G.R.No.

L-72306 January 24, 1989

DAVID P. FORNILDA, JUAN P. FORNILDA, EMILIA P.
FORNILDA
OLILI,
LEOCADIA
P.
FORNILDA
LABAYEN
and
ANGELA
P.
FORNILDA
GUTIERREZ, petitioners,
vs.
THE BRANCH 164, REGIONAL TRIAL COURT IVTH
JUDICIAL REGION, PASIG, JOAQUIN C. ANTONIA
Deputy Sheriff, RTC, 4JR Tanay, Rizal and ATTY.
SERGIO AMONOY, respondents.
Irene C. Ishiwata for petitioner A. Gutierrez.
RESOLUTION
MELENCIO-HERRERA, J.:
On 5 October 1988, this Court rendered a Decision, the
dispositive portion of which reads:
WHEREFORE, certiorari is granted; the Order of
respondent Trial Court, dated 25 July 1985, granting a
Writ of Possession, as well as its orders, dated 25 April
1986 and 16 May 1986, directing and authorizing
respondent Sheriff to demolish the houses of
petitioners Angela and Leocadia Fornilda are hereby
set aside, and the Temporary Restraining Order
heretofore issued, is made permanent. The six (6)
parcels of land herein controverted are hereby ordered
returned to petitioner unless some of them have been
conveyed to innocent third persons.
With respect to petitioners' prayer for disbarment by
reason of malpractice of Respondent Amonoy
embodied in their pleading entitled "Mahigpit na
Musiyun
para
Papanagutin
Kaugnay
ng
Paglalapastangan" and "Masasamang Gawain (MalPractices)" and "Paninindigan (Memorandum)" both
filed on 16 June 1988, Respondent Sergio 1. Amonoy is
hereby required, within fifteen (15) days from notice
hereof, to submit an answer thereto. After receipt of
the same, a new docket number will be assigned to
the case.
Costs against respondent, Sergio I. Amonoy. (pp. 497498, Rollo)
The case for disbarment is dealt with in a separate
Resolution of even date in AC No. 3277.
On 25 October 1988 respondent Amonoy filed his
Motion
for
Reconsideration,
followed
by
his

"Supplemental Arguments in Support of Motion for

Reconsideration" dated 8 November 1988. In essence,
he advances the following points:
1) The transaction involved herein being a mortgage,
Article 1491[51 of the Civil Code does not apply.
Consequently, the mortgage contract executed in
favor of respondent Amonoy is valid;
2) Article 1491[5] does not apply to foreclosure sales
in favor of judgment creditors;
3) The instant petition is barred by res judicata;
4) The jurisdiction of the foreclosing court does not
depend on the alleged invalidity of the mortgage being
foreclosed. Thus, the lower court had jurisdiction over
the foreclosure case, the alleged invalidity of the
contract merely serving as a ground for the dismissal
of the petition due to lack of cause of action;
5) Under BP 129, only the Court of Appeals has original
and exclusive jurisdiction over actions for annulment
of judgment.
We find the foregoing submissions without merit.
Respondent Amonoy avers that at the time of the
execution of the mortgage on 20 January 1965, subject
properties were no longer "properties in litigation"
since the Project of Partition (as signed by the
intestate heirs) covering said properties was approved
by the lower Court as early as 12 January 1965.
This argument must fail for the reason that while the
Project of Partition was approved on 12 January 1965,
it was only on 6 August 1969, and after all charges
against the estate had been paid, that the estate was
declared closed and terminated. In fact, by his own
admission, he had acted as counsel from 1959 until
1968 (Comment, p. 145, Rollo). Thus, at the time of
the execution of the mortgage contract, the
Controverted Parcels were still in litigation and a
fiduciary relationship of lawyer and client, which
Article 1491[5] precisely seeks to protect, still existed
between the parties. To state that mortgages are not
included within the prohibition is to open the door to
an indirect circumvention of that statutory injunction,
acquisition of the property being merely postponed till
eventual foreclosure.
Respondent asserts further that Article 1491[5] does
not apply to judgment creditors of which, he claims, he

was one. Under ordinary circumstances, the argument

of respondent could be considered plausible.
Unfortunately, however, as heretofore explained, the
mortgage was executed in violation of Article 1491[5]
so that this Article has a direct bearing on this case
and respondent can not escape its provision. Having
violated the same, he cannot be considered in the
general run of a judgment creditor.
Respondent likewise stresses that res judicata should
apply herein since it was a little more than four (4)
years from the 22 July 1981 Decision of the Court of
Appeals in the Annulment Case (CA-G.R. No. 63214-R)
when this Petition was filed. Consequently, he
contends that this Petition should be dismissed since it
merely raises the same issues brought up and already
resolved in the earlier case.
The question of res judicata and jurisdiction of the
lower Court over the subject matter of the Foreclosure
Case had been amply discussed in the Decision sought
to be reconsidered, citing the case of Municipality of
Antipolo vs. Zapanta (133 SCRA 822 [1984]), and we
find no need to dwell on them again.
Neither of the cases cited by respondent to support his
contention that the lower Court had jurisdiction over
the Foreclosure Case notwithstanding the invalidity of
the mortgage contract, viz., Florentino vs. Galera (5
SCRA 500 [1962] and Talosig vs. Vda. de Nieba (43
SCRA 472 [1972]), refers to a void subject matter over
which the Courts involved could not acquire
jurisdiction.
Finally, respondent movant submits that only the Court
of Appeals has original and exclusive jurisdiction over
actions for annulment of judgments of the lower Court
under BP Blg. 129 so that the Supreme Court should
not take cognizance of the instant case. The focal
issue raised herein, however, i.e., whether or not the
acquisition by respondent of the property in litigation
is valid or not, is a pure question of law. As such, this
Court is vested with jurisdiction to take cognizance of
this case.
ACCORDINGLY, private respondent's Motion for
Reconsideration is hereby DENIED and this denial is
FINAL.
SO ORDERED.

G.R. No. L-35702 May 29, 1973

DOMINGO
D.
RUBIAS, plaintiff-appellant,
vs.
ISAIAS BATILLER, defendant-appellee.
Gregorio M. Rubias for plaintiff-appellant.
Vicente R. Acsay for defendant-appellee.
TEEHANKEE, J.:
In this appeal certified by the Court of Appeals to this
Court as involving purely legal questions, we affirm the
dismissal order rendered by the Iloilo court of first
instance after pre-trial and submittal of the pertinent
documentary exhibits.
Such dismissal was proper, plaintiff having no cause of
action, since it was duly established in the record that
the application for registration of the land in question
filed by Francisco Militante, plaintiff's vendor and
predecessor interest, had been dismissed by decision
of 1952 of the land registration court as affirmed by
final judgment in 1958 of the Court of Appeals and
hence, there was no title or right to the land that could
be transmitted by the purported sale to plaintiff.
As late as 1964, the Iloilo court of first instance had in
another case of ejectment likewise upheld by final
judgment defendant's "better right to possess the land
in question . having been in the actual possession
thereof under a claim of title many years before
Francisco Militante sold the land to the plaintiff."
Furthermore, even assuming that Militante had
anything to sell, the deed of sale executed in 1956 by
him in favor of plaintiff at a time when plaintiff was
concededly his counsel of record in the land
registration case involving the very land in dispute
(ultimately decided adversely against Militante by the
Court of Appeals' 1958 judgment affirming the lower
court's dismissal of Militante's application for
registration) was properly declared inexistent and void
by the lower court, as decreed by Article 1409 in
relation to Article 1491 of the Civil Code.
The appellate court, in its resolution of certification of
25 July 1972, gave the following backgrounder of the
appeal at bar:
On August 31, 1964, plaintiff Domingo D. Rubias, a
lawyer, filed a suit to recover the ownership and

possession of certain portions of lot under Psu-99791

located in Barrio General Luna, Barotac Viejo, Iloilo
which he bought from his father-in-law, Francisco
Militante in 1956 against its present occupant
defendant, Isaias Batiller, who illegally entered said
portions of the lot on two occasions in 1945 and in
1959. Plaintiff prayed also for damages and attorneys
fees. (pp. 1-7, Record on Appeal). In his answer with
counter-claim defendant claims the complaint of the
plaintiff does not state a cause of action, the truth of
the matter being that he and his predecessors-ininterest have always been in actual, open and
continuous possession since time immemorial under
claim of ownership of the portions of the lot in
question and for the alleged malicious institution of
the complaint he claims he has suffered moral
damages in the amount of P 2,000.00, as well as the
sum of P500.00 for attorney's fees. ...
On December 9, 1964, the trial court issued a pre-trial
order, after a pre-trial conference between the parties
and their counsel which order reads as follows..
'When this case was called for a pre-trial conference
today, the plaintiff appeared assisted by himself and
Atty. Gregorio M. Rubias. The defendant also appeared,
assisted by his counsel Atty. Vicente R. Acsay.
A. During the pre-trial conference, the parties have
agreed that the following facts are attendant in this
case and that they will no longer introduced any
evidence, testimonial or documentary to prove them:
1. That Francisco Militante claimed ownership of a
parcel of land located in the Barrio of General Luna,
municipality of Barotac Viejo province of Iloilo, which
he caused to be surveyed on July 18-31, 1934,
whereby he was issued a plan Psu-99791 (Exhibit "B").
(The land claimed contained an area of 171:3561
hectares.)
2. Before the war with Japan, Francisco Militante filed
with the Court of First Instance of Iloilo an application
for the registration of the title of the land technically
described in psu-99791 (Exh. "B")opposed by the
Director of Lands, the Director of Forestry and other
oppositors. However, during the war with Japan, the
record of the case was lost before it was heard, so
after the war Francisco Militante petitioned this court

to reconstitute the record of the case. The record was

reconstituted on the Court of the First Instance of Iloilo
and docketed as Land Case No. R-695, GLRO Rec. No.
54852. The Court of First Instance heard the land
registration case on November 14, 1952, and after the
trial this court dismissed the application for
registration. The appellant, Francisco Militante,
appealed from the decision of this Court to the Court
of Appeals where the case was docketed as CA-GR No.
13497-R..
3. Pending the disposal of the appeal in CA-GR No.
13497-R and more particularly on June 18, 1956,
Francisco Militante sold to the plaintiff, Domingo
Rubias the land technically described in psu-99791
(Exh. "A"). The sale was duly recorded in the Office of
the Register of Deeds for the province of Iloilo as Entry
No. 13609 on July 11, 1960 (Exh. "A-1").
(NOTE: As per deed of sale, Exh. A, what Militante
purportedly sold to plaintiff-appellant, his son-inlaw, for the sum of P2,000.00 was "a parcel
of untitled land having an area Of 144.9072
hectares ... surveyed under Psu 99791 ... (and) subject
to the exclusions made by me, under (case) CA-i3497,
Land Registration Case No. R-695, G.L.R.O. No. 54852,
Court of First Instance of the province of Iloilo. These
exclusions referred to portions of the original area of
over 171 hectares originally claimed by Militante as
applicant, but which he expressly recognized during
the trial to pertain to some oppositors, such as the
Bureau of Public Works and Bureau of Forestry and
several other individual occupants and accordingly
withdrew his application over the same. This is
expressly made of record in Exh. A, which is the Court
of Appeals' decision of 22 September 1958
confirming the land registration court's dismissal of
Militante's application for registration.)
4. On September 22,1958 the Court of appeals in CAG.R. No. 13497-R promulgated its judgment confirming
the decision of this Court in Land Case No. R-695,
GLRO Rec. No. 54852 which dismissed the application
for Registration filed by Francisco Militante (Exh. "I").
5. Domingo Rubias declared the land described in Exh.
'B' for taxation purposes under Tax Dec. No. 8585
(Exh. "C") for 1957; Tax Dec. Nos. 9533 (Exh. "C-1")

and 10019 (Exh. "C-3")for the year 1961; Tax Dec. No.
9868 (Exh. "C-2") for the year 1964, paying the land
taxes under Tax Dec. No. 8585 and 9533 (Exh. "D", "D1", "G-6").
6. Francisco Militante immediate predecessor-ininterest of the plaintiff, has also declared the land for
taxation purposes under Tax Dec. No. 5172 in 1940
(Exh. "E") for 1945; under Tax Dec. No. T-86 (Exh. "E1") for 1948; under Tax Dec. No. 7122 (Exh. "2"), and
paid the land taxes for 1940 (Exhs. "G" and "G-7"), for
1945 46 (Exh. "G-1") for 1947 (Exh. "G-2"), for 1947 &
1948 (Exh. "G-3"), for 1948 (Exh. "G-4"), and for 1948
and 1949 (Exh. "G-5").
7. Tax Declaration No. 2434 in the name of Liberato
Demontao for the land described therein (Exh. "F")
was cancelled by Tax. Dec. No. 5172 of Francisco
Militante (Exh. "E"). Liberato Demontao paid the land
tax under Tax Dec. No. 2434 on Dec. 20, 1939 for the
years 1938 (50%) and 1959 (Exh. "H").
8. The defendant had declared for taxation purposes
Lot No. 2 of the Psu-155241 under Tax Dec. Not. 8583
for 1957 and a portion of Lot No. 2, Psu-155241, for
1945 under Tax Dec. No. 8584 (Exh. "2-A" Tax No.
8583 (Exh. "2") was revised by Tax Dec. No. 9498 in
the name of the defendant (Exh. "2-B") and Tax Dec.
No. 8584 (Exh. "2-A") was cancelled by Tax Dec. No.
9584 also in the name of the defendant (Exh. "2-C").
The defendant paid the land taxes for Lot 2, Psu155241, on Nov. 9, 1960 for the years 1945 and 1946,
for the year 1950, and for the year 1960 as shown by
the certificate of the treasurer (Exh. "3"). The
defendant may present to the Court other land taxes
receipts for the payment of taxes for this lot.
9. The land claimed by the defendant as his own was
surveyed on June 6 and 7,1956, and a planapproved
by Director of Land on November 15, 1956 was issued,
identified as Psu 155241 (Exh. "5").
10. On April 22, 1960, the plaintiff filed forcible Entry
and Detainer case against Isaias Batiller in the Justice
of the Peace Court of Barotac Viejo Province of Iloilo
(Exh. "4") to which the defendant Isaias Batiller riled
his answer on August 29, 1960 (Exh. "4-A").
The Municipal
Court of
Barotac
Viejo
after
trial, decided the case on May 10, 1961 in favor of the

defendant and against the plaintiff (Exh. "4-B"). The

plaintiff appealed from the decision of the Municipal
Court of Barotac Viejo which was docketed in this
Court as Civil Case No. 5750 on June 3, 1961, to which
the defendant, Isaias Batiller, on June 13, 1961 filed
his answer (Exh. "4-C"). And this Court after the trial.
decided the case on November 26, 1964, in favor of
the defendant, Isaias Batiller and against the plaintiff
(Exh. "4-D").
(NOTE: As per Exh. 4-B, which is the Iloilo court of first
instance
decision
of
26
November
1964dismissing plaintiff's
therein
complaint
for
ejectment against defendant, the iloilo court expressly
found
"that
plaintiff's
complaint
is unjustified,
intended to harass the defendant" and "that the
defendant, Isaias Batiller, has a better right to possess
the land in question described in Psu 155241 (Exh.
"3"), Isaias Batiller having been in the actual physical
possession thereof under a claim of title many years
before Francisco Militante sold the land to the plaintiffhereby dismissing plaintiff'scomplaint and ordering the
plaintiff to pay the defendant attorney's fees ....")
B. During the trial of this case on the merit, the
plaintiff will prove by competent evidence the
following:
1. That the land he purchased from Francisco Militante
under Exh. "A" was formerly owned and possessed by
Liberato Demontao but that on September 6, 1919
the land was sold at public auction by virtue of a
judgment in a Civil Case entitled "Edw J. Pflieder
plaintiff
vs.
Liberato
Demontao
Francisco
Balladeros and Gregorio Yulo, defendants", of which
Yap Pongco was the purchaser (Exh. "1-3"). The sale
was registered in the Office of the Register of Deeds of
Iloilo on August 4, 1920, under Primary Entry No. 69
(Exh. "1"), and a definite Deed of Sale was executed
by Constantino A. Canto, provincial Sheriff of Iloilo, on
Jan. 19, 1934 in favor of Yap Pongco (Exh. "I"), the sale
having been registered in the Office of the Register of
Deeds of Iloilo on February 10, 1934 (Exh. "1-1").
2. On September 22, 1934, Yap Pongco sold this land
to Francisco Militante as evidenced by a notarial deed
(Exh. "J") which was registered in the Registry of
Deeds on May 13, 1940 (Exh. "J-1").

3. That plaintiff suffered damages alleged in his

complaint.
C. Defendants, on the other hand will prove by
competent evidence during the trial of this case the
following facts:
1. That lot No. 2 of the Psu-1552 it (Exh. '5') was
originally owned and possessed by Felipe Batiller,
grandfather of the defendant Basilio Batiller, on the
death of the former in 1920, as his sole heir. Isaias
Batiller succeeded his father , Basilio Batiller, in the
ownership and possession of the land in the year
1930, and since then up to the present, the land
remains in the possession of the defendant, his
possession being actual, open, public, peaceful and
continuous in the concept of an owner, exclusive of
any other rights and adverse to all other claimants.
2. That the alleged predecessors in interest of the
plaintiff have never been in the actual possession of
the land and that they never had any title thereto.
3. That Lot No. 2, Psu 155241, the subject of Free
Patent
application
of
the
defendant has
beenapproved.
4. The damages suffered by the defendant, as alleged
in his counterclaim."' 1
The appellate court further related the developments
of the case, as follows:
On August 17, 1965, defendant's counsel manifested
in open court that before any trial on the merit of the
case could proceed he would file a motion to
dismiss plaintiff's complaint which he did, alleging
that plaintiff does not have cause of action against
him because the property in dispute which he
(plaintiff) allegedly bought from his father-in-law,
Francisco Militante was the subject matter of LRC No.
695 filed in the CFI of Iloilo, which case was brought on
appeal to this Court and docketed as CA-G.R. No.
13497-R in which aforesaid case plaintiff was the
counsel on record of his father-in-law, Francisco
Militante. Invoking Arts. 1409 and 1491 of the Civil
Code which reads:
'Art. 1409. The following contracts are inexistent and
void from the beginning:
xxx xxx xxx
(7) Those expressly prohibited by law.

'ART. 1491. The following persons cannot acquire any

purchase, even at a public auction, either in person of
through the mediation of another: .
xxx xxx xxx
(5) Justices, judges, prosecuting attorneys, clerks of
superior and inferior courts, and other officers and
employees connected with the administration of
justice, the property and rights of in litigation or levied
upon an execution before the court within whose
jurisdiction or territory they exercise their respective
functions; this prohibition includes the act of acquiring
an assignment and shall apply tolawyers, with respect
to the property and rights which may be the object of
any litigation in which they may take part by virtue of
their profession.'
defendant claims that plaintiff could not have acquired
any interest in the property in dispute as the contract
he (plaintiff) had with Francisco Militante was
inexistent and void. (See pp. 22-31, Record on Appeal).
Plaintiff strongly opposed defendant's motion to
dismiss claiming that defendant can not invoke
Articles 1409 and 1491 of the Civil Code as Article
1422 of the same Code provides that 'The defense of
illegality of contracts is not available to third persons
whose interests are not directly affected' (See pp. 3235 Record on Appeal).
On October 18, 1965, the lower court issued an order
disclaiming plaintiffs complaint (pp. 42-49, Record on
Appeal.) In the aforesaid order of dismissal the lower
court practically agreed with defendant's contention
that the contract (Exh. A) between plaintiff and
Francism Militante was null and void. In due season
plaintiff filed a motion for reconsideration (pp. 50-56
Record on Appeal) which was denied by the lower
court on January 14, 1966 (p. 57, Record on Appeal).
Hence, this appeal by plaintiff from the orders of
October 18, 1965 and January 14, 1966.
Plaintiff-appellant imputes to the lower court the
following errors:
'1. The lower court erred in holding that the contract of
sale between the plaintiff-appellant and his father-inlaw, Francisco Militante, Sr., now deceased, of the
property covered by Plan Psu-99791, (Exh. "A") was
void, not voidable because it was made when plaintiff-

appellant was the counsel of the latter in the Land

Registration case.
'2. The lower court erred in holding that the defendantappellee is an interested person to question the
validity of the contract of sale between plaintiffappellant and the deceased, Francisco Militante, Sr.
'3. The lower court erred in entertaining the motion to
dismiss of the defendant-appellee after he had already
filed his answer, and after the termination of the pretrial, when the said motion to dismiss raised a
collateral question.
'4. The lower court erred in dismissing the complaint of
the plaintiff-appellant.'
The appellate court concluded that plaintiffs
"assignment of errors gives rise to two (2) legal posers
(1) whether or not the contract of sale between
appellant and his father-in-law, the late Francisco
Militante over the property subject of Plan Psu-99791
was void because it was made when plaintiff was
counsel of his father-in-law in a land registration case
involving the property in dispute; and (2) whether or
not the lower court was correct in entertaining
defendant-appellee's motion to dismiss after the latter
had already filed his answer and after he (defendant)
and plaintiff-appellant had agreed on some matters in
a pre-trial conference. Hence, its elevation of the
appeal to this Court as involving pure questions of law.
It is at once evident from the foregoing narration that
the pre-trial conference held by the trial court at which
the parties with their counsel agreed and stipulated on
the material and relevant facts and submitted their
respective documentary exhibits as referred to in the
pre-trial order, supra, 2 practically amounted to a
fulldress trial which placed on record all the facts and
exhibits necessary for adjudication of the case.
The three points on which plaintiff reserved the
presentation of evidence at the-trial dealing with the
source of the alleged right and title of Francisco
Militante's predecessors, supra, 3 actually are already
made of record in thestipulated facts and admitted
exhibits. The chain of Militante's alleged title and right
to the land as supposedly traced back to Liberato
Demontao was actually asserted by Militante (and his
vendee, lawyer and son-in-law, herein plaintiff) in the

land registration case and rejected by the Iloilo land

registration
court
which dismissed Militante's
application for registration of the land. Such dismissal,
as already stated, was affirmed by the final judgment
in 1958 of the Court of Appeals. 4
The four points on which defendant on his part
reserved the presentation of evidence at the trial
dealing with his and his ancestors' continuous, open,
public and peaceful possession in the concept of
owner of the land and the Director of Lands' approval
of his survey plan thereof, supra, 5 are likewise already
duly established facts of record, in the land
registration case as well as in the ejectment case
wherein the Iloilo court of first instance recognized the
superiority of defendant's right to the land as against
plaintiff.
No error was therefore committed by the lower court
in dismissing plaintiff's complaint upon defendant's
motion after the pre-trial.
1. The stipulated facts and exhibits of record
indisputably established plaintiff's lack of cause of
action and justified the outright dismissal of the
complaint. Plaintiff's claim of ownership to the land in
question was predicated on the sale thereof for
P2,000.00 made in 1956 by his father-in- law,
Francisco Militante, in his favor, at a time when
Militante's application for registration thereof had
already been dismissed by the Iloilo land registration
court and was pending appeal in the Court of Appeals.
With the Court of Appeals' 1958 final judgment
affirming the dismissal of Militante's application for
registration, the lack of any rightful claim or title of
Militante to the land was conclusively and decisively
judicially determined. Hence, there was no right or
title to the land that could be transferred or sold by
Militante's purported sale in 1956 in favor of plaintiff.
Manifestly,
then
plaintiff's
complaint
against
defendant, to be declared absolute owner of the land
and to be restored to possession thereof with damages
was bereft of any factual or legal basis.
2. No error could be attributed either to the lower
court's holding that the purchase by a lawyer of the
property in litigation from his client is categorically
prohibited by Article 1491, paragraph (5) of the

Philippine Civil Code, reproduced supra; 6 and that

consequently, plaintiff's purchase of the property in
litigation from his client (assuming that his client could
sell the same since as already shown above, his
client's claim to the property was defeated and
rejected) was void and could produce no legal effect,
by virtue of Article 1409, paragraph (7) of our Civil
Code which provides that contracts "expressly
prohibited or declared void by law' are "inexistent and
that "(T)hese contracts cannot be ratified. Neither can
the right to set up the defense of illegality be waived."
The
1911
case
of Wolfson
vs.
Estate
of
Martinez 7 relied upon by plaintiff as holding that a sale
of property in litigation to the party litigant's lawyer "is
not void but voidable at the election of the vendor"
was correctly held by the lower court to have been
superseded by the later 1929 case of Director of
Lands vs. Abagat. 8 In this later case of Abagat, the
Court expressly cited two antecedent cases involving
the same transaction of purchase of property in
litigation by the lawyer which was expressly declared
invalid under Article 1459 of the Civil Code of Spain (of
which Article 1491 of our Civil Code of the Philippines
is the counterpart) upon challenge thereof not by the
vendor-client but by the adverse parties against whom
the lawyer was to enforce his rights as vendee thus
acquired.
These two antecedent cases thus cited in Abagat
clearly superseded (without so expressly stating the
previous ruling in Wolfson:
The spouses, Juan Soriano and Vicente Macaraeg, were
the owners of twelve parcels of land. Vicenta
Macaraeg died in November, 1909, leaving a large
number of collateral heirs but no descendants.
Litigation between the surviving husband, Juan
Soriano, and the heirs of Vicenta immediately arose,
and the herein appellant Sisenando Palarca acted as
Soriano's lawyer. On May 2, 1918, Soriano executed a
deed for the aforesaid twelve parcels of land in favor
of Sisenando Palarca and on the following day, May 3,
1918, Palarca filed an application for the registration of
the land in the deed. After hearing, the Court of First
Instance declared that the deed was invalid by virtue
of the provisions of article 1459 of the Civil Code,

which prohibits lawyers and solicitors from purchasing

property rights involved in any litigation in which they
take part by virtue of their profession. The application
for registration was consequently denied, and upon
appeal by Palarca to the Supreme Court, the
judgement of the lower court was affirmed by a
decision promulgated November 16,1925. (G.R. No.
24329, Palarca vs. Director of Lands, not reported.)
In the meantime cadastral case No. 30 of the Province
of Tarlac was instituted, and on August 21, 1923,
Eleuteria Macaraeg, as administratrix of the estate of
Vicente Macaraeg, filed claims for the parcels in
question. Buenaventura Lavitoria administrator of the
estate of Juan Soriano, did likewise and so did
Sisenando Palarca. In a decision dated June 21, 1927,
the Court of First Instance, Judge Carballo presiding,
rendered judgment in favor of Palarea and ordered the
registration of the land in his name. Upon appeal to
this court by the administration of the estates of Juan
Soriano and Vicente Macaraeg, the judgment of the
court below was reversed and the land adjudicated to
the two estates as conjugal property of the deceased
spouses. (G.R. No. 28226, Director of Lands vs.
Abagat, promulgated May 21, 1928, not reported.) 9
In the very case of Abagat itself, the Court, again
affirming the invalidity and nullity of the lawyer's
purchase of the land in litigation from his client,
ordered the issuance of a writ of possession for the
return of the land by the lawyer to the adverse parties
without reimbursement of the price paid by him and
other expenses, and ruled that "the appellant Palarca
is a lawyer and is presumed to know the law. He must,
therefore, from the beginning, have been well aware of
the defect in his title and is, consequently, a possessor
in bad faith."
As already stated, Wolfson and Abagat were decided
with relation to Article 1459 of the Civil Code of Spain
then adopted here, until it was superseded on August
30, 1950 by the Civil Code of the Philippines whose
counterpart provision is Article 1491.
Article 1491 of our Civil Code (like Article 1459 of the
Spanish Civil Code) prohibits in its six paragraphs
certain persons, by reason of the relation of trust or
their peculiar control over the property, from acquiring

such property in their trust or control either directly or

indirectly and "even at a public or judicial auction," as
follows: (1) guardians; (2) agents; (3) administrators;
(4) public officers and employees; judicial officers and
employees, prosecuting attorneys, and lawyers; and
(6) others especially disqualified by law.
In Wolfson which involved the sale and assignment of
a money judgment by the client to the lawyer,
Wolfson, whose right to so purchase the judgment was
being challenged by the judgment debtor, the Court,
through Justice Moreland, then expressly reserved
decision on "whether or not the judgment in question
actually falls within the prohibition of the article" and
held only that the sale's "voidability can not be
asserted by one not a party to the transaction or his
representative,"
citing
from
Manresa 10 that
"(C)onsidering the question from the point of view of
the civil law, the view taken by the code, we must limit
ourselves to classifying as void all acts done contrary
to the express prohibition of the statute. Now then: As
the code does not recognize such nullity by the mere
operation of law, the nullity of the acts hereinbefore
referred to must be asserted by the person having the
necessary legal capacity to do so and decreed by a
competent
court." 11
The reason thus given by Manresa in considering such
prohibited acquisitions under Article 1459 of the
Spanish Civil Code as merely voidable at the instance
and option of the vendor and not void "that the
Code does not recognize such nullity de pleno
derecho" is no longer true and applicable to our own
Philippine Civil Code which does recognize the
absolute nullity of contracts "whose cause, object, or
purpose
is
contrary
to
law,
morals,
good
customs, public order or public policy" or which are
"expressly prohibited or declared void by law" and
declares such contracts "inexistent and void from the
beginning." 12
The Supreme Court of Spain and modern authors have
likewise veered from Manresa's view of the Spanish
codal provision itself. In its sentencia of 11 June 1966,
the Supreme Court of Spain ruled that the prohibition
of Article 1459 of the Spanish Civil Code is based on

public policy, that violation of the prohibition contract

cannot be validated by confirmation or ratification,
holding that:
... la prohibicion que el articulo 1459 del C.C. establece
respecto a los administradores y apoderados, la cual
tiene conforme a la doctrina de esta Sala, contendia
entre otras, en S. de 27-5-1959, un fundamento
de orden moral lugar la violacion de esta a la nulidad
de pleno derecho del acto o negocio celebrado, ... y
prohibicion legal, afectante orden publico, no cabe con
efecto alguno la aludida retification ... 13
The criterion of nullity of such prohibited contracts
under Article 1459 of the Spanish Civil Code (Article
1491 of our Civil Code) as a matter of public order and
policy as applied by the Supreme Court of Spain to
administrators and agents in its above cited decision
should certainly apply with greater reason to judges,
judicial officers, fiscals and lawyers under paragraph 5
of the codal article.
Citing the same decisions of the Supreme Court of
Spain, Gullon Ballesteros, his "Curso de Derecho Civil,
(Contratos Especiales)" (Madrid, 1968) p. 18, affirms
that, with respect to Article 1459, Spanish Civil Code:.
Que caracter tendra la compra que se realice por estas
personas? Porsupuesto no cabe duda de que el caso
(art.) 1459, 40 y 50, la nulidad esabsoluta porque el
motivo de la prohibicion es de orden publico. 14
Perez Gonzales in such view, stating that "Dado el
caracter prohibitivo delprecepto, la consequencia de la
infraccion es la nulidad radical y ex lege." 15
Castan, quoting Manresa's own observation that.
"El fundamento do esta prohibicion es clarisimo. No sa
trata con este precepto tan solo de guitar la ocasion al
fraude; persiguese, ademasel proposito de rodear a
las personas que intervienen en la administrcionde
justicia de todos los retigios que necesitan pora
ejercer su ministerio librandolos de toda suspecha,
que aunque fuere in fundada, redundura endescredito
de la institucion." 16 arrives at the contrary and now
accepted view that "Puede considerace en nuestro
derecho inexistente 'o radicalmente nulo el contrato
en los siguentes cases: a) ...; b) cuando el contrato se
ha celebrado en violacion de una prescripcion 'o

prohibicion legal, fundada sobre motivos de orden

publico(hipotesis del art. 4 del codigo) ..." 17
It is noteworthy that Caltan's rationale for his
conclusion that fundamental consideration of public
policy render void and inexistent such expressly
prohibited purchase (e.g. by public officers and
employees of government property intrusted to them
and by justices, judges, fiscals and lawyers of property
and rights in litigation and submitted to or handled by
them, under Article 1491, paragraphs (4) and (5) of
our Civil Code) has been adopted in a new article of
our Civil Code, viz, Article 1409 declaring such
prohibited contracts as "inexistent and void from the
beginning." 18
Indeed, the nullity of such prohibited contracts is
definite and permanent and cannot be cured by
ratification. The public interest and public policy
remain paramount and do not permit of compromise
or ratification. In his aspect, the permanent
disqualification of public and judicial officers and
lawyers grounded on public policy differs from the first
three cases of guardians, agents and administrators
(Article 1491, Civil Code), as to whose transactions it
had been opined that they may be "ratified" by means
of and in "the form of a new contact, in which cases its
validity shall be determined only by the circumstances
at the time the execution of such new contract. The
causes of nullity which have ceased to exist cannot
impair the validity of the new contract. Thus, the
object which was illegal at the time of the first
contract, may have already become lawful at the time
of the ratification or second contract; or the service
which was impossible may have become possible; or
the intention which could not be ascertained may have
been clarified by the parties. The ratification or second
contract would then be valid from its execution;
however, it does not retroact to the date of the first
contract." 19
As applied to the case at bar, the lower court therefore
properly acted upon defendant-appellant's motion to
dismiss on the ground of nullity of plaintiff's alleged
purchase of the land, since its juridical effects and
plaintiff's alleged cause of action founded thereon
were being asserted against defendant-appellant. The

principles governing the nullity of such prohibited

contracts and judicial declaration of their nullity have
been well restated by Tolentino in his treatise on our
Civil Code, as follows:
Parties Affected. Any person may invoke the in
existence of the contract whenever juridical effects
founded thereon are asserted against him. Thus, if
there has been a void transfer of property, the
transferor can recover it by the accion reinvindicatoria;
and any prossessor may refuse to deliver it to the
transferee, who cannot enforce the contract. Creditors
may attach property of the debtor which has been
alienated by the latter under a void contract; a
mortgagee can allege the inexistence of a prior
encumbrance; a debtor can assert the nullity of an
assignment of credit as a defense to an action by the
assignee.
Action On Contract. Even when the contract is void
or inexistent, an action is necessary to declare its
inexistence, when it has already been fulfilled. Nobody
can take the law into his own hands; hence, the
intervention of the competent court is necessary to
declare the absolute nullity of the contract and to
decree the restitution of what has been given under it.
The judgment, however, will retroact to the very day
when the contract was entered into.
If the void contract is still fully executory, no party
need bring an action to declare its nullity; but if any
party should bring an action to enforce it, the other
party can simply set up the nullity as a defense. 20
ACCORDINGLY, the order of dismissal appealed from is
hereby affirmed, with costs in all instances against
plaintiff-appellant. So ordered.
G.R. No. 111238 January 25, 1995
ADELFA
PROPERTIES,
INC., petitioner,
vs.
COURT
OF
APPEALS,
ROSARIO
JIMENEZCASTAEDA and SALUD JIMENEZ, respondents.
REGALADO, J.:
The main issues presented for resolution in this
petition for review on certiorari of the judgment of
respondent Court of appeals, dated April 6, 1993, in
CA-G.R. CV No. 34767 1 are (1) whether of not the

"Exclusive Option to Purchase" executed between

petitioner Adelfa Properties, Inc. and private
respondents Rosario Jimenez-Castaeda and Salud
Jimenez is an option contract; and (2) whether or not
there was a valid suspension of payment of the
purchase price by said petitioner, and the legal effects
thereof on the contractual relations of the parties.
The records disclose the following antecedent facts
which culminated in the present appellate review, to
wit:
1. Herein private respondents and their brothers, Jose
and Dominador Jimenez, were the registered coowners of a parcel of land consisting of 17,710 square
meters, covered by Transfer Certificate of Title (TCT)
No. 309773, 2situated in Barrio Culasi, Las Pias, Metro
Manila.
2. On July 28, 1988, Jose and Dominador Jimenez sold
their share consisting of one-half of said parcel of land,
specifically the eastern portion thereof, to herein
petitioner pursuant to a "Kasulatan sa Bilihan ng
Lupa." 3Subsequently, a "Confirmatory Extrajudicial
Partition Agreement" 4 was executed by the Jimenezes,
wherein the eastern portion of the subject lot, with an
area of 8,855 square meters was adjudicated to Jose
and Dominador Jimenez, while the western portion was
allocated to herein private respondents.
3. Thereafter, herein petitioner expressed interest in
buying the western portion of the property from
private respondents. Accordingly, on November 25,
1989, an "Exclusive Option to Purchase" 5 was
executed between petitioner and private respondents,
under the following terms and conditions:
1. The selling price of said 8,655 square meters of the
subject property is TWO MILLION EIGHT HUNDRED
FIFTY SIX THOUSAND ONE HUNDRED FIFTY PESOS
ONLY (P2,856,150.00)
2. The sum of P50,000.00 which we received from
ADELFA PROPERTIES, INC. as an option money shall be
credited as partial payment upon the consummation of
the sale and the balance in the sum of TWO MILLION
EIGHT HUNDRED SIX THOUSAND ONE HUNDRED FIFTY
PESOS (P2,806,150.00) to be paid on or before
November 30, 1989;

3. In case of default on the part of ADELFA

PROPERTIES, INC. to pay said balance in accordance
with paragraph 2 hereof, this option shall be cancelled
and 50% of the option money to be forfeited in our
favor and we will refund the remaining 50% of said
money upon the sale of said property to a third party;
4. All expenses including the corresponding capital
gains tax, cost of documentary stamps are for the
account of the VENDORS, and expenses for the
registration of the deed of sale in the Registry of
Deeds are for the account of ADELFA PROPERTIES, INC.
Considering, however, that the owner's copy of the
certificate of title issued to respondent Salud Jimenez
had been lost, a petition for the re-issuance of a new
owner's copy of said certificate of title was filed in
court through Atty. Bayani L. Bernardo, who acted as
private respondents' counsel. Eventually, a new
owner's copy of the certificate of title was issued but it
remained in the possession of Atty. Bernardo until he
turned it over to petitioner Adelfa Properties, Inc.
4. Before petitioner could make payment, it received
summons 6 on November 29, 1989, together with a
copy of a complaint filed by the nephews and nieces of
private respondents against the latter, Jose and
Dominador Jimenez, and herein petitioner in the
Regional Trial Court of Makati, docketed as Civil Case
No. 89-5541, for annulment of the deed of sale in favor
of Household Corporation and recovery of ownership of
the property covered by TCT No. 309773. 7
5. As a consequence, in a letter dated November 29,
1989, petitioner informed private respondents that it
would hold payment of the full purchase price and
suggested that private respondents settle the case
with their nephews and nieces, adding that ". . . if
possible, although November 30, 1989 is a holiday, we
will be waiting for you and said plaintiffs at our office
up to 7:00 p.m." 8 Another letter of the same tenor and
of even date was sent by petitioner to Jose and
Dominador Jimenez. 9 Respondent Salud Jimenez
refused to heed the suggestion of petitioner and
attributed the suspension of payment of the purchase
price to "lack of word of honor."
6. On December 7, 1989, petitioner caused to be
annotated on the title of the lot its option contract with

private respondents, and its contract of sale with Jose

and Dominador Jimenez, as Entry No. 1437-4 and
entry No. 1438-4, respectively.
7. On December 14, 1989, private respondents sent
Francisca Jimenez to see Atty. Bernardo, in his capacity
as petitioner's counsel, and to inform the latter that
they were cancelling the transaction. In turn, Atty.
Bernardo offered to pay the purchase price provided
that P500,000.00 be deducted therefrom for the
settlement of the civil case. This was rejected by
private respondents. On December 22, 1989, Atty.
Bernardo wrote private respondents on the same
matter but this time reducing the amount from
P500,000.00 to P300,000.00, and this was also
rejected by the latter.
8. On February 23, 1990, the Regional Trial Court of
Makati dismissed Civil Case No. 89-5541. Thus, on
February 28, 1990, petitioner caused to be annotated
anew on TCT No. 309773 the exclusive option to
purchase as Entry No. 4442-4.
9. On the same day, February 28, 1990, private
respondents executed a Deed of Conditional Sale 10 in
favor of Emylene Chua over the same parcel of land
for P3,029,250, of which P1,500,000.00 was paid to
private respondents on said date, with the balance to
be paid upon the transfer of title to the specified onehalf portion.
10. On April 16, 1990, Atty. Bernardo wrote private
respondents informing the latter that in view of the
dismissal of the case against them, petitioner was
willing to pay the purchase price, and he requested
that the corresponding deed of absolute sale be
executed. 11 This was ignored by private respondents.
11. On July 27, 1990, private respondents' counsel
sent a letter to petitioner enclosing therein a check for
P25,000.00 representing the refund of fifty percent of
the option money paid under the exclusive option to
purchase. Private respondents then requested
petitioner to return the owner's duplicate copy of the
certificate
of
title
of
respondent
Salud
Jimenez. 12 Petitioner failed to surrender the certificate
of title, hence private respondents filed Civil Case No.
7532 in the Regional Trial Court of Pasay City, Branch
113, for annulment of contract with damages, praying,

among others, that the exclusive option to purchase

be declared null and void; that defendant, herein
petitioner, be ordered to return the owner's duplicate
certificate of title; and that the annotation of the
option contract on TCT No. 309773 be cancelled.
Emylene Chua, the subsequent purchaser of the lot,
filed a complaint in intervention.
12. The trial court rendered judgment 13 therein on
September 5, 1991 holding that the agreement
entered into by the parties was merely an option
contract, and declaring that the suspension of
payment by herein petitioner constituted a counteroffer which, therefore, was tantamount to a rejection
of the option. It likewise ruled that herein petitioner
could not validly suspend payment in favor of private
respondents on the ground that the vindicatory action
filed by the latter's kin did not involve the western
portion of the land covered by the contract between
petitioner and private respondents, but the eastern
portion thereof which was the subject of the sale
between petitioner and the brothers Jose and
Dominador Jimenez. The trial court then directed the
cancellation of the exclusive option to purchase,
declared the sale to intervenor Emylene Chua as valid
and binding, and ordered petitioner to pay damages
and attorney's fees to private respondents, with costs.
13. On appeal, respondent Court of appeals
affirmed in toto the decision of the court a quo and
held that the failure of petitioner to pay the purchase
price within the period agreed upon was tantamount
to an election by petitioner not to buy the property;
that the suspension of payment constituted an
imposition of a condition which was actually a counteroffer amounting to a rejection of the option; and that
Article 1590 of the Civil Code on suspension of
payments applies only to a contract of sale or a
contract to sell, but not to an option contract which it
opined was the nature of the document subject of the
case at bar. Said appellate court similarly upheld the
validity of the deed of conditional sale executed by
private respondents in favor of intervenor Emylene
Chua.
In the present petition, the following assignment of
errors are raised:

1. Respondent court of appeals acted with grave abuse

of discretion in making its finding that the agreement
entered into by petitioner and private respondents was
strictly an option contract;
2. Granting arguendo that the agreement was an
option contract, respondent court of Appeals acted
with grave abuse of discretion in grievously failing to
consider that while the option period had not lapsed,
private respondents could not unilaterally and
prematurely terminate the option period;
3. Respondent Court of Appeals acted with grave
abuse of discretion in failing to appreciate fully the
attendant facts and circumstances when it made the
conclusion of law that Article 1590 does not apply; and
4. Respondent Court of Appeals acted with grave
abuse of discretion in conforming with the sale in favor
of appellee Ma. Emylene Chua and the award of
damages and attorney's fees which are not only
excessive, but also without in fact and in law. 14
An analysis of the facts obtaining in this case, as well
as the evidence presented by the parties, irresistibly
leads to the conclusion that the agreement between
the parties is a contract to sell, and not an option
contract or a contract of sale.
I
1. In view of the extended disquisition thereon by
respondent court, it would be worthwhile at this
juncture to briefly discourse on the rationale behind
our treatment of the alleged option contract as a
contract to sell, rather than a contract of sale. The
distinction between the two is important for in contract
of sale, the title passes to the vendee upon the
delivery of the thing sold; whereas in a contract to sell,
by agreement the ownership is reserved in the vendor
and is not to pass until the full payment of the price. In
a contract of sale, the vendor has lost and cannot
recover ownership until and unless the contract is
resolved or rescinded; whereas in a contract to sell,
title is retained by the vendor until the full payment of
the price, such payment being a positive suspensive
condition and failure of which is not a breach but an
event that prevents the obligation of the vendor to
convey title from becoming effective. Thus, a deed of
sale is considered absolute in nature where there is

neither a stipulation in the deed that title to the

property sold is reserved in the seller until the full
payment of the price, nor one giving the vendor the
right to unilaterally resolve the contract the moment
the buyer fails to pay within a fixed period. 15
There are two features which convince us that the
parties never intended to transfer ownership to
petitioner except upon the full payment of the
purchase price. Firstly, the exclusive option to
purchase, although it provided for automatic rescission
of the contract and partial forfeiture of the amount
already paid in case of default, does not mention that
petitioner is obliged to return possession or ownership
of the property as a consequence of non-payment.
There
is no stipulation anent
reversion
or
reconveyance of the property to herein private
respondents in the event that petitioner does not
comply with its obligation. With the absence of such a
stipulation, although there is a provision on the
remedies available to the parties in case of breach, it
may legally be inferred that the parties never intended
to transfer ownership to the petitioner to completion of
payment of the purchase price.
In effect, there was an implied agreement that
ownership shall not pass to the purchaser until he had
fully paid the price. Article 1478 of the civil code does
not require that such a stipulation be expressly made.
Consequently, an implied stipulation to that effect is
considered valid and, therefore, binding and
enforceable between the parties. It should be noted
that under the law and jurisprudence, a contract which
contains this kind of stipulation is considered a
contract to sell.
Moreover, that the parties really intended to execute a
contract to sell, and not a contract of sale, is bolstered
by the fact that the deed of absolute sale would have
been issued only upon the payment of the balance of
the purchase price, as may be gleaned from
petitioner's letter dated April 16, 1990 16 wherein it
informed private respondents that it "is now ready and
willing to pay you simultaneously with the execution of
the corresponding deed of absolute sale."
Secondly, it has not been shown there was delivery of
the property, actual or constructive, made to herein

petitioner. The exclusive option to purchase is not

contained in a public instrument the execution of
which would have been considered equivalent to
delivery. 17 Neither did petitioner take actual, physical
possession of the property at any given time. It is true
that after the reconstitution of private respondents'
certificate of title, it remained in the possession of
petitioner's counsel, Atty. Bayani L. Bernardo, who
thereafter delivered the same to herein petitioner.
Normally, under the law, such possession by the
vendee is to be understood as a delivery. 18 However,
private respondents explained that there was really no
intention on their part to deliver the title to herein
petitioner with the purpose of transferring ownership
to it. They claim that Atty. Bernardo had possession of
the title only because he was their counsel in the
petition for reconstitution. We have no reason not to
believe this explanation of private respondents, aside
from the fact that such contention was never refuted
or contradicted by petitioner.
2. Irrefragably, the controverted document should
legally be considered as a perfected contract to sell.
On this particular point, therefore, we reject the
position and ratiocination of respondent Court of
Appeals which, while awarding the correct relief to
private respondents, categorized the instrument as
"strictly an option contract."
The important task in contract interpretation is always
the ascertainment of the intention of the contracting
parties and that task is, of course, to be discharged by
looking to the words they used to project that intention
in their contract, all the words not just a particular
word or two, and words in context not words standing
alone. 19Moreover, judging from the subsequent acts of
the parties which will hereinafter be discussed, it is
undeniable that the intention of the parties was to
enter into a contract to sell. 20 In addition, the title of a
contract does not necessarily determine its true
nature. 21 Hence, the fact that the document under
discussion is entitled "Exclusive Option to Purchase" is
not controlling where the text thereof shows that it is a
contract to sell.
An option, as used in the law on sales, is a continuing
offer or contract by which the owner stipulates with

another that the latter shall have the right to buy the
property at a fixed price within a certain time, or
under, or in compliance with, certain terms and
conditions, or which gives to the owner of the property
the right to sell or demand a sale. It is also sometimes
called an "unaccepted offer." An option is not of itself a
purchase, but merely secures the privilege to buy. 22 It
is not a sale of property but a sale of property but a
sale of the right to purchase. 23 It is simply a contract
by which the owner of property agrees with another
person that he shall have the right to buy his property
at a fixed price within a certain time. He does not sell
his land; he does not then agree to sell it; but he does
sell something, that it is, the right or privilege to buy
at the election or option of the other party. 24 Its
distinguishing characteristic is that it imposes no
binding obligation on the person holding the option,
aside from the consideration for the offer. Until
acceptance, it is not, properly speaking, a contract,
and does not vest, transfer, or agree to transfer, any
title to, or any interest or right in the subject matter,
but is merely a contract by which the owner of
property gives the optionee the right or privilege of
accepting the offer and buying the property on certain
terms. 25
On the other hand, a contract, like a contract to sell,
involves a meeting of minds two persons whereby one
binds himself, with respect to the other, to give
something or to render some service. 26 Contracts, in
general, are perfected by mere consent, 27 which 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. 28
The distinction between an "option" and a contract of
sale is that an option is an unaccepted offer. It states
the terms and conditions on which the owner is willing
to sell the land, if the holder elects to accept them
within the time limited. If the holder does so elect, he
must give notice to the other party, and the accepted
offer thereupon becomes a valid and binding contract.
If an acceptance is not made within the time fixed, the
owner is no longer bound by his offer, and the option
is at an end. A contract of sale, on the other hand,

fixes definitely the relative rights and obligations of

both parties at the time of its execution. The offer and
the acceptance are concurrent, since the minds of the
contracting parties meet in the terms of the
agreement. 29
A perusal of the contract in this case, as well as the
oral and documentary evidence presented by the
parties, readily shows that there is indeed a
concurrence of petitioner's offer to buy and private
respondents' acceptance thereof. The rule is that
except where a formal acceptance is so required,
although the acceptance must be affirmatively and
clearly made and must be evidenced by some acts or
conduct communicated to the offeror, it may be made
either in a formal or an informal manner, and may be
shown by acts, conduct, or words of the accepting
party that clearly manifest a present intention or
determination to accept the offer to buy or sell. Thus,
acceptance may be shown by the acts, conduct, or
words of a party recognizing the existence of the
contract of sale. 30
The records also show that private respondents
accepted the offer of petitioner to buy their property
under the terms of their contract. At the time
petitioner made its offer, private respondents
suggested that their transfer certificate of title be first
reconstituted, to which petitioner agreed. As a matter
of fact, it was petitioner's counsel, Atty. Bayani L.
Bernardo, who assisted private respondents in filing a
petition for reconstitution. After the title was
reconstituted, the parties agreed that petitioner would
pay either in cash or manager's check the amount of
P2,856,150.00 for the lot. Petitioner was supposed to
pay the same on November 25, 1989, but it later
offered to make a down payment of P50,000.00, with
the balance of P2,806,150.00 to be paid on or before
November 30, 1989. Private respondents agreed to the
counter-offer made by petitioner. 31 As a result, the socalled exclusive option to purchase was prepared by
petitioner and was subsequently signed by private
respondents, thereby creating a perfected contract to
sell between them.
It cannot be gainsaid that the offer to buy a specific
piece of land was definite and certain, while the

acceptance thereof was absolute and without any

condition or qualification. The agreement as to the
object, the price of the property, and the terms of
payment was clear and well-defined. No other
significance could be given to such acts that than they
were meant to finalize and perfect the transaction. The
parties even went beyond the basic requirements of
the law by stipulating that "all expenses including the
corresponding capital gains tax, cost of documentary
stamps are for the account of the vendors, and
expenses for the registration of the deed of sale in the
Registry of Deeds are for the account of Adelfa
properties, Inc." Hence, there was nothing left to be
done except the performance of the respective
obligations of the parties.
We do not subscribe to private respondents'
submission, which was upheld by both the trial court
and respondent court of appeals, that the offer of
petitioner to deduct P500,000.00, (later reduced to
P300,000.00) from the purchase price for the
settlement of the civil case was tantamount to a
counter-offer. It must be stressed that there already
existed a perfected contract between the parties at
the time the alleged counter-offer was made. Thus,
any new offer by a party becomes binding only when it
is accepted by the other. In the case of private
respondents, they actually refused to concur in said
offer of petitioner, by reason of which the original
terms of the contract continued to be enforceable.
At any rate, the same cannot be considered a counteroffer for the simple reason that petitioner's sole
purpose was to settle the civil case in order that it
could already comply with its obligation. In fact, it was
even indicative of a desire by petitioner to
immediately comply therewith, except that it was
being prevented from doing so because of the filing of
the civil case which, it believed in good faith, rendered
compliance improbable at that time. In addition, no
inference can be drawn from that suggestion given by
petitioner that it was totally abandoning the original
contract.
More importantly, it will be noted that the failure of
petitioner to pay the balance of the purchase price
within the agreed period was attributed by private

respondents to "lack of word of honor" on the part of

the former. The reason of "lack of word of honor" is to
us a clear indication that private respondents
considered petitioner already bound by its obligation
to pay the balance of the consideration. In effect,
private respondents were demanding or exacting
fulfillment of the obligation from herein petitioner. with
the arrival of the period agreed upon by the parties,
petitioner was supposed to comply with the obligation
incumbent upon it to perform, not merely to exercise
an option or a right to buy the property.
The obligation of petitioner on November 30, 1993
consisted of an obligation to give something, that is,
the payment of the purchase price. The contract did
not simply give petitioner the discretion to pay for the
property.32 It will be noted that there is nothing in the
said contract to show that petitioner was merely given
a certain period within which to exercise its privilege
to buy. The agreed period was intended to give time to
herein petitioner within which to fulfill and comply with
its obligation, that is, to pay the balance of the
purchase price. No evidence was presented by private
respondents to prove otherwise.
The test in determining whether a contract is a
"contract of sale or purchase" or a mere "option" is
whether or not the agreement could be specifically
enforced. 33 There is no doubt that the obligation of
petitioner to pay the purchase price is specific, definite
and
certain,
and
consequently
binding
and
enforceable. Had private respondents chosen to
enforce the contract, they could have specifically
compelled petitioner to pay the balance of
P2,806,150.00. This is distinctly made manifest in the
contract itself as an integral stipulation, compliance
with which could legally and definitely be demanded
from petitioner as a consequence.
This is not a case where no right is as yet created nor
an obligation declared, as where something further
remains to be done before the buyer and seller
obligate themselves. 34 An agreement is only an
"option" when no obligation rests on the party to make
any payment except such as may be agreed on
between the parties as consideration to support the
option until he has made up his mind within the time

specified. 35 An option, and not a contract to purchase,

is effected by an agreement to sell real estate for
payments to be made within specified time and
providing forfeiture of money paid upon failure to
make payment, where the purchaser does not agree to
purchase, to make payment, or to bind himself in any
way other than the forfeiture of the payments
made. 36 As hereinbefore discussed, this is not the
situation obtaining in the case at bar.
While there is jurisprudence to the effect that a
contract which provides that the initial payment shall
be totally forfeited in case of default in payment is to
be considered as an option contract, 37 still we are not
inclined to conform with the findings of respondent
court and the court a quo that the contract executed
between the parties is an option contract, for the
reason that the parties were already contemplating
the payment of the balance of the purchase price, and
were not merely quoting an agreed value for the
property. The term "balance," connotes a remainder or
something remaining from the original total sum
already agreed upon.
In other words, the alleged option money of
P50,000.00 was actually earnest money which was
intended to form part of the purchase price. The
amount of P50,000.00 was not distinct from the cause
or consideration for the sale of the property, but was
itself a part thereof. It is a statutory rule that whenever
earnest money is given in a contract of sale, it shall be
considered as part of the price and as proof of the
perfection of the contract. 38 It constitutes an advance
payment and must, therefore, be deducted from the
total price. Also, earnest money is given by the buyer
to the seller to bind the bargain.
There are clear distinctions between earnest money
and option money, viz.: (a) earnest money is part of
the purchase price, while option money ids the money
given as a distinct consideration for an option
contract; (b) earnest money is given only where there
is already a sale, while option money applies to a sale
not yet perfected; and (c) when earnest money is
given, the buyer is bound to pay the balance, while
when the would-be buyer gives option money, he is
not required to buy. 39

The aforequoted characteristics of earnest money are

apparent in the so-called option contract under review,
even though it was called "option money" by the
parties. In addition, private respondents failed to show
that the payment of the balance of the purchase price
was only a condition precedent to the acceptance of
the offer or to the exercise of the right to buy. On the
contrary, it has been sufficiently established that such
payment was but an element of the performance of
petitioner's obligation under the contract to sell. 40
II
1. This brings us to the second issue as to whether or
not there was valid suspension of payment of the
purchase price by petitioner and the legal
consequences thereof. To justify its failure to pay the
purchase price within the agreed period, petitioner
invokes Article 1590 of the civil Code which provides:
Art. 1590. Should the vendee be disturbed in the
possession or ownership of the thing acquired, or
should he have reasonable grounds to fear such
disturbance, by a vindicatory action or a foreclosure of
mortgage, he may suspend the payment of the price
until the vendor has caused the disturbance or danger
to cease, unless the latter gives security for the return
of the price in a proper case, or it has been stipulated
that, notwithstanding any such contingency, the
vendee shall be bound to make the payment. A mere
act of trespass shall not authorize the suspension of
the payment of the price.
Respondent court refused to apply the aforequoted
provision of law on the erroneous assumption that the
true agreement between the parties was a contract of
option. As we have hereinbefore discussed, it was not
an option contract but a perfected contract to sell.
Verily, therefore, Article 1590 would properly apply.
Both lower courts, however, are in accord that since
Civil Case No. 89-5541 filed against the parties herein
involved only the eastern half of the land subject of
the deed of sale between petitioner and the Jimenez
brothers, it did not, therefore, have any adverse effect
on private respondents' title and ownership over the
western half of the land which is covered by the
contract subject of the present case. We have gone
over the complaint for recovery of ownership filed in

said case 41 and we are not persuaded by the factual

findings made by said courts. At a glance, it is easily
discernible that, although the complaint prayed for the
annulment only of the contract of sale executed
between petitioner and the Jimenez brothers, the
same likewise prayed for the recovery of therein
plaintiffs' share in that parcel of land specifically
covered by TCT No. 309773. In other words, the
plaintiffs therein were claiming to be co-owners of the
entire parcel of land described in TCT No. 309773, and
not only of a portion thereof nor, as incorrectly
interpreted by the lower courts, did their claim pertain
exclusively to the eastern half adjudicated to the
Jimenez brothers.
Such being the case, petitioner was justified in
suspending payment of the balance of the purchase
price by reason of the aforesaid vindicatory action filed
against it. The assurance made by private respondents
that petitioner did not have to worry about the case
because it was pure and simple harassment 42 is not
the kind of guaranty contemplated under the
exceptive clause in Article 1590 wherein the vendor is
bound to make payment even with the existence of a
vindicatory action if the vendee should give a security
for the return of the price.
2. Be that as it may, and the validity of the suspension
of payment notwithstanding, we find and hold that
private respondents may no longer be compelled to
sell and deliver the subject property to petitioner for
two reasons, that is, petitioner's failure to duly effect
the consignation of the purchase price after the
disturbance had ceased; and, secondarily, the fact
that the contract to sell had been validly rescinded by
private respondents.
The records of this case reveal that as early as
February 28, 1990 when petitioner caused its
exclusive option to be annotated anew on the
certificate of title, it already knew of the dismissal of
civil Case No. 89-5541. However, it was only on April
16, 1990 that petitioner, through its counsel, wrote
private respondents expressing its willingness to pay
the balance of the purchase price upon the execution
of the corresponding deed of absolute sale. At most,
that was merely a notice to pay. There was no proper

tender of payment nor consignation in this case as

required by law.
The mere sending of a letter by the vendee expressing
the
intention
to
pay, without the accompanying payment, is not
considered a valid tender of payment. 43 Besides, a
mere tender of payment is not sufficient to compel
private respondents to deliver the property and
execute the deed of absolute sale. It is consignation
which is essential in order to extinguish petitioner's
obligation to pay the balance of the purchase
price. 44 The rule is different in case of an option
contract 45 or in legal redemption or in a sale with right
to
repurchase, 46 wherein
consignation
is
not
necessary because these cases involve an exercise of
a right or privilege (to buy, redeem or repurchase)
rather than the discharge of an obligation, hence
tender of payment would be sufficient to preserve the
right or privilege. This is because the provisions on
consignation are not applicable when there is no
obligation to pay. 47 A contract to sell, as in the case
before us, involves the performance of an obligation,
not merely the exercise of a privilege of a right.
consequently, performance or payment may be
effected not by tender of payment alone but by both
tender and consignation.
Furthermore, petitioner no longer had the right to
suspend payment after the disturbance ceased with
the dismissal of the civil case filed against it.
Necessarily, therefore, its obligation to pay the
balance again arose and resumed after it received
notice of such dismissal. Unfortunately, petitioner
failed to seasonably make payment, as in fact it has
deposit the money with the trial court when this case
was originally filed therein.
By reason of petitioner's failure to comply with its
obligation, private respondents elected to resort to
and did announce the rescission of the contract
through its letter to petitioner dated July 27, 1990.
That written notice of rescission is deemed sufficient
under the circumstances. Article 1592 of the Civil Code
which requires rescission either by judicial action or
notarial act is not applicable to a contract to
sell. 48 Furthermore, judicial action for rescission of a

contract is not necessary where the contract provides

for automatic rescission in case of breach, 49 as in the
contract involved in the present controversy.
We are not unaware of the ruling in University of the
Philippines vs. De los Angeles, etc. 50 that the right to
rescind is not absolute, being ever subject to scrutiny
and review by the proper court. It is our considered
view, however, that this rule applies to a situation
where the extrajudicial rescission is contested by the
defaulting party. In other words, resolution of
reciprocal contracts may be made extrajudicially
unless successfully impugned in court. If the debtor
impugns the declaration, it shall be subject to judicial
determination 51 otherwise, if said party does not
oppose it, the extrajudicial rescission shall have legal
effect. 52
In the case at bar, it has been shown that although
petitioner was duly furnished and did receive a written
notice of rescission which specified the grounds
therefore, it failed to reply thereto or protest against it.
Its silence thereon suggests an admission of the
veracity and validity of private respondents'
claim. 53 Furthermore, the initiative of instituting suit
was transferred from the rescinder to the defaulter by
virtue of the automatic rescission clause in the
contract. 54 But then, the records bear out the fact that
aside from the lackadaisical manner with which
petitioner treated private respondents' latter of
cancellation, it utterly failed to seriously seek redress
from the court for the enforcement of its alleged rights
under the contract. If private respondents had not
taken the initiative of filing Civil Case No. 7532,
evidently petitioner had no intention to take any legal
action to compel specific performance from the former.
By such cavalier disregard, it has been effectively
estopped from seeking the affirmative relief it now
desires but which it had theretofore disdained.
WHEREFORE, on the foregoing modificatory premises,
and considering that the same result has been
reached by respondent Court of Appeals with respect
to the relief awarded to private respondents by the
court a quo which we find to be correct, its assailed
judgment in CA-G.R. CV No. 34767 is hereby
AFFIRMED.

SO ORDERED.
G.R. No. L-2870
September 19, 1950
CHUA
NGO, plaintiff-appellee,
vs.
UNIVERSAL
TRADING
CO.,
INC., defendantappellant.
Manuel O. Chan and H.B. Arandia for appellant.
Arsenio Sy Santos for appellee.
BENGZON, J.:
Chua Ngo delivered, in Manila, to the Universal Trading
Company, Inc., a local corporation, the price 300 boxes
of Sunkist oranges to be gotten from the United
States. The latter ordered the said boxes from
Gabuardi Company of San Francisco, and in due
course, the goods were shipped from that port to
Manila "F. O. B. San Francisco." One hundred eighty
boxes were lost in transit, and were never delivered to
Chua Ngo.
This suit by Chua Ngo is to recover the corresponding
price he had paid in advance.
Universal Trading Company refused to pay, alleging it
merely acted as agent of Chua Ngo in purchasing the
oranges. Chua Ngo maintains he bought the oranges
from Universal Trading Company, and, therefore, is
entitled to the return of the price corresponding to the
undelivered fruit.
From a judgment for plaintiff, the defendant appealed.
It appears that on January 14, 1946, the herein
litigants signed the document Exhibit 1, which reads
as follows:
UNIVERSAL
TRADING
COMPANY,
INC.
Far
Eastern
Division
R-236-238
Ayala
Building
Juan Luna, Manila
CONTRACT NO. 632 14 January 1946
Agreement is hereby made between Messrs. Chua Ngo
of 753 Folgueras, Manila, and the Universal Trading
Company, Inc., Manila, for order as follows and under
the following terms:
Quantity Merchandise and description Unit Unit price
Amount
300
Sunkist
oranges,
wrapped
Grade No. 1 .................... .......... ................ .................
Navel, 220 to case ............ Case $6.30 $1,890.00

300
Onions,
Australian
Browns, 90 lbs. to case Case $6.82 $2,046.00
We are advised by the supplier that the charges to
bring these goods to Manila are:
Oranges..................................
.......................

$3.06 per case

Onions ...................................
........................

$1.83 per case.

Deposit of 40% of the contract price plus the above

charges to be payable immediately upon receipt of
telegraphic confirmation. Balance payable upon arrival
of goods in Manila. If balance is not paid within 48
hours of notification merchandise may be resold by
Universal Trading Co., Inc. and the deposit forfeited.
NOTE:
Onions
canceled
by
supplier.
(Initialed) R. E. H.
Total
amount
of
order .............................................................................
..... $3,936
Agreed and accepted:
(Sgd.) CHUA NGO
Confirmed and approved:
(Sgd.)
RALPH
E.
HOLMES
Sales manager
Universal
Trading
Company,
Inc.
(See terms of agreement on reverse side.)
On the same date, the defendant forwarded and order
to Gabuardi Company of San Francisco, U. S. A., which
in part says:
ORDER NO. 707
TO
GABUARDI
COMPANY
OF
CALIFORNIA
258
Market
Street
San Francisco, California
Please send for our account, subject to conditions on
the back of this order, the following merchandise
enumerated below:
Shipping
instructions
Via San Francisco, California
Terms: F.
O.
B.
San Francisco

Quantity Articles Unit Unit price Total price

300
Sunkist
oranges
wrapped
Grade
No
1
...............
............
..........
Navel, 220 to case ...... Case $6.00 $1,800.00.
xxx
xxx
xxx
Approved:
Universal
Trading
Company,
Inc.
(Sgd.)
RALPH
R.
HOLMES
Sales Manager
xxx
xxx
xxx
On January 16 and January 19, 1946, the Universal
Trading Co., Inc., wrote Chua Ngo two letters informing
him that the contract for oranges (and onions) had
been confirmed by the supplier i. e., could be
fulfilled and asking for deposit of 65% of the price
and certain additional charges.
On January 21, 1946, Chua Ngo deposited with the
defendant, on account of the Sunkist oranges, the
amount of P3,650, and later (March 9, 1946), delivered
the additional sum of P2,822.43 to complete the price,
as follows:
300
cases
of
$9.36..................................

oranges

at

Bank
charges ...............................................................
.
Custom
etc. ..................................................

charges,

Delivery
charges ..........................................................
3

percent
tax ...................................................

sales

Less deposit R. No. 1062 ................

The 300 cases of oranges ordered by the defendant

from Gabuardi Company were loaded in good
condition on board the S/S Silversandal in the port of
San Francisco, together with other oranges (totaling
6,380 cases) for other customers. They were all
marked "UTC Manila" and were consigned to
defendant. The Silversandal arrived at the port of
Manila on March 7, 1946. And out of the 6,380 boxes
of oranges, 607 cases were short short landed for
causes beyond defendant's control. Consequently,
defendant failed to deliver to Chua Ngo 180 cases of
the 300 cases contracted for. The total cost of such
180 cases (received by defendant) is admittedly
P3,882.60.
The above are the main facts according to the
stipulation of the parties. Uncontradicted additional
evidence was introduced that the mark "UTC Manila"
written on all the boxes means "Universal Trading
Company, Manila"; that the defendant paid in its own
name to Gabuardi Company the shipment of oranges,
and made claims for the lost oranges to the steamship
company that insured the shipment company and the
insurance company that insured the shipment; and
finally, that in the transaction between plaintiff and
defendant, the latter received no commission.
The crucial question is: Did Universal Trading Company
merely agree to buy for and on behalf of Chua Ngo the
300 boxes of oranges, or did it agree to sell and sold
the oranges to Chua Ngo? If the first, the judgment
m ust be reversed; if the latter, it should be affirmed.
In our opinion, the circumstances of record sufficiently
indicate a sale. First, no commission was paid. Second,
Exhibit 1 says that "if balance is not paid within 48
hours of notification, merchandise may be resold by
the Universal Trading Company and the deposit
forfeited." "Resold" implies the goods had been sold to
Chua Ngo. And forfeiture of the deposit is incompatible
with a contract of agency. Third, immediately after
executing Exhibit 1 wherein oranges were quoted at

$6.30 per box, Universal Trading placed an order for

purchase of the same with Gabuardi Company at $6
per box. If Universal Trading Gabuardi Company was
agent of Chua Ngo, it could not properly do that.
Inasmuch as good faith is to be presumed, we must
hold that Universal Trading acted thus because it was
not acting as agent of Chua Ngo, but as independent
purchaser from Gabuardi Company. Fourth, the
defendant charged the plaintiff the sum of P218.87 for
3 percent sales tax, thereby implying that their
transaction was a sale. Fifth, if the purchase of the
oranges had been made on behalf of Chua Ngo, all
claims for losses thereof against the insurance
company and against the shipping company should
have been assigned to Chua Ngo. Instead, the
defendant has been pressing such claims for itself.
In our opinion, the arrangement between the parties
was this: Chua Ngo purchased from Universal Trading
Company, 300 boxes of oranges at $6.30 plus. In turn,
the latter purchased from Gabuardi Company at $6
plus, sufficient fruit to comply with its contract with
Chua Ngo.
Unfortunately,
however,
part
of
the
orange
consignment from San Francisco was lost in transit.
Who is to suffer that loss? Naturally, whoever was the
owner of the oranges at the time of such loss. It could
not be Chua Ngo because the fruit had not been
delivered to him. As between Gabuardi and the
Universal Trading, inasmuch as the goods had been
sold "F. O. B. San Francisco", the loss must be borne by
the latter, because under the law, said goods had
been delivered to the purchaser at San Francisco on
board the vessel Silversandal. 1 That is why the
Universal has been trying to recover the loss from both
the steamship company and the insurer.
Now, as Chua Ngo has paid for 300 boxes and has
received 120 boxes only, the price of 180 boxes
undelivered must be paid back to him.
It appears that whereas in the lower court defendant
sustained the theory that it acted as agent of plaintiff,
in this Court the additional theory is advanced that it
acted as agent of Gabuardi Company. This obviously
has no merit.

As to the contention that defendant incurred no

liability because it is admitted that the oranges were
lost due to causes beyond the control of the
defendant, and the oranges were shipped "F. O. B. San
Francisco, the answer is that such contention is based
on the assumption which we reject that
defendant merely acted as agent of plaintiff in the
purchase of the oranges from Gabuardi.
In view of the foregoing, the appealed judgment for
plaintiff in the sum of P3,882.60 is affirmed with costs.
LEONARDO
ACABAL
and
RAMON
NICOLAS, petitioners,
vs. VILLANER
ACABAL,
EDUARDO ACABAL, SOLOMON ACABAL, GRACE
ACABAL, MELBA ACABAL, EVELYN ACABAL,
ARMIN ACABAL, RAMIL ACABAL, and BYRON
ACABAL, respondents.
DECISION
CARPIO MORALES, J.:
Before this Court is a Petition for Review
on Certiorari of the February 15, 2001 Decision[1] of the
Court of Appeals reversing that of the Regional Trial
Court (RTC) of Dumaguete City, Branch 35.[2]
In dispute is the exact nature of the document [3] which
respondent Villaner Acabal (Villaner) executed in favor
of his godson-nephew-petitioner Leonardo Acabal
(Leonardo) on April 19, 1990.
Villaners parents, Alejandro Acabal and Felicidad
Balasabas, owned a parcel of land situated in Barrio
Tanglad, Manjuyod, Negros Oriental, containing an
area of 18.15 hectares more or less, described in Tax
Declaration No. 15856.[4] By a Deed of Absolute Sale
dated July 6, 1971,[5] his parents transferred for
P2,000.00 ownership of the said land to him, who was
then married to Justiniana Lipajan.[6]
Sometime after the foregoing transfer, it appears that
Villaner became a widower.
Subsequently, he executed on April 19, 1990 a
deed[7] conveying the same property[8] in favor of
Leonardo.
Villaner was later to claim that while the April 19, 1990
document he executed now appears to be a Deed of
Absolute Sale purportedly witnessed by a Bais City
trial court clerk Carmelo Cadalin and his wife Lacorte,
what he signed was a document captioned Lease

Contract[9] (modeled
after
a
July
1976
lease
agreement[10] he had previously executed with
previous lessee, Maria Luisa Montenegro [11]) wherein
he leased for 3 years the property to Leonardo
at P1,000.00 per hectare[12] and which was witnessed
by two women employees of one Judge Villegas of Bais
City.
Villaner thus filed on October 11, 1993 a
complaint[13] before the Dumaguete RTC against
Leonardo and Ramon Nicolas to whom Leonardo in
turn conveyed the property, for annulment of the
deeds of sale.
At the witness stand, Villaner declared:
Q: It appears, Mr. Acabal, that you have signed a
document of sale with the defendant Leonardo Acabal
on April 19, 1990, please tell the court whether you
have really agreed to sell this property to the
defendant on or before April 19, 1990?
A: We had some agreement but not about the selling
of this property.
Q: What was your agreement with the defendant
Leonardo Acabal?
A: Our agreement [was] that he will just rent. [14]
xxx
Q: Now, please tell the court how were you able to
sign this document on April 19, 1990?
A: I do not know why I signed that, that is why I am
puzzled.
Q: Why, did you not read the contents of this
document?
A: I have not read that. I only happened to read
the title of the Lease Contract.
Q: And do you recall who were the witnesses of
the document which you signed in favor of
Leonardo Acabal?
A: Employees of Judge Villegas of Bais City.
Q: Did you see them sign that document?
A: Yes, sir.
Q: These signatures appearing in this document
marked as Exhibit C for the plaintiff and Exhibit
1 for the defendant, please examine over (sic)
these signatures if these were the signatures of
these witnesses who signed this document?

A: These are not the signatures of the two

women.
Q: And after signing this document on April 19, 1990,
did you appear before a notary public to have this
notarized?
A: No, I went home to San Carlos.[15]
xxx
Q: According to this document, you sell (sic) this
property at P10,000.00, did you sell this property to
Leonardo Acabal?
A: No, sir.
Q: How about after April 19, 1990, did you receive this
amount from Leonardo Acabal?
A: No, sir.[16]
xxx
Q: Now you said that on May 25, 1990, Leonardo
Acabal did not pay the amount that he promised to
you, what did you do of (sic) his refusal to pay that
amount?
A: I went to Mr. [Carmelo] Mellie Cadalin because
he was the one who prepared the papers and to
ask Leonardo Acabal why he will not comply
with our agreement.
Q: By the way, who is this Mellie Cadalin?
A: Mellie Cadalin is also working in the sala of
Judge Villegas.
Q: Who requested Mellie Cadalin to prepare this
document?
A: Maybe it was Leonardo Acabal.
Q: By the way, when for the first time did you talk to
Leonardo Acabal regarding your agreement to lease
this property to him?
A: March 14, 1990, in San Carlos.
Q: And what document did you give to him in
order that that document will be prepared?
A: I have given (sic) some papers and contract of
lease that I have signed to (sic) Mrs.
Montenegro.[17] (Emphasis
and
underscoring
supplied)
xxx
Q: Now, Carmelo Cadalin [Mellie] also testified before
this court that in fact he identified the document
marked as Exhibit C for the plaintiff that what you
executed on April 19, 1990 was a deed of sale and not

a contract of lease, what can you say to that

statement?
A: That is a lie.
Q: And whats the truth then?
A: What really (sic) I have signed was the document of
lease contract.
Q: Now, can you explain to the Honorable Court
why it so happened that on April 19, you were
able to sign a deed of sale?
A: What I can see now is that perhaps those
copies of the deed of sale were placed by Mr.
Cadalin under the documents which I signed the
lease contract. But why is it that it has already a
deed of sale when what I have signed was only the
lease of contract or the contract of lease.
Q: Now, Mr. Cadalin also stated before this court that
he handed over to you this Deed of Sale marked as
Exhibit C and according to him you read this
document, what can you say to this statement?
A: Yes, there was a document that he gave me to read
it (sic)but it was a contract of lease.
Q: How sure are you that what you signed on April 19,
1990 was really a contract of lease and not a contract
of sale?
A: Because when I signed the contract of lease
the witnesses that witnessed my signing the
document were the employees of Judge Villegas
and then I am now surprised why in the deed of
sale which I purportedly signed are witnessed
by Carmelo Cadalin and his wife Lacorte.
[18]
(Emphasis and underscoring supplied)
On the other hand, Leonardo asserts that what Villaner
executed was a Deed of Absolute Sale for a
consideration of P10,000.00 which he had already
paid,[19] and as he had become the absolute owner of
the property, he validly transferred it to Ramon Nicolas
on May 19, 1990.[20]
Carmelo Cadalin who admittedly prepared the deed of
absolute sale and who appears as a witness, along
with his wife, to the execution of the document
corroborated Leonardos claim:
Q: Mr. Cadalin, do you know the plaintiff Villaner
Acabal?
A: Yes, I know.[21]

xxx
Q: And I would like to ask you Mr. witness why
do you know Villaner Acabal?
A: At the time that he went to our house
together with Leonardo Acabal he requested me
to prepare a deed of sale as regards to a sale of
the property.[22]
xxx
Q: And after they requested you to prepare a
document of sale, what did you do?
A: At first I refused to [do] it because I have so
many works to do, but then they insisted so I
prepared the deed.
Q: After you prepared the document, what did
you do?
A: After I prepared it I gave it to him so that he
could read the same.
Q: When you say him, whom do you refer to?
A: Villaner Acabal.
Q: And did Villaner Acabal read the document
you prepared?
A: Yes, he read it.
Q: And after reading it what did Villaner Acabal
do?
A: He signed the document.
Q: Showing to you a document which is marked
Exhibit C for the plaintiff and Exhibit 1 for the
defendants, please tell the Honorable Court
what relation this document has to the
document which you described earlier?
COURT INTERPRETER:
Witness is confronted with the said document
earlier marked as Exhibit C for the prosecution
and Exhibit 1 for the defense.
A: Yes, this is the one.[23]
xxx
Q: Also stated in the document is the phrase
Signed in the presence of and there is a number
and then two signatures, could you please
examine the document and say whether these
signatures are familiar to you?
A: Yes, number one is my signature and number
2 is the signature of my wife as witness.[24]
xxx

Q: After Villaner Acabal signed the document, what did

Villaner Acabal do?
A: He was given the payment by Leonardo Acabal.[25]
xxx
Q: Aside from the document, deed of absolute sale,
that you mentioned earlier that you prepared for
Villaner Acabal and Leonardo Acabal, what other
documents, if any, did you prepare for them?
A: Affidavit of non-tenancy and aggregate area.
[26]
(Emphasis and underscoring supplied)
The complaint was later amended[27] to implead
Villaners eight children as party plaintiffs, they being
heirs of his deceased wife.
By Decision of August 8, 1996, the trial court found for
the therein defendants-herein petitioners Leonardo
and Ramon Nicolas and accordingly dismissed the
complaint.
Villaner et al. thereupon brought the case on appeal to
the Court of Appeals which reversed the trial court, it
holding that the Deed of Absolute Sale executed by
Villaner in favor of Leonardo was simulated and
fictitious.[28]
Hence, Leonardo and Ramon Nicolas present petition
for review on certiorari,[29] anchored on the following
assignments of error:
I.
THE COURT OF APPEALS COMMITTED A REVERSIBLE
ERROR WHEN IT RULED THAT RESPONDENT VILLANER
ACABAL WAS DECEIVED INTO SIGNING THE DEED OF
ABSOLUTE SALE WHEN THE LATTER KNOWINGLY,
FREELY AND VOLUNTARILY EXECUTED THE SAME IN
FAVOR OF PETITIONER LEONARDO ACABAL.
II.
THE COURT OF APPEALS ERRED WHEN IT RULED THAT
THE CONSIDERATION OF THE DEED OF ABSOLUTE
SALE IN THE AMOUNT OF TEN THOUSAND PESOS
(P10,0000.00)
WAS
UNUSUALLY
LOW
AND
INADEQUATE, ESPECIALLY TAKING INTO ACCOUNT THE
LOCATION OF THE SUBJECT PROPERTY.
III.
THE COURT OF APPEALS ERRED WHEN IT FAILED TO
CONSIDER WHY RESPONDENT VILLANER ACABAL ONLY
QUESTIONED THE POSSESSION AND OWNERSHIP OF
PETITIONER RAMON NICOLAS IN COURT AFTER THE

LATTER WAS IN OPEN, CONTINUOUS AND PEACEFUL

POSSESSION OF THE SUBJECT PROPERTY FOR ALMOST
THREE (3) YEARS.
IV.
THE COURT OF APPEALS COMMITTED A REVERSIBLE
ERROR IN LAW WHEN IT FAILED TO DECLARE
PETITIONER RAMON NICOLAS AS A BUYER IN GOOD
FAITH AS THE LATTER TOOK THE NECESSARY STEPS AN
ORDINARY AND PRUDENT MAN WOULD HAVE TAKEN
BEFORE BUYING THE QUESTIONED PROPERTY.
V.
THE COURT OF APPEALS ERRED IN RULING IN FAVOR
OF RESPONDENT VILLANER ACABAL WHEN THE
LATTER DID NOT PRESENT A SINGLE WITNESS TO
TESTIFY ON THE ALLEGED CONTRACT OF LEASE
WHICH HE ALLEGEDLY SIGNED AND WITNESSED BY
THE EMPLOYEES OF JUDGE VILLEGAS.
VI.
THE COURT OF APPEALS COMMITTED A REVERSIBLE
ERROR IN LAW WHEN IT RULED THAT RULE 8, SECTION
8 OF THE 1987 (sic) RULE (sic) OF CIVIL PROCEDURE IS
NOT APPLICABLE IN THE CASE AT BAR, CONTRARY TO
THE RULING OF THE LOWER COURT.
VII.
THE COURT OF APPEALS ERRED WHEN IT ORDERED
PETITIONERS TO PAY RESPONDENTS JOINTLY AND
SEVERALLY BY WAY OF RENTAL THE SUM OF
P10,000.00 PER YEAR FROM 1990 UP TO THE TIME
THEY VACATE THE PREMISES.[30]
Procedurally, petitioners contend that the Court of
Appeals erred when it failed to apply Section 8, Rule 8
of the Rules of Court, respondent Villaner having failed
to deny under oath the genuineness and due
execution of the April 19, 1990 Deed of Absolute Sale.
Petitioners contention does not persuade. The failure
to deny the genuineness and due execution of an
actionable document does not preclude a party from
arguing against it by evidence of fraud, mistake,
compromise, payment, statute of limitations, estoppel,
and want of consideration. [31]
On the merits, this Court rules in petitioners favor.
It is a basic rule in evidence that the burden of proof
lies on the party who makes the allegations [32] ei
incumbit probatio, qui dicit, non qui negat; cum per

rerum naturam factum negantis probatio nulla sit.[33] If

he claims a right granted by law, he must prove it by
competent evidence, relying on the strength of his
own evidence and not upon the weakness of that of
his opponent.
More specifically, allegations of a defect in or lack of
valid consent to a contract by reason of fraud or undue
influence are never presumed but must be established
not by mere preponderance of evidence but by clear
and convincing evidence. [34] For the circumstances
evidencing fraud and misrepresentation are as varied
as the people who perpetrate it in each case,
assuming different shapes and forms and may be
committed in as many different ways.[35]
In the case at bar, it was incumbent on the plaintiffherein respondent Villaner to prove that he was
deceived into executing the Deed of Absolute Sale.
Except for his bare allegation that the transaction was
one of lease, he failed to adduce evidence in support
thereof. His conjecture that perhaps those copies of
the deed of sale were placed by Mr. Cadalin under the
documents which I signed the contract of lease,
[36]
must fail, for facts not conjectures decide cases.
Attempting to seek corroboration of his account,
Villaner presented Atty. Vicente Real who notarized the
document. While on direct examination, Atty. Real
virtually corroborated Villaners claim that he did not
bring the document to him for notarization, [37] on
cross-examination, Atty. Real conceded that it was
impossible to remember every person who would ask
him to notarize documents:
Q: And in the course of your notarization, can
you remember each and every face that come
(sic) to you for notarization?
A: No, it is impossible.
Q: In the case of Villaner Acabal which you have
his document notarized (sic) in 1990, can you
remember his face when he came to you?
A: No.
Q: And can you also say, if a person who came to
you having a document to be notarized and if he
will appear again after a month, can you
remember whether he was the one who came to
you?

A: Not so much because everyday there are

many people who appear with documents to be
notarized,
Q: So, it is safe to say that if Villaner Acabal
came to you on April 25 or rather April 16, 1990
andhave (sic) his document notarized if he
comes back in, say May 25, can you still
remember if he was the one who came to you?
A: I cannot be sure but at least, there are times I
can remember persons because he seems to be
close to me already.
Q: Is this Villaner close to you?
A: Because he has been frequenting the house/asking
for a copy of the document.
Q: So, he became close to you after you
notarized the document?
A: Yes.[38] (Emphasis and underscoring supplied)
On Villaners claim that two women employees of Judge
Villegas signed as witnesses to the deed [39] but that
the signatures appearing thereon are not those of said
witnesses,[40] the same must be discredited in light of
his unexplained failure to present such alleged women
employee-witnesses.
In another vein, Villaner zeroes in on the purchase
price of the property P10,000.00 which to him was
unusually low if the transaction were one of sale. To
substantiate his claim, Villaner presented Tax
Declarations covering the property for the years 1971,
[41]
1974,[42] 1977,[43] 1980,[44] 1983,[45] 1985,[46] as well
as a Declaration of Real Property executed in 1994. [47]
It bears noting, however, that Villaner failed to present
evidence on the fair market value of the property as of
April 19, 1990, the date of execution of the disputed
deed. Absent any evidence of the fair market value of
a land as of the time of its sale, it cannot be concluded
that the price at which it was sold was inadequate.
[48]
Inadequacy of price must be proven because mere
speculation or conjecture has no place in our judicial
system.[49]
Victor Ragay, who was appointed by the trial court to
conduct an ocular inspection [50] of the property and to
investigate matters relative to the case, [51] gave an
instructive report dated December 3, 1994, [52] the

pertinent portions of which are hereby reproduced

verbatim:
a) Only three (3) to four (4) hectares of the eighteen
(18) were planted to sugar cane, the rest was never
cultivated;
b) the soil is reddish and somewhat sandy in
composition;
c) the soil contains so much limestones (rocks
consisting mainly of calcium carbonate);
d) no part of the land in question is plain or flat,
contrary to claim of the plaintiff that almost 10
hectares of the land in question is plain or flat;
e) some areas, eastward of and adjacent of the land in
question (mistakenly to be owned by the defendant
Nicolas) were planted to sugar cane by the owners
Kadusales;
f) the road going to the land in question (as claimed to
be the road) is no longer passable because it has been
abandoned and not maintained by anyone, thus it
makes everything impossible for anybody to get and
haul the sugar cane from the area;
g) the Commissioner has discovered some stockpiles
of abandoned harvested sugar canes left to rot, along
the side of the road, undelivered to the milling site
because of the difficulty in bringing up trucks to the
scene of the harvest;
h) the sugarcanes presently planted on the land in
question at the time of the ocular inspection were
three (3) feet in height and their structural built was
thin or lean;
i) Most of the part of the 18 hectares is not planted or
cultivated because the same is too rocky and not
suitable for planting to sugarcane. [53]
Additionally, Ragay reported that one Anatolio
Cabusog recently purchased a 6-hectare property
adjoining
that
of
the
subject
property
for
only P1,600.00[54] or P266.67 per hectare. Given that,
had the 18-hectare subject property been sold at
about the same time, it would have fetched the
amount
of P4,800.00,[55] hence,
the P10,000.00
purchase price appearing in the questioned April 19,
1990 document is more than reasonable.
Even, however, on the assumption that the price
of P10,000.00 was below the fair market value of the

property in 1990, mere inadequacy of the price per

se will not rule out the transaction as one of sale. For
the price must be grossly inadequate or shocking to
the conscience such that the mind revolts at it and
such that a reasonable man would neither directly nor
indirectly be likely to consent to it.[56]
Still in another vein, Villaner submits that Leonardos
transfer of the property to Nicolas in a span of one
month for a profit of P30,000.00 conclusively reflects
Leonardos fraudulent intent. This submission is a non
sequitur.
As for Villaners argument that the sale of the property
to Leonardo and the subsequent sale thereof to
Nicolas are void for being violative of the retention
limits imposed by Republic Act No. 6657, otherwise
known as the Comprehensive Agrarian Reform Law,
the same fails. The pertinent provisions of said law
read:
SECTION 6. Retention Limits. Except as otherwise
provided in this Act, no person may retain, directly or
indirectly, any public or agricultural land, the size of
which may vary according to factors governing a
viable family-sized farm, such as commodity produced,
terrain, infrastructure, and soil fertility as determined
by the Presidential Agrarian Reform Council (PARC)
created hereunder, but in no case shall retention
by the landowner exceed five (5) hectares. Three
(3) hectares may be awarded to each child of the
landowner, subject to the following qualifications: (1)
that he is at least fifteen (15) years of age; and (2)
that he is tilling the land or directly managing the
farm: Provided, That landowners whose lands have
been covered by Presidential Decree No. 27 shall be
allowed to keep the areas originally retained by them
thereunder:[57] Provided
further,
That
original
homestead grantees or direct compulsory heirs who
still own the original homestead at the time of the
approval of this Act shall retain the same areas as long
as they continue to cultivate said homestead.
xxx
Upon the effectivity of this Act, any sale,
disposition, lease, management, contract or
transfer of possession of private lands executed
by the original landowner in violation of this Act

shall be null and void: Provided, however, that

those executed prior to this Act shall be valid only
when registered with the Register of Deeds within a
period of three (3) months after the effectivity of this
Act. Thereafter, all Registers of Deeds shall inform the
DAR within thirty (30) days of any transaction
involving agricultural lands in excess of five (5)
hectares.
xxx
SECTION 70. Disposition of Private Agricultural Lands.
The sale or disposition of agricultural lands retained by
a land owner as a consequence of Section 6 hereof
shall be valid as long as the total landholdings that
shall be owned by the transferee thereof inclusive of
the land to be acquired shall not exceed the
landholding ceilings provided for in this Act.
Any sale or disposition of agricultural lands
after the effectivity of this Act found to be
contrary to the provisions hereof shall be null
and void.
Transferees of agricultural lands shall furnish the
appropriate Register of Deeds and the BARC an
affidavit attesting that his total landholdings as a
result of the said acquisition do not exceed the
landholding ceiling. The Register of Deeds shall not
register the transfer of any agricultural land without
the submission of his sworn statement together with
proof of service of a copy thereof to the BARC.
(Emphasis and underscoring supplied)
As the above-quoted provisions of the Comprehensive
Agrarian Reform Law show, only those private lands
devoted to or suitable for agriculture are covered by it.
[58]
As priorly related, Victor Ragay, who was appointed
by the trial court to conduct an ocular inspection of the
property, observed in his report that only three (3) to
four (4) hectares were planted with sugarcane while
the rest of the property was not suitable for planting
as the soil was full of limestone. [59] He also remarked
that the sugarcanes were only 3 feet in height and
very lean,[60] whereas sugarcanes usually grow to a
height of 3 to 6 meters (about 8 to 20 feet) and have
stems 2 to 5 centimeters (1-2 inches) thick. [61]
It is thus gathered that the property was not suitable
for agricultural purposes. In any event, since the area

devoted to the planting of sugarcane, hence, suitable

for agricultural purposes, comprises only 4 hectares at
the most, it is less than the maximum retention limit
prescribed by law. There was then no violation of the
Comprehensive Agrarian Reform Law.
Even assuming that the disposition of the property by
Villaner was contrary to law, he would still have no
remedy under the law as he and Leonardo were in pari
delicto, hence, he is not entitled to afirmative relief
one who seeks equity and justice must come to court
with clean hands. In pari delicto potior est conditio
defendentis.[62]
The proposition is universal that no action
arises, in equity or at law, from an illegal
contract; no suit can be maintained for its
specific performance, or to recover the property
agreed to be sold or delivered, or the money
agreed to be paid, or damages for its violation.
The rule has sometimes been laid down as though it
were equally universal, that where the parties are in
pari delicto, no affirmative relief of any kind will be
given to one against the other. [63] (Emphasis and
underscoring supplied)
The principle of pari delicto is grounded on two
premises: first, that courts should not lend their good
offices to mediating disputes among wrongdoers;
[64]
and second, that denying judicial relief to an
admitted wrongdoer is an effective means of deterring
illegality.[65] This doctrine of ancient vintage is not a
principle of justice but one of policy as articulated in
1775 by Lord Mansfield in Holman v. Johnson:[66]
The objection, that a contract is immoral or illegal as
between the plaintiff and defendant, sounds at all
times very ill in the mouth of the defendant. It is not
for his sake, however, that the objection is ever
allowed; but it is founded in general principles of
policy, which the defendant has the advantage of,
contrary to the real justice, as between him and the
plaintiff, by accident, if I may so say. The principle of
public policy is this; ex dolo malo non oritur actio.
[67]
No court will lend its aid to a man who founds his
cause of action upon an immoral or an illegal act. If,
from the plaintiffs own stating or otherwise, the cause
of action appears to arise ex turpi causa,[68] or the

transgression of a positive law of this country, there

the court says he has no right to be assisted. It is upon
that ground the court goes; not for the sake of the
defendant, but because they will not lend their aid to
such a plaintiff. So if the plaintiff and the defendant
were to change sides, and the defendant was to bring
his action against the plaintiff, the latter would then
have the advantage of it; for where both are equally in
fault potior est conditio defendentis.[69]
Thus, to serve as both a sanction and as a deterrent,
the law will not aid either party to an illegal agreement
and will leave them where it finds them.
The principle of pari delicto, however, is not absolute,
admitting an exception under Article 1416 of the Civil
Code.
ART. 1416. When the agreement is not illegal per se
but is merely prohibited, and the prohibition by the law
is designed for the protection of the plaintiff, he may,
if public policy is thereby enhanced, recover what he
has paid or delivered.
Under this article, recovery for what has been paid or
delivered pursuant to an inexistent contract is allowed
only when the following requisites are met: (1) the
contract is not illegal per se but merely prohibited; (2)
the prohibition is for the protection of the plaintiffs;
and (3) if public policy is enhanced thereby. [70] The
exception is unavailing in the instant case, however,
since the prohibition is clearly not for the protection of
the plaintiff-landowner but for the beneficiary farmers.
[71]

In fine, Villaner is estopped from assailing and

annulling his own deliberate acts.[72]
More. Villaner cannot feign ignorance of the law, nor
claim that he acted in good faith, let alone assert that
he is less guilty than Leonardo. Under Article 3 of the
Civil Code, ignorance of the law excuses no one from
compliance therewith.
And now, Villaners co-heirs claim that as co-owners of
the property, the Deed of Absolute Sale executed by
Villaner in favor of Leonardo does not bind them as
they did not consent to such an undertaking. There is
no question that the property is conjugal. Article 160
of the Civil Code[73] provides:

ART. 160. All property of the marriage is presumed to

belong to the conjugal partnership, unless it be proved
that it pertains exclusively to the husband or to the
wife.[74]
The presumption, this Court has held, applies to all
properties acquired during marriage. For the
presumption to be invoked, therefore, the property
must be shown to have been acquired during the
marriage.[75]
In the case at bar, the property was acquired on July 6,
1971 during Villaners marriage with Justiniana Lipajan.
It cannot be seriously contended that simply because
the tax declarations covering the property was solely
in the name of Villaner it is his personal and exclusive
property.
In Bucoy v. Paulino[76] and Mendoza v. Reyes[77] which
both apply by analogy, this Court held that registration
alone of the properties in the name of the husband
does not destroy the conjugal nature of the properties.
[78]
What is material is the time when the land was
acquired by Villaner, and that was during the lawful
existence of his marriage to Justiniana.
Since the property was acquired during the existence
of the marriage of Villaner and Justiniana, the
presumption under Article 160 of the Civil Code is that
it is the couples conjugal property. The burden is on
petitioners then to prove that it is not. This they failed
to do.
The property being conjugal, upon the death of
Justiniana Lipajan, the conjugal partnership was
terminated.[79] With the dissolution of the conjugal
partnership, Villaners interest in the conjugal
partnership became actual and vested with respect to
an undivided one-half portion. [80] Justiniana's rights to
the other half, in turn, vested upon her death to her
heirs[81] including Villaner who is entitled to the same
share as that of each of their eight legitimate children.
[82]
As a result then of the death of Justiniana, a regime
of co-ownership arose between Villaner and his coheirs in relation to the property.[83]
With respect to Justinianas one-half share in the
conjugal partnership which her heirs inherited,
applying the provisions on the law of succession, her
eight children and Villaner each receives one-ninth

(1/9) thereof. Having inherited one-ninth (1/9) of his

wifes share in the conjugal partnership or one
eighteenth (1/18)[84] of the entire conjugal partnership
and is himself already the owner of one half (1/2) or
nine-eighteenths (9/18), Villaners total interest
amounts to ten-eighteenths (10/18) or five-ninths
(5/9).
While Villaner owns five-ninths (5/9) of the disputed
property, he could not claim title to any definite
portion of the community property until its actual
partition by agreement or judicial decree. Prior to
partition, all that he has is an ideal or abstract quota
or proportionate share in the property. [85] Villaner,
however, as a co-owner of the property has the right
to sell his undivided share thereof. The Civil Code
provides so:
ART. 493. Each co-owner shall have the full ownership
of his part and of the fruits and benefits pertaining
thereto, and he may therefore alienate, assign or
mortgage it, and even substitute another person in its
enjoyment, except when personal rights are involved.
But the effect of the alienation or the mortgage, with
respect to the co-owners, shall be limited to the
portion which may be allotted to him in the division
upon the termination of the co-ownership.
Thus, every co-owner has absolute ownership of his
undivided interest in the co-owned property and is free
to alienate, assign or mortgage his interest except as
to purely personal rights. While a co-owner has the
right to freely sell and dispose of his undivided
interest, nevertheless, as a co-owner, he cannot
alienate the shares of his other co-owners nemo dat
qui non habet.[86]
Villaner, however, sold the entire property without
obtaining the consent of the other co-owners.
Following the well-established principle that the
binding force of a contract must be recognized as far
as it is legally possible to do so quando res non valet
ut ago, valeat quantum valere potest [87] the disposition
affects only Villaners share pro indiviso, and the
transferee gets only what corresponds to his grantors
share in the partition of the property owned in
common.[88]

As early as 1923, this Court has ruled that even if a coowner sells the whole property as his, the sale will
affect only his own share but not those of the other coowners who did not consent to the sale. This is
because under the aforementioned codal provision,
the sale or other disposition affects only his undivided
share and the transferee gets only what would
correspond to this grantor in the partition of the thing
owned in common. Consequently, by virtue of the
sales made by Rosalia and Gaudencio Bailon which are
valid with respect to their proportionate shares, and
the subsequent transfers which culminated in the sale
to private respondent Celestino Afable, the said Afable
thereby became a co-owner of the disputed parcel of
land as correctly held by the lower court since the
sales produced the effect of substituting the buyers in
the enjoyment thereof.
From the foregoing, it may be deduced that since a coowner is entitled to sell his undivided share, a sale of
the entire property by one co-owner without the
consent of the other co-owners is not null and void.
However, only the rights of the co-owner-seller are
transferred., thereby making the buyer a co-owner of
the property.
The proper action in cases like this is not for the
nullification of the sale or the recovery of possession
of the thing owned in common from the third person
who substituted the co-owner or co-owners who
alienated their shares, but the DIVISION of the
common property as if it continued to remain in the
possession of the co-owners who possessed and
administered it.[89]
Thus, it is now settled that the appropriate recourse of
co-owners in cases where their consent were not
secured in a sale of the entire property as well as in a
sale merely of the undivided shares of some of the coowners is an action for PARTITION under Rule 69 of the
Revised Rules of Court. Neither recovery of possession
nor restitution can be granted since the defendant
buyers are legitimate proprietors and possessors in
joint ownership of the common property claimed.
[90]
(Italics
in
the
original;
citations
omitted;
underscoring supplied)

This Court is not unmindful of its ruling in Cruz v.

Leis[91] where it held:
It is conceded that, as a rule, a co-owner such as
Gertrudes could only dispose of her share in the
property owned in common. Article 493 of the Civil
Code provides:
xxx
Unfortunately for private respondents, however, the
property was registered in TCT No. 43100 solely in the
name of Gertrudes Isidro, widow. Where a parcel of
land, forming part of the undistributed properties of
the dissolved conjugal partnership of gains, is sold by
a widow to a purchaser who merely relied on the face
of the certificate of title thereto, issued solely in the
name of the widow, the purchaser acquires a valid title
to the land even as against the heirs of the deceased
spouse. The rationale for this rule is that a person
dealing with registered land is not required to go
behind the register to determine the condition of the
property. He is only charged with notice of the burdens
on the property which are noted on the face of the
register or the certificate of title. To require him to do
more is to defeat one of the primary objects of the
Torrens system.[92] (Citation omitted)
Cruz, however, is not applicable for the simple reason
that in the case at bar the property in dispute is
unregistered. The issue of good faith or bad faith of a
buyer is relevant only where the subject of the sale is
a registered land but not where the property is an
unregistered
land.[93] One
who
purchases
an
unregistered land does so at his peril. [94] Nicolas claim
of having bought the land in good faith is thus
irrelevant.[95]
WHEREFORE, the petition is GRANTED. The Court of
Appeals February 15, 2001 Decision in CA-G.R. CV No.
56148 is REVERSED and SET ASIDE and another is
rendered declaring the sale in favor of petitioner
Leonardo Acabal and the subsequent sale in favor of
petitioner Ramon Nicolas valid but only insofar as fiveninths (5/9) of the subject property is concerned.
No pronouncement as to costs.
SO ORDERED.
G.R. No. L-17150
June 20, 1922

ANDRES
SOLER, plaintiff-appellee,
vs.
EDWARD CHESLEY, defendant-appellant.
Kincaid,
Perkins
and
Kincaid
for
appellant.
Recto and Casal and Angel Roco for appellee.
ROMUALDEZ, J.:
The plaintiff had agreed with Wm. H. Anderson and
Co., for the purchase of certain machinery, as
evidenced by the document Exhibit A, of which the
following is an exact copy:
This agreement made and entered into by and
between Wm. H. Anderson and Co., party of the first
part, and Andres Soler, party of the second part,
Witnesseth:
The party of the first part hereby agrees to deliver to
the party of the second part the herein described
coconut oil machinery which was ordered by cable by
the party of the first part on March 4, 1918, and the
party of the second part agrees to purchase the said
machinery from the party of the first part on the terms
and conditions given below:
1. 4 Anderson oil expellers No. 1, side drive complete
with stationary strainer, and fitted with a 15-h. p.
motor, the same mounted on a special base on the
expeller and connected to the expeller by a suitable
silent chain drive.
2. 4 Rotary pumps (oil) attached to and driven from
expeller.
3. Sufficient 6" and 9" metal conveyor, etc., for the 4
expellers to make complete conveyor line with
supports for securing to expeller.
4. 1 Vertical triplex pump, 2 " x 4", 1 suction and
discharge, capacity 12 gallons per minute, belt drive.
5. 1 Bauer ball-bearing motor-driven attrition mill, 22",
fitted with 2 15-h. p. electric motors, 220 volt, 2
phase, 60 cycle, direct-connected and complete with
automatic starter,
6. 1 Shriver filter press, 30", 36 plates, complete with
one extra set of filter cloths.
7. 1 Buckeys cooker, 62", 3 high, direct-connected by
silent chain drive to a 15-h. p., 220 volt, 2 phase, 60
cycle, alternating current motor.
8. Sufficient meters of standard chain elevator, etc.

Terms and conditions: The foregoing machinery is to

be invoiced at manufacturers' price, plus all charges
such as freight, insurance, interest and exchange,
arrastre, landing charges, delivery, internal revenue,
etc., plus a buying commission of 5 per cent.
The terms of payment are fifty per cent (50%) deposit
to be made upon arrival of the machinery, and the
balance ninety (90) days after delivery of the
machinery.
In the event that the party of the second part shall fail
to live up to the terms of this agreement, such failure
by the party of the second part will be sufficient cause
to terminate this contract, and any payments made by
the party of the second part under and by virtue of
this contract shall be and remain the exclusive
property of the party of the first part. The title of the
machinery in question is to remain in the name of the
party of the first part until payment in full has been
made, at which time transfer of all right and title to
the above mentioned machinery will be made to the
party of the second part.
This agreement is contingent upon strikes, fire,
accidents, extraordinary shipping and other conditions
imposed on account of war and other causes
unavoidable or beyond the control of the party of the
first part.
It is strictly understood that the quotations made to
Mr. Andres Soler under date of February 27, 1919,
were approximated and were subject to change
without notice. We can therefore make no guarantee
as to prices and delivery, it being understood that
prices charged will be those shown on the invoices of
the manufacturers, and shipment will be made by first
possible opportunity.
Dated Manila, P.I., March ___, 1918.
(Sgd.)
WM.
H.
ANDERSON
and
CO.,
By
P.
A.
THOMPSON,
Party
of
the
first
part.
(Sgd.)
ANDRES
SOLER,
Party of the second part.
Witness:
(Sgd.)
W.
JENUDE,
FERNANDO COUTME

On November 16, 1918, the plaintiff sold the

defendant all his rights and interest in the aforesaid
contract of sale, the document executed to that end,
Exhibit B, being as follows:
This agreement made in Manila, Philippine Islands, by
and between Mr. Andres Soler, of age, and resident of
the municipality of Naga, Province of Ambos
Camarines, party of the first part; and Mr. Edward
Chesley, of age, and resident of this city of Manila,
party of the second part, . . .
WITNESSETH
First. That Mr. Andres Soler has an agreement in due
form with Messers. Wm. H. Anderson and Co. for the
purchase of a coconut oil machinery, more particularly
described in the said agreement as follows: * * *.
1. 4 Anderson oil expellers No. 1, side drive complete
with stationary strainer, and fitted with the 15-h. p.
motor, the same mounted on a special base on the
expeller and connected to the expeller by a suitable
silent chain drive, * * *.
2. 4 Rotary pumps (oil) attached to and driven from
expeller . . . .
3. Sufficient 6" and 9" metal conveyor, etc., for the 4
expellers to make complete conveyor line with
supports for securing to expeller * * *.
4. 1 Vertical triplex pump, 2 x 4", 1 " suction and
discharge, capacity 12 gallons per minute, belt drive *
* *.
5. 1 Bauer ball-bearing motor-driven attrition mill, 22"
fitted with 2 15-h. p. electric motors, 220 volt, 2
phase, 60 cycle, direct-connected and complete with
automatic starter * * *.
6. 1 Shriver filter press, 30", 36 plates, complete with
one extra set of filter cloths * * *.
7. 1 Buckeys cooker, 62", 3 high, direct-connected by
silent chain drive to a 15-h. p., 220 volt, 2 phase, 60
cycle, alternating current motor * * *.
8. Sufficient meters of standard chain elevator, etc., *
* *.
Second. That a part of the aforesaid machinery is at
this time on the way, the other part being already in
this city of Manila, the price of which has not as yet
been paid by Mr. Soler to Messrs. Wm. H. Anderson
and Co. * * *.

Third. That being interested in acquiring the aforesaid

machinery, Mr. Edward Chesley has made Mr. Soler a
proposition whereby the latter should transfer it to
him, and he should assume the obligation to pay
Messrs. Wm. H. Anderson and Co. the amount of the
invoices thereof, Mr. Soler to be relieved from his
contract with Messrs. Wm. H. Anderson and Co., which
proposition has been agreed to as hereinbelow set
forth, and to have an evidence of the agreement this
contract is made and entered into by them in the
following terms and conditions:
(a) Mr. Andres Soler conveys and transfers to Mr.
Edward Chesley all the rights and interest which he
may have in his agreement with Messrs. Wm. H.
Anderson and Co. for the purchase of the oil
machinery, more particularly described in the first
paragraph hereof; Mr. Chesley being subrogated,
therefore, to whatever rights and obligations Mr. Soler
may have acquired and contracted under the aforesaid
agreement. * * *.
(b) This sale of the said machinery is for the price
of one hundred thousand pesos, Philippine currency,
the same to be paid by Mr. Chesley by paying Messrs.
Wm. H. Anderson and Co. the amount of the invoices
of said machinery, and Mr. Andres Soler the difference
which may be found to exist between the amount of
said invoices and the above mentioned sum of one
hundred thousand pesos, said payment to be secured
by a personal or corporation bond to the satisfaction of
Mr. Soler. * * *.
(c) In subrogating himself to the right and obligations
which Mr. Soler may have under his agreement with
Messrs. Wm. H. Anderson and Co. for the purchase of
the aforesaid machinery, Mr. Chesley relieves Mr. Soler
from whatever obligation he has, or may have, under
the aforesaid agreement with Wm. H. Anderson and
Co., concerning the machinery hereinbefore more
particularly described. * * *.
(d) Messrs. Soler and Chesley declare that Messrs.
Wm. H. Anderson and Co. have actual knowledge of
this sale of the machinery, as well as of Mr. Chesley
being subrogated to the rights and obligations created
by the agreement entered into by and between Mr.

Soler and Messrs. Wm. H. Anderson and Co., the latter

being in absolute conformity therewith. * * *.
And (e) Mr. Chesley shall pay Mr. Soler the difference
which may be found to exist between the amount of
the invoices of the machinery and the sum of one
hundred thousand pesos immediately upon the arrival
of said machinery at this city of Manila; provided that
if any part of the machinery not affecting the expellers
is found lacking, a proportional deduction shall be
made from the amount which Mr. Soler may have
received from Mr. Chesley. * * *.
And fourth. That Messrs. Soler and Chesley solemnly
make and enter into this contract on the terms and
conditions hereinbefore set forth. * * *.
In testimony whereof, the parties have hereunto set
their hands at Manila, this sixteenth day of November,
nineteen hundred and eighteen.
(Sgd.) ED. CHESLEY.
(Sgd.) ANDRES SOLER.
Signed in the presence of:
(Sgd.) MANUEL SANSANO.
P. BLANC.
UNITED
STATES
OF
AMERICA
CITY OF MANILA, PHILIPPINE ISLANDS
At the city of Manila, Philippine Islands, this 16th day
of November 1918, before me, Enrique Barrera y
Caldes, notary public in and for the said city,
personally appeared Mr. Andres Soler and Mr. Edward
Chesley known to me to be the persons who executed
the foregoing instrument, and acknowledged that the
same is their free act and deed. They exhibited their
cedulas Nos. 220440 and 2074, issued at the
municipality of Naga, Province of Ambos Camarines
and at this city of Manila on the 2d and 3d of January,
1918, respectively.
This document is No. 526 of my notarial register, and
is entered on page 4 of said register.
Before me,
DON
ENRIQUE
BARRERA
Y
CALDES,
Notary
Public.
My commission expires December 31, 1918.
Notarial seal.
I, manager of the firm of Anderson and Co., am
agreeable to the transfer of the machinery which Mr.

Soler has purchased through our firm on the conditions

stipulated in our contract.
WM.
H.
ANDERSON
AND
CO.,
By
--------------------Vice-President.
Of the parts of the machinery covered by these
contracts, only the "filter press," the "cooker" and the
"chains" were in Manila on November 16, 1918, the
date of Exhibit B, but the most important parts, such
as the "oil expellers" and the "grinding mills" were not
then yet in this city.
These "oil expellers" were shipped for Manila on the
12th of December, 1918, the motors on the 8th of
January, 1919, the machinery on the 16th of January
1919 and the grinding mills on the 21st of February,
1919, all of which arrived at Manila on February 13,
March 8, April 27, and August 23, 1919, respectively.
These effects were received and paid for by the
defendant under protest, on account of the fact that
they were not delivered within the period stipulates in
the contract.
On April 25, 1919, the defendant's attorney-in-fact,
Fred A. Leas, through Attorney Francisco A. Delgado,
wrote the plaintiff the letter, Exhibit 2, advising him
that he contract above referred to was rescinded, it
appearing that the parts of the machinery, which the
plaintiff asserted in said contract were on the way,
were not at the time and it was only several days later
that they were shipped for Manila. In this letter the
parts received were placed at the plaintiff's disposal
upon the repayment of the sums advanced by the
defendant to Messrs. Anderson and Co.
On the 14th of October, 1919, the plaintiff commenced
this action in which, basing himself on the contract
Exhibit B and on the facts set forth in his complaint, he
prayed that the defendant be sentenced to pay him
the sum of P30,546.03 with interest thereon, which
sum was the difference between the P100,000, the
consideration of the contract, Exhibit B, and the price
of the aforesaid machinery which had been paid by the
defendant, plus the incidental expenses, as stipulated
in the said contract.
The defendant answered, denying generally and
specifically the allegations of the complaint and

setting up a special defense and a counterclaim. In his

special defense, he alleges that he had accepted and
signed the contract Exhibit B on the assertion therein
contained that of the machinery, which was the
subject matter of the said contract, a part was already
in Manila, and the other part on the way, and also on
the promises, assertions, and contemporary and
previous acts of the plaintiff to the same effect, by
means of which the latter succeeded in inducing the
defendant to make and sign the aforesaid contract;
that the parts of the machinery which, on the date of
the contract, were said to be on the way, were not in
fact in, and did not arrive at, Manila but long
thereafter; that if he signed the contract, it was
because he was desirous of having the machinery, and
the defendant assured him that it would be delivered
to him, immediately or within a short time; that
otherwise he would not have signed the contract; that
the prepared in a shed the necessary compartments to
install the machinery on or before the 1st day of
January, 1919; that on April 25, 1919, he advised the
plaintiff that he regarded the contract as rescinded;
that he had complied with his part of the contract,
having paid Messrs. Anderson and Co. the sum of
P69,453.97; that he suffered damages in the sum of
P120,000.
In his counterclaim, the defendant alleges that the
giving of a bond in favor of plaintiff being one of the
conditions of the contract, he (the defendant) gave
such bond, having paid the Philippine Guaranty Co. a
premium of P400 for the quarter beginning with
November 16, 1918.
The defendant prays in his answer that he be absolved
from the complaint, the aforesaid contract declared
rescinded, and the plaintiff compelled to receive the
machinery in question, to pay the defendant
P69,453.97, and be sentenced to pay P120,000 as
damages.
Trial having been held, the lower court sentenced the
defendant to pay the plaintiff P30,546.03, with legal
interest thereon from October 16, 1919, and the costs,
and absolved the plaintiff from the set-off and the
counterclaim.

From this judgment the defendant has appealed to this

court, making the following assignments of error:
1. The trial court erred in not holding that time was an
essential element of the contract Exhibit B.
2. The trial court erred in giving judgment in favor of
the plaintiff, and
3. The trial court erred in dismissing the counterclaim
of the defendant.
The defendant, testifying as witness, said that he had
asked the plaintiff and his broker, Mr. Bank, whether at
that time the machinery had already left the factory,
and that they answered yes. True, the plaintiff denies
in his testimony having made such a statement, but
Mr. Blanc does not deny it, and it is a fact that in the
contract in question was inserted the following:
Second. That a part of the aforesaid machinery is at
this time on the way, the other part being already in
this city of Manila, the price of which has not as yet
been paid by Mr. Soler to Messrs. Wm. H. Anderson
and Co.
It appears sufficiently established in the record that if
the plaintiff gave his consent to this contract, it was
because he expected that said machinery would arrive
within a short time, the time reasonably necessary
for such machinery to reach Manila from America,
as the plaintiff asserted in the document itself that
said machinery was then on the way. The act of the
defendant in insisting that this guaranty as to the
arrival of the machinery be stated in the contract, his
repeated complaints and protests when he afterwards
made payments as the parts arrived, and his letter of
April 25, 1919, leave no room for doubt that the arrival
of said machinery within a reasonably short time was
one of the determining elements of his consent. These
acts of the defendant disclose the fact that he intented
the arrival of the machinery to be an essential element
of the contract (art. 1282, Civil Code). We hold that in
the case at bar the arrival of the machinery within a
reasonable time was an essential element of the
contract, such time to be determined by taking into
account the fact that is was then on the way to Manila.
The defendant had no reason to doubt the veracity of
the plaintiff's assertion that said machinery was then
on the way. The plaintiff himself testified that he had

showed the letters, copies of which are Exhibits X, Y,

and Z, in the last of which Messrs. Anderson and Co.
stated that according to the information received, the
expellers had already been sent out by the
manufacturers.
The fact that the plaintiff had no control of the prompt
transportation of the said machinery to Manila, does
not relieve the plaintiff from making good the guaranty
inserted in the contract that said machinery was
already on the way to Manila. The plaintiff elected to
bind himself in that way, although he knew, as he
ought to have known that, had his rights not been
transferred to the defendant, he could not have
charged Messrs. Anderson and Co. so much, who in
the contract Exhibit A did not guarantee the delivery
nor the amount of the price. The plaintiff having bound
himself in favor of the defendant for more than what
Messrs. Anderson and Co. had bound themselves for in
hi favor, we entertain no doubt that he acted in good
faith, encouraged by the information of Messrs.
Anderson and Co. (although the most that the
expellers, only the expellers, had been sent out
by the factory), but it was he, not Messrs. Anderson
and Co., who contracted the obligation, and, therefore,
he is the only one to be responsible for the obligation
arising from the contract. He who contracts and
assumes an obligation is presumed to know the
circumstances under which said obligation can be
complied with (Ferrer vs. Ignacio, 39 Phil., 446).
It cannot be said that such a statement of the plaintiff
that the machinery was on the way is not one of the
conditions of the contract Exhibit B. It is true that it is
only in the third paragraph of the said contract that
the terms and conditions were thereof are set out in
detail, but such terms and conditions were stipulated
upon the understanding that the machinery is that
described in the first paragraph of the contract and
that a part thereof was already in Manila and the other
part on the way.
True, the plaintiff id not specify the date or time of the
arrival of said mechanical devices; but he did assert
that they were on the way on the date of the contract,
that is, the 16th of November, 1918, which is
tantamount to saying that they would arrive early in

January, 1919, under normal condition, taking into

account that the expellers, which were shipped on
December 12, 1918, arrived at Manila on February 13,
1919. But it did not happen as asserted, the last parts
of the machinery, to wit, the grinding mills not having
arrived at Manila until the 23rd of August, 1919, they
not having been shipped until as late as the 21st of
February of that year.
Clause (c) of the third paragraph of the contract
Exhibit B, discharged the plaintiff from all the
obligations contracted by him under the agreement
Exhibit A made with Messrs. Anderson and Co., relative
to the payment of the price of the machinery; buy him
under the contract Exhibit B, for he has no such an
obligation cannot be that referred to in clause (c) of
the third paragraph of Exhibit A, but Messrs. Anderson
and Co.
We find that the plaintiff has failed to carry out his
obligation incurred under the second paragraph of the
contract. Exhibit B, and has, therefore, no right to
compel the defendant to comply with his obligation to
pay the plaintiff the sum claimed in the complaint (art.
1124, Civil Code).
With regard to the counterclaim set up by the
defendant, it appears from the record that he sold the
aforesaid machinery to a third person, the Philippine
Refining Co. In cases like this, the rescission of the
contract does not lie (art. 1295, Civil Code).
As to the damages claimed by the defendant, we find
that the evidence adduced on this point is insufficient
to fix the true amount thereof.
The judgement appealed from is reversed, and the
defendant absolved from the complaint, and the
plaintiff from the counterclaim and other claims of the
defendant without special pronouncement as to costs.
So ordered.
SPS. CARLOS AND EULALIA RAYMUNDO
and
SPS.
ANGELITO AND JOCELYN
BUENAOBRA,
Petitioners,
- versus -

SPS. DOMINADOR and ROSALIA BANDONG,

Respondents.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

the P70,000.00 owed to the spouses Raymundo, at

Promulgated:
12% interest per annum computed from July 17,
1991 until its full payment.
July 4, 2007
2. ANNULLING the
Deed
of
Absolute
Sale
dated September
25,
1990,
between
the
spouses Raymundo as
vendors
and
the
spouses Buenaobra as vendees.

DECISION
CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari under Rule 45
of the Revised Rules of Court, filed by petitioners
Spouses
Carlos
and Eulalia Raymundo and
Spouses Angelito and JocelynBuenaobra seeking the
reversal and setting aside of the Decision [1] of the
Court of Appeals dated 26 September 2005 and its
Resolution[2] dated 24 January 2006 in CA-G.R. CV No.
59557. The Court of Appeals, in its assailed Decision
and Resolution, reversed the Decision [3] of the Regional
Trial Court (RTC) dated 28 January 1998, in Civil Case
No. C-14980, declaring the Deed of Sale executed by
respondent Dominador Bandong (Dominador) in favor
of petitioner Eulalia Raymundo (Eulalia) as valid and
binding. The dispositive portion of theasailed Court of
Appeals Decision reads:
WHEREFORE, premises considered, we hereby GRANT
the appeal. The January 28, 1998 decision of the RTC,
Branch 126, Caloocan City is hereby REVERSED and
SET ASIDE and a new one entered:
1. ANNULLING the
Deed
of
Absolute
Sale
G.R.
dated
No.February
171250 3, 1989 as a deed of sale, and
Present:
considering it instead as a real estate mortgage of the
disputed property to secure the payment of
YNARES-SANTIAGO,
the P70,000.00
the
plaintiffs-appellants
Chairperson,
spouses Bandong owe
the
defendantsAUSTRIA-MARTINEZ,
appellees spouses Raymundo. The
CHICO-NAZARIO,
spouses Bandong
andare given one (1) year from the
NACHURA,
finality of this Decision within which to pay

3. ORDERING the Register of Deeds of Caloocan City

to issue a new Transfer Certificate of Title covering Lot
18, Block 2 of the subdivision plan PSD 16599, a
portion of Lot 1073 of the Cadastral Survey
of Caloocan,
in
the
names
of
the
spouses Dominador and Rosalia Bandong, after the
cancellation pursuant to this Decision of TCT No.
222871
currently
in
the
names
of
the
spouses Angelito and
Jocelyn Buenaobra;
and FURTHER ORDERING the said Register of Deeds
to annotate in the new Transfer Certificate of Title in
the names of the spouses Bandong a real estate
mortgage
in
favor
of
the
spouses
Carlos
and Eulalia Raymundo reflecting the terms of this
Decision.
4. AWARDING moral damages
in the
amount
of P50,000.00; exemplary damages of P20,000.00; and
attorneys
fees
and
expenses
of
litigation
of P20,000.00, plus P500.00 per proven appearance of
the
plaintiffs-appellants
counsel
in
court
all solidarily payable
by
the
spouses
Carlos
and Eulalia Raymundo and the spouses Angelito and
Jocelyn Buenaobra,
to
the
spouses Dominador and Rosalia Bandong.
5. ORDERING the payment of the costs of the suit,
payable
by
the
spouses
Carlos
and Eulalia Raymundo and the spouses Angelito and
Jocelyn Buenaobra.[4]
The factual and procedural backdrop of this case are
as follows:

Eulalia was engaged in the business of buying and

selling large cattle from different provinces within
the Philippines. For
this
purpose,
she
employed biyaheros whose primary task involved the
procuring of large cattle with the financial capital
provided by Eulalia and delivering the procured cattle
to her for further disposal. In order to secure the
financial
capital
she
advanced
for
the biyaheros, Eulalia required them to surrender the
Transfer Certificates of Title (TCTs) of their properties
and to execute the corresponding Deeds of Sale in her
favor.
Dominador had been working for Eulalia as one of
her biyaheros for three decades. Considering his long
years of service without any previous derogatory
record, Eulalia no longer required Dominador to post
any security in the performance of his duties.[5]
However,
in
1989, Eulalia found
that Dominador incurred shortage in his cattle
procurement
operation
in
the
amount
of P70,000.00. Dominador and
his
wife Rosalia Bandong(Rosalia) then executed a Deed of
Sale[6] in favor of Eulalia on 3 February 1989, covering
a parcel of land with an area of 96 square meters,
more or less, located at Caloocan City and registered
under TCT No. 1421 (subject property), in the name of
the Spouses Bandong. On the strength of the aforesaid
deed, the subject property was registered in the
names
of Eulaliaand
her
husband
Carlos Raymundo (Carlos). The subject property was
thereafter
sold
by
the
Spouses Raymundo to Eulalias grandniece and herein
co-petitioner, Jocelyn Buenaobra(Jocelyn). Thus, the
subject property came to be registered in the name of
Jocelyn
and
her
husband Angelito Buenaobra (Angelito).
After the TCT of the subject property was transferred
to their names, the Spouses Buenaobra instituted
before
the
Metropolitan
Trial
Court
(MeTC)
of Caloocan City, an action forejectment against the
Spouses Bandong, docketed as Civil Case No.

20053, seeking the eviction of the latter from the

subject property, which the Spouses Bandong opposed
on the ground that they are the rightful owners and
possessors thereof. The MeTC ruled in favor of the
Spouses Buenaobra which,
on
appeal,
was
affirmed in toto by the RTC[7] and subsequently, by the
Court of Appeals.[8] Finally, when the case was raised
on appeal before us in G.R. No. 109422, we issued a
Resolution[9] dated 12 July 1993, finding that no
substantial arguments were raised therein to warrant
the reversal of the appealed decision.
To assert their right to the subject property, the
Spouses Bandong instituted an action for annulment of
sale before the RTC against Eulalia and Jocelyn on the
ground that their consent to the sale of the subject
property was vitiated by Eulalia after they were served
by Jocelyns counsel with the demand to vacate. This
was docketed as Civil Case No. C-14980. The
Spouses Bandong alleged that there was no sale
intended but only equitable mortgage for the purpose
of securing the shortage incurred by Dominador in the
amount
of P70,000
while
employed
as biyahero by Eulalia.
Eulalia countered that Dominador received from her a
significant sum of money, either as cash advances for
the purpose of procuring large cattle or as personal
loan, and when he could no longer pay his obligations,
the Spouses Bandong voluntarily ceded the subject
property to her by executing the corresponding deed
of
sale
in
her
favor. Indeed,
the
SpousesBandong personally appeared before the
Notary Public and manifested that the deed was their
own voluntary act and deed.
For her part, Jocelyn maintained that she was a buyer
in good faith and for value for she personally inquired
from the Register of Deeds of the presence of any liens
and encumbrances on the TCT of the subject property
and
found
that
the
same
was
completely
free therefrom. While she admitted that she had
previous notice that Dominador and a certain Lourdes
Santos (Lourdes) were in possession of the subject

property, Jocelyn claimed that the said possessors

already acknowledged her ownership thereof and even
asked for time to vacate. In the end, though, they
refused to leave the premises.
On 28 June 1998, the RTC rendered a Decision[10] in
Civil Case No. C-14980 in favor of Eulalia and Jocelyn
by
declaring
that
the
Deed
of
Sale
between Dominador and Eulaliawas valid and binding
and,
consequently,
the
subsequent
sale
between Eulalia and Jocelyn was also lawful absent
any showing that Jocelyn was a buyer in bad
faith. The dispositiveportion of the said decision reads:
WHEREFORE,
judgment
is
hereby
rendered
DISMISSING
the
complaint
filed
by
the
[Spouses Bandong]
and
ordering
said
[Spouses Bandong] to pay [herein petitioners]
spouses Raymundo andBuenaobra the
amount
of P50,000 and P30,000, respectively, as attorneys
fees and costs of the suit.
On appeal in CA-G.R. SP No. 59557, the Court of
Appeals reversed the RTC Decision and found that the
transaction entered into by Dominador and Eulalia was
not one of sale but an equitable mortgage considering
that the purchase price was grossly inadequate and
the Spouses Bandong remained as possessors of the
subject
property
after Eulalias alleged
purchase
thereof. The appellate court likewise charged Jocelyn
with knowledge that the Spouses Raymundo were not
the absolute owners of the subject property negating
the presumption that she was an innocent purchaser
for value.
The Court of Appeals found the Motion for
Reconsideration filed by petitioners unmeritorious and
denied the same in its Resolution [11] dated 24 January
2006.
Hence,
this
instant
Petition
for
Review
on Certiorari filed by the petitioners assailing the
Decision
dated 26
September
2005 and
the

Resolution dated 24 January 2006 rendered by the

Court of Appeals. For the resolution of this Court are
the following issues:
I.
WHETHER OR NOT THE DEED OF SALE BETWEEN
DOMINADOR AND EULALIA IS VALID AND BINDING.
II.
WHETHER OR NOT JOCELYN IS A BUYER IN GOOD
FAITH.

and in the absence of a clear showing that their

consent thereto was vitiated by fraud, mistake,
violence or undue influence, such as in the case at
bar, the said contract should be upheld.
We do not agree.
An equitable mortgage is one that - although lacking in
some formality, forms and words, or other requisites
demanded by a statute - nevertheless reveals the
intention of the parties to charge a real property as
security for a debt and contains nothing impossible or
contrary to law.[12]

In
arguing
that
the
sale
between Dominador and Eulalia is valid, petitioners
posit that gross inadequacy of the price is not
sufficient
to
invalidate
the
sale,
and
granting arguendo that insufficient consideration may
void a sale, it has not been proven that the
consideration
of
sale
between Dominador and Eulalia was
grossly
inadequate.

The instances when a contract - regardless of its

nomenclature - may be presumed to be an equitable
mortgage are enumerated in the Civil Code as follows:

Elaborating, petitioners maintain that the amount

of P110,000.00 (which they claimed they have given
to Dominador), or even the sum of P70,000.00 (which
respondents admitted receiving), was a substantial
consideration,
sufficient
to
support
a
sale
contract. Mere inadequacy of the price is not sufficient
to invalidate a sale; the price must be grossly
inadequate or utterly shocking to the conscience in
order to avoid a contract of sale.

(2) When the vendor remains in possession as lessee

or otherwise;

Petitioners further aver that the alleged market value

of the subject property as submitted by the appraiser,
one of respondents witnesses, would not serve as an
objective basis in determining the actual value of the
subject property, much less the supposed amount of
its purchase price, in the absence of any logical and
valid basis for its determination.

(5) When the vendor binds himself to pay the taxes on

the thing sold.

Finally, petitioners contend that so long as the

contract was voluntarily entered into by the parties

Art. 1602. The contract shall be presumed to be an

equitable mortgage, in any of the following cases:
(1) When the price of a sale with right to repurchase is
unusually inadequate;

(3) When upon or after the expiration of the right to

repurchase another instrument extending the period of
redemption or granting a new period is executed;
(4) When the purchaser retains for himself a part of
the purchase price;

(6) In any other case where it may be fairly inferred

that the real intention of the parties is that the
transaction shall secure the payment of a debt or the
performance of any other obligation.

Art. 1604. The provisions of Article 1602 shall also

apply to a contract purporting to be an absolute sale.
For Articles 1602 and 1604 to apply, two requisites
must concur: one, the parties entered into a contract
denominated as a contract of sale; and two, their
intention was to secure an existing debt by way of an
equitable mortgage.[13]
There
is
no
question
that Dominador and Eulalia entered into a contract of
sale as evidenced by the document denominated as
Deed of Sale[14] signed by them. As to whether the
parties intended to transfer ownership of the subject
property or merely to constitute a security for an
existing debt is an issue that needs to be addressed by
this Court.
In resolving this kind of controversy, the doctrine
in Reyes v. Court of Appeals[15] directs us to give
utmost consideration to the intention of the parties in
light of the relative situation of each and the
circumstances surrounding the execution of the
contract, thus:
In determining whether a deed absolute in form is a
mortgage, the court is not limited to the written
memorials of the transaction. The decisive factor in
evaluating such agreement is the intention of
the parties, as shown not necessarily by the
terminology used in the contract but by all the
surrounding circumstances, such as the relative
situation of the parties at that time, the attitude
acts, conduct, declarations of the parties, the
negotiations between them leading to the deed, and
generally, all pertinent facts having a tendency to fix
and determine the real nature of their design and
understanding. x x x[16] (Emphasis supplied.)
By applying the aforestated principle to the case at
bar, we are constrained to rule that in executing the
said
Deed
of
Sale, Dominador and Eulalia never

intended the transfer of ownership of the subject

property but to burden the same with an encumbrance
to secure the indebtedness incurred by Dominador on
the occasion of his employment with Eulalia.
By Eulalias own admission,[17] it was her customary
business practice to require her biyaheros to deliver to
her the titles to their real properties and to execute in
her favor the corresponding deeds of sale over the
said properties as security for the money she provided
for
their
cattle
procurement
task,
and
since Dominador worked
for Eulalias business
for
years, he was allowed to advance the money without
any security. Significantly, it was only after he incurred
a shortage that the sale contract was executed.
We are not inclined to believe the contention of the
petitioners
that Dominador ceded
his
property
to Eulalia as payment for his obligation for it is
contrary to human experience that a person would
easily part with his property after sustaining a
debt. Rather, he would first look for means to settle his
obligation, and the selling of a property on which the
house that shelters him and his family stands, would
be his last resort. The only reasonable conclusion that
may be derived from Dominadors act of executing a
Deed of Sale in favor of Eulalia is that the latter
required him to do so in order to ensure that he will
subsequently pay his obligation to her.
This conclusion is in accord with the doctrine we
enunciated in Aguirre v. Court of Appeals,[18] that:
The explicit provision of Article 1602 that any of
those circumstances would suffice to construe a
contract of sale to be one of equitable mortgage
is in consonance with the rule that the law
favors the least transmission of property rights.
To stress, the existence of any one of the conditions
under Article 1602, not a concurrence, or an
overwhelming number of such circumstances, suffices
to give rise to the presumption that the contract is an
equitable mortgage.

While we agree in the petitioners insistence that

inadequacy of the price is not sufficient to nullify the
contract of sale, their persistence is, however,
misplaced. It is worthy to note that the factual
circumstances attendant in the case at bar call not for
the application of the legal and jurisprudential
principles on annulment of contract per se, but more
aptly, of the provisions of Articles 1602 and 1604 of
the Civil Code on the construction of the contract of
sale as an equitable mortgage.
Consequently,
the
agreement
between Dominador and Eulalia was not avoided in its
entirety so as to prevent it from producing any legal
effect at all. Instead, we construe that said transaction
is an equitable mortgage, thereby merely altering the
relationship of the parties from seller and buyer, to
mortgagor and mortgagee, while the subject property
is not transferred but subjected to a lien in favor of the
latter.
Moreover, granting that the purchase price is
adequate, the fact that respondents remain in
possession of the subject property after its supposed
sale is sufficient to support our finding that the
contract is one of equitable mortgage and not of
sale. To reiterate, the existence of any one of the
conditions
under
Article
1602,
not
a
concurrence, or an overwhelming number of
such circumstances, suffices to give rise to the
presumption that the contract is an equitable
mortgage.[19]

Having threshed the issue that there was no sale in

favor of Eulalia but an equitable mortgage leads us to
an inevitable conclusion that she has no right to
subsequently transfer ownership of the subject
property, in consonance with the principle that nobody
can dispose of what he does not have. [20] One of the
exceptions[21] to this rule, however, can be found in
Article 1506 of the Civil Code, wherein the seller
has voidable title to a property but his title has not yet
been nullified at the time of the sale, and the
subsequent buyer of the property was in good faith.
An innocent purchaser for value is one who buys the
property of another, without notice that some other
person has a right or interest in the property, for which
a full and fair price is paid by the buyer at the time of
the purchase or before receipt of any notice of claims
or interest of some other person in the property. [22]
Petitioners are harping on the contention that Jocelyn
was an innocent purchaser for value. Invoking the
indefeasibility of a Torrens title, they assert that there
is nothing in the subject propertys TCT that should
arouse Jocelyns suspicion as to put her on guard that
there is a defect in Eulalias title.
Again, we are not persuaded. The burden of proving
the purchasers good faith lies in the one who asserts
the same. In discharging the burden, it is not enough
to invoke the ordinary presumption of good faith.
[23]
In Arrofo v. Quio,[24] we have elucidated that:
[A] person dealing with registered land, [is not
required] to inquire further that what the Torrens title
on its face indicates. This rule, however, is not
absolute but admits of exceptions.
Thus, while it is true x x x that a person dealing
with registered lands need not go beyond the
certificate of title, it is likewise a well-settled
rule that a purchaser or mortgagee cannot close
his eyes to facts which should put a reasonable
man on his guard, and then claim that he acted
in good faith under the belief that there was no
defect
in
the
title
of
the
vendor
or

mortgagor. His mere refusal to face up to the fact

that such defect exists, or his willful closing of his eyes
to the possibility of the existence of a defect in the
vendors or mortgagors title, will not make him an
innocent purchaser for value, if it afterwards develops
that the title was in fact defective, and it appears that
he had such notice of the defect as would have led to
its discovery had he acted with the measure of
precaution which may be required of a prudent man in
a like situation.
In the present case, we are not convinced by the
petitioners incessant assertion that Jocelyn is an
innocent purchaser for value. To begin with, she is a
grandniece of Eulalia and resides in the same locality
where the latter lives and conducts her principal
business. It is therefore impossible for her not to
acquire knowledge of her grand aunts business
practice of requiring her biyaheros to surrender the
titles to their properties and to sign the corresponding
deeds of sale over said properties in her favor, as
security. This alone should have put Jocelyn on guard
for any possible abuses that Eulalia may commit with
the titles and the deeds of sale in her possession.
The glaring lack of good faith of Jocelyn is more
apparent in her own admission that she was aware
that Dominador and
a
certain Lourdes were
in
possession of the subject property.A buyer of real
property that is in the possession of a person other
than the seller must be wary. A buyer who does not
investigate the rights of the one in possession can
hardly be regarded as a buyer in good faith.[25] Jocelyns
self-serving statement that she personally talked
to Dominador and Lourdes about her acquisition of the
subject property and intention to take possession of
the same, and that Dominador and Lourdes even
pleaded for time to vacate the subject property cannot
be given credence in light of the prompt filing by the
SpousesBandong of an action for the annulment of the
sale contract between Dominador and Eulalia after
they received the demand to vacate from Jocelyns
lawyer.

In the last analysis, good faith, or the lack of it, is a

question of intention. But in ascertaining the intention
that impels one on a given occasion, the courts are
necessarily controlled by the evidence as to the
conduct and other outward acts by which the motive
may be safely determined.[26]
Petitioners question further the belated filing by the
Spouses Bandong of an action for the annulment of
sale, since the Spouses Bandong filed the same only
after they received the notice to vacate, and not
immediately after the execution of the assailed Deed
of Sale. We have repeatedly held that the one who is
in actual possession of a piece of land claiming to be
the owner thereof may await to vindicate his right. His
undisturbed possession gives him a continuing right to
seek the aid of a court of equity to ascertain and
determine the nature of the adverse claim of a third
party and its effect on his own title, which right can be
claimed only by one who is in possession.[27]
Finally, we agree with the Court of Appeals that
the ejectment case which had been litigated to finality
by the Spouses Buenaobra and the respondents need
not alter our conclusion in the present case. Well
entrenched is the doctrine that in ejectment cases, the
sole question for resolution is the physical or material
possession of the property in question, so that neither
the claim of juridical possession nor an averment of
ownership can outrightly prevent the court from taking
cognizance of the case. [28] In ejectment cases, all the
court may do is to resolve who is entitled to its
possession although, in doing so, it may make a
determination of who is the owner of the property in
order to resolve the issue of possession. But such
determination of ownership is not clothed with
finality. Neither will it affect ownership of the property
or constitute a binding and conclusive adjudication on
the merits with respect to the issue of ownership. [29]
WHEREFORE, IN VIEW OF THE FOREGOING, the
instant Petition is DENIED. The Decision dated 26
September 2005, and the Resolution dated 24 January

2006, rendered by the Court of Appeals in CA-G.R. SP

No. 59957, are hereby AFFIRMED. Costs against
petitioner.
SO ORDERED.
G.R. No. 21943
September 15, 1924
ASKAY, plaintiff-appellant,
vs.
FERNANDO A. COSALAN, defendant-appellee.
A.
de
Guzman
for
appellant.
Camus & Delgado and Pio Duran for appellee.
MALCOLM, J.:
The
plaintiff
in
this
case
is
Askay,
an
illiterate Igorrote between 70 and 80 years of age,
residing in the municipal district of Tublay, Province of
Benguet, who at various time has been the owner of
mining property. The defendant is Fernando A.
Cosalan, the nephew by marriage of Askay, and
municipal president of Tublay, who likewise has been
interested along with his uncle in mining enterprises.
About 1907, Askay obtained title to the Pet Kel Mineral
Claim located in Tublay, Benguet. On November 23,
1914, if we are to accept defendant's Exhibit 1, Askay
sold this claim to Cosalan. Nine years later, in 1923,
Askay instituted action in the Court of First Instance of
Benguet to have the sale of the Pet Kel Mineral Claim
adhered null, to secure possession of the mineral
claim, and to obtain damages from the defendant in
the amount of P10,500. Following the presentation of
various pleadings including the answer of the
defendant, and following trial before Judge of First
Instance Harvey, judgment was rendered dismissing
the complaint and absolving the defendant from the
same, with costs against the plaintiff. On being
informed of the judgment of the trial court, plaintiff
attacked it on two grounds: The first, jurisdiction, and
the second, formal. Both motions were denied and an
appeal was perfected.
Two questions are suggested by the assignments of
error. The first is whether Judge George R. Harvey had
jurisdiction to try the case. The second is whether the
plaintiff has established his cause of action by a
preponderance of the evidence.

I. On April 16, 1923, as appears from the Official

Gazette, the Secretary of Justice authorized and
instructed the Honorable George R. Harvey, Judge of
First Instance of the Ninth Judicial District, to hold a
special term of court in the City of Baguio, Mountain
Province, beginning May 2, 1923. (Administrative
Order No. 43, 21 Off. Gaz., p. 893.) Acting under the
authority granted by the order of the Secretary of
Justice, Judge Harvey proceeded to hear the case of
Askay vs. Cosalan, without protest from anyone until
after an adverse decision for the plaintiff and until
after Judge Harvey had left the district.
The point which plaintiff now presses is that Act No.
3107, amendatory of section 155 of the Administrative
Code, which authorizes a Judge of First Instance to be
detailed by the Secretary of Justice to temporary duty,
for a period which shall in no case exceed six months,
in a district or province other than his own, for the
purpose of trying all kinds of cases, excepting criminal
and election cases, was not in force until fifteen days
after the completion of the publication of the statute in
the Official Gazette, or not until August 3, 1923.
Plaintiff relies on section 11 of the Administrative
Code, which in part reads: "A statute passed by the
Philippine Legislature shall, in the absence of special
provision, take effect at the beginning of the fifteenth
day after the completion of the publication of the
statute in the Official Gazette, the date of issue being
excluded."
Now turning to Act No. 3107, its final section provides
that "This Act shall take effect on its approval." The Act
was approved on March 17, 1923. Obviously,
therefore, there being a special provision in Act No.
3107, it applies to the exclusion of the general
provision contained in the Administrative Code.
Recalling, therefore, that Act No. 3107 went into effect
on March, 17, 1923, and that it was subsequent
thereto, on April 16, 1923, that Judge Harvey was
authorized to hold court at Baguio, beginning with May
2, 1923, appellant's argument along this line is found
to be without persuasive merit. We pass to the
material issue which is one of fact.
II. Plaintiff contends that the sale of the Pet Kel Mineral
Claim was accomplished through fraud and deceit on

the part of the defendant. Plaintiff may be right but in

our judgment he has failed to established his claim.
Fraud must be both alleged and proved.
One facts exists in plaintiff's favor, and this is the age
and ignorance of the plaintiff who could be easily
duped by the defendant, a man of greater intelligence.
Another fact is the inadequacy of the consideration for
the transfer which, according to the conveyance,
consisted of P1 and other valuable consideration, and
which, according to the oral testimony, in reality
consisted of P107 in cash, a bill fold, one sheet, one
cow, and two carabaos. Gross inadequacy naturally
suggests fraud and is some evidence thereof, so that it
may be sufficient to show it when taken in connection
with other circumstances, such as ignorance or the
fact that one of the parties has an advantage over the
other. But the fact that the bargain was a hard one,
coupled with mere inadequacy of price when both
parties are in a position to form an independent
judgment concerning the transaction, is not a
sufficient ground for the cancellation of a contract.
Against the plaintiff and in favor of the defendant, we
have the document itself executed in the presence of
witnesses and before a notary public and filed with the
mining recorder. The notary public, Nicanor Sison, and
one of the attesting witnesses, Apolonio Ramos,
testified to the effect that in the presence of the
plaintiff and the defendant and of the notary public
and the subscribing witnesses, the deed of sale was
interpreted to the plaintiff and that thereupon he
placed his thumb mark on the document. Two finger
print experts, Dr. Charles S. Banks and A. Simkus, have
declared in depositions that the thumb mark on Exhibit
1 is that of Askay. No less than four other witnesses
testified that at various times Askay had admitted to
them that he had sold the Pet Kel Mine to Fernando A.
Cosalan.
Having in mind all of these circumstances, how can
the plaintiff expect the courts to nullify the deed of
sale on mere suspicion? Having waited nine years from
the date when the deed was executed, nine years from
the time Fernando A. Cosalan started developing the
mine, nine years from the time Askay himself had
been deprived of the possession of the mine, and nine

years permitting of a third party to obtain a contract of

lease from Cosalan, how can this court overlook
plaintiff's silent acquiescence in the legal rights of the
defendant? On the facts of record, the trial judge could
have done nothing less than dismiss the action.
We conclude therefore, that Judge Harvey had
jurisdiction to try this case, that his findings of fact are
in accordance with the evidence, that no prejudicial
error was committed in the trial, and that the
complaint was properly dismissed. As a result,
judgment is affirmed with costs against the appellant.
So ordered.