Spouses Bernadette and Rodulfo Vilbar vs. Angelito L.

Opinion
(GR No. 176043, 15 January 2014) Del Castillo, J.
FACTS:
Spouses Vilbar claimed that on July 10, 1979, they and Dulos Realty and Development
Corporation (Dulos Realty) entered into a Contract to Sell involving two (2) lots, LOT 20-b and
LOT 20-A. Sometime in August 1979, spouses Vilbar took possession of Lot 20-B in the concept
of owners and exercised acts of ownership thereon with the permission of Dulos Realty after
making some advance payment.
Upon full payment of the purchase price for Lot 20, or on June 1, 1981, Dulos Realty
executed a duly notarized Deed of Absolute Sale in favour of the spouses Vilbar and their copurchases Elena. Dulos Realty also surrendered and delivered the owners duplicate copy
covering Lot 20 to them.
However, spouses Vilbar and Elena were not able to register and transfer the title in their
names because Dulos Realty allegedly failed to have the lot formally subdivided despite its
commitment to do so, until Juan Dulos (Juan) died without the subdivision being accomplished.
Spouses Vilbar and Dulos Realty also executed a Contract to Sell covering Lot 21. To pay
for the balance of the purchase price, spouses Vilbar obtained a housing loan from the
Development Bank of the Philippines (DBP) secured by a real estate mortgage over the said lot.
Dulos Realty facilitated the approval of the loan, the proceeds of which were immediately paid to
it as full payment of the purchase price.
In 1991, the spouses Vilbar were able to pay the loan in full and DBP issued the requisite
Cancellation of Mortgage. The spouses Vilbar have been in actual, open and peaceful possession
of Lot 21 and occupy the same as absolute owners since 1981.
In contrast, Opinion claimed that he legally acquired Lots 20 and 21 through extrajudicial foreclosure of mortgage constituted over the said properties by Gorospes. They defaulted
in payment, prompting Opinion to file a petition for Extra-Judicial Foreclosure of Real Estate
Mortgage. Subsequently, the subject properties were sold at a public auction where Opinion
emerged as the highest bidder. A Certificate of Sale was issued in his favour on December
18,1995 and annotated on the TCTs of the properties. The Gorospes failed to redeem the
properties within the reglementary period resulting in the eventual cancellation of their titles.
Thus, the issuance of the titles to Opinion.
February 13, 1997, Opinion filed a Petition for Issuance of a Writ of Possession against
the Gorospes. Branch 253initially issued a Writ of Possession and spouses Vilbar and Elena were
served with a notice to vacate the premises. However, the writ was quashed when spouses Vilbar
filed an urgent motion for the quashal of the writ and presented their title to Lot 21, while Elena
presented the Deed of Absolute Sale executed by Dulos Realty covering Lot 20. Consequently,
Opinion filed a Complaint for Accion Reinvindicatoria with Damagesdocketed as Civil Case No.

98-0302 and raffled to Branch 255 of the RTC of Las Pis City for him to be declared as the
lawful owner and possessor of the subject properties and for his titles to be declared as authentic.
He likewise prayed for the cancellation of the titles of spouses Vilbar and Elena.
The RTC rendered its decision in favour of Opinion declaring that he lawfully acquired
the disputed properties and that his titles are valid, the sources of which having been duly
established.
The CA agreed with the trial courts ruling that Opinion validly acquired title over Lots 20
and 21 through a valid mortgage, extrajudicial foreclosure and eventual consolidation
proceedings instituted over the said properties.
ISSUE:
Whether or not the CA seriously erred in finding that the respondent Opinion has a better
title and/or has preference over the subject properties identified as Lots 20 and 21.
HELD:
Civil law: Ownership and Possession
Court recognizes the settled rule that levy on attachment, duly registered, takes
preference over a prior unregistered sale. This result is a necessary consequence of the fact that
the properties involved were duly covered by the Torrens system which works under the
fundamental principle that registration is the operative act which gives validity to the transfer or
creates a lien upon the land.
For some unknown reasons, the spouses Vilbar did not cause the transfer of the certificate
title in their name, or at the very least, annotate or register such sale in the original title in the
name of Dulos Realty. This, sadly, proved fatal to their cause. Time and time again, this Court
has ruled that a certificate of title serves as evidence of an indefeasible and incontrovertible title
to the property in favor of the person whose name appears therein. Having no certificate of title
issued in their names, spouses Vilbar have no indefeasible and incontrovertible title over Lot 20
to support their claim. Further, it is an established rule that registration isthe operative act which
gives validity to the transfer or creates a lien upon the land.
The spouses Vilbar do not even know if a Deed of Absolute Sale over Lot 21 was
executed in their favor. As the evidence extant on record stands, only a Contract to Sell which is
legally insufficient to serve as basis forthe transfer of title over the property is available. At most,
it affords spouses Vilbar an inchoate right over the property. Absent that important deed of
conveyance over Lot 21 executed between Dulos Realty and the spouses Vilbar, TCT No. 36777
issued in the name of Bernadette Vilbar cannot be deemed to have been issued in accordance
with the processes required by law.

Simply, the spouses Vilbar were not able to present material evidence to prove that TCT
of Lot 21 was issued in accordance with the land registration rules.
Petition for review on certiorari is DENIED.

Development Bank of the Philippines

vs.
Guaria Agricultural and Realty Development Corporation
(GR No. 160758, 15 January 2014) Bersamin, J.
FACTS:
In July 1976, Guaria Corporation applied for a loan from DBP to finance the
development of its resort complex. The loan, in the amount of P3,387,000.00, was approved on
August 5, 1976. Guaria Corporation executed a promissory note that would be due on
November 3, 1988. On October 5, 1976, Guaria Corporation executed a real estate mortgage
over several real properties in favor of DBP as security for the repayment of the loan. On May
17, 1977, Guaria Corporation executed a chattel mortgage over the personal properties existing
at the resort complex and those yet to be acquired out of the proceeds of the loan, also to secure
the performance of the obligation. Prior to the release of the loan, DBP required Guaria
Corporation to put up a cash equity of P1,470,951.00 for the construction of the buildings and
other improvements on the resort complex.
The loan was released in several installments, and Guaria Corporation used the proceeds
to defray the cost of additional improvements in the resort complex. In all, the amount released
totaled P3,003,617.49, from which DBP withheld P148,102.98 as interest.
Guaria Corporation demanded the release of the balance of the loan, but DBP refused.
Instead, DBP directly paid some suppliers of Guaria Corporation over the latters objection.
DBP found upon inspection of the resort project, its developments and improvements that
Guaria Corporation had not completed the construction works. In a letter dated February 27,
1978, and a telegram dated June 9, 1978, DBP thus demanded that Guaria Corporation expedite
the completion of the project, and warned that it would initiate foreclosure proceedings should
Guaria Corporation not do so.
Unsatisfied with the non-action and objection of Guaria Corporation, DBP initiated
extrajudicial foreclosure proceedings
ISSUE:
Whether or not Guarina was in delay in performing its obligation making DBPs action to
foreclose the mortgage proper.
RULING:
Contracts, Delay

NO. The Court held that the foreclosure of a mortgage prior to the mortgagors default on
the principal obligation is premature, and should be undone for being void and ineffectual. The
mortgagee who has been meanwhile given possession of the mortgaged property by virtue of a
writ of possession issued to it as the purchaser at the foreclosure sale may be required to restore
the possession of the property to the mortgagor and to pay reasonable rent for the use of the
property during the intervening period.
The agreement between DBP and Guaria Corporation was a loan. Under the law, a loan
requires the delivery of money or any other consumable object by one party to another who
acquires ownership thereof, on the condition that the same amount or quality shall be paid. Loan
is a reciprocal obligation, as it arises from the same cause where one party is the creditor, and the
other the debtor. The obligation of one party in a reciprocal obligation is dependent upon the
obligation of the other, and the performance should ideally be simultaneous. This means that in a
loan, the creditor should release the full loan amount and the debtor repays it when it becomes
due and demandable.
The loan agreement between the parties is a reciprocal obligation. Appellant in the instant
case bound itself to grant appellee the loan amount of P3,387,000.00 condition on appellees
payment of the amount when it falls due. The appellant did not release the total amount of the
approved loan. Appellant therefore could not have made a demand for payment of the loan since
it had yet to fulfil its own obligation. Moreover, the fact that appellee was not yet in default
rendered the foreclosure proceedings premature and improper.
By its failure to release the proceeds of the loan in their entirety, DBP had no right yet to
exact on Guaria Corporation the latters compliance with its own obligation under the loan.
Indeed, if a party in a reciprocal contract like a loan does not perform its obligation, the other
party cannot be obliged to perform what is expected of it while the others obligation remains
unfulfilled. In other words, the latter party does not incur delay.

Eastern Shipping Lines, Inc.

vs.
BPI/MS Insurance Corp., & Mitsui Sumitomo Insurance Co., Ltd.
(GR No. 182864, 12 January 2015) Perez, J.
FACTS:
For two separate transactions in 2004, Sumitomo Corporation, a corporation based in
Yokohama, Japan shipped on board the vessels of petitioner Eastern Shipping Lines Inc. (ESLI)
coils of various steel sheet for transportation and delivery at the port of Manila in favor of
consignee Calamba Steel Center located in Saimsim, Calamba, Laguna. The Shipments were
insured with the respondents BPI/MS Insurance Corporation (BPI/MS) and Mitsui Sumitomo
Insurance Company (Mitsui) against all risks.
The first shipment arrived at the port of Manila in an unknown condition and was turned
over to Asian Terminals Inc. (ATI) for safekeeping. Upon withdrawal of the shipment by
Calamba Steel, it was found out that part of the shipment was damaged and was in bad order
condition such that there was a Request for Bad Order Survey. It was found out that the damage
amounted to US$4,598.85 prompting Calamba Steel to reject the damaged shipment for being
unfit for the intended purpose.
Sumitomo Corporation again shipped on board ESLIs vessel coils of various Steel for
transportation to and delivery at the port of Manila in favor of Calamba Steel. Again, the
shipment was insured by respondents against all risk. The second shipment arrived at the port of
Manila partly damaged and in bad order. The coils sustained further damage during the discharge
from vessel to shore until its turnover to ATIs custody for safekeeping. Upon withdrawal from
ATI and delivery to Calamba Steel, As it did before, Calamba Steel rejected the damaged
shipment for being unfit for the intended purpose.
Calamba Steel attributed the damages on both shipments to ESLI as the carrier and ATI
as the arrastre operator in charge of the handling and discharge of the coils and filed a claim
against them. When ESLI and ATI refused to pay, Calamba Steel filed an insurance claim for the
total amount of the cargo against BPI/MS and Mitsui as cargo insurers. As a result, BPI/MS and
Mitsui became subrogated in place of and with all the rights and defenses accorded by law in
favor of Calamba Steel.
Opposing the complaint, ATI denied the allegations and insisted that the coils in two
shipments were already damaged upon receipt from ESLIs vessels. It likewise insisted that it
exercised due diligence in the handling of the shipments and invoked that in case of adverse
decision, its liability should not exceed P5,000.00 pursuant to Section 7.01, Article VII of the
Contract for Cargo Handling Services between Philippine Ports Authority (PPA) and ATI.
On its part, ESLI denied the allegations of the complainants and averred that the damage
to both shipments was incurred while the same were in the possession and custody of ATI and/or
of the consignee or its representatives.

The RTC Makati City rendered a decision finding both the ESLI and ATI liable for the
damages sustained by the two shipments. Upon appeal, Both ESLI and ATI invoked the
limitation of liability of US$500.00 per package as provided in Commonwealth Act No. 65 or the
Carriage of Goods by Sea Act (COGSA). The CA absolved ATI from liability in its decision.
ISSUE:
1. Whether or not ESLI is liable for the damaged shipment transported and delivered by
its vessels.
2. Whether or not ESLI can invoke the limitation of liability of US$500.00 per package
as provided in Commonwealth Act No. 65 or the Carriage of Goods by Sea Act
(COGSA).
RULING:
Common carriers, from the nature of their business and on public policy considerations,
are bound to observe extra ordinary diligence in the vigilance over the goods transported by
them. Subject to certain exceptions enumerated under Article 1734 of the Civil Code, common
carriers are responsible for the loss, destruction, or deterioration of the goods. The extraordinary
responsibility of the common carrier lasts from the time the goods are unconditionally placed in
the possession of, and received by the carrier for transportation until the same are delivered,
actually or constructively, by the carrier to the consignee, or to the person who has a right to
receive them.
In maritime transportation, a bill of lading is issued by a common carrier as a contract,
receipt and symbol of the goods covered by it. If it has no notation of any defect or damage in
the goods, it is considered as a "clean bill of lading." A clean bill of lading constitutes prima facie
evidence of the receipt by the carrier of the goods as therein described.
Based on the bills of lading issued, it is undisputed that ESLI received the two shipments
of coils from shipper Sumitomo Corporation in good condition at the ports of Yokohama and
Kashima, Japan. However, upon arrival at the port of Manila, some coils from the two shipments
were partly dented and crumpled as evidenced by the Turn Over Survey of Bad Order Cargoes
prior to turnover to ATI. Mere proof of delivery of the goods in good order to a common carrier
and of their arrival in bad order at their destination constitutes a prima facie case of fault or
negligence against the carrier. If no adequate explanation is given as to how the deterioration,
loss, or destruction of the goods happened, the transporter shall be held responsible. From the
foregoing, the fault is attributable to ESLI. While no longer an issue, it may be nonetheless state
that ATI was correctly absolved of liability for the damage.
In the issue of limitation of liability, the law of the country to which the goods are to be
transported shall govern the liability of the common carrier for their loss, destruction or
deterioration. The Code takes precedence as the primary law over the rights and obligations of

common carriers with the Code of Commerce and COGSA applying suppletorily. The New Civil
Code provides that a stipulation limiting a common carriers liability to the value of the goods
appearing in the bill of lading is binding, unless the shipper or owner declares a greater value. In
addition, a contract fixing the sum that may be recovered by the owner or shipper for the loss,
destruction, or deterioration of the goods is valid, if it is reasonable and just under the
circumstances, and has been fairly and freely agreed upon.
COGSA, on the other hand, provides under Section 4, Subsection 5 that an amount
recoverable in case of loss or damage shall not exceed US$500.00 per package or per customary
freight unless the nature and value of such goods have been declared by the shipper before
shipment and inserted in the bill of lading. Accordingly, the issue whether or not ESLI has
limited liability as a carrier is determined by either absence or presence of proof that the nature
and value of the goods have been declared by Sumitomo Corporation and inserted in the bills of
lading.
There is no question about the declaration of the nature, weight and description of the
goods on the first bill of lading. The bills of lading represent the formal expression of the parties
rights, duties and obligations. It is the best evidence of the intention of the parties which is to be
deciphered from the language used in the contract, not from the unilateral post facto assertions of
one of the parties, or of third parties who are strangers to the contract. Thus, when the terms of
an agreement have been reduced to writing, it is deemed to contain all the terms agreed upon and
there can be, between the parties and their successors in interest, no evidence of such terms other
than the contents of the written agreement.
As to the non-declaration of the value of the goods on the second bill of lading, we see no
error on the part of the appellate court when it ruled that there was a compliance of the
requirement provided by COGSA. The declaration requirement does not require that all the
details must be written down on the very bill of lading itself. It must be emphasized that all the
needed details are in the invoice, which "contains the itemized list of goods shipped to a buyer,
stating quantities, prices, shipping charges," and other details which may contain numerous
sheets. Compliance can be attained by incorporating the invoice, by way of reference, to the bill
of lading provided that the former containing the description of the nature, value and/or payment
of freight charges is as in this case duly admitted as evidence.
Wherefore, the petition for review on certiorari of ESLI was denied and the decision of
the CA was affirmed.

Metropolitan Bank and Trust Company vs. Ana Grace Rosales and Yo Yuk To
(GR No. 183204, 13 January 2014) Del Castillo, J.
FACTS:
Petitioner Metrobank is a domestic banking corporation duly organized and existing
under the laws of the Philippines. Respondent Rosales is the owner of a travel agency while Yo
Yuk To is her mother.
In 2000, respondents opened a Joint Peso Account with Petitioners Pritil-Tondo Branch.
In May 2002, respondent Rosales accompanied her client Liu Chiu Fang, a Taiwanese
National applying for a retirees visa from the Philippine Leisure and Retirement Authority
(PLRA), to petitioners branch in Escolta to open a savings account. Since Liu Chiu Fang could
speak only in Mandarin, respondent Rosales acted as an interpreter for her.
On March 3, 2003, respondents opened with petitioners Pritil-Tondo Branch a Joint
Dollar Account with an initial deposit of US$ 14,000.00.
On July 31, 2003, petitioner issued a Hold Out order against respondent account.
On September 3, 2003, petitioner, through its Special Audit Department Head Antonio
Ivan Aguirre, filed before the Office of the Prosecutor of Manila a criminal case for Estafa
through False Pretences, Misrepresentation, Deceit, and Use if Falsified Documents.
Respondent Rosales, however, denied taking part in the fraudulent and unauthorized
withdrawal from the dollar account of Liu Chiu Fang.
On December 15, 2003, the Office of the City Prosecutor of Manila issued a Resolution
dismissing the criminal case for lack of probable cause. On September 10, 0224, respondents
filed before the RTC of Manila a complaint for Breach of Obligation and Contract with
Damages.
ISSUES:
Whether or not Metrobank breached its contract with respondents.
RULING:
Yes. The Court held that Metrobanks reliance on the Hold Out clause in the
Application and Agreement for Deposit Account is misplaced.

Bank deposits, which are in the nature of a simple laon or mutuum, must be paid upon
demand by the depositor.
The Hold Out clause applies only if there is a valid and existing obligation arising from
any of the sources of obligation enumerated in Article 1157 of the Civil Code, to wit: law,
contracts, quasi-contracts, delict, and quasi-delict. In this case, petitioner failed to show that
respondents have an obligation to it under any law, contract, quasi-contract, delict, or quasidelict. And although a criminal case was filed by petitioner against respondent Rosales, this is
not enough reason for petitioner to issue a Hold Out order as the case is still pending and no
final judgment of convistion has been rendered against respondent Rosales.
In fact, it is significant to note that at the litme petitioner issued the Hold Out Order, the
criminal complaint had not yet been filed. Thus, considering that respondent Rosales is not liable
under any of the five sourced of obligation, there was no legal basis for petitioner to issue the
Hold Out order. Accordingly, we agree with the findings of the RTC and the CA that the Hold
Out clause does not apply in the instant case.
In view of the foregoing, the Court found that petitioner is guilty of breach of contract
when it unjustifiably refused to release respondents deposit despite demant. Having breached its
contract with respondents, petitioner is liable for damages.

Domingo Gonzalo vs. John Tarnate, Jr.

(GR No. 160600, 15 January 2014) Bersamin, J.
FACTS:
After the Department of Public Works and Highways (DPWH) had awarded on July 22,
1997 the contract for the improvement of the Sadsadan-Maba-ay Section of the Mountain
Province-Benguet Road in the total amount of P7,014,963.33 to his company, Gonzalo
Construction,petitioner Domingo Gonzalo (Gonzalo) subcontracted to respondent John Tarnate,
Jr. (Tarnate) on October 15, 1997, the supply of materials and labor for the project under the
latter's business known as JNT Aggregates. Their agreement stipulated, among others, that
Tarnate would pay to Gonzalo eight percent and four percent of the contract price, respectively,
upon Tarnate's first and second billing in the project.
Gonzalo executed on April 6, 1999 a deed of assignment whereby he, as the contractor,
was assigning to Tarnate an amount equivalent to 10% of the total collection from the DPWH for
the project. This 10% retention fee (equivalent to P233,526.13)was the rent for Tarnate
equipment that had been utilized in the project. In the deed of assignment, Gonzalo further
authorized Tarnate to use the official receipt of Gonzalo Construction in the processing of the
documents relative to the collection of the 10% retention fee and in en cashing the check to be
issued by the DPWH for that purpose. The deed of assignment was submitted to the DPWH on
April 15, 1999. During the processing of the documents for the retention fee, however, Tarnate
learned that Gonzalo had unilaterally rescinded the deed of assignment by means of an affidavit
of cancellation of deed of assignment dated April 19, 1999 filed in the DPWH on April 22, 1999;
and that the disbursement voucher for the 10% retention fee had then been issued in the name of
Gonzalo, and the retention fee released to him.
Tarnate demanded the payment of the retention fee from Gonzalo, but to no avail. Thus,
he brought this suit against Gonzalo on September 13, 1999 in the Regional Trial Court (RTC) in
Mountain Province to recover the retention fee of P233,526.13, moral and exemplary damages
for breach of contract, and attorney fees. In his answer, Gonzalo admitted the deed of assignment
and the authority given therein to Tarnate, but averred that the project had not been fully
implemented because of its cancellation by the DPWH, and that he had then revoked the deed of
assignment. He insisted that the assignment could not stand independently due to its being a
mere product of the subcontract that had been based on his contract with the DPWH; and that
Tarnate, having been fully aware of the illegality and ineffectuality of the deed of assignment
from the time of its execution, could not go to court with unclean hands to invoke any right
based on the invalid deed of assignment or on the product of such deed of assignment.
The CA ruled in the affirmative the decision of the RTC that Gonzalo has unjustly
enriched Tarnate and that the principle of in pari delicto cannot be applied in the case at bar for
the violation of Section 6 P.DNo. 1594 because it will only be applied if the fault of one party
was more or less equivalent to the fault of the other party.

ISSUE:
Whether or not the CA erred in affirming the RTC?
RULING:
The CA did not err in affirming the RTC.
Civil law : doctrine of pari delicto
Section 6 of Presidential Decree No.1594, which provides: Assignment and Subcontract.
he contractor shall not assign, transfer, pledge, subcontract or make any other disposition of the
contract or any part or interest therein except with the approval of the Minister of Public Works,
Transportation and Communications, the Minister of Public Highways, or the Minister of
Energy, as the case may be. Approval of the subcontract shall not relieve the main contractor
from any liability or obligation under his contract with the Government nor shall it create any
contractual relation between the subcontractor and the Government.
Under Article 1409 (1) of the Civil Code, contract whose cause, object or purpose is
contrary to law is a void or inexistent contract. As such, a void contract cannot produce a valid
one. To the same effect is Article 1422 of the Civil Code, which declares that contract, which is
the direct result of a previous illegal contract, is also void and inexistent.
According to Article 1412 (1) of the Civil Code,
The guilty parties to an illegal contract cannot recover from one another and are not
entitled to an affirmative relief because they are in pari delicto or in equal fault. The doctrine of
in pari delicto is a universal doctrine that holds 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; and
where the parties are in pari delicto, no affirmative relief of any kind will be given to one against
the other.
The letter and spirit of Article 22 of the Civil Code command Gonzalo to make a full
reparation or compensation to Tarnate. The illegality of their contract should not be allowed to
deprive Tarnate from being fully compensated through the imposition of legal interest.
WHEREFORE, we AFFIRM the decision promulgated on February 18, 2003, but
DELETE the awards of moral damages, attorney fees and litigation expenses; IMPOSE legal
interest of 6% per annum on the principal of P233,526.13 reckoned from September 13, 1999;
and DIRECT the petitioner to pay the costs of suit.

The Heis of Victorino Sarili, namely, Isabel A. Sarili, et.al.

vs.
Pedro F. Lagrosa, represented in this act by his Attorney-in-Fact, Lourdes Labios Mojica
(GR No. 193517, 15 January 2014) Perlas-Bernabe, J
FACTS:
On February 17, 2000, respondent, represented by his attorney-in-fact Lourdes Labios
Mojica filed a complaint against Sps. Sarili and the Register of Deeds (RD)of Caloocan City
before the RTC, alleging, among others, that he is the owner of a certain parcel of land situated
in Caloocan City and has been religiously paying the real estate taxes therefor since its
acquisition on November 29, 1974. Respondent claimed that he is a resident of California, USA,
and that during his vacation in the Philippines, he discovered that a new certificate of title to the
subject property was issued by the RD in the name of Victorino married to Isabel Amparo, by
virtue of a falsified Deed of Absolute Sale dated February 16, 1978 purportedly executed by him
and his wife, Amelia U. Lagrosa. He averred that the falsification of the said deed of sale was a
result of the fraudulent, illegal, and malicious acts committed by Sps. Sarili and the RD in order
to acquire the subject property, and that Sps. Sarili deliver to him the possession of the subject
property, or, in the alternative, that Sps. Sarili and the RD jointly and severally pay him the
amount of P1,000,000.00, including moral damages as well as attorneys fees
In their answer, Sps. Sarili maintained that they are innocent purchasers for value, having
purchased the subject property from Ramon B. Rodriguez, who possessed and presented a
Special Power of Attorney to sell/dispose of the same, and, in such capacity, executed a Deed of
Absolute Sale dated November 20, 1992 conveying the said property in their favor. In this
relation, they denied any participation in the preparation of the February 16, 1978 deed of sale,
which may have been merely devised by the "fixer" they hired to facilitate the issuance of the
title in their names. Further, they interposed a counterclaim for moral and exemplary damages, as
well as attorneys fees, for the filing of the baseless suit.
ISSUE:
Whether or not Sps. Sarili has rights and obligations with respect to the house they had
built on the subject property in bad faith.
RULING:
The case is remanded to the court a quo for the proper application of the Civil Code
provisions.
To be deemed a builder in good faith, it is essential that a person asserts title to the land
on which he builds, that he be a possessor in concept of owner, and that he be unaware that there
exists in his title or mode of acquisition any flaw which invalidates it. Good faith is an intangible

and abstract quality with no technical meaning or statutory definition, and it encompasses,
among other things, an honest belief, the absence of malice and the absence of design to defraud
or to seek an unconscionable advantage. It implies honesty of intention, and freedom from
knowledge of circumstances which ought to put the holder upon inquiry. As for Sps. Sarili, they
knew or at the very least, should have known from the very beginning that they were dealing
with a person who possibly had no authority to sell the subject property considering the palpable
irregularity in the subject SPAs acknowledgment. Yet, relying solely on said document and
without any further investigation on Ramoss capacity to sell Sps. Sarili still chose to proceed
with its purchase and even built a house thereon. Based on the foregoing it cannot be seriously
doubted that Sps. Sarili were actually aware of a flaw or defect in their title or mode of
acquisition and have consequently built the house on the subject property in bad faith under legal
contemplation.