1

G.R. No. 144735

October 18, 2001
YU BUN GUAN vs. ELVIRA ONG
PANGANIBAN, J.:
A simulated deed of sale has no legal effect, and the transfer certificate of title issued in
consequence thereof should be cancelled. Pari delicto does not apply to simulated sales.
Statement of the Case
Before us is a Petition for Review under rule 45 of the Rules of Court, assailing the April 25, 2000
Decision1 and the August 31, 2000 Resolution 2 of the Court of Appeals3 (CA) in CA-GR CV No.
61364. The decretal portion of the Decision reads as follows:
"We cannot see any justification for the setting aside of the contested Decision.
"THE FOREGOING CONSIDERED, the appealed Decision is hereby AFFIRMED." 4
The assailed Resolution denied petitioner's "Supplemental Motion for Reconsideration with Leave
to Submit [Newly] Discovered Evidence."
The CA sustained the Decision of the Regional Trial Court (RTC) of Makati City (Branch 60), which
had disposed as follows:5
"23. WHEREFORE, the Court hereby renders judgment as follows:
23.1 The Deed of Sale dated July 24, 1992 (Exh. EE on Exh. 3) is declared VOID.
23.2 The plaintiff ELVIRA ONG is declared the OWNER of the property covered by Transfer
Certificate of Title No. 217614, Registry of Deeds, Makati (Exh. DD).
23.3 The Register of Deeds, City of Makati is ordered to:
23.2.1. Cancel Transfer Certificate of Title No. 181033 (Exh. HH); and
23.2.2. Issue in lieu thereof, a transfer certificate of title in the name of ELVIRA A. ONG, of legal
age, single, Filipino';
23.[4]. The defendant YU BUN GUAN is ordered to pay to the said plaintiff, the following:
23.[4].1. P48,631.00 As reimbursement of the capital gains tax (Exh. FF);
23.[4].2. Six (6) percent of P48,631.00 per annum from November 23, 1993, until the said
P48,631.00 is paid as damages;
23.[4].3. P100,000.00 as moral damages;
23.[4].4. P50,000.00 as exemplary damages;
23.[4].5. P100,000.00 as attorney's fees.
23.[5]. The COUNTERCLAIM is DISMISSED.
23.[6]. Cost is taxed against the defendant.
"24. In Chambers, City of Makati, June 23, 1998.
The Facts
The antecedents of the case are succinctly summarized by the Court of Appeals in this wise:

'[Herein respondent] said that she and [petitioner] are husband and wife, having been married
according to Chinese rites on April 30, 1961. They lived together until she and her children
were abandoned by [petitioner] on August 26, 1992, because of the latter's 'incurable
promiscuity, volcanic temper and other vicious vices'; out of the reunion were born three (3)
children, now living with her [respondent].
"She purchased on March 20, 1968, out of her personal funds, a parcel of land, then referred
to as the Rizal property, from Aurora Seneris, and supported by Title No. 26795, then
subsequently registered on April 17, 1968, in her name.1wphi1.nt
"Also during their marriage, they purchased, out of their conjugal funds, a house and lot, in
1983, thereafter, registered in their names, under Title No. 118884.
'Before their separation in 1992, she 'reluctantly agreed' to the [petitioner's] 'importunings' that
she execute a Deed of Sale of the J.P. Rizal property in his favor, but on the promise that he
would construct a commercial building for the benefit of the children. He suggested that the
J.P. Rizal property should be in his name alone so that she would not be involved in any
obligation. The consideration for the 'simulated sale' was that, after its execution in which he
would represent himself as single, a Deed of Absolute Sale would be executed in favor of the
three (3) children and that he would pay the Allied Bank, Inc. the loan he obtained.
"Because of the 'glib assurances' of [petitioner], [respondent] executed a Deed of Absolute
Sale in 1992, but then he did not pay the consideration of P200,000.00, supposedly the
'ostensible' valuable consideration. On the contrary, she paid for the capital gains tax and all
the other assessments even amounting to not less than P60,000.00, out of her personal
funds.
"Because of the sale, a new title (TCT No. 181033) was issued in his name, but to 'insure' that
he would comply with his commitment, she did not deliver the owner's copy of the title to him.
"Because of the refusal of [petitioner] to perform his promise, and also because he insisted on
delivering to him the owner's copy of the title [to] the JP Rizal property, in addition to threats
and physical violence, she decided executing an Affidavit of Adverse Claim.
Also to avoid burdening the JP Rizal property with an additional loan amount, she wrote the
Allied Bank, Inc. on August 25, 1992, withdrawing her authority for [petitioner] to apply for
additional loans.
"To save their marriage, she even sought the help of relatives in an earnest effort [at]
reconciliation, not to mention a letter to [petitioner] on November 3, 1992.
"[Petitioner], on the other hand, filed with the RTC, Makati, in 1993 (Case No. M-2905), a
'Petition for Replacement' of an owner's duplicate title.
"Attached to the Petition was the Affidavit of Loss dated March 26, 1993, in which he falsely
made it appear that the owner's copy of the title was lost or misplaced, and that was granted
by the court in an Order dated September 17, 1993, following which a new owner's copy of
the title was issued to [petitioner].

2
"Upon discovery of the 'fraudulent steps' taken by the [petitioner], [respondent] immediately
executed an Affidavit of Adverse Claim on November 29, 1993.
"She precisely asked the court that the sale of the JP Rizal property be declared as null and
void; for the title to be cancelled; payment of actual, moral and exemplary damages; and
attorney's fees.
"It was, on the other hand, the version of [petitioner] that sometime in 1968 or before he became
a Filipino, 'through naturalization' the JP Rizal property was being offered to him for sale.
Because he was not a Filipino, he utilized [respondent] as his 'dummy' and agreed to have the
sale executed in the name of [respondent], although the consideration was his own and from his
personal funds.
"When he finally acquired a Filipino citizenship in 1972, he purchased another property being
referred to as the 'Juno lot' out of his own funds. If only to reflect the true ownership of the JP
Rizal property, a Deed of Sale was then executed in 1972. Believing in good faith that his
owner's copy of the title was lost and not knowing that the same was surreptitiously 'concealed'
by [respondent], he filed in 1993 a petition for replacement of the owner's copy of the title, in
court.
"[Petitioner] added that [respondent] could not have purchased the property because she had no
financial capacity to do so; on the other hand, he was financially capable although he was
financially capable although he was disqualified to acquire the property by reason of his
nationality. [Respondent] was in pari delicto being privy to the simulated sale.
"Before the court a quo, the issues were: who purchased the JP Rizal property? [W]as the Deed
of Sale void? and damages.6
Ruling of the Trial Court
After examining the evidence adduced by both parties, the RTC found that the JP Rizal property
was the paraphernal property of the respondent, because (1) the title had been issued in her
name; (2) petitioner had categorically admitted that the property was in her name; (3) petitioner
was estopped from claiming otherwise, since he had signed the Deed of Absolute Sale that stated
that she was the "absolute and registered owner"; (4) she had paid the real property taxes
thereon.7
The trial court further held that the in pari delicto rule found in Articles 1411 and 1412 of the Civil
Code was not applicable to the present case, because it would apply only to existing contracts with
an illegal cause or object, not to simulated or fictitious contracts or to those that were inexistent due
to lack of an essential requisite such as cause or consideration. 8 It likewise voided the Deed of
Absolute Sale of the JP Rizal property for having been simulated and executed during the marriage
of the parties.9
Ruling of the Court of Appeals
The Court of Appeals upheld the trial court's findings that the JP Rizal property had been acquired
by respondent alone, out of her own personal funds. It ruled thus:

"x x x [T]he JP Rizal property was purchased by the [respondent] alone; therefore it is a
paraphernal property. As a matter of fact, the title was issued in her name, Exh. 'DD' This was
even admitted by [petitioner] in the Answer that the sale was executed in her name alone. He
also signed the sale mentioning [respondent] to be an absolute owner; therefore he should be
estopped from claiming otherwise. She alone likewise did the payment of the taxes.10
The CA debunked the contention of petitioner that he had purchased the property out of his own
funds and merely used respondent as his dummy.11 It also held that the latter was not in pari
delicto with him, because the contract was simulated or fictitious due to the lack of
consideration. The contract was deemed void for having been executed during the couple's
marriage.12 The CA likewise affirmed the award of actual, moral and exemplary damages to
respondent.13
Hence, this Petition.14
Issues
In his Memorandum, petitioner raises the following issues for the Court's consideration:
I. "Whether or not the Court of Appeals gravely erred in not applying [the] rules on coownership under Article 144 of the New Civil Code in determining the proprietary rights of the
parties herein even as respondent herself expressly declared that the money with which she
allegedly bought the property in question in 1968 came from her funds, salaries and savings
at the time she and petitioner already lived as husband and wife.
II. "Whether or not the Court of Appeals likewise palpably erred in declaring the sale of the
subject property to herein petitioner in 1992 to be fictitious, simulated and inexistent.
III. "Whether or not the Court of Appeals further erred in not applying the '[in] pari delicto' rule
to the sale of the subject property in favor of the petitioner in 1992 contrary to the express
declaration to that effect in the very same case it cited (Rodriguez v. Rodriguez; 20 SCRA
908) in the decision herein sought to be reviewed.
IV. "Whether or not the Court of Appeals gravely erred in annul[l]ing the title (TCT No. 181033)
to the subject property in the name of herein petitioner in the absence of actual
fraud."15 (Underscoring in the original.)
This Court's Ruling
The Petition is devoid of merit.
First Issue: Nature of the Property
Petitioner contends that the JP Rizal property should be deemed as co-owned, considering that
respondent testified during trial that the money she used in purchasing it had come from her
income, salaries and savings, which are conjugal in nature.

3
On the other hand, respondent maintains that the finding of the two lower courts that the property
was acquired using funds solely owned by her is binding and supported by evidence. She further
argues that the two defenses of petitioner are contradictory to each other because, if the property
is co-owned, he cannot claim to own it in its entirety.
We find no reason to disturb the findings of the RTC and the CA that the source of the money used
to acquire the property was paraphernal. This issue is factual in nature. It is axiomatic that "factual
findings of the trial court, especially when affirmed by the Court of Appeals, as in this case, are
binding and conclusive on the Supreme Court. It is not the function of this Court to reexamine the
lower courts' findings of fact. While there are exceptions to this rule, petitioner has not shown its
entitlement to any of them."16
The testimony of petitioner as to the source of the money he had supposedly used to purchase the
property was at best vague and unclear. At first he maintained that the money came from his own
personal funds. Then he said that it came from his mother; and next, from his father. Time and time
again, "we [have] held that the unnatural and contradictory testimony of a witness, x x x makes him
unreliable x x x."17 His statement that the JP Rizal property was bought with his own money can
hardly be believed, when he himself was unsure as to the source of those funds.
On the other hand, the capacity of respondent to purchase the subject property cannot be
questioned. It was sufficiently established during trial that she had the means to do so. In fact, her
testimony that she had purchased several other lots using her personal funds was not disputed.
Equally without merit is the contention of petitioner that, because he was a Chinese national at the
time, respondent was merely used as a dummy in acquiring the property; thus, she could not have
legally acquired title thereto. He testified that sometime during the last month of 1968, he had
consulted a certain Atty. Flores, who advised him that the property be registered in the name of
respondent. However, TCT No. 217614 had been issued earlier on April 17, 1968. Thus, it appears
that the subject property had already been bought and registered in the name of respondent, long
before Atty. Flores allegedly advised him to have the property registered in her name.
We therefore agree with the CA's affirmation of the RTC's findings that the property had been
acquired using respondent's paraphernal property. The CA rule thus:
"The fact however, is that Yu never refuted Elvira's testimony that: (a) the money with which she
acquired the JP Rizal property came from": (1) her income as a cashier in the Hong Kiat
Hardware: a (2) income from her paraphernal property a lot in Guadalupe; (3) her savings from
the money which her parents gave her while she was still a student; and (4) the money which
her sister gave her for helping her run the beauty parlor; (b) her parents were well off they had
stores, apartments and beauty parlors from which they derived income; (c) before her marriage
she bought lots in different places (p. 8, TSN, Jan. 26, 1998; pp. 22-23, TSN March 10, 1998)."18
Second Issue: Fictitious, Simulated and Inexistent Sale
Next, petitioner argues that there was a valid sale between the parties, and that the consideration
consisted of his promise to construct a commercial building for the benefit of their three children
and to pay the loan he had obtained from Allied Bank.

We disagree. In Rongavilla v. Court of Appeals,19 the Court declared that a deed of sale, in which
the stated consideration had not in fact been paid, is null and void:
"The 'problem' before the Court is whether a deed which states a consideration that in fact did
not exist, is a contract, without consideration, and therefore void ab initio, or a contract with a
false consideration, and therefore, at least under the Old Civil Code, voidable. x x x."
"In our view, therefore, the ruling of this Court in Ocejo, Perez & Co. vs. Flores, 40 Phil. 921[,]
is squarely applicable herein. In that case we ruled that a contract of purchase and sale is null
and null and void and produces no effect whatsoever where the same is without cause or
consideration in that the purchase price which appears thereon as paid has in fact never been
paid by the purchaser to vendor."20
In the present case, it is clear from the factual findings of both lower courts that the Deed of Sale
was completely simulated and, hence, void and without effect. No portion of the P200,000
consideration stated in the Deed was ever paid. And, from the facts of the case, it is clear that
neither party had any intention whatsoever to pay that amount.
Instead, the Deed of Sale was executed merely to facilitate the transfer of the property to
petitioner pursuant to an agreement between the parties to enable him to construct a
commercial building and to sell the Juno property to their children. Being merely a subterfuge,
that agreement cannot be taken as the consideration for the sale.
Third Issue: Inapplicability of the in Pari Delicto Principle
The principle of in pari delicto provides that when two parties are equally at fault, the law leaves
them as they are and denies recovery by either one of them. However, this principle does not
apply with respect to inexistent and void contracts. Said this Court in Modina v. Court of
Appeals:21
"The principle of in pari delicto non oritur actio denies all recovery to the guilty parties inter se.
It applies to cases where the nullity arises from the illegality of the consideration or the
purpose of the contract. When two persons are equally at fault, the law does not relieve them.
The exception to this general rule is when the principle is invoked with respect to inexistent
contracts."22
Fourth Issue: Cancellation of TCT
Finally, based on the foregoing disquisition, it is quite obvious that the Court of Appeals did not
err in ordering the cancellation of TCT No. 181033, because the Deed of Absolute Sale
transferring ownership to petitioner was completely simulated, void and without effect. In fact,
there was no legal basis for the issuance of the certificate itself.1wphi1.nt
WHEREFORE, the Petition is hereby DENIED and the assailed. Decision AFFIRMED. Costs
against petitioner. SO ORDERED.
G.R. No. 118114 December 7, 1995

4
TEODORO ACAP vs. COURT OF APPEALS
PADILLA, J.:
This is a petition for review on certiorari of the decision 1 of the Court of Appeals, 2nd Division, in
CA-G.R. No. 36177, which affirmed the decision 2 of the Regional Trial Court of Himamaylan,
Negros Occidental holding that private respondent Edy de los Reyes had acquired ownership of
Lot No. 1130 of the Cadastral Survey of Hinigaran, Negros Occidental based on a document
entitled "Declaration of Heirship and Waiver of Rights", and ordering the dispossession of petitioner
as leasehold tenant of the land for failure to pay rentals.
The facts of the case are as follows:
The title to Lot No. 1130 of the Cadastral Survey of Hinigaran, Negros Occidental was evidenced
by OCT No. R-12179. The lot has an area of 13,720 sq. meters. The title was issued and is
registered in the name of spouses Santiago Vasquez and Lorenza Oruma. After both spouses died,
their only son Felixberto inherited the lot. In 1975, Felixberto executed a duly notarized document
entitled "Declaration of Heirship and Deed of Absolute Sale" in favor of Cosme Pido.
The evidence before the court a quo established that since 1960, petitioner Teodoro Acap had
been the tenant of a portion of the said land, covering an area of nine thousand five hundred
(9,500) meters. When ownership was transferred in 1975 by Felixberto to Cosme Pido, Acap
continued to be the registered tenant thereof and religiously paid his leasehold rentals to Pido and
thereafter, upon Pido's death, to his widow Laurenciana.
The controversy began when Pido died intestate and on 27 November 1981, his surviving heirs
executed a notarized document denominated as "Declaration of Heirship and Waiver of Rights of
Lot No. 1130 Hinigaran Cadastre," wherein they declared; to quote its pertinent portions, that:
. . . Cosme Pido died in the Municipality of Hinigaran, Negros Occidental, he died intestate and
without any known debts and obligations which the said parcel of land is (sic) held liable.
That Cosme Pido was survived by his/her legitimate heirs, namely: LAURENCIANA PIDO, wife,
ELY, ERVIN, ELMER, and ELECHOR all surnamed PIDO; children;
That invoking the provision of Section 1, Rule 74 of the Rules of Court, the above-mentioned
heirs do hereby declare unto [sic] ourselves the only heirs of the late Cosme Pido and that we
hereby adjudicate unto ourselves the above-mentioned parcel of land in equal shares.
Now, therefore, We LAURENCIANA 3, ELY, ELMER, ERVIN and ELECHOR all surnamed
PIDO, do hereby waive, quitclaim all our rights, interests and participation over the said parcel of
land in favor of EDY DE LOS REYES, of legal age, (f)ilipino, married to VIRGINIA DE LOS
REYES, and resident of Hinigaran, Negros Occidental, Philippines. . . . 4 (Emphasis supplied)
The document was signed by all of Pido's heirs. Private respondent Edy de los Reyes did not sign
said document.

It will be noted that at the time of Cosme Pido's death, title to the property continued to be
registered in the name of the Vasquez spouses. Upon obtaining the Declaration of Heirship with
Waiver of Rights in his favor, private respondent Edy de los Reyes filed the same with the
Registry of Deeds as part of a notice of an adverse claimagainst the original certificate of title.
Thereafter, private respondent sought for petitioner (Acap) to personally inform him that he (Edy)
had become the new owner of the land and that the lease rentals thereon should be paid to him.
Private respondent further alleged that he and petitioner entered into an oral lease agreement
wherein petitioner agreed to pay ten (10) cavans of palay per annum as lease rental. In 1982,
petitioner allegedly complied with said obligation. In 1983, however, petitioner refused to pay any
further lease rentals on the land, prompting private respondent to seek the assistance of the
then Ministry of Agrarian Reform (MAR) in Hinigaran, Negros Occidental. The MAR invited
petitioner to a conference scheduled on 13 October 1983. Petitioner did not attend the
conference but sent his wife instead to the conference. During the meeting, an officer of the
Ministry informed Acap's wife about private respondent's ownership of the said land but she
stated that she and her husband (Teodoro) did not recognize private respondent's claim of
ownership over the land.
On 28 April 1988, after the lapse of four (4) years, private respondent filed a complaint for
recovery of possession and damages against petitioner, alleging in the main that as his
leasehold tenant, petitioner refused and failed to pay the agreed annual rental of ten (10) cavans
of palay despite repeated demands.
During the trial before the court a quo, petitioner reiterated his refusal to recognize private
respondent's ownership over the subject land. He averred that he continues to recognize Cosme
Pido as the owner of the said land, and having been a registered tenant therein since 1960, he
never reneged on his rental obligations. When Pido died, he continued to pay rentals to Pido's
widow. When the latter left for abroad, she instructed him to stay in the landholding and to pay
the accumulated rentals upon her demand or return from abroad.
Petitioner further claimed before the trial court that he had no knowledge about any transfer or
sale of the lot to private respondent in 1981 and even the following year after Laurenciana's
departure for abroad. He denied having entered into a verbal lease tenancy contract with private
respondent and that assuming that the said lot was indeed sold to private respondent without his
knowledge, R.A. 3844, as amended, grants him the right to redeem the same at a reasonable
price. Petitioner also bewailed private respondent's ejectment action as a violation of his right to
security of tenure under P.D. 27.
On 20 August 1991, the lower court rendered a decision in favor of private respondent, the
dispositive part of which reads:
WHEREFORE, premises considered, the Court renders judgment in favor of the plaintiff, Edy
de los Reyes, and against the defendant, Teodoro Acap, ordering the following, to wit:
1. Declaring forfeiture of defendant's preferred right to issuance of a Certificate of Land
Transfer under Presidential Decree No. 27 and his farmholdings;
2. Ordering the defendant Teodoro Acap to deliver possession of said farm to plaintiff, and;

5
3. Ordering the defendant to pay P5,000.00 as attorney's fees, the sum of P1,000.00 as
expenses of litigation and the amount of P10,000.00 as actual damages. 5
In arriving at the above-mentioned judgment, the trial court stated that the evidence had
established that the subject land was "sold" by the heirs of Cosme Pido to private respondent. This
is clear from the following disquisitions contained in the trial court's six (6) page decision:
There is no doubt that defendant is a registered tenant of Cosme Pido. However, when the latter
died their tenancy relations changed since ownership of said land was passed on to his heirs
who, by executing a Deed of Sale, which defendant admitted in his affidavit, likewise passed on
their ownership of Lot 1130 to herein plaintiff (private respondent). As owner hereof, plaintiff has
the right to demand payment of rental and the tenant is obligated to pay rentals due from the
time demand is made. . . . 6

Hence, the issues to be resolved presently are the following:

1. WHETHER OR NOT THE SUBJECT DECLARATION OF HEIRSHIP AND WAIVER OF
RIGHTS IS A RECOGNIZED MODE OF ACQUIRING OWNERSHIP BY PRIVATE
RESPONDENT OVER THE LOT IN QUESTION.
2. WHETHER OR NOT THE SAID DOCUMENT CAN BE CONSIDERED A DEED OF SALE
IN FAVOR OF PRIVATE RESPONDENT OF THE LOT IN QUESTION.

xxx xxx xxx

Petitioner argues that the Regional Trial Court, in its order dated 7 August 1990, explicitly
excluded the document marked as Exhibit "D" (Declaration of Heirship, etc.) as private
respondent's evidence because it was not registered with the Registry of Deeds and was not
identified by anyone of the heirs of Cosme Pido. The Court of Appeals, however, held the same
to be admissible, it being a notarized document, hence, a prima facie proof of private
respondents' ownership of the lot to which it refers.

Certainly, the sale of the Pido family of Lot 1130 to herein plaintiff does not of itself extinguish the
relationship. There was only a change of the personality of the lessor in the person of herein
plaintiff Edy de los Reyes who being the purchaser or transferee, assumes the rights and
obligations of the former landowner to the tenant Teodoro Acap, herein defendant. 7

Petitioner points out that the Declaration of Heirship and Waiver of Rights is not one of the
recognized modes of acquiring ownership under Article 712 of the Civil Code. Neither can the
same be considered a deed of sale so as to transfer ownership of the land to private respondent
because no consideration is stated in the contract (assuming it is a contract or deed of sale).

Aggrieved, petitioner appealed to the Court of Appeals, imputing error to the lower court when it
ruled that private respondent acquired ownership of Lot No. 1130 and that he, as tenant, should
pay rentals to private respondent and that failing to pay the same from 1983 to 1987, his right to a
certificate of land transfer under P.D. 27 was deemed forfeited.

Private respondent defends the decision of respondent Court of Appeals as in accord with the
evidence and the law. He posits that while it may indeed be true that the trial court excluded his
Exhibit "D" which is the Declaration of Heirship and Waiver of Rights as part of his evidence, the
trial court declared him nonetheless owner of the subject lot based on other evidence adduced
during the trial, namely, the notice of adverse claim (Exhibit "E") duly registered by him with the
Registry of Deeds, which contains the questioned Declaration of Heirship and Waiver of Rights
as an integral part thereof.

The Court of Appeals brushed aside petitioner's argument that the Declaration of Heirship and
Waiver of Rights (Exhibit "D"), the document relied upon by private respondent to prove his
ownership to the lot, was excluded by the lower court in its order dated 27 August 1990. The order
indeed noted that the document was not identified by Cosme Pido's heirs and was not registered
with the Registry of Deeds of Negros Occidental. According to respondent court, however, since
the Declaration of Heirship and Waiver of Rights appears to have been duly notarized, no further
proof of its due execution was necessary. Like the trial court, respondent court was also convinced
that
the
said
document
stands
as prima
facie proof
of
appellee's
(private
respondent's) ownership of the land in dispute.
With respect to its non-registration, respondent court noted that petitioner had actual knowledge of
the subjectsale of the land in dispute to private respondent because as early as 1983, he
(petitioner) already knew of private respondent's claim over the said land but which he thereafter
denied, and that in 1982, he (petitioner) actually paid rent to private respondent. Otherwise stated,
respondent court considered this fact of rental payment in 1982 as estoppel on petitioner's part to
thereafter refute private respondent's claim of ownership over the said land. Under these
circumstances, respondent court ruled that indeed there was deliberate refusal by petitioner to pay
rent for a continued period of five years that merited forfeiture of his otherwise preferred right to the
issuance of a certificate of land transfer.
In the present petition, petitioner impugns the decision of the Court of Appeals as not in accord with
the law and evidence when it rules that private respondent acquired ownership of Lot No. 1130
through the aforementioned Declaration of Heirship and Waiver of Rights.

We find the petition impressed with merit.

In the first place, an asserted right or claim to ownership or a real right over a thing arising from
a juridical act, however justified, is not per se sufficient to give rise to ownership over the res.
That right or title must be completed by fulfilling certain conditions imposed by law. Hence,
ownership and real rights are acquired only pursuant to a legal mode or process. While title is
the juridical justification, mode is the actual process of acquisition or transfer of ownership over a
thing in question. 8
Under Article 712 of the Civil Code, the modes of acquiring ownership are generally classified
into two (2) classes, namely, the original mode (i.e., through occupation, acquisitive prescription,
law or intellectual creation) and thederivative mode (i.e., through succession mortis causa or
tradition as a result of certain contracts, such as sale, barter, donation, assignment or mutuum).
In the case at bench, the trial court was obviously confused as to the nature and effect of the
Declaration of Heirship and Waiver of Rights, equating the same with a contract (deed) of sale.
They are not the same.

6
In a Contract of Sale, one of the contracting parties obligates himself to transfer the ownership of
and to deliver a determinate thing, and the other party to pay a price certain in money or its
equivalent. 9
Upon the other hand, a declaration of heirship and waiver of rights operates as a public instrument
when filed with the Registry of Deeds whereby the intestate heirs adjudicate and divide the estate
left by the decedent among themselves as they see fit. It is in effect an extrajudicial settlement
between the heirs under Rule 74 of the Rules of Court. 10
Hence, there is a marked difference between a sale of hereditary rights and a waiver of hereditary
rights. The first presumes the existence of a contract or deed of sale between the parties. 11 The
second is, technically speaking, a mode of extinction of ownership where there is an abdication or
intentional relinquishment of a known right with knowledge of its existence and intention to
relinquish it, in favor of other persons who are co-heirs in the succession. 12 Private respondent,
being then a stranger to the succession of Cosme Pido, cannot conclusively claim ownership over
the subject lot on the sole basis of the waiver document which neither recites the elements of either
a sale, 13 or a donation, 14 or any other derivative mode of acquiring ownership.
Quite surprisingly, both the trial court and public respondent Court of Appeals concluded that a
"sale" transpired between Cosme Pido's heirs and private respondent and that petitioner acquired
actual knowledge of said sale when he was summoned by the Ministry of Agrarian Reform to
discuss private respondent's claim over the lot in question. This conclusion has no basis both in
fact and in law.
On record, Exhibit "D", which is the "Declaration of Heirship and Waiver of Rights" was excluded by
the trial court in its order dated 27 August 1990 because the document was neither registered with
the Registry of Deeds nor identified by the heirs of Cosme Pido. There is no showing that private
respondent had the same document attached to or made part of the record. What the trial court
admitted was Annex "E", a notice of adverse claim filed with the Registry of Deeds which contained
the Declaration of Heirship with Waiver of rights and was annotated at the back of the Original
Certificate of Title to the land in question.
A notice of adverse claim, by its nature, does not however prove private respondent's ownership
over the tenanted lot. "A notice of adverse claim is nothing but a notice of a claim adverse to the
registered owner, the validity of which is yet to be established in court at some future date, and is
no better than a notice of lis pendenswhich is a notice of a case already pending in court." 15
It is to be noted that while the existence of said adverse claim was duly proven, there is no
evidence whatsoever that a deed of sale was executed between Cosme Pido's heirs and private
respondent transferring the rights of Pido's heirs to the land in favor of private respondent. Private
respondent's right or interest therefore in the tenanted lot remains an adverse claim which cannot
by itself be sufficient to cancel the OCT to the land and title the same in private respondent's name.
Consequently, while the transaction between Pido's heirs and private respondent may be
binding on both parties, the right of petitioner as a registered tenant to the land cannot be
perfunctorily forfeited on a mere allegation of private respondent's ownership without the
corresponding proof thereof.

Petitioner had been a registered tenant in the subject land since 1960 and religiously paid lease
rentals thereon. In his mind, he continued to be the registered tenant of Cosme Pido and his
family (after Pido's death), even if in 1982, private respondent allegedly informed petitioner that
he had become the new owner of the land.
Under the circumstances, petitioner may have, in good faith, assumed such statement of private
respondent to be true and may have in fact delivered 10 cavans of palay as annual rental for
1982 to private respondent. But in 1983, it is clear that petitioner had misgivings over private
respondent's claim of ownership over the said land because in the October 1983 MAR
conference, his wife Laurenciana categorically denied all of private respondent's allegations. In
fact, petitioner even secured a certificate from the MAR dated 9 May 1988 to the effect that he
continued to be the registered tenant of Cosme Pido and not of private respondent. The reason
is that private respondent never registered the Declaration of Heirship with Waiver of Rights with
the Registry of Deeds or with the MAR. Instead, he (private respondent) sought to do indirectly
what could not be done directly,i.e., file a notice of adverse claim on the said lot to establish
ownership thereover.
It stands to reason, therefore, to hold that there was no unjustified or deliberate refusal by
petitioner to pay the lease rentals or amortizations to the landowner/agricultural lessor which, in
this case, private respondent failed to establish in his favor by clear and convincing evidence. 16
Consequently, the sanction of forfeiture of his preferred right to be issued a Certificate of Land
Transfer under P.D. 27 and to the possession of his farmholdings should not be applied against
petitioners, since private respondent has not established a cause of action for recovery of
possession against petitioner.
WHEREFORE, premises considered, the Court hereby GRANTS the petition and the decision of
the Court of Appeals dated 1 May 1994 which affirmed the decision of the RTC of Himamaylan,
Negros Occidental dated 20 August 1991 is hereby SET ASIDE. The private respondent's
complaint for recovery of possession and damages against petitioner Acap is hereby
DISMISSED for failure to properly state a cause of action, without prejudice to private
respondent taking the proper legal steps to establish the legal mode by which he claims to have
acquired ownership of the land in question. SO ORDERED.
G.R. No. L-11491
August 23, 1918
ANDRES QUIROGA vs. PARSONS HARDWARE CO.
AVANCEA, J.:
On January 24, 1911, in this city of manila, a contract in the following tenor was entered into by
and between the plaintiff, as party of the first part, and J. Parsons (to whose rights and
obligations the present defendant later subrogated itself), as party of the second part:
CONTRACT EXECUTED BY AND BETWEEN ANDRES QUIROGA AND J. PARSONS, BOTH
MERCHANTS ESTABLISHED IN MANILA, FOR THE EXCLUSIVE SALE OF "QUIROGA"
BEDS IN THE VISAYAN ISLANDS.
ARTICLE 1. Don Andres Quiroga grants the exclusive right to sell his beds in the Visayan
Islands to J. Parsons under the following conditions:

7
(A) Mr. Quiroga shall furnish beds of his manufacture to Mr. Parsons for the latter's
establishment in Iloilo, and shall invoice them at the same price he has fixed for sales, in Manila,
and, in the invoices, shall make and allowance of a discount of 25 per cent of the invoiced
prices, as commission on the sale; and Mr. Parsons shall order the beds by the dozen, whether
of the same or of different styles.

imputed to the defendant in the two causes of action are expressly set forth in the contract. But
the plaintiff alleged that the defendant was his agent for the sale of his beds in Iloilo, and that
said obligations are implied in a contract of commercial agency. The whole question, therefore,
reduced itself to a determination as to whether the defendant, by reason of the contract
hereinbefore transcribed, was a purchaser or an agent of the plaintiff for the sale of his beds.

(B) Mr. Parsons binds himself to pay Mr. Quiroga for the beds received, within a period of sixty
days from the date of their shipment.

In order to classify a contract, due regard must be given to its essential clauses. In the contract
in question, what was essential, as constituting its cause and subject matter, is that the plaintiff
was to furnish the defendant with the beds which the latter might order, at the price stipulated,
and that the defendant was to pay the price in the manner stipulated. The price agreed upon
was the one determined by the plaintiff for the sale of these beds in Manila, with a discount of
from 20 to 25 per cent, according to their class. Payment was to be made at the end of sixty
days, or before, at the plaintiff's request, or in cash, if the defendant so preferred, and in these
last two cases an additional discount was to be allowed for prompt payment. These are precisely
the essential features of a contract of purchase and sale. There was the obligation on the part of
the plaintiff to supply the beds, and, on the part of the defendant, to pay their price. These
features exclude the legal conception of an agency or order to sell whereby the mandatory or
agent received the thing to sell it, and does not pay its price, but delivers to the principal the
price he obtains from the sale of the thing to a third person, and if he does not succeed in selling
it, he returns it. By virtue of the contract between the plaintiff and the defendant, the latter, on
receiving the beds, was necessarily obliged to pay their price within the term fixed, without any
other consideration and regardless as to whether he had or had not sold the beds.

(C) The expenses for transportation and shipment shall be borne by M. Quiroga, and the freight,
insurance, and cost of unloading from the vessel at the point where the beds are received, shall
be paid by Mr. Parsons.
(D) If, before an invoice falls due, Mr. Quiroga should request its payment, said payment when
made shall be considered as a prompt payment, and as such a deduction of 2 per cent shall be
made from the amount of the invoice.
The same discount shall be made on the amount of any invoice which Mr. Parsons may deem
convenient to pay in cash.
(E) Mr. Quiroga binds himself to give notice at least fifteen days before hand of any alteration in
price which he may plan to make in respect to his beds, and agrees that if on the date when
such alteration takes effect he should have any order pending to be served to Mr. Parsons, such
order shall enjoy the advantage of the alteration if the price thereby be lowered, but shall not be
affected by said alteration if the price thereby be increased, for, in this latter case, Mr. Quiroga
assumed the obligation to invoice the beds at the price at which the order was given.
(F) Mr. Parsons binds himself not to sell any other kind except the "Quiroga" beds.
ART. 2. In compensation for the expenses of advertisement which, for the benefit of both
contracting parties, Mr. Parsons may find himself obliged to make, Mr. Quiroga assumes the
obligation to offer and give the preference to Mr. Parsons in case anyone should apply for the
exclusive agency for any island not comprised with the Visayan group.
ART. 3. Mr. Parsons may sell, or establish branches of his agency for the sale of "Quiroga" beds
in all the towns of the Archipelago where there are no exclusive agents, and shall immediately
report such action to Mr. Quiroga for his approval.
ART. 4. This contract is made for an unlimited period, and may be terminated by either of the
contracting parties on a previous notice of ninety days to the other party.
Of the three causes of action alleged by the plaintiff in his complaint, only two of them constitute
the subject matter of this appeal and both substantially amount to the averment that the defendant
violated the following obligations: not to sell the beds at higher prices than those of the invoices; to
have an open establishment in Iloilo; itself to conduct the agency; to keep the beds on public
exhibition, and to pay for the advertisement expenses for the same; and to order the beds by the
dozen and in no other manner. As may be seen, with the exception of the obligation on the part of
the defendant to order the beds by the dozen and in no other manner, none of the obligations

It would be enough to hold, as we do, that the contract by and between the defendant and the
plaintiff is one of purchase and sale, in order to show that it was not one made on the basis of a
commission on sales, as the plaintiff claims it was, for these contracts are incompatible with
each other. But, besides, examining the clauses of this contract, none of them is found that
substantially supports the plaintiff's contention. Not a single one of these clauses necessarily
conveys the idea of an agency. The words commission on sales used in clause (A) of article 1
mean nothing else, as stated in the contract itself, than a mere discount on the invoice price. The
word agency, also used in articles 2 and 3, only expresses that the defendant was the only one
that could sell the plaintiff's beds in the Visayan Islands. With regard to the remaining clauses,
the least that can be said is that they are not incompatible with the contract of purchase and
sale.
The plaintiff calls attention to the testimony of Ernesto Vidal, a former vice-president of the
defendant corporation and who established and managed the latter's business in Iloilo. It
appears that this witness, prior to the time of his testimony, had serious trouble with the
defendant, had maintained a civil suit against it, and had even accused one of its partners,
Guillermo Parsons, of falsification. He testified that it was he who drafted the contract Exhibit A,
and, when questioned as to what was his purpose in contracting with the plaintiff, replied that it
was to be an agent for his beds and to collect a commission on sales. However, according to the
defendant's evidence, it was Mariano Lopez Santos, a director of the corporation, who prepared
Exhibit A. But, even supposing that Ernesto Vidal has stated the truth, his statement as to what
was his idea in contracting with the plaintiff is of no importance, inasmuch as the agreements
contained in Exhibit A which he claims to have drafted, constitute, as we have said, a contract of
purchase and sale, and not one of commercial agency. This only means that Ernesto Vidal was
mistaken in his classification of the contract. But it must be understood that a contract is what
the law defines it to be, and not what it is called by the contracting parties.

8
The plaintiff also endeavored to prove that the defendant had returned beds that it could not sell;
that, without previous notice, it forwarded to the defendant the beds that it wanted; and that the
defendant received its commission for the beds sold by the plaintiff directly to persons in Iloilo. But
all this, at the most only shows that, on the part of both of them, there was mutual tolerance in the
performance of the contract in disregard of its terms; and it gives no right to have the contract
considered, not as the parties stipulated it, but as they performed it. Only the acts of the contracting
parties, subsequent to, and in connection with, the execution of the contract, must be considered
for the purpose of interpreting the contract, when such interpretation is necessary, but not when, as
in the instant case, its essential agreements are clearly set forth and plainly show that the contract
belongs to a certain kind and not to another. Furthermore, the return made was of certain brass
beds, and was not effected in exchange for the price paid for them, but was for other beds of
another kind; and for the letter Exhibit L-1, requested the plaintiff's prior consent with respect to
said beds, which shows that it was not considered that the defendant had a right, by virtue of the
contract, to make this return. As regards the shipment of beds without previous notice, it is
insinuated in the record that these brass beds were precisely the ones so shipped, and that, for this
very reason, the plaintiff agreed to their return. And with respect to the so-called commissions, we
have said that they merely constituted a discount on the invoice price, and the reason for applying
this benefit to the beds sold directly by the plaintiff to persons in Iloilo was because, as the
defendant obligated itself in the contract to incur the expenses of advertisement of the plaintiff's
beds, such sales were to be considered as a result of that advertisement.
In respect to the defendant's obligation to order by the dozen, the only one expressly imposed by
the contract, the effect of its breach would only entitle the plaintiff to disregard the orders which the
defendant might place under other conditions; but if the plaintiff consents to fill them, he waives his
right and cannot complain for having acted thus at his own free will.
For the foregoing reasons, we are of opinion that the contract by and between the plaintiff and the
defendant was one of purchase and sale, and that the obligations the breach of which is alleged as
a cause of action are not imposed upon the defendant, either by agreement or by law.
The judgment appealed from is affirmed, with costs against the appellant. So ordered.
G.R. No. L-20871 April 30, 1971
KER & CO., LTD. vs. JOSE B. LINGAD
FERNANDO, J.:
Petitioner Ker & Co., Ltd. would have us reverse a decision of the Court of Tax Appeals, holding it
liable as a commercial broker under Section 194 (t) of the National Internal Revenue Code. Its
plea, notwithstanding the vigorous effort of its counsel, is not sufficiently persuasive. An obstacle,
well-nigh insuperable stands in the way. The decision under review conforms to and is in
accordance with the controlling doctrine announced in the recent case of Commissioner of Internal
Revenue v. Constantino. 1 The decisive test, as therein set forth, is the retention of the ownership of
the goods delivered to the possession of the dealer, like herein petitioner, for resale to customers,
the price and terms remaining subject to the control of the firm consigning such goods. The facts,
as found by respondent Court, to which we defer, unmistakably indicate that such a situation does
exist. The juridical consequences must inevitably follow. We affirm.
It was shown that petitioner was assessed by the then Commissioner of Internal Revenue Melecio
R. Domingo the sum of P20,272.33 as the commercial broker's percentage tax, surcharge, and
compromise penalty for the period from July 1, 1949 to December 31, 1953. There was a request

on the part of petitioner for the cancellation of such assessment, which request was turned
down. As a result, it filed a petition for review with the Court of Tax Appeals. In its answer, the
then Commissioner Domingo maintained his stand that petitioner should be taxed in such
amount as a commercial broker. In the decision now under review, promulgated on October 19,
1962, the Court of Tax Appeals held petitioner taxable except as to the compromise penalty of
P500.00, the amount due from it being fixed at P19,772.33.
Such liability arose from a contract of petitioner with the United States Rubber International, the
former being referred to as the Distributor and the latter specifically designated as the Company.
The contract was to apply to transactions between the former and petitioner, as Distributor, from
July 1, 1948 to continue in force until terminated by either party giving to the other sixty days'
notice. 2 The shipments would cover products "for consumption in Cebu, Bohol, Leyte, Samar,
Jolo, Negros Oriental, and Mindanao except [the] province of Davao", petitioner, as Distributor,
being precluded from disposing such products elsewhere than in the above places unless
written consent would first be obtained from the Company. 3 Petitioner, as Distributor, is required
to exert every effort to have the shipment of the products in the maximum quantity and to
promote in every way the sale thereof. 4 The prices, discounts, terms of payment, terms of
delivery and other conditions of sale were subject to change in the discretion of the Company. 5
Then came this crucial stipulation: "The Company shall from time to time consign to the
Distributor and the Distributor will receive, accept and/or hold upon consignment the products
specified under the terms of this agreement in such quantities as in the judgment of the
Company may be necessary for the successful solicitation and maintenance of business in the
territory, and the Distributor agrees that responsibility for the final sole of all goods delivered
shall rest with him. All goods on consignment shall remain the property of the Company until
sold by the Distributor to the purchaser or purchasers, but all sales made by the Distributor shall
be in his name, in which the sale price of all goods sold less the discount given to the Distributor
by the Company in accordance with the provision of paragraph 13 of this agreement, whether or
not such sale price shall have been collected by the Distributor from the purchaser or
purchasers, shall immediately be paid and remitted by the Distributor to the Company. It is
further agreed that this agreement does not constitute Distributor the agent or legal
representative 4 of the Company for any purpose whatsoever. Distributor is not granted any right
or authority to assume or to create any obligation or responsibility, express or implied, in behalf
of or in the name of the Company, or to bind the Company in any manner or thing whatsoever." 6
All specifications for the goods ordered were subject to acceptance by the Company with
petitioner, as Distributor, required to accept such goods shipped as well as to clear the same
through customs and to arrange for delivery in its warehouse in Cebu City. Moreover, orders are
to be filled in whole or in part from the stocks carried by the Company's neighboring branches,
subsidiaries or other sources of Company's brands. 7 Shipments were to be invoiced at prices to
be agreed upon, with the customs duties being paid by petitioner, as Distributor, for account of
the Company. 8 Moreover, all resale prices, lists, discounts and general terms and conditions of
local resale were to be subject to the approval of the Company and to change from time to time
in its discretion. 9 The dealer, as Distributor, is allowed a discount of ten percent on the net
amount of sales of merchandise made under such agreement. 10 On a date to be determined by
the Company, the petitioner, as Distributor, was required to report to it data showing in detail all
sales during the month immediately preceding, specifying therein the quantities, sizes and types
together with such information as may be required for accounting purposes, with the Company
rendering an invoice on sales as described to be dated as of the date of inventory and sales
report. As Distributor, petitioner had to make payment on such invoice or invoices on due date
with the Company being privileged at its option to terminate and cancel the agreement forthwith

9
upon the failure to comply with this obligation. 11 The Company, at its own expense, was to keep
the consigned stock fully insured against loss or damage by fire or as a result of fire, the policy of
such insurance to be payable to it in the event of loss. Petitioner, as Distributor, assumed full
responsibility with reference to the stock and its safety at all times; and upon request of the
Company at any time, it was to render inventory of the existing stock which could be subject to
change. 12 There was furthermore this equally tell-tale covenant: "Upon the termination or any
cancellation of this agreement all goods held on consignment shall be held by the Distributor for
the account of the Company, without expense to the Company, until such time as provision can be
made by the Company for disposition." 13
The issue with the Court of Tax Appeals, as with us now, is whether the relationship thus created is
one of vendor and vendee or of broker and principal. Not that there would have been the slightest
doubt were it not for the categorical denial in the contract that petitioner was not constituted as "the
agent or legal representative of the Company for any purpose whatsoever." It would be, however,
to impart to such an express disclaimer a meaning it should not possess to ignore what is
manifestly the role assigned to petitioner considering the instrument as a whole. That would be to
lose sight altogether of what has been agreed upon. The Court of Tax Appeals was not misled in
the language of the decision now on appeal: "That the petitioner Ker & Co., Ltd. is, by contractual
stipulation, an agent of U.S. Rubber International is borne out by the facts that petitioner can
dispose of the products of the Company only to certain persons or entities and within stipulated
limits, unless excepted by the contract or by the Rubber Company (Par. 2); that it merely receives,
accepts and/or holds upon consignment the products, which remain properties of the latter
company (Par. 8); that every effort shall be made by petitioner to promote in every way the sale of
the products (Par. 3); that sales made by petitioner are subject to approval by the company (Par.
12); that on dates determined by the rubber company, petitioner shall render a detailed report
showing sales during the month (Par. 14); that the rubber company shall invoice the sales as of the
dates of inventory and sales report (Par. 14); that the rubber company agrees to keep the
consigned goods fully insured under insurance policies payable to it in case of loss (Par. 15); that
upon request of the rubber company at any time, petitioner shall render an inventory of the existing
stock which may be checked by an authorized representative of the former (Par. 15); and that upon
termination or cancellation of the Agreement, all goods held on consignment shall be held by
petitioner for the account of the rubber company until their disposition is provided for by the latter
(Par. 19). All these circumstances are irreconcilably antagonistic to the idea of an independent
merchant." 14 Hence its conclusion: "However, upon analysis of the contract, as a whole, together
with the actual conduct of the parties in respect thereto, we have arrived at the conclusion that the
relationship between them is one of brokerage or agency." 15 We find ourselves in agreement,
notwithstanding the able brief filed on behalf of petitioner by its counsel. As noted at the outset, we
cannot heed petitioner's plea for reversal.
1. According to the National Internal Revenue Code, a commercial broker "includes all persons,
other than importers, manufacturers, producers, or bona fide employees, who, for compensation or
profit, sell or bring about sales or purchases of merchandise for other persons or bring proposed
buyers and sellers together, or negotiate freights or other business for owners of vessels or other
means of transportation, or for the shippers, or consignors or consignees of freight carried by
vessels or other means of transportation. The term includes commission merchants." 16 The
controlling decision as to the test to be followed as to who falls within the above definition of a
commercial broker is that of Commissioner of Internal Revenue v. Constantino. 17 In the language
of Justice J. B. L. Reyes, who penned the opinion: "Since the company retained ownership of the
goods, even as it delivered possession unto the dealer for resale to customers, the price and terms
of which were subject to the company's control, the relationship between the company and the
dealer is one of agency, ... ." 18 An excerpt from Salisbury v. Brooks 19 cited in support of such a
view follows: " 'The difficulty in distinguishing between contracts of sale and the creation of an

agency to sell has led to the establishment of rules by the application of which this difficulty may
be solved. The decisions say the transfer of title or agreement to transfer it for a price paid or
promised is the essence of sale. If such transfer puts the transferee in the attitude or position of
an owner and makes him liable to the transferor as a debtor for the agreed price, and not merely
as an agent who must account for the proceeds of a resale, the transaction is a sale; while the
essence of an agency to sell is the delivery to an agent, not as his property, but as the property
of the principal, who remains the owner and has the right to control sales, fix the price, and
terms, demand and receive the proceeds less the agent's commission upon sales made.' " 20 The
opinion relied on the work of Mechem on Sales as well as Mechem on Agency. Williston and
Tiedman both of whom wrote treatises on Sales, were likewise referred to.
Equally relevant is this portion of the Salisbury opinion: "It is difficult to understand or appreciate
the necessity or presence of these mutual requirements and obligations on any theory other
than that of a contract of agency. Salisbury was to furnish the mill and put the timber owned by
him into a marketable condition in the form of lumber; Brooks was to furnish the funds necessary
for that purpose, sell the manufactured product, and account therefor to Salisbury upon the
specific terms of the agreement, less the compensation fixed by the parties in lieu of interest on
the money advanced and for services as agent. These requirements and stipulations are in tent
with any other conception of the contract. If it constitutes an agreement to sell, they are
meaningless. But they cannot be ignored. They were placed there for some purpose, doubtless
as the result of definite antecedent negotiations therefore, consummated by the final written
expression of the agreement." 21 Hence the Constantino opinion could categorically affirm that
the mere disclaimer in a contract that an entity like petitioner is not "the agent or legal
representative for any purpose whatsoever" does not suffice to yield the conclusion that it is an
independent merchant if the control over the goods for resale of the goods consigned is
pervasive in character. The Court of Tax Appeals decision now under review pays fealty to such
an applicable doctrine.
2. No merit therefore attaches to the first error imputed by petitioner to the Court of Tax Appeals.
Neither did such Court fail to appreciate in its true significance the act and conduct pursued in
the implementation of the contract by both the United States Rubber International and petitioner,
as was contended in the second assignment of error. Petitioner ought to have been aware that
there was no need for such an inquiry. The terms of the contract, as noted, speak quite clearly.
There is lacking that degree of ambiguity sufficient to give rise to serious doubt as to what was
contemplated by the parties. A reading thereof discloses that the relationship arising therefrom
was not one of seller and purchaser. If it were thus intended, then it would not have included
covenants which in their totality would negate the concept of a firm acquiring as vendee goods
from another. Instead, the stipulations were so worded as to lead to no other conclusion than
that the control by the United States Rubber International over the goods in question is, in the
language of the Constantino opinion, "pervasive". The insistence on a relationship opposed to
that apparent from the language employed might even yield the impression that such a mode of
construction was resorted to in order that the applicability of a taxing statute might be rendered
nugatory. Certainly, such a result is to be avoided.
Nor is it to be lost sight of that on a matter left to the discretion of the Court of Tax Appeals which
has developed an expertise in view of its function being limited solely to the interpretation of
revenue laws, this Court is not prepared to substitute its own judgment unless a grave abuse of
discretion is manifest. It would be to frustrate the objective for which administrative tribunals are
created if the judiciary, absent such a showing, is to ignore their appraisal on a matter that forms
the staple of their specialized competence. While it is to be admitted that counsel for petitioner
did scrutinize with care the decision under review with a view to exposing what was considered

10
its flaws, it cannot be said that there was such a failure to apply what the law commands as to call
for its reversal. Instead, what cannot be denied is that the Court of Tax Appeals reached a result to
which the Court in the recent Constantino decision gave the imprimatur of its approval.

WHEREFORE, the motion for reconsideration of the defendant against the order of November
3, 1967 is hereby DENIED. (Annex "M," Rollo, P. 196)
The facts of the case are as follows:

WHEREFORE, the Court of Tax Appeals decision of October 19, 1962 is affirmed. With costs
against petitioner.
G.R. No. L-27829 August 19, 1988
PHILIPPINE VIRGINIA TOBACCO ADMINISTRATION vs. HON. WALFRIDO DE LOS ANGELES
PARAS, J.:
In these petition and supplemental petition for Certiorari, Prohibition and mandamus with
Preliminary Injunction, petitioner Philippine Virginia Tobacco Administration seeks to annul and set
aside the following Orders of respondent Judge of the Court of First Instance of Rizal, Branch IV
(Quezon City) in Civil Case No. Q-10351 and prays that the Writ of Preliminary Injunction (that may
be) issued by this Court enjoining enforcement of the aforesaid Orders be made permanent.
(Petition, Rollo, pp. 1-9)
They are:
The Order of July 17, 1967:
AS PRAYED FOR, the Prudential Bank & Trust Company is hereby directed to release and
deliver to the herein plaintiff, Timoteo A. Sevilla, the amount of P800,000.00 in its custody
representing the marginal deposit of the Letters of Credit which said bank has issued in favor of
the defendant, upon filing by the plaintiff of a bond in the um of P800,000.00, to answer for
whatever damage that the defendant PVTA and the Prudential Bank & Trust Company may
suffer by reason of this order. (Annex "A," Rollo, p. 12)
The Order of November 3,1967:
IN VIEW OF THE FOREGOING, the petition under consideration is granted, as follows: (a) the
defendant PVTA is hereby ordered to issue the corresponding certificate of Authority to the
plaintiff, allowing him to export the remaining balance of his tobacco quota at the current world
market price and to make the corresponding import of American high-grade tobacco; (b) the
defendant PVTA is hereby restrained from issuing any Certificate of Authority to export or import
to any persons and/or entities while the right of the plaintiff to the balance of his quota remains
valid, effective and in force; and (c) defendant PVTA is hereby enjoined from opening public
bidding to sell its Virginia leaf tobacco during the effectivity of its contract with the plaintiff.
xxx xxx xxx
In order to protect the defendant from whatever damage it may sustain by virtue of this order, the
plaintiff is hereby directed to file a bond in the sum of P20,000.00. (Annex "K," Rollo, pp. 4-5)
The Order of March 16, 1968:

Respondent Timoteo Sevilla, proprietor and General Manager of the Philippine Associated
Resources (PAR) together with two other entities, namely, the Nationwide Agro-Industrial
Development Corp. and the Consolidated Agro-Producers Inc. were awarded in a public bidding
the right to import Virginia leaf tobacco for blending purposes and exportation by them of PVTA
and farmer's low-grade tobacco at a rate of one (1) kilo of imported tobacco for every nine (9)
kilos of leaf tobacco actually exported. Subsequently, the other two entities assigned their rights
to PVTA and respondent remained the only private entity accorded the privilege.
The contract entered into between the petitioner and respondent Sevilla was for the importation
of 85 million kilos of Virginia leaf tobacco and a counterpart exportation of 2.53 million kilos of
PVTA and 5.1 million kilos of farmer's and/or PVTA at P3.00 a kilo. (Annex "A," p. 55 and Annex
"B," Rollo, p. 59) In accordance with their contract respondent Sevilla purchased from petitioner
and actually exported 2,101.470 kilos of tobacco, paying the PVTA the sum of P2,482,938.50
and leaving a balance of P3,713,908.91. Before respondent Sevilla could import the counterpart
blending Virginia tobacco, amounting to 525,560 kilos, Republic Act No. 4155 was passed and
took effect on June 20, 1 964, authorizing the PVTA to grant import privileges at the ratio of 4 to
1 instead of 9 to 1 and to dispose of all its tobacco stock at the best price available.
Thus, on September 14, 1965 subject contract which was already amended on December 14,
1963 because of the prevailing export or world market price under which respondent will be
exporting at a loss, (Complaint, Rollo, p. 3) was further amended to grant respondent the
privileges under aforesaid law, subject to the following conditions: (1) that on the 2,101.470 kilos
already purchased, and exported, the purchase price of about P3.00 a kilo was maintained; (2)
that the unpaid balance of P3,713,908.91 was to be liquidated by paying PVTA the sum of P4.00
for every kilo of imported Virginia blending tobacco and; (3) that respondent Sevilla would open
an irrevocable letter of credit No. 6232 with the Prudential Bank and Trust Co. in favor of the
PVTA to secure the payment of said balance, drawable upon the release from the Bureau of
Customs of the imported Virginia blending tobacco.
While respondent was trying to negotiate the reduction of the procurement cost of the 2,101.479
kilos of PVTA tobacco already exported which attempt was denied by petitioner and also by the
Office of the President, petitioner prepared two drafts to be drawn against said letter of credit for
amounts which have already become due and demandable. Respondent then filed a complaint
for damages with preliminary injunction against the petitioner in the amount of P5,000,000.00.
Petitioner filed an answer with counterclaim, admitting the execution of the contract. It alleged
however that respondent, violated the terms thereof by causing the issuance of the preliminary
injunction to prevent the former from drawing from the letter of credit for amounts due and
payable and thus caused petitioner additional damage of 6% per annum.
A writ of preliminary injunction was issued by respondent judge enjoining petitioner from drawing
against the letter of credit. On motion of respondent, Sevilla, the lower court dismissed the
complaint on April 19, 1967 without prejudice and lifted the writ of preliminary injunction but
petitioner's motion for reconsideration was granted on June 5,1967 and the Order of April
19,1967 was set aside. On July 1, 1967 Sevilla filed an urgent motion for reconsideration of the
Order of June 5, 1967 praying that the Order of dismissal be reinstated. But pending the

11
resolution of respondent's motion and without notice to the petitioner, respondent judge issued the
assailed Order of July 17, 1967 directing the Prudential Bank & Trust Co. to make the questioned
release of funds from the Letter of Credit. Before petitioner could file a motion for reconsideration of
said order, respondent Sevilla was able to secure the releaseof P300,000.00 and the rest of the
amount. Hence this petition, followed by the supplemental petition when respondent filed with the
lower court an urgent ex-parte petition for the issuance of preliminary mandatory and preventive
injunction which was granted in the resolution of respondent Judge on November 3, 1967, above
quoted. On March 16, 1968, respondent Judge denied petitioner's motion for reconsideration.
(Supp. Petition, Rollo, pp. 128- 130)
Pursuant to the resolution of July 21, 1967, the Supreme Court required respondent to file an
answer to the petition within 10 days from notice thereof and upon petitioner's posting a bond of
fifty thousand pesos (P50,000.00), a writ of preliminary mandatory injunction was issued enjoining
respondent Judge from enforcing and implementing his Order of July 17,1967 and private
respondents Sevilla and Prudential Bank and Trust Co. from complying with and implementing said
order. The writ further provides that in the event that the said order had already been complied with
and implemented, said respondents are ordered to return and make available the amounts that
might have been released and taken delivery of by respondent Sevilla. (Rollo, pp. 16-17)
In its answer, respondent bank explained that when it received the Order of the Supreme Court to
stop the release of P800,000.00 it had already released the same in obedience to ailieged earlier
Order of the lower Court which was reiterated with ailieged admonition in a subsequent Order.
(Annex "C," Rollo, pp. 37-38) A Manifestation to that effect has already been filed c,irrency
respondent bank (Rollo, pp. 19-20) which was noted c,irrency this Court in the resolution of August
1, 1967, a copy of which was sent to the Secretary of Justice. (Rollo, p. 30)
Before respondent Sevilla could file his answer, petitioner filed a motion to declare him and
respondent bank in contempt of court for having failed to comply with the resolution to this court of
July 21, 1967 to the effect that the assailed order has already been implemented but respondents
failed to return and make available the amounts that had been released and taken delivery of by
respondent Sevilla. (Rollo, pp. 100-102)
In his answer to the petition, respondent Sevilla claims that petitioner demanded from him a much
higher price for Grades D and E tobacco than from the other awardees; that petitioner violated its
contract by granting indiscriminately to numerous buyers the right to export and import tobacco
while his agreement is being implemented, thereby depriving respondent of his exclusive right to
import the Virginia leaf tobacco for blending purposes and that respondent Judge did not abuse his
discretion in ordering the release of the amount of P800,000.00 from the Letter of Credit, upon his
posting a bond for the same amount. He argued further that the granting of said preliminary
injunction is within the sound discretion of the court with or without notice to the adverse party
when the facts and the law are clear as in the instant case. He insists that petitioner caretaker.2
claim from him a price higher than the other awardees and that petitioner has no more right to the
sum in controversy as the latter has already been overpaid when computed not at the price of
tobacco provided in the contract which is inequitable and therefore null and void but at the price
fixed for the other awardees. (Answer of Sevilla, Rollo, pp. 105-111)
In its Answer to the Motion for Contempt, respondent bank reiterates its allegations in the
Manifestation and Answer which it filed in this case. (Rollo, pp. 113-114)

In his answer, (Rollo, pp. 118-119) to petitioner's motion to declare him in contempt, respondent
Sevilla explains that when he received a copy of the Order of this Court, he had already
disbursed the whole amount withdrawn, to settle his huge obligations. Later he filed a
supplemental answer in compliance with the resolution of this Court of September 15, 1967
requiring him to state in detail the amounts allegedly disbursed c,irrency him out of the
withdrawn funds. (Rollo, pp. 121-123)
Pursuant to the resolution of the Supreme Court on April 25, 1968, a Writ of Preliminary
Injunction was issued upon posting of a surety bond in the amount of twenty thousand pesos
(P20,000.00) restraining respondent Judge from enforcing and implementing his orders of
November 3, 1967 and March 16, 1968 in Civil Case No. Q-10351 of the Court of First Instance
of Rizal (Quezon City).
Respondent Sevilla filed an answer to the supplemental petition (Rollo, pp. 216-221) and so did
respondent bank (Rollo, p. 225). Thereafter, all the parties filed their respective memoranda
(Memo for Petitioners, Rollo, pp. 230-244 for Resp. Bank, pp. 246-247; and for Respondents,
Rollo, pp. 252-257). Petitioners filed a rejoinder (rollo, pp. 259-262) and respondent Sevilla filed
an Amended Reply Memorandum (Rollo, pp. 266274). Thereafter the case was submitted for
decision:' in September, 1968 (Rollo, p. 264).
Petitioner has raised the following issues:
1. Respondent Judge acted without or in excess of jurisdiction or with grave abuse of discretion
when he issued the Order of July 17, 1967, for the following reasons: (a) the letter of credit
issued by respondent bank is irrevocable; (b) said Order was issued without notice and (c) said
order disturbed the status quo of the parties and is tantamount to prejudicing the case on the
merits. (Rollo, pp. 7-9)
2. Respondent Judge likewise acted without or in excess of jurisdiction or with grave abuse of
discretion when he issued the Order of November 3, 1967 which has exceeded the proper
scope and function of a Writ of Preliminary Injunction which is to preserve the status quo and
caretaker.2 therefore assume without hearing on the merits, that the award granted to
respondent is exclusive; that the action is for specific performance a d that the contract is still in
force; that the conditions of the contract have already been complied with to entitle the party to
the issuance of the corresponding Certificate of Authority to import American high grade
tobacco; that the contract is still existing; that the parties have already agreed that the balance of
the quota of respondent will be sold at current world market price and that petitioner has been
overpaid.
3. The alleged damages suffered and to be suffered by respondent Sevilla are not irreparable,
thus lacking in one essential prerequisite to be established before a Writ of Preliminary
Injunction may be issued. The alleged damages to be suffered are loss of expected profits which
can be measured and therefore reparable.
4. Petitioner will suffer greater damaaes than those alleged by respondent if the injunction is not
dissolved. Petitioner stands to lose warehousing storage and servicing fees amounting to
P4,704.236.00 yearly or P392,019.66 monthly, not to mention the loss of opportunity to take
advantage of any beneficial change in the price of tobacco.

12
5. The bond fixed by the lower court, in the amount of P20,000.00 is grossly inadequate, (Rollo, pp.
128-151)

between the parties, recently and arbitrarily interrupted c,irrency the defendant, than to establish
a new relation (Alvaro v. Zapata, 11 8 SCRA 722; Lemi v. Valencia, February 28, 1963, 7 SCRA
469; Com. of Customs v. Cloribel, L-20266, January 31, 1967,19 SCRA 234.

The petition is impressed with merit.

In issuing the Order of July 17, 1967, respondent Judge violated the irrevocability of the letter of
credit issued by respondent Bank in favor of petitioner. An irrevocable letter of credit caretaker.2
during its lifetime be cancelled or modified Without the express permission of the beneficiary
(Miranda and Garrovilla, Principles of Money Credit and Banking, Revised Edition, p. 291).
Consequently, if the finding agricul- the trial on the merits is that respondent Sevilla has ailieged
unpaid balance due the petitioner, such unpaid obligation would be unsecured.
In the issuance of the aforesaid Order, respondent Judge likewise violated: Section 4 of Rule 15 of
the Relatiom, Rules of Court which requires that notice of a motion be served by the applicant to all
parties concerned at least three days before the hearing thereof; Section 5 of the same Rule which
provides that the notice shall be directed to the parties concerned; and shall state the time and
place for the hearing of the motion; and Section 6 of the same Rule which requires proof of service
of the notice thereof, except when the Court is satisfied that the rights of the adverse party or
parties are not affected, (Sunga vs. Lacson, L-26055, April 29, 1968, 23 SCRA 393) A motion which
does not meet the requirements of Sections 4 and 5 of Rule 15 of the Relatiom, Rules of Court is
considered a worthless piece of paper which the Clerk has no right to receiver and the respondent
court a quo he has no authority to act thereon. (Vda. de A. Zarias v. Maddela, 38 SCRA 35;
Cledera v. Sarn-j-iento, 39 SCRA 552; and Sacdalan v. Bautista, 56 SCRA 175). The three-day
notice required by law in the filing of a motion is intended not for the movant's benefit but to avoid
surprises upon the opposite party and to give the latter time to study and meet the arguments of
the motion. (J.M. Tuason and Co., Inc. v. Magdangal, L-1 5539. 4 SCRA 84).
More specifically, Section 5 of Rule 58 requires notice to the defendant before a preliminary
injunction is granted unless it shall appear from facts shown bv affidavits or by the verified
complaint that great or irreparable injury would result to the applyin- before the matter can be heard
on notice. Once the application is filed with the Judge, the latter must cause ailieged Order to be
served on the defendant, requiring him to show cause at a given time and place why the injunction
should not be granted. The hearing is essential to the legality of the issuance of a preliminary
injunction. It is ailieged abuse of discretion on the part of the court to issue ailieged injunction
without hearing the parties and receiving evidence thereon (Associated Watchmen and Security
Union, et al. v. United States Lines, et al., 101 Phil. 896).
In the issuance of the Order of November 3, 1967, with notice and hearing notwithstanding the
discretionary power of the trial court to Issue a preliminary mandatory injunction is not absolute as
the issuance of the writ is the exception rather than the rule. The party appropriate for it must show
a clear legal right the violation of which is so recent as to make its vindication an urgent one (Police
Commission v. Bello, 37 SCRA 230). It -is granted only on a showing that (a) the invasion of the
right is material and substantial; (b) the right of the complainant is clear and unmistakable; and (c)
there is ailieged urgent and permanent necessity for the writ to prevent serious decision ( Pelejo v.
Court of Appeals, 117 SCRA 665). In fact, it has always been said that it is improper to issue a writ
of preliminary mandatory injunction prior to the final hearing except in cases of extreme urgency,
where the right of petitioner to the writ is very clear; where considerations of relative inconvenience
bear strongly in complainant's favor; where there is a willful and unlawful invasion of plaintiffs right
against his protest and remonstrance the injury being a contributing one, and there the effect of the
mandatory injunctions is rather to re-establish and maintain a pre-existing continuing relation

In the case at bar there appears no urgency for the issuance of the writs of preliminary
mandatory injunctions in the Orders of July 17, 1967 and November 3, 1967; much less was
there a clear legal right of respondent Sevilla that has been violated by petitioner. Indeed, it was
ailieged abuse of discretion on the part of respondent Judge to order the dissolution of the letter
of credit on the basis of assumptions that cannot be established except by a hearing on the
merits nor was there a showing that R.A. 4155 applies retroactively to respondent in this case,
modifying his importation / exportation contract with petitioner. Furthermore, a writ of preliminary
injunction's enjoining any withdrawal from Letter of Credit 6232 would have been sufficient to
protect the rights of respondent Sevilla should the finding be that he has no more unpaid
obligations to petitioner.
Similarly, there is merit in petitioner's contention that the question of exclusiveness of the award
is ailieged issue raised by the pleadings and therefore a matter of controversy, hence a
preliminary mandatory injunction directing petitioner to issue respondent Sevilla a certificate of
authority to import Virginia leaf tobacco and at the same time restraining petitioner from issuing a
similar certificate of authority to others is premature and improper.
The sole object of a preliminary injunction is to preserve the status quo until the merit can be
heard. It is the last actual peaceable uncontested status which precedes the pending
controversy (Rodulfo v. Alfonso, L-144, 76 Phil. 225), in the instant case, before the Case No. Q10351 was filed in the Court of First Instance of Rizal. Consequently, instead of operating to
preserve the status quo until the parties' rights can be fairly and fully investigated and
determined (De los Reyes v. Elepano, et al., 93 Phil. 239), the Orders of July 17, 1966 and
March 3, 1967 serve to disturb the status quo.
Injury is considered irreparable if it is of such constant and frequent recurrence that no fair or
reasonable redress can be had therefor in a court of law (Allundorff v. Abrahanson, 38 Phil. 585)
or where there is no standard c,irrency which their amount can be measured with reasonable
accuracy, that is, it is not susceptible of mathematical computation (SSC v. Bayona, et al., L13555, May 30, 1962).
Any alleged damage suffered or might possibly be suffered by respondent Sevilla refers to
expected profits and claimed by him in this complaint as damages in the amount of FIVE Million
Pesos (P5,000,000.00), a damage that can be measured, susceptible of mathematical
computation, not irreparable, nor do they necessitate the issuance of the Order of November 3,
1967.
Conversely, there is truth in petitioner's claim that it will suffer greater damage than that suffered
by respondent Sevilla if the Order of November 3, 1967 is not annulled. Petitioner's stock if not
made available to other parties will require warehouse storage and servicing fees in the amount
of P4,704,236.00 yearly or more than P9,000.000.00 in two years time.
Parenthetically, the alleged insufficiency of a bond fixed by the Court is not by itself ailieged
adequate reason for the annulment of the three assailed Orders. The filing of ailieged insufficient
or defective bond does not dissolve absolutely and unconditionally ailieged injunction. The

13
remedy in a proper case is to order party to file a sufficient bond (Municipality of La Trinidad v. CFI
of Baguio - Benguet, Br. I, 123 SCRA 81). However, in the instant case this remedy is not sufficient
to cure the defects already adverted to.
PREMISES CONSIDERED, the petition is given due course and the assailed Orders of July 17,
1967 and November 3, 1967 and March 16, 1968 are ANNULLED and SET ASIDE; and the
preliminary injunctions issued c,irrency this Court should continue until the termination of Case No.
Q-10351 on the merits. SO ORDERED,
G.R. No. 141323 June 8, 2005
DAVID V. PELAYO and LORENZA*B. PELAYO vs. MELKI E. PEREZ
DECISION
AUSTRIA-MARTINEZ, J.:
This resolves the petition for review on certiorari seeking the reversal of the Decision [1] of
the Court of Appeals (CA) promulgated on April 20, 1999 which reversed the Decision of the
Regional Trial Court (RTC) of Panabo, Davao, Branch 34, in Civil Case No. 91-46; and the CA
Resolution dated December 17, 1999 denying petitioners motion for reconsideration.
The antecedent facts as aptly narrated by the CA are as follows:
David Pelayo (Pelayo),by a Deed of Absolute Sale executed on January 11, 1988,
conveyed to Melki Perez (Perez) two parcels of agricultural land (the lots) situated in Panabo,
Davao which are portions of Lot 4192, Cad. 276 covered by OCT P-16873.
Loreza Pelayo (Loreza), wife of Pelayo, and another one whose signature is illegible
witnessed the execution of the deed.
Loreza, however, signed only on the third page in the space provided for witnesses on
account of which Perez application for registration of the deed with the Office of the Register
of Deeds in Tagum, Davao was denied.
Perez thereupon asked Loreza to sign on the first and second pages of the deed but she
refused, hence, he instituted on August 8, 1991 the instant complaint for specific performance
against her and her husband Pelayo (defendants).
The defendants moved to dismiss the complaint on the ground that it stated no cause of
action, citing Section 6 of RA 6656 otherwise known as the Comprehensive Agrarian Reform
Law which took effect on June 10, 1988 and which provides that contracts executed prior
thereto shall be valid only when registered with the Register of Deeds within a period of three
(3) months after the effectivity of this Act.
The questioned deed having been executed on January 10, 1988, the defendants claimed
that Perez had at least up to September 10, 1988 within which to register the same, but as
they failed to, it is not valid and, therefore, unenforceable.
The trial court thus dismissed the complaint. On appeal to this Court, the dismissal was set
aside and the case was remanded to the lower court for further proceedings.
In their Answer, the defendants claimed that as the lots were occupied illegally by some
persons against whom they filed an ejectment case, they and Perez who is their friend and

known at the time as an activist/leftist, hence feared by many, just made it appear in the
deed that the lots were sold to him in order to frighten said illegal occupants, with the
intentional omission of Lorezas signature so that the deed could not be registered; and that
the deed being simulated and bereft of consideration is void/inexistent.
Perez countered that the lots were given to him by defendant Pelayo in consideration of
his services as his attorney-in-fact to make the necessary representation and negotiation
with the illegal occupants-defendants in the ejectment suit; and that after his relationship
with defendant Pelayo became sour, the latter sent a letter to the Register of Deeds of
Tagum requesting him not to entertain any transaction concerning the lots title to which was
entrusted to Perez who misplaced and could [not] locate it.
Defendant Pelayo claimed in any event, in his Pre-trial brief filed on March 19, 1996, that
the deed was without his wife Lorezas consent, hence, in light of Art. 166 of the Civil Code
which provides:
Article 166. Unless the wife has been declared a non compos mentis or a spendthrift, or
is under civil interdiction or is confined in a leprosarium, the husband cannot alienate or
encumber any real property of the conjugal partnership without the wifes consent . . .
it is null and void.
The trial court, finding, among others, that Perez did not possess, nor pay the taxes on
the lots, that defendant Pelayo was indebted to Perez for services rendered and, therefore,
the deed could only be considered as evidence of debt, and that in any event, there was no
marital consent to nor actual consideration for the deed, held that the deed was null and
void and accordingly rendered judgment the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered ordering and directing the defendants to
pay plaintiff Melki Perez the sum of TEN THOUSAND (P10,000.00) Pesos as principal with
12% interest per annum starting from the date of filing of the complaint on August 1, 1991
until plaintiff is fully paid.
The defendants shall likewise pay to plaintiff the sum of THREE THOUSAND
(P3,000.00) as attorneys fees.
The court further orders that the Deed of Absolute Sale, (Annex A) of the complaint and
(Annex C) of the plaintiffs Motion for Summary Judgment is declared null and void and
without force and it is likewise removed as a cloud over defendants title and property in
suit. . . .[2]
The RTC Decision was appealed by herein respondent Perez to the CA. Petitioners
failed to file their appellees brief. The CA then promulgated its Decision on April 20, 1999
whereby it ruled that by Lorenzas signing as witness to the execution of the deed, she had
knowledge of the transaction and is deemed to have given her consent to the same; that herein
petitioners failed to adduce sufficient proof to overthrow the presumption that there was
consideration for the deed, and that petitioner David Pelayo, being a lawyer, is presumed to
have acted with due care and to have signed the deed with full knowledge of its contents and
import. The CA reversed and set aside the RTC Decision, declaring as valid and enforceable
the questioned deed of sale and ordering herein petitioner Lorenza Pelayo to affix her signature
on all pages of said document.

14

Petitioners moved for reconsideration of the decision but the same was denied per
Resolution dated December 17, 1999. The CA found said motion to have been filed out of time
and ruled that even putting aside technicality, petitioners failed to present any ground bearing on
the merits of the case to justify a reversal or setting aside of the decision.
Hence, this petition for review on certiorari on the following grounds:
1.
The CA erred in ignoring the specific provision of Section 6, in relation to Section 4
of R.A. No. 6657 otherwise known as the Comprehensive Agrarian Reform Law of 1988 which took
effect on June 15, 1988 and which provides that contracts executed prior thereto shall be valid
only when registered with the Register of Deeds within a period of three (3) months after the
effectivity of this Act.
2.
The CA erred in holding that the deed of sale was valid and considering
the P10,000.00 adjudged by the trial court as Perezs remuneration as the consideration for the
deed of sale, instead of declaring the same as null and void for being fictitious or simulated and on
the basis of Art. 491, Par. 2 of the New Civil Code which prohibits agents from acquiring by
purchase properties from his principal under his charge.
3.
The CA made a novel ruling that there was implied marital consent of the wife of
petitioner David Pelayo.
4.
Petitioners should have been allowed to file their appellees brief to ventilate their
side, considering the existence of peculiar circumstances which prevented petitioners from filing
said brief.

said law; (b) for lack of marital consent; (c) for being prohibited under Article 1491 (2) of the Civil
Code; and (d) for lack of consideration.
We rule against petitioners.
The issue of whether or not the deed of sale is null and void under R.A. No. 6657, for
respondents failure to register said document with the Register of Deeds within three months
after the effectivity of R.A. No. 6657, had been resolved with finality by the CA in its Decision
dated November 24, 1994 in CA-G.R. SP No. 38700. [4] Herein petitioners no longer elevated
said CA Decision to this Court and the same became final and executory on January 7, 1995.[5]
In said decision, the CA interpreted Section 4, in relation to Section 70 of R.A. No.
6657, to mean thus:
. . . the proper interpretation of both sections is that under R.A. No. 6657, the sale or
transfer of a private agricultural land is allowed only when said land area constitutes or is a
part of the landowner-seller retained area and only when the total landholdings of the
purchaser-transferee, including the property sold does not exceed five (5) hectares.
Aside from declaring that the failure of respondent to register the deed was not of his own fault
or negligence, the CA ruled that respondents failure to register the deed of sale within three
months after effectivity of The Comprehensive Agrarian Reform Law did not invalidate the deed
of sale as the transaction over said property is not proscribed by R.A. No. 6657.
Thus, under the principle of law of the case, said ruling of the CA is now binding on
petitioners. Such principle was elucidated in Cucueco vs. Court of Appeals,[6] to wit:

On the other hand, respondent points out that the CA, in resolving the first appeal
docketed as CA-G.R. SP No. 38700[3] brought by respondent assailing the RTC Order granting
herein petitioners motion to dismiss, already ruled that under R.A. No. 6657, the sale or transfer of
private agricultural land is allowed only when the area of the land being conveyed constitutes or is
a part of, the landowner-seller retained area and when the total landholding of the purchasertransferee, including the property sold, does not exceed five (5) hectares; that in this case, the land
in dispute is only 1.3 hectares and there is no proof that the transferees (herein respondent) total
landholding inclusive of the subject land will exceed 5 hectares, the landholding ceiling prescribed
by R.A. No. 6657; that the failure of respondent to register the instrument was not due to his fault
or negligence but can be attributed to Lorenzas unjustified refusal to sign two pages of the deed
despite several requests of respondent; and that therefore, the CA ruled that the deed of sale
subject of this case is valid under R.A. No. 6657.

Petitioners not having questioned the Decision of the CA dated November 24, 1994 which then
attained finality, the ruling that the deed of sale subject of this case is not among the transactions
deemed as invalid under R.A. No. 6657, is now immutable.

Respondent further maintains that the CA correctly held in its assailed Decision that
there was consideration for the contract and that Lorenza is deemed to have given her consent to
the deed of sale.

We agree with the CA ruling that petitioner Lorenza, by affixing her signature to the
Deed of Sale on the space provided for witnesses, is deemed to have given her implied consent
to the contract of sale.

Respondent likewise opines that the CA was right in denying petitioners motion for
reconsideration where they prayed that they be allowed to file their appellees brief as their counsel
failed to file the same on account of said counsels failing health due to cancer of the liver.
Respondent emphasized that in petitioners motion for reconsideration, they did not even cite any
errors made by the CA in its Decision.

Sale is a consensual contract that is perfected by mere consent, which may either be
express or implied.[7] A wifes consent to the husbands disposition of conjugal property does not
always have to be explicit or set forth in any particular document, so long as it is shown by acts
of the wife that such consent or approval was indeed given. [8] In the present case, although it
appears on the face of the deed of sale that Lorenza signed only as an instrumental witness,
circumstances leading to the execution of said document point to the fact that Lorenza was fully
aware of the sale of their conjugal property and consented to the sale.

The issues boil down to the question of whether or not the deed of sale was null and void
on the following grounds: (a) for not complying with the provision in R.A. No. 6657 that such
document must be registered with the Register of Deeds within three months after the effectivity of

Law of the case has been defined as the opinion delivered on a former appeal. It is a
term applied to an established rule that when an appellate court passes on a question and
remands the case to the lower court for further proceedings, the question there settled
becomes the law of the case upon subsequent appeal. It means that whatever is once
irrevocably established as the controlling legal rule or decision between the same parties in
the same case continues to be the law of the case, whether correct on general principles or
not, so long as the facts on which such decision was predicated continue to be the facts of
the case before the court.

15
In their Pre-Trial Brief,[9] petitioners admitted that even prior to 1988, they have been
having serious problems, including threats to the life of petitioner David Pelayo, due to conflicts
with the illegal occupants of the property in question, so that respondent, whom many feared for
being a leftist/activist, offered his help in driving out said illegal occupants.
Human experience tells us that a wife would surely be aware of serious problems such
as threats to her husbands life and the reasons for such threats. As they themselves stated,
petitioners problems over the subject property had been going on for quite some time, so it is
highly improbable for Lorenza not to be aware of what her husband was doing to remedy such
problems. Petitioners do not deny that Lorenza Pelayo was present during the execution of the
deed of sale as her signature appears thereon. Neither do they claim that Lorenza Pelayo had no
knowledge whatsoever about the contents of the subject document. Thus, it is quite
certain that she knew of the sale of their conjugal property between her husband and respondent.
Under the rules of evidence, it is presumed that a person takes ordinary care of his
concerns.[10] Petitioners did not even attempt to overcome the aforementioned presumption as no
evidence was ever presented to show that Lorenza was in any way lacking in her mental faculties
and, hence, could not have fully understood the ramifications of signing the deed of sale. Neither
did petitioners present any evidence that Lorenza had been defrauded, forced, intimidated or
threatened either by her own husband or by respondent into affixing her signature on the subject
document. If Lorenza had any objections over the conveyance of the disputed property, she could
have totally refrained from having any part in the execution of the deed of sale. Instead, Lorenza
even affixed her signature thereto.
Moreover, under Article 173, in relation to Article 166, both of the New Civil Code, which
was still in effect on January 11, 1988 when the deed in question was executed, the lack of marital
consent to the disposition of conjugal property does not make the contract void ab initio but merely
voidable. Said provisions of law provide:
Art. 166. Unless the wife has been declared a non compos mentis or a spendthrift, or is
under civil interdiction or is confined in a leprosarium, the husband cannot alienate or
encumber any real property of the conjugal property without the wifes consent. If she refuses
unreasonably to give her consent, the court may compel her to grant the same.

we find it quite puzzling why for more than three and a half years, Lorenza did absolutely nothing
to seek the nullification of the assailed contract.
The foregoing circumstances lead the Court to believe that Lorenza knew of the full
import of the transaction between respondent and her
husband; and, by affixing her signature on the deed of sale, she, in effect, signified her consent
to the disposition of their conjugal property.
With regard to petitioners asseveration that the deed of sale is invalid under Article
1491, paragraph 2 of the New Civil Code, we find such argument unmeritorious. Article 1491 (2)
provides:
Art. 1491. The following persons cannot acquire by purchase, even at a public or
judicial auction, either in person or through the mediation of another:
...
(2) Agents, the property whose administration or sale may have been entrusted to
them, unless the consent of the principal has been given;
...
In Distajo vs. Court of Appeals,[12] a landowner, Iluminada Abiertas, designated one of
her sons as the administrator of several parcels of her land. The landowner subsequently
executed a Deed of Certification of Sale of Unregistered Land, conveying some of said land to
her son/administrator. Therein, we held that:
Under paragraph (2) of the above article, the prohibition against agents purchasing
property in their hands for sale or management is not absolute. It does not apply if the
principal consents to the sale of the property in the hands of the agent or administrator. In
this case, the deeds of sale signed by Iluminada Abiertas shows that she gave consent to
the sale of the properties in favor of her son, Rufo, who was the administrator of the
properties. Thus, the consent of the principal Iluminada Abiertas removes the transaction
out of the prohibition contained in Article 1491(2).[13]

...
Art. 173. The wife may, during the marriage, and within ten years from the transaction
questioned, ask the courts for the annulment of any contract of the husband entered into
without her consent, when such consent is required, or any act or contract of the husband
which tends to defraud her or impair her interest in the conjugal partnership property. Should
the wife fail to exercise this right, she or her heirs, after the dissolution of the marriage, may
demand the value of property fraudulently alienated by the husband.
Hence, it has been held that the contract is valid until the court annuls the same and only
upon an action brought by the wife whose consent was not obtained. [11] In the present case,
despite respondents repeated demands for Lorenza to affix her signature on all the pages of the
deed of sale, showing respondents insistence on enforcing said contract, Lorenza still did not file a
case for annulment of the deed of sale. It was only when respondent filed a complaint for specific
performance on August 8, 1991 when petitioners brought up Lorenzas alleged lack of consent as
an affirmative defense. Thus, if the transaction was indeed entered into without Lorenzas consent,

The above-quoted ruling is exactly in point with this case before us. Petitioners, by
signing the Deed of Sale in favor of respondent, are also deemed to have given their consent to
the sale of the subject property in favor of respondent, thereby making the transaction an
exception to the general rule that agents are prohibited from purchasing the property of their
principals.
Petitioners also argue that the CA erred in ruling that there was consideration for the
sale. We find no error in said appellate courts ruling. The element of consideration for the sale
is indeed present. Petitioners, in adopting the trial courts narration of antecedent facts in their
petition,[14] thereby admitted that they authorized respondent to represent them in negotiations
with the squatters occupying the disputed property and, in consideration of respondents
services, they executed the subject deed of sale. Aside from such services rendered by
respondent, petitioners also acknowledged in the deed of sale that they received in full the
amount of Ten Thousand Pesos. Evidently, the consideration for the sale is respondents
services plus the aforementioned cash money.

16
Petitioners contend that the consideration stated in the deed of sale is excessively
inadequate, indicating that the deed of sale was merely simulated. We are not persuaded. Our
ruling in Buenaventura vs. Court of Appeals[15] is pertinent, to wit:
. . . Indeed, there is no requirement that the price be equal to the exact value of the subject
matter of sale. . . . As we stated in Vales vs. Villa:
Courts cannot follow one every step of his life and extricate him from bad bargains, protect
him from unwise investments, relieve him from one-sided contracts, or annul the effects of
foolish acts. Courts cannot constitute themselves guardians of persons who are not legally
incompetent. Courts operate not because one person has been defeated or overcome by
another, but because he has been defeated or overcome illegally. Men may do foolish things,
make ridiculous contracts, use miserable judgment, and lose money by them indeed, all
they have in the world; but not for that alone can the law intervene and restore. There must
be, in addition, a violation of the law, the commission of what the law knows as
an actionable wrong, before the courts are authorized to lay hold of the situation and remedy
it.[16]
Verily, in the present case, petitioners have not presented proof that there has been fraud, mistake
or undue influence exercised upon them by respondent. It is highly unlikely and contrary to
human experience that a layman like respondent would be able to defraud, exert undue influence,
or in any way vitiate the consent of a lawyer like petitioner David Pelayo who is expected to be
more knowledgeable in the ways of drafting contracts and other legal transactions.
Furthermore, in their Reply to Respondents Memorandum,[17] petitioners adopted the
CAs narration of fact that petitioners stated in a letter they sent to the Register of Deeds of Tagum
that they have entrusted the titles over subject lots to herein respondent. Such act is a clear
indication that they intended to convey the subject property to herein respondent and the deed of
sale was not merely simulated or fictitious.
Lastly, petitioners claim that they were not able to fully ventilate their defense before the
CA as their lawyer, who was then suffering from cancer of the liver, failed to file their appellees
brief. Thus, in their motion for reconsideration of the CA Decision, they prayed that they be allowed
to submit such appellees brief. The CA, in its Resolution dated December 17, 1999, stated thus:
By movant-defendant-appellees own information, his counsel received a copy of the
decision on May 5, 1999. He, therefore, had fifteen (15) days from said date or up to May 20,
1999 to file the motion. The motion, however, was sent through a private courier and,
therefore, considered to have been filed on the date of actual receipt on June 17, 1999 by the
addressee Court of Appeals, was filed beyond the reglementary period.
Technicality aside, movant has not proffered any ground bearing on the merits of the case
why the decision should be set aside.
Petitioners never denied the CA finding that their motion for reconsideration was filed
beyond the fifteen-day reglementary period. On that point alone, the CA is correct in denying due
course to said motion. The motion having been belatedly filed, the CA Decision had then attained
finality. Thus, in Abalos vs. Philex Mining Corporation,[18] we held that:
. . . Nothing is more settled in law than that once a judgment attains finality it thereby
becomes immutable and unalterable. It may no longer be modified in any respect, even if the
modification is meant to correct what is perceived to be an erroneous conclusion of fact or

law, and regardless of whether the modification is attempted to be made by the court
rendering it or by the highest court of the land.
Moreover, it is pointed out by the CA that said motion did not present any defense or
argument on the merits of the case that could have convinced the CA to reverse or modify its
Decision.
We have consistently held that a petitioners right to due process is not violated where
he was able to move for reconsideration of the order or decision in question. [19] In this case,
petitioners had the opportunity to fully expound on their defenses through a motion for
reconsideration. Petitioners did file such motion but they wasted such opportunity by failing to
present therein whatever errors they believed the CA had committed in its Decision. Definitely,
therefore, the denial of petitioners motion for reconsideration, praying that they be allowed to file
appellees brief, did not infringe petitioners right to due process as any issue that petitioners
wanted to raise could and should have been contained in said motion for reconsideration.
IN VIEW OF THE FOREGOING, the petition is DENIED and the Decision of the Court
of Appeals dated April 20, 1999 and its Resolution dated December 17, 1999 are
hereby AFFIRMED. SO ORDERED.
G.R. No. 79184 May 6, 1992
ERLINDA L. PONCE vs. VALENTINO L. LEGASPI
GUTIERREZ, JR., J.:
This controversy calls for the balancing of two conflicting interests: the petitioner's right to litigate
versus the respondent's right to be protected from malicious prosecution.
The present case stemmed from the filing before the Supreme Court on October 3, 1977 of a
complaint for disbarment against respondent Atty. Valentino Legaspi by petitioner Erlinda Ponce.
At the time of the filing of the disbarment proceedings, petitioner Ponce, together with her
husband Manuel, owned forty three percent (43%) of the stockholdings of L'NOR Marine
Services, Inc. (L'NOR). She was then Treasurer and director of the Board of Directors of L'NOR
while her husband was a director. Forty eight percent (48%) of L'NOR's stocks was owned by
the spouses Edward and Norma Porter who were then serving as President/General Manager
and Secretary respectively.
The pertinent portions of the complaint are reproduced below:
xxx xxx xxx
10. During the time or period while respondent is the legal counsel of the aforecited
corporation, there occurred certain fraudulent manipulations, anomalous management and
prejudicial operations by certain officers of said corporation, namely: Edward J. Porter,
President/General Manager; Norma Y. Porter, Secretary; and Zenaida T. Manaloto, Director,
who caused great damage and prejudice which will be related hereunder;
xxx xxx xxx

17
14. About July, 1976, said spouses Edward J. Porter and Norma Y. Porter, together with Zenaida
T. Manaloto, facilitated, assisted and aided by herein respondent Legaspi (Annexes "B" and "B1" herewith), incorporated the Yrasport Drydocks, Inc., hereinafter designated YRASPORT,
which they control with the following stockholdings:

Zenaida T. Manaloto, herein complainant requested respondent Valentino Legaspi to take and
pursue appropriate local steps and seasonable actions in order to protect the paramount
interest of L'NOR of which he is the legal counsel by retainer, but the latter, without any valid
excuse whatsoever, refused to do so, although he is still collecting his monthly retainer;

Edward
J.
Norma
Y.
Eriberto
F.
Zenaida
T.
Roman
M.
Andres A. Nombrado 8 shares

25. On account of the refusal of said corporate attorney of L'NOR, respondent Legaspi,
complainant was forced to retain the services of another counsel to prosecute the appropriate
derivative suit in the Court of First Instance of Cebu, copy herewith marked Annex "D"; and
that, in opposition to the same, respondent Legaspi appeared as legal counsel and attorney of
Edward J. Porter and his confederates, copy of exhibits marked Annex "D-1" herewith;

Porter
Porter
Yrastorza
Manaloto
Maceda

180
180
16
8
8

shares
shares
shares
shares
shares

and whose line of business is in direct competition with L'NOR;

15. YRASPORT, like Yrasport Enterprises, was launched without the knowledge of the minority
stockholders owning 43% of L'NOR, and was really designed to compete, if not eliminate, L'NOR
as a competitor;
16. That as a matter of fact attempts were made to secure one of L'NOR jobs in favor of
YRASPORT, which fraudulent scheme was however frustrated only by the timely opposition of
herein complainant;
17. YRASPORT likewise availed of and used the office space, equipment, personnel, funds,
other physical facilities, and goodwill of L'NOR while competing at the same time against and
causing the latter great damage and irreparable injury;
xxx xxx xxx
21. Edward J. Porter, President-General Manager of L'NOR, purchased from ISECOR (Industrial
Supply Corporation) on November 3, 1974 one skaagit winch with its cables for P10,000.00; that
on November 18, 1974 said Edward J. Porter assigned the purchase of said skaagit winch with
its cables in favor of L'NOR at the price of P10,000.00; and that the latter corporation then
assumed the agreed obligation covering the P10,000.00 purchase price in favor of ISECOR;
22. Subsequently, on or about October 18, 1975, said President-General Manager Edward J.
Porter misrepresented facts regarding the acquisition cost of said skaagit winch with its cables to
the effect that the same was sold by ISECOR at the cost of P20,000.00; that he collected the
sum from L'NOR for direct payment to ISECOR allegedly to liquidate in full the obligation of
P20,000.00 in favor of ISECOR, when, in truth and in fact, the obligation is only P10,000.00 and
not more;

26. In the Criminal Case filed against Edward J. Porter for Estafa (Annex "C" supra),
respondent Legaspi likewise appeared as counsel for respondent Porter despite the fact that
he is the legal counsel of L'NOR which is the prejudiced party and for whose benefit the
criminal case was really being prosecuted, copy of letter of respondent, marked as Annex "C6" herewith;
27. Up to the present time respondent is still collecting his monthly retainer, and for his
appearance for Edward J. Porter, et. als. in the derivative suit, he collected the sum of
P2,000.00 from L'NOR as payment for his illicit legal services in defending the Porters and
Manaloto against the very interest of the corporation paying him monthly retainer;
28. Said Edward J. Porter and his confederates, in their respective capacity as such officers of
L'NOR, continue and persist in perpetrating malicious acts, anomalous management and
fraudulent operations against the interest of L'NOR, and that respondent Legaspi was duly
adviced verbally and also in writing by complainant to take the necessary action in his
capacity as legal counsel of L'NOR to protect zealously the interest of the latter, but
respondent Legaspi has done absolutely nothing, and grossly neglected and flagrantly
violated his duties as legal counsel up to the present time, pertinent exhibits herewith marked
as Annexes "E", "E-1", "E-2", "E-4", "E-5", "E-6";
29. That, on the contrary, respondent Legaspi in his dual capacity as legal counsel of L'NOR
and YRASPORT, and at the same time acting in his capacity as corporate secretary of
YRASPORT, facilitated, assisted, aided or otherwise abetted the illegal manipulations, illicit
schemes, fraudulent operations and grave frauds committed by said Edward J. Porter and his
confederates who are officers of L'NOR against the interest of the latter and to further the
malicious competitive sabotage of YRASPORT alleged heretofore; and
30. That, upon the foregoing, we most respectfully prefer against respondent Valentino
Legaspi the following charges:
First Specification:

23. On account of the aforecited flagrant fraud, a charge of Estafa was filed against Edward J.
Porter and the office of the City Fiscal handed down a resolution to prosecute him in court, copy
of pertinent exhibits herewith marked as Annexes "C", "C-1", "C-2", "C-3", "C-4" and "C-5";
24. In view of the aforesaid illegal manipulations, illicit schemes, palpable frauds and estafa
committed by said President-General Manager Edward J. Porter, in confabulation and
conspiracy with the other officers of the corporation, namely: his wife Norma Y. Porter and

That respondent Valentino Legaspi has committed gross misconduct in office as a practicing
lawyer and member of the Philippine Bar, because, as legal counsel, he violated his duty to
and the trust of his client, L'NOR Marine Services, Inc., whom he is professionally duty bound
to represent with entire devotion faithfully as such attorney, and whose paramount interest he
should protect in all good faith with absolute fidelity, but that, in truth and in fact, he did not do
so.

18
Second Specification:

The petitioner filed a motion to dismiss which was denied by the trial court.

That respondent Valentino Legaspi, while acting as legal counsel of L'NOR under continuing
monthly retainer, has acted at the same time as lawyer of Edward J. Porter, et. als., who have
committed anomalous acts, prejudicial manipulations and grave frauds against his client L'NOR
Marine services, Inc., that he therefore represented professionally conflicting interest; and that
he committed grave malpractice that is in flagrant violation of the recognized canons of legal
ethics.

On July 18, 1983, the lower court rendered judgment the dispositive portion of which reads as
follows:

Third Specification:
That respondent Valentino Legaspi committed grossly corrupt or dishonest conduct while under
retainer and acting as attorney of L'NOR Marine Services, Inc., when he facilitated, assisted,
aided or otherwise abetted the organization, registration and operation of another competing
entity, Yrasport Drydocks, Inc., in which he is also the lawyer and corporate Secretary, at the
expense of and to which the business and transactions of L'NOR are being diverted or otherwise
appropriated, including the pirating of skilled personnel and also facilities, and that respondent
committed the same with evident bad faith and absolute lack of fidelity to his client L'NOR,
thereby degrading the good esteem, integrity and honor of the profession. (Records,
Administrative Case No. 1819, pp. 4-13)
In his comment, Atty. Legaspi denied the allegations in paragraphs 10, 21, 22, 23, 24, 28, 29 and
30. He qualifiedly admitted the allegations in paragraphs 14 and 15, stating that Yrasport was not
organized to compete directly with L'NOR. He averred that L'NOR could not cope up with the
business and Yrasport was formed for the purpose of complementing L'NOR's business. He added
that there is nothing in the law nor contract which prohibits a stockholder from competing with the
business of the corporation.
Atty. Legaspi admitted the allegations in paragraphs 26 and 27 that he appeared for Edward Porter
in the estafa case filet against the latter, reasoning that his appearances were direct orders of
management and that it was not improper for counsel to represent both the corporate officers when
they are being sued at the same time.
As to the allegations in paragraphs 16 and 17, Atty. Legaspi declared that he has no sufficient
knowledge to form a belief as to the truth or falsity of the statements contained therein.
On January 23, 1978, the Court issued a resolution dismissing the disbarment complaint against
Legaspi. The resolution is quoted hereunder:
Administrative Case No. 1819 (Erlinda L. Ponce v. Valentino L. Legaspi). Considering the
complaint for disbarment against Atty. Valentino L. Legaspi as well as said respondent's
comment thereon, the Court Resolved to DISMISS the complaint for lack of merit. (Records,
Administrative Case No. 1819 p. 91)
The petitioner filed a motion for reconsideration which was denied by the Court on March 31, 1978.
On February 10, 1978, Atty. Legaspi filed before the Court of First Instance (now Regional Trial
Court of Cebu) a complaint for damages against the petitioner.

WHEREFORE, this court being satisfied that the material allegations of the complaint have
been proved and remained uncontradicted with the testimonial and documentary evidence
introduced and admitted by the court, judgment is hereby rendered in favor of the plaintiff and
against the defendant Erlinda L. Ponce ordering the defendant to pay Valentino L. Legaspi,
plaintiff herein, the amount of P1,000.00 as actual damages, P50,000.00 as moral damages
and P25,000.00 as exemplary damages and to pay the costs. (Rollo, p. 115)
The petitioner appealed to the Court of Appeals. On May 26, 1987, the Court of Appeals affirmed
the lower court's judgment. In affirming the appealed decision, the Court of Appeals reasoned:
Defendant-appellant contends that plaintiff-appellee's action for damages is purely retaliatory
in character and stems from an alleged feeling of wounded pride or amor proprio; that
granting without admitting that the appellee has suffered certain adverse effects in his
reputation because of the disbarment case, it does not constitute malicious prosecution as
would otherwise perhaps render the appellant liable for damages; that the facts on record
indubitably show that the appellant was merely exercising her right of access to courts for
redress of legitimate grievances when she filed the disbarment case believing then as she still
does, that appellee committed a breach of his professional duties as a lawyer. In refutation,
appellee alleges that appellant belittles this action for damages as "purely retaliatory in
character and stems from an alleged feeling of wounded pride or amor proprio"; that by such
statement, appellant has unmasked herself as to how little regard she has for the feelings of
others and how she clings to the law if only to secure her purpose; that what is being sought
by appellee is compensation for appellee's malice, falsehoods and deceit in trying to destroy
the professional standing of a humble practitioner just because he did better than the other.
While free access to the courts is guaranteed under Section 9, Article IV of the 1973
Constitution (now Section 11, Article III of the 1986 Constitution), it does not give unbridled
license to file any case, whatever the motives are. Whoever files a case shall be responsible
for the consequences thereof whenever his act of filing infringes upon the rights of others. In
the same way that although freedom of speech is guaranteed, one cannot claim to be
protected under such freedom when he is being held liable for the libel he commits.
The case at bar cannot be considered as one for recovery of damages arising from malicious
prosecution, for a disbarment proceeding is not a criminal action. (De Jesus-Paras v. Vailoces,
111 Phil. 569; 1 SCRA 954, 957). However, we should not lose sight of the fact that utterances
made in the course of judicial proceedings, including all kinds of pleadings, petitions and
motions, belong to the class of communications that are absolutely privileged. (Sison v. David,
110 Phil. 662; 1 SCRA 60, 71 citing authorities) and no civil action for libel or slander may
arise therefrom unless the contents of the petition are irrelevant to the subject matter thereof.
(1 SCRA 71). It has also been held that a privileged communication should not be subjected
to microscopic examination to discover grounds of malice or falsity. Such excessive scrutiny
would defeat the protection which the law throws over privileged communications. The
ultimate test is that of bona fides. (Deles v. Aragona, Jr., 27 SCRA 633, 642). The privileged
character of her complaint filed with the Supreme Court must have been what defendant had
in mind when she invokes her right to free access to the courts. However, defendant's

19
actuations before and after the filing of administrative complaint with the Supreme Court
disprove her bona fides. On this issue, the trial court found:

(1) Prying into the privacy of another's residence;

(2) Meddling with or disturbing the private life or family relations of another;

Yet, the uncontroverted evidence before the court belie these allegations because there are
antecedent incidents between plaintiff and defendant that speak otherwise; that she filed this
disbarment complaint against plaintiff with malice aforethought. This conclusion is founded on
the fact that defendant was embittered against him for failing to obtain a compromise against
Eduardo Coronel before the military due to plaintiff's defense of his client; that she wanted to
dissolve the L'Nor Corporation in order to repossess the premises leased to the former upon the
corporation's dissolution and Porter's ouster which was thwarted by plaintiff's advice as counsel
for L'Nor; plaintiff's letter (Exhibit "H") that she was not authorized to use the title of Chairman of
the Board; not counter-signing plaintiff's check (Exhibits I, I-1, and I-2); her insistence to have
the surplus profits declared as cash dividend which likewise failed due to plaintiff's advice; her
letter (Exh. J) asking plaintiff to desist from defending the corporation and its officers; plaintiff's
refusal to give her advice without authority from the Board of Directors; numerous cases filed
with the Security and Exchange Commission which were all dismissed and with the Court of
First Instance and Circuit Criminal Court which plaintiff ably defended causing their eventual
dismissal and other acts against plaintiff which demonstrated palpably defendant's hatred for the
plaintiff acts clearly evidencing malice contrary to her averments in the Answer.
To top it all, notwithstanding her evident support and advice by counsel, she cleverly hid the
identity of said counsel prosecuting all her acts of vilification and harassment in her own name.
Furthermore, the testimony of plaintiff that she distributed copies of her complaint for disbarment
against plaintiff to his clients remain uncontradicted. Finally, instead of coming to court in good
faith she instead moved from her residence at Seaview Heights, Lawaan, Talisay, Cebu without
informing the court nor her counsel and has not been heard from. From the foregoing, malice is
evident.
Appellant claims that the finding of the lower court that appellant disseminated information
regarding the filing of her complaint for disbarment and caused a copy of the same to be
furnished appellee's clients is totally unsupported by any evidence on record. The contention is
untenable. Plaintiff declared that he came to know of the complaint against him even before the
Supreme Court required him to comment because two or three of his clients told him that they
had a copy given to them. (p. 8, t.s.n., June 3, 1983).
The foregoing acts committed by the defendant violate the conduct that she should have
observed in her relation to plaintiff, as provided in the following provisions of the Civil Code of
the Philippines, to wit:
Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act
with justice, give everyone his due, and observe honesty and good faith.
Art. 20. Every person who, contrary to law, wilfully or negligently causes damage to another,
shall indemnify the latter for the same.
Art. 26. Every person shall respect the dignity, personality, privacy and peace of mind of his
neighbors and other persons. The following and similar acts, though they may not constitute a
criminal offense, shall produce a cause of action for damages, prevention and other relief;

(3) Intriguing to cause another to be alienated from his friends;

(4) Vexing or humiliating another on account of his religious beliefs, lowly station in life, place
of birth, physical defect, or other personal condition. (Rollo, pp. 45-48)
The petitioner's motion for reconsideration was denied by the respondent Court in its resolution
dated July 7, 1987. Hence, this petition.
The petitioner assigns the following errors:
I. THE RESPONDENT COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF
THE REGIONAL TRIAL COURT OF CEBU, BRANCH XXI, WHICH FOUND THE HEREIN
PETITIONER GUILTY OF BAD FAITH IN INSTITUTING A COMPLAINT FOR DISBARMENT
AGAINST THE PRIVATE RESPONDENT.
II. THE RESPONDENT COURT OF APPEALS ERRED IN ORDERING THE PETITIONER TO
PAY THE PRIVATE RESPONDENT ACTUAL, MORAL AND EXEMPLARY DAMAGES TO
PAY THE COSTS. (Rollo, p. 21)
Before proceeding with the merits of the case, the scope of an action for damages arising from
malicious prosecution needs to be clarified. Both the Court of Appeals and the petitioner are of
the belief that the suit for damages filed by Atty. Legaspi is not one arising from malicious
prosecution because "a disbarment proceeding is not a criminal action. (De Jesus-Paras v.
Vailoces, 1 SCRA 954 [1961])." The obvious inference is that only an unsuccessful criminal
action may subsequently give rise to a claim for damages based on malicious prosecution. This
is not correct. While generally, malicious prosecution refers to unfounded criminal actions and
has been expanded to include unfounded civil suits just to vex and humiliate the defendant
despite the absence of a cause of action or probable cause (Equitable Banking Corporation v.
Intermediate Appellate Court, 133 SCRA 138 [1984]) the foundation of an action for malicious
prosecution is an original proceeding, judicial in character. (Lorber v. Storrow, 70 P. 2d 513
[1937]; Shigeru Hayashida v. Tsunehachi Kakimoto, 23 P. 2d 311 [1933]; Graves v. Rudman, 257
N.Y.S. 212 [1932]). A disbarment proceeding is, without doubt, judicial in character and therefore
may be the basis for a subsequent action for malicious prosecution.
A perusal of the allegations in Atty. Legaspi's complaint for damages, particularly paragraphs 10,
11, 12 and 15 thereof (Rollo, pp. 56-59) shows that his main cause of action was predicated on
injury resulting from the institution of the disbarment case against him. This being the case, we
find that the suit filed by the respondent lawyer makes out a case of damages for malicious
prosecution.
An action for damages arising from malicious prosecution is anchored on the provisions of
Article 21, 2217 and 2219 [8] of the New Civil Code. Under these Articles:

20
Art. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to
morals, good customs or public policy shall compensate the latter for damages.
Art. 2217. Moral damages include physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, social humiliation and similar injury.
Though incapable of pecuniary computation, moral damages may be recovered if they are the
proximate result of the defendant's wrongful act or omission.
Art. 2219. Moral damages may be recovered in the following and analogous cases:
xxx xxx xxx
(8) Malicious prosecution.
In order, however, for the malicious prosecution suit to prosper, the plaintiff must prove: (1) the fact
of the prosecution and the further fact that the defendant was himself the prosecutor, and that the
action finally terminated with an acquittal; (2) that in bringing the action, the prosecutor acted
without probable cause; and (3) that the prosecutor was actuated or impelled by legal malice, that
is by improper or sinister motive. (Lao v. Court of Appeals, 199 SCRA 58 [1991]; Rehabilitation
Finance Corporation v. Kohl, 4 SCRA 535 [1962]; Buchanan v. Viuda de Esteban, 32 Phil. 363
[1915]).
The foregoing requisites are necessary safeguards to preserve a person's right to litigate which
may otherwise be emasculated by the undue filing of malicious prosecution cases. Thus, as further
held in the aforecited case ofBuchanan v. Viuda. de Esteban, supra: "Malice is essential to the
maintenance of an action for malicious prosecution and not merely to the recovery of exemplary
damages. But malice alone does not make one liable for malicious prosecution, where probable
cause is shown, even where it appears that the suit was brought for the mere purpose of vexing,
harassing and injuring his adversary. In other words, malice and want of probable causemust both
exist in order to justify the action." (Emphasis supplied; see also Rehabilitation Finance Corp. v.
Koh,supra)
Probable cause is the existence of such facts and circumstances as would excite the belief, in a
reasonable mind, acting on the facts within the knowledge of the prosecutor, that the person
charged was guilty of the crime (or in this case, the wrongdoing) for which he was prosecuted.
(See Buchanan v. Viuda de Esteban, supra)
The general rule is well settled that one cannot be held liable in damages for maliciously instituting
a prosecution where he acted with probable cause. In other words, a suit will lie only in cases
where a legal prosecution has been carried on without probable cause. (Id.; emphasis supplied)
The petitioner, at the time of her filing of the administrative complaint against the respondent, held
substantial stockholdings in L'NOR. She believed that L'NOR was defrauded by its
President/General Manager, Edward Porter, and filed a complaint for estafa against the latter.
Porter was convicted by the trial court but, upon appeal, was acquitted by the appellate court.
Respondent did not deny that he represented Porter during the preliminary investigation and trial of
the criminal case. In his comment in the disbarment complaint against him, he justified his action

by saying that they were "direct orders of management" and that there is "nothing improper for
counsel to represent both the corporation and corporate officers at the same time they are being
sued." (Records, Administrative Case No. 1819, p. 64)
It is of no moment now that Porter was acquitted of the estafa charge. Apparently, at that time,
petitioner Ponce saw a conflict of interest situation. To her mind, the act of the respondent in
appearing as counsel for Porter, who had allegedly swindled L'NOR, the interest of which he
was duty bound to protect by virtue of the retainer contract, constituted grave misconduct and
gross malpractice.
Atty. Legaspi did not deny that he aided the Porters in facilitating the incorporation of
YRASPORT and that he himself was its corporate secretary. He emphasized, though, that due
to L'NOR'S limited capitalization, YRASPORT was organized to complement L'NOR'S business
and not to compete with the latter's undertakings.
Since the petitioner, however, was of the honest perception that YRASPORT was actually
organized to appropriate for itself some of L'NOR's business, then we find that she had probable
cause to file the disbarment suit.
We take exception to the respondent's comment that, assuming the petitioner's accusation to be
true, "there is nothing in Philippine law which considers as unethical the formation of competitive
corporations and neither can it be considered with evident bad faith and absolute lack of fidelity."
(Records, Administrative Case No. 1819, p. 69)
The circumstances of the case do not depict a simple case of formation of competitive
corporations. What the petitioner objects to is the fact that both the respondent lawyer and
Porter are fiduciaries of L'NOr and are at the same time fiduciaries of YRASPORT, both of which
are engaged in the same line of business.
True, at that time, the Corporation Law did not prohibit a director or any other person occupying
a fiduciary position in the corporate hierarchy from engaging in a venture which competed with
that of the corporation. But as a lawyer, Atty. Legaspi should have known that while some acts
may appear to be permitted through sheer lack of statutory prohibition, these acts are
nevertheless circumscribed upon ethical and moral considerations. And had Atty. Legaspi turned
to American jurisprudence which then, as now, wielded a persuasive influence on our law on
corporations, he would have known that it was unfair for him or for Porter, acting as fiduciary, to
take advantage of an opportunity when the interest of the corporation justly calls for protection.
(See Ballantine, Corporations, 204, Callaghan & Co., N. Y. [1946])
Parenthetically, this lapse in the old Corporation Law is now cured by sections 31 and 34 of the
Corporation Code which provide:
Sec. 31. Liability of directors, trustees or officers. Directors or trustees who willfully and
knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of
gross negligence or bad faith in directing the affairs of the corporation or acquire any personal
or pecuniary interest in conflict with their duty as such directors or trustees shall he liable
jointly and severally for all damages resulting therefrom suffered by the corporation, its
stockholders or members and other persons.

21
When a director, trustee or officer attempts to acquire or acquires, in violation of his duty, any
interest adverse to the corporation in respect of any matter which has been reposed in him in
confidence, as to which equity imposes a disability upon him to deal in his own behalf, he shall
be liable as a trustee for the corporation and must account for the profits which otherwise have
accrued to the corporation.
Sec. 34. Disloyalty of a director. Where a director, by virtue of his office, acquires for himself a
business opportunity which should belong to the corporation, thereby obtaining profits to the
prejudice of such corporation, he must account to the latter for all such profits by refunding the
same, unless his act has been ratified by a vote of the stockholders owning or representing at
least two-thirds (2/3) of the outstanding capital stock. This provision shall be applicable,
notwithstanding the fact that the director risked his own funds in the venture.
The Court finds it unnecessary to discuss all the other charges imputed to the respondent lawyer in
the disbarment complaint. From the foregoing discussion, we have sufficient basis to declare that
the petitioner had probable cause in filing the administrative case against Atty. Legaspi. Facts and
circumstances existed which excited belief in Mrs. Ponce's mind that the respondent indeed
committed unethical acts which warranted the imposition of administrative sanctions. Whether or
not the petitioner's perception of these facts and circumstances is actually correct is irrelevant to
our inquiry, the only issue being whether or not the petitioner had probable cause in filing the
complaint.
The above discussion should not be construed as a re-opening of the disbarment proceeding
against Atty. Legaspi. References to the complaint for disbarment and the respondent's comment
thereto are made only for the purpose of determining the existence of probable cause.
Since we adjudge that petitioner Ponce was moved by probable cause, we need not anymore
ascertain whether or not the petitioner acted with malice in filing the complaint. The existence of
probable cause alone, regardless of considerations of malice, is sufficient to defeat the charge of
malicious prosecution.
The respondent court treated Atty. Legaspi's complaint as one for damages arising from libel and
applied the test of bona fides, citing the case of Deles v. Aragona (27 SCRA 633 [1969]). This is
incorrect.
In the first place, allegations and averments in pleadings are absolutely privileged as long as they
are relevant or pertinent to the issues (See Montenegro v. Medina, 73 Phil. 602 [1942]). The test of
good faith applies only to a qualified privileged communication. Had the respondent court studied
the Deles case more closely, it would have traced the "bona fides" test to the case of U.S. v.
Bustos, (37 Phil. 731 [1918]). In the latter case, the Court was referring to a qualified privileged
communication when it formulated the "bona fides" test.
Moreover, the test to break through the protective barrier of an absolutely privileged communication
is not "bona fides" but relevance. In the present case, Atty. Legaspi's complaint nowhere alleged
that the statements made by the petitioner were irrelevant. Thus, we find that the petitioner's
complaint for disbarment is still covered by the privilege and may not be the basis of a damage suit
arising from libel.

We disagree with the findings of the two lower courts that it was the petitioner who distributed
copies of the complaint for disbarment to Atty. Legaspi's clients. It should be noted that Atty.
Legaspi did not even present these alleged clients in court to testify to the source of these
copies. Considering that a complaint for disbarment becomes of public record once it is filed with
the Court, then the petitioner may not be pinpointed as the sole and indisputable source of the
copies received by the respondent's clients.
Atty. Legaspi may have suffered injury as a consequence of the disbarment proceedings. But the
adverse result of an action does not per se make the action wrongful and subject the actor to
make payment of damages for the law could not have meant to impose a penalty on the right to
litigate (Saba v. Court of Appeals, 189 SCRA 50 [1990], citing Rubio v. Court of Appeals, 141
SCRA 488 [1986]; see also Salao v. Salao, 70 SCRA 65 [1976] and Ramos v. Ramos, 61 SCRA
284 [1974], citing Barreto v. Arevalo, 99 Phil. 771 [1956]). One who exercises his rights does no
injury. (Saba v. Court of Appeals, supra, citing Auyong Hian v. Court of Tax Appeals, 59 SCRA
110 [1974]). If damage results from a person's exercising his legal rights, it is damnum absque
injuria. [Id.]
WHEREFORE, the petition is hereby GRANTED. The decision of the respondent Court of
Appeals is SET ASIDE and REVERSED. SO ORDERED.
G.R. No. L-25494 June 14, 1972
NICOLAS SANCHEZ vs. SEVERINA RIGOS
CONCEPCION, C.J.:p
Appeal from a decision of the Court of First Instance of Nueva Ecija to the Court of Appeals,
which certified the case to Us, upon the ground that it involves a question purely of law.
The record shows that, on April 3, 1961, plaintiff Nicolas Sanchez and defendant Severina Rigos
executed an instrument entitled "Option to Purchase," whereby Mrs. Rigos "agreed, promised
and committed ... to sell" to Sanchez the sum of P1,510.00, a parcel of land situated in the
barrios of Abar and Sibot, municipality of San Jose, province of Nueva Ecija, and more
particularly described in Transfer Certificate of Title No. NT-12528 of said province, within two (2)
years from said date with the understanding that said option shall be deemed "terminated and
elapsed," if "Sanchez shall fail to exercise his right to buy the property" within the stipulated
period. Inasmuch as several tenders of payment of the sum of Pl,510.00, made by Sanchez
within said period, were rejected by Mrs. Rigos, on March 12, 1963, the former deposited said
amount with the Court of First Instance of Nueva Ecija and commenced against the latter the
present action, for specific performance and damages.
After the filing of defendant's answer admitting some allegations of the complaint, denying
other allegations thereof, and alleging, as special defense, that the contract between the parties
"is a unilateral promise to sell, and the same being unsupported by any valuable consideration,
by force of the New Civil Code, is null and void" on February 11, 1964, both parties, assisted
by their respective counsel, jointly moved for a judgment on the pleadings. Accordingly, on
February 28, 1964, the lower court rendered judgment for Sanchez, ordering Mrs. Rigos to
accept the sum judicially consigned by him and to execute, in his favor, the requisite deed of
conveyance. Mrs. Rigos was, likewise, sentenced to pay P200.00, as attorney's fees, and other
costs. Hence, this appeal by Mrs. Rigos.

22
This case admittedly hinges on the proper application of Article 1479 of our Civil Code, which
provides:
ART. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally
demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding
upon the promissor if the promise is supported by a consideration distinct from the price.
In his complaint, plaintiff alleges that, by virtue of the option under consideration, "defendant
agreed and committed to sell" and "the plaintiff agreed and committed to buy" the land described in
the option, copy of which was annexed to said pleading as Annex A thereof and is quoted on the
margin. 1 Hence, plaintiff maintains that the promise contained in the contract is "reciprocally
demandable," pursuant to the first paragraph of said Article 1479. Although defendant had really
"agreed, promised and committed" herself to sell the land to the plaintiff, it is not true that the latter
had, in turn, "agreed and committed himself " to buy said property. Said Annex A does not bear out
plaintiff's allegation to this effect. What is more, since Annex A has been made "an integral part" of
his complaint, the provisions of said instrument form part "and parcel" 2 of said pleading.
The option did not impose upon plaintiff the obligation to purchase defendant's property. Annex A
is not a "contract to buy and sell." It merely granted plaintiff an "option" to buy. And both parties so
understood it, as indicated by the caption, "Option to Purchase," given by them to said instrument.
Under the provisions thereof, the defendant "agreed, promised and committed" herself to sell the
land therein described to the plaintiff for P1,510.00, but there is nothing in the contract to indicate
that her aforementioned agreement, promise and undertaking is supported by a consideration
"distinct from the price" stipulated for the sale of the land.
Relying upon Article 1354 of our Civil Code, the lower court presumed the existence of said
consideration, and this would seem to be the main factor that influenced its decision in plaintiff's
favor. It should be noted, however, that:
(1) Article 1354 applies to contracts in general, whereas the second paragraph of Article 1479
refers to "sales" in particular, and, more specifically, to "an accepted unilateral promise to buy or to
sell." In other words, Article 1479 is controlling in the case at bar.
(2) In order that said unilateral promise may be "binding upon the promisor, Article 1479 requires
the concurrence of a condition, namely, that the promise be "supported by a consideration distinct
from the price." Accordingly, the promisee can not compel the promisor to comply with the promise,
unless the former establishes the existence of said distinct consideration. In other words,
the promisee has the burden of proving such consideration. Plaintiff herein has not even
alleged the existence thereof in his complaint.
(3) Upon the other hand, defendant explicitly averred in her answer, and pleaded as a special
defense, the absence of said consideration for her promise to sell and, by joining in the petition for
a judgment on the pleadings, plaintiff has impliedly admitted the truth of said averment in
defendant's answer. Indeed as early as March 14, 1908, it had been held, in Bauermann v.
Casas, 3 that:

One who prays for judgment on the pleadings without offering proof as to the truth of his own
allegations, and without giving the opposing party an opportunity to introduce evidence, must
be understood to admit the truth of all the material and relevant allegations of the opposing
party, and to rest his motion for judgment on those allegations taken together with such of his
own as are admitted in the pleadings. (La Yebana Company vs. Sevilla, 9 Phil. 210).
(Emphasis supplied.)
This view was reiterated in Evangelista v. De la Rosa 4 and Mercy's Incorporated v. Herminia
Verde. 5
Squarely in point is Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 6 from
which We quote:
The main contention of appellant is that the option granted to appellee to sell to it barge No.
10 for the sum of P30,000 under the terms stated above has no legal effect because it is not
supported by any consideration and in support thereof it invokes article 1479 of the new Civil
Code. The article provides:
"ART. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally
demandable.
An accepted unilateral promise to buy or sell a determinate thing for a price certain is binding
upon the promisor if the promise is supported by a consideration distinct from the price."
On the other hand, Appellee contends that, even granting that the "offer of option" is not
supported by any consideration, that option became binding on appellant when the appellee
gave notice to it of its acceptance, and that having accepted it within the period of option, the
offer can no longer be withdrawn and in any event such withdrawal is ineffective. In support
this contention, appellee invokes article 1324 of the Civil Code which provides:
"ART. 1324. When the offerer has allowed the offeree a certain period to accept, the offer may
be withdrawn any time before acceptance by communicating such withdrawal, except when
the option is founded upon consideration as something paid or promised."
There is no question that under article 1479 of the new Civil Code "an option to sell," or "a
promise to buy or to sell," as used in said article, to be valid must be "supported by a
consideration distinct from the price." This is clearly inferred from the context of said article
that a unilateral promise to buy or to sell, even if accepted, is only binding if supported by
consideration. In other words, "an accepted unilateral promise can only have a binding effect
if supported by a consideration which means that the option can still be withdrawn, even if
accepted, if the same is not supported by any consideration. It is not disputed that the option
is without consideration. It can therefore be withdrawn notwithstanding the acceptance of it by
appellee.
It is true that under article 1324 of the new Civil Code, the general rule regarding offer and
acceptance is that, when the offerer gives to the offeree a certain period to accept, "the offer
may be withdrawn at any time before acceptance" except when the option is founded upon
consideration, but this general rule must be interpreted as modified by the provision of article

23
1479 above referred to, which applies to "a promise to buy and sell" specifically. As already
stated, this rule requires that a promise to sell to be valid must be supported by a consideration
distinct from the price.
We are not oblivious of the existence of American authorities which hold that an offer, once
accepted, cannot be withdrawn, regardless of whether it is supported or not by a consideration
(12 Am. Jur. 528). These authorities, we note, uphold the general rule applicable to offer and
acceptance as contained in our new Civil Code. But we are prevented from applying them in
view of the specific provision embodied in article 1479. While under the "offer of option" in
question appellant has assumed a clear obligation to sell its barge to appellee and the option
has been exercised in accordance with its terms, and there appears to be no valid or justifiable
reason for appellant to withdraw its offer, this Court cannot adopt a different attitude because the
law on the matter is clear. Our imperative duty is to apply it unless modified by Congress.
However, this Court itself, in the case of Atkins, Kroll and Co., Inc. v. Cua Hian Tek, 8 decided later
that Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 9 saw no distinction
between Articles 1324 and 1479 of the Civil Code and applied the former where a unilateral
promise to sell similar to the one sued upon here was involved, treating such promise as an option
which, although not binding as a contract in itself for lack of a separate consideration, nevertheless
generated a bilateral contract of purchase and sale upon acceptance. Speaking through Associate
Justice, later Chief Justice, Cesar Bengzon, this Court said:
Furthermore, an option is unilateral: a promise to sell at the price fixed whenever the offeree
should decide to exercise his option within the specified time. After accepting the promise
and before he exercises his option, the holder of the option is not bound to buy. He is free either
to buy or not to buy later. In this case, however, upon accepting herein petitioner's offer a
bilateral promise to sell and to buy ensued, and the respondent ipso facto assumed the
obligation of a purchaser. He did not just get the right subsequently to buy or not to buy. It was
not a mere option then; it was a bilateral contract of sale.
Lastly, even supposing that Exh. A granted an option which is not binding for lack of
consideration, the authorities hold that:
"If the option is given without a consideration, it is a mere offer of a contract of sale, which is not
binding until accepted. If, however, acceptance is made before a withdrawal, it constitutes a
binding contract of sale, even though the option was not supported by a sufficient
consideration. ... . (77 Corpus Juris Secundum, p. 652. See also 27 Ruling Case Law 339 and
cases cited.)
"It can be taken for granted, as contended by the defendant, that the option contract was not
valid for lack of consideration. But it was, at least, an offer to sell, which was accepted by letter,
and of the acceptance the offerer had knowledge before said offer was withdrawn. The
concurrence of both acts the offer and the acceptance could at all events have generated
a contract, if none there was before (arts. 1254 and 1262 of the Civil Code)." (Zayco vs. Serra,
44 Phil. 331.)
In other words, since there may be no valid contract without a cause or consideration, the promisor
is not bound by his promise and may, accordingly, withdraw it. Pending notice of its withdrawal, his

accepted promise partakes, however, of the nature of an offer to sell which, if accepted, results
in a perfected contract of sale.
This view has the advantage of avoiding a conflict between Articles 1324 on the general
principles on contracts and 1479 on sales of the Civil Code, in line with the cardinal rule
of statutory construction that, in construing different provisions of one and the same law or code,
such interpretation should be favored as will reconcile or harmonize said provisions and avoid a
conflict between the same. Indeed, the presumption is that, in the process of drafting the Code,
its author has maintained a consistent philosophy or position. Moreover, the decision
in Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 10 holding that Art. 1324
is modified by Art. 1479 of the Civil Code, in effect, considers the latter as an exception to the
former, and exceptions are not favored, unless the intention to the contrary is clear, and it is not
so, insofar as said two (2) articles are concerned. What is more, the reference, in both the
second paragraph of Art. 1479 and Art. 1324, to an option or promise supported by or founded
upon a consideration, strongly suggests that the two (2) provisions intended to enforce or
implement the same principle.
Upon mature deliberation, the Court is of the considered opinion that it should, as it hereby
reiterates the doctrine laid down in the Atkins, Kroll & Co. case, and that, insofar as inconsistent
therewith, the view adhered to in theSouthwestern Sugar & Molasses Co. case should be
deemed abandoned or modified.
WHEREFORE, the decision appealed from is hereby affirmed, with costs against defendantappellant Severina Rigos. It is so ordered.
G.R. No. 109125 December 2, 1994
ANG YU ASUNCION, ARTHUR GO AND KEH TIONG vs. COURT OF APPEALS
VITUG, J.:
Assailed, in this petition for review, is the decision of the Court of Appeals, dated 04 December
1991, in CA-G.R. SP No. 26345 setting aside and declaring without force and effect the orders
of execution of the trial court, dated 30 August 1991 and 27 September 1991, in Civil Case No.
87-41058.
The antecedents are recited in good detail by the appellate court thusly:
On July 29, 1987 a Second Amended Complaint for Specific Performance was filed by Ang Yu
Asuncion and Keh Tiong, et al., against Bobby Cu Unjieng, Rose Cu Unjieng and Jose Tan
before the Regional Trial Court, Branch 31, Manila in Civil Case No. 87-41058, alleging,
among others, that plaintiffs are tenants or lessees of residential and commercial spaces
owned by defendants described as Nos. 630-638 Ongpin Street, Binondo, Manila; that they
have occupied said spaces since 1935 and have been religiously paying the rental and
complying with all the conditions of the lease contract; that on several occasions before
October 9, 1986, defendants informed plaintiffs that they are offering to sell the premises and
are giving them priority to acquire the same; that during the negotiations, Bobby Cu Unjieng
offered a price of P6-million while plaintiffs made a counter offer of P5-million; that plaintiffs
thereafter asked the defendants to put their offer in writing to which request defendants
acceded; that in reply to defendant's letter, plaintiffs wrote them on October 24, 1986 asking
that they specify the terms and conditions of the offer to sell; that when plaintiffs did not

24
receive any reply, they sent another letter dated January 28, 1987 with the same request; that
since defendants failed to specify the terms and conditions of the offer to sell and because of
information received that defendants were about to sell the property, plaintiffs were compelled to
file the complaint to compel defendants to sell the property to them.
Defendants filed their answer denying the material allegations of the complaint and interposing a
special defense of lack of cause of action.
After the issues were joined, defendants filed a motion for summary judgment which was
granted by the lower court. The trial court found that defendants' offer to sell was never accepted
by the plaintiffs for the reason that the parties did not agree upon the terms and conditions of the
proposed sale, hence, there was no contract of sale at all. Nonetheless, the lower court ruled
that should the defendants subsequently offer their property for sale at a price of P11-million or
below, plaintiffs will have the right of first refusal. Thus the dispositive portion of the decision
states:
WHEREFORE, judgment is hereby rendered in favor of the defendants and against the plaintiffs
summarily dismissing the complaint subject to the aforementioned condition that if the
defendants subsequently decide to offer their property for sale for a purchase price of Eleven
Million Pesos or lower, then the plaintiffs has the option to purchase the property or of first
refusal, otherwise, defendants need not offer the property to the plaintiffs if the purchase price is
higher than Eleven Million Pesos.

The decision of this Court was brought to the Supreme Court by petition for review
on certiorari. The Supreme Court denied the appeal on May 6, 1991 "for insufficiency in form
and substances" (Annex H, Petition).
On November 15, 1990, while CA-G.R. CV No. 21123 was pending consideration by this
Court, the Cu Unjieng spouses executed a Deed of Sale (Annex D, Petition) transferring the
property in question to herein petitioner Buen Realty and Development Corporation, subject to
the following terms and conditions:
1. That for and in consideration of the sum of FIFTEEN MILLION PESOS (P15,000,000.00),
receipt of which in full is hereby acknowledged, the VENDORS hereby sells, transfers and
conveys for and in favor of the VENDEE, his heirs, executors, administrators or assigns, the
above-described property with all the improvements found therein including all the rights and
interest in the said property free from all liens and encumbrances of whatever nature, except
the pending ejectment proceeding;
2. That the VENDEE shall pay the Documentary Stamp Tax, registration fees for the transfer
of title in his favor and other expenses incidental to the sale of above-described property
including capital gains tax and accrued real estate taxes.
As a consequence of the sale, TCT No. 105254/T-881 in the name of the Cu Unjieng spouses
was cancelled and, in lieu thereof, TCT No. 195816 was issued in the name of petitioner on
December 3, 1990.

SO ORDERED.
Aggrieved
by
the
decision,
plaintiffs
appealed
to
this
Court
in
CA-G.R. CV No. 21123. In a decision promulgated on September 21, 1990 (penned by Justice
Segundino G. Chua and concurred in by Justices Vicente V. Mendoza and Fernando A.
Santiago), this Court affirmed with modification the lower court's judgment, holding:
In resume, there was no meeting of the minds between the parties concerning the sale of the
property. Absent such requirement, the claim for specific performance will not lie. Appellants'
demand for actual, moral and exemplary damages will likewise fail as there exists no justifiable
ground for its award. Summary judgment for defendants was properly granted. Courts may
render summary judgment when there is no genuine issue as to any material fact and the
moving party is entitled to a judgment as a matter of law (Garcia vs. Court of Appeals, 176
SCRA 815). All requisites obtaining, the decision of the court a quo is legally justifiable.
WHEREFORE, finding the appeal unmeritorious, the judgment appealed from is hereby
AFFIRMED, but subject to the following modification: The court a quo in the aforestated decision
gave the plaintiffs-appellants the right of first refusal only if the property is sold for a purchase
price of Eleven Million pesos or lower; however, considering the mercurial and uncertain forces
in our market economy today. We find no reason not to grant the same right of first refusal to
herein appellants in the event that the subject property is sold for a price in excess of Eleven
Million pesos. No pronouncement as to costs.
SO ORDERED.

On July 1, 1991, petitioner as the new owner of the subject property wrote a letter to the
lessees demanding that the latter vacate the premises.
On July 16, 1991, the lessees wrote a reply to petitioner stating that petitioner brought the
property subject to the notice of lis pendens regarding Civil Case No. 87-41058 annotated on
TCT No. 105254/T-881 in the name of the Cu Unjiengs.
The lessees filed a Motion for Execution dated August 27, 1991 of the Decision in Civil Case
No. 87-41058 as modified by the Court of Appeals in CA-G.R. CV No. 21123.
On August 30, 1991, respondent Judge issued an order (Annex A, Petition) quoted as follows:
Presented before the Court is a Motion for Execution filed by plaintiff represented by Atty.
Antonio Albano. Both defendants Bobby Cu Unjieng and Rose Cu Unjieng represented by
Atty. Vicente Sison and Atty. Anacleto Magno respectively were duly notified in today's
consideration of the motion as evidenced by the rubber stamp and signatures upon the copy
of the Motion for Execution.
The gist of the motion is that the Decision of the Court dated September 21, 1990 as modified
by the Court of Appeals in its decision in CA G.R. CV-21123, and elevated to the Supreme
Court upon the petition for review and that the same was denied by the highest tribunal in its
resolution
dated
May
6,
1991
in
G.R.
No.
L-97276, had now become final and executory. As a consequence, there was an Entry of

25
Judgment by the Supreme Court as of June 6, 1991, stating that the aforesaid modified decision
had already become final and executory.
It is the observation of the Court that this property in dispute was the subject of the Notice of Lis
Pendens and that the modified decision of this Court promulgated by the Court of Appeals which
had become final to the effect that should the defendants decide to offer the property for sale for
a price of P11 Million or lower, and considering the mercurial and uncertain forces in our market
economy today, the same right of first refusal to herein plaintiffs/appellants in the event that the
subject property is sold for a price in excess of Eleven Million pesos or more.
WHEREFORE, defendants are hereby ordered to execute the necessary Deed of Sale of the
property in litigation in favor of plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for the
consideration of P15 Million pesos in recognition of plaintiffs' right of first refusal and that a new
Transfer Certificate of Title be issued in favor of the buyer.
All previous transactions involving the same property notwithstanding the issuance of another
title to Buen Realty Corporation, is hereby set aside as having been executed in bad faith.
SO ORDERED.
On September 22, 1991 respondent Judge issued another order, the dispositive portion of which
reads:
WHEREFORE, let there be Writ of Execution issue in the above-entitled case directing the
Deputy Sheriff Ramon Enriquez of this Court to implement said Writ of Execution ordering the
defendants among others to comply with the aforesaid Order of this Court within a period of one
(1) week from receipt of this Order and for defendants to execute the necessary Deed of Sale of
the property in litigation in favor of the plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for
the consideration of P15,000,000.00 and ordering the Register of Deeds of the City of Manila, to
cancel and set aside the title already issued in favor of Buen Realty Corporation which was
previously executed between the latter and defendants and to register the new title in favor of
the aforesaid plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go.
SO ORDERED.
On the same day, September 27, 1991 the corresponding writ of execution (Annex C, Petition)
was issued. 1
On 04 December 1991, the appellate court, on appeal to it by private respondent, set aside and
declared without force and effect the above questioned orders of the court a quo.
In this petition for review on certiorari, petitioners contend that Buen Realty can be held bound by
the writ of execution by virtue of the notice of lis pendens, carried over on TCT No. 195816 issued
in the name of Buen Realty, at the time of the latter's purchase of the property on 15 November
1991 from the Cu Unjiengs.
We affirm the decision of the appellate court.

A not too recent development in real estate transactions is the adoption of such arrangements
as the right of first refusal, a purchase option and a contract to sell. For ready reference, we
might point out some fundamental precepts that may find some relevance to this discussion.
An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil Code). The
obligation is constituted upon the concurrence of the essential elements thereof, viz: (a)
The vinculum juris or juridical tie which is the efficient cause established by the various sources
of obligations (law, contracts, quasi-contracts, delicts and quasi-delicts); (b) the object which is
the prestation or conduct; required to be observed (to give, to do or not to do); and (c)
the subject-persons who, viewed from the demandability of the obligation, are the active
(obligee) and the passive (obligor) subjects.
Among the sources of an obligation is a contract (Art. 1157, Civil Code), which is a meeting of
minds between two persons whereby one binds himself, with respect to the other, to give
something or to render some service (Art. 1305, Civil Code). A contract undergoes various
stages that include its negotiation or preparation, its perfection and, finally, its
consummation. Negotiation covers the period from the time the prospective contracting parties
indicate interest in the contract to the time the contract is concluded (perfected).
The perfection of the contract takes place upon the concurrence of the essential elements
thereof. A contract which is consensual as to perfection is so established upon a mere meeting
of minds, i.e., the concurrence of offer and acceptance, on the object and on the cause thereof.
A contract which requires, in addition to the above, the delivery of the object of the agreement,
as in a pledge or commodatum, is commonly referred to as a real contract. In a solemn contract,
compliance with certain formalities prescribed by law, such as in a donation of real property, is
essential in order to make the act valid, the prescribed form being thereby an essential element
thereof. The stage of consummationbegins when the parties perform their respective
undertakings under the contract culminating in the extinguishment thereof.
Until the contract is perfected, it cannot, as an independent source of obligation, serve as a
binding juridical relation. In sales, particularly, to which the topic for discussion about the case at
bench belongs, the contract is perfected when a person, called the seller, obligates himself, for a
price certain, to deliver and to transfer ownership of a thing or right to another, called the buyer,
over which the latter agrees. Article 1458 of the Civil Code provides:
Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer
the ownership of and to deliver a determinate thing, and the other to pay therefor a price
certain in money or its equivalent.
A contract of sale may be absolute or conditional.
When the sale is not absolute but conditional, such as in a "Contract to Sell" where invariably
the ownership of the thing sold is retained until the fulfillment of a positive suspensive condition
(normally, the full payment of the purchase price), the breach of the condition will prevent the
obligation to convey title from acquiring an obligatory force. 2 In Dignos vs. Court of Appeals (158
SCRA 375), we have said that, although denominated a "Deed of Conditional Sale," a sale is still
absolute where the contract is devoid of any proviso that title is reserved or the right to
unilaterally rescind is stipulated, e.g., until or unless the price is paid. Ownership will then be
transferred to the buyer upon actual or constructive delivery (e.g., by the execution of a public
document) of the property sold. Where the condition is imposed upon the perfection of the
contract itself, the failure of the condition would prevent such perfection. 3 If the condition is

26
imposed on the obligation of a party which is not fulfilled, the other party may either waive the
condition or refuse to proceed with the sale (Art. 1545, Civil Code). 4
An unconditional mutual promise to buy and sell, as long as the object is made determinate and
the price is fixed, can be obligatory on the parties, and compliance therewith may accordingly be
exacted. 5
An accepted unilateral promise which specifies the thing to be sold and the price to be paid, when
coupled with a valuable consideration distinct and separate from the price, is what may properly be
termed a perfected contract ofoption. This contract is legally binding, and in sales, it conforms with
the second paragraph of Article 1479 of the Civil Code, viz:
Art. 1479. . . .
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding
upon the promissor if the promise is supported by a consideration distinct from the price.
(1451a) 6
Observe, however, that the option is not the contract of sale itself. 7 The optionee has the right, but
not the obligation, to buy. Once the option is exercised timely, i.e., the offer is accepted before a
breach of the option, a bilateral promise to sell and to buy ensues and both parties are then
reciprocally bound to comply with their respective undertakings. 8
Let us elucidate a little. A negotiation is formally initiated by an offer. An imperfect
promise (policitacion) is merely an offer. Public advertisements or solicitations and the like are
ordinarily construed as mere invitations to make offers or only as proposals. These relations, until a
contract is perfected, are not considered binding commitments. Thus, at any time prior to the
perfection of the contract, either negotiating party may stop the negotiation. The offer, at this stage,
may be withdrawn; the withdrawal is effective immediately after its manifestation, such as by its
mailing and not necessarily when the offeree learns of the withdrawal (Laudico vs. Arias, 43 Phil.
270). Where a period is given to the offeree within which to accept the offer, the following rules
generally govern:
(1) If the period is not itself founded upon or supported by a consideration, the offeror is still free
and has the right to withdraw the offer before its acceptance, or, if an acceptance has been made,
before the offeror's coming to know of such fact, by communicating that withdrawal to the offeree
(see Art. 1324, Civil Code; see also Atkins, Kroll & Co. vs. Cua, 102 Phil. 948 , holding that this rule
is applicable to a unilateral promise to sell under Art. 1479, modifying the previous decision
in South Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see also Art. 1319, Civil Code; Rural Bank
of Paraaque, Inc., vs. Remolado, 135 SCRA 409; Sanchez vs. Rigos, 45 SCRA 368). The right to
withdraw, however, must not be exercised whimsically or arbitrarily; otherwise, it could give rise to
a damage claim under Article 19 of the Civil Code which ordains that "every person must, in the
exercise of his rights and in the performance of his duties, act with justice, give everyone his due,
and observe honesty and good faith."
(2) If the period has a separate consideration, a contract of "option" is deemed perfected, and it
would be a breach of that contract to withdraw the offer during the agreed period. The option,
however, is an independent contract by itself, and it is to be distinguished from the projected main
agreement (subject matter of the option) which is obviously yet to be concluded. If, in fact, the

optioner-offeror withdraws the offer before its acceptance(exercise of the option) by the
optionee-offeree, the latter may not sue for specific performance on the proposed contract
("object" of the option) since it has failed to reach its own stage of perfection. The optionerofferor, however, renders himself liable for damages for breach of the option. In these cases,
care should be taken of the real nature of the consideration given, for if, in fact, it has been
intended to be part of the consideration for the main contract with a right of withdrawal on the
part of the optionee, the main contract could be deemed perfected; a similar instance would be
an "earnest money" in a contract of sale that can evidence its perfection (Art. 1482, Civil Code).
In the law on sales, the so-called "right of first refusal" is an innovative juridical relation.
Needless to point out, it cannot be deemed a perfected contract of sale under Article 1458 of the
Civil Code. Neither can the right of first refusal, understood in its normal concept, per se be
brought within the purview of an option under the second paragraph of Article 1479,
aforequoted, or possibly of an offer under Article 1319 9 of the same Code. An option or an offer
would require, among other things, 10 a clear certainty on both the object and the cause or
consideration of the envisioned contract. In a right of first refusal, while the object might be made
determinate, the exercise of the right, however, would be dependent not only on the grantor's
eventual intention to enter into a binding juridical relation with another but also on terms,
including the price, that obviously are yet to be later firmed up. Prior thereto, it can at best be so
described as merely belonging to a class of preparatory juridical relations governed not by
contracts (since the essential elements to establish the vinculum juris would still be indefinite
and inconclusive) but by, among other laws of general application, the pertinent scattered
provisions of the Civil Code on human conduct.
Even on the premise that such right of first refusal has been decreed under a final judgment, like
here, its breach cannot justify correspondingly an issuance of a writ of execution under a
judgment that merely recognizes its existence, nor would it sanction an action for specific
performance without thereby negating the indispensable element of consensuality in the
perfection of contracts. 11 It is not to say, however, that the right of first refusal would be
inconsequential for, such as already intimated above, an unjustified disregard thereof, given, for
instance, the circumstances expressed in Article 19 12 of the Civil Code, can warrant a recovery
for damages.
The final judgment in Civil Case No. 87-41058, it must be stressed, has merely accorded a "right
of first refusal" in favor of petitioners. The consequence of such a declaration entails no more
than what has heretofore been said. In fine, if, as it is here so conveyed to us, petitioners are
aggrieved by the failure of private respondents to honor the right of first refusal, the remedy is
not a writ of execution on the judgment, since there is none to execute, but an action for
damages in a proper forum for the purpose.
Furthermore, whether private respondent Buen Realty Development Corporation, the alleged
purchaser of the property, has acted in good faith or bad faith and whether or not it should, in
any case, be considered bound to respect the registration of the lis pendens in Civil Case No.
87-41058 are matters that must be independently addressed in appropriate proceedings. Buen
Realty, not having been impleaded in Civil Case No. 87-41058, cannot be held subject to the writ
of execution issued by respondent Judge, let alone ousted from the ownership and possession
of the property, without first being duly afforded its day in court.

27
We are also unable to agree with petitioners that the Court of Appeals has erred in holding that the
writ of execution varies the terms of the judgment in Civil Case No. 87-41058, later affirmed in CAG.R. CV-21123. The Court of Appeals, in this regard, has observed:
Finally, the questioned writ of execution is in variance with the decision of the trial court as
modified by this Court. As already stated, there was nothing in said decision 13 that decreed the
execution of a deed of sale between the Cu Unjiengs and respondent lessees, or the fixing of
the price of the sale, or the cancellation of title in the name of petitioner (Limpin vs. IAC, 147
SCRA 516; Pamantasan ng Lungsod ng Maynila vs. IAC, 143 SCRA 311; De Guzman vs. CA,
137 SCRA 730; Pastor vs. CA, 122 SCRA 885).
It is likewise quite obvious to us that the decision in Civil Case No. 87-41058 could not have
decreed at the time the execution of any deed of sale between the Cu Unjiengs and petitioners.
WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting aside the questioned
Orders, dated 30 August 1991 and 27 September 1991, of the court a quo. Costs against
petitioners. SO ORDERED.
[G.R. No. 130722. December 9, 1999]
SPS. REYNALDO K. LITONJUA and ERLINDA P. LITONJUA vs. L & R CORPORATION
DECISION
YNARES-SANTIAGO, J.:
May a mortgage contract provide: (a) that the mortgagor cannot sell the mortgaged property
without first obtaining the consent of the mortgagee and that, otherwise, the sale made without the
mortgagees consent shall be invalid; and (b) for a right of first refusal in favor of the mortgagee?
The controversy stems from loans obtained by the spouses Litonjua from L & R Corporation
in the aggregate sum of P400,000.00; P200,000.00 of which was obtained on August 6, 1974 and
the remaining P200,000.00 obtained on March 27, 1978. The loans were secured by a
mortgage[1] constituted by the spouses upon their two parcels of land and the improvements
thereon located in Cubao, Quezon City covered by Transfer Certificates of Title No. 197232 and
197233, with an area of 599 and 1,436 square meters, respectively. The mortgage was duly
registered with the Register of Deeds of Quezon City.
On July 14, 1979, the spouses Litonjua sold to Philippine White House Auto Supply, Inc.
(PWHAS) the parcels of land they had previously mortgaged to L & R Corporation for the sum of
P430,000.00.[2] The sale was annotated at the back of the respective certificates of title of the
properties.[3]
Meanwhile, with the spouses Litonjua having defaulted in the payment of their loans, L & R
Corporation initiated extrajudicial foreclosure proceedings with the Ex-Oficio Sheriff of Quezon
City. On July 23, 1980, the mortgaged properties were sold at public auction to L & R Corporation
as the only bidder for the amount of P221,624.58. [4] When L & R Corporation presented its
corresponding Certificate of Sale issued by Deputy Sheriff Roberto B. Garcia, to the Quezon City
Register of Deeds for registration on August 15, 1980, it learned for the first time of the prior sale of
the properties made by the spouses Litonjua to PWHAS upon seeing the inscription at the back of
the certificates of title. Thus, on August 20, 1980, it wrote a letter[5] to the Register of Deeds of
Quezon City requesting for the cancellation of the annotation regarding the sale to PWHAS. L & R
Corporation invoked a provision in its mortgage contract with the spouses Litonjua stating that the
mortgagees prior written consent was necessary in case of subsequent encumbrance or alienation

of the subject properties. Thus, it argued that since the sale to PWHAS was made without its
prior written consent, the same should not have been registered and/or annotated.
On March 10, 1981, or seven months after the foreclosure sale, PWHAS, for the account
of the spouses Litonjua, tendered payment of the full redemption price to L & R Corporation in
the form of China Bank Managers Check No. HOF-M O12623 in the amount of P238,468.04.
[6]
See Exhibits G & 2, Letter of PWHAS to L & R Corporation, id.6 L & R Corporation,
however, refused to accept the payment, hence, PWHAS was compelled to redeem the
mortgaged properties through the Ex-Oficio Sheriff of Quezon City. On March 31, 1981, it
tendered payment of the redemption price to the Deputy Sheriff through China Bank Managers
Check No. HOF-O14750 in the amount of P240,798.94. [7] The check was deposited with the
Branch Clerk of Court who issued Receipt No. 7522484 [8] for the full redemption price of the
mortgaged properties. Accordingly, the Deputy Sheriff issued a Certificate of Redemption in
favor of the spouses Litonjua dated March 31, 1981.[9]
In a letter of the same date, the Deputy Sheriff informed L & R Corporation of the payment
by PWHAS of the full redemption price and advised it that it can claim the payment upon
surrender of its owners duplicate certificates of title.[10]
On April 2, 1981, the spouses Litonjua presented for registration the Certificate of
Redemption issued in their favor to the Register of Deeds of Quezon City. The Certificate also
informed L & R Corporation of the fact of redemption and directed the latter to surrender the
owners duplicate certificates of title within five days.[11]
On April 22, 1981, L & R Corporation wrote a letter to the Sheriff, copy furnished to the
Register of Deeds, stating: (1) that the sale of the mortgaged properties to PWHAS was without
its consent, in contravention of paragraphs 8 and 9 of their Deed of Real Estate Mortgage; and
(2) that it was not the spouses Litonjua, but PWHAS, who was seeking to redeem the foreclosed
properties, when under Articles 1236 and 1237 of the New Civil Code, the latter had no legal
personality or capacity to redeem the same.[12]
On the other hand, on May 8 and June 8, 1981, the spouses Litonjua asked the Register
of Deeds to annotate their Certificate of Redemption as an adverse claim on the titles of the
subject properties on account of the refusal of L & R Corporation to surrender the owners
duplicate copies of the titles to the subject properties. With the refusal of the Register of Deeds
to annotate their Certificate of Redemption, the Litonjua spouses filed a Petition [13] on July 17,
1981 against L & R Corporation for the surrender of the owners duplicate of Transfer
Certificates of Title No. 197232 and 197233 before the then Court of First Instance of Quezon
City, Branch IV, docketed as Civil Case No. 32905.
On August 15, 1981, while the said case was pending, L & R Corporation executed an
Affidavit of Consolidation of Ownership.[14] Thereafter, on August 20, 1981, the Register of Deeds
cancelled Transfer Certificates of Title No. 197232 and 197233 and in lieu thereof, issued
Transfer Certificates of Title No. 280054[15] and 28055[16] in favor of L & R Corporation, free of
any lien or encumbrance.
With titles issued in its name, L & R Corporation advised the tenants of the apartments
situated in the subject parcels of land that being the new owner, the rental payments should be
made to them, and that new lease contracts will be executed with interested tenants before the
end of August, 1981.[17] Upon learning of this incident from their tenants, the spouses Litonjua
filed an adverse claim[18] and a notice of lis pendens[19] with the Register of Deeds. In the
process, they learned that the prior sale of the properties in favor of PWHAS was not annotated
on the titles issued to L & R.

28
A complaint for Quieting of Title, Annulment of Title and Damages with preliminary injunction
was filed by the spouses Litonjua and PWHAS against herein respondents before the then Court of
First Instance of Quezon City, Branch 9, docketed as Civil Case No. Q-33362. [20] On February 10,
1987, the lower court rendered its Decision [21] dismissing the Complaint upon its finding that the
sale between the spouses Litonjua and PWHAS was null and void and unenforceable against L &
R Corporation and that the redemption made was also null and void.
On appeal, the decision of the trial court was set aside by the Court of Appeals in its Decision
dated June 22, 1994,[22] on the ground that the sale made to PWHAS as well as the redemption
effected by the spouses Litonjua were valid. However, the same was subsequently reconsidered
and set aside in an Amended Decision dated September 11, 1997.[23]
Hence, the instant Petition on the following issues:
(1) whether or not paragraphs 8 and 9 of the Real Estate Mortgage are valid and
enforceable;
(2) whether or not the sale of the mortgaged properties by the spouses Litonjua to
PWHAS, without the knowledge and consent of L & R Corporation, is valid and
enforceable;
(3) whether or not PWHAS had the right to redeem the foreclosed properties on the
account of the spouses Litonjua; and
(4) whether or not there was a valid redemption.
Paragraphs 8 and 9 of the subject Deed of Real Estate Mortgage read as follows
"8. That the MORTGAGORS shall not sell, dispose of, mortgage, nor in any other manner
encumber the real property/properties subject of this mortgage without the prior written consent of
the MORTGAGEE;
9. That should the MORTGAGORS decide to sell the real property/properties subject of this
mortgage, the MORTGAGEE shall be duly notified thereof by the MORTGAGORS, and should the
MORTGAGEE be interested to purchase the same, the latter shall be given priority over all the
other prospective buyers;[24]
There is no question that the spouses Litonjua violated both the aforesaid provisions, selling
the mortgaged properties to PWHAS without the prior written consent of L & R Corporation and
without giving the latter notice of such sale nor priority over PWHAS.
Re: Validity of prohibition against subsequent sale of mortgaged property without prior
written consent of mortgagee and validity of subsequent sale to PWHAS
Petitioners defend the validity of the sale between them by arguing that paragraph 8
violates Article 2130 of the New Civil Code which provides that (A) stipulation forbidding the owner
from alienating the immovable mortgaged shall be void.
In the case of Philippine Industrial Co. v. El Hogar Filipino and Vallejo, [25] a stipulation
prohibiting the mortgagor from entering into second or subsequent mortgages was held valid. This
is clearly not the same as that contained in paragraph 8 of the subject Deed of Real Estate
Mortgage which also forbids any subsequent sale without the written consent of the
mortgagee. Yet, in Arancillo v. Rehabilitation Finance Corporation,[26] the case of Philippine

Industrial Co., supra, was erroneously cited to have held that the prohibition in a mortgage
contract against the encumbrance, sale or disposal of the property mortgaged without the
consent of the mortgagee is valid. No similar prohibition forbidding the owner of mortgaged
property from (subsequently) mortgaging the immovable mortgaged is found in our laws, making
the ruling in Philippine Industrial Co., supra, perfectly valid. On the other hand, to extend such a
ruling to include subsequent sales or alienation runs counter not only toPhilippine Industrial Co.,
itself, but also to Article 2130 of the New Civil Code.
Meanwhile in De la Paz v. Macondray & Co., Inc., [27] it was held that while an agreement of
such nature does not nullify the subsequent sale made by the mortgagor, the mortgagee is
authorized to bring the foreclosure suit against the mortgagor without the necessity of either
notifying the purchaser or including him as a defendant. At the same time, the purchaser of the
mortgaged property was deemed not to have lost his equitable right of redemption.
In Bonnevie v. Court of Appeals,[28] where a similar provision appeared in the subject
contract of mortgage, the petitioners therein, to whom the mortgaged property were sold without
the written consent of the mortgagee, were held as without the right to redeem the said
property. No consent having been secured from the mortgagee to the sale with assumption of
mortgage by petitioners therein, the latter were not validly substituted as debtors. It was further
held that since their rights were never recorded, the mortgagee was charged with the obligation
to recognize the right of redemption only of the original mortgagors-vendors. Without discussing
the validity of the stipulation in question, the same was, in effect, upheld.
Again, in Cruz v. Court of Appeals, [29] while a similar provision was recognized and applied,
no discussion as to its validity was made since the same was not raised as an issue.
On the other hand, in Tambunting v. Rehabilitation Finance Corporation,[30] the validity of a
similar provision was specifically raised and discussed and found as invalid. It was there
ratiocinated that -To be sure, the deed of second mortgage executed by the Escuetas in favor of Aurora
Tambunting, married to Antonio L. Tambunting, does contain a provision that the property
mortgaged shall not be x x x the subject of any new or subsequent contracts of agreements,
saving and excepting those having connection with the first mortgage with the RFC, without first
securing the written permission and consent of the MORTGAGEE. But the provision can only
be construed as directed against subsequent mortgages or encumbrances, not to an alienation
of the immovable itself. For while covenants prohibiting the owner from constituting a later
mortgage over property registered under the Torrens Act have been held to be legally
permissible (Phil. Industrial Co. v. El Hogar Filipino, et al., 45 Phil. 336, 341-342; Bank of the
Philippines v. Ty Camco Sobrino, 57 Phil. 801), stipulations forbidding the owner from alienating
the immovable mortgaged are expressly declared void by law (Art. 2130, Civil Code). It is clear
that the stipulation against subsequent agreements above mentioned had not been breached
by the assignment by the Escuetas (to the Hernandezes) of their right of redemption in
connection with the mortgage constituted in favor of the R.F.C. The assignment was not a
subsequent mortgage or encumbrance, licitly comprehended by the prohibitory stipulation, but
was actually a sale or conveyance of all their rights in the encumbered real property in truth,
an alienation of the immovable which could not lawfully be forbidden. Moreover, since the
subject of the assignment to the Hernandezes had connection with the first assignment with the
R.F.C., it did not fall within, but was explicitly excepted from, the prohibitory stipulation in
question. Finally, it should not be forgotten that since the Tambuntings, in their own deed of
conditional sale with the R.F.C., had accepted without demur the provision that said contract
could be revoked within one (1) year from September 16, 1955 at the option of the RFC, as
vendor, should the former owner (Escueta) exercise his right to redeem the property; and that

29
the redemption of the property within said period by the former owner or his successor-in-interest
would render their instrument of conditional sale automatically null and void and without effect,
they cannot now assume a position inconsistent with said provision. (underscoring, Ours)
Earlier, in PNB v. Mallorca,[31] it was reiterated that a real mortgage is merely an
encumbrance; it does not extinguish the title of the debtor, whose right to dispose a principal
attribute of ownership is not thereby lost. Thus, a mortgagor had every right to sell his
mortgaged property, which right the mortgagee cannot oppose.
In upholding the validity of the stipulation in question, the amended Decision relied on the
cases of Cruz v. Court of Appeals, supra, and Medida v. Court of Appeals.[32] According to the Court
of Appeals, said cases, are not only more recent that that of Tambunting, supra, but are also more
applicable to the issue at bar.
We are not convinced.
As we have mentioned, although a similar provision was recognized and applied in Cruz v.
Court of Appeals, supra, no discussion as to its validity was made since the same was not raised
as an issue. Thus, it cannot be said that the specific pronouncement in the Tambunting case that
such a stipulation can only be construed as against subsequent mortgages or encumbrances but
not to an alienation of the immovable itself, which is prohibited under Article 2130, was abandoned
thereby. On the other hand, the facts in the case of Medida v. Court of Appeals, are different from
those in the present case for what was in issue in the said case was a second mortgage over a
foreclosed property during the period of redemption. Thus, the ruling in Medida quoted in the
Amended Decision that what is delimited is not the mortgagors jus dispodendi, as an attribute of
ownership, but merely the rights conferred by such act of disposal which may correspondingly be
restricted, actually refers to the fact that the only rights which a mortgagor can legally transfer,
cede and convey after the foreclosure of his properties are the right to redeem the land, and the
possession use and enjoyment of the same during the period of redemption. It has no connection
or reference to the right of a mortgagor to sell his mortgaged property without the required consent
of the mortgagee. To be sure, there is absolutely nothing in Medida that upholds the validity of the
stipulation in controversy.
Insofar as the validity of the questioned stipulation prohibiting the mortgagor from selling his
mortgaged property without the consent of the mortgagee is concerned, therefore, the ruling in
the Tambuntingcase is still the controlling law. Indeed, we are fully in accord with the
pronouncement therein that such a stipulation violates Article 2130 of the New Civil Code. Both
the lower court and the Court of Appeals in its Amended Decision rationalize that since paragraph 8
of the subject Deed of Real Estate Mortgage contains no absolute prohibition against the sale of
the property mortgaged but only requires the mortgagor to obtain the prior written consent of the
mortgagee before any such sale, Article 2130 is not violated thereby. This observation takes a
narrow and technical view of the stipulation in question without taking into consideration the end
result of requiring such prior written consent. True, the provision does not absolutely prohibit the
mortgagor from selling his mortgaged property; but what it does not outrightly prohibit, it
nevertheless achieves. For all intents and purposes, the stipulation practically gives the mortgagee
the sole prerogative to prevent any sale of the mortgaged property to a third party. The mortgagee
can simply withhold its consent and thereby, prevent the mortgagor from selling the property. This
creates an unconscionable advantage for the mortgagee and amounts to a virtual prohibition on
the owner to sell his mortgaged property. In other words, stipulations like those covered by
paragraph 8 of the subject Deed of Real Estate Mortgage circumvent the law, specifically, Article
2130 of the New Civil Code.

Being contrary to law, paragraph 8 of the subject Deed of Real Estate Mortgage is not
binding upon the parties. Accordingly, the sale made by the spouses Litonjua to PWHAS,
notwithstanding the lack of prior written consent of L & R Corporation, is valid.
Re: Validity of redemption effected by PWHAS on the account of the spouses Litonjua
Coming now to the issue of whether the redemption offered by PWHAS on account of the
spouses Litonjua is valid, we rule in the affirmative. The sale by the spouses Litonjua of the
mortgaged properties to PWHAS is valid. Therefore, PWHAS stepped into the shoes of the
spouses Litonjua on account of such sale and was in effect, their successor-in-interest. As such,
it had the right to redeem the property foreclosed by L & R Corporation. Again, Tambunting,
supra, clarifies that
x x x. The acquisition by the Hernandezes of the Escuetas rights over the property carried with
it the assumption of the obligations burdening the property, as recorded in the Registry of
Property, i.e., the mortgage debts in favor of the RFC (DBP) and the Tambuntings. The
Hernandezes, by stepping into the Escuetas shoes as assignees, had the obligation to pay the
mortgage debts, otherwise, these debts would and could be enforced against the property
subject of the assignment. Stated otherwise, the Hernandezes, by the assignment, obtained the
right to remove the burdens on the property subject thereof by paying the obligations thereby
secured; that is to say, they had the right of redemption as regards the first mortgage, to be
exercised within the time and in the manner prescribed by law and the mortgage deed; and as
regards the second mortgage, sought to be judicially foreclosed but yet unforeclosed, they had
the so-called equity of redemption.
The redemption of PWHAS to redeem the subject properties finds support in Section 6 of
Act 3135 itself which gives not only the mortgagor-debtor the right to redeem, but also his
successors-in-interest. As vendee of the subject properties, PWHAS qualifies as such a
successor-in-interest of the spouses Litonjua.
Re: Validity of redemption made
It is clear from the records that PWHAS offered to redeem the subject properties seven (7)
months after the date of registration of the foreclosure sale, well within the one year period of
redemption.
Re: Validity and enforceability of stipulation granting the mortgagee the right of first
refusal
While petitioners question the validity of paragraph 8 of their mortgage contract, they
appear to be silent insofar as paragraph 9 thereof is concerned. Said paragraph 9 grants upon
L & R Corporation the right of first refusal over the mortgaged property in the event the
mortgagor decides to sell the same. We see nothing wrong in this provision. The right of first
refusal has long been recognized as valid in our jurisdiction. The consideration for the loanmortgage includes the consideration for the right of first refusal. L & R Corporation is in effect
stating that it consents to lend out money to the spouses Litonjua provided that in case they
decide to sell the property mortgaged to it, then L & R Corporation shall be given the right to
match the offered purchase price and to buy the property at that price. Thus, while the spouses
Litonjua had every right to sell their mortgaged property to PWHAS without securing the prior
written consent of L & R Corporation, it had the obligation under paragraph 9, which is a
perfectly valid provision, to notify the latter of their intention to sell the property and give it priority
over other buyers. It is only upon failure of L & R Corporation to exercise its right of first refusal

30
could the spouses Litonjua validly sell the subject properties to others, under the same terms and
conditions offered to L & R Corporation.
What then is the status of the sale made to PWHAS in violation of L & R Corporations
contractual right of first refusal? On this score, we agree with the Amended Decision of the Court
of Appeals that the sale made to PWHAS is rescissible. The case of Guzman, Bocaling & Co v.
Bonnevie[33] is instructive on this point
The respondent court correctly held that the Contract of Sale was not voidable
but rescissible. Under Article 1380 to 1381(3) of the Civil Code, a contract otherwise valid may
nonetheless be subsequently rescinded by reason of injury to third persons, like creditors. The
status of creditors could be validly accorded the Bonnevies for they had substantial interests that
were prejudiced by the sale of the subject property to the petitioner without recognizing their right
of first priority under the Contract of Lease.
According to Tolentino, rescission is a remedy granted by law to the contracting parties and even
to third persons, to secure reparation for damages caused to them by a contract, even if this
should be valid, by means of the restoration of things to their condition at the moment prior to the
celebration of said contract. It is a relief allowed for one of the contracting parties and even third
persons from all injury and damage the contract may cause, or to protect some incompatible and
preferential right created by the contract. Rescission implies a contract which, even if initially valid,
produces a lesion or pecuniary damage to someone that justifies its invalidation for reasons of
equity. (underscoring, Ours)
It was then held that the Contract of Sale there, which violated the right of first refusal, was
rescissible.
In the case at bar, PWHAS cannot claim ignorance of the right of first refusal granted to L &
R Corporation over the subject properties since the Deed of Real Estate Mortgage containing such
a provision was duly registered with the Register of Deeds. As such, PWHAS is presumed to have
been notified thereof by registration, which equates to notice to the whole world.
We note that L & R Corporation had always expressed its willingness to buy the mortgaged
properties on equal terms as PWHAS. Indeed, in its Answer to the Complaint filed, L & R
Corporation expressed that it was ready, willing and able to purchase the subject properties at the
same purchase price of P430,000.00, and was agreeable to pay the difference between such
purchase price and the redemption price of P249,918.77, computed as of August 13, 1981, the
expiration of the one-year period to redeem. That it did not duly exercised its right of first refusal at
the opportune time cannot be taken against it, precisely because it was not notified by the spouses
Litonjua of their intention to sell the subject property and thereby, to give it priority over other
buyers.
All things considered, what then are the relative rights and obligations of the parties? To
recapitulate:, the sale between the spouses Litonjua and PWHAS is valid, notwithstanding the
absence of L & R Corporations prior written consent thereto. Inasmuch as the sale to PWHAS
was valid, its offer to redeem and its tender of the redemption price, as successor-in-interest of the
spouses Litonjua, within the one-year period should have been accepted as valid by L & R
Corporation. However, while the sale is, indeed, valid, the same is rescissible because it ignored L
& R Corporations right of first refusal.
Foreseeing a possible rescission of the sale, the spouses Litonjua contend that with the
restoration of the original status quo, with no sale having been made, they should now be allowed

to redeem the subject properties, the period of redemption having been suspended during the
period of litigation. In effect, the spouses Litonjua want to retain ownership of the same. We
cannot, however, sanction this belated reversal of the spouses Litonjuas decision to sell. To do
so would afford them undue advantage on account of the appreciation of the value of the subject
properties in the intervening years when they precisely were the ones who violated and ignored
the right of first refusal of L & R Corporation over the same. Moreover, it must be stressed that
in rescinding the sale made to PWHAS, the purpose is to uphold and enforce the right of first
refusal of L & R Corporation. WHEREFORE, the Decision appealed from is hereby AFFIRMED
with the following MODIFICATIONS:
(a) Ordering
the
rescission
of
the
sale
of
the
mortgaged
properties
between petitioners spouses Reynaldo and Erlinda Litonjua and Philippine White House
Auto Supply, Inc. and ordering said spouses to return to Philippine White House Auto
Supply, Inc. the purchase price of P430,000.00;
(c) Disallowing, due to the rescission of the sale made in its favor, the redemption made by
Philippine White House Auto Supply, Inc. and ordering Quezon City Sheriff Roberto Garcia
to return to it the redemption check of P240,798.94;
(d) Allowing respondent L & R Corporation to retain its consolidated titles to the foreclosed
properties but ordering it to pay to the Litonjua spouses the additional sum of P189,201.96
representing the difference from the purchase price of P430,000.00 in the rescinded sale;
(e) Deleting the awards for moral and exemplary damages and attorneys fees to
the respondents.
No pronouncement as to costs. SO ORDERED.
G.R. No. 103338 January 4, 1994
FEDERICO SERRA vs. COURT OF APPEALS
NOCON, J.:
A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An
accepted unilateral promise to buy and sell a determinate thing for a price certain is binding
upon the promisor if the promise is supported by a consideration distinct from the price. (Article
1479, New Civil Code) The first is the mutual promise and each has the right to demand from the
other the fulfillment of the obligation. While the second is merely an offer of one to another,
which if accepted, would create an obligation to the offeror to make good his promise, provided
the acceptance is supported by a consideration distinct from the price.
Disputed in the present case is the efficacy of a "Contract of Lease with Option to Buy", entered
into between petitioner Federico Serra and private respondent Rizal Commercial Banking
Corporation. (RCBC).
Petitioner is the owner of a 374 square meter parcel of land located at Quezon St., Masbate,
Masbate. Sometime in 1975, respondent bank, in its desire to put up a branch in Masbate,
Masbate, negotiated with petitioner for the purchase of the then unregistered property. On May
20, 1975, a contract of LEASE WITH OPTION TO BUY was instead forged by the parties, the
pertinent portion of which reads:
1. The LESSOR leases unto the LESSEE, an the LESSEE hereby accepts in lease, the parcel
of land described in the first WHEREAS clause, to have and to hold the same for a period of

31
twenty-five (25) years commencing from June 1, 1975 to June 1, 2000. The LESSEE, however,
shall have the option to purchase said parcel of land within a period of ten (10) years from the
date of the signing of this Contract at a price not greater than TWO HUNDRED TEN PESOS
(P210.00) per square meter. For this purpose, the LESSOR undertakes, within such ten-year
period, to register said parcel of land under the TORRENS SYSTEM and all expenses
appurtenant thereto shall be for his sole account.
If, for any reason, said parcel of land is not registered under the TORRENS SYSTEM within the
aforementioned ten-year period, the LESSEE shall have the right, upon termination of the lease
to be paid by the LESSOR the market value of the building and improvements constructed on
said parcel of land.
The LESSEE is hereby appointed attorney-in-fact for the LESSOR to register said parcel of land
under the TORRENS SYSTEM in case the LESSOR, for any reason, fails to comply with his
obligation to effect said registration within reasonable time after the signing of this Agreement,
and all expenses appurtenant to such registration shall be charged by the LESSEE against the
rentals due to the LESSOR.
2. During the period of the lease, the LESSEE covenants to pay the LESSOR, at the latter's
residence, a monthly rental of SEVEN HUNDRED PESOS (P700.00), Philippine Currency,
payable in advance on or before the fifth (5th) day of every calendar month, provided that the
rentals for the first four (4) months shall be paid by the LESSEE in advance upon the signing of
this Contract.
3. The LESSEE is hereby authorized to construct as its sole expense a building and such other
improvements on said parcel of land, which it may need in pursuance of its business and/or
operations; provided, that if for any reason the LESSEE shall fail to exercise its option
mentioned in paragraph (1) above in case the parcel of land is registered under the TORRENS
SYSTEM within the ten-year period mentioned therein, said building and/or improvements, shall
become the property of the LESSOR after the expiration of the 25-year lease period without the
right of reimbursement on the part of the LESSEE. The authority herein granted does not,
however, extend to the making or allowing any unlawful, improper or offensive used of the
leased premises, or any use thereof, other than banking and office purposes. The maintenance
and upkeep of such building, structure and improvements shall likewise be for the sole account
of the LESSEE. 1
The foregoing agreement was subscribed before Notary Public Romeo F. Natividad.

per square meter or a total of P78,430.00. But much to the surprise of the respondent, petitioner
replied that he is no longer selling the property. 3
Hence, on March 14, 1985, a complaint for specific performance and damages were filed by
respondent against petitioner. In the complaint, respondent alleged that during the negotiations it
made clear to petitioner that it intends to stay permanently on property once its branch office is
opened unless the exigencies of the business requires otherwise. Aside from its prayer for
specific performance, it likewise asked for an award of P50,000.00 for attorney's fees
P100,000.00 as exemplary damages and the cost of the suit. 4
A special and affirmative defenses, petitioner contended:
1. That the contract having been prepared and drawn by RCBC, it took undue advantage on
him when it set in lopsided terms.
2. That the option was not supported by any consideration distinct from the price and hence
not binding upon him.
3. That as a condition for the validity and/or efficacy of the option, it should have been
exercised within the reasonable time after the registration of the land under the Torrens
System; that its delayed action on the option have forfeited whatever its claim to the same.
4. That extraordinary inflation supervened resulting in the unusual decrease in the purchasing
power of the currency that could not reasonably be forseen or was manifestly beyond the
contemplation of the parties at the time of the establishment of the obligation, thus, rendering
the terms of the contract unenforceable, inequitable and to the undue enrichment of RCBC. 5
and as counterclaim petitioner alleged that:
1. The rental of P700.00 has become unrealistic and unreasonable, that justice and equity will
require its adjustment.
2. By the institution of the complaint he suffered moral damages which may be assessed at
P100,000.00 and award of attorney's fee of P25,000.00 and exemplary damages at
P100,000.00. 6

Pursuant to said contract, a building and other improvements were constructed on the land which
housed the branch office of RCBC in Masbate, Masbate. Within three years from the signing of the
contract, petitioner complied with his part of the agreement by having the property registered and
placed under the TORRENS SYSTEM, for which Original Certificate of Title No. 0-232 was issued
by the Register of Deeds of the Province of Masbate.

Initially, after trial on the merits, the court dismissed the complaint. Although it found the contract
to be valid, the court nonetheless ruled that the option to buy in unenforceable because it lacked
a consideration distinct from the price and RCBC did not exercise its option within reasonable
time. The prayer for readjustment of rental was denied, as well as that for moral and exemplary
damages. 7

Petitioner alleges that as soon as he had the property registered, he kept on pursuing the manager
of the branch to effect the sale of the lot as per their agreement. It was not until September 4,
1984, however, when the respondent bank decided to exercise its option and informed petitioner,
through a letter, 2 of its intention to buy the property at the agreed price of not greater than P210.00

Nevertheless, upon motion for reconsideration of respondent, the court in the order of January 9,
1989, reversed itself, the dispositive portion reads:
WHEREFORE, the Court reconsiders its decision dated June 6, 1988, and hereby renders
judgment as follows:

32
1. The defendant is hereby ordered to execute and deliver the proper deed of sale in favor of
plaintiff
selling,
transferring
and
conveying the property covered by and described in the Original Certificate of Title 0-232 of the
Registry of Deeds of Masbate for the sum of Seventy Eight Thousand Five Hundred Forty Pesos
(P78,540,00), Philippine Currency;
2. Defendant is ordered to pay plaintiff the sum of Five Thousand (P5,000.00) Pesos as
attorney's fees;
3. The counter claim of defendant is hereby dismissed; and

We do not find the situation in the present case to be inequitable. Petitioner is a highly educated
man, who, at the time of the trial was already a CPA-Lawyer, and when he entered into the
contract, was already a CPA, holding a respectable position with the Metropolitan Manila
Commission. It is evident that a man of his stature should have been more cautious in
transactions he enters into, particularly where it concerns valuable properties. He is amply
equipped to drive a hard bargain if he would be so minded to.
Petitioner
contends
that
the
doctrines
laid
down
in
the
cases
of
Atkins Kroll v. Cua Hian Tek, 11 Sanchez v. Rigos, 12 and Vda. de Quirino v. Palarca 13 were
misapplied in the present case, because 1) the option given to the respondent bank was not
supported by a consideration distinct from the price; and 2) that the stipulated price of "not
greater than P210.00 per square meter" is not certain or definite.

4. Defendants shall pay the costs of suit. 8

In a decision promulgated on September 19, 1991, 9 the Court of Appeals affirmed the findings of
the trial court that:
1. The contract is valid and that the parties perfectly understood the contents thereof;
2. The option is supported by a distinct and separate consideration as embodied in the
agreement;
3. There is no basis in granting an adjustment in rental.
Assailing the judgment of the appellate court, petitioner would like us to consider mainly the
following:
1. The disputed contract is a contract of adhesion.
2. There was no consideration to support the option, distinct from the price, hence the option
cannot be exercised.

Article 1324 of the Civil Code provides that when an offeror has allowed the offeree a certain
period to accept, the offer maybe withdrawn at anytime before acceptance by communicating
such withdrawal, except when the option is founded upon consideration, as something paid or
promised. On the other hand, Article 1479 of the Code provides that an accepted unilateral
promise to buy and sell a determinate thing for a price certain is binding upon the promisor if the
promise is supported by a consideration distinct from the price.
In a unilateral promise to sell, where the debtor fails to withdraw the promise before the
acceptance by the creditor, the transaction becomes a bilateral contract to sell and to buy,
because upon acceptance by the creditor of the offer to sell by the debtor, there is already a
meeting of the minds of the parties as to the thing which is determinate and the price which is
certain. 14 In which case, the parties may then reciprocally demand performance.
Jurisprudence has taught us that an optional contract is a privilege existing only in one party
the buyer. For a separate consideration paid, he is given the right to decide to purchase or not, a
certain merchandise or property, at any time within the agreed period, at a fixed price. This being
his prerogative, he may not be compelled to exercise the option to buy before the time
expires. 15

The petition is devoid of merit.

On the other hand, what may be regarded as a consideration separate from the price is
discussed in the case ofVda. de Quirino v. Palarca 16 wherein the facts are almost on all fours
with the case at bar. The said case also involved a lease contract with option to buy where we
had occasion to say that "the consideration for the lessor's obligation to sell the leased premises
to the lessee, should he choose to exercise his option to purchase the same, is the obligation of
the lessee to sell to the lessor the building and/or improvements constructed and/or made by the
former, if he fails to exercise his option to buy leased premises." 17

There is no dispute that the contract is valid and existing between the parties, as found by both the
trial court and the appellate court. Neither do we find the terms of the contract unfairly lopsided to
have it ignored.

In the present case, the consideration is even more onerous on the part of the lessee since it
entails transferring of the building and/or improvements on the property to petitioner, should
respondent bank fail to exercise its option within the period stipulated. 18

A contract of adhesion is one wherein a party, usually a corporation, prepares the stipulations in the
contract, while the other party merely affixes his signature or his "adhesion" thereto. These types of
contracts are as binding as ordinary contracts. Because in reality, the party who adheres to the
contract is free to reject it entirely. Although, this Court will not hesitate to rule out blind adherence
to terms where facts and circumstances will show that it is basically one-sided. 10

The bugging question then is whether the price "not greater than TWO HUNDRED PESOS" is
certain or definite. A price is considered certain if it is so with reference to another thing certain
or when the determination thereof is left to the judgment of a specified person or persons. 19 And
generally, gross inadequacy of price does not affect a contract of sale. 20

3. Respondent court gravely abused its discretion in not granting currency adjustment on the
already eroded value of the stipulated rentals for twenty-five years.

33
Contracts are to be construed according to the sense and meaning of the terms which the parties
themselves have used. In the present dispute, there is evidence to show that the intention of the
parties is to peg the price at P210 per square meter. This was confirmed by petitioner himself in his
testimony, as follows:
Q. Will you please tell this Court what was the offer?
A. It was an offer to buy the property that I have in Quezon City (sic).
Q. And did they give you a specific amount?
A. Well, there was an offer to buy the property at P210 per square meters (sic).
Q. And that was in what year?
A . 1975, sir.
Q. And did you accept the offer?
A. Yes, sir. 21
Moreover, by his subsequent acts of having the land titled under the Torrens System, and in
pursuing the bank manager to effect the sale immediately, means that he understood perfectly the
terms of the contract. He even had the same property mortgaged to the respondent bank
sometime in 1979, without the slightest hint of wanting to abandon his offer to sell the property at
the agreed price of P210 per square meter. 22
Finally, we agree with the courts a quo that there is no basis, legal or factual, in adjusting the
amount of the rent. The contract is the law between the parties and if there is indeed reason to
adjust the rent, the parties could by themselves negotiate for the amendment of the contract.
Neither could we consider the decline of the purchasing power of the Philippine peso from 1983 to
the time of the commencement of the present case in 1985, to be so great as to result in an
extraordinary inflation. Extraordinary inflation exists when there in an unimaginable increase or
decrease of the purchasing power of the Philippine currency, or fluctuation in the value of pesos
manifestly beyond the contemplation of the parties at the time of the establishment of the
obligation. 23

On June 28, 1976, defendant spouses Restituto Nonato and Ester Nonato purchased one (1)
unit of Volkswagen Sakbayan from the People's Car, Inc., on installment basis. To secure
complete payment, the defendants executed a promissory note (Exh. A or 1) and a chattel
mortgage in favor of People's Car, Inc, (Exh. B or 2). People's Car, Inc., assigned its rights
and interests over the note and mortgage in favor of plaintiff Investor's Finance Corporation
(FNCB) Finance). For failure of defendants to pay two or more installments, despite demands,
the car was repossessed by plaintiff on March 20, 1978 (Exh. E or 4).
Despite repossession, plaintiff demanded from defendants that they pay the balance of the
price of the car (Exhs. F and C). Finally, on June 9, 1978, plaintiff filed before the Court of
First Instance of Negros Occidental the present complaint against defendants for the latter to
pay the balance of the price of the car, with damages and attorney's fees. (Records, pp. 3637)
In their answer, the spouses Nonato alleged by way of defense that when the company
repossessed the vehicle, it had, by that act, effectively cancelled the sale of the vehicle. It is
therefore barred from exacting recovery of the unpaid balance of the purchase price, as
mandated by the provisions of Article 1484 of the Civil Code.
After due hearing, the trial court rendered a decision in favor of the IFC and against the Nonatos,
as follows:
PREMISES CONSIDERED, the Court hereby renders judgment ordering the defendant to pay
to the plaintiff the amount of P 17,537.60 with interest at the rate of 14% per annum from July
28, 1976 until fully paid, 10% of the amount due as attorney's fees, litigation expenses in the
amount of P 133.05 plus the costs of this suit. No pronouncement as to other charges and
damages, the same not having been proven to the satisfaction of the Court. 1
On appeal, the respondent appellate court affirmed the j judgment.

Premises considered, we find that the contract of "LEASE WITH OPTION TO BUY" between
petitioner and respondent bank is valid, effective and enforceable, the price being certain and that
there was consideration distinct from the price to support the option given to the lessee.
WHEREFORE, this petition is hereby DISMISSED, and the decision of the appellate court is
hereby AFFIRMED. SO ORDERED.
G.R. No. L-67181 November 22, 1985
SPOUSES RESTITUTO NONATO and ESTER NONATO vs. INTERMEDIATE APPELLATE
COURT
ESCOLIN, J.:
The issue posed in this petition for review of the decision of the respondent appellate court is
whether a vendor, or his assignee, who had cancelled the sale of a motor vehicle for failure of the
buyer to pay two or more of the stipulated installments, may also demand payment of the balance
of the purchase price.
The pertinent facts are summarized by the respondent appellate court as follows:

Hence, this petition for review on certiorari.

The applicable law in the case at bar, involving as it does a sale of personal property on
installment, is Article 1484 of the Civil Code which provides:
In a contract of sale of personal property the price of which is payable in installments, the
vendor may exercise any of the following remedies:
(1) Exact fulfillment of the obligation, should the vendee fail to pay;
(2) Cancel the sale, should the vendee's failure to pay cover two or more installments;
(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the
vendee's failure to pay cover two or more installments. In this case, he shall have no further
action against the purchaser to recover any unpaid balance of the price. Any agreement to the
contrary shall be void.

34
The meaning of the aforequoted provision has been repeatedly enunciated in a long line of cases.
Thus: "Should the vendee or purchaser of a personal property default in the payment of two or
more of the agreed installments, the vendor or seller has the option to avail of any of these three
remedies-either to exact fulfillment by the purchaser of the obligation, or to cancel the sale, or to
foreclose the mortgage on the purchased personal property, if one was constituted. These
remedies have been recognized as alternative, not cumulative, that the exercise of one would bar
the exercise of the others. 2
It is not disputed that the respondent company had taken possession of the car purchased by the
Nonatos on installments. But while the Nonatos maintain that the company had, by that act,
exercised its option to cancel the contract of sale, the company contends that the repossession of
the vehicle was only for the purpose of appraising its value and for storage and safekeeping
pending full payment by the Nonatos of the purchasing price. The company thus denies having
exercised its right to cancel the sale of the repossessed car. The records show otherwise.
The receipt issued by the respondent company to the Nonatos when it took possession of the
vehicle states that the vehicle could be redeemed within fifteen [151 days. 3 This could only mean
that should petitioners fail to redeem the car within the aforesaid period by paying the balance of
the purchase price, the company would retain permanent possession of the vehicle, as it did in
fact. This was confirmed by Mr. Ernesto Carmona, the company's witness, who testified, to wit:
ATTY. PAMPLONA: So that Mr. Witness, it is clear now that, per your receipt and your answer, the
company will not return the unit without paying a sum of money, more particularly the balance of
the account?

On June 6, 1957, plaintiff-appellee Southern Motors, Inc. sold to defendant-appellant Angel

Moscoso one Chevrolet truck, on installment basis, for P6,445.00. Upon making a down
payment, the defendant executed a promissory note for the sum of P4,915.00, representing the
unpaid balance of the purchase price (Annex A, complaint), to secure the payment of which, a
chattel mortgage was constituted on the truck in favor of the plaintiff (Annex B). Of said account
of P4,915.00, the defendant had paid a total of P550.00, of which P110.00 was applied to the
interest up to August 15, 1957, and P400.00 to the principal, thus leaving an unpaid balance of
P4,475.00. The defendant failed to pay 3 installments on the balance of the purchase price.
On November 4, 1957, the plaintiff filed a complaint against the defendant, to recover the unpaid
balance of the promissory note. Upon plaintiff's petition, embodied in the complaint, a writ of
attachment was issued by the lower court on the properties Of the defendant. Pursuant thereto,
the said Chevrolet truck, and a house and lot belonging to defendant, were attached by the
Sheriff of San Jose, Antique, where defendant was residing on November 25, 1957, and said
truck was brought to the plaintiff's compound in Iloilo City, for safe keeping.
After attachment and before the trial of the case on the merits, acting upon the plaintiff's motion
dated December 23, 1957, for the immediate sale of the mortgaged truck, the Provincial Sheriff
of Iloilo on January 2, 1958, sold the truck at public auction in which plaintiff itself was the only
bidder for P1,000.00. The case had not been set for hearing, then.
The trial court on March 27, 1958, condemned the defendant to pay the plaintiff the amount of
P4,475.00 with interest at the rate of 12% per annum from August 16, 1957, until fully paid, plus
10% thereof as attorneys fees and costs against which defendant interposed the present appeal,
contending that the trial court erred

WITNESS: Yes, sir. 4

Respondent corporation further asserts that it repossessed the vehicle merely for the purpose of
appraising its current value. The allegation is untenable, for even after it had notified the Nonatos
that the value of the car was not sufficient to cover the balance of the purchase price, there was no
attempt at all on the part of the company to return the repossessed car,
Indeed, the acts performed by the corporation are wholly consistent with the conclusion that it had
opted to cancel the contract of sale of the vehicle. It is thus barred from exacting payment from
petitioners of the balance of the price of the vehicle which it had already repossessed. It cannot
have its cake and eat it too.
WHEREFORE, the judgment of the appellate court in CA-G.R. No. 69276-R is hereby set aside
and the complaint filed by respondent Investors Finance Corporation against petitioner in Civil
Case No. 13852 should be, as it is hereby, dismissed. No costs. SO ORDERED.

(1) In not finding that the attachment caused to be levied on the truck and its immediate sale
at public auction, was tantamount to the foreclosure of the chattel mortgage on said truck; and
(2) In rendering judgment in favor of the plaintiff-appellee.
Both parties agreed that the case is governed by Article 1484 of the new Civil Case, which
provides:
ART. 1484. In a contract of sale of personal property the price of which is payable in
installments, the vendor may exercise any of the following remedies:
(1) Exact fulfillment of the obligation, should the vendee fail to pay; .
(2) Cancel the sale, should the vendee's failure to pay cover two or more installments;

G.R. No. L-14475

May 30, 1961
SOUTHERN MOTORS, INC. vs. ANGELO MOSCOSO
PAREDES, J.:
The case was submitted on agreed statement of facts.

(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the
vendee's failure to pay cover two or more installments. In this case, he shall have no further
action against the purchaser to recover any unpaid balance of the price. Any agreement to the
contrary shall be void.

35
While the appellee claims that in filing the complaint, demanding payment of the unpaid balance of
the purchase price, it has availed of the first remedy provided in said article i.e. to exact fulfillment
of the obligation (specific performance); the appellant, on the other hand, contends that appellee
had availed itself of the third remedy viz, the foreclosure of the chattel mortgage on the truck.
The appellant argues that considering history of the law, the circumstances leading to its
enactment, the evil that the law was intended to correct and the remedy afforded (Art. 1454-A of
the old Civil Code; Act No. 4122; Bachrach Motor Co. vs. Reyes, 62 Phil. 461, 466-469); that the
appellee did not content itself by waiting for the judgment on the complaint and then executed the
judgment which might be rendered in its favor, against the properties of the appellant; that the
appellee obtained a preliminary attachment on the subject of the chattel mortgage itself and
caused said truck to be sold at public auction petition, in which he was bidder for P1,000.00; the
result of which, was similar to what would have happened, had it foreclosed the mortgage pursuant
to the provisions of Sec. 14 of Act No. 1508 (Chattel Mortgage Law) the said appellee had availed
itself of the third remedy aforequoted. In other words, appellant submits that the matter should be
looked at, not by the allegations in the complaint, but by the very effect and result of the procedural
steps taken and that appellee tried to camouflage its acts by filing a complaint purportedly to exact
the fulfillment of an obligation petition, in an attempt to circumvent the provisions of Article 1484 of
the new Civil Code. Appellant concludes that under his theory, a deficiency judgment would be
without legal basis.
We do not share the views of the appellant on this matter. Manifestly, the appellee had chosen the
first remedy. The complaint is an ordinary civil action for recovery of the remaining unpaid balance
due on the promissory note. The plaintiff had not adopted the procedure or methods outlined by
Sec. 14 of the Chattel Mortgage Law but those prescribed for ordinary civil actions, under the
Rules of Court. Had appellee elected the foreclosure, it would not have instituted this case in court;
it would not have caused the chattel to be attached under Rule 59, and had it sold at public
auction, in the manner prescribed by Rule 39. That the herein appellee did not intend to foreclose
the mortgage truck, is further evinced by the fact that it had also attached the house and lot of the
appellant at San Jose, Antique. In the case of Southern Motors, Inc. vs. Magbanua, G.R. No. L8578, Oct. 29, 1956, we held:
By praying that the defendant be ordered to pay it the sum of P4,690.00 together with the
stipulated interest of 12% per annum from 17 March 1954 until fully paid, plus 10% of the total
amount due as attorney's fees and cost of collection, the plaintiff elected to exact the fulfillment
of the obligation, and not to foreclose the mortgage on the truck. Otherwise, it would not have
gone to court to collect the amount as prayed for in the complaint. Had it elected to foreclose the
mortgage on the truck, all the plaintiff had to do was to cause the truck to be sold at public
auction pursuant to section 14 of the Chattel Mortgage Law. The fact that aside from the
mortgaged truck, another Chevrolet truck and two parcels of land belonging to the defendant
were attached, shows that the plaintiff did not intend to foreclose the mortgage.
As the plaintiff has chosen to exact the fulfillment of the defendant's obligation, the former may
enforce execution of the judgment rendered in its favor on the personal and real property of the
latter not exempt from execution sufficient to satisfy the judgment. That part of the judgment
against the properties of the defendant except the mortgaged truck and discharging the writ of
attachment on his other properties is erroneous.
We perceive nothing unlawful or irregular in appellee's act of attaching the mortgaged truck itself.
Since herein appellee has chosen to exact the fulfillment of the appellant's obligation, it may

enforce execution of the judgment that may be favorably rendered hereon, on all personal and
real properties of the latter not exempt from execution sufficient to satisfy such judgment. It
should be noted that a house and lot at San Jose, Antique were also attached. No one can
successfully contest that the attachment was merely an incident to an ordinary civil action.
(Sections 1 & 11, Rule 59; Sec. 16, Rule 39). The mortgage creditor may recover judgment on
the mortgage debt and cause an execution on the mortgaged property and may cause an
attachment to be issued and levied on such property, upon beginning his civil action (Tizon vs.
Valdez, 48 Phil. 910-911). IN VIEW HEREOF, the judgment appealed from hereby is affirmed,
with costs against the defendant-appellant.
G.R. No. L-24772
May 27, 1968
RUPERTO G. CRUZ, ET AL. vs. FILIPINAS INVESTMENT and FINANCE CORPORATION
REYES, J.B.L., J.:
Appeal interposed by Filipinas Investment & Finance Corporation from the decision of the Court
of First Instance of Rizal (Quezon City) in Civil Case No. Q-7949.1vvphi1.nt
In the action commenced by Ruperto G. Cruz and Felicidad V. Vda. de Reyes in the Court of
First Instance of Rizal (Civil Case No. Q-7949), for cancellation of the real estate mortgage
constituted on the land of the latter 1 in favor of defendant Filipinas Investment & Finance
Corporation (as assignee of the Far East Motor Corporation), the parties submitted the case for
decision on the following stipulation of facts:
1. Their personal circumstances and legal capacities to sue and be sued;
2. That on July 15, 1963, plaintiff Ruperto G. Cruz purchased on installments, from the Far
East Motor Corporation, one (1) unit of Isuzu Diesel Bus, described in the complaint, for
P44,616.24, Philippine Currency, payable in installments of P1,487.20 per month for thirty
(30) months, beginning October 22, 1963, with 12 % interest per annum, until fully paid. As
evidence of said indebtedness, plaintiff Cruz executed and delivered to the Far East Motor
Corporation a negotiable promissory note in the sum of P44,616.24, ...;
3. That to secure the payment of the promissory note, Annex "A", Cruz executed in favor of
the seller, Far East Motor Corporation, a chattel mortgage over the aforesaid motor vehicle...;
4. That as no down payment was made by Cruz, the seller, Far East Motor Corporation, on
the very improvements thereon, in San Miguel, Bulacan...; same date, July 15, 1963, required
and Cruz agreed to give, additional security for his obligation besides the chattel mortgage,
Annex "B"; that said additional security was given by plaintiff Felicidad Vda. de Reyes in the
form of SECOND MORTGAGE on a parcel of land owned by her, together with the building
and
5. That said land has an area of 68,902 square meters, more or less, and covered by Transfer
Certificate of Title No. 36480 of the Registry of Deeds of Bulacan in the name of plaintiff Mrs.
Reyes; and that it was at the time mortgaged to the Development Bank of the Philippines to
secure a loan of P2,600.00 obtained by Mrs. Reyes from that bank;

36
6. That also on July 15, 1963, the Far East Motor Corporation for value received indorsed the
promissory note and assigned all its rights and interest in the Deeds of Chattel Mortgage and in
the Deed of Real Estate Mortgage (Annexes "A", "B" and "B-l") to the defendant, Filipinas
Investment & Finance Corporation, with due notice of such assignment to the plaintiffs...;
7. That plaintiff Cruz defaulted in the payment of the promisory note (Annex "A") ; that the only
sum ever paid to the defendant was Five Hundred Pesos (P500.00) on October 2, 1963, which
was applied as partial payment of interests on his principal obligation; that, notwithstanding
defendant's demands, Cruz made no payment on any of the installments stipulated in the
promissory note;
8. That by reason of Cruz's default, defendant took steps to foreclose the chattel mortgage on
the bus; that said vehicle had been damaged in an accident while in the possession of plaintiff
Cruz;
9. That at the foreclosure sale held on January 31, 1964 by the Sheriff of Manila, the defendant
was the highest bidder, defendant's bid being for Fifteen Thousand Pesos (P15,000.00)...;

contending parties are entitled to attorney's fees the court below, in its decision of April 21,
1965, sustained the plaintiffs' stand and declared that the extrajudicial foreclosure of the chattel
mortgage on the bus barred further action against the additional security put up by plaintiff
Reyes. Consequently, the real estate mortgage constituted on the land of said plaintiff was
ordered cancelled and defendant was directed to pay the plaintiffs attorney's fees in the sum of
P200.00. Defendant filed the present appeal raising the same questions presented in the lower
court.
There is no controversy that, involving as it does a sale of personal property on installments, the
pertinent legal provision in this case is Article 1484 of the Civil Code of the Philippines, 2 which
reads:
ART. 1484. In a contract of sale of personal property the price of which is payable in
installments, the vendor may exercise any of the following remedies:
(1) Exact fulfillment of the obligation, should the vendee fail to pay;
(2) Cancel the sale, should the vendee's failure to pay cover two or more installments;

10. That the proceeds of the sale of the bus were not sufficient to cover the expenses of sale,
the principal obligation, interests, and attorney's fees, i.e., they were not sufficient to discharge
fully the indebtedness of plaintiff Cruz to the defendant;
11. That on February 12, 1964, preparatory to foreclosing its real estate mortgage on Mrs.
Reyes' land, defendant paid the mortgage indebtedness of Mrs. Reyes to the Development Bank
of the Philippines, in the sum of P2,148.07, the unpaid balance of said obligation...;
12. That pursuant to a provision in the real estate mortgage contract, authorizing the mortgagee
to foreclose the mortgage judicially or extra-judicially, defendant on February 29, 1964 requested
the Provincial Sheriff of Bulacan to take possession of, and sell, the land subject of the Real
Estate Mortgage, Annex "B-1", to satisfy the sum of P43,318.92, the total outstanding obligation
of the plaintiffs to the defendant, as itemized in the Statement of Account, which is made a part
hereof as Annex "F"...;
13. That notices of sale were duly posted and served to the Mortgagor, Mrs. Reyes, pursuant to
and in compliance with the requirements of Act 3135...;
14. That on March 20, 1964, plaintiff Reyes through counsel, wrote a letter to the defendant
asking for the cancellation of the real estate mortgage on her land, but defendant did not comply
with such demand as it was of the belief that plaintiff's request was without any legal basis;
15. That at the request of the plaintiffs, the provincial Sheriff of Bulacan held in abeyance the
sale of the mortgaged real estate pending the result of this action.
Passing upon the issues which, by agreement of the parties, were limited to (1) "Whether
defendant, which has already extrajudicially foreclosed the chattel mortgage executed by the
buyer, plaintiff Cruz, on the bus sold to him on installments, may also extrajudicially foreclose the
real estate mortgage constituted by plaintiff Mrs. Reyes on her own land, as additional security, for
the payment of the balance of Cruz' Obligation, still remaining unpaid"; and (2) whether or not the

(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the
vendee's failure to pay cover two or more installments. In this case, he shall have no further
action against the purchaser to recover any unpaid balance of the price. Any agreement to the
contrary shall be void.
The aforequoted provision is clear and simple: should the vendee or purchaser of a personal
property default in the payment of two or more of the agreed installments, the vendor or seller
has the option to avail of any one of these three remedies either to exact fulfillment by the
purchaser of the obligation, or to cancel the sale, or to foreclose the mortgage on the purchased
personal property, if one was constituted. These remedies have been recognized as alternative,
not cumulative, 3 that the exercise of one would bar the exercise of the others. 4 It may also be
stated that the established rule is to the effect that the foreclosure and actual sale of a
mortgaged chattel bars further recovery by the vendor of any balance on the purchaser's
outstanding obligation not so satisfied by the sale. 5 And the reason for this doctrine was aptly
stated in the case of Bachrach Motor Co. vs. Millan, supra, thus:
Undoubtedly the principal object of the above amendment 6 was to remedy the abuses
committed in connection with the foreclosure of chattel mortgages. This amendment prevents
mortgagees from seizing the mortgaged property, buying it at foreclosure sale for a low price
and then bringing suit against the mortgagor for a deficiency judgment. The almost invariable
result of this procedure was that the mortgagor found himself minus the property and still
owing practically the full amount of his original indebtedness. Under this amendment the
vendor of personal property, the purchase price of which is payable in installments, has the
right to cancel the sale or foreclose the mortgage if one has been given on the property.
Whichever right the vendor elects he need not return to the purchaser the amount of the
installments already paid, "if there be in agreement to that effect". Furthermore, if the vendor
avails himself of the right to foreclose the mortgage the amendment prohibits him from
bringing an action against the purchaser for the unpaid balance.

37
It is here agreed that plaintiff Cruz failed to pay several installments as provided in the contract;
that there was extrajudicial foreclosure of the chattel mortgage on the said motor vehicle; and that
defendant-appellant itself bought it at the public auction duly held thereafter, for a sum less than
the purchaser's outstanding obligation. Defendant-appellant, however, sought to collect the
supported deficiency by going against the real estate mortgage which was admittedly constituted
on the land of plaintiff Reyes as additional security to guarantee the performance of Cruz'
obligation, claiming that what is being withheld from the vendor, by the proviso of Article 1484 of
the Civil Code, is only the right to recover "against the purchaser", and not a recourse to the
additional security put up, not by the purchaser himself, but by a third person.
There is no merit in this contention. To sustain appellant's argument is to overlook the fact that if
the guarantor should be compelled to pay the balance of the purchase price, the guarantor will in
turn be entitled to recover what she has paid from the debtor vendee (Art. 2066, Civil Code) ; so
that ultimately, it will be the vendee who will be made to bear the payment of the balance of the
price, despite the earlier foreclosure of the chattel mortgage given by him. Thus, the protection
given by Article 1484 would be indirectly subverted, and public policy overturned.
Neither is there validity to appellant's allegation that, since the law speaks of "action", the
restriction should be confined only to the bringing of judicial suits or proceedings in court.
The word "action" is without a definite or exclusive meaning. It has been invariably defined as
... the legal demand of one's right, or rights; the lawful demand of one's rights in the form given
by law; a demand of a right in a court of justice; the lawful demand of one's right in a court of
justice; the legal and formal demand of ones rights from another person or party, made and
insisted on in a court of justice; a claim made before a tribunal; an assertion in a court of justice
of a right given by law; a demand or legal proceeding in a court of justice to secure one's rights;
the prosecution of some demand in a court of justice; the means by which men litigate with each
other; the means that the law has provided to put the cause of action into effect;.... (Gutierrez
Hermanos vs. De la Riva, 46 Phil. 827, 834-835).
Considering the purpose for which the prohibition contained in Article 1484 was intended, the word
"action" used therein may be construed as referring to any judicial or extrajudicial proceeding by
virtue of which the vendor may lawfully be enabled to exact recovery of the supposed unsatisfied
balance of the purchase price from the purchaser or his privy. Certainly, an extrajudicial foreclosure
of a real estate mortgage is one such proceeding.
The provision of law and jurisprudence on the matter being explicit, so that this litigation could have
been avoided, the award by the lower court of attorney's fees to the plaintiff's in the sum of
P200.00 is reasonable and in order.
However, we find merit in appellant's complaint against the trial court's failure to order the
reimbursement by appellee Vda. de Reyes of the amount which the former paid to the
Development Bank of the Philippines, for the release of the first mortgage on the land of said
appellee. To the extent that she was benefited by such payment, plaintiff-appellee Vda. de Reyes
should have been required to reimburse the appellant.
WHEREFORE, the decision appealed from is modified, by ordering plaintiff-appellee Felicidad Vda.
de Reyes to reimburse to defendant-appellant Filipinas Investment & Finance Corporation the sum

of P2,148.07, with legal interest thereon from the finality of this decision until it is fully paid. In all
other respects, the judgment of the court below is affirmed, with costs against the defendantappellant.
G.R. No. L-25951
June 30, 1969
FILIPINAS INVESTMENT & FINANCE CORPORATION, vs. JULIAN R. VITUG, JR.
BARREDO, J.:
Appeal from an order of dismissal by the Court of First Instance of Manila, in its Civil Case No.
60915, entitled Filipinas Investment & Finance Corporation vs. Julian R. Vitug, Jr. and Supreme
Sales & Development Corporation, of the amended complaint of July 16, 1965 of plaintiffappellant Filipinas Investment & Finance Corporation whereby it sought to recover from
defendant-appellee Supreme Sales & Development Corporation the deficiency that resulted
after it had foreclosed the chattel mortgage on and sold at public auction, the car of the other
defendant, Julian Vitug, Jr. who had failed to pay to appellee installments due on the promissory
note representing the purchase price of said car which he had bought from the same, appellant
being the assignee of appellee of its rights in the said promissory note.
The material allegations in appellant's amended complaint are:
The defendant, Julian R. Vitug, executed and delivered to appellee a promissory note in the
amount of P14,605.00 payable in monthly installments according to a schedule of payments; the
payment of the aforesaid amount which was the purchase price of a motor vehicle, a 4-door
Consul sedan, bought by said defendant from appellee, was secured by a chattel mortgage over
such automobile; on the same day, appellee negotiated the above-mentioned promissory note in
favor of appellant Filipinas Investment & Finance Corporation, assigning thereto all its rights, title
and interests to the same, the assignment including the right of recourse against appellee;
defendant Vitug defaulted in the payment of part of the installment which fell due on January 6,
1965, as well as the subsequent three consecutive monthly installments which he was supposed
to have paid on February 6, March 6 and April 6, 1965; there being a provision in the aforesaid
promissory note and chattel mortgage that failure to pay the installments due would result in the
entire obligation becoming due and demandable, appellant demanded from appellee the
payment of such outstanding balance; in turn, appellee "authorized (appellant) to take such
action as may be necessary to enable (it) to take possession of the ... motor vehicle." Pursuant
to such authority, appellant secured possession of the mortgaged vehicle by means of a writ of
replevin duly obtained from the court, preparatory to the foreclosure of the mortgage, but said
writ became unnecessary because upon learning of the same, defendant Vitug voluntarily
surrendered the car to appellant; thereafter, the said car was sold at public auction, but the
proceeds still left a deficiency of P8,349.35, plus interest of 12% per annum from April 21, 1965;
and appellant, the above foreclosure and sale notwithstanding, would hold appellee liable for the
payment of such outstanding balance, plus attorney's fees and costs.
On August 4, 1965, appellee filed an urgent motion to dismiss on the ground, inter alia, that
under Article 1484 of the Civil Code of the Philippines, which particular provision is otherwise
known as the Recto Law, appellant has no cause of action against appellee. Said provision is as
follows:
ART. 1484. In a contract of sale of personal property the price of which is payable in
installments, the vendor may exercise any of the following remedies: (1) Exact fulfillment of
the obligation should the vendee fail to pay; (2) Cancel the sale, should the vendee's failure to

38
pay cover two or more installments; (3) Foreclose the chattel mortgage on the thing sold, if one
has been constituted, should the vendee's failure to pay cover two or more installments. In this
case, he shall have no further action against the purchaser to recover any unpaid balance of the
price. Any agreement to the contrary shall be void.
In its order of August 30, 1965, subject of this appeal, the lower court found the aforesaid ground to
be meritorious and, as already stated, the amended complaint was dismissed as to appellee
Supreme Sales & Development Corporation. According to the order of dismissal:
It is undisputed in the instant case that the amount of P14,605.00 mentioned as consideration in
both the promissory note and the chattel mortgage in the instant case represents the selling
price of one (1) automobile New Ford Consul 315 4-door Sedan, payable in the installments
mentioned in said documents. Under pars. 5 and 9 of the amended complaint, the writ of
replevin was obtained in the instant case for purposes of foreclosure of mortgage. In applying for
a writ of replevin, the plaintiff thereby made his choice, namely, to foreclose the mortgage
covering said automobile; and having accepted said automobile from defendant Julian R. Vitug,
Jr., what remains is for the plaintiff to sell said automobile through either a judicial or an
extrajudicial foreclosure of said mortgage, without benefit of a deficiency judgment or deficiency
collection ... should the proceeds of the foreclosure sale be less than the balance of the
installment sale price of said automobile due and collectible.
On September 23, 1965, appellant filed a motion for reconsideration but this was denied on
October 26, 1965, hence, this appeal.
The principal error assigned by appellant has reference to the applicability of Art. 1484 of the Civil
Code, as amended, to the facts of this case. Appellant maintains that: .
II. THE TRIAL COURT ERRED IN HOLDING THAT ARTICLE 1484 OF THE CIVIL CODE OF
THE PHILIPPINES IS APPLICABLE TO THE TRANSACTION BETWEEN PLAINTIFFAPPELLANT AND DEFENDANT-APPELLEE.
Under the facts alleged in the amended complaint which are deemed admitted by the motion to
dismiss, 1 this assignment of error must be sustained.
The specific allegations in the amended complaint which have material bearing on the issue herein
are:
4. On November 4, 1964, defendant Supreme Sales & Development Corporation, with notice to
defendantJulian R. Vitug, Jr. negotiated in favor of (endorsed and delivered to) plaintiff the
above-mentioned promissory note, Annex "A", on a with recourse basis whereby in case of the
failure and/or refusal of the maker thereof, defendant Julian R. Vitug, Jr. to pay the obligation
under the said promissory note, plaintiff shall have the right to recourse against the said
defendant corporation.
On the same date, the said defendant corporation, with notice to defendant Julian R. Vitug, Jr.,
assigned to plaintiff its rights, title, and interests to the aforesaid promissory note and chattel
mortgage, Annexes "A" and "B" hereof, as shown by the Deed of Assignment executed by
defendant Supreme Sales & Development Corporation in favor of plaintiff, a copy of which is

hereto attached as Annex "C" and made an integral part hereof, which assignment is also
subject to the right of recourse above-mentioned.
13. The defendant corporation is liable to plaintiff for the entire balance of the obligation
covered by the promissory note, Annex "A", and secured by the chattel mortgage, Annex "B",
as a general endorser of the promissory note, Annex "A", and assignor of the chattel
mortgage on a with- recourse basis. But should plaintiff be able to sell the above-described
motor vehicle, then the said defendant corporation is liable to the plaintiff for the payment of
the balance of the obligation after applying thereto the proceeds of the sale of the said
vehicle. (Record on Appeal, pp. 12 and 15.)
Thus it can be seen that the assignment made by appellee to appellant of the promissory note
and mortgage of defendant Vitug was on a with-recourse basis. In other words, there was a
definite and clear agreement between appellant and appellee that should appellant fail to secure
full recovery from defendant Vitug, the right was reserved to appellant to seek recourse for the
deficiency against appellee. Accordingly, the question for resolution by the Court now is whether
or not this provision regarding recourse contained in the agreement between appellant and
appellee violates the Recto Law which declares null and void any agreement in contravention
thereof. We do not believe that it does.
As pointed out in appellant's brief, the transaction between appellant and appellee was purely an
ordinary discounting transaction whereby the promissory note executed by defendant Vitug was
negotiated by appellee in favor of appellant for a valuable consideration at a certain discount,
accompanied by an assignment also of the chattel mortgage executed by said defendant to
secure the payment of his promissory note and with the express stipulation that should there be
any deficiency, recourse could be had against appellee. Stated otherwise, the remedy presently
being sought is not against the buyer of the car or the defendant Vitug but against the seller,
independent of whether or not such seller may have a right of recovery against the buyer, which,
in this case, he does not have under the Recto Law. It is clear to Us, on the other hand, that
under said law, what Congress seeks to protect are only the buyers on installment who more
often than not have been victimized by sellers who, before the enactment of this law, succeeded
in unjustly enriching themselves at the expense of the buyers because aside from recovering the
goods sold, upon default of the buyer in the payment of two installments, still retained for
themselves all amounts already paid, in addition, furthermore, to other damages, such as
attorney's fees, and costs. Surely, Congress could not have intended to impair and much less do
away with the right of the seller to make commercial use of his credit against the buyer, provided
said buyer is not burdened beyond what this law allows.1awphil.nt
We are not unmindful that in the case of Cruz, et al. vs. the same Filipinas Investment & Finance
Corporation, L-24772, May 27, 1968, 23 SCRA 791, this Court broadened the scope of the
Recto Law beyond its letter and held that within its spirit, a seller of goods on installment does
not have any right of action against a third party who, in addition to the buyer's mortgage of the
goods sold, furnishes additional security for the payment of said installments or the purchase
price of said goods. In that case, it was held:.
It is here agreed that plaintiff Cruz failed to pay several installments as provided in the
contract; that there was extrajudicial foreclosure of the chattel mortgage on the said motor
vehicle; and that defendant-appellant itself bought it at the public auction duly held thereafter,
for a sum less than the purchaser's outstanding obligation. Defendant-appellant, however,
sought to collect the supposed deficiency by going against the real estate mortgage which

39
was admittedly constituted on the land of plaintiff Reyes as additional security to guarantee the
performance of Cruz' obligation, claiming that what is being withheld from the vendor, by the
proviso of Article 1484 of the Civil Code, is only the right to recover against the purchaser, and
not a recourse to the additional security put up, not by the purchaser himself, but by a third
person.
There is no merit in this contention. To sustain appellants argument is to overlook the fact that if
the guarantor should be compelled to pay the balance of the purchase price, the guarantor will in
turn be entitled to recover what she had paid from the debtor vendee (Art. 2066, Civil Code); so
that ultimately, it will be the vendee who will be made to bear the payment of the balance of the
price, despite the earlier foreclosure of the chattel mortgage given by him. Thus, the protection
given by Article 1484 would be indirectly subverted, and public policy overturned.
As can be seen, that ease of Cruz was entirely different from this one at bar. In that case, herein
appellant Filipinas Investment & Finance Corporation was trying to recover from the guarantor of
the buyer, whereas in the present case, it is precisely stipulated in effect, that the Filipinas
Investment & Finance Corporation had a right of recourse against the seller should the buyer fail to
pay the assigned credit in full.
It is the contention of appellee that since what were assigned to appellant were only whatever
rights it had against the buyer, it should follow that inasmuch as appellee has no right to recover
from the defendant beyond the proceeds of the foreclosure sale, the appellant, as assignee, should
also have no right to recover any deficiency. We do not view the matter that way. The very fact that
the assignee was given the stipulated right of recourse against the assignor negates the idea that
the parties contemplated to limit the recovery of the assignee to only the proceeds of the mortgage
sale.
ACCORDINGLY, the order of dismissal of the lower court is reversed and this case is ordered
remanded to the lower court for further proceedings, with costs against appellee Supreme Sales &
Development Corporation.
G.R. No. L-5535
May 29, 1953
U. S. COMMERCIAL CO. vs. FORTUNATO F. HALILI
REYES, J.:

would terminate and payment of any further rental would cease and the lessor would then
transfer to the lessee title to the vehicles, provided the lessee had complained with the other
conditions of the contracts; that the lessor would have the right to terminate the contracts and
repossess the trucks should the lessee fail to make payment on the dates specified or fulfill any
of the obligations under the contracts, but that failure to exercise the right of repossession on
any default would not be a waiver of such right upon any subsequent default; that in the event
the contracts were terminated on account of the lessee's default in the performance of his
obligations then all the payment theretofore made should remain the property of the lessor and
not be recoverable by the lessee, the latter also waiving "the benefit of section 145-A, Philippine
Civil Code;" that after paying several installments or rentals under the two contracts, the lessee
defaulted in the payment of subsequent rents and that one year after such default the lessor
requested the lessee to return all the eight vehicles and the lessee voluntarily complied with said
request, but there after refused to pay all rentals in areas. Hence the present action.
Holding that the contracts in question were leases of personal property with option to purchase
and come within the purview of article 145-A of the old Civil Code, the trial court, ruled that
plaintiff's possessions of the vehicles precluded it from the bringing an action to recover the
unpaid rents, the notwithstanding the fact that the lessee had waived the benefit of said article,
the court declaring said waiver to be null and void. The Court, therefore, rendered judgment,
dismissing the plaintiff's complaint with costs. From this judgment plaintiff has appealed to this
court, contending that (1) defendant's voluntary surrender of the vehicles to the plaintiff took the
case out of the operation of article 1454-A of the old Civil code, and (2) defendant's waiver of the
benefit of said article was valid.
The article in question reads:
ART. 1454-A. In a contract for the sale of personal property payable installments, failure to
pay two or more installments shall confer upon the vendor the right to cancel the sale or
foreclose the mortgage if one has been given in the property, without reinbursement to the
purchaser to the installments already paid, if there an agreement to this effect.
However, if the vendor has choosen to foreclose the mortgage he shall have no further action
against the purchaser for the recovery of any unpaid balance owing by the same, and any
agreement to the contrary shall be null and void.

This an action to recover unpaid rentals on used army vehicles alleged to have been leased by
plaintiff by the defendants.

The same rule shall apply to the leases of personal property with option to purchase, when
the lessor has chosen to deprived the lessee of the enjoyment of such personal property. (Old
Civil Code.)

The case was submitted in the court below on a stipulation of facts from which it appears that on
December 22, 1945, plaintiff, as representative of the U. S. Government, entered into a contract
with the defendant leasing to the latter for a term of one year two used army vehicles, and on
February 18, 1946, plaintiff again entered into a contract with the same defendant leasing to the
latter for the same term six use army vehicles; that under the terms of both contracts the value of
the vehicles was fixed and then after deducting therefrom a substantial initial payment made by the
lessee, the balance was divided into twelve equal parts and each part was made the monthly rental
or payment which the lessee was to make to the lessor together with 6 per cent interest "on the
unpaid balance of the value of the lease equipment;" that the contracts provided that the title to the
vehicles was to remain in the lessor during the term of the lease until all the rentals or payment
collected from the lessee should equal the total value fixed for them, on which event the lease

There can be hardly be any question that the so-called contracts of lease on which the present
action is based were varitable lease of personal property with option to purchase, and as much
come within the purview of the above article. In fact the instruments (exhibit "A" and "B")
embodying the contracts bear the heading or title "Lease-Sale (Lease-Sale of Transportation
and/or Mechanical Equipment)." The contracts fixed the value of the vehicles conveyed to the
lessee and expressly refer to the remainder of said value after deduction of the down payment
made by the lessee as "the unpaid balance of the purchase price of the leased equipment." The
contracts also provided that upon the full value (plus stipulated interest) being paid, the lease
would terminate and title to the leased property would be transferred to the lessee. Indeed, as
the defendant-appellee points out, the inclusion of a clause waiving benefit of article 1454-A of

40
the old Civil Code is conclusive proof of the parties' understanding that they were entering into a
lease contract with option to purchase which come within the purview of said article.
Being leases of personal property with option to purchase as contemplated in the above article, the
contracts in question are subject to the provision that when the lessor in such case "has chosen to
deprive the lessee of the enjoyment of such personal property," "he shall have no further action"
against the lessee "for the recovery of any unpaid balance" owing by the latter, "any agreement to
the contrary being null and void."
Plaintiff and appellant, however, contents that defend- ant and appellee's voluntary surrender to the
property taken the case out of the purview of the article. But it appears from the stipulation of facts
that the voluntary delivery of the vehicles was made in obedience to plaintiff's demands so that
there is no escaping the conclusion that plaintiff has in facts choosen to deprive the lessee of the
enjoyment of the property leased. The article does not require that the privation of the enjoyment of
the property be brought about thru court action. And in the present case court action for such
purpose was not essential because the contracts specifically authorized the lessor to repossess
the vehicle whenever the lessee de- faulted in the payment of rent and the lessee could not in that
event refuse to demand for the delivery of the vehicles without violating the terms of her
undertaking.
As to the second ground of appeal, not much need be said, for the article itself seeks to forestall
waiver of its benefits by providing that "any agreement to the contrary shall be null and void." The
waiver inserted in the contracts in this case being contrary to both the letter and the policy of the
law, the same cannot be given effect.
Plaitiff could recovered all the rentals due by suing for them in the courts. In choosing the
alternative remedy of depriving the defendant of the enjoyment of the vehicles leased with option to
purchase, plaintiff waived its right to bring such action. Wherefore, the judgment appealed from is
affirmed, with costs against the appellant.
G.R. No. 130347 March 3, 1999
ABELARDO VALARAO vs. COURT OF APPEALS
PANGANIBAN, J.:
Art. 1592 of the Civil Code applies only to contracts of sale, and not to contracts to sell or
conditional sales where title passes to the vendee only upon full payment of the purchase price.
Furthermore, in order to enforce the automatic forfeiture clause in a deed of conditional sale, the
vendors have the burden of proving a contractual breach on the part of the vendee.

legal interest thereon from December 31, 1992; (2) and directing [herein petitioners] to
execute in favor of [herein respondent], upon receipt of the aforesaid amount, the final and
absolute deed of sale of the subject property with all the improvements. 3
Also assailed by petitioners is the August 21, 1997 CA Resolution denying reconsideration.
The aforementioned RTC Decision, which was reversed and set aside by the CA, disposed as
follows:
WHEREFORE, premises considered, judgment is hereby rendered declaring the aforesaid
Deed of Conditional Sale as automatically rescinded and all payments made thereunder by
the [private respondent] to the [petitioners] as forfeited in favor of the latter, by way of rentals
and as liquidated damages, as well as declaring all improvements introduced on the property
subject to the said Deed of Condition[al] Sale to belong to the [petitioners] without any right of
reimbursement. Further, the [private respondent] and all persons claiming right under her are
hereby ordered to vacate the said property and to turnover possession thereof to the
[petitioners]. FINALLY, the [private respondent] is hereby ordered to pay to the [petitioners] the
amount of P50,000.00 as attorney's fees and for expenses of litigation, as well as to pay the
costs of the suit. The Writ of Preliminary Injunction previously issued is hereby ordered
LIFTED and DISSOLVED, and the bond posted for its issuance held liable for the satisfaction
of
the
money
judgment
herein
made
in
favor
of
the
[petitioners]. 4
The Facts
The undisputed facts of the case as narrated by the Court of Appeals are as follows:
On September 4, 1987, spouses Abelardo and Gloriosa Valarao, thru their son Carlos Valarao
as their attorney-in-fact, sold to [Private Respondent] Meden Arellano under a Deed of
Conditional Sale a parcel of land situated in the District of Diliman, Q. C., covered by TCT No.
152879 with an area of 1,504 square meters, for the sum of THREE MILLION TWO
HUNDRED TWENTY FIVE THOUSAND PESOS (P3,225,000.00) payable under a schedule
of payment stated therein.
In the same Deed of Conditional Sale, the [private respondent] vendee obligated herself to
encumber by way of real estate mortgage in favor of [petitioners] vendors her separate piece
of property with the condition that upon full payment of the balance of P2,225.000.00, the said
mortgage shall become null and void and without further force and effect. (Item No. 3, pp. 2-3
of Deed of Conditional Sale).

The Case
Before us is a Petition for Review assailing the June 13, 1997 Decision of the Court of Appeals
(CA) 1 which reversed and set aside the October 10, 1994 Decision 2 of the Regional Trial Court
(RTC) of Quezon City, Branch 82. The dispositive portion of the assailed CA Decision reads:
WHEREFORE, the decision appealed from is REVERSED and SET ASIDE, and a new one is
entered (1) ordering [herein private respondent] to pay the amount of [o]ne [m]illion [o]ne
[h]undred [n]inety [s]even [t]housand [p]esos (P1,197,000.00) in favor of [herein petitioners], with

It was further stipulated upon that should the vendee fail to pay three (3) successive monthly
installments or anyone year-end lump sum payment within the period stipulated, the sale shall
be considered automatically rescinded without the necessity of judicial action and all
payments made by the vendee shall be forfeited in favor of the vendors by way of rental for
the use and occupancy of the property and as liquidated damages. All improvements
introduced by the vendee to the property shall belong to the vendors without any right of
reimbursement. (Par. (2), Item No. 3, p. 3 of Deed of Conditional Sale).

41
[Private respondent] appellant alleged that as of September, 1990, she had already paid the
amount of [t]wo [m]illion [t]wenty-[e]ight [t]housand (P2,028,000.00) [p]esos, although she
admitted having failed to pay the installments due in October and November, 1990. Petitioner,
however, [had] tried to pay the installments due [in] the said months, including the amount due
[in] the month of December, 1990 on December 30 and 31, 1990, but was turned down by the
vendors-[petitioners] thru their maid, Mary Gonzales, who refused to accept the payment
offered. [Private respondent] maintains that on previous occasions, the same maid was the one
who [had] received payments tendered by her. It appears that Mary Gonzales refused to receive
payment allegedly on orders of her employers who were not at home.
[Private respondent] then reported the matter to, and sought the help of, the local barangay
officials. Efforts to settle the controversy before the barangay proved unavailing as vendors[petitioners] never appeared in the meetings arranged by the barangay lupon.
[Private respondent] tried to get in touch with [petitioners] over the phone and was able to talk
with [Petitioner] Gloriosa Valarao who told her that she [would] no longer accept the payments
being offered and that [private respondent] should instead confer with her lawyer, a certain Atty.
Tuazon. When all her efforts to make payment were unsuccessful, [private respondent] sought
judicial action. by filing this petition for consignation on January 4, 1991.
On the other hand, vendors-[petitioners], thru counsel, sent [private respondent] a letter dated 4
January 1991 (Exh. "C") notifying her that they were enforcing the provision on automatic
rescission as a consequence of which the Deed of Conditional Sale [was deemed] null and void,
and . . . all payments made, as well as the improvements introduced on the property, [were]
thereby forfeited. The letter also made a formal demand on the [private respondent] to vacate
the property should she not heed the demand of [petitioners] to sign a contract of lease for her
continued stay in the property (p. 2 of Letter dated Jan. 4, 1991; Exh. "C").
In reply, [private respondent] sent a letter dated January 14, 1991 (Exh. "D"), denying that she
[had] refused to pay the installments due [in] the months of October, November and December,
and countered that it was [petitioners] who refused to accept payment, thus constraining her to
file a petition for consignation before the Regional Trial Court of Quezon City docketed as Civil
Case No. Q-91-7603.
Notwithstanding their knowledge of the filing by [private respondent] of a consignation case
against them in the Regional Trial Court of Quezon City docketed as Civil Case No. Q-91-7603,
[petitioners], through counsel, sent the [private respondent] another letter dated January 19,
1991 (Exh. "F"), denying the allegations of her attempts to tender payment on December 30 and
31, 1990, and demanding that [private respondent] vacate and turnover the property and pay a
monthly compensation for her continued occupation of the subject property at the rate of
P20,000.00, until she shall have vacated the same.
Ruling of the Court of Appeals
In reversing the Regional Trial Court, the Court of Appeals held that the refusal of herein petitioners
"to accept the tender of payment was unjustified." Notwithstanding the stipulation in the Deed of
Conditional Sale that "the rescission of the contract shall of right take place" upon the failure of the
vendee to pay three successive monthly installments, the appellate court observed that a judicial
demand or a notarial act was still required pursuant to Article 1592 of the Civil Code. Thus,

petitioners' letter informing private respondent of the rescission of the contract did not suffice, for
it was not notarized. The CA also observed that "the alleged breach of contract arising from the
failure of the vendee to pay the monthly installments for October and November 1990 within the
stipulated time is rather slight and not substantial, and to authorize the automatic rescission on
account thereof will work injustice to the other party, who has paid a total of P2,028,000.00 out of
a total obligation of P3,225,000.00. The rule is that rescission cannot be availed of as to unjustly
enrich one party."
The Issues
In their Memorandum before us, petitioners raise the following issues:

I Whether the Answer [ (a)] categorically indicating willingness to accept the amount already
due if the [private respondent] would update the account, [(b)] praying that "if she fail[ed] to do
so immediately, . . . the Deed of Conditional Sale be declared rescinded, pursuant to the
second paragraph of Section 3 thereof, with costs against the [private respondent], [(c)]
ordering the latter to vacate and turnover possession of the premises to the [petitioners], and
to pay the latter attorney's fees in the amount of P50,000.00 and the expenses of litigation"
[] is tantamount to a judicial demand and notice of rescission under Art. 1592 of the Civil
Code.
II Whether the automatic forfeiture clause is valid and binding between the parties.
III Whether the action for consignation may prosper without actual deposit [in court] of the
amount due . . . [so as] to produce the effect of payment.
The Court's Ruling
The petition 6 is devoid of merit.
Preliminary Matter: Notarial or Judicial Demand
Citing Article 1592 of the Civil Code, the Court of Appeals ruled that the petitioners' letter dated
January 4, 1991, could not effect the rescission of the Deed of Conditional Sale, because the
said letter was not notarized. On the other hand, petitioners argue that they made a judicial
demand, which was embodied in their Manifestation filed on May 1, 1991, and Answer submitted
on July 1,1991. 7
We believe, however, that the issue of whether the requirement of a judicial demand or a notarial
act has been fulfilled is immaterial to the resolution of the present case. Article 1592 of the Civil
Code. states:
Art. 1592. In the sale of immovable property, even though it may have been stipulated that
upon failure to pay the price at the time agreed upon the rescission of the contract shall of
right take place, the vendee may pay, even after the expiration of the period, as long as no
demand for rescission of the contract has been made upon him either judicially or by notarial
act. After the demand, the court may not grant him a new term.

42
It is well-settled that the above-quoted provision applies only to a contract of sale, 8 and not to a
sale on installment 9or a contract to sell. 10 Thus, in Luzon Brokerage v. Maritime Building, 11 this
Court ruled that "Art. 1592 of the new Civil Code (Art. 1504 of the old Civil Code) requiring demand
by suit or notarial act in case the vendor of realty wants to rescind does not apply to a contract to
sell or promise to sell, where title remains with the vendor until" full payment of the price. The Court
stresses the difference between these two types of contract. In a contract to sell, "the title over the
subject property is transferred to the vendee only upon the full payment of the stipulated
consideration. Unlike in a contract of sale, the title does not pass to the vendee upon the execution
of the agreement or the delivery of the thing sold." 12
In the present case, the Deed of Conditional Sale is of the same nature as a sale on installment or
a contract to sell, which is not covered by Article 1592. The aforementioned agreement provides:

We concede the validity of the automatic forfeiture clause, which deems any previous payments
forfeited and the contract automatically rescinded upon the failure of the vendee to pay three
successive monthly installments or any one yearend lump sum payment. However, petitioners
failed to prove the conditions that would warrant the implementation of this clause.
Both the appellate and the trial courts agree on the following:
1. The Deed of Conditional Sale provided for automatic rescission in case the vendee failed to
pay three (3) successive monthly installments or any one yearend lump sum payment within the
stipulated period therein.
2. Each monthly installment was due at the end of the month.

xxx xxx xxx Should the VENDEE fail to pay three (3) successive monthly installments or any one
year-end lump sum payment within the period stipulated herein, this Deed of Conditional Sale
shall be considered . . . automatically rescinded without the necessity of judicial action[,] and all
payments made by the VENDEE shall be forfeited in favor of the VENDORS by way of rental for
the use and occupancy of the property and as liquidated damages. All improvements introduced
by the VENDEE to the property shall belong to the VENDORS without any right of
reimbursement. The VENDORS and/or their agents or representatives shall have the right to
enter the premises of the property and to eject the VENDEE and all persons claiming right under
her therefrom with the use of reasonable force if necessary.
That upon full payment to the VENDORS of the total consideration of P3,225,000.00, the
VENDORS shall immediately and without delay execute in favor of the VENDEE the final and
absolute deed of sale of the property and all its improvements.
Petitioners-vendors unmistakably reserved for themselves the title to the property until full payment
of the purchase price by the vendee. Clearly, the agreement was not a deed of sale, but more in he
nature of a contract to sell or of a sale on installments. 13 Even after the execution of the Deed of
Conditional Sale, the Torrens Certificate of Title remained with and in the name of the vendors. In
rejecting the application of Article 1592 to a contract to sell, the Court held in Luzon
Brokerage 14 that "the full payment of the price (through the punctual performance of the monthly
payments) was a condition precedent to the execution of the final sale and to the transfer of the
property from [the vendor] to the [vendee]; so that there was to be no actual sale until and unless
full payment was to be no actual sale until and unless full payment was made."
Main Issue: Enforcement of the Automatic Forfeiture Clause
As a general rule, a contract is the law between the parties. 15 Thus, "from the moment the contract
is perfected, the parties are bound not only to the fulfillment of what has been expressly stipulated
but also to all consequences which, according to their nature, may be in keeping with good faith,
usage and law." 16 Also, "the stipulations of the contract being the law between the parties, courts
have no alternative but to enforce them as they were agreed [upon] and written, there being no law
or public policy against the stipulated forfeiture of payments already made." 17 However, it must be
shown that private respondent-vendee failed to perform her obligation, thereby giving petitionersvendors the right to demand the enforcement of the contract.

3. The installments for October and November 1990 were not paid.
4. The private respondent-vendee, Meden Arellano, went to the house of the petitioners-vendors
on December 30, 1990.
5. Arellano offered to pay P48,000 (total amount of installments due in October, November, and
December 1990) to Mary Gonzales, the petitioner's maid, but the latter refused to accept it upon
instruction of petitioners.
6. Arellano returned the next day, December 31, 1990, and insisted on paying, but again the
maid refused to accept it.
7. Arellano proceeded to the barangay office around 10:00 a.m. to file a case against petitioners
for their refusal to accept the payments.
8. Four (4) days later, on January 4, 1991, private respondents filed a Petition for Consignation.
9. Despite the said petition, the money was nevertheless not deposited in court.
10. Negotiations between both parties went under way, culminating in the vendee's filing a
Motion to Deposit the entire balance due, which was duly opposed by the vendor, and hence
was denied by the trial court.
From the foregoing, it is clear that petitioners were not justified in refusing to accept the tender of
payment made by private respondent on December 30 and 31, 1990. Had they accepted it on
either of said dates, she would have paid all three monthly installments due. In other words,
there was no deliberate failure on her part to meet her responsibility to pay. 18 The Court takes
note of her willingness and persistence to do so, and, petitioners cannot now say otherwise. The
fact is: they refused to accept her payment and thus have no reason to demand the enforcement
of the automatic forfeiture clause. They cannot be rewarded for their own misdeed.
Because their maid had received monthly payments in the past, 19 it is futile for petitioners to
insist now that she could not have accepted the aforementioned tender of payment, on the

43
ground that she did not have a special power of attorney to do so. Clearly, they are estopped from
denying that she had such authority. Under Article 1241 of the Civil Code, payment through a third
person is valid "[i]f by the creditor's conduct, the debtor has been led to believe that the third
person had authority to receive the payment."
Failure to Consign the Amount Due
Petitioners also maintain that the consignation was not valid because the amount tendered was not
deposited with the trial court. True, there is no showing that she deposited the money with the
proper judicial authority which, taken together with the other requisites for a valid
consignation, 20 would have released her from her obligation to pay. However, she does not deny
her obligation and, in fact, is willing to pay not only the three monthly installments due but also the
entire residual amount of the purchase price. Verily, she even filed a Motion to Deposit the said
entire balance with the trial court, which however denied said motion upon opposition of the
petitioners. 21
Accordingly, we agree with the Court of Appeals that it would be inequitable to allow the forfeiture
of the amount of more than two million pesos already paid by private respondent, a sum which
constitutes two thirds of the total consideration. Because she did make a tender of payment which
was unjustifiably refused, we hold that petitioners cannot enforce the automatic forfeiture clause of
the contract.
Application of the Maceda Law
In any event, the rescission of the contract and the forfeiture of the payments already made could
not be effected, because the case falls squarely under Republic Act No. 6552, 22 otherwise known
as the "Maceda Law." Section 3 of said law provides:
Sec. 3. In all transactions or contracts involving the sale or financing of real estate on installment
payments, including residential condominium apartments but excluding industrial lots,
commercial buildings and sales to tenants under Republic Act. Numbered Thirty-eight hundred
Forty-four as amended by Republic Act Numbered Sixty-three hundred eighty-nine, where the
buyer has paid at least two years of installments, the buyer is entitled to the following rights in
case he defaults in the payment of succeeding installments:
(a) To pay, without additional interest, the unpaid installments due within the total grace period
earned by him, which is hereby fixed at the rate of one month grace period for every year of
installment payments made: Provided, That this right shall be exercised by the buyer only once
in every five years of the life of the contract and its extensions, if any.
(b) If the contract is cancelled, the seller shall refund to the buyer the cash surrender value on
the payments on the property equivalent to fifty percent of the total payments made and, after
five years of installments, an additional five percent every year but not to exceed ninety percent
of the total payments made: Provided, That the actual cancellation of the contract shall take
place after thirty days from receipt by the buyer of the notice of cancellation or the demand for
rescission of the contract by a notarial act and upon full payment of the cash surrender value to
the buyer.

Down payments, deposits or options on the contract shall be included in the computation of
the total number of installments made.
Hence, the private respondent was entitled to a one-month grace period for every year of
installments paid, which means that she had a total grace period of three months from
December 31, 1990. Indeed, to rule in favor of petitioner would result in patent injustice and
unjust enrichment. This tribunal is not merely a court of law, but also a court of justice.
WHEREFORE, the Petition is DENIED and the dispositive portion of the appealed Decision of
the Court of Appeals is hereby AFFIRMED. The CA's discussion on the need for judicial or
notarial demand is MODIFIED in accordance with this Decision. Costs against petitioners. SO
ORDERED.
[G.R. No. 129018. November 15, 2001]
CARMELITA LEAO vs. COURT OF APPEALS
DECISION
PARDO, J.:
The Case
The case is a petition for review on certiorari of the decision[1] of the Court of Appeals
affirming that of the Regional Trial Court, Malolos, Branch 7 [2] ordering petitioner Leao to pay
respondent Hermogenes Fernando the sum of P183,687.70 corresponding to her outstanding
obligations under the contract to sell, with interest and surcharges due thereon, attorneys fees
and costs.
The Facts
On November 13, 1985, Hermogenes Fernando, as vendor and Carmelita Leao, as
vendee executed a contract to sell involving a piece of land, Lot No. 876-B, with an area of 431
square meters, located at Sto. Cristo, Baliuag, Bulacan.[3]
In the contract, Carmelita Leao bound herself to pay Hermogenes Fernando the sum of
one hundred seven thousand and seven hundred and fifty pesos (P107,750.00) as the total
purchase price of the lot. The manner of paying the total purchase price was as follows:
The sum of TEN THOUSAND SEVEN HUNDRED SEVENTY FIVE (P10,775.00) PESOS, shall
be paid at the signing of this contract as DOWN PAYMENT, the balance of NINETY SIX
THOUSAND NINE HUNDRED SEVENTY FIVE PESOS (P96,975.00) shall be paid within a
period of TEN (10) years at a monthly amortization of P1,747.30 to begin from December 7,
1985 with interest at eighteen per cent (18%) per annum based on balances.[4]
The contract also provided for a grace period of one month within which to make
payments, together with the one corresponding to the month of grace. Should the month of
grace expire without the installments for both months having been satisfied, an interest of 18%
per annum will be charged on the unpaid installments.[5]
Should a period of ninety (90) days elapse from the expiration of the grace period without
the overdue and unpaid installments having been paid with the corresponding interests up to
that date, respondent Fernando, as vendor, was authorized to declare the contract cancelled
and to dispose of the parcel of land, as if the contract had not been entered into. The payments

44
made, together with all the improvements made on the premises, shall be considered as rents paid
for the use and occupation of the premises and as liquidated damages.[6]
After the execution of the contract, Carmelita Leao made several payments in lump sum.
Thereafter, she constructed a house on the lot valued at P800,000.00.[8] The last payment that
she made was on April 1, 1989.
[7]

On September 16, 1991, the trial court rendered a decision in an ejectment case [9] earlier
filed by respondent Fernando ordering petitioner Leao to vacate the premises and to pay P250.00
per month by way of compensation for the use and occupation of the property from May 27, 1991
until she vacated the premises, attorneys fees and costs of the suit. [10] On August 24, 1993, the
trial court issued a writ of execution which was duly served on petitioner Leao.
On September 27, 1993, petitioner Leao filed with the Regional Trial Court of Malolos,
Bulacan a complaint for specific performance with preliminary injunction. [11] Petitioner Leao
assailed the validity of the judgment of the municipal trial court [12] for being violative of her right to
due process and for being contrary to the avowed intentions of Republic Act No. 6552 regarding
protection to buyers of lots on installments. Petitioner Leao deposited P18,000.00 with the clerk
of court, Regional Trial Court, Bulacan, to cover the balance of the total cost of Lot 876-B. [13]
On November 4, 1993, after petitioner Leao posted a cash bond of P50,000.00,[14] the trial
court issued a writ of preliminary injunction [15] to stay the enforcement of the decision of the
municipal trial court.[16]
On February 6, 1995, the trial court rendered a decision, the dispositive portion of which
reads:
WHEREFORE, judgment is hereby rendered as follows:
1. The preliminary injunction issued by this court per its order dated November 4, 1993 is hereby
made permanent;
2. Ordering the plaintiff to pay to the defendant the sum of P103,090.70 corresponding to her
outstanding obligations under the contract to sell (Exhibit A Exhibit B) consisting of the
principal of said obligation together with the interest and surcharges due thereon as of February
28, 1994, plus interest thereon at the rate of 18% per annum in accordance with the provision of
said contract to be computed from March 1, 1994, until the same becomes fully paid;
3. Ordering the defendant to pay to plaintiff the amount of P10,000 as and by way of attorneys
fees;
4. Ordering the defendant to pay to plaintiff the costs of the suit in Civil Case No. 1680
aforementioned.
SO ORDERED.
Malolos, Bulacan, February 6, 1995.
(sgd.) DANILO A. MANALASTAS
Judge[17]
On February 21, 1995, respondent Fernando filed a motion for reconsideration [18] and the
supplement[19] thereto. The trial court increased the amount of P103,090.70 to P183,687.00 and
ordered petitioner Leao ordered to pay attorneys fees.[20]
According to the trial court, the transaction between the parties was an absolute sale, making
petitioner Leao the owner of the lot upon actual and constructive delivery thereof. Respondent
Fernando, the seller, was divested of ownership and cannot recover the same unless the contract
is rescinded pursuant to Article 1592 of the Civil Code which requires a judicial or notarial
demand. Since there had been no rescission, petitioner Leao, as the owner in possession of the
property, cannot be evicted.

On the issue of delay, the trial court held:

While the said contract provides that the whole purchase price is payable within a ten-year
period, yet the same contract clearly specifies that the purchase price shall be payable in
monthly installments for which the corresponding penalty shall be imposed in case of
default. The plaintiff certainly cannot ignore the binding effect of such stipulation by merely
asserting that the ten-year period for payment of the whole purchase price has not yet
lapsed. In other words, the plaintiff has clearly defaulted in the payment of the amortizations due
under the contract as recited in the statement of account (Exhibit 2) and she should be liable
for the payment of interest and penalties in accordance with the stipulations in the contract
pertaining thereto.[21]
The trial court disregarded petitioner Leaos claim that she made a downpayment
of P10,000.00, at the time of the execution of the contract.
The trial court relied on the statement of account [22] and the summary[23] prepared by
respondent Fernando to determine petitioner Leaos liability for the payment of interests and
penalties.
The trial court held that the consignation made by petitioner Leao in the amount
of P18,000.00 did not produce any legal effect as the same was not done in accordance with
Articles 1176, 1177 and 1178 of the Civil Code.
In time, petitioner Leao appealed the decision to the Court of Appeals. [24] On January 22,
1997, Court of Appeals promulgated a decision affirming that of the Regional Trial Court in toto.
[25]
On February 11, 1997, petitioner Leao filed a motion for reconsideration. [26] On April 17,
1997, the Court of Appeals denied the motion.[27] Hence, this petition.[28]
The Issues
The issues to be resolved in this petition for review are (1) whether the transaction
between the parties is an absolute sale or a conditional sale; (2) whether there was a proper
cancellation of the contract to sell; and (3) whether petitioner was in delay in the payment of the
monthly amortizations.
The Courts Ruling
Contrary to the findings of the trial court, the transaction between the parties was a
conditional sale not an absolute sale. The intention of the parties was to reserve the ownership
of the land in the seller until the buyer has paid the total purchase price.
Consider the following:
First, the contract to sell makes the sale, cession and conveyance subject to conditions
set forth in the contract to sell.[29]
Second, what was transferred was the possession of the property, not ownership. The
possession is even limited by the following: (1) that the vendee may continue therewith as long
as the VENDEE complies with all the terms and conditions mentioned, and (2) that the buyer
may not sell, cede, assign, transfer or mortgage or in any way encumber any right, interest or
equity that she may have or acquire in and to the said parcel of land nor to lease or to sublease
it or give possession to another person without the written consent of the seller.[30]

45
Finally, the ownership of the lot was not transferred to Carmelita Leao. As the land is
covered by a torrens title, the act of registration of the deed of sale was the operative act that could
transfer ownership over the lot.[31] There is not even a deed that could be registered since the
contract provides that the seller will execute such a deed upon complete payment by the VENDEE
of the total purchase price of the property with the stipulated interest. [32]
In a contract to sell real property on installments, the full payment of the purchase price is a
positive suspensive condition, the failure of which is not considered a breach, casual or serious,
but simply an event that prevented the obligation of the vendor to convey title from acquiring any
obligatory force.[33] The transfer of ownership and title would occur after full payment of the price.[34]
In the case at bar, petitioner Leaos non-payment of the installments after April 1, 1989,
prevented the obligation of respondent Fernando to convey the property from arising. In fact, it
brought into effect the provision of the contract on cancellation.
Contrary to the findings of the trial court, Article 1592 of the Civil Code is inapplicable to the
case at bar.[35] However, any attempt to cancel the contract to sell would have to comply with the
provisions of Republic Act No. 6552, the Realty Installment Buyer Protection Act.
R. A. No. 6552 recognizes in conditional sales of all kinds of real estate (industrial,
commercial, residential) the right of the seller to cancel the contract upon non-payment of an
installment by the buyer, which is simply an event that prevents the obligation of the vendor to
convey title from acquiring binding force.[36] The law also provides for the rights of the buyer in case
of cancellation. Thus, Sec. 3 (b) of the law provides that:
If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the
payments on the property equivalent to fifty percent of the total payments made and, after five
years of installments, an additional five percent every year but not to exceed ninety percent of the
total payments made: Provided, That the actual cancellation of the contract shall take place after
thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of
the contract by a notarial act and upon full payment of the cash surrender value to the buyer .
[Emphasis supplied]
The decision in the ejectment case[37] operated as the notice of cancellation required by Sec.
3(b). As petitioner Leao was not given the cash surrender value of the payments that she made,
there was still no actual cancellation of the contract. Consequently, petitioner Leao may still
reinstate the contract by updating the account during the grace period and before actual
cancellation.[38]
Should petitioner Leao wish to reinstate the contract, she would have to update her
accounts with respondent Fernando in accordance with the statement of account [39] which amount
was P183,687.00.[40]
On the issue of whether petitioner Leao was in delay in paying the amortizations, we rule
that while the contract provided that the total purchase price was payable within a ten-year period,
the same contract specified that the purchase price shall be paid in monthly installments for which
the corresponding penalty shall be imposed in case of default. Petitioner Leao cannot ignore the
provision on the payment of monthly installments by claiming that the ten-year period within which
to pay has not elapsed.
Article 1169 of the Civil Code provides that in reciprocal obligations, neither party incurs in
delay if the other does not comply or is not ready to comply in a proper manner with what is

incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the
other begins.
In the case at bar, respondent Fernando performed his part of the obligation by allowing
petitioner Leao to continue in possession and use of the property. Clearly, when petitioner
Leao did not pay the monthly amortizations in accordance with the terms of the contract, she
was in delay and liable for damages. [41] However, we agree with the trial court that the default
committed by petitioner Leao in respect of the obligation could be compensated by the interest
and surcharges imposed upon her under the contract in question.[42]
It is a cardinal rule in the interpretation of contracts that if the terms of a contract are clear
and leave no doubt upon the intention of the contracting parties, the literal meaning of its
stipulation shall control.[43] Thus, as there is no ambiguity in the language of the contract, there is
no room for construction, only compliance.
The Fallo
IN VIEW WHEREOF, we DENY the petition and AFFIRM the decision of the Court of
Appeals[44] in toto. No costs. SO ORDERED.
G.R. No. 167452
January 30, 2007
JESTRA DEVELOPMENT AND MANAGEMENT CORPORATION vs. DANIEL PONCE
PACIFICO
DECISION
CARPIO MORALES, J.:
On June 5, 1996, Daniel Ponce Pacifico (Pacifico) signed a Reservation Application 1 with FilEstate Marketing Association for the purchase of a house and lot located at Lot 28, Block 3,
Phase II, Jestra Villas, Barangay La Huerta, Municipality of Paraaque, Metro Manila (the
property), and paid the reservation fee of P20,000.
Under the Reservation Application, the total purchase price of the property was P2,500,000, and
the down payment equivalent to 30% of the purchase price or P750,000 was to be paid interestfree in six monthly installments due every fifth of the month starting July
1996 until December 1996. As the P20,000 reservation fee formed part of the down payment,
the monthly installment on the down payment was fixed at P121,666.66.
Also under the Reservation Application, upon full payment of the 30% down payment by
Pacifico, he was to sign a contract to sell with the owner and developer of the property, Joprest
Development and Management Corporation (now Jestra Development and Management
Corporation, hereafter Jestra). And the 70% balance on the purchase price or P1,750,000 was
to be payable in 10 years, to bear interest at 21% per annum, at a monthly installment
ofP34,982.50. When the payment of the installments on the 70% balance should commence, the
Reservation Application was silent.
Unable to comply with the schedule of payments, Pacifico requested Jestra to allow him to make
periodic payments on the down payment "in an amount that he could afford," to which Jestra
acceded provided that late payment penalties/surcharges2 are paid.

46
With still a remaining balance of P260,000 on the down payment, Pacifico and Jestra executed
on March 6, 1997, Contract to Sell No. 833 over the property. The said contract was silent on the
unsettled balance on the down payment.
Under the Contract to Sell, Pacifico should have had on November 5, 1996, or one month prior to
the deadline stated under the Reservation Application, fully paid the 30% down payment, and that
the 120 monthly installments for the 70% balance or P1,750 should have had commenced
on December 7, 1996, viz:
SECTION 2. TERMS OF PAYMENT. The PURCHASER agrees to pay the aforecited purchase
price [of P2,500,000.00] in the following manner, namely:
2.1 The total amount of SEVEN HUNDRED FIFTY THOUSAND PESOS ONLY (P750,000.00)
Philippine Currency as down payment on or before November 5, 1996.
2.2 The balance of ONE MILLION SEVEN HUNDTED FIFTY THOUSAND PESOS ONLY
(P1,750,00.00), Philippine Currency, shall be paid in One Hundred Twenty (120) equal monthly
installments at THIRTY FOUR THOUSAND NINE HUNDRED EIGHT THREE PESOS ONLY
(P34,983.00) Philippine Currency, to commence on December 7, 1996, with interest at the rate of
Twenty One Percent (21%) per annum. The PURCHASER shall issue One Hundred Twenty (120)
postdated checks in favor of the OWNER/DEVELOPER for each of the monthly installments, which
checks shall be delivered to the latter upon signing of this CONTRACT. The PURCHASER shall be
subject to the pre-qualification requirements of COCOLIFE for the Mortgage Redemption Insurance
(MRI) and the Building Insurance on the UNIT. Interest re-pricing shall be effected on the 6th Year,
to commence on December 7, 2001.
x x x x (Underscoring supplied)
By letter4 of November 12, 1997, Pacifico requested Jestra that "the balance be restructured" in
light of the "present business condition."
By November 27, 1997, Pacifico had fully paid the 30% down payment, and by December 4, 1997,
he had paid a total of P846,600, P76,600 of which Jestra applied as penalty charges for the
belated settlement of the down payment.
By letter of December 11, 1997, Jestra, through counsel, sent Pacifico a final demand for the
payment ofP444,738.885 representing the total of 11 installments due on the 70% balance of the
purchase price, inclusive of 21% interest per annum and add-on interest at the rate of P384.81 per
day, counted from January 7, 1997. Further, Jestra demanded the payment of P73,750
representing "penalties for the [belated settlement of the] down payment." And it reminded Pacifico
that "as provided in Section 5 of the said contract, [Jestra] reserves its right to automatically cancel
or rescind the same on account of [his] failure/refusal to comply with the terms thereof." 6
Pacifico later requested Jestra, by letter of November 12, 1997, for a restructuring of his unsettled
obligation. His request was granted on the condition that the interest for the period from December
1996 to November 1997 amounting to P224,396.37 would be added to the 70% balance on the
purchase price; and that Pacifico issue 12 postdated checks beginning each year to cover his
amortization payments.

In light of the restructured scheme, the monthly amortization on the 70% balance was
from P34,982.50 increased to P39,468, to commence on January 5, 1998.
Pacifico thus issued to Jestra 12 postdated Security Bank checks to cover his monthly
amortizations from January to December 1998. The checks for January and February 1998
were, however, dishonored due to insufficiency of funds.7
By letter of March 24, 1998, Pacifico informed Jestra that due to sudden financial difficulties, he
was suspending payment of his obligation during the 10-month period, and that he wanted to
dispose of the property to recover his investment. 8 And he requested that the postdated checks
he issued be returned to him.
Jestra, by letter9 of March 31, 1998, denied Pacificos request to suspend payment and for the
return of the postdated checks. It, however, gave him until April 15, 1998 to sell the property
failing which it warned him that it would be constrained to re-open it for sale.
Thereafter, Jestra sent Pacifico a notarial Notice of Cancellation, dated May 1, 1998, notifying
him that it was, within 30 days after his receipt thereof, exercising its right to cancel the Contract
to Sell. Pacifico received the notice on May 13, 1998.
In a separate move, Jestra through its Credit and Collection Manager sent Pacifico a letter dated
May 27, 1998, demanding payment of the total amount of P209,377.75 covering monthly
amortizations from January 30 to May 30, 1998 inclusive of penalties. And it gave him until June
1, 1998 to settle his account, failing which the Contract to Sell would be automatically cancelled
and it would re-open the property for sale.10
On February 24, 1999, Pacifico filed a complaint before the Housing and Land Use Regulatory
Board (HLURB) against Jestra, docketed as HLURB Case No. REM-122499-10378, claiming
that despite his full payment of the down payment, Jestra failed to deliver to him the property
within 90 days as provided in the Contract to Sell dated March 6, 1997, and Jestra instead sold
the property to another buyer in October of 1998.11
Pacifico further claimed in his complaint that upon learning of the double sale, he, through his
lawyer, demanded that Jestra deliver the property to him but it failed to do so without just and
valid cause.
Pacifico thus prayed that, among others things, judgment be rendered declaring the second sale
a nullity, ordering Jestra to deliver the property to him and to pay him P11,000 a month from July
1997 until delivery.
By Decision12 of March 15, 2000, the Housing and Land Use Arbiter held Jestra liable for failure
to comply with Section 3 of Republic Act (RA) No. 6552 (Realty Installment Buyer Protection Act)
requiring payment by the seller of the cash surrender value of the buyers payments and Section
17 of Presidential Decree No. 957 (REGULATING THE SALE OF SUBDIVISION LOTS AND
CONDOMINIUMS, PROVIDING PENALTIES FOR VIOLATIONS THEREOF) requiring it to
register the Contract to Sell in the Office of the Register of Deeds.

47
The Arbiter found that while Pacifico had paid a total amount of P846,600 which is "more or less
equivalent to 24 monthly installments under the contract to sell . . . wherein the monthly
amortization is P34,983,"13 he could no longer demand the delivery of the property, its title having
already been transferred in the name of another buyer.

RA No. 6552 was enacted to protect buyers of real estate on installment against onerous and
oppressive conditions. While the seller has under the Act the option to cancel the contract due to
non-payment of installments, he must afford the buyer a grace period to pay them and, if at least
two years installments have already been paid, to refund the cash surrender value of the
payments. Thus Section of the Act provides:

Thus the Arbiter disposed:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the complainant and
ordering respondent:
1. To pay and/or reimburse to the complainant the total payments made amounting to Eight
Hundred Forty Six Thousand Six Hundred Pesos (P846,600.00) with interest thereon at twelve
percent (12%) per annum to be computed from the filing of the complaint on 24 February 1999
until fully paid; and
2. To pay complainant the amount of Fifty Thousand Pesos (P50,000.00)
damages and attorneys feesplus the costs of litigation.14 (Underscoring supplied)

as

On appeal, the Board of Commissioners of the HLURB modified the decision of the Arbiter by
deleting the award ofP50,000 damages and ordering Jestra to pay P20,000 as attorneys fees
and P10,000 administrative fine for failure to register the Contract to Sell in the Office of the
Register of Deeds.
By Resolution of January 27, 2003, the HLURB Board of Commissioners denied 15 Jestras motion
for reconsideration.
16

By Order of December 9, 2003, the Office of the President (OP), to which the case was elevated,
adopted "by reference the findings of facts and conclusions of law" contained in the HLURB Board
Resolution of January 27, 2003. And by Order 17 dated March 18, 2004, it denied Jestras motion for
reconsideration.
On Jestras petition for review under Rule 43 of the Rules of Court, the Court of Appeals (CA), by
Decision18dated January 31, 2005, affirmed the Orders of the OP.
Its motion for reconsideration having been denied by CA Resolution 19 of March 16, 2005, Jestra
(hereafter petitioner) comes before this Court on a petition for review, faulting the appellate court
for:
I. . . . adopting the OPs conclusion that penalty payments should be included in computing the
total number of installment payments made by a buyer (in relation to the payment of a cash
surrender value upon cancellation of a contract to sell) in spite of its exclusion from the items to
be included in computing the two (2) years installment payments as provided in RA 6552
II. . . . adopting the OPs conclusion that petitioner failed to deliver possession of the subject
property to respondent upon his full payment of the downpayment [sic] and that petitioners act
of canceling the contract to sell was unconscionable despite being allowed under RA 6552.

SECTION 3. In all transactions or contracts involving the sale or financing of real estate on
installment payments, including residential condominium apartments but excluding industrial
lots, commercial buildings and sales to tenants under Republic Act Numbered Thirty-eight
hundred forty-four, as amended by Republic Act Numbered Sixty-three hundred eighty-nine,
where the buyer has paid at least two years of installments, the buyer is entitled to the following
rights in case he defaults in the payment of succeeding installments:
(a) To pay, without additional interest, the unpaid installments due within the total grace period
earned by him which is hereby fixed at the rate of one month grace period for every one year
of installment payments made: Provided, That this right shall be exercised by the buyer only
once in every five years of the life of the contract and its extensions, if any.
(b) If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of
the payments on the property equivalent to fifty per cent of the total payments made, and,
after five years of installments, an additional five per cent every year but not to exceed ninety
per cent of the total payments made: Provided, That the actual cancellation of the contract
shall take place after thirty days from receipt by the buyer of the notice of cancellation or the
demand for rescission of the contract by a notarial act and upon full payment of the cash
surrender value to the buyer.
Down payments, deposits or options on the contract shall be included in the computation of the
total number of installment payments made.
As the records indicate, the total payments made by Pacifico (hereafter respondent) amounted
to P846,600. The appellate court, in concluding that respondent paid at least two years of
installments, adopted the formula used by the HLURB by dividing the amount of P846,600 by
the monthly amortization of P34,983 to thus result to a quotient of 24.2 months.
Petitioner contests the computation, however. It claims that the amount of P76,600 represents
penalty payment and is a separate item to answer for its lost income as a seller due to the delay
in the payment20 of the 30% down payment. It thus submits that the amount of P76,600 does not
form part of the purchase price and should thus be excluded in determining the total number of
installments made.
Petitioner likewise claims that the proper divisor is not P34,983 but P39,468 since the parties
agreed to restructure the amortizations owing to respondents inability to comply with the
schedule of payments previously agreed upon in the Contract to Sell, and that if respondents
total payments less the penalty is to be divided by P39,468, the total installments paid would
only cover 19.5 months, hence, it was not obliged under RA No. 6552 to pay the cash surrender
value of such total payments.
This Court finds that neither of the parties computations is in order.

48
The total purchase price of the property is P2,500,000. As provided in the Reservation Application,
the 30% down payment on the purchase price or P750,000 was to be paid in six monthly
installments of P121,666.66. Under the Contract to Sell, the 70% balance of P1,750,000.00 on the
purchase price was to be paid in 10 years through monthly installments of P34,983, which was
later increased to P39,468 in accordance with the agreement to restructure the same.
While, under the above-quoted Section 3 of RA No. 6552, the down payment is included in
computing the total number of installment payments made, the proper divisor is neither P34,983
nor P39,468, but P121,666.66, the monthly installment on the down payment.
The P750,000 down payment was to be paid in six monthly installments. If the down payment
of P750,000 is to be deducted from the total payment of P846,600, the remainder is only P96,600.
Since respondent was able to pay the down payment in full eleven (11) months after the last
monthly installment was due, and the sum of P76,600 representing penalty for delay of payment is
deducted from the remaining P96,600, only a balance of P20,000 remains.
As respondent failed to pay at least two years of installments, he is not, under above-quoted
Section 3 of RA No. 6552, entitled to a refund of the cash surrender value of his payments. What
applies to the case instead is Section 4 of the same law, viz:
SECTION 4. In case where less than two years of installments were paid, the seller shall give the
buyer a grace period of not less than sixty days from the date the installment became due.
If the buyer fails to pay the installments due at the expiration of the grace period, the seller may
cancel the contract after thirty days from receipt by the buyer of the notice of cancellation or the
demand for rescission of the contract by a notarial act. (Underscoring supplied)
In Fabrigas v. San Francisco del Monte, Inc., 21 this Court described the cancellation of the contract
under Section 4 as a two-step process. First, the seller should extend the buyer a grace period of
at least sixty (60) days from the due date of the installment. Second, at the end of the grace period,
the seller shall furnish the buyer with a notice of cancellation or demand for rescission through a
notarial act, effective thirty (30) days from the buyer's receipt thereof.
Respondent admits that under the restructured scheme, the first installment on the 70% balance of
the purchase price was due on January 5, 1998. While he issued checks to cover the same, the
first two were dishonored due to insufficiency of funds.

WHEREFORE, the petition is GRANTED. The assailed Decision and Resolution dated January
31, 2005 and March 16, 2005 of the Court of Appeals are hereby REVERSED and SET ASIDE.
The complaint of respondent, Daniel Ponce Pacifico, is DISMISSED.1avvphi1.net SO
ORDERED.
G.R. Nos. 113472-73 December 20, 1994
ONG CHING PO vs. COURT OF APPEALS and SOLEDAD PARIAN, respondents.
QUIASON, J.:
This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court of the
Decision of the Court of Appeals dated July 15, 1993, which dismissed the petition
for certiorari in CA-G.R. CV Nos. 28391-92.
I. On July 23, 1947, Ong Joi Jong sold a parcel of land located at Fundidor Street, San Nicolas
to private respondent Soledad Parian, the wife of Ong Yee. The latter, the brother of petitioner
Ong Ching Po, died in January 1983; while petitioner Ong Ching Po died in October 1986. The
said sale was evidenced by a notarized Deed of Sale written in English. Subsequently, the
document was registered with the Register of Deeds of Manila, which issued Transfer Certificate
of Title No. 9260 dated September 2, 1947 in the name of private respondent.
According to private respondent, she entrusted the administration of the lot and building to
petitioner Ong Ching Po when she and her husband settled in Iloilo. When her husband died,
she demanded that the lot be vacated because she was going to sell it. Unfortunately, petitioners
refused to vacate the said premises.
On March 19, 1984, private respondent filed a case for unlawful detainer against petitioner Ong
Ching Po before the Metropolitan Trial Court of Manila, Branch 26. The inferior court dismissed
her case. The dismissal was affirmed by the Regional Trial Court, Branch 10, Manila. The
decision of the Regional Trial Court was, in turn, affirmed by the Court of Appeals, which
dismissed the petition. The decision of the Court of Appeals became final and executory.
Petitioners, on the other hand, claimed that on July 23, 1946, petitioner Ong Ching Po bought
the said parcel of land from Ong Joi Jong. The sale was evidenced by a photo copy of a Deed of
Sale written in Chinese with the letter head "Sincere Trading Co." (Exh. "B"). An English
translation of said document (Exh. "C") read as follows:
Deed of Sale

While respondent was notified of the dishonor of the checks, he took no action thereon, hence, the
60 days grace period lapsed. Respondent made no further payments thereafter. Instead, he
requested for suspension of payment and for time to dispose of the property to recover his
investment.
Respondent admits that petitioner was justified in canceling the contract to sell via the notarial
Notice of Cancellation which he received on May 13, 1998. The contract was deemed
cancelled22 30 days from May 13, 1998 or on June 12, 1998.

I, Ong Joi Jong, a party to this Deed of Sale hereby sell in absolutely (sic) manner a lot
located on No. 4 Fundidor Street, San Nicolas an (sic) area consisting 213 square meters
including a one-story house erected thereon unto Mr. Ong Ching Po for the sum of P6,000.00
the receipt of which is hereby acknowledged by me and consequently I have executed and
signed the government registered title (sic) the said lot inclusive of the house erected thereon,
now belong (sic) to Mr. Ong Ching Po unequivocally. And the purpose of this document is to
precisely serve as proof of the sale.
Addendum: I have acceded to the request of Mr. Ong Ching Po into signing another document
in favor of Soledad Parian (She is the Filipino wife of Ong Yee, brother of Ong Ching Po) for

49
the purpose of facilitating the issuance of the new title by the City Register of Deeds and for the
reason that he is not yet a Filipino. I certify to the truthfulness of this fact.

Assuming that Exhibit "B" is in existence and that it was duly executed, still petitioners cannot
claim ownership of the disputed lot by virtue thereof.

Lot Seller: Ong Joi Jong (Exhibits for the plaintiff, p. 4)

Section 5, Article XIII of the 1935 Constitution provides, as follows:

On December 6, 1983, petitioner Ong Ching Po executed a Deed of Absolute Sale conveying to his
children, petitioners Jimmy and David Ong, the same property sold by Ong Joi Jong to private
respondent in 1947. On December 12 1985, petitioners Ong Ching Po, Jimmy Ong and David Ong
filed an action for reconveyance and damages against private respondent in the Regional Trial
Court, Branch 53, Manila, docketed as Case No. 85-33962.
On July 26, 1986, private respondent filed an action for quieting of title against petitioners Ong
Ching Po and his wife, petitioner Yu Siok Lian, in the Regional Trial Court, Branch 58, Manila,
docketed as Civil Case No. 86-36818. Upon her motion, the case was consolidated with Civil Case
No. 85-33962. On May 30 1990, the trial court rendered a decision in favor of private respondent.
On appeal by petitioners to the Court of Appeals, the said court affirmed the decision of the
Regional Trial Court.
Hence, this petition.
II. According to petitioners, the Court of Appeals erred:
(1) When it gave full faith and credit to the Deed of Sale (Exh. "A") in favor of private respondent,
instead of the Deed of Sale (Exh. "B" and its translation, Exh. "C") in favor of petitioner Ong
Ching Po.
(2) When it concluded that the acts of petitioners were not acts of ownership; and
(3) When it ruled that no express nor implied trust existed between petitioners and private
respondent (Rollo, pp. 17-18).
As stated by petitioners themselves, what is in dispute ". . . is not so much as to which between
Exhibit "A" and "Exhibit "B" is more weighty, but whether this document is what it purports to be
(i.e., a deed of conveyance in favor of Soledad Parian [private respondent] or it was only resorted
to or executed as a subterfuge because the real buyer (Ong Ching Po) was an alien and it was
agreed upon between Ong Ching Po and his brother (Ong Yee, Soledad Parian's husband) that the
land be registered in the name of Soledad Parian in order to avoid legal complications and to
facilitate registration and transfer and that the said title would be transferred by Soledad to Ong
Ching Po or his successors-in-interest and that she would be holding the title in trust for him"
(Rollo, pp. 19-20).
We cannot go along with the claim that petitioner Ong Ching Po merely used private respondent as
a dummy to have the title over the parcel of land registered in her name because being an alien he
was disqualified to own real property in the Philippines. To sustain such an outrageous contention
would be giving a high premium to a violation of our nationalization laws.

Save in cases of hereditary succession, no private agricultural land shall be transferred or

assigned except to individuals, corporations, or associations qualified to acquire or hold lands
of the public domain in the Philippines.
Section 14, Article XIV of the 1973 Constitution provides, as follows:
Save in cases of hereditary succession, no private land shall be transferred or conveyed
except to individuals, corporations, or associations qualified to acquire or hold lands in the
public domain.
Section 7, Article XII of the 1987 Constitution provides:
Save in cases of hereditary succession, no private lands shall be transferred or conveyed
except to individuals, corporations, or associations qualified to acquire or hold lands in the
public domain.
The capacity to acquire private land is made dependent upon the capacity to acquire or hold
lands of the public domain. Private land may be transferred or conveyed only to individuals or
entities "qualified to acquire lands of the public domain" (II Bernas, The Constitution of the
Philippines 439-440 [1988 ed.]).
The 1935 Constitution reserved the right to participate in the "disposition, exploitation,
development and utilization" of all "lands of the public domain and other natural resources of the
Philippines" for Filipino citizens or corporations at least sixty percent of the capital of which was
owned by Filipinos. Aliens, whether individuals or corporations, have been disqualified from
acquiring public lands; hence, they have also been disqualified from acquiring private lands.
Petitioner Ong Ching Po was a Chinese citizen; therefore, he was disqualified from acquiring
and owning real property. Assuming that the genuineness and due execution of Exhibit "B" has
been established, the same is null and void, it being contrary to law.
On the other end of the legal spectrum, the deed of sale executed by Ong Joi Jong in favor of
private respondent (Exh. "A") is a notarized document.
To remove the mantle of validity bestowed by law on said document, petitioners claim that
private respondent admitted that she did not pay anything as consideration for the purported
sale in her favor. In the same breath, petitioners said that private respondent implied in her
deposition that it was her husband who paid for the property. It appears, therefore, that the sale
was financed out of conjugal funds and that it was her husband who handled the transaction for
the purchase of the property. Such transaction is a common practice in Filipino-family affairs.

50
It is not correct to say that private respondent never took possession of the property. Under the law,
possession is transferred to the vendee by virtue of the notarized deed of conveyance. Under
Article 1498 of the Civil Code of the Philippines, "when the sale is made through a public
instrument, the execution thereof shall be equivalent to the delivery of the object of the contract, if
from the deed the contrary does not appear or cannot clearly be inferred." If what petitioners meant
was that private respondent never lived in the building constructed on said land, it was because her
family had settled in Iloilo.
There is no document showing the establishment of an express trust by petitioner Ong Ching Po as
trustor and private respondent as trustee. Not even Exhibit "B" can be considered as such a
document because private respondent, the registered owner of the property subject of said "deed
of sale," was not a party thereto. The oral testimony to prove the existence of the express trust will
not suffice. Under Article 1443 of the Civil Code of the Philippines, "No express trust concerning an
immovable or any interest therein may be proved by parole evidence."
Undaunted, petitioners argue that if they cannot prove an express trust in writing, they can prove
an implied trust orally. While an implied trust may be proved orally (Civil Code of the Philippines,
Art. 1457), the evidence must be trustworthy and received by the courts with extreme caution,
because such kind of evidence may be easily fabricated (Salao v. Salao, 70 SCRA 65 [1976]). It
cannot be made to rest on vague and uncertain evidence or on loose, equivocal or indefinite
declarations (Cf. De Leon v. Molo-Peckson, et al., 116 Phil. 1267 [1962]). Petitioners do not claim
that Ong Yee was not in a financial position to acquire the land and to introduce the improvements
thereon. On the other hand, Yu Siok Lian, the wife of petitioner Ong Ching Po, admitted in her
testimony in court that Ong Yee was a stockholder of Lam Sing Corporation and was engaged in
business.
The Court of Appeals did not give any credence to Exhibit "B" and its translation, Exhibit "C",
because these documents had not been properly authenticated.
Under Section 4, Rule 130 of the Revised Rules of Court:
Secondary Evidence when Original is lost or destroyed. When the original writing has been lost
or destroyed, or cannot be produced in court, upon proof of its execution and lost or destruction,
or unavailability, its contents may be proved by a copy, or by a recital of its contents in some
authentic document, or by the recollection of the witnesses.
Secondary evidence is admissible when the original documents were actually lost or destroyed.
But prior to the introduction of such secondary evidence, the proponent must establish the former
existence of the document. The correct order of proof is as follows: existence; execution; loss;
contents. This order may be changed if necessary in the discretion of the court (De Vera v. Aguilar,
218 SCRA 602 [1993]).
Petitioners failed to adduce evidence as to the genuineness and due execution of the deed of sale,
Exhibit "B".
The due execution of the document may be established by the person or persons who executed it;
by the person before whom its execution was acknowledged; or by any person who was present
and saw it executed or who after its execution, saw it and recognized the signatures; or by a

person to whom the parties to the instrument had previously confessed the execution thereof
(De Vera v. Aguilar, supra).
Petitioner Yu Siok Lian testified that she was present when said document was executed, but the
trial court rejected her claim and held:
If it is true that she was present, why did she not sign said document, even merely as a
witness? Her oral testimony is easy to concoct or fabricate. Furthermore, she was married
only on September 6, 1946 to the plaintiff, Ong Ching Po, in Baguio City where she
apparently resided, or after the deed of sale was executed. The Court does not believe that
she was present during the execution and signing of the deed of sale involved therein,
notwithstanding her pretensions to the contrary (Decision p. 6, Records p. 414).
As to the contention of petitioners that all the tax receipts, tax declaration, rental receipts, deed
of sale (Exh. "B") and transfer certificate of title were in their possession, private respondent
explained that she and her husband entrusted said lot and building to petitioners when they
moved to Iloilo.
As observed by the Court of Appeals:
We find, however, that these acts, even if true, are not necessarily reflective of dominion, as
even a mere administrator or manager may lawfully perform them pursuant to his appointment
or
employment
(Rollo,
p. 10).
It is markworthy that all the tax receipts were in the name of private respondent and her
husband. The rental receipts were also in the name of her husband.
WHEREFORE, the petition is DISMISSED. SO ORDERED.
G.R. No. 129107

September 26, 2001

ALFONSO
L.
IRINGAN, petitioner,
vs.
HON. COURT OF APPEALS and ANTONIO PALAO, represented by his Attorney-in-Fact,
FELISA P. DELOS SANTOS, respondents.
QUISUMBING, J.:
This petition assails the Decision1 dated April 30, 1997 of the Court of Appeals in CA G.R. CV
No. 39949, affirming the decision of the Regional Trial Court and deleting the award of attorney's
fee.
The facts of the case are based on the records.

51
On March 22, 1985, private respondent Antonio Palao sold to petitioner Alfonso Iringan, an
undivided portion of Lot No. 992 of the Tuguegarao Cadastre, located at the Poblacion of
Tuguegarao and covered by Transfer Certificate of Title No. T-5790. The parties executed a Deed
of Sale2 on the same date with the purchase price of P295,000.00, payable as follows:
(a) P10,000.00 - upon the execution of this instrument, and for this purpose, the vendor
acknowledges having received the said amount from the vendee as of this date;
(b) P140,000.00 - on or before April 30, 1985;
(c) P145,000.00 - on or before December 31, 1985.3
When the second payment was due, Iringan paid only P40,000. Thus, on July 18, 1985, Palao sent
a letter4 to Iringan stating that he considered the contract as rescinded and that he would not
accept any further payment considering that Iringan failed to comply with his obligation to pay the
full amount of the second installment.
On August 20, 1985, Iringan through his counsel Atty. Hilarion L. Aquino,5 replied that they were not
opposing the revocation of the Deed of Sale but asked for the reimbursement of the following
amounts:
(a) P50,000.00 - cash received by you;
(b) P3,200.00 - geodetic engineer's fee;
(c) P500.00 - attorney's fee;
(d) the current interest on P53,700.00.6
In response, Palao sent a letter dated January 10, 1986, 7 to Atty. Aquino, stating that he was not
amenable to the reimbursements claimed by Iringan.
On February 21, 1989, Iringan, now represented by anew counsel - Atty. Carmelo Z. Lasam,
proposed that the P50,000 which he had already paid Palao be reimbursed 8 or Palao could sell to
Iringan, an equivalent portion of the land.
Palao instead wrote Iringan that the latter's standing obligation had reached P61,600, representing
payment of arrears for rentals from October 1985 up to March 1989.9 The parties failed to arrive at
an agreement.
On July 1, 1991, Palao filed a Complaint 10 for Judicial Confirmation of Rescission of Contract and
Damages against Iringan and his wife.
In their Answer,11 the spouses alleged that the contract of sale was a consummated contract,
hence, the remedy of Palao was for collection of the balance of the purchase price and not
rescission. Besides, they said that they had always been ready and willing to comply with their
obligations in accordance with said contract.

WHEREFORE, the Court finds that the evidence preponderates in favor of the plaintiff and
against the defendants and judgment is hereby rendered as follows:
(a) Affirming the rescission of the contract of sale;
(b) Cancelling the adverse claim of the defendants annotated at the back of TCT No. T-5790;
(c) Ordering the defendants to vacate the premises;
(d) Ordering the defendants to pay jointly and severally the sum of P100,000.00 as
reasonable compensation for use of the property minus 50% of the amount paid by them; and
to pay P50,000.00 as moral damages; P10,000.00 as exemplary damages; and P50,000.00
as attorney's fee; and to pay the costs of suit. SO ORDERED.13
As stated, the Court of Appeals affirmed the above decision. Hence, this petition for review.
Iringan avers in this petition that the Court of Appeals erred:
1. In holding that the lower court did not err in affirming the rescission of the contract of sale;
and
2. In holding that defendant was in bad faith for "resisting" rescission and was made liable to
pay moral and exemplary damages.14
We find two issues for resolution: (1) whether or not the contract of sale was validly rescinded,
and (2) whether or not the award of moral and exemplary damages is proper.
On the first issue, petitioner contends that no rescission was effected simply by virtue of the
letter15 sent by respondent stating that he considered the contract of sale rescinded. Petitioner
asserts that a judicial or notarial act is necessary before one party can unilaterally effect a
rescission.
Respondent Palao, on the other hand, contends that the right to rescind is vested by law on the
obligee and since petitioner did not oppose the intent to rescind the contract, Iringan in effect
agreed to it and had the legal effect of a mutually agreed rescission.
Article 1592 of the Civil Code is the applicable provision regarding the sale of an immovable
property.
Article 1592. In the sale of immovable property, even though it may have been stipulated that
upon failure to pay the price at the time agreed upon the rescission of the contract shall of
right take place, the vendee may pay, even after the expiration of the period, as long as no
demand for rescission of the contract has been made upon him either judicially or by a
notarial act. After the demand, the court may not grant him a new term. (Italics supplied)
Article 1592 requires the rescinding party to serve judicial or notarial notice of his intent to
resolve the contract.16

12

In a Decision dated September 25, 1992, the Regional Trial Court of Cagayan, Branch I, ruled in
favor of Palao and affirmed the rescission of the contract. It disposed,

In the case of Villaruel v. Tan King,17 we ruled in this wise,

52
...since the subject-matter of the sale in question is real property, it does not come strictly within
the provisions of article 1124 (now Article 1191) of the Civil Code, but is rather subjected to the
stipulations agreed upon by the contracting parties and to the provisions of article 1504 (now
Article 1592) of the Civil Code."18
Citing Manresa, the Court said that the requirement of then Article 1504, "refers to a demand that
the vendor makes upon the vendee for the latter to agree to the resolution of the obligation and to
create no obstacles to this contractual mode of extinguishing obligations."19
Clearly, a judicial or notarial act is necessary before a valid rescission can take place, whether or
not automatic rescission has been stipulated. It is to be noted that the law uses the phrase "even
though"20 emphasizing that when no stipulation is found on automatic rescission, the judicial or
notarial requirement still applies.
On the first issue, both the trial and appellate courts affirmed the validity of the alleged mutual
agreement to rescind based on Article 1191 of the Civil Code, particularly paragraphs 1 and 2
thereof.
Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of
the obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation,
with payment of damages in either case. He may also seek rescission, even after he has
chosen fulfillment, if the latter should become impossible. [Emphasis ours.]
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing
of a period.
This is understood to be without prejudice to the rights of third persons who have acquired the
thing, in accordance with articles 1385 and 1388 and the Mortgage Law.
But in our view, even if Article 1191 were applicable, petitioner would still not be entitled to
automatic rescission. InEscueta v. Pando,21 we ruled that under Article 1124 (now Article 1191) of
the Civil Code, the right to resolve reciprocal obligations, is deemed implied in case one of the
obligors shall fail to comply with what is incumbent upon him. But that right must be invoked
judicially. The same article also provides: "The Court shall decree the resolution demanded, unless
there should be grounds which justify the allowance of a term for the performance of the
obligation."
This requirement has been retained in the third paragraph of Article 1191, which states that "the
court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a
period."
Consequently, even if the right to rescind is made available to the injured party, 22 the obligation is
not ipso factoerased by the failure of the other party to comply with what is incumbent upon him.
The party entitled to rescind should apply to the court for a decree of rescission. 23 The right cannot
be exercised solely on a party's own judgment that the other committed a breach of the
obligation.24 The operative act which produces the resolution of the contract is the decree of the

court and not the mere act of the vendor.25 Since a judicial or notarial act is required by law for a
valid rescission to take place, the letter written by respondent declaring his intention to rescind
did not operate to validly rescind the contract.
Notwithstanding the above, however, in our view when private respondent filed an action for
Judicial Confirmation of Rescission and Damages 26 before the RTC, he complied with the
requirement of the law for judicial decree of rescission. The complaint 27 categorically stated that
the purpose was 1) to compel appellants to formalize in a public document, their mutual
agreement of revocation and rescission; and/or 2) to have a judicial confirmation of the said
revocation/rescission under terms and conditions fair, proper and just for both parties. 28 In Luzon
Brokerage Co., Inc. v. Maritime Building Co., Inc.,29 we held that even a crossclaim found in the
Answer could constitute a judicial demand for rescission that satisfies the requirement of the
law.30
Petitioner contends that even if the filing of the case were considered the judicial act required,
the action should be deemed prescribed based on the provisions of Article 1389 of the Civil
Code.31
This provision of law applies to rescissible contracts, 32 as enumerated and defined in Articles
138033 and 1381.34We must stress however, that the "rescission" in Article 1381 is not akin to the
term "rescission" in Article 1191 and Article 1592.35 In Articles 1191 and 1592, the rescission is a
principal action which seeks the resolution or cancellation of the contract while in Article 1381,
the action is a subsidiary one limited to cases of rescission for lesion as enumerated in said
article.36
The prescriptive period applicable to rescission under Articles 1191 and 1592, is found in Article
1144,37 which provides that the action upon a written contract should be brought within ten years
from the time the right of action accrues. The suit was brought on July 1, 1991, or six years after
the default. It was filed within the period for rescission. Thus, the contract of sale between the
parties as far as the prescriptive period applies, can still be validly rescinded.
On the issue of moral and exemplary damages, petitioner claims that the Court of Appeals erred
in finding bad faith on his part when he resisted the rescission 38 and claimed he was ready to
pay but never actually paid respondent, notwithstanding that he knew that appellee's principal
motivation for selling the lot was to raise money to pay his SSS loan. 39 Petitioner would have us
reverse the said CA findings based on the exception 40 that these findings were made on a
misapprehension of facts.
The records do not support petitioner's claims. First, per the records, petitioner knew
respondent's reason for selling his property. As testified to by petitioner 41 and in the
deposition42 of respondent, such fact was made known to petitioner during their negotiations as
well as in the letters sent to petitioner by Palao.43 Second,petitioner adamantly refused to
formally execute an instrument showing their mutual agreement to rescind the contract of sale,
notwithstanding that it was petitioner who plainly breached the terms of their contract when he
did not pay the stipulated price on time, leaving private respondent desperate to find other
sources of funds to payoff his loan. Lastly, petitioner did not substantiate by clear and convincing
proof, his allegation that he was ready and willing to pay respondent. We are more inclined to
believe his claim of readiness to pay was an afterthought intended to evade the consequence of
his breach. There is no record to show the existence of such amount, which could have been
reflected, at the very least, in a bank account in his name, if indeed one existed; or, alternatively,

53
the proper deposit made in court which could serve as a formal tender of payment. 44 Thus, we find
the award of moral and exemplary damages proper.1wphi1.nt
WHEREFORE, the petition is DENIED. The assailed decision dated April 30, 1997 of the Court of
Appeals in CA G.R. CV No. 39949, affirming the Regional Trial Court decision and deleting the
award of attorney's fees, is hereby AFFIRMED. Costs against the petitioner. SO ORDERED.
G.R. No. L-16480
January 31, 1962
ARTEMIO KATIGBAK vs. COURT OF APPEALS
PAREDES, J.:
This case arose from an agreed purchase and sale of a Double Drum Carco Tractor Winch.
Artemio Katigbak upon reading an advertisement for the sale of the winch placed by V. K.
Lundberg, owner and operator of the International Tractor and Equipment Co., Ltd., went to see
Lundberg and inspected the equipment. The price quoted was P12,000.00. Desiring a reduction of
the price, Katigbak was referred to Daniel Evangelista, the owner. After the meeting, it was agreed
that Katigbak was to purchase the winch for P12,000.00, payable at P5,000.00 upon delivery and
the balance of P7,000.00 within 60 days. The condition of the sale was that the winch would be
delivered in good condition. Katigbak was apprised that the winch needed some repairs, which
could be done in the shop of Lundberg. It was then stipulated that the amount necessary for the
repairs will be advanced by Katigbak but deductible from the initial payment of P5,000.00. The
repairs were undertaken and the total of P2,029.85 for spare parts was advanced by Katigbak for
the purpose. For one reason or another, the sale was not consummated and Katigbak sued
Evangelista, Lundberg and the latter's company, for the refund of such amount.
Lundberg and Evangelista filed separate Answers to the complaint, the former alleging non-liability
for the amount since the same (obligation for refund) was purely a personal account between
defendant Evangelista and plaintiff Katigbak. Lundberg asked P500.00 by way of actual and
compensatory damages and P5,000.00 as moral damages, claiming that the filing of the suit was
malicious; that there is a misjoinder because he is a stranger in the case, not being a party to the
agreement between Evangelista and Katigbak.
Evangelista, on his part, claimed that while there was an agreement between him and Katigbak for
the purchase and sale of the winch and that Katigbak advanced the payment for the spare parts,
he (Katigbak) refused to comply with his contract to purchase the same; that as a result of such
refusal he (Evangelista) was forced to sell the same to a third person for only P10,000.00, thus
incurring a loss of P2,000.00, which amount Katigbak should be ordered to pay, plus moral
damages of P5,000.00 and P700.00 for attorney's fees.
The lower court rendered judgment, the dispositive portion of which reads - .
WHEREFORE, judgment is hereby rendered ordering the defendants Daniel Evangelista and V.
K. Lundberg to pay plaintiff the sum of P2,029.85, with legal interest thereon from the filing of the
complaint until fully paid, plus the sum of P300.00 as attorney's fees, and the costs." .
The Court of Appeals, on September 5, 1959, reversed the judgment in the following manner:

Notwithstanding the breach of contract committed by him, we may concede appellee's right to
a refund of the sum of P2,029.85, but equally undeniable is appellant Evangelista's right to
recover from him his loss of P2,000.00, which is the difference between the contract price for
the sale of the winch between him and appellee and the actual price for which it was sold after
the latter had refused to carry out his agreement. As held in the above-cited case of Hanlon, if
the purchaser fails to take delivery and pay the purchase price of the subject matter of the
contract, the vendor, without the need of first rescinding the contract judicially, is entitled to
resell the same, and if he is obliged to sell it for less than the contract price, the buyer is liable
for the difference. This loss, which is the subject matter of Evangelista's main counterclaim,
should therefore be set off against the sum claimed by appellee, which would leave in favor of
the latter a balance of P29.85.
Considering our finding that it was appellee who committed a breach of contract, it follows that
the present action was unjustified and he must be held liable to appellant Evangelista for
attorney's fees in the sum of P700.00.
Lastly, inasmuch as, according to the evidence appellant Lundberg was merely an agent of
his co-appellant, it is obvious that he cannot be held liable to appellee in connection with the
refund of the sum advanced by the latter.1wph1.t
WHEREFORE, the appealed judgment is hereby modified by dismissing the complaint as to
V. K. Lundberg; by reducing the judgment in favor of appellee to the sum of P29.85, and by
sentencing him, in turn, to pay appellant Evangelista the sum of P700.00 as attorney's fees".
Plaintiff-appellee Katigbak brought the matter to this Court on appeal by certiorari. In his petition
he claims that the Court of Appeals erroneously applied the doctrine enunciated in the Hanlon v.
Hausserman case (40 Phil. 796, 815-816), and failed to apply the law relative to rescission of
contracts. Other issues raised are strictly factual and will only be mentioned here for reference.
We quote from the Hanlon case:
.... In the present case the contract between Hanlon and the mining company was executory
as to both parties, and the obligation of the company to deliver the shares could not arise until
Hanlon should pay or tender payment of the money. The situation is similar to that which
arises every day in business transactions in which the purchaser of goods upon an executory
contract fails to take delivery and pay the purchase price. The vendor in such case is entitled
to resell the goods. If he is obliged to sell for less than the contract price, he holds the buyer
for the difference; if he sells for as much as or more than the contract price, the breach of
contract by the original buyer is damnum absque injuria. But it has never been held that there
is any need of an action of rescission to authorize the vendor, who is still in possession, to
dispose of the property where the buyer fails to pay the price and take delivery... (40 Phil.
815) .
The facts of the case under consideration are identical to those of the Hanlon case. The herein
petitioner failed to take delivery of the winch, subject matter of the contract and such failure or
breach was, according to the Court of Appeals, attributable to him, a fact which We are bound to
accept under existing jurisprudence. The right to resell the equipment, therefore, cannot be
disputed. It was also found by the Court of Appeals that in the subsequent sale of the winch to a
third party, the vendor thereof lost P2,000.00, the sale having been only for P10,000.00, instead

54
of P12,000.00 as agreed upon, said difference to be borne by the supposed vendee who failed to
take delivery and/or to pay the price.
Of course, petitioner tried to draw a distinction between the Hanlon case and his case. The slight
differences in the facts noted by petitioner are not, however, to our mode of thinking, sufficient to
take away the case at bar from the application of the doctrine enunciated in the Hanlon case.
WHEREFORE, the petition is dismissed, and the decision appealed from is affirmed in all respects,
with cost against petitioner.
G.R. No. L-27587 February 18, 1970
AMADO CARUMBA vs. THE COURT OF APPEALS
REYES, J.B.L., J.:
Amado Carumba petitions this Supreme Court for a certiorari to review a decision of the Court of
Appeals, rendered in its Case No. 36094-R, that reversed the judgment in his favor rendered by
the Court of First Instance of Camarines Sur (Civil Case 4646).
The factual background and history of these proceedings is thus stated by the Court of Appeals
(pages 1-2):
On April 12, 1955, the spouses Amado Canuto and Nemesia Ibasco, by virtue of a "Deed of Sale
of Unregistered Land with Covenants of Warranty" (Exh. A), sold a parcel of land, partly
residential and partly coconut land with a periphery (area) of 359.09 square meters, more or
less, located in the barrio of Santo Domingo, Iriga, Camarines Sur, to the spouses Amado
Carumba and Benita Canuto, for the sum of P350.00. The referred deed of sale was never
registered in the Office of the Register of Deeds of Camarines Sur, and the Notary, Mr. Vicente
Malaya, was not then an authorized notary public in the place, as shown by Exh. 5. Besides, it
has been expressly admitted by appellee that he is the brother-in-law of Amado Canuto, the
alleged vendor of the property sold to him. Amado Canuto is the older brother of the wife of the
herein appellee, Amado Carumba.
On January 21, 1957, a complaint (Exh. B) for a sum or money was filed by Santiago Balbuena
against Amado Canuto and Nemesia Ibasco before the Justice of the Peace Court of Iriga,
Camarines Sur, known as Civil Case No. 139 and on April 15, 1967, a decision (Exh. C) was
rendered in favor of the plaintiff and against the defendants. On October 1, 1968, the exofficio Sheriff, Justo V. Imperial, of Camarines Sur, issued a "Definite Deed of Sale (Exh. D) of
the property now in question in favor of Santiago Balbuena, which instrument of sale was
registered before the Office of the Register of Deeds of Camarines Sur, on October 3, 1958. The
aforesaid property was declared for taxation purposes (Exh. 1) in the name of Santiago
Balbuena in 1958.
The Court of First instance, finding that after execution of the document Carumba had taken
possession of the land, planting bananas, coffee and other vegetables thereon, declared him to be
the owner of the property under a consummated sale; held void the execution levy made by the
sheriff, pursuant to a judgment against Carumba's vendor, Amado Canuto; and nullified the sale in
favor of the judgment creditor, Santiago Balbuena. The Court, therefore, declared Carumba the
owner of the litigated property and ordered Balbuena to pay P30.00, as damages, plus the costs.

The Court of Appeals, without altering the findings of fact made by the court of origin, declared
that there having been a double sale of the land subject of the suit Balbuena's title was superior
to that of his adversary under Article 1544 of the Civil Code of the Philippines, since the
execution sale had been properly registered in good faith and the sale to Carumba was not
recorded.
We disagree. While under the invoked Article 1544 registration in good faith prevails over
possession in the event of a double sale by the vendor of the same piece of land to different
vendees, said article is of no application to the case at bar, even if Balbuena, the later vendee,
was ignorant of the prior sale made by his judgment debtor in favor of petitioner Carumba. The
reason is that the purchaser of unregistered land at a sheriff's execution sale only steps into the
shoes of the judgment debtor, and merely acquires the latter's interest in the property sold as of
the time the property was levied upon. This is specifically provided by section 35 of Rule 39 of
the Revised Rules of Court, the second paragraph of said section specifically providing that:
Upon the execution and delivery of said (final) deed the purchaser, redemptioner, or his
assignee shall be substituted to and acquire all the right, title, interest, and claim of the
judgment debtor to the property as of the time of the levy, except as against the judgment
debtor in possession, in which case the substitution shall be effective as of the time of the
deed ... (Emphasis supplied)
While the time of the levy does not clearly appear, it could not have been made prior to 15 April
1957, when the decision against the former owners of the land was rendered in favor of
Balbuena. But the deed of sale in favor of Canuto had been executed two years before, on 12
April 1955, and while only embodied in a private document, the same, coupled with the fact that
the buyer (petitioner Carumba) had taken possession of the unregistered land sold, sufficed to
vest ownership on the said buyer. When the levy was made by the Sheriff, therefore, the
judgment debtor no longer had dominical interest nor any real right over the land that could pass
to the purchaser at the execution sale. 1 Hence, the latter must yield the land to petitioner
Carumba. The rule is different in case of lands covered by Torrens titles, where the prior sale is
neither recorded nor known to the execution purchaser prior to the levy; 2 but the land here in
question is admittedly not registered under Act No. 496.
WHEREFORE, the decision of the Court of Appeals is reversed and that of the Court of First
Instance affirmed. Costs against respondent Santiago Balbuena.
G.R. No. 132161
January 17, 2005
CONSOLIDATED RURAL BANK (CAGAYAN VALLEY) vs. COURT OF APPEALS
DECISION
TINGA, J.:
Petitioner Consolidated Rural Bank, Inc. of Cagayan Valley filed the instant Petition for
Certiorari1 under Rule 45 of the Revised Rules of Court, seeking the review of the Decision2 of
the Court of Appeals Twelfth Division in CA-G.R. CV No. 33662, promulgated on 27 May 1997,
which reversed the judgment3 of the lower court in favor of petitioner; and the Resolution4 of the
Court of Appeals, promulgated on 5 January 1998, which reiterated its Decision insofar as
respondents Heirs of Teodoro dela Cruz (the Heirs) are concerned.
From the record, the following are the established facts:

55
Rizal, Anselmo, Gregorio, Filomeno and Domingo, all surnamed Madrid (hereafter the Madrid
brothers), were the registered owners of Lot No. 7036-A of plan Psd-10188, Cadastral Survey 211,
situated in San Mateo, Isabela per Transfer Certificate of Title (TCT) No. T-8121 issued by the
Register of Deeds of Isabela in September 1956.5
On 23 and 24 October 1956, Lot No. 7036-A was subdivided into several lots under subdivision
plan Psd- 50390. One of the resulting subdivision lots was Lot No. 7036-A-7 with an area of Five
Thousand Nine Hundred Fifty-Eight (5,958) square meters.6
On 15 August 1957, Rizal Madrid sold part of his share identified as Lot No. 7036-A-7, to Aleja
Gamiao (hereafter Gamiao) and Felisa Dayag (hereafter, Dayag) by virtue of a Deed of Sale,7 to
which his brothers Anselmo, Gregorio, Filomeno and Domingo offered no objection as evidenced
by their Joint Affidavit dated 14 August 1957.8 The deed of sale was not registered with the Office
of the Register of Deeds of Isabela. However, Gamiao and Dayag declared the property for
taxation purposes in their names on March 1964 under Tax Declaration No. 7981.9
On 28 May 1964, Gamiao and Dayag sold the southern half of Lot No. 7036-A-7, denominated as
Lot No. 7036-A-7-B, to Teodoro dela Cruz,10 and the northern half, identified as Lot No. 7036-A-7A,11 to Restituto Hernandez. 12Thereupon, Teodoro dela Cruz and Restituto Hernandez took
possession of and cultivated the portions of the property respectively sold to them.13

damages the southern portion of Lot No. 7036-A (hereafter, the subject property) against
Marquez, Calixto, RBC and CRB in December 1986.
Evangeline del Rosario, the successor-in-interest of Restituto Hernandez, filed with leave of
court a Complaint in Intervention25 wherein she claimed the northern portion of Lot No. 7036-A-7.
In the Answer to the Amended Complaint,26 Marquez, as defendant, alleged that apart from
being the first registrant, he was a buyer in good faith and for value. He also argued that the sale
executed by Rizal Madrid to Gamiao and Dayag was not binding upon him, it being
unregistered. For his part, Calixto manifested that he had no interest in the subject property as
he ceased to be the owner thereof, the same having been reacquired by defendant Marquez. 27
CRB, as defendant, and co-defendant RBC insisted that they were mortgagees in good faith and
that they had the right to rely on the titles of Marquez which were free from any lien or
encumbrance.28
After trial, the Regional Trial Court, Branch 19 of Cauayan, Isabela (hereafter, RTC) handed
down a decision in favor of the defendants, disposing as follows:
WHEREFORE, in view of the foregoing considerations, judgment is hereby rendered:

Later, on 28 December 1986, Restituto Hernandez donated the northern half to his daughter,
Evangeline Hernandez-del Rosario.14 The children of Teodoro dela Cruz continued possession of
the southern half after their fathers death on 7 June 1970.
In a Deed of Sale15 dated 15 June 1976, the Madrid brothers conveyed all their rights and interests
over Lot No. 7036-A-7 to Pacifico Marquez (hereafter, Marquez), which the former confirmed 16 on
28 February 1983.17 The deed of sale was registered with the Office of the Register of Deeds of
Isabela on 2 March 1982.18
Subsequently, Marquez subdivided Lot No. 7036-A-7 into eight (8) lots, namely: Lot Nos. 7036-A-7A to 7036-A-7-H, for which TCT Nos. T-149375 to T-149382 were issued to him on 29 March
1984.19 On the same date, Marquez and his spouse, Mercedita Mariana, mortgaged Lots Nos.
7036-A-7-A to 7036-A-7-D to the Consolidated Rural Bank, Inc. of Cagayan Valley (hereafter, CRB)
to secure a loan of One Hundred Thousand Pesos (P100,000.00).20 These deeds of real estate
mortgage were registered with the Office of the Register of Deeds on 2 April 1984.
On 6 February 1985, Marquez mortgaged Lot No. 7036-A-7-E likewise to the Rural Bank of
Cauayan (RBC) to secure a loan of Ten Thousand Pesos (P10,000.00).21
As Marquez defaulted in the payment of his loan, CRB caused the foreclosure of the mortgages in
its favor and the lots were sold to it as the highest bidder on 25 April 1986.22

1. Dismissing the amended complaint and the complaint in intervention;

2. Declaring Pacifico V. Marquez the lawful owner of Lots 7036-A-7 now Lots 7036-A-7-A to
7036-A-7-H, inclusive, covered by TCT Nos. T-149375 to T-149382, inclusive;
3. Declaring the mortgage of Lots 7036-A-7-A, 7036-A-7-B, 7036-A-7-C and 7036-A-7-D in
favor of the defendant Consolidated Rural Bank (Cagayan Valley) and of Lot 7036-A-7-E in
favor of defendant Rural Bank of Cauayan by Pacifico V. Marquez valid;
4. Dismissing the counterclaim of Pacifico V. Marquez; and
5. Declaring the Heirs of Teodoro dela Cruz the lawful owners of the lots covered by TCT Nos.
T-33119, T-33220 and T-7583. No pronouncement as to costs. SO ORDERED.29
In support of its decision, the RTC made the following findings:
With respect to issues numbers 1-3, the Court therefore holds that the sale of Lot 7036-A-7
made by Rizal Madrid to Aleja Gamiao and Felisa Dayag and the subsequent conveyances to
the plaintiffs and intervenors are all valid and the Madrid brothers are bound by said contracts by
virtue of the confirmation made by them on August 14, 1957 (Exh. B).

On 31 October 1985, Marquez sold Lot No. 7036-A-7-G to Romeo Calixto (Calixto).23
Claiming to be null and void the issuance of TCT Nos. T-149375 to T-149382; the foreclosure sale
of Lot Nos. 7036-A-7-A to 7036-A-7-D; the mortgage to RBC; and the sale to Calixto, the Heirs-now
respondents herein-represented by Edronel dela Cruz, filed a case 24 for reconveyance and

Are the defendants Pacifico V. Marquez and Romeo B. Calixto buyers in good faith and for value
of Lot 7036-A-7?

56
It must be borne in mind that good faith is always presumed and he who imputes bad faith has the
burden of proving the same (Art. 527, Civil Code). The Court has carefully scrutinized the evidence
presented but finds nothing to show that Marquez was aware of the plaintiffs and intervenors claim
of ownership over this lot. TCT No. T-8121 covering said property, before the issuance of Marquez
title, reveals nothing about the plaintiffs and intervenors right thereto for it is an admitted fact that
the conveyances in their favor are not registered.
The Court is therefore confronted with two sales over the same property. Article 1544 of the Civil
Code provides:
"ART. 1544. If the same thing should have been sold to different vendees, the ownership shall be
transferred to the person who may have first taken possession thereof in good faith, if it should be
movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it who in good
faith first recorded it in the Registry of Property. x x x " (Underscoring supplied).
From the foregoing provisions and in the absence of proof that Marquez has actual or constructive
knowledge of plaintiffs and intervenors claim, the Court has to rule that as the vendee who first
registered his sale, Marquez ownership over Lot 7036-A-7 must be upheld.30
The Heirs interposed an appeal with the Court of Appeals. In their Appellants Brief,31 they ascribed
the following errors to the RTC: (1) it erred in finding that Marquez was a buyer in good faith; (2) it
erred in validating the mortgage of the properties to RBC and CRB; and (3) it erred in not
reconveying Lot No. 7036-A-7-B to them.32
Intervenor Evangeline del Rosario filed a separate appeal with the Court of Appeals. It was,
however, dismissed in a Resolution dated 20 September 1993 for her failure to pay docket fees.
Thus, she lost her standing as an appellant.33

4. Ordering Pacifico V. Marquez to reconvey Lot 7036-A-7 to the heirs of Teodoro dela Cruz
and Evangeline Hernandez-del Rosario. No pronouncement as to costs. SO ORDERED.35
In upholding the claim of the Heirs, the Court of Appeals held that Marquez failed to prove that
he was a purchaser in good faith and for value. It noted that while Marquez was the first
registrant, there was no showing that the registration of the deed of sale in his favor was coupled
with good faith. Marquez admitted having knowledge that the subject property was "being taken"
by the Heirs at the time of the sale.36 The Heirs were also in possession of the land at the time.
According to the Decision, these circumstances along with the subject propertys attractive
locationit was situated along the National Highway and was across a gasoline stationshould
have put Marquez on inquiry as to its status. Instead, Marquez closed his eyes to these matters
and failed to exercise the ordinary care expected of a buyer of real estate.37
Anent the mortgagees RBC and CRB, the Court of Appeals found that they merely relied on the
certificates of title of the mortgaged properties. They did not ascertain the status and condition
thereof according to standard banking practice. For failure to observe the ordinary banking
procedure, the Court of Appeals considered them to have acted in bad faith and on that basis
declared null and void the mortgages made by Marquez in their favor.38
Dissatisfied, CRB filed a Motion for Reconsideration39 pointing out, among others, that the
Decision promulgated on 27 May 1997 failed to establish good faith on the part of the Heirs.
Absent proof of possession in good faith, CRB avers, the Heirs cannot claim ownership over the
subject property.
In a Resolution40 dated 5 January 1998, the Court of Appeals stressed its disbelief in CRBs
allegation that it did not merely rely on the certificates of title of the properties and that it
conducted credit investigation and standard ocular inspection. But recalling that intervenor
Evangeline del Rosario had lost her standing as an appellant, the Court of Appeals accordingly
modified its previous Decision, as follows:
WHEREFORE, the decision dated May 27, 1997, is hereby MODIFIED to read as follows:

On 27 May 1997, the Court of Appeals rendered its assailed Decision 34 reversing the RTCs
judgment. The dispositive portion reads:
WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE. Accordingly,
judgment is hereby rendered as follows:
1. Declaring the heirs of Teodoro dela Cruz the lawful owners of the southern half portion and
Evangeline Hernandez-del Rosario the northern half portion of Lot No. 7036-A-7, now covered
by TCT Nos. T-149375 to T-149382, inclusive;
2. Declaring null and void the deed of sale dated June 15, 1976 between Pacifico V. Marquez
and the Madrid brothers covering said Lot 7036-A-7;
3. Declaring null and void the mortgage made by defendant Pacifico V. Marquez of Lot Nos.
7036-A-7-A, 7036-A-7-B, 7036-A-7-C and 7036-A-7-D in favor of the defendant Consolidated
Rural Bank and of Lot 7036-A-7-E in favor of defendant Rural Bank of Cauayan; and

WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE insofar as
plaintiffs-appellants are concerned. Accordingly, judgment is hereby rendered as follows:
1. Declaring the Heirs of Teodoro dela Cruz the lawful owners of the southern half portion of
Lot No. 7036-A-7;
2. Declaring null and void the deed of sale dated June 15, 1976 between Pacifico V. Marquez
and the Madrid brothers insofar as the southern half portion of Lot NO. (sic) 7036-A-7 is
concerned;
3. Declaring the mortgage made by defendant Pacifico V. Marquez in favor of defendant
Consolidated Rural Bank (Cagayan Valley) and defendant Rural Bank of Cauayan as null and
void insofar as the southern half portion of Lot No. 7036-A-7 is concerned;
4. Ordering defendant Pacifico V. Marquez to reconvey the southern portion of Lot No. 7036A-7 to the Heirs of Teodoro dela Cruz. No pronouncement as to costs. SO ORDERED.41

57
Hence, the instant CRB petition. However, both Marquez and RBC elected not to challenge the
Decision of the appellate court.

the Madrid brothers but at that time they were no longer the owners since they had long before
disposed of the property in favor of Gamiao and Dayag.

Petitioner CRB, in essence, alleges that the Court of Appeals committed serious error of law in
upholding the Heirs ownership claim over the subject property considering that there was no
finding that they acted in good faith in taking possession thereof nor was there proof that the first
buyers, Gamiao and Dayag, ever took possession of the subject property. CRB also makes issue
of the fact that the sale to Gamiao and Dayag was confirmed a day ahead of the actual sale,
clearly evincing bad faith, it adds. Further, CRB asserts Marquezs right over the property being its
registered owner.

Citing Manresa, the Court of Appeals in 1936 had occasion to explain the proper application of
Article 1473 of the Old Civil Code (now Article 1544 of the New Civil Code) in the case of Carpio
v. Exevea,46 thus:

The petition is devoid of merit. However, the dismissal of the petition is justified by reasons different
from those employed by the Court of Appeals.

In order that tradition may be considered performed, it is necessary that the requisites which it
implies must have been fulfilled, and one of the indispensable requisites, according to the most
exact Roman concept, is that the conveyor had the right and the will to convey the thing. The
intention to transfer is not sufficient; it only constitutes the will. It is, furthermore, necessary that
the conveyor could juridically perform that act; that he had the right to do so, since a right which
he did not possess could not be vested by him in the transferee.

Like the lower court, the appellate court resolved the present controversy by applying the rule on
double sale provided in Article 1544 of the Civil Code. They, however, arrived at different
conclusions. The RTC made CRB and the other defendants win, while the Court of Appeals
decided the case in favor of the Heirs.

This is what Article 1473 has failed to express: the necessity for the preexistence of the right on
the part of the conveyor. But even if the article does not express it, it would be understood, in our
opinion, that that circumstance constitutes one of the assumptions upon which the article is
based.

Article 1544 of the Civil Code reads, thus:

This construction is not repugnant to the text of Article 1473, and not only is it not contrary to it,
but it explains and justifies the same. (Vol. 10, 4th ed., p. 159)47

ART. 1544. If the same thing should have been sold to different vendees, the ownership shall be
transferred to the person who may have first taken possession thereof in good faith, if it should be
movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it who in good
faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good faith was first
in possession; and, in the absence thereof, to the person who presents the oldest title, provided
there is good faith.
The provision is not applicable in the present case. It contemplates a case of double or multiple
sales by a single vendor. More specifically, it covers a situation where a single vendor sold one and
the same immovable property to two or more buyers. 42 According to a noted civil law author, it is
necessary that the conveyance must have been made by a party who has an existing right in the
thing and the power to dispose of it. 43 It cannot be invoked where the two different contracts of sale
are made by two different persons, one of them not being the owner of the property sold. 44 And
even if the sale was made by the same person, if the second sale was made when such person
was no longer the owner of the property, because it had been acquired by the first purchaser in full
dominion, the second purchaser cannot acquire any right.45
In the case at bar, the subject property was not transferred to several purchasers by a single
vendor. In the first deed of sale, the vendors were Gamiao and Dayag whose right to the subject
property originated from their acquisition thereof from Rizal Madrid with the conformity of all the
other Madrid brothers in 1957, followed by their declaration of the property in its entirety for
taxation purposes in their names. On the other hand, the vendors in the other or later deed were

In that case, the property was transferred to the first purchaser in 1908 by its original owner,
Juan Millante. Thereafter, it was sold to plaintiff Carpio in June 1929. Both conveyances were
unregistered. On the same date that the property was sold to the plaintiff, Juan Millante sold the
same to defendant Exevea. This time, the sale was registered in the Registry of Deeds. But
despite the fact of registration in defendants favor, the Court of Appeals found for the plaintiff
and refused to apply the provisions of Art. 1473 of the Old Civil Code, reasoning that "on the
date of the execution of the document, Exhibit 1, Juan Millante did not and could not have any
right whatsoever to the parcel of land in question."48
Citing a portion of a judgment dated 24 November 1894 of the Supreme Court of Spain, the
Court of Appeals elucidated further:
Article 1473 of the Civil Code presupposes the right of the vendor to dispose of the thing sold,
and does not limit or alter in this respect the provisions of the Mortgage Law in force, which
upholds the principle that registration does not validate acts or contracts which are void, and that
although acts and contracts executed by persons who, in the Registry, appear to be entitled to
do so are not invalidated once recorded, even if afterwards the right of such vendor is annulled
or resolved by virtue of a previous unrecorded title, nevertheless this refers only to third parties. 49
In a situation where not all the requisites are present which would warrant the application of Art.
1544, the principle of prior tempore, potior jure or simply "he who is first in time is preferred in
right,"50 should apply.51 The only essential requisite of this rule is priority in time; in other words,
the only one who can invoke this is the first vendee. Undisputedly, he is a purchaser in good
faith because at the time he bought the real property, there was still no sale to a second
vendee.52 In the instant case, the sale to the Heirs by Gamiao and Dayag, who first bought it
from Rizal Madrid, was anterior to the sale by the Madrid brothers to Marquez. The Heirs also

58
had possessed the subject property first in time. Thus, applying the principle, the Heirs, without a
scintilla of doubt, have a superior right to the subject property.
Moreover, it is an established principle that no one can give what one does not havenemo dat
quod non habet. Accordingly, one can sell only what one owns or is authorized to sell, and the
buyer can acquire no more than what the seller can transfer legally. 53 In this case, since the Madrid
brothers were no longer the owners of the subject property at the time of the sale to Marquez, the
latter did not acquire any right to it.

...
ATTY. CALIXTO: At present, who is in possession on the Riceland portion of the lot in
question?
A I can not say because the people working on that are changing from time to time.
Q Why, have you not taken over the cultivation of the land in question?

In any event, assuming arguendo that Article 1544 applies to the present case, the claim of
Marquez still cannot prevail over the right of the Heirs since according to the evidence he was not a
purchaser and registrant in good faith.
Following Article 1544, in the double sale of an immovable, the rules of preference are:
(a) the first registrant in good faith;
(b) should there be no entry, the first in possession in good faith; and
(c) in the absence thereof, the buyer who presents the oldest title in good faith.

A Well, the Dela Cruzes are prohibiting that we will occupy the place.
Q So, you do not have any possession?
A None, sir.57

54

Prior registration of the subject property does not by itself confer ownership or a better right over
the property. Article 1544 requires that before the second buyer can obtain priority over the first, he
must show that he acted in good faith throughout (i.e., in ignorance of the first sale and of the first
buyers rights)from the time of acquisition until the title is transferred to him by registration or
failing registration, by delivery of possession.55
In the instant case, the actions of Marquez have not satisfied the requirement of good faith from the
time of the purchase of the subject property to the time of registration. Found by the Court of
Appeals, Marquez knew at the time of the sale that the subject property was being claimed or
"taken" by the Heirs. This was a detail which could indicate a defect in the vendors title which he
failed to inquire into. Marquez also admitted that he did not take possession of the property and at
the time he testified he did not even know who was in possession. Thus, he testified on direct
examination in the RTC as follows:
ATTY. CALIXTO: Can you tell us the circumstances to your buying the land in question?
A In 1976 the Madrid brothers confessed to me their problems about their lots in San Mateo that
they were being taken by Teodoro dela Cruz and Atty. Teofilo A. Leonin; that they have to pay
the lawyers fee ofP10,000.00 otherwise Atty. Leonin will confiscate the land. So they begged me
to buy their properties, some of it. So that on June 3, 1976, they came to Cabagan where I was
and gave them P14,000.00, I think. We have talked that they will execute the deed of sale.
Q Why is it, doctor, that you have already this deed of sale, Exh. 14, why did you find it
necessary to have this Deed of Confirmation of a Prior Sale, Exh. 15?
A Because as I said a while ago that the first deed of sale was submitted to the Register of
Deeds by Romeo Badua so that I said that because when I became a Municipal Health Officer in
San Mateo, Isabela, I heard so many rumors, so many things about the land and so I requested
them to execute a deed of confirmation.56

One who purchases real property which is in actual possession of others should, at least, make
some inquiry concerning the rights of those in possession. The actual possession by people
other than the vendor should, at least, put the purchaser upon inquiry. He can scarcely, in the
absence of such inquiry, be regarded as a bona fidepurchaser as against such
possessions.58 The rule of caveat emptor requires the purchaser to be aware of the supposed
title of the vendor and one who buys without checking the vendors title takes all the risks and
losses consequent to such failure.59
It is further perplexing that Marquez did not fight for the possession of the property if it were true
that he had a better right to it. In our opinion, there were circumstances at the time of the sale,
and even at the time of registration, which would reasonably require a purchaser of real property
to investigate to determine whether defects existed in his vendors title. Instead, Marquez
willfully closed his eyes to the possibility of the existence of these flaws. For failure to exercise
the measure of precaution which may be required of a prudent man in a like situation, he cannot
be called a purchaser in good faith.60
As this Court explained in the case of Spouses Mathay v. Court of Appeals:61
Although it is a recognized principle that a person dealing on a registered land need not go
beyond its certificate of title, it is also a firmly settled rule that where there are circumstances
which would put a party on guard and prompt him to investigate or inspect the property being
sold to him, such as the presence of occupants/tenants thereon, it is, of course, expected from
the purchaser of a valued piece of land to inquire first into the status or nature of possession of
the occupants, i.e., whether or not the occupants possess the land en concepto de dueo, in
concept of owner. As is the common practice in the real estate industry, an ocular inspection of
the premises involved is a safeguard a cautious and prudent purchaser usually takes. Should he
find out that the land he intends to buy is occupied by anybody else other than the seller who, as
in this case, is not in actual possession, it would then be incumbent upon the purchaser to verify
the extent of the occupants possessory rights. The failure of a prospective buyer to take such
precautionary steps would mean negligence on his part and would thereby preclude him from
claiming or invoking the rights of a "purchaser in good faith."62

59
This rule equally applies to mortgagees of real property. In the case of Crisostomo v. Court of
Appeals,63 the Court held:

ahead of the actual sale on 15 August 1957 does not diminish its integrity as it was made before
there was even any shadow of controversy regarding the ownership of the subject property.

It is a well-settled rule that a purchaser or mortgagee cannot close his eyes to facts which should
put a reasonable man upon 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 believe 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 or mortgagee for value, if
it afterwards develops that the title was in fact defective, and it appears that he had such notice of
the defects as would have led to its discovery had he acted with the measure of a prudent man in a
like situation.64

Moreover, as this Court declared in the case of Heirs of Simplicio Santiago v. Heirs of Mariano
E. Santiago ,70 tax declarations "are good indicia of possession in the concept of an owner, for
no one in his right mind would be paying taxes for a property that is not in his actual or
constructive possession."71

Banks, their business being impressed with public interest, are expected to exercise more care and
prudence than private individuals in their dealings, even those involving registered lands. Hence,
for merely relying on the certificates of title and for its failure to ascertain the status of the
mortgaged properties as is the standard procedure in its operations, we agree with the Court of
Appeals that CRB is a mortgagee in bad faith.
In this connection, Marquezs obstention of title to the property and the subsequent transfer thereof
to CRB cannot help the latters cause. In a situation where a party has actual knowledge of the
claimants actual, open and notorious possession of the disputed property at the time of
registration, as in this case, the actual notice and knowledge are equivalent to registration,
because to hold otherwise would be to tolerate fraud and the Torrens system cannot be used to
shield fraud. 65
While certificates of title are indefeasible, unassailable and binding against the whole world, they
merely confirm or record title already existing and vested. They cannot be used to protect a
usurper from the true owner, nor can they be used for the perpetration of fraud; neither do they
permit one to enrich himself at the expense of others.66
We also find that the Court of Appeals did not err in awarding the subject property to the Heirs
absent proof of good faith in their possession of the subject property and without any showing of
possession thereof by Gamiao and Dayag.
As correctly argued by the Heirs in their Comment,67 the requirement of good faith in the
possession of the property finds no application in cases where there is no second sale. 68 In the
case at bar, Teodoro dela Cruz took possession of the property in 1964 long before the sale to
Marquez transpired in 1976 and a considerable length of timeeighteen (18) years in factbefore
the Heirs had knowledge of the registration of said sale in 1982. As Article 526 of the Civil Code
aptly provides, "(H)e is deemed a possessor in good faith who is not aware that there exists in his
title or mode of acquisition any flaw which invalidates it." Thus, there was no need for the appellate
court to consider the issue of good faith or bad faith with regard to Teodoro dela Cruzs possession
of the subject property.
Likewise, we are of the opinion that it is not necessary that there should be any finding of
possession by Gamiao and Dayag of the subject property. It should be recalled that the regularity
of the sale to Gamiao and Dayag was never contested by Marquez. 69 In fact the RTC upheld the
validity of this sale, holding that the Madrid brothers are bound by the sale by virtue of their
confirmation thereof in the Joint Affidavit dated 14 August 1957. That this was executed a day

WHEREFORE, the Petition is DENIED. The dispositive portion of the Court of Appeals Decision,
as modified by its Resolution dated 5 January 1998, is AFFIRMED. Costs against petitioner. SO
ORDERED.
G.R. No. L-18497
May 31, 1965
DAGUPAN TRADING COMPANY vs. RUSTICO MACAM
DIZON, J.:
Appeal taken by the Dagupan Trading Company from the decision of the Court of Appeals
affirming the one rendered by the Court of First Instance of Pangasinan in Civil Case No. 13772,
dismissing its complaint.
On September 4, 1958, appellant commenced the action mentioned above against appellee
Rustico Macam, praying that it be declared owner of one-eighth portion of the land described in
paragraph 2 of the complaint; that a partition of the whole property be made; that appellee be
ordered to pay it the amount of P500.00 a year as damages from 1958 until said portion is
delivered, plus attorney's fees and costs.
Answering the complaint, appellee alleged, in the main, that Sammy Maron's share in the
property described in the complaint, as well as that of all his co-heirs, had been acquired by
purchase by appellee since June 19 and September 21, 1955, before the issuance of the
original certificate of title in their name; that at the time the levy in execution was made on
Sammy Maron's share therein, the latter had no longer any right or interest in said property; that
appellant and its predecessor in interest were cognizant of the facts already mentioned; that
since the sales made in his favor, he had enjoyed uninterrupted possession of the property and
introduced considerable improvements thereon. Appellee likewise sought to recover damages
by way of counterclaim.
After trial upon the issue thus joined, the court rendered judgment dismissing the complaint,
which, on appeal, was affirmed by the Court of Appeals.
The facts of the case are not disputed.
In the year 1955, Sammy Maron and his seven brothers and sisters were pro-indiviso owners of
a parcel of unregistered land located in barrio Parayao, Municipality of Binmaley, Pangasinan.
While their application for registration of said land under Act No. 496 was pending, they
executed, on June 19 and September 21, 1955, two deeds of sale conveying the property to
appellee, who thereafter took possession thereof and proceeded to introduce substantial
improvements therein. One month later, that is, on October 14, 1955, Original Certificate of Title

60
No. 6942 covering the land was issued in the name of the Maron's, free from all liens and
encumbrances.
On August 4, 1956, by virtue of a final judgment rendered in Civil Case No. 42215 of the Municipal
Court of Manila against Sammy Maron in favor of the Manila Trading and Supply Company, levy
was made upon whatever interest he had in the aforementioned property, and thereafter said
interest was sold at public auction to the judgment creditor. The corresponding notice of levy,
certificate of sale and the Sheriff's certificate of final sale in favor of the Manila Trading and Supply
Co. because nobody exercised the right of redemptions were duly registered. On March 1,
1958, the latter sold all its rights and title to the property to appellant.
The question before Us now is: Who has the better right as between appellant Dagupan Trading
Company, on the one hand, and appellee Rustico Macam, on the other, to the one-eighth share of
Sammy Maron in the property mentioned heretofore?
If the property covered by the conflicting sales were unregistered land, Macam would undoubtedly
have the better right in view of the fact that his claim is based on a prior sale coupled with public,
exclusive and continuous possession thereof as owner. On the other hand, were the land involved
in the conflicting transactions duly registered land, We would be inclined to hold that appellant has
the better right because, as We have consistently held, in case of conveyance of registered real
estate, the registration of the deed of sale is the operative act that gives validity to the transfer. This
would be fatal to appellee's claim, the deeds of sale executed in his favor by the Maron's not
having been registered, while the levy in execution and the provisional certificate of sale as well as
the final deed of sale in favor of appellant were registered. Consequently, this registered
conveyance must prevail although posterior to the one executed in favor of appellee, and appellant
must be deemed to have acquired such right, title and interest as appeared on the certificate of title
issued in favor of Sammy Maron, subject to no lien, encumbrance or burden not noted thereon.
(Anderson & Co. vs. Garcia, 64 Phil. 506; Reynes, et al. vs. Barrera, et al., 68 Phil. 656; Banco
Nacional, etc. vs. Camus, 70 Phil. 289)
The present case, however, does not fall within either, situation. Here the sale in favor of appellee
was executedbefore the land subject-matter thereof was registered, while the conflicting sale in
favor of appellant was executedafter the same property had been registered. We cannot, therefore,
decide the case in the light of whatever adjudicated cases there are covering the two situations
mentioned in the preceding paragraph. It is our considered view that what should determine the
issue are the provisions of the last paragraph of Section 35, Rule 39 of the Rules of Court, to the
effect that upon the execution and delivery of the final certificate of sale in favor of the purchaser of
land sold in an execution sale, such purchaser "shall be substituted to and acquire all the right,
title, interest and claim of the judgment debtor to the property as of the time of the levy." Now We
ask: What was the interest and claim of Sammy Maron on the one-eighth portion of the property
inherited by him and his co-heirs, at the time of the levy? The answer must necessarily be that he
had none, because for a considerable time prior to the levy, his interest had already been
conveyed to appellee, "fully and retrievably as the Court of Appeals held. Consequently,
subsequent levy made on the property for the purpose of satisfying the judgment rendered against
Sammy Maron in favor of the Manila Trading Company was void and of no effect (Buson vs.
Licuaco, 13 Phil. 357-358; Landig vs. U.S. Commercial Company, G.R. No. L-3597, July 31, 1951).
Needless to say, the unregistered sale and the consequent conveyance of title and ownership in
favor of appellee could not have been cancelled and rendered of no effect upon the subsequent
issuance of the Torrens title over the entire parcel of land. We cannot, therefore, but agree with the
following statement contained in the appealed decision:

... . Separate and apart from this however, we believe that in the inevitable conflict between a
right of ownership already fixed and established under the Civil Law and/or the Spanish
Mortgage Law which cannot be affected by any subsequent levy or attachment or
execution and a new law or system which would make possible the overthrowing of such
ownership on admittedly artificial and technical grounds, the former must be upheld and
applied.1wph1.t
But to the above considerations must be added the important circumstance that, as already
stated before, upon the execution of the deed of sale in his favor by Sammy Maron, appellee
took possession of the land conveyed as owner thereof, and introduced considerable
improvements thereon. To deprive him now of the same by sheer force of technicality would be
against both justice and equity. IN VIEW OF ALL THE FOREGOING, the decision appealed from
is affirmed, with costs.
G.R. No. 133303
February 17, 2005
BERNARDO VALDEVIESO vs. CANDELARIO DAMALERIO AND AUREA C. DAMALERIO
DECISION
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review under Rule 45 of the Rules of Court, seeking to set
aside the 25 September 1997 Decision and the 10 February 1998 Resolution of the Court of
Appeals in CA-G.R. SP No. 43082 entitled, "Candelario Damalerio and Aurea Damalerio v.
Honorable Antonio S. Alano, et al."1
There is no dispute as to the following facts:
On 05 December 1995, Bernardo Valdevieso (petitioner) bought from spouses Lorenzo and
Elenita Uy a parcel of land consisting of 10,000 square meters, more or less, located at Bo.
Tambler, General Santos City, and covered by Transfer Certificate of Title (TCT) No. T-30586.2
The deed of sale was not registered, nor was the title of the land transferred to petitioner.3
On 07 December 1995, the said property was immediately declared by petitioner for taxation
purposes as Tax Declaration No. l6205 with the City Assessors Office.4
It came to pass that on 19 April 1996, spouses Candelario and Aurea Damalerio (respondents)
filed with the Regional Trial Court (RTC) of General Santos City, a complaint for a sum of money
against spouses Lorenzo and Elenita Uy docketed as Civil Case No. 5748 with application for
the issuance of a Writ of Preliminary Attachment.5
On 23 April 1996, the trial court issued a Writ of Preliminary Attachment by virtue of which the
property, then still in the name of Lorenzo Uy but which had already been sold to petitioner, was
levied. The levy was duly recorded in the Register of Deeds of General Santos City and
annotated upon TCT No. T-30586.6
On 06 June 1996, TCT No. T-30586 in the name of Lorenzo Uy was cancelled and, in lieu
thereof, TCT No. T-74439 was issued in the name of petitioner.7 This new TCT carried with it the
attachment in favor of respondents.

61
On 14 August 1996, petitioner filed a third-party claim in Civil Case No. 5748 to discharge or annul
the attachment levied on the property covered by TCT No. T-74439 on the ground that the said
property belongs to him and no longer to Lorenzo and Elenita Uy.8
In a resolution dated 21 October 1996, the trial court ruled for the petitioner. 9 Citing Manliguez v.
Court of Appeals10 and Santos v. Bayhon,11 it held that the levy of the property by virtue of
attachment is lawful only when the levied property indubitably belongs to the defendant. Applying
the rulings in the cited cases, it opined that although defendant Lorenzo Uy remained the
registered owner of the property attached, yet the fact was that he was no longer the owner thereof
as it was already sold earlier to petitioner, hence, the writ of attachment was unlawful.1awphi1.nt
Respondents sought reconsideration thereof which was denied by the trial court in a resolution
dated 03 January 1997.12
From the unfavorable resolution of the trial court in the third-party claim, respondents appealed to
the Court of Appeals. The appellate court reversed the resolution and by judgment promulgated on
25 September 1997, it declared that an attachment or levy of execution, though posterior to the
sale, but if registered before the sale is registered, takes precedence over the sale. 13 The writ of
attachment in favor of the respondents, being recorded ahead of the sale to petitioner, will
therefore take precedence.
Petitioner moved for reconsideration but this was denied by the Court of Appeals in its Resolution
of 10 February 1998.14
Hence, this Petition for Review on Certiorari.
The sole issue in this case is whether or not a registered writ of attachment on the land is a
superior lien over that of an earlier unregistered deed of sale.
Petitioner maintains that he has a superior right over the questioned property because when the
same was attached on 23 April 1996, this property was no longer owned by spouses Uy against
whom attachment was issued as it was already sold to petitioner on 05 December 1995. The
ownership thereof was already transferred to petitioner pursuant to Article 1477 15 in relation to
Article 149816 of the Civil Code.
Dismissing the allegation that he slept on his rights by not immediately registering at least an
adverse claim based on his deed of sale, petitioner avers that he promptly worked out for the
transfer of registration in his name. The slight delay in the registration, he claims was not due to his
fault but attributable to the process involved in the registration of property such as the issuance of
the Department of Agrarian Reform clearance which was effected only after compliance with
several requirements.1awphi1.nt
Considering the peculiar facts and circumstances obtaining in this case, petitioner submits it would
be in accord with justice and equity to declare him as having a superior right to the disputed
property than the respondents.
Respondents maintain the contrary view. They aver that registration of a deed of sale is the
operative act which binds the land and creates a lien thereon. Before the registration of the deed,

the property is not bound insofar as third persons are concerned. Since the writ of attachment in
favor of respondents was registered earlier than the deed of sale to petitioner, respondents were
of the belief that their registered writ of attachment on the subject property enjoys preference
and priority over petitioners earlier unregistered deed of sale over the same property. They also
contend that Articles 1477 and 1498 of the Civil Code as cited by petitioner are not applicable to
the case because said provisions apply only as between the parties to the deed of sale. These
provisions do not apply to, nor bind, third parties, like respondents, because what affects or
binds third parties is the registration of the instrument in the Register of Deeds. Furthermore,
respondents argue that petitioner cannot invoke equity in his favor unless the following
conditions are met: (a) the absence of specific provision of a law on the matter; and (b) if the
person who invokes it is not guilty of delay. Both conditions have not been met, however, since
there is a law on the subject matter, i.e., Section 51 of Presidential Decree No. 1529, and that
petitioner allegedly slept on his rights by not immediately registering an adverse claim based on
his deed of sale.
We agree with the respondents.
The law applicable to the facts of this case is Section 51 of P.D. No. 1529. Said Section
provides:
Sec. 51. Conveyance and other dealings by registered owner. - An owner of registered land may
convey, mortgage, lease, charge, or otherwise deal with the same in accordance with existing
laws. He may use such forms of deeds, mortgages, leases or other voluntary instruments as are
sufficient in law. But no deed, mortgage, lease, or other voluntary instrument, except a will
purporting to convey or affect registered land, shall take effect as a conveyance or bind the land,
but shall operate only as a contract between the parties and as evidence of authority to the
Register of Deeds to make registration.
The act of registration shall be the operative act to convey or affect the land insofar as third
persons are concerned, and in all cases under this Decree, the registration shall be made in the
office of the Register of Deeds for the province or city where the land lies.
It is to be noted that though the subject land was deeded to petitioner as early as 05 December
1995, it was not until 06 June 1996 that the conveyance was registered, and, during that
interregnum, the land was subjected to a levy on attachment. It should also be observed that, at
the time of the attachment of the property on 23 April 1996, the spouses Uy were still the
registered owners of said property. Under the cited law, the execution of the deed of sale in favor
of petitioner was not enough as a succeeding step had to be taken, which was the registration of
the sale from the spouses Uy to him. Insofar as third persons are concerned, what validly
transfers or conveys a persons interest in real property is the registration of the deed. Thus,
when petitioner bought the property on 05 December 1995, it was, at that point, no more than a
private transaction between him and the spouses Uy. It needed to be registered before it could
bind third parties, including respondents. When the registration finally took place on 06 June
1996, it was already too late because, by then, the levy in favor of respondents, pursuant to the
preliminary attachment ordered by the General Santos City RTC, had already been annotated
on the title.
The settled rule is that levy on attachment, duly registered, takes preference over a prior
unregistered sale.17This result is a necessary consequence of the fact that the property involved

62
was 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.18

There is no dispute as to the antecedents of the case, which the lower court found to be as
follows:

The preference created by the levy on attachment is not diminished even by the subsequent
registration of the prior sale. This is so because an attachment is a proceeding in rem.19 It is
against the particular property, enforceable against the whole world. The attaching creditor
acquires a specific lien on the attached property which nothing can subsequently destroy except
the very dissolution of the attachment or levy itself. 20 Such a proceeding, in effect, means that the
property attached is an indebted thing and a virtual condemnation of it to pay the owners
debt.21 The lien continues until the debt is paid, or sale is had under execution issued on the
judgment, or until the judgment is satisfied, or the attachment discharged or vacated in some
manner provided by law.

On June 13, 1934, one Isidro Fenis sold the land in question to Eustaquia Llanes, with right of
repurchase within a period of five years. After the expiry of said period, and without
repurchasing the said property, Isidro Fenis sold it again to Maria Viloria on January 13, 1944.
Seven months later, or on August 21, 1914, Maria Viloria sold by way of sale with right to
repurchase within a period of one year, the said property together with another parcel of land
to the herein defendant Melencio Manansala. On August 1, 1946, upon the expiry of the said
period, Manansala registered with the Register of Deeds an affidavit consolidating his title on
the property. A year later, or on September 28, 1947, Maria Viloria sold by way of absolute
sale the same property to Ciriaco Casio, Fidela Valdez, and the plaintiff spouses Ariston
Andaya and Micaela Cabrito, for P4,800.00, which deed contained the following stipulation:

Thus, in the registry, the attachment in favor of respondents appeared in the nature of a real lien
when petitioner had his purchase recorded. The effect of the notation of said lien was to subject
and subordinate the right of petitioner, as purchaser, to the lien. Petitioner acquired ownership of
the land only from the date of the recording of his title in the register, and the right of ownership
which he inscribed was not absolute but a limited right, subject to a prior registered lien of
respondents, a right which is preferred and superior to that of petitioner.22
Anent petitioners reliance on the rulings laid down in Manliguez v. Court of Appeals and Santos v.
Bayhon, we find the same to be misplaced. These cases did not deal at all with the dilemma at
hand, i.e. the question of whether or not a registered writ of attachment on land is superior to that
of an earlier unregistered deed of sale. In Santos, what was involved were machinery and pieces of
equipment which were executed upon pursuant to the favorable ruling of the National Labor
Relations Commission. A third party claimed that the machinery were already sold to her, but it
does not appear in the facts of the case if such sale was ever registered. Manliguez is similar
toSantos, except that the former involved buildings and improvements on a piece of land. To
stress, in both cited cases, the registration of the sale, if any, of the subject properties was never in
issue.1awphi1.nt
As to petitioners invocation of equity, we cannot, at this instance, yield to such principle in the
presence of a law clearly applicable to the case. We reiterate that this Court, while aware of its
equity jurisdiction, is first and foremost, a court of law.23 While equity might tilt on the side of one
party, the same cannot be enforced so as to overrule positive provisions of law in favor of the
other.24 Equity cannot supplant or contravene the law.25 The rule must stand no matter how harsh it
may seem. Dura lex sed lex.
WHEREFORE, the appealed Decision of the Court of Appeals in CA-G.R. SP No. 43082 dated 25
September 1997, and its Resolution dated 10 February 1998, are hereby AFFIRMED. No costs.
SO ORDERED.
G.R. No. L-14714
April 30, 1960
ARISTON ANDAYA, ET AL. vs. DR. MELENCIO MANANSALA
REYES, J. B. L., J.:
Originally brought to the Court of Appeals, this appeal was forwarded to us by said court because it
raises only legal questions.

The following month, or on October 18, 1947, Eustaquia Llanes, instituted Civil case No. 399
to quiet title and to recover possession of said parcel from Ciriaco Casio. Eight months later,
or on June 9, 1949, a defendant Melencio Manansala sold by way of absolute sale, the
property in question to the spouses Ciriaco Casio and Fidela Valdez, and the plaintiffs for
P1,500.00, which deed contained the following stipulation:
That from and after this date, the vendee herein named are the lawful owners of the land
herein sold which I warrant to be free from all kinds of liens and encumbrances whatever and
in case of eviction, I promise, agree and covenant to answer to and for the vendee in the form
and manner provided by law.
This document of conveyance was recorded in the Register of Deeds under Act No. 3344, on
June 9, 1948.
In the meantime, on September 28, 1948, Eustaquia Llanes, included as co-defendant in Civil
Case No. 399, Melencio Manansala (Annex C), and on September 2, 1950, as additional
defendants, Fidela Valdez and the spouses Ariston Andaya and Micaela Cabrito (Annex D).
The said defendant filed a joint answer to the second amended complaint, claiming title on
said property on the basis of the conveyance made in favor of Manansala, and from the latter
to the other defendants. Judgment was rendered in that case in favor of Eustaquia Llanes,
and on October 17, 1955, the said judgment having become final, a writ of execution was
issued against Ciriaco Casino, Fidela Valdez, Ariston Andaya and Micaela Cabrito. In the
enforcement of said writ, the properties of Fidela Valdez were attached and sold at public
auction to cover the damages, representing the value of the produce of the land, amounting to
P676.00, costs of the suit in the amount of P33.20, or a total of P709.20 (Annex H-1).
On March 23, 1956, plaintiffs spouses Ariston Andaya and Micaela Cabrito commenced this
case in the Court of First Instance of Ilocos Sur against defendant Melencio Manansala to
recover damages suffered by them by reason of the latter's breach of his warranty of title or
against eviction embodied in his sale of the land in question to plaintiffs. Defendant Manansala
denied liability for the damages claimed, and alleged that it was plaintiffs and their co-purchasers
who pleaded with him to sell said land to them at a low price after they had been sued by
Eustaquia Llanes in Civil Case No. 399, considering that Manansala had registered the land in
his name with the office of the Register of Deeds. After the case was submitted for a summary
judgment and the parties had agreed on a statement of facts, the lower court entered the
following decision:

63
Considering that the same land was already sold to the plaintiffs and their co-vendee, Ciriaco
Casio and Fidela Valdez, it is obvious that their only purpose in acquiring the same land from
the defendant at the low price of P1,500.00 was to enable them to register the prior deed of sale
executed by Maria Viloria. This is true, because the title of the defendant had already
consolidated pursuant to Article 1509 of the Spanish Civil Code as shown by an affidavit of the
defendant registered with the Register of Deeds of this province. This was clearly the
understanding of the parties, and the plaintiffs apparently knew that the stipulation on warranty in
the deed was made pro forma and could not have been intended, considering the above
circumstances from the fact that said property was then subject of a pending litigation as an
actual warranty on the title and possession of the purchasers. This being so, it would be
inequitable now to hold that the defendant is liable under the provisions of Article 1555 of the
new Civil Code or under Act 1478 of the Spanish Civil Code which is the law that should be
applied, the said transaction being before August 30, 1950.
In determining therefore the obligations of the defendant, those applicable to a vendor in cases
of rescission of a contract should be applied.
WHEREFORE, the Court renders judgment sentencing the defendant to return to the plaintiffs
the sum of P750.00 which represent one-half of the purchase price with interest at 6% from June
9, 1948 until fully paid, and to pay the costs of this suit.
From the above decision, defendant Melencio Manansala appealed, claiming that after finding that
he was not liable to plaintiffs-appellees for breach of warranty against eviction, the lower court
erred in holding him liable as in rescission of sale and ordering him to return to plaintiffs-appellees
the price of the land in question with interests.
There is merit in the appeal.
The vendor's liability for warranty against eviction in a contract of sale is waivable and may be
renounced by the vendee (last par., Art. 1475, Old Code; last par., Art. 1548, New). The contract of
sale between herein appellant and the appellees included a stipulation as to the warranty; but the
lower court found that the parties understood that such stipulation was merely pro forma and that
the appellant vendor was not to be bound thereby, in view of the fact that the same land had been
previously bought by appellees from Maria Viloria and that their only purpose in buying the same
again from appellant was to enable them to register their prior deed of sale; and the further fact
that when the sale between appellant and appellee was made, the property was already the
subject of a pending litigation between appellees and one Eustaquia Llanes, who claimed its title
and possession by virtue of an earlier sale from the original owner, and it was by final judgment in
this litigation that appellees were evicted from and land. Not having appealed from the decision of
the court below, appellees are bound by these findings, the implication of which is that they not
only renounced or waived the warranty against eviction, but that they knew of the danger of
eviction and assumed its consequences.
Now, according to Article 1477 of the old Code (the law applicable when the contract in this case
was made),
When the vendee has waived the right to warranty in case of eviction, and eviction shall occur,
the vendor shall only pay the price which the thing sold had at the time of the eviction, unless the

vendee has made the waiver with knowledge of the danger of eviction and assumed its
consequences. (Same as Art. 1554 of the new Code)
As already stated, appellees knew of the danger of eviction at the time they purchased the land
in question from appellant, and assumed its consequences. Therefore, the appellant is not even
obliged to restore to them the price of the land at the time of eviction, but is completely exempt
from liability whatsoever.
Neither may appellant be condemned to return the price received from appellees on the theory
of rescission of their contract of sale, as held by the court below. In the first place, the remedy of
rescission contemplates that the one demanding it is able to return whatever he has received
under the contract; and when this can not be done, rescission can not be carried out (Art. 1295,
Old Code; Art. 1385, New). It is for this reason that the law on sales does not make rescission a
remedy in case the vendee is totally evicted from the thing sold, as in this case, for he can no
longer restore the thing to the vendor. It is only when the vendee loses "a part of the thing sold of
such importance, in relation to the whole, that he would not have purchased it without said part"
that he may ask for rescission, but he has "the obligation return the thing without other
encumbrances than those which it had when he acquired it" (Art. 1479, old Code; 1556, New). In
the second place, appellees, as already stated, assumed the risk of eviction, which stops them
from asking for rescission even were it possible for them to restore what they had received
under the contract.
On their part, appellees claim that in view of the eviction from the land in question, they are
entitled to recover from appellant more items of damages under Article 1555 of the New Code
than the mere return of the price with interests as ordered by the trial court. The claim is
untenable, not only because appellant, as we have held, is exempt from any liability for
appellees eviction, but also because not having appealed from the decision of the court below,
appellees can not ask for a modification thereof or an award of damages not included therein
(Davidvs. De la Cruz, 103 Phil., 380; 54 Off. Gaz. [35] 8073; Pineda & Ampil Mfg.
Co. vs. Bartolome, 95 Phil., 930; Gorospe vs. Peaflorida, 101 Phil., 886).
Wherefore, the decision appealed from is reversed and the complaint dismissed, with costs
against appellees Ariston Andaya, et al.
G.R. No. L-12973
April 25, 1960
VICENTE BARENG vs. COURT OF APPEALS
REYES, J.B.L., J.:
Appeal by certiorari from that portion of the judgment of the Court of Appeals in C.A.-G.R. No.
12496-R sentencing petitioner Vicente Bareng to pay respondent Patrocinio Alegria, in addition
to the amount of P3,600 representing his indebtedness to the latter, "sus intereses legales
desde la presentacion de esta demanda".
The facts, insofar as material to this appeal, may be summarized as follows:
On November 29, 1951, petitioner Bareng purchased from respondent Alegria the
cinematographic equipment installed at the Pioneer (now Rosamil) Theater in Laoag, Ilocos
Norte, for the sum of P15,000, P10,000 of which was paid, and for the balance, Bareng signed

64
four promissory notes falling due on the following dates: P1,000 on December 15, 1951; P1,500 on
February 15, 1952; P1,500 on March 15, 1952; and P1,000 on April, 1952.
The first promissory note was duly paid by petitioner. On February 12, 1952, shortly before the
second note fell due, the other respondent Agustin Ruiz informed petitioner that he was a co-owner
of the equipment in question, and several days thereafter, Ruiz sent petitioner a telegram
instructing him to suspend payments to Alegria of the balance of the price as he was not agreeable
to the sale. On the same day, Alegria sought to collect upon the second note, but petitioner refused
to pay on account of Ruiz's claims. Only P400 was paid on the second note and thereafter,
petitioner refused to make any more payments to Alegria until the latter had settled his dispute with
Ruiz.
On March 31, 1952, Ruiz filed suit against Alegria and petitioner Bareng (Civil Case No. 1527) for
his share in the price of the cinema equipment in question. On May 21, 1952, Alegria and Ruiz
reached a compromise in the case, wherein the former recognized the latter as co-owner of the
equipment sold to petitioner, and promised to pay him 2/3 of whatever amount he could recover
from the latter. Whereupon, on May 28, 1952. Alegria sued Bareng for the amount of P13,500
allegedly representing the unpaid balance of the price of said equipment. Bareng answered the
complaint, alleging that only P3,600 had not been paid on the price of the equipment in question,
prayed for the rescission of the sale for supposed violation by Alegria of certain express warranties
as to the quality of the equipment, and asked for payment of damages for alleged violation of
Alegria's warranty of title. After a joint trial of the two cases, the lower court, rendered judgment
declaring Alegria and Ruiz co-owners of the cinema equipment in question in Civil Case No. 1527;
and dismissing Civil Case No. 1554, without prejudice to the co-owners' filing another action
against petitioner Bareng for the balance of the price of said equipment. On appeal to the Court of
Appeals by both parties, the decision of the court a quo was reversed and instead, Bareng was
ordered in Civil Case No. 1554 to pay Alegria the sum of P3,600 plus legal interest from the filing of
the complaint; and in Civil Case No. 1527, Alegria was ordered to pay Ruiz 2/3 of the total amount
he would recover from Bareng in Civil Case No. 1554. Not agreeable to that part of the decision
making him liable for legal interests on the principal amount due to Alegria, Bareng, as already
stated, appealed to this Court.
Petitioner Bareng claims he is not liable to pay interests to Alegria because he was justified in
suspending payment of the balance of the price of the equipment in question from the time he
learned of Ruiz' adverse claims over said equipment. In fact, Bareng adds, even the Court of
Appeals found that "bajo dichas circunstancias, la actitud del demandado Vicente Bareng de
suspender el pago de aquel saldo de P3,600.00 estuvo justificado".
The right of a vendee to suspend payment of the price of the thing sold in the face of any danger
that he might be disturbed in its possession of ownership is conferred by Article 1590, New Civil
Code, to wit:
ART. 1590. Should the vendee he 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.

There is no question that, as found by the Court of Appeals, petitioner Bareng had the right to
suspend payment of the balance of the price of the cinema equipment in question to his vendor,
respondent Alegria, from the time he was informed by Ruiz of the latter's claims of co-ownership
thereof, especially upon his receipt of Ruiz' telegram wherein the latter asserted that he was not
agreeable to the sale. Nevertheless, said right of Bareng ended as soon as "the vendor has
caused the disturbance or danger to cease". In this case, respondent Alegria had caused the
disturbance or danger to petitioner's ownership or possession to cease when he (Alegria)
reached a compromise with Ruiz in Civil Case No. 1527 whereby Ruiz expressed his conformity
to the sale to Bareng, subject to the payment of his share in the price by Alegria. Petitioner
Bareng cannot claim that he was not aware of this compromise agreement between the two
owners, because he was a party-defendant in Civil Case No. 1527. From the time Alegria and
Ruiz reached this settlement, there was no longer any danger of threat to Bareng's ownership
and full enjoyment of the equipment he bought from Alegria. And it was by virtue of this
settlement that Alegria, two days later, sued petitioner for the unpaid balance of the price of said
equipment. In his answer to Alegria's complaint, petitioner admitted his indebtedness to Alegria
in the amount of P3,600, yet he did not tender payment of said amount nor did he deposit the
same in court, but instead sought to have the sale rescinded upon claims of violations of
warranties by Alegria, that the Court of Appeals found not to have been proved or established. It
is clear, therefore, that petitioner Bareng was in default on the unpaid balance of the price of the
equipment in question from the date of the filing of the complaint by Alegria, and under Article
2209 of the Civil Code, he must pay legal interests thereon from said date.
Petitioner also argues that his indebtedness to respondent Alegria was unliquidated until its
amount was determined by the Court of Appeals at P3,000.00, and that consequently, he cannot
be made answerable for interests on the amount due before judgment in the Court of Appeals.
The argument is completely untenable. The price of the equipment in question under petitioner
and Alegria's contract of sale was determined and known, hence, liquidated; and the obligation
to pay any unpaid balance thereof did not cease to be liquidated and determined simply
because vendor and vendee, in the suit for collection, disagreed as to its amount. If petitioner
had wanted to free himself from any responsibility for interests on the amount he had always
acknowledged he still owed his vendor, he should have deposited the same in Court at the very
start of the action.
As for the other errors raised by petitioner in his brief, we need hot consider them because they
were not raised in the petition for review considered waived. Wherefore, the decision appealed
from is affirmed in toto, with costs against petitioner Vicente Bareng.
[G.R. No. 120690. October 23, 1997]
FRANCISCO HOLGADO vs. HON. COURT OF APPEALS
D E C I S I ON
ROMERO, J.:
Before us are consolidated petitions for review of the decision of the Court of Appeals in
CA-G.R. CV No. 39975 which affirmed the trial courts pronouncement that the deed of sale of
rights, interests and participation in favor of petitioners is null and void.
The case arose from the following facts:
Spouses Guillermo Nombre and Victoriana Cari-an died without issue in 1924 and 1938,
respectively. Nombres heirs include his nephews and grandnephews. Victoriana Cari-an was
succeeded by her late brothers son, Gregorio Cari-an. The latter was declared as Victorianas

65
heir in the estate proceedings for Nombre and his wife (Special Proceeding No 7-7279). [1] After
Gregorio died in 1971, his wife, Generosa Martinez, and children, Rodolfo, Carmen, Leonardo and
Fredisminda, all surnamed Cari-an, were also adjudged as heirs by representation to Victorianas
estate.[2] Leonardo Cari-an passed away, leaving his widow, Nelly Chua vda. de Cari-an and minor
son Leonell, as his heirs.
Two parcels of land, denominated as Lot No. 1616 and 1617 of the Kabankalan Cadastre with an
area of 29,350 square meters and 460,948 square meters, respectively, formed part of the estate
of Nombre and Cari-an.
On September 15, 1978, Gregorio Cari-ans heirs, herein collectively referred to as private
respondents Cari-an, executed the Deed of Sale of Rights, Interests and Participation worded as
follows:
NOW, THEREFORE, for and in consideration of the sum of TWO HUNDRED SEVENTY-FIVE
THOUSAND (P275,000.00) Pesos, Philippine Currency, to be paid by the VENDEES to the
VENDORS, except the share of the minor child of Leonardo Cari-an, which should be deposited
with the Municipal Treasurer of Himamaylan, Province of Negros Occidental, by the order of the
Court of First Instance of Negros Occidental, Branch VI, Himamaylan, by those presents, do
hereby SELL, CEDE, TRANSFER and CONVEY by way of ABSOLUTE SALE, all the RIGHTS,
INTERESTS and PARTICIPATION of the Vendors as to the one-half (1/2) portion pro-indiviso of
Lots Nos. 1616 and 1617 (Fishpond), of the Kabankalan Cadastre, pertaining to the one-half (1/2)
portion pro-indiviso of the late Victoriana Cari-an unto and in favor of the Vendees, their heirs,
successors and assigns;
xxx

xxx

xxx

That this Contract of Sale of rights, interests and participations shall become effective only upon
the approval by the Honorable Court of First Instance of Negros Occidental, Branch
VI- Himamaylan. (Underscoring supplied.)
Pedro Escanlar and Francisco Holgado, the vendees, were concurrently the lessees of the
lots referred to above.[3] They stipulated that the balance of the purchase price (P225,000.00) shall
be paid on or before May 1979 in a Deed of Agreement executed by the parties on the same day:
WHEREAS, at the time of the signing of the Contract, VENDEES has (sic) only FIFTY
THOUSAND (P50,000.00) Pesos available thereof, and was not able to secure the entire amount;
WHEREAS, the Vendors and one of the Vendees by the name of Pedro Escanlar are relatives, and
absolute faith and trust exist between them, wherein during economic crisis, has not failed to give
monetary succor to the Vendors;
WHEREAS, Vendors herein understood the present scarcity of securing available each (sic) in the
amount stated in the contract;
NOW THEREFORE, for and in consideration of the sum of FIFTY THOUSAND (P50,000.00)
Pesos, Philippine Currency, the balance of TWO HUNDRED TWENTY FIVE THOUSAND
(P225,000.00) Pesos to be paid by the Vendees on or before May, 1979, the Vendors herein, by

these Presents, do hereby CONFIRM and AFFIRM the Deed of Sale of the Rights, Interests and
Participation dated September 15, 1978, over Lots Nos. 1616 and 1617 (fishpond) of the
Kabankalan Cadastre in favor of the VENDEES, their heirs and assigns.
That pending the complete payment thereof, Vendees shall not assign, sell, lease, nor mortgage
the rights, interests and participation thereof;
That in the event the Vendees fail and/ or omit to pay the balance of said purchase price on May
31, 1979 and the cancellation of said Contract of Sale is made thereby, the sum of FIFTY
THOUSAND (P50,000.00) Pesos shall be deemed as damages thereof to Vendors.
(Underscoring supplied)[4]
Petitioners were unable to pay the Cari-an heirs individual shares, amounting
to P55,000.00 each, by the due date. However, said heirs received at least 12 installments from
petitioners after May 1979.[5] Rodolfo Cari-an was fully paid by June 21, 1979. Generosa
Martinez, Carmen Cari-an and Fredisminda Cari-an were likewise fully compensated for their
individual shares, per receipts given in evidence.[6] The minor Leonells share was deposited with
the Regional Trial Court on September 7, 1982.[7]
Being former lessees, petitioners continued in possession of Lot Nos. 1616 and
1617. Interestingly, they continued to pay rent based on their lease contract. On September 10,
1981, petitioners moved to intervene in the probate proceedings of Nombre and Cari-an as the
buyers of private respondent Cari-ans share in Lot Nos. 1616 and 1617. Petitioners motion for
approval of the September 15, 1978 sale before the same court, filed on November 10, 1981,
was opposed by private respondents Cari-an on January 5, 1982.[8]
On September 16, 1982, the probate court approved a motion filed by the heirs of Cari-an
and Nombre to sell their respective shares in the estate. On September 21, 1982, private
respondents Cari-an, in addition to some heirs of Guillermo Nombre, [9] sold their shares in eight
parcels of land including Lot Nos. 1616 and 1617 to the spouses Ney Sarrosa Chua and Paquito
Chua for P1,850,000.00. One week later, the vendor-heirs, including private respondents Carian, filed a motion for approval of sale of hereditary rights, i.e. the sale made on September 21,
1982 to the Chuas.
Private respondents Cari-an instituted this case for cancellation of sale against petitioners
(Escanlar and Holgado) on November 3, 1982. [10] They complained of petitioners failure to pay
the balance of the purchase price by May 31, 1979 and alleged that they only received a total
of P132,551.00 in cash and goods. Petitioners replied that the Cari-ans, having been paid, had
no right to resell the subject lots; that the Chuas were purchasers in bad faith; and that the court
approval of the sale to the Chuas was subject to their existing claim over said properties.
On April 20, 1983, petitioners also sold their rights and interests in the subject parcels of
land (Lot Nos. 1616 and 1617) to Edwin Jayme for P735,000.00[11] and turned over possession
of both lots to the latter. The Jaymes in turn, were included in the civil case as fourth-party
defendants.
On December 3, 1984, the probate court approved the September 21, 1982 sale without
prejudice to whatever rights, claims and interests over any of those properties of the estate
which cannot be properly and legally ventilated and resolved by the court in the same intestate
proceedings.[12] The certificates of title over the eight lots sold by the heirs of Nombre and Carian were later issued in the name of respondents Ney Sarrosa Chua and Paquito Chua.

66
The trial court allowed a third-party complaint against the third-party defendants Paquito and
Ney Chua on January 7, 1986 where Escanlar and Holgado alleged that the Cari-ans conspired
with the Chuas when they executed the second sale on September 21, 1982 and that the latter
sale is illegal and of no effect. Respondents Chua countered that they did not know of the earlier
sale of one-half portion of the subject lots to Escanlar and Holgado. Both parties claimed
damages.[13]
On April 28, 1988, the trial court approved the Chuas motion to file a fourth-party complaint
against the spouses Jayme. Respondents Chua alleged that the Jaymes refused to vacate said
lots despite repeated demands; and that by reason of the illegal occupation of Lot Nos. 1616 and
1617 by the Jaymes, they suffered materially from uncollected rentals.
Meanwhile, the Regional Trial Court of Himamaylan which took cognizance of Special
Proceeding No. 7-7279 (Intestate Estate of Guillermo Nombre and Victoriana Cari-an) had
rendered its decision on October 30, 1987.[14] The probate court concluded that since all the
properties of the estate were disposed of or sold by the declared heirs of both spouses, the case is
considered terminated and the intestate estate of Guillermo Nombre and Victoriana Cari-an is
closed. The court held:
As regards the various incidents of this case, the Court finds no cogent reason to resolve them
since the very object of the various incidents in this case is no longer in existence, that is to say,
the properties of the estate of Guillermo Nombre and Victoriana Cari-an had long been disposed of
by the rightful heirs of Guillermo Nombre and Victoriana Cari-an. In this respect, there is no need
to resolve the Motion for Subrogation of Movants Pedro Escanlar and Francisco Holgado to be
subrogated to the rights of the heirs of Victoriana Cari-an since all the properties of the estate had
been transferred and titled to in the name of spouses Ney S. Chua and Dr. Paquito Chua. Since
the nature of the proceedings in this case is summary, this Court, being a Probate Court, has no
jurisdiction to pass upon the validity or invalidity of the sale of rights of the declared heirs of
Guillermo Nombre and Victoriana Cari-an to third parties. This issue must be raised in another
action where it can be properly ventilated and resolved. x x x Having determined, after exhausted
(sic) and lengthy hearings, the rightful heirs of Guillermo Nombre and Victoriana Cari-an, the Court
found out that the second issue has become moot and academic considering that there are no
more properties left to be partitioned among the declared heirs as that had long ago been disposed
of by the declared heirs x x x. (Underscoring supplied)
The seminal case at bar was resolved by the trial court on December 18, 1991 in favor of
cancellation of the September 15, 1978 sale. Said transaction was nullified because it was not
approved by the probate court as required by the contested deed of sale of rights, interests and
participation and because the Cari-ans were not fully paid. Consequently, the Deed of Sale
executed by the heirs of Nombre and Cari-an in favor of Paquito and Ney Chua, which was
approved by the probate court, was upheld. The dispositive portion of the lower courts decision
reads:
WHEREFORE, premises considered, judgment is hereby rendered as follows:
1)

Declaring the following contracts null and void and of no effect:

a)
The Deed of Sale, dated Sept. 15, 1978, executed by the plaintiffs in favor of the
defendants Pedro Escanlar and Francisco Holgado (Exh. A, Plaintiffs)
b)
The Deed of Agreement, dated Sept. 15, 1978, executed by the plaintiffs in favor of the
defendants, Pedro Escanlar and Francisco Holgado (Exh. B, Plaintiffs)

c)
The Deed of Sale, dated April 20, 1983, executed by the defendants in favor of the
fourth-party defendants, Dr. Edwin Jayme and Elisa Tan Jayme
d)
The sale of leasehold rights executed by the defendants in favor of the fourth-party
defendants
2)
Declaring the amount of Fifty Thousand Pesos (P50,000.00) paid by the defendants to
the plaintiffs in connection with the Sept. 15, 1978 deed of sale, as forfeited in favor of the
plaintiffs, but ordering the plaintiffs to return to the defendants whatever amounts they have
received from the latter after May 31, 1979 and the amount of Thirty Five Thousand Two
Hundred Eighteen & 75/100 (P35,218.75)[15] deposited with the Treasurer of Himamaylan,
Negros Occidental, for the minor Leonell C. Cari-an 3)
Declaring the deed of sale, dated September 23, 1982, executed by Lasaro Nombre,
Victorio Madalag, Domingo Campillanos, Sofronio Campillanos, Generosa Vda. de Martinez,
Carmen Cari-an, Rodolfo Cari-an, Nelly Chua Vda. de Cari-an, for herself and as guardian ad
litem of the minor Leonell C. Cari-an, and Fredisminda Cari-an in favor of the third-party
defendants and fourth-party plaintiffs, spouses Dr. Paquito Chua and Ney Sarrosa Chua (Exh.
2-Chua) as legal, valid and enforceable provided that the properties covered by the said deed
of sale are subject of the burdens of the estate, if the same have not been paid yet.
4)
Ordering the defendants Francisco Holgado and Pedro Escanlar and the fourth-party
defendants, spouses Dr. Edwin Jayme and Elisa Tan Jayme, to pay jointly and severally the
amount of One Hundred Thousand Pesos (P100,000.00 as moral damages and the further sum
of Thirty Thousand Pesos (P30,000.00) as attorneys fees to the third-party defendant spouses,
Dr. Paquito Chua and Ney Sarrosa-Chua.
5)
Ordering the fourth-party defendant spouses, Dr. Edwin Jayme and Elisa Tan
Jayme, to pay to the third-party defendants and fourth-party plaintiffs, spouses Dr. Paquito Chua
and Ney Sarrosa-Chua, the sum of One Hundred Fifty Seven Thousand Pesos (P157,000.00) as
rentals for the riceland and Three Million Two Hundred Thousand Pesos (P3,200,000.00) as
rentals for the fishpond from October, 1985 to July 24, 1989 plus the rentals from the latter date
until the property shall have been delivered to the spouses Dr. Paquito Chua and Ney SarrosaChua;
6)
Ordering the defendants and the fourth-party defendants to immediately vacate Lots
Nos. 1616 and 1617, Kabankalan Cadastre;
7)
Ordering the defendants and the fourth-party defendants to pay costs. SO
ORDERED.[16]
Petitioners raised the case to the Court of Appeals. [17] Respondent court affirmed the
decision of the trial court on February 17, 1995 and held that the questioned deed of sale of
rights, interests and participation is a contract to sell because it shall become effective only upon
approval by the probate court and upon full payment of the purchase price.[18]
[19]

Petitioners motion for reconsideration was denied by respondent court on April 3, 1995.
Hence, these petitions.[20]

1. We disagree with the Court of Appeals conclusion that the September 15, 1978 Deed
of Sale of Rights, Interests and Participation is a contract to sell and not one of sale.

67
The distinction between contracts of sale and contracts to sell with reserved title has been
recognized by this Court in repeated decisions, according to Justice J.B.L. Reyes in Luzon
Brokerage Co. Inc. v. Maritime Building Co., Inc., [21] upholding the power of promisors under
contracts to sell in case of failure of the other party to complete payment, to extrajudicially
terminate the operation of the contract, refuse the conveyance, and retain the sums of installments
already received where such rights are expressly provided for.
In contracts to sell, ownership is retained by the seller and is not to pass until the full
payment of the price. Such payment is a positive suspensive condition, the failure of which is not a
breach of contract but simply an event that prevented the obligation of the vendor to convey title
from acquiring binding force.[22] To illustrate, although a deed of conditional sale is denominated as
such, absent a proviso that title to the property sold is reserved in the vendor until full payment of
the purchase price nor a stipulation giving the vendor the right to unilaterally rescind the contract
the moment the vendee fails to pay within a fixed period, by its nature, it shall be declared a deed
of absolute sale.[23]
The September 15, 1978 sale of rights, interests and participation as to 1/2 portion pro
indiviso of the two subject lots is a contract of sale for the following reasons: First, private
respondents as sellers did not reserve unto themselves the ownership of the property until full
payment of the unpaid balance of P225,000.00. Second, there is no stipulation giving the sellers
the right to unilaterally rescind the contract the moment the buyer fails to pay within the fixed
period.[24] Prior to the sale, petitioners were in possession of the subject property as lessees. Upon
sale to them of the rights, interests and participation as to the 1/2 portion pro indiviso, they
remained in possession, not in concept of lessees anymore but as owners now through symbolic
delivery known as traditio brevi manu.[25] Under Article 1477 of the Civil Code, the ownership of the
thing sold is acquired by the vendee upon actual or constructive delivery thereof.[26]
In a contract of sale, the non-payment of the price is a resolutory condition which
extinguishes the transaction that, for a time, existed and discharges the obligations created
thereunder. The remedy of an unpaid seller in a contract of sale is to seek either specific
performance or rescission.[27]
2. Next to be discussed is the stipulation in the disputed September 15, 1978 Deed of Sale
of Rights, Interests and Participation which reads: (t)his Contract of Sale of rights, interests and
participations shall become effective only upon the approval by the Honorable Court of First
Instance of Negros Occidental, Branch VI-Himamaylan. Notably, the trial court and the Court of
Appeals both held that the deed of sale is null and void for not having been approved by the
probate court.
There has arisen here a confusion in the concepts of validity and the efficacy of a
contract. Under Art. 1318 of the Civil Code, the essential requisites of a contract are: consent of
the contracting parties; object certain which is the subject matter of the contract and cause of the
obligation which is established. Absent one of the above, no contract can arise. Conversely, where
all are present, the result is a valid contract. However, some parties introduce various kinds of
restrictions or modalities, the lack of which will not, however, affect the validity of the contract.
In the instant case, the Deed of Sale, complying as it does with the essential requisites, is a
valid one. However, it did not bear the stamp of approval of the court. This notwithstanding, the
contracts validity was not affected for in the words of the stipulation, . . . this Contract of Sale of
rights, interests and participations shall become effective only upon the approval by the Honorable
Court . . . In other words, only the effectivity and not the validity of the contract is affected.

Then, too, petitioners are correct in saying that the need for approval by the probate court
exists only where specific properties of the estate are sold and not when only ideal and
indivisible shares of an heir are disposed of.
In the case of Dillena v. Court of Appeals, [28] the Court declared that it is within the
jurisdiction of the probate court to approve the sale of properties of a deceased person by his
prospective heirs before final adjudication. [29] It is settled that court approval is necessary for the
validity of any disposition of the decedents estate. However, reference to judicial approval
cannot adversely affect the substantive rights of the heirs to dispose of their ideal share in the
co-heirship and/or co-ownership among the heirs. [30] It must be recalled that during the period of
indivision of a decedents estate, each heir, being a co-owner, has full ownership of his part and
may therefore alienate it.[31] But the effect of the alienation 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 coownership.[32]
From the foregoing, it is clear that hereditary rights in an estate can be validly sold without
need of court approval and that when private respondents Cari-an sold their rights, interests and
participation in Lot Nos. 1616 and 1617, they could legally sell the same without the approval of
the probate court.
As a general rule, the pertinent contractual stipulation (requiring court approval) should be
considered as the law between the parties. However, the presence of two factors militate
against this conclusion. First, the evident intention of the parties appears to be contrary to the
mandatory character of said stipulation. [33] Whoever crafted the document of conveyance, must
have been of the belief that the controversial stipulation was a legal requirement for the validity
of the sale. But the contemporaneous and subsequent acts of the parties reveal that the original
objective of the parties was to give effect to the deed of sale even without court approval.
[34]
Receipt and acceptance of the numerous installments on the balance of the purchase price
by the Cari-ans and leaving petitioners in possession of Lot Nos. 1616 and 1617 reveal their
intention to effect the mutual transmission of rights and obligations. It was only after private
respondents Cari-an sold their shares in the subject lots again to the spouses Chua, in
September 1982, that these same heirs filed the case at bar for the cancellation of the
September 1978 conveyance. Worth considering too is the fact that although the period to pay
the balance of the purchase price expired in May 1979, the heirs continued to accept payments
until late 1979 and did not seek judicial relief until late 1982 or three years later.
Second, we hold that the requisite approval was virtually rendered impossible by the Carians because they opposed the motion for approval of the sale filed by petitioners [35] and sued the
latter for the cancellation of that sale. The probate court explained:
(e) While it is true that Escanlar and Holgado filed a similar motion for the approval of Deed
of Sale executed by some of the heirs in their favor concerning the one-half (1/2) portions of Lots
1616 and 1617 as early as November 10, 1981, yet the Court could not have favorably acted
upon it, because there exists a pending case for the rescission of that contract, instituted by the
vendors therein against Pedro Escanlar and Francisco Holgado and filed before another branch
of this Court. Until now, this case, which attacks the very source of whatever rights or interests
Holgado and Escanlar may have acquired over one-half (1/2) portions of Lots Nos. 1616 and
1617, is pending resolution by another court. Otherwise, if this Court meddles on these issues
raised in that ordinary civil action seeking for the rescission of an existing contract, then, the act
of this Court would be totally ineffective, as the same would be in excess of its jurisdiction. [36]

68
Having provided the obstacle and the justification for the stipulated approval not to be
granted, private respondents Cari-an should not be allowed to cancel their first transaction with
petitioners because of lack of approval by the probate court, which lack is of their own making.
3. With respect to rescission of a sale of real property, Article 1592 of the Civil Code
governs:
In the sale of immovable property, even though it may have been stipulated that upon failure to
pay the price at the time agreed upon the rescission of the contract shall of right take place, the
vendee may pay, even after the expiration of the period, as long as no demand for rescission of the
contract has been made upon him either judicially or by a notarial act. After the demand, the court
may not grant him a new term. (Underscoring added)
In the instant case, the sellers gave the buyers until May 1979 to pay the balance of the
purchase price. After the latter failed to pay installments due, the former made no judicial demand
for rescission of the contract nor did they execute any notarial act demanding the same, as
required under Article 1592. Consequently, the buyers could lawfully make payments even after
the May 1979 deadline, as in fact they paid several installments to the sellers which the latter
accepted. Thus, upon the expiration of the period to pay, the sellers made no move to rescind but
continued accepting late payments, an act which cannot but be construed as a waiver of the right
to rescind. When the sellers, instead of availing of their right to rescind, accepted and received
delayed payments of installments beyond the period stipulated, and the buyers were in arrears, the
sellers in effect waived and are nowestopped from exercising said right to rescind.[37]
4. The matter of full payment is another issue taken up by petitioners. An exhaustive review
of the records of this case impels us to arrive at a conclusion at variance with that of both the trial
and the appellate courts.
The sole witness in the cancellation of sale case was private respondent herein Fredisminda
Cari-an Bustamante. She initially testified that after several installments, she signed a receipt for
the full payment of her share in December 1979 but denied having actually received the P5,000.00
intended to complete her share. She claims that Escanlar and Holgado made her sign the receipt
late in the afternoon and promised to give the money to her the following morning when the banks
opened. She also claimed that while her brother Rodolfo Cari-ans share had already been fully
paid, her mother Generosa Martinez only received P28,334.00 and her sister-in-law Nelly Chua
vda. de Cari-an received onlyP11,334.00. Fredisminda also summed up all the installments and
came up with the total of P132,551.00 from the long list on a sheet of a calendar which was
transferred from a small brown notebook. She later admitted that her list may not have been
complete for she gave the receipts for installments to petitioners Escanlar and Holgado. She thus
claimed that they were defrauded because petitioners are wealthy and private respondents are
poor.
However, despite all her claims, Fredismindas testimony fails to convince this Court that they
were not fully compensated by petitioners. Fredisminda admits that her mother and her sister
signed their individual receipts of full payment on their own and not in her presence. [38] The receipts
presented in evidence show that Generosa Martinez was paidP45,625.00; Carmen Carian, P45,625.00; Rodolfo Cari-an, P47,500.00 on June 21, 1979; Nelly Chua vda. de Carian, P11,334.00 and the sum of P34,218.00 was consigned in court for the minor Leonell Cari-an.
[39]
Fredisminda insists that she signed a receipt for full payment without receiving the money
therefor and admits that she did not object to the computation. We find it incredible that a mature
woman like Fredisminda Cari-an, would sign a receipt for money she did not receive. Furthermore,
her claims regarding the actual amount of the installments paid to her and her kin are quite vague
and unsupported by competent evidence. She even admits that all the receipts were taken by

petitioner Escanlar.[40] Worth noting too is the absence of supporting testimony from her co-heirs
and siblings Carmen Cari-an, Rodolfo Cari-an and Nelly Chua vda. de Cari-an.
The trial court reasoned out that petitioners, in continuing to pay the rent for the parcels of
land they allegedly bought, admit not having fully paid the Cari-ans. Petitioners response, that
they paid rent until 1986 in compliance with their lease contract, only proves that they respected
this contract and did not take undue advantage of the heirs of Nombre and Cari-an who
benefited from the lease. Moreover, it is to be stressed that petitioners purchased the hereditary
shares solely of the Cari-ans and not the entire lot.
The foregoing discussion ineluctably leads us to conclude that the Cari-ans were indeed
paid the balance of the purchase price, despite having accepted installments therefor
belatedly. There is thus no ground to rescind the contract of sale because of non-payment.
5. Recapitulating, we have held that the September 15, 1978 deed of sale of rights,
interests and participations is valid and that the sellers-private respondents Cari-an were fully
paid the contract price. However, it must be emphasized that what was sold was only the Carians hereditary shares in Lot Nos. 1616 and 1617 being held pro indiviso by them and is thus a
valid conveyance only of said ideal shares. Specific or designated portions of land were not
involved.
Consequently, the subsequent sale of 8 parcels of land, including Lot Nos. 1616 and 1617,
to the spouses Chua is valid except to the extent of what was sold to petitioners in the
September 15, 1978 conveyance. It must be noted however, that the probate court in Special
Proceeding No. 7-7279 desisted from awarding the individual shares of each heir because all
the properties belonging to the estate had already been sold. [41] Thus it is not certain how much
private respondents Cari-an were entitled to with respect to the two lots, or if they were even
going to be awarded shares in said lots.
The proceedings surrounding the estate of Nombre and Cari-an having attained finality for
nearly a decade now, the same cannot be re-opened. The protracted proceedings which have
undoubtedly left the property under a cloud and the parties involved in a state of uncertainty
compels us to resolve it definitively.
The decision of the probate court declares private respondents Cari-an as the sole heirs
by representation of Victoriana Cari-an who was indisputably entitled to half of the estate.
[42]
There being no exact apportionment of the shares of each heir and no competent proof that
the heirs received unequal shares in the disposition of the estate, it can be assumed that the
heirs of Victoriana Cari-an collectively are entitled to half of each property in the estate. More
particularly, private respondents Cari-an are entitled to half of Lot Nos. 1616 and 1617, i.e.
14,675 square meters of Lot No. 1616 and 230,474 square meters of Lot No.
1617. Consequently, petitioners, as their successors-in-interest, own said half of the subject lots
and ought to deliver the possession of the other half, as well as pay rents thereon, to the private
respondents Ney Sarrosa Chua and Paquito Chua but only if the former (petitioners) remained
in possession thereof.
The rate of rental payments to be made were given in evidence by Ney Sarrosa Chua in
her unrebutted testimony on July 24, 1989: For the fishpond (Lot No. 1617) - From 1982 up to
1986, rental payment of P3,000.00 per hectare; from 1986-1989 (and succeeding years), rental
payment of P10,000.00 per hectare. For the riceland (Lot No. 1616) - 15 cavans per hectare per
year; from 1982 to 1986, P125.00 per cavan; 1987-1988, P175.00 per cavan; and 1989 and
succeeding years, P200.00 per cavan.[43]
WHEREFORE, the petitions are hereby GRANTED. The decision of the Court of Appeals
under review is hereby REVERSED AND SET ASIDE. The case is REMANDED to the Regional

69
Trial Court of Negros Occidental, Branch 61 for petitioners and private respondents Cari-an or their
successors-in-interest to determine exactly which 1/2 portion of Lot Nos. 1616 and 1617 will be
owned by each party, at the option of petitioners. The trial court is DIRECTED to order the
issuance of the corresponding certificates of title in the name of the respective parties and to
resolve the matter of rental payments of the land not delivered to the Chua spouses subject to the
rates specified above with legal interest from date of demand. SO ORDERED.
G.R. No. 9785
September 24, 1915
ISABELA BANDONG and JUAN FERRER vs. ALEJANDRA AUSTRIA
CARSON, J.:
On the 29th of April, 1905, the plaintiffs in this action sold to Antonio Ventenilla, since deceased, a
parcel of land for the sum of P350, expressly reserving a right to repurchase under and in
accordance with the terms of the deed of sale.

The parties having expressly agreed that the vendors should have the right to repurchase in the
month of March of any year after the date of the contract, the only statutory limitation placed
upon them in the exercise of that right is the limitation found in the second paragraph of article
1508 of the Civil Code cited above, which limits the power of the vendor, even by express
agreement, to reserve a right to repurchase for a longer period than ten years. We conclude,
therefore, that the provisions of the contract of sale, whereby the parties undertook by express
agreement to secure to the vendors a right to repurchase in the month of March of any year after
the date of the contract, were valid and binding upon the parties for a period of ten years from
the date of the contract but wholly without force and effect thereafter.
It is admitted that the vendors offered to repurchase the land in question in the month of March,
1913, less than eight years from the date of the contract. This they had a perfect right to do, and
the judgment of the trial court which denies their right to enforce the terms of their contract on
the ground that the period of redemption had expired by statutory limitation cannot, therefore, be
sustained.

The written contract contained the following stipulation:

Tambien hacemos constar que una de las promesas que tenemos a D. Antonio que
recompraremos este terreno en el mismo precio sin acordance uno y otro del interes del dinero
ni del producto del terreno, pero en el mes de marzo de cualquier ao, si recompramos. (We
also set forth that one of the promises we have made to Don Antonio is that we will repurchase
this land at the same price; neither of us make any stipulation as to interest on the money or the
products of the land, but in the month of March of any year, if we repurchase.)
The vendors offered to repurchase in the month of March, 1913, but this offer was declined on the
ground that the right to repurchase had prescribed: a contention which is renewed by the
defendant in this action, who is the widow of original vendee, deriving title through him.
The court below was of opinion that the right to repurchase expired at the end of four years from
the date of the contract, relying in support of this ruling on the provisions of article 1508 of the Civil
Code, which are as follows:
The right mentioned in the preceding article (right to repurchase), in the absence of an express
agreement, shall last four years counted from the date of the contract.
In case of stipulation, the period of redemption shall not exceed ten years.
We are of opinion, however, that the above cited provision in the written contract was an express
agreement between the parties by the terms of which the vendors were given the right to
repurchase in the month of March of any year, after the date of the contract (1905), which they
might elect for that purpose. In the event that they should assert that right in the month of March of
any year after the date of the contract, it could not be said that there was no express agreement
between the parties authorizing them so to do. Manifestly, therefore, the statutory limitation upon
the right of repurchase to a period of four years is not applicable to the contract under
consideration, that limitation being applicable only to cases wherein there is no express agreement
touching the date of redemption.

The judgment entered in the court below should be and is hereby reversed, without special
condemnation of costs in this instance, and the record will be returned to the court below, where
the judgment will be entered in accordance herewith. So ordered.
G.R. No. L-27084 December 31, 1927
AMBROSIO T. ALOJADO vs. M. J. LIM SIONGCO, ET AL.
AVANCEA, C. J.:
On October 12, 1907 Juana Mabaquiao sold the land described in the complaint to Nicolas
Alegata for the sum of P7,744. After the death of Nicolas Alegata, proceeding for the settlement
of his estate was instituted, and on October 23, 1913 his property, which included that
purchased from Juana Mabaquiao, was adjudicated to Lim Kang Sang and Lim Eng Teeng, his
only heirs. On November 11, 1913 they sold this land to Lim Ponso & Co., with the right to
repurchase for the period of one year, which period expired without this right having exercised.
On February 15, 1918 Lim Ponso & Co. transferred this land unconditionally to Lim Siongco and
Lim Kingko.
Upon the death of Juana Mabaquiao, proceeding for the settlement of her intestate estate were
also instituted in which Ambrosio T. Alojado was appointed administrator. The latter, in said
capacity, now brings this action against Lim Sionco, Lim Kingko and Lim Ponso & Co. and prays
that he be declared the absolute owner of this land with the improvements thereon, and that the
defendants be ordered to restore and respect his right of ownership, possession and usufruct of
the property; and, moreover, that other pronouncements be made as prayed for in his complaint.
The court absolved the defendants from the complaint and plaintiff appealed from this judgment.
The plaintiff contends that the contract executed by Juana Mabaquiao with Nicolas Alegata on
October 12, 1907 was not a contract of sale with the right to repurchase, but a contract or
antichrises. This contention is untenable. From the terms of the contract it is clearly a sale with
the right to repurchase. It speaks in unequivocal terms of a sale and the conveyance of land with
the right to repurchase, and the character of the contract is that of a sale with the right to
repurchase. The contract is very defective in its wording, especially so where it refers to the
period within which to excercise the right to repurchase. But examining it as a whole, it clearly
appears that it was the parties' intention that the vendor could repurchase the land without delay
when he had the means to pay the purchase price. What characterizes a contract or antichresis

70
is that the creditor acquires the right to receive the fruits of the property of his debtor with the
obligation to apply them to the payment of interests, if any is due, and then to the principal of his
credit. Nowhere in the contract in question does this character of a contract of antichresis appear.
The only substantial thing agreed upon between the parties was that Juana Mabaquiao could
repurchase the land when she had the means. The decision of this court in the case of De la
Vega vs. Ballilos (34 Phil., 683), which the appellant invokes in support of his contention, is in no
way applicable. The case dealt with a contract called mortgage by the parties and the court held
that in reality it was contract of antichresis. But in the contract in that case it was agreed that the
debtor assigned and transfer the ownership and possession of the land to the creditor for his
management and enjoyment as a profit from the amount for which it had been mortgaged. This
agreement, which characterizes the contract of antichresis, does not exist in the instant
case.lawphi1.net
An attempt was made, by the testimony of Eulogia Espanola, Juana Mabaquio's granddaughter, to
prove that the contract entered into between Juana Mabaquiao and Nicolas Alegata, was that
Mabaquiao, or any of her heirs, might recover possession of the land any time upon the payment of
P7,744, and that while this remained unpaid the land would continue in the possession of Nicolas
Alegata, with the obligation to deliver one-fifth of the products therefrom to Mabaquiao. Eulogia
Espanola testified having been present when the contract was entered into. Against this declaration
the witness Vicente Gomez was presented, who also stated that he was present at the time the
contract was entered into and contradicted Eulogia Espanola's testimony and, furthermore, stated
that the latter was not present then. The evidence is of such a character as not to justify in any
manner the alteration of the clear terms of the document in the sentence that it expresses a
contract of sale.
This action was brought in January, 1922, fifteen years after the contract was entered into. This
being a sale with the right to repurchase, the question, after this lapse of time, is reduced to
whether or not the title to the land conveyed by Juana Mabaquiao has been consolidated. The
contract, as been noted, fixes the period for the exercise of the right of redemption until Juana
Mabaquiao, or her heirs has the means. Whether or not this is considered a period, it is clear that
the title transmitted to Nicolas Alegata has been consolidated. According to article 1508 of the Civil
Code, when no period of redemption is fixed it shall last four years, and it is fixed, it shall not
exceed ten years. The right of redemption not having been exercised the period of ten years, the
title of Nicolas Alegata, or his heirs, has by this fact alone been consolidated any events.
Considering the case from this point of view, the appellant argues that, as it was never intention of
the parties that, after a certain period, the land could not be repurchased by the vendor, the
contract cannot be one of sale with the right to repurchase, because it conflicts with the nature of
this contract, essential of which is the right of the purchaser to consolidate his title immediately
after the period of redemption has passed.
Another contention of the appellant is that if the right of redemption in this case is considered null
after ten years, this nullity must likewise affect the sale itself. These questions have been resolved
by this court in the case ofYadao vs. Yadao (20 Phil., 260). In that case the contract contained a
stipulation that the vendor repurchase the land any time he had the money, it being understood that
he could not exercise this right of redemption after ten years, and not having done so within that
period, the court held that the vendor irrevocably acquired title to the land. In that case,
notwithstanding the fact that the right of redemption after ten years had been declared null, the
sale itself however, was considered valid and the title acquired thereunder consolidated; and that is
because the stipulation to repurchase is accidental to a sale and may be made at the will of the
parties. A contract of absolute sale may be made without this stipulation. It seems logical that if this

stipulation is made and it is declared, null, its nullity cannot affect the sale first since the latter
might be entered into without said stipulation.
The judgment appealed from is affirmed, with the costs against the appellant. So ordered.
G.R. No. L-27890 December 31, 1927
PONCIANO MEDEL vs. CARLOS N. FRANCISCO
AVANCENA, J.:
On May 16, 1917, Carlos N. Francisco sold the land belonging to him, described certificate of
title No. 3598 to Telesforo Calasan with a right of repurchase, which was noted on the back
thereof on May 16, 1917. Telesforo Calasan, in turn, sold this land to Ponciano Medel on
December 4, 1926.
On January 17, 1927 Ponciano Medel brought this action in the Court of First Instance for the
purpose of compelling the register of deeds to cancel the notation of the right of repurchase on
the title to this land on account of the time within which to exercise said the right having expired.
Ponciano Medel contends that the period within which to exercise this right is four years while
Carlos N. Francisco, on the other hand, contends that it is ten years. The trial court admitting
that the period is ten years and it not having expired yet when this action was filed, denied the
petition.lawphi1.net
The only question involved in this appeal is whether the period of the repurchase of the land,
which Carlos N. Francisco reserved the right to do when the sale was made, in four or ten years.
The stipulation is noted on the title in the following terms:
This sale is made with the condition that the vendor Carlos N. Francisco reserves the right to
repurchase, at the cost price of this sale, a fourth part of the land above described from which
he can remove earth for the sole and exclusive use of his earthen jar factory when the same
is established.
According to article 1508 of the Civil Code, the right repurchase, in the absence of any express
agreement, last four years and, in case of stipulation, the period shall not exceed ten years.
A term means a period of time within which an act many, or must, be performed or a fact take
place. Applied to the right of repurchase, it is the time within which this right may be exercised. It
necessarily involves a beginning and an end of time. The clause of the contract quoted does not
express, in this case, a stipulation of time. Accordingly to its terms, the vendor Carlos N.
Francisco reserved the right to redeem the land when he might have an earthen jar factory. This
does not mean that he could repurchase the land any time before he had the earthen jar
factory,but when he had it. That is especially so when it is taken into consideration that there is a
condition imposed for the repurchase of the land, to wit that it is to be used solely and
exclusively for the manufacture of earthen jars. According to this clause of the contract, it is
evident that the establishment of an earthen jar factory is the fact that would give birth to the
right of repurchase. In this sense, what is really stipulated in the clause is the suspension of the
right of repurchase until the earthen jar factory has been established. If this is all, the meaning of
this clause is then clear that the parties did not stipulate any time for exercising the right or
repurchase; and, in accordance with the law, the right lasts no longer than four years from the
date of the contract, which period had already expired without having been made use of.

71
These four years must be counted from the date of the contract notwithstanding the suspension of
the exercise of the right of repurchase, because the stipulation of this suspension is null and void, it
having exceeded four years, which constitutes the legal period of this right. (Santos vs. Heirs of
Crisostomo and Tiongson, 41 Phil., 342.)
The judgment appealed from is reversed and it is held that the right of repurchase reserved by the
vendor Carlos N. Francisco has expired, and the cancellation by the register of deeds of the
notation of this right on the title must be, as it is hereby, ordered, without special pronouncement as
to costs. So ordered.
G.R. No. L-22968
January 31, 1968
BENEDICTO BALUYOT, ET AL. vs. EULOGIO E. VENEGAS
MAKALINTAL, J.:
Plaintiffs are the heirs of Crisanto Baluyot, who in life sold a parcel of land to defendant Eulogio E.
Venegas. The sale, executed on July 24, 1951, contains the following provision for repurchase:
3. That the parties hereto stipulated that at anytime after the expiration of the period of theft (10)
years to be computed from October 1, 1951, the Vendor, his heirs or successors-in-interest has
the option and priority to purchase the aforedescribed parcel of land for the same consideration
of P4,000.00.
4. That the Vendee hereby accepts and agrees with the conditions and terms of this sale.
On July 18, 1963 plaintiffs commenced this action in the Court of First Instance of Bataan to
compel defendant to reconvey the land to them pursuant to the contractual provision aforequoted,
alleging that previous offers on their part to exercise the right therein granted had proven
unavailing.
The court a quo, rendered judgment for plaintiffs and ordered defendant to execute the
corresponding deed of conveyance upon payment of P4,000. Defendant was further ordered to pay
attorney's fees in the sum of P500.
In this appeal defendant stands squarely on the proposition that the stipulation in the contract
giving the vendor the "option" to purchase back the land is void and contrary to law, particularly
Article 1606 of the Civil Code. This article reads:
Art. 1606. The right referred to in article 1601, in the absence of an express agreement, shall
last four years from the date of the contract.
Should there be an agreement, the period cannot exceed ten years.
However, the vendor may still exercise the right to repurchase within thirty days from the time
final judgment was rendered in a civil action on the basis that the contract was a true sale with
right to repurchase.

The contract here was executed in July 1951. The option or right to repurchase was sought to be
exercised twelve (12) years thereafter, or in 1963. Indeed, by express agreement it could not
have been exercised except "after the expiration of the period of ten (10) years . . . from October
1, 1951." Such a stipulation is not legally feasible because it is prohibited by Article 1606, which
limits the period for repurchase, in case there be an agreement, to the maximum of ten years
from the date of the contract. In other words, the right to repurchase in the present case did not
even arise, since by the time it was supposed to begin it was already interdicted by the law.
A similar situation was presented in the case of Santos vs. Heirs of Crisostomo and Tiongson,
41 Phil. 342, where this Court said, at pages 347-348:
When the stipulation in question is examined, it will be discovered that the intention of the
parties was to suppress the exercise of the right of repurchase for the full period of ten years
from the date of the contract and, inferentially, to allow the exercise of that right after the
expiration of ten years. In the second paragraph of article 1508 (now 1606) of the Civil Code it
is in effect provided that if there should be an agreement with respect to the time of
repurchase, the period shall not exceed ten years. The stipulation under consideration offends
against this provision in two particulars, namely (1) in providing that the right to repurchase
may be exercised after ten years shall elapse, and (2) in prohibiting the exercise of the same
right during the whole period when, according to the statute, it might be lawfully exercised.
The stipulation is, therefore, illicit; and the result is that the right of repurchase could in fact,
under the second paragraph of the article 1508 of the Civil Code, have been exercised in this
case at any time after the making of the contract and prior to the expiration of ten years. The
law must here control over the revised intention of the parties.
In what has been said, we do not mean to declare that the parties to a contract of sale
with pacto de retrocan not under any conditions lawfully suspend the exercise of the right of
repurchase. Doubtless they may do so, provided there remains an appreciable space of time
for the exercise of the right within the limitation allowed by law. For instance, if it were
provided that repurchase should not be effected before five nor after ten years from the date
of the contract, we see no reason for supposing the stipulation to be lawful. It is different
where the parties attempt totally to suppress the right during the whole period when it might
lawfully be exercised.
Plaintiffs stress the obligatory force of obligation arising from contract (Art. 1159 Civil Code). But
the same code provides in Article 1306 that while the contracting parties are free to establish
any claims or conditions they may deem advisable, the same must not be contrary to law,
morals, good customs, public order or public policy.
It is suggested that the defense in this case is in the nature of prescription of action and
consequently may not be pleaded for the first time on appeal, as defendant does in this case.
However, Article 1606 of the Civil Code concerning the period of repurchase is not a statute of
limitation. It is a rule of substantive law which goes into the validity of the period agreed upon,
and requires no affirmative plea in the answer to be applicable.1wph1.t
The judgment, appealed from is reversed and the complaint is dismissed, without
pronouncement as to costs.

72
G.R. No. L-12700
June 29, 1959
RUFINO CEYNAS, ET AL. vs. PAMFILO ULANDAY
BAUTISTA ANGELO, J.:
On February 22, 1944, Rufino Ceynas and his brothers and sisters executed a deed of sale with
right to repurchase of their shares and participation in six parcels of land situated in San Fabian,
Pangasinan for the sum of P2,200.00 in favor of spouses Pamfilo Ulanday and Simplicia Fabia.
Sometime in July, 1944, the same brothers and sisters obtained from the spouses an additional
amount of P800.00 on condition that it should be covered by the same deed of sale with right to
repurchase.
On February 20, 1948, Rufino Ceynas instituted an action before the Court of First Instance of
Pangasinan for the purpose of having said deed of sale declared as a simple mortgage and of
compelling the spouses to accept payment of the equivalent value of the original amount taken by
them in Japanese notes thereby declaring their obligation to have been paid in full. This action was
dismissed without prejudice on the ground that it was premature.
On May 12, 1953, Rufino Ceynas again filed an action before the same court wherein he reiterated
his prayer that the deed with right to repurchase which he and his brothers and sisters had
executed on February 22, 1944 be declared as simple mortgage and that he be allowed to pay the
original amount taken by them in its equivalent value under the Ballantyne Schedule and, once
paid, the mortgage be deemed cancelled and released. This complaint was amended on February
3, 1955 by including therein the other brothers and sisters who had taken part in the transaction. In
the original, as well as in the amended complaint, only Pamfilo Ulanday was made party defendant
who, in due time, answered both pleadings setting up the defense that the contract entered into
between him and the plaintiffs is one of sale with right to repurchase and not an equitable
mortgage and that they had failed to exercise their right of redemption within the period stipulated.

his brothers and sisters ven if they have sold jointly their undivided shares in the lands in
question for, under the law, Rufino Ceynas can only exercise his right to repurchase insofar as
his share is concerned. This can be clearly inferred from Article 1514 of the Spanish Civil Code,
which provides: "If several persons, collectively and in the same contract, should sell their
undivided realty, reserving the right of repurchase, none of them can exercise this right for more
than his respective share." (Emphasis supplied). Unless, therefore, there is proof to the effect
that Rufino Ceynas attempted to redeem the whole undivided interest in his behalf and in that of
his brother and sisters, and here there is none, we cannot now conclude that the filing of the
action by Rufino on February 20, 1948 has the effect of tolling the period of redemption for all of
them.
Appellants next assail the finding of the trial court that the contract entered into between them
and defendant is one of sale with right to repurchase and not an equitable mortgage. This claim
is without merit. Examining the document Exhibit A, we find that appellants made the following
statements: In consideration of the sum of P2,200.00, we "do by these presence, sell, cede and
convey by way of Sale With Right of Repurchase to the said spouses, Panfilo Ulanday and
Simplicia Fabia, their heirs or assigns, all of our shares, interests and participations in the
following described land; . . . that we reserve the right to repurchase said shares, interest and
participation in said lands within a period of TEN (10) YEARS from the date hereof; . . . and we
warrant the peaceful possession, enjoyment and temporary ownership of our conditional
vendees within the life of this agreement." These terms can only indicate that the intention of the
parties was to enter into a contract of sale with right to repurchase and not equitable mortgage.
Since appellants did not present any parole evidence to show a contrary intention but merely
submitted the document Exhibit A, we have no other alternative than to consider the very terms
expressed in said document in determining the intention of the parties.

When the case was called for trial, the parties submitted a stipulation of facts to which they
attached certain documents pertinent to the issues raised, and on the basis of said stipulation, the
court rendered judgment declaring that only Rufino Ceynas can exercise the right to redeem his
share in the property sold upon payment of his share in the obligation in the amount of P600.00,
with legal interest from the filing of the complainants, and dismissing the complaint insofar as the
other plaintiffs are concerned on the ground that they have already forfeited their right of
redemption because of their failure to avail of it within the period stipulated. Plaintiffs appealed to
the Court of Appeals, but the case was certified to us on the ground that the questions involved are
purely of law.

It should be noted that the trial court in determining the amount to be paid by Rufino Ceynas as
his share in the redemption price, it took into account the value of the amount stipulated in
accordance with the present currency and did not convert it under the Ballantine scale of values,
and appellants now contend that this is an error considering that the parties did not specify in
their contract the currency under which the repurchase should be made. We do not find any
error in this regard, for the court merely acted in accordance with the contract and the
jurisprudence on the matter. Thus, under the contract, the vendors were allowed to exercise their
right to repurchase within the period of 10 years from the day of execution (February 22,
1944)on condition that they may exercise their right only after the expiration of the first five
years. This means that their right to repurchase only became vested after the liberation of the
Philippines, in which case, following a long line of decisions of this Court, payment can only be
effected in accordance with the present currency.

Appellants contend that the trial court erred in dismissing the complaint insofar as they are
concerned for the reason that they have failed to exercise their right of redemption within the period
stipulated thereby overlooking the fact that their brother Rufino Ceynas has filed an action on
February 20, 1948 in his behalf and in representation of his brothers and sisters praying that the
contract they have entered into be declared only as a mortgage and that they be allowed to
redeem it by paying the equivalent value of their original obligation. They contend that this action
has the effect of tolling the period of redemption.

Accordingly, as decided by the Supreme Court in other cases, where the parties have agreed
that the payment of the obligation shall be made in the currency that would prevail by the end
of the stipulated period, and this takes place after liberation, the obligation shall be paid in
accordance with the currency then prevailing, or Philippine currency (Roo vs. Gomez, 46
Off., Gaz., Sup. 11, 339; Gomez vs. Tabia, 47 Off. Gaz., 641). Therefore, the present claim
should be paid in accordance with the present legal tender or the Philippine currency.
(Londres vs. The National Life Insurance Company of the Philippines,294 Phil., 627).

This contention is untenable, for it clearly appears from the complaint filed on February 20, 1948
and from the stipulation of facts submitted by the parties that the action was brought by Rufino
Ceynas alone, or only in his own behalf, and not in representation of his brothers and sisters. The
action taken by Rufino Ceynas cannot have the effect of tolling the period of redemption insofar as

It appears however that under the contract entered into on February 22, 1944, the vendors were
given the right to repurchase the property within ten (10) years from said date, which expired on
February 22, 1954, or years after the new Civil Code entered into effect (August 30, 1950). And
since the purpose of the present action is to obtain a judicial declaration that the agreement

73
entered into between the parties is a simple mortgage and not a sale with pacto de retro, which
question was decided in the sense that it is the latter, we are of the opinion that the provisions of
Article 1606, paragraph 3, of the new Civil Code may apply to appellants, and therefore, they may
be allowed to still exercise the right of redemption within thirty (30) days from the time the judgment
may become final. To this effect, we hold that not only Rufino Ceynas but also his co-appellants
can exercise the right to redeem their shares in the property in question upon payment of their
respective shares in the repurchase price, payment of which shall be made in accordance with the
present currency. Modified as above indicated, the decision appealed from is affirmed, without
costs.
G.R. No. L-10374
September 30, 1959
GAVINA PEREZ, ET AL. vs. JOSE C. ZULUETA
BENGZON, J.:
Appeal from an order requiring defendant to permit plaintiffs to repurchase their land.
Omitting reference to procedural details, the facts material to the principal issue may be briefly
stated as follows:
On December 27, 1959, Magtangol P. Pedro and others (hereafter named plaintiffs) executed a
deed whereby for the sum of P10,000.00 they sold a parcel of land in Quezon City (Transfer
Certificate of Title 8762) to Jose C. Zulueta (hereafter named defendant), subject to their right to
repurchase within one year. As the vendors failed to repurchase, defendant took steps to
consolidate his title to the land in January 1952. This rise gave a suit (Q-344) in the Quezon City
court of first instance wherein the vendors (plaintiffs), alleging the contract to be a mortgage
disguised a pacto de retro, asked for a declaration to that effect plus other appropriate remedies.
Defendant asserted the contract was a true pacto de retro sale. Such court, after hearing, gave
judgment for plaintiffs, holding the contract to be mortgage. But on appeal, the Court of appeals in
its decision of May 13, 1955, reversed and held the contract to be a true pacto de ratro sale,
however, it added "without prejudice to plaintiffs' (vendors) right to make the repurchase in
accordance with paragraph 3 of Art. 1606 of the New Civil Code". The plaintiffs applied to this
Court for review on certiorari, but their petition was denied by our resolution of June 24, 1955,
notice of which they received on June 29, 1955. At no time did they move to reconsider.
On August 2, 1955, defendant renewed his efforts to consolidate his title by filing a petition in the
Quezon court alleging that the plaintiffs had failed to exercise their reserved right to repurchase
within thirty days. But on August 9, 1955, the plaintiffs opposed the claim, maintaining that the 30day period had not yet elapsed. Thereafter by letter of August 10, 1955, they demanded from
defendant the reconveyance of the property, offering to repay the price; and upon his refusal, they
filed in court (in Q344) August 13, 1955, a petition that he be required to reconvey. (Thereafter,
they judicially deposited the money.) This petition was, after hearing, granted by Hon. Hermogenes
Caluag, Judge, by an order, the dispositive part of which reads as follows:
Mr. Jose Zulueta is hereby ordered to execute a deed of reconveyance over the parcel of land
covered by Transfer Certificate of Title No. 8762 in favor of the petitioners Gavina Perez, et al.
within five days from receipt of a copy of this order and upon compliance therewith he may
withdraw the amount of P10,000.00 deposited with the court. In the event that Mr. Zulueta fails
or refuses to execute the said deed of reconveyance within the period above stated, the Clerk of
Court is ordered to hold the amount of P10,000.00 subject to the disposition of the said Mr.

Zulueta, and the Register of Deeds of Quezon City is hereby ordered to cancel the annotation
of encumbrance made and appearing on Transfer Certificate of Title No. 8762.
Hence this appeal by defendant Zulueta.
The New Civil Code, Art. 1606, gives the vendor a retro "the right to repurchase within thirty
days from the time final judgment was rendered in a civil action, on the basis that the contract
was a true sale with the right reserved to the plaintiffs (Pedro and others) in the decision of the
Court of Appeals.
The main issue concerns the counting of such 30-day period. Defendant says it should start
from June 24, 1955, when this Supreme Court upheld by resolution, the appellate court's
decision; whereas plaintiffs contends, "the period commenced to run only on July 15, 1955, after
the day the resolution of June 24 became final.
Defendant counters that the resolution of the Supreme Court was a "final judgment", rendered
on June 24, 1953. And he quotes several provisions of the Rules of Court about "final judgment"
being one that disposes of the issues completely as distinguished from interlocutory judgment.
He also quotes decisions saying that a judgment is deemed final when it finally disposes of the
pending action so that nothing more can be done with it in the trial court. 1 On the contrary, the
plaintiffs maintain, final judgment means a judgment which has become final or executory, one
which is conclusive and binding and in that light, the judgment (Supreme Court) become final
only on July 14, because up to that time a motion to reconsider could be entertained.
The authorities say that in determining whether a judgment is "final", no hard and fast definition
or test can be given since finality depends somewhat on the purposes for which the judgment is
being considered (Corpus Juris Secundum, Vol. 49, p. 35). "Final" may mean one on an issue of
appealability, but it may mean another thing on the issue of conclusiveness or binding effect. For
the purposes of appeal, final judgment is what herein defendant understands and maintains. On
the other hand, a judgment will be deemed final or executory "only after expiration of the time
allowed by law for appeal therefrom, or, when appeal is perfected, after the judgment is upheld
in the appellate court." (Corpus Juris Secundum, Vol. 49, p. 39.)
In the latter sense, we declared in De los Reyes vs. de Villa, 48 Phil., 227, that final decision
means a decision which has become final and non-appealable.
Now then, in what sense did the New Civil Code use "final judgment" in Art. 1606? Articles 1548
and 1557 of the same Code provide that eviction takes place whenever by "a final judgment" . . .
the vendee is deprived of the whole or of a part of the thing purchased; and the warranty of
eviction can not be enforced until "a final judgment" has been rendered whereby the vendee
loses the thing acquired or a part thereof.
Manresa believes and holds that final judgment in these articles imply a judgment that has
become final and executory.2 And "sentencia firme" in Spanish (that is the word in Arts. 1475 and
1480 of the Civil Code3 refer to binding, conclusive judgment. 4 Needless to add, if in previous
articles "final judgment" signify a judgment that has become final, it should have the same
meaning in subsequent articles in the same Code.

74
But let us test defendant's theory a little further. From his standpoint, if the Quezon court of first
instance had declared the contract to be a pacto de retro, the 30-day period would begin from the
promulgation of the judgment there, because such judgment was "final" (appealable) not
interlocutory. If such were the correct view, Art. 1606 would place the vendors in the difficult
position of having to decide either to appeal within 30 days or to repurchase. The framers of the
Code could not have had such intention. They could not have meant to give the vendor the
privilege to repurchase in exchange for his right to bring the matter before a higher court. The
litigant who alleged he was a mere mortgagor might not agree to the court's finding that he was a
vendor, and might insist that he was a mere mortgagor before a higher court. Until that tribunal
decides against him, he is not duty bound to consider himself a vendor.5
Again, in consonance with his position on the meaning of final judgment, herein defendant could as
well claim that the Court of Appeals' decision was a final judgment (a determination of all the issues
in the action not interlocutory) and that the 30 day period began on May 14, 1955. He does
not know advance such claim. Why? Because he knows such decision of the Court of Appeals was
not final, definitive, and obligatory. And he could not very well argue that the vendors were
"obliged" to repurchase in accordance with such decision, when precisely they were contesting it
before the Supreme Court, insisting they were mere mortgagors not vendors.
Presuming then that the lawmaking body intended right and justice to prevail 6 we hold that Art.
1606 means: after the courts have decided by a final or executory judgment that the contract was a
pacto de retro and not a mortgage, the vendor (whose claim as mortgagor had definitely been
rejected) may still have the privilege of repurchasing within 30-days. 7
As a matter of fact, American courts have held that although "final" is often used with "Judgment" to
distinguish it from interlocutory judgment, "final judgment" is also used to describe a determination
effective to exclude further proceedings in the same cause by appeal or otherwise, particularly
where time within which to act is limited to run "from judgment." 8
It is, therefore, our opinion on this phase of the litigation, that the 30-day period within which the
vendors (plaintiffs) could exercise their right to repurchase started to run on July 15, 1955, when
the resolution of this Court of Appeals became final.
A secondary issue is raised as to the vendor's efforts to repurchase. Defendant says the letter of
August 10, 1955, offering the money was not sufficient since it was not sincere, inasmuch as the
money was only deposited in court in November 11, 1955, a long time after the 30-day period. Little
need be said on this point except to declare that in the circumstances, the right was exercised in
due time, deposit of money being unnecessary, according toRosales vs. Reyes, 25 Phil., 495,
and Cruz vs. Resurrecion, 53 Off. Gaz., 5198, particularly because defendant had declared the
time repurchase had passed, thereby impliedly declining to accept any redemption
money.91wphl.nt
Wherefore, the appealed order is affirmed in toto with costs against appellant. This is subject,
however, to our resolution of April 7, 1958, ordering the substitution of plaintiffs-appellees by
Corazon L. Villanueva.
G.R. No. L-32670 December 29, 1977
ARSENIO GERARDINO, SR. vs. JOVITO GLORIA
FERNANDEZ, J.:

This is a petition for certiorari to review the decision of the Court of First Instance of Capiz in
Civil Case No. M-79 entitled "Jovito Gloria versus Arsenio Gerardino Sr., et al.", the dispositive
part of which reads:
WHEREFORE, judgment is rendered in favor of the plaintiff and against the defendants,
ordering, as it hereby, orders the consolidation of the title and/or ownership over the property
in question in favor of the former, without pronouncement as to costs.
SO ORDERED.
Mambusao, Capiz, December 26, 1969.
(SGD) SILVESTRE Br. BELLO
Judge 1
On July 12, 1966, Jovito Gloria, private respondent herein, instituted against Rosario Artuz Civil
Case No. M-79 in the Court of First Instance of Capiz for consolidation of ownership of a parcel
of land.
The complaint stated that on October 10, 1964 Rosario Artuz executed in favor of Jovito Gloria a
deed of sale with right to repurchase within a period of one (1) year of a parcel of residential land
located in Poblacion, Tapaz, Capiz, containing an area of 750 square meters and embraced in
Tax Declaration No. 3516 for a consideration of P2,025.00; that the defendant allegedly failed to
exercise her right to repurchase within the stipulated period; that the plaintiff had been in
possession of the property immediately after the execution of the document; and that said
plaintiff had been paying the taxes thereon. 2
In her answer the defendant Rosario Artuz admitted the existence of the deed of sale with right
to repurchase but denied the legality and genuineness thereof and alleged as affirmative
defenses that the document in question was an equitable mortgage, the real intention of the
parties being merely to secure the payment of a loan in the amount of P2.025.00; that the
defendant, who was then deaf. totally blind and senile, did not understand English and was
made to affix her thumbmark on the alleged deed of sale with right to repurchase upon
representation of the plaintiff that the same was a mere equitable mortgage; that the defendant
had remained in possession of the property in question and had been paying the taxes thereon
that a tender of payment was made by defendant to the plaintiff on or before October 10, 1965 to
repurchase the property but plaintiff refused to accept the amount of P2,025.00 because he was
asking for a much bigger amount of P6,000.00; that by reason of such refusal, the defendant
consigned the amount of P2,025.00 with the court; and that the actual amount of the loan
received by the defendant from the plaintiff was only P1,525.00 inasmuch as the amount of
P500.00 was retained by plaintiff as interest on the transaction. 3
The original defendant Rosario Artuz died. Hence the complaint was amended to substitute the
deceased defendant with her surviving heirs, namely, Arsenio Gerardino, Sr., Virginia Gerardino
Sy. Angelina Gerardino Gumba and Corazon Gerardino Legayada.
In an order rendered on February 17, 1969, the lower court set the pre-trial of the case on March
15, 1969.
On motion of counsel for the defendants, the pre- trial was reset to March 28, 1969.

75
Inasmuch as the counsel for the defendants failed to appear on March 28, 1969, the lower court
reset the pre-trial of the case, for the last time, on April 29, 1969.

was not redeemed and/or repurchased by anybody on or before the expiration of the date of
repurchase October 10, 1965.

In an order issued by the lower court on April 29, 1969, the defendants were given 15 days within
which to file a memorandum sustaining their view that they can still repurchase the property.

For what has been said, above, there can be no more dispute that the plaintiff bought the
property in litigation from the d original defendant, Rosario Artuz, for the sum of P2,025.00 on
October 10, 1964, with right of repurchase within a period of one (1) year. The period of one
(1) year within which to repurchase having expired without the vendor-a-retro having exercise
her right to repurchase the property sold, it follows as a consequence thereof, that the plaintiff,
is entitled to consolidation of his ownership. Indeed, the fact that the original defendant,
Rosario Artuz, as vendor-a-retro deposited the repurchase price of P2,025.00, with the court
on August 30, 1966, under Official Receipt No. 595356, issued by the Clerk of Court Leopoldo
B. Dorado, with which counsel for the substituted defendants wanted to be transferred with
the Philippine National Bank, Roxas City Branch, in his urgent motion filed on October 8, 1968
(see pp. 53-55, record), is not only the best reflection and healthiest index that she knew that
what she had executed in favor of the plaintiff was a sale with right of repurchase (Exh. 'A'),
the same deposit having been made by her on August 30, 1966, before she died on February
11, 1968, and after the expiration of the period of repurchase but also an abandonment and/or
waiver of what she had alleged in the answer that the real intention of the parties, i.e., the
vendee-a-retro and vendor-a- retro, in the Deed of Sale with Right of Repurchase (Exh. 'A')
was only an "Equitable Mortgage." 5

On June 17, 1969, the counsel of the plaintiff filed a motion for judgment on the pleadings and/or
upon confession, which was set for hearing on June 30, 1969. The lower court denied said motion
and ordered the pre-trial of the case to be held on September 19, 1969.
The parties manifested on September 19, 1969 that there was a strong possibility of an amicable
settlement. They waived the pretrial in order to save time and asked the court to set the date of the
trial on the merits. The lower court set the case for trial on October 17, 1969.
On October 17, 1969 a telegraphic motion for postponement sent by the counsel of the defendants
was denied and the plaintiff was allowed to present evidence in the absence of the defendants and
their counsel.
The defendants, petitioners herein, filed on November 14, 1969 a motion for relief from the order
allowing the plaintiff, private respondent herein, to present evidence. The motion was denied on
December 18, 1969 on the ground that "... the failure of defendants and their counsel to appear on
the date set for hearing, on October 17, 1969, was not due to accident, mistake or excusable
negligence, but due to the unexcusable negligence of the counsel for the defendants, the
consequence of which, must be suffered by his clients. 4
In its decision dated December 26, 1969, the lower court ordered the consolidation of the title
and/or ownership over the property in question in the name of the plaintiff because:
From the evidence of the plaintiff, it appears that he bought the property in question from the
original defendant, namely, the deceased Rosario Artuz, on October 10, 1964, for a purchase
price of P2,025.00, with said vendor-a-retro reserving the right to repurchase within a period of
one (1) year from the date thereof, i. e., under a "Deed of Sale with Right of Repurchase" (See
Exh. 'A'), which the vendee-a-retro registered in the Office of the Register of Deeds of Capiz;
that immediately upon the execution of the document of sale, the plaintiff, as vendee-a-retro,
took actual and material possession of the property bought and constructed a nipa house
thereon, which is presently occupied by his son, the picture of which nipa house, is Exhibit 'B';
that since the time said plaintiff took actual and physical possession of said property, nobody
prevented him from doing so, much less has his possession of the same been disturbed by
anybody up to the present time; that when plaintiff took possession of the property in question,
there were three (3) coconut, two (2) orange and three (3) mango trees already standing
thereon, the former are now fruit bearing which said plaintiff had enjoyed and/or perceived and
as to the mango trees, it is only this year that they are bearing fruits as the plaintiff was smoking
them; that the property bought is covered by Tax Declaration No. 3516, still in the name of the
vendor-a-retro, the original defendant (Exh, 'C') which has not yet been declared in his name
because at the time he bought said property, the same was delinquent in real estate taxes since
the year 1953, that when he paid the delinquent real estate taxes on June 20, 1966 (Exh. 'D'),
he was not able to pay all the delinquent taxes and besides, the land was then involved in the
instant case, which was filed by said plaintiff on July 2, 1966, and that said property in question

On March 2, 1970, the defendants, petitioners herein, filed a motion for new trial based on the
grounds provided in Section 1 (a) and (c), Rule 37, Revised Rules of Court. The motion was
denied in an order of March 30, 1970. 6
The defendants appealed to this Court assigning the following errors:
I. THE LOWER COURT ERRED IN HOLDING AND DECLARING THAT THE CONTRACT IN
QUESTION IS A TRUE SALE WITH RIGHT OF REPURCHASE AND NOT AN EQUITABLE
MORTGAGE.
II. THE LOWER COURT ERRED IN NOT PRONOUNCING CATEGORICALLY
(GRANTING ARGUENDO,THAT THE CONTRACT IS A SALE WITH RIGHT OF
REPURCHASE) WHETHER OR NOT ARTICLE 1606, THE LAST PARAGRAPH THEREOF,
OF THE NEW CIVIL CODE OF THE PHILIPPINES IS APPLICABLE OR AVAILABLE TO
DEFENDANTS.
III. THE LOWER COURT ERRED IN HOLDING AND DECLARING THAT DEFENDANTS
WERE IN DEFAULT AND DENYING THEM THE REMEDY PRAYED FOR IN THEIR MOTION
FOR RELIEF FROM SAID ORDER OF DEFAULT.
IV. THE LOWER COURT ERRED IN HOLDING AND DECLARING THAT DEFENDANTS'
MOTION FOR NEW TRIAL WITHOUT MERIT AND DENYING THEM THE REMEDY
PRAYED FOR THEREIN. 7
This appeal is meritorious.

76
While the record discloses that the defendants and their counsel have been lackadaisical in
attending to the case, substantial justice demands that petitioners be given their day in court. It
appears from the answer that the vendor-a-retro, Rosario Artuz, who died on February 11, 1968,
was deaf and blind and was senile when she was made to thumbmark the alleged deed of sale
with right to repurchase. The document is written in English which was not understood by Rosario
Artuz. The answer alleged that the intention of the parties was only to execute a deed of equitable
mortgage to secure the loan of P2,025.00; and that Rosario Artuz actually received only the
amount of P1,525.00 because the private respondent retained the amount of P500.00 as interest.
It is clear that the defendants have a meritorious defense. Their motion for new trial should have
been granted.
The nature of the document in question was squarely placed in issue. The defendants contend that
the document was only an equitable mortgage The third paragraph of Article 1606 of the Civil Code
of the Philippines provides that "the vendor may still exercise the right to repurchase within thirty
days from the time final judgment was rendered in a civil action on the basis that the contract was a
true sale with right to repurchase." Hence even if after a new trial it is found that the document in
question is a true sale with right of repurchase, the defendants may still exercise the right to
repurchase the land in question within thirty days from the time final judgment is rendered.
In view of the foregoing, it is no longer necessary to remand this case to the lower court for a new
trial.
The lower court erred in not allowing the defendants, as successors-in-interest of Rosario Artuz, to
repurchase the land within thirty days from the date the decision had become final. Since the
petitioners had duly consigned the repurchase price, their consignation of the amount of P2,025.00
validly effected redemption.
WHEREFORE, the decision appealed from is hereby set aside and the private respondent's
complaint for consolidation of ownership is dismissed. The petitioners are declared entitled to the
ownership and ion of the property in question and the private respondent is ordered to deriver to
petitioners the said property or any part thereof in his possession. Without pronouncement as to
costs. SO ORDERED.
G.R. No. L-20941
September 17, 1965
FELIX ONGOCO and BELEN CONSUNJI vs. THE HON. JUDGE OF THE COURT OF FIRST
INSTANCE OF BATAAN
BENGZON,. J.P., J.:
Felix Ongoco and Belen Consunji, spouses, were owners of a parcel of land, 695 square meters in
area, at Abucay, Bataan, covered by Transfer Certificate of Title No. T-8185 in their names.
On May 2, 1959 the aforesaid spouses sold their land to Apolonio Soriano and Cirila Mina, for
P1,500.00, with right to repurchase within three years from said date.
No repurchase was made within the agreed period. On August 29, 1962, Apolonio Soriano and
Cirila Mina filed in the Court of First Instance of Bataan a "petition" for an order declaring them the
absolute owners of the land and transferring the certificate of title to their names.

Although the petition was docketed as "Special Civil Case No. 2827" the respondents-vendors
were not served with summons but only sent a copy of the petition by registered mail.
The petitioners asked that the case be set for hearing on September 11, 1962 at 8:00 a.m. On
September 4, 1962, however, respondents-vendors moved for postponement of the
hearing.1awphl.nt
On September 11, 1962 , the date set for hearing, respondents-vendors were not present in
court when the case was called. The Court of First Instance denied their motion for
postponement and thereupon rendered judgment declaring the petitioners-vendees absolute
owners of the land and ordering registration thereof in their names.
Respondents-vendors moved, on October 4, 1962, to set aside the judgment but on October 25,
1962 the motion was denied. Subsequently, on February 26, 1963, the respondents-vendors in
said case filed the present suit herein for certiorari.
Petitioners contend that respondent Judge gravely abused his discretion and/or acted without or
in excess of jurisdiction in rendering the judgment aforementioned.
Article 1607 of the New Civil Code provides:
ART. 1607. In case of real property, the consolidation of ownership in the vendee by virtue of
the failure of the vendor to comply with the provisions of article 1616 shall not be recorded in
the Registry of Property without a judicial order, after the vendor has been duly heard.
Speaking through Mr. Justice J.B.L. Reyes, this Court has already ruled that the foregoing article
requires the filing of an ordinary civil action and, consequently, service of summons on partiesdefendants as well as opportunity to answer or move to dismiss within 15 days therefrom. We
quote from Tacdoro vs. Arcenas, L-15812, November 29, 1960:
The code did not provide for any specific procedure to be observed in securing the judicial
order above-mentioned. Accordingly, we should fall back on the ordinary rules of procedure
applicable. As correctly pointed out by the appellant, the petition to consolidate ownership
under the article aforequoted does not partake of the nature of a motion, it not being merely
an incident to an action or a special proceeding (see Sec. 1, Rule 26, Rules of Court; 60 C.J.
S. 7), but is an ordinary civil action cognizable by the Court of First Instance. As such ordinary
action, it should be governed by the rules established for summons found in Rule 7 of the
Rules of Court, stating, among other things, that upon the "filing of the complaint, the clerk of
court shall forthwith issue the corresponding summons to the defendant" (Sec. 1). The
defendant would then be entitled to a period of fifteen (15) days from service of such
summons within which to file either a motion to dismiss the petition (See. 1, Rule 8) or an
answer (Sec. 1, Rule 9). The failure of the court to properly observe these rules is sufficient
cause for validly attacking its consequent judgments and/or orders even on jurisdictional
grounds (See Salmon & Pacific Commercial Co. vs. Tan Cueco, et al., 36 Phil. 556).
That the vendor a retro should be made a party-defendant to the proceedings and, therefore,
be entitled to notice of the same, is clearly inferable from the codal provision that the judicial
order consolidating ownership in the vendee a retro shall not issue unless "after the vendor

77
has been duly heard" (Art. 1607, Civil Code, supra); which statement would also imply that the
proceedings therein to be taken are in no way to be construed as merely summary in nature.
This conclusion is further fortified by other provisions of the new Civil Code such as articles
1602, 1603, 1604, 1605 and 1606, which are all indicative of the legislative intent to accord to
the vendor a retro the maximum safeguards for the protection of his legal rights under the true
agreement of the parties. Experience has demonstrated too often that many sales with right of
repurchase have been devised only to circumvent or ignore our usury laws and for this reason,
the law looks upon them with disfavor (Report of the Code Commission, pp. 63-64). When,
therefore, Article 1607 speaks of a judicial order after the vendor shall have been duly heard, it
contemplates none other than a regular court proceeding under the governing Rules of Court,
wherein the parties are given full opportunity to lay bare before the court their real covenant.
Furthermore, the obvious intent of our Civil Code, in requiring a judicial confirmation of the
consolidation in the vendee a retro of the ownership over the property sold, is not only to have
all doubts over the true nature of the transaction speedily ascertained and decided, but also to
prevent the interposition of buyers in good faith while such determination is being made. Under
the former method of consolidation by a mere extra-judicial affidavit of the buyer a retro, the
latter could easily cut off any claims of the seller by disposing of the property, after such
consolidation, to strangers in good faith and without notice. The chances of the seller a retro to
recover his property would thus be nullified, even if the transaction were really proved to be a
mortgage and not a sale.
From the facts of this case it is clear that the requisite of an ordinary civil action has not been
followed. For, as stated, no summons was served on the respondents-vendors. Assuming that
respondents-vendors' motion to postpone may be taken as voluntary submission to the lower
court's jurisdiction producing the effect or service of summons still, they should have been
given 15 days therefrom to file an answer. The Court of First Instance instead forthwith rendered
judgment, so that respondents-vendors were deprived of their right to be heard, in violation of
Article 1607 of the New Civil Code.
WHEREFORE, the writ of certiorari is granted, the judgment in question is set aside, and
respondent Judge is ordered to allow herein petitioners to file, within 15 days from notice, their
answer in Special Civil Case No. 2827. No costs. So ordered.

G.R. No. L-31586 February 28, 1972

YTURRALDE vs. COURT OF APPEALS
MAKASIAR, J.:p
Petitioners-appellants in this appeal by certiorari seek the reversal of the decision of the Court of
Appeals dated December 24, 1969.
The Court of Appeals narrated the facts thus: .
It appears that the spouses Francisco Yturralde and Margarita de los Reyes, owned a parcel of
agricultural land located in Guilinan, Tungawan, Zamboanga del Sur, containing an area of
14.1079 hectares, more or less, and registered in their names under Original Certificate of Title
No. 2356 of the Office of the Register of Deeds of Zamboanga del Sur. Sometime in the year
1944, Francisco Yturralde died intestate, survived by his wife, Margarita de los Reyes, and their

children who are the petitioners herein, Ernesto, Fortunata, Montano, Zosimo, Ramon,
Guadalupe, Luis, Josefina and Rosalia, all surnamed Yturralde. In 1950, Margarita de los
Reyes contracted a second marriage with her brother-in-law and uncle of the petitioners
herein, Damaso Yturralde .
On May 30, 1952, Damaso Yturralde and Margarita de los Reyes executed a deed of sale
with right of repurchase in favor of the respondent herein, Isabelo Rebollos, covering the
above-mentioned property in consideration of the sum of P1,715.00. The vendors a
retro failed to exercise the right to repurchase the property within the three-year period agreed
upon, which expired on May 30, 1955. In 1961, Margarita de los Reyes died.
On May 3, 1965, the respondent, Isabelo Rebollos, filed a petition for consolidation of
ownership with the Court of First Instance of Zamboanga del Sur, docketed as Civil Case No.
436 therein, naming as respondents in the case the petitioners herein and Damaso Yturralde
(Annex A, Petition). Summons was then issued, and received on June 17, 1965 by the
respondent therein, Damaso, Ernesto, Fortunata, Montano, Guadalupe, Luis and Rosalia, all
surnamed Yturralde (Annexes C and F, Petition). However, summons could not be served on
three of the respondents therein, Josefina, Zosima and Ramon Yturralde, as they were no
longer residing at their last known addresses (Annexes B, C and F, Petition). The Judge then
presiding the Court of First Instance of Zamboanga del Sur, Hon. Dimalanes Buissan, in his
order dated October 7, 1965, directed that summons be served upon the said three
respondents therein (Annex C, Petition). The copies of the petition sent to said three
respondents, but returned without service, were then delivered by Rebollos to the Clerk of
Court of the Court of First Instance of Zamboanga del Sur to complete the delivery thereof
under Section 6 of Rule 13, Rules of Court (Annex D, Petition). Thereafter, on motion filed by
Rebollos to declare the respondents in the case in default (Annex E, Petition), the Court
issued an order dated November 13, 1965, declaring all the respondents therein in default,
after which Rebollos presented his evidence (Annexes F and G, Petition). On November 20,
1965, the Court rendered a decision consolidating the ownership of the subject property in
favor of Rebollos, and ordering the Register of Deeds of Zamboanga del Sur to cancel
Original Certificate of Title No. 2356 covering said property and, in lieu thereof, to issue a
transfer certificate of title in the name of Rebollos (Annex H, Petition).
On June 3, 1966, Rebollos filed a motion to order the petitioner Montano Yturralde herein to
surrender and deliver to the Register of Deeds the owner's duplicate of Original Certificate of
Title No. 2356, which motion was granted by the Court presided at the time by Judge Antonio
Montilla (Annexes I and H, Petition). Due to the failure of petitioner Montano Yturralde to
comply with the order (Annex J) and on the motion filed by Rebollos, the Court, then presided
by the respondent Judge ordered the arrest of said Montano Yturralde, but the order of arrest
was subsequently lifted on motion filed by Montano Yturralde (Annexes K, L, M, N, O and P,
Petition).
On motion filed by Rebollos, dated January 6, 1969, the respondent Judge ordered the
execution of the judgment in Civil Case No. 436, and on January 20, 1969, the corresponding
writ of execution was issued (Annexes Q, R and S, Petition). The petitioners herein then filed
a motion for reconsideration of the order granting execution and for the quashing of the writ of
execution, which was denied by the respondent Judge in his order of March 21, 1969 (Annex
T, U, V and W, Petition). On petition filed by Rebollos, the respondent Judge, ordered the
demolition of all buildings not belonging to said Rebollos found on the premises in question
(Annexes X and Y, Petition).The petitioners then filed a motion for reconsideration of the order
of demolition, which was denied by the respondent Judge, who, however, on motion of said

78
petitioners, directed the respondent Sheriff to defer the implementation of the writ of execution
and the order of demolition until after June 23, 1969 (Annexes Z and AA, Petition). Thereafter,
the petitioners instituted the present proceedings.
The petition was given due course by this Court, and on June 19, 1969, a writ of preliminary
injunction was issued, restraining the respondents from enforcing the decision and the orders
complained of in Civil Case No. 436, until further orders. In his answer to the petition filed by the
respondent, Isabelo Rebollos, he averred that on January 3, 1968, he sold the property in
question to Pilar M. vda. de Reyes under a deed of absolute sale and, accordingly, a Transfer
Certificate of Title was issued in favor of said vendee covering the subject property by the
Register of Deeds (Answers and Annexes 4 and 5 thereto).
The case before us is one for prohibition. (Section 2 of Rule 65, Rules of Court). (Pp. 16-19,
rec.).
The Court of Appeals held that the action for prohibition before it seeking to restrain the
enforcement of the decision in Civil Case No. 436 and the implementing orders issued subsequent
thereto by the respondent Judge of the Court of First Instance of Zamboanga del Sur, will not
prosper; because prohibition is a preventive remedy to restrain the exercise of a power or the
performance of an act and not a remedy against acts already accomplished, which cannot be
undone through a writ of prohibition, and in the instant case, the judgment of the lower trial court
consolidates the ownership of the entire property involved in Civil Case No. 436 in favor of
respondent Isabelo Rebollos, orders the cancellation of the original certificate of title covering the
same, and directs the issuance of a new certificate of title in the name of respondent Rebollos.
By virtue of an absolute deed of sale executed on January 3, 1968 by respondent Isabelo
Rebollos, a new certificate of title was issued in the name of the vendee, Pilar M. Vda. de Reyes
(citing Annexes 4 and 5 of the Answer). The respondent Court of Appeals then concluded that "As
the thing sought to be restrained had already been done, and since a certificate of title is
conclusive evidence of the ownership of the land referred to therein (Section 47, Act No. 496, as
amended; Aldecoa & Co. vs. Warner, Barnes & Co., 30 Phil. 153; Yumul vs. Rivera, et a1., 64 Phil.
13), and the same cannot be collaterally attacked, but can only be challenged in a direct
proceeding (Menderson vs. Garrido, 90 Phil. 624), prohibition in this case is not the proper
remedy." .
Petitioners-appellants claim that the Court of Appeals erred (1) in sustaining the actuation of the
trial court in allowing service of summons upon appellants Josefina, Zosima and Ramon Yturralde
by registered mail pursuant to Section 6, Rule 13, of the Rules of Court; (2) in sustaining the ruling
of the trial court that it properly acquired jurisdiction over the aforesaid three appellants by virtue of
such mode of service of summons; and (3) in not declaring as null and void the decision of the trial
court along with its implementing orders, at least insofar as the aforenamed three appellants are
concerned on the ground that they were not given their day in court.
The three assigned errors shall be discussed jointly.
I. The respondent Court of Appeals erred in holding that the petition for prohibition before it will not
prosper as the act sought to be prevented had already been performed; because the order for the
issuance of the writ of execution, the corresponding writ of execution and the order for demolition
respectively dated January 6, 1969, January 20, 1969 and May 15, 1969 in Special Civil Case No.

436 were not enforced by the respondent trial judge, who in his order dated May 26, 1969
directed the provincial sheriff to defer the implementation thereof (Annex "AA", p. 66, record of
C.A. G.R. No. 43310; pp. 19-26, rec.). The petitioners herein reiterated that they are still in
possession of the property in question, which possession was recognized and protected by the
respondent Court of Appeals itself when it issued the writ of preliminary injunction dated June
19, 1969 against private respondent Isabelo Rebollos pursuant to its resolution dated June 17,
1969 (pp. 67-74, rec. of C.A. G.R. No. 43310).
It should be noted that the petition for prohibition filed with the Court of Appeals prayed for the
issuance of the writ of preliminary injunction.
enjoining herein respondents from enforcing the Decision dated November 20, 1965, the
orders dated January 15, 1969, March 21, 1969, May 15, 1969 and May 26, 1969, Annexes
"H", "R", "W", "Y", and "AA" hereof, and after due hearing ..., the preliminary writ of injunction
be made permanent and so with the writ of prohibition.
Petitioners also pray for such other and further reliefs to which they may be entitled under the
law.
While it is true that the decision in Special Civil Case No. 436 was already rendered, Original
Certificate of Title No. 2356 was cancelled and a new transfer certificate of title issued in the
name of Pilar V. vda. de Reyes by virtue of the deed of absolute sale executed on January 3,
1968 by private respondent Isabelo Rebollos in her favor; the writ of execution and the order of
demolition, as heretofore stated, were never enforced by reason of which herein petitioners
remain and are still in possession of the land. Moreover, the general prayer for such other reliefs
as herein petitioners may be entitled to under the law, includes a prayer for the nullification of the
decision of November 20, 1965 as well as the questioned orders above-mentioned.
II. Unlike the old Civil Code, Article 1607 of the new Civil Code of 1950 provides that
consolidation of ownership in the vendee a retro of real property by virtue of the failure of the
vendor a retro "to comply with the provisions of Article 1616 shall not be recorded in the Registry
of Property without a judicial order, after the vendor has been duly heard." In the case
of Teodoro vs. Arcenas, 1 this Court, through Mr. Justice Jose B. L. Reyes, ruled that under the
aforesaid Article 1607 of the new Civil Code, such consolidation shall be effected through an
ordinary civil action, not by a mere motion, and that the vendor a retro should be made a party
defendant, who should be served with summons in accordance with Rule 14 of the Revised
Rules of Court; and that the failure on the part of the court to cause the service of summons as
prescribed in Rule 14, is sufficient cause for attacking the validity of the judgment and
subsequent orders on jurisdictional grounds. 2 The Court in said case stressed that the reason
behind the requirement of a judicial order for consolidation as directed by Article 1067 of the new
Civil Code is because "experience has demonstrated too often that many sales with right of repurchase have been devised to circumvent or ignore our usury laws and for this reason, the law
looks upon them with disfavor (Report of the Code Commission, pp. 63-64). When, therefore,
Article 1607 speaks of a judicial order after the vendor shall have been duly heard, it
contemplates none other than a regular court proceeding under the governing Rules of Court,
wherein the parties are given full opportunity to lay bare before the court the real covenant.
Furthermore, the obvious intent of our Civil Code, in requiring a judicial confirmation of the
consolidation in the vendee a retroof the ownership over the property sold, is not only to have all
doubts over the true nature of the transaction speedily ascertained, and decided, but also to
prevent the interposition of buyers in good faith while such determination is being made. Under

79
the former method of consolidation by a mere extrajudicial affidavit of the buyer a retro, the latter
could easily cut off any claims of the seller by disposing of the property, after such consolidation, to
strangers in good faith and without notice. The chances of the seller a retro to recover his property
would thus be nullified, even if the transaction were really proved to be a mortgage and not a
sale." 3
The doctrine in the aforesaid case of Teodoro vs. Arcenas was reiterated by this Supreme Tribunal
through Mr. Justice Jose P. Bengzon in the case of Ongcoco, et al. vs. Honorable Judge, et al. 4
The jurisdiction over the persons of herein petitioners Josefina, Zosima and Ramon all surnamed
Yturralde, was not properly acquired by the court because they were not properly served with
summons in the manner directed by Rule 14 of the Revised Rules of Court. The said three
petitioners cannot therefore be legally declared in default. Rule 13 of the Revised Rules of Court on
service and filing of pleadings and other papers with the court, does not apply to service of
summons. Rule 14 of the Revised Rules of Court on service of summons, which should govern,
provides that "upon the filing of the complaint, the Clerk of Court shall forthwith issue the
corresponding summons to the defendants" (Section 1, Rule 14), which summons shall be served
by the sheriff or other proper court officer or for special reason by any person specially authorized
by the court issuing the summons by personally handing a copy of the same to the defendants
(Sections 5 & 7, Rule 14). If the residence of the defendant is unknown or cannot be ascertained
by diligent inquiry or if the defendant is residing abroad, service may be made by publication in a
newspaper of general circulation in accordance with Sections 16 & 17, Rule 14. 5 The sheriff or
private respondent Isabelo Rebollos himself should have made a diligent inquiry as to the
whereabouts of the three petitioners aforementioned. The trial court could have directed such an
inquiry, which would have disclosed that petitioners Josefina, Ramon and Zosima reside
respectively at Sibugey in Zamboanga del Sur, Roxas Street in Basilan City, and Washington, D.C.,
U.S.A. There is no showing that such a diligent inquiry was made to justify a substituted service of
summons by publication. The return dated June 18, 1965, of the acting chief of police of
Tungawan, Zamboanga del Sur, to the clerk of court and ex-officio provincial sheriff "that Josefina,
Zosima and Ramon are no longer residing in this municipality" (Annex "B" to Petition of Court of
Appeals, p. 20, rec. of C.A. G.R. No. 43310), does not suffice to indicate that a careful investigation
of their whereabouts was made. And even if it did, substituted service of summon by publication
should have been required. Aside from the fact that the said return of service is a nullity as it is not
under oath, there is no showing even that the acting chief of police was especially authorized by
the court to serve the summons (Sections5 & 20, Rule 14, Revised Rules of Court.) 6
To emphasize, Section 3 of Rule 14 of the Revised Rules of Court commands the service of
summons together with a copy of the petition, on each of the defendants who must be specifically
named in the summons, upon the filing of such petition, like the petition in Special Civil Case No.
436 filed by privaterespondent Isabelo Rebollos for consolidation of ownership over the lot
coveredby Original Certificate of Title No. 2356 in the name of "Francisco Yturralde married to
Margarita de los Reyes." .
III. The action for consolidation should be brought against all the indispensable parties, without
whom no final determination can be had of the action; and such indispensable parties who are
joined as party defendants must be properly summoned pursuant to Rule 14 of the Revised Rules
of Court. If anyone of the party defendants, who are all indispensable parties is not properly
summoned, the court acquires no jurisdiction over the entire case and its decision and orders
therein are null and void. 7

The pacto de retro sale executed by Margarita de los Reyes "casada en segundas nuptias con
Damaso Yturralde," expressly stipulates that she only sold all her rights, interests and
participation in the lot covered by O.C.T. No. 2356 (Annex "I", p. 66, rec.). Margarita therefore,
could not, for she had no right to, sell the entire lot, which is registered under O.C.T. No. 2356
"inthe name of Francisco Yturralde married to Margarita de los Reyes." Said lot is acknowledge
by herein petitioners as the conjugal property of Francisco and Margarita (p. 2, rec. of C.A. G.R.
No. 43310). What she validly disposed of under the aforesaid pacto de retro sale of 1952 was
only her conjugal share in the lot plus her successional right as heir in the conjugal share of her
deceased husband Francisco.
Consequently, the vendee a retro, Isabelo Rebollos, cannot legally petition for the consolidation
of his ownership over the entire lot.
But in the petition he filed in Special Civil Case No. 436 on May 3, 1965 against herein nine
petitioners as children and heirs of the deceased spouses Francisco Yturralde (who died in
1944) and Margarita de los Reyes (who died in 1961), and Damaso Yturralde, stepfather of
herein petitioners, Rebollos prayed for the consolidation of his ownership over the entire lot
covered by O.C.T. No. 2356, and not merely over the interest conveyed to him by Margarita. As
the petition of private respondent Rebollos sought to divest all of them of their undivided interest
in the entire agricultural land, which undivided interest was never alienated by them to Rebollos,
herein petitioners became indispensable parties. Rebollos himself acknowledged that they are
indispensable parties, for he included them as party-defendants in his petition in order to acquire
their undivided interest in the lot. While summons were served properly on all the other
defendants in said Civil Case No. 436, herein petitioners Josefina, Zosima and Ramon were not
so served. Because of such failure to comply with Rule 14 of the Revised Rules of Court on
service of summons on indispensable parties, as heretofore stated, the trialcourt did not validly
acquire jurisdiction over the case; because no complete and final determination of the action can
be had without the aforesaid three petitioners Josefina, Zosima and Ramon.
The petition for consolidation filed by herein private respondent Rebollos is similar in effect to an
action for partition by a co-owner, wherein each co-owner is an indispensable party; for without
him no valid judgment for partition may be rendered. 8
That the three children, herein petitioners Josefina, Zosima and Ramon, are essential parties,
without whom no valid judgment may be rendered, is further underscored by the fact that the
agricultural land in question was owned by them in common and pro indiviso with their mother
and their brothers and sisters and was not then as now physically partitioned among them.
For attempting to acquire the entire parcel by foisting upon the court the misrepresentation that
the whole lot was sold to him, private respondent Isabelo Rebollos must suffer the
consequences of his deceit by the nullification of the entire decision in his favor granting the
consolidation of his title over the entire land in question. This Court condemns such deception.
It should be noted that herein petitioners in 1967 also filed an action against only Isabelo
Rebollos for the recovery of ownership, annulment of judgment, redemption and damages in the
Court of First Instance of Zamboanga del Sur docketed as Civil Case No. 944 and entitled
"Fortunata Yturralde, et al. vs. Rebollos" (pp. 76, 84-96, rec. of C.A. G.R. No. 43310).

80
In their complaint in said Civil Case No. 944 dated May 23, 1967 (pp. 117-124, rec. of C.A. G.R.
No. 43310), herein petitioners allege inter alia that the respondent trial court (in Special Civil Case
No. 436) had no jurisdiction over their share in the aforementioned lot through a "summary
proceedings without notice to them" (pp. 88-89, rec. of C.A. G.R. No. 43310).
Herein petitioners should amend their complaint in Civil Case No. 944 so as toinclude Pilar V. vda.
de Reyes party defendant therein in order that they can obtain a full and complete valid judgment
in the same action; because the vendee is an indispensable party. 9
It is a curious fact that Rebollos filed his petition for consolidation of title only on May 3, 1965,
almost ten years after the redemption period expiredon May 30, 1955, and about four years after
the death in 1961 of the vendor a retro.
lt is equally interesting to note that after herein petitioners filed in 1967 an action against Rebollos
for the recovery of ownership, annulment of judgment, redemption and damages, Rebollos sold on
January 3, 1968 the land in question to Pilar V. vda. de Reyes, with the deed of sale duly notarized
by Atty. Geronimo G. Pajarito, counsel for Rebollos in Special Civil Case No. 436 (pp. 16-17, 2225, 31, 42, 44-47, 51, 56, 59, 61-62, 93, rec. of C.A. G.R. No. 43310).
But more intriguing is the fact that, after Rebollos sold on January 3, 1968 the land to Pilar V. vda.
de Reyes, Rebollos himself, not his vendee, filed:
(1) a motion dated January 6, 1969 for the issuance of a writ of execution from the judgment in
Special Civil Case No. 436, by reason of which the corresponding writ of execution was issued
on January 20, 1969; .
(2) an opposition to the motion of herein petitioners for the reconsideration of the aforesaid order
of January 20, 1969; and .
(3) a motion dated April 7, 1969 for execution and demolition of the buildings of herein
petitioners (pp, 61-62, rec. of CA-G.R. No. 43310).
WHEREFORE, judgment is hereby rendered reversing the decision of respondent Court of Appeals
dated December 24, 1969, and setting aside as null and void .
(1) the decision of the respondent trial judge dated November 20, 1965; .
(2) the order for the issuance of the writ of execution dated January 6, 1969; .
(3) the writ of execution dated January 20, 1969; and .
(4) the order of demolition dated May 15, 1969 in Special Civil Case No. 436; .
without prejudice to the final outcome of Civil Case No. 944.
With costs against private respondent Isabelo Rebollos.
G.R. No. L-48198 July 31, 1978
PRUDENCIA GLORIA-DIAZ and EUGENIO DIAZ vs. COURT OF APPEALS
TEEHANKEE, J.:
The Court sets aside respondent appellate court's resolution which countermanded its original
decision declaring that in the light of the admitted facts of record the transaction between the
parties was truly and in reality a simple loan and equitable mortgage regardless of the
nomenclature given thereto as a pacto de retro sale, The original decision correctly held that it is

not the parties but the law that determines the juridical situation created by the parties through
their contract and the rights and obligations arising therefrom.
On May 8, 1972, petitioners-spouses Prudencia Gloria- Diaz and Eugenio Diaz as plaintiffs filed
their complaint in the Pangasinan court of first instance praying that respondents-spouses Felix
B. Magalong and Isidra G. Magalong as defendants be compelled to accept the tender of
payment of P4,500.00 deposited in the court by way of redemption of their 40,000-square meter
riceland in Bayambang, Pangasinan, subject of several contracts entitled "Deed of Sale with
Conventional Redemption" executed by them with respondents as vendees and to execute the
necessary deed reconveying the said property to them.
The trial court in its decision of November 29, 1973 dismissed the complaint on the ground of
lapse of the 10-year repurchase period and ruling that if "[respondents] had set certain
conditions for the reconveyance of the property to [petitioners] other than those agreed upon,
[respondents] were well within their right to do so." 1
Petitioners appealed to respondent Court of Appeals 2 which restated the facts in its decision
of November 3, 1977, as follows:
... plaintiff, Prudencia Gloria, married to plaintiff Eugenio Diaz, is the aunt of Isidra GloriaMagalong, wife of defendant, Felix B. Magalong; the parties are from Pangasinan, but the
spouses Magalong are U.S. residents, the husband being with the U.S. Army; now, on 27
January, 1958, Prudencia with assistance of her husband, Eugenia executed Exh. A being a
deed entitled one of sale with conventional redemption over 2 parcels of land in Barrio
Buayaan, town of Bayambang, Pangasinan, in favor of Isidra Gloria, wife of Magalong for the
sum of P3,600.00, redeemable with 10 years then 2 years later, on 21 August 1961, a new
deed of same tenor was signed by spouses Diaz increasing the original consideration of
P3.600.00 by P 200.00, Exh. B; again, on 1 October, 1964, a new deed once more of the
same tenor executed by spouses Diaz increasing the sum received by P400, so that the total
became P4,200.00, Exh. C; finally on 26 June 1965, another sum was added of P30.00, and
a new deed once again of the same tenor was signed by Prudencia, Exh. D, so that the
total became P4,500.00 now remember that the period of redemption not having been
changed either in Exh. B, C or D, was to expired by 27 January 1968, and apparently
because they did not have money to redeem, spouses Diaz wrote to spouses Magalong in
America sometime in December, 1967 asking to renew and it is here where complication
arose.
Because according to plaintiffs, spouses Magalong answered in letter of 19 February, 1968
indicating willingness, Exh. F, which is in handwriting, instructing that new document of
same tenor be drafted by Notary Public, Mr. Numeriano de Castro, Magalong's friend, this
despite the fact that 10 year redemption period had already expired, on the other hand,
according to defendants, Magalong, they never sent this handwritten letter, Exh. F, what they
had sent was the letter, Exh. 6 dated 12 January 1968 (duplicate carbon of that is Exh. 6)
wherein they manifested their willingness to accept a new document of the same tenor
but upon certain conditions, among them that because of depreciation of value of the peso,
that the consideration should be placed at P9,000.00 if the dollar was worth 4 times the peso,
further, that draft of new document to be sent unto them for perusal and if they were
agreeable, they would send it back for notarization, and that also, before finalization, they
should be notified, for them to send a special power of attorney for a relative who spoke
English welt,

81
And the misunderstanding began with that, plaintiffs, on the position that they were complying
with Exh. F, caused preparation of new deed, Exh. E, on 21 June, 1968, with consideration
being only for P4,500.00, and had it ratified before the above-mentioned notary public, Mr.
Numeriano G. de Castro, but in turn, defendants refused to accept claiming they were not bound
thereby, there was further interchange of communications, until plaintiffs filed present case on 8
May, 1972 and according to her, she deposited the money coincidentally; and in the trial, her
position and evidence were to the effect that it became obligation of defendants to execute deed
of redemption, which defendants spouses Magalong resist, on the position and evidence that
no, and that the period of redemption having expired, title should be consolidated, ... . 3
While respondent appellate court did not give its sanction to the last deed of sale executed
unilaterally by petitioners on June 21, 1968 for P4,500.00 with right to repurchase within a period of
five (5) years from said date of execution, it held however that in the fight of the admitted facts the
transaction was in reality an equitable mortgage and therefore set aside the trial court's dismissal
of the case.
The appellate court cited petitioners' contention on appeal "that the agreement was only
an equitable mortgage, not a sale with right of redemption at an, and they point to
the undisputed fact that the first document of 27 January, 1958, Exh. A, was for P3,600.00, then
a second document of exactly the same tenor was executed on 21 August, 1958, or hardly 7
months later, adding a sum that had been later on received as addition to the price ofP200.00,
making the redemption price, P3,800.00, then four years later, 179 cause an additional amount
was again received of P400.00, a new document was once more executed, Exh. C, raising the
redemption price toP4,200.00, and then a year later, because still another sum of P300.00 had
been received, still another document of the same tenor was once more executed, Exh. D, on
June, 1965, raising the redemption price to P4,500.00." 4
The appellate court found that "(I)n the mind of this Court, (the) foregoing facts, admitted on both
sides, can not have any other interpretation than that there could have been no legal purposes for
the additions of P200.00, P400.00, and P500.00 to increase the redemption price than to erase the
nomenclature of the transaction from a deed of sale with conventional redemption, into the
revelation that it was truly and in reality, a simple loan, surely, if Exh. A was a true deed of sale
with pacto de retro, the price was P3,600.00, nothing not even a centavo more, the only right of
vendor-a-retro would have been to redeem at that price; if vendee-a- retro himself gave afterwards
several additional amounts, and himself consented that they be aggregated to the price of
redemption, that was absolutely inconsistent with the designation of the agreement, Exh. A, as a
true sale with pacto de retro, a sale with pacto de retro is a true, a good sale, it transfers title to
vendee, only subject to a resolutory condition, the addition of further sums accepted by vendeea-retro, becomes incomprehensible, in other words, the net conclusion must have to that
consistent with their own conduct, especially that of 'vendee-a-retro', the Courts should understand
the agreement to have been really only loan with equitable mortgage, for the parties neither have
any legal night to change the juridical qualification that the law attaches to their conduct, it is the
law, not their written contract, that does that for them." 5
The appellate court rejected respondents' defense of estoppel, thus: "(N)ow, of course, defendants
contend in this connection, that plaintiffs are in estoppel to raise this question that it was only an
equitable mortgage, since plaintiffs themselves have described the transaction as a sale with right
of conventional redemption in their complaint, but the answer to this is not only that as this Court
has said, it is not the parties but the law, that determines the juridical situation created by the
parties thru their contract, but not only this, but this Court, reviewing the record, notices that no
less than defendants themselves apparently accepted that this had become an issue in the trial, so

much so that they presented witness Atty. Felipe Santillan, a practising lawyer and Notary Public
in Pangasinan, versed in the Pangasinan dialect, and who confronted with the very letters of
defendants Magalong wherein the latter referred to the transaction they had had with plaintiffs as
'prindaan,' declared. ... A. 'Well, this word PRINDAAN is a general term in Pangasinan. It may
mean a pledge, chattel mortgage, a simple mortgage and it may mean also a deed of sale with
conventional redemption.' (tsn. 11:2021, witness Felipe Santillan). The long and short of it is that
as Courts of Justice can not close their eyes to the evidence presentedby the parties themselves
and foregoing testimony of a witness submitted by defendants no less going to show that they
understood that the true meaning of the transaction had to be clarified, that point had
become materialtherefore the argument of estoppel by them stated in answer to Error 2 cannot
persuade, and since with that, this Court becomes not only free but in fact, obliged to rule, and
said additional sums by them receive having no other meaning than that this was in reality a
series of loans." 6
The appellate court accordingly reversed the lower court's decision and rendered judgment for
petitioners allowing their redemption of the property for the stipulated sum of P4,500.00 within
30 days from finality of the decision. 7
Upon respondent's motion for reconsideration, however, respondent appellate court (with a
changed composition with the compulsory retirement on January 1, 1978 of the ponente Acting
Presiding Justice Gatmaitan) 8 issued its Resolution of February 3, 1978 setting aside its original
decision of November 3, 1977 and instead affirming the lower court's dismissal of petitioners'
complaint, on the following ratiocination:
That on 3 occasions, the purchase price was increased under Exhs. B, C and D may indeed
be interpreted as meaning that only a simple loan was intended by the contracting parties, but
then.
a) This is not one of the circumstances listed in Art. 1602 of the Civil Code;
b) The additional amounts did not result in any extension of the redemption period; and
c) The payment of the additional amounts did not in any way benefit the vendees and were
acts of liberality extended to a close relative by blood.
It is also important to note that the complaint is anchored on Exh. E (dated June 21, 1968
after the expiration of the redemption period) which the Court a quo found to be self-serving
as it was the unilateral act of the appellants. And the complaint is totally silent as to Exhs. A,
B, C and D; seeks no reformation; and alleges that the consignation was not in payment of a
loan, but in payment of the repurchase price (par. 9). In asking that the motion for
reconsideration be denied, the appellants in effect uphold that they are entitled to reformation.
This is a remedy not sought by them in the trial court and is not a matter even discussed in
the briefs.
Finally, the 10-year redemption period expired on January 27, 1968, but the consignation was
made and the complaint was filed only in 1972.

82
The appellate court in its Resolution of April 14, 1973 denied petitioners' motion for reconsideration
in turn and reaffirmed its legal conclusion that the true transaction was a sale with rights to
repurchase rather than a simple loan as held by the original decision of November 3, 1977.

G.R. No. L-25931 October 30, 1978

ROBERTO LABASAN vs. ADELA LACUESTA
MUOZ PALMA, J.:

Hence, the petition at bar, which the Court finds to be well taken for the following principal
considerations.

Is the contract entered into between spouses Clemente and Hermenigilda Lacuesta on one
hand and spouses Gelacio and Marcela Labasan on the other a pacto de retro sale or an
equitable mortgage? This is the lone question involved in this litigation.

1. The conclusion in the appellate court's countermanding Resolution of February 3, 1978 that the
true transaction a pacto de retro sale is contrary to the very admission of respondent Felix B.
Magalong in his letter of March 28, 1972 to petitioner Eugenie Diaz wherein said respondent
expressly referred to petitioners' proposal "to redeem the land which has been mortgaged to us." 9
2. The appellate court's countermanding Resolution of February 3, 1978, supra, recognized that
the undisputed fact that on three occasions the original "purchase price" of P3,600.00 was
increased with the "additional payments" of P200.00, P400.00 and P300.00, which added up to
a total increased "purchased price" of P4,500.00indicated that only a simple loan was intended by
the contracting parties." Yet, it rejected this correct indication and conclusion on three manifestly
mistaken inferences as follows:
1st that "this is not one of the circumstances listed in Article 1602 of the Civil Code", completely
disregarding the 6th circumstance or badge of equitable mortgage fisted in the article, to wit, "(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";
2nd, "The additional amounts did not result in any extension of the redemption period." Precisely,
as stressed in the original decision of November 3, 1977, if the transaction were a true pacto de
retro, the purchase price had been fixed at P3,600.00 not a centavo more and respondents' giving
of additional amounts on three different occasions to be aggregated to the redemption price "was
absolutely inconsistent" with the concept of "a true sale with pacto de retro"; and
3rd, the inference that the additional amounts did not benefit the respondents and were "acts of
liberality" is patently mistaken. As already pointed out, such addition amounts merely reveal the
nature of the transaction as a series of loans which did not involve any "liberality." As a matter of
fact, respondents expressly insisted that they be repaid in dollars at the equivalent increased rate
then of P6.40 to the dollar not, withstanding the prohibitory provision to the contrary of Republic Act
No. 529.
3. The appellate court's countermanding Resolution of February 3, 1978 furthermore completely
disregarded the applicable provisions of Article 1603, Civil Code that "In case of doubt, a contract
purporting to be a sale with right to repurchase shall be construed as an equitable mortgage" and
of Article 1606, Civil Code, 3rd paragraph that "the vendor may still exercise the right to
repurchase within thirty days from the time final judgment was rendered in a civil action on the
basis that the contract was a true sale with right to repurchase", which latter provision was aptly
applied in the original decision although it did not expressly cite the codal article.
ACCORDINGLY, judgment is hereby rendered setting aside the appellate court's Resolutions of
February 3, 1978 and April 14, 1979 and reinstating the original decision and judgment of
November 3, 1977. Without costs.

Sometime in 1927, spouses Lacuesta were the owners of an unregistered, irrigated riceland
located in the municipality of Badoc, province of Ilocos Norte, and declared for taxation purposes
under Tax Declaration No. 026181 in the name of Hermenigilda Lacuesta. 1 On April 20, 1927,
the spouses executed in favor of spouses Labasan a document written in the Ilocano dialect the
English translation of which marked as Exhibit "1-A" follows:
We, the spouses, Clemente Lacuesta and Hermenigilda Lacuesta, both of legal age, are
residents of barrio Salapasap No. 16, Badoc, Ilocos Norte. We declare the truth that in view of
our urgent necessity for money, we thought of selling one parcel of land owned by us situated
in Sitio Mabusay No. 18 within the jurisdiction of said municipality, to the spouses Gelacio
Labasan and Marcela Coloma, residents of barrio Puzo of the municipality of Pinili, Ilocos
Norte, for the amount of TWO HUNDRED TWENTY-FIVE (P225.00) pesos, Philippine
Currency, which we have already received in lump sum.
The sale of this parcel of land owned by us to the said spouses can be reconveyed provided
ten years shall not have elapsed and we have the same amount of the money which we had
taken from them, as agreed upon by us .
This parcel of land has a circumference of 240 square meters, yielding two 'uyones' and three
baares of palay. Bounded on the north by Fernando Lacuesta and Vicente Coloma; on the
east by Matias Coloma, on the south by Valeriana Lacuesta and on the west by Fernando
Lacuesta.
We further agreed that during the period of their ownership of this parcel of land, I will be
responsible for all tenancy matters over this land.
For this reason this receipt is made as security to the spouses for all matters pertaining
thereto. But in case there shall arise adverse claims with respect to the ownership of the
vendees over this parcel of land I and my wife shall answer the same as well as defray all
expenses of litigation an if we shall be adjudged otherwise, and, if the vendees of this parcel
of land shall be deprived of their ownership, we shall give another parcel of land with the
same yield and area so that our sacred agreement shall not be beclouded with bad faith.
In witness to the truth of what we have done, we sign our names for those who know how to
write and affix the cross for those who do not know how to write, together with the signatures
of the witnesses.
Done this 20th of April, 1927. (pp. 8-10, Petitioner's brief)

83
On April 23, 1948 spouses Lacuesta filed with the Court of First Instance of Ilocos Norte a
complaint against spouses Labasan, seeking the reconveyance of the parcel of land subject of the
above-quoted document. During the pendency of the case, the Lacuesta died and were substituted
by their children, all surnamed Lacuesta. In the meantime, defendant Gleacio Labasan also died
and was substituted by his children.

2. In view of the ambiguity caused by conflicting terminologies in the document, it becomes

necessary to inquire into the reason behind the transaction and other circumstances
accompanying it so as to determine the true intent of the parties. Once the intent becomes clear
then it shall be made to prevail over what on its face the document appears to be. Each case is
to be resolved on the basis of the circumstances attending the transaction.

In the complaint, it was alleged that spouses Lacuesta secured a loan P225.00 from Gelacio
Labasan and as security for the payment of that loan, they offered their riceland; sometime in 1943,
they tendered payment of the loan but Labasan refused to accept it; after "liberation" they offered
again to pay their loan and demanded the return of their land but they were once more refused
because defendants claimed that they were the owners of the property. 1-A

Article 1371, New Civil Code: In order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered. (same as Art. 1282,
Old Civil Code)

In the answer to the complaint only one special defense was raised that the Lacuesta conveyed
by means of a written document the land with right to repurchase the same within the period of ten
years, but because of plaintiff's failure to exercise that right within the stipulated period, the
vendees a retro have became the absolute owners of the land and the latter in fact donated the
property to their son Roberto Labasan who is now the owner of the property. 2
On the basis of the evidence adduced by the parties the trial court presided then by Judge
Wenceslao M. Ortega rendered on May 11, 1959 a decision declaring that the document executed
by the Lecuestas was a pacto de retro sale and that the latter lost their right to redeem the land for
not having taken any step within the agreed of ten years. 3
The plaintiffs elevated the case to the Court of Appeals on the sole issue of the nature of the
document marked Exhibit "1-A".
The Court of Appeals, in its decision of February 18, 1966, set aside the judgment of the trial court
and declared the contract an equitable mortgage and ordered the defendants Labasan to reconvey
the land to the Lacuestas without the latter paying the loan of P225.00 inasmuch as the same was
deemed paid from the fruits of the property which the Labasans had been receiving for the past
thirty-two years. 4
We affirm the decision of the appellate court under well-settled principles embodied in the law and
existing jurisprudence.
1. It is a basic fundamental rule in the interpretation of a contract that if the terms thereof are clear
and leave no doubt upon the intention of the contracting parties the literal meaning of the
stipulation shall control, 5 but when the words appear to be contrary to the evident intention of the
parties, the latter shall prevail over the former. 6
Examining Exhibit "1-A" in this case, it is evident that the terms of the document are not clear and
explicit on the real intent of the parties when they executed the aforesaid document. For instance,
the words or clauses, vis:"urgent necessity for money," "selling the land," ownership," I will be
responsible for all tenancy matters," "This receipt is made as security," are sufficient to create a
doubt as to what the document truly purports to be. Under those terms is the contract one of loan
with security or a pacto de retro sale?

In the case at bar, the collective weight of the following considerations lead Us to agree with the
findings and conclusion of the appellate court that Exhibit "1-A" is a mere loan with security and
not a pacto de retro sale.
First, the reason behind the execution of Exhibit "1-A" was that the Lacuestas were in "urgent
necessity for money" and had to secure a loan of P225.00 from Gelacio Labasan for which the
riceland was given as "security". InJayme, et al. v. Salvador, et al., 1930, this Court upheld a
judgment of the Court of First Instance of Iloilo which found the transaction between the parties
to be a loan instead of a sale of real property notwithstanding the terminology used in the
document, after taking into account the surrounding circumstances of the transaction. The Court
through Justice Norberto Romualdez stated that while it was true that plaintiffs were aware of the
contents of the contracts, the preponderance of the evidence showed however that they signed
knowing that said contracts did not express their real intention, and if they did so notwithstanding
this, it was due to the urgent necessity of obtaining funds. 7 "Necessitous men are not, truly
speaking, free men; but to answer a present emergency, will submit to any terms that the crafty
may impose upon them." 8
Second, the amount of P225.00, even in 1927, was too inadequate for a purchase price of an
irrigated riceland with an alleged "perimeter" of 240 meters and an "area of 1,269 square
meters" yielding annually one "uyon" and five "baares" of palay, 9 the land being valued at the
time for no less than P1,000.00. 9-A In Quinga v. Court of Appeals, et al., 1961, although the
contract between the parties upon its face was one of sale, nevertheless, this Court upheld the
findings of the Court of Appeals that the transaction was not a sale but a loan secured by an
equitable mortgage under the prevailing circumstances of the case, such as, that the price of the
land was grossly inadequate and the vendor remained in possession of the land and enjoyed the
fruits. 10
In fact, Article 1602 paragraph 1 of the New Civil Code expressly provides that in case of doubt
a contract purporting to be a sale with a right to repurchase shall be construed as an equitable
mortgage when the price or consideration of the sale is unusually inadequate.
Third, although symbolically the possession of the property was transferred to Gelacio Labasan,
it was Lacuesta, the supposed vendor, who continued to be in physical possession of the
property, took charge of its cultivation, and all tenancy matters. The second paragraph of Article
1602 of the New Civil Code provides that when the vendor remains in possession as lessee or
otherwise, the contract shall be construed as an equitable mortgage.
Fourth, Gelacio Labasan, the supposed vendee a retro never declared the property in his name
for taxation purposes nor did he pay the taxes thereon since the execution of the document in

84
1927. Roberto Labasan, now one of the petitioners and who claims to have acquired the property
from his father Gelacio by way of donation, declared the property in his name under Tax
Declaration No. 55683-C-1 only sometime in 1944. (p. 13, Respondents' brief; see also CFI
decision, p. 18, Record on Appeal) In Santos v. Duata, this Court, in affirming a decision of the
Court of Appeals, considered the facts that the vendor remained in possession of the land and
continued paying the taxes thereon significant circumstances which justified a judgment holding the
transaction between the parties as an equitable mortgage and not a pacto de retro sale, thereby
applying Article 1602 of the New Civil Code which the Court held to be a remedial measure which
may be applied retroactively to cases arising prior to the effectivity of the New Civil Code. 11
Fifth, as noted in the decision of the appellate court, the supposed vendees a retro, now the herein
petitioners, failed to take any step since 1927 to consolidate their alleged ownership over the land.
Under Article 1509 of the Old or Spanish Civil Code, if the vendor failed to redeem within the period
agreed upon, the vendee's title became irrevocable by the mere registration of an affidavit of
consolidation. Thus, under the old law, a judicial order was not necessary as is required now under
Article 1607 of the New Civil Code. The failure of Gelacio Labasan or his heirs to carry out that act
of consolidation strongly corroborates the claim of Lacuesta that there was no intent at all on the
part of the parties to transfer ownership of the riceland in question.
3. Finally, We have the rule that in case of any doubt concerning the surrounding circumstances in
the execution of a contract, the least transmission of rights and interests shall prevail if the contract
is gratuitous, and, if onerous the doubt is to be settled in favor of the greatest reciprocity of
interest. 12
Thus, in the early case of Olino v. Medina 1909, Olino filed a complaint against Medina to recover a
parcel of riceland which he alleged to have mortgaged for P175.00 and which Medina refused to
return on the ground that the latter allegedly bought the property. In deciding the conflict of
allegations between the parties, this Court, through Justice Florentino Torres, considered the
transaction over the property as a loan, reasoning that "such a contract involves a smaller
transmission of rights and interests, and the debtor does not surrender all rights to his property but
simply confers upon the creditor the right to collect what is owing from the value of the thing given
as security, there existing between the parties a greater reciprocity of rights and obligations. 13
With the foregoing considerations, there is no further necessity for Us to dwell on the other reasons
given by the Court of Appeals in rendering judgment in favor of private respondents, which reasons
We believe are not decisive of the issue posed in this case.
PREMISES CONSIDERED, We find no reversible error in the petition under review and We affirm
the same. With costs against petitioners. So ordered.
G.R. No. L-15499
February 28, 1962
ANGELA M. BUTTE vs. MANUEL UY and SONS, INC.
REYES, J.B.L., J.:
Appeal from a decision of the Court of First instance of Manila dismissing the action for legal
redemption filed by plaintiff-appellant.
It appears that Jose V. Ramirez, during his lifetime, was a co-owner of a house and lot located at
Sta. Cruz, Manila, as shown by Transfer Certificate of Title No. 52789, issued in the name of the

following co-owners: Marie Garnier Vda. de Ramirez, 1/6; Jose V. Ramirez, 1/6; Jose E.
Ramirez, 1/6; Rita de Ramirez, 1/6; and Jose Ma. Ramirez, 1/6.
On October 20, 1951, Jose V. Ramirez died. Subsequently, Special Proceeding No. 15026 was
instituted to settle his estate, that included the one-sixth (1/6) undivided share in the
aforementioned property. And although his last will and testament, wherein he bequeathed his
estate to his children and grandchildren and one-third (1/3) of the free portion to Mrs. Angela M.
Butte, hereinafter referred to as plaintiff-appellant, has been admitted to probate, the estate
proceedings are still pending up to the present on account of the claims of creditors which
exceed the assets of the deceased. The Bank of the Philippine Islands was appointed judicial
administrator.
Meanwhile, on December 9, 1958, Mrs. Marie Garnier Vda. de Ramirez, one of the co-owners of
the late Jose V. Ramirez in the Sta. Cruz property, sold her undivided 1/6 share to Manuel Uy &
Sons, Inc. defendant-appellant herein, for the sum of P500,000.00. After the execution by her
attorney-in-fact, Mrs. Elsa R. Chambers, of an affidavit to the effect that formal notices of the
sale had been sent to all possible redemptioners, the deed of sale was duly registered and
Transfer Certificate of Title No. 52789 was cancelled in lieu of which a new one was issued in
the name of the vendee and the other-co-owners.
On the same day (December 9, 1958), Manuel Uy & Sons, Inc. sent a letter to the Bank of the
Philippine Islands as judicial administrator of the estate of the late Jose V. Ramirez informing it
of the above-mentioned sale. This letter, together with that of the bank, was forwarded by the
latter to Mrs. Butte c/o her counsel Delgado, Flores & Macapagal, Escolta, Manila, and having
received the same on December 10, 1958, said law office delivered them to plaintiff-appellant's
son, Mr. Miguel Papa, who in turn personally handed the letters to his mother, Mrs. Butte, on
December 11 and 12, 1958. Aside from this letter of defendant-appellant, the vendor, thru her
attorney-in-fact Mrs. Chambers, wrote said bank on December 11, 1958 confirming vendee's
letter regarding the sale of her 1/6 share in the Sta. Cruz property for the sum of P500,000.00.
Said letter was received by the bank on December 15, 1958 and having endorsed it to Mrs.
Butte's counsel, the latter received the same on December 16, 1958. Appellant received the
letter on December 19, 1958.
On January 15, 1959, Mrs. Angela M. Butte, thru Atty. Resplandor Sobretodo, sent a letter and a
Philippine National Bank cashier's check in the amount of P500,000.00 to Manuel Uy & Sons,
Inc. offering to redeem the 1/6 share sold by Mrs. Marie Garnier Vda. de Ramirez. This tender
having been refused, plaintiff on the same day consigned the amount in court and filed the
corresponding action for legal redemption. Without prejudice to the determination by the court of
the reasonable and fair market value of the property sold which she alleged to be grossly
excessive, plaintiff prayed for conveyance of the property, and for actual, moral and exemplary
damages.
After the filing by defendant of its answer containing a counterclaim, and plaintiff's reply thereto,
trial was held, after which the court rendered decision on May 13, 1959, dismissing plaintiff's
complaint on the grounds that she has no right to redeem the property and that, if ever she had
any, she exercised the same beyond the statutory 30-day period for legal redemptions provided
by the Civil Code. The counterclaim of defendant for damages was likewise dismissed for not
being sufficiently established. Both parties appealed directly to this Court.

85
Based on the foregoing facts, the main issues posed in this appeal are: (1) whether or not plaintiffappellant, having been bequeathed 1/3 of the free portion of the estate of Jose V. Ramirez, can
exercise the right of legal redemption over the 1/6 share sold by Mrs. Marie Garnier Vda. de
Ramirez despite the presence of the judicial administrator and pending the final distribution of her
share in the testate proceedings; and (2) whether or not she exercised the right of legal redemption
within the period prescribed by law.
The applicable law involved in the present case is contained in Articles 1620, p. 1, and 1623 of the
Civil Code of the Philippines, which read as follows:
ART. 1620. A co-owner of a thing may exercise the right of redemption in case the shares of all
the other-co-owners or of any of them, are sold to a third person. If the price of the alienation is
grossly excessive, the redemptioner shall pay only a reasonable one.
Should two or more co-owners desire to exercise the right of redemption, they may only do so in
proportion to the share they may respectively have in the thing owned in common. (1522a)
ART. 1623. The right of legal predemption or redemption shall not be exercised except within
thirty days from the notice in writing by the respective vendor, or by the vendor, as the case may
be. The deed of sale shall not be accorded in the Registry of Property, unless accompanied by
an affidavit of the vendor that he has given written notice thereof at all possible redemptioners.
The right of redemption of co-owners excludes that of adjoining owners. (1524a)
That the appellant Angela M. Butte is entitled to exercise the right of legal redemption is clear. As
testamentary heir of the estate of J.V. Ramirez, she and her co-heirs acquired an interest in the
undivided one-sixth (1/6) share owned by her predecessor (causante) in the Santa Cruz property,
from the moment of the death of the aforesaid co-owner, J.V. Ramirez. By law, the rights to the
succession of a deceased persons are transmitted to his heirs from the moment of his death, and
the right of succession includes all property rights and obligations that survive the decedent.
ART. 776. The inheritance includes all the property, rights and obligations of a person which are
not extinguished by his death. (659)
ART. 777. The rights to the succession are transmitted from the moment of the death of the
decedent. (657a)
ART. 947. The legatee or devisee acquires a right to the pure and simple legacies or devisees
from the death of the testator, and transmits it to his heirs. (881a)
The principle of transmission as of the time of the predecessor's death is basic in our Civil Code,
and is supported by other related articles. Thus, the capacity of the heir is determined as of the
time the decedent died (Art. 1034); the legitime is to be computed as of the same moment(Art.
908), and so is the in officiousness of the donation inter vivos (Art. 771). Similarly, the legacies of
credit and remission are valid only in the amount due and outstanding at the death of the testator
(Art. 935),and the fruits accruing after that instant are deemed to pertain to the legatee (Art. 948).

As a consequence of this fundamental rule of succession, the heirs of Jose V. Ramirez acquired
his undivided share in the Sta. Cruz property from the moment of his death, and from that
instant, they became co-owners in the aforesaid property, together with the original surviving coowners of their decedent (causante). A co-owner of an undivided share is necessarily a coowner of the whole. Wherefore, any one of the Ramirez heirs, as such co-owner, became
entitled to exercise the right of legal redemption (retracto de comuneros) as soon as another coowner (Maria Garnier Vda. de Ramirez) had sold her undivided share to a stranger, Manuel Uy
& Sons, Inc. This right of redemption vested exclusively in consideration of the redemptioner's
share which the law nowhere takes into account.
The situation is in no wise altered by the existence of a judicial administrator of the estate of
Jose V. Ramirez while under the Rules of Court the administrator has the right to the possession
of the real and personal estate of the deceased, so far as needed for the payment of the
decedent's debts and the expenses of administration (sec. 3, Rule 85), and the administrator
may bring or defend actions for the recovery or protection of the property or rights of the
deceased (sec. 2, Rule 88), such rights of possession and administration do not include the right
of legal redemption of the undivided share sold to Uy & Company by Mrs. Garnier Ramirez. The
reason is obvious: this right of legal redemption only came into existence when the sale to Uy &
Sons, Inc. was perfected, eight (8) years after the death of Jose V. Ramirez, and formed no part
of his estate. The redemption right vested in the heirs originally, in their individual capacity, they
did not derivatively acquire it from their decedent, for when Jose V. Ramirez died, none of the
other co-owners of the Sta. Cruz property had as yet sold his undivided share to a stranger.
Hence, there was nothing to redeem and no right of redemption; and if the late Ramirez had no
such right at his death, he could not transmit it to his own heirs. Much less could Ramirez
acquire such right of redemption eight years after his death, when the sale to Uy & Sons, Inc.
was made; because death extinguishes civil personality, and, therefore, all further juridical
capacity to acquire or transmit rights and obligations of any kind (Civil Code of the Phil., Art. 42).
It is argued that the actual share of appellant Mrs. Butte in the estate of Jose V. Ramirez has not
been specifically determined as yet, that it is still contingent; and that the liquidation of estate of
Jose V. Ramirez may require the alienation of the decedent's undivided portion in the Sta. Cruz
property, in which event Mrs. Butte would have no interest in said undivided portion. Even if it
were true, the fact would remain that so long as that undivided share remains in the estate, the
heirs of Jose V. Ramirez own it, as the deceased did own it before his demise, so that his heirs
are now as much co-owners of the Sta. Cruz property as Jose V. Ramirez was himself a coowner thereof during his lifetime. As co-owners of the property, the heirs of Jose V. Ramirez, or
any one of them, became personally vested with right of legal redemption as soon as Mrs.
Garnier sold her own pro-indiviso interest to Uy & Sons. Even if subsequently, the undivided
share of Ramirez (and of his heirs) should eventually be sold to satisfy the creditors of the
estate, it would not destroy their ownership of it before the sale, but would only convey or
transfer it as in turn sold (of it actually is sold) to pay his creditors. Hence, the right of any of the
Ramirez heirs to redeem the Garnier share will not be retroactively affected. All that the law
requires is that the legal redemptioner should be a co-owner at the time the undivided share of
another co-owner is sold to a stranger. Whether or not the redemptioner will continue being a coowner after exercising the legal redemptioner is irrelevant for the purposes of law.
Nor it can be argued that if the original share of Ramirez is sold by the administrator, his heirs
would stand in law as never having acquired that share. This would only be true if the
inheritance is repudiated or the heir's quality as such is voided. But where the heirship is
undisputed, the purchaser of hereditary property is not deemed to have acquired the title directly
from the deceased Ramirez, because a dead man can not convey title, nor from the

86
administrator who owns no part of the estate; the purchaser can only derive his title from the
Ramirez heirs, represented by the administrator, as their trustee or legal representative.
The right of appellant Angela M. Butte to make the redemption being established, the next point of
inquiry is whether she had made or tendered the redemption price within the 30 days from notices
as prescribed by law. This period, be it noted, is peremptory, because the policy of the law is not to
leave the purchaser's title in uncertainty beyond the established 30-day period. In considering
whether or not the offer to redeem was timely, we think that the notice given by the vendee (buyer)
should not be taken into account. The text of Article 1623 clearly and expressly prescribes that the
thirty days for making the redemption are to be counted from notice in writing by the vendor. Under
the old law (Civ. Code of 1889, Art. 1524), it was immaterial who gave the notice; so long as the
redeeming co-owner learned of the alienation in favor of the stranger, the redemption period began
to run. It is thus apparent that the Philippine legislature in Article 1623 deliberately selected a
particular method of giving notice, and that method must be deemed exclusive (39 Am. Jur., 237;
Payne vs. State, 12 S.W. [2d] 528). As ruled in Wampler vs. Lecompte, 150 Atl. 458 (affd. in 75
Law Ed. [U.S.] 275)
Why these provisions were inserted in the statute we are not informed, but we may assume until
the contrary is shown, that a state of facts in respect thereto existed, which warranted the
legislature in so legislating.
The reasons for requiring that the notice should be given by the seller, and not by the buyer, are
easily divined. The seller of an undivided interest is in the best position to know who are his coowners that under the law must be notified of the sale. Also, the notice by the seller removes all
doubts as to the fact of the sale, its perfection; and its validity, the notice being a reaffirmation
thereof, so that the party need not entertain doubt that the seller may still contest the alienation.
This assurance would not exist if the notice should be given by the buyer.
The notice which became operative is that given by Mrs. Chambers, in her capacity as attorney-infact of the vendor Marie Garnier Vda. de Ramirez. Under date of December 11, 1958, she wrote
the Administrator Bank of the Philippine Islands that her principal's one-sixth (1/6) share in the Sta.
Cruz property had been sold to Manuel Uy & Sons, Inc. for P500,000.00. The Bank received this
notice on December 15, 1958, and on the same day endorsed it to Mrs. Butte, care of Delgado,
Flores and Macapagal (her attorneys), who received the same on December 16, 1958. Mrs. Butte
tendered redemption and upon the vendee's refusal, judicially consigned the price of P500,000.00
on January 15, 1959. The latter date was the last one of the thirty days allowed by the Code for the
redemption, counted by excluding December 16, 1958 and including January 15, 1959, pursuant to
Article 13 of the Civil Code. Therefore, the redemption was made in due time.
The date of receipt of the vendor's notice by the Administrator Bank (December 15) can not be
counted as determining the start of thirty days; for the Administrator of the estate was not a proper
redemptioner, since, as previously shown, the right to redeem the share of Marie Garnier did not
form part of the estate of Jose V. Ramirez.
We find no jurisdiction for appellant's claim that the P500,000,00. paid by Uy & Sons, Inc. for the
Garnier share is grossly excessive. Gross excess cannot be predicated on mere individual
estimates of market price by a single realtor.

The redemption and consignation having been properly made, the Uy counterclaim for damages
and attorney's fees predicated on the assumption that plaintiff's action was clearly unfounded,
becomes untenable.
PREMISES CONSIDERED, the judgment appealed from is hereby reversed and set aside, and
another one entered:
(a) Declaring the consignation of P500,000,00 made by appellant Angela M. Butte duly and
properly made;
(b) Declaring that said appellant properly exercised in due time the legal redemption of the
one-sixth (1/6) undivided portion of the land covered by Certificate of Title No. 59363 of the
Office of the Register of Deeds of the City of Manila, sold on December 9, 1958 by Marie
Garnier Vda. de Ramirez to appellant Manuel Uy & Sons, Inc.
(c) Ordering appellant Manuel Uy & Sons, Inc. to accept the consigned price and to convey to
Angela M. Butte the undivided portion above referred to, within 30 days from the time our
decision becomes final, and subsequently to account for the rentals and fruits of the
redeemed share from and after January 15, 1958, until its conveyance; and.
(d) Ordering the return of the records to the court of origin for further proceedings conformable
to this opinion.
Without finding as to costs.
G.R. No. L-23374 September 30, 1970
TEOFILA FELICES vs. FRANCISCO COLEGADO
ZALDIVAR, J.:
Appeal from the decision of the Court of First Instance of Camarines Sur, in its Civil Case No.
55510, on a question of law the facts having been stipulated by the parties in the court below.
Felipe Felices died on November 5, 1938. The only property left by him was a homestead
located in Barrio Curry, Pili, Camarines Sur, comprising 21 hectares, more or less, for which
Original Certificate of Title No. 73 was issued in his name. Soon after his death, five of his seven
surviving children, namely, Marta, Maria, Teofila Silverio, and Pedro, all surnamed Felices,
physically partitioned among themselves the aforementioned homestead, each one taking actual
and exclusive possession of the specific portion pertaining to him/her, although no transfer
certificate of title was issued in their individual names. 1 On February 24, 1949, Maria Felices
sold her share to Roman Iriola with right of repurchase (con pacto de retro), which share is on
the extreme northern part of the homestead, more particularly described as follows:
A parcel of irrigated rice land covering an area of four (4) and one-fourth hectares situated in
the Barrio of Curry, Municipality of Pili, Province of Camarines Sur, Philippines, bounded on
the North by the property of Mamerto Iriola; on the East by the Himaao River; on the South by
the property of the heirs of Felipe Felices; and on the West by the Lagundi Creek. This land is
an integral part of the land described under Original Certificate of Title No. 73 issued on
October 20, 1948. Proportionate assessed value: P704.00.

87
Upon the insistence of Roman Iriola, the deed of conditional sale was signed by all the brothers
and sisters of Maria and soon after the execution of the deed Iriola took possession of the abovedescribed property.
Sometime, in 1951, Silverio Felices, Pedro Felices, Marta Felices and Maria Felices agreed to sell
absolutely to Francisco Colegado their respective shares in the homestead for the total price of
P8,500.00. Knowing, however, that such sale could not be validly effected because of the
prohibition to alienate a homestead within five years from the issuance of the patent, they agreed
to execute the document of sale later on. In the meantime, and inasmuch as the share of Maria
Felices was still in the possession of Roman Iriola by virtue of its having been previously sold to
him with right of repurchase, Francisco Colegado advanced the amount for the repurchase of
Maria's share from Roman Iriola.
When the repurchase price was offered to Roman Iriola, the latter refused to allow the repurchase.
The Felices brothers and sisters (Silverio, Pedro, Marta and Maria), therefore, consigned the
amount for the repurchase with the court and filed Civil Case No. 1991 in the Court of First
Instance of Camarines Sur to compel Roman Iriola to allow the repurchase and accept the
proffered repurchase money. In the complaint, Teofila Felices, the other sister, who had a share in
the homestead, was joined as party defendant along with Roman Iriola because she refused to join
as a party plaintiff with her brothers and sisters.
On September 11, 1953, Maria, Marta, Silverio and Pedro, all surnamed Felices, and Francisco
Colegado finally executed a deed of absolute sale whereby the said Felices brothers and sisters
ceded to the latter their respective shares in the homestead inherited by them from their deceased
father.
On June 19, 1954, a decision was rendered by the Court of First Instance of Camarines Sur in Civil
Case No. 1991 ordering Roman Iriola to allow Maria Felices to repurchase the property that she
had previously sold conditionally to him. Iriola appealed from that decision to the Court of Appeals,
and the latter court affirmed the decision. Upon payment by Francisco Colegado on August 21,
1962, of the sum of P2,053.61 to the heirs of Roman Iriola, 2 as finally determined by the Court of
Appeals, said heirs surrendered the possession of the land to Colegado.
Shortly thereafter, or on September 7, 1962, Teofila Felices, thru her lawyer, addressed a letter to
Francisco Colegado informing him of her desire to redeem the parcel of land sold to him by Maria
Felices and at the same time offering the sum of P2,053.61 as the redemption price of the land
which amount was later on deposited with the Clerk of Court but this offer to redeem was
refused by Francisco Colegado on September 19, 1962, Teofila Felices commenced the present
action against Francisco Colegado in the Court of First Instance of Camarines Sur (Civil Case No.
5510), asserting that being a co-owner defendant Colegado can be compelled to allow her to
exercise the right of legal redemption over that portion which her sister Maria Felices had
conditionally sold to Roman Iriola and later repurchased from Iriola by Colegado invoking the
provision of Article 1620 of the Civil Code which reads:
A co-owner of a thing may exercise the right of redemption in case the shares of all the other coowners or of any of them, are sold to a third person. If the price of the alienation is grossly
excessive, the redemptioner shall pay only a reasonable one.

Should two or more co-owners desire to exercise the right of redemption, they may only do so
in proportion to the share they may respectively have in the thing owned in common.
In his answer, which contains a counterclaim, defendant Francisco Colegado maintains that
plaintiff is now precluded to redeem the land in question. He bases his stand on Article 1088 of
the same Code, 3 and asserts that once a property is partitioned among the heirs, as in the case
at bar, the sale by any one of the heirs of his share to a third person cannot be the subject of
redemption by his co-heirs.
On February 26, 1964, the trial court rendered its decision dismissing the complaint, as well as
defendant's counterclaim, with costs against plaintiff. In its decision, the trial court made the
following findings and conclusions:
The partition of the homestead left by the deceased Felipe Felices is a fact undisputed by the
parties. This was the subject of their stipulation which reads:
"That even before the issuance of Original Certificate of Title No. 73 on October 20, 1948 to
the deceased Felipe Felices the children of the said deceased immediately after his death had
already made a physical partition of the land among themselves, although no transfer
certificate of title was actually issued in favor of each heir to his or her corresponding share."
The partition conferred upon each heir "the exclusive ownership of the property adjudicated to
him" (Javelesa vs. Barrios, et al., 66 Phil. 107; Aliases vs. Alcantara, 16 Phil. 489, Alcala vs.
Alcala 35 Phil. 679). In other words, after the partition of the homestead of Felipe Felices
immediately following his death on November 5, 1938, the co-ownership or co-heirship among
his children ceased and each of them became the exclusive owner of the portion of the
homestead adjudicated to him or her own individual share. Consequently, Teofila Felices is
not a co-owner of the share of Maria Felices in the said homestead and she has, therefore, no
right to redeem the same from Francisco Colegado.
The defendant's counterclaim for damages is not supported by the evidence. It is convincingly
disproved by the emphatic denial of the plaintiff.
WHEREFORE, the complaint and counterclaims are DISMISSED with costs against the
plaintiff. 4
Hence the present appeal by plaintiff Teofila Felices.
The only question to be resolved in this appeals whether or not, under the facts stated in the
foregoing paragraphs, plaintiff-appellant can exercise the right of legal redemption of the land in
question from defendant-appellee, pursuant to the provisions of Article 1620 and/or Article 1088
of the Civil Code. As correctly held by the trial court, Article 1088 of the Civil Code has no
application in the present case because said article can only be availed of when a co-heir sells
his share before the partition of the hereditary estate. 5 That article refers to the hereditary right
itself, in the abstract sense, without specifying any particular portion, although the proportionate
participation of each co-heir is ascertainable. This article presupposes that there has as yet been
no distribution of the estate among the heirs, for the moment such distribution has taken place,
even in a state of pro-indiviso, the heirs ceased to be considered simply as co-heirs, but they

88
have thereby become co-owners. 6 Consequently, if one of the owners sells his share to a stranger,
a co-owner may claim his right of redemption as a co-owner under Article 1620 of the Civil
Code, 7 not as a co-heir under Article 1088 of the same Code.
But in the instant case, We also find that plaintiff-appellant has no right to redeem the property as
co-owner under Article 1620 of the Civil Code. Co-ownership exists when the ownership of
an undivided thing or right belongs to different persons. 8 It is an inherent and peculiar feature of
co-ownership that although the co-owners may have unequal shares in the common property,
quantitatively speaking, each co-owner has the same right in a qualitative sense as any one of the
other co-owners. In other words, every co-owner is the owner of the whole, and over the whole he
exercises the right of dominion, but he is at the same time the owner of a portion which is truly
abstract, because until division is effected such portion is not concretely determined.
In the case before Us, it is admitted by plaintiff-appellant herself that immediately after the death of
their father Felipe Felices, she and her brothers and sisters divided or partitioned the homestead
among themselves extrajudicially, each heir taking physical and exclusive possession and control
of his or her aliquot share. The portion given to Maria Felices, which plaintiff-appellant now seeks
to redeem, is about one-fifth of the homestead on the northernmost part, marked out by metes and
bounds, as described in paragraph 3 of the complaint. And when Maria Felices sold her share to
Roman Iriola in 1949, she delivered to him the possession of the particular portion of the
homestead constituting her distinct share, and since then Roman Iriola, and later his heirs upon his
death, have continuously cultivated the land and introduced improvements thereon until the
possession thereof was in turn delivered to defendant-appellee Francisco Colegado April 1962
pursuant to the decision of the Court of Appeals. There is, therefore, no doubt that at the time
Maria Felices sold her share to defendant-appellee Colegado and even prior thereto when she
ceded the same property to Roman Iriola, the community of interest over the entire homestead of
their father between her (Maria) and her brothers and sisters had already ceased, and so the claim
of plaintiff-appellant to redeem the property under Article 1620 can not be sustained because when
that property was sold by Maria Felices to defendant-appellee she (plaintiff-appellant) was no
longer a co-owner of that particular property. The following ruling of this Court, speaking through
Mr. Justice J. B. L. Reyes, is pertinent to the resolution of the issue in the present case:
The foregoing theory is untenable. Tested against the concept of co-ownership, as authoritatively
expressed by the commentators, appellant is not a co-owner of the registered parcel of land,
taken as a unit or subject of co-ownership, since he and the spouses do not "have a spiritual
part of a thing which is not physically divided" (3 Sanchez Roman 162), nor is each of them an
"owner of the whole, and over the whole he exercises the right of dominion, but he is at the
same time the owner of a portion which is truly abstract ..." (3 Manresa 405). The portions of
appellant-plaintiff and of the defendant spouses are correctly determined and identifiable, for to
the former belongs the northern half, and to the latter belongs the remaining southern half, of the
land. That their respective portions are not technically described, or that said portions are still
embraced in one and the same certificate of title, does not make said portions less determinable
or identifiable, or distinguishable, one from the other, nor that dominion over each portion less
exclusive, in their respective owners. Hence, no right of redemption among co-owners exists.
(De la Cruz v. Cruz, et al., L-27759, April 17, 1970, 32 SCRA, 307, 311). 9
The foregoing sufficiently disposes of the issue raised in this appeal. However, even granting the
claim of plaintiff-appellant that co-ownership of the homestead still existed as of the time
defendant-appellee repurchased the share of Maria Felices from Roman Iriola still she can not
exercise the right of legal redemption of the controverted property. The record shows that on
September 11, 1953 defendant-appellee Colegado bought the respective shares of Silverio

Felices, Pedro Felices, and Marta Felices in the homestead. By such purchase defendantappellee had thereby become a co-owner of the homestead. When defendant-appellee
thereafter paid for the portion allotted to Maria Felices, in August, 1962, he was at that time not a
stranger but already a co-owner of the homestead. hence, plaintiff-appellant cannot redeem the
land from defendant-appellee because the latter and plaintiff-appellant had become co-owners,
and as co-owners neither of them has the right of legal redemption against the other. 10 In the
case of Viola v. Roura & Tecson (49 Phil., 808), this Court held that the right of legal redemption
is not limited solely and exclusively to original co-owners but applies as well to those who
subsequently acquire the respective shares of the co-owners while the community exists.
WHEREFORE, the decision appealed from is affirmed, with costs against plaintiff-appellant. It is
so ordered.
G.R. No. 146608
October 23, 2003
SPOUSES CONSTANTE FIRME AND AZUCENA E. FIRME vs. UKAL ENTERPRISES AND
DEVELOPMENT CORPORATION
DECISION
CARPIO, J.:
The Case
This is a petition for review on certiorari of the Decision 1 dated 3 January 2001 of the Court of
Appeals in CA-G.R. CV No. 60747. The Court of Appeals reversed the Decision 2 of the Regional
Trial Court, Branch 223, Quezon City ("trial court"), which held that there was no perfected
contract of sale since there was no consent on the part of the seller.
The Facts
Petitioner Spouses Constante and Azucena Firme ("Spouses Firme") are the registered owners
of a parcel of land3 ("Property") located on Dahlia Avenue, Fairview Park, Quezon City. Renato
de Castro ("De Castro"), the vice president of Bukal Enterprises and Development Corporation
("Bukal Enterprises") authorized his friend, Teodoro Aviles ("Aviles"), a broker, to negotiate with
the Spouses Firme for the purchase of the Property.
On 28 March 1995, Bukal Enterprises filed a complaint for specific performance and damages
with the trial court, alleging that the Spouses Firme reneged on their agreement to sell the
Property. The complaint asked the trial court to order the Spouses Firme to execute the deed of
sale and to deliver the title to the Property to Bukal Enterprises upon payment of the agreed
purchase price.
During trial, Bukal Enterprises presented five witnesses, namely, Aviles, De Castro, Antonio
Moreno, Jocelyn Napa and Antonio Ancheta.
Aviles testified that De Castro authorized him to negotiate on behalf of Bukal Enterprises for the
purchase of the Property. According to Aviles, he met with the Spouses Firme on 23 January
1995 and he presented them with a draft deed of sale 4 ("First Draft") dated February 1995. The
First Draft of the deed of sale provides:

89
DEED OF ABSOLUTE SALE

CONSTANTE FIRME

KNOW ALL MEN BY THESE PRESENTS:

WITNESSETH:
That the VENDOR is the absolute and registered owner of a certain parcel of land located at
Fairview Park, Quezon City, and more particularly described as follows:
A parcel of land (Lot 4, Block 33 of the consolidation-subdivision plan (LRC) Pcs-8124, Sheet No. I,
being a portion of the consolidation of Lots 41-B-2-A and 41-B-2-C, Psd-1136 and Lot (LRC) Pcs2665, (LRC) GLRO) Record. No. 1037), situated in Quezon City, Island of Luzon. Bounded on the
NE., points 2 to 5 by Road Lot 24, of the consolidation-subdivision plan. Beginning at a point
marked "1" on plan, being S. 67 deg. 23W., 9288.80 m. from BLLM I, Mp of Montalban, Rizal;
thence N. 85 deg. 35E., 17.39 m. to point 2; thence S. 54 deg. 22E., 4.00 m. to point 3; thence S.
14 deg. 21E., 17.87 m. to point 4; thence 3 deg. 56E., 17.92 m. to point 5; thence N. 85 deg. 12
W., 23.38 m. to point 6; thence N. 4 deg. 55 W., 34.35 m. to the point of beginning; containing an
area of EIGHT HUNDRED AND SIX (806) SQUARE METERS, more or less.
VENDORS title thereto being evidenced by Transfer Certificate of Title No. 264243 issued by the
Register of Deeds of Quezon City;
That the VENDOR, for and in consideration of the sum of THREE MILLION TWO HUNDRED
TWENTY FOUR THOUSAND PESOS (P3,224,000.00) Philippine Currency, to them in hand paid
and receipt whereof is hereby acknowledged, do hereby SELL, TRANSFER and CONVEY unto the
said VENDEE, its assigns, transferees and successors in interest the above described property,
free from all liens and encumbrances whatsoever;
It is hereby mutually agreed that the VENDEE shall bear all the expenses for the capital gains tax,
documentary stamps, documentation, notarization, removal and relocation of the squatters,
registration, transfer tax and other fees as may be required by law;
That the VENDOR shall pay the real estate tax for the current year and back real estate taxes,
charges and penalties if there are any.
IN WITNESS WHEREOF, we have hereunto affixed our signatures this ____ day of February,
1995, at Quezon City, Philippines.

AND
CORP.

BY:

This DEED OF ABSOLUTE SALE made and executed by and between the Spouses CONSTANTE
FIRME and AZUCENA E. FIRME, both of legal age, Filipino citizens and with postal address at No.
1450 Union, Paco, City of Manila, hereinafter called the VENDOR, and
BUKAL ENTERPRISES and DEVELOPMENT CORPORATION, a corporation duly organized and
registered in accordance with Philippine Laws, with business address at Dahlia Avenue, Fairview
Park, Quezon City, herein represented by its PRESIDENT, MRS. ZENAIDA A. DE CASTRO,
hereinafter called the VENDEE.

BUKAL
ENTERPRISES
DEVELOPMENT

AZUCENA
VENDOR

E.

FIRME ZENAIDA
President

A.

DE

CASTRO

xxx
The Spouses Firme rejected this First Draft because of several objectionable conditions,
including the payment of capital gains and other government taxes by the seller and the
relocation of the squatters at the sellers expense. During their second meeting, Aviles presented
to the Spouses Firme another draft deed of sale 5 ("Second Draft") dated March 1995. The
Spouses Firme allegedly accepted the Second Draft in view of the deletion of the objectionable
conditions contained in the First Draft. According to Aviles, the Spouses Firme were willing to sell
the Property at P4,000 per square meter. They then agreed that payment would be made at the
Far East Bank and Trust Company ("FEBTC"), Padre Faura Branch, Manila. However, the
scheduled payment had to be postponed due to problems in the transfer of funds. The Spouses
Firme later informed Aviles that they were no longer interested in selling the Property.6
De Castro testified that he authorized Aviles to negotiate for Bukal Enterprises the purchase of
the Property owned by the Spouses Firme. The Property was located beside the Dahlia
Commercial Complex owned by Bukal Enterprises. Aviles informed him that the Spouses Firme
agreed to sell the Property at P4,000 per square meter, payable in cash for a lump sum
of P3,224,000. Furthermore, Bukal Enterprises agreed to pay the taxes due and to undertake
the relocation of the squatters on the Property. For this purpose, Bukal Enterprises applied for a
loan ofP4,500,000 which FEBTC granted. Bukal Enterprises then relocated the four families
squatting on the Property at a cost of P60,000 per family. After the squatters vacated the
Property, Bukal Enterprises fenced the area, covered it with filling materials, and constructed
posts and riprap. Bukal Enterprises spent approximately P300,000 for these improvements. In a
letter7 dated 7 March 1995, Bukal Enterprises offered to pay the purchase price ofP3,224,000 to
the Spouses Firme upon execution of the transfer documents and delivery of the owners
duplicate copy of TCT No. 264243. The Spouses Firme did not accept this offer but instead sent
Bukal Enterprises a letter demanding that its workers vacate the Property. Bukal Enterprises
then filed a complaint for specific performance and damages.8
Antonio Moreno, one of the alleged squatters on the Property, testified that he constructed his
house on the Property sometime in 1982. On 26 February 1995, he was summoned together
with the other squatters to a meeting with Aviles regarding their relocation. They agreed to
relocate provided they would be given financial assistance of P60,000 per family. Thus, on 6
March 1995, the squatter families were each paid P60,000 in the presence of De Castro and
Aviles. Thereafter, they voluntarily demolished their houses and vacated the Property.9
Jocelyn Mapa, the manager of FEBTC, Padre Faura Branch, testified that Bukal Enterprises has
been their client since 1994. According to her, Bukal Enterprises applied for a loan
of P4,500,000 on the third week of February 1995 allegedly to buy a lot in Fairview. FEBTC
approved the loan on the last week of February and released the proceeds on the first week of
March.10

90
Antonio Ancheta ("Ancheta"), barangay captain of Barangay Fairview, testified that he was present
when one of the officers of Bukal Enterprises, a certain Renato, paid each of the four squatter
families around P60,000 toP100,000. Ancheta informed Dr. Constante Firme that he told the
squatters to leave considering that they already received payment for their relocation. According to
Ancheta, Dr. Constante Firme must have misunderstood him and thought that the squatters left
through Anchetas own efforts.11
On the other hand, Dr. Constante Firme ("Dr. Firme") was the sole witness for the defendant
spouses.
Dr. Firme testified that on 30 January 1995, he and his wife met with Aviles at the Aristocrat
Restaurant in Quezon City. Aviles arranged the meeting with the Spouses Firme involving their
Property in Fairview. Aviles offered to buy the Property at P2,500 per square meter. The Spouses
Firme did not accept the offer because they were reserving the Property for their children. On 6
February 1995, the Spouses Firme met again with Aviles upon the latters insistence. Aviles
showed the Spouses Firme a copy of a draft deed of sale 12 ("Third Draft") which Aviles prepared.
The Third Draft of the deed of sale provides:
CONRACT OF SALE
KNOW ALL MEN BY THESE PRESENTS:
This AGREEMENT, executed this ___ day of February, 1995, by and between the Spouses
CONSTANTE FIRME and AZUCENA E. FIRME, both of legal age, Filipino citizen and with postal
address at __________, Quezon City, hereinafter referred to as the VENDORS, and BUKAL
ENTERPRISES and DEVELOPMENT CORPORATION, a corporation duly organized and
registered in accordance with Philippine Laws, with postal address at Fairview Park, Quezon City,
herein represented by its President and Chief Executive Officer, hereinafter referred to as the
VENDEE.
WITNESSETH:
That for and in consideration of the sum of THREE MILLION TWO HUNDRED TWENTY FOUR
THOUSAND PESOS (P3,224,000.00), Philippine Currency, payable in the form hereinafter
expressed, agreed to sell to the VENDEE and the VENDEE has agreed to buy from the
VENDORS, a parcel of land situated at Dahlia Avenue corner Rolex Street, Fairview Park, Quezon
City, containing an area of 806 Square Meters more or less, of which the VENDORS are the
absolute registered owners in accordance with the Land Registration Act, as evidenced by Transfer
Certificate of Title No. 264243 issued by the Register of Deeds of Quezon City, more particularly
described and bounded as follows:

(P2,224,000.00) at the post office address of the VENDORS in Quezon City, or such other
place or Office as the VENDORS may designate within a period of sixty (60) days counted
from the date of this Contract;
2. The VENDORS have hereunto authorized the VENDEE to mortgage the property and
submit this Contract, together with a certified true copy of the TCT, Tax Declaration, Tax
Clearance and Vicinity/Lot Plan, with their Lending Bank. The proceeds of the VENDEES
Loan shall directly be paid and remitted by the Bank to the VENDORS;
3. The said parcel of land shall remain in the name of the VENDORS until the Lending Bank
of the VENDEE shall have issued a Letter Guaranty Payment in favor of the VENDORS, at
which time the VENDORS agree to execute a Deed of Absolute Sale in favor of the VENDEE
and cause the issuance of the Certificate of Title in the name of the latter. The Capital Gains
Tax and Documentary Stamps shall be charged from the VENDORS in accordance with
law;1awphi1.nt
4. The payment of the balance of P2,224,000.00 by the VENDEE to the VENDORS shall be
within a period of sixty (60) days effective from the date of this Contract. After the lapse of 60
days and the loan has not yet been released due to fortuitous events the VENDEE shall pay
an interest of the balance a monthly interest based on existing bank rate until said fortuitous
event is no longer present;
5. The VENDEE shall remove and relocate the Squatters, however, such actual, reasonable
and necessary expenses shall be charged to the VENDORS upon presentation of receipts
and documents to support the act;
6. The VENDEE shall be allowed for all legal purposes to take possession of the parcel of
land after the execution of this Contract and payment of the downpayment;
7. The VENDEE shall shoulder all expenses like the documentation, registration, transfer tax
and relocation of the property.
IN WITNESS WHEREOF, we have hereunto affixed our signatures this ____ day of February,
1995, at Quezon City, Philippines.
CONSTANTE
VENDOR

1. The VENDEE agrees to pay the VENDORS upon execution of this Contract the sum of ONE
MILLION PESOS (P1,000,000.00), Philippine Currency, as downpayment and agrees to pay the
balance of TWO MILLION TWO HUNDRED TWENTY FOUR THOUSAND PESOS

FIRME BUKAL
VENDEE

ENTERPRISES

DEV.

CORP.

BY:
AZUCENA
VENDOR

(DESCRIPTION AND BOUNDARIES OF PROPERTY)

THE FURTHER TERMS AND CONDITIONS OF THE CONTRACT ARE AS FOLLOWS:

E.

E.

FIRME ________________________
President & Chief Executive Officer

xxx
The Spouses Firme did not accept the Third Draft because they found its provisions one-sided.
The Spouses Firme particularly opposed the provision on the delivery of the Propertys title to

91
Bukal Enterprises for the latter to obtain a loan from the bank and use the proceeds to pay for the
Property. The Spouses Firme repeatedly told Aviles that the Property was not for sale when Aviles
called on 2 and 4 March 1995 regarding the Property. On 6 March 1995, the Spouses Firme visited
their Property and discovered that there was a hollow block fence on one side, concrete posts on
another side and bunkers occupied by workers of a certain Florante de Castro. On 11 March 1995,
Spouses Firme visited the Property again with a surveyor. Dr. Firme talked with Ancheta who told
him that the squatters had voluntarily demolished their shanties. The Spouses Firme sent a
letter13 dated 20 March 1995 to Bukal Enterprises demanding removal of the bunkers and vacation
by the occupants of the Property. On 22 March 1995, the Spouses Firme received a letter 14 dated 7
March 1995 from Bukal Enterprises demanding that they sell the Property.15

specific property is exercised by the Board of Directors of the corporation. Without an

authorization from the Board of Directors, Aviles could not validly finalize the purchase of the
Property on behalf of Bukal Enterprises. There is no basis to apply the Statute of Frauds since
there was no perfected contract of sale.
The Ruling of the Court of Appeals
The Court of Appeals held that the lack of a board resolution authorizing Aviles to act on behalf
of Bukal Enterprises in the purchase of the Property was cured by ratification. Bukal Enterprises
ratified the purchase when it filed the complaint for the enforcement of the sale.

On 7 August 1998, the trial court rendered judgment against Bukal Enterprises as follows:
WHEREFORE, in the light of the foregoing premises, the above-entitled case [is] hereby
DISMISSED and plaintiff BUKAL ENTERPRISES DEVELOPMENT CORPORATION is hereby
ordered to pay the defendants Spouses Constante and Azucena Firme:
1. the sum of Three Hundred Thirty Five Thousand Nine Hundred Sixty Four and 90/100
(P335,964.90) as and by way of actual and compensatory damages;
2. the sum of Five Hundred Thousand Pesos (P500,000.00) as and by way of moral damages;
3. the sum of One Hundred Thousand Pesos (P100,000.00) as and by way of attorneys fees;
and
4. the costs of the suit. SO ORDERED.16
Bukal Enterprises appealed to the Court of Appeals, which reversed and set aside the decision of
the trial court. The dispositive portion of the decision reads:
WHEREFORE, premises considered, the Decision, dated August 7, 1998, is hereby REVERSED
and SET ASIDE. The complaint is granted and the appellees are directed to henceforth execute
the Deed of Absolute Sale transferring the ownership of the subject property to the appellant
immediately upon receipt of the purchase price of P3,224,000.00 and to perform all such acts
necessary and proper to effect the transfer of the property covered by TCT No. 264243 to
appellant. Appellant is directed to deliver the payment of the purchase price of the property within
sixty days from the finality of this judgment. Costs against appellees. SO ORDERED.17
Hence, the instant petition.1a\^/phi1.net

The Court of Appeals also held there was a perfected contract of sale. The appellate court ruled
that the Spouses Firme revealed their intent to sell the Property when they met with Aviles twice.
The Spouses Firme rejected the First Draft because they considered the terms unacceptable.
When Aviles presented the Second Draft without the objectionable provisions, the Spouses
Firme no longer had any cause for refusing to sell the Property. On the other hand, the acts of
Bukal Enterprises in fencing the Property, constructing posts, relocating the squatters and
obtaining a loan to purchase the Property are circumstances supporting their claim that there
was a perfected contract of sale.
The Spouses Firme allowed Bukal Enterprises to exercise acts of ownership over the Property
when the latter introduced improvements on the Property and evicted the squatters. These acts
constitute partial performance of the contract of sale that takes the oral contract out of the scope
of the Statute of Frauds.
The Issues
The Spouses Firme raise the following issues:
1. WHETHER THE COURT OF APPEALS ERRED IN FINDING THAT THERE WAS A
PERFECTED CONTRACT OF SALE BETWEEN PETITIONERS AND RESPONDENT
DESPITE THE ADDUCED EVIDENCE PATENTLY TO THE CONTRARY;
2. WHETHER THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE ALLEGED
CONTRACT OF SALE IS ENFORCEABLE DESPITE THE FACT THAT THE SAME IS
COVERED BY THE STATUTE OF FRAUDS;
3. WHETHER THE COURT OF APPEALS ERRED IN DISREGARDING THE FACT THAT IT
WAS NOT LEGALLY AND FACTUALLY POSSIBLE FOR RESPONDENT TO PERFECT A
CONTRACT OF SALE; AND

The Ruling of the Trial Court

The trial court held there was no perfected contract of sale. Bukal Enterprises failed to establish
that the Spouses Firme gave their consent to the sale of the Property. The parties did not go
beyond the negotiation stage and there was no evidence of meeting of the minds between the
parties. Furthermore, Aviles had no valid authority to bind Bukal Enterprises in the sale transaction.
Under Sections 23 and 36 (No. 7) of the Corporation Code, the corporate power to purchase a

4. THE COURT OF APPEALS ERRED IN RULING THAT THE AWARD BY THE TRIAL
COURT OF MORAL AND COMPENSATORY DAMAGES TO PETITIONERS IS IMPROPER. 18
The Ruling of the Court
The petition is meritorious.

92
The fundamental question for resolution is whether there was a perfected contract of sale between
the Spouses Firme and Bukal Enterprises. This requires a review of the factual and legal issues of
this case. As a rule, only questions of law are appealable to this Court under Rule 45 19 of the Rules
of Civil Procedure. The findings of fact by the Court of Appeals are generally conclusive and
binding on the parties and are not reviewable by this Court. 20 However, when the factual findings of
the Court of Appeals are contrary to those of the trial court or when the inference made is
manifestly mistaken, this Court has the authority to review the findings of fact. 21 Likewise, this Court
may review findings of fact when the judgment of the Court of Appeals is premised on a
misapprehension of facts.22 This is the situation in this case.
Whether there was a perfected contract of sale
We agree with the finding of the trial court that there was no perfected contract of sale. Clearly, the
Court of Appeals misapprehended the facts of the case in ruling otherwise.
First, the records indubitably show that there was no consent on the part of the Spouses Firme.
Aviles did not present any draft deed of sale during his first meeting with the Spouses Firme on 30
January 1995.23 Dr. Firme was consistent in his testimony that he and his wife rejected the
provisions of the Third Draft presented by Aviles during their second meeting on 6 February 1995.
The Spouses Firme found the terms and conditions unacceptable and told Aviles that they would
not sell the property.24 Aviles showed them only one draft deed of sale (Third Draft) during their
second and last meeting on 6 February 1995.25 When shown a copy of the First Draft, Dr. Firme
testified that it was not the deed of sale shown to them by Aviles during their second meeting 26and
that the Third Draft was completely different from the First Draft.27
On the other hand, Aviles gave conflicting testimony as to what transpired during the two meetings
with the Spouses Firme. In his direct examination, Aviles testified that during his first meeting with
the Spouses Firme on 23 January 1995, he showed them the First Draft which the Spouses Firme
rejected.28 On their second meeting, Aviles showed the Spouses Firme the Second Draft, which the
Spouses Firme allegedly approved because the objectionable conditions contained in the First
Draft were already deleted. However, a perusal of the First Draft and the Second Draft would show
that both deeds of sale contain exactly the same provisions. The only difference is that the date of
the First Draft is February 1995 while that of the Second Draft is March 1995.
When Aviles testified again as rebuttal witness, his testimony became more confusing. Aviles
testified that during his first meeting with the Spouses Firme on 30 January 1995, he showed them
the Third Draft, which was not acceptable to the latter.29 However, upon further questioning by his
counsel, Aviles concurred with Dr. Firmes testimony that he presented the Third Draft (Exh. "5";
Exh. "L") to the Spouses Firme only during their second meeting. He also stated that he prepared
and presented to the Spouses Firme the First Draft (Exh. "C") and the Second Draft (Exh. "C-1")
during their first or second meeting. He testified:
ATTY. MARQUEDA: On page 11 of the tsn dated August 5, 1997 a question was posed "How did
you find this draft the Contract of Sale which was presented to you by Mr. Aviles on the second
meeting?" The answer is "On the first meeting(sic), we find it totally unacceptable, sir." 30 What
can you say on this? Before that, Mr. Witness, what is this Contract of Sale that you presented to
Mr. Aviles on the second meeting? Is this different from the Contract of Sale that was marked as
Exhibit "5-L"?

Q: May I see the document Exhibit 5 L?31

INTERPRETER: Witness going over the record.
ATTY. MARQUEDA: Is that the same document that was presented by you to Mr. Firme on
the second meeting or there is a different contract?
A: This is the same document draft of the document that I submitted to them during our
second meeting. That was February. This was the draft.
Q: What about Exhibit C and C-1 [which] were identified by you. When was this presented to
Dr. Firme?
A: This is the same.
Q: Exhibit C and C-1?
A: Yes because I prepared two documents during our meeting. One already with notarial, the
one without notarial page and the other one with notarial page already, so I prepared two
documents but with the same contents both were dated February of 1995.32
Q: So, you are referring now to Exhibit C and C-1 for the plaintiff?
A: C-1 is already in the final form because we agreed already as to the date of the payment,
so I prepared already another document which is dated March 1995.33 (Emphasis supplied)
In his cross-examination, Aviles again changed his testimony. According to him, he presented
the Third Draft to the Spouses Firme during their first meeting. 34 However, when he went over
the records, he again changed his answer and stated that he presented the Third Draft during
their second meeting.35
In his re-direct examination, Aviles gave another version of what he presented to the Spouses
Firme during the two meetings. According to him, he presented the Third Draft during the first
meeting. On their second meeting, he presented the First and the Second Drafts to the Spouses
Firme.36
Furthermore, Aviles admitted that the first proposal of Bukal Enterprises was at P2,500 per
square meter for the Property.37 But the First, Second and Third Drafts of the deed of sale
prepared by Aviles all indicated a purchase price of P4,000 per square meter or a lump sum
of P3,224,000 (P4,000 per sq.m. x 806 sq.m. = P3,224,000) for the Property. Hence, Aviles
could not have presented any of these draft deeds of sale to the Spouses Firme during their first
meeting.
Considering the glaring inconsistencies in Aviles testimony, it was proper for the trial court to
give more credence to the testimony of Dr. Firme.

93
Even after the two meetings with Aviles, the Spouses Firme were firm in their decision not to sell
the Property. Aviles called the Spouses Firme twice after their last meeting. The Spouses Firme
informed Aviles that they were not selling the Property. 38 Aviles himself admitted this during his
testimony, thus:
Q. Now, the next question which states: "But did you not have any occasion to talk to him after
that second meeting?" and the answer of Dr. Firme is "He called up a month after, thats March
2, 1995." What can you say on this?
A. I called him to inform him that the loan was already transferred from Makati to Padre Faura
Branch of the Far East Bank, so I scheduled already the payment of their property.
Q. When?
A. On March 4, 1995.
Q. And then the next question which also states: "What did you talked (sic) about over the
telephone?" The answer of Dr. Firme was "When I found out that he was calling, I told him that
the property is not for sale." What can you say on this?
A. He mentioned that they are no longer interested to sell their property, perhaps they would like
a higher price of the property. They did not mention to me. I do not know what was their reason.
Q. The next question "So, what happened next?" The answer is "He called up two days later,
March 4 and my wife answered the telephone and told him that the property is not for sale, sir."
What can you say on this?
A. That is true. That is what Mrs. Firme told me during our conversation on the telephone that
they are no longer interested to sell the property for obvious reason.
Q. When was that?
A. March 4, 1995, your honor.39 (Emphasis supplied)
Significantly, De Castro also admitted that he was aware of the Spouses Firmes refusal to sell the
Property.40
The confusing testimony of Aviles taken together with De Castros admission that he was aware of
the Spouses Firmes refusal to sell the Property reinforces Dr. Firmes testimony that he and his
wife never consented to sell the Property.
Consent is one of the essential elements of a valid contract. The Civil Code provides:
Art. 1318. There is no contract unless the following requisites concur:

1. Consent of the contracting parties;

2. Object certain which is the subject matter of the contract;
3. Cause of the obligation which is established.
The absence of any of these essential elements will negate the existence of a perfected contract
of sale.41 Thus, where there is want of consent, the contract is non-existent. 42 As held in
Salonga, et al. v. Farrales, et al.:43
It is elementary that consent is an essential element for the existence of a contract, and where it
is wanting, the contract is non-existent. The essence of consent is the conformity of the
parties on the terms of the contract, the acceptance by one of the offer made by the
other. The contract to sell is a bilateral contract. Where there is merely an offer by one party,
without the acceptance of the other, there is no consent. (Emphasis supplied)
In this case, the Spouses Firme flatly rejected the offer of Aviles to buy the Property on behalf of
Bukal Enterprises. There was therefore no concurrence of the offer and the acceptance on the
subject matter, consideration and terms of payment as would result in a perfected contract of
sale.44 Under Article 1475 of the Civil Code, the contract of sale is perfected at the moment there
is a meeting of minds on the thing which is the object of the contract and on the price.
Another piece of evidence which supports the contention of the Spouses Firme that they did not
consent to the contract of sale is the fact they never signed any deed of sale. If the Spouses
Firme were already agreeable to the offer of Bukal Enterprises as embodied in the Second Draft,
then the Spouses Firme could have simply affixed their signatures on the deed of sale, but they
did not.
Even the existence of a signed document purporting to be a contract of sale does not preclude a
finding that the contract is invalid when the evidence shows that there was no meeting of the
minds between the seller and buyer.45 In this case, what were offered in evidence were mere
unsigned deeds of sale which have no probative value.46 Bukal Enterprises failed to show the
existence of a perfected contract of sale by competent proof.1vvphi1.nt
Second, there was no approval from the Board of Directors of Bukal Enterprises as would
finalize any transaction with the Spouses Firme. Aviles did not have the proper authority to
negotiate for Bukal Enterprises. Aviles testified that his friend, De Castro, had asked him to
negotiate with the Spouses Firme to buy the Property. 47 De Castro, as Bukal Enterprises vice
president, testified that he authorized Aviles to buy the Property.48 However, there is no Board
Resolution authorizing Aviles to negotiate and purchase the Property on behalf of Bukal
Enterprises.49
It is the board of directors or trustees which exercises almost all the corporate powers in a
corporation. Thus, the Corporation Code provides:
SEC. 23. The board of directors or trustees. Unless otherwise provided in this Code, the
corporate powers of all corporations formed under this Code shall be exercised, all business
conducted and all property of such corporations controlled and held by the board of directors or
trustees to be elected from among the holders of stock, or where there is no stock, from among
the members of the corporation, who shall hold office for one (1) year and until their successors
are elected and qualified. x x x

94
SEC. 36. Corporate powers and capacity. Every corporation incorporated under this Code has
the power and capacity:
xxx
7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise
deal with such real and personal property, including securities and bonds of other corporations, as
the transaction of a lawful business of the corporation may reasonably and necessarily require,
subject to the limitations prescribed by the law and the Constitution.
xxx
Under these provisions, the power to purchase real property is vested in the board of directors or
trustees. While a corporation may appoint agents to negotiate for the purchase of real property
needed by the corporation, the final say will have to be with the board, whose approval will finalize
the transaction.50 A corporation can only exercise its powers and transact its business through its
board of directors and through its officers and agents when authorized by a board resolution or its
by-laws.51 As held in AF Realty & Development, Inc. v. Dieselman Freight Services, Co.:52
Section 23 of the Corporation Code expressly provides that the corporate powers of all
corporations shall be exercised by the board of directors. Just as a natural person may authorize
another to do certain acts in his behalf, so may the board of directors of a corporation validly
delegate some of its functions to individual officers or agents appointed by it. Thus, contracts or
acts of a corporation must be made either by the board of directors or by a corporate agent duly
authorized by the board. Absent such valid delegation/authorization, the rule is that the
declarations of an individual director relating to the affairs of the corporation, but not in the course
of, or connected with, the performance of authorized duties of such director, are held not binding on
the corporation. (Emphasis supplied)
In this case, Aviles, who negotiated the purchase of the Property, is neither an officer of Bukal
Enterprises nor a member of the Board of Directors of Bukal Enterprises. There is no Board
Resolution authorizing Aviles to negotiate and purchase the Property for Bukal Enterprises. There
is also no evidence to prove that Bukal Enterprises approved whatever transaction Aviles made
with the Spouses Firme. In fact, the president of Bukal Enterprises did not sign any of the deeds of
sale presented to the Spouses Firme. Even De Castro admitted that he had never met the
Spouses Firme.53 Considering all these circumstances, it is highly improbable for Aviles to finalize
any contract of sale with the Spouses Firme.
Furthermore, the Court notes that in the Complaint filed by Bukal Enterprises with the trial court,
Aviles signed54the verification and certification of non-forum shopping. 55 The verification and
certification of non-forum shopping was not accompanied by proof that Bukal Enterprises
authorized Aviles to file the complaint on behalf of Bukal Enterprises.
The power of a corporation to sue and be sued is exercised by the board of directors. "The
physical acts of the corporation, like the signing of documents, can be performed only by natural
persons duly authorized for the purpose by corporate by-laws or by a specific act of the board of
directors."56

The purpose of verification is to secure an assurance that the allegations in the pleading are true
and correct and that it is filed in good faith. 57 True, this requirement is procedural and not
jurisdictional. However, the trial court should have ordered the correction of the complaint since
Aviles was neither an officer of Bukal Enterprises nor authorized by its Board of Directors to act
on behalf of Bukal Enterprises.
Whether the Statute of Frauds is applicable
The Court of Appeals held that partial performance of the contract of sale takes the oral contract
out of the scope of the Statute of Frauds. This conclusion arose from the appellate courts
erroneous finding that there was a perfected contract of sale. The records show that there was
no perfected contract of sale. There is therefore no basis for the application of the Statute of
Frauds. The application of the Statute of Frauds presupposes the existence of a perfected
contract.58 Article 1403 of the Civil Code provides:
Art. 1403. The following contracts are unenforceable, unless they are ratified:
(1) Those entered into in the name of another person by one who has been given no authority
or legal representation, or who has acted beyond his powers;
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the
following cases an agreement hereafter made shall be unenforceable by action, unless the
same, or some note or memorandum thereof, be in writing and subscribed by the party
charged or by his agent; evidence, therefore, of the agreement cannot be received without the
writing, or a secondary evidence of its contents:
x x x (e) An agreement for the leasing for a longer period than one year, or for the sale of real
property or of an interest therein; x x x
Whether Bukal Enterprises is a builder in good faith
Bukal Enterprises is not a builder in good faith. The Spouses Firme did not accept Aviles offer to
purchase the Property. Aviles testified that when he called the Spouses Firme on 2 March 1995,
Dr. Firme informed him that they were no longer interested in selling the Property. On 4 March
1995, Aviles called again and this time Mrs. Firme told him that they were not selling the
Property. Aviles informed De Castro of the refusal of the Spouses Firme to sell the Property.
However, Bukal Enterprises still proceeded in relocating the squatters and constructing
improvements on the Property. De Castro testified:
ATTY. EJERCITO: The truth of the matter, Mr. Witness, is that the post was constructed
sometime late 1994. Is that not correct?
A: No, sir. It is not true.
Q: When was it constructed?
A: That March.
Q: When in March?
A: 1995.
Q: When in March 1995?
A: From the period of March 2, 1995 or two (2) weeks after the removal of the squatters.

95
Q: When were the squatters removed?
WITNESS:
A: March 6 and 7 because there were four (4) squatters.
ATTY. EJERCITO:
Q: When did you find out that the Spouses Firme did not want to sell the same?
A: First week of March 1995.
Q: In your Complaint you said you find out on March 3, 1995. Is that not correct?
A: I cannot exactly remember, sir.
ATTY. MARQUEDA:
In the Complaint it does not state March 3. Maybe counsel was thinking of this Paragraph 6
which states, "When the property was rid of the squatters on March 2, 1995 for the
documentation and payment of the sale, xxx".
ATTY. EJERCITO:
Q: So, you found out on March 2, 1995 that the defendants were no longer interested in selling
to you the property. Is that correct?
A: Yes, sir, because Mr. Aviles relayed it to me.
Q: Mr. Aviles relayed to you that the Spouses Firme were no longer interested in selling to you
the property in March 2, 1995. Is that correct?
A: Yes, sir. Mr. Aviles told me.
Q: In so many words, Mr. Witness, you learned that the Spouses Firme were no longer
interested in selling the property before you spent allegedly all the sum of money for the
relocation of squatters for all this construction that you are telling this Court now?
WITNESS:
A: The refusal to sell is not yet formal and the lawyer sent a letter tendering full payment of the
purchase price.
ATTY. EJERCITO:
Q: You mean to say that you did not believe Mr. Aviles when he told you that the Spouses Firme
were no longer selling the property?
A: No, sir.
Q: Was there anything formal when you say the Spouses Firme agreed to sell the property?
A: None, sir.
Q: And yet that time you believe Mr. Aviles when he verbally told you that the Sps. Firme agreed
to sell the property? At what point of the transaction with the Spouses Firme were you advised
by your lawyer?
WITNESS:
A: At the time when they refused to sell the lot.
ATTY. EJERCITO:
Q: Was that before the squatters were relocated allegedly by Bukal Enterprises?
A: Yes, sir.
Q: In fact, it was the lawyer who advised you to relocate the squatters. Is it not true?
A: No, sir.59 (Emphasis supplied)
Bukal Enterprises is obviously a builder in bad faith. No deed of sale has been executed in this
case. Despite the refusal of the Spouses Firme to sell the Property, Bukal Enterprises still
proceeded to introduce improvements on the Property. Bukal Enterprises introduced improvements
on the Property without the knowledge and consent of the Spouses Firme. When the Spouses
Firme learned about the unauthorized constructions made by Bukal Enterprises on the Property,
they advised the latter to desist from further acts of trespass on their Property.60
The Civil Code provides:

Art. 449. He who builds, plants or sows in bad faith on the land of another, loses what is built,
planted or sown without right of indemnity.
Art. 450. The owner of the land on which anything has been built, planted or sown in bad faith
may demand the demolition of the work, or that the planting or sowing be removed, in order to
replace things in their former condition at the expense of the person who built, planted or sowed;
or he may compel the builder or planter to pay the price of the land, and the owner the proper
rent.
Under these provisions the Spouses Firme have the following options: (1) to appropriate what
Bukal Enterprises has built without any obligation to pay indemnity; (2) to ask Bukal Enterprises
to remove what it has built; or (3) to compel Bukal Enterprises to pay the value of the
land.61 Since the Spouses Firme are undoubtedly not selling the Property to Bukal Enterprises,
they may exercise any of the first two options. They may appropriate what has been built without
paying indemnity or they may ask Bukal Enterprises to remove what it has built at Bukal
Enterprises own expense.
Bukal Enterprises is not entitled to reimbursement for the expenses incurred in relocating the
squatters. Bukal Enterprises spent for the relocation of the squatters even after learning that the
Spouses Firme were no longer interested in selling the Property. De Castro testified that even
though the Spouses Firme did not require them to remove the squatters, they chose to spend for
the relocation of the squatters since they were interested in purchasing the Property.62
Whether the Spouses Firme are entitled to compensatory and moral damages
The Court agrees with the Court of Appeals to delete the award for compensatory and moral
damages. In awarding actual damages, the trial court took into account the traveling expenses
incurred by the Spouses Firme who are already residing in the United States. However, the trial
court failed to consider the testimony of Dr. Firme that they normally travel to the Philippines
more than once a year to visit their children. 63 Thus, the expenses for the roundtrip tickets dated
1996-1997 could not be attributed solely for the attendance of hearings in the case.
Nevertheless, an award of nominal damages of P30,000 is warranted since Bukal Enterprises
violated the property rights of the Spouses Firme.64 The Civil Code provides:
Art. 2221. Nominal damages are adjudicated in order that a right of the plaintiff, which has been
violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose
of indemnifying the plaintiff for any loss suffered by him.
Art. 2222. The court may award nominal damages in every obligation arising from any source
enumerated in article 1157, or in every case where any property right has been invaded.
The award of damages is also in accordance with Article 451 of the Civil Code which states that
the landowner is entitled to damages from the builder in bad faith.65
WHEREFORE, we SET ASIDE the Decision of the Court of Appeals and RENDER a new one:

96
1. Declaring that there was no perfected contract of sale;
2. Ordering Bukal Enterprises to pay the Spouses Firme P30,000 as nominal damages.
SO ORDERED.
[G.R. No. 149750. June 16, 2003]
AURORA ALCANTARA-DAUS vs. Spouses HERMOSO and SOCORRO DE LEON
DECISION
PANGANIBAN, J.:
While a contract of sale is perfected by mere consent, ownership of the thing sold is acquired
only upon its delivery to the buyer. Upon the perfection of the sale, the seller assumes the
obligation to transfer ownership and to deliver the thing sold, but the real right of ownership is
transferred only by tradition or delivery thereof to the buyer.
The Case
Before us is a Petition for Review [1] under Rule 45 of the Rules of Court, seeking to set aside
the February 9, 2001 Decision and the August 31, 2001 Resolution of the Court of Appeals [2](CA) in
CA-GR CV No. 47587. The dispositive portion of the assailed Decision reads as follows:
WHEREFORE, premises considered, the decision of the trial court is hereby REVERSED, and
judgment rendered:
1. Declaring null and void and of no effect, the [D]eed of [A]bsolute [S]ale dated
December 6, 1975, the [D]eed of [E]xtra-judicial [P]artition and [Q]uitclaim dated
July 1, 1985, and T.C.T. No. T-31262;
2. Declaring T.C.T. No. 42238 as valid and binding;
3. Eliminating the award of P5,000.00 each to be paid to defendants-appellees.[3]
The assailed Resolution[4] denied petitioners Motion for Reconsideration.
The Facts
The antecedents of the case were summarized by the Regional Trial Court (RTC) and
adopted by the CA as follows:
This is a [C]omplaint for annulment of documents and title, ownership, possession, injunction,
preliminary injunction, restraining order and damages.
[Respondents] alleged in their [C]omplaint that they are the owners of a parcel of land hereunder
described as follows, to wit:
A parcel of land (Lot No. 4786 of the Cadastral Survey of San Manuel) situated in the Municipality
of San Manuel, Bounded on the NW., by Lot No. 4785; and on the SE., by Lot Nos. 11094 & 11096;
containing an area of Four Thousand Two Hundred Twelve (4,212) sq. m., more or less. Covered
by Original Certificate of Title No. 22134 of the Land Records of Pangasinan.

which [Respondent] Hermoso de Leon inherited from his father Marcelino de Leon by virtue of a
[D]eed of [E]xtra-judicial [P]artition. Sometime in the early 1960s, [respondents] engaged the
services of the late Atty. Florencio Juan to take care of the documents of the properties of his
parents. Atty. Juan let them sign voluminous documents. After the death of Atty. Juan, some
documents surfaced and most revealed that their properties had been conveyed by sale or
quitclaim to [Respondent] Hermosos brothers and sisters, to Atty. Juan and his sisters, when in
truth and in fact, no such conveyances were ever intended by them. His signature in the [D]eed
of [E]xtra-judicial [P]artition with [Q]uitclaim made in favor of x x x Rodolfo de Leon was forged.
They discovered that the land in question was sold by x x x Rodolfo de Leon to [Petitioner]
Aurora Alcantara. They demanded annulment of the document and reconveyance but
defendants refused x x x.
xxx

xxx

xxx

[Petitioner] Aurora Alcantara-Daus [averred] that she bought the land in question in good faith
and for value on December 6, 1975. [She] has been in continuous, public, peaceful, open
possession over the same and has been appropriating the produce thereof without objection
from anyone.[5]
On August 23, 1994, the RTC (Branch 48) of Urdaneta, Pangasinan [6] rendered its
Decision[7] in favor of herein petitioner. It ruled that respondents claim was barred by laches,
because more than 18 years had passed since the land was sold. It further ruled that since it
was a notarial document, the Deed of Extrajudicial Partition in favor of Rodolfo de Leon was
presumptively authentic.
Ruling of the Court of Appeals
In reversing the RTC, the CA held that laches did not bar respondents from pursuing their
claim. Notwithstanding the delay, laches is a doctrine in equity and may not be invoked to resist
the enforcement of a legal right.
The appellate court also held that since Rodolfo de Leon was not the owner of the land at
the time of the sale, he could not transfer any land rights to petitioner. It further declared that the
signature of Hermoso de Leon on the Deed of Extrajudicial Partition and Quitclaim -- upon which
petitioner bases her claim -- was a forgery. It added that under the above circumstances,
petitioner could not be said to be a buyer in good faith.
Hence, this Petition.[8]
The Issues
Petitioner raises the following issues for our consideration:
1. Whether or not the Deed of Absolute Sale dated December 6, 1975 executed by Rodolfo de
Leon (deceased) over the land in question in favor of petitioner was perfected and binding upon
the parties therein?
2. Whether or not the evidentiary weight of the Deed of Extrajudicial Partition with Quitclaim,
executed by [R]espondent Hermoso de Leon, Perlita de Leon and Carlota de Leon in favor of
Rodolfo de Leon was overcome by more than [a] preponderance of evidence of respondents?

97
3. Whether or not the possession of petitioner including her predecessor-in-interest Rodolfo de
Leon over the land in question was in good faith?
4. And whether or not the instant case initiated and filed by respondents on February 24, 1993
before the trial court has prescribed and respondents are guilty of laches?[9]
The Courts Ruling
The Petition has no merit.
First Issue: Validity of the Deed of Absolute Sale
Petitioner argues that, having been perfected, the Contract of Sale executed on December 6,
1975 was thus binding upon the parties thereto.
[10]

A contract of sale is consensual. It is perfected by mere consent, upon a meeting of the

minds[11] on the offer and the acceptance thereof based on subject matter, price and terms of
payment.[12] At this stage, the sellers ownership of the thing sold is not an element in the
perfection of the contract of sale.
The contract, however, creates an obligation on the part of the seller to transfer ownership
and to deliver the subject matter of the contract. [13] It is during the delivery that the law requires the
seller to have the right to transfer ownership of the thing sold. [14] In general, a perfected contract of
sale cannot be challenged on the ground of the sellers non-ownership of the thing sold at the time
of the perfection of the contract.[15]
Further, even after the contract of sale has been perfected between the parties, its
consummation by delivery is yet another matter. It is through tradition or delivery that the buyer
acquires the real right of ownership over the thing sold.[16]
Undisputed is the fact that at the time of the sale, Rodolfo de Leon was not the owner of the
land he delivered to petitioner. Thus, the consummation of the contract and the consequent
transfer of ownership would depend on whether he subsequently acquired ownership of the land in
accordance with Article 1434 of the Civil Code. [17] Therefore, we need to resolve the issue of the
authenticity and the due execution of the Extrajudicial Partition and Quitclaim in his favor.
Second Issue: Authenticity of the Extrajudicial Partition
Petitioner contends that the Extrajudicial Partition and Quitclaim is authentic, because it was
notarized and executed in accordance with law. She claims that there is no clear and convincing
evidence to set aside the presumption of regularity in the issuance of such public document. We
disagree.
As a general rule, the due execution and authenticity of a document must be reasonably
established before it may be admitted in evidence. [18] Notarial documents, however, may be
presented in evidence without further proof of their authenticity, since the certificate of
acknowledgment is prima facie evidence of the execution of the instrument or document involved.
[19]
To contradict facts in a notarial document and the presumption of regularity in its favor, the
evidence must be clear, convincing and more than merely preponderant.[20]
The CA ruled that the signature of Hermoso de Leon on the Extrajudicial Partition and
Quitclaim was forged. However, this factual finding is in conflict with that of the RTC. While

normally this Court does not review factual issues, [21] this rule does not apply when there is a
conflict between the holdings of the CA and those of the trial court,[22] as in the present case.
After poring over the records, we find no reason to reverse the factual finding of the
appellate court. A comparison of the genuine signatures of Hermoso de Leon [23] with his
purported signature on the Deed of Extrajudicial Partition with Quitclaim [24] will readily reveal that
the latter is a forgery. As aptly held by the CA, such variance cannot be attributed to the age or
the mechanical acts of the person signing.[25]
Without the corroborative testimony of the attesting witnesses, the lone account of the
notary regarding the due execution of the Deed is insufficient to sustain the authenticity of this
document. He can hardly be expected to dispute the authenticity of the very Deed he notarized.
[26]
For this reason, his testimony was -- as it should be --minutely scrutinized by the appellate
court, and was found wanting.
Third Issue: Possession in Good Faith
Petitioner claims that her possession of the land is in good faith and that, consequently,
she has acquired ownership thereof by virtue of prescription. We are not persuaded.
It is well-settled that no title to registered land in derogation of that of the registered owner
shall be acquired by prescription or adverse possession.[27] Neither can prescription be allowed
against the hereditary successors of the registered owner, because they merely step into the
shoes of the decedent and are merely the continuation of the personality of their predecessor in
interest.[28] Consequently, since a certificate of registration [29] covers it, the disputed land cannot
be acquired by prescription regardless of petitioners good faith.
Fourth Issue: Prescription of Action and Laches
Petitioner also argues that the right to recover ownership has prescribed, and that
respondents are guilty of laches. Again, we disagree.
Article 1141 of the New Civil Code provides that real actions over immovable properties
prescribe after thirty years. This period for filing an action is interrupted when a complaint is filed
in court.[30] Rodolfo de Leon alleged that the land had been allocated to him by his brother
Hermoso de Leon in March 1963,[31] but that the Deed of Extrajudicial Partition assigning the
contested land to the latter was executed only on September 16, 1963. [32] In any case, the
Complaint to recover the land from petitioner was filed on February 24, 1993, [33] which was within
the 30-year prescriptive period.
On the claim of laches, we find no reason to reverse the ruling of the CA. Laches is based
upon equity and the public policy of discouraging stale claims. [34] Since laches is an equitable
doctrine, its application is controlled by equitable considerations. [35] It cannot be used to defeat
justice or to perpetuate fraud and injustice. [36] Thus, the assertion of laches to thwart the claim of
respondents is foreclosed, because the Deed upon which petitioner bases her claim is a forgery.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs
against petitioner. SO ORDERED.
G.R. No. L-22358 January 29, 1975
PIO BARRETTO SONS, INC. vs. COMPAIA MARITIMA
ESGUERRA, J.:

98
Petition for review on certiorari of the decision of the Court of Appeals in its CA-G.R. No. 23367-R
which reverses the judgment of the Court of First Instance of Manila, including its resolution
denying the petitioner's motion for reconsideration of the decision.

The Court of Appeals reversed the judgment of the trial court and ordered the dismissal of the
case on the ground that delivery of the lumber by plaintiff-petitioner to defendant-respondent
was not duly proved.

The factual background of the case is as follows:

Petitioner's motion for reconsideration of the decision of the Court of Appeals was denied again
on the ground of lack of sufficient showing of a valid delivery of the lumber in question by the
Barretto Sons, Inc. to the Compaia Maritima.

Petitioner as plaintiff filed a complaint for collection of a sum of money against herein respondent,
alleging that during the months of October and November, 1941, the defendant (now respondent)
purchased on credit and received from the plaintiff (now petitioner), lumber worth P5,300.55; and
on December 4, 1941, the defendant-respondent again purchased on credit and received from the
plaintiff-petitioner, lumber worth P453.81, thereby incurring a total indebtedness of P6,054.36 with
stipulated interest of 12% per annum, plus attorney's fees.
Respondent as defendant filed its answer denying all the material allegations of the complaint and,
by way of counterclaim, prayed that plaintiff-petitioner be ordered to pay the sums of P500.00 as
expenses of litigation and P1,500.90 as Attorney's fees, plus costs.
Plaintiff-petitioner having filed its answer to the counterclaim of defendant-respondent, the case
was heard and the trial court rendered judgment in favor of the plaintiff-petitioner, the dispositive
portion of which reads as follows:
WHEREFORE, judgment is hereby rendered ordering defendant to pay to plaintiff the sum of
P6,054.36, with legal interest thereon from the filing of the complaint until fully paid, plus
attorney's fees in the amount of P500.00, together with the costs.
Both parties appealed to the Court of Appeals, the plaintiff PIO BARRETTO SONS, INC. assigning
the following error:
The Lower Court erred in holding that the moratorium orders and laws condoned the stipulated
interest of 12% per annum on defendant's prewar indebtedness, and in awarding to plaintiff only
the legal interest from the filing of the complaint. (pp. 4-5, Brief for the Plaintiff-Appellant)
and defendant COMPAIA MARITIMA making four assignment of errors, to wit:
I. The Lower Court erred in holding that plaintiff had proven its alleged claims of P5,600.55 and
P453.81.
II. The Lower Court erred in holding that defendant had not paid plaintiff's alleged claim in the
amount of P5,600.55.
III. The Lower Court erred in not holding that the complaint states no cause of action against
defendant, and that the alleged cause of action, if any at all, is already barred by the statute of
limitation of actions.
IV. The Lower Court erred in ordering defendant to pay to plaintiff the sum of P6,054.36 plus
legal interest thereon from the filing of the complaint until fully paid, plus attorney's fees in the
amount of P500.00 together with the costs. (pp. 1-2, Brief for the Defendant-Appellant)

Hence this petition for review on certiorari.

Petitioner maintains that:
I. The Court of Appeals erred in creating and raising, motu propio, for the first time a new
issue, that of the question of delivery, upon which the Court of Appeals based its decision
reversing the judgment of the trial Court.
II. The Court of Appeals erred in its conclusion drawn from proven facts, and has decided the
case in a way not in accordance with law or with the applicable decisions of this Court, and
III. The Court of Appeals erred in that it has so far departed from the accepted and usual
course of judicial proceedings. (pp. 1-2, Brief for Petitioner).
Petitioner further asserts that the case having been tried and decided by the trial court on the
issue of whether or not there was payment made by respondent Compaia Maritima of the
lumber covered by Exhs. "A-1" to "A-6" (invoices of petitioner) and Exh. "B", "B-1 " to "B-4 (the
counter-receipts issued by the respondent), it is alone on this issue that the Court of Appeals
should have decided the case and not on the issue of whether or not there was delivery of the
lumber in question.
The principal issue, therefore, before Us is whether or not the Court of Appeals decided the case
on a new issue not raised in the pleadings before the lower courts.
We rule that the issue of delivery on which the Court of Appeals based its decision reversing that
of the trial court is no new issue at all. For delivery and payment in a contract of sale, or for that
matter in quasi-contracts, are so interrelated and intertwined with each other that without
delivery of the goods there is no corresponding obligation to pay. The two complement each
other. Thus, "by the contract of sale one of the contracting parties obligates himself to transfer
the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain
in money or its equivalent." (Art. 1458, 1st par., new Civil Code). The source of this provision of
law is Article 1445 of the old Code, which provides:
By the contract of purchase and sale one of the contracting parties obligates himself to deliver
a determinate thing and the other to pay a certain price therefor in money or in something
representing the same.
It is clear that the two elements cannot be dissociated, for "the contract of purchase and sale is,
essentially, a bilateral contract, as it gives rise to reciprocal obligations; to wit, on the part of the

99
seller, "to deliver a determinate thing, and on the part of the buyer, "to pay a certain price therefor
in money or in something representing it." " (p. 1, Capistrano, The Law of Purchase and Sale).
The finding of the Court of Appeals that there was no delivery of the lumber is well founded. As
succinctly ruled by said Court:
That this is basically an action for lumber allegedly bought, received, and not paid for; now just
as a seller, in order to recover, must prove not only that he has sold and delivered and has not
been paid, so a buyer in order to be condemned to pay must be shown to have bought,
received, and not paid. Of course, it is correct to say as plaintiff says that even if there had been
no purchase, provided there had been a delivery, it could recover, not on the sale but on the
quasi-contract against unjust enrichment, but whether on sale or on quasi contract, the vital
element is delivery; ... nor should it be said that there was no issue at all between the parties as
to the fact of delivery; because that issue was present in the pleadings, not only as can be seen
in par. 2 of the answer, but also as can be seen from the fact that plaintiff itself on p. 20 of the
tsn. Vol. I, asked its own witness, Roman Legarda So, this question:
"Q. Was that lumber covered by that invoice duly received and acknowledged by the
Compaia Maritima?"
and defendant on the other hand spent a good part of its proofs in demonstrating that there had
been no delivery, e.g., Vol. II, pp. 132-134; now on the vital point of delivery, it must be
remembered that the procedure between the parties as sought to be proved by plaintiff itself thru
its witness, Juanito G. Perez, had been as follows:
"A. Whenever the Compaia Maritima orders lumber from our company, the Compaia
Maritima issues a purchase order to the Pio Barretto Sons, Inc. When this purchase order is
received by the Pio Barretto Sons, Inc., the Pio Barretto Sons, Inc. delivers the lumber, as
specified in the purchase order. Upon delivery of this lumber, the lumber is covered by invoice of
the Pio Barretto, together with the purchase order of the Compaia Maritima. Now, when the
lumber is received by the Compaia Maritima, the Compaia Maritima stamps our invoice for the
lumber delivered, and the receiving clerk signs the said invoice for the Compaia Maritima. Now,
after the lumber has been delivered, our delivery man brings back to our office and gives the
invoice to me, together with the purchase order. Now, at the end of each week, I prepare the
Statement of Accounts to be sent the Compaia Maritima, through our collector, and, in turn, the
Accounting Department of the Compaia Maritima issues as the kinds of receipts for the
invoices, purchase orders, and statements of accounts surrendered to them." tsn. 76-77, Vol. I;
stated otherwise, first, there was a purchase order by Maritima; 2ndly, there was an invoice by
Barretto; 3rdly, there was a delivery unto Maritima; 4thly, there was a delivery of the purchase
order and delivery receipt unto Maritima for checking or revision; and since Maritima would
because of that retain the purchase orders and delivery receipts, it would issue in exchange its
own counter receipt of said documents; and 5thly, after due verification had been made,
Maritima would then pay; this procedure should now be correlated to the evidence herein
presented; now plaintiff has here presented two sets of documents, A to A-6 and B to B-4; the
first set consists of a purchase order, together with the invoices or delivery receipts, At to A-6;
and the second set consists of counter-receipts evidencing the fact that Maritima had received,
with the exception of that in B-4, certain documents, i.e., purchase orders and delivery receipts
from Barretto, "para su revision"; if then the documents would be correlated with the testimonies
and the procedure outlined by witness Perez, it will result that as to A to A-6, plaintiff, according

to it, had already complied with the purchase order, the sale, and delivery, but that it had not
submitted all these to Maritima "para su revision" while as to B to B-4, it had according to it,
complied with purchase order (except as to B-4), sale, delivery, and submission "para su
revision", but the same had not been as yet checked and verified by Maritima; the question is,
has this proof demonstrated plaintiff's cause of action, pursuant to the very procedure by it
outlined in its evidence to have been followed between the parties in the course of their
commercial transactions but how could that be when precisely because of that practice, it
gave unto Maritima the right to first verify; and there is no showing that had been verified; but
let it not be here said that just because Maritima had not yet verified, plaintiff should not be
permitted to recover, for that practice must give way to the truth, as plaintiff contends,
that if it had after all proved delivery, defendant must pay; but has plaintiff proved delivery
under the evidence? According to what has been paid, plaintiff had, according to it, submitted
its documents in B to B-4 for revision; this means to say that it had in its possession and given
unto Maritima purchase orders, and delivery receipts, but does this mean that it had proved
delivery? Can delivery be proved by the fact that one had in his possession what one had
believed to be a delivery receipt and submitted that for verification, without any actual proof of
delivery of the article? If that were the case, a litigant would be excused from proving the
element most vital to show his cause of action; and a Court of Justice must have to rely on the
presumption that just because one had in his possession a "delivery receipt", one had already
delivered; but the vice of this argument is that it altogether parts from the basis that the
"delivery receipt" thus possessed and surrendered was a genuine delivery receipt, evidencing
the fact that buyer had indeed received; but here, there absolutely is no proof of that; what
this Court has only seen in the evidence nearest to the required proof is the stamp of Maritima
on A-1 to A-6; for as this Court has said, the supposed admission by defendant witness
Narvaez that the lumber therein annotated had been "delivered" was clearly and
unfortunately, one that could not, to be fair to the witness, have been correctly meant to
have by him been made, for he was "purchasing agent" only and could not be qualified at all
to declare if what he had authorized to be purchased had been thereafter delivered, and the
witness had in fact insisted against such alleged delivery to "Posadas", and witness had all
the time insisted that only one "J. Leoncio", could receive, and this clarification is indisputably
fortified by the very evidence of plaintiff, consisting in the purchase order Exh. A, wherein is
annotated:
"Not
valid
and signed by: J. LEONCIO";

unless

invoices

are

receipted

which name, "J. Leoncio" had been written precisely by said witness and this must mean that
the signature of "Posadas" in A-1 to A-6 by the evidence of plaintiff itself, has been shown to
have been unauthorized; and going to the stamp of Maritima on A-1 to A-6, this had to be
correlated to the fact that Narvaez has testified that:
This is our own stamp, but we did not authorize Mr. Posadas to sign for any lumber received.
tsn. 134, Vol. II;
nor has in fact, in any part of the evidence been shown any proof as even to show the
authenticity of said signature "Posadas"; or that said "Posadas" had actually received said
lumber; to prove at least that the lumber had been deposited in the compound of Maritima by
that "Posadas", for if there had been such proof in the record, if plaintiff had shown evidence
of that actual delivery of the lumber into the possession of Maritima, then it would have been
the obligation of this Court under the law of quasi-contracts, to grant Barretto its prayer for the

100
value of that; but no, what Barrette has here presented as witnesses were first Roman Legarda
So, manager of Barretto, who admitted in cross that:

WHEREFORE, the judgment appealed from is hereby affirmed without pronouncement as to

costs. SO ORDERED.

Q. With respect to Exhibits A-1 to A-5, you did not have any personal intervention or
participation in the preparation of these documents?

G.R. No. L-41847 December 12, 1986

CATALINO LEABRES vs. COURT OF APPEALS
PARAS, J.:

A. No, sir, I did not have any participation or intervention.

Q. You did not have any personal intervention in the alleged deliveries of these number to the
Compaia Maritima? A. - No, sir, I did not have.
A. As a matter of fact, you do not know who put these rubber stamps here and signed at the
bottom of these Exhibits A, A-1 to A- 5?
Q. No, sir, I do not know. tsn. 57-58, Vol. I;

Before Us is a Petition for certiorari to review the decision of the Court of Appeals which is
quoted hereunder:
In Civil Case No. 64434, the Court of First Instance of Manila made the following quoted
decision:
(1) Upon defendant's counterclaim, ordering plaintiff Catalino Leabres to vacate and/or
surrender possession to defendant Manotok Realty, Inc. the parcel of land subject matter of
the complaint described in paragraph 3 thereof and described in the Bill of Particulars dated
March 4, 1966;

and then Juanita G. Perez, assistant cashier of Barretto who admitted in cross that:
Q. So, you do not know of your own personal knowledge the circumstances or the manner in
which these Exhibits A-1 to A-5 were stamped. You do not know of your own personal
knowledge?
A. Well, when it comes to stamping, I do not have any knowledge," tsn. 35, Vol. I;
under such a status of plaintiffs own proofs, how could it be said that plaintiff had proved its
case? And how would it be correctly insisted against this Court that it had disregarded Lower
Court's findings contrary to the existing jurisprudence when there was no issue of credibility
presented to this Court on which it indeed would have been bound to rely as a rule upon Lower
Court's determination; but what had been before this Court was a simple issue of preponderance
and it had to make its conclusions based on the documents themselves presented by plaintiff it
is because of these that this Court is impelled to reiterate that it should rule as it had ruled
previously, for litigations can not be determined by possibly correct suppositions, deductions or
even presumptions, with no basis in the evidence, for the truth must have to be determined by
the hard rules of proof. (pp. 1-7, CA Resolution dated January 8, 1964).
"An examination of said receipts would reveal that they were counter-receipts issued by Cia.
Maritima unto Pio Barretto certifying to the fact of having received from Pio Barretto, certain
statements, "para su revision", which can only mean not an admission of having received the
lumber but only an admission of having received certain statements on claims for lumber allegedly
delivered; ... that plaintiff has the duty to prove its affirmative allegations here of delivery to and
failure of defendant to pay, ... otherwise, the meaning would be that the sending of a statement of
account would be an evidence of the admission thereof which it surely is not. (p. 6, CA Decision
dated November 18, 1963; p. 27, ROA).
We concur in the foregoing observations and find that the conclusion of the Court of Appeals that
plaintiff did not satisfactorily prove delivery of the lumber in question is in accordance with the facts
and the law.

(2) To pay defendant the sum of P81.00 per month from March 20, 1959, up to the time he
actually vacates and/or surrenders possession of the said parcel of land to the defendant
Manotok Realty, Inc., and
(3) To pay attorney's fees to the defendant in the amount of P700.00 and pay the costs.
(Decision, R.A., pp. 54-55).
The facts of this case may be briefly stated as follows:
Clara Tambunting de Legarda died testate on April 22, 1950. Among the properties left by the
deceased is the "Legarda Tambunting Subdivision" located on Rizal Avenue Extension, City of
Manila, containing an area of 80,238.90 sq. m., covered by Transfer Certificates of Title No.
62042; 45142; 45149; 49578; 40957 and 59585. Shortly after the death of said deceased,
plaintiff Catalino Leabres bought, on a partial payment of Pl,000.00 a portion (No. VIII, Lot No. 1)
of the Subdivision from surviving husband Vicente J. Legarda who acted as special
administrator, the deed or receipt of said sale appearing to be dated May 2, 1950 (Annex "A").
Upon petition of Vicente L. Legarda, who later was appointed a regular administrator together
with Pacifica Price and Augusto Tambunting on August 28, 1950, the Probate Court of Manila in
the Special Proceedings No. 10808) over the testate estate of said Clara Tambunting, authorized
through its order of November 21, 1951 the sale of the property.
In the meantime, Vicente L. Legarda was relieved as a regular Administrator and the Philippine
Trust Co. which took over as such administrator advertised the sale of the subdivision which
includes the lot subject matter herein, in the issues of August 26 and 27, September 2 and 3,
and 15 and 17, 1956 of the Manila Times and Daily Mirror. In the aforesaid Special Proceedings
No. 10808, no adverse claim or interest over the subdivision or any portion thereof was ever
presented by any person, and in the sale that followed, the Manotok Realty, Inc. emerged the
successful bidder at the price of P840,000.00. By order of the Probate Court, the Philippine Trust
Co. executed the Deed of Absolute Sale of the subdivision dated January 7, 1959 in favor of the
Manotok Realty, Inc. which deed was judicially approved on March 20, 1959, and recorded

101
immediately in the proper Register of Deeds which issued the corresponding Certificates of Title to
the Manotok Realty, Inc., the defendant appellee herein.
A complaint dated February 8, 1966, was filed by herein plaintiff, which seeks, among other things,
for the quieting of title over the lot subject matter herein, for continuing possession thereof, and for
damages. In the scheduled hearing of the case, plaintiff Catalino Leabres failed to appear although
he was duly notified, and so the trial Court, in its order dated September 14, 1967, dismissed the
complaint (Annex "E").<re||an1w> In another order of dismissal was amended as to make the
same refer only to plaintiff's complaint and the counter claim of the defendant was reinstated and
as the evidence thereof was already adduced when defendant presented its evidence in three
other cases pending in the same Court, said counterclaim was also considered submitted for
resolution. The motion for reconsideration dated January 22, 1968 (Annex " I "), was filed by
plaintiff, and an opposition thereto dated January 25, 1968, was likewise filed by defendant but the
Court a quo dismissed said motion in its order dated January 12, 1970 (Annex "K"), "for lack of
merits" (pp. 71-72, Record on Appeal).
Appealing the decision of the lower Court, plaintiff-appellant advances the following assignment of
errors:
I. THE LOWER COURT ERRED IN DENYING THE MOTION FOR RECONSIDERATION,
DATED OCTOBER 9, 1967, THUS DEPRIVING THE PLAINTIFF-APPELLANT HIS DAY IN
COURT.
II. THE LOWER COURT ERRED IN ORDERING THE PLAINTIFF-APPELLANT CATALINO
LEABRES TO VACATE AND/OR SURRENDER THE POSSESSION OF THE LOT SUBJECT
MATTER OF THE COMPLAINT TO DEFENDANT-APPELLEE.
III. THE LOWER COURT ERRED IN ORDERING THE PLAINTIFF-APPELLANT TO PAY
DEFENDANT-APPELLEE THE SUM OF P 81.00 PER MONTH FROM MARCH 20, 1969, UP
TO THE TIME HE ACTUALLY VACATE THE PARCEL OF LAND. (Appellant's Brief, p. 7)
In the First Assigned Error, it is contended that the denial of his Motion for Reconsideration dated
October 9, 1967, the plaintiff-appellant was not accorded his day in Court.
The rule governing dismissal of actions for failure to prosecute is provided for in Section 3, Rule 17
of the Rules of Court, as follows:
If the plaintiff fails to appear at the time of the trial, or to prosecute his action for an unreasonable
length of time, or to comply with these rules or any order of the Court, the action may be dismissed
upon motion of the defendant or upon the Court's own motion. This dismissal shall have the effect
of an adjudication upon the merits, unless otherwise provided by the Court.
Under the afore-cited section, it is discretionary on the part of the Court to dismiss an action for
failure to prosecute, and its action will not be reversed upon appeal in the absence of abuse. The
burden of showing abuse of this discretion is upon the appellant since every presumption is toward
the correctness of the Court's action (Smith, Bell & Co., et al vs. American Pres. Lines, Ltd., and
Manila Terminal Co., No. L-5304, April 30, 1954; Adorable vs. Bonifacio, G. R. No. L-0698, April 22,
1959); Flores vs. Phil. Alien Property Administration, G.R. No. L-12741, April 27, 1960). By the

doctrine laid down in these cases, and by the provisions of Section 5, Rules 131 of the Rules of
Court, particularly paragraphs (m) and (o) which respectively presume the regularity of official
performance and the passing upon by the Court over all issues within a case, it matters not if the
Court dismissing the action for failure to prosecute assigns any special reason for its action or
not. We take note of the fact that the Order declaring appellant in default was handed down on
September 14, 1967. Appellant took no steps to have this Order set aside. It was only on
January 22, 1968, after he was furnished a copy of the Court's decision dated December 9,
1967 or about four months later that he attached this Order and the decision of the Court.
Appellant slept on his rights-if he had any. He had a chance to have his day in Court but he
passed it off. Four months later he alleges that sudden illness had prevented him. We feel
appellant took a long time too-long in fact-to inform the Court of his sudden illness. This sudden
illness that according to him prevented him from coming to Court, and the time it took him to tell
the Court about it, is familiar to the forum as an oft repeated excuse to justify indifference on the
part of litigants or outright negligence of those who represent them which subserves the
interests of justice. In the instant case, not only did the appellant wantonly pass off his chance to
have a day in Court but he has also failed to give a convincing, just and valid reason for the new
hearing he seeks. The trial court found it so; We find it so. The trial Court in refusing to give
appellant a new trial does not appear to have abused his discretion as to justify our intervention.
The Second and Third Assignments of Error are hereby jointly treated in our discussion since the
third is but a consequence of the second.
It is argued that had the trial Court reconsidered its order dated September 14, 1967 dismissing
the complaint for failure to prosecute, plaintiff-appellant might have proved that he owns the lot
subjectmatter of the case, citing the receipt (Annex A) in his favor; that he has introduced
improvements and erected a house thereon made of strong materials; that appellee's adverse
interest over the property was secured in bad faith since he had prior knowledge and notice of
appellant's physical possession or acquisition of the same; that due to said bad faith appellant
has suffered damages, and that for all the foregoing, the judgment should be reversed and
equitable relief be given in his favor.
As above stated, the Legarda-Tambunting Subdivision which includes the lot subject matter of
the instant case, is covered by Torrens Certificates of Title. Appellant anchors his claim on the
receipt (Annex "A") dated May 2, 1950, which he claims as evidence of the sale of said lot in his
favor. Admittedly, however, Catalino Leabres has not registered his supposed interest over the
lot in the records of the Register of Deeds, nor did he present his claim for probate in the testate
proceedings over the estate of the owner of said subdivision, in spite of the notices advertised in
the papers. (Saldana vs. Phil. Trust Co., et al.; Manotok Realty, Inc., supra).
On the other hand, defendant-appellee, Manotok Realty, Inc., bought the whole subdivision
which includes the subject matter herein by order and with approval of the Probate Court and
upon said approval, the Deed of Absolute Sale in favor of appellee was immediately registered
with the proper Register of Deeds. Manotok Realty, Inc. has therefore the better right over the lot
in question because in cases of lands registered under the Torrens Law, adverse interests not
therein annotated which are without the previous knowledge by third parties do not bind the
latter. As to the improvement which appellant claims to have introduced on the lot, purchase of
registered lands for value and in good faith hold the same free from all liens and encumbrances
except those noted on the titles of said land and those burdens imposed by law. (Sec. 39, Act.
496).<re||an1w> An occupant of a land, or a purchaser thereof from a person other than the
registered owner, cannot claim good faith so as to be entitled to retention of the parcels
occupied by him until reimbursement of the value of the improvements he introduced thereon,

102
because he is charged with notice of the existence of the owner's certificate of title (J.M. Tuason &
Co. vs. Lecardo, et al., CA-G.R. No. 25477-R, July 24, 1962; J.M. Tuason & Co., Inc. vs. Manuel
Abundo, CA-G.R. No. 29701-R, November 18, 1968).
Appellant has not convinced the trial Court that appellee acted in bad faith in the acquisition of the
property due to the latter's knowledge of a previous acquisition by the former, and neither are we
impressed by the claim. The purchaser of a registered land has to rely on the certificate of title
thereof. The good faith of appellee coming from the knowledge that the certificate of title covering
the entire subdivision contain no notation as to appellant's interest, and the fact that the records of
these eases like Probate Proceedings Case No. 10808, do not show the existence of appellant's
claim, strongly support the correctness of the lower Court's decision
WHEREFORE, in view of the foregoing, we find no reason to amend or set aside the decision
appealed from, as regards to plaintiff-appellant Catalino Leabres. We therefore affirm the same,
with costs against appellant. (pp. 33-38, Rollo)
Petitioner now comes to us with the following issues:
(1) Whether or not the petitioner was denied his day in court and deprived of due process of law.
(2) Whether or not the petitioner had to submit his receipt to the probate court in order that his
right over the parcel of land in dispute could be recognized valid and binding and conclusive
against the Manotok Realty, Inc.
(3) Whether or not the petitioner could be considered as a possessor in good faith and in the
concept of owner. (p. 11, Rollo)
Petitioner's contention that he was denied his day in court holds no water. Petitioner does not deny
the fact that he failed to appear on the date set for hearing on September 14, 1967 and as a
consequence of his non-appearance, the order of dismissal was issued, as provided for by Section
3, Rule 17 of the Revised Rules of Court.
Moreover, as pointed out by private respondent in its brief, the hearing on June 11, 1967 was
not ex parte. Petitioner was represented by his counsel on said date, and therefore, petitioner was
given his day in Court.
The main objection of the petition in the lower court's proceeding is the reception of respondent's
evidence without declaring petitioner in default. We find that there was no necessity to declare
petitioner in default since he had filed his answer to the counterclaim of respondent.
Petitioner anchors his main arguments on the receipt (Exh. 1) dated May 2, 1950, as a basis of a
valid sale. An examination of the receipt reveals that the same can neither be regarded as a
contract of sale or a promise to sell. There was merely an acknowledgment of the sum of One
Thousand Pesos (P1,000.00). There was no agreement as to the total purchase price of the land
nor to the monthly installment to be paid by the petitioner. The requisites of a valid Contract of Sale
namely 1) consent or meeting of the minds of the parties; 2) determinate subject matter; 3) price
certain in money or its equivalent-are lacking in said receipt and therefore the "sale" is not valid nor
enforceable. Furthermore, it is a fact that Dona Clara Tambunting died on April 22, 1950. Her

estate was thereafter under custodia legis of the Probate Court which appointed Don Vicente
Legarda as Special Administrator on August 28, 1950. Don Vicente Legarda entered into said
sale in his own personal-capacity and without court approval, consequently, said sale cannot
bind the estate of Clara Tambunting. Petitioner should have submitted the receipt of alleged sale
to the Probate Court for its approval of the transactions. Thus, the respondent Court did not err
in holding that the petitioner should have submitted his receipt to the probate court in order that
his right over the subject land could be recognized-assuming of course that the receipt could be
regarded as sufficient proof.
Anent his possession of the land, petitioner cannot be deemed a possessor in good faith in view
of the registration of the ownership of the land. To consider petitioner in good faith would be to
put a premium on his own gross negligence. The Court resolved to DENY the petition for lack of
merit and to AFFIRM the assailed judgment.
G.R. No. 73893 June 30, 1987
MARGARITA SURIA AND GRACIA R. JOVEN vs. INTERMEDIATE APPELLATE COURT
RESOLUTION
GUTIERREZ, JR., J.:
This is a petition for review on certiorari of the decision of the Court of Appeals dismissing for
lack of merit the petition for certiorari filed therein.
As factual background, we quote from the Court of Appeals' decision:
The factual and procedural antecedents of this case may be briefly stated as follows:
On June 20, 1983, private-respondents filed a complaint before the Regional Trial Court of
Laguna, Branch XXIV, for rescission of contract and damages, alleging among others:
1. x x x
2. That on March 31, 1975, plaintiffs being the owners of a parcel of land situated at Barrio
San Antonio, San Pedro, Laguna, entered into a contract denominated as DEED OF SALE
WITH MORTGAGE, with herein defendants, a true copy of said contract (which is made an
integral part hereof) is hereto attached as ANNEX ."A":
3. x x x
4. That the defendants violated the terms and conditions of the contract by failing to pay the
stipulated installments and in fact only one installment due in July 1975 (paid very late in the
month of September, 1975) was made all the others remaining unsettled to the present time;
5. That repeated verbal and written demands were made by plaintiff upon the defendants for
the payment of the installments, some of said written demands having been made on
September 24, 1981, February 7, 1982, February 24, 1983, March 13, 1983, and April 12,
1983, but defendants for no justifiable reason failed to comply with the demands of plaintiffs;

103
6. x x x
On November 14, 1983, petitioners filed their answer with counterclaim.
On July 16, 1984, petitioners filed a motion to disniiss complaint, alleging that:
1. That plaintiffs are not entitled to the subsidiary remedy of rescission because of the presence
of remedy of foreclosure in the Deed of Sale with Mortgage (Annex "A", Complaint);
2. That, assuming arguendo that rescission were a proper remedy, it is apparent in the face of
the Complaint that the plaintiffs failed to comply with the requirements of law, hence the
rescission was ineffective, illegal, null and void, and invalid.
On July 26, 1984, private-respondents filed their opposition to the above motion.

Perusing the grounds invoked by the defendants in their Motion for Reconsideration and
Reply as well as the objections raised by plaintiffs in their opposition, and it appearing that in
its Order dated November 26, 1984, the Court has sufficiently, althou (sic) succinctly stated its
reason for denying the motion to dismiss dated July 16, 1984, that is, for lack of merit, the
Court finds no overriding reason or justification from the grounds invoked in the said Motion
for Reconsideration for it to reconsider, change, modify, or set aside its Order dated
November 26, 1984. The Court still believes that the two (2) grounds invoked by defendants in
their Motion to Dismiss dated July 16, 1984 are not meritorious when considered in the light of
prevailing law and jurisprudence and the hypothetically admitted allegations of the complaint,
and for that reason it denied the motion to dismiss in its said order of November 26, 1984.
The instant Motion for Reconsideration is therefore denied for lack of merit. (Pp, 29-32, Rollo)
The questions raised by petitioner are as follows:

In the meantime, on August 6, 1984, petitioners formerly offered to pay private-respondents all
the outstanding balance under the Deed of Sale with Mortgage, which offer was rejected by
private respondents on August 7, 1984.

I. IN A DEED OF SALE, WHICH IS COUPLED WITH A MORTGAGE TO SECURE PAYMENT

OF THE BALANCE OF THE PURCHASE PRICE, MAY THE SELLER RESORT TO THE
REMEDY OF RESCISSION UNDER ARTICLE 1191 OF THE CIVIL CODE WHICH PROVIDES
FOR THE SUBSIDIARY AND EQUITABLE REMEDY OF RESCISSION IN CASE OF BREACH
OF RECIPROCAL OBLIGATIONS?

On November 26, 1984, the respondent-Court denied the motion to dismiss. The order reads:

Otherwise stated,

Defendants through counsel filed a Second Motion to Dismiss dated July 24, 1984 based on an
affirmative defense raised in their answer, that is, that the complaint fails to state a cause of
action for rescission against defendants because (1) plaintiffs are not entitled to the
subsidiary remedy of rescission because of the presence of the remedy of foreclosure in the
Deed of Sale with Mortgage (Annex "A", Complaint) and (2) assuming arguendo that
rescission were a proper remedy, it is apparent from the face of the Complaint that the plaintiffs
failed to comply with the requirements of law, hence the rescission was ineffective, illegal, null
and void, and invalid.
After a careful perusal of the allegations of the complaint considered in the light of existing
applicable law and jurisprudence touching on the matters in issue, and mindful of the settled rule
that in a motion to dismiss grounded on lack of cause of action the allegations of the complaint
must be assumed to be true, the Court finds and holds that the motion to dismiss dated July 24,
1984 filed by defendants lacks merit and therefore denied the same.

IS THE SUBSIDIARY AND EQUITABLE REMEDY OF RESCISSION AVAILABLE IN THE

PRESENCE OF A REMEDY OF FORECLOSURE IN THE LIGHT OF THE EXPRESS
PROVISION OF ARTICLE 1383 OF THE CIVIL CODE THAT: 'THE ACTION FOR
RESCISSION IS SUBSIDIARY; IT CANNOT BE INSTITUTED EXCEPT WHEN THE PARTY
SUFFERING DAMAGE HAS NO OTHER LEGAL MEANS TO OBTAIN REPARATION FOR
THE SAME? xxx xxx xxx
II. MAY THE SELLER LEGALLY DEMAND RESCISSION OF THE DEED OF SALE WITH
MORTGAGE WITHOUT OFFERING TO RESTORE TO THE BUYER WHAT HE HAS PAID, AS
REQUIRED BY ARTICLE 1385, OR COMPLYING WITH THE REQUIREMENTS OF THE
MACEDA LAW (REPUBLIC ACT 6552) GRANTING THE BUYER A GRACE PERIOD TO PAY
WITHOUT INTEREST, AND, IN CASE OF CANCELLATION IN CASE THE BUYER STILL
COULD NOT PAY WITHIN THE GRACE PERIOD, REQUIRING THE SELLER TO ORDER
PAYMENT OF THE CASH SURRENDER VALUE BEFORE THE CANCELLATION MAY
LEGALLY TAKE EFFECT (SEC. 3[b], LAST PAR., REP. ACT 6552)?

SO ORDERED.
On January 31, 1985, petitioners filed a motion for reconsideration to which private-respondents
filed their opposition on February 11, 1985. On February 19, 1985, petitioners filed their reply.

The petition was denied in a minute resolution on June 13, 1986 but was given due course on
September 29, 1986 on a motion for reconsideration.
The petition is impressed with merit.

On March 13, 1985, the respondent-Court denied the motion for reconsideration. The order
reads in part:
xxx xxx xxx

The respondent court rejected the petitioners' reliance on paragraph (H) of the contract which
grants to the vendors mortgagees the right to foreclose "in the event of the failure of the
vendees-mortgagors to comply with any provisions of this mortgage." According to the appellate
court, this stipulation merely recognizes the right of the vendors to foreclose and realize on the

104
mortgage but does not preclude them from availing of other remedies under the law, such as
rescission of contract and damages under Articles 1191 and 1170 of the Civil Code in relation to
Republic Act No. 6552.

The injured party may choose between the fulfilment and the rescission of the obligation, with
the payment of damages in either case. He may also seek rescission, even after he has
chosen fulfiument, if the latter should become impossible.

The appellate court committed reversible error. As will be explained later, Art. 1191 on reciprocal
obligations is not applicable under the facts of this case. Moreover, Art. 1383 of the Civil Code
provides:

The court shall decree the rescission claimed, unless there be just cause authorizing the
fixing of a period.

The action for rescission is subsidiary; it cannot be instituted except when the party suffering
damage has no other legal means to obtain reparation for the same.
The concurring opinion of Justice J.B.L. Reyes in Universal Food Corp. v. Court of Appeals (33
SCRA 22) was cited by the appellate court.
In that case, Justice J.B.L. Reyes explained:
xxx xxx xxx ... The rescission on account of breach of stipulations is not predicated on injury to
economic interests of the party plaintiff but on the breach of faith by the defendant, that violates the
reciprocity between the parties. It is not a subsidiary action, and Article 1191 may be scanned
without disclosing anywhere that the action for rescission thereunder is subordinated to anything
other than the culpable breach of his obligations by the defendant. This rescission is a principal
action retaliatory in character, it being unjust that a party be held bound to fulfill his promises when
the other violates his. As expressed in the old Latin aphorism: "Non servanti fidem, non est fides
servanda," Hence, the reparation of damages for the breach is purely secondary.
On the contrary, in the rescission by reason of lesion or economic prejudice, the cause of action
is subordinated to the existence of that prejudice, because it is the raison d 'etre as well as the
measure of the right to rescind. Hence, where the defendant makes good the damages caused,
the action cannot be maintained or continued, as expressly provided in Articles 1383 and 1384.
But the operation of these two articles is limited to the cases of rescission for lesion enumerated
in Article 1381 of the Civil Code of the Philippines, and does not apply to cases under Article
1191.
It is probable that the petitioner's confusion arose from the defective technique of the new Code
that terms both instances as "rescission" without distinctions between them; unlike the previous
Spanish Civil Code of 1889, that differentiated "resolution" for breach of stipulations from
"rescission" by reason of lesion or damage. But the terminological vagueness does not justify
confusing one case with the other, considering the patent difference in causes and results of
either action.
According to the private respondents, the applicable law is Article 1191 of the Civil Code which
provides:
The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should
not comply with what is incumbent upon him.

This is understood to be without prejudice to the rights of third persons who have acquired the
thing, in accordance with articles 1385 and 1388 and the Mortgage Law.
There is no dispute that the parties entered into a contract of sale as distinguished from a
contract to sell.
By the contract of sale, the vendor obligates himself to transfer the ownership of and to deliver a
determinate thing to the buyer, who in turn, is obligated to pay a price certain in money or its
equivalent (Art. 1458, Civil Code). From the respondents' own arguments, we note that they
have fully complied with their part of the reciprocal obligation. As a matter of fact, they have
already parted with the title as evidenced by the transfer certificate of title in the petitioners'
name as of June 27, 1975.
The buyer, in tum, fulfilled his end of the bargain when he executed the deed of mortgage. The
payments on an installment basis secured by the execution of a mortgage took the place of a
cash payment. In other words, the relationship between the parties is no longer one of buyer and
seller because the contract of sale has been perfected and consummated. It is already one of a
mortgagor and a mortgagee. In consideration of the petitioners'promise to pay on installment
basis the sum they owe the respondents, the latter have accepted the mortgage as security for
the obligation.
The situation in this case is, therefore, different from that envisioned in the cited opinion of
Justice J.B.L. Reyes. The petitioners' breach of obligations is not with respect to the perfected
contract of sale but in the obligations created by the mortgage contract. The remedy of
rescission is not a principal action retaliatory in character but becomes a subsidiary one which
by law is available only in the absence of any other legal remedy. (Art. 1384, Civil Code).
Foreclosure here is not only a remedy accorded by law but, as earlier stated, is a specific
provision found in the contract between the parties.
The petitioners are correct in citing this Court's ruling in Villaruel v. Tan King (43 Phil. 251) where
we Stated:
At the outset it must be said that since the subject-matter of the sale in question is real
property, it does not come strictly within the provisions of article 1124 of the Civil Code, but is
rather subjected to the stipulations agreed upon by the contracting parties and to the
provisions of Article 1504 of the Civil Code.
The "pacto comisorio" of "ley comisoria" is nothing more than a condition subsequent of the
contract of purchase and sale. Considered carefully, it is the very condition subsequent that is
always attached to all bilateral obligations according to article 1124; except that when applied

105
to real property it is not within the scope of said article 1124, and it is subordinate to the
stipulations made by the contracting parties and to the provisions of the article on which we are
now commenting" (article 1504). (Manresa, Civil Code, volume 10, page 286, second edition.)
Now, in the contract of purchase and sale before us, the parties stipulated that the payment of
the balance of one thousand pesos (P1,000) was guaranteed by the mortgage of the house that
was sold. This agreement has the two-fold effect of acknowledging indisputably that the sale had
been consummated, so much so that the vendee was disposing of it by mortgaging it to the
vendor, and of waiving the pacto comisorio, that is, the resolution of the sale in the event of
failure to pay the one thousand pesos (P1,000) such waiver being proved by the execution of
the mortgage to guarantee the payment, and in accord therewith the vendor's adequate remedy,
in case of nonpayment, is the foreclosure of such mortgage. (at pp. 255-256).
xxx xxx xxx
There is, therefore, no cause for the resolution of the sale as prayed for by the plaintiff. His
action, at all events, should have been one for the foreclosure of the mortgage, which is not the
action brought in this case.
Article 1124 of the Civil Code, as we have seen, is not applicable to this case. Neither is the
doctrine enunciated in the case of Ocejo, Perez & Co. v. International Banking Corporation (37
Phil. 631), which plaintiff alleges to be applicable, because that principle has reference to the
sale of personal property. (at p. 257)

a) Declaring the Contract to Sell No. 10879 Exhibit 3-company, executed by defendant
corporation in favor of its co- defendant Ramirez on April 2,1962, as NULL and VOID;
b) Ordering the defendant-corporations to execute a Contract to Sell in favor of the substituted
plaintiff Dr. Lucille E. Venturanza over Lot 22, Block 461 of the Sta. Mesa Heights Subdivision,
under the same terms and conditions of their offer to the plaintiffs as contained in the letter of
Gregorio Araneta, Inc., representative of J. M. Tuason & Co., Inc., to Florencia Cronico of
March 20, 1962 (Exh. H) or under the same terms given to defendant Ramirez;
c) Declaring as cancelled any and all transfer certificates of title that might have been issued
in favor of defendant Ramirez over said Lot No. 22;
d) Ordering the defendants, jointly and severally, to pay the plaintiff (Dr. Lucille E. Venturanza)
the sum of P160,000.00, as damages representing the rents derived from the property in
question up to December 2, 1968, plus the sum of P2,000.00 every month thereafter until the
lot in question is sold and delivered to plaintiff (Dr. Venturanza);
e) Ordering defendants, jointly and severally, to pay plaintiff (Dr. Lucille E. Venturanza) the
sum of P10,000.00, as attorney's fees;
f) To pay the costs.
IT IS SO ORDERED Quezon City, Philippines, January 25, 1969.

The petitioners have offered to pay au past due accounts. Considering the lower purchasing value
of the peso in terms of prices of real estate today, the respondents are correct in stating they have
suffered losses. However, they are also to blame for trusting persons who could not or would not
comply with their obligations in time. They could have foreclosed on the mortgage immediately
when it fell due instead of waiting all these years while trying to enforce the wrong remedy.
WHEREFORE, the petition is hereby GRANTED. The Intermediate Appellate Court's decision
dated November 8, 1985 and the resolution dated December 6, 1985 and February 28, 1986 are
REVERSED and SET ASIDE. The petitioners are ordered to pay the balance of their indebtedness
under the Deed of Absolute Sale with Mortgage with legal interests from the second installment
due on October 24, 1975 until fully paid, failing which the respondents may resort to foreclosure.
SO ORDERED.
G.R. No. L-35272 August 26, 1977
FLORENCIA CRONICO vs. J. M. TUASON & CO., INC.
FERNANDEZ, J:
In Civil Case No. Q-6363 entitled "Florencia Cronies, substituted by Lucille E. Venturanza, plaintiff,
versus J. M. Tuason & Co., Inc., represented by Gregorio Araneta, Inc., and Claudio Ramirez,
defendants," the Court of First Instance of Rizal, Branch IV, Quezon City, rendered its decision
dated January 25, 1969, the dispositive part of which reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of the plaintiff and against
the defendants, as follows:

s/t WALFRIDO DE LOS ANGELES J u d g e

(Rollo, p. 69, Joint Record on Appeal, pp. 49-50)
The defendants J. M. Tuason & Co., Inc. and Claudio R. Ramirez appealed to the Court of
Appeals which promulgated its decision on April 21, 1972 reversing the judgment appealed from
and dismissing the complaint with costs against the plaintiff-appellee. (Rollo, p. 31, Decision in
CA-G. R. No. 44479R, p. 19)
The plaintiff, Florencia Cronico substituted by Lucille E. Venturanza, filed with this Court a
petition for certiorari to review the decision of the Court of Appeals * assigning the following
errors:
I. THE HONORABLE COURT OF APPEALS ERRED IN- HOLDING THAT FLORENCIA
CRONICO OBTAINED. THE DEFENDANT COMPANY'S LETTER-OFFER TO HER DATED
MARCH 20, 1962 BY MEANS OF IRREGULAR AND PREMATURE DELIVERY.
II. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE RECORDS
DO NOT SHOW THAT DEFENDANT COMPANY'S LETTER-OFFER OR UNILATERAL
PROMISE TO SELL W AS SUPPORTED BY A CONSIDERATION OTHER THAN THE
SELLING PRICE.

106
III. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT PLAINTIFF
CRONICO IS NOT PRINCIPALLY NOR SUBSIDIARILY OBLIGED UNDER THE CONTRACT
TO SELL (EXH. 3-Company) AND HENCE MAY NOT BRING SUIT TO ANNUL THE SAME.
IV. THE HONORABLE COURT OF APPEALS ERRED IN REVERSING THE TRIAL COURT
AND DISMISSING THE COMPLAINT. (Rollo, p.74, Petitioner's Brief, pp. 1-2)

Bautista in the same morning stating that he accepted the conditions stated in the appellant
company's letter. Benjamin Bautista advised appellant Ramirez to wait for the decision of
Gregorio Araneta II. The next day, March 23, 1962, appellant Ramirez presented his letter to
the appellant company confirming his verbal acceptance of the terms and conditions in
connection with the sale. On March 31, 1962, Atty. Jose E. Patangco in behalf of appellant
Ramirez wrote the appellant company requesting the early execution of the proper contract to
sell over Lot No. 22. A check in the amount of P33,572 was enclosed in the letter to cover the
down payment for said lot. The request was favorably considered.

The facts, as found by the Court of Appeals, are:

Appellant J. M. Tuason & Co. Inc. hereinafter referred to as appellant company was the
registered owner of Lot No. 22, Block 461, Sta. Mesa Heights Subdivision, located at the
Northwestern corner of Quezon Boulevard and Gregorio Araneta, Quezon City and embraced by
Transfer Certificate of Title No. 49235 of the registry of Deeds of said city. In March, 1962,
plaintiff Florencia Cronico offered to buy the lot from the appellant company with the help of
Mary E. Venturanza. They personally talked to Benjamin F. Bautista, Manager of the Real Estate
Department of Gregorio Araneta, Inc. the appellant company's attorney-in-fact, proposing to buy
Lot No. 22. She was required to present proofs to show her rights to the lot. On March 8, 1962,
Florencia Cronico exhibited certain documents showing her priority rights to buy the lot.
In the first week of March, 1962, defendant-appellant Claudio Ramirez also learned that the lot
in question was being sold by the appellant company. The occupants thereof who also had
priority rights to buy the land informed Claudio Ramirez, about the intended sale. Juanita Semilla
and Pedro Fernandez, who were the occupants of the said Lot No. 22 expressed their
willingness to waive their rights although-Pedro Fernandez reserved a condition that a small
portion of the land whereon his house stands be sold to him. In the same month, March, 1962,
plaintiff Cronico and defendant- appellant Ramirez sent separate individual letters to appellant
company wherein they expressed their desire to purchase the land and requested information
concerning the area, the price and other terms and conditions of the contract to sell. Two others
intimated their desire to buying the lot. They were Bonifacio Chung and Angeles Henson. Both,
however, subsequently lost their interest in said lot. On March 20, 1962, the appellant company
sent separate reply letters to prospective buyers including plaintiff Cronies and defendantappellant Ramirez. They were dropped in the Manila Post Office at 11:00 in the morning of
March 21, 1962 by registered mail. It so happened that plaintiff Cronico went to the appellant
company's office on March 21, 1962, and she was informed that the reply letter of the appellant
company to prospective buyers of the same lot had been mailed. With this information, plaintiff
Cronies and Mary E. Venturanza went to the post office in Manila and she was able to get the
letter at about 3:30 in the afternoon of the same date. After she got the letter, plaintiff Cronies
and Mary E. Venturanza went directly to the office of Gregorio Araneta Inc., Escolta, Manila, and
presented the letter to Benjamin Bautista, Head of the Real Estate Department of said company.
Since she had no money, plaintiff Cronies requested Mary E. Venturanza to issue a check in the
amount of P33,572.00 to cover the down payment for the lot. However, Benjamin Bautista did
not accept the cheek. He advised plaintiff Cronies that it is Gregorio Araneta II who would decide
whose offer to buy may be accepts after the appellant company receives the registry return
cards attached to the registered letters sent to the offerors.
On March 22, 1962, between 10:00 and 11:00 a.m., appellant Ramirez received from the post
office at San Francisco del Monte, Quezon City, the reply letter of the appellant company dated
March 20, 1962, wherein it stated that Lot 22, Block 461, Sta. Mesa Heights Subdivision, was
available for sale under the conditions therein set forth and that the said lot was being offered for
sale on a first come first serve basis. Appellant Ramirez proceeded to the office of Benjamin

On April 2, 1962, the J. M. Tuason & Co. Inc., and Claudio R. Ramirez executed a contract to
sell whereby the appellant company agreed to sell to appellant Ramirez the lot in question for
a total price of P167,896.00 subject to the terms and conditions therein set forth.
Meanwhile, on March 27, 1962, the appellant company received a letter from Atty. Godofredo
Asuncion in behalf of Florencia Cronies requesting that the lot subject of litigation be 'sold to
her. She tendered a check to cover the down payment which was, however, returned. On April
4, 1962, the appellant company sent a letter to the plaintiff-appellee informing her that it had
decided to sell the lot in question to appellant Ramirez. This triggered the instant suit.
On April 28,1962, plaintiff Florencia Cronico lodged in the Court of First Instance of Rizal
(Quezon City Branch) a complaint against the defendants-appellants J. M. Tuason & Co., Inc.
and Claudio Ramirez. The main purpose of the said suit is to annul and set aside the contract
to sell executed by and between appellant company and appellant Ramirez. On May 30,
1962, Gregorio Araneta, representing J. M. Tuason & Co. Inc., filed its answer to the
complaint with cross claim against its co-defendant Claudio Ramirez and Luisa Patangco. On
the part of defendant Claudio Ramirez, he filed a motion to dismiss on the ground that the
complaint states no cause of action against him. He contends that the action for the
annulment of contract may only be instituted by those who are parties thereto or those who
are thereby obliged principally or subsidiarily. According to Claudio Ramirez such action to
annul a deed of sale can not prosper against third persons as they are not principally or
subsidiarily obligated thereby. The motion to dismiss was denied. So Claudio Ramirez filed his
answer reiterating in his affirmative defenses that since the plaintiff-appellee is not a party to
the contract to sell executed by him and the defendant company, plaintiff Florencia Cronico
has no right whatsoever to demand the annulment of said contract.
On November 19, 1968, plaintiff together with Dr. Lucille E. Venturanza filed a motion for
substitution for party plaintiff whereby plaintiff Florencia Cronico expressed her willingness to
be substituted by Dr. Lucille E. Venturanza as the former had transferred to the latter
whatever rights and interests which she may have over Lot 22, Block 261, Sta. Mesa Heights
Subdivision by virtue of a deed of assignment she executed on July 5, 1968. The court
granted the substitution of the party plaintiff by Dr. Lucille E. Venturanza. (Rollo, p. 31,
Decision of Court of Appeals, pp. 1- 71)
Anent the first error assigned, the petitioner contends that "No less than the chief of the general
service section of the Manila post office, Gaspar Bautista, speaking on the regularity of plaintiff
Cronico's receipt of the letter, testified before the trial court that the means by which plaintiff
Cronico received her letter is very regular." (Rollo, p. 74, Petitioner's Brief, p. 18). And that
"Anyway, the manner by which the offerees were to receive their letters was not announced by
the offeror to the contestant such that they could not be bound thereby. Hence, the rule of the

107
fittest and without lawlessness should govern, and that was Cronies who proved her diligence and
resourcefullness over Claudio Ramirez." (Rollo, p. 74, Petitioner's Brief, p. 21)
The petitioner also averred that the capability of the plaintiff, Florencia Cronico to purchase the
land in question was not raised as an issue in the answer of the defendant company and was
developed as an afterthought during the trial.
It is a fact that the petitioner, Florencia Cronico upon being tipped by Benjamin Bautista, head of
the Real Estate Department of Gregorio Araneta Inc., that the reply letters of the appellant
company were already placed in the mails on March 21, 1962 at 11:00 o'clock in the morning,
immediately went to the Manila post office and claimed the registered letter addressed to her
without waiting for the ordinary course for registered mails to be delivered. The petitioner took
delivery of the registered letter addressed to her at the entry section of the Manila post office. While
this procedure may be tolerated by the postal authorities, the act of the petitioner in taking delivery
of her letter at the entry section of the Manila post office without waiting for said letter to be
delivered to her in due course of mail is a violation of the "first come first served" condition imposed
by the respondent J. M. Tuason & Co. Inc., acting through Gregorio Araneta Inc.
The respondent, Claudio R. Ramirez, received on March 22, 1962 in the morning the reply letter of
the respondent company dated March 20, 1962 stating that Lot 22, Block 461, Sta. Mesa Heights
Subdivision was available for sale under the conditions set forth on the basis of "first come first
served". The respondent, Claudio R. Ramirez, proceeded to the office of Benjamin Bautista on the
same date and manifested that he was accepting the conditions stated in the respondent
company's letter. On March 23, 1962, respondent Ramirez presented his letter to the respondent
company confirming his verbal acceptance of the terms and conditions in connection with the sale.
It was only on March 27, 1962 that the respondent company received a letter from Atty. Godofredo
Asuncion in behalf of petitioner, Florencia Cronies, requesting that the lot subject of litigation be
sold to her. The enclosed cheek to cover the down payment was returned to petitioner Cronico and
on April 4, 1962, the respondent company wrote said petitioner that it had decided to sell the lot in
question to the respondent Ramirez.
In view of the foregoing circumstances, we concur in the finding of the Court of Appeals that
"Viewing the case from the standpoint of regularity of notice, plaintiff-appellee falls short of the
yardstick." (Rollo, p. 42, Decision of the Court of Appeal p.12)
The Court of Appeals entertained serious doubts as to the financial capability of petitioner Florencia
Cronico to purchase the property because she was receiving only the amount of P150.00 a month
as her salary from her employment and there was no showing that she had sources of income
other than her job. In fact, when petitioner Cronico tried to pay the down payment for the purchase
of the land, it was Mary E. Venturanza who drew the check in the amount of P33,572.00 which was
rejected by the respondent company. It is also to be noted that in the trial court, Florencia cronico
was substituted by her assignee Lucille E. Venturanza, daughter of Mary E. Venturanza. It is
apparent that petitioner, Florencia Cronico, did not have the capability to pay and that she acted
only as a mere front of the Venturanzas. As correctly pointed out by the Court of Appeals, realtors
are given the right to choose their buyers so as to avoid delinquent payments of monthly
installments which may result in costly court litigations.

The contention of petitioner. Florencia Cronico that the promise to sell is supported by a
consideration as to her because she had established her link as successor of Gregorio
Venturanza who bought the lot from Juan Ramos who in turn acquired said lot from Pedro
Deudor. The petitioner then argues that since Clause Seventh of the Compromise Agreement
between the respondent company and the Deudors, et al. obligated the respondent company to
sell to the buyers of the Deudors 'listed in Annex B thereof, Exhibit R-1, and Juan Ramos was
the purchaser of the lot from Pedro Deudor with such right to buy from the defendant company
under a new contract with the latter, the said petitioner had established the onerous cause or
consideration apart from the selling price of the lot. Granting, arguendo, that Clause Seventh of
the Compromise Agreement constitutes a valid consideration of the promise to sell apart from
the selling price, it appears that the Compromise Agreement upon which the petitioner Cronico
predicates her right to buy the lot in question has been rescinded and set aside. (Deudor vs.
J.M. Tuason & Co., Inc., 2 SCRA 129 and J. M. Tuason & Co., Inc. vs. Sanvictores 4 SCRA 123,
126) Hence, the promise of the respondent company to sell the lot in question to the petitioner,
Florencia Cronico has no consideration separate from the selling price of said lot.
In order that a unilateral promise may be binding upon the promisor, Article 1479, Civil Code of
the Philippines, requires the concurrence of the condition that the promise be "supported by a
consideration distinct from the price. Accordingly, the promisee can not compel the promisor to
comply with the promise, unless the former establishes the existence of said distinct
consideration. The promisee has the burden of proving such consideration. (Sanchez vs. Rigos,
45 SCRA 368, 372-373) The petitioner, Florencia Cronies, has not established the existence of a
consideration distinct from the price of the lot in question.
The petitioner cannot claim that she had accepted the promise before it was withdrawn because,
as stated above, she had violated the condition of "first, come, first served" Moreover, it was only
on March 27, 1962 that the respondent company received a letter from counsel of the petitioner
requesting that the lot subject of this litigation be sold to her. The respondent, Claudio R.
Ramirez, had on March 23, 1962, confirmed in writing his verbal acceptance of the terms and
conditions of the sale of the lot in question.
The petitioner maintains that the contract to sell (Exhibit 3) executed by the respondent
company in favor of the respondent, Claudio R. Ramirez, contains a stipulation for her benefit,
which reads:
b) that the buyer Claudio Ramirez has been fully informed by the company of all the
circumstances relative to the offer of Florencia Cronico to buy said lot and that he agrees and
binds himself to hold the company absolutely free and harmless from all claims and damages
to said Florencia Cronico in connection with this sale of the lot to him. (Rollo, p. 74,
Petitioner's Brief, pp. 31-32)
The foregoing clause cannot ' by any stretch of the imagination be considered as a clause "pour
autrui" or for the benefit of the petitioner. The stipulation does not confer any right arising from
the contract that may be enforced by the petitioner against any of the parties thereto. Neither
does it impose any obligation arising from the contract that may be enforced by any of the
parties thereto against the petitioner. The petitioner is not "obliged principally or subsidiarily" by
the contract to sell executed between the respondent company and the respondent Claudio R.
Ramirez. The said stipulation is for the benefit of the respondent company.

108
The contention of the petitioner that she has become the obligee or creditor of the respondent
company because she was the first to comply with the terms of the letter-offer has no merit. Her
so-called acceptance has no effect because she violated the condition of "first come, first served"
by taking delivery of the reply letter of the respondent company in the entry section of the Manila
post office and of the fact that her formal letter of acceptance was only received by the respondent
company on March 27, 1962.
In view of all the foregoing, we find that the Court of Appeals has not committed any of the errors
assigned in the brief of the petitioner.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. No. 44479-R is hereby affirmed,
without pronouncement as to costs. SO ORDERED.
[G.R. No. 142691. August 5, 2003]
HEIRS OF AMADO CELESTIAL vs. HEIRS OF EDITHA G. CELESTIAL
DECISION
YNARES-SANTIAGO, J.:
At the core of this petition is the authenticity of a Deed of Sale allegedly executed by Amado
Celestial, husband of petitioner Florencia Celestial, in favor of his sister-in-law, Editha G. Celestial,
involving Lot No. 4112, Ts-217, covering an area of 466 square meters situated at Dadiangas,
General Santos City.
Amado is the brother of co-petitioner Gloria C. Agui and Erlindo Celestial, husband of Editha.
Prior to 1962, Amado while still single, applied for a Miscellaneous Sales Patent over the 466
square meter lot, pursuant to the provisions of Chapter IX of Commonwealth Act No. 141, as
amended.[1]
On February 8, 1962, during the pendency of his application for a miscellaneous sales
patent, Amado got married to Florencia and they occupied the said 466-square meter lot. Their
union was blessed with the birth of their daughter, Helen.
On May 9, 1966, Amados application for a Miscellaneous Sales Patent was granted,
resulting in the issuance in his name of Original Certificate of Title (OCT) No. P-27090 of the
Registry of Deeds for General Santos City. Although the title to the land was issued on May 25,
1966, Amados civil status was designated as single on the title. Petitioner Florencia and her
husband did not bother to correct the said mistake in the civil status of Amado to avoid the paper
work it would entail.[2]
On October 10, 1975, Amado allegedly executed a Deed of Absolute Sale [3] conveying to
Editha the 466 square meter lot for P20,000.00. The deed described Amado, the vendor, as single
when in fact he was already married to Florencia for 13 years at the time of the sale. Likewise,
petitioner Florencia did not affix her signature on the deed of sale. Subsequently, the Register of
Deed of General Santos City cancelled OCT No. P-27090 and issued Transfer Certificate of Title
No. T-9145 in favor of Editha.
On March 21, 1976, Amado died.
On July 10, 1978, Editha executed a Deed of Sale with Right to Repurchase [4] conveying the
property covered by TCT No. 9145 in favor of respondent Prima Calingacion Chua for P30,000.00.
This notwithstanding, Editha caused the property covered by TCT No. 9145 to be subdivided into
three (3) lots, namely: Lot 4112-A, Lot 4112-B and Lot 4112-D. Thereafter, the corresponding

Transfer Certificates of Title (TCT Nos. T-14270, T-14271 and T-14272) were issued in the name
of Editha.
On September 4, 1979, Erlindo and Editha executed a Deed of Sale of Three Parcels of
Land[5] over the aforesaid subdivided lots in favor of respondent Chua. The consideration of the
contract was P110,000.00. Subsequently, on October 22, 1979, respondent Chua was issued
TCT No. T-14819 for Lot 4112-A, TCT No. T-14820 for Lot 4112-B, and TCT No. T-14821 for Lot
4112-D.
After eleven years, or on February 15, 1990, respondent Chua, through his lawyer, Atty.
Nilo J. Flaviano, notified[6] the petitioners and several other occupants of the subdivided lots to
vacate the aforesaid properties within ten (10) days from receipt of the notice. Subsequently,
respondent Chua filed a complaint for ejectment[7] against the petitioners.
Believing that respondent Chua had no right to eject them from the properties they
occupied, petitioners, on February 23, 1990, filed a complaint against Editha and respondent
Chua before the Regional Trial Court of General Santos City, Branch 23, which was docketed as
Civil Case No. 4401, for Judicial Declaration of the nullity of the Deed of Sale Executed by the
deceased Amado G. Celestial in favor of Editha G. Celestial and likewise all deeds of Absolute
Sale executed by said Editha G. Celestial in favor of Prima B. Calingacion covering Lot No.
4112, TS 217, formerly covered by Original Certificate of Title No. (P-27909) (P-10623) (P1650), etc.[8]
On March 3, 1994,[9] while the case was still pending before the trial court, Editha Celestial
died and she was substituted by the named respondents below.[10]
On April 27, 1995, a decision was rendered in favor of the petitioners, the dispositive
portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and
against the defendants,
1.
declaring the Deed of Absolute Sale dated October 10, 1975 marked Exhibit L for
the plaintiffs; Exhibit 1 for the defendants, as inexistent and void from the beginning for being a
product of forgery;
2.
declaring the Deed of Sale of Three Parcels of Land dated September 4, 1979 (Exh.
3 for the defendant) as inexistent and void from the beginning for being a simulated contract;
3.
ordering Prima B. Calingacion upon finality of this judgment to reconvey to the Heirs of
Amado Celestial, by registrable deed of conveyance, the properties described and covered by
Transfer Certificate of Title Nos. T-14819, T-14820, and T-14821 covering Lot Nos. 4112-A,
4112-B, and 4112-D, respectively, all of Psd-11-005479, and all registered in the name of Prima
B. Calingacion. In case defendant Prima B. Calingacion refused to execute the necessary
registrable deed of conveyance in favor of the Heirs of Amado Celestial, represented by
Florencia Celestial, reconveying the said properties covered by TCT Nos. T-14819, T-14820, and
T-14821, in favor of the Heirs of Amado Celestial, ordering the Clerk of Court in his capacity as
Provincial Sheriff ex-oficio to execute the necessary registrable deed of conveyance in favor of
the Heirs of Amado Celestial, represented by Florencia Celestial, which shall have like force and
effect as if done by the said defendant PRIMA B. CALINGACION; ordering the Register of
Deeds for General Santos City to accept the registration of the deed of conveyance executed by

109
the sheriff, even without the presentation or surrender of the Owners Duplicate copies of the
aforesaid transfer of certificates of title to the Office of the Register of Deeds;
4.
ordering Prima B. Calingacion to surrender the Owners Duplicate copies of TCT Nos. T14819, T-14820, and T-14821 to the Provincial Sheriff;
5.
ordering Prima B. Calingacion to vacate the premises of the lots covered by TCT Nos. T14819, T-14820, and T-14821, and surrender possession thereof to Florencia Celestial;
6.
ordering Prima B. Calingacion and the Estate of Editha Celestial, jointly and severally, to
pay to plaintiff Florencia Celestial the following amounts:
a.
b.
c.
d.

P20,000.00 for attorneys fees;

P30,000.00 for moral damages;
P20,000.00 for exemplary damages; and
Costs.

SO ORDERED.[11]

[12]

Instead of filing a motion for reconsideration, respondents filed a motion for new trial,
which was denied[13] on November 29, 1995.

Respondents appealed to the Court of Appeals, which was docketed as CA-G.R. CV No.
53211. On August 26, 1999, a decision was rendered reversing the aforesaid judgment of the trial
court and dismissing the complaint in Civil Case No. 4401. [14] Petitioners motion for
reconsideration was denied for lack of merit.[15]
Hence, this petition for review, raising the following assigned errors:
I. THE HONORABLE COURT OF APPEALS GROSSLY MISAPPRECIATED THE EVIDENCE AND
COMMITTED SERIOUS AND MANIFEST ERROR WHEN IT REVERSED THE DECISION OF
THE TRIAL COURT DECLARING NULL AND VOID THE DEED OF ABSOLUTE SALE DATED 10
OCTOBER 1975 IN A MANNER CONTRARY TO LAW AND THE SETTLED PRONOUNCEMENTS
OF THIS HONORABLE TRIBUNAL.
II. THE FINDINGS OF FACT OF THE HONORABLE COURT OF APPEALS ARE CONTRARY TO
THE FINDINGS OF THE TRIAL COURT AND ARE CONTRADICTED BY THE EVIDENCE ON
RECORD.
III. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN RENDERING A DECISION
ON THE BASIS OF CONJECTURES AND SURMISES AND HAS DEPARTED FROM THE
ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS WHICH URGENTLY CALL
FOR AN EXERCISE OF THIS HONORABLE COURTS SUPERVISION. [16]
When the trial court and the appellate court reached divergent factual assessments in their
respective decisions and the basis thereof refers to documents made available to the scrutiny of
both courts, the well settled rule that factual findings of trial courts deserve respect and even finality
will not apply.[17] In the case at bar, the differing factual assessments revolved around the
authenticity of the signature of the late Amado Celestial on the questioned Deed of Sale dated
October 10, 1975 conveying the 466 square meter lot in favor of Editha, his sister-in-law. There is
therefore a need to review the evidence on record to arrive at the correct findings.

Contrary to the finding of the Court of Appeals, the trial court did not solely rely on the
testimony of the NBI handwriting expert, Rhoda Flores, in holding that the deed of sale was a
forgery.[18] The record shows that the trial court, in fact, made its own independent assessment
on the authenticity of the questioned signature of Amado Celestial on the Deed of Absolute
Sale dated October 10, 1975 by comparing it with the sample signatures submitted by the
petitioners. The testimony of the NBI Document Examiner was merely utilized by the trial court in
reaching its own judicious assessment of the authenticity of the signatures of the late Amado
Celestial, to wit:
The Court can see that the signatures AMADO CELESTIAL in the Deed of Absolute Sale
marked as Exhibits L and L-2, compared to the signatures AMADO CELESTIAL marked as
Exhibit M-1 on Exhibit M; Exh. M-2-A on exh. M-2; Exh. M-3-A on Exh. M-3; Exh. M-4A on Exh. M-4; Exh. M-5-A on Exh. M-5; Exh. M-6-A on Exh. M-6; Exh. M-7-A on Exh.
M-7; and on Exh. N, could not be the signatures of the real Amado Celestial who was the
husband of plaintiff Florencia Celestial. To the mind of the Court, even an ordinary layman
can see that there are significant differences between the questioned signatures AMADO
CELESTIAL on the questioned Deed of Absolute Sale marked as Exhs. L and L-2 and
the eight (8) standard signatures AMADO CELESTIAL. Mrs. Rhoda B. Flores, the NBI
Document Senior Examiner, was right when she said that xxx I think this Honorable Court would
agree with me that even a layman can see that there are significant differences even in the
pictorial appearance. The court has examined the standard signatures of Amado Celestial in the
several instruments submitted to the NBI to serve as basis for scientific comparative analysis
with the questioned signatures, and the Court is inclined to believe the findings of the
handwriting expert Mrs. Rhoda Flores, as contained in the Questioned Document Report No.
108-293 x x x which was APPROVED by Arcadio Ramos, Chief, Questioned Document
Division of the NBI, and NOTED by Manuel Roura, Deputy director, Technical Services of the
NBI, and as testified to by her in court. The questioned Document Report No. 108-293 (Exhs.
P and P-1), which NBI Director Epimaco A. Velasco forwarded to this Court per letter of
transmittal dated March 1, 1993, (Exh. "O), and the testimony of NBI Senior Document
Examiner Rhoda B. Flores have guided this Court in arriving at a judicious conclusion
that the signatures of AMADO CELESTIAL on the Deed of Absolute Sale marked as
Exhibits L and L-2 are forgeries that the signatures thereon were not the signatures
of Amado Celestial (Emphasis supplied).[19]
The fact that the trial court relied on the testimony of a single witness is of no moment.
The trial court has the peculiar advantage to determine the credibility of a witness because of its
superior advantage in observing the conduct and demeanor of the witness while testifying.
[20]
Settled is the rule that it is the quality, not the number of witnesses that will tilt the scale of
evidence. Although the number of witnesses may be considered a factor in the appreciation of
evidence, preponderance does not necessarily lie in the greatest number. [21]Accordingly, absent
any showing of a fact or circumstance of weight and influence which would appear to have been
overlooked and, if considered, could affect the outcome of the case, the factual findings and
assessment on the credibility of a witness made by the trial court remain binding on an appellate
tribunal.[22] In the case at bar, there appears no cogent reason to set aside the trial courts
reliance on the credibility of the prosecution witness and its appreciation of the circumstantial
evidence inasmuch as the evidence on record amply supports its conclusion.
Moreover, the appellate court erred in holding that no accurate analysis and conclusion
can be reached since there is no closeness or proximity of the time between the specimen
signatures and the questioned signature.

110
Standing alone, the closeness or proximity of time in which these specimen signatures have
been written to the questioned signature is not an important factor in proving the genuineness of a
handwriting. If at all, the existence of such fact only bolsters proof of the authenticity of a
handwriting. For the purpose of proving the genuineness of a handwriting, Rule 132, Section 22 of
the Rules of Court provides:
SEC. 22. How genuineness of handwriting proved. The handwriting of a person may be proved
by any witness who believes it to be the handwriting of such person because he has seen the
person write, or has seen writing purporting to be his upon which the witness has acted or been
charged, and has thus acquired knowledge of the handwriting of such person. Evidence respecting
the handwriting may also be given by a comparison, made by the witness or the court, with writings
admitted or treated as genuine by the party against whom the evidence is offered, or proved to be
genuine to the satisfaction of the judge.
Under the foregoing rule, the genuineness of a handwriting may be proved: 1) by any
witness who believes it to be the handwriting of such person because: (a) he has seen the
person write; or (b) he has seen writing purporting to be his upon which the witness has acted or
been charged; 2) by a comparison, made by the witness or the court,with writings admitted or
treated as genuine by the party, against whom the evidence is offered, or proved to be genuine to
the satisfaction of the judge.
Although not all of the eight (8) standard specimen signatures[23] were in close proximity to
the time when the questioned signatures were written, we cannot close our eyes to the stark
differences the questioned signatures show when placed vis--vis with the sample signatures.
What is clear is that all the eight (8) specimen signatures when placed side by side with each other
indubitably show that these were written by one and the same person whose name purports to be
that of Amado Celestial. However, when the specimen signatures were compared to the
questioned signature, it clearly shows that the latter was written by a person other than Amado
Celestial. As correctly pointed out by the NBI Senior Document Examiner Rhoda B. Flores in the
Questioned Documents Report No. 108-293, there were indeed notable variances between the
questioned and sample signatures, to wit:
B.

Significant differences in handwriting characteristics existing between the

questioned and the sample signatures; to wit:
-

Manner of execution of strokes;

Personalized proportion characteristics of letters;
Structural pattern of letters; and
Other identifying minute details.[24]

Furthermore, Atty. Laurencio A. Oco, the notary public who notarized the Deed of Absolute
Sale, testified that he did not personally know Amado. Rather, he merely presumedthat the person
who appeared before him to acknowledge the deed of sale was Amado Celestial, the vendor
therein.[25] This falls short of what the law requires under Public Act No. 2103[26] which states that
Sec. 1 (a) The acknowledgment shall be made before a notary public or an officer duly
authorized by law of the country to take acknowledgment of instruments or documents in the
place where the act is done. The notary public or the officer taking the acknowledgment shall
certify that the person acknowledging the instrument or document is known to him and that
he is the same person who executed it, and acknowledged that the same is his free act and
deed. The certificate shall be made under his official seal, if he is by law required to keep a seal,
and if not, his certificate shall so state (Emphasis supplied).

In Protacio v. Mendoza,[27] it was held:

It is necessary that a party to any document notarized by a notary public appear in person
before the latter and affirm the contents and truth of what are stated in the document. The
importance of this requirement cannot be gainsaid. The acknowledgment of a document is
converted into a public document, making it admissible in court without further proof of its
authenticity. For this reason, it behooves every notary public to see to it that this requirement is
observed and that formalities for the acknowledgment of documents are complied with
(Emphasis supplied).
Likewise, aside from being required to appear before the notary public, it is similarly
incumbent upon the person acknowledging the instrument to declare before the same Notary
Public that the execution of the instrument was done by him of his own free will. [28] Accordingly,
we find the observation of the appellate court that the parties appeared before Atty. Laureano
Oco for the preparation of the Deed of [Absolute] Sale, to be inaccurate and without evidentiary
support in the record.
The Deed of Absolute Sale, being a product of forgery, no valid conveyance can be said to
have been made by Amado in favor of Editha over the questioned 466 square meter lot.
As a necessary consequence of the foregoing, the question that must be resolved is
whether the conveyance made by Editha in favor of respondent Chua may be upheld on
grounds of good faith?
We answer in the negative. The trial court correctly found that respondent Chua had
knowledge or, at the very least, notice that some other person had a right to or interest on the
property in question prior to her purchase from Editha.
For a buyer to be deemed a purchaser in good faith, the ruling in Heirs of Severa P.
Gregorio v. Court of Appeals[29] is instructive:
A purchaser in good faith is one who buys the property of another without notice that some
other person has a right to or interest in such property and pays a full and fair price at the
time of purchase or before he has notice of the claim or interest of some other person in the
property. As good faith primarily refers to a state of mind and is always a question of intention,
evidence as to conduct and outward acts are usually resorted to in order to arrive at a
reasonable determination of the inward motive or intention.
The records show that respondent Chua knew for a fact that prior to 1962 and prior to the
sale, there were erected on the land in question an old wooden house and a semi-bungalow
house which were occupied by the father of Amado Celestial, Erlindo Celestial and their other
relatives.[30] Carmencita Paradena, a witness for the petitioners, admitted residing with Amado
and Florencia as their tenant on the land in question since 1963. She also testified that the
brothers and sisters of Amado resided with them in the old wooden house. [31] This contradicts
what respondent Chuas claim that prior to the sale, only spouses Editha and Erlindo Celestial
occupied the land in question and nobody else. [32] These facts alone should have put respondent
Chua on guard that there were possible defects in the title of the vendor. As enumerated
in Mathay v. Court of Appeals,[33] viz:
Although it is a recognized principle that a person dealing on a registered land need not go
beyond its certificate of title, it is also a firmly settled rule that where there are circumstances

111
which would put a party on guard and prompt him to investigate or inspect the property being sold
to him, such as the presence of occupants/tenants thereon, it is of course, expected from the
purchaser of a valued piece of land to inquire first into the status or nature of possession of the
occupants, i.e., whether or not the occupants possess the land en concepto de dueo, in concept
of owner. As is the common practice in the real estate industry, an ocular inspection of the
premises involved is a safeguard a cautious and prudent purchaser usually takes. Should he find
out that the land he intends to buy is occupied by anybody else other than the seller x x x, it would
then be incumbent upon the purchaser to verify the extent of the occupants possessory rights. The
failure of a prospective buyer to take such precautionary steps would mean negligence on his part
and would thereby preclude him from claiming or invoking the rights of a purchaser in good faith.
In the case at bar, respondent Chua failed to make the necessary inquiry as to the
possessory rights of the relatives of Editha and Erlindo Celestial. The records show that
respondent Chua failed to inquire on the respective rights of petitioner Florencia and Carmencita
Paradena, who were in actual possession of the land in question, or of the other brothers and
sisters of Erlindo Celestial, husband of Editha, who also resided on the questioned land. [34] No
amount of good faith can therefore be appreciated in favor of respondent Chuas acquisition of the
land in question.
WHEREFORE, in view of the foregoing, the instant petition is GRANTED. The decision of the
Court of Appeals in CA-G.R. CV No. 53211, dated August 26, 1999, is REVERSED and SET
ASIDE. The decision of the Regional Trial Court of General Santos City, Branch 23 in Civil Case
No. 4401 is REINSTATED. Accordingly, the Deed of Absolute Sale dated October 10, 1975 and
the Deed of Sale of Three Parcels of Land dated September 4, 1979 are declared NULL and
VOID ab initio. Respondent Prima B. Calingacion is ordered to RECONVEY to petitioners the
properties described in Transfer Certificates of Titles T-14819, T-14820 and T-14821, and to
VACATE Lots Nos. 4112-A, 4112-B and 4112-D. Further, respondent Calingacion and the Estate of
Editha Celestial are ordered to pay, jointly and severally, petitioners the amounts of Twenty
Thousand Pesos (P20,000.00) as attorneys fees, Thirty Thousand Pesos (P30,000.00) as moral
damages and Twenty Thousand Pesos (P20,000.00) as exemplary damages. Costs against
respondents. SO ORDERED.
G.R. No. 150913
February 20, 2003
SPOUSES TEOFILO and SIMEONA RAYOSvs. DONATO REYES
DECISION
BELLOSILLO, J.:
AT STAKE IN THIS PETITION FOR REVIEW is the ownership of three (3) parcels of unregistered
land with an area of approximately 130,947 square meters situated in Brgy. Sapa, Burgos,
Pangasinan, the identities of which are not disputed.
The three (3) parcels were formerly owned by the spouses Francisco and Asuncion Tazal who on 1
September 1957 sold them for P724.00 to respondents predecessor-in-interest, one Mamerto
Reyes, with right to repurchase within two (2) years from date thereof by paying to the vendee the
purchase price and all expenses incident to their reconveyance. After the sale the vendee a
retro took physical possession of the properties and paid the taxes thereon.1
The otherwise inconsequential sale became controversial when two (2) of the three (3) parcels
were again sold on 24 December 1958 by Francisco Tazal for P420.00 in favor of petitioners
predecessor-in-interest Blas Rayos without first availing of his right to repurchase the properties.

In the meantime, on 1 September 1959 the conventional right of redemption in favor of spouses
Francisco and Asuncion Tazal expired without the right being exercised by either the Tazal
spouses or the vendee Blas Rayos.
After the expiration of the redemption period, Francisco Tazal attempted to repurchase the
properties from Mamerto Reyes by asserting that the 1 September 1957 deed of sale with right
of repurchase was actually an equitable mortgage and offering the amount of P724.00 to pay for
the alleged debt.2 But Mamerto Reyes refused the tender of payment and vigorously claimed
that their agreement was not an equitable mortgage.3
On 9 May 1960 Francisco Tazal filed a complaint with the Court of First Instance of Pangasinan
against Mamerto Reyes, docketed as Civil Case No. A-245, for the declaration of the 1
September 1957 transaction as a contract of equitable mortgage. He also prayed for an order
requiring defendant Mamerto Reyes to accept the amount ofP724.00 which he had deposited on
31 May 1960 with the trial court as full payment for his debt, and canceling the supposed
mortgage on the three (3) parcels of land with the execution of the corresponding documents of
reconveyance in his favor.4 Defendant denied plaintiffs allegations and maintained that their
contract was a sale with right of repurchase that had long expired.
On 22 June 1961 Francisco Tazal again sold the third parcel of land previously purchased by
Mamerto Reyes to petitioner-spouses Teofilo and Simeona Rayos for P400.00. On 1 July 1961
petitioner-spouses bought from Blas Rayos for P400.00 the two (2) lots that Tazal had sold at
the first instance to Mamerto Reyes and thereafter to Blas Rayos. Curiously, these contracts of
sale in favor of petitioner-spouses were perfected while Civil Case No. A-245 was pending
before the trial court.
On 26 September 1962 the parties in Civil Case No. A-245 submitted a stipulation of facts upon
which the Court of First Instance would decide the case. They admitted the genuineness and
due execution of the 1 September 1957 deed of sale with right of repurchase although they were
in disagreement as to its true character. They also acknowledged the consignation of P724.00 in
the Court of First Instance on 31 May 1960 and the payment of taxes by Mamerto Reyes on the
three (3) parcels of land from 1958 to 1962.5
On 5 January 1963 the trial court in Civil Case No. A-245 rejected the contention of Francisco
Tazal that the deed of sale executed on 1 September 1957 was an equitable mortgage but held
that Tazal could nonetheless redeem the three (3) parcels of land within thirty (30) days from
finality of judgment by paying to Mamerto Reyes the purchase price of P724.00 and all
expenses to execute the reconveyance, i.e., the expenses of the contract and the necessary
and useful expenses made on the properties as required by Art. 1616 of the Civil Code. The
dispositive portion of the trial courts decision reads WHEREFORE, the Court, hereby renders judgment declaring the contract x x x entered into by
the plaintiffs and the defendant and captioned Deed of Sale with Right to Repurchase as a true
sale with right to repurchase x x x and not an equitable mortgage x x x and declaring the
plaintiffs entitled to repurchase the property in question within thirty (30) days from finality of this
decision, without pronouncement as to cost.6
Mamerto Reyes appealed the Decision to the Court of Appeals,7 which in turn elevated the
appeal to this Court8since only questions of law were involved. 9 When Mamerto Reyes died in

112
1986, petitioner-spouses Teofilo and Simeona Rayos wrested physical possession of the disputed
properties from Reyess heirs.
On 16 May 1990 this Court considered the case closed and terminated for failure of the parties
therein to manifest their interest to further prosecute the case. On 20 June 1990 the judgment in
Civil Case No. A-245 became final and executory.1a\^/phi1.net
Subsequent to the finality of judgment in Civil Case No. A-245 petitioner-spouses did nothing to
repurchase the three (3) parcels of land within the thirty (30) - day grace period from finality of
judgment since, according to them, they believed that the consignation of P724.00 in the civil case
had perfected the repurchase of the disputed properties.
On 6 July 1992 respondents as heirs of Mamerto Reyes executed an affidavit adjudicating to
themselves the ownership of the parcels of land and declared the properties in their names for
assessment and collection of real estate taxes. On 19 January 1993 respondents registered the 1
September 1957 deed of sale with right of repurchase with the register of deeds.
On 8 July 1993 respondents filed a complaint for damages and recovery of ownership and
possession of the three (3) parcels of land in dispute against herein petitioner-spouses Teofilo and
Simeona Rayos and petitioner George Rayos as administrator thereof before the Regional Trial
Court of Alaminos, Pangasinan.10 It was respondents theory that neither petitioners nor their
predecessors-in-interest Francisco Tazal and Blas Rayos repurchased the properties before buying
them in 1958 and 1961 or when the judgment in Civil Case No. A-245 became final and executory
in 1990, hence the sale of the three (3) parcels of land to petitioner-spouses did not transfer
ownership thereof to them.
Petitioners argued on the other hand that the consignation of P724.00 in Civil Case No. A-245 had
the full effect of redeeming the properties from respondents and their predecessor-in-interest, and
that respondents were guilty of estoppel and laches since Mamerto Reyes as their predecessor-ininterest did not oppose the sale to Blas Rayos and to petitioner-spouses Teofilo and Simeona
Rayos. The parties then filed their respective memoranda after which the case was submitted for
decision.
On 15 November 1996 the trial court promulgated its Decision in Civil Case No. A-2032 finding
merit in respondents claim for damages as well as ownership and possession of the disputed
parcels of land from petitioners.11 The court declared void the separate deeds of absolute sale
thereof executed by Francisco Tazal in favor of Blas Rayos and to spouses Teofilo and Simeona
Rayos and by Blas Rayos to the same spouses, and ordered herein petitioners and Francisco
Tazal to vacate and reconvey the lands to respondents as heirs of Mamerto Reyes and to pay
actual damages for litigation expenses in the sum of P20,000.00, attorneys fees ofP10,000.00,
and exemplary damages of P50,000.00 plus costs. The court a quo rationalized that petitioners did
not present evidence to prove that they and their predecessor-in-interest were able to repurchase
the property within the period of redemption set forth by the Court of First Instance in Civil Case
No. A-245.12 Petitioners appealed the Decision to the Court of Appeals.13
On 31 May 2001 the appellate court promulgated its Decision affirming in toto the judgment
appealed from.14 The Court of Appeals held that the deposit of P724.00 on 31 May 1960 in Civil
Case No. A-245 was done belatedly, i.e., after the two (2) year - period from 1 September 1957,
the date of the sale as stated in the deed of sale between the spouses Francisco and Asuncion

Tazal and Mamerto Reyes, and did not cover the entire redemption price, i.e., the selling price
of P724.00 plus the expenses of executing the contract and the necessary and useful expenses
made on the properties. The appellate court further ruled that estoppel and laches did not bar
the cause of action of respondents as plaintiffs in Civil Case No. A-2032 since Mamerto Reyes
as their predecessor-in-interest actively resisted the claim of Francisco Tazal in Civil Case No. A245 to treat the 1 September 1957 sale as an equitable mortgage and to authorize the
redemption of the parcels of land in dispute beyond the two (2)-year period stipulated in the sale
with right to repurchase. Hence, the instant petition for review.
Petitioners argue that the consignation of P724.00 in Civil Case No. A-245 provides the best
evidence of the repurchase of the three (3) parcels of land; that the consignation was admitted
by Mamerto Reyes himself in the stipulation of facts and approved implicitly by the Court of First
Instance when it held the 1 September 1957 transaction as a contract of sale with right of
repurchase; that respondents failed to prove the existence of other expenses, i.e., the expenses
of the contract and the necessary and useful expenses made on the properties, required by Art.
1616 of the Civil Code to be paid in addition to the purchase price of P724.00 so that petitioners
may validly exercise the right to repurchase the real estate; that Mamerto Reyes as respondents
predecessor-in-interest was guilty of estoppel and laches for not seeking the annulment of the
contracts of sale in favor of Blas Rayos and petitioner-spouses Teofilo and Simeona Rayos; that
petitioner-spouses are buyers in good faith and for value of the three (3) parcels of land; and
finally, that there is no legal basis for awarding damages since Civil Case No. A-2032 was
decided solely on the basis of the parties memoranda and not upon any evidence offered.
It appears that petitioners hinge their arguments upon the validity of the consignation of P724.00
and accept the proposition that if the consignation is declared void the subsequent sales to Blas
Rayos and petitioner-spouses would be ineffective to transfer ownership of the disputed parcels
and concomitantly would vest respondents with the ownership and possession thereof.
On the other hand, respondents maintain that the absence of an express or at least discernible
court approval of the consignation of P724.00 in Civil Case No. A-245 prevented the repurchase
of the parcels of land in question; that the deposit of only P724.00 did not cover all the expenses
required by Art. 1616 of the Civil Code for a valid repurchase of the properties; that Mamerto
Reyes as their predecessor-in-interest was not guilty of estoppel and laches in not filing a
complaint to annul the contracts of sale in favor of Blas Rayos and petitioner-spouses Teofilo
and Simeona Rayos since during that time Civil Case No. A-245 was pending before the courts;
that petitioner-spouses are not buyers in good faith and for value since they knew that the
parcels of land had been previously sold to Mamerto Reyes and that, in any event, the rule
protecting buyers in good faith and for value applies only to transactions involving registered
lands and not to unregistered lands as in the instant case; and finally, that the award of damages
is amply supported by their pleadings in the trial court.
We deny the instant petition for review and affirm the decision of the court a quo, except for the
sole modification to delete and set aside the award of damages. There is no evidence to prove
that petitioners paid at any time the repurchase price for the three (3) parcels of land in dispute
except for the deposit of P724.00 in the Court of First Instance which however fell short of all the
acts necessary for a valid consignation and discharge of their obligation to respondents.
In order that consignation may be effective the debtor must show that (a) there was a debt due;
(b) the consignation of the obligation had been made because the creditor to whom a valid
tender of payment was made refused to accept it; (c) previous notice of the consignation had

113
been given to the person interested in the performance of the obligation; (d) the amount due was
placed at the disposal of the court; and, (e) after the consignation had been made the person
interested was notified thereof.15
In the instant case, petitioners failed, first, to offer a valid and unconditional tender of
payment; second, to notify respondents of the intention to deposit the amount with the court;
and third, to show the acceptance by the creditor of the amount deposited as full settlement of the
obligation, or in the alternative, a declaration by the court of the validity of the consignation. The
failure of petitioners to comply with any of these requirements rendered the consignation
ineffective.16
Consignation and tender of payment must not be encumbered by conditions if they are to produce
the intended result of fulfilling the obligation. 17 In the instant case, the tender of payment
of P724.00 was conditional and void as it was predicated upon the argument of Francisco Tazal
that he was paying a debt which he could do at any time allegedly because the 1 September 1957
transaction was a contract of equitable mortgage and not a deed of sale with right to repurchase.
The ostensible purposes of offering the amount in connection with a purported outstanding debt
were to evade the stipulated redemption period in the deed of sale which had already expired when
the tender of payment was made and Civil Case No. A-245 was instituted, and as a corollary, to
avail of the thirty (30)-day grace period under Art. 1606 of the Civil Code within which to exercise
the right to repurchase.18Mamerto Reyes was therefore within his right to refuse the tender of
payment offered by petitioners because it was conditional upon his waiver of the two (2)-year
redemption period stipulated in the deed of sale with right to repurchase.
Moreover, petitioners failed to prove in Civil Cases Nos. A-245 and A-2032 that any form of notice
regarding their intention to deposit the amount of P724.00 with the Court of First Instance had been
served upon respondents. This requirement is not fulfilled by the notice which could have ensued
from the filing of the complaint in Civil Case No. A-245 or the stipulation made between Francisco
Tazal and Mamerto Reyes regarding the consignation ofP724.00. The latter constitutes the second
notice required by law as it already concerns the actual deposit or consignation of the amount and
is different from the first notice that makes known the debtors intention to deposit the amount, a
requirement missing in the instant case. 19 Without any announcement of the intention to resort to
consignation first being made to the persons interested in the fulfillment of the obligation, the
consignation as a means of payment is void.20
It is also futile to argue that the deposit of P724.00 with the Court of First Instance could have
perfected the redemption of the three (3) parcels of land because it was not approved by the trial
court, much less accepted by Mamerto Reyes or his heirs, herein respondents. The dispositive
portion of the Decision in Civil Case No. A-245, which reads "x x x x the Court, hereby renders
judgment declaring the contract x x x entered into by the plaintiffs and the defendant and captioned
Deed of Sale with Right to Repurchase as a true sale with right to repurchase x x x and not an
equitable mortgage x x x and declaring the plaintiffs entitled to repurchase the property in question
within thirty (30) days from finality of this decision x x x x" plainly rejected the complaint for lack of
merit and necessarily also the consignation done pursuant thereto. This conclusion is buttressed
by the directive of the trial court in the body of the Decision that Francisco Tazal "may still exercise
the right to repurchase the property in question by returning to the [Mamerto Reyes] the purchase
price of P724.00 plus all expenses incident to the reconveyance within the period of thirty (30)days from the time this decision becomes final x x x x"21 The obvious reference of this statement
was the stipulation made by the parties therein that "the defendant [Mamerto Reyes] has been
paying the taxes on said properties from 1958 to 1969 x x x x"22 where the taxes paid constituted

necessary expenses that petitioners had to reimburse to respondents predecessor-in-interest

aside from theP724.00 earlier deposited by Tazal.1awphi1.nt
To be sure, while it has been held that approval of the court or the obligees acceptance of the
deposit is not necessary where the obligor has performed all acts necessary to a valid
consignation such that court approval thereof cannot be doubted, Sia v. Court of
Appeals23 clearly advises that this ruling is applicable only where there is unmistakable evidence
on record that the prerequisites of a valid consignation are present, especially the conformity of
the proffered payment to the terms of the obligation which is to be paid. 24 In the instant case,
since there is no clear and preponderant evidence that the consignation of P724.00 satisfied all
the requirements for validity and enforceability, and since Mamerto Reyes vehemently contested
the propriety of the consignation, petitioners cannot rely upon sheer speculation and unfounded
inference to construe the Decision of the Court of First Instance as one impliedly approving the
consignation of P724.00 and perfecting the redemption of the three (3) parcels of land.
It should be recalled that one of the requisites of consignation is the filing of the complaint by the
debtor against the creditor. Hence it is the judgment on the complaint where the court declares
that the consignation has been properly made that will release the debtor from liability. Should
the consignation be disapproved by the court and the case dismissed, there is no payment and
the debtor is in mora and he shall be liable for the expenses and bear the risk of loss of the
thing.25
To sanction the argument of petitioners and in the process excuse them from their responsibility
of securing from the trial court in Civil Case No. A-245 a categorical declaration that the
consignation of P724.00 had complied with all the essential elements for its validity would only
dilute the rule requiring absolute compliance with the requisites of consignation. 26 It also disturbs
a steady and stable status of proprietary rights, i.e., "x x x el acreedor tan solo, y no el juez,
puede autorizar la variacion que para los derechos de aquel suponga la que se intente en el
objeto, cuantia o forma de las obligaciones,"27 since parties are left guessing on whether the
repurchase of the properties had been effected. In a broader sense, this uncertain state will only
depress the market value of the land and virtually paralyze efforts of the landowner to meet his
needs and obligations and realize the full value of his land.
Moreover, we do not think that respondents causes of action in Civil Case No. A-2032 are now
barred by estoppel and laches. The essence of estoppel and laches is the failure or neglect for
an unreasonable and unexplained length of time to do that which by exercising due diligence
could or should have been done earlier; it is the negligence or omission to assert a right within a
reasonable time warranting a presumption that the party entitled to assert it either has
abandoned or declined to assert it although there is no absolute rule as to what constitutes
staleness of demand as each case is to be determined according to its particular
circumstances.28
In the instant case, it was prudent and discerning for respondents and their predecessor-ininterest Mamerto Reyes that they deferred any action against petitioners, i.e., Civil Case No. A2032, to recover ownership and possession of the three (3) pieces of real estate, until the finality
of judgment in Civil Case No. A-245. For patiently electing not to inundate our courts of justice
with cases the outcome of which may well depend upon the then pending civil suit, respondents
cannot now be penalized by barring their complaint in Civil Case No. A-2032 on the equitable
grounds of estoppel and laches.

114
We also find no reason to disturb our findings upon petitioners assertion that they were purchasers
of the three (3) parcels of land in good faith and for value. As we held in David v. Bandin, "the issue
of good faith or bad faith of the buyer is relevant only where the subject of the sale is registered
land and the purchaser is buying the same from the registered owner whose title to the land is
clean x x x in such case the purchaser who relies on the clean title of the registered owner is
protected if he is a purchaser in good faith for value."29 Since the properties in question are
unregistered lands, petitioners as subsequent buyers thereof did so at their peril. Their claim of
having bought the land in good faith, i.e., without notice that some other person has a right to or
interest in the property, would not protect them if it turns out, as it actually did in this case, that their
seller did not own the property at the time of the sale.
At any rate, petitioners failed to discharge their burden of proof that they were purchasers of the
three (3) parcels of land in good faith. For, as we ruled in Embrado v. Court of Appeals,30 the
burden of proving the status of a purchaser in good faith and for value lies upon him who asserts
that status, which is not discharged by simply invoking the ordinary presumption of good faith, i.e.,
that everyone is presumed to act in good faith, since the good faith that is here essential is integral
with the very status which must be established.
In the proceedings a quo, what is evident is the admitted fact of payment made by Mamerto Reyes
as respondents predecessor-in-interest of the taxes on the properties prior to and at the time when
the contracts of sale in favor of petitioner-spouses were perfected, which undoubtedly confirms the
precedence of respondents possession of the parcels of land in question. This situation should
have compelled petitioners to investigate the right of respondents over the properties before buying
them, and in the absence of such inquiry, the rule is settled that a buyer in the same circumstances
herein involved cannot claim to be a purchaser in good faith.
The absence of good faith on the part of petitioner-spouses Teofilo and Simeona Rayos in
purchasing the three (3) parcels of unregistered land precludes the application of the rule on
double sales enunciated in Art. 1544 of the Civil Code.31 In any event, even if we apply Art. 1544,
the facts would nonetheless show that respondents and their predecessor-in-interest registered
first the source of their ownership and possession, i.e., the 1 September 1957 deed of sale with
right to repurchase, held the oldest title, and possessed the real properties at the earliest time.
Applying the doctrine of "priority in time, priority in rights" or "prius tempore, potior jure,"
respondents are entitled to the ownership and possession of the parcels of land in dispute.
Finally, on the issue of damages, we agree with petitioners that respondents failed to prove their
entitlement to actual damages for litigation expenses of P20,000.00, attorneys fees of P10,000.00
and exemplary damages ofP50,000.00 plus costs. No evidence to prove actual damages was
offered in Civil Case No. A-2032 since the parties therein submitted the case for decision on the
basis of their respective memoranda, hence no actual damages can be awarded. 32 In the same
manner, there is no clear and convincing showing that petitioners acted in a wanton, fraudulent,
reckless, oppressive, or malevolent manner to warrant the imposition of exemplary damages in
respondents favor.33 In any event, exemplary damages cannot be adjudicated in the instant case
since there is no award of moral, temperate or compensatory damages. 34
Similarly, we cannot award attorneys fees since there is no stipulation to grant the same nor were
exemplary damages awarded or were improperly imposed as in the instant case. 35 It is appropriate
to stress that the mere filing of a complaint does not ipso facto entitle a party to attorneys fees
since this act is a means sanctioned by law to protect rights and interests even if found
subsequently to be unmeritorious.

WHEREFORE, the instant Petition for Review is DENIED. The assailed Decision of the Court of
Appeals in CA-G.R. CV No. 55789 affirming in toto the Decision of the Regional Trial Court,
Branch 54, Alaminos, Pangasinan in Civil Case No. A-2032, i.e., declaring void the Deeds of
Absolute Sale executed by Francisco Tazal in favor of Blas Rayos, and by the latter in favor of
Teofilo Rayos, and by Francisco Tazal in favor of Teofilo Rayos dated 22 June 1961, all
encompassing the three (3) parcels of land sold under the Deeds of Sale with the Right to
Repurchase, insofar as they authorized the transfer of ownership and possession thereof to
petitioner-spouses Teofilo and Simeona Rayos; proclaiming respondents Donato Reyes,
Saturnino Reyes, Tomasa R. Bustamante and Toribia R. Camelo who are heirs of Mamerto
Reyes as absolute owners of the property in question free from all liens and encumbrances;
and, ordering petitioner-spouses Teofilo and Simeona Rayos, petitioner George Rayos and
Francisco Tazal and/or their agents or representatives to vacate and surrender the parcels of
land in favor of respondents Donato Reyes, Saturnino Reyes, Tomasa R. Bustamante and
Toribia R. Camelo, are AFFIRMED with the SOLE MODIFICATION that the award of actual
damages for litigation expenses, attorneys fees and exemplary damages plus costs is
DELETED and SET ASIDE. No costs. SO ORDERED.

G.R. No. L-69259 January 26, 1988

DELPHER TRADES CORPORATION vs. INTERMEDIATE APPELLATE COURT
GUTIERREZ, JR., J.:
The petitioners question the decision of the Intermediate Appellate Court which sustained the
private respondent's contention that the deed of exchange whereby Delfin Pacheco and Pelagia
Pacheco conveyed a parcel of land to Delpher Trades Corporation in exchange for 2,500 shares
of stock was actually a deed of sale which violated a right of first refusal under a lease contract.
Briefly, the facts of the case are summarized as follows:
In 1974, Delfin Pacheco and his sister, Pelagia Pacheco, were the owners of 27,169 square
meters of real estate Identified as Lot. No. 1095, Malinta Estate, in the Municipality of Polo
(now Valenzuela), Province of Bulacan (now Metro Manila) which is covered by Transfer
Certificate of Title No. T-4240 of the Bulacan land registry.
On April 3, 1974, the said co-owners leased to Construction Components International Inc.
the same property and providing that during the existence or after the term of this lease the
lessor should he decide to sell the property leased shall first offer the same to the lessee and
the letter has the priority to buy under similar conditions (Exhibits A to A-5)
On August 3, 1974, lessee Construction Components International, Inc. assigned its rights
and obligations under the contract of lease in favor of Hydro Pipes Philippines, Inc. with the
signed conformity and consent of lessors Delfin Pacheco and Pelagia Pacheco (Exhs. B to B6 inclusive)

115
The contract of lease, as well as the assignment of lease were annotated at he back of the title,
as per stipulation of the parties (Exhs. A to D-3 inclusive)

petitioner Delpher Trades Corporation, as provided in the same contractual provision invoked
by private respondent. (pp. 251-252, Rollo)

On January 3, 1976, a deed of exchange was executed between lessors Delfin and Pelagia
Pacheco and defendant Delpher Trades Corporation whereby the former conveyed to the latter
the leased property (TCT No.T-4240) together with another parcel of land also located in Malinta
Estate, Valenzuela, Metro Manila (TCT No. 4273) for 2,500 shares of stock of defendant
corporation with a total value of P1,500,000.00 (Exhs. C to C-5, inclusive) (pp. 44-45, Rollo)

The resolution of the case hinges on whether or not the "Deed of Exchange" of the properties
executed by the Pachecos on the one hand and the Delpher Trades Corporation on the other
was meant to be a contract of sale which, in effect, prejudiced the private respondent's right of
first refusal over the leased property included in the "deed of exchange."

On the ground that it was not given the first option to buy the leased property pursuant to the
proviso in the lease agreement, respondent Hydro Pipes Philippines, Inc., filed an amended
complaint for reconveyance of Lot. No. 1095 in its favor under conditions similar to those whereby
Delpher Trades Corporation acquired the property from Pelagia Pacheco and Delphin Pacheco.
After trial, the Court of First Instance of Bulacan ruled in favor of the plaintiff. The dispositive
portion of the decision reads:
ACCORDINGLY, the judgment is hereby rendered declaring the valid existence of the plaintiffs
preferential right to acquire the subject property (right of first refusal) and ordering the
defendants and all persons deriving rights therefrom to convey the said property to plaintiff who
may offer to acquire the same at the rate of P14.00 per square meter, more or less, for Lot 1095
whose area is 27,169 square meters only. Without pronouncement as to attorney's fees and
costs. (Appendix I; Rec., pp. 246- 247). (Appellant's Brief, pp. 1-2; p. 134, Rollo)
The lower court's decision was affirmed on appeal by the Intermediate Appellate Court.
The defendants-appellants, now the petitioners, filed a petition for certiorari to review the appellate
court's decision.
We initially denied the petition but upon motion for reconsideration, we set aside the resolution
denying the petition and gave it due course.
The petitioners allege that:
The denial of the petition will work great injustice to the petitioners, in that:
1. Respondent Hydro Pipes Philippines, Inc, ("private respondent") will acquire from petitioners a
parcel of industrial land consisting of 27,169 square meters or 2.7 hectares (located right after
the Valenzuela, Bulacan exit of the toll expressway) for only P14/sq. meter, or a total
of P380,366, although the prevailing value thereof is approximately P300/sq. meter or P8.1
Million;
2. Private respondent is allowed to exercise its right of first refusal even if there is no "sale" or
transfer of actual ownership interests by petitioners to third parties; and
3. Assuming arguendo that there has been a transfer of actual ownership interests, private
respondent will acquire the land not under "similar conditions" by which it was transferred to

Eduardo Neria, a certified public accountant and son-in-law of the late Pelagia Pacheco testified
that Delpher Trades Corporation is a family corporation; that the corporation was organized by
the children of the two spouses (spouses Pelagia Pacheco and Benjamin Hernandez and
spouses Delfin Pacheco and Pilar Angeles) who owned in common the parcel of land leased to
Hydro Pipes Philippines in order to perpetuate their control over the property through the
corporation and to avoid taxes; that in order to accomplish this end, two pieces of real estate,
including Lot No. 1095 which had been leased to Hydro Pipes Philippines, were transferred to
the corporation; that the leased property was transferred to the corporation by virtue of a deed of
exchange of property; that in exchange for these properties, Pelagia and Delfin acquired 2,500
unissued no par value shares of stock which are equivalent to a 55% majority in the corporation
because the other owners only owned 2,000 shares; and that at the time of incorporation, he
knew all about the contract of lease of Lot. No. 1095 to Hydro Pipes Philippines. In the
petitioners' motion for reconsideration, they refer to this scheme as "estate planning." (p. 252,
Rollo)
Under this factual backdrop, the petitioners contend that there was actually no transfer of
ownership of the subject parcel of land since the Pachecos remained in control of the property.
Thus, the petitioners allege: "Considering that the beneficial ownership and control of petitioner
corporation remained in the hands of the original co-owners, there was no transfer of actual
ownership interests over the land when the same was transferred to petitioner corporation in
exchange for the latter's shares of stock. The transfer of ownership, if anything, was merely in
form but not in substance. In reality, petitioner corporation is a mere alter ego or conduit of the
Pacheco co-owners; hence the corporation and the co-owners should be deemed to be the
same, there being in substance and in effect an Identity of interest." (p. 254, Rollo)
The petitioners maintain that the Pachecos did not sell the property. They argue that there was
no sale and that they exchanged the land for shares of stocks in their own corporation. "Hence,
such transfer is not within the letter, or even spirit of the contract. There is a sale when
ownership is transferred for a price certain in money or its equivalent (Art. 1468, Civil Code)
while there is a barter or exchange when one thing is given in consideration of another thing
(Art. 1638, Civil Code)." (pp. 254-255, Rollo)
On the other hand, the private respondent argues that Delpher Trades Corporation is a
corporate entity separate and distinct from the Pachecos. Thus, it contends that it cannot be said
that Delpher Trades Corporation is the Pacheco's same alter ego or conduit; that petitioner
Delfin Pacheco, having treated Delpher Trades Corporation as such a separate and distinct
corporate entity, is not a party who may allege that this separate corporate existence should be
disregarded. It maintains that there was actual transfer of ownership interests over the leased
property when the same was transferred to Delpher Trades Corporation in exchange for the
latter's shares of stock.
We rule for the petitioners.

116
After incorporation, one becomes a stockholder of a corporation by subscription or by purchasing
stock directly from the corporation or from individual owners thereof (Salmon, Dexter & Co. v.
Unson, 47 Phil, 649, citing Bole v. Fulton [1912], 233 Pa., 609). In the case at bar, in exchange for
their properties, the Pachecos acquired 2,500 original unissued no par value shares of stocks of
the Delpher Trades Corporation. Consequently, the Pachecos became stockholders of the
corporation by subscription "The essence of the stock subscription is an agreement to take and
pay for original unissued shares of a corporation, formed or to be formed." (Rohrlich 243, cited in
Agbayani, Commentaries and Jurisprudence on the Commercial Laws of the Philippines, Vol. III,
1980 Edition, p. 430) It is significant that the Pachecos took no par value shares in exchange for
their properties.
A no-par value share does not purport to represent any stated proportionate interest in the
capital stock measured by value, but only an aliquot part of the whole number of such shares of
the issuing corporation. The holder of no-par shares may see from the certificate itself that he is
only an aliquot sharer in the assets of the corporation. But this character of proportionate interest
is not hidden beneath a false appearance of a given sum in money, as in the case of par value
shares. The capital stock of a corporation issuing only no-par value shares is not set forth by a
stated amount of money, but instead is expressed to be divided into a stated number of shares,
such as, 1,000 shares. This indicates that a shareholder of 100 such shares is an aliquot sharer
in the assets of the corporation, no matter what value they may have, to the extent of 100/1,000
or 1/10. Thus, by removing the par value of shares, the attention of persons interested in the
financial condition of a corporation is focused upon the value of assets and the amount of its
debts. (Agbayani, Commentaries and Jurisprudence on the Commercial Laws of the Philippines,
Vol. III, 1980 Edition, p. 107).
Moreover, there was no attempt to state the true or current market value of the real estate. Land
valued at P300.00 a square meter was turned over to the family's corporation for only P14.00 a
square meter.
It is to be stressed that by their ownership of the 2,500 no par shares of stock, the Pachecos have
control of the corporation. Their equity capital is 55% as against 45% of the other stockholders,
who also belong to the same family group.
In effect, the Delpher Trades Corporation is a business conduit of the Pachecos. What they really
did was to invest their properties and change the nature of their ownership from unincorporated to
incorporated form by organizing Delpher Trades Corporation to take control of their properties and
at the same time save on inheritance taxes.
As explained by Eduardo Neria:
xxx xxx xxx ATTY. LINSANGAN: Mr. Neria, from the point of view of taxation, is there any benefit to
the spouses Hernandez and Pacheco in connection with their execution of a deed of exchange on
the properties for no par value shares of the defendant corporation?
A Yes, sir.
COURT: What do you mean by "point of view"?
A To take advantage for both spouses and corporation in entering in the deed of exchange.
ATTY. LINSANGAN:
Q (What do you mean by "point of view"?) What are these benefits to the spouses of this deed of
exchange?

A Continuous control of the property, tax exemption benefits, and other inherent benefits in a
corporation.
Q What are these advantages to the said spouses from the point of view of taxation in entering
in the deed of exchange?
A Having fulfilled the conditions in the income tax law, providing for tax free exchange of
property, they were able to execute the deed of exchange free from income tax and acquire a
corporation.
Q What provision in the income tax law are you referring to?
A I refer to Section 35 of the National Internal Revenue Code under par. C-sub-par. (2)
Exceptions regarding the provision which I quote: "No gain or loss shall also be recognized if a
person exchanges his property for stock in a corporation of which as a result of such exchange
said person alone or together with others not exceeding four persons gains control of said
corporation."
Q Did you explain to the spouses this benefit at the time you executed the deed of exchange?
A Yes, sir
Q You also, testified during the last hearing that the decision to have no par value share in the
defendant corporation was for the purpose of flexibility. Can you explain flexibility in connection
with the ownership of the property in question?
A There is flexibility in using no par value shares as the value is determined by the board of
directors in increasing capitalization. The board can fix the value of the shares equivalent to the
capital requirements of the corporation.
Q Now also from the point of taxation, is there any flexibility in the holding by the corporation of
the property in question?
A Yes, since a corporation does not die it can continue to hold on to the property indefinitely for a
period of at least 50 years. On the other hand, if the property is held by the spouse the property
will be tied up in succession proceedings and the consequential payments of estate and
inheritance taxes when an owner dies.
Q Now what advantage is this continuity in relation to ownership by a particular person of certain
properties in respect to taxation?
A The property is not subjected to taxes on succession as the corporation does not die.
Q So the benefit you are talking about are inheritance taxes?
A Yes, sir. (pp. 3-5, tsn., December 15, 1981)
The records do not point to anything wrong or objectionable about this "estate planning" scheme
resorted to by the Pachecos. "The legal right of a taxpayer to decrease the amount of what
otherwise could be his taxes or altogether avoid them, by means which the law permits, cannot
be doubted." (Liddell & Co., Inc. v. The collector of Internal Revenue, 2 SCRA 632 citing Gregory
v. Helvering, 293 U.S. 465, 7 L. ed. 596).
The "Deed of Exchange" of property between the Pachecos and Delpher Trades Corporation
cannot be considered a contract of sale. There was no transfer of actual ownership interests by
the Pachecos to a third party. The Pacheco family merely changed their ownership from one
form to another. The ownership remained in the same hands. Hence, the private respondent has
no basis for its claim of a light of first refusal under the lease contract.
WHEREFORE, the instant petition is hereby GRANTED, The questioned decision and resolution
of the then Intermediate Appellate Court are REVERSED and SET ASIDE. The amended
complaint in Civil Case No. 885-V-79 of the then Court of First Instance of Bulacan is
DISMISSED. No costs. SO ORDERED.
G.R. No. 16530

March 31, 1922

117
MAMERTO LAUDICO and FRED M. HARDEN vs. MANUEL ARIAS RODRIGUEZ
AVANCEA, J.:
On February 5, 1919, the defendant, Vicente Arias, who, with his codefendants, owned the building
Nos. 205 to 221 on Carriedo Street, on his behalf and that of his coowners, wrote a letter to the
plaintiff, Mamerto Laudico, giving him an option to lease the building to a third person, and
transmitting to him for that purpose a tentative contract in writing containing the conditions upon
which the proposed lease should be made. Later Mr. Laudico presented his coplaintiff, Mr. Fred. M.
Harden, as the party desiring to lease the building. On one hand, other conditions were added to
those originally contained in the tentative contract, and, on the other, counter-propositions were
made and explanations requested on certain points in order to make them clear. These
negotiations were carried on by correspondence and verbally at interviews held with Mr. Vicente
Arias, no definite agreement having been arrived at until the plaintiff, Mr. Laudico, finally wrote a
letter to Mr. Arias on March 6, 1919, advising him that all his propositions, as amended and
supplemented, were accepted. It is admitted that this letter was received by Mr. Arias by special
delivery at 2.53 p.m. of that day. On that same day, at 11.25 in the morning, Mr. Arias had, in turn,
written a letter to the plaintiff, Mr. Laudico, withdrawing the offer to lease the building.
The chief prayer of the plaintiff in this action is that the defendants be compelled to execute the
contract of lease of the building in question. It thus results that when Arias sent his letter of
withdrawal to Laudico, he had not yet received the letter of acceptance, and when it reached him,
he had already sent his letter of withdrawal. Under these facts we believe that no contract was
perfected between the plaintiffs and the defendants.
The parties agree that the circumstances under which that offer was made were such that the offer
could be withdrawn at any time before acceptance.
Under article 1262, paragraph 2, of the Civil Code, an acceptance by letter does not have any
effect until it comes to the knowledge of the offerer. Therefore, before he learns of the acceptance,
the latter is not yet bound by it and can still withdraw the offer. Consequently, when Mr. Arias wrote
Mr. Laudico, withdrawing the offer, he had the right to do so, inasmuch as he had not yet receive
notice of the acceptance. And when the notice of the acceptance was received by Mr. Arias, it no
longer had any effect, as the offer was not then in existence, the same having already been
withdrawn. There was no meeting of the minds, through offer and acceptance, which is the
essence of the contract. While there was an offer, there was no acceptance, and when the latter
was made and could have a binding effect, the offer was then lacking. Though both the offer and
the acceptance existed, they did not meet to give birth to a contract.
Our attention has been called to a doctrine laid down in some decisions to the effect that ordinarily
notice of the revocation of an offer must be given to avoid an acceptance which may convert in into
a binding contract, and that no such notice can be deemed to have been given to the person to
whom the offer was made unless the revocation was in fact brought home to his knowledge.
This, however, has no application in the instant case, because when Arias received the letter of
acceptance, his letter of revocation had already been received. The latter was sent through a
messenger at 11.25 in the morning directly to the office of Laudico and should have been received
immediately on that same morning, or at least, before Arias received the letter of acceptance. On
this point we do not give any credence to the testimony of Laudico that he received this letter of
revocation at 3.30 in the afternoon of that day. Laudico is interested in destroying the effect of this
revocation so that the acceptance may be valid, which is the principal ground of his complaint.

But even supposing Laudico's testimony to be true, still the doctrine invoked has no application
here. With regard to contracts between absent persons there are two principal theories, to wit,
one holding that an acceptance by letter of an offer has no effect until it comes to the knowledge
of the offerer, and the other maintaining that it is effective from the time the letter is sent.
The Civil Code, in paragraph 2 of article 1262, has adopted the first theory and, according to its
most eminent commentators, it means that, before the acceptance is known, the offer can be
revoked, it not being necessary, in order for the revocation to have the effect of impeding the
perfection of the contract, that it be known by the acceptant. Q. Mucius Scaevola says apropros:
"To our mind, the power to revoke is implied in the criterion that no contract exists until the
acceptance is known. As the tie or bond springs from the meeting or concurrence of the minds,
since up to that moment there exists only a unilateral act, it is evident that he who makes it must
have the power to revoke it by withdrawing his proposition, although with the obligation to pay
such damages as may have been sustained by the person or persons to whom the offer was
made and by whom it was accepted, if he in turn failed to give them notice of the withdrawal of
the offer. This view is confirmed by the provision of article 1257, paragraph 2, concerning the
case where a stipulation is made in favor of a third person, which provision authorizes the
contracting parties to revoke the stipulation before the notice of its acceptance. That case is
quite similar to that under comment, as said stipulation in favor of a third person (who, for the
very reason of being a third person, is not a contracting party) is tantamount to an offer made by
the makers of the contract which may or may not be accepted by him, and which does not have
any effect until the obligor is notified, and may, before it is accepted, be revoked by those who
have made it; therefore, the case being similar, the same rule applies."
Under the second theory, the doctrine invoked by the plaintiffs is sound, because if the sending
of the letter of acceptance in itself really perfects the contract, the revocation of the offer, in order
to prevent it, must be known to the acceptor. But this consideration has no place in the first
theory under which the forwarding of the letter of acceptance, in itself, does not have any effect
until the acceptance is known by the person who has made the offer.
The judgment appealed from is reversed and the defendants are absolved from the complaint,
without special finding as to costs. So ordered.
G.R. No. L-19311
October 29, 1965
FILEMON H. MENDOZA, ET AL. vs. AQUILINA COMPLE
BENGZON, C.J.:
The plaintiffs have appealed from the order of Judge Honorio Romero of the Batangas court of
first instance, that dismissed their action to require defendant to comply with their alleged
contract of purchase and sale of a parcel of land.
His honor held that the complaint merely described an accepted promise to sell by defendant,
which promise could be withdrawn (and was withdrawn on time) because it was not
supported by "a consideration distinct" from the price of the sale.
The material allegations of the complaint are the following:
4. That, the plaintiffs were at first reluctant to purchase the said parcel of land ...;

118
5. That, after a series of negotiations ... upon the insistence of the defendant that the plaintiffs
purchase the said parcel of land, the defendant finally agreed to sell to the plaintiffs the parcel of
land in question plus the additional area of twenty-four square meters above stated, for the price
of P4,500.00, Philippine currency; and upon their mutual agreement, the plaintiffs were given by
the defendant a period of three weeks from April 15, 1961 and until May 6, 1961, within which to
raise the amount of P4,500.00;

Valdes-Choy advertised for sale her paraphernal house and lot ("Property") with an area of 718
square meters located at No. 40 Tampingco Street corner Hidalgo Street, San Lorenzo Village,
Makati City. The Property is covered by Transfer Certificate of Title No. 162955 ("TCT") issued
by the Register of Deeds of Makati City in the name of Valdes-Choy. Chua responded to the
advertisement. After several meetings, Chua and Valdes-Choy agreed on a purchase price of
P10,800,000.00 payable in cash.

6. That, it was likewise agreed upon between the plaintiffs and the defendants that the final deed
of conveyance will be executed by the latter in favor of the former as soon as the plaintiffs shall
be ready with the cash within the period given them;

On 30 June 1989, Valdes-Choy received from Chua a check for P100,000.00. The receipt
("Receipt") evidencing the transaction, signed by Valdes-Choy as seller, and Chua as buyer,
reads:

7. That, on May 1, 1961, before the expiration of the period of three weeks given to the plaintiffs
by the defendant on aforesaid, the said defendant came over to the house of the plaintiffs, and
then and there advised them that she is calling off the deal and that she is backing out from their
agreement.

30 June 1989
RECEIPT

It will be observed that there is no allegation that plaintiffs had agreed to buy the land. So,
according to the facts described in the complaint, if plaintiffs did not produce or have the money on
or before May 6, 1961, no liability attached to them. Neither could defendant (if she so elected)
compel them to buy.
The negotiations as thus related in the complaint merely amounted to an undertaking by defendant
that if plaintiffs had the amount of P4,500.00 on or before May 6, 1961, she would sell the lot to
them for that sum upon the execution of the contract; and that plaintiffs accepted or agreed to such
promise. The New Civil Code provides that such promise is binding upon the promisor if the
promise is supported by a consideration distinct from the price(Art. 1479). Now, as there was no
such "distinct" consideration (no allegation as to it), the defendant was not bound to stand by her
promise even if accepted, before withdrawal. The lower court applied and followed our decisions
in South-western Sugar & Molasses Co. v. Atlantic, Gulf & Pacific Co., 51 Off. Gaz. 3447
and Navarro v. Sugar Producers Association, 60 Off. Gaz. 511. We are satisfied that on the facts
and the law, both said cases enunciated principles conclusive on this litigation.

RECEIVED from MR. TOMAS K. CHUA PBCom Check No. 206011 in the amount of
ONE HUNDRED THOUSAND PESOS ONLY (P100,000.00) as EARNEST MONEY
for the sale of the property located at 40 Tampingco cor. Hidalgo, San Lorenzo Village,
Makati, Metro Manila (Area : 718 sq. meters).
The balance of TEN MILLION SEVEN HUNDRED THOUSAND (P10,700,000.00) is payable
on or before 155July 1989. Capital Gains Tax for the account of the seller. Failure to pay
balance on or before 15 July 1989 forfeits the earnest money. This provided that all papers
are in proper order.6

CONFORME:

Consequently, the appealed order is affirmed, with costs.

ENCARNACION
Seller

G.R. No. 119255

April 9, 2003
TOMAS K. CHUA vs. COURT OF APPEALS
CARPIO, J.:

TOMAS

K.

VALDES

CHUA

Buyer

The Case
x x x.7
1

This is a petition for review on certiorari seeking to reverse the decision of the Court of Appeals in
an action for specific performance 2 filed in the Regional Trial Court 3 by petitioner Tomas K. Chua
("Chua") against respondent Encarnacion Valdes-Choy ("Valdes-Choy"). Chua sought to compel
Valdes-Choy to consummate the sale of her paraphernal house and lot in Makati City. The Court of
Appeals reversed the decision4 rendered by the trial court in favor of Chua.
The Facts

In the morning of 13 July 1989, Chua secured from Philippine Bank of Commerce ("PBCom") a
manager's check for P480,000.00. Strangely, after securing the manager's check, Chua
immediately gave PBCom a verbal stop payment order claiming that this manager's check for
P480,000.00 "was lost and/or misplaced."8 On the same day, after receipt of Chua's verbal order,
PBCom Assistant VicePresident Julie C. Pe notified in writing9 the PBCom Operations Group of
Chua's stop payment order.

119
In the afternoon of 13 July 1989, Chua and Valdes-Choy met with their respective counsels to
execute the necessary documents and arrange the payments. 10 Valdes-Choy as vendor and Chua
as vendee signed two Deeds of Absolute Sale ("Deeds of Sale"). The first Deed of Sale covered
the house and lot for the purchase price of P8,000,000.00. 11 The second Deed of Sale covered the
furnishings, fixtures and movable properties contained in the house for the purchase price of
P2,800,000.00.12 The parties also computed the capital gains tax to amount to P485,000.00.
On 14 July 1989, the parties met again at the office of Valdes-Choy's counsel. Chua handed to
Valdes-Choy the PBCom manager's check for P485,000.00 so Valdes-Choy could pay the capital
gains tax as she did not have sufficient funds to pay the tax. Valdes-Choy issued a receipt showing
that Chua had a remaining balance of P10,215,000.00 after deducting the advances made by
Chua. This receipt reads:

July 14, 1989

Received from MR. TOMAS K. CHUA PBCom. Check No. 325851 in the amount of
FOUR HUNDRED EIGHTY FIVE THOUSAND PESOS ONLY (P485,000.00) as Partial
Payment for the sale of the property located at 40 Tampingco Cor. Hidalgo St., San
Lorenzo Village, Makati, Metro Manila (Area 718 sq. meters), covered by TCT No.
162955 of the Registry of Deeds of Makati, Metro Manila.
The total purchase price of the above-mentioned property is TEN MILLION EIGHT
HUNDRED THOUSAND PESOS only, broken down as follows:

SELLING PRICE
EARNEST MONEY

P100,000.00

PARTIAL PAYMENT

485,000.00

BALANCE
DUE
ENCARNACION VALDEZ-CHOY

TO

PLUS P80,000.00 for documentary stamps paid in

advance by seller

x x x.13
On the same day, 14 July 1989, Valdes-Choy, accompanied by Chua, deposited the
P485,000.00 manager's check to her account with Traders Royal Bank. She then purchased a
Traders Royal Bank manager's check for P480,000.00 payable to the Commissioner of Internal
Revenue for the capital gains tax. Valdes-Choy and Chua returned to the office of Valdes-Choy's
counsel and handed the Traders Royal Bank check to the counsel who undertook to pay the
capital gains tax. It was then also that Chua showed to Valdes-Choy a PBCom manager's check
for P10,215,000.00 representing the balance of the purchase price. Chua, however, did not give
this PBCom manager's check to Valdes-Choy because the TCT was still registered in the name
of Valdes-Choy. Chua required that the Property be registered first in his name before he would
turn over the check to Valdes-Choy. This angered Valdes-Choy who tore up the Deeds of Sale,
claiming that what Chua required was not part of their agreement.14
On the same day, 14 July 1989, Chua confirmed his stop payment order by submitting to
PBCom an affidavit of loss15 of the PBCom Manager's Check for P480,000.00. PBCom Assistant
Vice-President Pe, however, testified that the manager's check was nevertheless honored
because Chua subsequently verbally advised the bank that he was lifting the stop-payment
order due to his "special arrangement" with the bank.16
On 15 July 1989, the deadline for the payment of the balance of the purchase price, ValdesChoy suggested to her counsel that to break the impasse Chua should deposit in escrow the
P10,215,000.00 balance.17 Upon such deposit, Valdes-Choy was willing to cause the issuance of
a new TCT in the name of Chua even without receiving the balance of the purchase price.
Valdes-Choy believed this was the only way she could protect herself if the certificate of title is
transferred in the name of the buyer before she is fully paid. Valdes-Choy's counsel promised to
relay her suggestion to Chua and his counsel, but nothing came out of it.

On 17 July 1989, Chua filed a complaint for specific performance against Valdes-Choy which the
P10,800,000.00
trial court dismissed on 22 November 1989. On 29 November 1989, Chua re-filed his complaint
for specific performance with damages. After trial in due course, the trial court rendered
judgment in favor of Chua, the dispositive portion of which reads:
Applying the provisions of Article 1191 of the new Civil Code, since this is an action for
specific performance where the plaintiff, as vendee, wants to pursue the sale, and in order
that the fears of the defendant may be allayed and still have the sale materialize, judgment is
hereby rendered:
585,000.00
I. 1. Ordering the defendant to deliver to the Court not later than five (5) days from finality of
this decision:
P10,215,000.00
a. the owner's duplicate copy of TCT No. 162955 registered in her name;
80,000.00 b. the covering tax declaration and the latest tax receipt evidencing payment of real estate
taxes;
P10,295,000.00
c. the two deeds of sale prepared by Atty. Mark Bocobo on July 13, 1989, duly executed by
defendant in favor of the plaintiff, whether notarized or not; and

120
2. Within five (5) days from compliance by the defendant of the above, ordering the plaintiff to
deliver to the Branch Clerk of Court of this Court the sum of P10,295,000.00 representing the
balance of the consideration (with the sum of P80,000.00 for stamps already included);

9. No interest is imposed on the payment to be made by the plaintiff because he had always
been ready to pay the balance and the premises had been used or occupied by the defendant
for the duration of this case.

3. Ordering the Branch Clerk of this Court or her duly authorized representative:

II. In the event that specific performance cannot be done for reasons or causes not
attributable to the plaintiff, judgment is hereby rendered ordering the defendant:

a. to make representations with the BIR for the payment of capital gains tax for the sale of the
house and lot (not to include the fixtures) and to pay the same from the funds deposited with
her;
b. to present the deed of sale executed in favor of the plaintiff, together with the owner's
duplicate copy of TCT No. 162955, real estate tax receipt and proof of payment of capital gains
tax, to the Makati Register of Deeds;
c. to pay the required registration fees and stamps (if not yet advanced by the defendant) and if
needed update the real estate taxes all to be taken from the funds deposited with her; and
d. surrender to the plaintiff the new Torrens title over the property;
4. Should the defendant fail or refuse to surrender the two deeds of sale over the property and
the fixtures that were prepared by Atty. Mark Bocobo and executed by the parties, the Branch
Clerk of Court of this Court is hereby authorized and empowered to prepare, sign and execute
the said deeds of sale for and in behalf of the defendant;
5. Ordering the defendant to pay to the plaintiff;

1. To refund to the plaintiff the earnest money in the sum of P100,000.00, with interest at the
legal rate from June 30, 1989 until fully paid;
2. To refund to the plaintiff the sum of P485,000.00 with interest at the legal rate from July 14,
1989 until fully paid;
3. To pay to the plaintiff the sum of P700,000.00 in the concept of moral damages and the
additional sum of P300,000.00 in the concept of exemplary damages; and
4. To pay to the plaintiff the sum of P100,000.00 as reimbursement of attorney's fees and cost
of litigation.
SO ORDERED.18
Valdes-Choy appealed to the Court of Appeals which reversed the decision of the trial court. The
Court of Appeals handed down a new judgment, disposing as follows:
WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE, and
another one is rendered:

a. the sum of P100,000.00 representing moral and compensatory damages for the plaintiff; and
(1) Dismissing Civil Case No. 89-5772;
b. the sum of P50,000.00 as reimbursement for plaintiff's attorney's fees and cost of litigation.
6. Authorizing the Branch Clerk of Court of this Court to release to the plaintiff, to be taken from
the funds said plaintiff has deposited with the Court, the amounts covered at paragraph 5 above;
7. Ordering the release of the P10,295,000.00 to the defendant after deducting therefrom the
following amounts:

(2) Declaring the amount of P100,000.00, representing earnest money as forfeited in favor of
defendant-appellant;
(3) Ordering defendant-appellant to return/refund the amount of P485,000.00 to plaintiffappellee without interest;
(4) Dismissing defendant-appellant's compulsory counter-claim; and

a. the capital gains tax paid to the BIR;

(5) Ordering the plaintiff-appellee to pay the costs.19
b. the expenses incurred in the registration of the sale, updating of real estate taxes, and
transfer of title; and
c. the amounts paid under this judgment to the plaintiff.
8. Ordering the defendant to surrender to the plaintiff or his representatives the premises with
the furnishings intact within seventy-two (72) hours from receipt of the proceeds of the sale;

Hence, the instant petition.

The Trial Court's Ruling

121
The trial court found that the transaction reached an impasse when Valdes-Choy wanted to be first
paid the full consideration before a new TCT covering the Property is issued in the name of Chua.
On the other hand, Chua did not want to pay the consideration in full unless a new TCT is first
issued in his name. The trial court faulted Valdes-Choy for this impasse.
The trial court held that the parties entered into a contract to sell on 30 June 1989, as evidenced by
the Receipt for the P100,000.00 earnest money. The trial court pointed out that the contract to sell
was subject to the following conditions: (1) the balance of P10,700,000.00 was payable not later
than 15 July 1989; (2) Valdes-Choy may stay in the Property until 13 August 1989; and (3) all
papers must be "in proper order" before full payment is made.
The trial court held that Chua complied with the terms of the contract to sell. Chua showed that he
was prepared to pay Valdes-Choy the consideration in full on 13 July 1989, two days before the
deadline of 15 July 1989. Chua even added P80,000.00 for the documentary stamp tax. He
purchased from PBCom two manager's checks both payable to Valdes-Choy. The first check for
P485,000.00 was to pay the capital gains tax. The second check for P10,215,000.00 was to pay
the balance of the purchase price. The trial court was convinced that Chua demonstrated his
capacity and readiness to pay the balance on 13 July 1989 with the production of the PBCom
manager's check for P10,215,000.00.
On the other hand, the trial court found that Valdes-Choy did not perform her correlative obligation
under the contract to sell to put all the papers in order. The trial court noted that as of 14 July 1989,
the capital gains tax had not been paid because Valdes-Choy's counsel who was suppose to pay
the tax did not do so. The trial court declared that Valdes-Choy was in a position to deliver only the
owner's duplicate copy of the TCT, the signed Deeds of Sale, the tax declarations, and the latest
realty tax receipt. The trial court concluded that these documents were all useless without the
Bureau of Internal Revenue receipt evidencing full payment of the capital gains tax which is a prerequisite to the issuance of a new certificate of title in Chua's name.
The trial court held that Chua's non-payment of the balance of P10,215,000.00 on the agreed date
was due to Valdes-Choy's fault.

the check unless "the property was already in his name." 20 Although Chua demonstrated his
capacity to pay, this could not be equated with actual payment which he refused to do.
The Court of Appeals did not consider the non-payment of the capital gains tax as failure by
Valdes-Choy to put the papers "in proper order." The Court of Appeals explained that the
payment of the capital gains tax has no bearing on the validity of the Deeds of Sale. It is only
after the deeds are signed and notarized can the final computation and payment of the capital
gains tax be made.
The Issues
In his Memorandum, Chua raises the following issues:
1. WHETHER THERE IS A PERFECTED CONTRACT OF SALE OF IMMOVABLE
PROPERTY;
2. WHETHER VALDES-CHOY MAY RESCIND THE CONTRACT IN CONTROVERSY
WITHOUT OBSERVING THE PROVISIONS OF ARTICLE 1592 OF THE NEW CIVIL CODE;
3. WHETHER THE WITHHOLDING OF PAYMENT OF THE BALANCE OF THE PURCHASE
PRICE ON THE PART OF CHUA (AS VENDEE) WAS JUSTIFIED BY THE
CIRCUMSTANCES OBTAINING AND MAY NOT BE RAISED AS GROUND FOR THE
AUTOMATIC RESCISSION OF THE CONTRACT OF SALE;
4. WHETHER THERE IS LEGAL AND FACTUAL BASIS FOR THE COURT OF APPEALS TO
DECLARE THE "EARNEST MONEY" IN THE AMOUNT OF P100,000.00 AS FORFEITED IN
FAVOR OF VALDES-CHOY;
5. WHETHER THE TRIAL COURT'S JUDGMENT IS IN ACCORD WITH LAW, REASON AND
EQUITY DESERVING OF BEING REINSTATED AND AFFIRMED.21

The Court of Appeals' Ruling

In reversing the trial court, the Court of Appeals ruled that Chua's stance to pay the full
consideration only after the Property is registered in his name was not the agreement of the
parties. The Court of Appeals noted that there is a whale of difference between the phrases "all
papers are in proper order" as written on the Receipt, and "transfer of title" as demanded by Chua.

The issues for our resolution are: (a) whether the transaction between Chua and Valdes-Choy is
a perfected contract of sale or a mere contract to sell, and (b) whether Chua can compel ValdesChoy to cause the issuance of a new TCT in Chua's name even before payment of the full
purchase price.
The Court's Ruling

Contrary to the findings of the trial court, the Court of Appeals found that all the papers were in
order and that Chua had no valid reason not to pay on the agreed date. Valdes-Choy was in a
position to deliver the owner's duplicate copy of the TCT, the signed Deeds of Sale, the tax
declarations, and the latest realty tax receipt. The Property was also free from all liens and
encumbrances.
The Court of Appeals declared that the trial court erred in considering Chua's showing to ValdesChoy of the PBCom manager's check for P10,215,000.00 as compliance with Chua's obligation to
pay on or before 15 July 1989. The Court of Appeals pointed out that Chua did not want to give up

The petition is bereft of merit.

There is no dispute that Valdes-Choy is the absolute owner of the Property which is registered in
her name under TCT No.162955, free from all liens and encumbrances. She was ready, able
and willing to deliver to Chua the owner's duplicate copy of the TCT, the signed Deeds of Sale,
the tax declarations, and the latest realty tax receipt. There is also no dispute that on 13 July
1989, Valdes-Choy received PBCom Check No. 206011 for P100,000.00 as earnest money from
Chua. Likewise, there is no controversy that the Receipt for the P100,000.00 earnest money
embodied the terms of the binding contract between Valdes-Choy and Chua.

122
Further, there is no controversy that as embodied in the Receipt, Valdes-Choy and Chua agreed on
the following terms: (1) the balance of P10,215,000.00 is payable on or before 15 July 1989; (2) the
capital gains tax is for the account of Valdes-Choy; and (3) if Chua fails to pay the balance of
P10,215,000.00 on or before 15 July 1989, Valdes-Choy has the right to forfeit the earnest money,
provided that "all papers are in proper order." On 13 July 1989, Chua gave Valdes-Choy the
PBCom manager's check for P485,000.00 to pay the capital gains tax.
Both the trial and appellate courts found that the balance of P10,215,000.00 was not actually
paid to Valdes-Choy on the agreed date. On 13 July 1989, Chua did show to Valdes-Choy the
PBCom manager's check for P10,215,000.00, with Valdes-Choy as payee. However,
Chua refused to give this check to Valdes-Choy until a new TCT covering the Property is registered
in Chua's name. Or, as the trial court put it, until there is proof of payment of the capital gains tax
which is a pre-requisite to the issuance of a new certificate of title.
First and Second Issues: Contract of Sale or Contract to Sell?
Chua has consistently characterized his agreement with Valdez-Choy, as evidenced by the
Receipt, as a contract to sell and not a contract of sale. This has been Chua's persistent contention
in his pleadings before the trial and appellate courts.
Chua now pleads for the first time that there is a perfected contract of sale rather than a contract to
sell. He contends that there was no reservation in the contract of sale that Valdes-Choy shall retain
title to the Property until after the sale. There was no agreement for an automatic rescission of the
contract in case of Chua's default. He argues for the first time that his payment of earnest money
and its acceptance by Valdes-Choy precludes the latter from rejecting the binding effect of the
contract of sale. Thus, Chua claims that Valdes-Choy may not validly rescind the contract of sale
without following Article 159222 of the Civil Code which requires demand, either judicially or by
notarial act, before rescission may take place.
Chua's new theory is not well taken in light of well-settled jurisprudence. An issue not raised in the
court below cannot be raised for the first time on appeal, as this is offensive to the basic rules of
fair play, justice and due process.23 In addition, when a party deliberately adopts a certain theory,
and the case is tried and decided on that theory in the court below, the party will not be permitted to
change his theory on appeal. To permit him to change his theory will be unfair to the adverse
party.24
Nevertheless, in order to put to rest all doubts on the matter, we hold that the agreement between
Chua and Valdes-Choy, as evidenced by the Receipt, is a contract to sell and not a contract of
sale. The distinction between a contract of sale and contract to sell is well-settled:
In a contract of sale, the title to the property passes to the vendee upon the delivery of the thing
sold; in a contract to sell, ownership is, by agreement, reserved in the vendor and is not to pass
to the vendee until full payment of the purchase price. Otherwise stated, in a contract of sale, the
vendor loses ownership over the property and cannot recover it until and unless the contract is
resolved or rescinded; whereas, in a contract to sell, title is retained by the vendor until full
payment of the price. In the latter contract, payment of the price is a positive suspensive
condition, failure of which is not a breach but an event that prevents the obligation of the vendor
to convey title from becoming effective.25

A perusal of the Receipt shows that the true agreement between the parties was a contract to
sell. Ownership over the Property was retained by Valdes-Choy and was not to pass to Chua
until full payment of the purchase price.
First, the Receipt provides that the earnest money shall be forfeited in case the buyer fails to pay
the balance of the purchase price on or before 15 July 1989. In such event, Valdes-Choy can
sell the Property to other interested parties. There is in effect a right reserved in favor of ValdesChoy not to push through with the sale upon Chua's failure to remit the balance of the purchase
price before the deadline. This is in the nature of a stipulation reserving ownership in the seller
until full payment of the purchase price. This is also similar to giving the seller the right to rescind
unilaterally the contract the moment the buyer fails to pay within a fixed period.26
Second, the agreement between Chua and Valdes-Choy was embodied in a receipt rather than
in a deed of sale, ownership not having passed between them. The signing of the Deeds of Sale
came later when Valdes-Choy was under the impression that Chua was about to pay the
balance of the purchase price. The absence of a formal deed of conveyance is a strong
indication that the parties did not intend immediate transfer of ownership, but only a transfer
after full payment of the purchase price.27
Third, Valdes-Choy retained possession of the certificate of title and all other documents relative
to the sale. When Chua refused to pay Valdes-Choy the balance of the purchase price, ValdesChoy also refused to turn-over to Chua these documents. 28 These are additional proof that the
agreement did not transfer to Chua, either by actual or constructive delivery, ownership of the
Property.29
It is true that Article 1482 of the Civil Code provides that "[W]henever earnest money is given in
a contract of sale, it shall be considered as part of the price and proof of the perfection of the
contract." However, this article speaks of earnest money given in a contract of sale. In this case,
the earnest money was given in a contract to sell. The Receipt evidencing the contract to sell
stipulates that the earnest money is a forfeitable deposit, to be forfeited if the sale is not
consummated should Chua fail to pay the balance of the purchase price. The earnest money
forms part of the consideration only if the sale is consummated upon full payment of the
purchase price. If there is a contract of sale, Valdes-Choy should have the right to compel Chua
to pay the balance of the purchase price. Chua, however, has the right to walk away from the
transaction, with no obligation to pay the balance, although he will forfeit the earnest money.
Clearly, there is no contract of sale. The earnest money was given in a contract to sell, and thus
Article 1482, which speaks of a contract of sale, is not applicable.
Since the agreement between Valdes-Choy and Chua is a mere contract to sell, the full payment
of the purchase price partakes of a suspensive condition. The non-fulfillment of the condition
prevents the obligation to sell from arising and ownership is retained by the seller without further
remedies by the buyer.30 Article 1592 of the Civil Code permits the buyer to pay, even after the
expiration of the period, as long as no demand for rescission of the contract has been made
upon him either judicially or by notarial act. However, Article 1592 does not apply to a contract to
sell where the seller reserves the ownership until full payment of the price.31
Third and Fourth Issues: Withholding of Payment of the Balance of the Purchase Price and
Forfeiture of the Earnest Money

123
Chua insists that he was ready to pay the balance of the purchase price but withheld payment
because Valdes-Choy did not fulfill her contractual obligation to put all the papers in "proper order."
Specifically, Chua claims that Valdes-Choy failed to show that the capital gains tax had been paid
after he had advanced the money for its payment. For the same reason, he contends that ValdesChoy may not forfeit the earnest money even if he did not pay on time.
There is a variance of interpretation on the phrase "all papers are in proper order" as written in the
Receipt. There is no dispute though, that as long as the papers are "in proper order," Valdes-Choy
has the right to forfeit the earnest money if Chua fails to pay the balance before the deadline.
The trial court interpreted the phrase to include payment of the capital gains tax, with the Bureau of
Internal Revenue receipt as proof of payment. The Court of Appeals held otherwise. We quote
verbatim the ruling of the Court of Appeals on this matter:
The trial court made much fuss in connection with the payment of the capital gains tax, of which
Section 33 of the National Internal Revenue Code of 1977, is the governing provision insofar as
its computation is concerned. The trial court failed to consider Section 34-(a) of the said Code,
the last sentence of which provides, that "[t]he amount realized from the sale or other disposition
of property shall be the sum of money received plus the fair market value of the property (other
than money) received;" and that the computation of the capital gains tax can only be finally
assessed by the Commission on Internal Revenue upon the presentation of the Deeds of
Absolute Sale themselves, without which any premature computation of the capital gains tax
becomes of no moment. At any rate, the computation and payment of the capital gains tax has
no bearing insofar as the validity and effectiveness of the deeds of sale in question are
concerned, because it is only after the contracts of sale are finally executed in due form and
have been duly notarized that the final computation of the capital gains tax can follow as a
matter of course. Indeed, exhibit D, the PBC Check No. 325851, dated July 13, 1989, in the
amount of P485,000.00, which is considered as part of the consideration of the sale, was
deposited in the name of appellant, from which she in turn, purchased the corresponding check
in the amount representing the sum to be paid for capital gains tax and drawn in the name of the
Commissioner of Internal Revenue, which then allayed any fear or doubt that that amount would
not be paid to the Government after all.32
We see no reason to disturb the ruling of the Court of Appeals.
In a contract to sell, the obligation of the seller to sell becomes demandable only upon the
happening of the suspensive condition. In this case, the suspensive condition is the full payment of
the purchase price by Chua. Such full payment gives rise to Chua's right to demand the execution
of the contract of sale.
It is only upon the existence of the contract of sale that the seller becomes obligated to transfer the
ownership of the thing sold to the buyer. Article 1458 of the Civil Code defines a contract of sale as
follows:
Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the
ownershipof and to deliver a determinate thing, and the other to pay therefor a price certain in
money or its equivalent. x x x. (Emphasis supplied)

Prior to the existence of the contract of sale, the seller is not obligated to transfer ownership to
the buyer, even if there is a contract to sell between them. It is also upon the existence of the
contract of sale that the buyer is obligated to pay the purchase price to the seller. Since the
transfer of ownership is in exchange for the purchase price, these obligations must be
simultaneously fulfilled at the time of the execution of the contract of sale, in the absence of a
contrary stipulation.
In a contract of sale, the obligations of the seller are specified in Article 1495 of the Civil Code,
as follows:
Art. 1495. The vendor is bound to transfer the ownership of and deliver, as well as warrant the
thing which is the object of the sale. (Emphasis supplied)
The obligation of the seller is to transfer to the buyer ownership of the thing sold. In the sale of
real property, the seller is not obligated to transfer in the name of the buyer a new certificate of
title, but rather to transfer ownership of the real property. There is a difference between transfer
of the certificate of title in the name of the buyer, and transfer of ownership to the buyer. The
buyer may become the owner of the real property even if the certificate of title is still registered
in the name of the seller. As between the seller and buyer, ownership is transferred not by the
issuance of a new certificate of title in the name of the buyer but by the execution of the
instrument of sale in a public document.
In a contract of sale, ownership is transferred upon delivery of the thing sold. As the noted civil
law commentator Arturo M. Tolentino explains it, Delivery is not only a necessary condition for the enjoyment of the thing, but is a mode of
acquiring dominion and determines the transmission of ownership, the birth of the real
right. The delivery, therefore, made in any of the forms provided in articles 1497 to 1505
signifies that the transmission of ownership from vendor to vendee has taken place. The
delivery of the thing constitutes an indispensable requisite for the purpose of acquiring
ownership. Our law does not admit the doctrine of transfer of property by mere consent; the
ownership, the property right, is derived only from delivery of the thing. x x x. 33 (Emphasis
supplied)
In a contract of sale of real property, delivery is effected when the instrument of sale is executed
in a public document. When the deed of absolute sale is signed by the parties and notarized,
then delivery of the real property is deemed made by the seller to the buyer. Article 1498 of the
Civil Code provides that
Art. 1498. When the sale is made through a public instrument, the execution thereof shall be
equivalent to the delivery of the thing which is the object of the contract, if from the deed the
contrary does not appear or cannot clearly be inferred. x x x.
Similarly, in a contract to sell real property, once the seller is ready, able and willing to sign the
deed of absolute sale before a notary public, the seller is in a position to transfer ownership of
the real property to the buyer. At this point, the seller complies with his undertaking to sell the
real property in accordance with the contract to sell, and to assume all the obligations of a
vendor under a contract of sale pursuant to the relevant articles of the Civil Code. In a contract
to sell, the seller is not obligated to transfer ownership to the buyer. Neither is the seller

124
obligated to cause the issuance of a new certificate of title in the name of the buyer. However, the
seller must put all his papers in proper order to the point that he is in a position to transfer
ownership of the real property to the buyer upon the signing of the contract of sale.
In the instant case, Valdes-Choy was in a position to comply with all her obligations as a seller
under the contract to sell. First, she already signed the Deeds of Sale in the office of her counsel in
the presence of the buyer. Second, she was prepared to turn-over the owner's duplicate of the TCT
to the buyer, along with the tax declarations and latest realty tax receipt. Clearly, at this point
Valdes-Choy was ready, able and willing to transfer ownership of the Property to the buyer as
required by the contract to sell, and by Articles 1458 and 1495 of the Civil Code to consummate the
contract of sale.
Chua, however, refused to give to Valdes-Choy the PBCom manager's check for the balance of the
purchase price. Chua imposed the condition that a new TCT should first be issued in his name, a
condition that is found neither in the law nor in the contract to sell as evidenced by the Receipt.
Thus, at this point Chua was not ready, able and willing to pay the full purchase price which is his
obligation under the contract to sell. Chua was also not in a position to assume the principal
obligation of a vendee in a contract of sale, which is also to pay the full purchase price at the
agreed time. Article 1582 of the Civil Code provides that
Art. 1582. The vendee is bound to accept delivery and to pay the price of the thing sold at the
time and place stipulated in the contract. x x x. (Emphasis supplied)
In this case, the contract to sell stipulated that Chua should pay the balance of the purchase price
"on or before 15 July 1989." The signed Deeds of Sale also stipulated that the buyer shall pay the
balance of the purchase price upon signing of the deeds. Thus, the Deeds of Sale, both signed by
Chua, state as follows:
Deed of Absolute Sale covering the lot: x x x
For and in consideration of the sum of EIGHT MILLION PESOS (P8,000,000.00), Philippine
Currency,receipt of which in full is hereby acknowledged by the VENDOR from the VENDEE, the
VENDOR sells, transfers and conveys unto the VENDEE, his heirs, successors and assigns, the
said parcel of land, together with the improvements existing thereon, free from all liens and
encumbrances.34 (Emphasis supplied)
Deed of Absolute Sale covering the furnishings:
xxx
For and in consideration of the sum of TWO MILLION EIGHT HUNDRED THOUSAND PESOS
(P2,800,000.00), Philippine Currency, receipt of which in full is hereby acknowledged by the
VENDOR from the VENDEE, the VENDOR sells, transfers and conveys unto the VENDEE, his
heirs, successors and assigns, the said furnitures, fixtures and other movable properties
thereon, free from all liens and encumbrances.35 (Emphasis supplied)
However, on the agreed date, Chua refused to pay the balance of the purchase price as required
by the contract to sell, the signed Deeds of Sale, and Article 1582 of the Civil Code. Chua was

therefore in default and has only himself to blame for the rescission by Valdes-Choy of the
contract to sell.
Even if measured under existing usage or custom, Valdes-Choy had all her papers "in proper
order." Article 1376 of the Civil Code provides that:
Art. 1376. The usage or custom of the place shall be borne in mind in the interpretation of the
ambiguities of a contract, and shall fill the omission of stipulations which are ordinarily
established.
Customarily, in the absence of a contrary agreement, the submission by an individual seller to
the buyer of the following papers would complete a sale of real estate: (1) owner's duplicate
copy of the Torrens title; 36 (2) signed deed of absolute sale; (3) tax declaration; and (3) latest
realty tax receipt. The buyer can retain the amount for the capital gains tax and pay it upon
authority of the seller, or the seller can pay the tax, depending on the agreement of the parties.
The buyer has more interest in having the capital gains tax paid immediately since this is a prerequisite to the issuance of a new Torrens title in his name. Nevertheless, as far as the
government is concerned, the capital gains tax remains a liability of the seller since it is a tax on
the seller's gain from the sale of the real estate.Payment of the capital gains tax, however, is not
a pre-requisite to the transfer of ownership to the buyer. The transfer of ownership takes effect
upon the signing and notarization of the deed of absolute sale.
The recording of the sale with the proper Registry of Deeds 37 and the transfer of the certificate of
title in the name of the buyer are necessary only to bind third parties to the transfer of
ownership.38 As between the seller and the buyer, the transfer of ownership takes effect upon
the execution of a public instrument conveying the real estate. 39 Registration of the sale with the
Registry of Deeds, or the issuance of a new certificate of title, does not confer ownership on the
buyer. Such registration or issuance of a new certificate of title is not one of the modes of
acquiring ownership.40
In this case, Valdes-Choy was ready, able and willing to submit to Chua all the papers that
customarily would complete the sale, and to pay as well the capital gains tax. On the other hand,
Chua's condition that a new TCT be first issued in his name before he pays the balance of
P10,215,000.00, representing 94.58% of the purchase price, is not customary in a sale of real
estate. Such a condition, not specified in the contract to sell as evidenced by the Receipt, cannot
be considered part of the "omissions of stipulations which are ordinarily established" by usage or
custom.41 What is increasingly becoming customary is to deposit in escrow the balance of the
purchase price pending the issuance of a new certificate of title in the name of the buyer. ValdesChoy suggested this solution but unfortunately, it drew no response from Chua.
Chua had no reason to fear being swindled. Valdes-Choy was prepared to turn-over to him the
owner's duplicate copy of the TCT, the signed Deeds of Sale, the tax declarations, and the latest
realty tax receipt. There was no hindrance to paying the capital gains tax as Chua himself had
advanced the money to pay the same and Valdes-Choy had procured a manager's check
payable to the Bureau of Internal Revenue covering the amount. It was only a matter of time
before the capital gains tax would be paid. Chua acted precipitately in filing the action for
specific performance a mere two days after the deadline of 15 July 1989 when there was an

125
impasse. While this case was dismissed on 22 November 1989, he did not waste any time in refiling the same on 29 November 1989.
Accordingly, since Chua refused to pay the consideration in full on the agreed date, which is a
suspensive condition, Chua cannot compel Valdes-Choy to consummate the sale of the Property.
Article 1181 of the Civil Code provides that ART. 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or
loss of those already acquired shall depend upon the happening of the event which constitutes
the condition.
Chua acquired no right to compel Valdes-Choy to transfer ownership of the Property to him
because the suspensive condition - the full payment of the purchase price - did not happen. There
is no correlative obligation on the part of Valdes-Choy to transfer ownership of the Property to
Chua. There is also no obligation on the part of Valdes-Choy to cause the issuance of a new TCT
in the name of Chua since unless expressly stipulated, this is not one of the obligations of a
vendor.
WHEREFORE, the Decision of the Court of Appeals in CA-G.R. CV No. 37652 dated 23 February
1995 is AFFIRMED in toto. SO ORDERED.
G.R. No. L-13435
July 27, 1960
EUSEBIO MANUEL vs. EULOGIO RODRIGUEZ, SR.
REYES, J.B.L., J.:
Eusebio Manuel appeals from the judgment of the Court of First Instance of Rizal, promulgated on
October 31,1957, dismissing his complaint.
Questions of law and of fact are involved, but the property being worth over P2,000,000.00, the
appeal was directly taken to this Court.
The complaint seeks to have plaintiff Eusebio Manuel declared absolute owner of Lot 51, Plan Psu32606, situated in San Mateo, Rizal; to compel defendants to execute a deed of absolute sale of
said lot in favor of said plaintiff and to receive the unpaid balance of the purchase price thereof;
and to declare the subsequent sales of said lot null and void and to cancel the transfer certificates
of title issued to the transferees. The cross-claim by defendant Eulogio Rodriquez against his codefendant Dolores Vda. de Landahl(as Administratrix of the intestate estate of John
Landahl)having been dismissed, and there being no appeal therefrom, the facts pertaining thereto
will be omitted.
It appears that Januaria Rodriguez was the original registered owner of a big tract of land (part of
which is the land in question), embraced by Transfer Certificate of Title No. 8821 of the Register of
Deeds of Rizal. In 1924, Januara Rodriguez ceded and transferred said land to the Payatas
Subdivision Inc., to be administered by said firm, subdivided, sold, leased or otherwise disposed of
(Exhibit "A"-1). Defendant-appellee Eulogio Rodriguez was then the Secretary-Treasurer of said
Payatas Subdivision Inc.

Sometime in April, 1926, plaintiff-appellant offered to buy the lot in question (about 248,310 sq.
meters in area).The Company agreed to sell said lot (Lot 51) for P2,240 in cash, or by
installments with 10% interest (Exhibit "C"). Plaintiff-appellant made a counter-offer for P2,000,
which the Payatas Subdivision accepted, provided it was paid in each (Exhibit "E"). Plaintiffappellant wanted to pay in installments, and on August 2, 1926, the Company wrote him that it
was agreeable to a down-payment of P1,500, the balance to be paid within 9 to 10 months
without interest, or if the down-payment be less than P1,500, with interest at 10% on the balance
(Exhibit "F"). Plaintiff-appellant then requested that the down-payment be reduced to P1,300,
and through the intercession of defendant-appellee Eulogio Rodriguez, Sr., who was plaintiffappellant's friend, this was granted. After making the initial payment of P1,300, a provisional
receipt was issued, which, on August 25, 1926, was substituted by the official receipt sent by
Casiano M. de Vera, the Company's bookkeeper (Exhibits "G" & "G"-1). Soon after, plaintiffappellant was placed in the possession of the lot.
It also appears that plaintiff-appellant did not make any payments within the 9 to 10-month
period mentioned in Exhibit "F", so that on April 30, 1928, the Payatas Subdivision Inc. sent him
a letter urging immediate payment of his unpaid account with the Company, which, including
interest, amounted to P819.23, and asking him to answer within 10 days (Exhibit "H").
Thereafter, plaintiff-appellant made another payment of P300 for which a receipt dated June 20,
1928 was issued to him (Exhibit "I"). So far as the record discloses, this appears to be the last
payment made by plaintiff-appellant on Lot 51, the property in question. On April 24, 1929, the
Payatas Subdivision Inc. sent plaintiff-appellant a detailed statement of his unpaid account
which, including interest and taxes, amounted to P596.21, urging immediate payment thereof, so
that title could be transferred to him as per agreement, and requesting answer within 10 days
(Exhibit "J"). Still, plaintiff-appellant did not pay his account, despite the fact that thereafter, on
several occasions, the Company sent to his residence its acting secretary, Conrado Vicente, to
collect the balance.
Defendants-appellees advance the theory that in view of plaintiff-appellant's repeated default in
paying his outstanding account, the Payatas Subdivision Inc. then considered his contract
cancelled and extinguished, and the amounts already paid (P1,600), forfeited to the Company,
the transaction being merely a contract to sell or promise to sell; that sometime in 1939, the
Payatas Subdivision Inc., having sold all its properties (except some properties it was
administering for Januaria Rodriguez), was extrajudically dissolved, but its papers of dissolution
were lost or destroyed during the war; that after said dissolution, all unsold properties belonging
to Januaria Rodriguez were returned to her.
Sometime in 1941, Januaria Rodriguez, who was the aunt of defendant-appellee Eulogio
Rodriguez, sold several properties to the latter, including Lot 51 in question, in consideration of
the monthly advances, support, services, care, maintenance, medical expenses, etc. which she
received from the said Eulogio Rodriguez (Exhibit "U").Pursuant to such sale, Transfer
Certificate of Title No. 44709 was issued to Eulogio Rodriguez, Sr. (Exhibit 21-a).
Likewise, it appears that on February 4, 1941, Eulogio Rodriguez, Sr., then Mayor of Manila,
instructed his secretary to write plaintiff-appellant to urge him to pay his unsettled account with
the Payatas Subdivision, Inc. As per instructions, his secretary wrote plaintiff-appellant (Exhibit
"O"). Still, there was no payment.
On August 5, 1944, Eulogio Rodriguez, Sr. sold Lot 51(among others) to John Landahl
(represented in the transaction by Carlos Landahl as attorney-in-fact), for and in consideration of

126
P157,192.80, in Japanese war notes (Exhibit 1-Landahl). The sale was duly registered and
Transfer Certificate of Title No. 46521 was issued in Landahl's name (Exhibit 3-Landahl).
On April 6, 1949, or just a little less than 23 years after the alleged sale to him of Lot 51 in 1926,
plaintiff-appellant brought the instant case, as aforesaid, to compel the execution of a formal deed
of conveyance in his favor covering the purported sale in 1926; to compel receipt of the unpaid
balance of the price which plaintiff-appellant consigned in court; and to annul the subsequent sales
to Eulogio Rodriguez and to John Landahl, and the corresponding transfer certificates to title
issued to them.
The decision of the trial court dismissing the complaint is predicated on two main findings
Firstly. That the transaction in 1926 was mere contract to sell or promise to sell of Lot 51 to
plaintiff-appellant, the understanding being that upon failure to pay the installments as demanded,
the vendor corporation had the right to consider the contract cancelled and the amounts already
paid, forfeited.
Secondly. That even under plaintiff-appellant's theory that his contract with defunct Payatas
Subdivision Inc. was an absolute sale, involving immediate transfer of ownership, his right of action
to compel the execution of a formal deed of conveyance has prescribed, whether the contract is
considered written or verbal (Sec. 43, pars. 1 & 2, Code of Civil Procedure, Act 190); moreover, the
action is barred by laches.
The findings that the contract entered into 1926 was a mere contract to sell or promise to sell was
predicted on the following premises:
1. The alleged contract of absolute sale was not reduced to a formal deed of conveyance, much
less registered, which is unlikely if the contract had been an absolute sale, because plaintiffappellant would have insisted that it be reduced to a public document, the land being covered by a
Torrens title.
2. It is highly improbable that the Payatas Subdivision Inc. would agree to an immediate transfer of
ownership to plaintiff without any guaranty or security that the balance of the price would be
completely paid.
3. The statement in Exhibit "J", introduced by plaintiff as his evidence, requesting payment of the
balance "at ng kayo naman y mabigyan na ng katibayan, alinsunod sa pinagkayarian", confirms
that the agreement between plaintiff and the company was that title would be transferred to plaintiff
only upon full payment of the price.
4. Plaintiff would not have waited for more than 20 years to file this action to enforce the contract if
this where an absolute sale, considering that the land being covered by a Torrens title, it was easy
for the vendor to resell or encumber the same property to some other person on the basis of a
clean title.
5. The nature of the transaction as a mere contract to sell is established by the testimony of
witnesses for defendants-appellees.

6. The dissolution of the Payatas Subdivision Inc. sometime in 1939 must have been the reason
which prompted the cancellation of plaintiff's contract, as it had to wind up all its affairs and
conclude all pending business before dissolution.
7. It may be taken judicial notice of that it is a general practice among subdivision companies
engaging in installment sales to place the buyer immediately in possession after the downpayment, the company remaining owner of the property until full payment, at which time the
deed of conveyance is then executed in favor of the buyer; and if the buyer defaults in paying
the installments due, the corporation cancels the contracts and forfeits the amount already paid.
In his brief containing 20 assignments of error, plaintiff-appellant insists that the contract in 1926
was not merely a contract to sell but an absolute sale (Errors I-IV). He contends that contrary to
the finding of the lower court, the 1926 contract was not verbal but written, citing the series of
communications between plaintiff-appellant and the Payatas Subdivision Inc., Exhibits "C" to
"G"-1. A careful examination of these exhibits, however, reveals that Exhibits "C" to "F" are mere
bargaining negotiations that took place before the parties arrived at a full understanding, while
Exhibits "G" and "G"-1 are mere receipts of payment; they fail to show that the parties had
committed all the terms of their agreement to writing. Exhibit "C" merely offers to sell Lot 51 for
P2,240, with interest at 10% if it be by installments; Exhibit "D" offered to reduce the total price
for Lots 44 and 51 (early negotiation were for 2 lots) to P2,955, and also referred to other
matters concerning the sale which should be discussed personally by the parties; Exhibit "E"
accepts a previous counter-offer made by plaintiff-appellant to buy Lot 51 for P2,000, provided
the payment was in cash, and again referred to other matters regarding the sale which should
be threshed out between the parties; Exhibits "F", after making reference to the terms of
payment desired by plaintiff-appellant, laid down the condition that if the first payment is at least
P1,500, the balance payable in 9 to 10 months would not bear interest; and if the initial payment
was less than P1,500, the balance would bear interest at 10%; Exhibit "G" is a note by Payatas
Inc. referring to the attached receipt, Exhibit "G-1"), covering the down-payment of P1,300 made
by plaintiff-appellant for Lot 51.
These letters shows that if at all, only the price and the terms of payments were in writing. The
most important, the alleged transfer of title, and the other matters alluded to in some of the
communications, were not reduced to any written document. It is generally recognized that to be
a written contract, all its terms must be in writing; so that a contract partly in writing and partly
oral, is, in legal effect, an oral contract (Fey vs. Loose Wiles Biscuit Co., 75 P2d 810;
Peifer vs. New Comer, et al., 157 NE 240; 12 Am. Jur. 550). Apart from whether the letters
negotiating the transaction could constitute a written contract of sale, the absence of a formal
deed of conveyance strongly indicates that the parties did not intend immediate transfer of title,
but only a transfer after full payment of the price. As observed by the trial court, if the contract
were an absolute sale, it is unlikely that plaintiff-appellant would not have insisted that the same
be reduced to a public document, considering that Lot 51 is covered by a Torrens title. On the
other hand, it is unlikely for the Payatas Subdivision Inc. to have agreed to an immediate
transfer of ownership without guaranty of the balance being ever paid.
One other evidence of the true character of the transaction is the statement contained in Exhibit
"J" of the following tenor: "at ng kayo naman ay mabigyan na ng katibayan, alinsunod sa
pinagkayarian", strengthening the conclusion that what transpired in 1926 was a mere contract
to sell, transfer of title being conditioned on full payment of the price. Plaintiff-appellant tries to
refute this by citing El Banco Nacional Filipino vs. Ah Sing, 69 Phil. 611, wherein the contract
captioned "Promesa De Venta" was held to be an absolute sale. Suffice it to say that comparison
will not hold, because in the cited case, the contract was reduced to a formal deed conveyance

127
and the court found that the parties had agreed to and actually effectuated a delivery. In the instant
case, there was a formal deed of conveyance, and, as the land is covered by the Torrens title,
there could be no delivery except by the act of registration of the deed or instrument.
Adding to the pile of circumstances, the fact that plaintiff-appellant did not file this action to enforce
the contract until after more than 20 years from the alleged absolute sale in 1926 induces no other
conclusion than that the transaction was a mere contract to sell, for it if were an absolute sale, it
was unlikely for plaintiff-appellant to wait as long as he did before commencing the present action,
considering that as the land was covered by a Torrens title, it could have been very easy for the
Payatas Subdivision to dispose or encumber the same to another party. Considering the steady
increase in land values since 1926 (Martin vs. Martin,* 57 Off. Gaz. [9] 1589), plaintiff's laches and
his neglect to comply with his own obligations are powerful indicia against the merits of his case
rendering his case highly inequitable.
The dissolution of the Payatas Subdivision Inc. sometime in 1939 is sufficiently established by the
evidence. The only argument advanced by plaintiff-appellant to show that it was not dissolved in
1939 (Error I-IV; IX-X) is Exhibit "O", the letter written in 1941 by the secretary of defendantappellee Eulogio Rodriguez, asking for payment of the balance of the price, wherein the statement
appears "Sa utos ng pangasiwan ng Payatas Estate Subdivision . . .", from which it is supposed to
be inferred that said corporation had not yet been dissolved. However, in Exhibit "O" itself, the
payment was being asked to be made at the office of defendant-appellee Eulogio Rodriguez at the
City Hall, showing that Payatas Subdivision no longer even had an office. Also significant is the
computation of interest mentioned in Exhibit "O" which, according to said letter, accrued only up to
January, 1939. All these, plus the other circumstances on record, give credence to defendantappellees' contention that the corporation was really dissolved in 1939.
Although this dissolution cannot be determinative of the character of the sale in 1926 (as to
whether conditional or absolute), it must really have been the occasion which prompted the
termination of the contract, as the corporation had to wind up its affairs and close all pending
business. Plaintiff-appellant, however, argues (Errors I-IV; VI; VIII) that the Payatas Subdivision
had no right to cancel the contract, as there was no demand by suit or notarial act, as provided by
Article 1504 of the Old Code (Art. 1592, N. C. C.). This is without merit, because Article 1504
requiring demand by suit or notarial act in case the vendor of realty wants to rescind, does not
apply to a contract to sell or promise to sell, where title remains with the vendor until fulfillment to a
positive suspensive condition, such as full payment of the price (Caridad Estates vs. Santero, 71
Phil., 114, 121; Albea vs. Inquimboy, 86 Phil., 476; 47 Off. Gaz. Supp. 12, p. 131;
Jocson vs. Capitol Subdivision Inc. et al., L-6573, February 28, 1955; Mirandavs. Caridad Estates,
L-2077 and Aspuria vs. Caridad Estates, L-2121, October 3, 1950).
The contention of plaintiff-appellant that Payatas Subdivision Inc. had no right to cancel the
contract as there was only a "casual breach" is likewise untenable. In contracts to sell, where
ownership is retained by the seller and is not to pass until the full payment of the price, such
payment, as we said, is a positive suspensive condition, the failure of which is not a breach, casual
or serious, but simply an event that prevented the obligation of the vendor to convey title from
acquiring binding force, in accordance with Article 1117 of the Old Civil Code. To argue that there
was only a casual breach is to proceed from the assumption that the contract is one of absolute
sale, where non-payment is a resolutory condition, which is not the case.
Whether the trial court could take judicial notice of the alleged practice in subdivision companies to
retain ownership over lands they contracted to sell, until full payment of the price, we find not

necessary to discuss. The circumstances shown by the trend of evidence, including the oral
testimony of the witnesses for defendant-appellees, more than convince this Court that the
transaction in 1926 was merely a contract to sell, subject to a suspensive condition that was
terminated for the Payatas Subdivision Inc. before its dissolution, by reason of the non-payment
of the balance of the price.
It is contended (Error V) that the balance of the price was not due and payable within the 9 to
10-month period mentioned in Exhibit "F". this Court had examined said letter, and finds nothing
to justify such a strained conclusion. Reasonably interpreted, the pertinent portion merely stated
that if the first payment is at least P1,500, then, the balance will bear interest at 10%. In other
words, the initial payment determines whether or not interest will be paid, not the period within
which the balance will fall due. The period here bears no relation to the amount to be initially
paid. At any rate, plaintiff-appellant was legally bound to pay the obligation due upon judicial or
extra-judicial demand (Art. 1100, Old Civil Code; Article 1169, N.C.C.); and it appears that
demands were made which plaintiff-appellant failed to heed.
Plaintiff-appellant next contends (Errors IX-XI) that when Exhibit "O" was sent by Clemente
Felix, upon instructions of defendant-appellee Eulogio Rodriguez, the latter was not yet the
owner of Lot 51 and the Payatas Subdivision Inc. had not yet been dissolved. As earlier
discussed, there is enough evidence that the company was dissolved in 1939. As to whether or
not Eulogio Rodriguez had already acquired Lot 51 when Exhibit "O" was sent to plaintiffappellant, it would really seem that said Eulogio Rodriguez, as of that time, was not yet the
owner of Lot 51, since Exhibit "O" is dated February 4, 1941 while Exhibit "U" (the deed of sale
from Januaria Rodriguez to Eulogio Rodriguez) is dated December 26, 1941. But this is not
material, since it would merely show that, for whomever Eulogio Rodriguez was acting, he still
wanted to give plaintiff-appellant a chance to own the land as a gesture of liberality. Anyway,
appellant failed to take advantage of the proposal, and the same remains without binding effect.
Having lost all rights to the land, plaintiff-appellant has no personality to question the sales
subsequently made to Eulogio Rodriguez, and later, to John Landhal. Hence, it becomes
academic to discuss the assignments of error pertaining thereto (Errors VII, XII, XIII, XIV, XV,
XVI), specially since there is no evidence that Landhal was prevented from relying on the clear
certificate of title in the name of Rodriguez.
From a different perspective, there is yet another reason why the purported sale to plaintiffappellant could not have transferred title to him, and could not have prevented the subsequent
sale of the property to another party. The land in question being covered by a Torrens title, only
the act of registration of the deed or instrument could effect transfer of ownership
(Worcester vs. Ocampo, 34 Phil. 646; Tuason vs. Raymundo, 28 Phil. 635; Buzon vs.Lichauco,
13 Phil. 354). In the instant case, there is not even a deed or instrument that could possibly be
registered.
Having reached the conclusion that title to the disputed property never passed to plaintiffappellant; that his failure to complete payment of the price and his laches in enforcing his rights
render it inequitable to compel performance of the contract at the present time, we find it
unnecessary to discuss the remaining errors assigned in appellant's brief.
Equity would, of course, demand that, in the absence of stipulation, the amounts paid by plaintiff
be returned, since the purpose for which he paid them was not attained; and it appears of record
that such reimbursement was made as early as 1945 (Exhibits 1 to 1-C).

128
In view of the foregoing, the judgment of the trial court is affirmed. Costs against plaintiff-appellant.
G.R. No. 140468. January 16, 2003]
OLYMPIA HOUSING, INC. vs. PANASIATIC TRAVEL CORPORATION
DECISION
VITUG, J.:
The petition for review on certiorari before the Court assails the decision, promulgated on 11
June 1999, and the resolution, promulgated on 14 October 1999, of the Court of Appeals in CAG.R. CV Case No. 53516.
The case originated from a complaint for Recovery of Possession (Accion Publiciana) filed
by Olympia Housing, Inc., against Panasiatic Travel Corporation, Maria Nelida Ycasiano and the
latters husband. The object in litigation is a condominium unit sold at the price of P2,340,000.00
payable on installments at the rate of P33,657.40 per month.
On the basis of the facts encapsulated by the trial court, it would appear that
On August 8, 1984, plaintiff and defendant Ma. Nelida Galvez-Ycasiano entered into a
Contract to Sell, whereby the former agreed to sell to the latter condominium unit no. D-12,
comprising an area of 160.50 square meters, more or less, situated on the ground floor of
Olympia Condominium located at Makati, Metro Manila, covered by Condominium Certificate of
Title No. 6711, for the agreed price of P2,340,000.00 payable in installments of P33,657.40 per
month.

Defendants made several payments in cash and thru credit memos issued by plaintiff
representing plane tickets bought by plaintiff from defendant Panasiatic Travel Corp., which is
owned by defendant Ma. Nelida Galvez-Ycasiano, who credited/offset the amount of the said
plane tickets to defendants account due to plaintiff.
Plaintiff alleged that far from complying with the terms and conditions of said Contract to Sell,
defendants failed to pay the corresponding monthly installments which as of June 2, 1988
amounted to P1,924,345.52. Demand to pay the same was sent to defendant Ma. Nelida
Galvez-Ycasiano, but the latter failed to settle her obligation.
For failure of defendant to pay her obligation plaintiff allegedly rescinded the contract by a
Notarial Act of Rescission.
At present, the subject condominium unit is being occupied by defendant Panasiatic Travel
Corp., hence the suit for Recovery of Possession (Accion Publiciana) with prayer for attorneys
fees, exemplary damages and reasonable rentals for the unit from July 28,1988 at the rate of
P32,100.00 per month until the condominium unit is finally vacated.
Defendant Ma. Nelida Galvez-Ycasiano, while admitting the existence of the contract to sell,
interposed the defense that she has made substantial payments of the purchase price of the
subject condominium unit amounting to P1,964,452.82 in accordance with the provisions of the
contract to sell; that she decided to stop payment of the purchase price in the meantime
because of substantial differences between her and the plaintiff in the computation of the
balance of the purchase price.

The schedule of payments [were] as follows:

Date

Particulars

xxx
Amount

July 17, 1984

Reservation/Deposit

P100,000.00

July 19, 1984

50% Down payment

P1,070,000.00

Balance of 50% payable in sixty (60) monthly installments at 24% per annum base on
diminishing balance.
Monthly amortization to commence on Sept. 17,
1984.........................................P33,657.40/month
Interest of 2% is included in regular monthly amortization, past due amortization shall bear
interest of 2% per month plus penalty charge of 2% per month.
Pursuant to the Contract to Sell, defendant Ma. Nelida Galvez-Ycasiano made a
reservation/deposit in the amount of P100,000.00 on July 17, 1984 and 50% down payment in the
amount of P1,070,000.00 on July 19, 1984.

xxx

xx
Evidence adduced by plaintiff such as the statement of account of defendant Ma. Nelida
Galvez-Ycasiano (Exh. C) has been established by plaintiffs witness, Mrs. Isabelita Rivera,
which indeed shows that on several occasions defendant either failed to pay on time or was
completely in default in the payment of the monthly installment of the subject condominium unit.
It can be deduced from said documentary evidence that defendant should start paying the
installment on September 17, 1984, but defendant paid on September 21, 1984 the amount of
P51,238.00 thru credit memo. Witness claimed that a credit memo is a document issued by
Olympia Housing Inc. to Panasiatic Travel Corp. for the amount of ticket purchased instead of
paying in cash they just issued credit memo in order that it would be offset on the monthly
amortization due to Olympia Housing Corp. She claimed that they based it on the invoice that
they [were] sending them.
Witness further claimed that since the amount due was only P33,657.40 what she did to the
excess of P51,238.00 was to apply it to the next installment. The next installment was due on
October 12, 1984 in the amount of P26,158.00 representing the excess. It was paid thru credit
memo no. 031 on October 17, 1984. In fact, there was still an excess of P10,081.20. The third
installment was due on November 17, 1984. Defendant made partial payment because the
excess payment of P10,081.20 was applied to the third installment. The 4th installment was due
on December 17, 1984; the defendant did not pay instead she paid On January 9, 1985 the
amount of P51,619.08 in cash per O.R. No. 295. Before this payment on January 9, 1985

129
defendant owed plaintiff P59,931.81 based on the amortization. The basis [was] the unpaid
amortization due and payable plus 2% interest and 2% penalty charges per month. After payment,
the amount due was P8,312.73. The 5th installment was due on January 17, 1985. No payment
was made on the 6th, 7th 8th installments which were due on January, February, March, April 17,
1985 respectively. The 9th installment was due on May 17, 1985, it was not paid. Defendant made
a payment on June 1985 for P33,231.90 in cash per O.R. No. 439. The next payment was made
on June 8, 1985 for P25,574.59. After these two payments, there was still an outstanding amount
due of P32,552.44. No payment was made on the 10th and 11th installments. The next payment
was made on July 24, 1985 for P60,000.00. After this payment the outstanding amount due was
P43,881.76. She made payment on August 16, 1985 for P30,067.00 thru credit memo no. 045.
After this payment the outstanding amount due was P15,160.46. She did not on the 12th
installment, instead she paid on August 28, 1985 for P26,043.00 thru credit memo no. 046. After
this payment the outstanding amount due was P23,511.07. She did not pay on the 13th installment,
instead she paid on October 10, 1985 for P20,830.00 thru credit memo no. 006. After this payment
the outstanding amount due was P38,728.61. She did not pay on the 14th installment, instead
payment was made on November 10, 1985 for P16,212.00 thru credit memo no. 010. After this
payment the outstanding amount due was P58,851.83. No payments were made on the 15th, 16th
and 17th installments. She paid on January 30, 1986 for P33,657.40 in cash per O.R. No. 842.
After this payment the outstanding balance was P138,233.23. No payment was made on the 18th
and 19th installment which fell due on February 17 and March 17, 1986. The next payment was
made on April 15, 1986 for P25,263.23. After this payment the outstanding balance was
P198,425.88. She did not pay for six (6) consecutive months from April 17 to September 17, 1986
corresponding to the 20th up to the 25th installment. The next payment was made on October 14,
1986 for P82,780.33 in cash per O.R. No. 1628. After this payment the outstanding amount due
was P350,712.73. The 26th and 27th installments were not paid. She paid on November 24, 1986
for P134,629.60. After this payment the outstanding balance was P306,306.66. Witness claimed
that the basis for the computation was the unpaid amortization due payable for the particular period
plus 2% interest and 2% penalty charge per month. In computing the interest she used the simple
method. The 28th up to the 31st installments were not paid. The next payment was made on April
30, 1987 for P22,213.00 thru credit memo no. 134. After this payment the outstanding balance was
P471,317.60. The basis for this computation is the unpaid amortization due plus 2% interest and
2% penalty charge per month. The 33rd, 34th and 35th installments were not paid. The next
payment was made on July 22, 1987 for P19,752.00 thru credit memo no. 146. After this payment
the outstanding balance was P664,822.78. The 36th and 37th installments were not paid. [1]
On 31 January 1995, the Regional Trial Court, Branch V, of Makati City ruled thuslyWHEREFORE, premises considered, judgment is hereby rendered as follows:
1. As the complaint has been prematurely filed without complying with the mandate of Republic
Act No. 6552, the complaint is hereby dismissed;
2. That the obligation of defendant Maria Nelida Galvez Ycasiano has now become due and
demandable, said defendant is hereby ordered to pay the sum of P4,007,473.49 as of November
30, 1994 plus 18% interest per annum, computed from 1 December 1994, but within sixty days
from receipt of a copy of this decision;
3. Upon payment thereof, for plaintiff to issue the corresponding certificate of title in favor of
defendant;

4. In the event that said amount in full is not paid including the current amount due including
the interest sans penalties, then immediately thereafter, without necessity of demand, the
defendants must vacate the premises and all payments will be charged as rentals to the
property.
No award of damages and attorneys fees for any parties is being adjudged.
No costs.[2]
Thereupon,
respondents
tendered
the
amount
of
P4,304,026.53
to
petitioner via Metrobank Cashiers Check No. CC008857. Petitioner refused to accept the
payment, constraining respondents to consign at the disposal of the court a quo the check on 26
April 1995. In an order, dated 05 June 1996, the check was allowed to be substituted by another
cashiers check payable to the Clerk of Court of the Makati Regional Trial Court. Complying with
yet another court order of 04 January 1996, respondents deposited the amount of
P4,304,026.53 with the Land Bank of the Philippines and subsequently submitted to the court
the corresponding bank book as well as the banks verification.
Meanwhile, both parties appealed the judgment of the trial court. In its now questioned
decision of 11 June 1999, the appellate court sustained the trial court.
The denial of the motion for reconsideration prompted petitioner to file the instant petition
for review on certiorari, raising the following assignment of errors, to wit:
I THE COURT OF APPEALS ACTED IN A MANNER NOT IN ACCORD WITH LAW AND
APPLICABLE JURISPRUDENCE OF THE SUPREME COURT WHEN IT FAILED AND/OR
REFUSED TO RULE UPON THE EFFECT OF THE FILING OF THE COMPLAINT AND THE
NOTARIAL ACT OF RESCISSION ATTACHED THERETO VIS--VIS THE REQUIREMENTS
OF R.A. 6552.
II THE COURT OF APPEALS ACTED IN A MANNER NOT IN ACCORD WITH LAW AND
APPLICABLE JURISPRUDENCE OF THE SUPREME COURT IN REFUSING TO DECREE
THE RESCISSION OF THE SUBJECT CONTRACT TO SELL ON THE GROUND THAT
PETITIONER FAILED TO PAY THE CASH SURRENDER VALUE PRIOR TO THE FILING OF
THE COMPLAINT.
III. THE COURT OF APPEALS ERRED IN AFFIRMING THE TRIAL COURTS DECISION
ALLOWING RESPONDENT YCASIANO TO PAY ON HER ALREADY-DEFAULTED
OBLIGATIONS AND, UPON SUCH PAYMENT, ORDERING PETITIONER TO ISSUE THE
CERTIFICATE OF TITLE TO HER.[3]
Respondents, upon the other hand, would insist that the petition should be held devoid of
merit considering that: first, the issues raised in the petition would strike at fundamentally factual
questions beyond the province of a petition for review on certiorari with this Court; second, there
was no valid rescission of the contract to sell on account of the failure of petitioner to give notice
of rescission by notarial act, a requisite laid down in Republic Act No. 6552; third, the oftinvoked Layug vs. IAC[4] case would scarcely find application, it being a case for annulment of
contract, not one for the recovery of possession; fourth, no effective rescission had taken place
on account of the failure of petitioner to pay the cash surrender value, conformably with the
terms of the law; and fifth, there being no valid rescission, the contract remained valid and
subsisting, still thereby obligating respondents to pay the outstanding balance of the purchase
price.

130
In its Reply Brief, petitioner asseverated that, while not categorically made, the Court,
in Layug,[5] had held to be sufficiently anchored, nevertheless, an action for judicial rescission even
if no notarial act of rescission was priorly executed and the non-payment of the cash surrender
value before the filing of the complaint. [6] Moreover, petitioner argued that while the complaint
before the trial court was denominated as one for recovery of possession, the suit could still be
considered as a case for judicial rescission considering that the issue of whether or not it was
entitled to recover possession over the property subject matter of the contract to sell would require,
for its resolution, passing upon the initial issue of whether or not the contract was in fact rescinded
by virtue of a notarial act.[7]
The petition must be denied.
The action for reconveyance filed by petitioner was predicated on an assumption that its
contract to sell executed in favor of respondent buyer had been validly cancelled or rescinded. The
records would show that, indeed, no such cancellation took place at any time prior to the institution
of the action for reconveyance. What had been sent by petitioner to respondent was a letter, dated
02 June 1988, that read:
02 June 1988

Add:

Interest on monthly
Amortizations

849,444.00
P3,189,444.00

Interest and penalties

on overdues (Refer
to Exh. A)

Less: Payments (Refer

To Exh. B)
TOTAL DUE AND DEMANDABLE

679,002.34
P3,868,446.34

1,944,100.82
P1,924,345.52
===========

Unless we receive payment in full within 30 days after service of this notice upon you, our
Contract to Sell shall be cancelled and/or rescinded.
Please give this matter its due attention.
Very truly yours,

MS. NELIDA GALVEZ

Pan Asiatic Travel Corp.
3rd Floor, S & L Building
Roxas Boulevard, Manila

(Sgd.) Illegible
(Type) FELIX H. LIMCAOCO, JR.
President[8]

Dear Ms. Galvez:

We have sent you many letters in the past asking you to update your payments in accordance with
the terms of our Contract to Sell dated August 25, 1984 as follows:
Purchase Price, Unit No. D-12
P2,340,000.00
Terms of Payment:
- July 17, 1984, Reservation/
Deposit
100,000.00
- July 19, 1984, 50%
Down payment
1,070,000.00
- balance payable in 60
monthly installments with
24% p.a. interest on
diminishing balance.
Monthly payments to commence
Sept. 12, 1984
33,657.04/month
Note:

Past due payments to bear interest of 2% per month plus penalty

charge of 2% per month.

You are in default and your overdue account now stands as follows:
Purchase Price

Add:

P2,340,000.00

As so aptly observed by the courts below, the foregoing communication to the buyer
merely demanded payment within thirty (30) days from receipt thereof with the threat that if the
demand were not heeded, the contract would forthwith be cancelled or rescinded. Nor did the
appellate court erroneously ignore the notarial rescission attached to the complaint for
reconveyance. Apparently, the so-called notarial rescission was not sent to
respondents prior to the institution of the case for reconveyance but merely served on
respondents by way of an attachment to the complaint. In any case, a notarial rescission,
standing alone, could not have invalidly effected, in this case, the cancellation of the contract.
As the trial court elaborated in this case:
A careful study of the evidence presented does not show a notice of cancellation or the demand
for rescission of the contract by a notarial act. The plaintiff appears to be claiming that the June
2, 1988 letter is a notice of cancellation or a demand for rescission of the contract by a notarial
act. This could not be what the law contemplates. It should be a notice of cancellation or
demand for rescission of the contract by notarial act.
Further, the law requires also full payment of the cash surrender value to the buyer but there is
no evidence adduced by the plaintiff that they delivered to the defendant the cash surrender
value. Admittedly, no such full payment of the cash surrender value to the defendant was made.
A mere promise to return is not what the law contemplates.[9]
The governing law is Republic Act No. 6552, otherwise known as the Realty Installment
Buyer Protection Act, which has become effective since 16 September 1972. Republic Act No.
6552 is a special law governing transactions that involve, subject to certain exceptions, the sale
on installment basis of real property.[10] The law has been enacted mainly to protect buyers of

131
real estate on installment payments against onerous and oppressive conditions. [11] Section 3 of the
statute provides:
Sec. 3. In all transactions or contracts involving the sale or financing of real estate on installment
payments, including residential condominium apartments but excluding industrial lots, commercial
buildings and sales to tenants under Republic Act Number Thirty-eight hundred forty-four as
amended by Republic Act Numbered Sixty three hundred eighty-nine, where the buyer has paid at
least two years of installments, the buyer is entitled to the following rights in case he defaults in the
payment of succeeding installments:
a)
To pay without additional interest, the unpaid installments due within the total grace period
earned by him, which is hereby fixed at the rate of one month grace period for every one year of
installment payments made: Provided, That this right shall be exercised by the buyer only once in
every five years of the life of the contract and its extensions, if any.
b)
If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of
the payments on the property equivalent to fifty per cent of the total payments made and, after five
years of installments, an additional five per cent every year but not to exceed ninety per cent of the
total payments made: Provided, That the actual cancellation of the contract shall take place after
thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of
the contract by a notarial act and upon full payment of the cash surrender value to the buyer.
Down payments, deposits or options on the contract shall be included in the computation of the
total number of installments made.
The enactment recognizes the right of the seller to cancel the contract but any such
cancellation must be done in conformity with the requirements therein prescribed. [12] In addition to
the notarial act of rescission, the seller is required to refund to the buyer the cash surrender value
of the payments on the property.[13] The actual cancellation of the contract can only be deemed to
take place upon the expiry of a 30-day period following the receipt by the buyer of the notice of
cancellation or demand for rescission by a notarial act and the full payment of the cash surrender
value.
The Court agrees with petitioner that it is not precluded from going to the court to demand
judicial rescission in lieu of a notarial act of rescission. This much must be recognized. Thus, in
Layug vs. Intermediate Appellate Court[14] the Court has ruled that a demand for rescission by
notarial act would appear to be merely circuitous, consequently superfluous, with the filing by the
seller of an action for annulment of contract and for recovery of damages. Unfortunately for
petitioner, it would be incorrect to apply Layug to the instant case. Layug is basically an action for
annulment of contract, a kindred concept of rescission, whereas the instant case before the Court
is one for recovery of possession on the thesis of a prior rescission of the contract covering the
property.[15] Not only is an action for reconveyance conceptually different from an action for
rescission but that, also, the effects that flow from an affirmative judgment in either case would be
materially dissimilar in various respects. The judicial resolution of a contract gives rise to mutual
restitution which is not necessarily the situation that can arise in an action for reconveyance.
Additionally, in an action for rescission (also often termed as resolution), unlike in an action for
reconveyance predicated on an extrajudicial rescission (rescission by notarial act), the Court,
instead of decreeing rescission, may authorize for a just cause the fixing of a period.[16]
Nor should a party in litigation be permitted to freely and substantially change the theory or
the cause of action of his case [17] that, otherwise, can put to undue disadvantage the other party by

not being accurately and timely apprised of what he is up against. The character of an action is
determined from the issues raised by the complaint, from the nature of the right or grievance
asserted, and from the relief sought in the complaint. [18] A change of theory can result in grave
alteration of the stand theretofore taken by the parties, and a court must not thereafter take it
upon itself to assume its own position on, or the factual and legal considerations of, the case.
WHEREFORE, all premises considered, the instant petition is DENIED and the appealed
decision is AFFIRMED. No costs. SO ORDERED.
December 8, 1923
VICENTE DIAZ vs. RUPERTO KAPUNAN
MALCOLM, J.:
This action for malpractice brought by Vicente Diaz against Attorney Ruperto Kapunan, has to
do with the conduct of Attorney Kapunan during the legal proceedings which followed the
business troubles of Vicente Diaz and Secundino de Mendezona, and particularly relates to the
conduct of Attorney Kapunan in civil case No. 2098 of the Court of First Instance of Leyte. The
ultimate question on which we would concentrate attention concerns the agreement between
Diaz and Kapunan at the time of the sale of the property of Mendoza, whereby Kapunan, on the
promise of Diaz to pay him P1,000, agreed to desist from further participation in the sale, all in
alleged violation of article 1459 of the Civil Code and article 542 of the Penal Code.
Omitting the irrelevant matter interjected into this case, the principal facts of record are the
following:
In 1917, Vicente Diaz and Secundino de Mendezona formed a partnership and entered into
extensive business transactions in the Province of Leyte. The capital of the partnership was
P380,000. Unfortunately, however, the business failed to prosper, with the result that on
liquidation, it was found to have suffered a loss of P67,000. When Diaz and Mendezona came to
settle up their affairs, they eventually formulated a document of sale and mortgage in which
Mendezona recognized a debt in favor of Diaz in the sum of P80,000 and an additional sum of
P10,000 owing to Diaz, laid upon the hacienda "Mapuyo," and to be paid within the term of one
year. When the year had expired Mendezona was not to be found and his family was unable to
meet the payment. There followed the usual proceedings for foreclosure and sale, which, after
considerable delay, resulted in the hacienda's being offered for sale at public auction.
At the time fixed for the sale, December 23, 1922, there appeared Vicente Diaz, accompanied
by his lawyer Emilio Benitez, and Attorney Ruperto Kapunan. Luis Velarde, the deputy sheriff of
Leyte, is authority for the statement that Kapunan told him that he, Kapunan, was ready to bid
on the property up to P16,000 in order to assist the Mendezona family which was in financial
straits. At any rate, the bidding was opened by Kapunan offering P12,000 for the property and
with Diaz and Kapunan raising the bids until finally Diaz offered P12,500. There the bids stopped
on account of Diaz and Kapunan entering into the agreement, of decisive importance, which we
next quote in full:
We, Vicente Diaz and Ruperto Kapunan, both being the bidders at the auction held for the
sale of the properties of Secundino Mendezona, do hereby agreed that Don Ruperto Kapunan
should withdraw his bid and refrain from bidding at the said auction as he does hereby
withdraw his bid, and in consideration thereof, the said Mr. Diaz offers him a premium of one
thousand pesos (P1,000) which, out of consideration to said Don Vicente Diaz, Mr. Kapunan

132
accepts and has, for this reason, refrained from bidding in competition with said Mr.
Diaz.lawphi1.net
Tacloban, Leyte, December 23, 1922.
(Sgd.) "V. DIAZ.

(Sgd.) RUPERTO KAPUNAN."

Following the termination of the sheriff's sale, Diaz on December 26, 1922, gave Kapunan P500 of
the P1,000 mentioned in the above quoted document. Diaz further followed the usual procedure to
take over the property of Mendezona pursuant to his bid of P12,500, which covered the amount of
the mortgage with its accumulated interest and with the judicial expenses.
Although it was on December 23, 1922, that Diaz and Kapunan entered into the agreement, Diaz
could only wait until January 4, 1923, following, to lay before this court charges against Attorney
Kapunan for alleged unprofessional conduct. Undoubtedly, before Kapunan had knowledge of the
disbarment proceedings, on January 10, 1923, he presented a motion in the Court of First Instance
of Leyte asking that he be permitted to retain the P500 in question, in part payment of his
professional fees. Later, on February 4, 1923, when Kapunan must have had knowledge of the
disbarment proceedings, he filed another motion, withdrawing his former motion and asking the
court to permit him to turn over the P500 to Diaz, which Judge Causing refused to do on the
ground that it was a personal matter. Nevertheless, on July 10, 1923, the clerk of the Court of First
Instance of Leyte handed the P500 to Diaz who, in turn, receipted for that amount. lawphil.net
From correspondence, it further is evident that the family of Mendezona was led to believe that the
P500 would shortly be sent them. Without doubt, the Mendezona family would have been gratified
to receive even the P500 pittance out of the business wreck in Leyte of the senior Mendezona.
During much of the time here mentioned, Kapunan was the attorney of Mendezona. Kapunan was
given extensive authority by the letter of Mendezona of April 12, 1919. When Kapunan took part in
the sale, it must be assumed that he was bidding in representation of his client and for the benefit
of the client.
It remains to be said that following the presentation of the charges against Attorney Kapunan in this
court, he was given an opportunity to answer, and the usual investigation of his professional
conduct was made by the provincial fiscal of Leyte acting under the supervision of the AttorneyGeneral. From the report of the fiscal, indorsed by the Attorney-General, three charges seem to
have been considered. The first two, relating to Kapunan's attempt to represent both the parties in
the case, and to molest and disturb Diaz by frivolous motions, the law officer of the Government
finds not substantiated; and with this conclusion we fully agree. The third charge is more serious
and has to do with Kapunan having intervened in the manner in which he did in the sale of the
property of his client Mendezona. The Attorney-General is of the opinion on this point that the facts
constitute a flagrant violation of the provisions of article 1459 of the Civil Code and article 542 of
the Penal Code. "In view thereof, it is recommended that corrective measures commensurate with
the irregularity committed by Attorney Kapunan, be taken against him."
Article 1459 of the Civil Code was held in force in the case of Hernandez vs. Villanueva ([1920], 40
Phil., 775). It provides that the following persons, naming them, "cannot take by purchase, even at
a public or judicial auction, either in person or through the mediation of another." The provision
contained in the last paragraph of said article is made to include lawyers, with respect to any

property or rights involved in any litigation in which they may take party by virtue of their
profession and office. We do not believe this article has been infringed by the respondent
because he has not purchased property at a public or judicial auction and because his
participation in the auction was in representation of his client. It has been held that an execution
sale to the attorney of the defendant is not unlawful if made in good faith, with the consent of the
client, and without any purpose of defrauding the latter's creditors. (2 R. C. L., 1011; 1 Thornton
on Attorneys at Law, pp. 298, 299; Smith vs. Smith [1848], 1 Iowa, 307.)
The more puzzling question relates to the alleged violation by Attorney Kapunan of article 542 of
the Penal Code. This article punishes "any person who shall solicit any gift or promise as a
consideration for agreeing to refrain from taking part in any public auction." The crime is
consummated by the mere act of soliciting a gift or promise for the purpose of abstaining from
taking part in the auction. Not permitting our minds to be confused by the varied explanations of
Diaz and Kapunan, the document formulated by them and hereinbefore quoted, demonstrates
that Kapunan, on the promise of Diaz to pay P1,000, refrained from further participation in the
sale of the property of Mendezona, which is exactly the situation covered by article 542 of the
Penal Code.
Public policy discountenances combinations or agreements on the part of bidders at execution
sales, the objects and effects of which are to stifle competition. The courts will consider an
agreement between a judgment creditor and one claiming an interest in the thing about to be
sold under an execution, that neither shall bid against the other, as void, unless all parties
concerned know of the arrangement and consent thereto. Execution sales should be open to
free and full competition, in order to secure the maximum benefit for the debtor. Article 542 of the
Penal Code is, therefore, a wise provision even though rarely invoked, and should be used to
discourage the stifling of bids at judicial sales. (23 C.J., 647; Packard vs. Bird and Chapman
[1870], 40 Cal., 378; 3 Viada, Codigo Penal, 594.)
We conclude that Attorney Kapunan has been guilty of a technical violation of article 542 of the
Penal Code. But we cannot adopt the vigorous recommendation of the Attorney-General, for we
consider present certain mitigating circumstances which exert an influence in favor of the
respondent. In the first place, as disclosed by the judicial records, no reported prosecution under
article 542 has been attempted, which is eloquent proof of the practical disuse of this article; and
the Spanish jurisprudence, while indicative of the meaning of the article, relies principally on the
decisions of the French Court of Cassation. (See Code of Napoleon, arts. 222, 223; decisions of
the French Court of Cassation of October 16, 1844, May 15, 1857, and January 8, 1863.) In the
next place, the complainant Diaz is equally guilty with the respondent Kapunan. And lastly,
Kapunan appears to have been acting in good faith for his client, although adopting an irregular
procedure, and although attempting to make tardy restitution of the money received by him.
Our judgment is that Attorney Ruperto Kapunan shall stand reprimanded and that the
complainant, Vicente Diaz, shall immediately return to the clerk of the Court of First Instance of
Leyte the P500 received by Diaz from the clerk and receipted for by Diaz, and the clerk of court
shall transmit the P500 to Secundino de Mendezona or, in case of his absence, to Miss Carmen
de Mendezona. Costs shall be taxed in accordance with the provisions of the Code of Civil
Procedure. So ordered.
G.R. No. L-3404
April 2, 1951
ANGELA I. TUASON vs. ANTONIO TUASON, JR.
MONTEMAYOR, J.:

133
In 1941 the sisters Angela I. Tuason and Nieves Tuason de Barreto and their brother Antonio
Tuason Jr., held a parcel of land with an area of 64,928.6 sq. m. covered by Certificate of Title No.
60911 in Sampaloc, Manila, in common, each owning an undivided 1/3 portion. Nieves wanted and
asked for a partition of the common property, but failing in this, she offered to sell her 1/3 portion.
The share of Nieves was offered for sale to her sister and her brother but both declined to buy it.
The offer was later made to their mother but the old lady also declined to buy, saying that if the
property later increased in value, she might be suspected of having taken advantage of her
daughter. Finally, the share of Nieves was sold to Gregorio Araneta Inc., a domestic corporation,
and a new Certificate of Title No. 61721 was issued in lieu of the old title No. 60911 covering the
same property. The three co-owners agreed to have the whole parcel subdivided into small lots
and then sold, the proceeds of the sale to be later divided among them. This agreement is
embodied in a document (Exh. 6) entitled "Memorandum of Agreement" consisting of ten pages,
dated June 30, 1941.
Before, during and after the execution of this contract (Exh. 6), Atty. J. Antonio Araneta was acting
as the attorney-in-fact and lawyer of the two co-owners, Angela I. Tuason and her brother Antonio
Tuason Jr. At the same time he was a member of the Board of Director of the third co-owner,
Araneta, Inc.
The pertinent terms of the contract (Exh. 6) may be briefly stated as follows: The three co-owners
agreed to improve the property by filling it and constructing roads and curbs on the same and then
subdivide it into small lots for sale. Araneta Inc. was to finance the whole development and
subdivision; it was prepare a schedule of prices and conditions of sale, subject to the subject to the
approval of the two other co-owners; it was invested with authority to sell the lots into which the
property was to be subdivided, and execute the corresponding contracts and deeds of sale; it was
also to pay the real estate taxes due on the property or of any portion thereof that remained unsold,
the expenses of surveying, improvements, etc., all advertising expenses, salaries of personnel,
commissions, office and legal expenses, including expenses in instituting all actions to eject all
tenants or occupants on the property; and it undertook the duty to furnish each of the two coowners, Angela and Antonio Tuason, copies of the subdivision plans and the monthly sales and
rents and collections made thereon. In return for all this undertaking and obligation assumed by
Araneta Inc., particularly the financial burden, it was to receive 50 per cent of the gross selling price
of the lots, and any rents that may be collected from the property, while in the process of sale, the
remaining 50 per cent to be divided in equal portions among the three co-owners so that each will
receive 16.33 per cent of the gross receipts.
Because of the importance of paragraphs 9, 11 and 15 of the contract (Exh. 6), for purposes of
reference we are reproducing them below:
(9) This contract shall remain in full force and effect during all the time that it may be necessary
for the PARTY OF THE SECOND PART to fully sell the said property in small and subdivided
lots and to fully collect the purchase prices due thereon; it being understood and agreed that
said lots may be rented while there are no purchasers thereof;
(11) The PARTY OF THE SECOND PART (meaning Araneta Inc.) is hereby given full power and
authority to sign for and in behalf of all the said co-owners of said property all contracts of sale
and deeds of sale of the lots into which this property might be subdivided; the powers herein
vested to the PARTY OF THE SECOND PART may, under its own responsibility and risk,
delegate any of its powers under this contract to any of its officers, employees or to third
persons;

(15) No co-owner of the property subject-matter of this contract shall sell, alienate or dispose
of his ownership, interest or participation therein without first giving preference to the other coowners to purchase and acquire the same under the same terms and conditions as those
offered by any other prospective purchaser. Should none of the co-owners of the property
subject-matter of this contract exercise the said preference to acquire or purchase the same,
then such sale to a third party shall be made subject to all the conditions, terms, and
dispositions of this contract; provided, the PARTIES OF THE FIRST PART (meaning Angela
and Antonio) shall be bound by this contract as long as the PARTY OF THE SECOND PART,
namely, the GREGORIO ARANETA, INC. is controlled by the members of the Araneta family,
who are stockholders of the said corporation at the time of the signing of this contract and/or
their lawful heirs;
On September 16, 1944, Angela I. Tuason revoked the powers conferred on her attorney-in-fact
and lawyer, J. Antonio Araneta. Then in a letter dated October 19, 1946, Angela notified Araneta,
Inc. that because of alleged breach of the terms of the "Memorandum of Agreement" (Exh. 6)
and abuse of powers granted to it in the document, she had decided to rescind said contract and
she asked that the property held in common be partitioned. Later, on November 20, 1946,
Angela filed a complaint in the Court of First Instance of Manila asking the court to order the
partition of the property in question and that she be given 1/3 of the same including rents
collected during the time that the same including rents collected during the time that Araneta
Inc., administered said property.
The suit was administered principally against Araneta, Inc. Plaintiff's brother, Antonio Tuason Jr.,
one of the co-owners evidently did not agree to the suit and its purpose, for he evidently did not
agree to the suit and its purpose, for he joined Araneta, Inc. as a co-defendant. After hearing and
after considering the extensive evidence introduce, oral and documentary, the trial court
presided over by Judge Emilio Pea in a long and considered decision dismissed the complaint
without pronouncement as to costs. The plaintiff appealed from that decision, and because the
property is valued at more than P50,000, the appeal came directly to this Court.
Some of the reasons advanced by appellant to have the memorandum contract (Exh. 6)
declared null and void or rescinded are that she had been tricked into signing it; that she was
given to understand by Antonio Araneta acting as her attorney-in-fact and legal adviser that said
contract would be similar to another contract of subdivision of a parcel into lots and the sale
thereof entered into by Gregorio Araneta Inc., and the heirs of D. Tuason, Exhibit "L", but it
turned out that the two contracts widely differed from each other, the terms of contract Exh. "L"
being relatively much more favorable to the owners therein the less favorable to Araneta Inc.;
that Atty. Antonio Araneta was more or less disqualified to act as her legal adviser as he did
because he was one of the officials of Araneta Inc., and finally, that the defendant company has
violated the terms of the contract (Exh. 6) by not previously showing her the plans of the
subdivision, the schedule of prices and conditions of the sale, in not introducing the necessary
improvements into the land and in not delivering to her her share of the proceeds of the rents
and sales.
We have examined Exh. "L" and compared the same with the contract (Exh. 6) and we agree
with the trial court that in the main the terms of both contracts are similar and practically the
same. Moreover, as correctly found by the trial court, the copies of both contracts were shown to
the plaintiff Angela and her husband, a broker, and both had every opportunity to go over and
compare them and decide on the advisability of or disadvantage in entering into the contract
(Exh. 6); that although Atty. Antonio Araneta was an official of the Araneta Inc.; being a member
of the Board of Directors of the Company at the time that Exhibit "6" was executed, he was not

134
the party with which Angela contracted, and that he committed no breach of trust. According to the
evidence Araneta, the pertinent papers, and sent to her checks covering her receive the same; and
that as a matter of fact, at the time of the trial, Araneta Inc., had spent about P117,000 in
improvement and had received as proceeds on the sale of the lots the respectable sum of
P1,265,538.48. We quote with approval that portion of the decision appealed from on these points:
The evidence in this case points to the fact that the actuations of J. Antonio Araneta in
connection with the execution of exhibit 6 by the parties, are above board. He committed nothing
that is violative of the fiduciary relationship existing between him and the plaintiff. The act of J.
Antonio Araneta in giving the plaintiff a copy of exhibit 6 before the same was executed,
constitutes a full disclosure of the facts, for said copy contains all that appears now in exhibit 6.
Plaintiff charges the defendant Gregorio Araneta, Inc. with infringing the terms of the contract in
that the defendant corporation has failed (1) to make the necessary improvements on the
property as required by paragraphs 1 and 3 of the contract; (2) to submit to the plaintiff from time
to time schedule of prices and conditions under which the subdivided lots are to be sold; and to
furnish the plaintiff a copy of the subdivision plans, a copy of the monthly gross collections from
the sale of the property.
The Court finds from the evidence that he defendant Gregorio Araneta, Incorporated has
substantially complied with obligation imposed by the contract exhibit 6 in its paragraph 1, and
that for improvements alone, it has disbursed the amount of P117,167.09. It has likewise paid
taxes, commissions and other expenses incidental to its obligations as denied in the agreement.
With respect to the charged that Gregorio Araneta, Incorporated has failed to submit to plaintiff a
copy of the subdivision plains, list of prices and the conditions governing the sale of subdivided
lots, and monthly statement of collections form the sale of the lots, the Court is of the opinion
that it has no basis. The evidence shows that the defendant corporation submitted to the plaintiff
periodically all the data relative to prices and conditions of the sale of the subdivided lots,
together with the amount corresponding to her. But without any justifiable reason, she refused to
accept them. With the indifferent attitude adopted by the plaintiff, it was thought useless for
Gregorio Araneta, Incorporated to continue sending her statement of accounts, checks and other
things. She had shown on various occasions that she did not want to have any further dealings
with the said corporation. So, if the defendant corporation proceeded with the sale of the
subdivided lots without the approval of the plaintiff, it was because it was under the correct
impression that under the contract exhibit 6 the decision of the majority co-owners is binding
upon all the three.
The Court feels that recission of the contract exhibit 6 is not minor violations of the terms of the
agreement, the general rule is that "recission will not be permitted for a slight or casual breach of
the contract, but only for such breaches as are so substantial and fundamental as to defeat the
object of the parties in making the agreement" (Song Fo & Co. vs. Hawaiian-Philippine Co., 47
Phil. 821).
As regards improvements, the evidence shows that during the Japanese occupation from 1942 and
up to 1946, the Araneta Inc. although willing to fill the land, was unable to obtain the equipment and
gasoline necessary for filling the low places within the parcel. As to sales, the evidence shows that
Araneta Inc. purposely stopped selling the lots during the Japanese occupantion, knowing that the
purchase price would be paid in Japanese military notes; and Atty. Araneta claims that for this,

plaintiff should be thankfull because otherwise she would have received these notes as her
share of the receipts, which currency later became valueles.
But the main contention of the appellant is that the contract (Exh. 6) should be declared null and
void because its terms, particularly paragraphs 9, 11 and 15 which we have reproduced, violate
the provisions of Art. 400 of the Civil Code, which for the purposes of reference we quote below:
ART. 400. No co-owner shall be obliged to remain a party to the community. Each may, at any
time, demand the partition of the thing held in common.
Nevertheless, an agreement to keep the thing undivided for a specified length of time, not
exceeding ten years, shall be valid. This period may be a new agreement.
We agree with the trial court that the provisions of Art. 400 of the Civil Code are not applicable.
The contract (Exh., 6) far from violating the legal provision that forbids a co-owner being obliged
to remain a party to the community, precisely has for its purpose and object the dissolution of the
co-ownership and of the community by selling the parcel held in common and dividing the
proceeds of the sale among the co-owners. The obligation imposed in the contract to preserve
the co-ownership until all the lots shall have been sold, is a mere incident to the main object of
dissolving the co-owners. By virtue of the document Exh. 6, the parties thereto practically and
substantially entered into a contract of partnership as the best and most expedient means of
eventually dissolving the co-ownership, the life of said partnership to end when the object of its
creation shall have been attained.
This aspect of the contract is very similar to and was perhaps based on the other agreement or
contract (Exh. "L") referred to by appellant where the parties thereto in express terms entered
into partnership, although this object is not expressed in so many words in Exh. 6. We repeat
that we see no violation of Art. 400 of the Civil Code in the parties entering into the contract
(Exh. 6) for the very reason that Art. 400 is not applicable.
Looking at the case from a practical standpoint as did the trial court, we find no valid ground for
the partition insisted upon the appellant. We find from the evidence as was done by the trial
court that of the 64,928.6 sq. m. which is the total area of the parcel held in common, only 1,600
sq. m. or 2.5 per cent of the entire area remained unsold at the time of the trial in the year 1947,
while the great bulk of 97.5 per cent had already been sold. As well observed by the court below,
the partnership is in the process of being dissolved and is about to be dissolved, and even
assuming that Art. 400 of the Civil Code were applicable, under which the parties by agreement
may agree to keep the thing undivided for a period not exceeding 10 years, there should be no
fear that the remaining 1,600 sq. m. could not be disposed of within the four years left of the tenyears period fixed by Art. 400.
We deem it unnecessary to discuss and pass upon the other points raised in the appeal and
which counsel for appellant has extensively and ably discussed, citing numerous authorities. As
we have already said, we have viewed the case from a practical standpoint, brushing aside
technicalities and disregarding any minor violations of the contract, and in deciding the case as
we do, we are fully convinced that the trial court and this Tribunal are carrying out in a practical
and expeditious way the intentions and the agreement of the parties contained in the contract
(Exh. 6), namely, to dissolve the community and co-ownership, in a manner most profitable to
the said parties.

135
In view of the foregoing, the decision appealed from is hereby affirmed. There is no
pronouncement as to costs. So ordered.
G.R. No. 156846
February 23, 2004
TEDDY G. PABUGAIS vs. DAVE P. SAHIJWANI
DECISION
YNARES-SANTIAGO, J.:
Assailed in this petition for review on certiorari is the January 16, 2003 Amended Decision 1 of the
Court of Appeals2 in CA-G.R. CV No. 55740 which set aside the November 29, 1996 Decision 3 of
the Regional Trial Court of Makati, Branch 64, in Civil Case No. 94-2363.
Pursuant to an "Agreement And Undertaking" 4 dated December 3, 1993, petitioner Teddy G.
Pabugais, in consideration of the amount of Fifteen Million Four Hundred Eighty Seven Thousand
Five Hundred Pesos (P15,487,500.00), agreed to sell to respondent Dave P. Sahijwani a lot
containing 1,239 square meters located at Jacaranda Street, North Forbes Park, Makati, Metro
Manila. Respondent paid petitioner the amount of P600,000.00 as option/reservation fee and the
balance of P14,887,500.00 to be paid within 60 days from the execution of the contract,
simultaneous with delivery of the owners duplicate Transfer Certificate of Title in respondents
name the Deed of Absolute Sale; the Certificate of Non-Tax Delinquency on real estate taxes and
Clearance on Payment of Association Dues. The parties further agreed that failure on the part of
respondent to pay the balance of the purchase price entitles petitioner to forfeit the P600,000.00
option/reservation fee; while non-delivery by the latter of the necessary documents obliges him to
return to respondent the said option/reservation fee with interest at 18% per annum, thus

tendered was insufficient,12 because petitioner verbally promised to pay 3% monthly interest and
25% attorneys fees as penalty for default, in addition to the interest of 18% per annum on the
P600,000.00 option/reservation fee.13
On November 29, 1996, the trial court rendered a decision declaring the consignation invalid for
failure to prove that petitioner tendered payment to respondent and that the latter refused to
receive the same. It further held that even assuming that respondent refused the tender, the
same is justified because the managers check allegedly offered by petitioner was not legal
tender, hence, there was no valid tender of payment. The trial court ordered petitioner to pay
respondent the amount of P600,000.00 with interest of 18% per annum from December 3, 1993
until fully paid, plus moral damages and attorneys fees.14
Petitioner appealed the decision to the Court of Appeals. Meanwhile, his counsel, Atty.
Wilhelmina V. Joven, died and she was substituted by Atty. Salvador P. De Guzman, Jr. 15 On
December 20, 2001, petitioner executed a "Deed of Assignment" 16 assigning in favor of Atty. De
Guzman, Jr., part of the P672,900.00 consigned with the trial court as partial payment of the
latters attorneys fees.17 Thereafter, on January 7, 2002, petitioner filed an Ex Parte Motion to
Withdraw Consigned Money.18 This was followed by a "Motion to Intervene" filed by Atty. De
Guzman, Jr., praying that the amount consigned be released to him by virtue of the Deed of
Assignment.19
Petitioners motion to withdraw the amount consigned was denied by the Court of Appeals and
the decision of the trial court was affirmed with modification as to the amount of moral damages
and attorneys fees.20

5. DEFAULT In case the FIRST PARTY [herein respondent] fails to pay the balance of the
purchase price within the stipulated due date, the sum of P600,000.00 shall be deemed forfeited,
on the other hand, should the SECOND PARTY [herein petitioner] fail to deliver within the
stipulated period the documents hereby undertaken, the SECOND PARTY shall return the sum of
P600,000.00 with interest at 18% per annum.5

On a motion for reconsideration, the Court of Appeals declared the consignation as valid in an
Amended Decision dated January 16, 2003. It held that the validity of the consignation had the
effect of extinguishing petitioners obligation to return the option/reservation fee to respondent.
Hence, petitioner can no longer withdraw the same. The decretal portion of the Amended
Decision states:

Petitioner failed to deliver the required documents. In compliance with their agreement, he returned
to respondent the latters P600,000.00 option/reservation fee by way of Far East Bank & Trust
Company Check No. 25AO54252P, which was, however, dishonored.

WHEREFORE, premises considered, our decision dated April 26, 2002 is RECONSIDERED.
The trial courts decision is hereby REVERSED and SET ASIDE, and a new one is entered (1)
DECLARING as valid the consignation by the plaintiff-appellant in favor of defendant-appellee of
the amount of P672,900.00 with the Makati City RTC Clerk of Court and deposited under Official
Receipt No. 379061 dated 15 August 1994 and (2) DECLARING as extinguished appellants
obligation in favor of appellee under paragraph 5 of the parties "AGREEMENT AND
UNDERTAKING". Neither party shall recover costs from the other. SO ORDERED.21

What transpired thereafter is disputed by both parties. Petitioner claimed that he twice tendered to
respondent, through his counsel, the amount of P672,900.00 (representing the P600,000.00
option/reservation fee plus 18% interest per annum computed from December 3, 1993 to August 3,
1994) in the form of Far East Bank & Trust Company Managers Check No. 088498, dated August
3, 1994, but said counsel refused to accept the same. His first attempt to tender payment was
allegedly made on August 3, 1994 through his messenger;6 while the second one was on August 8,
1994,7 when he sent via DHL Worldwide Services, the managers check attached to a letter dated
August 5, 1994.8 On August 11, 1994, petitioner wrote a letter to respondent saying that he is
consigning the amount tendered with the Regional Trial Court of Makati City. 9 On August 15, 1994,
petitioner filed a complaint for consignation.10
Respondents counsel, on the other hand, admitted that his office received petitioners letter dated
August 5, 1994, but claimed that no check was appended thereto. 11 He averred that there was no
valid tender of payment because no check was tendered and the computation of the amount to be

Unfazed, petitioner filed the instant petition for review contending, inter alia, that he can
withdraw the amount deposited with the trial court as a matter of right because at the time he
moved for the withdrawal thereof, the Court of Appeals has yet to rule on the consignations
validity and the respondent had not yet accepted the same.
The resolution of the case at bar hinges on the following issues: (1) Was there a valid
consignation? and (2) Can petitioner withdraw the amount consigned as a matter of right?
Consignation is the act of depositing the thing due with the court or judicial authorities whenever
the creditor cannot accept or refuses to accept payment and it generally requires a prior tender

136
of payment.22 In order that consignation may be effective, the debtor must show that: (1) there was
a debt due; (2) the consignation of the obligation had been made because the creditor to whom
tender of payment was made refused to accept it, or because he was absent or incapacitated, or
because several persons claimed to be entitled to receive the amount due or because the title to
the obligation has been lost; (3) previous notice of the consignation had been given to the person
interested in the performance of the obligation; (4) the amount due was placed at the disposal of
the court; and (5) after the consignation had been made the person interested was notified thereof.
Failure in any of these requirements is enough ground to render a consignation ineffective.23
The issues to be resolved in the instant case concerns one of the important requisites of
consignation, i.e, the existence of a valid tender of payment. As testified by the counsel for
respondent, the reasons why his client did not accept petitioners tender of payment were (1) the
check mentioned in the August 5, 1994 letter of petitioner manifesting that he is settling the
obligation was not attached to the said letter; and (2) the amount tendered was insufficient to cover
the obligation. It is obvious that the reason for respondents non-acceptance of the tender of
payment was the alleged insufficiency thereof and not because the said check was not tendered
to respondent, or because it was in the form of managers check. While it is true that in general, a
managers check is not legal tender, the creditor has the option of refusing or accepting
it.24 Payment in check by the debtor may be acceptable as valid, if no prompt objection to said
payment is made.25 Consequently, petitioners tender of payment in the form of managers check is
valid.
Anent the sufficiency of the amount tendered, it appears that only the interest of 18% per annum
on the P600,000.00 option/reservation fee stated in the default clause of the "Agreement And
Undertaking" was agreed upon by the parties, thus
5. DEFAULT In case the FIRST PARTY [herein respondent] fails to pay the balance of the
purchase price within the stipulated due date, the sum of P600,000.00 shall be deemed forfeited,
on the other hand, should the SECOND PARTY [herein petitioner] fail to deliver within the
stipulated period the documents hereby undertaken, the SECOND PARTY shall return the sum of
P600,000.00 with interest at 18% per annum.26
The managers check in the amount of P672,900.00 (representing the P600,000.00
option/reservation fee plus 18% interest per annum computed from December 3, 1993 to August 3,
1994) which was tendered but refused by respondent, and thereafter consigned with the court, was
enough to satisfy the obligation.
There being a valid tender of payment in an amount sufficient to extinguish the obligation, the
consignation is valid.
As regards petitioners right to withdraw the amount consigned, reliance on Article 1260 of the Civil
Code is misplaced. The said Article provides
Art. 1260. Once the consignation has been duly made, the debtor may ask the judge to order the
cancellation of the obligation.
Before the creditor has accepted the consignation, or before a judicial confirmation that the
consignation has been properly made, the debtor may withdraw the thing or the sum deposited,
allowing the obligation to remain in force.

The amount consigned with the trial court can no longer be withdrawn by petitioner because
respondents prayer in his answer that the amount consigned be awarded to him is equivalent to
an acceptance of the consignation, which has the effect of extinguishing petitioners obligation.
Moreover, petitioner failed to manifest his intention to comply with the "Agreement And
Undertaking" by delivering the necessary documents and the lot subject of the sale to
respondent in exchange for the amount deposited. Withdrawal of the money consigned would
enrich petitioner and unjustly prejudice respondent.
The withdrawal of the amount deposited in order to pay attorneys fees to petitioners counsel,
Atty. De Guzman, Jr., violates Article 1491 of the Civil Code which forbids lawyers from acquiring
by assignment, property and rights which are the object of any litigation in which they may take
part by virtue of their profession.27 Furthermore, Rule 10 of the Canons of Professional Ethics
provides that "the lawyer should not purchase any interest in the subject matter of the litigation
which he is conducting." The assailed transaction falls within the prohibition because the Deed
assigning the amount of P672,900.00 to Atty. De Guzman, Jr., as part of his attorneys fees was
executed during the pendency of this case with the Court of Appeals. In his Motion to Intervene,
Atty. De Guzman, Jr., not only asserted ownership over said amount, but likewise prayed that
the same be released to him. That petitioner knowingly and voluntarily assigned the subject
amount to his counsel did not remove their agreement within the ambit of the prohibitory
provisions.28 To grant the withdrawal would be to sanction a void contract.29
WHEREFORE, in view of all the foregoing, the instant petition for review is DENIED. The
January 16, 2003 Amended Decision of the Court of Appeals in CA-G.R. CV No. 55740, which
declared the consignation by the petitioner in favor of respondent of the amount of P672,900.00
with the Clerk of Court of the Regional Trial Court of Makati City valid, and which declared
petitioners obligation to respondent under paragraph 5 of the "Agreement And Undertaking" as
having been extinguished, is AFFIRMED. No costs. SO ORDERED.
G.R. No. L-31189 March 31, 1987
MUNICIPALITY OF VICTORIAS vs. COURT OF APPEALS
PARAS, J.:
This is a Petition for Review on certiorari of the decision * of respondent Court of Appeals
promulgated on September 29, 1969 in CA-G.R. No. 35036-R (Rollo, p. 11) setting aside the
decision ** of the Court of First Intance of Negros Occidental, Branch I, dated September 24,
1964 which dismissed the complaint for recovery of possession in Civil Case No. 181-S and
declared the cemetery site on Lot No. 76 in Victorias as property of the municipality of Victorias
(Record on Appeal, p. 9).
The dispositive portion of the questioned decision reads as follows:
IN VIEW OF THE FOREGOING, the judgment of the lower court is hereby set aside and
another is hereby rendered:
(1) Ordering the defendant municipality and/or thru its appropriate officials to return and
deliver the possession of the portion of Lot 76 used as cemetery or burial site of the plaintiffappellant.

137
(2) Ordering defendant municipality to pay the plaintiff-appellant the sum of P400.00 a year from
1963 until the possession of said land is actually delivered.
Lot No. 76 containing an area of 208,157 sq. meters forms a part of Cadastral Lot No. 140 (Rollo,
p. 11), a 27.2460 ha. sugar land located in Bo. Madaniog, Victorias, Negros Occidental, in the
name of the deceased Gonzalo Ditching under Tax Declaration No. 3429 of Negros Occidental for
the year 1941 (Exh. "3," Folder of Exhibits, p. 22). He was survived by his widow Simeona Jingeo
Vda. de Ditching and a daughter, Isabel, who died in 1928 (TSN, July 1, 1964, p. 7) leaving one offspring, respondent Norma Leuenberger, who was then only six months old (TSN, July 1, 1964, p.
34).
Respondent Norma Leuenberger, married to Francisco Soliva, inherited the whole of Lot No. 140
from her grandmother, Simeona J. Vda. de Ditching (not from her predeceased mother Isabel
Ditching). In 1952, she donated a portion of Lot No. 140, about 3 ha., to the municipality for the
ground of a certain high school and had 4 ha. converted into a subdivision. (TSN, July 1, 1964, p.
24).
In 1963, she had the remaining 21 ha. or 208.157 sq. m. relocated by a surveyor upon request of
lessee Ramon Jover who complained of being prohibited by municipal officials from cultivating the
land. It was then that she discovered that the parcel of land, more or less 4 ha. or 33,747 sq.m.
used by Petitioner Municipality of Victorias, as a cemetery from 1934, is within her property which
is now Identified as Lot 76 and covered by TCT No. 34546 (TSN, July 1, 1964, pp. 7-9; Exh. "4,"
Folder of Exhibits, p. 23 and Exh. "A," Folder of Exhibits, p. 1).
On May 20, 1963, Respondent wrote the Mayor of Victorias regarding her discovery, demanding
payment of past rentals and requesting delivery of the area allegedly illegally occupied by
Petitioner (Exh. "G, Folder of Exhibits, p. 15). When the Mayor replied that Petitioner bought the
land she asked to be shown the papers concerning the sale but was referred by the Mayor to the
municipal treasurer who refused to show the same (TSN, July 1, 1964, pp. 32-33).
On January 11, 1964, Respondents filed a complaint in the Court of First Instance of Negros
Occidental, Branch 1, for recovery of possession of the parcel of land occupied by the municipal
cemetery (Record on Appeal, p. 1). In its answer, petitioner Municipality, by way of special defense,
alleged ownership of the lot, subject of the complaint, having bought it from Simeona Jingco Vda.
de Ditching sometime in 1934 (Record on Appeal, p. 7). The lower court decided in favor of the
Municipality. On appeal Respondent appellate Court set aside the decision of the lower court
(Record on AppeaL p. 9); hence, this petition for review on certiorari.
This petition was filed with the Court on November 6, 1969 (Rollo, p. 2), the Record on Appeal on
December 19, 1969 (Rollo, p. 80). On January 5, 1970, the Court gave due course to the petition
(Rollo, p. 84).
The Brief for the Petitioner was filed on April 1, 1970 (Rollo, p. 88), the Brief for Respondents was
filed on May 18, 1970 (Rollo, p. 92).
On July 8, 1970, the Court resolved to consider the case submitted for decision without Petitioner's
Reply Brief, Petitioner having failed to file the brief within the period which expired on June 10,
1970 (Rollo. p. 99).

On motion of counsel for the Respondents (Rollo, p. 104), the Court resolved on June 30, 1972
to allow respondent Francisco Soliva to continue the appeal in behalf of the estate of respondent
Norma Leuenberger who died on January 25, 1972, Respondent Francisco Soliva having been
appointed special administrator in Special Proceedings No. 84-V of the Court of First Instance of
Negros Occidental (Rollo, p. 110).
In their brief, petitioner raised the following errors of respondent Court of Appeals: (Brief for the
Petitioner, p. 1-3);
I. The Honorable Court of Appeals erred in holding that respondents Norma Leuenberger and
Francisco Soliva are the lawful owners of the land in litigation as they are estopped from
questioning the possession and ownership of herein petitioner which dates back to more than
30 years.
II. The Honorable Court of Appeals also erred in ordering the petition petitioner to deliver the
possession of the land in question to the respondents Nomia Leuenberger and Francisco
Soliva, by holding that non-annotation on the Torrens Certificate of Title could not affect the
said land when the possession by the petitioner of the said land for over 30 years and using it
as a public cemetery for that length of time are sufficient proof of purchase and transfer of title
and non-annotation of the Certificate of Title did not render the sale ineffectual
III. The Honorable Court of Appeals further erred in ordering the petitioner Municipality of
Victories to pay the respondents the sum of P400.00 a year from 1963 until possession is
actually delivered because under the law, an owner of a piece of land has no obligation to pay
rentals as it owns and possesses the same.
There is merit in the petition.
It is undisputed that petitioner failed to present before the Court a Deed of Sale to prove its
purchase of the land in question which is included in the Transfer Certificate of Title No. T-34546
in the name of private respondent Norma Leuenberger.
The pivotal issue in this case is whether or not the secondary evidence presented by the
petitioner municipality is sufficient to substantiate its claim that it acquired the disputed land by
means of a Deed of Sale.
Under the Best Evidence Rule when the original writing is lost or otherwise unavailable, the law
in point provides:
Sec. 4. Secondary evidence when original is lost or destroyed. When the original writing
has been lost or destroyed, or cannot be produced in court, upon proof of its execution and
loss or destruction or unavailability, its contents may be proved by a copy, or by a recital of its
contents in some authentic document, or by the recollection of witnesses. (Rule 130, Rules of
Court).
In lieu of a Deed of Sale, petitioner presented a certificate issued by the Archives Division of the
Bureau of Records Management in Manila, of a page of the 1934 Notarial Register of Vicente D.
Aragon with the following entries:

138
Nature of Instrument Compra venta 2 porciones Terrenos: Lotes Nos. 140-A y 140-B, Victorias,
Neg. Occidental pago por esso despues aprobacion Jusgado la Instance, Neg. Occidental causa
civil 5116 Vendedora: Simeona Jingco Vda. de Ditching . . . administradora Abint. G. Ditching

Declaration No. 429 (Ibid., p. 22) which was cancelled and was substituted by Tax Declaration
No. 3600 covering the portion of the property unsold (Decision, CFI, Neg. Occidental Orig.
Record on Appeal, p. 6) and (e) Tax Declaration No. 3601 (Ibid, p. 23) in the name of the
Municipal Government of Victorias covering the portion occupied as cemetery.

Comprador: Municipio Victorias, Neg. Occidental . . . . por su Pres.Mpal Vicente B. Arnaes

Tax Declaration No. 3601 shows on its face the boundaries as follows:
Valor: P750.00 ...
Vease copia correspondiente.
Names of-persons Executing/ Acknowledging:
Simeona Vda. de Ditching
Adm. Abint actuacion especial No. 5116
Jusgado la Instance Neg. Occidental
Vendedora
Vicente B. Arnaes
Pres. Municipal. Victorias
Comprador
Witnesses to the Signatures:
Esteban Jalandoni
Gregorio Elizalde
Date: Month 9 Julio 1934
Fees: P2.00
Cedulas:
Exenta por susexo
F1027880 Enero 26/34 Victories, Neg. Occidental
Remarks.
En Victorias, Neg. Occidental
Los annexes A. y B. estan unidos solamente en el original de la escritura.
Respondent Court of Appeals was of the view (Rollo, p. 16) that a mere entry in the notarial
register of a notary public of an alleged sale cannot prove that a particular piece of land was sold
by one person to another, one of the important requirements being the indication of the area and
the technical description of the land being sold. In the present case, since no deed of sale could be
produced, there is no way of telling what particular portion of the property was sold to defendant
municipality and how big was the sale of the land conveyed to the defendant municipality.
It will be observed that the entries in the notarial register clearly show: (a) the nature of the
instrument. a deed of sale; (b) the subject of the sale two parcels of land, Lot Nos. 140-A and
140-B; (c) the parties of the contract the vendor Simeona J. Vda. de Ditching in her capacity as
Administrator in Civil Case No. 5116 of the Court of First Instance of Negros Occidental and the
vendee, Vicente B. Ananosa, Municipal Mayor of Victorias; (d) the consideration P750.00; (e) the
names of the witnesses Esteban Jalandoni and Gregoria Elizado; and the date of the sale on July
9, 1934.
It is beyond question that the foregoing certificate is an authentic document clearly corroborated
and supported by: (a) the testimony of the municipal councilor of Victorias, Ricardo Suarez,
(Original TSN Hearing of September 14, 1964, pp. 1222) who negotiated the sale; (b) the
testimony of Emilio Cuesta, (Original TSN Hearing of September 14, 1964, pp. 2238) the municipal
treasurer of said municipality, since 1932 up to the date of trial on September 14, 1964, who
personally paid the amount of P750.00 to Felipe Leuenberger as consideration of the Contract of
Sale; (c) Certificate of Settlement (Original Exhibits, p. 20) "as evidence of said payment;" (d) Tax

North NE Lot No. 140-C of the Subdivision

South SW Lot No. 140-C of the Subdivision
West NW Lots Nos. 140-C & 140-B of the Subdivision.
The area is 33,747 sq.m.
At the back Exh. 4-A, the sale of a portion of the lot to the Municipality of Victorias was clearly
explained as follows:
Note: The whole Lot No. 140, belongs to Norma Leuenberger as evidenced by a Transfer of
Cert. of Title No. 18672. Portion of this Lot, (30,000 sq.m. was sold to Municipality of Victories
for Cemetery Site as evidenced by a Deed of Sale executed by Simeona Jingco Vda. de
Ditching in favor of the aforesaid Municipality and ratified by Notary Public Mr. Vicente Aragon
under Doc. No. 132; Page No. 2; Book No. 10, Series of 1934.
At the lowest portion under Memoranda it was explained that
The area under this declaration includes 3,746 sq. meters donated by Mrs. Simeona Jingco
Vda. de Ditching and used as road leading to the cemetery. " (EXIL 4; Original Exhibits, p. 23).
The above-mentioned testimonies and documentary evidence sufficiently Identify the land sold
by the predecessors-in-interest of private respondent. To insist on the technical description of the
land in dispute would be to sacrifice substance to form which would undoubtedly result in
manifest injustice to the petitioner.
Moreover, it is expressly provided by law that the thing sold shall be understood as delivered,
when it is placed in the control and possession of the vendee. (Civil Code Art. 1497). Where
there is no express provision that title shall not pass until payment of the price, and the thing
gold has been delivered, title passes from the moment the thing sold is placed in the possession
and control of the buyer. (Kuenzle & Streiff vs. Watson & Co., 13 PhiL 26 [1909]). Delivery
produces its natural effects in law, the principal and most important of which being the
conveyance of ownership, without prejudice to the right of the vendor to payment of the price.
(Ocejo, Perez & Co. vs. International Banking Corp., 37 PhiL 631 [1918]).
Similarly, when the sale is made through a public instrument, the execution thereof shall be
equivalent to the delivery of the thing which is the object of the contract, if from the deed, the
contrary does not appear or cannot be clearly inferred. (Civil Code Art. 1498). The execution of
the public instrument operates as a formal or symbolic delivery of the property sold and
authorizes the buyer to use the document as proof of ownership. (Florendo v. Foz, 20 PhiL 388
[1911]).

139
In the case at bar it is undisputed that petitioner had been in open, public, adverse and continuous
possession of the land for a period of more than thirty years. In fact, according to the municipal
treasurer there are over 1000 graves in the cemetery. (Decision, Court of Appeals, Rollo, pp. 1122).

established as a means for the acquisition of title to private land, ..." It is intended merely to
confirm and register the title which one may already have on the land. Where the applicant
possesses no title or ownership over the parcel of land, he cannot acquire one under the Torrens
system of Registration. (Torela, et al., vs. Torela, et al., L-27843, October 11, 1979).

As correctly observed by Justice Magno S. Gatmaitan in his dissenting opinion (Rollo, pp. 23-28) in
the decision of this case by the Court of Appeals, the evidence establishes without debate that the
property was originally registered in 1916. Plaintiff was born only in 1928 and cannot possibly be
the registered owner of the original lot 140 at the time. Indeed, according to her own evidence,
(Exhibit A; Original Record pp. 13) she became the registered owner only in 1963. Likewise, it is
undisputed that in the intestate estate of Gonzalo Ditching, the grandfather of private respondent
Norma Leunberger, it was her grandmother, Simeona, the surviving spouse of Gonzalo who was
named judicial administratrix. According to Norma's own testimony, Isabel her mother, died in 1928
(TSN Aug. 12, 1964, p. 34) while Simeona the grandmother died in 1942. (Ibid.) Therefore, as of
1934 when a document of sale was executed by Simeona in favor of the municipality of Victories
as indubitably shown in the notarial register (Exhibit 5.A) in question, Simeona was still the
administratrix of the properties left by her husband, Gonzalo and of their conjugal partnership.
Consequently, she is the only person who could legally dispose of by sale this particular fourhectare portion of Lot 140. And so it is, that in 1934, Simeona Ditching in her capacity as judicial
administratrix made and executed the document described in the Report as Lots 140-A and 140-B,
showing clearly that they are portions of the original big Lot 140. As this conveyance was executed
by the judicial administratrix, unquestionably the party authorized to dispose of the same, the
presumption must be that she did so upon proper authority of the Court of First Instance.

While an inherently defective Torrens title may not ordinarily be cancelled even after proof of its
defect, the lawnevertheless safeguards the rightful party's interest in the titled land from fraud
and improper use of technicalities by snowing such party, in appropriate cases, to judicially seek
reconveyance to him of whatever he has been deprived of as long as the land has not been
transferred or conveyed to a purchaser in good faith. (Pedro Pascua, et al., vs. Mariano
Gopuyoc et al., L-23197, May 31, 1977.)

As to the description of the property sold, the fact that a notarial report shows that they are portions
of Lot 140 and the property in question occupied by the public cemetery is admittedly a portion of
said lot in the absence of evidence that there were other portions of Lot 140 ceded unto the
petitioner municipality, the inevitable conclusion is that the sale executed in the Notarial Register
refers to the disputed lot.
Unfortunately, the purchaser Municipality of Victorias failed to register said Deed of Sale; hence,
when Simeona Jingco Vda. de Ditching died, her grand-daughter, respondent Norma Leuenberger
claimed to have inherited the land in dispute and succeeded in registering said land under the
Torrens system. Said land is now covered by Transfer Certificate of Title No. T-34036 (Exhibit A,
supra) issued by the Register of Deeds of -Negros Occidental on March 11, 1963 in the name of
Norma Leuenberger, married to Francisco Soliva, containing an area of 208,157 square meters. As
registered owner, she is unquestionably entitled to the protection afforded to a holder of a Torrens
Title.
Admittedly, it is well-settled that under the Torrens System "Every person receiving a certificate of
title in pursuance of a decree of registration, . . . shall hold the same free of all encumbrance
except those noted on said certificate ... " (Sec. 39, Act 496; now Sec. 43, PD 1529).
In the instant case, however, respondent Norma Leuenberger admitted that she inherited the land
covered by Transfer Certificate of Title No. T-34036 from her grandmother, who had already sold
the land to the petitioner in 1934; hence, she merely stepped into the shoes of her grandmother
and she cannot claim a better right than her predecessor-in-interest. When she applied for
registration of the disputed land, she had no legal right to do so as she had no ownership of the
land since land registration is not a mode of acquiring ownership but only of confirming ownership
of the land. (Grande, et al. vs. Court of Appeals, et al., 115 Phil. 521.)"The Torrens System was not

The Civil Code provides:

Art. 1456. If the property is acquired through mistake or fraud, the person obtaining it is, by
force of law, considered a trustee of an implied trust for the benefit of the person from whom
the property comes.
Thus, it has been held that where the land is decreed in the name of a person through fraud or
mistake, such person is by operation of law considered a trustee of an implied trust for the
benefit of the persons from whom the property comes. The beneficiary shag have the right t
enforce the trust, notwithstanding the irrevocability of the Torrens title and the trustee and his
successors-in-interest are bound to execute the deed of reconveyance. (Pacheco vs. Arro, 85
Phil. 505; Escobar vs. Locsin, 74 Phil. 86).
As the land in dispute is held by private respondents in trust for the Municipality of Victorias, it is
logical to conclude that the latter can neither be deprived of its possession nor be made to pay
rentals thereof. Private respondent is in equity bound to reconvey the subject land to the cestui
que trust the Municipality of Victorias. The Torrens system was never calculated to foment
betrayal in the performance of a trust. (Escobar vs. Locsin, 74 Phil. 86).
For a more expeditious disposition of the case at bar, Rule 39 of the Rules of Court provides:
SEC. 10. Judgment for Specific acts; vesting title. ... If real or personal property is within
the Philippines, the court in lieu of directing a conveyance thereof may enter judgment
divesting the title of any party and vesting it in others and such judgment shall have the force
and effect of a conveyance executed in due form of law.
Finally, the conclusions and findings of fact by the trial court are entitled to great weight on
appeal and should not be disturbed unless for strong and cogent reasons because the trial court
is in a better position to examine real evidence, as well as to observe the demeanor of the
witnesses while testifying in the case. (Chase v. Buencamino, Sr., 136 SCRA 365 [1985]).
PREMISES CONSIDERED, the judgment of the respondent appellate court is hereby SET
ASIDE and the decision of the Court of First Instance of Negros Occidental, Branch I-Silay City
in Civil Case No. 181-S declaring the cemetery site (Exh. E-2) on Lot No. 76 in Victories as the
property of the municipality of Victorias, is hereby REINSTATED. Additionally, We hereby order
(a) the petitioner to have the disputed land segregated by a licensed surveyor from the rest of

140
Lot No. 76 described in Transfer Certificate of Title No. T-34036 and to have the corresponding
subdivision plan, duly approved by the Land Registration Commission, submitted to the court of
origin for approval; (b) the private respondents Norma Leuenberger and Francisco Soliva to be
divested of their title to the disputed land under Rule 39, Sec. 10, Rules of Court; and (c) the
Register of Deeds of Negros Occidental to cancel Transfer Certificate of Title No. 34036 and issue,
in lieu thereof, one title in the name of the Municipality of Victories for the disputed land and
another title in the names of the private respondents Norma Leuenberger and Francisco Soliva for
the rest of Lot No. 76. Without costs. SO ORDERED.
[G.R. No. 144225. June 17, 2003]
SPOUSES GODOFREDO ALFREDO and CARMEN
ARMANDO BORRAS and ADELIA LOBATON BORRAS
DECISION
CARPIO, J.:

LIMON

ALFREDO

vs.SPOUSES

The Case
Before us is a petition for review assailing the Decision [1] of the Court of Appeals dated 26
November 1999 affirming the decision [2] of the Regional Trial Court of Bataan, Branch 4, in Civil
Case No. DH-256-94. Petitioners also question the Resolution of the Court of Appeals dated 26
July 2000 denying petitioners motion for reconsideration.
The Antecedent Facts
A parcel of land measuring 81,524 square meters (Subject Land) in Barrio Culis, Mabiga,
Hermosa, Bataan is the subject of controversy in this case. The registered owners of the Subject
Land were petitioner spouses, Godofredo Alfredo (Godofredo) and Carmen Limon Alfredo
(Carmen). The Subject Land is covered by Original Certificate of Title No. 284 (OCT No. 284)
issued to Godofredo and Carmen under Homestead Patent No. V-69196.
On 7 March 1994, the private respondents, spouses Armando Borras (Armando) and Adelia
Lobaton Borras (Adelia), filed a complaint for specific performance against Godofredo and
Carmen before the Regional Trial Court of Bataan, Branch 4. The case was docketed as Civil
Case No. DH-256-94.
Armando and Adelia alleged in their complaint that Godofredo and Carmen mortgaged the
Subject Land for P7,000.00 with the Development Bank of the Philippines (DBP). To pay the debt,
Carmen and Godofredo sold the Subject Land to Armando and Adelia for P15,000.00, the buyers
to pay the DBP loan and its accumulated interest, and the balance to be paid in cash to the sellers.
Armando and Adelia gave Godofredo and Carmen the money to pay the loan to DBP which
signed the release of mortgage and returned the owners duplicate copy of OCT No. 284 to
Godofredo and Carmen. Armando and Adelia subsequently paid the balance of the purchase price
of the Subject Land for which Carmen issued a receipt dated 11 March 1970. Godofredo and
Carmen then delivered to Adelia the owners duplicate copy of OCT No. 284, with the document of
cancellation of mortgage, official receipts of realty tax payments, and tax declaration in the name of
Godofredo. Godofredo and Carmen introduced Armando and Adelia, as the new owners of the
Subject Land, to the Natanawans, the old tenants of the Subject Land. Armando and Adelia then
took possession of the Subject Land.
In January 1994, Armando and Adelia learned that hired persons had entered the Subject
Land and were cutting trees under instructions of allegedly new owners of the Subject
Land. Subsequently, Armando and Adelia discovered that Godofredo and Carmen had re-sold
portions of the Subject Land to several persons.

On 8 February 1994, Armando and Adelia filed an adverse claim with the Register of
Deeds of Bataan. Armando and Adelia discovered that Godofredo and Carmen had secured an
owners duplicate copy of OCT No. 284 after filing a petition in court for the issuance of a new
copy. Godofredo and Carmen claimed in their petition that they lost their owners duplicate
copy. Armando and Adelia wrote Godofredo and Carmen complaining about their acts, but the
latter did not reply. Thus, Armando and Adelia filed a complaint for specific performance.
On 28 March 1994, Armando and Adelia amended their complaint to include the following
persons as additional defendants: the spouses Arnulfo Savellano and Editha B. Savellano,
Danton D. Matawaran, the spouses Delfin F. Espiritu, Jr. and Estela S. Espiritu, and Elizabeth
Tuazon (Subsequent Buyers). The Subsequent Buyers, who are also petitioners in this case,
purchased from Godofredo and Carmen the subdivided portions of the Subject Land. The
Register of Deeds of Bataan issued to the Subsequent Buyers transfer certificates of title to the
lots they purchased.
In their answer, Godofredo and Carmen and the Subsequent Buyers (collectively
petitioners) argued that the action is unenforceable under the Statute of Frauds. Petitioners
pointed out that there is no written instrument evidencing the alleged contract of sale over the
Subject Land in favor of Armando and Adelia. Petitioners objected to whatever parole evidence
Armando and Adelia introduced or offered on the alleged sale unless the same was in writing
and subscribed by Godofredo. Petitioners asserted that the Subsequent Buyers were buyers in
good faith and for value. As counterclaim, petitioners sought payment of attorneys fees and
incidental expenses.
Trial then followed. Armando and Adelia presented the following witnesses: Adelia, Jesus
Lobaton, Roberto Lopez, Apolinario Natanawan, Rolando Natanawan, Tomas Natanawan, and
Mildred Lobaton. Petitioners presented two witnesses, Godofredo and Constancia Calonso.
On 7 June 1996, the trial court rendered its decision in favor of Armando and Adelia. The
dispositive portion of the decision reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiffs, the
spouses Adelia Lobaton Borras and Armando F. Borras, and against the defendant-spouses
Godofredo Alfredo and Carmen Limon Alfredo, spouses Arnulfo Sabellano and Editha B.
Sabellano, spouses Delfin F. Espiritu, Jr. and Estela S. Espiritu, Danton D. Matawaran and
Elizabeth Tuazon, as follows:
1.
Declaring the Deeds of Absolute Sale of the disputed parcel of land (covered by
OCT No. 284) executed by the spouses Godofredo Alfredo and Camen Limon Alfredo in favor of
spouses Arnulfo Sabellano and Editha B. Sabellano, spouses Delfin F. Espiritu, Danton D.
Matawaran and Elizabeth Tuazon, as null and void;
2.
Declaring the Transfer Certificates of Title Nos. T-163266 and T-163267 in the
names of spouses Arnulfo Sabellano and Editha B. Sabellano; Transfer Certificates of Title Nos.
T-163268 and 163272 in the names of spouses Delfin F. Espiritu, Jr. and Estela S. Espiritu;
Transfer Certificates of Title Nos. T-163269 and T-163271 in the name of Danton D. Matawaran;
and Transfer Certificate of Title No. T-163270 in the name of Elizabeth Tuazon, as null and void
and that the Register of Deeds of Bataan is hereby ordered to cancel said titles;
3.
Ordering the defendant-spouses Godofredo Alfredo and Carmen Limon Alfredo to
execute and deliver a good and valid Deed of Absolute Sale of the disputed parcel of land

141
(covered by OCT No. 284) in favor of the spouses Adelia Lobaton Borras and Armando F. Borras
within a period of ten (10) days from the finality of this decision;
4.
Ordering defendant-spouses Godofredo Alfredo and Carmen Limon Alfredo to
surrender their owners duplicate copy of OCT No. 284 issued to them by virtue of the Order dated
May 20, 1992 of the Regional Trial Court of Bataan, Dinalupihan Branch, to the Registry of Deeds
of Bataan within ten (10) days from the finality of this decision, who, in turn, is directed to cancel
the same as there exists in the possession of herein plaintiffs of the owners duplicate copy of said
OCT No. 284 and, to restore and/or reinstate OCT No. 284 of the Register of Deeds of Bataan to
its full force and effect;
5.
Ordering the defendant-spouses Godofredo Alfredo and Carmen Limon Alfredo to
restitute and/or return the amount of the respective purchase prices and/or consideration of sale of
the disputed parcels of land they sold to their co-defendants within ten (10) days from the finality of
this decision with legal interest thereon from date of the sale;
6.
Ordering the defendants, jointly and severally, to pay plaintiff-spouses the sum
of P20,000.00 as and for attorneys fees and litigation expenses; and
7.

Ordering defendants to pay the costs of suit.

Defendants counterclaims are hereby dismissed for lack of merit.

SO ORDERED.[3]
Petitioners appealed to the Court of Appeals.
On 26 November 1999, the Court of Appeals issued its Decision affirming the decision of the
trial court, thus:
WHEREFORE, premises considered, the appealed decision in Civil Case No. DH-256-94 is hereby
AFFIRMED in its entirety. Treble costs against the defendants-appellants. SO ORDERED. [4]
On 26 July 2000, the Court of Appeals denied petitioners motion for reconsideration.
The Ruling of the Trial Court
The trial court ruled that there was a perfected contract of sale between the spouses
Godofredo and Carmen and the spouses Armando and Adelia. The trial court found that all the
elements of a contract of sale were present in this case. The object of the sale was specifically
identified as the 81,524-square meter lot in Barrio Culis, Mabigas, Hermosa, Bataan, covered by
OCT No. 284 issued by the Registry of Deeds of Bataan. The purchase price was fixed
at P15,000.00, with the buyers assuming to pay the sellers P7,000.00 DBP mortgage loan
including its accumulated interest. The balance of the purchase price was to be paid in cash to the
sellers. The last payment of P2,524.00 constituted the full settlement of the purchase price and
this was paid on 11 March 1970 as evidenced by the receipt issued by Carmen.
The trial court found the following facts as proof of a perfected contract of sale: (1)
Godofredo and Carmen delivered to Armando and Adelia the Subject Land; (2) Armando and

Adelia treated as their own tenants the tenants of Godofredo and Carmen; (3) Godofredo and
Carmen turned over to Armando and Adelia documents such as the owners duplicate copy of
the title of the Subject Land, tax declaration, and the receipts of realty tax payments in the name
of Godofredo; and (4) the DBP cancelled the mortgage on the Subject Property upon payment
of the loan of Godofredo and Carmen. Moreover, the receipt of payment issued by Carmen
served as an acknowledgment, if not a ratification, of the verbal sale between the sellers and the
buyers. The trial court ruled that the Statute of Frauds is not applicable because in this case the
sale was perfected.
The trial court concluded that the Subsequent Buyers were not innocent purchasers. Not
one of the Subsequent Buyers testified in court on how they purchased their respective
lots. The Subsequent Buyers totally depended on the testimony of Constancia Calonso
(Calonso) to explain the subsequent sale. Calonso, a broker, negotiated with Godofredo and
Carmen the sale of the Subject Land which Godofredo and Carmen subdivided so they could
sell anew portions to the Subsequent Buyers.
Calonso admitted that the Subject Land was adjacent to her own lot. The trial court
pointed out that Calonso did not inquire on the nature of the tenancy of the Natanawans and on
who owned the Subject Land. Instead, she bought out the tenants for P150,000.00. The buy out
was embodied in a Kasunduan. Apolinario Natanawan (Apolinario) testified that he and his wife
accepted the money and signed the Kasunduan because Calonso and the Subsequent Buyers
threatened them with forcible ejectment. Calonso brought Apolinario to the Agrarian Reform
Office where he was asked to produce the documents showing that Adelia is the owner of the
Subject Land. Since Apolinario could not produce the documents, the agrarian officer told him
that he would lose the case. Thus, Apolinario was constrained to sign the Kasunduan and
accept the P150,000.00.
Another indication of Calonsos bad faith was her own admission that she saw an adverse
claim on the title of the Subject Land when she registered the deeds of sale in the names of the
Subsequent Buyers. Calonso ignored the adverse claim and proceeded with the registration of
the deeds of sale.
The trial court awarded P20,000.00 as attorneys fees to Armando and Adelia. In justifying
the award of attorneys fees, the trial court invoked Article 2208 (2) of the Civil Code which
allows a court to award attorneys fees, including litigation expenses, when it is just and
equitable to award the same. The trial court ruled that Armando and Adelia are entitled to
attorneys fees since they were compelled to file this case due to petitioners refusal to heed their
just and valid demand.
The Ruling of the Court of Appeals
The Court of Appeals found the factual findings of the trial court well supported by the
evidence. Based on these findings, the Court of Appeals also concluded that there was a
perfected contract of sale and the Subsequent Buyers were not innocent purchasers.
The Court of Appeals ruled that the handwritten receipt dated 11 March 1970 is sufficient
proof that Godofredo and Carmen sold the Subject Land to Armando and Adelia upon payment
of the balance of the purchase price. The Court of Appeals found the recitals in the receipt as
sufficient to serve as the memorandum or note as a writing under the Statute of Frauds. [5] The
Court of Appeals then reiterated the ruling of the trial court that the Statute of Frauds does not
apply in this case.
The Court of Appeals gave credence to the testimony of a witness of Armando and Adelia,
Mildred Lobaton, who explained why the title to the Subject Land was not in the name of
Armando and Adelia. Lobaton testified that Godofredo was then busy preparing to leave for

142
Davao. Godofredo promised that he would sign all the papers once they were ready. Since
Armando and Adelia were close to the family of Carmen, they trusted Godofredo and Carmen to
honor their commitment. Armando and Adelia had no reason to believe that their contract of sale
was not perfected or validly executed considering that they had received the duplicate copy of OCT
No. 284 and other relevant documents. Moreover, they had taken physical possession of the
Subject Land.
The Court of Appeals held that the contract of sale is not void even if only Carmen signed the
receipt dated 11 March 1970. Citing Felipe v. Heirs of Maximo Aldon, [6] the appellate court ruled
that a contract of sale made by the wife without the husbands consent is not void but merely
voidable. The Court of Appeals further declared that the sale in this case binds the conjugal
partnership even if only the wife signed the receipt because the proceeds of the sale were used for
the benefit of the conjugal partnership. The appellate court based this conclusion on Article
161[7] of the Civil Code.
The Subsequent Buyers of the Subject Land cannot claim that they are buyers in good faith
because they had constructive notice of the adverse claim of Armando and Adelia. Calonso, who
brokered the subsequent sale, testified that when she registered the subsequent deeds of sale, the
adverse claim of Armando and Adelia was already annotated on the title of the Subject Land. The
Court of Appeals believed that the act of Calonso and the Subsequent Buyers in forcibly ejecting
the Natanawans from the Subject Land buttresses the conclusion that the second sale was tainted
with bad faith from the very beginning.
Finally, the Court of Appeals noted that the issue of prescription was not raised in the
Answer. Nonetheless, the appellate court explained that since this action is actually based on
fraud, the prescriptive period is four years, with the period starting to run only from the date of the
discovery of the fraud. Armando and Adelia discovered the fraudulent sale of the Subject Land
only in January 1994. Armando and Adelia lost no time in writing a letter to Godofredo and
Carmen on 2 February 1994 and filed this case on 7 March 1994. Plainly, Armando and Adelia did
not sleep on their rights or lose their rights by prescription.
The Court of Appeals sustained the award of attorneys fees and imposed treble costs on
petitioners.
The Issues
Petitioners raise the following issues:
I. Whether the alleged sale of the Subject Land in favor of Armando and Adelia is valid and
enforceable, where (1) it was orally entered into and not in writing; (2) Carmen did not obtain the
consent and authority of her husband, Godofredo, who was the sole owner of the Subject Land in
whose name the title thereto (OCT No. 284) was issued; and (3) it was entered into during the 25year prohibitive period for alienating the Subject Land without the approval of the Secretary of
Agriculture and Natural Resources.
II. Whether the action to enforce the alleged oral contract of sale brought after 24 years from its
alleged perfection had been barred by prescription and by laches.

V. Whether petitioners are entitled to the counterclaim for attorneys fees and litigation expenses,
where they have sustained such expenses by reason of institution of a clearly malicious and
unfounded action by Armando and Adelia.[8]
The Courts Ruling
The petition is without merit.
In a petition for review on certiorari under Rule 45, this Court reviews only errors of law
and not errors of facts. [9] The factual findings of the appellate court are generally binding on this
Court.[10] This applies with greater force when both the trial court and the Court of Appeals are in
complete agreement on their factual findings.[11] In this case, there is no reason to deviate from
the findings of the lower courts. The facts relied upon by the trial and appellate courts are borne
out by the record. We agree with the conclusions drawn by the lower courts from these facts.
Validity and Enforceability of the Sale
The contract of sale between the spouses Godofredo and Carmen and the spouses
Armando and Adelia was a perfected contract. A contract is perfected once there is consent of
the contracting parties on the object certain and on the cause of the obligation. [12] In the instant
case, the object of the sale is the Subject Land, and the price certain is P15,000.00. The trial
and appellate courts found that there was a meeting of the minds on the sale of the Subject
Land and on the purchase price of P15,000.00. This is a finding of fact that is binding on this
Court. We find no reason to disturb this finding since it is supported by substantial evidence.
The contract of sale of the Subject Land has also been consummated because the sellers
and buyers have performed their respective obligations under the contract. In a contract of sale,
the seller obligates himself to transfer the ownership of the determinate thing sold, and to deliver
the same, to the buyer who obligates himself to pay a price certain to the seller. [13] In the instant
case, Godofredo and Carmen delivered the Subject Land to Armando and Adelia, placing the
latter in actual physical possession of the Subject Land. This physical delivery of the Subject
Land also constituted a transfer of ownership of the Subject Land to Armando and Adelia.
[14]
Ownership of the thing sold is transferred to the vendee upon its actual or constructive
delivery.[15] Godofredo and Carmen also turned over to Armando and Adelia the documents of
ownership to the Subject Land, namely the owners duplicate copy of OCT No. 284, the tax
declaration and the receipts of realty tax payments.
On the other hand, Armando and Adelia paid the full purchase price as evidenced by the
receipt dated 11 March 1970 issued by Carmen. Armando and Adelia fulfilled their obligation to
provide the P7,000.00 to pay the DBP loan of Godofredo and Carmen, and to pay the latter the
balance of P8,000.00 in cash. The P2,524.00 paid under the receipt dated 11 March 1970 was
the last installment to settle fully the purchase price. Indeed, upon payment to DBP of
the P7,000.00 and the accumulated interests, the DBP cancelled the mortgage on the Subject
Land and returned the owners duplicate copy of OCT No. 284 to Godofredo and Carmen.

III. Whether the deeds of absolute sale and the transfer certificates of title over the portions of the
Subject Land issued to the Subsequent Buyers, innocent purchasers in good faith and for value
whose individual titles to their respective lots are absolute and indefeasible, are valid.

The trial and appellate courts correctly refused to apply the Statute of Frauds to this case.
The Statute of Frauds[16] provides that a contract for the sale of real property shall be
unenforceable unless the contract or some note or memorandum of the sale is in writing and
subscribed by the party charged or his agent. The existence of the receipt dated 11 March
1970, which is a memorandum of the sale, removes the transaction from the provisions of the
Statute of Frauds.

IV. Whether petitioners are liable to pay Armando and Adelia P20,0000.00 as attorneys fees and
litigation expenses and the treble costs, where the claim of Armando and Adelia is clearly
unfounded and baseless.

The Statute of Frauds applies only to executory contracts and not to contracts either
partially or totally performed.[17] Thus, where one party has performed ones obligation, oral
evidence will be admitted to prove the agreement. [18] In the instant case, the parties have

143
consummated the sale of the Subject Land, with both sellers and buyers performing their
respective obligations under the contract of sale. In addition, a contract that violates the Statute of
Frauds is ratified by the acceptance of benefits under the contract. [19] Godofredo and Carmen
benefited from the contract because they paid their DBP loan and secured the cancellation of their
mortgage using the money given by Armando and Adelia. Godofredo and Carmen also accepted
payment of the balance of the purchase price.

Moreover, Godofredo and Carmen used most of the proceeds of the sale to pay their debt
with the DBP. We agree with the Court of Appeals that the sale redounded to the benefit of the
conjugal partnership. Article 161 of the Civil Code provides that the conjugal partnership shall
be liable for debts and obligations contracted by the wife for the benefit of the conjugal
partnership. Hence, even if Carmen sold the land without the consent of her husband, the sale
still binds the conjugal partnership.

Godofredo and Carmen cannot invoke the Statute of Frauds to deny the existence of the
verbal contract of sale because they have performed their obligations, and have accepted benefits,
under the verbal contract. [20] Armando and Adelia have also performed their obligations under the
verbal contract. Clearly, both the sellers and the buyers have consummated the verbal contract of
sale of the Subject Land. The Statute of Frauds was enacted to prevent fraud. [21] This law cannot
be used to advance the very evil the law seeks to prevent.

Petitioners contend that Godofredo and Carmen did not deliver the title of the Subject
Land to Armando and Adelia as shown by this portion of Adelias testimony on crossexamination:

Godofredo and Carmen also claim that the sale of the Subject Land to Armando and Adelia
is void on two grounds. First, Carmen sold the Subject Land without the marital consent of
Godofredo. Second, the sale was made during the 25-year period that the law prohibits the
alienation of land grants without the approval of the Secretary of Agriculture and Natural
Resources.
These arguments are without basis.
The Family Code, which took effect on 3 August 1988, provides that any alienation or
encumbrance made by the husband of the conjugal partnership property without the consent of the
wife is void. However, when the sale is made before the effectivity of the Family Code, the
applicable law is the Civil Code.[22]
Article 173 of the Civil Code provides that the disposition of conjugal property without the
wifes consent is not void but merely voidable. Article 173 reads:
The wife may, during the marriage, and within ten years from the transaction questioned, ask the
courts for the annulment of any contract of the husband entered into without her consent, when
such consent is required, or any act or contract of the husband which tends to defraud her or
impair her interest in the conjugal partnership property. Should the wife fail to exercise this right,
she or her heirs, after the dissolution of the marriage, may demand the value of property
fraudulently alienated by the husband.
In Felipe v. Aldon,[23] we applied Article 173 in a case where the wife sold some parcels of land
belonging to the conjugal partnership without the consent of the husband. We ruled that the
contract of sale was voidable subject to annulment by the husband. Following petitioners
argument that Carmen sold the land to Armando and Adelia without the consent of Carmens
husband, the sale would only be voidable and not void.
However, Godofredo can no longer question the sale. Voidable contracts are susceptible of
ratification.[24] Godofredo ratified the sale when he introduced Armando and Adelia to his tenants as
the new owners of the Subject Land. The trial court noted that Godofredo failed to deny
categorically on the witness stand the claim of the complainants witnesses that Godofredo
introduced Armando and Adelia as the new landlords of the tenants. [25] That Godofredo and
Carmen allowed Armando and Adelia to enjoy possession of the Subject Land for 24 years is
formidable proof of Godofredos acquiescence to the sale. If the sale was truly unauthorized, then
Godofredo should have filed an action to annul the sale. He did not. The prescriptive period to
annul the sale has long lapsed. Godofredos conduct belies his claim that his wife sold the Subject
Land without his consent.

Q -- No title was delivered to you by Godofredo Alfredo?

A -- I got the title from Julie Limon because my sister told me.[26]
Petitioners raise this factual issue for the first time. The Court of Appeals could have
passed upon this issue had petitioners raised this earlier. At any rate, the cited testimony of
Adelia does not convincingly prove that Godofredo and Carmen did not deliver the Subject Land
to Armando and Adelia. Adelias cited testimony must be examined in context not only with her
entire testimony but also with the other circumstances.
Adelia stated during cross-examination that she obtained the title of the Subject Land from
Julie Limon (Julie), her classmate in college and the sister of Carmen. Earlier, Adelias own
sister had secured the title from the father of Carmen. However, Adelias sister, who was about
to leave for the United States, gave the title to Julie because of the absence of the other
documents. Adelias sister told Adelia to secure the title from Julie, and this was how Adelia
obtained the title from Julie.
It is not necessary that the seller himself deliver the title of the property to the buyer
because the thing sold is understood as delivered when it is placed in the control and
possession of the vendee.[27] To repeat, Godofredo and Carmen themselves introduced the
Natanawans, their tenants, to Armando and Adelia as the new owners of the Subject
Land. From then on, Armando and Adelia acted as the landlords of the Natanawans. Obviously,
Godofredo and Carmen themselves placed control and possession of the Subject Land in the
hands of Armando and Adelia.
Petitioners invoke the absence of approval of the sale by the Secretary of Agriculture and
Natural Resources to nullify the sale. Petitioners never raised this issue before the trial court or
the Court of Appeals. Litigants cannot raise an issue for the first time on appeal, as this would
contravene the basic rules of fair play, justice and due process.[28] However, we will address this
new issue to finally put an end to this case.
The sale of the Subject Land cannot be annulled on the ground that the Secretary did not
approve the sale, which was made within 25 years from the issuance of the homestead
title. Section 118 of the Public Land Act (Commonwealth Act No. 141) reads as follows:
SEC. 118.
Except in favor of the Government or any of its branches, units, or institutions
or legally constituted banking corporation, lands acquired under free patent or homestead
provisions shall not be subject to encumbrance or alienation from the date of the approval of the
application and for a term of five years from and after the date of the issuance of the patent or
grant. xxx

144
No alienation, transfer, or conveyance of any homestead after 5 years and before twenty-five years
after the issuance of title shall be valid without the approval of the Secretary of Agriculture and
Commerce, which approval shall not be denied except on constitutional and legal grounds.
A grantee or homesteader is prohibited from alienating to a private individual a land grant
within five years from the time that the patent or grant is issued. [29] A violation of this prohibition
renders a sale void.[30] This prohibition, however, expires on the fifth year. From then on until the
next 20 years[31] the land grant may be alienated provided the Secretary of Agriculture and Natural
Resources approves the alienation. The Secretary is required to approve the alienation unless
there are constitutional and legal grounds to deny the approval. In this case, there are no
apparent constitutional or legal grounds for the Secretary to disapprove the sale of the Subject
Land.
The failure to secure the approval of the Secretary does not ipso facto make a sale void.
The absence of approval by the Secretary does not nullify a sale made after the expiration of the
5-year period, for in such event the requirement of Section 118 of the Public Land Act becomes
merely directory[33] or a formality.[34] The approval may be secured later, producing the effect of
ratifying and adopting the transaction as if the sale had been previously authorized. [35] As held
in Evangelista v. Montano:[36]
[32]

Section 118 of Commonwealth Act No. 141, as amended, specifically enjoins that the approval by
the Department Secretary "shall not be denied except on constitutional and legal grounds." There
being no allegation that there were constitutional or legal impediments to the sales, and no
pretense that if the sales had been submitted to the Secretary concerned they would have been
disapproved, approval was aministerial duty, to be had as a matter of course and demandable if
refused. For this reason, and if necessary, approval may now be applied for and its effect will be to
ratify and adopt the transactions as if they had been previously authorized. (Emphasis supplied)

[42]

However, if the plaintiff, as the real owner of the property also remains in possession of the
property, the prescriptive period to recover title and possession of the property does not run
against him.[43] In such a case, an action for reconveyance, if nonetheless filed, would be in the
nature of a suit for quieting of title, an action that is imprescriptible.[44]
In this case, the appellate court resolved the issue of prescription by ruling that the action
should prescribe four years from discovery of the fraud. We must correct this erroneous
application of the four-year prescriptive period. In Caro v. Court of Appeals,[45] we explained
why an action for reconveyance based on an implied trust should prescribe in ten years. In that
case, the appellate court also erroneously applied the four-year prescriptive period. We
declared in Caro:
We disagree. The case of Liwalug Amerol, et al. v. Molok Bagumbaran, G.R. No. L-33261,
September 30, 1987,154 SCRA 396 illuminated what used to be a gray area on the prescriptive
period for an action to reconvey the title to real property and, corollarily, its point of reference:
xxx It must be remembered that before August 30, 1950, the date of the effectivity of the new
Civil Code, the old Code of Civil Procedure (Act No. 190) governed prescription. It provided:
SEC. 43. Other civil actions; how limited.- Civil actions other than for the recovery of real
property can only be brought within the following periods after the right of action accrues:
xxx

xxx

xxx

3.
Within four years: xxx An action for relief on the ground of fraud, but the right of action in
such case shall not be deemed to have accrued until the discovery of the fraud;
xxx

xxx

xxx

Action Not Barred by Prescription and Laches

Petitioners insist that prescription and laches have set in. We disagree.
The Amended Complaint filed by Armando and Adelia with the trial court is captioned as one
for Specific Performance. In reality, the ultimate relief sought by Armando and Adelia is the
reconveyance to them of the Subject Land. An action for reconveyance is one that seeks to
transfer property, wrongfully registered by another, to its rightful and legal owner.[37] The body of the
pleading or complaint determines the nature of an action, not its title or heading. [38] Thus, the
present action should be treated as one for reconveyance.[39]
Article 1456 of the Civil Code provides that a person acquiring property through fraud
becomes by operation of law a trustee of an implied trust for the benefit of the real owner of the
property. The presence of fraud in this case created an implied trust in favor of Armando and
Adelia. This gives Armando and Adelia the right to seek reconveyance of the property from the
Subsequent Buyers.[40]
To determine when the prescriptive period commenced in an action for reconveyance,
plaintiffs possession of the disputed property is material. An action for reconveyance based on an
implied trust prescribes in ten years.[41] The ten-year prescriptive period applies only if there is an
actual need to reconvey the property as when the plaintiff is not in possession of the property.

In contrast, under the present Civil Code, we find that just as an implied or constructive trust is
an offspring of the law (Art. 1456, Civil Code), so is the corresponding obligation to reconvey the
property and the title thereto in favor of the true owner. In this context, and vis-a-vis prescription,
Article 1144 of the Civil Code is applicable.
Article 1144. The following actions must be brought within ten years from the time the right of
action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment.
xxx
xxx
xxx
(Emphasis supplied).
An action for reconveyance based on an implied or constructive trust must perforce
prescribe in ten years and not otherwise. A long line of decisions of this Court, and of very
recent vintage at that, illustrates this rule. Undoubtedly, it is now well-settled that an action
for reconveyance based on an implied or constructive trust prescribes in ten years from
the issuance of the Torrens title over the property. The only discordant note, it seems, is

145
Balbin vs. Medalla which states that the prescriptive period for a reconveyance action is four years.
However, this variance can be explained by the erroneous reliance on Gerona vs. de Guzman. But
in Gerona, the fraud was discovered on June 25,1948, hence Section 43(3) of Act No. 190, was
applied, the new Civil Code not coming into effect until August 30, 1950 as mentioned earlier. It
must be stressed, at this juncture, that article 1144 and article 1456, are new provisions. They have
no counterparts in the old Civil Code or in the old Code of Civil Procedure, the latter being then
resorted to as legal basis of the four-year prescriptive period for an action for reconveyance of title
of real property acquired under false pretenses.
An action for reconveyance has its basis in Section 53, paragraph 3 of Presidential Decree No.
1529, which provides:
In all cases of registration procured by fraud, the owner may pursue all his legal and equitable
remedies against the parties to such fraud without prejudice, however, to the rights of any innocent
holder of the decree of registration on the original petition or application, xxx
This provision should be read in conjunction with Article 1456 of the Civil Code, which provides:
Article 1456. If property is acquired through mistake or fraud, the person obtaining it is, by force of
law, considered a trustee of an implied trust for the benefit of the person from whom the property
comes.
The law thereby creates the obligation of the trustee to reconvey the property and the title thereto
in favor of the true owner. Correlating Section 53, paragraph 3 of Presidential Decree No. 1529 and
Article 1456 of the Civil Code with Article 1144(2) of the Civil Code, supra, the prescriptive period
for the reconveyance of fraudulently registered real property is ten (10) years reckoned from the
date of the issuance of the certificate of title xxx (Emphasis supplied)[46]
Following Caro, we have consistently held that an action for reconveyance based on an
implied trust prescribes in ten years.[47] We went further by specifying the reference point of the tenyear prescriptive period as the date of the registration of the deed or the issuance of the title.[48]
Had Armando and Adelia remained in possession of the Subject Land, their action for
reconveyance, in effect an action to quiet title to property, would not be subject to prescription.
Prescription does not run against the plaintiff in actual possession of the disputed land because
such plaintiff has a right to wait until his possession is disturbed or his title is questioned before
initiating an action to vindicate his right. [49] His undisturbed possession gives him the continuing
right to seek the aid of a court of equity to determine the nature of the adverse claim of a third party
and its effect on his title.[50]
Armando and Adelia lost possession of the Subject Land when the Subsequent Buyers
forcibly drove away from the Subject Land the Natanawans, the tenants of Armando and Adelia.
[51]
This created an actual need for Armando and Adelia to seek reconveyance of the Subject Land.
The statute of limitation becomes relevant in this case. The ten-year prescriptive period started to
run from the date the Subsequent Buyers registered their deeds of sale with the Register of
Deeds.
The Subsequent Buyers bought the subdivided portions of the Subject Land on 22 February
1994, the date of execution of their deeds of sale. The Register of Deeds issued the transfer
certificates of title to the Subsequent Buyers on 24 February 1994. Armando and Adelia filed the

Complaint on 7 March 1994. Clearly, prescription could not have set in since the case was filed
at the early stage of the ten-year prescriptive period.
Neither is the action barred by laches. We have defined laches as the failure or neglect,
for an unreasonable time, to do that which, by the exercise of due diligence, could or should
have been done earlier.[52] It is negligence or omission to assert a right within a reasonable time,
warranting a presumption that the party entitled to assert it either has abandoned it or declined
to assert it.[53] Armando and Adelia discovered in January 1994 the subsequent sale of the
Subject Land and they filed this case on 7 March 1994. Plainly, Armando and Adelia did not
sleep on their rights.
Validity of Subsequent Sale of Portions of the Subject Land
Petitioners maintain that the subsequent sale must be upheld because the Subsequent
Buyers, the co-petitioners of Godofredo and Carmen, purchased and registered the Subject
Land in good faith. Petitioners argue that the testimony of Calonso, the person who brokered
the second sale, should not prejudice the Subsequent Buyers. There is no evidence that
Calonso was the agent of the Subsequent Buyers and that she communicated to them what she
knew about the adverse claim and the prior sale. Petitioners assert that the adverse claim
registered by Armando and Adelia has no legal basis to render defective the transfer of title to
the Subsequent Buyers.
We are not persuaded. Godofredo and Carmen had already sold the Subject Land to
Armando and Adelia. The settled rule is when ownership or title passes to the buyer, the seller
ceases to have any title to transfer to any third person. [54] If the seller sells the same land to
another, the second buyer who has actual or constructive knowledge of the prior sale cannot be
a registrant in good faith.[55] Such second buyer cannot defeat the first buyers title. [56] In case a
title is issued to the second buyer, the first buyer may seek reconveyance of the property subject
of the sale.[57]
Thus, to merit protection under the second paragraph of Article 1544 [58] of the Civil Code,
the second buyer must act in good faith in registering the deed. [59] In this case, the Subsequent
Buyers good faith hinges on whether they had knowledge of the previous sale. Petitioners do
not dispute that Armando and Adelia registered their adverse claim with the Registry of Deeds of
Bataan on 8 February 1994. The Subsequent Buyers purchased their respective lots only on 22
February 1994 as shown by the date of their deeds of sale. Consequently, the adverse claim
registered prior to the second sale charged the Subsequent Buyers with constructive notice of
the defect in the title of the sellers,[60] Godofredo and Carmen.
It is immaterial whether Calonso, the broker of the second sale, communicated to the
Subsequent Buyers the existence of the adverse claim. The registration of the adverse claim on
8 February 1994 constituted, by operation of law, notice to the whole world. [61] From that date
onwards, the Subsequent Buyers were deemed to have constructive notice of the adverse claim
of Armando and Adelia. When the Subsequent Buyers purchased portions of the Subject Land
on 22 February 1994, they already had constructive notice of the adverse claim registered
earlier.[62] Thus, the Subsequent Buyers were not buyers in good faith when they purchased their
lots on 22 February 1994. They were also not registrants in good faith when they registered
their deeds of sale with the Registry of Deeds on 24 February 1994.
The Subsequent Buyers individual titles to their respective lots are not absolutely
indefeasible. The defense of indefeasibility of the Torrens Title does not extend to a transferee
who takes the certificate of title with notice of a flaw in his title. [63] The principle of indefeasibility
of title does not apply where fraud attended the issuance of the titles as in this case.[64]
Attorneys Fees and Costs

146
We sustain the award of attorneys fees. The decision of the court must state the grounds for
the award of attorneys fees. The trial court complied with this requirement. [65] We agree with the
trial court that if it were not for petitioners unjustified refusal to heed the just and valid demands of
Armando and Adelia, the latter would not have been compelled to file this action.
The Court of Appeals echoed the trial courts condemnation of petitioners fraudulent
maneuverings in securing the second sale of the Subject Land to the Subsequent Buyers. We will
also not turn a blind eye on petitioners brazen tactics. Thus, we uphold the treble costs imposed
by the Court of Appeals on petitioners.
WHEREFORE, the petition is DENIED and the appealed decision is AFFIRMED. Treble
costs against petitioners. SO ORDERED.
G.R. No. L-12342
August 3, 1918
A. A. ADDISON vs. MARCIANA FELIX and BALBINO TIOCO
FISHER, J.:
By a public instrument dated June 11, 1914, the plaintiff sold to the defendant Marciana Felix, with
the consent of her husband, the defendant Balbino Tioco, four parcels of land, described in the
instrument. The defendant Felix paid, at the time of the execution of the deed, the sum of P3,000
on account of the purchase price, and bound herself to pay the remainder in installments, the first
of P2,000 on July 15, 1914, and the second of P5,000 thirty days after the issuance to her of a
certificate of title under the Land Registration Act, and further, within ten years from the date of
such title P10, for each coconut tree in bearing and P5 for each such tree not in bearing, that might
be growing on said four parcels of land on the date of the issuance of title to her, with the condition
that the total price should not exceed P85,000. It was further stipulated that the purchaser was to
deliver to the vendor 25 per centum of the value of the products that she might obtain from the four
parcels "from the moment she takes possession of them until the Torrens certificate of title be
issued in her favor."
It was also covenanted that "within one year from the date of the certificate of title in favor of
Marciana Felix, this latter may rescind the present contract of purchase and sale, in which case
Marciana Felix shall be obliged to return to me, A. A. Addison, the net value of all the products of
the four parcels sold, and I shall obliged to return to her, Marciana Felix, all the sums that she may
have paid me, together with interest at the rate of 10 per cent per annum."
In January, 1915, the vendor, A. A. Addison, filed suit in Court of First Instance of Manila to compel
Marciana Felix to make payment of the first installment of P2,000, demandable in accordance with
the terms of the contract of sale aforementioned, on July 15, 1914, and of the interest in arrears, at
the stipulated rate of 8 per cent per annum. The defendant, jointly with her husband, answered the
complaint and alleged by way of special defense that the plaintiff had absolutely failed to deliver to
the defendant the lands that were the subject matter of the sale, notwithstanding the demands
made upon him for this purpose. She therefore asked that she be absolved from the complaint,
and that, after a declaration of the rescission of the contract of the purchase and sale of said lands,
the plaintiff be ordered to refund the P3,000 that had been paid to him on account, together with
the interest agreed upon, and to pay an indemnity for the losses and damages which the defendant
alleged she had suffered through the plaintiff's non-fulfillment of the contract.
The evidence adduced shows that after the execution of the deed of the sale the plaintiff, at the
request of the purchaser, went to Lucena, accompanied by a representative of the latter, for the
purpose of designating and delivering the lands sold. He was able to designate only two of the four

parcels, and more than two-thirds of these two were found to be in the possession of one Juan
Villafuerte, who claimed to be the owner of the parts so occupied by him. The plaintiff admitted
that the purchaser would have to bring suit to obtain possession of the land (sten. notes, record,
p. 5). In August, 1914, the surveyor Santamaria went to Lucena, at the request of the plaintiff
and accompanied by him, in order to survey the land sold to the defendant; but he surveyed only
two parcels, which are those occupied mainly by the brothers Leon and Julio Villafuerte. He did
not survey the other parcels, as they were not designated to him by the plaintiff. In order to make
this survey it was necessary to obtain from the Land Court a writ of injunction against the
occupants, and for the purpose of the issuance of this writ the defendant, in June, 1914, filed an
application with the Land Court for the registration in her name of four parcels of land described
in the deed of sale executed in her favor by the plaintiff. The proceedings in the matter of this
application were subsequently dismissed, for failure to present the required plans within the
period of the time allowed for the purpose.
The trial court rendered judgment in behalf of the defendant, holding the contract of sale to be
rescinded and ordering the return to the plaintiff the P3,000 paid on account of the price,
together with interest thereon at the rate of 10 per cent per annum. From this judgment the
plaintiff appealed.
In decreeing the rescission of the contract, the trial judge rested his conclusion solely on the
indisputable fact that up to that time the lands sold had not been registered in accordance with
the Torrens system, and on the terms of the second paragraph of clause (h) of the contract,
whereby it is stipulated that ". . . within one year from the date of the certificate of title in favor of
Marciana Felix, this latter may rescind the present contract of purchase and sale . . . ."
The appellant objects, and rightly, that the cross-complaint is not founded on the hypothesis of
the conventional rescission relied upon by the court, but on the failure to deliver the land sold.
He argues that the right to rescind the contract by virtue of the special agreement not only did
not exist from the moment of the execution of the contract up to one year after the registration of
the land, but does not accrue until the land is registered. The wording of the clause, in fact,
substantiates the contention. The one year's deliberation granted to the purchaser was to be
counted "from the date of the certificate of title ... ." Therefore the right to elect to rescind the
contract was subject to a condition, namely, the issuance of the title. The record show that up to
the present time that condition has not been fulfilled; consequently the defendant cannot be
heard to invoke a right which depends on the existence of that condition. If in the crosscomplaint it had been alleged that the fulfillment of the condition was impossible for reasons
imputable to the plaintiff, and if this allegation had been proven, perhaps the condition would
have been considered as fulfilled (arts. 1117, 1118, and 1119, Civ. Code); but this issue was not
presented in the defendant's answer.
However, although we are not in agreement with the reasoning found in the decision appealed
from, we consider it to be correct in its result. The record shows that the plaintiff did not deliver
the thing sold. With respect to two of the parcels of land, he was not even able to show them to
the purchaser; and as regards the other two, more than two-thirds of their area was in the hostile
and adverse possession of a third person.
The Code imposes upon the vendor the obligation to deliver the thing sold. The thing is
considered to be delivered when it is placed "in the hands and possession of the vendee." (Civ.
Code, art. 1462.) It is true that the same article declares that the execution of a public
instruments is equivalent to the delivery of the thing which is the object of the contract, but, in

147
order that this symbolic delivery may produce the effect of tradition, it is necessary that the vendor
shall have had such control over the thing sold that, at the moment of the sale, its material delivery
could have been made. It is not enough to confer upon the purchaser the ownership and
the right of possession. The thing sold must be placed in his control. When there is no impediment
whatever to prevent the thing sold passing into the tenancy of the purchaser by the sole will of the
vendor, symbolic delivery through the execution of a public instrument is sufficient. But if,
notwithstanding the execution of the instrument, the purchaser cannot have the enjoyment and
material tenancy of the thing and make use of it himself or through another in his name, because
such tenancy and enjoyment are opposed by the interposition of another will, then fiction yields to
reality the delivery has not been effected.
As Dalloz rightly says (Gen. Rep., vol. 43, p. 174) in his commentaries on article 1604 of the
French Civil code, "the word "delivery" expresses a complex idea . . . the abandonment of the thing
by the person who makes the delivery and the taking control of it by the person to whom the
delivery is made."
The execution of a public instrument is sufficient for the purposes of the abandonment made by the
vendor; but it is not always sufficient to permit of the apprehension of the thing by the purchaser.
The supreme court of Spain, interpreting article 1462 of the Civil Code, held in its decision of
November 10, 1903, (Civ. Rep., vol. 96, p. 560) that this article "merely declares that when the sale
is made through the means of a public instrument, the execution of this latter is equivalent to the
delivery of the thing sold: which does not and cannot mean that this fictitious tradition necessarily
implies the real tradition of the thing sold, for it is incontrovertible that, while its ownership still
pertains to the vendor (and with greater reason if it does not), a third person may be in possession
of the same thing; wherefore, though, as a general rule, he who purchases by means of a public
instrument should be deemed . . . to be the possessor in fact, yet this presumption gives way
before proof to the contrary."
It is evident, then, in the case at bar, that the mere execution of the instrument was not a fulfillment
of the vendors' obligation to deliver the thing sold, and that from such non-fulfillment arises the
purchaser's right to demand, as she has demanded, the rescission of the sale and the return of the
price. (Civ. Code, arts. 1506 and 1124.)
Of course if the sale had been made under the express agreement of imposing upon the purchaser
the obligation to take the necessary steps to obtain the material possession of the thing sold, and it
were proven that she knew that the thing was in the possession of a third person claiming to have
property rights therein, such agreement would be perfectly valid. But there is nothing in the
instrument which would indicate, even implicitly, that such was the agreement. It is true, as the
appellant argues, that the obligation was incumbent upon the defendant Marciana Felix to apply for
and obtain the registration of the land in the new registry of property; but from this it cannot be
concluded that she had to await the final decision of the Court of Land Registration, in order to be
able to enjoy the property sold. On the contrary, it was expressly stipulated in the contract that the
purchaser should deliver to the vendor one-fourth "of the products ... of the aforesaid four parcels
from the moment when she takes possession of them until the Torrens certificate of title be issued
in her favor." This obviously shows that it was not forseen that the purchaser might be deprived of
her possession during the course of the registration proceedings, but that the transaction rested on
the assumption that she was to have, during said period, the material possession and enjoyment of
the four parcels of land.

Inasmuch as the rescission is made by virtue of the provisions of law and not by contractual
agreement, it is not the conventional but the legal interest that is demandable.
It is therefore held that the contract of purchase and sale entered into by and between the
plaintiff and the defendant on June 11, 1914, is rescinded, and the plaintiff is ordered to make
restitution of the sum of P3,000 received by him on account of the price of the sale, together with
interest thereon at the legal rate of 6 per annum from the date of the filing of the complaint until
payment, with the costs of both instances against the appellant. So ordered.
G.R. No. 128573
January 13, 2003
NAAWAN COMMUNITY RURAL BANK INC. vs. COURT OF
CORONA, J.:
Under the established principles of land registration, a person dealing with registered land may
generally rely on the correctness of a certificate of title and the law will in no way oblige him to
go beyond it to determine the legal status of the property.
Before us is a Petition for Review on Certiorari challenging the February 7, 1997 Decision 1 of the
Court of Appeals in CA-G.R. CV No. 55149, which in turn affirmed the decision 2 of the Regional
Trial Court of Misamis Oriental, Branch 18 as follows:
"WHEREFORE, the plaintiffs-spouses are adjudged the absolute owners and possessors of
the properties in question (Lot 18583, under TCT No. T-50134, and all improvements thereon)
and quieting title thereto as against any and all adverse claims of the defendant. Further, the
sheriff's certificate of sale, Exhibit 4; 4-A; Sheriff's deed of final conveyance, Exhibit 5, 5-A;
Tax Declarations No. 71211, Exhibit 7, and any and all instrument, record, claim,
encumbrance or proceeding in favor of the defendant, as against the plaintiffs, and their
predecessor-in-interest, which may be extant in the office of the Register of Deeds of Province
of Misamis Oriental, and of Cagayan de Oro City, and in the City Assessor's Office of
Cagayan de Oro City, are declared as invalid and ineffective as against the plaintiffs' title.
"The counterclaim is dismissed for lack of merit. SO ORDERED." 3
The facts of the case, as culled from the records, are as follows:
On April 30, 1988, a certain Guillermo Comayas offered to sell to private respondent-spouses
Alfredo and Annabelle Lumo, a house and lot measuring 340 square meters located at Pinikitan,
Camaman-an, Cagayan de Oro City.
Wanting to buy said house and lot, private respondents made inquiries at the Office of the
Register of Deeds of Cagayan de Oro City where the property is located and the Bureau of
Lands on the legal status of the vendor's title. They found out that the property was mortgaged
for P8,000 to a certain Mrs. Galupo and that the owner's copy of the Certificate of Title to said
property was in her possession.
Private respondents directed Guillermo Comayas to redeem the property from Galupo at their
expense, giving the amount of P10,000 to Comayas for that purpose.

148
On May 30, 1988, a release of the adverse claim of Galupo was annotated on TCT No. T-41499
which covered the subject property.

bank the sheriff's deed of final conveyance. This time, the deed was registered under Act 3344
and recorded in the registration book of the Register of Deeds of Cagayan de Oro City.

In the meantime, on May 17, 1988, even before the release of Galupo's adverse claim, private
respondents and Guillermo Comayas, executed a deed of absolute sale. The subject property was
allegedly sold for P125,000 but the deed of sale reflected the amount of only P30,000 which was
the amount private respondents were ready to pay at the time of the execution of said deed, the
balance payable by installment.

By virtue of said deed, petitioner Bank obtained a tax declaration for the subject house and lot.

On June 9, 1988, the deed of absolute sale was registered and inscribed on TCT No. T-41499 and,
on even date, TCT No. T-50134 was issued in favor of private respondents.
After obtaining their TCT, private respondents requested the issuance of a new tax declaration
certificate in their names. However, they were surprised to learn from the City Assessor's Office
that the property was also declared for tax purposes in the name of petitioner Naawan Community
Rural Bank Inc. Records in the City Assessor's Office revealed that, for the lot covered by TCT No.
T-50134, Alfredo Lumo's T/D # 83324 bore the note: "This lot is also declared in the name of
Naawan Community Rural Bank Inc. under T/D # 71210".
Apparently, on February 7, 1983, Guillermo Comayas obtained a P15,000 loan from petitioner
Bank using the subject property as security. At the time said contract of mortgage was entered
into, the subject property was then an unregistered parcel of residential land, tax-declared in the
name of a certain Sergio A. Balibay while the residential one-storey house was tax-declared in the
name of Comayas.

Thereafter, petitioner Bank instituted an action for ejectment against Comayas before the MTCC
which decided in its favor. On appeal, the Regional Trial Court affirmed the decision of the
MTCC in a decision dated April 13, 1988.
On January 27, 1989, the Regional Trial Court issued an order for the issuance of a writ of
execution of its judgment. The MTCC, being the court of origin, promptly issued said writ.
However, when the writ was served, the property was no longer occupied by Comayas but
herein private respondents, the spouses Lumo who had, as earlier mentioned, bought it from
Comayas on May 17, 1988.
Alarmed by the prospect of being ejected from their home, private respondents filed an action for
quieting of title which was docketed as Civil Case No. 89-138. After trial, the Regional Trial Court
rendered a decision declaring private respondents as purchasers for value and in good faith,
and consequently declaring them as the absolute owners and possessors of the subject house
and lot. Petitioner appealed to the Court of Appeals which in turn affirmed the trial court's
decision.
Hence, this petition.

Balibay executed a special power of attorney authorizing Comayas to borrow money and use the
subject lot as security. But the Deed of Real Estate Mortgage and the Special Power of Attorney
were recorded in the registration book of the Province of Misamis Oriental, not in the registration
book of Cagayan de Oro City. It appears that, when the registration was made, there was only one
Register of Deeds for the entire province of Misamis Oriental, including Cagayan de Oro City. It
was only in 1985 when the Office of the Register of Deeds for Cagayan de Oro City was
established separately from the Office of the Register of Deeds for the Province of Misamis
Oriental.
For failure of Comayas to pay, the real estate mortgage was foreclosed and the subject property
sold at a public auction to the mortgagee Naawan Community Rural Bank as the highest bidder in
the amount of P16,031.35. Thereafter, the sheriff's certificate of sale was issued and registered
under Act 3344 in the Register of Deeds of the Province of Misamis Oriental.
On April 17, 1984, the subject property was registered in original proceedings under the Land
Registration Act. Title was entered in the registration book of the Register of Deeds of Cagayan de
Oro City as Original Certificate of Title No. 0-820, pursuant to Decree No. N-189413.
On July 23, 1984, Transfer Certificate of Title No. T-41499 in the name of Guillermo P. Comayas
was entered in the Register of Deeds of Cagayan de Oro City.
Meanwhile, on September 5, 1986, the period for redemption of the foreclosed subject property
lapsed and the MTCC Deputy Sheriff of Cagayan de Oro City issued and delivered to petitioner

Petitioner raises the following issues:

I. WHETHER OR NOT THE SHERIFF'S DEED OF FINAL CONVEYANCE WAS DULY
EXECUTED AND REGISTERED IN THE REGISTER OF DEEDS OF CAGAYAN DE ORO
CITY ON DECEMBER 2, 1986;
II. WHETHER OR NOT REGISTRATION OF SHERIFF'S DEED OF FINAL CONVEYANCE IN
THE PROPER REGISTRY OF DEEDS COULD BE EFFECTIVE AS AGAINST SPOUSES
LUMO.
Both parties cite Article 1544 of the Civil Code which governs the double sale of immovable
property.
Article 1544 provides:
". . . . Should it be immovable property, the ownership shall belong to the person acquiring it
who in good faith first recorded it in the Registry of Property."

149
Petitioner bank contends that the earlier registration of the sheriff's deed of final conveyance in the
day book under Act 3344 should prevail over the later registration of private respondents' deed of
absolute sale under Act 496,4 as amended by the Property Registration Decree, PD 1529.
This contention has no leg to stand on. It has been held that, where a person claims to have
superior proprietary rights over another on the ground that he derived his title from a sheriff's sale
registered in the Registry of Property, Article 1473 (now Article 1544) of the Civil Code will apply
only if said execution sale of real estate is registered under Act 496.5
Unfortunately, the subject property was still untitled when it was already acquired by petitioner bank
by virtue of a final deed of conveyance. On the other hand, when private respondents purchased
the same property, it was covered by the Torrens System.
6

Petitioner also relies on the case of Bautista vs. Fule where the Court ruled that the registration of
an instrument involving unregistered land in the Registry of Deeds creates constructive notice and
binds third person who may subsequently deal with the same property.

Thus, the only issue left to be resolved is whether or not private respondents could be
considered as buyers in good faith.
The "priority in time" principle being invoked by petitioner bank is misplaced because its
registration referred to land not within the Torrens System but under Act 3344. On the other
hand, when private respondents bought the subject property, the same was already registered
under the Torrens System. It is a well-known rule in this jurisdiction that persons dealing with
registered land have the legal right to rely on the face of the Torrens Certificate of Title and to
dispense with the need to inquire further, except when the party concerned has actual
knowledge of facts and circumstances that would impel a reasonably cautious man to make
such inquiry.8
Did private respondents exercise the required diligence in ascertaining the legal condition of the
title to the subject property so as to be considered as innocent purchasers for value and in good
faith?
We answer in the affirmative.

However, a close scrutiny of the records reveals that, at the time of the execution and delivery of
the sheriff's deed of final conveyance on September 5, 1986, the disputed property was already
covered by the Land Registration Act and Original Certificate of Title No. 0-820 pursuant to Decree
No. N189413 was likewise already entered in the registration book of the Register of Deeds of
Cagayan De Oro City as of April 17, 1984.
Thus, from April 17, 1984, the subject property was already under the operation of the Torrens
System. Under the said system, registration is the operative act that gives validity to the transfer or
creates a lien upon the land.
Moreover, the issuance of a certificate of title had the effect of relieving the land of all claims except
those noted thereon. Accordingly, private respondents, in dealing with the subject registered land,
were not required by law to go beyond the register to determine the legal condition of the property.
They were only charged with notice of such burdens on the property as were noted on the register
or the certificate of title. To have required them to do more would have been to defeat the primary
object of the Torrens System which is to make the Torrens Title indefeasible and valid against the
whole world.
Private respondents posit that, even assuming that the sheriff's deed of final conveyance in favor of
petitioner bank was duly recorded in the day book of the Register of Deeds under Act 3344,
ownership of the subject real property would still be theirs as purchasers in good faith because
they registered the sale first under the Property Registration Decree.
The rights created by the above-stated statute of course do not and cannot accrue under an
inscription in bad faith. Mere registration of title in case of double sale is not enough; good faith
must concur with the registration.7
Petitioner contends that the due and proper registration of the sheriff's deed of final conveyance on
December 2, 1986 amounted to constructive notice to private respondents. Thus, when private
respondents bought the subject property on May 17, 1988, they were deemed to have purchased
the said property with the knowledge that it was already registered in the name of petitioner bank.

Before private respondents bought the subject property from Guillermo Comayas, inquiries were
made with the Registry of Deeds and the Bureau of Lands regarding the status of the vendor's
title. No liens or encumbrances were found to have been annotated on the certificate of title.
Neither were private respondents aware of any adverse claim or lien on the property other than
the adverse claim of a certain Geneva Galupo to whom Guillermo Comayas had mortgaged the
subject property. But, as already mentioned, the claim of Galupo was eventually settled and the
adverse claim previously annotated on the title cancelled. Thus, having made the necessary
inquiries, private respondents did not have to go beyond the certificate of title. Otherwise, the
efficacy and conclusiveness of the Torrens Certificate of Title would be rendered futile and
nugatory.
Considering therefore that private respondents exercised the diligence required by law in
ascertaining the legal status of the Torrens title of Guillermo Comayas over the subject property
and found no flaws therein, they should be considered as innocent purchasers for value and in
good faith.
Accordingly, the appealed judgment of the appellate court upholding private respondents Alfredo
and Annabelle Lumo as the true and rightful owners of the disputed property is affirmed.
WHEREFORE, petition is hereby DENIED. SO ORDERED.
G.R. No. L-31346 December 28, 1929
PO SUN TUN vs. W. S. PRICE
MALCOLM, J.:
The undisputed facts in this case are the following:
On November 29, 1921, Gabino Barreto P. Po Ejap was the owner of a certain parcel of land
situated in the municipality of Tacloban, Province of Leyte. On the date mentioned, he sold the
land to Po Tecsi for the sum of P8,000. On June 21, 1923, Po mortgaged the land to W. S. Price
in the amount of P17,000. The mortgage was duly noted in the office of the register of deeds of

150
Leyte on August 18th of the same year. On December 17, 1924, Po executed a deed of sale of the
land to Price in consideration of P17,000. This sale was recorded with the register of deeds on
January 22, 1925. Price in turn, with the consent of his wife, sold the land on February 16, 1927, to
the Province of Leyte for P20,570.
In connection with the above facts, it should further be stated that when the Tacloban Cadastral
Case was before the courts in 1918, this land was claimed by Gabino Barreto P. Po Ejap acting
through his agent, Po Tecsi, but subsequently on motion the names of Mr. and Mrs. Price were
substituted as claimants. On March 17, 1927, the original certificate of title was issued in the name
of the spouses Price. Later, the proper transfer certificate of title was provided for the Province of
Leyte.
Returning again to the original date of November 29, 1921, on that date Po Tecsi gave a general
power of attorney including the right to sell to Gabino Barreto P. Po Ejap. Acting under this power,
Gabino sold the land on November 22, 1923, for P8,000 to Jose H. Katigbak. On this document
there appears on the upper right-hand margin the following: "Register of Deeds, Received, Dec.
15, 1923, Province of Leyte." In turn Jose H. Katigbak transferred the property to Po Sun Tun on
October 12, 1927, for P8,000.
Further explaining the relationship of the parties, it should be taken into consideration that Gabino
Barreto P. Po Ejap and Po Tecsi, between whom was the original transaction and between whom
was the provision made for the power of attorney, are brothers. Gabino Barreto P. Po Ejap and Po
Sun Tun, the first the original vendor, and the latter the person to whom the property eventually
returned pursuant to the power of attorney, are father and son. As to the possession of the
property, it has been under the control of Price and the Provincial Government of Leyte and has not
been under the material control of Po Sun Tun.
Predicated on these facts, Po Sun Tun began an action in the Court of First Instance of Leyte to
gain the possession of the property and to secure damages in the amount of P3,600. Judge
Causing sitting in first instance decided the case on the pleadings and the evidence, absolving the
defendants W. S. Prince and the Province of Leyte from the complaint, with costs against the
plaintiff. The principal error assigned on appeal by the plaintiff in connection with this judgment is
that the trial judge erred in finding that the deed, Exhibit D, in favor of Jose H. Katigbak had not
been registered in the corresponding registry of property.
The provision of law relied upon by the trial judge as authority for his decision was the second
paragraph of article 1473 of the Civil Code, which provides that if the same thing should have been
sold to different vendees, "Si fuere inmueble, la propiedad pertenecera al adquirente que antes la
haya inscrito en el Registro," or, as translated by Fisher, "Should it be real property, it shall belong
to the purchaser who first recorded it in the Registry of Deeds." Recalling that the deed of Po Tecsi
to Price was duly registered on January 22, 1925, and that thereafter a Torrens title was obtained
in the name of Price, and that the deed of Gabino Barreto P. Po Ejap to Jose H. Katigbak has
noted on it "Register of Deeds, Received, Dec. 15, 1923, Province of Leyte," can it be said that
within the meaning of the law this latter deed was ever recorded?
We are clearly of the opinion that it was not. The law and the authorities are overwhelmingly
demonstrative of this statement. The mere presentation to the office of the register of deeds of a
document on which acknowledgment of receipt is written is not equivalent to recording or
registering the real property. Escriche says that registration, in its juridical aspect, must be
understood as the entry made in a book or public registry of deeds. (See Altavas, Land

Registration in the Philippine Islands, 2d ed., p. 151.) Soler and Castello in their Diccionario de
Legislacion Hipotecaria y Notarial, vol. II, p. 185, state:
Registration in general, as the law uses the word, means any entry made in the books of the
Registry, including both registration in its ordinary and strict sense, and cancellation,
annotation, and even the marginal notes. In its strick acceptation, it is the entry made in the
Registry which records solemnly and permanently the right of ownership and other real rights.
The American authorities conform in this respect to the Spanish authorities for the term "To
register" it has been said that it means to "enter in a register; to record formally and distinctly; to
enroll; to enter in a list" (Reck vs.Phoenix Ins. Co. [1889], 7 N. Y. Suppl., 492; 54 Hun., 637;
Harriman vs. Woburn Electric Light Co. [1895], 163 Mass., 85). If any doubt remained on the
subject, it would be dispelled by turning to Act No. 2837 amendatory of section 194 of the
Administrative Code, and recalling that it is therein provided that "No instrument or deed
establishing, transmitting, acknowledging, modifying or extinguishing rights with respect to real
estate not registered under the provisions of Act Numbered Four hundred and ninety-six, entitled
"The Land Registration," and its amendments, shall be valid, except as between the parties
thereto, until such instrument or deed has been registered, in the manner hereinafter prescribed,
in the office of the register of deeds for the province or city where the real estate lies." (There
follows in the law the requirements regarding the books which it is the duty of the register of
deeds to keep and use.)
It results as a matter of course since the deed made by Gabino Barreto P. Po Ejap in favor of
Jose H. Katigbak was not only not first recorded in the registry of deeds but never legally so
recorded, and since the purchaser who did record his deed was Price, who secured a Torrens
title and transferred the same to the Province of Leyte, that Po Sun Tun, the holder of a
defeasible title, has no legal rights as against Price and the Province of Leyte, the holders of
indefeasible titles. Also, if necessary, it could be ruled that within the meaning of section 38 of
the Land Registration Law, Price and the Province of Leyte are innocent purchasers for value of
the disputed property.
Finding the judgment appealed from to be correct from all points of view, it will be affirmed, with
the costs of this instance against the appellant.
[G.R. No. 151212. September 10, 2003]
TEN FORTY REALTY AND DEVELOPMENT CORP. vs. MARINA CRUZ
DECISION
PANGANIBAN, J.:
In an ejectment suit, the question of ownership may be provisionally ruled upon for the
sole purpose of determining who is entitled to possession de facto. In the present case, both
parties base their alleged right to possess on their right to own. Hence, the Court of Appeals did
not err in passing upon the question of ownership to be able to decide who was entitled to
physical possession of the disputed land.
The Case
Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, seeking to nullify
the August 31, 2001 Decision [2] and December 19, 2001 Resolution [3] of the Court of Appeals
(CA) in CA- GR SP No. 64861. The dispositive portion of the assailed Decision is as follows:

151
WHEREFORE, premises considered, the petition is hereby DISMISSED and the Decision dated
May 4, 2001 is hereby AFFIRMED.[4]
The assailed Resolution denied petitioner's Motion for Reconsideration.
The Facts
The facts of the case are narrated by the CA as follows:
A complaint for ejectment was filed by [Petitioner Ten Forty Realty and Development Corporation]
against x x x [Respondent Marina Cruz] before the Municipal Trial Court in Cities (MTCC) of
Olongapo City, docketed as Civil Case 4269, which alleged that: petitioner is the true and absolute
owner of a parcel of lot and residential house situated in #71 18th Street, E.B.B. Olongapo City,
particularly described as:
A parcel of residential house and lot situated in the above-mentioned address containing an area
of 324 square meters more or less bounded on the Northeast by 041 (Lot 255, Ts-308); on the
Southeast by 044 (Lot 255, Ts-308); on the Southwest by 043 (Lot 226-A & 18th street) and on the
Northwest by 045 (Lot 227, Ts-308) and declared for taxation purposes in the name of [petitioner]
under T.D. No. 002-4595-R and 002-4596.
having acquired the same on December 5, 1996 from Barbara Galino by virtue of a Deed of
Absolute Sale; the sale was acknowledged by said Barbara Galino through a 'Katunayan'; payment
of the capital gains tax for the transfer of the property was evidenced by a Certification Authorizing
Registration issued by the Bureau of Internal Revenue; petitioner came to know that Barbara
Galino sold the same property on April 24, 1998 to Cruz, who immediately occupied the property
and which occupation was merely tolerated by petitioner; on October 16, 1998, a complaint for
ejectment was filed with the Barangay East Bajac-Bajac, Olongapo City but for failure to arrive at
an amicable settlement, a Certificate to File Action was issued; on April 12, 1999 a demand letter
was sent to [respondent] to vacate and pay reasonable amount for the use and occupation of the
same, but was ignored by the latter; and due to the refusal of [respondent] to vacate the premises,
petitioner was constrained to secure the services of a counsel for an agreed fee of P5,000.00 as
attorneys fee and P500.00 as appearance fee and incurred an expense of P5,000.00 for litigation.
In respondents Answer with Counterclaim, it was alleged that: petitioner is not qualified to own the
residential lot in dispute, being a public land; according to Barbara Galino, she did not sell her
house and lot to petitioner but merely obtained a loan from Veronica Lorenzana; the payment of
the capital gains tax does not necessarily show that the Deed of Absolute Sale was at that time
already in existence; the court has no jurisdiction over the subject matter because the complaint
was filed beyond the one (1) year period after the alleged unlawful deprivation of possession; there
is no allegation that petitioner had been in prior possession of the premises and the same was lost
thru force, stealth or violence; evidence will show that it was Barbara Galino who was in
possession at the time of the sale and vacated the property in favor of respondent; never was
there an occasion when petitioner occupied a portion of the premises, before respondent occupied
the lot in April 1998, she caused the cancellation of the tax declaration in the name of Barbara
Galino and a new one issued in respondents name; petitioner obtained its tax declaration over the
same property on November 3, 1998, seven (7) months [after] the respondent [obtained hers]; at
the time the house and lot [were] bought by respondent, the house was not habitable, the power
and water connections were disconnected; being a public land, respondent filed a miscellaneous
sales application with the Community Environment and Natural Resources Office in Olongapo

City; and the action for ejectment cannot succeed where it appears that respondent had been in
possession of the property prior to the petitioner.[5]
In a Decision[6] dated October 30, 2000, the Municipal Trial Court in Cities (MTCC) ordered
respondent to vacate the property and surrender to petitioner possession thereof. It also
directed her to pay, as damages for its continued unlawful use, P500 a month from April 24,
1999 until the property was vacated, P5,000 as attorneys fees, and the costs of the suit.
On appeal, the Regional Trial Court [7] (RTC) of Olongapo City (Branch 72) reversed the
MTCC. The RTC ruled as follows: 1) respondents entry into the property was not by mere
tolerance of petitioner, but by virtue of a Waiver and Transfer of Possessory Rights and Deed of
Sale in her favor; 2) the execution of the Deed of Sale without actual transfer of the physical
possession did not have the effect of making petitioner the owner of the property, because there
was no delivery of the object of the sale as provided for in Article 1428 of the Civil Code; and 3)
being a corporation, petitioner was disqualified from acquiring the property, which was public
land.
Ruling of the Court of Appeals
Sustaining the RTC, the CA held that petitioner had failed to make a case for unlawful
detainer, because no contract -- express or implied -- had been entered into by the parties with
regard to possession of the property. It ruled that the action should have been for forcible entry,
in which prior physical possession was indispensable -- a circumstance petitioner had not shown
either.
The appellate court also held that petitioner had challenged the RTCs ruling on the
question of ownership for the purpose of compensating for the latters failure to counter such
ruling. The RTC had held that, as a corporation, petitioner had no right to acquire the property
which was alienable public land. Hence, this Petition. [8]
Issues
Petitioner submits the following issues for our consideration:
1.

The Honorable Court of Appeals had clearly erred in not holding that [r]espondents
occupation or possession of the property in question was merely through the tolerance or
permission of the herein [p]etitioner;

[2.] The Honorable Court of Appeals had likewise erred in holding that the ejectment case
should have been a forcible entry case where prior physical possession is indispensable;
and
[3.] The Honorable Court of Appeals had also erred when it ruled that the herein [r]espondents
possession or occupation of the said property is in the nature of an exercise of ownership
which should put the herein [p]etitioner on guard.[9]
The Courts Ruling
The Petition has no merit.
First Issue: Alleged Occupation by Tolerance

152
Petitioner faults the CA for not holding that the former merely tolerated respondents
occupation of the subject property. By raising this issue, petitioner is in effect asking this Court to
reassess factual findings. As a general rule, this kind of reassessment cannot be done through a
petition for review on certiorari under Rule 45 of the Rules of Court, because this Court is not a trier
of facts; it reviews only questions of law. [10] Petitioner has not given us ample reasons to depart
from the general rule.
On the basis of the facts found by the CA and the RTC, we find that petitioner failed to
substantiate its case for unlawful detainer. Admittedly, no express contract existed between the
parties. Not shown either was the corporations alleged tolerance of respondents possession.
While possession by tolerance may initially be lawful, it ceases to be so upon the owners
demand that the possessor by tolerance vacate the property.[11] To justify an action for unlawful
detainer, the permission or tolerance must have been present at the beginning of the possession.
[12]
Otherwise, if the possession was unlawful from the start, an action for unlawful detainer would
be an improper remedy. Sarona v. Villegas[13] elucidates thus:
A close assessment of the law and the concept of the word tolerance confirms our view
heretofore expressed that such tolerance must be present right from the start of possession sought
to be recovered, to categorize a cause of action as one of unlawful detainer not of forcible
entry. Indeed, to hold otherwise would espouse a dangerous doctrine. And for two
reasons. First. Forcible entry into the land is an open challenge to the right of the
possessor. Violation of that right authorizes the speedy redress in the inferior court provided
for in the rules. If one year from the forcible entry is allowed to lapse before suit is filed, then the
remedy ceases to be speedy; and the possessor is deemed to have waived his right to seek relief
in the inferior court. Second, if a forcible entry action in the inferior court is allowed after the lapse
of a number of years, then the result may well be that no action for forcible entry can really
prescribe. No matter how long such defendant is in physical possession, plaintiff will merely make
a demand, bring suit in the inferior court upon a plea of tolerance to prevent prescription to set in
and summarily throw him out of the land. Such a conclusion is unreasonable. Especially if we
bear in mind the postulates that proceedings of forcible entry and unlawful detainer are summary in
nature, and that the one year time bar to suit is but in pursuance of the summary nature of the
action.[14]
In this case, the Complaint and the other pleadings do not recite any averment of fact that
would substantiate the claim of petitioner that it permitted or tolerated the occupation of the
property by Respondent Cruz. The Complaint contains only bare allegations that 1) respondent
immediately occupied the subject property after its sale to her, an action merely tolerated by
petitioner;[15] and 2) her allegedly illegal occupation of the premises was by mere tolerance. [16]
These allegations contradict, rather than support, petitioners theory that its cause of action is
for unlawful detainer. First, these arguments advance the view that respondents occupation of the
property was unlawful at its inception. Second, they counter the essential requirement in unlawful
detainer cases that petitioners supposed act of sufferance or tolerance must be present right from
the start of a possession that is later sought to be recovered.[17]
As the bare allegation of petitioners tolerance of respondents occupation of the premises
has not been proven, the possession should be deemed illegal from the beginning. Thus, the CA
correctly ruled that the ejectment case should have been for forcible entry -- an action that had
already prescribed, however, when the Complaint was filed on May 12, 1999. The prescriptive
period of one year for forcible entry cases is reckoned from the date of respondents actual entry
into the land, which in this case was on April 24, 1998.

Second Issue: Nature of the Case

Much of the difficulty in the present controversy stems from the legal characterization of
the ejectment Complaint filed by petitioner. Specifically, was it for unlawful detainer or for
forcible entry?
The answer is given in Section 1 of Rule 70 of the Rules of Court, which we reproduce as
follows:
SECTION 1. Who may institute proceedings, and when. - Subject to the provisions of the next
succeeding section, a person deprived of the possession of any land or building by force,
intimidation, threat, strategy, or stealth, or a lessor, vendor, vendee, or other person against
whom the possession of any land or building is unlawfully withheld after the expiration or
termination of the right to hold possession, by virtue of any contract, express or implied, or the
legal representatives or assigns of any such lessor, vendor, vendee, or other person, may, at any
time within one (1) year after such unlawful deprivation or withholding of possession, bring an
action in the proper Municipal Trial Court against the person or persons unlawfully withholding or
depriving of possession, or any person or persons claiming under them, for the restitution of
such possession, together with damages and costs.
While both causes of action deal only with the sole issue of physical or de
facto possession,[18] the two cases are really separate and distinct, as explained below:
x x x. In forcible entry, one is deprived of physical possession of land or building by means of
force, intimidation, threat, strategy, or stealth. In unlawful detainer, one unlawfully withholds
possession thereof after the expiration or termination of his right to hold possession under any
contract, express or implied. In forcible entry, the possession is illegal from the beginning and
the basic inquiry centers on who has the prior possession de facto. In unlawful detainer, the
possession was originally lawful but became unlawful by the expiration or termination of the right
to possess, hence the issue of rightful possession is decisive for, in such action, the defendant is
in actual possession and the plaintiffs cause of action is the termination of the defendants right
to continue in possession.
What determines the cause of action is the nature of defendants entry into the land. If the entry
is illegal, then the action which may be filed against the intruder within one year therefrom is
forcible entry. If, on the other hand, the entry is legal but the possession thereafter became
illegal, the case is one of unlawful detainer which must be filed within one year from the date of
the last demand.[19]
It is axiomatic that what determines the nature of an action as well as which court has
jurisdiction over it are the allegations in the complaint[20] and the character of the relief sought.[21]
In its Complaint, petitioner alleged that, having acquired the subject property from Barbara
Galino on December 5, 1996,[22] it was the true and absolute owner [23] thereof; that Galino had
sold the property to Respondent Cruz on April 24, 1998; [24] that after the sale, the latter
immediately occupied the property, an action that was merely tolerated by petitioner; [25] and that,
in a letter given to respondent on April 12, 1999,[26] petitioner had demanded that the former
vacate the property, but that she refused to do so. [27] Petitioner thereupon prayed for judgment
ordering her to vacate the property and to pay reasonable rentals for the use of the premises,
attorneys fees and the costs of the suit.[28]

153
The above allegations appeared to show the elements of unlawful detainer. They also
conferred initiatory jurisdiction on the MTCC, because the case was filed a month after the last
demand to vacate -- hence, within the one-year prescriptive period.
However, what was actually proven by petitioner was that possession by respondent had
been illegal from the beginning. While the Complaint was crafted to be an unlawful detainer suit,
petitioners real cause of action was for forcible entry, which had already
prescribed. Consequently, the MTCC had no more jurisdiction over the action.
The appellate court, therefore, did not err when it ruled that petitioners Complaint for
unlawful detainer was a mere subterfuge or a disguised substitute action for forcible entry, which
had already prescribed. To repeat, to maintain a viable action for forcible entry, plaintiff must have
been in prior physical possession of the property; this is an essential element of the suit. [29]

For its part, the CA found it highly unbelievable that petitioner -- which claims to be the
owner of the disputed property -- would tolerate possession of the property by respondent from
April 24, 1998 up to October 16, 1998. How could it have been so tolerant despite its knowledge
that the property had been sold to her, and that it was by virtue of that sale that she had
undertaken major repairs and improvements on it?
Petitioner should have likewise been put on guard by respondents declaration of the
property for tax purposes on April 23, 1998,[37] as annotated in the tax certificate filed
seven months later.[38] Verily, the tax declaration represented an adverse claim over the
unregistered property and was inimical to the right of petitioner.
Indeed, the above circumstances derogated its claim of control and possession of the
property.

Third Issue: Alleged Acts of Ownership

Order of Preference in Double Sale of Immovable Property

Petitioner next questions the CAs pronouncement that respondents occupation of the
property was an exercise of a right flowing from a claim of ownership. It submits that the appellate
court should not have passed upon the issue of ownership, because the only question for
resolution in an ejectment suit is that of possession de facto.

The ownership of immovable property sold to two different buyers at different times is
governed by Article 1544 of the Civil Code, which reads as follows:

Clearly, each of the parties claimed the right to possess the disputed property because of
alleged ownership of it. Hence, no error could have been imputed to the appellate court when it
passed upon the issue of ownership only for the purpose of resolving the issue of possession de
facto.[30] The CAs holding is moreover in accord with jurisprudence and the law.
Execution of a Deed of Sale Not Sufficient as Delivery
In a contract of sale, the buyer acquires the thing sold only upon its delivery in any of the
ways specified in Articles 1497 to 1501, or in any other manner signifying an agreement that the
possession is transferred from the vendor to the vendee. [31] With respect to incorporeal property,
Article 1498 lays down the general rule: the execution of a public instrument shall be equivalent to
the delivery of the thing that is the object of the contract if, from the deed, the contrary does not
appear or cannot be clearly inferred.
However, ownership is transferred not by contract but by tradition or delivery. [32] Nowhere in
the Civil Code is it provided that the execution of a Deed of Sale is a conclusivepresumption of
delivery of possession of a piece of real estate.[33]
This Court has held that the execution of a public instrument gives rise only to a prima facie
presumption of delivery. Such presumption is destroyed when the delivery is not effected because
of a legal impediment.[34] Pasagui v. Villablanca[35] had earlier ruled that such constructive or
symbolic delivery, being merely presumptive, was deemed negated by the failure of the vendee to
take actual possession of the land sold.
It is undisputed that petitioner did not occupy the property from the time it was allegedly sold
to it on December 5, 1996 or at any time thereafter. Nonetheless, it maintains that Galinos
continued stay in the premises from the time of the sale up to the time respondents occupation of
the same on April 24, 1998, was possession held on its behalf and had the effect of delivery under
the law.[36]
Both the RTC and the CA disagreed. According to the RTC, petitioner did not gain control
and possession of the property, because Galino had continued to exercise ownership rights over
the realty. That is, she had remained in possession, continued to declare it as her property for tax
purposes and sold it to respondent in 1998.

Article 1544. x x x
Should it be immovable property, the ownership shall belong to the person acquiring it who in
good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good faith was
first in possession; and, in the absence thereof, to the person who presents the oldest title,
provided there is good faith.
Galino allegedly sold the property in question to petitioner on December 5, 1996 and,
subsequently, to respondent on April 24, 1998. Petitioner thus argues that being the first buyer,
it has a better right to own the realty. However, it has not been able to establish that its Deed of
Sale was recorded in the Registry of Deeds of Olongapo City. [39] Its claim of an unattested and
unverified notation on its Deed of Absolute Sale[40] is not equivalent to registration. It admits that,
indeed, the sale has not been recorded in the Registry of Deeds.[41]
In the absence of the required inscription, the law gives preferential right to the buyer who
in good faith is first in possession. In determining the question of who is first in possession,
certain basic parameters have been established by jurisprudence.
First, the possession mentioned in Article 1544 includes not only material but also
symbolic possession.[42] Second, possessors in good faith are those who are not aware of any
flaw in their title or mode of acquisition. [43] Third, buyers of real property that is in the possession
of persons other than the seller must be wary -- they must investigate the rights of the
possessors.[44] Fourth, good faith is always presumed; upon those who allege bad faith on the
part of the possessors rests the burden of proof.[45]
Earlier, we ruled that the subject property had not been delivered to petitioner; hence, it
did not acquire possession either materially or symbolically. As between the two buyers,
therefore, respondent was first in actual possession of the property.
Petitioner has not proven that respondent was aware that her mode of acquiring the
property was defective at the time she acquired it from Galino. At the time, the property -- which

154
was public land -- had not been registered in the name of Galino; thus, respondent relied on the tax
declarations thereon. As shown, the formers name appeared on the tax declarations for the
property until its sale to the latter in 1998. Galino was in fact occupying the realty when
respondent took over possession. Thus, there was no circumstance that could have placed the
latter upon inquiry or required her to further investigate petitioners right of ownership.
Disqualification from Ownership of Alienable Public Land
Private corporations are disqualified from acquiring lands of the public domain, as provided
under Section 3 of Article XII of the Constitution, which we quote:
Sec. 3. Lands of the public domain are classified into agricultural, forest or timber, mineral lands,
and national parks. Agricultural lands of the public domain may be further classified by law
according to the uses to which they may be devoted. Alienable lands of the public domain shall be
limited to agricultural lands. Private corporations or associations may not hold such alienable
lands of the public domain except by lease, for a period not exceeding twenty-five years, and not to
exceed one thousand hectares in area. Citizens of the Philippines may not lease not more than
five hundred hectares, or acquire not more than twelve hectares thereof by purchase, homestead,
or grant. x x x. (Italics supplied)
While corporations cannot acquire land of the public domain, they can however acquire
private land.[46] Hence, the next issue that needs to be resolved is the determination of whether the
disputed property is private land or of the public domain.
According to the certification by the City Planning and Development Office of Olongapo City,
the contested property in this case is alienable and disposable public land. [47] It was for this reason
that respondent filed a miscellaneous sales application to acquire it.[48]
On the other hand, petitioner has not presented proof that, at the time it purchased the
property from Galino, the property had ceased to be of the public domain and was already private
land. The established rule is that alienable and disposable land of the public domain held and
occupied by a possessor -- personally or through predecessors-in-interest, openly, continuously,
and exclusively for 30 years -- is ipso jure converted to private property by the mere lapse of time.
[49]

In view of the foregoing, we affirm the appellate courts ruling that respondent is entitled to
possession de facto. This determination, however, is only provisional in nature. [50] Well-settled is
the rule that an award of possession de facto over a piece of property does not constitute res
judicata as to the issue of its ownership.[51] WHEREFORE, this Petition is DENIED and the assailed
Decision AFFIRMED. Costs against petitioner. SO ORDERED.
G.R. No. L-46840
June 17, 1940
VICTORIANO HERNANDEZ vs. MACARIA KATIGBAK VIUDA DE SALAS
MORAN, J.:
Appeal from a judgment rendered by the Court of First Instance of Rizal.
The facts as agreed upon by parties and material to the disposition of the case, are as follows:
Vicente Singson Encarnacion was, at first alone, and later with others, the registered owner of lots
Nos. 27, 28 and 29 of the "Hacienda Maysilo", located at Tuliahan, municipality of Caloocan, Rizal,

with an aggregate area of 234 hectares, and covered by Torrens certificates of title Nos. 8540
and 8548 of the register of deeds of Rizal. Nicolas Rivera repurchased, in pursuance of his
registered right to that effect, 40 hectares of these three lots, and later sold to Mariano P.
Leuterio an unsegregrated portion of about 18 hectares thereof. The latter, in turn, sold a total
area of 16,900 square meters to Rafael Villanueva by deeds which had never been registered.
These deeds are dated September 21, 1920, September 24, 1920, August 31, 1922 and
September 1, 1922, respectively. Later Rafael Villanueva sold to the herein plaintiff, Victoriano
Hernandez, all rights in the said total area of 16,900 square meters.
In civil case No. 2861 of the Court of First Instance of Rizal, instituted by Perfecto J. Salas
Rodriguez, against Mariano P. Leuterio, a writ of execution was issued against the defendant,
and, in pursuance thereof, the provincial sheriff of Rizal levied upon the properties of said
defendant, among them, a parcel of land containing an area of 177,557.4 square meters. This is
the same property that the defendant bought from Nicolas Rivera. The levy was duly recorded in
the office of the Register of Deeds and noted on transfer certificate of title No. 8540 covering lot
No. 28. Rafael Villanueva filed with the sheriff a third party claim, but as the judgment creditor
gave an indemnity bond, the sheriff proceeded with the execution and sold the property at a
public auction at which the judgment creditor himself was the highest bidder. On March 30,
1926, said officer executed the corresponding deed in favor of the purchaser.
Prior to the execution of the officer's deed, or on March 1, 1926, the 40 hectares bought by
Nicolas Rivera from Singson Encarnacion were segregated, and on March 5, 1926, two transfer
certificates of title were issued in favor of Nicolas Rivera, one with lot No. 10533, for 79,014
square meters, designated as lot No. 28-A, and the other with No. 10535, for 62,661 square
meters and 174,130 square meters, designated as lots Nos. 27-A and 29-A, respectively. The
execution lien of Perfecto J. Salas Rodriguez as well as the auction sale held on March 30,
1926, which were annotated on transfer certificate of title No. 8540, were transferred to and
annotated on the new certificate of title No. 10533 covering lot No. 28-A. And there having been
no redemption, a final deed of sale was executed on March 30, 1927 by the sheriff in favor of the
purchaser, Perfecto J. Salas Rodriguez, and transfer certificate of title No. 12242 was issued the
following day in the latter's name. Perfecto J. Salas died, and by virtue of a partition approved by
the probate court, lot No. 29-A was adjudicated to his widow, Macaria Katigbak Vda. de Salas,
now defendant, in whose favor transfer certificate of title No. 22157 was issued by the Register
of Deeds of Rizal on August 9, 1932.
On the basis of the foregoing facts, the Court of First Instance of Rizal rendered judgment,
ordering the defendant to segregate from lot No. 28-A, covered by her transfer certificate of title
No. 22157, a portion equivalent to 16,900 square meters, and to execute, in due form, the
corresponding deed in favor of the herein plaintiff. The judgment is predicated on the decisions
rendered by this Court in cases (G.R. Nos. 33950 and 33969 which in turn are founded on the
ruling laid down in Lanci vs. Yangco, 52 Phil., 563).
The question is: who has a better right the purchaser at the execution sale, Perfecto J. Salas
Rodriguez, predecessor in interest of the defendant, or the purchaser in the private sale, Rafael
Villanueva, predecessor in interest of the plaintiff?
The two purchasers derived their title from Mariano P. Leuterio, who in turn acquired his from
Nicolas Rivera. The purchase made by Villanueva took place prior to the execution sale, but was
never registered. The property is registered under the Torrens system, there being a certificate
of title issued in favor of Nicolas Rivera bearing No. 10533 on lot No. 28-A. No certificate of title

155
was ever issued in favor of Mariano P. Leuterio, but the levy and the execution sale of the property
were noted on the transfer certificate of title of Nicolas Rivera without the latter's objection, and in
the notation it appeared that the property had been sold by Nicolas Rivera to Mariano P. Leuterio. It
was, therefore, Mariano P. Leuterio alone who, in Rivera's certificate of title, appeared as the sole
owner of the property at the time of the levy and execution sale.
It is a well-settled rule that, when the property sold on execution is registered under the Torrens
systems, registration is the operative act that gives validity to the transfer, or creates a lien on the
land, and a purchaser, on execution sale, is not required to go behind the registry to determine the
conditions of the property. Such purchaser acquires such right, title and interest as appear on the
certificate of title issued on the property, subject to no aliens encumbrances or burdens that are
noted thereon. (Anderson and Co. vs. Garcia, 36 Of. Gaz., 2847; Reynes vs. Barrera, G.R. No.
46724.) It follows that, on the property in question, defendant has a better right than the plaintiff.
Judgment is reversed, with costs against plaintiff-appellee.

Petitioner and respondent Jose Poncio then went to the Republic Savings Bank and secured the
consent of the President thereof for her to pay the arrears on the mortgage and to continue the
payment of the installments as they fall due. The amount in arrears reached a total sum of
P247.26. But because respondent Poncio had previously told her that the money, needed was
only P200.00, only the latter amount was brought by petitioner constraining respondent Jose
Poncio to withdraw the sum of P47.00 from his bank deposit with Republic Savings Bank. But
the next day, petitioner refunded to Poncio the sum of P47.00.
On January 27, 1955, petitioner and respondent Poncio, in the presence of a witness, made and
executed a document in the Batanes dialect, which, translated into English, reads:
CONTRACT FOR ONE HALF LOT WHICH I BOUGHT FROM
JOSE PONCIO

G.R. No. L-29972 January 26, 1976

ROSARIO CARBONELL vs. COURT OF APPEALS
MAKASIAR, J.
Petitioner seeks a review of the resolution of the Court of Appeals (Special Division of Five) dated
October 30, 1968, reversing its decision of November 2, 1967 (Fifth Division), and its resolution of
December 6, 1968 denying petitioner's motion for reconsideration.
The dispositive part of the challenged resolution reads:
Wherefore, the motion for reconsideration filed on behalf of appellee Emma Infante, is hereby
granted and the decision of November 2, 1967, is hereby annulled and set aside. Another
judgement shall be entered affirming in toto that of the court a quo, dated January 20, 1965,
which dismisses the plaintiff's complaint and defendant's counterclaim. Without costs.
The facts of the case as follows:
Prior to January 27, 1955, respondent Jose Poncio, a native of the Batanes Islands, was the owner
of the parcel of land herein involve with improvements situated at 179 V. Agan St., San Juan, Rizal,
having an area of some one hundred ninety-five (195) square meters, more or less, covered by
TCT No. 5040 and subject to mortgage in favor of the Republic Savings Bank for the sum of
P1,500.00. Petitioner Rosario Carbonell, a cousin and adjacent neighbor of respondent Poncio,
and also from the Batanes Islands, lived in the adjoining lot at 177 V. Agan Street.
Both petitioners Rosario Carbonell and respondent Emma Infante offered to buy the said lot from
Poncio (Poncio's Answer, p. 38, rec. on appeal).
Respondent Poncio, unable to keep up with the installments due on the mortgage, approached
petitioner one day and offered to sell to the latter the said lot, excluding the house wherein
respondent lived. Petitioner accepted the offer and proposed the price of P9.50 per square meter.
Respondent Poncio, after having secured the consent of his wife and parents, accepted the price
proposed by petitioner, on the condition that from the purchase price would come the money to be
paid to the bank.

Beginning today January 27, 1955, Jose Poncio can start living on the lot sold by him to me,
Rosario Carbonell, until after one year during which time he will not pa anything. Then if after
said one can he could not find an place where to move his house, he could still continue
occupying the site but he should pay a rent that man, be agreed.
(Sgd)
(Sgd.)
(Sgd)
Witness

JOSE
ROSARIO
CONSTANCIO

PONCIO
CARBONELL
MEONADA

(Pp. 6-7 rec. on appeal).

Thereafter, petitioner asked Atty. Salvador Reyes, also from the Batanes Islands, to prepare the
formal deed of sale, which she brought to respondent Poncio together with the amount of some
P400.00, the balance she still had to pay in addition to her assuming the mortgaged obligation to
Republic Savings Bank.
Upon arriving at respondent Jose Poncio's house, however, the latter told petitioner that he
could not proceed any more with the sale, because he had already given the lot to respondent
Emma Infants; and that he could not withdraw from his deal with respondent Mrs. Infante, even if
he were to go to jail. Petitioner then sought to contact respondent Mrs. Infante but the latter
refused to see her.
On February 5, 1955, petitioner saw Emma Infante erecting a all around the lot with a gate.
Petitioner then consulted Atty. Jose Garcia, who advised her to present an adverse claim over
the land in question with the Office of the Register of Deeds of Rizal. Atty. Garcia actually sent a
letter of inquiry to the Register of Deeds and demand letters to private respondents Jose Poncio
and Emma Infante.

156
In his answer to the complaint Poncio admitted "that on January 30, 1955, Mrs. Infante improved
her offer and he agreed to sell the land and its improvements to her for P3,535.00" (pp. 38-40,
ROA).
In a private memorandum agreement dated January 31, 1955, respondent Poncio indeed bound
himself to sell to his corespondent Emma Infante, the property for the sum of P2,357.52, with
respondent Emma Infante still assuming the existing mortgage debt in favor of Republic Savings
Bank in the amount of P1,177.48. Emma Infante lives just behind the houses of Poncio and
Rosario Carbonell.
On February 2, 1955, respondent Jose Poncio executed the formal deed of sale in favor of
respondent Mrs. Infante in the total sum of P3,554.00 and on the same date, the latter paid
Republic Savings Bank the mortgage indebtedness of P1,500.00. The mortgage on the lot was
eventually discharged.
Informed that the sale in favor of respondent Emma Infante had not yet been registered, Atty.
Garcia prepared an adverse claim for petitioner, who signed and swore to an registered the same
on February 8, 1955.
The deed of sale in favor of respondent Mrs. Infante was registered only on February 12, 1955. As
a consequence thereof, a Transfer Certificate of Title was issued to her but with the annotation of
the adverse claim of petitioner Rosario Carbonell.
Respondent Emma Infante took immediate possession of the lot involved, covered the same with
500 cubic meters of garden soil and built therein a wall and gate, spending the sum of P1,500.00.
She further contracted the services of an architect to build a house; but the construction of the
same started only in 1959 years after the litigation actually began and during its pendency.
Respondent Mrs. Infante spent for the house the total amount of P11,929.00.
On June 1, 1955, petitioner Rosario Carbonell, thru counsel, filed a second amended complaint
against private respondents, praying that she be declared the lawful owner of the questioned
parcel of land; that the subsequent sale to respondents Ramon R. Infante and Emma L. Infante be
declared null and void, and that respondent Jose Poncio be ordered to execute the corresponding
deed of conveyance of said land in her favor and for damages and attorney's fees (pp. 1-7, rec. on
appeal in the C.A.).
Respondents first moved to dismiss the complaint on the ground, among others, that petitioner's
claim is unenforceable under the Statute of Frauds, the alleged sale in her favor not being
evidenced by a written document (pp. 7-13, rec. on appeal in the C.A.); and when said motion was
denied without prejudice to passing on the question raised therein when the case would be tried on
the merits (p. 17, ROA in the C.A.), respondents filed separate answers, reiterating the grounds of
their motion to dismiss (pp. 18-23, ROA in the C.A.).
During the trial, when petitioner started presenting evidence of the sale of the land in question to
her by respondent Poncio, part of which evidence was the agreement written in the Batanes dialect
aforementioned, respondent Infantes objected to the presentation by petitioner of parole evidence
to prove the alleged sale between her and respondent Poncio. In its order of April 26, 1966, the trial
court sustained the objection and dismissed the complaint on the ground that the memorandum

presented by petitioner to prove said sale does not satisfy the requirements of the law (pp. 3135, ROA in the C.A.).
From the above order of dismissal, petitioner appealed to the Supreme Court (G.R. No. L-11231)
which ruled in a decision dated May 12, 1958, that the Statute of Frauds, being applicable only
to executory contracts, does not apply to the alleged sale between petitioner and respondent
Poncio, which petitioner claimed to have been partially performed, so that petitioner is entitled to
establish by parole evidence "the truth of this allegation, as well as the contract itself." The order
appealed from was thus reversed, and the case remanded to the court a quo for further
proceedings (pp. 26-49, ROA in the C.A.).
After trial in the court a quo; a decision was, rendered on December 5, 1962, declaring the
second sale by respondent Jose Poncio to his co-respondents Ramon Infante and Emma
Infante of the land in question null and void and ordering respondent Poncio to execute the
proper deed of conveyance of said land in favor of petitioner after compliance by the latter of her
covenants under her agreement with respondent Poncio (pp. 5056, ROA in the C.A.).
On January 23, 1963, respondent Infantes, through another counsel, filed a motion for re-trial to
adduce evidence for the proper implementation of the court's decision in case it would be
affirmed on appeal (pp. 56-60, ROA in the C.A.), which motion was opposed by petitioner for
being premature (pp. 61-64, ROA in the C.A.). Before their motion for re-trial could be resolved,
respondent Infantes, this time through their former counsel, filed another motion for new trial,
claiming that the decision of the trial court is contrary to the evidence and the law (pp. 64-78,
ROA in the C.A.), which motion was also opposed by petitioner (pp. 78-89, ROA in the C.A.).
The trial court granted a new trial (pp. 89-90, ROA in the C.A.), at which re-hearing only the
respondents introduced additional evidence consisting principally of the cost of improvements
they introduced on the land in question (p. 9, ROA in the C.A.).
After the re-hearing, the trial court rendered a decision, reversing its decision of December 5,
1962 on the ground that the claim of the respondents was superior to the claim of petitioner, and
dismissing the complaint (pp. 91-95, ROA in the C.A.), From this decision, petitioner Rosario
Carbonell appealed to the respondent Court of Appeals (p. 96, ROA in the C.A.).
On November 2, 1967, the Court of Appeals (Fifth Division composed of Justices Magno
Gatmaitan, Salvador V. Esguerra and Angle H. Mojica, speaking through Justice Magno
Gatmaitan), rendered judgment reversing the decision of the trial court, declaring petitioner
therein, to have a superior right to the land in question, and condemning the defendant Infantes
to reconvey to petitioner after her reimbursement to them of the sum of P3,000.00 plus legal
interest, the land in question and all its improvements (Appendix "A" of Petition).
Respondent Infantes sought reconsideration of said decision and acting on the motion for
reconsideration, the Appellate Court, three Justices (Villamor, Esguerra and Nolasco) of Special
Division of Five, granted said motion, annulled and set aside its decision of November 2, 1967,
and entered another judgment affirming in toto the decision of the court a quo, with Justices
Gatmaitan and Rodriguez dissenting (Appendix "B" of Petition).

157
Petitioner Rosario Carbonell moved to reconsider the Resolution of the Special Division of Five,
which motion was denied by Minute Resolution of December 6, 1968 (but with Justices Rodriguez
and Gatmaitan voting for reconsideration) [Appendix "C" of Petition].

Bad faith arising from previous knowledge by Infante of the prior sale to Carbonell is shown by
the following facts, the vital significance and evidenciary effect of which the respondent Court of
Appeals either overlooked of failed to appreciate:

Hence, this appeal by certiorari.

(1) Mrs. Infante refused to see Carbonell, who wanted to see Infante after she was informed by
Poncio that he sold the lot to Infante but several days before Infante registered her deed of sale.
This indicates that Infante knew from Poncio and from the bank of the prior sale of the lot
by Poncio to Carbonell. Ordinarily, one will not refuse to see a neighbor. Infante lives just behind
the house of Carbonell. Her refusal to talk to Carbonell could only mean that she did not want to
listen to Carbonell's story that she (Carbonell) had previously bought the lot from Poncio.

Article 1544, New Civil Code, which is decisive of this case, recites:
If the same thing should have been sold to different vendees, the ownership shall be transferred
to the person who may have first taken possession thereof in good faith, if it should movable
property.
Should it be immovable property, the ownership shall belong to the person acquiring it who in
good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good faith was
first in the possession; and, in the absence thereof, to the person who presents the oldest title,
provided there is good faith (emphasis supplied).
It is essential that the buyer of realty must act in good faith in registering his deed of sale to merit
the protection of the second paragraph of said Article 1544.
Unlike the first and third paragraphs of said Article 1544, which accord preference to the one who
first takes possession in good faith of personal or real property, the second paragraph directs that
ownership of immovable property should be recognized in favor of one "who in good faith first
recorded" his right. Under the first and third paragraph, good faith must characterize the act of
anterior registration (DBP vs. Mangawang, et al., 11 SCRA 405; Soriano, et al. vs. Magale, et al., 8
SCRA 489).
If there is no inscription, what is decisive is prior possession in good faith. If there is inscription, as
in the case at bar, prior registration in good faith is a pre-condition to superior title.
When Carbonell bought the lot from Poncio on January 27, 1955, she was the only buyer thereof
and the title of Poncio was still in his name solely encumbered by bank mortgage duly annotated
thereon. Carbonell was not aware and she could not have been aware of any sale of Infante
as there was no such sale to Infante then. Hence, Carbonell's prior purchase of the land was made
in good faith. Her good faith subsisted and continued to exist when she recorded her adverse claim
four (4) days prior to the registration of Infantes's deed of sale. Carbonell's good faith did not cease
after Poncio told her on January 31, 1955 of his second sale of the same lot to Infante. Because of
that information, Carbonell wanted an audience with Infante, which desire underscores Carbonell's
good faith. With an aristocratic disdain unworthy of the good breeding of a good Christian and good
neighbor, Infante snubbed Carbonell like a leper and refused to see her. So Carbonell did the next
best thing to protect her right she registered her adversed claim on February 8, 1955. Under the
circumstances, this recording of her adverse claim should be deemed to have been done in good
faith and should emphasize Infante's bad faith when she registered her deed of sale four (4) days
later on February 12, 1955.

(2) Carbonell was already in possession of the mortgage passbook [not Poncio's saving deposit
passbook Exhibit "1" Infantes] and Poncio's copy of the mortgage contract, when Poncio
sold the lot Carbonell who, after paying the arrearages of Poncio, assumed the balance of his
mortgaged indebtedness to the bank, which in the normal course of business must have
necessarily informed Infante about the said assumption by Carbonell of the mortgage
indebtedness of Poncio. Before or upon paying in full the mortgage indebtedness of Poncio to
the Bank. Infante naturally must have demanded from Poncio the delivery to her of his mortgage
passbook as well as Poncio's mortgage contract so that the fact of full payment of his bank
mortgage will be entered therein; and Poncio, as well as the bank, must have inevitably informed
her that said mortgage passbook could not be given to her because it was already delivered to
Carbonell.
If Poncio was still in possession of the mortgage passbook and his copy of the mortgage
contract at the time he executed a deed of sale in favor of the Infantes and when the Infantes
redeemed his mortgage indebtedness from the bank, Poncio would have surrendered his
mortgage passbook and his copy of the mortgage contract to the Infantes, who could have
presented the same as exhibits during the trial, in much the same way that the Infantes were
able to present as evidence Exhibit "1" Infantes, Poncio's savings deposit passbook, of which
Poncio necessarily remained in possession as the said deposit passbook was never involved in
the contract of sale with assumption of mortgage. Said savings deposit passbook merely proves
that Poncio had to withdraw P47.26, which amount was tided to the sum of P200.00 paid by
Carbonell for Poncio's amortization arrearages in favor of the bank on January 27, 1955;
because Carbonell on that day brought with her only P200.00, as Poncio told her that was the
amount of his arrearages to the bank. But the next day Carbonell refunded to Poncio the sum of
P47.26.
(3) The fact that Poncio was no longer in possession of his mortgage passbook and that the said
mortgage passbook was already in possession of Carbonell, should have compelled Infante to
inquire from Poncio why he was no longer in possession of the mortgage passbook and from
Carbonell why she was in possession of the same (Paglago, et. al vs. Jara et al 22 SCRA 1247,
1252-1253). The only plausible and logical reason why Infante did not bother anymore to make
such injury , w because in the ordinary course of business the bank must have told her that
Poncio already sold the lot to Carbonell who thereby assumed the mortgage indebtedness of
Poncio and to whom Poncio delivered his mortgage passbook. Hoping to give a semblance of
truth to her pretended good faith, Infante snubbed Carbonell's request to talk to her about the
prior sale to her b Poncio of the lot. As aforestated, this is not the attitude expected of a good
neighbor imbued with Christian charity and good will as well as a clear conscience.

158
(4) Carbonell registered on February 8, 1955 her adverse claim, which was accordingly annotated
on Poncio's title, four [4] days before Infante registered on February 12, 1955 her deed of sale
executed on February 2, 1955. Here she was again on notice of the prior sale to Carbonell. Such
registration of adverse claim is valid and effective (Jovellanos vs. Dimalanta, L-11736-37, Jan. 30,
1959, 105 Phil. 1250-51).
(5) In his answer to the complaint filed by Poncio, as defendant in the Court of First Instance, he
alleged that both Mrs. Infante and Mrs. Carbonell offered to buy the lot at P15.00 per square meter,
which offers he rejected as he believed that his lot is worth at least P20.00 per square meter. It is
therefore logical to presume that Infante was told by Poncio and consequently knew of the offer of
Carbonell which fact likewise should have put her on her guard and should have compelled her to
inquire from Poncio whether or not he had already sold the property to Carbonell.
As recounted by Chief Justice Roberto Concepcion, then Associate Justice, in the preceding case
of Rosario Carbonell vs. Jose Poncio, Ramon Infante and Emma Infante (1-11231, May 12, 1958),
Poncio alleged in his answer:
... that he had consistently turned down several offers, made by plaintiff, to buy the land in
question, at P15 a square meter, for he believes that it is worth not less than P20 a square
meter; that Mrs. Infante, likewise, tried to buy the land at P15 a square meter; that, on or about
January 27, 1955, Poncio was advised by plaintiff that should she decide to buy the property at
P20 a square meter, she would allow him to remain in the property for one year; that plaintiff
then induced Poncio to sign a document, copy of which if probably the one appended to the
second amended complaint; that Poncio signed it 'relying upon the statement of the plaintiff that
the document was a permit for him to remain in the premises in the event defendant decided to
sell the property to the plaintiff at P20.00 a square meter'; that on January 30, 1955, Mrs. Infante
improved her offer and agreed to sell the land and its improvement to her for P3,535.00; that
Poncio has not lost 'his mind,' to sell his property, worth at least P4,000, for the paltry sum
P1,177.48, the amount of his obligation to the Republic Saving s Bank; and that plaintiff's action
is barred by the Statute of Frauds. ... (pp. 38-40, ROA, emphasis supplied).

(2) When the said order was appealed to the Supreme Court by Carbonell in the previous case
of Rosario Carbonell vs. Jose Poncio, Ramon Infante and Emma Infante
(L-11231, supra), Chief Justice Roberto Concepcion, then Associate Justice, speaking for a
unanimous Court, reversed the aforesaid order of the trial court dismissing the complaint,
holding that because the complaint alleges and the plaintiff claims that the contract of sale was
partly performed, the same is removed from the application of the Statute of Frauds and
Carbonell should be allowed to establish by parol evidence the truth of her allegation of partial
performance of the contract of sale, and further stated:
Apart from the foregoing, there are in the case at bar several circumstances indicating that
plaintiff's claim might not be entirely devoid of factual basis. Thus, for instance, Poncio
admitted in his answer that plaintiff had offered several times to purchase his land.
Again, there is Exhibit A, a document signed by the defendant. It is in the Batanes dialect,
which, according to plaintiff's uncontradicted evidence, is the one spoken by Poncio, he being
a native of said region. Exhibit A states that Poncio would stay in the land sold by him to
plaintiff for one year, from January 27, 1955, free of charge, and that, if he cannot find a place
where to transfer his house thereon, he may remain upon. Incidentally, the allegation in
Poncio's answer to the effect that he signed Exhibit A under the belief that it "was a permit for
him to remain in the premises in the" that "he decided to sell the property" to the plaintiff at
P20 a sq. m." is, on its face, somewhat difficult to believe. Indeed, if he had not decided as
yet to sell the land to plaintiff, who had never increased her offer of P15 a square meter, there
was no reason for Poncio to get said permit from her. Upon the other hand, if plaintiff intended
to mislead Poncio, she would have caused Exhibit A to be drafted, probably, in English ,
instead of taking the trouble of seeing to it that it was written precisely in his native dialect, the
Batanes. Moreover, Poncio's signature on Exhibit A suggests that he is neither illiterate nor so
ignorant as to sign document without reading its contents, apart from the fact that Meonada
had read Exhibit A to him and given him a copy thereof, before he signed thereon, according
to Meonada's uncontradicted testimony.
Then, also, defendants say in their brief:

II.
EXISTENCE
DULY ESTABLISHED

OF

THE

PRIOR

SALE

TO

CARBONELL

(1) In his order dated April 26, 1956 dismissing the complaint on the ground that the private
document Exhibit "A" executed by Poncio and Carbonell and witnessed by Constancio Meonada
captioned "Contract for One-half Lot which I Bought from Jose Poncio," was not such a
memorandum in writing within the purview of the Statute of Frauds, the trial judge himself
recognized the fact of the prior sale to Carbonell when he stated that "the memorandum in
question merely states that Poncio is allowed to stay in the property which he had sold to the
plaintiff. There is no mention of the reconsideration, a description of the property and such other
essential elements of the contract of sale. There is nothing in the memorandum which would tend
to show even in the slightest manner that it was intended to be an evidence of contract sale. On
the contrary, from the terms of the memorandum, it tends to show that the sale of the property in
favor of the plaintiff is already an accomplished act.By the very contents of the memorandum itself,
it cannot therefore, be considered to be the memorandum which would show that a sale has been
made by Poncio in favor of the plaintiff" (p. 33, ROA, emphasis supplied). As found by the trial
court, to repeat the said memorandum states "that Poncio is allowed to stay in the property which
he had sold to the plaintiff ..., it tends to show that the sale of the property in favor of the plaintiff is
already an accomplished act..."

The only allegation in plaintiff's complaint that bears any relation to her claim that there has
been partial performance of the supposed contract of sale, is the notation of the sum of
P247.26 in the bank book of defendant Jose Poncio. The noting or jotting down of the sum of
P247.26 in the bank book of Jose Poncio does not prove the fact that the said amount was
the purchase price of the property in question. For all we knew, the sum of P247.26 which
plaintiff claims to have paid to the Republic Savings Bank for the account of the defendant,
assuming that the money paid to the Republic Savings Bank came from the plaintiff, was the
result of some usurious loan or accomodation, rather than earnest money or part payment of
the land. Neither is it competent or satisfactory evidence to prove the conveyance of the land
in question the fact that the bank book account of Jose Poncio happens to be in the
possession of the plaintiff. (Defendants-Appellees' brief, pp. 25-26).
How shall We know why Poncio's bank deposit book is in plaintiffs possession, or whether
there is any relation between the P247.26 entry therein and the partial payment of P247.26
allegedly made by plaintiff to Poncio on account of the price of his land, if we do not allow the
plaintiff to explain it on the witness stand? Without expressing any opinion on the merits of
plaintiff's claim, it is clear, therefore, that she is entitled , legally as well as from the viewpoint

159
of equity, to an opportunity to introduce parol evidence in support of the allegations of her
second amended complaint. (pp. 46-49, ROA, emphasis supplied).
(3) In his first decision of December 5, 1962 declaring null and void the sale in favor of the Infantes
and ordering Poncio to execute a deed of conveyance in favor of Carbonell, the trial judge found:
... A careful consideration of the contents of Exh. 'A' show to the satisfaction of the court that the
sale of the parcel of land in question by the defendant Poncio in favor of the plaintiff was
covered therein and that the said Exh. "a' was also executed to allow the defendant to continue
staying in the premises for the stated period. It will be noted that Exh. 'A' refers to a lot 'sold by
him to me' and having been written originally in a dialect well understood by the defendant
Poncio, he signed the said Exh. 'A' with a full knowledge and consciousness of the terms and
consequences thereof. This therefore, corroborates the testimony of the plaintiff Carbonell that
the sale of the land was made by Poncio. It is further pointed out that there was a partial
performance of the verbal sale executed by Poncio in favor of the plaintiff, when the latter paid
P247.26 to the Republic Savings Bank on account of Poncio's mortgage indebtedness. Finally,
the possession by the plaintiff of the defendant Poncio's passbook of the Republic Savings Bank
also adds credibility to her testimony. The defendant contends on the other hand that the
testimony of the plaintiff, as well as her witnesses, regarding the sale of the land made by
Poncio in favor of the plaintiff is inadmissible under the provision of the Statute of Fraud based
on the argument that the note Exh. "A" is not the note or memorandum referred to in the to in the
Statute of Fraud. The defendants argue that Exh. "A" fails to comply with the requirements of the
Statute of Fraud to qualify it as the note or memorandum referred to therein and open the way
for the presentation of parole evidence to prove the fact contained in the note or
memorandum. The defendant argues that there is even no description of the lot referred to in
the note, especially when the note refers to only one half lot. With respect to the latter argument
of the Exhibit 'A', the court has arrived at the conclusion that there is a sufficient description of
the lot referred to in Exh. 'A' as none other than the parcel of land occupied by the defendant
Poncio and where he has his improvements erected. The Identity of the parcel of land involved
herein is sufficiently established by the contents of the note Exh. "A". For a while, this court had
that similar impression but after a more and thorough consideration of the context in Exh. 'A' and
for the reasons stated above, the Court has arrived at the conclusion stated earlier (pp. 52-54,
ROA, emphasis supplied).
(4) After re-trial on motion of the Infantes, the trial Judge rendered on January 20, 1965 another
decision dismissing the complaint, although he found
1. That on January 27, 1955, the plaintiff purchased from the defendant Poncio a parcel of land
with an area of 195 square meters, more or less, covered by TCT No. 5040 of the Province of
Rizal, located at San Juan del Monte, Rizal, for the price of P6.50 per square meter;
2. That the purchase made by the plaintiff was not reduced to writing except for a short note or
memorandum Exh. A, which also recited that the defendant Poncio would be allowed to continue
his stay in the premises, among other things, ... (pp. 91-92, ROA, emphasis supplied).
From such factual findings, the trial Judge confirms the due execution of Exhibit "A", only that his
legal conclusion is that it is not sufficient to transfer ownership (pp. 93-94, ROA).

(5) In the first decision of November 2, 1967 of the Fifth Division of the Court of Appeals
composed of Justices Esguerra (now Associate Justice of the Supreme Court), Gatmaitan and
Mojica, penned by Justice Gatmaitan, the Court of Appeals found that:
... the testimony of Rosario Carbonell not having at all been attempted to be disproved by
defendants, particularly Jose Poncio, and corroborated as it is by the private document in
Batanes dialect, Exhibit A, the testimony being to the effect that between herself and Jose
there had been celebrated a sale of the property excluding the house for the price of P9.50
per square meter, so much so that on faith of that, Rosario had advanced the sum of P247.26
and binding herself to pay unto Jose the balance of the purchase price after deducting the
indebtedness to the Bank and since the wording of Exhibit A, the private document goes so
far as to describe their transaction as one of sale, already consummated between them, note
the part tense used in the phrase, "the lot sold by him to me" and going so far even as to state
that from that day onwards, vendor would continue to live therein, for one year, 'during which
time he will not pay anything' this can only mean that between Rosario and Jose, there had
been a true contract of sale, consummated by delivery constitutum possession, Art. 1500,
New Civil Code; vendor's possession having become converted from then on, as a mere
tenant of vendee, with the special privilege of not paying rental for one year, it is true that
the sale by Jose Poncio to Rosario Carbonell corroborated documentarily only by Exhibit A
could not have been registered at all, but it was a valid contract nonetheless, since under our
law, a contract sale is consensual, perfected by mere consent, Couto v. Cortes, 8 Phil 459, so
much so that under the New Civil Code, while a sale of an immovable is ordered to be
reduced to a public document, Art. 1358, that mandate does not render an oral sale of realty
invalid, but merely incapable of proof, where still executory and action is brought and resisted
for its performance, 1403, par. 2, 3; but where already wholly or partly executed or where
even if not yet, it is evidenced by a memorandum, in any case where evidence to further
demonstrate is presented and admitted as the case was here, then the oral sale becomes
perfectly good, and becomes a good cause of action not only to reduce it to the form of a
public document, but even to enforce the contract in its entirety, Art. 1357; and thus it is that
what we now have is a case wherein on the one hand Rosario Carbonell has proved that she
had an anterior sale, celebrated in her favor on 27 January, 1955, Exhibit A, annotated as an
adverse claim on 8 February, 1955, and on other, a sale is due form in favor of Emma L.
Infante on 2 February, 1955, Exhibit 3-Infante, and registered in due form with title unto her
issued on 12 February, 1955; the vital question must now come on which of these two sales
should prevail; ... (pp. 74-76, rec., emphasis supplied).
(6) In the resolution dated October 30, 1968 penned by then Court of Appeals Justice Esguerra
(now a member of this Court), concurred in by Justices Villamor and Nolasco, constituting the
majority of a Special Division of Five, the Court of Appeals, upon motion of the Infantes, while
reversing the decision of November 2, 1967 and affirming the decision of the trial court of
January 20, 1965 dismissing plaintiff's complaint, admitted the existence and genuineness of
Exhibit "A", the private memorandum dated January 27, 1955, although it did not consider the
same as satisfying "the essential elements of a contract of sale," because it "neither specifically
describes the property and its boundaries, nor mention its certificate of title number, nor states
the price certain to be paid, or contrary to the express mandate of Articles 1458 and 1475 of the
Civil Code.
(7) In his dissent concurred in by Justice Rodriguez, Justice Gatmaitan maintains his decision of
November 2, 1967 as well as his findings of facts therein, and reiterated that the private
memorandum Exhibit "A", is a perfected sale, as a sale is consensual and consummated by

160
mere consent, and is binding on and effective between the parties. This statement of the principle
is correct [pp. 89-92, rec.].
III.
ADEQUATE
CONSIDERATION
IN FAVOR OF CARBONELL

OR

PRICE

FOR

THE

SALE

It should be emphasized that the mortgage on the lot was about to be foreclosed by the bank for
failure on the part of Poncio to pay the amortizations thereon. To forestall the foreclosure and at the
same time to realize some money from his mortgaged lot, Poncio agreed to sell the same to
Carbonell at P9.50 per square meter, on condition that Carbonell [1] should pay (a) the amount of
P400.00 to Poncio and 9b) the arrears in the amount of P247.26 to the bank; and [2] should
assume his mortgage indebtedness. The bank president agreed to the said sale with assumption of
mortgage in favor of Carbonell an Carbonell accordingly paid the arrears of P247.26. On January
27, 1955, she paid the amount of P200.00 to the bank because that was the amount that Poncio
told her as his arrearages and Poncio advanced the sum of P47.26, which amount was refunded to
him by Carbonell the following day. This conveyance was confirmed that same day, January 27,
1955, by the private document, Exhibit "A", which was prepared in the Batanes dialect by the
witness Constancio Meonada, who is also from Batanes like Poncio and Carbonell.
The sale did not include Poncio's house on the lot. And Poncio was given the right to continue
staying on the land without paying any rental for one year, after which he should pay rent if he
could not still find a place to transfer his house. All these terms are part of the consideration of the
sale to Carbonell.
It is evident therefore that there was ample consideration, and not merely the sum of P200.00, for
the sale of Poncio to Carbonell of the lot in question.
But Poncio, induced by the higher price offered to him by Infante, reneged on his commitment to
Carbonell and told Carbonell, who confronted him about it, that he would not withdraw from his
deal with Infante even if he is sent to jail The victim, therefore, "of injustice and outrage is the
widow Carbonell and not the Infantes, who without moral compunction exploited the greed and
treacherous nature of Poncio, who, for love of money and without remorse of conscience,
dishonored his own plighted word to Carbonell, his own cousin.
Inevitably evident therefore from the foregoing discussion, is the bad faith of Emma Infante from
the time she enticed Poncio to dishonor his contract with Carbonell, and instead to sell the lot to
her (Infante) by offering Poncio a much higher price than the price for which he sold the same to
Carbonell. Being guilty of bad faith, both in taking physical possession of the lot and in recording
their deed of sale, the Infantes cannot recover the value of the improvements they introduced in the
lot. And after the filing by Carbonell of the complaint in June, 1955, the Infantes had less
justification to erect a building thereon since their title to said lot is seriously disputed by Carbonell
on the basis of a prior sale to her.
With respect to the claim of Poncio that he signed the document Exhibit "A" under the belief that it
was a permit for him to remain in the premises in ease he decides to sell the property to Carbonell
at P20.00 per square meter, the observation of the Supreme Court through Mr. Chief Justice
Concepcion in G.R. No. L-11231, supra, bears repeating:

... Incidentally, the allegation in Poncio's answer to the effect that he signed Exhibit A under
the belief that it 'was a permit for him to remain in the premises in the event that 'he decided
to sell the property' to the plaintiff at P20.00 a sq. m is, on its face, somewhat difficult to
believe. Indeed, if he had not decided as yet to sell that land to plaintiff, who had never
increased her offer of P15 a square meter, there as no reason for Poncio to get said permit
from her. Upon the they if plaintiff intended to mislead Poncio, she would have Exhibit A to be
drafted, probably, in English, instead of taking the trouble of seeing to it that it was written
precisely in his native dialect, the Batanes. Moreover, Poncio's signature on Exhibit A
suggests that he is neither illiterate nor so ignorant as to sign a document without reading its
contents, apart from the fact that Meonada had read Exhibit A to him-and given him a copy
thereof, before he signed thereon, according to Meonada's uncontradicted testimony. (pp. 4647, ROA).
As stressed by Justice Gatmaitan in his first decision of November 2, 1965, which he reiterated
in his dissent from the resolution of the majority of the Special Division. of Five on October 30,
1968, Exhibit A, the private document in the Batanes dialect, is a valid contract of sale between
the parties, since sale is a consensual contract and is perfected by mere consent (Couto vs.
Cortes, 8 Phil. 459). Even an oral contract of realty is all between the parties and accords to the
vendee the right to compel the vendor to execute the proper public document As a matter of fact,
Exhibit A, while merely a private document, can be fully or partially performed, to it from the
operation of the statute of frauds. Being a all consensual contract, Exhibit A effectively
transferred the possession of the lot to the vendee Carbonell by constitutum
possessorium (Article 1500, New Civil Code); because thereunder the vendor Poncio continued
to retain physical possession of the lot as tenant of the vendee and no longer as knew thereof.
More than just the signing of Exhibit A by Poncio and Carbonell with Constancio Meonada as
witness to fact the contract of sale, the transition was further confirmed when Poncio agreed to
the actual payment by at Carbonell of his mortgage arrearages to the bank on January 27, 1955
and by his consequent delivery of his own mortgage passbook to Carbonell. If he remained
owner and mortgagor, Poncio would not have surrendered his mortgage passbook to' Carbonell.
IV. IDENTIFICATION AND DESCRIPTION OF THE DISPUTED LOT IN THE MEMORANDUM
EXHIBIT "A"
The claim that the memorandum Exhibit "A" does not sufficiently describe the disputed lot as the
subject matter of the sale, was correctly disposed of in the first decision of the trial court of
December 5, 1962, thus: "The defendant argues that there is even no description of the lot
referred to in the note (or memorandum), especially when the note refers to only one-half lot.
With respect to the latter argument of the defendant, plaintiff points out that one- half lot was
mentioned in Exhibit 'A' because the original description carried in the title states that it was
formerly part of a bigger lot and only segregated later. The explanation is tenable, in (sic)
considering the time value of the contents of Exh. 'A', the court has arrived at the conclusion that
there is sufficient description of the lot referred to in Exh. As none other than the parcel of lot
occupied by the defendant Poncio and where he has his improvements erected. The Identity of
the parcel of land involved herein is sufficiently established by the contents of the note Exh. 'A'.
For a while, this court had that similar impression but after a more and through consideration of
the context in Exh. 'A' and for the reasons stated above, the court has arrived to (sic) the
conclusion stated earlier" (pp. 53-54, ROA).
Moreover, it is not shown that Poncio owns another parcel with the same area, adjacent to the
lot of his cousin Carbonell and likewise mortgaged by him to the Republic Savings Bank. The
transaction therefore between Poncio and Carbonell can only refer and does refer to the lot

161
involved herein. If Poncio had another lot to remove his house, Exhibit A would not have stipulated
to allow him to stay in the sold lot without paying any rent for one year and thereafter to pay rental
in case he cannot find another place to transfer his house.
While petitioner Carbonell has the superior title to the lot, she must however refund to respondents
Infantes the amount of P1,500.00, which the Infantes paid to the Republic Savings Bank to redeem
the mortgage.
It appearing that the Infantes are possessors in bad faith, their rights to the improvements they
introduced op the disputed lot are governed by Articles 546 and 547 of the New Civil Code. Their
expenses consisting of P1,500.00 for draining the property, filling it with 500 cubic meters of garden
soil, building a wall around it and installing a gate and P11,929.00 for erecting a b ' bungalow
thereon, are useful expenditures, for they add to the value of the property (Aringo vs. Arenas, 14
Phil. 263; Alburo vs. Villanueva, 7 Phil. 277; Valencia vs. Ayala de Roxas, 13 Phil. 45).
Under the second paragraph of Article 546, the possessor in good faith can retain the useful
improvements unless the person who defeated him in his possession refunds him the amount of
such useful expenses or pay him the increased value the land may have acquired by reason
thereof. Under Article 547, the possessor in good faith has also the right to remove the useful
improvements if such removal can be done without damage to the land, unless the person with the
superior right elects to pay for the useful improvements or reimburse the expenses therefor under
paragraph 2 of Article 546. These provisions seem to imply that the possessor in bad faith has
neither the right of retention of useful improvements nor the right to a refund for useful expenses.
But, if the lawful possessor can retain the improvements introduced by the possessor in bad faith
for pure luxury or mere pleasure only by paying the value thereof at the time he enters into
possession (Article 549 NCC), as a matter of equity, the Infantes, although possessors in bad faith,
should be allowed to remove the aforesaid improvements, unless petitioner Carbonell chooses to
pay for their value at the time the Infantes introduced said useful improvements in 1955 and 1959.
The Infantes cannot claim reimbursement for the current value of the said useful improvements;
because they have been enjoying such improvements for about two decades without paying any
rent on the land and during which period herein petitioner Carbonell was deprived of its possession
and use.
WHEREFORE, THE DECISION OF THE SPECIAL DIVISION OF FIVE OF THE COURT OF
APPEALS OF OCTOBER 30, 1968 IS HEREBY REVERSED; PETITIONER ROSARIO
CARBONELL IS HEREBY DECLARED TO HAVE THE SUPERIOR RIGHT TO THE LAND IN
QUESTION AND IS HEREBY DIRECTED TO REIMBURSE TO PRIVATE RESPONDENTS
INFANTES THE SUM OF ONE THOUSAND FIVE HUNDRED PESOS (P1,500.00) WITHIN
THREE (3) MONTHS FROM THE FINALITY OF THIS DECISION; AND THE REGISTER OF
DEEDS OF RIZAL IS HEREBY DIRECTED TO CANCEL TRANSFER CERTIFICATE OF TITLE
NO. 37842 ISSUED IN FAVOR OF PRIVATE RESPONDENTS INFANTES COVERING THE
DISPUTED LOT, WHICH CANCELLED TRANSFER CERTIFICATE OF TITLE NO. 5040 IN THE
NAME OF JOSE PONCIO, AND TO ISSUE A NEW TRANSFER CERTIFICATE OF TITLE IN
FAVOR OF PETITIONER ROSARIO CARBONELL UPON PRESENTATION OF PROOF OF
PAYMENT BY HER TO THE INFANTES OF THE AFORESAID AMOUNT OF ONE THOUSAND
FIVE HUNDRED PESOS (P1,500.00).
PRIVATE RESPONDENTS INFANTES MAY REMOVE THEIR AFOREMENTIONED USEFUL
IMPROVEMENTS FROM THE LOT WITHIN THREE (3) MONTHS FROM THE FINALITY OF THIS

DECISION, UNLESS THE PETITIONER ROSARIO CARBONELL ELECTS TO ACQUIRE THE

SAME AND PAYS THE INFANTES THE AMOUNT OF THIRTEEN THOUSAND FOUR
HUNDRED TWENTY-NINE PESOS (P13,429.00) WITHIN THREE (3) MONTHS FROM THE
FINALITY OF THIS DECISION. SHOULD PETITIONER CARBONELL FAIL TO PAY THE SAID
AMOUNT WITHIN THE AFORESTATED PERIOD OF THREE (3) MONTHS FROM THE
FINALITY OF THIS DECISION, THE PERIOD OF THREE (3) MONTHS WITHIN WHICH THE
RESPONDENTS INFANTES MAY REMOVE THEIR AFOREMENTIONED USEFUL
IMPROVEMENTS SHALL COMMENCE FROM THE EXPIRATION OF THE THREE (3)
MONTHS GIVEN PETITIONER CARBONELL TO PAY FOR THE SAID USEFUL
IMPROVEMENTS.
WITH COSTS AGAINST PRIVATE RESPONDENTS.
G.R. No. L-22331
June 6, 1967
IN RE: PETITION FOR CONSOLIDATION OF TITLE IN THE VENDEES OF A HOUSE AND
THE RIGHTS TO A LOT. MARIA BAUTISTA VDA. DE REYES, ET AL. vs. MARTIN DE LEON
REGALA, J.:
Rodolfo Lanuza and his wife Belen were the owners of a two-story house built on a lot of the
Maria Guizon Subdivision in Tondo, Manila, which the spouses leased from the Consolidated
Asiatic Co. On January 12, 1961, Lanuza executed a document entitled "Deed of Sale with Right
to Repurchase" whereby he conveyed to Maria Bautista Vda. de Reyes and Aurelia R. Navarro
the house, together with the leasehold rights to the lot, a television set and a refrigerator in
consideration of the sum of P3,000. The deed reads:
DEED OF SALE WITH RIGHT TO REPURCHASE KNOW ALL MEN BY THESE PRESENTS:
That I, RODOLFO LANUZA, Filipino, of legal age, married to Belen Geronimo, and residing at
783-D Interior 14 Maria Guizon, Gagalangin, Tondo, Manila, hereby declare that I am the true
and absolute owner of a new two storey house of strong materials, constructed on a rented lot
Lot No. 12 of the Maria Guizon Subdivision, owned by the Consolidated Asiatic Co. as
evidenced by the attached Receipt No. 292, and the plan of the subdivision, owned by said
company.
That for and in consideration of the sum of THREE THOUSAND PESOS (P3,000.00) which I
have received this day from Mrs. Maria Bautista Vda. de Reyes, Filipino, of legal age, widow;
and Aurelia Reyes, married to Jose S. Navarro, Filipinos, of legal ages, and residing at 1112
Antipolo St., Tondo, Manila, I hereby SELL, CEDE, TRANSFER, AND CONVEY unto said
Maria Bautista Vda. de Reyes, her heirs, succesors, administrators and assigns said house,
including my right to the lot on which it was constructed, and also my television, and frigidaire
"Kelvinator" of nine cubic feet in size, under the following conditions:
I hereby reserve for myself, my heirs, successors, administrators, and assigns the right to
repurchase the above mentioned properties for the same amount of P3,000.00, without
interest, within the stipulated period of three (3) months from the date hereof. If I fail to pay
said amount of P3,000.00, within the stipulated period of three months, my right to repurchase
the said properties shall be forfeited and the ownership thereto shall automatically pass to
Mrs. Maria Bautista Vda. de Reyes, her heirs, successors, administrators, and assigns,
without any Court intervention, and they can take possession of the same.1wph1.t

162
IN WITNESS WHEREOF, we have signed this contract in the City of Manila, this 12th day of
January, 1961.

s/t
RODOLFO
Vendor

s/t
Vendee

AURELIA

LANUZA

REYES

s/t
MARIA
Vendee

BAUTISTA

WITH
MY
s/t JOSE S. NAVARRO

VDA.

MARITAL

DE

REYES

CONSENT:

When the original period of redemption expired, the parties extended it to July 12, 1961 by an
annotation to this effect on the left margin of the instrument. Lanuza's wife, who did not sign the
deed, this time signed her name below the annotation.
It appears that after the execution of this instrument, Lanuza and his wife mortgaged the same
house in favor of Martin de Leon to secure the payment of P2,720 within one year. This mortgage
was executed on October 4, 1961 and recorded in the Office of the Register of Deeds of Manila on
November 8, 1961 under the provisions of Act No. 3344.
As the Lanuzas failed to pay their obligation, De Leon filed in the sheriff's office on October 5, 1962
a petition for the extra-judicial foreclosure of the mortgage. On the other hand, Reyes and Navarro
followed suit by filing in the Court of First Instance of Manila a petition for the consolidation of
ownership of the house on the ground that the period of redemption expired on July 12, 1961
without the vendees exercising their right of repurchase. The petition for consolidation of ownership
was filed on October 19. On October 23, the house was sold to De Leon as the only bidder at the
sheriffs sale. De Leon immediately took possession of the house, secured a discharge of the
mortgage on the house in favor of a rural bank by paying P2,000 and, on October 29, intervened in
court and asked for the dismissal of the petition filed by Reyes and Navarro on the ground that the
unrecorded pacto de retro sale could not affect his rights as a third party.
The parties1 thereafter entered into a stipulation of facts on which this opinion is mainly based and
submitted the case for decision. In confirming the ownership of Reyes and Navarro in the house
and the leasehold right to the lot, the court said:
It is true that the original deed of sale with pacto de retro, dated January 12, 1961, was not
signed by Belen Geronimo-Lanuza, wife of the vendor a retro, Rodolfo Lanuza, at the time of its
execution. It appears, however, that on the occasion of the extension of the period for
repurchase to July 12, 1961, Belen Geronimo-Lanuza signed giving her approval and conformity.
This act, in effect, constitutes ratification or confirmation of the contract (Annex "A" Stipulation)
by Belen Geronimo-Lanuza, which ratification validated the act of Rodolfo Lanuza from the
moment of the execution of the said contract. In short, such ratification had the effect of purging
the contract (Annex "A" Stipulation) of any defect which it might have had from the moment of its
execution. (Article 1396, New Civil Code of the Philippines; Tang Ah Chan and Kwong Koon vs.
Gonzales, 52 Phil. 180)

Again, it is to be noted that while it is true that the original contract of sale with right to
repurchase in favor of the petitioners (Annex "A" Stipulation) was not signed by Belen
Geronimo-Lanuza, such failure to sign, to the mind of the Court, made the contract merely
voidable, if at all, and, therefore, susceptible of ratification. Hence, the subsequent ratification
of the said contract by Belen Geronimo-Lanuza validated the said contract even before the
property in question was mortgaged in favor of the intervenor.
It is also contended by the intervenor that the contract of sale with right to repurchase should
be interpreted as a mere equitable mortgage. Consequently, it is argued that the same cannot
form the basis for a judicial petition for consolidation of title over the property in litigation. This
argument is based on the fact that the vendors a retro continued in possession of the property
after the execution of the deed of sale with pacto de retro. The mere fact, however, that the
vendors a retro continued in the possession of the property in question cannot justify an
outright declaration that the sale should be construed as an equitable mortgage and not a
sale with right to repurchase. The terms of the deed of sale with right to repurchase (Annex
"A" Stipulation) relied upon by the petitioners must be considered as merely an equitable
mortgage for the reason that after the expiration of the period of repurchase of three months
from January 12, 1961.
Article 1602 of the New Civil Code provides:
"ART. 1602. The contract shall be presumed to be in equitable mortgage, in any of the
following cases;
xxx

xxx

xxx

"(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.
xxx

xxx

xxx

In the present case, it appears, however, that no other instrument was executed between the
parties extending the period of redemption. What was done was simply to annotate on the
deed of sale with right to repurchase (Annex "A" Stipulation) that "the period to repurchase,
extended as requested until July 12, 1961." Needless to say, the purchasers a retro, in the
exercise of their freedom to make contracts, have the power to extend the period of
repurchase. Such extension is valid and effective as it is not contrary to any provision of law.
(Umale vs. Fernandez, 28 Phil. 89, 93)
The deed of sale with right to repurchase (Annex "A" Stipulation) is embodied in a public
document. Consequently, the same is sufficient for the purpose of transferring the rights of the
vendors a retro over the property in question in favor of the petitioners. It is to be noted that
the deed of sale with right to repurchase (Annex "A" Stipulation) was executed on January 12,
1961, which was very much ahead in point of time to the execution of the real estate
mortgage on October 4, 1961, in favor of intervenor (Annex "B" Stipulation). It is obvious,
therefore, that when the mortgagors, Rodolfo Lanuza and Belen Geronimo Lanuza, executed
the real estate mortgage in favor of the intervenor, they were no longer the absolute owners of
the property since the same had already been sold a retro to the petitioners. The spouses
Lanuza, therefore, could no longer constitute a valid mortgage over the property inasmuch as

163
they did not have any free disposition of the property mortgaged. (Article 2085, New Civil Code.)
For a valid mortgage to exist, ownership of the property mortgaged is an essential requisite. A
mortgage executed by one who is not the owner of the property mortgaged is without legal
existence and the registration cannot validate. (Philippine National Bank vs. Rocha, 55 Phil.
497).

De Leon based his claim that the pacto de retro sale is actually an equitable mortgage on the
fact that, first, the supposed vendors (the Lanuzas) remained in possession of the thing sold
and, second, when the three-month period of redemption expired the parties extended it. These
are circumstances which indeed indicate an equitable mortgage. 4 But their relevance emerges
only when they are seen in the perspective of other circumstances which indubitably show that
what was intended was a mortgage and not a sale.These circumstances are:

The intervenor invokes the provisions of article 1544 of the New Civil Code for the reason that
while the real estate mortgage in his favor (Annex "B" Stipulation) has been registered with the
Register of Deeds of Manila under the provisions of Act No. 3344 on November 3, 1961, the
deed of sale with right to repurchase (Annex "A" Stipulation) however, has not been duly
registered. Article 1544 of the New Civil Code, however, refers to the sale of the same property
to two or more vendees. This provision of law, therefore, is not applicable to the present case
which does not involve sale of the same property to two or more vendees. Furthermore, the
mere registration of the property mortgaged in favor of the intervenor under Act No. 3344 does
not prejudice the interests of the petitioners who have a better right over the property in question
under the old principle of first in time, better in right. (Gallardo vs. Gallardo, C.B., 46 O.G. 5568)

1. The gross inadequacy of the price. In the discussion in the briefs of the parties as well as in
the decision of the trial court, the fact has not been mentioned that for the price of P3,000, the
supposed vendors "sold" not only their house, which they described as new and as being made
of strong materials and which alone had an assessed value of P4,000, but also their leasehold
right television set and refrigerator, "Kelvinator of nine cubic feet in size." indeed, the petition for
consolidation of ownership is limited to the house and the leasehold right, while the stipulation of
facts of the parties merely referred to the object of the sale as "the property in question." The
failure to highlight this point, that is, the gross inadequacy of the price paid, accounts for the
error in determining the true agreement of the parties to the deed.

De Leon appealed directly to this Court, contending (1) that the sale in question is not only voidable
but void ab initio for having been made by Lanuza without the consent of his wife; (2) that the
pacto de retro sale is in reality an equitable mortgage and therefore can not be the basis of a
petition for consolidation of ownership; and (3) that at any rate the sale, being unrecorded, cannot
affect third parties.

2. The non-transmission of ownership to the vendees. The Lanuzas, the supposed vendors did
not really transfer their ownership of the properties in question to Reyes and Navarro. What was
agreed was that ownership of the things supposedly sold would vest in the vendees only if the
vendors failed to pay P3,000. In fact the emphasis is on the vendors payment of the amount
rather than on the redemption of the things supposedly sold. Thus, the deed recites that

We are in accord with the trial court's ruling that a conveyance of real property of the conjugal
partnership made by the husband without the consent of his wife is merely voidable. This is clear
from article 173 of the Civil Code which gives the wife ten years within which to bring an action for
annulment. As such it can be ratified as Lanuza's wife in effect did in this case when she gave her
conformity to the extension of the period of redemption by signing the annotation on the margin of
the deed. We may add that actions for the annulment of voidable contracts can be brought only by
those who are bound under it, either principally or subsidiarily (art. 1397), so that if there was
anyone who could have questioned the sale on this ground it was Lanuza's wife alone.

If I (Lanuza) fail to pay said amount of P3,000.00 within the stipulated period of three months,
my right to repurchase the said properties shall be forfeited and the ownership thereto
automatically pass to Mrs. Maria Bautista Vda. de Reyes . . . without any Court intervention
and they can take possession of the same.

We also agree with the lower court that between an unrecorded sale of a prior date and a recorded
mortgage of a later date the former is preferred to the latter for the reason that if the original owner
had parted with his ownership of the thing sold then he no longer had the ownership and free
disposal of that thing so as to be able to mortgage it again. Registration of the mortgage under Act
No. 3344 would, in such case, be of no moment since it is understood to be without prejudice to the
better right of third parties.2 Nor would it avail the mortgagee any to assert that he is in actual
possession of the property for the execution of the conveyance in a public instrument earlier was
equivalent to the delivery of the thing sold to the vendee.3
But there is one aspect of this case which leads us to a different conclusion. It is a point which
neither the parties nor the trial court appear to have sufficiently considered. We refer to the nature
of the so-called "Deed of Sale with Right to Repurchase" and the claim that it is in reality an
equitable mortgage. While De Leon raised the question below and again in this Court in his second
assignment of error, he has not demonstrated his point; neither has he pursued the logical
implication of his argument beyond stating that a petition for consolidation of ownership is an
inappropriate remedy to enforce a mortgage.

This stipulation is contrary to the nature of a true pacto de retro sale under which a vendee
acquires ownership of the thing sold immediately upon execution of the sale, subject only to the
vendor's right of redemption.5 Indeed, what the parties established by this stipulation is
an odious pactum commissorium which enables the mortgages to acquire ownership of the
mortgaged properties without need of foreclosure proceedings. Needless to say, such a
stipulation is a nullity, being contrary to the provisions of article 2088 of the Civil Code. 6 Its
insertion in the contract of the parties is an avowal of an intention to mortgage rather than to
sell.7
3. The delay in the filing of the petition for consolidation. Still another point obviously overlooked
in the consideration of this case is the fact that the period of redemption expired on July 12,
1961 and yet this action was not brought until October 19, 1962 and only after De Leon had
asked on October 5, 1962 for the extra-judicial for closure of his mortgage. All the while, the
Lanuzas remained in possession of the properties they were supposed to have sold and they
remained in possession even long after they had lost their right of redemption.
Under these circumstances we cannot but conclude that the deed in question is in reality a
mortgage. This conclusion is of far-reaching consequence because it means not only that this
action for consolidation of ownership is improper, as De Leon claims, but, what is more that
between the unrecorded deed of Reyes and Navarro which we hold to be an equitable
mortgage, and the registered mortgage of De Leon, the latter must be preferred. Preference of
mortgage credits is determined by the priority of registration of the mortgages, 8 following the

164
maxim "Prior tempore potior jure" (He who is first in time is preferred in right.) 9 Under article 2125
of the Civil Code, the equitable mortgage, while valid between Reyes and Navarro, on the one
hand, and the Lanuzas, on the other, as the immediate parties thereto, cannot prevail over the
registered mortgage of De Leon.
Wherefore, the decision appealed from is reversed, hence, the petition for consolidation is
dismissed. Costs against Reyes and Navarro.
G.R. No. L-17280
December 29, 1965
DIOSDADO STA. ROMANA vs. CARLOS IMPERIO
CONCEPCION, J.:
Appeal, taken by Diosdado Sta. Romana, hereinafter referred to as appellant, from a decision of
the Court of Appeals, as amended, insofar as it sentences him to reimburse to Carlos Imperio,
hereinafter referred to, as appellee, the sum of P8,463, with costs.
On January 6, 1946, Silvio R. Viola, hereinafter referred to as the Principal, executed in favor of his
brother, Dr. Jose R. Viola, hereinafter referred to as the Agent, a power of attorney, Exhibit A-1.
vesting in the latter the authority to take charge of, manage and administer seven (7) parcels of
registered land situated in the municipality of San Miguel, Province of Bulacan, to be converted into
a "subdivision" for residential purposes, until all of the subdivision lots therein shall have been sold.
It would seem that some of these parcels of land, one of which was known as Lot No. 622 of the
Cadastral Survey of San Miguel, Bulacan, were covered by Transfer Certificates of Title Nos.
19556 and 19559 of said province. On April 26, 1946, the Principal asked the Court of First
Instance of Bulacan to order the issuance of a second owner's duplicate of said transfer certificate
of title, upon the ground that his duplicates thereof had been lost; but on June 25, 1946, he
amended the motion to exclude therefrom TCT No. 19559, his copy thereof having been seemingly
located in the meanwhile. Soon, later, or on June 29, 1946, the court granted said motion, as
amended, and ordered the Register of Deeds to issue a second owner's duplicate of TCT No.
19556.
Meanwhile, or on June 18, 1946, the agent had executed, in favor of Pablo Ignacio, a deed (Exhibit
A) in which he undertook to sell on installments six (6) lots covered by said TCT No. 19556, with an
aggregate area of 3,804 square meters. This instrument (Exhibit A) and the Agent's
aforementioned power of attorney (Exhibit A-1) were filed with the office of the register of deeds
and annotated on said TCT No. 19556 on July 2, 1946. This notwithstanding, four (4) months later,
or on October 18, 1946, the Principal sold a land of about thirty (30) hectares, including said Lot
No. 622, to appellant herein (See Exhibit B). A week later, or on October 25, 1946, the latter, in
turn, conveyed said land to the appellee, by virtue of the deed Exhibit C, which was filed with the
office of the register of deeds on November 4, 1946. Thereupon, TCT No. 19556 was cancelled
and, in lieu thereof, TCT No. 28946 was issued in appellee's name. On December 14, 1946,
appellee sold portions of said lot No. 622 to the following persons, hereinafter referred to as
occupants, who had been and were holding, as lessees thereof, the portions respectively
purchased by them, to wit:
a. 665 sq. m. to Domingo Manabat, Patricia Lopez and Calixta Bautista (to whom TCT No. T1635 was issued) (Exhibit D);
b. 600 sq. m. to Conrado Manabat and Eladio Sioson (to whom TCT No. T-1634 was issued);
c. Lot No. 14 of Block 13 of the subdivision to Reynaldo Salvador and Graciano Garcia (to whom
TCT No. T-1633 was issued); and

d. 682 sq. m. to Hilario de Jesus, Apolonio Pablo and Ismaela Jimenez (to whom TCT No. T1632 was issued).
Having failed to take possession of the land sold to him by the Agent, on April 22, 1947, Pablo
Ignacio commenced this action in the Court of First Instance of Bulacan, against said occupants,
as well as against appellee, appellant, and the Principal, to annul the sales made by the latter to
appellant, by appellant to appellee and by appellee to said occupants, as well as for the
possession of the land in question and damages.
On May 7, 1947, a pleading was filed, purporting to be defendants' answer, alleging, inter alia,
that appellees had, in good faith and for value, purchased said land from appellant, in whose
name the title to said land was free from any lien or encumbrance in favor of Ignacio; that the
occupants had purchased the portions assigned to them by appellee under similar conditions;
that the sale in favor of Ignacio was fraudulent; and that Ignacio knew that said occupants were
in possession of said portions, and had a right of pre-emption thereto.
On June 20, 1947, the Principal filed his own answer alleging that the land conveyed by him to
Ignacio is different from the one covered by the sale made by the Agent to appellant and that he
(the Principal) had instituted Civil Case No. 137 of the Court of First Instance of Bulacan against
appellant to annul the aforementioned Sale by the Agent.
Subsequently, or on January 5, 1949, appellee and said occupants filed a cross-claim against
the Principal, the Agent and appellant herein. On January 24, 1949, said occupants filed against
the appellee, a cross-claim which was amended on October 17, 1949.
In due course, thereafter, the lower court rendered judgment: (I) declaring that Ignacio is the
owner in fee simple of the lots in question; (II) ordering the Principal to execute the
corresponding deed of final sale thereof to Ignacio; (III) directing appellee to surrender to the
register of deeds of Bulacan the owner's duplicate of TCT No. 28948 for its cancellation and the
issuance, in lieu thereof, of another certificate in the name of Ignacio; (IV) ordering the abovementioned occupants to similarly surrender to said register of deeds their respective certificates
of title for cancellation thereof; and (V) sentencing:
(a) appellee to refund
1) P2,151.25 to Domingo Manabat, Patricia Lopez and Calixta Bautista;
2) P1,950 to Conrado Manabat and Eliodoro Jimenez;
3) P2,216.50 to Hilario de Jesus and Apolonio and Ismaela Jimenez; and
4) P2,135.25 to Reynaldo Salvador and Graciano Garcia: and
(b) the Principal to pay Ignacio 255% of P6,457.00 representing the price of materials
purchased by the latter for the construction of a movie house in order to compensate for the
deterioration and depreciation of said materials, plus P5,000, by way of damages, with costs
against the defendants.
Appellee and the occupants appealed from this judgment, which was affirmed by the Court of
Appeals on May 20, 1958. On motion for reconsideration filed by appellee, on July 7, 1959, the
Court of Appeals rendered an amended decision ordering appellant to reimburse the appellee in

165
the sum of P8,463.00, representing the aggregate amount to be refunded by him (appellee) to the
aforementioned occupants, pursuant to the original decision. Appellant seeks a review thereof as
amended. He maintains that the Court of Appeals has erred: (1) in taking cognizance of this case;
(2) in amending its original decision without giving him a chance to answer appellee's motion for
reconsideration and in entertaining appellee's "supposed" cross-claim; and (3) in sustaining the
same, despite the fact that appellee was in pari delicto.
As regards the first alleged error, it is urged that in their amended cross-claim herein, the
aforementioned occupants had sought to recover the sums of P8,463.00, P45,960.00, P4,700.00,
and P80,000.,00, or a total of P140,303.00, which was beyond the jurisdiction of the Court of
Appeals, when it rendered the decision appealed from, on appeals taken directly from courts of first
instance, in civil cases originating therefrom. The fact is, however, that the appellate jurisdiction of
the Court of Appeals has been increased by Republic Act No. 2613 (approved on August 1, 1959)
from P50,000 to P200,000. Hence, we cannot annul said decision for want of jurisdiction, and
entertain the appeal from the decision of the court of origin as if it had been taken directly to the
Supreme Court, inasmuch as the same now has no such jurisdiction. In fact, upon the passage of
Republic Act No. 2613, we have remanded to the Court of Appeals a number of civil cases,
pending decision before Us, in which the value of controversy did not exceed P200,000, although
said cases had been forwarded to Us directly by courts of first instance, on appeal taken, from
decisions thereof, when the Court of Appeals had exclusive appellate jurisdiction over civil cases
involving not more than P50,000.00.
With reference to the second alleged error, suffice it to say that appellant was allowed to and did
file a printed motion for reconsideration of the amended decision of the Court of Appeals; that, in
said motion for reconsideration, consisting of 62 printed pages, appellant discussed extensively the
alleged demerits of appellee's motion for reconsideration; and that, after due consideration thereof,
said motion for reconsideration was denied by the Court of Appeals. The demands of substantial
justice have thus been satisfied in said appellate court.
Appellant alleges in support of the third alleged error that appellee had never filed a cross-claim
against him and that, at any rate, appellee is not entitled to reimbursement from him because they
are in pari delicto. Although it is true that the appellee has not filed a cross-claim against the
appellant, it is a fact that the occupants had filed a cross-claim against both of them; and that upon
payment to the occupants of the amount of the cross-claim adjudged to be due to them, the
appellee becomes subrogated into their rights, under said cross-claim, against the appellant.
Moreover, it is an elementary principle of law (Articles 1495, 1547 and 1555, Civil Code of the
Philippines), as well as of justice and equity that, unless a contrary intention appears, the vendor
warrants his title to the thing sold, and that, in the event of eviction, the vendee shall be entitled to
the return of the value which the thing sold has at the time of the eviction, be it greater or less than
the price of the sale. In the case at bar, it has been established that the land in dispute was, at the
time of the eviction, worth at least the sum of P8,463, which is the aggregate amount charged by
the appellee from said occupants.
Appellant cites Article 1412 of the Civil Code of the Philippines, in support of the view that appellee
may not recover said amount from appellant, upon the ground that both are in pari delicto. This
provision is part of Title II of Book IV of the Civil Code, on contracts in general, and it refers to
contracts which are null and void ab initio, pursuant to Article 1409 of the Civil Code. The contract
between appellant and appellee does not fall, however, under this provision, and is, accordingly,
beyond the purview of the aforementioned Article 1412. Said contract is governed by Title VI of the
same Book, on Sales in particular, specially by the aforesaid Articles 1495, 1547 and 1555, which
are part of said Title VI, regarding breach of the warranty arising from a valid contract of sale, due

to the application of Art. 1544 of the same title, regulating the effects of double sales.
Incidentally, these provisions suggest, also, the remedies available to appellant herein.
WHEREFORE, the amended decision appealed from is hereby affirmed, with costs against the
appellant. It is so ordered..
G.R. No. 71490-91 June 28, 1988
ERNESTO BERNALES vs. INTERMEDIATE APPELLATE COURT
PARAS, J.:
This is a petition for review on certiorari, seeking to reverse and set aside the decision * of the
then Intermediate Appellate Court which reversed and set aside the decision of the then Court of
First Instance of Abra, Second Judicial District, Branch I in the consolidated cases AC G.R. CV
Nos. 00141-42-R entitled ALFONSO CADIAM, et al. vs. ERNESTO BERNALES, et al. and
CONSTANTE SIAGAN, et al. v. ELPIDIO SIAGAN et al.
The factual background of this case as gathered from the records are as follows:
The lot in question was originally public land, cadastrally surveyed under the Manabo Cadastre
No. 327-D and was designated as Lot No. 1494.
Henry Siagan is the father of both Elpidio Siagan whose mother is Cagaoay Camiling and
Augusto Siagan whose mother is Dagaoan Sawadan. Augusto Siagan has a son named
Constante Siagan, one of the petitioners in this case. Both sons of Henry Siagan and their
successors-in-interest are the contending parties in this case, claiming ownership of the land in
question. Cagaoay Camiling died in December, 1939; Henry Siagan in 1943, Dagaoan Sawadan
in September, 1965 and Augusto Siagan on October 4,1975.
Petitioners claim that Dagaoan Sawadan acquired ownership over subject land by means of
continuous, adverse and peaceful possession thereof since time immemorial or since 1908; that
she brought said property to the marriage in 1908 and in 1918 Henry Siagan, as administrator
declared Lot 1494 under T.D. 2872, later redeclared in 1921 as T.D. 5481. Henry Siagan died in
1943 and in 1948 Dagaoan Sawadan declared Lot 1494 under T.D. 4187 (Petition, Rollo, p. 19).
Dagaoan Sawadan died in 1965. Augusto Siagan inherited Lot 1494 but his son Constante
alleging in a Deed of Absolute Sale dated February 16, 1967 that he inherited the same from his
late grandmother, sold the lot in question to the Pasimio spouses and registered said instrument
under Act 3344 (Record on Appeal, p. 56). The Pasimio spouses in turn sold the same lot to the
Roman Catholic Bishop of Bangued, Inc. who bought the same for the sole purpose of disposing
the same at cost to the actual occupants-tenants thereon in the furtherance of the Land Reform
Program of the government (Record on Appeal, p. 46) and had it registered under Act 3344
(Record on Appeal, p. 58). Said tenants are now the petitioners herein.
Petitioners allege that they have been in possession and have tilled Lot 1494 as tenants of
Dagaoan Sawadan from 1949 to 1965 and thereafter they occupied and tilled the same lot from
1965 to date. The Roman Catholic Bishop of Bangued in confirmation thereof, stated in his
complaint dated June 3, 1976, that said petitioners tilled the aforesaid parcel of land from 1968

166
to the present, openly, publicly, adversely and continuously in the concept of owners (Record on
Appeal, p. 47; Joint Decision, Record on Appeal, p. 202).

involved being practically Identical and directly inter-related, by agreement of the parties and
their opposing counsel, a joint trial was held (Joint Decision, Record on Appeal, p. 202).

On the other hand, private respondents maintain that Lot 1494 was originally owned by Henry
Siagan who died intestate in May 1943, that as early as 1958 the ownership of said lot was already
the subject of litigation under Civil Case No. 90-R703 in the Court of First Instance of Abra with
Elpidio Siagan as plaintiff and Dagaoan Sawadan and Augusto Siagan as defendants, the said
land being a part of the estate of Henry Siagan as claimed by Elpidio Siagan; that while said case
was pending hearing, Elpidio Siagan filed in the same court, a petition for Administration
Proceedings entitled "In the Matter of the Intestate Estate of Henry Siagan, deceased, Elpidio
Siagan, petitioner, Augusto Siagan, Administrator, Special Proceedings (Record on Appeal, pp.
118-119); that on August 14,1967, about two years after the death of Dagaoan Sawadan and more
or less six months after Constante Siagan sold Lot 1494 to the Pasimio spouses, Elpidio Siagan
and Augusto Siagan mutually recognized and accepted each other as the only heirs entitled to
inherit the estate of Henry Siagan and filed a Joint Motion to Terminate Special Proceedings No.
407 (Record on Appeal, pp. 82-83) and on the same date executed the "Memorandum of
Agreement" which contains several stipulations among which are: That Augusto Siagan and Elpidio
Siagan mutually recognized and agreed that they are the only legal heirs of Henry Siagan entitled
to inherit the properties left by the latter; that Augusto Siagan renounced, quit-claimed, waived,
ceded and conveyed any interest and right he had over three lots among which is Lot No. 1494 in
favor of Elpidio Siagan, while the latter in turn quit-claimed, waived, ceded and conveyed any
interest and right he had over 14 other parcels of land of the decedent in favor of Augusto Siagan
in exchange for said Lot 1494 (Record on Appeal, pp. 86-87). Independently of said Memorandum
of Agreement, Augusto Siagan also executed a Sworn Statement dated August 23, 1967 (Record
on Appeal, pp. 87-89) and a Deed of Extra-Judicial Adjudication of Real Estate and Quit Claim
dated September 21, 1967 (Record on Appeal, pp. 59-60) showing by these documents that he
adjudicated the property in question unto himself and assigned, transferred and conveyed all his
rights and interest therein in favor of Elpidio Siagan (Decision, AC-G.R. CV Nos. 00141-42-R,
Rollo, p. 19).

The lower court ** rendered a decision dated August 31, 1979, in favor of the petitioners, the
dispositive portion of which reads:

Elpidio Siagan applied in September, 1967 for Free Patent over said Lot 1494 and on April 22,
1968, Free Patent No. 392197 was issued. Subsequently, Original Certificate of Title No. P-392
covering said lot, was issued in the name of Elpidio Siagan.
On May 5, 1973, or after the lapse of five (5) years, Elpidio Siagan sold Lot 1494 to the spouses
Alfonso Cadiam and qqqOgnay Cullawit, by virtue to which OCT No. P-392 was cancelled and in
lieu thereof, TCT No. T-338 was issued in the name of the Cadiam spouses.
Following their purchase, said spouses took possession of the land, fenced it and planted it with
rice but herein petitioners on August 5. 1974, forcibly dispossessed them therefrom, uprooting the
plants of said couple who then brought a criminal complaint for theft of rice plants against the
petitioners. This led to the referral of the criminal charge to the Court of Agrarian Relations but
because petitioners claimed ownership in their answer before the CAR, spouses Cadiam and
Ognay Cullawit filed Civil Case No. 891 for recovery of ownership of the same lot, in the CFI of
Abra against said petitioners.
In turn, Constante Siagan and his co-petitioners instituted Civil Case No. 976 for the "Annulment
and Cancellation of Certificate of Title, Declaration of Ownership and Damages and
Reconveyance" claiming that OCT No. P-392 covering the suit was fraudulently secured (Decision,
AC-G.R. CV Nos. 00141-42-R, Rollo, pp. 18-20). The parties, the subject-matter and issues

WHEREFORE, judgment is rendered as follows:

1. Declaring the patent and Original Certificate of Title P-392 covering Lot No. 1494 and its
transfer certificate null and void and considered cancelled because the government cannot
grant a patent and certificate over private property. (Natividad vs. Nadal,
2 SCRA 195); 2. Declaring the Compromise Agreement giving and vesting upon Atty. Elpidio
Siagan the status of a recognized or acknowledged natural child of the late Henry Siagan null
and void;
3. Declaring Ernesto Bernales and his co-plaintiffs as the absolute owners of Lot No. 1494 in
suit;
4. Let copies of this decision be furnished the Office of the Register of Deeds of Bangued,
Abra for its proper information and guidance;
5. No costs.
SO ORDERED.
Done at Bangued, Abra this 31st day of August, 1979. (Record on Appeal, pp. 203-204).
Herein private respondents moved for reconsideration of said decision which was denied in the
Order of the trial court dated January 7, 1980 (Ibid., p. 221). The resolution of private
respondents' second motion for reconsideration was deferred (Ibid., p. 235) and a Joint Order
dated August 6, 1980 (Ibid., pp. 235-236.) declared the joint decision dated August 31, 1979 final
and executory.
On appeal to the Court of Appeals, the joint decision appealed from was reversed and set aside,
and another joint decision was rendered, the dispositive portion of which reads:
WHEREFORE, in view of all the foregoing considerations, the joint decision appealed from is
hereby REVERSED and set aside, and another joint decision covering the said Civil Case Nos.
891 and 976 is entered herein declaring and/or ordering:
1. Patent No. 391197 and OCT No. P-392 in the name of Elpidio Siagan and Mabel Dumagat,
and TCT No. T-338 in the name of Alfonso Cadiam and Ognay Cullawit as all valid and
enforceable against the whole world;

167
2. Defendants-appellees in Civil Case No. 891-Ernesto Bernales, Bernardo Badilla, Cresencio
Badilla, Guillardo Collado, Manuel Collado, Pedro Peredo and Angela Peredo, who are among
the plaintiffs-appellees in Civil Case No. 96, to vacate Lot 1494 or the lot in question, and deliver
peaceful possess on thereof to the appellants spouses Alfonso D. Cadiam and Ognay Cullawit,
enjoining permanently said appellees from molesting said appellants in the premises; and
3. The appellees to pay the appellants the value of 500 bundles of palay, or P2,000.00 per crop
a year from 1974 when they were dispossessed of the premises, until the peaceful delivery
thereof to the latter.
No costs. SO ORDERED. (Rollo, pp. 30-31)
Hence, this petition.
In the resolution of November 4, 1985, the petition was given due course and the parties were
required to submit their respective memoranda (Rollo, p. 77).
Petitioner raised the following errors:
(a & b) The Intermediate Appellate Court erred in holding the validity of the patent and title by
reason of Sec. 44, CA 141 amended by RA 3872 (Rollo, p. 8)
(c) The Appellate Court erred in applying to the case at bar, the Meralco Doctrine, where
Meralco is obviously disqualified in the land registration application under Art. XIV.
(d) The Appellate Court erred in holding that OCT P-392 and the Transfer Certificate are valid
(Rollo, pp. 6-10).
The pivotal issue in this case is, who has a better title over Lot No. 1494, the spouses Alfonso
Cadiam and Ognay Cullawit or Ernesto Bernales and his co-plaintiffs.
Petitioners admitted that the land in dispute was originally public land. According to them it became
private land because of the long possession of Dagaoan Sawadan. They allege that she had been
in possession since 1908 and that she brought said lot to the marriage which as will be noted was
allegedly also in 1908 (Rollo, p. 4) giving credence to the fact that said lot was formerly owned,
occupied and possessed by Henry Siagan since time immemorial, as agreed and stipulated by the
parties during the pre-trial conference.
It has been established beyond dispute that Elpidio and Augusto Siagan mutually recognizing each
other as the only heirs of Henry Siagan filed a Joint Motion to Terminate Special Proceedings No.
407 and executed the "Memorandum of Agreement" which stipulated among other things that
Augusto Siagan renounced, quit-claimed, waived, ceded and conveyed any interest and right he
had over three lots which include Lot No. 1494 in exchange of fourteen (14) other parcels of land of
the decedent which Elpidio Siagan quit-claimed, waived, ceded and conveyed in favor of Augusto
Siagan. Independently of said Memorandum of Agreement, Augusto Siagan also executed a Sworn
Statement and a Deed of Extra-Judicial Adjudication of Real Estate and Quit Claim, to the effect
that Augusto Siagan adjudicated the property in question unto himself and assigned, transferred

and conveyed all his rights and interests therein in favor of Elpidio Siagan. Otherwise stated,
Elpidio Siagan stepped into the shoes of Augusto Siagan.
Petitioners claim that respondent Elpidio Siagan, using his knowledge of law, unduly took
advantage of Augusto Siagan and induced the latter to enter into said Memorandum of
Agreement.
Besides their failure to adduce evidence to support their contention, the same is negated by the
fact that said memorandum and accompanying documents which have been duly and lawfully
executed, are notarized documents, made pursuant to Augusto and Elpidio Siagan's amicable
settlement of their court litigation. No less important is the fact that said memorandum and
adjudication and quitclaim of the lot in question for a made follow a valuable consideration, that
is in exchange for whatever rights and interests Elpidio may have over fourteen (14) parcels of
land which he ceded, quit-claimed and transferred to Augusto Siagan.
Under the circumstances, the Court of Appeals correctly observed that whether Lot 1494
descended from Henry Siagan as claimed by private respondents or from Dagaoan Sawadan,
the mother of Augusto Siagan as claimed by the petitioners, it is undeniable that Augusto Siagan
had already quit-claimed, ceded and conveyed whatever rights or interest he had over said lot in
favor of Elpidio Siagan.
Because of such waiver and quit claim, Elpidio Siagan became the sole claimant of Lot 1494. He
applied for and was granted Free Patent No. 391197 and Original Certificate of Title No.P-392
for said lot. After the lapse of five years from and after the issuance of said patent and title,
Elpidio Siagan sold said lot to the spouses Alfonso Cadiam and Ognay Cullawit in whose favor
Transfer Certificate of Title No.T-338 was issued by the Register of Deeds of Abra.
In the case at bar, the Free Patent was granted to Elpidio Siagan, the very person who as
successor-in-interest of Augusto Siagan with a claim of continuous and adverse possession in
the concept of owner since time immemorial or since 1908 through the latter's predecessors-ininterest, is entitled to subject land. An Original Certificate of Title was issued in favor of Elpidio
Siagan. As held by this Court, once a homestead patent granted in accordance with the Public
Land Act is registered under the Torrens System, the certificate of title issued in virtue of said
patent has the force and effect of a Torrens Title under the Land Registration Act. Corollary
thereto, the Director of Patents, being a public officer, has in his favor the presumption of
regularity in issuing the questioned homestead patent (Iglesia ni Cristo vs. Hon. Judge, CFI of
Nueva Ecija, Br. I, 123 SCRA 517 [1983]).
As aforestated, the Cadiam spouses to whom a Transfer Certificate of Title was issued after the
purchase of the lot from Elpidio Siagan for a valuable consideration as stated in the Deed and
who had no knowledge of any flaw or defect of the title at the time of the purchase, are evidently
as ruled by the Court of Appeals, innocent purchasers for value and above all considerations,
are entitled to the protection of the law.
In contrast, petitioners allegedly acquired subject property by virtue of the sale made by
Constante Siagan six months before the execution of the Memorandum of Agreement and the
other documents above-mentioned. Constante Siagan, claiming to have inherited Lot 14194
from his grandmother, sold said lot to the Pasimio spouses, who later sold the same to the
Roman Catholic Bishop of Bangued, Inc. and the latter in turn sold the same to the petitioners.

168
But the authority of Constante Siagan to sell said lot was wanting. The ownership and possession
of Dagaoan Sawadan over Lot 1494 were transmitted through hereditary succession to Augusto
Siagan, her son, and not to Constante Siagan, her grandson. Constante cannot claim to have
inherited the same in 1967 because his father Augusto Siagan who entered into the amicable
settlement and quit claim with Elpidio Siagan was still living and he died only in October, 1975.
Much less is there any document showing that said property was transmitted or ceded to him either
by Dagaoan Sawadan or Augusto Siagan. Thus, the sale made by non-owner Constante Siagan
and all subsequent sales made thereunder, are null and void.

price of P14,000. This document Exhibit D was signed by Maria Reyes signifying her assent. At
the trial she pleaded that the document, without embodying their true agreement, had been
obtained thru deceit and abuse of confidence. However, her assertions were not credited by the
Court of Appeals. Nevertheless, that court declared the document void (Exhibit D) for the only
reasons that it had been signed by Canuto Martin before acquiring ownership of the property by
the cession of Maria Reyes and Pedro Revilla to the La Previsora, and from the latter to them.
The Court noted that whereas Exhibit E was acknowledged before the notary on November 3,
1941, Exhibit Dbore the date October 30, 1941, a few days before.

It is true that the Pasimio spouses and the Roman Catholic Bishop of Bangued, Inc. claimed to
have registered their sales under Act 3344 but it is specifically provided under said law that such
registration shall be "understood to be without prejudice to a third party who has a better right.
(Section 194 of the Administrative Code, as amended by Act 3344).

Wherefore the Court of Appeals held that the respondent's right to repurchase was to be found
in Exhibit E, and that they had seasonably exercised such right.

In the case at bar, the Cadiam spouses who were found by the Court of Appeals as innocent
purchasers for value with a Transfer Certificate of Title under the Torrens System in their names,
have evidently a better right than herein petitioners.
PREMISES CONSIDERED, there appearing no plausible reason to disturb the findings and
conclusions of the Court of Appeals, the instant petition is DENIED and the decision appealed from
is hereby AFFIRMED. SO ORDERED.
G.R. No. L-4402
July 28, 1952
CANUTO MARTIN vs. MARIA REYES and PEDRO REVILLA
BENGSON, J.:
Coming from the Court of Appeals for revision, this litigation presents two principal question: the
price at which the respondents were entitled to repurchase the property, and the exercise of such
right within the period of redemption. Apparently issues of fact, they really depend upon legal
points, as will presently be seen.
According to the Court of Appeals, the respondents Pedro Revilla and Maria Reyes obtained from
the La Previsora Filipina sometime before November 18, 1939 a loan of P6,500; and with the
money, they the price of a lot, with improvements, which they paid had previously purchased from
the Archibishop of Manila. And they mortgaged the property to La Previsora for the purpose of
guaranteeing repayment of the debt in installments with interest at 12 per cent per annum.
It turned out later that Monte de Piedad y Caja de Ahorros had obtained a judgment against Pedro
Revilla for the sum of P45,000 and had levied execution therefor upon the property and its rentals.
Apprised of this development, the La Previsora started foreclosure proceedings, alleging nonpayment of its credit by the mortgagors. The conflicting interests were later the object of amicable
settlement among the parties, as a result of which the herein respondents notarized the deed
Exhibit E whereby in satisfaction of their obligations to La Previsora (then amounting to P8,204.60)
they ceded the property to the said institutions, reserving the right to repurchase for P8,204.60
within sixty days. The deed was acknowledged on November 3, 1941.
It seems that La Previsora at the same time, or immediately thereafter conveyed the property by
Exhibit C to petitioner Canuto Martin, who then executed the document Exhibit D undertaking to
allow respondents to repurchase the property within sixty days from October 31, 1941, but at the

The validity of Exhibit D is the subject-matter of Martin's principal attack on the appellate court's
judgment.
The documents Exhibits C, D and E were undoubtedly part of the same amicable settlement.
Acknowledgment of the document Exhibit E was delayed on account of the necessity of securing
the approval of the Monte de Piedad y Caja de Ahorros. For that reason it bears the date
November 3. The arrangements were obviously: (a) transfer to La Previsora with right to
repurchase at P8,204.60; (b) transfer by La Previsora to Canuto Martin and (c) option to
repurchase from Martin at P14,000.
Why at P14,00, when it is admitted that Martin got the property at P7,000 from La Previsora the
claims of Monte de Piedad arising from the attachment heretofore described.
The Court of Appeals pronounced Exhibit D invalid because at the time of its execution, Martin
had no title over the property. This is rather too technical a viewpoint. Remembering that Exhibit
D constituted a part of the whole friendly settlement and could be considered as simultaneous
with the other documents, specially the documents of transfer from Maria Reyes and La
Previsora, the disparity of dates should imply no annulling consequences. At any rate, Exhibit D
may be placed in the same category as a promise to convey land not yet owned by the vendor,
obligation which may be enforced, according to the authorities:
Property or goods which, at the time of the sale, are not owned by the seller, but which are
thereafter to be acquired by him, cannot be the subject of an executed sale, but may be the
subject of a contract for the future sale and delivery thereof, and it has been held that even
though the contract is in the form of the present sale it will not pass the title, after the goods
have been acquired, until the seller has done some act appropriating them to the contract.
Such a contract of the future sale and delivery of goods, which the seller has not in
possession but which he intends to acquire by producing, manufacturing, or purchasing
before the day of delivery, is valid as an executory contract to be fulfilled by acquiring and
delivering the goods specified in the contract, even though the acquisition of the goods by the
seller depends upon a contingency which may or may not happen. (55 Corpus Juris, 65).
(Emphasis ours)
It is not unusual for persons to agree to convey by a certain time, notwithstanding they have
no title to the land at the time of the contract, and the validity of such agreement is upheld. In
such cases, the vendor assume the risk of acquiring the title and making the conveyance, or
responding in damages for the vendee's loss of his bargain, One having an option to

169
purchase real estate has a legal right to enter into an executory contract to sell the property.
A fortiori, it is not necessary that the vendor be the absolute owner of the property at the time he
enters into agreement of sale because the owner of the land, is as much the subject of sale as is
the land itself, and whenever one is so suited with reference to a tract of land that he can
acquire the title thereto, either by the voluntary act of the parties holding the title, or by
proceeding at law or in equity, he is in a position to make a valid agreement for the sale thereof,
without disclosing the nature of his title. (55 American Jurisprudence, 480). (Emphasis ours)
The above principles express the same the ideas in articles 1462 and 1459 of the New Civil
Code.
Therefore erroneous is the ruling that, because executed before Canuto Martin became the owner,
Exhibit D, was null and void. Consequently, as Reyes voluntarily agreed under Exhibit D, to
repurchase at P14,000, she should not repurchase at any other price.

the full price for the repurchase: P8,204.60. If it was her theory and position that she had a right
to redeem from La Previsora in accordance with Exhibit E, she would have acted in accordance
therewith by offering P8,204.60 to La Previsora entirely disregarding the demands of any other
individual. Undoubtedly, she failed to offer that amount.
Furthermore, there is no evidenceand the Court of Appeals did not findthat Pedro Revilla
was actually authorized by La Previsora to refuse to repurchase at P8,204.60.
Needless to add, the date of filing of the complaint is immaterial, so long as it is filed within the
period of limitations, its purpose being to enforce a right which must be established within the
time to repurchase.
Wherefore with the declaration that option to repurchase, whether under Exhibit E or under
Exhibit D, had not been asserted to the proper time, we hereby absolve the petitioner Canuto
Martin from the complaint. Costs against respondents.

Now, have the respondents properly exercised their right to repurchase?

The Court of Appeals stated that in December 1941, Maria Reyes accompanied by Marcela Mota
de Malonso went to the office of La Previsora, not for the purpose of repurchasing the property, but
to ask for extension of the period. Nevertheless, that Court opined that inasmuch as the complaint
to compel repurchase had been filed on January 2, 1952 within the sixty-day period mentioned in
Exhibit E, the vendors had preserved their redemption option. Upon a move to reconsider, the
Court of Appeals amplified its decision saying,
In view of the refusal of Atty. Pete A. Revilla who was acting in behalf of appellee Canuto Martin,
to receive any amount less than P14,000, nor to accept in behalf of the La Previsora Filipina,
claiming that the latter's right were already ceded to appellee Canuto Martin, we hold that the
question to the efficiency of the amount offered at the time is not as vital to the issue as the
necessity of making one. . . . We find that the plaintiff Maria Reyes, accompanied to one Marcela
Mota de Malonso did make an offer to redeem the property in the property days of December,
1941. Whether or not the amount they had on that occasion was sufficient to redeem the
property at P8,204.60 or P10,204.60 is not vital to the preservation of the rights of the plaintiff's
in view of the refusal to accept any amount less than P14,000.
Having declared that Exhibit E was valid and that the repurchase had to be made at P14,000, we
must necessarily conclude that under the above findings of the Court of Appeals the right to
repurchase had not been preserved.
Nevertheless, let us suppose for the moment that the rights of Revilla and Reyes are governed by
Exhibit E only-not by Exhibit D.
From the findings of the Court of Appeals it is to be deduced that in December Maria Reyes offered
to redeem forless than P8,204.60. The decision of the court of first instance says "all the money
she had at that time was P7,000."
Now then: the repurchase price was P8,204.60 (on the supposition that Exhibit E governs the
parties' rights); Maria Reyes offered to repay in December P7,000 only. The fact that she was told
Canuto Martin wanted P14,000, does not excuse her obligation to offer, within the time stipulated,

G.R. No. L-27862 November 20, 1974

LORENZO PASCUAL and LEONILA TORRES vs. UNIVERSAL MOTORS CORPORATION
MAKALINTAL, C.J.:p
In the lower court the parties entered into the following stipulation of facts:
1. That the plaintiffs executed the real estate mortgage subject matter of this complaint on
December 14, 1960 to secure the payment of the indebtedness of PDP Transit, Inc. for the
purchase of five (5) units of Mercedez Benz trucks under invoices Nos. 2836, 2837, 2838,
2839 and 2840 with a total purchase price or principal obligation of P152,506.50 but plaintiffs'
guarantee is not to exceed P50,000.00 which is the value of the mortgage.
2. That the principal obligation of P152,506.50 was to bear interest at 1% a month from
December 14, 1960.
3. That as of April 5, 1961 with reference to the two units mentioned above and as of May 22,
1961 with reference to the three units, PDP Transit, Inc., plaintiffs' principal, had paid to the
defendant Universal Motors Corporation the sum of P92,964.91, thus leaving a balance of
P68,641.69 including interest due as of February 8, 1965.
4. That the aforementioned obligation guaranteed by the plaintiffs under the Real Estate
Mortgage, subject of this action, is further secured by separate deeds of chattel mortgages on
the Mercedez Benz units covered by the aforementioned invoices in favor of the defendant
Universal Motors Corporation.
5. That on March 19, 1965, the defendant Universal Motors Corporation filed a complaint
against PDP Transit, Inc. before, the Court of First Instance of Manila docketed as Civil Case
No. 60201 with a petition for a writ of Replevin, to collect the balance due under the Chattel
Mortgages and to repossess all the units to sold to plaintiffs' principal PDP Transit, Inc.
including the five (5) units guaranteed under the subject Real (Estate) Mortgage.

170
In addition to the foregoing the Universal Motors Corporation admitted during the hearing that in its
suit (C.C. No. 60201) against the PDP Transit, Inc. it was able to repossess all the units sold to the
latter, including the five (5) units guaranteed by the subject real estate mortgage, and to foreclose
all the chattel mortgages constituted thereon, resulting in the sale of the trucks at public auction.
With the foregoing background, the spouses Lorenzo Pascual and Leonila Torres, the real estate
mortgagors, filed an action in the Court of First Instance of Quezon City (Civil Case No. 8189) for
the cancellation of the mortgage they constituted on two (2) parcels of land 1 in favor of the
Universal Motors Corporation to guarantee the obligation of PDP Transit, Inc. to the extent of
P50,000. The court rendered judgment for the plaintiffs, ordered the cancellation of the mortgage,
and directed the defendant Universal Motors Corporation to pay attorney's fees to the plaintiffs in
the sum of P500.00. Unsatisfied with the decision, defendant interposed the present appeal.
In rendering judgment for the plaintiffs the lower court said in part: "... there does not seem to be
any doubt that Art. 1484 2 of the New Civil Code may be applied in relation to a chattel mortgage
constituted upon personal property on the installment basis (as in the present case) precluding the
mortgagee to maintain any further action against the debtor for the purpose of recovering whatever
balance of the debt secured, and even adding that any agreement to the contrary shall be null and
void."

FIDELA DEL CASTILLO Vda. DE MISTICA

MARIA PAULINA GERONA-NAGUIAT
DECISION
PANGANIBAN, J.:

vs. Spouses BERNARDINO NAGUIAT and

The failure to pay in full the purchase price stipulated in a deed of sale does not ipso
facto grant the seller the right to rescind the agreement. Unless otherwise stipulated by the
parties, rescission is allowed only when the breach of the contract is substantial and
fundamental to the fulfillment of the obligation.
The Case
Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, seeking to nullify
the October 31, 1997 Decision[2] and the February 23, 1999 Resolution[3] of the Court of Appeals
(CA) in CA-GR CV No. 51067. The assailed Decision disposed as follows:
WHEREFORE, modified as indicated above, the decision of the Regional Trial Court is hereby
AFFIRMED.[4]
The assailed Resolution denied petitioners Motion for Reconsideration.

The appellant now disputes the applicability of Article 1484 of the Civil Code to the case at bar on
the ground that there is no evidence on record that the purchase by PDP Transit, Inc. of the five (5)
trucks, the payment of the price of which was partly guaranteed by the real estate mortgage in
question, was payable in installments and that the purchaser had failed to pay two or more
installments. The appellant also contends that in any event what article 1484 prohibits is for the
vendor to recover from the purchaser the unpaid balance of the price after he has foreclosed the
chattel mortgage on the thing sold, but not a recourse against the security put up by a third party.

The Facts

Both arguments are without merit. The first involves an issue of fact: whether or not the sale was
one on installments; and on this issue the lower court found that it was, and that there was failure
to pay two or more installments. This finding is not subject to review by this Court. The appellant's
bare allegation to the contrary cannot be considered at this stage of the case.

On 5 April 1979, Eulalio Mistica entered into a contract to sell with [Respondent Bernardino
Naguiat] over a portion of the aforementioned lot containing an area of 200 square meters. This
agreement was reduced to writing in a document entitled Kasulatan sa Pagbibilihan which
reads as follows:

The next contention is that what article 1484 withholds from the vendor is the right to recover any
deficiency from the purchaser after the foreclosure of the chattel mortgage and not a recourse to
the additional security put up by a third party to guarantee the purchaser's performance of his
obligation. A similar argument has been answered by this Court in this wise: "(T)o sustain
appellant's argument is to overlook the fact that if the guarantor should be compelled to pay the
balance of the purchase price, the guarantor will in turn be entitled to recover what she has paid
from the debtor vendee (Art. 2066, Civil Code); so that ultimately, it will be the vendee who will be
made to bear the payment of the balance of the price, despite the earlier foreclosure of the chattel
mortgage given by him. Thus, the protection given by Article 1484 would be indirectly subverted,
and public policy overturned." (Cruz vs. Filipinas Investment & Finance Corporation, L-24772, May
27, 1968; 23 SCRA 791).

NAGSASALAYSAY:

The facts of the case are summarized by the CA as follows:

Eulalio Mistica, predecessor-in-interest of herein [petitioner], is the owner of a parcel of land
located at Malhacan, Meycauayan, Bulacan. A portion thereof was leased to [Respondent
Bernardino Naguiat] sometime in 1970.

Na ang NAGBIBILI ay nagmamay-aring tunay at naghahawak ng isang lagay na lupa na nasa

Nayon ng Malhacan, Bayan ng Meycauayan, Lalawigan ng Bulacan, na ang kabuuan sukat at
mga kahangga nitogaya ng sumusunod:
xxx

xxx

xxx

The decision appealed from is affirmed, with costs against the defendant-appellant.

Na alang-alang sa halagang DALAWANG PUNG LIBONG PISO (P20,000.00) Kualtang

Pilipino, ang NAGBIBILI ay nakipagkasundo ng kanyang ipagbibili ang isang bahagi o sukat na
DALAWANG DAAN (200) METROS PARISUKAT, sa lupang nabanggit sa itaas, na ang mga
kahangga nito ay gaya ng sumusunod:

[G.R. No. 137909. December 11, 2003]

xxx

xxx

xxx

171
Na magbibigay ng paunang bayad ang BUMIBILI SA NAGBIBILI na halagang DALAWANG
LIBONG PISO (P2,000.00) Kualtang Pilipino, sa sandaling lagdaan ang kasulatang ito.
Na ang natitirang halagang LABING WALONG LIBONG PISO (P18,000.00) Kualtang Pilipino, ay
babayaran ng BUM[I]BILI sa loob ng Sampung (10) taon, na magsisimula sa araw din ng lagdaan
ang kasulatang ito.
Sakaling hindi makakabayad ang Bumibili sa loob ng panahon pinagkasunduan, an[g] BUMIBILI
ay magbabayad ng pakinabang o interes ng 12% isang taon, sa taon nilakaran hanggang sa itoy
mabayaran tuluyan ng Bumibili:
Sa katunayan ng lahat ay nilagdaan ng Magkabilang Panig ang kasulatang ito, ngayon ika 5 ng
Abril, 1979, sa Bayan ng Meycauayan. Lalawigan ng Bulacan, Pilipinas.
(signed)
Bumibili

(signed)
BERNARDINO NAGUIAT
EULALIO MISTICA
Nagbibili

Pursuant to said agreement, [Respondent Bernardino Naguiat] gave a downpayment

of P2,000.00. He made another partial payment of P1,000.00 on 7 February 1980. He failed to
make any payments thereafter. Eulalio Mistica died sometime in October 1986.
On 4 December 1991, [petitioner] filed a complaint for rescission alleging inter alia: that the failure
and refusal of [respondents] to pay the balance of the purchase price constitutes a violation of the
contract which entitles her to rescind the same; that [respondents] have been in possession of the
subject portion and they should be ordered to vacate and surrender possession of the same to
[petitioner] ; that the reasonable amount of rental for the subject land is P200.00 a month; that on
account of the unjustified actuations of [respondents], [petitioner] has been constrained to litigate
where she incurred expenses for attorneys fees and litigation expenses in the sum of P20,000.00.
In their answer and amended answer, [respondents] contended that the contract cannot be
rescinded on the ground that it clearly stipulates that in case of failure to pay the balance as
stipulated, a yearly interest of 12% is to be paid. [Respondent Bernardino Naguiat] likewise
alleged that sometime in October 1986, during the wake of the late Eulalio Mistica, he offered to
pay the remaining balance to [petitioner] but the latter refused and hence, there is no breach or
violation committed by them and no damages could yet be incurred by the late Eulalio Mistica, his
heirs or assigns pursuant to the said document; that he is presently the owner in fee simple of the
subject lot having acquired the same by virtue of a Free Patent Title duly awarded to him by the
Bureau of Lands; and that his title and ownership had already become indefeasible and
incontrovertible. As counterclaim, [respondents] pray for moral damages in the amount
of P50,000.00; exemplary damages in the amount of P30,000.00; attorneys fees in the amount
of P10,000.00 and other litigation expenses.
On 8 July 1992, [respondents] also filed a motion to dismiss which was denied by the court on 29
July 1992. The motion for reconsideration was likewise denied per its Order of 17 March 1993.
After the presentation of evidence, the court on 27 January 1995 rendered the now assailed
judgment, the dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered:

1.
Dismissing the complaint and ordering the [petitioner] to pay the [respondents]
attorneys fee in the amount of P10,000.00 and costs of the suit;
2.

Ordering the [respondents]:

a. To pay [petitioner] and the heirs of Eulalio Mistica the balance of the purchase price
in the amount of P17,000.00, with interest thereon at the rate of 12% per annum computed
from April 5, 1989 until full payment is made, subject to the application of the consigned
amount to such payment;
b. To return to [petitioner] and the heirs of Eulalio Mistica the extra area of 58 square
meters from the land covered by OCT No. 4917 (M), the corresponding price therefor based
on the prevailing market price thereof.[5] (Citations omitted)

CAs Decision
Disallowing rescission, the CA held that respondents did not breach the Contract of
Sale. It explained that the conclusion of the ten-year period was not a resolutory term, because
the Contract had stipulated that payment -- with interest of 12 percent -- could still be made if
respondents failed to pay within the period. According to the appellate court, petitioner did not
disprove the allegation of respondents that they had tendered payment of the balance of the
purchase price during her husbands funeral, which was well within the ten-year period.
Moreover, rescission would be unjust to respondents, because they had already
transferred the land title to their names. The proper recourse, the CA held, was to order them to
pay the balance of the purchase price, with 12 percent interest.
As to the matter of the extra 58 square meters, the CA held that its reconveyance was no
longer feasible, because it had been included in the title issued to them. The appellate court
ruled that the only remedy available was to order them to pay petitioner the fair market value of
the usurped portion. Hence, this Petition.[6]
Issues
In her Memorandum,[7] petitioner raises the following issues:
1.
Whether or not the Honorable Court of Appeals erred in the application of Art. 1191
of the New Civil Code, as it ruled that there is no breach of obligation inspite of the lapse of
the stipulated period and the failure of the private respondents to pay.
2.
Whether or not the Honorable Court of Appeals [e]rred in ruling that rescission of the
contract is no longer feasible considering that a certificate of title had been issued in favor of
the private respondents.
3.
Whether or not the Honorable Court of Appeals erred in ruling that since the 58 sq.
m. portion in question is covered by a certificate of title in the names of private respondents
reconveyance is no longer feasible and proper.[8]

172
The Courts Ruling
The Petition is without merit.
First Issue: Rescission in Article 1191
Petitioner claims that she is entitled to rescind the Contract under Article 1191 of the Civil
Code, because respondents committed a substantial breach when they did not pay the balance of
the purchase price within the ten-year period. She further avers that the proviso on the payment of
interest did not extend the period to pay. To interpret it in that way would make the obligation
purely potestative and, thus, void under Article 1182 of the Civil Code.
We disagree. The transaction between Eulalio Mistica and respondents, as evidenced by
the Kasulatan, was clearly a Contract of Sale. A deed of sale is considered absolute in nature
when there is neither a stipulation in the deed that title to the property sold is reserved to the seller
until the full payment of the price; nor a stipulation giving the vendor the right to unilaterally resolve
the contract the moment the buyer fails to pay within a fixed period. [9]
In a contract of sale, the remedy of an unpaid seller is either specific performance or
rescission.[10] Under Article 1191 of the Civil Code, the right to rescind an obligation is predicated on
the violation of the reciprocity between parties, brought about by a breach of faith by one of them.
[11]
Rescission, however, is allowed only where the breach is substantial and fundamental to the
fulfillment of the obligation.[12]
In the present case, the failure of respondents to pay the balance of the purchase price
within ten years from the execution of the Deed did not amount to a substantial breach. In
the Kasulatan, it was stipulated that payment could be made even after ten years from the
execution of the Contract, provided the vendee paid 12 percent interest. The stipulations of the
contract constitute the law between the parties; thus, courts have no alternative but to enforce
them as agreed upon and written.[13]
Moreover, it is undisputed that during the ten-year period, petitioner and her deceased
husband never made any demand for the balance of the purchase price. Petitioner even refused
the payment tendered by respondents during her husbands funeral, thus showing that she was not
exactly blameless for the lapse of the ten-year period. Had she accepted the tender, payment
would have been made well within the agreed period.
If petitioner would like to impress upon this Court that the parties intended otherwise, she
has to show competent proof to support her contention. Instead, she argues that the period cannot
be extended beyond ten years, because to do so would convert the buyers obligation to a purely
potestative obligation that would annul the contract under Article 1182 of the Civil Code.
This contention is likewise untenable. The Code prohibits purely potestative, suspensive,
conditional obligations that depend on the whims of the debtor, because such obligations are
usually not meant to be fulfilled.[14] Indeed, to allow the fulfillment of conditions to depend
exclusively on the debtors will would be to sanction illusory obligations.
[15]
The Kasulatan does not allow such thing. First, nowhere is it stated in the Deed that
payment of the purchase price is dependent upon whether respondents want to pay it or
not. Second, the fact that they already made partial payment thereof only shows that the parties
intended to be bound by the Kasulatan.
Both the trial and the appellate courts arrived at this finding. Well-settled is the rule that
findings of fact by the CA are generally binding upon this Court and will not be disturbed on appeal,

especially when they are the same as those of the trial court. [16] Petitioner has not given us
sufficient reasons to depart from this rule.
Second Issue: Rescission Unrelated to Registration
The CA further ruled that rescission in this case would be unjust to respondents, because
a certificate of title had already been issued in their names. Petitioner nonetheless argues that
the Court is still empowered to order rescission.
We clarify. The issuance of a certificate of title in favor of respondents does not determine
whether petitioner is entitled to rescission. It is a fundamental principle in land registration that
such title serves merely as an evidence of an indefeasible and incontrovertible title to the
property in favor of the person whose name appears therein.[17]
While a review of the decree of registration is no longer possible after the expiration of the
one-year period from entry, an equitable remedy is still available to those wrongfully deprived of
their property.[18] A certificate of title cannot be subject to collateral attack and can only be
altered, modified or canceled in direct proceedings in accordance with law.[19] Hence, the CA
correctly held that the propriety of the issuance of title in the name of respondents was an issue
that was not determinable in these proceedings.
Third Issue: Reconveyance of the Portion Importunately Included
Petitioner argues that it would be reasonable for respondents to pay her the value of the
lot, because the CA erred in ruling that the reconveyance of the extra 58-square meter lot, which
had been included in the certificate of title issued to them, was no longer feasible.
In principle, we agree with petitioner. Registration has never been a mode of acquiring
ownership over immovable property, because it does not create or vest title, but merely confirms
one already created or vested.[20] Registration does not give holders any better title than what
they actually have.[21] Land erroneously included in the certificate of title of another must be
reconveyed in favor of its true and actual owner.[22]
Section 48 of Presidential Decree 1529, however, provides that the certificate of title shall
not be subject to collateral attack, alteration, modification, or cancellation except in a direct
proceeding.[23] The cancellation or removal of the extra portion from the title of respondents is not
permissible in an action for rescission of the contract of sale between them and petitioners late
husband, because such action is tantamount to allowing a collateral attack on the title.
It appears that an action for cancellation/annulment of patent and title and for reversion
was already filed by the State in favor of petitioner and the heirs of her husband. [24] Hence, there
is no need in this case to pass upon the right of respondents to the registration of the subject
land under their names. For the same reason, there is no necessity to order them to pay
petitioner the fair market value of the extra 58-square meter lot importunately included in the
title.
WHEREFORE,
the
assailed
Decision
and
Resolution
are AFFIRMED with
the MODIFICATION that the payment for the extra 58-square meter lot included in respondents
title is DELETED. SO ORDERED.
G.R. No. L-19196
November 29, 1968
ANGEL VILLARICA and NIEVES PALMA GIL DE VILLARICA vs. COURT OF APPEALS
CAPISTRANO, J.:

173
On May 19, 1951, the spouses Angel Villarica and Nieves Palma Gil de Villarica sold to the
spouses Gaudencio Consunji and Juliana Monteverde a lot containing an area of 1,174 sq. meters,
situated in the poblacion of the City of Davao, for the price of P35,000. The instrument of absolute
sale dated May 19, 1951 (Exh. "B"), in the form of a deed poll, drafted by Counselor Juan B.
Espolong who had been appointed by the Villaricas as their agent to sell the lot, was
acknowledged on May 25, 1951, before the same Juan B. Espolong who was also a Notary Public.
The public instrument of absolute sale and the vendors' TCT No. 2786 were delivered to the
vendees. On the same day, May 25, 1951, the spouses Consunji executed another public
instrument, Exh. "D", whereby they granted the spouses Villarica an option to buy the same
property within the period of one year for the price of P37,750. In July, same year, the spouses
Consunji registered the absolute deed of sale, Exh. "B", in consequence of which TCT No. 2786 in
the names of the spouses Villarica was cancelled and a new TCT No. 3147 was issued in the
names of the spouses Consunji. In February, 1953, the spouses Consunji sold the lot to Jovito S.
Francisco for the price of P47,000 by means of a public instrument of sale Exh. "4". This public
instrument of sale was registered in view of which TCT No. 3147 in the names of the spouse
Consunji was cancelled and a new TCT in the name of Jovito S. Francisco was issued.
On April 14, 1953, the spouses Villarica brought an action in the Court of First Instance of Davao
against the spouses Consunji and Jovito S. Francisco for the reformation of the instrument of
absolute sale, Exh. "B", into an equitable mortgage as a security for a usurious loan of P28,000
alleging that such was the real intention of the parties. Defendants answered that the deed of
absolute sale expressed the real intention of the parties and they also alleged a counterclaim for
sums of money borrowed by the plaintiffs from the Consunjis which were then due and
demandable. After trial, the Court of First Instance of Davao rendered its decision holding that the
instrument of absolute sale, Exh. "B", was really intended as an equitable mortgage. Judgment was
accordingly rendered reforming the deed of absolute sale into an equitable mortgage. Judgment
was likewise rendered in favor of defendant Consunjis on their counterclaim for sums of money.
Judgment was also rendered in favor of defendant Francisco as purchaser in good faith. Both
parties appealed to the Court of Appeals.
On September 15, 1961, the Court of Appeals rendered its decision finding that the public
instrument of absolute sale, Exh. "B", expressed the true intention of the parties and that the
defendants-appellants' (Consunjis) counterclaim for sums of money was substantiated by the
evidence. Accordingly the Court of Appeals rendered judgment as follows:
WHEREFORE, the judgment appealed from is reversed and the complaint is dismissed as to the
defendant spouses, and the plaintiffs are ordered to pay to them their remaining indebtedness of
fifteen thousand (P15,000.00) pesos with interest at 5% from July 7, 1951. That part of the
judgment dismissing the complaint as to Jovito S. Francisco is hereby affirmed, with the
modification that the attorney's fees in the sum of P2,350.00 awarded to him is eliminated. The
present case is not one of those enumerated in Article 2208 of the New Civil Code where
attorney's fees may be recovered. Costs against the plaintiffs-appellants.
On December 6, 1961, the spouses Villarica, plaintiffs-appellants in the Court of Appeals,
petitioned the Supreme Court for certiorari or review of the decision rendered by the Court of
Appeals. The petition was given due course and the decision of the Court of Appeals is now before
us for review on questions of law.
Petitioners contend that the Court of Appeals erred in finding that the public instrument of absolute
sale, Exh. "B", expressed the true intention of the parties, arguing that under Article 1604 in relation

to Articles 1602 and 1603 of the Civil Code, the instrument of absolute sale, Exh. "B", should be
presumed as an equitable mortgage on the grounds that (1) the price of P35,000 was unusually
inadequate; (2) the vendors remained in possession of the property sold; (3) the period of one
year for repurchase granted in the instrument Exh. "D" was extended for one month; and (4) the
vendors pay the taxes on the land sold. The contention is unmeritorious in view of the following
considerations:
(1) The price of P35,000 was not even inadequate. The land sold was assessed for tax purposes
at P8,870 effective 1950. It was purchased by the spouses Villarica from the Philippine Alien
Property Custodian in October, 1950, for the price of P20,000. The Villaricas borrowed P7,400
from a Chinese named Domingo Lua Chin Lam and, with this borrowed money, made part
payment of the price to the Philippine Alien Property Custodian. Then they mortgaged the land to
the Philippine Alien Property Custodian as security for the P10,000 unpaid balance of the
purchase price. One year later, on May 19, 1951, they sold the land by means of the instrument
of absolute sale Exh. "B" to the Consunjis for the price of P35,000, thus making a profit of
P15,000 in one year without having invested their own money in buying the land. On February
21, 1953, the Consunjis sold the land to Jovito S. Francisco for the price of P47,000, thus
making profit of P12,000. The price of P70,000 found by the trial court to be the market price of
the land at the time of the trial in 1956 was not the market price in 1951 when the Villaricas sold
the lot to the Consunjis. Hence, it is evident that the price of P35,000 stated in the instrument of
absolute sale Exh. "B" was the market price of the lot in 1951.
(2) The vendors did not remain in possession of the land sold as lessees or otherwise. On their
request in order to help them in the expenses of their children in Manila, the vendors were
merely allowed by the vendees to collect the monthly rents of P300 for five months up to
October, 1951, on the understanding that the amounts so collected would be charged against
them. But thereafter the vendees were the ones who collected the monthly rents from the
tenants. It follows that the vendors did not remain in possession of the land as lessees or
otherwise.
(3) In Exh. "D" the Consunjis as new owners of the lot granted the Villaricas an option to buy the
property within the period of one year from May 25, 1951 for the price of P37,750. Said option to
buy is different and distinct from the right of repurchase which must be reserved by the vendor,
by stipulation to that effect, in the contract of sale. This is clear from Article 1601 of the Civil
Code, which provides:
Conventional redemption shall take place when the vendor reserves the right to repurchase
the thing sold, with the obligation to comply with the provisions of article 1616 and other
stipulation which may have been agreed upon.
The right of repurchase is not a right granted the vendor by the vendee in a subsequent
instrument, but is a right reserved by the vendor in the same instrument of sale as one of the
stipulations of the contract. Once the instrument of absolute sale is executed, the vendor can no
longer reserve the right to repurchase, and any right thereafter granted the vendor by the
vendee in a separate instrument cannot be a right of repurchase but some other right like the
option to buy in the instant case. Hence, Exhibits "B" and "D" cannot be considered as
evidencing a contract of sale with pacto de retro. Since Exh. "D" did not evidence a right to
repurchase but an option to buy, the extension of the period of one year for the exercise of the
option by one month does not fall under No. 3, of Article 1602 of the Civil Code, which provides
that:

174
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) The taxes paid by the vendors were back taxes up to the time of the sale on May 19, 1951. The
vendors had the obligation to pay the back taxes because they sold the land free of all liens and
encumbrances. The taxes due after the sale were paid by the vendees.
The petitioners admit that they cannot now question the finding of the Court of Appeals that they
fully received the price of P35,000 mentioned in the instrument of absolute sale Exh. "B". In
addition, we noted that the petitioners acknowledged in writing (Exh. "4"-Consunji-Monteverde),
dated May 28, 1951, having received full payment of said price of P35,000. In view hereof and of
the foregoing considerations, petitioners' contention that Exhibits "B" and "D" were used as a
device to cover a usurious loan, has absolutely no merit.
The findings of the Court of Appeals on the amounts due from the spouses Villarica to the spouses
Consunji as loans, evidenced by promissory notes, after deducting partial payments made thereon
being factual, cannot be reviewed.
PREMISES CONSIDERED, the judgment of the Court of Appeals is hereby affirmed, with costs
against petitioners also in this instance.
G.R. No. L-42230 April 15, 1988
LAURO IMMACULATA vs. HON. PEDRO C. NAVARRO
RESOLUTION
PARAS, J.:
Petitioner's Motion for Reconsideration of Our decision dated November 26, 1986 asks Us to
consider a point inadvertently missed by the Court the matter of legal redemption of a parcel of
land previously obtained by petitioner Lauro Immaculata thru a free patent. The reconsideration of
this issue is hereby GRANTED.
While res judicata may bar questions on the validity of the sale in view of alleged insanity and
intimidation (and this point is no longer pressed by counsel for the petitioner) still the question of
the right of legal redemption has remained unresolved.
Be it noted that in an action (Civil Case No. 20968) filed on March 24, 1975 before the defunct
Court of First Instance of Rizal, petitioner presented an alternative cause of action or prayer just in
case the validity of the sale would be sustained. And this alternative cause of action or prayer is to
allow petitioner to legally redeem the property.
We hereby grant said alternative cause of action or prayer. While the sale was originally executed
sometime in December, 1969, it was only on February 3, 1974 when, as prayed for 1 by private
respondent, and as ordered by the court a quo, a "deed of conveyance" was formally executed.
Since offer to redeem was made on March 24, 1975, this was clearly within the five-year period of
legal redemption allowed by the Public Land Act (See Abuan v. Garcia, 14 SCRA 759, 761).
The allegation that the offer to redeem was not sincere, because there was no consignation of the
amount in Court is devoid of merit. The right to redeem is a RIGHT, not an obligation, therefore,

there is no consignation required (De Jesus v. Garcia, C.A. 47 O.G. 2406; Resales v. Reyes, 25
Phil. 495, Vda. de Quirino v. Palarca, L-28269, Aug. 16, 1969) to preserve the right to
redeem (Villegas v. Capistrano, 9 Phil. 416).
WHEREFORE, as prayed for by the petitioner Lauro Immaculata (represented by his wife,
Amparo Velasco, as Guardian ad litem) the decision of this Court dated November 26, 1986 is
hereby MODIFIED, and the case is remanded to the court a quo for it to accept payment or
consignation 2 (in connection with the legal redemption which We are hereby allowing the
petitioner to do) by the herein petitioner of whatever he received from respondent at the time the
transaction was made. SO ORDERED.
G.R. No. L-28161 August 13, 1986
EUFEMIA ELPA DE BAYQUEN and ESTEFANIA BAYON VDA. DE ELPA vs. EULALIO
BALAORO
PARAS, J.:
This is an appeal from the decision of the then Court of First Instance of Abra in Civil Case No.
444 dismissing the complaint of plaintiffs-appellants against defendant-appellee.
The records show that on January 16, 1954, appellants sold the land under question to the
appellee, reserving their right to repurchase the said land within four (4) years. The plaintiffsappellants failed to repurchase the land within the four-year period. They now assert their right to
repurchase the subject property after more than thirteen (13) years. (p. 40, Record.)
At the trial court, the parties agreed on the following stipulation of facts:
At this pre-trial parties are all present assisted by their respective counsel and after a short
conference, as the plaintiffs cannot agree on the settlement proposed by the defendant, they
now come to stipulate:
1. That the land described in paragraph 2 of the complaint was the subject of a Deed of Sale
with right to repurchase dated January 16, 1954, duplicate copy of which is marked as Exh. A,
and that the same property described in the Tax Declaration No. 1150 in the name of Eulalio
Balaoro also marked as Exh. B;
2. That plaintiffs failed to repurchase the property within the stipulated period in the contract
Exh. A up to this day;
3. That the defendant failed to file in court consolidation proceedings of the property in
accordance with the provisions of the Civil Code;
4. That parties renounce their respective claims for damages and submit to the court the
question of law whether the plaintiffs still have the right to redeem the said property described
in Exh.A; and
5. That parties submit the case for decision on the basis of these stipulations upon the firing of
their respective memoranda within 10 days from today. (p. 2, Rec.)

175
On the basis of the aforequoted stipulation of facts and other pleadings submitted by both parties,
the trial court ruled that the vendors-appellants have lost their right to repurchase the land under
controversy and that by operation of law, ownership of such land had become consolidated in the
vendee-appellee.
The plaintiffs-appellants appealed the decision of the trial court, alleging several errors, which
defendant-appellee disputed together with the corresponding evaluation thereof.
Appellants contend that the trial court erred in holding that there is no dispute between the parties
regarding the nature of the purported "deed of sale with right to repurchase" and that actually the
transaction is a mortgage. Defendant-appellee refutes this by putting up the claim that the fact that
the contract is in truth a deed of sale with right to repurchase has been admitted by appellants and
the same has been stipulated upon by the parties.
We agree with the trial court's finding that the contract is not an equitable mortgage but a deed of
sale with right to repurchase. Said court thus elucidated:
The deed of conveyance states the purchase price as P2,000.00 for a parcel of land, partly
riceland and partly pasture land, with an assessed value of P440.00. Based on the size,
productivity and accessibility, the price of P2,000.00 for said parcel is adequate.
The vendee admittedly took immediate possession after the execution of the contract; no
extension of the period of redemption, at or after its expiration, was made. The vendee did not
retain any part of the purchase price. The sum of Two Hundred Fifty Pesos (P250.00) claimed by
vendors-plaintiffs to be delivered to them is not part of the purchase price retained by the
vendee, but merely the excess of the value of the yearly crops over the purchase price resulting
from the computation of the plaintiffs. The vendee has declared the property under his name and
paid the corresponding real estate taxes, and there is no circumstance by which the Court could
fairly infer that the transaction was intended by the parties to secure the payment of a debt or
loan. There is no doubt as to the true nature of the transaction and it was, the Court finds, a
contract of sale with right to purchase.
Besides, not one of the instances enumerated in Article 1602 of the Civil Code (re presumption that
the contract is one of equitable mortgage) exists in this case.
Appellants also insist that the trial court erred in holding that the ownership over the property in
question consolidated by operation of law in the defendant-appellee immediately after plaintiffsappellants failed to repurchase the property within four years.
Significantly, We long ago resolved this matter in the early case of Rosario vs. Rosario, L-13018,
Dec. 29, 1960 (110 Phil. 394) where we thus enunciated:
Where the contract between the parties is admitted and which has been stipulated by the parties
to be a deed of sale with right to repurchase, there should be no issue or dispute about the
effects thereof that once there is failure to redeem within the stipulated period, ownership thereof
becomes vested or consolidated by operation of law on the vendee. Any other interpretation
would be violative of the sanctity of the contract between the parties.

Besides, the needed judicial hearing contemplated by Art. 1607 of the Civil Code refers not to
the consolidation itself, but to the registration of the consolidation.(See Rosario vs. Rosario, L3018, Dec. 29, 1960; see also Dakandan vs. Julio, L-19101, Feb. 29, 1964.)
We find no necessity to discuss the other assigned errors because they are mere corollaries of
the rest. WHEREFORE, the decision of the court a quo is hereby AFFIRMED, with costs against
appellants. SO ORDERED.
[G.R. No. 143388. October 6, 2003]
ROLANDO AND ROSITA BOTH SURNAMED CRUZ vs. COURT OF APPEALS
DECISION
BELLOSILLO, J.:
The Decision of the Court of Appeals of 24 April 2000[1] reversing and setting aside
the Decision of RTC-Br. 135, Makati City,[2] and dismissing the Complaints filed by petitioners
herein is assailed in this Petition for Review.
Petitioners Rolando and Rosita Cruz, spouses, were the owners and operators of a dry
goods stall in Divisoria. They contracted a series of loans in varied amounts from private
respondents, spouses Miguel and Cecilia Capistrano, who were in the business of lending
money on a five-six basis. Respondent Cecilia Capistrano was then operating her lending
business on a portion of petitioners stall. The Capistranos and the Cruzes were close friends.[3]
On 31 May 1985 petitioners obtained the first of these loans in the total amount
of P135,000.00 evidenced by two (2) separate receipts. [4] As conditions for the loan, private
respondents required petitioner Rosita Cruz to open a checking account with PhilBanking,
Las Pias Extension Office, and thereafter asked her to sign a blank check with the promise that
the check would only be for safekeeping and would not be deposited with the bank. [5] To secure
the loan, private respondents obliged petitioners to surrender their Transfer Certificate of Title
No. S-98034 covering a 240-square meter lot together with the house standing thereon located
in San Antonio Valley XVII, Las Pias, Metro Manila. Petitioner Rosita Cruz promptly complied
with all the conditions imposed by private respondents.
Subsequently, petitioners secured three (3) more loans from the Capistranos on various
dates in the amounts of P40,000.00,[6] P15,000.00[7] and P5,000.00.[8]
Sometime in 1988, after all the sidewalk stalls in Divisoria were demolished,
respondent Capistranos were no longer able to collect from the vendors who owed
them. Petitioners later discovered that private respondents had mortgaged their property in
Las Pias, Metro Manila, to San Miguel Corporation (SMC) to secure payment of a credit
line. Verification from the Office of the Register of Deeds of Las Pias showed that petitioners
TCT No. S-98034 was already cancelled and TCT No. (98729) T-2156-A was issued in the name
of private respondents Miguel and Cecilia Capistrano [9] by using a Deed of Absolute
Sale purportedly executed in their favor by petitioners.[10]
The parties respective versions as to how the disputed Deed of Absolute Sale came about
differed radically. Petitioners denied executing the Deed of Absolute Sale, tenaciously asserting
that at the time they were negotiating with private respondents concerning the loans, the latter
required them to sign on several blank sheets of paper with the understanding that private
respondents would superimpose a mortgage deed thereon, [11] but it turned out that private
respondents, instead of a deed of mortgage, typed on those blank papers the deed of sale in
question.

176
Private respondents, on the other hand, claimed that in November 1985 petitioners intimated
to them that they would not be able to pay the P195,000.00 debt upon its maturity in December
1985 and, by way of offsetting the indebtedness, they delivered to respondents a duly
accomplished and notarized Deed of Absolute Sale.
On 21 December 1988 petitioners filed a complaint against private respondents and SMC
with the Regional Trial Court of Makati City,[12] seeking the annulment of the Deed of Absolute
Sale (Exh. L), Transfer Certificate of Title No. 98729 (Exh. K) issued in the name of private
respondents, and the deeds of mortgage executed by the Capistranos in favor of SMC (Exh. K-2).
[13]
Petitioners likewise filed a criminal complaint for Estafa Through Falsification of Public
Documents against private respondents before the Office of the Provincial Fiscal of Rizal.[14]
Respondent Capistranos countered with separate criminal complaints for Violation of C.A.
No. 142 (Illegal Use of Aliases), Violation of BP 22, and Estafa, as well as an action
for Ejectment[15] against petitioners after private respondents demand to vacate the subject
property went unheeded.
The criminal complaint for Estafa Through Falsification of Public Documents filed by
petitioners against private respondents was later dismissed by the Office of the Provincial Fiscal
of Rizal for lack of merit. As for private respondents criminal complains against petitioners
for Violation of C.A. No. 142, Violation of BP 22, and Estafa, the trial court eventually exonerated
petitioners on reasonable doubt.
Ultimately, what remained were Civil Case No. 88-2747 for annulment of TCT No. 98729, the
deeds of sale and mortgage, pending before RTC-Br. 135, Makati City;[16] and Civil Case No. 895682, an appeal from the ejectment case[17] pending before RTC-Br. 275, Las Pias, Metro
Manila. On 21 February 1992 Presiding Judge Florentino M. Alumbres of RTC-Br. 275, Las Pias,
Metro Manila, ordered the consolidation of Civil Case No. 89-5682 with Civil Case No. 88-2747. [18]
On 21 March 1994, after hearing, the trial court rendered a decision in favor of petitioners
and
against
respondent Capistranos,
decreeing
that: (a)
The Deed
of
Absolute
Saledated November 5, 1985 (Exh. 7) conveying the subject property, together with the
improvements thereon, covered by TCT No. S-98034 (Exh. C) to defendant Capistranos was null
and void ab initio; (b) The Transfer Certificate of Title No. (98729) T-2156-A (Exh. K) issued by
the Registry of Deeds of Las Pias was ipso facto cancelled; (c) The Deeds of Mortgage executed
by defendant Capistranos over the subject property covered by TCT No. (98729T-2156-A) to
secure a credit line from SMC was null and void ab initio; (d) The Registrar of Deeds of
Las Pias issue a new title over the subject property in favor of plaintiffs devoid of any annotation
of defendant Capistranos mortgage to SMC; (e) The questioned Order of 30 October 1989 issued
by public respondent Alfredo R. Enriquez, Presiding Judge of the MTC-Br. 79, Las Pias, Metro
Manila, be set aside, and that Civil Case No. 3016 pending before him dismissed for lack of cause
of action; and, (f) The defendant Capistranos should pay plaintiffs the sum of P20,000.00 as
litigation expenses by way of compensatory damages, P20,000.00 as attorneys fees, and pay the
costs in these cases.
On 24 May 1995 private respondents challenged the trial courts decision before the Court of
Appeals.[19] On 24 April 2000 the appellate court rendered its assailed Decision reversing the
court a quo and dismissing the complaint filed by petitioners. The appellate court found that
petitioners failed to substantiate their allegation of fraud that would warrant the annulment of
the Deed of Absolute Sale in questions; that except for the allegation that the signatures of the
vendors in the deed were not directly aligned to their typewritten names, no other badges of fraud
were presented by the appellees (petitioners) to prove that said notarized deed of sale was not
duly executed; and, that petitioners had not presented a single receipt to prove that their
indebtedness to private respondents had already been extinguished by payment.

Their motion for reconsideration having been denied, petitioners now come to us for relief
contending mainly that the Court of Appeals erred in upholding the validity of the Deed of
Absolute Sale and failing to recognize that the actual transactions between the parties were in
fact loans. More specifically, petitioners argue that: (a) it is the practice in five-six lending
operations that receipts are not issued for payment and borrowers are not to demand
receipts. Petitioners also claim that borrowers would not be extended succeeding loans unless
they shall have fully settled the previous ones a uniform practice in the five-six lending trade;
(b) the awkward positions of petitioners signatures on the Deed of Absolute Sale, viewed vis-vis their typewritten names on the instrument, show very conspicuously that those signatures
were affixed in blank; (c) the gross inadequacy of the purchase price appearing on the purported
deed of sale, i.e., P66,000.00, showed that the purported deed of sale did not reflect the true
intention of the parties. Even granting without conceding that the loans were unpaid, the proper
document should have been a deed of mortgage, not sale; and, (d) it is inconceivable that
petitioners would trade off their house and lot valued atP750,000.00 at the time just to pay an
alleged loan of P195,000.00.
Private respondents, on the other hand, posit in their Comment that (a) petitioners had not
presented a single proof of payment of their indebtedness to private respondents in the amount
of P195,000.00; (b) except for petitioners allegation that their signatures in the deed of sale
were not directly aligned to their typewritten names, no other badges of fraud were alleged and
proved by them to dispute the due execution of the deed of sale; (c) the intention of the
contracting parties should prevail in determining the true nature of the contract
denominated Deed of Absolute Sale, and the true intention of the parties is that of sale and not
merely mortgage; and, (d) petitioners voluntarily delivered to private respondents the disputed
deed of sale conveying to the latter the subject house and lot in full settlement of their
indebtedness.
At the heart of the controversy, reduced to its simplest, are: first, whether the Deed of
Absolute Sale is, in reality, one of equitable mortgage; and, second whether petitioners loans to
private respondents have already been paid.
The Court of Appeals concluded that the contract subject of the instant case was, in fact,
one of sale and not merely of mortgage, thus
In the absence of clear and convincing evidence of such alleged payment, We are not ready to
conclude that the appellees in signing the Deed of Sale executed on November 4, 1985 merely
intended a mortgage and not a deed of conveyance as the terms of the contract clearly and
unmistakably indicate. The finding of non-payment of the indebtedness of appellees to
appellants tends to support the claim of the appellants that the deed of sale in their favor was
executed by the appellees to offset their outstanding obligation to the appellants. With no
evidence showing a contrary intention, the clear and plain terms of the Deed of Sale executed
between the parties must be construed as an absolute conveyance made by the debtors,
herein appellees, in full settlement of their outstanding obligation with their creditors, herein
appellants.[20]
We hold otherwise. Beneath the veneer of an absolute deed of sale is an entirely different
agreement. Indeed, the records are replete with telltale traces of a concealed mortgage. The
applicable law may be found in the New Civil Code thus
Art. 1602. The contract shall be presumed to be an equitable mortgage in any of the following
cases:

177
(1) When the price of the sale with right to repurchase is unusually inadequate;
(2) When the vendor remains in possession as lessee or otherwise;
(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;
(5) When the vendor binds himself to pay the taxes on the thing sold;
(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.
In any of the foregoing case, any money, fruits, or other benefit to be received by the vendee as
rent or otherwise shall be considered as interest which shall be subject to the usury laws
(underscoring supplied).
Equally important is Art. 1604 of the same Code
Art. 1604. The provisions of Article 1602 shall also apply to a contract purporting to be an absolute
sale (underscoring supplied).
Vendors covered by Art. 1602 usually find themselves in an unequal position when
bargaining with the vendees, and will readily sign onerous contracts to get the money they
need. Necessitous men are not really free men in the sense that to answer a pressing emergency
they will submit to any terms that the crafty may impose on them. [21] This is precisely the evil that
Art. 1602 seeks to guard against. The evident intent of the provision is to give the supposed
vendor maximum safeguards for the protection of his legal rights under the true agreement of the
parties.
Article 1602, par. (1), accords significance to the gross inadequacy of the price of a
purported sale to such an extent as to create the presumption that the transaction is an equitable
mortgage.
In the instant case, petitioners acquired the 240-square meter house and lot subject of the
deed of sale for P78,000.00 in 1975.[22] The house was remodeled and converted into a two-storey
residence in 1982 at the cost of P280,000.00.[23] From these figures, petitioners spent a total
of P358,000.00 in acquiring the property and introducing improvements thereon. Yet, the property
was purportedly sold to private respondents in 1985 for a measly P66,000.00, or barely 19% of its
total acquisition and improvement cost three (3) years before, in 1982.[24] Certainly, no seller in his
right senses would agree to part with his valuable property for such an unusually inadequate
consideration.
We take judicial notice of the fact that the value of real properties does not remain stagnant,
but is on a constant upswing. Given the incessant currency devaluation and spiraling costs of
commodities, it would certainly be unrealistic that the market value of petitioners property in 1985
would depreciate greatly three (3) years later.
The rule is well-settled that a contract appearing on its face to be a definite sale, like the
contract in question, may be interpreted as an equitable mortgage if any of the circumstances in
Art. 1602 of the New Civil Code, such as the gross inadequacy of the price, is present.
The other factor to consider is the continuous and unmolested physical possession of the
contested property by petitioners for almost three (3) years, from the time of the alleged sale of the
property in 1985 to the filing by petitioners of the case for annulment of the deed of sale in

1988. Although symbolically, the Deed of Absolute Sale transferred possession of the property
to respondent Capistranos, it was petitioners, the supposed vendors, who remained in physical
possession of the property. In fact, it does not even appear from the records that
the Capistranos ever declared the property in their names for taxation purposes or paid taxes
thereon since the execution of the document. Neither is there any showing that private
respondents or any person acting in their behalf ever demanded of petitioners to vacate the
premises after the execution of the deed of sale in their favor.
Verily, had the intention of the parties been a contract of sale and not merely a contract of
mortgage, private respondents could have asserted their right to possess the property, and
would not have allowed petitioners to freely stay thereon for such a long period of almost three
(3) years. Private respondents decision to eject petitioners from the property came only after
the institution of this case by petitioners; obviously an afterthought, and designed merely to
harass petitioners.
Apart from the foregoing, a crucial circumstance reinforces our conclusion that the
contested contract is not really a sale but an equitable mortgage: respondent Cecilia
Capistranos admission during the trial that the title to the property was delivered to her by
petitioners only to secure payment of the loans, thus
Atty. Mendez: On this pagpapatunay dated May 31, 1985 it is stated that plaintiffs shall
pay you the amount of P120,000.00 on or before December 1985, did they offer you
anything to secure the payment of this P120,000.00?
A They offered to us their transfer certificate of title of their house and lot located
at Las Pias as security, sir. x x x x
Atty. Mendez:
You stated that this Exh. 2 referring to Transfer Certificate of Title No. S-98043 covers the
house and lot of the plaintiffs spouses Rolando and Rosita Cruz, is this the same house
and lot subject matter of this case?
A Yes, sir.
Q You said that this certificate of title marked as Exh. 2 for the defendants Capistrano
was offered to you as security for the payment of this P120,000.00, when did the
plaintiffs give you this certificate of title?
A On the same day that we gave them the amount of P120,000.00, sir (underscoring
supplied).[25]
This admission of respondent Cecilia Capistrano all but demolishes whatever vestige of
doubt is left as to the true nature of the contract in question. The evident intention of the parties,
vis--vis petitioners property, was not to transmit ownership but merely to guarantee payment of
the debt. In Lao v. Court of Appeals,[26] we held
x x x x In determining the nature of a contract, the Court looks at the intent of the parties and not
at the nomenclature used to describe it. Pivotal to deciding this issue is the true aim and
purpose of the contracting parties as shown by the terminology used in the covenant, as well as
by their conduct, words, actions and deeds prior to, during and immediately after executing the
agreement. In this regard, parole evidence becomes admissible to prove the true intent and
agreement of the parties which the Court will enforce even if the title to the property in question

178
has already been registered and a new transfer certificate of title issued in the name of the
transferee.

appropriated the property for themselves? Or, more plausibly, could it be that petitioners on the
other hand somehow took pains to pay the loans little by little just to keep their end of the
bargain, hence, giving no cause for private respondents to make demands?

Indeed, all these circumstances, taken together, are familiar badges of an equitable
mortgage. Private respondents could not in a pactum commissorium fashion appropriate the
disputed property for themselves as they appeared to have done; otherwise, their act will not be
countenanced by this Court being contrary to good morals and public policy hence void. If they
wish to secure a perfect title over the mortgaged property, they should do so in accordance with
law, i.e., by foreclosing the mortgage and buying the property in the auction sale.

The truth appears to us to be somewhere in the middle. Veritas in medio stat. Petitioners
only made payments of what were due but did not fully settle the debt. Private respondents
have a valid and subsisting credit, not in the entire amount of the loans but only to the extent as
will be discussed shortly hereafter.

In the meantime, title to the subject property, which had supposedly been transferred to
respondent Capistranos, actually remained with petitioners as owners-mortgagors, conformably
with the well-established doctrine that the mortgagee does not automatically become the owner of
the mortgaged property as the ownership thereof remains with the mortgagor.[27]
Moreover, we have ruled that in case of doubt in the circumstances surrounding the
execution of a contract, as in this case, the least transmission of rights and interests shall prevail if
the contract is gratuitous and, if onerous, the doubt shall be settled in favor of the greatest
reciprocity of interests. In Labasan v. Lacuesta,[28] citing the 1909 case of Olino v. Medina,[29] we
similarly held
Thus, in the early case of Olino v. Medina, 1909, Olino filed a complaint against Medina to recover
a parcel of Riceland which he alleged to have mortgaged for P175.00 and which Medina refused to
return on the ground that the latter allegedly bought the property. In deciding the conflict of
allegations between the parties, this Court, through Justice Florentino Flores, considered the
transaction over the property as a loan, reasoning that such contract involves a smaller
transmission of rights and interests, and the debtor does not surrender all rights to his property but
simply confers upon the creditor the right to collect what is owing from the value of the ting given as
security, there existing between the parties a greater reciprocity of rights and obligations.
Ordinarily, findings of the Court of Appeals are entitled to great weight and respect, at times
even finality, and shall not be disturbed on appeal. Nevertheless, when, as in this case, (a) the
findings of fact of the Court of Appeals are at variance with those of the trial court; (b) the inference
made or the conclusion drawn on the basis of certain state of facts is manifestly mistaken; or, (c)
the Court of Appeals manifestly overlooked or disregarded matters of substance which, if
considered, would very likely change the outcome of the case, this Court is not precluded from
exercising its power of review.[30]

Let it be made clear that our judgment herein declaring the contract to be an equitable
mortgage should not be construed as a bar to the collection of the unpaid loans. Private
respondents have the perfect right to foreclose the mortgage and sell the property subject
thereof to satisfy the mortgage debt. This brings us to the question of how much petitioners are
actually liable to private respondents.
The purchase price of P66,000.00 could not have just come out of nowhere and found its
way into the deed of sale by chance or accident. Surely, the amount was placed in theDeed of
Absolute Sale for a purpose, and could not have been merely dictated by the whim and caprice
of the contracting parties. If, as asserted by private respondents, the contested house and lot
subject of the deed of sale were given in payment of the loans, then why were they purportedly
sold for only P66,000.00 and not for P195,000.00 or so, the total amount alleged to have been
unpaid? We cannot conceive of any other credible explanation under the circumstances than
that the alleged purchase price of P66,000.00 in the deed of sale actually pertained to
the unpaid balance of the loans, for which private respondents appropriated petitioners
property in full satisfaction thereof.
WHEREFORE, the Decision of the Court of Appeals of 24 April 2000 is MODIFIED. The
Registrar of Deeds of the City of Las Pias is DIRECTED to cancel TCT No. (98729) T-2156-A
issued in the name of private respondent spouses Miguel and Cecilia Capistrano and to issue a
new title in the name of petitioner spouses Rolando and Rosita Cruz, subject to the equitable
mortgage rights of private respondent spouses Miguel and Cecilia Capistrano.
Petitioner Rolando and Rosita Cruz are ORDERED to pay private respondent spouses
Miguel and Cecilia Capistrano the unpaid balance of the loans in the total amount ofP66,000.00
with legal interest within ten (10) months [31] from the finality of this Decision; otherwise, the
mortgaged property shall be sold at public auction to cover payment of the mortgage debt and
the costs of suit. SO ORDERED.

Anent the second issue, we are not inclined to completely sustain petitioners claim that their
loan obligations to private respondents had been fully extinguished by payment, in the absence of
adequate evidence to justify that conclusion. While we believe that petitioners exerted efforts to
settle their indebtedness as they fell due, it is plain to us that they have not fully paid the subject
loans.

G.R. No. L-22202 February 27, 1976

PEDRO TAPAS and MARIA ORIA DE TAPAS vs. COURT OF APPEALS
FERNANDO, J.:

Private respondents insisted that not a single centavo of petitioners debt had been
discharged by payment. Astute in the lending business and wise in the ways of men, it is not
unreasonable to assume that private respondents kept track of all their monetary receivables, and
the moment these became due their natural impulse would have been to immediately demand
payment from their debtors. Curiously, we cannot discern from the records that private
respondents ever demanded payment from petitioners. We are baffled by their silence and
passivity despite the maturity of the questioned loans. Could it be that the Capistranos wanted the
mortgaged property so badly that they simply allowed the loans to mature and thereafter instantly

The obstacle that had to be hurdled by petitioners in this certiorari proceeding to review a
decision of the Court of Appeals 1 is that there was an express finding therein that the
transaction in question was one of an absolute deed of sale. It should be mentioned that
petitioners, as plaintiffs in the lower court, were unsuccessful in their action to reform certain
contracts so as to give them the character of equitable mortgages merely. They fared better in
respondent Court of Appeals, which ruled in their favor insofar as two parcels of land were
concerned. They were so adjudged to be of that character. 2Their plea was, however, denied as
to a third parcel, the lower court being upheld in its finding that there was an absolute sale. 3 The

179
decision of respondent Court penned by the late Justice Fernando Hernandez is notable for its
lucidity comprehensiveness and careful appraisal of the legal issues involved. Nonetheless,
petitioners would claim that an error was committed by such tribunal in view of the Civil Code
provision: "However, the vendor may still exercise the right to repurchase within thirty days from
the time final judgment was rendered in a civil action on the basis that the contract was a true sale
with right to repurchase." 4 A reading of the above would clearly show the weakness, not to say the
futility, of this petition for review. What is spoken of is clearly the sale with right to repurchase The
finding of respondent Court of Appeals was precisely to the contrary, We are not at liberty to
reverse such a finding. We have to affirm.
It was noted in the exhaustive opinion of the late Justice Hernandez that petitioners as plaintiffs did
not deny that the deed in question clearly was on the of absolute sale. It was prepared in the Office
of the then City Assessor, one Eutiquio V. Guevarra, also a notary public, who testified that such
precisely was the intention of the parties and that the contents thereof were explained to them.
Petitioner Maria Orina de Tapas was allegedly deficient in formal schooling. She was, however,
married to an educated man, a former seminarian no less. H was present at the signing of that
document and signed at the left-hand margin thereof. Respondent Court could not, therefore, lend
credence to the unsubstantiated version of the wife to the contrary, her husband not being called to
the witness stand. Nor could the price be deemed as grossly inadequate, being based on the
assessed value. There was an allegation that an adjacent lot did command a higher price, their
statement being attributed to one Macario Mariano. Again, it was noted by respondent Court that
he was not asked to verify such allegation by being called to appear as a witness. Petitioners
having stayed in possession of the lot in question should be explained by the employment of
private respondents, the De Jesus couple. Roberto de Jesus, the husband, was an inspector in the
Bureau of Fisheries; he had to do a lot of traveling. The wife, Ceferina de Jesus, was a nurse
without a fixed place of work. It was to their interest thereon to lease the lot in question to
petitioners, the vendors. Such a lease contract was duly entered into. Nor was the assertion that
petitioners continued to pay real estate taxes proven. On the contrary, the receipts were produced,
duly issued in the name of respondents. The conclusion was, therefore, inevitable. As succinctly
set forth by the late Justice Hernandez: Hemos revisado las ... pruebas de las partes sobre la
contencion de los demandantes sobre la verdadera naturalize del documents de venta absolute ...
y nuestra conclusion es que la misma refleja la verdadera intencion de las partes." 5
On the facts as found, the law was correctly applied. The petition, to repeat, must fail.
1. Even if there were a less meticulous and conscientious appraisal of the evidence submitted, this
Court is not at liberty to alter or modify the facts as set forth in the decision now sought to be
reversed. As was so clearly stated in Chan v. Court of Appeals: 6 "What petitioner ignores is that
from Guico v. Mayuga, a 1936 decision, the opinion being penned by the then Justice Recto, it has
been well-settled that the jurisdiction of this Court in cases brought to us from the Court of Appeals
is limited to reviewing and revising the errors of law imputed to it, its findings of fact being
conclusive. More specifically, in a decision exactly a month later, this Court, speaking through the
then Justice Laurel, it was held that the same principle is applicable even if the Court of Appeals
was in disagreement with the lower court as to the weight of the evidence with a consequent
reversal of its findings of fact." 7 The Chan opinion cited thirty-five decisions in support of such a
view. Since then, there has been six more decisions to the same effect. 8 It cannot. be denied,
therefore, that the transaction herein challenged cannot be looked upon as other than an absolute
deed of sale.
2. The crucial question then is whether there being an absolute deed of sale, the vendor, in the
language of Article 1606 of the Civil Code, may still exercise the right to repurchase within thirty

days from the time the final judgment was rendered in a civil action on the basis that the contract
was a true sale with right to repurchase. The wording of the above provision is plain and explicit.
Should the vendor fail in his attempt to show that the contract entered into was really a loan and
that the parties really intended a pacto de retro sale, he still has thirty days to exercise the right
to repurchase from the finality of the judgment. As set forth in the provision, there must be such
express finding. The transaction must be one of pacto de retro. The law cannot be any clearer.
That is what it says: "the contract was a true sale with right to repurchase."
There is nothing in the rather laconic discussion of three pages in the brief for appellant filed by
Attorney Perfecto Tabora to indicate the contrary. Mention was made by him of Feria v. Suva.
That was negligence on his part. The case is Feria vs. Suva, 9 a 1953 decision. He also did not
point out that there was hardly any need to discuss Article 1606 of the Civil Code as the decision
in question had become final and, therefore, was a bar to such action. 10 Reference was made,
however, to the Court of Appeals in refusing to apply the provisions of the New Civil Code and to
a comment made by Justice Capistrano on this article. It hardly lends support to the claim of
petitioner. The language of Justice Capistrano is equally explicit: "It is intended to cover suits
where the seller claims that the real intention was a loan with equitable mortgage, but the Court
decides otherwise." 11 Here, according to Justice Labrador, speaking for this Court, when the
Court of Appeals refused to grant the plaintiffs-appellants the privilege of redemption under this
article, it was because there was no question as to the transaction being deemed admittedly one
of sate with pacto de retro. 12 If such indeed were the case, how much more unpersuasive is the
plea of petitioner hen the express finding of respondent Court of Appeals is that here an
absolute deed of sale was intended by the parties. Moreover, a little more research by counsel
for petitioner would have cautioned him against citing a Court of Appeals decision. As of the time
he submitted the brief on March 23, 1964, he could have mentioned nine other decisions
from Fernandez v. Suplido, 13 decided in 1955, where this Court held that there was no necessity
to discuss the applicability of Article 1606, to Morales v. Biagtas, 14 a 1962 decision. This excerpt
is particularly relevant: "Moreover, even if the provisions of article 1606 of the new Civil Code
could be invoked, still such redemption or repurchase could be made within thirty days from the
date of final judgment rendered in a civil action where the issue or controversy between the
parties concerns or involves the juridical nature or character of the contract. There being no
issue or controversy as to the juridical nature or character of the contract in question, the
provisions of the new Code invoked by the appellees cannot be applied." 15 There are two 1960
decisions from this Court worth noting, Fernandez v. Fernandez, 16 andRosario v. Rosario. 17 In
the former, Justice J.B.L. Reyes pointed out: "There is no merit in this appeal. It is, already
settled that where the right to repurchase had expired before the effectivity of the New Civil
Code, Article 1606 thereof providing that 'the vendor may still exercise the right to repurchase
within thirty days from the time final judgment was rendered in a civil action on the basis that the
contract was a true sale with right to repurchase' can no longer be applied, as it would be an
impairment of the right that had already become vested in the vendee under the provisions of
the old Code .... Full ownership over the land in question having become consolidated and
vested in defendant- appellee since 1936, his light thereto can no longer be impaired by allowing
plaintiffs now to sue for the exercise of the right of redemption given by Article 1606 of the New
Code. 18 In the latter, former Justice, now retired Chief Justice, Paras had this to say: "The
appellants have also missed the proper application of article 1606 of the new Civil Code which
was taken from article 1508 of the old Civil Code, except the last paragraph which provides for
the' first time that 'the vendor may still exercise the right to repurchase within thirty days from the
time the final judgment wise rendered in a civil action on the basis that the contract was a true
sale with right to repurchase.' The new provision contemplates a case involving a controversy as
to the true nature of the contract, and the court is called upon to decide whether it is sale with
pacto de retro or an equitable mortgage. In the case at bar, the transaction is admittedly a deed
of sale and the stipulated period of redemption had expired." 19 It bears repeating that here there

180
can be no controversy as to the contract being one of absolute deed of sale, pure and simple.
There could not even then be a period redemption. In the light of such authoritative
pronouncements from this Tribunal, it thus clearly appears that the petition is without support in
law.
WHEREFORE, the appealed decision of the Court of Appeals is affirmed. Costs against
petitioners.
G.R. No. L-56196 January 7, 1986
RESTITUTA, JESUS, ISIDRO AND JOEL, ALL SURNAMED HULGANZA AND MATILDE
COLLAMAR vs. COURT OF APPEALS
PARAS, J.:
This is a petition for review on certiorari seeking to set aside: (a) the judgment of reversal of the
respondent Court of Appeals dated November 25, 1980 in CA-G.R No. 58189-R. entitled Restituta,
Isidro, Jesus and Joel all surnamed Hulganza and Matilde Collamar, Plaintiffs-Appellees, versus
Basilia Gemarino, Defendant-Appellant; and (b) respondent Court's resolution dated January 14,
1981 denying petitioners' motion for reconsideration of said judgment. (Original Petition, pp. 51-67,
Rollo).
The dispositive portion of the decision rendered by the lower court reads as follows:
WHEREFORE, judgment is hereby rendered as follows:
(1) declaring that the plaintiffs have the legal right to exercise the right to redemption over the lot
in question;
(2) ordering the defendant to allow the plaintiffs to exercise said right of legal redemption at the
original purchase price of P 10,000.00, which is the principal obligation, with accumulated
interest, at the legal rate, from the date of the execution of the deed of sale up to and until the
time of repurchase; and
(3) to pay the costs.
No award for attorney's fees is hereby made for failure of the plaintiffs to adduce evidence on
this matter. SO ORDERED. (Record on Appeal, p.38).
Aforementioned judgment was reversed by the Court of Appeals, in above-cited decision dated
November 25, 1980, the dispositive portion of which reads:
WHEREFORE, the decision appealed from is hereby reversed and another one entered
dismissing the complaint as well as the counterclaim. No pronouncement is made as to costs.
SO ORDERED. (Record, p. 33, Annex "B" to Petition).
Petitioners (plaintiff therein) filed with the Court of First Instance of Negros Occidental on May 24,
1973 Civil Case No. 925 entitled "Hulganza, et al. v. Gemarino," to: (1) recover from private
respondent (defendant therein) the sum of P3,000.00 representing the unpaid balance of Lot No.

161, Pls. 256; (2) compel private respondent to allow petitioners to redeem said parcel of land
under Sec. 119 of Commonwealth Act 141 (Public Land Act); and (3) compel respondent to pay
actual damages in the amount of P2,000.00.
Private respondent, in her answer, denied that said balance is due from her and countered that
the period of legal redemption had already lapsed. She added that the instant action was filed as
a business speculation, intended merely to harass her.
The factual background of this case as admitted by both parties at the pre-trial conducted on
May 24, 1973, is as follows:
Lot 161, Pls. 256, the subject matter of the present case, is situated in Barrio Mina-otoc,
Calatrava, Negros Occidental and is registered in the name of spouses Nicomedez Hulganza
and Matilde Collamar covered by Original Certificate of Title No. P-1672 issued pursuant to a
free patent. Before Nicomedez Hulganza died leaving as his heirs herein petitioners, namely: his
wife, Matilde Collamar, Restituto Hulganza, Joel Hulganza, and Isidro Hulganza, he and his wife
Matilde had sold the said property on April 21, 1971 in favor of the defendant Basilia Gemarino
in the amount of P10,000.00 and by virtue of the sale the original title was cancelled and a new
one issued (T-5082) in the name of private respondent Basilia Gemarino. Since that date, up to
the present private respondent has been in possession of the property peacefully, openly or
publicly, adversely and without interruption in the concept of owner.
But on April 13, 1972, petitioners filed a complaint in court seeking to repurchase the property
from said respondent under the provisions of Section 119 of Public Land Act 141 as amended.
(Record on Appeal, pp. 25-26, Rollo p. 87).
After pre-trial, the plaintiffs (herein petitioners) narrowed down their stand by withdrawing their
other causes of action but asserted their rights under their second cause of action, maintaining
that they have the right of legal redemption of the property under Sec. 119 of Act 141 (Public
Land Act). In their memorandum, they agreed not only to support the foregoing position but also
on the fact that they are not obligated to pay for the improvements introduced by the vendee.
On the other hand defendant (herein private respondent) also narrowed down her stand by
reiterating the grounds alleged as special defenses in her answer, such as: (1) that the second
cause of action does not state a cause of action; (2) that the period of redemption had already
lapsed and (3) that should the Court hold that the right of redemption still exists, she should be
paid the cost of improvements introduced on the land, estimated to be valued at P25,000.00.
However, she prays that the first ground be treated as a motion to dismiss. Private respondent
concentrated her memorandum only on the first ground. (ibid, pp. 28-29).
The trial court in its Order dated February 1, 1974 denied the above-mentioned first ground
which was considered as a motion to dismiss. (ibid, p. 32).lwphl@it
In its decision dated February 25, 1975, the same court rendered judgment in favor of the
plaintiffs (herein petitioners) declaring that they have the legal right to exercise the right of
redemption and ordering among other things, the defendant (herein private respondent) to allow
the former to exercise said right at the original purchase price of P10,000.00 with interest.

181
As above-stated, on appeal, the Court of Appeals reversed the decision of the lower court.
Hence, this petition.
In the resolution of July 6, 1981 of the Second Division of this Court, respondent was required to
comment (Rollo, p. 89). Thereafter, counsel for private respondent having failed to file comment
within the required period was required in the resolution of March 3, 1982 to explain such failure
and to file the required comment, both of which were complied with on May 4, 1982 (Rollo, p. 91)
and on May 20, 1982 (Rollo, p. 94), respectively. Petitioners were required to file Reply to aforesaid
comment in the resolution of June 14, 1982 (Rollo, p. 99) which was complied with on August 16,
1982 (Rollo, p. 100). The Court gave due course to the petition in the resolution of September,
1982 (Rollo, p. 104). Petitioners filed their brief on January 3, 1983 (Rollo, p. 110) while private
respondent filed her brief on December 1, 1983 and the case was considered submitted for
deliberation on June 20, 1984 (Rollo, p. 143).
There is merit in this petition.
The only issue raised herein, is whether or not it is necessary that the formal offer to redeem the
land in question be accompanied by a bona fide tender of the redemption price, or the repurchase
price be consigned in Court, within the period of redemption even if the right is exercised through
the filing of a judicial action (Brief for Petitioners; p. 5; Rollo p. 110).
Respondent Court of Appeals made the following findings:
In the instant case is bears repeating that plaintiffs-appellees failed to consign the amount due at
the time they filed the complaint, four days before the lapse of the five-year period, and in fact it
was only on the date of the trial more than three years later that the lower court was informed of
the alleged existence of the money available in the hands of Isidro Hulganza who was then in
Mindanao.
This Court is, therefore, of the belief that the act of merely filing the complaint on the part of the
plaintiffs-appellees without consignation of the proper amount due within the period prescribed
was an ineffective and incomplete redemption and to say otherwise would in effect extend the
period of redemption beyond that provided by law. (Brief for Petitioners, p. 3, Rollo, p.
110).lwphl@it
This issue has already been laid to rest in successive decisions of the Supreme Court which ruled:
The formal offer to redeem, accompanied by a bona fide tender of the redemption price, within
the period of redemption prescribed by law, is only essential to preserve the right of redemption
for future enforcement beyond such period of redemption and within the period prescribed for
the action by the statute of limitations. Where, as in the instant case, the right to redeem is
exercised thru the filing of judicial action within the period of redemption prescribed by the law,
the formal offer to redeem, accompanied by a bona fide tender of the redemption price, night be
proper, but is is not essential. The filing of the action itself, within the period of redemption, is
equivalent to a formal offer to redeem. Any other construction, particularly with reference to
redemption of homesteads conveyed to third parties, would work hardships on the poor
homesteaders who cannot be expected to know the subtleties of the law, and would defeat the

evident purpose of the Public Land Law "to give the homesteader or patentee every
chance to preserve for himself and his family the land that the state granted him as a reward
for his labor in cleaning and cultivating it." (Avendano vs. Hao Su Ton, 47 Off. Gaz., 357;
Pascua vs. Talena, 45 Off. Gaz., Supp. No. 9, 413.) (Reveros v. Abel, et al., 48 Off. Gaz.,
5318-5319 [1952]; recently reiterated in Tolentino v. Court of Appeals, 106 SCRA 526 [1981]).
In view of the foregoing consideration, it appears evident that the bona fide tender of the
redemption price or its equivalent consignation of said price in court is not essential or
necessary in the case at bar where the filing of the action itself is equivalent to a formal offer to
redeem.
PREMISES CONSIDERED, the assailed decision of the Court of Appeals is hereby REVERSED
and SET ASIDE and the decision of the trial court dated February 25, 1975 is hereby AFFIRMED
or REINSTATED. SO ORDERED.
G.R. No. L-20014
November 27, 1968
FRANCISCO CRISOLOGO and CONSOLACION FLORENTINO CRISOLOGO vs. ISAAC
CENTENO and ASUNCION AQUINO CENTENO
CAPISTRANO, J.:
On January 18, 1955, the spouses Francisco Crisologo and Consolacion Florentino filed in the
Court of First Instance of Ilocos Sur an ex parte petition for consolidation of ownership in them
as vendees a retro of two parcels of land situated at Barrio Lapting, Lapog, Ilocos Sur, on the
ground that the vendors, the spouses Isaac Centeno and Asuncion Aquino, have failed to
exercise their right of repurchase within the periods stipulated in the two contracts of sale
with pacto de retro. On January 28, 1955, after hearing at which the petitioners presented
evidence in support of the petition, the court a quo, through Judge Francisco Geronimo, granted
the petition. On July 19, 1956, the vendors filed a motion to set aside the Order of January 28,
1955, and on July 27, 1956, the court a quo, through Judge Felix Q. Antonio, granted the motion
on the ground that the movants had not been duly notified of the hearing. On motion by the
petitioners to set aside the Order of July 27, 1956, on the ground that the vendors had been
notified by registered mail of the hearing, the lower court, by its Order of February 27, 1957,
granted the motion and set aside the Order of July 27, 1956. The vendors appealed the Order of
February 27, 1957, to the Court of Appeals. On June 27, 1958, the Court of Appeals rendered
judgment in the appeal setting aside the lower court's Order of February 27, 1957, after holding
that the vendors had not been legally notified of the petition and the hearing, and that the Order
of January 28, 1955, was a patent nullity. The Court of Appeals remanded the record to the
lower court for reopening and for further proceedings. Accordingly, after the vendors had been
duly summoned as respondents, they filed their answer alleging that the two contracts of sale
with pacto de retro were really intended as equitable mortgages as securities for usurious loans.
After trial, the lower court rendered its decision on October 26, 1960, holding that respondents'
allegation was substantiated by their evidence. Judgment was rendered in favor of the
respondents as follows:
WHEREFORE, in view of the foregoing, the Court hereby renders judgment declaring that
Exhibits 2 and 3 are actually intended by the parties to be Deeds of Equitable Mortgage, and
as such respondents are entitled to redeem the lands described therein, by paying to the
petitioners whatever balance remains of the principal and interest thereon at 12%, after
deducting therefrom the excess interest paid on November 11, 1952 and September 10,
1953, and the value of the produce taken from those properties by petitioners in accordance

182
with the above findings from 1955 until the possession of these properties are returned to
respondents and upon such settlement, the petitioners are ordered to execute the corresponding
release of mortgage.
Petition for consolidation of title is therefore denied, with costs against petitioners.
The petitioners appealed to the Supreme Court on questions of law.

Mistake, to constitute a ground for petition for relief, refers to a mistake of fact, not of
law. The Court finds occasion to reiterate this basic principle in this case.
The narration of facts by the Court of Appeals is not disputed:
On April 13, 1988, Diosdada Nueva, with marital consent, sold under a pacto de retro, a parcel
of land with an area of 2,033 square meters situated in Kauswagan, Cagayan de Oro City, to
Philadelphia Agan for P21,000.00. The property is covered by Transfer Certificate of Title (TCT)
No. 25370 and registered in the name of Spouses Andres and Diosdada Nueva.

Appellants contend that the lower court erred in not finding that the Order of January 28, 1955, was
valid, final and executory and that all proceedings thereafter taken, including the vendors' appeal to
the Court of Appeals and its decision rendered in said appeal setting aside the Order of February
27, 1957, and remanding the case reopening and further proceedings, as well as the proceedings
thereafter taken including the decision of October 26, 1960, are null and void. The contention is
untenable in view of the following considerations:

The agreement is evidenced by a public instrument entitled Deed of Sale under a Pacto de
Retro executed and duly signed by the late Diosdada Nueva with the marital consent of her
husband, Andres Nueva, and Philadelphia Agan. The parties agreed that the Nuevas are
granted the right to repurchase the property sold, within six (6) months from and after the date of
the document for the same consideration of P21,000.00.

(1) Article 1607 of the Civil Code which provides that:

Petitioners failed to repurchase the property within the stipulated six-month period.

In case of real property, the consolidation of ownership in the vendee by virtue of the failure of
the vendor to comply with the provisions of article 1616 shall not be recorded in the Registry of
Property without a judicial order, after the vendor has been duly heard.
contemplates a contentious proceeding wherein the vendor a retro must be named respondent in
the caption and title of the petition for consolidation of ownership and has been duly heard.
In the instant case, the caption and title of the petition for consolidation of ownership named the
vendees as petitioners, but did not name the vendors as respondents, and said vendors were not
duly summoned and heard. In view thereof, the Order of January 28, 1955, was a patent nullity
having been issued contrary to the contentious proceeding contemplated in Article 1607 of the Civil
Code, and the lower court not having acquired jurisdiction over the persons of the vendors;
(2) The judgment of the Court of Appeals setting aside the Order of February 27, 1957, and in
consequence thereof the Order of January 28, 1955, as a patent nullity on the ground that the
lower court did not acquire jurisdiction over the persons of the vendors because they had not been
duly summoned is res judicata on the question of nullity of said orders; and.
(3) After the remand to the court below, the proceedings further taken wherein the vendors were
named as respondents and duly summoned and heard, after which on October 26, 1960, the
appealed judgment was rendered in favor of the respondents, were valid, being in accordance with
the contentious proceeding provided for in Article 1607 of the Civil Code.
IN VIEW OF ALL THE FOREGOING, the judgment of the lower court of October 26,1960, is hereby
affirmed in all its parts, with costs against the petitioners-appellants..
[G.R. No. 155018. December 11, 2003]
PHILADELPHIA AGAN vs. HEIRS OF SPS. ANDRES NUEVA and DIOSDADO NUEVA
R E S O L U T IO N
TINGA, J.:

On July 5, 1991, upon the death of Diosdada Nueva, the property was extrajudicially partitioned
where Andres sold his interest in the land in question to his daughter Ann and son Lou. Since
the title to the property was allegedly lost during the fire that razed the property on March 19,
1990 where Diosdada died, title was reconstituted and subsequently transferred and registered
in the name of Ann and Lou Nueva under TCT No. 63403.
On June 19, 1992, Philadelphia Agan filed a petition for consolidation of ownership against
Spouses Andres and Diosdada Nueva with the Regional Trial Court (RTC), Branch 19, of
Cagayan de Oro City. . . . In their answer filed on October 28, 1998, the Nuevas alleged that
the pacto de retro sale was actually an equitable mortgage, the consideration for the sale being
only P21,000.00 as against its Fair Market Value of P81,320.00 pursuant to Tax Declaration
No. 34661.
Trial proceeded. On May 10, 2000, the RTC admitted Agans exhibits and submitted the case for
decision in view of the absence despite due notice of the Nuevas and their counsel on record. A
motion for reconsideration filed by the Nuevas couple was denied. On August 3, 2000, the
judgment consolidating ownership over the disputed property in favor of the vendee,
Philadelphia Agan, was rendered by the trial court. However, the second paragraph of the
dispositive portion gave the vendors a period of thirty [days] from receipt of the decision within
which to redeem the property. The dispositive portion of the decision reads:
WHEREFORE, based on the evidence presented, the ownership in the vendee is hereby
consolidated by virtue of the failure of the vendors to redeem the property described in the Deed
of Sale under Pacto de Retro dated April 13, 1988 covered by the TCT No. T-25370 over Lot
1355-E of the Subdivision Psd 182568, being a portion of Lot 1355, Cagayan Cadastre; situated
in the Barrio of Kauswagan, Cagayan de Oro City, consisting of an area of 2,033 square meters,
more or less.
[]However, the vendors can still exercise the right to repurchase said property within thirty (30)
days from receipt of this decision pursuant to Article 1606 and 1607 of the New Civil Code. SO
ORDERED.

183
Because of the refusal of Agan to accept the amount of P52,080.00 as redemption price, the
Nuevas were constrained to consign the amount with the court.

void, then the proper remedy is to appeal said judgment (Air Services Cooperative v. Court of
Appeals, 293 SCRA 101).

On September 12, 2000, Philadelphia Agan filed a petition for relief from the August 3,
2000 decision. She argued that she did not find it necessary to file an appeal from the said
decision considering that the grant of the third-day period to redeem the property is a mere
surplusage and hence, unenforceable and illegal in view of the courts order consolidating
ownership of the property in her favor. Respondent Agan prayed for the court to delete the said
portion of the decision.

The relief provided for under Rule 38 of the Rules is of equitable character, allowed only in
exceptional cases as when there is no other available or adequate remedy. The rule is that relief
will not be granted to a party who seeks to be relieved from the effects of the judgment when the
loss of the remedy of law was due to his own negligence, or a mistaken mode of procedure;
otherwise, the petition for relief will be tantamount to reviving the right of appeal which has
already been lost either because of inexcusable negligence or due to a mistake in the mode of
procedure by counsel (Ibabao v. Intermediate Appellate Court, 150 SCRA 76).

On October 9, 2000, the trial court rendered its questioned Order, thus:
WHEREFORE, the decision of August 4, 2000 is hereby amended by deleting the second
paragraph of the disposition thereof. SO ORDERED.
On October 31, 2000, a motion for reconsideration of the above-quoted resolution was filed by the
Nuevas, but the court denied the same in its resolution dated November 17, 2000.[1]
Respondent heirs filed a petition for certiorari before the Court of Appeals, contending that
the RTC gravely abused its discretion in granting the petition for relief. In its Decision dated August
21, 2002, the Court of Appeals reversed the Order of the RTC and rendered judgment in favor of
respondent heirs. It held that:
The remedy of a petition for relief from judgment under Rule 38 of the Rules of Civil Procedure is a
remedy provided by law to any person against whom a decision or order is entered into through
fraud, accident, mistake or excusable negligence. Relief is not however available when a party had
another adequate remedy available to him which was either a motion for new trial or appeal from
the adverse decision and he was not prevented by fraud, accident, mistake or excusable
negligence from filing such motion or taking an appeal (Ibabao v. Intermediate Appellate Court, 150
SCRA 76).
The ground relied upon by the private respondent in her petition for relief below the court a quo is
her honest belief that the pertinent portion of the decision granting the seller a retro thirty (30) days
to redeem the property is a surplusage and hence unenforceable and illegal. She relied on the
assumption that since the grant of the period of redemption is an erroneous application by the
lower court of Articles 1606 and 1607 of the Civil Code, the same cannot be enforced. As the trial
court upheld the validity of the sale under a pacto de retro and granted her petition for
consolidation of ownership over the disputed property, she did not find it necessary to appeal the
second paragraph of the dispositive portion.
We do not find the circumstances of this case a proper subject of a petition for relief from the
judgment of the court a quo.
The erroneous opinion of a party concerning the incorrectness of the judicial decision of the court
cannot constitute a ground for a petition for relief. This, while it constitutes a mistake of the party, is
not such a mistake as confers the right to the relief. This is so because in no wise has the private
respondent been prevented from interposing an appeal. If a party complains of a decision as being

The failure of the private respondent to avail of the remedy of appeal within the reglementary
period notwithstanding receipt of the lower court decision rendered the decision final and
executory. She cannot make a complete turn around and assail the decision in a petition for
relief where she had all the opportunity to correct on appeal what [she] believed to be an
erroneous decision. If a litigant loses a right by sleeping on it, then with good reason may it be
said that he should not be given equitable relief under [the] rules of procedure which he disdains
or which he fails to take advantage of by gross negligence (Republic v. Sandiganbayan, 234
SCRA 529). The law helps the vigilant but not those who sleep on their rights, for time is a
means of destroying obligations and actions, because time runs against the slothful and
contemners of their own rights (Salandanan v. Court of Appeals, 290 SCRA 671).
Further, We do not agree with the contention of the private respondent that Article 1606 of the
Civil Code does not apply in the instant case. In their answer to the petition for consolidation
filed on October 22, 1998, petitioners raised the defense that the transaction between the parties
was actually an equitable mortgage, considering that they remained in possession of the subject
property and continued to pay the real taxes thereon. The lower court, in its August 3,
2000 decision, ruled that the transaction is one of sale under a pacto de retro, hence it acted
within its authority under Article 1606 of the Civil Code in giving the petitioners thirty days as
redemption period.[2]
Petitioner reiterates her argument that a mistake prevented her from filing an appeal. She
believes that an appeal was unnecessary because the inclusion of the second paragraph in the
RTC Order of October 9, 2000 was mere surplusage. Petitioner further submits that the Court of
Appeals erred in ruling that respondents had thirty (30) days within which to redeem the property
under the third paragraph of Article 1606 of the Civil Code, which states:
the vendor may still exercise the right to repurchase within thirty days from the time final
judgment was rendered in a civil action on the basis that the contract was a true sale with right
to repurchase.
The Court, however, finds no reversible error in the foregoing discussion of the Court of
Appeals.
Relief from judgment or order is premised on equity. It is granted only in exceptional
cases. It is an act of grace. It is not regarded with favor.[3] For relief to be granted, the petitioner
must show that the judgment or final order was entered, or the proceeding thereafter against him
was taken, through fraud, accident, mistake, or excusable negligence.[4]

184
The mistake contemplated by Rule 38 of the Rules of Court, as the Court of Appeals
correctly held, pertains generally to one of fact, not of law. In Guevara v. Tuason & Co.,[5] the Court
held that the word mistake, according to its signification in the act referred to, does not apply, and
never was intended to apply, to a judicial error which the court in question might have committed in
the trial referred to. Such errors may be corrected by means of an appeal. The act in question can
not in any way be employed as a substitute for the said remedy. The Court
in Guevara elaborated:
. . . the erroneous opinion of one of the parties concerning the incorrectness of the judicial decision
of the court can not constitute grounds for the said relief. For example, the court renders judgment
in a matter against the defendant. The said defendant believes at the time that said judgment is
correct and understands that an appeal would be useless and therefore he does not interpose the
same. Later he believes firmly that the said judgment was incorrect, as indeed it was, and that he
committed a mistake when he believed that it was correct. This, although it constitutes a mistake
of the party, is not such a mistake as confers the right to the relief. This is so because in no wise
has he been prevented from interposing his appeal. The most that may be said is that by reason
of an erroneous interpretation of the law he believed that all recourse of appeal would be useless.
The above illustration applies equally in this case where petitioner believed that an appeal from the
Decision of the RTC would be unnecessary.
Moreover, the Court is not convinced that petitioner sincerely believed in her theory that the
second paragraph of the dispositive portion of the RTC decision was surplusage. Had it been so,
she would have moved to rectify the alleged error immediately, not after respondents had offered to
repurchase the property in question. Her failure to file a motion for reconsideration or to appeal
before the lapse of the reglementary period constitutes an acceptance of the trial courts judgment,
and her rationalization now appears to have been made only on hindsight.
Petitioner submits that the RTC had no jurisdiction to allow the respondents to repurchase
the property, such judgment purportedly being contrary to prevailing jurisprudence. This contention
has no merit. If there were any error at all in the Decision of the RTC, the same would be a mere
error in judgment, not one of jurisdiction.
Petitioner likewise invokes the case of Ilacad v. Court of Appeals,[6] holding that:
. . . a judgment, even after it had become final, where there is an ambiguity caused by an omission
or mistake in the dispositive portion, the court may clarify such ambiguity, mistake or omission by
an amendment and in so doing it may resort to the pleadings filed by the parties, the courts
findings of facts and conclusions of law as expressed in the body of the decision.[7]
There is no ambiguity at all in the decision that would warrant clarification. If at all, the
ambiguity is merely ostensible. At first blush, the dispositive portion of the RTC Decision declaring
the consolidation of ownership of the property in petitioner, on one hand, and granting respondents
thirty (30) days to repurchase the property, on the other, appears inconsistent. The dispositive
portion, however, also makes reference to the third paragraph of Article 1606 of the New Civil
Code. Taken together, it becomes obvious that the consolidation of the property in petitioner is
subject to the suspensive condition of respondents failure to repurchase within the thirty-day
period.
At any rate, the grant of the right to repurchase to respondents is in accordance with the third
paragraph of Article 1606, a provision not found in the old Civil Code. The legislative intent behind
this Article, along with Articles 1602-1605 and 1607 of the same Code, is to accord the vendor a

retro the maximum safeguards for the protection of his legal rights under the true agreement of
the parties. Experience has demonstrated too often that many sales with right to repurchase
have been devised only to circumvent or ignore our usury laws and for this reason, the law looks
upon then with disfavor.[8]
Article 1606 is intended to cover suits where the seller claims that the real intention was a
loan with equitable mortgage but decides otherwise. [9] The seller, however, must entertain a
good faith belief that the contract is an equitable mortgage. In Felicen, Sr., et al v. Orias, et al.,
[10]
cited by petitioner, the Court explained:
The application of the third paragraph of Article 1606 is predicated upon the bona fides of the
vendor a retro. It must appear that there was a belief on his part, founded on facts attendant
upon the execution of the sale with pacto de retro, honestly and sincerely entertained, that the
agreement was in reality a mortgage, one not intended to affect the title to the property
ostensibly sold, but merely to give it as security for a loan or obligation. In that event, if the
matter of the real nature of the contract is submitted for judicial resolution, the application of the
rule is meet and proper: that the vendor a retro be allowed to repurchase the property sold within
30 days from rendition of final judgment declaring the contract to be a true sale with right to
repurchase. Conversely, if it should appear that the parties agreement was really one of sale
transferring ownership to the vendee, but accompanied by a reservation to the vendor of the
right to repurchase the property and there are no circumstances that may reasonably be
accepted as generating some honest doubt as to the parties intention, the proviso is
inapplicable. The reason is quite obvious. If the rule were otherwise, it would be within the
power of every vendor a retroto set at naught a pacto de retro, or resurrect an expired right of
repurchase, by simply instituting an action to reform the contract known to him to be in truth a
sale with pacto de retro into an equitable mortgage. As postulated by the petitioner, to allow
herein private respondent to repurchase the property by applying said paragraph x x x to the
case at bar despite the fact that the stipulated redemption period had already long expired when
they instituted the present action, would in effect alter or modify the stipulation in the contract as
to the definite and specific limitation of the period for repurchase (2 years from the date of sale
or only until June 25, 1958) thereby not simply increasing but in reality resuscitating the expired
right to repurchase x x and likewise the already terminated and extinguished obligation to resell
by herein petitioner. The rule would thus be a made a tool to spawn, protect and even reward
fraud and bad faith, a situation surely never contemplated or intended by the law.
This court has already had occasion to rule on the proper interpretation of the provision in
question. In Adorable v. Inacala, where the proofs established that there could be no honest
doubt as to the parties intention, that the transaction was clearly and definitely a sale with pacto
de retro, the Court adjudged the vendor a retro not to be entitled to the benefit of the third
paragraph of Article 1606.[11]
The RTC in this case made no finding in its Decision that respondents defense that
the pacto de retro sale was an equitable mortgage was not made in good faith. Indeed, it does
not appear that petitioner even attempted to prove bad faith on the part of respondents during
the trial, which accounts for the RTC Decisions utter silence on the matter.
Moreover, respondents alleged in their answer that the consideration for the alleged sale,
which was P21,000.00 was inadequate, considering that the fair market value of the property
was P81,320.00.[12] Respondents also averred that they remained in possession of the subject
property and paid the real taxes thereon, and that their predecessor continued to pay the loan
under which the mortgage was constituted.[13] Respondents even reconstituted their title over
the property, and partitioned the property with the other heirs, after which respondents

185
purchased the latters share and caused the issuance of a Transfer Certificate of Title in their
name.[14] Such title, however, was subsequently annulled.
The law presumes good faith and, in the absence of a contrary finding by the RTC in its
Decision, respondents are entitled to the right to redeem the property pursuant to the third
paragraph of Article 1606 of the New Civil Code.
The Court also notes that the RTC erred in allowing petitioners the right to repurchase said
property within thirty (30) days from receipt of the RTC Decision. By express provision, Article
1606 grants the vendor a retro thirty (30) days from the time final judgment was rendered, not
from the defendants receipt of the judgment. The Court has construed final judgment to mean
one that has become final and executory.[15]
This observation, of course, is moot, as it is not disputed that respondents offered to pay
petitioner the redemption price within the period fixed by the trial court and, subsequently,
consigned the amount in court. The Court makes the observation only for the enlightenment of the
RTC. ACCORDINGLY, the Court Resolves to DENY the petition for lack of merit. SO ORDERED.
G.R. No. 75069 April 15, 1988
ERLINDA O. CABRERA vs. VICTORIANA E. VILLANUEVA
PARAS, J.:
This is a petition for review by way of appeal by certiorari of the judgment 1 of the Intermediate
Appellate Court (now known as the Court of Appeals), dated June 20, 1986, reversing the
judgment 2 of the Regional Trial Court of Manila dated January 25, 1985 in a civil action for Legal
Redemption of real property entitled "Erlinda O. Cabrera vs. Victoriana E. Villanueva."
Petitioner is a co-owner of a real property situated in Manila, originally covered by TCT No. 64950
of the Registry of Deeds of Manila. On March 12, 1968, by way of a Deed of Absolute Sale,
Feliciano Oropesa and Antonio Oropesa, co-owners of said property, sold their shares of 14/112
each pro indiviso or 28/112 share, for and in consideration of the sum of P6,000.00 each or a total
of P12,000.00 to Victoriana E. Villanueva (private respondent herein). The following year, in 1969,
by reason of said sale TCT No. 64950 was cancelled and in lieu thereof, TCT No. 96437, was
issued by the Registry of Deeds of Manila wherein the buyer was constituted as a co-owner pro
indiviso of the entire parcel, to the extent of the 28/112 share. This was after the former owners
Feliciano and Antonio, both surnamed Oropesa, had executed a Joint Affidavit dated April 1, 1968
attesting to the fact that they had notified in writing the co-owners of the property in question and
said co-owners did not and could not offer any objection thereto. Several years after, the buyer
Victoriana E. Villanueva as the new co-owner, sent a letter dated September 23, 1980 thru her
counsel, to Erlinda 0. Cabrera, the other co-owner, proposing to her the partition of the property in
question. The latter did not agree to such proposal; instead, in her letter, datedOctober 30, 1980,
addressed to Villanueva, she offered to redeem the 28/112 share of the latter in the property.
Villanueva refused such proposal, hence the filing of an action for legal redemption by the former.
Both parties admitted the aforementioned facts by stating them in their Stipulation of Facts
submitted to the trial court.
After due trial, the lower court rendered judgment in favor of plaintiff, its dispositive portion reading
as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff 3 ordering the defendant 4 to
re-sell to plaintiff by way of legal redemption the 28/112 share pro indiviso of the property
described in Transfer Certificate of Title No. 964557 of the Registry of Deeds of Manila, upon the

plaintiff paying the defendant the sum of P12,000.00, the defendant to execute necessary
Deed of Conveyance and the Register of Deeds of the City of Manila to register said Deed of
Conveyance in said transfer certificate of title; ordering defendant to pay to plaintiff the sum of
P5,000.00 for and as attorney's fees. No pronouncement as to costs. (Rollo, p. 17)
Defendant appealed from said decision to the respondent appellate court assigning the following
errors:
I. The trial court committed grave and reversible error in holding that there was no written
notice to the co-owners regarding the sale of the subject property to herein defendantappellant;
II. The trial court committed an error in holding that plaintiff-appellee has tendered redemption
within the reglementary period.
Ruling on these issues, the respondent appellate court held that the plaintiff- appellee was duly
notified in Writing of the sale to defendant-appellant and that the former failed to exercise this
right of redemption within the period provided by law as its basis in reversing the judgment of the
lower court and in entering a new judgment declaring defendant-appellant the lawful co-owner of
the 28/112 share of the property in question barring any right of the plaintiff-appellee to redeem.
Plaintiff-appellee now appeals to Us by way of a petition for certiorari submitting the following
issues:
1. Did the Intermediate Appellate Court resolve the issue on whether or not the petitioner was
legally and duly notified of the sale of the 28/112 share of the property in question in the light of
Art. 1623 of the New Civil Code?
2. If such notice was served on the petitioner, whether she has exercised her right of legal
redemption within the prescribed 30-day period.
Petitioner's contention holds no water. Petitioner anchors her claim on Art. 1623 of the Civil
Code which reads:
The right of legal pre-emption or redemption shall not be exercised except within 30 days from
the notice in writing by the prospective vendor, or by the vendor as the case may be. The
deed of sale shall not be recorded in the Registry of Property, unless accompanied by an
affidavit of the vendor that he has given written notice thereof to all possible redemptioners.
xxx xxx xxx
For the legal and effective exercise of the right of legal redemption one must make the offer
within the period set down in Art. 1623. In other words, if no claim or offer is made within said
period, no action win be allowed to enforce the right of redemption. It is necessary however to
determine first if and when the written notice of sale was duly served by the vendors to their coowner.

186
Petitioner alleges that she never received any written notice of the sale from her co-owners or the
vendors of their respective shares to the private respondent herein. Petitioner claims that she came
to know only of such sale when she received on September 30, 1980 a letter from the private
respondent, dated September 23, 1980, proposing the partition of the property in question. She
rejected the proposal and offered instead to redeem the property in her letter, dated and posted on
October 30, 1980 and received by the private respondent through registered mail on November 6,
1980.
We have no doubt that petitioner had actual knowledge of the sale, she having been informed
verbally by the private respondent herself as they were neighbors (t.s.n. Umali-Ozaeta, p. 14, June
25, 1984). It may be also inferred from the fact that private respondent, as the present co-owner,
receives her monthly share of the rentals collected from the tenants of the property owned in
common and that her share of the real estate tax is also being deducted from said rentals every 3
months from and by the game person, Mrs. Rosita Oropesa Panopio, an aunt of the petitioner who
is the collector of the rentals due and who was also a witness to the deed of absolute sale
executed by the previous co-owners in favor of private respondent. But We have adhered to the
principle that notwithstanding the actual knowledge of a owner, he or she is still entitled to a written
notice from the vendor-co-owner in order to remove all uncertainty as to the sale, its terms and
validity and to quiet any doubts that the alienation is not definitive (Conejero v. Court of Appeals, 16
SCRA 775).
The law however does not require a specific form of written notice to the redemptioner. A reading of
the Joint Affidavit, (Exhs. "A" & "4") executed by the vendors Feliciano and Antonio both surnamed
Oropesa, affirms the fact that a written notice of the sale was really sent by them to their co-owner
petitioner herein, to wit:
That sometime ago we notified in writting our co-owners that we are selling our respective
shares to Miss Victoria Villanueva and that we further informed them that they have the
preference to purchase our shares;
That our co-owners offered no objection in selling our respective shares to Miss Victorians
Villanueva.
When confronted with the affidavit in open court affiant Feliciano Oropesa repudiated it stating that
the signature appearing at the bottom appears like his signature but that he did not sign it. As he is
impugning a notarial document mere denial is not enough. A notarial document is evidence of the
facts in clear unequivocal manner therein expressed. It has in its favor the presumption of
regularity. To contradict all these, there must be evidence that is clear, convincing and more than
merely preponderant (Yturralde v. Aganon, 28 SCRA 407). Their denial of having allegedly
executed said Joint Affidavit is belied by their own Deed of Absolute Sale in favor of private
respondent (p. 71, Records CFI, CC#136506, Exhibits "A" & "I"), a document both parties admit as
genuine and true, acknowledged before the same notary public before the execution of the Joint
Affidavit. A comparison of the 2 deeds shows that the signatories in both are one and the game
persons. His denial is belied by his having signed the deed of sale, the authenticity of which is
admitted by both parties in this case.
Another important consideration is the fact that previous to this denial both parties submitted in
court their Stipulation of Facts, the pertinent portion of which reads as follows:

That on 1 April 1968 Feliciano and Antonio, both surnamed Oropesa, have executed an
affidavit an attesting to the fact that they have notified in writing the other co-owner of the
property in question that they were selling their respective shares on the said property to the
defendant and said co-owner did not offer any objection thereto.
On appeal to Us, petitioner now argues that though it was stipulated (par. 3, Stipulation of Facts)
that the vendors executed the Joint Affidavit in question, the same was only made to admit its
existence as an instrument to be used by private respondent and thereby allow it to be put in
argument or as an evidence to be evaluated in the trial itself but never an admission of its
probative value per se that it amounted to an actual notice or written notice to petitioner of the
sale of the shares of her co-owners in the property under co-ownership and that the said Joint
Affidavit was executed merely and solely for the purpose of meeting and satisfying the legal
requirements under Art. 1623 New Civil Code but not the substantial spirit of the law of notifying
or giving notice to the other co-owner as a possible redemptioner, like petitioner herein, so as to
apprise them of their right under Art. 1623 of legal pre-emption or redemption. (pp. 3 & 4,
Memorandum for Petitioner, Emphasis Ours).
We agree with petitioner that the Joint Affidavit does not amount to that written notice required
by law. However, it is clearly a written affirmation under oath that the required written notice of
sale was given to the other co-owner. Against affiants' own sworn written admission that indeed
the required written notice of sale was duly served upon their co-owners, the oral denials thereof
should not be given much credence. Written admissions, especially those stipulated in court and
certified to by the seal of a notary public, have always been considered as evidence of the
highest order against those making them (Valencia v. Tantoco, 99 Phil. 824, Adiso v. Guzman, 37
Phil. 652). No person in his right senses or in the full possession of his faculties would make an
admission unless the same were true. "A man's acts, conduct and declarations, Whenever
made, and provided they are voluntary, are admissible against him, for the reason that it is fair to
presume that they correspond to the truth, and it is his fault if they do not. (U.S. vs. Ching Po, 23
Phil. 578). One can only guess what impelled them to do so, but Feliciano and Antonio Oropesa,
could not just simply testify away what both had, way back in 1968, solemnly sworn to as true in
said Joint Affidavit; that they had first offered in writing their shares in the property to petitioner
who, apparently not interested therein, did not object to their selling the same to private
respondent thereafter. Said written sworn statement was executed by them ante litem motam,
(the original case having been filed only in 1980) when no motive for them to falsify the same
existed. On the other hand, their credibility in disowning said statement several years later, with
the controversy on the matter already raging in court, is open to serious question. And the fact
that they are the uncles of the petitioner cannot but create doubts as to their present veracity.
Since there is no evidence on record as to when the written notice of the sale referred to in the
Joint Affidavit was given to petitioner, We can only assume that it was made before April 1, 1968,
the date of the Joint Affidavit. Counting therefore from this date, petitioner has already lost her
right to redeem the property under Art. 1623 when she made her offer to redeem from private
respondent in her letter dated October 30, 1980.
Furthermore, on April 21, 1969, T.C.T. No. 96437 was issued by the Registry of Deeds of Manila.
In said title it is already reflected that private respondent Victoriana Villanueva is a co-owner (to
the extent of a 28/112 portion) of the property in question. It can be safely assumed that copy of
the title reflecting private respondent as a co-owner was also issued to petitioner on 1969.
Moreover Section 50 of the LRC expressly provides that the registration of the deed is the only
operational act to bind or affect the property. From that time on, petitioner was already in full and
actual knowledge of the fact that private respondent had acquired the shares of Antonio and
Feliciano Oropesa. For more than ten years, petitioner remained unperturbed by the fact that

187
private respondent was already registered as a co-owner and her uncles were no longer coowners. It was only several years later when the value of the property considerably increased that
petitioner asserted her claim re the right to redeem under Art. 1623. Petitioner has thus slept on her
rights and is now estopped from questioning the validity of the sale. We may even regard the
receipt of a copy of the transfer certificate of title, indicating private respondent as one of the coowners, as service of the written notice required by Art. 1623. Clearly, petitioner's right to redeem
expired a long time ago.
Finally, We should not lose sight of the fact that the letter of private respondent (thru counsel)
dated September 23, 1980 to petitioner informing the latter of the acquisition of a portion of the
property is by ITSELF a written notice of the purchase. Since the 30-day period expired by October
30, 1980 without redemption being exercised it follows that the right to redeem has already been
lost.
WHEREFORE, premises considered, the assailed decision of the appellate court is AFFIRMED, in
all respects and the instant petition is DENIED. SO ORDERED.
G.R. No. L-39877 February 20, 1976
FIDELA C. LEGASPI vs. COURT OF APPEALS
ESGUERRA, J.:
Petition for review on certiorari of the decision of the Court of Appeals in its C.A.-G.R. No. 52907-R,
reversing the judgment of the Court of First Instance of Cavite, Branch III.
The factual background of the case is as follows:
On December 14, 1971, petitioner instituted a civil suit against the private respondents herein, for
legal redemption and damages, alleging among others the following:
2. That plaintiff is the owner in fee simple of NINETY SEVEN (97) SQUARE METERS, Western
portion, of Lot No. 267 of the Cadastral Survey of Kawit, located at Binakayan, Kawit, Cavite,
which parcel of land is bounded as follows, to wit:
Northeast Lot No. 266.
Southeast Lot No. 266 and an alley
Southwest Lots Nos. 272,271 and 268
3. That the aforesaid portion owned by the plaintiff abuts Lot No. 268 of the Cadastral Survey of
Kawit, Cavite, with an area of FIFTY-NINE (59) SQUARE METERS;
4. That the quondam owner of the aforesaid Lot No. 268 was the late Lucia Daplas, and in virtue
of successional rights defendants Claro, Maria and Antonio, all surnamed Pestejo, became the
owners thereof;

5. That a portion of the ancestral house of plaintiff is erected on a portion of Lot No. 268,
remodeled in 1969, because it was believed that the same belonged to the parents of plaintiff,
until it was found out that it belonged to defendants Claro, Maria and Antonio, all surnamed
Pestejo;
6. That upon agreement, defendants Claro, Maria and Antonio, all surnamed Pestejo, allowed
plaintiff to let a portion of her house remain in a part of the aforesaid Lot No. 268, with the
knowledge of defendant Romana Yap Vda. de Aguilar;
7. That sometime in 1963, plaintiff made representation with defendants Claro, Maria and
Antonio, all surnamed Pestejo, for her to exercise the right of pre-emption by offering to buy
Lot No. 268 in the event that they would sell it;
8. That albeit there was an agreement for plaintiff to buy and for defendants, Claro, Maria and
Antonio, all surnamed Pestejo, to sell, yet the projected sale was not pushed through because
the consideration asked for was the staggering sum of NINE THOUSAND PESOS
(P9,000.00), Philippine Currency, for Lot No. 269, situated in the interior and with an area of
59 sq. m. only;
9. That very recently, sans notice to plaintiff, she learned that the aforesaid Lot was sold and
vended to defendant Romano Yap Vda. de Aguilar for the sum of P1,500.00 only;
10. That plaintiff, availing herself of the right of redemption, demanded from defendants that
she be subrogated to the rights of defendant Romana Yap Vda. de Aguilar over Lot No. 268
by reimbursing the consideration paid by her, but they dishonored her demand and still refuse
to honor it;
11. That plaintiff has a better use of the aforesaid Lot No. 268 inasmuch as a portion of her
house is erected thereat than defendant Romana Yap Vda. de Aguilar;
12. That in bringing this suit plaintiff would have to spend the sum of FIVE HUNDRED PESOS
(P500.00), Philippine Currency, for legal fees and incidental expenses, and the further sum of
ONE THOUSAND FIVE HUNDRED PESOS (P1,500.00), Philippine Currency, as agreed
attorney's fees.
On January 3, 1972, respondents moved to dismiss the civil complaint for alleged lack of cause
of action. Petitioner opposed the said motion to dismiss on January 11, 1972, averring therein
that petitioner, having been denied her right of pre-emption, is resorting to legal redemption
under Article 1622 of the New Civil Code, claiming that she has a "better use and utility" of Lot
No. 268 as her house occupies a portion thereof. The trial court issued an order dated January
11, 1972, postponing the resolution of the motion to dismiss until after the evidence of the parties
shall have been actually presented, which order reads as follows:
xxx xxx xxx The real question here now is who among the adjoining-owners has a better right
to buy this small piece of land measuring 59 square meters, where by admission of parties
part of the house of the plaintiff is standing. Should it be the plaintiff who has part of her house
standing on the same lot or the other three adjoining owners including the buyer now codefendant, Romana Yap Vda. de Aguilar, who has no improvement standing on the lot? This

188
being the case it is clear that it is evidentiary in nature rather than argumentative that should
control the validity of the motion to dismiss. The Court is of the opinion and so holds that the
resolution of this motion to dismiss should be postponed up to the time when enough evidence
shall have been presented to have the Court decide as to the real issues involved, factual and
legal.
WHEREFORE, the motion to dismiss not being indubitable, the resolution thereto is hereby
postponed after the evidence of parties shall have been actually presented; and upon petition of
the movant, defendants are given 10 days from today to file the corresponding pleadings.
Respondents thereafter filed their Answer With Counterclaim denying the material allegations of
the complaint and alleging that notice to adjacent owners of the sale is not necessary; that by
reason of the frivolous and unfounded action by the plaintiff, they stand to suffer actual damages
and the amount of P1,000.00 as attorney's fees. In answer to the counterclaim, petitioner denies
the same and avers that her suit is supported by law and anchored on equity.
Issues having been joined, trial of the case ensued, and on February 2, 1973, the Court of First
Instance of Cavite, Branch 111, rendered judgment for the petitioner, the dispositive portion of
which reads as follows:
WHEREFORE, in view of all the foregoing considerations the Court is of the opinion and so
holds that the evidence is overwhelmingly in favor of the plaintiff, and for which reason, the
defendant Romana Yap Vda. de Aguilar, and upon her death her heirs, are hereby ordered to
execute a deed of reconveyance in favor of the plaintiff Fidela C. Legaspi of the 59 square
meters covered by TCT No. T-55612 in her name in favor of Fidela C. Legaspi, after the plaintiff
shall have reimbursed to her or her forced heirs the amount of P1,500.00 she paid to her codefendants, the Pestejos, by of redemption; the defendants to pay to the plaintiff P500.00 by
way of expenses of litigation; the amount of P1,000.00 by way of attorney's fees; and, the costs
of proceedings.
Not satisfied with the judgment of the trial court, respondents appealed to the respondent Court of
Appeals which rendered judgment on November 11, 1974, for the respondents, the dispositive
portion of which reads as follows:
IN VIEW WHEREOF, this Court is constrained to reverse, as it now reverses, case is dismissed,
no more pronouncement as to costs.
Motion for reconsideration having been denied, petitioner interposed the instant petition for review
and reversal of the decision of the Court of Appeals dated November 11, 1974.
There is no dispute that both petitioner and respondent Romana Yap Vda. de Aguilar (substituted
by her heirs and hereinafter referred to as respondent Aguilar, are adjoining owners of Lot No. 268;
that lot 268 was sold by the Pestejos to respondent Aguilar; that prior to the sale of lot 268,
petitioner tried to exercise her right of pre- emption over the said lot, as early as 1963, from
respondents Pestejos as a portion of her ancestral home occupies a part of the same, but she
failed as the price demanded was exorbitant and was fixed at P9,000.00; that sometime in July
1971, respondent Aguilar bought lot 268 from her co-respondents, the Pestejos, for only
P1,500.00; that immediately upon learning of the sale of lot 268, petitioner sought the redemption
of the property in her favor from the private respondents but it was flatly denied.

From the foregoing uncontroverted facts of the case, arises the issue as to
Who between the contending adjoining lot owners has the better right over the 59-square
meter piece of land under litigation.
Considering that in the case at bar the findings of the Court of Appeals are contrary to those of
the trial court, a minute scrutiny by this Court is in order, and resort to duly proven evidence
becomes necessary. (Tolentino vs. De Jesus, et al., L-32797, March 27, 1974, 56 SCRA 167)
It may not be amiss to state that the trial court found the weight of the evidence heavily in favor
of the petitioner. In its decision under date of February 2, 1973, the trial court said:
It is proven that when in 1969 after the defendant Pestejos discovered that a portion of the
house of the plaintiff is standing on a portion of Lot 268 they tolerated her ion thereof; and,
later in 1969 when she decided to make improvements on the said house by way of
reconstruction they allowed her to do so unconditionally. It is further proven that in order to
exercise her right of pre-emption, the herein plaintiff offered to buy the said Lot 268 for
P3,000.00 but that the Pestejos deliberately refused the same and exacted thereof the
staggering amount of P9,000.00. But much later about July of 1971 defendant Pestejos upon
maneuvers of their co-defendant Romana Yap Vda. de Aguilar finally sold to the latter the
same lot 268 for P1,500.00; and that by reason thereof on November 16, 1971, defendant
Romana Yap Vda. de Aguilar was able to secure Transfer certificate of Title No. T-55612 in
her name from the Register of Deeds even without complying with the legal provision to the
effect that in connection with the said issuance of the aforementioned Transfer Certificate of
Title No. T-55612 there should have been filed with the office of the Register of Deeds the
corresponding affidavit to the effect that before allowing said Romana Yap Vda. de Aguilar the
right of pre-emption that they have notified in writing the abutting land owners, particularly,
Fidela C. Legaspi, the herein plaintiff, of their decision to sell said Lot 268 in favor of Romana
Yap Vda. de Aguilar who has lesser right to pre-emption than the herein plaintiff. This further
shows bad faith on the part of defendants in securing this latest Transfer Certificate of Title
covering Lot 268. Inasmuch as the said Transfer Certificate of Title was already issued in the
name of Romana Yap Vda. de Aguilar and she having already died, the duty of executing the
corresponding Deed of Reconveyance in favor of the plaintiff must necessarily fall on her
forced heirs.
There is no denying that the parcels of land involved in the case at bar are all urban land. Not
only are the lots concerned situated in a thickly populated area in Binakayan, Kawit, Cavite, but
also they are actually used for residential purposes. That it is urban land has been decided by
this Court in numerous similar cases. To this situation, the provision of law governing the parties
is Article 1622 of the New Civil Code, a new provision introduced in our present Civil Code
covering specifically the rights of pre-emption and redemption of adjoining owners of urban land,
more specially the third paragraph thereof which provides as follows:
ART. 1622. Whenever a piece of urban land ... xxx xxx xxx
When two or more owners of adjoining lands wish to exercise the right of pre-emption or
redemption, the owner whose intended use of the land question appears best justified shall be
preferred.

189
We take judicious note of the finding of the trial court that "in 1969 after the defendant Pastejos (corespondents herein) discovered that a portion of the house of the plaintiff (now petitioner) is
standing on a portion of Lot 268 they tolerated her possession thereof; and, later in 1969 when she
decided to make improvements on the said house by way of reconstruction they allowed her to do
so unconditionally. It is further proven that in order to exercise her right of pre-emption, the herein
plaintiff (petitioner) offered to buy the said Lot 268 for P3,000.00 but that the Pestejos deliberately
refused the same and exacted thereof the staggering amount of P9,000.00". Clearly, therefore,
years before the sale of the lot in question to respondent Yap, petitioner availed herself of her right
of pre-emption, not only because she is an adjoining owner but also because a portion of her
ancestral home occupies, without any fault on her part, a portion of Lot 268 with the knowledge and
consent of the Pestejos. Such is not the situation in Ortega vs. Orcine, 38 SCRA 276, cited by the
private respondents. Besides, the piece of urban land subject of litigation in the
aforecited Ortega case is rather big, consisting of 4,452 square meters in area, whereas the lot in
question in the case at bar is quite too small,only 59 square meters of residential lot. Considering
further that Lot 268 was inherited by the Pestejos, to require petitioner, as what the respondent
appellate court would want her to do, to prove that said lot was acquired for speculation by the
Pestejos would be exacting compliance with the impossible and inequitable (City of Butuan vs.
Ortiz, et al., 3 SCRA 659; Philippine Engineering Corporation vs. CIR, et al., 41 SCRA 89).
Respondent Aguilar, to whom Lot 268 was sold, being likewise an adjoining owner, the
determinative factor should be that provided for in paragraph 3 of Article 1622 of the Civil Code
the intended use that appears best justified and not whether the said lot was acquired for
speculative purposes. And this brings Us back to the primordial issue as to who has the preferential
right of pre-emption or redemption among the contending adjoining owners in regard to their
intended use of the land in question.
It is Our considered opinion that under the facts and circumstances of the instant case the
petitioner has the preferential right of pre-emption and/or redemption over Lot 268 as against
private respondent Aguilar. Were We to uphold the dismissal of the instant case under the
circumstances above set forth by sustaining the respondent court's decision, We would be
sanctioning something iniquitous to the petitioner.
WHEREFORE, the decision of the Court of Appeals in its CA-G.R. No. 52907-R, dated November
11, 1974, is hereby reversed and set aside and that judgment of the Court of First Instance of
Cavite dated February 2, 1973, is hereby reinstated and affirmed. The heirs or successors in
interest of the deceased, Romana Yap Vda. de Aguilar, shall deliver Transfer Certificate of Title No.
T-55612 or any subsequent Transfer Certificate of Title issued therefore to the Clerk of the Court of
First Instance of Cavite within thirty (30) days after the finality of this decision for said Clerk of
Court to execute the corresponding deed of redemption for Lot No. 268 in favor of petitioner Fidela
Legaspi who shall in turn within said period of thirty (30) days deposit with the Clerk of Court the
sum of P1,500.00 as redemption price for said lot to be delivered by the latter to the heirs or
successors in interest of Romana Yap Vda. de Aguilar; it being understood that said Certificate of
Title shall be deemed cancelled if not so delivered to the Clerk of Court within the thirty-day period
herein provided. No special pronouncement as to costs. SO ORDERED.
G.R. No. L-36083 September 5, 1975
Spouses RAMON DOROMAL, SR., and ROSARIO SALAS vs. COURT OF APPEALS
BARREDO, J.:

Petition for review of the decision of the Court of Appeals in CA-G.R. No.
47945-R entitled Filomena Javellana vs. Spouses Ramon Doromal, Sr., et al. which reversed the
decision of the Court of First Instance of Iloilo that had in turn dismissed herein private
respondent Filomena Javellana's action for redemption of a certain property sold by her coowners to herein petitioners for having been made out of time.
The factual background found by the Court of Appeals and which is binding on this Court, the
same not being assailed by petitioners as being capricious, is as follows:
IT RESULTING: That the facts are quite simple; Lot 3504 of the cadastral survey of Iloilo,
situated in the poblacion of La Paz, one of its districts, with an area of a little more than 2-
hectares was originally decreed in the name of the late Justice Antonio Horilleno, in 1916,
under Original Certificate of Title No. 1314, Exh. A; but before he died, on a date not
particularized in the record, he executed a last will and testament attesting to the fact that it
was a co-ownership between himself and his brothers and sisters, Exh. C; so that the truth
was that the owners or better stated, the co-owners were; beside Justice Horilleno,
"Luis, Soledad, Fe, Rosita, Carlos and Esperanza,"
all surnamed Horilleno, and since Esperanza had already died, she was succeeded by her
only daughter and heir herein plaintiff. Filomena Javellana, in the proportion of 1/7 undivided
ownership each; now then, even though their right had not as yet been annotated in the title,
the co-owners led by Carlos, and as to deceased Justice Antonio Horilleno, his daughter
Mary, sometime since early 1967, had wanted to sell their shares, or if possible if Filomena
Javellana were agreeable, to sell the entire property, and they hired an acquaintance
Cresencia Harder, to look for buyers, and the latter came to interest defendants, the father
and son, named Ramon Doromal, Sr. and Jr., and in preparation for the execution of the sale,
since the brothers and sisters Horilleno were scattered in various parts of the country, Carlos
in Ilocos Sur, Mary in Baguio, Soledad and Fe, in Mandaluyong, Rizal, and Rosita in Basilan
City, they all executed various powers of attorney in favor of their niece, Mary H. Jimenez Exh.
1-8, they also caused preparation of a power of attorney of identical tenor for signature by
plaintiff, Filomena Javellana, Exh. M, and sent it with a letter of Carlos, Exh. 7 dated 18
January, 1968 unto her thru Mrs. Harder, and here, Carlos informed her that the price was
P4.00 a square meter, although it now turns out according to Exh. 3 that as early as 22
October, 1967, Carlos had received in check as earnest money from defendant Ramon
Doromal, Jr., the sum of P5,000.00 and the price therein agreed upon was five (P5.00) pesos
a square meter as indeed in another letter also of Carlos to Plaintiff in 5 November, 1967,
Exh. 6, he had told her that the Doromals had given the earnest money of P5,000.00 at P5.00
a square meter, at any rate, plaintiff not being agreeable, did not sign the power of attorney,
and the rest of the co-owners went ahead with their sale of their 6/7, Carlos first seeing to it
that the deed of sale by their common attorney in fact, Mary H. Jimenez be signed and ratified
as it was signed and ratified in Candon, Ilocos Sur, on 15 January, 1968, Exh. 2, then brought
to Iloilo by Carlos in the same month, and because the Register of Deeds of Iloilo refused to
register right away, since the original registered owner, Justice Antonio Horilleno was already
dead, Carlos had to ask as he did, hire Atty. Teotimo Arandela to file a petition within the
cadastral case, on 26 February, 1968, for the purpose, Exh. C, after which Carlos returned to
Luzon, and after compliance with the requisites of publication, hearing and notice, the petition
was approved, and we now see that on 29 April, 1968, Carlos already back in Iloilo went to
the Register of Deeds and caused the registration of the order of the cadastral court
approving the issuance of a new title in the name of the co-owners, as well as of the deed of
sale to the Doromals, as a result of which on that same date, a new title was issued TCT No.

190
23152, in the name of the Horillenos to 6/7 and plaintiff Filomena Javellana to 1/7, Exh. D, only
to be cancelled on the same day under TCT No. 23153, Exh. 2, already in the names of the
vendees Doromals for 6/7 and to herein plaintiff, Filomena Javellana, 1/7, and the next day 30
April, 1968, the Doromals paid unto Carlos by check, the sum of P97,000.00 Exh. 1, of
Chartered Bank which was later substituted by check of Phil. National Bank, because there was
no Chartered Bank Branch in Ilocos Sur, but besides this amount paid in check, the Doromals
according to their evidence still paid an additional amount in cash of P18,250.00 since the
agreed price was P5.00 a square meter; and thus was consummated the transaction, but it is
here where complications set in,
On 10 June, 1968, there came to the residence of the Doromals in Dumangas, Iloilo, plaintiff's
lawyer, Atty. Arturo H. Villanueva, bringing with him her letter of that date, reading,
"P.O.
June 10, 1968

Box

189,

Bacolod

City

and that,
"The plaintiff have every reason to be grateful to Atty. Carlos Horilleno because in the petition
for declaration of heirs of her late uncle Antonio Horilleno in whose name only the Original
Certificate of Title covering the Lot in question was issued, her uncle Atty. Carlos Horilleno
included her as one of the heirs of said Antonio Horilleno. Instead, she filed this case to
redeem the 6/7 share sold to the Doromals for the simple reason that the consideration in the
deed of sale is the sum of P30,000.00 only instead of P115,250.00 approximately which was
actually paid by the defendants to her co-owners, thus she wants to enrich herself at the
expense of her own blood relatives who are her aunts, uncles and cousins. The consideration
of P30,000.00 only was placed in the deed of sale to minimize the payment of the registration
fees, stamps, and sales tax. pp. 77-78, R.A.,
and dismiss and further condemned plaintiff to pay attorney's fees, and moral and exemplary
damages as set forth in few pages back, it is because of this that plaintiff has come here and
contends, that Lower Court erred:

Mr. & Mrs. Ramon Doromal, Sr. and Mr. and Mrs. Ramon Doromal, Jr.
"Dumangas Iloilo
Dear Mr. and Mrs. Doromal:
The bearer of this letter is my nephew, Atty. Arturo H. Villanueva, Jr., of this City. Through him, I
am making a formal offer to repurchase or redeem from you the 6/7 undivided share in Lot No.
3504, of the Iloilo Cadastre, which you bought from my erstwhile co-owners, the Horillenos, for
the sum of P30,000.00, Atty. Villanueva has with him the sum of P30,000.00 in cash, which he
will deliver to you as soon as you execute the contract of sale in my favor.
Thank you very much for whatever favorable consideration you can give this request.
Very truly yours,
(SIGNED)
Mrs. FILOMENA JAVELLANA" p. 26, Exh. "J", Manual of Exhibits.
and then and there said lawyer manifested to the Doromals that he had the P30,000.00 with him
in cash, and tendered it to them, for the exercise of the legal redemption, the Doromals were
aghast, and refused. and the very next day as has been said. 11 June, 1968, plaintiff filed this
case, and in the trial, thru oral and documentary proofs sought to show that as co-owner, she
had the right to redeem at the price stated in the deed of sale, Exh. 2, namely P30,000.00 of the
but defendants in answer, and in their evidence, oral and documentary sought to show that
plaintiff had no more right to redeem and that if ever she should have, that it should be at the
true and real price by them paid, namely, the total sum of P115,250.00, and trial judge, after
hearing the evidence, believed defendants, that plaintiff had no more right, to redeem, because,
"Plaintiff was informed of the intended sale of the 6/7 share belonging to the Horillenos."

"I. ... in denying plaintiff-appellant, as a co-owner of Lot No. 3504, of the Iloilo Cadastre, the
right of legal redemption under Art. 1620, of the Civil Code:
"II. ... as a consequence of the above error, in refusing to order the defendants-appellees, the
vendees of a portion of the aforesaid Lot No. 3504 which they bought from the co-owners of
the plaintiff-appellant, to reconvey the portion they purchased to the herein plaintiff-appellant..
"III. ... in admitting extrinsic evidence in the determination of the consideration of the sale,
instead of simply adhering to the purchase price of P30,000.00, set forth in the pertinent Deed
of Sale executed by the vendors and owners of the plaintiff-appellant in favor of the
defendants-appellees.
"IV. ... in dismissing the complaint filed in this case." pp. 1-3, Appellant's Brief,.
which can be reduced to the simple question of whether or not on tile basis of the evidence
and the law, the judgment appealed from should be maintained; (Pp. 16-22, Record.) .
Upon these facts, the Court of Appeals reversed the trial court's decision and held that although
respondent Javellana was informed of her co-owners' proposal to sell the land in question to
petitioners she was, however, "never notified ... least of all, in writing", of the actual execution
and registration of the corresponding deed of sale, hence, said respondent's right to redeem had
not yet expired at the time she made her offer for that purpose thru her letter of June 10, 1968
delivered to petitioners on even date. The intermediate court further held that the redemption
price to be paid by respondent should be that stated in the deed of sale which is P30,000
notwithstanding that the preponderance of the evidence proves that the actual price paid by
petitioners was P115,250. Thus, in their brief, petitioners assign the following alleged errors:
I. IT IS ERROR FOR THE COURT OF APPEALS TO HOLD THAT THE NOTICE IN WRITING
OF THE SALE CONTEMPLATED IN ARTICLE 1623 OF THE CIVIL CODE REFERS TO A
NOTICE IN WRITING AFTER THE EXECUTION AND REGISTRATION OF THE INSTRUMENT
OF SALE, HENCE, OF THE DOCUMENT OF SALE.

191
II. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE INSCRIPTION OF THE
SALE IN THE REGISTRY OF PROPERTY TAKES EFFECT AS AGAINST THIRD PERSONS
INCLUDING CLAIMS OF POSSIBLE REDEMPTIONERS.
ASSUMING, ARGUENDO THAT PRIVATE RESPONDENT HAS THE RIGHT TO REDEEM, THE
COURT OF APPEALS ERRED IN HOLDING THAT THE REDEMPTION PRICE SHOULD BE
THAT STATED IN THE DEED OF SALE. (Pp. 1-2, Brief for Petitioner, page 74-Rec.)
We cannot agree with petitioners.
Petitioners do not question respondent's right to redeem, she being admittedly a 1/7 co-owner of
the property in dispute. The thrust of their first assignment of error is that for purposes of Article
1623 of the Civil Code which provides that:
ART. 1623. The right of legal pre-emption or redemption shall not be exercised except within
thirty days from the notice in writing by the prospective vendor, or by the vendor, as the case
may be. The deed of sale shall not be recorded in the Registry of Property, unless accompanied
by an affidavit of the vendor that he has given written notice thereof to all possible
redemptioners.
The right of redemption of co-owners excludes that of adjoining owners.
the letters sent by Carlos Horilleno to respondent and dated January 18, 1968, Exhibit 7, and
November 5, 1967, Exhibit 6, constituted the required notice in writing from which the 30-day
period fixed in said provision should be computed. But to start with, there is no showing that said
letters were in fact received by respondent and when they were actually received. Besides,
petitioners do not pinpoint which of these two letters, their dates being more than two months
apart, is the required notice. In any event, as found by the appellate court, neither of said letters
referred to a consummated sale. As may be observed, it was Carlos Horilleno alone who signed
them, and as of January 18, 1968, powers of attorney from the various co-owners were still to be
secured. Indeed, the later letter of January 18, 1968 mentioned that the price was P4.00 per
square meter whereas in the earlier letter of November 5, 1967 it was P5.00, as in fact, on that
basis, as early as October 27, 1967, Carlos had already received P5,000 from petitioners
supposedly as earnest money, of which, however, mention was made by him to his niece only in
the later letter of January 18, 1968, the explanation being that "at later negotiation it was increased
to P5.00 per square meter." (p. 4 of petitioners' brief as appellees in the Court of Appeals quoting
from the decision of the trial court.) In other words, while the letters relied upon by petitioners could
convey the idea that more or less some kind of consensus had been arrived at among the other coowners to sell the property in dispute to petitioners, it cannot be said definitely that such a sale had
even been actually perfected. The fact alone that in the later letter of January 18, 1968 the price
indicated was P4.00 per square meter while in that of November 5, 1967, what was stated was
P5.00 per square meter negatives the possibility that a "price definite" had already been agreed
upon. While P5,000 might have indeed been paid to Carlos in October, 1967, there is nothing to
show that the same was in the concept of the earnest money contemplated in Article 1482 of the
Civil Code, invoked by petitioner, as signifying perfection of the sale. Viewed in the backdrop of the
factual milieu thereof extant in the record, We are more inclined to believe that the said P5,000
were paid in the concept of earnest money as the term was understood under the Old Civil Code,
that is, as a guarantee that the buyer would not back out, considering that it is not clear that there
was already a definite agreement as to the price then and that petitioners were decided to buy 6/7
only of the property should respondent Javellana refuse to agree to part with her 1/7 share.

In the light of these considerations, it cannot be said that the Court of Appeals erred in holding
that the letters aforementioned sufficed to comply with the requirement of notice of a sale by coowners under Article 1623 of the Civil Code. We are of the considered opinion and so hold that
for purposes of the co-owner's right of redemption granted by Article 1620 of the Civil Code, the
notice in writing which Article 1623 requires to be made to the other co-owners and from receipt
of which the 30-day period to redeem should be counted is a notice not only of a perfected sale
but of the actual execution and delivery of the deed of sale. This is implied from the latter portion
of Article 1623 which requires that before a register of deeds can record a sale by a co-owner,
there must be presented to him, an affidavit to the effect that the notice of the sale had been
sent in writing to the other co-owners. A sale may not be presented to the register of deeds for
registration unless it be in the form of a duly executed public instrument. Moreover, the law
prefers that all the terms and conditions of the sale should be definite and in writing. As aptly
observed by Justice Gatmaitan in the decision under review, Article 1619 of the Civil Code
bestows unto a co-owner the right to redeem and "to be subrogated under the same terms and
conditions stipulated in the contract", and to avoid any controversy as to the terms and
conditions under which the right to redeem may be exercised, it is best that the period therefor
should not be deemed to have commenced unless the notice of the disposition is made after the
formal deed of disposal has been duly executed. And it being beyond dispute that respondent
herein has never been notified in writing of the execution of the deed of sale by which petitioners
acquired the subject property, it necessarily follows that her tender to redeem the same made on
June 10, 1968 was well within the period prescribed by law. Indeed, it is immaterial when she
might have actually come to know about said deed, it appearing she has never been shown a
copy thereof through a written communication by either any of the petitioners-purchasers or any
of her co-owners-vendees. (Cornejo et al. vs.CA et al., 16 SCRA 775.)
The only other pivotal issue raised by petitioners relates to the price which respondent offered
for the redemption in question. In this connection, from the decision of the Court of Appeals, We
gather that there is "decisive preponderance of evidence" establishing "that the price paid by
defendants was not that stated in the document, Exhibit 2, of P30,000 but much more, at least
P97,000, according to the check, Exhibit 1, if not a total of P115,250.00 because another amount
in cash of P18,250 was paid afterwards."
It is, therefore, the contention of petitioners here that considering said finding of fact of the
intermediate court, it erred in holding nevertheless that "the redemption price should be that
stated in the deed of sale."
Again, petitioners' contention cannot be sustained. As stated in the decision under review, the
trial court found that "the consideration of P30,000 only was placed in the deed of sale to
minimize the payment of the registration fees, stamps and sales tax." With this undisputed fact in
mind, it is impossible for the Supreme Court to sanction petitioners' pragmatic but immoral
posture. Being patently violative of public policy and injurious to public interest, the seemingly
wide practice of understating considerations of transactions for the purpose of evading taxes
and fees due to the government must be condemned and all parties guilty thereof must be made
to suffer the consequences of their ill-advised agreement to defraud the state. Verily, the trial
court fell short of its devotion and loyalty to the Republic in officially giving its stamp of approval
to the stand of petitioners and even berating respondent Javellana as wanting to enrich herself
"at the expense of her own blood relatives who are her aunts, uncles and cousins." On the
contrary, said "blood relatives" should have been sternly told, as We here hold, that they are
in pari-delicto with petitioners in committing tax evasion and should not receive any
consideration from any court in respect to the money paid for the sale in dispute. Their situation
is similar to that of parties to an illegal contract. 1

192
Of course, the Court of Appeals was also eminently correct in its considerations supporting the
conclusion that the redemption in controversy should be only for the price stipulated in the deed,
regardless of what might have been actually paid by petitioners that style inimitable and all his own,
Justice Gatmaitan states those considerations thus:
CONSIDERING: As to this that the evidence has established with decisive preponderance that
the price paid by defendants was not that stated in the document, Exh. 2 of P30,000.00 but
much more, at least P97,000.00 according to the check, Exh. 1 if not a total of P115,250.00
because another amount in cash of P18,250.00 was paid afterwards, perhaps it would be
neither correct nor just that plaintiff should be permitted to redeem at only P30,000.00, that at
first glance would practically enrich her by the difference, on the other hand, after some
reflection, this Court can not but have to bear in mind certain definite points.
1st According to Art. 1619
"Legal redemption is the right to be subrogated, upon the same terms and conditions stipulated
in the contract, in the place of one who acquires a thing by purchase or dation in payment, or by
any other transaction whereby ownership is transmitted by onerous title." pp. 471-472, New Civil
Code,
and note that redemptioner right is to be subrogated

law mandatory in character and worse, prohibitive should be understood to have no purpose
at all, that would be an absurdity, that purpose could not but have been to give a clear and
unmistakable guide to redemptioner, on how much he should pay and when he should
redeem; from this must follow that that notice must have been intended to state the truth and
if vendor and vendee should have instead, decided to state an untruth therein, it is they who
should bear the consequences of having thereby misled the redemptioner who had the right
to rely and act thereon and on nothing else; stated otherwise, all the elements of equitable
estoppel are here since the requirement of the law is to submit the affidavit of notice to all
possible redemptioners, that affidavit to be a condition precedent to registration of the sale
therefore, the law must have intended that it be by the parties understood that they were there
asking a solemn representation to all possible redemptioners, who upon faith of that are thus
induced to act, and here worse for the parties to the sale, they sought to avoid compliance
with the law and certainly refusal to comply cannot be rewarded with exception and
acceptance of the plea that they cannot be now estopped by their own representation, and
this Court notes that in the trial and to this appeal, plaintiff earnestly insisted and insists on
their estoppel;
3rd If therefore, here vendors had only attempted to comply with the law, they would have
been obligated to send a copy of the deed of sale unto Filomena Javellana and from that
copy, Filomena would have been notified that she should if she had wanted to redeem,
offered no more, no less, that P30,000.00, within 30 days, it would have been impossible for
vendors and vendees to have inserted in the affidavit that the price was truly P97,000.00 plus
P18,250.00 or a total of P115,250.00; in other words, if defendants had only complied with the
law, they would have been obligated to accept the redemption money of only P30,000.00;

"upon the same terms and conditions stipulated in the contract."

and here, the stipulation in the public evidence of the contract, made public by both vendors and
vendees is that the price was P30,000.00;
2nd According to Art. 1620,
"A co-owner of a thing may exercise the right of redemption in case the share of all the other coowners or any of them, are sold to a third person. If the price of the alienation is grossly excessive,
the redemptioner shall pay only a reasonable one. p. 472, New Civil Code, .

4th If it be argued that foregoing solution would mean unjust enrichment for plaintiff, it need
only be remembered that plaintiff's right is not contractual, but a mere legal one, the exercise
of a right granted by the law, and the law is definite that she can subrogate herself in place of
the buyer,
"upon the same terms and conditions stipulated in the contract,"
in the words of Art. 1619, and here the price
"stipulated in the contract"

from which it is seen that if the price paid is 'grossly excessive' redemptioner is required to pay
only a reasonable one; not that actually paid by the vendee, going to show that the law seeks to
protect redemptioner and converts his position into one not that of a contractually but of a legally
subrogated creditor as to the right of redemption, if the price is not 'grossly excessive', what the
law had intended redemptioner to pay can be read in Art. 1623.
The right of a legal pre-emption or redemption shall not be exercised except within thirty (30)
days from the notice in writing by the prospective vendor, or by the vendor as the case may be.
The deed of sale shall not be recorded in the Registry of Property, unless accompanied by an
affidavit of the vendor that he has given written notice thereof of all possible redemptioners.' p.
473, New Civil Code,

was P30,000.00, in other words, if this be possible enrichment on the part of Filomena, it was
not unjust but just enrichment because permitted by the law; if it still be argued that plaintiff
would thus be enabled to abuse her right, the answer simply is that what she is seeking to
enforce is not an abuse but a mere exercise of a right; if it be stated that just the same, the
effect of sustaining plaintiff would be to promote not justice but injustice, the answer again
simply is that this solution is not unjust because it only binds the parties to make good their
solemn representation to possible redemptioners on the price of the sale, to what they had
solemnly averred in a public document required by the law to be the only basis for that
exercise of redemption; (Pp. 24-27, Record.)
WHEREFORE, the decision of the Court of Appeals is affirmed, with costs against petitioners..

if that be so that affidavit must have been intended by the lawmakers for a definite purpose, to
argue that this affidavit has no purpose is to go against all canons of statutory construction, no

G.R. No. L-45164 March 16, 1987

193
DOMINICO ETCUBAN, petitioner, vs. COURT OF APPEALS
PARAS, J.:

WHEREFORE, JUDGMENT is hereby rendered in favor of the plaintiff and against the
defendants as follows.

Before Us is a petition to review the judgment of the respondent Court of Appeals 1 in CA-G.R. No.
53258-R reversing the decision of the court a quo in Civil Case No. BN-109, entitled Dominico
Etcuban vs. Jesus G. Songalia, et. al., by ruling that plaintiff-appellee (petitioner herein) failed to
avail himself of the right of legal redemption within the period provided for by law.

1. Allowing the plaintiff to exercise his right of redemption over the land in question;

Plaintiff inherited a piece of land with an area of approximately 14.0400 hectares together with his
co-heirs from their deceased father. Said piece of land was declared in their names as heirs of
Eleuterio Etcuban under Tax Declaration No. 06837 and was the subject matter in dispute in SP
No. 1192-R, of the Court of First Instance of Cebu, a case for the settlement of the estate of the
late Eleuterio Etcuban In said case, petitioner Dominico Etcuban the spouse of the decease
Demetria Initan and Pedro, Vicente, Felicitas, Anastacio, Froilan, Alfonso, Advincula, Anunciaciori
Jesus, Aguinaldo, surnamed Etcuban were declared as co-owners of the property in question.
Thereafter the 11 co-heirs executed in favor of defendants (private respondents herein) 11 deeds
of sale of their respective shares in the co-ownership for the total sum of P26,340.00. It is not
disputed that the earliest of the 11 deeds of sale was made on December 9, 1963 and the last one
in December 1967. (Annexes " 1-11 ").
In his complaint before the trial court, plaintiff alleged that his co-owners leased and/or sold their
respective shares without giving due notice to him as a co-owner notwithstanding his intimations to
them that he was willing to buy all their respective shares. He further maintained that even upon
inquiry from his co-heirs/co-owners, and also from the alleged buyers (defendants) he elicited
nothing from them. Plaintiff discovered for the first time the existence of these 11 deeds of sale
during the hearing on January 31, 1972 of Civil Case No. BN-87, entitled Jesus C. Songalia vs.
Dominico ETCUBAN in the Court of First Instance of Cebu, Branch XI. When he verified the
supposed sales with his co-owners only 3 of them admitted their respective sales. Hence, the filing
of Civil Case No. BN-109 by petitioner for legal redemption.
Defendants (private respondents herein) in denying the material allegations of the complaint,
argued by way of affirmative and special defenses that plaintiff has no cause of petition against
them; that the action is barred by prescription or laches; that the complaint is barred by the
pendency of Civil Case No. BN-87 involving the same parties, same subject matter and same
cause of action; that the provisions of the law pertaining to legal redemption have been fully
complied with in respect to the sale of the disputed land to them; that plaintiff came to know of the
sale of the land in question to them in August, 1968 or sometime prior thereto; that acting on this
knowledge, plaintiff thru his lawyers wrote defendants on August 15, 1968 about the matter; that
Jesus Songalia personally went to the office of Atty. Vicente Faelner or counsel for plaintiff to
inform him of the sale of the disputed land to them; that again another demand letter was received
on May 30, 1969 by defendants from the lawyers of plaintiff but on both occasions, no action was
taken by plaintiff despite the information plaintiff received from defendants thru his counsel and that
consequently plaintiff lost his right to redeem under Art. 1623 of the new Civil Code because the
right of redemption may be exercised only within 30 days from notice of sale and plaintiff was
definitely notified of the sale years ago as shown by the records.
During the pre-trial conference, the parties failed to agree on any stipulation of facts. Judgment
was rendered after due trial with the following dispositive portion:

2. Ordering the defendants to accept the redemption price of P26,340.00 which plaintiff
should deposited with this Court within 30 days from and after this decision becomes final and
executory and thereafter to execute a deed of reconveyance in favor of the plaintiff and to
surrender the possession and ownership of the property in question to the plaintiff; and
3. The defendants are ordered to pay the costs.
Defendants appealed to the Court of Appeals assigning several errors but the appellate court
centered its dissertation on the first assignment of error as the issue to be most decisive and,
therefore confined its discussion to it.
Defendants in their first assignment of error assailed the lower court in not holding that the
failure of the plaintiff-appellee to tender to the defendants-appellants the redemption price or to
consign the same in court or to make a specific offer to redeem the property before filing the
complaint for legal redemption has barred the appellee's right to redeem the property pursuant
to the doctrine of the Supreme court in Conejero vs. Court of Appeals (16 SCRA 775).
The appellate court in tackling this issue declared that plaintiff failed to make a valid tender of
the sale price of the land paid by the defendants within the period fixed by Art. 1623 of the Civil
Code which provides as follows:
ART. 1623. The right of legal pre-emption or redemption shall not be exercised except within
thirty (30) days from the notice in writing by the prospective vendor, or by the vendor, as the
case may be. The deed of sale shall not be recorded in the Registry of Property, unless
accompanied by an affidavit of the vendor that he has given written notice thereof to all
possible redemptioners.
The right of redemption of co-owners excludes that of adjoining owners. (1524a)
The respondent court found that written notice was given to plaintiff-appellee in the form of an
answer with counterclaim to the complaint in Civil Case No. BN-109 which appears on the
records to have been filed on March 18, 1972. Said court ruled that "this notice is sufficient to
inform the plaintiff about the sale and the reckoning date for the 30-day period commenced upon
receipt thereof. No other notice is needed under the premises because it is the substance
conveyed rather than the form embodying it, that counts.
The records reveal that on May 27, 1974, plaintiff-appellee deposited with the lower court the
amount of P26,340.00 the redemption price. Since the answer with counterclaim was filed on
March 18, 1972, the deposit made on May 27, 1974 was clearly outside the 30-day period of
legal redemption. The period within which the right of legal redemption or preemption may be
exercised is non-extendible.

194
Petitioner contends that vendors (his co-heirs) should be the ones to give him written notice and
not the vendees (defendants or private respondent herein) citing the case of Butte vs. Manuel Uy &
Sons, Inc., 4 SCRA 526. Such contention is of no moment. While it is true that written notice is
required by the law (Art. 1623), it is equally true that the same "Art. 1623 does not prescribe any
particular form of notice, nor any distinctive method for notifying the redemptioner. "So long,
therefore, as the latter is informed in writing of the sale and the particulars thereof, the 30 days for
redemption start running, and the redemptioner has no real cause to complain. (De Conejero et al
v. Court of Appeals, et al., 16 SCRA 775). In the Conejero case, We ruled that the furnishing of a
copy of the disputed deed of sale to the redemptioner, was equivalent to the giving of written notice
required by law in "a more authentic manner than any other writing could have done," and that We
cannot adopt a stand of having to sacrifice substance to technicality. More so in the case at bar,
where the vendors or co-owners of petitioner stated under oath in the deeds of sale. (Annexes "1"
to "11 ") that notice of sale had been given to prospective redemptioners in accordance with Art.
1623 of the Civil Code. "A sworn statement or clause in a deed of sale to the effect that a written
notice of sale was given to possible redemptioners or co-owners might be used to determine
whether an offer to redeem was made on or out of time, or whether there was substantial
compliance with the requirement of said Art. 1623. 2
In resume, We find that petitioner failed to substantially comply with the requirements of Art. 1623
on legal redemption and We see no reason to reverse the assailed decision of the respondent
court. WHEREFORE, premises considered, the petition is hereby DISMISSED and the appealed
decision is hereby AFFIRMED. SO ORDERED.
[G.R. No. 142015. April 29, 2003]
RURAL BANK OF STA. IGNACIA, INC. vs. PELAGIA DIMATULAC
DECISION
QUISUMBING, J.:
[1]

Before us is a petition for review on certiorari seeking to set aside the decision of the Court
of Appeals, dated November 26, 1999, in CA-GR SP No. 52157, which dismissed the petitioners
petition for review to set aside the decision [2] of the Regional Trial Court (RTC) of Tarlac City,
Branch 64, in Civil Case No. 8670. The RTC affirmed the decision [3] of the Municipal Trial Court
(MTC) of Tarlac City, Branch 2, dismissing herein petitioners complaint for unlawful detainer and
damages against respondents.
Before the MTC, petitioner had filed what appeared to be a simple ejectment case, but as
found out by the Court of Appeals, the parcel of land subject of the dispute has a long and
convoluted history, to wit:

respondents were in possession of the property, Valentin and Razon filed a complaint for
recovery and damages against respondents, docketed as Civil Case No. 6152, with the
Regional Trial Court of Tarlac, Tarlac. The Republic of the Philippines intervened in said case
and along with respondents, contending that the title of the spouses was null and void, because
the sale by Reyes was in violation of the terms and conditions of sale of the lot by the RPA to
Reyes.
The trial court decided in favor of the spouses Maximo Valentin and Retina Razon. But on
appeal, the appellate court in CA-G.R. CV No. 14909, entitled Spouses Maximo E. Valentin and
Retina Razon v. Sps. Ricardo Garcia and Mona Macabili, et al., reversed the judgment,
cancelled the title of the spouses, and decreed the reversion of the property to the government
for disposition to qualified beneficiaries. The decision of the Court of Appeals in CA-G.R. CV
No. 14909 dated August 31, 1990, attained finality on September 22, 1990, as per entry of
judgment dated February 22, 1991.
Meanwhile, on February 15, 1987, or during the pendency of CA-G.R. CV No. 14909,
Razon, through her attorney-in-fact, mortgaged the property to petitioner rural bank to secure a
loan of P37,500.00. The property was subsequently extra-judicially foreclosed when Razon
failed to pay the loan and on October 20, 1987, petitioner purchased the property. TCT No.
330969 dated May 11, 1989 was accordingly issued to herein petitioner.
On March 4, 1997, petitioner filed a complaint for unlawful detainer and damages with the
MTC of Tarlac, Tarlac, docketed as Civil Case No. 6367. Petitioner alleged that respondents
were occupying the property by mere tolerance as they had no contract of lease with it, nor right
or claim annotated on its title. It also averred that it had advised respondents of its purchase of
the property and had demanded that respondents vacate the same, but its notice went
unheeded.
Respondents in their Answer claimed that they had been occupants of the land since 1971
and had been awarded as beneficiaries by the government after the titles of Reyes and Razon
were nullified. They also maintained that the lots had been reverted to the government by virtue
of the final and executory judgment in CA-G.R. CV No. 14909.[4]
On April 6, 1998, the municipal court decided Civil Case No. 6367 in this wise:
WHEREFORE, premises considered, the instant case is hereby dismissed for want of
jurisdiction. The counter-claim is likewise dismissed for lack of jurisdiction to grant. No
pronouncement as to costs. SO ORDERED.[5]

Back in August 17, 1965, Prudencia Reyes purchased from the now defunct Rural Progress
Administration (RPA), an 800-square meter parcel of land identified as Lot 11, Block 8 of the
Subdivision Plan, Psd-24941 located in Barrio Suizo and Barrio San Rafael, Tarlac, Tarlac. As a
result of the purchase, TCT No. 65765 was issued in her favor. However, the deed of sale in favor
of Reyes was later cancelled by the Department of Agrarian Reform (DAR) by reason of her nonoccupancy of said property, and made the land available for distribution to the landless residents of
San Rafael.

In dismissing the complaint, the MTC found that the possession of respondents was not by
mere tolerance but as lawful beneficiaries. It also declared that it had no jurisdiction over the
case as it involved the issue of ownership. The court noted that the respondents were lawful
beneficiaries of a government land grant while petitioner was not a purchaser in good faith and
hence, could not avail of the protective mantle of the indefeasibility of Torrens Title. It concluded
that its competence to decide the case was limited only to addressing the question of ownership
in order to determine the issue of de facto possession.[6]

In 1971, respondents took possession of the property and were allocated portions of 200
square meters each. They paid the purchase price and awaited their Emancipation Patent titles.

Petitioner then elevated the matter to the RTC of Tarlac City, Branch 64 in Civil Case No.
8670. The RTC ruled on the appeal as follows:

Despite her knowledge that the land had reverted to the government, Reyes sold the
property to the spouses Maximo Valentin and Retina Razon in a Deed of Sale dated April 4,
1973. The spouses thereafter obtained TCT No. 106153 thereon. On finding, however, that

ACCORDINGLY, above premises all considered, this Court hereby affirms the lower courts
Judgment, dated April 6, 1998, dismissing the case. With costs against appellant. SO
ORDERED.[7]

195
In affirming the judgment of the municipal court, the RTC ruled that petitioner could not eject
respondents from said property as: (1) there was no legal relationship, e.g. such as a lease
agreement or otherwise, between them that has expired or terminated; (2) respondents
possession was not through the tolerance of petitioner; (3) respondents were in possession of the
lot as lawful/rightful possessors, vis-a-vis their status as occupants-beneficiaries of the DAR,
previously RPA. Therefore, respondents had a better right to possession as against petitioner rural
bank.[8]
Petitioner then moved for reconsideration, but this was likewise denied by the RTC in its
Order dated March 15, 1999.[9]
Petitioner then filed a petition for review on certiorari with the Court of Appeals, docketed as
CA-G.R. SP No. 52517. The appellate court, however, dismissed the petition and ruled that the
possession of respondents was not by mere tolerance but by lawful mandate of the law and by
virtue of its final judgment in CA-G.R. CV No. 14909, thus:
WHEREFORE, the petition at bench is hereby DISMISSED. Without costs. SO ORDERED.[10]
Hence, the instant recourse to this Court premised on the following issues:
1. WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT CONSIDERING THAT
PETITIONERS OWNERSHIP OVER THE PROPERTY IN LITIGATION WAS ACQUIRED THRU
AN EXTRAJUDICIAL FORECLOSURE SALE;
2. WHETHER OR NOT THE COURT OF APPEALS ERRED IN APPLYING THE DECISION IN
C.A.-G.R. CV NO. 14909 IN THE CASE AT BENCH;
3. WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT TREATING THE POSITION
PAPER OF THE RESPONDENTS AS A MERE SCRAP OF PAPER FOR HAVING BEEN FILED
FIFTEEN (15) DAYS LATE;
4. WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT CONSIDERING THAT
EXHIBITS MARKED ONLY DURING THE PRE-TRIAL SHOULD NOT BE TREATED AS
EVIDENCES.[11]
Worth noting, the issues raised by petitioner involve questions on procedure premised on a
very rigid and strict application of the Rules of Court. Petitioner faults the appellate court for
sustaining the liberal interpretation of the rules by the trial court. However, this case springs from a
complaint for unlawful detainer. In forcible entry and detainer cases, which are summary in nature
to minimize disturbance of social order, procedural technicalities should be carefully avoided and
should not be allowed to override substantial justice. [12] The interest of substantial justice is best
served if both parties in a case like this are heard and their respective claims considered through
their respective pleadings and position papers. A liberal interpretation of the technical rules, which
does not subvert the nature of the Rule on Summary Procedure nor defeat its objective of
expediting the adjudication of suits,[13] is not disfavored by this Court.
Coming to the issues as formulated by petitioner, we find that the only issue left for our
resolution is: Did the Court of Appeals commit a reversible error when it dismissed the petition of
the bank? In our view, it did not err when it sustained the judgment of the regional trial court which
earlier also sustained that of the municipal trial court.

Petitioner contends that as the absolute and registered owner of the subject land as a
mortgagee-purchaser in a foreclosure sale it is entitled to possession of the land as an attribute
of ownership. Petitioner further argues that it cannot be faulted for relying on the validity of
Valentin and Razons title as it had checked and verified the status of said title on file with the
Register of Deeds and found that it was free from any lien and encumbrance. [14] Further,
petitioner submits that the decision of the Court of Appeals in CA-G.R. No. 14909 cannot defeat
its right to eject respondents as it is not bound by the said judgment because petitioner was not
impleaded as a party therein. Moreover, according to petitioner when the decision in CA-G.R.
No. 14909 nullifying Razons title became final, said title was already cancelled and another title
already issued in favor of petitioner. For this reason, petitioner insists the CA decision could not
comprehend within its ambit petitioners title to the land.
Respondents contend that petitioner could not properly raise in issue the question of
ownership in an action for unlawful detainer under the Rule on Summary Procedure. Petitioner
should seek the proper remedy through an ordinary civil proceeding. Moreover, they argue that
petitioner was totally negligent in its duty to determine the propriety of accepting the property for
a mortgage by the Valentin and Razon spouses. Thus, it is estopped from claiming good
faith. Further, respondents add that since the title of Razon was declared null and void,
petitioner as the successor-in-interest acquired no rights of ownership over the land it purchased
through public auction.
In ejectment cases the question is limited to which party among the litigants is entitled to
the physical or material possession of the premises, that is to say, who should have
possession de facto.[15] Settled is the rule, however, that in an ejectment case, the assertion by a
defendant of ownership over the disputed property does not serve to divest an inferior court of
its jurisdiction.[16] When the defendant raises the defense of ownership and the question of
possession cannot be resolved without deciding the issue of ownership, the issue of ownership
shall be resolved for the purpose only of determining the issue of possession. [17] Said judgment
shall be conclusive with respect to the possession only, and shall in no wise bind the title of the
realty, or affect the ownership thereof. It shall not bar an action between the same parties
respecting title to the real property.[18] Only with this understanding of that well-entrenched
principle can we accept the ruling of the municipal court in Civil Case No. 6367 that the case is
dismissed for want of jurisdiction.[19]
Petitioners contention that the final and executory judgment of the Court of Appeals in CAG.R. CV No. 14909 does not bind the bank, in our view, is devoid of merit. Rule 39, Section 47
(b)[20] of the 1997 Rules of Civil Procedure, speaks of conclusiveness of judgment as between
the parties and their successors-in-interest by title subsequent to the commencement of the
action. In the present case, petitioner herein derived its title from the Valentin and Razon
spouses, after an extrajudicial foreclosure sale. Under the law which permits a successor in
interest to redeem the property sold on execution, the term successor-in-interest includes one
to whom the debtor has transferred his statutory right of redemption; one to whom the debtor
has conveyed his interest in the property for the purpose of redemption; or one who succeeds to
the interest of the debtor by operation of law.[21]Petitioner acquired its title while CA-G.R. CV No.
14909 was pending before the Court of Appeals. To acquire title, the successor-in-interest must
do so subsequent to the commencement of the action, and not before such commencement.
[22]
Having derived little from the Spouses Valentin and Razon, whose title was nullified by the
final and executory decision of the Court of Appeals in CA-G.R. CV No. 14909, the petitioner
cannot escape the effect of the appellate courts judgment in said case. The rural bank as
purchaser at an auction sale does not have a better right to said property than their
predecessors-in-interest, namely the Valentin and Razon couple.
The rule that persons dealing with registered lands can rely solely on the certificate of title
does not apply to banks.[23] The degree of diligence required of banks is more than that of a good

196
father of a family; in keeping with their responsibility to exercise the necessary care and prudence
in dealing even with a registered or titled property. The business of a bank is affected with public
interest, holding in trust the money of the depositors, which the bank should guard against loss due
to negligence or bad faith. For this reason, the bank is not allowed to rely merely on the protective
mantle of the land registration law, which is normally accorded only to purchasers or mortgagees
for value and in good faith.[24]
In the present case, while petitioner sent a representative to verify the original TCT on file
with the Registrar of Deeds, no ocular inspection of the premises took place. Judicial notice may
be taken of the common practice of banks, before approving a loan, to send a representative to the
premises of the land offered as collateral and duly investigate who are the true owners
thereof. Failure to do so is negligence on the part of a bank. [25] Had petitioner taken extra steps,
time and effort in dealing with the property it purchased by conducting proper ocular inspection of
the premises, it could have discovered early the presence of settlers therein who are land reform
beneficiaries.
To capitulate, we find no reversible error in the decision of the Court of Appeals sustaining
those of the lower courts that the possession of respondents is not by mere
tolerance. Respondents possession springs from their right as lawful beneficiaries of a government
program, pursuant to law. Certainly, the decision of the appellate court in CA G.R. CV No. 14909
binds not just the beneficiary but also the bank as claimant of the land. In contrast, petitioners
claim to possession of the land emanates from a nullified and non-existing title of its predecessorsin-interest, from which it cannot rely to eject the respondents from the premises.
WHEREFORE, the petition is DENIED. The decision of Court of Appeals, dated November
26, 1999 in CA-G.R. SP No. 52157 as well as the Resolution dated February 18, 2000, denying the
Motion for Reconsideration are AFFIRMED. Costs against petitioner. SO ORDERED.