Under this law, registration by the first buyer is
constructive notice to the second buyer that can defeat his right as such buyer in good faith.
Applying the law, we held in Bautista v. Fule30 that the registration of an instrument involving unregistered land in the
Registry of Deeds creates constructive notice and binds third person who may subsequently deal with the same
property. We also held in Bayoca v. Nogales31 that:
Verily, there is absence of prior registration in good faith by petitioners of the second sale in their favor. As stated in
the Santiago case, registration by the first buyer under Act No. 3344 can have the effect of constructive notice to the
second buyer that can defeat his right as such buyer. On account of the undisputed fact of registration under Act No.
3344 by [the first buyers], necessarily, there is absent good faith in the registration of the sale by the [second buyers]
for which they had been issued certificates of title in their names. It follows that their title to the land cannot be
upheld. x x x.
Even if petitioner argues that she purchased and registered the subject land in good faith and without knowledge of
any adverse claim thereto, respondents still have superior right over the disputed property. We held in Rayos v.
Reyes32 that:
"[T]he issue of good faith or bad faith of the buyer is relevant only where the subject of the sale is registered land and
the purchaser is buying the same from the registered owner whose title to the land is clean x x x in such case the
purchaser who relies on the clean title of the registered owner is protected if he is a purchaser in good faith for value."
Since the properties in question are unregistered lands, petitioners as subsequent buyers thereof did so at their peril.
Their claim of having bought the land in good faith, i.e., without notice that some other person has a right to or
interest in the property, would not protect them if it turns out, as it actually did in this case, that their seller did not
own the property at the time of the sale.
It is an established principle that no one can give what one does not have, nemo dat quod non habet. Accordingly, one
can sell only what one owns or is authorized to sell, and the buyer can acquire no more than what the seller can
transfer legally.33 In the case at bar, since Ildefonso no longer owned the subject land at the time of the sale to the
petitioner, he had nothing to sell and the latter did not acquire any right to it.
Even if we apply Article 1544, the facts would nonetheless show that respondents and their predecessors-in-interest
registered first the source of their ownership and possession, i.e., the 1969 deed of sale, and possessed the subject
land at the earliest time. Applying the doctrine of "priority in time, priority in rights" or "prius tempore, potior jure,"
respondents are entitled to the ownership and possession of the subject land. 34
True, a certificate of title, once registered, should not thereafter be impugned, altered, changed, modified, enlarged or
diminished except in a direct proceeding permitted by law. 35 Moreover, Section 32 of Presidential Decree No. 1529
provides that "[u]pon the expiration of said period of one year, the decree of registration and the certificate of title
shall become incontrovertible."
However, it does not deprive an aggrieved party of a remedy in law. What cannot be collaterally attacked is the
certificate of title and not the title or ownership which is represented by such certificate. Ownership is different from a
certificate of title.36 The fact that petitioner was able to secure a title in her name did not operate to vest ownership
upon her of the subject land. Registration of a piece of land under the Torrens System does not create or vest title,

because it is not a mode of acquiring ownership. A certificate of title is merely an evidence of ownership or title over
the particular property described therein.37 It cannot be used to protect a usurper from the true owner; nor can it be
used as a shield for the commission of fraud; neither does it permit one to enrich himself at the expense of others. 38 Its
issuance in favor of a particular person does not foreclose the possibility that the real property may be co-owned with
persons not named in the certificate, or that it may be held in trust for another person by the registered owner. 39
As correctly held by the Court of Appeals, notwithstanding the indefeasibility of the Torrens title, the registered owner
may still be compelled to reconvey the registered property to its true owners. The rationale for the rule is that
reconveyance does not set aside or re-subject to review the findings of fact of the Bureau of Lands. In an action for
reconveyance, the decree of registration is respected as incontrovertible. What is sought instead is the transfer of the
property or its title which has been wrongfully or erroneously registered in another persons name, to its rightful or
legal owner, or to the one with a better right.40
Finally, the Court of Appeals correctly held that an action for reconveyance does not prescribe when the plaintiff is in
possession of the land to be reconveyed, as in this case. Thus, in Leyson v. Bontuyan:41
x x x [T]his Court declared that an action for reconveyance based on fraud is imprescriptible where the plaintiff is in
possession of the property subject of the acts. In Vda. de Cabrera v. Court of Appeals, the Court held:
... [A]n action for reconveyance of a parcel of land based on implied or constructive trust prescribes in ten years, the
point of reference being the date of registration of the deed or the date of the issuance of the certificate of title over
the property, but this rule applies only when the plaintiff or the person enforcing the trust is not in possession of the
property, since if a person claiming to be the owner thereof is in actual possession of the property, as the defendants
are in the instant case, the right to seek reconveyance, which in effect seeks to quiet title to the property, does not
prescribe. The reason for this is that one who is in actual possession of a piece of land claiming to be the owner thereof
may wait until his possession is disturbed or his title is attacked before taking steps to vindicate his right, the reason
for the rule being, that his undisturbed possession gives him a continuing right to seek the aid of a court of equity to
ascertain and determine the nature of the adverse claim of a third party and its effect on his own title, which right can
be claimed only by one who is in possession.
Similarly, in the case of David v. Malay, the same pronouncement was reiterated by the Court:
... There is settled jurisprudence that one who is in actual possession of a piece of land claiming to be owner thereof
may wait until his possession is disturbed or his title is attacked before taking steps to vindicate his right, the reason
for the rule being, that his undisturbed possession gives him a continuing right to seek the aid of the court of equity to
ascertain and determine the nature of the adverse claim of a third party and its effect on his own title, which right can
be claimed only by one who is in possession. No better situation can be conceived at the moment for Us to apply this
rule on equity than that of herein petitioners whose ... possession of the litigated property for no less than 30 years
and was suddenly confronted with a claim that the land she had been occupying and cultivating all these years, was
titled in the name of a third person. We hold that in such a situation the right to quiet title to the property, to seek its
reconveyance and annul any certificate of title covering it, accrued only from the time the one in possession was made
aware of a claim adverse to his own, and it is only then that the statutory period of prescription commences to run
against such possessor.
The paramount reason for this exception is based on the theory that registration proceedings could not be used as a
shield for fraud. Moreover, to hold otherwise would be to put premium on land-grabbing and transgressing the broader
principle in human relations that no person shall unjustly enrich himself at the expense of another.
WHEREFORE, in view of the foregoing, the petition is DENIED. The Decision of the Court of Appeals dated December
14, 2004, in CA-G.R. SP No. 86736, dismissing petitioners complaint for recovery of possession and respondents
counterclaim for damages for lack of legal and factual bases, and the Resolution dated February 17, 2005 denying the
motion for reconsideration, are AFFIRMED.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 146853

February 13, 2006

SALVADOR COMILANG, Petitioner,

vs.
FRANCISCO BURCENA and MARIANO BURCENA, Respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a petition for review on certiorari of the Decision 1 dated October 16, 2000 of the Court of Appeals
(CA) in CA-G.R. CV No. 53794 which affirmed in toto the Decision dated March 28, 1996 of the Regional Trial Court,
Branch 22, Narvacan, Ilocos Sur (RTC) and the CA Resolution dated December 19, 2000 which denied petitioners
motion for reconsideration.
The factual background of the case is as follows:
On April 29, 1985, Francisco Burcena and Mariano Burcena (respondents), together with their mother, Dominga
Reclusado Vda. de Burcena (Dominga), filed a complaint for annulment of document with damages against Salvador
Comilang (petitioner). The complaint alleges that: respondents are the owners of a 918-square meter parcel of land
located in Manueva, Santa, Ilocos Sur and the house with a floor area of 32 square meters built thereon; respondents
acquired the subject property through their earnings while working abroad; the subject property was declared for
taxation purposes in Domingas name as administrator thereof; on or about March 12, 1984, petitioner caused the
execution of a Deed of Donation2 over said property by taking advantage of Domingas blindness, old age and physical
infirmity; the said Deed of Donation is null and void because: (a) Dominga had no right to donate the same since she is
not its owner, (b) Dominga did not give her consent and was misled to the execution of such document, (c) granting
Dominga had authority to donate, the donation is void because the property donated is the only property declared in
her name and therefore she could not have reserved for herself in full ownership sufficient property to support herself;
petitioner is in possession of the subject property, depriving respondents of its ownership and enjoyment of its fruits. 3
In his Answer dated February 24, 1986, petitioner contends that: the Deed of Donation was freely and voluntarily
executed by Dominga in consideration of her love and affection for him; the subject property was acquired by Dominga
together with her two sisters, Aniceta Reclusado and Juana Reclusado, long before respondents went to Hawaii;
Dominga erected a house on the land long before the outbreak of World War II; Dominga financed out of her own
money the construction of the house and subsequent improvements thereof, she being a merchant when she could

still travel to Cagayan Valley; granting that respondents had been sending money to Dominga, said money already
belonged to her; if Dominga used said money for improving the house, respondents have no right over the house. 4
During the pendency of the case and before she could take the witness stand, Dominga died. 5 Following pre-trial, trial
on the merits ensued. Witnesses for the plaintiffs were respondents and their aunt, Margarita Burcena (Margarita);
while petitioner testified on his own behalf.
On March 28, 1996, the RTC rendered a Decision in favor of the respondents, the dispositive portion of which reads as
follows:
WHEREFORE, decision is hereby rendered declaring the parcel of land and the improvement therein consisting of the
house mentioned and described under paragraph 3 of the complaint, owned by the plaintiffs Francisco Burcena and
Mariano Burcena, but declaring the possession of the defendant in good faith and further:
a) That the Deed of Donation, Exhibit "1" and submarkings null and void;
b) That the defendant must vacate the property and turnover the same to the plaintiffs.
c) Without pronouncement as to moral, actual and other forms of damages as well as non-accounting of the
produce from the property by virtue of the defendants possession, thereof, as well as attorneys fees.
SO ORDERED.6
The RTC held that the donation is void because Dominga could not have validly disposed of the subject property since
it was bought with the money sent by respondents while working abroad, although declared for taxation purposes in
Domingas name.
Dissatisfied, petitioner filed an appeal with the CA. In its Decision dated October 16, 2000, the CA found no cogent
reason to disturb the factual findings of the RTC, as well as the latters assessment of the credibility of witnesses. The
CA held that the case involves an implied trust known as purchase price resulting trust under Article 1448 of the Civil
Code where property sold is granted to one party but the price is paid for by another; that the evidence presented by
the respondents convincingly show that the subject property was bought with money belonging to respondents but
declared in Domingas name as administrator thereof; and that Domingas act of donating the property to petitioner
was beyond her authority and capacity, done without the consent of the real owners, herein Respondents. Thus, the
CA sustained the conclusion of the RTC that the donation is void. 7
Petitioner filed a motion for reconsideration8 but it was denied by the CA in its Resolution dated December 19, 2000. 9
Hence, the present petition for review on certiorari anchored on the following assigned errors:
The Honorable Court of Appeals erred:
1. IN DECLARING IN ITS QUESTIONED DECISION xxx THAT "xxx implied trust arises over the subject property
xxx"; xxx; AND/OR
2. IN DECIDING THE INSTANT CASE NOT IN ACCORDANCE WITH LAW AND/OR APPLICABLE DECISIONS OF THIS
HONORABLE COURT; AND/OR
3. IN MISAPPRECIATING CIRCUMSTANCES OF SUBSTANCE AND VALUE WHICH GREATLY AFFECT THE OUTCOME
OF THE CASE OR REVERSE THE DECISION OF THE HONORABLE REGIONAL TRIAL COURT OF NARVACAN, ILOCOS
SUR, BRANCH 22.10
Petitioner assails the CAs application of the principle of implied trust to nullify the Deed of Donation executed in his
favor. He asserts that the existence of an implied trust between respondents and Dominga in relation to the subject
property was never treated by the RTC nor was it brought in issue on appeal before the CA. Petitioner further argues
that Margaritas statement on the witness stand that Dominga told her that the respondents sent her money to buy

the subject property, should not have been given weight or credence by the RTC and the CA because it is hearsay and
has no probative value.
On the other hand, respondents maintain that the CA has the judicial prerogative to rule on matters not assigned as
errors in an appeal if indispensable or necessary to the just resolution of the case. As to Margaritas testimony,
respondents submit that it is not hearsay since Margarita merely stated what Dominga said.
The petition is bereft of merit.1avvphil.net
Once a court acquires jurisdiction over a case, it has wide discretion to look upon matters which, although not raised
as an issue, would give life and meaning to the law. Indeed, the Rules of Court recognize the broad discretionary power
of an appellate court to consider errors not assigned. Section 8, Rule 51 of the 1997 Rules of Civil Procedure provides:
SEC. 8 Questions that may be decided. No error which does not affect the jurisdiction over the subject matter or the
validity of the judgment appealed from or the proceedings therein will be considered, unless stated in the assignment
of errors, or closely related to or dependent on an assigned error and properly argued in the brief, save as the court
may pass upon plain errors and clerical errors.
Thus, an appellate court is clothed with ample authority to review rulings even if they are not assigned as errors in the
appeal in these instances: (a) grounds not assigned as errors but affecting jurisdiction over the subject matter; (b)
matters not assigned as errors on appeal but are evidently plain or clerical errors within contemplation of law; (c)
matters not assigned as errors on appeal but consideration of which is necessary in arriving at a just decision and
complete resolution of the case or to serve the interests of justice or to avoid dispensing piecemeal justice; (d) matters
not specifically assigned as errors on appeal but raised in the trial court and are matters of record having some
bearing on the issue submitted which the parties failed to raise or which the lower court ignored; (e) matters not
assigned as errors on appeal but closely related to an error assigned; and (f) matters not assigned as errors on appeal
but upon which the determination of a question properly assigned, is dependent. 11
In this case, since the petitioner directly brought in issue on appeal in his Appellants Brief the declaration of the RTC
that Dominga could not have validly disposed of the subject property because respondents are the real owners of the
subject property since it was bought with money sent by them, it was well-within the CAs authority to review and
evaluate the propriety of such ruling. In holding that an implied trust exists between respondents and Dominga in
relation to the subject property and therefore Dominga had no right to donate the same to petitioner, the CA merely
clarified the RTCs findings.
Article 1448 of the Civil Code on implied trust provides:
Art. 1448. There is an implied trust when property is sold, and the legal estate is granted to one party but the price is
paid by another for the purpose of having the beneficial interest of the property. The former is the trustee, while the
latter is the beneficiary. However, if the person to whom the title is conveyed is a child, legitimate or illegitimate, of
the one paying the price of the sale, no trust is implied by law, it being disputably presumed that there is a gift in favor
of the child. (Emphasis supplied)
The trust created under the first sentence of Article 1448 is sometimes referred to as a purchase money resulting
trust, the elements of which are: (a) an actual payment of money, property or services, or an equivalent, constituting
valuable consideration; and (b) such consideration must be furnished by the alleged beneficiary of a resulting
trust.12 Respondents have shown that the two elements are present in the instant case. Dominga was merely a trustee
of the respondents in relation to the subject property. Therefore, Dominga could not have validly donated the subject
property to petitioner, as expressly provided in Article 736 of the Civil Code, thus:
Art. 736. Guardians and trustees cannot donate the property entrusted to them.
Truly, nobody can dispose of that which does not belong to him. 13
Anent Margaritas testimony that Dominga told her that the respondents sent her (Dominga) money to buy the subject
property, it cannot be categorized as hearsay evidence. Margaritas testimony was not presented to prove the truth
thereof, but only to establish the fact that Dominga narrated to Margarita the source of the funds used in the purchase

of the subject property.14 What was sought to be admitted in evidence, and what was actually admitted in evidence,
was the fact that the statement was made by Dominga to Margarita, not necessarily that the matters stated by her
were true. The said utterance is in the nature of an independently relevant statement which may be admitted in
evidence as such, but not necessarily to prove the truth thereof. 15
Thus, while it is true that the testimony of a witness regarding a statement made by another person, if intended to
establish the truth of the fact asserted in the statement, is clearly hearsay evidence, it is otherwise if the purpose of
placing the statement in the record is merely to establish the fact that the statement was made or the tenor of such
statement. Regardless of the truth or falsity of a statement, when the fact that it has been made is relevant, the
hearsay rule does not apply and the statement may be shown. As a matter of fact, evidence as to the making of the
statement is not secondary but primary, for the statement itself may constitute a fact in issue, or be circumstantially
relevant as to the existence of such a fact. 16 For this reason, the statement attributed to Dominga regarding the source
of the funds used to purchase the subject property related to the court by Margarita is admissible if only to establish
the fact that such statement was made and the tenor thereof.
Besides, the testimony of Margarita is not the main basis for the RTCs decision. In fact, her testimony is not
indispensable. It merely serves to corroborate the testimonies of the respondents on the source of the funds used in
purchasing the subject property. The testimonies of all three witnesses for the plaintiffs were found to be convincing
and credible by the RTC. This Court will not alter the findings of the RTC on the credibility of witnesses, principally
because trial courts have vastly superior advantages in ascertaining the truth and in detecting falsehood as they have
the opportunity to observe the manner and demeanor of witnesses while testifying. 17
All told, the CA did not commit any reversible error in rendering the assailed Decision dated October 16, 2000 and the
Resolution dated December 19, 2000 in CA-G.R. CV No. 53794. The factual determinations of the CA therein are
binding and conclusive upon this Court as no compelling reasons exist necessitating a re-examination or reversal of
the same.
WHEREFORE, the petition is DENIED and the assailed Decision and Resolution are AFFIRMED. Costs against
petitioner.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G. R. No. 158149

February 9, 2006

BOSTON BANK OF THE PHILIPPINES, (formerly BANK OF COMMERCE), Petitioner,

vs.
PERLA P. MANALO and CARLOS MANALO, JR., Respondents.
DECISION
CALLEJO, SR., J.:
Before us is a Petition for Review on Certiorari of the Decision 1 of the Court of Appeals (CA) in CA-G.R. CV No. 47458
affirming, on appeal, the Decision2 of the Regional Trial Court (RTC) of Quezon City, Branch 98, in Civil Case No. Q-893905.
The Antecedents
The Xavierville Estate, Inc. (XEI) was the owner of parcels of land in Quezon City, known as the Xavierville Estate
Subdivision, with an area of 42 hectares. XEI caused the subdivision of the property into residential lots, which was
then offered for sale to individual lot buyers.3
On September 8, 1967, XEI, through its General Manager, Antonio Ramos, as vendor, and The Overseas Bank of Manila
(OBM), as vendee, executed a "Deed of Sale of Real Estate" over some residential lots in the subdivision, including Lot
1, Block 2, with an area of 907.5 square meters, and Lot 2, Block 2, with an area of 832.80 square meters. The
transaction was subject to the approval of the Board of Directors of OBM, and was covered by real estate mortgages in
favor of the Philippine National Bank as security for its account amounting to P5,187,000.00, and the Central Bank of
the Philippines as security for advances amounting to P22,185,193.74.4 Nevertheless, XEI continued selling the
residential lots in the subdivision as agent of OBM. 5
Sometime in 1972, then XEI president Emerito Ramos, Jr. contracted the services of Engr. Carlos Manalo, Jr. who was in
business of drilling deep water wells and installing pumps under the business name Hurricane Commercial, Inc.
For P34,887.66, Manalo, Jr. installed a water pump at Ramos residence at the corner of Aurora Boulevard and
Katipunan Avenue, Quezon City. Manalo, Jr. then proposed to XEI, through Ramos, to purchase a lot in the Xavierville
subdivision, and offered as part of the downpayment the P34,887.66 Ramos owed him. XEI, through Ramos, agreed. In
a letter dated February 8, 1972, Ramos requested Manalo, Jr. to choose which lots he wanted to buy so that the price
of the lots and the terms of payment could be fixed and incorporated in the conditional sale. 6 Manalo, Jr. met with
Ramos and informed him that he and his wife Perla had chosen Lots 1 and 2 of Block 2 with a total area of 1,740.3
square meters.
In a letter dated August 22, 1972 to Perla Manalo, Ramos confirmed the reservation of the lots. He also pegged the
price of the lots at P200.00 per square meter, or a total of P348,060.00, with a 20% down payment of the purchase
price amounting to P69,612.00 less the P34,887.66 owing from Ramos, payable on or before December 31, 1972; the
corresponding Contract of Conditional Sale would then be signed on or before the same date, but if the selling
operations of XEI resumed after December 31, 1972, the balance of the downpayment would fall due then, and the
spouses would sign the aforesaid contract within five (5) days from receipt of the notice of resumption of such selling
operations. It was also stated in the letter that, in the meantime, the spouses may introduce improvements thereon
subject to the rules and regulations imposed by XEI in the subdivision. Perla Manalo conformed to the letter
agreement.7
The spouses Manalo took possession of the property on September 2, 1972, constructed a house thereon, and installed
a fence around the perimeter of the lots.
In the meantime, many of the lot buyers refused to pay their monthly installments until they were assured that they
would be issued Torrens titles over the lots they had purchased. 8 The spouses Manalo were notified of the resumption
of the selling operations of XEI.9 However, they did not pay the balance of the downpayment on the lots because
Ramos failed to prepare a contract of conditional sale and transmit the same to Manalo for their signature. On August
14, 1973, Perla Manalo went to the XEI office and requested that the payment of the amount representing the balance
of the downpayment be deferred, which, however, XEI rejected. On August 10, 1973, XEI furnished her with a
statement of their account as of July 31, 1973, showing that they had a balance of P34,724.34 on the downpayment of
the two lots after deducting the account of Ramos, plus P3,819.6810 interest thereon from September 1, 1972 to July
31, 1973, and that the interests on the unpaid balance of the purchase price ofP278,448.00 from September 1, 1972 to
July 31, 1973 amounted to P30,629.28.11 The spouses were informed that they were being billed for said unpaid
interests.12
On January 25, 1974, the spouses Manalo received another statement of account from XEI, inclusive of interests on the
purchase price of the lots.13 In a letter dated April 6, 1974 to XEI, Manalo, Jr. stated they had not yet received the
notice of resumption of Leis selling operations, and that there had been no arrangement on the payment of interests;

hence, they should not be charged with interest on the balance of the downpayment on the property. 14 Further, they
demanded that a deed of conditional sale over the two lots be transmitted to them for their signatures. However, XEI
ignored the demands. Consequently, the spouses refused to pay the balance of the downpayment of the purchase
price.15
Sometime in June 1976, Manalo, Jr. constructed a business sign in the sidewalk near his house. In a letter dated June
17, 1976, XEI informed Manalo, Jr. that business signs were not allowed along the sidewalk. It demanded that he
remove the same, on the ground, among others, that the sidewalk was not part of the land which he had purchased on
installment basis from XEI.16 Manalo, Jr. did not respond. XEI reiterated its demand on September 15, 1977. 17
Subsequently, XEI turned over its selling operations to OBM, including the receivables for lots already contracted and
those yet to be sold.18 On December 8, 1977, OBM warned Manalo, Jr., that "putting up of a business sign is specifically
prohibited by their contract of conditional sale" and that his failure to comply with its demand would impel it to avail of
the remedies as provided in their contract of conditional sale. 19
Meanwhile, on December 5, 1979, the Register of Deeds issued Transfer Certificate of Title (TCT) No. T-265822 over Lot
1, Block 2, and TCT No. T-265823 over Lot 2, Block 2, in favor of the OBM. 20 The lien in favor of the Central Bank of the
Philippines was annotated at the dorsal portion of said title, which was later cancelled on August 4, 1980. 21
Subsequently, the Commercial Bank of Manila (CBM) acquired the Xavierville Estate from OBM. CBM wrote Edilberto
Ng, the president of Xavierville Homeowners Association that, as of January 31, 1983, Manalo, Jr. was one of the lot
buyers in the subdivision.22 CBM reiterated in its letter to Ng that, as of January 24, 1984, Manalo was a homeowner in
the subdivision.23
In a letter dated August 5, 1986, the CBM requested Perla Manalo to stop any on-going construction on the property
since it (CBM) was the owner of the lot and she had no permission for such construction. 24 She agreed to have a
conference meeting with CBM officers where she informed them that her husband had a contract with OBM, through
XEI, to purchase the property. When asked to prove her claim, she promised to send the documents to CBM. However,
she failed to do so.25 On September 5, 1986, CBM reiterated its demand that it be furnished with the documents
promised,26 but Perla Manalo did not respond.
On July 27, 1987, CBM filed a complaint27 for unlawful detainer against the spouses with the Metropolitan Trial Court of
Quezon City. The case was docketed as Civil Case No. 51618. CBM claimed that the spouses had been unlawfully
occupying the property without its consent and that despite its demands, they refused to vacate the property. The
latter alleged that they, as vendors, and XEI, as vendee, had a contract of sale over the lots which had not yet been
rescinded.28
While the case was pending, the spouses Manalo wrote CBM to offer an amicable settlement, promising to abide by the
purchase price of the property (P313,172.34), per agreement with XEI, through Ramos. However, on July 28, 1988,
CBM wrote the spouses, through counsel, proposing that the price of P1,500.00 per square meter of the property was a
reasonable starting point for negotiation of the settlement. 29 The spouses rejected the counter proposal,30 emphasizing
that they would abide by their original agreement with XEI. CBM moved to withdraw its complaint 31 because of the
issues raised.32
In the meantime, the CBM was renamed the Boston Bank of the Philippines. After CBM filed its complaint against the
spouses Manalo, the latter filed a complaint for specific performance and damages against the bank before the
Regional Trial Court (RTC) of Quezon City on October 31, 1989.
The plaintiffs alleged therein that they had always been ready, able and willing to pay the installments on the lots sold
to them by the defendants remote predecessor-in-interest, as might be or stipulated in the contract of sale, but no
contract was forthcoming; they constructed their house worth P2,000,000.00 on the property in good faith; Manalo, Jr.,
informed the defendant, through its counsel, on October 15, 1988 that he would abide by the terms and conditions of
his original agreement with the defendants predecessor-in-interest; during the hearing of the ejectment case on
October 16, 1988, they offered to pay P313,172.34 representing the balance on the purchase price of said lots; such
tender of payment was rejected, so that the subject lots could be sold at considerably higher prices to third parties.
Plaintiffs further alleged that upon payment of the P313,172.34, they were entitled to the execution and delivery of a
Deed of Absolute Sale covering the subject lots, sufficient in form and substance to transfer title thereto free and clear
of any and all liens and encumbrances of whatever kind and nature. 33 The plaintiffs prayed that, after due hearing,
judgment be rendered in their favor, to wit:
WHEREFORE, it is respectfully prayed that after due hearing:

(a) The defendant should be ordered to execute and deliver a Deed of Absolute Sale over subject lots in favor
of the plaintiffs after payment of the sum of P313,172.34, sufficient in form and substance to transfer to them
titles thereto free and clear of any and all liens and encumbrances of whatever kind or nature;
(b) The defendant should be held liable for moral and exemplary damages in the amounts of P300,000.00
and P30,000.00, respectively, for not promptly executing and delivering to plaintiff the necessary Contract of
Sale, notwithstanding repeated demands therefor and for having been constrained to engage the services of
undersigned counsel for which they agreed to pay attorneys fees in the sum of P50,000.00 to enforce their
rights in the premises and appearance fee of P500.00;
(c) And for such other and further relief as may be just and equitable in the premises. 34
In its Answer to the complaint, the defendant interposed the following affirmative defenses: (a) plaintiffs had no cause
of action against it because the August 22, 1972 letter agreement between XEI and the plaintiffs was not binding on it;
and (b) "it had no record of any contract to sell executed by it or its predecessor, or of any statement of accounts from
its predecessors, or records of payments of the plaintiffs or of any documents which entitled them to the possession of
the lots."35 The defendant, likewise, interposed counterclaims for damages and attorneys fees and prayed for the
eviction of the plaintiffs from the property.36
Meanwhile, in a letter dated January 25, 1993, plaintiffs, through counsel, proposed an amicable settlement of the case
by paying P942,648.70, representing the balance of the purchase price of the two lots based on the current market
value.37 However, the defendant rejected the same and insisted that for the smaller lot, they payP4,500,000.00, the
current market value of the property.38 The defendant insisted that it owned the property since there was no contract
or agreement between it and the plaintiffs relative thereto.
During the trial, the plaintiffs adduced in evidence the separate Contracts of Conditional Sale executed between XEI
and Alberto Soller;39 Alfredo Aguila,40 and Dra. Elena Santos-Roque41 to prove that XEI continued selling residential lots
in the subdivision as agent of OBM after the latter had acquired the said lots.
For its part, defendant presented in evidence the letter dated August 22, 1972, where XEI proposed to sell the two lots
subject to two suspensive conditions: the payment of the balance of the downpayment of the property, and the
execution of the corresponding contract of conditional sale. Since plaintiffs failed to pay, OBM consequently refused to
execute the corresponding contract of conditional sale and forfeited the P34,877.66 downpayment for the two lots, but
did not notify them of said forfeiture.42 It alleged that OBM considered the lots unsold because the titles thereto bore
no annotation that they had been sold under a contract of conditional sale, and the plaintiffs were not notified of XEIs
resumption of its selling operations.
On May 2, 1994, the RTC rendered judgment in favor of the plaintiffs and against the defendant. The fallo of the
decision reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendant
(a) Ordering the latter to execute and deliver a Deed of Absolute Sale over Lot 1 and 2, Block 2 of the
Xavierville Estate Subdivision after payment of the sum of P942,978.70 sufficient in form and substance to
transfer to them titles thereto free from any and all liens and encumbrances of whatever kind and nature.
(b) Ordering the defendant to pay moral and exemplary damages in the amount of P150,000.00; and
(c) To pay attorneys fees in the sum of P50,000.00 and to pay the costs.
SO ORDERED.43
The trial court ruled that under the August 22, 1972 letter agreement of XEI and the plaintiffs, the parties had a
"complete contract to sell" over the lots, and that they had already partially consummated the same. It declared that
the failure of the defendant to notify the plaintiffs of the resumption of its selling operations and to execute a deed of
conditional sale did not prevent the defendants obligation to convey titles to the lots from acquiring binding effect.
Consequently, the plaintiffs had a cause of action to compel the defendant to execute a deed of sale over the lots in
their favor.
Boston Bank appealed the decision to the CA, alleging that the lower court erred in (a) not concluding that the letter of
XEI to the spouses Manalo, was at most a mere contract to sell subject to suspensive conditions, i.e., the payment of
the balance of the downpayment on the property and the execution of a deed of conditional sale (which were not

complied with); and (b) in awarding moral and exemplary damages to the spouses Manalo despite the absence of
testimony providing facts to justify such awards.44
On September 30, 2002, the CA rendered a decision affirming that of the RTC with modification. The fallo reads:
WHEREFORE, the appealed decision is AFFIRMED with MODIFICATIONS that (a) the figure "P942,978.70" appearing [in]
par. (a) of the dispositive portion thereof is changed to "P313,172.34 plus interest thereon at the rate of 12% per
annum from September 1, 1972 until fully paid" and (b) the award of moral and exemplary damages and attorneys
fees in favor of plaintiffs-appellees is DELETED.
SO ORDERED.45
The appellate court sustained the ruling of the RTC that the appellant and the appellees had executed a Contract to
Sell over the two lots but declared that the balance of the purchase price of the property amounting toP278,448.00
was payable in fixed amounts, inclusive of pre-computed interests, from delivery of the possession of the property to
the appellees on a monthly basis for 120 months, based on the deeds of conditional sale executed by XEI in favor of
other lot buyers.46 The CA also declared that, while XEI must have resumed its selling operations before the end of
1972 and the downpayment on the property remained unpaid as of December 31, 1972, absent a written notice of
cancellation of the contract to sell from the bank or notarial demand therefor as required by Republic Act No. 6552, the
spouses had, at the very least, a 60-day grace period from January 1, 1973 within which to pay the same.
Boston Bank filed a motion for the reconsideration of the decision alleging that there was no perfected contract to sell
the two lots, as there was no agreement between XEI and the respondents on the manner of payment as well as the
other terms and conditions of the sale. It further averred that its claim for recovery of possession of the aforesaid lots
in its Memorandum dated February 28, 1994 filed before the trial court constituted a judicial demand for rescission
that satisfied the requirements of the New Civil Code. However, the appellate court denied the motion.
Boston Bank, now petitioner, filed the instant petition for review on certiorari assailing the CA rulings. It maintains that,
as held by the CA, the records do not reflect any schedule of payment of the 80% balance of the purchase price,
or P278,448.00. Petitioner insists that unless the parties had agreed on the manner of payment of the principal
amount, including the other terms and conditions of the contract, there would be no existing contract of sale or
contract to sell.47 Petitioner avers that the letter agreement to respondent spouses dated August 22, 1972 merely
confirmed their reservation for the purchase of Lot Nos. 1 and 2, consisting of 1,740.3 square meters, more or less, at
the price of P200.00 per square meter (or P348,060.00), the amount of the downpayment thereon and the application
of the P34,887.00 due from Ramos as part of such downpayment.
Petitioner asserts that there is no factual basis for the CA ruling that the terms and conditions relating to the payment
of the balance of the purchase price of the property (as agreed upon by XEI and other lot buyers in the same
subdivision) were also applicable to the contract entered into between the petitioner and the Respondents. It insists
that such a ruling is contrary to law, as it is tantamount to compelling the parties to agree to something that was not
even discussed, thus, violating their freedom to contract. Besides, the situation of the respondents cannot be equated
with those of the other lot buyers, as, for one thing, the respondents made a partial payment on the downpayment for
the two lots even before the execution of any contract of conditional sale.
Petitioner posits that, even on the assumption that there was a perfected contract to sell between the parties,
nevertheless, it cannot be compelled to convey the property to the respondents because the latter failed to pay the
balance of the downpayment of the property, as well as the balance of 80% of the purchase price, thus resulting in the
extinction of its obligation to convey title to the lots to the Respondents.
Another egregious error of the CA, petitioner avers, is the application of Republic Act No. 6552. It insists that such law
applies only to a perfected agreement or perfected contract to sell, not in this case where the downpayment on the
purchase price of the property was not completely paid, and no installment payments were made by the buyers.
Petitioner also faults the CA for declaring that petitioner failed to serve a notice on the respondents of cancellation or
rescission of the contract to sell, or notarial demand therefor. Petitioner insists that its August 5, 1986 letter requiring
respondents to vacate the property and its complaint for ejectment in Civil Case No. 51618 filed in the Metropolitan
Trial Court amounted to the requisite demand for a rescission of the contract to sell. Moreover, the action of the
respondents below was barred by laches because despite demands, they failed to pay the balance of the purchase
price of the lots (let alone the downpayment) for a considerable number of years.
For their part, respondents assert that as long as there is a meeting of the minds of the parties to a contract of sale as
to the price, the contract is valid despite the parties failure to agree on the manner of payment. In such a situation,
the balance of the purchase price would be payable on demand, conformably to Article 1169 of the New Civil Code.
They insist that the law does not require a party to agree on the manner of payment of the purchase price as a

prerequisite to a valid contract to sell. The respondents cite the ruling of this Court in Buenaventura v. Court of
Appeals48 to support their submission.
They argue that even if the manner and timeline for the payment of the balance of the purchase price of the property
is an essential requisite of a contract to sell, nevertheless, as shown by their letter agreement of August 22, 1972 with
the OBM, through XEI and the other letters to them, an agreement was reached as to the manner of payment of the
balance of the purchase price. They point out that such letters referred to the terms of the terms of the deeds of
conditional sale executed by XEI in favor of the other lot buyers in the subdivision, which contained uniform terms of
120 equal monthly installments (excluding the downpayment, but inclusive of pre-computed interests). The
respondents assert that XEI was a real estate broker and knew that the contracts involving residential lots in the
subdivision contained uniform terms as to the manner and timeline of the payment of the purchase price of said lots.
Respondents further posit that the terms and conditions to be incorporated in the "corresponding contract of
conditional sale" to be executed by the parties would be the same as those contained in the contracts of conditional
sale executed by lot buyers in the subdivision. After all, they maintain, the contents of the corresponding contract of
conditional sale referred to in the August 22, 1972 letter agreement envisaged those contained in the contracts of
conditional sale that XEI and other lot buyers executed. Respondents cite the ruling of this Court in Mitsui Bussan
Kaisha v. Manila E.R.R. & L. Co.49
The respondents aver that the issues raised by the petitioner are factual, inappropriate in a petition for review on
certiorari under Rule 45 of the Rules of Court. They assert that petitioner adopted a theory in litigating the case in the
trial court, but changed the same on appeal before the CA, and again in this Court. They argue that the petitioner is
estopped from adopting a new theory contrary to those it had adopted in the trial and appellate courts. Moreover, the
existence of a contract of conditional sale was admitted in the letters of XEI and OBM. They aver that they became
owners of the lots upon delivery to them by XEI.
The issues for resolution are the following: (1) whether the factual issues raised by the petitioner are proper; (2)
whether petitioner or its predecessors-in-interest, the XEI or the OBM, as seller, and the respondents, as buyers, forged
a perfect contract to sell over the property; (3) whether petitioner is estopped from contending that no such contract
was forged by the parties; and (4) whether respondents has a cause of action against the petitioner for specific
performance.
The rule is that before this Court, only legal issues may be raised in a petition for review on certiorari. The reason is
that this Court is not a trier of facts, and is not to review and calibrate the evidence on record. Moreover, the findings
of facts of the trial court, as affirmed on appeal by the Court of Appeals, are conclusive on this Court unless the case
falls under any of the following exceptions:
(1) when the conclusion is a finding grounded entirely on speculations, surmises and conjectures; (2) when the
inference made is manifestly mistaken, absurd or impossible; (3) where there is a grave abuse of discretion; (4) when
the judgment is based on a misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the Court
of Appeals, in making its findings went beyond the issues of the case and the same is contrary to the admissions of
both appellant and appellee; (7) when the findings are contrary to those of the trial court; (8) when the findings of fact
are conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the
petition as well as in the petitioners main and reply briefs are not disputed by the respondents; and (10) when the
findings of fact of the Court of Appeals are premised on the supposed absence of evidence and contradicted by the
evidence on record.50
We have reviewed the records and we find that, indeed, the ruling of the appellate court dismissing petitioners appeal
is contrary to law and is not supported by evidence. A careful examination of the factual backdrop of the case, as well
as the antecedental proceedings constrains us to hold that petitioner is not barred from asserting that XEI or OBM, on
one hand, and the respondents, on the other, failed to forge a perfected contract to sell the subject lots.
It must be stressed that the Court may consider an issue not raised during the trial when there is plain error. 51Although
a factual issue was not raised in the trial court, such issue may still be considered and resolved by the Court in the
interest of substantial justice, if it finds that to do so is necessary to arrive at a just decision, 52 or when an issue is
closely related to an issue raised in the trial court and the Court of Appeals and is necessary for a just and complete
resolution of the case.53 When the trial court decides a case in favor of a party on certain grounds, the Court may base
its decision upon some other points, which the trial court or appellate court ignored or erroneously decided in favor of
a party.54
In this case, the issue of whether XEI had agreed to allow the respondents to pay the purchase price of the property
was raised by the parties. The trial court ruled that the parties had perfected a contract to sell, as against petitioners
claim that no such contract existed. However, in resolving the issue of whether the petitioner was obliged to sell the
property to the respondents, while the CA declared that XEI or OBM and the respondents failed to agree on the

schedule of payment of the balance of the purchase price of the property, it ruled that XEI and the respondents had
forged a contract to sell; hence, petitioner is entitled to ventilate the issue before this Court.
We agree with petitioners contention that, for a perfected contract of sale or contract to sell to exist in law, there must
be an agreement of the parties, not only on the price of the property sold, but also on the manner the price is to be
paid by the vendee.
Under Article 1458 of the New Civil Code, in a contract of sale, whether absolute or conditional, one of the contracting
parties obliges himself to transfer the ownership of and deliver a determinate thing, and the other to pay therefor a
price certain in money or its equivalent. A contract of sale is perfected at the moment there is a meeting of the minds
upon the thing which is the object of the contract and the price. From the averment of perfection, the parties are
bound, not only to the fulfillment of what has been expressly stipulated, but also to all the consequences which,
according to their nature, may be in keeping with good faith, usage and law. 55 On the other hand, when the contract of
sale or to sell is not perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation
between the parties.56
A definite agreement as to the price is an essential element of a binding agreement to sell personal or real property
because it seriously affects the rights and obligations of the parties. Price is an essential element in the formation of a
binding and enforceable contract of sale. The fixing of the price can never be left to the decision of one of the
contracting parties. But a price fixed by one of the contracting parties, if accepted by the other, gives rise to a
perfected sale.57
It is not enough for the parties to agree on the price of the property. The parties must also agree on the manner of
payment of the price of the property to give rise to a binding and enforceable contract of sale or contract to sell. This is
so because the agreement as to 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. 58
In a contract to sell property by installments, it is not enough that the parties agree on the price as well as the amount
of downpayment. The parties must, likewise, agree on the manner of payment of the balance of the purchase price
and on the other terms and conditions relative to the sale. Even if the buyer makes a downpayment or portion thereof,
such payment cannot be considered as sufficient proof of the perfection of any purchase and sale between the parties.
Indeed, this Court ruled in Velasco v. Court of Appeals 59 that:
It is not difficult to glean from the aforequoted averments that the petitioners themselves admit that they and the
respondent still had to meet and agree on how and when the down-payment and the installment payments were to be
paid. Such being the situation, it cannot, therefore, be said that a definite and firm sales agreement between the
parties had been perfected over the lot in question. Indeed, this Court has already ruled before that a definite
agreement on the manner of payment of the purchase price is an essential element in the formation of a binding and
enforceable contract of sale. The fact, therefore, that the petitioners delivered to the respondent the sum ofP10,000.00
as part of the downpayment that they had to pay cannot be considered as sufficient proof of the perfection of any
purchase and sale agreement between the parties herein under article 1482 of the New Civil Code, as the petitioners
themselves admit that some essential matter the terms of payment still had to be mutually covenanted. 60
We agree with the contention of the petitioner that, as held by the CA, there is no showing, in the records, of the
schedule of payment of the balance of the purchase price on the property amounting to P278,448.00. We have
meticulously reviewed the records, including Ramos February 8, 1972 and August 22, 1972 letters to
respondents,61 and find that said parties confined themselves to agreeing on the price of the property (P348,060.00),
the 20% downpayment of the purchase price (P69,612.00), and credited respondents for theP34,887.00 owing from
Ramos as part of the 20% downpayment. The timeline for the payment of the balance of the downpayment
(P34,724.34) was also agreed upon, that is, on or before XEI resumed its selling operations, on or before December 31,
1972, or within five (5) days from written notice of such resumption of selling operations. The parties had also agreed
to incorporate all the terms and conditions relating to the sale, inclusive of the terms of payment of the balance of the
purchase price and the other substantial terms and conditions in the "corresponding contract of conditional sale," to be
later signed by the parties, simultaneously with respondents settlement of the balance of the downpayment.
The February 8, 1972 letter of XEI reads:
Mr. Carlos T. Manalo, Jr.
Hurricane Rotary Well Drilling
Rizal Avenue Ext.,Caloocan City
Dear Mr. Manalo:

We agree with your verbal offer to exchange the proceeds of your contract with us to form as a down payment for a lot
in our Xavierville Estate Subdivision.
Please let us know your choice lot so that we can fix the price and terms of payment in our conditional sale.
Sincerely yours,
XAVIERVILLE ESTATE, INC.
(Signed)
EMERITO B. RAMOS, JR.
President
CONFORME:
(Signed)
CARLOS T. MANALO, JR.
Hurricane Rotary Well Drilling62
The August 22, 1972 letter agreement of XEI and the respondents reads:
Mrs. Perla P. Manalo
1548 Rizal Avenue Extensionbr>Caloocan City
Dear Mrs. Manalo:
This is to confirm your reservation of Lot Nos. 1 and 2; Block 2 of our consolidation-subdivision plan as amended,
consisting of 1,740.3 square meters more or less, at the price of P200.00 per square meter or a total price
of P348,060.00.
It is agreed that as soon as we resume selling operations, you must pay a down payment of 20% of the purchase price
of the said lots and sign the corresponding Contract of Conditional Sale, on or before December 31, 1972, provided,
however, that if we resume selling after December 31, 1972, then you must pay the aforementioned down payment
and sign the aforesaid contract within five (5) days from your receipt of our notice of resumption of selling operations.
In the meanwhile, you may introduce such improvements on the said lots as you may desire, subject to the rules and
regulations of the subdivision.
If the above terms and conditions are acceptable to you, please signify your conformity by signing on the space herein
below provided.
Thank you.
Very truly yours,
XAVIERVILLE ESTATE, INC. CONFORME:
By:
(Signed)
EMERITO B. RAMOS, JR.

(Signed)
PERLA P. MANALO

President Buyer63
Based on these two letters, the determination of the terms of payment of the P278,448.00 had yet to be agreed upon
on or before December 31, 1972, or even afterwards, when the parties sign the corresponding contract of conditional
sale.
Jurisprudence is that if a material element of a contemplated contract is left for future negotiations, the same is too
indefinite to be enforceable.64 And when an essential element of a contract is reserved for future agreement of the
parties, no legal obligation arises until such future agreement is concluded. 65

So long as an essential element entering into the proposed obligation of either of the parties remains to be determined
by an agreement which they are to make, the contract is incomplete and unenforceable. 66 The reason is that such a
contract is lacking in the necessary qualities of definiteness, certainty and mutuality. 67
There is no evidence on record to prove that XEI or OBM and the respondents had agreed, after December 31, 1972,
on the terms of payment of the balance of the purchase price of the property and the other substantial terms and
conditions relative to the sale. Indeed, the parties are in agreement that there had been no contract of conditional sale
ever executed by XEI, OBM or petitioner, as vendor, and the respondents, as vendees. 68
The ruling of this Court in Buenaventura v. Court of Appeals has no bearing in this case because the issue of the
manner of payment of the purchase price of the property was not raised therein.
We reject the submission of respondents that they and Ramos had intended to incorporate the terms of payment
contained in the three contracts of conditional sale executed by XEI and other lot buyers in the "corresponding
contract of conditional sale," which would later be signed by them. 69 We have meticulously reviewed the respondents
complaint and find no such allegation therein.70 Indeed, respondents merely alleged in their complaint that they were
bound to pay the balance of the purchase price of the property "in installments." When respondent Manalo, Jr. testified,
he was never asked, on direct examination or even on cross-examination, whether the terms of payment of the
balance of the purchase price of the lots under the contracts of conditional sale executed by XEI and other lot buyers
would form part of the "corresponding contract of conditional sale" to be signed by them simultaneously with the
payment of the balance of the downpayment on the purchase price.
We note that, in its letter to the respondents dated June 17, 1976, or almost three years from the execution by the
parties of their August 22, 1972 letter agreement, XEI stated, in part, that respondents had purchased the property "on
installment basis."71 However, in the said letter, XEI failed to state a specific amount for each installment, and whether
such payments were to be made monthly, semi-annually, or annually. Also, respondents, as plaintiffs below, failed to
adduce a shred of evidence to prove that they were obliged to pay the P278,448.00 monthly, semi-annually or
annually. The allegation that the payment of the P278,448.00 was to be paid in installments is, thus, vague and
indefinite. Case law is that, for a contract to be enforceable, its terms must be certain and explicit, not vague or
indefinite.72
There is no factual and legal basis for the CA ruling that, based on the terms of payment of the balance of the
purchase price of the lots under the contracts of conditional sale executed by XEI and the other lot buyers,
respondents were obliged to pay the P278,448.00 with pre-computed interest of 12% per annum in 120-month
installments. As gleaned from the ruling of the appellate court, it failed to justify its use of the terms of payment under
the three "contracts of conditional sale" as basis for such ruling, to wit:
On the other hand, the records do not disclose the schedule of payment of the purchase price, net of the
downpayment. Considering, however, the Contracts of Conditional Sale (Exhs. "N," "O" and "P") entered into by XEI
with other lot buyers, it would appear that the subdivision lots sold by XEI, under contracts to sell, were payable in 120
equal monthly installments (exclusive of the downpayment but including pre-computed interests) commencing on
delivery of the lot to the buyer.73
By its ruling, the CA unilaterally supplied an essential element to the letter agreement of XEI and the Respondents.
Courts should not undertake to make a contract for the parties, nor can it enforce one, the terms of which are in
doubt.74 Indeed, the Court emphasized in Chua v. Court of Appeals 75 that it is not the province of a court to alter a
contract by construction or to make a new contract for the parties; its duty is confined to the interpretation of the one
which they have made for themselves, without regard to its wisdom or folly, as the court cannot supply material
stipulations or read into contract words which it does not contain.
Respondents, as plaintiffs below, failed to allege in their complaint that the terms of payment of the P278,448.00 to be
incorporated in the "corresponding contract of conditional sale" were those contained in the contracts of conditional
sale executed by XEI and Soller, Aguila and Roque.76 They likewise failed to prove such allegation in this Court.
The bare fact that other lot buyers were allowed to pay the balance of the purchase price of lots purchased by them in
120 or 180 monthly installments does not constitute evidence that XEI also agreed to give the respondents the same
mode and timeline of payment of the P278,448.00.
Under Section 34, Rule 130 of the Revised Rules of Court, evidence that one did a certain thing at one time is not
admissible to prove that he did the same or similar thing at another time, although such evidence may be received to
prove habit, usage, pattern of conduct or the intent of the parties.

Similar acts as evidence. Evidence that one did or did not do a certain thing at one time is not admissible to prove
that he did or did not do the same or a similar thing at another time; but it may be received to prove a specific intent
or knowledge, identity, plan, system, scheme, habit, custom or usage, and the like.
However, respondents failed to allege and prove, in the trial court, that, as a matter of business usage, habit or pattern
of conduct, XEI granted all lot buyers the right to pay the balance of the purchase price in installments of 120 months
of fixed amounts with pre-computed interests, and that XEI and the respondents had intended to adopt such terms of
payment relative to the sale of the two lots in question. Indeed, respondents adduced in evidence the three contracts
of conditional sale executed by XEI and other lot buyers merely to prove that XEI continued to sell lots in the
subdivision as sales agent of OBM after it acquired said lots, not to prove usage, habit or pattern of conduct on the
part of XEI to require all lot buyers in the subdivision to pay the balance of the purchase price of said lots in 120
months. It further failed to prive that the trial court admitted the said deeds 77 as part of the testimony of respondent
Manalo, Jr.78
Habit, custom, usage or pattern of conduct must be proved like any other facts. Courts must contend with the caveat
that, before they admit evidence of usage, of habit or pattern of conduct, the offering party must establish the degree
of specificity and frequency of uniform response that ensures more than a mere tendency to act in a given manner but
rather, conduct that is semi-automatic in nature. The offering party must allege and prove specific, repetitive conduct
that might constitute evidence of habit. The examples offered in evidence to prove habit, or pattern of evidence must
be numerous enough to base on inference of systematic conduct. Mere similarity of contracts does not present the
kind of sufficiently similar circumstances to outweigh the danger of prejudice and confusion.
In determining whether the examples are numerous enough, and sufficiently regular, the key criteria are adequacy of
sampling and uniformity of response. After all, habit means a course of behavior of a person regularly represented in
like circumstances.79 It is only when examples offered to establish pattern of conduct or habit are numerous enough to
lose an inference of systematic conduct that examples are admissible. The key criteria are adequacy of sampling and
uniformity of response or ratio of reaction to situations. 80
There are cases where the course of dealings to be followed is defined by the usage of a particular trade or market or
profession. As expostulated by Justice Benjamin Cardozo of the United States Supreme Court: "Life casts the moulds of
conduct, which will someday become fixed as law. Law preserves the moulds which have taken form and shape from
life."81 Usage furnishes a standard for the measurement of many of the rights and acts of men. 82 It is also well-settled
that parties who contract on a subject matter concerning which known usage prevail, incorporate such usage by
implication into their agreement, if nothing is said to be contrary. 83
However, the respondents inexplicably failed to adduce sufficient competent evidence to prove usage, habit or pattern
of conduct of XEI to justify the use of the terms of payment in the contracts of the other lot buyers, and thus grant
respondents the right to pay the P278,448.00 in 120 months, presumably because of respondents belief that the
manner of payment of the said amount is not an essential element of a contract to sell. There is no evidence that XEI
or OBM and all the lot buyers in the subdivision, including lot buyers who pay part of the downpayment of the property
purchased by them in the form of service, had executed contracts of conditional sale containing uniform terms and
conditions. Moreover, under the terms of the contracts of conditional sale executed by XEI and three lot buyers in the
subdivision, XEI agreed to grant 120 months within which to pay the balance of the purchase price to two of them, but
granted one 180 months to do so.84 There is no evidence on record that XEI granted the same right to buyers of two or
more lots.
Irrefragably, under Article 1469 of the New Civil Code, the price of the property sold may be considered certain if it be
so with reference to another thing certain. It is sufficient if it can be determined by the stipulations of the contract
made by the parties thereto85 or by reference to an agreement incorporated in the contract of sale or contract to sell or
if it is capable of being ascertained with certainty in said contract; 86 or if the contract contains express or implied
provisions by which it may be rendered certain;87 or if it provides some method or criterion by which it can be definitely
ascertained.88 As this Court held in Villaraza v. Court of Appeals, 89 the price is considered certain if, by its terms, the
contract furnishes a basis or measure for ascertaining the amount agreed upon.
We have carefully reviewed the August 22, 1972 letter agreement of the parties and find no direct or implied reference
to the manner and schedule of payment of the balance of the purchase price of the lots covered by the deeds of
conditional sale executed by XEI and that of the other lot buyers 90 as basis for or mode of determination of the
schedule of the payment by the respondents of the P278,448.00.
The ruling of this Court in Mitsui Bussan Kaisha v. Manila Electric Railroad and Light Company 91 is not applicable in this
case because the basic price fixed in the contract was P9.45 per long ton, but it was stipulated that the price was
subject to modification "in proportion to variations in calories and ash content, and not otherwise." In this case, the
parties did not fix in their letters-agreement, any method or mode of determining the terms of payment of the balance
of the purchase price of the property amounting to P278,448.00.

It bears stressing that the respondents failed and refused to pay the balance of the downpayment and of the purchase
price of the property amounting to P278,448.00 despite notice to them of the resumption by XEI of its selling
operations. The respondents enjoyed possession of the property without paying a centavo. On the other hand, XEI and
OBM failed and refused to transmit a contract of conditional sale to the Respondents. The respondents could have at
least consigned the balance of the downpayment after notice of the resumption of the selling operations of XEI and
filed an action to compel XEI or OBM to transmit to them the said contract; however, they failed to do so.
As a consequence, respondents and XEI (or OBM for that matter) failed to forge a perfected contract to sell the two
lots; hence, respondents have no cause of action for specific performance against petitioner. Republic Act No. 6552
applies only to a perfected contract to sell and not to a contract with no binding and enforceable effect.
IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The Decision of the Court of Appeals in CA-G.R. CV No.
47458 is REVERSED and SET ASIDE. The Regional Trial Court of Quezon City, Branch 98 is ordered to dismiss the
complaint. Costs against the Respondents.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 143361

February 9, 2006

PAULO BALLESTEROS, Petitioner,

vs.
ROLANDO ABION, Respondent.
DECISION

CORONA, J.:
Before us is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the July 15, 1999
decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 46065 which affirmed the decision of the Regional Trial Court
(RTC) of Iriga City, Branch 37, in Civil Case No. 2917.
The property subject of this petition is a two-door, three-story commercial building and the 229 sq.m. parcel of land on
which it stands. The property was originally owned by Ruperto Ensano, as evidenced by TCT No. 6178. Ownership was
subsequently transferred to the Development Bank of the Philippines (DBP) which, in turn, sold the property to Dr.
Rodolfo Vargas in a deed of absolute sale dated March 30, 1988. Despite these transfers of ownership, however, the
property was registered in the names of DBP and Dr. Vargas (TCT Nos. 941 and 942, respectively) only on February 21,
1996.
Meanwhile, on March 14, 1991, petitioner entered into a contract of lease for one door of the building with Ronald
Vargas, son of Dr. Vargas, who represented himself as the absolute owner of the property. Under the agreement (which
was not registered in the Register of Deeds), the lease was to run until April 1, 1996.
On September 27, 1995, Dr. Vargas sold the property to respondent. This was evidenced by a deed of absolute sale of
even date. TCT No. 949 in the name of the respondent was subsequently issued on April 10, 1996.
In the meantime, on October 30, 1995, petitioner entered into a new contract of lease with Ronald Vargas who again
misrepresented himself as the absolute owner of the property. This new agreement extended the term of the original
contract of lease between the parties and included the remaining door of the building in its coverage. It was to be
effective for a period of five years from November 1, 1995, or until November 1, 2000.
Since respondent had not yet taken possession of the building, petitioner immediately occupied the additional door
upon the execution of the new contract of lease. He made advance payments for the rent of the two doors until June
1997. He also sought to register the new contract of lease with the Register of Deeds of Iriga City. However, the
contract was entered only in the primary book because it could not be registered for several reasons: (a) the requisite
tax had not been paid (b) the contract lacked a documentary stamp and (c) the tax declaration of the property was not
in the name of the lessor.2
On April 30, 1996, petitioner received respondents April 25, 1996 letter demanding that he vacate the property and
surrender its possession. On June 20, 1996, petitioner received another letter from respondents counsel reiterating the
demand for him to vacate the property. All this notwithstanding, petitioner refused to vacate the premises.
On September 4, 1996, respondent filed a complaint for unlawful detainer with damages against petitioner in the
Municipal Trial Court in Cities (MTCC) of Iriga City, Branch 2. It was, however, dismissed for failure to state a cause of
action.
On appeal, the RTC of Iriga City, Branch 37, reversed the decision of the MTCC and ordered petitioner to vacate the
property and surrender its possession to respondent. Petitioner was also ordered to pay respondent P50,000 as
attorneys fees and P7,000 per month as rental for the property from September 1995 until petitioner vacated the
premises. Petitioner moved for a reconsideration of the RTC decision but the motion was denied.
On respondents motion, the RTC issued a writ of execution dated December 1, 1997. 3 It was received on December 3,
1997 by petitioners wife. Petitioner filed an urgent motion for time to vacate the premises 4 and a supplemental motion
for time to vacate the property,5 praying for thirty days from December 5, 1997 (the deadline given by the sheriff for
petitioner to leave the premises) within which to vacate the property. On December 9, 1997, the RTC denied
petitioners motion and directed the sheriff to immediately effect the restitution and delivery of the property to
respondent.
The sheriff filed a manifestation with motion dated December 9, 1997 6 praying that the use of force to implement the
writ of execution be allowed in order to open the premises and deliver its possession to respondent. On the other hand,
petitioner moved for a reconsideration of the December 9, 1997 order of the RTC as well as for the suspension of the
implementation of the writ of execution.

Acting on the sheriffs manifestation with motion and the petitioners motion for reconsideration and/or suspension of
the implementation of the writ of execution, the RTC, in an order dated December 11, 1997, denied petitioners motion
and allowed the sheriff to execute the writ pursuant to paragraph (c) of Rule 39, Section 10 of the Rules of Court.
As authorized by the trial court, the sheriff forced open the main entrance of the building and delivered possession of
the property to respondent on December 15, 1997. 7
Petitioner filed a petition for review with the CA. It was docketed as CA-G.R. SP No. 46065. On July 15, 1999, the CA
affirmed the RTC decision with modification. The CA ruled that petitioners right of possession to the property was only
by virtue of the second lease contract dated October 30, 1995 between petitioner and Ronald Vargas. It was clear,
however, that Ronald Vargas was not the owner of the property and therefore had no right to lease it out. Petitioner
himself admitted respondents ownership of the property. Neither was there any evidence that Ronald Vargas had been
authorized by respondent or even by Dr. Vargas himself to transact the second lease on their behalf.
The CA held that petitioners possession of the property from the date of purchase by respondent was merely by
tolerance. Such possession became unlawful from the time respondent made a demand on petitioner to vacate it.
The CA further ruled that petitioner could not pretend ignorance of the ownership of the property when he entered into
the second lease agreement. The property was registered with the Register of Deeds and such registration constituted
notice to the whole world.
However, the CA reduced the award of attorneys fees from P50,000 to P20,000 for lack of factual basis. The CA also
took the stipulation in petitioners lease agreement into consideration and reduced the rent from P7,000 toP5,000 per
month, and only for the period covering July 1 to December 15, 1997.
Petitioner moved for a reconsideration of the CA decision but it was denied in a resolution dated May 25, 2000.
Hence, this petition, which raises the following issues:
1. whether or not respondent could legally eject petitioner or terminate the lease;
2. whether or not respondent was able to establish a cause of action;
3. whether or not the trial court (MTCC of Iriga City, Br. 2) had jurisdiction to try the case;
4. whether or not, as ruled by the [CA], there was pretended ignorance by petitioner of the ownership of the
property;
5. whether or not the [CAs] award of attorneys fees was justified;
6. whether or not the implementation of the writ of execution dated December 1, 1997 on December 15, 1997
was valid;
7. whether or not respondent and the sheriffs who implemented on December 15, 1997 the writ of execution
dated December 1, 1997 (as reiterated by the RTCs order of December 11, 1997) should be held in contempt
of court [and]
8. whether or not the [RTC had] the jurisdiction to issue a writ for the implementation of the [CAs] decision
when the case was originally filed with the [MTCC]. 8
Propriety of the Ejectment
Petitioner contends that respondent could not have legally ejected him from the premises or terminated the lease. He
claims that the two lease contracts he entered into with Ronald Vargas were valid and that contracts validly entered
into by a predecessor-in-interest should be respected by, and be binding upon, his successor-in-interest. According to
petitioner, he was not unlawfully detaining the property because the action was commenced by respondent while the

second lease contract was still in force. He insists that his good faith and honest belief that he was transacting with the
true owner should be considered in favor of the validity of the lease contracts entered into by him.
Petitioner also invokes our ruling in Garcia v. Court of Appeals9 that the owners successor-in-interest must respect an
existing contract of lease. Any attempt to eject the lessee within the period of lease constitutes a breach of contract.
Petitioner further asserts that the second lease contract was "registered" with the Register of Deeds of Iriga City,
hence respondent had notice thereof and was bound to respect it. We disagree.
The first premise of petitioners argument, that both lease agreements were valid, is erroneous. As correctly observed
by the RTC and the CA, Ronald Vargas was not the owner of the property and had no authority to let it.
Although the lessor need not be the owner of the property being leased, 10 he should have a right (e.g., either as a
usufructuary or a lessee) or at least an authority (e.g., as an agent of the owner, usufructuary, or lessee) to lease it
out. Here, Ronald Vargas had neither the right nor the authority to grant petitioner the lease of the property.
Dr. Vargas is deemed to have ratified the first lease because he never objected to it and in fact allowed petitioner to
occupy the property for five years despite his knowledge of his son Ronalds misdeed. Thus, we consider the first lease
valid. But the same cannot be said of the second lease. Under the principle of relativity of contracts, the sale of the
property by Dr. Vargas to respondent bound Ronald Vargas as an heir of the seller. Neither did respondent authorize
him to enter into a new lease contract with petitioner. Thus, Ronald Vargas could not have validly executed the second
lease agreement upon which petitioner now bases his right to the continued possession of the property.
The river cannot rise higher than its source. Where the purported lessor is bereft of any right or authority to lease out
the property, then his supposed lessee does not acquire any right to the possession or enjoyment of the property.
Suffice it to say that the second lease contract was legally inexistent for lack of an object certain. Under Arts. 1318 and
1409 (3) of the Civil Code, contracts the cause or object of which did not exist at the time of the transaction are
inexistent and void ab initio.
Petitioners claim of good faith is of no moment. The good faith of a party in entering into a contract is immaterial in
determining whether it is valid or not. Good faith, not being an essential element of a contract, has no bearing on its
validity. No amount of good faith can validate an agreement which is otherwise void. A contract which the law
denounces as void is necessarily no contract at all and no effort or act of the parties to create one can bring about a
change in its legal status.11
Any presumption of good faith on the part of petitioner disappeared after he learned from the Register of Deeds that
the property was already registered in the name of another person. Possession in good faith ceases from the moment
defects in the title are made known to the possessor by extraneous evidence or by a suit for recovery of the property
by the true owner.12 Every possessor in good faith becomes a possessor in bad faith from the moment he becomes
aware that what he believed to be true is not so.13
When petitioner presented the second lease contract to the Register of Deeds a day after its execution, his attention
was called to the fact that the "lessor" (Ronald Vargas) whom he believed to be the owner of the property had no
authority to lease it out. From that moment, his possession ceased to be in good faith.1avvphil.net
Petitioners reliance on our ruling in the Garcia case is misplaced. Garcia involved the lease of a residential unit and
was governed by a special law, "An Act Regulating Rentals of Dwelling Units or of Land on which Anothers Dwelling is
Located and for Other Purposes" (BP 25). In this case, the property involved is a commercial building, not a residential
unit. The Garcia case is therefore inapplicable.
Assuming arguendo that Garcia is applicable, petitioners argument would still be untenable. We held in Garciathat,
while a successor-in-interest would be in breach of contract if he were to eject a lessee of his predecessor-in-interest
during the existence of the lease, "where the lease has expired, there is no more contract to breach." Since the lease
between petitioner and Ronald Vargas had expired on April 1, 1996, there was no existing lease contract that could
have been breached when respondent made a demand on petitioner to vacate the property on April 30, 1996.

Registration of the Lease Contract

Petitioners third argument is likewise without merit. Whether the second lease contract was registered or not was
immaterial since it was void. Registration does not legitimize a void contract.
Moreover, assuming for the sake of argument that the second contract could be registered, the primary entrythereof
did not produce the effect of registration. Petitioner presented the second lease contract to the Register of Deeds of
Iriga City for registration on October 31, 1995, or a day after its execution. The contract was, however, merely entered
in the primary book. It was not registered because it lacked certain requisites.
It is well settled that for the registration of voluntary instruments (e.g., deed of sale or contract of lease), it is
necessary not only to register the deed, instrument of assignment, mortgage or lease in the entry book of the register
of deeds but also for the Register of Deeds to annotate a memorandum thereof on the owners duplicate certificate
and its original.14 In voluntary registration, if the owners duplicate certificate is not surrendered and presented or if no
payment of registration fees is made within fifteen days, entry in the day book will not convey or affect the land sold,
mortgaged or leased.15
Entry alone produces the effect of registration, whether the transaction entered is voluntary or involuntary, so long as
the registrant has complied with all that is required of him for purposes of entry and annotation, and nothing more
remains to be done but a duty incumbent solely on the Register of Deeds. 16 Here, petitioner admits that the second
lease contract was refused registration by the Register of Deeds for his failure to comply with certain conditions for
registration. And since petitioner failed to comply with all the requisites for entry and annotation, the entry in the
primary book did not ripen into registration.
Curiously, petitioner uses "registered" (that is, the word registered in quotation marks) to describe his act of
presenting the lease contract to the register of deeds. This shows that petitioner himself doubted whether he had
actually fulfilled the requirements for the registration of the lease.
Petitioner also anchors his arguments against the ejectment on the second contract of lease which was inexistent and
void ab initio. But even assuming that it was valid, it already lapsed on November 1, 2000, in which case the question
of the propriety of petitioners ejectment would now be moot.1avvphil.net
Sufficiency of the Allegations in the Complaint to Confer Jurisdiction on the MTCC and to Establish a
Cause of Action
Petitioner asserts that the MTCC had no jurisdiction to try the case because the complaint did not allege that he was
withholding possession of the property beyond the expiration of the lease period and that, in violation of Rule 70,
Section 2 of the Rules of Court, respondent failed to establish a cause of action by omitting to allege that demand to
vacate was made for failure to pay the rent or comply with the conditions of the contract. We disagree.
What determine the nature of the action as well as the court which has jurisdiction over the case are the allegations in
the complaint.17 In Hilario v. Court of Appeals,18 we ruled:
The settled rule is that a complaint for unlawful detainer is sufficient if it contains the allegation that the withholding of
possession or the refusal to vacate is unlawful, without necessarily employing the terminology of the law. The
complaint must aver facts showing that the inferior court has jurisdiction to try the case, such as how defendants
possession started or continued. Thus, the allegation in a complaint that the "plaintiff verbally asked the defendants to
remove their houses on the lot of the former but the latter refused and still refuse to do so without just and lawful
grounds" was held to be more than sufficient compliance with the jurisdictional requirements. (citations omitted)
The complaint filed with the MTCC alleged that petitioner had been holding the property by virtue of an expired lease
contract with the son of respondents predecessor-in-interest and that, despite demands made by respondent for him
to vacate the property, petitioner had "unjustifiably refused to heed [respondents] demand and continuously and
unlawfully occup[ied] and possess[ed] [respondents] property." 19 Nothing could be clearer to confer jurisdiction on the
MTCC and to establish a cause of action.

While possession by tolerance is lawful, such possession becomes illegal from the moment a demand to vacate is
made by the owner and the possessor refuses to comply with such demand. 20 A person who occupies the land of
another with the latters tolerance or permission, without any contract between them, is necessarily bound by an
implied promise that he will vacate upon demand, failing which a summary action for ejectment is the proper remedy
against him.21
The CA correctly ruled that petitioners possession from the time the property was sold to respondent was merely by
tolerance. His lawful possession was interrupted when respondent demanded that he vacate the property. His refusal
to comply with the demand made his continued possession unlawful, giving respondent the right to institute an action
for unlawful detainer.1avvphil.net
Furthermore, it is also worthy to note that, in his motion for reconsideration of the RTC decision, petitioner explicitly
prayed that the "MTCC decision be affirmed." Since he actively participated in the proceedings before the MTCC and in
fact later sought the affirmation of its decision, he in effect recognized its jurisdiction and he should now be estopped
from questioning the jurisdiction of that court. In other words, petitioner cannot now assail the jurisdiction of the MTCC
after voluntarily submitting himself to its proceedings. 22 We have held that "while lack of jurisdiction may be assailed
at any stage, a partys active participation in the proceedings before a court without jurisdiction will estop such party
from assailing such lack of jurisdiction."23
Correctness of the Award of Attorneys Fees
Petitioner argues that the award of attorneys fees was improper because it was touched upon only in the dispositive
portion of the RTC decision, hence, the CA should not have merely reduced the award of attorneys fees but should
have deleted it entirely. We agree.
The award of attorneys fees is the exception, not the general rule. It is not sound public policy to place a penalty on
the right to litigate; nor should attorneys fees be awarded every time a party wins a lawsuit. 24 It is necessary for the
court to make express findings of facts and law that would bring the case within the exception and justify the grant of
such award.25
The CA correctly noted that the decisions of both the MTCC and the RTC do not state any factual basis for an award of
attorneys fees. In particular, the award of attorneys fees was mentioned only in the dispositive portion of the RTC
decision. Nonetheless, instead of deleting the award of attorneys fees, the CA merely reduced the amount thereof
from P50,000 to P20,000 on the ground that attorneys fees may be awarded "if the court deems it just and equitable."
Article 2208 (11) of the Civil Code allows the recovery of counsels fees:
where the court deems it just and equitable that attorneys fees and expenses of litigation should be recovered.
However, the conclusion must be borne out by findings of facts and law. 26 The exercise of judicial discretion in the
award of attorneys fees under Article 2208 (11) of the Civil Code demands a factual, legal or equitable justification.
Without such justification, the award is a conclusion without a premise, its basis being improperly left to speculation
and conjecture.27
The matter of attorneys fees cannot be dealt with only in the dispositive portion of the decision. The text of the
decision must state the reason behind the award of attorneys fees. 28 Otherwise, its award is totally unjustified.
Propriety of the Issuance and Service of the Writ of Execution
Petitioner alleges that the writ of execution was implemented in violation of the Rules of Court because it was
implemented after only one working day from his receipt of a copy of the order dated December 11, 1997 (denying his
motion for reconsideration and/or suspension of the implementation of the writ of execution) instead of threeworking
days as provided in Rule 39, Section 10 (c) of the Rules of Court. According to him, since the implementation of the
writ was not in accordance with the Rules of Court, the sheriffs should have been cited in contempt by the CA.

Petitioners error was that he counted the three days from receipt of denial of his motion for reconsideration and/or
suspension of the implementation of the writ on December 12, 1997. He should have counted it from receipt by his
wife of the copy of the writ of execution on December 3, 1997.
Under Rule 39, Section 10 (c) of the Rules of Court, 29 the
writ of execution is carried out by giving the defendant notice of such writ and making a demand that the latter vacate
the property within three working days from such notice. Hence, the three-day period of implementation of the writ of
execution should be reckoned from the date petitioner was notified of the writ, that is, from December 3, 1997, the
date his wife received the notice or writ.
The December 9, 1997 manifestation and motion filed by the sheriff and the December 16, 1997 sheriffs report state
that the sheriff served a copy of the writ on the wife of the petitioner on December 3, 1997. Receipt of a copy of the
writ by petitioners wife in their office constituted constructive personal service on petitioner. 30 Thus, the sheriff could
have lawfully ejected petitioner from the property as early as December 8, 1997, the third workingday from notice of
the writ of execution to petitioner.
Besides, in his December 4, 1997 urgent motion for time to vacate the premises, petitioner admitted that a writ had
been issued by the RTC and a copy thereof received by his wife. And in his December 8, 1997 supplemental motion for
time to vacate the property, petitioner alleged that the writ of execution issued by the trial court on December 1, 1997
"[gave] the sheriff 30 days from [petitioners] receipt of the writ within which to implement the same." These incidents
indubitably show that petitioner had notice of the issuance of the writ of execution within a sufficient period before the
writ was actually implemented on December 15, 1997. There was substantial compliance with the requirement of
service or notice when petitioner acquired knowledge of the writ of execution. 31
Since the writ of execution was properly issued, served and implemented, there was no basis to hold the sheriffs in
contempt.
Correctness of the RTCs July 4, 2000 Order
Petitioner also questions the July 4, 2000 order of the RTC directing the issuance of a writ to enforce the petitioners
civil liability as determined by the CA. Petitioner insists that it is either the MTCC where the case was originally filed or
the CA itself which should have issued the writ.
This particular issue was never brought to the attention of the CA. Moreover, a diligent search of the entire records of
this case failed to yield a copy of the alleged July 4, 2000 order. Except for the bare allegations of petitioner, there is
therefore no way to determine the nature and import of the challenged order.
WHEREFORE, the petition is hereby DENIED. The July 15, 1999 decision of the Court of Appeals in CA-G.R. SP No.
46065 is AFFIRMED with the MODIFICATION that the award of attorneys fees is deleted.
Costs against petitioner. SO ORDERED.