G.R. No.

85240 July 12, 1991

HEIRS OF CECILIO (also known as BASILIO) CLAUDEL, namely, MODESTA CLAUDEL, LORETA
HERRERA, JOSE CLAUDEL, BENJAMIN CLAUDEL, PACITA CLAUDEL, CARMELITA CLAUDEL,
MARIO CLAUDEL, ROBERTO CLAUDEL, LEONARDO CLAUDEL, ARSENIA VILLALON, PERPETUA
CLAUDEL and FELISA CLAUDEL, petitioners,
vs.
HON. COURT OF APPEALS, HEIRS OF MACARIO, ESPERIDIONA, RAYMUNDA and CELESTINA, all
surnamed CLAUDEL, respondents.
Ricardo L. Moldez for petitioners.
Juan T. Aquino for private respondents

SARMIENTO, J.:p
This petition for review on certiorari seeks the reversal of the decision rendered by the Court of Appeals in
CA-G.R. CV No. 04429 1 and the reinstatement of the decision of the then Court of First Instance (CFI) of Rizal,
Branch CXI, in Civil Case No. M-5276-P, entitled. "Heirs of Macario Claudel, et al. v. Heirs of Cecilio Claudel, et
al.," which dismissed the complaint of the private respondents against the petitioners for cancellation of titles and
reconveyance with damages. 2
As early as December 28, 1922, Basilio also known as "Cecilio" Claudel, acquired from the Bureau of Lands,
Lot No. 1230 of the Muntinlupa Estate Subdivision, located in the poblacion of Muntinlupa, Rizal, with an
area of 10,107 square meters; he secured Transfer Certificate of Title (TCT) No. 7471 issued by the Registry
of Deeds for the Province of Rizal in 1923; he also declared the lot in his name, the latest Tax Declaration
being No. 5795. He dutifully paid the real estate taxes thereon until his death in 1937. 3 Thereafter, his widow
"Basilia" and later, her son Jose, one of the herein petitioners, paid the taxes.
The same piece of land purchased by Cecilio would, however, become the subject of protracted litigation
thirty-nine years after his death.
Two branches of Cecilio's family contested the ownership over the land-on one hand the children of Cecilio,
namely, Modesto, Loreta, Jose, Benjamin, Pacita, Carmelita, Roberto, Mario, Leonardo, Nenita, Arsenia
Villalon, and Felisa Claudel, and their children and descendants, now the herein petitioners (hereinafter
referred to as HEIRS OF CECILIO), and on the other, the brother and sisters of Cecilio, namely, Macario,
Esperidiona, Raymunda, and Celestina and their children and descendants, now the herein private
respondents (hereinafter referred to as SIBLINGS OF CECILIO). In 1972, the HEIRS OF CECILIO
partitioned this lot among themselves and obtained the corresponding Transfer Certificates of Title on their
shares, as follows:
TCT No. 395391 1,997 sq. m. Jose Claudel
TCT No. 395392 1,997 sq. m. Modesta Claudel and children
TCT No. 395393 1,997 sq. m. Armenia C. Villalon
TCT No. 395394 1,997 sq. m. Felisa Claudel

Four years later, on December 7, 1976, private respondents SIBLINGS OF CECILIO, filed Civil Case No.
5276-P as already adverted to at the outset, with the then Court of First Instance of Rizal, a "Complaint for
Cancellation of Titles and Reconveyance with Damages," alleging that 46 years earlier, or sometime in 1930,
their parents had purchased from the late Cecilio Claudel several portions of Lot No. 1230 for the sum of
P30.00. They admitted that the transaction was verbal. However, as proof of the sale, the SIBLINGS OF
CECILIO presented a subdivision plan of the said land, dated March 25, 1930, indicating the portions
allegedly sold to the SIBLINGS OF CECILIO.
As already mentioned, the then Court of First Instance of Rizal, Branch CXI, dismissed the complaint,
disregarding the above sole evidence (subdivision plan) presented by the SIBLINGS OF CECILIO, thus:

Examining the pleadings as well as the evidence presented in this case by the parties, the
Court can not but notice that the present complaint was filed in the name of the Heirs of
Macario, Espiridiona, Raymunda and Celestina, all surnamed Claudel, without naming the
different heirs particularly involved, and who wish to recover the lots from the defendants.
The Court tried to find this out from the evidence presented by the plaintiffs but to no avail.
On this point alone, the Court would not be able to apportion the property to the real party in
interest if ever they are entitled to it as the persons indicated therein is in generic term
(Section 2, Rule 3). The Court has noticed also that with the exception of plaintiff Lampitoc
and (sic) the heirs of Raymunda Claudel are no longer residing in the property as they have
(sic) left the same in 1967. But most important of all the plaintiffs failed to present any
document evidencing the alleged sale of the property to their predecessors in interest by the
father of the defendants. Considering that the subject matter of the supposed sale is a real
property the absence of any document evidencing the sale would preclude the admission of
oral testimony (Statute of Frauds). Moreover, considering also that the alleged sale took
place in 1930, the action filed by the plaintiffs herein for the recovery of the same more than
thirty years after the cause of action has accrued has already prescribed.
WHEREFORE, the Court renders judgment dismissing the complaint, without
pronouncement as to costs.
SO ORDERED. 5
On appeal, the following errors 6 were assigned by the SIBLINGS OF CECILIO:
1. THE TRIAL COURT ERRED IN DISMISSING PLAINTIFFS' COMPLAINT DESPITE
CONCLUSIVE EVIDENCE SHOWING THE PORTION SOLD TO EACH OF PLAINTIFFS'
PREDECESSORS.
2. THE TRIAL COURT ERRED IN HOLDING THAT PLAINTIFFS FAILED TO PROVE ANY
DOCUMENT EVIDENCING THE ALLEGED SALE.
3. THE TRIAL COURT ERRED IN NOT GIVING CREDIT TO THE PLAN, EXHIBIT A,
SHOWING THE PORTIONS SOLD TO EACH OF THE PLAINTIFFS' PREDECESSORS-ININTEREST.
4. THE TRIAL COURT ERRED IN NOT DECLARING PLAINTIFFS AS OWNERS OF THE
PORTION COVERED BY THE PLAN, EXHIBIT A.
5. THE TRIAL COURT ERRED IN NOT DECLARING TRANSFER CERTIFICATES OF TITLE
NOS. 395391, 395392, 395393 AND 395394 OF THE REGISTER OF DEEDS OF RIZAL AS
NULL AND VOID.
The Court of Appeals reversed the decision of the trial court on the following grounds:
1. The failure to bring and prosecute the action in the name of the real party in interest, namely the parties
themselves, was not a fatal omission since the court a quo could have adjudicated the lots to the SIBLINGS
OF CECILIO, the parents of the herein respondents, leaving it to them to adjudicate the property among
themselves.
2. The fact of residence in the disputed properties by the herein respondents had been made possible by the
toleration of the deceased Cecilio.
3. The Statute of Frauds applies only to executory contracts and not to consummated sales as in the case at
bar where oral evidence may be admitted as cited in Iigo v. Estate of Magtoto 7 and Diana, et
al. v. Macalibo. 8
In addition,
. . . Given the nature of their relationship with one another it is not unusual that no document
to evidence the sale was executed, . . ., in their blind faith in friends and relatives, in their lack
of experience and foresight, and in their ignorance, men, in spite of laws, will make and
continue to make verbal contracts. . . . 9

4. The defense of prescription cannot be set up against the herein petitioners despite the lapse of over forty
years from the time of the alleged sale in 1930 up to the filing of the "Complaint for Cancellation of Titles and
Reconveyance . . ." in 1976.
According to the Court of Appeals, the action was not for the recovery of possession of real property but for
the cancellation of titles issued to the HEIRS OF CECILIO in 1973. Since the SIBLINGS OF CECILIO
commenced their complaint for cancellation of titles and reconveyance with damages on December 7, 1976,
only four years after the HEIRS OF CECILIO partitioned this lot among themselves and obtained the
corresponding Transfer Certificates of Titles, then there is no prescription of action yet.
Thus the respondent court ordered the cancellation of the Transfer Certificates of Title Nos. 395391, 395392,
395393, and 395394 of the Register of Deeds of Rizal issued in the names of the HEIRS OF CECILIO and
corollarily ordered the execution of the following deeds of reconveyance:
To Celestina Claudel, Lot 1230-A with an area of 705 sq. m.
To Raymunda Claudel, Lot 1230-B with an area of 599 sq. m.
To Esperidiona Claudel, Lot 1230-C with an area of 597 sq. m.
To Macario Claudel, Lot 1230-D, with an area of 596 sq. m.

10

The respondent court also enjoined that this disposition is without prejudice to the private respondents, as
heirs of their deceased parents, the SIBLINGS OF CECILIO, partitioning among themselves in accordance
with law the respective portions sold to and herein adjudicated to their parents.
The rest of the land, lots 1230-E and 1230-F, with an area of 598 and 6,927 square meters, respectively
would go to Cecilio or his heirs, the herein petitioners. Beyond these apportionments, the HEIRS OF
CECILIO would not receive anything else.
The crux of the entire litigation is whether or not the Court of Appeals committed a reversible error in
disposing the question of the true ownership of the lots.
And the real issues are:
1. Whether or not a contract of sale of land may be proven orally:
2. Whether or not the prescriptive period for filing an action for cancellation of titles and
reconveyance with damages (the action filed by the SIBLINGS OF CECILIO) should be
counted from the alleged sale upon which they claim their ownership (1930) or from the date
of the issuance of the titles sought to be cancelled in favor of the HEIRS OF CECILIO (1976).
The rule of thumb is that a sale of land, once consummated, is valid regardless of the form it may have been
entered into. 11 For nowhere does law or jurisprudence prescribe that the contract of sale be put in writing before
such contract can validly cede or transmit rights over a certain real property between the parties themselves.
However, in the event that a third party, as in this case, disputes the ownership of the property, the person
against whom that claim is brought can not present any proof of such sale and hence has no means to
enforce the contract. Thus the Statute of Frauds was precisely devised to protect the parties in a contract of
sale of real property so that no such contract is enforceable unless certain requisites, for purposes of proof,
are met.
The provisions of the Statute of Frauds pertinent to the present controversy, state:
Art. 1403 (Civil Code). The following contracts are unenforceable, unless they are ratified:
xxx xxx xxx
2) Those that do not comply with the Statute of Frauds as set forth in this number. In the
following cases, an agreement hereafter made shall be unenforceable by action unless the
same, or some note or memorandum thereof, be in writing, and subscribed by the party
charged, or by his agent; evidence, therefore, of the agreement cannot be received without
the writing, or a secondary evidence of its contents:

xxx xxx xxx

e) An agreement for the leasing for a longer period than one year, or for the sale of real
property or of an interest therein;
xxx xxx xxx
(Emphasis supplied.)
The purpose of the Statute of Frauds is to prevent fraud and perjury in the enforcement of obligations
depending for their evidence upon the unassisted memory of witnesses by requiring certain enumerated
contracts and transactions to be evidenced in Writing. 12
The provisions of the Statute of Frauds originally appeared under the old Rules of Evidence. However when
the Civil Code was re-written in 1949 (to take effect in 1950), the provisions of the Statute of Frauds were
taken out of the Rules of Evidence in order to be included under the title on Unenforceable Contracts in the
Civil Code. The transfer was not only a matter of style but to show that the Statute of Frauds is also a
substantive law.
Therefore, except under the conditions provided by the Statute of Frauds, the existence of the contract of
sale made by Cecilio with his siblings 13 can not be proved.
On the second issue, the belated claim of the SIBLINGS OF CECILIO who filed a complaint in court only in
1976 to enforce a light acquired allegedly as early as 1930, is difficult to comprehend.
The Civil Code states:
Art. 1145. The following actions must be commenced within six years:
(1) Upon an oral contract . . . (Emphasis supplied).
If the parties SIBLINGS OF CECILIO had allegedly derived their right of action from the oral purchase made
by their parents in 1930, then the action filed in 1976 would have clearly prescribed. More than six years had
lapsed.
We do not agree with the parties SIBLINGS OF CECILIO when they reason that an implied trust in favor of
the SIBLINGS OF CECILIO was established in 1972, when the HEIRS OF CECILIO executed a contract of
partition over the said properties.
But as we had pointed out, the law recognizes the superiority of the torrens title.
Above all, the torrens title in the possession of the HEIRS OF CECILIO carries more weight as proof of
ownership than the survey or subdivision plan of a parcel of land in the name of SIBLINGS OF CECILIO.
The Court has invariably upheld the indefeasibility of the torrens title. No possession by any person of any
portion of the land could defeat the title of the registered owners thereof. 14
A torrens title, once registered, cannot be defeated, even by adverse, open and notorious
possession. A registered title under the torrens system cannot be defeated by prescription.
The title, once registered, is notice to the world. All persons must take notice. No one can
plead ignorance of the registration. 15
xxx xxx xxx

Furthermore, a private individual may not bring an action for reversion or any action which
would have the effect of cancelling a free patent and the corresponding certificate of title
issued on the basis thereof, with the result that the land covered thereby will again form part
of the public domain, as only the Solicitor General or the officer acting in his stead may do
so. 16
It is true that in some instances, the Court did away with the irrevocability of the torrens title, but the
circumstances in the case at bar varied significantly from these cases.

In Bornales v. IAC, 17 the defense of indefeasibility of a certificate of title was disregarded when the transferee
who took it had notice of the flaws in the transferor's title. No right passed to a transferee from a vendor who did
not have any in the first place. The transferees bought the land registered under the torrens system from vendors
who procured title thereto by means of fraud. With this knowledge, they can not invoke the indefeasibility of a
certificate of title against the private respondent to the extent of her interest. This is because the torrens system of
land registration, though indefeasible, should not be used as a means to perpetrate fraud against the rightful
owner of real property.
Mere registration of the sale is not good enough, good faith must concur with registration. Otherwise
registration becomes an exercise in futility. 18
In Amerol v. Bagumbaran, 19 we reversed the decision of the trial court. In this case, the title was wrongfully
registered in another person's name. An implied trust was therefore created. This trustee was compelled by law to
reconvey property fraudulently acquired notwithstanding the irrevocability of the torrens title. 20
In the present case, however, the facts belie the claim of ownership.
For several years, when the SIBLINGS OF CECILIO, namely, Macario, Esperidiona Raymunda, and
Celestina were living on the contested premises, they regularly paid a sum of money, designated as "taxes"
at first, to the widow of Cecilio, and later, to his heirs. 21 Why their payments were never directly made to the
Municipal Government of Muntinlupa when they were intended as payments for "taxes" is difficult to square with
their claim of ownership. We are rather inclined to consider this fact as an admission of non-ownership. And when
we consider also that the petitioners HEIRS OF CECILIO had individually paid to the municipal treasury the taxes
corresponding to the particular portions they were occupying, 22 we can readily see the superiority of the
petitioners' position.
Renato Solema and Decimina Calvez, two of the respondents who derive their right from the SIBLINGS OF
CLAUDEL, bought a portion of the lot from Felisa Claudel, one of the HEIRS OF CLAUDEL. 23 The Calvezes
should not be paying for a lot that they already owned and if they did not acknowledge Felisa as its owner.
In addition, before any of the SIBLINGS OF CECILIO could stay on any of the portions of the property, they
had to ask first the permission of Jose Claudel again, one of the HEIRS OF CECILIO. 24 In fact the only
reason why any of the heirs of SIBLINGS OF CECILIO could stay on the lot was because they were allowed to do
so by the HEIRS OF CECILIO. 25
In view of the foregoing, we find that the appellate court committed a reversible error in denigrating the
transfer certificates of title of the petitioners to the survey or subdivision plan proffered by the private
respondents. The Court generally recognizes the profundity of conclusions and findings of facts reached by
the trial court and hence sustains them on appeal except for strong and cogent reasons inasmuch as the trial
court is in a better position to examine real evidence and observe the demeanor of witnesses in a case.
No clear specific contrary evidence was cited by the respondent appellate court to justify the reversal of the
lower court's findings. Thus, in this case, between the factual findings of the trial court and the appellate
court, those of the trial court must prevail over that of the latter. 26
WHEREFORE, the petition is GRANTED We REVERSE and SET ASIDE the decision rendered in CA-G.R.
CV No. 04429, and we hereby REINSTATE the decision of the then Court of First Instance of Rizal (Branch
28, Pasay City) in Civil Case No. M-5276-P which ruled for the dismissal of the Complaint for Cancellation of
Titles and Reconveyance with Damages filed by the Heirs of Macario, Esperidiona Raymunda, and
Celestina, all surnamed CLAUDEL. Costs against the private respondents.
SO ORDERED.

G.R. No. 58057 June 30, 1993

HEIRS OF MARIANO LAGUTAN, Namely: FRANCISCA ICAO, AMADOR LAGUTAN, FEDERICO
LAGUTAN, RICARDO LAGUTAN, GODOFREDO LAGUTAN, NEMIA LAGUTAN, SALVADOR LAGUTAN,
ALBERTO LAGUTAN, and HERNANDITA LAGUTAN, petitioners,
vs.
SEVERINA ICAO, TERESITA ICAO, IGNACIA ICAO, MARGARITA ICAO MERCURIAL SAGARIO and
MR. MAGALLON, respondents.
Uldarico B. Mejorda & Associates for petitioners.
Dominador M. Canastra for respondents.

MELO, J.:
This case was certified to us by the Court of Appeals on a question of law pursuant to Section 17 of the
Judiciary Act of 1948, as amended, involved as there is the legality of the dismissal of petitioners' Amended
Complaint by the trial court based on respondents' Motion to Dismiss.
On May 23, 1972, herein petitioners, Heirs of Mariano Lagutan, filed a Complaint (Civil Case No. 2293, CFI,
Zamboanga del Norte, Br. I) against respondents Severina Icao, et al. for "Specific Performance and/or
Payment of Improvements" in regard to two parcels of land, namely, Lot No. 475, located at Talon, Potangon,
Dapitan City, covered by Original Certificate of Title No.
D-9372, alleging in part as follows:
10. That Felix Icao and spouses Mariano Lagutan and Francisca Icao entered into a contract
wherein it was agreed that spouses Mariano Lagutan and Francisca Icao would cultivate Lot
No. 475 above-described on condition that the spouses would cultivate and plant coconuts
on the land, and the improvements would be divided equally into two: one-half (1/2) would go
to the spouses and the other one-half (1/2) would go to Felix Icao;
11. That as agreed, spouses Mariano Lagutan and Francisca Icao with the help of their
children, the herein co-plaintiffs, cultivated and improved Parcel I, and planted thereon
coconuts which are now fruit-bearing. (pp. 2-3; p. 14, Record on Appeal following p.
12, Rollo.)
and Lot No. 9005, located at Talawas, Dapitan City, covered by Transfer Certificate of Title No. T-6013,
alleging thus:
20. That plaintiff Amador Lagutan and the defendants and/or their predecessor-in-interest
entered into contract to the effect that PARCEL II would be cultivated and improved by said
Amador Lagutan and to plant thereon coconuts on condition that as consideration thereof,
Amador Lagutan would be given another parcel of land commensurate to the labor or
services rendered as mentioned above;
21. That by virtue of and pursuant to the contract above-mentioned, Amador Lagutan
cultivated and improved Parcel II and planted thereon 300 coconut trees by himself and thru
hired laborers, which coconuts are now fruit bearing. (pp. 4 and 16, Rollo.)
Respondents filed their Answer on May 20, 1977. Subsequently, they filed a Motion for Leave to File an
Amended Answer, which, aside from reiterating previous defenses of absence of cause of action,
prescription, and non-compliance with the Statute of Frauds, sought to introduce additional defenses of
laches and estoppel aside from averring that both lots were the capital and paraphernal property of Felix
Icao and Francisca Jaralve (predecessors-in-interest of respondents), respectively (pp. 27-28, Rollo).
On October 21, 1977, the trial court issued an Order admitting respondents' Amended Answer (p. 38, Rollo).
Three months thereafter, on January, 16, 1978, respondents filed a Motion to Dismiss which petitioners
opposed, specifically questioning respondents' belated issues on laches and estoppel raised in the Amended
Answer.

On February 10, 1978, the trial court issued a Resolution dismissing petitioners' Amended Complaint (pp.
69-74,Rollo), pertinently observing:
Going over the amended complaint particularly the above quoted averments, the Court in its
order, dated October 19, 1977 counselled the plaintiff, through their lawyer:
xxx xxx xxx
May the Court remind Atty. Mejorada that in a proper pleading, he should
state with definiteness and clarity (1) whether the agreement or contract
alleged in the complaint was verbal or written; and (2) the date the same was
entered. (Order, dated October 19, 1977, pp. 102-103, Record)
The plaintiffs admit the agreement or contract was not in
writing:
While it is true that the agreement was not made in writing (and this was
unqualifiedly admitted by the plaintiffs in their complaint), the fact remains that
the agreement has already been performed by the plaintiffs herein by planting
coconuts and other improvements on the land in question. (Opposition to the
Motion to Dismiss, dated January 24, 1978, pp. 139-153, Record)
Similarly, plaintiffs cannot state with definiteness as to the date the alleged agreement or
contract was entered into, viz:
While it is true that the complaint does not state when the agreement was
entered into and/or made between the plaintiffs and the defendants and their
predecessor-in-interest, by the absence of the date is not the determining
factor as to the basis of plaintiffs cause of action. (Opposition to the Motion to
Dismiss, dated January 24, 1978, pp. 139-153, Record).
It is . . . settled that plaintiffs admit that the alleged agreement was not in writing, and they
cannot tell the date when same agreement was made.
The Court now asks: What was the agreement? And, who were the parties thereto?
As to PARCEL I, the alleged agreement was recited in par. X of the amended complaint
(quoted on page 1, bottom, of the Resolution); the parties were Felix Icao (landowner), and
the spouses Mariano Lagutan and Francisca Icao (the tillers).
As to PARCEL II, another agreement was stated in the same amended complaint in its par.
XX (quoted on page 2, top of this Resolution); the parties were plaintiff Amador Lagutan (the
tiller) on the one hand, and the defendant "and/or" their predecessor-in-interest on the other
hand, (as the landowners).
The land owner (party) of PARCEL I has been mentioned to be Felix Icao. According to a
death certificate issued by the parish priest of Dapitan City (Annex A, Motion to Dismiss, p.
124, of Record), Felix Icao died on August 22, 1940, at the age of 40. Again, PARCEL I, is
now a registered property under Original Certificate of Title No. P-9372, issued under Free
Patent No. V-99662, On July 9, 1959 (Annex G, Motion to Dismiss, page 130, Record), with
"Hrs. of Felix Icao" as the registered owners.
The supposed "tillers" of PARCEL I were the spouses Mariano Lagutan and Francisca Icao.
Due to the death of the former, i.e., Mariano Lagutan, the amended complaint placed the
names of his heirs as the plaintiffs. Likewise, due to the demise of land owner Felix Icao in
1940, the amended complaint sued his successor-in-interest as the defendants. And, as
stated, the plaintiffs admitted that the alleged agreement was not in writing and they cannot
state with certainty when the alleged agreement was entered into between the land owner
(Felix Icao) and the tillers (spouses Mariano Lagutan and Francisca Icao).
NOW, on PARCEL II. It has been established that the land owner of this property is Francisca
Jaralve (wife of land owner Felix Icao of Parcel I). According to a death certificate issued by
the parish priest of Dapitan City, Francisca Jaralve died on July 29, 1939 at the age of 31.
(Please see Annex D, Motion to Dismiss, page 27, Record). PARCEL II is a registered

property now under Original Certificate of Title No. 93737 issued under Free Patent No. V107258, on May 10, 1959 (see Annex H, Motion to Dismiss, page 133, Record), with "Hrs. of
Francisca Jaralve" as the registered owners.
The supposed "tiller" of PARCEL II, according to par. XX of the amended complaint (quoted
on top, page 2, this Resolution) was Amador Lagutan, while the supposed "land owners"
of said PARCEL II were the defendants and/or their predecessor-in-interest. The conjunctivedisjunctive "AND/OR" is, to the mind of the Court, a badge of uncertainty, a revelation of a
very weak cause on the part of "tiller" - plaintiff Amador Lagutan and the other co-plaintiffs.
They can't pin-point with definiteness the person or persons with whom they entered into,
such alleged "un-dated" and "unwritten" agreement.
(pp. 70-72, Rollo.)
Thereupon, the trial court held:
The court is of the opinion, as it hereby HOLDS,
1. That the titles for Parcels I & II, are absolutely indefeasible;
2. That plaintiffs have no sufficient cause of action;
3. That the "un-dated" and "unwritten" agreement, granting that it did exist is, unenforceable
under the Statute of Frauds;
4. That same agreement, also granting it did exist, has long prescribed; and
5. The plaintiffs' cause of action has to fail, due to laches on their part.
FOREGOING CONSIDERED, the Court has to dismiss, as it hereby DISMISSES the
amended complaint of the plaintiffs.
This resolves the Motion to Dismiss filed by the defendants, January 16, 1978. (p. 74, Rollo.)
Considering the circumstance that the case at bar started 21 years ago, the Court issued a Resolution on
March 1, 1993 requiring the parties to "move in the premises". Only petitioners responded, urging us to
decide the case at the earliest possible time (p. 75, Rollo).
We rule against the dismissal.
The motion to dismiss was filed long after respondents' Amended Answer had been filed. Under Rule 16, the
motion to dismiss must be filed within the time for pleading, that is, within the period to answer (Tuason v.
Rafor, 5 SCRA 478 [1962], at p. 483). Respondents filed their motion to dismiss almost three months after
they filed their Amended Answer, which is a violation of the first requirement on motions to dismiss.
Additionally, assuming the propriety of the motion to dismiss, the Court does not agree that the Amended
Complaint could have been dismissed on the ground of lack of cause of action. Petitioners' allegations of
facts relative to Parcels I and II, sufficiently establish a cause of action.
It is also unfortunate that the trial court had to elicit an admission from petitioners' counsel on the absence of
a written agreement (p. 70, Record on Appeal) because the Statute of Frauds is not applicable here. What is
at issue is respondents' alleged failure to pay of the improvements on Parcels I and II to petitioners. Or,
alternatively, the corresponding delivery of of said Parcels I and II, respectively. This situation is not
covered by the Statute of Frauds, specifically, No. 2 of Article 1403 of the new Civil Code since the
agreement had partially been executed which removes the case from the coverage of the Statute of Frauds.
The trial judge also erred when he relied on the defenses of laches and estoppel, which were raised both in
respondent's Amended Answer and Motion to Dismiss thus
1. The principal parties concerning the improvement and cultivation of PARCEL I were
Mariano Lagutan (the tiller), and Felix Icao (the land owner). In the herein alternative action
for specific performance and/or payment of improvements, the ones suing are the Heirs of
Mariano Lagutan; those being sued are the Heirs of Felix Icao. If, according to the death

certificate of Felix Icao died in 1940 (See Annex A, Motion to Dismiss), why was the original
complaint only filed on May 23, 1972?
2. Both PARCELS I & II subject of a Free Patent application, and, as a matter of fact both
parcels are now registered properties the titles of which were respectively issued on July 9,
1959 and May 19, 1959. Since, admittedly, the plaintiffs on one hand, and the defendant on
the other hand, live and resides in the same community (in Dapitan City), why didn't plaintiffs
register their opposition to the issuance of a Free Patent in favor of the defendants or their
predecessor-in-interest?
3. There was a certain Special Case No. 55 involving the estates of the deceased Pedro
Jaralve sometime in 1949. Why didn't plaintiffs register their claim over PARCEL II which
under said case was part of the estate of the said Pedro Jaralve?
4. And on the matter of PARCEL I, plaintiffs could have conveniently filed their claim in an
intestacy proceedings in the estate of the deceased Felix Icao. (pp. 73-74, Record on
Appeal.)
We have ruled in this regard that:
When the complaint was dismissed not because of any evidence presented by the parties, as
a result of the trial on the merits, but merely on a motion to dismiss filed by the defendants,
the sufficiency of the motion should be tested on the strength of the allegations of
facts contained in the complaint and no other. (De Jesus, et al. v. Belarmino, et al., 95 Phil.
366 [1954].)
and
. . . the issue must be passed upon on the basis of the allegations assuming them to be true
and the court cannot inquire into the truth of the allegations and declare them to be false;
otherwise, it would be a procedural error and a denial of due process to the plaintiff. (Ventura
v. Bernabe, 38 SCRA 587 [1971], at p. 598; Galeon vs. Galeon, 49 SCRA 516 [1973];
emphasis supplied.)
WHEREFORE, the order dismissing the complaint is SET ASIDE and the case is REMANDED to the court a
quo for further proceedings. No special pronouncement is made as to costs.
SO ORDERED.

G.R. No. 118509 December 1, 1995

LIMKETKAI SONS MILLING, INC., petitioner,
vs.
COURT OF APPEALS, BANK OF THE PHILIPPINE ISLANDS and NATIONAL BOOK
STORE, respondents.

MELO, J.:
The issue in the petition before us is whether or not there was a perfected contract between petitioner
Limketkai Sons Milling, Inc. and respondent Bank of the Philippine Islands (BPI) covering the sale of a parcel
of land, approximately 3.3 hectares in area, and located in Barrio Bagong Ilog, Pasig City, Metro Manila.
Branch 151 of the Regional Trial Court of the National Capital Judicial Region stationed in Pasig ruled that
there was a perfected contract of sale between petitioner and BPI. It stated that there was mutual consent
between the parties; the subject matter is definite; and the consideration was determined. It concluded that
all the elements of a consensual contract are attendant. It ordered the cancellation of a sale effected by BPI
to respondent National Book Store (NBS) while the case was pending and the nullification of a title issued in
favor of said respondent NBS.
Upon elevation of the case to the Court of Appeals, it was held that no contract of sale was perfected
because there was no concurrence of the three requisites enumerated in Article 1318 of the Civil Code. The
decision of the trial court was reversed and the complaint dismissed.
Hence, the instant petition.
Shorn of the interpretations given to the acts of those who participated in the disputed sale, the findings of
facts of the trial court and the Court of Appeals narrate basically the same events and occurrences. The
records show that on May 14, 1976, Philippine Remnants Co., Inc. constituted BPI as its trustee to manage,
administer, and sell its real estate property. One such piece of property placed under trust was the disputed
lot, a 33,056-square meter lot at Barrio Bagong Ilog, Pasig, Metro Manila covered by Transfer Certificate of
Title No. 493122.
On June 23, 1988, Pedro Revilla, Jr., a licensed real estate broker was given formal authority by BPI to sell
the lot for P1,000.00 per square meter. This arrangement was concurred in by the owners of the Philippine
Remnants.
Broker Revilla contacted Alfonso Lim of petitioner company who agreed to buy the land. On July 8, 1988,
petitioner's officials and Revilla were given permission by Rolando V. Aromin, BPI Assistant Vice-President,
to enter and view the property they were buying.
On July 9, 1988, Revilla formally informed BPI that he had procured a buyer, herein petitioner. On July 11,
1988, petitioner's officials, Alfonso Lim and Albino Limketkai, went to BPI to confirm the sale. They were
entertained by Vice-President Merlin Albano and Asst. Vice-President Aromin. Petitioner asked that the price
of P1,000.00 per square meter be reduced to P900.00 while Albano stated the price to be P1,100.00. The
parties finally agreed that the lot would be sold at P1,000.00 per square meter to be paid in cash. Since the
authority to sell was on a first come, first served and non-exclusive basis, it may be mentioned at this
juncture that there is no dispute over petitioner's being the first comer and the buyer to be first served.
Notwithstanding the final agreement to pay P1,000.00 per square meter on a cash basis, Alfonso Lim asked
if it was possible to pay on terms. The bank officials stated that there was no harm in trying to ask for
payment on terms because in previous transactions, the same had been allowed. It was the understanding,
however, that should the term payment be disapproved, then the price shall be paid in cash.
It was Albano who dictated the terms under which the installment payment may be approved, and acting
thereon, Alfonso Lim, on the same date, July 11, 1988, wrote BPI through Merlin Albano embodying the
payment initially of 10% and the remaining 90% within a period of 90 days.
Two or three days later, petitioner learned that its offer to pay on terms had been frozen. Alfonso Lim went to
BPI on July 18, 1988 and tendered the full payment of P33,056,000.00 to Albano. The payment was refused

because Albano stated that the authority to sell that particular piece of property in Pasig had been withdrawn
from his unit. The same check was tendered to BPI Vice-President Nelson Bona who also refused to receive
payment.
An action for specific performance with damages was thereupon filed on August 25, 1988 by petitioner
against BPI. In the course of the trial, BPI informed the trial court that it had sold the property under litigation
to NBS on July 14, 1989. The complaint was thus amended to include NBS.
On June 10, 1991, the trial court rendered judgment in the case as follows:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendants Bank
of the Philippine Islands and National Book Store, Inc.:
1. Declaring the Deed of Sale of the property covered by T.C.T. No. 493122 in the name of
the Bank of the Philippine Islands, situated in Barrio Bagong Ilog, Pasig, Metro Manila, in
favor of National Book Store, Inc., null and void;
2. Ordering the Register of Deeds of the Province of Rizal to cancel the Transfer Certificate
of Title which may have been issued in favor of National Book Store, Inc. by virtue of the
aforementioned Deed of Sale dated July 14, 1989;
3. Ordering defendant BPI, upon receipt by it from plaintiff of the sum of P33,056,000.00, to
execute a Deed of Sale in favor of plaintiff of the aforementioned property at the price of
P1,000.00 per square meter; in default thereof, the Clerk of this Court is directed to execute
the said deed;
4. Ordering the Register of Deeds of Pasig, upon registration of the said deed, whether
executed by defendant BPI or the Clerk of Court and payment of the corresponding fees and
charges, to cancel said T.C.T. No. 493122 and to issue, in lieu thereof, another transfer
certificate of title in the name of plaintiff;
5. Ordering defendants BPI and National Book Store, Inc. to pay, jointly and severally, to the
plaintiff the sums of P10,000,000.00 as actual and consequential damages and P150,000.00
as attorney's fees and litigation expenses, both with interest at 12% per annum from date
hereof;
6. On the cross-claim of defendant bank against National Book Store, ordering the latter to
indemnify the former of whatever amounts BPI shall have paid to the plaintiff by reason
hereof; and
7. Dismissing the counterclaims of the defendants against the plaintiff and National Book
Store's cross-claim against defendant bank.
Costs against defendants.
(pp. 44-45, Rollo.)
As earlier intimated, upon the decision being appealed, the Court of Appeals (Buena [P], Rasul, and
Mabutas, JJ.), on August 12, 1994, reversed the trial court's decision and dismissed petitioner's complaint for
specific performance and damages.
The issues raised by the parties revolve around the following four questions:
(1) Was there a meeting of the minds between petitioner Limketkai and respondent BPI as to the subject
matter of the contract and the cause of the obligation?
(2) Were the bank officials involved in the transaction authorized by BPI to enter into the questioned
contract?
(3) Is there competent and admissible evidence to support the alleged meeting of the minds?
(4) Was the sale of the disputed land to the NBS during the pendency of trial effected in good faith?

There is no dispute in regard to the following: (a) that BPI as trustee of the property of Philippine Remnant
Co. authorized a licensed broker, Pedro Revilla, to sell the lot for P1,000.00 per square meter; (b) that
Philippine Remnants confirmed the authority to sell of Revilla and the price at which he may sell the lot; (c)
that petitioner and Revilla agreed on the former buying the property; (d) that BPI Assistant Vice-President
Rolando V. Aromin allowed the broker and the buyer to inspect the property; and (e) that BPI was formally
informed about the broker having procured a buyer.
The controversy revolves around the interpretation or the significance of the happenings or events at this
point.
Petitioner states that the contract to sell and to buy was perfected on July 11, 1988 when its top officials and
broker Revilla finalized the details with BPI Vice-Presidents Merlin Albano and Rolando V. Aromin at the BPI
offices.
Respondents, however, contend that what transpired on this date were part of continuing negotiations to buy
the land and not the perfection of the sale. The arguments of respondents center on two propositions (1)
Vice-Presidents Aromin and Albano had no authority to bind BPI on this particular transaction and (2) the
subsequent attempts of petitioner to pay under terms instead of full payment in cash constitutes a counteroffer which negates the existence of a perfected contract.
The alleged lack of authority of the bank officials acting in behalf of BPI is not sustained by the record.
At the start of the transactions, broker Revilla by himself already had full authority to sell the disputed lot.
Exhibit B dated June 23, 1988 states, "this will serve as your authority to sell on an as is, where is basis the
property located at Pasig Blvd., Bagong Ilog . . . ." We agree with Revilla's testimony that the authority given
to him was to sell and not merely to look for a buyer, as contended by respondents.
Revilla testified that at the time he perfected the agreement to sell the litigated property, he was acting for
and in behalf of the BPI as if he were the Bank itself. This notwithstanding and to firm up the sale of the land,
Revilla saw it fit to bring BPI officials into the transaction. If BPI could give the authority to sell to a licensed
broker, we see no reason to doubt the authority to sell of the two BPI Vice-Presidents whose precise job in
the Bank was to manage and administer real estate property.
Respondent BPI alleges that sales of trust property need the approval of a Trust Committee made up of top
bank officials. It appears from the record that this trust committee meets rather infrequently and it does not
have to pass on regular transactions.
Rolando Aromin was BPI Assistant Vice-President and Trust Officer. He directly supervised the BPI Real
Property Management Unit. He had been in the Real Estate Division since 1985 and was the head
supervising officer of real estate matters. Aromin had been with the BPI Trust Department since 1968 and
had been involved in the handling of properties of beneficial owners since 1975 (tsn., December 3, 1990, p.
5).
Exhibit 10 of BPI, the February 15, 1989 letter from Senior Vice-President Edmundo Barcelon, while
purporting to inform Aromin of his poor performance, is an admission of BPI that Aromin was in charge of
Torrens titles, lease contracts, problems of tenants, insurance policies, installment receivables, management
fees, quitclaims, and other matters involving real estate transactions. His immediate superior, Vice-President
Merlin Albano had been with the Real Estate Division for only one week but he was present and joined in the
discussions with petitioner.
There is nothing to show that Alfonso Lim and Albino Limketkai knew Aromin before the incident. Revilla
brought the brothers directly to Aromin upon entering the BPI premises. Aromin acted in a perfectly natural
manner on the transaction before him with not the slightest indication that he was acting ultra vires. This
shows that BPI held Aromin out to the public as the officer routinely handling real estate transactions and, as
Trust Officer, entering into contracts to sell trust properties.
Respondents state and the record shows that the authority to buy and sell this particular trust property was
later withdrawn from Trust Officer Aromin and his entire unit. If Aromin did not have any authority to act as
alleged, there was no need to withdraw authority which he never possessed.
Petitioner points to Areola vs. Court of Appeals (236 SCRA 643 [1994]) which cited Prudential Bank
vs. Court of Appeals (22 SCRA 350 [1993]), which in turn relied upon McIntosh vs. Dakota Trust Co. (52 ND
752, 204 NW 818, 40 ALR 1021), to wit:

Accordingly a banking corporation is liable to innocent third persons where the representation
is made in the course of its business by an agent acting within the general scope of his
authority even though, in the particular case, the agent is secretly abusing his authority and
attempting to perpetrate a fraud upon his principal or some other person for his own ultimate
benefit.
(at pp. 652-653.)
In the present case, the position and title of Aromin alone, not to mention the testimony and documentary
evidence about his work, leave no doubt that he had full authority to act for BPI in the questioned
transaction. There is no allegation of fraud, nor is there the least indication that Aromin was acting for his
own ultimate benefit. BPI later dismissed Aromin because it appeared that a top official of the bank was
personally interested in the sale of the Pasig property and did not like Aromin's testimony. Aromin was
charged with poor performance but his dismissal was only sometime after he testified in court. More than two
long years after the disputed transaction, he was still Assistant Vice-President of BPI.
The records show that the letter of instruction dated June 14, 1988 from the owner of Philippine Remnants
Co. regarding the sale of the firm's property was addressed to Aromin. The P1,000.00 figure on the first page
of broker Revilla's authority to sell was changed to P1,100.00 by Aromin. The price was later brought down
again to P1,000.00, also by Aromin. The permission given to petitioner to view the lot was signed by Aromin
and honored by the BPI guards. The letter dated July 9, 1988 from broker Revilla informing BPI that he had
a buyer was addressed to Aromin. The conference on July 11, 1988 when the contract was perfected was
with Aromin and Vice-President Albano. Albano and Aromin were the ones who assured petitioner
Limketkai's officers that term payment was possible. It was Aromin who called up Miguel Bicharra of
Philippine Remnants to state that the BPI rejected payment on terms and it was to Aromin that Philippine
Remnants gave the go signal to proceed with the cash sale. Everything in the record points to the full
authority of Aromin to bind the bank, except for the self-serving memoranda or letters later produced by BPI
that Aromin was an inefficient and undesirable officer and who, in fact, was dismissed after he testified in this
case. But, of course, Aromin's alleged inefficiency is not proof that he was not fully clothed with authority to
bind BPI.
Respondents' second contention is that there was no perfected contract because petitioner's request to pay
on terms constituted a counter-offer and that negotiations were still in progress at that point.
Asst. Vice-President Aromin was subpoenaed as a hostile witness for petitioner during trial. Among his
statements is one to the effect that
. . . Mr. Lim offered to buy the property at P900.00 per square meter while Mr. Albano
counter-offered to sell the property at P1,100.00 per square meter but after the usual
haggling, we finally agreed to sell the property at the price of P1,000.00 per square meter . . .
(tsn, 12-3-90, p. 17; Emphasis supplied.)
Asked if there was a meeting of the minds between the buyer and the bank in respect to the price of
P1,000.00 per square meter, Aromin answered:
Yes, sir, as far as my evaluation there was a meeting of the minds as far as the price is
concerned, sir.
(ibid, p. 17.)
The requirements in the payment of the purchase price on terms instead of cash were suggested by BPI
Vice-President Albano. Since the authority given to broker Revilla specified cash payment, the possibility of
paying on terms was referred to the Trust Committee but with the mutual agreement that "if the proposed
payment on terms will not be approved by our Trust Committee, Limketkai should pay in cash . . . the
amount was no longer subject to the approval or disapproval of the Committee, it is only on the terms." (ibid,
p. 19). This is incontrovertibly established in the following testimony of Aromin:
A. After you were able to agree on the price of P1,000.00/sq. m., since the
letter or authority says the payment must be in cash basis, what transpired
later on?
B. After we have agreed on the price, the Lim brothers inquired on how to go
about submitting the covering proposal if they will be allowed to pay on terms.

They requested us to give them a guide on how to prepare the corresponding

letter of proposal. I recall that, upon the request of Mr. Albino Limketkai, we
dictated a guide on how to word a written firm offer that was to be submitted
by Mr. Lim to the bank setting out the terms of payment but with the mutual
agreement that if his proposed payment on terms will not be approved by our
trust committee, Limketkai should pay the price in cash.
Q And did buyer Limketkai agree to pay in cash in case the offer of terms will
be cash (disapproved).
A Yes, sir.
Q At the start, did they show their willingness to pay in cash?
A Yes, sir.
Q You said that the agreement on terms was to be submitted to the trust
committee for approval, are you telling the Court that what was to be
approved by the trust committee was the provision on the payment on terms?
A Yes, sir.
Q So the amount was no longer subject to the approval or disapproval of the
committee, it is only on the terms?
A Yes, sir.
(tsn, Dec. 3, 1990, pp. 18-19; Emphasis supplied.)
The record shows that if payment was in cash, either broker Revilla or Aromin had full authority. But because
petitioner took advantage of the suggestion of Vice-President Albano, the matter was sent to higher officials.
Immediately upon learning that payment on terms was frozen and/or denied, Limketkai exercised his right
within the period given to him and tendered payment in full. The BPI rejected the payment.
In its Comment and Memorandum, respondent NBS cites Ang Yu Asuncion vs. Court of Appeals (238 SCRA
602 [1994]) to bolster its case. Contrarywise, it would seem that the legal principles found in said case
strengthen and support petitioner's submission that the contract was perfected upon the meeting of the
minds of the parties.
The negotiation or preparation stage started with the authority given by Philippine Remnants to BPI to sell
the lot, followed by (a) the authority given by BPI and confirmed by Philippine Remnants to broker Revilla to
sell the property, (b) the offer to sell to Limketkai, (c) the inspection of the property and finally (d) the
negotiations with Aromin and Albano at the BPI offices.
The perfection of the contract took place when Aromin and Albano, acting for BPI, agreed to sell and Alfonso
Lim with Albino Limketkai, acting for petitioner Limketkai, agreed to buy the disputed lot at P1,000.00 per
square meter. Aside from this there was the earlier agreement between petitioner and the authorized broker.
There was a concurrence of offer and acceptance, on the object, and on the cause thereof.
The phases that a contract goes through may be summarized as follows:
a. preparation, conception or generation, which is the period of negotiation and bargaining,
ending at the moment of agreement of the parties;
b. perfection or birth of the contract, which is the moment when the parties come to agree on
the terms of the contract; and
c. consummation or death, which is the fulfillment or performance of the terms agreed upon
in the contract (Toyota Shaw, Inc. vs. Court of Appeals, G.R. No. 116650, May 23, 1995).
But in more graphic prose, we turn to Ang Yu Asuncion, per Justice Vitug:

. . . A contract undergoes various stages that include its negotiation or preparation, its
perfection and, finally, its consummation. Negotiation covers the period from the time the
prospective contracting parties indicate interest in the contract to the time the contract is
concluded (perfected). The perfectionof the contract takes place upon the concurrence of the
essential elements thereof. A contract which isconsensual as to perfection is so established
upon a mere meeting of minds, i.e., the concurrence of offer and acceptance, on the object
and on the cause thereof. A contract which requires, in addition to the above, the delivery of
the object of the agreement, as in a pledge or commodatum, is commonly referred to as
a real contract. In a solemn contract, compliance with certain formalities prescribed by law,
such as in a donation of real property, is essential in order to make the act valid, the
prescribed form being thereby an essential element thereof. The stage of consummation
begins when the parties perform their respective undertakings under the contract culminating
in the extinguishment thereof.
Until the contract is perfected, it cannot, as an independent source of obligation, serve as a
binding juridical relation. In sales, particularly, to which the topic for discussion about the
case at bench belongs, the contract is perfected when a person, called the seller, obligates
himself, for a price certain, to deliver and to transfer ownership of a thing or right to another,
called the buyer, over which the latter agrees.
(238 SCRA 602; 611 [1994].)
In Villonco Realty Company vs. Bormaheco (65 SCRA 352 [1975]), bearing factual antecendents similar to
this case, the Court, through Justice Aquino (later to be Chief Justice), quoting authorities, upheld the
perfection of the contract of sale thusly:
The contract of sale is perfected at the moment there is a meeting of minds upon the thing
which is the object of the contract and upon the price. From that moment, the parties may
reciprocally demand performance, subject to the provisions of the law governing the form of
contracts. (Art. 1475, Ibid.)
xxx xxx xxx
Consent is manifested by the meeting of the offer and the acceptance upon the thing and the
cause which are to constitute the contract. The offer must be certain and the acceptance
absolute. A qualified acceptance constitutes a counter-offer (Art. 1319, Civil Code). "An
acceptance may be express or implied." (Art. 1320, Civil Code).
xxx xxx xxx
It is true that an acceptance may contain a request for certain changes in the terms of the
offer and yet be a binding acceptance. "So long as it is clear that the meaning of the
acceptance is positively and unequivocally to accept the offer, whether such request is
granted or not, a contract is formed." (Stuart vs. Franklin Life Ins. Co., 105 Fed. 2nd 965,
citing Sec. 79, Williston on Contracts).
xxx xxx xxx
. . . the vendor's change in a phrase of the offer to purchase, which change does not
essentially change the terms of the offer, does not amount to a rejection of the offer and the
tender or a counter-offer. (Stuart vs. Franklin Life Ins. Co., supra.)
(at pp. 362-363; 365-366.)
In the case at bench, the allegation of NBS that there was no concurrence of the offer and acceptance upon
the cause of the contract is belied by the testimony of the very BPI official with whom the contract was
perfected. Aromin and Albano concluded the sale for BPI. The fact that the deed of sale still had to be signed
and notarized does not mean that no contract had already been perfected. A sale of land is valid regardless
of the form it may have been entered into (Claudel vs. Court of Appeals, 199 SCRA 113, 119 [1991]). The
requisite form under Article 1458 of the Civil Code is merely for greater efficacy or convenience and the
failure to comply therewith does not affect the validity and binding effect of the act between the parties
(Vitug, Compendium of Civil Law and Jurisprudence, 1993 Revised Edition, p. 552). If the law requires a
document or other special form, as in the sale of real property, the contracting parties may compel each

other to observe that form, once the contract has been perfected. Their right may be exercised
simultaneously with action upon the contract (Article 1359, Civil Code).
Regarding the admissibility and competence of the evidence adduced by petitioner, respondent Court of
Appeals ruled that because the sale involved real property, the statute of frauds is applicable.
In any event, petitioner cites Abrenica vs. Gonda (34 Phil. 739 [1916]) wherein it was held that contracts
infringing the Statute of Frauds are ratified when the defense fails to object, or asks questions on crossexamination. The succinct words of Justice Araullo still ring in judicial cadence:
As no timely objection or protest was made to the admission of the testimony of the plaintiff
with respect to the contract; and as the motion to strike out said evidence came too late; and,
furthermore, as the defendants themselves, by the cross-questions put by their counsel to
the witnesses in respect to said contract, tacitly waived their right to have it stricken out, that
evidence, therefore, cannot be considered either inadmissible or illegal, and court, far from
having erred in taking it into consideration and basing his judgment thereon, notwithstanding
the fact that it was ordered to be stricken out during the trial, merely corrected the error he
committed in ordering it to be so stricken out and complied with the rules of procedure
hereinbefore cited.
(at p. 748.)
In the instant case, counsel for respondents cross-examined petitioner's witnesses at length on the contract
itself, the purchase price, the tender of cash payment, the authority of Aromin and Revilla, and other details
of the litigated contract. Under the Abrenica rule (reiterated in a number of cases, among them Talosig vs.
Vda. de Nieba 43 SCRA 472 [1972]), even assuming that parol evidence was initially inadmissible, the same
became competent and admissible because of the cross-examination, which elicited evidence proving the
evidence of a perfected contract. The cross-examination on the contract is deemed a waiver of the defense
of the Statute of Frauds (Vitug, Compendium of Civil Law and Jurisprudence, 1993 Revised Edition, supra,
p. 563).
The reason for the rule is that as pointed out in Abrenica "if the answers of those witnesses were stricken
out, the cross-examination could have no object whatsoever, and if the questions were put to the witnesses
and answered by them, they could only be taken into account by connecting them with the answers given by
those witnesses on direct examination" (pp. 747-748).
Moreover, under Article 1403 of the Civil Code, an exception to the unenforceability of contracts pursuant to
the Statute of Frauds is the existence of a written note or memorandum evidencing the contract. The
memorandum may be found in several writings, not necessarily in one document. The memorandum or
memoranda is/are written evidence that such a contract was entered into.
We cite the findings of the trial court on this matter:
In accordance with the provisions of Art. 1403 of the Civil Code, the existence of a written
contract of the sale is not necessary so long as the agreement to sell real property is
evidenced by a written note or memorandum, embodying the essentials of the contract and
signed by the party charged or his agent. Thus, it has been held:
The Statute of Frauds, embodied in Article 1403 of the Civil Code of the
Philippines, does not require that the contract itself be written. The plain test
of Article 1403, Paragraph (2) is clear that a written note or memorandum,
embodying the essentials of the contract and signed by the party charged, or
his agent suffices to make the verbal agreement enforceable, taking it out of
the operation of the statute. (Emphasis supplied)
xxx xxx xxx
In the case at bar, the complaint in its paragraph 3 pleads that the deal had
been closed by letter and telegram (Record on Appeal, p. 2), and the letter
referred to was evidently the one copy of which was appended as Exhibit A to
plaintiffs opposition to the motion to dismiss. The letter, transcribed above in
part, together with the one marked as Appendix B, constitute an adequate
memorandum of the transaction. They are signed by the defendant-appellant;
refer to the property sold as a Lot in Puerto Princesa, Palawan, covered by

T.C.T. No. 62, give its area as 1,825 square meters and the purchase price of
four (P4.00) pesos per square meter payable in cash. We have in them,
therefore, all the essential terms of the contract and they satisfy the
requirements of the Statute of Frauds.
(Footnote 26, Paredes vs. Espino, 22 SCRA 1000 [1968]).
While there is no written contract of sale of the Pasig property executed by BPI in favor of
plaintiff, there are abundant notes and memoranda extant in the records of this case
evidencing the elements of a perfected contract. There is Exhibit P, the letter of Kenneth
Richard Awad addressed to Roland Aromin, authorizing the sale of the subject property at the
price of P1,000.00 per square meter giving 2% commission to the broker and instructing that
the sale be on cash basis. Concomitantly, on the basis of the instruction of Mr. Awad, (Exh.
P), an authority to sell, (Exh. B) was issued by BPI to Pedro Revilla, Jr., representing
Assetrade Co., authorizing the latter to sell the property at the initial quoted price of
P1,000.00 per square meter which was altered on an unaccepted offer by Technoland. After
the letter authority was issued to Mr. Revilla, a letter authority was signed by Mr. Aromin
allowing the buyer to enter the premises of the property to inspect the same (Exh. C). On
July 9, 1988, Pedro Revilla, Jr., acting as agent of BPI, wrote a letter to BPI informing it that
he had procured a buyer in the name of Limketkai Sons Milling, Inc. with offices at Limketkai
Bldg., Greenhills, San Juan, Metro Manila, represented by its Exec. Vice-President, Alfonso
Lim (Exh. D). On July 11, 1988, the plaintiff, through Alfonso Lim, wrote a letter to the bank,
through Merlin Albano, confirming their transaction regarding the purchase of the subject
property (Exh. E). On July 18, 1988, the plaintiff tendered upon the officials of the bank a
check for P33,056,000.00 covered by Check No. CA510883, dated July 18, 1988. On July 1,
1988, Alfonso Zamora instructed Mr. Aromin in a letter to resubmit new offers only if there is
no transaction closed with Assetrade Co. (Exh. S). Combining all these notes and
memoranda, the Court is convinced of the existence of perfected contract of sale. Aptly, the
Supreme Court, citing American cases with approval, held:
No particular form of language or instrument is necessary to constitute a
memorandum or note in writing under the statute of frauds; any document or
writing, formal or informal, written either for the purpose of furnishing
evidence of the contract or for another purpose, which satisfies all the
requirements of the statute as to contents and signature, as discussed
respectively infra secs. 178-200, and infra secs. 201-205, is a sufficient
memorandum or note. A memorandum may be written as well with lead pencil
as with pen and ink. It may also be filled in on a printed form. (37 C.J.S., 653654).
The note or memorandum required by the statute of frauds need not be
contained in a single document, nor, when contained in two or more papers,
need each paper be sufficient as to contents and signature to satisfy the
statute. Two or more writings properly connected may be considered
together, matters missing or uncertain in one may be supplied or rendered
certain by another, and their sufficiency will depend on whether, taken
together, they meet the requirements of the statute as to contents and the
requirements of the statutes as to signature, as considered
respectively infra secs. 179-200 and secs. 201-215.
(pp. 460-463, Original RTC Record).
The credibility of witnesses is also decisive in this case. The trial court directly observed the demeanor and
manner of testifying of the witnesses while the Court of Appeals relied merely on the transcript of
stenographic notes.
In this regard, the court of origin had this to say:
Apart from weighing the merits of the evidence of the parties, the Court had occasion to
observe the demeanor of the witnesses they presented. This is one important factor that
inclined the Court to believe in the version given by the plaintiff because its witnesses,
including hostile witness Roland V. Aromin, an assistant vice-president of the bank, were
straightforward, candid and unhesitating in giving their respective testimonies. Upon the other
hand, the witnesses of BPI were evasive, less than candid and hesitant in giving their
answers to cross examination questions. Moreover, the witnesses for BPI and NBS

contradicted each other. Fernando Sison III insisted that the authority to sell issued to Mr.
Revilla was merely an evidence by which a broker may convince a prospective buyer that he
had authority to offer the property mentioned therein for sale and did not bind the bank. On
the contrary, Alfonso Zamora, a Senior Vice-President of the bank, admitted that the authority
to sell issued to Mr. Pedro Revilla, Jr. was valid, effective and binding upon the bank being
signed by two class "A" signatories and that the bank cannot back out from its commitment in
the authority to sell to Mr. Revilla.
While Alfredo Ramos of NBS insisted that he did not know personally and was not
acquainted with Edmundo Barcelon, the latter categorically admitted that Alfredo Ramos was
his friend and that they have even discussed in one of the luncheon meetings the matter of
the sale of the Pasig property to NBS. George Feliciano emphatically said that he was not a
consultant of Mr. Ramos nor was he connected with him in any manner, but his calling card
states that he was a consultant to the chairman of the Pacific Rim Export and Holdings Corp.
whose chairman is Alfredo Ramos. This deliberate act of Mr. Feliciano of concealing his
being a consultant to Mr. Alfredo Ramos evidently was done by him to avoid possible
implication that he committed some underhanded maneuvers in manipulating to have the
subject property sold to NBS, instead of being sold to the plaintiff.
(pp. 454-455, Original RTC Record.)
On the matter of credibility of witnesses where the findings or conclusions of the Court of Appeals and the
trial court are contrary to each other, the pronouncement of the Court in Serrano vs. Court of Appeals (196
SCRA 107 [1991]) bears stressing:
It is a settled principle of civil procedure that the conclusions of the trial court regarding the
credibility of witnesses are entitled to great respect from the appellate courts because the
trial court had an opportunity to observe the demeanor of witnesses while giving testimony
which may indicate their candor or lack thereof. While the Supreme Court ordinarily does not
rule on the issue of credibility of witnesses, that being a question of fact not properly raised in
a petition under Rule 45, the Court has undertaken to do so in exceptional situations where,
for instance, as here, the trial court and the Court of Appeals arrived at divergent conclusions
on questions of fact and the credibility of witnesses.
(at p. 110.)
On the fourth question of whether or not NBS is an innocent purchaser for value, the record shows that it is
not. It acted in bad faith.
Respondent NBS ignored the notice of lis pendens annotated on the title when it bought the lot. It was the
willingness and design of NBS to buy property already sold to another party which led BPI to dishonor the
contract with Limketkai.
Petitioner cites several badges of fraud indicating that BPI and NBS conspired to prevent petitioner from
paying the agreed price and getting possession of the property:
1. The sale was supposed to be done through an authorized broker, but top officials of BPI personally and
directly took over this particular sale when a close friend became interested.
2. BPI Senior Vice President Edmundo Barcelon admitted that NBS's President, Alfredo Ramos, was his
friend; that they had lunch meetings before this incident and discussed NBS's purchase of the lot. Barcelon's
father was a business associate of Ramos.
3. George Feliciano, in behalf of NBS, offered P5 million and later P7 million if petitioner would drop the case
and give up the lot. Feliciano went to petitioner's office and haggled with Alfonso Lim but failed to convince
him inspite of various and increasing offers.
4. In a place where big and permanent buildings abound, NBS had constructed only a warehouse marked by
easy portability. The warehouse is bolted to its foundations and can easily be dismantled.
It is the very nature of the deed of absolute sale between BPI and NBS which, however, clearly negates any
allegation of good faith on the part of the buyer. Instead of the vendee insisting that the vendor guarantee its
title to the land and recognize the right of the vendee to proceed against the vendor if the title to the land
turns out to be defective as when the land belongs to another person, the reverse is found in the deed of

sale between BPI and NBS. Any losses which NBS may incur in the event the title turns out to be vested in
another person are to be borne by NBS alone. BPI is expressly freed under the contract from any recourse
of NBS against it should BPI's title be found defective.
NBS, in its reply memorandum, does not refute or explain the above circumstance squarely. It simply cites
the badges of fraud mentioned in Oria vs. McMicking (21 Phil. 243 [1912]) and argues that the enumeration
there is exclusive. The decision in said case plainly states "the following are some of the circumstances
attending sales which have been denominated by courts (as) badges of fraud." There are innumerable
situations where fraud is manifested. One enumeration in a 1912 decision cannot possibly cover all
indications of fraud from that time up to the present and into the future.
The Court of Appeals did not discuss the issue of damages. Petitioner cites the fee for filing the amended
complaint to implead NBS, sheriffs fees, registration fees, plane fare and hotel expenses of Cebu-based
counsel. Petitioner also claimed, and the trial court awarded, damages for the profits and opportunity losses
caused to petitioner's business in the amount of P10,000,000.00.
We rule that the profits and the use of the land which were denied to petitioner because of the noncompliance or interference with a solemn obligation by respondents is somehow made up by the
appreciation in land values in the meantime.
Prescinding from the above, we rule that there was a perfected contract between BPI and petitioner
Limketkai; that the BPI officials who transacted with petitioner had full authority to bind the bank; that the
evidence supporting the sale is competent and admissible; and that the sale of the lot to NBS during the trial
of the case was characterized by bad faith.
WHEREFORE, the questioned judgment of the Court of Appeals is hereby REVERSED and SET ASIDE.
The June 10, 1991 judgment of Branch 151 of the Regional Trial Court of The National Capital Judicial
Region stationed in Pasig, Metro Manila is REINSTATED except for the award of Ten Million Pesos
(P10,000,000.00) damages which is hereby DELETED.
SO ORDERED.

[G.R. No. 148116. April 14, 2004]

ANTONIO K. LITONJUA and AURELIO K. LITONJUA, JR., petitioners, vs. MARY ANN GRACE FERNANDEZ,
HEIRS OF PAZ TICZON ELEOSIDA, represented by GREGORIO T. ELEOSIDA, HEIRS OF DOMINGO
B. TICZON, represented by MARY MEDIATRIX T. FERNANDEZ, CRISTETA TICZON, EVANGELINE
JILL R. TICZON, ERLINDA T. BENITEZ, DOMINIC TICZON, JOSEFINA LUISA PIAMONTE, JOHN
DOES and JANE DOES, respondents.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari of the Decision[1] of the Court of Appeals in CA-G.R. CV No. 64940,
which reversed and set aside the June 23, 1999 Decision [2] of the Regional Trial Court of Pasig City, Branch 68, in
Civil Case No. 65629, as well as its Resolution dated April 30, 2001 denying the petitioners motion for
reconsideration of the aforesaid decision.
The heirs of Domingo B. Ticzon [3] are the owners of a parcel of land located in San Pablo City, covered by
Transfer Certificate of Title (TCT) No. T-36766 of the Register of Deeds of San Pablo City.[4] On the other hand, the
heirs of Paz Ticzon Eleosida, represented by Gregorio T. Eleosida, are the owners of a parcel of land located
in San Pablo City, covered by TCT No. 36754, also of the Register of Deeds of San Pablo City.[5]
The Case for the Petitioners
Sometime in September 1995, Mrs. Lourdes Alimario and Agapito Fisico who worked as brokers, offered to
sell to the petitioners, Antonio K. Litonjua and Aurelio K. Litonjua, Jr., the parcels of land covered by TCT Nos.
36754 and 36766. The petitioners were shown a locator plan and copies of the titles showing that the owners of
the properties were represented by Mary Mediatrix Fernandez and Gregorio T. Eleosida, respectively. The brokers
told the petitioners that they were authorized by respondent Fernandez to offer the property for sale. The
petitioners, thereafter, made two ocular inspections of the property, in the course of which they saw some people
gathering coconuts.
In the afternoon of November 27, 1995, the petitioners met with respondent Fernandez and the two brokers
at the petitioners office in Mandaluyong City.[6] The petitioners and respondent Fernandez agreed that the
petitioners would buy the property consisting of 36,742 square meters, for the price of P150 per square meter, or
the total sum of P5,098,500. They also agreed that the owners would shoulder the capital gains tax, transfer tax
and the expenses for the documentation of the sale. The petitioners and respondent Fernandez also agreed to
meet on December 8, 1995 to finalize the sale. It was also agreed upon that on the said date, respondent
Fernandez would present a special power of attorney executed by the owners of the property, authorizing her to
sell the property for and in their behalf, and to execute a deed of absolute sale thereon. The petitioners would also
remit the purchase price to the owners, through respondent Fernandez. However, only Agapito Fisico attended the
meeting. He informed the petitioners that respondent Fernandez was encountering some problems with the
tenants and was trying to work out a settlement with them. [7] After a few weeks of waiting, the petitioners wrote
respondent Fernandez onJanuary 5, 1995, demanding that their transaction be finalized by January 30, 1996.[8]
When the petitioners received no response from respondent Fernandez, the petitioners sent her another
Letter[9] dated February 1, 1996, asking that the Deed of Absolute Sale covering the property be executed in
accordance with their verbal agreement dated November 27, 1995. The petitioners also demanded the turnover of
the subject properties to them within fifteen days from receipt of the said letter; otherwise, they would have no
option but to protect their interest through legal means.
Upon receipt of the above letter, respondent Fernandez wrote the petitioners on February 14, 1996[10] and
clarified her stand on the matter in this wise:
1) It is not true I agreed to shoulder registration fees and other miscellaneous expenses, etc. I do not recall we
ever discussed about them. Nonetheless, I made an assurance at that time that there was no liens/encumbrances
and tenants on my property (TCT 36755).
2) It is not true that we agreed to meet on December 8, 1995 in order to sign the Deed of Absolute Sale. The truth
of the matter is that you were the one who emphatically stated that you would prepare a Contract to Sell and

requested us to come back first week of December as you would be leaving the country then. In fact, what you
were demanding from us was to apprise you of the status of the property, whether we would be able to ascertain
that there are really no tenants. Ms. Alimario and I left your office, but we did not assure you that we would be
back on the first week of December.
Unfortunately, some people suddenly appeared and claiming to be tenants for the entire properties (including
those belonging to my other relatives.) Another thing, the Barangay Captain now refuses to give a certification that
our properties are not tenanted.
Thereafter, I informed my broker, Ms. Lulu Alimario, to relay to Mr. Agapito that due to the appearance of alleged
tenants who are demanding for a one-hectare share, my cousin and I have thereby changed our mind and that the
sale will no longer push through. I specifically instructed her to inform you thru your broker that we will not be
attending the meeting to be held sometime first week of December.
In view thereof, I regret to formally inform you now that we are no longer selling the property until all problems are
fully settled. We have not demanded and received from you any earnest money, thereby, no obligations exist. In
the meantime, we hope that in the future we will eventually be able to transact business since we still have other
properties in San Pablo City.[11]
Appended thereto was a copy of respondent Fernandez letter to the petitioners dated January 16, 1996, in
response to the latters January 5, 1996 letter.[12]
On April 12, 1996, the petitioners filed the instant Complaint for specific performance with damages [13] against
respondent Fernandez and the registered owners of the property. In their complaint, the petitioners alleged, inter
alia, the following:
4. On 27 November 1995, defendants offered to sell to plaintiffs two (2) parcels of land covered by Transfer
Certificates of Title Nos. 36766 and 36754 measuring a total of 36,742 square meters in Barrio Concepcion, San
PabloCity. After a brief negotiation, defendants committed and specifically agreed to sell to plaintiffs 33,990 square
meters of the two (2) aforementioned parcels of land at P150.00 per square meter.
5. The parties also unequivocally agreed to the following:
(a) The transfer tax and all the other fees and expenses for the titling of the subject property in plaintiffs names
would be for defendants account.
(b) The plaintiffs would pay the entire purchase price of P5,098,500.00 for the aforementioned 33,990 square
meters of land in plaintiffs office on 8 December 1995.
6. Defendants repeatedly assured plaintiffs that the two (2) subject parcels of land were free from all liens and
encumbrances and that no squatters or tenants occupied them.
7. Plaintiffs, true to their word, and relying in good faith on the commitment of defendants, pursued the purchase
of the subject parcels of lands. On 5 January 1996, plaintiffs sent a letter of even date to defendants, setting the
date of sale and payment on 30 January 1996.
7.1 Defendants received the letter on 12 January 1996 but did not reply to it.
8. On 1 February 1996, plaintiffs again sent a letter of even date to defendants demanding execution of the Deed
of Sale.
8.1 Defendants received the same on 6 February 1996. Again, there was no reply. Defendants thus reneged on
their commitment a second time.
9. On 14 February 1996, defendant Fernandez sent a written communication of the same date to plaintiffs
enclosing therein a copy of her 16 January 1996 letter to plaintiffs which plaintiffs never received
before. Defendant Fernandez stated in her 16 January 1996 letter that despite the meeting of minds among the
parties over the 33,990 square meters of land for P150.00 per square meter on 27 November 1995, defendants
suddenly had a change of heart and no longer wished to sell the same. Paragraph 6 thereof unquestionably

shows defendants previous agreement as above-mentioned and their unjustified breach of their obligations under
it.
10. Defendants cannot unilaterally, whimsically and capriciously cancel a perfected contract to sell.
11. Plaintiffs intended to use the subject property for their subdivision project to support plaintiffs quarry
operations, processing of aggregate products and manufacture of construction materials. Consequently, by reason
of defendants failure to honor their just obligations, plaintiffs suffered, and continue to suffer, actual damages,
consisting in unrealized profits and cost of money, in the amount of at least P5 Million.
12. Plaintiffs also suffered sleepless nights and mental anxiety on account of defendants fraudulent actuations for
which reason defendants are liable to plaintiffs for moral damages in the amount of at least P1.5 Million.
13. By reason of defendants above-described fraudulent actuations, plaintiffs, despite their willingness and ability
to pay the agreed purchase price, have to date been unable to take delivery of the title to the subject
property.Defendants acted in a wanton, fraudulent and malevolent manner in violating the contract to sell. By way
of example or correction for the public good, defendants are liable to plaintiff for exemplary damages in the
amount ofP500,000.00.
14. Defendants bad faith and refusal to honor their just obligations to plaintiffs constrained the latter to litigate and
to engage the services of undersigned counsel for a fee in the amount of at least P250,000.00.[14]
The petitioners prayed that, after due hearing, judgment be rendered in their favor ordering the respondents
to
(a) Secure at defendants expense all clearances from the appropriate government agencies that will enable
defendants to comply with their obligations under the Contract to Sell;
(b) Execute a Contract to Sell with terms agreed upon by the parties;
(c) Solidarily pay the plaintiffs the following amounts:
1. P5,000,000.00 in actual damages;
2. P1,500,000.00 in moral damages;
3. P500,000.00 in exemplary damages;
4. P250,000.00 in attorneys fees.[15]
On July 5, 1996, respondent Fernandez filed her Answer to the complaint. [16] She claimed that while the
petitioners offered to buy the property during the meeting of November 27, 1995, she did not accept the offer;
thus, no verbal contract to sell was ever perfected. She specifically alleged that the said contract to sell was
unenforceable for failure to comply with the statute of frauds. She also maintained that even
assuming arguendo that she had, indeed, made a commitment or promise to sell the property to the petitioners,
the same was not binding upon her in the absence of any consideration distinct and separate from the price. She,
thus, prayed that judgment be rendered as follows:
1. Dismissing the Complaint, with costs against the plaintiffs;
2. On the COUNTERCLAIM, ordering plaintiffs to pay defendant moral damages in the amount of not
less than P2,000,000.00 and exemplary damages in the amount of not less than P500,000.00 and
attorneys fees and reimbursement expenses of litigation in the amount of P300,000.00.[17]
On September 24, 1997, the trial court, upon motion of the petitioners, declared the other respondents in
default for failure to file their responsive pleading within the reglementary period. [18] At the pre-trial conference held
on March 2, 1998, the parties agreed that the following issues were to be resolved by the trial court: (1) whether or
not there was a perfected contract to sell; (2) in the event that there was, indeed, a perfected contract to sell,
whether or not the respondents breached the said contract to sell; and (3) the corollary issue of damages. [19]

Respondent Fernandez testified that she requested Lourdes Alimario to look for a buyer of the properties
in San Pablo City on a best offer basis. She was later informed by Alimario that the petitioners were interested to
buy the properties. On November 27, 1995, along with Alimario and another person, she met with the petitioners
in the latters office and told them that she was at the conference merely to hear their offer, that she could not bind
the owners of the properties as she had no written authority to sell the same. The petitioners offered to buy the
property at P150 per square meter. After the meeting, respondent Fernandez requested Joy Marquez to secure a
barangay clearance stating that the property was free of any tenants. She was surprised to learn that the
clearance could not be secured. She contacted a cousin of hers, also one of the owners of the property, and
informed him that there was a prospective buyer of the property but that there were tenants thereon. Her cousin
told her that he was not selling his share of the property and that he was not agreeable to the price of P150 per
square meter. She no longer informed the other owners of the petitioners offer. Respondent Fernandez then
asked Alimario to apprise the petitioners of the foregoing developments, through their agent, Agapito Fisico. She
was surprised to receive a letter from the petitioners dated January 5, 1996. Nonetheless, she informed the
petitioners that she had changed her mind in pursuing the negotiations in a Letter dated January 18, 1996. When
she received petitioners February 1, 1996 Letter, she sent a Reply-Letter dated February 14, 1996.
After trial on the merits, the trial court rendered judgment in favor of the petitioners on June 23, 1999,[20] the
dispositive portion of which reads:
WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of plaintiffs ANTONIO K.
LITONJUA and AURELIO K. LITONJUA and against defendants MARY MEDIATRIX T. FERNANDEZ, HEIRS OF
PAZ TICZON ELEOSIDA, represented by GREGORIO T. ELEOSIDA, JOHN DOES and JANE DOES; HEIRS OF
DOMINGO B. TICZON, represented by MARY MEDIATRIX T. FERNANDEZ, CRISTETA TICZON, EVANGELINE
JILL R. TICZON, ERLINDA T. BENITEZ, DOMINIC TICZON, JOSEFINA LUISA PIAMONTE, JOHN DOES and
JANE DOES, ordering defendants to:
1. execute a Contract of Sale and/or Absolute Deed of Sale with the terms agreed upon by the
parties and to secure all clearances from the concerned government agencies and
removal of any tenants from the subject property at their expense to enable defendants to
comply with their obligations under the perfected agreement to sell; and
2. pay to plaintiffs the sum of Two Hundred Thousand (P200,000.00) Pesos as and by way of
attorneys fees.[21]
On appeal to the Court of Appeals, the respondents ascribed the following errors to the court a quo:
I. THE LOWER COURT ERRED IN HOLDING THAT THERE WAS A PERFECTED CONTRACT
OF SALE OF THE TWO LOTS ON NOVEMBER 27, 1995.
II. THE LOWER COURT ERRED IN NOT HOLDING THAT THE VERBAL CONTRACT OF SALE AS
CLAIMED BY PLAINTIFFS-APPELLEES ANTONIO LITONJUA AND AURELIO LITONJUA WAS
UNENFORCEABLE.
III. THE LOWER COURT ERRED IN HOLDING THAT THE LETTER OF DEFENDANT-APPELLANT
FERNANDEZ
DATED JANUARY
16,
1996 WAS
A
CONFIRMATION
OF
THE
PERFECTED SALE AND CONSTITUTED AS WRITTEN EVIDENCE THEREOF.
IV. THE LOWER COURT ERRED IN NOT HOLDING THAT A SPECIAL POWER OF ATTORNEY WAS
REQUIRED IN ORDER THAT DEFENDANT-APPELLANT FERNANDEZ COULD NEGOTIATE
THE SALE ON BEHALF OF THE OTHER REGISTERED CO-OWNERS OF THE TWO LOTS.
V. THE LOWER COURT ERRED IN AWARDING ATTORNEYS FEES IN THE DISPOSITIVE PORTION
OF THE DECISION WITHOUT STATING THE BASIS IN THE TEXT OF SAID DECISION. [22]
On February 28, 2001, the appellate court promulgated its decision reversing and setting aside the judgment
of the trial court and dismissing the petitioners complaint, as well as the respondents counterclaim. [23] The
appellate court ruled that the petitioners failed to prove that a sale or a contract to sell over the property between
the petitioners and the private respondent had been perfected.
Hence, the instant petition for review on certiorari under Rule 45 of the Revised Rules of Court.

The petitioners submit the following issues for the Courts resolution:
A. WHETHER OR NOT THERE WAS A PERFECTED CONTRACT OF SALE BETWEEN THE PARTIES.
B. WHETHER OR NOT THE CONTRACT FALLS UNDER THE COVERAGE OF THE STATUTE OF FRAUDS.
C. WHETHER OR NOT THE DEFENDANTS DECLARED IN DEFAULT ARE BENEFITED BY THE ASSAILED
DECISION OF THE COURT OF APPEALS.[24]
The petition has no merit.
The general rule is that the Courts jurisdiction under Rule 45 of the Rules of Court is limited to the review of
errors of law committed by the appellate court. As the findings of fact of the appellate court are deemed continued,
this Court is not duty-bound to analyze and calibrate all over again the evidence adduced by the parties in the
court a quo.[25] This rule, however, is not without exceptions, such as where the factual findings of the Court of
Appeals and the trial court are conflicting or contradictory.[26] Indeed, in this case, the findings of the trial court and
its conclusion based on the said findings contradict those of the appellate court. However, upon careful review of
the records of this case, we find no justification to grant the petition. We, thus, affirm the decision of the appellate
court.
On the first and second assignment of errors, the petitioners assert that there was a perfected contract of
sale between the petitioners as buyers and the respondents-owners, through respondent Fernandez, as
sellers. The petitioners contend that the perfection of the said contract is evidenced by the January 16,
1996 Letter of respondent Fernandez.[27] The pertinent portions of the said letter are as follows:
[M]y cousin and I have thereby changed our mind and that the sale will no longer push through. I specifically
instructed her to inform you thru your broker that we will not be attending the meeting to be held sometime first
week of December.
In view thereof, I regret to formally inform you now that we are no longer selling the property until all problems
are fully settled. We have not demanded and received from you any earnest money, thereby, no obligations
exist[28]
The petitioners argue that the letter is a sufficient note or memorandum of the perfected contract, thus,
removing it from the coverage of the statute of frauds. The letter specifically makes reference to a sale which
respondent Fernandez agreed to initially, but which the latter withdrew because of the emergence of some people
who claimed to be tenants on both parcels of land. According to the petitioners, the respondents-owners, in their
answer to the complaint, as well as respondent Fernandez when she testified, admitted the authenticity and due
execution of the said letter. Besides, when the petitioner Antonio Litonjua testified on the contract of sale entered
into between themselves and the respondents-owners, the latter did not object thereto. Consequently, the
respondents-owners thereby ratified the said contract of sale. The petitioners thus contend that the appellate
courts declaration that there was no perfected contract of sale between the petitioners and the respondentsowners is belied by the evidence, the pleadings of the parties, and the law.
The petitioners contention is bereft of merit. In its decision, the appellate court ruled that the Letter of
respondent Fernandez dated January 16, 1996 is hardly the note or memorandum contemplated under Article
1403(2)(e) of the New Civil Code, which reads:
Art. 1403. The following contracts are unenforceable, unless they are ratified:
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an
agreement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum
thereof, be in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement
cannot be received without the writing, or secondary evidence of its contents:
(e) An agreement for the leasing for a longer period than one year, or for the sale of real property or of an
interest therein.[29]
The appellate court based its ruling on the following disquisitions:

In the case at bar, the letter dated January 16, 1996 of defendant-appellant can hardly be said to constitute the
note or memorandum evidencing the agreement of the parties to enter into a contract of sale as it is very clear that
defendant-appellant as seller did not accept the condition that she will be the one to pay the registration fees and
miscellaneous expenses and therein also categorically denied she had already committed to execute the deed of
sale as claimed by the plaintiffs-appellees. The letter, in fact, stated the reasons beyond the control of the
defendant-appellant, why the sale could no longer push through because of the problem with tenants. The trial
court zeroed in on the statement of the defendant-appellant that she and her cousin changed their minds, thereby
concluding that defendant-appellant had unilaterally cancelled the sale or backed out of her previous
commitment. However, the tenor of the letter actually reveals a consistent denial that there was any such
commitment on the part of defendant-appellant to sell the subject lands to plaintiffs-appellees. When defendantappellant used the words changed our mind, she was clearly referring to the decision to sell the property at all (not
necessarily to plaintiffs-appellees) and not in selling the property to herein plaintiffs-appellees as defendantappellant had not yet made the final decision to sell the property to said plaintiffs-appellees. This conclusion is
buttressed by the last paragraph of the subject letter stating that we are no longer selling the property until all
problems are fully settled. To read a definite previous agreement for the sale of the property in favor of plaintiffsappellees into the contents of this letter is to unduly restrict the freedom of the contracting parties to negotiate and
prejudice the right of every property owner to secure the best possible offer and terms in such sale
transactions. We believe, therefore, that the trial court committed a reversible error in finding that there was a
perfected contract of sale or contract to sell under the foregoing circumstances.Hence, the defendant-appellant
may not be held liable in this action for specific performance with damages. [30]
In Rosencor Development Corporation vs. Court of Appeals,[31] the term statute of frauds is descriptive of
statutes which require certain classes of contracts to be in writing. The statute does not deprive the parties of the
right to contract with respect to the matters therein involved, but merely regulates the formalities of the contract
necessary to render it enforceable. The purpose of the statute is to prevent fraud and perjury in the enforcement
of obligations, depending for their existence on the unassisted memory of witnesses, by requiring certain
enumerated contracts and transactions to be evidenced by a writing signed by the party to be charged. The
statute is satisfied or, as it is often stated, a contract or bargain is taken within the statute by making and executing
a note or memorandum of the contract which is sufficient to state the requirements of the statute. [32] The
application of such statute presupposes the existence of a perfected contract. However, for a note or
memorandum to satisfy the statute, it must be complete in itself and cannot rest partly in writing and partly in
parol. The note or memorandum must contain the names of the parties, the terms and conditions of the contract
and a description of the property sufficient to render it capable of identification. [33] Such note or memorandum must
contain the essential elements of the contract expressed with certainty that may be ascertained from the note or
memorandum itself, or some other writing to which it refers or within which it is connected, without resorting to
parol evidence.[34] To be binding on the persons to be charged, such note or memorandum must be signed by the
said party or by his agent duly authorized in writing.[35]
In City of Cebu v. Heirs of Rubi,[36] we held that the exchange of written correspondence between the parties
may constitute sufficient writing to evidence the agreement for purposes of complying with the statute of frauds.
In this case, we agree with the findings of the appellate court that there was no perfected contract of sale
between the respondents-owners, as sellers, and the petitioners, as buyers.
There is no documentary evidence on record that the respondents-owners specifically authorized respondent
Fernandez to sell their properties to another, including the petitioners. Article 1878 of the New Civil Code provides
that a special power of attorney is necessary to enter into any contract by which the ownership of an immovable is
transmitted or acquired either gratuitously or for a valuable consideration, [37]or to create or convey real rights over
immovable property,[38] or for any other act of strict dominion. [39] Any sale of real property by one purporting to be
the agent of the registered owner without any authority therefor in writing from the said owner is null and void.
[40]
The declarations of the agent alone are generally insufficient to establish the fact or extent of her authority. [41] In
this case, the only evidence adduced by the petitioners to prove that respondent Fernandez was authorized by the
respondents-owners is the testimony of petitioner Antonio Litonjua that respondent Fernandez openly represented
herself to be the representative of the respondents-owners, [42] and that she promised to present to the petitioners
on December 8, 1996 a written authority to sell the properties. [43] However, the petitioners claim was belied by
respondent Fernandez when she testified, thus:
Q Madam Witness, what else did you tell to the plaintiffs?

A I told them that I was there representing myself as one of the owners of the properties, and I was just
there to listen to his proposal because that time, we were just looking for the best offer and I did not
have yet any written authorities from my brother and sisters and relatives. I cannot agree on
anything yet since it is just a preliminary meeting, and so, I have to secure authorities and relate the
matters to my relatives, brother and sisters, sir.
Q And what else was taken up?
A Mr. Antonio Litonjua told me that they will be leaving for another country and he requested me to come
back on the first week of December and in the meantime, I should make an assurance that there
are no tenants in our properties, sir.[44]
The petitioners cannot feign ignorance of respondent Fernandez lack of authority to sell the properties for the
respondents-owners. It must be stressed that the petitioners are noted businessmen who ought to be very familiar
with the intricacies of business transactions, such as the sale of real property.
The settled rule is that persons dealing with an assumed agent are bound at their peril, and if they would hold
the principal liable, to ascertain not only the fact of agency but also the nature and extent of authority, and in case
either is controverted, the burden of proof is upon them to prove it. [45] In this case, respondent Fernandez
specifically denied that she was authorized by the respondents-owners to sell the properties, both in her answer to
the complaint and when she testified. The Letter dated January 16, 1996 relied upon by the petitioners was signed
by respondent Fernandez alone, without any authority from the respondents-owners. There is no evidence on
record that the respondents-owners ratified all the actuations of respondent Fernandez in connection with her
dealings with the petitioners. As such, said letter is not binding on the respondents as owners of the subject
properties.
Contrary to the petitioners contention, the letter of January 16, 1996 [46] is not a note or memorandum within
the context of Article 1403(2) because it does not contain the following: (a) all the essential terms and conditions
of the sale of the properties; (b) an accurate description of the property subject of the sale; and, (c) the names of
the respondents-owners of the properties. Furthermore, the letter made reference to only one property, that
covered by TCT No. T-36755.
We note that the petitioners themselves were uncertain as to the specific area of the properties they were
seeking to buy. In their complaint, they alleged to have agreed to buy from the respondents-owners 33,990 square
meters of the total acreage of the two lots consisting of 36,742 square meters. In their Letter to respondent
Fernandez dated January 5, 1996, the petitioners stated that they agreed to buy the two lots, with a total area of
36,742 square meters.[47] However, in their Letter dated February 1, 1996, the petitioners declared that they
agreed to buy a portion of the properties consisting of 33,990 square meters. [48] When he testified, petitioner
Antonio Litonjua declared that the petitioners agreed to buy from the respondents-owners 36,742 square meters
at P150 per square meter or for the total price of P5,098,500.[49]
The failure of respondent Fernandez to object to parol evidence to prove (a) the essential terms and
conditions of the contract asserted by the petitioners and, (b) her authority to sell the properties for the
respondents-registered owners did not and should not prejudice the respondents-owners who had been declared
in default.[50]
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The decision of the appellate court is
AFFIRMED IN TOTO. Costs against the petitioners.
SO ORDERED.

G.R. No. 141877

August 13, 2004

GREGORIO F. AVERIA and SYLVANNA A. VERGARA, representing the absentee heir TERESA
AVERIA,petitioners,
vs.
DOMINGO AVERIA, ANGEL AVERIA, FELIPE AVERIA, and the Heirs of FELIMON F.
AVERIA, respondents.

DECISION

CARPIO-MORALES, J.:
Macaria Francisco (Macaria) and Marcos Averia contracted marriage which bore six issues, namely:
Gregorio, Teresa, Domingo, Angel, Felipe and Felimon.
Macaria was widowed and she contracted a second marriage with Roberto Romero (Romero) which bore no
issue.
Romero died on February 28, 1968,1 leaving three adjoining residential lots located at Sampaloc, Manila.
In a Deed of Extrajudicial Partition and Summary Settlement of the Estate of Romero, the house and lot
containing 150 square meters at 725 Extremadura Street, Sampaloc was apportioned to Macaria.
Transfer Certificate of Title (TCT) No. 93310 covering the Extremadura property was accordingly issued in
the name of Macaria.2
Alleging that fraud was employed by her co-heirs in the partition of the estate of Romero, Macaria filed on
June 1, 1970 an action for annulment of title and damages before the Court of First Instance of Manila
against her co-heirs Domingo Viray, et al., docketed as Civil Case No. 79955. Macaria was represented in
the case by Atty. Mario C. R. Domingo. The case was pending litigation for about ten years until the decision
of the Court of Appeals which adjudged Macaria as entitled to an additional 30 square meters of the estate of
Romero became final and executory.
Macarias son Gregorio and his family and daughter Teresas family lived with her at Extremadura until her
death on March 28, 1983.3
Close to six years after Macarias demise or on January 19, 1989, her children Domingo, Angel and Felipe,
along with Susan Pelayo vda. de Averia (widow of Macarias deceased son Felimon), filed before the

Regional Trial Court (RTC) of Manila a complaint against their brother Gregorio and niece Sylvanna Vergara
"representing her absentee mother" Teresa Averia, for judicial partition of the Extremadura property inclusive
of the 30 square meters judicially awarded.4 The case which was docketed as Civil Case No. 89-47554 is
now the subject of the present decision.
The defendants Gregorio and Sylvanna Vergara, in their February 8, 1989 Answer to the Complaint,
countered that Gregorio and his late wife Agripina spent for the litigation expenses in Civil Case No. 79955,
upon the request of Macaria, and the couple spent not less P20,000.00 for the purpose "which amount due
to the inflation of the Philippine peso is now equivalent to more or less P200,000.00;" that from 1974 to 1983,
Macaria was bedridden and it was Gregorios wife Agripina who nursed and took care of her; that before
Macaria died, she in consideration of the court and other expenses which were defrayed by Gregorio and his
wife in prosecuting Civil Case No. 79955 and of "the kindness of the said couple in caring for
her," verbally sold to the spouses Gregorio and Agripina one-half () of her Extremadura property.
Gregorio and Sylvanna further countered that the plaintiff Domingo sold and assigned to the spouses
Gregorio and Agripina his one sixth (1/6) share in the remaining portion of the Extremadura property.
Gregorio and Sylvanna concluded in their Answer that the plaintiffs are not co-owners of the Extremadura
property as thereof is solely owned by Gregorio and 1/6 of the other half representing Domingos share
thereof had already been sold and assigned by him (Domingo) to Gregorio and his wife who died on May 20,
1987.5
During the pendency of the case or on June 7, 1989, Macarias son Felipe executed a WaiverAffidavit6 waiving his "share" in the property subject of litigation in favor of his co-heirs.
After trial, the trial court, Branch 31 RTC of Manila, rendered a decision of July 19, 1991 7 crediting the
version of the defendants in this wise, quoted verbatim:
The defendant Gregorio Averia, Sr. had established that he had paid plaintiff Domingo Averia
P10,000.00 although denied by the latter but Domingo Averia did not deny receiving the amount
of P5,000.00 on July 10, 1983 given by Gregorio Averias wife Agrifina. According to the testimony of
defendants witness, plaintiff Domingo Averia sold on July 10, 1983 his inheritance share in the
property [consisting of a] house and lot located at 725 Extremadura because he was in . . . need of
money and that he was paid P5,000.00 on July 10, 1983 by Agrifina Averia and another P5,000.00
by Major Gregorio Averia inside his room at the Makati Police Department three (3) days later. The
reason why Domingo Averia became insistent in claiming his inheritance is the fact that Gregorio
Averia refused the request of Domingo Averia and his children to occupy the portion of subject house
which was sold to him by their mother and it was for this reason that they sought the assistance of
the Citizens Legal Assistance Office (CLAO), Atty. Benjamin Roxas in writing defendant Gregorio
Averia to allow him (Domingo Averia) to occupy a portion of subject house but plaintiff Domingo
Averia did not tell his brothers and sisters that he had already sold his 1/6 share of the inheritance
although verbally in favor of Gregorio Averia and his wife.
In the light of the foregoing, the Court, after a circumspect assessment of the evidence presented by both
parties, hereby declares, that defendant Gregorio Averia then a major of police precinct in Makati was the
person responsible for the expenses in litigation in Civil Case No. 79955, involving the property and their
mother had indeed awarded him with portion of the property and that Domingo Averia sold 1/6 of [his]
share of the remaining portion of the property to defendant Gregorio. (Underscoring supplied)
Accordingly, the trial court disposed as follows, quoted verbatim:
WHEREFORE, the remaining 5/6 of of the property may still be subject of partition among the
remaining heirs but the summary settlement of the remaining estate of the 5/6 remaining portion of
the estate . . . may be sold and the proceeds thereof be distributed among the heirs in accordance
with the aliquot portions of each and every heir of the deceased Macaria Francisco.
Both parties are hereby ordered to shoulder their respective expenses for attorneys fees and
litigation costs. (Underscoring supplied)

On appeal to the Court of Appeals (CA) wherein the plaintiffs Domingo et al. assigned two errors, to wit:
A. THE TRIAL COURT ERRED IN ITS FINDING THAT THERE WAS A SALE OF ONE-HALF OF
THE DECEASED MACARIA F. AVERIAS INTEREST AND OWNERSHIP OVER THE SUBJECT
PROPERTY IN FAVOR OF DEFENDANT-APPELLEE GREGORIO AVERIA.
B. THE TRIAL COURT ERRED IN ALLOWING THE RECEPTION OF PAROL EVIDENCE TO THE
EFFECT THAT PLAINTIFF-APPELLANT DOMINGO AVERIA HAD ALREADY DISPOSED OF HIS
ONE SIXTH (1/6) SHARE OF THE SUBJECT PROPERTY IN FAVOR OF DEFENDANTAPPELLEE GREGORIO AVERIA8(Emphasis supplied),
the appellate court reversed the decision of the trial court.
In reversing the trial court, the appellate court, noting that the alleged transfers made by Macaria and
Domingo in favor of Gregorio were bereft of any written memoranda, held that it was error for the trial court
to rely solely on the evidence adduced by the defendants consisting of the testimonies of Gregorio, Veronica
Bautista, Sylvanna Vergara Clutario, Atty. Mario C.R. Domingo, Felimon Dagondon and Gregorio Averia, Jr.
The CA explained its ruling in this wise:
[T]he alleged conveyances purportedly made by Macaria Francisco and plaintiff-appellant Domingo
Averia are unenforceable as the requirements under the Statute of Frauds have not been complied
with. Article 1403, 2(e) of the New Civil Code is explicit:
Art. 1403. The following contracts are unenforceable, unless they are ratified:
(1) x x x
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the
following cases an agreement thereafter made shall be unenforceable by action, unless the
same, or some note or memorandum thereof, be in writing and subscribed by the party
charged, or by this agent; evidence, therefore, of the agreement cannot be received without
the writing, or a secondary evidence of its contents:
(a) x x x;
(b) x x x;
(e) an agreement for the leasing for a longer period than one year, or for the sale of real
property or of an interest therein;
(f) x x x"
The two (2) transactions in question being agreements for the sale of real property or of an interest
therein are in clear contravention of the prescription that it must be in writing and subscribed by the
party charged or by an agent thereof. Hence, the strong insistence by defendants-appellees on the
verbal conveyances cannot be made the basis for the alleged ownership over the undivided interests
claimed by Gregorio Averia.
The parol evidence upon which the trial court anchored its award in favor of defendant-appellee
Gregorio Averia is irregular as such kind of evidence is foreclosed by Article 1403 of the Civil
Code that no evidence of the alleged agreements can be received without the writing of secondary
evidence which embodies the sale of the real property. The introduction of the testimonies of
Gregorio Averias witnesses were timely objectedto by plaintiffs-appellants. Since the testimonies of
defendants-appellees witnesses are inadmissible, then such exclusion has pulled the rug under the
assailed decision of the trial court and it has no more leg to stand on.

In the vain attempt to salvage the situation, defendants-appellees however argue that the Article
1403 or the Statute of Frauds does not apply because the same only refers to purely executory
contracts and not to partially or completely executed contracts.
This contention is untenable. It was not amply demonstrated how such alleged transfers were
executed since plaintiffs-appellants have vigorously objected and opposed the claims of ownership
by defendants-appellees. He who asserts a fact or the affirmative of an issue has the burden of
proving it. Defendants-appellees miserably failed in this respect.
While this Court cannot discount the fact that either defendant-appellee Gregorio Averia or plaintiffappellant Domingo Averia may have valid claims against the estate of Macaria Francsico, such
matter can best be threshed out in the proceedings for partition before the court a quo bearing in
mind that such partition is subject to the payment of the debts of the deceased under Article 1078 of
the Civil Code.9 (Citations omitted; Emphasis and underscoring supplied)
The appellate court thus remanded the case to the trial court.
WHEREFORE, the decision dated July 19, 1991 is reversed and set aside. The case is remanded to
the court a quo which is directed to effect the partition of the subject property or if not, possible, sell
the entire lot and distribute the proceeds of the sale based on equal shares among the children of
the late Macaria Franciscoafter debts of the said deceased are paid or settled pursuant to Article
1078 of the Civil Code.10(Underscoring supplied)
Gregorio and Sylvannas motion for reconsideration having been denied by the appellate court, they lodged
the Petition for Review on Certiorari at bar upon the following assignment of errors:
I. THE COURT OF APPEALS (SECOND DIVISION) ERRED IN ITS FINDING THAT THERE WAS
NO SALEOF ONE-HALF (1/2) OF THE DECEASED MACARIA F. AVERIAS INTEREST AND
OWNERSHIP OVER THE SUBJECT PROPERTY IN FAVOR OF PETITIONER GREGORIO F.
AVERIA.
II. THE COURT OF APPEALS (SECOND DIVISION) ERRED IN ITS FINDING THAT THE
RECEPTION OF PAROL EVIDENCE TO THE EFFECT THAT RESPONDENT DOMINGO AVERIA
HAD ALREADY SOLD HIS ONE SIXTH (1/6) SHARE IN THE SUBJECT PROPERTY IN FAVOR OF
PETITIONER GREGORIO AVERIAIS NOT IN ACCORDANCE WITH LAW.11
Petitioners contend that contrary to the findings of the Court of Appeals, they were able to amply establish,
by the testimonies of credible witnesses, the conveyances to Gregorio of of the Sampaloc property
and 1/6 of the remaining half representing the share of Domingo. 12
With respect to the application by the appellate court of the Statute of Frauds, petitioners contend that the
same refers only to purely executory contracts and not to partially or completely executed contracts as in the
instant case. The finding of the CA that the testimonies of petitioners witnesses were timely objected to by
respondents is not, petitioners insist, borne out in the records of the case except with respect to the
testimony of Gregorio.13
Petitioners thus conclude that respondents waived any objection to the admission of parol evidence, hence,
it is admissible and enforceable14 following Article 140515 of the Civil Code.16
The Court finds for petitioner.
Indeed, except for the testimony of petitioner Gregorio bearing on the verbal sale to him by Macaria of the
property,the testimonies of petitioners witnesses Sylvanna Vergara Clutario and Flora Lazaro Rivera bearing
on the same matter were not objected to by respondents. Just as the testimonies of Gregorio, Jr. and
Veronica Bautista bearing on the receipt by respondent Domingo on July 23, 1983 from Gregorios wife of
P5,000.00 representing partial payment of the P10,000.00 valuation of his (Domingos) 1/6 share in the
property, and of the testimony of Felimon Dagondon bearing on the receipt by Domingo of P5,000.00 from
Gregorio were not objected to. Following Article 1405 of the Civil Code, 17 the contracts which infringed the

Statute of Frauds were ratified by the failure to object to the presentation of parol evidence, hence,
enforceable.
ARTICLE 1403. The following contracts are unenforceable, unless they are ratified:
xxx
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following
cases an agreement hereafter made shall be unenforceable by action, unless the same, or
some note or memorandum thereof, be in writing, and subscribed by the party charged, or by
his agent; evidence, therefore, of the agreement cannot be received without the writing, or a
secondary evidence of its contents:
xxx
(e) An agreement for the leasing for a longer period than one year, or for the sale of real
property or of an interest therein;
x x x (Emphasis and underscoring supplied),
Contrary then to the finding of the CA, the admission of parol evidence upon which the trial court anchored
its decision in favor of respondents is not irregular and is not foreclosed by Article 1405.
In any event, the Statute of Frauds applies only to executory contracts and not to contracts which are either
partially or totally performed.18 In the case at bar, petitioners claimed that there was total performance of the
contracts, full payment of the objects thereof having already been made and the vendee Gregorio having,
even after Macarias death in 1983, continued to occupy the property until and after the filing on January 19,
1989 of the complaint subject of the case at bar as in fact he is still occupying it.
In proving the fact of partial or total performance, oral evidence may be received as what the trial court in the
case at bar did. Noted civilist Arturo M. Tolentino elucidates on the matter:
The statute of frauds is not applicable to contracts which are either totally or partially performed, on
the theory that there is a wide field for the commission of frauds in executory contracts which can
only be prevented by requiring them to be in writing, a fact which is reduced to a minimum in
executed contracts because the intention of the parties becomes apparent by their execution, and
execution concludes, in most cases, the rights of the parties. However it is not enough for a party
to allege partial performance in order to render the Statute of Frauds inapplicable;
such partial performance must be duly proved. But neither is such party required to establish
such partial performance by documentary proof before he could have the opportunity to
introduce oral testimony on the transaction. The partial performance may be proved by either
documentary or oral evidence.19 (Emphasis, underscoring and italics supplied)
The testimonies of petitioners witnesses being credible and straightforward, the trial court did not err in
giving them credence.
The testimony of Sylvana Vergara Clutario, daughter of Teresa, in fact was more than sufficient to prove the
conveyance of half of the subject property by Macaria to Gregorio.
ATTY. DOMINGO:
Q: Are you the same Sylvana Vergara representing the defendant Teresa Averia in this case?
WITNESS:
A: Yes, sir.

Q: Now on February 28, 1972, about 5:30 in the afternoon, where were you?
A: As far as I can remember, I was inside my residence at 725 Extremadura at that date, and time.
Q: On that date and time, where were you residing?
A: At said address, 725 Extremadura Street, that time and date at 5:30 in the afternoon.
Q: Who were your companions if you have any?
A: I was there with my brothers and sisters and Uncle Gregorio and Auntie Agripina and the children
and my grand mother and also the lady who is leading in the prayers because on that date it is the
anniversary of the death of my grandfather.
Q: What is the name of your grandmother?
A: Macaria Averia, sir.
Q: Now, this Gregorio Averia whom you identified to be your Uncle, is he the same Gregorio Averia
who is also the defendant in this case?
WITNESS:
A: The same, sir.
Q: What is the name of your grandfather whom you said whose death anniversary you are then
celebrating on that date?
A: Roberto Romero, sir.
Q: What actually you were doing that time 5:30?
A: We had a gathering and merienda in recollection of the celebration (sic) of the death of my
grandfather, sir.
Q: When you said you were eating then, where were you eating then?
A: It was beside my grandmother.
Q: Where?
A: At the dining room, sir.
Q: So you were sitting at the dining table all of you?
A: Yes, sir the others were a little bit near the table.
Q: Who were seated in the dining table?
A: The Spouses Gregorio and Agripina, my sister Beth and my cousins and my Lola Macaria.
Q: When you were then seated in taking that ginatan as you stated what transpired?
A: Somebody called up and the one who called up was the Secretary of a lawyer and they were
asking for [payment of] expenses in connection with . . . [Criminal Case No. 79955].

Q: You said that it was Agripina who was the one who answered that telephone call. After answering
it, what did she say to anyone seated in that table?
A: Agripina said if Gregorio has some money, he will pay them but Gregorio said he will be
responsible for the expenses.
Q: Did you come to know how much was amount being asked?
A: P500.00, sir.
Q: What else happened after Gregorio said that he would answer for the expenses to be sent to the
lawyer?
A: My Lola said that she was embarrassed and ashame[d] because at that time she d[id] not have
any money and it was the couple who was taking the expenses of the case.
Q: When you said "Lola," you are referring to Macaria Averia?
A: Yes, sir.
Q: What else transpired?
A: Because of her embarrassment, she told [them that] one half (1/2) of the House and Lot will be
given to the couple to cover the expenses of the case.
ATTY. DOMINGO:
Q: To whom did your grandmother say this?
A: Well, she said that to Gregorio and Agripina and Gregorio told her, if that is what you wish, I will
agree to your proposal.
Q: What was the reply of your grand mother?
A: My Lola told Gregorio that since you agree, you better prepare all the documents and we will
make ready the documents for the division or partition.
Q: Do you know what House and Lot one half (1/2) of which your grand mother was given (sic) to
your Uncle and Auntie . . .?
A: She is referring to the House and Lot where I used to live before.
Q: You are referring to the House and Lot located at 725 Extremadura Street, Sampaloc, Manila.
A: Yes, sir.
x x x20 (Emphasis and underscoring supplied)
Not only on account of Sylvanas manner of testifying that her testimony should be given weight. Her
testimony was against the interest of her mother Teresa whom she represented, her mother being also an
heir of Macaria. If the transfer by Macaria to Gregorio of of the property is upheld as valid and
enforceable, then the share of the other heirs including Sylvannas mother would considerably be reduced.
That Atty. Mario C. R. Domingo who was admittedly Macarias counsel in Civil Case No. 79955 (which, as
priorly reflected, entailed a period of ten years in court), affirmed on the witness stand that Gregorio and his
wife were the ones who paid for his attorneys fees amounting to P16,000.0021 should no doubt strongly lend
credence to Gregorios claim to that effect.

As to the sale of Domingos 1/6 share to Gregorio, petitioners were able to establish said transaction by parol
evidence, consisting of the testimonies of Gregorio Averia, Jr.,22 Veronica Averia23 and Felimon
Dagondon24 the presentation of which was, it bears repeating, not objected to.
Albeit Domingo never denied having received the total amount of P10,000.00 from Gregorio and his wife, he
denied having sold to Gregorio his interest over the property. Such disclaimer cannot, however, prevail over
the categorical, positive statements of petitioners above-named witnesses.
In sum, not only did petitioners witnesses prove, by their testimonies, the forging of the contracts of sale or
assignment. They proved the full performance or execution of the contracts as well.
WHEREFORE, the petition is hereby GRANTED. The January 31, 2000 Decision of the Court of Appeals in
CA-G.R. No. 44704 is hereby SET ASIDE.
The case is hereby remanded to the trial court, Branch 31 of the RTC of Manila, for appropriate action,
following Section 2 of Rule 69 of the Rules of Civil Procedure.
SO ORDERED.

ANTHONY ORDUA, DENNIS ORDUA, and

ANTONITA ORDUA,

G.R. No. 176841

Present:

Petitioners,

- versus -

CORONA, C.J., Chairperson,

VELASCO, JR.,
LEONARDO-DE CASTRO,
DEL CASTILLO, and

PEREZ, JJ.
EDUARDO J. FUENTEBELLA, MARCOS S. CID,
Promulgated:
BENJAMIN F. CID, BERNARD G. BANTA, and
ARMANDO GABRIEL, JR.,
June 29, 2010
Respondents.
x-----------------------------------------------------------------------------------------x
DECISION
VELASCO, JR., J.:
In this Petition for Review[1] under Rule 45 of the Rules of Court, Anthony Ordua, Dennis Ordua and
Antonita Ordua assail and seek to set aside the Decision [2] of the Court of Appeals (CA) dated December 4, 2006
in CA-G.R. CV No. 79680, as reiterated in its Resolution of March 6, 2007, which affirmed the May 26, 2003
Decision[3] of the Regional Trial Court (RTC), Branch 3 in Baguio City, in Civil Case No. 4984-R, a suit
for annulment of title and reconveyance commenced by herein petitioners against herein respondents.
Central to the case is a residential lot with an area of 74 square meters located at Fairview Subdivision,
Baguio City, originally registered in the name of Armando Gabriel, Sr. (Gabriel Sr.) under Transfer Certificate of
Title (TCT) No. 67181 of the Registry of Deeds of Baguio City.[4]
As gathered from the petition, with its enclosures, and the comments thereon of four of the five
respondents,[5] the Court gathers the following relevant facts:
Sometime in 1996 or thereabouts, Gabriel Sr. sold the subject lot to petitioner Antonita Ordua (Antonita),
but no formal deed was executed to document the sale. The contract price was apparently payable in installments
as Antonita remitted from time to time and Gabriel Sr. accepted partial payments. One of the Orduas would later
testify that Gabriel Sr. agreed to execute a final deed of sale upon full payment of the purchase price. [6]
As early as 1979, however, Antonita and her sons, Dennis and Anthony Ordua, were already occupying
the subject lot on the basis of some arrangement undisclosed in the records and even constructed their house
thereon. They also paid real property taxes for the house and declared it for tax purposes, as evidenced by Tax
Declaration No. (TD) 96-04012-111087[7] in which they place the assessed value of the structure at PhP 20,090.
After the death of Gabriel Sr., his son and namesake, respondent Gabriel Jr., secured TCT No. T71499[8] over the subject lot and continued accepting payments from the petitioners. On December 12, 1996,
Gabriel Jr. wrote Antonita authorizing her to fence off the said lot and to construct a road in the adjacent lot. [9] On
December 13, 1996, Gabriel Jr. acknowledged receipt of a PhP 40,000 payment from petitioners. [10] Through a
letter[11] dated May 1, 1997, Gabriel Jr. acknowledged that petitioner had so far made an aggregate payment of
PhP 65,000, leaving an outstanding balance of PhP 60,000. A receipt Gabriel Jr. issued dated November 24, 1997
reflected a PhP 10,000 payment.
Despite all those payments made for the subject lot, Gabriel Jr. would later sell it to Bernard Banta
(Bernard) obviously without the knowledge of petitioners, as later developments would show.
As narrated by the RTC, the lot conveyance from Gabriel Jr. to Bernard was effected against the following
backdrop: Badly in need of money, Gabriel Jr. borrowed from Bernard the amount of PhP 50,000, payable in two
weeks at a fixed interest rate, with the further condition that the subject lot would answer for the loan in case of
default. Gabriel Jr. failed to pay the loan and this led to the execution of a Deed of Sale [12] dated June 30, 1999
and the issuance later of TCT No. T-72782[13] for subject lot in the name of Bernard upon cancellation of TCT No.
71499 in the name of Gabriel, Jr. As the RTC decision indicated, the reluctant Bernard agreed to acquire the lot,
since he had by then ready buyers in respondents Marcos Cid and Benjamin F. Cid (Marcos and Benjamin or the
Cids).
Subsequently, Bernard sold to the Cids the subject lot for PhP 80,000. Armed with a Deed of Absolute
Sale of a Registered Land[14] dated January 19, 2000, the Cids were able to cancel TCT No. T-72782 and secure
TCT No. 72783[15] covering the subject lot. Just like in the immediately preceding transaction, the deed of sale
between Bernard and the Cids had respondent Eduardo J. Fuentebella (Eduardo) as one of the instrumental
witnesses.
Marcos and Benjamin, in turn, ceded the subject lot to Eduardo through a Deed of Absolute Sale [16] dated
May 11, 2000. Thus, the consequent cancellation of TCT No. T-72782 and issuance on May 16, 2000 of TCT No.
T-3276[17] over subject lot in the name of Eduardo.
As successive buyers of the subject lot, Bernard, then Marcos and Benjamin, and finally Eduardo,
checked, so each claimed, the title of their respective predecessors-in-interest with the Baguio Registry and
discovered said title to be free and unencumbered at the time each purchased the property. Furthermore,

respondent Eduardo, before buying the property, was said to have inspected the same and found it unoccupied by
the Orduas.[18]
Sometime in May 2000, or shortly after his purchase of the subject lot, Eduardo, through his lawyer, sent a
letter addressed to the residence of Gabriel Jr. demanding that all persons residing on or physically occupying the
subject lot vacate the premises or face the prospect of being ejected. [19]
Learning of Eduardos threat, petitioners went to the residence of Gabriel Jr. at No. 34 Dominican
Hill, Baguio City. There, they met Gabriel Jr.s estranged wife, Teresita, who informed them about her having filed
an affidavit-complaint against her husband and the Cids for falsification of public documents on March 30, 2000.
According to Teresita, her signature on the June 30, 1999 Gabriel Jr.Bernard deed of sale was a forgery. Teresita
further informed the petitioners of her intent to honor the aforementioned 1996 verbal agreement between Gabriel
Sr. and Antonita and the partial payments they gave her father-in-law and her husband for the subject lot.
On July 3, 2001, petitioners, joined by Teresita, filed a Complaint [20] for Annulment of Title, Reconveyance
with Damages against the respondents before the RTC, docketed as Civil Case No. 4984-R, specifically praying
that TCT No. T-3276 dated May 16, 2000 in the name of Eduardo be annulled. Corollary to this prayer, petitioners
pleaded that Gabriel Jr.s title to the lot be reinstated and that petitioners be declared as entitled to acquire
ownership of the same upon payment of the remaining balance of the purchase price therefor agreed upon by
Gabriel Sr. and Antonita.
While impleaded and served with summons, Gabriel Jr. opted not to submit an answer.
Ruling of the RTC
By Decision dated May 26, 2003, the RTC ruled for the respondents, as defendants a quo, and against
the petitioners, as plaintiffs therein, the dispositive portion of which reads:
WHEREFORE, the instant complaint is hereby DISMISSED for lack of merit. The four (4) plaintiffs
are hereby ordered by this Court to pay each defendant (except Armando Gabriel, Jr., Benjamin F.
Cid, and Eduardo J. Fuentebella who did not testify on these damages), Moral Damages of
Twenty Thousand (P20,000.00) Pesos, so that each defendant shall receive Moral Damages of
Eighty Thousand (P80,000.00) Pesoseach. Plaintiffs shall also pay all defendants (except
Armando Gabriel, Jr., Benjamin F. Cid, and Eduardo J. Fuentebella who did not testify on these
damages), Exemplary Damages of Ten Thousand (P10,000.00) Pesos each so
that each defendant shall receive Forty Thousand (P40,000.00) Pesos as Exemplary
Damages. Also, plaintiffs are ordered to pay each defendant (except Armando Gabriel, Jr.,
Benjamin F. Cid, and Eduardo J. Fuentebella who did not testify on these damages), Fifty
Thousand (P50,000.00) Pesos as Attorneys Fees, jointly and solidarily.
Cost of suit against the plaintiffs.[21]
On the main, the RTC predicated its dismissal action on the basis of the following grounds and/or premises:
1. Eduardo was a purchaser in good faith and, hence, may avail himself of the provision of Article
1544[22] of the Civil Code, which provides that in case of double sale, the party in good faith who is able to register
the property has better right over the property;
2. Under Arts. 1356[23] and 1358[24] of the Code, conveyance of real property must be in the proper form,
else it is unenforceable;
3. The verbal sale had no adequate consideration; and
4. Petitioners right of action to assail Eduardos title prescribes in one year from date of the issuance of
such title and the one-year period has already lapsed.
From the above decision, only petitioners appealed to the CA, their appeal docketed as CA-G.R. CV No.
79680.
The CA Ruling
On December 4, 2006, the appellate court rendered the assailed Decision affirming the RTC
decision. The fallo reads:
WHEREFORE, premises considered, the instant appeal is hereby DISMISSED and the
26 May 2003 Decision of the Regional Trial Court, Branch 3 of Baguio City in Civil Case No.
4989-R is hereby AFFIRMED.
SO ORDERED.[25]

Hence, the instant petition on the submission that the appellate court committed reversible error of law:
1. xxx WHEN IT HELD THAT THE SALE OF THE SUBJECT LOT BY ARMANDO
GABRIEL, SR. AND RESPONDENT ARMANDO GABRIEL, JR. TO THE PETITIONERS
IS UNENFORCEABLE.
2. xxx IN NOT FINDING THAT THE SALE OF THE SUBJECT LOT BY
RESPONDENT ARMANDO GABRIEL, JR. TO RESPONDENT BERNARD BANTA AND
ITS SUBSEQUENT SALEBY THE LATTER TO HIS CO-RESPONDENTS ARE NULL
AND VOID.
3. xxx IN NOT FINDING THAT THE RESPONDENTS ARE BUYERS IN BAD FAITH
4. xxx IN FINDING THAT THE SALE OF THE SUBJECT LOT BETWEEN
GABRIEL, SR. AND RESPONDENT GABRIEL, JR. AND THE PETITIONERS HAS NO
ADEQUATE CONSIDERATION.
5. xxx IN RULING THAT THE INSTANT ACTION HAD ALREADY PRESCRIBED.
6. xxx IN FINDING THAT THE PLAINTIFFS-APPELLANTS ARE LIABLE FOR
MORAL AND EXEMPLARY DAMAGES AND ATTORNEYS FEES.[26]
The Courts Ruling
The core issues tendered in this appeal may be reduced to four and formulated as follows, to wit: first,
whether or not the sale of the subject lot by Gabriel Sr. to Antonita is unenforceable under the Statute of
Frauds; second, whether or not such sale has adequate consideration; third, whether the instant action has
already prescribed; and, fourth, whether or not respondents are purchasers in good faith.
The petition is meritorious.
Statute of Frauds Inapplicable
to Partially Executed Contracts
It is undisputed that Gabriel Sr., during his lifetime, sold the subject property to Antonita, the purchase
price payable on installment basis. Gabriel Sr. appeared to have been a recipient of some partial payments. After
his death, his son duly recognized the sale by accepting payments and issuing what may be considered as
receipts therefor. Gabriel Jr., in a gesture virtually acknowledging the petitioners dominion of the property,
authorized them to construct a fence around it. And no less than his wife, Teresita, testified as to the fact of sale
and of payments received.
Pursuant to such sale, Antonita and her two sons established their residence on the lot, occupying the
house they earlier constructed thereon. They later declared the property for tax purposes, as evidenced by the
issuance of TD 96-04012-111087 in their or Antonitas name, and paid the real estates due thereon, obviously as
sign that they are occupying the lot in the concept of owners.
Given the foregoing perspective, Eduardos assertion in his Answer that persons appeared in the
property[27] only after he initiated ejectment proceedings [28] is clearly baseless. If indeed petitioners entered and
took possession of the property after he (Eduardo) instituted the ejectment suit, how could they explain the fact
that he sent a demand letter to vacate sometime in May 2000?
With the foregoing factual antecedents, the question to be resolved is whether or not the Statute of Frauds
bars the enforcement of the verbal sale contract between Gabriel Sr. and Antonita.
The CA, just as the RTC, ruled that the contract is unenforceable for non-compliance with the Statute of
Frauds.
We disagree for several reasons. Foremost of these is that the Statute of Frauds expressed in Article
1403, par. (2),[29] of the Civil Code applies only to executory contracts, i.e., those where no performance has yet
been made. Stated a bit differently, the legal consequence of non-compliance with the Statute does not come into
play where the contract in question is completed, executed, or partially consummated.[30]
The Statute of Frauds, in context, provides that a contract for the sale of real property or of an interest
therein shall be unenforceable unless the sale or some note or memorandum thereof is in writing and subscribed
by the party or his agent. However, where the verbal contract of sale has been partially executed through the
partial payments made by one party duly received by the vendor, as in the present case, the contract is taken out
of the scope of the Statute.

The purpose of the Statute is to prevent fraud and perjury in the enforcement of obligations depending for
their evidence on the unassisted memory of witnesses, by requiring certain enumerated contracts and
transactions to be evidenced by a writing signed by the party to be charged. [31] The Statute requires certain
contracts to be evidenced by some note or memorandum in order to be enforceable. The
term Statute of Frauds is descriptive of statutes that require certain classes of contracts to be in writing. The
Statute does not deprive the parties of the right to contract with respect to the matters therein involved, but merely
regulates the formalities of the contract necessary to render it enforceable.[32]

Since contracts are generally obligatory in whatever form they may have been entered into, provided all
the essential requisites for their validity are present, [33] the Statute simply provides the method by which the
contracts enumerated in Art. 1403 (2) may be proved but does not declare them invalid because they are not
reduced to writing. In fine, the form required under the Statute is for convenience or evidentiary purposes only.
There can be no serious argument about the partial execution of the sale in question. The records show
that petitioners had, on separate occasions, given Gabriel Sr. and Gabriel Jr. sums of money as partial payments
of the purchase price. These payments were duly receipted by Gabriel Jr. To recall, in his letter of May 1, 1997,
Gabriel, Jr. acknowledged having received the aggregate payment of PhP 65,000 from petitioners with the
balance of PhP 60,000 still remaining unpaid. But on top of the partial payments thus made, possession of the
subject of the sale had been transferred to Antonita as buyer. Owing thus to its partial execution, the subject sale
is no longer within the purview of the Statute of Frauds.
Lest it be overlooked, a contract that infringes the Statute of Frauds is ratified by the acceptance of
benefits under the contract.[34] Evidently, Gabriel, Jr., as his father earlier, had benefited from the partial payments
made by the petitioners. Thus, neither Gabriel Jr. nor the other respondentssuccessive purchasers of subject
lotscould plausibly set up the Statute of Frauds to thwart petitioners efforts towards establishing their lawful right
over the subject lot and removing any cloud in their title. As it were, petitioners need only to pay the outstanding
balance of the purchase price and that would complete the execution of the oral sale.
There was Adequate Consideration
Without directly saying so, the trial court held that the petitioners cannot sue upon the oral sale since in its
own words: x x x for more than a decade, [petitioners] have not paid in full Armando Gabriel, Sr. or his estate, so
that the sale transaction between Armando Gabriel Sr. and [petitioners] [has] no adequate consideration.
The trial courts posture, with which the CA effectively concurred, is patently flawed. For starters, they
equated incomplete payment of the purchase price with inadequacy of price or what passes as lesion, when both
are different civil law concepts with differing legal consequences, the first being a ground to rescind an otherwise
valid and enforceable contract. Perceived inadequacy of price, on the other hand, is not a sufficient ground for
setting aside a sale freely entered into, save perhaps when the inadequacy is shocking to the conscience. [35]
The Court to be sure takes stock of the fact that the contracting parties to the 1995 or 1996 sale agreed to
a purchase price of PhP 125,000 payable on installments. But the original lot owner, Gabriel Sr., died before full
payment can be effected. Nevertheless, petitioners continued remitting payments to Gabriel, Jr., who sold the
subject lot to Bernard on June 30, 1999. Gabriel, Jr., as may be noted, parted with the property only for PhP
50,000. On the other hand, Bernard sold it for PhP 80,000 to Marcos and Benjamin. From the foregoing price
figures, what is abundantly clear is that what Antonita agreed to pay Gabriel, Sr., albeit in installment, was very
much more than what his son, for the same lot, received from his buyer and the latters buyer later. The Court,
therefore, cannot see its way clear as to how the RTC arrived at its simplistic conclusion about the transaction
between Gabriel Sr. and Antonita being without adequate consideration.
The Issues of Prescription and the Bona
Fides of the Respondents as Purchasers
Considering the interrelation of these two issues, we will discuss them jointly.
There can be no quibbling about the fraudulent nature of the conveyance of the subject lot effected by
Gabriel Jr. in favor of Bernard. It is understandable that after his fathers death, Gabriel Jr. inherited subject lot and
for which he was issued TCT No. No. T-71499. Since the Gabriel Sr. Antonita sales transaction called for payment
of the contract price in installments, it is also understandable why the title to the property remained with the
Gabriels. And after the demise of his father, Gabriel Jr. received payments from the Orduas and even authorized
them to enclose the subject lot with a fence. In sum, Gabriel Jr. knew fully well about the sale and is bound by the
contract as predecessor-in-interest of Gabriel Sr. over the property thus sold.
Yet, the other respondents (purchasers of subject lot) still maintain that they are innocent purchasers for
value whose rights are protected by law and besides which prescription has set in against petitioners action for
annulment of title and reconveyance.

The RTC and necessarily the CA found the purchaser-respondents thesis on prescription correct stating in
this regard that Eduardos TCT No. T-3276 was issued on May 16, 2000 while petitioners filed their complaint for
annulment only on July 3, 2001. To the courts below, the one-year prescriptive period to assail the issuance of a
certificate of title had already elapsed.
We are not persuaded.
The basic complaint, as couched, ultimately seeks the reconveyance of a fraudulently registered piece of
residential land. Having possession of the subject lot, petitioners right to the reconveyance thereof, and the
annulment of the covering title, has not prescribed or is not time-barred. This is so for an action for annulment of
title or reconveyance based on fraud is imprescriptible where the suitor is in possession of the property subject of
the acts,[36] the action partaking as it does of a suit for quieting of title which is imprescriptible. [37] Such is the case
in this instance. Petitioners have possession of subject lots as owners having purchased the same from Gabriel,
Sr. subject only to the full payment of the agreed price.
The prescriptive period for the reconveyance of fraudulently registered real property is 10 years, reckoned
from the date of the issuance of the certificate of title, if the plaintiff is not in possession, but imprescriptible if he is
in possession of the property.[38] Thus, one who is in actual possession of a piece of land claiming to be the owner
thereof may wait until his possession is disturbed or his title is attacked before taking steps to vindicate his right.
[39]
As it is, petitioners action for reconveyance is imprescriptible.

This brings us to the question of whether or not the respondent-purchasers, i.e., Bernard, Marcos and
Benjamin, and Eduardo, have the status of innocent purchasers for value, as was the thrust of the trial courts
disquisition and disposition.
We are unable to agree with the RTC.
It is the common defense of the respondent-purchasers that they each checked the title of the subject lot
when it was his turn to acquire the same and found it clean, meaning without annotation of any encumbrance or
adverse third party interest. And it is upon this postulate that each claims to be an innocent purchaser for value, or
one who buys the property of another without notice that some other person has a right to or interest in it, and who
pays therefor a full and fair price at the time of the purchase or before receiving such notice. [40]
The general rule is that one dealing with a parcel of land registered under the Torrens System may safely
rely on the correctness of the certificate of title issued therefor and is not obliged to go beyond the certificate.
[41]
Where, in other words, the certificate of title is in the name of the seller, the innocent purchaser for value has
the right to rely on what appears on the certificate, as he is charged with notice only of burdens or claims on
the res as noted in the certificate. Another formulation of the rule is that (a) in the absence of anything to arouse
suspicion or (b) except where the party has actual knowledge of facts and circumstances that would impel a
reasonably cautious man to make such inquiry or (c) when the purchaser has knowledge of a defect of title in his
vendor or of sufficient facts to induce a reasonably prudent man to inquire into the status of the title of the
property,[42] said purchaser is without obligation to look beyond the certificate and investigate the title of the seller.
Eduardo and, for that matter, Bernard and Marcos and Benjamin, can hardly claim to be innocent
purchasers for value or purchasers in good faith. For each knew or was at least expected to know that somebody
else other than Gabriel, Jr. has a right or interest over the lot. This is borne by the fact that the initial seller, Gabriel
Jr., was not in possession of subject property. With respect to Marcos and Benjamin, they knew as buyers that
Bernard, the seller, was not also in possession of the same property. The same goes with Eduardo, as buyer, with
respect to Marcos and Benjamin.
Basic is the rule that a buyer of a piece of land which is in the actual possession of persons other than the
seller must be wary and should investigate the rights of those in possession.Otherwise, without such inquiry, the
buyer can hardly be regarded as a buyer in good faith. When a man proposes to buy or deal with realty, his duty is
to read the public manuscript, i.e., to look and see who is there upon it and what his rights are. A want of caution
and diligence which an honest man of ordinary prudence is accustomed to exercise in making purchases is, in
contemplation of law, a want of good faith. The buyer who has failed to know or discover that the land sold to him
is in adverse possession of another is a buyer in bad faith. [43]
Where the land sold is in the possession of a person other than the vendor, the purchaser must go
beyond the certificates of title and make inquiries concerning the rights of the actual possessor. [44] And where, as
in the instant case, Gabriel Jr. and the subsequent vendors were not in possession of the property, the prospective
vendees are obliged to investigate the rights of the one in possession. Evidently, Bernard, Marcos and Benjamin,
and Eduardo did not investigate the rights over the subject lot of the petitioners who, during the period material to
this case, were in actual possession thereof. Bernard, et al. are, thus, not purchasers in good faith and, as such,
cannot be accorded the protection extended by the law to such purchasers. [45] Moreover, not being purchasers in
good faith, their having registered the sale, will not, as against the petitioners, carry the day for any of them under
Art. 1544 of the Civil Code prescribing rules on preference in case of double sales of immovable
property. Occea v. Esponilla[46] laid down the following rules in the application of Art. 1544: (1) knowledge by the
first buyer of the second sale cannot defeat the first buyers rights except when the second buyer first register in

good faith the second sale; and (2) knowledge gained by the second buyer of the first sale defeats his rights even
if he is first to register, since such knowledge taints his registration with bad faith.
Upon the facts obtaining in this case, the act of registration by any of the three respondent-purchasers
was not coupled with good faith. At the minimum, each was aware or is at least presumed to be aware of facts
which should put him upon such inquiry and investigation as might be necessary to acquaint him with the defects
in the title of his vendor.
The award by the lower courts of damages and attorneys fees to some of the herein respondents was
predicated on the filing by the original plaintiffs of what the RTC characterized as an unwarranted suit. The basis
of the award, needless to stress, no longer obtains and, hence, the same is set aside.
WHEREFORE, the petition is hereby GRANTED. The appealed December 4, 2006 Decision and the
March 6, 2007 Resolution of the Court of Appeals in CA-G.R. CV No. 79680 affirming the May 26, 2003 Decision
of the Regional Trial Court, Branch 3 in Baguio City are hereby REVERSED and SET ASIDE. Accordingly,
petitioner Antonita Ordua is hereby recognized to have the right of ownership over subject lot covered by TCT No.
T-3276 of the Baguio Registry registered in the name of Eduardo J. Fuentebella. The Register of Deeds of Baguio
City is hereby ORDEREDto cancel said TCT No. T-3276 and to issue a new one in the name of Armando Gabriel,
Jr. with the proper annotation of the conditional sale of the lot covered by said title in favor of Antonita Ordua
subject to the payment of the PhP 50,000 outstanding balance. Upon full payment of the purchase price by
Antonita Ordua, Armando Gabriel, Jr. is ORDERED to execute a Deed of Absolute Sale for the transfer of title of
subject lot to the name of Antonita Ordua, within three (3) days from receipt of said payment.
No pronouncement as to costs.
SO ORDERED.

THE
MUNICIPALITY
OF
HAGONOY,
BULACAN, represented by the HON. FELIX V.
OPLE, Municipal Mayor, and FELIX V. OPLE, in
his personal capacity,
Petitioners,
- versus HON. SIMEON P. DUMDUM, JR., in his capacity

G.R. No. 168289

Present:
CORONA, J., Chairperson,
VELASCO, JR.,
NACHURA,
PERALTA, and

as the Presiding Judge of the REGIONAL TRIAL

COURT, BRANCH 7, CEBU CITY; HON. CLERK
OF COURT & EX-OFFICIO SHERIFF of the
REGIONAL TRIAL COURT of CEBU CITY; HON.
CLERK OF COURT & EX-OFFICIO SHERIFF of
the REGIONAL TRIAL COURT of BULACAN and
his DEPUTIES; and EMILY ROSE GO KO LIM
CHAO, doing business under the name and
style KD SURPLUS,
Respondents.

MENDOZA, JJ.

Promulgated:
March 22, 2010
x-----------------------------------------------------------------------------------------x
DECISION
PERALTA, J.:
This is a Joint Petition[1] under Rule 45 of the Rules of Court brought by the Municipality of Hagonoy, Bulacan and
its former chief executive, Mayor Felix V. Ople in his official and personal capacity, from the January 31, 2005
Decision[2] and the May 23, 2005 Resolution[3] of the Court of Appeals in CA-G.R. SP No. 81888. The assailed
decision affirmed the October 20, 2003Order[4] issued by the Regional Trial Court of Cebu City, Branch 7 in Civil
Case No. CEB-28587 denying petitioners motion to dismiss and motion to discharge/dissolve the writ of
preliminary attachment previously issued in the case. The assailed resolution denied reconsideration.
The case stems from a Complaint [5] filed by herein private respondent Emily Rose Go Ko Lim Chao against herein
petitioners, the Municipality of Hagonoy, Bulacan and its chief executive, Felix V. Ople (Ople) for collection of a
sum of money and damages. It was alleged that sometime in the middle of the year 2000, respondent, doing
business as KD Surplus and as such engaged in buying and selling surplus trucks, heavy equipment, machinery,
spare parts and related supplies, was contacted by petitioner Ople. Respondent had entered into an agreement
with petitioner municipality through Ople for the delivery of motor vehicles, which supposedly were needed to carry
out certain developmental undertakings in the municipality. Respondent claimed that because of Oples earnest
representation that funds had already been allocated for the project, she agreed to deliver from her principal place
of business in Cebu City twenty-one motor vehicles whose value totaledP5,820,000.00. To prove this, she
attached to the complaint copies of the bills of lading showing that the items were consigned, delivered to and
received by petitioner municipality on different dates. [6] However, despite having made several deliveries, Ople
allegedly did not heed respondents claim for payment. As of the filing of the complaint, the total obligation of
petitioner had already totaled P10,026,060.13 exclusive of penalties and damages. Thus, respondent prayed for
full payment of the said amount, with interest at not less than 2% per month, plus P500,000.00 as damages for
business losses, P500,000.00 as exemplary damages, attorneys fees of P100,000.00 and the costs of the suit.
On February 13, 2003, the trial court issued an Order [7] granting respondents prayer for a writ of preliminary
attachment conditioned upon the posting of a bond equivalent to the amount of the claim. On March 20, 2003, the
trial court issued the Writ of Preliminary Attachment [8] directing the sheriff to attach the estate, real and personal
properties of petitioners.
Instead of addressing private respondents allegations, petitioners filed a Motion to Dismiss [9] on the ground that
the claim on which the action had been brought was unenforceable under the statute of frauds, pointing out that
there was no written contract or document that would evince the supposed agreement they entered into with
respondent. They averred that contracts of this nature, before being undertaken by the municipality, would
ordinarily be subject to several preconditions such as a public bidding and prior approval of the municipal council
which, in this case, did not obtain. From this, petitioners impress upon us the notion that no contract was ever
entered into by the local government with respondent. [10] To address the claim that respondent had made the
deliveries under the agreement, they advanced that the bills of lading attached to the complaint were hardly
probative, inasmuch as these documents had been accomplished and handled exclusively by respondent herself
as well as by her employees and agents.[11]
Petitioners also filed a Motion to Dissolve and/or Discharge the Writ of Preliminary Attachment Already
Issued,[12] invoking immunity of the state from suit, unenforceability of the contract, and failure to substantiate the
allegation of fraud.[13]
On October 20, 2003, the trial court issued an Order [14] denying the two motions. Petitioners moved for
reconsideration, but they were denied in an Order[15] dated December 29, 2003.
Believing that the trial court had committed grave abuse of discretion in issuing the two orders, petitioners
elevated the matter to the Court of Appeals via a petition for certiorari under Rule 65. In it, they faulted the trial
court for not dismissing the complaint despite the fact that the alleged contract was unenforceable under the
statute of frauds, as well as for ordering the filing of an answer and in effect allowing private respondent to prove

that she did make several deliveries of the subject motor vehicles. Additionally, it was likewise asserted that the
trial court committed grave abuse of discretion in not discharging/dissolving the writ of preliminary attachment, as
prayed for in the motion, and in effect disregarding the rule that the local government is immune from suit.
On January 31, 2005, following assessment of the parties arguments, the Court of Appeals, finding no merit in the
petition, upheld private respondents claim and affirmed the trial courts order. [16]Petitioners moved for
reconsideration, but the same was likewise denied for lack of merit and for being a mere scrap of paper for having
been filed by an unauthorized counsel.[17] Hence, this petition.
In their present recourse, which raises no matter different from those passed upon by the Court of Appeals,
petitioners ascribe error to the Court of Appeals for dismissing their challenge against the trial courts October 20
and December 29, 2003 Orders. Again, they reason that the complaint should have been dismissed at the first
instance based on unenforceability and that the motion to dissolve/discharge the preliminary attachment should
have been granted.[18]
Commenting on the petition, private respondent notes that with respect to the Court of Appeals denial of
the certiorari petition, the same was rightly done, as the fact of delivery may be properly and adequately
addressed at the trial of the case on the merits; and that the dissolution of the writ of preliminary attachment was
not proper under the premises inasmuch as the application for the writ sufficiently alleged fraud on the part of
petitioners. In the same breath, respondent laments that the denial of petitioners motion for reconsideration was
rightly done by the Court of Appeals, because it raised no new matter that had not yet been addressed. [19]
After the filing of the parties respective memoranda, the case was deemed submitted for decision.
We now rule on the petition.
To begin with, the Statute of Frauds found in paragraph (2), Article 1403 of the Civil Code, [20] requires for
enforceability certain contracts enumerated therein to be evidenced by some note or memorandum. The term
Statute of Frauds is descriptive of statutes that require certain classes of contracts to be in writing; and that do not
deprive the parties of the right to contract with respect to the matters therein involved, but merely regulate the
formalities of the contract necessary to render it enforceable. [21]
In other words, the Statute of Frauds only lays down the method by which the enumerated contracts may
be proved. But it does not declare them invalid because they are not reduced to writing inasmuch as, by law,
contracts are obligatory in whatever form they may have been entered into, provided all the essential requisites for
their validity are present.[22] The object is to prevent fraud and perjury in the enforcement of obligations depending,
for evidence thereof, on the unassisted memory of witnesses by requiring certain enumerated contracts and
transactions to be evidenced by a writing signed by the party to be charged. [23] The effect of noncompliance with
this requirement is simply that no action can be enforced under the given contracts. [24] If an action is nevertheless
filed in court, it shall warrant a dismissal under Section 1(i),[25] Rule 16 of the Rules of Court, unless there has
been, among others, total or partial performance of the obligation on the part of either party.[26]
It has been private respondents consistent stand, since the inception of the instant case that she has
entered into a contract with petitioners. As far as she is concerned, she has already performed her part of the
obligation under the agreement by undertaking the delivery of the 21 motor vehicles contracted for by Ople in the
name of petitioner municipality. This claim is well substantiated at least for the initial purpose of setting out a valid
cause of action against petitioners by copies of the bills of lading attached to the complaint, naming petitioner
municipality as consignee of the shipment. Petitioners have not at any time expressly denied this allegation and,
hence, the same is binding on the trial court for the purpose of ruling on the motion to dismiss. In other words,
since there exists an indication by way of allegation that there has been performance of the obligation on the part
of respondent, the case is excluded from the coverage of the rule on dismissals based on unenforceability under
the statute of frauds, and either party may then enforce its claims against the other.
No other principle in remedial law is more settled than that when a motion to dismiss is filed, the material
allegations of the complaint are deemed to be hypothetically admitted. [27] This hypothetical admission, according
to Viewmaster Construction Corporation v. Roxas[28] and Navoa v. Court of Appeals,[29] extends not only to the
relevant and material facts well pleaded in the complaint, but also to inferences that may be fairly deduced from
them. Thus, where it appears that the allegations in the complaint furnish sufficient basis on which the complaint
can be maintained, the same should not be dismissed regardless of the defenses that may be raised by the
defendants.[30] Stated differently, where the motion to dismiss is predicated on grounds that are not indubitable, the
better policy is to deny the motion without prejudice to taking such measures as may be proper to assure that the
ends of justice may be served.[31]
It is interesting to note at this point that in their bid to have the case dismissed, petitioners theorize that
there could not have been a contract by which the municipality agreed to be bound, because it was not shown that
there had been compliance with the required bidding or that the municipal council had approved the contract. The
argument is flawed. By invoking unenforceability under the Statute of Frauds, petitioners are in effect
acknowledging the existence of a contract between them and private respondent only, the said contract cannot be
enforced by action for being non-compliant with the legal requisite that it be reduced into writing. Suffice it to say

that while this assertion might be a viable defense against respondents claim, it is principally a matter of evidence
that may be properly ventilated at the trial of the case on the merits.
Verily, no grave abuse of discretion has been committed by the trial court in denying petitioners motion to
dismiss this case. The Court of Appeals is thus correct in affirming the same.
We now address the question of whether there is a valid reason to deny petitioners motion to discharge
the writ of preliminary attachment.
Petitioners, advocating a negative stance on this issue, posit that as a municipal corporation,
the Municipality of Hagonoy is immune from suit, and that its properties are by law exempt from execution and
garnishment. Hence, they submit that not only was there an error committed by the trial court in denying their
motion to dissolve the writ of preliminary attachment; they also advance that it should not have been issued in the
first place. Nevertheless, they believe that respondent has not been able to substantiate her allegations of fraud
necessary for the issuance of the writ.[32]
Private respondent, for her part, counters that, contrary to petitioners claim, she has amply discussed the
basis for the issuance of the writ of preliminary attachment in her affidavit; and that petitioners claim of immunity
from suit is negated by Section 22 of the Local Government Code, which vests municipal corporations with the
power to sue and be sued. Further, she contends that the arguments offered by petitioners against the writ of
preliminary attachment clearly touch on matters that when ruled upon in the hearing for the motion to discharge,
would amount to a trial of the case on the merits. [33]
The general rule spelled out in Section 3, Article XVI of the Constitution is that the state and its political
subdivisions may not be sued without their consent. Otherwise put, they are open to suit but only when they
consent to it. Consent is implied when the government enters into a business contract, as it then descends to the
level of the other contracting party; or it may be embodied in a general or special law [34] such as that found in Book
I, Title I, Chapter 2, Section 22 of the Local Government Code of 1991, which vests local government units with
certain corporate powers one of them is the power to sue and be sued.
Be that as it may, a difference lies between suability and liability. As held in City of Caloocan v. Allarde,
where the suability of the state is conceded and by which liability is ascertained judicially, the state is at liberty
to determine for itself whether to satisfy the judgment or not. Execution may not issue upon such judgment,
because statutes waiving non-suability do not authorize the seizure of property to satisfy judgments recovered
from the action. These statutes only convey an implication that the legislature will recognize such judgment as
final and make provisions for its full satisfaction. Thus, where consent to be sued is given by general or special
law, the implication thereof is limited only to the resultant verdict on the action before execution of the judgment. [36]
[35]

Traders Royal Bank v. Intermediate Appellate Court, [37] citing Commissioner of Public Highways v. San
Diego,[38] is instructive on this point. In that case which involved a suit on a contract entered into by an entity
supervised by the Office of the President, the Court held that while the said entity opened itself to suit by entering
into the subject contract with a private entity; still, the trial court was in error in ordering the garnishment of its
funds, which were public in nature and, hence, beyond the reach of garnishment and attachment
proceedings. Accordingly, the Court ordered that the writ of preliminary attachment issued in that case be lifted,
and that the parties be allowed to prove their respective claims at the trial on the merits. There, the Court
highlighted the reason for the rule, to wit:
The universal rule that where the State gives its consent to be sued by private parties
either by general or special law, it may limit claimants action only up to the completion of
proceedings anterior to the stage of execution and that the power of the Courts ends when the
judgment is rendered, since government funds and properties may not be seized under writs of
execution or garnishment to satisfy such judgments, is based on obvious considerations of public
policy. Disbursements of public funds must be covered by the corresponding appropriations as
required by law. The functions and public services rendered by the State cannot be allowed to be
paralyzed or disrupted by the diversion of public funds from their legitimate and specific objects. x
x x[39]
With this in mind, the Court holds that the writ of preliminary attachment must be dissolved and, indeed, it
must not have been issued in the very first place. While there is merit in private respondents position that she, by
affidavit, was able to substantiate the allegation of fraud in the same way that the fraud attributable to petitioners
was sufficiently alleged in the complaint and, hence, the issuance of the writ would have been justified. Still, the
writ of attachment in this case would only prove to be useless and unnecessary under the premises, since the
property of the municipality may not, in the event that respondents claim is validated, be subjected to writs of
execution and garnishment unless, of course, there has been a corresponding appropriation provided by law. [40]
Anent the other issues raised by petitioners relative to the denial of their motion to dissolve the writ of
attachment, i.e., unenforceability of the contract and the veracity of private respondents allegation of fraud, suffice
it to say that these pertain to the merits of the main action. Hence, these issues are not to be taken up in resolving

the motion to discharge, lest we run the risk of deciding or prejudging the main case and force a trial on the merits
at this stage of the proceedings.[41]
There is one final concern raised by petitioners relative to the denial of their motion for reconsideration.
They complain that it was an error for the Court of Appeals to have denied the motion on the ground that the same
was filed by an unauthorized counsel and, hence, must be treated as a mere scrap of paper.[42]
It can be derived from the records that petitioner Ople, in his personal capacity, filed his Rule 65 petition
with the Court of Appeals through the representation of the law firm Chan Robles & Associates. Later on,
municipal legal officer Joselito Reyes, counsel for petitioner Ople, in his official capacity and for petitioner
municipality, filed with the Court of Appeals a Manifestation with Entry of Appearance [43] to the effect that he, as
counsel, was adopting all the pleadings filed for and in behalf of [Oples personal representation] relative to this
case.[44]
It appears, however, that after the issuance of the Court of Appeals decision, only Oples personal
representation signed the motion for reconsideration. There is no showing that the municipal legal officer made
the same manifestation, as he previously did upon the filing of the petition. [45] From this, the Court of Appeals
concluded that it was as if petitioner municipality and petitioner Ople, in his official capacity, had never moved for
reconsideration of the assailed decision, and adverts to the ruling in Ramos v. Court of Appeals [46] and Municipality
of Pililla, Rizal v. Court of Appeals [47] that only under well-defined exceptions may a private counsel be engaged in
lawsuits involving a municipality, none of which exceptions obtains in this case. [48]
The Court of Appeals is mistaken. As can be seen from the manner in which the Manifestation with Entry
of Appearance is worded, it is clear that petitioner municipalitys legal officer was intent on adopting, for both the
municipality and Mayor Ople, not only the certiorari petition filed with the Court of Appeals, but also all other
pleadings that may be filed thereafter by Oples personal representation, including the motion for reconsideration
subject of this case. In any event, however, the said motion for reconsideration would warrant a denial, because
there seems to be no matter raised therein that has not yet been previously addressed in the assailed decision of
the Court of Appeals as well as in the proceedings below, and that would have otherwise warranted a different
treatment of the issues involved.
WHEREFORE, the Petition is GRANTED IN PART. The January 31, 2005 Decision of the Court of
Appeals in CA-G.R. SP No. 81888 is AFFIRMED insofar as it affirmed the October 20, 2003 Decision of the
Regional Trial Court of Cebu City, Branch 7 denying petitioners motion to dismiss in Civil Case No. CEB28587. The assailed decision is REVERSED insofar as it affirmed the said trial courts denial of petitioners motion
to discharge the writ of preliminary attachment issued in that case. Accordingly, the August 4, 2003 Writ of
Preliminary Attachment issued in Civil Case No. CEB-28587 is ordered lifted.
SO ORDERED.

MACTAN-CEBU INTERNATIONAL AIRPORT

AUTHORITY and AIR TRANSPORTATION OFFICE,
Petitioners,

G.R. No. 176625

Present:
-

versus -

PUNO, C.J.,
CARPIO,
CORONA,

BERNARDO L. LOZADA, SR., and the

HEIRS OF ROSARIO MERCADO, namely, VICENTE
LOZADA, MARIO M. LOZADA, MARCIA L. GODINEZ,
VIRGINIA L. FLORES, BERNARDO LOZADA, JR.,
DOLORES GACASAN, SOCORRO CAFARO and
ROSARIO LOZADA, represented by MARCIA LOZADA
GODINEZ,
Respondents.

CARPIO MORALES,VELASCO, JR.,

NACHURA, LEONARDO-DE
CASTRO,
BRION,
PERALTA,*
BERSAMIN,
DEL CASTILLO,
ABAD,
VILLARAMA, JR.,
PEREZ, and
MENDOZA, JJ.
Promulgated:
February 25, 2010

x------------------------------------------------------------------------------------x
DECISION
NACHURA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court, seeking to reverse, annul, and set
aside the Decision[1] dated February 28, 2006 and the Resolution [2] dated February 7, 2007 of the Court of Appeals
(CA) (Cebu City), Twentieth Division, in CA-G.R. CV No. 65796.
The antecedent facts and proceedings are as follows:
Subject of this case is Lot No. 88-SWO-25042 (Lot No. 88), with an area of 1,017 square meters, more or less,
located in Lahug, Cebu City. Its original owner was Anastacio Deiparine when the same was subject to
expropriation proceedings, initiated by the Republic of the Philippines (Republic), represented by the then Civil
Aeronautics Administration (CAA), for the expansion and improvement of the Lahug Airport. The case was filed
with the then Court of First Instance of Cebu, Third Branch, and docketed as Civil Case No. R-1881.
As early as 1947, the lots were already occupied by the U.S. Army. They were turned over to the Surplus Property
Commission, the Bureau of Aeronautics, the National Airport Corporation and then to the CAA.
During the pendency of the expropriation proceedings, respondent Bernardo L. Lozada, Sr. acquired Lot No. 88
from Deiparine. Consequently, Transfer Certificate of Title (TCT) No. 9045 was issued in Lozadas name.
On December 29, 1961, the trial court rendered judgment in favor of the Republic and ordered the latter to pay
Lozada the fair market value of Lot No. 88, adjudged at P3.00 per square meter, with consequential damages by
way of legal interest computed from November 16, 1947the time when the lot was first occupied by the
airport. Lozada received the amount of P3,018.00 by way of payment.
The affected landowners appealed. Pending appeal, the Air Transportation Office (ATO), formerly CAA, proposed
a compromise settlement whereby the owners of the lots affected by the expropriation proceedings would either
not appeal or withdraw their respective appeals in consideration of a commitment that the expropriated lots would
be resold at the price they were expropriated in the event that the ATO would abandon the Lahug Airport, pursuant
to an established policy involving similar cases. Because of this promise, Lozada did not pursue his
appeal.Thereafter, Lot No. 88 was transferred and registered in the name of the Republic under TCT No. 25057.
The projected improvement and expansion plan of the old Lahug Airport, however, was not pursued.
Lozada, with the other landowners, contacted then CAA Director Vicente Rivera, Jr., requesting to repurchase the
lots, as per previous agreement. The CAA replied that there might still be a need for the Lahug Airport to be used
as an emergency DC-3 airport. It reiterated, however, the assurance that should this Office dispose and resell the
properties which may be found to be no longer necessary as an airport, then the policy of this Office is to give
priority to the former owners subject to the approval of the President.
On November 29, 1989, then President Corazon C. Aquino issued a Memorandum to the Department of
Transportation, directing the transfer of general aviation operations of the Lahug Airport to
the Mactan International Airport before the end of 1990 and, upon such transfer, the closure of the Lahug Airport.
Sometime in 1990, the Congress of the Philippines passed Republic Act (R.A.) No. 6958, entitled An Act Creating
the Mactan-Cebu International Airport Authority, Transferring Existing Assets of the Mactan International Airport
and the Lahug Airport to the Authority, Vesting the Authority with Power to Administer and Operate the Mactan
International Airport and the Lahug Airport, and For Other Purposes.

From the date of the institution of the expropriation proceedings up to the present, the public purpose of the said
expropriation (expansion of the airport) was never actually initiated, realized, or implemented. Instead, the old
airport was converted into a commercial complex. Lot No. 88 became the site of a jail known as Bagong Buhay
Rehabilitation Complex, while a portion thereof was occupied by squatters. [3] The old airport was converted into
what is now known as the Ayala I.T. Park, a commercial area.
Thus, on June 4, 1996, petitioners initiated a complaint for the recovery of possession and reconveyance of
ownership of Lot No. 88. The case was docketed as Civil Case No. CEB-18823 and was raffled to the Regional
Trial Court (RTC), Branch 57, Cebu City. The complaint substantially alleged as follows:
(a) Spouses Bernardo and Rosario Lozada were the registered owners of Lot No. 88 covered by
TCT No. 9045;
(b) In the early 1960s, the Republic sought to acquire by expropriation Lot No. 88, among others,
in connection with its program for the improvement and expansion of the Lahug Airport;
(c) A decision was rendered by the Court of First Instance in favor of the Government and against
the land owners, among whom was Bernardo Lozada, Sr. appealed therefrom;
(d) During the pendency of the appeal, the parties entered into a compromise settlement to the
effect that the subject property would be resold to the original owner at the same price when
it was expropriated in the event that the Government abandons the Lahug Airport;
(e) Title to Lot No. 88 was subsequently transferred to the Republic of the Philippines (TCT No.
25057);
(f) The projected expansion and improvement of the Lahug Airport did not materialize;
(g) Plaintiffs sought to repurchase their property from then CAA Director Vicente Rivera. The latter
replied by giving as assurance that priority would be given to the previous owners, subject
to the approval of the President, should CAA decide to dispose of the properties;
(h) On November 29, 1989, then President Corazon C. Aquino, through a Memorandum to the
Department of Transportation and Communications (DOTC), directed the transfer of general
aviation operations at theLahug Airport to the Mactan-Cebu International Airport Authority;
(i) Since the public purpose for the expropriation no longer exists, the property must be returned
to the plaintiffs.[4]
In their Answer, petitioners asked for the immediate dismissal of the complaint. They specifically denied that the
Government had made assurances to reconvey Lot No. 88 to respondents in the event that the property would no
longer be needed for airport operations. Petitioners instead asserted that the judgment of condemnation was
unconditional, and respondents were, therefore, not entitled to recover the expropriated property notwithstanding
non-use or abandonment thereof.
After pretrial, but before trial on the merits, the parties stipulated on the following set of facts:
(1) The lot involved is Lot No. 88-SWO-25042 of the Banilad Estate, situated in the City of Cebu,
containing an area of One Thousand Seventeen (1,017) square meters, more or less;
(2) The property was expropriated among several other properties in Lahug in favor of the
Republic of the Philippines by virtue of a Decision dated December 29, 1961 of the CFI of
Cebu in Civil Case No. R-1881;
(3) The public purpose for which the property was expropriated was for the purpose of
the Lahug Airport;
(4) After the expansion, the property was transferred in the name of MCIAA; [and]
(5) On November 29, 1989, then President Corazon C. Aquino directed the Department of
Transportation and Communication to transfer general aviation operations of the Lahug
Airport to the Mactan-Cebu International Airport Authority and to close the Lahug Airport
after such transfer[.][5]
During trial, respondents presented Bernardo Lozada, Sr. as their lone witness, while petitioners presented their
own witness, Mactan-Cebu International Airport Authority legal assistant Michael Bacarisas.
On October 22, 1999, the RTC rendered its Decision, disposing as follows:

WHEREFORE, in the light of the foregoing, the Court hereby renders judgment in favor of the
plaintiffs, Bernardo L. Lozada, Sr., and the heirs of Rosario Mercado, namely, Vicente M. Lozada,
Marcia L. Godinez, Virginia L. Flores, Bernardo M. Lozada, Jr., Dolores L. Gacasan, Socorro L.
Cafaro and Rosario M. Lozada, represented by their attorney-in-fact Marcia Lozada Godinez, and
against defendants Cebu-Mactan International Airport Authority (MCIAA) and Air Transportation
Office (ATO):
1. ordering MCIAA and ATO to restore to plaintiffs the possession and ownership of their
land, Lot No. 88 Psd-821 (SWO-23803), upon payment of the expropriation price to plaintiffs; and
2. ordering the Register of Deeds to effect the transfer of the Certificate of Title from
defendant[s] to plaintiffs on Lot No. [88], cancelling TCT No. 20357 in the name of defendant
MCIAA and to issue a new title on the same lot in the name of Bernardo L. Lozada, Sr. and the
heirs of Rosario Mercado, namely: Vicente M. Lozada, Mario M. Lozada, Marcia L. Godinez,
Virginia L. Flores, Bernardo M. Lozada, Jr., Dolores L. Gacasan, Socorro L. Cafaro and Rosario
M. Lozada.
No pronouncement as to costs.
SO ORDERED.[6]
Aggrieved, petitioners interposed an appeal to the CA. After the filing of the necessary appellate briefs, the CA
rendered its assailed Decision dated February 28, 2006, denying petitioners appeal and affirming in toto the
Decision of the RTC, Branch 57, Cebu City. Petitioners motion for reconsideration was, likewise, denied in the
questioned CA Resolution dated February 7, 2007.
Hence, this petition arguing that: (1) the respondents utterly failed to prove that there was a repurchase
agreement or compromise settlement between them and the Government; (2) the judgment in Civil Case No. R1881 was absolute and unconditional, giving title in fee simple to the Republic; and (3) the respondents claim of
verbal assurances from government officials violates the Statute of Frauds.
The petition should be denied.
Petitioners anchor their claim to the controverted property on the supposition that the Decision in the pertinent
expropriation proceedings did not provide for the condition that should the intended use of Lot No. 88 for the
expansion of the Lahug Airport be aborted or abandoned, the property would revert to respondents, being its
former owners. Petitioners cite, in support of this position, Fery v. Municipality of Cabanatuan,[7] which declared
that the Government acquires only such rights in expropriated parcels of land as may be allowed by the character
of its title over the properties
If x x x land is expropriated for a particular purpose, with the condition that when that purpose is
ended or abandoned the property shall return to its former owner, then, of course, when the
purpose is terminated or abandoned the former owner reacquires the property so expropriated. If
x x x land is expropriated for a public street and the expropriation is granted upon condition that
the city can only use it for a public street, then, of course, when the city abandons its use as a
public street, it returns to the former owner, unless there is some statutory provision to the
contrary. x x x. If, upon the contrary, however, the decree of expropriation gives to the entity a fee
simple title, then, of course, the land becomes the absolute property of the expropriator, whether it
be the State, a province, or municipality, and in that case the non-user does not have the effect of
defeating the title acquired by the expropriation proceedings. x x x.
When land has been acquired for public use in fee simple, unconditionally, either by the
exercise of eminent domain or by purchase, the former owner retains no right in the land, and the
public use may be abandoned, or the land may be devoted to a different use, without any
impairment of the estate or title acquired, or any reversion to the former owner. x x x. [8]
Contrary to the stance of petitioners, this Court had ruled otherwise in Heirs of Timoteo Moreno and Maria
Rotea v. Mactan-Cebu International Airport Authority,[9] thus
Moreover, respondent MCIAA has brought to our attention a significant and telling portion in
the Decision in Civil Case No. R-1881 validating our discernment that the expropriation by the
predecessors of respondent was ordered under the running impression that Lahug Airport would
continue in operation
As for the public purpose of the expropriation proceeding, it cannot now be
doubted. Although Mactan Airport is being constructed, it does not take away the
actual usefulness and importance of theLahug Airport: it is handling the air traffic

both civilian and military. From it aircrafts fly to Mindanao and Visayas and pass
thru it on their flights to the North and Manila. Then, no evidence was adduced to
show how soon is the Mactan Airport to be placed in operation and whether
the Lahug Airport will be closed immediately thereafter. It is up to the other
departments of the Government to determine said matters. The Court cannot
substitute its judgment for those of the said departments or agencies. In the
absence of such showing, the Court will presume that the Lahug Airport will
continue to be in operation (emphasis supplied).
While in the trial in Civil Case No. R-1881 [we] could have simply acknowledged the presence of
public purpose for the exercise of eminent domain regardless of the survival of Lahug Airport, the
trial court in itsDecision chose not to do so but instead prefixed its finding of public purpose upon
its understanding that Lahug Airport will continue to be in operation. Verily, these meaningful
statements in the body of the Decisionwarrant the conclusion that the expropriated properties
would remain to be so until it was confirmed that Lahug Airport was no longer in operation. This
inference further implies two (2) things: (a) after the LahugAirport ceased its undertaking as such
and the expropriated lots were not being used for any airport expansion project, the rights vis--vis
the expropriated Lots Nos. 916 and 920 as between the State and their former owners, petitioners
herein, must be equitably adjusted; and (b) the foregoing unmistakable declarations in the body of
the Decision should merge with and become an intrinsic part of the fallo thereof which under the
premises is clearly inadequate since the dispositive portion is not in accord with the findings as
contained in the body thereof.[10]
Indeed, the Decision in Civil Case No. R-1881 should be read in its entirety, wherein it is apparent that the
acquisition by the Republic of the expropriated lots was subject to the condition that theLahug Airport would
continue its operation. The condition not having materialized because the airport had been abandoned, the former
owner should then be allowed to reacquire the expropriated property.[11]
On this note, we take this opportunity to revisit our ruling in Fery, which involved an expropriation suit commenced
upon parcels of land to be used as a site for a public market. Instead of putting up a public market,
respondent Cabanatuan constructed residential houses for lease on the area. Claiming that the municipality lost
its right to the property taken since it did not pursue its public purpose, petitioner Juan Fery, the former owner of
the lots expropriated, sought to recover his properties. However, as he had admitted that, in 1915,
respondent Cabanatuan acquired a fee simple title to the lands in question, judgment was rendered in favor of the
municipality, following American jurisprudence, particularly City of Fort Wayne v. Lake Shore & M.S. RY. Co.,
[12]
McConihay v. Theodore Wright,[13] and Reichling v. Covington Lumber Co.,[14] all uniformly holding that the
transfer to a third party of the expropriated real property, which necessarily resulted in the abandonment of the
particular public purpose for which the property was taken, is not a ground for the recovery of the same by its
previous owner, the title of the expropriating agency being one of fee simple.
Obviously, Fery was not decided pursuant to our now sacredly held constitutional right that private property shall
not be taken for public use without just compensation. [15] It is well settled that the taking of private property by the
Governments power of eminent domain is subject to two mandatory requirements: (1) that it is for a particular
public purpose; and (2) that just compensation be paid to the property owner. These requirements partake of the
nature of implied conditions that should be complied with to enable the condemnor to keep the property
expropriated.[16]
More particularly, with respect to the element of public use, the expropriator should commit to use the property
pursuant to the purpose stated in the petition for expropriation filed, failing which, it should file another petition for
the new purpose. If not, it is then incumbent upon the expropriator to return the said property to its private owner, if
the latter desires to reacquire the same. Otherwise, the judgment of expropriation suffers an intrinsic flaw, as it
would lack one indispensable element for the proper exercise of the power of eminent domain, namely, the
particular public purpose for which the property will be devoted. Accordingly, the private property owner would be
denied due process of law, and the judgment would violate the property owners right to justice, fairness, and
equity.
In light of these premises, we now expressly hold that the taking of private property, consequent to the
Governments exercise of its power of eminent domain, is always subject to the condition that the property be
devoted to the specific public purpose for which it was taken. Corollarily, if this particular purpose or intent is not
initiated or not at all pursued, and is peremptorily abandoned, then the former owners, if they so desire, may seek
the reversion of the property, subject to the return of the amount of just compensation received. In such a case,
the exercise of the power of eminent domain has become improper for lack of the required factual justification. [17]
Even without the foregoing declaration, in the instant case, on the question of whether respondents were able to
establish the existence of an oral compromise agreement that entitled them to repurchase Lot No. 88 should the
operations of the Lahug Airport be abandoned, we rule in the affirmative.
It bears stressing that both the RTC, Branch 57, Cebu and the CA have passed upon this factual issue and have
declared, in no uncertain terms, that a compromise agreement was, in fact, entered into between the Government

and respondents, with the former undertaking to resell Lot No. 88 to the latter if the improvement and expansion of
the Lahug Airport would not be pursued. In affirming the factual finding of the RTC to this effect, the CA declared
Lozadas testimony is cogent. An octogenarian widower-retiree and a resident of Moon
Park, California since 1974, he testified that government representatives verbally promised him
and his late wife while the expropriation proceedings were on-going that the government shall
return the property if the purpose for the expropriation no longer exists. This promise was made at
the premises of the airport. As far as he could remember, there were no expropriation
proceedings against his property in 1952 because the first notice of expropriation he received was
in 1962. Based on the promise, he did not hire a lawyer. Lozada was firm that he was promised
that the lot would be reverted to him once the public use of the lot ceases. He made it clear that
the verbal promise was made in Lahug with other lot owners before the 1961 decision was
handed down, though he could not name the government representatives who made the
promise. It was just a verbal promise; nevertheless, it is binding. The fact that he could not supply
the necessary details for the establishment of his assertions during cross-examination, but that
When it will not be used as intended, it will be returned back, we just believed in the government,
does not dismantle the credibility and truthfulness of his allegation.This Court notes that he was
89 years old when he testified in November 1997 for an incident which happened decades
ago. Still, he is a competent witness capable of perceiving and making his perception known. The
minor lapses are immaterial. The decision of the competency of a witness rests primarily with the
trial judge and must not be disturbed on appeal unless it is clear that it was erroneous. The
objection to his competency must be made before he has given any testimony or as soon as the
incompetency becomes apparent. Though Lozada is not part of the compromise agreement, [18] he
nevertheless adduced sufficient evidence to support his claim. [19]
As correctly found by the CA, unlike in Mactan Cebu International Airport Authority v. Court of Appeals, [20] cited by
petitioners, where respondent therein offered testimonies which were hearsay in nature, the testimony of Lozada
was based on personal knowledge as the assurance from the government was personally made to him. His
testimony on cross-examination destroyed neither his credibility as a witness nor the truthfulness of his words.
Verily, factual findings of the trial court, especially when affirmed by the CA, are binding and conclusive on
this Court and may not be reviewed. A petition for certiorari under Rule 45 of the Rules of Court contemplates only
questions of law and not of fact.[21] Not one of the exceptions to this rule is present in this case to warrant a
reversal of such findings.
As regards the position of petitioners that respondents testimonial evidence violates the Statute of Frauds, suffice
it to state that the Statute of Frauds operates only with respect to executory contracts, and does not apply to
contracts which have been completely or partially performed, the rationale thereof being as follows:
In executory contracts there is a wide field for fraud because unless they be in writing there is no
palpable evidence of the intention of the contracting parties. The statute has precisely been
enacted to prevent fraud.However, if a contract has been totally or partially performed, the
exclusion of parol evidence would promote fraud or bad faith, for it would enable the defendant to
keep the benefits already delivered by him from the transaction in litigation, and, at the same time,
evade the obligations, responsibilities or liabilities assumed or contracted by him thereby.[22]
In this case, the Statute of Frauds, invoked by petitioners to bar the claim of respondents for the reacquisition of
Lot No. 88, cannot apply, the oral compromise settlement having been partially performed. By reason of such
assurance made in their favor, respondents relied on the same by not pursuing their appeal before the
CA. Moreover, contrary to the claim of petitioners, the fact of Lozadas eventual conformity to the appraisal of Lot
No. 88 and his seeking the correction of a clerical error in the judgment as to the true area of Lot No. 88 do not
conclusively establish that respondents absolutely parted with their property. To our mind, these acts were simply
meant to cooperate with the government, particularly because of the oral promise made to them.
The right of respondents to repurchase Lot No. 88 may be enforced based on a constructive trust constituted on
the property held by the government in favor of the former. On this note, our ruling inHeirs of Timoteo Moreno is
instructive, viz.:
Mactan-Cebu International Airport Authority is correct in stating that one would not find an express
statement in the Decision in Civil Case No. R-1881 to the effect that the [condemned] lot would
return to [the landowner] or that [the landowner] had a right to repurchase the same if the purpose
for which it was expropriated is ended or abandoned or if the property was to be used other than
as the Lahug Airport. This omission notwithstanding, and while the inclusion of this
pronouncement in the judgment of condemnation would have been ideal, such precision is not
absolutely necessary nor is it fatal to the cause of petitioners herein. No doubt, the return or
repurchase of the condemned properties of petitioners could be readily justified as the manifest
legal effect or consequence of the trial courts underlying presumption that Lahug Airport will

continue to be in operation when it granted the complaint for eminent domain and the airport
discontinued its activities.
The predicament of petitioners involves a constructive trust, one that is akin to the implied trust
referred to in Art. 1454 of the Civil Code, If an absolute conveyance of property is made in order
to secure the performance of an obligation of the grantor toward the grantee, a trust by virtue of
law is established. If the fulfillment of the obligation is offered by the grantor when it becomes
due, he may demand the reconveyance of the property to him. In the case at bar, petitioners
conveyed Lots No. 916 and 920 to the government with the latter obliging itself to use the realties
for the expansion of Lahug Airport; failing to keep its bargain, the government can be compelled
by petitioners to reconvey the parcels of land to them, otherwise, petitioners would be denied the
use of their properties upon a state of affairs that was not conceived nor contemplated when the
expropriation was authorized.
Although the symmetry between the instant case and the situation contemplated by Art. 1454 is
not perfect, the provision is undoubtedly applicable. For, as explained by an expert on the law of
trusts: The only problem of great importance in the field of constructive trust is to decide whether
in the numerous and varying fact situations presented to the courts there is a wrongful holding of
property and hence a threatened unjust enrichment of the defendant. Constructive trusts are
fictions of equity which are bound by no unyielding formula when they are used by courts as
devices to remedy any situation in which the holder of legal title may not in good conscience
retain the beneficial interest.
In constructive trusts, the arrangement is temporary and passive in which the trustees sole duty is
to transfer the title and possession over the property to the plaintiff-beneficiary. Of course,
the wronged party seeking the aid of a court of equity in establishing a constructive trust must
himself do equity. Accordingly, the court will exercise its discretion in deciding what acts are
required of the plaintiff-beneficiary as conditions precedent to obtaining such decree and has the
obligation to reimburse the trustee the consideration received from the latter just as the plaintiffbeneficiary would if he proceeded on the theory of rescission. In the good judgment of the court,
the trustee may also be paid the necessary expenses he may have incurred in sustaining the
property, his fixed costs for improvements thereon, and the monetary value of his services in
managing the property to the extent that plaintiff-beneficiary will secure a benefit from his acts.
The rights and obligations between the constructive trustee and the beneficiary, in this case,
respondent MCIAA and petitioners over Lots Nos. 916 and 920, are echoed in Art. 1190 of
the Civil Code, When the conditions have for their purpose the extinguishment of an obligation to
give, the parties, upon the fulfillment of said conditions, shall return to each other what they have
received x x x In case of the loss, deterioration or improvement of the thing, the provisions which,
with respect to the debtor, are laid down in the preceding article shall be applied to the party who
is bound to return x x x.[23]
On the matter of the repurchase price, while petitioners are obliged to reconvey Lot No. 88 to respondents, the
latter must return to the former what they received as just compensation for the expropriation of the property, plus
legal interest to be computed from default, which in this case runs from the time petitioners comply with their
obligation to respondents.
Respondents must likewise pay petitioners the necessary expenses they may have incurred in maintaining Lot
No. 88, as well as the monetary value of their services in managing it to the extent that respondents were
benefited thereby.
Following Article 1187[24] of the Civil Code, petitioners may keep whatever income or fruits they may have obtained
from Lot No. 88, and respondents need not account for the interests that the amounts they received as just
compensation may have earned in the meantime.
In accordance with Article 1190 [25] of the Civil Code vis--vis Article 1189, which provides that (i)f a thing is improved
by its nature, or by time, the improvement shall inure to the benefit of the creditor x x x, respondents, as creditors,
do not have to pay, as part of the process of restitution, the appreciation in value of Lot No. 88, which is a natural
consequence of nature and time.[26]
WHEREFORE, the petition is DENIED. The February 28, 2006 Decision of the Court of Appeals, affirming the
October 22, 1999 Decision of the Regional Trial Court, Branch 87, Cebu City, and its February 7, 2007 Resolution
are AFFIRMED with MODIFICATION as follows:
1. Respondents are ORDERED to return to petitioners the just compensation they received for the expropriation of
Lot No. 88, plus legal interest, in the case of default, to be computed from the time petitioners comply with their
obligation to reconvey Lot No. 88 to them;

2. Respondents are ORDERED to pay petitioners the necessary expenses the latter incurred in maintaining Lot
No. 88, plus the monetary value of their services to the extent that respondents were benefited thereby;
3. Petitioners are ENTITLED to keep whatever fruits and income they may have obtained from Lot No. 88;
and
4. Respondents are also ENTITLED to keep whatever interests the amounts they received as just compensation
may have earned in the meantime, as well as the appreciation in value of Lot No. 88, which is a natural
consequence of nature and time;
In light of the foregoing modifications, the case is REMANDED to the Regional Trial Court, Branch 57, Cebu City,
only for the purpose of receiving evidence on the amounts that respondents will have to pay petitioners in
accordance with this Courts decision. No costs.
SO ORDERED.

[G.R. No. 136054. September 5, 2001]

HEIRS OF SEVERINA SAN MIGUEL, namely: MAGNO LAPINA, PACENCIA LAPINA, MARCELO LAPINA,
SEVERINO LAPINA, ROSARIO LAPINA, FRANCISCO LAPINA, CELIA LAPINA assisted by husband
RODOLFO TOLEDO, petitioners, vs. THE HONORABLE COURT OF APPEALS, DOMINADOR SAN
MIGUEL, GUILLERMO F. SAN MIGUEL, PACIENCIA F. SAN MIGUEL, CELESTINO, assisted by
husband, ANTERO CELESTINO, represented by their Attorney-in-Fact ENRICO CELESTINO,

AUGUSTO SAN MIGUEL, ANTONIO SAN MIGUEL, RODOLFO SAN MIGUEL, CONRADO SAN
MIGUEL and LUCITA SAN MIGUEL, respondents.
DECISION
PARDO, J.:
The Case
The case is a petition for review on certiorari[1] of the decision of the Court of Appeals,[2] affirming that of the
Regional Trial Court, Cavite, Branch 19, Bacoor [3] ordering petitioners, Heirs of Severina San Miguel (hereafter,
Severinas heirs) to surrender to respondents Dominador San Miguel, et al. (hereafter, Dominador, et al.), Transfer
Certificate of Title No. 223511 and further directing Severinas heirs to pay for the capital gains and related
expenses for the transfer of the two (2) lots to Dominador, et al.
The Facts
This case involves a parcel of land originally claimed by Severina San Miguel (petitioners predecessor-ininterest, hereafter, Severina). The land is situated in Panapan, Bacoor, Cavite with an area of six hundred thirty
two square meters (632 sq. m.), more or less.
Without Severinas knowledge, Dominador managed to cause the subdivision of the land into three (3) lots, to
wit:[4]
LRC Psu 1312 - with an area of 108 square meters;
LRC Psu -1313 - Lot 1, with an area of 299 square meters;
LRC Psu -1313 - Lot 2, with an area of 225 square meters.
On September 25, 1974, Dominador, et al. filed a petition with the Court of First Instance, Cavite, as a land
registration court, to issue title over Lots 1 and 2 of LRC Psu-1313, in their names. [5]
On July 19, 1977, the Land Registration Commission (hereafter LRC) rendered a decision directing the
issuance of Original Certificate of Title No. 0-1816 in the names of Dominador, et al.
On or about August 22, 1978, Severina filed with the Court of First Instance of Cavite a petition for review of
the decision alleging that the land registration proceedings were fraudulently concealed by Dominador from her. [6]
On December 27, 1982, the court resolved to set aside the decision of July 19, 1977, and declared Original
Certificate of Title No. 0-1816 as null and void.
On July 13, 1987, the Register of Deeds of Cavite issued Transfer Certificate of Title No. T-223511 in the
names of Severina and her heirs.[7]
On February 15, 1990, the trial court issued an order in favor of Severinas heirs, to wit: [8]
WHEREFORE, as prayed for, let the writ of possession previously issued in favor of petitioner Severina San
Miguel be implemented.
However, the writ was returned unsatisfied.
On November 28, 1991, the trial court ordered:[9]
WHEREFORE, as prayed for, let an alias writ of demolition be issued in favor of petitioners, Severina San Miguel.
Again, the writ was not satisfied.
On August 6, 1993, Severinas heirs, decided not to pursue the writs of possession and demolition and
entered into a compromise with Dominador, et al. According to the compromise, Severinas heirs were to sell the
subject lots[10] to Dominador, et al. for one and a half million pesos (P1.5 M) with the delivery of Transfer Certificate
of Title No. T-223511 (hereafter, the certificate of title) conditioned upon the purchase of another lot [11] which was
not yet titled at an additional sum of three hundred thousand pesos (P300,000.00). The salient features of the
compromise (hereafter kasunduan) are:[12]
5. Na ang Lot 1 at Lot 2, plano LRCPsu-1313 na binabanggit sa itaas na ipinagkasundo ng mga tagapagmana ni
Severina San Miguel na kilala sa kasulatang ito sa taguring LAPINA (representing Severinas heirs), na ilipat sa
pangalan nina SAN MIGUEL (representing Dominadors heirs) alang alang sa halagang ISANG MILYON AT
LIMANG DAANG LIBONG PISO (P1,500,000.00) na babayaran nina SAN MIGUEL kina LAPINA;

6. Na si LAPINA at SAN MIGUEL ay nagkakasundo na ang lote na sakop ng plano LRC- Psu-1312, may sukat na
108 metro cuadrado ay ipagbibili na rin kina SAN MIGUEL sa halagang TATLONG DAANG LIBONG PISO
(P300,000.00);
7. Na kinikilala ni SAN MIGUEL na ang tunay na may-ari ng nasabing lote na sakop ng plano LRC Psu-1312 ay
sina LAPINA at sila na ang magpapatitulo nito at sina LAPINA ay walang pananagutan sa pagpapatitulo nito at sa
paghahabol ng sino mang tao;
8. Na ang nasabing halaga na TATLONG DAANG LIBONG PISO (P300,000.00) ay babayaran nina SAN
MIGUEL kina LAPINA sa loob ng dalawang (2) buwan mula sa petsa ng kasulatang ito at kung hindi mabayaran
ninaSAN MIGUEL ang nasabing halaga sa takdang panahon ay mawawalan ng kabuluhan ang kasulatang ito;
9. Na sina LAPINA at SAN MIGUEL ay nagkakadunso (sic) rin na ang owners copy ng Transfer Certificate of Title
No. T-223511 na sumasakop sa Lots 1 at 2, plano LRC Psu-1313 ay ilalagay lamang nina LAPINA kina SAN
MIGUEL pagkatapos mabayaran ang nabanggit na P300,000.00
On the same day, on August 6, 1993, pursuant to the kasunduan, Severinas heirs and Dominador, et al.
executed a deed of sale designated as kasulatan sa bilihan ng lupa.[13]
On November 16, 1993, Dominador, et al. filed with the trial court, [14] Branch 19, Bacoor, Cavite, a motion
praying that Severinas heirs deliver the owners copy of the certificate of title to them. [15]
In time, Severinas heirs opposed the motion stressing that under the kasunduan, the certificate of title would
only be surrendered upon Dominador, et al.s payment of the amount of three hundred thousand pesos
(P300,000.00) within two months from August 6, 1993, which was not complied with. [16]
Dominador, et al. admitted non-payment of three hundred thousand pesos (P300,000.00) for the reason that
Severinas heirs have not presented any proof of ownership over the untitled parcel of land covered by LRC- Psu1312.Apparently, the parcel of land is declared in the name of a third party, a certain Emiliano Eugenio. [17]
Dominador, et al. prayed that compliance with the kasunduan be deferred until such time that Severinas heirs
could produce proof of ownership over the parcel of land. [18]
Severinas heirs countered that the arguments of Dominador, et al. were untenable in light of the provision in
the kasunduan where Dominador, et al. admitted their ownership over the parcel of land, hence dispensing with
the requirement that they produce actual proof of title over it. [19] Specifically, they called the trial courts attention to
the following statement in the kasunduan:[20]
7. Na kinikilala ni SAN MIGUEL na ang tunay na may-ari ng nasabing lote na sakop ng plano LRC Psu-1312 ay
sina LAPINA at sila na ang magpapatitulo nito at sina LAPINA ay walang pananagutan sa pagpapatitulo nito at sa
paghahabol ng sino mang tao;
According to Severinas heirs, since Dominador, et al. have not paid the amount of three hundred thousand
pesos (P300,000.00), then they were justified in withholding release of the certificate of title. [21]
The trial court conducted no hearing and then rendered judgment based on the pleadings and memoranda
submitted by the parties.
The Trial Courts Ruling
On June 27, 1994, the trial court issued an order to wit: [22]
WHEREFORE, finding the Motion to Order to be impressed with merit, the defendants-oppositors-vendors Heirs
of Severina San Miguel are hereby ordered to surrender to the movant-plaintiffs-vendees-Heirs of Dominador San
Miguel the Transfer Certificates of Title No. 223511 and for herein defendants-oppositors-vendors to pay for the
capital gains and related expenses for the transfer of the two lots subject of the sale to herein movants-plaintiffsvendees-Heirs of Dominador San Miguel.
SO ORDERED.
On July 25, 1994, Severinas heirs filed with the trial court a motion for reconsideration of the afore-quoted
order.[23]
On January 23, 1995, the trial court denied the motion for reconsideration for lack of merit and further
ordered:[24]
xxx...Considering that the Lots 1 and 2 covered by TCT No. T-223511 had already been paid since August 6, 1993
by the plaintiffs-vendees Dominador San Miguel, et al. (Vide, Kasulatan sa Bilihan ng Lupa, Rollo, pp. 174-176),
herein defendants-vendors-Heirs of Severina San Miguel is hereby ordered (sic) to deliver the aforesaid title to the
former (Dominador San Miguel, et al.) within thirty (30) days from receipt of this order. In case the defendantsvendors-Heirs of Severina San Miguel fail and refuse to do the same, then the Register of Deeds of Cavite is

ordered to immediately cancel TCT No. T-223511 in the name of Severina San Miguel and issue another one in
the name of plaintiffs Dominador San Miguel, et al.
Also send a copy of this Order to the Register of Deeds of the Province of Cavite, Trece Martires City, for her
information and guidance.
SO ORDERED.
On February 7, 1995, Severinas heirs appealed the orders to the Court of Appeals. [25]
The Court of Appeals Ruling
On June 29, 1998, the Court of Appeals promulgated a decision denying the appeal, and affirming the
decision of the trial court. The Court of Appeals added that the other matters raised in the petition were extraneous
to thekasunduan.[26] The Court of Appeals upheld the validity of the contract of sale and sustained the parties
freedom to contract. The Court of Appeals decided, thus:[27]
WHEREFORE, the decision appealed from is hereby AFFIRMED.
SO ORDERED.
On August 4, 1998, Severinas heirs filed with the Court of Appeals a motion for reconsideration of the above
decision.[28]
On October 14, 1998, the Court of Appeals denied the motion for reconsideration for lack of merit. [29]
Hence, this appeal.[30]
The Issues
Severinas heirs submit that the Court of Appeals erred and committed grave abuse of discretion: First, when
it held that the kasunduan had no effect on the kasulatan sa bilihan ng lupa. Second, when it ordered them to
surrender the certificate of title to Dominador, et al., despite non-compliance with their prior obligations stipulated
under the kasunduan. Third, when it did not find that the kasunduan was null and void for having been entered
into by Dominador, et al. fraudulently and in bad faith. [31]
We find the above issues raised by Severinas heirs to be factual. The question whether the prerequisites to
justify release of the certificate of title to Dominador, et al. have been complied with is a question of fact. [32]
However, we sift through the arguments and identify the main legal issue, which is whether Dominador, et al.
may be compelled to pay the three hundred thousand pesos (P300,000.00) as agreed upon in the kasunduan (as
a pre-requisite for the release of the certificate of title), despite Severinas heirs lack of evidence of ownership over
the parcel of land covered by LRC Psu-1312.
The Courts Ruling
We resolve the issue in the negative, and find the petition without merit.
Severinas heirs anchor their claim on the kasunduan, stressing on their freedom to stipulate and the binding
effect of contracts. This argument is misplaced.[33] The Civil Code provides:
Article 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may
deem convenient provided they are not contrary to law, morals, good customs, public order or public policy
(underscoring ours).
It is basic that the law is deemed written into every contract. [34] Although a contract is the law between the
parties, the provisions of positive law which regulate contracts are deemed written therein and shall limit and
govern the relations between the parties.[35] The Civil Code provisions on sales state:
Article 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of
and to deliver a determinate thing, and the other to pay a price certain in money or its equivalent. xxx
Article 1459. The thing must be licit and the vendor must have a right to transfer the ownership thereof at the time
it is delivered.
Article 1495. The vendor is bound to transfer the ownership of and deliver, as well as warrant the thing which is
the object of sale (underscoring ours).

True, in contracts of sale, the vendor need not possess title to the thing sold at the perfection of the contract.
However, the vendor must possess title and must be able to transfer title at the time of delivery. In a contract of
sale, title only passes to the vendee upon full payment of the stipulated consideration, or upon delivery of the thing
sold.[37]
[36]

Under the facts of the case, Severinas heirs are not in a position to transfer title. Without passing on the
question of who actually owned the land covered by LRC Psu -1312, we note that there is no proof of ownership in
favor of Severinas heirs. In fact, it is a certain Emiliano Eugenio, who holds a tax declaration over the said land in
his name.[38] Though tax declarations do not prove ownership of the property of the declarant, tax declarations and
receipts can be strong evidence of ownership of land when accompanied by possession for a period sufficient for
prescription.[39] Severinas heirs have nothing to counter this document.
Therefore, to insist that Dominador, et al. pay the price under such circumstances would result in Severinas
heirs unjust enrichment.[40] Basic is the principle in law, Niguno non deue enriquecerse tortizamente condano de
otro.[41] The essence of a sale is the transfer of title or an agreement to transfer it for a price actually paid or
promised.[42] In Nool v. Court of Appeals,[43] we held that if the sellers cannot deliver the object of the sale to the
buyers, such contract may be deemed to be inoperative. By analogy, such a contract may fall under Article 1405,
No. 5 of the Civil Code, to wit:
Article 1405. The following contracts are inexistent and void from the beginning: xxx
(5) Those which contemplate an impossible service.
Severinas heirs insist that delivery of the certificate of title is predicated on a condition - payment of three
hundred thousand pesos (P300,000.00) to cover the sale of Lot 3 of LRO Psu 1312. We find this argument not
meritorious. The condition cannot be honored for reasons afore-discussed. Article 1183 of the Civil Code provides
that,
Impossible conditions, those contrary to good customs or public policy and those prohibited by law shall annul the
obligation which depends upon them. If the obligation is divisible, that part thereof which is not affected by the
impossible or unlawful condition shall be valid. xxx
Hence, the non-payment of the three hundred thousand pesos (P300,000.00) is not a valid justification for
refusal to deliver the certificate of title.
Besides, we note that the certificate of title covers Lots 1 and 2 of LRC Psu-1313, which were fully paid for by
Dominador, et al. Therefore, Severinas heirs are bound to deliver the certificate of title covering the lots.
The Fallo
WHEREFORE, the petition is DENIED and the decision of the Court of Appeals in CA-G. R. CV No. 48430 is
AFFIRMED in toto.
No costs.
SO ORDERED.

G.R. No. 141877

August 13, 2004

GREGORIO F. AVERIA and SYLVANNA A. VERGARA, representing the absentee heir TERESA
AVERIA,petitioners,
vs.

DOMINGO AVERIA, ANGEL AVERIA, FELIPE AVERIA, and the Heirs of FELIMON F.
AVERIA, respondents.

DECISION

CARPIO-MORALES, J.:
Macaria Francisco (Macaria) and Marcos Averia contracted marriage which bore six issues, namely:
Gregorio, Teresa, Domingo, Angel, Felipe and Felimon.
Macaria was widowed and she contracted a second marriage with Roberto Romero (Romero) which bore no
issue.
Romero died on February 28, 1968,1 leaving three adjoining residential lots located at Sampaloc, Manila.
In a Deed of Extrajudicial Partition and Summary Settlement of the Estate of Romero, the house and lot
containing 150 square meters at 725 Extremadura Street, Sampaloc was apportioned to Macaria.
Transfer Certificate of Title (TCT) No. 93310 covering the Extremadura property was accordingly issued in
the name of Macaria.2
Alleging that fraud was employed by her co-heirs in the partition of the estate of Romero, Macaria filed on
June 1, 1970 an action for annulment of title and damages before the Court of First Instance of Manila
against her co-heirs Domingo Viray, et al., docketed as Civil Case No. 79955. Macaria was represented in
the case by Atty. Mario C. R. Domingo. The case was pending litigation for about ten years until the decision
of the Court of Appeals which adjudged Macaria as entitled to an additional 30 square meters of the estate of
Romero became final and executory.
Macarias son Gregorio and his family and daughter Teresas family lived with her at Extremadura until her
death on March 28, 1983.3
Close to six years after Macarias demise or on January 19, 1989, her children Domingo, Angel and Felipe,
along with Susan Pelayo vda. de Averia (widow of Macarias deceased son Felimon), filed before the
Regional Trial Court (RTC) of Manila a complaint against their brother Gregorio and niece Sylvanna Vergara
"representing her absentee mother" Teresa Averia, for judicial partition of the Extremadura property inclusive
of the 30 square meters judicially awarded.4 The case which was docketed as Civil Case No. 89-47554 is
now the subject of the present decision.
The defendants Gregorio and Sylvanna Vergara, in their February 8, 1989 Answer to the Complaint,
countered that Gregorio and his late wife Agripina spent for the litigation expenses in Civil Case No. 79955,
upon the request of Macaria, and the couple spent not less P20,000.00 for the purpose "which amount due
to the inflation of the Philippine peso is now equivalent to more or less P200,000.00;" that from 1974 to 1983,
Macaria was bedridden and it was Gregorios wife Agripina who nursed and took care of her; that before
Macaria died, she in consideration of the court and other expenses which were defrayed by Gregorio and his
wife in prosecuting Civil Case No. 79955 and of "the kindness of the said couple in caring for
her," verbally sold to the spouses Gregorio and Agripina one-half () of her Extremadura property.
Gregorio and Sylvanna further countered that the plaintiff Domingo sold and assigned to the spouses
Gregorio and Agripina his one sixth (1/6) share in the remaining portion of the Extremadura property.
Gregorio and Sylvanna concluded in their Answer that the plaintiffs are not co-owners of the Extremadura
property as thereof is solely owned by Gregorio and 1/6 of the other half representing Domingos share

thereof had already been sold and assigned by him (Domingo) to Gregorio and his wife who died on May 20,
1987.5
During the pendency of the case or on June 7, 1989, Macarias son Felipe executed a WaiverAffidavit6 waiving his "share" in the property subject of litigation in favor of his co-heirs.
After trial, the trial court, Branch 31 RTC of Manila, rendered a decision of July 19, 1991 7 crediting the
version of the defendants in this wise, quoted verbatim:
The defendant Gregorio Averia, Sr. had established that he had paid plaintiff Domingo Averia
P10,000.00 although denied by the latter but Domingo Averia did not deny receiving the amount
of P5,000.00 on July 10, 1983 given by Gregorio Averias wife Agrifina. According to the testimony of
defendants witness, plaintiff Domingo Averia sold on July 10, 1983 his inheritance share in the
property [consisting of a] house and lot located at 725 Extremadura because he was in . . . need of
money and that he was paid P5,000.00 on July 10, 1983 by Agrifina Averia and another P5,000.00
by Major Gregorio Averia inside his room at the Makati Police Department three (3) days later. The
reason why Domingo Averia became insistent in claiming his inheritance is the fact that Gregorio
Averia refused the request of Domingo Averia and his children to occupy the portion of subject house
which was sold to him by their mother and it was for this reason that they sought the assistance of
the Citizens Legal Assistance Office (CLAO), Atty. Benjamin Roxas in writing defendant Gregorio
Averia to allow him (Domingo Averia) to occupy a portion of subject house but plaintiff Domingo
Averia did not tell his brothers and sisters that he had already sold his 1/6 share of the inheritance
although verbally in favor of Gregorio Averia and his wife.
In the light of the foregoing, the Court, after a circumspect assessment of the evidence presented by both
parties, hereby declares, that defendant Gregorio Averia then a major of police precinct in Makati was the
person responsible for the expenses in litigation in Civil Case No. 79955, involving the property and their
mother had indeed awarded him with portion of the property and that Domingo Averia sold 1/6 of [his]
share of the remaining portion of the property to defendant Gregorio. (Underscoring supplied)
Accordingly, the trial court disposed as follows, quoted verbatim:
WHEREFORE, the remaining 5/6 of of the property may still be subject of partition among the
remaining heirs but the summary settlement of the remaining estate of the 5/6 remaining portion of
the estate . . . may be sold and the proceeds thereof be distributed among the heirs in accordance
with the aliquot portions of each and every heir of the deceased Macaria Francisco.
Both parties are hereby ordered to shoulder their respective expenses for attorneys fees and
litigation costs. (Underscoring supplied)
On appeal to the Court of Appeals (CA) wherein the plaintiffs Domingo et al. assigned two errors, to wit:
A. THE TRIAL COURT ERRED IN ITS FINDING THAT THERE WAS A SALE OF ONE-HALF OF
THE DECEASED MACARIA F. AVERIAS INTEREST AND OWNERSHIP OVER THE SUBJECT
PROPERTY IN FAVOR OF DEFENDANT-APPELLEE GREGORIO AVERIA.
B. THE TRIAL COURT ERRED IN ALLOWING THE RECEPTION OF PAROL EVIDENCE TO THE
EFFECT THAT PLAINTIFF-APPELLANT DOMINGO AVERIA HAD ALREADY DISPOSED OF HIS
ONE SIXTH (1/6) SHARE OF THE SUBJECT PROPERTY IN FAVOR OF DEFENDANTAPPELLEE GREGORIO AVERIA8(Emphasis supplied),
the appellate court reversed the decision of the trial court.
In reversing the trial court, the appellate court, noting that the alleged transfers made by Macaria and
Domingo in favor of Gregorio were bereft of any written memoranda, held that it was error for the trial court
to rely solely on the evidence adduced by the defendants consisting of the testimonies of Gregorio, Veronica
Bautista, Sylvanna Vergara Clutario, Atty. Mario C.R. Domingo, Felimon Dagondon and Gregorio Averia, Jr.
The CA explained its ruling in this wise:

[T]he alleged conveyances purportedly made by Macaria Francisco and plaintiff-appellant Domingo
Averia are unenforceable as the requirements under the Statute of Frauds have not been complied
with. Article 1403, 2(e) of the New Civil Code is explicit:
Art. 1403. The following contracts are unenforceable, unless they are ratified:
(1) x x x
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the
following cases an agreement thereafter made shall be unenforceable by action, unless the
same, or some note or memorandum thereof, be in writing and subscribed by the party
charged, or by this agent; evidence, therefore, of the agreement cannot be received without
the writing, or a secondary evidence of its contents:
(a) x x x;
(b) x x x;
(e) an agreement for the leasing for a longer period than one year, or for the sale of real
property or of an interest therein;
(f) x x x"
The two (2) transactions in question being agreements for the sale of real property or of an interest
therein are in clear contravention of the prescription that it must be in writing and subscribed by the
party charged or by an agent thereof. Hence, the strong insistence by defendants-appellees on the
verbal conveyances cannot be made the basis for the alleged ownership over the undivided interests
claimed by Gregorio Averia.
The parol evidence upon which the trial court anchored its award in favor of defendant-appellee
Gregorio Averia is irregular as such kind of evidence is foreclosed by Article 1403 of the Civil
Code that no evidence of the alleged agreements can be received without the writing of secondary
evidence which embodies the sale of the real property. The introduction of the testimonies of
Gregorio Averias witnesses were timely objectedto by plaintiffs-appellants. Since the testimonies of
defendants-appellees witnesses are inadmissible, then such exclusion has pulled the rug under the
assailed decision of the trial court and it has no more leg to stand on.
In the vain attempt to salvage the situation, defendants-appellees however argue that the Article
1403 or the Statute of Frauds does not apply because the same only refers to purely executory
contracts and not to partially or completely executed contracts.
This contention is untenable. It was not amply demonstrated how such alleged transfers were
executed since plaintiffs-appellants have vigorously objected and opposed the claims of ownership
by defendants-appellees. He who asserts a fact or the affirmative of an issue has the burden of
proving it. Defendants-appellees miserably failed in this respect.
While this Court cannot discount the fact that either defendant-appellee Gregorio Averia or plaintiffappellant Domingo Averia may have valid claims against the estate of Macaria Francsico, such
matter can best be threshed out in the proceedings for partition before the court a quo bearing in
mind that such partition is subject to the payment of the debts of the deceased under Article 1078 of
the Civil Code.9 (Citations omitted; Emphasis and underscoring supplied)
The appellate court thus remanded the case to the trial court.
WHEREFORE, the decision dated July 19, 1991 is reversed and set aside. The case is remanded to
the court a quo which is directed to effect the partition of the subject property or if not, possible, sell
the entire lot and distribute the proceeds of the sale based on equal shares among the children of

the late Macaria Franciscoafter debts of the said deceased are paid or settled pursuant to Article
1078 of the Civil Code.10(Underscoring supplied)
Gregorio and Sylvannas motion for reconsideration having been denied by the appellate court, they lodged
the Petition for Review on Certiorari at bar upon the following assignment of errors:
I. THE COURT OF APPEALS (SECOND DIVISION) ERRED IN ITS FINDING THAT THERE WAS
NO SALEOF ONE-HALF (1/2) OF THE DECEASED MACARIA F. AVERIAS INTEREST AND
OWNERSHIP OVER THE SUBJECT PROPERTY IN FAVOR OF PETITIONER GREGORIO F.
AVERIA.
II. THE COURT OF APPEALS (SECOND DIVISION) ERRED IN ITS FINDING THAT THE
RECEPTION OF PAROL EVIDENCE TO THE EFFECT THAT RESPONDENT DOMINGO AVERIA
HAD ALREADY SOLD HIS ONE SIXTH (1/6) SHARE IN THE SUBJECT PROPERTY IN FAVOR OF
PETITIONER GREGORIO AVERIAIS NOT IN ACCORDANCE WITH LAW.11
Petitioners contend that contrary to the findings of the Court of Appeals, they were able to amply establish,
by the testimonies of credible witnesses, the conveyances to Gregorio of of the Sampaloc property
and 1/6 of the remaining half representing the share of Domingo. 12
With respect to the application by the appellate court of the Statute of Frauds, petitioners contend that the
same refers only to purely executory contracts and not to partially or completely executed contracts as in the
instant case. The finding of the CA that the testimonies of petitioners witnesses were timely objected to by
respondents is not, petitioners insist, borne out in the records of the case except with respect to the
testimony of Gregorio.13
Petitioners thus conclude that respondents waived any objection to the admission of parol evidence, hence,
it is admissible and enforceable14 following Article 140515 of the Civil Code.16
The Court finds for petitioner.
Indeed, except for the testimony of petitioner Gregorio bearing on the verbal sale to him by Macaria of the
property,the testimonies of petitioners witnesses Sylvanna Vergara Clutario and Flora Lazaro Rivera bearing
on the same matter were not objected to by respondents. Just as the testimonies of Gregorio, Jr. and
Veronica Bautista bearing on the receipt by respondent Domingo on July 23, 1983 from Gregorios wife of
P5,000.00 representing partial payment of the P10,000.00 valuation of his (Domingos) 1/6 share in the
property, and of the testimony of Felimon Dagondon bearing on the receipt by Domingo of P5,000.00 from
Gregorio were not objected to. Following Article 1405 of the Civil Code, 17 the contracts which infringed the
Statute of Frauds were ratified by the failure to object to the presentation of parol evidence, hence,
enforceable.
ARTICLE 1403. The following contracts are unenforceable, unless they are ratified:
xxx
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following
cases an agreement hereafter made shall be unenforceable by action, unless the same, or
some note or memorandum thereof, be in writing, and subscribed by the party charged, or by
his agent; evidence, therefore, of the agreement cannot be received without the writing, or a
secondary evidence of its contents:
xxx
(e) An agreement for the leasing for a longer period than one year, or for the sale of real
property or of an interest therein;
x x x (Emphasis and underscoring supplied),

Contrary then to the finding of the CA, the admission of parol evidence upon which the trial court anchored
its decision in favor of respondents is not irregular and is not foreclosed by Article 1405.
In any event, the Statute of Frauds applies only to executory contracts and not to contracts which are either
partially or totally performed.18 In the case at bar, petitioners claimed that there was total performance of the
contracts, full payment of the objects thereof having already been made and the vendee Gregorio having,
even after Macarias death in 1983, continued to occupy the property until and after the filing on January 19,
1989 of the complaint subject of the case at bar as in fact he is still occupying it.
In proving the fact of partial or total performance, oral evidence may be received as what the trial court in the
case at bar did. Noted civilist Arturo M. Tolentino elucidates on the matter:
The statute of frauds is not applicable to contracts which are either totally or partially performed, on
the theory that there is a wide field for the commission of frauds in executory contracts which can
only be prevented by requiring them to be in writing, a fact which is reduced to a minimum in
executed contracts because the intention of the parties becomes apparent by their execution, and
execution concludes, in most cases, the rights of the parties. However it is not enough for a party
to allege partial performance in order to render the Statute of Frauds inapplicable;
such partial performance must be duly proved. But neither is such party required to establish
such partial performance by documentary proof before he could have the opportunity to
introduce oral testimony on the transaction. The partial performance may be proved by either
documentary or oral evidence.19 (Emphasis, underscoring and italics supplied)
The testimonies of petitioners witnesses being credible and straightforward, the trial court did not err in
giving them credence.
The testimony of Sylvana Vergara Clutario, daughter of Teresa, in fact was more than sufficient to prove the
conveyance of half of the subject property by Macaria to Gregorio.
ATTY. DOMINGO:
Q: Are you the same Sylvana Vergara representing the defendant Teresa Averia in this case?
WITNESS:
A: Yes, sir.
Q: Now on February 28, 1972, about 5:30 in the afternoon, where were you?
A: As far as I can remember, I was inside my residence at 725 Extremadura at that date, and time.
Q: On that date and time, where were you residing?
A: At said address, 725 Extremadura Street, that time and date at 5:30 in the afternoon.
Q: Who were your companions if you have any?
A: I was there with my brothers and sisters and Uncle Gregorio and Auntie Agripina and the children
and my grand mother and also the lady who is leading in the prayers because on that date it is the
anniversary of the death of my grandfather.
Q: What is the name of your grandmother?
A: Macaria Averia, sir.
Q: Now, this Gregorio Averia whom you identified to be your Uncle, is he the same Gregorio Averia
who is also the defendant in this case?

WITNESS:
A: The same, sir.
Q: What is the name of your grandfather whom you said whose death anniversary you are then
celebrating on that date?
A: Roberto Romero, sir.
Q: What actually you were doing that time 5:30?
A: We had a gathering and merienda in recollection of the celebration (sic) of the death of my
grandfather, sir.
Q: When you said you were eating then, where were you eating then?
A: It was beside my grandmother.
Q: Where?
A: At the dining room, sir.
Q: So you were sitting at the dining table all of you?
A: Yes, sir the others were a little bit near the table.
Q: Who were seated in the dining table?
A: The Spouses Gregorio and Agripina, my sister Beth and my cousins and my Lola Macaria.
Q: When you were then seated in taking that ginatan as you stated what transpired?
A: Somebody called up and the one who called up was the Secretary of a lawyer and they were
asking for [payment of] expenses in connection with . . . [Criminal Case No. 79955].
Q: You said that it was Agripina who was the one who answered that telephone call. After answering
it, what did she say to anyone seated in that table?
A: Agripina said if Gregorio has some money, he will pay them but Gregorio said he will be
responsible for the expenses.
Q: Did you come to know how much was amount being asked?
A: P500.00, sir.
Q: What else happened after Gregorio said that he would answer for the expenses to be sent to the
lawyer?
A: My Lola said that she was embarrassed and ashame[d] because at that time she d[id] not have
any money and it was the couple who was taking the expenses of the case.
Q: When you said "Lola," you are referring to Macaria Averia?
A: Yes, sir.
Q: What else transpired?

A: Because of her embarrassment, she told [them that] one half (1/2) of the House and Lot will be
given to the couple to cover the expenses of the case.
ATTY. DOMINGO:
Q: To whom did your grandmother say this?
A: Well, she said that to Gregorio and Agripina and Gregorio told her, if that is what you wish, I will
agree to your proposal.
Q: What was the reply of your grand mother?
A: My Lola told Gregorio that since you agree, you better prepare all the documents and we will
make ready the documents for the division or partition.
Q: Do you know what House and Lot one half (1/2) of which your grand mother was given (sic) to
your Uncle and Auntie . . .?
A: She is referring to the House and Lot where I used to live before.
Q: You are referring to the House and Lot located at 725 Extremadura Street, Sampaloc, Manila.
A: Yes, sir.
x x x20 (Emphasis and underscoring supplied)
Not only on account of Sylvanas manner of testifying that her testimony should be given weight. Her
testimony was against the interest of her mother Teresa whom she represented, her mother being also an
heir of Macaria. If the transfer by Macaria to Gregorio of of the property is upheld as valid and
enforceable, then the share of the other heirs including Sylvannas mother would considerably be reduced.
That Atty. Mario C. R. Domingo who was admittedly Macarias counsel in Civil Case No. 79955 (which, as
priorly reflected, entailed a period of ten years in court), affirmed on the witness stand that Gregorio and his
wife were the ones who paid for his attorneys fees amounting to P16,000.0021 should no doubt strongly lend
credence to Gregorios claim to that effect.
As to the sale of Domingos 1/6 share to Gregorio, petitioners were able to establish said transaction by parol
evidence, consisting of the testimonies of Gregorio Averia, Jr.,22 Veronica Averia23 and Felimon
Dagondon24 the presentation of which was, it bears repeating, not objected to.
Albeit Domingo never denied having received the total amount of P10,000.00 from Gregorio and his wife, he
denied having sold to Gregorio his interest over the property. Such disclaimer cannot, however, prevail over
the categorical, positive statements of petitioners above-named witnesses.
In sum, not only did petitioners witnesses prove, by their testimonies, the forging of the contracts of sale or
assignment. They proved the full performance or execution of the contracts as well.
WHEREFORE, the petition is hereby GRANTED. The January 31, 2000 Decision of the Court of Appeals in
CA-G.R. No. 44704 is hereby SET ASIDE.
The case is hereby remanded to the trial court, Branch 31 of the RTC of Manila, for appropriate action,
following Section 2 of Rule 69 of the Rules of Civil Procedure.
SO ORDERED.

G.R. No. 107069 July 21, 1994

HEIRS OF LEANDRO OLIVER, REPRESENTED BY PURITA OLIVER and REMOQUILLO, petitioners,
vs.
THE HONORABLE COURT OF APPEALS, JOSE SERADILLA, and NATIONAL HOUSING
AUTHORITY,respondents.
Rosendo O. Chaves for petitioners.
Emmanuel P. Leonardo for private resondent.

PUNO, J.:
This is a petition for review on certiorari of: (1) the Decision 1 of respondent Court Appeals in CA-G.R. CV No.
26735, entitled "Heirs of Leandro Oliver, represented by Purita Oliver and Pedro Remoquillo, Plaintiffs-Appellants,
versus Jose Seradilla and National Housing Authority, Defendants-Appellees," which affirmed the Decision 2 of the
Regional Trial Court of Bian, Laguna; and (2) the Resolution 3 denying the motion for reconsideration, for lack of
merit.
The findings of fact by the trial court which were adopted by respondent Court of Appeals are as follows:
In August, 1939, the Republic of the Philippines acquired from Colegio de San Jose the
whole of the Tunasan Homesite.
In that same year, Engineer Honorato Maria, authorized by the Bureau of Lands, conducted a
resurvey of the whole Tunasan Homesite, San Pedro, Laguna on the basis of the Bureau's
1939 Master List (Exhibit "20-A"; p. 13 TSN, June 22, 1989).

On the basis of the 1939 resurvey, the relative positions of Lots 19, 20, 22, 23, 24, 25, 26 and
27 were plotted with the vacant lot adjoining the Landayan Creek having been designated as
the Lot 24.
On July 21, 1955, the government through Zoilo Castrillo, then Director of Lands, entered
into and executed an Agreement to Sell (KASUNDUAN SA PAGBIBILI) with Patricio
Seradilla, married to Rosa Catalan, covering several parcels of land denominated as Lots 9,
9-A, 22, 23, 25 and 26 of Blocks 61 and 87 of the Tunasan Homesite, San Pedro, Laguna
(Exh. "1").
During these times, Leandro Oliver, predecessor of plaintiffs and brother of Patricio Seradilla
and thus an uncle of defendant Jose Seradilla, was said to have been occupying Lot 24,
Block 87.
On September 15, 1955, Patricio Seradilla died.
On November 6, 1959, the heirs of Patricio Seradilla namely: Soledad, Paz, Esperanza, Pilar,
all surnamed Seradilla, but without the participation of Jose Seradilla, allegedly for the good
location and valuability of Lot 24, Block 87 to the use of Lots 25, 26 and 27, Block 87,
entered into an agreement with their uncle Leandro Oliver, consolidating the latter's Lot 24
Block 87 with the lots left by Patricio Seradilla Lots 22, 23, 25 and 26 Block 87 of the
Tunasan Homesite, San Pedro, Laguna, and dividing the same equally among them
without, however, touching the part occupied by heir Jose Seradilla.
On July 9, 1961, a sketch representing the agreed partition of the mentioned lots with the
respective designation of each was executed and signed by all the heirs including Jose
Seradilla and Leandro Oliver (Exh. "E-2").
Apparently, pursuant to the Agreement of November 6, 1959 and the supplemental sketch
drafted on July 9, 1961 (Exh. "E-2"), Leandro Oliver vacated his Lot 24, Block 87 and
occupied portion of Lot 22, Block 87. This same lot was later designated as new Lot 26,
Block 87 which was subdivided into two lots designated as Lots 26 and 30, Block 21 (Exh.
"7").
On September 19, 1961, relying on the Agreement of 1959, Leandro Oliver for a
consideration of P500.00, sold to plaintiff Pedro Remoquillo one-half (1/2) portion of Lot 26,
Block 87 (portion of old Lot 22 Block 87) which was henceforth designated as Lot 30 Block
21. This lot, therefore, originated and was a portion of old Lot 22, Block 87 (Exhs. "7" and
"8").
In May 1983, (sic 1963) and upon the request of the heirs of Patricio Seradilla, Engineer
Honorato Sta. Maria made a resurvey of the lots recorded in the name of Patricio Seradilla
(Exh. "18").
On June 30, 1963, visibly discontented, Jose Seradilla urged his co-heirs to execute a new
sketch based on the 1983 (sic 1963) resurvey of Engineer Sta. Maria excluding Leandro
Oliver from the partition and adjudicating upon defendant Jose Seradilla Lots 14, 14-A Block
61, and Lots 26 and 29 Block 87.
Thus, on July 5, 1963, the heirs of Patricio Seradilla formalized their agreement and
executed an Agreement of Partition revoking the Agreement of 1959 and subdividing the
parcels of land left by their parents in the following manner (Exhibit "18"):
To Soledad Lot 24, Block 87
Paz Lot 25, Block 87
Jose Lots 14, 14-A
Block 61
Lots 26 and 29,
Block 87
Rosario Lots 10 and 10-A
Block 61
Lot 22, Block 87
Esperanza Lots 23, Block 87
Pilar (deceased) Lot 27, Block 87

On July 6, 1966, pursuant to the survey conducted on September 2, 1951 to March 4, 1952,
September 1, 1956 and July 31, 1958 to April 10, 1962, the Director of Lands approved the
Subdivision Plan of the Tunasan Homesite and Block 87 was designated as Block 21 (Exh.
"20-B").
Several years later, on August 13, 1970, the heirs of Patricio Seradilla again executed an
Extra-judicial Partition of the same parcels of land duly published for three (3) consecutive
times in a newspaper (sic) of general circulation (Exh. "N-5") but omitted to include Lots 26
and 30 Block 21 (Exhs. "N"; "N-1" to "N-4") due to an alleged typographical error and they
being unaware of the existence of Lot 30 (pp. 9 to 12, TSN, October 20, 1988).
On January 16, 1980, on the basis of the representation of Jose Seradilla that Lots 26 and
30, Block 21 were included in the partition (Exh. "M"), the National Housing Authority through
J.S. de Vera, Manager, Estate Management Department, sold to Jose Seradilla Lots 26 and
30, Block 21, Psd 74516 of the Tunasan Homesite, San Pedro, Laguna (Exh. "Q"; "Q-1" to
"Q-5", inclusive, Exhs. "4"; "4-A"; "5" and "5-A").
On January 25, 1980, Transfer of Certificates Title No. T-67081 and T-67082 covering Lots
30 and 26, respectively, were issued in favor of herein defendant Jose Seradilla (Exhs. "R"
and "S"). 4
On June 4, 1982, petitioners filed a complaint for Annulment of Title with Damages against respondents
before the Regional Trial Court of Bian, Laguna, Branch XXV, docketed as Civil Case No. B-1863. They
sought to annul two (2) administrative patents issued by respondent National Housing Authority (NHA) to
respondent Jose Seradilla. They asserted preferential rights over the same as heirs and vendees of Leandro
Oliver, respectively. These parcels of land were duly registered in the name of Jose Seradilla and recorded
as Transfer Certificates of Title No. T-67081 and T-67082 in the Registry of Deeds of Calamba, Laguna. 5
Respondents answered the complaint. On February 16, 1990, the court rendered judgment against
petitioners, the dispositive portion of which reads:
IN THE LIGHT OF THE FOREGOING, judgment is hereby rendered in favor of the
defendants and against the plaintiffs dismissing the complaint and upholding the validity of
Transfer of Certificates of Title No. T-67081 and T-67082 of the Registry of Deeds of Laguna
covering Lots 30 and 26, respectively, of the Tunasan Homesite San Pedro, Laguna in the
name of Jose Seradilla. Consequently, plaintiffs or their assigns are directed to vacate and
surrender to defendant Seradilla possession of Lots 26 and 30, Block 21 of the Tunasan
Homesite, San Pedro, Laguna covered by the above mentioned Transfer Certificates of Title.
It appearing that the case was not filed with any malicious intention on the part of the
plaintiffs, defendants' counterclaims are likewise dismissed for lack of merits. (sic)
SO ORDERED. 6
On appeal, the respondent Court of Appeals affirmed the controverted decision of the trial court. On
September 11, 1992, petitioners' motion for reconsideration was denied for lack of merit.
Hence, this petition.
Petitioners raise the following issues, viz:
I
IS A BILATERAL CONTRACT VOID AB INITIO JUST BECAUSE ONLY 4 OUT OF 5 HEIRS
PARTICIPATED THEREIN REPRESENTING THEIR SIDE?
II
CAN A BILATERAL CONTRACT BE SUPERSEDED BY A SUBSEQUENT UNILATERAL
AGREEMENT EXECUTED BY ALL OF THE 5 HEIRS BUT WITHOUT THE PARTICIPATION
OF THE OTHER PARTY?
III

FROM WHEN IS THE 5-YEAR RESTRICTION AGAINST TRANSFER IN ADMINISTRATIVE

PATENT COUNTED?
IV
WHAT IS THE EFFECT OF PERSONAL DISQUALIFICATION TO BEING A PATENTEE OF
PUBLIC DISPOSABLE LAND AND THE UTTER LACK OF BASIS OF THE GRANT OF A
PATENT?
We rule for private respondents.
The petition at bench can succeed only by a showing that the Consolidation and Partition Agreement dated
November 6, 1959 is valid. We uphold the respondent court in ruling that it is void on the ground that it was
made within the five (5) year period prohibiting the sale, assignment, encumbrance, mortgage, or transfer of
land acquired under free patent or homestead as mandated by C.A. 141, section 118, as amended by C.A.
496. 7 Indeed, this legal prohibition is expressly recited in the Agreement to Sell dated July 21, 1955 8 between the
government and the late Patricio Seradilla, viz:
12. The Applicant shall not sell, assign, encumber, mortgage, transfer, or in any other manner
affect his rights under this contract or in the property subject hereof without first obtaining the
written consent of the Administration and this condition shall subsist until the lapse of five (5)
years from the date of the execution of the final deed of sale in his favor and shall be
annotated as an encumbrance on the certificate of title of the property that may be issued in
his favor.
13. This Agreement shall be binding upon the heirs, executors, administrators, successors,
and assigns of the respective parties hereto.
As the Consolidation and Partition Agreement contravened section 118, C.A. 141, as amended by C.A. 496,
it is null and void pursuant to paragraph 7, Article 1409 of the Civil Code. 9
In this light, the reliance of the petitioners on the sketch of July 9, 1961 signed by private respondent Jose
Seradilla allegedly confirming the Consolidation and Partition Agreement dated November 6, 1959 is hardly
of any moment. As Article 1409 of the Civil Code, op. cit., expressly states that void contracts cannot be
ratified. Needless to state, the July 5, 1963 Agreement of the heirs of Patricio Seradilla revoking the void
Consolidation and Partition Agreement dated November 6, 1959 cannot be faulted.
Next, petitioners further allege that Lots 26 and 30 were not among those properties left by decedent Patricio
Seradilla to his heirs. The grant of patents in favor of private respondent Seradilla covering these lots was
therefore erroneous, it is urged.
Again, we are not persuaded for as correctly observed by the respondent court:

10

The omission to specifically mention Lots 26 and Lot 30, Block 21, is more apparent than
real, because, as we explained above, said Lots 26 and 30, Block 21 were the subdivided
lots of new Lot 26, Block 87, which was formerly Lot 22, Block 21, as mentioned. Besides,
said Lot 22, Block 87, was among the Lots which were awarded to Patricio Seradilla or were
subject of the Contract to Sell of July 21, 1955 between Patricio and the government (Exhibit
1). Block 21 was formerly Block 87 (Exhibits 7 and 8).
Lastly, petitioners contend that private respondent is disqualified from being a patentee of the lots in
question. They contend that their predecessor-in-interest, Leandro Oliver, has better qualifications. This
submission was rejected by the trial court which found and ruled: 11
FIRSTLY, Leandro Oliver failed to file the requisite application over either Lot 24 where he
allegedly stayed originally but which was later identified as the vacant lot adjacent to the
Landayan creek (Exh. "20-A") and was during the 1951-1962 survey, eroded by the
Landayan creek (Exh. "20-B", p. 30, TSN, June 22, 1989; or Lot 26, Blocks 87) where he
supposedly transferred in exchange for Lot 24 per the Agreement of 1959.
xxx xxx xxx
SECONDLY, the lots subject matter of the Agreement of November 6, 1959 were awarded to
Patricio Seradilla, pursuant to an Agreement to Sell dated July 21, 1955 whereby the latter

agreed to buy the parcels of land therein mentioned restricted by the conditions laid down in
such contract, pertinent of which are paragraphs 12 and 13 (Exh. "1").
xxx xxx xxx
THIRDLY, Leandro Oliver died on December 23, 1976, 13 years from the time he had
learned of the revocation of their original agreement. Yet, he chose to remain silent; he did
not move to protest his right and slept thereon. He must, therefore, suffer the ultimate effects
of laches. The right of defendant Seradilla over Lots 26 and 30 (portion of lot 22) must be put
to rest and be recognized.
Obviously, petitioners are grasping on questions of fact. Our unbending jurisprudence forbids us to entertain
questions of fact in a petition for review on certiorari under Rule 45 of the Rules of Court. 12 This rule finds
stronger application in the petition at bench considering that it involves facts established in administrative
proceedings and confirmed by both trial court and the respondent court.
IN VIEW WHEREOF, the petition is DENIED there being no showing of any reversible error committed by
the respondent court. Costs against petitioners.
SO ORDERED.

[G.R. No. 97785. March 29, 1996]

PHILIPPINE COMMERCIAL INTERNATIONAL BANK, petitioner, vs. COURT OF APPEALS and RORY W.
LIM, respondents.
DECISION
FRANCISCO, J.:
This is a petition for review on certiorari seeking the reversal of the Decision of the Court of Appeals in CAG.R. No. 18843 promulgated on July 30, 1990, and the Resolution dated March 11, 1991, affirming with
modification the judgment of the Regional Trial Court of Gingoog City which held petitioner Philippine Commercial
International Bank (PCIB) liable for damages resulting from its breach of contract with private respondent Rory W.
Lim.
Disputed herein is the validity of the stipulation embodied in the standard application form/receipt furnished
by petitioner for the purchase of a telegraphic transfer which relieves it of any liability resulting from loss caused
by errors or delays in the course of the discharge of its services.
The antecedent facts are as follows:
On March 13, 1986, private respondent Rory Lim delivered to his cousin Lim Ong Tian PCIB Check No. JJJ
24212467 in the amount of P200,000.00 for the purpose of obtaining a telegraphic transfer from petitioner PCIB in
the same amount. The money was to be transferred to Equitable Banking Corporation, Cagayan de Oro Branch,
and credited to private respondents account at the said bank. Upon purchase of the telegraphic transfer, petitioner
issued the corresponding receipt dated March 13, 1986 [T/T No. 284][1] which contained the assailed provision, to
wit:
AGREEMENT
xxx xxx xxx
In case of fund transfer, the undersigned hereby agrees that such transfer will be made without any responsibility
on the part of the BANK, or its correspondents, for any loss occasioned by errors, or delays in the transmission of

message by telegraph or cable companies or by the correspondents or agencies, necessarily employed by this
BANK in the transfer of this money, all risks for which are assumed by the undersigned.
Subsequent to the purchase of the telegraphic transfer, petitioner in turn issued and delivered eight (8)
Equitable Bank checks[2] to his suppliers in different amounts as payment for the merchandise that he obtained
from them. When the checks were presented for payment, five of them bounced for insufficiency of funds, [3] while
the remaining three were held overnight for lack of funds upon presentment. [4]Consequent to the dishonor of these
checks, Equitable Bank charged and collected the total amount of P1, 100.00 from private respondent. The
dishonor of the checks came to private respondents attention only on April 2, 1986, when Equitable Bank notified
him of the penalty charges and after receiving letters from his suppliers that his credit was being cut-off due to the
dishonor of the checks he issued.
Upon verification by private respondent with the Gingoog Branch Office of petitioner PCIB, it was confirmed
that his telegraphic transfer (T/T No. 284) for the sum of P200,000.00 had not yet been remitted to Equitable
Bank, Cagayan de Oro branch. In fact, petitioner PCIB made the corresponding transfer of funds only on April 3,
1986, twenty one (21) days after the purchase of the telegraphic transfer on March 13,1986.
Aggrieved, private respondent demanded from petitioner PCIB that he be compensated for the resulting
damage that he suffered due to petitioners failure to make the timely transfer of funds which led to the dishonor of
his checks. In a letter dated April 23, 1986, PCIBs Branch Manager Rodolfo Villarmia acknowledged their failure to
transmit the telegraphic transfer on time as a result of their mistake in using the control number twice and the
petitioner banks failure to request confirmation and act positively on the disposition of the said telegraphic transfer.
[5]

Nevertheless, petitioner refused to heed private respondents demand prompting the latter to file a complaint
for damages with the Regional Trial Court of Gingoog City[6] on January 16, 1987. In his complaint, private
respondent alleged that as a result of petitioners total disregard and gross violation of its contractual obligation to
remit and deliver the sum of Two Hundred Thousand Pesos (P200,000.00) covered by T/T No. 284 to Equitable
Banking Corporation, Cagayan de Oro Branch, private respondents checks were dishonored for insufficient funds
thereby causing his business and credit standing to suffer considerably for which petitioner should be ordered to
pay damages.[7]
Answering the complaint, petitioner denied any liability to private respondent and interposed as special and
affirmative defense the lack of privity between it and private respondent as it was not private respondent himself
who purchased the telegraphic transfer from petitioner. Additionally, petitioner pointed out that private respondent
is nevertheless bound by the stipulation in the telegraphic transfer application/form receipt [8] which provides:
x x x. In case of fund transfer, the undersigned hereby agrees that such transfer will be made without any
responsibility on the part of the BANK, or its correspondents, for any loss occasioned by errors or delays in the
transmission of message by telegraph or cable companies or by correspondents or agencies, necessarily
employed by this BANK in the transfer of this money, all risks for which are assumed by the undersigned.
According to petitioner, they utilized the services of RCPI-Gingoog City to transmit the message regarding private
respondents telegraphic transfer because their telex machine was out of order at that time. But as it turned out, it
was only on April 3, 1986 that petitioners Cagayan de Oro Branch had received information about the said
telegraphic transfer.[9]
In its decision dated July 27, 1988[10] the Regional Trial Court of Gingoog City held petitioner liable for breach
of contract and struck down the aforecited provision found in petitioners telegraphic transfer application
form/receipt exempting it from any liability and declared the same to be invalid and unenforceable. As found by the
trial court, the provision amounted to a contract of adhesion wherein the objectionable portion was unilaterally
inserted by petitioner in all its application forms without giving any opportunity to the applicants to question the
same and express their conformity thereto.[11]Thus, the trial court adjudged petitioner liable to private respondent
for the following amounts:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and against the defendant, ordering the latter to
pay the former as follows:
P960,000.00 as moral damages;
P50,000.00 as exemplary damages;
P40,000.00 as attorneys fees; and
P1,100.00 as reimbursement for the surcharges paid by plaintiff to the Equitable Banking Corporation,
plus costs, all with legal interest of 6% per annum from the date of this judgment until the same shall
have been paid in full.[12]
Upon appeal by petitioner to the Court of Appeals, respondent court affirmed with modifications the judgment
of the trial court and ordered as follows:

WHEREFORE, premises considered, judgment is hereby rendered affirming the appealed decision with
modification, as follows:
The defendant-appellant is ordered to pay to the plaintiff-appellee the following:
1. The sum of Four Hundred Thousand (P400,000.00) Pesos as/for moral damages;
2. The sum of Forty Thousand (P40,000.00) Pesos as exemplary damage to serve as an example for
the public good;
3. The sum of Thirty Thousand (P30,000.00) Pesos representing attorneys fees;
4. The sum of One Thousand One Hundred (P1,100.00) Pesos as actual damage, and
5. To pay the costs.
SO ORDERED.[13]
A motion for reconsideration was filed by petitioner but respondent Court of Appeals denied the same. [14]
Still unconvinced, petitioner elevated the case to this Court through the instant petition for review on certiorari
invoking the validity of the assailed provision found in the application form/receipt exempting it from any liability in
case of loss resulting from errors or delays in the transfer of funds.
Petitioner mainly argues that even assuming that the disputed provision is a contract of adhesion, such fact
alone does not make it invalid because this type of contract is not absolutely prohibited. Moreover, the terms
thereof are expressed clearly, leaving no room for doubt, and both contracting parties understood and had full
knowledge of the same.
Private respondent however contends that the agreement providing non-liability on petitioners part in case of
loss caused by errors or delays despite its recklessness and negligence is void for being contrary to public policy
and interest.[15]
A contract of adhesion is defined as one in which one of the parties imposes a ready-made form of contract,
which the other party may accept or reject, but which the latter cannot modify.[16] One party prepares the stipulation
in the contract, while the other party merely affixes his signature or his adhesion thereto, [17] giving no room
for negotiation and depriving the latter of the opportunity to bargain on equal footing. [18] Nevertheless, these types
of contracts have been declared as binding as ordinary contracts, the reason being that the party who adheres to
the contract is free to reject it entirely.[19] It is equally important to stress, though, that the Court is not precluded
from ruling out blind adherence to their terms if the attendant facts and circumstances show that they should be
ignored for being obviously too one-sided.[20]
On previous occasions, it has been declared that a contract of adhesion may be struck down as void and
unenforceable, for being subversive to public policy, only when the weaker party is imposed upon in dealing with
the dominant bargaining party and is reduced to the alternative of taking it or leaving it, completely deprived of the
opportunity to bargain on equal footing. [21] And when it has been shown that the complainant is knowledgeable
enough to have understood the terms and conditions of the contract, or one whose stature is such that he is
expected to be more prudent and cautious with respect to his transactions, such party cannot later on be heard to
complain for being ignorant or having been forced into merely consenting to the contract. [22]
The factual backdrop of the instant case, however, militates against applying the aforestated
pronouncements. That petitioner failed to discharge its obligation to transmit private respondents telegraphic
transfer on time in accordance with their agreement is already a settled matter as the same is no longer disputed
in this petition. Neither is the finding of respondent Court of Appeals that petitioner acted fraudulently and in bad
faith in the performance of its obligation, being contested by petitioner. Perforce, we are bound by these factual
considerations.
Having established that petitioner acted fraudulently and in bad faith, we find it implausible to absolve
petitioner from its wrongful acts on account of the assailed provision exempting it from any liability. In
Geraldez vs. Court of Appeals,[23] it was unequivocally declared that notwithstanding the enforceability of a
contractual limitation, responsibility arising from a fraudulent act cannot be exculpated because the same is
contrary to public policy. Indeed, Article 21 of the Civil Code is quite explicit in providing that [a]ny person who
willfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall
compensate the latter for the damage. Freedom of contract is subject to the limitation that the agreement must not
be against public policy and any agreement or contract made in violation of this rule is not binding and will not be
enforced.[24]
The prohibition against this type of contractual stipulation is moreover treated by law as void which may not
be ratified or waived by a contracting party. Article 1409 of the Civil Code states:
ART. 1409. The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy;

xxx xxx xxx

These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived.
Undoubtedly, the services being offered by a banking institution like petitioner are imbued with public interest.
[25]
The use of telegraphic transfers have now become commonplace among businessmen because it facilitates
commercial transactions. Any attempt to completely exempt one of the contracting parties from any liability in case
of loss notwithstanding its bad faith, fault or negligence, as in the instant case, cannot be sanctioned for being
inimical to public interest and therefore contrary to public policy. Resultingly, there being no dispute that petitioner
acted fraudulently and in bad faith, the award of moral [26] and exemplary damages were proper.
But notwithstanding petitioners liability for the resulting loss and damage to private respondent, we find the
amount of moral damages adjudged by respondent court in the sum of P400,000.00 exorbitant.Bearing in mind
that moral damages are awarded, not to penalize the wrongdoer, but rather to compensate the claimant for the
injuries that he may have suffered, [27] we believe that an award of Two Hundred Thousand Pesos (P200,000.00) is
reasonable under the circumstances.
WHEREFORE, subject to the foregoing modification reducing the amount awarded as moral damages to the
sum of Two Hundred Thousand Pesos (P200,000.00), the appealed decision is hereby AFFIRMED.
SO ORDERED.

G.R. No. 111448

January 16, 2002

AF REALTY & DEVELOPMENT, INC. and ZENAIDA R. RANULLO, petitioners,

vs.
DIESELMAN FREIGHT SERVICES, CO., MANUEL C. CRUZ, JR. and MIDAS DEVELOPMENT
CORPORATION,respondents.
SANDOVAL-GUTIERREZ, J.:
Petition for review on certiorari assailing the Decision dated December 10, 1992 and the Resolution
(Amending Decision) dated August 5, 1993 of the Court of Appeals in CA-G.R. CV No. 30133.
Dieselman Freight Service Co. (Dieselman for brevity) is a domestic corporation and a registered owner of a
parcel of commercial lot consisting of 2,094 square meters, located at 104 E. Rodriguez Avenue, Barrio
Ugong, Pasig City, Metro Manila. The property is covered by Transfer Certificate of Title No. 39849 issued by
the Registry of Deeds of the Province of Rizal.1
On May 10, 1988, Manuel C. Cruz, Jr., a member of the board of directors of Dieselman, issued a letter
denominated as "Authority To Sell Real Estate"2 to Cristeta N. Polintan, a real estate broker of the CNP Real
Estate Brokerage. Cruz, Jr. authorized Polintan "to look for a buyer/buyers and negotiate the sale" of the lot
at P3,000.00 per square meter, or a total of P6,282,000.00. Cruz, Jr. has no written authority from Dieselman
to sell the lot.
In turn, Cristeta Polintan, through a letter3 dated May 19, 1988, authorized Felicisima ("Mimi") Noble4 to sell
the same lot.
Felicisima Noble then offered for sale the property to AF Realty & Development, Inc. (AF Realty) at
P2,500.00 per square meter.5 Zenaida Ranullo, board member and vice-president of AF Realty, accepted the
offer and issued a check in the amount of P300,000.00 payable to the order of Dieselman. Polintan received
the check and signed an "Acknowledgement Receipt"6 indicating that the amount of P300,000.00 represents

the partial payment of the property but refundable within two weeks should AF Realty disapprove Ranullo's
action on the matter.
On June 29, 1988, AF Realty confirmed its intention to buy the lot. Hence, Ranullo asked Polintan for the
board resolution of Dieselman authorizing the sale of the property. However, Polintan could only give Ranullo
the original copy of TCT No. 39849, the tax declaration and tax receipt for the lot, and a photocopy of the
Articles of Incorporation of Dieselman.7
On August 2, 1988, Manuel F. Cruz, Sr., president of Dieselman, acknowledged receipt of the said
P300,000.00 as "earnest money" but required AF Realty to finalize the sale at P4,000.00 per square
meter.8 AF Realty replied that it has paid an initial down payment of P300,000.00 and is willing to pay the
balance.9
However, on August 13, 1988, Mr. Cruz, Sr. terminated the offer and demanded from AF Realty the return of
the title of the lot earlier delivered by Polintan.10
Claiming that there was a perfected contract of sale between them, AF Realty filed with the Regional Trial
Court, Branch 160, Pasig City a complaint for specific performance (Civil Case No. 56278) against
Dieselman and Cruz, Jr.. The complaint prays that Dieselman be ordered to execute and deliver a final deed
of sale in favor of AF Realty.11 In its amended complaint,12 AF Realty asked for payment of P1,500,000.00 as
compensatory damages; P400,000.00 as attorney's fees; and P500,000.00 as exemplary damages.
In its answer, Dieselman alleged that there was no meeting of the minds between the parties in the sale of
the property and that it did not authorize any person to enter into such transaction on its behalf.
Meanwhile, on July 30, 1988, Dieselman and Midas Development Corporation (Midas) executed a Deed of
Absolute Sale13 of the same property. The agreed price was P2,800.00 per square meter. Midas delivered to
Dieselman P500,000.00 as down payment and deposited the balance of P5,300,000.00 in escrow account
with the PCIBank.
Constrained to protect its interest in the property, Midas filed on April 3, 1989 a Motion for Leave to Intervene
in Civil Case No. 56278. Midas alleged that it has purchased the property and took possession thereof,
hence Dieselman cannot be compelled to sell and convey it to AF Realty. The trial court granted Midas'
motion.
After trial, the lower court rendered the challenged Decision holding that the acts of Cruz, Jr. bound
Dieselman in the sale of the lot to AF Realty.14 Consequently, the perfected contract of sale between
Dieselman and AF Realty bars Midas' intervention. The trial court also held that Midas acted in bad faith
when it initially paid Dieselman P500,000.00 even without seeing the latter's title to the property. Moreover,
the notarial report of the sale was not submitted to the Clerk of Court of the Quezon City RTC and the
balance of P5,300,000.00 purportedly deposited in escrow by Midas with a bank was not established.
1wphi1.nt

The dispositive portion of the trial court's Decision reads:

"WHEREFORE, foregoing considered, judgment is hereby rendered ordering defendant to execute
and deliver to plaintiffs the final deed of sale of the property covered by the Transfer Certificate of
Title No. 39849 of the Registry of Deed of Rizal, Metro Manila District II, including the improvements
thereon, and ordering defendants to pay plaintiffs attorney's fees in the amount of P50,000.00 and to
pay the costs.
"The counterclaim of defendants is necessarily dismissed.
"The counterclaim and/or the complaint in intervention are likewise dismissed
"SO ORDERED."15
Dissatisfied, all the parties appealed to the Court of Appeals.

AF Realty alleged that the trial court erred in not holding Dieselman liable for moral, compensatory and
exemplary damages, and in dismissing its counterclaim against Midas.
Upon the other hand, Dieselman and Midas claimed that the trial court erred in finding that a contract of sale
between Dieselman and AF Realty was perfected. Midas further averred that there was no bad faith on its
part when it purchased the lot from Dieselman.
In its Decision dated December 10, 1992, the Court of Appeals reversed the judgment of the trial court
holding that since Cruz, Jr. was not authorized in writing by Dieselman to sell the subject property to AF
Realty, the sale was not perfected; and that the Deed of Absolute Sale between Dieselman and Midas is
valid, there being no bad faith on the part of the latter. The Court of Appeals then declared Dieselman and
Cruz, Jr. jointly and severally liable to AF Realty for P100,000.00 as moral damages; P100,000.00 as
exemplary damages; and P100,000.00 as attorney's fees.16
On August 5, 1993, the Court of Appeals, upon motions for reconsideration filed by the parties, promulgated
an Amending Decision, the dispositive portion of which reads:
"WHEREFORE, The Decision promulgated on October 10, 1992, is hereby AMENDED in the sense
that only defendant Mr. Manuel Cruz, Jr. should be made liable to pay the plaintiffs the damages and
attorney's fees awarded therein, plus the amount of P300,000.00 unless, in the case of the said
P300,000.00, the same is still deposited with the Court which should be restituted to plaintiffs.
"SO ORDERED."17
AF Realty now comes to this Court via the instant petition alleging that the Court of Appeals committed
errors of law.
The focal issue for consideration by this Court is who between petitioner AF Realty and respondent Midas
has a right over the subject lot.
The Court of Appeals, in reversing the judgment of the trial court, made the following ratiocination:
"From the foregoing scenario, the fact that the board of directors of Dieselman never authorized,
verbally and in writing, Cruz, Jr. to sell the property in question or to look for buyers and negotiate the
sale of the subject property is undeniable.
"While Cristeta Polintan was actually authorized by Cruz, Jr. to look for buyers and negotiate the sale
of the subject property, it should be noted that Cruz, Jr. could not confer on Polintan any authority
which he himself did not have. Nemo dat quod non habet. In the same manner, Felicisima Noble
could not have possessed authority broader in scope, being a mere extension of Polintan's purported
authority, for it is a legal truism in our jurisdiction that a spring cannot rise higher than its source.
Succinctly stated, the alleged sale of the subject property was effected through persons who were
absolutely without any authority whatsoever from Dieselman.
"The argument that Dieselman ratified the contract by accepting the P300,000.00 as partial payment
of the purchase price of the subject property is equally untenable. The sale of land through an agent
without any written authority is void.
xxx

xxx

xxx

"On the contrary, anent the sale of the subject property by Dieselman to intervenor Midas, the
records bear out that Midas purchased the same from Dieselman on 30 July 1988. The notice of lis
pendens was subsequently annotated on the title of the property by plaintiffs on 15 August 1988.
However, this subsequent annotation of the notice of lis pendens certainly operated prospectively
and did not retroact to make the previous sale of the property to Midas a conveyance in bad faith. A
subsequently registered notice of lis pendens surely is not proof of bad faith. It must therefore be
borne in mind that the 30 July 1988 deed of sale between Midas and Dieselman is a document duly
certified by notary public under his hand and seal. x x x. Such a deed of sale being public document

acknowledged before a notary public is admissible as to the date and fact of its execution without
further proof of its due execution and delivery (Bael vs. Intermediate Appellate Court, 169 SCRA617;
Joson vs. Baltazar, 194 SCRA 114) and to prove the defects and lack of consent in the execution
thereof, the evidence must be strong and not merely preponderant x x x." 18
We agree with the Court of Appeals.
Section 23 of the Corporation Code expressly provides that the corporate powers of all corporations shall be
exercised by the board of directors. Just as a natural person may authorize another to do certain acts in his
behalf, so may the board of directors of a corporation validly delegate some of its functions to individual
officers or agents appointed by it.19 Thus, contracts or acts of a corporation must be made either by the
board of directors or by a corporate agent duly authorized by the board. 20 Absent such valid
delegation/authorization, the rule is that the declarations of an individual director relating to the affairs of the
corporation, but not in the course of, or connected with, the performance of authorized duties of such
director, are held not binding on the corporation.21
In the instant case, it is undisputed that respondent Cruz, Jr. has no written authority from the board of
directors of respondent Dieselman to sell or to negotiate the sale of the lot, much less to appoint other
persons for the same purpose. Respondent Cruz, Jr.'s lack of such authority precludes him from conferring
any authority to Polintan involving the subject realty. Necessarily, neither could Polintan authorize Felicisima
Noble. Clearly, the collective acts of respondent Cruz, Jr., Polintan and Noble cannot bind Dieselman in the
purported contract of sale.
Petitioner AF Realty maintains that the sale of land by an unauthorized agent may be ratified where, as here,
there is acceptance of the benefits involved. In this case the receipt by respondent Cruz, Jr. from AF Realty
of the P300,000.00 as partial payment of the lot effectively binds respondent Dieselman. 22
We are not persuaded.
Involved in this case is a sale of land through an agent. Thus, the law on agency under the Civil Code takes
precedence. This is well stressed in Yao Ka Sin Trading vs. Court of Appeals:23
"Since a corporation, such as the private respondent, can act only through its officers and agents, all
acts within the powers of said corporation may be performed by agents of its selection; and,
except so far as limitations or restrictions may be imposed by special charter, by-law, or statutory
provisions, the same general principles of law which govern the relation of agency for a
natural person govern the officer or agent of a corporation, of whatever status or rank, in
respect to his power to act for the corporation; and agents when once appointed, or members
acting in their stead, are subject to thesame rules, liabilities, and incapacities as are agents of
individuals and private persons." (Emphasis supplied)
Pertinently, Article 1874 of the same Code provides:
"ART. 1874. When a sale of piece of land or any interest therein is through an agent,
the authority of the latter shall be in writing; otherwise, the sale shall be void." (Emphasis
supplied)
Considering that respondent Cruz, Jr., Cristeta Polintan and Felicisima Ranullo were not authorized by
respondent Dieselman to sell its lot, the supposed contract is void. Being a void contract, it is not susceptible
of ratification by clear mandate of Article 1409 of the Civil Code, thus:
"ART. 1409. The following contracts are inexistent and void from the very beginning:
xxx
(7) Those expressly prohibited or declared void by law.

"These contracts cannot be ratified. Neither can the right to set up the defense of illegality be
waived." (Emphasis supplied)
Upon the other hand, the validity of the sale of the subject lot to respondent Midas is unquestionable. As
aptly noted by the Court of Appeals,24 the sale was authorized by a board resolution of respondent
Dieselman dated May 27, 1988.
1wphi1.nt

The Court of Appeals awarded attorney's fees and moral and exemplary damages in favor of petitioner AF
Realty and against respondent Cruz, Jr.. The award was made by reason of a breach of contract imputable
to respondent Cruz, Jr. for having acted in bad faith. We are no persuaded. It bears stressing that petitioner
Zenaida Ranullo, board member and vice-president of petitioner AF Realty who accepted the offer to sell the
property, admitted in her testimony25that a board resolution from respondent Dieselman authorizing the sale
is necessary to bind the latter in the transaction; and that respondent Cruz, Jr. has no such written authority.
In fact, despite demand, such written authority was not presented to her.26 This notwithstanding, petitioner
Ranullo tendered a partial payment for the unauthorized transaction. Clearly, respondent Cruz, Jr. should not
be held liable for damages and attorney's fees.
WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are
hereby AFFIRMED withMODIFICATION in the sense that the award of damages and attorney's fees is
deleted. Respondent Dieselman is ordered to return to petitioner AF Realty its partial payment of
P300,000.00. Costs against petitioners.
SO ORDERED.

[G.R. No. 158382. January 27, 2004]

MANSUETO CUATON, petitioner, vs. REBECCA SALUD and COURT OF APPEALS (Special Fourteenth
Division), respondents.
DECISION

YNARES-SANTIAGO, J.:
Before the Court is a petition for review on certiorari assailing the August 31, 2001 Decision[1] of the Court of
Appeals in CA-G.R. CV No. 54715 insofar as it affirmed the Judgment [2] of the Regional Trial Court of General
Santos City, Branch 35, in SPL. Civil Case No. 359, imposing interest at the rate of 8% to 10% per month on the
one-million-peso loan of petitioner.
On January 5, 1993, respondent Rebecca Salud, joined by her husband Rolando Salud, instituted a suit for
foreclosure of real estate mortgage with damages against petitioner Mansueto Cuaton and his mother, Conchita
Cuaton, with the Regional Trial Court of General Santos City, Branch 35, docketed as SPL. Civil Case No. 359.
[3]
The trial court rendered a decision declaring the mortgage constituted on October 31, 1991 as void, because it
was executed by Mansueto Cuaton in favor of Rebecca Salud without expressly stating that he was merely acting
as a representative of Conchita Cuaton, in whose name the mortgaged lot was titled. The court ordered petitioner
to pay Rebecca Salud, inter alia, the loan secured by the mortgage in the amount of One Million Pesos plus a total
P610,000.00 representing interests of 10% and 8% per month for the period February 1992 to August 1992, thus
Original loan ------------------------------------------------------ P1,000,000.00
10% interest for the month of
February 1992
balance only --------------------------------------------- 50,000.00
10% interest for the month of
March 1992 --------------------------------------------- 100,000.00
10% interest for the month of
April 1992 ---------------------------------------------- 100,000.00
10% interest for the month of
May 1992 ----------------------------------------------- 100,000.00
10% interest for the month of
June 1992 ----------------------------------------------- 100,000.00
8% interest for the month of
July 1992 ------------------------------------------------ 80,000.00
8% interest for the month of
August 1992 -------------------------------------------- 80,000.00
--------------------Total amount as of August 1992 ------------------P 1, 610,000.00 [4]
The dispositive portion of the trial courts decision, reads:
WHEREFORE, premises considered, judgment is hereby rendered:
a) Declaring the mortgage executed by Mansueto Cuaton over the property owned by Conchita Cuaton, covered
by TCT NO. T-34460, dated October 31, 1991, in favor of Rebecca Salud as unauthorized, void and

unenforceable against defendant, Conchita Cuaton hence, the TRO issued against the foreclosure thereof is
hereby made permanent. The annotation of the mortgage over said property is likewise cancelled;
b) Ordering defendant Mansueto Cuaton to pay plaintiff, Rebecca Salud, the sum of One Million Six Hundred Ten
Thousand (P1,610,000.00) Pesos, with legal interest thereon, from January 5, 1993 until fully paid;
c) Ordering defendant, Mansueto Cuaton, to pay Attorneys fees of P25,000.00 in favor of the plaintiff, Rebecca
Salud and to pay the cost of this suit.
Defendants counterclaims, being merely a result of the filing of plaintiffs complaint are hereby DISMISSED.
SO ORDERED.[5]
Both parties filed their respective notices of appeal. [6]
On August 31, 2001, the Court of Appeals rendered the assailed decision affirming the judgment of the trial
court. Petitioner filed a motion for partial reconsideration of the trial courts decision with respect to the award of
interest in the amount of P610,000.00, arguing that the same was iniquitous and exorbitant. [7] This was denied by
the Court of Appeals on May 7, 2003.[8]
Hence, the instant petition on the sole issue of whether the 8% and 10% monthly interest rates imposed on
the one-million-peso loan obligation of petitioner to respondent Rebecca Salud are valid.
We find merit in the petition.
In Ruiz v. Court of Appeals,[9] we declared that the Usury Law was suspended by Central Bank Circular No.
905, s. 1982, effective on January 1, 1983, and that parties to a loan agreement have been given wide latitude to
agree on any interest rate. However, nothing in the said Circular grants lenders carte blanche authority to raise
interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets. The
stipulated interest rates are illegal if they are unconscionable.
Thus, in Medel v. Court of Appeals,[10] and Spouses Solangon v. Salazar,[11] the Court annulled a stipulated
5.5% per month or 66% per annum interest on a P500,000.00 loan and a 6% per month or 72% per annum
interest on a P60,000.00 loan, respectively, for being excessive, iniquitous, unconscionable and exorbitant. In both
cases, the interest rates were reduced to 12% per annum.
In the present case, the 10% and 8% interest rates per month on the one-million-peso loan of petitioner are
even higher than those previously invalidated by the Court in the above cases. Accordingly, the reduction of said
rates to 12% per annum is fair and reasonable.
Stipulations authorizing iniquitous or unconscionable interests are contrary to morals (contra bonos mores), if
not against the law.[12] Under Article 1409 of the Civil Code, these contracts are inexistent and void from the
beginning. They cannot be ratified nor the right to set up their illegality as a defense be waived. [13]
Moreover, the contention regarding the excessive interest rates cannot be considered as an issue presented
for the first time on appeal. The records show that petitioner raised the validity of the 10% monthly interest in his
answer filed with the trial court. [14] To deprive him of his right to assail the imposition of excessive interests would
be to sacrifice justice to technicality. Furthermore, an appellate court is clothed with ample authority to review
rulings even if they are not assigned as errors. This is especially so if the court finds that their consideration is
necessary in arriving at a just decision of the case before it.We have consistently held that an unassigned error
closely related to an error properly assigned, or upon which a determination of the question raised by the error
properly assigned is dependent, will be considered by the appellate court notwithstanding the failure to assign it as
an error.[15] Since respondents pointed out the matter of interest in their Appellants Brief [16] before the Court of
Appeals, the fairness of the imposition thereof was opened to further evaluation. The Court therefore is
empowered to review the same.
The case of Eastern Shipping Lines, Inc. v. Court of Appeals,[17] laid down the following guidelines on the
imposition of interest, to wit:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance
of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due
shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of
interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 23 of the Civil Code.
xxxxxxxxx
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such
finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.
Applying the foregoing rules, the interest of 12% per annum imposed by the Court (in lieu of the invalidated
10% and 8% per month interest rates) on the one-million-peso loan should be computed from the date of the
execution of the loan on October 31, 1991 until finality of this decision. After the judgment becomes final and
executory until the obligation is satisfied, the amount due shall further earn interest at 12% per year.
WHEREFORE, in view of all the foregoing, the instant petition is GRANTED. The August 31, 2001 Decision
of the Court of Appeals in CA-G.R. CV No. 54715, which affirmed the Decision of the Regional Trial Court of
General Santos City, Branch 35, in SPL. Civil Case No. 359, is MODIFIED. The interest rates of 10% and 8% per
month imposed by the trial court is reduced to 12% per annum, computed from the date of the execution of the
loan on October 31, 1991 until finality of this decision. After the judgment becomes final and executory until the
obligation is satisfied, the amount due shall further earn interest at 12% per year.
SO ORDERED.

G.R. No. L-40203 August 21, 1990

PATERNO J. OUANO, petitioner,
vs.
COURT OF APPEALS and FRANCISCO B. ECHAVEZ, respondents.
De Castro & Cagampang Law Offices and Fiel Manalo for petitioner.
Arturo M. Tolentino and Asuncion, Asuncion, Arcol & Kapunan Law Offices for respondents.

NARVASA, J.:
The appellate proceedings at bar treat of a parcel of land with an area of about 3,710 square meters,
situated in Mandawe, Cebu, Identified as Philippine Railway Lot No. 3-A-1 It was covered by Torrens Title
No. 7618 in the name of the registered owner, Rehabilitation 'Finance Corporation (RFC), now the
Development Bank of the Philippines (DBP). Adjoining Lot 3-A-1 are lands belonging to Francisco Echavez,
private respondent herein, and petitioner Paterno J. Ouano. What will have to be resolved are the conflicting
claims over this lot by the vendee thereof, Echavez, and Ouano.
The property was offered for sale by public bidding by the RFC on April 1, 1958. 1 Actually this was the second
public bidding scheduled for the property. The first 2 in which both Ouano and Echavez participated, together with
others was nullified on account of a protest by Ouano. 3
Now, it appears that prior to the second bidding, Ouano and Echavez orally agreed that only Echavez would
make a bid, and that if it was accepted, they would divide the property in proportion to their adjoining
properties. To ensure success of their enterprise, they also agreed to induce the only other party known to
be interested in the property-a group headed by a Mrs. Bonsucan to desist from presenting a bid. 4 They
broached the matter to Mrs. Bonsucan's group. The latter agreed to withdraw, as it did in fact withdraw from the
sale; and Ouano's wife paid it P2,000 as reimbursement for its expenses. 5
As expected, the highest bid submitted, and thus accepted by the RFC, was that of Francisco Echavez, who
offered P27,826.00 for the land . 6 Echavez paid the sum of P5,565.00 representing 20% deposit of the prefferred
price. 7

A week later, Echavez sent a letter to Ouano regarding the P2,000.00 paid by the latter's wife to the
Bonsucan group. 8 It said:
Because the owner of the money which I deposited for your share has stipulated that today is
the last day for the return of his money ... I would like to request you that for the P2,000.00
which you have advanced to Mrs. Bonsucan and company, I will just give you 250 sq. meters
right in front of your house at P8.05 per sq. meter ... (N.B. 250 x P8.05 equals P2,012.50.)
Still later, or two weeks after Echavez won the bid, a document simply entitled "Agreement,"
was signed by him and Ouano. 9 That document, prepared by Echavez in his own handwriting,
reads as follows:10 |par KNOW ALL MEN BY THESE PRESENTS:
Inasmuch as it was Francisco B. Echavez who won in the public bidding held at the RFC
office for Lot 3-A-1 last April, 1958, it is hereby agreed between us, Francisco B. Echavez
and Paterno J. Ouano, that we share the said lot between us according to the herein sketch:
(Sketch omitted ...)
That each of us takes care in paying direct to the RFC office Cebu Branch, the installments,
interests and amortizations on a ten-year plan in our respective names, such that we would
request the RFC to have the said Lot 3-A-1 subdivided into two portions: A portion of Lot 3-A1 for Francisco B. Echavez to contain 1882.5 sq. m. more or less depending on the actual
survey based on the above sketch, and another portion of Lot 3-A-1 for Paterno J. Ouano to
contain 1827.5 sq. m. more or less also based on the above sketch.
That they have agreed to share proportionately all legal expenses that may be assessed and
incurred in connection with the acquisition of the said lot in case such expenses are levied as
a whole against Francisco B. Echavez, but if such expenses are levied separately after the
RFC consents to the subdivision and registration in our respective names our share of the
said lot, then we take care individually of paying such expenses if there be any.
In witness whereof, we hereby set our hand and sign this agreement this 15th day of April,
1958 at Mandawe, Cebu, Philippines, subject to the approval of the RFC, Cebu Branch and
Manila.
On the same day that the "Agreement" was executed, Echavez set down in writing a computation of the
sharing of expenses of his joint venture with Ouano, viz.: 11
1827.5 No. of sq. meters for Paterno Ouano 7.50 91375 127925
P13706.25 .20 P 2741.25
-1016.55 Share of Echavez for the P2,000.00 given to Mrs. Bonsucan & Companions
P1,724.70 Balance payable by Mr. Ouano to FB Echavez for the deposit made by the
latter at the RFC. This is subject to the approval of the RFC, Cebu Branch.
Mandawe, April 15, 1958.
(Sgd.) F.B. ECHAVEZ.
Thereafter, on various dates, Ouano and/or his wife delivered sums of money to Echavez aggregating
P1,725.00, obviously in payment of the balance indicated in Echavez's computation just mentioned, viz.:
P500.00 on April 19,1958, another P500.00 on April 20, and P725.00 on April 27,1958. Receipts therefor
were given by Echavez, all similarly worded to the effect that the money was being received "as part of their
reimbursement for the deposit (of P5,565.00) I have made with the RFC for Lot 3-A-1 which I won in the
bidding and which lot I have consented to share with Mr. Paterno J. Ouano, subject to the approval of the
RFC. 12
However, the RFC never approved the sharing agreement between Echavez and Ouano concerning Lot 3-A1. It approved the sale of the lot to Echavez only, on May 9, 1958, on the condition that the purchase price of
P27,825.00 be paid in cash. Apparently Echavez found great initial difficulty in complying with this condition.
It took all of four years, and patient negotiation and diligent effort on his part, for him ultimately to acquire title

to the property, which came about in December, 1963. His travails are succinctly narrated by the Trial Court
as follows: 13
... Apparently, the successful bidder was caught flatfooted, for he was not able to comply with
this condition, notwithstanding the fact that he has been making efforts to acquire the
property (See Exhibit 21, letter of March 29, 1958; also Exhibit 22). So, he exerted much
effort to change the terms of the sale from cash to monthly amortization plan (Exhs. 24 and
10). But the Rehabilitation Finance Corporation was adamant. The terms of the bid giving the
option to pay the balance of the purchase price either in cash or within ten years on monthly
amortization plan at 6% interest notwithstanding, said Corporation denied defendant's
request in a letter dated September 18, 1958 signed by Chairman Romualdez (Exh. 11). This
went on for more than 4- years, with none of the parties herein having secured the
conformity of the RFC or DBP to a novation of the original terms of the sale. Thus, the said
sale was finally cancelled, and the deposit of P5,549.72 made by the defendant to the RFC
forfeited as of April 4, 1962 (Exh. 12). However, on July 18, 1962, upon request of the
defendant, this cancellation was considered under the condition, among others, that the price
of the sale of P27,825.00 be payable 20% down and the balance in 5 years at 8% interest
per annum on the monthly amortization plan, commencing retroactively on June 9, 1958, and
that a payment of P2,000.00 be applied to the total arrearages of P25,799.00, which had to
be paid within 90 days. The defendant paid on August 28, 1962 a further amount of
P2,000.00. On September 3, 1962, the deed of conditional sale, covering the property in
question, was entered into by the DBP and the defendant (Exh. D, same as Exh. 4),
culminating in the signing of the corresponding promissory note dated September 7,1962
(Exh. E, same as Exh. 5). It is admitted that the defendant is now the registered owner of the
property, after having fully paid P29,3218.87 on account of the price to the Development
Bank of the Philippines, as per Deed of Absolute Sale dated December 9,1963 (Exhs. 14 and
34).
It was pursuant to the absolute sale of December 9, 1963 just mentioned, that a Torrens title (TCT No.
10776) was issued in Echavez's name. 14
Ouano, in his turn, tried to have DBP either accept and implement his sharing agreement with Echavez, or
allow him to pay the full price of the lot in Echavez's behalf. By his own account, he sent a letter dated June
3, 1 963 to the DBP, "handcarried by his wife," "requesting among others, that he be permitted to pay
immediately either for his share in the aforesaid lot comprising 1,828 sq. meters at the bid price of P7.50 per
sq. meter including charges, or for the whole lot;" and that he in fact tried to make such payment but the
Bank turned down his request. 15
Shortly after his representation with the DBP were rebuffed more precisely on June 24, 1963, months before
the deed of absolute sale was executed by the DBP in Echavez's favor Paterno J. Ouano filed suit for
"specific performance and reconveyance" in the Court of First Instance of Cebu against Francisco Echavez
and the Development Bank of the Philippines (DBP). 16
In his complaint, 17 Ouano recited substantially the facts just related, and further alleged that
... on June 3, 1963 plaintiffs wife and his attorney conferred with defendant ... Echavez for
the purpose of again requesting said defendant to sign a document which would be notarized
and to permit plaintiff to pay for his share direct to the defendant DBP, but said defendant
refused and instead informed them that there had been no agreement regarding joint bidding
and joint ownership of Lot 3-A-l.
The complaint was amended a few weeks later, chiefly to allege that DBP was on the point of rescinding its
contract with Echavez; and that Ouano's offer to the DBP to pay in Echavez's behalf the price of the lot in full
(P28,206.61), had been rejected; and that consequently, and "to show his good faith," he had consigned the
amount with the Court "for and in behalf of defendant ... Echavez. 18 The amended complaint specifically
prayed that
1) pending trial, and upon such bond as may be fixed by the Court, a writ of preliminary
injunction issue to restrain Echavez and RFC "from rescinding, cancelling or in any way
terminating the conditional sale contract with respect to Lot 3-A-1 TCT 7618;"
2) after trial, Echavez be ordered" to sign an agreement in accord with Annex A and the
foregoing allegations which should be notarized;"

3) by virtue of aforesaid agreement and his deposit in Court of P28,206.61, Ouano be

declared as "legally subrogated to the rights, interest and participation of defendant ...
Echavez in Lot 3-A-1 to the extent of 1,828.5 sq. m.
4) Echavez be ordered to reimburse Ouano P14,358.37 corresponding to defendant ...
Echavez' share of 1,882.5 sq. m.
5) should Echavez be unable to pay said amount within 15 days, Ouano be declared "legally
subrogated to the rights, interest and participation of ... Echavez in Lot 3-A-1 to the extent of
1,882.5 sq. m.;"
6) DBP be ordered to consider the deposit made by Ouano for and in behalf of Echavez as
"complete and valid payment of Lot 3 A-1 and to execute the necessary documents of sale
in (the former's) favor ... for 1,827.5 sq. m. and in favor of ... Echavez for 1,882.5 sq. m.
7) DBP be ordered to hold the deed of sale in favor of Echavez for 1,882 sq. m. in abeyance
until the latter has reimbursed Ouano "the amount of P14,385.3 7 corresponding to ...
Echavez's share of 1,882.5 sq. m and should Echavez be unable to do so within 15 days,
DBP be ordered to "execute said deed of sale in favor of plaintiff and
8) Echavez be ordered to pay Ouano P1,000.00 as attorney's fees, P5,000.00 as moral
damages, and P5,000.00 as exemplary damages, as well as the costs of suit.
The DBP moved to dismiss the amended complaint, alleging that no cause of action was therein stated
against it. 19The Court found the motion to be well taken, overruled Ouano's opposition thereto, dismissed the
amended complaint and dissolved the writ of preliminary injunction, by Order dated August 27, 1963. 20 It
subsequently denied Ouano's motion for reconsideration. 21 Ouano appealed but on learning of the absolute sale
of Lot 3-A-1 executed by DBP in Echavez's favor on December 9, 1963-which according to him rendered moot the
case for legal subrogation and injunction as far as DBP was concerned he withdrew the appeal and moved
instead for admission of a second amended complaint, 22 which the Court admitted in the absence of opposition
thereto. In the second amended complaint, dated January 4, 1964, 23 the DBP was no longer included as a party.
Echavez was the sole defendant. The second amended complaint adverted to the dismissal of the case as against
the DBP and additionally alleged that Echavez, "in gross and evident bad faith, mortgaged the whole of Lot 3-A-1
to one Dr. Serafica." It prayed particularly that Echavez be commanded:
1. To execute a public document embodying and confirming the oral contract of joint
ownership of Lot 3-A-1, TCT 7618, of April 1, 1958 between plaintiff and defendant...;
2. To execute a deed of reconveyance of 1,827.5 sq. m. of Lot 3-A-1 ... after reimbursement
of the sum of P14,821.24 by the plaintiff;
3. To pay plaintiff P1,000 as attorney's fees, P5,000.00 as moral damages, P5,000.00 as
exemplary damages and the expenses of litigation; and
4. To pay the costs.
Trial ensued after which the Trial Court rendered judgment on June 29,1968. It found that the sharing
agreement between Ouano and Echavez could not be enforced in view of the absence of consent of the
RFC (DBP) which the latter never gave; apart from this, the agreement had an unlawful cause and hence
could "Produce no effect whatever" in accordance with Article 1352 of the Civil Code, because involving a
felony defined in Article 185 of the Revised Penal Code, to wit:
ART. 185. Machinations in public auctions. any person who shall solicit any gift or promise
as a consideration for refraining from taking part in any public auction, and any person who
shall attempt to cause bidders to stay away from an auction by threats, gifts, promises, or
any other artifice, with intent to cause the reduction of the price of the thing auctioned, shall
suffer the penalty of prision correccionalin its minimum period and a fine ranging from 10 to
50 per centum of the value of the thing auctioned.
The decision accordingly dismissed the Second Amended Complaint, ordered Ouano, "to vacate the portion
of Lot No. 3-A-1 he occupied pursuant to Exhibit C," and also dismissed Echavez's counterclaim.
Ouano appealed to the Court of Appeals. Here he fared no better. He enjoyed initial success, to be sure.
Judgment was promulgated on February 28, 1974" setting aside the Trial Court's judgment, and directing: (a)

Echavez "to execute a deed of conveyance in favor of plaintiff of 1827. 5 square meters as the latter's share
in the property in controversy and (b) Ouano "to pay defendant the amount of P14,821. 24 representing the
cost of his share." However, on a second motion for reconsideration presented by Echavez, the Appellate Court,
on November 21, 1974, reconsidered its decision of February 28, 1974 and entered another "affirming in toto the
decision appealed from without costs. 25 This second decision found that the documentary
evidence 26 preponderantly established that "the parties have manifested their intention to subordinate their
agreement to the approval of the RFC." "Consequently," the decision stated,
... had the plaintiffs and defendant's proposal been accepted by the RFC (DBP) two separate
contracts, covering the two segregated lots according to the sketch would have come into
existence, to be executed by the RFC separately in favor of the pi plaintiff and the defendant.
But unfortunately, the RFC disapproved the proposal as the sale was to be for cash. As a
result, the obligatory force of the 'agreement' or the consent of the parties, which was
subordinated to the taking effect of the suspensive condition that the agreement be subject to
the approval of the RFC never happened. This being the case, the agreement never became
effective. The rule is settled that:
When the consent of a party to a contract is given subject to the fulfillment of
a suspensive condition, the contract is not perfected unless the condition is
first complied with' (Ruperto vs. Cosca 26 Phil. 227).
And when the obligation assumed by a party to a contract is expressly
subjected to a condition, the obligation cannot be enforced against him
unless the condition is complied with (Wise & Co. vs. Kelly, 37 Phil. 696;
Philippine National Bank vs. Philippine Trust Co., 68 Phil. 48).
At best, the non-fulfillment of the suspensive condition has the effect of negating the
conditional obligation. It has been held that what characterizes a conditional obligation is the
fact that its efficacy or obligatory force is subordinated to the happening of a future and
uncertain event, so that if the suspensive condition does not take place, the parties would
stand as if the conditional obligation had never existed Gaite vs. Fonacier, L-11827, July 31,
1961, 2 SCRA 831).
Motions for reconsideration and for oral argument filed by Ouano were denied by Resolutions dated
February 6, February 11, and February 21, 1975, the last containing a suggestion "that appellant go to the
Higher Court for relief. 27
Ouano is now before this Court, on appeal by certoriari to seek the relief that both the Trial Court and the
Court of Appeals have declined to concede to him. In this Court, he attempts to make the following points, to
wit:
1. The verbal agreement between the parties to acquire and share the land in proportion to their respective
abutting properties, and executed by the immediate occupation by the parties of their respective shares in
the land, is a perfected consensual contract and not "a mere promise to deliver something subject to a
suspensive condition" (as ruled in the second decision of the Court of Appeals); hence the petitioner is
entitled to compel private respondent to execute a public document for the registration in his name of the
petitioner's share in the land in question pursuant to Art. 1315 of the Civil Code (as held in the first decision
of the Court of Appeals).
2. The agreement to acquire and share the land was not subject to a suspensive condition.
3. Assuming in gratia argumenti the agreement to be subject to a suspensive condition, since the condition
consisted in obtaining the approval of the RFC-a third party who could not in any way be compelled to give
such approval the condition is deemed constructively fulfilled because petitioner had done all in his power to
comply with the condition, and private respondent, who also had the duty to get such approval, in effect
prevented the fulfillment of the condition by doing nothing to secure the approval.
4. The circumstances show that Echavez clearly acted in bad faith, and it is unjust to allow him to benefit
from his bad faith and ingenious scheme.
Two material facts, however, about which Ouano and Echavez are in agreement, render these questions of
academic interest only, said facts being determinative of this dispute on an altogether different ground.
These facts are:

1) that they bad both orally agreed that only Echavez would make a bid at the second bidding called by the
RFC, and that if it was accepted, they would divide the property in proportion to their adjoining properties;
and
2) that to ensure success of their scheme, they had also agreed to induce the only other party known to be
interested in the property a group headed by a Mrs. Bonsucan to desist from presenting a bid, 28 as they did
succeed in inducing Mrs. Bonsucan's group to withdraw from the sale, paying said group P2,000 as
reimbursement for its expenses.29
These acts constitute a crime, as the Trial Court has stressed. Ouano and Echavez had promised to share in
the property in question as a consideration for Ouano's refraining from taking part in the public auction, and
they had attempted to cause and in fact succeeded in causing another bidder to stay away from the auction.
in order to cause reduction of the price of the property auctioned In so doing, they committed the felony
of machinations in public auctions defined and penalized in Article 185 of the Revised Penal Code, supra.
That both Ouano and Echavez did these acts is a matter of record, as is the fact that thereby only one bid
that of Echavez was entered for the 'land in consequence of which Echavez eventually acquired it. The
agreement therefore being criminal in character, the parties not only have no action against each other but
are both liable to prosecution and the things and price of their agreement subject to disposal according to the
provisions of the criminal code. This, in accordance with the so-called pari delicto principle set out in the Civil
Code.
Article 1409 of said Code declares as "inexistent and void from the beginning" those contracts, among
others, "whose cause, object or purpose is contrary to law, morals, good customs, public order or public
policy," or "expressly prohibited ... by law." Such contracts "cannot be ratified "the right to set up the defense
of illegality (cannot) be waived;" and, Article 1410 adds, the "action or defense for the declaration of the
inexistence ... (thereof) does not prescribe." Furthermore, according to Article 1411 of the same Code 30
... When the nullity proceeds from the illegality of the cause or object of the contract, and the
act constitutes a criminal offense, both parties being in pari delicto, they shall have no action
against each other, and both shall be prosecuted. Moreover, the provisions of the Penal
Code relative to the disposal of effects or instruments of a crime shall be applicable to the
things or the price of the contract.
xxx xxx xxx
The dismissal of Ouano's action by both the Trial Court and the Court of Appeals was thus correct, being
plainly in accord with the Civil Code provisions just referred to. 31 Article 1411 also dictates the proper
disposition of the land involved, i.e., "the forfeiture of the proceeds of the crime and the instruments or tools with
which it was committed," as mandated by the provisions of Article 45 of the Revised Penal Code, this being
obviously the provision "of the Penal Code relative to the disposal of effects or instruments of a crime" that Article
1411 makes "applicable to the things or the price of the contract."
WHEREFORE, the appealed decision of the Court of Appeals is MODIFIED, so that in addition to affirming
the Trial Court's judgment dismissing Ouano's complaint and Echavez's counterclaim in Civil Case No. R8011, Lot No. 3-A-1 subject of said case is ordered FORFEITED in its entirety in favor of the Government of
the Philippines. No pronouncement as to costs. Let copy of this Decision be furnished the Solicitor General.
SO ORDERED.

G.R. No. 50837 December 28, 1992

NARCISO BUENAVENTURA and MARIA BUENAVENTURA, Petitioners,
vs.
HON. COURT OF APPEALS and MANOTOK REALTY, INC. Respondents.
MELO, J.:
Before Us is a petition for review on certiorari of a Decision of the Special Former Ninth Division of the Court
of Appeals rendered on February 19, 1979, in CA-G.R. No. 08249-SP (Reyes, Sundiam [P], and Cortez, JJ;
Rollo, [pp. 22-28) ordering the dismissal of the complaint in Civil Case No. C-6095 filed by herein petitioners
against Lorenzo Caia. Francisco Caia-Rivera, the National Housing Authority (formerly PHHC). Francisco
M. Custodio, and respondent Manotok Realty, Inc., before then Court of First Instance of Rizal, Branch
XXXIII, Caloocan City.
The relevant antecedents, as narrated by respondent court, are as follows:
(1) During his lifetime, Julian Caia, was the occupant and tenant of a parcel of land, owned
by the Republic of the Philippines but administered at first by the then Rural Progress
Administration and later by the Peoples Homesite and Housing Corporation (PHHC)
described as Lot 20 of Consolidated Sub-division plan LRC Pcs-1828, and in Transfer
Certificate of Title No. 365557 of the Registry of Deeds of Caloocan City, with an area of
25,776 square meters;
(2) The Republic of the Philippines acquired the aforesaid lot, together with other lots in the
Gonzales Estate by Expropriation to be resold to qualified and bonafide tenants-occupants
and, to achieve this end, the President of the Philippines, on August 30, 1961, designated the
PHHC with the task of selling and transferring the said lots to qualified tenants concerned
and/or their lawful heirs;
(3) Julian Caia had a brother, Justo Caia. The latter had three children, namely, Emeteria
Caia Buenaventura, Lorenzo Caia and Francisca Caia. Emeteria Caia Buenaventura
died as early as July 11, 1937 and was survived by Maria Buenaventura and Narciso
Buenaventura, the Private Respondents in this case;
(4) However the Gonzales Estate still had to be sub-divided into lots; but before the
subdivision of the property and the subdivision plan thereof could be approved and said lot
transferred to Julian Caia, the latter died on December 17, 1961. Justo Caia, the brother,
died later on May 3, 1962;

(5) Thus, at the time Julian Caia died, he was survived as his sole heirs, by his brother,
Justo Caia and the latter's children, Lorenzo Caia and Francisca Caia: also surviving him
were the private respondents Narciso Buenaventura and Maria Buenaventura, the children of
Emeteria Buenaventura who died earlier in 1937;
(6) On November 4, 1965, the People Homesite and Housing Corporation executed a 'Deed
of Absolutes Sale' over the said lot to Lorenzo Caia and Francisca Caia-Rivera, as the sole
heirs and successor-in-interest of Julian Caia for and in consideration of the purchase price
of P96,048.80 (a certified xerox copy of the aforesaid Deed is hereto attached as Annex 'A'
hereof):
(7) By virtue of the said sale, Lorenzo Caia and Francisca Caia-Rivera were issued, on
November 5, 1965. Transfer Certificate of Title No. 21013 over the said lot by the Registry of
Deeds of Caloocan City (certified xerox copy of the aforesaid title is hereto attached as
Annex "B" hereof);
(8) On January 26, 1966, Lorenzo Caia and Francisca Caia-Rivera executed a 'Deed of
Absolutes Sale' over the said lot in favor of Francisco M. Custodio after which the latter was
issued on January 26, 1966. Transfer Certificate of Title No. 21484 of the Registry of Deeds
of Caloocan City (a certified xerox copy of the aforesaid Deed of Absolute Sale and Transfer
Certificate of tile are hereto attached as Annexes "C" and ''D" hereof respectively);
(9) On January 26, 1966, Francisco Custodio executed a 'Deed of Absolute Sale' over the
said lot in favor of the Petitioner for which the latter was issued on January 26, 1966.
Transfer Certificate of Title No. 2145 of the Registry of Deeds of Caloocan City (a certified
xerox copy of the said Deed of Absolute Sale and Title are hereto attached as Annexes "E"
and "F" hereof respectively);
(10) On December 24, 1976, Private Respondents [now petitioners] filed a complaint with the
respondent court docketed as Civil Case No. C-6095 entitled 'Narciso Buenaventura and
Maria Buenaventura vs. Lorenzo Caia, Francisca Caia, National Housing Authority
(formerly PHHC). Francisco M. Custodio. Manotok Realty, Inc.' for Annulment of Titles,
Contracts and/or Sales. Reconveyance and Damages (a copy of the aforesaid complaint
attached hereto as Annex "G" hereof);
(11) The Petitioner [now private respondent Manotok Realty] subsequently filed with the
Respondent Court a 'Motion to Dismiss' the aforesaid complaint on the ground of, inter alia,
prescription (a copy of the aforesaid motion is hereto attached as Annex "H" hereof);
(12) The Private Respondents, however filed their Opposition to the aforesaid motion of the
Petitioner (a copy of the aforesaid opposition is hereto attached as Annex "'1"' hereof);
(13) On July 28, 1977, the Respondent Court issued an Order denying the aforesaid Motion
of the Petitioner (a certified xerox copy of the aforesaid order is hereto attached as Annex "J"
hereof);
(14) The Petitioner thereafter filed a 'Motion for Reconsideration' of the aforesaid Order, to
which the private respondents filed their opposition. The petitioner however, filed its Reply to
the aforesaid opposition of the private respondents despite which the respondent court, on
July 21, 1978 issued an order denying the aforesaid motion of the petitioner (a copy of each
aforesaid motion, opposition and reply are hereto attached as Annexes "K","'L" and "M",
hereof respectively; while a certified xerox copy of the aforesaid Order is hereto attached as
Annex 'N' hereof). Decision, pp. 1-3: rollo, pp. 22-24.).
Aggrieved by the rules of the trial court, herein private respondents filed a petitioner with the Court of
Appeals which later granted the petitioner and ordered the dismissal of the complaint of then private
respondents, now herein petitioners, on the ground that their action has already prescribed. A subsequent
motion for reconsideration was to no avail.
Hence, the instant petition.
Both sides offer conflicting opinions on the applicability of Article 1410 of the Civil Code of the Philippines.

The Court of Appeals, in directing the dismissal of the complaint filed by they petitioners in the court of origin,
held that Article 1410 of the Civil Code on imprescriptibility of actions is not applicable because fraud in the
transfer of the property was alleged in petitioner's complaint. The Court of Appeals was, of course, referring
to paragraph 20 of the Complaint which reads:
20. That in executing the said 'Deed of Absolute Sale' over Lot 20 in favor of defendants
Lorenzo Caia and Francisca Caia-Rivera, defendant NHA acted with evident bad faith,
gross negligence and carelessness, while defendants Lorenzo Caia and Francisca Caia
acted with false representations, fraud and deceit and the three defendants connived,
conspired and schemed to deprive the plaintiffs of their rights over 1/3 portion of Lot 20 of the
Gonzales Estate administered by defendant NHA, to the damage and prejudice of the herein
plaintiffs; (Rollo, p. 17).
Respondent court further stated that due to the allegation that fraud was supposedly employed in the
execution of the deed of sale and thereafter in the issuance of Transfer Certificate of Title No. 21484, there
was created in favor of then private respondents, now petitioners, an implied or constructive trust, such that
the action for reconveyance must be filed by the defrauded party within the a period of ten (10) years from
the date of issuance of the title, otherwise, the action prescribed. Consequently, respondent court held that
because the complaint in Civil Case No. C-6095 was filed only on December 28, 1976 or after more than ten
years from the issuance of the transfer certificate of title on January 26, 1966, the assertion for recovery of
property based on fraudulent transfer and registration can no longer be entertained (Rollo, pp. 27-28).
Petitioners, on the other hand, argue otherwise. They claim that the action for reconveyance is based both
on the grounds of fraud and simulation of contracts, hence, it cannot be made subject to the rule on
prescription of action. (Rollo, p. 15).
We agree with respondent court.
Petitioners' allegation in their complaint filed in the court of origin, that fraud was employed in the execution
of a deed of sale and subsequently, in the issuance of a transfer certificate of title, renders their action for
reconveyance susceptible to prescription either within 4 years or 10 years. In the present case, even if one
bends backwards and considers the circumstances alleged as having created an implied or constructive
trust, such that the action for reconveyance would prescribed in the longer period of 10 years (Duque vs.
Doming, 80 SCRA 654 [1977]; Cerantes vs. Court of Appeals, 76 SCRA 514 [1977]; Jaramil vs. Court of
Appeals 78 SCRA 420 [1977]), still petitioners' action is plainly time-barred. Considering that the deed of sale
executed by the Philippine Homesite and Housing Corporation in favor of Lorenzo Caia and Francisca
Caia-Rivera was executed on November 4, 1965 and on the following day, Transfer Certificate of Title No.
21484 was issued in favor of the vendees (private respondents), the party allegedly defrauded in the
transaction, herein petitioners, had only 10 years or until September 5, 1975 within which to file the
appropriate action. In the instant case, the action was filed only on December 28, 1976, which was beyond
the prescribed period set by law.
Verily, the principle on prescription of actions is designed to cover situations such as the case at bar, where
there have been a series of transfers to innocent purchasers for value. To set aside these transactions only
to accommodate a party who has slept on his rights is anathema to good order.
Independently of the principal of prescription of actions working against petitioners, the doctrine of laches
may further be counted against them, which latter tenet finds application even to imprescriptible actions.
Thus, in Rafols vs. Barba (199 SCRA 146 [1982]), We find the following words of wisdom:
In the least, plaintiffs-appellants are already guilty of laches as would effectively derail there
cause of action. While it is true that technically, the action to annul a void or inexistent
contract does not prescribe, it may nonetheless be barred by laches. As was stated
in Nielson & Co. v. Lepanto Consolidated Mining Co., L-21601. December 17, 1966, 18
SCRA [1040]:
The defense of laches applied independently of prescription. Laches is
different from the statute of limitations. Prescription is concerned with the fact
of delay, whereas laches is concerned with the effect of delay. Prescription is
a matter of time; laches is principally a question of inequity of permitting a
claim to be enforced, this inequity being founded on the same change in the
condition of the property or the relation of the parties. Prescription is
statutory; laches is not. Laches applies in equity, whereas prescription is
based on fixed time; laches is not.

The essential elements of the principle of laches are all present herein, to wit:
... (1) conduct on the part of the defendant, or one under
whom he claims, giving rise to the situation that led to the
complaint for which the complaint seeks a remedy: (2) delay
in asserting the complainant's rights, the complainant having
had knowledge or notice of the defendant's conduct and
having been afforded an opportunity to institute a suit; (3) lack
of knowledge or notice on the part of the defendant that the
complainant would assert the right on which he bases his suit;
and (4) injury or prejudice to the defendant in the event relief
is accorded to the complainant or the suit is not held barred.
(Yusingco vs. Ong Hing Lian, 42 SCRA 589.)
The defendant-appellee purchased the parcel of land in question giving rise to the complaint
of herein plaintiffs-appellants. The latter delayed the assertion of their supposed right to
annul the sale for a period of over fifteen (15) years despite knowledge or notice of such sale.
They had all the opportunity within that period of time to take action to set aside or annul the
sale. Defendant-appellee was never apprised of any intention on the part of plaintiffsappellants to annul the sale until this action was filed. Finally, the defendant-appellee stands
to lose the property in question if the suit filed against him by plaintiffs-appellants shall be
deemed barred. (at pp. 154-155.)
WHEREFORE, premises considered,. the judgment appealed from is hereby AFFIRMED in toto.
SO ORDERED.

[G.R. No. 138945. August 19, 2003]

FELIX GOCHAN AND SONS REALTY CORPORATION and STA. LUCIA REALTY AND DEVELOPMENT
CORPORATION, petitioners, vs. HEIRS OF RAYMUNDO BABA,namely, BESTRA BABA, MARICEL
BABA, CRESENCIA BABA, ANTONIO BABA, and PETRONILA BABA, represented by Attorney-infact VIRGINIA SUMALINOG,respondents.
DECISION
YNARES-SANTIAGO, J.:
The purpose of an action or suit and the law to govern it, including the period of prescription, is to be
determined by the complaint itself, its allegations and prayer for relief. [1] Thus, while the issues of possession and
fraud are material to the prescriptibility of suits captioned as reconveyance and quieting of title, [2] it would not be so
where, from the allegations of the complaint, the action is in reality one for declaration of nullity of contracts on the
ground of absence of the essential requisites thereof. These contracts are void ad initio and actions to declare
their inexistence do not prescribe.[3]
This is a petition for review on certiorari seeking to set aside the February 12, 1999 Decision [4] of the Court of
Appeals in CA-G.R. CV No. 57080, which reversed the May 3, 1997 Order [5] of the Regional Trial Court of LapuLapu City, Branch 54, in Civil Case No. 4494-L.
The facts show that Lot No. 3537, a conjugal property of spouses Raymundo Baba and Dorotea Inot, was
originally titled under Original Certificate of Title No. RO-0820, [6] in the name of Dorotea. After Raymundos demise
in 1947, an extrajudicial settlement of his estate, including Lot No. 3537, was executed on December 8, 1966,
[7]
among the heirs of Raymundo, namely, Dorotea Inot and his 2 children, Victoriano Baba and Gregorio
Baba. One-half undivided portion of the 6,326 square meter lot was adjudicated in favor of Dorotea, and the other
half divided between Victoriano and Gregorio. On December 28, 1966, Dorotea, Victoriano and Gregorio, in
consideration of the amount of P2,346.70, sold Lot No. 3537 to petitioner Felix Gochan and Sons Realty
Corporation (Gochan Realty).[8] Consequently, OCT No. RO-0820 was cancelled and in lieu thereof, Transfer
Certificate of Title No. T-1842, dated February 23, 1968 was issued in favor of Gochan Realty.[9] Sometime in
1995, the latter entered into a joint venture agreement with Sta. Lucia Realty and Development Corporation Inc.
for the development, among others, of Lot No. 3537, into a subdivision. [10]

On June 13, 1996, respondents Bestra, Maricel, Crecencia, Antonio and Petronila, all surnamed Baba, filed a
complaint for quieting of title and reconveyance with damages against petitioners with the RTC of Lapu-Lapu City,
Branch 54, docketed as Civil Case No. 4494-L. They alleged that they are among the 7 children of Dorotea Inot
and Raymundo Baba; that petitioners connived with Dorotea Inot, Victoriano and Gregorio Baba in executing the
extrajudicial settlement and deed of sale which fraudulently deprived them of their hereditary share in Lot No.
3537; and that said transactions are void insofar as their respective shares are concerned because they never
consented to the said sale and extrajudicial settlement, which came to their knowledge barely a year prior to the
filing of the complaint.[11]
In its answer,[12] petitioner Gochan Realty averred that respondents have no personality to sue because they
are not children of Dorotea Inot and Raymundo Baba; that even assuming they are lawful heirs of the spouses,
their action is barred by estoppel, laches and prescription for having been filed more than 28 years after the
issuance of the transfer certificate of title in its name; and that any defect in the transactions leading to its
acquisition of Lot No. 3537 will not affect its title because it is a purchaser in good faith and for value.
Meanwhile, petitioner Sta. Lucia Realty and Development Corporation Inc. was declared in default for failure
to file an answer within the reglementary period. [13]
On May 3, 1997, the complaint for quieting of title and reconveyance with damages filed against petitioner
was dismissed on the ground of prescription and laches. The trial court ruled that respondents action is one for
enforcement of implied or constructive trust based on fraud which prescribes in 10 years from the issuance of title
over the property. Hence, respondents action was barred by prescription and laches for having been filed after 28
years from the time Gochan Realty obtained title to the property.
Respondents appealed to the Court of Appeals which reversed the decision of the trial court and reinstated
the complaint of respondents. While it also found that respondents action is a suit to enforce an implied or
constructive trust based on fraud, it ruled that since respondents are in possession of the disputed property, their
action cannot be barred by prescription and laches, being in the nature of a suit for quieting of title. Petitioners
motion for reconsideration was denied on May 25, 1999.
Hence, the instant petition where the sole issue raised for resolution is whether or not respondents complaint
is dismissible on the ground of prescription and laches.
In determining whether the complaint is barred by the statute of limitations, both courts held that respondents
action is grounded on fraud, and applied the rule that the fraudulent conveyance of the property creates an implied
trust, an obligation created by law, which prescribes in ten years from the date of the issuance of the certificate of
title.[14] However, the Court of Appeals held that such an action does not prescribe when the disputed property is in
the possession of the plaintiff seeking reconveyance. [15] The issue of possession, however, is not material in the
case at bar. A circumspect scrutiny of the complaint reveals that although the respondents describe the
extrajudicial settlement and deed of sale as fraudulent insofar as their shares are concerned, their action in reality
seeks to declare said deeds as inexistent for lack of consent, an essential element for the existence of a
contract. The settled rule is that the purpose of an action or suit and the law to govern it, including the period of
prescription, is to be determined by the complaint itself, its allegations and prayer for relief. [16]
In the case at bar, the allegations of the complaint unmistakably assail the extrajudicial settlement and deed
of sale with respect to their share on the ground of absence of consent. Thus, respondents allegedin their
complaint
2.2 Dorotea Inot, Gregorio Baba, Victoriano Baba and defendant Felix Gochan and Realty Corporation, conniving
and confederating with each other, with the evil motive and bad intent of getting the corresponding hereditary
share of the plaintiffs caused the [issuance of a] Transfer Certificate of Title covering the entire lot in the name of
defendant Felix Gochan and Realty Corporation They have made to appear in a document denominated as
Extrajudicial Settlement dated 8 February 1966 and Deed of Absolute Sale dated 28 December 1966 in favor of
defendant Felix Gochan and Realty Corporation, that they have validly executed the same free from legal infirmity
and element of perjury, notwithstanding clear and full knowledge about plaintiffs real right and interest thereto,
machine copies of the said document are hereto attached as Annex C and D respectively;
2.3 To all legal intents and purposes, plaintiffs herein never disposed of their share to anybody much less to the
defendant Felix Gochan and Realty Corporation.

2.4 Subsequently, other defendant Sta. Lucia Realty Corporation, despite its knowledge about the defect in the
title entered into a Joint Venture Agreement with other defendant Felix Gochan Realty Corporation and the same
being annotated in TCT No. T-1824 as Entry Nos. 9371-XIII-D.B,9372 and 9373;
2.5 Complainants, upon knowledge about the said humiliating situation, did not waste time in exhausting all its
recovering mode and legal remedies thru seeking relief unto this Honorable Court.
2.6 The assessed value of the lot is P38,220.00;
xxxxxxxxx
3.0 Consequently, the fraudulent acts of the defendant Felix Gochan and Realty Corporation and the eventual
participation of the defendant Sta. Lucia Realty Corporation shall have no legal and valid effect insofar as the
corresponding and respective share of each plaintiff is concerned which is Three Hundred Fifty Five (355) Square
meters, more or less, each or a total area of One Thousand Nine Hundred Seventy-Five (1,975) square meters,
more or less. The deed of conveyance aforestated shall not therefore bind the plaintiffs; [17]
Hence, for purposes of determining whether respondents action has prescribed, fraud in the conveyance of
the disputed lot and the possession thereof by the respondents are not material. The fact that the conveyance of a
property was fraudulent, either because it was procured without the knowledge of some of the co-owners or by
virtue of the owners forged signature or by a fictitious deed of sale, does not automatically make fraud the basis
for reconveyance of the disputed property. The real question in the instant case (without, however, prejudging the
validity or invalidity of the sale to Gochan Realty), is whether or not from the allegations of the complaint, there
exists a cause of action to declare the inexistence of the contract of sale with respect to the shares of respondents
in Lot No. 3537 on the ground of absence of any of the essential requisites of a valid contract. If the answer is in
the negative, then the dismissal of the complaint must be upheld, otherwise, the dismissal on the ground of
prescription is erroneous because actions for the declaration of inexistence of contracts on the ground of absence
of any of the essential requisites thereof do not prescribe.
Under Article 1318 of the Civil Code, there is no contract unless the following requisites concur: (1) consent
of the contracting parties; (2) object certain which is the subject matter of the contract; and (3) cause of the
obligation. The absence of any of these essential requisites renders the contract inexistent and an action or
defense to declare said contract void ab initio does not prescribe, pursuant to Article 1410 of the same
Code. In Delos Reyes v. Court of Appeals,[18] it was held that one of the requisites of a valid contract under Article
1318 of the Civil Code, namely, the consent and the capacity to give consent of the parties to the contract, is an
indispensable condition for the existence of consent. There is no effective consent in law without the capacity to
give such consent. In other words, legal consent presupposes capacity. Thus, there is said to be no consent, and
consequently, no contract when the agreement is entered into by one in behalf of another who has never given
him authorization therefor unless he has by law a right to represent the latter. [19]
In Heirs of Romana Ingjug-Tiro v. Casals,[20] the Court, applying Article 1410 of the Civil Code declared that a
claim of prescription is unavailing where the assailed conveyance is void ab initio with respect to those who had
no knowledge of the transaction. The case involved a fraudulent sale and extrajudicial settlement of a lot executed
without the knowledge and consent of some of the co-owners. It was held that the sale of the realty is void in so
far as it prejudiced the shares of said co-owners and that the issuance of a certificate of title over the whole
property in favor of the vendee does not divest the other co-owners of the shares that rightfully belonged to
them. The nullity of the said sale proceeds from the absence of legal capacity and consent to dispose of the
property. Thus
Article 1458 of the New Civil Code provides: By the contract of sale one of the contracting parties obligates
himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain
in money or its equivalent. It is essential that the vendors be the owners of the property sold otherwise they cannot
dispose that which does not belong to them. As the Romans put it: Nemo dat quod non habet. No one can give
more than what he has. The sale of the realty to respondents is null and void insofar as it prejudiced petitioners
interests and participation therein. At best, only the ownership of the shares of Luisa, Maria and Guillerma in the
disputed property could have been transferred to respondents.
Consequently, respondents could not have acquired ownership over the land to the extent of the shares of
petitioners. The issuance of a certificate of title in their favor could not vest upon them ownership of the entire
property; neither could it validate the purchase thereof which is null and void. Registration does not vest title; it is

merely the evidence of such title. Our land registration laws do not give the holder any better title than what he
actually has.Being null and void, the sale to respondents of petitioners shares produced no legal effects
whatsoever.
Similarly, the claim that Francisco Ingjug died in 1963 but appeared to be a party to the Extrajudicial Settlement
and Confirmation of Sale executed in 1967 would be fatal to the validity of the contract, if proved by clear and
convincing evidence. Contracting parties must be juristic entities at the time of the consummation of the
contract. Stated otherwise, to form a valid and legal agreement it is necessary that there be a party capable of
contracting and a party capable of being contracted with. Hence, if any one party to a supposed contract was
already dead at the time of its execution, such contract is undoubtedly simulated and false and therefore null and
void by reason of its having been made after the death of the party who appears as one of the contracting parties
therein. The death of a person terminates contractual capacity.
In actions for reconveyance of property predicated on the fact that the conveyance complained of was null and
void ab initio, a claim of prescription of action would be unavailing. The action or defense for the declaration of the
inexistence of a contract does not prescribe[21]
Likewise, in the cases of Solomon v. Intermediate Appellate Court, [22] Vda. De Portugal v. Intermediate
Appellate Court,[23] Garanciang v. Garanciang,[24] and Lacsamana v. Court of Appeals, [25] the Court ruled that
conveyances by virtue of a forged signature or a fictitious deed of sale are void ab initio. The absence of the
essential requites of consent and cause or consideration in these cases rendered the contract inexistent and the
action to declare their nullity is imprescriptible.
Nemo dat quod non habet No one can give more than what he has. [26] Assuming that the allegations in
respondents complaint are true, their claim that the execution of the extrajudicial settlement and the deed of sale
involving Lot No. 3537, which led to the issuance of a certificate of title in the name of Gochan Realty, was without
their knowledge or consent, gives rise to an imprescriptible cause of action to declare said transactions inexistent
on the ground of absence of legal capacity and consent. Hence, the dismissal of respondents complaint on the
ground of prescription was erroneous.
On the other hand, laches is defined as failure or neglect for an unreasonable and unexplained length of
time, to do that which, by exercising due diligence, could or should have been done earlier. It is negligence or
omission to assert a right within a reasonable time, warranting presumption that the party entitled to assert it has
abandoned it or has declined to assert it. [27] Its elements are: (1) conduct on the part of the defendant, or of one
under whom he claims, giving rise to the situation which the complaint seeks a remedy; (2) delay in asserting the
complainants rights, the complainant having had knowledge or notice of the defendants conduct as having been
afforded an opportunity to institute a suit; (3) lack of knowledge or notice on the part of the defendant that the
complainant would assert the right in which he bases his suit; and (4) injury or prejudice to the defendant in the
event relief is accorded to the complainant, or the suit is not held barred. [28]
Though laches applies even to imprescriptible actions, [29] its elements must be proved positively.[30] Laches is
evidentiary in nature which could not be established by mere allegations in the pleadings and can not be resolved
in a motion to dismiss. [31] At this stage therefore, the dismissal of the complaint on the ground of laches is
premature.
It is but fair, without prejudging the issues, that the parties be allowed to substantiate their respective claims
and defenses in a full-blown trial, and obtain a ruling on all the issues presented in their pleadings. [32] Indeed, while
the averments in the complaint show that respondents action is imprescriptible, Gochan Realty is not precluded
from presenting evidence that it is a purchaser in good faith or that respondents have no personality to sue for
reconveyance or, even assuming that they are lawful heirs of Dorotea Inot and Raymundo Baba, that they are
guilty of laches or are estopped from questioning the validity of the extrajudicial partition and deed of sale of Lot
No. 3537 with respect to their shares.
The trial court thus erred in dismissing respondents complaint on the ground of prescription and laches, and
while the Court of Appeals is correct in ordering the reinstatement of the complaint, its decision is sustained on a
different ground.
WHEREFORE, in view of all the foregoing, the petition is DENIED. The Decision of the Court of Appeals in
CA-G.R. CV No. 57080, which ordered that the instant case be REMANDED to the Regional Trial Court of LapuLapu City, Branch 54, for trial and judgment on the merits is AFFIRMED.

SO ORDERED.

G.R. No. 96602 November 19, 1991

EDUARDO ARROYO, JR., petitioner,
vs.
COURT OF APPEALS and THE PEOPLE OF THE PHILIPPINES, respondents.
G.R. No. 96715 November 19, 1991
RUBY VERA-NERI, petitioner,
vs.
THE PEOPLE OF THE PHILIPPINES and THE HONORABLE COURT OF APPEALS, respondents.
Efren C. Carag for Eduardo C. Arroyo, Jr.
Singson, Valdes & Associates for Ruby Vera Neri.
RESOLUTION

FELICIANO, J.:p
In G.R. No. 96602, the Court summarized the facts of the case in this manner:
Dr. Jorge B. Neri filed a criminal complaint for adultery before the Regional Trial Court (RTC),
Branch 4, of Benguet against his wife, Ruby Vera Neri, and Eduardo Arroyo committed on 2
November 1982 in the City of Baguio.
Both defendants pleaded not guilty and after trial, the RTC convicted petitioner and Mrs.
Ruby Vera Neri of adultery as defined under Article 333 of the Revised Penal Code.
The essential facts of the case, as found by the trial court and the Court of Appeals, are as
follows:
... On November 2, 1982, accused, Mrs. Ruby Vera Neri in the company of
Mrs. Linda Sare and witness Jabunan, took the morning plane to Baguio.
Arriving at around 11:00 a.m., they dropped first at the house of Mrs. Vera,

mother of Ruby Vera at Crystal Cave, Baguio City then proceeded to the
Mines View Park Condominium of the Neri spouses. At around 7:00 o' clock
in the evening, accused Eduardo Arroyo arrived at the Neris' condominium.
Witness opened the door for Arroyo who entered, he went down to and
knocked at the master's bedroom where accused Ruby Vera Neri and her
companion Linda Sare were. On accused Ruby Vera Neri's request, Linda
Sare left the master's bedroom and went upstairs to the sala leaving the two
accused. About forty-five minutes later, Arroyo Jr. came up and told Linda
Sare that she could already come down. Three of them, thereafter, went up to
the sala then left the condominium. (Court of Appeals Decision, p. 4) 1
Petitioner Arroyo filed a Motion for Reconsideration of the Court of Appeals' Decision. Petitioner Ruby Vera
Neri also moved for reconsideration or a new trial, contending that a pardon had been extended by her
husband, private complain ant Dr. Jorge B. Neri, and that her husband had later con traded marriage with
another woman with whom he is presently co-habiting. Both motions were denied by the Court of Appeals.
Petitioner Arroyo filed a Petition for Review (G.R. No. 96602) dated 8 February 1991 which this court denied
in a Resolution dated 24 April 1991.
In the meantime, petitioner Neri filed a separate Petition for Review (G.R. No. 96715) dated 19 February
1991.
Petitioner Arroyo filed a motion for reconsideration dated 1 May 1991 and a motion dated 23 May 1991 for
consolidation o G.R. No. 96602 with G.R. No. 96715.
On 3 June 1991, G.R. No. 96715 was consolidated with G.R No. 96602 in the Third Division in accordance
with long-stand ing practice of the Court.
On 29 July 1991, the Third Division deliberated upon the case which was then assigned to the ponente for
the writing of the Court's Resolution. 2
On 26 August 1991, Dr. Neri filed a manifestation, dated 14 May 1991,

3 praying that the case against petitioners be

dismissed as he had "tacitly consented" to his wife's infidelity. 4

Petitioners then filed their respective motions praying for the dismissal or for the granting of new trial of the
case claiming a basis for their motions Dr. Neri's manifestation. The Solicitor General was then asked to
comment on the manifestation; hi comment was filed with this Court on 18 October 1991. 5
In October 1991, the consolidated cases were, again in accordance with long-standing practice of the Court,
assigned to the First Division upon the assignment of the ponente to that division. On 4 November 1991, the
consolidated cases were re deliberated upon by the members of the First Division who reached the same
conclusion as the members of the Third Division of the Court.
In his Motion for Reconsideration in G.R. No. 96602, petitioner Arroyo made the following contentions:
1. Dr. Neri's affidavit of desistance which states that the case was filed out of "pure
misunderstanding' raises questions as to the truth of the alleged admission made by Mrs.
Neri;
2. The other prosecution witnesses' corroborative testimonies merely proved the existence of
an illicit affair but not that adultery was committed on the date and place in question;
3. Mrs. Neri's separate petition for review raised the issue of Dr. Neri's alleged subsequent
marriage to another woman which, if proven would preclude either of the spouses from filing
charges of adultery or concubinage against each other.
In G.R. No. 96715, petitioner Neri imputes the following errors to the Court of Appeals:
1. The Honorable Court of Appeals gravely erred in not granting the motion for
reconsideration and/or new trial of the petitioner;
2. The Honorable Court of Appeals gravely erred by violating the constitutional rights of
petitioner against self-incrimination;

3. The Honorable Court of Appeals erred in failing to take into consideration the material
inconsistencies of the testimony of the complaining witness; and
4. The Honorable Court of Appeals gravely erred in discarding medical testimony as to the
physical impossibility of the petitioner to have committed the crime charged. 6
The issues in the consolidated cases may be summarized as follows:
1. Whether or not Dr. Neri's affidavit of desistance is sufficient to cast reasonable doubts on
his credibility;
2. Whether or not Mrs. Neri's constitutional right against self-incrimination had been violated;
3. Whether or not Dr. Neri's alleged extra-marital affair precludes him from filing the criminal
complaint on the ground of pari delicto; and
4. Whether or not Dr. Neri's manifestation is sufficient basis for the granting of a new trial.
Deliberating on the:
1. Motion for Reconsideration in G.R. No. 96602, the Court believes that petitioner Arroyo has failed to show
any ground that would warrant the Court reversing its Resolution dated 24 April 1991; and on the
2. Petition for Review docketed as G.R. No. 96715, the Court considers that petitioner Ruby Vera Neri has
failed to show reversible error on the part of the Court of Appeals in issuing its Decision dated 21 May 1990
and its Resolution, dated 18 December 1990.
Petitioner Arroyo did not convince this Court in G.R. No. 96602 to dismiss the criminal case on the basis of
Dr. Neri's pardon. He, together with petitioner Neri, now cites the same affidavit in the effort to cast doubts on
the credibility of Dr. Neri's testimony given before the trial court. However, in the Court's Resolution, dated 24
April 1991, dismissing the Petition for certiorari in G.R. No. 96602, the Court held that:
It has been our constant holding that:
In certiorari proceedings under Rule 45, the findings of fact of the lower court
as well itsconclusions on credibility of witnesses are generally not
disturbed, the question before the court being limited to questions of law
(Rule 45, Sec. 2). Specifically, the conclusions of the trial court on the
credibility of witnesses are given considerable weight, since said court is in
the best position to observe the demeanor, conduct and attitude of witnesses
at the trial. (Aguirre v. People, 155 SCRA 337 [1987]; emphasis supplied)
Thus, the claim that Dr. Neri's testimony is incredible is unavailing at this stage. Besides, the
Court does not believe that such an admission by an unfaithful wife was inherently
improbable or impossible.7 (Emphasis supplied)
The Court, in the said Resolution of 24 April 1991, had likewise ruled on the claim that Mrs. Neri's
constitutional right against self-incrimination had been disregarded when her admission to her husband in
the privacy of their conjugal home that she had indeed lain with petitioner Arroyo was taken into account by
the trial court, to wit:
Dr. Jorge Neri was also presented as a witness and he testified that sometime in December
of 1982, he surprised his wife while she was looking at some photographs in their bedroom in
their house in Dasmarias Village, Makati. Accused Ruby Vera Neri then turned pale and
started for the door. Struck by this unusual behavior, Dr. Neri started looking around the
dressing room and he came upon a Kodak envelope with film negatives inside. He took the
negatives for printing and a few days later, armed with the photographs which showed his
wife in intimate bedroom poses with another man, confronted Ruby Vera Neri. It was at this
point that Ruby Vera Neri admitted to her husband that Eduardo Arroyo was her lover and
that they went to bed in Baguio on 2 and 3 November 1982.
xxx xxx xxx

As to the constitutional issue, we held in Gamboa v. Cruz (162 SCRA 642 [1988]) that:
The right to counsel attaches upon the start of an investigation, i.e., when
the investigating officer starts to ask questions to elicit information and/or
confession or admissions from respondent-accused.(emphasis supplied)
In the present case, Dr. Neri was not a peace officer nor an investigating officer conducting a
custodial interrogation, hence, petitioner cannot now claim that Mrs. Neri's admission should
have been rejected.
In the case of Aballe v. People (183 SCRA 196 [1990]), the Court held:
The declaration of an accused expressly acknowledging his guilt of the
offense may be given in evidence against him.
The rule is that any person, otherwise competent as witness, who heard the
confession, is competent to testify as to substance of what he heard if he
heard and understood all of it. An oral confession need not be repeated
verbatim, but in such case it must be given in its substance.
Compliance with the constitutional procedures on custodial investigation is
not applicable to a spontaneous statement, not elicited through questioning,
but given in an ordinary manner, whereby the accused orally admitted having
slain the victim.
We also note that the husband is not precluded under the Rules of Court from testifying
against his wife in criminal cases for a crime committed by one against the other (Section 22,
Rule 129, Revised Rules of Court).
In short, the trial court and the Court of Appeals did not err in admitting Dr. Neri's testimony
as he was a competent witness. Neither was said testimony rendered inadmissible by the
constitutional provision on the right to remain silent and the right to counsel of a "person
under investigation for the commission of an offense."
Petitioner next claims that the trial court erred in convicting him on the basis of the failure of
Ruby Vera Neri to take the witness stand. In People v. Gargoles (83 SCRA 282 [1978]), it
was held that:
We have held that an accused has the right to decline to testify at the trial
without having any inference of guilt drawn from his failure to go on the
witness stand. Thus, a verdict of conviction on the basis, solely or mainly, of
the failure or refusal of the accused to take the witness stand to deny the
charges against him is a judicial heresy which cannot be
countenanced. Invariably, any such verdict deserves to be reserved.
Such situation does not obtain, however, in the case at bar. For while the trial
court took note of the failure of defendant to take the witness stand to deny
the charge against him,the same was not the main reason, much less the
sole basis, of the trial court in holding, as credible the testimony of
complainant, and in ultimately concluding that the crime of rape had been
committed by the accused-appellant. (Emphasis supplied)
Examination of the trial court decision here shows that said failure to testify was not the sole
nor the main basis of the conviction. Aside from accused's failure to deny Dr. Neri's
testimony, the trial court also considered the testimonies of Dr. Neri and other prosecution
witnesses and the photographs of the two accused in intimate poses (and three of which
showed them half naked in bed). 8 (Emphasis supplied)
We turn to the contention that pari-delicto "is a valid defense to a prosecution for adultery and concubinage
and that in such a case "it would be only a hypocritical pretense for such spouse to appear in court as the
offended spouse."9
In the first place, the case cited does not support petitioner Neri's position. In the Guinucud case, the Court
found that the complaining husband, by entering into an agreement with his wife that each of them were to

live separately and could marry other persons and by filing complaint only about a year after discovering his
wife's infidelity, had "consented to, and acquiesced in, the adulterous relations existing between the accused,
and he is, therefore, not authorized by law to institute the criminal proceedings." In fine, the Guinucud case
refers not to the notion of pari delicto but to consent as a bar to the institution of the criminal proceedings. In
the present case, no such acquiescence can be implied: the accused did not enter into any agreement with
Dr. Neri allowing each other to marry or cohabit with other persons; and Dr. Neri promptly filed his complaint
after discovering the illicit affair.
Moreover, the concept of pari delicto is not found in the Revised Penal Code, but only in Article 1411 of the
Civil Code. The Court notes that Article 1411 of the Civil Code relates only to contracts with illegal
consideration.10 The case at bar does not involve any illegal contract which either of the contracting parties is now seeking to enforce.
Petitioners also contend that Dr. Neri's manifestation which reads:
2. Even before I filed the complaint in court and before the pardon that I had extended to my
wife and her co-accused, I was in reality aware of what was going on between and therefore,
tacitly consented to my wife's infidelity, ...
should result in the dismissal of the case or, at the very least, in the remand of the case for new trial claiming
that inPeople v. Camara 11 it was held that "the consent of the spouse is valid defense to a prosecution for adultery and/or concubinage." 12
Dr. Neri's manifestation amounts in effect to an attempted recantation of testimony given by him before the
trial court. It is settled that not all recantations by witnesses should result in the granting of a new
trial. 13 In People v. Follantes and Jacinto, 14 it was held that:
... [R]ecantation by witnesses called on behalf of the prosecution does not necessarily entitle
defendant to a new trial. The question whether a new trial shall be granted on this ground
depends on all the circumstances of the case, including the testimony of the witnesses
submitted on the motion for the new trial. Moreover, recanting testimony is exceedingly
unreliable, and it is the duty of the court to deny a new trial where it is not satisfied that such
testimony is true. ... 15 (Emphasis supplied)
Succinctly put, the Court doubts the truthfulness and reliability of Dr. Neri's belated recantation. Dr. Neri had
two (2) previous occasions to make the claim contained in his manifestation: first, in the compromise
agreement 16 dated 16 February 1989 submitted before the Regional Trial Court of Makati, Branch 149 in relation to Civil Case No. M-001; and
second, his affidavit 17 dated 23 November 1988 submitted to the Court of Appeals. Instead, however, these two (2) documents merely stated that Dr.
Neri had pardoned petitioners 18 and the complaint was filed out of "pure misunderstanding" 19 without hinting that Dr. Neri knew of the adulterous
relations. It appears to the Court that Dr. Neri's manifestation was so worded as to attempt to cure the deficiency noted by the Court in the two (2)
previous documents in the disposition of the petition in G.R. No. 96602:

Petitioner will find no solace in the cases he cites, in support of his prayer to dismiss the case
based on Dr. Neri's pardon. People v. Camara (100 Phil. 1098 (1957) is inapplicable as the
affidavit there expressly stated that the wife had consented to the illicit relationship.
In Gomez v. Intermediate Appellate Court (135 SCRA 620 [1985]) a case involving estafa, the
criminal case was dismissed as the affidavit of desistance specifically stated that the accused
had nothing to do whatsoever with the crime charged. In the present case, the pardon did not
state that Dr. Neri had consented to the illicit relationship petitioner and Mrs. Neri. Neither did
it state that the case was filed against the wrong parties. 20
Moreover, while the manifestation is dated 14 May 1991, which incidentally is also the date of petitioner
Arroyo's motion for reconsideration, it was subscribed to only on 23 August 1991.
Petitioner Neri also contends that Dr. Neri's affidavit of desistance and the compromise agreement operate
as a pardon meriting a new trial. The Court notes that the cases of People v. Camara (supra) and Gomez v.
Intermediate Appellate Court (supra) were the very same cases which petitioner Arroyo cited in G.R. No.
96602 which the Court has already held to be inapplicable in the present case.
The rule on pardon is found in Article 344 of the Revised Penal Code which provides:
ART. 344. ... The crime of adultery and concubinage shall not be prosecuted except upon
a complaint filed by the offended spouse.
The offended party cannot institute criminal prosecution without including both parties, if they
are both alive, nor in any case, if he shall have consented or pardoned the offenders.

xxx xxx xxx

While there is a conceptual difference between consent and pardon in the sense that consent is granted
prior to the adulterous act while pardon is given after the illicit affair, 21 nevertheless, for either consent or pardon to benefit
the accused, it must be givenprior to the filing of a criminal complaint. 22 In the present case, the affidavit of desistance was executed only on 23
November 1988 while the compromise agreement was executed only on 16 February 1989, after the trial court had already rendered its decision dated
17 December 1987 finding petitioners guilty beyond reasonable doubt. Dr. Neri's manifestation is both dated and signed after issuance of our Resolution
in G.R. No. 96602 on 24 April 1991.

It should also be noted that while Article 344 of the Revise Penal Code provides that the crime of adultery
cannot be prosecuted without the offended spouse's complaint, once the complaint has been filed, the
control of the case passes to the public prosecutor. 23 Enforcement of our law on adultery is not exclusively, nor even principally, a
matter of vindication of the private honor of the offended spouse; much less is it a matter merely of personal or social hypocrisy. Such enforcement
relates, more importantly, to protection of the basic social institutions of marriage and the family in the preservation of which the State has the strongest
interest; the public policy here involved is of the most fundamental kind. In Article II, Section 12 of the Constitution there is set forth the following basic
state policy:

The State recognizes the sanctity of family life and shall protect find strengthen the family as
a basic autonomous social institution ...
The same sentiment has been expressed in the Family Code o the Philippines in Article 149:
The family, being the foundation of the ration, is a basic social institution which public policy
cherishes and protects. Consequently, family relations are governed by law and no custom,
practice or agreement destructive of the family shall be recognized or given effect.
In U.S. v. Topio, 24 the Court held that:
... The husband being the head of the family and the only person who could institute the
prosecution and control its effects, it is quite clear that the principal object in penalizing the
offense by the state was to protect the purity of the family and the honor of the husband, but
now the conduct of the prosecution,after it is once commenced by the husband, and the
enforcement of the penalties imposed is also a matter of public policy in which the
Government is vitally interested to the extent of preserving the public peace and providing for
the general welfare of the community. ... 25 (Emphasis supplied)
As to the claim that it was impossible for petitioner Neri to engage in sexual intercourse a month after her
ceasarian operation, the Court agrees with the Solicitor General that this is a question of fact which cannot
be raised at this stage. In any case, we find no reason to overturn the Court of Appeals' finding that "a
woman who has the staying power to volley tennis bags for fifteen minutes at the [John Hay] tennis court
would not be incapable of doing the sexual act" which ball play was followed, as noted by the Court of
Appeals "by a picture taking of both accused in different intimate poses." 26
ACCORDINGLY, the Motion for Reconsideration in G.R. No. 96602 is hereby DENIED for lack of merit and
this denial is FINAL. The Petition for Review in G.R. No. 96715 is hereby similarly DENIED for lack of merit.
Costs against petitioners.
Let a copy of this Resolution and of Dr. Neri's Manifestation and Motion subscribed on 23 August 1991 be
forwarded to the Department of Justice for inquiry into the possible liability of Dr. Neri for perjury.

G.R. No. 146364

June 3, 2004
COLITO T. PAJUYO, petitioner,
vs.
COURT OF APPEALS and EDDIE GUEVARRA, respondents.
DECISION
CARPIO, J.:
The Case
Before us is a petition for review1 of the 21 June 2000 Decision2 and 14 December 2000 Resolution of the
Court of Appeals in CA-G.R. SP No. 43129. The Court of Appeals set aside the 11 November 1996
decision3 of the Regional Trial Court of Quezon City, Branch 81,4 affirming the 15 December 1995
decision5 of the Metropolitan Trial Court of Quezon City, Branch 31.6
The Antecedents
In June 1979, petitioner Colito T. Pajuyo ("Pajuyo") paid P400 to a certain Pedro Perez for the rights over a
250-square meter lot in Barrio Payatas, Quezon City. Pajuyo then constructed a house made of light
materials on the lot. Pajuyo and his family lived in the house from 1979 to 7 December 1985.
On 8 December 1985, Pajuyo and private respondent Eddie Guevarra ("Guevarra") executed
a Kasunduan or agreement. Pajuyo, as owner of the house, allowed Guevarra to live in the house for free
provided Guevarra would maintain the cleanliness and orderliness of the house. Guevarra promised that he
would voluntarily vacate the premises on Pajuyos demand.
In September 1994, Pajuyo informed Guevarra of his need of the house and demanded that Guevarra
vacate the house. Guevarra refused.
Pajuyo filed an ejectment case against Guevarra with the Metropolitan Trial Court of Quezon City, Branch 31
("MTC").
In his Answer, Guevarra claimed that Pajuyo had no valid title or right of possession over the lot where the
house stands because the lot is within the 150 hectares set aside by Proclamation No. 137 for socialized
housing. Guevarra pointed out that from December 1985 to September 1994, Pajuyo did not show up or
communicate with him. Guevarra insisted that neither he nor Pajuyo has valid title to the lot.
On 15 December 1995, the MTC rendered its decision in favor of Pajuyo. The dispositive portion of the MTC
decision reads:

WHEREFORE, premises considered, judgment is hereby rendered for the plaintiff and against
defendant, ordering the latter to:
A) vacate the house and lot occupied by the defendant or any other person or persons
claiming any right under him;
B) pay unto plaintiff the sum of THREE HUNDRED PESOS (P300.00) monthly as reasonable
compensation for the use of the premises starting from the last demand;
C) pay plaintiff the sum of P3,000.00 as and by way of attorneys fees; and
D) pay the cost of suit.
SO ORDERED.7
Aggrieved, Guevarra appealed to the Regional Trial Court of Quezon City, Branch 81 ("RTC").
On 11 November 1996, the RTC affirmed the MTC decision. The dispositive portion of the RTC decision
reads:
WHEREFORE, premises considered, the Court finds no reversible error in the decision appealed
from, being in accord with the law and evidence presented, and the same is hereby affirmed en toto.
SO ORDERED.8
Guevarra received the RTC decision on 29 November 1996. Guevarra had only until 14 December 1996 to
file his appeal with the Court of Appeals. Instead of filing his appeal with the Court of Appeals, Guevarra filed
with the Supreme Court a "Motion for Extension of Time to File Appeal by Certiorari Based on Rule 42"
("motion for extension"). Guevarra theorized that his appeal raised pure questions of law. The Receiving
Clerk of the Supreme Court received the motion for extension on 13 December 1996 or one day before the
right to appeal expired.
On 3 January 1997, Guevarra filed his petition for review with the Supreme Court.
On 8 January 1997, the First Division of the Supreme Court issued a Resolution 9 referring the motion for
extension to the Court of Appeals which has concurrent jurisdiction over the case. The case presented no
special and important matter for the Supreme Court to take cognizance of at the first instance.
On 28 January 1997, the Thirteenth Division of the Court of Appeals issued a Resolution 10 granting the
motion for extension conditioned on the timeliness of the filing of the motion.
On 27 February 1997, the Court of Appeals ordered Pajuyo to comment on Guevaras petition for review. On
11 April 1997, Pajuyo filed his Comment.
On 21 June 2000, the Court of Appeals issued its decision reversing the RTC decision. The dispositive
portion of the decision reads:
WHEREFORE, premises considered, the assailed Decision of the court a quo in Civil Case No. Q96-26943 is REVERSED and SET ASIDE; and it is hereby declared that the ejectment case filed
against defendant-appellant is without factual and legal basis.
SO ORDERED.11
Pajuyo filed a motion for reconsideration of the decision. Pajuyo pointed out that the Court of Appeals should
have dismissed outright Guevarras petition for review because it was filed out of time. Moreover, it was
Guevarras counsel and not Guevarra who signed the certification against forum-shopping.
On 14 December 2000, the Court of Appeals issued a resolution denying Pajuyos motion for
reconsideration. The dispositive portion of the resolution reads:
WHEREFORE, for lack of merit, the motion for reconsideration is hereby DENIED. No costs.
SO ORDERED.12

The Ruling of the MTC

The MTC ruled that the subject of the agreement between Pajuyo and Guevarra is the house and not the lot.
Pajuyo is the owner of the house, and he allowed Guevarra to use the house only by tolerance. Thus,
Guevarras refusal to vacate the house on Pajuyos demand made Guevarras continued possession of the
house illegal.
The Ruling of the RTC
The RTC upheld the Kasunduan, which established the landlord and tenant relationship between Pajuyo and
Guevarra. The terms of the Kasunduan bound Guevarra to return possession of the house on demand.
The RTC rejected Guevarras claim of a better right under Proclamation No. 137, the Revised National
Government Center Housing Project Code of Policies and other pertinent laws. In an ejectment suit, the RTC
has no power to decide Guevarras rights under these laws. The RTC declared that in an ejectment case, the
only issue for resolution is material or physical possession, not ownership.
The Ruling of the Court of Appeals
The Court of Appeals declared that Pajuyo and Guevarra are squatters. Pajuyo and Guevarra illegally
occupied the contested lot which the government owned.
Perez, the person from whom Pajuyo acquired his rights, was also a squatter. Perez had no right or title over
the lot because it is public land. The assignment of rights between Perez and Pajuyo, and
the Kasunduan between Pajuyo and Guevarra, did not have any legal effect. Pajuyo and Guevarra are
in pari delicto or in equal fault. The court will leave them where they are.
The Court of Appeals reversed the MTC and RTC rulings, which held that the Kasunduan between Pajuyo
and Guevarra created a legal tie akin to that of a landlord and tenant relationship. The Court of Appeals ruled
that theKasunduan is not a lease contract but a commodatum because the agreement is not for a price
certain.
Since Pajuyo admitted that he resurfaced only in 1994 to claim the property, the appellate court held that
Guevarra has a better right over the property under Proclamation No. 137. President Corazon C. Aquino
("President Aquino") issued Proclamation No. 137 on 7 September 1987. At that time, Guevarra was in
physical possession of the property. Under Article VI of the Code of Policies Beneficiary Selection and
Disposition of Homelots and Structures in the National Housing Project ("the Code"), the actual occupant or
caretaker of the lot shall have first priority as beneficiary of the project. The Court of Appeals concluded that
Guevarra is first in the hierarchy of priority.
In denying Pajuyos motion for reconsideration, the appellate court debunked Pajuyos claim that Guevarra
filed his motion for extension beyond the period to appeal.
The Court of Appeals pointed out that Guevarras motion for extension filed before the Supreme Court was
stamped "13 December 1996 at 4:09 PM" by the Supreme Courts Receiving Clerk. The Court of Appeals
concluded that the motion for extension bore a date, contrary to Pajuyos claim that the motion for extension
was undated. Guevarra filed the motion for extension on time on 13 December 1996 since he filed the
motion one day before the expiration of the reglementary period on 14 December 1996. Thus, the motion for
extension properly complied with the condition imposed by the Court of Appeals in its 28 January 1997
Resolution. The Court of Appeals explained that the thirty-day extension to file the petition for review was
deemed granted because of such compliance.
The Court of Appeals rejected Pajuyos argument that the appellate court should have dismissed the petition
for review because it was Guevarras counsel and not Guevarra who signed the certification against forumshopping. The Court of Appeals pointed out that Pajuyo did not raise this issue in his Comment. The Court of
Appeals held that Pajuyo could not now seek the dismissal of the case after he had extensively argued on
the merits of the case. This technicality, the appellate court opined, was clearly an afterthought.
The Issues
Pajuyo raises the following issues for resolution:
WHETHER THE COURT OF APPEALS ERRED OR ABUSED ITS AUTHORITY AND DISCRETION
TANTAMOUNT TO LACK OF JURISDICTION:

1) in GRANTING, instead of denying, Private Respondents Motion for an Extension of thirty

days to file petition for review at the time when there was no more period to extend as the
decision of the Regional Trial Court had already become final and executory.
2) in giving due course, instead of dismissing, private respondents Petition for Review even
though the certification against forum-shopping was signed only by counsel instead of by
petitioner himself.
3) in ruling that the Kasunduan voluntarily entered into by the parties was in fact
a commodatum, instead of a Contract of Lease as found by the Metropolitan Trial Court and
in holding that "the ejectment case filed against defendant-appellant is without legal and
factual basis".
4) in reversing and setting aside the Decision of the Regional Trial Court in Civil Case No. Q96-26943 and in holding that the parties are in pari delicto being both squatters, therefore,
illegal occupants of the contested parcel of land.
5) in deciding the unlawful detainer case based on the so-called Code of Policies of the
National Government Center Housing Project instead of deciding the same under
the Kasunduan voluntarily executed by the parties, the terms and conditions of which are the
laws between themselves.13
The Ruling of the Court
The procedural issues Pajuyo is raising are baseless. However, we find merit in the substantive issues
Pajuyo is submitting for resolution.
Procedural Issues
Pajuyo insists that the Court of Appeals should have dismissed outright Guevarras petition for review
because the RTC decision had already become final and executory when the appellate court acted on
Guevarras motion for extension to file the petition. Pajuyo points out that Guevarra had only one day before
the expiry of his period to appeal the RTC decision. Instead of filing the petition for review with the Court of
Appeals, Guevarra filed with this Court an undated motion for extension of 30 days to file a petition for
review. This Court merely referred the motion to the Court of Appeals. Pajuyo believes that the filing of the
motion for extension with this Court did not toll the running of the period to perfect the appeal. Hence, when
the Court of Appeals received the motion, the period to appeal had already expired.
We are not persuaded.
Decisions of the regional trial courts in the exercise of their appellate jurisdiction are appealable to the Court
of Appeals by petition for review in cases involving questions of fact or mixed questions of fact and
law.14 Decisions of the regional trial courts involving pure questions of law are appealable directly to this
Court by petition for review.15These modes of appeal are now embodied in Section 2, Rule 41 of the 1997
Rules of Civil Procedure.
Guevarra believed that his appeal of the RTC decision involved only questions of law. Guevarra thus filed his
motion for extension to file petition for review before this Court on 14 December 1996. On 3 January 1997,
Guevarra then filed his petition for review with this Court. A perusal of Guevarras petition for review gives
the impression that the issues he raised were pure questions of law. There is a question of law when the
doubt or difference is on what the law is on a certain state of facts.16 There is a question of fact when the
doubt or difference is on the truth or falsity of the facts alleged. 17
In his petition for review before this Court, Guevarra no longer disputed the facts. Guevarras petition for
review raised these questions: (1) Do ejectment cases pertain only to possession of a structure, and not the
lot on which the structure stands? (2) Does a suit by a squatter against a fellow squatter constitute a valid
case for ejectment? (3) Should a Presidential Proclamation governing the lot on which a squatters structure
stands be considered in an ejectment suit filed by the owner of the structure?
These questions call for the evaluation of the rights of the parties under the law on ejectment and the
Presidential Proclamation. At first glance, the questions Guevarra raised appeared purely legal. However,
some factual questions still have to be resolved because they have a bearing on the legal questions raised
in the petition for review. These factual matters refer to the metes and bounds of the disputed property and
the application of Guevarra as beneficiary of Proclamation No. 137.

The Court of Appeals has the power to grant an extension of time to file a petition for review. In Lacsamana
v. Second Special Cases Division of the Intermediate Appellate Court,18 we declared that the Court of
Appeals could grant extension of time in appeals by petition for review. In Liboro v. Court of Appeals,19 we
clarified that the prohibition against granting an extension of time applies only in a case where ordinary
appeal is perfected by a mere notice of appeal. The prohibition does not apply in a petition for review where
the pleading needs verification. A petition for review, unlike an ordinary appeal, requires preparation and
research to present a persuasive position.20The drafting of the petition for review entails more time and effort
than filing a notice of appeal.21 Hence, the Court of Appeals may allow an extension of time to file a petition
for review.
In the more recent case of Commissioner of Internal Revenue v. Court of Appeals,22 we held
that Liborosclarification of Lacsamana is consistent with the Revised Internal Rules of the Court of Appeals
and Supreme Court Circular No. 1-91. They all allow an extension of time for filing petitions for review with
the Court of Appeals. The extension, however, should be limited to only fifteen days save in exceptionally
meritorious cases where the Court of Appeals may grant a longer period.
A judgment becomes "final and executory" by operation of law. Finality of judgment becomes a fact on the
lapse of the reglementary period to appeal if no appeal is perfected. 23 The RTC decision could not have
gained finality because the Court of Appeals granted the 30-day extension to Guevarra.
The Court of Appeals did not commit grave abuse of discretion when it approved Guevarras motion for
extension. The Court of Appeals gave due course to the motion for extension because it complied with the
condition set by the appellate court in its resolution dated 28 January 1997. The resolution stated that the
Court of Appeals would only give due course to the motion for extension if filed on time. The motion for
extension met this condition.
The material dates to consider in determining the timeliness of the filing of the motion for extension are (1)
the date of receipt of the judgment or final order or resolution subject of the petition, and (2) the date of filing
of the motion for extension.24 It is the date of the filing of the motion or pleading, and not the date of
execution, that determines the timeliness of the filing of that motion or pleading. Thus, even if the motion for
extension bears no date, the date of filing stamped on it is the reckoning point for determining the timeliness
of its filing.
Guevarra had until 14 December 1996 to file an appeal from the RTC decision. Guevarra filed his motion for
extension before this Court on 13 December 1996, the date stamped by this Courts Receiving Clerk on the
motion for extension. Clearly, Guevarra filed the motion for extension exactly one day before the lapse of the
reglementary period to appeal.
Assuming that the Court of Appeals should have dismissed Guevarras appeal on technical grounds, Pajuyo
did not ask the appellate court to deny the motion for extension and dismiss the petition for review at the
earliest opportunity. Instead, Pajuyo vigorously discussed the merits of the case. It was only when the Court
of Appeals ruled in Guevarras favor that Pajuyo raised the procedural issues against Guevarras petition for
review.
A party who, after voluntarily submitting a dispute for resolution, receives an adverse decision on the merits,
is estopped from attacking the jurisdiction of the court. 25 Estoppel sets in not because the judgment of the
court is a valid and conclusive adjudication, but because the practice of attacking the courts jurisdiction after
voluntarily submitting to it is against public policy.26
In his Comment before the Court of Appeals, Pajuyo also failed to discuss Guevarras failure to sign the
certification against forum shopping. Instead, Pajuyo harped on Guevarras counsel signing the verification,
claiming that the counsels verification is insufficient since it is based only on "mere information."
A partys failure to sign the certification against forum shopping is different from the partys failure to sign
personally the verification. The certificate of non-forum shopping must be signed by the party, and not by
counsel.27 The certification of counsel renders the petition defective. 28
On the other hand, the requirement on verification of a pleading is a formal and not a jurisdictional
requisite.29 It is intended simply to secure an assurance that what are alleged in the pleading are true and
correct and not the product of the imagination or a matter of speculation, and that the pleading is filed in
good faith.30 The party need not sign the verification. A partys representative, lawyer or any person who
personally knows the truth of the facts alleged in the pleading may sign the verification. 31

We agree with the Court of Appeals that the issue on the certificate against forum shopping was merely an
afterthought. Pajuyo did not call the Court of Appeals attention to this defect at the early stage of the
proceedings. Pajuyo raised this procedural issue too late in the proceedings.
Absence of Title over the Disputed Property will not Divest the Courts of Jurisdiction to Resolve the
Issue of Possession
Settled is the rule that the defendants claim of ownership of the disputed property will not divest the inferior
court of its jurisdiction over the ejectment case.32 Even if the pleadings raise the issue of ownership, the court
may pass on such issue to determine only the question of possession, especially if the ownership is
inseparably linked with the possession.33 The adjudication on the issue of ownership is only provisional and
will not bar an action between the same parties involving title to the land. 34 This doctrine is a necessary
consequence of the nature of the two summary actions of ejectment, forcible entry and unlawful detainer,
where the only issue for adjudication is the physical or material possession over the real property.35
In this case, what Guevarra raised before the courts was that he and Pajuyo are not the owners of the
contested property and that they are mere squatters. Will the defense that the parties to the ejectment case
are not the owners of the disputed lot allow the courts to renounce their jurisdiction over the case? The Court
of Appeals believed so and held that it would just leave the parties where they are since they are in pari
delicto.
We do not agree with the Court of Appeals.
Ownership or the right to possess arising from ownership is not at issue in an action for recovery of
possession. The parties cannot present evidence to prove ownership or right to legal possession except to
prove the nature of the possession when necessary to resolve the issue of physical possession. 36 The same
is true when the defendant asserts the absence of title over the property. The absence of title over the
contested lot is not a ground for the courts to withhold relief from the parties in an ejectment case.
The only question that the courts must resolve in ejectment proceedings is - who is entitled to the physical
possession of the premises, that is, to the possession de facto and not to the possession de jure.37 It does
not even matter if a partys title to the property is questionable,38 or when both parties intruded into public
land and their applications to own the land have yet to be approved by the proper government
agency.39 Regardless of the actual condition of the title to the property, the party in peaceable quiet
possession shall not be thrown out by a strong hand, violence or terror.40 Neither is the unlawful withholding
of property allowed. Courts will always uphold respect for prior possession.
Thus, a party who can prove prior possession can recover such possession even against the owner
himself.41Whatever may be the character of his possession, if he has in his favor prior possession in time, he
has the security that entitles him to remain on the property until a person with a better right lawfully ejects
him.42 To repeat, the only issue that the court has to settle in an ejectment suit is the right to physical
possession.
In Pitargue v. Sorilla,43 the government owned the land in dispute. The government did not authorize either
the plaintiff or the defendant in the case of forcible entry case to occupy the land. The plaintiff had prior
possession and had already introduced improvements on the public land. The plaintiff had a pending
application for the land with the Bureau of Lands when the defendant ousted him from possession. The
plaintiff filed the action of forcible entry against the defendant. The government was not a party in the case of
forcible entry.
The defendant questioned the jurisdiction of the courts to settle the issue of possession because while the
application of the plaintiff was still pending, title remained with the government, and the Bureau of Public
Lands had jurisdiction over the case. We disagreed with the defendant. We ruled that courts have jurisdiction
to entertain ejectment suits even before the resolution of the application. The plaintiff, by priority of his
application and of his entry, acquired prior physical possession over the public land applied for as against
other private claimants. That prior physical possession enjoys legal protection against other private
claimants because only a court can take away such physical possession in an ejectment case.
While the Court did not brand the plaintiff and the defendant in Pitargue44 as squatters, strictly speaking,
their entry into the disputed land was illegal. Both the plaintiff and defendant entered the public land without
the owners permission. Title to the land remained with the government because it had not awarded to
anyone ownership of the contested public land. Both the plaintiff and the defendant were in effect squatting
on government property. Yet, we upheld the courts jurisdiction to resolve the issue of possession even if the
plaintiff and the defendant in the ejectment case did not have any title over the contested land.

Courts must not abdicate their jurisdiction to resolve the issue of physical possession because of the public
need to preserve the basic policy behind the summary actions of forcible entry and unlawful detainer. The
underlying philosophy behind ejectment suits is to prevent breach of the peace and criminal disorder and to
compel the party out of possession to respect and resort to the law alone to obtain what he claims is
his.45 The party deprived of possession must not take the law into his own hands. 46 Ejectment proceedings
are summary in nature so the authorities can settle speedily actions to recover possession because of the
overriding need to quell social disturbances.47
We further explained in Pitargue the greater interest that is at stake in actions for recovery of possession.
We made the following pronouncements in Pitargue:
The question that is before this Court is: Are courts without jurisdiction to take cognizance of
possessory actions involving these public lands before final award is made by the Lands
Department, and before title is given any of the conflicting claimants? It is one of utmost importance,
as there are public lands everywhere and there are thousands of settlers, especially in newly opened
regions. It also involves a matter of policy, as it requires the determination of the respective
authorities and functions of two coordinate branches of the Government in connection with public
land conflicts.
Our problem is made simple by the fact that under the Civil Code, either in the old, which was in
force in this country before the American occupation, or in the new, we have a possessory action, the
aim and purpose of which is the recovery of the physical possession of real property, irrespective of
the question as to who has the title thereto. Under the Spanish Civil Code we had the accion
interdictal, a summary proceeding which could be brought within one year from dispossession
(Roman Catholic Bishop of Cebu vs. Mangaron, 6 Phil. 286, 291); and as early as October 1, 1901,
upon the enactment of the Code of Civil Procedure (Act No. 190 of the Philippine Commission) we
implanted the common law action of forcible entry (section 80 of Act No. 190), the object of which
has been stated by this Court to be "to prevent breaches of the peace and criminal disorder
which would ensue from the withdrawal of the remedy, and the reasonable hope such
withdrawal would create that some advantage must accrue to those persons who, believing
themselves entitled to the possession of property, resort to force to gain possession rather
than to some appropriate action in the court to assert their claims." (Supia and Batioco vs.
Quintero and Ayala, 59 Phil. 312, 314.) So before the enactment of the first Public Land Act (Act No.
926) the action of forcible entry was already available in the courts of the country. So the question to
be resolved is, Did the Legislature intend, when it vested the power and authority to alienate and
dispose of the public lands in the Lands Department, to exclude the courts from entertaining the
possessory action of forcible entry between rival claimants or occupants of any land before award
thereof to any of the parties? Did Congress intend that the lands applied for, or all public lands for
that matter, be removed from the jurisdiction of the judicial Branch of the Government, so that any
troubles arising therefrom, or any breaches of the peace or disorders caused by rival claimants,
could be inquired into only by the Lands Department to the exclusion of the courts? The answer to
this question seems to us evident. The Lands Department does not have the means to police public
lands; neither does it have the means to prevent disorders arising therefrom, or contain breaches of
the peace among settlers; or to pass promptly upon conflicts of possession. Then its power is
clearly limited to disposition and alienation, and while it may decide conflicts of possession
in order to make proper award, the settlement of conflicts of possession which is recognized
in the court herein has another ultimate purpose, i.e., the protection of actual possessors and
occupants with a view to the prevention of breaches of the peace. The power to dispose and
alienate could not have been intended to include the power to prevent or settle disorders or
breaches of the peace among rival settlers or claimants prior to the final award. As to this,
therefore, the corresponding branches of the Government must continue to exercise power and
jurisdiction within the limits of their respective functions. The vesting of the Lands Department
with authority to administer, dispose, and alienate public lands, therefore, must not be
understood as depriving the other branches of the Government of the exercise of the
respective functions or powers thereon, such as the authority to stop disorders and quell
breaches of the peace by the police, the authority on the part of the courts to take jurisdiction
over possessory actions arising therefrom not involving, directly or indirectly, alienation and
disposition.
Our attention has been called to a principle enunciated in American courts to the effect that courts
have no jurisdiction to determine the rights of claimants to public lands, and that until the disposition
of the land has passed from the control of the Federal Government, the courts will not interfere with
the administration of matters concerning the same. (50 C. J. 1093-1094.) We have no quarrel with
this principle. The determination of the respective rights of rival claimants to public lands is different
from the determination of who has the actual physical possession or occupation with a view to

protecting the same and preventing disorder and breaches of the peace. A judgment of the court
ordering restitution of the possession of a parcel of land to the actual occupant, who has been
deprived thereof by another through the use of force or in any other illegal manner, can never be
"prejudicial interference" with the disposition or alienation of public lands. On the other hand, if
courts were deprived of jurisdiction of cases involving conflicts of possession, that threat of
judicial action against breaches of the peace committed on public lands would be eliminated,
and a state of lawlessness would probably be produced between applicants, occupants or
squatters, where force or might, not right or justice, would rule.
It must be borne in mind that the action that would be used to solve conflicts of possession between
rivals or conflicting applicants or claimants would be no other than that of forcible entry. This action,
both in England and the United States and in our jurisdiction, is a summary and expeditious remedy
whereby one in peaceful and quiet possession may recover the possession of which he has been
deprived by a stronger hand, by violence or terror; its ultimate object being to prevent breach of the
peace and criminal disorder. (Supia and Batioco vs. Quintero and Ayala, 59 Phil. 312, 314.) The
basis of the remedy is mere possession as a fact, of physical possession, not a legal possession.
(Mediran vs. Villanueva, 37 Phil. 752.) The title or right to possession is never in issue in an action of
forcible entry; as a matter of fact, evidence thereof is expressly banned, except to prove the nature of
the possession. (Second 4, Rule 72, Rules of Court.) With this nature of the action in mind, by no
stretch of the imagination can conclusion be arrived at that the use of the remedy in the courts of
justice would constitute an interference with the alienation, disposition, and control of public lands. To
limit ourselves to the case at bar can it be pretended at all that its result would in any way interfere
with the manner of the alienation or disposition of the land contested? On the contrary, it would
facilitate adjudication, for the question of priority of possession having been decided in a final
manner by the courts, said question need no longer waste the time of the land officers making the
adjudication or award. (Emphasis ours)
The Principle of Pari Delicto is not Applicable to Ejectment Cases
The Court of Appeals erroneously applied the principle of pari delicto to this case.
Articles 1411 and 1412 of the Civil Code48 embody the principle of pari delicto. We explained the principle of
pari delicto in these words:
The rule of pari delicto is expressed in the maxims ex dolo malo non eritur actio and in pari delicto
potior est conditio defedentis. The law will not aid either party to an illegal agreement. It leaves the
parties where it finds them.49
The application of the pari delicto principle is not absolute, as there are exceptions to its application. One of
these exceptions is where the application of the pari delicto rule would violate well-established public policy.50
In Drilon v. Gaurana,51 we reiterated the basic policy behind the summary actions of forcible entry and
unlawful detainer. We held that:
It must be stated that the purpose of an action of forcible entry and detainer is that, regardless of the
actual condition of the title to the property, the party in peaceable quiet possession shall not be
turned out by strong hand, violence or terror. In affording this remedy of restitution the object of the
statute is to prevent breaches of the peace and criminal disorder which would ensue from the
withdrawal of the remedy, and the reasonable hope such withdrawal would create that some
advantage must accrue to those persons who, believing themselves entitled to the possession of
property, resort to force to gain possession rather than to some appropriate action in the courts to
assert their claims. This is the philosophy at the foundation of all these actions of forcible entry and
detainer which are designed to compel the party out of possession to respect and resort to the law
alone to obtain what he claims is his.52
Clearly, the application of the principle of pari delicto to a case of ejectment between squatters is fraught with
danger. To shut out relief to squatters on the ground of pari delicto would openly invite mayhem and
lawlessness. A squatter would oust another squatter from possession of the lot that the latter had illegally
occupied, emboldened by the knowledge that the courts would leave them where they are. Nothing would
then stand in the way of the ousted squatter from re-claiming his prior possession at all cost.
Petty warfare over possession of properties is precisely what ejectment cases or actions for recovery of
possession seek to prevent.53 Even the owner who has title over the disputed property cannot take the law
into his own hands to regain possession of his property. The owner must go to court.

Courts must resolve the issue of possession even if the parties to the ejectment suit are squatters. The
determination of priority and superiority of possession is a serious and urgent matter that cannot be left to
the squatters to decide. To do so would make squatters receive better treatment under the law. The law
restrains property owners from taking the law into their own hands. However, the principle of pari delicto as
applied by the Court of Appeals would give squatters free rein to dispossess fellow squatters or violently
retake possession of properties usurped from them. Courts should not leave squatters to their own devices
in cases involving recovery of possession.
Possession is the only Issue for Resolution in an Ejectment Case
The case for review before the Court of Appeals was a simple case of ejectment. The Court of Appeals
refused to rule on the issue of physical possession. Nevertheless, the appellate court held that the pivotal
issue in this case is who between Pajuyo and Guevarra has the "priority right as beneficiary of the contested
land under Proclamation No. 137."54 According to the Court of Appeals, Guevarra enjoys preferential right
under Proclamation No. 137 because Article VI of the Code declares that the actual occupant or caretaker is
the one qualified to apply for socialized housing.
The ruling of the Court of Appeals has no factual and legal basis.
First. Guevarra did not present evidence to show that the contested lot is part of a relocation site under
Proclamation No. 137. Proclamation No. 137 laid down the metes and bounds of the land that it declared
open for disposition to bona fide residents.
The records do not show that the contested lot is within the land specified by Proclamation No. 137.
Guevarra had the burden to prove that the disputed lot is within the coverage of Proclamation No. 137. He
failed to do so.
Second. The Court of Appeals should not have given credence to Guevarras unsubstantiated claim that he
is the beneficiary of Proclamation No. 137. Guevarra merely alleged that in the survey the project
administrator conducted, he and not Pajuyo appeared as the actual occupant of the lot.
There is no proof that Guevarra actually availed of the benefits of Proclamation No. 137. Pajuyo allowed
Guevarra to occupy the disputed property in 1985. President Aquino signed Proclamation No. 137 into law
on 11 March 1986. Pajuyo made his earliest demand for Guevarra to vacate the property in September
1994.
During the time that Guevarra temporarily held the property up to the time that Proclamation No. 137
allegedly segregated the disputed lot, Guevarra never applied as beneficiary of Proclamation No. 137. Even
when Guevarra already knew that Pajuyo was reclaiming possession of the property, Guevarra did not take
any step to comply with the requirements of Proclamation No. 137.
Third. Even assuming that the disputed lot is within the coverage of Proclamation No. 137 and Guevarra has
a pending application over the lot, courts should still assume jurisdiction and resolve the issue of possession.
However, the jurisdiction of the courts would be limited to the issue of physical possession only.
In Pitargue,55 we ruled that courts have jurisdiction over possessory actions involving public land to
determine the issue of physical possession. The determination of the respective rights of rival claimants to
public land is, however, distinct from the determination of who has the actual physical possession or who has
a better right of physical possession.56 The administrative disposition and alienation of public lands should be
threshed out in the proper government agency.57
The Court of Appeals determination of Pajuyo and Guevarras rights under Proclamation No. 137 was
premature. Pajuyo and Guevarra were at most merely potential beneficiaries of the law. Courts should not
preempt the decision of the administrative agency mandated by law to determine the qualifications of
applicants for the acquisition of public lands. Instead, courts should expeditiously resolve the issue of
physical possession in ejectment cases to prevent disorder and breaches of peace. 58
Pajuyo is Entitled to Physical Possession of the Disputed Property
Guevarra does not dispute Pajuyos prior possession of the lot and ownership of the house built on it.
Guevarra expressly admitted the existence and due execution of the Kasunduan. The Kasunduan reads:

Ako, si COL[I]TO PAJUYO, may-ari ng bahay at lote sa Bo. Payatas, Quezon City, ay nagbibigay pahintulot
kay G. Eddie Guevarra, na pansamantalang manirahan sa nasabing bahay at lote ng "walang bayad."
Kaugnay nito, kailangang panatilihin nila ang kalinisan at kaayusan ng bahay at lote.
Sa sandaling kailangan na namin ang bahay at lote, silay kusang aalis ng walang reklamo.
Based on the Kasunduan, Pajuyo permitted Guevarra to reside in the house and lot free of rent, but
Guevarra was under obligation to maintain the premises in good condition. Guevarra promised to vacate the
premises on Pajuyos demand but Guevarra broke his promise and refused to heed Pajuyos demand to
vacate.
These facts make out a case for unlawful detainer. Unlawful detainer involves the withholding by a person
from another of the possession of real property to which the latter is entitled after the expiration or
termination of the formers right to hold possession under a contract, express or implied.59
Where the plaintiff allows the defendant to use his property by tolerance without any contract, the defendant
is necessarily bound by an implied promise that he will vacate on demand, failing which, an action for
unlawful detainer will lie.60 The defendants refusal to comply with the demand makes his continued
possession of the property unlawful.61 The status of the defendant in such a case is similar to that of a lessee
or tenant whose term of lease has expired but whose occupancy continues by tolerance of the owner.62
This principle should apply with greater force in cases where a contract embodies the permission or
tolerance to use the property. The Kasunduan expressly articulated Pajuyos forbearance. Pajuyo did not
require Guevarra to pay any rent but only to maintain the house and lot in good condition. Guevarra
expressly vowed in the Kasunduan that he would vacate the property on demand. Guevarras refusal to
comply with Pajuyos demand to vacate made Guevarras continued possession of the property unlawful.
We do not subscribe to the Court of Appeals theory that the Kasunduan is one of commodatum.
In a contract of commodatum, one of the parties delivers to another something not consumable so that the
latter may use the same for a certain time and return it. 63 An essential feature of commodatum is that it is
gratuitous. Another feature of commodatum is that the use of the thing belonging to another is for a certain
period.64 Thus, the bailor cannot demand the return of the thing loaned until after expiration of the period
stipulated, or after accomplishment of the use for which the commodatum is constituted.65 If the bailor should
have urgent need of the thing, he may demand its return for temporary use. 66 If the use of the thing is merely
tolerated by the bailor, he can demand the return of the thing at will, in which case the contractual relation is
called a precarium.67 Under the Civil Code, precarium is a kind of commodatum.68
The Kasunduan reveals that the accommodation accorded by Pajuyo to Guevarra was not essentially
gratuitous. While the Kasunduan did not require Guevarra to pay rent, it obligated him to maintain the
property in good condition. The imposition of this obligation makes the Kasunduan a contract different from
a commodatum. The effects of the Kasunduan are also different from that of a commodatum. Case law on
ejectment has treated relationship based on tolerance as one that is akin to a landlord-tenant relationship
where the withdrawal of permission would result in the termination of the lease. 69 The tenants withholding of
the property would then be unlawful. This is settled jurisprudence.
Even assuming that the relationship between Pajuyo and Guevarra is one of commodatum, Guevarra as
bailee would still have the duty to turn over possession of the property to Pajuyo, the bailor. The obligation to
deliver or to return the thing received attaches to contracts for safekeeping, or contracts of commission,
administration and commodatum.70 These contracts certainly involve the obligation to deliver or return the
thing received.71
Guevarra turned his back on the Kasunduan on the sole ground that like him, Pajuyo is also a squatter.
Squatters, Guevarra pointed out, cannot enter into a contract involving the land they illegally occupy.
Guevarra insists that the contract is void.
Guevarra should know that there must be honor even between squatters. Guevarra freely entered into
theKasunduan. Guevarra cannot now impugn the Kasunduan after he had benefited from it.
The Kasunduan binds Guevarra.
The Kasunduan is not void for purposes of determining who between Pajuyo and Guevarra has a right to
physical possession of the contested property. The Kasunduan is the undeniable evidence of Guevarras
recognition of Pajuyos better right of physical possession. Guevarra is clearly a possessor in bad faith. The
absence of a contract would not yield a different result, as there would still be an implied promise to vacate.

Guevarra contends that there is "a pernicious evil that is sought to be avoided, and that is allowing an
absentee squatter who (sic) makes (sic) a profit out of his illegal act." 72 Guevarra bases his argument on the
preferential right given to the actual occupant or caretaker under Proclamation No. 137 on socialized
housing.
We are not convinced.
Pajuyo did not profit from his arrangement with Guevarra because Guevarra stayed in the property without
paying any rent. There is also no proof that Pajuyo is a professional squatter who rents out usurped
properties to other squatters. Moreover, it is for the proper government agency to decide who between
Pajuyo and Guevarra qualifies for socialized housing. The only issue that we are addressing is physical
possession.
Prior possession is not always a condition sine qua non in ejectment.73 This is one of the distinctions
between forcible entry and unlawful detainer.74 In forcible entry, the plaintiff is deprived of physical
possession of his land or building by means of force, intimidation, threat, strategy or stealth. Thus, he must
allege and prove prior possession.75 But in unlawful detainer, the defendant unlawfully withholds possession
after the expiration or termination of his right to possess under any contract, express or implied. In such a
case, prior physical possession is not required.76
Pajuyos withdrawal of his permission to Guevarra terminated the Kasunduan. Guevarras transient right to
possess the property ended as well. Moreover, it was Pajuyo who was in actual possession of the property
because Guevarra had to seek Pajuyos permission to temporarily hold the property and Guevarra had to
follow the conditions set by Pajuyo in the Kasunduan. Control over the property still rested with Pajuyo and
this is evidence of actual possession.
Pajuyos absence did not affect his actual possession of the disputed property. Possession in the eyes of the
law does not mean that a man has to have his feet on every square meter of the ground before he is
deemed in possession.77 One may acquire possession not only by physical occupation, but also by the fact
that a thing is subject to the action of ones will.78 Actual or physical occupation is not always necessary.79
Ruling on Possession Does not Bind Title to the Land in Dispute
We are aware of our pronouncement in cases where we declared that "squatters and intruders who
clandestinely enter into titled government property cannot, by such act, acquire any legal right to said
property."80 We made this declaration because the person who had title or who had the right to legal
possession over the disputed property was a party in the ejectment suit and that party instituted the case
against squatters or usurpers.
In this case, the owner of the land, which is the government, is not a party to the ejectment case. This case
is between squatters. Had the government participated in this case, the courts could have evicted the
contending squatters, Pajuyo and Guevarra.
Since the party that has title or a better right over the property is not impleaded in this case, we cannot evict
on our own the parties. Such a ruling would discourage squatters from seeking the aid of the courts in
settling the issue of physical possession. Stripping both the plaintiff and the defendant of possession just
because they are squatters would have the same dangerous implications as the application of the principle
of pari delicto. Squatters would then rather settle the issue of physical possession among themselves than
seek relief from the courts if the plaintiff and defendant in the ejectment case would both stand to lose
possession of the disputed property. This would subvert the policy underlying actions for recovery of
possession.
Since Pajuyo has in his favor priority in time in holding the property, he is entitled to remain on the property
until a person who has title or a better right lawfully ejects him. Guevarra is certainly not that person. The
ruling in this case, however, does not preclude Pajuyo and Guevarra from introducing evidence and
presenting arguments before the proper administrative agency to establish any right to which they may be
entitled under the law.81
In no way should our ruling in this case be interpreted to condone squatting. The ruling on the issue of
physical possession does not affect title to the property nor constitute a binding and conclusive adjudication
on the merits on the issue of ownership.82 The owner can still go to court to recover lawfully the property from
the person who holds the property without legal title. Our ruling here does not diminish the power of
government agencies, including local governments, to condemn, abate, remove or demolish illegal or
unauthorized structures in accordance with existing laws.

Attorneys Fees and Rentals

The MTC and RTC failed to justify the award of P3,000 attorneys fees to Pajuyo. Attorneys fees as part of
damages are awarded only in the instances enumerated in Article 2208 of the Civil Code. 83 Thus, the award
of attorneys fees is the exception rather than the rule. 84 Attorneys fees are not awarded every time a party
prevails in a suit because of the policy that no premium should be placed on the right to litigate. 85 We
therefore delete the attorneys fees awarded to Pajuyo.
We sustain the P300 monthly rentals the MTC and RTC assessed against Guevarra. Guevarra did not
dispute this factual finding of the two courts. We find the amount reasonable compensation to Pajuyo.
The P300 monthly rental is counted from the last demand to vacate, which was on 16 February 1995.
WHEREFORE, we GRANT the petition. The Decision dated 21 June 2000 and Resolution dated 14
December 2000 of the Court of Appeals in CA-G.R. SP No. 43129 are SET ASIDE. The Decision dated 11
November 1996 of the Regional Trial Court of Quezon City, Branch 81 in Civil Case No. Q-96-26943,
affirming the Decision dated 15 December 1995 of the Metropolitan Trial Court of Quezon City, Branch 31 in
Civil Case No. 12432, is REINSTATEDwith MODIFICATION. The award of attorneys fees is deleted. No
costs.
SO ORDERED.